Greetings and welcome to the Federated Hermes Incorporated Second Quarter 2024 Analyst Call and webcast. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Richard Donahue, Vice President Financial Planning and Analysis. Sir, you may begin.

Thank you. Good morning. Leading today's call will be Chris Donahue, CEO and President, and Tom Donahue, Chief Financial Officer. Joining us for Q&A are Debbie Cunningham, Chief Investment Officer at Money Markets, and Saker Nusseibeh, CEO of Federated Hermes Limited. Ray Hanley is attending a family funeral and will not be with us today. During today's call, we may make forward-looking statements and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. We invite you to review the risk disclosures in our SEC filing. No insurance can be given as to future results and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thank you, Richard, and good morning all. I will review Federated Hermes' business performance and Tom will comment on our financial results. We ended the second quarter with record assets under management of $783 billion, driven by record Money Market assets of $587 billion. Looking first at equities, assets decreased by $2.3 billion from Q1, to $77.9 billion due to net redemptions of $3.3 billion, partially offset by market gains of $933 million. We did see Q2 positive net sales in 11 equity strategies, including MDT large-cap growth, MDT mid-cap growth, and International Leaders Fund. The MDT fund strategies have shown accelerated sales and net sales in 2024, particularly in the growth space. Year-to-date, through the end of the second quarter, MDT fund strategies have had about $1.8 billion in growth sales and $1.1 billion in net sales. Looking at our equity fund performance at the end of Q2 and using Morningstar data for the three years, 54% of our equity funds were beating peers and 38% were in the top quartile of their category. Now, for the first three weeks of Q3, combined equity funds and equity SMAs had net redemptions of $151 million. As my grandkids say, meaningfully less worse. Turning now to fixed income, assets decreased by about $1 billion in Q2 to $95.3 billion. Fixed income funds had Q2 net redemptions of $631 million, and fixed income separate accounts had net redemptions of $806 million. More on those numbers in a moment. We had 11 fixed income funds with positive net sales in Q2, including Total Return Bond Fund and Institutional Fixed Income. Regarding performance, at the end of Q2 and using Morningstar data for the trailing three years, 45% of our fixed income funds were beating peers and 21% were in the top quartile of their category. For the first three weeks of Q3, combined fixed income and SMAs had net redemptions of $273 million. In the alternative private markets category, assets decreased by about $400 million in Q2 to just over $20 billion, due mainly to net redemptions in the unconstrained credit fund of about $500 million. We held our final close of Horizon 3, the third vintage of our Horizon series of global private equity funds in Q2, with $1.08 billion raised. Horizon invests globally with a mid-market focus. It's a hybrid strategy with roughly 50-50 allocation to co-investments and funds. Continuing on with private markets, we're in the market now with Federated Hermes GPE Innovation Fund II, the second vintage of our pan-European growth private equity innovation fund. We're also in the market with our European Direct Lending III, the third vintage of our European Direct Lending Fund. For equities, we have $166 million wins to fund, offset by $188 million of known redemptions. That will come up again later. To get back on the private label side, we are developing the Global Private Equity Co-Invest fund, the sixth vintage of the PEC series, targeting a Q4 launch. Now to get back to some of these redemptions, we estimated that about $1.5 billion of Q2 net redemptions are attributable to the Q2 departure of a UK-based senior portfolio manager. These redemptions occurred largely in certain high-yield, unconstrained credit, as I mentioned, and multi-asset credit strategies. And we've been in the process of harmonizing our U.S. and UK-based fixed income themes to leverage the considerable strengths of this group on a global basis. So we begin Q3 with about $1.9 billion in net institutional mandates yet to fund into both funds and separate accounts. These are diversified across private markets, fixed income, and equity. About $1.1 billion of net total wins is expected to come in private market strategy with wins in private equity and direct lending. Fixed income is expected net additions of about $835 million with wins in ultra-short and short duration, sustainable investment-grade credit, government bond, and emerging market debt. I've already mentioned that for equities, we have $166 million in wins to fund, which is offset by $188 million of known redemptions. Both the wins and the losses are in the global equity mandate area. Now moving to Money Markets. In the second quarter, we reached another record high for Money Markets fund assets of $426 billion and total Money Markets assets of $587 billion, which I already mentioned. Total Money Markets assets increased by $8 billion in the second quarter. Money Markets 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 like bank deposits and direct investments in money market instruments like T-bills and commercial paper. It is expected in the upcoming period of declining short-term rates that we believe the market conditions for Money Markets strategies will continue to be favorable compared to direct market rates and bank deposit rates. Our estimate of Money Markets Mutual Fund market share, including sub-advised funds, was about 7.45% at the end of Q2, up from about 7.35% at the end of Q1. Now, looking at recent asset totals as of a few days ago, managed assets were approximately $786 billion, including $589 billion in Money Markets, $78 billion in equities, $96 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi-asset. Money Markets mutual fund assets were at $429 billion.

Thanks, Chris. Total revenue for Q2 increased $6.2 million, or 2% from the prior quarter, due mainly to $3.4 million of higher carried interest revenue and $2.1 million of higher revenue from Money Markets assets, partially offset by lower revenue from equity assets and lower performance fees. Total Q2 carried interest and performance fees were $2.8 million, compared to $0.4 million in the first quarter. Q2 operating expenses increased by $64.1 million from the prior quarter, due mainly to the $66.3 million non-cash intangible asset impairment charge. All other operating expenses decreased by $2.2 million, or about 1% from the prior quarter. The impairment charge was from the change in fair value of one of the intangible assets from the 2018 Federated Hermes Limited acquisition due to changes in projected cash flows compared to the prior quarter. Advertising expense increased in Q2 due to the timing of our ad programs. The effective tax rate in Q2 reflects the impact of the valuation allowance on foreign deferred tax assets and the impairment charge. We expect the tax rate to be in the 27% to 29% over the rest of 2024. At the end of Q2, cash investments were $453 million. Cash investments excluding the portion attributable to non-controlling interest was $424 million. Olly, that completes our prepared remarks, and we'd like to open up the call for questions.

Thank you. At this time, we will be conducting our question-and-answer session. Thank you. Our first question is coming from Patrick Davitt with Autonomous Research. Your line is live.

All right. Good morning, everyone. You've been pointing to a pickup in institutional money fund flows when the Fed starts cutting. You hinted at it again today. And now that bets on that happening soon are picking up. Could you speak to maybe the conversations you're having with those kinds of accounts? Are you seeing the conversations pick up like you would expect that could point to, say, an early pipeline of more of those mandates coming in later this year? Thank you.

Patrick, it's very hard to detect that movement when it hasn't happened yet. Debbie will comment on what's going on exactly in the marketplace, but we remain confident about the long-term progress of this event, because of what happened every time they have begun to ease rates. And we've gone through that a number of times before in the Q3 of ’19 when they began to ease rates and how that worked out for us in terms of a 22% or so percent increase in assets; the industry also went up 14%. But I'll let Debbie comment on discussions with institutional clients and how they're looking at this.

Thanks, Chris. As for the discussions that we're having, they're ongoing. We came into 2024 with the market, in our estimation, overdone but expecting a 6.9, 7 rate cut, let's say, in 2024. We went down to a low of the market expecting no rate cuts in 2024. So it's been quite volatile. And so our conversations with customers have sort of had that same volatility. Everybody is discussing, all the clients are discussing extending duration, taking some of their core cash or their strategic cash, moving it out the curve a little bit. They're questioning whether we're extending duration within our Money Markets funds themselves for their operating cash, which we have been. But in fact, what generally happens, and it's not any different so far this cycle, is that until the first rate cut happens, you don't see much of that movement in anticipation. Everybody likes to prepare. Everybody likes to discuss. But the actual movement doesn't generally start to occur until the first cut happens. So we are having those conversations. There is nothing different about them. They are healthy. They are what we would expect. But we're not really seeing that type of movement yet if the Fed cuts in September or November or December, that's when that should occur in all likelihood.

Got it. Thanks. And just as a quick follow-up, how are you thinking about second half repurchases? You still have a lot of cash. The share price is still around $35. Can we take that to mean that you could pick that up a fair amount at this point?

I would say that we would certainly expect to be active. You saw what we did this past quarter, and the price was a little lower than $35. But we still believe that the stock is undervalued.

Thank you. Our next question is coming from Adam Beatty with UBS. Your line is live.

Hi, thank you. Good morning. I noticed that among the top-selling equity funds, there has been a shift this time towards small-cap stocks compared to mid-cap stocks. This appears to align with a rotation away from large-cap growth stocks, like the MAG-7, toward a broader focus. I'm curious about your perspective on this recent trend and whether your clients are discussing it. Thank you.

A hint of that is seen in three weeks' worth of flow data. It's only a hint because relying on three weeks is not ideal. However, the recent performance may explain this trend. The strategic value dividend faced a challenge from the MAG-7, but that has since reversed. For the current quarter, the strategic value dividend has increased by 5.5%, while the S&P has decreased by 0.5%. If you examine July's figures from Morningstar, although we are not particularly fond of them, the fund ranks in the top percentile among its peers. The ETF is also performing well. However, as we consistently point out, the peer group for this dividend fund is quite unusual. It’s worth noting that many dividend-oriented products in our category are currently leading. A deeper dive into the portfolios shows that holdings in finance and banks have contributed positively to that fund. Additionally, the Kauffman Fund has emerged as a leader despite experiencing net redemptions. This fund is in the top quartile for the last year and the top 12% for the last three months, although three months is a relatively short period. To elaborate a bit more, from my perspective of evaluating our top redemptions and their context, this indicates a potential recovery. The GEMs product overseas sits in the 32nd percentile year-to-date and nearly reaches the top quartile over the past three months. Asia excluding Japan is in the top 2% for the last three years, along with other promising metrics. We are witnessing a shift that is benefiting many small cap funds, particularly in the MDT segment. Both institutional and intermediary clients, as Debbie mentioned, are discussing extending duration and shifting along the risk curve, inquiring about when they will participate in the rotation toward smaller stocks. The marketplace has shifted somewhat in the past three weeks.

Thank you. Appreciate the detail and the green shoots report there. Just turning to Money Market funds, one of the big topics of conversation in the wealth management channel has been the need to pay higher yields on client cash. And obviously, there are several different options that those firms have to do that, but I was just wondering if you see potential opportunity with that move. Thank you.

Yes, we do. One interesting point to note is that back in the 1970s, when money market funds were emerging, banks began advertising their yields because they realized money market funds offered significantly higher returns. However, the banks' yields were actually much lower than those of the money funds. When discussing yields with people, even a small increase from 0.1% to 1% or 2% would be overshadowed when they see that money funds were offering around 5%. This situation, in my opinion, benefits the retail sector. What we appreciate about this shift is that both individuals and the market perform better when they receive competitive returns on their cash. If institutions promote higher yields but then realize that money funds are even higher, that will ultimately be advantageous for us.

Sounds good. Thank you for taking my questions.

Thank you. Our next question is coming from Dan Fannon with Jefferies. Your line is live.

Thanks, good morning. I have a question about the fee rate. In the last quarter, it was slightly better than expected. I'm curious about any underlying trends within money market funds or specific products that might be contributing to this improvement. Additionally, as you consider this on a longer-term basis, how are you viewing the fee rate in relation to current demand and the competitive landscape of your products?

Well, the fee rate comes from the mix of all the assets, as you know, and we don't track that closely and think about that on a total basis. But we do look at each product and we have a monthly expense meeting at a fairly high level, looking at each product, not every product, every month, but we certainly cover all the products, analyzing where they fit in, what our prospects are, where is our performance, where does sales think we can generate more and more activity. So we are attentive to that very regularly and I think we have our products priced pretty well for success.

Okay. And then just on expenses, just as you think about the back half of the year, you've seen some growth in various of the sub-buckets, but curious if there's anything to call out as you think about the budget or the outlook in the second half versus what's been run rating here in the first half?

Okay. Well, you see the comp number was down kind of like what we expected. And Chris is talking about green shoots and performance, I would anticipate that our comp numbers would probably go up on the incentive comp side based on performance expectations. And of course, that's not answering whether we're going to get carried interest or performance and I'm not giving a forecast on that. But without that, I would expect the comp numbers to go up. And we expect to get higher money market assets through the second half of the year, and that will drive the distribution line up. Advertising and promotion, the second half is usually a little heavier than the first half. Systems in communications, we just continue to eat more investments in there. So that would be kind of slightly up professional service fees. I don't have much to comment on office and occupancy. I don't see much changes there. Travel and related, we do a little more of that, call it, prospecting in the second half of the year versus the first half of the year. And one other point, which is not on the expense side, but it really is expenses, we are going to have a proxy to elect our fund directors, which we have to do every 10 or 15 years, and that's going to come in the second half of the year. It comes as a reduction in revenue, and we expect that to be about a $6 million line item. And the reason why it's a reduction in revenue is because of waivers. And so it doesn't show up on the expense lines, but we'll get lower revenue over the second half of the year, and we estimate that's a $6 million cost to get all the directors elected progress.

Okay, thank you.

Thank you. Our next question is coming from Ken Worthington with JPMorgan. Your line is live.

Hi, good morning. Thank you for taking my questions. I would like to get more information about the impairment charge for Hermes. Since the announcement of the deal, the markets have improved significantly since you made the initial acquisition in 2018. I know there were plans to introduce Hermes and ESG products in the U.S. and to use that brand for growth. What went wrong that led to the impairment?

During the acquisition, we needed to assess the value of the assets, specifically the pooled assets, which include the funds that we impaired both this time and last time. The differences from last quarter in our valuation included the performance of the GEMs product and the Asia ex-Japan product. The GEM product has turned around, but there were significant redemptions. The Asia ex-Japan product has historically performed well but has a considerable portion of its investments in China, leading to significant redemptions as well. Additionally, Chris highlighted $1.5 billion in redemptions on the fixed side due to the PM departure. When considering all these negative flows and their impact on our forecasts, it became necessary to take the impairment. Despite this, we remain excited about our prospects. We continue to be a global entity, and our ability to maintain this is thanks to the acquisition. I think Saker should share some insights on the rest of the business and why we are still very enthusiastic about it.

Thank you very much, Tom. So if you look at our business that's in the London office, you can look at it in these ways. The first one is we have a large income stream that comes traditionally from our equity funds. Our equity funds are primarily not totally, but primarily I want to think about it as quality growth. And investors have held off investing in quality growth until the rotation that the previous speaker mentioned earlier. And we've begun to see green shoots with inflows, for example, into our U.S. small-cap funds run out of London and both places. If you look at specifically our GEMs product, which was a large revenue generator for us, and our Asia ex-Japan, we've seen the flow slow down substantially. And given the valuation levels and the performance levels of the funds, you have to think that clients at some stage are going to look positively at those as we go forward. So that's the first thing. The second element you've got to think about is the fixed income. As Tom mentioned, we lost one senior PM; I will note, that's the only loss of any senior investment active PM that we've had since the acquisition in '18. And not surprisingly, with something like that, you will see outflows that follow with that as the consulting community puts you on either hold or redemption. So that's what tells us back there. Now we've been bringing together the two teams across the pond between London and Pittsburgh, and we see good things coming through that. The third element that helps us back slightly is, again, interest rates. You know that we have a large private markets business, particularly a development business. Now to be able to harvest your performance fees, and we can never predict performance fees, but be able to harvest them theoretically, what you're going to be able to do is run the offices that you've built. And we have been successfully doing that despite the cycle, particularly in the developments in the north of the country, and these have won a new award in Leeds. But the second thing you need to have is low interest rates. And interest rates in the UK are beginning to come down. But that has stopped us from harvesting as what performance fees as we have before. Now looking to the future, I would say that as the rotation goes away from the Magnificent 7, you would expect investors to begin to put more money back into actively managed funds. That's what we specialize in. You would expect with lower interest rates for the property business to do slightly better. And more importantly, you mentioned ESG, and I talk about sustainability. The wind behind that trend is very strong. I note the public announcement of the Irish sovereign wealth fund, which has said that it will only invest with managers who integrate sustainability, and that's going to be a very large fund that's going to grow over the next few years. That gives you an indication of where the market is going in Europe. So I think for perfect and understandable reasons, it's been a tough quarter, but I think we've seen the turnaround in performance and the key performance that's what we manufacture in investment management. And it's looking good from here on.

If I can add, I would do it again with enthusiasm, the whole deal. We have now truly become a global company, which we weren't before. We have engagement activities with statistics and data that give us an advantage in analyzing companies and understanding their trajectories. This positions us well for securing mandates in Europe. We were able to access a wide range of private market enterprises, which would have been costly to create or acquire. In the U.S., some industry leaders have turned ESG into a political issue, which never yields positive results. We remain neutral and focused on evaluating risk to achieve excellent performance, as Saker mentioned. We would be eager to go through the entire Hermes experience again. Go ahead.

Yeah. Thank you. And I'll just keep digging here. If you look at the multi-asset and the alternative business, the assets aren't growing. We're in the head of private market investing. I think those alternative assets have been sort of stagnant for three or so years. And on the multi-asset side, assets are down, I think, 40% since the acquisition was first announced. So you mentioned real estate is one of the factors. Are there other factors on the alternative side that are sort of weighing on the growth there? And I know the multi-asset business is really tiny, but the fact that the assets are down so much sort of warrants the question what's going on there as well.

If you look at the private markets business, we're seeing really good traction in certain areas, particularly in our direct lending business. We are in the process of closing our Direct Lending III fund, which we expect to close at a higher level than the first two. This has been a strong growth story driven by excellent performance and a unique approach to the market. While our private equity business is doing well, other areas have faced more challenges. For instance, the infrastructure business has encountered difficulties due to regulatory issues, especially in the United Kingdom. I believe the shift towards private market assets is occurring, and while people can raise funds, the real challenge lies in investing those funds. Our approach tends to be more cautious and client-focused, which explains our general positioning in private markets. I won’t comment specifically on the multi-strategy aspect.

Ken, this is Tom. From acquisition and look at the company point of view, when we got the private markets business, and we've talked about this many times before. It was a business for one, which was the parent. And we have taken a significant amount of time, effort, and money and investment making that an institutional saleable product, and we are still in the process of that. And it just has taken a long time to get other claims to get it built up and to work successfully along with having a great investment team and continuing to get performance out of it. The other thing on a treadmill that we're on, there's a really good part of that treadmill whereas we raise assets and the funds that we're investing in generate return and send money back to the investors. So the investor, particularly BTPS has been happy with the treadmill, although it doesn't look like we grow, we are getting new assets as we sell, we need to sell something and distribute out to the product. So it's still a great business, and we do hope to get off the treadmill and go faster than the redemptions that and returns to the clients that we're delivering.

Okay, great. Thanks for the color.

Thank you. Our next question is coming from Bill Katz with TD Cowen. Your line is live.

Okay, thank you very much for taking the question. Good morning, everybody. Just sort of scratching my head trying to figure out the path forward here in terms of organic growth. The redemptions that you mentioned in fixed income sort of quarterized out to just over $1 billion again. And you sort of step back for a moment, if rates start to go lower, the expectation for most of your peers is that money that's sitting in money market is going to migrate out and go into longer duration. When I look at relatively weak performance based on what you just disclosed, how do I think about the organic growth rate for the fixed income business versus money market and then the implication for revenue growth? Thank you.

So let's attack this a little differently. What we see in the money market fund side is that, that money market asset continues to grow. If you ask Debbie or me or somebody else would say the whole thing is going to $7 trillion, and we're going to maintain, if not expand our market share. And even though people will move out the yield curve, it is very difficult for us to, a, see the money move from one part to the other money funds to fixed income. But there's so much more money coming into the system that you just continue this March growth up and you have a cash management service. So I would not look for the money market part of our business declining because rates rise, I look at it on the opposite. Now if you go into the performance of fixed income, the reason that total return bond funds performance isn't where it has been as they are a little reticent on the high-yield side and have been so, and that's their call. And we've seen them make that call before. And when that snaps back, it snaps back. And it's a very strong franchise with strong people in it. And then on the yield curve, there is excellent performance straight through. That's why I mentioned all those wins in the institutional side on short duration government bonds and things like that. So the path forward for organic growth is continued money market funds and continued activity on the fixed income side across the yield curve.

I'd like to add that since the cycle began, 80% of the flows into liquidity products have come from retail flows, compared to deposit products, which will continue to favor the money market fund. Institutional flows have been relatively minor. We expect that as rates start to decline, the composition of flows will shift to about 50% retail and 50% institutional. Retail will persist, but institutional inflows are expected to increase. This is just an additional point to what Chris has already confirmed.

Okay. Thank you. And just a follow-up. In terms of just sort of strategic positioning here, there's a lot of either bigger players scaling instead of retail democratization opportunity on the sort of the pure-play side. There's the beginning of some alliances that you're seeing between the KKR Capital Group and others that are trying to figure out co-branded ways to invest publicly and privately. Can you talk about, a, your ability to do this on a de novo basis? And b, how open are you to either selling the franchise to a larger player or doing an alliance to potentially catalyze organic growth? Thank you.

So I'll take the last part and let Tom comment on the first one. As we've said, and you remember this from way back in the old days, Bill. If there is a big hairy deal that is available, then we would consider a full transaction. And the way we talked about that, and we have talked about that on these calls for many years, is that the succeeding enterprise would be a public company called Federated Hermes, or some other name that comes up because of a big Harry player. But if we run as a public company run by us as investment managers, even though it might have more assets. And then we would divide up the equity as appropriate with said partner. In terms of doing a deal such as others have talked about, we would be open to do those kinds of things in terms of democratization of private equity and things like that. I'll just give you one little hint that the tough guys at Kaufmann always felt they were the first at democratizing in effect, hedge funds. And that's how they felt they were running their funds. And if you look at their record over 38 years, it's quite impressive, maybe recent to the contrary notwithstanding. Tom?

Yeah, I don't think there's much to have to follow up with you on that, Chris. The only comment I'd make is we have almost $8 billion in private equity and infrastructure, and we have great teams. And we are looking at the thing that you're talking about, how can we do that to enhance our business. And the private equity people look at the distribution in the U.S. and say, can we figure out how to get access to that to get funds out there that would be readily available to an investor class that can get in them that can't get in the bigger funds because they have smaller asset sizes. So it is absolutely an interesting thing to consider.

Thank you.

Thank you. Our next question is coming from Brian Bedell with Deutsche Bank. Your line is live.

Thank you for taking my question. Good morning, everyone. Most of my questions have already been addressed, but I would like to return to the topic of money market funds. Referring to an earlier inquiry about potential advantages related to concerns surrounding sweep deposits, can you discuss your asset exposure or size in those specific channels? If someone were to transition from a sweep deposit to a money market fund, how would you assess the potential benefits of that action and your involvement in that area?

That would be difficult for me to do. Maybe Debbie has a solution for that. What I mentioned earlier is that if they start advertising yield, it will benefit us. You obviously heard that. It would be very challenging for us to analyze each client and determine what happens if Wirehouse A increases their yield from X to Y. I'm viewing it as beneficial for us. I don't think these changes will negatively affect us at all. Debbie, do you have any insights on that?

The only thing I'd say, Chris, is that we do have a lot of sweep account products through intermediaries. And when they advertise something like an increase in their deposit sweeps to maybe 2%. As you mentioned, Chris, they then look at where their sweep is with the money fund and see it coming in at over 5%. And it's more of an advertisement as to the realization of where true yields are in the market today and I think beneficial to us. As far as sweep products into our money funds, we have many, many relationships along those lines. Prior to the reforms that took place in 2016 when institutional prime funds became floating NAV. The sweep products went into prime institutional products. For the most part, now the sweep products go into our government products. And those continue to be stable net asset value and very viable. And with a yield even with the increased deposit rates at more than double those rates. So I think the benefit of just knowledge that there are higher rates out there is good from our business standpoint and would agree just any kind of sort of socialization of the yields is a positive in our regard.

I see this as a potentially positive shift if advisers choose to transition to money funds instead of opting for even higher sweep rates in those channels. Also, I wanted to follow up on what you mentioned earlier about extending duration in the money market funds. Can you elaborate on how much that has been extended across the franchise in the past month or two? Additionally, what are your thoughts on how much more you might extend in the money funds if the Fed begins to cut rates?

Certainly. The extension for each product varies, but we have likely extended by about five to eight days over the past month. This reflects our earlier decisions when we found good relative value in the curve. Currently, extending further would be challenging. We're content to maintain our positions, with most products averaging in the low 40 to low 50-day maturity range, capped at 60 days. Those in the low 40s can extend, while those closer to 50 days will likely not extend much. Given the current yield curve, we believe the expectations for rate cuts starting in July are overstated, and discussions about a potential 50 basis point cut in September do not seem justifiable. We anticipate two rate cuts, although there's some speculation about a September start with a subsequent cut in December. Personally, I expect a November reduction. I see no reason for action before the election, especially considering the latest GDP report. The growth environment seems adequate for the Fed, so there's little value in engaging in pre-election discussions if unnecessary. Therefore, my reasoning for a November start stands, anticipating two rate cuts in 2024, which would bring the target rate down to about 4.75% from its current 5.25%.

That’s great color. Thank you.

Thank you. Our final question today is coming from John Dunn with Evercore ISI. Your line is live.

Thank you. Could you maybe talk a little bit about the time to funding for the institutional pipeline in the second half? And maybe based on the conversations you're having, the prospects of it kind of leveling up.

Sure. This is Richard Donahue here. A lot of the funding in the private market will be over the next year or two years as we build into those. Some of the other stuff is going to be shorter and quicker, obviously, if it's an equity or a fixed income stuff. But the way to think about that is if you break it out by product, it takes a couple of years or at least a couple of quarters for some of these direct lending and some of these private equity stuff to actually fund the wins that we have going into there. So kind of a mishmash of longer on the private market stuff and then shorter quarter, next quarter, next two quarters on the other stuff.

Got it. And then you guys talked about a rotation going on in the market. But can you focus a little bit and talk on the outlook for demand for non-U.S. and emerging market strategies?

So it's clear to us that the valuation, it's interesting to go back on. We run two strategies that are exposed to emerging markets. One is Asia ex-Japan, which you call a value strategy, and one is the GEM strategy, where effectively is a quality growth tilted strategy. What's interesting is both of these strategies not only have strong performance, but both of them are seeing very high values in stocks that they buy. Remember, we're active managers; we buy stocks. And at some stage, I'm a fund manager by background; at some stage, the reality of the valuation will attract people in. It just takes time. Over the last year and a half, most clients in Europe, which are sitting on their hands because of the narrowness of the market because of the uncertainty of interest rate rises. Without commenting about our particular fund because I don't want to make specific predictions. But in general, I'd say if you have a declining interest rate environment, you have huge value in parts of the world. That means that, that becomes attractive to institutional and retail clients’ outlook year after again. And as I said, there are indications of that rotation is beginning to happen because the flows we've seen in equity in the London business have come into the small-cap U.S. for. And that's been really interesting because people can begin to see that the returns are quite attractive and allocate assets.

Thank you.

Thank you very much, ladies and gentlemen. This does conclude today's call. And you may disconnect your lines at this time. And we thank you for your participation.