Federated Hermes NYSE: FHI reported record assets under management to close the first quarter, supported by growth in equities and money market strategies, while also outlining near-term flows expected across its long-term businesses and providing an update on its recent acquisition of real estate manager FCP Fund Manager LP.
Record AUM driven by equities and money markets
CEO and President Chris Donahue said Federated Hermes ended the quarter with record AUM of $907 billion, “led by gains in equity and money market strategies.” Equity assets finished Q1 at a record $101 billion, rising $2.9 billion, or 3%, from year-end, including $2.2 billion of net sales.
Gross equity sales reached a record $9.1 billion in Q1, led by the firm’s MDT fundamental quant strategies. Donahue said MDT equity and Market Neutral strategies together delivered a record $5.8 billion in gross sales and more than $3.5 billion in net sales during the quarter.
For the second quarter through April 24, Donahue said MDT strategies posted $687 million of combined net sales in funds and separately managed accounts. He added that seven of nine MDT fund strategies ranked in the top quartile of their Morningstar categories for trailing three-year performance as of March 31.
Federated Hermes also pointed to growth in its MDT US Equity UCITS Fund, launched in June 2025, which has seen demand from clients outside the U.S. Donahue said the fund had $177 million in net sales in Q1 and grew to about $800 million in assets.
Overall equity flows remained positive into early Q2. Donahue said combined equity funds and SMAs recorded $606 million in net sales for Q2 through April 24.
Fixed income outflows; private markets fundraising and FCP acquisition
Fixed income assets ended Q1 at “just under” $100 billion, down $329 million from year-end, with $422 million of net redemptions in the quarter. Donahue said the firm still saw net sales in 25 fixed income funds and SMAs, led by three ultrashort funds, the Total Return Bond Fund (collective and fund combined), Short-Term Income, and its Core Agg and Core Plus SMAs. For Q2 through April 24, fixed income funds and SMAs had net redemptions of $214 million.
In alternatives and private markets, assets decreased slightly in Q1 as foreign exchange rates offset net sales of $82 million. Donahue said the MDT Market Neutral Fund and a recently launched ETF combined for $341 million of net sales, and trade finance strategies also posted positive net sales.
Federated Hermes completed a final close for its European Direct Lending III fund during the quarter, raising $780 million. Donahue compared that with prior vintages: EDL I raised $330 million and EDL II raised $700 million. He said the firm is now in market with:
- a global private equity co-invest fund (sixth vintage of the PEC series), with about $300 million closed to date; and
- a new pooled European Real Estate Debt Fund.
As previously announced, the firm completed its acquisition of an 80% interest in FCP Fund Manager LP on April 9. Donahue said the acquisition added $3.2 billion of managed assets at closing and brings “U.S. multi-family housing expertise” to complement its U.K.-based real estate capabilities.
Expected mandates and client-related equity redemption
Donahue said the long-term platform began the second quarter with about $1.1 billion in net institutional mandates “yet to fund” into funds and separate accounts. He said approximately $1.4 billion net is expected to come into private market strategies, including direct lending, private equity, and trade finance.
Fixed income was expected to have net sales of about $1.1 billion, including a Core Plus win of about $1.8 billion, partially offset by about $800 million redeeming from a government bond strategy.
However, Donahue said equity strategies are expected to have net redemptions of about $1.4 billion, as anticipated net global equity redemptions of $3 billion offset MDT additions of $1.7 billion. He said the global equity redemptions are “mainly sub-advised assets from an institutional client” that notified the firm of its intention to internalize management of those assets. Donahue said the decision was “not driven by performance,” noting it has generally been ahead of benchmark, and added the firm continues to have a relationship with the client in the EOS part of its business. On the timing, Donahue told analysts the departure is “probably a Q2 departure,” and that the fees on the mandate were “lower than the average bear.”
Money market assets hit another record; outlook for growth
Total money market assets reached another record at quarter end, increasing $2 billion to $685 billion. Donahue attributed some movement to seasonal patterns, noting money market separate accounts rose $8 billion while money market fund assets fell $6 billion versus year-end.
He said conditions remain favorable for cash, citing “relative safety in periods of volatility” and “attractive yields compared to alternatives like bank deposits and direct investments in T-bills and commercial paper.” Federated Hermes estimated its money market mutual fund market share, including sub-advised funds, at about 6.9% at the end of Q1, down from 7.0% at the end of 2025.
During Q&A, Chief Investment Officer for Money Markets Debbie Cunningham said her view on industry organic growth was largely unchanged, with money funds likely to grow in the single-digit range in 2026 after “double-digit growth in the high teens and then in the lower teens in both 2024 and 2025.” She cited government yields in the 3.72%–3.75% area and prime yields around 3.86%–3.90%, adding that tax-free taxable equivalents can translate to “yields in the 4%, 5%, and 6%” depending on the product. She also said she expects continued steady growth as assets move beyond the $8 trillion level, noting that as the asset base grows, “the percentage growth… starts to go down.”
Donahue added that recent managed assets were approximately $902 billion “as of a few days ago,” including $668 billion in money markets, $107 billion in equities, $101 billion in fixed income, $22 billion in alternatives/private markets, and $3 billion in multi-asset. He said money market mutual fund assets were $487 billion.
Digital initiatives and tokenized money market fund plans
Donahue described the firm’s work in digital assets as an “infrastructure evolution, not a speculative asset class.” He said the focus is on improving distribution efficiency, settlement speed, transparency, operational automation, and global reach while maintaining regulatory and fiduciary standards.
He highlighted an “upcoming launch” of the Money Market Management Digital Treasury Fund, expected to support both traditional and on-chain distribution. Donahue said the initial reserve share class will be non-tokenized and “GENIUS-compliant,” aimed at institutional investors and stablecoin issuers seeking high-quality reserve assets. He also said the company is developing an on-chain share class intended to place “official books and records on the blockchain infrastructure” once a fully digital transfer agency model is available.
Federated Hermes also plans to participate in a collaborative initiative between BNY and Goldman Sachs involving “mirrored tokenization” of money market fund shares to improve transferability, collateral utility, and real-time ownership tracking, according to Donahue. In addition, he said the firm is exploring digital sterling liquidity products in the U.K. and Europe and is participating in tokenized offerings where Federated Hermes funds are used as underlying assets, including an alliance with Archax to offer tokenized access to a UCITS money market fund.
On adoption, Donahue told JPMorgan’s Ken Worthington that client demand for tokenized products is currently “a very low percentage,” characterizing industry efforts as preparing for the future and “protecting our franchise,” while also acknowledging “a little FOMO in it.” Cunningham offered a longer-term view, saying that over 10 years she could see less than 25% utilization among retail customers and 25%–50% among institutional customers, depending on comfort with fiduciary considerations.
Financial results: revenue down sequentially; expense increase and capital return actions
Chief Financial Officer Tom Donahue said total revenue in Q1 fell $3.9 million, or 1%, compared with the prior quarter. He attributed the decline primarily to fewer days in the quarter, which reduced revenue by $10.5 million, and noted Q4 included $8.2 million in real estate development fees. Offsetting factors included higher average money market assets contributing $8.3 million of higher revenue and higher average equity assets adding $5.6 million.
Carried interest and performance fees were $388,000 in Q1 versus $1.6 million in the prior quarter; Donahue said about $283,000 of Q1 fees were offset by compensation expense. Operating expenses increased $5.4 million, or 2%, driven mainly by seasonally higher compensation and related costs of $8.5 million, including higher incentive compensation expense of $3.5 million. Distribution expense rose $3.4 million due to higher average fund assets. Transaction costs tied to the FCP acquisition were about $1.5 million in Q1 versus $1.3 million in Q4.
Looking ahead to Q2, Donahue said transaction and related costs already incurred include $6.2 million of purchase price treated as compensation expense and $4.6 million of primarily FCP lender consent fees in professional service fees, for an estimated transaction-related EPS impact of $0.11 in Q2. He also said Federated Hermes expects FCP to add approximately $12 million in revenue and $11 million in operating expenses in Q2, including a preliminary estimate of $3.8 million of intangible asset-related expense.
The effective tax rate was 26.1%, and Donahue said the company estimates a 25%–28% tax rate range for 2026. Cash and investments totaled $645 million at quarter-end, or $607 million excluding the portion attributable to non-controlling interests.
Donahue said the firm continued to deploy free cash flow via acquisitions, buybacks, and dividends in 2026. In Q1, Federated Hermes repurchased 1.2 million shares for $66 million. In April, it used $216 million in cash and $23.1 million in FHI Class B stock for the initial purchase price of the FCP acquisition. The board declared a quarterly dividend of $0.38, an increase of $0.04, which Donahue said was “up nearly 12% from the previous quarter” and marked the company’s 113th consecutive quarterly dividend.
About Federated Hermes NYSE: FHI
Federated Hermes, Inc is a global investment manager that provides a range of asset management solutions to institutional and individual investors. The company offers active strategies across equity, fixed income, multi-asset, liquidity, and alternative investments. Through its suite of mutual funds, separate accounts and collective investment vehicles, Federated Hermes seeks to deliver performance-driven outcomes aligned with client objectives and risk tolerances.
In addition to traditional investment management, Federated Hermes has developed specialized capabilities in sustainability and responsible investing, integrating environmental, social and governance (ESG) research into its investment process.
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