10-K: Federated Hermes Reports Strong 2025 Growth, Strategic Acquisitions

Federated Hermes, Inc. announced robust financial results for 2025, driven by significant AUM growth and strategic acquisitions, despite a dynamic regulatory landscape.

Summary

• Total Managed Assets (AUM) at December 31, 2025, reached $902.6 billion, marking a 9% increase from $829.6 billion in 2024.
• Average Managed Assets for 2025 increased by 8% to $853.4 billion, up from $788.5 billion in 2024.
• Total Revenue for 2025 grew by 10% to $1,800.7 million, compared to $1,632.1 million in 2024.
• Net Income for 2025 significantly increased to $403.3 million, up from $268.3 million in 2024.
• Diluted Earnings Per Share (EPS) for 2025 rose to $5.13, an increase from $3.23 in 2024.
• Operating Income for 2025 was $513.9 million, a substantial increase from $361.5 million in 2024.
• The company completed the acquisition of a majority (60%) equity interest in Rivington Energy Management Limited on April 7, 2025, a U.K.-based renewable energy project development business.
• An agreement was entered into on October 23, 2025, to acquire a majority (80%) interest in FCP Fund Manager, L.P., a U.S.-based real estate investment manager, with completion expected in the second quarter of 2026.
• The U.S. regulatory environment, particularly the SEC, shifted towards deregulation, capital formation, and traditional enforcement areas in 2025, with fewer new proposals and a reduction in finalized substantive rules.
• The Financial Stability Oversight Council (FSOC) 2025 Annual Report focused on deregulation, bolstering the Treasury market, strengthening cybersecurity, enhancing supervisory frameworks for depository institutions, and using artificial intelligence (AI).
• FINRA's 2026 Annual Regulatory Oversight Report highlighted generative AI, financial crimes prevention, firm operations, cryptocurrency, communications and sales, market integrity, and financial management as key areas of focus.
• A lawsuit was filed against Hermes GPE LLP and Hermes Infrastructure II GP LLP by Aberdeen City Council Pension Fund on January 5, 2026, alleging professional negligence and breach of limited partnership agreement related to a 2019 investment in the Ventus Portfolio, seeking approximately £87 million (approximately $118 million). Federated Hermes denies the allegations.
• Costs totaling $23.2 million were incurred as of December 31, 2025, related to an administrative error concerning unregistered shares of a closed-end tender fund, with a $15.9 million insurance reimbursement receivable now subject to litigation.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance report, with significant growth in AUM, revenue, and net income, coupled with strategic acquisitions and effective cost management, despite ongoing regulatory complexities and some litigation.

Positives

• Total managed assets increased by 9% to $902.6 billion at December 31, 2025, demonstrating strong growth.
• Total revenue increased by 10% to $1,800.7 million in 2025, reflecting robust business performance.
• Net income saw a significant increase to $403.3 million in 2025 from $268.3 million in 2024.
• Diluted earnings per share grew by $1.90 to $5.13 in 2025.
• Operating income increased substantially to $513.9 million in 2025 from $361.5 million in 2024.
• Money market assets grew by 8% at period-end and 9% on average, while equity assets increased by 23% at period-end and 11% on average.
• The acquisition of a majority interest in Rivington Energy Management Limited accelerates the company's growth in renewable energy markets.
• The agreement to acquire a majority interest in FCP Fund Manager, L.P. expands the company's real estate investment management capabilities.
• No Voluntary Yield-related Fee Waivers were incurred for the years ended December 31, 2025, 2024, or 2023, indicating favorable interest rate conditions and effective management.
• The company maintained effective internal controls over financial reporting as of December 31, 2025.
• Federated Hermes was in compliance with all debt covenants, boasting a strong interest coverage ratio of 48 to 1 (against a required 4 to 1) and a leverage ratio of 0.59 to 1 (against a required maximum of 3 to 1).
• A VAT refund of $12.9 million was received in 2025, positively impacting other expenses.

Negatives

• Average assets in Alternative/Private Markets decreased by 4% for 2025 compared to 2024.
• Average Multi-Asset funds decreased by 2% for 2025 compared to 2024.
• Fixed-Income Funds experienced net redemptions of $2,344 million in 2025.
• Fixed-Income Separate Accounts recorded net redemptions of $1,523 million in 2025.
• Total Long-Term Assets experienced overall net redemptions of $691 million in 2025.
• Net cash provided by operating activities decreased by $49.3 million in 2025 compared to 2024.
• The indefinite-lived intangible asset related to the FHL right to manage public fund assets had an estimated fair value exceeding its carrying value by less than 5% as of December 31, 2025, indicating an increased risk of future impairment.
• A class action lawsuit was filed in August 2023 against the company and others, alleging breach of fiduciary duties related to the company's 401(k) plan.
• A former employee filed a discrimination lawsuit against the company in March 2025.
• A lawsuit was filed against Hermes GPE LLP and Hermes Infrastructure II GP LLP by Aberdeen City Council Pension Fund, alleging professional negligence and breach of agreement related to a 2019 investment, seeking approximately £87 million (approximately $118 million).
• Litigation is ongoing with two primary insurance carriers regarding a $15.9 million insurance reimbursement receivable for an administrative error.

Risks

• Economic or market downturns, deficits, disruptions, or other domestic or international conditions can result in volatility, illiquidity, reduced investment supply, diminished profitability, and decreased demand for investment offerings.
• A significant portion of total AUM or revenue can be concentrated in one or more investment offerings, asset classes, or customers, making the company vulnerable to adverse changes in these areas.
• Money market fund investments are neither insured nor guaranteed, and a decline in Net Asset Value (NAV) could lead to significant redemptions, loss of shareholder confidence, and reputational harm.
• The investment management business is highly competitive, with competition based on investment performance, fees, quality of service, and technological innovation, which could lead to fee reductions or loss of market share.
• Failure to successfully develop, market, and manage new investment and related offerings, which require sustained innovation and significant resources, could reduce market share and harm business reputation.
• Changes in distribution channels, including the inability to maintain access to current customers or market conditions not supporting the sale or financing of development-stage projects, could adversely affect profitability.
• Declines in the amount of or changes in the mix of Assets under Management (AUM), particularly shifts towards lower-fee asset classes, can materially affect revenue, profitability, and growth.
• The company has approximately $1.2 billion of intangible assets, including goodwill, which are subject to impairment risk if projected revenues, managed assets, or discount rates decline.
• A substantial majority of revenue is derived from investment advisory agreements that are terminable upon 60 days' notice and require annual renewal, posing a risk of termination or fee reductions.
• Increases in interest rates can adversely affect revenue from money market, fixed-income, alternative/private markets, and other investment offerings, and reduce the fair value of securities.
• Poor investment performance relative to market conditions and competing offerings can lead to decreased sales, increased redemptions, and failure to earn performance fees or carried interest.
• As a controlled company, Federated Hermes relies on exemptions from certain NYSE corporate governance requirements, which could be viewed negatively by some investors or impact its inclusion in certain financial indexes.
• The dual-class stock structure can lead to exclusion from certain financial indexes, potentially decreasing investments in Class B common stock and adversely affecting its price.
• The company's ability to raise additional capital depends on factors like creditworthiness, credit ratings, and market conditions, and failure to obtain necessary capital could materially adversely affect its financial condition.
• Extensive global regulation, new legislation, and rulemaking can increase operating expenses, compliance burdens, and lead to regulatory enforcement, civil or criminal liability, or sanctions.
• Potential designation as a Systemically Important Financial Institution (SIFI) by the FSOC or FSB could subject the company to enhanced banking regulation and oversight, increasing costs and restricting business activities.
• The enactment of a Financial Transaction Tax (FTT) with broad application in the U.S., U.K., or EU would be detrimental to the company's business and offerings.
• The company faces various litigation, investigations, proceedings, and other claims, including class action lawsuits and regulatory inquiries, which could result in material losses, fines, or reputational damage.
• Operational risks, including improper transaction execution, inadequate technology, underperformance by service providers, human error, and business disruptions, can materially adversely affect financial condition.
• Reliance on software and related technologies, including artificial intelligence, exposes the company to cybersecurity attacks, data breaches, system failures, and other technology-related risks.
• Difficulty in attracting, motivating, and retaining qualified personnel due to the highly competitive investment management business and evolving work environments (e.g., hybrid work) poses a human capital resource management risk.
• Strategic transactions, such as acquisitions, involve risks and uncertainties, including the ability to find suitable candidates, successfully integrate acquired businesses, or realize anticipated benefits.
• Reputational harm from regulatory proceedings, litigation, market downturns, errors in public reports, political backlash against ESG, or cyber incidents can negatively impact the company's brand, stock price, and AUM.
• Unpredictable events such as natural disasters, pandemics, wars, geopolitical tensions, or extreme weather can disrupt business operations and adversely impact the company's financial condition.

Future Outlook

The company expects to invest approximately $300 million over the next three years in technology-driven initiatives, including $200 million in existing overhead and $100 million in external spend. Management anticipates aggregate expenditures for compliance and investment management personnel, systems, and professional fees will continue to increase due to the highly regulated nature of the business. The acquisition of FCP Fund Manager, L.P. is expected to be completed in the second quarter of 2026. The SEC Chairperson indicated that the SEC Staff is working with the fund industry on provisions in Rule 2a-7 under the 1940 Act that require liquidity fees on institutional prime and institutional municipal (tax-exempt) money market funds when they reach a certain threshold of investor redemptions, suggesting potential future reforms. The SEC will focus on other Regulation S-K disclosure requirements with the goal of revising them to elicit material information and avoid compelling immaterial information, with public comments requested by April 13, 2026. The European Commission plans to issue public consultations and market analysis in 2026 regarding the review of the EU UCITS Eligible Assets Directive. Public statements regarding progress on reforms of the regulatory regime for MMFs in the U.K. and EU are expected. The FCA intends to consult on detailed rules for the U.K. AIFMD regime reform in the first half of 2026. Final rules and guidance are expected in the first half of 2026 for U.K. fund dealing models and tokenization. The final text of the EU Retail Investment Strategy (RIS) package is expected in early 2026. The EU and U.K. are taking steps to migrate to a T+1 settlement cycle, scheduled for late 2027.

Management Comments

• Federated Hermes has been in the investment management business since 1955 and is one of the largest investment managers in the United States (U.S.).
• Federated Hermes, which began selling money market fund offerings to institutions in 1974, is one of the largest U.S. managers of money market assets, with $682.6 billion in AUM at December 31, 2025.
• Federated Hermes fully supported efforts to eliminate annual shareholder meetings for exchange listed CEFs because, in Federated Hermes view, CEFs are more akin to registered mutual funds, which are not required to have annual meetings, than listed operating companies and the annual shareholder meeting requirement subjects them to attack by activist shareholders who buy discounted shares and then take action to force the CEFs to incur liquidity events (such as tender offers, reorganizations, or open-ending of the CEFs) to realize or arbitrage the difference between the discounted purchase prices and the CEFs net asset value (NAV), all to the detriment of the CEFs and their long-term investors.
• Federated Hermes strongly encourages the FSOC to revise the 2023 nonbank designation guidance to eliminate the risk of money market funds or other investment companies being designated as a SIFI.
• Federated Hermes strongly supports the ICIs position and believes adoption of e-delivery on a default basis is in the best interest of shareholders.
• Federated Hermes denies Plaintiffs allegations, believe the claims are without merit, and intend to vigorously defend against such claims.
• Management believes it will have sufficient liquidity to meet both its short-term and reasonably foreseeable long-term cash needs.

Industry Context

StockSavvy.ai notes that Federated Hermes' strong AUM growth, particularly in money market and equity assets, aligns with broader market trends of increased investor confidence and equity market performance in 2025, as evidenced by the S&P 500's 16%+ gain. The company's strategic acquisitions in renewable energy and real estate reflect a trend among asset managers to diversify into alternative and private markets for higher fee potential and growth. The ongoing regulatory shifts, particularly the SEC's deregulatory stance and focus on traditional enforcement, could reduce compliance burdens for the industry, while international regulators continue to refine ESG and liquidity management frameworks, creating a complex global operating environment for firms like Federated Hermes. The industry-wide move towards T+1 settlement in the EU and UK, following the US, indicates a global push for increased market efficiency.

Comparison to Industry Standards

• Federated Hermes' 9% increase in total managed assets to $902.6 billion at year-end 2025 demonstrates solid growth, outperforming the S&P MidCap 400 Index's 7.5% gain and the S&P 1500 Asset Management & Custody Banks Index's 6.3% gain in 2025 (based on the performance graph data from 12/31/2024 to 12/31/2025).
• The company's diluted EPS growth of $1.90 to $5.13 in 2025 is a strong indicator of profitability, especially when compared to the broader asset management industry, which often faces fee compression.
• The acquisition of Rivington Energy Management Limited and the planned acquisition of FCP Fund Manager, L.P. position Federated Hermes to compete more effectively in the growing alternative and private markets space, a trend seen across major asset managers like BlackRock and Blackstone, who are also expanding their private market offerings to capture higher-margin revenue streams.
• The company's compliance with debt covenants (interest coverage ratio of 48:1 vs. 4:1 required, leverage ratio of 0.59:1 vs. 3:1 required) indicates a robust financial position compared to industry peers who might be more leveraged.
• The absence of Voluntary Yield-related Fee Waivers for three consecutive years (2023-2025) suggests effective money market fund management in a favorable interest rate environment, a key differentiator in a segment where competitors often face pressure to waive fees to maintain positive yields.

Management Changes

Corporate Governance

Legal Proceedings

• A class action lawsuit was filed in August 2023 on behalf of the Federated Hermes, Inc. Employees Profit Sharing/401(k) Plan, alleging breach of fiduciary duties of prudence and loyalty, and certain other causes of action, relating to administering the Plan.
• A former employee filed a lawsuit against Federated Hermes in March 2025 alleging discrimination.
• Hermes GPE LLP and Hermes Infrastructure II GP LLP acknowledged service of Particulars of Claim on January 5, 2026, in the High Court of Justice, Business and Property Courts of England and Wales, Chancery Division, by Aberdeen City Council as the administering authority of the Aberdeen City Council Pension Fund. The Plaintiff is asserting derivative claims against HGPE for professional negligence and breach of the Fund's limited partnership agreement in connection with the Fund's 2019 investment in the Ventus Portfolio, seeking approximately £87 million (approximately $118 million). Direct claims are also asserted against General Partner for breach of duty.
• Federated Hermes and a subsidiary filed suit in July 2023 against its first two primary insurance carriers relating to claims for coverage of certain losses incurred, specifically a $15.9 million insurance reimbursement receivable related to an administrative error concerning unregistered shares of a closed-end tender fund.

Related Party Transactions

• The Class A common stock is held by the Voting Shares Irrevocable Trust for the benefit of certain members of the Donahue family, with J. Christopher Donahue, Thomas R. Donahue, and Ann C. Donahue serving as trustees.
• J. Christopher Donahue (President, CEO, Chairman, and Director) and Thomas R. Donahue (Vice President, Treasurer, Chief Financial Officer, and Director) are brothers.
• The company provides investment advisory services to 176 Federated Hermes Funds, which are considered affiliates.
• Approximately 9% of Federated Hermes' total revenue for 2025 was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and share repurchases. Potential negative impact from the dual-class structure's exclusion from certain indexes and potential stock price decline if existing shareholders sell large amounts of Class B stock. Ongoing litigation and regulatory risks could also impact shareholder value.
• Employees: Benefit from competitive compensation programs, comprehensive benefits, and employee development initiatives. Global harmonization of compensation deferral practices aims to enhance equity. Risk of employee turnover and challenges in recruiting key personnel persist.
• Customers: The company's focus on enhancing long-term risk-adjusted investment performance and creating financial value, along with new offerings and strategic acquisitions, aims to provide a wider range of solutions. Regulatory changes, especially regarding money market funds and ESG, could impact product offerings and investor preferences.
• Suppliers/Service Providers: The company's reliance on third-party service providers for various operations exposes it to their operational and cybersecurity risks.
• Creditors: Strong compliance with debt covenants (interest coverage ratio 48:1, leverage ratio 0.59:1) indicates a robust financial position and low credit risk.

Next Steps

• Complete the acquisition of a majority (80%) interest in FCP Fund Manager, L.P. during the second quarter 2026.
• The SEC Staff is instructed to work on a proposed rule to make e-delivery the default option for delivering fund disclosures to investors.
• The SEC will undertake a comprehensive review of Regulation S-K, with public comments requested by April 13, 2026.
• The European Commission plans to issue public consultations and market analysis in 2026 regarding the review of the EU UCITS Eligible Assets Directive.
• Public statements regarding progress on reforms of the regulatory regime for MMFs in the U.K. and EU are expected.
• The FCA intends to consult on detailed rules for the U.K. AIFMD regime reform in the first half of 2026.
• Final rules and guidance are expected in the first half of 2026 for U.K. fund dealing models and tokenization.
• The EU and U.K. are scheduled to migrate to a T+1 settlement cycle in late 2027.
• Mr. John B. Fisher will step back from full-time responsibilities as an executive officer effective April 30, 2026.
• Mr. Paul A. Uhlman will replace Mr. Fisher as President and CEO of the Federated Advisory Companies effective April 30, 2026.
• Mr. Bryan M. Burke will replace Mr. Uhlman as President, Federated Securities Corp., and become a Vice President and executive officer effective April 30, 2026.
• Mr. Fisher is not standing for re-election to the Board at the Annual Meeting of Shareholders on April 30, 2026.
• Mr. Uhlman has been nominated for election to the Board at the next Annual Meeting of Shareholders.
• The board of directors declared a $0.34 per share dividend payable on February 13, 2026, to shareholders of record as of February 6, 2026.
• The company will continue to monitor and update its assessment of Pillar Two income taxes as additional guidance and/or legislation is released.

Key Dates

Recommendation

Federated Hermes demonstrated strong financial performance in 2025 with significant growth in AUM, revenue, and net income, supported by strategic acquisitions. The company maintains a solid financial position with good liquidity and compliance with debt covenants. However, the ongoing litigation, particularly the significant claim related to the Ventus Portfolio investment, and the increased risk of impairment for the FHL intangible asset introduce notable uncertainties. While the regulatory environment is shifting towards deregulation in the U.S., global regulatory complexities, especially around ESG and liquidity management, persist. The dual-class stock structure and reliance on a few key funds and intermediaries also present concentration risks. Given the strong performance balanced by these material risks and uncertainties, a 'Hold' recommendation is appropriate for a seasoned investor to monitor the resolution of legal matters and the impact of regulatory changes.

Keywords

Investment Management, Asset Management, SEC Filing, 10-K, Financial Performance, Assets Under Management, Money Market Funds, Equity Funds, Fixed-Income Funds, Alternative Investments, Private Markets, Renewable Energy, Real Estate Investment, Regulatory Environment, Cybersecurity, Corporate Governance, Share Repurchase, Dividends, ESG, Artificial Intelligence, Financial Technology