How I Invest with David Weisburd
00:38:15 · Christopher Donahue
[00:38:15] S1: 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 $100,000,000,000 in equities and $100,000,000,000 in fixed income and $25,000,000,000 in private markets.
00:39:44 · David Weisburd, Christopher Donahue
[00:39:44] S0: 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. [00:40:10] S1: 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, [00:40:53] S0: the next twenty, twenty five years for FHI?
00:40:56 · Christopher Donahue
[00:40:56] S1: 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
00:42:53 · David Weisburd, Christopher Donahue
[00:42:53] S0: 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. [00:43:08] S1: 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 [00:43:35] S0: 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.
00:43:35 · David Weisburd, Christopher Donahue
[00:43:35] S0: 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. [00:43:48] S1: 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 Euribor, 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.
00:43:48 · Christopher Donahue, David Weisburd
[00:43:48] S1: 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 Euribor, 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. [00:45:18] S0: 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?