Federated Hermes (NYSE:FHI) executives highlighted record assets under management, continued momentum in money market strategies, and improving equity flows during the company’s fourth-quarter 2025 analyst call. Management also discussed product expansion, tokenization initiatives, and the pending acquisition of real estate specialist FCP.
Assets reach record $903 billion, driven by money markets and equities
Chief Executive Officer Chris Donahue said the firm ended 2025 with a record $903 billion in assets under management, led by gains in money market and equity strategies. As of late January, managed assets were approximately $909 billion, including $684 billion in money markets, $101 billion in equities, $101 billion in fixed income, $19.5 billion in alternatives/private markets, and $3 billion in multi-asset strategies.
Equity sales improve, led by MDT strategies and new wrappers
Donahue said equity assets increased by $3.2 billion, or 3%, in the fourth quarter versus the prior quarter, with about half of the increase coming from net sales. He pointed to record gross equity sales of $31 billion in 2025, including $9 billion in the fourth quarter. Fourth-quarter net equity sales were $1.5 billion, and full-year 2025 net equity sales were $4.6 billion, which management said was a substantial improvement from net redemptions of $10.7 billion in 2004.
Results were driven by MDT fundamental quantitative strategies. MDT equity and market neutral strategies recorded a fourth-quarter record of $4 billion in gross sales and more than $2 billion in net sales. For 2025, MDT posted record gross sales of $19.1 billion and record net sales of $13 billion. Through Jan. 23, these strategies had net sales in combined funds and separately managed accounts of just under $700 million.
Management also provided performance and product updates. As of Dec. 31, six of nine MDT strategies were in the top performance quartile of their Morningstar categories for the trailing three years, and four were in the top decile. The firm launched the MDT U.S. Equity UCITS Fund in June 2025 and reported more than $500 million in net sales from inception through year-end, citing demand from clients outside the U.S. For the broader equity platform, Donahue said 49% of equity funds were beating peers over the trailing three years and 27% were in the top quartile, using Morningstar data. Combined equity funds and SMAs had net sales of $432 million through Jan. 23.
In response to questions about product development, Donahue said the firm’s focus has been expanding “wrappers” and channels for MDT—moving from its SMA roots into mutual funds, ETFs, collective investment trust formats, market neutral offerings, and overseas distribution via UCITS.
Fixed income redemptions offset pockets of demand; private markets fundraising continues
Fixed income assets ended the year at $100 billion, down $1.7 billion from the prior quarter. Donahue said fixed income had fourth-quarter net redemptions of $2.8 billion, including about $1.7 billion from two large public entities with regular, sizable inflows and outflows. The quarter’s net redemptions also included a $1 billion high-yield fund redemption that had been included in third-quarter pipeline numbers.
Despite the outflows, management noted 28 fixed income funds and SMAs had net sales in the quarter, led by ultrashort funds ($624 million), Total Return Bond (about $200 million), Short-Term Income (over $100 million), and a Core Plus SMA (almost $100 million). Through Jan. 23, combined fixed income funds and SMAs had net sales of $139 million. Using Morningstar data, management said 42% of fixed income funds beat peers over the trailing three years and 18% were in the top quartile.
In alternatives and private markets, Donahue said assets increased slightly and net sales were positive. The MDT Market Neutral Fund and a recently launched ETF combined for $149 million of net sales. Positive net sales were also cited in the European Direct Lending Fund III, private equity funds, and a project and trade finance tender fund, partially offset by net redemptions in real estate strategies.
The firm held the final close of European Direct Lending III in January, raising $780 million. Management compared this with $330 million raised in the first vintage and about $700 million in the second. The company is also marketing a Global Private Equity Co-Invest Fund (the sixth vintage in the series), with approximately $300 million closed to date, and a new European Real Estate Debt Fund.
Tokenization work continues, but client demand still developing
Executives spent significant time on tokenization and digital asset initiatives tied to money market funds. Donahue said end-client demand is “not as robust” as press coverage might suggest, describing the current work as preparation for how the market may evolve. Money market CIO Debbie Cunningham said use cases identified in the U.S. include distribution diversification and operational benefits for collateral and margining, citing the appeal of instantaneous settlement and real-time ownership.
Management highlighted several initiatives:
- A partnership with Archax, described as the first FCA-regulated digital securities exchange to offer tokenized U.S. money market funds, enabling professional investors to hold beneficial ownership tokens across multiple blockchains and access liquidity on-chain.
- In the U.S., Federated Hermes acts as sub-adviser for the Superstate Short Duration US Government Securities Fund, a private tokenized fund.
- Participation in a BNY and Goldman Sachs initiative using “mirrored tokenization” of money market fund shares. Executives described this as tokenizing the process while maintaining a traditional fund structure, with BNY keeping traditional books and records while also maintaining a digital ledger (“dual processing”).
On stablecoins, Cunningham said the firm has learned that stablecoins must be backed 100% by defined collateral under evolving rules discussed on the call, and she emphasized that stablecoins are not allowed to pay interest or dividends. Management framed “Genius-compliant” money market funds as potential collateral backing for stablecoins.
Financial results: revenue rises 3% sequentially; Q1 seasonality outlined
Chief Financial Officer Tom Donahue said fourth-quarter revenue increased $13.4 million, or 3%, compared with the prior quarter, with higher money market assets contributing $8 million and higher equity assets adding $5.5 million. Fourth-quarter revenue included $8.2 million in real estate development fees for projects that did not advance into construction, recorded in “other service fees.” Carried interest and performance fees totaled $1.6 million, down from $3.6 million in the prior quarter.
Operating expenses rose $7.3 million, or 2%, sequentially, primarily due to an $8.8 million increase in distribution expense from higher fund assets. The company also incurred about $1.3 million of transaction costs related to the pending FCP acquisition, largely professional service fees. Donahue said additional transaction costs in 2026 are estimated at approximately $9.2 million, with timing tied to an expected second-quarter closing date and much of the cost expected to be lending consent fees.
The effective tax rate was 24.4%, and management estimated a 2026 tax rate range of 25% to 28%. Cash and investments were $724 million at year-end, or $680 million excluding amounts attributable to non-controlling interests. Management said it expects to use $215.8 million in cash and $23.2 million in FHI Class B stock for the initial purchase price of the FCP controlling-interest acquisition.
Looking to the first quarter, Donahue said fewer days are expected to reduce revenues by about $10.2 million and reduce distribution expenses by about $2.6 million, based on fourth-quarter average asset levels. He also said compensation and related expenses are expected to be higher than the fourth quarter, driven primarily by about $8 million of seasonally higher stock compensation and payroll taxes.
About Federated Hermes (NYSE:FHI)
Federated Hermes, Inc is a global investment manager that provides a range of asset management solutions to institutional and individual investors. The company offers active strategies across equity, fixed income, multi-asset, liquidity, and alternative investments. Through its suite of mutual funds, separate accounts and collective investment vehicles, Federated Hermes seeks to deliver performance-driven outcomes aligned with client objectives and risk tolerances.
In addition to traditional investment management, Federated Hermes has developed specialized capabilities in sustainability and responsible investing, integrating environmental, social and governance (ESG) research into its investment process.
