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Item 7. Management’s Discussion and Analysis

2026-02-27 compared with 2025-02-28 · 84 added, 70 removed, 381 unchanged (29% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Item 1- Business, Item 1A – Risk Factors and Item 8 – Financial Statements and Supplementary Data.

Federated Hermes is a global leader in active, responsible investing with $829.6 billion in managed assets as of December 31, 2024.

Federated Hermes is a global leader in active investing with $902.6 billion in managed assets as of December 31, 2025.

The majority of Federated Hermes’ revenue is derived from advising Federated Hermes Funds and Separate Accounts in domestic and international public and private markets.

Federated Hermes also derives revenue from providing administrative and other fund-related services (including distribution and shareholder servicing) as well as stewardship and real estate development services.

For additional information on Federated Hermes’ markets, see Item 1 – Business – Distribution Channels and Product Markets.

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Federated Hermes’ revenue is primarily dependent upon factors that affect the value of managed/serviced assets, including market conditions and the ability to attract and retain assets.

Generally, managed assets in Federated Hermes’ public market investment offerings can be redeemed or withdrawn at any time with no advance notice requirement, while managed assets in Federated Hermes’ private market investment offerings are subject to restrictions to withdrawals.

Generally, managed assets in Federated Hermes’ public market investment products and strategies (together with other offered services, as applicable, offerings) can be redeemed or withdrawn at any time with no advance notice requirement, while managed assets in Federated Hermes’ private market investment offerings are subject to restrictions on withdrawals.

Fee rates for Federated Hermes’ services generally vary by asset and service type and can vary based on changes in asset levels.

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Similarly, revenue is also dependent upon the relative composition of average AUM across both asset and offering types.

Federated Hermes can implement fee waivers for competitive reasons such as Voluntary Yield-related Fee Waivers, to maintain certain fund expense ratios, to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers).

Since Federated Hermes’ public market offerings are largely distributed and serviced through financial intermediary customers, Federated Hermes pays a portion of fees earned from sponsored offerings to the financial intermediary customers that sell these offerings.

Federated Hermes can implement fee waivers, rebates or expense reimbursements for competitive reasons such as to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers), to maintain certain fund expense ratios, to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers).

Since Federated Hermes’ public market offerings are largely distributed and serviced through financial intermediary customers, Federated Hermes makes payments, out of its reasonable profits and other resources, to the financial intermediary customers that sell these offerings.

These payments are generally calculated as a percentage of net assets attributable to the applicable financial intermediary and represent the vast majority of Distribution expense on the Consolidated Statements of Income.

Certain components of Distribution expense can vary depending upon the asset type, distribution channel and/or the size of the customer relationship.

Federated Hermes generally pays out a larger portion of the revenue earned from managed assets in equity, money market and multi-asset funds than the revenue earned from managed assets in fixed-income and alternative/private markets funds.

Federated Hermes generally pays out a larger portion of the revenue earned from managed assets in money market, multi-asset, and fixed-income funds than the revenue earned from managed assets in equity and alternative/private markets funds.

Federated Hermes’ most significant operating expenses are Compensation and Related expense and Distribution expense.

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Incentive compensation, which includes share-based compensation, can vary depending on various factors including, but not limited to, the overall results of operations of Federated Hermes, investment management performance and sales performance.

The discussion and analysis of Federated Hermes’ Financial Condition (including results of operations) are based on Federated Hermes’ Consolidated Financial Statements.

The discussion and analysis of Federated Hermes’ financial condition and results of operations are based on Federated Hermes’ Consolidated Financial Statements.

Federated Hermes operates in one operating segment, the investment management business.

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Business Developments

Intangible Asset Impairment

During the second quarter of 2024, a $66.3 million non-cash impairment of an indefinite-lived intangible asset associated with the 2018 FHL acquisition was recorded in Intangible Asset Related expense on the Consolidated Statements of Income.

See Note (9) to the Consolidated Financial Statements for additional information related to the impairment of this indefinite-lived intangible asset.

There were no other impairments during the year ended December 31, 2024.

Business Combination

On April 7, 2025, FHL acquired a majority (60%) equity interest in Rivington Energy Management Limited (Rivington), a U.K.-based renewable energy project development business.

See Note (3) to the Consolidated Financial Statements for additional information.

On October 23, 2025, Federated Hermes entered into an agreement to acquire a majority (80%) interest in FCP Fund Manager, L.P.

(FCP), a U.S.-based real estate investment manager.

The transaction is expected to be completed in the second quarter 2026.

See Note (3) to the Consolidated Financial Statements for additional information.

Current Regulatory Environment

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and/or non-U.S.

regulators, self-regulatory agencies or exchanges, such as, among others, the SEC, FINRA, CFTC, DOL, NYSE, FCA, CBI, CIMA, Monetary Authority of Singapore, ASICS and CSSF.

regulators, self-regulatory agencies or exchanges, such as, among others, the SEC, FINRA, CFTC, DOL, NYSE, FCA, CBI, CIMA, Monetary Authority of Singapore, ASIC and CSSF.

Federated Hermes’ business and offerings are subject to various U.S.

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Separate Accounts:

Equity 36,513 38,034 37,746 (4) 1

39,089 36,513 38,034 7 (4)

Fixed-Income 53,810 52,173 45,597 3 14

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Multi-Asset 1

95 136 138 (30) (1)

Total Long-Term Assets 100,419 96,780 91,866 4 5

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Total Average Managed Assets $ 853,425 $ 788,471 $ 705,978 8 % 12 %

1) A Separate Account was reclassified from Multi-Asset to Equity effective October 1, 2025.

Changes in Equity Fund and Separate Account Assets

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Impact of Foreign Exchange 1

1,799 (1,143)

Market Gains and (Losses) 2

11,909 11,959

Ending Assets $ 97,898 $ 79,423

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Net Sales (Redemptions) 3

(1,523) (338)

Net Exchanges (4) (18)

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Net Exchanges 0 187

Acquisitions/(Dispositions) 109 0

Impact of Foreign Exchange 1

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Net Sales (Redemptions) 3

Net Exchanges 0 (23)

Impact of Foreign Exchange 1

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Net Sales (Redemptions) 3

(1,197) (1,701)

Net Exchanges 0 187

Acquisitions/(Dispositions) 109 0

Impact of Foreign Exchange 1

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Net Sales (Redemptions) 2

Net Exchanges (123) 0

Market Gains and (Losses) 1

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2 For Separate Accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

Changes in Total Long-Term Assets

Changes in Total Long-Term Fund and Separate Account Assets

in millions for the years ended December 31, 2025 2024

Total Long-Term Fund Assets

Total Long-Term Funds

Beginning Assets $ 103,567 $ 101,530

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Net Exchanges 53 26

Acquisitions/(Dispositions) 109 0

Impact of Foreign Exchange 1

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Ending Assets $ 115,896 $ 103,567

Total Long-Term Separate Accounts Assets

Total Long-Term Separate Accounts

Beginning Assets $ 95,662 $ 96,099

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Ending Assets $ 104,084 $ 95,662

Total Long-Term Assets

Total Long-Term

Beginning Assets $ 199,229 $ 197,629

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Net Exchanges 42 8

Acquisitions/(Dispositions) 109 0

Impact of Foreign Exchange 1

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Market Gains and (Losses) 2

17,898 15,646

Ending Assets $ 219,980 $ 199,229

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Asset mix impacts Federated Hermes’ total revenue due to the difference in the fee rates earned on each asset class and offering type per invested dollar and certain components of distribution expense can vary depending upon the asset class, distribution channel and/or the size of the customer relationship.

The following table presents the relative composition of average managed assets and the percent of total revenue derived from each asset class and offering type over the last three years:

The following table presents the relative composition of average managed assets and the percent of total revenue derived from each asset class and offering type for the last three years:

Percent of Total Average Managed Assets Percent of Total Revenue

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Average managed assets increased 8% for 2025 as compared to 2024.

Period-end managed assets increased 9% at December 31, 2024 as compared to December 31, 2023, primarily from an increase in money market assets.

Period-end managed assets increased 9% at December 31, 2025 as compared to December 31, 2024, primarily from an increase in money market and equity assets.

Total average money market assets increased 9% for 2025 compared to 2024.

Period-end money market assets increased 8% at December 31, 2025 as compared to December 31, 2024.

The Federal Reserve lowered the federal funds rate three times beginning in September, settling at a range of 4.25% to 4.5% in December, and U.S.

money market funds reached a record high at nearly $7 trillion.

The Federal Reserve implemented a series of three rate cuts, starting in September 2025, landing at a range of 3.5% to 3.75% by December 2025, and U.S.

money market funds reached a record high at $8.2 trillion.

Money market funds continued to offer a yield advantage compared to some securities in the direct market, especially overnight securities and those with floating rates, which trace the Federal Reserve moves immediately.

Average equity assets decreased 2% for 2024 as compared to 2023.

Period-end equity assets remained flat at December 31, 2024 as compared to December 31, 2023 primarily due to market appreciation nearly completely offset by net redemptions.

The S&P 500 finished the year up more than 21%, aided by the tech stocks, which benefited from the artificial intelligence boom.

Average equity assets increased 11% for 2025 as compared to 2024.

Period-end equity assets increased 23% at December 31, 2025 as compared to December 31, 2024 primarily due to market appreciation and, to a lesser extent, net sales.

The S&P 500 finished the year up more than 16%, as tech stocks continued to drive returns, although market breadth improved late in the year.

Average fixed-income assets increased 3% for 2025 as compared to 2024.

Period-end fixed-income assets increased 3% at December 31, 2024 as compared to December 31, 2023 primarily due to market appreciation.

Overall, fixed-income markets had a volatile year, with yields surging late in 2024 on concerns over a potential reacceleration of inflation.

Yields on the 10-Year Treasury note increased from 3.9% at the start of the year to above 4.5% by the year’s end.

Period-end fixed-income assets increased 2% at December 31, 2025 as compared to December 31, 2024 primarily due to market appreciation, partially offset by net redemptions.

Overall, fixed-income markets delivered solid performance in 2025, with most fixed-income asset classes offering gains.

Throughout the year, yields on the 10-Year Treasury note traded in a range between a low of 3.97% and a high of 4.79%, closing the year at 4.18%, slightly lower than the year-end 2024 level.

Average alternative/private markets assets decreased 4% for 2025 as compared to 2024.

Period-end alternative/private markets assets decreased 8% at December 31, 2024 as compared to December 31, 2023 primarily due to net redemptions.

Period-end alternative/private markets assets increased 1% at December 31, 2025 as compared to December 31, 2024 primarily due to fluctuations in foreign currency exchange rates, partially offset by net redemptions.

For an explanation of the changes in managed assets at December 31, 2024 compared to December 31, 2023 and changes in average managed assets for 2024 as compared to 2023, see Federated Hermes’ Annual Report on Form 10-K for the year ended

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For an explanation of changes for 2024 as compared to 2023, see Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2024, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.

Revenue increased $22.5 million in 2024 as compared to 2023 primarily due to increases in money market and fixed-income revenue of $85.0 million and $9.6 million, respectively, primarily related to higher average assets.

These increases were partially offset by (1) a decrease in carried interest of $50.0 million (partially offset in Compensation and Related expense) and (2) decreases in equity and alternative/private markets revenue of $9.4 million and $6.5 million, respectively, due to lower average assets.

Revenue increased $168.6 million in 2025 as compared to 2024 primarily due to (1) increases in money market and equity revenue of $106.5 million and $36.0 million, respectively, primarily related to higher average assets (2) an increase in performance fees of $7.9 million and (3) an increase in real estate development fees of $7.8 million.

Federated Hermes’ ratio of revenue to average managed assets was 0.21% and 0.20% for 2025 and 2024, respectively.

The decrease in the rate was primarily due to the decrease in carried interest and a decrease in revenue from lower average equity assets during 2024 as compared to 2023.

The increase in the rate was primarily due to the change in the mix of asset classes of money market assets in 2025 as compared to 2024.

Operating Expenses.

Total operating expenses for 2025 increased $16.2 million compared to 2024.

Intangible Asset Related expense increased $65.5 million primarily due to an impairment of an indefinite-lived intangible asset (see Note (9) to the Consolidated Financial Statements for additional information).

Distribution expense increased $11.1 million primarily related to higher average managed money market fund assets.

Compensation and Related expense decreased $22.9 million primarily due to less carried interest paid as compensation of $32.1 million partially offset by increases due to higher compensation related to merit and staffing increases of $11.3 million.

Other expense decreased $18.2 million primarily due to a decrease in the costs associated with a fund restructuring in 2023.

Distribution expense increased $52.1 million primarily related to higher average money market fund assets.

Compensation and Related expense increased $37.2 million primarily due to higher incentive compensation and merit increases.

Systems and Communications expense increased $5.9 million primarily due to increased technology initiatives.

Intangible Asset Related expense decreased $65.6 million primarily due to the $66.3 million impairment of an indefinite-lived intangible asset in 2024 associated with the 2018 acquisition of FHL (see Note (9) to the Consolidated Financial Statements for additional information).

Other expense decreased $16.1 million primarily due to a value added tax (VAT) refund received in 2025 related to amended VAT filings in the U.K.

($12.9 million) and fluctuations in foreign currency exchange rates ($10.2 million).

Nonoperating Income (Expenses).

Nonoperating Income (Expenses), net decreased $3.6 million in 2024 as compared to 2023.

The decrease is primarily due to a $6.6 million decrease in Gain (Loss) on Securities, net due primarily to a smaller increase in the market value of investments in 2024 as compared to 2023.

This decrease was partially offset by a $3.5 million increase in Investment Income, net primarily due to an increase in the yield on investments due to rising interest rates and higher cash and cash equivalents balances.

Nonoperating Income (Expenses), net increased $13.5 million in 2025 as compared to 2024.

The increase is primarily due to a $14.5 million increase in Gain (Loss) on Securities, net due to a larger increase in the market value of investments in 2025 as compared to the increase in the market value of investments in 2024.

Income Taxes.

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income tax resulting from increased U.S.

pre-tax income.

The effective tax rate was 24.4% for 2025 and 29.7% for 2024.

The increase in the effective tax rate was primarily the result of a valuation allowance on foreign deferred tax assets and the impairment of an indefinite-lived intangible asset (2.3%), and a state law change and a state deferred tax adjustment (0.8%).

The decrease in the effective tax rate was primarily due to the impact in 2024 of a valuation allowance on foreign deferred tax assets and the impairment of an indefinite-lived intangible asset.

See Note (15) to the Consolidated Financial Statements for additional information on the effective tax rate, as well as other tax disclosures.

Pillar Two legislation has been enacted in certain jurisdictions in which Federated Hermes operates.

The legislation is effective for the financial year beginning January 1, 2024.

The legislation was effective for the year beginning January 1, 2024.

Federated Hermes is in scope of the enacted legislation and has performed an assessment of its potential exposure to Pillar Two income taxes based on the most recent tax filings, country-by-country report and financial statements for the constituent entities of Federated Hermes.

Based on the assessment, for fiscal year 2024 Federated Hermes expects to be able to rely on the transitional safe harbor for each of the jurisdictions in which it operates.

Based on the assessment, for fiscal years 2025 and 2024 Federated Hermes expects to be able to rely on the transitional safe harbor for each of the jurisdictions in which it operates.

As a result, Federated Hermes does not expect a material exposure to Pillar Two income taxes in those jurisdictions.

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Net Income Attributable to Federated Hermes, Inc.

Net income decreased $30.7 million in 2024 as compared to 2023 primarily as a result of the changes in revenue, operating expenses, nonoperating income (expenses) and income taxes noted above.

Diluted earnings per share for 2024 decreased $0.17 as compared to 2023 primarily due to decreased net income ($0.35), partially offset by a decrease in shares outstanding resulting from share repurchases ($0.18).

Net income increased $135.0 million in 2025 as compared to 2024 primarily as a result of the changes in revenue, operating expenses, nonoperating income (expenses) and income taxes noted above.

Diluted earnings per share for 2025 increased $1.90 as compared to 2024 primarily due to increased net income ($1.63) and, to a lesser extent, by a decrease in shares outstanding resulting from share repurchases ($0.27).

Liquidity and Capital Resources

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The change in liquid assets is discussed below.

At December 31, 2024, Federated Hermes’ liquid assets included investments in certain money market and fluctuating-value Federated Hermes Funds that can have direct and/or indirect exposures to international sovereign debt and currency risks.

At December 31, 2025, Federated Hermes’ liquid assets included investments in certain money market and fluctuating-value Federated Hermes Funds that may have direct and/or indirect exposures to international sovereign debt and currency risks.

Federated Hermes continues to actively monitor its investment portfolios to manage sovereign debt and currency risks with respect to certain European countries, China and certain other countries subject to economic sanctions.

Federated Hermes’ experienced portfolio managers and analysts work to evaluate credit risk through quantitative and fundamental analysis.

Further, regarding international exposure, certain money market funds (representing approximately $468 million in AUM) that meet the requirements of Rule 2a-7 or operate in accordance with requirements similar to those in Rule 2a-7, include holdings with indirect short-term exposures invested primarily in high-quality international bank names that are subject to Federated Hermes’ credit analysis process.

Further, regarding international exposure, certain money market funds (representing approximately $558 million in AUM) that meet the requirements of Rule 2a-7 under the 1940 Act (Rule 2a-7) or operate in accordance with requirements similar to those in Rule 2a-7, include holdings with indirect short-term exposures invested primarily in high-quality international bank names that are subject to Federated Hermes’ credit analysis process.

Cash Provided by Operating Activities.

Net cash provided by operating activities totaled $297.3 million for 2025 as compared to $346.6 million for 2024.

The increase of $34.8 million was primarily due to (1) an increase in cash received related to the $22.5 million increase in revenue previously discussed, (2) a $17.9 million payment made in 2023 representing a settlement with affected shareholders related to an administrative error (see Note (20) to the Consolidated Financial Statements for additional information) and (3) a net decrease of $5.8 million in cash paid for trading securities for 2024 as compared to 2023.

These increases were partially offset by an increase of cash paid for taxes of $17.2 million.

The decrease of $49.3 million was primarily due to (1) a net increase of $117.5 million in cash paid for trading securities for 2025 as compared to 2024, (2) an increase in cash paid related to the $52.1 million increase in Distribution expense previously discussed and (3) an increase of $17.7 million in cash paid for incentive compensation for 2025 as compared to 2024.

These increases in cash paid were partially offset by an increase in cash received related to the $168.6 million increase in revenue previously discussed.

Cash Provided by Investing Activities.

In 2024, net cash provided by investing activities was $64.3 million which primarily represented $119.9 million in cash received from redemptions of Investments—Affiliates and Other, partially offset by $47.5 million paid for purchases of Investments—Affiliates and Other.

In 2025, net cash provided by investing activities was $2.0 million which primarily represented $42.2 million in cash received from redemptions of Investments—Affiliates and Other, partially offset by (1) $18.7 million paid for purchases of Investments—Affiliates and Other, (2) cash paid for the Rivington acquisition, net of cash acquired ($12.8 million) and (3) cash deposits made on a fixed asset to be acquired in 2026 ($6.0 million).

Cash Used by Financing Activities.

In 2025, net cash used by financing activities was $237.9 million.

Of this amount, Federated Hermes paid (1) $184.8 million or $2.21 per share in dividends to holders of its common shares, (2) $137.6 million to repurchase shares of Class B common stock primarily in connection with its stock repurchase programs (see Note (14) to the Consolidated Financial Statements for additional information) and (3) $31.3 million of distributions to noncontrolling interests in subsidiaries.

Of this amount, Federated Hermes paid (1) $262.8 million to repurchase shares of Class B common stock primarily in connection with its stock repurchase programs (see Note (14) to the Consolidated Financial Statements for additional information), (2) $104.9 million or $1.33 per share in dividends to holders of its common shares and (3) $35.4 million of distributions to noncontrolling interests in subsidiaries.

This activity was partially offset by $163.9 million of contributions from noncontrolling interests in subsidiaries.

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Borrowings under the Credit Agreement may be used for general corporate purposes including cash payments related to acquisitions, dividends, investments and share repurchases.

As of December 31, 2024, Federated Hermes has $350 million available to borrow under the Credit Agreement.

As of December 31, 2025, Federated Hermes had $350 million available to borrow under the Credit Agreement.

See Note (11) to the Consolidated Financial Statements for additional information.

Both the Note Purchase Agreement and Credit Agreement include an interest coverage ratio covenant (consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest expense) and a leverage ratio covenant (consolidated debt to consolidated EBITDA) as well as other customary terms and conditions.

Federated Hermes was in compliance with all of its covenants, including its interest coverage and leverage ratios at and during the year ended December 31, 2024.

Federated Hermes was in

compliance with all of its covenants, including its interest coverage and leverage ratios at and during the year ended December 31, 2025.

An interest coverage ratio of at least 4 to 1 is required and, as of December 31, 2025, Federated Hermes’ interest coverage ratio was 48 to 1.

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Future Cash Needs.

In addition to the contractual obligations described above, management expects that principal uses of cash will include funding business acquisitions and global expansion, funding distribution expenditures, paying incentive and base compensation, paying shareholder dividends, paying debt obligations, paying taxes, repurchasing company stock, developing and seeding new offerings, modifying existing offerings and relationships and maintaining regulatory liquidity and capital requirements.

In addition to the contractual obligations described above, management expects that principal uses of cash will include funding business acquisitions (including the FCP acquisition disclosed in Note (3)) and global expansion, funding distribution expenditures, paying incentive and base compensation, paying shareholder dividends, paying debt obligations, paying taxes, repurchasing company stock, developing and seeding new offerings, modifying existing offerings and relationships and maintaining regulatory liquidity and capital requirements.

In addition, Federated Hermes expects to invest approximately $300 million (including the allocation of approximately $200 million in existing technology-related overhead, primarily the compensation expense of existing employees and an external spend of approximately $100 million) over the next three years to support a number of planned technology-driven initiatives.

Any number of factors can cause Federated Hermes’ future cash needs to increase.

As a result of the highly regulated nature of the investment management business, management anticipates that aggregate expenditures for compliance and investment management personnel, compliance systems and technology and related professional and consulting fees could continue to increase.

Any number of factors may cause Federated Hermes’ future cash needs to increase.

On January 29, 2026, the board of directors declared a $0.34 per share dividend.

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The following discussion summarizes significant changes in assets and liabilities that are not discussed elsewhere in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Investments—Consolidated Investment Companies at December 31, 2024 increased $11.9 million from December 31, 2023 primarily due to an increase of $55.5 million related to the consolidation of two variable interest entities (VIEs) in 2024.

This increase was partially offset by a decrease of $40.2 million related to the deconsolidation of two voting rights entities (VREs) in 2024.

Investments—Affiliates and Other at December 31, 2024 decreased $52.8 million from December 31, 2023 primarily due to a decrease of $72.5 million in net redemptions, partially offset by an increase of $16.9 million related to the deconsolidation of a VRE which reclassified Federated Hermes' investments into Investments—Affiliates and Other.

Receivables—Affiliates at December 31, 2024 decreased $12.4 million from December 31, 2023 primarily due to a decrease in investment advisory and administrative service fees ($5.3 million) and the 2024 receipt of carried interest earned in 2023 ($4.4 million).

Accounts Payable and Accrued Expenses at December 31, 2024 increased $11.7 million from December 31, 2023 primarily due to an accrual for proxy costs related to a change in fund directors ($6.2 million) and an increase in accrued distribution fees due primarily to higher average managed money market fund assets ($4.8 million).

Accrued Compensation and Benefits at December 31, 2024 decreased $1.3 million from December 31, 2023 primarily due to the 2023 accrued annual incentive compensation being paid in the first quarter 2024 ($129.4 million), partially offset by 2024 incentive compensation accruals recorded at December 31, 2024 ($127.4 million).

Investments—Consolidated Investment Companies at December 31, 2025 increased $3.1 million from December 31, 2024 primarily due to (1) an increase of $22.4 million related to the consolidation of two variable interest entities (VIEs) in 2025, (2) an increase of $13.8 million related to net purchases on existing consolidated products and (3) an increase of $4.9 million due to foreign exchange rate fluctuations.

These increases were partially offset by a decrease of $38.2 million related to the deconsolidation of two VIEs in 2025.

Investments—Affiliates and Other at December 31, 2025 increased $2.1 million from December 31, 2024 primarily due to an increase of $11.6 million related to the deconsolidation of two VIEs which reclassified Federated Hermes' investments into Investments—Affiliates and Other and an increase of $9.6 million in net appreciation on existing investments.

These increases were partially offset by a decrease of $20.3 million in net redemptions.

Receivables, net at December 31, 2025 decreased $22.4 million from December 31, 2024 primarily due to (1) the reclassification of the $15.9 million insurance reimbursement receivable (see Note (20) to the Consolidated Financial Statements for additional information) from short-term to long-term due to delays in the litigation and (2) the 2025 receipt of performance fees accrued at December 31, 2024 ($6.8 million).

Other Long-Term Assets at December 31, 2025 increased $20.9 million from December 31, 2024 primarily due to the reclassification of the $15.9 million insurance reimbursement receivable noted above (see Note (20) to the Consolidated Financial Statements for additional information) from short-term to long-term due to delays in the litigation.

Accrued Compensation and Benefits at December 31, 2025 increased $19.3 million from December 31, 2024 primarily due to the 2025 incentive compensation accruals recorded at December 31, 2025 ($151.4 million), partially offset by 2024 accrued annual incentive compensation being paid in the first quarter 2025 ($133.0 million).

Variable Interest Entities

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

Indefinite-lived intangible assets are reviewed for impairment at the accounting unit level annually as of October 1, or when indicators of a potential impairment exist.

Indefinite-lived intangible assets are reviewed for impairment at the accounting unit level annually as of December 31, or when indicators of a potential impairment exist.

Federated Hermes has combined certain indefinite-lived assets into three distinct units of accounting for impairment testing purposes.

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For the quantitative analyses, m anagement used an income-based approach to valuation, the discounted cash flow method.

Management considers macroeconomic and entity-specific factors, including

projected AUM, projected revenue growth rates, projected pre-tax profit margins, tax rates, discount rates and, in the case of a trade name valuation, a royalty rate.

Management considers macroeconomic and entity-specific factors, including projected AUM, projected revenue growth rates, projected pre-tax profit margins, tax rates, discount rates and, in the case of a trade name valuation, a royalty rate.

In addition, management reconsiders on a quarterly basis whether events or circumstances indicate that a change in the useful life has occurred.

Indicators of a possible change in useful life monitored by management generally include changes in the expected use of the asset, a significant decline in the level of managed assets, changes to legal, regulatory or contractual provisions of the rights to manage fund assets, the effects of obsolescence, demand, competition and other economic factors that could impact the funds’ projected performance and existence, and significant reductions in underlying operating cash flows.

As of June 30, 2024, due to actual results trailing projected results, driven by a combination of lower gross sales and higher redemptions management concluded that an indicator of potential impairment existed for the FHL right to manage public fund assets.

The discounted cash flow analysis resulted in a non-cash impairment charge of £52.2 million ($66.3 million).

As of December 31, 2024, due to a decrease in near term projected cash flows, primarily driven by a decrease in AUM as a result of net redemptions, management concluded that an indicator of potential impairment existed for the indefinite-lived intangible asset related to the FHL right to manage public fund assets, which had a carrying value of £72.2 million ($90.4 million).

A discounted cash flow analysis was prepared which resulted in the estimated fair value exceeding the carrying value by more than 15%.

As of December 31, 2025, due to a decrease in projected cash flows, primarily driven by a decrease in projected revenue, management concluded that an indicator of potential impairment existed for the indefinite-lived intangible asset related to the FHL right to manage public fund assets, which had a carrying value of £72.2 million ($97.3 million).

A discounted cash flow analysis was prepared which resulted in the estimated fair value exceeding the carrying value by less than 5%.

The key assumptions in the discounted cash flow analysis include revenue growth rates, pre-tax profit margins and the discount rate applied to the projected cash flows.

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An increase or decrease in the discount rate of 25 basis points would result in an inverse change to estimated fair value of approximately 3%.

Market volatility and other events related to geopolitical or other unexpected events could further reduce the AUM, revenues and earnings associated with this intangible asset and can result in subsequent impairment tests being performed based upon updated assumptions and future cash flow projections, which can result in an impairment.

For additional information on risks related to geopolitical or other unexpected events, see Item 1A – Risk Factors – Specific Risk Factors – Risks Related to Federated Hermes’ Investment Management Business and Offerings – Potential Adverse Effects of Termination or Failure to Renew Advisory Agreements.

Market volatility and other events related to geopolitical or other unexpected events in the future can further reduce the AUM, revenues and earnings associated with Federated Hermes’ indefinite-lived intangible assets and can result in subsequent impairment tests being based upon updated assumptions and future cash flow projections, which can result in an impairment.

For additional information on risks related to geopolitical or other unexpected events, see Item 1A – Risk Factors – General Risk Factors – Other General Risks – Potential Adverse Effects of Unpredictable Events or Consequences.

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What changed 10-K

Item 7. Management’s Discussion and Analysis