Federated Hermes Inc (FHI) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Federated Investors Q3 2017 Analyst Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Raymond Hanley, President of Federated Investors Management Company. Please go ahead, sir.

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 is Debbie Cunningham, our Chief Investment Officer for 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 assumes no duty to update any of these forward-looking statements.

Chris?

Thank you, Ray. Good morning, all. I will briefly review Federated's business performance, and Tom will comment on our financial results.

Looking first at equities. We closed Q3 with record-high assets of over $67 billion. Total assets in the domestic and international Strategic Value Dividend strategies increased to a record high of over $40 billion. This strategy's objective is to provide a high and growing dividend income stream from high-quality companies. The domestic fund's 12-month distribution yield, 3.4%, ranked in the top 3% of its Morningstar category at quarter end. The fund has returned 11.6% year-to-date through 9/30, which compares favorably to its annual returns over the last 1, 3 and 5 years. At quarter end, the domestic fund ranked in the 22nd percentile year-to-date, the 93rd percentile for the trailing 1 year and in the top 27 percentile for the trailing 3 years of its Morningstar-assigned large cap value style box.

For combined domestic and international mutual funds and separate accounts, strategic value outflows in the third quarter were $176 million compared to $40 million in Q2 and $680 million negative in Q1. However, strategic value SMA strategies had positive flows in Q3.

Net sales for all equity funds and separate accounts in the third quarter were negative at $700 million, down from $966 million in Q2 and $1.4 billion in Q1. Funds with positive net sales in the third quarter include MDT Small Cap Core, MDT Small Cap Growth, International Leaders and Kaufmann Small Cap. We also had 6 additional funds with modest positive flows in Q3.

Using Morningstar data for trailing 3 years, at the end of the third quarter, 2 Federated funds were in the top decile, 7 funds or 29% were in the top quartile, and 50% were in the top half. The trailing 1-year rankings showed 12% in the top decile, 11 funds or 44% in the top quartile and 19 funds or 76% above the median. Top quartile trailing 3-year equity strategies at quarter end include the MDT Small Cap Core, MDT Small Cap Growth, Kaufmann Small Cap and Kaufmann.

3 weeks into the fourth quarter, net redemptions of equity funds are about at the same pace as Q3. Equity SMA flows remain positive and slightly better than Q3.

Now turning to fixed income. Overall, net flows were negative at $310 million in Q3, which included a $200 million redemption mentioned on our last call from a government bond fund. Fixed income SMAs were modestly positive in the third quarter. Net fund sales were led by Ultrashort Funds, Total Return Bond Fund, Institutional High Yield Bond and the Floating Rate Fund.

Our fixed income business has a variety of strategies that are performing well. At quarter end, using Morningstar data, 2 of our high-yield bond funds were in the top 5% trailing 3 years. The Total Return Bond Fund was top quartile for the trailing 1, 3 and 5 years. At the 10th year, it was 26th percentile. In total, we had 9 fixed income strategies with top quartile 3-year records at quarter end. Others included floating rate, ultrashort, intermediate muni, strategic income and Federated Bond Fund.

Now looking at money market. Money market mutual fund assets increased by about $5 billion from Q2. Separate account money market assets were down $3 billion, reflecting tax and other seasonal factors. Our money market mutual fund market share at the end of Q3 was 7.3%, down slightly from the prior quarter, 7.4%.

Prime money fund assets increased about 5% in Q3. We believe more investors will consider prime-based cash management options over time, including our private and collective funds, which preserve the use of amortized cost accounting and do not have the burden of a redemption fee and gate provisions. Assets in these newer products were just under $750 million at quarter end, up from $636 million in the prior quarter.

Taking a look at our most recent asset totals. As of October 25, managed assets were approximately $379 billion, including $247 billion in money markets, $67 billion in equities and $65 billion in fixed income. Money market mutual fund assets were $176 billion and averaged about $177 billion so far in October. These totals reflect the addition of a $17 billion institutional account in October. We began acting as an adviser to a large public institution for certain cash and fixed income assets.

Elsewhere in the institutional channel, we began Q3 with about $500 million in wins yet to fund. About $265 million is expected to go into fixed income separate accounts and the rest into fixed income funds, including $125 million in a new offshore Project and Trade Finance Fund and $90 million into Total Return Bond. We also expect a $200 million fixed income account to redeem over a couple of quarters due to a change in that client's asset allocation.

RFP and related activity continues to be solid and diversified, with interest in MDT and dividend income for equities and high yield and short duration for fixed income.

Our SMA business produced $1.4 billion in gross sales and over $100 million in net sales in the third quarter. Total SMA assets ended the quarter at an all-time high of $26.6 billion, an increase of about $3 billion or 13% since the third quarter of 2016. Federated ranked fifth in the MMI/Dover rankings of the largest SMA managers at the end of the second quarter, which is the most recent data available.

On the international side, we recently added 2 experienced employees, Dr. Yucong Huang and Cathy Jiang, as part of our new efforts in the Asia Pacific region. They will focus on opportunities in Greater China. They join us from the Agricultural Bank of China, where Dr. Huang served as Chief Investment Officer and Head of Financial Institutions for North America, and Cathy led a team focused on financial institutions. Along with the other members of the Asia Pac team, they will focus on regional distribution of Federated's investment strategies and growing strategic relationship with financial institutions.

This new effort complements our efforts on the European, U.K. and Canadian side. In Canada, with last year's rollout of our new Canadian-domiciled Strategic Value Dividend Fund, assets reached $2 billion, up from $1.6 billion at the end of '15. Assets in Europe are at about $12 billion. We continue to seek alliances and acquisitions to advance our business in Europe and the Asia Pac region as well as U.S. and the rest of the Americas.

Tom?

Thank you, Chris. Revenue was down 6% compared to Q3 of last year due to lower money market-related revenues from lower assets and from the previously discussed change in a customer relationship in January. These decreases were partially offset by an increase in revenue due to lower money market yield-related waivers and higher equity and fixed income-related revenue from higher assets.

Revenue was up 2% from the prior quarter due to an additional day in the third quarter and higher revenues from equity assets. Equity revenues increased about $3.4 million from Q3 compared to Q3 2016 and $2.4 million compared to the prior quarter. Equities contributed 43% of Q3 revenues, and combined equity and fixed income revenues were 60% of the total.

Operating expenses decreased 8% compared to Q3 of last year and increased 1% from the prior quarter. The decreases from Q3 of 2016 was -- the decrease was driven by lower money market assets and the impact of customer relationship change, partially offset by higher distribution expense as money fund yield-related waivers decreased. In addition, we had lower comp and related expense, reflecting lower incentive comp accruals. The increase from the prior quarter was due mainly to an increase in other expenses, which included a $1 million contribution to our charitable foundation, higher compensation and related expense and higher professional service fees, which were lower in Q2 due to an insurance recovery. These increases were partially offset by lower distribution expense due mainly to lower money market fund distribution expense related to asset mix changes. An early estimate for Q4 comp and related expense is between $71 million and $72 million.

Our effective tax rate for the quarter was about 37%. We expect the rate for Q4 to be around 35.5%. This is due primarily to certain employee stock compensation items as well as the recognition of certain tax credits.

At quarter end, cash and investments were $328 million, of which about $300 million was available to us. We continue to be active on the share repurchase front, with 551,000 shares purchased in Q3.

That completes our prepared remarks, and we'd like to open the call up for questions.

(Operator Instructions) Our first question comes from Ken Worthington with JPMorgan.

First, in money market funds, it looks like your U.S. fund assets were up about $10 billion for the quarter, but your quarterly results show money market fund assets up about $5 billion -- so U.S. funds up $10 billion, but your results up $5 billion. What is that gap? It looks like maybe a non-U. S. fund or maybe a private fund was either liquidated or maybe recharacterized, but I feel like I lost $5 billion somewhere. So any explanation?

Yes. I'll let Debbie explain this crisply.

This is Debbie. We had a 100% investment of one of our products into another one of our products. So when you look at the total assets of each of the various funds, they would add up to show quarter-over-quarter a $10 billion difference. However, $5 billion of that is double counting because of that 100% investment in another product. Therefore, we backed that out.

Okay. And that was double counting historically, and there was a recognition of the double counting that was ended? Or did something -- was there another catalyst for the change?

Ken, it was -- began in August, basically a fund of funds structure, so no, there was no --

Got it, okay.

That's okay. We have similar structures, and we don't double count them.

Okay. Sorry, I'm a little slow, I had a long week. So I get it now. And then separately, you guys mentioned -- and the asset level's up, I believe you said $17 billion from -- what was that? Was that a mandate win? I'm sorry, I missed that.

That's a $17 billion institutional account from what we're phrasing as a large public institution. And it includes -- the mandates are a cash portion and several fixed income accounts inside it. So it's 9 or 10 different accounts that add up to a total of $17 billion.

Our next question comes from Robert Lee with KBW.

I guess my first question is -- I mean, sticking with the money fund business. I mean, just trying to get a sense if you're seeing any additional changes in the competitive landscape. I mean, I know, Chris, you commented about prime demand. But to the extent that the institutional markets become much more oriented towards government funds, has that changed the -- I know it's always price competitive, but has that changed the pricing competitiveness of the industry, as maybe a lot of investors perceive there to be less differentiation between government funds, so it becomes even a sharper pricing dynamic. I mean, have there been any kind of changes along those lines?

There are obvious pricing things inside what happened. When $1 trillion moves from prime to govies, you get some of that. However, a bigger factor for the future will be the spread between the govie funds and the prime funds, which is right now running at about 30 basis points, which, of course, is more than double the historic spread that caused prime funds to have all that money in the first place. So it is our belief that over time, you will start to see people move in that direction, which we're starting to see because it's worth it to them. And I think Debbie has her finger on the pulse of this and could be quite articulate on this subject.

Just from a year-to-date basis, prime assets have gained about $70 billion on the industry -- from an industry standpoint. We have products that are up over 50% in that prime phase. And absolutely, the products are competitive from a pricing standpoint, but historically, that's always been the case. I don't think it's really different at this point than it has been in prior cycles.

But the one other thing I'd mention, Rob, is that the 2 new funds that we created that I referenced in my remarks, which grew from mid-600s to $750 million at quarter end are now over $850 million, and we're having meetings and customer interest in those funds. Remember that those funds, private fund and the collective fund, have the peculiar ingredients of not having to deal with redemption fees and gates and can still use good old-fashioned amortized cost pricing. So there's a budding interest in those kinds of products as well.

All right, great. And just maybe to follow up, just following up to Ken's question maybe on the $17 billion mandate win, I'm just trying to piece it together. Is that -- I mean, if I look at your comments around money fund assets quarter-to-date, and my figure was $247 billion, and assuming that money fund assets are relatively flat from quarter end, maybe down a tad, which suggests that a lot of that $17 billion would have flown into separate accounts. But I guess the total $247 billion, I guess, would be well short of the $17 billion. Is there some kind of outflow? Or did most of that $17 billion flow into separate -- fixed income separate accounts? Just trying to kind of piece it together.

Yes. Rob, about 2/3 of the $17 billion would have been on the fixed income side.

Okay, great. Were those a variety of mandates, mostly short duration or just kind of across the board, different strategy?

They go across the board on different maturities.

Okay. All right, great. Then one last question. I appreciate it. I know it's probably not a big deal for you guys at this point, but just kind of your thoughts around -- you do have 9 U.S. clients. You have EU clients. So your thoughts around MiFID II costs, research costs, if you're going to kind of take that onboard like many of your peers or what your current plans are.

The MiFID II obviously only impacts our foreign operations directly. And so as I've mentioned on this call before, that is a quite modest impact on Federated. So we are not currently planning to onboard that into the U.S. operation at this time, and we'll see how things play out.

Our next question comes from Bill Katz with Citi.

It's Ben Herbert on for Bill. Just wanted to get an update on gross sales in the fourth quarter and then, just given some recent softness, when do you expect to maybe turn the tide there.

I'll talk about the number and then...

I'll take care of the tide.

Essentially, the comment wouldn't be different on -- for gross sales than what we gave for the net flows. It's essentially tracking -- and again, recognizing this is 3 weeks of data, but it's tracking very similar to Q3.

And in terms of the tide, this may be more than you're bargaining for. But when you look at some of the efforts we've done, we readjusted the packaging, that's a euphemism for pricing, on the Small Cap Kaufmann Fund. We're just launching a Large Cap Kaufmann Fund. We're looking at some sophisticated international investors strengthening our asset position in Trade Finance. And this effort that we talked about in Asia Pac, we think, is also going to be able to put some weight on the scale. So that it really remains the same as always of increasing the distribution, maintaining and enhancing the performance. And that's why every time on these calls, I go through the number of funds and mandates that we have that are over a 3-year period, which is our main focus, running themselves in the top quartile of performance. And if you follow that down a little bit, last weekend, if you checked your Barron's in print, you saw a picture of our team leader there and an excellent article on the overall high-yield franchise and how that's been growing here as well. So it is very much a repeat the sounding joy in terms of the tide, peppered by new things that are coming out all the time.

Our next question comes from Michael Carrier with Bank of America.

Tom, just on the expenses and the margin, it seems like we're seeing more operating leverage in this environment. I know you mentioned on the other about $1 million on the charitable. Just wanting to get some sense on the outlook. And I know probably '18 is a little too early in terms of some of the budget guidance. But just given that we're seeing more strength on the equity, the fixed into the long-term part of the business, should we see more operating leverage as we have over the past couple of quarters?

Well, we're trying every day, and we had a pretty successful effort so far year-to-date in terms of expense management. We're not run by expense management, and we're continuing to invest in the company to try to grow it. But given what's going on in the marketplace and the changes that we've faced, we've been pretty diligent across the board in the company. And if you look at year-to-date, I think it's 5 categories out of 8 are negative, and we have -- they're decreased. And we have explanations for each one that's not that make sense. And so we expect to continue the rest of the year like that. And you're right, coming into -- we have not come into budget season yet, but we're going to continue trying.

Okay. And then just as a quick follow-up, Chris, just on the long-term flows, you gave some of the things that you guys are working on in terms of new initiatives. And obviously, the industry, we've seen challenges throughout. But when you look at where your performance is, we had a little bit of the Strategic Value Dividend like that weighing on the last couple of quarters. But when you think about, like, the sales and the redemptions, like what you're seeing, what do you think is the driver of not seeing, say, more positive flows relative to, say, the past few years? Meaning, is it the rate environment? Is it some performance? Is it the regulatory changes in terms of commission versus fee-based accounts? Just trying to get some sense of what could gradually, like, shift that.

One of the things -- I'll go through a list of things, but one of the things is settling out on what is going to happen with the DOL. Everyone who's in this business has -- 40% or 50% of their business is apropos of retirement. And all the noise associated with that regulatory overlay was considerable. It caused all the big boys to have to decide how they wanted to go. It caused a lot of other people to analyze rigorously whether they were going to keep fee accounts -- or I mean, keep only fee accounts, get rid of the brokerage accounts, focus one way or the other. And by the way, we are doing a lot of intellectual capital work on that subject. And it appears that, that might be settling up. Last night's announcement or report that came out indicates that the Treasury is supporting a lot of those efforts, consolidating around the fact that the fiduciary status will continue but a lot of the other things that were causing confusion might be eliminated. So that is one of the things that needs to come out of the way to make things much more efficient in terms of this business. But there are others as well. It -- when you ask a question like that, you can't avoid talking about the passives and what is going on there. And as I've said on these calls before, our efforts are to go in conjunction with the passives where those mandates are appropriate, like our high conviction of Kaufmann enterprise, for example, and that's a good way on solutions where the Strategic Value Dividend might be a solution or areas where the passives can't even touch the performance -- like high yield, for example. And getting these messages out is continual. So it is the ebb and flow of that. And I think that you're going to be seeing increasingly people searching for honest alpha, and that's where you're going to see the Federated enterprise grow in the marketplace because that has been our focus.

Our next question comes from Kenneth Lee.

Just want to focus on the money funds. As the clients reconsider going back to the institutional prime funds, just wondering whether you are seeing any change in demand. Are the potential for clients going out on the longer -- out on the curve, maybe going to fixed income funds as a potential substitute for money funds. How viable would that be? And are you seeing any kind of movement there?

So okay, as I mentioned in the call, one of our top positive funds for the quarter was our Ultrashort Funds. And that was about $250 million of positive flows. And so you do see some of that. But the other factor that's there is that since the '08, '09 situation, you've seen a dramatic increase in deposits and deposits in banks at pretty near no interest or very, very low interest. And at some point, that is going to unwind and return itself to the thrilling days of yesteryear, where money funds in general and prime funds in particular have a substantial interest advantage over those. And I think you're going to see a return to that. Debbie was quoted in the press last week as saying that this -- our industry will go from right around $2.7 trillion on its way to $4 trillion. And I would support that kind of move because you're going to see that kind of macro going on. And the banks have their own issues on whether they can bid, uptake or want those deposits at rates that are more marketplace oriented, like you're seeing on the money funds, to mention nothing about the increase in rates that's coming out of the Fed, even though it is pretty much every 6 months as opposed to anything quicker than that.

Okay, great. And then just one question. In terms of the non-U. S. expansion opportunities, which products or strategies do you see getting more traction outside the U.S.?

So in the Asia Pac area, we're having discussions around our short-duration products, our high-yield products, our cash products and our dividend products. Now which one of those comes to the fore will -- remains to be seen. On the European side, we're seeing strong interest in the high yield and have mandates that are growing there, and we're looking at the Trade Finance. And so those will be the principal ones. And on the -- in the U.K. itself, we're seeing the cash sterlings with positive flows and positive flows in the money market area there. And we don't know what's going to happen with Brexit, but because we have U.K.-registered funds, we think we are in a good position to take advantage of however that goes.

Our next question comes from Brian Bedell with Deutsche Bank.

Chris, maybe if you can talk a little bit about fees. I guess first of all, just technically, with the 2/3 of that $17 billion mandate in fixed income, how that might impact your fixed income rate bucket. I would assume that's in separate accounts. And then maybe just broadly more -- talk a little bit more broadly about just your outlook on fee pressure coming into fourth quarter, whether you're using any funds and also in the money market segment, whether you're seeing any additional fee pressure there.

Okay. On the $17 billion account, as you might suspect, we don't comment on the individual customer fee rates. And -- however, our fee schedule for accounts like this is generally in the middle single-digit basis point area, and the specific rate is negotiated and influenced by several factors, which obviously would include the asset level, the mix, the type, the maturity, the term, the complexity of the mandate and, of course, all the various services that would be provided. So that's about as close as I'll get to you on the fee rates for that customer. Now in terms of overall fee pressure, I think it might be wise to look at the SMA as a kind of a category response to issues related to fees. And this is occurring obviously at the broker-dealer intermediary level, and it redounds to the benefit of the customer because as you know, the SMA fees are substantially less than the fund fees -- different services, different structures, boards, regulation, et cetera, included. So that's one way to look at the SMA business and why we continually point out that that's a very good, sound bucket for the future as it relates to the fiduciary overlay that is -- that has been put onto retirement accounts. On the money market fund side, as Debbie alluded, we always have different fee issues popping up and people waiving and doing things in the money fund area. This has been true for 40 or 50 years, and I don't think it's about to change. When we've come up with our newer products, they have been within the bandwidth of our older products, and we're not in the vanguard of changing some of those fees.

Yes, no, that makes sense. And maybe just one more on money market. For -- you do have some entities in -- like Schwab for example, where they are moving sweep money market fund balances onto balance sheet to better optimize the returns on net cash. Or I think if I'm not mistaken, you guys have around $60 billion in sweep, and tell me if I'm wrong on that, and then sweep account products at your major institutional clients. I guess are you guys seeing any those clients do a similar type of transfer of money fund to balance sheet?

It's Ray. Over the last year or 2, we've seen that. We still see some modest activity there. But the majority of the brokers that we're working with would be not as big as the type that you mentioned, that are -- but we have seen over several quarters where brokers have shifted the money onto their affiliated bank balance sheet.

Okay, great. And can I ask one more on regulation, for Chris?

Sure.

Just -- but yes, thanks for your comment on the DOL, I guess, with the Treasury proposal. And what is your expectation of how that will actually play out in 2018? Do you think they'll postpone this altogether in the SEC, and DOL will actually work together and come up with a reconstructed rule? And how do you think that might impact adviser behavior?

This is one where Ray's hedge clause really applies because prognosticating on regulatory results may even be more difficult than prognosticating on congressional results. But nonetheless, it is our current belief that the fiduciary standard will stay and it will be coordinated between the SEC and the DOL so that you don't have in effect 2 different standards. And we would also believe that you would be allowed to use arbitration and that would not be prohibited. We would also believe that the invitation to the class action lawyers would not be present in the BIC contract if it even remains. I can't say whether they would totally abandon the thing, I doubt it. I think that because they've already got the fiduciary standard in place, that's what did stay in. And as long as they rely on state law in order to figure out what to do here and not create a new standard, that will be more palatable for the industry. So that's where it looks like it's coming out. I haven't read the Treasury report yet, only the summaries of it. On other aspects of it, we were part of the parade that went down there to talk to the Treasury about what to do, what not to do, et cetera. And they make the comment that you shouldn't have extra reporting or unnecessary reporting on the modernization of reporting. We support that. We don't think that the business continuity rules that were talked about will come into effect. And that's a good thing because they didn't really advance the ball. They talk in the right term about the derivatives rule, that really this ought to be risk oriented and not just category oriented. On the liquidity rule, they've acknowledged that you really shouldn't have bucketing. And that will, I think, impact the liquidity rule, and I would hope that, that would get delayed as well. But it's hard to exactly see how all that comes out, but you've got my best observations on it.

Our next question comes from Ken Worthington with JPMorgan.

Just a couple here. So first, Federated Small Cap, you've lowered fees. It looks like the sales impact has been positive. So what are your thoughts on the reaction here? And how are you thinking about the trade-off between fees and sales in some of your other larger equity and fixed income products?

Well, as regards the Small Cap Kaufmann Fund, which is the one you've got, we had about $730 million or $740 million in assets at the announcement, and it's about $820 million now. And so we think that's a good thing. Don't forget that we also added our 6 shares, which are clean shares. And don't forget that this fund is a top-decile performer, and that -- top 15% over its long term as well and that -- there are other funds in this category that are basically closed because the managers act -- will only play under a certain number of billion dollars. So these are some of the aspects that enable us to come to a decision to make that kind of a move with that fund and the kind of things we look at, at each fund all the time. So no fund is immune from that, and yet we do them one at a time and figure out what's best for this fund at this particular time. And that's about the way we look at it and then figure how the investment works, how it works in the best interest of the shareholders and whether the marketplace -- how the marketplace will react to those moves.

Okay, fair enough. Just on the P&L, marketing and distribution costs came down sequentially this quarter. Maybe what happened there? And is this in any way related to the decrease in the other service fees?

From?

From Q2 levels.

Q2. So that was the -- a mix of the assets basically. There were some clients who we paid a bigger distribution fee transferred assets out, and we gained assets that -- where we didn't pay a bigger distribution fee.

Okay, fair enough. And then just a couple more on the big mandate win. I think you guys typically give us some sort of pipeline. Didn't hear this mentioned on the last call. How does something -- assuming that's all right, how does something like this kind of come together and not only just come together but also fund so quickly? So any background there? And then can you characterize, like, just give a little more information -- and again, this is such a big win. Is it sort of a U.S. client, non-U. S., intermediary, institutional? Is it a new customer? Is it existing customer that's just getting much bigger? Like I know you don't want to say too much, but can you give us something like vague, directional information on how this came about and, vaguely, who it is?

It is a domestic customer, and it is not a -- it is a new customer for us. We may have had some other relationships there, but they were not along this scale. The way this happens sometimes is that once a customer decides that they want to make a move like this, they decide to fund it faster than a speeding bullet in order to get on with it. And we can't say anything about the fact that we're in the middle of a sales process. You don't get from us all the things we are trying in the marketplace on a sales process. So as much as we would like to feed you with our salesman's hope and expectations, that isn't -- we wouldn't advise you to put them in any of your models. So we would have a lot of fun, but we're not going to go down that road. And that's what happened here, and sometimes it just works like this. So we don't really consider it a negative, but maybe it's just an expression of how this particular client wanted to do things.

Our next question comes from Robert Lee with KBW.

I guess I was just curious, if we look out to next year going forward, I mean, clearly, there's a lot of change sweeping the industry, and some peers have noticeably stepped up their rate of investment in everything from new products to technology. I'm just kind of curious, if we look out ahead, are you guys -- is there any kind of an investment cycle or something you guys are contemplating as you think about your global expansion with some new hires or new product categories that we should be thinking about as we try to forecast out next couple of years?

We are making substantial investments in the company even though we're doing a heck of a job on managing the expenses. Our Head of Investment is putting together an investment book of record project with Bank of New York and Eagle that's costing a lot of money that's basically modernizing the entire structure of the investment book of record operation at Federated. We've mentioned the Asia Pac, the number of people. We think we can handle that within the regular bounds of our normal expenses. And another thing we've done is to work a lot on the intellectual capital side, on the fiduciary law side and on helping customers understand the nature of fiduciary obligation, brokers as fiduciaries, et cetera. We're doing increasing work on the ESG side when we've put one of our executives in that role and have others working on more intellectual capital and how that fits into the investment management process, especially the fiduciary side of it. And you're seeing us work on new products on the money market side as well. So what I'm saying is that we've been able to put substantial dollars into investments into the future. And if we come up with big hairy ones that are going to be outside of the normal expenses, we would tell you about them.

Okay, fair enough. And then maybe just one follow-up question on -- inevitable question, I guess, on capital management. So earnings with the money fund fee waivers going away in the -- certainly this quarter, running at much higher levels than they were. Haven't changed -- you paid some specials but haven't changed the regular dividend in quite some time. And I guess, the earnings power being restored. Can you just maybe update us on your thoughts around the quarterly dividend versus continuing periodic specials over time? Or is it starting to get to a point where maybe you'd start reconsidering changing the quarterly payout?

Your question sounds like the discussions we have periodically here all the time. And all of those are analyzed in probably exactly the same terms and thoughts that you have. Specials are never off the table. There's always a consideration of the dividend, keeping it, increasing it. As you could tell by our history, we really like paying the $0.25 dividend. So all of those things are on the table. You've seen our share buyback situation. And as you know from us being -- since we have been public in '98, that we are very, very focused on returning money to shareholders to whom it belongs. And I can't tell you any more particulars about changing dividends, special dividends or amounts of share buyback other than looking at our charts in history. That's -- as you know, that's about as far as I can go.

At this time, I would like to turn the call back over to Mr. Hanley for closing comment.

Okay, well, thank you. That concludes our remarks for today, and we appreciate you joining us.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.