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Federated Hermes reported Q4'​24 earnings and hosted its Q4'​24 earnings call late last week. On the call, President & CEO J. Christopher Donahue, comments, "We ended 2024 with record assets under management of $​830 billion, driven by record money market assets of $​630 billion.... We reached another record high for money market fund assets at the end of '​24, namely $​462 billion, and total money market assets of the aforementioned $​630 billion. Total money market assets increased by about $​37 billion in Q4, as money market funds added $​21 billion and money market separate accounts added $​16 billion. Market sentiment around short-​term interest rates indicates a higher for longer view, which is conducive for growth in money market strategies."

He tells us, "Higher rates support a positive view of cash as an asset class. Money market strategies in this environment have attractive yields compared to alternatives like bank deposits and direct investments in T-​bills and commercial paper. Our estimate of money market mutual fund market share, which includes our sub-​advised funds, was about 7.​22% at the end of '​24, down slightly from about 7.​32% at the end of Q3. Now looking at recent asset totals as of a few days ago, managed assets were approximately $​839 billion, including $​634 billion in money markets, $​83 billion in equities, $​100 billion in fixed income, $​19 billion in alternative private markets and $​3 billion in multi-​asset. Money market mutual fund assets were at $​455 billion."

During the Q&​A Session, Patrick Davitt from Autonomous Research, asks, "​It feels like the SMAs are kind of making up what looks like a little bit of market share loss on the fund side. Could you speak to maybe any trends that are going on that would kind of explain why some of the other large money fund complexes, say, at the banks or even other large asset managers like BlackRock are seeing so much higher fund flows, mutual fund flows than you guys? I appreciate that the SMAs are making up for that, but I'​m just curious what dynamics you are seeing there and maybe we can'​t see from our position?"

Donahue responds, "​The first thing is I went back and looked over our market share data for the last three years that we’​ve been giving you every quarter. And you average all those numbers, and it turns out to be between 7.​33% and 7.​32%. So looking at it over one quarter where we were at 10th of a percent less, okay, yes, you can say that’​s loss of market share. We don’​t lose any clients in the process, and you see the ebb-​and-​flow of big amounts of money from clients. So I don’​t have any worries about losing market share. I'​ll let Debbie give you a better pulse of the marketplace response."

Money Market CIO Deborah Cunningham comments, "​I agree 100% with everything that Chris just said. The market share loss is not a loss in the context of clients. It may just be some large flows at year-​end, which is one of our most volatile times of the year. What I would say ... is that, generally speaking, the first quarter of every year on a cyclical basis tends to be the worst from a mutual fund flow basis, and we are not seeing that this year. Now maybe that will change. We are only one month into the first quarter. But ultimately, we think that'​s a very positive trend."

Michael Cahill of J.​P. Morgan then asks, "​I just wanted to follow up on the money market discussion. You called out the change in rate backdrop in your opening remarks, higher for longer rates.... Do you envision flows strengthening from here for your money fund business? I think that you called out the start of the year seems to be strong on the mutual fund side. So I guess I’​m just trying to understand, or better appreciate how you envision the money fund business here and the higher for longer backdrop, as well as maybe some of your Ultrashort products as well, which seem to make up a considerable portion of the business?"

Chris Donahue answers, "When you have rates as they are and going down and having a better relationship to the deposit rates, we believe the retail trade continues to be a very, very good trade. The institutional trade is available for institutions that are doing things ... for getting the extra basis point. So to us, that means we still have a positive attitude about the money fund business. To an owner operator, even though the rates didn'​t drop so fast that you created a big push for institutional business ... this is still a great time for money funds because they are a great advantage in the marketplace. And that’​s why I said it gives a lot of credence to cash as an asset class."

He says, "​And remember, and I'​ve said this before, if you have a five handle, it'​s total Nirvana. If you have a four handle, it'​s delightful on a money fund. At a three handle the clients are still quite sanguine about being there. But the war is still between the adviser who'​s worried about missing out, and trying to convince the customer to maybe move up. Then you have in the marketplace, a lot of people recognizing that cash deserves more than a 10 or 20 or 100 basis point-​type return. And that comes from a lot of factors, competitive, legal, regulatory, etc. So that sets a good stage for our business."

Cunningham adds, "​I wholeheartedly agree. I think maybe a couple of things to add with regard to that. When you look at the expected terminal rate in the current environment versus where it was six months ago in the second, in the latter half of 2024, it'​s 50 basis points higher, it'​s substantially higher. And the expectations with what might happen from an inflationary standpoint, the stickiness of it, from a growth standpoint with the new administration'​s policies, I think again, it allows us to be very comfortable that the Nirvana maybe doesn'​t start to happen again."

Finally, she states, "​I'​m not a believer of a tightening later in the year, although there are some in the market that are. But the delightful aspect of it, I think is still there. And ultimately, when you have additional users that have come into the market over the course of the last two-​plus years, they are not leaving. More than likely, they’​re going to increase their balances because their own cash is increasing from a standpoint of their balance sheet and what they'​re receiving with a good economic backdrop to have invested in this asset class. So our outlook continues to be maybe not percentage growth that exceeds what we saw in 2023 and '​24, but certainly continued substantial growth in the sector."

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