Federated Revenue Hurt by Waivers
A release entitled, "Federated Hermes, Inc. reports second quarter 2021 earnings," tells us, "Money market assets were $429.8 billion at June 30, 2021, down $27.8 billion or 6% from $457.6 billion at June 30, 2020 and up $10.7 billion or 3% from $419.1 billion at March 31, 2021. Money market fund assets were $302.0 billion at June 30, 2021, down $42.8 billion or 12% from $344.8 billion at June 30, 2020 and up $4.8 billion or 2% from $297.2 billion at March 31, 2021.... Revenue decreased $49.7 million or 14% 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) and a decrease in revenue due to lower average money market assets. For further information on the waivers, see 'Impact of voluntary yield related fee waivers' below. These decreases were partially offset by an increase in revenue due to higher average equity and fixed-income assets. During Q2 2021, Federated Hermes derived 83% of its revenue from long-term assets (55% from equity assets, 19% from fixed-income assets and 9% from alternative/private markets and multi-asset), 16% from money market assets, and 1% from sources other than managed assets. Operating expenses decreased $34.2 million or 13% primarily due to decreased distribution expenses predominantly resulting from higher voluntary yield-related fee waivers." Federated adds, "During the three and six months ended June 30, 2020, voluntary yield-related fee waivers totaled $19.7 million and $20.1 million, respectively. These fee waivers were largely offset by related reductions in distribution expenses of $17.7 million and $18.0 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $2.0 million and $2.1 million for the three and six months ended June 30, 2020, respectively. Short-term interest rates continued to hover near historic lows during Q2 2021 as technical factors at the front end of the yield curve kept yields on short-term government securities -- including repurchase agreements and Treasury bills -- just above zero. At their June Federal Open Market Committee meeting, the Federal Reserve increased the Reverse Repo Facility and the Interest on Excess Reserves rates by 5 basis points each, to 5 and 15 basis points, respectively. As a result, the negative impact on pre-tax income from minimum yield waivers on money market mutual funds and certain separate accounts may be approximately $38 million during Q3 2021. 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 level of minimum yield waivers, including in a material way.... Federated Hermes will host an earnings conference call at 9 a.m. Eastern on July 30, 2021. Investors are invited to listen to the earnings teleconference by calling 877-407-0782 ... 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."
