FEDERATED HERMES INC
For the period ended Jun 30, 2024. Filed Jul 26, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 26, 2024
FHI$63.99-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-26.
0001056288-24-000014
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-26.
0001056288-24-000018
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 134 previous paragraphs and 147 current paragraphs.
76 unchanged; 32 reworded; 33 added; 24 removed; 2 previous and 6 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (33)
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Intangible Asset Impairment
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A $66.3 million non-cash impairment of an indefinite-lived intangible asset associated with the 2018 FHL acquisition was recorded in Intangible Asset Related expense on the Consolidated Statements of Income as of June 30, 2024. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, as well as Note (8) to the Consolidated Financial Statements for additional information related to the fair value measurement of this indefinite-lived intangible asset and Note (10) to the Consolidated Financial Statements for additional information related to this impairment of this indefinite-lived intangible asset.
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SEC Spring 2024 Reg Flex Agenda. The SEC published its Spring 2024 Unified Agenda of Regulatory and Declaratory Actions (SEC Spring 2024 Reg Flex Agenda) on July 8, 2024. The SEC Spring 2024 Reg Flex Agenda identified 34 rulemaking initiatives on the SEC’s calendar for 2024 and 2025, including 19 final rules and 15 additional proposed rules. Among other developments, the SEC Spring 2024 Reg Flex Agenda signals that the SEC Staff is considering recommending that the SEC re-issue proposed rules on open-end fund liquidity risk management programs and swing pricing by April 2025, safeguarding advisory client assets (i.e., amendments to the Custody Rule under the Advisers Act) by October 2024, andconflicts of interest associated with the use of predictive data analytics (or artificial intelligence) by broker-dealers and investment advisors by October 2024. The original proposed rules on these topics were subject to significant public comments that were opposed to many aspects of the proposed rules. For example, Federated Hermes strongly opposed the previously proposed rule on open-end fund liquidity risk management and swing pricing because Federated Hermes believes the implementation of swing pricing is unnecessary to achieve the SEC’s desired objective, would be extremely costly, would be very difficult for the industry to implement, would be difficult for investors to understand, and would represent an unwarranted change in the character of open-end mutual funds which provide investors with the benefits of professional management, diversification, and access to the capital markets to help them meet their financial goals.
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Examples of other proposed rules currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, human capital management disclosure, board diversity disclosure, amendments to the Rule 144 holding period, amendments to Regulation D, including updates to the accredited investor definition and Form D,
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fund fee disclosure and reform and broker-dealer and investment advisor conflicts in the use of predictive data analytics, artificial intelligence, machine learning and similar technologies. Examples of final rules that are currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, enhanced disclosure by certain investment advisors and investment companies about ESG investment practices, cybersecurity risk management for investment advisors and investment companies, and outsourcing by investor advisors. These final and proposed rules are expected to impose significant new requirements on the investment management industry, including Federated Hermes.
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Key Court Decisions. The second quarter 2024 saw several court decisions that impact the regulation of the investment management industry, including, among other things, the potential ability to challenge regulation, the SEC’s willingness to bring enforcement actions seeking civil penalties, the validity of the final private fund advisor rule promulgated by the SEC, and validity of certain aspects of the final proxy advisor rule. These decisions can significantly affect the U.S. regulatory agencies that regulate Federated Hermes’ business, such as the SEC.
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Overturning of the Chevron Doctrine. On June 28, 2024, the U.S. Supreme Court (Supreme Court), in its decision in Loper Bright v. Raimondo and Relentless, Inc. v. Dep’t of Commerce, overturned a 40-year-old legal doctrine, known as the Chevron Doctrine, under which courts gave significant deference to regulatory agency interpretations of ambiguous federal statutes. Under the Chevron Doctrine, courts were required to defer to regulatory agency regulations if the language of a statute at issue was ambiguous and the agency’s interpretation was “reasonable.” The Chevron Doctrine allowed agencies to survive legal challenges to expansive interpretations of the laws they enforce. In overturning the Chevron Doctrine, lower federal courts generally are now required to uphold an agency’s statutory interpretation only if the court is persuaded that it is the best interpretation of the law. It has been reported that the decision improves the ability to challenge regulations by removing the deference to regulatory agency interpretations, and, thereby, could cause regulatory agencies, such as the SEC, to reduce the pace of rulemaking (such as the proposed climate-related disclosures for investment companies and investment advisors) and enforcement initiatives in an effort to minimize resources spent on defending legal challenges to regulations.
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SEC Enforcement Actions Seeking Civil Penalties. On June 27, 2024, the Supreme Court, in its decision in SEC v. Jarkesy, held that, pursuant to the Seventh Amendment to the U.S. Constitution, the SEC must bring any enforcement action in which it seeks civil penalties in federal court, where a jury trial is available, rather than through its own in-house administrative proceedings before an Administrative Law Judge. It has been reported that, while the SEC has limited the number of enforcement actions it brings in the administrative process in recent years, the decision may force the SEC to be more selective when bringing future enforcement actions given the substantial costs associated with federal court litigation, and that other regulatory agencies similarly may be more selective in the future.
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Private Fund Advisor Rule Vacated. On June 5, 2024, the Fifth Circuit vacated the SEC’s private fund advisor rule, which was promulgated on August 23, 2023. The rule purported to enhance the regulation of private fund advisors registered with the SEC by requiring them to, among other things: (1) provide investors with quarterly statements detailing information regarding private fund performance, fees, and expenses; (2) obtain an annual audit for each private fund; and (3) obtain a fairness opinion or valuation opinion in connection with an advisor-led secondary transaction. In vacating the private fund advisor rule, the Fifth Circuit concluded that neither Section 206(4) nor Section 211(h) under the Advisers Act grants the SEC the authority to adopt rules regulating private fund advisors and, therefore, determined the rule to be unlawful. It has been reported that the Fifth Circuit’s decision could impact the SEC’s rulemaking agenda (such as with respect to the SEC’s proposed rule on conflicts of interest associated with the use of predictive data analytics (or artificial intelligence) by broker-dealers and investment advisors), or strengthen future challenges to or ability to enforce previously finalized rules (such as the SEC’s investment advisor marketing rule), which were promulgated by the SEC based on its authority under Advisers Act Section 211(h) and/or Advisers Act Section 206(4).
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Proxy Advisor Rule Reinstated. On June 26, 2024, the Fifth Circuit vacated the 2022 rescission of certain requirements under the SEC’s proxy advisor rule. The requirements in question require advisory firms to: (1) provide their proxy voting reports to companies at no cost at the same time they provide their proxy voting reports to their investor clients; and (2) inform their clients if a company provides a rebuttal before the vote. The Fifth Circuit concluded that, in rescinding these requirements in 2022, the SEC violated the federal Administrative Procedure Act (APA), acted arbitrarily and capriciously, and failed to provide sufficient evidence to show that the rule would impact the timing of proxy voting advice or independence.
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Federal Trade Commission (FTC) Ban on Non-Compete Agreements. On April 23, 2024, the FTC issued its final rule banning all new post-employment non-compete agreements between an employer and its employee after its effective date, which is scheduled for September 4, 2024. The final rule applies to for-profit companies, regardless of industry or level of worker (e.g., senior executive versus other levels of employee). Lawsuits have been filed challenging the FTC’s final rule, including by the U.S. Chamber of Commerce. On July 3, 2024, the U.S. District Court for the Northern District of Texas, where one of the challenges was filed, issued an order preliminarily enjoining the FTC from enforcing the rule against the plaintiffs in the case until the court decides whether the FTC violated the APA by exceeding its statutory authority. While the ruling is preliminary, the federal judge assigned to the case stated that the FTC lacked “substantive rule-making authority” and that the plaintiffs were “likely to succeed on the merits.” It is uncertain whether the FTC’s final rule will survive legal challenge.
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Customer Identification Programs for Investment Advisors. On May 13, 2024, the SEC, and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a joint notice of proposed rulemaking (NPRM) to apply customer identification program (CIP) obligations to certain investment advisors, which would include Federated Hermes’ investment advisory subsidiaries registered with the SEC. The proposed rule would require SEC-registered investment advisors (RIAs) and exempt reporting advisors (ERAs) to, among other things, implement a CIP that includes procedures for: (1) verifying the identity of each customer to the extent reasonable and practicable; and (2) maintaining records of the information used to verify a customer’s identity, including name, address, and other identifying information. The public comment period on the proposed rule ended on July 22, 2024.
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Amendments to Regulation S-P. On May 15, 2024, the SEC adopted amendments to Regulation S-P, which governs the treatment of nonpublic personal information about consumers by certain financial institutions, including investment advisors, broker-dealers, investment companies, and transfer agents (covered institutions). The amendments purport to modernize and enhance the protection of consumer financial information by, among other things: (1) requiring covered institutions to develop, implement, and maintain written policies and procedures for an incident response program that is reasonably designed to detect, respond to, and recover from unauthorized access to or use of customer information; (2) requiring that the response program
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include procedures for covered institutions to provide timely notification to affected individuals whose sensitive customer information was, or is reasonably likely to have been, accessed or used without authorization; (3) broadening the scope of information covered by Regulation S-P's requirements; (4) expanding and aligning the safeguards rule and disposal rule to cover both nonpublic personal information that a covered institution collects about its own customers and nonpublic personal information it receives from another financial institution about customers of that financial institution; (5) requiring covered institutions, other than broker-dealer funding portals, to make and maintain written records documenting compliance with the requirements of the safeguards rule and disposal rule; and (6) extending both the safeguards rule and the disposal rule to transfer agents registered with the SEC or another regulatory agency. Compliance is required with the Regulation S-P amendments by December 21, 2025.
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Proposal to Eliminate Annual Shareholder Meetings for Exchange Listed Closed-End Funds. On June 6, 2024, the New York Stock Exchange (NYSE) filed an application with the SEC proposing amendments to Section 302 of the NYSE Listed Company Manual that would eliminate the requirements for closed-end management investment companies with shares listed for trading on the NYSE to hold an annual shareholder meeting each fiscal year. If approved by the SEC, the proposed amendments would exempt such exchange-listed closed-end funds from the requirement to hold an annual meeting. The SEC published the proposed amendments on July 9, 2024, and the public comment period on the proposed amendments closes on July 30, 2024. Federated Hermes fully supports the proposed amendments. Exchange-listed closed end funds are more akin to registered mutual funds, which are not required to have annual meetings, than listed operating companies. The listed shares of such closed-end funds often trade on the NYSE at a discount to their NAV. This subjects them to attack by activist shareholders who buy discounted shares and then take action to force the closed-end funds to incur liquidity events (such as tender offers, reorganizations, or open-ending of the closed-end funds) to realize or arbitrage the difference between the discounted purchase prices and the closed-end funds’ NAV. This can reduce the number of such closed end funds that are offered and have detrimental effects on the closed end funds and their long-term shareholders, which in many cases are retirement investors.
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thresholds to integrate due diligence measures into their policies and risk management systems to identify and address adverse human rights and environmental impacts of their own operations, as well as those of their subsidiaries and business partners. Contrary to previous announcements, financial services firms (including asset managers) will be in-scope of CSDDD. Failure to comply with the obligations under the CSDDD could result in a fine of up to 5% of a company's net worldwide turnover. CSDDD became effective on July 25, 2024, and must be transposed into the national law of EU member states within two years of that date. The application of the CSDDD will be phased over a three-year period from 2027.
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The UK Government has indicated that it will put in place UK sustainability reporting standards (UK SRS) for UK corporations. The UK SRS are expected to be based on the Sustainability Disclosure Standards (SDS) within the International Financial Reporting Standards issued by the International Sustainability Standards Board. If the UK Government endorses adoption of the SDS, the FCA would likely consult on introducing requirements for UK-listed companies, and the UK Government would consult on introducing requirements for UK companies that are not listed in the UK.
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UK proposed re-introduction of bundling for investment research consumed by asset managers. On April 10, 2024, the FCA published a consultation paper (CP24/7) proposing new rules that would introduce a “new” option for asset managers to pay for the investment research they receive (i.e., in addition to payment by the asset manager out of its own resources or by the fund using a dedicated research payment account). The proposed rules would allow UK buy-side firms (including asset managers) that receive investment research from sell-side firms (including investment banks and broker dealers) to pay for research using bundled payments covering both the trade execution and research services they receive (like “soft-dollars” in the U.S.). Use of this option would be subject to proposed “guardrails”. These guardrails would include requiring that firms: (1) adopt a formal policy on the use of bundled payments for research; (2) establish a budget for the amount of third-party research to be purchased; (3) undertake ongoing assessments of the value and price of the research received; (4) determine an approach to the allocation of costs across the firm’s clients and a structure for the allocation of payments across research providers; (5) put in place operational procedures for the administration of accounts to purchase research; and (6) disclose to clients the firm's approach to bundled payments, their most significant research providers and the costs incurred. The consultation period ended on June 5, 2024.
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Financial Stability Board (FSB) consults on enhancing liquidity preparedness for margin and collateral calls. On April 17, 2024, the FSB published a consultation report setting out proposed policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls. The proposed policy recommendations apply to a broad range of non-bank market participants that may face margin and collateral calls, including insurance companies, pension funds, hedge funds, other investment funds and family offices and non-financial entities, such as commodities traders. The recommendations focus on: (1) non-bank market participants' liquidity risk management practices and governance with respect to managing and mitigating exposures to spikes in margin and collateral calls; (2) liquidity stress testing and scenario design for margin and collateral calls during normal market conditions, as well as in extreme but plausible stressed market conditions; and (3) ensuring sufficient collateral is available, as and when required. The consultation period closed on June 18, 2024.
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EU and UK sustainability requirements for asset managers and investment products. The Sustainability Disclosure Requirements (SDR) initially introduced an anti-greenwashing rule in the UK and, on July 30, 2024, the SDR is expected to introduce sustainability labels that will be available for use by certain UK investment products. On April 23, 2024, the FCA published a consultation (CP24/8) on extending SDR – and specifically the investment labels – to firms providing portfolio management services, including model portfolio, customised portfolio, and/or bespoke portfolio management services. If implemented as proposed, the labels could be used by UK firms providing portfolio management services to retail clients and/or professional clients. Firms offering portfolio management services to professional clients would not be subject to the so-called ‘naming and marketing requirements’ under SDR. The consultation closed on June 14, 2024, and the FCA plans to publish its final rules in the second half of 2024. In May 2024, the FCA published a roadmap on implementing the OFR, which is the forthcoming regime for non-UK funds – initially EU UCITS funds – to be made available to retail investors in the UK. This roadmap indicates that the UK government intends to issue a consultation later in 2024 on extending SDR and labelling to funds that are within the OFR.
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In relation to the EU, on May 14, 2024, the ESMA published a final report setting out its guidelines on funds' names using ESG or sustainability-related terms (Guidelines). These Guidelines apply to UCITS management companies and AIFMs. The Guidelines are intended to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names. They provide asset managers with clear and measurable criteria to assess their ability to use ESG or sustainability-related terms in fund names. The Guidelines: (1) establish that to be able to use these terms, a minimum threshold of 80% of investments should be used to meet environmental or social characteristics or sustainable investment objectives; (2) apply exclusion criteria for different terms used in fund names: environmental, impact and sustainability-related terms, and transition, social and governance-related terms; and (3) specify further criteria where terms are used in combination, for use of transition,
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sustainability and impact-related terms, and for funds designating an index as a reference benchmark. Given the publication of translated Guidelines on ESMA’s website on June 15, 2024, the Guidelines would apply to new funds from and after September 15, 2024, and existing funds from and after March 15, 2025.
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EU regulation of ESG ratings providers. On April 25, 2024, the European Parliament adopted the text of the proposed regulation on the transparency and integrity of ESG rating activities. If formally adopted by the Council of the EU (Council), the regulation will set out organizational requirements for ESG rating providers intended to prevent and/or mitigate conflicts of interest. It is proposed that ESG rating providers will be prohibited from offering ESG ratings together with other consulting, audit, credit rating and benchmark services. The regulation may potentially have extra-territorial effect in relation to ESG rating providers that market their ESG rating products to clients based in the EU.
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EU UCITS and AIFMD Review, including EU UCITS Eligible Assets Directive review. Previously proposed amendments to the UCITS directive, which covers EU mutual funds, and the AIFMD, which covers managers of alternative investment funds., have been adopted by the European Parliament and are required to be implemented during the next two years. On May 7, 2024, ESMA published a Call for Evidence (CfE) for the purposes of its review of the UCITS Eligible Assets Directive, which specifies the classes of eligible assets in which a UCITS fund is permitted to invest. ESMA’s intention is to collect stakeholder information to assist it to assess the risks and benefits of UCITS being exposed to a broader range of asset classes. It applies to European Economic Area (EEA) UCITS management companies as well as firms that manage UCITS funds on a delegated basis (including non-EEA sub-managers). The CfE is open until August 7, 2024.
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EU Retail Investment Package. On June 12, 2024, the Council published a proposed Directive on retail investor protection (Omnibus Directive). The Omnibus Directive will seek to reinforce the prevention of potential conflicts of interest where investment products are provided to retail investors, including by imposing overarching principles in relation to inducements received or paid in relation to the marketing and distribution of retail investment products. In addition, the Omnibus Directive will introduce a “value for money” framework intended to ensure investment products are only offered to retail clients if they offer good value for money. Manufacturers and distributors of investment products will be required to assess whether costs and charges are justified and proportionate with regarding to the performance of the investment product, other benefits and characteristics, their objectives and, if relevant, their strategy.
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Digital Operational Resilience Act (DORA). On June 27, 2024, the European Commission published the final Regulatory Technical Standards on incident classification, third-party providers and risk management under DORA for Information and Communication Technologies and third-party risk management.
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1 Reflects the impact of translating non-U.S. Dollar (USD) denominated AUM into USD for reporting purposes.
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Revenue decreased $16.5 million for the six-month period ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in carried interest of $36.2 million (partially offset in Compensation and Related expense) and a decrease of $15.8 million in equity revenue due to lower average assets. These decreases were partially offset by an increase in money market revenue of $34.0 million due to an increase in average money market assets.
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Operating Expenses. Total Operating Expenses for the three-month period ended June 30, 2024 increased $27.0 million, as compared to the same period in 2023. Intangible Asset Related expense increased $66.0 million primarily due to an impairment of a foreign intangible asset (see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Note (10) to the Consolidated Financial Statements for additional information). This increase was partially offset by (1) a decrease of $29.1 million in Compensation and Related expense primarily due to a decrease in carried interest paid as compensation and (2) a decrease of $8.0 million in Other expense primarily due to the costs associated with a fund restructuring in 2023.
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Total Operating Expenses for the six-month period ended June 30, 2024 increased $27.8 million, as compared to the same period in 2023. Intangible Asset Related expense increased $65.9 million primarily due to an impairment of a foreign intangible asset (see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Note (10) to the Consolidated Financial Statements for additional information). This increase was partially offset by (1) a decrease of $29.5 million in Compensation and Related expense primarily due to a decrease in carried interest paid as compensation and (2) a decrease of $9.4 million in Other expense primarily due to the costs associated with a fund restructuring in 2023.
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The income tax provision was $52.4 million for the six-month period ended June 30, 2024, as compared to $48.6 million for the same period in 2023. The increase in the income tax provision was primarily due to an increase in U.S. income tax due to increased U.S. income ($11.0 million), partially offset by a net tax benefit associated with the impairment on a foreign indefinite-lived intangible asset in 2024 ($6.0 million) and a decrease in 2024 for discrete charges for non-deductible costs for a fund restructuring ($2.5 million). The effective tax rate was 35.8% for the six-month period ended June 30, 2024, as compared
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to 25.2% for the same period in 2023. The increase in the effective tax rate was primarily the result of a valuation allowance on foreign deferred tax assets and the impairment of a foreign indefinite-lived intangible asset.
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Management's Discussion and Analysis (continued)
Removed paragraphs (24)
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Share Repurchase Disclosure Modernization. In May 2023, the SEC adopted amendments to modernize the disclosure requirements relating to repurchases of an issuer’s equity securities, including requiring issuers to provide daily repurchase activity on a quarterly or semi-annual basis, depending on the type of issuer (Repurchase Rule). On December 19, 2023, the Fifth Circuit vacated the Repurchase Rule, which had the legal effect of reverting to the rules and forms that existed prior to the effective date of the Repurchase Rule. On March 19, 2024, the SEC adopted final technical amendments to the Repurchase Rule, which had the effect of revising the regulations to reflect the Fifth Circuit’s vacatur of the Repurchase Rule and reverting to the rules and forms that existed prior to the effective date of the Repurchase Rule.
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Tailored Shareholder Report Guidance. On October 26, 2022, the SEC adopted a final rule, “Tailored Shareholder Reports for Mutual Funds and Exchange Traded Funds; Fee Information in Investment Company Advertisements,” and related form amendments, that, among other things, require open-end management investment companies to transmit “concise and visually
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engaging” annual and semi-annual reports directly to shareholders that highlight key information for investors. On January 17, 2024, the SEC staff issued guidance in the form of frequently asked questions (FAQs) related to the adoption of the final rule and form amendments addressing questions regarding: (1) the definition of an “appropriate broad-based securities market index;” (2) delivery of materials for funds underlying variable annuity or insurance contracts; (3) the ability to bind individual shareholder reports of multiple funds for delivery to an investor; (4) permissible methods of electronic delivery of shareholder reports; and (5) the compliance date for the rule and Form N-CSR filings. Compliance with the tailored shareholder report requirements is required beginning with shareholder reports issued in July 2024.
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Amendments to Form PF. On February 8, 2024, the SEC and Commodity Futures Trading Commission (CFTC) jointly adopted amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisors to private funds, to: (1) enhance reporting by large hedge fund advisors regarding qualifying hedge funds purportedly to provide better insight into the operations and strategies of these funds and their advisors and to improve data quality and comparability; (2) enhance reporting of hedge funds purportedly to provide greater insight into hedge funds’ operations and strategies, to assist in identifying trends, and to improve data quality and comparability; (3) amend how investment advisors report complex structures purportedly to improve the ability of the FSOC to monitor and assess systemic risk and to provide greater visibility for the FSOC, SEC and CFTC into the arrangements; and (4) remove aggregate reporting for large hedge fund advisors purportedly to lessen the burden on advisors and to focus Form PF reporting on more valuable information for systemic risk assessment purposes. The effective date and compliance date for the amendments to Form PF is March 12, 2025.
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Federal Trade Commission (FTC) Ban on Non-Compete Agreements. On April 23, 2024, the FTC issued its final rule banning all new post-employment non-compete agreements between an employer and its employee after its effective date, which will be 120 days after publication of the final rule in the Federal Register. The final rule applies to for-profit companies, regardless of industry or level of worker (e.g., senior executive versus other levels of employee). Under the final rule, a “non-compete clause” includes a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from: (1) seeking or accepting work in the U.S. with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the U.S. after the conclusion of the employment that includes the term or condition. The final rule does not: (1) apply to non-competes applicable during the term of a person’s employment that prohibit the employee from competing against the employer while still employed; (2) apply to existing post-employment non-compete agreements with “senior executives” (generally defined as employees earning for than $151,164 annually who are in policy making positions); (3) apply to non-compete agreements entered into in connection with the sale of a business, regardless of a person’s ownership percentage; (4) apply to franchisee/franchisor contracts (although the final rule does apply to employees working for a franchisee or franchisor); or (5) require formal recession of existing non-compete
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agreements, but rather requires notice to employees to the effect that post-employment non-compete agreements are no longer enforceable. Companies that violate the final rule may be subject to civil penalties. The U.S. Chamber of Commerce has announced that it will file a lawsuit challenging the FTC’s final rule. Accordingly, it is possible that the final rule’s implementation will be stayed until there is a resolution of this lawsuit.
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UK Overseas Fund Regime (OFR) and Other Ongoing Impacts of Brexit. There has been progress in the UK on the OFR, which will apply where non-UK funds are to be made available to retail investors in the UK, and also apply to the marketing of non-UK money market funds in the UK. The UK government previously confirmed the completion of its equivalence assessment of the member states of the European Economic Area (EEA) for the purposes of the OFR. Following that announcement, the Financial Services Act 2021 (Overseas Fund Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024 became effective on February 26, 2024. This is a further step towards the OFR becoming operational before the current temporary market permissions regime (TMPR) expires on December 31, 2026. It is expected that once the OFR is implemented, funds currently subject to the TMPR will be transitioned from the TMPR to OFR prior to December 31, 2026.
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The UK Government previously announced a package of proposed changes, known as the “Edinburgh Reforms,” that are intended to reform the regulation of financial services in the UK. The Edinburgh Reforms are in part a response to Brexit, and have various components. One area of focus is the permissible arrangements for financial services firms to acquire and pay for investment research. The UK Government commissioned the Investment Research Review to evaluate investment research in the UK and its contribution to the international competitiveness of the UK’s capital markets. The Investment Research Review made a number of wide-ranging recommendations. On April 10, 2024, the FCA published a consultation paper on a key recommendation of the Investment Research Review, which is the introduction of an option that would allow asset managers to pay for investment research using a joint or bundled payment for trade execution and research services. The FCA intends to issue final rules in June 2024.
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UK regulatory priorities and areas of focus for the financial services sector. On March 19, 2024, the FCA set out its business plan for 2024-25. The business plan identifies a number of areas of focus, including: (1) the protection of consumers; (2) ensuring market integrity by monitoring market risk and taking action where appropriate; (3) strengthening the UK’s international competitiveness to facilitate long-term growth, including in the global wholesale markets by welcoming new technology and innovation; (4) reducing and preventing financial crime; and (5) preparing financial services for the future.
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Specifically in relation to the asset management sector, on March 1, 2024, the FCA published a portfolio letter on its supervisory strategy for asset managers in the UK. The FCA noted that its supervisory approach will continue to focus on assessing the effectiveness of firms’ governance arrangements in assigning senior accountability for key risks and ensuring appropriate management information about those risks support good decision making. The FCA identified its supervisory priorities as including: (1) setting and testing higher standards; (2) reducing and preventing serious harm to market integrity and avoiding disruption in financial markets; (3) supporting innovation through technological and digital innovation such as fund and asset tokenization; and (4) promoting competition and positive change. The FCA also provided an update on its work to migrate certain European Union (EU) legislation, notably Markets in Financial Instruments, Alternative Investment Funds Manager Directive (AIFMD) and Collective Investment in Transferable Securities (UCITS) regulation into the FCA Handbook. Although the timeframe for this is yet to be determined, the FCA noted in its portfolio letter that it expects to make significant progress in 2024.
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UK’s Digital Securities Sandbox (DSS) joint Bank of England (BoE) and FCA Consultation Paper. On April 3, 2024, the BoE and FCA published a consultation paper setting out their proposals to implement and operate the DSS, which is a regime that will allow firms to use developing technology, such as distributed ledger technology, in the issuance, trading and settlement of securities. Firms that successfully apply for the DSS will be able to operate under a set of rules and regulations that have been modified to facilitate DSS financial activities. The DSS lasts for five years and will help regulators design a permanent
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technology friendly regime for the securities market. The proposals call for the BoE and FCA to work together to operate the DSS with the goals of: (1) facilitating innovation to promote a safe, sustainable and efficient financial system; (2) protecting financial stability; and (3) protecting market integrity and cleanliness. Examples of financial instruments that could be issued and traded in the DSS include, but are not limited to, the following: (1) equities; (2) corporate and government bonds; (3) money market instruments such as commercial paper and certificates of deposits; (4) units in collective investment undertakings; and (5) emissions allowances. The trading and settlement of derivative contracts and “unbacked cryptocurrencies” such as Bitcoin are not in the scope of the DSS. The consultation period ends on May 29, 2024, and the current plan calls for the DSS application process to begin over the summer of 2024, with the first cohort of DSS applicants becoming sandbox entrants in the fall of 2024.
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EU Corporate Sustainability Due Diligence Directive (CSDDD). On December 14, 2023, the Council of the EU (Council) and the EU Parliament announced that they had reached a provisional political agreement on the CSDDD. The original version of the CSDDD imposed due diligence obligations requiring companies to identify, and to prevent or at least mitigate, adverse impacts on human rights and the environment, including by their subsidiaries and supply chain partners. Obligations would be enforced through administrative sanctions and civil liability, with a defense of having exercised reasonable due diligence. Following negotiations among certain EU member states, a revised version of the CSDDD was approved by the Council on March 15, 2024, and will be presented to EU Parliament for approval. Contrary to previous announcements, financial services firms will not be excluded from the scope of the CSDDD. Among other things, the revised version of the CSDDD has a more limited scope than the original version, as it only applies to EU businesses with more than 1,000 employees (compared to 500 employees in the original version) and an annual net worldwide turnover of at least 450 million Euros in the EU (compared to 150 million Euros in the original version). In addition, companies are no longer required to provide incentives to directors to implement climate transition plans.
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EU UCITS Directive and AIFMD Review. Two EU directives regulate the EU collective investment funds industry: the directive relating to UCITS and the AIFMD. The UCITS directive, which covers mutual funds, establishes uniform rules, allowing them to be offered cross-border, while the AIFMD covers alternative funds, including private equity, private credit and hedge funds, and establishes the rules for authorizing, supervising, and overseeing Alternative Investment Fund Managers (AIFMs). On February 26, 2024, the EU Parliament adopted a Directive amending the AIFMD and the directive governing UCITS in the EU, often referred to as AIFMD II. The changes relate to delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services, and loan origination by alternative investment funds. On March 26, 2024, the final legislative text of the Directive was published in the EU's official journal, and the implementation phase is expected to conclude by March or April 2026. The changes to the AIFMD and the UCITS Directive aim to: (1) strengthen investor protection; (2) improve firms' access to finance from sources other than banks; and (3) help complete the capital markets union by limiting national approaches when it comes to marketing alternative investment funds.
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Money Market Fund Reform. On February 27, 2024, the Financial Stability Board (FSB) published its Thematic Review on Money Market Fund Reforms. The review takes stock of the measures adopted or planned by FSB member jurisdictions in response to the 2021 FSB Report, Policy Proposals to Enhance Money Market Fund Resilience. The review does not assess the
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effectiveness of those policy measures in addressing risks to financial stability, as this will be the focus of separate follow-up work by the FSB in 2026.
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The main purported money market fund vulnerability cited by jurisdictions is the mismatch between the liquidity of fund asset holdings and the redemption terms offered to investors, which may make money market funds susceptible to runs from sudden and disruptive redemptions. To address the cited vulnerabilities, the 2021 FSB Report provided a menu of policy options including: (1) imposing on redeeming investors the cost of their redemptions; (2) enhancing the ability to absorb credit losses; (3) addressing regulatory thresholds that may give rise to cliff effects; and (4) reducing liquidity transformation.
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The review found that progress in implementing the 2021 FSB policy proposals has been uneven across FSB member jurisdictions. Authorities in all jurisdictions reported that they had implemented policies aimed at addressing cited money market fund vulnerabilities prior to the 2021 FSB Report. Since then, some jurisdictions have introduced new policy tools or recalibrated existing ones (e.g., China, India, Indonesia, Japan, Korea, Switzerland, and the U.S.), while others are still in the process of developing or finalizing their reforms (e.g., EU, South Africa, and the UK). The review concludes that, given the cited vulnerabilities reported in individual jurisdictions, further progress on implementing the FSB policy toolkit would be needed to enhance money market fund resilience and limit the need for extraordinary central bank interventions during times of stress.
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The review calls on FSB member jurisdictions that have not yet done so to review their policy frameworks and adopt tools to address cited money market fund vulnerabilities, taking into consideration the 2021 FSB policy proposals. Where relevant tools, such as minimum liquidity requirements, are already available, the review recommends that FSB jurisdictions consider whether these need to be re-calibrated to ensure their effective use and to maintain a sufficient level of money market fund resilience. It also recommends that the International Organization of Securities Commissions, consider the findings of this review when it revisits its 2012 Policy Recommendations for money market funds in light of the 2021 FSB Report. The FSB will take these findings into account in its monitoring of cited vulnerabilities and policy tools for money market funds.
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Subsequent Event – Special Cash Dividend
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Operating Expenses. Total Operating Expenses for the three-month period ended March 31, 2024 increased $0.8 million, as compared to the same period in 2023 primarily due to Distribution expense increases of $1.6 million mainly due to an increase in money market fund assets.
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On April 25, 2024, the board of directors declared a $1.31 per share dividend to Federated Hermes’ Class A and Class B common stock shareholders of record as of May 8, 2024 to be paid on May 15, 2024. The dividend, which will be paid from Federated Hermes’ existing cash balance, is considered an ordinary dividend for tax purposes and consists of a $0.31 quarterly dividend and a $1.00 special dividend. See Business Developments - Subsequent Event - Special Cash Dividend for more information on the estimated diluted earnings per share impact for the quarter ending June 30, 2024.
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Investments—Consolidated Investment Companies at March 31, 2024 increased $53.4 million from December 31, 2023, primarily due to an increase related to the consolidation of a VIE during the three-month period ended March 31, 2024.
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Income Taxes Payable at March 31, 2024 increased $23.7 million from December 31, 2023 primarily due to an accrual for the first quarter estimated federal tax payment that was paid in April 2024.
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Federated Hermes is a global leader in active, responsible investing with $778.7 billion in managed assets as of March 31, 2024. The majority of Federated Hermes’ revenue is derived from advising Federated Hermes Funds and Separate Accounts in domestic and international public and private markets. Federated Hermes also derives revenue from providing administrative and other fund-related services (including distribution and shareholder servicing) as well as stewardship and real estate development services.
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Federated Hermes is a global leader in active, responsible investing with $782.7 billion in managed assets as of June 30, 2024. The majority of Federated Hermes’ revenue is derived from advising Federated Hermes Funds and Separate Accounts in domestic and international public and private markets. Federated Hermes also derives revenue from providing administrative and other fund-related services (including distribution and shareholder servicing) as well as stewardship and real estate development services.
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Federated Hermes’ most significant operating expenses are Compensation and Related expense and Distribution expense. Compensation and Related expense includes base salary and wages, incentive compensation and other employee expenses including payroll taxes and benefits. Incentive compensation, which includes stock-based compensation, can vary depending on various factors including, but not limited to, the overall results of operations of Federated Hermes, investment management performance and sales performance.
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Federated Hermes’ most significant operating expenses are Compensation and Related expense and Distribution expense. Compensation and Related expense includes base salary and wages, incentive compensation and other employee expenses including payroll taxes and benefits. Incentive compensation, which includes share-based compensation, can vary depending on various factors including, but not limited to, the overall results of operations of Federated Hermes, investment management performance and sales performance.
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The business and regulatory environments in which Federated Hermes operates globally remain complex, uncertain and subject to change. Federated Hermes and its investment management business are subject to extensive regulation, both within and outside of the U.S., including various laws, rules and regulations globally that impose restrictions, limitations, registration, reporting and disclosure requirements on its business, and add complexity to its global compliance operations. For example, Federated Hermes and its offerings are subject to various: (1) federal securities laws, such as the Securities Act of 1933 (1933 Act), the Securities Act of 1934 (Exchange Act), Investment Company Act of 1940 (1940 Act), and Investment Advisers Act of 1940 (Advisers Act); (2) state laws regarding securities fraud and registration; and (3) regulations or other rules promulgated by various regulatory authorities, or other authorities. These regulatory requirements, and other regulatory developments, continue to impact the investment management industry generally, and will continue to impact, to various degrees, Federated Hermes’ business, results of operations, financial condition, cash flows, and stock price (collectively, Financial Condition). Please see Federated Hermes’ prior public filings, including, the discussions under Item 1 – Business – Regulatory Matters, in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report), for an overview of Federated Hermes’ regulatory environment and related regulatory developments for periods prior to December 31, 2023.
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The business and regulatory environments in which Federated Hermes operates globally remain complex, uncertain, and subject to change. Federated Hermes and its investment management business are subject to extensive regulation, both within and outside of the U.S., including various laws, rules, and regulations globally that impose restrictions, limitations, registration, reporting and disclosure requirements on its business, and add complexity to its global compliance operations. For example, Federated Hermes and its offerings are subject to various: (1) federal securities laws, such as the Securities Act of 1933 (1933 Act), the Securities Act of 1934 (Exchange Act), Investment Company Act of 1940 (1940 Act), and Investment Advisers Act of 1940 (Advisers Act); (2) state laws regarding securities fraud and registration; and (3) regulations or other rules promulgated by various regulatory authorities, or other authorities. These regulatory requirements, and other regulatory developments, continue to impact the investment management industry generally, and will continue to impact, to various degrees, Federated Hermes’ business, results of operations, financial condition, cash flows, and stock price (collectively, Financial Condition). Please see Federated Hermes’ prior public filings, including, the discussions under Part 1, Item 1 – Business – Regulatory Matters, in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report), for an overview of Federated Hermes’ regulatory environment and related regulatory developments for periods prior to December 31, 2023, and under Part 1, Item 2 – Management’s Discussion and Analysis – Business Developments – Current Regulatory Developments, in Federated Hermes’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (First Quarter 2024 Form 10-Q), for Federated Hermes’ key regulatory developments and requirements for periods prior to March 31, 2024.
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Federated Hermes’ primary regulator in the U.S. is the Securities and Exchange Commission (SEC). U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report included, among others, money market fund reform, voluntary swing pricing and liquidity for open-end funds, ESG and sustainability, amendments to Rule 35d-1 (Names Rule) under the 1940 Act, proposed custody rule amendments under the Advisers Act, and systematically important financial institutions designation by the Financial Stability Oversight Council (FSOC). Key regulatory developments and requirements in the U.S. since December 31, 2023 that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:
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Federated Hermes’ primary regulator in the U.S. is the SEC. U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report and First Quarter 2024 Form 10-Q included, among others, money market fund reform, environmental, social, governance (ESG) and sustainability, amendments to Rule 35d-1 under the 1940 Act, systematically important financial institutions designation by the Financial Stability Oversight Council, tailored shareholder reports, amendments to Form PF, and the share repurchase disclosure modernization rule, which was vacated by the U.S. Court of Appeals for the Fifth Circuit (Fifth Circuit). Key regulatory developments and requirements in the U.S. since March 31, 2024, that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:
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Climate-Related Disclosures for Investors. On March 6, 2024, the SEC adopted much anticipated new rules mandating climate-related disclosures in public companies’ annual reports and registration statements. In most cases, the new climate-related disclosures will only be required if determined to be material to the issuer. The new rules require disclosure of, among other things, material climate-related risks, material mitigation activities, oversight and governance of climate-related risks, and whether and how any climate-related targets or goals have materially affected, or are reasonably likely to materially affect, the issuer’s business, results of operations or financial condition. For large-accelerated filers or accelerated filers that are not also smaller reporting companies or emerging growth companies, the new rules require disclosure of material Scope 1 and/or Scope 2 greenhouse gas (GHG) emissions, and related methodology, significant inputs and significant assumptions used in calculating the emissions. Subject to lengthy phase-in-periods, large-accelerated filers and accelerated filers are required to obtain limited assurance on their GHG emissions disclosure, and large-accelerated filers would need to eventually obtain reasonable assurance. Finally, the rules require issuers to disclose the financial impacts of certain climate-related expenses in a new note in their audited financial statements, to the extent such expenses exceed certain disclosure thresholds. The new rules provide phase-in periods based on SEC filer status, with extended phase-in periods for required third-party attestation of GHG emissions. On March 15, 2024, the United States Court of Appeals for the Fifth Circuit (Fifth Circuit) issued an administrative stay of the SEC’s new climate-related disclosure rules. Consolidated challenges of the new rules will be heard by the United States Court of Appeals for the Eighth Circuit (Eighth Circuit). On April 4, 2024, the SEC issued an order in which it announced that it has determined to exercise its discretion to stay its new climate-related disclosure rules pending completion of the judicial review by the Eighth Circuit.
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Climate-Related Disclosures for Investors. On March 6, 2024, the SEC adopted much anticipated new rules mandating climate-related disclosures in public companies’ annual reports and registration statements. In most cases, the new climate-related disclosures will only be required if determined to be material to the issuer. The new rules require disclosure of, among other things, material climate-related risks, material mitigation activities, oversight, and governance of climate-related risks, and whether and how any climate-related targets or goals have materially affected, or are reasonably likely to materially affect, the
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New Department of Labor (DOL) Fiduciary Rule. On April 23, 2024, the DOL issued its final “Fiduciary Rule” in which it changes to the definition of “investment advice” fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA), as well as amendments to several prohibited transaction class exemptions (DOL New Fiduciary Rule). The changes, among other things, broaden the circumstances in which ERISA fiduciary status will apply to investment advisors, broker dealers and other entities with direct or indirect discretionary authority or control, that represent or acknowledge acting as a fiduciary, or that make investment recommendations to investors on a regular basis as part of their business, including recommendations relating to ERISA plan rollover transactions, any other securities transaction, or any investment strategy involving securities or other investment property. The final rule amends or eliminates several prohibited transaction exemptions (PTE), including, among others, PTE 77-4 (Purchase of Shares of Open-End Investment Companies), and require all investment advice fiduciaries to comply with the “best interest” standard of care and disclosure requirements under PTE 2020-02 in order to receive compensation that would otherwise be prohibited under ERISA in the absence of an exemption, including commissions, 12b-1 fees, revenue sharing, and mark-ups and mark-downs in certain principal transactions. The final DOL New Fiduciary Rule differs from the proposed DOL New Fiduciary Rule in certain respects, including: (1) the final rule narrows the contexts in which a covered recommendation will constitute ERISA fiduciary investment advice and makes clear that the test for fiduciary status is objective; (2) the final rule confirms that sales recommendations that do not satisfy the objective test will not be treated as ERISA fiduciary investment advice, and that the mere provision of investment information or education, without an investment recommendation, is not ERISA investment advice within the meaning of the final rule; and (3) the final rule clarifies that it focuses on communications with persons with authority over plan investment decisions (including selecting investment options for participant-directed plans), rather than communications with financial services providers who do not have such authority, and excludes plan and individual retirement account investment advice fiduciaries from the definition of a retirement investor. As a result, an asset manager does not render ERISA fiduciary investment advice simply by making recommendations to a financial professional or firm that, in turn, will render ERISA fiduciary investment advice to retirement investors in a fiduciary capacity. The final DOL New Fiduciary Rule will become effective 150 days after it is published in the Federal Register.
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New Department of Labor (DOL) Fiduciary Rule. On April 23, 2024, the DOL issued its final “Fiduciary Rule” in which it made changes to the definition of “investment advice” fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA), as well as amendments to several prohibited transaction class exemptions (DOL New Fiduciary Rule). The changes, among other things, broaden the circumstances in which ERISA fiduciary status will apply to investment advisors, broker dealers and other entities with direct or indirect discretionary authority or control, that represent or acknowledge acting as a fiduciary, or that make investment recommendations to investors on a regular basis as part of their business, including recommendations relating to ERISA plan rollover transactions, any other securities transaction, or any investment strategy involving securities or other investment property. The final rule amends or eliminates several prohibited transaction exemptions (PTE), including, among others, PTE 77-4 (Purchase of Shares of Open-End Investment Companies), and requires all investment advice fiduciaries to comply with the “best interest” standard of care and disclosure requirements under PTE 2020-02 in order to receive compensation that would otherwise be prohibited under ERISA in the absence of an exemption, including commissions, 12b-1 fees, revenue sharing, and mark-ups and mark-downs in certain principal transactions. On July 10, 2024, the U.S. House of Representatives’ (House) Education and Workforce Committee passed by a 23-18 vote a Congressional Review Act resolution to disapprove (and therefore prevent from taking effect) the DOL New Fiduciary Rule as a “reckless overreach” by the current administration. The House Appropriations Committee also approved by a 31-25 vote on July 10, 2024, the Fiscal Year 2025 Labor, Health and Human Services, Education, and Related Agencies bill, which, if passed by Congress and signed by the President, would prevent the DOL from using any funds to administer, implement or enforce the DOL New Fiduciary Rule. Both the resolution and legislation must be passed by Congress and signed by the President (or Congress must override the President’s veto). The DOL New Fiduciary Rule, which currently is scheduled to become effective on September 23, 2024, is currently being challenged by a group of 26 state attorneys general in the U.S. District Court for the Northern District of Texas (within the Fifth Circuit).The U.S. District Court for the Northern District of Texas had relied on the Chevron Doctrine in originally ruling that the DOL acted within its authority under the APA in issuing the DOL New Fiduciary Rule. However, as a result of the Supreme Court overturning the Chevron Doctrine, on July 18, 2024, the Fifth Circuit directed the U.S. District Court for the Northern District of Texas to reconsider the plaintiffs’ argument that the DOL exceeded its authority in issuing the rule.
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Federated Hermes’ primary regulators outside the U.S. are the UK Financial Conduct Authority (FCA), the Central Bank of Ireland (CBI), the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) and the Cayman Island Monetary Authority (CIMA). Non-U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report included, among others, the Retained EU Law (Revocation and Reform) Act 2023, the Financial Services and Markets Act 2023, and remaining impacts of Brexit, money market fund reform, liquidity risk management in open-end funds, sustainability finance initiatives, and the possibility of a financial transaction tax. Key recent regulatory developments outside the U.S. since December 31, 2023 that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:
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Federated Hermes’ primary regulators outside the U.S. are the United Kingdom (UK) Financial Conduct Authority (FCA), the Central Bank of Ireland (CBI), the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) and the Cayman Island Monetary Authority (CIMA). Non-U.S. regulatory matters addressed in Federated Hermes’ 2023 Annual Report and First Quarter 2024 Form 10-Q included, among others, the Retained EU Law (Revocation and Reform) Act 2023, the Financial Services and Markets Act 2023, the UK Overseas Fund Regime (OFR), the “Edinburg Reforms,” and remaining impacts of Brexit, UK regulatory priorities and areas of focus for the financial services sector, money market fund reform, liquidity risk management in open-end funds, the UK Digital Securities Sandbox joint Bank of England and FCA consultation paper, and the possibility of a financial transaction tax. Key regulatory developments outside the U.S. since March 31, 2024, that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following:
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European Markets Infrastructure Regulation (EMIR) Refit. On December 20, 2022, the European Securities and Markets Authority (ESMA) published a final report on guidelines for reporting under EMIR. The guidelines aim to further harmonize and standardize the reporting under EMIR. This requires many new data fields and mandatory use of XML format. The reporting is effective starting April 29, 2024.
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European Markets Infrastructure Regulation (EMIR) Refit. On December 20, 2022, the European Securities and Markets Authority (ESMA) published a final report on guidelines for reporting under EMIR. The guidelines aim to further harmonize and standardize the reporting under EMIR. This requires many new data fields and mandatory use of XML format. The reporting became effective starting April 29, 2024.
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EU cross-border arrangements for UCITS management companies and AIFMs. On March 25, 2024, the official journal of the EU published four EU Commission Delegated and Implementing Regulations regarding the cross-border marketing and management of funds under the UCITS Directive and AIFMD. The regulations: (1) specify the information to be notified in relation to the cross-border activities of UCITS management companies, UCITS and AIFMs; (2) set out the form and content of such notifications; and (3) provide detail on the exchange of information between competent authorities on cross-border notification letters. These regulations became effective on April 14, 2024.
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European Union (EU) cross-border arrangements for Undertakings for the Collective Investment in Transferable Securities (UCITS) management companies and alternative investment fund managers (AIFMs). On March 25, 2024, the official journal of the EU published four EU Commission Delegated and Implementing Regulations regarding the cross-border marketing and management of funds under the UCITS Directive and Alternative Investment Fund Managers Directive (AIFMD). The regulations: (1) specify the information to be notified in relation to the cross-border activities of UCITS management companies, UCITS and AIFMs; (2) set out the form and content of such notifications; and (3) provide detail on the exchange of information between competent authorities on cross-border notification letters. These regulations became effective on April 14, 2024.
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Corporate Sustainability Reporting Directive (CSRD). In the EU, corporate issuers will be required to disclose sustainability reporting by the CSRD, which became effective on January 5, 2023. The CSRD expands the scope of companies that are required to disclose sustainability information. The CSRD also significantly increases the extent and level of detail required to be disclosed regarding sustainability matters by mandating the creation of European Sustainability Reporting Standards (ESRS), which will apply to entities that are required to make non-financial sustainability disclosures under the CSRD. On April 10, 2024, the European Parliament adopted a directive to postpone by two years the deadline for adopting the ESRS for certain sectors and for certain third-country undertakings.
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EU and UK sustainability reporting requirements for corporations. In the EU, the relevant requirements for sustainability reporting are set out in the EU Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). The CSRD expands the scope of companies that are required to disclose sustainability information, and significantly increases the extent and level of detail required to be disclosed regarding sustainability matters. It also mandates the creation of European Sustainability Reporting Standards (ESRS), which will apply to entities that are required to make non-financial sustainability disclosures under the CSRD. On April 10, 2024, the European Parliament adopted a directive to postpone by two years the deadline for adopting the ESRS for certain sectors and for certain third-country undertakings. CSDDD will impose due diligence obligations requiring companies exceeding specified turnover and employee
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Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new regulatory developments and regulatory requirements ultimately will be successful. The degree of impact of regulatory developments and regulatory requirements on Federated Hermes' Financial Condition can vary, including in a material way, and is uncertain.
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Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new regulatory developments and regulatory requirements ultimately
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Total average managed assets increased 14% for the three months ended March 31, 2024, as compared to the same period in 2023. As of March 31, 2024, total managed assets increased 11% from March 31, 2023. Average money market assets increased 20% for the three months ended March 31, 2024, as compared to the same period in 2023. Period-end money market assets increased 14% at March 31, 2024, as compared to March 31, 2023. Money market strategies continued to benefit from favorable market conditions for cash as an asset class, elevated liquidity levels in the financial system, and attractive yields compared to cash management alternatives such as bank deposits and direct investments in money market instruments such as treasury bills and commercial paper. Average equity assets decreased 6% for the three months ended March 31, 2024, as compared to the same period in 2023. Period-end equity assets decreased 4% at March 31, 2024, as compared to March 31, 2023, primarily due to net redemptions, partially offset by market appreciation. Stocks trended higher in the first quarter of 2024 as optimism over the U.S. economy, a “soft landing” and potential interest-rate cuts combined with enthusiasm for generative artificial intelligence sent the S&P 500 up more than 10%. Average fixed-income assets increased 9% for the three months ended March 31, 2024, as compared to the same period in 2023. Period-end fixed-income assets increased 10% at March 31, 2024, as compared to March 31, 2023, primarily due to net sales and market appreciation. As yields increased across the Treasury curve, including for the benchmark U.S. 10-year Treasury that ended the quarter at 4.21% up from 3.88% at the end of 2023, bond prices fell. Average alternative/private markets assets decreased 2% for the three months ended March 31,
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Total average managed assets increased 11% and 12% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. As of June 30, 2024, total managed assets increased 11% from June 30, 2023. Average money market assets increased 14% and 17% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. Period-end money market assets increased 15% at June 30, 2024, as compared to June 30, 2023. In the second quarter 2024, money market funds continued to benefit from favorable market conditions as the Federal Reserve indicated a reluctance to cut interest rates. The extension of elevated rates translated into an extension of elevated yields on liquidity products. The Federal Reserve also announced a decision to reduce the monthly tapering of its balance sheet, while the U.S. Treasury Department announced a program to purchase U.S. Treasuries in the coming months. Those moves also helped to preserve liquidity in the financial system. Average equity assets decreased 6% for both the three and six months ended June 30, 2024, as compared to the same periods in 2023. Period-end equity assets decreased 6% at June 30, 2024, as compared to June 30, 2023, primarily due to net redemptions, partially offset by market appreciation. Stocks trended higher, gaining 4.28% in the second quarter 2024, sending the S&P 500 up nearly 15% in the first half of 2024. Average fixed-income assets increased 9% for both the three and six months ended June 30, 2024, as compared to the same periods in 2023. Period-end fixed-income assets increased 9% at June 30, 2024, as compared to June 30, 2023, primarily due to market appreciation and net sales. The 10-year Treasury fluctuated during the second quarter 2024, starting the quarter at 4.20%, rising to 4.70% in April, and eventually falling to 4.40% at the end of June on an improved outlook for inflation and rate cuts. Average alternative/private markets
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2024, as compared to the same period in 2023. Period-end alternative/private markets assets decreased 3% at March 31, 2024, as compared to March 31, 2023, primarily due to market depreciation and net redemptions.
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assets decreased 5% and 4% for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. Period-end alternative/private markets assets decreased 7% at June 30, 2024, as compared to June 30, 2023, primarily due to market depreciation and net redemptions.
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Revenue. Revenue increased $14.2 million for the three-month period ended March 31, 2024, as compared to the same period in 2023, primarily due to an increase in money market revenue of $22.2 million due to an increase in average money market fund assets. This increase was partially offset by a decrease of $8.6 million in equity revenue due to lower average assets.
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Revenue. Revenue decreased $30.6 million for the three-month period ended June 30, 2024, as compared to the same period in 2023, primarily due to a decrease in carried interest of $36.1 million (partially offset in Compensation and Related expense) and a decrease of $7.1 million in equity revenue due to lower average assets. These decreases were partially offset by an increase in money market revenue of $11.8 million due to an increase in average money market assets.
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For the three-month periods ended March 31, 2024 and 2023, Federated Hermes’ ratio of revenue to average managed assets was 0.20% and 0.23%, respectively. The decrease in the rate was primarily due to a decrease in revenue from lower average equity assets and a change in the mix of fixed-income average assets during the first three months of 2024 compared to the same period in 2023.
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For the six-month periods ended June 30, 2024 and 2023, Federated Hermes’ ratio of revenue to average managed assets was 0.20% and 0.24%, respectively. The decrease in the rate was primarily due to a decrease in carried interest and a decrease in revenue from lower average equity assets during the first half of 2024 compared to the same period in 2023.
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Nonoperating Income (Expenses). Nonoperating Income (Expenses), net decreased $1.9 million for the three-month period ended March 31, 2024, as compared to the same period in 2023. The decrease is primarily due to a $3.7 million decrease in Gain (Loss) on Securities, net due to a smaller increase in the market value of investments in the first quarter 2024 compared to the increase in the market value of investments during the first quarter 2023. This decrease was partially offset by a $1.9 million increase in Investment Income, net primarily due to an increase in investment yields due to higher interest rates in the first quarter 2024 as compared to the first quarter 2023.
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Nonoperating Income (Expenses), net decreased $2.1 million for the six-month period ended June 30, 2024, as compared to the same period in 2023. The decrease is primarily due to a $4.6 million decrease in Gain (Loss) on Securities, net from a smaller increase in the market value of investments in the first half of 2024 as compared to the increase in the market value of investments during the same period in 2023. This decrease was partially offset by a $2.7 million increase in Investment Income, net primarily due to an increase in investment yields in 2024 as compared to investment yields during the same period in 2023.
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Income Taxes. The income tax provision was $29.0 million for the three-month period ended March 31, 2024, as compared to $21.0 million for the same period in 2023. The increase in the income tax provision was primarily due to higher income before income taxes. The effective tax rate was 27.9% for the three-month period ended March 31, 2024, as compared to 22.7% for the same period in 2023. The increase in the effective tax rate was primarily dueto a valuation allowance on foreign deferred tax assets (3.0%), and a larger tax benefit in 2023 associated with vesting of restricted shares related to share-based compensation (1.1%).
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Income Taxes. The income tax provision was $23.4 million for the three-month period ended June 30, 2024, as compared to $27.5 million for the same period in 2023. The decrease in the income tax provision was primarily due to a net tax benefit associated with the impairment on a foreign indefinite-lived intangible asset in 2024 ($6.0 million) and a decrease in 2024 for discrete charges for non-deductible costs for a fund restructuring ($2.5 million), partially offset by an increase in U.S. income tax due to increased U.S. income ($5.2 million). The effective tax rate was 54.9% for the three-month period ended June 30, 2024, as compared to 27.4% for the same period in 2023. The increase in the effective tax rate was primarily the result of a valuation allowance on foreign deferred tax assets and the impairment of a foreign indefinite-lived intangible asset.
Previous wording
Net Income Attributable to Federated Hermes, Inc. Net income increased $5.4 million for the three-month period ended March 31, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the three-month period ended March 31, 2024 increased $0.11, as compared to the same period in 2023, primarily due to increased net income ($0.07) and a decrease in shares outstanding resulting from share repurchases ($0.04).
Current wording
Net Income Attributable to Federated Hermes, Inc. Net income decreased $51.1 million for the three-month period ended June 30, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the three-month period ended June 30, 2024 decreased $0.61, as compared to the same period in 2023, primarily due to decreased net income ($0.62), partially offset by a decrease in shares outstanding resulting from share repurchases ($0.01).
Previous wording
Liquid Assets. At March 31, 2024, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled $605.7 million, as compared to $656.4 million at December 31, 2023. The change in liquid assets is discussed below.
Current wording
Liquid Assets. At June 30, 2024, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled $540.4 million, as compared to $656.4 million at December 31, 2023. The change in liquid assets is discussed below.
Previous wording
At March 31, 2024, Federated Hermes’ liquid assets included investments in certain money market and fluctuating-value Federated Hermes Funds that may have direct and/or indirect exposures to international sovereign debt and currency risks. Federated Hermes continues to actively monitor its investment portfolios to manage sovereign debt and currency risks with respect to certain European countries (such as the UK in light of Brexit), China and certain other countries subject to economic sanctions. Federated Hermes’ experienced portfolio managers and analysts work to evaluate credit risk through quantitative and fundamental analysis. Further, regarding international exposure, certain money market funds (representing approximately $302.1 million in AUM) that meet the requirements of Rule 2a-7 under the 1940 Act (Rule 2a-7) or operate in accordance with
Current wording
At June 30, 2024, Federated Hermes’ liquid assets included investments in certain money market and fluctuating-value Federated Hermes Funds that may have direct and/or indirect exposures to international sovereign debt and currency risks. Federated Hermes continues to actively monitor its investment portfolios to manage sovereign debt and currency risks with respect to certain European countries (such as the UK in light of Brexit), China and certain other countries subject to economic sanctions. Federated Hermes’ experienced portfolio managers and analysts work to evaluate credit risk through quantitative and fundamental analysis. Further, regarding international exposure, certain money market funds (representing approximately $257.5 million in AUM) that meet the requirements of Rule 2a-7 under the 1940 Act (Rule 2a-7) or operate in accordance with requirements similar to those in Rule 2a-7, include holdings with indirect short-term exposures invested primarily in high-quality international bank names that are subject to Federated Hermes’ credit analysis process.
Previous wording
Cash Provided by Operating Activities. Net cash provided by operating activities totaled $14.0 million for the three months ended March 31, 2024, as compared to $5.4 million for the same period in 2023. The increase in cash provided was primarily due to (1) an increase in cash received related to the $14.2 million increase in revenue previously discussed and (2) an increase of $9.6 million in cash received from the net sale of trading securities for the three months ended March 31, 2024 as compared to the same period in 2023. These increases in cash were partially offset by an increase in cash paid to vendors during the three-month period ended March 31, 2024 as compared to the same period in 2023.
Current wording
Cash Provided by Operating Activities. Net cash provided by operating activities totaled $102.7 million for the six months ended June 30, 2024, as compared to $76.6 million for the same period in 2023. The increase in cash provided was primarily due to (1) a $17.9 million payment made in 2023 representing a settlement with affected shareholders related to an administrative error (see Note (17) to the Consolidated Financial Statements for additional information) and (2) a decrease of $8.9 million in cash paid for the net purchases of trading securities for the six months ended June 30, 2024 as compared to the same period in 2023.
Previous wording
Cash Provided by Investing Activities. During the three-month period ended March 31, 2024, net cash provided by investing activities was $27.6 million, which primarily represented $53.9 million in cash received from redemptions of Investments—Affiliates and Other, partially offset by $25.7 million paid for purchases of Investments—Affiliates and Other.
Current wording
Cash Provided by Investing Activities. During the six-month period ended June 30, 2024, net cash provided by investing activities was $31.2 million, which primarily represented $66.3 million in cash received from redemptions of Investments—Affiliates and Other, partially offset by $28.6 million paid for purchases of Investments—Affiliates and Other.
Previous wording
Cash Used by Financing Activities. During the three-month period ended March 31, 2024, net cash used by financing activities was $63.5 million due primarily to $39.0 million of treasury stock purchases and $23.7 million or $0.28 per share of dividends paid to holders of Federated Hermes common shares.
Current wording
Cash Used by Financing Activities. During the six-month period ended June 30, 2024, net cash used by financing activities was $208.6 million due primarily to $134.0 million or $1.59 per share of dividends paid to holders of Federated Hermes common shares and $85.3 million of treasury stock purchases.
Previous wording
Long-term Debt. On March 17, 2022, pursuant to a Note Purchase Agreement, Federated Hermes issued unsecured senior Notes in the aggregate amount of $350 million at a fixed interest rate of 3.29% per annum, payable semiannually in arrears in March and September in each year of the agreement. The entire principal amount of the $350 million Notes will become due March 17, 2032. Citigroup Global Markets Inc. and PNC Capital Markets LLC acted as lead placement agents in relation to the $350 million Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note Purchase Agreement. As of March 31, 2024, the outstanding balance of the $350 million Notes, net of unamortized issuance costs in the amount of $2.1 million, was $347.9 million and was recorded in Long-Term Debt on the Consolidated Balance Sheets. The proceeds were, or will be, used to supplement cash flow from operations, to fund share repurchases and potential acquisitions, to pay down debt outstanding under the Credit Agreement and for other general corporate purposes. See Note (11) to the Consolidated Financial Statements for additional information on the Note Purchase Agreement.
Current wording
Long-Term Debt. On March 17, 2022, pursuant to the Note Purchase Agreement, Federated Hermes issued unsecured senior Notes in the aggregate amount of $350 million at a fixed interest rate of 3.29% per annum, payable semiannually in arrears in March and September in each year of the agreement. The entire principal amount of the $350 million Notes will become due March 17, 2032. Citigroup Global Markets Inc. and PNC Capital Markets LLC acted as lead placement agents in relation to the $350 million Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note
Previous wording
Both the Note Purchase Agreement and Credit Agreement include an interest coverage ratio covenant (consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest expense) and a leverage ratio covenant (consolidated debt to consolidated EBITDA) as well as other customary terms and conditions. Federated Hermes was in compliance with all of its covenants, including its interest coverage and leverage ratios at and during the three months ended March 31, 2024. An interest coverage ratio of at least 4 to 1 is required and, as of March 31, 2024, Federated Hermes’ interest coverage ratio was 40 to 1. A leverage ratio of no more than 3 to 1 is required and, as of March 31, 2024, Federated Hermes’ leverage ratio was 0.72 to 1.
Current wording
Both the Note Purchase Agreement and Credit Agreement include an interest coverage ratio covenant (consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest expense) and a leverage ratio covenant (consolidated debt to consolidated EBITDA) as well as other customary terms and conditions. Federated Hermes was in compliance with all of its covenants, including its interest coverage and leverage ratios at and during the six months ended June 30, 2024. An interest coverage ratio of at least 4 to 1 is required and, as of June 30, 2024, Federated Hermes’ interest coverage ratio was 41 to 1. A leverage ratio of no more than 3 to 1 is required and, as of June 30, 2024, Federated Hermes’ leverage ratio was 0.71 to 1.
Previous wording
Future Cash Needs. Management expects that principal uses of cash will include funding business acquisitions and global expansion, funding distribution expenditures, paying incentive and base compensation, paying shareholder dividends, paying debt obligations, paying taxes, repurchasing company stock, developing and seeding new offerings, modifying existing offerings and relationships, maintaining regulatory liquidity and capital requirements and funding property and equipment expenditures. In addition, Federated Hermes expects to invest approximately $310 million (including the allocation of approximately $190 million in existing technology-related overhead, primarily the compensation expense of existing employees, and an external spend of approximately $120 million) through 2026 to support a number of planned technology-driven initiatives. Any number of factors may cause Federated Hermes’ future cash needs to increase. As a result of the highly
Current wording
Future Cash Needs. Management expects that principal uses of cash will include funding business acquisitions and global expansion, funding distribution expenditures, paying incentive and base compensation, paying shareholder dividends, paying debt obligations, paying taxes, repurchasing company stock, developing and seeding new offerings, modifying existing offerings and relationships, maintaining regulatory liquidity and capital requirements and funding property and equipment expenditures. In addition, Federated Hermes expects to invest approximately $310 million (including the allocation of approximately $190 million in existing technology-related overhead, primarily the compensation expense of existing employees, and an external spend of approximately $120 million) through 2026 to support a number of planned technology-driven initiatives. Any number of factors may cause Federated Hermes’ future cash needs to increase. As a result of the highly regulated nature of the investment management business, management anticipates that aggregate expenditures for compliance and investment management personnel, compliance systems and technology and related professional and consulting fees could continue to increase.
Previous wording
On April 25, 2024, the board of directors declared a $1.31 per share dividend to Federated Hermes’ Class A and Class B common stock shareholders of record as of May 8, 2024 to be paid on May 15, 2024. The dividend, which will be paid from Federated Hermes’ existing cash balance, is considered an ordinary dividend for tax purposes and consists of a $0.31 quarterly dividend and a $1.00 special dividend. The special dividend is expected to decrease diluted earnings per share for the quarter ending June 30, 2024 by approximately $0.01 to $0.02 due to the application of the two-class method of calculating earnings per share.
Current wording
On July 25, 2024, the board of directors declared a $0.31 per share dividend to Federated Hermes’ Class A and Class B common stock shareholders of record as of August 8, 2024 to be paid on August 15, 2024.
Previous wording
After evaluating Federated Hermes’ liquid assets following the special dividend payment, expected continuing cash flow from operations, its borrowing capacity under the Credit Agreement and its ability to obtain additional financing arrangements and issue debt or stock, management believes it will have sufficient liquidity to meet both its short-term and reasonably foreseeable long-term cash needs.
Current wording
After evaluating Federated Hermes’ existing liquid assets, expected continuing cash flow from operations, its borrowing capacity under the Credit Agreement and its ability to obtain additional financing arrangements and issue debt or stock, management believes it will have sufficient liquidity to meet both its short-term and reasonably foreseeable long-term cash needs.
Previous wording
Investments—Affiliates and Other at March 31, 2024 decreased $32.1 million from December 31, 2023 primarily due to (1) a decrease of $28.2 million from net redemptions and (2) $5.4 million related to the consolidation of a VIE during the first three months of 2024, which reclassified Federated Hermes’ investment to Investments—Consolidated Investment Companies.
Current wording
Investments—Affiliates and Other at June 30, 2024 decreased $34.4 million from December 31, 2023 primarily due to net redemptions.
Previous wording
Accrued Compensation and Benefits at March 31, 2024 decreased $91.9 million from December 31, 2023 primarily due to the 2023 accrued annual incentive compensation being paid in the first quarter of 2024 ($129.4 million), partially offset by 2024 incentive compensation accruals recorded at March 31, 2024 ($38.1 million).
Current wording
Accrued Compensation and Benefits at June 30, 2024 decreased $65.2 million from December 31, 2023 primarily due to the 2023 accrued annual incentive compensation being paid in the first half of 2024 ($129.4 million), partially offset by 2024 incentive compensation accruals recorded at June 30, 2024 ($67.2 million).
Previous wording
A decrease in projected cash flows resulted in management determining that an indicator of potential impairment existed as of December 31, 2023 for the FHL right to manage public fund assets which totals £124.4 million at March 31, 2024 and was acquired in connection with the 2018 FHL acquisition. Management used an income-based approach to valuation, the discounted cash flow method, in valuing the asset. The discounted cash flow method resulted in no impairment for the year ended December 31, 2023 as the estimated fair value of this intangible asset exceeded the carrying value. As a result of revenue for the three-month period ended March 31, 2024 trailing forecast revenue and an increased discount rate, a discounted cash flow analysis was prepared as of March 31, 2024 which resulted in the estimated fair value exceeding the carrying value by less than 10%. The key assumptions in the discounted cash flow analysis include revenue growth rates, pre-tax profit margins and the discount rate applied to the projected cash flows. The risk of future impairment increases with a decrease in projected cash flows and/or an increase in the discount rate.
Current wording
Due to actual results trailing projected results, driven by a combination of lower gross sales and higher redemptions for the quarter ended June 30, 2024, management concluded that an indicator of potential impairment existed as of June 30, 2024 for the indefinite-lived intangible asset related to the FHL right to manage public fund assets which totaled £124.4 million at March 31, 2024 and was acquired in connection with the 2018 FHL acquisition. Management used an income-based approach, the discounted cash flow method, in valuing the asset, which resulted in a non-cash impairment charge of £52.2 million ($66.3 million). After the impairment, the indefinite-lived intangible asset related to the FHL right to manage public fund assets totaled £72.2 million ($91.3 million). The key assumptions in the discounted cash flow analysis include projected revenue growth rates, projected pre-tax profit margins and the discount rate applied to the projected cash flows. The risk of future impairment increases with a decrease in projected cash flows and/or an increase in the discount rate.
Previous wording
As of March 31, 2024, assuming all other assumptions remain static, an increase or decrease of 10% in projected revenue growth rates would result in a corresponding change to estimated fair value of approximately 7%. An increase or decrease of 10% in pre-tax profit margins would result in a corresponding change to estimated fair value of approximately 12%. An increase or decrease in the discount rate of 25 basis points would result in an inverse change to estimated fair value of approximately 2%. Any market volatility and other events related to geopolitical or other unexpected events could further reduce the AUM, revenues and earnings associated with this intangible asset and can result in subsequent impairment tests being based upon updated assumptions and future cash flow projections, which can result in an impairment. For additional information on risks related to geopolitical or other unexpected events, see Item 1A - Risk Factors included in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023.
Current wording
As of June 30, 2024, assuming all other assumptions remain static, an increase or decrease of 10% in projected revenue growth rates would result in a corresponding change to estimated fair value of approximately 9%. An increase or decrease of 10% in pre-tax profit margins would result in a corresponding change to estimated fair value of approximately 13%. An increase or decrease in the discount rate of 25 basis points would result in an inverse change to estimated fair value of approximately 3%. Any market volatility and other events related to geopolitical or other unexpected events could further reduce the AUM, revenues and earnings associated with this intangible asset and can result in subsequent impairment tests being based upon updated assumptions and future cash flow projections, which can result in an impairment. For additional information on risks related to geopolitical or other unexpected events, see Item 1A - Risk Factors included in Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023.
Rearranged current paragraphs (6)
Current report — wording carried from elsewhere
issuer’s business, results of operations or financial condition. On March 15, 2024, the Fifth Circuit issued an administrative stay of the SEC’s new climate-related disclosure rules. Consolidated challenges of the new rules will be heard by the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit). On April 4, 2024, the SEC issued an order in which it announced that it has determined to exercise its discretion to stay its new climate-related disclosure rules pending completion of the judicial review by the Eighth Circuit.
Current report — wording carried from elsewhere
will be successful. The degree of impact of regulatory developments and regulatory requirements on Federated Hermes' Financial Condition can vary, including in a material way, and is uncertain.
Current report — wording carried from elsewhere
Nonoperating Income (Expenses). Nonoperating Income (Expenses), net decreased $0.2 million for the three-month period ended June 30, 2024, as compared to the same period in 2023.
Current report — wording carried from elsewhere
Net income decreased $45.7 million for the six-month period ended June 30, 2024, as compared to the same period in 2023, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the six-month period ended June 30, 2024 decreased $0.47, as compared to the same period in 2023, primarily due to decreased net income ($0.53), partially offset by a decrease in shares outstanding resulting from share repurchases ($0.06).
Current report — wording carried from elsewhere
Purchase Agreement. As of June 30, 2024, the outstanding balance of the $350 million Notes, net of unamortized issuance costs in the amount of $2.0 million, was $348.0 million and was recorded in Long-Term Debt on the Consolidated Balance Sheets. The proceeds were, or will be, used to supplement cash flow from operations, to fund share repurchases and potential acquisitions, to pay down debt outstanding under the Credit Agreement and for other general corporate purposes. See Note (11) to the Consolidated Financial Statements for additional information on the Note Purchase Agreement.
Current report — wording carried from elsewhere
of Financial Condition and Results of Operations (unaudited)
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
requirements similar to those in Rule 2a-7, include holdings with indirect short-term exposures invested primarily in high-quality international bank names that are subject to Federated Hermes’ credit analysis process.
Previous report — wording carried elsewhere
regulated nature of the investment management business, management anticipates that aggregate expenditures for compliance and investment management personnel, compliance systems and technology and related professional and consulting fees could continue to increase.