Greetings, and welcome to the Federated Investors second 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Raymond Hanley, President, Federated Investors Management Company. Thank you. You may begin.
Thank you, and good morning. Welcome. Leading today's call will be Chris Donahue, Federated CEO, and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, Hermes CEO, and Debbie Cunningham, the CIO of our money market operation. During today's call, we may make forward-looking statements, and we want to note that Federated's 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?
Thank you, Ray. Good morning. I will briefly review Federated's business performance, and Tom will comment on our financial results. We crossed a significant threshold in the second quarter as the managed assets entrusted to us from our clients crossed over the $500 billion mark. Looking first at equities, we closed the second quarter with $82 billion of assets, up from $80 billion at the end of the first quarter. The growth resulted from market appreciation, net sales for both funds and separate accounts. We had 21 equity funds with net sales positive in the second quarter, led by Kaufmann Small Cap and Hermes Global Emerging Markets Fund. Several MDT funds also had positive net sales. Several other Hermes equity funds achieved net sales in the second quarter, including the Global Equity ESG Fund, the SDG Engagement Equity Fund, and Europe ex UK Equity Fund.
Using Morningstar data for the trailing three years at the end of the second quarter, about one-third of our equity funds, eight out of 25, were in the top quartile, and nearly three-quarters, 18 of 25, were in the top half. Looking at the Strategic Value Dividend strategy, recall that its objective is to provide a high and growing dividend income stream from high-quality companies. The domestic fund's 12-month distribution yield of 3.76% ranked it in the second percentile of its Morningstar category at the end of the second quarter. The domestic Strategic Value Dividend strategy had combined mutual fund and SMA outflows of $404 million in the second quarter, down from $452 million in the first quarter. Looking at early Q3 results, combined fund and SMA net redemptions for this strategy were about $32 million through the first three weeks of July.
Overall, combined equity and SMA net redemptions for the first three weeks of July were $72 million. Turning now to fixed income. Assets increased by about $1 billion in the second quarter to $65 billion, due mainly to market-related gains of a little over a billion dollars. We had slightly positive net sales compared to net redemptions that we had in the first quarter. On the fund side, we saw net sales of the Total Return Bond Fund and the return of net sales for high yield funds. For fixed income separate accounts, the net outflow was due largely to an asset allocation change made by an insurance company client to the tune of about $270 million. At quarter end, using Morningstar data for the trailing three years, we had five funds, about 15%, in the top quartile and 22 funds, or 65%, in the top half.
Fixed income fund and SMA net sales are negative early in the third quarter at about $300 million, due largely to the redemption of a Total Return Bond Fund amount from an individual client who made a model change. Total Return Bond Fund, for its part, has maintained its solid long-term performance record, ranking in the top 34th percentile of its Morningstar category on a trailing three-year basis and top 27% on a trailing five-year basis at the end of Q2. Its trailing one-year record was top 40%, and if you're interested, for the month of June, it was in the top 12%. Now looking at money markets. These assets increased about $15 billion in the second quarter. We saw positive money market fund flows from a variety of institutional and intermediary clients in the second quarter.
Money market strategies continue to have a significant yield advantage compared to average deposit rates. Prime money fund assets increased $8 billion, or about 15% in the second quarter. Our money market mutual fund market share, including sub-advised funds at the end of the second quarter, increased to just over 8%. Taking a look now at our most recent available asset totals with Federated as of July 24 and Hermes as of July 19, managed assets were approximately $512 billion, including $343 billion in money markets, $83 billion in equities, $64 billion in fixed income, $18 billion in alternatives, and $4 billion in multi-assets. Note that money market mutual fund assets were $241 billion.
Federated and Hermes RFP and related activity levels continue to be solid and diversified, with interest in MDT, Strategic Value Dividend, Kaufmann, and Global Emerging Markets for equities, and corporates high yield and short duration for fixed income. We began the quarter with about $1.5 billion in net institutional mandates yet to fund, with about $800 million in fixed income and $700 million in equities. We expect these wins to fund in 2019, with about $1.2 billion into separate accounts and $300 million into funds. On the international side, following the recent launches of the first three Hermes funds, we continue to move forward in registering and evaluating launches of additional U.S. mutual funds using Hermes strategies. We are also 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 expanding the Hermes EOS stewardship and engagement business in the U.S. and are hiring several new engagements. Hermes EOS assets under administration reached $638 billion at the end of the second quarter, up from about $587 billion at the end of the first quarter. Federated's EOS assets under administration equaled $48 billion at the end of the second quarter. The quality, depth, and breadth of Hermes EOS capabilities is a powerful differentiator, adding important insights and information as part of Hermes' investment process. Federated has become an EOS client, and EOS data and services will be available for Federated investment teams to consider in addition to the many resources information sources that are already in use.
Hermes managed assets at quarter end were approximately $45.7 billion, up from $44.3 billion for the first quarter, with market gains of about $1 billion and net sales of approximately $800 million, partially offset by about $460 million negative impact from currency rates. We are looking to grow Federated and Hermes business relationships and opportunities in the Asia PAC region, including through alliance and acquisition efforts. Our efforts here complement our European, U.K., and Canadian operations. As we go forward, I will turn it over to Tom for financials.
Thank you, Chris. Good morning, everyone. Total revenue was up $14.4 million, or 5% from the prior quarter, due mainly to higher revenues of $8.8 million from higher average equity assets, higher revenue of $5.1 million from higher average money market assets, and $3.7 million of higher revenue from additional day in Q2. Also, no performance fees were recorded in Q2 compared to $3 million recorded in Q1. Revenue was up $65.5 million compared to Q2 of last year, due mainly to the consolidation of Hermes revenue of $48.1 million and higher money market revenue of $24.7 million. These revenue increases were partially offset by lower domestic equity-related revenue of almost $4 million.
Looking at operating expenses, comp and related decreased about $4 million from the prior quarter, due mainly to lower incentive comp expense of $3.3 million, seasonal decreases to payroll tax expense of $2.1 million, and lower stock comp expense of $1 million, partially offset by higher benefits expense of $1.7 million and higher base salaries of $600,000. Distribution expense increased due mainly to higher average money market fund assets. Amortization of intangibles related to the Hermes acquisition recorded in other operating expense decreased $2.6 million due primarily to a one-time reversal of $1.9 million related to our finalization of the purchase price allocation. Amortization of intangibles recorded in operating expenses is expected to be approximately $8 million on an annual basis. Non-operating amortization of intangibles related to the Hermes acquisition increased $0.6 million due primarily to a one-time increase of $400,000 related to the same finalization of the purchase price allocation.
Amortization of intangibles recorded in non-operating expense is expected to be approximately $2 million on an annual basis. If you combine those two for Q2, operating and non-operating, one-time net expense reversal from the finalization of the purchase price allocation, the number was $1.5 million. The total increase in operating expenses from Q2 2018 of $61.3 million was due mainly to the consolidation of Hermes expenses of $44.8 million. At the end of Q2, cash and investments were $227 million, of which about $180 million was available to us. Matt, that completes our prepared remarks, and we'd like to open the call up for questions now.
Great, thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question here is from Dan Fannon from Jefferies. Please go ahead.
Thanks. Good morning. I guess first, could you expand on your comments about Asia and exploring partnerships and/or acquisitions? That was in conjunction with Hermes, I think you said, but maybe just give a little bit more context around what you're looking for. What opportunities are out there?
Yes. Thank you, Dan. What we're looking for, there's two different things. One is big alliances where you would have arrangements with large institutions who may even be interested in taking positions in Federated stock and strike up strong distribution arrangements. The other is to get Federated and Hermes mandates into various institutional and governmental accounts. What we have done recently, because of the acquisition of Hermes, we observed that the efforts that Federated was doing was very similar clients and prospects that Hermes was doing. In the second quarter, we decided to consolidate the distribution into Hermes' efforts there, and that resulted in the elimination of four positions from Federated and the addition of one of our Federated salespeople to the Hermes sales force. This effort will be now undertaken by Harriet Steel and the Hermes team.
Great. Just to follow up, if you could provide some context on the backlog, the billion and a half that's yet to fund. I guess there seems to be decent momentum across the business. You talk about the funds that those are centered around, but also just maybe a little more broader context around the momentum you're seeing in the combined firm and how you're thinking about the backlog build beyond that billion and a half.
Dan, it's Ray. Just to comment on what's yet to fund that's been won on the fixed income side. It's weighted toward our trade finance strategy. There's some high yield in there and some short duration. On the equity side, it's Hermes Global Emerging Markets.
If I could comment generally, those are some of the mandates, not all, where we're seeing strong interest. That's why I mentioned the RFP and other activity. The trade finance is a unique offering, and it is utilized both as a short-term investment by investors and as a cash portion to other long-term fixed income investments. It's basically good old-fashioned Marco Polo factoring from the old days, where a lot of these short-term movements of coal, grain, et cetera, are not successfully financed by banks at bank rates. There's a good opportunity for short-term, high-quality financing, and that has attracted a lot of attention.
Great. Thank you.
Our next question here is from Michael Carrier from Bank of America Merrill Lynch. Please go ahead.
Good morning. Thanks for taking the questions. First, can you just provide some more granularity on the strength in the money market flows, just in terms of the products channels and I guess even seasonality, because it seems like we're seeing less. I realize that the industry tailwind, with the yield premium to other cash products, but it does seem like your flows and your share gains have been more pronounced. Any color on what you think is driving that relative to some of the other players?
I will answer generally, and I'll let Debbie talk to the market here. Generally, when you have been committed to this business as long as we have, so many decades, the customers and the marketplace realize that we are a go-to player in the money market force. When the products and the sales force and the story align, we get back to the thrilling days of yesteryear when our market share was at 8%. I'll let Debbie comment a little bit on some of the specifics.
Thanks, Chris. Basically, I think it has to do with a couple different things. As Chris mentioned, dedication to this business for nearly 50 years at this point. I think breadth of product mix. We still have a large group of products to offer in all aspects of our government money market funds, of our prime money market funds, and of our tax-free money market funds, both on a national as well as a state-specific basis. I think we're a one-stop shop for a lot of different options for people to maybe not place their trades with just one specific fund, but across several categories. We've also seen a broad selection of both institutional players in the market, as well as the traditional ticket trades coming through the retail marketplace.
With the direct yield curve, with the LIBOR curve being slightly inverted at this point, Treasury curve being even more inverted, and the products on a yield basis looking particularly attractive versus what's out there to be offered from the deposit base. All of those things make the money market fund product mix very attractive at this point. It's a combination of having a lot of experience in this marketplace, having yields that are very competitive, and having a solution for clients, a broad base of clients, that is not just one particular aspect, but across all aspects of this business in the marketplace.
Okay, that's helpful. Just as a follow-up, Tom, just on expenses. I know you haven't been providing too much in terms of guidance, but with another quarter of Hermes in the books, any update on how we should be thinking about whether it's expenses or even margins over the longer term? The other expense, you mentioned that amortization benefit. It still seemed like that was pretty consistent with other quarters, so I didn't know if there was something else unusual to offset that benefit on the amortization side.
Yeah.
In the other line item, the FX from hedging Hermes, where they have to pay pounds and they receive a lot of their income in dollars and their expenses are in pounds. There's hedging going on there, and we hedge out, they hedge out months in advance, and so it runs through there. It's protecting us. In some quarters it'll look better, some quarters it'll look worse. In the end, it's at no cost to us over time. You're seeing some of that in there. In addition, last year, we had some gains in the hedging of purchasing Hermes that came through. It's interesting, the gains were from, I believe, like a three-day period where the pound changed and we got gains. The stuff moves around in the other category, aside from the amortization from finishing off the purchase price allocation.
In terms of cost and expense, you see it. I'm so happy that I'm not predicting that because it continues to move based on business and what's going on, performance, sales, how things go at Hermes across the board. The guidance I can give you is that I expect it to change again.
All right. Thanks a lot.
Our next question is from Kenneth Lee from RBC Capital Markets. Please go ahead.
Hi. Good morning. Thanks for taking my question. Just to follow up on within the money market funds, how do you think, and it looks as if it's a very stable environment right now. How do you think client demand or positioning could potentially change if short-term rates were to decline in the near term?
Let's let Debbie give her observation about short-term rates, and then we will both comment on what we think can happen.
We definitely think the yield curve was overdone and a little bit overzealous on what Fed action might be taking place in the second half of this year and then going into 2020. It's become a little bit better situated in the most recent weeks, with Fedspeak, I think, trying to talk the market back a little bit. Right now, what we're seeing is the likelihood on a Fed Funds future basis and the LIBOR curve perspective of somewhere around two, maybe three interest rate cuts in 2019, with maybe one or none in 2020. Our expectation is that that's still a little bit overzealous. We think that the Fed is at this point trying to find their neutral rate.
They're looking to continue normalizing, but the normalization that they were doing in 2018 and 2019 or 2017 and 2018 had to do with increasing rates by 25 basis points every quarter. Perhaps they were a little bit overzealous in that 25 basis point rate increase that they voted in December. I think they are looking to provide an insurance normalization decrease in the July meeting and take that rate down by 25 basis points. I think they have every intention then of reviewing how that impacts the market, what the economic situation and statistics in the marketplace continue to play out to be in the second half of the year. I don't believe they're guaranteeing that anything is happening between now and then. The 25 basis points I think is pretty much baked in the cake at this point.
It will depend on how the yield curve looks after that and what the expectations would be for continuing movement. Certainly, what we don't see is the Fed returning rates to the zero rate environment. We see them trying to find a neutral rate and normalizing around that neutral rate. At one point, that neutral rate was thought to be around the 2.75%. It seems like maybe it's more like a 1.75%-2% now in their minds, given where inflation is and the lower expectations for that. Having said that, in a decreasing rate environment, even if it's a mildly decreasing rate environment, generally speaking, managed products like money market funds and other short-term liquidity products look very attractive versus the direct market. As such, is a prime time for gathering assets into this asset class, reallocating into this asset class.
We would expect that to continue.
Another observation here is that despite whatever the Fed does, these are overwhelmingly cash management service products. Yes, they have a yield. Yes, they count as investments. There's an underlying force that causes people to want to have the money market fund regardless of what the Fed does. I agree that once you get down in the 1% and below that and you're waiving, then you have a slightly different situation. People say, "Am I even getting paid for cash?" In any of these kinds of situations, including the new dynamic of them lowering rates and us having a higher yield, historically, that has, as Debbie pointed out, been a time for more assets rather than less assets to be coming into the fund.
Great. Very helpful. Thanks. Just one quick follow-up if I can. Just latest thoughts on potential M&A opportunities. I saw that the company recently announced the acquisition of select assets from PNC. I just wanted to get your latest thoughts on what potential opportunities are out there right now. Thanks.
Well, we're pretty busy working that transaction and hope the PNC transaction. That's a pretty significant deal for us in terms of the number of funds, the money market business that we announced that we expected $9 billion when we announced the deal, and then the separate account business, SMA, et cetera. We've got our hands full right now working on that. In terms of looking for future deals, we have our team that is continually out there, and I can't have anything that I'm pointing to or any more to say than other than we are going to be active, and we'll certainly consider roll-ups. Other areas that we are lacking in, we continue to look around.
Like, for instance, the SMA muni business, we are not a significant player there, and that's one of the areas that we would have interest of finding somebody who is a significant player there.
Okay, great. Very helpful. Thanks again.
Our next question here is from Ken Worthington from JPMorgan. Please go ahead.
Hi, good morning. You've launched a number of Hermes products in the U.S. Can you talk a little bit about how the Hermes brand is resonating here? Usually products need a three-year, maybe even a five-year track record to generate sales, but that's not always the case when there's sort of a product that's new or hot or unusual and in demand. Maybe start by talking about how the Hermes brand is sort of translating over here in the U.S. Do you think you're going to need the full track record to really ramp these products?
Okay, Ken, thank you. What I would like to do is have Saker talk about the roadshow that he and some of his associates did with some of the Federated people in bringing the Hermes name to the clientele and how that has worked since then. We'll get into more discussion on the branding. Saker?
Thank you. As background, Hermes had been in the U.S., only with large institutional clients before. If you look in terms of brand awareness, before we started this and before we were acquired or majority acquired by Federated, there was brand awareness amongst two sets of groups. One is very large marquee institutional clients because we've been calling on them for some time.
The other one is amongst a group of people that are interested in ESG or in impact investing or indeed in stewardship, where again, we have clients already in the United States. It's not as if it was a completely unknown brand. In June of this year, we had a conference in New York and we combined two sets of expertise. We combined a set of expertise which was provided by Federated for its client base, in which some very profound and deeply thought about legal work was presented, trying to identify how does one be able to pursue what we do at Hermes, which is integrate ESG and be true to fiduciary duty as understood in trust law, as understood in the United States. That was followed by showing the way that we do it.
Just to clarify, where Hermes differs from everybody else is that in essence, our aim of most, if not most because all of our normal portfolios is simply to outperform the benchmark in the best possible way for our clients. Actually we believe that the sustainability part of what we do, which is the S in ESG, and the additional information that we get from our future business, the EOS, gives us additional informational advantage, which is why we outperform. In a sense, we are different from other people in that we integrate ESG completely. After presenting that fiduciary view, if you like, which was presented from two lawyers, one from Harvard and the other one from Chicago, we then presented how we do it.
This went down really well with the lawyers, and this goes down much more to the traditional market that Federated tends to resonate with. Now, in addition to that, I've been on the road with Paul Oomen, seeing consultants and large potential clients. My colleague, Harriet Steel, who is equivalent to Paul Oomen, she's head of business development at Hermes, has been on the road as well. Generally speaking, the reception has been very positive. Number one, because we have a very strong track record in our asset classes in Europe. Number two, we already were known in the U.S. at least with the marquee clients for our brand. Number three, there is a shift to wanting to look at things differently, and in many ways, we are the pioneers who pioneered that market. I think I covered the June. I hand back to you, Chris.
Thank you. I would echo the concepts of the strength of a sustainability investment theme and the acceptance of that in clients. This has been really a welcoming thing on the part of clients. You all know all of the articles written about how this theme is very important to young investors and to various institutional investors. We think the uniqueness that Saker has just gone through will be very helpful for us. I would just like at this point to let Debbie comment on how she sees minimal credit risk and ESG sustainability as working into a money market fund. Debbie?
Thanks, Chris. Certainly, this is an area that we have been focusing on for the entire year of 2019, as well as the end of 2018 once we began to understand a little bit more about the ESG and the EOS processes from our Hermes brethren. Ultimately, what has been accomplished within the liquidity team at Federated is an integration of the unique aspects of E, S, and G information and qualifications, if you will, into our internal credit process. We've had an internal credit process since the day of the dawn of money market funds that attempt to determine minimal credit risk issuers and high-quality issuers that are what we're using within our money market funds.
Ultimately, we've always taken into consideration when doing that minimal credit risk analysis, the various aspects of environmental, social, and governance aspects when we're talking about the qualitative associations of the various issuers that we're using. What ultimately we had to decide then was after taking the new material that we are using on an input basis from the Hermes folks, is how that plays through within our internal rating scores. We've done that, we've incorporated that, we've integrated it into our process, and we feel like the validity of our process now with this new input from Hermes is even better than what it has been historically. Although it was very good historically as well. We're now focused on aspects that for various companies may differ.
The social aspect may be higher for a Coca-Cola Company than it is for a BP, where the environmental factors may be more pertinent. For our largest industry, that being financial services and banking, certainly the governance aspect is a very large influence on how we are reviewing the issuers and the credits that we're using. Probably one of the more important items that we had to decide in this integration is how we look at what I'll call non-traditional types of issuers. Issuers that maybe are repurchase agreements that have collateral behind them and counterparts rather than traditional issuances.
Another type that we had to look at was credit-enhanced issuers, where you may have small municipalities or project finance, but with a bank that's providing the guarantee on that particular issuer, and it's the bank that we're looking to in the context of our high quality, minimal credit risk determinations. Thirdly would be our asset-backed exposure on mostly the prime side of the equation, where it's asset-backed commercial paper, asset-backed securities, where what are we looking at? Are we looking at the sponsor? Are we looking at the partial guarantor? Are we looking at the underlying receivables? All of that had to be worked out. I'm proud to say and happy to say that at this point we have worked it out.
We've got our own methodology, and we are integrating this ESG assessment into our daily credit work that we perform with the input, the invaluable input, and the proprietary input that comes from the Hermes folks in London.
Awesome. That's really interesting. Thank you. Debbie, just maybe one more for you. You had commented, since we're going into the first easing environment in probably a decade, you commented on the institutional side. Maybe what are your thoughts about the retail side? Because I think the retail side and the spread on yields and products has been a driver for you. Does 25 basis points make a difference on the retail side? Does 50 basis points make a difference? Do we start to see maybe retail engagement slow a little bit if the yields on the money market fund products decline and/or if the spread between money market funds and banks isn't as high? Again, focused really on the retail side.
It's very interesting, Ken. We've actually seen bank deposit products already being lowered. Despite the fact that the Fed hasn't made any moves since December of last year, there are banks that have begun their declining rate environment already. Although banks are reticent to move their deposit rates in an increasing rate environment, they're quickly adjusting, usually on a downside. If the Fed acts as we would expect them to, which is minor adjustments to try to find the neutral rate somewhere around the 2% environment, give or take basis points up or down, and a yield curve that gives or takes a little bit from that.
We still feel that compared to what deposit products are providing, and certainly compared to the zero rate environment that we were a part of, unfortunately, for a very long period of the better part of a decade, still will allow retail customers to really enjoy a nice return that is commensurate with what they're getting from an inflationary perspective in the marketplace. As such, we'll continue to find their flows being more likely to be placed in a managed product such as a money market fund, rather than a deposit product at this point. It just really continues to make sense for the retail investor, even if we see a 25 basis point decline in July, followed by another one later in the year.
It still will allow the retail customer to have some sort of a return on its cash, which is a pleasant, not surprise, but a pleasant increase in their income that they've not been experiencing for too long now at this point, and I think they'll continue to move their assets into the space.
Awesome. Thank you.
Our next question is from Bill Katz from Citi. Please go ahead.
Okay. Thank you very much for taking the question this morning. I guess first one, Chris, you mentioned potential for some strategic alliances in the Asia Pac area. Is this a shift of thinking in your mind? If so, what kind of potential partner and economic trade-offs should we be thinking about that might lead to some kind of alliance?
No, Bill, it's not a shift. We've been working on those kinds of things for several years and continue to talk to various people about that. Those are hard, long-term things to put together. It represents no shift. As I mentioned in answer a few moments ago, there really are two distinct efforts, though. Getting mandates and getting alliances. We continue to work hard on both of them. I think you'll see more of the mandate type efforts be successful here in the near term than you will on the alliances, which just take a long time. Years and years, in fact.
Okay. Second question. This is a 2-part question. Just a little surprised to sort of hear the bit of a slowdown in the organic growth on both the mutual fund and the SMAs going into the new quarter. How much of that is seasonality versus any kind of shift in risk preferences? Just an unrelated question for Tom, as we think about incremental growth coming in the door today versus the sort of established book, what's the interplay between volume and fee rates from here?
Bill, it's Ray. I'll just on the first part of it, there may be some seasonality. It's hard to tell. It's really hard to discern a trend, especially from a couple weeks of data. What I would emphasize is that kind of on the strategies that drove the first quarter results, we continue to see good, strong, solid results. The Hermes Global Emerging Markets Fund is positive, probably on a little better pace than what we saw in Q2. Same thing, Kaufmann Small Cap. Again, on the fund side, Strategic Value Dividend very modest net redemptions, again at a lower pace than what we saw in the prior quarter. Beyond that, you get a hodgepodge of funds and a very limited window of data. It could be seasonality, but it's hard to discern a pattern.
Yeah. You're not going to get much out of us on fee rate and where it's going because it's exactly what Ray just answered. Which funds does it come in? Which mandates does it come in? That can move based exactly on those factors.
Okay. Thank you.
Our next question here is from Macrae Sykes from Gabelli & Company. Please go ahead.
Good morning, everyone.
Good morning.
Thank you. You actually answered most of my question in the previous talk about Hermes. Just getting back to that a little bit, could you just talk about the trade-off perhaps in accelerating spend now with that brand in the U.S., versus kind of some incubation of the brand? Do you think that you can capture more share just given what we think is a pretty decent opportunity for the industry?
On a budget basis, which we talked about at the beginning of the year with our business development effort with Harriet's team and Paul's team and Gordie Saraceno as a big part of it, that's selling the product here and selling the Hermes products domestically and selling Federated's products in the U.S. We talked about a $5 million number, we are proceeding to do that and expecting to have the benefits pay off significantly. Someone else asked about how long does it take to sell. Just revert back, like you said, Sakura already talked about their name recognition and getting sales over here. We're seeing really good, promising early indicators on it.
Great. Thank you.
Thank you. This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments.
We've reached our allotted time for today, but we appreciate your interest and thank you for joining us.
This concludes today's call conference. You may disconnect your lines at this time. Thank you again for your participation.