Federated Hermes, Inc. reports fourth quarter and full-year 2020 earnings

PITTSBURGH, Jan. 28, 2021 /PRNewswire/ -- Federated Hermes, Inc. (NYSE: FHI), a global leader in active, responsible investing, today reported earnings per diluted share (EPS) for Q4 2020 of $0.93, compared to $0.81 for the same quarter last year, on net income of $95.2 million for Q4 2020, compared to $82.1 million for Q4 2019. Full-year 2020 EPS was $3.23, compared to $2.69 for 2019 on net income of $326.4 million for 2020, compared to $272.3 million for 2019.

Federated Hermes' total managed assets were $619.4 billion at Dec. 31, 2020, up $43.5 billion or 8% from $575.9 billion at Dec. 31, 2019 and up $4.6 billion or 1% from $614.8 billion at Sept. 30, 2020. Average managed assets for Q4 2020 were $610.5 billion, up $60.4 billion or 11% from $550.1 billion reported for Q4 2019 and down $17.6 billion or 3% from $628.1 billion reported for Q3 2020.

"Federated Hermes reached record assets in equity, fixed income and alternative/private markets. Fixed-income assets increased by 22 percent in 2020 on strong net sales for short-duration, high-yield and total return strategies," said J. Christopher Donahue, president and chief executive officer. "Federated Hermes also saw record gross sales for the year in equity funds, which earned strong performance across growth, value, dividend income and international strategies."

Federated Hermes' board of directors declared a quarterly dividend of $0.27 per share. The dividend is payable on Feb. 12, 2021 to shareholders of record as of Feb. 5, 2021. During Q4 2020, Federated Hermes purchased 515,700 shares of Federated Hermes class B common stock for $13.8 million, bringing the total shares of Class B common stock purchased in 2020 to 2,940,267 shares for $67.9 million.

Federated Hermes' equity assets were a record $91.8 billion at Dec. 31, 2020, up $2.8 billion or 3% from $89.0 billion at Dec. 31, 2019 and up $11.4 billion or 14% from $80.4 billion at Sept. 30, 2020. Top-selling equity funds on a net basis during Q4 2020 were Federated Hermes Kaufmann Small Cap Fund, Federated Hermes Global Emerging Markets Equity Fund, Federated Hermes SDG Engagement Equity Fund (UCITS), Federated Hermes Global Equity ESG Fund and Federated Hermes Impact Opportunities Equity Fund.

Federated Hermes' fixed-income assets were a record $84.3 billion at Dec. 31, 2020, up $15.3 billion or 22% from $69.0 billion at Dec. 31, 2019 and up $4.8 billion or 6% from $79.5 billion at Sept. 30, 2020. Top-selling fixed-income funds on a net basis during Q4 2020 were Federated Hermes Ultrashort Bond Fund, Federated Hermes Institutional High Yield Bond Fund, Federated Hermes Short-Intermediate Total Return Bond Fund, Federated Hermes Total Return Bond Fund and Federated Hermes Short-Term Income Fund.

Federated Hermes' alternative/private markets assets were a record $19.1 billion at Dec. 31, 2020, up $1.0 billion or 5% from $18.1 billion at both Dec. 31, 2019 and Sept. 30, 2020.

Federated Hermes' money market assets were $420.3 billion at Dec. 31, 2020, up $24.8 billion or 6% from $395.5 billion at Dec. 31, 2019 and down $12.7 billion or 3% from $433.0 billion at Sept. 30, 2020. Money market mutual fund assets were $301.9 billion at Dec. 31, 2020, up $15.3 billion or 5% from $286.6 billion at Dec. 31, 2019 and down $24.0 billion or 7% from $325.9 billion at Sept. 30, 2020.  Federated Hermes' money market separate account assets were $118.5 billion at Dec. 31, 2020, up $9.6 billion or 9% from $108.9 billion at Dec. 31, 2019 and up $11.5 billion or 11% from $107.0 billion at Sept. 30, 2020.

Financial Summary

Q4 2020 vs. Q4 2019

Revenue increased $5.9 million or 2% primarily due to higher average money market, equity and fixed-income assets. Revenue also increased as a result of revenue from a previously nonconsolidated entity being recorded in operating income beginning March 2020 and an increase in performance fees. These increases in revenue were partially offset by voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers).  See "Impact of voluntary yield-related fee waivers."

During Q4 2020, Federated Hermes derived 67% of its revenue from long-term assets (42% from equity assets, 15% from fixed-income assets and 10% from alternative/private markets and multi-asset), 32% from money market assets, and 1% from sources other than managed assets.

Operating expenses decreased $6.1 million or 2% primarily due to decreased distribution expenses primarily resulting from voluntary yield-related fee waivers, partially offset by increases in compensation expense.

Nonoperating income (expenses), net increased $5.8 million or 65% primarily due to an increase in the market value of investments, partially offset by revenue of a previously nonconsolidated entity being recorded in operating revenue beginning March 2020.

Q4 2020 vs. Q3 2020

Revenue decreased slightly due to an increase in voluntary yield-related fee waivers and lower average money market assets, partially offset by higher average long-term assets, led by equity and fixed-income assets, and an increase in performance fees.

Operating expenses decreased by $1.9 million or 1% primarily due to decreased distribution expenses resulting from higher voluntary yield-related fee waivers, partially offset by increases in compensation expense.

Nonoperating income (expenses), net increased $8.4 million or 136% primarily due to an increase in the market value of investments.

2020 vs. 2019

Revenue increased $121.4 million or 9% primarily due to higher average money market and fixed-income assets, a change in the mix of equity assets, revenue of a previously nonconsolidated entity being recorded in operating revenue beginning March 2020 and an increase in performance fees. These increases were partially offset by voluntary yield-related fee waivers.

During 2020, Federated Hermes derived 59% of its revenue from long-term assets (38% from equity assets, 13% from fixed-income assets and 8% from alternative/private markets and multi-asset), 40% from money market assets, and 1% from sources other than managed assets.   

Operating expenses increased by $51.2 million or 5% primarily due to increased incentive compensation expense and an increase due to expenses of a previously nonconsolidated entity being recorded in expenses beginning March 2020. These increases were partially offset by a decrease in distribution expenses as a result of voluntary yield-related fee waivers.

Nonoperating income (expenses), net increased $10.6 million or 61% primarily due to an increase in the market value of investments and a gain from a fair value adjustment to the equity investment of a previously nonconsolidated entity. These increases were partially offset by revenue of this previously nonconsolidated entity being recorded in operating revenue beginning March 2020.

Impact of voluntary yield-related fee waivers

For Q4 2020 and full-year 2020, voluntary yield-related fee waivers totaled $56.1 million and $113.0 million, respectively. These fee waivers were largely offset by related reductions in distribution expenses of $47.4 million and $98.4 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $8.7 million and $14.6 million, respectively.

Federated Hermes' level of business activity and financial results are dependent upon many factors, including market conditions, investment performance and investor behavior. These factors and others, including asset levels and mix, product sales and redemptions, market appreciation or depreciation, revenues, fee waivers, expenses and regulatory changes, can significantly impact Federated Hermes' business activity levels and financial results. Risk factors and uncertainties that can influence Federated Hermes' financial results are discussed in the company's annual and quarterly reports as filed with the Securities and Exchange Commission (SEC).

Federated Hermes will host an earnings conference call at 9 a.m. Eastern on Jan. 29, 2021. Investors are invited to listen to the earnings teleconference by calling 877-407-0782 (domestic) or 201-689-8567 (international) prior to the 9 a.m. start time. To listen online, go to the Investor Relations section and the Analyst Information tab of FederatedHermes.com at least 15 minutes prior to register and join the call. A replay will be available at approximately 12:30 p.m. Eastern on Jan. 29, 2021. To access the telephone replay, dial 877-481-4010 (domestic) or 919-882-2331 (international) and enter access code 39442. The online replay will be available via FederatedHermes.com for one year.

Federated Hermes, Inc. is a leading global investment manager with $619.4 billion in assets under management as of Dec. 31, 2020. Our investment solutions span 163 equity, fixed-income, alternative/private markets, multi-asset and money market funds and a range of separately managed account strategies. Providing comprehensive investment management to more than 11,000 institutions and intermediaries, our clients include corporations, government entities, insurance companies, foundations and endowments, banks and broker/dealers. Headquartered in Pittsburgh, Federated Hermes' more than 1,900 employees include those in London, New York, Boston and several other offices worldwide.

Federated Hermes ranks in the top 6% of equity fund managers in the industry, the top 9% of money market fund managers and the top 11% of fixed-income fund managers¹. Federated Hermes also ranks as the 6th-largest manager of model-delivered SMAs². For more information, including an analyst presentation, visit FederatedHermes.com.

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1)  ISS Market Intelligence (SIMFUND), Dec. 31, 2020. Based on assets under management in U.S. open-end funds.
2) Money Management Institute/Cerulli Associates, Q3 2020.
Federated Securities Corp. is distributor of the Federated Hermes funds. 
Separately managed accounts are made available through Federated Global Investment Management Corp., Federated Investment Counseling, Federated MDTA LLC, Hermes Fund Managers Ireland Limited, Hermes Investment Management Limited, and Hermes GPE LLP, each a registered investment advisor in one or more of the U.S., U.K. or Ireland.

Certain statements in this press release, such as those related to performance, investor preferences and demand, asset flows, asset mix and fee waivers, constitute or may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Other risks and uncertainties include the ability of the company to predict the level of fee waivers and expenses in future quarters, predict whether performance fees or carried interest will be earned and retained, and sustain product demand, asset flows and mix, which could vary significantly depending on various factors, such as market conditions, investment performance and investor behavior. Other risks and uncertainties include the risk factors discussed in the company's annual and quarterly reports as filed with the SEC. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither the company nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.