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Federated Investors Inc (NYSE:FII)
Q4 2019 Earnings Call
Jan 31, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, welcome to the Federated Hermes Inc Fourth Quarter 2019 Analyst Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Mr. Ray Hanley, you may begin sir.

Raymond J. Hanley -- Senior Vice President

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

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 Hermes assumes no duty to update any of these forward-looking statements. Chris?

J. Christopher Donahue -- President and Chief Executive Officer

Thank you, Ray. Good morning. As of today, we have officially changed our name to Federated Hermes, Inc. and we are unveiling an updated corporate identity next week, focused on a commitment to responsible investing to achieve financial outperformance. The new name reflects the combining of two active management firms, Federated Investors, Inc. and Hermes Investment Management.

Federated Hermes offers world-class active investment management and engagement services across a wide range of asset classes for investors around the world, guided by the conviction that responsible investing is the best way to sustainable wealth creation. Beginning on Monday, we will trade under the ticker FHI.

Moving onto our business performance and looking first at equities, assets reached an all-time record high of $89 billion at the end of 2019, an increase of 23% from 2018. For the fourth quarter, in addition to positive market impact of about a little over $5 billion and gains from PNC funds acquisition, which closed in mid-November, a little over $2 billion, net sales of combined equity and separate accounts were slightly positive. Equity mutual fund sales were positive in the fourth quarter, just under $230 million, and for the full-year of about $625 million.

We had 16 equity funds with net sales in Q4 led by Kaufmann Small Cap, Hermes Global Equity ESG, Hermes Global Emerging Markets, and Hermes SDG Engagement funds. On a full-year basis, equity gross sales increased 45% and net redemptions were down 81%. Using Morningstar data for the trailing three years at the end of 2019, one quarter of our equity funds were in the top quartile and more than half were above median.

Looking at the strategic value dividend strategy, recall its objective is to provide a high and growing dividend income stream from high quality companies, the domestic funds 12 months distribution yield was 3.8%, which ranked it in the second percentile of its Morningstar category at the end of 2019. The domestic strategic value dividend strategy had combined mutual fund and SMA outflows of about $350 million in the fourth quarter, down from $580 million in Q3.

Looking at early first quarter results, combined fund and SMA net sales for this strategy were about $30 million through January 24th. Overall combined equity fund and SMA net redemptions year-to-date through January 24th were negative by $76 million. There were some lumpy redemptions in one of our European mandates.

Turning now to fixed income, equity -- or assets increased to another record of $69 billion at year-end. On a full-year basis, gross sales were up about 6% and redemptions decreased 8%. Full-year net sales were slightly negative, $119 million, compared to $3.2 billion negative in the prior year. For the fourth quarter, net sales of $1.4 billion combined with gains from PNC acquisition of about $450 million and market gains of $1.2 billion to move assets to the record high level.

On the fund side, we saw net sales of High Yield Funds just under $500 million and Ultrashort funds just over $300 million, among others. Separate account net sales included multi-sector, Total Return, and High Yield strategies. At year-end, using Morningstar data for the trailing three years, we had seven funds, 21% in the top quartile, and 20 funds or 59% in the top half. Combined, fixed-income fund and SMA net sales are $19 million year-to-date through January. These net positive sales have been led by Total Return Bond Fund, High Yield activity and Ultrashorts.

Moving to money market. Assets increased about $36 billion or 10% in the fourth quarter, including about $11 billion from the PNC acquisition. Money market assets increased $94 billion or 31% for the full-year to close 2019 at record high assets of $396 billion. Money market strategies continue to have a significant yield advantage, compared to average deposit rates. Money market yields also compared favorably to applicable direct market rates and longer duration securities. Our money market mutual fund market share, including sub-advised funds at year-end was about 8.8%, up from about 8.4% at the end of Q3 and 7.9% at the end of 2018.

Taking a look -- now at our most recent available asset totals, with Federated as of January 29th; Hermes, January 17th. Managed assets were approximately $583 billion, including $401 billion in money markets; $90 billion in equities; $70 billion in fixed income; $18 billion in alternative; $4 billion in multi-asset.

On the money market mutual fund asset side, the assets were $283 billion. RFP and related activity levels continued to be solid and diversified in the fourth quarter with interest in MDT, Kaufmann and Global Emerging Markets for equities, high-yield, liquid credit, and short duration for fixed income. We began 2020 with about $450 million in net institutional mandates yet to fund, all on the fixed income side.

On the international side, we have -- had a good response from clients for the initial new funds developed for US distributions that are sub-advised by Hermes. Assets in these funds were just over $75 million at the end of the year with about $44 million externally sourced by the subtraction method that will tell you what the seed assets are. We are evaluating further US mutual fund launches using Hermes' strategies. We are actively presenting Hermes' strategies with our institutional customers and are working with Hermes to develop opportunities for them to offer Federated strategies to their clients.

We are progressing on the expansion of the EOS stewardship and engagement business in the US and are working to hire several new engagers. EOS assets under administration reached $877 billion at the end of the year, up from $781 billion at Q3 and about $500 billion at the end of 2018.

Hermes' managed assets at year-end were at $49 billion, up from $44 billion at the end of the third quarter and $42.6 billion at the end of 2018. Hermes' fourth quarter net sales were $1.3 billion all third-party. Favorable exchange rates and market gains contributed to the increase in assets as well. We are looking to grow our business relationships and opportunities both inside and outside the US, including alliances and acquisitions to complement our domestic and UK, European, Asia-Pac, and Canadian operations. Tom?

Thomas Donahue -- Chief Financial Officer

Thank you, Chris. Total revenue was up about $18 million or 5% from the prior quarter, due mainly to higher money market revenue of about $12 million, primarily from higher average money market assets. Equity and fixed-income revenue also increased from Q3, primarily from higher average assets.

Performance fees of $2.8 million were recorded in Q4, compared to $1.5 million in Q3. 2019 totaled performance fees of $7.4 million mostly from Hermes' strategies. Hermes' performance fees in 2017 were approximately $7.4 million and $8.5 million in 2018. Revenue was up about $191 million or 17% for the full-year, due mainly to higher money market revenue of $115 million and the inclusion of a full-year of Hermes results in 2019, compared to half of 2018, which accounted for $96 million. These increases were partially offset by lower domestic equity, multi-asset, and fixed-income revenue of about $19 million.

Looking at operating expenses, comp and related decreased about $800,000 from the prior quarter, due mainly to lower incentive compensation expense of $4 million, partially offset by severance pay of about $2.7 million, resulting from the combining of certain administrative, operational, sales and investment teams. Distribution expense increased about $5 million in Q4, compared to the prior quarter and $53 million for the full-year, due mainly to higher average money market fund assets. As a reminder for Q1, our revenue is negatively impacted by fewer days in the quarter, partially offset by lower related distribution expense. In addition, payroll taxes and employee benefit costs are seasonally high in Q1, compared to Q4.

Expenses related to the PNC deal totaled about $1.3 million. During Q4, these costs, which were primarily recorded previously as professional service fees -- previously in previous quarters as professional service fees, were capitalized as part of the asset purchase intangible asset. Subject to finalization of the PNC deal asset valuations, we do not expect an increase in amortization of intangible asset expense, due to the nature of the recorded assets.

The decrease in other operating expense line item for Q4, compared to Q3 was due largely to the currency exchange rate impacting both the valuation of US dollar assets at Hermes and the foreign exchange hedges used by Hermes to swap US dollar-based revenue in the pounds in order to line up with their largely pound-based operating expenses. In Q4, this resulted in an expense credit of $1.8 million, compared to the $1.2 million in Q3 of expense; in other words, a $3 million variance. This Q4 expense credit was partially offset by the overall negative impact of exchange rates on Hermes' reported Q4 operating results estimated at about $1.3 million across all operating line items.

The increase in total operating expenses for 2019 versus 2018 was primarily due to the aforementioned inclusion of Hermes' full-year results. Also higher distribution expense primarily from higher average money market fund assets and higher incentive compensation and related expense.

Non-operating income expense of $1.4 million from Q3, primarily due to an increase in the market value of securities held by consolidated funds of $3.4 million, offset by lower private equity carried interest on assets managed by a non-consolidated entity. The carry was $5.4 million in Q4, compared to $6.8 million in Q3.

Non-operating income increased $51.4 million in 2019, compared to 2018, primarily due to the 2018 FX loss in connection with the Hermes acquisition of $29 million, primarily higher equity carried interest on assets managed by the non-consolidated entity of $9 million and an increase in the market value of securities held by consolidated funds of $7 million. As we've said previously, we are not able to forecast future private equity carried interest. In 2019, carried interest recorded was $11.3 million. In four of the previous five years, carried interest was approximately $3 million. In the fifth year, the carry was about $13.5 million.

The $2.4 million increase in net income attributable to non-controlling interest in subsidiaries from Q3 was primarily from consolidated funds and from Hermes. At the end of 2019, cash and investments were $341 million, of which about $276 million was available to us.

Jess, we would like to open the call up for questions now.

Questions and Answers:

Operator

Certainly. Ladies and gentlemen, at this time we will conduct a question-and-answer session. [Operator Instructions] We are now ready to begin. Our first question comes from Brian Bedell with Deutsche Bank.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks. Good morning, folks, and congrats on the new name. Maybe just to start off with that, on the name change, maybe, Chris, if you just want to elaborate a little bit -- right now instead of doing this when the deal closed. And then if you can just talk a little bit about the new marketing program, what you intend to do specifically and what the expense impact you expect for 2020 on -- with that new marketing program?

J. Christopher Donahue -- President and Chief Executive Officer

Yes. In terms of the timing of the name change, the excitement and all of the work that was done to get the deal together was also one of the reasons it didn't happen right away. There was a lot that goes into changing the name of two organizations whose lifetime has been under a different nomenclature. We were able to combine though the fiduciary heritage of Federated and the ESG and responsible investing activities of Hermes, and felt that once we got all organized as funds on the block where we are selling them with a responsible investment office opened at Federated, with the integration of ESG into money markets at Federated, and then well on the way in several other of our investment management teams, and with the acceptance that the clients have had, we felt this was a very good timing.

Behind the curtain, in terms of internal, we announced all this internally last year at our sales conference, which is next week, wherein we have the 230 high powered engine machines coming into Pittsburgh, and we felt this was a perfect time to launch that into the marketplace, so it was both an external and an internal decision making.

Thomas Donahue -- Chief Financial Officer

Yes. On the expense side, you know, it's a forecast. So -- it's a forecast, but somewhere around $5 million advertising, signage, [Technical Issues] business cards, names of products. There's a lot that's involved in doing that and we look forward to moving forward Federated Hermes.

Brian Bedell -- Deutsche Bank -- Analyst

That's helpful. And then maybe just the third-party sales, it looks like that did -- on the net sales basis a little bit, did tick up in the fourth quarter. Maybe if you have any kind of expectation, given -- especially given the branding and the additional marketing, and of course the more recent excitement about ESG, so to speak. What are your expectations for third-party sales for Hermes' products in 2020?

J. Christopher Donahue -- President and Chief Executive Officer

Saker, that's your turn.

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

So all that I can say is, the RFP activity is very high, and we have seen net sales to continue in this -- beginning of this quarter. If I were to give you the numbers, I'm going to give you the numbers in pounds, because that's the numbers that I see. In terms of inflows last year, that's gross inflows, we saw about GBP8 billion of gross -- just over GBP8.3 billion, that's gross inflows coming out last year. And I'd expect something slightly ahead of that without the sales in the United States through this year. It's not an exact answer, but I'm not going to give more of a guidance than saying it's going to be -- we believe, better than the year just ended.

Brian Bedell -- Deutsche Bank -- Analyst

Right, OK. If I could just sneak one more in on the admin service fee increase in 4Q '19 versus 3Q, what was the driver of that and what should we -- it looks up to $70 million from $64 million. What should we be thinking for a run rate in 2020 in that?

J. Christopher Donahue -- President and Chief Executive Officer

So Brian, that's driven by mutual fund average assets generally and given the volumes, money market mutual funds more specifically. So that will correlate to the change in average assets going forward.

Brian Bedell -- Deutsche Bank -- Analyst

Okay. Great. Thanks very much for all the color.

Operator

We'll move next to Patrick Davitt at Autonomous Research.

Patrick Davitt -- Autonomous Research -- Analyst

Hi, good morning, guys. So you talked about the $5 million in marketing. How should we think more broadly about the expense trajectory bringing in a full quarter of the PNC assets in 1Q and then beyond now [Technical Issues]

Thomas Donahue -- Chief Financial Officer

So the expenses on PNC, we've got the -- Chris went through the list of the money markets and the equity and the fixed, and we're not -- we said today we don't expect to have amortization related to that. So the expenses with the money markets will primarily be related to distribution payments and all the other funds merged into our existing funds, so where there is distribution payments there. We also picked up a great team in Cleveland with three funds, so we're picking up the expense of that team and at Cleveland office and the connections into Federated and the new efforts to sell and distribute that funds -- those three funds in a wider fashion. So we're pretty excited about the whole outlook on the merger and the growth of the new funds.

Patrick Davitt -- Autonomous Research -- Analyst

I guess more -- I mean, more broadly though, like do you have a view on including that $5 million of extra marketing where expenses will be, kind of, in 2020 versus 2019? Flattish, up a bit?

Thomas Donahue -- Chief Financial Officer

No, we talked about $5 million in 2019 related to Hermes and that included a breadth of -- broad list of things, new products, people, as Chris mentioned, in responsibility office and kind of across the Board. So we would expect to see -- and then when you start new funds and you hire new people, you have a continuing expense. So we think that some of this expense related to advertising and the other changes might -- all of it might not reoccur, but then we might switch to do more advertising into the future. So we'll just see. So what we can talk about is basically a $5 million number for 2020.

Patrick Davitt -- Autonomous Research -- Analyst

And that -- is that on top of the $5 million in Hermes, you had in 2019? Or does this kind of move into now this?

Thomas Donahue -- Chief Financial Officer

Yes, I think it's -- I'd say when we hire people, then this is in addition to that.

Patrick Davitt -- Autonomous Research -- Analyst

Yes, OK.

Thomas Donahue -- Chief Financial Officer

So we didn't go through and say we spent exactly $5 million. That was an estimate from work that we had done in advance and do we hire all the people or are we going to hire the rest of them in 2020. It's not an exact science. We are trying to give you some indication of what we were looking to do and we're trying to implement it.

Patrick Davitt -- Autonomous Research -- Analyst

Okay. Fair enough. Thanks a lot.

Operator

We'll move next to Dan Fannon at Jefferies.

Daniel Fannon -- Jefferies -- Analyst

Thanks. Just a follow-up again on expenses. I guess, first on comp, 4Q here, you had revenues sequentially rise, but comp down. Just curious if there was anything specific in that number? And then you had the normal seasonal step-up, as you mentioned for payroll. Just remind us for you guys how much that is and anything else that, I guess, as you kind of bridge between 4Q and 1Q, that might be more notable.

J. Christopher Donahue -- President and Chief Executive Officer

So Dan, on the second part of that, the bump-up in payroll tax and 401(k) seasonality will probably be in the $3 million range for Q1, compared to Q4. And as Tom mentioned, a lot of our revenue -- most of our revenue is based on -- is calculated on a daily basis. And we didn't work through the numbers. We're coming into 2019, we estimated about $5 million for Q1 of '19 of lower sequential net revenue, so it is a significant change in Q1, because of the fewer days.

Thomas Donahue -- Chief Financial Officer

And the last thing -- the first part of your question was, why the recalibration of the down in the incentive compensation and it's basically what it is. We're looking every quarter to get that number right, and coming to the end of the year and recalibrate everything and we had to adjust down.

Daniel Fannon -- Jefferies -- Analyst

Okay. And then could you elaborate a bit, I think you -- on the equity year-to-date trends, the negative, I think it was $76 million and you talked about some international products maybe that saw some outflows, I guess a little more color on that, and I think -- I guess you said the backlog and I think the activity levels are there -- are positive. So just -- if there's anything else to unpack there, please.

J. Christopher Donahue -- President and Chief Executive Officer

The -- there was a lumpy redemption that came out of one of our Hermes funds, and I don't have any more to say on it than that. It was over $100 million and that was greater than what was the negative and that's why I mentioned it is -- as lumpy. But when you have big customers, you get big moves. We've discussed that before. There is nothing going on in the performance that move was not a performance move. So it doesn't worry us in terms of future flows.

Thomas Donahue -- Chief Financial Officer

And on the forward numbers, the $450 million that we talked about was fixed income. There are some institutional type of wins, but we expect those to go into funds and that sometimes happens as well, and that's probably a couple of hundred million dollars, but we did not include that in the $450 million, that's all fixed income.

Daniel Fannon -- Jefferies -- Analyst

Okay. Thank you.

Operator

We'll go next to Michael Carrier with Bank of America.

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

Good morning and thanks for taking the questions. So maybe first one, just on the Hermes Federated, like the rebranding. And then maybe just going a little bit more in detail and particularly on the US side, when you look at maybe 2020 versus 2019, just like what initiatives maybe are in place, whether it's by the, you know, the different distribution channels, whether it's through the trust, the banks or the retail, some of the products that were launched, what are the sales force, which products are they going to be focused on. Just any more granularity to try to see if that traction starts to pick up within the USA.

J. Christopher Donahue -- President and Chief Executive Officer

We are very, very excited about what now amounts to a broad-based family of international products to bring to our US distribution. This includes the products as Tom mentioned from Cleveland, New York products, Pittsburgh products and London products, that now represent a complete array. And part of the effort as I mentioned in our sales meeting next week will be to focus on these products into the future, so that's one pretty big push. Another area that we're going to be making a bet on is Asia-Pac through Harriet Steel's operation inside Hermes. And we think that is something that is going to be -- get some focus as well.

And as you know on the institutional side these things are not -- these sales are not made in a short timeframe. It takes a minimum of a year, sometimes into the second year before you begin to actually win mandates having cloud the ground, it's just the timing that's involved. So those are some of the things.

Internally -- and this wouldn't be for 2020 that we're talking about, but internally, we're looking at getting organized the private markets area. We already announced the completion of the purchase of MEPC, which is a real estate development company that the pension scheme in Hermes had worked on for many years. We're looking at the private equity side of it as well. We've added people to the infrastructure side and we're trying to get that all organized. We're building into the future, but as I said, that's not a 2020, that's down -- more down the road. So those are some of the main things.

Deborah Ann Cunningham -- Executive Vice President and Chief Investment Officer of Global Liquidated Markets & Senior Portfoli

[Speech Overlap] This is Debbie. Can I also mention, basically the full integration of ESG analysis into our credit review process for all of our liquidity product, that was something we had been driving toward since the 2018 acquisition and accomplished that in 2019. That was evolutionary, not revolutionary; it will continue to develop, but we have absolutely included from the analysts and the engagers the information that's coming out of the Hermes proprietary model and used that within the qualitative aspects of our credit analysis process for our money market fund.

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

Okay. And then just quick follow-up, just on that fixed income side, so in the quarter, you saw pretty good strength and then it sounds like that's continuing into 2020. Just anything, particularly in the quarter, just given that the number was over $1 billion, just anything that was more lumpy that you would call out?

Thomas Donahue -- Chief Financial Officer

Well, on the institutional side. Mike, there were some good wins on the multi-sector side and so institutional accounts are, by definition, lumpier when they come. We also saw a return to strength in high yield, so in -- with the yield challenges in the marketplace, high yield came back into more significant flows. And we mentioned -- that's continued early into the first part of 2020, the Total Return Bond Fund. So it's the spread products that have been responsible for the inflows.

Ultrashorts were a meaningful part of the Q4 positive, just to correct, they are actually a little bit negative in the first part of 2020, and that's really just more technical analogous to what happens in the money market fund side, where money tends to come in especially late in the year and then we go value [Phonetic], you can kind of think of that as much more like long cash than that the spread products that really have driven the inflows on fixed income.

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

Okay. Thanks a lot.

Operator

We'll move next to Bill Katz at Citi.

William R. Katz -- Citigroup -- Analyst

Okay. Thank you very much for taking the question this morning. Just to spend a little time talking through some of the choppiness on the multi-asset and the alternative buckets, if you're seeing better growth elsewhere, sort of wondering what might be going on underneath that just as we think ahead?

J. Christopher Donahue -- President and Chief Executive Officer

Well, those sales are slow and take a long time, and as you've noticed, the numbers are roughly flat, and that's one of the reasons I mentioned that we were looking to get better organized on the ownership and -- of those entities. Even though we control some of them, we have to get those things organized; first, before we decide to make big investments into them into the future. And that's why I characterized it as getting organized this year with ideas of having them put points on the board next year. And that's pretty much the theme in all of those private markets. I think the multi-asset credit product, however, has -- had good strong positive flows, good reflection on the new product, and I'd ask Saker to comment on that particular one.

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

So if I may -- Chris, I'll comment just briefly on the private markets and then on to this one. On the private market one, I will just remind people that it's a longer sales cycle, because generally speaking the assets remain with us for many, many years to come. It also affects our income because quite oftentimes, there are two kinds of additional revenue besides the fee revenue we get, which is the management fee revenue. One is performance fees in property funds generally speaking, and then a carry fee in private equity funds. And that means that it's sometimes difficult to look on them on a quarter-by-quarter or a year-by-year basis for these two reasons.

And if you look at our multi-assets, this is a capability that we've been holding over several years. It exhibits the same standards of alpha that others have. And again, just to remind everybody, the Hermes product offering effectively is all high market -- high active share, which means very different from Benchmark, integrated ESG and has very strong performance fees and that is beginning to come in multi-assets and that's why we're seeing the inflows coming through as we are in other parts of the business.

J. Christopher Donahue -- President and Chief Executive Officer

I'll make one other comment. Saker doesn't make a comment like this, because of the reason I'm going to say that we did have $1.6 billion in sales in private equity, but those are basically numbers that we already had before where they're just rolling over, but it is a positive indicator about the underlying strength of the organization.

William R. Katz -- Citigroup -- Analyst

Okay. I'll follow up offline. I'm just trying to track into the outflows you're talking in your disclosure. Just one last question. Just in terms of how you think about a lot of different flows, different segments, different geographies. How do you think about the interplay between net new assets on the long side of the business -- long only side of the business versus fee rates from here?

Thomas Donahue -- Chief Financial Officer

Well, the fee rates are -- we haven't had immediate or current or grand disputations on those in our plans, especially for this year. On the institutional side, they are generally individually negotiated as per the disclosures we've made. On the fund side, there are the normal discussions with distributors about sharing and the regular marketplace that is unchanged. So we aren't currently dealing with meaningful reductions in fee rates.

William R. Katz -- Citigroup -- Analyst

Okay. Thank you.

Operator

We'll move next to John Dunn at Evercore.

John Dunn -- Evercore ISI -- Analyst

Good morning. Thank you. I wonder, if you could give us a little more flavor of the Hermes sale discussions with institutional clients, and maybe how big an opportunity that could be, and if we could start to see more of an impact in the second half of 2020?

J. Christopher Donahue -- President and Chief Executive Officer

Well, since Saker was on that road show with the institutions, I will let him comment and then I will add.

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

Thank you. So we continue to see a strong interest in our products for institutional clients. Again, to remind everybody, before the majority stake was acquired by Federated, we already had some marquee clients in the United States. So although we weren't big, it's not as if we were not known, but these sales, as you well know, typically take some time to come through, but we're seeing a lot of positive reception, some to our fixed income. It might surprise some of you, but some to our US small cap and certainly to our SDG fund as well. So we are hopeful that this will begin to come through in this year and translate into assets.

J. Christopher Donahue -- President and Chief Executive Officer

And I would add a couple of things. We are adding to our institutional sales force here, it's like one-sies, two-sies, but it is because we have a lot of confidence in these mandates. And at the macro level, one of the reasons is exactly the reason for the combining of the name. You bring Federated's fiduciary heritage, which is a drive for performance, an alpha hunter and active manager with Hermes, who shares exactly those views along with a lifetime commitment to responsible investing. This is the overall message that we are bringing to the institutions and we think we are able to bring it in a unique way, because of the focus on the fiduciary and because of the beauty of the engagements the way Hermes has done it.

And the way Hermes has done it that makes it unique is it is a third-party effort. So there is a group that does EOS that sends the 40% team into various companies to get data that looks forward into what is going to happen in addition to taking all the data that's backward looking as to how people did do. And these kinds of things are good messages in the institutional world. And if you have the numbers to go along with it, we think it makes for an excellent project.

John Dunn -- Evercore ISI -- Analyst

Got it. And then just one on strategic value dividend. It seems to be trending in a better direction, but what do you think we are in the sales cycle for that and maybe just some of the environments in the past where you've -- that have been good for that strategy?

J. Christopher Donahue -- President and Chief Executive Officer

Well, in terms of the sales cycles, as I've mentioned, we've seen the sales continuing to increase and redemptions continuing to decrease. And so far in January, it's a positive flow story. Part of the reason for that is in continuing low rate environment, this 3.8% distribution yield with a growing dividend stream is a very, very viable product. And people, at least some of the thoughts from the marketplace are that they are continued interest in this product and they are continually interested in the yield. Some are not willing to jump full scope into the market, but they like getting the yield to keep them interested. So overall, the tone we're finding from the broker deal or SMA world is that they are cautiously optimistic and that's a good situation for strategic value dividend.

John Dunn -- Evercore ISI -- Analyst

Great. Thank you very much.

Operator

We'll move next to Kenneth Lee at RBC Capital.

Kenneth Lee -- RBC Capital Markets -- Analyst

Hi, thanks for taking my question. Just one on the Hermes EOS. You touched upon -- mentioned that you are in the process of hiring new engagers right now. Wondering what other further milestones would you expect for -- in the near-term and could we potentially see implementation in the US sometime this year? Thanks.

J. Christopher Donahue -- President and Chief Executive Officer

Well, the implementation is in the US this year. We've already hired some and there are more on the docket. And overall, my expectation is we'll cross -- we'll go from $877 million, over $1 trillion in assets under administration in some time frame here in the future. I hate to put exact date on it. It's Saker's Leon Kamhi who runs it, I'll let him tell you about it.

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

So we've -- we, already prior to this of course, engaged with companies in the United States. Our commitment to increase our key engagement capability in the US is partly -- was partly also to service the fund managers within the Pittsburgh in New York and Boston offices for Federated, because our view has always been that the use of ESG, which we pioneered from 30 years ago and the use of stewardship, which we pioneered again from 30 years ago, and formalized 15 years ago with the launch of the EOS team is in fact the way in which helps us find better data on companies and helps us add alpha. So this has always been a commitment there.

The increase in people in the States, engagers allows us a deeper engagement with American companies and a better way of servicing our increasing number of US-based clients. And again to remind people, we run EOS in a different way from others. We run it as a kind of a club where all of our clients decide collectively on the topics that they want to pursue with the companies and the companies they want to talk to, including, by the way, the teams that we have here who act as a client. So the Federated Hermes teams act as a client to the EOS. And this is different from perhaps others out there who are trying to enter the stewardship arena by pursuing what they see as the right teams to pursue.

Now, that allows us to focus on companies in a way of improving the long-term performance in that way actually release better value creation and wealth creation in the long-term. So we are there, we've added more people. There is a segment of the floor in Pittsburgh, which is already EOS, and that will continue to grow over time. It's something we've been building for 15 years, we are the market leaders, we will continue to build.

Kenneth Lee -- RBC Capital Markets -- Analyst

Great. Thanks. And I guess one follow-up, if I may, just on the money market funds. You touched upon that money market fund rates are still favorable, compared to some competing products. Wonder if you can just give us a little further details in terms of the current competitive landscape. Thanks.

J. Christopher Donahue -- President and Chief Executive Officer

Debbie?

Deborah Ann Cunningham -- Executive Vice President and Chief Investment Officer of Global Liquidated Markets & Senior Portfoli

Sure. I'll take that one. Deposit rates are still -- I think over the last spring bank brokerage deposit rate index came in at 14 basis points. So it's not much above where most funds were in a zero rate environment and we're no longer in a zero rate environment. Most of our funds are somewhere, on a net yield basis, between $160 and $180. The interest rates went down with the coronavirus over the course of the last several weeks and concerned about what that might do from an economic activity perspective and how the Fed may need to react. The Fed, however, on Wednesday confirmed rates and actually raised IOER and the RRP, which is overnight lending by 5 basis points. So that's beneficial to our products and has made the yield curve look a little bit more attractive on a fund basis. So I don't expect those yields to drop very much. So when you're talking about deposit rates, you're talking at least 150 basis point advantage over what most customers in those types of accounts are receiving at this point.

Kenneth Lee -- RBC Capital Markets -- Analyst

Great. Thanks.

Operator

We'll move next to Ken Worthington with JP Morgan.

William Cuddy -- JP Morgan -- Analyst

Good morning. This is Will Cuddy filling in for Ken. So first, the compensation ratio has bounced around a little. Could you remind us of how you think about the growth of compensation relative to revenue over the long-term? And more specifically, with the revenue growth, how should we be thinking about that trending over time?

Thomas Donahue -- Chief Financial Officer

Yes. Will, this is Tom. We don't look at it based on revenue. We are more granular in the US in terms of how the sales force is, how the compensation is done there and that's based on how sales go. And of course, then you go to investment management and a huge portion of their pay is on and incentive is on how performance is done. Then the operation and the rest of the non-sales, the non-investment management are more tied to an operating income view. So that would have a little bit of revenue look at it, but it's certainly more of a bottom line approach. And we don't look at the ratio comp to revenue. We've never calculated that. We've never used that in our budget process. We're really doing a build from ground zero and up.

William Cuddy -- JP Morgan -- Analyst

Okay, got it. Thank you. And did I hear correctly earlier it's $1.6 billion of sales in private equity? And if so, what products are seeing those sales?

Thomas Donahue -- Chief Financial Officer

We're referring to Hermes did a press release actually in November talking about Hermes GPE raising $1.6 billion for private equity, and Saker, you might want to comment on that more, but essentially the point that Chris was making is, business is largely rolling over from other successful vehicles and it's a good indicator of the quality of the results that have been delivered through that...

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

So the way that our private equity business works is that we raise tranches that go into essentially funds, although they're not funds in the sense that you think about them in the United States, but they're in fact private equity funds. And each tranche raises money over a set amount of time and then it's closed. And then the performance is calculated over the next, depending on the fund, between three and five years, and then the carry is paid out accordingly. And this increase was getting around to primarily all of our existing clients. We're very pleased with the performance of our previous funds, which remember, when a private equity fund performs, you actually give the money back, because you're selling an underlying asset and therefore reinvesting it back into our new fund, which then allows us to go out and invest it again. And so the cycle starts again, and that's typical for private equity cycles. And the clients are widely dispersed, including some major clients we've got in North America as well.

Raymond J. Hanley -- Senior Vice President

And Will, it's Ray. Just from a reporting standpoint, you won't see the $1.6 billion. We would not put that in there as a new sales. So it's not in the Q4 number. Those are commitments going forward. And as Saker indicated, they'll largely roll over from existing mandates. So you won't see that in the numbers, but it's obviously a very positive development.

William Cuddy -- JP Morgan -- Analyst

Just as a quick clarification, so of the $1.6 billion, like is that mostly reup, so it's not new clients coming in, it's just -- it's just them rerolling back into the new fund?

Raymond J. Hanley -- Senior Vice President

Yes, yes.

William Cuddy -- JP Morgan -- Analyst

Got it. Thank you.

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

And sorry, and remember, we make our money in two ways in private equities. One is we make our money obviously on the management fee, but also we make our money on the carry on the upside that we create and alpha we create for our clients over the long-term. And it's a bit different than property where it's performance fee and slightly over a shorter time horizon, but they both have that basic model within it.

Operator

We'll move next to Robert Lee with KBW.

Robert Lee -- KBW -- Analyst

Great. Thanks. Good morning, guys. Most of my questions were asked, but I guess I will ask the inevitable capital management question. I mean, Chris, knowing you like to hit on acquisitions, dividends and buyback, just with the apparently increased earnings power of the company, kind of, coming through the last quarter, this quarter, any sort of changes, particularly maybe in how you're thinking of the dividend or repurchase part of that, because I guess you haven't raised the dividend in a while and payout ratio is, I guess, trending toward a little bit lower than peer average. So how do you think of that?

J. Christopher Donahue -- President and Chief Executive Officer

Well, we certainly don't want the price to go down to improve that ratio, but acquisitions remain on the table and doing all of these other things, which we talked about on capital assets. I mean, we are looking at all the things I mentioned on the marketing side. I'm not going to go through them again. We have some internal things we're doing on our data management and warehousing and we've accelerated those. We're putting a new CRM in. We're going with salesforce for the Federated part of it, which Hermes already has that. So that'll be put together and that will take a few bucks.

So internal is added to that list of the dividend, share buyback, and acquisitions. Now, in dividends, we always look at that in April and we are well aware of all of the statistics that you're commenting on and we will have a hardy look at that in April. On share buybacks, we were up a little bit from our polite activity in the past and we continue to be active on that. And that's about as much as I can give you on that activity.

Robert Lee -- KBW -- Analyst

Okay. That was all I had. Thanks for taking my question.

Operator

We'll return to Patrick Davitt at Autonomous Research.

Patrick Davitt -- Autonomous Research -- Analyst

Hey, guys. Thanks for the follow-up. I remember some chatter last year, you had kind of mentioned that there were some discussions to maybe roll some of the BTPS money that had come out back into other strategies. Are those discussions ongoing? Any update on the potential for some of that money to come back in?

J. Christopher Donahue -- President and Chief Executive Officer

Saker?

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

Well, I just realized I had my mute on. I had the mute on, sorry. As I said, we have some rollover of money from BTPS, but net-net, we have net decline as per the plan that we agreed with them, when the majority stake was purchased, but we continue to show them other stuff that we have, particularly in money market and fixed income. And again, they are an institutional client and you'd expect them to take some time. I would repeat what I said, I think, previously on these calls, which is the following. As you would expect the net fee basis that I can -- that we can charge BTPS is commensurate with their size, which means, as they free capacity in our high-alpha, in-demand funds, and we sell the same capacity to new clients, our margins actually go up.

Patrick Davitt -- Autonomous Research -- Analyst

Right, OK. Thank you.

Operator

With no other questions holding, I'll turn the conference back to management for any additional or closing comments.

Raymond J. Hanley -- Senior Vice President

Well, that concludes our call and we thank you for joining us today.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Raymond J. Hanley -- Senior Vice President

J. Christopher Donahue -- President and Chief Executive Officer

Thomas Donahue -- Chief Financial Officer

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

Deborah Ann Cunningham -- Executive Vice President and Chief Investment Officer of Global Liquidated Markets & Senior Portfoli

Brian Bedell -- Deutsche Bank -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Daniel Fannon -- Jefferies -- Analyst

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

William R. Katz -- Citigroup -- Analyst

John Dunn -- Evercore ISI -- Analyst

Kenneth Lee -- RBC Capital Markets -- Analyst

William Cuddy -- JP Morgan -- Analyst

Robert Lee -- KBW -- Analyst

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