E449: Federated Hermes CEO on $400 Billion in Cash, the Private Markets Boom, and AI

You mentioned you have $400,000,000,000 in cash. It's still blowing my mind. Maybe you could double click on why there's only a couple entities that manage so much cash. The oligopolization, if you will, of the cash management money market fund industry occurred for several reasons.

One is regulation. All regulation oligopolizes by definition because they put up barriers, moats, whatever you wanna call it. It's what Bill Garley calls regulatory capture. That's what's called regulatory capture.

Exactly correct. Next thing you need is size. Don't use the word scale. Use the word size because size alone oligopolizes the business because someone won't go in to a $500,000,000 money fund if they have a $100,000,000.

They go, holy cats. If I redeem, that place is shut down. I had the CEO of iCapital, Lawrence Pocano, and he got a number over 100,000,000,000,000 in retail coming into the private market. When I hear somebody that's worked at a firm for over fifty, to some people that might sound boring or uninteresting, to me, it's fascinating because to me, that's fifty plus years of compounding knowledge and compounding experience within a single context.

I'm curious in terms of how the organization has evolved and what advantage has continued to compound after five generations. I have said So, Chris, what do most investors fundamentally misunderstand about cash? What they misunderstand about cash is it adds enormous financial flexibility to their profile. And what I mean by that is if you have a good cash component, you will not get forced to sell when things are in a problem.

You will have the flexibility to be able to take care of opportunities as they wash up on your beach. And you will be able to take care of your own needs if you have so many months or whatever of cash available. And this is how corporations look at it too. What are my needs?

What do I have to do? What am I planning for? What's going to happen? Did I have a big IPO?

Money coming in? Do I have a big acquisition? I got to pile up money for money going out. All of these things come together to make a cash component.

And why cash? Why not just liquid securities or other, like, highly liquid instruments? Back in the day, I was a salesman for Federated Hermes selling bank trust departments on using money funds. And over here in Newark, there was a bank that did modern cash management in the seventies, and it consisted of a stolen shopping cart, passbooks for the local S and L, and a plastic sheet.

They would wheel the whole thing down to the S and L to post the interest. Well, it was so easy to do a money fund, and it took care of all of that problem. Another bank across the street was rolling T bills, and they had people. They had rolled T bills, that's in there for when they were coming due, whether to sell them or not.

And it was a lot of operational difficulty, and you had to figure it out. A money fund solves that almost instantly and without a variation in NAV because what they want is a dollar in dollar out liquidity at par. And you invest a staggering $700,000,000,000 worth of cash in treasuries. Why is it that Federated Hermes have amassed this amount of cash?

Isn't that more or less a commodity? Well, first of all, it's about 400 of the 700 is in govies. The rest is in munis and in prime securities as well. So...

With that difference. But the same question obtained. Why do we have a of cash? Do you could go buy all those things?

Absolutely. But the whole thing about a money market fund and the liquidity is it's as much a cash management service as it is an investment. That means it's gotta have good governance around it so that you know where's the money, how's it gonna work, how have you worked, have you worked for fifty years, what is the size of the operation that you have? If you have a big pot of money, dollars 100,000,000, are you going to put it somewhere where you have a challenge in liquidity, or you blow up the fund by asking for your money?

Do you have a diversification of clientele such that all those clients, broker dealers, individuals, corporations, pension plans, endowments? They're all moving at different paces with different amounts, which adds a strength to the money fund. What's the regulation look like? Well, you've got to have regulation, and that's good.

We have very good relationships with the SEC. But I think the thing you need the most is trust. And the trust is a combination of all of those things, plus Federated Harmony's tradition of knowing the people and what we've done for over fifty years of doing this business. Maybe you could double click on why there's only a couple entities that manage so much cash.

There's a number of reasons for that. The oligopolization, if you will, of the cash management money market fund industry occurred for several reasons. One, a minor... Or a secondary reason is regulation.

All regulation oligopolizes by definition because they put up barriers, moats, whatever you want to call it. It's what Bellagolet calls regulatory capture. This episode is presented by Juniper Square, the operations partner for private markets. That's what's called regulatory capture.

Exactly correct. And whatever regulation there is, that's its effect. I don't exactly like it, but I think it is a given. That score, yes.

Next thing you need is size. Don't use the word scale, use the word size. Because size alone oligopolizes the business. Because someone won't go into a $500,000,000 money fund if they have 100,000,000 They go, Holy cats.

If I redeemed, that place is shut down. And you say, Okay, well, what if I have tons of money and decide I want to do one? Well, that's really nice, except that you don't have the ability to get other customers and start moving like a calliope among your clients so that not everybody is doing the same thing at the same time. So it is a combination of regulation, of size, and of experience, and how long you've been in it.

So when we came out with the... We were made effective in January '72. There was one money fund out ahead of the three of us, and then there were three of us made effective that day. Well, we're still three of the top money funds from the seventies.

It hasn't changed. Those guys are still big competitors just like always. It's wild. It really makes me think about in the stablecoin market because a lot of people are trying to figure out in the stablecoin market how many competitors are there gonna be because it's it's a similar model.

What do you think about the stablecoin market market? Talk about it on the money funds first, then get into that. So there used to be over 200 firms offering money market funds. Today, it's less than 50.

Now only 20 of them are really competitively getting big amounts of money from big customers. So over time, you've seen that happen. I think you will see a similar thing happen. I don't think the stablecoins are going anywhere.

The key to them will be, will they offer a dollar in and out? And then there were some of them that came out that didn't exactly work out that way, and they went the way of the dodo birds. So, you've got to be able to have daily liquidity at par. You cannot take undue risk with what you're having behind the curtain in terms of the security of those funds.

And that's where the big mistakes occur. They go, well, we... You know, it's 90% just like you do your money funds. But this 10%, yeah, that's sport fishing.

We won't do it. And that's where you run the risk of not being able to... So if they do it right, then they'll they'll be good, and they'll have winners and losers. And we welcome them to the foray.

And Federated Hermes has made a decision, a very strategic decision, not to compete with your customers. Talk to me about that decision. And are you guys leaving a lot of money on the tip? The answer to that.

Last part would be, yeah, we probably are, but that isn't the point. Back in the seventies, when interest rates went below passbook rates, we found out that we could really do well selling money market funds to bank trust departments because it was a cash management service. So even though the yield was below passbook rates, you could get a half a point more somewhere, we found tremendous interest in it. And so when others in the industry went retail, we went institutional.

And did we leave money on the table? Would it have been better to have gone retail? Who knows? We were a little company and federated trying to survive, And we felt that was the best thing to do at that time.

So, we've now used it as a strength because when big customers look at money fund providers, they go, Well, wait a second. I've got to divide my money into at least three of them. They want diversification too. And each one of them goes down.

Or they have a problem with them, but they want to diversify again. Remember, they want their cash back. So they get all three of them, and they say, oh, wait. Look at FedRATE.

Look at those guys. They're not gonna take my client. So they'll be one of the ones that that we put in there. The other people, you know, they're after the client, directly.

But we are... Go through intermediaries and are very happy with where we are right now. You mentioned you have $400,000,000,000 in cash. It's still blowing my mind.

But give me a sense for your customer base. Are these large banks? Are these large nonprofits? Who who are the types of customers?

The 400 was the 400 of 700 that's in Govies. So the other 300, we still have 700 total. And in terms of the customers, they are retail customers who come through basically broker dealers. And these are the individuals who are managing their life.

And they have regular needs, tuitions, vacations, all the things that are going on. And they're running a big portfolio, and it's a lot of the things, like I said at the beginning, where they don't want to be forced to sell, and they want to be able to take care of opportunities and flexibility. So, there's a big retail component. And when there's a retail component, those guys like higher yields.

Anything with a four handle is great. Three is good. Five is nirvana. If it's a five point something, that's nirvana.

And so, rates are now going to be higher for longer. Retail customers, this is going to be fine. A lot of them are perfectly sanguine with a larger portion of their money and money funds, even though the market may go up and up because they go 4.5%, 4%.

Maybe I don't want to make a decision. So that's retail. Then you've got the bank trust I've talked a lot about. That's a service they offer to their customers.

And we like to say, as I discovered calling on them, that 20% of their money is in cash all the time anyway. And that's just because of the lifeblood of their customers doing the same kinds of things. They're doing estate planning, tax relief, they're doing all these things. And no matter what happens, they end up with 20% cash even though the market's exploding.

The institutions, depending on what kind they are, endowments, they've got to look at what their uses of cash are. The pension plans are governing that way. The corporations have a pretty sharp CFO or treasurer who has a platform now who looks at all of the funds, where he has all his money, how he's doing on the yield, and where he wants to go, and whether he wants to go out the yield curve, because maybe he can do an ultra short fund or a different type of fund going out the yield curve a little bit because he's gonna have the money a little longer.

So that's pretty much an array of the customer base. And let's just take corporation. You mentioned a lot of the is required on a daily basis, and let's say it's a corporation. What's the model portfolio in terms of thirty year treasuries, money markets, and how should investors think about how to build a portfolio around their cash?

Well, if it's a corporation, the odds of them owning a thirty year bond are almost nonexistent. What what the corporation in that example is thinking about is what is the CFO... What is the strategy? What is our cost of capital?

Are we doing acquisitions? Are we building plants? All of the regular needs of a corporation are baked in there. It's completely different than what, say, an institution, a pension plan, or retail investor would do or a charity of some kind.

Each one of those has individual cash needs. What we preach is, at BASE, you have to decide what's a proper amount of cash, so you stay safe on base. You don't want to be hanging 10, and then you are forced to sell, forced to do something you don't want to do, miss out, all the things I've said before. And all of those people have a different array of answers for that.

And a lot of them will balance the short term cash, really short term cash, with a longer term cash, maybe up to two years, and go back and forth between those kinds of products. But they're all looking at it the same way. I want my cash when I need it. What do I need it for?

And I really want daily liquidity at par on that part of it. So then retail or institutional investors, they have a portfolio. So in general, only call it 5% of their funds. Maybe if it's a retail investor, maybe 10%.

They want super liquid so that they can make some purchases, but endowments they need to have to pay for their yearly yearly expenses. But on corporations, the cash is kind of like the leftover thing. The cash is what they need on a daily basis. Well, sometimes it's not leftover.

Sometimes that treasurer is told, I want X percent of something, or I want X number of dollars in cash available all the time. If I want to do an acquisition, I've got to have cash available. Now, maybe cash should be available through a loan or through revolving credits, and that counts. But almost all treasurers are gonna have several months of payroll in the bank and not be a living hand to mouth.

And so it isn't what's left over. To me, it would be the reverse. It's what's first. There's almost like these two buckets.

There's these money spend that you're gonna have to spend over the next couple months, and then there's, like, these cash positions. We've all heard of Apple or Google or name your tech company having just enormous amounts of cash, hundreds of billions of dollars. Now you can't talk about specific clients, but if you're one of those tech companies, what do those positions look like when you double click? Is it all just in one day treasuries?

No. It it would be out the array, and some of those companies have money in our money market. Yeah. So without without mentioning companies No.

I don't mention them. But Maybe talk about what what those look like. What do those portfolios I don't know what their whole balance sheet looks like, but, you know, they trade in billions, and these are big numbers. And they've gotta be in a fund that can handle that.

And if we can use an example, I can talk about FHI, Federated Hermes. And because we're owner operators, and because we have no net debt, we have a lot of financial flexibility to borrow. Okay? And if we have excess cash, we tend to pay special dividends, do acquisitions, and buy stock back.

And then we're always debating which which of those are the best for the long term interests of the enterprise and the shareholders. Those guys are all doing the same thing. As you know, they're spending more money than Godot on building on their CapEx expanded data centers. And yeah, Getting the compute.

We've to get the compute. So fine, get the compute. That's what they're doing. It's really hard for me to say what their balance sheet should look like or how they want to structure But in their cash position that they have with you, is it all one instrument?

No, they would be in one or two funds, different funds. And some of them are okay with going into a prime fund. Others are in the gov funds. Some really want a conservative and are in the treasury fund.

Maybe you could double click on those. What are the differences between those? So, a prime fund would have about a 15 basis point higher yields. Prime securities, highly rated, minimal credit risk is the standard under the SEC rules.

And this is something we've been doing for many, many decades. So that would be one. Then the actual govie, it was 15 basis points over the govies. So that would be government securities, agencies, and things like that.

And then the treasuries would be the lowest of the yield of all of those, and a few basis points less than the govies. So, that's the array. Now, they're not going to be, generally speaking, using tax freeze, which is a whole different ballgame as a general rule. And because they're out taxing?

Because, you know, they have other ways to deal with their taxes than trying... Like an individual wants a tax free New York money market fund because they pay New York taxes, and they don't want to deal with it. Is that not a good idea? Oh, it's a great idea.

But for the corporation, it's got to be almost like a flip of the yields where they look at what they're getting on the if there's a disparity in the municipal market where the yields are so high that they're happy to do it, then they're they're happy to do it almost on a taxable basis. And that happens once in a while, but that's not the general rule at all. One thing I've learned from talking to hundreds of investors is that great investment firms aren't built on investment returns alone.

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That's alpha-sense.com/howiinvest. It's funny because a lot of people might say, why do a podcast on cash? And I think there's somewhat of a cognitive dissonance here in that everybody wants to think that they're...

They have some crisp... Perfect crystal ball. They're perfectly efficient allocator of capital where they they look on their balance sheet, and there's always just a couple $100 in their cash, and everything is perfectly allocated. But if you look at people's behavior, and it's rational, you have to have...

If you look at... You know, I'm probably up $2,030,000 dollars in just cash. Why? Because I have to pay rent, or I just have to make some decisions with it, or I'm busy those couple weeks that I got that cash in, and I have to make a decision.

So having this default strategy on your cash is actually pretty pretty Or you get to pay for a growing family. These are new expenses that didn't exist five minutes ago. We are well experienced in that. Talk to me about your business model for Federated Hermes.

How is it that you guys get money? We are investment advisers, and so what we do is present the product to the customer. The funds generally are headed up by an independent board of directors as per SEC regulation, and that's the fund side. And then we go direct, where we offer mandate to get mandates from institutions, pension plans, and the like.

Now, we charge an investment advisory fee, an administrative fee, and then we have two thirty some salespeople who go out and tell the story. So, the best way to think about Federated is really the Pittsburgh geography, where we have three rivers. The one river the Allegheny comes down, that's investment performance. You got to have that or you are out of business.

The other river is about Augahela, which is the sails. You got have somebody tell them the story. Then you have the banks of both rivers are important. They flood.

They commit. They have to be controlled. One bank is the bank of compliance, also known to humans as trust, because you've got to have trust. The other bank, customer service.

You've to have that. We call that love. So in each bank, both the rivers, you have love and trust. Then they form together in the Ohio, and you go West, young American, go West.

And that's how Federated Hermes is basically structured. You've got to have the investment management. You've to have somebody telling the story on the distribution side. And you've got to get each of those banks with love and trust.

And that's our business model. We referenced earlier the the data center build out and the large tech companies. AI is coming for every industry. What risks or opportunities does AI pose to your company?

I would look at it as primarily opportunities, although there is some beware the jabber walk. Okay? But to me, we aren't gonna have less than 2,000 people which survive what we have now down in the road. When we have our summer interns come in, the first question is always, Well, AI is going to take care of me.

I won't be able to have a job. And my answer is always, Look, pay the extra $20 a month, learn how to use AI, and then you'll get the job. And we are going to be looking at it more as a developer of quality. I tend not to use the word efficiency when we're talking about AI, especially in an employment circle, because efficiency means FTE, I'm dead.

Quality means, Oh, I could do it better. One example of that is we get a lot of phone calls from investors, and they have to be screened, and then you have to have quality control and all that. And the managers do that. And then they grade them.

Well, when you have AI do that, all of a sudden, instead of only listening to one out of every 50 or 100 calls, you listen to them all. And then the AI grades them on things that are really good. Did you show love? Did you use the name of the customer while you were doing this?

Were there a lot of I don't know. So, you know, things that distract from a direct communication? Did you get the answer right? What about the substance?

Do we have less managers because they don't have to do that job anymore? No. We have higher quality calls, higher quality training, and a better overall result. And the same is true with requests for proposal, RFPs, where you can continually enhance them.

Humans involved all the time. But those are just a couple of examples where it's going to work. The fears, they're all well publicized in the marketplace. And, you know, I don't buy that they're gonna blow up human beings.

You know, 2001, A Space Odyssey. I know Hal wins, but I don't think Hal is gonna win. And I think it's no different in pattern than product liability. Your responsibility put a good product on.

If you don't, you're gonna get hammered. So be responsible for what you put out. And I think a lot of that is hitting home with the AI companies. You know, when they delay coming out with something because they're worried about what it's gonna do And all the stories about escaping the sandbox, well, you let them escape the sandbox.

So don't let them escape the next time. One of the industries that I'm really fascinated by right now that I think is undercover, cybersecurity. How much are you investing to cybersecurity, and how much more of an issue is that today with AI? It is a huge issue and very big.

And how much investing? A lot of our investing is done with our custodian banks and transfer agents. They are all on the glass wing operation where they're studying what has happened with that release of the Methos. Methos.

And they are putting the big money because we don't do the custody, the handling the money, or the transfer agency work. And that's where you really need the good... Now we have our own cybersecurity. We get attacked all the time just like everybody else, and we have the concentric rings of defense just like everybody else does.

But I can't tell you how much money we're spending on it. I don't know. You're known in the industry as, if not the longest serving CEO in the mutual fund industry, certainly one of the very longest serving CEOs. What's been the secret to your tenure?

The founding of the company was by my father, and two of his buddies went to the same high school I went to. In Pittsburgh. In Pittsburgh. So I cheated.

Okay? On the other hand, I started working there in 1972 or so, and I've worked in a lot of different positions. And it's the culture that really drives the truck. And it is preserving the culture established by those founding fathers that I am very articulate with and very comfortable with, and it helps a lot.

Like, for example, we had several big changes in people succession this past year and a half, where we were replacing forty year people with twenty five and thirty year people. Now, how does that happen? It's because of the culture. And the culture can be made up of a lot of things, but maybe the way to talk about it is in terms of some of their rules of thumb.

My dad's one rule of thumb was, we want everybody to enjoy coming to work. Well, that's a good rule of thumb. If don't, then can we fix it? Well, if we can't fix it, maybe you should graduate.

And then by the subtraction method, you get a lot of people enjoy coming to work. That makes everything a lot better. Another one of their statements was, You know what? If you get hired at Federated, you get to paint your own picture.

You just have to stay on the canvas. What does that mean? That means that you as an individual have dignity and respect because you're an individual and because you have this position. So the PMs and their team have the paintbrush on the portfolio.

Salespeople and others can say, well, you know, you need some more red in that or more yellow. And they could say, well, that's a very good idea. No. Because they have the brush on painting that picture.

Sales individuals can say the same thing. This is my territory. I got it figured out. The M comes and says, Look at the record.

This thing is terrific. You ain't selling nothing on it. Usually, Well, yes, but the customers don't want that yet. And so, you can see how that kind of culture allows the thriving of People are essentially CEOs of their own position.

They are. They are. And that makes for longevity. The customers like it.

Now, we bring people in. Nothing's perfect, and it works like that. But another one of the ones that I like is, since I did time in law school, that there's no dying for the wrong reason. My dad was a West Pointer class of 'forty six.

There's no dying for the wrong reason. Now, dying for the right reason isn't all that good, but dying for the wrong reason is stupid. Dying for the wrong reason is messing up on compliance, or with the SEC, or doing some stupid deal that may turn a switch on for five minutes that you know down the road it doesn't work. When we do acquisitions, we do them for the long haul.

We don't want to just spread pixie dust over the marketplace and say, Oh, this is this whoop de whoop. We're to live with it for a long time. So we want the cultural fit. And I'll tell you one more that's very interesting.

When we bought Hermes in '18, they had a code that they... An honor code, a code that they agreed to. And they said, Well, you guys should have this. We said, We don't need no code.

We're Americans. We don't need a code. Then we read it. So, we'll just read it.

So, we read it. We go, Well, we agree with all this stuff. And so, what happens is over 95% of their people just sign up voluntarily, and we don't use it against them. It doesn't get weaponized.

So he said, okay, we'll do it. But there's two things you you... We're gonna, comment on on that. Number one, you're gonna put the word fiduciary in your code, which it wasn't in there.

We thought that was important. And the other thing is we're going let you spell behavior wrong with an IOUR. So that was our deal. And now we have their code as part of our deal.

We have over 95% of our people looking at it, sign up, say, Yeah, that's kind of like what I do. And it and it is customer focus, be nice, dignity and respect, respect even the regulators, improve the community, improve your activities, be working on... You know, that that kind of thing. What's downstream of having employees sign the honor code?

Nothing. It doesn't... Hopefully, it doesn't change anything. Hopefully, it's just an endorsement.

They understand what the culture is at Federated Hermes and now they're part of it. They go, yeah. But we don't go after because they're, woah. Woah.

Woah. Woah. Right here, says this. No.

It doesn't get used like that. It's it's just part of the deal. Reminds me a little bit about how the North Vietnamese turned some of the captors against the Americans. Have you heard about this?

No. Would have them... Every day, they would have they would have them just... They were starving, and they they would starve them.

And then they would have them... They would give them food, which is very scarce, just for writing certain things, and they would say something. And they started very light. They would just say, capitalism is not a perfect system.

And then next one, they would say, America is great, but not the best country in the world. And by then, they were saying, we are communists. Like, you know, several months later, sometimes getting people to do things that you want. Obviously, in this case, it's a very positive thing.

But sometimes just having people sign something and write something is extremely powerful, powerful psychological. We call it repeat the sounding joy, repeat the sounding joy. And the things that are in there are not with the nefarious end. The other thing I would say about the prisoner of war camp is that there are things that happen, like when the markets shut down for an extended period of time on 09/11.

Okay, or when 'eight happened or when COVID hit. And so everyone said, when is this gonna be over? And our attitude about it is we go day by day, we make it work, we do everything we can, but I can't give you a deadline. And this is what ruins guys inside prisoner of war camps.

They make their own deadline. I'll be home by my daughter's birthday. I'll be home by spring. I'll surely be out by next year at Christmas.

Expectations. And it's a revolution of rising expectations, and it diminishes your ability to survive. Now, today, we call that sustainability, but owner operators call it survival on account of we don't want to be dead. And this is the message, and and you brought that up about the prisoner of war camp that we try to preach when there really, really are difficulties.

We're gonna do everything we can right now, but we're going day to day on this, and we're not gonna tell you when it's over. Oh, Chris, tell me it'll... When it'll be over. No.

I can't tell you that. I don't know when this will be over. I could count on a small handful of companies in the world that the majority of people really love coming to work. How do you get people to love coming to work?

Exactly. It begins at learning. One of the other little articles of faith that we had was that when you are doing something new, you are motivated because you're learning something. If you're in the financial service business, you're doing new stuff all the time.

You can't avoid it. It's always working. So you have an underlying impetus to be learning and to be motivated. But it also begins if your philosophy is that each human being has dignity and is demanding of dignity and respect long before any of this fancy stuff became part of government regulations.

This was a very important part of how we function. And that's why I said before that, you know, you don't enjoy this. Can we fix it? Well, no.

Then we have something else. Well, then maybe we're not the right place for you, and so we call that graduation. So that's really what's what's going on is you've you've gotta have it be where you respect the individual, let them paint their own painting like I've told you, and you've gotta have comp programs and pleasant things. You know, in Pittsburgh, you can be full executive running money, doing lawyer line.

You could coach your daughter's soccer team, and it's not a problem because it's a twenty minute commute. You know? It's not gonna take you two hours in a train. That's an important thing.

We get a lot of people who come, to work for us, even if they work somewhere else. They grew up in Pittsburgh, and they realize they wanna raise their kids or they wanna come back. And we are a warm and loving home. When I hear somebody that's worked at a firm for over fifty years, to some people that might sound boring or uninteresting.

To me, it's fascinating because to me, that's fifty plus years of compounding knowledge and compounding experience within a single context. I'm curious in terms of how the organization has evolved and what advantage has continued to compound after five generations? Well, not five generations. Two generations.

Okay. What what has happened is the principles stay the same. They they don't really change. You get new people, and we just had a retirement of our head of equity.

He came right at the beginning of this century and then graduated, now replaced by someone who's been here over twenty years. And that gives you an idea that you actually bring people in. They're not all the same for fifty years. We did hire a lot in the eighties and had a big growth spurt, so we have a lot of graduations coming up.

But if the real question is, why do they stay and how does it happen? It's because of the community. It's because of the company, and it's because of all of these principles. Pittsburgh is not, exactly like New York.

Nothing against New York. But it's not a lot of braggadocio. It's hard work, defense, things like that. And when you have $700,000,000,000 of money funds, and you go out say, well, we're going keep this dollar in, out.

They go, oh, those guys, they're pretty straightforward on what they want to do. And then the customers are, oh, they do what they say they're gonna do. Then that's really good. And then that helps us with a 100,000,000,000 in equities and a 100,000,000,000 in fixed income and 25,000,000,000 in private markets.

So this trust continues to compound. It it kind of goes back to the beginning. You you mentioned that, basically, all the competitors in this space have been there since since the early seventies? Yes.

'72, basically. Because, basically, they're also compounding the same advantages, and and it's almost like this industry where it's a... Whoever survives the longest ends up winning. It's almost like a Highlander.

That's a tontine scheme in Britain, and they're illegal. The guy who lives longest gets all the money because everybody tries to kill everybody else. But here, that's not what happens. What happens is the clients have different ways of dealing with different of the bigger money fund operators.

Like I told you before, they wanna have three of them, and there's enough to make it go around. And you still get competition, and you still have rigorous desires of customers to have bigger share of what's available, and that has been constant for the whole time. What's in the plans for the next generation, the next twenty, twenty five years for FHI? Well, twenty five years, I will probably have graduated by then.

Nonetheless, when we went public in '98, we called ourselves a franchise for all seasons. And so as we go forward, I would expect the money fund to continue to grow. Why do you say that? How does that happen?

If you have the money stock growing at like six or 7% a year, then that's what you should grow in your money funds, maybe a little more. So if you look at it for the last thirty or forty years on that kind of a scale, the money stock's been up 6%. We've been up like almost 9%. The industry's up 8%.

And you look at that trade and say, oh, that's a pretty good engine as to what money funds should do. On the equity and on the fixed income side, you know, they should double every ten years. And that's how... If you we ask...

If you ask me to... What's the growth fund? Those would be it. Now is that what's gonna happen?

No. Then on the private market side, which we're 25,000,000,000 now, we bought a real estate endeavor a a real estate endeavor in Chevy Chase, Maryland, and a real... And a infrastructure endeavor in London. And so, we would expect that to grow at an even faster race.

So, if you look at it as a horse race, the money market funds are kind of the Clydesdale and the equities and fixed income are more like quarter horses moving along, and perhaps our friends at private markets could be like the thoroughbred on a on a growth rate basis. Of course, it's a smaller base, so it can grow faster. So I would expect all that to continue, but mostly I would expect the principles and the code that we have to continue. I had the CEO of iCapital, Lawrence Calcano, and he threw out a number over $100,000,000,000,000 in retail coming into the private markets, which would be the equivalent and, in some ways, larger than the entire institutional market going into the private markets alone.

I have said, not recently because I get... It's too big. I said the private markets business at Federated can easily be bigger than the entire operation that's in Federated Hermes right now. And that's consistent with those numbers you're talking about.

We should be able to grow that, that kind, and get it in. Oh, I didn't put a time limit on it or a time... So that's that's hard to say. You've to get a lot of things right in that business.

And the rationale being that you have people's trust on the cash business, and you can now extend that trust into other products. You can extend the trust. Yes. But you've gotta have good mandates products underneath that really make sense.

If we only had the money funds and had poor performance on the stock side, you would get no money on the stock side even though you're you're doing great on the money funds. And so you've gotta have good underlying projects that really make sense. I'll give you an example. This year, we closed a private market, a private credit deal, 700,000,000 European.

Now 700,000,000. The big boys say that's nothing. Okay. That's true.

On the other hand, we'd have any problems with private credit. Why? The yield on is about three and a half over Eurobar, so that makes it, you know, seven and a half, 8%, not 12, not like that. So you don't have yield chasers driving these products.

The customers are insurance companies who know what they wanna do with the money and why they're in it and what they're doing. The investments are mid tier European companies, and everybody knows what everybody's doing. So it wasn't a lot of sport fishing. Most importantly, it's in a closed end vehicle.

So everybody understands what it is. There's no, oh, well, you might get cash, you might not get cash if things go south type deal. So we're working on shining up another one, and there's no pause in our giddy up on that. If you go back to 1972 and you could give yourself one timeless piece of advice that you could carry throughout your career, what would that have been?

Back then, remember that it's gonna be a little different because by the time I took the bar exam in '74, we already had four children. And in 'seventy two, we had two. And so, when you ask me a question like that, I'd say it was, Get ready because it's quite a ride when you have eight children eventually. And my advice to myself that I gave later was when you're young, stupid, and indestructible, that's the time to have these kids.

And that's one lesson that I would say young, stupid, and indestructible is a perfect combination for raising these kids. It's like their confidence, anticipation, and the David statue. Very good. Excellent.

It is exactly that. And that's exactly what you need because the Goliaths out there are going to be after you, and they're bigger than you, and they're stronger than you, and they got more weapons than you. But on the other hand, a little confident anticipation goes a long way. The same lesson applies to taking risks in the marketplace.

It's a confident anticipate. You've done your own work. Not a little of the work. We have stuff that doesn't work.

But if you keep doing it often enough and confident anticipation, enough of the work that you get ahead. I'm wondering whether this beginner's mind or almost this ignorance early in your career could be an asset. Do you think there's something to that and that the ignorance itself gets you to take the kinds of risks that people later that don't take? I would say, first of all, getting married is a huge risk.

And if you really knew how many people would actually... If you were told what was gonna happen, it's not perfect. Okay? But it's beautiful and well worth it.

And not knowing is better than knowing. And what does an entrepreneur do? Takes risk. You put money out.

You do not know what's gonna happen. So you have to have some anticipation. That's the way the whole free market works. The only reason people make lots of money, whether it's these AI companies or anybody else, is they're getting stuff to people that they want.

But they didn't know that in advance. They thought it would work, and so they had to take the risk of doing it. And I wouldn't have called it bliss. I would have called it risk taking.

And that's what entrepreneurs do. Then if you really ask me what I call it, it's entrepreneurial splendor at the end, that's the goal. That's what has to light you up because that one doesn't work and you're back down. Now you got to go back up again.

And it's entrepreneurial splendor that's the right term. Well, Chris, this has been an absolute masterclass. Thanks so much for jumping on. Oh, I'm delighted to.

I'm delighted to, David. Thank you very much.