Federated Hermes, Inc. (FHI) Q3 2023 Earnings Call Transcript

Federated Hermes, Inc. (NYSE:FHI) Q3 2023 Earnings Conference Call October 27, 2023 9:00 AM ET

Company Participants

Ray Hanley – President, Federated Investors Management Company

Chris Donahue – President and Chief Executive Officer

Tom Donahue – Chief Financial Officer

Debbie Cunningham – Chief Investment Officer, Money Markets

Saker Nusseibeh – Chief Executive Officer, Federated Hermes Limited, International Operation

Conference Call Participants

Dan Fannon – Jefferies

Patrick Davitt – Autonomous Research

Ken Worthington – JPMorgan

Brian Bedell – Deutsche Bank Securities

John Dunn – Evercore ISI

Michael Brown – KBW

Operator

Greetings. Welcome to the Federated Hermes, Inc. Q3 2023 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin.

Ray Hanley

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

During the call, we may make forward-looking statements, and we want to note that Federated Hermes actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Chris Donahue

Thank you, Ray, and good morning all. I will review Federated Hermes business performance, Tom will comment on the financial results. We had solid asset growth in Q3, ending with record assets under management of $715 billion, driven by record money market assets of $525 billion. Fixed income produced solid growth as well.

Looking first at equities. Assets were down $5.7 billion to $77.3 billion, due to combined market losses and FX impact totaling $3.3 billion and net redemptions of $2.4 billion. We did see Q3 positive net sales in 14 equity strategies, including MDP large cap growth, international leaders and U.S. SMID equity. The strategic dividend domestic strategy had Q3 net redemptions of $1.5 billion.

This strategy is outcome-driven and is benchmark agnostic as we have said each quarter. It seeks a high and rising stream of dividend income from high-quality companies. As of 9/30, the fund had a weighted average dividend yield of 5.1%, compared to a 1.6% yield in the S&P and the fund has seen 39 dividend increases and zero cuts in the trailing 12-months.

Looking at equity performance, compared to peers and using Morningstar data for the trailing three years end of Q3, 54% of our equity funds were beating peers and 33% were in the top quartile of their category. For the first three weeks of Q4, combined equity funds and SMAs on the equity side had net redemptions of $753 million.

Now turning to fixed income. Assets increased by $2.3 billion in Q3 to $89.8 billion with fixed income separate accounts reaching a record high of $47.2 billion. Fixed income institutional separate account net sales of $3.8 billion were driven by the funding of a $2 billion in an institutional multi-sector mandate and by approximately $1.3 billion from a large public entity.

Fixed income SMAs had Q3 record gross and net sales of $572 million and $320 million, respectively. Fixed income funds had net redemptions of about $684 million. Within funds, our flagship Core Plus strategy, total return bond fund had Q3 net sales of about $466 million. So that includes both the fund and the CIT.

Core Plus funds and other fixed income SMA strategies added $320 million of Q3 sales. The three Ultrashort funds posted net redemptions of about $462 million. We had 15 fixed income funds with positive net sales in the third quarter, including the Total Return Bond Fund, the total return bond collective investment fund, the intermediate Corporate Bond Fund and the Sterling Cash Plus.

Regarding performance, at the end of Q3 and using Morningstar data for the trailing three years, 31% of our fixed income funds were beating peers; 17% were in the top quartile of their category.

For the first three weeks of Q4, fixed income funds and SMAs had net redemptions of $77 million. In the alternative private markets category, assets decreased by about $1.3 billion in the third quarter from the prior quarter came to $20.3 billion.

The decrease was due to FX impact of about just under $800 million, market value decreases of about $300 million and net redemptions and distributions of about $200 million. We are in the market with Horizon 3, the third vintage of our Horizon series of global private equity funds. Horizon 3 has closed on commitments of $1.05 billion through the third quarter.

We’re also in the market with the Hermes Innovation Fund II, the second vintage of our pan-European growth private equity Innovation Fund. We had our first close in August for approximately EUR100 million, and we’re in the market with our first vintage of our U.K. Nature Impact Fund. We began Q4 with about $4.9 billion in net institutional mandates yet to fund in both funds and separate accounts.

These wins are diversified across fixed income, equity and private markets. Fixed income expected additions totaled about $3.1 billion, which include wins in active cash, short credit, high yield and corporates. Approximately $1.5 billion of total net wins is expected to come in private market strategies with wins in private equity, direct lending and absolute return. About $227 million of the net total wins is expected to come into equity strategies and wins included mandates in bio equity, global equity and gems.

Moving to money markets. We reached record highs for the money market assets of $385 billion, and total money market assets of $525 billion. Money market strategies continue to benefit from favorable market conditions for cash as an asset class, higher yields, elevated liquidity levels in the financial system and, of course, favorable yields, compared to bank deposits. A short-term interest rates peak, we expect market conditions for money market strategies will be favorable compared to both direct market rates and bank deposit rates.

Looking at flows in money market funds in the third quarter, we saw good activity from products geared towards the retail customers of financial intermediaries. Institutional product flows continue to be challenged by direct security yields. Our estimate of money market mutual fund market share including sub-advised funds was about 7.3% at the end of the third quarter, up from about 7.2% at the end of the second quarter.

Looking at recent asset totals as of a few days ago, managed assets were approximately $716 billion, including $527 billion in money markets; $74 billion in equities; $91 billion in fixed income; $20 billion in alternative private markets; and $3 billion in multi-asset. Money market mutual fund assets were at $385 billion. Tom?

Tom Donahue

Thanks, Chris. Total revenue for Q3 decreased $30.6 million from the prior quarter due mainly to the substantial carried interest and performance fees in Q2 related to the transactions we discussed on our last call. Q3 carried interest and performance fees were $14.9 million, compared to $39.4 million in the second quarter.

All other revenue decreased by $6.1 million. Revenue from money market assets decreased by $9 million, offset by an $8.2 million decrease in related distribution expense. Changes in certain product structures drove these decreases, while higher average money market assets added to revenue.

Q3 operating expenses decreased $33.6 million from the prior quarter due mainly to compensation related to carried interest and performance fees in Q2. We and to lower money market fund distribution fees as discussed. Q3 included about $10 million in compensation related to carried interest.

The decrease in other operating expenses includes a reduction of about $7 million in expense related to the infrastructure fund restructuring discussed in Q2 and partially offset by an increase of $3.7 million in FX-related costs and approximately $2 million of other expenses.

At the end of Q3, cash and investments were $554 million, of which about $486 million was available to us. Holly, that completes our prepared remarks, and we would like to open the call up for questions now.

Question-and-Answer Session

Operator

Certainly. At this time we will conducting a question-and-answer session. [Operator Instructions] Your first question for today is coming from Dan Fannon at Jefferies.

Dan Fannon

Thanks, good morning.

Chris Donahue

Good morning.

Dan Fannon

I wanted to discuss your outlook for money market assets and in the context of rates. I think we’ve heard from others that fixed income is as rates peak is going to see a significant demand pick up, and I think you’re talking about money markets as being also a beneficiary. So wondering what’s the as we think about duration maybe being extended, how money markets you think will fare in terms of demand versus what would be more traditional fixed income asset classes?

Chris Donahue

I will comment on it first and then Debbie will have some additional comments. But as we said on this call over the last several calls, that once those rates begin to peak, you begin to attract the institutional money, which is — as I mentioned, is more attracted by direct securities at this point in time. And so we would expect to see institutional flows increase. But right now, on the retail side, that’s — we’re in a very good position with the rates and when you combine that with the reticence of financial advisers to take positions, their lack of certainty, they’re waiting on the Fed and getting paid 5%-plus. It’s hard to say exactly when they will decide to go longer. But that would be the basic outlook.

And don’t forget that as we’ve mentioned before, when we look at the last cycles from ’16 to ’18, Q4 of ’16 — Q4 of ’16, Q4 of ’18, after the initial decline, the money market fund assets increased by 15% and then industry did about the same about 11%. And we continue to grow with higher rates, of course.

And then the other thing we like to mention is that, basically, our assets grew about over 20% through Q3 of ’19 when they began to ease. And the industry assets also grew at a smart clip then. So that’s the basis on which we come to those kinds of observations. Debbie?

Debbie Cunningham

Sure. I’ll just add a couple of things. You mentioned, Dan, the extension trade, and we do that even within money markets. So started out this cycle with weighted average maturities durations down in the single-digits to teens from a day’s perspective, we’re now out much longer, 30, 40, 45 types days have done the extension trade in order to keep the yields higher within the product itself. I think another thing that’s helpful is that during the zero rate environment, so many cash managers got used to bucketing cash. So a certain amount that’s kind of operating on a day-to-day stays in the government sector.

Next kind of more strategic go out into prime and then ultimately, Microshort — Ultrashort in the longest bucket. But when you’re looking at a higher for longer scenario with a yield curve that from overnight say 5.25% to 5.30% out to 10-year bonds at just under at just under 5%, you’re looking at something that is a market that’s finally reconciling with that Fed statement higher for longer. So I think the flows, as Chris mentioned, we’ll continue in retail, and we’ll do nothing, but grow in institutional.

Ray Hanley

And Dan, it’s Ray. I would just add, we’re well positioned for people deciding to extend out on the curve with our fixed income product array. And in particular, people are interested as evidenced by the flows in our total return bond Core Plus strategy with a six-year weighted average effective duration. It’s really well positioned. We’ve been talking to clients all year. The cash yields are very attractive. So it’s — there is a certain amount of waiting for the right time. But when that trade happens, we have a lot of good strategies that can catch the money going out further.

Chris Donahue

And one more comment I had to, Ray’s bringing that up, and that is that the Ultrashort funds are starting to turn. They haven’t gotten positive yet right here in this first couple of days of this month or quarter, but it’s getting a lot closer. And the government Ultrashort Fund has just done a pretty good job on flow. So you’re seeing people go out there. And remember, that’s currently a $5 billion franchise that we have here and Ultrashort funds on all three streets.

Dan Fannon

Great. That’s very helpful. I wanted to — my follow-up on distribution expense. Some of the dynamics in the quarter. I think you walked through, but if you could provide a little bit more specifics around what happened in — and more importantly, going forward, how we should think about the relationship of, frankly, money market, AUM and the distribution expense.

Tom Donahue

Okay, Dan, it’s Tom. Probably, going forward, we would anticipate as assets go up, that distribution number would go up, and we had some changes in the quarter, as I mentioned, on product structures that reduce some of the revenue, but then reduced a pretty commensurate amount of expenses that should be cleared up. And I would expect if assets grow, that the distribution line item will go up as an expense.

Ray Hanley

Yes, Dan, the Q3 run rate is a good one to use going forward. It’s down, as Tom noted, but also, as you know, to commensurate with the change in revenue. But that’s a good run rate to use going forward.

Dan Fannon

Great. Thank you.

Operator

Your next question is coming from Patrick Davitt with Autonomous Research.

Patrick Davitt

Hey, good morning, guys.

Chris Donahue

Good morning, Patrick.

Patrick Davitt

You mentioned last quarter you thought the stock was cheap, and you had, I think, more than $400 million of available cash. So why not do more repurchase? And now that the stock is even cheaper. Should we be expecting more of that in 4Q?

Chris Donahue

That’s a great idea.

Tom Donahue

Yes. We — so we had our Board meeting yesterday, and we approved another $5 million share buyback program. That’s our 16th and we have a history of completing our share buyback programs. We have about $1.5 million left in the existing one. and we wanted to get approval for more shares with only $1.4 million left.

Patrick Davitt

Got it. Thanks. And another one on capital. Could you speak to any inorganic opportunities you’re seeing right now? What kind of discussions are out there and what your appetite is to do more M&A at this point?

Tom Donahue

Yes. We have a lot of appetite. We’ve gone through for years. We pay our dividend and share buybacks. The first thing that we’d like to do after the dividend is to pay — is to buy somebody and more than somebody, because the way we do it, and we look at our returns, and we think that, that’s an excellent return for the company. It’s been a challenging getting people to let loose to sell. And I don’t have — we continue to meet with people, and I don’t have any announcements to make, but on the money fund side and on the — what we call roll-up sides, where people decide it’s time for them to turn it over to us. We are active in talking to people and on bigger deals, those things take time to do. And I don’t have a list of things to announce.

Patrick Davitt

Thanks.

Tom Donahue

That’s it.

Operator

Your next question for today is coming from Ken Worthington with JPMorgan.

Ken Worthington

Hi, good morning. Thanks for taking the question. I wanted to expand on Dan’s earlier question. So a number of CEOs have expressed the opinion that various investors are allocated to cash. So I guess, first, do you see retail and our institution over-indexed to cash versus other asset classes? And within cash, are they over indexed to money market funds? So you talked about sort of the direct market, but how do you think money market funds stand today versus other cash channels? And our investors really over-indexed or not?

Chris Donahue

I don’t have statistics good enough to make a judgment as to whether the retail clients are over-indexed to cash or not. The incidental information we get based on our salesforce, which is robust, is that they are just very, very, very, very unsure about what to do. So that would mean they would have more money than the average bear would think in the money funds. But I don’t have enough stats to tell you whether they are over-indexed to that.

And we don’t participate as vigorously as others do in this so-called cash sorting because the products we offer are the ones that give marketplace yield across the board. And I think that, that’s about my response unless you have something Debbie?

Debbie Cunningham

The only thing I’d add is that if you look at our money market fund assets a percent of our total liquidity assets, they are basically growing equally. It’s about three-quarter money funds, one-quarter other types of whether it’s in local government investment pools, separate accounts, collectives, privates, offshore, the rate of growth seems to be commensurate for both types of liquidity products. It doesn’t seem like people are overweighting the money fund side of it.

Ken Worthington

Okay. Okay. Fair enough. And then Federated stock has underperformed quite a bit since it was announced that it would be excluded from the Russell indices. I guess how challenging would it be to adjust the structure to meet the minimum requirements for inclusion back in Russell? And given the magnitude of the stock underperformance, why not consider this?

Chris Donahue

Well, we’re not going to do that. But I just can’t connect coming out of the Russell to the performance of the stock. That’s one of those post-hoke, air-go, pro-care-hoke mistakes. And I just can’t buy into that. And in terms of the structure, we have a lot of confidence in the structure. We’ve been using it for a long time. And of course, considering same is not the same as committing it. So talking about it is fun. But I don’t think it’s going to happen.

Ken Worthington

Okay, fair enough. Thank you very much.

Operator

Your next question for today is coming from Brian Bedell with Deutsche Bank Securities.

Brian Bedell

Great. Good morning, folks. Thanks so much for taking my questions. First one, just back on the money market franchise. If I can squeeze in a two-parter on this one. One, from the retail behavior allocation side, so for the platforms that you’re on in which you would be getting money market inflows from, say, risk off allocations away from, say, equities. Is there any way to size what potential across your money fund based money market mutual fund base would be sensitive to those platforms? Maybe I’ll start with that one.

Chris Donahue

We don’t know.

Brian Bedell

Okay.

Chris Donahue

You could — we look at the charts we keep on the terms of the assets that are in that field, but that isn’t going to answer your question. If I take you to the chart that shows you how much is in broker-dealer and retail. That’s not going to answer your question. And I don’t have enough to answer that.

Debbie Cunningham

Yes, I can say that for our largest distributors of retail products, retail money market funds, they’re number one, very diverse; and number two, all experiencing large amounts of growth in the 2022, 2023 time frame. So it’s not heavily weighted to 1 institutions preference or sales or allocation tactic. It’s across distributions.

Brian Bedell

Okay, okay, fair. And is there a time for me to ask one more money fund question and also on ESG question?

Chris Donahue

Yes. Keep rolling.

Brian Bedell

Okay. Okay. Just one quick one on the money fund side. How you have been extending duration should we think of maybe a sort of a maximum extension if you think at some point, the market is going to start to price in rate cuts. And naturally, the longer you are extended the better, I guess, subject to liquidity constraints?

Debbie Cunningham

Right. Yes, we — I mean, generally speaking, we target 10-day ranges. So right now, in our prime funds, we’re at 40 to 50 days; our govy funds 35 days to 40 days; muni 40 days to 50 days as well. I mean the longest we’re ever going to get is 50 to 60 days. But even that, with the new daily and weekly liquid asset requirements that will come into being from an SEC rule requirement standpoint in April of 2024, it will be difficult to get up into the mid to high-50s. And given that there’s always a concern about whether there’s large clients that want to exit sort of know your client kind of discussions, I would guess maybe there’s another 10 days to 15 days extension, but not too much more than that.

Brian Bedell

Got it, got it. Okay. Great. And then on the ESG side, just — I guess just as this year has unfolded and all the political challenges we’ve seen for ESG, are you seeing any changes in demand for the ESG funds that you have rolled out? And if you can contrast the U.S. versus maybe what you’re seeing in Europe? And then how might that influence your future ESG product rollout strategy, both again in Europe versus U.S.?

Chris Donahue

So Brian, I’ll take that first, then I’ll let Saker comment on the European side. We did six-years of cultural due diligence with Hermes when we were looking at them from 2012 to 2018. And ESG was one of the main things. During that time, we also spent a lot of time figuring out how to be able to successfully say yes to the fiduciary with ESG. And then we have repeated the sounding joy of this work to the SEC, to the Department of Labor to the marketplace, where you have a Stanford Law review article that set forth all the research that had been done that basically says, if you’re a fiduciary, you have to be for the exclusive pecuniary interest of the underlying investor.

And if you want an impact fund, that’s great, too. And you can use the ESG features to analyze risk in order to improve returns. And we think this continues. Now you asked the question in light of, okay, political stuff and where are we and how does that affect us? Well, what we try to do is stay out of the politics and stay down the street of the performance of the funds. I would mention that there’s a recent study that came out of — well, it was a bunch of professors from University College UCD in Dublin. Oxford and Texas and Austin that basically concluded that engagement can reduce the risk in a portfolio or in an individual security, okay.

So that’s an interesting one and a fair fight in the marketplace, reasonable people can disagree. But we are going to continue with our integration efforts. We are going to continue. We’re looking at these points, the way we said we were to enhance performance as active managers that we are, but there is a big difference between basically even though there’s food fights in the U.S. on this, there’s a big difference between the basic U.S. structure and that in Europe.

And I’ll let Saker talk about his role in overseas.

Saker Nusseibeh

Thank you very much, Chris. So just before we talk about overseas, I want to reemphasize something that Chris said about the way we look at ESG. To our mind, integrating ESG is a way of enhancing financial returns in the long-term. And because in the Hermes business, we see ourselves as a long-term institutional business, it has been our conviction and indeed our internal data shows that on average, it actually adds value over the long-term. So to us, this is part of enhancing returns Furthermore, we combine it with engagement through our stewardship business, EOS.

As Chris has said, the new studies come out that actually supports previous studies that have come out that show that our type of engagement does enhance financial returns. Now it’s important to emphasize, we do not integrate ESG for any other nonfinancial long-term reasons for trying to enhance value and create sustainable wealth. That’s not what we do. Unless the clients ask us to specifically, we do not, for example, divest from particular title stocks. So that’s just a general background of what we do in the old Hermes, which we came Federated Hermes Limited.

And as Chris says, we think that is totally in line with fiduciary duties on the by U.S. law. In Europe, there is a demand for one additional factor, which is not just to do ESG for enhancing returns, but to try to create social impact. This has allowed in certain jurisdictions and certain structures in Europe, and the demand for that continues to increase in Europe. And we have continued to see demand for and the opportunity for continuing to grow our business over there.

I will finish up by making one point. The old Hermes I would claim, was one of the first people to look at this space back in 1983. We’ve had a long experience of thinking about why we do it. And the point is that we do it for the sake of the enhancement of the underlying investor. Our position in our mind, is what gives us the strength to continue to roll out our products outside of the United States where demand is continuing to increase in fact, and enhanced — to ensure the fact that within what we do — are doing it within the bounds of fiduciary. Specifically, the demand is not dying out the rest of Europe. Asia possibly is a little bit less than in Europe, but we see an increasing demand within the big European market for the time being.

Brian Bedell

That’s great overview. Thank you so much.

Operator

Your next question for today is coming from John Dunn with Evercore ISI.

John Dunn

Thank you. Can you kind of characterize the sort of timing of the unfunded pipeline? How much is later stage versus newer wins and maybe the average time to funding?

Ray Hanley

Sure, John. I don’t have statistics to give you on the quarters. But typically, you’ll see the equity in fixed income fund in a couple of quarters and private markets can take as long as into next year because when we get those commitments when we have closings, the money often is not shown as assets under management until it’s actually drawn down and investing. So we’d have to do some more work to give you kind of a weighted average timing on the pipeline, but generally look for the equity and fix over the next couple of quarters and the private market to extend out several quarters.

John Dunn

Got you. And then maybe just thinking about strategic value dividend, can you give us kind of a flavor of the profile of the investor there? How they look at the current backdrop? And how the conversations of your wholesalers are going, holding on to assets versus like maybe increasing sales at some point?

Chris Donahue

Well, in terms of discussions, these are challenging discussions with the salespeople and the intermediaries that are in there. And so you got to be straightforward about that, but it simply repeats what we said all along, and the fund continues to do what it does. So even though it’s like a Pogo stick in terms of Morningstar category that it doesn’t really fit going from the top to the bottom, bottom to the top, that’s what stimulates the discussions.

And so we’ve been through this before. And that keeps a lot of the core shareholders quite sanguine because they’re looking at a 5%-plus yield on a bunch of stocks that are pretty solid. Now they’re not the magnificent 7%, so you’re not going to get that ride. So it is an active debate and an active discussion.

John Dunn

Thank you.

Operator

Your next question is coming from Michael Brown with KBW.

Michael Brown

Great. Thank you. Tom, I just wanted to dive into the expenses a little bit. I appreciate the commentary about the quarter. But given some of the puts and takes you mentioned, I just was looking to maybe clarify some forward thoughts on the non-comp side, particularly on the G&A side is what you saw in the third quarter a reasonable run rate for the fourth quarter? Should we expect that to kind of step down?

And then when I look out to 2024 based on your growth and investment expectations and view on what the expense growth rate could be for that G&A line, in particular, just given that might be a bit better or easier to predict. And could that come back to like a mid-single-digit growth range?

Tom Donahue

Okay, Mike. So we mentioned that the comp line had the comp related to the carried interest of about $10 million. So unless we get more carried interest in Q4 and into the future, that number, all else being equal, would go down. And remember, I stopped predicting the compensation line because I can’t predict the compensation line.

On the distribution, I think we talked about a little bit that the run rate is good. And if assets go up, we would expect that to go up. Advertising and promotion, it’s in a band and maybe that goes up a little bit in the fourth quarter as we do a little more advertising and promotion. All the other line items, I think, look like they’re in good order for run rate. The other line has FX in it. So what’s going to happen to the pound?

Remember, we hedge because we earn our fees in dollars and have to pay the people in London in pounds. So if the pound goes down, then we have excess expense. But of course, then we are covered when we go to pay the cost there. We went through the infrastructure restructuring. And so those costs should come down a little bit. So that’s basically — in terms of ’24, I don’t really have a whole lot to add to that. We’re getting into our budget season, and I’m not too excited about making predictions on ’24.

Michael Brown

Okay. And maybe just one follow-up on the M&A comment earlier. It sounds like you’re having some active dialogue looking at interesting opportunities out there. Could you just give us a flavor of what would be kind of some interesting additions to the Federated Hermes platform? What types of assets could be a good fit for your company?

And then in terms of maybe size, would you think a deal would be kind of closer to a CW Henderson, so maybe more of a bolt-on? Or do you think that there’s potential for something more transformative?

Tom Donahue

So we’re — Mike, we’re really excited about the Henderson. We’re coming up on — we passed our 1-year anniversary there. And we are expecting actually some exciting things there into the future because that part of the budget process has started. So we’re looking forward to some growth there. The — and so doing that size transaction works pretty well with us. We can integrate it, make it part of Federated, take the expertise that the teams bring and utilize it and have our distribution have the opportunity to sell it.

So we will look for more things like that. If you remember what we talked about last quarter, and it feels like it’s just talk, but the alternative markets and what we try to do there is take our expertise over in London and expand it here in the U.S. is continual to look at things and try to do it. I would not expect that those would be what you would describe size-wise as transformational, more something of how we can take our skills and combine them with a team here that then we could do it on the real estate side.

On the private equity side, on the infrastructure side, on the private debt side, which we have excellent growth prospects over in London, how we could make that grow here, which is an exciting opportunity too. I wouldn’t expect any of those to be big transformational deals unless something comes along that we are interested in doing, which, as Chris says, we’re always willing to try on any kind of things like that.

Michael Brown

Great. Thank you. Appreciate all the color.

Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to Ray for closing remarks.

Ray Hanley

Thank you, Holly. That concludes our call, and we thank you for joining us today.

Operator

Thank you. This does conclude today’s conference, and you may disconnect your lines at this time. Thank you for your participation.