Federated Hermes, Inc. reports first quarter 2021 earnings

PITTSBURGH, April 29, 2021 /PRNewswire/ — Federated Hermes, Inc. (NYSE: FHI), a global leader in active, responsible investing, today reported…

PITTSBURGH, April 29, 2021 /PRNewswire/ — Federated Hermes, Inc. (NYSE: FHI), a global leader in active, responsible investing, today reported earnings per diluted share (EPS) of $0.75 for Q1 2021, compared to $0.63 for the same quarter last year, on net income of $74.5 million for Q1 2021, compared to $64.2 million for Q1 2020.

Federated Hermes’ total managed assets were $625.0 billion at March 31, 2021, up $19.2 billion or 3% from $605.8 billion at March 31, 2020 and up $5.6 billion or 1% from $619.4 billion at Dec. 31, 2020. Total average managed assets for Q1 2021 were $618.1 billion, up $37.9 billion or 7% from $580.2 billion reported for Q1 2020 and up $7.6 billion or 1% from $610.5 billion reported for Q4 2020.

«Strong investment performance and client interest in a range of our actively managed strategies distributed in key regions around the world generated net positive fund sales in Q1 2021 and helped Federated Hermes reach a record $96.2 billion in equity assets under management,» said J. Christopher Donahue, president and chief executive officer. «Fixed-income assets under management were a record $86.5 billion at the end of the first quarter, and we experienced net sales across a range of investment objectives—from short duration to short-intermediate to high-yield strategies.»

Federated Hermes’ board of directors declared a dividend of $0.27 per share. The dividend is payable on May 14, 2021 to shareholders of record as of May 7, 2021. During Q1 2021, Federated Hermes purchased 1,505,000 shares of Federated Hermes class B common stock for $45.0 million. The company’s board of directors also authorized a new share repurchase program, which is the firm’s 13th repurchase program and which allows Federated Hermes to repurchase up to 4 million additional shares of class B common stock in the open market with no expiration date. The repurchased stock is to be held in treasury for employee share-based compensation plans, potential acquisitions and other corporate activities. The company’s existing 3.5 million share repurchase program, approved in April 2020, has effectively been completed.

Equity assets were a record $96.2 billion at March 31, 2021, up $28.0 billion or 41% from $68.2 billion at March 31, 2020 and up $4.4 billion or 5% from $91.8 billion at Dec. 31, 2020. Top-selling equity funds during Q1 2021 on a net basis were Federated Hermes Global Emerging Markets Equity Fund, Federated Hermes Global Equity ESG Fund, Federated Hermes SDG Engagement Equity Fund (UCITS), Federated Hermes Asia ex-Japan Equity Fund and Federated Hermes Impact Opportunities Equity Fund.

Fixed-income assets were a record $86.5 billion at March 31, 2021, up $21.8 billion or 34% from $64.7 billion at March 31, 2020 and up $2.2 billion or 3% from $84.3 billion at Dec. 31, 2020. Top-selling fixed-income funds during Q1 2021 on a net basis were Federated Hermes Ultrashort Bond Fund, Federated Hermes SDG Engagement High Yield Credit Fund (UCITS), Federated Hermes Total Return Bond Fund, Federated Hermes Short-Intermediate Total Return Bond Fund and Federated Hermes Short-Intermediate Municipal Fund.

Alternative/private market assets were a record $19.3 billion at March 31, 2021, up $1.2 billion or 7% from $18.1 billion at March 31, 2020 and up $0.2 billion or 1% from $19.1 billion at Dec. 31, 2020.

Money market assets were $419.1 billion at March 31, 2021, down $32.2 billion or 7% from $451.3 billion at March 31, 2020 and down $1.2 billion or less than 1% from $420.3 billion at Dec. 31, 2020. Money market fund assets were $297.2 billion at March 31, 2021, down $38.9 billion or 12% from $336.1 billion at March 31, 2020 and down $4.7 billion or 2% from $301.9 billion at Dec. 31, 2020.

Financial Summary

Q1 2021 vs. Q1 2020

Revenue decreased $18.0 million or 5% percent primarily due to an increase in voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers). For further information, see «Impact of voluntary yield-related fee waivers» below. This decrease was partially offset by an increase in revenue due to higher average equity and fixed-income assets and an increase in revenue from alternative/private markets assets primarily related to revenue of a previously nonconsolidated entity being recorded in operating revenue beginning March 2020.

During Q1 2021, Federated Hermes derived 75% of its revenue from long-term assets (49% from equity, 16% from fixed-income and 10% from alternative/private markets and multi-asset), 24% from money market assets, and 1% from sources other than managed assets. 

Operating expenses decreased $22.7 million or 9% primarily due to decreased distribution expenses predominantly resulting from higher voluntary yield-related fee waivers, partially offset by increases in compensation expense.

Nonoperating income (expenses), net increased $8.9 million or 127% primarily due to an increase in the market value of investments since the negative impact of the pandemic on the markets in Q1 2020. This increase was partially offset by a gain recorded in March 2020 from a fair value adjustment to the equity investment of a previously nonconsolidated entity.

Q1 2021 vs. Q4 2020

Revenue decreased $22.7 million or 6% primarily due to an increase in voluntary yield-related fee waivers, two fewer days in Q1 2021 and a decrease in revenue from lower average money market assets. These decreases were partially offset by an increase in revenue due to higher average equity and fixed-income assets.

Operating expenses decreased $5.4 million or 2% primarily due to decreased distribution expenses predominantly resulting from higher voluntary yield-related fee waivers.

Nonoperating income (expenses), net decreased $12.8 million or 87% primarily due to the increase in the market value of investments in Q1 2021 being less than the increase in Q4 2020.

Impact of voluntary yield-related fee waivers

During the three months ended March 31, 2021, voluntary yield-related fee waivers totaled $83.1 million. These fee waivers were largely offset by related reductions in distribution expenses of $61.4 million, such that the net negative pre-tax impact to Federated Hermes was $21.7 million.

Short-term interest rates reached historical lows during Q1 2021 as technical factors at the front end of the yield curve drove yields on short-term government securities – including repurchase agreements and Treasury bills – to near zero in mid- to late February, which is where they remain currently.

As a result, the negative impact on pre-tax income from minimum yield waivers on money market mutual funds and certain separate accounts may range from $35 million to $45 million during Q2 2021. This range is based on gross yields on government money market portfolios of 3 to 10 basis points. Federated Hermes projects that the negative impact from minimum yield waivers for 2021 will peak in Q2. The amount of minimum yield waivers can vary based on a number of factors, including, among others, interest rates, yields, asset levels, asset flows and the ability of distributors to share in waivers. Any change in these factors can impact the amount and impact of minimum yield waivers, including in a material way.

Federated Hermes’ level of business activity and financial results are dependent upon many factors, including market conditions, investment performance and investor behavior. These factors and others, including asset levels and mix, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers, expenses and regulatory changes, can significantly impact Federated Hermes’ business activity levels and financial results. Risk factors and uncertainties that can influence Federated Hermes’ financial results are discussed in the company’s annual and quarterly reports as filed with the Securities and Exchange Commission (SEC).

Federated Hermes will host an earnings conference call at 9 a.m. Eastern on April 30, 2021. Investors are invited to listen to the earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time. To listen online, go to the Investor Relations section and the Analyst Information tab of FederatedHermes.com at least 15 minutes prior to register and join the call. A replay will be available at approximately 12:30 p.m. Eastern on April 30, 2021. To access the telephone replay, dial 877-481-4010 (domestic) or 919-882-2331 (international) and enter access code 40761. The online replay will be available via FederatedHermes.com for one year.

Federated Hermes, Inc. is a leading global investment manager with $625.0 billion in assets under management as of March 31, 2021. Guided by our conviction that responsible investing is the best way to create wealth over the long term, our investment solutions span equity, fixed-income, alternative/private markets, multi-asset and liquidity management strategies. Providing world-class active investment management and engagement services to more than 11,000 institutions and intermediaries, our clients include corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Headquartered in Pittsburgh, Federated Hermes’ nearly 2,000 employees include those in London, New York, Boston and offices worldwide. For more information, visit FederatedHermes.com.

Federated Hermes ranks in the top 7% of equity fund managers in the industry, the top 9% of money market fund managers and the top 10% of fixed-income fund managers1. Federated Hermes also ranks as the 9th-largest manager of model-delivered SMAs2. For more information, including an analyst presentation, visit FederatedHermes.com.

###

1) ISS Market Intelligence (SIMFUND), March 31, 2021. Based on assets under management in open-end funds.

2) Money Management Institute/Cerulli, Q4 2020.

Federated Securities Corp. is distributor of the Federated Hermes funds.

Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling, Federated MDTA LLC, Hermes Fund Managers Ireland Limited, Hermes Investment Management Limited, and Hermes GPE LLP, each a registered investment advisor in one or more of the U.S., U.K. or Ireland.

Certain statements in this press release, such as those related to performance, investor preferences and demand, asset flows, asset mix, interest rates, gross yields and fee waivers constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Other risks and uncertainties include the ability of the company to predict the level of fee waivers and expenses in future quarters, predict whether performance fees or carried interest will be earned and retained, and sustain product demand, asset flows and mix, which could vary significantly depending on various factors, such as market conditions, investment performance and investor behavior. Other risks and uncertainties include the risk factors discussed in the company’s annual and quarterly reports as filed with the SEC. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness, or updating, of such statements in the future.

 

Unaudited Condensed Consolidated Statements of Income

(in thousands, except per share data)








Quarter Ended

% Change

Q1 2020 to

Q1 2021


Quarter Ended

% Change

Q4 2020 to

Q1 2021


March 31, 2021

March 31, 2020


Dec. 31, 2020

Revenue







Investment advisory fees, net

$

247,689


$

240,660


3

%


$

265,593


(7)

%

Administrative service fees, net—affiliates

74,302


72,199


3



79,192


(6)


Other service fees, net

19,182


46,324


(59)



19,133


0


Total Revenue

341,173


359,183


(5)



363,918


(6)









Operating Expenses







Compensation and related

143,620


115,335


25



138,296


4


Distribution

44,389


96,160


(54)



59,419


(25)


Systems and communications

18,594


14,896


25



18,518


0


Professional service fees

14,636


13,268


10



13,961


5


Office and occupancy

11,240


11,771


(5)



6,436


75


Advertising and promotional

2,824


4,995


(43)



4,853


(42)


Travel and related

296


3,159


(91)



540


(45)


Other

8,096


6,855


18



7,120


14


Total Operating Expenses

243,695


266,439


(9)



249,143


(2)


Operating Income

97,478


92,744


5



114,775


(15)









Nonoperating Income (Expenses)







Investment income (loss), net

2,011


(14,451)


114



15,175


(87)


Debt expense

(491)


(931)


(47)



(468)


5


Other, net

345


8,345


(96)



(27)


NM


Total Nonoperating Income (Expenses), net

1,865


(7,037)


127



14,680


(87)


Income before income taxes

99,343


85,707


16



129,455


(23)


Income tax provision

24,997


22,442


11



28,183


(11)


Net income including the noncontrolling interests in

subsidiaries

74,346


63,265


18



101,272


(27)


Less: Net income (loss) attributable to the

noncontrolling interests in subsidiaries

(138)


(913)


85



6,104


(102)


Net Income

$

74,484


$

64,178


16

%


$

95,168


(22)

%








Amounts Attributable to Federated Hermes, Inc.







Earnings Per Share1







Basic

$

0.75


$

0.63


19

%


$

0.94


(20)

%

Diluted

$

0.75


$

0.63


19

%


$

0.93


(19)

%

Weighted-Average Shares Outstanding







Basic and Diluted

95,218


97,345




95,504



Dividends Declared Per Share

$

0.27


$

0.27




$

1.27





1)

Unvested share-based awards that receive non-forfeitable dividend rights are deemed participating securities and are required to be considered in the computation of basic earnings per share under the «two-class method.» As such, total net income of $3.0 million, $2.4 million and $5.0 million available to unvested restricted Federated Hermes shareholders for the quarterly periods ended March 31, 2021, March 31, 2020 and Dec. 31, 2020, respectively, was excluded from the computation of basic earnings per share. In addition to the amounts excluded from the basic earnings per share calculation, the computation of diluted earnings per share excludes net income available to unvested shareholders of a nonpublic consolidated subsidiary.


 

Unaudited Condensed Consolidated Balance Sheets



(in thousands)

March 31, 2021

Dec. 31, 2020

Assets



  Cash and other investments

$

382,695


$

438,771


  Other current assets

137,617


136,572


  Intangible assets, net, including goodwill

1,283,036


1,282,020


  Other long-term assets

206,605


203,476


  Total Assets

$

2,009,953


$

2,060,839





Liabilities, Redeemable Noncontrolling Interests and Equity



  Current liabilities

$

199,300


$

265,446


  Long-term debt

70,000


75,000


  Other long-term liabilities

339,814


346,409


  Redeemable noncontrolling interests

245,717


236,987


  Equity excluding treasury stock

1,509,634


1,461,728


  Treasury stock

(354,512)


(324,731)


  Total Liabilities, Redeemable Noncontrolling Interests and Equity

$

2,009,953


$

2,060,839


 


Unaudited Changes in Long-Term Assets – By Asset Class


(in millions)

Quarter Ended



March 31, 2021

Dec. 31, 2020

March 31, 2020


Equity





Beginning assets

$

91,788


$

80,405


$

89,011



Sales1

7,760


5,618


6,080



Redemptions1

(7,164)


(6,047)


(7,842)



Net sales (redemptions)1

596


(429)


(1,762)



Net exchanges

32


(8)


(37)



Acquisitions/(dispositions)

0


0


(71)



Impact of foreign exchange2

(595)


946


(768)



Market gains and (losses)3

4,349


10,874


(18,134)



Ending assets

$

96,170


$

91,788


$

68,239








Fixed Income





Beginning assets

$

84,277


$

79,546


$

69,023



Sales1

11,187


9,046


7,687



Redemptions1

(8,284)


(6,046)


(9,788)



Net sales (redemptions)1

2,903


3,000


(2,101)



Net exchanges

(44)


(10)


(115)



Acquisitions/(dispositions)

0


0


(1)



Impact of foreign exchange2

(60)


181


(155)



Market gains and (losses)3

(612)


1,560


(1,936)



Ending assets

$

86,464


$

84,277


$

64,715








Alternative/Private Markets





Beginning assets

$

19,084


$

18,146


$

18,102



Sales1

478


574


888



Redemptions1

(631)


(661)


(582)



Net sales (redemptions)1

(153)


(87)


306



Net exchanges

(1)


(3)


2



Acquisitions/(dispositions)

0


0


452



Impact of foreign exchange2

139


1,061


(1,121)



Market gains and (losses)3

232


(33)


320



Ending assets

$

19,301


$

19,084


$

18,061








Multi-asset





Beginning assets

$

3,948


$

3,737


$

4,199



Sales1

67


50


98



Redemptions1

(170)


(166)


(235)



Net sales (redemptions)1

(103)


(116)


(137)



Net exchanges

5


3


(14)



Impact of foreign exchange2

(1)


0


0



Market gains and (losses)3

132


324


(554)



Ending assets

$

3,981


$

3,948


$

3,494








Total Long-term Assets





Beginning assets

$

199,097


$

181,834


$

180,335



Sales1

19,492


15,288


14,753



Redemptions1

(16,249)


(12,920)


(18,447)



Net sales (redemptions)1

3,243


2,368


(3,694)



Net exchanges

(8)


(18)


(164)



Acquisitions/(dispositions)

0


0


380



Impact of foreign exchange2

(517)


2,188


(2,044)



Market gains and (losses)3

4,101


12,725


(20,304)



Ending assets

$

205,916


$

199,097


$

154,509





1)

For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

2)

Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

3)

Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

 

Unaudited Changes in Long-Term Assets – By Asset Class and Product Type

    (in millions) 



Quarter Ended


March 31, 2021


Equity

Fixed Income

Alternative / Private

Markets

Multi-asset

Total


Funds

Separate

Accounts1

Funds

Separate

Accounts1

Funds

Separate

Accounts1

Funds

Separate

Accounts1

Funds.

Separate

Accounts1

Beginning assets

$

54,312


$

37,476


$

53,557


$

30,720


$

12,100


$

6,984


$

3,744


$

204


$

123,713


$

75,384


Sales

5,649


2,111


9,235


1,952


304


174


65


2


15,253


4,239


Redemptions

(4,441)


(2,723)


(6,732)


(1,552)


(461)


(170)


(141)


(29)


(11,775)


(4,474)


Net sales (redemptions)

1,208


(612)


2,503


400


(157)


4


(76)


(27)


3,478


(235)


Net exchanges

(372)


404


(44)


0


(1)


0


5


0


(412)


404


Impact of foreign exchange2

(261)


(334)


(38)


(22)


82


57


0


(1)


(217)


(300)


Market gains and (losses)3

1,880


2,469


(397)


(215)


207


25


124


8


1,814


2,287


Ending assets

$

56,767


$

39,403


$

55,581


$

30,883


$

12,231


$

7,070


$

3,797


$

184


$

128,376


$

77,540




1)

Includes separately managed accounts, institutional accounts, certain sub-advised funds and other managed products. For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

2)

Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

3)

Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

 

Unaudited Changes in Long-Term Assets – By Product Type


(in millions) 

Quarter Ended



March 31, 2021

Dec. 31, 2020

March 31, 2020


Total Fund Assets





Beginning assets

$

123,713


$

110,811


$

107,724



Sales

15,253


12,204


11,361



Redemptions

(11,775)


(9,020)


(13,604)



Net sales (redemptions)

3,478


3,184


(2,243)



Net exchanges

(412)


(18)


(158)



Impact of foreign exchange1

(217)


1,258


(1,164)



Market gains and (losses)2

1,814


8,478


(11,908)



Ending assets

$

128,376


$

123,713


$

92,251








Total Separate Account Assets3





Beginning assets

$

75,384


$

71,023


$

72,611



Sales4

4,239


3,084


3,392



Redemptions4

(4,474)


(3,900)


(4,843)



Net sales (redemptions)4

(235)


(816)


(1,451)



Net exchanges

404


0


(6)



Acquisitions/(dispositions)

0


0


380



Impact of foreign exchange1

(300)


930


(880)



Market gains and (losses)2

2,287


4,247


(8,396)



Ending assets

$

77,540


$

75,384


$

62,258








Total Long-term Assets3





Beginning assets

$

199,097


$

181,834


$

180,335



Sales4

19,492


15,288


14,753



Redemptions4

(16,249)


(12,920)


(18,447)



Net sales (redemptions)4

3,243


2,368


(3,694)



Net exchanges

(8)


(18)


(164)



Acquisitions/(dispositions)

0


0


380



Impact of foreign exchange1

(517)


2,188


(2,044)



Market gains and (losses)2

4,101


12,725


(20,304)



Ending assets

$

205,916


$

199,097


$

154,509





1)

Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

2)

Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

3)

Includes separately managed accounts, institutional accounts, certain sub-advised funds and other managed products.

4)

For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

 

Unaudited Managed Assets


 

(in millions)

March 31, 2021

Dec. 31, 2020

Sept. 30, 2020

June 30, 2020

March 31, 2020

By Asset Class






Equity

$

96,170


$

91,788


$

80,405


$

76,859


$

68,239


Fixed-income

86,464


84,277


79,546


73,143


64,715


Alternative / private markets

19,301


19,084


18,146


17,485


18,061


Multi-asset

3,981


3,948


3,737


3,705


3,494


Total long-term assets

205,916


199,097


181,834


171,192


154,509


Money market

419,080


420,333


432,952


457,624


451,330


Total Managed Assets

$

624,996


$

619,430


$

614,786


$

628,816


$

605,839








By Product Type






Funds:






Equity

$

56,767


$

54,312


$

46,093


$

43,723


$

36,955


Fixed-income

55,581


53,557


49,779


46,046


40,601


Alternative / private markets

12,231


12,100


11,393


11,037


11,365


Multi-asset

3,797


3,744


3,546


3,516


3,330


Total long-term assets

128,376


123,713


110,811


104,322


92,251


Money market

297,182


301,855


325,940


344,846


336,133


Total Fund Assets

$

425,558


$

425,568


$

436,751


$

449,168


$

428,384


Separate Accounts:






Equity

$

39,403


$

37,476


$

34,312


$

33,136


$

31,284


Fixed-income

30,883


30,720


29,767


27,097


24,114


Alternative / private markets

7,070


6,984


6,753


6,448


6,696


Multi-asset

184


204


191


189


164


Total long-term assets

77,540


75,384


71,023


66,870


62,258


Money market

121,898


118,478


107,012


112,778


115,197


Total Separate Account Assets

$

199,438


$

193,862


$

178,035


$

179,648


$

177,455


Total Managed Assets

$

624,996


$

619,430


$

614,786


$

628,816


$

605,839


 

Unaudited Average Managed Assets

Quarter Ended

(in millions)

March 31, 2021

Dec. 31, 2020

Sept. 30, 2020

June 30, 2020

March 31, 2020

By Asset Class






Equity

$

95,167


$

85,572


$

80,403


$

73,620


$

82,767


Fixed-income

86,939


82,144


76,798


69,603


69,068


Alternative / private markets1

19,278


18,549


18,270


18,022


17,983


Multi-asset

3,974


3,831


3,786


3,630


4,006


Total long-term assets

205,358


190,096


179,257


164,875


173,824


Money market

412,720


420,436


448,795


471,984


406,365


Total Avg. Managed Assets

$

618,078


$

610,532


$

628,052


$

636,859


$

580,189








By Product Type






Funds:






Equity

$

56,832


$

50,022


$

46,020


$

41,301


$

44,996


Fixed-income

55,416


51,934


48,418


43,229


44,017


Alternative / private markets1

12,239


11,670


11,539


11,345


11,143


Multi-asset

3,783


3,634


3,590


3,453


3,814


Total long-term assets

128,270


117,260


109,567


99,328


103,970


Money market

288,403


311,769


338,814


356,736


290,641


Total Avg. Fund Assets

$

416,673


$

429,029


$

448,381


$

456,064


$

394,611


Separate Accounts:






Equity

$

38,335


$

35,550


$

34,383


$

32,319


$

37,771


Fixed-income

31,523


30,210


28,380


26,374


25,051


Alternative / private markets

7,039


6,879


6,731


6,677


6,840


Multi-asset

191


197


196


177


192


Total long-term assets

77,088


72,836


69,690


65,547


69,854


Money market

124,317


108,667


109,981


115,248


115,724


Total Avg. Separate Account Assets

$

201,405


$

181,503


$

179,671


$

180,795


$

185,578


Total Avg. Managed Assets

$

618,078


$

610,532


$

628,052


$

636,859


$

580,189




1)

The average balance for the quarter ended March 31, 2020 includes $8.0 billion of assets managed by a previously non-consolidated entity, Hermes GPE LLP (HGPE), in which Federated Hermes held an equity method investment. Effective March 1, 2020, HGPE became a consolidated subsidiary.

 

Cision View original content:http://www.prnewswire.com/news-releases/federated-hermes-inc-reports-first-quarter-2021-earnings-301280704.html

SOURCE Federated Hermes, Inc.