Federated Hermes, Inc. (FHI) Q4 2021 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Federated Hermes Q4 2021 Analyst Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Raymond J. Hanley, President, Federated Investors Management Company. Sir, the floor is yours.

Good morning, and welcome. Thank you for joining us today. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer; and joining us for the Q&A are Saker Nusseibeh, who is the CEO of the International Business of Federated Hermes; and Debbie Cunningham, our Chief Investment Officer for the money markets. During today's call, we may make forward-looking statements, and we want to note that our actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thank you, Ray, and good morning, all. I will review Federated Hermes business performance, and Tom will comment on our financial results. 2021 ended with record long-term assets under management of $221 billion, including record assets and fixed income, $98 billion and record in alternative private markets $23 billion. Gross sales of long-term strategies reached another record high in 2021, hitting nearly $70 billion, a 14% increase from 2020. Net sales in these strategies nearly doubled to just under $9 billion. Assets under advice by EOS at Federated Hermes were $1.6 trillion at the end of 2021. We added one new client in the fourth quarter and 10 during the year. Looking first at equities. Fund flows were negative in the fourth quarter by about $1.7 billion with outflows in growth and international strategies. Equity SMAs had fourth quarter net redemptions of about $56 million and equity institutional separate accounts had $987 million of net redemptions, including $549 million from a U.K.-based client. We saw positive net sales, however, in 18 equity strategies, including global emerging markets SMID, U.S. SMID and Global Equity ESG. Looking at areas of focus for equity business in 2022, we are providing clients with research and thought leadership on asset classes and strategies that have responded well in past inflationary periods. Within equities, these include dividend income, international, emerging markets and value strategies. Our largest equity strategy, the strategic value dividend strategy is off to a solid start in 2022 with positive returns and early net sales for both the fund and the SMA. We have a robust suite of international equity strategies managed both in London and in the U.S. Several of our London managed equity strategies produced solid net sales in 2021, including: Global Equity ESG, $849 million; SDG engagement, $565 million; Asia ex Japan, $437 million; and Global EM SMID $166 million. All 3 of the international strategies managed from our Cleveland office are rated 5 stars by Morningstar. We will continue to emphasize these and other strategies that offer solutions to clients as they manage against higher inflation. Our equity fund performance at the end of 2021 compared to peers was solid. Using Morningstar data for the trailing 3 years at the end of 2021, 59%, 20 out of 34 of our equity funds were beating peers and 26%, 9 out of 34 were in the top quartile of their category. For the first 3 weeks of 2022, equity funds and SMAs each had net positive sales show a combined total of about $46 million, and we had 18 equity funds with positive net sales in these first 3 weeks of January. Turning now to fixed income. Q4 net sales were just under $500 million as institutional account net sales of $752 million and SMA net sales of about $60 million were partially offset by fund net redemptions of $330 million. Fixed income separate account net sales were driven by high yield, $407 million and multisector 327 strategies. Within fixed income funds, high-yield strategy showed net sales of $424 million, led by the SDG engagement high-yield credit users funds. Net redemptions occurred in ultrashort bond fund and certain other short-duration strategies. We had 19 fixed income funds with positive net sales in the fourth quarter including Strategic Income, Muni and Govy Ultrashorts, inflation-protected securities, floating rate, strategic income and total return bond fund and of course, others. In the fourth quarter, we successfully launched our first 2 active transparent ETFs, an investment-grade short-duration corporate bond fund and a high-yield short-duration bond funds. We are focused on the growth of these initial products, while we also plan for additional ETF offerings in 2022. Regarding performance. At the end of 2021 and using Morningstar data for the trailing 3 years, we had 8 fixed income funds, 22% in the top quartile and 17 funds, 47% above median. For the first 3 weeks of Q1, fixed income funds and SMAs had net redemptions of about $34 million. During the same period, we had 17 fixed income funds with positive net sales, including solid results in total return bond fund and high yield. Ultrashort funds were negative. In the alternative private market category, net sales of over $200 million included unconstrained credit of $193 million, absolute return credit of $91 million and private equity of $39 million. This was partially offset by net redemptions in direct lending and infrastructure. We successfully launched in Q4 a new vintage of our private equity series, PEC 5, and a new vintage of our European direct lending series, European direct lending to PEC 5 had initial funding of $342 million in the fourth quarter, and European Direct Lending II had $272 million in commitments for later funding. We are continuing marketing efforts to raise additional assets in each of these strategies this year. We began 2022 with about $800 million in net institutional mandates yet to fund into both funds and separate accounts. These additions are expected to occur in alternatives private markets, including unconstrained credit, direct lending, trade finance and fixed income. Fixed income wins include core, flexible credit and investment-grade credit strategies. Now moving to money markets. Assets were up about $34 billion in the fourth quarter with about $20 billion from funds and $14 billion from separate accounts. In addition to seasonal trends, we benefited from ongoing stimulus-driven liquidity growth as well as wins in certain institutional market segments. Our money market mutual fund market share, including sub-advised funds was about 7.4% at the end of the year, up from 7.2% at the end of the third quarter. With the market pricing in a series of hikes in short-term rates in 2022, including the first increase in March, we have begun to see increases in the rates in the 3 months and longer portions of the money market curve. Tom will update how this impacts our yield waiver outlook. We believe that higher short-term rates will benefit money market funds beyond waiver relief. As in the 2009 to 2016 period of near 0 rates, money market funds have retained most of their assets even as alternatives offered higher yields. Over the span of the last Fed tightening cycle that began in the fourth quarter of '16 through the last rate hike in the fourth quarter of '18. After an initial decline, our money market fund managed assets increased about 15%. The industry followed a similar pattern when after initial decline was followed by growth of 11% over that time frame. The higher rates helped us continue to grow these assets by an additional 22% through the third quarter of '19 when the Fed began to ease rates. Similarly, industry money market fund assets also grew in this period, showing a 14% increase. Now we closely monitor and comment on the SEC's proposed money market fund regulatory changes. The comments submitted to the SEC by us and others clearly note that swing pricing is not a workable alternative for Institutional Prime and Muni Money Market funds. We believe that most institutions would not use these products if swing pricing were to be imposed. In addition to uncertainty around redemption proceeds, large-scale system changes would be required by both money fund managers and investors to enable swing pricing to work. In our view, a few, if any, will undertake these efforts. As a result, we expect that most of the assets currently in Institutional Prime and Muni funds, which shift to government money market funds as many did the last round of changes in 2016 or to products like our private prime fund that are not subject to 2a-7 money market mutual fund regulations. We have approximately $8 billion in client assets in institutional prime and muni funds that would be impacted if swing pricing were to be imposed as described. Taking a look now at recent asset totals. Managed assets were approximately $651 billion, including $436 billion in money markets, $90 billion in equities, $98 billion in fixed income, $23 billion in alternative private markets and $4 billion in multi-asset. Money market mutual fund assets were $294 billion. Tom?

Thanks, Chris. Total revenue for the quarter was down 2% from the prior quarter due mainly to lower average equity assets, higher money market fund waivers, and lower performance fees, partially offset by higher money market assets, higher alternative private market assets and higher fixed income assets. Q4 carried interest and performance fees were $3.7 million compared to $5.1 million in Q3. Operating expenses increased slightly in Q4 compared to Q3, and compensation related was down due to lower incentive compensation expense. Advertising and promotional increased due to higher advertising and conference expense. We saw some restoration in travel and short-term rates moving up in anticipation of Fed right Fed rate hikes beginning in March, we estimate that the negative impact on operating income from minimum yield waivers on money market funds for Q1 will improve to about $22 million compared to $38 million in Q4. Assuming a Fed rate hike in March, we expect the Q2 negative impact to decrease about 90% from Q1 estimated levels. Estimates are based on our investment team's expectations for portfolio yields and recent asset levels, asset mix and other factors. The amount of minimum yield waivers and the impact on operating income will vary based on several factors, including, among others, interest rates, the capacity of distributors to absorb waivers asset levels and asset mix. Any changes in these factors can impact the amount of minimum yield waivers including in a material way. Now looking at expenses for a minute for the future, overall, most expense line items will be impacted by inflation for Q1 and for all 2022. Known comp and related items, including things like payroll tax and bonus restricted stock will increase in Q1 by about $8 million. New hires, wage increases, bonus reset increases we expect will occur in Q1, but we're not going to predict by how much. Of course, there are less days in Q1 versus Q4, reducing net revenue Distribution expense is expected to increase as rates rise. System and communication is expected to increase as we continue to invest in the technology supporting our business. Advertising and promotion, the full year of 2022 should look similar to the full year of 2021. Travel should increase as we hope to return to more normal operations. As you heard Chris mention our ETF and our private markets business plans are being implemented along with the successes that he mentioned. So overall, we're going to continue to invest for growth, and we will deal with the reality of inflation. At the end of 2021, Cash and investments were $427 million, of which about $397 million was available to us. During Q4, we purchased over 4 million shares of our stock for approximately $145 million. Debt at the end of the year was $223 million, reflecting both the acquisition of the remainder of the BTPS interest in Hermes during Q3 and the Q4 share repurchases. Now net cash and investments were $147 million at the end of the year. We continue to be active in buying our stock. We are monitoring the debt financing market and may pursue long-term financing arrangements to supplement our cash flow from operations to fund share repurchases, potential acquisitions to pay down part of our existing debt and for other corporate purposes. Depending on market conditions and other factors, we are considering long-term debt financing of approximately $300 million. That concludes our prepared remarks. And Kate, we would like to open the call up for questions now.

[Operator Instructions] Our first question today is coming from Dan Fannon at Jefferies.

Just I guess to start on the fee waiver guidance in terms of the assumptions. As you think about the improvement here to March without any Fed change? Is that assuming asset levels as of 12/31 or asset levels as of the numbers you gave today? And then is it based on the current yield expectations of further improvements? Just a little bit more color on the kind of shorter-term dynamics before the Fed actually moves.

Yes. It's -- the asset level is as of, I think, January 21st and rates, do you want to comment on that, Debbie?

Certainly. Yes. We're looking at what will continue to be, in our minds, expectations of a steepening yield curve as we get into the months of February and March and closer to that March FOMC meeting.

Got it. Okay. And then in terms of the expenses, I appreciate the color around inflation and the seasonal dynamics for the first quarter and some of the other color, but is the fourth quarter levels, a good starting point when we think about that comp reset because it came in lower, the 124 in the fourth quarter. Just thinking about was there a true-up and maybe also whether performance or incentive fees in the fourth quarter as well? Just trying to think about what we should just be adding aid and some inflation to the 124, if that was artificially low.

Yes. So we didn't have a great year in terms of 2021 so that you saw the incentive comp went down at the end of the year as we analyze and look where -- how much should be paid out. So we reset those for 2022. And I mentioned the $8 million of kind of normalized type things. How much you want to go up from there, we expect it to go up, but we're just not going to speculate on how much. The reason is because any time I do that, I've just been wrong because things change in the marketplace so much that we got tired of forecasting and then being way off.

Our next question today is coming from Patrick Davitt at Autonomous Research.

First on the waivers, some of the other large money fund complexes have suggested it can take a few months for the waivers to come off. As much as you guys are guiding to. So what gives you the confidence that you can be kind of 90% off that rapidly that quickly after the first hike?

Everybody’s factors are a little bit different. It’s asset levels, asset composition, how much is in government, how much is in Prime, how much is in Muni. The dynamics of the curves between those sectors, what to what the actual outlook would be on an expectation, whether it’s additional moves beyond March or only 1 or 2 moves throughout the year. You also have the expense factors that are being charged. Those are not uniform across the market. And as such, the waivers aren’t uniform based on those. So lots of different factors that go into that determination and calculation.

Got it. And I appreciate the guidance on, I guess, $8 billion in funds that would be impacted by the swing pricing. But swing pricing appears to have been accepted in Europe. So why are you so draconian on the reaction in the U.S. just out of curiosity?

It deserves draconian response. And in Europe, they don’t really do it on real money market funds, except that they’re pricing them more or less out of a black box. What it does is you end up with pricing that makes the product unusable. And customers at moving a 4% -- if 4% redemption occurs, then you have to go to a swing price. And the customers aren’t going to know that that’s going on in a non-volatile time frame, and they’re going to be surprised to the negative to get hit with what amounts to a redemption fee through the mechanism of a swung price. The mechanisms that have to be put in are expensive, time-consuming and of no value. And so why are customers going to do that? Why do we want to do it? And basically, it looks to me like it’s enlivening what the Fed said years ago that they wanted to either kill Prime and Muni funds or “regulate them out of existence.” And our view is from a look at real stakeholder defense that issuers have the right issue in and buyers have the right to buy these products that have proven very resilient and very successful over the years, protestations by the Fed to the contrary, notwithstanding.

Our next question today is coming from Ken Worthington at JP Morgan.

Chris, you noted that short and ultrashort bond fund outflows, I believe, in 4Q, and I think you highlighted again so far in 1Q, given the market is anticipating higher interest rates, why are these funds seeing outflows? And I noticed this has happened in the past, too, but I would kind of think that investors would be allocating more to short and ultrashort not less in a -- as we approach and as we enter a rising rate environment?

Some of those products have experienced a decline in the NAV and some clients were not really happy with having a decline in the NAV. And I think it was about $0.04 and so that caused some of those redemptions but that's just the nature of the product. So I agree with you, people ought to be coming into those. And this is a great time for them to be doing that. But we're still living on the backside of that. Debbie?

Yes, Ken. I think what I would add to that is if you look at the flows over the course of the last several years in the most recent 0 rate environment, they've been very, very positive in those products. And much of those positive -- many of that -- much of the positive flows have come from liquidity assets going into bucketing, segmenting their cash and taking portions out into that ultrashort space, where those clients are now looking at something that in a rising rate environment, they'd rather be an even shorter products where we have a whole host of liquidity products that have been growing in addition to our new Muni micro short product. So I think the ultrashorts will gather assets longer-term bond players as they get shorter, but they will lose assets in a rising rate environment back to the even shorter products in micro short and money markets.

Great. And then I don't know if Saker is on the call, maybe Chris, you can answer if he's not. Does BT still have meaningful investments with Federated Hermes funds? And is there any schedule of planned redemptions or return of capital to BT? I know this is something when the deal was first done, you Federated -- someone you or maybe Saker highlighted that those assets were going to come out over time. I just wanted to see where we were in that process.

Saker is on the call.

Thank you. So I mean, first off, I don't want to talk in great big about BTPS because it's the main client. But insofar as it relates to the publicly available information, which is to do with the deal. We did say at the beginning that certain assets of BTPS primarily in public markets, where due to have a life -- a declining life because as a fund, it's a direct benefit fund, and it is a maturing fund. However, we also run substantial assets for BTPS in private markets and not only do they remain invested with us, we continue to discuss with them new opportunities, which they are interested in.

So where do we say on the public side to update us --

On the public side, they are very much on track as per our original agreement with them. So there's no surprises there. The decline is incorporated within our funds. And the key for us is the private side, which is where the majority of our assets stand.

And we gave out the levels there when we did the deal. And we kind of did that, so everybody could see where it stood and anticipated not really going into a client detail after that. So that was August, right, in August. Yes.

Our next question today is coming from Kenneth Lee at RBC Capital Markets.

Want to get further color on the potential demand for money market fund products, especially as rates start going up. And thanks again for the historical perspective there. Would you also expect a similar dynamic this time in which case you would see declines followed by growth over time?

Sure, Kenneth. This is Debbie, obviously. Historically, when interest rates have gone up, the initial reaction is for money market funds to lose assets. And generally speaking, over most cycles, it lasts longer than it did in the ‘16 to ‘18 cycle. We think this will be more like the ‘16 to ‘18 cycle of a couple of characteristics. Number one, we’re starting from 0 again. So that’s a different than prior increasing rate cycles. And number two, it was caused by a sort of a major event, in this case, a pandemic. And ultimately 0 has been experienced for a long time because of that particular factor. When you have a Fed though, like we have now and like we had in '16 to '18, where you've got the preference for communication and a yield curve that effectively reflects expectations of Fed movement. Now it is dynamic, obviously. If you asked me 3 months ago or even 3 weeks ago, my opinion would have been different for what that food that Fed movement would have been. But the Fed that we have now is very communicative. There’s Fed speakers out there in unison. And as such, products reflect that from a yield curve standpoint faster than they have in what I’d call more historic Fed tightening cycles. And in this case, again, I’m not even calling it and the Fed isn’t calling a tightening cycle, as they did not in ‘16 to ‘18, it’s more normalization. It’s getting rates back to where they should be in a more normalized environment with an inflationary environment that also becomes more normalized.

Ken, let me add also a couple of other factors. One is to take a look at the money supply. And all the money market funds is a function of that in the hands of all the individuals that have money. And so this is a look at what you might call core money market funds where people just need a cash management service. And this is an inexorable thing that grows. I don’t think they’re going to start shrinking the money supply. Now it’s not a direct factor and it certainly doesn’t turn in quarters like we’re looking at but it is an underlying feature, which enables us to get to higher highs and higher lows. It’s one of the ingredients. Another one is these products over all these decades have shown tremendous resilience and tremendous ability to give the clients what they want. And so that’s another big factor and why these products continue to be successful.

Got you. Very helpful there. And one follow-up, if I may. Just wondering if you could just update us on capital allocation priorities, so they had meaningful share repurchases in the quarter, and you talked about -- a little bit about long-term financing solutions. I wonder if you could just give about further color around there.

Yes. Further color is to look at what we did in the fourth quarter. We weren’t very happy with the stock price, and we think the future of the company is great. And so we’ve been buying more shares. We’ve got a new share buyback program with $7.5 million. We’ve -- we continue to be active and we expect to be active. And with the debt levels, we want to look for long-term financing to continue to have availability on the short term and also satisfied with the rate on a longer-term basis.

Our next question today is coming from John Dunn at Evercore ISI.

With waivers kind of on the way out and the outflow -- I mean, the outlook for flow is pretty good. How does that affect conversations with small and money market players? Does it delay kind of the roll-up deals? And basically, how does that dynamic work at this part of the cycle?

What we have discovered is that the cycle really doesn't drive that truck. It's more of a longer-term internal decision by other potential roll-up candidates as the CEO and the business people and the CFO of those enterprises decide whether those things make sense for them given the risk profile and the growth profile. So it just doesn't work as an accelerant. We've been in this a long, long time, and it's hard to connect something that happened in the marketplace within things releasing. So what's our answer? We simply call on them all the time so that when the opportunities arise, everybody knows that Federated Hermes is a warm and loving home for their money fund.

Got it. And then you mentioned the strategic value dividend on doing better so far in '22. Can you remind us how that product sold and do you think there's potential for a pickup there to take up some of the slack in other areas of equities this year?

We do. And that's why I mentioned the thought leadership that we were putting out into the marketplace. This began many months ago with a belief that perhaps inflation was not "transitory" and that's to look at the index betas to CPI of various investment areas. And those charts and works showed that dividend stocks, value stocks and as I mentioned, even international and small cap and obviously tipped are the gang of solutions that you can work with to help clients manage around these higher inflation and higher inflation expectations. And so the strategic value dividend fund is right in the middle of the mix for that. And that just underscores one other point here, and that is we like to call ourselves a franchise for all seasons. And so when you get these giant reversals from growth to value and you have inflation, which are different situations that we've had over the last several years, you have solutions for products that are ready and able to go.

Our next question today is coming from Robert Lee at KBW.

Just want to maybe go back to expenses a little bit and Tom understanding, I don’t want to give forward guidance. But maybe just to level set 2021, I mean, on comp, I mean, clearly some reversal of prior accruals. So if we’re trying to think of kind of select a better way of putting a normalized comp level? Should we be just averaging the 4 quarters, understanding in the first quarter last year, there was a bunch of noise that would kind of get us to around the $130-ish million level. Is that the best way to think of it as kind of as we head into next year?

Yes. So tough, Rob. In the first quarter, that’s why I went through inflation and the expenses in the first quarter. And then if we’re right and the earnings of the company because of the rate increases are going to change. Every time we put an accrual in for an earnings quarter, we are supposed to predict what we think is going to be the bonuses and the comp for the year. So come Q1, we’re going to have to give it -- put an accrual number in. And with our expectations of rates going up and basically taken most of the waivers out. So we’re going to have a nice decision to make in there, and that’s why I don’t want to predict it. Obviously, we took a lot of comp out in Q4 based on the earnings and the other factors. And so would we restore comp if the earnings are restored? Yes.

Okay. And then maybe on the EOS business. So I mean trillion of assets under advisement. I know it’s been a place certainly I think in the U.S., you’ve invested in understanding that it supports kind of the investment process across the firm more broadly, but had how should we think of the economic contribution of that advisory business? Is it really just, hey, gives you greater insights. It’s really -- or is there any kind of potential or meaningful earnings or revenue upswing that we should be thinking about from that business?

Saker, it’s your turn.

Thank you, Chris. I think, look, first and foremost, you have to think about it as essential to our brand at FHI as being the main differentiator with everybody who wants to play within the ESG space because it gives us particularly deep understanding of all the factors that come to play. And remember that for us, we believe that putting these factors in leads to sustainable wealth creation, meaning they actually add to our alpha. So in many ways, the value that you see with our clients see are reflected also in the understand we have with the company that we engage with in the environment that these companies operate in and so on. So there is an inherent value in brand has an inherent value in understanding companies and inherent value of actually improving our own performance as the insight that we get is unique to our teams, whether in Pittsburgh, in Boston or in London. The second thing you should take into account is that, generally speaking, the clients who do have our clients we have in other areas. And that means that it’s a holistic relationship. And it tends to tie clients, and you hear Chris talking about us being a franchise for all seasons. And the one thing that is an overarch in all seasons certainly has been in the markets outside of the U.S. has been the EOS relationship because it doesn’t matter what you’re in, there’s always going to be for the clients, a degree of index investments and call a lot of the time, we try to get the EOS services for that index investment that gives us contact and commitment to the clients. If you’re asking me is EOS gaming to make us an enormous amount of money? The answer is, it is, by definition, motors, high margin as other directly high market in other asset management businesses are concerned, but it’s a business that we believe is worth pursuing both from a financial point of view but also from event and from an understanding point of view.

Great. And then maybe one last question, and this is maybe looking at the SMA business. So I mean, clearly, the industry, all this a lot of movement towards talk about model portfolios, everyone seems like they’re trying to creating model portfolios, trying to get them on platforms and that’s you mean not a, I guess, a part of the industry that I think you guys have spoken to too often in the past. So can you maybe within your SMA business, how you kind of are thinking about -- or maybe it’s a part of it kind of developing models capability to try to get that placement as opposed to kind of the more, I’ll call it, traditional SMA approach kind of strategy by strategy.

We would be on both streets, Rob. Reason, I think we talked about this in prior calls. We had one client, especially who wanted models along the ESG line which we set up and are implementing here, I think, in the first quarter, and that was a whole new deal for us. But the model thing and the SMA thing are related. So naturally, we’re going to keep repeating what we’ve been doing on the SMA side. And in addition, working on these models in response to client demand.

Our next question today is coming from Brian Bedell at Deutsche Bank.

Chris, I like the warm and loving home comment on money market funds. You should make that a marketing brochure especially here in the frigid temperatures here in the Northeast at this time of the year. But maybe if I can ask Debbie about one more on the money market fund flow trajectory and specifically on brokerage sweep. If we think about how brokerages tend to lag deposit pricing, they have very low deposit betas in the first couple of hikes of the cycles. Therefore, clients that do want to get a yield would naturally migrate to money market funds in the sweep systems. Maybe if you can comment on your thoughts on whether you think that would be a positive contributor. Is the cycle certainly if the Fed hikes once per quarter or at a sustained momentum. And if you can refresh us on the AUM that is in the brokerage with the money fund complex.

Sure. Well, first of all, those brokerage sweep at this point are within our government sector. That's because of the FNAV nature of the prime institutional and municipal institutional that went into effect in 2016. I don't know that we actually break that out from an FHI standpoint. I think from an industry standpoint, from a public standpoint anyway. But from an industry standpoint, I think about 20% to 25% of the government assets in the market, are in that type of a sweep arrangement. And Ray, do you have additional insight from an FHI?

We don't buy everything that are financial intermediaries. So we don't break out brokers per se. But when you -- one of the reasons why we looked at the historical growth in 2 steps coming out of the 2016 cycle was that as the rates rose, we did see exactly what you're talking about. The cash yields in and of themselves become -- it becomes a more attractive asset class. And while that has institutional implications, it's certainly, for us, helped us with brokers and other intermediaries who were able to add some effort on their part to move out of the default option is kind of the easiest thing to do with their cash, but they're able to access meaningfully higher yields with us, and that was something we were very active in doing right up until the time where the Fed pretty aggressively moved the rates back down.

We would expect a similar type of pattern to occur here. So I think it's a repeated pattern that we have some history associated with as Ray mentioned.

Okay. Okay. That's helpful. And then maybe just back on expenses. I know always tough to predict, but in the compensation area, I appreciate, obviously, there's inflation dynamic to that. But if we think about the money market fee waivers, recouping those from that $30 million, $38 million level, just on the sort of variable component of that, the $38 million improvement to pretax, I guess, what type of offset would there be in comp just simply on that better performance just so we can think of sort of how much might be -- how much may folks is the bottom line?

Yes. So Brian, we're just not going to do it. There's so many variables, just the equity decline in the first quarter and what they do whether we make that up in the marketplace by recovery or we make it up in sales or in fixed income or in the private markets. And we're also looking at the new hires that we're trying to get. And whether we're going to succeed and how much the cost is with the tight labor market, it's just not going to give you any more help on it. Sorry.

Yes. That’s okay. No, that -- I appreciate that. It’s good color. And just one last clarification. I think Chris, did you say $8 billion of institutional prime was that risk for that swing pricing…

$8 billion of institutional and muni prime. So that if swing pricing goes in, we’ve looked at it and said, that’s about what would be the subject matter. And then as I said, like the last time, they’ll chase that money into the govies. The last time we didn’t lose any clients, the money just all played musical chairs, and there was less financing in the real market.

We have no further questions in the queue at this time. I would now like to turn the call back over to Ray Hanley for any closing remarks.

Thank you, Kate. That concludes our call for today, and we thank you for taking the time to join us.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time, and have a wonderful day. We thank you for your participation.