Concentration Risk

9 Months Ended

Sep. 30, 2023

(a) Revenue Concentration by Asset Class

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


	Nine Months Ended
	September 30,
	2023		2022
Money Market Assets	46	%	37	%
Equity Assets	30	%	38	%
Fixed-Income Assets	12	%	15	%

The change in the relative proportion of Federated Hermes’ revenue attributable to money market assets for the nine months ended September 30, 2023, as compared to the same period in 2022, was primarily the result of an increase in money market revenue due to the elimination of fee waivers in order for certain money market funds to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers) and higher average assets. 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 nine months ended September 30, 2023, as compared to the same period in 2022, was primarily the result of increased money market revenue described above, as well as decreased equity revenue from lower average equity assets and decreased fixed-income revenue from lower average fixed-income assets and asset mix 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 at 5.25% - 5.50% as of the September 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 three and nine months ended September 30, 2023. There were no material Voluntary Yield-related Fee Waivers during the three months ended September 30, 2022. During the nine months ended September 30, 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 nine months ended September 30, 2022.

(b) Revenue Concentration by Investment Fund Strategy

Federated Hermes’ revenue concentration in the investment fund, Federated Hermes Government Obligations Fund, was 14% for both the three- and nine-month periods ended September 30, 2023, and 14% and 11% for the three- and nine-month periods ended September 30, 2022, respectively. A significant and prolonged decline in the AUM in this fund 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% of Federated Hermes’ total revenue for both the three- and nine-month periods ended September 30, 2023, and 14% and 11% for the three- and nine-month periods ended September 30, 2022, respectively, was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary. 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.