Greetings and welcome to the Federated Hermes Third Quarter 2026 Analyst Call and Webcast. At this time, all participants are placed on a listen-only mode and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ray Hanley, President, Federated Investors Management Company. Sir, the floor is yours.

Thank you. Welcome to our call. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Sacher Nasebi, who is the CEO of Federated Hermes Limited, and Debbie Cunningham, the Chief Investment Officer for Money Markets. During today's call, we may make forward-looking statements, and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thanks, Ray. Good morning, all. I will review Federated Hermes' business performance. Tom will comment on our financial results. We ended the third quarter with record equity assets under management of $110.5 billion, up $949 million from Q2, as positive net inflows of $1.9 billion were partially offset by lower market valuations. Equity sales results were led by MDT fundamental quant strategies. had a record $6 billion in gross sales and $3.2 billion in net sales in the third quarter. Now, looking at fund performance rankings at the end of Q3, seven of nine MDT fund strategies were in the top performance quartile of their Morningstar categories for the trailing three years. We had net sales in 33 equity fund and SMA strategies during Q3, including a variety of MDT offerings. Institutional separate accounts, including sub-advisory mandates, added $1.5 billion in Q3 net sales, nearly all in MDT strategies. Now, looking at our equity fund performance at the end of the third quarter and using Morningstar data once again for the trailing three years, 56% of our equity funds were beating peers and 33% were in the top quartile of their category. Now for the fourth quarter through October 23rd, combined equity funds and SMAs had net sales of $242 million. Now turning to fixed income. Assets ended Q3 at $99 billion, net positive sales of $700 million, were offset by a decrease of $1.8 billion due to lower market values. We had 22 fixed income funds and SMAs with net sales in the third quarter led by the Sterling Cash Plus Fund, our ultra-short bond funds, total return bond ETF, conservative micro-short fund, and the C.W. Henderson short-term muni SMA. Fixed income institutional separate accounts had Q3 net sales of $924 million, driven by a large public entity that has regular sizable inflows and outflows. Regarding performance at the end of the third quarter and using Morningstar data for the trailing three years, 49% of our fixed income funds were beating peers and 21% were in the top quartile of their category. For Q4 through October 23rd, combined fixed income funds and SMAs had net redemptions of $2 billion, which includes $1.7 billion in redemptions from a client in the total return bond strategy who went in the direction of taking additional risk for this part of their multi-billion dollar mandate. On September 30, this fund, total return bond fund, ranked in the top third of its category for the trailing 10 years, 66 percentile for three years, top 28 percent for one year, and top 18 percent for the trailing three months. Now, in the alternative private markets category, assets were up slightly, reaching $21.7 billion. The MDT Market Neutral Fund and ETF combined for $180 million net sales. We're in the market with the Global Private Equity Co-Invest Fund, the sixth vintage of our PEC Series, and the European Real Estate Debt Fund, A new pulled European debt fund that will invest in senior and whole loans. Across our long-term investment platform, we began the fourth quarter with about $6.5 billion in net institutional wins yet to fund into both funds and separate accounts. Equity strategies are expected to have net sales of about 7 billion in MDT additions. Approximately 1.2 billion on a net basis is expected to come into private markets, including direct lending, private equity, and trade finance. Fixed income is expected to have net redemptions of about 1.7 billion, which includes the aforementioned redemption in the multi-sector field. Moving on to money markets. Total money market assets decreased by 27 billion, or 4%, from the second quarter, as funds decreased by 13.6 billion, or 3%, and separate accounts decreased by about 13.4 billion, or 8%. Money market fund assets were impacted by the mid-September increase in interest rates by the Fed, and by September's corporate tax payments. Money market separate account assets were impacted by the liquidity levels of large state pools that we manage and typically peak with tax collections at the end of the year through April before decreasing in Q2 and Q3. Our estimate of money market mutual fund market share including sub-advised funds was about 6.6% at the end of Q3, down from 6.7% at the end of Q2. Turning to digital assets, we continue active collaboration with financial institutions and technology providers to explore digital distribution. Our focus is liquidity. where our efforts are designed to enhance flexibility and accessibility while preserving the core structure and utility of money market funds. During the third quarter, our arrangement with Prometheum, Inc. was announced. We're working with Prometheum, a market infrastructure provider for crypto assets, to expand the reach of tokenized securities through their SEC-registered FINRA member broker-dealer market infrastructure. Prometheum will make our tokenized products available to broker-dealers and RIAs through its correspondent clearing platform. This follows the launch of our money market management digital treasury fund, which is expected to support both traditional and on-chain distribution. We have also selectively engaged with regulated digital asset intermediaries, including participation in the BNY Goldman Domestic Initiative involving mirrored tokenization. Also, the ArchEx Initiative to offer tokenized access to a USITS money fund in the UK. Our arrangement with Conduit Digital Holdings to support the launch of Conduit's tokenized money market fund in the APAC region with the Conduit Fund Investing and one of our offshore money market funds. We are engaged in digital asset development discussions with other intermediaries as well. Looking at recent asset totals, that was a few days ago, managed assets were approximately 890 billion, including 654 billion in money markets, 112 billion in equities, 98 billion in fixed income, 23 billion in alternative private markets and 3 billion in multi-asset. Money market mutual fund assets were 489 billion. Money market fund assets have ranged from 485 to 493 billion during October with average asset levels of 489 billion. Tom?

Thanks, Chris. For Q3, compared to the prior quarter, total revenue increased 4.6 million, or 1%. Equity asset growth added 8 million of revenues. An additional day added 5.3 million of revenues. These increases were partially offset by lower Q3 money market average assets, resulting in 4 million of lower revenues. In addition, Q2 included a $2.9 million gain on the sale of a renewable energy property by Rivington, and the UK real estate business had a $2 million real estate development fee for a project that did not advance into construction. Total Q3 carried interest and performance fees were $726,000 compared to $1.4 million in the prior quarter, Approximately 428,000 of the Q3 fees were offset by compensation expense. Q3 operating expenses decreased by 15.9 million, or 4% from the prior quarter, domainly to Q2 included approximately 11.2 million in transaction costs from the FCP acquisition in certain line items, also approximately 3.3 million of lower compensation and related expense, lower advertising and promotional activity, intangible asset expense decreased 1.5 million, primarily due to most of the intangible assets from the Hermes acquisition being fully amortized. These expense decreases were partially offset by a withholding tax related expense of 1.9 million recorded in the other expense line item. 1.7 million expense for an adjustment to the FCP contingent payment also recorded in the other expense line item. The Q3 effective tax rate was 27.1% We estimate the full-year tax rate to be in the 25% to 28% range for 2026. At the end of Q3, cash and investments were $580 million. Cash and investments excluding the portion attributable to non-controlling interests were $483 million. Holly, we would like to open the call up for questions now.

Thank you. Ladies and gentlemen, at this time we'll be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question key, and you may press star 2 if you wish to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is coming from Patrick Davitt with Autonomous Research. Your line is live.

Hey, good morning, everyone. I understand that 3Q is always a seasonally weaker fund flow quarter for you, but there was a pretty big gap with many of your largest competitors, like BlackRock had big inflows, JP Morgan had big inflows, Invesco had big inflows. I'd like to get a little bit more color on what you think explains that big gap with some of those big competitors and to what extent you're seeing more pricing competition, people trying to compete more aggressively on fees. Thank you.

Patrick, I'll go first and then we'll have Debbie give you the report from the field. So overall, there's nothing new about people periodically doing things either with fees or with portfolio construction that cause intermediate short-term alterations in the flows. And that's what was going on in this past quarter. And if you look at it over the 50-year period that we've been involved in this, this is like a routine deal. Debbie will give you more details.

Thanks, Chris. So, Patrick, as you know, we manage our money funds with a bias to daily liquidity at par. And as part of that process, On a daily basis, we identify maturity restrictions for different security types that we use, as well as for each of the approved issuers from our database that we use. And these restrictions, for the most part, are based on liquidity in the marketplace for those different security types, for those different issuers as they go out the curve, in addition to our own internal credit rating, which ranges from one to five for the various issuers. and this process really involves all three members of our team. It's our portfolio managers that are looking at the structure of the fund, it's our analysts that are reviewing the issuers, and it's the traders that are looking at the security types and the selections on a daily basis. And what we've determined is that historically, and in this particular case, we haven't been willing to extend our maturities beyond what I would traditionally call our comfort zone just because there's maybe some inordinate value and pursue that incremental yield out the curve, while in our minds that would mean sacrificing some of that true daily liquidity. So it's basically a performance issue based on our choice of what I'll call and many more.

And if you look at some of those other competitors you mentioned, some of their assets have walked out the door a little bit on them. So things are coming back to normal.

Okay. Interesting. Thank you. My follow-up is on expenses. Good control, again, in 3Q, which is nice to see. Could you maybe expand on how sustainable that is, what you're seeing heading into 4Q? and if you have any early view on how things are tracking in 27. Thank you.

I don't have a comment on 27 except, you know, you see our margin, which we are happy to see that, you know, go over 30, maintaining that and, you know, we've had a long-term goal trying to get to the industry, but that's a longer process. You know, I expect comp here in the in the fourth quarter to go up as we continue to grow. Distribution will follow, primarily how the money market assets go. And we're still spending some more in the systems and communication line item. And the rest of them, I don't see big changes for next quarter. And other is lots of other things that Go lots of different ways, which we don't really forecast that.

Thank you.

Thank you. Our next question is coming from Bill Katz with TD County. Your line is live.

Good morning. This is Robin Holbein for Bill Katz, and thank you for taking the question. Did you speak to the success you saw on the SMA side of the business during the quarter in equity and fixed income? Is there anything specific you've done in those channels that's resonating with investors and that might have driven the acceleration there?

That's a case of successfully repeating the sounding joy, standard blocking and tackling, making the calls and doing it for a long time. If you look at the long-term records, especially in the MDT field, You see consistent outperformance with their methodologies. And especially in the SMAs, it takes a little longer to make the sales, and it takes a little longer for redemption as well. So there was no magic. There was no silver bullet. It is just the power of a large distribution force with good long-term records that make that happen.

Robin, we commented on the performance, which is obviously outstanding, especially long-term for the MDT strategies. And I would just emphasize that the success we've had on the institutional account is diversified within several of the SMA strategies. So we've had nice wins and good pipeline composition from Variety of those strategies, all cap core, large cap value, small cap growth, large cap core, large cap growth. And so even in a quarter where with some equity market choppiness, which reflected itself in lower mutual fund flows, we were able to have strong Thank you. That's helpful. And for a follow-up, we thought the Promethean announcement was an interesting development.

Aside from your current digital products, where do you see this going? Does this accelerate the tokenization of some of your other non-tokenized funds, for example, NDT?

I don't think it actually accelerates anything. It is just steady as we go in exploring this new field. As I've said to this audience before, the clients aren't beating down the doors to get these products. This is really getting the infrastructure ready for tomorrow. No different than a lot of other examples of where the infrastructure has to change for the future. And so we are excited about our deal with Prometheum, with BNY, with ArchEx, and with Conduit, all of them. But it's hard to say, oh, this accelerates other things. We are focused, as I said in my remarks, on the liquidity portion. I would say the other securities are behind that from our point of view, but we'll be ready for that as well.

Thank you for taking the questions.

Thank you. Our next question is coming from Michael Cho with JP Morgan. Your line is live.

Hi, good morning. Thanks for taking my question. I just wanted to touch on the money funds discussion that we were having before. I mean, you share the AUM data, which is very helpful, but I was actually wondering how the relative revenue capture share might compare to some of the stats you provide on the AUM share, and if there's any bifurcation between the two that you might envision. and any implications you might be able to help us frame there. I know you gave some discussion on the yield and performance, which makes sense, but also thinking about how the revenue share might compare both to those statistics. Thanks.

So you're touching on something that we don't have great information on, which is market share of revenue. And this has been one of Chris's crusades for a long time, that to an owner-operator, that's a very important statistic. But we can't get it, so we don't know. So we only do it by inference. But it's what's behind the curtain in not doing the things that others do to periodically jump their yield, jump a bunch of assets, and then get back to regular. And I'll let Ray comment on the specifics of our revenue picture as much as we know.

Yeah, I would just echo that, Chris. We can't really do comparable revenue. I would stress that we have a lot of different pricing options across our money market franchise, reflecting our reach into different portions of the intermediary channels. But a lot of the attention, of course, are in the most institutional products, which tend to have the lower fee rate. Among the products that are more geared to retail, applications, which for us is not direct retail. It's still through intermediaries, but to the end client of the intermediary, we have tended to traditionally do better if you bifurcate the asset market share in that retail channel, which would be a positive influence to the blended fee rate overall for money markets.

Great. Thanks for all that, Collar. If I could just switch gears to MDT, you've had quite a bit of success there and you continue to make progress across a number of different channels. Just broadly from an industry perspective, there's been a lot made about tax-aware long-short products, the demand and the penetration that's having in terms of those products in market. I was wondering, given the success you've had with MDT, if tax-aware long-short is something you are or you may consider in the future just given the demand appetite there in the market today. Thanks.

Yes, we are working with various firms on those types of products that basically get added to by the advisor or put on top of the existing mandates. And I can't get into the details on any of those, but, yes, we're looking at that. But as soon as you say tax-aware, I think – C.W. Henderson. I know that wasn't your question, but that's on the muni side and on managing the gains and the tax situation. And that was what I mentioned in my remarks as going quite well. Overall, the message is that tax-aware is very important. But what we tell everybody is don't let taxes drive the truck. Underneath that, you've got to have good projects, They're heading in the right direction for you and not just having taxes control the outcome.

And just to add to that, the MDT market neutral strategy is a long-short strategy, and we've done well with that in terms of both performance and picking up consistent net inflows.

Thank you.

Thank you. Our next question is coming from John Dunn with Evercore ISI. Your line is live.

Thanks. Maybe just a little more on the institutional pipeline. Can you talk about any client concentrations and how quickly do you think mandates will fund and maybe the impact on the firm-wide fee rate? And then on the other end, any chunky redemptions you wanted to call out that you might see on the horizon?

Well, I'm going to let Ray give you those details, but first of all, we're going to stop and cheer on the number of $6.5 billion, one of the highest pipelines we've had.

Ray? Sure. When we talk about funding, John, the equity portion we expect to fund over the next two quarters, and that, as I mentioned, is coming from several directions. There are some large subadvised mandates in there, as well as some and more regular institutional separate account. As you know, the fee rates on each of those kind of applications would be less than what we would realize in regular 40 Act mutual funds. We are nonetheless, of course, happy to add as much of this as we can, even if it would have the impact of diluting the blended fee rate.

Got it. Maybe just on fixed income, given where we are with rates and where they're going, could you kind of frame where you expect demand for your suite to go from here and which products do you think are going to catch a bid?

It's going to be on the short end is going to drive the truck, but we're never going to really be behind on total return bond fund, which was basically our highest gross selling product during the third quarter. But the answer specifically to your question will be on the short side, and we have a beautiful array of products with ultra-shorts, micro-shorts, etc., for people who are wanting to step out the yield curve just a little bit.

Thank you. Thank you. Ladies and gentlemen, we have reached the end of our question and answer session, so I would like to turn the call back over to Mr. Hanley for closing remarks.

Thank you. That concludes our call and thank you for joining us today.

Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time and we thank you for your participation.