Q4 2023 Federated Hermes Inc Earnings Call

Presentation

Operator

Greetings. Welcome to the Federated Hermes, Inc. Q4 2023 Analyst Call and Webcast. (Operator Instructions) Please note this conference is being recorded.
I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin.

Good morning, and welcome. Leading today's call will be Chris Donahue, Federated Hermes CEO and President; and Tom Donahue, Chief Financial Officer. After some brief remarks we�ll open up for Q&A and participating in Q&A will be Saker Nusseibeh who is the CEO of Federated Hermes Limited, our international operation; and Debbie Cunningham, the Chief Investment Officer for the money markets.
During the 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. I will review Federated Hermes business performance, and Tom will comment on the financial results. We had solid asset growth in Q4 ending with record assets under management of $758 billion, driven by record money market assets of 560 billion.
Thank you, Ray, and good morning. I will review Federated Hermes' business performance and Tom will comment on the financial results. We had solid asset growth in Q4, ending with record assets under management of $758 billion, driven by record money market assets of $560 billion.
Looking first at equities. Assets were first up about $2 billion from Q3 to $79.3 billion. Due to combined market gains and FX impact of $6.7 billion but partially offset by net redemptions of $4.7 billion. We did see Q4 positive net sales in a 11 equities strategies, including MDT large-cap growth, MDT mid-cap growth and international small mid funds.
Looking at equity fund performance compared to peers and using Morningstar data for the trailing 3 years end of the year 48% of our equity funds were beating peers, 24% were in the top quartile of their category. For the first 3 weeks of Q1, combined equity funds and SMAs had net redemptions of $319 million.
Now turning to fixed income. Assets increased by about $5.1 billion in Q4 to $94.9 billion, with fixed incomes separate accounts reaching a record high of $51 billion.
Fixed Income, institutional separate accounts had net sales of $1.4 billion, led by corporates multi-sector and multi-sector. Fixed income SMAs had Q4 gross sales and net sales of $896 million and 584 million, respectively. Fixed income funds had net redemptions of about $988 million in Q4, and we have had slightly positive net sales for the first three weeks of January.
We had 12 fixed income funds with positive net sales in the fourth quarter, including the high yield bond collective investment trusts and the sterling cash plus fund. We launched an actively managed ETF in the fourth quarter that uses a process similar to the core strategy of our Total Return Bond Fund.
Regarding performance at the end of 2023 and using morning four star data for the trailing three years, 31% of our fixed income funds were beating peers and 11% were in the top quartile of their categories for the first three weeks of Q1, combined fixed income funds and SMAs had net sales of $105 million in the alternative and private markets. Catagory assets increased by $214 million in Q4 from the prior quarter to $20.6 billion due mainly to positive FX impact, partially offset by market decreases.
We are in the market with Horizon three, the third vintage of our Horizon series of global private equity funds. As previously announced, horizon three has closed on commitments of $100.05 billion through year end. Hermes Innovation Fund two is also in the market. This is the second vintage of our pan-European growth private equity Innovation Fund. We had our first close in 2003 in August for approximately EUR100 million. And we're also in the market with the first vintage of our UK nature Impact Fund. We began 2024 with about $3.1 billion in net institutional mandates yet to fund into both funds and separate accounts.
These wins are diversified across fixed income, equity and private market. About $1.9 billion of net total wins is expected to come into private market strategies, including private equity, direct lending and unconstrained credit fixed income expected net additions total about $850 million with wins in the ultra-short short duration, high yield and sustainable investment credit. About $340 million of the net total wins is expected to come into equity strategies, including bio equity, global equity gems, which is and the emerging markets ideas and MDG small-cap core.
Moving to money markets, we recently marked 50 years of innovation and successful management of money market funds as we launched the first fund to ever use the term money market on January 16 of 1974 at year end 2023, we reached record highs for money market fund assets of $406 billion, money market separate account assets of under $54 billion and total money market assets of $560 billion. Total money market assets increased by $83 billion or 17% during 2003 and by $35 billion or 7% in the fourth quarter.
Money market strategies continued to benefit from favorable market conditions for cash as an asset class, elevated liquidity levels in the financial system and attractive yields compared to cash management alternatives such as bank deposits and more recently direct investments in money market instruments such as T-bills and commercial paper in the expected upcoming period of declining short-term rates we believe that market conditions for money-market strategies will continue to be favorable compared to direct market rates and bank deposit rates.
Our estimate of money market mutual fund market share, which includes sub-advised funds was about 7.4% at the end of '23, up from about 7.3% at the end of the third quarter last year.
Now looking at recent asset totals as of a few days ago, managed assets were approximately $764 billion, including $568 billion in money markets $78 billion in equities, 95 billion in fixed income, $20 billion in alternative private markets and $3 billion in multi-asset money market mutual fund assets were at $406 billion. Tom?

Thanks, Chris. Total revenue for Q4 decreased $11.2 million from the prior quarter, due mainly to lower average equity assets and lower total carried interest in performance fees. This was partially offset by higher average money market assets.
Total Q4 carried interest and performance fees were $9.7 million compared to $14.9 million in Q3. Q4 operating expenses decreased by $12.3 million from the prior quarter, due mainly to lower compensation expense related to carried interest in consolidated vehicles and lower incentive compensation expense. Advertising expense increased in Q4 due to the launch of our new campaign. The other operating expense line item decreased mainly due to the impact of FX.
Looking ahead to Q1, certain seasonal factors will impact results. The impact of fewer days is expected to result in about $4 million in lower operating income, all else being equal. In addition, based on our early assessment compensation and related expense is expected to be higher than Q4, primarily two, about $8 million of seasonally higher expense for stock compensation, payroll taxes and base pay increases. We also expect to have higher incentive compensation expense of course, all these items will vary based on multiple factors.
[Holly], we would like to now open the call up for questions.

Question and Answer Session

Operator

(Operator Instructions)
Ken Worthington, JPMorgan Chase.

Hi, good morning. Thanks for taking the question and maybe setting particularly high level for you, Chris, I'd like to ask you about strategy over the next three to five years. So maybe starting what are the top two or three goals you have for the company? And then can you talk about your expectations for some of the businesses in particular, I'm curious about what your goal is for the ESG franchise and the strategy there and then the outlook and goals for the money market fund and the alternatives business.

Let's go in reverse one on the ESG., we are doing more work in order to tag various food into the ESG. features to actual financial information and financial statements is not ready for prime time, but it's a way to show the fluency that we have on this subject and further defend the integration of ESG concepts into the various funds where these features have been integrated as part of the risk reward analysis, and we continue to that with that unabated.
We also continue in a European Specter to do what the clients want, which is to have a sustainable funds that are going on beyond the regular fiduciary duty concepts that we have here in the US. So we reached our remaining where we were on that. We also believe that this will very much help on the risk reward analysis across the board. So we continue to go forward with that on the money market funds. Remember that over 50 years, we have had the strategy of keeping the money funds alive and well, and they work on the basis of higher highs and higher lows overall, that timeframe and our dedication to it in terms of arguing with the SEC dealing with the realities of the marketplace have been well rewarded.
These money market funds in the future will continue to serve as ballast for the ship of FHI., which it has done to date, noting that when there are variations in the marketplace, money market funds prove the viability of a differentiated franchise for all seasons. And we continue to maintain that. And don't forget that as the money supply is now back up, that is really the engine of money is going into money funds. So we think that it is a permanent, good long-term business.
And in terms of our top goals for various enterprises, the one way to look at the way we internally view growth in various spheres is simply double them all in five years, not going to happen on the money funds, but that's certainly what we would establish the goals for fixed income equity and especially private markets. And as I said to this group before, the private markets has the potential to be bigger than the fixed income and equity enterprise that we already manage here. And we have a lot of good things going on that.
On the on that side of the business Now mind you it's less than $20 billion, but nonetheless and it is they have all good records. The real estate is excellent. The private equity is excellent. The private credit is excellent and we're working on the can see on the on the infrastructure deals. Now there are other structures that we have to get right and those are we like to provide the investment management, we are indifferent as to what the structure is. So now you see me mentioning about the ETF for Total Return Bond Fund.
We have some more plans to add another handful onto our ETF offerings. And the idea is to make a full complement of ETF offerings as we go forward. And that will be a big move for us in the future. Don't forget, these are active ETFs and the active ETFs are only about 6% of the total ETF market. So we think there's plenty of room to grow in those areas. I'm sure I skip some of the other great goals that we have. But don't forget, we're spending tons of money on technology and do not have goals on getting that right would be a mistake.

Okay, great. Thank you. And then maybe for Debbie, Chris called out the attractive yields in money market funds versus direct markets. So can you talk about the dynamics here and impact of PPPQT in the pivot and what that sort of has on the outlook for the money market business?

Sure, I think what it does mostly, as I know, take the direction of flows and increase it more towards the institutional side doesn't take away the retail side that has certainly been the driver of the flows in 2022 and 2023. But I think it emphasizes more the institutional side. And that is because in the context of what's been happening from a ITO, a pivot perspective with the yield curve itself as well as expectations.
And from a Q2 standpoint, you've seen what has been over the course of the last 18 months, a fairly steep money market yield curve turn into something that's relatively flat from a prime perspective and relatively inverted from two months out on the government side, and ultimately, that means that the institutional buyer of cash and securities have cash in some way is going to go out of the securities market where they've been for the last 18 months and into something that holds onto the yield a little bit longer.
And that would, in most instances, be money market funds. So our outlook is very positive with regard to flows and somewhat of a shift that occurs based on 2022 and 23 being mostly retail into institutional coming a lot from the ERGO, but 24 being institutionally driven.

Thanks very much.

Operator

Adam Beatty, UBS.

Thank you and good morning. I'm just wanted to follow up on that your most recent comments and get some additional thoughts around retail behavior. Obviously, strong flows over the year as rates have gone up, but I'm still seeing articles in the press about folks with quote unquote high yield savings accounts that are paying 10 or 20 bps. So that suggests maybe more retail inertia than some might have suppose. I just wanted to get your thoughts around how long a tail, how much of a time lag there might be with continuing inflows in retail and maybe even strengthening? And then on the on the backside of maybe some rate cuts, how sticky that money might be in your money market funds?

Sure. Let me just start with a little bit of a history lesson. And if you go back prior to the financial problems in 2008. Deposits at that point were in mix a little over $8 trillion dollar area. They ran up to something that was close to $20 trillion just under $20 trillion during the zero rate environment that started from a 28 standpoint and then really continued through the pandemic with just a year and a half or so 2016 and '17 of higher rates.
So ultimately, deposit product has doubled not because of the attractiveness of the yield, but because there really wasn't any yield in the marketplace and the concern was on from a safety perspective, they thought I think retail trades went into deposits in that environment. What you've seen over the course of the last year and a half has been a small reversal of that, which is why I'm not saying that the retail trade is done. Certainly, it's not surprising that with money funds increasing $1.2 trillion in the past year, deposits in or decreasing 1 trillion, that those two numbers are Equator bolt on. Having said that, there's still $17 trillion left in deposits out there, many of which, as you know, are in the 10, 20, 30 basis point camp from a payment perspective.
So the expectations would be that that trade continues. Certainly when you look at deposit betas from a banking perspective for their deposit products. They have been loans to increase with markets as rates are increasing, but have been very quick to decrease now I'm not sure that that will be the case at this point in this in this and this scenario, given that they haven't gone up very far to begin with, but in all cases, I think the retail trade has been awakened and it will continue. I think it will be matched basically by the institutional trade in 2024, but certainly will be a factor that continues to contribute to the flows in this market.

That's great perspective. Thank you, Derek. And then just wanted to turn to compensation, particularly around incentives. Tom gave some guidance around 1Q and the step up there. But just wanted a reminder on kind of what drives incentive comp where recently we've had pretty strong markets, obviously very strong asset growth and in the money market funds and separate accounts, but also some outflows in some of the long term funds. So if you could just put some context around what really drives incentive comp? Thank you.

Yeah, Adam, we recalibrate for the year. So and I did say we expect that, yes, sustainable top line to go up for the year and I kind of break it down in the sales group. They are paid based on how sales go in the investment management side of things. They're primarily compensated on performance and then the operation side is on how well the company does. So we expect to continue to grow. We expect pretty good sales and we're expecting the investment performance to uptick so that's why I come in and we expect that the Company earnings to grow. So that's why I'm saying I expect the comp to go up.

Got, it. Appreciate it. Thanks very much.

Operator

Bill Katz, TD Cowen.

Great. Thank you very much. Just a couple of questions this morning. First of all, thank you for taking the question. Just to push back a little bit on sort of the money market dynamic, how sticky is the benefit to the institutional argument if ultimately the Fed funds does go down past the path and get equilibrium between the T-bill direct market and money markets, let's say a year from now. So it's just more transitory in scope or you think that there are higher highs here just given the structure of the market?

Well, first of all, welcome back and to my answer to that is higher highs and higher lows, and Debbie is closer to the market on that, and I'll let her comment.

Certainly, Bill, how sticky I think, very sticky. Ultimately, some institutional investors generally have more options than the retail investor does. But once a trend is begun, given what markets in response to what market conditions are, it stays for a while. So, you know, in a what I'll call flat to inverted or declining rate environment. You're going to see institutional investors in a product that has more duration associated with it. Now institutional investors in the 0% rate environment.
Ultimately, the care became more and more measured about how their cash was put into play in the market. They created buckets essentially from a cash perspective, operating cash, which is very short term overnight type needs. And then what would be strategic cash and core cash dependent upon transactions and maybe longer term needs of the of their firms and ultimately in a declining and stable environment.
Almost all of that cash becomes part of the sort of the money market franchise is only when you start to see interest rates start to go back up that it becomes a little bit more transitory in the context of strategic and operating trying to capture those higher yields for a longer are the yields for a longer period of time. So it is ultimately something that we've kind of seen as a trend in the flows over time and expected in the last rising rate environment or and 18, we saw that we saw similarly change on the decline during COVID. But our expectations are that there is nothing really that drives it. There's no different products in the marketplace that would drive different dynamics in this current cycle.

Okay. Thank you. And Chris, thanks for the well wishes. Good to be back. Just one follow-up on of soccer or for Tom, just sort of wondering as your private markets business continues to get a bit larger and you are building some more performance fees and or carry opportunities is the way to help us understand how much you have in terms of carry eligible AUM or how to think about trying to monitor or track for performance fees. It's becoming a bigger number and it's not that much transparency versus some of your peers. Is wondering if you could help us triangulate to how to think that through. Thank you.

Yes. Yes, we I understand your kind of dilemma there. We've tried to give out the numbers in the past, and we know with that, we cannot predict it. And we've kind of said, hey, here's the here's the range of what the performance fees has been over the past, and we're willing to do that again. We're just not willing to go out and say how much is going to come each quarter or four for the year. So I'm not really giving you much our guidance there. As I said on the second, I don't know if you have a follow up to my non-answer.

So no other than other than to reiterate what he just said, Tom, and maybe to that, when I explained the other difference about our Private Markets businesses. We're building a very diversified private market business, which makes us different. So we carry performance fees from private equity, and that's comparable to other private equity players for example.
But if you take our real estate where we also have performance fees, that is there is some of it has to do with renting out the buildings, whether it be displays making some has to do with achieving targets. And in other strategies, we have also similar performance fees. So I'm afraid it's not much help there anything we can say to you is here are the historical numbers.
You can look at what they look like. We can't predict whether we win performance fees over time or not. That is not right. And proper that looks at our track record. And then we're growing our private market business, which implies and future growth. Obviously, assuming that we hit our performance targets, which is something we can't guarantee. So I'm afraid no much else other than to tell you. It's just the nature of our business.

Okay. Right, right. Thank you.

Operator

Kenneth Lee, RBC Capital Markets.

Hey, good morning. Thanks for taking my question. In terms of the equity outflows in the quarter, was there anything to call out there any changes in mandates that you saw? Thanks.

One comment I would make on those. If you just it's getting less worse, let's put it that way. And the way I would phrase it is that if you look at the strategic value dividend fund and I'm sure there were pretty good sizable redemptions for the whole year. In October, they were about negative three 50 in November they were negative to 80. In December, they were negative to 50. And so far this year, this year, they're negative about 30 or 35 this month. And so it's declining what's going on there?
Well, what's going on there is that some of the clientele he's wanting to go out into the market more a little more risk going on and they see the beauty of a product. It does just what it says, namely a dividend product with growth of dividend and the people who are selling it understand that that's what it is. So that's one observation that I would make.

Got you very helpful there. And just one follow-up, if I may. Given the meaningful share repurchases in the quarter, wondering if you just give any updated thoughts around outlook for potential M&A acquisitions, especially in this environment? Thanks.

Second of the stock, we bought shares and we continue to think that we will be active doing that in terms of M&A. And we have our group out there active and they're working on some things. We're always interested in the roll-ups or interested money fund. We're looking a little more actively in Europe as maybe we'll be able to do to buy some roll-up type things there. And then as we've talked before, in the private markets, we've put some effort in to see where we can purchase in the US. to complement our UK team. And yes, there's nothing to announce or talk about specifically though.

Got you. Very helpful there. Thanks again.

Operator

Dan Fannon, Jefferies.

Thanks. Good morning. One more question just on the alts business and the backlog, I think was around 1.9 billion that you mentioned. Can you give us a expectation of what's a reasonable time to see that fund and or show up as a flow? And then what is the kind of average the rate of that backlog?

Then the of the private markets money has a longer runway than the other wins that we talked about. So that's really will take up to two years to fund the fee earning. And that's typically we get commitments. And then depending on the strategy, when the money is actually drawn down and investing that's when it would become an actual flow move out of the pipeline, move into the flow numbers when it becomes fee earning.
But that typically happens over longer timeframes on equity and fixed income or more a couple of quarters, the private market is out a year or two and the private markets, part of that 1.9 billion is about half and a bunch of the other is direct lending and unconstrained credit net comes in faster and maybe soccer has a timing on that. That would be more illuminating.

So and different Thank you, Chris. The differences, things like direct lending and so on, we'd expect to come in within two quarters. Normally, if it's been committed and we as soon as we see that we have Italy, we stopped drawing it down and investing. And that is different, as you've heard from things like private equity with us, horizon of private equity growth, which has a longer time horizon.
And when we do and we haven't announced any at this date when we do large real estate deals funding enough, that does tend to take about a year as well. So that's the best guidance that I can give at this stage. But direct lending certainly quite fast.

And so and contract lending and the average fee rate of that backlog roughly.

It varies. So I go ahead, guys. Second. No, no, I was going to say exactly the same. So there is a there is on the strategy and it's very hard to give you and I know you guys like guidance and so on, but it is very hard to give because it varies on the strategy and the private equity strategy will be taken of private equity with the base fee and then a percentage of performance fees. For example, other strategies would have different kinds of structures, performance fees and the different kind of base fees, I'm afraid because our alternative private market business is so varied. It's very difficult to give a single number like you do for equities or fixed income it just depends from strategies.

Okay.

And then just as a quick follow up on the ad campaign that drove 4Q a bit higher, is that a is that an ongoing or what's a reasonable run rate for ad spend in 24?
If you then look at the whole year of '23 as the guidance and then I expect we're going to do more than '23. But I would use Q4 as a run rate. I take the whole '23. It's divided up. And when exactly we're going to run the campaigns we're still working on, but I'd add a little bit to '23 number.

Great. Thank you.

Operator

Brian Bedell, Deutsche Bank.

Great, thanks. Good morning, folks. I think for all the answers to these questions is on a pretty interesting a couple of them expansion from prior comments of maybe Debbie will start with the money market fund side, just some again, a group of great color on the dynamics there. But do you have a sense of what the addressable market might be for Federated inflows into money market funds coming from things like T-bills? And should we be thinking of the DM in 2019 into 2020 as ever general proxy for that? Or do you think the addressable market is larger now and could see better inflows.

You know, I think on a percentage basis using the 8, the 16 to 19 timeframe and the experience there is probably a good one. Obviously, that goes up with the markets increase, but on a percentage basis and you know, sort of in the high 10s, I think that's probably from something that you were expecting, let's say.

Okay, okay. That's helpful. And then just back on the private markets on you're triangulating some answers on your back to Chris's First Sensor and attackers couple answers on this basis in terms of, um, so if you think about infrastructure and energy transition, and I know you obviously you have the infrastructure fund and the UK nature-based fund as well, but on the market for these particular assets or growing very substantially, and you've got a great brand name and good track record. I guess what's your view on really scaling that up kind of dramatically more than you are now? Or is it a capacity constraint you need to acquire more teams? If you feel like you have the infrastructure in place, and it's something that you can really start launching funds on and going after that market, which are not well.

I'll take a swing at the pitch first and then Sankar sack or a follow up when we originally bought the Hermes enterprise, there was a lot of work that needed to be done in order to gain proper control of all of those of private markets entities and all of the structures. The next thing that needed to be done was we needed to make it a viable open market type operation generally in the old days, it was a single client. And if the client call you answered the question and it wasn't a platform for doing things. So over the last couple of years, we have been working on those two things that had to get right. And we're still working on some of the things on the on the infrastructure, in particular on those subject. So there's internal things that have to happen.
The next thing that happens, as I say, we're in the market, it's repeat the sounding joy of sales, and we had a great sales conference in London in person our last week of our global sales conference coming up next week. Coming out of Pittsburgh. It will be virtual, but the point is that it's now time for the sales to take over and place Goro in the marketplace.
Now let Sacha I'll make some comments as well.

Thank you, Chris. So and to add to what Chris just said, we are we were doing some work, particularly on the infrastructure side. What we hope to finish and we are in the marketplace nature is a new endeavor where we are seen as very much the innovators and we're hoping for more sales with that.
Now what I would say in general, about the old Herm�s franchises as follows, which is everything we did. We did because we thought we could enhance returns, not just because it was trendy or it was the theme of the moment and that is true of the transition. So we are very much involved in looking at ways that we hit on that invest in the whole theme of energy transition across the board in various ways and in various strategies, not just by the market and benefit our clients in the process and the differences when we do something, we do it right, we can.
I'll go fast slow if that makes sense to in this sense, which is we make sure that we're in the right place and going back to something that Chris said, right at the beginning of the school. I think what differentiates us as an enterprise from others, not everybody, but I think it's a differentiator the way that we approach it, whether it's integrating ESG on full risk return profile. What is thinking about domestic funds, whether it's launching the major fund that we've launched, we do so thoughtfully and I think with stronger foundations because we believe that the strong foundations will bring the rewards and the sales will happen when this is the time when we hope to start rewarding single towards an end.

Do you feel you have the internal capacity to execute that strategy right now? Or if you think of bolt-on M&A would accelerate?

Well, so let's put the question this way. First, we have the choice to do it right now, we would love some bolt-Ons. Tom has talked before about how we could accelerate the real estate efforts place, building Sacramento that on this call already as a viable thing in the United States. But we're not positive trends on that right now. We would love to do it.
So yes, bolt-ons would be good, but they are mutually exclusive because you're looking for a bolt-on or we do. It doesn't mean that you don't have the choice to be able to get to the future anyway?

Yes. Okay. Great. Fair enough. Thank you.

Operator

John Dunn, Evercore.

Thank you for the fixed income franchise. How do you think that the next phase of the rates picture, it affects you guys. It seems like you should be beneficiary. What are like the big puts and takes for the major product areas?

Well, there are several there I'm going to start off with muni's and the record here in terms of the performance of both the funds and the SMAs has been excellent and we're seeing increased interest there including in CW Henderson in terms of prune them grow, growing assets under management. So as people look for bigger yield that that's one place to go and other places, our core strategy, obviously, Total Return Bond Fund and the core SMAs where the records are simply outstanding.
And that's why we did the ETF with that type of strategy sooner or later from the excellent history in our opportunistic high yield, you know, gets more and more of visibility. It's all a question now of which companies you own and whether you own the ones that are having a lot of trouble refinancing. And we think we do a good job on the on the credit analysis there.
And so if you then say okay. What about across the spectrum of maturities and you look at it, you go to money funds and micro surety, ultra shorts, the intermediates all the way out the spectrum we have reliable, solid product that when people want to really gauge and ladder their fixed income approach, we have the answers and we are very helpful to the win when they want to do that. So the fixed incomes franchise, it is very strong and I think very, very well set up for the future.

Got it, and then you seem to be going into a more normal environment over the course of 24. What's kind of the outlook for Hermes strategies specifically both in the US in the UK and retail and institutional?

I'll let Sankar take a swing at that one.

Thank you. So if you break it down in our equity franchise in the UK, we have a large exposure to emerging markets. That's an exposure that's been somewhat out of favor. As you know, if you look at the performance of the emerging markets, particularly China versus the rest of the world, it tells you why we have two kinds of strategies.
That one is an outstanding over the strategy, which we have a we run here and another one by a separate team, which is one of the best performing value strategies. Now our contention is at some stage things get so attractively valued that there will see some more inflows. And as we see more inflows this year come back.
This, particularly with the general environment worldwide with Emageon as dedicated, we've put more assets into those strategies and we have other equity franchises, the domestic bonds, biodiversity and the impact and so on. And we would expect people to continue to want to allocate them. If you look at fixed income, our team, our teams continue to see good demand as you've seen from our release, and we expect that flows to continue. So I'm happy with that. And direct lending we've already covered, and we've already talked about the pipeline which is very strong in our alternative markets and franchises.
So none of this is a prediction, obviously because you can't predict, but that's how I would imagine the market. It has to behave as we move forward in this market environment because of a tough market environment for the last couple of years.

Thanks very much.

Operator

We have reached the end of the question-and-answer session. And I will now turn the call over to Ray Hanley for closing remarks.

Thank you, Holly. And that concludes our call, and we thank you for joining us today.

Operator

Thank you. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.