Federated Hermes Q3 Earnings Call Highlights Growth and Challenges

Federated Hermes, Inc. ((FHI)) has held its Q3 earnings call. Read on for the main highlights of the call.

Federated Hermes’ recent earnings call presented a balanced view of the company’s performance, highlighting both significant achievements and operational challenges. The call underscored record assets under management, growth in equity and fixed income, and innovative digital initiatives, while also addressing negative equity net sales, a decline in alternative private markets, and increased FX-related expenses.

Record Assets Under Management

Federated Hermes concluded the third quarter with a remarkable milestone, achieving record assets under management totaling $871 billion. This achievement was largely driven by substantial contributions from money market and equity strategies, showcasing the company’s robust asset management capabilities.

Equity and Fixed Income Growth

The company reported significant growth in both equity and fixed income assets. Equity assets saw an increase of $5.7 billion, or 6%, from the previous quarter, while fixed income assets rose by $3.1 billion, reaching a record high of $101.8 billion. This growth highlights Federated Hermes’ strong performance in these sectors.

Strong MDT Equity Strategy Performance

Federated Hermes’ MDT equity strategies demonstrated impressive performance, with net sales of $2 billion in the third quarter. Notably, seven out of eight MDT equity mutual fund strategies ranked in the top performance quartile for the trailing one and three years, reflecting the company’s effective investment strategies.

Innovative Digital Asset Initiatives

In a move towards digital innovation, Federated Hermes announced the tokenization of two UCITS money market funds and is actively exploring other digital asset opportunities. This initiative underscores the company’s commitment to embracing new technologies and expanding its digital asset offerings.

FCP Acquisition

Federated Hermes has entered into an agreement to acquire a controlling interest in FCP, a U.S.-based real estate investment manager with $3.8 billion in assets under management. This acquisition marks Federated Hermes’ strategic entry into the U.S. real estate market, broadening its investment portfolio.

Equity Net Sales Slightly Negative

Despite solid net fund sales, Federated Hermes experienced slightly negative equity net sales, amounting to $130 million. This was primarily due to $1.5 billion in separate account net redemptions, highlighting a challenge in maintaining positive net sales.

Alternative Private Markets Decline

The company faced a decline in the alternative private markets category, with assets decreasing by $1.7 billion. This decline was mainly attributed to real estate fund transactions and restructuring of the U.K. Property Trust, indicating challenges in this segment.

Fixed Income Net Redemptions in Q4

Federated Hermes reported net redemptions of approximately $250 million in fixed income funds and SMAs through October 24. While there were positives in Ultrashorts and the Total Return Bond Fund, these were offset by negatives in high-yield bonds, reflecting a mixed performance in fixed income.

FX and Related Expenses Increase

The company experienced an increase in FX and related expenses by $9.4 million in the third quarter compared to the prior quarter. This was primarily due to the weakening of the pound against the dollar, impacting the company’s financials.

Forward-Looking Guidance

Looking ahead, Federated Hermes provided an optimistic outlook with a strong institutional pipeline and over $2.1 billion in net mandates yet to fund. The company plans to close the acquisition of FCP by the end of Q1 2026, marking its entrance into the U.S. real estate market. Federated Hermes remains committed to innovation and expansion across various sectors, with ongoing digital asset initiatives and strategic growth plans.

In summary, Federated Hermes’ earnings call highlighted a balanced mix of achievements and challenges. The company reported record assets under management and strong growth in equity and fixed income, while also addressing challenges such as negative equity net sales and increased FX-related expenses. Moving forward, Federated Hermes is poised for continued growth and innovation, with strategic acquisitions and digital initiatives paving the way for future success.