Federated Hermes, Inc.

Welcome to the Federated Hermes Q2 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. 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. Please note this conference is being recorded. I would now like to turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin.

Hello and welcome. Thank you for joining us today. Leading our call today will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Sacher Nassebi, the CEO of Federated Hermes Limited, and Debbie Cunningham, our Chief Investment Officer for Money Markets. During today's call, we will make forward-looking statements and want to note that our 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?

Thank you, Ray. Good morning, all. I will review Federated Hermes' business performance. Tom will comment on financial results. We ended the second quarter with record assets under management of $912 billion, led by growth in equity and private market assets. Equity assets closed the second quarter at a record high of $110 billion. During the second quarter, equity assets increased by $8.8 billion, or 9%, from the first quarter, reflecting solid market value gains. Gross equity sales were $9.1 billion in the second quarter, just about even with the first quarter's record level. 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. Equity sales results were again led by our MDT fundamental quant strategies. 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. Looking at fund performance rankings at the end of the second quarter, six 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 35 equity fund and SMA strategies during the second quarter, including a variety of MDT offerings, which contributed $2.7 billion, not including market neutral, which we'll discuss later, and strategic value, which had $470 million. Looking at our equity fund performance at the end of the second quarter and using Morningstar data for trailing three years, 54% of our equity funds were beating peers and 30% were in the top quartile of their category. For Q3 through July 24th, combined equity funds and SMAs had net sales of $61 million. Now turning to fixed income. Assets ended Q2 at just over $100 billion, up 689 million. Market appreciation added a billion and was partially offset by net redemptions and exchanges. We had 26 fixed income funds and SMAs with net sales in Q2 led by Core Plus and Core Ag SMA which combined for 190 million with three ultra-short funds that were up a combined $134 million, and the conservative Muni micro-short fund was up almost $100 million. Regarding performance at the end of Q2, and using Morningstar data for the trailing three years, 39% of our fixed income funds were beating peers, and 19% were in the top quartile of their category. Now for Q3 through July 24th, combined fixed income and SMAs had net sales of $362 million. In the alternative private markets category, assets increased $2.6 billion in Q2 to reach $21.6 billion. 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. The MD2 market neutral fund and its ETF combined, $450 million in net sales. Now, we're in the market with our global private equity co-invest fund, which is, of course, the sixth vintage of the PEC, the PEC series. To date, we've closed on $300 million. Peck 1 to 4 raised $400 to $600 million in each fund, and Peck 5 raised $500 million. We're also in the market with the European Real Estate Debt Fund, which is a new pooled European debt offering. Across our long-term investment platform, we began Q3 with about $3.4 billion in net institutional wins yet to fund into both funds and separate accounts. Equity strategies are expected to have net sales of about $1.7 billion, with MDT additions of $1.6 billion and a global equity additions of about $150 million. Approximately $1.3 billion on a net basis is expected to come into private market strategies, including direct lending of about $700 million, private equity of 538, and trade finance of 100 million. Fixed income is expected to have net sales of about 300 million, including total return bond, low duration, and high yield. Now moving on to money markets. Total money market assets decreased by 7.9 billion, or about 1%. Money market funds decreased by 2.9 billion or 1% from Q1, yet we're up almost 32 billion or 7% year over year. After ending 2025 at a record high of 508 billion, money market fund assets have decreased slightly over the first half of the year to 500 billion at the end of Q2. Money market separate accounts decreased by about 5 billion or 3%, similar to last year's Q2 decrease of 5.8 billion. Still, these assets were up about 10 billion or 6.4% year over year at the end of Q2. Money market separate account assets are impacted by the liquidity levels of the large state pools that we manage and typically peak with tax collections at year end through mid-April before decreasing in Q2 and Q3. Our estimate of money market mutual fund market share, including subadvised funds, was about 6.7% at the end of Q2, down from 6.9% at the end of Q1. Now looking back at the last seven and a half years or so of quarterly money market fund market share changes, we gained share in 14 quarters. We lost share in 14 quarters with two quarters of no change. The average share gain was 0.20. The average share loss was about 0.23. Our money market fund managed assets more than doubled from $208 billion to $500 billion over that period. This is certainly entrepreneurial delight from an owner-operator. And, of course, it's important to note that we remain in the top ten in every category of money market fund managed asset levels and the top five in prime and tax-free. Now let's talk about digital. Our digital initiatives include the recent launch of Money Market Management Digital Treasury Fund, which is expected to support both traditional and on-chain distribution. The Initial Reserve Shares class provides a non-tokenized genius compliance structure geared to institutional investors and stablecoin issuers seeking investments aligned with stablecoin reserve requirements. We are also developing an on-chain share class intended to place official books and records of that share class on blockchain infrastructure as we implement a digital transfer agency model. This dual track approach offers flexibility between traditional and on-chain record-keeping models. We have selectively engaged with Regulated Digital Asset Intermediaries focusing on tokenized funds as regulated financial instruments. We've previously discussed our participation in the BNY Goldman Domestic Initiative involving mirrored tokenization and the ArchEx Initiative to offer tokenized assets to a usage money market fund in the UK. We are engaged in the digital asset development discussion with several other intermediaries. These are early stage efforts. Our clients are currently looking more for digital asset information than transaction ability. We expect our engagements with intermediaries to grow as regulations clarify and as our digital assets platform and product development progress. Now let's look at the Recent asset totals as of a few days ago. Managed assets were approximately $899 billion. We should have picked the day before. Including $665 billion in money markets, $109 billion in equities, $100 billion in fixed income, $23 billion in alternative private markets, and $3 billion in multi-assets. Money market mutual fund assets were $490 billion. Money market fund assets have ranged from $490 billion to $501 billion during July, with average asset levels of $496 billion. Tom. Thanks, Chris.