Good day, ladies and gentlemen, and welcome to the Federated Hermes Q2 2022 Analyst Call and webcast. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ray Hanley, President of Federated Investors Management Company. Sir, the floor is yours. Good morning and welcome. 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, who is the CEO of Federated Hermes Limited, our International business, and Debbie Cunningham, Chief Investment Officer for the money markets. During today's call, we may make forward-looking statements, and we wanna note that Federated Hermes' actual results may be materially different than 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. Good morning, all. I will review Federated Hermes business performance. Tom will comment on our financial results. Last week, we proudly announced the agreement to acquire C.W. Henderson and Associates, Inc., a Chicago-based registered investment advisor with more than three decades of experience, specializing in the management of tax-exempt municipal securities in SMA products. C.W. Henderson manages approximately $3.6 billion in assets. The expected addition will enhance and complement our existing muni team and strategies, where we manage about $13 billion at the end of the second quarter. It will also enhance our overall SMA business, where we currently manage about $26.5 billion in 35 equity and fixed income strategies. The transaction is expected to close in the third quarter, and we welcome all of the employees of C.W. Henderson to Federated Hermes, and look forward to working together to develop growth opportunities and to continue to provide outstanding performance and customer service. Turning now to Q2. In a quarter that presented challenging markets across asset classes, our business mix enabled Federated Hermes to end the quarter with an increase in both total assets and revenues as growth in money market assets offset decreases in long-term assets. Looking first at equities. More than 90% of the decrease in assets during Q2 was due to market losses and the impact of foreign exchange rates. Equity total net redemptions were $969 million. This included approximately $1.1 billion in institutional separate account redemptions by BTPS. Our equity mutual funds and SMAs produced combined net sales of just under $600 million. These net sales were driven by the Strategic Value Dividend strategy. The domestic strategy had Q2 net sales of about $1.9 billion, with both the fund at $1 billion and the SMA at $900 million producing solid net sales. The Strategic Value Dividend Fund was recently highlighted in a Wall Street Journal article as the top fund among the 32 out of 1,342 actively managed U.S. stock funds to finish the rolling 12-month period ending with Q2 in positive territory based on Morningstar data. The article further noted that the fund was the only one with double-digit positive returns for that period. We saw Q2 positive sales in 16 equity fund strategies, including several international strategies such as International Strategic Value Dividend, Asia ex-Japan, International Equity, and SDG Engagement. Net redemptions were concentrated in growth strategies, about $955 million, reflecting difficult market conditions for these strategies. We continue to emphasize asset classes and strategies that have responded well in past inflationary periods, including dividend income, international, emerging markets, and value strategies. We're also expanding our equity product line, including the recent launch of a Biodiversity Equity Fund in collaboration with London's Natural History Museum. The fund invests in companies that are helping to preserve and restore biodiversity. Our equity fund performance at the end of the second quarter compared to peers was solid. Using Morningstar data for the trailing three years at the end of Q2, 57% of our equity funds were beating peers and 29% were in the top quartile of their category. For the first three weeks of Q3, combined equity funds and SMAs had net redemptions of $50 million. We had 16 equity funds with positive net sales in the first three weeks of July, including Strategic Value Dividend, Asia ex-Japan, MDT Small Cap Core, and MDT Small Cap Growth, and International Strategic Value Dividend, among others. Now to fixed income. Q2 saw net redemptions of about $2 billion, down slightly from Q1. Fixed income separate account net sales of $1.8 billion were offset by $3.8 billion of fund net redemptions. Fixed income separate account net sales were driven by multi-sector strategies. Within fixed income funds, net redemptions of about $1.4 billion occurred in the three Ultrashort Funds. In addition, High Yield funds had about $900 million of redemptions. Most categories of bond funds had net redemptions, reflecting another quarter of difficult market conditions. Even so, we had 11 fixed income funds with positive net sales in the second quarter, including Capital Preservation, Adjustable Rate, Conservative Municipal Microshort, Climate Change High Yield Credit, Inflation Protected Securities, among others. Regarding performance, at the end of the second quarter and using Morningstar data for the three trailing years, 66% of our fixed income funds were beating peers, and 22% were in the top quartile of their categories. For the first three weeks of the third quarter, fixed income funds and SMAs had net redemptions of about $524 billion. Again, mainly from the Ultrashort Funds, $256 million, and High Yield of $172 million, each trending better. During the same period, however, we had 14 fixed income funds with positive net sales led by Municipal High Yield Advantage Fund, Total Return Bond Fund, and Conservative Municipal Microshort. In the alternative private markets category, net sales of $25 million included positive sales in real estate, Prudent Bear, MDT Market Neutral, and Trade Finance. These, however, were largely offset by net redemptions in absolute return credit, infrastructure, private equity, and unconstrained credit. We recently closed the second vintage of our European direct lending private market strategy with nearly $600 million of committed funding. Of the 19 investors who made these commitments, 13 were new investors. We expect these fundings to occur over the next 9-12 months. We launched our fifth vintage of PEC, P-E-C, our co-invest private equity structure in 2021. We were pleased to hold our first closing in the fourth quarter of 2021 with $350 million. We held our second closing last month, adding a significant Korean institution and bringing our total raise to $401 million. Due to demand, we will continue to market PEC five for the remainder of 2022. We recently launched our third vintage of the Horizon Private Equity Fund with commitments so far of $1.05 billion, including $1 billion from BTPS, as we announced this past May. We begin Q3 with about $2.4 billion in net institutional mandates yet to fund into both funds and separate accounts. About $1.9 billion of this total is expected to come into private market strategies, including direct lending, $900 million, private equity, $500 million, and unconstrained credit, $500 million. Now moving to money markets. Assets increased about $19 billion in the second quarter compared to the first quarter, with nearly all of the growth coming from money market funds. The funds benefited from higher yields from continued elevated liquidity levels in the financial system. Money funds also benefited from higher yields relative to deposit alternatives. Our money market mutual fund market share, which includes sub-advised funds, was about 7.3% at the end of the second quarter, up from 6.9% at the end of the first quarter. With the recent increases in short-term interest rates, money fund minimum yield-related waivers have nearly ceased. We continue to believe that the higher short-term rates will benefit money market funds over time, particularly as compared to deposit rates. Taking a look at recent total assets, managed assets were approximately $631 billion. Including $436 billion in money markets, $82.5 billion in equities, $88 billion in fixed income, $21.5 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were at $296 billion. Tom? Thank you, Chris. Total revenue for the quarter increased $41 million or 13% from the prior quarter, due mainly to lower money market fund minimum yield-related waivers of $66.3 million, an additional day in the quarter and higher carried interest and performance fees, partially offset by lower average long-term assets, which reduced revenue by $22.6 million and lower average money market assets, which reduced revenue by $9 million. Q2 carried interest and performance fees were $2.5 million compared to about $100,000 in Q1. Operating expenses increased $33 million or 14% in Q2 compared to Q1, driven by $48.5 million of higher distribution expense from lower money market fund minimum yield-related waivers. The decrease in compensation and related expense from the prior quarter reflects Q1's higher expenses for severance, seasonally higher stock compensation and payroll taxes, and lower Q2 FX rates for pound sterling-based compensation. Higher advertising and promotional and travel and related expenses were due mainly to seasonally lower Q1 expense and rebounding travel opportunities in Q2 as we move from the low travel volume during the pandemic. With short-term rates higher in Q2, the negative impact on operating income from money market fund minimum yield-related waivers decreased to about $500,000 compared to $18 million in Q1. These waivers are now de minimis. Non-operating results after subtracting the impact attributed to the non-controlling interest reduced earnings per share for the quarter by about $0.10 due to the negative market impact on our investment. At the end of Q2, cash and investments were $430 million, of which about $379 million was available to us. Debt at the end of Q2 was $397 million, mostly from the $350 million of long-term debt added in Q1. During Q2, we repurchased 2.9 million shares of our stock for approximately $90 million. Chris mentioned in his comments a large U.K. client that completed their planned multiyear drawdown of public equity strategies, and we continue to have a great relationship with this large client since we purchased Hermes from them and completed that purchase last year. BTPS continues to be a great client, and we have great relationship in private markets in real estate, infrastructure, and looking forward to growth further in private lending also. Chris also mentioned that we recently announced the definitive agreement to acquire substantially all the assets of C.W. Henderson and Associates, Inc., subject to customary closing conditions. The initial purchase price for the transaction is expected to be $30 million based on current asset levels and assuming a certain level of consent to assignment of C.W. Henderson's investment advisory contracts are obtained. The transaction also involves the opportunity for C.W. Henderson to earn a series of contingent purchase price payments, which can total as much as $20 million in the aggregate, and can become payable annually for the next five years based on certain levels of net revenue growth being obtained. We expect the transaction to be accretive by about one half of one cent in the first year, excluding the upfront transaction cost. Holly, that completes our prepared remarks, and we'd like to open up the call for questions now. Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Patrick Davitt. Please announce your affiliation, then pose your question. Hi, good morning, everyone. First question's on kind of the money fund flow dynamics. Obviously, you had a monster June, took a lot of share in the second quarter. Now in July, you're back in outflow, but the industry is still in significant inflow. What do you think is driving that sudden divergence, and how should we think about your ability to take your fair share of, you know, these deposit rotations through the balance of the year? First point, then I'll let Debbie comment. It is very difficult to make a long-term comment on a couple of weeks. We have big clients. I'm looking at the list, and you've got, you know, $2 billion, $4 billion, $6 billion, $3 billion dollar days up and down so far here in July. It's just tough to make a prognostication from that. For more, Debbie will have a comment. Thanks, Chris. Ultimately, I'm just gonna say that on those very negative days, we had a pre-authorized client departure from about a year ago that was set for this summer. We had some outflows in May. They started in May, June, July, they got larger. If you nix those out, that single one large client that has moved into another type of product with their underlying client flows, we are above the industry flows with that sort of data. Basically, large clients, similar to what Chris was saying in this case, pre-authorized that we knew about and were not surprised. Okay, great. That's very helpful. Then a quick follow-up on the call. I just wanna make sure I heard correctly that you said that BTPS is kinda finished with the balance of the planned drawdown from, you know, when the merger. Yes. Yeah. All right. Thank you very much. Your next question for today is coming from Dan Fannon. Please announce your affiliation, then pose your question. Thanks. Good morning, Dan Fannon from Jefferies. Just wanted to follow up on the money market business and make sure we understand kind of the flow-through for the income statement. You know, as we think about exiting 2Q, is the geography of the fee waivers and how we should think about the economics of those products flowing through now kind of normalized with both on the revenue side as well as thinking about the relationship with distribution expense? Dan Fannon, it's Ray Hanley. I I think that's largely true. I mean, the yield improvement happened, you know, even coming out of Q1, continued into Q2. Of course, you know, some of that came late. The waiver recovery, you know, was nearly complete. You'll still see a little bit of, in your terms, normalization in Q3, but it's largely complete. Yes, the geography is at this point reflective of what it will look like, based on the current assets, current channels, you know, current funds and all of that. That can change around, obviously, but that would be based on client changes, not the yield waivers. Dan, also, you know, on the distribution expense line item, you know, a full year or full quarter, sorry, run rate, you know, you expect that number to go up just based on only on full restoration of the waivers. Like Ray just said, what happens with assets, then we'll see what happens with the rest of the distribution expense line item. Understood. I believe there is also within investment management fees or advisory fees as well as other service fees. That mix also, is that similar? There should still be some recovery in that. Again, assuming the full flow through of the full quarter, just like the distribution expense. Yeah. I mean, we were talking about them both combined. It's true of the line items as well. Yes. Got it. Just looking at expenses in the back half of the year, you, obviously, travel is picking up some of the more discretionary things. Other areas to think about whether either you're spending less or spending more, you know, from what we are seeing in the kind of first half levels, any kind of forward-looking commentary around the second half of the year would be helpful. Well, I would expect incentive comp to increase. You know, I've stopped predicting that, but I'll at least say I expect it to go up. You know, the ebb and flow, we've onboarded you know over 170 people this year, so you gotta get the run rate of those people in. Of course, most of those were replacements, so you know the number was low. But then you have you know the stock-based compensation and severance thing that kind of balance each other out. Overall, on the comp, to say the incentive, I'd expect it to go up. We just talked about distribution, so I don't need to go into that one. You know, advertising, which includes conferences, you know, I'd say probably a similar run rate. Systems and communications, we continue to invest and, you know, we gotta deal with inflation on our market data costs, you know, professional fees, you know, inflation, T&E, and I expect that's about all I have to say on that. Okay. Thank you. Your next question is coming from Kenneth Lee. Please announce your affiliation, then pose your question. Hey, good morning, and thanks for taking my question. You mentioned in the prepared remarks ongoing fundraising for the PE funds, the direct lending fund as well. Just wondering how would you characterize the current fundraising environment? You know, what are you seeing in terms of institutional investor demand for these products in the current environment? Thanks. Saker, I'm gonna let you take a swing at that one. Thank you. Thank you. Thank you very much indeed. If we look at the general demand out there for most of our Private Asset business, I'd say the demand is very strong. This is evident by the fact that we closed our direct lending higher than we expected. We also have this reinvestment in our private equity fund, which was very encouraging. Remember, in that case, this is a commitment for several years. We've seen commitment to infrastructure as well, and we also announced one joint venture in our property fund. It appears as if in this time of uncertainty, what we are seeing, I can't speak for the whole market, but what we are seeing is that there's demand for our private assets. Great. That's very helpful. Just one follow-up, if I may, just in terms of the money market fund side on the regulatory side. Any updated thoughts or any updates around that area? Thanks. There aren't any real updates, Ken. We continue to repeat the sounding joy of the beauty of money market funds. We continue our efforts to talk with all of the commissioners, to talk to the staff, and even to talk to Treasury when we can about the importance of these money funds in the market. The only update that I would have would be timing. That the rumors are, note rumors, that perhaps in October they might finalize the rule. What will be in it, I don't know. As you know, our comments have been that swing pricing is a plague on money funds, and it's a novel plague in that it's never been tried before. We have also commented that all you have to do is detach the fees and gates from the liquidity requirements, and you're all set to go. Let the boards decide how to run these funds and use all the tools they have in order to do the best fiduciary response for the customers. That's a little summary. Just fix what was broken, declare victory, and move on has been our message. Got it. Very helpful there. Thanks again. Your next question for today is coming from Kenneth Worthington. Please announce your affiliation, then pose your question. Hi, good morning. Kenneth Worthington from JP Morgan. First on SMAs, I believe strategic value is a big part of SMAs. Strategic value appears to be like just crushing it at the moment. SMAs are in reasonable redemptions. I'm trying to sort of figure that out. How should we expect fund sales here to rebound in the SMA version of strategic value as we look forward? You know, I'm a bit surprised that maybe things don't look better in SMAs given how well strategic value is doing. Anyway, help me reconcile the strength of strategic value and the weakness of SMA sales. Thanks, Kenneth. Great. On SMAs, the total net inflows for the quarter were just under $1 billion. Yet, yes, most of that was from Strategic Value, but our fixed income SMAs had net inflows and some of the other equity strategies had net inflows, though again, Strategic Value was the bulk of it. SMAs are a part of what we report as the separately managed accounts assets. When you're seeing the negative there, you're picking up the $1.1 billion that we talked about with coming from BTPS to complete their drawdown and then other client, you know, puts and takes. The SMA business in and of itself had a very solid quarter. Okay, great. I probably screwed that up, but thank you. On the planned client redemption in money market funds that you announced that's taken place over the last couple of months, how much is left with that client? Are they mostly cleaned up in that redemption or is there still significant money left to come out as part of that planned redemption? Thank you. Debbie? Yes, the vast majority of that is out. There's still some tails to clean up, but the majority of it is gone. Okay, great. Thank you very much. Your next question is coming from Michael Brown. Please announce your affiliation, then pose your question. Hi, Mike Brown from KBW. Good morning. I guess I wanted to take a step back and hear your thoughts a little bit about the outlook here for the money fund business. Obviously, we've seen a very rapid pace of rate hikes here from the Fed, and then the market's pricing in actually a cut next year. You know, I know you don't have a crystal ball, and the forward curve changes all of the time, but whether you incorporate industry research or your own historical experience, how should we think about how the money fund flows could perform over the next 12-18 months? Obviously, it's very fluid, but we've just been interested to hear your thoughts. From a longer-term perspective, Mike, we put a chart in our booklet that shows you the increase in the money supply going up, on average, 7% over some long period. The money funds going up, both in industry and in Federated, of course, Federated going higher than industry, but going up slightly higher. What that tells you is that as the money stock goes up, people need to put it somewhere. The money market funds as a group are a very valuable and efficacious place for short-term cash, whether or not people are worried about inflation or up rates or down rates or whatever. These things have proven for half a century of being very resilient securities and places for short-term cash. We would expect that to continue, and I would certainly expect, especially given what the Fed has done to see increased flows. All of that subject to whatever the SEC comes up with, which probably doesn't get put into effect until sometime in 2023. You cannot let this question go by without hearing Debbie's view on it. Thanks, Chris. Yeah, I would say, you know, at this point, we are very optimistic, Michael. We are still looking at a Fed that is increasing rates, you know, and as they should be, with respect to inflation fighting. That continues to be their number one goal is to bring inflation back under control. We had, you know, the PCE come out this morning at 4.8% on a year-over-year basis, 0.6 month-over-month. Those are both higher than expectations. So we're not. You know, I can't think that they feel comfortable that their goal is being achieved yet at this point. However, if you look at, you know, sort of when they started raising rates, and they started it with only 25 basis points back in March, you know, we're not even six months into the process. It generally, you know, there's leads and lags that are, you know, different in nature, but generally, it takes about six months for increasing rates to impact other types of statistics in the marketplace. So, you know, we think that they are gaining control, but certainly not there yet. Our expectation would continue to see, you know, larger increases front-ended, so another 75 basis points likely in September, and then maybe trailing off towards the fourth quarter and into the first half of 2023. If you look at, you know, a terminal rate of somewhere in the 3.5%-4% area, and that holding then for maybe about six months or so, depending upon, again, what's happening, you know, the Fed told us, you know, data dependency is now even more of a phrase, a catchphrase than it has been historically. They're gonna try to react on a dime, if you will, and react to new news and additional news as it comes out. We're continuously listening to Fed speak. We're continuously watching the data as it comes out. You know, we'll go with the guidance that they give us after each statistic, with the hopes that, you know, that what they've done so far starts to be felt. You know, agreeing with what Chris was saying, the flows are incoming, the money stock has increased, and we're not at zero rates anymore. It's a good environment for people to take cover. It's a good environment for new cash flows to be placed. It's a good environment for people to earn something in a positive sense versus other asset classes at this point. Great. Thank you. Thank you for all that color, Debbie and Chris. I really appreciate that. If I just change gears to capital allocation. $90 million of share purchases in the quarter. You announced the acquisition of C.W. Henderson, which seems like a nice fit here. Can you just share an update on how you're thinking about capital allocation going forward? Just touch on if you're seeing any other attractive acquisition opportunities at this time. Sure, Mike. You know, we borrowed $350 million and 3.29% ten-year money. When we borrowed that, we knew we were gonna get it, and we started buying shares. We expected to buy 8-10 million shares. By the way, we thought that rates were gonna go up and our stock price was undervalued. With the last three quarters, our pace got us to about 10 million shares, and we also have the money to pay for the C.W. Henderson acquisition. You know, I'd say, I think buybacks should scale back from there, from the recent pace. If you look at the history, we've completed about 15 buyback programs since going public and reduced our share count by 33%. Right now we have 5 million share program that is approved and available to us, and we will remain active. In terms of M&A, we, you know, that's perfect. We just announced a deal, and then we're getting asked, "What's the next deal?" We still need to close that deal and have that, then put our efforts to grow, which we expect to happen. Our team on the M&A side and on the alt side, which is a lot of opportunities, we are still active and out there, but I don't have anything specific to talk about there. Okay, great. I appreciate that, and certainly don't mean to imply that you need to go on an acquisition spree. Just was interested in the thoughts there. I appreciate it. Thanks for taking my questions. Thank you. Your next question for today is coming from John Dunn. Please announce your affiliation, then pose your question. Yes. Hi. John Dunn, Evercore ISI. Could you maybe touch on where the sales discussions and kinda underlying gross decay picture is for the Kaufmann Small Cap Fund? I missed some of your words there, John. Please repeat. Okay. Yeah, sure. Okay. Sorry about that. Maybe could you just touch on where the sales discussions and maybe the underlying gross decay picture is for the Kaufmann Small Cap? Okay. In general, as you know, we closed that fund. It was closed for over a year. The asset figures were up at $10 billion, now they're in the $6 billion range. We opened it back up because we were getting commentary from some clients that this would be the time to average in or buy in on the growth side, on the small cap growth side. At this point, I'll let Ray tell you some of the dynamics. Sure, John. If you look at the redemption trend in that fund in Q1, it was about $638 million. That dropped to $365 million for Q2. Through the early part here, three weeks of Q3, it's running at more like $58 million. It continues to trend downward. Those are the numbers. Anecdotally, our sales force, our regional consultants are having. There is a lot of conversation about when is the right time to get back into this strategy, into growth, but into this strategy in particular, given its long-term history and the record and strength of that team. What we've seen so far is a diminution in redemptions, and we're anticipating ongoing improvement as there is considerable interest in that strategy. Great. Maybe just one other on another recent drag on flows. You talked about better trends in ultrashort and high yield funds. Do you think that could continue to trend closer to, if not to neutral, you know, less of a drag? Well, the word I had in there originally was they're less worse, and then that was amended to say they were better. That still continues. The only good thing you can say about those redemptions, like with any, is once they're gone, they're gone. That's about what we're dealing with there. Those are still viable products, and we even had one of our High Yield offerings have positive flows. Ray will give you some of the details on that. Those, we don't see them stopping anytime soon. Yes, same kinda picture. I mean, if you look at High Yield collectively, you know, where we had about $860 million of redemptions in Q2, that's now more like about $170 million. You know, again, there's been challenge with that asset class with credit, but our clients certainly know our long-term record and the strength of the team we have. You know, as conditions improve and as people become more confident in things like High Yield exposure, we would fully expect that that would continue to improve and eventually get back to inflows. On the ultrashort side, it's all part of the spectrum of what's happening with liquidity options. I mentioned micro shorts having some inflows. Obviously cash has had inflows. When you get the kind of rate movement that Debbie has talked about, and you had clients who moved out to ultrashort when money market yields were, you know, down close to zero, and you could get 1% or, you know, plus or minus in an ultrashort, there's less reason to do that now. We, you know, we've certainly, I'm sure, had some of that money that's left ultrashorts wash up into the money market part of the complex. The pace of the net redemptions looks to be decreasing. It went down slightly in Q2 compared to Q1, and it's trending to be down more, again, through the very early part of Q3. Understood. Thanks very much. We do have a follow-up question coming from Patrick Davitt. Patrick, your line is live. Hey, guys. Thanks for the follow-up. Just real quick one on the big money fund client loss that you were talking about this summer. I assume, given what's clearly a pretty big chunk of money, that the fee rate on that was quite small. Is that a fair assumption? It's hard for us to talk about any particular client, even though, of course, we haven't named them. The best we could do would be to look at the overall blended fee rates, Patrick. You know, because it is an intermediary, there's both revenue and related distribution expense. There wouldn't be a reason to highlight this one differently than others. Okay, thanks. There are no further questions in queue. I would like to turn the floor back over to Ray for any closing remarks. Well, thank you very much, Holly, and that concludes our call, and we thank you for joining us today. Thank you, ladies and gentlemen. 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.