FEDERATED HERMES, INC. Q4 FY2025 earnings call

John Christopher Donahue reviewed business performance, Thomas Robert Donahue commented on financial results. Ended year with record AUM of $903 billion led by money market and equity gains. Q4 equity assets had increase, 2025 had record gross equity sales. Fixed income had net redemptions. Alternative and private markets had positive net sales and FCP acquisition progress. Planned Hong Kong office for strategic expansion. Began 2026 with about $2.7 billion in net institutional mandates yet to fund.

Equity: Ended year with record AUM of $903 billion. Q4 equity assets increased by $3.2 billion or 3% from prior quarter, full - year 2025 net equity sales $4.6 billion. MDT equity and market - neutral strategies had record $4 billion gross sales and over $2 billion net sales in Q4. Fixed income: Ended year at $100 billion, down $1.7 billion from prior quarter. Q4 net redemptions $2.8 billion. Alternative and private markets: Assets increased slightly, net sales positive. MDT market - neutral fund and recently launched ETF had $149 million net sales. Money market: Ended 2025 with record total money market assets of $683 billion. Q4 money market fund assets increased by $6 billion to $508 billion.

Q1 certain seasonal factors will impact results, expected about $10.2 million lower revenues and $2.6 million lower distribution expenses. Estimated tax rate for 2026 in 25 to 28% range. 2026年初有未注资机构指令情况，包括私人市场、权益、固定收益等方面的预计注入金额

Q: Good morning. Thanks for taking the question. First on distribution costs, if we look at distribution costs in the fourth quarter of this year compared to the fourth quarter of last year, they have jumped almost 25%, and essentially, all of that is coming from money market funds. But if we look at money market funds, the assets grew just 10%. So what is going on, and to what extent is there any sort of offset to these higher costs on the revenue side?

A: Hey, Kenneth. It's Ray. We had, last quarter, a significant amount of assets came into a share class where there are higher than average distribution expenses, and so that jumped by about $10 million last quarter in terms of both the distribution revenue and the related distribution expense. I think that's the majority of the attribution for the delta that you are speaking about. As you know, we have a lot of different share classes with different distribution fee arrangements, and so those kinds of changes in mix can impact that. As far as offsets, we do not really think of it that way. That is essentially the distribution expense that comes with distributing through the intermediaries, and we manage that the best we can. But there is no real direct way to offset that.

Q: Great. Thanks very much. Just want to refocus on the tokenization opportunity. Sort of wondering if you could talk a little about what you are hearing from end demand from clients, if you can maybe break down your commentary between more of the institutional kind of investor versus the retail? And what milestones would you anticipate either regulatory or legislative that we need to see to sort of see a faster uptake in the opportunity set?

A: So I will comment a little bit, and then Deborah will comment. So on the end demand from clients, it is not as robust as what you might suspect from all the press media and, in fact, all the work we are doing on it. It is getting ready for tomorrow. And we expect this will be the way things go down the road. But the end clients are perfectly sanguine about using the current products in the current way. And when you ask about milestones, you have got to get lots of money moving into these things in addition to lots of work being done on how they are structured. Almost every week, there is another new structure and a new idea that is very intriguing. And this is what we are keeping our eyes on, and basically, we are working on all of them. And a milestone would be when you start to see real money moving into them. There could also be some regulatory things, and that is really hard to predict because you do not know what structures you are going to obtain. And this is true both in the US and globally. Maybe Deborah can talk to this, but when I was in Singapore and Hong Kong last year for the same event Deborah was, both of those and government entities, Singapore and Hong Kong, were most anxious to be the tokenized headquarters for trading money funds, and they were well down the road of organizing their government entities. But how much is in it and how much money is actually flowing there is another question.

Q: Great. Thank you. And then just as a follow - up, MDT has done very well for you for quite a while now. And it seems like it is off to a good start into the New Year as well. Maybe just a two - part question. What is the underlying driver of the demand? And then secondly, are there any capacity constraints as you look across that portfolio?

A: Well, let us deal with the second one first. Capacity implies a number, and we do not look at it exactly like that. It is a very complex question as to how to look at what you have raised. And as we have done in other cases, this is rigorously analyzed by PM CIOs and everybody on the basis that how can we continue to offer the product with the kind of alpha that it is being offered in the environment. We do not see any so - called capacity constraints at this time or in the foreseeable future. Now on the other question about the demand, the demand is across the board. So far, our enlivened Salesforce has been able to consult with a lot of people showing how the MDT various offerings and their pure style box discipline has caught on very well in the intermediary space. And as you have heard in my comments about big institutions also coming into this, it is also on the big separate accounts as well. And so the demand in short terms is both retail and institutional.