Federated(FHI) - 2024 Q4 - Annual Report

Assets Under Management - Federated Hermes has $829.6 billion in assets under management (AUM) as of December 31, 2024, representing a 9% increase from $757.6 billion in 2023[20]. - The total managed assets include $630.3 billion in money market funds, $79.4 billion in equity funds, $98.1 billion in fixed-income funds, and $21.7 billion in alternative/private markets and multi-asset funds[16][23][26]. - Average managed assets increased by 12% year-over-year to $788.5 billion in 2024, compared to $706.0 billion in 2023[20]. - Federated Hermes managed $264.3 billion in Separate Account assets, which include assets from government entities, high-net-worth individuals, and pension plans[17]. - Approximately 51% of Federated Hermes' total revenue for 2024 was attributable to money market assets[133]. Revenue and Financial Performance - Revenue for 2024 was $1.632 billion, a 1% increase from $1.610 billion in 2023, with investment advisory fees decreasing by 2% to $1.098 billion[21]. - A significant portion of Federated Hermes' revenue is derived from investment advisory fees, which vary with the type of asset managed, with higher fees generally earned on multi-asset and equity offerings[141]. - Federated Hermes' financial condition can be materially adversely affected by significant declines in assets under management (AUM) due to market changes or regulatory developments[131]. - Poor investment performance can lead to decreased sales and increased redemptions, adversely affecting Federated Hermes' financial condition[153]. - Rising interest rates can adversely affect revenue from money market and fixed-income offerings, impacting overall financial condition[147]. Regulatory Environment - The SEC filed 583 total enforcement actions during its 2024 fiscal year, a 26% decrease compared to the 2023 fiscal year[50]. - The SEC's 2025 examination priorities include investment advisor fiduciary duties, compliance with new regulatory requirements, and cybersecurity[51]. - The SEC's climate change rule has faced legal challenges and may be further contested under the new administration[46]. - The SEC announced a regulatory freeze pending review of existing proposed regulations as of January 20, 2025[47]. - Federated Hermes intends to discuss with the SEC the repeal of the mandatory redemption fee requirement for certain money market funds[43]. Cybersecurity and Operational Risks - The company has established a robust cybersecurity program to manage material risks from cybersecurity threats[203]. - Federated Hermes employs various measures to mitigate cyber risks, including firewalls, system monitoring, and employee cybersecurity training[189]. - The company has experienced daily cyber incidents, but as of December 31, 2024, these incidents have not materially affected its financial condition[187]. - Hybrid work arrangements may increase risks related to cybersecurity and operational processes[199]. - The reliance on third-party service providers for technology and data management increases the risk of cyber incidents and operational disruptions[185]. Employee and Workforce Management - As of December 31, 2024, Federated Hermes had 2,072 employees, with 1,228 in Pittsburgh, 509 in London, and 59 in New York[97]. - Female representation among Federated Hermes' employees is 39%, with 33% on the board of directors and 10% among executive officers[110]. - Recruiting and retaining key personnel remains a challenge due to competitive market conditions and hybrid work environments[194]. - The investment management business is highly competitive, and employee turnover is tracked, with exit interviews conducted to improve retention strategies[98]. - The company has made a long-term commitment to enhancing its workforce diversity and providing an inclusive environment[111]. Strategic Initiatives and Future Outlook - Federated Hermes plans to continue efforts to introduce legislation allowing the use of amortized cost valuation by money market funds[43]. - The company continues to monitor the impact of the interest rate environment and instability in the banking sector on asset values and fund asset flows[92]. - Federated Hermes' business strategy includes seeking acquisitions of investment management companies, but there is no assurance of successful integration or collaboration[195]. - The introduction of new offerings requires significant time and resources, with risks including shifting customer preferences and regulatory compliance[138]. - Federated Hermes acknowledges potential reputational harm from regulatory proceedings, market downturns, and cyber incidents, which could adversely affect its financial condition[196]. Regulatory Compliance and Challenges - The difficulty and cost of complying with regulatory requirements increase with the complexity and number of new regulations[93]. - Federated Hermes has experienced increased operating expenses due to regulatory examinations and compliance costs, impacting its financial condition[169]. - The company is subject to various regulatory claims and litigation, which could impact its financial condition and operational focus[178]. - Changes in tax laws could materially impact Federated Hermes' offerings and financial condition, particularly if favorable treatment for ETFs is repealed[177]. - The Dodd-Frank Act may subject Federated Hermes to additional banking regulations if designated as a systemically important financial institution (SIFI), adversely affecting its business[172].