How are conversations with investors tracking given the fund's solid year-to-date performance?

Investors like the performance, but the fund's category can be volatile. The portfolio manager focuses on dividend growth. The ETF version is also performing well, attracting new investors who understand the fund's strategy. The main challenge is managing security prices to maintain dividend growth. “The investors like the performance, but we don't like being in the category because we're either on the top of it or the bottom of it. And this always attracts the attention of the portfolio manager who just likes doing what he's doing, which is increasing the dividend growth of dividend and the dividend.”

Any updated outlook on potential money market fund asset growth for the year, given the rate outlook?

Management expects seasonality to return. Volatility in H1 was due to large IPOs and client movements. If the Fed maintains "higher for longer" rates, money market funds remain attractive. The market is predicting a rate increase in September, which management doesn't necessarily expect, but short-end yields are attractive. “But with the Fed situation, if it is really higher for longer, i.e., they don't do anything, that's fine with us. Remember, 3.5-or-so percent yield on a money fund is a great thing.”

What is the updated outlook for expenses, considering Q2 noise from the FCP acquisition?

Compensation-related expenses are expected to decrease by about $5 million next quarter due to the absence of one-time acquisition costs. Distribution expenses will follow money market assets. Systems and Communications are expected to increase by a couple of millions. Professional service fees are expected to decrease by about $6 million. “On the comp-related line, I expect in the next quarter, we won't have the onetime comp expense from them. We will have their ongoing. So that number to be down around $5 million.”

FHI

Federated Hermes (FHI) Q2 FY26 earnings call: guidance and Q&A

Q: Has investor interest in fixed income changed with higher rates, and can the strategy return to positive net flows?

Management believes fixed income can achieve positive net flows due to product variety (e.g., ultrashort funds, payer ETF) and strong investment management, especially if rates remain "higher for longer." They note some client movement into ultrashort funds and conservative muni micro short funds. “We think our products, including our payer ETF, which gives a little higher yield and the FAs and the clients like that. has had good response as well. And so we think the variety of products out the yield curve. The strength of the team and the investment management will entitle us to positive flows here in the foreseeable future in fixed income.”

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 31, 2026

Source: earnings call transcript

Executive summary

Federated Hermes Q2 FY26 — Record AUM Driven by Equity and Private Markets Growth

Federated Hermes achieved record assets under management in Q2 FY26, primarily fueled by strong performance in equity and private market strategies, despite significant expected redemptions in global equity. The firm is actively pursuing digital initiatives, including a new money market management digital treasury fund, to adapt to evolving market structures. While money market assets saw a slight decline, the company maintains a strong market position and anticipates continued growth in fixed income and private markets.

Highlights

Achieved record assets under management of $912 billion at quarter-end, led by equity and private market growth.
Equity assets reached a record high of $110 billion, increasing 9% from Q1.
MDT equity and market-neutral strategies achieved record gross sales of $6 billion and over $3.5 billion in net sales in Q2.
The long-term investment platform began Q3 with $3.4 billion in net institutional wins yet to fund.
Money market fund managed assets more than doubled from $208 billion to $500 billion over the last 7.5 years.

Concerns

Equity net redemptions were $1.1 billion in Q2, including an expected $3 billion global equity sub-advisory redemption.
Total money market assets decreased by $7.9 billion or 1% in Q2.
Money market mutual fund market share decreased from 6.9% at the end of Q1 to 6.7% at the end of Q2.
Q2 operating expenses increased by $17.3 million or 5% from Q1, primarily due to FCP acquisition costs.

Guidance & targets

Category	Target	Timeline	Confidence
Effective tax rate	25% to 28% medium materiality	FY26	High
Compensation and related expense (reduction)	down around $5 million medium materiality	Q3 · FY26	High
Systems and Communications expense (increase)	up a couple of millions low materiality	Q3 · FY26	Medium
Professional service fees (reduction)	down by about $6 million medium materiality	Q3 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Equity Record assets under management, with strong market value gains. Net redemptions included an expected $3 billion sub-advisory redemption. MDT strategies led sales. Assets Under Management: $110 billionGross Sales: $9.1 billionNet Redemptions: $1.1 billionFunds beating peers (3-year): 54%Funds in top quartile (3-year): 30%	—	—	9%	—
Fixed Income Assets increased slightly, driven by market appreciation, partially offset by net redemptions. Core Plus and Core Ag SMA, Ultrashort funds, and conservative muni micro short fund led net sales. Assets Under Management: $100 billionMarket Appreciation: $1 billionFunds beating peers (3-year): 39%Funds in top quartile (3-year): 19%	—	—	—	—
Alternative Private Markets Assets increased significantly, boosted by the FCP acquisition. New funds like the global private equity co-invest fund (PEC series) and European real estate debt fund are in the market. Assets Under Management: $21.6 billionIncrease from Q1: $2.6 billionFCP Acquisition Contribution: $3.2 billion	—	—	—	—
Money Markets Total money market assets decreased due to seasonality and client movements. Money market funds were up year-over-year despite a quarterly decrease. Separate accounts are impacted by state pool liquidity. Total Assets: $7.9 billion decreaseMoney Market Funds Assets: $2.9 billion decreaseMoney Market Separate Accounts Assets: $5 billion decreaseMarket Share (including sub-advised): 6.7%	—	-1% (total assets)	-1% (total assets)	—

FHI operating KPIs by quarter

FHI operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Assets under management (AUM)	$907B We ended Q1 with record assets under management of $907 billion led by gains in equity and money market strategies. Source: earnings call transcript	$912B We ended the second quarter with record assets under management of $912 billion, led by growth in equity and private market assets. Source: earnings call transcript	+0.6%
Assets under management (AUM) Equity	$101B Equity assets closed Q1 at a record high of $101 billion. Source: earnings call transcript	$110B Equity assets closed the second quarter at a record high of $110 billion. Source: earnings call transcript	+8.9%
Long-term net inflows Equity	$2.2B During Q1, equity assets increased by $2.9 billion or 3% from year-end driven by $2.2 billion in net sales. Source: earnings call transcript	-$1.1B Equity net redemptions in the second quarter were $1.1 billion, which included the expected global equity sub-advisory redemption of $3 billion that we discussed last quarter. Source: earnings call transcript	—
Long-term net inflows MDT Equity and Market-Neutral Strategies	$3.5B+ Equity sales results continue to be led by our MDT fundamental quant strategies, MDT equity and market-neutral strategies together had a record $5.8 billion of gross sales and over $3.5 billion in net sales in Q1. Source: earnings call transcript	$3.5B+ MDT equity and market-neutral strategies had a record $6 billion of gross sales and over $3.5 billion in net sales in the second quarter. Source: earnings call transcript	—
Assets under management (AUM) Fixed Income	<$100B Assets ended Q1 at just under $100 billion, down $329 million from year-end. Source: earnings call transcript	$100B+ Assets ended Q2 at just over $100 billion, up $689 million. Source: earnings call transcript	—
Long-term net inflows MDT Market Neutral Fund and ETF	$341M The M2 MDT Market Neutral Fund and recently launched ETF combined for $341 million in net sales. Source: earnings call transcript	$150M The MB2 Market Neutral Fund and its ETF combined for $150 million in net sales. Source: earnings call transcript	-56%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline	Details
Money Market Management Digital Treasury Fund	launch	—

Deals & partnerships

FCP Fund Manager LP Acquisition of an 80% interest in FCP Fund Manager LP, adding U.S. multifamily real estate managed assets.

The completion of the acquisition of an 80% interest in FCP Fund Manager LP in early April, added $3.2 billion of U.S. multifamily real estate managed assets.

Risks & headwinds

Global equity sub-advisory redemption Q2 FY26

$3 billion

Mitigation:Expected and discussed last quarter.

Money market separate account seasonality Q2 and Q3 annually

$5 billion decrease in Q2

Mitigation:Impacted by liquidity levels of large state pools, typically decreasing after tax collections.

Volatility in money market fund market share Q2 FY26

Decreased from 6.9% in Q1 to 6.7% in Q2

Mitigation:Attributed to large market deals (IPOs), client movements, and retail programs; management emphasizes long-term growth and revenue share over short-term asset share fluctuations.

Uncertainty in digital asset regulations Ongoing

Early-stage efforts, clients looking more for information than transaction ability

Mitigation:Engaging with regulated digital asset intermediaries; expecting engagements to grow as regulations clarify and platform develops.

What to watch in Q3 FY26

Compensation and related expense

Q3 FY26

Current $6.9 million increase in Q2

Target down around $5 million

Why it matters

This will indicate if the one-time acquisition-related compensation costs have indeed rolled off, impacting profitability.

On the comp-related line, I expect in the next quarter, we won't have the onetime comp expense from them. We will have their ongoing. So that number to be down around $5 million.

Find out whether FHI delivers this. Inve re-checks your case every morning.

Q&A highlights

Has investor interest in fixed income changed with higher rates, and can the strategy return to positive net flows?

Management believes fixed income can achieve positive net flows due to product variety (e.g., ultrashort funds, payer ETF) and strong investment management, especially if rates remain "higher for longer." They note some client movement into ultrashort funds and conservative muni micro short funds.

“We think our products, including our payer ETF, which gives a little higher yield and the FAs and the clients like that. has had good response as well. And so we think the variety of products out the yield curve. The strength of the team and the investment management will entitle us to positive flows here in the foreseeable future in fixed income.”

asked by Robin Holby · answered by John Donahue

2 min read 5 chapters

Detailed narrative

Record AUM and Segment Performance

Federated Hermes achieved a record $912 billion in assets under management, driven by strong growth in equity and private market assets. Equity assets reached $110 billion, up 9% from Q1, with MDT strategies contributing significantly to gross and net sales. Private market assets increased by $2.6 billion to $21.6 billion, boosted by the FCP acquisition and new fund launches.

Money Market Dynamics

Money market assets experienced a slight decrease of 1% in Q2, attributed to typical seasonality, large market deals, and client movements. Despite this, money market fund managed assets have more than doubled over the past 7.5 years, and the firm maintains a top-tier market share. Management noted that if the "higher for longer" interest rate environment persists, money market funds remain attractive.

Digital Asset Initiatives

The company is actively developing its digital asset platform, including the launch of a money market management digital treasury fund with both traditional and on-chain distribution. This dual-track approach aims to provide flexibility for institutional investors and stablecoin issuers, with ongoing engagement with regulated digital asset intermediaries as regulations evolve.

Acquisition Impact and Expenses

The acquisition of an 80% interest in FCP Fund Manager LP added $3.2 billion in U.S. multifamily real estate assets and contributed approximately $14 million to Q2 revenues. However, the acquisition also led to a $9.7 million increase in Q2 operating expenses, including $6.5 million in non-recurring compensation and $3.2 million in professional service fees.

Fixed Income Stabilization and ETF Strategy

Fixed income assets saw a modest increase of $689 million in Q2, with net flows stabilizing. Management expressed confidence in achieving positive net flows in the foreseeable future, citing a variety of products across the yield curve and strong investment management.

The firm continues to launch active ETFs, focusing on areas of traditional mutual fund success and high industry sales, with plans to explore active ETFs outside the U.S.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.