Greetings and welcome to the Federated Hermes, Incorporated Second Quarter 2025 Analyst Call and webcast. At this time, all participants are in a listen-only mode, and a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Raymond Hanley. Sir, the floor is yours. Hello and welcome to our call. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Saker Nusseibeh, who is the CEO of Federated Hermes Limited, and Debbie Cunningham, the Chief Investment Officer for Money Market. During today's call we may make forward-looking statements and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. Please review the risk disclosures in our SEC filings. No assurance can be given as to future results and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris. Thank you Ray, and good morning. I will review Federated Hermes' business performance and Tom will comment on our financial results. We ended Q2 with record assets under management of $846 billion, led by gains from our equity strategies. Equity assets increased by $8.1 billion, or 10%, from the prior quarter. Second quarter equity net sales of $1.8 billion represent an organic growth rate of just under 9%. Our MDT fundamental quant strategies produced solid sales results again in the second quarter. MDT equity strategies had net sales of $3.8 billion in the second quarter, up from $3.3 billion in the first quarter. For Q3 through July 25, these strategies have had net sales in combined funds and SMAs of $730 million. Seven of the eight MDT equity mutual fund strategies are in the top performance quartile of their Morningstar categories for the trailing three years ended June 30. Four of these strategies are in the top decile. The second quarter saw further improvement in flows from Strategic Value Dividend strategies. These strategies had second quarter net sales of $344 million compared to $131 million in the prior quarter, and this includes the funds, the SMA, and the institutional separate accounts. Under these strategies, we had net sales in 19 equity fund strategies during the second quarter, including a variety of the MDT offerings and including the Asia ex- Japan Fund. MDT's offerings included by highlight MDT Mid Cap Growth, MDT Mid Cap Collective, and the All Cap Core. Looking at our equity fund performance at the end of the second quarter and using Morningstar data for the trailing three years, 56% of our equity funds were beating peers and 26% were in the top quartile of their category. For Q3 through 7/25, combined equity funds and SMAs had net sales of $480 million. Now turning to fixed income, assets decreased by about $800 million or 1% in the second quarter from the prior quarter, due mainly to net redemptions of $2.4 billion, partially offset by higher market valuations and FX of $1.6 billion. Redemptions included about $1.5 billion from two large public entities that have regular sizable inflows and outflows. We had 15 fixed income funds with net sales in the second quarter, including the Conservative Micro Short Fund and the Total Return Bond Fund ETF. Regarding performance at the end of the second quarter and using Morningstar data for the trailing three years, 46% of our fixed income funds were beating peers and 21% were in the top quartile of their category. For Q3 through 7/ 25 combined fixed income and SMAs had net sales of $47 million. In the alternative private markets category, assets increased by $1.3 billion or 7% in the second quarter due mainly to the impact of FX rates, which was $1.1 billion, and net sales of $231 million, mostly in the MDT market. Neutral Fund, we are in the market, as I've said in previous calls, with European direct lending. The third vintage of our European Direct Lending Fund, to date we've closed on $450 million. Target raise is $750 million and EDL1 raised $300 million, EDL2 raised $640 million. We're also in the market with the Global Private Equity Co-Invest Fund, which is the sixth vintage of the PEC series. Our first close in April was for about $114 million. The target raise is $500 million and PEC 1- 5 raised approximately $400 million- $600 million in each fund. The Federated Hermes GPE Innovation Fund, the second vintage of our Pan European Growth Private Equity Innovation Fund, is in the market. To date we've closed on $110 million with a target raise of $300 million and the first vehicle raised $240 million. We're also in the market with the European Real Estate Debt Fund, a new pooled European debt fund. Our marketing is here in 2025 and our target is $300 million. Early in the second quarter we completed the acquisition of a majority interest in Rivington Energy Management Limited, a U.K. renewable energy company. The acquisition enhances our private markets platform by adding project development expertise and specialist energy transition sector experience to our institutional investment and asset management capabilities. In the infrastructure asset class, we are actively working on product development plans with the Rivington team across our long-term investment platform. We began Q3 with about $1 billion in net institutional mandates yet to fund in both funds and separate accounts. Fixed income expected net additions total about $545 million with wins in multi- sector high yield and active cash. Approximately $439 million of total wins are expected to come into private market strategies. We have approximately $1.6 billion in wins yet to fund, mostly in direct lending, private equity, and trade finance, partially offset by $1.2 billion in redemptions from the restructuring of our U.K. property trust, which will occur in the third quarter. We have managed this particular fund for decades, and it has delivered solid performance to our investors. The restructuring and transition of the fund to a third party is the result of changing market demand for such products. It is being done in collaboration with our investors and with the goal of providing them liquidity options to suit their preferences as expressed in their recent voting. The wins in this area are obviously in direct lending, private equity, and trade finance. Equities expected additions total about $59 million, driven by MDT and some offset by some outflows. Moving on to money markets, we reached another record high at the end of Q2 for money market fund assets, which increased by $3.1 billion to reach $468 billion. These assets moved higher in the second quarter despite seasonal factors that often result in lower assets. Money market separate accounts decreased by $5.9 billion, reflecting usual seasonal patterns. Market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety in periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives such as bank deposits and direct investments in T- bills and commercial paper. We are actively participating in the development of tokenized money market funds and digital asset infrastructure and continue to rigorously explore opportunities ranging from tokenized share classes to offering fully digitized assets. Over the past several years, we have engaged with a broad array of innovators and well-regarded financial institutions to identify and evaluate opportunities in the digital assets arena, accompanied by a significant amount of knowledge gained and experience along the way. We are sub-advisor for the Superstate Short Duration U.S. Government Securities Fund, a private tokenized fund that has assets of about $425 million. It was also recently announced that Federated Hermes will participate in the launch of a collaborative initiative between Bank of New York and Goldman Sachs that will use blockchain technology to maintain a record of their customers' ownership of select money market funds. This is a significant step towards enhancing the utility and transferability of existing money market fund shares. Our participation highlights our commitment to the digital asset space where we expect ongoing innovation and growth. Our estimate of money market mutual fund market share, including sub-advised funds, was about 7.11% at the end of the second quarter, up slightly from about 7.10% at the end of the first quarter. Now looking at recent asset totals, as of the last few days, managed assets were approximately $854 billion, including $642 billion in money markets, $91 billion in equities, $98 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi- asset. Money market mutual fund assets were $476 billion. Tom. Thanks Chris. 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. Total Q2 carried interest and performance fees were $1.4 million compared to $5.9 million last quarter. Approximately $829,000 of the Q2 fees were offset by nearly the same amount of compensation expense. Q2 operating expenses increased from the prior quarter due mainly to the $12.9 million VAT refund in Q1. In the other expense line item, FX and related expense was a credit of $5.8 million for Q2 compared to a credit of $5.6 million in Q1. As the pound strengthened against the dollar again, we have lowered the notional amount of our foreign currency forwards to GBP 31.5 million, down from GBP 86.7 million at the end of Q2. Compensation and related expense increased by $1.6 million from the prior quarter due mainly to higher incentive comp and base pay merit increases of $6.9 million, partially offset by seasonally lower expense for stock-based compensation of $4.7 million and payroll taxes of about $600,000. Advertising and promotional expense increased due mainly to the timing of our advertising campaign spend. The Q2 effective tax rate was 26.1%. We expect the rate to be in the 25%- 28% range for 2025. At the end of Q2, cash and investments were $607 million. Cash and investments excluding the portion attributable to non-controlling interest were $474 million. During Q, the company purchased approximately 1.5 million shares of its stock for about $64.5 million. The Board of Directors approved a new share repurchase program yesterday for 5 million shares, in addition to the 1.1 million shares remaining from the prior program. That concludes our prepared comments. We'd like to open up the call for questions. Thank you. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue, and you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Patrick Davitt with Autonomous Research. Your line is live. Hey, good morning, everyone. On the back of your stablecoin tokenization comments, I think it'd be helpful maybe if you could update us on your broader thoughts around the extent to which you think these products could disintermediate the traditional money market fund business. Do you see it more as incremental to that traditional money market fund cash exposure? Thank you. Baseline, we would see it as incremental. New customers, new things. There's not an avalanche of use of these things right now. Don't forget, the basic thing on people with cash is they want daily liquidity at par. They're willing to go with a stablecoin that doesn't pay a yield, but then they also like a respectable daily yield. We think that the Goldman, Bank of New York methodology, where Goldman creates a platform, Bank of New York is the custody and transfer agent, and the money market fund sits there just like it always sat there as a money market fund, and yet someone else is taking care of the tokenization. From the customer standpoint, it is in fact a tokenized money market fund, but from the money market fund operator standpoint, it's operating a regular 2a-7 money market fund in order to provide daily liquidity at par. This is a very sound strategy. I'm not saying it's the only one that will go into the future, but overall, we think that's a very good one. One of the reasons that people are getting excited about this is because you can get 7-by-24 activity, trade anytime. You still have to work out some of the mechanics of who gets the dividend. The way our program will work with Goldman right now is whoever owns the token at the end of the day is going to get the dividend. This is not as much a tokenized money market fund as others have full tokenized money market funds. Our overall view is that you have to play in this space and we are talking to people. I got a list of them and there are many of them on there, including European players where we're dealing with all the ideas of innovation. I can't go through all of them with you. The one with Bank of New York and Goldman obviously has been made public, as have Superstate. Yeah. Debbie, what would you add to that? You covered it very, very, very succinctly. The only thing I'd add is right now we think this is the tip of the iceberg, Patrick. This is for our current products that are on this platform, a different way to distribute. We distribute through various types of intermediaries, through states, through insurers, through broker dealers, through banks. We distribute directly. This is another way of distributing our product and in the process turning it into a ledger product that has better transferability than a typical money market fund share does. We think it's a very clever and new way to be able to distribute product. As Chris mentioned, there's lots of innovation that we think can happen that provide additional bells and whistles to why this is a product that will take over to some degree the future, but that's not what is in existence today. What is in existence today is a traditional money fund being distributed to a different group of clients, particularly from a collateralization standpoint. Money funds, stablecoins you mentioned, they need to be backed by something. They need to be backed by treasury bills or money funds containing those treasury bills. That's what the Genius Act is all about. Money funds will provide that collateral and we will provide it on chain so that the ease of use is basically seamless. Lots of innovation to come as it exists today. Distribution changes that are beneficial. Great, thanks. Just as a quick follow-up, Debbie, I feel like we've been talking about this for a couple years now, but as we get closer to likely Fed cuts, are you starting to see any more institutions come in to talk to you about this long-awaited rotation into money market funds that we've been talking about for a while now? Thanks. It's been alive and well, Patrick, through all of the second half of 2024 and all of 2025 year to date, so for the last year. It's not really started in earnest because what we saw in Fed rate cuts at the end of 2024 didn't materialize into anything yet in 2025. It's one of those wait till you see the whites of their eyes sort of thing, I think, as far as volume goes. We were basically flat on a money market fund asset basis for the second quarter, which had really two different aspects to it. The first month, April, was very much personal tax outflow, so huge personal taxes, and from an institutional side, outflows due to margin calls. If you recall, April 6 was the Liberation Day announcements, tariff announcements, many margin calls that came from institutional accounts. What we lost in assets in April basically were then needed to be made up in May, which they were as we ended up with quarter flat. It was definitely a tale of two quarters when you look at April compared to May and June. May and June are more confirmation of what we've been saying on the institutional side from a rotation into money market funds and out of direct securities, whereas April was more based on what the situation was happening from an economic and fiscal standpoint. Thank you. Our next question is coming from Ken Worthington with JPMorgan. Your line is live. Hi, good morning. Thanks for the question, Debbie. How do you see growth in stablecoins impacting the money market fund industry? Our Treasury Secretary suggested $2 trillion of stablecoin assets in coming years if his target is reached. What does this mean for money markets given the supply of T-bills that are outstanding today? Does all the math work for money market funds? Absolutely, Kenneth. Sure. The current size of the stablecoin market is about $250 billion. Very concentrated in two coins, basically. The assets that are backing those two coins, Tether and Circle, are basically in treasury securities. There's some commercial paper in there, but it's mostly treasury securities. That's all being sopped up very easily right now. What happens with the Genius Act is there's now more definition as to what needs to be backing a stablecoin, and it's very short. Treasuries or treasury-backed repo, which ultimately a trillion, two trillion, put your finger in the air. I'm not sure where the number goes, but it's somewhere above, you know, drastically above where it is in the $250 billion market today. What we thankfully have done, in addition to the Genius Act being passed, is the debt ceiling renewal that gives us an extra $5 billion in treasuries. Ultimately, we've seen pretty good coffers, had extraordinary measures depleted some coffers which are being replenished at this point. We also have had an improvement in bill supply, which we do believe will continue. Despite the fact that when Treasury went from Janet Yellen to Bessent, there was a pushback on how much short-term debt had been available in the market during the Yellen years, with the expectation that Bessent would start to term that debt out to some degree, that has not been the case. What they have provided is a pretty nice increase in the bill supply. We do think there will be extra supply in that one to three month sector, basically 93-day bill market and under. It'll probably make it a little bit more expensive, but that's being offset to some degree by the additional supply that we have, and our expectation would be for the foreseeable future it is enough to meet the demand of what we're expecting, at least at this point, from the stablecoin market. If I could add, Ken, one of the other features of the Genius Act was to not allow stablecoins to pay interest or return. The people who ought to be concerned about the $2 trillion going into stablecoins are the ones who have deposit accounts with little or no interest. How does that dynamic exactly work? You see the next level of things where people offer deals where, oh yes, you own a stablecoin and they'll take a bunch of your money and put it into a money market fund, charge you a fee, and keep 80% of your money in a money market fund so you get at least some return. You're seeing those kinds of innovations going on right now. It's important to note that a stablecoin can't pay a yield. Fair enough. Just on MDT having wild success here with that franchise. How do. We think about capacity in some of the MDT fundamental quant strategies mid and small cap products. I don't know what sort of separate account assets are sort of there as well, but how do we think about the capacity for those given the inflows you're seeing? At this point on all of the funds, each of the funds, we don't expect any capacity issues. The methodologies and the ability to buy shares is robust. Believe me, we're looking at that too to see if something is going to poke a hole in our balloon. At this point we're not seeing it. Great, thank you. Thank you. Our next question is coming from Bill Katz with TD Cowen. Your line is live. Thank you. Good morning everybody. Appreciate you taking the questions. Maybe Tom, a question. Good morning all. Tommy, maybe start with you. Just given how you've been hedging maybe some of the pound versus the dollar, can you talk a little bit about where you think the exit pace is for expenses? Maybe break that down between comp and maybe the non-comp line, particularly the other line has been sort of negative the last few quarters. Thank you. Okay, Bill, on the FX, that's why I mentioned in there that we've lowered our notional amount on the hedging. Basically, we're looking at it on a quarterly basis. We had previously looked at it on a yearly basis and we got the benefit in the first two quarters by looking at it on a yearly basis. Now we only, you know, our exposure is much less on the pound. It worked out quite well for us in terms of the compensation line. I would say next quarter we expect that to be up a couple million dollars or something like that. Of course, every time I predict that something happens and we end up paying out more or less. On the distribution line item, with Chris mentioning our assets month to date in July being up pretty significantly on the money market fund side, we would expect the higher distribution payouts. In the beginning of the year I talked on the systems and communication line about having pretty decent amount of more dollars per quarter. It's taken us a little bit longer time to get moving on those. I still see that line going up a couple million dollars next quarter. The rest of the line items, I think they just, I don't see big changes there. Okay, I'll sort of go back on the other expense line still. Maybe Chris, one for you. There's been a lot of M&A in the industry. It seems like the opportunity with your alts business is percolating a little bit, but still somewhat small in the grand scheme of things. You bought back a lot of stock in the second quarter. You ramped up the authorization as well. How do we think about maybe capital return priorities from here? Is there a way to be a bit more strident on the M&A side to maybe accelerate the opportunity in alts where I think a lot of the incremental growth seems to sit for the industry? Thank you, Bill. We have said this before, that the highest and best use of our cash is with doing acquisitions. We are actively talking about doing various acquisitions, especially in the private markets type space. Until we have something to announce, we don't announce. Remember the whole history we had before we bought Hermes, that from 2012- 2018, I agree that was six years, so that's long. We were saying all along we were going to do an international one and we took a lot of calls and consternation on that not happening for a while. When we say we're going to do stuff, we do stuff. It just might not be lickety split. We continue to look in the space exactly as you're saying for acquisitions. This is not to say that we stop doing look at the roll ups and other things that are attractive. For example, anyone who has a moribund money market fund knows that we are their warm and loving home. Bill, back on the other, I don't expect to have a VAT and you know, we don't forecast what's going to happen FX. If you take those things both out of there, our other line has lots of items in it. If you look back, June 30, 2024, that line was $5 million. I would say it would be a little higher than that would be our forecast, maybe $6.5 million. So many things change in there. That's why I don't really like doing what I just did. Thank you. I can put my slide ruler back. Thanks so. Much. Thank you. Our next question is coming from Brian Bedell with Deutsche Bank. Your line is live. Great, thanks. Good morning. Advancing to the next century here. I joined late, so pardon me if you answered part of this on the tokenization side, but maybe a different angle. To what extent do you see the tokenization of money market funds expanding the overall size of the money market fund industry, how dramatic could that be? If it's much easier to hold this in a digital format, it's very, very difficult to say what that kind of number would be. We haven't done any numbers on that. Both Debbie and I believe it's incremental to the business. As with any of these things, especially when you're dealing with blockchain, you got to let a lot of people on there first in order to have it grow. It's a little bit of a chicken egg thing. Everybody's working on it now. There's a lot of excitement and a lot of articles and all of that, but the assets are not yet there. We're ready for when it goes, but it's just hard for us to say. Maybe Debbie's done some research that I'm not aware of on how big that could be, but I. No, Chris, exactly. I mean we think it is an additional provision of distribution and an additional collateral management tool. The actual estimation of the size of the growth is really, it's too early to tell at this point. Maybe just to follow on to that. As you think about this industry evolving and also including the reserve management requirements for stablecoin, expanding the money market fund industry as well, do you see yourself for that incremental growth in those assets, potentially getting a higher market share than your current base? I think that's in the 7%- 8% range. Going forward, would you see yourself as a share gainer on this dynamic given your low cost and obviously your long standing reputation in the industry? This business is due in large part to two things. Regulation. Regulation oligopolizes business. You only have 10 or 12 players who can actually give clients the idea that they have daily liquidity apart if they have $100 million. New entrants have a very big challenge. Even with the Genius Act where you're going to have to create new funds because they shrunk the average or the maximum maturity of a fund, you've got to have enough of a big enough pool of money in order to make the customer believe they're going to get daily liquidity at par. By that we're always striving to get more market share. I'm not going to say, oh yeah, this is a definite thing that's going to happen. It's a very tight business, it's a very competitive business and we certainly expect to grow in it and get our fair share and try hard to get that number back up to a higher number than the 7.11 I mentioned. Great. That's great. Thank you. Thank you. As we have no further questions on the lines at this time, I would like to hand the call back over to Mr. Hanley for any closing remarks. Okay, thank you for joining us today. That concludes our call. Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, please. We thank you for your participation. Thanks.