FEDERATED HERMES, INC. (FHI) FY 2024 MD&A

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

General

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

Investment advisory fees, administrative service fees and certain fees for other services, such as distribution and shareholder service fees, are contract-based and are generally calculated as a percentage of the average net assets of managed investment portfolios. 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 Generally, managed assets in Federated Hermes’ public market investment offerings can be redeemed or withdrawn at any time with no advance notice requirement, while managed assets in Federated Hermes’ private market investment offerings are subject to restrictions to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. Fee rates for Federated Hermes’ services generally vary by asset and service type and can vary based on changes in asset levels. Generally, advisory fees charged for services provided to multi-asset and equity offerings are higher than advisory fees charged to alternative/private markets and fixed-income offerings, which in turn are higher than advisory fees charged to money market offerings. Likewise, Federated Hermes Funds typically have higher advisory fees than Separate Accounts. 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. 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’ most significant operating expenses are Compensation and Related expense and Distribution expense. Compensation and Related expense includes base salary and wages, incentive compensation and other employee expenses including payroll taxes and benefits. 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. Federated Hermes operates in one operating segment, the investment management business. Management analyzes all expected revenue and expenses and considers market demands in determining an overall fee structure for services provided and in evaluating the addition of new business. Federated Hermes’ growth and profitability are dependent upon its ability to attract and retain AUM and upon the profitability of those assets, which is impacted, in part, by Fee Waivers. Fees for mutual fund-related services are ultimately subject to the approval of the independent directors or trustees of the mutual funds and, as required by law, fund shareholders. Management believes that meaningful indicators of Federated Hermes’ financial performance include AUM, gross and net offering sales, total revenue and net income, both in total and per diluted share.

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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.

Current Regulatory Environment

With Federated Hermes’ global operations, Federated Hermes, and certain of its subsidiaries and offerings (such as the Federated Hermes Funds), are registered with or licensed by, and subject to examination by, various U.S. 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.

Federated Hermes’ business and offerings are subject to various U.S. and/or non-U.S. laws, regulations, rules, codes, notices, directives, guidelines, listing standards, judicial decisions, orders, circulars and/or conditions. See Item 1 – Business – Regulatory Matters and Item 1A – Risk Factors – General Risk Factors – Regulatory and Legal Risks – Potential Adverse Effects of Changes in Laws, Regulations and Other Regulatory Requirements for additional information.

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Asset Highlights

Managed Assets at Period End

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Average Managed Assets

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Changes in Equity Fund and Separate Account Assets

1    Reflects the impact of translating non-USD denominated AUM into USD for reporting purposes.

2    Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

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

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Changes in Fixed-Income Fund and Separate Account Assets

1    Reflects the impact of translating non-USD denominated AUM into USD for reporting purposes.

2    Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

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

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Changes in Alternative / Private Markets Fund and Separate Account Assets

1    Reflects the impact of translating non-USD denominated AUM into USD for reporting purposes.

2    Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

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

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Changes in Multi-Asset Fund and Separate Account Assets

1    Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

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.

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Changes in Total Long-Term Assets

1    Reflects the impact of translating non-USD denominated AUM into USD for reporting purposes.

2    Reflects the approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions and net investment income.

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

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Changes in Federated Hermes’ average asset mix year-over-year across both asset classes and offering types have a direct impact on Federated Hermes’ operating income. 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:

Total managed assets represent the total AUM at a point in time, while total average managed assets represent the average balance of AUM during a period of time. Because substantially all revenue and certain components of distribution expense are generally calculated daily based on AUM, changes in average managed assets are typically a key indicator of changes in revenue earned and asset-based expenses incurred during the same period.

Average managed assets increased 12% for 2024 as compared to 2023. Period-end managed assets increased 9% at December 31, 2024 as compared to December 31, 2023, primarily from an increase in money market assets. Total average money market assets increased 15% for 2024 compared to 2023. Period-end money market assets increased 13% at December 31, 2024 as compared to December 31, 2023. 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. 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 fixed-income assets increased 9% for 2024 as compared to 2023. 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. Average alternative/private markets assets decreased 4% for 2024 as compared to 2023. Period-end alternative/private markets assets decreased 8% at December 31, 2024 as compared to December 31, 2023 primarily due to net redemptions.

For an explanation of the changes in managed assets at December 31, 2023 compared to December 31, 2022 and changes in average managed assets for 2023 as compared to 2022, see Federated Hermes’ Annual Report on Form 10-K for the year ended

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December 31, 2023, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset Highlights.

Results of Operations

For an explanation of changes for 2023 as compared to 2022, see Federated Hermes’ Annual Report on Form 10-K for the year ended December 31, 2023, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations.

Revenue. 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.

Federated Hermes’ ratio of revenue to average managed assets was 0.20% and 0.23% for 2024 and 2023, 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.

Operating Expenses. Total operating expenses for 2024 increased $48.6 million compared to 2023. 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.

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.

Income Taxes. The income tax provision for 2024 and 2023 was $113.2 million and $106.6 million, respectively. The provision for 2024 increased $6.6 million as compared to 2023 primarily due to an increase in U.S. income tax resulting from increased U.S. income. The effective tax rate was 29.7% for 2024 and 25.9% for 2023. 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%). 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. 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. As a result, Federated Hermes does not expect a material exposure to Pillar Two income taxes in those jurisdictions. This assessment will continue to be monitored and updated as additional guidance and/or legislation is released.

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).

Liquidity and Capital Resources

Liquid Assets. At December 31, 2024, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled $694.1 million as compared to $656.4 million at December 31, 2023. The change in liquid assets is discussed below.

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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. 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.

Cash Provided by Operating Activities. Net cash provided by operating activities totaled $346.6 million for 2024 as compared to $311.8 million for 2023. 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.

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.

Cash Used by Financing Activities. In 2024, net cash used by financing activities was $286.4 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. This activity was partially offset by $69.1 million of contributions from noncontrolling interests in subsidiaries.

Borrowings. On March 17, 2022, Federated Hermes entered into a Note Purchase Agreement (Note Purchase Agreement) by and among Federated Hermes and the purchasers of certain unsecured senior notes in the aggregate amount of $350 million ($350 million Notes), at a fixed interest rate of 3.29% per annum, payable semiannually in arrears in March and September in each year of the agreement. The entire principal amount of the $350 million Notes will become due March 17, 2032. Citigroup Global Markets Inc. and PNC Capital Markets LLC acted as lead placement agents in relation to the $350 million Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note Purchase Agreement. As of December 31, 2024, the outstanding balance of the $350 million Notes was $348.1 million, net of unamortized issuance costs in the amount of $1.9 million, and was recorded in Long-Term Debt on the Consolidated Balance Sheets. The proceeds were or will be used to supplement cash flow from operations, to fund share repurchases and potential acquisitions, to pay down outstanding debt and for other general corporate purposes. See Note (11) to the Consolidated Financial Statements for additional information on the Note Purchase Agreement.

On July 30, 2021, Federated Hermes entered into an unsecured Fourth Amended and Restated Credit Agreement by and among Federated Hermes, certain of its subsidiaries as guarantors party thereto, a syndicate of eleven banks as Lenders party thereto, PNC Bank, National Association as administrative agent, PNC Capital Markets LLC, as sole bookrunner and joint lead arranger, Citigroup Global Markets, Inc., as joint lead arranger, Citibank, N.A. as syndication agent, and Toronto-Dominion Bank, New York Branch as documentation agent (Credit Agreement). The Credit Agreement consists of a $350 million revolving credit facility with an additional $200 million available via an optional increase (or accordion) feature. 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. 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. An interest coverage ratio of at least 4 to 1 is required and, as of December 31, 2024, Federated Hermes’ interest coverage ratio was 42 to 1. A leverage ratio of no more than 3 to 1 is required and, as of December 31, 2024, Federated Hermes’ leverage ratio was 0.68 to 1.

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Both the Note Purchase Agreement and the Credit Agreement have certain stated events of default and cross default provisions which would permit the lenders/counterparties to accelerate the repayment of debt outstanding if not cured within the applicable grace periods. The events of default generally include breaches of contract, failure to make required loan payments, insolvency, cessation of business, notice of lien or assessment, and other proceedings, whether voluntary or involuntary, that would require the repayment of amounts borrowed.

Dividends. Cash dividends of $184.8 million, $98.1 million and $97.9 million were paid in 2024, 2023 and 2022, respectively, to holders of Federated Hermes common stock. Of the amount paid in 2024, $84.2 million represented a $1.00 per share special dividend. All dividends were considered ordinary dividends for tax purposes.

Contractual Obligations. As of December 31, 2024, Federated Hermes has material future cash requirements from contractual and other obligations relating primarily to long-term debt and operating lease obligations. Further discussion of the nature of each obligation is included below.

Long-Term Debt Obligations. The entire principal amount of the $350 million Notes will become due March 17, 2032. The interest rate is fixed at 3.29% per annum, payable semiannually. See Note (11) to the Consolidated Financial Statements for additional information.

Operating Lease Obligations. See Note (17) to the Consolidated Financial Statements for information on Federated Hermes’ operating lease obligations.

Purchase Obligations. Federated Hermes is a party to various contracts pursuant to which it receives certain services, including services for marketing and information technology, access to various fund-related information systems and research databases, trade order transmission and recovery services, planned capital expenditures as well as other services. These contracts contain certain minimum noncancelable payments, cancellation provisions and renewal terms. Costs for such services are expensed as incurred or capitalized in accordance with the applicable accounting guidance. As of December 31, 2024, Federated Hermes had purchase obligations of approximately $63 million payable within 12 months and an additional $71 million payable thereafter.

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, Federated Hermes expects to invest approximately $280 million (including the allocation of approximately $190 million in existing technology-related overhead, primarily the compensation expense of existing employees and an external spend of approximately $90 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.

On January 30, 2025, the board of directors declared a $0.31 per share dividend. The dividend was payable to shareholders of record as of February 7, 2025, resulting in $25.3 million being paid on February 14, 2025.

After evaluating Federated Hermes’ existing liquid assets, expected continuing cash flow from operations, its borrowing capacity under the Credit Agreement and its ability to obtain additional financing arrangements and issue debt or stock, management believes it will have sufficient liquidity to meet both its short-term and reasonably foreseeable long-term cash needs.

Financial Position

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.

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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).

Variable Interest Entities

Federated Hermes is involved with various entities in the normal course of business that could be deemed to be VIEs. Federated Hermes determined that it was the primary beneficiary of certain Federated Hermes Fund VIEs and, as a result, consolidated the assets, liabilities and operations of these VIEs in its Consolidated Financial Statements. See Note (5) to the Consolidated Financial Statements for more information.

Recent Accounting Pronouncements

For a complete list of new accounting standards applicable to Federated Hermes, see Note (2) to the Consolidated Financial Statements.

Critical Accounting Policies

Federated Hermes’ Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Management continually evaluates the accounting policies and estimates it uses to prepare the Consolidated Financial Statements. In general, management’s estimates are based on historical experience, information from third-party professionals and various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results can differ from those estimates made by management and those differences can be material.

Of the significant accounting policies described in Note (1) to the Consolidated Financial Statements, management believes that indefinite-lived intangible assets included in its Goodwill and Intangible Assets policy involves a higher degree of judgment and complexity.

The process of determining the fair value of identifiable indefinite-lived intangible assets at the date of acquisition requires significant management estimates and judgment. If subsequent changes in these assumptions differ significantly from those used in the initial valuation, the indefinite-lived intangible asset amounts recorded in the financial statements could be subject to impairment. 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. Federated Hermes has combined certain indefinite-lived assets into three distinct units of accounting for impairment testing purposes. The factors considered in determining the asset grouping include, among others, the highest and best use of the assets and the inseparable nature of the cash flows. Such asset grouping determination is reconsidered annually and may change depending on the facts and circumstances. Federated Hermes’ current indefinite-lived intangible assets’ units of accounting are: (1) FHL right to manage public fund assets; (2) Hermes trade name; and (3) all other rights to manage fund assets. Management may use a qualitative or quantitative approach which requires the weighting of positive and negative evidence collected through the consideration of various factors to determine whether it is more likely than not that an indefinite-lived intangible asset or asset group is impaired. During the year ended December 31, 2024, management used both qualitative and quantitative approaches. For the quantitative analyses, management used an income-based approach to valuation, the discounted cash flow method. Management considers macroeconomic and entity-specific factors, including

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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%. 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. The risk of future impairment increases with a decrease in projected cash flows and/or an increase in the discount rate.

As of December 31, 2024, assuming all other assumptions remain static, an increase or decrease of 10% in projected revenue growth rates would result in a corresponding change to estimated fair value of approximately 10%. An increase or decrease of 10% in pre-tax profit margins would result in a corresponding change to estimated fair value of approximately 17%. 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.