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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings. Welcome to the Federated Hermes Q1 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.
Thank you, Holly. Good morning and welcome. Leading today's call are Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer and joining for the Q&A are Saker Nusseibeh, CEO of Federated Hermes Limited, our international business and Debbie Cunningham the Chief Investment Officer for the Money Markets.
During today's call, we may make forward-looking statements. 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 these forward-looking statements. Chris?
Thank you, Ray and good morning.
I will review Federated Hermes business performance. Tom will comment on our financial results. In a quarter that saw considerable market fluctuations and uncertainty, Federated Hermes ended the first quarter with record total assets under management of $701 billion driven by Q1 growth of $29 billion in money market assets to a record high of $506 billion.
Turning to equities, assets increased by about $2.1 billion to $83.6 billion which includes market gains of $1 billion and net positive sales of $900 million. The strategic value dividend strategy continued to produce solid net sales with $678 million in the first quarter. The U.S. Strategic Value Dividend ETF which was launched in mid-November now has $51 million in assets.
We saw Q1 positive net sales in 25 equity strategies including Global Emerging Markets, international leaders, Asia ex-Japan, MDT Large Cap MDT, Mid Cap and MDT All Cap Core. Our equity performance compared to peers remains solid.
Using Morningstar data for the trailing three years at the end of the first quarter, 57% of our equity funds were beating peers and 34% were in the top quartile of their category. For the first three weeks of Q2, combined equity funds and SMAs had net redemptions of $246 million.
Turning now to fixed income, assets increased by about $700 million in Q1 to $87.5 billion as higher market values were partially offset by net redemptions. Within funds, our flagship Core Plus strategy total return bond fund had first quarter net sales of about $1.1 billion up from $650 million in the prior quarter. High yield category net sales were positive at $231 million compared to net redemptions of $470 million in the prior quarter.
Core Plus and other fixed income SMA strategies added $170 million of Q1 net sales including about $43 million in our CW Henderson strategies. Within fixed income funds, first quarter net redemptions of about $1.2 billion occurred in the three offshore funds. That $1.2 billion redemption is down from $1.8 billion in the prior quarter. We had 16 fixed Income funds with positive net sales in the first quarter, including obviously the total return bond fund, the SDG engagement high yield and sustainable investment grade credit funds.
Regarding performance at the end of the first quarter, again using Morningstar data for the trailing three years, 57% of our fixed income funds were beating peers and 24% were in the top quartile for their category. For the first three weeks of Q2, fixed income funds and SMAs had net redemptions of $69 million.
In the alternative private markets category, assets increased by approximately $400 million in the first quarter compared to the prior quarter, reaching $21.2 billion. This increase was due to net sales and positive FX impact partially offset by market losses. Net sales were led by absolute return credit, direct lending, market neutral and real estate.
We continue marketing PEC 5, the fifth vintage of our private equity co-invest fund and Horizon 3, the third vintage of our Horizons series of private equity funds. We have also begun marketing the Hermes Innovation Fund II, the second vintage of our private equity innovation Fund, the first vintage of our real estate debt fund and the first vintage of our nature-based solutions Fund.
We began Q2 with about $3.8 billion in net institutional mandates yet to fund in both funds and separate accounts, pay attention to the diversity of the types of mandates we're winning. About $1.9 billion of this net total is expected to come in equity strategies, which includes Asia ex-Japan, Global Emerging Markets, biodiversity, global - and global equity.
Approximately $1.3 billion of the net total wins is expected to come in these private market strategies, private equity, direct lending and unconstrained credit. Fixed income is expected to have about $640 million, which includes wins in investment grade credit, high yield in Core Plus. Moving to money markets we reached record asset highs for money market funds, $357 billion; money markets separate accounts and total money markets which I've already mentioned.
The first quarter increase reflected movement into money market strategies from bank deposits in March as investors became increasingly concerned following the failure of certain banks, Money market strategies also continued to benefit from favorable market conditions for cash as an asset class, higher yields, elevated liquidity levels in the financial system and favorable yields compared to bank deposits. As short-term interest rates peak, we expect market conditions for money market strategies will remain favorable compared to both direct markets and bank deposit rates.
Our estimate of money market mutual fund market share including sub-advised funds was about 7.4% at the end of the first quarter, down from 7.7% at the end of 2022. Looking now at recent asset totals as of a few days ago, managed assets were approximately $707 billion including $511 billion in Money Markets, $83 billion in equities, $89 billion in fixed income, $21 billion in alternative private and $3 billion in multi-asset. Money Market mutual fund assets were $362 billion, Tom?
Thank you, Chris.
Total revenue for Q1 increased $8 million or 2% from the prior quarter due mainly to higher average Money Market assets, increasing revenue by $12.6 million and higher average equity assets increasing revenue by $6.9 million, partially offset by too fewer days and lower performance fees and carried interest.
Q1 performance fees and carried interest were $1.4 million. Q1 operating expenses decreased $13.1 million or 4% compared to Q4, which included a $31.5 million non-cash intangible asset impairment charge. The $12.9 million increase in compensation and related expense from Q4 included $3.7 million of seasonally higher payroll tax and $3.5 million of higher restricted stock expense, of which about $2.7 million was due to seasonality.
The compensation and related increase also included $5.9 million of higher incentive compensation expense, as we reset our accruals for 2023. Office occupancy increased from Q1 from the prior quarter primarily due to the acceleration of $1.4 million in depreciation expense related to a lease termination as we consolidated space in London.
The decrease in advertising and promotional from the prior quarter is mainly due to the timing of expected ad spend. The increase in the other operating expense line item from the prior quarter includes an increase of $3.4 million in FX impact from the currency forwards used to hedge certain pound exposure and also includes a non-recurring retention expense of $2.5 million related to a claim.
In non-operating income, investment gains after subtracting the impact attributable to the non-controlling interest, added earnings per share for Q1 of about $0.03 due to the positive market impact on our investments.
Q4's EPS positive impact was about $0.04. The effective tax rate was $22.7 for Q1. The Q1 rate reflects tax deductions for certain stock compensations as shares vested at a higher price compared to the original grant price and the impact of non-taxable non-controlling interests. Assuming no impact from the non-controlling interests, we expect our effective tax rate to be in the range of 24% to 26% for the full year 2023.
At the end of Q1, cash investments were $448 million of which about $453 million was available to us. As noted in the press release, the Board declared a dividend of $0.28, an increase of about 4% from the previous dividend and during the quarter, our share repurchases totaled approximately 133,000 shares for about $4.7 million.
And Chris?
I said that our $1.2 billion net redemptions were in offshore funds and those were in ultrashort funds. I think most of you probably knew that, but nonetheless we should correct the record. Thank you.
And now we turn it over for your questions.
At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is coming from Ken Worthington at JPMorgan.
Hi, good morning. Thanks for taking the question.
Good morning
Maybe first, can you talk about the outlook for the state pool and SMA money fund businesses? So how do you think higher rates impact the growth of this business over time in terms of your municipality participation? And then, to what extent are the banks really the competitor to these products? And does the mid-cap banking crisis position these pools for better growth?
And then lastly, you manage a couple of these pools already like Texas and Florida. Are there other states that pool together the municipalities? And is there more winnable business here like say California where the regional bank seemed to be located that have struggled so much lately?
Ken, this is Chris. There are many other opportunities on the state pool front and let's divide that up in certain ways. In many of these states, even where we have the main pool, there are sub-pools in the state as well.
And those pools are always viewed as a polite competition for the big state pool and the extent to which those pools don't buy the right securities or don't have the right yields or don't have sufficient size to make things happen, that tends to enable the big pool to get bigger and therefore our claim on assets to manage to grow. That's one part of it.
Another part of it, I can't say what will happen in California to what they do in their state pool. I don't have information on that. We can get you that. But overall, it does not appear that the things happening to the regional banks are impacting the state pools, that business is done based on long-term contracts with long lead times with bid processes, RFPs that are very complicated. And so it's really hard for those state pools to turn on a dime. And obviously that's a tough thing for getting new business, but it's a pretty good thing for keeping old business.
The next point I'd make is that we have a separate sales group that calls on those groups all the time. So that whenever there is an opportunity to on whatever state and we are working on right now a small handful of states. I'm not going to mention them where we think we can become the manager of the pool Debbie?
Thanks Chris, Ken, Chris mentioned the long lead time for the pools themselves taking over the state pools themselves, local government investment pools, but the participants don't have such long lead time and the participants do have choices. They don't have to be in the state pools.
They could be in a bank as you mentioned. They are oftentimes looking at money market funds as an alternative. And we have a substantial amount of cash in our money market funds from participants in state pool, some of which we manage, some of which are managed by others. So there are out of competitors to this business. Much like our outlook for money market funds, however, our outlook for the state pools from a participant gathering assets basis going forward is excellent,
Generally speaking in an increasing rate environment, rates are - I'm sorry, assets are not going out that quickly. It's when they reach a terminal rate and actually start going down the other direction and getting lower, that money generally comes flooding into these types of products. And much like, as I said, our money market outlook for that type of trajectory, we see the same trajectory for our state pools.
I will mention, however, though there are a lot of cash flow idiosyncrasies with regard to the state pools, generally the state - the local municipalities receive cash at certain times, same with the school districts within those state pools and then they have a period of time when they are no longer receiving the cash receipts or the disbursements from the state themselves but are rather spending it. So there are definite annual cyclical cycles that we deal within those pools as well.
The final point I mentioned is we are at an all-time high of $148 billion in state pools
Yes. Great. Thank you. And then Chris, you've been doing this for a long time. You've built a really big business. At some point, you'll retire. What is succession planning look like for Federated? And do you think that leadership stays in the family? Or are you thinking about an outsider as we think longer-term about leadership?
No human is indispensable. And I appreciate your comment of being here a long time. But my standard for that is, where is our Board in terms of my participation, health and enthusiasm and contribution to the good of the enterprise? And as long as that keeps growing, you're going to keep hearing from me. In terms of succession under the New York Stock Exchange rules, we're required to every year go over the succession plans with the Board and now that doesn't mean that you have exact candidates in every case that it means you have a gang of candidates or a process that gets you that answer. And this is exactly what we've gone over with the board.
And so our Executive Committee has plenty of good candidates to succeed me if the way we put it, if I get hit by a bus. And the enterprise would continue on beautifully. The other thing I would mention is that, don't forget with the A/B stock, the family does control the voting such like we did yesterday. But what the voting will do is do what's in the best interest of the entire enterprise and that's how we will approach it. So we can't say for certain what will happen down the road, but you see the structure, the pattern and the process that we will go through.
Great. Thank you very much.
Your next question is coming from Patrick Davitt at Autonomous Research.
Hi, good morning everyone. For this quarter, you've been guiding to the big uptick in deposits, money fund rotation really starting once the Fed passes but the Sydney situation has obviously driven a big spike and it looks to be continuing in April better than we would normally see in April.
So do you think that the start has been pulled-forward? Or do you think we'll see a lull now until we get more of an all clear from the Fed?
I think taxes come due in April. It's generally sort of beginning of a new quarter where first quarter has outflows that obviously didn't come to fruition. There were inflows this year. So I expect that we'll continue to see upticks in rates, the comparison versus deposit products especially with what happens to some of the regional banks in March of this year, has kick-started that process to some degree and we will continue to impact in a positive way the flows into money funds even before the Fed approaches and reaches that terminal rate in the next several months or so.
And Patrick, it might be helpful on that point to take a look at the difference between institutional and retail even though nobody has accurate numbers on what's Institutional and what's retail. On the retail, we basically figure we've been gaining market share and this - these kinds of assets tend to be more sticky because it is kind of related to the rates and the biggest risk of the retail is going back into the market, which would all be good because we have buckets for that too.
In terms of the institutional, if you talk to some of our salespeople, they will tell you that the institutional trade, if you will, started a little early, like you are hinting and it was probably accelerated by a lot of those bank moves or the bank problems. How much of it is already in the pipeline? It's really hard to say. I could beat our guys up into giving me an answer, but even if they gave me one, I wouldn't give it to you over the phone. And so there's more to come, but I can't tell you how much that trade has already been done.
Helpful. Thanks. And then on expenses. You mentioned a lot of kind of little seasonal and onetime type items. It wasn't entirely clear to me, which those of you really consider one-time or what part is kind of a run rate step-up. So could you maybe frame how much of all those items in 1Q you expect to roll off in 2Q, not repeat? And then more broadly, how should we expect the cadence of operating expenses to track this year including what I imagine will be a continued step-up in distribution with a much higher MMF asset?
Okay. So the London office, saving some space of $1.4 million. So we don't expect that to reoccur. But we're going to get some savings from not having space into the future. But that's a $1.4 million number. The insurance claim I mentioned that's a non-recurring thing. So those two things add up to about $0.03 in terms of non-recurring.
For the future, the comments on comp which I mentioned the seasonality on the payroll tax and on our incentive stock compensation, that would be for Q2 I'd say those numbers will be down by $3 million. But of course, you have all the other things that can change in comp. So that's just a change not complementing them, what else is going to happen in Q2 for comp.
So on distribution, we would expect the - obviously we see the assets are up and still growing and so the distribution line item absolutely would say I would expect that to go up. Systems and communications and professional service fees are both getting the opportunity to spend more money with technology. So the tech spending, both line - those line items, I would expect to go up.
I already talked about the office and occupancy and advertising and promotional Q1's low just the timing for the year, I've always - we've always said, look at that over the whole year. So I'd expect that to go up in Q2 and the rest of the year. Had enough about intangibles last quarter, travel related Q1's low. So I would expect that to go up. And I think I went through the FX on the other and the claim is in other for those - who knows what FX changes every quarter. Okay?
That's helpful. Yes, that was helpful. Thank you.
Your next question for today is coming from Daniel Fannon at Jefferies.
Thanks, good morning. The $3.8 billion of institutional backlog you highlighted the diversity of it. Can you talk about the fee rates across that book of business that's coming in? And how that compares to the overall kind of long-term fee rate or that you have today?
Ray?
Sure. Then the - so on the private market side, we've talked about the current book being in the neighborhood of 40 basis points. But that's weighted to, as you know, a lot of that money came into those strategies through Hermes relationship with BTPS as owner. And so as we increasingly diversify the investor base there, we look for new mandates and new money that's just come in at better fee rates. But that's all working itself out in the marketplace, not going to move the number in the next quarter or two.
And then as far as the equity, which is really the biggest part fee rates there as are typical, there are separate account, those are also negotiated on - sort of on a individual basis. But when you blend everything together, there are roughly half or so of what the fund advisory rates are and so you should look for numbers in the low to mid '30s there again with a lot of variance across individual strategies and individual clients unlike for example to funds.
On the fixed income side, kind of a similar dynamic but our blended fee rate there is more like in the 10-basis point range for fixed income separate accounts, again varies by client, varies by mandate. You'll have a lot of range around that number. But that's where fee rates are now and that at least gives you a good starting point for the pipeline figures.
To add color to the fee rates. I'd ask Saker to comment on that - some of those businesses.
Thank you very much. And I think Ray has covered them. I mean, look, we've had a very good inflow into for example in the equity side, our GEMS funds and institutional fee rates advertised and as Ray said, it's a negotiation as to the size of the institutional mandate and also it's a negotiation as to whether we have other relationships with the same institution and the rule-of-thumb if you win a huge mandate, then the customer quite rightly expected to get back some of that.
On the other hand in private markets, if you look at some of the wins we've had in our direct lending, a lot of that although sold institutionally, is actually sold in the format of a fund. So there might be some discount as is the practice in Europe, but we're getting quite close to what we'd answer.
So I think in general point of view as we - to reiterate what Ray said, as we move away from our old mandates that we had with our clients, BTPS, when they were on in private market, we are increasing our fee rates and you can see this in things like our direct lending fund.
You can see these - new clients have come into, for example, the nature fund, which we are innovators in and I believe the first people to launch an actual fund in Europe in conjunction with the government in U.K. in conjunction with the government there, and you can see this in our equity funds where we're seeing a double inflow.
One is in general, as people see opportunities there following the turmoil of last year. And then within that also in Asia ex-Japan where it's got strong performance based on value mandates. I hope that gives some kind of answer, I hate to give basis points because each fee is negotiable with clients because we're dealing with separate institutional mandates.
That's very helpful. Thank you. And then just a follow-up on the balance sheet. Cash balances continued to grow. Buybacks have been pretty quiet. So maybe, talk about the M&A environment, your appetite for that versus buybacks and - or should we think about cash building as you go as the year progresses?
Hey, Dan, we're active. We don't have anything to talk about. We're still working on growing our C.W. Henderson business which is going nicely there. We continued to, as you say, buy modestly shares and we analyzed that. You noticed we did also a modest increase in the dividend, but all things continued to be on the table. I think I mentioned last quarter that our seed usage may increase as we develop new products around the globe.
So that's another use of the cash and we're at least getting - we invest our money in a money market fund managed by a highly competent team and we're getting some pretty nice yields on that now, so it's not burning holes as we make our high 4% numbers on it.
Understood. Thank you.
Your next question is coming from Kenneth Lee at RBC Capital Markets.
Hi, good morning and thanks for taking my question. Just on the alternative side, you mentioned a couple of funds starting to being marketed like the nature-based solutions. How should we think about the potential contribution to AUM over time from some of these funds that you're starting to market? Thanks.
I will give you a broad answer and then I'll let Saker fill in the current situation. Overall the whole private market's effort, over time, without a date on it, could be as big as the rest of the entire enterprise. There are a lot of good things going on in private market, real estate, direct lending, unconstrained credit and some work being done on infrastructure as well. And so that's up broad answer. Now, you talk about individual funds there, the debt fund, the Real Estate Debt Fund and the nature-based solutions Fund. I will let Saker fill in the blank on those.
Thank you, Chris. So in line with what Chris says, the private markets takes a long time because some of the products and some of our funds are long-term negotiation, for example a really big real estate project takes several years to negotiate and several years to get clients lined up, but generally that pays back over 10 years and we're talking about very large sum of assets under management.
On the other hand, on the other extreme other side if you like, something like our direct lending, that is a business that's rapidly growing above the $1 billion that we were at last year and we see that as continuing to grow because we have a differentiated product, the real estate direct lending we just launched, we have high hopes for it and we will come back and report on the close as we come to that.
So these are two ends of the spectrum. You mentioned the nature fund and I'll mention that because it's worth mentioning it. There is in Europe and in Canada demand for innovative products such as the nature products and I didn't mention when we talked about our equity funds, the large inflow we've had in our biodiversity fund, which is also something that we are leaders. Now what differentiates us is we work with innovators in the field.
So for example, in the biodiversity fund. We have very strong relations with the scientist community that works within the London Natural History Museum. That's partly why we had such a successful ability to launch, manage and grow the fund. Now, in the case of the nature fund, we have this - we've launched in conjunction with a part of the U.K. government, which once encouraged biodiversity and that then attracts clients and by being the first to the field and I've got to emphasize we believe we are the first in field in the U.K. in this format.
There might be others, call it other formats within this pure format and at least the ones acknowledged by the government, the key with that is we learn how to do this and the potential is huge if I listen to clients. But that's going to be a slow build because we've got to think about how we can innovate actual investment process.
So you can see some information. I think in some of the more traditional products, you're likely to see a quick, a reasonably small incremental increases over time as you would with any other public market fund. In the very large projects, I think the potential is very large. But it takes time. I hope that answers your question.
Got you. Very, very helpful there. One follow-up if I may, just back on the money market fund side, I wonder if you could share your thoughts about any potential impact from the ongoing debate around the U.S. government debt ceiling and money market funds. Thanks.
On Groundhog Day, we've been here before, keep waking up and it's not resolved yet. Certainly Treasury Secretary Yellen, we'd like to continue to apply pressure to have it resolved sooner rather than later, but our expectations really at this point are, she will continue to use extraordinary measures until they're almost exhausted and then there'll be some resolution.
So our expectation is similar to past experiences with this, is that it will be passed, it will get resolved, maybe in some instances, it's been temporary suspensions and short-term kick the can down the road for a few months that's the potential as well since there are a lot of disagreements, let's call it from a congressional perspective as to what should be attached to any kind of bill that would allow the debt ceiling to be increased.
But we are not expecting any type of even a technical default from a U.S. Treasury perspective. Now having said that, the market has prepared over the course of the last decade, let's call it now for such an event from both an operational perspective, from a system standpoint, the ICI, SIFMA, their DTCC are prepared if there were a technical default of a technical - of a single treasury security in the marketplace and there are ways of rolling debt within the current limit that exists, that again in our minds keep this very - thankfully, a very remote event, but one that could be dealt with in the context of the market if it were ever to come to fruition.
Got you. Super helpful there. Thanks again.
Sure.
Your next question is coming from John Dunn at Evercore ISI.
Thank you. Maybe, you could level set for us higher rates and the impact on the shift in demand for your fixed income menu. And then, are you seeing institutions derisk into fixed income now that fixed income actually has income?
First of all, looking at the trends from the way we look at on the retail side, average mutual fund and SMA gross sales, okay, I know you guys are all into net but gross sales is where I have to approach your question and over the last several years, all during COVID 2000, 2001, 2002, our gross monthly sales of mutual funds and SMAs on the fixed income side which you're asking about have averaged about $1.5 billion.
So in the first quarter, we were $1.434 billion. And what this tells you is that there is a excellent demand for these products. When I mentioned, there is 16 fixed income funds here that are positive flows in the quarter, it's because people actually enjoy getting yield, now obviously the biggest one is the total return bond fund, but it has other accomplices as well.
And remember that among the retail clients, trust departments, et cetera, there will always be a component of fixed income in the portfolio. Even if the stock market were to take off, you have a robust demand for our core amount of fixed income.
Last year, you had some of the biggest players, have some performance glitches, which helped us enormously in showing the steady, Eddie return of how we manage money in the core space and we were able to gain some in that world as well. So I don't know if you have more specific things you're interested, John, but that's an overall approach.
I'll add one thing too. Our expectation, even when the Fed reaches the terminal rate, is not for rates to go back to zero. That's not normal despite the fact that people that have been in the market for maybe the last 15 years, think that's the landing - the land engaged but in fact, it is not.
So when you get rates that are 3%, 4% or 5% and you are at a point when the Fed is at the top of its cycle, you see flows into products like the Ultrashort funds, the Microshort funds, the Cash Plus Funds that will maintain those higher rates for a longer period of time because of the Fed is not taking a trajectory that takes it back to zero.
Got it. And then maybe just, any comments on how deposit slide is impacting roll-ups of money market funds. Do you think it makes it more or less likely that you could get more done well?
Well, it is an inevitable thing and we've seen over the years as I've reported on this call many times, there used to be over 200 people presenting money market funds to the money market world and now it's 50 and the bottom 25 are all small and don't really compete for real money. And so each of those eventually come to the conclusion that this is not worth it. It costs too much money to manage it.
We don't have enough size to make it work. There is risk here, the CFO gets excited about it, people want to improve their cost structure. And as I've said before, we have a sales force of M&A specialist, they call on every one of these people and we are well known as the go-to-player. If you're going to sell some money in funds, you are going to call us even if we happen to miss you this week.
And we - as I always say, we are a very warm and loving home for all money market fund assets. Does this particular thing accelerate it? I can't give a good speech on why that would be some kind of catalytic event, but it does add to the mixture, another thing that adds to the mixture and it always does every time there is an increase in regulation, that's the same thing as strengthening the oligopolization of an industry. And so even though, we fight vigorously against new regulations that we don't think makes sense. It does have that effect.
Thanks very much.
Your next question for today is coming from Mike Brown at KBW.
Okay. Great. Good morning. I just wanted to ask a little bit of a nuance question about the money fund inflows in the quarter. So given that they came in later in the quarter post the bank's stress, how did that impact the revenue contribution? I'm guessing, clearly it's not a very big piece of the revenues this quarter but how did that also play out for the distribution expense in the quarter? Is there any nuance on the timing difference between how the revenues come through and that how the expenses come through?
Well, I will comment on one part of it and Tom and Ray can pick up the other, but basically the engine of earnings at FHI are average daily assets and so when it comes in later for the quarter, it has the obvious effect. And in terms of how that impacts the distribution, it's a pro rata deal and I'll let Tom or Ray comment further on that.
Well, there's not much more comment. It comes right in at the exact same time as we get revenue. Our distribution payments go up and we're happy. In the old days, I used to call that expense success item because we got the revenue that attained with the additional assets.
Yes, remember that a lot of that of course probably one distribution fees built into the fund that as Tom said, we collect and pass-through in many instances.
Okay. Great. And then maybe just a follow-up on the money market business. I mean I tend to view it more so as a cash management tool, but it's - obviously has - is an attractive investment vehicle and the attractive yields, certainly support that view these days. This environment is a little different than maybe the prior high-rate environment and that there is a proliferation of ETFs out there, short-term fixed income ETFs, is that a riskier?
Or is it because of the dynamics of how Institutional municipalities look at their cash? It's a bit of a - you're talking about apples and oranges here and then maybe just one follow-up on that is you talked about how the competitive landscape has really narrowed over time, but there are still some very large players here that I'm sure would love to keep some of these assets close. Is it - have you noticed a more tougher competitive landscape? And has that played through in terms of fee rate pressure in this space?
So let's answer the last one first and we'll crawl back to the first question. Recently we haven't noticed any new competitive pressures on pricing. And you go, oh, well, why isn't that happening? I don't know. The players haven't been doing any more than the normal amount that we've been dealing with for how many decades.
One of the other things to remember about this, even though the big player - the biggest players obviously want to keep money and get more as they can, is that the customer who Debbie points out, have the ability to move even in an OGIP world, diversify the number of places they keep their cash and a lot of them use three or so different purveyors for their cash because they like diversification.
If anything, you may see more of that coming given what happened in the banking world and so that's the answer to the second part of the question. On the first part, as to I appreciate fully and support your observation that we offer a cash management service. Do you use the word tool? I don't quibble but we call it a cash management service or cash management solution.
And that gives it a lot of resiliency, no matter what's going on in the marketplace, which is why we talk about getting higher highs and higher lows over the various sequences. And when you mentioned other short-term investments like ETFs or Ultrashort funds or even our own Microshort funds, they have variable net asset values and the ETF is never really going to be competitive with the money market fund.
They don't pay the dividends every day. You don't know if you're going to get a buck back or not, it's going to be a price, just like a security. So if someone wants to do a longer cash thing, then fine, we have the products for that. But those products are not going to compete specifically with money market funds.
The only thing I'd add to that is, generally ETFs are settling on a T+2 basis that is certainly not what's expected and for the most part, needed and utilized in the liquidity world for money market funds. They are expecting T+0 settlement for putting their cash with us and for redeeming their cash for its various uses. So that's also a big negative from a comparative perspective to the ETF sector.
Okay. Great. Thank you for all that. Very helpful.
Your next question for today is coming from Brian Bedell at Deutsche Bank.
Great. Thanks. Good morning, folks. Another one on money funds. Two-part question. Number one, is there - are you able to guess at what the outflow impact in the - during the month of April was from tax payments? We saw a few days with elevated outflows that would otherwise imply much better than $4 billion of inflows in April.
And then secondly, the cash sorting dynamics. So obviously, we're seeing sort of a different dynamic at brokerages versus retail banks. I'll just use Schwab as an example where much of the cash sorting is done there in the very later innings there. However, on the retail bank side, assets that are not advised or sorting later in the cycle.
So I don't know if Chris or Debbie, you can give some perspective of what any you think we are on the retail bank side. And then just relative within your complex with Federated money funds on the shelf at banks versus brokerages, just that, to what extent do you have a bigger presence in the retail bank channel then as a suite vehicle at brokerages?
So on cash sorting, what a lovely expression, that describes it, is - if the customer is in charge of it as opposed to deposit beta where the bank is in charge of it. And, but basically it's the same thing of squishing that balloon and we're very much in favor of the expression you're using of cash sorting because that generally means that the customer is figuring out that may be zero or 10 or 25 basis points is not the market for a cash return and it's obvious what you are seeing that some of the banks are having to pay up in order to keep, maintain or gain deposits and all it is, is the marketplace having its effect, the deposit beta rate is basically and administered or concocted rate with the design of giving beta to the bank for its net interest income and there's a little shift because of what happened in the banking industry for how people are actually looking at that.
Now, where are we in the cycle, that's really hard to say because can the banks increase enough to keep the customer? We've also seen a situations where tie-in sale prohibitions as a contrary notwithstanding, there are total relationships that are developed between banks and customers. They keep the deposits nice and handy. And we don't see those are a real time and I'd ask Debbie to say what her finger on the pulse shows on that question, and then we'll get into the outflows review or the tax question you asked in April in a minute.
Sure. From deposit beta side, first of all, if you look at deposits in the marketplace, total deposits, they are down several trillion and it did not start just in March, it was kick-started in March I would call it, up 2023 but it began in earnest back in March of 2022 when the Fed began raising interest rates and most recently, during the first quarter, deposits are down about I think it was $513 billion, so little less than $0.5 trillion and amazingly, money market funds were also up a little less than $0.5 trillion.
So, yes, it's very difficult to follow the $1 to see it leave a specific institution or a specific security type like a deposit and go into another type of entity like a money market fund. Having said that, when you look at the deposit beta historically for banks in a rising interest rate environment, it's about generally 40%. In today's environment, we're still less than 20% from a deposit beta perspective.
So the last I saw the average deposit rate paid by banks is still less than 1% and are in interest rate environment. That's at this point showing overnight for the 4.80% and a curve that goes out to 5.80% depending upon what type of security you are looking at. So we're less than 1% from a deposit beta perspective and will the banks get to that 40% historical average?
Like Chris said, it's hard to say what others will do, but given that they're nowhere close to that number yet and we are close to reaching what seems like a peak or a terminal rate in short-term rates. There's still a lot to go in this ballgame. I'm not sure what exactly inning it would be, but I'd say, we're still in the first half.
And so Brian, on the tax timing, we started off in April. We gave the March numbers 505, we got up to around [$511 billion] before - a few days before the tax, so money came in and then money went back out and after the tax season, 18th was the payment date, we ended up at around [$511 billion] and I think we said we were around [$511 billion]. So we actually ended up having a little bit positive in that five or six or seven day which was a little bit unusual
Great. Okay. And just one part of that money fund question, your exposure or your - I guess exposure is the right word. In terms of the retail banking channel versus brokerage, do you have more funds on retail banking platforms or I should say a wider or larger franchise on retail banking platforms versus retail brokerages?
Our biggest clients would probably be on the brokerage side on the retail side, but by far and - but we are on platforms wherever we can be on platforms.
Okay. Great. Great. Thanks very much.
Your next question is a follow-up question coming from Patrick Davitt at Autonomous Research.
Thanks for the follow-up. Special dividends have always been a part of your toolkit. And since it sounds like you're not planning big repurchases, could you remind us how you think about that part of the capital return equation? And how often you evaluate that? Thank you.
Yes. We - so we paid the number of those in the past. And when we looked at those, we were highly disappointed with a number of them where the stock price was, we're earning the income and we were not - shareholders were not getting rewarded by the price that reflected our earnings. And so it made a lot of sense to pay special dividends in a number of those cases to us.
So the stock price has been up and you've noticed we haven't bought as many shares and we still have pretty decent amount of cash, and I went through the normal tick through a bunch of things, seed money and acquisitions, but we basically would go through the same thought process and is - and that's why added in that we're getting a much higher yield on it than we used to and so like I said, it's not burning a hole in our pockets with the rates that we're getting on it. So it's definitely in the mix as it has always been for us.
Thanks.
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. That concludes our call and we thank you for joining us today.
This concludes today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.