Greetings, and welcome to Federated Investors Third Quarter 2018 Analyst Call and Webcast. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ray Hanley, President of Federated Investors Management Company. Please go ahead, Mr. Hanley.

Thank you. Good morning and welcome to our call. Leading today's call will be Chris Donahue, Federated's CEO and President; Tom Donahue, Chief Financial Officer; and joining us for the Q&A are Saker Nusseibeh, the CEO of Hermes; and Debbie Cunningham, our Chief Investment Officer for Money Market. 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 the risk disclosures in our SEC filings. No assurance can be given as to future results and Federated assumes no duty to update any of these forward-looking statements. Chris?

Thank you, Ryan. Good morning. I will briefly review Federated's business performance and Tom will comment on our financial results. With the Hermes acquisition effective July 1, our Q3 results include a full quarter of Hermes impact. We have modified our asset and flow reporting by moving multi asset and alternative strategies out of equities into their own categories. The addition of $47 billion in Hermes assets boosted our total long-term assets to $173 billion, and our total managed assets to $437 billion at the end of the quarter. Now, turning first to equities; we closed the quarter with $84 billion of assets, up from $58 million at the end of Q2, reflecting the addition of about $25 billion from Hermes, and market gains of $3 billion partially offset by a $1.5 billion of net redemptions parenthetically which are down from $2.3 billion in the second quarter. We had 17 equity funds with positive net sales in the third quarter. Our small cap funds continue to show strong performance and solid flows, highlighted by the Kaufmann Small Cap growth fund with top decile performance in its Morningstar category for the trailing 1, 3, 5 and 10 years at the end of the third quarter, and net sales of over $150 million to reach $1.7 billion in assets at quarter-end. MDT Small Cap core with its top 1% Morningstar category ranking for the trailing 3 and 5 years at the end of the third quarter, and net sales of almost $175 million to reach just under a $1 billion in assets at quarter-end. MDT Small Cap growth with top decile performance for the trailing 3 and 5 years at the end of the third quarter and net sales of a little over $100 million to reach $668 million in assets at…

Thank you. As Chris noted, our Q3 results include a full quarter of Hermes impact. Total revenue increased by $52.6 million from the prior quarter due mainly to the addition of Hermes revenue which was 49.7, an additional day about 3 million and higher average money market assets which brought about $1.5 million. Revenue was up $30 million compared to Q3 of last year due mainly to Hermes partially offset by the impact of the adoption of the revenue recognition standard, about $9 million, higher waivers, primarily from money market funds, about $5 million and changes in the asset mix of average money market assets also impacted the revenue by about $2 million. Operating expenses increased $51.5 million compared to the prior quarter and $37.1 million from Q3 of '17. The increase from the prior quarter was due to Hermes $44.7 million and Hermes transaction related expenses, about $8.6 million. The increase from Q3 of 2017 was due primarily to Hermes and Hermes transaction related expenses of about $10 million in the adoption of the revenue recognition standard which reduced distribution expense by $7 million and reduced other expense by $1.6 million. Q3 comp was $103 million. This included a number of Hermes related items and normalized comp number was about 105 and an early estimate of Q4 comps and related expense is $106 million. In July, we estimated that we would incur $19 million in Hermes transaction related operating expenses during 2018. We have incurred $12.7 million in operating expenses year-to-date with $9.9 million recorded in Q3. The $9.9 million in Q3 was included in the following line items, comp and related $3.8 million, professional service fees $4.1 million, travel and related $400,000 and other $1.6 million. For Q4, we estimate that we will incur about another million dollars in transaction related costs for a total of approximately $13.7 million in 2018 transaction-related operating expenses. We expect to occur additional expenses in '19 related to the implementation of growth strategies with Hermes as Chris mentioned. We view these as ongoing investments and not transaction expenses. Amortization expense related to the Hermes transaction was approximately $2.7 million in the third quarter. We expect Hermes deal related amortization to be about $11 million in 2019. We repurchased 277,000 shares in the third quarter. At quarter end, cash and investments were $157 million of which about $106 million was available to us. Rob, we would like to open the call up now for questions.

Thank you, Ray. At this time we'll be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we poll for questions. Thank you. Our first question is coming from the line of Michael Carrier with Bank of America Merrill Lynch. Please proceed with your questions.

All right. Thanks a lot. The first question, just with Hermes onboard, I think, Chris, you were talking about some of the growth strategies that you get into '19 and beyond and when you think about maybe the distribution channels and the distribution team in the U.S. I mean, where you've kind of been seeing certain demand whether it's on the ESG side, just wanted to get some context on where you see most of those opportunities on the growth side with Hermes onboard.

Thank you, Michael. The storefronts and things that we're looking at, two of them are in the -- one is an absolute return credit strategy and one is an unconstrained bond strategy, which we think are going to be very strongly received by the client base. The other two would be global equity and a small cap global mandate. There are also other things that we are thinking about. An EP approach and others that are in registration that I'm not allowed to say what they are.

Okay. Thanks for that. And then, Tom, maybe just on the expenses, you get a guidance on the comp, I guess, just when you look at -- with Hermes on and you know, some of the -- you know, the guidance that you guys gave when the deal was announced versus today -- and I know there's a lot of moving parts, so it's a little bit tough, but just when you think about the accretion, you know, are things heading like roughly as you expected -- has it been a little bit better, you know, a little bit worse? I just want to kind of get a sense on how you think things are trending on the financial side?

Sure, Mike. There are a lot of moving parts and that's why I took you through the comp number and if you remember I said you know, there are a lot of Hermes related items and they move -- some of them move up, some of them move down. We closed earlier than we thought when we talked about when we were going to close. So we actually closed on July 1. We did all our modeling to close on August 1st. So that brought in higher earnings to us. We had less expenses as you've seen me take you through each time in April and then in July. And today our closing costs have gone down from what we expected each time. That's partly because we closed earlier, we didn't have to address a lot of things that we thought we're going to have to address. The amortization expense, which we told you what it was, came in lower than what we thought. You know, a couple of the moving items that are in comp are -- we had -- Hermes had accrued for Q1 and Q2 their regular incentive comp and then when we closed management decided to take some of that comp and defer it over a three-year program so then that's why we had a basically a reversal of an accrual. So that sent comp higher. We didn't have that in our numbers. Some of the upfront payments that Federated made to the pension scheme and to the employees, the part that they owned, management took a part of that payment and actually put it in a deferred remuneration plan and that actually sends expenses lower. So I'm only giving you five of the items that changed and if you force me to answer from what we did it back in April, you know, are those -- it probably looks better than we thought, but that's not impressing where assets are now, where are the markets you know, the last couple of weeks in the markets, and it's not addressing a whole of other things. So it's not really something I want to get into any more than that.

Yes, no problem. It's helpful color though. Thanks a lot.

The next question comes from the line of Ken Worthington with JPMorgan. Please proceed with your questions.

Hi, good morning. Maybe start on the deal, what is the right tax rate. And I guess as the deal-related costs fall off, how should we expect that tax rate to kind of evolve going forward?

So, in the future we're still looking at a 24% to 25% -- the tax rate I think was 26%, yes.

Okay, so came in a little bit above, but --

Yes, that change is -- well, there are a lot of variables there, including Federated's stock price, which is interesting. If our stock price is higher our tax rate changes because of the way we go through with our restricted stock and how that gets dealt with.

Okay, great. And then maybe for Debbie; Debbie, what are you seeing in the money market fund business? Maybe to what extent, if at all, are you seeing a movement back to funds from bank balance sheets? And I would love it if you could maybe comment retail versus institutional, and any color on the broker dealer versus the bank trust channels?

Sure. We are definitely seeing a movement back into money market funds. Our assets are higher; the industry's assets are higher. And I think this is probably reflective of both investors getting comfortable with the regulatory changes that went through in 2016 at this point, but in addition just higher interest rates in general. From a retail versus institutional perspective, on the retail side it's been a lifestyle positive from a business perspective. Traditionally, that business was in the prime sector. After money market reform it moved into the government sector. It is now moving in a large fashion into retail again, not with money coming out of the -- or the government side of it, but more ticket trades that are new business that presumably are coming out of some sort of a bank product, some other type of liquidity product and going in to the prime products. From a sweep perspective there is still not much on the retail side that is set up with prime products. There are a few intermediaries that are able to do that, but for the most part sweep products continue to be through government funds. And prime products are generally on the retail side generating business from a ticket trade perspective. On the Muni side also, we are seeing quite a few flows on the retail side. That's in opposition to the industry. The industry itself is fairly flat on the Muni side; we are actually experiencing quite healthy flows in our municipal products, both the national as well as the state-specific. Switching to institutional, we're seeing on our government funds a lot of growth that came basically in chunks from what would be M&A activity, there's been a huge amount of M&A activity that's taken place year-to-date, 2018. Also, from a repatriation trade perspective much of that cash, which is again chunky, goes into the government funds mainly because it doest stay there for too, too long. It goes back out again once either the deal closes on the M&A side or the intended use of the repatriated funds are then put in to their final form. On the Prime side, we've seen a lot of corporate customers. Similar on the municipal side, we've seen corporations going back in to those products. So definitely we're seeing an uptick in flow, and it doesn't seem to be between sectors, but rather coming from outside sectors. I think post money market reform the assets in the industry were about $2.6 trillion. We're now just under $3 trillion.

Okay, great. Thanks. I'm going to steal one more because I was confused. Just, Tom, on your guidance for deal-related costs, is it $1 million for the fourth quarter or $1 million more than we saw in 3Q for the fourth quarter?

The $1 million for the fourth quarter.

Okay, thank you.

The next question is from the line of Bill Katz with Citi. Please proceed with your questions.

Okay. Thank you very much for taking the questions this morning. So just staying with the Hermes platform for a moment, appreciate the extra detail in terms of where the assets are, and then the split between the pension and the third-party. Could you still remind of sort of the outlook for the pension side of the equation? And then how does fee rates incrementally tracking as the third-party grows relative to the pension plan?

You have just asked Saker his first question of the day.

Thank you. So the answer is that when the deal was done we had a pre-agreed flight path for the pension scheme, so we know how much they're going to track down their assets. And that then explains that if you look at our third-party business, the net flows were very strong, and continue to be very strong. Now, our third-party business, by definition, is higher margin business, so that increases our margin [indiscernible] third-party. And if you look at revenues, which is what we look at, then the Hermes business, some 74% of our revenue now comes from third-party, which is quite substantial.

Okay. And is it the same expectation that the BT side will bleed down over the next several as you're trying to update on to that glide path?

I mean there is a glide path that we think is there now. The thing is, with the fact that we're now part of Federated there may be opportunities for stuff that the BT pension scheme might want to be interested in that Federated offers. So there's possibility that there might be additional or reversal of the agreed flight path. But there was an agreed flight path at the beginning which was well within the numbers and our profitability. In fact, gets enhanced because our margins get enhanced the more that we build up third-party business.

Okay, thank you. And then just a follow-up question, Tom, thank you for the guidance on the compensation side. Stripping off the distribution side, should we look at the remainder of the business, and stripping out as well the amortization as well as the charges, is the rest of the non-comp, if you will, is that a reasonable start point? And you had mentioned that you're going to spend a little bit to enhance growth. Can you quantify what that might look like, and the timing of that spend? Thank you.

Okay. The reason why I pulled out the comp and list that is because that's what I see as something that I can grab hold of. I have to put it in order to do our filings for the quarterly reports. And that's kind of the biggest standout number. As I go through all the expense categories, some of them change up, some of them change down. Hermes spends money in the fourth quarter; they don't spend in the third quarter. We spend money in the third quarter, not in the fourth quarter. And so -- we're not going to go through a line item, this one up this one down. And I think it's okay to look and say, hey, we're saying we expect about $3 million more in expenses. And that's kind of an overall biggest item. That's for 2018 or for Q4. In terms of future expenses for our growth, when we were using the $19 million in closing cost, some of the closing costs we were talking about in terms of really building distribution -- or not building distribution, but building the growth plans. And so we're just trying to get out of talking about that and going to be saying that, hey, that's part of the normal cost. We had a $4 million number in there, and that's when you take 19 and we're at 14, and we're going to expect to spend another million in Q4, and that's $4 million. But that's an estimate that we don't know exactly what the numbers are going to be, and that's about as far as I can go. I've already talked enough about it.

Okay, thank you.

The next question is from the line of Patrick Davitt with Autonomous Research. Please proceed with your questions.

Thank you, guys. Just to follow-up on Bill's question in a different way if you can, I guess. Assuming that BP doesn't reinvest in some other products, like you said, is that kind of $300 million to $400 million out a quarter that you talked about the right glide path to think about as we model this?

So, I don't think it's appropriate that I share with you what as client has agreed with us, because BT is also a client. What I can say to you is that our business plan and the models that we used within building the business plan when Federated acquired majority stake assumes a glide path that was agreed with BT, and they have stuck to that. And we don't expect them to deviate from it. Like I said, if anything, there might be actually a positive side to it if we manage some Federated stuff. Now, within that the only thing I can say to you is that the growth of our third-party assets has consistently meant that we have been able to not only grow our top line, but also grow our margin and our profits. And that does not look, as of the end of the last quarter, to be off track. That remains on track.

Fair enough. Thank you. A bigger picture question on kind of the money fund flow dynamics. I think if we exclude that big win you had in 4Q '17, it looks like on a run rate basis you had been fairly consistently losing money market flow share for a year or two. But then suddenly this quarter, and it looks like now in the fourth quarter as well, you're taking almost all of the flow. So I'm wondering if there's anything that changed about the nature of the broader market flows or your business that kind of changed that dynamic in terms of the flow share you're seeing.

One of the elements of that dynamic was the money that went out to broker dealer sweep into their own deposit bank deal. And this was when rates were low. And now people realize that rates are rising, and you can get 2% on a money fund. And so that big bunch of money that left for that reason. And it was a combination because the stage was set when the new regs came in. And it really wasn't appropriate for accounting, for mechanics, for operations, for all those broker dealers to use the money fund for a sweep vehicle. And that was one of the big questions. So when you have that, and then you add the relatively profitability to the client, broker dealer, that moved a bunch of money out. And that has slowed down, abated, diminished. And then as Debbie said, the flipside of that is now occurring, where you're seeing more money coming in Prime, Muni, and Govie [ph], both institutional and retail. The end. Anybody else?

Thank you.

The next question is from the line of Ari Ghosh with Credit Suisse. Please proceed with your questions.

Hey, good morning everyone. So just a quick one on the Olson multi-asset segment, so if you look at flow trends over the past 12 months and what you are projecting for 2019. Is this a business that you're looking to grow organically? Do you think there's enough capacity out there that you can do that, or is this something that you might be looking at opportunistic bolt-on deals to try and get scale here to kind of have it to account for a bigger piece of the pie if you look at it over the next couple years?

Short answer, yes, we see it as a growth opportunity. Long answer, it's now Saker's turn.

I didn't get the beginning of that question, so repeat it to me again and I will answer you.

Yes, so if you look at the Olson, the multi-asset segments, is there something when you look at the business plan for the next 12 to 24 months, do you think you can see some meaningful organic growth from this business via the plans that you have in place? Or is there something that you need to look at, maybe more on the opportunistic bolt-on and M&A side to try and gain scale here.

No, we think that we have opportunities to grow it organically. We had already built, by the time we were acquired by Federated, a first-class capability to be able to do this. And in fact, almost ready for launch by the time we were acquired. And I can say that, of the new funds that we've raised within this, it is noticed that in the last quarter and given the deal closed in the last quarter, on the 1st, July, we continue to have clients actually see part of our strategy is to help us grow -- you know, strong demand that we have. So I think it's a strong organic growth. Now, will there be opportunities in the future for M&A activity, one sees, but there is strong organic growth as it is within our plan.

Thank you. The next question is from the line of Brian Bedell with Deutsche Bank. Please proceed with your questions.

Great, thanks very much. Maybe just one more on the money market side, for Debbie or Chris, do you have a sense of what the sweep assets or sweep deposits, rather, would total in your broker dealer and wealth management channels in terms of an opportunity for market share gains versus positive -- we continue to see the yield-seeking behavior of those sweep deposit clients move to money markets?

Brian, you're asking about the total opportunity beyond what we have in sweeps, is that the question?

Yes, but like when you are an outsourced of your money market within those clients, those broker dealer clients, and I guess to the extent wealth management bank trust departments, your sense of what the deposit levels are within those bank sweeps that could eventually migrate to money market funds…

If you were to ask -- and this would be an impressionistic number, if you were to ask the sales individuals here who have those relationships on the broker dealer side for those broker dealer sweeps, they would contend that $20 billion has moved out, or some number like that. And so if said, what's the opportunity, well, maybe a bunch of that comes back, but you cannot look at that as a catalyst, or oh boy, now that money is coming rolling back because some of those clients have either put the money market fund into a transaction-oriented mechanic versus an automatic mechanic. And some of those clients have simply taken the money fund off of the list so that it's even one step more than a transaction. So that would be how I would scope what was lost and look at earning it back. But it will not be a catalyst or a quick deal.

Right, yes. Trying to get a sense of back to money market fund, I mean we're seeing this in the online brokers where clients are moving to purchase money market funds, say, for example, from the bank sweep. So trying to see what your future opportunity is from that dynamic given that -- and obviously the yield are very competitive with your funds. Okay, then maybe just a question on the -- maybe this would be for Chris and Saker, just what the sentiment is from your sales distribution partners in the last week or so given the pullback in the environment. Are they generally looking at this as a buying opportunity, or are they more frozen? And then I just have one follow-up on distribution costs, for Tom, after that.

Chris, do you want me to take this first?

Yes, please.

Okay, so what we see is the pipeline for our strategies remains strong. And have continued to see inflows into our funds, including in emerging markets in the last quarter which is quite interesting. And so people are taking this as a buying opportunity. Over the last week, I've also been talking to some clients in the United States. And in fact, I'm joining this call from our offices in Boston. And it remains positive in terms of people are seeing this as still positive despite the market comeback, particularly in what we offer, because essentially what we offer is -- high alpha, and we incorporate in everything we do, and we have a very strong track record. Generally speaking, the kind of buyers, including wholesale or [indiscernible] tend to be with us despite the dips. And we talk to people about the dips. And we in fact told them that there would something like a correction coming. And as it came through people have followed through and continued to invest with us. So, I mean, you can never dismiss market comebacks, but in terms of flows it still remains positive.

Yes, the thing I would add to that, Brian, you used the word "Frozen," and there is nothing I know of in the life of a PM team about the word frozen or in our clients. And so, you do have some variety depending on which mandate as to what people are doing. But if you were to talk to the head of equities in New York, he would retain his positive stance much the same as Saker said about expecting a correction and many of the PMs buying on the dips.

And you know, like the broker dealers that you were selling to in the wirehouses, are they -- just their sentiment I guess, are they viewing it as a buying opportunity or are there clients sort of on the sidelines for this?

It would be almost an unnatural act at this point to try and characterize them all with one way or the other. And I for one haven't run the track that quickly enough to be able to give you an honest pulse on how the wirehouse community thinks. So, I have to demur.

Okay. No, that's fine. And then just one follow-up on distribution, Tom, just wanted to see if the third quarter run rate now with Hermes and their -- this is the distribution expense of the $72 million, is that a reasonable run rate on a go-forward basis? Or there are significant -- substantial deviations from that potentially going forward?

So getting into one other line item, I would say that that number based on what we see would be a similar number.

Okay. Fair enough. Thank you.

Our next question is from the line of Kenneth Lee, RBC Capital Markets. Please proceed with your questions.

Hi, thanks for taking my question. I'm wondering if you could give us a sense of what the recent flow trends and current client demand for the alternative products within Hermes specifically real estate private equity infrastructure. Thanks.

So I'll take that -- Thank you. So we've seen a steady growth of demand for our -- particularly our unconstrained credit which is part of our product markets in direct lending which has been very strong. And with property, we continue to see demand for our property products as well. So that's again been pretty strong. And as you know, things like private equity and infrastructure tend to be long term gathering momentum, meaning, we go out to the market, we talk to our clients. And normally it goes on to a long cycle and the cycle is there. And I think there is still the conclusion of all of that is that demand for our private markets business remains very, very robust. If you want me to highlight one area, I would say the multi-credit and the unconstrained seems to be accelerating. And I would say that private equity, infrastructure and property seems to be going as normal with no slowdown. So that's how it's characterized.

Okay, great. And just as a follow-up, could you give us a sense of the average deals you are getting for these alternative products?

So that's we need to take offline because it has obviously quite a lot of impact on lot of clients.

Got you. Okay, thanks.

Thank you.

Next question is from the line of Robert Lee with KBW. Please proceed with your questions.

Hi, thanks. Thanks for taking my questions. It's really I guess for Debbie or maybe, Chris, if you would like to answer it. On the money fund business, I guess maybe little bit bigger picture. I mean as you mentioned clearly you are seeing some increased demand for prime funds, but if you look at overall industry two things. The number one, one of your large competitors has taken to describing the money fund businesses increasingly a technology driven business and made some type of acquisition I guess of a portal or some type of technology. Would you agree with that assessment? And do you feel that you have kind of the right infrastructure or connectivity to really fully -- I mean obviously you are benefiting from the increased demand, but to really kind of fully maintain or pickup share over time?

We believe that we have the technology to be able to service these clients as well as anybody in the world. And you can always characterize this. We try to characterize the whole business as a technology business in order to try and get the PE up so that you would see this was technology business. There have been others in the business not the ones you're referring to who've been able to push that income into technology. So it's nomenclature. But what the clients see is the investment management expertise and the need for the underlying product. And the one other thing that I would add on this bigger picture score is that we and many, many others including issuers in the marketplace have been working on Senate bill S.1117, which basically restores money market funds in the prime area and in the Muni area to $1 net asset value. And this would be a great boon to the marketplace to restore the pricing that the capital markets have on exactly these products right at that point of the short-term area of the curve. And we're still working on this. Others in the industry seem to not be as enthusiastic about this. Debbie also has comments on this subject.

Certainly. If you look at sort of just from a history lesson standpoint when the financial crisis happened back in 2018, at that point in time, deposit products and money market mutual funds were both around $4 trillion. And since that time because of deposit insurance, because of the zero interest rate environment, because of the concerns in the marketplace, money fund assets, you know, went down to $2.6 trillion. They're now about $3 trillion and deposits soared to you know, depending upon what deposits you're looking at anywhere between $10 trillion and $13 trillion. The fact is though that those assets have stagnated in the context of their growth. They're growing 2%-ish on a annual basis and that's compared to more like double-digits, just barely double-digit growth, 10%-ish type growth in the money market mutual fund marketplace. I think, you know, there were moves that were made by the broker dealer clients that we've talked about that make it a more difficult task to reverse. Nonetheless, I think economics win out and with a continuing rising rate environment, which we would expect you to see in 2019, we don't see any reason why the product should lose its momentum. Does it get prime back to the peak of $1.7 trillion? Probably not, at least not in the immediate future, maybe with Senate bill 1117, it does; time will tell on that one. But it certainly -- because of technology, because of investment expertise, because of client-driven relationships and the business that -- the provision of information that we provide to them on a pretty easy basis, instantaneously, we have a very positive outlook for the future.

Great. And then maybe a follow-up on the pricing in the money fund business. Is it fair to think that -- and I understand that your fee rates are relatively stable sequentially, but is it fair to say that fee competition kind of in the government fund side of the business is possibly more intense than on the prime side simply because maybe it's harder to differentiate yourselves and treasury and government funds versus prime where credit skills and whatnot play a bigger role?

I think part of the government fund fee discussion had to do with a point in time when there was a lot of asset gathering occurring into that sector. Not necessarily from an industry standpoint, but into that sector. So switching out of Prime and Muni and into government from a sector perspective, the trillion dollars have moved in 2016. There were fee waivers that were done to capture market share at that point and I won't say that it set a new standard, certainly, once the movement occurred, fees began to normalize, although not back to the pre-financial -- pre-reform levels. You might see something like that occur again if in fact we had the bills pass and the restoration of the $1 NAV for Prime and Muni so you could see it on those particular products. Then again, it would be in an attempt to capture market share in that asset gathering or asset movement time period. But that's again something that's really pretty hard to predict at this point.

Great. I appreciate your patience. Just one more follow-up question maybe for Tom or Ray if he's on and maybe this is something we could do offline afterwards, but is possible to get an update given the changes in your AUN disclosure and you know, reallocation, you know, get a sense of kind of fee rates by bucket so to speak, so we can, you know, obviously better model in kind of the changing pattern of assets and flows.

Hey, Rob, it's Ray. Yes, I can help you with that. That probably would be better offline though.

Okay. Great. Thanks, guys.

Our next question is a follow-up from Patrick Davitt with Autonomous Research. Please proceed with your questions.

Thanks for the follow-up. So you mentioned the quarter to date strategic value flows, which appear to be a continuation of the improvement we saw last quarter and the performance has been a lot better obviously and there appears to be a shift from both the values, so have you started to notice a change in the behavior of your clients at that fund, maybe people that were thinking about redeeming not anymore -- just curious about the dynamics and how they've evolved as performance has gotten better and the growth value dynamic has changed?

The answer is hopeful, yes. As you point out, the numbers of -- the size of the redemptions month to month have been going down and the amount of sales is sort of hanging in there. We notice that the fund was ranked in the first percentile month to date, so don't get all that excited through October 24th, which just restores the comment we've made here many times that that fund is either a leader of the pack or back of the pack, but still always doing that which it says it wants to do, which is pay a good dividend and own big good companies that have increasing dividends. So what we have seen is there is a diminishment in the amount of angst inside that marketplace so that we can have more positive calls on the subject of the fund, but it's very difficult to say that the down slope is over, but certainly seeing it on this kind of a slope is a much improvement coupled with the performance in the bucket which is as I've said before not exactly the way to evaluate that front [technical difficulty]

Thank you. Our next question is a follow-up from Ken Worthington of JPMorgan. Please proceed with your questions.

Hi, thank you for taking this. Sorry, Tom, just on the compensation maybe help me here. So $103 million in 3Q, I think you said ex deferrals it should be around $105 million, but that includes $3.8 million of the deal related costs this quarter. So the rate number might be something like $101.2 million. Your guidance is for something like $106 million. As we think about the right place to be for 2019, is it the 101 -- 101.2 or is it 106 and why is there such a big variance between those two?

Sure, Ken. I wouldn't use the 101 like you're saying. If you remember, I kind of took through my -- in answering the accretion question, that Hermes was accruing their bonuses, Q1, Q2, Q3 as though they were going to be paid in 2018. After we acquired them, management decided to defer a portion of those bonuses into 2019, 2020, 2021. And so that was a significant number that that's why the run rate actually should have gone the other way and that's why I'm saying that the 103 on a normalized basis would be 105 and I'm including in that the deal related incentive comp that was paid. And so the best I can give you is 106 for Q4 and '19, I don't have a comment on it.

Okay. No, you answered it. The 105 actually includes the deal-related costs. That's the part that I missed. Okay, thank you so much. I apologize. I'll do that online.

Yes.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would now like to turn the call back to Ray Hanley for his closing remarks.

Well, that concludes our call, and we thank you for joining us today.