Concentration Risk

3 Months Ended

Mar. 31, 2023

(a) Revenue Concentration by Asset Class

The following table presents Federated Hermes’ significant revenue concentration by asset class:


	Three Months Ended
	March 31,
	2023		2022
Money Market Assets	47	%	27	%
Equity Assets	33	%	45	%
Fixed-Income Assets	13	%	18	%

The change in the relative proportion of Federated Hermes’ revenue attributable to money market assets for the three months ended March 31, 2023 as compared to the same period in 2022, was primarily the result of an increase in money market revenue due to a decrease in fee waivers in order for certain money market funds to maintain positive or zero net yields (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 equity and fixed-income assets for the three months ended March 31, 2023 as compared to the same period in 2022, was primarily the result of increased money market revenue due to the decrease in Voluntary Yield-related Fee Waivers and decreased equity and fixed-income revenue from lower average equity assets and fixed-income asset mix, respectively, in 2023.

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a result of the outbreak of a novel coronavirus (the Pandemic), the Federal Open Market Committee (FOMC) of the Federal Reserve Board (Fed) 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 had been 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 2023. The range is currently 4.75% - 5.00% as of the March 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.

There were no Voluntary Yield-related Fee Waivers during the quarter ended March 31, 2023. During the three months ended March 31, 2022, Voluntary Yield-related Fee Waivers totaled $75.8 million. These fee waivers were partially offset by related reductions in distribution expenses of $57.5 million, such that the net negative pre-tax impact to Federated Hermes was $18.3 million for the three months ended March 31, 2022.

(b) Revenue Concentration by Investment Fund Strategy

The following table presents Federated Hermes’ revenue concentration by investment fund strategy:


	Three Months Ended
	March 31,
	2023		2022
Federated Hermes Government Obligations Fund	14	%	7	%
Federated Hermes Strategic Value Dividend strategy1	10	%	10	%

1 Strategy includes Federated Hermes Funds and Separate Accounts.

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 13% of Federated Hermes’ total revenue for the three-month period ended March 31, 2023 and 5% for the three-month period ended March 31, 2022 was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary. The increase in 2023 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.