What changed in this filing

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Item 1A. Risk Factors

2023-02-24 compared with 2022-02-25 · 149 added, 137 removed, 304 unchanged (48% of the section changed)

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As an investment manager, risk is an inherent part of Federated Hermes’ business.

U.S., UK and other global financial/securities, capital, commodities, currency, real estate, credit, and other markets (collectively, as applicable, markets), by their nature, are prone to uncertainty and subject participants to a variety of risks.

U.S., UK, EU and other global financial/securities, capital, commodities, currency, real estate, credit, and other markets (collectively, as applicable, markets), by their nature, are prone to uncertainty and subject participants to a variety of risks.

If any of the following risks actually arise, Federated Hermes’ Financial Condition could be materially adversely affected.

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Likewise, significant negative changes in Federated Hermes’ relationship with a customer or shareholder with a material concentration 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 customer or shareholder.

A significant change in Federated Hermes' business or a significant reduction in AUM due to Regulatory Developments, market changes, such as significant and rapid increases in interest rates over a short period of time causing certain investors to prefer direct investments in interest-bearing securities, non-competitive performance, declines in asset values, the availability, supply and/or market interest in repurchase agreements and other investments, significant deterioration in investor confidence, continuing declining or prolonged periods of low short-term interest rates or negative interest rates or negative yields and resulting fee waivers, investor preferences for deposit products or other Federal Deposit Insurance Corporation (FDIC)-insured products, or exchange-traded funds, index funds or other passive investment products, changes in product fee structures, changes in relationships with customers or other circumstances, could have a material adverse effect on Federated Hermes' Financial Condition.

A significant change in Federated Hermes’ business or a significant reduction in AUM due to Regulatory Developments, market changes, such as significant and rapid increases in interest rates over a short period of time causing certain investors to prefer direct investments in interest-bearing securities, non-competitive performance, declines in asset values, the availability, supply and/or market interest in repurchase agreements and other investments, significant deterioration in investor confidence, continuing declining or prolonged periods of low short-term interest rates or negative interest rates or negative yields and resulting fee waivers, investor preferences for deposit products or other Federal Deposit Insurance Corporation (FDIC)-insured products, or certain exchange-traded funds, index funds or other passive investment products, changes in product fee structures, changes in relationships with customers or other circumstances, could have a material adverse effect on Federated Hermes’ Financial Condition.

Potential Adverse Effect of Providing Financial Support to Investment Products.

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Federated Hermes also offers non-U.S.

low volatility money market funds that seek to maintain a constant NAV, but will move to a four-digit NAV if such fund's NAV falls outside of a 20 basis point collar.

low volatility NAV money market funds that seek to maintain a constant NAV, but will move to a four-digit NAV if such fund’s NAV falls outside of a 20-basis point collar.

While stable or constant NAV money market funds seek to maintain a NAV of $1.00 per share, it is also possible to lose money by investing in these funds.

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Federated Hermes devotes substantial resources, such as significant credit analysis, consideration of ESG factors and attention to security valuation, in connection with the management of its products and strategies.

However, the NAV of an institutional prime or municipal (or tax-exempt) money market fund, or variable NAV fund or, if the above described conditions are met, a low-volatility NAV fund, can fluctuate, and there is no guarantee that a government/public debt or retail ( i.e., stable or constant NAV) money market fund, or a low-volatility money market fund, will be able to preserve a stable or constant NAV in the future.

However, the NAV of an institutional prime or municipal (or tax-exempt) money market fund, or variable NAV fund or, if the above described conditions are met, a low-volatility NAV money market fund, can fluctuate, and there is no guarantee that a government/public debt or retail ( i.e., stable or constant NAV) money market fund, or a low-volatility money market fund, will be able to preserve a stable or constant NAV in the future.

Market conditions could lead to a limited supply of money market securities and severe liquidity issues and/or declines in interest rates or additional prolonged periods of low yields in money market products or strategies, and Regulatory Developments could lead to shifts in asset levels and mix, which could impact money market fund NAVs and performance.

If the NAV of a Federated Hermes stable or constant NAV money market fund were to decline to less than $1.00 per share, such Federated Hermes money market fund would likely experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated Hermes’ Financial Condition.

If the fluctuating NAV of an institutional prime or

municipal (or tax-exempt) money market fund, or variable NAV money market fund or low volatility money market fund consistently or significantly declines to less than $1.0000 per share, such Federated Hermes money market fund could experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated Hermes' Financial Condition.

If the fluctuating NAV of an institutional prime

or municipal (or tax-exempt) money market fund, or variable NAV money market fund or low-volatility NAV money market fund consistently or significantly declines to less than $1.0000 per share, such Federated Hermes money market fund could experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated Hermes’ Financial Condition.

Similar material adverse effects could result if certain SEC-proposed money market fund reforms, such as swing pricing or a four-digit NAV for certain money market funds, are adopted as proposed.

Potential Adverse Effects of Increased Competition in the Investment Management Business.

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, the use of financial technology, artificial intelligence, natural language processing, digital client engagement tools, and data science in managing and distributing products and strategies), the ability to generate, validate and publish accurate reports in a timely manner, the ability to offer customers and shareholders 24/7 access to their funds, the type ( e.g.

, passive- versus actively-managed, fund versus FDIC-insured deposits) and range of products and strategies offered, fees charged, customer or shareholder preferences and geopolitical developments.

, passive- versus actively-managed, fund versus FDIC-insured deposits, ESG versus non-ESG) and range of products and strategies offered, fees charged, customer or shareholder preferences, political or other views surrounding ESG-related products or ESG integration and investing, and geopolitical developments.

As with any highly competitive market, competitive pricing structures are important.

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Increased competition also can require changes in Federated Hermes’ business strategy or model, products ( e.g.

, launching ETFs and creating a philanthropic share class), investment strategies, operational strategies, ESG strategies and human resource management strategies to respond to competition from existing and new market innovations and competitors, which can increase expenses and create the risk that such changes will not be successful or implemented properly, or that Federated Hermes will not achieve its long-term strategic objectives.

, launching additional ETFs and creating additional philanthropic share classes), investment strategies, operational strategies, ESG strategies and human resource management strategies to respond to competition from existing and new market innovations and competitors, which can increase expenses and create the risk that such changes will not be successful or implemented properly, or that Federated Hermes will not achieve its long-term strategic objectives.

Such fee reductions, changes in business models or strategies, or other effects of competition, or failures to adequately adjust business practices, products, or services to meet competition, could have a material adverse effect on Federated Hermes’ Financial Condition.

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A large portion of Federated Hermes’ managed assets, particularly money market, fixed-income, and alternative/private markets assets, are held by institutional investors.

If the structure of institutional investment products, such as money market funds, changes or becomes disfavored by institutions, whether due to regulatory or market changes, competing products (such as insured deposit products or non-transparent, actively managed ETFs) or otherwise, Federated Hermes could be unable to retain or grow its share of this market and this could adversely affect Federated Hermes' future profitability and have a material adverse effect on Federated Hermes' Financial Condition.

If the structure of institutional investment products, such as money market funds, changes or becomes disfavored by institutions, whether due to regulatory or market changes, competing products (such as FDIC-insured deposit products or non-transparent, actively managed ETFs) or otherwise, Federated Hermes could be unable to retain or grow its share of this market and this could adversely affect Federated Hermes’ future profitability and have a material adverse effect on Federated Hermes’ Financial Condition.

Certain of Federated Hermes’ products and strategies also can be impact oriented and might not be suitable investments for certain fiduciary customers in the U.S.

without obtaining appropriate consent.

This can limit Federated Hermes' ability to market or grow assets and this could adversely affect Federated Hermes' future profitability and affect, potentially in a material way, Federated Hermes' Financial Condition.

A significant portion of Federated Hermes' revenue is derived from providing products and strategies to the U.S.

Financial Intermediary market, comprising over 11,000 institutions and intermediaries.

Certain customers or potential customers of Federated Hermes also could disfavor impact oriented or other ESG products or services for political or other reasons.

These factors can limit Federated Hermes’ ability to market or grow assets and this could adversely affect Federated Hermes’ future profitability and affect, potentially in a material way, Federated Hermes’ Financial Condition.

A significant portion of Federated Hermes’ revenue is derived from providing products and strategies to the financial intermediary market, comprising over 11,000 institutions and intermediaries worldwide.

Its future profitability will be adversely affected if it is unable to retain or grow its share of this market and could also be adversely affected by consolidations in the banking and securities industries, as Regulatory Developments impact its customers and shareholders.

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There can be no assurance that any product diversification efforts (whether to Federated Hermes’ fund line-up or geographically), ESG positioning or investments in data and analytics to bolster Federated Hermes’ distribution efforts will be successful.

There also can be no assurance that Federated Hermes will continue to have access to any customer that currently distributes its products and strategies, that its relationship with any one or more such customers will continue over time or on existing economic terms, or that its sales or distribution efforts will achieve any particular level of success.

or that its sales or distribution efforts will achieve any particular level of success.

The impact of Voluntary Yield-related Fee Waivers, other waivers for competitive purposes, and related reductions in distribution expense can vary depending upon, among other variables, changes in distribution models, changes in such customers’ distribution fee arrangements, changes in customer or shareholder relationships and changes in the extent to which the impact of the waivers is shared by one or more customers.

In addition, exclusive of the impacts of waivers and related reductions in distribution expense, Federated Hermes

has experienced decreases in the cost of distribution as a percentage of total fund revenue from 32% in 2020 to 31% in 2021.

In addition, exclusive of the impacts of waivers and related reductions in distribution expense, Federated Hermes has experienced a decrease in the cost of distribution as a percentage of total fund revenue from 31% in 2021 to 30% in 2022.

As interest rates increase, Federated Hermes expects such costs to increase in total due to asset growth and per dollar of revenue earned due to the competitive pressures of the investment management business.

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Potential Adverse Effects of Declines in the Amount of or Changes in the Mix of Assets under Management.

A significant portion of Federated Hermes' revenue is derived from investment advisory fees, which are typically based on the value of managed assets and vary with the type of asset being managed, with higher fees generally earned on equity and multi-asset products and strategies than on fixed-income, alternative/private markets and money market products and strategies.

A significant portion of Federated Hermes’ revenue is derived from investment advisory fees, which are typically based on the value of managed assets and vary with the type of asset being managed, with higher fees generally earned on multi-asset and equity products and strategies than on alternative/private market, fixed income, and money market products and strategies.

Federated Hermes also can earn performance fees or carried interest on certain products and types of assets.

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Impairment Risk.

At December 31, 2021, Federated Hermes had intangible assets including goodwill totaling $1.3 billion on its Consolidated Balance Sheets, the vast majority of which represents assets capitalized in connection with Federated Hermes' acquisitions and business combinations.

At December 31, 2022, Federated Hermes had intangible assets including goodwill totaling approximately $1.2 billion on its Consolidated Balance Sheets, the vast majority of which represents assets capitalized in connection with Federated Hermes’ acquisitions and business combinations.

Federated Hermes might not realize the value of these assets.

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A variety of factors could cause the carrying value of an asset to become impaired.

For example, the value of an asset could be impacted if, among other factors, projected future revenue streams are reduced due to lower managed assets or revenue is subject to claw back provisions.

Should a review indicate impairment, a write-down of the carrying value of the asset would occur, resulting in a noncash charge which would adversely affect Federated Hermes' financial position and results of operations for the period.

For example, the value of an asset could be impacted if, among other factors, projected future revenue streams are reduced due to lower managed assets, increased projected expenses, higher discount rates or other changes in interest rates, or revenue is subject to claw back provisions.

Should a review indicate impairment, a write-down of the carrying value of the asset would occur, resulting in a noncash charge which would adversely affect Federated Hermes’ results of operations and Financial Condition for the period.

Potential Adverse Effects of Termination or Failure to Renew Advisory Agreements.

A substantial majority of Federated Hermes' revenues are derived from investment advisory agreements with Federated Hermes Funds (and to a lesser extent, sub-advised mutual funds) registered under the 1940 Act that are terminable upon 60 days' notice.

A substantial majority of Federated Hermes’ revenue is derived from investment advisory agreements with Federated Hermes Funds (and to a lesser extent, sub-advised mutual funds) registered under the 1940 Act that are terminable upon 60 days’ notice.

In addition, each such investment advisory agreement must be approved and renewed annually by each mutual fund’s board of directors or trustees, including independent members of the board, or its shareholders, as required by law.

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An assignment, actual or constructive, will trigger these termination provisions and can adversely affect Federated Hermes’ ability to realize the value of these agreements.

Federated Hermes' investment advisory agreements for such Separate Accounts that are not investment companies subject to the 1940 Act are generally terminable upon notice to Federated Hermes (or, in certain cases, after a 30-day, 60-day or other notice period).

Federated Hermes’ investment advisory agreements for Separate Accounts that are not investment companies subject to the 1940 Act are generally terminable upon notice to Federated Hermes (or, in certain cases, after a 30-day, 60-day or other notice period).

As required by the Advisers Act, investment advisory agreements for Separate Accounts also provide that consent is required from customers before the agreements can be assigned.

An assignment, actual or constructive, also will trigger these consent requirements and can adversely affect Federated Hermes' ability to realize the value of these agreements.

The failure to obtain customer consents for an assignment, actual or constructive, could adversely affect Federated Hermes’ ability to realize the value of these agreements.

Regarding the investment advisory agreements with non-U.S.

registered Federated Hermes Funds, shareholder notice or consent can be required if, after an investment advisory agreement is

entered into, there are changes to fees, and such investment advisory agreements are generally terminable for any reason, without cause, after a 30-day to 90-day (or other) notice period.

registered or unregistered Federated Hermes Funds, shareholder notice or consent can be required if, after an investment advisory agreement is entered into, there are changes to fees.

Such investment advisory agreements are generally terminable for any reason, without cause, after a 30-day to 90-day (or other) notice period.

Customer consent to amend investment advisory agreements for non-U.S.

Separate Accounts can be required for amendments to such agreements, and such agreements also are generally terminable for any reason, without cause, after a 30-day to 90-day (or other) notice period.

The terms of investment advisory agreements, including consent or Board, shareholder or other notice or approval requirements for amending, renewing, or terminating them, can be negotiated and vary among types of Federated Hermes Funds and Separate Accounts.

The termination of, or failure to renew, or reduction in fees under, an investment advisory agreement will reduce Federated Hermes’ revenue and the termination of, or failure to renew, or reduction in fees under, an investment advisory agreement with a significant customer, or investment advisory agreements with a series of customers, can negatively effect, potentially in a material way, Federated Hermes’ Financial Condition.

There are also unique requirements applicable when entering into or renewing investment advisory agreements with certain management investment companies.

Under the terms of a 2005 settlement agreement with the SEC and New York State Attorney General, as amended, a Federated Hermes investment advisory subsidiary cannot serve as investment advisor to any registered investment company unless:

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Risks Related to Interest Rates and Investment Performance

Potential Adverse Effects of Rising Interest Rates.

Increases in interest rates could have an adverse effect on Federated Hermes’ revenue from money market, fixed-income, alternative/private markets and other products and strategies.

The value of equity securities (such as dividend-paying equity securities) can rise and fall in response to changes in interest rates.

In a rising short-term interest rate environment, certain investors using money market products and strategies or other short-duration fixed-income products and strategies for cash management purposes can shift these investments to direct investments in comparable instruments in order to realize higher yields.

In addition, rising interest rates will tend to reduce the fair value of securities held in various investment products and strategies.

Rising interest rates can also impact the value of intangible or other assets held on Federated Hermes’ financial records and contribute to financial impairment.

Rising interest rates can also impact demand for, and cost to, finance real estate, and impact the value of, and returns on, real estate and other alternative products and strategies.

Among other potential adverse effects, rising interest rates can result in decreased liquidity, inflation and decreased affordability, changes in investor preferences, higher costs for borrowings, and increased volatility, and could negatively impact the performance of Federated Hermes’ products and strategies and Federated Hermes’ revenue.

Management cannot estimate the impact of rising interest rates (including, for example, on Federated Hermes’ revenue), but such impact could have a material adverse effect on Federated Hermes’ Financial Condition.

Potential Adverse Effects of Low Short-Term Interest Rates.

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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 is not sufficient to cover all of the fund's operating expenses.

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 began to waive fees in order for certain money market funds to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers).

These waivers have been partially offset by related reductions in distribution expense as a result of Federated Hermes' mutual understanding and agreement with third-party intermediary customers to share the impact of the 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 intermediary customers to share the impact of the Voluntary Yield-related Fee Waivers.

In response to global economic activity and elevated inflation levels, the FOMC has 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 by the third quarter 2022.

See Item 1A - Risk Factors - Specific Risk Factors - Risks Related to Federated Hermes’ Investment Management Business - Potential Adverse Effects of Increased Competition in the Investment Management Business for information on competitive waivers currently being implemented by Federated Hermes, other than the Voluntary Yield-related Fee Waivers.

Voluntary Yield-related Fee Waivers are calculated as a percentage of AUM in certain money market funds and thus can vary depending upon the asset levels and mix in such funds.

While the level of fee waivers are impacted by various factors, as an isolated variable, increases in short-term interest rates that result in higher yields on securities purchased in money market funds would likely reduce the negative pre-tax impact of these waivers.

Also, as an isolated variable, a further decrease in short-term interest rates that results in lower or negative yields on securities purchased in money market funds generally would increase these fee waivers for certain money market funds and the negative pre-tax impact of these waivers.

While the level of fee waivers is impacted by various factors, as an isolated variable, increases in short-term interest rates that result in higher yields on securities purchased in money market funds would likely reduce the negative pre-tax impact of these waivers.

Conversely, as an isolated variable, decreases in short-term interest rates that result in lower or negative yields on securities purchased in money market funds generally would result in these fee waivers for certain money market funds and the negative pre-tax impact of these waivers.

In that case, Federated Hermes could be required to implement structural changes to certain money market funds and incur additional expenses associated with implementing such changes.

Moreover, at this time, while representatives of the Fed have signaled that the FOMC will start raising U.S.

interest rates in March 2022 to address inflation, any corresponding increases in yields and resulting decreases in fee waivers would be uncertain and not directly proportional.

In addition, the level and actual amount of fee waivers, and the resulting negative impact of these fee waivers, are contingent on a number of variables, including, but not limited to, changes in assets within the money market funds, changes in yields available for purchase by such funds, changes due to the level of government stimulus programs which could result in the issuance of additional Treasury debt instruments, actions by the FOMC, the U.S.

Department of Treasury, the SEC, the FSOC and other governmental entities, changes in expenses of the money market funds, changes in the mix of money market assets, changes in customer or shareholder relationships, changes in money market product structures and offerings, demand for competing products, changes in the distribution fee arrangements with third parties, Federated Hermes' willingness to continue the Voluntary Yield-related Fee Waivers and changes in the extent to which the impact of the waivers is shared by third parties.

In any given period, a combination of these variables impacts the amount of Voluntary Yield-related Fee Waivers.

Any increases in yields due to increases in interest rates and resulting decreases in fee waivers, or any decreases in yields due to decreases in interest rates and resulting fee waivers, would be uncertain and not directly proportional.

In addition, the level and actual amount of fee waivers, and the resulting negative impact of these fee waivers, are contingent on a number of variables, including, but not limited to, changes in assets within the money market funds, changes in yields available for purchase by such funds, changes to the level of government stimulus programs which could result in the issuance of additional Treasury debt instruments, actions by the FOMC, the U.S.

Department of Treasury, the SEC, the FSOC and other governmental entities, changes in expenses of the money market funds, changes in the mix of money market assets, changes in customer or shareholder relationships, changes in money market product structures and offerings, demand for competing products, changes in the distribution fee arrangements with third parties, Federated Hermes’ willingness to implement, or, when applicable, continue, Voluntary Yield-related Fee Waivers and changes in the extent to which the impact of the waivers is shared by third parties.

In any given period, a combination of these variables can impact the amount of Voluntary Yield-related Fee Waivers, if any.

Given the variables involved, the actual amount and resulting negative impact of future fee waivers, if any, could vary significantly from period to period.

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As such, as an isolated variable, an increase in the relative proportion of average managed assets invested in prime funds as compared to total average money market fund assets should typically result in lower Voluntary Yield-related Fee Waivers.

The opposite would also be true.

The inverse would also be true.

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.

See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for information on management's expectations regarding fee waivers in the first quarter 2022.

The duration, level,

and impact of a further decline in interest rates and/or future Voluntary Yield-related Fee Waivers could have a material adverse effect on Federated Hermes' Financial Condition.

Potential Adverse Effects of Rising Interest Rates.

Increases in interest rates could also have an adverse effect on Federated Hermes' revenue from money market, fixed-income, alternative/private markets and other products and strategies.

The value of equity securities (such as dividend-paying equity securities) also can rise and fall in response to changes in interest rates.

In addition, rising interest rates will tend to reduce the fair value of securities held in various investment products and strategies.

Rising interest rates can also impact demand for and cost to finance real estate and impact the value of and returns on real estate and other alternative products and strategies.

Among other potential adverse effects, rising interest rates can result in decreased liquidity, inflation and decreased affordability, changes in investor preferences, higher costs for borrowings, and increased volatility, and could negatively impact the performance of Federated Hermes' products and strategies and Federated Hermes' revenue.

Management cannot estimate the impact of rising interest rates (including, for example, on Federated Hermes' revenue), but such impact could have a material adverse effect on Federated Hermes' Financial Condition.

See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Developments - Low Short-Term Interest Rates, which indicates that these waivers have been eliminated.

The duration, level, and impact of a decline in interest rates and/or future Voluntary Yield-related Fee Waivers could have a material adverse effect on Federated Hermes’ Financial Condition.

Potential Adverse Effects of Poor Investment Performance.

Success in the investment management business is largely dependent on the performance of Federated Hermes Funds, Separate Accounts, or other investment portfolios relative to market conditions and the performance of competing products and strategies.

Success in the investment management business is largely dependent on the investment performance of Federated Hermes Funds, Separate Accounts, or other portfolios relative to market conditions and competing products and strategies.

Investment performance also depends on the quality of investment selection, proper valuation of investments, liquidity management, and the performance of the portfolio companies and other investments in which Federated Hermes’, shareholders’ and customers’ assets are invested.

The value and performance of the portfolio companies in which Federated Hermes', shareholders' and customers' assets are invested also may be adversely impacted, potentially in a material way, by climate, social, environmental, governance, and geopolitical changes, or other factors, which, in turn, can adversely impact Federated Hermes' and its products' and strategies' performance.

The value and performance of the portfolio companies in which Federated Hermes’, shareholders’ and customers’ assets are invested also can be adversely impacted, potentially in a material way, by climate, social, environmental, governance, and geopolitical changes, or other factors, which, in turn, can adversely impact Federated Hermes’ and its products’ and strategies’ performance.

Good performance generally assists retention and growth of AUM, resulting in additional revenues.

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Poor performance could, therefore, have a material adverse effect on Federated Hermes’ Financial Condition (including, but not limited to, business prospects).

Market conditions, such as volatility, illiquidity and rising or falling interest rates, among other conditions, can adversely affect the performance of certain quantitative or other investment strategies or certain products, asset classes or sectors.

Limitations imposed by certain customers, trade agreements, and government-imposed restrictions, such as those on investments in certain countries or companies, can limit investment opportunities and negatively affect performance.

Market conditions, such as volatility, illiquidity and rising or falling interest rates, among others, can adversely affect the performance of certain quantitative or other investment strategies or certain products, asset classes or sectors.

Limitations imposed by certain customers, trade agreements, and

government-imposed restrictions, such as those on investments in certain countries or companies, can limit investment opportunities and negatively affect performance.

Performance also can be adversely affected by inferior security selection, human error, government or issuer financial constraints, climate change that impacts portfolio company performance, the Pandemic and other factors.

The effects of poor performance on Federated Hermes could be magnified where assets, customers or shareholders are concentrated in certain strategies, products, asset classes or sectors.

Changes in foreign currency exchange rates and poor performance of investments made by Federated Hermes, or derivatives (including, for example, hedges or forward contracts) or other financial transactions entered into by Federated Hermes, can result in investment or capital losses and also can materially adversely affect Federated Hermes' Financial Condition.

Changes in foreign currency exchange rates and poor performance of investments made by Federated Hermes, or derivatives (including, for example, hedges or forward contracts) or other financial transactions entered into by Federated Hermes, can result in investment or capital losses and materially adversely affect Federated Hermes’ Financial Condition.

Risk Related to Federated Hermes’ Corporate Structure

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All of the outstanding shares of Class A common stock are held by the Voting Shares Irrevocable Trust for the benefit of certain members of the Donahue family.

The three trustees of this trust are Federated Hermes' President and Chief Executive Officer and Chairman of the Board, J.

The three trustees of this trust are Federated Hermes’ President and CEO and Chairman of the Board, J.

Christopher Donahue, his brother, Thomas R.

Donahue, Federated Hermes' Vice President, Treasurer and Chief Financial Officer and a director, and their mother, Rhodora J.

Donahue, Federated Hermes’ Vice President, Treasurer and Chief Financial Officer and a director, and Ann C.

Donahue, the wife of J.

Christopher Donahue.

Donahue is a successor trustee to Rhodora J.

Christopher Donahue’s and Thomas R.

Donahue’s mother, who passed away in December 2022.

Accordingly, Federated Hermes qualifies as a “controlled company” under Section 303A of the New York Stock Exchange (NYSE) Listed Company Manual.

As a controlled company, Federated Hermes qualifies for and relies upon exemptions from several NYSE corporate governance requirements, including requirements that:

(1) a majority of

the board of directors consists of independent directors;

(1) a majority of the board of directors consists of independent directors;

and (2) the entity maintains a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

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Federated Hermes is also exempt as a “controlled company” from certain additional independence requirements and responsibilities regarding compensation advisors applicable to Compensation Committee members.

While Federated Hermes believes its dual-class structure is appropriate and benefits its shareholders, and should be a factor taken into account by shareholders when investing in Federated Hermes, as a company with a dual-class structure, Federated Hermes can be excluded from certain financial indexes, which could result in decreased investments in Class B common stock and adversely affect its stock price.

While Federated Hermes believes its dual-class structure is appropriate and benefits its shareholders, and should be a factor taken into account by shareholders when investing in Federated Hermes, as a company with a dual-class structure, Federated Hermes can be excluded from certain financial indexes, which could result in decreased investments in its Class B common stock and adversely affect its stock price.

General Risk Factors

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Such economic or market downturns, disruptions or other conditions can include, for example, disruptions in the markets, defaults or poor performance in certain sectors of the economy, changes in the levels of consumer spending and personal savings, unemployment, excessive corporate debt levels, increased personal, business or government/municipality bankruptcies, supply chain disruptions, the commencement, continuation or ending of government policies and reforms, stimulus programs, and other market-related actions, quantitative easing or tightening or other changes in monetary policy, central bank changes in risk perception or activism through continued, increased or decreased ownership, exchange, cancellation or issuance of debt or other means, increased regulation or a slower or faster pace for new regulation or deregulation, increases or decreases in interest rates, changes in oil prices or other changes in commodity markets or prices, changes in currency values, changes in property values and financial costs, or exchange rates or currency abandonment, inflation, deflation, or stagflation, index changes, widening bid/ask spreads, changes in the allocation of capital to market-making, restructuring of government-sponsored entities, imposition of economic sanctions or government-imposed investment restrictions, trade friction or trade wars and increased trade tariffs, economic or political weakness, political turmoil, geopolitical tensions (such as between the U.S.

and both Russia and China) or military escalation or other instability in certain countries or regions, technology-related or cyber-attacks or incidents, terrorism, climate change, the prospects for or concerns about any of the foregoing factors or events, or other factors or events that affect the markets.

Each of the above factors, among others, can cause or contribute to economic or market downturns, disruptions or other conditions and their potentially adverse effects.

and both Russia and China) or military escalation (such as Russia’s invasion of Ukraine) or other instability in certain countries or regions, technology-related or cyber-attacks or incidents, terrorism, climate change, the prospects for or concerns about any of the foregoing factors or events, or other factors or events that affect the markets.

Each of the above factors, among others, can cause or contribute to volatility, illiquidity, economic or market downturns, loss of value, market and supply-chain disruptions, or other conditions and have potentially adverse effects.

See also Item 1A – Risk Factors – General Risk Factors – Other General Risks – Potential Adverse Effects of Unpredictable Events or Consequences (including the Pandemic).

Russia’s February 24, 2022, invasion of Ukraine and annexation of Ukrainian territory has generated substantial geopolitical uncertainty in Europe that has disrupted the European and global energy and other markets.

Russia’s aggression also has led to sanctions being imposed against Russia, certain Russian nationals, and Belarus.

Based on the Russian government’s aggression in Ukraine, many countries around the world - including the U.S., UK, Canada, Germany, and France - reduced Russia’s access to the world’s financial system through sanctions ranging from freezing assets to removing Russian banks from the SWIFT global transactions banking network, among others.

Sanctions can result, among other effects, in the devaluation of Russian currency, downgrades in the country’s credit rating, and/or a decline in the value and liquidity of Russian securities, property or interests.

These sanctions can also result in the freeze of Russian securities and/or funds invested in prohibited assets, impairing the ability to buy, sell, receive, or deliver those securities and/or assets.

These sanctions or the threat of additional sanctions could also result in Russia taking counter measures or retaliatory actions, which could further impair the value and liquidity of Russian securities.

For example, the Russian invasion of Ukraine has increased, or created the possibility of increased, cybersecurity attacks.

Economic sanctions and other actions against Russian institutions, companies, and individuals resulting from the ongoing conflict can also have a substantial negative impact on other economies and securities markets both regionally and globally, as well as on companies with operations in the conflict region.

Any further sanctions, actions or escalation of cyber-attacks can exacerbate these risks.

The impact of these geopolitical tensions and escalation, and resulting sanctions, actions, and escalation of cyber-attacks, is uncertain and can vary, including in material ways.

In addition, Federated Hermes’ products and strategies, and their investments, can be adversely affected, potentially in a material way, by changes in U.S., UK, EU or other markets, downgrades of U.S., UK or other countries’ credit ratings, the U.S.

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At December 31, 2022, Federated Hermes’ liquid assets of $559.5 million included investments in certain money market and fluctuating NAV Federated Hermes Funds that can have direct and/or indirect exposures to international sovereign debt and currency risks.

Federated Hermes and its money market and other Federated Hermes Funds also interact with various other financial industry participants, such as counterparties, broker/dealers, banks, clearing organizations, other investment products, customers, and shareholders, as a result of operations, trading, distribution, and other relationships.

Federated Hermes and its money market and other Federated Hermes Funds also interact with various other financial industry participants, such as counterparties, broker/dealers, banks, clearing organizations, other investment products, service providers, customers, and shareholders, as a result of operations, trading, distribution, and other relationships.

As a result, Federated Hermes’ Financial Condition (including, but not limited to, its reputation) could be adversely affected by the creditworthiness or financial soundness of other financial industry participants, particularly in times of stress or disruption.

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There can be no assurance that Federated Hermes will be able to obtain or maintain necessary capital or obtain these funds and financing on acceptable terms, if at all.

If Federated Hermes cannot obtain or maintain necessary capital or obtain such funds and financing, it could have a material adverse effect on Federated Hermes' Financial Condition.

If a Federated Hermes Fund requires liquidity to meet shareholder redemptions or for other reasons, there also can be no assurance that such Federated Hermes Fund will be able to access any available line of credit, rely on inter-fund lending arrangements or access other sources of liquidity on acceptable terms, if any at all, and, if such a Federated Hermes Fund cannot obtain sufficient liquidity, it could have a material adverse effect on such Federated Hermes Fund, result in redemptions and a corresponding reduction in Federated Hermes' AUM and Federated Hermes' revenue.

If Federated Hermes cannot obtain or maintain necessary capital or obtain such funds and financing,

it could have a material adverse effect on Federated Hermes’ Financial Condition.

If a Federated Hermes Fund requires liquidity to meet shareholder redemptions or for other reasons, there also can be no assurance that such Federated Hermes Fund will be able to access any available line of credit, rely on inter-fund lending arrangements or access other sources of liquidity on acceptable terms, or at all, and, if such a Federated Hermes Fund cannot obtain sufficient liquidity, it could have a material adverse effect on such Federated Hermes Fund, result in redemptions and a corresponding reduction in Federated Hermes’ AUM and Federated Hermes’ revenue.

While not obligated, if Federated Hermes decides to provide credit support to a Federated Hermes Fund, Federated Hermes’ liquidity and income could be adversely impacted.

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In addition, during the past several years, regulators, self-regulatory organizations, or exchanges, such as the SEC, FINRA, CFTC, NFA, NYSE and state or local governments and regulators, have adopted, and could adopt, other regulations, rules and amendments that have increased Federated Hermes’ operating expenses and affected the conduct of its business, as well as Federated Hermes’ AUM, revenues, and operating income, and could continue to do so.

Federated Hermes' business is affected by laws, regulations, and regulatory authorities that impact the manner in which Federated Hermes' products are structured, distributed, provided, or sold.

Federated Hermes’ business is affected by laws, regulations, and regulatory authorities that impact the manner in which Federated Hermes’ products are structured, marketed, distributed, delivered, or sold.

Federated Hermes and its products and strategies also are affected by certain other laws and regulations governing banks, other financial institutions, intermediaries, or real estate.

The fourth quarter of 2021 saw an uptick in proposed regulations issued by the SEC and other regulators, and the market turmoil in March 2020 as a result of the Pandemic has brought a renewed focus on additional money market fund reforms.

Beginning in late 2021 and in 2022, there was an uptick in proposed and final regulations issued by the SEC and other regulators, and the market turmoil in March 2020 as a result of the Pandemic has continued to bring a renewed focus on additional money market fund reforms.

Federated Hermes’ and its products’ activities outside of the U.S.

are subject to foreign laws and regulations, which are promulgated or amended from time to time by foreign regulatory or other authorities, such as the FCA for London-based operations, the CBI for Dublin-based operations, the German Federal Financial Supervisory Authority for Frankfurt-based operations, and the Cayman Island Monetary Authority for Cayman Island products.

In addition, Federated Hermes' stewardship services can be impacted by proxy advisor regulations.

In addition, Federated Hermes’ stewardship services can be impacted by securities laws, proxy advisor regulations, antitrust or competition laws and other laws and regulation.

In addition to existing and potential future regulation, a FTT, particularly if enacted with broad application in the UK or EU, or even the U.S., would be detrimental to Federated Hermes’ business.

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As Federated Hermes’ business grows (whether organically or through acquisition, new products, strategies or services being offered, increased market values of assets held by products, expansion into new countries, jurisdictions or markets, or otherwise), Federated Hermes’ products, strategies and operations need to comply with applicable laws, rules, regulations, interpretations and government policies, which increases compliance risk and operating expenses, including reporting risks and the costs associated with compliance.

Compliance risk and operating expenses also can increase as Federated Hermes continues to expand its use of ESG, sustainability, stewardship or other data inputs or investment techniques in providing its investment products, strategies, and services, and/or offering financial products and other investments, as well as when markets, customer requirements, support models and technology increase in complexity.

Federated Hermes has expanded integration of ESG, and related compliance expense is further exacerbated by the increasing spectrum of ESG disclosure requirements that can differ between jurisdictions, countries and markets.

Failure to comply with legal and regulatory requirements, or changes to legal and regulatory requirements, whether due to conflicts of interest, breaches of fiduciary duty, trading on the basis of material nonpublic information, other improper conduct by employees or service providers, inadequate processes, procedures and controls, or another cause, can impact market integrity, customer or shareholder outcomes and satisfaction, performance and Federated Hermes' reputation, as well as its compliance with its investment advisory and other agreements, licensing requirements and governance and compliance policies, and result in lost business, fines, penalties or other sanctions.

products, strategies, and services, and/or offering financial products and other investments, as well as when markets, customer requirements, support models and technology increase in complexity.

Federated Hermes has integrated ESG into its investment processes and to varying degrees, certain Federated Hermes Funds and strategies.

Related compliance expense is further exacerbated by the increasing spectrum of ESG disclosure requirements that can differ between jurisdictions, countries and markets, as well as jurisdiction-specific legislation affecting the ability to utilize ESG to manage certain customer assets (such as state government or pension fund assets).

Failure to comply with legal and regulatory requirements, or changes to legal and regulatory requirements, whether due to conflicts of interest, breaches of fiduciary duty, trading on the basis of material nonpublic information, other improper conduct by employees or service providers, inadequate processes, procedures and controls, or other causes, can impact market integrity, customer or shareholder outcomes and satisfaction, performance and Federated Hermes’ reputation, as well as its compliance with its investment advisory and other agreements, licensing requirements and governance and compliance policies, and result in lost business, fines, penalties or other sanctions.

Significant or repeated failures also could change Federated Hermes’ regulators’ views of, and relationship with, Federated Hermes.

Regulators also have undertaken or could undertake examinations, investigations, and/or enforcement actions involving investment management industry participants, such as Federated Hermes and its products.

Federated Hermes expends internal and external resources to respond to examinations and investigations, and defend enforcement actions, which increases operating expenses, including professional fees and costs associated with compliance.

Regulators also can adopt new or different interpretations of laws, rules, or regulations, either through formal rulemaking or informally through enforcement proceedings, no-action letters, or exemptive orders or through providing comments to filings, that can negatively affect, potentially in a material way, Federated Hermes’ products or strategies or its ability to manage, distribute, deliver or offer them.

Federated Hermes expends internal and external resources to respond to examinations and investigations, and defend enforcement actions, and to resolve comments from regulators, which increases operating expenses, including professional fees and costs associated with compliance.

Management continues to monitor and evaluate the impact of the Regulatory Developments discussed above (and in Item 1- Business - Regulatory Matters) on Federated Hermes’ Financial Condition.

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For example, certain money market funds or other products or strategies can become less attractive to institutional or other investors, which could result in changes in asset mix and reductions in AUM, revenues, and operating income.

The renewed focus on additional money market fund regulation increases this risk.

The renewed focus on additional money market fund regulation, including proposals to require swing pricing and four-digit NAVs for certain money market funds, increases this risk.

On a cumulative basis, Federated Hermes’ regulatory, product development and restructuring, and other efforts in response to Regulatory Developments, including the internal and external resources dedicated to such efforts, have had, and could continue to have, a material impact on Federated Hermes’ expenses and, in turn, Financial Condition.

There is no guarantee that additional money market fund reforms will not result in a shift in asset mix away from institutional prime and municipal (or tax-exempt) money market funds and toward government money market funds.

Using mid-December 2021 AUM, management estimates that approximately $8 billion in AUM could shift from institutional prime and municipal (or tax-exempt) money market funds to government money market funds.

Using December 31, 2022 AUM, management estimates that approximately $10 billion in AUM could shift from institutional prime and municipal (or tax-exempt) money market funds to government money market funds.

Regulatory Developments in the current regulatory environment, and Federated Hermes’ efforts in responding to them, could have a material and adverse effect on Federated Hermes’ Financial Condition.

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Changes in laws, regulations, rules, interpretations, or governmental policies, domestically and abroad, also impact the service providers, intermediaries and other customers, shareholders and other third parties with whom Federated Hermes, and its products, conduct business.

For example, provisions of the Dodd-Frank Act or Regulation Best Interest can affect customers'

sale or use of Federated Hermes' products or strategies.

Among other potential impacts, these changes are affecting, and could continue to affect, Federated Hermes' arrangements with these customers, and could continue to increase fee pressure, reduce the number of Federated Hermes products and strategies offered by them, cause certain other customers or shareholders to favor passive products over actively managed products, increase respective operating expenses and distribution costs, result in lower AUM, change asset flows, levels and mix, and otherwise affect the conduct of Federated Hermes' or such customers' respective businesses.

This resulted, and will likely continue to result, in Federated Hermes or one or more of these third parties seeking to restructure or alter their compensation or other terms of the business arrangements between Federated Hermes or its products and one or more of these third parties.

For example, provisions of the Dodd-Frank Act or Regulation Best Interest can affect customers’ sale or use of Federated Hermes’ products or strategies.

Among other potential impacts, these changes are affecting, and could continue to affect, Federated Hermes’ arrangements with these customers, and could continue to increase fee pressure, reduce the number of Federated Hermes products and strategies offered by them, cause certain other customers or shareholders to favor passive products over actively managed products, increase respective operating expenses and distribution costs, result in lower AUM, change asset flows, levels and mix, and otherwise affect the conduct of Federated Hermes’ or such customers’ businesses.

These changes resulted, and will likely continue to result, in Federated Hermes or one or more of these third parties seeking to restructure or alter their compensation or other terms of the business arrangements between Federated Hermes or its

products and one or more of these third parties.

The above factors could have a material adverse impact on Federated Hermes’ Financial Condition.

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Any repeal of U.S.

tax laws that allow exchange traded funds to receive favorable treatment of capital gains could adversely impact Federated Hermes' exchange traded fund business.

tax laws that allow exchange traded funds to receive favorable treatment of certain redemptions could adversely impact Federated Hermes’ exchange traded fund business.

When tax laws are amended to increase taxes applicable to Federated Hermes, its products, customers, shareholders and service providers, the increased tax expense can have an adverse impact, potentially in a material way, on Federated Hermes’ products’ and strategies’ performance, AUM, and service provider fees, and Federated Hermes’ Financial Condition.

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In addition, various service industries, including, for example, mutual fund service providers, have been, and continue to be, the subject of changes in tax policy that impact their state and local tax liability.

Changes that have been adopted or proposed include (1) an expansion of the nature of a service company's activities or services that subject it, or Federated Hermes or its products, to tax in a jurisdiction, (e.g., sales, use or other types of taxes), (2) a change in the methodology by which multi-state companies apportion their income between jurisdictions, and (3) a requirement that affiliated companies calculate their state tax as one combined entity.

Changes that have been adopted or proposed include (1) an expansion of the nature of a service company’s activities or services that subject it, or Federated Hermes or its products, to tax in a jurisdiction, (e.g., income, sales, use or other types of taxes), (2) a change in the methodology by which multi-state companies apportion their income between jurisdictions, and (3) a requirement that affiliated companies calculate their state tax as one combined entity.

As adopted changes become effective and additional jurisdictions enact similar changes, among other potential impacts, there could be a material adverse effect on Federated Hermes’ tax liability and effective tax rate and, as a result, net income.

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In addition, Federated Hermes and its products can be subject to business-related claims, claims related to Federated Hermes sponsorship or management of, or inclusion of proprietary products in, its 401(k) plan or other benefit plans, and administrative, regulatory, or civil investigations and proceedings or other regulatory claims, outside of the ordinary course of business.

Federated Hermes cannot assess or predict whether, when or what types of business-related claims, fiduciary claims or regulatory claims (collectively, claims) could be threatened or asserted, the types or amounts of damages or other remedies that could be sought (which can be material when threatened or asserted), whether claims that have been threatened will become formal asserted pending investigations, proceedings or litigation, whether claims ultimately will be successful (whether through settlement or adjudication), entirely or in part, or whether or not any such claims are threatened or asserted in or outside the ordinary course of business.

Federated Hermes cannot assess or predict whether, when or what types of business-related claims, fiduciary claims or regulatory claims (collectively, claims) could be threatened or asserted, the types or amounts of damages or other remedies that could be sought (which can be material when threatened or asserted), whether claims that have been threatened will become formal asserted pending investigations, proceedings or litigation, whether claims ultimately will be successful entirely or in part (whether through settlement or adjudication), or whether or not any such claims are threatened or asserted in or outside the ordinary course of business.

Federated Hermes can initially be unable to accurately assess a claim’s impact.

Given that the outcome of any claim is inherently unpredictable and uncertain, a result can arise from time to time that adversely impacts, potentially in a material way, Federated Hermes’ Financial Condition (including, but not limited to, its reputation).

other liabilities resulting from any such matters, or from the operation of Federated Hermes' business, products, strategies, and services.

In certain circumstances, insurance coverage might not be available or deductible amounts might not be exceeded, and Federated Hermes, and/or its products or strategies (including the Federated Hermes Funds or Separate Accounts), could have to bear the costs related to claims or any losses or other liabilities resulting from any such matters, or from the operation of Federated Hermes’ business, products, strategies, and services.

Risks Related to Auditor Independence.

Public companies, such as Federated Hermes, utilize the audit services of a registered public accounting firm (Accounting Firm) to audit or review their financial statements included in certain public filings, such as their Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.

The Accounting Firm is required to make a determination that such firm satisfies certain independence requirements under applicable securities laws.

For example, in the U.S., Rule 2-01(c)(1)(ii)(A) of Regulation S-X (Loan Rule) prohibits Accounting Firms, or covered person professionals within the firms, from having certain financial relationships with their audit clients and affiliated entities.

Rule 2-01(c)(1)(i)(A) of Regulation S-X (Investment Rule) also prohibits the Accounting Firm, or covered person professionals and their immediate family members, from having certain direct investments in audit clients and affiliated entities.

Due to acquisitions that result in inadvertent investments in the audit client or funds or other products that it or its affiliates manage, or other circumstances, an Accounting Firm can violate the Investment Rule and be required to timely and appropriately remedy such violation such that the audit client can make a determination that it continues to believe that the Accounting Firm has the ability to exercise objective and impartial judgment on all issues encompassed within the Accounting Firm's audit and review services.

Like other public companies, there is a risk that activities or relationships of the Accounting Firm engaged by Federated Hermes, or such firm's partners or employees, can prevent a determination from being made that such firm satisfies such independence requirements with respect to Federated Hermes, which could render such firm ineligible to serve as Federated Hermes' independent Accounting Firm.

Certain Federated Hermes Funds also utilize the Accounting Firm engaged by Federated Hermes.

Since Federated Hermes' independent Accounting Firm, like the Accounting Firms of many other public companies that sponsor and advise investment funds, acts in a similar capacity to several Federated Hermes Funds, if a determination cannot be made that the Accounting Firm satisfies the independence requirements with respect to an applicable Federated Hermes Fund, the Accounting Firm also could be prevented from making a determination that it satisfies the independence requirements with respect to Federated Hermes, since Federated Hermes is an affiliate ( i.e.

, the ultimate parent company) of the investment advisor to the relevant Federated Hermes Fund.

There can be no assurance that an Accounting Firm will remain eligible to serve as the independent Accounting Firm to Federated Hermes or any Federated Hermes Fund.

If it were to be determined that the independence requirements under applicable securities laws were not complied with regarding Federated Hermes, its previously filed Annual Reports on Form 10-K (including financial statements audited by its existing Accounting Firm) and Quarterly Reports on Form 10-Q (including financial statements reviewed by its existing Accounting Firm) might not be considered compliant with the applicable securities laws.

As with other public companies, there can be no assurance that a registered public accounting firm (Accounting Firm) engaged by Federated Hermes or the Federated Hermes Funds to audit or review their respective financial statements will remain eligible to serve as the independent Accounting Firm to Federated Hermes or any Federated Hermes Fund under applicable securities laws.

Similar to other fund sponsors that are public companies, certain

Federated Hermes Funds also utilize the Accounting Firm engaged by Federated Hermes.

If it were to be determined that the independence requirements under applicable securities laws or International Ethics Standards Board for Accountants (IESBA) rules, or any applicable similar rules in relevant jurisdictions outside the U.S., were not complied with regarding Federated Hermes, its previously filed Annual Reports on Form 10-K (including financial statements audited by its existing Accounting Firm) and Quarterly Reports on Form 10-Q (including financial statements reviewed by its existing Accounting Firm) might not be considered compliant with the applicable securities laws and/or IESBA rules.

If it were to be determined that an Accounting Firm did not comply with the independence requirements, among other things, the financial statements audited by the Accounting Firm and the interim financial statements reviewed by the Accounting Firm could have to be audited and reviewed, respectively, by another independent Accounting Firm, Federated Hermes' eligibility to issue securities under its existing registration statements can be impacted and certain financial reporting and/or other covenants with, and representations and warranties to, Federated Hermes' lenders or debt holders can be impacted.

Similar issues would arise for a Federated Hermes Fund for which Federated Hermes' Accounting Firm (or another Accounting Firm) serves as such Federated Hermes Fund's independent Accounting Firm if it were to be determined that Federated Hermes' Accounting Firm (or such other Accounting Firm) was not in compliance with the independence requirements under applicable securities laws, with respect to such Federated Hermes Fund.

If a determination cannot be made that the Accounting Firm satisfies the independence requirements with respect to an applicable Federated Hermes Fund, the Accounting Firm also could be prevented from making a determination that it satisfies the independence requirements with respect to Federated Hermes, since Federated Hermes would be an affiliate ( i.e.

, the ultimate parent company) of the investment advisor to the relevant Federated Hermes Fund.

In either case, such events could have a material adverse effect on Federated Hermes' Financial Condition.

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failure to appropriately attract, retain, train, supervise and promote the wellbeing and resiliency of qualified human capital resources, whether internal or external;

failure to perform due diligence on third party service providers (particularly in light of the Pandemic, which has required remote due diligence to be conducted);

failure to perform due diligence on third party service providers (particularly when due diligence is conducted remotely);

business disruptions;

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inadequacies or breaches in Federated Hermes’, its products’ or a service provider’s governance policies or internal control processes;

unauthorized disclosure or manipulation of, or access to, confidential, proprietary or non-public personal or

business information;

unauthorized disclosure or manipulation of, or access to, confidential, proprietary or non-public personal or business information;

unauthorized access to accounts, applications or systems;

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As Federated Hermes’ and its relevant service providers’ businesses expand or become more complex and require additional scalability or customization, operational risk increases.

There is a risk that changes (including upgrades or patches) in operational systems and business processes are not completed correctly, in a controlled manner, in a timely manner or in a manner that achieves intended results.

There is a risk that changes (including upgrades or patches) in operational systems, models and business processes are not completed correctly, in a controlled manner, in a timely manner or in a manner that achieves intended results.

These types of changes also give rise to other risks, such as the risk that an employee, service provider or third party, or group of employees, service providers or third parties, could intentionally or unintentionally compromise the integrity or security of confidential, proprietary or personal information of Federated Hermes, its employees or its customers or shareholders.

Management relies on its employees, systems, and business continuity plans, and those of relevant service providers, to comply with established procedures, controls, regulatory requirements, investment parameters or customer-imposed restrictions.

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Service providers to whom certain services, functions or responsibilities are outsourced by or for, and customers and shareholders of, Federated Hermes and its products, and third parties on which such service providers, customers and shareholders rely, also utilize software and related technologies in their businesses.

Federated Hermes continues to increase its investment in systems and technology, including externally hosted or cloud-based systems and technology, and its reliance on third parties, for investment management and trading operations, information and data management and governance, disaster recovery, compliance, and other areas of its business, and is exploring innovative technological solutions and products involving artificial intelligence and financial technology.

recovery, compliance, and other areas of its business, and continues to explore innovative technological solutions and products involving artificial intelligence and financial technology.

Unanticipated issues could occur with any software, system or other technology and it is not possible to predict with certainty all of the adverse effects that could result from a failure of Federated Hermes or a third party to address technology or computer system problems.

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Federated Hermes uses digital technology, including, for example, networked systems, email, and the internet, to conduct business operations and engage products, accounts, customers, employees, shareholders, and relevant service providers, among others.

The use of the internet and other electronic media, computers and technology exposes Federated Hermes, its business, products, accounts, customers, employees, shareholders, service providers and other third parties, and their respective operations, to potential risks from frequent cybersecurity attacks, events, or incidents (cyber incidents).

The use of the internet and other electronic media, computers and technology expose Federated Hermes, its business, products, accounts, customers, employees, shareholders, service providers and other third parties, and their respective operations, to potential risks from frequent cybersecurity attacks, events, or incidents (cyber incidents).

For example, Federated Hermes and relevant service providers collect, maintain, and transmit confidential, proprietary, and non-public personal customer, shareholder, business, and employee information (such as in connection with online account access and performing investment, reconciliation, transfer agent, custodian and other recordkeeping and related functions) that can be targeted by cyber incidents.

The work-from-home and hybrid work environments necessitated by the Pandemic have increased the risk of cyber incidents given the increase in cyber-attack surface stemming from the use of personal devices and non-office or personal technology.

Federated Hermes, as well as its products and certain service providers, also generate, compile and process information for purposes of preparing and making filings or reports to governmental agencies or providing reports or statements to customers or shareholders, and a cyber incident that impacts that information, or the generation and filing processes, can prevent required regulatory filings and reports from being made or reports or statements from being delivered.

The remote and hybrid work environments increase the risk of cyber incidents given the increase in cyber-attack surface stemming from the use of personal devices and non-office or personal technology.

Cyber incidents involving Federated Hermes or its products or service providers, regulators, or exchanges to which confidential, personally identifiable, or other information is reported or filed also can result in unauthorized disclosure or compromise of, or access to, such information.

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Cyber incidents can include, for example, phishing, credential harvesting or use of stolen access credentials, unauthorized access to systems, networks or devices (for example, through hacking activity), structured query language attacks, infection from or spread of malware, ransomware, computer viruses or other malicious software code, corruption of data, exfiltration of data to malicious sites, the dark web or other locations or threat actors, the use of fraudulent or fake websites, and other attacks (including, but not limited to, denial-of-service attacks on websites), which shut down, disable, slow, impair or otherwise disrupt operations, business processes, technology, connectivity or website or internet access, functionality or performance.

addition to intentional cyber incidents, unintentional cyber incidents can occur (for example, the inadvertent release of confidential or non-public personal information).

In addition to intentional cyber incidents, unintentional cyber incidents can occur (for example, the inadvertent release of confidential or non-public personal information).

Changes to Federated Hermes’ business, processes, systems, or technology, if not implemented properly, can increase Federated Hermes’ vulnerability to cyber incidents.

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Among other potentially harmful effects, cyber incidents also can result in theft, unauthorized monitoring and failures in the physical infrastructure or operating systems.

Any cyber incident could cause lost revenues, the occurrence of other financial losses, diminished future cash flows, significant increases in compliance or other costs or expenses (such as costs associated with compliance with cybersecurity laws and regulations, protection, detection, remediation and corrective measures, and credit monitoring for impacted individuals), exposure to increased litigation and legal risks (such as regulatory actions and penalties, and breach of contract or other litigation-related fees and expenses), reputational damage, damage to employee perceptions of the company, damage to competitiveness, stock price and shareholder value, and other negative or adverse impacts.

risks (such as regulatory actions and penalties, and breach of contract or other litigation-related fees and expenses), reputational damage, damage to employee perceptions of the company, damage to competitiveness, stock price and shareholder value, and other negative or adverse impacts.

Cyber incidents affecting issuers in which Federated Hermes’ or its customers’ or shareholders’ assets are invested also could cause such investments to lose value.

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In certain circumstances, insurance coverage might not be available or deductible amounts might not be exceeded, and Federated Hermes or its products could have to bear the costs related to claims or any losses or other liabilities resulting from a cyber incident.

While Federated Hermes cannot predict the financial or reputational impact to its business resulting from any cyber incident, depending upon the nature, magnitude and severity of a cyber incident, the occurrence of a cyber incident, or a similar situation or incident, could have a material adverse effect on Federated Hermes' Financial Condition (including, but not limited to, its reputation).

While Federated Hermes cannot predict the financial or reputational impact to its business resulting from any cyber incident, depending upon its nature, magnitude and severity, the occurrence of a cyber incident, or a similar situation or incident, could have a material adverse effect on Federated Hermes’ Financial Condition (including, but not limited to, its reputation).

The internal and external resources and efforts necessary to implement system and technology upgrades, data governance and cybersecurity policies, procedures and measures, as well as service provider management, have increased, and will continue to increase, Federated Hermes’ operating expenses, and can adversely affect, potentially in a material way, Federated Hermes’ Financial Condition.

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The market for qualified executives, portfolio managers, analysts, traders, sales representatives, and other key personnel is extremely competitive.

The prolonged Pandemic has increased employee stress and fatigue, and placed an emphasis on employee mental wellness.

The move to remote and hybrid work environments (including opportunities to work from home at competitors), along with increases in competitor salaries, during the Pandemic has increased competition for quality personnel, increased employee turnover and created job vacancies that have become harder to fill with qualified and experienced personnel.

The lingering Pandemic, remote and hybrid work arrangements, and other factors increased employee stress and fatigue, and placed an emphasis on employee mental wellness.

The move to remote and hybrid work environments (including opportunities to work from home at competitors), along with increases in competitor salaries, has increased competition for quality personnel, increased employee turnover and created job vacancies that have become harder to fill with qualified and experienced personnel.

A lack of financial flexibility, regulatory requirements and business performance also are factors in attracting and retaining qualified personnel.

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In addition to competing opportunities, personnel elect to pursue other interests for business, personal and other reasons or retire from time to time.

The Pandemic, and related work environment changes, including work-from-home and hybrid-working arrangements, can create retention and other human capital resource management risks.

Cyber incidents, misconduct or other matters that negatively reflect on Federated Hermes and its reputation also can change employee or prospective employee opinions regarding the company and could affect Federated Hermes' ability to hire or retain employees.

Federated Hermes has encouraged the continued retention of its executives and other key personnel through measures such as providing competitive compensation arrangements, a non-discriminatory, diverse, and inclusive work environment, work arrangement flexibility (particularly in light of the Pandemic) and, in certain cases, employment agreements.

The Pandemic, and post-Pandemic work environment, and related work environment changes, including remote and hybrid-working arrangements, can create retention and other human capital resource management risks.

State and federal laws, rules and regulations intended to limit or curtail the enforceability of non-competition, employee non-solicitation, confidentiality and similar restrictive covenant clauses can make it more difficult to retain qualified personnel.

Federated Hermes’ ability to hire or retain employees.

The loss of any such personnel could have an adverse effect on Federated Hermes.

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No Assurance of Successful Acquisitions.

Like other companies, Federated Hermes' business strategy contemplates seeking acquisition candidates.

For Federated Hermes, acquisitions generally involve acquisitions of other investment management companies, investment assets and related businesses, both domestically and internationally.

Like other companies, Federated Hermes’ business strategy contemplates seeking acquisition candidates and growing through acquisitions.

For Federated Hermes, this generally involves acquisitions of other investment management companies, investment assets and related businesses, both domestically and internationally.

There can be no assurance that Federated Hermes will find suitable acquisition candidates at acceptable prices and with an aligned business culture and vision, have sufficient capital resources to realize its acquisition strategy, be successful in entering into definitive acquisition agreements or consummating acquisitions, or successfully collaborating with, or integrating or consolidating, acquired companies or assets into Federated Hermes or its products or strategies.

There also can be no assurance that any such acquisitions, if consummated, will not increase organizational stress to unacceptable levels or cause process failures, or will increase value or otherwise prove to be advantageous to Federated Hermes.

There also can be no assurance that any such acquisitions, if consummated, will not increase organizational stress to unacceptable levels or cause process failures, result in violations of applicable laws, rules or regulations, increased taxes or otherwise increase legal, tax or compliance concerns, or will increase value or otherwise prove to be advantageous to Federated Hermes.

On the other hand, successful collaboration with, or integration or consolidation of, acquired companies or assets can increase the value of such acquired companies or assets and result in increased contingent deferred payments or other payment obligations for Federated Hermes, which can affect Federated Hermes’ Financial Condition.

Potential Adverse Effects of Reputational Harm.

Like other companies, any material losses in customer or shareholder confidence in Federated Hermes, its products or strategies, or in the investment management industry as a result of actual or potential regulatory proceedings or litigation, economic or market downturns or disruptions, material errors in public news reports, oppositions to trade mark or other intellectual property registration applications or allegations of trade name, trade mark or other intellectual property infringement or misappropriation, allegations of breaches of fiduciary duty, misconduct or unprofessional, unethical or illegal behavior, improper corporate actions, poor communications with investors or the public via social media or otherwise, abuse of authority, a cyber incident, rumors or inaccurate information being posted on the internet or social media, failure to achieve carbon neutrality, climate change or other public commitments or pledges, failure to implement or accurately disclose ESG strategies or initiatives, controversial tenants in real estate owned or managed by Federated Hermes, fraudulent or fake websites or domain names using Federated Hermes' or a subsidiary's name, logo or address, or similar names, logos or addresses, or other matters could negatively impact Federated Hermes' brand, culture, trusted status, reputation and/or stock price, increase redemptions from and/or reduce sales of Federated Hermes' products (such as the Federated Hermes Funds), strategies and services, and/or change employee or potential employee perceptions of the company which could impact the willingness of a potential employee to be hired by or an employee to remain at Federated Hermes.

If such losses or events were to occur, it could have a material adverse effect on Federated Hermes' Financial Condition (including, but not limited to,

business prospects) .

With increased focus on sustainability, as well as ESG matters, any perceived deficiency in Federated Hermes' policies and practices on these matters can impact Federated Hermes' brand, reputation or stock price, as well as investor preference for Federated Hermes' securities, products, strategies, and services, and, accordingly, adversely affect, potentially in a material way, Federated Hermes' Financial Condition (including, but not limited to, business prospects).

Like other companies, any material losses in customer or shareholder confidence in Federated Hermes, its products or strategies, or in the investment management industry as a result of actual or potential regulatory proceedings or litigation, economic or market downturns or disruptions, material errors in public news reports, political or other views against ESG investing or integration, oppositions to trademark or other intellectual property registration applications or allegations of trade name, trademark or other intellectual property infringement or misappropriation, allegations of breaches of fiduciary duty, misconduct or unprofessional, unethical or illegal behavior, improper corporate actions, poor communications with investors or the public via social media or otherwise, abuse of authority, a cyber incident, rumors or inaccurate information being posted on the internet or social media, failure to achieve carbon neutrality, climate change or other public commitments or pledges, failure to implement or accurately disclose ESG strategies or initiatives, controversial tenants in real estate owned or managed by Federated Hermes, fraudulent or fake websites or domain names using Federated Hermes’ or a subsidiary’s name, logo or address, or similar names, logos or addresses, or other matters could negatively impact Federated Hermes’ brand, culture, trusted status, reputation and/or stock price, increase redemptions from and/or reduce sales of Federated Hermes’ products (such as the Federated Hermes Funds), strategies and services, and/or change employee or potential employee perceptions of the company which could impact the willingness of a potential employee to be hired by, or an employee to remain at, Federated Hermes.

If such losses or events were to occur, it could have a material adverse effect on Federated Hermes’ Financial Condition (including, but not limited to, business prospects).

With increased focus on sustainability, as well as ESG matters, any perceived deficiency in Federated Hermes’ policies and practices on, or political or other public backlash against, these matters can impact Federated Hermes’ brand, reputation or stock price, as well as investor preference for Federated Hermes’ securities, products, strategies, and services, and, accordingly, adversely affect, potentially in a material way, Federated Hermes’ Financial Condition (including, but not limited to, business prospects).

Potential Adverse Effects of Unpredictable Events or Consequences (including the Pandemic).

Like other companies, unpredictable events, such as a natural disaster, pandemic ( e.g.

, the coronavirus outbreak), war, terrorist attack or other business continuity event, unexpected market, economic or political developments, or extreme weather, droughts, storms, climate, or other ESG changes could adversely impact Federated Hermes', its products', accounts', customers', shareholders' and portfolio companies (in which Federated Hermes and its products and strategies are invested), and each of their respective service providers', ability to conduct business.

, the coronavirus outbreak), war, or military escalation (such as Russia’s invasion of Ukraine), terrorist attack or other business continuity event, unexpected market, economic or political developments, or extreme weather, droughts, storms, climate, or other similar ESG changes could adversely impact Federated Hermes’, its products’, accounts’, customers’, shareholders’ and portfolio companies (in which Federated Hermes and its products and strategies are invested), and each of their respective service providers’, ability to conduct business.

Physical climate change risks arising from changing or adverse weather and climate change, and transition climate change risks arising as economies and markets transition to low carbon and other sustainable environments, also can have adverse impacts.

Such unpredictable events or consequences could cause, among other effects, business disruptions, supply chain disruptions, disruptions in economic conditions, market disruptions or transformation, changes in management or governmental processes, changes in consumer demand and investor preferences, obsolescence of certain products or services affecting certain sectors, stranded assets across a range of assets, sectors or geographies, infrastructure and real estate destruction, abandonment or damage leading to increased refurbishment and repair costs, changes in technology, system interruption, loss of life, unavailability of personnel, increased insurance costs or an inability to insure certain assets, an inability to provide information or services, either at all or in accordance with applicable requirements, standards, or restrictions, and/or additional costs.

stranded assets across a range of assets, sectors or geographies, infrastructure and real estate destruction, abandonment or damage leading to increased refurbishment and repair costs, changes in technology, system interruption, loss of life, unavailability of personnel, increased insurance costs or an inability to insure certain assets, an inability to provide information or services, either at all or in accordance with applicable requirements, standards, or restrictions, and/or additional costs.

A failure in, or disruption to, Federated Hermes’ operational systems or infrastructure, including business continuity plans, could adversely affect operations, damage Federated Hermes’ reputation, and cause Federated Hermes AUM, revenue and earnings to decline.

Remote or hybrid work arrangements can stress business processes, such as due diligence of service providers, customer or shareholder onboarding, and controls, as well as increase cybersecurity, privacy, and digital communications risks.

The failure to maintain an infrastructure commensurate with the size and scope of Federated Hermes' business, or the occurrence of a business outage or event outside of Federated Hermes' control (particularly in locations where Federated Hermes has offices), or if Federated Hermes fails to keep business continuity plans up-to-date or if such plans are improperly implemented or deployed during a disruption, Federated Hermes' ability to operate could be adversely impacted which can cause its AUM, revenue and earnings to decline or impact Federated Hermes' ability to comply with regulatory obligations leading to reputational harm, regulatory fines, penalties, and/or sanctions.

The failure to maintain an infrastructure commensurate with the size and scope of Federated Hermes’ business, or the occurrence of a business outage or event outside of Federated Hermes’ control (particularly in locations where Federated Hermes has offices), or the failure to keep business continuity plans up-to-date, or if such plans are improperly implemented or deployed during a disruption, it could adversely impact Federated Hermes’ ability to operate, which can cause its AUM, revenue and earnings to decline or impact Federated Hermes’ ability to comply with regulatory obligations leading to reputational harm, regulatory fines, penalties, and/or sanctions.

Any such failure or disruption also could impact, potentially in a material way, Federated Hermes’ Financial Condition.

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There also can be times when industry databases or other third parties publish or distribute information regarding Federated Hermes, or its products or services (including Federated Hermes Fund asset levels), that might be inaccurate or incomplete, and there can be no assurance that a third party will interpret or report information accurately.

Unpredictable consequences, or side effects, of certain known or planned events, such as the planned phase-out of LIBOR and transition to SOFR, SONIA or another alternative interest rate, also could adversely impact Federated Hermes', its products', customers', and shareholders', and their respective service providers' ability to conduct business.

The SEC staff has indicated that the expected discontinuation of LIBOR could have a significant impact on the markets and can present a material risk for certain market participants, including public companies, investment advisors, investment companies and broker/dealers.

Unpredictable consequences, or side effects, of certain known or planned events, such as the phase-out of LIBOR and transition to SOFR, SONIA or another alternative interest rate, also could adversely impact Federated Hermes’, its products’, customers’, and shareholders’, and their respective service providers’ ability to conduct business.

The SEC staff has indicated that the discontinuation of LIBOR could have a significant impact on the markets and can present a material risk for certain market participants, including public companies, investment advisors, investment companies and broker/dealers.

The phase-out of LIBOR can cause the renegotiation or re-pricing of certain credit facilities, derivatives, or other financial transactions to which Federated Hermes, its products, customers, shareholders, or service providers are parties, alter the accounting treatment of certain instruments or transactions, or have other unintended consequences, which, among other effects, could require additional internal and external resources to address, thereby increasing operating expenses.

Neither the effect of the transition process nor the viability of LIBOR transition measures can be fully determined.

There can be obstacles to converting certain longer-term securities and transactions to new benchmarks.

As market participants transition away from LIBOR, its usefulness can deteriorate.

The transition process can lead to increased volatility and illiquidity in markets that continue to rely on LIBOR to determine interest rates.

The transition process can lead to increased volatility and illiquidity in markets that continue to rely on LIBOR to determine applicable interest rates.

LIBOR’s potential deterioration can adversely affect the liquidity and/or market value of securities that use LIBOR as a benchmark interest rate, including remaining LIBOR-based securities and other financial instruments held by Federated Hermes or its products or strategies.

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The Pandemic .

The outbreak of the coronavirus, and the resulting Pandemic, were unprecedented events that have been, and continue to be, impossible to fully predict.

The coronavirus Pandemic had a significant impact around the world.

It prompted governments and businesses to take unprecedented measures in response.

The Pandemic initially resulted in, among other effects, travel bans, stay-at-home orders, disruptions to supply chains, workflow, operations and customer activity, economic uncertainty, market volatility, trading halts, market illiquidity and declining and variable stock prices, as well as general concern and uncertainty.

While economies of various countries have rebounded from the global economic shutdown that began in the late first quarter and early second quarter 2020, the impact of the Pandemic continues, to varying degrees, in 2022.

For example, spikes of coronavirus cases, including breakthrough infections of vaccinated individuals, continue to occur in certain jurisdictions driven by more contagious variants of the initial strain of the coronavirus.

These variants, spikes, and breakthrough infections have resulted in certain jurisdictions continuing or re-imposing certain travel and other restrictions, although in many cases not to the same degree as those initially imposed.

While economic uncertainty and market volatility have continued, it generally is not to the same degree as initially seen in March 2020.

The economic uncertainty, market volatility and impact of the Pandemic could continue for an extended period of time (depending upon, among other factors, the extent to which effective vaccines continue to be widely disseminated and vaccination rates continue to increase) and result in a continuing or further economic downturn or recession.

Health crises caused by outbreaks, such as the Pandemic, can exacerbate other pre-existing political, social, and economic/market risks.

The overall impact of the Pandemic has negatively affected, and other epidemics and pandemics that arise in the future could negatively affect, the worldwide economy, as well as the economies of individual countries, national, state, or local governments, individual companies (including Federated Hermes, and its products, strategies, customers, shareholders, and service providers) and the market in general in significant, potentially material, and unforeseen ways.

For example, market disruptions, supply chain disruptions, and other events relating to the Pandemic have caused, and can continue to cause, market volatility, illiquidity in the money market, fixed-income or other markets, a decline in interest rates to near zero with the possibility of negative interest rates, a decline in the value of and/or returns on investments, increased expenses, slower production, a decline in the value of Federated Hermes' AUM and stock price, an increase in the risk of reduction, elimination or claw back of carried interest or performance fees, changes in asset mix, and increased Fee Waivers, which results in lower revenue and earnings for Federated Hermes.

The market disruption and other events relating to the Pandemic also can cause impairment of intangible assets (including goodwill) or other assets, among other effects.

It is possible that remote or hybrid work environments will increase investor comfort with technology, resulting in more online investment or other changes in investor preferences (such as for passive investments over actively managed investments), increased metric-based decision-making and alternative distribution practices.

If essential employees, or a significant number of employees, contract the coronavirus and are unable to perform their duties either at all or only in a significantly diminished capacity, the absence of these employees can adversely impact Federated Hermes' ability to continue to remain fully operational and/or to deliver Federated Hermes' investment products and services.

Remote or hybrid work environments also can reduce opportunities for collaboration among employees, increase stress of processes and the risk of errors, increase cyber risk, prevent utilization of certain processes or practices (such as the inability to use "white rooms" by certain service providers), reduce productivity and efficiency, and create additional risk around "return to the office" arrangements.

The Pandemic could have a material adverse effect on Federated Hermes' Financial Condition.

For example, to the extent that the Pandemic caused near zero interest rates, which required Federated Hermes to implement the Voluntary Yield-related Fee Waivers, the Pandemic has had a material adverse effect on Federated Hermes' net revenue and income.

Any scenario whereby the Pandemic, and its resulting effects, persist for a further significant period of time will likely increase the impact of the Pandemic on Federated Hermes' Financial Condition.

Federated Hermes continues to monitor the impact of the Pandemic on its Financial Condition.

The Pandemic created, and can still create, risks to Federated Hermes that cannot be foreseen and are uncertain.

Such risks can be long term and adversely effect, potentially in a material way, Federated Hermes’ Financial Condition.

As the Pandemic continues to evolve, it is not possible to predict the full extent to which it will adversely impact Federated Hermes’ Financial Condition, which will depend on numerous developing factors that remain uncertain and subject to change.

See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Developments – The Pandemic for further information regarding the Pandemic and its effects.

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What changed 10-K

Item 1A. Risk Factors