Federated Hermes, Inc. reports record $912B AUM in Q2 2023, driven by strong equity and private market growth. Money market assets decline slightly, but year-over-year growth remains strong.
Federated Hermes, Inc. reported Q2 2023 results with record assets under management of $912 billion, an increase of 5% from the prior quarter and surpassing the $900 billion consensus estimate. This growth was largely driven by significant increases in equity and private market assets, which underscore the company's expanding market presence despite a slight decline in money market fund assets.
Key Takeaways
- Assets Under Management reached $912 billion, up 5% quarter-over-quarter, fueled by strong performance in equity and private markets.
- Equity Assets increased to $110 billion, contributing $8.8 billion in growth, despite net redemptions of $1.1 billion during the quarter.
- Private Market Assets rose by $2.6 billion to $21.6 billion, bolstered by the acquisition of an 80% stake in FCP Fund Manager LP, adding $3.2 billion in managed assets.
- Fixed Income Assets grew to just over $100 billion, reflecting a net increase of $689 million despite ongoing market challenges.
- Money Market Assets decreased by $7.9 billion quarter-over-quarter, yet were up 7% year-over-year, showing resilience in a competitive market.
Record Growth in Assets Under Management
The company ended Q2 2023 with record assets under management (AUM) of $912 billion, marking a 5% increase from the previous quarter. This growth was primarily driven by an uptick in equity and private market assets. Equity assets reached a record $110 billion, up $8.8 billion or 9% from Q1. However, it is noteworthy that the company experienced net redemptions in equity funds totaling $1.1 billion, which included a significant expected redemption of $3 billion from a global equity sub-advisory strategy.
| Metric | Q2 2023 | YoY | QoQ |
|---|---|---|---|
| Total AUM | $912B | +5% | +5% |
| Equity Assets | $110B | +9% | +9% |
| Fixed Income Assets | $100B | +1% | +1% |
| Private Market Assets | $21.6B | +13% | +13% |
| Money Market Assets | $500B | +7% | -1% |
Strong Performance in Equity and Private Markets
Federated Hermes saw impressive growth in its equity and private market segments. The acquisition of an 80% interest in FCP Fund Manager LP notably contributed $3.2 billion in managed assets, helping to increase private market assets to $21.6 billion. In the equity segment, MDT fundamental quant strategies were particularly successful, driving record gross sales of $6 billion, with net sales of $3.5 billion.
Management noted that 54% of equity funds outperformed their peers over the trailing three years, reflecting the strength of their investment strategies. As the company moves into Q3, they expect net sales in equity strategies to reach approximately $1.7 billion.
Challenges in Money Market Funds
Despite the overall growth, money market assets faced challenges, decreasing by $7.9 billion in Q2. However, year-over-year, these assets were still up 7%, indicating solid long-term growth. The decrease was attributed to seasonality and competitive pressures, as the company’s money market fund market share dropped slightly to 6.7% from 6.9% in Q1. Management acknowledged that large institutional clients often shift assets in response to market conditions, affecting short-term flows.
Guidance and Outlook
For Q3, Federated Hermes anticipates net sales in fixed income to be about $300 million and equity strategies to bring in approximately $1.7 billion. The company is also keeping a close eye on the regulatory landscape surrounding digital assets, which may provide future growth opportunities. As articulated by CEO Chris Donahue, the team is focused on developing both traditional and digital investment opportunities, noting, >“We expect our engagements with intermediaries to grow as regulations clarify.”
Frequently Asked Questions
Did Federated Hermes, Inc. beat earnings estimates in Q2 2023?
Yes, the company reported earnings that exceeded consensus expectations, driven by strong asset growth and strategic acquisitions.
What were the key drivers behind the increase in assets under management?
The increase was primarily driven by growth in equity assets, boosted by strong sales of their MDT strategies and the acquisition of FCP Fund Manager LP.
How did money market fund assets perform this quarter?
Money market fund assets decreased by $7.9 billion quarter-over-quarter but increased by 7% year-over-year, indicating resilience despite competitive pressures.
What is the outlook for Federated Hermes in Q3 2023?
Management is optimistic, forecasting net sales of approximately $1.7 billion in equity strategies and $300 million in fixed income strategies.
In summary, while Federated Hermes is experiencing robust growth in several segments, the slight decline in money market assets raises questions about competitive dynamics in that space. How management navigates these challenges and capitalizes on growth opportunities in equity and private markets will be crucial in the upcoming quarters.
This analysis is based on public earnings call materials and is not investment advice.
