FHI Q3 Deep Dive: Strong Money Market and MDT Strategy Growth Drive Outperformance

Investment management firm Federated Hermes (NYSE:FHI) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 14.9% year on year to $469.4 million. Its non-GAAP profit of $1.34 per share was 19.9% above analysts’ consensus estimates.

Is now the time to buy FHI? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Federated Hermes delivered a quarter that exceeded Wall Street expectations, with management attributing the performance to record assets under management, particularly led by gains in money market and equity strategies. CEO John Donahue highlighted the impact of solid results from the MDT (Multi-Dimensional Team) equity strategies and strong inflows in money market funds, saying, “We reached another record high at the end of Q3 for total money market assets.” The quarter also benefited from improved fixed income net sales and a termination fee related to a U.K. property trust restructuring.

Looking ahead, management is focused on expanding the MDT franchise globally, developing digital asset infrastructure, and integrating recent acquisitions. John Donahue emphasized the robust institutional pipeline, noting anticipated funding across geographies and products, particularly in private markets and MDT mandates. CFO Thomas Donahue stated that while expense growth is expected with these initiatives, it should be matched by revenue, adding, “If [expenses] do, we would fully expect them to come with revenue shortly thereafter.” Management also highlighted ongoing product development in energy solutions and the integration of U.S. real estate capabilities.

Key Insights from Management’s Remarks

Management credited the quarter's outperformance to strong momentum across money market, equity, and fixed income strategies, as well as the continued expansion of MDT offerings and digital initiatives.

• MDT equity strategies excelled: The MDT franchise generated $2 billion in net sales, with seven of eight MDT equity mutual fund strategies ranking in the top performance quartile for the last 1 and 3 years. International demand for MDT offerings is growing, supported by the launch of the MDT U.S. equity UCITS fund in Dublin, which has already secured $340 million in net sales.
• Money market assets reached new highs: Money market fund assets increased by $24.7 billion in Q3, driven by the asset class’s appeal during market volatility and higher yields relative to bank deposits and other alternatives. CEO John Donahue underscored continued client interest in these products and market share stability at roughly 7.11%.
• Fixed income recovery: Fixed income net sales improved significantly, reversing redemptions from the previous quarter to achieve $1.7 billion in net sales. Growth was supported by inflows from large public entities and strong performance in ultrashort and sustainable global investment-grade funds.
• Alternatives and real estate adjustments: The alternatives segment saw a decline in assets due to outflows from a U.K. property trust restructuring and real estate account redemptions. However, management pointed to ongoing fundraising for new vintages in direct lending and private equity, as well as the planned acquisition of FCP, a U.S.-focused real estate manager.
• Digital asset and tokenization initiatives: Federated Hermes advanced its digital asset strategy, launching tokenized versions of its Sterling Prime and U.S. Dollar Prime money market funds through Archax in the U.K., and collaborating with major financial institutions on blockchain-based recordkeeping for money market funds.

Drivers of Future Performance

Federated Hermes expects its growth to be driven by global expansion of MDT strategies, further digital product innovation, and the integration of new acquisitions, while closely managing expenses.

• Global MDT expansion: Management is prioritizing expanding the MDT equity strategies beyond the U.S., leveraging client demand in Europe, Asia, and the Middle East. The pipeline for new institutional mandates is strong, with funding expected across multiple geographies and client types in the coming quarters. Successful execution here could increase both assets under management and management fee revenue.
• Digital and tokenized product development: The company is investing in digital asset infrastructure, including tokenized money market funds and participation in blockchain collaborations with major financial institutions. Management views these initiatives as necessary to capture future demand for digital investment products and to differentiate Federated Hermes within the asset management sector.
• Acquisition and integration risk: While the acquisition of FCP is expected to strengthen the U.S. real estate platform, management acknowledges that related expenses and integration efforts could temporarily increase costs. However, CFO Thomas Donahue stated that these investments should be accretive to earnings once fully integrated, and any near-term expense increases are expected to be offset by revenue growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the pace and breadth of institutional funding for MDT and private market strategies, (2) progress in integrating FCP and scaling the U.S. real estate platform, and (3) continued advancement of digital asset products and tokenized fund offerings. Execution on these fronts, along with expense management as new initiatives are rolled out, will be key indicators of Federated Hermes’ ability to sustain growth and profitability.

Federated Hermes currently trades at $48.48, up from $47.35 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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