Concentration Risk

12 Months Ended

Dec. 31, 2022

The following information summarizes Federated Hermes’ revenue concentrations. See additional information on the risks related to such concentrations in Item 1A - Risk Factors (unaudited).

(a) Revenue Concentration by Asset Class

The following table presents Federated Hermes’ significant revenue concentration by asset class over the last three years:


	2022		2021		2020

Money Market Assets	40	%	19	%	40	%
Equity Assets	36	%	52	%	38	%
Fixed-Income Assets	14	%	18	%	13	%

The change in the relative proportion of Federated Hermes’ revenue attributable to equity and fixed-income assets in 2022, as compared to 2021, was primarily the result of an increase in money market revenue due to a decrease in Voluntary Yield-related Fee Waivers. See section below entitled Low Short-Term Interest Rates.

The change in the relative proportion of Federated Hermes’ revenue attributable to money market assets in 2021, as compared to the same period in 2020, was primarily the result of decreased money market revenue primarily due to an increase in Voluntary Yield-related Fee Waivers and higher average equity and fixed-income assets in 2021.

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a result of the Pandemic, the FOMC decreased the federal funds target rate range to 0% - 0.25%. The federal funds target rate drives short-term interest rates. As a result of the near-zero interest-rate environment, the gross yield earned by certain money market funds was not sufficient to cover all of the fund’s operating expenses. Beginning in the first quarter 2020, Federated Hermes had implemented Voluntary Yield-related Fee Waivers. These waivers were partially offset by related reductions in distribution expense as a result of Federated Hermes’ mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers. In response to global economic activity and elevated inflation levels, the FOMC raised the federal funds target rate multiple times in 2022 and in February 2023. The range is currently 4.50% - 4.75% as of the February 1, 2023 FOMC meeting. These rate increases eliminated the net negative pre-tax impact of the Voluntary Yield-related Fee Waivers in the second half of 2022.

For the year ended December 31, 2022, Voluntary Yield-related Fee Waivers totaled $85.3 million. These fee waivers were partially offset by related reductions in distribution expenses of $66.5 million, such that the net negative pre-tax impact to Federated Hermes was $18.8 million. For the year ended December 31, 2021, Voluntary Yield-related Fee Waivers totaled $420.3 million. These fee waivers were partially offset by related reductions in distribution expenses of $277.1 million, such that the net negative pre-tax impact to Federated Hermes was $143.2 million.

(b) Revenue Concentration by Investment Fund Strategy

The following table presents Federated Hermes’ revenue concentration by investment fund strategy over the last three years:


	2022		2021		2020
Federated Government Obligations Fund	12	%	5	%	13	%
Federated Strategic Value Dividend strategy	10	%	9	%	8	%
Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II	7	%	11	%	9	%

A significant and prolonged decline in the AUM in these funds could have a material adverse effect on Federated Hermes’ future revenues and, to a lesser extent, net income, due to a related reduction in distribution expenses associated with these funds.

Approximately 11%, 3% and 7% of Federated Hermes’ total revenue for 2022, 2021 and 2020, respectively, was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary. The increase in 2022 was primarily due to a decrease in Voluntary Yield-related Fee Waivers. Significant negative changes in

Federated Hermes’ relationship with this intermediary could have a material adverse effect on Federated Hermes’ future revenues and, to a lesser extent, net income due to a related reduction in distribution expenses associated with this intermediary.