Good morning, and welcome. Leading today’s call will be Chris Donahue, Federated Hermes President and CEO; and Tom Donahue, Chief Financial Officer. After some brief remarks we’ll open up for Q&A and participating in the Q&A will be Saker Nusseibeh, who is the CEO of the Federated Hermes Limited and Debbie Cunningham, the Chief Investment Officer for the money markets. During the call, we may make forward-looking statements, and we want to note that our actual results may materially differ from the results implied by such statements. Please review our risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thank you, Ray, and good morning all. I will review Federated Hermes business performance and Tom will comment on the financial results. We had solid asset growth in Q4, ending with record assets under management of $758 billion, driven by record money market assets of $560 billion. Now looking first at equities, assets were up about $2 billion from Q3 to $79.3 billion, due to combined market gains and FX impact of $6.7 billion, but partially offset by net redemptions of $4.7 billion. We did see Q4 positive net sales in 11 equity strategies, including MDT Large Cap Growth, MDT Mid-Cap Growth, and international small-mid funds. Looking at our equity fund performance compared to peers and using Morningstar data for the trailing three years at the end of the year, 48% of our equity funds were beating peers, and 24% were in the top quartile in their category. For the first three weeks of Q1, combined equity funds and SMAs had net redemptions of $319 million. Now turning to fixed income, assets increased by about $5.1 billion in Q4 to $94.9 billion, with fixed income separate accounts reaching a record high of $51 billion. Fixed income institutional separate accounts had net sales of $1.4 billion, led by corporates, multi-sector, and multi-sector. Fixed income SMAs had Q4 gross sales and net sales of $896 million and $584 million, respectively. Fixed income funds had net redemptions of about $988 million in Q4 and have had slightly positive net sales for the first three weeks of January. We had 12 fixed income funds with positive net sales in the fourth quarter, including the High Yield Bond Collective Investment Trust and the Sterling Cash Plus Fund. We launched an actively managed ETF in the fourth quarter that uses a process similar to the core strategy of our Total Return Bond Fund. Regarding performance at the end of 2023 and using Morningstar data for the trailing three years, 31% of our fixed income funds were beating peers and 11% were in the top quartile of their category. For the first three weeks of Q1, combined, fixed income funds and SMAs had net sales of $105 million. In the alternative and private markets category, assets increased by $214 million in Q4 from the prior quarter to $20.6 billion due mainly to positive FX impact partially offset by market decreases. We are in the market with Horizon 3, the third vintage of our Horizon series of Global Private Equity Funds. As previously announced, Horizon 3 has closed on commitments of $100.05 billion through year end. Hermes Innovation Fund II is also in the market. This is the second vintage of our pan-European growth private equity innovation fund. We had our first close in 2003 in August for approximately €100 million. And we're also in the market with the first vintage of our U.K. Nature Impact Fund. We began 2024 with about $3.1 billion in net institutional mandates yet to fund into both funds and separate accounts. These wins are diversified across fixed income, equity and private markets. About $1.9 billion of net total wins is expected to come into private market strategies, including private equity, direct lending and unconstrained credit. Fixed income expected net additions total about $850 million with wins in the ultra-short, short duration, high yield and sustainable investment credit. About $340 million of the net total wins is expected to come into equity strategies, including bio equity, global equity, GEMS which is the emerging markets ideas, and MDT Small Cap Core. Moving to money markets. We recently marked 50 years of innovation and successful management of money market funds as we launched the first fund to ever use the term money market on January 16th of 1974. At year-end 2023, we reached record highs for money market fund assets of $406 billion. Money market separate account assets of $154 billion and total money market assets of $560 billion. Total money market assets increased by $83 billion or 17% during 2023 and by $35 billion or 7% in the fourth quarter. Money market strategies continue to benefit from favorable market conditions for cash as an asset class, elevated liquidity levels in the financial system, and attractive yields compared to cash management alternatives such as bank deposits and more recently direct investments in money market instruments such as T-bills and commercial paper. In the expected upcoming period of declining short-term rates, we believe that market conditions for money market strategies will continue to be favorable compared to direct market rates and bank deposit rates. Our estimate of money market mutual fund market share, which includes sub-advised funds, was about 7.4% at the end of 2023 up from about 7.3% at the end of the third quarter last year. Now, looking at recent asset totals as of a few days ago, managed assets were approximately $764 billion, including $568 billion in money markets, $78 billion in equities, $95 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were at $406 billion.

Thanks, Chris. Total revenue for Q4 decreased $11.2 million from the prior quarter, due mainly to lower average equity assets and lower total carried interest and performance fees. This is partially offset by higher average money market assets. Total Q4 carried interest and performance fees were $9.7 million, compared to $14.9 million in Q3. Q4 operating expenses decreased by $12.3 million from the prior quarter, due mainly to lower compensation expense related to carried interest in consolidated vehicles and lower incentive compensation expense. Advertising expense increased in Q4, due to the launch of our new campaign. The other operating expense line item decreased mainly due to the impact of FX. Looking ahead to Q1, certain seasonal factors will impact results. The impact of fewer days is expected to result in about $4 million in lower operating income, all else being equal. In addition, based on our early assessment, compensation and related expense is expected to be higher than Q4, primarily due to about $8 million of seasonally higher expense for stock compensation, payroll taxes, and base pay increases. We also expect to have higher incentive compensation expense. Of course, all these items will vary based on multiple factors. Holly, we would like to now open the call up for questions.

Hi. Good morning. Thanks for taking the question. Maybe starting particularly high level for you, Chris. I would like to ask you about strategy over the next three to five years. So maybe starting, what are the top two or three goals you have for the company? And then can you talk about your expectations for some of the businesses? In particular, I'm curious about what your goal is for the ESG franchise and the strategy there, and then the outlook and goals for the money market fund and the alternatives business.

Okay. Let's go in reverse. On the ESG, we're doing more work in order to tag various ESG features to actual financial information and financial statements. This is not ready for prime time, but it's a way to show the fluency that we have on this subject and further defend the integration of ESG concepts into the various funds where these features have been integrated as part of the risk-reward analysis. And we continue with that unabated. We also continue in the European specter to do what the clients want, which is to have sustainable funds that are going on beyond the regular fiduciary duty concepts that we have here in the U.S. So we are remaining where we were on that. We also believe that this will very much help on the risk-reward analysis across the board. So we continue to move forward with that. On the money market funds, remember that over 50 years, we have had the strategy of keeping the money funds alive and well. They work on the basis of higher highs and higher lows over all that time frame. Our dedication to it in terms of arguing with the SEC, dealing with the realities of the marketplace, has been well rewarded. These money market funds into the future will continue to serve as ballast for the ship of Federated Hermes, which it has done to date, noting that when there are variations in the marketplace, the money market funds prove the viability of a differentiated franchise for all seasons, and we continue to maintain that. Furthermore, as the money supply is now back up, it is really the engine of money going into money funds. So we think that it is a permanently good long-term business. In terms of top goals for various enterprises, one way to look at our internal view of growth in various spheres is simply to double them all in five years. Now, that's not going to happen on the money funds, but it's certainly what we would establish as the goals for fixed income equity and especially private markets. As I said to this group before, private markets has the potential to be bigger than the fixed income and equity enterprise that we already manage here. We have a lot of good things going on in that side of the business. Mind you, it's less than $20 billion, but nonetheless, they have all good records. The real estate is excellent. The private equity is excellent. The private credit is excellent. We are also working on the infrastructure deal. Now, there are other structures that we have to get right. We like to provide the investment management, and we are indifferent as to what the structure is. You see me mention about the ETF for total return bond fund. We have some more plans to add another handful to our ETF offerings. The idea is to make a full complement of ETF offerings as we go forward. This will be a big move for us in the future. Don't forget, these are active ETFs. Active ETFs are only about 6% of the total ETF market, so we think there's plenty of room to grow in those areas. I'm sure I skipped some of the other great goals that we have. But don't forget, we're spending tons of money on technology, and not having goals on getting that right would be a mistake.

Great. Thank you. And then maybe for Debbie, Chris called out the attractive yield and money market funds versus direct markets. So can you talk about the dynamics here and impact of PPP, QT, and the pivot, and what that sort of has on the outlook for the money market business?

Sure. I think what it does mostly is take the direction of flows and increase it more towards the institutional side. It doesn't take away from the retail side that has certainly been the driver of the flows in 2022 and 2023. But I think it emphasizes more on the institutional side. This is because in the context of what's been happening from a pivot perspective with the yield curve itself, as well as expectations from a QT standpoint, you've seen what has been over the course of the last 18 months a fairly steep money market yield curve turn into something that's relatively flat from a prime perspective and relatively inverted from two months out on the government side. Ultimately, this means that the institutional buyer of cash securities, of cash in some way, is going to go out of the securities market where they've been for the last 18 months and into something that holds onto the yield a little bit longer. This would, in most instances, be money market funds. So our outlook is very positive with regard to flows and somewhat of a shift that occurs based on 2022 and 2023 being mostly retail into institutional coming a lot from 2024 being institutionally driven.

Thank you and good morning. Just wanted to follow up on your most recent comments and get some additional thoughts around retail behavior. Obviously, strong flows over the year as rates have gone up, but I'm still seeing articles in the press about folks with 'high yield' savings accounts that are paying 10 or 20 bps. That suggests maybe more retail inertia than some might have supposed. I just wanted to get your thoughts around how long a tail, how much of a time lag there might be with continuing inflows in retail and maybe even strengthening. And then on the backside of maybe some rate cuts, how sticky that money might be in your money market funds. Thank you.

Sure. And let me just start with a little bit of a history lesson. If you go back prior to the financial problems in 2008, deposits at that point were in the little over $8 trillion area. They ran up to something that was close to 20 trillion, just under 20 trillion during the zero-rate environment that started from a 2008 standpoint and then really continued through the pandemic with just a year and a half or so, 2016 and 2017 of higher rates. Ultimately, deposit products doubled not because of the attractiveness of the yield, but because there really wasn't any yield in the marketplace. The concern was from a safety perspective, so retail trades went into deposits in that environment. What you've seen over the course of the last year and a half has been a small reversal of that, which is why I'm not saying that the retail trade is done. Certainly, it's not surprising that with money funds increasing by $1.2 trillion in the past year, deposits are decreasing by $1 trillion; those two numbers are equitable. Having said that, there's still $17 trillion left in deposits out there, many of which, as you note, are in the 10, 20, or 30 basis point camp from a payment perspective. The expectations would be that that trade continues. Certainly, when you look at deposit betas from a banking perspective for their deposit products, they have been loath to increase with markets as rates are increasing, but have been very quick to decrease. Now I'm not sure that that will be the case at this point in this scenario, given that they haven't gone up very far to begin with, but in all cases, I think the retail trade has been awakened and it will continue. I think it will be matched by the institutional trade in 2024, but certainly will be a factor that continues to contribute to the flows in this market.

That's a great perspective. Thank you, Debbie. I just want to turn to compensation, particularly around incentives. Tom gave some guidance around Q1 and the step-up there, but just wanted a reminder on what drives incentive compensation. Recently we've had pretty strong markets, obviously very strong asset growth in the money market funds and separate accounts, but also some outflows in some of the long-term funds. So if you could just put some context around what really drives incentive compensation. Thank you.

Adam, of course, we recalibrate for the year. And I did say we expect that incentive compensation line to go up for the year. To kind of break it down, in the sales group, they are paid based on how sales go. In the investment management side of things, they're primarily compensated on performance. The operation side is on how well the company does. So we expect to continue to grow. We expect pretty good sales, and we're expecting the investment performance to uptick. So that's why I come in and we expect the company's earnings to grow. So that's why I'm saying I expect the compensation to go up.

Great. Thank you very much. Just a couple of questions this morning. First of all, thank you for taking the question. Just to push back a little bit on sort of the money market dynamic, how sticky is the benefit to the institutional argument if ultimately the Fed funds go down, follows the path, and you get equilibrium between the T-bill or direct market and money markets, let's say, a year from now? So is this more transitory in scope or do you think that there are higher highs here just given the structure of the market?

Well Bill, first of all, welcome back. And my answer to that is higher highs and higher lows. Debbie is closer to the market on that, and I'll let her comment.

Certainly, Bill. How sticky? I think very sticky. Ultimately, institutional investors generally have more options than the retail investor does. Once a trend is began, given market conditions, it stays for a while. In what I'll call flat to inverted or declining rate environment, you're going to see institutional investors in a product that has more duration associated with it. Now, institutional investors in the zero percent rate environment ultimately became more measured about how their cash was put into play in the market. They created buckets essentially from a cash perspective, operating cash, which is very short-term overnight type needs. And then what would be strategic cash and core cash, depending upon transactions and maybe longer-term needs of their firms. In a declining and stable environment, almost all of that cash becomes part of the money market franchise. It's only when you start to see interest rates start to go back up that it becomes a little bit more transitory in the context of strategic and operating, trying to capture those higher yields for longer or the yields for a longer period of time. We've kind of seen this trend in the flows over time and expect it. In the last rising rate environment of 2016, 2017, and 2018, we saw similarly change on the decline during COVID. However, our expectations are that there's nothing really that drives it. There's no different products in the marketplace that would drive different dynamics in this current cycle.

Okay, thank you. And Chris, thanks for the well wishes. Good to be back. Just one follow-up. I don't know if it's for Saker or for Tom. Just sort of wondering, as your private markets business continues to get a bit larger and you are building some more performance fees and/or carry opportunities, is there a way to help us understand how much you have in terms of carry eligible AUM or how to think about trying to monitor or track for performance fees? It's becoming a bigger number, and it's not that much transparency versus some of your peers. I was wondering if you could help us triangulate how to think that through. Thank you.

Yes, I understand your dilemma there. We've tried to give out the numbers in the past, and we know that we cannot predict it. We've said, 'Hey, here’s the range of what the performance fees have been over the past.' We're willing to do that again, just not go out and say how much is going to come each quarter or for the year. So I'm not really giving you much guidance there. Is Saker on? Saker, I don't know if you have a follow-up to my non-answer.

So no, other than to reiterate what you just said, Tom, and maybe to explain, the other difference about our private markets business is we're building a very diversified private markets business which makes us different. We carry performance fees from our private equity. And yes, that's comparable to other private equity players, for example. If you take our real estate where we also have performance fees that vary. Some of it has to do with renting out the buildings when we finish place making. Some has to do with achieving targets. In other strategies, we also have similar performance fees. Unfortunately, it's not much help. The only thing we can say is, here are the historical numbers. You can look at what they look like. We can't predict whether we win performance fees over time or not, that is not right and proper. But look at our track record. We're growing our private market business which implies future growth, obviously, assuming we hit our performance targets, which is something we can't guarantee. So I apologize for not being much help other than to tell you it's the nature of our business.

Hey, good morning. Thanks for taking my question. In terms of the equity outflows in the quarter, was there anything to call out there, any changes in mandates that you saw? Thanks.

One comment I would make on those: it’s getting less worse, let's put it that way. If you look at the Strategic Value Dividend Fund, sure, there were pretty good sizable redemptions for the whole year. In October, it was about negative 350. In November, they were negative 280. In December, they were negative 250. And so far this year, they're negative about 30 or 35 this month. So it's declining. What's going on there? Some clientele is wanting to go into the market more, a little more risk on. They see the beauty of a product that does just what it says, a dividend product with growth of dividend. The people who are selling it understand that that's what it is. So that's one observation that I would make.

Got you. Very helpful there. And just one follow-up, if I may. Given the meaningful share repurchases in the quarter, wondering if you could just give any updated thoughts around outlook for potential M&A acquisitions, especially in this environment. Thanks.

Yes, Ken. It's Tom. Yes, we bought shares, and we continue to think that we will be active doing that. In terms of M&A, we have our group out there active, and they're working on some different things. We're always interested in roll-ups. We're interested in money funds. We are looking a little more actively in Europe, maybe we'll be able to buy some roll-up type things there. As we've talked before, in the private markets, we've put some efforts in to see what we can purchase in the U.S. to complement our U.K. team. Nothing to announce or talk about specifically though.

Thanks. Good morning. One more question just on the alts business and the backlog, I think, was around $1.9 billion that you mentioned. Can you give us an expectation of what's a reasonable time to see that fund and/or show up as a flow? What is the average fee rate of that backlog?

Yes, Dan, the private markets money has a longer runway than the other wins that we talked about. So that's really will take up to two years to fund and be fee earnings. Typically we get commitments, and depending on the strategy when the money is actually drawn down and investing, that is when it becomes an actual flow, moving out of the pipeline into the flow numbers, making it fee earning; this typically happens over longer time frames. Equity and fixed income are more a couple of quarters; the private market is out a year or two.

The private markets part of that $1.9 billion is about half. A bunch of the other is direct lending and unconstrained credit, which comes in faster. Maybe Saker has a timing on that that would be more illuminating.

The difference is things like direct lending; we expect to come in within two quarters normally, if it's been committed. As soon as we have it in, we start drawing it down and investing. That is different, as you've heard from things like private equity, whether it's Horizon or private equity growth, which has a longer time horizon. When we do, and we haven't announced any at this stage, any large real estate deals, funnily enough that does tend to take about a year as well. So that's the best guidance that I can give at this stage. Direct lending is certainly quite fast and so is a good straight lending.

And the average fee rate of that backlog roughly?

It varies. Go ahead, Saker.

No, I was going to say the same thing. It depends on the strategy, and it's quite difficult to provide guidance. The private equity strategy includes a base fee and then a percentage of the performance fees, while other strategies have different fee structures and base fees. Since our alternative or private market business is still relatively new, it's challenging to give a single number like we do for equities or fixed income. It really varies from strategy to strategy.

Okay. And then just as a quick follow-up, Tom, the ad campaign that drove Q4 a bit higher. Is that ongoing, or what's a reasonable run rate for ad spend in 2024?

Dan, I'd look at the whole year of 2023 as the guidance, and then I expect we're going to do more than 2023. I would use Q4 as a run rate. I take the whole 2023 and divide it up and when exactly we're going to run the campaigns we're still working on. But I'd add a little bit to 2023's number.

Great. Thanks good morning folks. Thanks for all the answers to these questions. It's pretty interesting. A couple expansions from prior comments. So maybe Debbie will start with the money market fund side. Just again, great color on the dynamics there. But do you have a sense of what the addressable market might be for Federated inflows into money market funds coming from things like T-bills? Should we be thinking of the 2019 into 2020 as a general proxy for that? Or do you think the addressable market is larger now and we could see better inflows?

I think on a percentage basis, using the 2016 to 2019 timeframe and the experience there is probably good one. Obviously, that goes up with the markets increase. But on a percentage basis, sort of in the high teens, I think that's probably something that we're expecting, let's say.

That's helpful. Back to the private markets, particularly regarding infrastructure and energy transition, I know you have the infrastructure fund and the U.K. nature-based fund. The market for these specific assets is expanding significantly, and you have a strong brand and a solid track record. What is your perspective on scaling up your efforts in this area? Is there a limitation in capacity? Would you need to bring on more teams? Or do you believe you already have the necessary infrastructure to start launching funds and more aggressively pursue that market?

I'll start by addressing the initial points, and then Saker will add his thoughts. When we acquired the Hermes enterprise, there was significant work needed to gain effective control over all the private market entities and their structures. We also had to transform it into a viable open market operation. Traditionally, it was managed for a single client, responding to inquiries as they arose, rather than functioning as a platform. In the past couple of years, we have been focused on improving these aspects. We are still refining certain infrastructure elements related to this. The next step involves sales taking a central role, and we recently held a successful in-person sales conference in London. Our global sales conference is scheduled for next week, and it will be virtual. The key takeaway is that it's now the right time for sales to play a crucial role in the marketplace.

So to add to what Chris just said, we were doing some work particularly on the infrastructure side, which we hope to finish and we're in the marketplace. Nature is a new endeavor where we are seen as innovators, and we're hoping for more sales with that. What I would say in general about the old Hermes franchise is everything we did because we thought we could enhance returns, not just because it was trendy or it was the theme of the moment. That is true of the transition. We are very much involved in looking at ways to invest in the whole theme of energy transition across the board in various ways and in various strategies, not just private markets, and benefit our clients in the process. The difference is when we do something, we do it right. We go fast slowly, if that makes sense to you, in this sense, we make sure that we're in the right place. Going back to something Chris said right at the beginning of the call, I think what differentiates us as an enterprise from others, not everybody, but I think it differentiates us is that the way we approach whether it's integrating ESG for risk-return profile, whether it's thinking about thematic funds, whether it's launching the nature fund that we've launched, we do so thoughtfully, we believe the strong foundations will bring the rewards and the sales will happen. This is the time we hope to start rewarding single awards.

And do you feel you have the internal capacity to execute that strategy right now? Or do you think bolt-on M&A would accelerate that?

Let's put the question this way first. We have the tools to do it right now. We would love some bolt-ons. Tom has talked before about how we could accelerate the real estate efforts, place buildings, Saker mentioned it on this call already as a viable thing in the United States. We are not hard to throw on something like that right now, we would love to do it. Bolt-ons would be good, but they are mutually exclusive. Just because you're looking for a bolt-on or would do it doesn't mean that you don't have the tools to get to the future anyway.

Thank you. For the fixed income franchise, how do you think that the next phase of the rates picture affects you guys? It seems like you should be beneficiaries. What are like the big puts and takes for the major product areas?

Well, there are several there. Starting off with Munis. The record here in terms of the performance of both the funds and the SMAs has been excellent. We're seeing increased interest there, including in CW Henderson in terms of them growing assets under management. People are looking for bigger yield, that's one place to go. In other places, our core strategy. Obviously, total return bond fund and the core SMAs where the records are simply outstanding. That's why we did the ETF with that type of strategy. Sooner or later, the excellent history and our opportunistic high yield gets more visibility. It's all a question now of which companies you own and whether you own the ones that are having a lot of trouble refinancing, but we think we do a good job on the credit analysis there. If you look at the spectrum of maturities and look at it, you got money funds and micro shorts, the ultra shorts, the intermediates, all the way out the spectrum, we have reliable, solid product that when people want to really gauge and ladder their fixed-income approach, we have the answers. We're very helpful to them when they want to do that, so the fixed income franchise is very strong, I think very, very well set up for the future.

Got you. And then as we seem to be going into a more normal environment over the course of 2024, what's kind of the outlook for Hermes strategy specifically, both in the U.S. and the U.K. and retail and institutional?

If you break it down. In our equity franchise in the U.K., we have a large exposure to emerging markets. That's an exposure that's been somewhat out of favor, as you know, in the performance of emerging markets, particularly China versus the rest of the world, it tells you why. We have two kinds of strategies there. One is an outstanding over the strategy, which we have we're running here and another one by a separate team, which is one of the best performing value strategies. Our contention is at some stage, things get so attractively valued that they will see some more inflows. As we see more inflows this year come back to, particularly with the general environment worldwide, we would imagine that asset allocators would put more assets into those strategies. We have other equity franchises, the thematic funds of biodiversity, the impact and so on, and we would expect people to continue to want to allocate them. If you look at our fixed income, our teams continue to see good demand, as you've seen from our release, and we expect that flows to continue. I'm happy with that and direct lending we've already covered. We already talked about the pipeline, which is very strong in our alternative market franchises. None of this is a prediction because you can't predict, but that's how I would imagine the market to behave as we move forward in this market environment because of the tough market environment for the last couple of years.

Thank you, Holly, and that concludes our call. We thank you for joining us today.

Thank you. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.