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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, and welcome to Federated Investors Second Quarter 2018 Analyst Call and Webcast. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Ray Hanley, President of Federated Investors Management. Thank you, please go ahead.
Good morning, and welcome. Leading today's call will be Chris Donahue, Federated's CEO and President; Tom Donahue, Chief Financial Officer. And joining us for the Q&A are Saker Nusseibeh, CEO of Hermes; and Debbie Cunningham, our Chief Investment Officer for the money market group. During today's call, we may make forward-looking statements, and we want to note that Federated's actual results may be materially different than the results implied by such statements. We invite you to review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated assumes no duty to update any of these forward-looking statements. Chris?
Thank you, and good morning. I will briefly review Federated's business performance, and Tom will comment on our financial results. For our remarks today, all data excludes Hermes' results unless otherwise indicated. Looking first at equities. We closed the quarter with $63 billion in assets, down about $1 billion from Q1 due to net outflows partially offset by market gains. However, we had 14 equity funds with positive net sales in the second quarter. Our Small Cap Funds continue to show strong performance and solid flows. The Kaufmann Small Cap Growth Fund had topped us our performance and is Morningstar category for the trailing 1, 3, 5 and 10 years at the end of Q2. The fund had positive net sales of $270 million in the second quarter to reach nearly $1.5 billion at quarter end. MDT Small Cap Core with its top 1% Morningstar category ranking for the trailing 3 and 5 years at the end of the second quarter had positive net sales of $177 million to reach almost $750 million in assets at quarter end. MDT Small Cap Growth had topped decile performance for the trailing 3 and 5 years at the end of the second quarter and posted positive net sales of $81 million to reach over $500 million in assets at the end of the quarter. Other funds with positive net sales in the second quarter included international leaders, MDT's Mid Cap Growth balanced and All Cap Core, and Muni Stock Advantage. Using Morningstar data for the trailing 3 years at the end of the second quarter, 7 Federated equity funds, 30% of the total, were in the top decile and 12 52% were in the top quartile. Trailing 1-year ranking shows 7 28% of the funds in the top decile; 11 funds, 44% in the top quartile; and 16 funds, about 2/3 above median. Looking at the strategic value dividend strategy. Its objective is to provide high and growing dividend income stream from high-quality companies. The domestic funds' 12-month distribution yield of 3.55% ranked it in the second percentile of its Morningstar category at the end of the quarter. The fund had a return of 2.4% in the second quarter. It ranked in the top quartile of its Morningstar-assigned Large Cap Value category for the second quartile -- second quarter. And 98th percentile for the trailing 1 year and 54th percentile for the trailing 3 years. The domestic -- Strategic Value Dividend strategy had combined mutual fund and SMA outflows of about $2.3 billion in the second quarter compared to an outflow of $1.5 billion in the first quarter. Looking at early third quarter results' combined fund and SMA net redemptions were about $192 million for the first 3 weeks of July. For all Federated equity funds in the first 3 weeks of July, net redemptions were approximately $108 million and equity SMA redemptions were about $69 million. Turning now to fixed income. Assets decreased by $769 million in the second quarter to $61.5 billion due to net outflows from funds of just under $600 million of net redemptions and net exchanges and market decreases of $383 million, partially offset by net sales of a little over $200 million in separate accounts. Consistent with industry trends, our high-yield funds had net redemptions of about $400 million, up from a little over $200 million in the first quarter. We saw inflows in the Total Return Bond Fund of just over $100 million and in various short-duration strategies. Our fixed income business has a variety of strategies that are performing well. At quarter end, using Morningstar data, our Total Return Bond, Institutional High Yield Bond and Federated Bond funds were all in top quartile for the trailing 3 years. In total, we had 6 fixed income strategies with top quartile 3-year records at quarter end and 21 funds, 2/3 of the total, in the top half for the trailing 3 years. Fixed income fund net sales are negative early in the third quarter, a little over $100 million, due mainly to a redemption of approximately $150 million from the government Ultrashort Fund. We have continued to see net sales in the Total Return Bond Fund, the Institutional High Yield Fund and -- for the first 3 weeks of July. Looking now at money markets. Total money market assets decreased by about $11 billion, with funds down about $10 billion in separate accounts, down about $1 billion. Much of the fund decrease, about $9 billion, was due to withdrawals related to client M&A activity. This is usual business. We also had one client redeem a significant amount, about $8 billion in April, due to a change in their cash management process. And we saw asset decreases around tax payment periods in both April and in June. These decreases were partially offset by 3 clients each adding more than $1 billion, adding to about $5 billion as well as net increases from other clients. Interestingly, Prime Money Fund assets increased about 4% in the second quarter to $31.3 billion. Taking a look at our most recent asset totals. Excluding Hermes, as of July 25, managed assets were approximately $384 billion, including $258 billion in money markets, $64 billion in equities, $62 billion in fixed income. Money market mutual fund assets were $174 billion. In the institutional channel, RFP and related activity levels continue to be solid and diversified with interest in MDT and dividend income for equities and high-yield, core-broad and low-duration for fixed income. We begin the third quarter with about $700 million in fixed income institutional wins yet to fund, mostly in separate accounts. On the international side, as you know, we recently closed the acquisition of a 60% controlling interest in Hermes Investment Management from BT Pension Scheme. As we develop our global strategy that can leverage the strengths of each company, we are excited by the breadth of opportunities presented by the combination of Hermes-leading ESG-integrated investment strategies and methods and Federated's strong investment capabilities, broad product line, all backed by our respective distribution strengths. Hermes has demonstrated the value of ESG insights through its integration into the investment process, strengthening the risk management of investment portfolios and providing an additional source of insight into enhanced returns. Federated will expand its ESG capabilities, learning from Hermes' global leadership in this area. And keeping with our fiduciary duty, our goal is to identify ESG factors that are material to investment risk in order to more deeply understand the forward outlook for the companies we invest in and in order to accomplish outcomes beyond performance. We are working towards a full launch of a number of Hermes' strategies for the U.S. institutional market and are planning to register mutual funds to offer some of Hermes' best investment ideas to our customers in 2019. We are looking at how we can help to grow the successful Hermes EOS business that features leading ESG stewardship services to institutional asset owners. We are also working with Hermes to evaluate opportunities for them to offer Federated's strategies to their clients. Hermes' managed assets at June 30 were in GBP 35.3 billion, up GBP 1.6 billion from GBP 33.6 billion from the first quarter. Hermes' net sales for the second quarter were GBP 816 million. We are making solid progress on business development in the Asia-Pac region with a focus on opportunities in greater China, Korea and Japan. We are actively working to establish strategic relationships with selected financial institutions and add regional distribution to Federated's investment strategies. This effort complements our European, U.K. and Canadian operations. Managed assets in these markets totaled about $15 billion at quarter end, up from $14.5 billion at the end of the first quarter. We continue to seek additional alliances and acquisitions to advance our business. Tom?
Thank you, Chris. Total revenue decreased by about $8 million from the prior quarter due to -- due mainly to lower average assets and higher money market fund waivers, partially offset by an additional day in Q2. Reported revenue was down about $17 million compared to Q2 of last year, of which $8.2 million was due to the impact of the adoption of the revenue recognition standard. Higher waivers, primarily from money market fund and changes in asset mix of average money market assets also impacted revenues. Operating expenses decreased $8.9 million compared to the prior quarter and $13.3 million from Q2 of 2017. The decreases from the prior quarter was due to lower compensation and related expense from payroll tax seasonality and to lower incentive compensation. Distribution expense decreased mainly due to lower money market fund assets. The decrease from Q2 of 2017 was primarily due to lower distribution expense, due mainly to the changes in the mix of average money market fund assets. The adoption of the revenue recognition standard also reduced distribution expense by $7.4 million and other expense by $1 million compared to Q2 2017. When we announced the Hermes deal, we estimated that we would incur about $22 million in transaction-related expenses in 2018, including hedging costs. We incurred about $2.8 million in operating expenses year-to-date, 2018, including $1.3 million in Q2. An additional $1.2 million of nonoperating expense related to the derivative transactions was incurred in Q2 and is included in the $27.2 million net expense in the press release. For Q3, we estimate that we will incur about $11 million in transaction-related cost and an additional approximately $5 million in expenses to be incurred in Q4. For 2018, a total of approximately $19 million in transaction-related operating expense. We will continue to -- where we will consolidate Hermes for the reporting purposes, beginning in Q3. At quarter end, cash and investments were $418 million, of which about $396 million was available to us. On July 2, we used approximately $327 million of cash and $18 million from our existing revolving credit agreement to fund the purchase price and related obligations of approximately $345 million for the Hermes acquisition. We've already repaid the amount borrowed for the Hermes acquisition and currently have $215 million in unused capacity on our revolving credit line, which does not include the additional $200 million available to us from the accordion feature. Brenda, that concludes our prepared remarks, and we would now like to open the call up for questions.
[Operator Instructions] Our first question comes from the line of Michael Carrier with Bank of America.
Maybe first one just on the equity part of the business. It seems like on the small cap side, you've seen some decent momentum. Just wanted to get your take, seems like you have enough products there, but just from a capacity standpoint, in the industry, we're seeing a lot either that are closing, just given newer assets are trending. So just some outlook on the small mid-cap where you're seeing some of the strength in flows?
Yes. The first one is we are not threatening capacity in any of those mandates at this point. It is a important thing that gets reviewed. It gets reviewed in terms of portfolio manager input, trading impact, size, position of securities and percentage ownership. And so at this point, we are not threatening any capacity in any of those mandates.
Okay. And then Tom, just a quick one. Just on the expenses, more on the core items. Just anything that we should be thinking for the rest of the year. I understand the transaction cost, but on the core lines, I think, maybe like other -- it seems a bit light, I think you mentioned comp came in a little bit better. Just anything that's unusual or that we should be thinking about from a modeling standpoint in the second half?
Yes, the other is light because part of the hedging, there was a gain in there, so that kind of made that look light. And so I'd go back and look at last quarter and the quarter year before and average number or something like that. The $11 million is going to be spread out in a bunch of different areas. So that's where it's going to be spread out, basically in professional service fees, comp and then again, spread out. The -- There's a -- new numbers coming in from Hermes, we're not really going to go through where those expenses are going to show up. We'll all see them at the end of Q3.
Our next questions comes from the line of Bill Katz with CITI.
So first question, you sort of mentioned in your prepared remarks and also in the press release about fee waivers on the money market business. So I'm wondering now where we are with sort of short-term rates, why that's happening. And how should we think about, maybe, the fee rate mix on money markets as you go forward if you are still employing fee waivers?
Bill, on the -- these are different fee waivers than those that were done in order to maintain a positive yield back in the day. So let's set that aside, and I know you know that. The -- what occasions -- these particular waivers are simply competitive forces in the marketplace in order to maintain these products at a competitive level.
Yes, Bill, it's Ray. You can look through our disclosure. I mean, we've -- prior to even the low point of the rate cycle, we would report in there hundreds of millions of dollars' worth of fee waivers. So as Chris said, this is really a continuation of a long-term trend of waiving portions of our fee for competitive persons -- purposes.
Okay. I just have a couple of more thoughts. My second question I have is as you think about the comp relative to the growth sales dynamics, so I'm sort of gathering that the comp came in below the prior range because of the sort of most sluggish growth in net sales. I guess I want to confirm if that is the case. And if it is the case, how do we think about the key to operating margin improvement from here? So if you were to get an improvement in sales, would that get absorbed by a pickup in variable compensation?
Yes, you're exactly right. And if you remember, last quarter, we had a uptick in comp because we had a uptick in sales. So this quarter, we're having a downtick in sales and a downtick in comp. If we have another uptick in sales, which we hope to do, we will get, what I used to call, a success item, higher expense in the incentive comp [ line ].
But Bill, that's not to say the margin can't expand. I mean, you have noise in any period, obviously, with the timing of incentive comp accruals and payments. So you need to -- we would take a longer look at it -- a longer view of it than that quarterly tweaking.
Right, and just last question, again. So Chris, just going back to your opening commentary about sort of how you position your Strategic Value Fund. But then when you look at the attrition, it doesn't really box up against how you're sort of thinking about it. So what is the disconnect in the retail marketplace, particularly the SMA side? And what are you doing to try and reeducate people relative to sort of stumping some of the redemption pressure?
Well, I don't think there's a disconnect at all. That is the first point. And that is because we have been very thorough at explaining exactly what the mandate was on that fund that is different than that category. The reason why the redemptions continue is because of the confluence of factors that occurred early in the year, which was -- which now isn't exactly the case. But anyway, a 3% 10-year T-bill, and then the securities that were owned in those funds were not the favorite securities by the marketplace. And so you see -- and the reason I pointed out those jump-around numbers on performance was so that you could get a sense of what we've said all along. But because that fund is focused on high and growing dividend income stream, the performance on a Morningstar basis jumps around. And I mean, if you even go into another factor, the -- for the month of June, that fund was in the top 3%. And through -- so far in July, it's in the 96%. And so if people are now focused on that kind of performance number as opposed to the 3.5% yield, then we're going to continue to have the redemptions. So if you look at the redemptions, yes, they are continuing, and I can't make a very good case that they are lessening. However, I will note that in April, the total redemptions were $509 million; in May, the redemptions were $481 million; in June, they were $440 million; and so far in July, they were $202 million. Now you can double July or do whatever you want, it's 3 weeks, but it's not enough for me to make, "Oh, well, the trend is really good. Those numbers are very, very small". And overall, if you look at the year, we've lost $2 billion out of that fund. And the only good thing about a redemption in the circumstance like this is it can't happen twice. And at the base, I think, as I've said on this call before, that at some point, we're getting to the base where the shareholders are in there, our shareholders for dividends and not shareholders who came in, in the early part of -- through '16 because of the #1 performance that was going on at that time. Where that exactly is, is very difficult to say. And as regards to the SMA, it's basically the same dynamic. And we saw that there were some instances where some of our clients because of the performance of that mandate were putting large chunks to include even big chunks of their customers' SMA entirely in that portfolio. And we're seeing them, over time, reducing that or eliminating the position. But that wasn't exactly the A use of that fund for a customer. What we are doing in answer to your question, we are spending a lot of time, PMs, a lot of helpers talking to clients about exactly what this mandate does. Daniel Peris' new book, his third book, has just come out, which is basically an articulation of the dividend method of investing. And this is just another effort of us to repeat the sounding joy of what this mandate is and communicate it to clients.
Bill, I'll just add one other thing. We have seen some institutional interest viewing that as we keep saying that the dividend cash stream from this strategy has been effectively put on sale by the sector rotation and the rate spike that we saw earlier in the year. So the numbers are small relative to the mutual fund and the SMA, but we had positive institutional separate account flows in the strategy in the second quarter. And we're seeing institutional interest in the income strategy.
Our next questions come from the line of Patrick Davitt with Autonomous Research.
The July flow picture you gave, does that include or exclude Hermes? And if not, could you give the Hermes flows for July?
That excluded Hermes. And we don't have Hermes' month-to-date flow information. We -- what we gave you for Hermes was the full second quarter.
Right, okay.
Yes, I did mention -- wait a second, Patrick. I did mention that Hermes' net sales for the second quarter were GBP 816 million.
Yes. And then following up on, I think it was the call when you announced the deal, there was some discussion around some legacy BT assets that would be coming out over the years. Is there any update on the timing and size of those outflows?
Saker, you are more than welcome to comment on this.
Sure. So we still manage a sizable amount of assets for the BT Pension Scheme. And we had a plan over the long term for a controlled decrease of those assets, the -- in fact, spreads across the variety of our funds, not just 1 or 2. And the decline has been exactly on schedule. So nothing is out of what we'd expected when we did the deal, and it remains on line. If you're looking at the second quarter, just to give you a flavor, we had small net outflows from the BT PS of about GBP 600 million in Q2. And that's pretty much as far of the plan that we've had over the long term.
And our next question comes from the line of Ari Ghosh with Crédit Suisse.
So thank you for color on the opening sales trends that you just mentioned as well. So of that GBP 800 million that you saw in Q2, it looks like the retail side of it is still inflowing very nicely. So curious if the institutional flows were a bit weaker in the second quarter. Any color on that would be helpful. And also, I think in 2017, around 25% of the sales of Hermes was from the U.K. region. So any update on that in early 2018? Is it still business as usual there? Or have you seen anything change?
Saker, could you hear the question?
I heard the second half. Can you repeat the first half again? I'm so sorry.
No, you got it. Can you hear me now?
Yes.
Yes. So just looking for a little more color on the sales trends in 2Q. I believe it was around net of $800 million in the net sales for Hermes. And based on some of the information that we look at in the data that we track, it looked like the retail side was inflowing nicely. So just curious if the institutional flows were a bit weaker. And what the outlook there is?
Thank you for that. And the answer is, no. We -- the flow between institutional and noninstitutional remains on track as before. There's no change there. The institutional flow, obviously, there's timing issues. So sometimes you'll see the retail flow comes stronger in one quarter more than another simply because of the timing. That's the wholesale [ class ] as we tend to play into. And if I look at the commitments that we have got in the second half, which is yet to fund, there's a very strong institutional flow within that. So again, no change from where the plan is. In terms of regional distribution, we are still the majority. Flows are seen within Europe, including the U.K., which is not surprising, given this is our home market, if you think about that. So that's again, no change from where we were. Does that answer your question?
Yes, that's perfect. And then just a quick follow-on. Back to expenses, excluding comp and other expenses in 2Q that you guided some color on, is -- are the other core items a good run rate and starting point as we think about the next 6 months? And this, obviously, excludes any impact from Hermes. So just Federated on a standalone, is 2Q a good sort of run rate? And then on the cost side, you mentioned a few institutional and mutual fund launches that you have planned. Is all of this baked into sort of the institution numbers that you initially provided? Was it part of the original plan? Or should we think about any incremental costs moving forward in '18 and '19?
Yes, so thank you. The run rate for June and what we expect for Q3, without talking about the Hermes expenses, we don't have -- I don't have anything to add that I talked about before in terms of -- the other is off because of the hedging, the comp and the distribution lines and professional service fees related to the $11 million that we're expecting in Q3 as an estimate. So I'm not really going to change that. In terms of expenses related to bringing out new products with Hermes, that's part of when we talked about the $5 million in Q4 and actually some of the money -- some of the $11 million in Q3, that we don't know what those numbers are. We keep saying they're estimates. And that should cover what we're talking about doing for Hermes. Will that drag into '19? We had to come up with estimates, we wanted to try to start at that $22 million that we did when we announced the deal. And as you see, we have that down to $19 million, not including the hedging. And it's our best estimate. But we don't know, we'll carry into '19, will we use all of it in Q3 and Q4, we'll see.
Our next questions come from the line of Ken Worthington with JP Morgan.
First on the competitive waivers. Obviously, this has been a part of the business for a long time. It's the first time I can remember you guys calling out the competitive waivers in the release. So to what extent were they more severe this quarter than you've seen in the past? And were the waivers more meaningful on a particular product, say like prime versus govy or in a particular distribution channel?
Ken, it's Ray. I don't know if they were more severe. I think that when we were doing attribution to those line items, they stood out as the -- significant enough to mention. It may have just been that there weren't very many other changes to surround them. So I don't know that I would call them more severe. And in terms of area of product, no. They kind of go across the different types within money markets. So they would correlate more to asset levels if you -- than to the -- in terms of their financial impact and not necessarily to the type of asset.
Okay, great. And I can't remember if Debbie is on the call. If she is, maybe what are you seeing in terms of investor transition from banks to money market funds? Is there any evidence of that happening yet? And in particular, we're looking at sort of the bank trust channel. What's sort of happening there in this migration from bank to money fund or money fund to bank?
Sure Ken, this is Debbie. Yes, we are seeing that. We started seeing that in the second half of 2017. And it is certainly continuing into 2018. As you well know, I'm sure, the deposit beta with banks is very low on an in and upward trending interest rate environment, which we've been in now for several years. And I think certainly, the institutional side of the marketplace has recognized that and has started to transition into money funds some of their deposit, product, cash, liquidity. A little slower on the retail side. So from a bank trust perspective, I'd say it's less and maybe lagging a little bit there, but it certainly has started. And it's interesting the flows have gone both into the government funds as well as the prime funds, the government funds more from a sweep product perspective because those products do not have gates and fees associated with them. For the prime and muni products, it seems to be more on a ticket trade basis but substantial size from those businesses.
Our next questions are from the line of Kenneth Lee with RBC.
Just a follow-up on that question about the money market funds. Are you seeing any clients shift from money market funds towards direct ownership of paper? Just wanted to see about that dynamic.
Go ahead, Debbie, you're on a roll.
Sure. That is not a trend that we've been seeing. It seems as though it's repo -- the biggest directs which from funds into a product in the market was to switch into repo. And repo is just not that accessible any longer. There's pure participants in the marketplace. Although the rate in the second quarter offered was a little bit better than it has been over the previous quarters compared to where other short-term interest rates like commercial paper and CD rates are. It's still something that is contractual. It's got a lot of legal associates with it. And as such, we've not seen too much of a switch into the direct marketplace. Some of our very large clients that have some of the M&A activity, potentially some of the repatriation activity, they have taken some cash and put it into the direct commercial paper and CD marketplace. But it's not a big trend. It's more sort of the supersized players in the market that have gone that route.
Okay, great. And just one follow-up if I can. Just on -- in terms of Hermes. I know that in the past, you've talked about in terms of new product registration, things that they need to like a private market strategy. Wondering if there's any other additional product that you'd like to highlight that could be coming online in 2019.
While I would let Saker comment, too. But at this point, we're not prepared to articulate any given product. We have an array of ideas on many of Hermes' various mandates. And we have a longer-term view towards the beauty of bringing property infrastructure, private equity as well but in a later phase. I'll let Saker take an attempt if he wants to highlight any of the products.
Thank you, I'll -- in fact, I'll not highlight any of the products. We're doing a joint study of the market to see which is the most appropriate. The only thing I'd say about the products that Hermes brings to the table is, and you can see them because they're all on public domain, they're very strong performance, very high active share, which means high active products across the board and public markets. And the record of -- our sales records in the U.K. and Europe, historically, has been incredibly strong, and the performance is incredibly strong. And we think that in the right format, these would be equally attractive in the U.S. market. The second thing that is worth pointing out is that, again, this is a matter of public record, and you can look it up on our website, but where we've launched new products, we quite often manage to seed them from clients coming into very early as [ Cole ] and [ Stern ] see this. And these have done really well, including in areas which are new in the market like SDG Fund, like an impact fund as well as in certain aspects of unconstrained credit funds. So we've got a strong portfolio. Now we and our colleagues at Federated are working hard to understand which are the best opportunities to bring to the marketplace in the United States. And in time, we'll come back and be able to share that with you. But I want to also emphasize that a big part of this is knowledge sharing. We have, over the last 30 years, pioneered the way that you can integrate ESG to increase the ability to mitigate risk and understand underlying stock positions better, not at least with the loan shop, something we call the carbon tool. That lets you go down to a specific company level and understand the risk associated with carbon with that specific company that you're looking at. That's the sort of knowledge base that we'll be sharing with our colleagues across the board, across Federated. And we think that is quite powerful in its own right within the firm as well as having new offerings to offer to third parties. And with that, I think I will hand back to you guys.
And I would only underscore our enthusiasm for the EOS, equity ownership services, as something that we are looking at and have talked about before, as to how to structure it and how to build it up for presentation more robustly in the United States, which I don't have the answers to those questions. But it is something that we have articulated that we are quite interested in doing.
And our next questions come from the line of Robert Lee with KBW.
I was just wondering, going to the Hermes deal. I mean, now that you've closed on it, I mean, I don't know, is there any update to how you're thinking about the financial impact? I think originally, you thought of maybe a couple of pennies GAAP dilutive but cash accretive. So any change to that? And then maybe as a follow-up to that, what your thoughts are about altering your reporting going forward to include an adjusted number that may reflect any kind of noncash expenses, intangible amortization, tax benefits, et cetera.
Yes, thanks, Rob. The -- what we came out with at the announcement of the deal and including the expectation of the $22 million and the '19 of $.02 dilutive in EPS and so on. We're not updating that. We're not changing that. We tried to give that to everybody as something to have a view of our expectation of what we thought was going to happen at the time. And we -- so we don't want to go in and update the number, change them, look at what we think is -- Hermes is going to do for the July, August, September and redo those numbers. So we're just not going to do that. I did take you through the $22 million and the reduction there. And we will update you on that next quarter, how much we can attribute to the deal and so on. The -- what was the second part of the question?
Well, since you have the acquisition, I assume you'll now have some noncash items, maybe there's some tax benefits so...
Yes, internally, we are not planning on doing that as of right now. We think it -- so we don't have the valuations, of course because we have to hire the valuation company and have them go through that. So we'll have that by the end of Q3. But we're not -- we think it's going to be readily available to see the amortization. And so we're not planning on doing a cash item, and we're trying to just stick to GAAP. That's our plan right now. Thank you very much.
Okay, just a follow-up. Is it possible just so we can kind of touch up our models, what Hermes' assets were at closing?
Yes. Yes, [ those are included in his ] remarks. And we're just giving them back to you here, wait a second.
Yes, I got on a little late, so I guess I missed it.
Assets at June 30 were GBP 35.3 billion, P.S., up GBP 1.6 billion from GBP 33.6 billion at Q1.
We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for closing comments.
Well, that will conclude our comments for today, and we thank you for joining us.
Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.