FHI — Federated Hermes, Inc.

Summary of Federated Hermes Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Assets Under Management (AUM): Reached a record $871 billion, driven by gains in money market and equity strategies.
• Equity Assets: Increased by $5.7 billion (6% quarter-over-quarter), despite slight net outflows of $130 million due to client redemptions.
• Fixed Income Assets: Rose by $3.1 billion to a record $101.8 billion, with net sales of $1.7 billion in Q3, a significant recovery from previous redemptions.
• Money Market Assets: Increased by $18 billion to $653 billion, with money market fund assets at $492.7 billion.
• Revenue: Increased by $44.6 million (10%) from the prior quarter, attributed to higher money market and equity assets, performance fees, and a termination fee from a property trust restructure.
• Operating Expenses: Rose by $32.2 million (10%) due to higher distribution expenses and transaction costs related to acquisitions.

2. Strategic Updates and Business Highlights

• MDT Strategies: Continued strong performance with $2 billion in net sales for MDT equity strategies in Q3. Seven of eight MDT equity mutual fund strategies ranked in the top quartile for performance.
• International Expansion: Actively developing MDT distribution opportunities outside the U.S., with significant interest from global clients.
• Acquisitions: Announced the purchase of a controlling interest in FCP, a U.S.-based real estate investment manager, to enhance Federated Hermes' presence in the U.S. multifamily sector.
• Digital Initiatives: Launched tokenized money market funds and engaged in blockchain technology projects to enhance fund utility and transferability.

3. Forward Guidance and Outlook

• Institutional Pipeline: Approximately $2.1 billion in net institutional mandates expected to fund, with about two-thirds anticipated in Q4 2025.
• Fixed Income Outlook: Expected net redemptions of about $650 million in Q4, with mixed performance across different fixed income strategies.
• Continued Investment: Plans to resume share repurchases in Q4 after pausing due to acquisition negotiations.

4. Bad News, Challenges, or Points of Concern

• Equity Net Sales: Slightly negative net sales in Q3 due to significant client redemptions moving to passive strategies, indicating potential competitive pressures.
• Fixed Income Redemptions: Anticipated net redemptions in Q4, particularly in high-yield bonds, which could impact overall asset growth.
• Alternative Markets: A decline of $1.7 billion in alternative private markets assets, primarily due to real estate fund transactions and client-driven asset composition changes.

5. Notable Q&A Insights

• MDT Growth Potential: Management expressed optimism about the MDT franchise's growth, highlighting a robust pipeline and interest from various global clients.
• Expense Management: CFO indicated that while expenses are expected to rise due to acquisitions and investments, they anticipate revenue growth to offset these increases.
• Institutional Investor Sentiment: Management noted strong interest from institutional investors in reallocating from passive to active strategies, particularly in MDT offerings, suggesting a potential shift in market dynamics.

Overall, Federated Hermes reported strong financial performance in Q3 2025, with record AUM and strategic initiatives aimed at expanding their market presence, although challenges in equity net sales and fixed income redemptions present potential headwinds.