Federated Hermes Q3 Earnings Call Highlights

Key Points

• Equity assets reached a record $110.5 billion in Q3, driven by $1.9 billion in net inflows and strong demand for MDT strategies. MDT generated $3.2 billion in net sales, with about $6.5 billion in additional institutional wins awaiting funding.
• Fixed-income assets fell to $99 billion as $700 million of net sales were outweighed by $1.8 billion in market declines. Management expects demand to remain concentrated in ultrashort and microshort products, while early-Q4 fixed-income funds and SMAs recorded $2 billion in redemptions.
• Money market assets declined 4% to $654 billion amid seasonal tax payments and the Federal Reserve’s September rate move, but fund assets rebounded by $3.7 billion through Oct. 28. Federated also continued developing tokenized money-market distribution partnerships while prioritizing liquidity and infrastructure over rapid expansion.

Federated Hermes NYSE: FHI reported record equity assets under management in the third quarter of 2026, supported by net inflows into its MDT Fundamental Quant Strategies, while money market assets declined amid seasonal factors and the Federal Reserve’s September rate move.

Chief Executive Officer and President Chris Donahue said equity assets under management ended the quarter at $110.5 billion, up $949 million from the prior quarter. Positive net inflows of $1.9 billion were partly offset by lower market valuations. MDT Equity and Market Neutral Strategies generated record quarterly gross sales of $6 billion and net sales of $3.2 billion.

Institutional separate accounts, including sub-advisory mandates, recorded $1.5 billion in net sales during the quarter, nearly all of which were in MDT strategies. Donahue said seven of nine MDT fund strategies ranked in the top performance quartile of their Morningstar categories over three years. Across the company’s equity fund lineup, 56% of funds outperformed peers over that period and 33% ranked in the top quartile.

For the fourth quarter through Oct. 23, combined equity funds and separately managed accounts recorded net sales of $242 million.

Fixed-Income Flows and Pipeline

Fixed-income assets ended the third quarter at $99 billion. Net positive sales of $700 million were more than offset by a $1.8 billion decline from lower market values. Products with net sales included the Sterling Cash Plus Fund, Ultrashort Bond Funds, Total Return Bond ETF, Conservative Microshort Fund and CW Henderson Short-Term Muni SMA.

Institutional fixed-income separate accounts produced $924 million in quarterly net sales, driven by a large public entity with regular sizable inflows and outflows. However, through Oct. 23, combined fixed-income funds and SMAs had $2 billion in net redemptions. That figure included $1.7 billion in redemptions from a Total Return Bond strategy client that chose to take additional risk in another portion of its multibillion-dollar mandate.

Donahue said Federated Hermes expects demand in fixed income to be concentrated at the short end of the yield curve, citing its ultrashort and microshort offerings. He added that the Total Return Bond Fund remained the company’s highest-gross-selling fixed-income product in the third quarter.

The company began the fourth quarter with approximately $6.5 billion in net institutional wins awaiting funding across funds and separate accounts. Management expects about $7 billion of net sales from MDT equity additions, approximately $1.2 billion of net inflows into private markets, and roughly $1.7 billion in fixed-income net redemptions. Ray Hanley, president of Federated Investors Management Company, said the equity portion of the pipeline is expected to fund over the next two quarters and includes both large sub-advised mandates and institutional separate accounts. He noted these mandates generally carry lower fees than traditional ’40 Act mutual funds and could dilute the blended fee rate.

Money Market Assets Decline, Then Rebound

Total money market assets fell $27 billion, or 4%, from the second quarter. Money market fund assets declined $13.6 billion, while separate-account assets fell approximately $13.4 billion. Donahue attributed the fund decline partly to the Federal Reserve’s mid-September rate increase and corporate tax payments during September. Separate-account assets were also affected by liquidity levels at large state pools, which typically peak from year-end through April and decline in the second and third quarters.

Federated Hermes estimated its money market mutual fund market share, including sub-advised funds, at approximately 6.6% at the end of the third quarter, compared with 6.7% at the end of the second quarter.

In response to an analyst question about money fund flows relative to larger competitors, Donahue said periodic changes in competitors’ fees or portfolio construction can produce short-term flow differences. Debbie Cunningham, chief investment officer for money markets, said Federated Hermes prioritizes daily liquidity and has not been willing to extend portfolio maturities beyond its “comfort zone” to pursue incremental yield.

Donahue said money market fund assets had risen by $3.7 billion through Oct. 28, suggesting that flows were normalizing. During October, money market fund assets ranged from $485 billion to $493 billion, averaging $489 billion.

Digital Distribution Initiatives

The company continued to develop tokenized money market distribution arrangements. During the quarter, it announced an arrangement with Prometheum Inc., under which Prometheum’s broker-dealer infrastructure is expected to make Federated Hermes tokenized products available to broker-dealers and registered investment advisers through its correspondent clearing platform.

Management also cited participation in BNY and Goldman Sachs’ domestic mirrored-tokenization initiative, Archax’s planned tokenized access to a UCITS money fund in the United Kingdom, and an arrangement with Conduit Digital Holdings involving a tokenized money market fund in the Asia-Pacific region that will invest in one of Federated Hermes’ offshore money market funds.

Donahue said the company’s focus remains on liquidity and preparing infrastructure for future demand, rather than accelerating tokenization across its broader product lineup. “The clients aren’t beating down the doors to get these products,” he said.

Revenue, Expenses and Cash

Chief Financial Officer Tom Donahue said third-quarter revenue increased $4.6 million, or 1%, from the prior quarter. Equity asset growth added $8 million of revenue, while an additional calendar day added $5.3 million. Those gains were partly offset by $4 million of lower revenue from lower average money market assets.

Operating expenses declined $15.9 million, or 4%, sequentially. The decrease primarily reflected transaction costs recorded in the second quarter related to the FCP acquisition, lower compensation expense, lower advertising and promotional activity, and lower intangible asset amortization. The company recorded a 27.1% effective tax rate in the third quarter and estimated a 2026 full-year tax rate of 25% to 28%.

At quarter-end, Federated Hermes had $580 million in cash and investments, or $483 million excluding amounts attributable to non-controlling interests. Recent managed assets totaled approximately $890 billion, including $654 billion in money markets, $112 billion in equities, $98 billion in fixed income, $23 billion in alternative private markets and $3 billion in multi-asset strategies.

About Federated Hermes (NYSE:FHI)

Federated Hermes, Inc is a global investment management company that provides asset management services to individuals, financial intermediaries, corporations, governments and other institutions. The company manages a range of investment strategies, including equity, fixed-income, money market, multi-asset, alternative and liquidity management products.

Its offerings are distributed through mutual funds, exchange-traded funds, separately managed accounts, collective investment trusts and institutional mandates.

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