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Federated Investors Inc  (NYSE:FII)
Q1 2019 Earnings Call
April 26, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Federated Investors First Quarter 2019 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Ray Hanley, President of Federated Investors Management Company. Thank you. You may begin.

Raymond J. Hanley -- President, Federated Investors Management Company

Good morning and welcome. Leading our call today will be Chris Donahue, Federated's CEO and President; and Tom Donahue, Chief Financial Officer. And joining us for the Q&A are Saker Nusseibeh, the CEO of Hermes; and Debbie Cunningham, the Chief Investment Officer for our money markets investment operation.

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. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, Federated assumes no duty to update any of these forward-looking statements. Chris?

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Thank you and good morning. I will briefly review Federated's business performance and Tom will comment on our financial results. Looking first at equities. We closed the first quarter with $80.2 billion of assets, up from $72.5 billion at the end of 2018. Market related gains offset net redemptions, which decreased from the prior quarter. Equity mutual fund flows were positive by about $400 million and equity SMA net redemptions decreased to $228 million, which is down from $884 million in the fourth quarter.

Higher gross sales and lower redemptions in the Strategic Value Dividend strategy factored into the improvement in the equity fund and SMA results. Equity institutional accounts had about $970 million in net redemptions in Q1 with about $750 million due to BTPS making substantially all of their expected 2019 draw downs from various Hermes accounts. We had 16 equity funds with positive net sales in the first quarter led by Kaufmann Small Cap, Hermes Global Emerging Markets Funds and several MDT funds. Additional Hermes equity funds that achieve positive net sales in the first quarter included Global Emerging Markets mid fund, Global Equity ESG fund and the impact opportunities fund.

Using Morningstar data for the trailing three years at the end of the year, about one third of our equity funds we're in the top quartile and about two thirds were in the top half. Five Star equity funds at the end of the first quarter included MDT Small Cap Core, Mid Cap Growth and All Cap Core, the Kaufmann Small Cap and Hermes Global Emerging Markets. We had 11 Four Star equity funds including various MDT Kaufmann and Hermes strategies.

Looking at the Strategic Value Dividend strategy, it's objective is to provide a high and growing dividends income stream from high quality companies. The domestic funds 12-month distribution yield of 3.77% ranked in the first percentile of its Morningstar category at the end of the first quarter. Domestic Strategic Value Dividend strategy had combined mutual fund and SMA outflows of $450 million in Q1, down from $1.5 billion in Q4. Looking at early Q2 2019 results, combined fund and SMA net redemptions for this strategy were about $57 million through the first three weeks of April. Overall, combined equity fund and SMA net sales for the first three weeks of April were positive at about $62 million.

Now turning to fixed-income. Assets increased by about $1 billion in Q1 to $64 billion due mainly to market related gains of just about $2 billion, partially offset by nearly $1 billion of net redemptions. On the fund side, net inflows of about $275 million in total return bond and trade finance combined were offset by outflows of about $535 million in high yield and multi-strategy credit also combined. These outflows included about $200 million from the planned redemptions of BTPS seed investments in certain Hermes funds.

For fixed income separate accounts, net outflow was due largely to the net redemption of about $375 million related to a large clients usage of cash. Our fixed income business has a variety of strategies that are performing well. At quarter end, using Morningstar data for three years, we had eight funds 25% in the top quartile, including Total Return Bond and Hermes multi-strategy credit, and 23 funds almost 75% in the top half. Fixed income fund and SMA net sales are positive early in Q2 at about $214 million. In the alternatives category, assets at quarter-end were $17.9 billion, down from $18.3 billion at year-end. This decrease however was due to the success of various Hermes private market strategies that have been reflected as distributions of gains.

Now looking at money markets. Total money market assets increased approximately $16 billion in Q1 with funds up about $6 billion and separate accounts up about $10 billion. We saw positive money market fund flows from a variety of Institutional and intermediary clients in Q1 as money market strategies continue to offer yields well in excess of average deposit rates. Prime money fund assets increased nearly $8 billion or 18% in Q1 from about $45 billion in Q4 to almost $53 billion here in Q1.

Our money market mutual fund market share including sub-advised funds at the end of the quarter was up slightly, just below 8%. Taking a look at our most recent available asset totals, Federated as of the 24th and really Hermes as of the 17th, managed assets were approximately $490 billion, including $321 billion in money markets, $82 billion in equities, $65 billion in fixed income, $18 billion in alternative, $4 billion in multi-asset. Money market mutual fund assets were $215 billion. Federated and Hermes RFP and related activity levels continue to be solid and diversified with interest in MDT, Kaufmann, Global Emerging Markets for equities and multi-sector and short duration for fixed income. We began the quarter with about $1.9 billion in net institutional mandates yet to fund, with about $800 million in fixed income and (inaudible) billion in equities. We expect these wins to fund over 2019 with about $1.7 billion into separate accounts and $200 million into funds.

Turning to the international side, we announced this week the launch of the next two Federated Hermes Funds, the Federated Hermes Global Equity Fund and the Federated Hermes Global Small Cap Fund. Each fund follows the investment strategy of a similar Hermes Fund, which combined have grown to nearly $4 billion. We continue to move forward and registering additional U.S. mutual funds to offer additional here (ph) Hermes strategies to our customers. We are also actively presenting Hermes strategies with our institutional clients and are working with Hermes to develop opportunities for them to offer Federated strategies to their clients.

We are continuing with plans for U.S. expansion in 2019 of the Hermes EOS equity ownership services business that features leading ESG stewardship and engagement services to institutional asset owners and pension funds. Hermes EOS assets under administration reached $587 billion at the end of Q1, up from just under $500 billion at year end. Hermes managed assets at year-end were approximately $44.3 billion, up from $42.6 billion at year-end with market gains offsetting net redemptions.

Third party positive net sales of $263 million, were offset by BTPS's net redemptions of about $1.3 billion. Hermes built on the successful Q4 launch of the Global Emerging Markets mid strategy with more than $50 million of new net sales to bring that fund to over $100 million in assets, Hermes continues to progress in the development and growth of a world-class multi-asset credit platform, featuring the Hermes unconstrained credit fund and the Hermes European direct lending fund both launched during 2018. We also continue our business development in the Asia-Pac region with the focus on opportunities in greater China, Korea, Japan and are actively working to establish strategic relationships with select financial institutions to add regional distribution of Federated's investment strategies. This effort compliments Federated's European, UK and Canadian operations. Tom?

Thomas Donahue -- President, FII Holdings, Inc., Chief Financial Officer, Vice President, Director and Treasurer

Thank you, Chris. Total revenue was down slightly from the prior quarter due mainly to fewer days, which reduced revenue by $7.6 million and a $2.7 million decrease in performance fees, which were $3.1 million in Q1 compared to $5.8 million in Q4. These decreases were partially off set by $10.8 million in higher revenue from higher average money market assets. Revenue was up about $43 million compared to Q1 of last year, due mainly to the consolidation of Hermes revenue of $48.3 million and higher money market revenue of $16 million. These revenue increases were partially offset by lower equity related revenue of $12.4 million and lower fixed income related revenue of $3.3 million.

The increase in operating expenses from the prior quarter of $16.9 million was mainly due to higher incentive compensation and seasonally higher payroll taxes, seasonal bonus restricted stock expense and to higher distribution expense from higher average money market fund assets. The increase from Q1 2018 of approximately $52 million was due mainly to the consolidation of Hermes expense of $51.3 million including the amortization of intangibles from the deal. As we've said before, we expect the Hermes deal-related amortization to be about $11 million in 2019. At the end of Q1, cash and investments were $162 million, of which about $124 million was available to us.

Michael, that concludes our prepared remarks and we would like to open the call up for questions now.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Ken Worthington with JPMorgan. Please proceed with your question.

Kenneth Worthington -- JP Morgan Chase & Company -- Analyst

Hey, good morning. Thanks for taking my questions. Maybe first, Federated's money market fund business lost market share pretty consistently in the decades that followed the financial crisis and market share gains have actually been pronounced more recently. Can you talk about positioning of your funds and maybe what you attribute this transition from the more consistent market share losses to the more consistent market share gains that we've seen more recently?

Deborah Cunningham -- Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager

Ken, this is Debbie, and I think there was a massive amount of consolidation that occurred in the money market space after reform took place in 2016. And I think that to some degree is part of that. We continue to offer a very full slate of money market funds that includes every type of government money market funds. So that's the largest category. It includes all types of both institutional as well as retail prime funds, which have been on a percentage growth basis, the largest growers over the course of the last nine months and a full slate of both federally tax exempt as well as state tax exempt municipal products. So as interest rates continue to climb, but as the differentials between those various sectors sort of ebb and flow, we continue to offer a very diversified group of products, which I think is not necessarily the case with many of our competitors at this point.

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

There are some additional factors Ken that -- what Debbie talked about is a commitment over decades that gets -- then reflected when you see the deposit numbers running up all during that timeframe and then the yields on our funds being substantially higher than deposits today, so that if you keep your commitment when it's raining dollars you are a beneficiary. Another factor is, that it is important to keep the fund's competitive and back in the old days, it was just keep the funds at 1 basis point or something above zero and now we have been very good in both the investment performance and in how we manage the business to keep those yields on a very, very competitive basis.

Kenneth Worthington -- JP Morgan Chase & Company -- Analyst

Thanks. And maybe just a press little more, prime would seem to be part of the share loss versus share gain, do you agree there? And then maybe looking at your distribution channels, is there a channel that seems to be maybe outperforming for you in the money market fund area that may -- that we may or we should attribute maybe more of the market share gains to versus the losses in the past?

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Prime is a little different because prime required people to look through the new rules on the NAVs and things like that and people are increasingly becoming more sanguine about going into these funds with (inaudible) behind the decimal point. And so that is a different overriding factor. The reason people are in money funds is because they want daily liquidity at par and they had to be absolutely certain that they would get that in the prime area.

Deborah Cunningham -- Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager

And just to give you a couple of examples along those lines. Our prime products have grown both with regard to the retail distribution side and that the institutional distribution side. Our largest retail prime product at its peak pre-reform was about $30 billion and assets went down to $2 billion, now stands at $22 billion. So it substantially has grown and it has not come out of our government funds, it's come basically from what Chris was saying the retail deposit bases. From an institutional perspective, our largest product historically hit close to $50 billion at its peak, went down to $800 million, yes less than $1 billion, $800 million post-reform and today stands just under $20 billion. So the strength and diversification of the growth in that prime product has been pretty substantial. From a total distribution channel perspective, it spans the gamut. It's universities, its broker dealers, its bank distributions, it's various types of large private offices, it's governmental entities, it's corporations, it spans the gamut and that's about kind of growth you can have because it continues to add to the the diversification of the client base.

Kenneth Worthington -- JP Morgan Chase & Company -- Analyst

Okay, thank you. And then just on compensation, I apologize if I missed this. Can you help us with an outlook here? The swing between 4Q and 1Q was substantial as I think most of us expected it to be, but how should we look at the rest of the year? And how good is that 1Q number -- compensation number has the run rate for the coming quarters?

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Yes Ken, great question. If you remember last quarter, I kind of put up my hands in surrender on trying to predict it appropriate -- the future. So I'm still surrendering on predicting the future. However, I will answer your question, because if you just -- we have to put a number in Q1 that we think is going to be the expense for the year.

So this is our best estimate right now on it, but we're also telling you, there are some seasonal things in there that payroll taxes and as I mentioned the the bonus restricted stock expense that we had about $0.5 million under accrued from -- that's in Q1 that wasn't in Q4 obviously and the 401(k) was a little heavier weighted to Q1. So I wouldn't change the number, except for the seasonal items.

Kenneth Worthington -- JP Morgan Chase & Company -- Analyst

Great, thank you very much.

Operator

Thank you. Our next question comes from the line of Michael Carrier with Bank of America Merrill Lynch. Please proceed with your question.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Thanks and good morning for taking the questions. Given a little more time with Hermes. Can you provide an update on where you're seeing some of the attractive distribution opportunities. And then just on the pension redemptions and even the performance fees, yes, I don't know if you guys can come to provide any more color on timing, meaning the pension outflows typically going to be in 1Q or was this more unusual this year and then same thing for the performance fees. Are there any quarters that tend to generate more performance fees versus last.

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Let's try to do these questions in reverse. I'll let Saker handle the question of BTPS and their redemptions. And then I will come back with the other opportunities and Saker can add in another opportunity ideas as well. Saker?

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

Thank you. So, as you know, we have a very strong relationship with BTPS, both as a minority owner and a large client of ours and at the time of the deal, we had assumed that some of the growth assets that mean the equity assets would overtime redeem at a given and pre-agreed flight path and the reason for that, it's a mature direct benefits DB fund and as time passes by, they just put more and more of the money in matching assets. Roughly speaking, we've got about $13 billion of their assets, about $9 billion and private market assets and about $4 billion in global separate assets and these are the ones that come down over time.

This year it so happened that pretty much the amount of redemption that we were expecting throughout this year happened in the first quarter. This normally depends on what their use of cash is. So you can't say that therefore going forward it will only happen in the first quarter and not on a quarterly basis. What we are more comfortable with is that this is the level that we agreed at the time of the deal and that continues to be on track.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay, that's helpful.

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

In terms of your question on the opportunities, we see, we had very good success with our initial road shows to American clients back at the end of last year and that sets the stage for launching the half a dozen or so funds that are either in registration are actually out on the field that I talked about in my remarks, and that we made a press release earlier this week on. And what this involves is we think that all of those funds each of those funds had a great opportunity for our retail presence. On the institutional side, both as a follow-up to the road show and responding to various RFPs, the institutional sales are going well, but you're not going to see anything immediately. That's a little longer sales cycle and we are quite optimistic about what we can do there and it's across the board on several of Hermes mandates. Down the road, we would see opportunities for us to bring the alternatives, infrastructure and real estate ideas to the U.S., but that's down the road deal. The other thing that we would talk about here would be the EOS, the equity ownership services, which we plan to start and develop here in the United States under Hermes auspices to continue the engagement success that they've had and to offer this service to asset owners in the United States. Another picture of the opportunity so it has to be what I've come to term a reverse transformational merger, where we are most anxious to move from doing the way we've done business, which is analyzing, governance and social factors, environmental factors to becoming what would be labeled as aware of these two becoming integrated. And with that happens is to allow the data from Hermes on both their investment analysis side and on the EO side to flow through to the investment platforms of our investment professionals. And that's another great opportunity that we see and how a lot of our clients and our funds can benefit from an entire operation that is integrated and using those factors to improve performance.

Raymond J. Hanley -- President, Federated Investors Management Company

And Mike, it's Ray, just to reiterate some points of Saker made and that we made at other point store in the call. The redemptions the BTPS had in Q1 included some seed money and distributions from private markets. Obviously distributions from private markets will be ongoing when and as they come. The seed money substantially has been drawn out. So that would not repeat and as Saker mentioned, we're really talking about the roughly $4 billion in equity separate accounts being on a multiyear redemption pattern. And Mike, your last question on timing of performance fees, so certainly there were Q1 numbers and Q4 numbers and I can't really tie that down, Saker you want to talk about your expectation of performance fees have added.

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

So I'm afraid, I can't tie it down either. It depends on -- I mean, we get performance fees from a variety of private markets all the way through from property to private equity. And it depends on when the assets are sold and when the hurdles are met and so it cannot be predicted. There is, generally speaking an amount that we'd expect on a yearly basis, but again the distribution depends on how it comes through. So I'm afraid I can't be much help there. I will go back on the previous question though and I know that in previous discussions that you've had with Federated, we've always talked about AUM. In Hermes, we tend to talk about revenue because, of course as we move our asset base around it is logical to think that our -- essentially our net revenues can increase. And that is quite substantial. So when we look at our flows coming through one of the things that we look for is particularly in third-party flows is how much net new revenue have we added in an annualized basis to the year and that is sort of the measure of future success if you like. So a redemption of assets is not always negative, because in the long term, it might allow you to have higher fees.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Great, OK. That's helpful color. In time, just real quick on the comp, just for clarification, I know you don't want to predict at this point, but do you have just the amount that was just the seasonal items that would just be helpful, so we can try to figure out the run rate?

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Yes, the payroll tax and 401(k) items were about $3.3 million, the bonus restricted stock expense was about $1.4 million.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay, thanks a lot.

Operator

Thank you. Our next question comes from the line of Bill Katz with Citi. Please proceed with your question.

William Katz -- Citigroup, Inc. -- Analyst

Okay, thank you very much for taking the questions. Just coming back to the pipeline new mandates won, but not yet funded. So it seems like it's heavily skewed toward the more separate account institutional side. Can you give us a sense of how the fee rates on those products wins compared to legacy business?

Raymond J. Hanley -- President, Federated Investors Management Company

Bill, it's Ray. I would expect them to be comparable, but I don't have a summary of that to refer to that, something we can take a look at and follow-up on.

William Katz -- Citigroup, Inc. -- Analyst

Okay. And just my follow-up question then would be just on capital management. It does look like repurchase slowed for the second quarter in a row on a relatively low compared to maybe prior run rates and those been a lot going on in terms of funding the Hermes platform and debt. Could you sort of give us a sense as you look ahead, how you sort of see free cash flow usage priorities?

Thomas Donahue -- President, FII Holdings, Inc., Chief Financial Officer, Vice President, Director and Treasurer

Yes, right. There is a lot going on. Chris mentioned that a couple of products that we seeded and we expect more seeding in the future and are we did use up a pretty significant amount of cash in the Hermes deal and so we've been building that backup. We of course, continue our dividend. And yes, we were light on repurchases this quarter. We run our models on repurchases and the price is going up and we make our decisions daily on what we're going to do there and also we remember our history when we've done deals and had M&A going on before and after we have not purchased as many shares in the past. So will that continue in the future? Probably.

William Katz -- Citigroup, Inc. -- Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.

Daniel Fannon -- Jefferies -- Analyst

Thanks. Just curious about the outlook for the growth in the alternative, its kind of private market business is that something where we should see larger kind of fundraising cycles or would this be more piecemeal in terms of how that's going to grow?

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Saker, I'll let you address that from the European side, because that is overwhelmingly a UK-European effort at this point. And as I mentioned in my remarks, bringing it to the U.S. is a longer term deal. Sekar?

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

Yes. Thank you. So, again, I'm afraid the answer is known. And that's it depends, which part of the private markets we're talking about. So if you talking about something like our private equity and typically speaking that follows a cycle of raising assets for funds, which are then close them put to work and that goes into a multi-year cycle and that tends to work very well. And we've had very strong success there. When it comes to property, it tends to be much more project by project related where we have a group of clients that we go through and that is, generally speaking, is much more substantial a commitment for a much longer period of time. And that tends to be much more lumpy just by the nature of the investments within the projects and here we're talking about long-term development projects as opposed to simply managing assets over a five-year horizon. So we're talking about a much longer term horizon than that. So in general, we go at funding on a normalized basis, on a continuing basis, but, by definition, some of it, particularly the very large property ones can be lumpy, but the others are not. I hope that sort of helps answer your question.

Daniel Fannon -- Jefferies -- Analyst

Sure. Just a follow-up then. So when was the last private equity fund you raised? And when do you think you might be coming to market again with another one?

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

So, we've just closed the last one we've raised very successfully. And we have just launched the -- the next one or we will be launching the next one, as we speak, as we go forward.

Daniel Fannon -- Jefferies -- Analyst

Okay and then just a follow-up on compensation maybe with Hermes versus legacy versus Federated and thinking about the businesses, we talk about revenue versus asset growth. I guess is there different compensation plans within the two entities versus, how we might have thought about Federated historically versus now about Hermes combined? Is it still -- are there different incentives in people pay off revenues versus profitability versus kind of various targets? Just curious about as we think about performance fees in different metrics, we have today then looking at legacy Federated and how the overall compensation pool might differ now?

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

So, one has to be careful here, because we are of course part of the same group and that will follow the same theory if you like. However, English law is different and specifically within English law, you are not allowed to link compensation to sales as an example. You can link it to percent of revenues if you want read on, but you can. But you cannot incentivize people on sales. In general, the way that we do it at Hermes, is we link it to the overall profitability of the entirety of the firm and that's the profitability of the entirety of the firm and we link it also to our revenue growth and to our long-term performance and its discretionary, which is a standard within the UK, both the POD (ph) itself is discretionary and then the allocation of the POD is discretionary. You would expect us, because we're such an Alpha house in our equity stage and we are so high active share meaning we're very differentiated from the benchmark to put a large part of the discretion for the fund managers depending on long-term risk adjusted returns after fees, which we do. So that will give you an idea of how we could, just looking at the public record will give you an idea of how the competition is going. By long-term, I mean five years and for our business development and for our operational platforms, you'd expect us to link it to the growth of our business.

And I hope again, that is -- gives you a color of how we do it. We also put a lot of emphasis on behaviors particularly within Hermes. I mean, we are very specific firm and behaviors rank very highly for us because we think it leads to looking after the client, first and foremost, more than other firms will compete with us here in the UK market. We think it leads to better cooperation between the teams and we think at least better cooperation between the business development and the teams on operation. So behaviors are a large part of also the compensation requirement, but it's all discretionary.

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

And if you're interested in the contrast, which I gathered from your question you were, remember a couple of things at the beginning. The reason this transaction occurred successfully was because of our cultural connection -- successful connection between Federated and Hermes. And that -- however, you do it the way Saker just described or the way I'm going to describe, we do a lot of our compensation here. It is based on performance, performance in the marketplace, performance in the office, et cetera. One of the strengths of how we did this deal was to allow Hermes to flourish, the way they had been flourishing before.

So that, we are not imposing Federated's method or the American method of compensation onto their business. On the other hand, if you talk to the head of HR here and the head of HR over there, you'll find a very, very, very similar approach to all these different things. Not just to reflect what we said on here before about how we do the compensation. The investment professionals are compensated primarily on the three-year rolling performance of their mandates and the sales people are compensated on the basis of sales and net sales depending on which department and which area they're working on and the executives are compensated on the basis of the overall performance of the entire enterprise. Now that will shortcut a lot of different things, but those -- you picked up the basics in these last few minutes.

Daniel Fannon -- Jefferies -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from the line of Kenneth Lee with RBC Capital Markets. Please proceed with your question.

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Hi, thanks for taking my question. Just a follow-up on the alternatives and private market, AUM. Is there a way you could quantify the distribution of gains and perhaps give us a sense of what the flows were like, excluding the distribution gains?

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

So if you ask me, can I give you how much we've raised in third party, I will come back to that. I will certainly get it to you because we published the data. We can get that to you, absolutely.

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Okay, great. And then perhaps just one on the institutional prime money market fund, it sounds like there is good growth there and in terms of the clients getting more warmed up to the product. Just wondering how much of that could be due to more corporate customers getting either operational changes to be more accepting of the floating NAVs? Just wondering what that change could be driven by? Thanks.

Deborah Cunningham -- Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager

Sure, I'll take that one Kenneth. And ultimately back in 2016, when customers chose to go in math against (ph) the government products, I'd say three quarters of them did not have to. From an operational perspective, maybe they were a little leery about their operations being able to process and accept a four digit NAV, maybe they were a little bit concerned about what these gates and fees phenomenon might provide for them or put up as some sort of a hurdle for them. And ultimately, I think many just didn't want to be sort of the test guinea pigs, if you will, for what was then uncertainty on a product changed basis for the packaging of the product. They understood the investment ideas, but they didn't understand the packaging changes. And that to me is the types of customers that today have reviewed over the course of the last two and a half years, what has happened from an NAV Movement standpoint are comfortable with their own systems at this point and it's seen that now it's come anywhere close to putting a fee or gate on any of these products. And so, it's -- again new cash coming into the market, they're still putting a lot into the government sector, but you're taking a portion of that and voting with their feet if you will into the prime product. The other difference I think that is the case now versus maybe back in 2016 is that there is a yield differential. As Chris mentioned for the longest time when we were in a zero rate environment, it was the maintenance of a 0 or 1 basis point that was kind of sustaining the market and to the extent that we now are in a yield curve environment where there is 20 to 25 basis point differential between government and prime that also factors into the equation.

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Gotcha. Very helpful, thank you very much.

Operator

Thank you. Our next question comes from the line of Mac Sykes with Gabelli & Company. Please proceed with your question.

Macrae Sykes -- Gabelli & Company -- Analyst

Good morning, everyone.

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Good morning.

Macrae Sykes -- Gabelli & Company -- Analyst

So just ask two questions separate. Would it be fair to assume the money fund progress in 1Q was actually better just given some of the seasonality, if you could comment on that? And then secondly, are you looking at the non-transparent ETF structure as a potential vehicle for the future?

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

On the money funds, you have a good insight there because frankly if you talk to our salespeople on that they would have been happy to just hold serve during the first quarter and the monies were actually up. So we withstood the normal amount of tax withdrawals and tax planning that goes on and still had enough quarter. So compared to what we normally see historically yes, it was better. Do you have additional color on that, OK. What was your second question on the transparent?

Macrae Sykes -- Gabelli & Company -- Analyst

Non-transparent.

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Non-transparent ETFs. So OK, so the SEC led one operation out of the cage. There are several others that are still being worked on there and our comments on this particular business is that when, as and if we believe that the non-transparent ETF is a viable thing then we start to look at it for just as any other package of our underlying mandate and we said on this call many times that we look at this business a lot, but we remain as you know, and that's why you're asking the question active alpha hunters, high active share as Saker likes to say, and so the index portion of that doesn't interest us a lot. Now in terms of which products may be able to do this the earliest, we've talked before about, perhaps it would be some NDT mandates or others, but this is at the brainstorming stage here. And don't forget, there are several other methodologies in line at the SEC, which many of the practitioners believe will be coming out soon. And there were those who were surprised that one group got out ahead of the others, but we'll see what happens.

Macrae Sykes -- Gabelli & Company -- Analyst

Thank you.

Operator

Thank you. Our next question is a follow-up from Bill Katz with Citi. Please proceed with your question.

William Katz -- Citigroup, Inc. -- Analyst

Okay, thanks very much taking the extra ones. I just want to clarify that the two sizable mandates you should called out, just in terms of the -- saw the full-year impact BTPS coming out of Hermes and then on the fixed income side of $375 million or so, you sort of suggested was due to some exogenous items. Are those both in the separately managed account buckets, I'm just trying to verify that? And then relative to the flows you gave quarter-to-date, could you bifurcate that between mutual funds and separately managed accounts?

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

So, Bill on the first part, yes, those were all in separate accounts. On the quarter-to-date flows, they would be weighted toward mutual funds. Just looking at the numbers, the SMA are slightly positive quarter-to-date and so literally by a couple million dollars of the rest would have been in funds.

William Katz -- Citigroup, Inc. -- Analyst

Okay, thank you.

Operator

Thank you. We have reached the end of our question-and-answer session. I would like to turn the call back over to management for any closing remarks.

Raymond J. Hanley -- President, Federated Investors Management Company

That will conclude our call and we thank you for joining us today.

Operator

Thank you, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Duration: 45 minutes

Call participants:

Raymond J. Hanley -- President, Federated Investors Management Company

J. Christopher Donahue -- President, Chief Executive Officer and Chairman

Thomas Donahue -- President, FII Holdings, Inc., Chief Financial Officer, Vice President, Director and Treasurer

Kenneth Worthington -- JP Morgan Chase & Company -- Analyst

Deborah Cunningham -- Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Saker Nusseibeh -- Chief Executive Officer, Hermes Fund Managers Limited

William Katz -- Citigroup, Inc. -- Analyst

Daniel Fannon -- Jefferies -- Analyst

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Macrae Sykes -- Gabelli & Company -- Analyst

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