Financial Data and Key Metrics Changes - The company ended Q2 with record assets under management of $846 billion, an increase driven by gains from equity strategies [3] - Equity assets increased by $8.1 billion or 10% from the prior quarter, with Q2 equity net sales of $1.8 billion representing an organic growth rate of just under 9% [3] - Total revenue for Q2 increased slightly from the prior quarter, primarily due to higher revenue from more days in the quarter and revenue related to the Rivington acquisition [15] - Total Q2 carried interest and performance fees were $1.4 million compared to $5.9 million in the previous quarter [15] - The Q2 effective tax rate was 26.1%, with expectations for the rate to be in the 25% to 28% range for 2025 [16] Business Line Data and Key Metrics Changes - MDT equity strategies had net sales of $3.8 billion in Q2, up from $3.3 billion in Q1 [4] - Fixed income assets decreased by about $800 million or 1% in Q2, mainly due to net redemptions of $2.4 billion [6] - In the alternative private markets category, assets increased by $1.3 billion or 7% in Q2, primarily due to FX rates and net sales of $231 million [7] - Money market fund assets reached a record high of $468 billion, increasing by $3.1 billion in Q2 [12] Market Data and Key Metrics Changes - The company's estimate of money market mutual fund market share was about 7.11% at the end of Q2, up slightly from 7.1% at the end of Q1 [14] - Managed assets as of recent days were approximately $854 billion, including $642 billion in money markets, $91 billion in equities, and $98 billion in fixed income [15] Company Strategy and Development Direction - The company is actively working on product development plans with Rivington Energy Management to enhance its private markets platform [9] - The company is exploring opportunities in the digital asset space, including tokenized money market funds and digital asset infrastructure [12][13] - The company continues to look for acquisitions, particularly in the private markets space, emphasizing that the highest and best use of cash is for acquisitions [50] Management's Comments on Operating Environment and Future Outlook - Management views the tokenization of money market funds as incremental rather than disintermediating traditional money fund business [22] - The company expects ongoing innovation and growth in the digital asset space, with a commitment to exploring opportunities [14] - Management noted that the stablecoin market is currently about $250 billion, with expectations for significant growth, but emphasized that stablecoins cannot pay interest [36][40] Other Important Information - The company completed the acquisition of a majority interest in Rivington Energy Management, enhancing its capabilities in the renewable energy sector [9] - The company purchased approximately 1.5 million shares of its stock for about $64.5 million during the quarter [17] Q&A Session Summary Question: Update on stablecoin tokenization and its impact on traditional money fund business - Management sees it as incremental, with new customers and products, emphasizing the need for daily liquidity at par [22][24] Question: Growth in stablecoins and its impact on money market funds - Management believes the current stablecoin market is concentrated and that the Genius Act will define backing requirements, which could lead to increased supply in the treasury market [36][37] Question: Capacity concerns for MDT mid and small cap products - Management does not expect any capacity issues at this point, as methodologies and buying capabilities are robust [42] Question: Capital return priorities and M&A opportunities - Management emphasizes that the highest use of cash is for acquisitions and is actively exploring opportunities in the private markets [50] Question: Tokenization of money market funds and its potential impact on the industry - Management believes it is too early to estimate the size of growth from tokenization, viewing it as an additional distribution method [56][58]

Company Overview - Federated Hermes manages $845.7 billion in assets, including $211.3 billion in long-term managed assets: $89.0 billion in equity, $98.7 billion in fixed income, $20.7 billion in alternative/private markets, and $2.9 billion in multi-asset [12] - The company's total revenue for Q2 2025 was $424.8 million [14] - Federated Hermes has $634.4 billion in liquidity assets [10, 16] Asset Class Performance - Equity assets increased by $8.1 billion, a 10% rise from $80.9 billion as of March 31, 2025 [21] - Fixed-income assets decreased by $0.8 billion, a 1% decline from $99.5 billion as of March 31, 2025 [21] Revenue Diversification - In Q2 2025, money market funds contributed an average of 35% to revenue less distribution expense, with a high of 61% and a low of 13% [23] - Equity contributed an average of 43% to revenue less distribution expense, with a high of 56% and a low of 27% [23] - Fixed income contributed an average of 18% to revenue less distribution expense, with a high of 25% and a low of 11% [23] - Alternative/Private Markets and Multi-asset contributed an average of 9% to revenue less distribution expense, with a high of 19% and a low of 6% [23] Distribution Channels - U S Financial Intermediaries account for 67% of assets under management [26] - U S Institutional accounts for 26% of assets under management [26] - International accounts for 7% of assets under management [26] Capital Allocation - Since its IPO in 1998, Federated Hermes has allocated cash towards dividends (45%), share repurchases (35%), and acquisitions (20%) [77] - Total share repurchase, acquisition, and dividend payments since the IPO amount to $6.6 billion [78]

Investment Rating - The report suggests a weakening demand for US equities, with a notable shift towards European stocks, but maintains that the narrative of foreign investors abandoning US stocks is overstated [10][19][67]. Core Insights - Demand for US equities is declining, benefiting European stocks, with nearly US$37 billion flowing into European equity funds year-to-date, significantly higher than previous years [8][48]. - Despite the decline in US equity demand, foreign investors have continued to net buy US stocks, indicating that the market is not experiencing a complete withdrawal of foreign capital [10][20]. - The report highlights that US investors have been reallocating from domestic equities, with net sales of approximately US$24 billion since Liberation Day, while foreign investors have added to US stocks during the same period [20][28]. Summary by Sections Equity Flows - Net flows to international funds have increased dramatically since the end of 2024, indicating a shift in investor preferences [3][60]. - Flows to US equities have slowed down since the start of the year, with approximately 40% of weeks experiencing net outflows [11][12]. Regional Focus - European equities have become the primary destination for equity fund flows, with record inflows observed [48][50]. - The report notes that while flows to US stocks have decreased, the overall allocation to US equities has followed benchmark weight changes, suggesting a more passive adjustment rather than an active reallocation [53][57]. Investor Behavior - The report emphasizes that the decline in US equity flows is not solely due to foreign selling but is largely driven by US investors reallocating their investments [20][28]. - High-quality data indicates a slowdown in foreign demand for US stocks, but net foreign buying remains positive, countering narratives of a significant withdrawal [31][35]. Future Outlook - The report anticipates that the trends of reduced demand for US equities and increased interest in European stocks are likely to persist, influenced by ongoing policy uncertainties and currency market dynamics [67][68].

Core Viewpoint - Federated Hermes Inc. is well-positioned for growth due to steady improvement in assets under management (AUM), strategic acquisitions, and a strong liquidity position that supports sustainable capital distribution activities, enhancing shareholder value [1][4][6]. Performance Summary - Over the past year, shares of Federated Hermes (FHI) have increased by 28.4%, outperforming the industry growth of 9.7% and close peers [2]. - The company has a solid financial position with cash and investments totaling $541.8 million and manageable long-term debt of $348.2 million as of March 31, 2025 [6]. AUM Growth Factors - Federated's money market assets reached a record $637.1 billion as of March 31, 2025, reflecting a year-over-year increase of 10.1% [4]. - The company has recorded a compound annual growth rate (CAGR) of nearly 1% in total AUM through 2027, with money market assets being the primary driver [5]. Capital Distribution Strategy - In April 2025, Federated raised its quarterly dividend by 9.7% to 34 cents per share, marking the fifth increase in five years, with a current dividend payout ratio of 30% [8]. - The company has a share repurchase program authorized for 5 million shares, with 2.7 million shares remaining available for repurchase as of March 31, 2025 [9]. Earnings Performance - Federated has consistently surpassed earnings estimates, with an average surprise of 13.08% over the trailing four quarters [10]. - Projected earnings growth for the next three to five years is 36.4%, significantly higher than the industry average of 2.9% [10][11]. Earnings Estimates - The Zacks Consensus Estimate for FHI's earnings in 2025 is projected at $4.40, with a year-over-year growth estimate of 36.22% [12]. - Recent upward revisions in earnings estimates indicate analyst optimism regarding the stock's growth potential [14].

Core Viewpoint - The action plan emphasizes a shift from "scale" to "investor returns," addressing current issues in the industry and providing specific requirements for fund companies to focus on long-term investor returns rather than short-term growth [1] Group 1: Industry Transformation - The plan aims to create a turning point for high-quality industry development within three years, addressing operational philosophy biases and enhancing investor satisfaction [1] - A new floating management fee mechanism will be introduced to link fund performance with company income, encouraging fund managers to prioritize long-term performance [2] - The evaluation system will be restructured to reduce the weight of scale rankings and increase the emphasis on performance rankings, promoting a focus on long-term results [2] Group 2: Performance and Compensation - The compensation management system will be improved to provide reasonable rewards for outstanding fund managers, avoiding a one-size-fits-all approach that could lead to conflicts of interest [3] - The plan supports the rapid registration of ETFs and the development of floating fee products, enhancing the focus on equity investment and product innovation [3] Group 3: Governance and Risk Management - Fund company governance will be enhanced to prevent undue interference from major shareholders, ensuring independent board members fulfill their responsibilities [4] - The evaluation system for investment research capabilities will be strengthened, incorporating AI and big data while balancing traditional fundamental analysis [4] - Measures will be implemented to limit the number of products managed by individual fund managers, ensuring they can focus on a few high-performing funds [4] Group 4: Market Dynamics - The plan encourages the development of niche products by small and medium-sized institutions to compete effectively against larger firms, addressing the increasing head effect in the industry [5]

Analyst Update Data as of March 31, 2025 Federated Hermes, Inc. 1 25-30034 Forward-looking information This presentation is provided as of the date on the cover and contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking, including those related to product performance, the potential for business ...

Investment Rating - The report indicates a volatile environment for equity funds with significant inflows and outflows, particularly highlighting a negative trend in bond funds [1][2]. Core Insights - Equity funds experienced inflows of US$7.9 billion, while bond funds faced redemptions totaling US$20.1 billion during the week ending April 16, 2025 [1]. - Emerging Market (EM) funds saw outflows of US$3.2 billion, primarily driven by US$3.7 billion in redemptions from China funds [2]. - Developed Markets (DM) funds, particularly in Western Europe, showed resilience with inflows of US$6.0 billion, while North America faced outflows of US$6.3 billion [3][4]. Summary by Sections Fund Flows Overview - Global funds recorded inflows of US$8.7 billion, with gold funds also seeing a notable increase of US$7.6 billion [1]. - The report highlights a significant divergence in performance across regions, with MSCI Europe gaining up to 11% compared to a 3% loss in MSCI US [1][3]. Emerging Markets - EM funds resumed net outflows, with specific regions like Korea and Taiwan experiencing foreign outflows of US$0.9 billion and US$0.5 billion, respectively [2]. - Japan recorded a second consecutive week of foreign inflows amounting to US$1.1 billion, indicating a potential shift in investor sentiment [2]. Geographic Focus - The report provides detailed insights into fund flows by geographic focus, showing that North America and EM Asia faced significant outflows, while Western Europe and Japan attracted inflows [3][4]. - The cumulative flows to equity funds versus bond funds indicate a preference for equities in the current market environment [29][40]. ESG Funds - The report also touches on flows to ESG funds, indicating trends in both developed and emerging markets, with specific figures illustrating the performance of these funds relative to traditional funds [121][127]. Alternative Funds - Alternative funds, including gold and cryptocurrency funds, are highlighted for their performance, with gold funds showing a positive trend in inflows [144][149]. Local Intelligence - The report includes local intelligence on foreign investor flows in various Asian markets, indicating a mixed sentiment across the region [157][161].