Good day, and welcome to the Federated Investors Management Company Q3 2024 Analyst Call and webcast. At this time all participants are on a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to the President of Federated Investors Management Company, Ray Hanley. The floor is yours.

Morning. Welcome to the FHI Q3 call. And leading today's call will be Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, the CEO of Federated Hermes Limited; and Debbie Cunningham, the Chief Investment Officer for Money Markets. 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. Please review the 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. Good morning everyone. I will discuss Federated Hermes' business performance, and Tom will address our financial results. We concluded Q3 with record assets under management of $800 billion, fueled by money market assets totaling $593 billion, alongside record fixed income assets of $100 billion. Starting with equities, assets rose by $5.7 billion from Q2 to $83.6 billion, mainly due to market gains of $6.5 billion, partially offset by net redemptions of $1.4 billion. The Strategic Value dividend strategies experienced net redemptions of $779 million across the funds in the SMA combined, a significant improvement from the $1.9 billion in Q2. In Q3, we had positive net sales in 15 equity strategies, including MDT Mid Cap Growth, MDT Large Cap Growth, MDT All Cap Core, and the U.S. SMID Equity Usage Fund. We continue to see growth in our MDT fundamental quant strategies and have recently expanded the MDT product lineup. This year, up to the end of Q3, MDT Fund and SMA strategies achieved approximately $2.2 billion in net sales, a substantial increase from just over $400 million in net sales in 2023. In Q3, we broadened our distribution opportunities for MDT strategies with the launch of four new active ETFs and one new collective Investment Trust. We are focused on product enhancements across various strategies to bolster growth opportunities in both domestic and international markets. Evaluating our Equity Fund performance at the end of Q3, using Morningstar data over the trailing three years, 59% of our equity funds outperformed their peers, while 41% ranked in the top quartile of their categories. In the first three weeks of Q4, combined equity funds and SMAs recorded net redemptions of $51 million. Now, regarding fixed income, assets grew by approximately $4.9 billion in Q3 to reach a record high of $100.2 billion. Fixed income funds reported Q3 net sales of $305 million, while fixed income separate accounts brought in net sales of $1.1 billion. Thus, total fixed income net sales were $1.4 billion, contrasting with the $1.4 billion in net redemptions seen in the previous quarter. The net sales in fixed income funds were driven by around $515 million in combined net sales across the total return bond fund, ETF, and collective investment fund. Institutional multi-sector strategies and the Core Plus SMA strategy propelled the net sales of fixed income separate accounts. In Q3, 21 fixed income funds experienced positive sales, including the previously mentioned total return bond fund net sales and the Ultrashort government fund. Regarding performance by the end of Q3, using Morningstar data from the trailing three years, 37% of our fixed income funds outperformed their peers, and 18% were in the top quartile of their categories. For the first three weeks of Q4, combined fixed income funds and SMAs achieved net sales of $365 million. In the Alternative Private Markets realm, assets increased by $622 million in Q3, reaching $20.7 billion, mainly influenced by FX rate impacts, although net redemptions somewhat offset this growth. Our current market offerings include three programs: the Federated Hermes GPE Innovation Fund II, which is the second iteration of our pan-European growth Private Equity Innovation Fund. The first close in this program occurred in 2023, raising approximately $110 million, with a target of $300 million. The previous vehicle successfully raised about $240 million. Next is European Direct Lending III, marking the third instance of our European direct lending fund, which saw its first close in Q3 at around $235 million, targeting $750 million in total, while EDL I and II raised about $300 million and $640 million, respectively. Lastly, we have a new European real estate debt fund, aiming for a Q1 first close and continued marketing into 2025, with a target of $300 million. We're also developing the global private-equity co-invest Fund, which is the sixth vintage of the PEC series targeted for Q1 launch, with a goal of $500 million. Previous PEC iterations raised between $400 million and $600 million each. We began Q4 with approximately $1.5 billion in net institutional mandates pending for both funds and separate accounts. An estimated $1.4 billion in total net wins is anticipated to flow into private market strategies, primarily from private equity and direct lending, countered by outflows in absolute return credit. Expected net additions for fixed income are around $1 billion, led by Ultrashort duration, sustainable investment grade credit, emerging market debt, along with the core Ag government fund and government bonds, experiencing a modest known loss in high yield. In equities, we expect $644 million in wins, opposed by $1.5 billion in known redemptions, primarily from a sub-advisory account scheduled to be internalized by the fund sponsor in Q4. Turning to money markets, Q3 saw another record high for money market fund assets at $440 billion, and total money market assets reached $593 million. Total money market assets grew by $6.4 billion in Q3, though gains of $14.8 billion in money market funds were partially offset by seasonal decreases of $8.4 billion in money market separate account assets. Our money market fund assets peaked around $447 billion on September 23 and decreased by about $7 billion over the final days of the quarter. We attribute the late-quarter surge in SOFR rates to certain investors reallocating assets into the direct market. Additionally, we observed some large clients utilizing money market fund assets to pay down debt as the quarter came to a close. Q3 marked the onset of anticipated reductions in the Fed funds target rate, contributing considerably to the growth of industry money market fund asset levels, especially in August and September. Looking forward to the end of 2024 and into 2025, we believe conditions for money market strategies will remain favorable, with money market fund yields staying competitive against direct market and bank deposit rates. Our estimate for the market share of money market mutual funds, inclusive of sub-advised funds, was around 7.32% at the end of Q3, down from approximately 7.45% at the end of Q2. Recently reported managed assets totaled approximately $799 billion, which includes $594 billion in money markets, $83 billion in equities, $99 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets stood at $441 billion.

Thanks, Chris. Total revenue for Q3 increased $5.9 million or 1% from the prior quarter, due mainly to $5.1 million of higher revenue from money market assets, $6.4 million from the impact of an additional day in the quarter and $2.6 million from higher revenue from equity, fixed income and private market assets combined. These increases were partially offset by $5.9 million of higher waivers related to fund proxy costs, as discussed during last quarter's call. Total Q3 carried interest and performance fees were $3.5 million compared to $2.8 million in Q2. Looking forward, the Q4 sub-advised account redemption Chris mentioned will impact annualized revenue by approximately $6 million. The impact for Q4 is expected to be approximately $0.75 million. Q3 operating expenses decreased by $65.2 million from the prior quarter, due mainly to the $66.3 million non-cash intangible asset impairment charge in Q2. All other operating expenses increased by $1.1 million from the prior quarter. Compensation and related expense included an increase in severance and related costs of $3.7 million, primarily from our U.K. office as we take steps to enhance the sustainability of our operations there. FX-related gains decreased the other expense line item by $5.2 million from the prior quarter as the pound strengthened versus the dollar. We expect the tax rate to be in the 26% to 28% range for Q4 and for 2025. At the end of Q3, cash and investments were $565 million, cash investments excluding the portion attributable to non-controlling interest was $515 million. Kelly, we would like to open the call up for questions now.

Your first question is coming from Patrick Davitt with Autonomous Research. Please pose your question. Your line is live.

Hi, good morning, everyone.

Morning.

First one on money fund market share. I guess the $15 billion money fund inflow you announced last night was a lot better than the publicly available data we could see. So maybe the real-time data we're getting is just wrong, but it still certainly looks like you lost some flow share in 3Q and that continues in October. So do you think you're losing flow share? And if so, what is the nature of these big chunky flows we're seeing going to your competitors that has you missing out on those big chunky mandates? Thank you.

Well, first of all, over a longer-term period, as you've heard me say 100 times, we end up with higher highs and higher lows over the 50 years we've been doing the money market funds. And so a little noise here in the quarter does not disturb us. I mean, we have one client who took $6 billion out because they were paying down debt. And that's the kind of lumpy things that happen that you got to be ready for and that's just part of normal life. I would like Debbie to comment briefly on this dynamic from her perspective.

Thanks, Chris, and thank you for your question, Patrick. Chris' explanation about the SOFR rates for the quarter is very relevant. We have many institutional clients that navigate between the direct market and money funds on an overnight basis. Since the Fed rate cut in mid-September, most of those flows have shifted to the fund side. However, with the surge in SOFR rates at the end of the quarter, some clients temporarily returned to the direct market. We're also competing against a large pool of players in the market, particularly larger retail companies that seem to be gaining market share at a faster rate. This might be due to some challenges they face related to deposit rates, causing customers with lower deposit earnings to shift towards money funds. This trend isn't something we can control or necessarily influence. Additionally, some of our banking competitors have been experiencing internal funds moving similarly. Overall, there are many factors at play, but we haven't noticed any client-related issues that cause us concern. In fact, quite the opposite. Our diverse client base—comprising broker-dealers, RIAs, trusts, wealth management, and family offices—is largely satisfied and continues to engage more deeply with us.

Very helpful. Thank you. And then a quick follow-up on the other expense line. You mentioned $5.2 million decrease from FX. So, is the right run rate there looking into 4Q kind of in the 3.5% to 5% range? Just trying to make it clear what that number should have been without the FX noise? Thank you.

If there are no changes in the rates, the pound has increased. Consequently, if the pound continues to rise, we will benefit from more foreign exchange assistance on the expense side since we are hedging our expenses in London. However, if the pound decreases against the dollar, the situation will reverse.

Yes, I mean more just like what's the kind of regular way number there in the quarter without any FX impact is what I'm trying to get.

Okay. If we consider that we've hedged about a year's expenses, then if the pound remains stable for the rest of the year, we will reflect the higher expenses from this quarter in the next three quarters. So, if you look at it that way, you can expect higher expenses coming through in all categories, not just in the specific one mentioned.

Your next question is coming from Ken Worthington with JPMorgan Chase. Please pose your question. Your line is live.

Hi, good morning. Maybe first on regulation. I believe in October, the final wave of the SEC's money market fund reform rules took effect. Can you just remind us what went into effect and to what extent you're seeing an impact to interest in your prime funds?

So we have seen unlike the last round back in the day where basically almost $1 trillion left those funds. The customers are basically sticking with it and our prime funds are up. And if you look at the stats for, say, a year, the industry assets are up to over $1 trillion and that's up 17% over the year. And our assets in that category are up 25%. So we're ahead of the industry in that category. So our clients, I think were quite appreciative of the fact that we hung in there with those funds, even though we did consolidate from three of those funds down to two, but we went through all the work to make the extra so many basis points available.

Ken, if you look specifically at the prime money market funds for the first three weeks of October, they have increased slightly. Any changes we have seen would be balanced out since the prime funds remain very appealing to retail investors. We are still receiving significant interest there. Even after the rate cut, the yields are quite attractive, but there hasn't been any noticeable impact in October from the recent rule changes taking effect.

I'd like to add a couple of other things about the rules. You sort of hinted at what went in? Well, remember that they told us we had to have 25% in daily cash. Well, that has a big impact on how these funds work and how people look at them. The other thing is these funds were already a variable net asset value type funds. So people aren't keeping the money they need tomorrow here. They're willing to deal with these modest changes in NAV. So I think those are important dynamics. And I'm sure we skipped something that Debbie is just anxious to say.

You are always very thorough, Chris, but ultimately, we had no shareholders leave our institutional prime or municipal sectors due to the rule changes that took effect on October 2nd of this year, Ken. There is now a daily process for regulating those funds, which are the smallest sector in the total universe of money funds. We continuously monitor our flow activity to determine if we are experiencing a net purchase or net redemption phase. If we exceed a 5% net redemption phase, we have a simultaneous process in place to assess the cost of redeeming in excess of that threshold. If the cost exceeds 1 basis point, which is difficult to surpass given that we maintain 50% in weekly liquid assets at par, we would have to consider implementing a fee for those redeeming. Overall, this is a daily process we manage, and we have conducted historical back testing prior to the rule's implementation, which makes us confident that any fee impact on the marketplace will occur very infrequently, if at all.

Okay, great. Tom, maybe to follow-up for you. You mentioned the proxy costs and I think there's director costs that flow in maybe this current fourth quarter. Can you remind us of the dollar amounts and where those costs hit? I think some are contra revenues rather than outright expenses.

Yes, Ken, the proxy costs, when we talked about it last quarter that it would happen in the third and fourth quarter, we didn't know exactly the timing. Well, all the expense came in the third quarter and it's a contra revenue, $5.9 million. And so, that should not happen. It will not happen in the fourth quarter.

Your next question is coming from Bill Katz with TD Cowen. Please pose your question. Your line is live.

Thank you very much. Good morning, everyone. Returning to the topic of money markets, I'd like to discuss the overall situation. Looking at your performance at the end of the quarter and the updates within the quarter, when do you anticipate that the behavior will more clearly shift back toward money markets? Many of your peers, including both traditional and alternative managers, are suggesting that funds sitting idle will eventually be directed towards riskier assets, such as fixed-income, equity, or alternative investments. I'm observing a relatively stable update for the quarter so far, despite the 50 basis-point reduction by the Fed. When might we expect to see a change in this behavior? Also, how do you view the relationship between the retail and institutional segments of your business, and could you provide some clarity on that mix? Thank you.

So, it's really tough to come up with a point or a catalyst, Bill. But we are seeing from the financial advisers, a lot of interest in the short duration, a lot of interest in lengthening duration. We've covered those themes before and we're seeing moves there as I tried to comment on the changes in our fixed income flows during my opening remarks. But these things do not happen in a catalytic way. And it is one FA and one customer and one firm at a time. In terms of the dynamic from what Debbie might see on the money market side, I'll let her comment.

Thanks, Chris. I've mentioned before that in 2023 and through mid-2024, 80% of the flows came from retail, primarily moving from deposits to money market funds, almost dollar-for-dollar. This trend will persist as banks have begun to lower their deposit rates, which had previously not matched money market fund rates. While the pace may not be as vigorous, it will continue. Of the remaining 20% in flows, about 10% to 15% refers to sideline cash, which typically would go into riskier assets with higher potential returns and longer timeframes. We're starting to see these funds move back into equity and longer-term fixed income products, signaling a healthier market and economy. On the institutional cash side, that accounted for only 5% to 10% of the asset flow in money markets. We expect institutional flow to increase as the Fed cuts rates, although not at the surprising pace seen at the start of this declining cycle. As rates decrease from over 5% to an anticipated terminal rate of around 3%, institutional flows will pick up but won't match the strength of retail flows. Overall, we are currently at $6.8 trillion in industry assets, and I anticipate reaching $7 trillion by the end of the year and continuing to grow into 2025, with FHI capturing a significant portion of those flows.

And Bill, just on your question about the mix, so the terms are not precise between retail and institutional, but an estimate of that for us would be about 60% of the money market fund assets, including what we sub-advised would be considered institutional and 40% retail, which for us is still coming through an intermediary. And by the way, that 60-40 split would be about what the industry split is as well using ICI data.

That's helpful. I have a question, possibly for Saker or someone else. You mentioned a clear pathway for several funds entering the market over the next six to 12 months. However, the assets under management in the alternatives category appear to have decreased by about $700 million this quarter, although this may just be a rounding issue. Could you share what we should anticipate in terms of distributions over the next six to 12 months, as well as any realizations from the portfolio? Can the alternatives bucket actually expand considering all the growth opportunities? Thank you.

Saker, your turn.

Thank you very much. As you pointed out, the nature of private equity funds and other private market aspects involves a constant two-way flow, where clients expect payouts while also bringing in new funds. I cannot provide a detailed structure of what we will see, but I can say this: when looking at the funds that Chris discussed, including the innovation and direct lending funds, as well as the global private equity funds, it's clear that these funds are growing. Our clients are often re-investing at higher levels than before. While we cannot confirm this until all closes are finalized, the general trend appears to show that clients are re-investing, some even at increased amounts. Additionally, we are actively developing new funds in the alternative investments space, which enhances our inflows. Chris mentioned real estate debt funds, and we are also working on infrastructure initiatives. We believe that re-investments from existing clients will increase, and we are expanding our client base with new clients as well. All of this leads us to anticipate higher revenue generation moving forward. That's all I have.

Okay.

Your next question is coming from Kenneth Lee with RBC Capital Markets. Please pose your question. Your line is live.

Good morning. Thank you for taking my question. I have one regarding the money markets. You mentioned earlier that some corporate clients have been shifting funds overnight between direct paper and money markets. I would like to know more about this. How simple is that process? Given the uncertainty around the Fed rate cuts and their direction, do you anticipate fluctuations in money market flows based on the ease of moving money back and forth? Thank you.

Debbie?

For most of our clients, switching is not simple because they do not have the necessary repo contracts in place with dealers and banks to participate in that sector of the market. These contracts define the terms of obtaining returns based on the SOFR rate, which reflects what one could earn from an overnight repo. However, larger clients such as major tech firms from the Midwest and West Coast, large oil and energy companies, and some of the significant banks in our market do have these contracts and can use them daily, allowing for relatively easy switching. Even though only a small percentage of our clients can make this switch regularly, the volume they handle is considerable when those market dynamics come into effect.

Got you. Very helpful there. And just one follow-up, if I may.

Sure.

Any updated thoughts around capital management and outlook for any kind of potential inorganic opportunities out there? Thanks.

We have approved a new share repurchase program for 5 million shares, and there are still 1.2 million left on the current program. Last quarter, we purchased over 800,000 shares and plan to remain active because we don't believe the share price is at an appropriate level. As for acquisitions, there's nothing specific to mention at this time; we are exploring various opportunities but have nothing exciting to announce yet.

Your next question is coming from Dan Fannon with Jefferies. Please pose your question. Your line is live.

Thanks. Good morning. I think you mentioned in the prepared remarks $3.7 million of severance, and I think those are associated with Hermes. Curious if this is a part of a broader restructuring or cost-cutting effort that's more elaborate or more of a one-off.

I'll make an initial comment, then Tom will comment on the numbers. We always have a duty to run the business better. Tom?

$3.7 million is a severance number out of the London, primarily the London office. And we are looking across the board to, as Chris said, run the business properly and in a sustainable effort. You know that we had the impairment last quarter, and this is a look at that and make sure we are handling things in a proper fiscal manner. So, yes, we're looking at things beyond just the severance in terms of expense reductions as we can try to manage it as best we can.

Okay. And then…

And I think - Saker give a follow-up because we don't want to do expense things that hurt the business, we want to drive the business toward growth and maybe Saker could give a comment on our expectations and excitement about the London office.

Thank you very much, Tom. I have a few comments to share. As Chris mentioned, we need to manage the business effectively, which includes controlling costs. As we integrate operations and focus on the market, there are significant opportunities to improve efficiency and enhance our business prospects. By optimizing severance costs and implementing efficiencies through scale and combined purchasing, we can achieve these goals without undermining the positive developments we are experiencing. For instance, we have noted renewed interest in risky assets due to strong performance, particularly in sustainable Global Equity, Global Equity ESG, U.S. small and mid-cap funds, and the Asia ex-Japan fund. This resurgence is a result of improved performance and a general shift back toward risk assets. We are also excited about private markets, launching new vintages, and establishing ourselves as specialists in the market. In money market funds, while Federated Hermes has traditionally focused on the U.S., we are now expanding our efforts into Europe with positive feedback from our presentations. The Sterling Prime Money Market Fund has reached an all-time high of £8.4 billion, indicating growth potential in money markets, particularly in Asia, where we've attracted about $300 million in flows from 23 new family offices. MDT has performed exceptionally well in the U.S. market, and we're sharing it with clients here, receiving positive responses. Finally, I want to highlight our future business, EOS, where we've exceeded $2 trillion in assets managed, including a significant win with a U.S. state pension fund. We are beginning to see signs of recovery and the benefits of strategic investments for our assets managed from both London and the U.S. However, we must continue to manage our costs responsibly and proactively. Thank you.

Great. That's helpful. And then just as a follow-up, you talked about a sub-advised mandate loss in the quarter or I think prospectively. Can you just talk in aggregate what the sub-advised total AUM is for you and maybe the context of the opportunity set for that? Is that a shrinking pool of assets or is it a bit a source of growth? Just curious how some more context around that part of the business.

Total, the sub-advised accounts would be about $37 billion of our AUM that's as of the end of the quarter. And that would be weighted toward cash to money market but it does include equity and fixed as well.

And has that been a growing source of AUM or shrinking?

The money market part of it has been growing. It has a retail orientation. And on the institutional side, it's sort of pluses and minuses. It's been relatively stable.

Understood. Thank you.

Your next question is coming from Brennan Hawken with UBS. Please pose your question. Your line is live.

Morning. Thanks for taking my question. You guys saw a constructive outcome with the flows on the bond side. And I'm kind of curious whether or not given some of the struggles at a large bond manager, whether or not there was any change in either flows or RFPs that you noticed since late August or any interesting trends that you might note in retail versus institutional engagement regarding your bond offering?

The clients were attentive to the incident you're talking about and to some extent, we're there to help our clients when they run into challenges. So, it's impossible for us to detect what asset flows came from what challenges in the marketplace versus the regular blocking and tackling that we do all the time. So overall, you've seen money come out of that outfit and it went somewhere and we got some of it. But boy, that's hard to follow the bouncing ball.

Sure, that's why I was asking about any changes in engagement after late August.

Well, it depends on what you mean by engagement. What goes on is when you are in the marketplace with your clients, constantly repeating the sounding joy of the Federated Hermes product array, then when opportunities arrive, you're there to hit the bid, whereas my father used to say, if it's raining money, get your buckets out. And so I think we are engaged with the clients all the time. It's not like, oh, let's go do something new. This is what we've been doing. And it's a lot like the football analogy; those that are running hard and running to the ball, they're going to get an interception. Look at what Pitt did last night, okay let's get on with the meeting.

All right. I don't know to run with the buckets or with the interception, but good enough. Thanks for taking my question.

Your next question is coming from John Dunn with Evercore ISI. Please pose your question. Your line is live.

Thank you. Could you maybe talk a little bit about the time to funding or the pipeline and directionally where you might expect it to go over the next year or so? And then also, could you describe the kind of the temperature of institutional investors and consultants looking into next quarter and then '25?

I can discuss the timeline and then address the other points. In Q4, we anticipate negative performance in equities due to the sub-advisory mandate we've mentioned, while expecting positive results from both fixed income and alternatives. The fixed income pipeline is structured to yield results primarily in Q4 and Q1. Alternatives will see returns coming in more gradually; a significant portion of this is from committed funds that are not yet generating fees. Therefore, we expect to see consistent growth over the next few quarters, continuing through the end of next year. Fixed income will be more heavily weighted in the early part, while equities will show initial negative performance and alternatives will unfold more evenly over time.

And in terms of RFP activity is very, very strong. And that's why on the fixed-income side, I go to the trouble of listing the various mandates where we're actually scoring wins. You can go back to the beginning of the call and see the list. And it's a half a dozen real strong ones and we see continued RFP interest there. So that's where that pipeline builds. And I just said in the answer to the last question, we're in the market all-the-time, waiting, looking and bringing solutions to clients as needs change.

Got it. I think we will be discussing active ETFs more than we have in the past. Have you had to make any changes or adjustments to how you market the active ETF suite, and how important do you believe that segment can be for your company?

Well, we think it could be very big, very strong. Right now, the ETFs make up about 7%. I mean, the active ETFs make up about 7% of the overall ETF market. And they are continuing to have an increasing percentage of the flows, maybe up to 30% or something depending on what numbers you look at. And then if you look at our numbers, that from the gang that we have, we're seeing good results in the total return bond fund and in the strategic value dividend fund. And the whole suite of products is now over $500 million and I think Ray can give you the accurate numbers.

No, that's about right. Over $500 million weighted toward the two strategies that Chris mentioned. But we've had a lot of good response out of the gate on the MDT strategies that we recently added, both four of them that we launched active ETFs, one we launched also in a collective format. And we'll continue to look at the product line. You should expect us to continue to add to the active ETF menu over time. But we've certainly covered some of the bigger strategies, both in terms of equity and fixed income with total return bond and strategic value.

Thank you very much.

Your next question is coming from Brian Bedell with Deutsche Bank Securities. Please pose your question. Your line is live.

Great. Thanks. Thanks for taking my questions. Just one back on the institutional cash management and I know we've talked about that a lot during this call. Obviously, it's difficult to predict what types of cash flow needs those clients will have both coming in and going out. But do you have a sense of for those clients that are using your money market funds, what level of assets roughly at least are parked in overnight a rate agreement? So almost like an addressable market, if you will, if they were to, let's say, switch all to money funds in a rate-cutting cycle?

Well, if someone knows how long, our clients want to keep their money in and what percentage of them are thinking overnight, they'd be smarter than I. And that's why I mentioned the longer-term trends, 50 years, one year's numbers on prime. And Debbie has gone through the catalog or the variety of clients that we have, which is an underlying strength to the business because they move at counter times, counterbalancing one from the other. And I don't think we can go past this question without letting Debbie have a comment.

Thanks. Thanks, Chris. Sorry, I was having difficulty getting it off of mute. Brian, we definitely have a very rigorous, know-your-customer process. And so yes, we have various spreadsheets that provide information on expectations for various clients, their needs, their cyclicality to some degree and what their other options are. We have both from a sales perspective, close relationships with especially the largest clients and also from a portfolio management standpoint. And we review and look at that on a regular basis. And although when you look at it on an individual basis, Chris noted the $6 billion that went out, right, at the end of the quarter due to debt repayment, when you think of it in the context of the $600 billion that we manage in this type of liquidity, it's not a large number. Nonetheless, if you had 10 of those $6 billions all together for all the same reason on the same day, that would be a different type of environment. Thankfully, I think the complexity and the diversification of our clients works in our favor. And oftentimes when you see a $6 billion outflow, you may see somebody else six $1 billion inflows that offset that. In this particular case, it just happened to be highlighted because it was at a quarter-end.

Okay. But do you have a sense of what potentially could move over to institutional that's being allocated overnight right now then in aggregate?

Yes, I think it's probably something that's less than 10% of the total assets at this point, which is not insignificant, but it's not out of the realm of consideration and into the problematic phase, anything like that.

Debbie, from going out from money market to direct.

To direct security.

Yes, how much could go the other way?

How much could go the other way in going into riskier types of assets longer-term in equity?

No. No, going from direct overnight cash into money market funds. When the first…

On the inflow side of things, referring to Ray's breakdown of roughly 60% institutional and 40% retail, that percentage has at times skewed more towards institutional. Therefore, there is significant potential for an additional 10% to 20% of asset flows if money funds can sustain a yield that exceeds that of the direct securities market, particularly in a declining rate environment. This would have been quite challenging after the Fed's 50 basis point rate cut in September; the market was expecting quicker rate cuts from the Fed, which we did not agree with. Thus, we faced challenges in purchasing longer-dated securities to maintain our yield over an extended period. However, recent strong economic data has changed that, enabling us to maintain and even extend our weighted average maturity, which will help keep our competitive edge over the direct securities market. This likely will attract a portion of increased institutional flows in the coming quarter.

Brian, my answer to you is one word: Trillions, period. Then you go, okay, we could go through catalogs of where all that money is, but it's so much that we're certainly optimistic about our ability to play in that game.

Yes, that is fantastic information. Thank you so much. I’d like to conclude with a note on strategic value. Performance has improved significantly. While I know you prefer not to compare the fund within the Morningstar categories, you have been in the top quartile over the last two quarters, and by our metrics, you are in the top third over both one-year and three-year periods. The product is still experiencing outflows; do you anticipate that this performance will lead to inflows soon?

Anytime soon, I hate putting deadlines on it like that, but that's why I gave you the changes over quarter-to-quarter so that you could see what was going on and we're seeing it in the marketplace. And we get comments now from the field like, boy, I'm sure glad I hung on to my strategic value dividend versus what the heck is happening with the performance on Morningstar with strategic value dividend. And months and months ago, that was the comment you were getting from the field. Now it's, boy, I'm glad I'm still there. And it is still a way that the underlying clients can keep some income, get in the market, and buy the kinds of stocks that are owned in strategic value dividend. So yes, I would expect those trends to continue exactly when it will cross over to positive is really hard for me to predict.

Yes, fair enough. Great. Thank you so much for all the color.

You have a follow-up question coming from Patrick Davitt with Autonomous Research. Please pose your question. Your line is live.

Hi, thanks for the follow-up. Just a quick housekeeping question. Regarding the $6 million, specifically the $5.9 million contra revenue, was that entirely attributed to management fees or was it divided among the three categories? If some of it is in management fees, how should we adjust the individual asset categories to better understand our fee rates?

Yes, that was all in management fees.

Okay. And how has it split across the equity buckets? I mean the asset buckets, do you know?

Well, it's every fund shares.

By the way, we got the vote.

Good.

It was successful.

Well, thank you very much. That concludes our call. Thank you for joining us today.

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.