10-K: Federated Hermes Reports $829.6 Billion AUM in 2024, Navigating Regulatory Shifts and Market Volatility

Federated Hermes' 2024 10-K filing reveals a 9% increase in AUM to $829.6 billion amid evolving regulatory landscape and strategic shifts.

Summary

• Federated Hermes, a global investment manager, reported $829.6 billion in assets under management (AUM) as of December 31, 2024.
• The company operates in one segment: investment management.
• Investment advisory fees are the primary revenue source, based on AUM.
• As of December 31, 2024, Federated Hermes managed 176 Federated Hermes Funds, including 22 money market funds with $461.7 billion in AUM.
• Equity funds totaled $43.8 billion, fixed-income funds $45.6 billion, alternative/private markets funds $11.5 billion, and multi-asset funds $2.8 billion.
• Separate Account assets totaled $264.3 billion as of December 31, 2024.
• Total revenue increased by 1% to $1.632 billion in 2024, compared to $1.609 billion in 2023.
• The company is navigating a dynamic regulatory environment, with potential deregulation and shifts in SEC priorities expected under the new Presidential administration.
• The company is monitoring the impact of interest rate changes and financial market instability on asset values and fund flows.
• Federated Hermes had 2,072 employees as of December 31, 2024.
• The company is committed to diversity and inclusion, with 39% of employees being women.
• The company is facing increasing competition in the investment management business.
• The company is subject to various legal proceedings and regulatory matters.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While AUM increased, net income decreased and the company faces regulatory and competitive challenges. The outlook is uncertain.

Positives

• AUM increased by 9% to $829.6 billion.
• Money market assets increased 13% to $630.3 billion.
• Total revenue increased by 1% to $1.632 billion in 2024.
• The company is actively monitoring and responding to regulatory developments in the U.S. and internationally.
• The company is committed to diversity and inclusion, with 39% of employees being women.

Negatives

• Alternative/private markets AUM decreased 8% to $18.864 billion.
• Equity assets remained flat at $79.423 billion.
• Intangible Asset Related expense increased $65.5 million primarily due to an impairment of an indefinite-lived intangible asset.
• The company is facing increasing competition in the investment management business.
• The company is subject to various legal proceedings and regulatory matters.

Risks

• Potential adverse effects of a material concentration in revenue.
• Potential adverse effect of providing financial support to investment offerings.
• Risk of Federated Hermes money market offerings ability to maintain a stable net asset value.
• Potential adverse effects of increased competition in the investment management business.
• Potential adverse effects of declines in the amount of or changes in the mix of assets under management.
• Potential adverse effects of termination or failure to renew advisory agreements.
• Potential adverse effects of rising interest rates.
• Potential adverse effects of poor investment performance.
• Potential adverse effects of changes in laws, regulations and other regulatory requirements.
• Potential adverse effects of litigation, investigations, proceedings and other claims.
• No assurance of access to sufficient liquidity or capital.
• Potential adverse effects of reputational harm.
• Potential adverse effects of unpredictable events or consequences.
• Recruiting and retaining key personnel (human capital resource management risk).
• No assurance of successful acquisitions.
• Operational risks.
• Systems, technology and cybersecurity risks.
• Artificial intelligence risks.

Future Outlook

The company expects to continue to be impacted by regulatory developments and requirements, and is unable to fully assess the impact of these factors on its financial condition.

Industry Context

The investment management business is highly competitive, with intense competition among mutual fund and ETF providers. Federated Hermes competes with other investment managers, insurance companies, commercial banks, broker/dealers, and other financial institutions.

Comparison to Industry Standards

• The document mentions the Investment Company Institute (ICI) stating that at the end of 2024, there were over 7,000 open-end mutual funds and over 3,000 ETFs of varying sizes and investment objectives whose shares are currently being offered.
• The document does not provide specific comparisons to named competitors or projects, but it does state that Federated Hermes competes with investment alternatives offered by insurance companies, commercial banks, broker/dealers, deposit brokers, private markets/alternative product managers and other financial institutions.
• The document does not provide specific details on global benchmarks.

Legal Proceedings

• In August 2023, a class action lawsuit was filed, on behalf of the Federated Hermes, Inc. Employees Profit Sharing/401(K) Plan (Plan), in the U.S. District Court for the Western District of Pennsylvania (Western District) against Federated Hermes and certain other defendants alleging breach of their fiduciary duties of prudence and loyalty, and certain other causes of action, relating to administering the Plan.
• Federated Hermes, and a subsidiary, also filed suit in the Western District against its first two primary insurance carriers relating to Federated Hermes claims for coverage of certain losses incurred.
• On November 27, 2024, eleven Republican state attorneys general filed a lawsuit against three major asset managers alleging that the asset managers, motivated by environmental issues, colluded to reduce coal production through exercising their proxy voting authority over their significant shareholders in nine coal companies in violation of U.S. antitrust law.

Stakeholder Impact

• Shareholders are impacted by the company's financial performance, dividend payments, and stock repurchase programs.
• Employees are impacted by compensation programs, benefits, and diversity and inclusion initiatives.
• Customers are impacted by the investment performance of Federated Hermes Funds and Separate Accounts.
• The company's performance and regulatory compliance impact its reputation and relationships with stakeholders.

Next Steps

• Federated Hermes intends to discuss with the SECs Commissioners and Staff, either directly or through an industry trade group, repealing the mandatory redemption fee requirement applicable to registered institutional prime and municipal (or tax-exempt) money market funds.
• Federated Hermes intends to continue efforts to have legislation introduced in Congress that, if enacted, would permit the use of amortized cost valuation by money market funds and override the floating net asset value (NAV) and certain other requirements imposed under prior money market fund rule amendments and related guidance that became effective in 2016 for institutional prime and municipal (or tax-exempt) money market funds.
• Federated Hermes is evaluating the impact of the matters described on its business and offerings.

Key Dates