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 global investment management company that provides investment strategies and related services to institutions, financial professionals and individual investors. The company manages assets across a range of asset classes, including equities, fixed income, money market instruments, multi-asset strategies and alternative investments.

Its products and services include mutual funds, exchange-traded funds, separately managed accounts, collective investment funds and institutional mandates. Federated Hermes also offers liquidity-management solutions, wealth-management services and responsible-investing strategies. Through its Hermes division, the company provides active investment management and stewardship services, with an emphasis on sustainable investing and engagement with companies.

Federated was founded in 1955 and is headquartered in Pittsburgh, Pennsylvania. The company expanded its international and responsible-investing capabilities through its relationship with Hermes Investment Management, which became part of the company’s broader organization and contributed to the adoption of the Federated Hermes name. The firm serves clients in the United States and international markets through operations and investment teams in North America, Europe and other regions. J. Christopher Donahue serves as the company’s chairman and chief executive officer.

Federated Hermes Q1 2025 Earnings Call Transcript

Key Takeaways

• We ended Q1 with record $840 billion in assets under management, driven by a record $637 billion in money market assets.
• Equity net sales reached $1.5 billion from year-end, led by MDT strategies with $2.5 billion in Q1 sales—more than double the prior quarter—and $1.7 billion of institutional wins yet to fund.
• Fixed income saw net redemptions in Q1 despite a $1.4 billion valuation gain, with $888 million of outflows in Q2 through April 18.
• Alternative private markets grew by $562 million in Q1, highlighted by new fund closings (e.g., European Direct Lending III) and the acquisition of Rivington Energy to bolster energy transition expertise.
• Management boosted capital return by raising the quarterly dividend by nearly 10% to $0.34 per share and repurchasing almost 3 million shares (~4% of stock) for about $120 million in Q1.

Presentation

[Operator]

Welcome to the Federated Hermes Q1 2025 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

[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. Joining us for the Q&A are Saker Nusseibeh, 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. 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, CEO and President 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 billion, driven by record money market assets of $637 billion. Looking first at equities, assets increased by $1.5 billion from year-end due mainly to net sales of $1.4 billion. Equity sales in the first quarter were led again by our MDT fundamental quant strategies. Looking at the MDT strategies in funds and SMAs on a combined basis, net sales were $2.5 billion in Q1, more than double the prior quarter's $1.2 billion. Q1 continued the sales momentum from last year when net sales for these strategies reached $3.4 billion, up substantially from $411 million in 2023. For the second quarter through April 18th, these strategies have had net sales of $345 million.

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

We are also seeing MDT interest from institutional investors, as evidenced by net sales of nearly $700 million in Q1 and by MDT wins of $1.7 billion that have yet to fund. Q1 saw further improvement in flows from Strategic Value Dividend strategies, both domestic and international. These strategies had Q1 combined fund and SMA net sales of $188 million from combined funds and separate accounts, compared to negative $221 million of net redemptions in the prior quarter. For Q2 through April 18th, these strategies had net sales in combined funds and SMAs of $47 million. We had net sales in 18 equity fund strategies during the first quarter, including the aforementioned MDT Mid-Cap Growth, MDT large-cap growth, importantly, the MDT Mid-Cap Collective, also MDT all-cap core, MDT Large-Cap Value, and again, MDT large-cap growth ETF.

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

Looking at our equity performance at the end of the first quarter and using Morningstar data for trailing three years, 44% 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 $208 million. Now turning to fixed income. Assets increased by about $1.4 billion 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 Ultrashort Fund and the Municipal Ultra-Short Fund. Regarding performance, at the end of the first quarter, using Morningstar data for the trailing three years, 44% of our fixed income funds were beating peers and 18% were in the top quartile of their category.

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

For the first three weeks of Q2, combined fixed income fund and SMAs had net redemptions of $888 million. In the alternative private markets category, assets increased by $562 million in Q1 due mainly to the impact of FX rates and net sales of about $61 million, 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 $350 million. The target raise is about $750 million, and EDL I raised $300 million and EDL II raised about $640 million. 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 million with a target raise of about $500 million.

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

PEC one through five raised about $400 million-$600 million 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. To date, we've closed on approximately $110 million with a target raise of $300 million. Our first vehicle here raised about $240 million. 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 million. We continue to develop our private markets business for growth. This month, we completed the acquisition of a majority interest in a U.K. renewable energy company called Rivington Energy Management Limited.

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

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 subsectors 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. 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 $3.9 billion in net institutional mandates yet to fund into both funds and separate accounts. Equities expected net additions totaling $1.8 billion.

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

The wins are led by MDT with global equity participation. Approximately $1.7 billion of total net wins are expected to come into private market strategies. The wins are in private equity and direct lending. Fixed income expected net additions total about $400 million, 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 billion, and total money market assets of $637 billion. Total money market assets increased by about $7 billion in the first quarter as money funds added $3.2 billion and money market separate accounts added $3.6 billion. We were able to increase our money market managed assets in Q1 against seasonal factors that have often resulted in lower assets.

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

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. Our estimate of money market mutual fund market share, including our sub-advised funds, was about 7.10% at the end of Q1, down slightly from about 7.22% at the end of 2024. 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.

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

Now, as we look at recent asset totals of the last few days, managed assets were approximately $828 billion, including $629 billion in money markets, $78.5 billion in equities, $98 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were $456 billion. Tom? Thanks, Chris. Total revenue for Q1 decreased slightly from the prior quarter as higher revenue from money market assets of $9.8 million were offset mainly by lower revenue of $9.2 million from fewer days and lower revenue of $3.2 million from equity assets. Total Q1 carried interest and performance fees were $5.9 million compared to $4.8 million last quarter. Approximately $1.3 million of the Q1 fees were offset by nearly the same amount of compensation expense.

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

Q1 operating expenses decreased by $22.5 million from the prior quarter due mainly to $13.7 million of lower FX-related expense, as the pound strengthened versus the dollar, and a credit of $12.9 million from a VAT refund. Compensation and related expense increased by $6.1 million 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. We expect the tax to be in the 25%-28% range for 2025.

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

The Q1 rate was impacted by the U.K. entity recording pre-tax income as a result of the $12.9 million 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-controlling interests, which are not taxed. At the end of Q1, cash and investments were $542 million. Cash and investments, excluding the portion attributed to non-controlling interest, was $476 million. In addition to investments for growth, we seek to use acquisitions, dividends, and share repurchases as levers to add value for shareholders. In 2025, we have 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.

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

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

[Operator]

At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Ken Worthington with JPMorgan.

[Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co]

Hi. Good morning. Thanks for taking the questions. I wanted to start sort of digging into the money market. Market share.

[Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co]

It looks like the industry money market fund AUM increased about $110 billion in one Q, suggesting inflows. I think the Federated money market fund AUM was up around $3 billion, suggesting outflows. We know the money market fund business is very competitive. Maybe can you talk about the competitive environment, the shifts that you're seeing that might be driving this divergence in sort of growth? It feels like we've seen this since the Fed began to cut, so any comments there?

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

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

[Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co]

I'm sorry. What I tried to say was you had $3 billion of increased money market fund AUM, which actually suggests outflows for Federated and money fund assets for the quarter. The industry had inflows. It looks like you had outflows.

[Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co]

That's what I was getting at.

[Deborah Cunningham, Executive Vice President and CIO 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, 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. 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 early part of January of every year. That did not happen this year. That's a positive from an industry standpoint.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

What I'd also note is that from a percentage standpoint, within the first quarter, through the middle of March, our assets were up substantially more than what they ended up being positive for the end of the first quarter. That had a lot to do with starting with March 15th, 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. Secondly, towards the end of the quarter, it was a rougher quarter end. 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.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

Again, looking at our institutional nature, we had substantial outflows due to margin calls, I think, on 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 plague despite the fact that it's been a general positive trend to today within the month of April. Definitely a different first quarter than would be the norm in the money markets.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

Hey, Ken, this is Tom. Just to give you the assets in the money markets, so December year-end, we ended up at about $630 billion, and March 31, 2025, we ended up at $637 billion. More importantly for our revenue is the average assets. The money market average assets in the end during Q4 were $601 billion, and for Q1 were $639.8 billion.

[Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co]

Just to. 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? That seems to be sort of a change from what we saw in recent quarters.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

The numbers there were basically made up of Total Return Bond Fund and high yield, with about three-fourths of the $888 million being in total return and the rest of it in high yield. One of the things that we're happy with is that the total return fund's performance is improving. It hasn't moved the three-year number yet, but it has moved the recent numbers. We are optimistic about that.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

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 is starting to look a lot better as we work through this part of the year. That is part of the ebb and flow going on there.

[Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co]

Great. Thank you very much.

[Operator]

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

[Patrick Davitt, Senior Analyst at Autonomous Research]

Hey, good morning, everyone. I appreciate that tax payments always make late March, early April seasonally weak. Maybe could you frame what you are 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 have been talking about for some time?

[Patrick Davitt, Senior Analyst at Autonomous Research]

Have you seen any sign that the tariff noise is driving non-U.S. clients out of U.S. money funds? Thank you.

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

I'll take the last one and let Debbie take the first two if we could remember them all. On the last one, we have not seen any of that tariff noise causing international clients to do much of anything. We will start with that one. For Debbie's long-term views on things.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

Sure. Maybe just to give a little bit of an update since the personal tax date on April 15th, for the next week, basically, 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.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

If I look at what we're expecting going through the 2025 timeframe from a rate cut standpoint, two to three, three more likely with a fallback being two. That's from where we kind of started the year at one more likely with a fallback being two. In any case, the expectations are higher for longer. If you looked back to when this cutting season started in September of 2024, 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. We are not anywhere near to there.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

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-threes, that's still a substantial win over where they had been for a very long period of time when rates were back at zero. Inflation definitely is a wild card. We continue to see sort of the hard data of inflation, the hard data of employment leaning toward 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.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

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 lead you to maybe expect a little bit faster rate-cutting policy by the Fed. That still remains to be seen. We're going with the hard data for now. We're looking at fewer rate cuts than what necessarily the beginning of the year and the rate-cutting cycle would have initially expected. Ultimately, that still brings continued positive flows from retail and institutional into the product. It's happening. We continue to expect to keep that pace, if not grow it.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

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

[Patrick Davitt, Senior Analyst at Autonomous Research]

Great. Thank you.

[Patrick Davitt, Senior Analyst at Autonomous Research]

As 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? Do you have an idea of what the impact is looking like so far into Q given all the FX volatility? Thank you.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

Okay. We have over GBP 100 million that we are hedging because of our U.K. office that earns revenue in dollars and has expenses in pounds. It is a hedging thing. Yeah, noise in Q4, the dollar versus the pound, the dollar was up. In Q1, the pound was up. So far this quarter, the pound is up. We'll see what happens. In terms of what's the normal steady state number in that other line, it's around $4 million.

[Patrick Davitt, Senior Analyst at Autonomous Research]

Thanks.

[Operator]

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

[William Katz, Managing Director and Senior Equity Research Analyst at TD Cowen]

Okay. Thank you very much. And good morning, everybody. Based on your interquarter update, I think you had bought back about 600,000 shares through early March, and then you did 3 million 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-Labor Day market decline. I guess the broader question is, what are the allocations for capital from here? In terms of acquisitions, I appreciate you building out the alts platform. 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 alts platform?

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

Thank you. Yeah. Will, it's Tom.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

Yeah, we bought 3 million shares, over 3 million shares. We just looked at what was going on and looked at our cash position. We do have a number of things that we're looking at. There's nothing to announce or talk about. Some of them are maybe similar size to the Rivington thing, and some of them are a little bit bigger. 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?" The price went down, and we decided to buy more. We still think it's undervalued. We will see basically each day what we're willing to buy.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

That's giving no indication of what we're going to buy. We will continue. We have about 2.7 million shares left and approval from the board. I would expect this year for sure that we would be renewing that with a new program.

[William Katz, Managing Director and Senior Equity Research Analyst at TD Cowen]

Okay. Thank you for that. Just as a follow-up, as you're going 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, what are you hearing on the institutional side in terms of allocations? Where might the incremental interest be? Where are decision-making at this decision-making, excuse me, at this point in time? Any delay? What were the conversations like, and were you seeing the greatest opportunity for Federated? Thank you.

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

On the institutional side, we are really happy about the $3.9 billion in mandates yet to fund. One of the most encouraging things is the interest in MDT. 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 1, 3, 5, and 10-year period. We are seeing a good bit of interest on that from the RFP perspective as well. The private equity and direct lending numbers are also—I mentioned them, and I do not have to go over them again—but that is another $1.7 billion that we are very happy with. Active cash and short duration remains a constant part of enthusiastic activity.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

We have two accounts that will be funding. Actually, especially the end of June, it will now happen the beginning of July after the July 4th holiday.

[Deborah Cunningham, Executive Vice President and CIO at Federated Hermes]

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. If you look at the growth that they've experienced on a year-over-year basis, it's still pretty substantial. 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, CEO and President at Federated Hermes]

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, Geir's equity fund. Those are the ones that are gathering the most attention.

[William Katz, Managing Director and Senior Equity Research Analyst at TD Cowen]

Thank you very much.

[Operator]

Your next question is from Dan Fannon with Jefferies. Thanks. Good morning.

[Daniel Fannon, Managing Director and Senior Equity Research Analyst at Jefferies]

Wanted to follow up on the strong equity flows and MDT in particular. Can you talk about the fee rate of that subset versus 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, CEO and President at Federated Hermes]

The performance has weathered very well. I'll let Ray tell you about the fees.

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

Yeah. 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.

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

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 typically in the top decile, top 2% for the large-cap growth strategy, the top 2% for the large-cap value strategy being examples of that. 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 and Senior Equity Research Analyst at Jefferies]

Got it. 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 and Senior Equity Research Analyst at Jefferies]

Okay. Of the equity fee rate. 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 is about $15 billion.

[Daniel Fannon, Managing Director and Senior Equity Research Analyst at Jefferies]

Okay. Thank you.

[Daniel Fannon, Managing Director and Senior Equity Research Analyst at Jefferies]

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 to Q and beyond?

[Raymond Hanley, President at Federated Investors Management Company]

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. Systems and communications, we expect that to go up. Professional service fees and occupancy and intangibles, I do not see much changes. Advertising, that flows with when we are doing our campaigns and we are starting campaigns. That should go up a little bit.

[Raymond Hanley, President at Federated Investors Management Company]

Travel, that'll go a little bit up as our sales force gets out there more. When I say a little bit up in those categories, I'm talking like only $1 million or something like that for the next quarter.

[Daniel Fannon, Managing Director and Senior Equity Research Analyst at Jefferies]

Great. That's helpful. Thank you.

[Operator]

Your next question is from John Dunn with Evercore ISI.

[John Dunn, Managing Director and Senior Equity Research Analyst at Evercore ISI]

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 the 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?

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

Yeah, it would be accretive given the skew toward private markets and to equity broadly and MDT in particular.

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

Typically, if you look at our pipeline in the past, it would have been weighted more toward some of the institutional fixed income strategies that have lower fee rates, including things like active cash and short duration. Yes, the pipeline will be accretive to the overall blended fee rate of the company.

[John Dunn, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Got it. The MDT ETF came up earlier in your prepared remarks. Could 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, CEO and President at Federated Hermes]

We plan to add a handful of ETFs each year. There is always a rigorous, enthusiastic discussion about which candidates will be first and how that will turn out. The ETFs are over $800 million right now as a group.

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

We also should add in that discussion a little bit on collectives, which is a completely different business. I know not the gravamen of your question, but it is another way of our being indifferent as to the buckets or the packaging, but getting the investment management through in different markets. That is our strategy on active ETFs. We still feel we are in the early innings on the active ETFs and are ready to proceed. You asked the specific question about how much is in the MDT ETF. Is that 25?

[Thomas R. Donahue, CFO, Treasurer, and Vice President at Federated Hermes]

Yeah. There are four active MDT ETFs, and they collectively have about $250 million. They are relatively new. They were launched in July of 2024.

[John Dunn, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Got it. Thank you.

[Operator]

Your next question is a follow-up question from Patrick Davitt. Your line is live. Hey, thanks for the follow-up.

[Patrick Davitt, Senior Analyst at Autonomous Research]

I think you said MDT had $15 billion of AUM. That is a pretty incredible organic growth rate. Are there any capacity issues with them taking in that much money at one time?

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

No. We are not looking like on any of those mandates that we are thinking about capacity issues. We are quite enthusiastic about keeping the growth going.

[Patrick Davitt, Senior Analyst at Autonomous Research]

Great. Thank you.

[Operator]

We have reached the end of the question and answer session. 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 our call. 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

• Deborah Cunningham, Executive Vice President and CIO
• J. Christopher Donahue, CEO and President
• Thomas R. Donahue, CFO, Treasurer, and Vice President

Analysts

• John Dunn, Managing Director and Senior Equity Research Analyst at Evercore ISI
• Raymond Hanley, President at Federated Investors Management Company
• William Katz, Managing Director and Senior Equity Research Analyst at TD Cowen
• Patrick Davitt, Senior Analyst at Autonomous Research
• Kenneth Worthington, Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co
• Daniel Fannon, Managing Director and Senior Equity Research Analyst at Jefferies