Federated Hermes (FHI) Q3 2025: MDT Equity Net Sales Surge 9%, Private Markets Expansion Accelerates
MDT equity strategies delivered robust organic growth and outperformed peers, driving record AUM and reinforcing Federated Hermes’ equity franchise momentum. Private markets and digital asset initiatives gathered pace, while money market assets hit new highs amid ongoing innovation in distribution. Strategic focus remains on scaling private alternatives and leveraging tokenization, despite industry-wide cost and competitive headwinds.
Summary
- MDT Equity Strength: Quant-driven equity strategies captured outsized inflows and top-quartile performance.
- Private Markets Platform Builds: Direct lending and private equity fundraising advanced, with new fund launches and a renewable energy acquisition expanding capabilities.
- Digital Asset Innovation: Tokenized money market fund initiatives signal commitment to next-generation distribution and infrastructure.
Performance Analysis
Federated Hermes posted record $846 billion assets under management (AUM), led by a standout quarter for equity strategies. Equity assets rose $8.1 billion, up 10% sequentially, with net sales of $1.8 billion—an organic growth rate just under 9%. Momentum was driven by the MDT, multi-dimensional quant, platform, which delivered $3.8 billion in net sales and placed seven of eight mutual fund strategies in the top Morningstar quartile over three years. Strategic value dividend strategies and a diverse set of 19 equity funds also contributed to broad-based equity inflows.
On the fixed income side, assets declined 1% due to $2.4 billion in net redemptions, partially offset by market gains and FX. Alternatives, including private markets, grew 7% to $1.3 billion, with notable progress in direct lending and private equity fundraising. Money market assets reached a new high of $468 billion, despite typical seasonal outflows in separate accounts. The Rivington Energy Management acquisition enhanced the firm’s infrastructure and energy transition capabilities, reinforcing the private markets platform.
- Equity Franchise Outperformance: 56% of equity funds beat peers, with 26% in the top quartile, underpinning the firm’s competitive positioning.
- Private Markets Expansion: Multiple new fund vintages and mandates in direct lending, private equity, and real estate debt are building future fee streams.
- Money Market Scale and Share: Federated Hermes’ market share edged up to 7.11%, reflecting sustained demand for cash solutions and digital asset innovation.
The business model’s diversity—anchored by institutional money market leadership, scalable quant equity, and a growing alternatives platform—positions FHI to weather industry volatility and capitalize on evolving client preferences.
Executive Commentary
"We ended Q2 with record assets under management of $846 billion, led by gains from our equity strategies. MDT fundamental quant strategies produced solid sales results again in the second quarter. Our participation highlights our commitment to the digital asset space where we expect ongoing innovation and growth."
Chris Donahue, CEO & President
"Total revenue for Q2 increased slightly from the prior quarter due mainly to higher revenue from more days in the quarter and revenue related to the Rivington acquisition, which were partially offset by lower revenue from performance fees and carried interest."
Tom Donahue, Chief Financial Officer
Strategic Positioning
1. MDT Quantitative Equity Scale and Performance
The MDT suite—multi-dimensional quantitative equity—has emerged as a flagship growth engine, with $3.8 billion in net sales and broad-based top decile performance. Robust inflows, especially in mid-cap and all-cap core products, validate Federated Hermes’ investment in systematic strategies and support further scaling. Management sees no immediate capacity constraints, citing robust methodologies and liquidity.
2. Private Markets Platform and Fundraising Momentum
Private markets assets grew 7%, propelled by new vintages in European direct lending, global private equity co-investment, and pan-European innovation funds. The Rivington Energy Management acquisition adds renewable energy and project development expertise, broadening the infrastructure and energy transition platform. Management is targeting $750 million for European direct lending III and $500 million for the sixth private equity co-investment vehicle, signaling a multi-year fee growth opportunity.
3. Money Market Leadership and Tokenization Initiatives
Money market AUM hit a record $468 billion, with mutual fund assets at $476 billion. Federated Hermes is actively developing tokenized money market fund solutions, partnering with BNY Mellon and Goldman Sachs to enable blockchain-based ownership and transferability. Management views tokenization as an incremental distribution channel, not a threat to the core business, and expects further innovation around collateral management and digital asset infrastructure.
4. Expense Management and Capital Allocation Discipline
Expense lines saw upward pressure from compensation and advertising, while FX hedging was dialed back to reduce exposure. The Board authorized a new 5 million share repurchase program, reinforcing a disciplined capital return approach even as management reiterates that M&A—especially in private markets—remains the highest and best use of cash.
5. Fund Restructuring and Redemptions
The transition of a longstanding UK property trust to a third party will result in $1.2 billion of redemptions in Q3, reflecting shifting market demand for certain real estate products. Management highlights this as a client-driven, collaborative restructuring, with new wins in private credit and equity expected to partially offset the outflow.
Key Considerations
This quarter underscores Federated Hermes’ ability to drive organic growth across quant equity, expand private markets, and innovate in digital assets, while managing through cyclical and secular headwinds in other asset classes.
Key Considerations:
- Equity Momentum Sustainability: Continued inflows and outperformance in MDT and strategic value dividend strategies are central to future revenue growth.
- Private Markets Fee Upside: Success in fundraising for new vintages and integrating Rivington will determine the pace of alternatives’ contribution to earnings.
- Tokenization as Distribution Lever: Early-stage blockchain initiatives could unlock new client segments and operational efficiencies, though adoption remains nascent.
- Expense Discipline and FX Exposure: Compensation and infrastructure investment are rising, but FX hedging has been reduced, lowering future volatility.
- Capital Allocation Balance: Aggressive buybacks and new authorization signal confidence, but management is clear that M&A in private markets is the strategic priority.
Risks
Federated Hermes faces competitive and regulatory pressures in money markets, with potential for fee compression as digital assets and stablecoins evolve. Alternatives growth is dependent on successful fundraising and integration, while secular outflows in fixed income and episodic fund restructurings pose near-term headwinds. Expense drift and FX volatility could impact margins, and the pace of tokenization adoption remains uncertain.
Forward Outlook
For Q4 2025, Federated Hermes guided to:
- Expense growth in compensation and systems lines, reflecting merit increases and delayed infrastructure spend.
- Higher distribution payouts tied to rising money market assets.
For full-year 2025, management maintained guidance:
- Tax rate in the 25% to 28% range.
Management highlighted several factors that will drive results:
- Continued equity inflows, especially in MDT strategies, and further private market fundraising success.
- Active participation in tokenized money market fund pilots and digital asset partnerships.
Takeaways
Federated Hermes’ diversified business model—anchored by quant equity, private markets, and money market scale—provides resilience and optionality as the asset management industry evolves.
- MDT Outperformance: Quantitative equity flows and performance are a key differentiator, supporting organic growth and market share gains.
- Private Markets Execution: Fundraising progress and new capabilities like Rivington position alternatives as a multi-year growth lever.
- Digital Asset Experimentation: Tokenization initiatives are in early stages but could reshape distribution and collateral management over time.
Conclusion
Federated Hermes delivered a quarter of strong equity inflows, private markets expansion, and innovative moves in digital assets. The firm’s multi-pronged growth strategy—spanning quant, alternatives, and digital—positions it well for future industry shifts, though execution on fundraising, expense control, and tokenization adoption will remain key investor watchpoints.
Industry Read-Through
The quarter’s results reinforce several industry-wide themes: Systematic equity strategies are capturing outsized flows as performance persists; private markets remain a focal point for asset managers seeking higher-margin growth; and tokenization of fund shares is transitioning from concept to pilot stage, with leading firms collaborating on blockchain-based infrastructure. For peers, the bar is rising on both product innovation and operational scale, as clients demand new distribution models and regulatory complexity increases. Firms lagging in digital asset readiness or alternatives breadth risk losing share as the industry’s structural evolution accelerates.