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- **AUM Growth**: Total AUM hit $871 billion, with money market assets up 5% and MDT equity strategies driving $2 billion in net sales.
- **Strategic Acquisitions**: $3.8 billion FCP acquisition to expand U.S. real estate exposure, complementing U.K. real estate business.
- **Digital Innovation**: Tokenized money market funds launched in U.K. (Archax), with plans for stablecoin collateral.
- **Financial Performance**: Revenue up 10% to $446.6 million, with operating expenses rising 10% to $322 million due to distribution costs.
- **Pipeline Strength**: $2.1 billion institutional pipeline, 2/3 expected to fund in Q4, with alternatives extending into 2026.

**【CEO Summary Section】**
- **Record Assets Under Management (AUM)**: Total AUM reached $871 billion, driven by $18 billion growth in money market assets and $5.7 billion increase in equity AUM.
- **Equity Strategy Performance**: MDT equity strategies achieved net sales of $2 billion in Q3, with 7/8 mutual funds in top quartile of Morningstar categories for 1-3 years and all 8 in top quartile for 5-10 years. Q3 equity net sales were slightly negative ($130 million) due to client redemptions, but MDT strategies saw strong RFP interest.
- **Fixed Income Growth**: Fixed income AUM rose to $101.8 billion, with net sales of $1.7 billion from large public entities. Ultrashort funds and sustainable investment-grade strategies led inflows.
- **Alternative Investments**: MDT market-neutral strategy added $173 million. European Direct Lending III and Global Private Equity Co-Investment Fund raised $680 million and $318 million, respectively. Acquisition of FCP (U.S. real estate manager with $3.8 billion AUM) expected to close Q1 2026.
- **Digital Assets Expansion**: Money market funds launched in tokenized form (e.g., Archax Sterling Prime), with plans for GENIUS Act-compliant stablecoin collateral. Global private markets pipeline totals $2.1 billion, including $1.6 billion in alternatives and $875 million in MDT equity strategies.

**【CFO Financial Commentary】**
- **Revenue Growth**: Q3 revenue increased 10% to $446.6 million, driven by higher money market assets ($17.6 million), equity assets ($14.8 million), and performance fees ($2.4 million). Termination fee from U.K. property trust restructuring added $4.6 million.
- **Operating Expenses**: Total expenses rose 10% to $322 million, with distribution costs up $14.2 million due to higher fund assets. Q3 included $2 million in FCP acquisition costs and $2.8 million in U.S. withholding tax expenses.
- **Profitability**: GAAP net income was $42.3 million, with an effective tax rate of 24.4%. Free cash flow was $610 million, excluding noncontrolling interests. Share buybacks paused in Q3 due to FCP negotiations, resuming in Q4.

**【Q&A Highlights】**
- **MDT Franchise Momentum**: CEO highlighted $660 million in net sales through October, with pipeline spanning global geographies (e.g., Belgium, Canada, U.K., South Korea). Clients exploring MDT as alternative to passive strategies.
- **Expense Outlook**: CFO expects comp and distribution expenses to rise with sales growth, but notes digital initiatives and organic investments will be revenue-accretive. FCP acquisition is projected to be accretive in 2026.
- **Pipeline Execution**: $2.1 billion institutional pipeline includes $1.6 billion in alternatives (e.g., direct lending, private equity) and $875 million in MDT equity strategies. 2/3 of equity/fixed income pipeline expected to fund in Q4, with alternatives extending into Q1/Q2 2026.

Federated Hermes, Inc. (FHI) Q3 2025 Earnings Call Transcript

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