First Horizon Corporation (FHN) Q3 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the FHI Q3 2022 Analyst Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. Ray Hanley, President of Federated Investors Management Company. Ray, the floor is yours.

Thank you. Good morning, all. 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 Federated Hermes Limited; 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 Federated Hermes' 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, Tom will comment on our financial results. While Q3 presented challenging market conditions across asset classes, our business mix enabled Federated Hermes to achieve positive net sales in equities, fixed income, private markets and long-term assets overall. We also produced increases in revenue, operating and net income compared to the prior quarter as growth in money market revenue offset lower revenues from market-based decreases in long-term assets. Looking first at equities. Assets declined due to the negative market and FX impact. However, Q3 net sales were $182 million compared to net redemptions in the prior quarter of $969 million, and for Q3 of '21 of $1.4 billion. Equity net sales were driven by the strategic value dividend strategy. The domestic strategy had third quarter net sales of nearly $1.6 billion, with both the fund and almost $600 million and the SMA at about $1 billion, producing solid net results in sales. We also saw third quarter positive net sales in 15 equity fund strategies, including several international equity strategies like Asia, ex-Japan, international strategic value, China equity, international equity, international growth and emerging markets equity. The domestic MDT Small Cap Core and [ MBT ] Large Cap growth also had solid net sales results. Net redemptions were concentrated in growth strategies of about $555 million in Q3, down from $955 million in Q2, still reflecting difficult market environment for these strategies. We continue to emphasize asset classes and strategies that have responded well in past inflationary periods, including dividend income, international, emerging markets and value strategies. Now our equity performance at the end of the third quarter compared to peers was solid. Using Morningstar data for the trailing 3 years at the end of the third quarter, almost 60% of our equity funds were beating peers and 40% were in the top quartile of their category. For the first 3 weeks of the fourth quarter, combined equity funds and SMAs have had net redemptions of $192 million. We have 13 equity funds with positive net sales in the first 3 weeks of October, including strategic value dividend, Asia ex-Japan, international strategic value dividend and international equity. Now let's turn to fixed income. The third quarter saw overall net sales of about $1.1 billion. Fixed income separate account net sales of $3.2 billion were partially offset by $2.1 billion of fund net redemptions. Fixed income separate account net sales were driven by multisector strategies. Most of the Q3 separate account net sales came from a large public entity. Within funds, our flagship Core Plus strategy, total return bond fund -- total return bond saw net sales of about $750 million, benefiting from a long term performance record that has led to expanded distribution opportunities. Core Plus and other multi-sector fixed income SMA strategies added another $209 million of net sales. Within fixed income funds, net redemptions of about $1.4 billion occurred in the 3 ultrashort funds. In addition, high-yield funds had about $462 million of net redemptions, down from about $860 million in the second quarter. Even so, we had 12 fixed income funds with positive net sales in the third quarter, including conservative Municipal Microshort, Muni high-yield advantage, total return, government bond and others. Regarding performance, at the end of Q3 and using Morningstar data for the trailing 3 years, just over 60% of our fixed income funds were beating peers, and 22% were in the top quartile of their category. For the first 3 weeks of Q4, fixed income funds and SMAs had net redemptions of about $693 million. And this is mainly from ultrashort funds, about $400 million in high yield, almost $200 million. During the same period, we had 14 fixed income funds with positive net sales, led by conservative Municipal Microshort, Total Return Bond Fund, short-term income and ultrashort government bond fund. In the alternative private markets category, net sales of $17 million included real estate, Pru Bear, MDT market neutral, and this was partially offset by net redemptions in infrastructure, private equity, trade finance, absolute return, credit and unconstrained credit. We continue marketing the fifth vintage of PEC, P-E-C, our co-invest private equity structure and the third vintage of the Horizon Private Equity Fund. We began Q4 with about $2.9 billion in net institutional mandates yet to fund into both funds and separate accounts. About $2.6 billion of this net total is expected to come into private market strategies, including private equity, a little over $1 billion, direct lending, about $1 billion and unconstrained credit, $400 million. Moving to money markets. Assets increased in the third quarter compared to the second quarter. Money market fund assets increased about $12 billion, benefiting from higher yields and continued elevated liquidity levels in the financial system. Money funds also benefited from higher yields relative to deposit alternatives. We continue to believe that higher short-term rates will benefit money market funds over time, particularly as compared to deposit rates. Money market separate accounts were down by $10 billion mainly from seasonal factors related to timing of tax payments. Our money market mutual fund market share including sub-advised funds was about 7.4% at the end of the third quarter, up from about 7.3% at the end of the second quarter. Now looking at recent asset totals as of a few days ago, Managed assets were approximately $626 billion, including $437 billion in money markets, $77 billion in equities, $89 billion in fixed income, $20 billion in alternatives, private markets and $3 billion in multi-asset. Money market mutual fund assets were $304 billion. These figures include approximately $3.5 billion in fixed income assets from the CW Henderson transaction, which closed on October 1. Tom?

Thanks, Chris. On the financials, total revenue for Q3 increased $15 million or 4% from the prior quarter, due mainly to lower money market fund minimum yield related waivers of $9.5 million, higher average money market assets, increasing revenues by $6.6 million, lower money market competitive waivers, an additional day in the quarter and higher carried interest and performance fees. These were all partially offset by lower average long-term assets, which reduced revenue by $12.8 million. Q3 carried interest was $3.9 million and performance fees were $300,000. Q3 operating expense increased $10.7 million or 4% compared to Q2, driven by $9 million of higher distribution expense from lower money market fund minimum yield-related waivers. The decrease in compensation and related expense from the prior quarter reflected lower Q3 FX rates per pound sterling-based compensation of $3.1 million, partially offset by $1.5 million of higher incentive comp related to carried interest. The Q3 increase in other -- in the other category of operating expense compared to Q2 was due mainly to $1.3 million of net mark-to-market losses related to FX, including the currency forward used to hedge certain pound exposure. This expense was $4.9 million in Q3 compared to $3.6 million in Q2. This Q3 expense was largely offset by an estimated $3.8 million in higher pretax income related to the change in value of the pound in various revenue and expense line items such that our estimate of the net income impact of Q3 changes in the value of the pound was a loss of about $1.1 million pretax or about $0.01 of EPS. Investment losses after subtracting the impact attributable to noncontrolling interests reduced earnings per share for the quarter by about $0.04 and due to the negative market impact on our investments. At the end of Q3, cash and investments were $481 million, of which about $427 million was available to us. Debt at the end of the Q3 was $397.5 million. During Q3, we purchased 212,000 shares of our stock for approximately $7 million. Jenny, that completes our comments, and we would like to open it up for the question-and-answer session, please.

[Operator Instructions] Your first question is coming from Patrick Davitt of Autonomous Research.

I think everyone has been a little surprised how anemic money fund flows have been in 3Q. And I hear your comment on the tax issue, but still pretty bad here in October. You're clearly outperforming a lot of your competitors, but the picture is still, I think, off from what we would have expected. So a couple of questions on that. Firstly, could you frame any other dynamics that might be going on given how high rates have gotten? And secondly, should we still expect a big 4Q surge on the usual seasonality plus the higher rates?

Thank you, Patrick. There are some other dynamics. And next week, what's the Fed going to do 75, what are they going to do in December. And what we've always said on several of these calls is that over time, this helps the money fund business. We often goes back to the story of [ 16% to 18% ] when the Fed was increasing rates where our assets then increased about 15% in the industry, about 11%. And then in the next period, once you're dealing with higher rates. Our assets went up another 22% and the industry increased about 14%. So those 2 levels, we think, will obtain. When? I don't know. I'm going to let Debbie comment on other dynamics, and let her take a guess about fourth quarter avalanches.

Thanks, Chris. And Patrick, a couple of different things. First of all, historically, with cycles, Chris referenced the 16% to 18%, but looking at even historic cycles, there's generally about a 6-month lag to when policy changes start to occur. So that occurred in -- the Fed began moving in March. So we're at about just following that, that 6-month lag. So our expectation would be that we start to see a little bit more of a pickup going forward. Number 2 is we were moving off of 0. And 0 again is despite the fact that if you have been in the market the last 15 years, most of your lifetime was spent at 0 rates. That's not the norm. So I think cycles coming off of 0 react a little bit differently. Thirdly, if you look at where there has been a huge amount of growth since March within the industry, and this was referenced several different times in media articles over the course of last week. It's been in retail prime. Now that category on a 6-month basis is up 2/3, 67%. FHI industry assets in that category are up even more than that in the high 80s. And that's a reflection of those assets having gone very, very low in a 0 rate environment. and now starting to come back as a good alternative to deposit products, which, as Chris was mentioning, are not very responsive for retail customers to increasing rate environment. Contrast that to prime institutional, which has sort of the baggage of the 2014 reforms that were enacted in 2016, and that's a floating NAV. That category is only up 13% and government funds, which are the lowest risk category are only up 1%. So I think it's a dynamic at this point of where the industry assets are and looking at them to some degree on an individual category-by-category basis. Once we get to a point, though, I think where people are comfortable that Fed is not going to continue to double rates every 6 months or so. That's when you really start to see the growth factor in all products in the liquidity space start to kick in. And we're just not there yet.

Okay. One quick follow-up for Saker. It looks like Hermes might have had a fairly sizable announced realization in 3Q that's set to close this quarter, a big Greek resort group. It's not clear how much Hermes owned, but it looks like the MOC is quite high. So do you have any visibility on how additive that deal could be to 4Q performance fees?

So thank you for the question. Sorry. Thank you. Thank you very much for the question. And the answer is that I'm afraid we don't give you breakdown of deal by deal of what we do close. So we can discuss this more offline if you'd like. But generally, we did not give you a deal by deal breakdown because it's unfair to all of the other clients are also in the deals that we do.

And Patrick, this is Tom. On the timing, Saker doesn't know, the team doesn't know and we don't know because you asked Q4 or other on any kind of carried interest that we're getting, we just don't -- we don't know.

Your next question is coming from Dan Fannon of Jefferies.

I wanted to follow up on the unfunded wins. I think you mentioned they were all in private markets. So could you talk about kind of the momentum across that side of the business? And whether this is just the timing where they're coming in, in terms of the fourth quarter or prospectively thinking about momentum, fundraising other things across the private side, that would be helpful.

Okay. I will talk a little bit about this first. I'm going to let Saker have a swing at this one. On the institutional business, we've been focused on solutions-based type campaigns and sort of unique types of capital allocation, stimulus pools, infrastructure pools, opioid settlements and things like that. And the emphasis has been on fixed income type mandates. And so that's been the workflow of the institutional business. And that reflects a U.S. domestic thing, which we think is pretty good. In addition, on the domestic side, the state pools have been a very successful business for us, and we look forward to continuing to grow that as well. I think we're up to about $137 billion or $140 billion or so in state monies, not just state pools, but in-state monies. And that remains a very, very strong business. On the private market side, I'm going to let Saker comment on those.

Thank you very much. And here, we have a variety of projects going on. Our private equity team, which has had an excellent track record, as you've heard from Chris, is continuing our raise in PEC, which is our co-investment private equity fund and the horizon where we have commitments. Now the reason for that is that there's a strong move from many institutional pension clients towards investing in private assets for the long term. In addition to that, our direct lending strategy, which has had a very successful track record again, has continued a strong grade of assets as we go through, and we see increased demand for that, both in the U.K. and in Europe. And constrained credit is also another place where we see where we see demand. So this is part of the trend, I think, where particularly institutional clients see value and where previous strong track record and strong teams and processes seem to attract the flow.

Got it. Okay. And then for a follow-up, just wanted to talk about capital return. Buybacks obviously slowed versus the pace in the first half. You announced the acquisition of CW Henderson. So in terms of the backdrop, where things sit today, how you want to capitalize capital return and maybe characterize it also in the context of the M&A environment and kind of the bolt-on deals you've been known to do over time.

Sure, Dan, it's Tom. In terms of buybacks, look at our track record in terms of last year and the beginning of this part of the year of buying back 10 million shares. And then you can actually look at the history when we have done deals. Shares have -- our share buybacks have gone down. But we still, every quarter and every day, look at our expectations for where we think the company is going and look at the price and our models. And so the future of shares is we're definitely -- we still have $5 million left in our recently approved program and we will be active on the amount will depend how we look through the quarter. In terms of M&A, we're pretty excited about the CW Henderson deal. We've had a lot of people out there, a lot of sales excitement and going forward to grow that successfully, get them their contingent payments through the years and grow it. And so we're focused on that right now in terms of M&A. Our team that goes out and looks for deals is still out looking but we're talking about the past deal right now, which is the current deal the real thing is how can we grow that.

Your next question is coming from Ken Worthington of JPMorgan.

Maybe first, in terms of money market fund mix. In recent months, we've seen money coming out of government obligation funds and going into prime obligation funds, and it feels like this phenomenon of institutions taking money out and retail putting money in. Assuming my interpretation is correct and this trend persists, how should this impact management fee rates and distribution costs for money market funds? It feels like if we're seeing a little bit of a transition from institutional to retail that both should be going higher, but would love to hear your comments.

Ken, it's Ray. Just from a fee standpoint, the retail-oriented funds will tend to have both higher revenue and higher related distribution expense, but. If you consider it on a net revenue basis, it would be fairly comparable to institutional. So we should not see a meaningful change there in our blended, if you will, fee rate.

Okay. So even distribution channels are all sort of equivalent for money market funds in terms of the net rate that they're generating?

Yes, roughly.

Okay. And then you're having great success in SMAs in equities and fixed income. Can we talk about how SMA fees compare with fund fees. So if you take, for example, the biggest equity product, strategic value dividend, you've got a big fund presence, but you have a big -- maybe even bigger SMA presence there. How do the fees compare? How much lower are the SMA fees than the fund fees or maybe they're more equivalent? But help us understand that. And is that phenomenon sort of consistent throughout SMAs versus funds?

Sure, Ken. SMAs are comparable to other what may be considered institutional accounts, even though the end user is typically a high net worth an application and a wrap type of account. But in terms of fee level, you're dealing with the sponsor of the SMA. And so it's more analogous to an institutional account. And if you look across in the industry, typically mutual fund fee rates would be as much as twice what average institutional account fee rates would be. So we were very cognizant of this when we went into the SMA business pretty much at the beginning of it. And we've had a lot of success. We're close to $30 billion there. Of course, it's weighted towards strategic value dividend, but we've had some good growth over the last couple of quarters and good placement on our Core Plus fixed income product in SMA world that's starting to pick up. And as Todd mentioned, the Henderson acquisition gives us some good performing strategies with differentiated from other things we're doing in the Muni space with an outstanding team and a very good long-term record. So that -- we expect that business to continue to diversify and continue to see strength on the fixed income side.

Your next question is coming from Brian Bedell of Deutsche Bank.

Maybe just one more on the money market side. if you can comment in terms of the distribution channels, maybe what portion of your money fund assets or -- would sit within sweep programs, so an option for sweep deposit investors to take uninvested cash and put that in a money fund and whether you're seeing that action actually happen? And then back on the institutional side, is it sort of how we understand it where institutions can invest directly in fixed income securities to get a better yield. Once that recalibrates, would you expect that to come back and therefore, help accelerate money fund flows in money fund SMAs.

Right. On the sweep front, it's hard to identify a lot of our clients do with us on an omnibus basis. And so we don't always have visibility to the end use. I would peg it at somewhere in the neighborhood of 10% to 15% of our money fund AUM. But again, it's difficult to get a precise figure at that.

The other thing I'd add, Brian, is that the suite clients changed completely into the government products after the last set of reforms because of the institutional prime floating NAV at 4 digits, that was difficult for them from a programming and platform standpoint. So it's essentially a government product phenomenon now. As far as institutional growth goes and when that happens, generally speaking, it is lagging on a historical basis, but even more so when you're talking about coming off of 0, it seems. And the expectation is that when you are nearing a peak or getting to a point where you think there's a terminal rate in sight from a Fed funds target standpoint, that's when institutions really begin to move in earnest. And quite honestly, a steady to declining rate environment is really what produces inflows into institutional money market funds on an outsized basis as long as you're not declining into a 0 rate environment again. So I think we're far away from that sort of -- either 1 of those things happening, either number one, the Fed reaching a terminal rate in the very near term or number two, when they do trending back to anything that's near 0. So I think institutional growth is beginning to happen. It will continue to happen, but it will increase in earnest more than likely in 2023 versus '22.

Truly makes sense. And then maybe just on fixed income and also through strategic value in here. what is your sales force saying in terms of what they're hearing from financial advisers about the timing of when retail investors may shift back into bond funds. Obviously, they want to avoid the NAV hits from rising rates. But is that also an argument whereby once we are close to terminal rates, you would expect a reacceleration in retail on funds? And then from strategic value, that yield obviously is fairly -- looks like it's fairly close to short-term rates right now, that gives you equity optionality. Are you seeing -- or do you expect more interest in that as we move into 2023?

Well, the answer on when do the clients expect the worm to turn, it's not yet and they don't have a time on it. In fact, that's one of their principal question of asking us or asking anybody. And if anybody knows, they're going to make a fortune. Right now, the word we get from our financial advisers is that, on the whole, they're bearish and defensive. And as you suspect, money funds are front and center. And you're seeing some moves in government Ultrashort, which I mentioned and Microshorts. Now when you talk about total return bond, that still has strong legs and there's some amount of tax loss harvesting that's going to go on in other funds. And so that will be playing some musical chairs out in the marketplace that could be interesting. And because of exactly what you said where the dividend rates on the strategic value dividend fund are roughly comparable to some other rates, they're some FAs are getting more comfortable with that. And you see that in some of the flow numbers. But I understand that on the other side, you still have upticks in the Pru Bear fund, which is basically a short fund. And I'd say, overall, what our people are telling us is that their RFAs are having some of the toughest conversations with clients for a while, and it's very, very challenging. And that's why we try to offer things like products that are sensitive to the inflation, which we've talked about before. And our portfolio construction activities where you can actually get a hold of the portfolio and show the FA and the underlying client exactly what risks are being run and make adjustments even to include things like the MDT market neutral fund to change the dynamic in some of those portfolios. And so even though I'm telling you that the FAs or the bearish or defensive and all of that. There are many things that can be done to advance the ball.

Your next question is coming from Mike Brown of KBW.

If we start on the ESG topic, that's obviously been facing greater political scrutiny these days, and I know it's integral to the investment process at Federated Hermes. So what are you seeing in terms of pressure or buyback from -- or pushback from investors on, I guess, either side of the aisle and -- and how have you been navigating this kind of greater screw now in ESG?

Okay. What we see is the repeating the sounding joy of the beauty of an integrated ESG analysis where you are investment managers managing money in the best interest of the shareholders. And we are going to repeat this as long as we can because we are investment advisers. And I mentioned the $137 billion in state money that we had. If you look at the top 10 states on that list, 5 are red and 5 are blue. So what is going to be Federated Hermes' answer? The answer is we are not going to politicize or get into the jambalaya of the politics of ESG. We are going to use those factors in order to improve performance, work on investment management techniques. And that's how we deal with it. So when you say we get pressure, you're going to get pressure everywhere, every day on everything you do, get over it and get on with it. Now my dear friend Saker, who was at the beginning of this. And basically, the UN PRI wrote their documents in his office printed 100 years ago. I'm going to let him comment on this subject.

Thank you, Chris. Look, we started down this journey back in 1983. That's before I even joined here. And the objective has always been to improve performance. And we would argue that ESG factors put into effect, improve the performance of companies and improve ultimately the long-term performance of shares. The politicization of ESG from the perspective of this side of the pond is partly to do with the model that people have between SRI, socially responsible investments, which has a place. And by the way, we run some thematic funds for people who so wish and mainstream ESG. We have found through our internal numbers, and this is internal evidence, some external evidence, some truth that we believe in engaging with companies while holding their shares, not divesting shares. Engaging with companies while holding their shares will add performance over the long term. We found that companies that can improve some of the factors will add value over the long term. So we use ESG as a factor and as a way of understanding companies. We are fundamental analysts on both sides of the pond, we do fundamental understanding of the companies, and we integrate the fundamental understanding companies in our stock selection. The politics are going on both sides is interesting, but it's not investment. So I leave it to the politicians, and we stick to our knitting, which is acting as fiduciary managers looking after the funds of our clients and trying to create wealth sustainably over the long term. Back to you, Chris.

Thank you, Chris and Jack, I appreciate the thoughts there. The -- a lot of my questions have been asked about the money fund business. Maybe just 1 more there. What's the latest on the regulatory front as it pertains to the money funds business? And can you remind us how much of your business is at risk from swing pricing?

Yes. It would be about $8 billion. We haven't come off of that number and answer to the last question. To answer the first question, various things occurred at the SEC and otherwise that put the actual implementation of the rule off at least a quarter. Now we don't know when they're going to come up with it. We thought it would be already. But because of some glitches in their systems on the common situation, they had to extend and so they're proceeding. Another thing which we mentioned in our queue is the GAO is doing a little study on money funds to see what impact has been had, and that was requested by certain Congress representatives in Congress. And I don't know what that's going to report, but that's supposedly coming out here in the fourth quarter, and perhaps that will help inform. We are, needless to say, using this additional comment period to point out other things on, as we've said before, that really swing pricing on money funds is a great disease to impose on the money funds, and there's no basis data or history for doing that, and it just doesn't seem right. Now of course, the SEC announced they're going to do -- put out something on swing pricing on bond funds. And so that has been done in Europe. I don't know what they're going to propose or what the deal will be on that. That's another whole round. But it just makes no sense on the money funds at all. And we've also been talking to them about what happens when as and if you get to negative rates. Negative rates, are you kidding? We're not talking about negative rates, but they have a little rule that says, you got to do some things, which we don't think the intermediaries or the clients will do on that score. So we've had very recent discussions with them on reverse distribution method so-called in order to enable funds to deal with it long term, if you do get negative rates, which nobody foresees and it's hard for us to figure out why you would injure current funds that are functioning well by that concept when you have plenty of time to study it. So we don't know when the regs are coming out. We know it's been delayed. And we know there's been a lot of commentary much like ours that's been unified by the industry and many others against doing what they're proposing, but we'll see.

Your next question is coming from Kenneth Lee of RBC Capital Markets.

In terms of the -- just given the current market environment, I wondering if you could just share with us your thoughts around how operating expenses could trend more specifically -- discretionary items could trend?

Yes. You broke up a little bit there. I think you're asking about where are we trending expenses. So comp and related. We went through what happened and you can see in the press release, but we would expect that to go up, both the incentive and the base. We are facing the same inflationary situation that everybody else is. If you go down to distribution, if we're right and we collect more money fund assets, that distribution line will go up, and we will be very happy about that going up. On the systems and communications tech, while there's going to be more tech spending, it seems like there's always more tech spending. And we have a lot of things going on to make us a global company, and that's kind of going to be a theme here in the future, and that will require more technology spend, which we will be doing, and we expect it will help our performance. Professional fees and office stuff, I don't have really any comments there. Advertising, we saw a tick up there. We have a lot of good products. And in the future, we expect to be focusing on our good products. And if we come out with new products, we would expect to focus on those. So I wouldn't be surprised to see increases there on travel and related. There's still pandemic -- low pandemic costs in our in the history quarters. And so kind of year-over-year, you're definitely going to get an increase as our teams get out there and have our excellent products to sell. In other, that's where we talked about the FX stuff. So who knows what's going to happen there.

Your next question is coming from John Dunn of Evercore.

Maybe an extension of the ESG question, an update on the EOS business, where you think it could translate into inflows and maybe the evolution of conversations with U.S. institutional clients?

Let me just make a few comments on EOS, and then I'm going to let its founding father talk. To us, EOS is a grand source of data that has been accumulated over the long term that has an edge against the rest of the marketplace because it helps you look through the front of your car where you're going and not just the rearview mirror, which everybody always already has, plus because it's a long-term engagement you get good judgments, good people who are subject matter experts making real determinations about which way things go. In terms of its growth and the impact that Saker has seen, I'll let him speak on that.

Thank you so much, Chris. Just to build on the introduction that Chris made. So we've been doing this for quite a few years, almost 18 years as EOS currently formed and slightly longer from before then. And the basis of it is engaging our own clients. Now we think there are 2 advantages that we can get out of EOS. The first one exactly, as Chris pointed out to is, we have specialist analysts who are talking to global companies over a 10-year horizon. And the insight that we get from doing so, even to our portfolio managers is a valuable source of fundamental understanding, which helps us to formulate our investment decisions. The second value that we do is for our clients for our EOS. And typically, these are institutional clients who have index exposures. We help them ensure that these stocks, which, by definition, they count their vest from because they're in the index actually continue to increase their return. Now we saw a spike in interest in EOS a few years back when there was a change in the law in the Nordics that made stewardship essential. We see that in advanced markets like Australia, we continue to see that attractive for us, and we continue to build our business there. And generally speaking, we continue to grow our business around the world. It's a slow sell. It takes a long time to get people to come on board because it's a partnership. Unlike other models, when EOS engages, it doesn't engage on behalf of FHI, EOS engages on behalf of its clients because we involve each and every client in the engagement decisions that we make. So it's -- we believe it's a business that will continue to grow by definition, and we believe it's a business which is very valuable, both to the shareholders and also to us as investors. Thank you.

Got you. And then maybe just a quick one on -- could you remind us of kind of the gaps in your strategy and distribution sides and maybe check in on the temperature and willingness of firms to join you guys?

Well, in terms of gaps with the CW Henderson, we feel 1 that we have articulated for several years of Muni SMA adviser, which has a great record, great people. And as Ray points out, and it gets us pretty close to $30 billion in SMA assets, which is a pretty good size in there. So we're not exactly focused on any particular gaps right now, but...

The -- just to follow on that. The business in the London office on private equity, infrastructure, real estate and direct lending have been mostly particularly the real estate U.K. focused. And I think we've talked about it here that we'd like to figure out how to do that in the U.S. And whether that requires an acquisition to really get it going, it's -- there's some thought that that's what's required. Just like the Henderson deal took us a long time, just like the acquisition of the London office took us a long time. I would expect that we're going to stick to our discipline, all find somebody that fits with our culture and how we think, and we won't proceed until those criteria are fulfilled, but that's something that we think we have good strength in the London team who actually have U.S. offices and have a growth opportunity for us.

Thank you very much. There appears to be no further questions in the queue. I'm now going to hand back over to the management for any closing remarks.

Well, thank you for joining us today. That concludes our call.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.