Federated Hermes Q1 2025 Earnings Report

Federated Hermes EPS Results

• Actual EPS: $1.10
• Consensus EPS: $0.91
• Beat/Miss: Beat by +$0.19
• One Year Ago EPS: $0.89

Federated Hermes Revenue Results

• Actual Revenue: $423.54 million
• Expected Revenue: $425.43 million
• Beat/Miss: Missed by -$1.89 million
• YoY Revenue Growth: +6.80%

Federated Hermes Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: After Market Closes
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 9:00AM ET

Federated Hermes (NYSE:FHI) is a publicly owned investment manager. Through its subsidiaries, the firm provides its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organizations, state or municipal government entities, and registered investment advisors. Through its subsidiaries, it manages separate client-focused equity, fixed income, balanced and money market mutual funds along with separate client-focused equity, fixed income, money market, and balanced portfolios. Through its subsidiaries, the firm invests in the public equity and fixed income markets across the globe. It invests in growth and value stocks of small-cap, mid-cap, and large-cap companies. The firm makes its fixed income investments in ultra-short, short-term, and intermediate-term mortgage-backed, U.S. Government, U.S. corporate, high yield, and municipal securities. It employs both fundamental and quantitative analysis to make its equity investments. Federated Hermes, Inc. was founded in 1955 and is based in Pittsburgh, Pennsylvania with additional offices in New York City and London, United Kingdom.

Federated Hermes Q1 2025 Earnings Call Transcript

Key Takeaways

• Record AUM: Q1 assets under management reached $840 billion, driven by record money market assets of $637 billion.
• MDT equity momentum: MDT fundamental quant strategies generated $2.5 billion in Q1 net sales, more than doubling the prior quarter and building on $3.4 billion of 2024 inflows.
• Private markets expansion: Closed new European Direct Lending III and Global Private Equity Co-Invest funds while acquiring Rivington Energy to enhance renewable energy transition and infrastructure capabilities.
• Robust mandate pipeline: Entered Q2 with $3.9 billion in net institutional mandates yet to fund, led by MDT global equity, private equity, direct lending and sustainable credit strategies.
• Shareholder returns: Repurchased nearly 4% of shares for $120 million and increased the quarterly dividend by ~10% to $0.34 per share.

Presentation

[Operator]

Welcome to the Federated Hermes Q1 twenty twenty five Analyst Call At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

[Operator]

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

[Raymond Hanley, President at Federated Investors Management Company]

Thank you, Holly. Hello and welcome to our call. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes and Tom Donahue, Chief Financial Officer. And joining us for the Q and A are Safran Nasevi, who is the CEO of Federated Hermes Limited and Debbie Cunningham, our Chief Investment Officer for the money markets. During today's 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.

[Raymond Hanley, President at Federated Investors Management Company]

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?

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Thank you, Ray, and good morning all. I will review Federated Hermes business performance. Tom will comment on our financial results. We ended Q1 with record assets under management of $840,000,000,000 driven by record money market assets of $637,000,000,000 Looking first at equities. Assets increased by $1,500,000,000 from year end due mainly to net sales of 1,400,000,000.0 Equity sales in the first quarter were led again by our MDT fundamental quant strategies.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Looking at the MDT strategies in funds and SMAs on a combined basis, net sales were $2,500,000,000 in Q1, more than double the prior quarter's 1,200,000,000 Q1 continued the sales momentum from last year when net sales for these strategies reached $3,400,000,000 up substantially from $411,000,000 in 2023. For the second quarter through April 18, these strategies have had net sales of $345,000,000 We are also seeing MDT interest from institutional investors as evidenced by net sales of nearly $700,000,000 in Q1 and by MDT wins of $1,700,000,000 that have yet to fund. Q1 saw further improvement inflows from strategic value dividend strategies, both domestic and international. These strategies had Q1 combined fund and SMA net sales of $188,000,000 from combined funds and separate accounts compared to negative $221,000,000 of net redemptions in the prior quarter. For Q2 through April 18, these strategies had net sales in combined funds and SMAs of $47,000,000 We had net sales in 18 equity fund strategies during the first quarter, including the aforementioned MDT MidCap Growth, MDT LargeCap Growth, importantly, the MDT MidCap Collective, also MDT AllCap Core, MDT Large Cap Value and again, MDT Large Cap Growth ETF.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Looking at our equity performance at the end of the first quarter and using Morningstar data for trailing three years, forty four percent of our equity funds were beating peers and 31% were in the top quartile of their category. For the first three weeks of Q2, combined equity funds and SMAs had net sales of $2.00 $8,000,000 Now turning to fixed income. Assets increased by about $1,400,000,000 in the first quarter from year end due mainly to higher market valuations, partially offset by net redemptions. We had 19 fixed income funds with net sales in the first quarter, including government ultra short fund and the municipal ultra short fund. Regarding performance, at the end of the first quarter using Morningstar data for the trailing three years, forty four percent of our fixed income funds were beating peers and 18% were in the top quartile of their category.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

For the first three weeks of Q2, combined fixed income fund and SMAs had net redemptions of $888,000,000 In the alternative private markets category, assets increased by $562,000,000 in Q1 due mainly to the impact of FX rates and net sales of about $61,000,000 mostly in MDT market neutral fund. We are in the market with European Direct Lending III, the third vintage of our European Direct Lending Fund. To date, we've closed on approximately three fifty million dollars The target raise is about $750,000,000 and EDL one raised $300,000,000 and EDL two raised about $640,000,000 We're also in the market with global private equity co invest fund, which is the sixth vintage of the PEC, we call it the PEC series. First closed in April for about $114,000,000 with a target raise of about $500,000,000 PEC one through five raised about 400,000,000 to $600,000,000 in each fund. The Federated Hermes GPE Innovation Fund II, the second vintage of our Pan European Growth Private Equity Innovation Fund is in the market as well.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

And to date, we've closed on approximately $110,000,000 with a target raise of $300,000,000 Our first vehicle here raised about $240,000,000 We're also in the market with a European real estate debt fund, a new pooled European debt fund and it's marketing here in 2025 with an overall target of $300,000,000 Now we continue to develop our private markets business for growth. This month, we completed the acquisition of a majority interest in a UK renewable energy company called Rivington Energy Management Limited. The acquisition enhances our private markets platform by adding project development expertise and specialist energy transition sector experience to our institutional investment and asset management capabilities in the infrastructure asset class. This acquisition offers access to an existing renewables pipeline and a track record of innovation enabling us to identify emerging sub sectors with significant commercial opportunities and deal flow for future fundraising. We believe that access to high quality proprietary deal flow grounded on innovation and thought leadership will be critical to future fundraising.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

This combination creates the capability to manage end to end energy transition projects for investors and adds a highly complementary skill set and offering to our private markets business. Across our long term investment platform, we began Q2 with about 3,900,000,000.0 in net institutional mandates yet to fund into both funds and separate accounts. Equities expected net additions totaling 1,800,000,000.0 The wins are led by MDT with global equity participation. Approximately $1,700,000,000 of total net wins are expected to come into private market strategies. The wins are in private equity and direct lending.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Fixed income expected net additions total about $400,000,000 And the wins are in sustainable investment grade credit, active cash short duration and government bonds. Now moving to money markets. We reached another record high for money market assets at the end of the quarter, $465,000,000,000 and total money market assets of $637,000,000,000 Total money market assets increased by about $7,000,000,000 in the first quarter as money funds added $3,200,000,000 and money market separate accounts added 3,600,000,000 We were able to increase our money market managed assets in Q1 against seasonal factors that have often resulted in lower assets. Against the recent backdrop of market volatility, market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety in periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives such as bank deposits and direct investments in T bills and commercial paper.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Our estimate of money market mutual fund market share, including our sub advised funds, was about 7.1% at the end of Q1, down slightly from about 7.22% at the end of twenty twenty four. Looking at our money market fund market share changes from Q4 to Q1 over the prior four years, we saw an average decrease in that timeframe of about 34 basis points. Now, as we look at recent asset totals of the last few days, managed assets were approximately $828,000,000,000 including $629,000,000,000 in money markets, dollars 78,500,000,000.0 in equities, 98,000,000,000 in fixed income, 20,000,000,000 in alternative private markets, 3,000,000,000 in multi asset. Money market mutual fund assets were $456,000,000,000 Tom?

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Thanks, Chris. Total revenue for Q1 decreased slightly from the prior quarter as higher revenue from money market assets of $9,800,000 were offset mainly by lower revenue of $9,200,000 from fewer days and lower revenue of $3,200,000 from equity assets. Total Q1 carried interest and performance fees were $5,900,000 compared to $4,800,000 last quarter. Approximately $1,300,000 of the Q1 fees were offset by nearly the same amount of compensation expense. Q1 operating expenses decreased by $22,500,000 from the prior quarter due mainly to $13,700,000 of lower FX related expense.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

So the pound strengthened versus the dollar. And a credit up to $12,900,000 from a VAT refund. Compensation and related expense increased by $6,100,000 from the prior quarter due mainly to seasonally higher expenses for stock based compensation and payroll taxes. Advertising and promotional expense decreased due mainly to the timing of our advertising campaign spend. The Q1 tax rate of 23.6% was lower than the expected range.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

We expect the tax to be in the 25% to 28% range for 2025. The Q1 rate was impacted by The UK entity recording pretax income as a result of the $12,900,000 VAT tax refund with no additional tax as a result of valuation allowances from prior year tax losses offsetting this income and the net income attributable to non recurring non controlling interests, which are not taxed. At the end of Q1, cash and investments were $542,000,000 Cash and investments excluding the portion attributed to non controlling interests was $476,000,000 In addition to investments for growth, we seek to use acquisitions, dividends and share repurchases as levers to add value for shareholders. So far in 2025, we've used all three. In addition to the Rivington acquisition Chris already mentioned, the Board of Directors yesterday declared a $0.34 per share dividend, an increase of nearly 10% from the prior quarter dividend.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

During Q1, the company purchased just over 3,000,000 shares or almost 4% of its stock for about 120,000,000 Holly, we would like to open the call up for questions now.

[Operator]

Certainly. At this time, we will be conducting a question and answer If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. Your first question for today is from Ken Worthington with JPMorgan.

[Ken Worthington, Financial Analyst at JP Morgan]

Hi. Good morning. Thanks for taking the questions. I wanted to start sort of digging into the money market market share. So it looks like the industry money market fund AUM increased about $110,000,000,000 in 1Q, suggesting inflows.

[Ken Worthington, Financial Analyst at JP Morgan]

I think the federated money market fund AUM was up around $3,000,000,000 suggesting outflows. And we know the Money Market Fund business is very competitive. So maybe can you talk about the competitive environment, the shifts that you're seeing that might be driving this divergence in sort of growth? And it feels like we've seen this since the Fed began to cut. So any comments there?

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Ken, what did you mean by 3,000,000,000 of outflows when you were saying there were 3,000,000,000 of inflows?

[Ken Worthington, Financial Analyst at JP Morgan]

I'm sorry. What I tried to say was you had $3,000,000,000 of increased money market fund AUM, which actually suggests outflows for Federated in money fund assets for the quarter. So the industry had inflows. It looks like you had outflows. That's what I was getting at.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

I'm not sure I follow the math on that, Ken. This is Debbie. The inflows were definitely positive. They were not as positive as some others in the industry. Maybe just to break the quarter down a little bit.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

First of all, I'd start by saying, usually the first quarter is the worst quarter of the year on a cyclical basis for all the industry from a liquidity business standpoint. And this has to do with a lot of strength that comes from flows from the fourth quarter in a window dressing manner to some degree reversing in the first weeks and January of every year. That didn't happen this year. So that's a positive from an industry standpoint. What I'd also note is that from a percentage standpoint within the first quarter, through the March, our assets were up substantially more than what they ended up being positive for the end of the first quarter.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

That had a lot to do with starting with March 15, a substantial outflow due to corporate taxes that I think was probably a little bit worse for us just simply because of our larger institutional nature. And then secondly, towards the end of the quarter, it was a rougher quarter end, and I think a lot of that had to do with what was happening from a broader macro perspective with the tariff issues that had not yet been fully understood or announced, but concerns about them and the volatility that was happening in many of the other markets. Again, looking at our institutional nature, we had substantial outflows due to margin calls, think, on other customer institutional customers' other assets that came out of their liquidity portions. If we even carry that further now into the month of April, personal taxes and additional margin calls from institutional customers continue to be a negative play despite the fact that it's been a general positive trend to today within the month of April. But definitely a different first quarter than would be the norm in the money markets.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Ken, this is Tom. Just to give you the assets in the money markets. So December year end, we ended up at about $6.30 and March 31, '20 '5 we ended up at $6.37. And then more importantly for our revenue is the average assets. So the money market average assets in the end during Q4 were $6.00 1 and for Q1 were 639.8.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

So just

[Ken Worthington, Financial Analyst at JP Morgan]

Yep, got it. Appreciate that. And then just on the April data you gave in fixed income suggested some elevated fixed income outflows. What's sort of driving that? It seems to be sort of a change from what we saw in recent quarters?

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

The numbers there were basically made up of total return bond fund and high yield with about three fourths of the eight eighty eight being in total return and another the rest of it in high yield. One of the things that we're happy with is that the total return funds performance is improving. It hasn't moved to three year number yet, but it has moved to recent numbers. And so we are optimistic about that. The basic call there, which I think we mentioned on the last call was a kind of a defensive one that relative to others was not the greatest call for last year, but it's starting to look a lot better as we work through, this part of the year.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

So that's part of the ebb and flow going on there.

[Ken Worthington, Financial Analyst at JP Morgan]

Great. Thank you very much.

[Operator]

Your next question for today is from Patrick Davitt with Autonomous Research.

[Patrick Davitt, Partner at Autonomous Research]

Hey. Good morning, everyone.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Hi.

[Patrick Davitt, Partner at Autonomous Research]

So I appreciate that tax payments always make late March, early April seasonally weak. So maybe could you frame what you're seeing in money fund flows since tax day? And then higher level, perhaps for Debbie, an update on where you think we are in kind of that post fed rate cut institutional rotation into money funds that you've been talking about for some time? And then beyond that, have you seen any sign that the tariff noise is driving non US clients out of US money funds?

[Patrick Davitt, Partner at Autonomous Research]

Thank you.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

So I'll take the last one. Let Debbie take the first two if we can remember them all.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

But on the last one, we haven't seen any of that, of tariff noise causing international clients to do much of anything. So we'll start with that one. And then for Debbie's long term views on things.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

Sure. Maybe just to give a little bit of an update since the personal tax date on April 15. For the next week, basically, we have we saw pretty substantial flows back in. This is both from a retail as well as an institutional standpoint, a little bit less so this week. If I look at what we're expecting going through the 2025 time frame, from a rate cut standpoint, percent to 3%, three more likely with a fallback being 2%.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

That's from where we kind of started the year at one more likely with a fallback being 2%. But in any case, the expectations are for hire for longer. If you looked back to when this cutting season started in September of twenty twenty four, we were expected to be close to 2% already by now, given that we started with that 50 basis point rate cut back in September. So we're not anywhere near to there. And I think that both retail and institutional continue to enjoy the four plus handles that they have on their money market investments at this point with the expectation that even if they go down into the mid-3s, that's still a substantial win over where they had been for a very long period of time when rates were back at zero.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

Inflation definitely is a wild card. We continue to see sort of the hard data of inflation, the hard data of employment leaning towards a Fed that would be maintaining higher rates for a longer period of time and not lowering them at the pace that some of the industry is assessing. But when you look at some of the softer data, the confidence data, the survey data, ultimately, you've got a deterioration in that data that would that would lead you to maybe expect a little bit faster rate cutting policy by the Fed. And that still remains to be seen. We're going with the hard data for now.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

We're looking at fewer rate cuts than what necessarily the beginning of the year and the rate cutting cycle would have initially expected. And ultimately, that still brings continued positive flows from retail and institutional into the product. So it's happening. We continue to expect to keep that pace, if not grow it.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Patrick, this is Tom. Just the specific since the tax money stopped leaving, we're up about $5,000,000,000 and as Debbie said both on the money fund side and on the institutional side.

[Patrick Davitt, Partner at Autonomous Research]

Great. Thank you. There's a quick follow-up. There's obviously been a lot of FX noise in your numbers last few quarters. I guess what is the steady state number for that other line item without all of the FX noise now?

[Patrick Davitt, Partner at Autonomous Research]

And do you have an idea of what the impact is looking like so far in 2Q given all the FX volatility? Thank you.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Okay. So we have over £100,000,000 that we are hedging because of our UK office that earns revenue in dollars and has expenses in pounds. So it's a hedging thing and noise in Q4 the dollar versus the pound, the dollar was up and then in Q1, the pound was up. And so far this quarter, the pound is up. We'll see what happens.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

In terms of what's the normal steady state number in that other line, it's around 4,000,000.

[Patrick Davitt, Partner at Autonomous Research]

Thanks.

[Operator]

Your next question for today is from Bill Katz with TD Cowen.

[William (Bill) katz, Senior Equity Analyst at TD Cowen]

Okay. Thank you very much and good morning everybody. So based on your intra quarter update, I think you had bought back about 600,000 shares to early March and then you did $3,000,000 plus for the entire quarter, which would suggest a pretty substantial ramp even before the stock took an incremental hit with the whole sort of post Liberation Day market decline. So I guess the broader question is, what are the allocations for capital from here? And then just in terms of acquisitions, I appreciate you're building out the Alt platform.

[William (Bill) katz, Senior Equity Analyst at TD Cowen]

But are you looking at anything that might be a little more of size that could be a little bit more of a substantial shift in the profile of the ability to grow in the OLTZ platform? Thank you.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Yes, Bill, it's Tom. We bought 3,000,000 shares, over 3,000,000 shares and we just looked at what was going on and looked at our cash position. And we do have a number of things that we're looking at. There's nothing to announce or talk about. And some of them are maybe similar size to the Rivington thing and some of them are a little bit bigger.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

But of course, we'll have to see what happens there. In terms of the future for buying shares, we increased the dividend and we will remain active in the share price. I know last quarter we talked about why didn't we buy more in Q4 when the price was in the 40s and then the price went down and we decided to buy more. We still think it's undervalued and we will see basically each day what we're willing to buy. So that's giving no indication of what we're going to buy, but we will continue.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

We have about 2,700,000.0 shares left in approval from the board. So I would expect this year for sure that we would be renewing that. It's a new program.

[William (Bill) katz, Senior Equity Analyst at TD Cowen]

Okay. Thank you for that. And then just as a follow-up, as you go around your conversations and maybe it's a little too soon just given the intensity of the volatility coming off the quarter into the new quarter. But what are you hearing on the institutional side in terms of allocations? Where might the incremental interest be?

[William (Bill) katz, Senior Equity Analyst at TD Cowen]

Where are decision makings at this decision making, excuse me, at this point in time any delay? Or what are the conversations like and where you're the greatest opportunity for Federated? Thank you.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Well, on the institutional side, we are really happy about the 3,900,000,000.0 in mandates yet to fund. And we one of the most encouraging things is the interest in MDT. And part of the reason for that is their risk controls and the diversification that, that particular strategy offers, to say nothing about the performance over one, three, five and ten year period. And so, we're seeing a good bit of interest on that from the RFP perspective as well. The private equity and direct lending numbers are also, and as I mentioned them, I don't have to go over them again, but that's another $1,000,000,000 that we're very happy with.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Then active cash in short duration remains a constant part of enthusiastic activity.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

We have two accounts that we'll be funding. Actually, it's supposed to be the June. It will now happen in the July after the fourth of July holiday. That is a substantial win from another state's perspective. We are at a point in time, however, when most of the state accounts that we have are in basically the period where their assets start to decline on a cyclical basis.

[Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager at Federated Hermes]

But if you look at the growth that they've experienced on a year over year basis, it's still pretty substantial. So even though we would expect those assets to go down still on a year over year basis, they're substantially higher than before.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

And based on trips that three of us have taken out to Asia over the last three months, Yes, MDT. Yes, cash. Yes, trade finance. Yes, Asia ex Japan mandate. And yes, Geiers Equity Fund.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

So those are the ones that are gathering the most attention.

[William (Bill) katz, Senior Equity Analyst at TD Cowen]

Thank you very much.

[Operator]

Your next question is from Dan Fannon with Jefferies.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Thanks. Good morning. Wanted to follow-up on the strong equity flows in MDT in particular. Can you talk about the fee rate of that subset versus the active exist the rest of the overall equity franchise? And then maybe the performance of some of the products here of late given the strength in flows, how they have weathered here this most recent bout of volatility?

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

Well, the rough the performance has weathered very well. And I'll let Ray tell you about the fees.

[Raymond Hanley, President at Federated Investors Management Company]

Yes. Dan, the fee rates we talk about on a blended basis. If you took that down to the product level, the MDT equity strategies would be slightly below our average fee rate, but not materially below. And in terms of the performance comment, as Chris said, if you look at their strategies now post through the first couple of weeks of April, the three year records remain in the top typically in the top decile, top 2% for the large cap growth strategy, the top 2% for the large cap value strategy being example to that. So they came through the April volatility with their long term records intact and with good performance even during the period of volatility.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Got it. So just to confirm, these products are below the overall fee rate of the firm is what you said?

[Raymond Hanley, President at Federated Investors Management Company]

No. Of the equity fee rate.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Okay. Of the equity rate. And then what is the size of MDT as a percentage of the, whatever, 80 plus billion of equity products?

[Raymond Hanley, President at Federated Investors Management Company]

It's about 15,000,000,000.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Thank you. And then just in terms of expenses, if I could just follow-up, understanding the one time dynamic with the VAT charge and some of the FX stuff, but is the rest of the line items, are these reasonable jumping off points for the remainder of the as we think about 2Q and beyond?

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Sure, Dan. Comp is a little higher because of the seasonal things I mentioned, the stock based comp and the payroll and benefits in Q1. We got to take a little bit off of there. Distribution, what are the assets going to be that flows with the assets? We hope that goes up.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Systems and communications, we expect that to go up. Professional service fees and occupancy and intangibles, I don't see much changes. Advertising that flows with when we're doing our campaigns and we're starting campaigns. So that should go up a little bit. And travel, that will go a little bit up as our sales force gets out there more.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

When I say a little bit up in those categories, I'm talking like only $1,000,000 or something like that for the next quarter.

[Daniel Fannon, Managing Director - Research Analyst at Jefferies]

Great. That's helpful. Thank you.

[Operator]

Your next question is from John Dunn with Evercore ISI.

[John Dunn, Analyst at Evercore]

Hi. Maybe just to extend the fee rate conversation a little bit, particularly the pipeline. You mentioned the MDT rate, but overall it would seem that mix of the whole pipeline would be accretive. Could you maybe talk about where the blended average of the whole pipeline might be and where it compares to historical levels?

[Raymond Hanley, President at Federated Investors Management Company]

Well, it would be accretive given the skew toward private markets and to equity broadly and NDT in particular. Typically, if you look at our pipeline in the past, would have been weighted more toward some of the institutional fixed income strategies that have lower fee rates, including things like active cash short duration. So yes, the pipeline will be accretive to the overall blended fee rate of the company.

[John Dunn, Analyst at Evercore]

Got it.

[John Dunn, Analyst at Evercore]

And the MDT ETF came up earlier in your prepared remarks. You just remind us kind of like the outlook, how much AUM you have in active ETFs and the plan for maybe building out that roster?

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

So we plan to add a handful of ETFs each year. And there's always a rigorous, enthusiastic discussion about which candidates will be first and how that will turn out. The ETFs are over $800,000,000 right now as a group. And we also should add in that discussion a little bit on collectives, which is a completely different business and I know not the gravamen of your question, but it's another way of our being indifferent as to the buckets or the packaging, but getting the investment management through in different markets. So that's our strategy on active ETFs and we still feel we're in the early innings on the active ETFs and are ready to proceed.

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

And you asked the specific question about how much is in the MDT ETF, is that 25?

[Raymond Hanley, President at Federated Investors Management Company]

Yes. There are four active MDT ETFs and they collectively have about 250,000,000. They're they're relatively new. They were launched in in July of twenty twenty four.

[John Dunn, Analyst at Evercore]

Got it. Thank you.

[Operator]

Your next question is a follow-up question from Patrick Davitt. Your line is live.

[Patrick Davitt, Partner at Autonomous Research]

Thanks for the follow-up. So

[Patrick Davitt, Partner at Autonomous Research]

I

[Patrick Davitt, Partner at Autonomous Research]

think you said MDT had $15,000,000,000 of AUM. So that's a pretty incredible organic growth rate. Are there any capacity issues with them taking in that much money at one time?

[J. Christopher Donahue, President, CEO & Director at Federated Hermes]

No. And we're not looking like on any of those mandates that we're thinking about capacity issues. So we're quite enthusiastic about keeping the growth going.

[Patrick Davitt, Partner at Autonomous Research]

Great. Thank you.

[Operator]

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

[Raymond Hanley, President at Federated Investors Management Company]

Thank you for joining us today for

[Raymond Hanley, President at Federated Investors Management Company]

our call, and that concludes the call. Thank you.

[Operator]

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

Participants

Executives

• J. Christopher Donahue, President, CEO & Director
• Thomas Donahue, VP, Treasurer, CFO & Director
• Deborah Cunningham, Executive Vice President Chief Investment Officer Global Liquidity Markets Senior Portfolio Manager

Analysts

• Raymond Hanley, President at Federated Investors Management Company
• Ken Worthington, Financial Analyst at JP Morgan
• Patrick Davitt, Partner at Autonomous Research
• William (Bill) katz, Senior Equity Analyst at TD Cowen
• Daniel Fannon, Managing Director - Research Analyst at Jefferies
• John Dunn, Analyst at Evercore