Federated Hermes Q2 Earnings Call Highlights

Key Points

• Record assets under management: Federated Hermes ended Q2 with $912 billion in AUM, driven by market appreciation and growth in equities and private markets. Equity assets reached a record $110 billion, while private-market assets rose $2.6 billion to $21.6 billion following the FCP acquisition.
• Strong investment-product demand: MDT equity and market-neutral strategies generated more than $3.5 billion in net sales, while fixed-income funds and SMAs recorded $362 million of third-quarter-to-date net sales. The company also had approximately $3.4 billion in institutional wins awaiting funding.
• Money-market assets eased, digital initiatives advanced: Total money-market assets declined $7.9 billion sequentially, though fund assets remained 7% above the prior year. Federated Hermes launched a digital Treasury fund and is developing an on-chain share class for institutional and stablecoin-related distribution.

Federated Hermes NYSE: FHI ended the second quarter with record assets under management of $912 billion, supported by growth in equities and private markets, while money market assets declined modestly from the prior quarter, executives said during the company’s analyst call.

President and CEO Chris Donahue said equity assets reached a record $110 billion at quarter-end, rising $8.8 billion, or 9%, from the first quarter, primarily reflecting market appreciation. Gross equity sales totaled $9.1 billion, near the prior quarter’s record level, while net redemptions were $1.1 billion. That figure included an expected $3 billion global equity sub-advisory redemption previously discussed by the company.

Equity and Fixed-Income Activity

Equity sales were led by Federated Hermes’ MDT fundamental quantitative strategies. MDT equity and market-neutral strategies generated a record $6 billion in gross sales and more than $3.5 billion in net sales during the quarter. Across the company’s equity platform, 35 equity fund and separately managed account strategies posted net sales, including $2.7 billion from MDT offerings, excluding market-neutral strategies, and $470 million from Strategic Value.

At the end of the quarter, 54% of the company’s equity funds outperformed their Morningstar peer groups over three years, while 30% ranked in the top quartile of their categories. Through July 24, combined equity funds and separately managed accounts had $61 million in net sales for the third quarter to date.

Fixed-income assets ended the second quarter at slightly more than $100 billion, up $689 million. Market appreciation added roughly $1 billion, partly offset by net redemptions and exchanges. The company cited net sales in 26 fixed-income funds and separately managed accounts, led by Core Plus and Core Aggregate SMAs, ultrashort bond funds and the Conservative Muni Micro Short Fund.

Donahue said the firm believes its fixed-income product range and investment management capabilities position it for positive flows. He noted increased interest in shorter-duration offerings such as ultrashort and conservative micro-short strategies. Through July 24, fixed-income funds and SMAs had generated $362 million of net sales in the third quarter.

Private Markets Expansion and Pipeline

Alternative private-market assets increased $2.6 billion during the quarter to $21.6 billion. The increase included $3.2 billion in U.S. multifamily real estate assets added through the early-April completion of Federated Hermes’ acquisition of an 80% interest in FCP Fund Manager, L.P.

The company said its MDT market-neutral fund and ETF recorded $150 million in net sales. Federated Hermes is also raising capital for the sixth vintage of its global private equity co-investment fund, which had closed on $300 million to date. The company said its first four private equity co-investment funds raised between $400 million and $600 million each, while the fifth raised $500 million.

At the beginning of the third quarter, the company had about $3.4 billion of net institutional wins yet to fund into funds and separate accounts. The expected inflows include approximately $1.7 billion in equity strategies, $1.3 billion in private-market strategies and $300 million in fixed income. Private-market commitments include expected additions in direct lending, private equity and trade finance.

Money Market Assets and Digital Initiatives

Total money market assets declined $7.9 billion, or about 1%, in the second quarter. Money market fund assets fell $2.9 billion from the first quarter to $500 billion, though they remained nearly $32 billion, or 7%, above the year-earlier level. Money market separate-account assets declined about $5 billion, which Donahue said was consistent with seasonal patterns among large state pools managed by the company.

The company estimated its money market mutual fund market share, including sub-advised funds, at about 6.7% at quarter-end, compared with 6.9% in the first quarter. Donahue said market-share movements can reflect a variety of factors, including client activity, retail yield programs, large capital-markets transactions and investors moving into ultrashort strategies.

Chief Investment Officer for Money Markets Debbie Cunningham said the first half saw volatility tied to large IPO and long-term debt transactions, including activity involving Amazon, Alphabet, Anthropic and SpaceX. She said money market funds remain attractive in a short-end rate environment of roughly 3.5% to 4.5% and that the company expects money market funds, separate accounts and pools to continue gathering assets.

Federated Hermes also discussed early-stage digital asset efforts. It recently launched the Money Market Management Digital Treasury Fund, designed to support traditional and on-chain distribution. The fund’s initial reserve shares class is non-tokenized and intended for institutional investors and stablecoin issuers seeking investments aligned with stablecoin reserve requirements. The company is also developing an on-chain share class using blockchain infrastructure for its official books and records.

Revenue, Expenses and Outlook

Chief Financial Officer Tom Donahue said second-quarter revenue increased $23.8 million, or 5%, from the first quarter. The FCP acquisition contributed approximately $14 million of revenue, while equity asset growth added $7.6 million and the additional calendar day added $5.1 million. Lower average money market assets reduced revenue by $8.4 million.

Operating expenses rose $17.3 million, or 5%, sequentially, driven largely by FCP acquisition costs, including $6.5 million in nonrecurring acquisition-related compensation and $3.2 million in higher professional service fees. Advertising and promotional costs increased $3.2 million, while intangible asset amortization rose $3 million, primarily because of the acquisition.

Donahue said some acquisition-related costs should decline in the next quarter, including the one-time compensation expense and professional service fees. Federated Hermes ended the quarter with $481 million in cash investments, or $416 million excluding the portion attributable to non-controlling interests. The company estimated its tax rate would range from 25% to 28% for 2026.

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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