Federated Hermes, Inc. (FHI) Q4 2010 Earnings Report, Transcript and Summary

Greetings and welcome to the Federated Investors Fourth Quarter 2010 Earnings Call and webcast. [Operator Instructions] It is now my pleasure to introduce your host, Ray Hanley, President of Federated Investors Management Company. Thank you. Mr. Hanley, you may begin.

Good morning, and welcome. Leading today's call will be Chris Donahue, Federated's CEO; and Tom Donahue, Chief Financial Officer. And they'll give some brief remarks before we open up for questions. Joining us for the Q&A will be Debbie Cunningham, CIO of Federated Money Markets. In the way of forward-looking statements let me say that during today's call, we may make forward-looking statements and we want to note that Federated's actual results may be materially different than the results implied by such statements. We invite you to review our risk disclosures in our SEC filings. No assurance can be given as to the future results, and Federated assumes no duty to update any of these forward-looking statements. And with that, I'll turn it over to Chris.

Well thank you, Ray, and good morning. I will start with a brief review of Federated's recent business performance before turning the call over to Tom to discuss our financials. Looking first at cash management, Money Market assets were up to $15 billion from the prior quarter, with about $3 billion of this coming from the completion of the SunTrust Money Market acquisition. As you can see, by looking at the average assets, inflows came in later in the quarter as we've seen at other year ends. So far in January, Money Market assets are down slightly. While market conditions continue to be challenging, our cash management business remains well positioned, strong and stable. The fourth quarter saw an uptick in money fund yield waivers to just the beyond the high side of our calculation last quarter. Tom will comment on the waiver impact in his remarks. We continue to expect that these waivers will not change much until a clear path to higher short-term rates and Fed increases emerges. Now Debbie will talk about our rate outlook a bit later. Our Money Market fund share at the end of the year was about 8.8%. This compares to about 8.5% at year-end '09 and year-end '08, and about 7% for '07 and about 5% at the beginning of the year 2000. On the regulatory front, Federated and many others have responded to the SEC's request for comments to the options discussed in the President's working group report. In our view, the changes made in 2010 to Rule 2a-7, which are still being implemented by the industry, have further strengthened the framework that has worked exceptionally well for over 30 years. We believe it would be appropriate to allow these measures to be fully implemented and evaluated over a longer time frame, before considering this option of additional regulatory changes. We continue to support the liquidity bank measure that was proposed by the industry through the ICI Working Group. We see this as an option that will enhance money fund resiliency by offering a source of additional liquidity or high-quality investments; but importantly, it does not socialize credit risk and does not provide for a guarantee on money funds, which we believe is neither practical nor necessary. Turning to other products, we have a variety of equity funds with solid records that we expect to gather assets as the market conditions continue to improve. Gross and net sales in the fourth quarter were strongest in our strategic value dividend fund, which is well positioned as investors increasingly look for income from equity investments. The Kaufmann Large Cap Fund recently marked its three-year anniversary and with its strong performance, achieved strong ratings and positive flows. The Kaufmann Small Cap fund also had positive flows during the fourth quarter. Our International group has produced a very solid performance over the last year. We saw positive flows into the international leaders and international strategic value funds in the fourth quarter. On the value side, the Clover Small Value Fund has performed well and has produced positive flows in the fourth quarter. While our gross equity fund sales increased about 7% in the fourth quarter from the prior quarter, flows were negative, due mainly to outflows in the Prudent Bear fund. But we position this fund as an overall enhancement to a portfolio over market cycles. And we believed that this is how most of the shareholders use the fund. Yet, we have seen that the fund tends to acquire assets in down markets that experience outflows in up markets. This fund had inflows of $216 million in the third quarter and then moved to outflows of $295 million in the fourth quarter, for a swing of over $500 million. By looking at the first quarter results for the first few weeks, equity flows have been modestly negative. Within equity separate accounts, outflows were largely due to net redemptions in Quant products, MBT, SMA and institutional accounts. We won the small-cap growth institutional mandate that we expect to fund next quarter with about $120 million. Looking at Bond Funds, our gross sales were up slightly in Q4, while net sales decreased from Q3 consistent with industry trends. However, our Total Return Bond Fund showed higher gross and net sales compared to Q3, and our high-yield funds remained in positive flows. Ultrashort products swung from positive in the third quarter to slightly negative in the fourth quarter. On the muni bond side, gross sales were higher in Q4 than Q3, but we saw negative flows in the group compared to the positive flows in Q3. Bond flows are negative in the first couple of weeks of January, due in part to a $200 million redemption from Total Return Bond Fund from a client reaching its fund asset concentration limit. We've also seen a pickup in muni bond fund redemption. In fixed income separate accounts, we had a solid quarter of net inflows over $800 million, and we expect about $350 million of new assets to fund in the first quarter. Turning to fund investment performance and looking at year-end Lipper rankings for Federated equity funds: 25% of rated assets are in the first or second quartile over the last year; 21%, three years; 65%, five years; and 83%, 10 years. For Bond Fund assets of the comparable first and second quartile percentages are 31%, one year; 65%, three years; 74%, five years; and 66%, 10 years. As of January 26, our managed assets were approximately $356 billion, including $274 billion in money markets, $31 billion in equities and $51 billion in fixed income, including our liquidation portfolio. Money Market mutual fund assets stand at about $241 billion. So far in January, our money fund assets have ranged between $236 billion and $245 billion and have averaged right about $241 billion. Regarding acquisitions, we continue to look for an alliance to further advance our business outside the U.S. as a component of our strategy to expand globally. We remain active in looking for consolidation deals, including money market business. As always, we cannot predict the probability or timing of any potential deals. Tom?

Thank you, Chris. As mentioned in the press release, our results for this quarter were impacted by a non-cash impairment charge. Operating income was up from Q3 by $4 million. Excluding the $3.2 million impairment charge, it would have been up by $7.2 million. EPS of $0.45 would have been $0.47, excluding the impairment charge up from $0.42 for Q3. Money fund yield waivers reduced revenues by about $6 million more in Q4 than in Q3, with about $5 million of this offset by lower related distribution expense. These waivers reduced operating income by $12.3 million for the quarter, compared to $11.2 million in the prior quarter. Based on current market conditions and asset levels, we expect these waivers to reduce operating income by about the same amount in the first quarter. We do not expect the impact from waivers to change materially from this level until the market begins to factor in the potential for Fed increases and then, again, when the Fed actually begins to increase interest rates. As Chris said, Debbie will comment and give our rate outlook in a few minutes. Looking forward, we estimate that gaining another 10 basis points in gross yields will likely reduce the impact of these waivers by about 1/3 from the current level, and a 25 basis point increase would reduce the impact by about 2/3. Turning to expenses. Compensation and related expense was down by $5 million from Q3. Late in the fourth quarter, the Board of Directors approved a change to the Executive Compensation Program for 2010 that resulted in a greater percentage of incentive compensation to be paid in the form of restricted stock than previously estimated. The computation expense from the restricted stock program will be recorded over the next three years as the stock vest. This change was made only for 2010 and made up the majority of the reduction in comp compared to Q3. For Q1, we currently expect compensation and related expense will be in a range of $64 million to $66 million. Of course, there are a number of factors that could move Q1 compensation outside of this estimate. Distribution expense was flat despite higher Money Market fund assets, due to higher-yield waivers. The impairment charge recorded was due to a decrease in the fair value of certain assets from the acquisition on MDT Advisers, our quantitative equity group. We have approximately $3.5 million in the remaining book value in the amortizable assets from this acquisition. Looking at our balance sheet, cash and marketable securities totaled $334 million at year end. This combined with the expected additional cash flows from operations and availability under present debt facilities provides us with significant liquidity to be able to take advantage of acquisition opportunities when they arise, as well as the ability to fund related contingent payments, share repurchases, dividends, new product fees and other investments, capital expenditures and debt repayments. Before we open up the call for questions, Debbie, could you please comment on Federated's interest rate outlook?

Sure, Tom. We still are in a range of 0% to 0.25% on the Fed Fund's target, just in case anybody missed the FOMC announcement this week. The yield curve for money market securities has begun to steepen a tad bit, maybe two to three basis points at this time. It ranges from 20 basis points, on average, on an overnight basis, that's about 80 basis points for one year paper. So again, slightly steeper as that curve ended in the 75 to 78 basis points area a quarter ago. Our outlook is still that we will not see actual Fed increases until later in the second half of 2011. But we do continue to expect some yield improvement beginning, probably, in the summer of 2011, based on what will be an expectation of increasing rates and a steeper yield curve that infuse at that point. We have begun to reduce the average maturity of our money market funds in anticipation of that steeper yield curve, which we feel is more imminent today than it might have been at all during the 2010 time period. We think also that the credit situation in the marketplace is improving, and that also should play through to a bit of a steeper and more positively developed yield curve as the year goes on. And from a regulatory perspective, Chris mentioned the PWG but there are whole host of other regulations and implications from FSOC [Financial System Oversight Council], the FCIB [Finance, Credit and International Business], Moody's and others that are developing in a pretty positive sense for the industry and for Federated Money Market funds franchise, in particular. We continue to work diligently on these topics.

Thank you, Debbie. We would like to open the call up for questions now.

[Operator Instructions] Our first question is from Roger Freeman with Barclays Capital.

Actually to just to come back, Debbie, to your comments you just made. Do you really think the Fed -- as I'm sure your working assumption is Fed hiking in the second half of the year? Because, I mean, there are commentary this week that suggested that, Tom, you kind of growing fast enough to bring unemployment down, so it seems like that might be a little optimistic, no?

We're looking at the latter part of the second half, so towards the end of the year. But again in anticipation, we think the yield curve will start to season out before then, and that will quite play through positively to the yields on the funds. We're basing that on some of the strength that we are seeing in the economy, today. We've continued to see it gather a little bit of steam. Importantly, looking at the FOMC comments, what has not deemed as much strength as the Fed would like to see is the employment situation. That's obviously the one that the big monitoring item at this point. And we continue to see improvements there, but not to the degree that the Fed would like. 3Q seems to be also a focus of the Fed, and that's one that I think is probably a little bit more positive in the context of when we might see a rate hike begins to develop in that -- a good portion of the program is behind us at this point. And although the beginning of it met with some resistance from the Bond Fund perspective, with increasing longer-term rates initially, that seems to have developed being a little bit more positive of a sense, at this point, if I think the Fed is probably a little bit more comfortable with that side of the equation. And as such, with the economy continuing to make improvements on most funds, including the employment fund, although not as much as wanted. We're still working towards the end of the second half of 2011, at this point.

And I guess, just more broadly, on money market flows. Can you just sort of comment on what will you think is sort of, obviously, drove the inflows sort of at the end of the year? And I haven't had a chance to go back and look at the pattern historically, although I've seen the results where you have these inflows at the end of the year. It kind of starts to come out again at the beginning of the year, I guess this is some sort of year-end balance sheet management. It sounds like that hasn't really happened. It just seems to conflict a little at the -- sort of more, either the move into risk your assets and better equity flows?

Well, Roger, we have seen inflows late in prior years. That's been not an every year occurrence, but certainly, a regular occurrence. And in other years, we've seen some of that money drift back out as the year progresses. And I think it is much more of a balance sheet and a cash management service orientation than it is money moving to the sidelines and then moving back to the market. That's based on the composition of our customer base.

One thing I'd comment on, Roger, is a movement of say, $4 billion in money market fund assets at Federated from year end till today, is not really all that significant as a trend director. And if you look at the average assets, I reported the average assets for the month it's been about $241 million, or the average assets for all of last year were about $239 million and up from the prior quarter of about $237 million. So these are all rather small types of changes. So yes, you will see these little blips. But I think it's better to look at them in terms of -- or at least it's worthy to look at them in terms of the averages, because it gives you a longer-term picture.

What are your thoughts as to why, given the rate environment, money market balances across the industry have remained as high as they have? Obviously, our money market strategists have expected this to come down a whole lot more. There seems to be an awful lot of resiliency.

There's enormous resiliency and the reason is that, especially among our client base, these products are as much a cash management service as they are an investment. And they are an integrated part of an entire cash management system. And therefore, the efficiency and the type of products they're in are very, very important to this client base. And so, while if you looked at it only as an investment and basis points and things like that, you might come from a different conclusion. If you look at exactly the purpose of all the different 50 money funds that Federated have, you would see they are serving a lot of cash management service type purposes. And the next thing would be that I think it reflects the confidence that the client base has in money funds, in general. And in our case, it's not rated, in particular, in handling this amount of money for them.

So really, as corporate starts to put money back into either buybacks, acquisitions, et cetera, as one of the cash balances come down, that's where you could potentially see another write-down in money market balances. Fair?

Well, I don't know about that. I mean, one way of looking at this is that all the people who are really sensitive to rates are going somewhere else already. If you're sensitive to rates, you haven't really been in money market funds for quite some time.

Roger, the other thing I'd point out is that, historically, in equity markets our money fund franchise has performed very well. There's more money coming into the market between investments. You mention corporations using cash, there's of course a lot of dividend payments, they're generating cash. So our experience over a lot of cycles has been that we actually get more, we get rebalancing from certain customers when the equity market's moving up. So that's been a positive for us.

Our next question comes from Michael Carrier with Deutsche Bank.

One question on the comp side, I think, you're increasing the component on equities and having invested over three years and, obviously, that's favorable in terms of the current period and comp. With that strategy, if you think about -- would you say rates normalize, if Debbie's right, that means in the back half of this year, the broader view is right, then maybe not until 2012 or beyond. But if you think about that, increasing the equity component and then that pushes the compensation expense further out, I guess, why only do it in 2010? Meaning if you'd do it in 2011, then you can start at a lower run rate beginning in the first quarter. And then, over time, obviously your confidence increases, the investing periods come underway. I just wanted to get your view on the 2010 versus why not just keeping it like an ongoing program?

Yes, Mike. We came up with that and the board approved it late in 2010. Just looking at how the year was going and thought that, that was an appropriate and good thing to do, and it sounds like you see the wisdom in that, too. And we go through our budgeting process and look at what we expect, and rates are sure a part of the factor, but we think that things are going to be better in 2011. And so we're going to start the year off and function like that. Things are available to change later in the year as I kind of said, when we gave our range, our plans are to run it like that.

And on the M&A side. When you guys raised the debt a little while back, it seemed like one of the reasons were looking for something maybe on international side. So I guess one, any update there on your thoughts, if anything has changed? And then second, if you don't see opportunities out there, what else would you want to do with that cash?

Well first of all, we continue to want to use that cash, as we said, for acquisitions and especially international. And we continue to look for them. And the fact that we don't have one doesn't mean that we are still looking in order to try and do that. As a philosophy, we tend not to want to have a lot of extra spare cash laying around, although in this environment, we don't feel that having that kind of cash available is really an extraordinary situation. So we are not the least bit uncomfortable in maintaining that. And besides which, the place where we put the money where it bucks up against the interest rate.

Our next question is from Michael Kim with Sandler O'Neill. Michael Kim - Sandler O'Neill & Partners: First, Chris, I'd be curious to get your take on how kind of the proposed liquidity exchange facility could potentially impact smaller money market fund players that might not necessarily have kind of the resources to deal with either an upfront capital contribution to the bank or some of the ongoing fees. I know you've talked about having control of your redemption as being the most important factor in terms of being in the money market fund business, but is it reasonable to think that there could be some incremental pressure on the economics of the business and, therefore, some of the smaller players might look to exit?

I think that could certainly be a factor. Any time you require a payment into, in this case, the liquidity bank, you could have that effect. The charges that are going to come out though are basically charges against the fund assets and, therefore, the fund yield. So that part of it, everyone will be playing with the same rates in order to be a participant in the liquidity bank. So that kind of a factor is not much. But overall, I think the comment that while the most important factor is the ability to control redemptions, what I said on that is that a person or an individual or a company can run a money market fund almost indefinitely, if they can pull all the redemptions. There are a lot more important factors, and so I'm not trying to quibble with you about the words, but I wanted to clear that up, as well. So we are strongly in favor of that liquidity bank. And, yes, there could be some effect on people who don't want to put any money up at all. But we think it's worth it because of the advantages of such a liquidity bank.

Michael, one reminder too, that liquidity facility is designed for participation by all prime funds in the marketplace. It would not be for government funds or municipal funds. Michael Kim - Sandler O'Neill & Partners: And then if you could give us an update on the institutional side of the business, in terms of our fee activity and what you're seeing as it relates to reallocation trends. I know you talked about the small-cap growth win that you recently had, but are you starting to see more interest on the equity side more broadly?

We have seen more interest but, interestingly, we had a minor reduction in RFP activity in Q4 for fixed income, but still at about the level of it is around on the prior several quarters on average, so we're still seeing interest there. Michael Kim - Sandler O'Neill & Partners: Just finally, any thoughts on potential changes that are being proposed requiring brokers to be held to fiduciary standard versus kind of the current suitability standard, and how that could potentially impact your mutual fund sales across the industry or, more specifically, looking at your franchise?

Yes, on that subject, we have been one of the thought leaders on this particular subject. One of our attorneys here, Gene Maloney, has done an extensive work on this, with the regulators and with various of our clients. And whichever way this ends up going, we think we'll be fine with Federated. A lot of clients look at the whole picture and say, "Okay, what is the relationship I have with my intermediary?" And however those rules get characterized, we will be there ready, willing and able to help them solve their challenges or respond to regulatory concerns. Remember that a lot of our business grew out of our relationship with trust departments that was started in the '70s and has continued through these many decades. And, therefore, there's a very strong heritage of understanding and dealing with fiduciary requirements that are obviously broader than suitability requirements. I can't predict how it's going to come out. There's a nice, big, fat proposal that came out this week, but this has gone back and forth, both through Dodd-Frank and through this latest iteration. And it's really tough to predict exactly how it will come out, but we don't think it will hurt us, no matter which way it comes out.

Our next question comes from Ken Worthington with JPMorgan. Kenneth Worthington - JP Morgan Chase & Co: First question too, for Debbie. On the direction of the future action on short-term rate, I know that there's a couple of programs that are changing. You've mentioned the FDIC assessment. I think you were quoted in a Bloomberg article along with some others about that possibly pressuring short-term rates, you may have taken out of context, but I think, Merrill, Barclays, RBC, think rates go down 10 bps. And I think you we're saying they only went down in 5 [bps]. And then on the supplemental financing program, it looks like that had a negative impact, last time that was wound down. Do you think, if that gets wound down again that, that could also have negative impact on short-term rates?

Sure, let's talk about the supplemental financing program first. In fact, a little bit more tangible and predictable, let's say that, that was announced being wound down sooner. This is with regard, obviously, to the debt ceiling, which will eventually get fixed, and then, the supplemental financing will be reintroduced. But in that interim time, as that supplemental financing program is wound down, there will be less collateral in the marketplace. And what we'll end up seeing are short-term rates, on an overnight basis, likely going lower, and, as you know, also, with regard to treasuries in the marketplace. So we do think that will have a definitive impact. We've seen it happen before. The expectation would be it happens again. The only question is, "What's the time frame involved? Does it last for a week? Does it last for a month? How long before the debt ceiling gets fixed and just kind of returns to a normal level?" With regard to the FDIC we think that's much, much more intangible at this point, that there are many variations and questions about how the assessments will be levied. And as such, we really don't feel as though that at this point there's a quantifiable impact. If I were quoted to saying five basis points, somebody definitely took that out of context. And at this point, we're really not offering any kinds of guidance there, but don't think it's meaningful in any way. Kenneth Worthington - JP Morgan Chase & Co: And then separately, comments were that fee waivers will probably stay about the same level. Kind of tracking some of your money market fund returns, we've seen prime funds, at the very least, see declining yield throughout the quarter. Given that ending yields are a reason of that lower than average yields in the fourth quarter, maybe why wouldn't fee waivers be worse, just based on the mathematics? And in that context, maybe talk about the percentage of performance fee waivers coming from prime versus muni versus treasury at Federated.

Let me talk just a little bit about the overall average yields. What we've seen, basically, throughout the month of January is improvements in those. And I would say we again have smiling traders in that new securities that they're putting into the portfolio versus those that are maturing off are being put on at a higher rate. So that's always a benefit and makes for a happy trading room with smiling faces, when you have accretive transactions that are occurring on a day-to-day basis. So I think that's probably, in general, the reason why we feel like, again, quite steeper yield curve. And the expectations for that to get steeper as we go forward into 2011, is that the impact on the waivers shouldn't change much.

And by type, I mean, the waiver still have been concentrate -- the impact of the waivers have been concentrated much more in the government products, the government agency and the treasury. So the fluctuations in prime really have not been a meaningful change in our run rate of money fund waivers. Kenneth Worthington - JP Morgan Chase & Co: There was a comment on the call about some of the Ultrashorts starting to see redemptions. In the last fixed income cycle, the Ultrashorts and short-term funds were real areas of success for Federated and I guess again this cycle. Anything that you can do to kind of protect Federated, in terms of like keeping those assets either in-house as it go to different asset classes or anything that may be mixed? This cycle for transition to equity is different than the last cycle?

Basically the team with Ultrashort has a longer than money fund type product, it really isn't an automatic flow into the other products. So when we look at them, we look at them as the top half of our fixed income charts, and every sale we make on the equity side is an individual sale on the equity product. So there's no direct link. Yes we have the relationship, and if you look at the balances or the sales in Ultrashorts over the last three years, they were very, very high and strong in '09 and as I mentioned on the call recently. But we don't see it as a lock step into the equity, I wish I could have you a chart like that but it's not the way it works.

And to tend to your point, the Ultrashorts in this cycle have been a real opportunity for us to expand our business among intermediaries and introduce Federated products to a number of intermediaries that haven't been using us or using us as much as we would like. And so, we're actively trying to leverage that foothold that we've gotten through the Ultrashort to get a bigger part of the intermediaries business, if and when and as they determine that, that money should move, as active marketing efforts through a greater degree than we would've had in the last cycle that you referenced.

Our next question comes from Bill Katz with Citigroup.

Just staying on the fee waiver discussion for a moment. This particular quarter you had a very high sort of contribution from your distributors. Just sort of wondering if there's any been many push back as the duration of the fee waiver environment has extend your...

No.

You went through this very quickly, for some, and maybe I should have taken notes down. It looked like there was a pretty big falloff in some of the short-term performance trend? Just sort of wondering if you could talk about the dynamics in both the equities and the fixed income side?

Well, there was a falloff in some of that. Although, looked at in another way, we have still 43% of our equity assets, or four in five star in Morningstar, I have been commenting on Lipper and that's up from 36% from the prior quarter. And the percentage of three, four, and five stars is like 87%, up from 82% in the third quarter, and with similar kinds of improvements on the fixed income side. So yes, there are some funds that ran into some challenges. For example, the Kaufmann Fund, the big Kaufmann Fund, which obviously influences the asset totals, as well. I had a large component in about 20% in healthcare stocks, and they're basically supporting strong companies with good fundamentals. And although they participated in an increase in the fourth quarter, I think they were up a little over 9%, the mid-cap area was up more like 14%. And it was part of that 20% in what we consider to be good strong fundamental growth susceptible-type holdings. And we do not participate as much as one might have expected on cyclical stocks. We were in them but didn't have the kind of positions that others had. So we missed a lot of the upside there in that fourth quarter. But Hans and Larry are still pretty confident about where their position is, and that's just one of the stories in the ebb and flow of investment performance.

What's the share count at the end of the year, given the increase in restricted stock?

Well the restricted stock won't show up until 2011. But if you look at diluted shares, it's 999,999.

Our next question is from Robert Lee with KBW. Robert Lee - Keefe, Bruyette, & Woods, Inc.: Chris, I know you made some comments as you normally do about kind of recent new business trends. But can you maybe dive a little bit deeper? I mean, obviously you've seen demand in the equity business, the dividend fund, pretty consistent with what we've heard elsewhere, but what are your wholesalers and distributors saying or thinking about retail or investor re-risking? Obviously, there seems to be some going on but do you think kind of some of the enthusiasm we read in the press and elsewhere is a little ahead of where the people on the ground are actually seeing or thinking?

One of the features, and you're touching on it, is that because we're going through intermediaries, you don't get the same quick or large response type commentary. And so I'd be inclined to agree with the drift of your question based on my discussions with our people, and that is that, yes. There, you see some movements, but it is not quick or avalanche-style movements. And it's movements into things like, as you mentioned, are dividend-type stocks, strategic value where people can get a healthy dividend while coming back into the market. Although those are good, they are not running-down-the-field type positions. Robert Lee - Keefe, Bruyette, & Woods, Inc.: And maybe quick question on the M&A environment, just really more about the landscape. I mean, think back clearly a couple of years ago when everything was stressed, for lack of better way of putting it, pretty much a buyer's market, more or less, did you get some on the sell? If you look at it today, things are better, more stable. Is it kind of more back to the kind of pre-crisis in terms of supply and demand balance? A lot more buyers and maybe not as many sellers, or how do you look at the kind of the landscape?

Well, Rob it's Tom. The landscape doesn't seem to be that much different. I think that there's going to be more things happening as you settle down and people are feeling better because nobody wants to sell in the crisis. And now that's not dealing with people who are closing down their money fund operation, that's a different subject. So the ongoing or the centers of excellence or that crowd, they always are making their own decisions, individually. And I'm pretty sure that they don't want to have a transaction when things are really down, and so I expect things to loosen up a little bit. Robert Lee - Keefe, Bruyette, & Woods, Inc.: I mean, are you seeing any more competition for properties? I mean, if you think of the regulatory environment, obviously -- even though you've seen a lot of banks exit the money fund business, I mean, these things can become somewhat cyclical, then all of the sudden, "Geez, this is, maybe, a better business then." Any possibility or inkling that do you also, and there's going to be new buyers out there, but they need another place to try to grow?

I think that the buyers are going to be conservative. And make sure that what they buy works in their system, fits in culturally and it's going to great growth we're there going to get enough of savings. Where they think it is worth it, they're going to be measured. Just look and read the press that you have on the international operation at UniCredit, there are lots of interest there as you read the press. Robert Lee - Keefe, Bruyette, & Woods, Inc.: One last question for you Chris. On distribution initiatives, usually, you touch on some things you have in the pipeline or works, and as you look ahead to 2011, is there any one or two initiatives on the distribution front that kind of have you maybe work calling out a little bit, I guess, particularly further expansion of your distribution capability outside of M&A into Europe or distant distribution channels in the U.S.? And that's, for example, the DCIO [Defined Contribution Investment Only] channel?

Well, couple of things that might be worthy of mention, is increases in the way we're focusing on the retirement business, which is basically a long-term effort of blocking and tackling and getting on more and more platforms. And we're liking how we're seeing that work out, especially because that product, the strategic value dividend product, has looked pretty good on that front. We're seeing also like on the broker-dealer side for the same reasons. But also inside some of the old distribution, where it's basically back or it hasn't really changed from blocking and tackling. The movement that we talked about earlier of into fiduciary, if that really switches on, then many of our clients are going to need to come to us for discussion and aptitudes and training on how to deal with this new concept. And so, if that happens, then that'll be another whole press, and it will be one where we think Federated will be the indispensable party in order to help explain how that goes. Now frankly, a lot of what's been going on, if you remember by analogy, when Y2K came along and everybody had a complaint about fixing all their computers, and then it turns out that doing the housecleaning was pretty good, this whole regulatory overlay has given us the opportunity to get in with clients and get to studying things. For example, the threat on 12b-1, which we don't see really happening right now, but it gives us opportunity to get in with the best clients on ways that don't show up as a distribution activity because you have your defense on the field, but yet, it moves into positive-type discussions. So it's trying to make a little bit of lemonade out of the lemons that we've been dealing with. And I hesitate to call the distribution program, but we're sure working to make it look like that as well.

Our next question is from Cynthia Mayer of Bank of America Merrill Lynch.

Can you talk a little about maybe marketing strategies, vis-à-vis the equity funds and the Kaufmann funds? Because the large cap, it looks like it now has the five star rating, but the older and larger one has been underperforming, as you talked about before with all the healthcare. So I'm just wondering if maybe you could give us some color in terms of what you're counseling your wholesalers to emphasize, just to make more sense to try to retain assets in the large one or are you very optimistic for more sales on the large cap?

Let's see what these -- it's obviously great to retain assets, but we have discovered historically, and I mentioned on these calls many times, that as much as we'd like to, we cannot control redemptions. Yes, you're going to have better performance and that'll tend to help with that, so we just set that one aside. The counseling of our wholesalers is a different issue. Some of the clients that we have, the intermediaries are looking it up to fill sandboxes or to provide the sandboxes that they play in. And then others are looking for a more of a total concept like total return bond funds. It depends on which branch of advisory you're talking about. And our wholesaler, who's dealing with someone who's looking at us at supplying different sandboxes for them to make the decisions, they are defending the efficacy of each one of those sandboxes and showing how they work and exactly the kinds of stories that I would tell you on mid-cap Kaufmann Fund. And if they're looking for a large-cap growth fund, then obviously, the Kaufmann is a good entry. So that's what it depends -- it's not exactly a deal where we sit up on Mount Olympus and try and direct the salesmen, who are the wholesalers, as to what has to happen. It has to be a collaborative event with the intermediaries to set them up to make the presentation to the actual client.

So you don't change the profitability of selling one fund or the other in terms of how the wholesaler...

First of all, we can't change the profitably, but if you mean we orient ourselves based on the profitability, we don't do that either. I mean, you have -- the pricing is done on the one hand, and then what can be sold in the marketplace is really going to be based on the marketplace and on where our intermediaries are wanting to go, and our explanations of how these things all fit together. But it's really difficult to just drive it by whatever the pricing is.

And on the separate account side, you talked in the past quarters about growing sale and winning mandates in total return bond. So as institutional investors start opting a little more for equity, where would you see the most opportunities there? And is there a separate account version of say, the Kaufmann Large Cap or of the strategic dividend?

Yes, well, we've seen the strategic dividend being one. The Clover Small Cap is another pretty good one that shows up very well. And our international leaders has been a great offering. We haven't seen that much institutional interest in it, but the numbers have been compelling, and I think it has potential there.

Our next question is a follow up from Bill Katz with Citigroup.

Could you just highlight or just mention a couple of buckets? What's left in MBT? How big the Ultrashorts are and the munis? And then, did you also say $234 million is the retail money market as of yesterday, or two days ago?

Okay, listen, we'll go in reverse quarter. The Money Market Mutual Funds are about $240 million, $241 million. If you want to know numbers, it's $240.7 million. That's the recent number. What I said was those other numbers were basically average assets. For example, the average assets for the current quarter are right about $240 million, right on top of about where the assets are today. And the prior year's average assets were $239 million, that's what I mentioned. So we'll have everyone else try to scroll through the other questions that you put out.

Bill on MDT, it's about $2.9 billion. The Ultrashorts are about $5.5 billion. The muni bonds are just under $6 billion. Recognize that some of that overlaps, of course, and Ultrashorts have a municipal flavor, as well.

And just one last one for Debbie, and sorry to beat this one to death, but when you talked about 'til the end of the year, do you sort of quantify exactly when you're sort of modeling? And then, historically, how quickly does the market itself start to discount potential absolute rate hike?

Generally speaking, the markets usually precede the Fed by anywhere from three to six months, which is why we're kind of looking towards the summer when we actually starting to see some yield advancements on a steeper yield curve basis in anticipation. On a modeling basis, we're really looking more towards the end of the year, so one of the last two Fed meetings.

Our next question is another follow up from Roger Freeman with Barclays Capital.

I don't know if you had talked about this. It's small traveling-related expenses, compensated in the fourth quarter and usually sort of been the -- between $2.5 million and $3 million, it was $3.5 million is there anything, time in there?

This is cyclical. The fourth quarter is usually like that.

And then on muni flows, did you say earlier in the commentary that redemptions had picked up? Was that a January comment or was that end-of-year comment?

We've seen them pick up. They picked up a bit December versus November, and looking at January, it looks that they would be a little bit higher in January compared to December.

Some of the others that have reported have said that flows or redemptions or have been lower in the last few weeks. It sounds like that's not what you've been seeing?

We haven't seen a dramatic change but it's a bit higher.

If I think about your muni, just going back to your comment about the overlap between the Ultrashort, your average duration on your muni products is on the shorter end, I would assume, right?

Yes.

Thank you. Mr. Hanley, there are no further questions at this time. I'd like to turn the floor back over to you for closing comments.

We thank you for joining us today, and that will conclude our call.