Federated Hermes Reports Mixed Results for Q2 2024

Federated Hermes Incorporated Reports Mixed Q2 2024 Earnings

Federated Hermes Incorporated has released its second-quarter earnings report for 2024, showcasing both successes and challenges. The investment management firm announced a record high in assets under management (AUM) at $783 billion, despite experiencing net redemptions in both equities and fixed income.

In a notable development, Money Market assets surged to a record $587 billion, benefiting from positive market conditions. The company also confirmed the closure of Horizon 3, a global private equity fund, while outlining plans for a new co-investment fund.

Anticipating interest rate reductions from the Federal Reserve, Federated Hermes expects an uptick in institutional money fund flows and intends to engage in share repurchases in the latter half of the year.

Key Takeaways

• Record AUM: Achieved $783 billion, despite net redemptions in equities and fixed income.
• Money Market Growth: Money Market assets climbed to a record $587 billion.
• Fund Developments: Closure of the Horizon 3 fund and initiation of a Global Private Equity Co-Invest fund.
• Future Projections: Expectation of increased institutional money fund flows with Fed rate cuts.
• Share Repurchase Strategy: Plans to buy back shares, indicating belief in the stock’s undervaluation.
• Investor Preferences: Continued trend of favoring small-cap and dividend-focused funds.
• Positive Outlook: Optimism about actively managed funds, real estate, and the ESG market despite current headwinds.

Company Outlook

• Expecting enhanced opportunities in money market funds due to higher yields.
• Anticipation of improved inflows notwithstanding recent setbacks.
• Strategic focus on global expansion and risk assessment over political considerations.
• Openness to partnerships for fostering organic growth.
• Confidence in growth potential of non-U.S. and emerging market strategies.

Challenges Identified

• Net redemptions amounted to $3.3 billion in equities and $631 million in fixed income.
• A decline of approximately $400 million in alternative private markets assets.
• Reduced inflows into GEMs products and Asia ex-Japan.
• Fixed income faced outflows linked to the loss of a senior portfolio manager.
• Low-interest environments continued to adversely affect the real estate sector.
• Regulatory challenges affecting infrastructure investment.

Positive Developments

• Positive net sales across 11 equity strategies.
• Successful final closure of Horizon 3 and progression in co-investment fund development.
• Anticipated positive shift in institutional money fund flows with Fed actions.
• Growth in the sustainability sector expected to positively influence the market.
• Strong performance noted in the direct lending business.

Highlights from Q&A

• Discussion focused on democratizing private equity for investors with smaller asset sizes.
• Potential benefits of advertising higher yields for money market funds were acknowledged.
• Conversations indicated market rotation towards non-U.S. and emerging market strategies.

The mixed financial results of Federated Hermes reflect the complex dynamics of the global market alongside the diverse strategies it employs. With an emphasis on refining its offerings and harnessing market shifts, the company is positioned to adapt to the changing financial landscape.

Investors are encouraged to keep an eye on the firm’s evolving strategies and potential market opportunities as the year progresses.