UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________________________

FORM 10-Q

_______________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14818

_______________________________________________________________________________________

Federated Hermes, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________________________________________


Pennsylvania						25-1111467
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1001 Liberty Avenue

15222-3779

Pittsburgh,

Pennsylvania

(Address of principal executive offices)

(Zip Code)

(Registrant's telephone number, including area code) 412-288-1900

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B common stock, no par value	FHI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date: As of October ~~23, 2020,~~22, 2021, the Registrant had outstanding 9,000 shares of Class A Common Stock and ~~99,358,943~~96,843,698 shares of Class B Common Stock.

Table of Contents



Table of Contents

FORWARD-LOOKING STATEMENTS

~~Special Note Regarding Forward-Looking Information~~

Certain statements in this report on Form 10-Q constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that ~~may~~could cause the actual results, levels of activity, performance or achievements of Federated Hermes, Inc. and its consolidated subsidiaries ~~(Federated~~(collectively, Federated Hermes), or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "believe," "expect," "anticipate," "current," "intention," "estimate," "position," "projection," "assume," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," ~~"may"~~"can," "may," and similar expressions.Among other forward-looking statements, such statements include ~~those~~certain statements relating to, or, as applicable, statements concerning management's assessments, beliefs, expectations, assumptions, judgments, projections or estimates regarding: the coronavirus ~~its~~and pandemic, their impact and status, and plans in response; asset flows, levels, values and mix or their impact; business mix; the level, timing, degree and impact of changes in interest rates or gross or net yields; fee rates and recognition; sources and levels of revenues, expenses, gains, losses, income and earnings; the level and impact of reimbursements, rebates or assumptions of fund-related expenses (Consideration Payable to Customers) and fee waivers for competitive reasons such as to maintain ~~certain fund expense ratios, 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); whether, ~~and~~ under what circumstances and the degree to which Fee Waivers ~~may~~will be implemented; whether and when revenue ~~or expense~~ is recognized; whether performance fees or carried interest will be earned or ~~repaid;~~repaid or clawed-back; whether and when capital contributions ~~may~~could be made; the components and level of, and prospect for, distribution-related expenses; guarantee and indemnification obligations; the timing and nature of ~~and direct or~~payment obligations; acquisition-related matters, including future contingent ~~payment obligations, costs, preliminary valuations, valuation adjustments, and purchase price allocations relating to acquisitions; any cost savings resulting from acquisitions;~~consideration payments; payment obligations pursuant to ~~employment or~~ incentive compensation arrangements; ~~vesting rights and requirements;~~ business and market expansion opportunities, including, anticipated, or acceleration of, global growth; interest and principal payments, ~~or expenses;~~expenses and repayment obligations; taxes and the impact of tax ~~rates;~~law changes; borrowing, debt, future cash needs and principal uses of cash, cash flows and liquidity; the ability to raise additional capital; type, classification and consolidation of investments; uses of treasury stock; Federated ~~Hermes,~~Hermes' product and market performance and Federated Hermes' performance indicators; investor preferences; market conditions, product and strategy demand, distribution, development and restructuring initiatives and related planning and timing; the effect, and degree of impact, of changes in customer relationships; legal proceedings; the pace, timing, impact, effects and other consequences of ~~Brexit, as well as potential, proposed and final laws, regulations and other rules,~~the current regulatory environment, regulatory developments and continuing regulatory oversight by United States (U.S.) and foreign regulators and other authorities; the attractiveness and resiliency of money market funds; dedication of resources; the adoption and impact of accounting policies, new accounting pronouncements and accounting treatment determinations; compliance, and related legal, compliance and other professional services expenses; level and impact of changes in currency exchange rates; interest rate, concentration, market, currency and other risks; ~~the impact of the special dividend on earnings per share and projected liquid assets;~~ and various other items set forth under Item 1A - Risk Factors ~~included~~ in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019 and Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ending September 30,~~ 2020.Among other risks and uncertainties, market conditions ~~may~~can change

significantly ~~resulting in changes to~~and impact Federated Hermes' business and results, including by changing Federated Hermes' asset flows, ~~asset~~ levels, and ~~asset~~mix, and business mix, which ~~may~~could cause a decline in revenues and net income, result in impairments and increase the amount of Fee Waivers incurred by Federated Hermes. The obligation to make ~~contingent payments is based on net revenue levels and will be affected by the achievement of such levels. The obligation to make~~ purchase price payments in connection with acquisitions is subject to certain adjustments and conditions, and the obligation to make contingent payments is based on net revenue levels and will be affected by the achievement of such levels.The obligation to make additional payments pursuant to ~~employment or~~ incentive compensation arrangements iscan be based on satisfaction of certain conditions set forth in those arrangements. Future cash needs, cash flows and ~~future~~ uses of cash will be impacted by a variety of factors, including the number and size of any acquisitions, Federated Hermes' success in developing, structuring and distributing its products and strategies, potential changes in assets under management (AUM) and/or changes in the terms of distribution and shareholder services contracts with intermediaries who offer Federated Hermes' products to customers, and potential increased legal, compliance and other professional services expenses stemming from additional or modified regulation or the dedication of such resources to other initiatives. Federated Hermes' risks and uncertainties also include liquidity and credit risks in Federated Hermes' money market funds and revenue risk, which will be affected by yield levels in money market fund products, changes in fair values of ~~assets under management,~~AUM, any additional regulatory reforms, investor preferences and confidence, Fee Waivers, and the ability of Federated Hermes to collect fees in connection with the management of such products. Many of these factors ~~may~~could be more likely to occur as a result of continued scrutiny of the mutual fund industry by domestic or foreign regulators, and any disruption in global financial markets. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither Federated Hermes nor any other person assumes responsibility for the accuracy and completeness, or updating, of such statements in the future. For more information on these items and additional risks that ~~may~~could impact the forward-looking statements, see Item 1A - Risk Factors included in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019 and Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ending September 30,~~ 2020.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements


Consolidated Balance Sheets	Consolidated Balance Sheets					Consolidated Balance Sheets
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
(unaudited)	(unaudited)					(unaudited)
		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$	322,847	$	249,174	Cash and Cash Equivalents	$	201,692	$	301,819
Investments—Consolidated Investment Companies	Investments—Consolidated Investment Companies	71,103		64,526		Investments—Consolidated Investment Companies	54,075		91,359
Investments—Affiliates and Other	Investments—Affiliates and Other	43,209		26,935		Investments—Affiliates and Other	89,318		45,593
Receivables, net of reserve of $14 and $14, respectively		71,976		64,492
Receivables, net of reserve of $16 and $16, respectively						Receivables, net of reserve of $16 and $16, respectively	67,374		64,857
Receivables—Affiliates	Receivables—Affiliates	34,719		37,589		Receivables—Affiliates	31,381		41,107
Prepaid Expenses	Prepaid Expenses	17,721		16,748		Prepaid Expenses	27,445		22,130
Other Current Assets	Other Current Assets	7,839		1,820		Other Current Assets	6,757		8,478
Total Current Assets	Total Current Assets	569,414		461,284		Total Current Assets	478,042		575,343
Long-Term Assets	Long-Term Assets					Long-Term Assets
Goodwill	Goodwill	792,361		774,534		Goodwill	798,258		800,267

Intangible Assets, net of accumulated amortization of $21,663 and $12,856, respectively		465,192		446,228
Property and Equipment, net of accumulated depreciation of $101,752 and $94,766, respectively		51,097		51,725
Intangible Assets, net of accumulated amortization of $36,076 and $26,372, respectively						Intangible Assets, net of accumulated amortization of $36,076 and $26,372, respectively	472,920		481,753
Property and Equipment, net of accumulated depreciation of $110,322 and $106,317, respectively						Property and Equipment, net of accumulated depreciation of $110,322 and $106,317, respectively	49,421		52,610
Right-of-Use Assets, net	Right-of-Use Assets, net	101,674		100,514		Right-of-Use Assets, net	111,718		122,078
Other Long-Term Assets	Other Long-Term Assets	23,988		45,846		Other Long-Term Assets	36,050		28,788
Total Long-Term Assets	Total Long-Term Assets	1,434,312		1,418,847		Total Long-Term Assets	1,468,367		1,485,496
Total Assets	Total Assets	$	2,003,726	$	1,880,131	Total Assets	$	1,946,409	$	2,060,839
LIABILITIES	LIABILITIES					LIABILITIES
Current Liabilities	Current Liabilities					Current Liabilities
Accounts Payable and Accrued Expenses	Accounts Payable and Accrued Expenses	$	79,530	$	69,014	Accounts Payable and Accrued Expenses	$	62,648	$	61,736
Accrued Compensation and Benefits	Accrued Compensation and Benefits	119,879		137,445		Accrued Compensation and Benefits	133,123		170,646
Lease Liabilities	Lease Liabilities	14,913		13,575		Lease Liabilities	17,181		15,845

Other Current Liabilities	Other Current Liabilities	20,057		10,679		Other Current Liabilities	21,760		17,219
Total Current Liabilities	Total Current Liabilities	234,379		230,713		Total Current Liabilities	234,712		265,446
Long-Term Liabilities	Long-Term Liabilities					Long-Term Liabilities
Long-Term Debt	Long-Term Debt	90,000		100,000		Long-Term Debt	102,150		75,000
Long-Term Deferred Tax Liability, net	Long-Term Deferred Tax Liability, net	179,689		165,382		Long-Term Deferred Tax Liability, net	205,317		187,937
Long-Term Lease Liabilities	Long-Term Lease Liabilities	106,689		107,543		Long-Term Lease Liabilities	109,290		121,922
Other Long-Term Liabilities	Other Long-Term Liabilities	27,092		23,127		Other Long-Term Liabilities	34,617		36,550
Total Long-Term Liabilities	Total Long-Term Liabilities	403,470		396,052		Total Long-Term Liabilities	451,374		421,409
Total Liabilities	Total Liabilities	637,849		626,765		Total Liabilities	686,086		686,855
Commitments and Contingencies (Note (16))
Commitments and Contingencies (Note (15))						Commitments and Contingencies (Note (15))	0		0
TEMPORARY EQUITY	TEMPORARY EQUITY					TEMPORARY EQUITY
Redeemable Noncontrolling Interest in Subsidiaries	Redeemable Noncontrolling Interest in Subsidiaries	214,301		212,086		Redeemable Noncontrolling Interest in Subsidiaries	55,472		236,987
PERMANENT EQUITY	PERMANENT EQUITY					PERMANENT EQUITY
Federated Hermes, Inc. Shareholders' Equity	Federated Hermes, Inc. Shareholders' Equity					Federated Hermes, Inc. Shareholders' Equity
Common Stock:	Common Stock:					Common Stock:
Class A, NaN Par Value, 20,000 Shares Authorized, 9,000 Shares Issued and Outstanding		189		189
Class B, NaN Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued		412,225		392,021

Class A, No Par Value, 20,000 Shares Authorized, 9,000 Shares Issued and Outstanding						Class A, No Par Value, 20,000 Shares Authorized, 9,000 Shares Issued and Outstanding	189		189
Class B, No Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued						Class B, No Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued	441,924		418,669
Additional Paid-In Capital from Treasury Stock Transactions						Additional Paid-In Capital from Treasury Stock Transactions	30		0
Retained Earnings	Retained Earnings	1,066,842		930,351		Retained Earnings	1,153,539		1,027,699
Treasury Stock, at Cost, 10,070,813 and 8,375,077 Shares Class B Common Stock, respectively		(318,098)		(281,032)
Treasury Stock, at Cost, 12,531,058 and 10,174,013 Shares Class B Common Stock, respectively						Treasury Stock, at Cost, 12,531,058 and 10,174,013 Shares Class B Common Stock, respectively	(403,807)		(324,731)
Accumulated Other Comprehensive Income (Loss), net of tax	Accumulated Other Comprehensive Income (Loss), net of tax	(9,582)		(249)		Accumulated Other Comprehensive Income (Loss), net of tax	12,976		15,171

Total Permanent Equity	Total Permanent Equity	1,151,576		1,041,280		Total Permanent Equity	1,204,851		1,136,997
Total Liabilities, Temporary Equity and Permanent Equity	Total Liabilities, Temporary Equity and Permanent Equity	$	2,003,726	$	1,880,131	Total Liabilities, Temporary Equity and Permanent Equity	$	1,946,409	$	2,060,839

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Income	Consolidated Statements of Income									Consolidated Statements of Income
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)									(dollars in thousands, except per share data)
(unaudited)	(unaudited)									(unaudited)
		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenue	Revenue									Revenue
Investment Advisory Fees, net—Affiliates	Investment Advisory Fees, net—Affiliates	$	202,978	$	175,629	$	573,242	$	497,538	Investment Advisory Fees, net—Affiliates	$	163,806	$	202,978	$	496,747	$	573,242
Investment Advisory Fees, net—Other	Investment Advisory Fees, net—Other	57,111		56,477		172,633		166,436		Investment Advisory Fees, net—Other	66,404		57,111		195,441		172,633
Administrative Service Fees, net—Affiliates	Administrative Service Fees, net—Affiliates	83,028		64,216		238,960		176,319		Administrative Service Fees, net—Affiliates	76,853		83,028		228,904		238,960
Other Service Fees, net—Affiliates	Other Service Fees, net—Affiliates	17,952		41,124		87,765		119,639		Other Service Fees, net—Affiliates	15,377		17,952		46,439		87,765
Other Service Fees, net—Other	Other Service Fees, net—Other	3,386		2,894		11,750		8,937		Other Service Fees, net—Other	4,149		3,386		11,271		11,750
Total Revenue	Total Revenue	364,455		340,340		1,084,350		968,869		Total Revenue	326,589		364,455		978,802		1,084,350
Operating Expenses	Operating Expenses									Operating Expenses
Compensation and Related	Compensation and Related	126,186		112,247		365,104		330,712		Compensation and Related	131,996		126,186		408,385		365,104
Distribution	Distribution	73,726		88,082		258,925		247,713		Distribution	38,486		73,726		120,990		258,925
Systems and Communications	Systems and Communications	16,193		13,353		46,179		38,258		Systems and Communications	18,537		16,193		56,086		46,179
Professional Service Fees	Professional Service Fees	14,006		10,678		41,162		31,445		Professional Service Fees	14,294		14,006		44,052		41,162
Office and Occupancy	Office and Occupancy	10,578		10,855		32,539		33,283		Office and Occupancy	11,036		10,578		33,358		32,539
Advertising and Promotional	Advertising and Promotional	2,921		4,102		10,981		12,989		Advertising and Promotional	4,660		2,921		12,107		10,981
Travel and Related	Travel and Related	542		4,158		4,026		12,465		Travel and Related	1,643		542		2,838		4,026
Other	Other	6,922		7,558		22,058		16,868		Other	7,535		6,922		23,297		22,058
Total Operating Expenses	Total Operating Expenses	251,074		251,033		780,974		723,733		Total Operating Expenses	228,187		251,074		701,113		780,974
Operating Income	Operating Income	113,381		89,307		303,376		245,136		Operating Income	98,402		113,381		277,689		303,376
Nonoperating Income (Expenses)	Nonoperating Income (Expenses)									Nonoperating Income (Expenses)
Investment Income, net	Investment Income, net	770		1,030		3,171		3,009		Investment Income, net	686		770		2,466		3,171
Gain (Loss) on Securities, net	Gain (Loss) on Securities, net	5,852		(586)		3,840		1,670		Gain (Loss) on Securities, net	(644)		5,852		6,980		3,840
Debt Expense	Debt Expense	(494)		(1,239)		(2,211)		(3,971)		Debt Expense	(476)		(494)		(1,313)		(2,211)
Other, net	Other, net	103		8,264		8,426		7,756		Other, net	(1,319)		103		(1,158)		8,426
Total Nonoperating Income (Expenses), net	Total Nonoperating Income (Expenses), net	6,231		7,469		13,226		8,464		Total Nonoperating Income (Expenses), net	(1,753)		6,231		6,975		13,226
Income Before Income Taxes	Income Before Income Taxes	119,612		96,776		316,602		253,600		Income Before Income Taxes	96,649		119,612		284,664		316,602
Income Tax Provision	Income Tax Provision	32,928		23,191		81,852		61,564		Income Tax Provision	23,163		32,928		83,353		81,852
Net Income Including the Noncontrolling Interests in Subsidiaries	Net Income Including the Noncontrolling Interests in Subsidiaries	86,684		73,585		234,750		192,036		Net Income Including the Noncontrolling Interests in Subsidiaries	73,486		86,684		201,311		234,750
Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	862		623		3,554		1,804		Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	2,124		862		(419)		3,554
Net Income	Net Income	$	85,822	$	72,962	$	231,196	$	190,232	Net Income	$	71,362	$	85,822	$	201,730	$	231,196
Amounts Attributable to Federated Hermes, Inc.	Amounts Attributable to Federated Hermes, Inc.									Amounts Attributable to Federated Hermes, Inc.
Earnings Per Common Share—Basic	Earnings Per Common Share—Basic	$	0.86	$	0.72	$	2.30	$	1.88	Earnings Per Common Share—Basic	$	0.73	$	0.86	$	2.05	$	2.30
Earnings Per Common Share—Diluted	Earnings Per Common Share—Diluted	$	0.85	$	0.72	$	2.29	$	1.88	Earnings Per Common Share—Diluted	$	0.73	$	0.85	$	2.04	$	2.29
Cash Dividends Per Share	Cash Dividends Per Share	$	0.27	$	0.27	$	0.81	$	0.81	Cash Dividends Per Share	$	0.27	$	0.27	$	0.81	$	0.81

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Comprehensive Income	Consolidated Statements of Comprehensive Income									Consolidated Statements of Comprehensive Income
(dollars in thousands)	(dollars in thousands)									(dollars in thousands)
(unaudited)	(unaudited)									(unaudited)
		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net Income Including the Noncontrolling Interests in Subsidiaries	Net Income Including the Noncontrolling Interests in Subsidiaries	$	86,684	$	73,585	$	234,750	$	192,036	Net Income Including the Noncontrolling Interests in Subsidiaries	$	73,486	$	86,684	$	201,311	$	234,750

Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax									Other Comprehensive Income (Loss), net of tax
Permanent Equity	Permanent Equity									Permanent Equity

Foreign Currency Translation Gain (Loss)	Foreign Currency Translation Gain (Loss)	16,239		(11,795)		(9,333)		(13,670)		Foreign Currency Translation Gain (Loss)	(7,248)		16,239		(2,195)		(9,333)

Temporary Equity	Temporary Equity									Temporary Equity
Foreign Currency Translation Gain (Loss)	Foreign Currency Translation Gain (Loss)	7,316		(5,544)		(4,573)		(6,430)		Foreign Currency Translation Gain (Loss)	(9,953)		7,316		(7,655)		(4,573)
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	23,555		(17,339)		(13,906)		(20,100)		Other Comprehensive Income (Loss), net of tax	(17,201)		23,555		(9,850)		(13,906)
Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	110,239		56,246		220,844		171,936		Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	56,285		110,239		191,461		220,844
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interest in Subsidiaries	Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interest in Subsidiaries	8,178		(4,921)		(1,019)		(4,626)		Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interest in Subsidiaries	(7,829)		8,178		(8,074)		(1,019)

Comprehensive Income Attributable to Federated Hermes, Inc.	Comprehensive Income Attributable to Federated Hermes, Inc.	$	102,061	$	61,167	$	221,863	$	176,562	Comprehensive Income Attributable to Federated Hermes, Inc.	$	64,114	$	102,061	$	199,535	$	221,863

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

Consolidated Statements of Changes in Equity
(dollars in thousands)
(unaudited)
Federated Hermes, Inc. Shareholders' Equity
Common
Stock Retained
Earnings Treasury
Stock Accumulated
Other
Comprehensive Income (Loss), net of
tax Total
Permanent
Equity Redeemable
Noncontrolling
Interest in
Subsidiaries/
Temporary
Equity
Balance at December 31, 2019 $ 392,210 $ 930,351 $ (281,032) $ (249) $ 1,041,280 $ 212,086
Net Income (Loss) 0 64,178 0 0 64,178 (913)
Other Comprehensive Income (Loss), net of tax 0 0 0 (24,859) (24,859) (11,454)
Subscriptions—Redeemable Noncontrolling Interest Holders 0 0 0 0 0 5,577
Consolidation (Deconsolidation) 0 0 0 0 0 (4,019)
Stock Award Activity 7,467 (16,146) 16,146 0 7,467 2,153
Dividends Declared 0 (27,304) 0 0 (27,304) 0
Distributions to Noncontrolling Interest in Subsidiaries 0 0 0 0 0 (6,039)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 (1,870) 0 0 (1,870) 1,870
Purchase of Treasury Stock 0 0 (15,959) 0 (15,959) 0
Balance at March 31, 2020 $ 399,677 $ 949,209 $ (280,845) $ (25,108) $ 1,042,933 $ 199,261
Net Income (Loss) 0 81,196 0 0 81,196 3,605
Other Comprehensive Income (Loss), net of tax 0 0 0 (713) (713) (435)
Subscriptions—Redeemable Noncontrolling Interest Holders 0 0 0 0 0 6,225
Stock Award Activity 6,456 (678) 829 0 6,607 2,087
Dividends Declared 0 (27,243) 0 0 (27,243) 0
Distributions to Noncontrolling Interest in Subsidiaries 0 0 0 0 0 (4,058)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 2,013 0 0 2,013 (2,013)
Purchase of Treasury Stock 0 0 (18,126) 0 (18,126) 0
Balance at June 30, 2020 $ 406,133 $ 1,004,497 $ (298,142) $ (25,821) $ 1,086,667 $ 204,672
Net Income (Loss) 0 85,822 0 0 85,822 862
Other Comprehensive Income (Loss), net of tax 0 0 0 16,239 16,239 7,316
Subscriptions—Redeemable Noncontrolling Interest Holders 0 0 0 0 0 3,212
Stock Award Activity 6,281 0 67 0 6,348 2,164
Dividends Declared 0 (27,044) 0 0 (27,044) 0
Distributions to Noncontrolling Interest in Subsidiaries 0 0 0 0 0 (358)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests 0 3,567 0 0 3,567 (3,567)
Purchase of Treasury Stock 0 0 (20,023) 0 (20,023) 0
Balance at September 30, 2020 $ 412,414 $ 1,066,842 $ (318,098) $ (9,582) $ 1,151,576 $ 214,301


Consolidated Statements of Changes in Equity	Consolidated Statements of Changes in Equity											Consolidated Statements of Changes in Equity
(dollars in thousands)	(dollars in thousands)																(dollars in thousands)
(unaudited)	(unaudited)																(unaudited)
		Federated Hermes, Inc. Shareholders' Equity																Federated Hermes, Inc. Shareholders' Equity
		Common Stock		Additional Paid-in Capital from Treasury Stock Transactions		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss), net of tax			Total Permanent Equity		Redeemable Noncontrolling Interest in Subsidiaries/ Temporary Equity			Common Stock		Additional Paid-in Capital from Treasury Stock Transactions		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss), net of tax		Total Permanent Equity		Redeemable Noncontrolling Interest in Subsidiaries/ Temporary Equity
Balance at December 31, 2018		$	367,252	$	0	$	791,823	$	(287,337)	$	(14,617)		$	857,121	$	182,513
Balance at December 31, 2020																	Balance at December 31, 2020	$	418,858	$	0	$	1,027,699	$	(324,731)	$	15,171	$	1,136,997	$	236,987

Net Income (Loss)	Net Income (Loss)	0		0		54,546		0		0			54,546		65		Net Income (Loss)	0		0		74,484		0		0		74,484		(138)
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		0		0		0		7,664			7,664		3,714		Other Comprehensive Income (Loss), net of tax	0		0		0		0		3,558		3,558		1,430
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0			0		42		Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		25,762

Consolidation (Deconsolidation)																	Consolidation (Deconsolidation)	0		0		0		0		0		0		(16,237)
Stock Award Activity	Stock Award Activity	7,110		0		(11,830)		11,830		0			7,110		2,126		Stock Award Activity	9,216		0		(15,234)		15,249		0		9,231		2,481
Dividends Declared	Dividends Declared	0		0		(27,217)		0		0			(27,217)		0		Dividends Declared	0		0		(26,788)		0		0		(26,788)		0
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0			0		(2,260)		Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0		0		(1,898)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests																	Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		0		2,670		0		0		2,670		(2,670)
Purchase of Treasury Stock	Purchase of Treasury Stock	0		0		0		(1,485)		0			(1,485)		0		Purchase of Treasury Stock	0		0		0		(45,030)		0		(45,030)		0

Balance at March 31, 2019		$	374,362	$	0	$	807,322	$	(276,992)	$	(6,953)		$	897,739	$	186,200
Balance at March 31, 2021																	Balance at March 31, 2021	$	428,074	$	0	$	1,062,831	$	(354,512)	$	18,729	$	1,155,122	$	245,717

Net Income (Loss)	Net Income (Loss)	0		0		62,724		0		0			62,724		1,116		Net Income (Loss)	0		0		55,884		0		0		55,884		(2,405)
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		0		0		0		(9,539)			(9,539)		(4,600)		Other Comprehensive Income (Loss), net of tax	0		0		0		0		1,495		1,495		868
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0			0		1,822		Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		899,962

Consolidation (Deconsolidation)																	Consolidation (Deconsolidation)	0		0		0		0		0		0		(894,175)
Stock Award Activity	Stock Award Activity	6,069		103		0		68		0			6,240		1,773		Stock Award Activity	7,760		0		(189)		205		0		7,776		2,518
Dividends Declared	Dividends Declared	0		0		(27,323)		0		0			(27,323)		0		Dividends Declared	0		0		(26,550)		0		0		(26,550)		0
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0			0		(541)		Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0		0		(1,016)
Business Acquisition		0		0		0		0		0			0		(386)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests		0		0		(16,604)		0		0			(16,604)		16,604

Purchase of Treasury Stock	Purchase of Treasury Stock	0		0		0		(709)		0			(709)		0		Purchase of Treasury Stock	0		0		0		(31,797)		0		(31,797)		0

Balance at June 30, 2019		$	380,431	$	103	$	826,119	$	(277,633)	$	(16,492)		$	912,528	$	201,988
Balance at June 30, 2021																	Balance at June 30, 2021	$	435,834	$	0	$	1,091,976	$	(386,104)	$	20,224	$	1,161,930	$	251,469

Net Income (Loss)	Net Income (Loss)	0		0		72,962		0		0			72,962		623		Net Income (Loss)	0		0		71,362		0		0		71,362		2,124
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		0		0		0		(11,795)			(11,795)		(5,544)		Other Comprehensive Income (Loss), net of tax	0		0		0		0		(7,248)		(7,248)		(9,953)
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0			0		687		Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		66,903

Consolidation (Deconsolidation)																	Consolidation (Deconsolidation)	0		0		0		0		0		0		(74,836)
Stock Award Activity	Stock Award Activity	5,947		1		0		21		0			5,969		2,125		Stock Award Activity	6,279		30		0		0		0		6,309		2,557
Dividends Declared	Dividends Declared	0		0		(27,307)		0		0			(27,307)		0		Dividends Declared	0		0		(26,301)		0		0		(26,301)		0
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0			0		(387)		Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0		0		(1,178)

Acquisition of Additional Equity of HFML																	Acquisition of Additional Equity of HFML	0		0		0		0		0		0		(165,112)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests																	Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		0		16,502		0		0		16,502		(16,502)
Purchase of Treasury Stock	Purchase of Treasury Stock	0		0		0		(1,860)		0			(1,860)		0		Purchase of Treasury Stock	0		0		0		(17,703)		0		(17,703)		0

Balance at September 30, 2019		$	386,378	$	104	$	871,774	$	(279,472)	$	(28,287)		$	950,497	$	199,492
Balance at September 30, 2021																	Balance at September 30, 2021	$	442,113	$	30	$	1,153,539	$	(403,807)	$	12,976	$	1,204,851	$	55,472

(The accompanying notes are an integral part of these Consolidated Financial Statements.)


Consolidated Statements of Changes in Equity
(dollars in thousands)
(unaudited)
	Federated Hermes, Inc. Shareholders' Equity
	Common Stock		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss), net of tax		Total Permanent Equity		Redeemable Noncontrolling Interest in Subsidiaries/ Temporary Equity
Balance at December 31, 2019	$	392,210	$	930,351	$	(281,032)	$	(249)	$	1,041,280	$	212,086

Net Income (Loss)	0		64,178		0		0		64,178		(913)
Other Comprehensive Income (Loss), net of tax	0		0		0		(24,859)		(24,859)		(11,454)
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		5,577
Consolidation (Deconsolidation)	0		0		0		0		0		(4,019)
Stock Award Activity	7,467		(16,146)		16,146		0		7,467		2,153
Dividends Declared	0		(27,304)		0		0		(27,304)		0
Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0		(6,039)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(1,870)		0		0		(1,870)		1,870
Purchase of Treasury Stock	0		0		(15,959)		0		(15,959)		0

Balance at March 31, 2020	$	399,677	$	949,209	$	(280,845)	$	(25,108)	$	1,042,933	$	199,261

Net Income (Loss)	0		81,196		0		0		81,196		3,605
Other Comprehensive Income (Loss), net of tax	0		0		0		(713)		(713)		(435)
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		6,225

Stock Award Activity	6,456		(678)		829		0		6,607		2,087
Dividends Declared	0		(27,243)		0		0		(27,243)		0
Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0		(4,058)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		2,013		0		0		2,013		(2,013)
Purchase of Treasury Stock	0		0		(18,126)		0		(18,126)		0

Balance at June 30, 2020	$	406,133	$	1,004,497	$	(298,142)	$	(25,821)	$	1,086,667	$	204,672

Net Income (Loss)	0		85,822		0		0		85,822		862
Other Comprehensive Income (Loss), net of tax	0		0		0		16,239		16,239		7,316
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		3,212

Stock Award Activity	6,281		0		67		0		6,348		2,164
Dividends Declared	0		(27,044)		0		0		(27,044)		0
Distributions to Noncontrolling Interest in Subsidiaries	0		0		0		0		0		(358)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		3,567		0		0		3,567		(3,567)

Purchase of Treasury Stock	0		0		(20,023)		0		(20,023)		0

Balance at September 30, 2020	$	412,414	$	1,066,842	$	(318,098)	$	(9,582)	$	1,151,576	$	214,301


Consolidated Statements of Cash Flows	Consolidated Statements of Cash Flows					Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)	(unaudited)					(unaudited)
		Nine Months Ended					Nine Months Ended
		September 30,					September 30,
		2020		2019			2021		2020
Operating Activities	Operating Activities					Operating Activities
Net Income Including the Noncontrolling Interests in Subsidiaries	Net Income Including the Noncontrolling Interests in Subsidiaries	$	234,750	$	192,036	Net Income Including the Noncontrolling Interests in Subsidiaries	$	201,311	$	234,750
Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities	Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities					Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities
Amortization of Deferred Sales Commissions		1,090		1,625
Depreciation and Other Amortization		21,341		19,165

Depreciation and Amortization						Depreciation and Amortization	22,639		22,431
Share-Based Compensation Expense	Share-Based Compensation Expense	20,224		19,148		Share-Based Compensation Expense	23,283		20,224
Subsidiary Share-Based Compensation Expense	Subsidiary Share-Based Compensation Expense	6,404		6,024		Subsidiary Share-Based Compensation Expense	7,556		6,404
(Gain) Loss on Disposal of Assets	(Gain) Loss on Disposal of Assets	1,590		11		(Gain) Loss on Disposal of Assets	(6,975)		1,590
Provision (Benefit) for Deferred Income Taxes	Provision (Benefit) for Deferred Income Taxes	11,907		5,956		Provision (Benefit) for Deferred Income Taxes	19,495		11,907

Consolidation/(Deconsolidation) of Investment Companies		(3,051)		0
Consolidation/(Deconsolidation) of Other Entities						Consolidation/(Deconsolidation) of Other Entities	10,379		(3,051)

Net Unrealized (Gain) Loss on Investments	Net Unrealized (Gain) Loss on Investments	(5,397)		(3,469)		Net Unrealized (Gain) Loss on Investments	27		(5,397)
Net Sales (Purchases) of Investments—Consolidated Investment Companies	Net Sales (Purchases) of Investments—Consolidated Investment Companies	(7,516)		(20,076)		Net Sales (Purchases) of Investments—Consolidated Investment Companies	(129,647)		(7,516)

Other Changes in Assets and Liabilities:	Other Changes in Assets and Liabilities:					Other Changes in Assets and Liabilities:
(Increase) Decrease in Receivables, net	(Increase) Decrease in Receivables, net	5,998		426		(Increase) Decrease in Receivables, net	3,914		5,998
(Increase) Decrease in Prepaid Expenses and Other Assets	(Increase) Decrease in Prepaid Expenses and Other Assets	(9,317)		(1,502)		(Increase) Decrease in Prepaid Expenses and Other Assets	3,887		(9,317)
Increase (Decrease) in Accounts Payable and Accrued Expenses	Increase (Decrease) in Accounts Payable and Accrued Expenses	(27,411)		(4,057)		Increase (Decrease) in Accounts Payable and Accrued Expenses	(36,769)		(27,411)
Increase (Decrease) in Other Liabilities	Increase (Decrease) in Other Liabilities	(7,154)		(2,946)		Increase (Decrease) in Other Liabilities	(18,144)		(7,154)
Net Cash Provided (Used) by Operating Activities	Net Cash Provided (Used) by Operating Activities	243,458		212,341		Net Cash Provided (Used) by Operating Activities	100,956		243,458
Investing Activities	Investing Activities					Investing Activities
Purchases of Investments—Affiliates and Other	Purchases of Investments—Affiliates and Other	(19,050)		(88,422)		Purchases of Investments—Affiliates and Other	(7,221)		(19,050)
Cash Paid for Business Acquisitions, Net of Cash Acquired	Cash Paid for Business Acquisitions, Net of Cash Acquired	2,697		785		Cash Paid for Business Acquisitions, Net of Cash Acquired	(5,324)		2,697
Proceeds from Redemptions of Investments—Affiliates and Other	Proceeds from Redemptions of Investments—Affiliates and Other	6,415		32,639		Proceeds from Redemptions of Investments—Affiliates and Other	33,291		6,415
Cash Paid for Property and Equipment	Cash Paid for Property and Equipment	(8,559)		(11,321)		Cash Paid for Property and Equipment	(7,753)		(8,559)

Net Cash Provided (Used) by Investing Activities	Net Cash Provided (Used) by Investing Activities	(18,497)		(66,319)		Net Cash Provided (Used) by Investing Activities	12,993		(18,497)
Financing Activities	Financing Activities					Financing Activities
Dividends Paid	Dividends Paid	(81,612)		(81,869)		Dividends Paid	(79,668)		(81,612)
Purchases of Treasury Stock	Purchases of Treasury Stock	(53,145)		(4,054)		Purchases of Treasury Stock	(92,426)		(53,145)
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	(10,455)		(3,188)		Distributions to Noncontrolling Interest in Subsidiaries	(4,092)		(10,455)
Contributions from Noncontrolling Interest in Subsidiaries	Contributions from Noncontrolling Interest in Subsidiaries	15,014		2,551		Contributions from Noncontrolling Interest in Subsidiaries	101,297		15,014

Payments to Acquire Additional Equity in HFML						Payments to Acquire Additional Equity in HFML	(163,696)		0

Proceeds from New Borrowings	Proceeds from New Borrowings	100,000		8,800		Proceeds from New Borrowings	82,150		100,000

Payments on Debt	Payments on Debt	(110,000)		(23,800)		Payments on Debt	(55,000)		(110,000)

Other Financing Activities	Other Financing Activities	(1,616)		193		Other Financing Activities	(1,948)		(1,616)
Net Cash Provided (Used) by Financing Activities	Net Cash Provided (Used) by Financing Activities	(141,814)		(101,367)		Net Cash Provided (Used) by Financing Activities	(213,383)		(141,814)
Effect of Exchange Rates on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	Effect of Exchange Rates on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	(3,408)		(3,569)		Effect of Exchange Rates on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	(2,758)		(3,408)
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	79,739		41,086		Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	(102,192)		79,739
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period	249,511		157,426		Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period	308,635		249,511
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	329,250		198,512		Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	206,443		329,250
Less: Restricted Cash Recorded in Other Current Assets	Less: Restricted Cash Recorded in Other Current Assets	6,091		1,671		Less: Restricted Cash Recorded in Other Current Assets	4,449		6,091
Less: Restricted Cash and Restricted Cash Equivalents Recorded in Other Long-Term Assets	Less: Restricted Cash and Restricted Cash Equivalents Recorded in Other Long-Term Assets	312		328		Less: Restricted Cash and Restricted Cash Equivalents Recorded in Other Long-Term Assets	302		312
Cash and Cash Equivalents	Cash and Cash Equivalents	$	322,847	$	196,513	Cash and Cash Equivalents	$	201,692	$	322,847

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

Table of Contents

Notes to the Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

Federated Hermes, Inc. and its consolidated subsidiaries (collectively, Federated Hermes) provide investment advisory, administrative, distribution and other services to various investment products, including sponsored investment companies, collective funds and other funds (Federated Hermes Funds) and Separate Accounts (which include separately managed accounts, institutional accounts, certain sub-advised funds and other managed products) in both domestic and international markets. In addition, Federated Hermes markets ~~as well as~~and provides stewardship and real estate development ~~services.~~services to various domestic and international companies. The interim Consolidated Financial Statements of Federated Hermes included herein have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). In the opinion of management, the financial statements reflect all adjustments that are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods presented.

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. Actual results may differ from those estimates, and such differences may be material to the Consolidated Financial Statements.

These financial statements should be read in conjunction with Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Certain items ~~previously~~ reported in previous periods have been reclassified to conform to the current period's presentation.

(2) ~~Recent Accounting Pronouncements~~

~~Recently Adopted Accounting Guidance~~

~~Credit Losses~~

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology with a current expected credit loss (CECL) model. CECL requires an entity to estimate lifetime expected credit losses based on relevant information about historical events, current conditions and reasonable and supportable forecasts. Federated Hermes adopted Topic 326 on January 1, 2020 using the modified retrospective adoption method. The adoption did not have a material impact on Federated Hermes' Consolidated Financial Statements.

~~Fair Value Measurement~~

On August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update remove, modify or add disclosure requirements for fair value measurements to improve the effectiveness of disclosures. Federated Hermes adopted Topic 820 on January 1, 2020 using either the prospective or retrospective adoption method, depending on the amendment. The adoption did not have a material impact on Federated Hermes' Consolidated Financial Statements.

~~Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement~~

On August 29, 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Federated Hermes adopted this guidance on January 1, 2020 using the prospective adoption method, which did not require the restatement of prior years. The adoption did not have a material impact on Federated Hermes' Consolidated Financial Statements.

~~(3)~~ Significant Accounting Policies

For a listing of Federated Hermes' significant accounting policies, please refer to Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The following accounting policy has been updated as a result of newly consolidated variable interest entities (VIEs).

Consolidation of Variable Interest Entities

Federated Hermes has a controlling financial interest in a VIE and is, therefore, deemed to be the primary beneficiary of a VIE if it has (1) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. Financial information for certain entities, whose primary purpose is to collect and distribute carried interest paid by foreign private equity and infrastructure funds, is not available timely and is therefore consolidated on a one quarter lag, adjusted for any known material carried interest revenue and compensation transactions occurring through the balance sheet date.

(3) Equity Acquisition and Business Combination

2021 Acquisition of HFML Noncontrolling Interest

On August 31, 2021 (Closing Date), Federated Hermes completed the acquisition of a 29.5% noncontrolling interest in Hermes Fund Managers Limited (HFML) from BT Pension Scheme (BTPS) for £116.5 million ($160.2 million) pursuant to the terms of a certain Put and Call Option Deed, dated July 2, 2018 (the Option Deed), between BTPS and Federated Hermes (2021 Acquisition of HFML Noncontrolling Interest). Because Federated Hermes had previously acquired a 60% controlling interest in HFML from BTPS as of July 1, 2018 (2018 HFML Acquisition), the 2021 Acquisition of HFML Noncontrolling Interest was accounted for as an acquisition of additional equity. The difference between the carrying value of the BTPS noncontrolling interest and the purchase price was reclassified from temporary equity to permanent equity. The remaining approximate 10% of the equity interests of HFML is held in an employee benefit trust for the benefit of certain members of HFML's management and other key employees under a long-term incentive plan established in connection with the 2018 HFML Acquisition.

Pursuant to the Option Deed, Federated Hermes and BTPS agreed upon a third-party valuation company, which determined the fair value of HFML for purposes of the Option Deed. The Option Deed provided that the consideration to be paid for BTPS' remaining interest in HFML would be based on BTPS' equity proportion of the fair value of HFML as determined in accordance with the terms of the Option Deed. Federated Hermes paid the purchase price by using a combination of cash on hand and borrowings under its corporate credit facility. Upon completion of the acquisition on the Closing Date, BTPS no longer has any ownership interest in HFML nor any representation on HFML's board of directors.

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Notes to the Consolidated Financial Statements ~~(continued)~~

(unaudited)

~~(4)~~ ~~Business Combinations~~

HCL ~~acquisition~~Acquisition

On March 5, 2020, Federated Hermes acquired, effective as of March 1, 2020, 100 percent ownership of HGPE Capital Limited (HCL Acquisition) for £15.9 million ($20.4 million). The principal activity of HGPE Capital Limited is that of a holding company for an infrastructure and private equity investment management business. As a result of the ~~acquisition of HGPE Capital Limited,~~HCL Acquisition, Federated Hermes gained control of Hermes GPE LLP (HGPE) (collectively with HGPE Capital Limited, HCL). The addition of London-based HCL provides the opportunity to further accelerate and broaden Federated Hermes' global growth.

The HCL ~~acquisition~~Acquisition included upfront cash payments that totaled £11.2 million ($14.3 million). The transaction also includes contingent purchase price payments payable through December 2024 that were deposited into escrow. The maximum contingent purchase price payments, ~~total~~recorded in Other Long-Term Liabilities, totaled £3.5 million ($4.5 million as of March 1, 2020), which represents the payment of certain future carried ~~interest, recorded in Other Long-Term Liabilities.~~interest.

Prior to March 1, 2020, Federated Hermes accounted for its partial ownership interest in HGPE (through its ownership of HFML) as an equity-method investment recorded in Other Long-Term Assets on the Consolidated Balance Sheets. Management used an independent valuation expert to assist in estimating the fair value of ~~the~~this equity interest in HGPE using primarily the discounted cash flow methodology under the income approach. The acquisition-date fair value of ~~the~~this previous equity interest was $34.5 million. In the first quarter 2020, Federated Hermes recognized a gain of $7.5 million as a result of remeasuring the prior equity interest in HGPE held before the business combination and the consolidation of HGPE. This gain is included in ~~Other, net -~~ Nonoperating Income (Expenses) - Other, net on the Consolidated Statements of Income.

Federated Hermes performed a valuation of the fair market value of acquired assets and assumed liabilities of the HCL ~~acquisition. Due~~Acquisition. The accounting for this acquisition was finalized in the first quarter 2021. During the first quarter 2021, Federated Hermes recorded adjustments that primarily resulted from the consolidation of certain foreign subsidiaries not previously consolidated. The provisional amounts recognized for certain acquired assets and incurred liabilities were adjusted by $25.8 million and $17.2 million, respectively, with the net offset of $8.6 million recorded to the ~~timing of the acquisition and the status of the valuation work, the valuation of intangible assets,~~related redeemable noncontrolling interest in ~~subsidiary, goodwill and the deferred tax liability are preliminary. Although preliminary results of the valuation are~~subsidiary. This adjustment reflected in the Consolidated Financial Statements as of September 30, 2020 and for the three and seven months then ended, the final purchase price allocation may reflect adjustments to this preliminary valuation and such adjustments may be material. Provisional amounts will be finalized as new information is obtained about facts and circumstances that existed as of the acquisition date. As a result of the consolidation of these subsidiaries, Federated Hermes recorded revenue of $6.9 million offset by $6.9 million of Compensation and Related expense, which represented the income and expense that would have been recorded had these entities been consolidated on March 1, 2020. There was no change to net income or earnings per share for the three-month period ended March 31, 2021 as a result of these adjustments.

The following table summarizes the ~~preliminary~~final purchase price allocation determined as of the purchase date:


(in millions)
Cash and Cash Equivalents	$	~~14.0~~32.7
Other Current Assets1	~~11.3~~11.8
Goodwill2	19.1
Intangible Assets3	27.6
Other Long-Term Assets	~~9.8~~16.4

Less: Liabilities Acquired	~~(26.9)~~(44.1)
Less: Fair Value of Redeemable Noncontrolling Interest in Subsidiary4	~~(34.5)~~(43.1)
Total Purchase Price Consideration	$	20.4

1 Includes ~~$4.6~~$5.0 million of accounts receivable.

2 The goodwill recognized is attributable to enhanced revenue and AUM growth opportunities from future investors and the assembled workforce of HGPE. In this instance, goodwill is not deductible for tax purposes.

3 Includes $20.3 million for rights to manage fund assets for private equity funds with a weighted-average useful life of 9.0 years and $6.9 million for rights to manage fund assets for infrastructure funds with a weighted-average useful life of 11.0 years, all of which are recorded in Intangible Assets, net on the Consolidated Balance Sheets.

4 The fair value of the noncontrolling interest was determined utilizing primarily the discounted cash flow methodology under the income approach.

The financial results of HCL have been included in Federated Hermes' Consolidated Financial Statements from the March 1, 2020 effective date of the HCL acquisition. For the three and seven months ended September 30, 2020, HCL earned revenue of $10.4 million and $23.2 million, respectively, and net income of $3.1 million and $7.0 million, respectively (which excludes acquisition-related intangible amortization and does not take into consideration the amounts attributable to the noncontrolling interests).

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Notes to the Consolidated Financial Statements ~~(continued)~~

(unaudited)

~~MEPC acquisition~~

Effective January 1, 2020, Federated Hermes acquired MEPC Limited (MEPC) for £9.9 million ($13.1 million). MEPC provides real estate development services in the UK. The MEPC acquisition included upfront cash payments of £4.4 million ($5.9 million) and deferred consideration and contingent purchase price payments totaling £5.5 million ($7.2 million), which were recorded in Other Current Liabilities. As of the date of the MEPC acquisition, Hermes primarily recorded intangible assets of $7.3 million and goodwill of $1.7 million. Due to the timing of the acquisition and the status of the valuation work, the accounting for the business combination is preliminary.

~~(5)~~(4) Revenue from Contracts with Customers

The following table presents Federated Hermes' revenue disaggregated by asset class:


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020
Money Market		$	143,391	$	138,242	$	452,240	$	378,686
Equity	Equity	138,590		136,655		399,208		394,324		Equity	$	172,349	$	138,590	$	510,302	$	399,208
Fixed-Income		49,407		45,018		139,705		133,476
Fixed-income										Fixed-income	60,622		49,407		175,115		139,705
Money market										Money market	55,726		143,391		185,704		452,240
Other1	Other1	33,067		20,425		93,197		62,383		Other1	37,892		33,067		107,681		93,197
Total Revenue	Total Revenue	$	364,455	$	340,340	$	1,084,350	$	968,869	Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350

1 Primarily includes Alternative / Private Markets (including but not limited to private equity, real estate and infrastructure), multi-asset and stewardship services revenue.

The following table presents Federated Hermes' revenue disaggregated by performance obligation:


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020
Asset Management1	Asset Management1	$	260,089	$	232,106	$	745,875	$	663,974	Asset Management1	$	230,210	$	260,089	$	692,188	$	745,875
Administrative Services	Administrative Services	83,028		64,216		238,960		176,319		Administrative Services	76,853		83,028		228,904		238,960
Distribution2	Distribution2	15,273		38,501		79,786		111,942		Distribution2	12,460		15,273		37,679		79,786
Other3	Other3	6,065		5,517		19,729		16,634		Other3	7,066		6,065		20,031		19,729
Total Revenue	Total Revenue	$	364,455	$	340,340	$	1,084,350	$	968,869	Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350

1 The performance obligation may include administrative, distribution and other services recorded as a single asset management fee under Topic 606, as it is part of a unitary fee arrangement with a single performance obligation.

2 The performance obligation is satisfied at a point in time. A portion of this revenue relates to a performance obligation that has been satisfied in a prior period.

3 Primarily includes shareholder service fees and stewardship services revenue.

The following table presents Federated Hermes' revenue disaggregated by geographical market:


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020
Domestic	Domestic	$	295,422	$	282,777	$	884,569	$	801,060	Domestic	$	237,543	$	295,422	$	718,316	$	884,569
Foreign1	Foreign1	69,033		57,563		199,781		167,809		Foreign1	89,046		69,033		260,486		199,781
Total Revenue	Total Revenue	$	364,455	$	340,340	$	1,084,350	$	968,869	Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350

1 This represents revenue earned by non-U.S. domiciled subsidiaries.

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~~Notes to the Consolidated Financial Statements (continued)~~
~~(unaudited)~~

The following table presents Federated Hermes' revenue disaggregated by product type:

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2020 2019 2020 2019
Federated Hermes Funds $ 303,958 $ 280,970 $ 899,967 $ 793,496
Separate Accounts 57,111 56,477 172,633 166,436
Other1
3,386 2,893 11,750 8,937
Total Revenue $ 364,455 $ 340,340 $ 1,084,350 $ 968,869


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Federated Hermes Funds	$	256,036	$	303,958	$	772,090	$	899,967
Separate Accounts	66,404		57,111		195,441		172,633
Other1	4,149		3,386		11,271		11,750
Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350

1 Primarily includes stewardship services revenue.

For nearly all revenue, Federated Hermes is not required to disclose certain estimates of revenue expected to be recorded in future periods as a result of applying the following exemptions: (1) contract terms are short-term in nature (i.e., expected

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Notes to the Consolidated Financial Statements

(unaudited)

duration of one year or less due to termination provisions) and (2) the expected variable consideration would be allocated entirely to future service periods.

Federated Hermes expects to recognize revenue in the future related to the unsatisfied portion of the stewardship services and real estate development performance obligations at September 30, ~~2020.~~2021. Generally, contracts are billed in arrears on a quarterly basis and have a three year duration, after which the customer can terminate the agreement with notice, generally from three to ~~twelve~~12 months. Based on existing contracts and the exchange rates as of September 30, ~~2020,~~2021, Federated Hermes may recognize future fixed revenue from these services as presented in the following table:


(in thousands)	(in thousands)			(in thousands)
Remainder of 2020		$	3,038
2021		6,575
Remainder of 2021				Remainder of 2021	$	4,418
2022	2022	2,621		2022	9,057
2023 and Thereafter		2,512
2023				2023	4,486
2024 and Thereafter				2024 and Thereafter	2,687
Total Remaining Unsatisfied Performance Obligations	Total Remaining Unsatisfied Performance Obligations	$	14,746	Total Remaining Unsatisfied Performance Obligations	$	20,648

~~(6)~~(5) Concentration Risk

(a) Revenue Concentration by Asset Class

The following table presents Federated Hermes' significant revenue concentration by asset class:


		Nine Months Ended					Nine Months Ended
		September 30,					September 30,
		2020		2019			2021		2020
Equity Assets						Equity Assets	52	%	37	%
Money Market Assets	Money Market Assets	42	%	39	%	Money Market Assets	19	%	42	%
Equity Assets		37	%	41	%
Fixed-Income Assets	Fixed-Income Assets	13	%	14	%	Fixed-Income Assets	18	%	13	%

The change in the relative proportion of Federated Hermes' revenue attributable to money market assets for the nine months ended September 30, ~~2020,~~2021, as compared to the same period in ~~2019,~~2020, was primarily the result of ~~a higher proportion of average money market assets to total average assets~~an increase in ~~2020.~~ fee waivers. See section below entitled Low Short-Term Interest Rates.

The change in the relative proportion of Federated Hermes' revenue attributable to equity and fixed-income assets for the nine months ended September 30, ~~2020,~~2021, as compared to the same period in ~~2019,~~2020, was primarily the result of decreased money market revenue and higher average equity and fixed-income assets in 2021.

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a ~~lower proportion~~result of the outbreak of a novel coronavirus (Covid-19, or the Pandemic), the Federal Open Market Committee of the Federal Reserve Board (FOMC) decreased the federal funds target rate range to 0% - 0.25%. 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. 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 Voluntary Yield-related Fee Waivers have been partially offset by related reductions in distribution expense as a result of Federated Hermes' mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers.

During the three and nine months ended September 30, 2021, Voluntary Yield-related Fee Waivers totaled $109.2 million and $310.2 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $72.3 million and $204.9 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $36.9 million and $105.3 million for the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020, Voluntary Yield-related Fee Waivers totaled $36.8 million and $56.9 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $33.0 million and $51.0 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $3.8 million and $5.9 million for the three and nine months

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Notes to the Consolidated Financial Statements

(unaudited)

ended September 30, 2020, respectively. See Management's Discussion and Analysis under the caption Business Developments - Low Short-Term Interest Rates for additional information on management's expectations regarding Voluntary Yield-related Fee Waivers.

(b)Revenue Concentration by Investment Fund Strategy

The following table presents Federated Hermes' revenue concentration by investment fund strategy:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II	12	%	9	%	11	%	9	%


Federated Hermes Government Obligations Fund	5	%	14	%	5	%	13	%

A significant and prolonged decline in the AUM in these funds 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 these funds.

(6) Consolidation

The Consolidated Financial Statements include the accounts of Federated Hermes, certain Federated Hermes Funds and other entities in which Federated Hermes holds a controlling financial interest. Federated Hermes is involved with various entities in the normal course of business that may be deemed to be voting rights entities (VREs) or VIEs. From time to time, Federated Hermes invests in Federated Hermes Funds for general corporate investment purposes or, in the case of newly launched products, in order to provide investable cash to establish a performance history. Federated Hermes' investment in, and/or receivables from, these Federated Hermes Funds represents its maximum exposure to loss. The assets of each consolidated Federated Hermes Fund are restricted for use by that Federated Hermes Fund. Generally, neither creditors of, nor equity investors in, the Federated Hermes Funds have any recourse to Federated Hermes' general credit. Given that the entities consolidated by Federated Hermes generally follow investment company accounting, which prescribes fair-value accounting, a deconsolidation generally does not result in the recognition of gains or losses for Federated Hermes.

In the ordinary course of business, Federated Hermes may implement fee waivers for various Federated Hermes Funds for competitive reasons (such as Voluntary Yield-related Fee Waivers or to maintain certain fund ratios/yields), to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers). For the three and nine months ended September 30, 2021, Fee Waivers totaled $233.9 million and $680.0 million, respectively, of which $197.2 million and $573.5 million, respectively, related to money market funds which meet the scope exception of the consolidation guidance. For the three and nine months ended September 30, 2020, Fee Waivers totaled $174.6 million and $490.0 million, respectively, of which $145.1 million and $386.8 million, respectively, related to money market funds which meet the scope exception of the consolidation guidance.

Like other sponsors of investment companies, Federated Hermes in the ordinary course of business may make capital contributions to certain affiliated money market Federated Hermes Funds in connection with the reorganization of such funds into certain other affiliated money market Federated Hermes Funds or in connection with the liquidation of a money market Federated Hermes Fund. In these instances, such capital contributions typically are intended to either offset realized losses or other permanent impairments to a fund's net asset value (NAV), increase the market-based NAV per share of the fund's portfolio that is being reorganized to equal the market-based NAV per share of the acquiring fund or to bear a portion of expenses relating to a fund liquidation. Under current money market fund regulations and Securities and Exchange Commission (SEC) guidance, Federated Hermes is required to report these types of capital contributions to U.S. money market mutual funds to the SEC as financial support to the investment company that is being reorganized or liquidated. There were no contributions for the three months ended September 30, 2021 and no material contributions for the nine months ended September 30, 2021. There were no contributions for the three and nine months ended September 30, 2020.

In accordance with Federated Hermes' consolidation accounting policy, Federated Hermes first determines whether the entity being evaluated is a VRE or a VIE. Once this determination is made, Federated Hermes proceeds with its evaluation of whether to consolidate the entity. The disclosures below represent the results of such evaluations as of September 30, 2021 and December 31, 2020.

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Notes to the Consolidated Financial Statements

(unaudited)

(a)Consolidated Voting Rights Entities

Although most of the Federated Hermes Funds meet the definition of a VRE, Federated Hermes consolidates VREs only when it is deemed to have control. Consolidated VREs are reported on Federated Hermes' Consolidated Balance Sheets primarily in Investments—Consolidated Investment Companies and Redeemable Noncontrolling Interest in Subsidiaries.

(b) Consolidated Variable Interest Entities

As of the periods ended September 30, 2021 and December 31, 2020, Federated Hermes was deemed to be the primary beneficiary of, and therefore consolidated, certain entities as a result of its controlling financial interest. The following table presents the balances related to the consolidated VIEs that were included on the Consolidated Balance Sheets as well as Federated Hermes' net interest in the consolidated VIEs for each period presented.


(in millions)	September 30, 2021		December 31, 2020
Cash and Cash Equivalents	$	3.3	$	0.2
Investments—Consolidated Investment Companies	35.3		12.1
Other Assets	0.5		0.1
Long-Term Investments	12.0		0.0
Less: Liabilities	1.7		0.1
Less: Redeemable Noncontrolling Interest in Subsidiaries	27.2		0.0
Federated Hermes' Net Interest in VIEs	$	22.2	$	12.3

Federated Hermes' net interest in the consolidated VIEs represents the value of Federated Hermes' economic ownership interest in that VIE.

During the first quarter of 2021, as a result of the HCL Acquisition, Federated Hermes consolidated certain VIEs not previously consolidated. See Note (3) for additional information. During the second quarter of 2021, Federated Hermes consolidated a Federated Hermes Fund VIE in which it was the primary beneficiary. There was no material impact to the Consolidated Statements of Income as a result of these consolidations. There were no other consolidations or deconsolidations of VIEs during the nine months ended September 30, 2021.

Federated Hermes' involvement with certain Federated Hermes Funds that are deemed to be VIEs includes serving as investment manager, or at times, holding a minority interest or both. Federated Hermes' variable interest is not deemed to absorb losses or receive benefits that could potentially be significant to the VIE. Therefore, Federated Hermes is not the primary beneficiary of these VIEs and has not consolidated these entities.

At September 30, 2021 and December 31, 2020, Federated Hermes' variable interest in non-consolidated VIEs was $150.7 million and $106.0 million, respectively, (primarily recorded in Cash and Cash Equivalents on the Consolidated Balance Sheets) and was entirely related to Federated Hermes Funds. AUM for these non-consolidated Federated Hermes Funds totaled $9.3 billion and $9.1 billion at September 30, 2021 and December 31, 2020, respectively. Of the Receivables—Affiliates at September 30, 2021 and December 31, 2020, $0.6 million and $0.4 million, respectively, related to non-consolidated VIEs and represented Federated Hermes' maximum risk of loss from non-consolidated VIE receivables.

(7) Investments

At September 30, 2021 and December 31, 2020, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of $78.8 million and $36.0 million, respectively, primarily in mutual funds which invest in equity securities and held investments in Separate Accounts of $10.5 million and $9.6 million at September 30, 2021 and December 31, 2020, respectively, that were included in Investments—Affiliates and Other on the Consolidated Balance Sheets. Federated Hermes' investments held in Separate Accounts as of September 30, 2021 and December 31, 2020, were primarily composed of domestic debt securities ($5.3 million and $5.2 million, respectively) and stocks of large domestic and foreign companies ($3.5 million and $3.1 million, respectively).

Federated Hermes consolidates certain Federated Hermes Funds into its Consolidated Financial Statements as a result of its controlling financial interest in these Federated Hermes Funds (see Note (6)). All investments held by these consolidated

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Notes to the Consolidated Financial Statements

(unaudited)

Federated Hermes Funds were included in Investments—Consolidated Investment Companies on Federated Hermes' Consolidated Balance Sheets.

The investments held by consolidated Federated Hermes Funds as of September 30, 2021 and December 31, 2020 were primarily composed of domestic and foreign debt securities ($23.6 million and $48.6 million, respectively), stocks of large domestic and foreign companies ($22.8 million and $35.2 million, respectively) and stocks of small and mid-sized domestic and foreign companies ($7.1 million and $6.4 million, respectively).

The following table presents gains and losses recognized in Gain (Loss) on Securities, net on the Consolidated Statements of Income in connection with Federated Hermes' investments:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Investments—Consolidated Investment Companies
Net Unrealized Gains (Losses)	$	(391)	$	4,451	$	(1,197)	$	3,987
Net Realized Gains (Losses)1	184		(47)		1,786		(1,151)
Net Gains (Losses) on Investments—Consolidated Investment Companies	(207)		4,404		589		2,836
Investments—Affiliates and Other
Net Unrealized Gains (Losses)	(2,077)		1,816		1,170		1,410
Net Realized Gains (Losses)1	1,640		(368)		5,221		(406)
Net Gains (Losses) on Investments—Affiliates and Other	(437)		1,448		6,391		1,004
Gain (Loss) on Securities, net	$	(644)	$	5,852	$	6,980	$	3,840

1 Realized gains and losses are computed on a specific-identification basis.

(8) Fair Value Measurements

Fair value is the price that would be received to sell an asset or the price that would be paid to transfer a liability as of the measurement date. A fair-value reporting hierarchy exists for disclosure of fair value measurements based on the observability of the inputs to the valuation of financial assets and liabilities. The levels are:

Level 1 – Quoted prices for identical instruments in active markets. Level 1 assets may include equity and debt securities that are traded in an active exchange market, including shares of mutual funds.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 assets and liabilities may include debt and equity securities, purchased loans and over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active markets.

NAV Practical Expedient – Investments that calculate NAV per share (or its equivalent) as a practical expedient. These investments have been excluded from the fair value hierarchy.

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Notes to the Consolidated Financial Statements

(unaudited)

(a)Fair Value Measurements on a Recurring Basis

The following table presents fair value measurements for classes of Federated Hermes' financial assets and liabilities measured at fair value on a recurring basis:



(in thousands)	Level 1		Level 2		Level 3		Total
September 30, 2021
Financial Assets
Cash and Cash Equivalents	$	201,692	$	0	$	0	$	201,692
Investments—Consolidated Investment Companies	28,955		25,120		0		54,075
Investments—Affiliates and Other	83,656		5,343		319		89,318
Other1	7,095		2		0		7,097
Total Financial Assets	$	321,398	$	30,465	$	319	$	352,182






Total Financial Liabilities2	$	71	$	2,099	$	11,856	$	14,026

December 31, 2020
Financial Assets
Cash and Cash Equivalents	$	301,819	$	0	$	0	$	301,819
Investments—Consolidated Investment Companies	13,622		77,737		0		91,359
Investments—Affiliates and Other	40,010		5,247		336		45,593
Other1	9,188		5,143		0		14,331
Total Financial Assets	$	364,639	$	88,127	$	336	$	453,102



Total Financial Liabilities2	$	0	$	89	$	12,896	$	12,985

1 Amounts primarily consist of restricted cash and security deposits as of September 30, 2021 and restricted cash, security deposits and derivative assets as of December 31, 2020.

2 Amounts primarily consist of acquisition-related future contingent consideration liabilities and derivative liabilities as of September 30, 2021 and acquisition-related future contingent consideration liabilities as of December 31, 2020.

The following is a description of the valuation methodologies used for financial assets and liabilities measured at fair value on a recurring basis. Federated Hermes did not hold any nonfinancial assets or liabilities measured at fair value on a recurring basis at September 30, 2021 or December 31, 2020.

Cash and Cash Equivalents

Cash and Cash Equivalents include deposits with banks and investments in money market funds. Investments in money market funds totaled $161.9 million and $244.3 million at September 30, 2021 and December 31, 2020, respectively. Cash investments in publicly available money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy.

Investments—Consolidated Investment Companies

Investments—Consolidated Investment Companies represent securities held by consolidated Federated Hermes Funds. For publicly traded securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices. The fair value of certain securities held by consolidated Federated Hermes Funds are determined by third-party pricing services which utilize observable market inputs of comparable investments (Level 2).

Investments—Affiliates and Other

Investments—Affiliates and Other primarily represent investments in fluctuating-value Federated Hermes Funds, as well as investments held in Separate Accounts. For investments in fluctuating-value Federated Hermes Funds that are publicly available, the securities are valued under the market approach through the use of quoted market prices available in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy. For publicly traded securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices. The fair value of certain securities are determined by third-party pricing services which utilize observable market inputs of comparable investments (Level 2).

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Notes to the Consolidated Financial Statements

(unaudited)

Acquisition-related future contingent consideration liabilities

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes may be required to make future consideration payments if certain contingencies are met. In connection with certain business combinations, Federated Hermes records a liability representing the estimated fair value of future consideration payments as of the acquisition date. The liability is subsequently re-measured at fair value on a recurring basis with changes in fair value recorded in earnings. As of September 30, 2021, acquisition-related future consideration liabilities of $11.9 million were primarily related to business combinations made in the first quarter of 2020 and were recorded in Other Current Liabilities ($7.5 million) and Other Long-Term Liabilities ($4.4 million) on the Consolidated Balance Sheets. Management estimated the fair value of future consideration payments based primarily upon expected future cash flows using an income approach valuation methodology with unobservable market data inputs (Level 3).

The following table presents a reconciliation of the beginning and ending balances for Federated Hermes' liability for future consideration payments related to these business combinations/asset acquisitions:


(in thousands)
Balance at December 31, 2020	$	12,896

Changes in Fair Value	1,206
Contingent Consideration Payments	(2,246)
Balance at September 30, 2021	$	11,856

Investments using Practical Expedients

For investments in mutual funds that are not publicly available but for which the NAV is calculated monthly and for which there are redemption restrictions, the investments are valued using NAV as a practical expedient and are excluded from the fair value hierarchy. As of September 30, 2021 and December 31, 2020, these investments totaled $17.2 million and $6.9 million, respectively, and were recorded in Other Long-Term Assets.

(b)Fair Value Measurements on a Nonrecurring Basis

Federated Hermes did not hold any assets or liabilities measured at fair value on a nonrecurring basis at September 30, 2021.

(c)Fair Value Measurements of Other Financial Instruments

The fair value of Federated Hermes' debt is estimated by management using observable market data (Level 2). Based on this fair value estimate, the carrying value of debt appearing on the Consolidated Balance Sheets approximates fair value.

(9) Derivatives

During the third quarter of 2021, Federated Hermes entered into a foreign currency forward transaction in order to hedge against foreign exchange rate fluctuations associated with the payment for the 2021 Acquisition of HFML Noncontrolling Interest. The forward was not designated as a hedging instrument for accounting purposes. The forward transaction settled in the third quarter of 2021 and Federated Hermes recorded $1.3 million of expense in Nonoperating Income (Expenses) - Other, net on the Consolidated Statements of Income as a result of the change in fair value of this derivative.

HFML, a British Pound Sterling-denominated majority-owned subsidiary of Federated Hermes, enters into foreign currency forward transactions in order to hedge against foreign exchange rate fluctuations in the U.S. Dollar. None of the forwards have been designated as hedging instruments for accounting purposes. As of September 30, 2021, this subsidiary held foreign currency forward derivative instruments with a combined notional amount of £67.6 million and expiration dates ranging from December 2021 through June 2022. Federated Hermes recorded $2.1 million in Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of September 30, 2021.

As of December 31, 2020, HFML held foreign currency forward derivative instruments with a combined notional amount of £47.3 million and expiration dates ranging from March 2021 through September 2021. Federated Hermes recorded $5.1 million in Receivables on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, 2020.

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Notes to the Consolidated Financial Statements

(unaudited)

(10)Intangible Assets, including Goodwill

Intangible Assets, net at September 30, 2021 decreased $8.8 million from December 31, 2020 primarily due to $10.4 million of amortization expense and a $4.7 million decrease in the value of intangible assets denominated in a foreign currency as a result of foreign exchange rate fluctuations. These decreases were partially offset by $5.3 million of intangible assets recorded in connection with an asset purchase during 2021.

Goodwill at September 30, 2021 decreased $2.0 million from December 31, 2020 primarily as a result of foreign exchange rate fluctuations on goodwill denominated in a foreign currency.

(11) Debt

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 11 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 amended and restated Federated Hermes' Third Amended and Restated Credit Agreement, which was dated June 5, 2017 and scheduled to mature on June 5, 2022 (Prior 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. The interest on the borrowings from the revolving credit facility is calculated at the monthly London Interbank Offering Rate (LIBOR) plus a spread unless a base rate option is elected. The borrowings under the revolving credit facility may include up to $50 million for which interest is calculated at the daily LIBOR plus a spread unless a base rate option is elected (Swing Line). The Credit Agreement provides for a replacement reference interest rate index upon the eventual discontinuation of LIBOR, each having a benchmark adjustment applied based on its historical relationship to LIBOR, which can be either the term Secured Overnight Financing Rate (SOFR) plus a spread, daily simple SOFR plus a spread, or another alternative interest rate index (selected by the administrative agent and Federated Hermes) plus a spread.

The Credit Agreement, which expires on July 30, 2026, has no principal payment schedule, but instead requires that any outstanding principal be repaid by the expiration date. Federated Hermes, however, may elect to make discretionary principal payments. During the first nine months of 2021, Federated Hermes borrowed $82.2 million and repaid $55.0 million of the revolving credit facility under the Credit Agreement and Prior Credit Agreement.

As of September 30, 2021, the amount outstanding on the revolving credit facility under the Credit Agreement was $102.2 million and was recorded as Long-Term Debt on the Consolidated Balance Sheets. The interest rate was 1.084% as of September 30, 2021. The commitment fee under the Credit Agreement is 0.10% per annum on the daily unused portion of each Lender's commitment. As of September 30, 2021, Federated Hermes has $247.8 million available for borrowings under the revolving credit facility and an additional $200 million available via its optional accordion feature.

As of December 31, 2020, the amount outstanding on the revolving credit facility under the Prior Credit Agreement was $75 million and was recorded as Long-Term Debt on the Consolidated Balance Sheets. The interest rate was 1.277% as of December 31, 2020 which was calculated at LIBOR plus a spread.

The Credit Agreement, similar to the Prior Credit Agreement, includes representations and warranties, affirmative and negative financial covenants, including an interest coverage ratio covenant and a leverage ratio covenant, reporting requirements and other non-financial covenants. Federated Hermes was in compliance with all covenants at and during the nine months ended September 30, 2021. See the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information. The Credit Agreement also has 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. The Credit Agreement also requires certain subsidiaries to enter into a Third Amended and Restated Continuing Agreement of Guaranty and Suretyship to guarantee payment of all obligations incurred through the Credit Agreement.

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Notes to the Consolidated Financial Statements

(unaudited)

(12) Share-Based Compensation Plans

During the nine months ended September 30, 2021, Federated Hermes awarded 727,924 shares of restricted Federated Hermes Class B common stock, nearly all of which was granted in connection with a bonus program in which certain key employees receive a portion of their bonus in the form of restricted stock under Federated Hermes' Stock Incentive Plan. This restricted stock, which was granted on the bonus payment date and issued out of treasury, generally vests over three years.

During 2020, Federated Hermes awarded 1,134,581 shares of restricted Federated Hermes Class B common stock under its Stock Incentive Plan. Of this amount, 649,581 shares were awarded in connection with the aforementioned bonus program. The remaining shares were awarded to certain key employees and generally vest over ten years.

(13) Equity

In April 2021, the board of directors authorized a share repurchase program with no stated expiration date that allows the repurchase of up to 4.0 million shares of Class B common stock. No other program existed as of September 30, 2021. The program authorizes executive management to determine the timing and the amount of shares for each purchase. The repurchased stock is to be held in treasury for employee share-based compensation plans, potential acquisitions and other corporate activities, unless Federated Hermes' board of directors subsequently determines to retire the repurchased stock and restore the shares to authorized but unissued status (rather than holding the shares in treasury). During the first nine months of 2021, Federated Hermes repurchased approximately 3.1 million shares of its Class B common stock for $94.5 million ($3.2 million of which was accrued in Other Current Liabilities as of September 30, 2021), nearly all of which were repurchased in the open market. At September 30, 2021, approximately 2.6 million shares remained available to be repurchased under this share repurchase program.

The following table presents the activity for the Class B common stock and Treasury stock for the three and nine months ended September 30, 2021 and 2020. Class A shares have been excluded as there was no activity during these same periods.


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Class B Shares
Beginning Balance	97,558,017	100,279,043	99,331,443	101,130,379
Stock Award Activity	10,000	22,500	734,674	728,831
Purchase of Treasury Stock	(593,619)	(866,900)	(3,091,719)	(2,424,567)
Ending Balance	96,974,398	99,434,643	96,974,398	99,434,643

Treasury Shares
Beginning Balance	11,947,439	9,226,413	10,174,013	8,375,077
Stock Award Activity	(10,000)	(22,500)	(734,674)	(728,831)
Purchase of Treasury Stock	593,619	866,900	3,091,719	2,424,567
Ending Balance	12,531,058	10,070,813	12,531,058	10,070,813

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Notes to the Consolidated Financial Statements

(unaudited)

(14) Earnings Per Share Attributable to Federated Hermes, Inc. Shareholders

The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Federated Hermes:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Numerator
Net Income Attributable to Federated Hermes, Inc.	$	71,362	$	85,822	$	201,730	$	231,196
Less: Total Net Income Available to Participating Unvested Restricted Shareholders1	(2,989)		(3,378)		(8,363)		(8,937)
Total Net Income Attributable to Federated Hermes Common Stock - Basic	$	68,373	$	82,444	$	193,367	$	222,259
Less: Total Net Income Available to Unvested Restricted Shareholders of a Nonpublic Consolidated Subsidiary	(443)		(391)		(1,273)		(786)
Total Net Income Attributable to Federated Hermes Common Stock - Diluted	$	67,930	$	82,053	$	192,094	$	221,473
Denominator


Basic and Diluted Weighted-Average Federated Hermes Common Stock2	93,320		96,039		94,160		96,726
Earnings Per Share
Net Income Attributable to Federated Hermes Common Stock – Basic2	$	0.73	$	0.86	$	2.05	$	2.30
Net Income Attributable to Federated Hermes Common Stock – Diluted2	$	0.73	$	0.85	$	2.04	$	2.29

1 Includes dividends paid on unvested restricted Federated Hermes Class B Common Stock and their proportionate share of undistributed earnings attributable to Federated Hermes shareholders.

2Federated Hermes Common Stock excludes unvested restricted stock which are deemed participating securities in accordance with the two-class method of computing earnings per share.

(15) Commitments and Contingencies

(a) Contractual

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes is obligated to make future payments under various agreements to which it is a party. See Note (8) for additional information regarding these payments.

(b)Contingencies

Federated Hermes previously recorded as revenue certain carried interest, subject to clawback provisions, from certain funds (Carried Interest). As of September 30, 2021, approximately $11 million of Carried Interest is subject to clawback. As a result of the impact of the Pandemic on certain markets, management concluded it was reasonably possible that the market value of the assets held by these funds would be reduced at future valuation dates, which could result in a portion or all of this Carried Interest being repaid. As of September 30, 2021, management estimates that clawbacks will not occur based on the current valuation of the assets held by these funds. Future reductions in the valuation of the assets held by these funds may result in a clawback of a portion or all of this Carried Interest.

On an intercompany basis, various subsidiaries of Federated Hermes guarantee certain financial obligations of Federated Hermes, Inc., and of other consolidated subsidiaries, and Federated Hermes, Inc. guarantees certain financial and performance-related obligations of various wholly owned subsidiaries. In addition, in the normal course of business, Federated Hermes has entered into contracts that provide a variety of indemnifications. Typically, obligations to indemnify third parties arise in the context of contracts entered into by Federated Hermes, under which Federated Hermes agrees to hold the other party harmless against losses arising out of the contract, provided the other party's actions are not deemed to have breached an agreed-upon standard of care. In each of these circumstances, payment by Federated Hermes is contingent on the other party making a claim for indemnity, subject to Federated Hermes' right to challenge the claim. Further, Federated Hermes' obligations under these

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Notes to the Consolidated Financial Statements

(unaudited)

agreements may be limited in terms of time and/or amount. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of Federated Hermes' obligations and the unique facts and circumstances involved in each particular agreement. As of September 30, 2021, management does not believe that a material loss related to any of these matters is reasonably possible.

(d)Legal Proceedings

Like other companies, Federated Hermes has claims asserted and threatened against it in the ordinary course of business. As of September 30, 2021, Federated Hermes does not believe that a material loss related to these claims is reasonably possible.

(16)Accumulated Other Comprehensive Income (Loss) Attributable to Federated Hermes, Inc. Shareholders

Accumulated Other Comprehensive Income (Loss), net of tax attributable to Federated Hermes shareholders resulted from foreign currency translation gain (loss):


(in thousands)
Balance at December 31, 2020	$	15,171
Other Comprehensive Income (Loss)	(2,195)




Balance at September 30, 2021	$	12,976

Balance at December 31, 2019	$	(249)
Other Comprehensive Income (Loss)	(9,333)




Balance at September 30, 2020	$	(9,582)

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Notes to the Consolidated Financial Statements

(unaudited)

(17)Redeemable Noncontrolling Interest in Subsidiaries

The following table presents the changes in Redeemable Noncontrolling Interest in Subsidiaries:


(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2020	$	24,246	$	212,741	$	236,987
Net Income (Loss)	(1,091)		953		(138)
Other Comprehensive Income (Loss), net of tax	0		1,430		1,430
Subscriptions—Redeemable Noncontrolling Interest Holders	25,762		0		25,762
Consolidation/(Deconsolidation)	(25,419)		9,182		(16,237)
Stock Award Activity	0		2,481		2,481
Distributions to Noncontrolling Interest in Subsidiaries	(1,320)		(578)		(1,898)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(2,670)		(2,670)
Balance at March 31, 2021	$	22,178	$	223,539	$	245,717
Net Income (Loss)	682		(3,087)		(2,405)
Other Comprehensive Income (Loss), net of tax	0		868		868
Subscriptions—Redeemable Noncontrolling Interest Holders	899,250		712		899,962
Consolidation/(Deconsolidation)	(894,175)		0		(894,175)
Stock Award Activity	0		2,518		2,518
Distributions to Noncontrolling Interest in Subsidiaries	(622)		(394)		(1,016)


Balance at June 30, 2021	$	27,313	$	224,156	$	251,469
Net Income (Loss)	(108)		2,232		2,124
Other Comprehensive Income (Loss), net of tax	0		(9,953)		(9,953)
Subscriptions—Redeemable Noncontrolling Interest Holders	66,506		397		66,903
Consolidation/(Deconsolidation)	(74,836)		0		(74,836)
Stock Award Activity	0		2,557		2,557
Distributions to Noncontrolling Interest in Subsidiaries	(575)		(603)		(1,178)
Acquisition of Additional Equity of HFML	0		(165,112)		(165,112)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(16,502)		(16,502)
Balance at September 30, 2021	$	18,300	$	37,172	$	55,472

The activity in 2021 includes $892.1 million of contributions from noncontrolling interests in subsidiaries as a result of a purchase-in-kind investment into a previously consolidated VRE. This was a noncash transaction and was therefore excluded from the Consolidated Statements of Cash Flows.

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Notes to the Consolidated Financial Statements

(unaudited)


(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2019	$	19,872	$	192,214	$	212,086
Net Income (Loss)	(2,802)		1,889		(913)
Other Comprehensive Income (Loss), net of tax	0		(11,454)		(11,454)
Subscriptions—Redeemable Noncontrolling Interest Holders	5,577		0		5,577
Consolidation/(Deconsolidation)	(4,019)		0		(4,019)
Stock Award Activity	0		2,153		2,153
Distributions to Noncontrolling Interest in Subsidiaries	(6,039)		0		(6,039)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		1,870		1,870
Balance at March 31, 2020	$	12,589	$	186,672	$	199,261
Net Income (Loss)	2,560		1,045		3,605
Other Comprehensive Income (Loss), net of tax	0		(435)		(435)
Subscriptions—Redeemable Noncontrolling Interest Holders	6,225		0		6,225

Stock Award Activity	0		2,087		2,087
Distributions to Noncontrolling Interest in Subsidiaries	(4,058)		0		(4,058)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(2,013)		(2,013)
Balance at June 30, 2020	$	17,316	$	187,356	$	204,672
Net Income (Loss)	1,473		(611)		862
Other Comprehensive Income (Loss), net of tax	0		7,316		7,316
Subscriptions—Redeemable Noncontrolling Interest Holders	3,212		0		3,212

Stock Award Activity	0		2,164		2,164
Distributions to Noncontrolling Interest in Subsidiaries	(358)		0		(358)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(3,567)		(3,567)
Balance at September 30, 2020	$	21,643	$	192,658	$	214,301

(18) Income Taxes

As a result of legislation previously enacted in the United Kingdom (UK) that increases the UK corporate income tax rate from 19% to 25% effective April 1, 2023, Federated Hermes recorded an additional $14.5 million to the Income Tax Provision in the second quarter 2021 as a result of the revaluation of the foreign deferred tax assets and liabilities associated with the change.

(19) Subsequent Events

On October 28, 2021, the board of directors declared a $0.27 per share dividend to shareholders of record as of November 8, 2021 to be paid on November 15, 2021.


Part I, Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (unaudited)

The discussion and analysis below should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. Management has presumed that the readers of this interim financial information have read or have access to Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2020.

General

Federated Hermes is one of the largest investment managers in the U.S. with $634.1 billion in managed assets as of September 30, 2021. The majority of Federated Hermes' revenue is derived from advising Federated Hermes Funds and Separate Accounts in both domestic and international 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.

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 assets including market conditions and the ability to attract and retain assets. Generally, managed assets in Federated Hermes' investment products and strategies can be redeemed or withdrawn at any time with no advance notice requirement. Fee rates for Federated Hermes' services generally vary by asset and service type and may vary based on changes in asset levels. Generally, advisory fees charged for services provided to equity and multi-asset products and strategies are higher than advisory fees charged to fixed-income and alternative/private markets products and strategies, which in turn are higher than advisory fees charged to money market products and strategies. Likewise, Federated Hermes Funds typically have higher advisory fees than Separate Accounts. Similarly, revenue is also dependent upon the relative composition of average ~~equity~~AUM across both asset and product types. Federated Hermes may 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. Since Federated Hermes' products are largely distributed and serviced through financial intermediaries, Federated Hermes pays a portion of fees earned from sponsored products to the financial intermediaries that sell these products and strategies. These payments are generally calculated as a percentage of net assets attributable to ~~total average~~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 money market and multi-asset funds than the revenue earned from managed assets in equity, 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 stock-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 and results of operations are based on Federated Hermes' Consolidated Financial Statements. Management evaluates Federated Hermes' performance at the consolidated level. Therefore, 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. Management believes that meaningful indicators of Federated Hermes' financial performance include AUM, gross and net product sales, total revenue and net income, both in total and per diluted share.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Business Developments

Equity Acquisition

On August 31, 2021, Federated completed the 2021 Acquisition of HFML Noncontrolling Interest. See Note (3) to the Consolidated Financial Statements for additional information.

Pandemic

The outbreak of the Covid-19 respiratory disease was first detected in China in late 2019, spread globally in 2020 and continues to spread in 2021. The Pandemic initially resulted in travel bans, closing of borders, changes to the ways in which healthcare workers prepare and deliver services, enhanced monitoring and increased health screenings/testing, increased data analytics, efforts to develop effective vaccines without harmful side effects and identify effective therapeutics, enhanced disinfection and contamination procedures, stay-at-home orders, quarantines, cancellations and disruptions to supply chains, workflow, operations and customer activity, as well as general concern and uncertainty. The Pandemic also initially resulted in economic uncertainty, market volatility, trading halts, market illiquidity and declining and variable stock prices, among other effects. See Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2020 for additional information regarding the impacts, and potential impacts, resulting from the Pandemic.

Policymakers responded to certain apparent and acute economic and market consequences with multiple monetary and fiscal policy actions. Regulators pursued and, to a lesser degree, have continued actions focused on facilitating market function and preserving market integrity, as well as providing guidance and relief to market participants affected by the Pandemic. See the Business Developments - Current Regulatory Environment sections of Management's Discussion and Analysis for additional information regarding the monetary and fiscal policy actions taken by governmental authorities.

As of September 30, 2021, economies of various countries have rebounded from the global economic shutdown that began in the late first quarter and early second quarter 2020. With the world vaccination rate at over 46%, and vaccination rates nearing or exceeding 50% or greater in several jurisdictions, including the United States, economies in many jurisdictions have reopened as national, state/provincial and local governments have removed or lessened travel restrictions and requirements for staying-at-home and quarantining, as well as other Pandemic-imposed restrictions. Spikes of coronavirus cases, however, continue to occur in certain jurisdictions. These spikes are reportedly being driven by more contagious and potentially more deadly variants of the initial strain of the coronavirus, including the Delta variant. Breakthrough infections of vaccinated individuals are also prevalent in certain jurisdictions. These variants, spikes and breakthrough infections have resulted in certain jurisdictions continuing or re-imposing certain restrictions, although in many cases not to the extent of those initially imposed. As a result, while many governments have taken action to open economies, economic, market, regulatory and other uncertainty persists as a result of the Pandemic. While economic uncertainty and market volatility have continued, in many cases it is not to the degree initially seen late in the first quarter and early in the second quarter 2020.

Federated Hermes has not instituted its business continuity plans in its U.S. offices as there has not been a significant disruption of its business processes, allowing it to remain fully operational and to continue to provide services to its customers. Federated Hermes' London office, which includes the international business of Federated Hermes, did implement its business continuity plans on March 20, 2020 to support the transition to a remote working environment per the advice of the UK's government and regulators.

Federated Hermes designated an internal task force (which meets as necessary) to address events related to the Pandemic that have impacted or that can potentially impact Federated Hermes' business. With input and guidance from senior management and this task force, increased vaccinations, and the removal of Pandemic-related restrictions, beginning in April 2021, Federated Hermes encouraged (but did not require) its employees to begin to return to working from its U.S. offices. Beginning on July 6, 2021, Federated Hermes has implemented a structured return to office plan that requires most of its U.S. employees to work from Federated Hermes' offices at least two days a week, or at least three days every other week, depending on their work location and office or work station configuration. Federated Hermes has extended this structured return to office plan through year-end 2021, and has advised its employees that it is delaying, until sometime in the fourth quarter 2021, decisions regarding a further and more significant return to the office for U.S. employees. In the UK, in line with the "gradual return" principle outlined by the UK government, a hybrid office, remote working plan has been implemented under which UK employees work in the office two to three days a week, with occupancy restricted to 50% of office capacity. Any structured return to office plans for Federated Hermes' non-U.S. employees will be consistent with applicable government requirements.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Federated Hermes has developed and implemented a series of return to office protocols intended to assure employees that it is taking the safety and well-being of its employees seriously as return to office plans are implemented. Federated Hermes continues to review and, in certain cases, revise or enhance these protocols to provide for the safety of its employees, to seek to ensure the resiliency of Federated Hermes' business and to keep its customers informed.

Among other actions, Federated Hermes has taken the following steps:

•Federated Hermes has made technology investments, including laptops for employees, expanded internet bandwidth, video conferencing and collaboration software, and additional video equipment. Federated Hermes also has increased usage and reliance on virtual meeting tools and prioritized the deployment of additional equipment and technology. These actions have allowed Federated Hermes to remain fully operational, support a remote and current hybrid working environment and continue to deliver Federated Hermes' investment products and services to customers.

•Federated Hermes continues to undertake to comply with any remaining requirements applicable to Federated Hermes under relevant Federal, state and local government orders or laws, as well as remaining requirements applicable to Federated Hermes under the Center for Disease Control and Prevention's (CDC) and state health departments' guidance and cleaning procedures.

•In addition to continuing cleaning protocols and other measures, Federated Hermes continues to make available hand sanitizer stations and disinfectant wipes for employees in the office, and continues to encourage employees to take standard precautions such as washing their hands with soap and water and staying home if sick.

•As a result of a travel advisory issued by the CDC, the company instituted a travel ban on February 27, 2020 to certain countries, including those designated as high risk by the CDC. Federated Hermes now recommends that employees follow national, state/provincial, local and CDC recommendations when traveling, as well as specific venue requirements when planning or attending conferences or other events. Planning activity for conferences and events scheduled for later in 2021 and 2022 further increased in the third quarter 2021 over the first and second quarters 2021. Air travel and car and hotel reservations also further increased in the third quarter 2021 over the first and second quarters 2021, but remain below pre-Pandemic levels.

•Federated Hermes Fund Board meetings, Federated Hermes corporate Board meetings, and offshore fund and subsidiary Board meetings, are being held in person as well as via teleconference allowing those who prefer to participate remotely to do so.

•Federated Hermes has continued to on-board new hires, providing necessary equipment to them and conducting training remotely when necessary.

•Federated Hermes investment professionals and strategists continue to publish fresh content to the Insights section of Federated Hermes' website, offering their unique perspectives to investors.

Federated Hermes continues to monitor the ongoing global health situation through resources provided by, or contact with, the CDC, the SEC, the World Health Organization and the Securities Industry and Financial Markets Association (SIFMA), a financial services industry trade association, among others. As of September 30, 2021, while Federated Hermes' stock price has fluctuated amidst the volatility in stock prices on major exchanges, and Federated Hermes' business operations have had to adapt to a remote and current hybrid working environment, the Pandemic has not materially affected Federated Hermes' financial condition or cash flows except to the extent that the increased net Voluntary Yield-related Fee Waivers discussed below resulting from the near-zero interest rate environment can be attributed to the Pandemic. See Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2020 for information regarding the risks to Federated Hermes presented by the Pandemic.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

~~Low Short-Term Interest Rates~~Cash and Cash Equivalents

Investments—Consolidated Investment Companies

Investments—Affiliates and Other

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Notes to the Consolidated Financial Statements

(unaudited)

Acquisition-related future contingent consideration liabilities

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes may be required to make future consideration payments if certain contingencies are met. In ~~March~~connection with certain business combinations, Federated Hermes records a liability representing the estimated fair value of future consideration payments as of the acquisition date. The liability is subsequently re-measured at fair value on a recurring basis with changes in fair value recorded in earnings. As of September 30, 2021, acquisition-related future consideration liabilities of $11.9 million were primarily related to business combinations made in the first quarter of 2020 and were recorded in ~~response~~Other Current Liabilities ($7.5 million) and Other Long-Term Liabilities ($4.4 million) on the Consolidated Balance Sheets. Management estimated the fair value of future consideration payments based primarily upon expected future cash flows using an income approach valuation methodology with unobservable market data inputs (Level 3).

The following table presents a reconciliation of the beginning and ending balances for Federated Hermes' liability for future consideration payments related to ~~disrupted economic activity~~these business combinations/asset acquisitions:


(in thousands)
Balance at December 31, 2020	$	12,896

Changes in Fair Value	1,206
Contingent Consideration Payments	(2,246)
Balance at September 30, 2021	$	11,856

Investments using Practical Expedients

(b)Fair Value Measurements on a Nonrecurring Basis

Federated Hermes did not hold any assets or liabilities measured at fair value on a nonrecurring basis at September 30, 2021.

(c)Fair Value Measurements of Other Financial Instruments

(9) Derivatives

HFML, a British Pound Sterling-denominated majority-owned subsidiary of Federated Hermes, enters into foreign currency forward transactions in order to hedge against foreign exchange rate fluctuations in the U.S. Dollar. None of the ~~Federal Reserve Board (FOMC)~~forwards have been designated as hedging instruments for accounting purposes. As of September 30, 2021, this subsidiary held foreign currency forward derivative instruments with a combined notional amount of £67.6 million and expiration dates ranging from December 2021 through June 2022. Federated Hermes recorded $2.1 million in Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of September 30, 2021.

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Notes to the Consolidated Financial Statements

(unaudited)

(10)Intangible Assets, including Goodwill

Intangible Assets, net at September 30, 2021 decreased $8.8 million from December 31, 2020 primarily due to $10.4 million of amortization expense and a $4.7 million decrease in the ~~federal funds target~~value of intangible assets denominated in a foreign currency as a result of foreign exchange rate ~~range to 0% - 0.25%~~fluctuations. These decreases were partially offset by $5.3 million of intangible assets recorded in connection with an asset purchase during 2021.

Goodwill at September 30, 2021 decreased $2.0 million from December 31, 2020 primarily as a result of foreign exchange rate fluctuations on goodwill denominated in a foreign currency.

(11) Debt

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 11 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 ~~federal~~Credit Agreement amended and restated Federated Hermes' Third Amended and Restated Credit Agreement, which was dated June 5, 2017 and scheduled to mature on June 5, 2022 (Prior Credit Agreement).

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Notes to the Consolidated Financial Statements

(unaudited)

(12) Share-Based Compensation Plans

(13) Equity


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Class B Shares
Beginning Balance	97,558,017	100,279,043	99,331,443	101,130,379
Stock Award Activity	10,000	22,500	734,674	728,831
Purchase of Treasury Stock	(593,619)	(866,900)	(3,091,719)	(2,424,567)
Ending Balance	96,974,398	99,434,643	96,974,398	99,434,643

Treasury Shares
Beginning Balance	11,947,439	9,226,413	10,174,013	8,375,077
Stock Award Activity	(10,000)	(22,500)	(734,674)	(728,831)
Purchase of Treasury Stock	593,619	866,900	3,091,719	2,424,567
Ending Balance	12,531,058	10,070,813	12,531,058	10,070,813

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Notes to the Consolidated Financial Statements

(unaudited)

(14) Earnings Per Share Attributable to Federated Hermes, Inc. Shareholders

The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Federated Hermes:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2021		2020		2021		2020
Numerator
Net Income Attributable to Federated Hermes, Inc.	$	71,362	$	85,822	$	201,730	$	231,196
Less: Total Net Income Available to Participating Unvested Restricted Shareholders1	(2,989)		(3,378)		(8,363)		(8,937)
Total Net Income Attributable to Federated Hermes Common Stock - Basic	$	68,373	$	82,444	$	193,367	$	222,259
Less: Total Net Income Available to Unvested Restricted Shareholders of a Nonpublic Consolidated Subsidiary	(443)		(391)		(1,273)		(786)
Total Net Income Attributable to Federated Hermes Common Stock - Diluted	$	67,930	$	82,053	$	192,094	$	221,473
Denominator


Basic and Diluted Weighted-Average Federated Hermes Common Stock2	93,320		96,039		94,160		96,726
Earnings Per Share
Net Income Attributable to Federated Hermes Common Stock – Basic2	$	0.73	$	0.86	$	2.05	$	2.30
Net Income Attributable to Federated Hermes Common Stock – Diluted2	$	0.73	$	0.85	$	2.04	$	2.29

1 Includes dividends paid on unvested restricted Federated Hermes Class B Common Stock and their proportionate share of undistributed earnings attributable to Federated Hermes shareholders.

2Federated Hermes Common Stock excludes unvested restricted stock which are deemed participating securities in accordance with the two-class method of computing earnings per share.

(15) Commitments and Contingencies

(a) Contractual

(b)Contingencies

Federated Hermes previously recorded as revenue certain carried interest, subject to clawback provisions, from certain funds ~~target rate drives short-term interest rates.~~(Carried Interest). As of September 30, 2021, approximately $11 million of Carried Interest is subject to clawback. As a result of the ~~near-zero interest-rate environment,~~impact of the ~~gross yield earned~~Pandemic on certain markets, management concluded it was reasonably possible that the market value of the assets held by these funds would be reduced at future valuation dates, which could result in a portion or all of this Carried Interest being repaid. As of September 30, 2021, management estimates that clawbacks will not occur based on the current valuation of the assets held by these funds. Future reductions in the valuation of the assets held by these funds may result in a clawback of a portion or all of this Carried Interest.

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Notes to the Consolidated Financial Statements

(unaudited)

(d)Legal Proceedings

(16)Accumulated Other Comprehensive Income (Loss) Attributable to Federated Hermes, Inc. Shareholders

Accumulated Other Comprehensive Income (Loss), net of tax attributable to Federated Hermes shareholders resulted from foreign currency translation gain (loss):


(in thousands)
Balance at December 31, 2020	$	15,171
Other Comprehensive Income (Loss)	(2,195)




Balance at September 30, 2021	$	12,976

Balance at December 31, 2019	$	(249)
Other Comprehensive Income (Loss)	(9,333)




Balance at September 30, 2020	$	(9,582)

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Notes to the Consolidated Financial Statements

(unaudited)

(17)Redeemable Noncontrolling Interest in Subsidiaries

The following table presents the changes in Redeemable Noncontrolling Interest in Subsidiaries:


(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2020	$	24,246	$	212,741	$	236,987
Net Income (Loss)	(1,091)		953		(138)
Other Comprehensive Income (Loss), net of tax	0		1,430		1,430
Subscriptions—Redeemable Noncontrolling Interest Holders	25,762		0		25,762
Consolidation/(Deconsolidation)	(25,419)		9,182		(16,237)
Stock Award Activity	0		2,481		2,481
Distributions to Noncontrolling Interest in Subsidiaries	(1,320)		(578)		(1,898)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(2,670)		(2,670)
Balance at March 31, 2021	$	22,178	$	223,539	$	245,717
Net Income (Loss)	682		(3,087)		(2,405)
Other Comprehensive Income (Loss), net of tax	0		868		868
Subscriptions—Redeemable Noncontrolling Interest Holders	899,250		712		899,962
Consolidation/(Deconsolidation)	(894,175)		0		(894,175)
Stock Award Activity	0		2,518		2,518
Distributions to Noncontrolling Interest in Subsidiaries	(622)		(394)		(1,016)


Balance at June 30, 2021	$	27,313	$	224,156	$	251,469
Net Income (Loss)	(108)		2,232		2,124
Other Comprehensive Income (Loss), net of tax	0		(9,953)		(9,953)
Subscriptions—Redeemable Noncontrolling Interest Holders	66,506		397		66,903
Consolidation/(Deconsolidation)	(74,836)		0		(74,836)
Stock Award Activity	0		2,557		2,557
Distributions to Noncontrolling Interest in Subsidiaries	(575)		(603)		(1,178)
Acquisition of Additional Equity of HFML	0		(165,112)		(165,112)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(16,502)		(16,502)
Balance at September 30, 2021	$	18,300	$	37,172	$	55,472

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Notes to the Consolidated Financial Statements

(unaudited)


(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2019	$	19,872	$	192,214	$	212,086
Net Income (Loss)	(2,802)		1,889		(913)
Other Comprehensive Income (Loss), net of tax	0		(11,454)		(11,454)
Subscriptions—Redeemable Noncontrolling Interest Holders	5,577		0		5,577
Consolidation/(Deconsolidation)	(4,019)		0		(4,019)
Stock Award Activity	0		2,153		2,153
Distributions to Noncontrolling Interest in Subsidiaries	(6,039)		0		(6,039)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		1,870		1,870
Balance at March 31, 2020	$	12,589	$	186,672	$	199,261
Net Income (Loss)	2,560		1,045		3,605
Other Comprehensive Income (Loss), net of tax	0		(435)		(435)
Subscriptions—Redeemable Noncontrolling Interest Holders	6,225		0		6,225

Stock Award Activity	0		2,087		2,087
Distributions to Noncontrolling Interest in Subsidiaries	(4,058)		0		(4,058)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(2,013)		(2,013)
Balance at June 30, 2020	$	17,316	$	187,356	$	204,672
Net Income (Loss)	1,473		(611)		862
Other Comprehensive Income (Loss), net of tax	0		7,316		7,316
Subscriptions—Redeemable Noncontrolling Interest Holders	3,212		0		3,212

Stock Award Activity	0		2,164		2,164
Distributions to Noncontrolling Interest in Subsidiaries	(358)		0		(358)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(3,567)		(3,567)
Balance at September 30, 2020	$	21,643	$	192,658	$	214,301

(18) Income Taxes

(19) Subsequent Events

On October 28, 2021, the board of directors declared a $0.27 per share dividend to shareholders of record as of November 8, 2021 to be paid on November 15, 2021.


Part I, Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (unaudited)

General

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 assets including market conditions and the ability to attract and retain assets. Generally, managed assets in Federated Hermes' investment products and strategies can be redeemed or withdrawn at any time with no advance notice requirement. Fee rates for Federated Hermes' services generally vary by asset and service type and may vary based on changes in asset levels. Generally, advisory fees charged for services provided to equity and multi-asset products and strategies are higher than advisory fees charged to fixed-income and alternative/private markets products and strategies, which in turn are higher than advisory fees charged to money market products and strategies. 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 product types. Federated Hermes may 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. Since Federated Hermes' products are largely distributed and serviced through financial intermediaries, Federated Hermes pays a portion of fees earned from sponsored products to the financial intermediaries that sell these products and strategies. 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 money market and multi-asset funds than the revenue earned from managed assets in equity, fixed-income and alternative/private markets funds.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Business Developments

Equity Acquisition

On August 31, 2021, Federated completed the 2021 Acquisition of HFML Noncontrolling Interest. See Note (3) to the Consolidated Financial Statements for additional information.

Pandemic

As of September 30, 2021, economies of various countries have rebounded from the global economic shutdown that began in the late first quarter and early second quarter 2020. With the world vaccination rate at over 46%, and vaccination rates nearing or exceeding 50% or greater in several jurisdictions, including the United States, economies in many jurisdictions have reopened as national, state/provincial and local governments have removed or lessened travel restrictions and requirements for staying-at-home and quarantining, as well as other Pandemic-imposed restrictions. Spikes of coronavirus cases, however, continue to occur in certain jurisdictions. These spikes are reportedly being driven by more contagious and potentially more deadly variants of the initial strain of the coronavirus, including the Delta variant. Breakthrough infections of vaccinated individuals are also prevalent in certain jurisdictions. These variants, spikes and breakthrough infections have resulted in certain jurisdictions continuing or re-imposing certain restrictions, although in many cases not to the extent of those initially imposed. As a result, while many governments have taken action to open economies, economic, market, regulatory and other uncertainty persists as a result of the Pandemic. While economic uncertainty and market volatility have continued, in many cases it is not ~~sufficient~~ to ~~cover all of~~ the ~~fund's operating expenses. Beginning~~degree initially seen late in the first quarter ~~2020,~~ and early in the second quarter 2020.

Federated Hermes ~~began~~has not instituted its business continuity plans in its U.S. offices as there has not been a significant disruption of its business processes, allowing it to ~~waive fees~~remain fully operational and to continue to provide services to its customers. Federated Hermes' London office, which includes the international business of Federated Hermes, did implement its business continuity plans on March 20, 2020 to support the transition to a remote working environment per the advice of the UK's government and regulators.

Federated Hermes designated an internal task force (which meets as necessary) to address events related to the Pandemic that have impacted or that can potentially impact Federated Hermes' business. With input and guidance from senior management and this task force, increased vaccinations, and the removal of Pandemic-related restrictions, beginning in ~~order~~April 2021, Federated Hermes encouraged (but did not require) its employees to begin to return to working from its U.S. offices. Beginning on July 6, 2021, Federated Hermes has implemented a structured return to office plan that requires most of its U.S. employees to work from Federated Hermes' offices at least two days a week, or at least three days every other week, depending on their work location and office or work station configuration. Federated Hermes has extended this structured return to office plan through year-end 2021, and has advised its employees that it is delaying, until sometime in the fourth quarter 2021, decisions regarding a further and more significant return to the office for ~~certain money market funds~~U.S. employees. In the UK, in line with the "gradual return" principle outlined by the UK government, a hybrid office, remote working plan has been implemented under which UK employees work in the office two to ~~maintain positive or zero net yields (Voluntary Yield-~~three days a week, with occupancy restricted to 50% of office capacity. Any structured return to office plans for Federated Hermes' non-U.S. employees will be consistent with applicable government requirements.

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~~Notes to the Consolidated Financial Statements~~Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Among other actions, Federated Hermes has taken the following steps:

•Federated Hermes has continued to on-board new hires, providing necessary equipment to them and conducting training remotely when necessary.

•Federated Hermes investment professionals and strategists continue to publish fresh content to the Insights section of Federated Hermes' website, offering their unique perspectives to investors.

Federated Hermes continues to monitor the ongoing global health situation through resources provided by, or contact with, the CDC, the SEC, the World Health Organization and the Securities Industry and Financial Markets Association (SIFMA), a financial services industry trade association, among others. As of September 30, 2021, while Federated Hermes' stock price has fluctuated amidst the volatility in stock prices on major exchanges, and Federated Hermes' business operations have had to adapt to a remote and current hybrid working environment, the Pandemic has not materially affected Federated Hermes' financial condition or cash flows except to the extent that the increased net Voluntary Yield-related Fee Waivers ~~have been partially offset by related reductions~~discussed below resulting from the near-zero interest rate environment can be attributed to the Pandemic. See Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) in ~~distribution expense as a result of~~ Federated Hermes' ~~mutual understanding and agreement with third-party intermediaries to share~~Annual Report on Form 10-K for the ~~impact of~~year ended December 31, 2020 for information regarding the ~~Voluntary Yield-related Fee Waivers.~~

During the three and nine months ended September 30, 2020, Voluntary Yield-related Fee Waivers totaled $36.8 million and $56.9 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $33.0 million and $51.0 million, respectively, such that the net negative pre-tax impactrisks to Federated Hermes was $3.8 million and $5.9 million for the three and nine months ended September 30, 2020, respectively. See Management's Discussion and Analysis under the caption Business Developments - Low Short-Term Interest Rates for additional information on management's expectations regarding Voluntary Yield-related Fee Waivers.

~~(b)Revenue Concentration by Investment Strategy/Fund~~

~~The following table presents Federated Hermes' revenue concentration by investment strategy/fund:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Federated Hermes Government Obligations Fund 14 % 10 % 13 % 10 %
Federated Hermes Strategic Value Dividend strategy1
7 % 11 % 8 % 11 %

1~~Strategy includes Federated Hermes Funds and Separate Accounts.~~

A significant and prolonged decline in the AUM in this fund or strategy 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 the Federated Hermes Funds managed in accordance with this fund or strategy.

~~(c) Revenue Concentration by Intermediary~~

Approximately 6% and 8% of Federated Hermes' total revenue for the three- and nine-month periods ended September 30, 2020, respectively, and 11% for both the three- and nine-month periods ended September 30, 2019 was derived from services provided to one intermediary, The Bank of New York Mellon Corporation, including its Pershing subsidiary. Significant negative changes in Federated Hermes' relationship with this intermediary 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 intermediary.

~~(7) Consolidation~~

The Consolidated Financial Statements include the accounts of Federated Hermes, certain Federated Hermes Funds and other entities in which Federated Hermes holds a controlling financial interest. Federated Hermes is involved with various entities in the normal course of business that may be deemed to be voting rights entities (VREs) or variable interest entities (VIEs). From time to time, Federated Hermes invests in Federated Hermes Funds for general corporate investment purposes or, in the case of newly launched products, in order to provide investable cash to establish a performance history. Federated Hermes' investment in, and/or receivables from, these Federated Hermes Funds represents its maximum exposure to loss. The assets of each consolidated Federated Hermes Fund are restricted for usepresented by the respective Federated Hermes Fund. Generally, neither creditors of, nor equity investors in, the Federated Hermes Funds have any recourse to Federated Hermes' general credit. Given that the entities consolidated by Federated Hermes follow investment company accounting, which prescribes fair-value accounting, a deconsolidation generally does not result in gains or losses.

In the ordinary course of business, Federated Hermes may implement fee waivers for various Federated Hermes Funds for competitive reasons (such as to maintain certain fund ratios or for Voluntary Yield-related Fee Waivers), to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers). For the three and nine months ended September 30, 2020, Fee Waivers totaled $174.6 million and $490.0 million, respectively, of which $145.1 million and $386.8 million, respectively, related to money market funds which meet the scope exception of the consolidation guidance. For the three and nine months ended September 30, 2019, Fee Waivers totaled $110.2 million and $310.7 million, respectively, of which $81.5 million and $223.3 million, respectively, related to money market funds which meet the scope exception of the consolidation guidance.Pandemic.

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~~Notes to the Consolidated Financial Statements~~Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Like other sponsors of investment companies, Federated Hermes in the ordinary course of business may make capital contributions to certain affiliated money market Federated Hermes Funds in connection with the reorganization of such funds into certain other affiliated money market Federated Hermes Funds or in connection with the liquidation of a money market Federated Hermes Fund. In these instances, such capital contributions typically are intended to either offset realized losses or other permanent impairments to a fund's net asset value (NAV), increase the market-based NAV per share of the fund's portfolio that is being reorganized to equal the market-based NAV per share of the acquiring fund or to bear a portion of expenses relating to a fund liquidation. Under current money fund regulations and Securities and Exchange Commission (SEC) guidance, Federated Hermes is required to report these types of capital contributions to U.S. money market mutual funds to the SEC as financial support to the investment company that is being reorganized or liquidated. There were 0 contributions for the three and nine months ended September 30, 2020 or 2019.

~~(a)Consolidated Voting Rights Entities~~

Most of the Federated Hermes Funds meet the definition of a VRE, which Federated Hermes will consolidate only when it is deemed to have control. Consolidated VREs are reported on Federated Hermes' Consolidated Balance Sheets primarily in Investments—Consolidated Investment Companies and Redeemable Noncontrolling Interest in Subsidiaries.

~~(b) Consolidated Variable Interest Entities~~

As of each period ended September 30, 2020 and December 31, 2019, Federated Hermes was deemed to be the primary beneficiary of, and therefore consolidated, a Federated Hermes Fund as a result of its controlling financial interest. The following table presents the balances related to the consolidated Federated Hermes Fund VIE that was included on the Consolidated Balance Sheets as well as Federated Hermes' net interest in the consolidated Federated Hermes Fund VIE for each period presented.

(in millions) September 30, 2020 December 31, 2019
Investments—Consolidated Investment Companies 6.8 13.3
Other Assets 0.2 0.3
Less: Liabilities 0.1 0.1
Less: Redeemable Noncontrolling Interest in Subsidiaries 0.0 9.3
Federated Hermes' Net Interest in Federated Hermes Fund VIE $ 6.9 $ 4.2

~~Federated Hermes' net interest in the consolidated Federated Hermes Fund VIE represents the value of Federated Hermes' economic ownership interest in that Federated Hermes Fund.~~

During the second quarter of 2020, Federated Hermes liquidated its investment in the one consolidated VIE in which it was the only remaining shareholder. Accordingly, Federated Hermes redeemed $6.0 million from Investments—Consolidated Investment Companies on the Consolidated Balance Sheets as of the date of the liquidation. There was no impact to the Consolidated Statements of Income as a result of this liquidation. During the third quarter of 2020, Federated Hermes provided a seed investment for a newly created Federated Hermes Fund VIE. There was no impact to the Consolidated Statements of Income as a result of this consolidation. There were no other consolidations or deconsolidations of VIEs during the nine months ended September 30, 2020.

~~(c) Non-Consolidated Variable Interest Entities~~

Federated Hermes' involvement with certain Federated Hermes Funds that are deemed to be VIEs includes serving as the investment manager, or at times, holding a minority interest or both. Federated Hermes' variable interest is not deemed to absorb losses or receive benefits that could potentially be significant to the VIE. Therefore, Federated Hermes is not the primary beneficiary of these VIEs and has not consolidated these entities.

At September 30, 2020 and December 31, 2019, Federated Hermes' variable interest in non-consolidated VIEs was $7.7 million and $111.9 million, respectively, (primarily recorded in Other Long-Term Assets and Cash and Cash Equivalents, respectively,

~~Table of Contents~~



~~Notes to the Consolidated Financial Statements (continued)~~
~~(unaudited)~~

on the Consolidated Balance Sheets) and was entirely related to Federated Hermes Funds. AUM for these non-consolidated Federated Hermes Funds totaled $303.6 million and $9.6 billion at September 30, 2020 and December 31, 2019, respectively. Of the Receivables—Affiliates at September 30, 2020 and December 31, 2019, $0.7 million and .$15.4 million, respectively, related to non-consolidated VIEs and represented Federated Hermes' maximum risk of loss from non-consolidated VIE receivables.

~~(8) Investments~~

At September 30, 2020 and December 31, 2019, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of $33.8 million and $20.1 million, respectively, primarily in mutual funds which invest in equity securities. Federated Hermes held investments in Separate Accounts of $9.4 million and $6.8 million at September 30, 2020 and December 31, 2019, respectively, that were included in Investments—Affiliates and Other on the Consolidated Balance Sheets. Federated Hermes' investments held in Separate Accounts as of September 30, 2020 and December 31, 2019, were primarily composed of domestic debt securities ($5.5 million and $2.6 million, respectively) and stocks of large U.S. and international companies ($3.0 million at each period end).

Federated Hermes consolidates certain Federated Hermes Funds into its Consolidated Financial Statements as a result of Federated Hermes' controlling financial interest in these Federated Hermes Funds (see Note (7)). All investments held by these consolidated Federated Hermes Funds were included in Investments—Consolidated Investment Companies on Federated Hermes' Consolidated Balance Sheets.

The investments held by consolidated Federated Hermes Funds as of September 30, 2020 and December 31, 2019 were primarily composed of domestic and foreign debt securities ($38.0 million and $38.9 million, respectively) and stocks of large international and U.S. companies ($26.8 million and $22.6 million, respectively).

~~The following table presents gains and losses recognized in Gain (Loss) on Securities, net on the Consolidated Statements of Income in connection with Federated Hermes' investments:~~

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2020 2019 2020 2019
Investments—Consolidated Investment Companies
Unrealized Gains (Losses) $ 4,451 $ (364) $ 3,987 $ 1,345
Net Realized Gains (Losses)1
(47) (119) (1,151) (786)
Net Gains (Losses) on Investments—Consolidated Investment Companies 4,404 (483) 2,836 559
Investments—Affiliates and Other
Unrealized Gains (Losses) 1,816 2,298 1,410 3,515
Net Realized Gains (Losses)1
(368) (2,401) (406) (2,404)
Net Gains (Losses) on Investments—Affiliates and Other 1,448 (103) 1,004 1,111
Gain (Loss) on Securities, net $ 5,852 $ (586) $ 3,840 $ 1,670

~~1 Realized gains and losses are computed on a specific-identification basis.~~

~~(9) Fair Value Measurements~~

~~Table of Contents~~



~~Notes to the Consolidated Financial Statements (continued)~~
~~(unaudited)~~

~~over-the-counter derivative contracts whose fair value is determined using a pricing model without significant unobservable market data inputs.~~

~~Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable in active markets.~~

~~NAV Practical Expedient – Investments that calculate NAV per share (or its equivalent) as a practical expedient. These investments have been excluded from the fair value hierarchy.~~

~~(a)Fair Value Measurements on a Recurring Basis~~

~~The following table presents fair value measurements for Federated Hermes' financial assets and liabilities measured at fair value on a recurring basis:~~

(in thousands) Level 1 Level 2 Level 3 Total
September 30, 2020
Financial Assets
Cash and Cash Equivalents $ 322,847 $ 0 $ 0 $ 322,847
Investments—Consolidated Investment Companies 13,098 58,005 0 71,103
Investments—Affiliates and Other 37,357 5,497 355 43,209
Other1
8,796 1,157 0 9,953
Total Financial Assets $ 382,098 $ 64,659 $ 355 $ 447,112
Total Financial Liabilities2
$ 37 $ 6 $ 11,646 $ 11,689
December 31, 2019
Financial Assets
Cash and Cash Equivalents $ 249,174 $ 0 $ 0 $ 249,174
Investments—Consolidated Investment Companies 7,245 57,281 0 64,526
Investments—Affiliates and Other 23,667 2,945 323 26,935
Other1
2,901 3,177 0 6,078
Total Financial Assets $ 282,987 $ 63,403 $ 323 $ 346,713
Total Financial Liabilities2
$ 6 $ 0 $ 2,081 $ 2,087

~~1 Amounts primarily consist of restricted cash, security deposits and a derivative asset~~ ~~as of September 30, 2020 and a derivative asset and security deposits as of December 31, 2019.~~

~~2 Amounts primarily consist of acquisition-related future contingent consideration liabilities.~~

Cash and Cash Equivalents

Cash and Cash Equivalents include deposits with banks and investments in money market funds. Investments in money market funds totaled ~~$252.2~~$161.9 million and ~~$222.1~~$244.3 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Cash investments in publicly available money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy.

Investments—Consolidated Investment Companies

Investments—Consolidated Investment Companies represent securities held by consolidated Federated Hermes Funds. For publicly traded securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices. The fair value of certain securities held by consolidated Federated Hermes Funds are determined by a third-party pricing ~~service and may include~~services which utilize observable market inputs of comparable investments (Level 2).

Investments—Affiliates and Other

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~~Notes to the Consolidated Financial Statements (continued)~~
~~(unaudited)~~

market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy. For publicly traded securities available in an active market, the fair value of these securities is classified as Level 1 when the fair value is based on quoted market prices. The fair value of certain securities are determined by third-party pricing services ~~and may include~~which utilize observable market inputs of comparable investments (Level 2).

Table of Contents

Notes to the Consolidated Financial Statements

(unaudited)

Acquisition-related future contingent consideration liabilities

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes may be required to make future consideration payments if certain contingencies are met. In connection with certain business combinations, Federated Hermes records a liability representing the estimated fair value of future consideration payments as of the acquisition date. The liability is subsequently re-measured at fair value on a recurring basis with changes in fair value recorded in earnings. As of September 30, ~~2020,~~2021, acquisition-related future consideration liabilities of ~~$11.6~~$11.9 million were primarily related to business combinations made in the first quarter of 2020 and were recorded in Other Current Liabilities ($~~7.3~~7.5 million) and Other Long-Term Liabilities ($~~4.3~~4.4 million) on the Consolidated Balance Sheets. Management estimated the fair value of future consideration payments based primarily upon expected future cash flows using an income approach valuation methodology with unobservable market data inputs (Level 3).


(in thousands)
Balance at December 31, ~~2019~~2020	$	~~2,081~~12,896
~~New Acquisitions~~1	~~8,201~~
Changes in Fair Value	~~3,198~~1,206
Contingent Consideration Payments	~~(1,834)~~(2,246)
Balance at September 30, ~~2020~~2021	$	~~11,646~~11,856

~~1 Represents the preliminary fair value of the contingent payment liability recorded in connection with new acquisitions accounted for as business combinations.~~

Investments using Practical Expedients

For investments in mutual funds that are not publicly available but for which the NAV is calculated monthly and for which there are redemption restrictions, the ~~securities~~investments are valued using NAV as a practical expedient and are excluded from the fair value hierarchy. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, these investments totaled ~~$5.2~~$17.2 million and ~~$3.7~~$6.9 million, respectively, and were recorded in Other Long-Term Assets.

(b) Fair Value Measurements on a Nonrecurring Basis

Federated Hermes did not hold any assets or liabilities measured at fair value on a nonrecurring basis at September 30, ~~2020.~~

2021.

~~(10)~~(9) Derivatives

~~Hermes Fund Managers Limited (Hermes),~~HFML, a British Pound Sterling-denominated majority-owned subsidiary of Federated Hermes, enters into foreign currency forward transactions in order to hedge against foreign exchange rate fluctuations in the U.S. Dollar. None of the forwards have been designated as hedging instruments for accounting purposes. As of September 30, ~~2020,~~2021, this subsidiary held foreign currency forward derivative instruments with a combined notional amount of ~~£48.3~~£67.6 million and expiration dates ranging from December ~~2020~~2021 through June ~~2021.~~2022. Federated Hermes recorded ~~$1.1~~$2.1 million in ~~Receivables~~Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of September 30, ~~2020.~~2021.

As of December 31, ~~2019, Hermes~~2020, HFML held foreign currency forward derivative instruments with a combined notional amount of ~~£53.0~~£47.3 million and expiration dates ranging from March ~~2020~~2021 through September ~~2020.~~2021. Federated Hermes recorded ~~$3.1~~$5.1 million

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~~Notes to the Consolidated Financial Statements (continued)~~
~~(unaudited)~~

in Receivables on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, ~~2019.~~2020.

~~(11)~~Table of Contents

Notes to the Consolidated Financial Statements

(unaudited)

(10) Intangible Assets, including Goodwill

Intangible Assets, net at September 30, ~~2020 increased $19.0~~2021 decreased $8.8 million from December 31, ~~2019~~2020 primarily due to ~~$27.6~~$10.4 million of ~~intangible assets recorded in connection with the HCL acquisition~~amortization expense and ~~$7.3 million in connection with the MEPC acquisition (see Note (4) for additional information). These increases were partially offset by~~ a ~~$8.4~~$4.7 million decrease in the value of intangible assets denominated in a foreign currency as a result of foreign exchange rate ~~fluctuations and $9.0~~fluctuations. These decreases were partially offset by $5.3 million of ~~amortization expense.~~intangible assets recorded in connection with an asset purchase during 2021.

Goodwill at September 30, ~~2020 increased $17.8~~2021 decreased $2.0 million from December 31, ~~2019~~2020 primarily due to $19.1 million of goodwill recorded in connection with the HCL acquisition and $1.7 million related to the MEPC acquisition. These increases were partially offset by a $3.0 million decrease in the value of goodwill denominated in a foreign currency as a result of foreign exchange rate ~~fluctuations.~~fluctuations on goodwill denominated in a foreign currency.

~~(12)~~(11) Debt

On ~~June 5, 2017,~~July 30, 2021, Federated Hermes entered into an unsecured ~~Third~~Fourth Amended and Restated Credit Agreement by and among Federated Hermes, certain of its subsidiaries as guarantors party thereto, a syndicate of 1011 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 TDToronto-Dominion Bank, ~~N.A.~~New York Branch as documentation agent (Credit Agreement). The Credit Agreement amended and restated Federated Hermes' Third Amended and Restated Credit Agreement, which was dated June 5, 2017 and scheduled to mature on June 5, 2022 (Prior Credit Agreement).

The Credit Agreement consists of a ~~$375~~$350 million revolving credit facility with an additional $200 million available via an optional increase (or accordion) feature. The interest on the borrowings from the revolving credit facility is calculated at the monthly London Interbank Offering Rate (LIBOR) plus a ~~spread.~~spread unless a base rate option is elected. The borrowings under the revolving credit facility may include up to ~~$25~~$50 million for which interest is calculated at the daily LIBOR plus a spread unless a base rate option is elected (Swing Line). ~~On July 1, 2018, Federated Hermes entered into an amendment to the~~The Credit Agreement provides for a replacement reference interest rate index upon the eventual discontinuation of LIBOR, each having a benchmark adjustment applied based on its historical relationship to ~~add certain definitions~~LIBOR, which can be either the term Secured Overnight Financing Rate (SOFR) plus a spread, daily simple SOFR plus a spread, or another alternative interest rate index (selected by the administrative agent and ~~to amend certain negative covenants regarding indebtedness, guarantees, and restrictions on dividends, related to the 2018 acquisition of~~Federated Hermes) plus a ~~controlling interest in Hermes (Hermes Acquisition). This amendment contains other customary conditions, representations, warranties and covenants.~~spread.

The Credit Agreement, which expires on ~~June 5, 2022,~~July 30, 2026, has no principal payment schedule, but instead requires that any outstanding principal be repaid by the expiration date. Federated Hermes, however, may elect to make discretionary principal payments. During the first nine months of ~~2020,~~2021, Federated Hermes borrowed ~~$100~~$82.2 million ~~from~~and repaid $55.0 million of the revolving credit facility ~~for general corporate purposes~~under the Credit Agreement and ~~repaid $110 million.~~ Prior Credit Agreement.

As of September 30, ~~2020 and December 31, 2019,~~2021, the ~~amounts~~amount outstanding ~~under~~on the revolving credit facility ~~were $90~~under the Credit Agreement was $102.2 million and ~~$100 million, respectively, and were~~was recorded as Long-Term Debt on the Consolidated Balance Sheets. The interest rate was ~~1.280% and 2.816%~~1.084% as of September 30, ~~2020 and December 31, 2019, respectively, which was calculated at LIBOR plus a spread.~~2021. The commitment fee under the Credit Agreement ~~currently~~ is ~~0.125%~~0.10% per annum on the daily unused portion of each Lender's commitment. As of September 30, ~~2020,~~2021, Federated Hermes has ~~$285~~$247.8 million available for ~~borrowings.~~borrowings under the revolving credit facility and an additional $200 million available via its optional accordion feature.

The Credit Agreement, similar to the Prior Credit Agreement, includes representations and warranties, affirmative and negative financial covenants, including an interest coverage ratio covenant and a leverage ratio covenant, reporting requirements and other non-financial covenants. Federated Hermes was in compliance with all covenants at and during the nine months ended September 30, ~~2020 (see~~2021. See the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations for additional ~~information).~~information. The Credit Agreement also has 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. The Credit Agreement also requires certain subsidiaries to enter into a ~~Second~~Third Amended and Restated Continuing Agreement of Guaranty and Suretyship to guarantee payment of all obligations incurred through the Credit Agreement.

Table of Contents

Notes to the Consolidated Financial Statements

(unaudited)

~~(13)~~(12) Share-Based Compensation Plans

During the nine months ended September 30, ~~2020,~~2021, Federated Hermes awarded ~~722,081~~727,924 shares of restricted Federated Hermes Class B common stock, nearly all of which was granted in connection with a bonus program in which certain key employees

~~Table of Contents~~



~~Notes to the Consolidated Financial Statements (continued)~~
~~(unaudited)~~

receive a portion of their bonus in the form of restricted stock under Federated Hermes' Stock Incentive Plan. This restricted stock, which was granted on the bonus payment date and issued out of treasury, ~~will~~ generally ~~vest~~vests over three years.

During ~~2019,~~2020, Federated Hermes awarded ~~928,324~~1,134,581 shares of restricted Federated Hermes Class B common stock under its Stock Incentive Plan. Of this amount, ~~498,324~~649,581 shares were awarded in connection with the aforementioned bonus program. The remaining shares were awarded to certain key employees and generally vest over ten years.

~~(14)~~(13) Equity

In ~~October 2016,~~April 2021, the board of directors authorized a share repurchase program with no stated expiration date that allows the ~~buy back~~repurchase of up to 4 million shares of Class B common stock. This program was fulfilled in March 2020. In March 2020, the board of directors authorized a share repurchase program with no stated expiration date that allows the buy back of up to 500 thousand shares of Class B common stock. This program was fulfilled in May 2020. In April 2020, the board of directors authorized a share repurchase program with no stated expiration date that allows the buy back of up to 3.54.0 million shares of Class B common stock. No other ~~programs~~program existed as of September 30, ~~2020.~~2021. The program authorizes executive management to determine the timing and the amount of shares for each purchase. The repurchased stock is to be held in treasury for employee share-based compensation plans, potential acquisitions and other corporate activities, unless Federated Hermes' board of directors subsequently determines to retire the repurchased stock and restore the shares to authorized but unissued status (rather than holding the shares in treasury). During the first nine months of ~~2020,~~2021, Federated Hermes repurchased approximately ~~2.4~~3.1 million shares of its Class B common stock for ~~$54.1~~$94.5 million ($~~1.0~~3.2 million of which was accrued in Other Current Liabilities as of September 30, ~~2020)~~2021), ~~most~~nearly all of which were repurchased in the open market. At September 30, ~~2020,~~2021, approximately ~~2.2~~2.6 million shares ~~remain~~remained available to be ~~purchased~~repurchased under ~~Federated Hermes' remaining buyback~~this share repurchase program.

The following table presents the activity for the Class B common stock and Treasury stock for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. Class A shares have been excluded as there was no activity during these same periods.

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Class B Shares
Beginning Balance 100,279,043 101,211,023 101,130,379 100,803,382
Stock Award Activity 22,500 7,500 728,831 528,574
Purchase of Treasury Stock (866,900) (79,592) (2,424,567) (193,025)
Ending Balance 99,434,643 101,138,931 99,434,643 101,138,931
Treasury Shares
Beginning Balance 9,226,413 8,294,433 8,375,077 8,702,074
Stock Award Activity (22,500) (7,500) (728,831) (528,574)
Purchase of Treasury Stock 866,900 79,592 2,424,567 193,025
Ending Balance 10,070,813 8,366,525 10,070,813 8,366,525


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Class B Shares
Beginning Balance	97,558,017	100,279,043	99,331,443	101,130,379
Stock Award Activity	10,000	22,500	734,674	728,831
Purchase of Treasury Stock	(593,619)	(866,900)	(3,091,719)	(2,424,567)
Ending Balance	96,974,398	99,434,643	96,974,398	99,434,643

Treasury Shares
Beginning Balance	11,947,439	9,226,413	10,174,013	8,375,077
Stock Award Activity	(10,000)	(22,500)	(734,674)	(728,831)
Purchase of Treasury Stock	593,619	866,900	3,091,719	2,424,567
Ending Balance	12,531,058	10,070,813	12,531,058	10,070,813

Table of Contents

Notes to the Consolidated Financial Statements ~~(continued)~~

(unaudited)

~~(15)~~(14) Earnings Per Share Attributable to Federated Hermes, Inc. Shareholders

The following table sets forth the computation of basic and diluted earnings per share using the two-class method for amounts attributable to Federated Hermes:


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2020		2019		2020		2019		(in thousands, except per share data)	2021		2020		2021		2020
Numerator	Numerator									Numerator
Net Income Attributable to Federated Hermes, Inc.	Net Income Attributable to Federated Hermes, Inc.	$	85,822	$	72,962	$	231,196	$	190,232	Net Income Attributable to Federated Hermes, Inc.	$	71,362	$	85,822	$	201,730	$	231,196
Less: Total Net Income Available to Participating Unvested Restricted Shareholders1	Less: Total Net Income Available to Participating Unvested Restricted Shareholders1	(3,378)		(2,774)		(8,937)		(7,322)		Less: Total Net Income Available to Participating Unvested Restricted Shareholders1	(2,989)		(3,378)		(8,363)		(8,937)
Total Net Income Attributable to Federated Hermes Common Stock - Basic	Total Net Income Attributable to Federated Hermes Common Stock - Basic	$	82,444	$	70,188	$	222,259	$	182,910	Total Net Income Attributable to Federated Hermes Common Stock - Basic	$	68,373	$	82,444	$	193,367	$	222,259
Less: Total Net Income Available to Unvested Restricted Shareholders of a Nonpublic Consolidated Subsidiary	Less: Total Net Income Available to Unvested Restricted Shareholders of a Nonpublic Consolidated Subsidiary	(391)		(258)		(786)		(457)		Less: Total Net Income Available to Unvested Restricted Shareholders of a Nonpublic Consolidated Subsidiary	(443)		(391)		(1,273)		(786)
Total Net Income Attributable to Federated Hermes Common Stock - Diluted	Total Net Income Attributable to Federated Hermes Common Stock - Diluted	$	82,053	$	69,930	$	221,473	$	182,453	Total Net Income Attributable to Federated Hermes Common Stock - Diluted	$	67,930	$	82,053	$	192,094	$	221,473
Denominator	Denominator									Denominator

Basic and Diluted Weighted-Average Federated Hermes Common Stock2	Basic and Diluted Weighted-Average Federated Hermes Common Stock2	96,039		97,306		96,726		97,211		Basic and Diluted Weighted-Average Federated Hermes Common Stock2	93,320		96,039		94,160		96,726
Earnings Per Share	Earnings Per Share									Earnings Per Share
Net Income Attributable to Federated Hermes Common Stock – Basic2	Net Income Attributable to Federated Hermes Common Stock – Basic2	$	0.86	$	0.72	$	2.30	$	1.88	Net Income Attributable to Federated Hermes Common Stock – Basic2	$	0.73	$	0.86	$	2.05	$	2.30
Net Income Attributable to Federated Hermes Common Stock – Diluted2	Net Income Attributable to Federated Hermes Common Stock – Diluted2	$	0.85	$	0.72	$	2.29	$	1.88	Net Income Attributable to Federated Hermes Common Stock – Diluted2	$	0.73	$	0.85	$	2.04	$	2.29

1 Includes dividends paid on unvested restricted Federated Hermes Class B Common Stock and their proportionate share of undistributed earnings attributable to Federated Hermes shareholders.

2 Federated Hermes Common Stock excludes unvested restricted stock which are deemed participating securities in accordance with the two-class method of computing earnings per share.

~~(16)~~(15) Commitments and Contingencies

(a) Contractual

From time to time, pursuant to agreements entered into in connection with certain business combinations and asset acquisitions, Federated Hermes ~~may be required~~is obligated to make future ~~consideration~~ payments ~~if certain contingencies are met.~~under various agreements to which it is a party. See Note ~~(9)~~(8) for additional information regarding these payments.

(b) Contingencies

Federated Hermes previously recorded as revenue certain carried interest, ~~from certain funds~~ subject to clawback provisions, from certain funds (Carried Interest). As of September 30, ~~2020,~~2021, approximately $11 million of Carried Interest is subject to clawback. As a result of the ~~significant~~ impact of the ~~coronavirus pandemic (Covid-19)~~Pandemic on certain markets, ~~beginning in the first quarter of 2020,~~ management concluded it was ~~probable~~reasonably possible that the market value of the assets held by these funds would be reduced at ~~the December 31, 2020~~future valuation ~~date,~~dates, which could result in a portion or all of this Carried Interest being ~~repaid in 2021.~~repaid. As of September 30, ~~2020,~~2021, management estimates that ~~a clawback~~clawbacks will not occur based on the current valuation of the assets held by these funds. ~~However, due to~~Future reductions in the ~~uncertainty of the impact that Covid-19 may continue to have on the value~~valuation of the assets held by these funds ~~as of the December 31, 2020 valuation date,~~may result in a clawback of a portion or all of this Carried ~~Interest may occur and could be material.~~Interest.

Table of Contents

Notes to the Consolidated Financial Statements ~~(continued)~~

(unaudited)

~~Federated Hermes' right to challenge the claim. Further, Federated Hermes' obligations under these~~ agreements may be limited in terms of time and/or amount. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of Federated Hermes' obligations and the unique facts and circumstances involved in each particular agreement. As of September 30, ~~2020,~~2021, management does not believe that a material loss related to any of these matters is reasonably possible.

(d) Legal Proceedings

Like other companies, Federated Hermes has claims asserted and threatened against it in the ordinary course of business. As of September 30, ~~2020,~~2021, Federated Hermes does not believe that a material loss related to these claims is reasonably possible.

~~(17)~~(16) Accumulated Other Comprehensive Income (Loss) Attributable to Federated Hermes, Inc. Shareholders

Accumulated Other Comprehensive Income (Loss), net of tax attributable to Federated Hermes shareholders resulted from foreign currency translation gain (loss):


(in thousands)
Balance at December 31, 2020	$	15,171
Other Comprehensive Income (Loss)	(2,195)




Balance at September 30, 2021	$	12,976

Balance at December 31, 2019	$	(249)
Other Comprehensive Income (Loss)	(9,333)




Balance at September 30, 2020	$	(9,582)

~~Balance at December 31, 2018~~	$	~~(14,617)~~
~~Other Comprehensive Income (Loss)~~	~~(13,670)~~




~~Balance at September 30, 2019~~	$	~~(28,287)~~

Table of Contents

Notes to the Consolidated Financial Statements ~~(continued)~~

(unaudited)

~~(18)~~(17) Redeemable Noncontrolling Interest in Subsidiaries

The following table presents the changes in Redeemable Noncontrolling Interest in Subsidiaries:


(in thousands)	(in thousands)	Consolidated Investment Companies		Hermes		Total		(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2019		$	19,872	$	192,214	$	212,086
Balance at December 31, 2020								Balance at December 31, 2020	$	24,246	$	212,741	$	236,987
Net Income (Loss)	Net Income (Loss)	(2,802)		1,889		(913)		Net Income (Loss)	(1,091)		953		(138)
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		(11,454)		(11,454)		Other Comprehensive Income (Loss), net of tax	0		1,430		1,430
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	5,577		0		5,577		Subscriptions—Redeemable Noncontrolling Interest Holders	25,762		0		25,762
Consolidation/(Deconsolidation)	Consolidation/(Deconsolidation)	(4,019)		0		(4,019)		Consolidation/(Deconsolidation)	(25,419)		9,182		(16,237)
Stock Award Activity	Stock Award Activity	0		2,153		2,153		Stock Award Activity	0		2,481		2,481
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	(6,039)		0		(6,039)		Distributions to Noncontrolling Interest in Subsidiaries	(1,320)		(578)		(1,898)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		1,870		1,870		Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(2,670)		(2,670)
Balance at March 31, 2020		$	12,589	$	186,672	$	199,261
Balance at March 31, 2021								Balance at March 31, 2021	$	22,178	$	223,539	$	245,717
Net Income (Loss)	Net Income (Loss)	2,560		1,045		3,605		Net Income (Loss)	682		(3,087)		(2,405)
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		(435)		(435)		Other Comprehensive Income (Loss), net of tax	0		868		868
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	6,225		0		6,225		Subscriptions—Redeemable Noncontrolling Interest Holders	899,250		712		899,962

Consolidation/(Deconsolidation)								Consolidation/(Deconsolidation)	(894,175)		0		(894,175)
Stock Award Activity	Stock Award Activity	0		2,087		2,087		Stock Award Activity	0		2,518		2,518
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	(4,058)		0		(4,058)		Distributions to Noncontrolling Interest in Subsidiaries	(622)		(394)		(1,016)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests		0		(2,013)		(2,013)
Balance at June 30, 2020		$	17,316	$	187,356	$	204,672

Balance at June 30, 2021								Balance at June 30, 2021	$	27,313	$	224,156	$	251,469
Net Income (Loss)	Net Income (Loss)	1,473		(611)		862		Net Income (Loss)	(108)		2,232		2,124
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		7,316		7,316		Other Comprehensive Income (Loss), net of tax	0		(9,953)		(9,953)
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	3,212		0		3,212		Subscriptions—Redeemable Noncontrolling Interest Holders	66,506		397		66,903

Consolidation/(Deconsolidation)								Consolidation/(Deconsolidation)	(74,836)		0		(74,836)
Stock Award Activity	Stock Award Activity	0		2,164		2,164		Stock Award Activity	0		2,557		2,557
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	(358)		0		(358)		Distributions to Noncontrolling Interest in Subsidiaries	(575)		(603)		(1,178)

Acquisition of Additional Equity of HFML								Acquisition of Additional Equity of HFML	0		(165,112)		(165,112)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(3,567)		(3,567)		Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(16,502)		(16,502)
Balance at September 30, 2020		$	21,643	$	192,658	$	214,301
Balance at September 30, 2021								Balance at September 30, 2021	$	18,300	$	37,172	$	55,472

Table of Contents

Notes to the Consolidated Financial Statements ~~(continued)~~

(unaudited)


(in thousands)	(in thousands)	Consolidated Investment Companies		Hermes		Total		(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2018		$	11,626	$	170,887	$	182,513
Balance at December 31, 2019								Balance at December 31, 2019	$	19,872	$	192,214	$	212,086
Net Income (Loss)								Net Income (Loss)	(2,802)		1,889		(913)
Other Comprehensive Income (Loss), net of tax								Other Comprehensive Income (Loss), net of tax	0		(11,454)		(11,454)
Subscriptions—Redeemable Noncontrolling Interest Holders								Subscriptions—Redeemable Noncontrolling Interest Holders	5,577		0		5,577
Consolidation/(Deconsolidation)								Consolidation/(Deconsolidation)	(4,019)		0		(4,019)
Stock Award Activity								Stock Award Activity	0		2,153		2,153
Distributions to Noncontrolling Interest in Subsidiaries								Distributions to Noncontrolling Interest in Subsidiaries	(6,039)		0		(6,039)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests								Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		1,870		1,870
Balance at March 31, 2020								Balance at March 31, 2020	$	12,589	$	186,672	$	199,261
Net Income (Loss)	Net Income (Loss)	678		(613)		65		Net Income (Loss)	2,560		1,045		3,605
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		3,714		3,714		Other Comprehensive Income (Loss), net of tax	0		(435)		(435)
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	42		0		42		Subscriptions—Redeemable Noncontrolling Interest Holders	6,225		0		6,225

Stock Award Activity	Stock Award Activity	0		2,126		2,126		Stock Award Activity	0		2,087		2,087
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	(2,260)		0		(2,260)		Distributions to Noncontrolling Interest in Subsidiaries	(4,058)		0		(4,058)

Balance at March 31, 2019		$	10,086	$	176,114	$	186,200
Net Income (Loss)		340		776		1,116
Other Comprehensive Income (Loss), net of tax		0		(4,600)		(4,600)
Subscriptions—Redeemable Noncontrolling Interest Holders		1,822		0		1,822

Stock Award Activity		0		1,773		1,773
Distributions to Noncontrolling Interest in Subsidiaries		(541)		0		(541)
Business Acquisition		0		(386)		(386)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		16,604		16,604		Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(2,013)		(2,013)
Balance at June 30, 2019		$	11,707	$	190,281	$	201,988
Balance at June 30, 2020								Balance at June 30, 2020	$	17,316	$	187,356	$	204,672
Net Income (Loss)	Net Income (Loss)	(209)		832		623		Net Income (Loss)	1,473		(611)		862
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		(5,544)		(5,544)		Other Comprehensive Income (Loss), net of tax	0		7,316		7,316
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	687		0		687		Subscriptions—Redeemable Noncontrolling Interest Holders	3,212		0		3,212

Stock Award Activity	Stock Award Activity	0		2,125		2,125		Stock Award Activity	0		2,164		2,164
Distributions to Noncontrolling Interest in Subsidiaries	Distributions to Noncontrolling Interest in Subsidiaries	(387)		0		(387)		Distributions to Noncontrolling Interest in Subsidiaries	(358)		0		(358)

Balance at September 30, 2019		$	11,798	$	187,694	$	199,492
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests								Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		(3,567)		(3,567)
Balance at September 30, 2020								Balance at September 30, 2020	$	21,643	$	192,658	$	214,301

(18) Income Taxes

(19) Subsequent Events

On October ~~29, 2020,~~28, 2021, the board of directors declared a ~~$1.27~~$0.27 per share dividend to shareholders of record as of November ~~6, 2020~~8, 2021 to be paid on November 13, 2020. The dividend, which will be paid from Federated Hermes' existing cash balance, is considered an ordinary dividend for tax purposes and consists of a $0.27 quarterly dividend and a $1.00 special dividend. See Management's Discussion and Analysis under the caption Business Developments - Subsequent Event - Special Cash Dividend for more information on the estimated diluted earnings per share impact for the quarter ending December 31, 2020.

15, 2021.


Part I, Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (unaudited)

2020.

General

Federated Hermes is one of the largest ~~U.S.-based~~ investment managers in the U.S. with ~~$614.8~~$634.1 billion in managed assets as of September 30, ~~2020.~~2021. The majority of Federated Hermes' revenue is derived from advising Federated Hermes Funds and Separate Accounts in both domestic and international 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.

Investment advisory fees, administrative service fees and certain fees for other services, such as distribution and shareholder service fees, are contract-based ~~fees that~~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 assets including market conditions and the ability to attract and retain assets. Generally, managed assets in Federated Hermes' investment products and strategies can be redeemed or withdrawn at any time with no advance notice requirement. Fee rates for Federated Hermes' services generally vary by asset and service type and may vary based on changes in asset levels. Generally, ~~management-fee rates~~advisory fees charged for ~~advisory~~ services provided to equity and multi-asset products and strategies are higher than ~~management-fee rates~~advisory fees charged to fixed-income and alternative/private markets products and strategies, which in turn are higher than ~~management-fee rates~~advisory fees charged to money market products and strategies. Likewise, Federated Hermes Funds typically have a higher ~~management-fee rate~~advisory fees than Separate Accounts. Similarly, revenue is also dependent upon the relative composition of average AUM across both asset and product types. Federated Hermes may implement Fee Waivers for competitive reasons such as Voluntary Yield-related Fee Waivers, to maintain certain fund expense ratios, ~~to maintain positive or zero net yields,~~ to meet regulatory requirements or to meet contractual requirements. Since Federated Hermes' products are largely distributed and serviced through financial intermediaries, Federated Hermes pays a portion of fees earned from sponsored products to the financial intermediaries that sell these products and strategies. 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 money market and multi-asset funds than the revenue earned from managed assets in equity, 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 stock-based compensation, can vary depending on various factors including, but not limited to, the overall results of operations of Federated ~~Hermes' operations,~~Hermes, investment management performance and sales performance.

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Business Developments

~~Covid-19~~ Equity Acquisition

On August 31, 2021, Federated completed the 2021 Acquisition of HFML Noncontrolling Interest. See Note (3) to the Consolidated Financial Statements for additional information.

Pandemic

The outbreak of the Covid-19 respiratory disease was first detected in China in late 2019, spread globally in 2020 and ~~has subsequently~~continues to spread ~~internationally. Covid-19 has~~in 2021. The Pandemic initially resulted in travel bans, closing of borders, changes to the ways in which healthcare workers prepare and deliver services, enhanced monitoring and increased health screenings/testing, increased data analytics, efforts to develop effective vaccines without harmful side effects and identify effective therapeutics, enhanced disinfection and contamination procedures, stay-at-home orders, quarantines, cancellations and disruptions to supply chains, workflow, operations and customer activity, as well as general concern and uncertainty. ~~Covid-19~~The Pandemic also ~~has~~initially resulted in economic uncertainty, market volatility, trading halts, market illiquidity and declining and variable stock prices, among other effects. See ~~Part II,~~ Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) in ~~this Quarterly~~Federated Hermes' Annual Report on Form ~~10-Q~~10-K for the year ended December 31, 2020 for additional information regarding the impacts, and potential impacts, resulting from ~~Covid-19.~~ the Pandemic.

Policymakers responded to certain apparent and acute economic and market consequences with multiple monetary and fiscal policy actions. Regulators pursued and, to a lesser degree, have ~~taken~~continued actions focused on facilitating market function and preserving market integrity, as well as providing guidance and relief to market participants affected by ~~Covid-19.~~the Pandemic. See the Business Developments - Current Regulatory Environment ~~section~~sections of Management's Discussion and Analysis for additional information regarding the monetary and fiscal policy actions taken by governmental authorities.

As of September 30, 2021, economies of various countries have rebounded from the global economic shutdown that began in the late first quarter and early second quarter 2020. With the world vaccination rate at over 46%, and vaccination rates nearing or exceeding 50% or greater in several jurisdictions, including the United States, economies in many jurisdictions have reopened as national, state/provincial and local governments have ~~begun to lessen~~removed or ~~remove~~lessened travel restrictions and requirements for staying-at-home ~~quarantining,~~ and ~~travel,~~quarantining, as well as other ~~Covid-19 imposed restrictions,~~Pandemic-imposed restrictions. Spikes of coronavirus cases, however, continue to occur in certain ~~jurisdictions (particularly~~jurisdictions. These spikes are reportedly being driven by more contagious and potentially more deadly variants of the initial strain of the coronavirus, including the Delta variant. Breakthrough infections of vaccinated individuals are also prevalent in ~~the United States) have seen a spike in the number of diagnosed Covid-19 cases~~certain jurisdictions. These variants, spikes and ~~hospitalizations. These spikes~~breakthrough infections have resulted in ~~the re-imposition of~~ certain ~~Covid-19~~jurisdictions continuing or re-imposing certain restrictions, although in ~~most~~many cases not to the extent of those initially imposed. As a result, while many governments ~~are taking~~have taken action to open economies, economic, market, regulatory and other uncertainty persists as a result of the Pandemic. While economic uncertainty and market volatility ~~has~~have continued, ~~but~~in many cases it is not to the degree initially seen late in ~~late~~the first quarter and early in the second quarter 2020.

Federated Hermes designated an internal task force (which ~~continues to meet regularly)~~meets as necessary) to address events related to ~~Covid-19~~the Pandemic that have impacted or that ~~may~~can potentially impact Federated Hermes' business. With input and guidance from senior management and this task force, increased vaccinations, and the removal of Pandemic-related restrictions, beginning in April 2021, Federated Hermes ~~also implemented a number of other prudent steps to provide for the safety of our~~encouraged (but did not require) its employees to ~~seek~~begin to ~~ensure the resiliency of Federated Hermes' business and~~return to keep our customers informed through the related market volatility. For example, Federated Hermes is complying with the requirements under applicable Federal and state government orders, as well as the requirements under the Centers for Disease Control and Prevention's (CDC) and state health departments' guidance and enhanced disinfection and decontamination procedures. These steps continue to be implemented, reviewed and, in certain cases, revised or enhanced. Technology investments in laptops for employees, expanded internet bandwidth, and new video conferencing and collaboration software have allowed Federated Hermes to remain fully operational while implementing remote working arrangements, supporting physical distancing, and continuing to deliver Federated Hermes' investment products and services to customers, while at the same time taking steps to safeguard the health and safety of employees. Among other actions,from its U.S. offices. Beginning on July 6, 2021, Federated Hermes has ~~taken the following steps:~~

•~~The company instituted~~implemented a ~~travel ban~~structured return to ~~11 countries, including those designated as high risk by the CDC on February 27, 2020. Federated Hermes now recommends~~office plan that requires most of its U.S. employees to employees that they follow national, state/provincial, local and CDC recommendations for self-quarantining and testing after travel to certain "hot spots" where Covid-19 cases, hospitalizations and/or deaths have spiked.

•While Federated Hermes restricted business travel on March 12, 2020, and no commercial air travel occurred in the second quarter of 2020, limited commercial air travel by employees re-commenced in the third quarter of 2020 and hotel and car rental reservations related to ground travel continued.

•~~While~~work from Federated Hermes' offices ~~remain open,~~at least two days a week, or at least three days every other week, depending on their work location and limited, physically distanced in-person meetings have begun to occur more frequently, remote working arrangements continue to be implemented for much of our global workforce with more than 95 percent of Federated Hermes' employees successfully working remotely.office or work station configuration. Federated Hermes has ~~increased usage~~extended this structured return to office plan through year-end 2021, and ~~reliance on virtual meeting tools~~has advised its employees that it is delaying, until sometime in the fourth quarter 2021, decisions regarding a further and ~~prioritized~~more significant return to the ~~deployment~~office for U.S. employees. In the UK, in line with the "gradual return" principle outlined by the UK government, a hybrid office, remote working plan has been implemented under which UK employees work in the office two to three days a week, with occupancy restricted to 50% of ~~additional equipment and technology~~office capacity. Any structured return to office plans for Federated Hermes' non-U.S. employees ~~to provide enhanced remote-work options.~~will be consistent with applicable government requirements.

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Among other actions, Federated Hermes has taken the following steps:

•Federated Hermes Fund Board meetings, ~~held in August 2020 were~~Federated Hermes corporate Board meetings, and offshore fund and subsidiary Board meetings, are being held in person as well as via teleconference allowing those who ~~preferred~~prefer to participate ~~virtually~~remotely to do so. Federated Hermes had previously held its April annual shareholder meeting and the May Federated Hermes Fund Board meetings, via teleconference, rather than in person. Similar approaches are being taken with respect to offshore fund and subsidiary board meetings.

•Federated Hermes has continued to on-board new hires, ~~shipping~~providing necessary equipment to them and conducting training ~~remotely.~~remotely when necessary.

•Federated Hermes investment professionals and strategists ~~are frequently publishing~~continue to publish fresh content to the Insights section of Federated Hermes' website, offering ~~customers~~their unique perspectives ~~during these difficult markets.~~to investors.

Federated Hermes continues to take a measured approach that involves implementing procedures aimed at safeguarding employee health while maintaining a high level of customer service. Federated Hermes expects those procedures and related timelines to vary by location in order to meet local regulatory requirements and support community health practices. Federated Hermes is also prepared to continue to implement a variety of other strategies to ensure the resiliency of ~~our~~its business. Examples ~~include:~~include transferring processes to alternate personnel, prioritizing technology resources to service critical processing, and leveraging service providers and counterparties ~~for the most~~to promote efficient delivery of services. In addition to the implementation of advanced cleaning protocols and other measures, Federated Hermes has made provisions for hand sanitizer stations and is encouraging everyone to take standard precautions such as physically distancing, washing their hands with soap and water, wearing face masks, avoiding shaking hands and staying home if sick. Federated Hermes is evaluating options and considering details of its plans for when and how to bring employees back to our offices. For example, Federated Hermes developed and implemented a series of return to the office protocols intended to assure employees that Federated Hermes is taking the safety and well-being of our employees seriously as more employees begin to return to the office. The company plans to take a measured approach that involves implementing procedures aimed at safeguarding employee health while continuing to provide a high level of client service. Federated Hermes expects those procedures and related timelines to vary by location in order to meet local regulatory guidelines and support community health practices. As of September 30, 2020, Federated Hermes has advised its employees that it is delaying a significant return to the office for U.S. employees until mid-February 2021.

Federated Hermes continues to monitor the ongoing global health situation through resources provided by, or contact with, the CDC, the SEC, the World Health Organization and the Securities Industry and Financial Markets Association (SIFMA), a financial services industry trade association, among others. As of September 30, ~~2020,~~2021, while Federated Hermes' stock price has fluctuated ~~and been lower, similar to the stock prices of other public companies in the investment management industry~~ amidst the volatility in stock prices on major exchanges, and Federated Hermes' business operations have had to adapt to a remote and current hybrid working environment, ~~Covid-19~~the Pandemic has not materially affected Federated Hermes' financial condition or cash ~~flows.~~flows except to the extent that the increased net Voluntary Yield-related Fee Waivers discussed below resulting from the near-zero interest rate environment can be attributed to the Pandemic. See ~~Part II,~~ Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) in ~~this Quarterly~~Federated Hermes' Annual Report on Form ~~10-Q~~10-K for the year ended December 31, 2020 for information regarding the risks to Federated Hermes presented by ~~Covid-19.~~the Pandemic.

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a result of ~~Covid-19,~~the Pandemic, the FOMC decreased the federal funds target rate range to 0% - 0.25%. 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. Beginning in the first quarter 2020, Federated Hermes has implemented 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 intermediaries to share the impact of the Voluntary Yield-related Fee Waivers.

During the three and nine months ended September 30, 2021, Voluntary Yield-related Fee Waivers totaled $109.2 million and $310.2 million, respectively. These fee waivers were partially offset by related reductions in distribution expenses of $72.3 million and $204.9 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $36.9 million and $105.3 million for the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020, Voluntary Yield-related Fee Waivers totaled $36.8 million and $56.9 million, respectively. These fee waivers were partially offset by related reductions in distribution ~~expenses~~expense of $33.0 million and $51.0 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $3.8 million and $5.9 million for the three and nine months ended September 30, 2020, respectively.

Assuming asset levels and mix remain constant and based on recent and ~~expected~~projected market conditions, including potential additional government measures to further stimulate the economy, Voluntary Yield-related Fee Waivers for the fourth quarter of ~~2020~~2021 may result in a net negative pre-tax impact on income of approximately $9$39 million. While the level of these fee waivers is impacted by various factors, increases in short-term interest rates that result in higher yields on securities purchased in money market fund portfolios would likely reduce the negative pre-tax impact of these fee waivers. Similarly, a decrease in short-term interest rates would likely increase the negative pre-tax impact of these fee waivers. The actual amount of future Voluntary Yield-related Fee Waivers and the resulting negative impact of these fee waivers could vary, ~~significantly~~including in a material way, from management's estimates as they are contingent on a number of variables including, but not limited to, changes in assets within the money market funds, changes in yields on instruments available for purchase by the money market funds, including changes due to the level of government measures to further stimulate the economy which could result in the issuance of additional Treasury debt instruments, actions by the FOMC, the U.S. Department of Treasury, the SEC, Financial Stability Oversight Council (FSOC) and other governmental entities, changes in fees and expenses of the money market funds, changes in the mix of money market customer assets, changes in customer relationships, changes in money market product structures and offerings, demand for competing products, changes in distribution models, 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 these fee waivers is shared by any one or more third parties. As fund portfolio yields decrease, the impact of the Voluntary Yield-related Fee Waivers on Federated Hermes generally accelerates as the ability of distributors to share the impact of these fee waivers is reduced or exhausted.

Current Regulatory Environment

Domestic

In 2020, the Pandemic shifted the regulatory environment in the U.S., and globally, toward the adoption of measures intended to provide regulatory flexibility and market stabilization. See Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) in Federated Hermes' Form 10-K for the year ended December 31, 2020 for a discussion of the risks posed by the Pandemic. Through the third quarter of 2021, the SEC (among other regulatory authorities, self-regulatory organizations or exchanges) continued to focus on maintaining the continuity of its operations (including enforcement and investor protection efforts), monitoring market functions and risks, and providing or extending regulatory relief in response to the Pandemic, while at the same time continuing to implement "physical distancing" requirements for its personnel by continuing in a full telework posture with limited exceptions, which is expected to last at least through January 3, 2022. The SEC has indicated that it continues to advance rulemaking initiatives, conduct risk-based examinations, bring enforcement actions, and review and comment on issuer and fund filings.

The full impact of the continuing Pandemic on the regulatory environment in the U.S., and globally, remains uncertain. It is possible that the impact of the Pandemic could continue to decrease (but likely not completely dissipate) as 2021 concludes due to the continued distribution of vaccines on a larger scale, continued, but lessened, market intervention from the U.S. Federal Reserve Board (Fed), and additional stimulus packages, similar to the $900 billion Consolidated Appropriations Act, 2021,

2627

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

passed by Congress in December 2020 and the $1.9 trillion American Rescue Plan Act of 2021 passed by Congress in March 2021. While the number of new or proposed laws, rules and regulations affecting the investment management industry continued to be slow in the third quarter 2021 in the U.S., with the SEC's aggressive rulemaking schedule announced in its Spring 2021 Unified Agenda of Regulatory and Declaratory Actions (Spring Reg Flex Agenda), the expectation remains that the pace of new proposed and final laws, rules and regulations and other regulatory activity will increase during the remainder of 2021 and into 2022. U.S. and global regulators also continue to focus on the impact of the Pandemic on the markets and re-examine existing laws, rules and regulations. The regulatory actions to address the Pandemic, any other laws and regulations that have or are expected to be re-examined, modified or reversed, or that become effective, and any new proposed laws, rules and regulations, continue to impact the investment management industry (collectively, both domestically and abroad, as applicable, Regulatory Developments).

As of September 30, 2021, the Fed's balance sheet was approaching $8.5 trillion. On July 28, 2021, the FOMC announced the establishment of two standing repurchase agreement (repo) facilities—a domestic repo facility against Treasury securities, agency debt securities, and agency mortgage-backed securities with a $500 billion daily limit, and a repo facility for foreign and international monetary authorities against their holdings of Treasury securities maintained in custody at the Federal Reserve Bank of New York with a $60 billion per counterparty limit. Facilities such as the Secondary Market Corporate Credit Facility (SMCCF), Commercial Paper Funding Facility (CPFF), Money Market Mutual Fund Liquidity Facility (MMLF) and Term Asset-Backed Securities Loan Facility (TALF) established by the Fed in March 2020 expired or ceased funding during the first half of 2021. These facilities, among others, were established in order to address market inefficiencies and provide financial backstops totaling more than $2.3 trillion. The Fed has announced that, as of August 31, 2021, all of the SMCCF's holdings or corporate bonds and ETFs had either been sold off or matured. As of September 30, 2021, the Federal Reserve Bank of New York had no loans outstanding under the SMCCF, approximately $1.5 billion in loans outstanding under the TALF, which ceased extending credit on December 31, 2020, and no loans outstanding under the CPFF. The CPFF ceased purchasing commercial paper on March 31, 2021 and is no longer operational. As of September 30, 2021, the Federal Reserve Bank of Boston had no loans outstanding under the MMLF as the MMLF ceased extending credit on March 31, 2021 and is no longer operational. According to a report entitled "Experiences of US Money Market Funds During the Covid-19 Crisis" published by the Investment Company Institute (ICI) in November 2020 (ICI MMF Report), prime money market funds' use of the MMLF in 2020 (peaking at approximately $53 billion) was much less than a similar facility that was created and utilized during the 2008 financial crisis (peaking at approximately $152 billion).

In March 2020, in response to disrupted economic activity as a result of the Pandemic, the FOMC also decreased the federal funds target rate range to 0% - 0.25%. The federal funds target rate drives short-term interest rates. During its April 27–28, 2021 meeting, the FOMC indicated that the federal funds rate would likely stay at or near zero at least until the first quarter of 2023. During its June 15-16, 2021 meeting, the FOMC indicated that the median respondent to the FOMC Desk's survey of primary dealers and market participants continued to expect the first federal funds rate increase to occur in the third quarter 2023. At that same meeting, the FOMC raised the rate on its Reverse Repurchase Agreement Facility and Interest on Excess Reserves by five basis points each, to five basis points and 15 basis points, respectively, which helped to increase interest rates on short-term securities to slightly above near-zero levels. During its July 27-28, 2021 and September 21-22, 2021 meetings, the FOMC announced that it would hold the target range until labor market conditions and inflation stabilizes to levels consistent with the FOMC's assessments. Nevertheless, these low interest rates, and the possibility of negative interest rates, have caused the investment management industry to engage with the SEC (and other regulators globally), to discuss regulatory guidance permitting the implementation of reverse distribution mechanisms or share cancellation methodologies, reverse stock splits, and other tools to maintain the stability of money market fund NAVs in a negative rate environment, and to develop disclosures regarding the possible use of these tools. Any solution to the difficulties presented by a negative interest rate environment can require significant internal and external resources to implement necessary changes, including system programming and implementing disclosure changes, both for money market funds and their service providers or vendors (service providers).

U.S. and global regulators continue to focus on the market conditions that existed in March 2020, and their impact on open-end funds, including institutional prime and municipal (or tax-exempt), money market funds. In its 2020 Annual Report, the Financial Stability Oversight Council (FSOC) noted that, "[s]tresses on prime and tax-exempt [money market funds] revealed continued structural vulnerabilities that led to increased redemptions and, in turn, contributed to and increased the stress in short-term funding markets." It has been reported that, during her testimony prior to her confirmation by the Senate on January 25, 2021, Treasury Secretary Janet Yellen expressed comfort with the idea of looking at whether activities of asset managers represent a systemic risk rather than whether asset management firms pose systemic risk. It has been reported that, at the June 11, 2021 meeting of FSOC, Treasury Secretary Yellen recounted the "extreme policy interventions" by the Fed and Treasury Department to support short-term funding markets, including money market funds. It has been reported that fellow

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

FSOC member and Fed Chair Jerome Powell cited rapid redemptions in money market funds as a catalyst for liquidity pressures, which, according to Chair Powell, alleviated only after the Fed intervened with the MMLF that included $10 billion in backing from the Treasury Department. It has been further reported that, during closed-door sessions, FSOC heard reform proposals from the SEC staff intended to improve the resilience of short-term funding markets during times of financial crisis. In a prepared statement for the June 11, 2021 FSOC meeting, SEC Chair Gary Gensler indicated that the March 2020 market "events brought particular focus to prime money market funds, and their interrelation with investments in commercial paper and certificates of deposit [which] have limited liquidity in good times, and in critical weeks of stress last spring virtually disappeared." He indicated that he was "directing SEC staff to look into these issues, and to consider any further reforms needed." On October 5, 2021, while testifying before the House Financial Services Committee, SEC Chair Gensler reiterated that he has asked SEC staff for recommendations to address the challenges to money market funds experienced in the spring of 2020, and stated that he believes "it is time to reflect upon the reforms of 2014 and 2010 to see if we can further improve resiliency, particularly in times of stress." It has been reported that FSOC Chairperson Yellen stated that she fully supported the SEC's reform efforts. In the open session of FSOC's June 11, 2021 meeting, FSOC voted to approve a statement highlighting the importance of money market fund reform and supporting the SEC's focus on money market funds. In FSOC's Statement on Money Market Fund Reform, FSOC indicated that "the [FSOC] is encouraged by the SEC's engagement on this critical issue" and, "[g]iven the interconnectedness of financial institutions and markets, the [FSOC] will continue to monitor this initiative in the broader context of efforts by financial regulators to strengthen short-term funding markets and support orderly market functioning, including during periods of heightened market stress."

On April 15, 2021, the SEC Division of Investment Management's Analytics Office issued an article "Prime MMFs at the Onset of the Pandemic: Asset Flows, Liquidity Buffers, and NAVs," which concluded (among other things) that March 2020 outflows reduced prime money market funds' liquidity buffers and that volatility of prime money market funds' NAV per share increased at the onset of the Pandemic. On December 22, 2020, the President's Working Group on Financial Markets (PWG) issued a report titled "Overview of Recent Events and Potential Reform Options for Money Market Funds" (PWG Report). The PWG Report outlines ten possible money market fund reforms, including: (1) removing the tie between the 30% weekly liquid asset threshold for money market fund liquidity and redemption gates and liquidity fees; (2) reforming the conditions for imposing redemption gates; (3) utilizing a minimum balance at risk mechanism for shareholder accounts; (4) requiring certain liquidity management changes, such as an additional weekly liquid asset threshold; (5) permitting weekly liquid asset requirements the flexibility to automatically decline in certain circumstances, such as when redemptions are large; (6) requiring a floating NAV for all prime and municipal (or tax-exempt), money market funds, including retail funds; (7) requiring swing pricing; (8) imposing capital buffer requirements; (9) requiring membership in a private liquidity exchange bank capitalized by the money market funds and their sponsors; and (10) establishing requirements for fund sponsor support to a money market fund.

Contrary to the focus placed by the PWG Report and regulators on money market funds as a cause of the market turmoil in March 2020, the ICI MMF Report supports the view that the Treasury securities markets, rather than money market funds, triggered the market turmoil. The ICI MMF Report rebukes suggestions that money market funds, particularly institutional prime money market funds, were a primary, if not the sole, cause of market distress in March 2020, noting that, "[t]hese suggestions are inconsistent with the data and early press reports." The ICI MMF Report points to the fact that the market dislocations were widespread, including in markets in which institutional prime money market funds are not significant players, such as the U.S. Treasury bonds, longer-term U.S. agency securities, municipal securities, corporate bonds, and foreign exchange markets. The ICI MMF Report also studied institutional prime money market fund asset flows and spreads in the Treasury bond market, concluding, "by March 11[, 2020] these spreads had widened substantially, yet prime money market funds had seen virtually no outflows." The ICI MMF Report also notes that, "press reports do not support the theory that money market funds were at the forefront of the market stress" and that, "Treasury markets were in the news several days before any real mention of money market funds . . .".

On December 23, 2020, the SEC's Division of Investment Management released a statement on the PWG Report requesting comments to assist the SEC staff in providing recommendations to the SEC. The SEC staff requested comments in regard to three specific areas: (1) potential stress points for funds and short-term funding markets; (2) measures that can enhance the resilience and function of short-term funding markets; and (3) measures that can reduce the likelihood of future official sector interventions. On February 4, 2021, the SEC staff reissued a request for comment on the PWG Report, including the effectiveness of previously-enacted money market fund reforms and the implementation of the potential policy measures described in the PWG Report. The SEC staff also requested comments on other topics that are relevant to potential money market fund reforms, including other approaches for improving the resilience of money market funds and short-term funding markets generally.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Federated ~~Hermes' willingness to continue~~Hermes, along with the ~~Voluntary Yield-related Fee Waivers~~ICI and ~~changes~~other industry participants, have submitted comment letters that strongly disagree with the conclusions reached in the ~~extent to which~~PWG Report. In its first comment letter, dated April 12, 2021, Federated Hermes emphasized, among other points, that money market funds did not cause or exacerbate the ~~impact of these fee waivers is shared by any one or more third parties.~~

~~Current Regulatory Environment~~

~~Domestic~~

~~The outbreak of Covid-19 shifted the regulatory environment~~turmoil in the United States, and globally, toward the adoption of measures intended to provide regulatory flexibility and market stabilization. (See Item 1A-Risk Factors under the heading "Potential Adverse Effects of Unpredictable Events or Consequences" in Federated Hermes, Inc. Form 10-K for the fiscal year ended December 31, 2019 and Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 for discussions regarding the risks posed by Covid-19). The SEC (among other regulatory authorities, self-regulatory organizations or exchanges) has continued to implement "physical distancing" requirements for its personnel including continuing in a full telework posture with limited exceptions at least through December 1, 2020. The SEC previously stated that it is focused on: (i) maintaining the continuity of its operations; (ii) monitoring market functions and systemic risks; (iii) providing prompt, targeted regulatory relief and guidance to issuers, investment advisors and other registrants impacted by Covid-19 to facilitate continuing operations, including in connection with the execution of their business continuity plans; and (iv) maintaining enforcement and investor protection efforts, particularly with regard to the protection of critical market systems and what the SEC deems to be the most vulnerable investors. The SEC also announced that under its current operating posture, in addition to its Covid-19 focused efforts, it remains engaged on rulemaking and other matters, and may make adjustments to the SEC's rulemaking agenda as necessary. Consistent with maintaining its operations, the SEC indicated in its spring 2020 Regulatory Flexibility Agenda that it intends to finalize in 2020 certain regulatory proposals, including the proposed derivatives rule, valuation guidance, and investment advisor advertising rule, and that it may propose rules relating to transfer agent standards, cross trades pursuant to Rule 17a-7 under the 1940 Act, and the investment advisor custody rule. To that end, the SEC issued 11 final rules and five proposed rules in the third quarter of 2020, and four additional final rules early in the fourth quarter of 2020. Whether the SEC will meet all of these objectives given Covid-19 remains unknown.

The SEC also extended certain Covid-19 relief it had previously issued in March 2020. For example, the SEC extended, at least through the end of 2020, the relief from the requirements to hold in-person board of directors/trustees meetings under the 1940 Act. At a recent industry conference on October 12, 2020, the Deputy Director and Chief Counsel of the SEC's Division of Investment Management indicated that the SEC is considering permanent relief for virtual board meetings under the 1940 Act, rather than always requiring in-person meetings. The SEC did not extend certain previously issued relief, such as the relief relating to the filing deadlines for public company reporting, investment company prospectus delivery, transmittal of annual and semi-annual shareholder reports, and Form N-CEN, Form N-PORT, Form ADV and FORM PF. The SEC also: (i) extended relief to investment advisors under the Advisers Act's Custody Rule; (ii) released two no-action letters to the Investment Company Institute providing no-action relief for affiliates to make certain purchases of debt securities from open-end investment companies that would otherwise be prohibited under Section 17(a) of, or Rule 17a-9 under, the 1940 Act; and (iii) issued guidance for issuers registered under Section 12 of the Exchange Act to conduct virtual or hybrid annual shareholder meetings through the internet or other electronic means in lieu of in-person meetings, in light of Covid-19.

The regulatory actions to address Covid-19, any other rules and regulations that have or are expected to become effective, and any new proposed rules and regulations, continue to impact the investment management industry (collectively, both domestically and abroad, as applicable, Regulatory Developments).

Additionally, Covid-19 has prompted legislative intervention in the form of stimulus measures. Following passage of its $2 trillion relief package titled the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act")financial markets in March 2020, ~~on April 23,~~and money market funds have no "structural vulnerabilities" warranting the more significant policy options outlined in the PWG Report, such as capital buffers and holdbacks. Federated Hermes stressed that the market turmoil in March 2020 ~~Congress passed~~was created by the Paycheck Protection Program and Health Care Enhancement Act, providing a further $484 billion in funding for the Paycheck Protection Program as well as provision for additional healthcare spending and Covid-19 testing. As of September 30, 2020, discussions continued in Congress regarding additional stimulus legislation to, among other things, provide funds for testing, vaccines, distribution, medical care, and unemployment benefits, as well as money for schools, small businesses, hotels, restaurants, airlines and other industries. While regulators and legislators confront the challenges presented by Covid-19, efforts also continue to eliminate certain regulatory requirements. For example, legislation has been introduced in both the SenatePandemic and the ~~House~~unprecedented global government response and economic shut-down to stem the spread of ~~Representatives in~~the coronavirus. In its comment letter, Federated Hermes supported the SEC eliminating the requirement for a ~~continuing effort~~fund's board to ~~get revisions to money market fund reform passed~~consider imposing redemption gates and ~~signed into law. The proposed law would permit~~liquidity fees if weekly liquid assets drop below 30% of the ~~use~~fund's total assets. This is one of ~~amortized cost valuation by, and override~~ the ~~floating NAV and certain other~~ requirements ~~for, institutional and municipal (or tax-exempt) money market funds. These requirements were~~that was imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance). Compliance with the 2014 Money Fund Rules and Guidance ~~became effective~~was required on October 14, 2016. ~~At a recent industry conference on October 12, 2020,~~In its second comment letter, dated June 1, 2021, Federated Hermes recommended certain structural reforms that address the ~~Director~~root causes of the ~~SEC's Division~~failure of

~~Table~~ critical funding markets in March 2020 and the consequent systematic risks, including: (1) the provision of ~~Contents~~



~~Management's Discussion and Analysis (continued)~~
~~of Financial Condition and Results of Operations (unaudited)~~

~~Investment Management indicated that~~liquidity in stressed markets, as well as reforms to promote market-making in stressed conditions; (2) amendments to rule 2a-7 to delink the ~~market dislocations that occurred in the late first quarter and early second quarter~~consideration of ~~2020 tested the reforms imposed under the 2014 Money Fund Rules and Guidance, such as the ability to impose~~ redemption gates and liquidity fees ~~and~~from the ~~floating NAV, that it is important to analyze how these~~30% of a fund's total assets threshold; (3) reforms ~~alleviated or contributed~~ to the short-term market ~~dislocation events,~~structure itself to improve liquidity in times of stress; and (4) considerations for balancing the SEC's statutory mandate with liquidity and financial stability concerns. In a third comment letter, dated September 21, 2021, Federated Hermes expressed its belief that the ~~SEC may create additional regulations around~~combination of delinking the potential imposition of redemption gates and liquidity fees with a money market ~~funds.~~fund's weekly liquid asset requirements, adoption of certain liquidity fee procedures, and enhancements to money market funds' ability to "know their customer" via an amendment to Rule 22c-2 under the 1940 Act, when combined with consideration of and improvements in the short-term markets generally, can address the concerns identified in the PWG Report without adversely impacting the viability of money market funds and their benefits to investors, issuers and capital formation. Federated Hermes also has expended, and will continue to expend, significant internal and external resources to engage with regulators on potential money market fund reforms, including through additional comment letters and meetings with U.S. and global regulators, the ICI and other industry participants.

Management believes money market funds provide a more attractive investment opportunity than other competing products, such as insured deposit account alternatives. Management also believes that money market funds are resilient investment products that have proven their resiliency during ~~Covid-19.~~the Pandemic. While Federated Hermes believes that some regulations could be improved, such improvements should be measured and appropriate, preserving investors' ability to invest in all types of money market funds. Federated Hermes believes that regulators should look closely at the redemption gates and liquidity fee requirement from the 2014 Money Fund Rules and Guidance and supports efforts to reduce regulation, including the PWG Report's recommendation to eliminate the redemption gates and liquidity fee requirement. Federated Hermes also continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds.

~~Covid-19~~ Legislation has ~~also spurred direct intervention from~~been re-introduced in the ~~U.S. Federal Reserve (Fed)~~Senate and is being reintroduced in ~~order~~the House of Representatives in a continuing effort to address market inefficiencies and provide financial backstops totaling more than $2.3 trillion as necessary. As a result, the Fed's balance sheet has expanded significantly, growing from $4.2 trillion as of February 17, 2020get these revisions to ~~$7.2 trillion in early June 2020, before ending the quarter at slightly under $7.1 trillion. Examples of the Fed's intervention include:~~

•On March 17, 2020, the Fed announced the establishment of a Commercial Paper Funding Facility (CPFF) through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies. The Treasury provided $10 billion in credit protection to the Fed in connection with the CPFF. The CPFF program provides a "liquidity backstop" to U.S. issuers of commercial paper, and may indirectly benefit funds, such as prime money market ~~funds, seeking to sell commercial paper to cover redemptions driven~~fund reform regarding the use of amortized cost passed and signed into law.

With the transition of Presidential administrations, and new agency leadership, certain regulations promulgated by ~~market volatility.~~the SEC or Department of Labor (DOL) in 2020 are being re-examined and could be reversed or modified. On ~~July 23, 2020,~~January 20, 2021, the ~~Fed announced an expansion~~new administration issued a number of regulatory directives freezing regulatory rulemaking, rescinding various executive orders concerning the ~~counterparties eligible to participate~~regulatory process issued by the previous administration, and establishing a framework for modernizing the review of regulatory actions. On June 11, 2021, in its Spring Reg Flex Agenda, the ~~CPFF and,~~DOL indicated that it would be proposing another new fiduciary rule; however, as of September 30, 2021, a new fiduciary rule is not enumerated among the DOL's list of regulations open for comment. It has been reported that a proposed new fiduciary rule will be issued by the end of 2021. The DOL's April 2016 fiduciary rule was vacated in June 2018 by the United States Court of Appeals for the Fifth Circuit. On December 15, 2020, ~~over $29 million~~the DOL issued the final version of a re-proposed fiduciary rule to regulate "investment advice fiduciaries" (Final DOL Fiduciary Rule), which became effective on February 16, 2021. On February 12, 2021, the DOL announced that its temporary enforcement policy, under which the DOL will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently on compliance with relevant components of the Final DOL Fiduciary Rule, will remain in ~~loans were outstanding~~place until December 20, 2021. On October 25, 2021, the DOL issued Field Assistance Bulletin No. 2021-02 in which the DOL announced that, for the period from December 21, 2021 through January 31, 2022, it will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently and in good faith to comply with the Impartial Conduct Standards for exempt transactions under the ~~CPFF. The CPFF is currently set to expire in March 2021.~~

•~~On March 18, 2020,~~Final DOL Fiduciary Rule or treat such fiduciaries as violating the ~~Fed announced a Money Market Mutual Fund Liquidity Facility (MMLF) program through which~~applicable prohibited transaction rules. In this Field Assistance Bulletin, the Federal Reserve Bank of Boston makes loans available to eligible financial institutions secured by high-quality assets purchased by the financial institution from money market mutual funds. The Treasury is providing the Fed $10 billion to protect against losses in connection with the MMLF. The MMLF program is intended to further assist money market funds in meeting demands for redemptions, enhancing overall market functioning and increasing credit provision to the broader economy. As of ~~September 30, 2020, over $7 billion in loans were outstanding under the MMLF. This facility was extended by the Fed until December 31, 2020.~~

•On March 23, 2020, the Fed announced the establishment of the Secondary Market Corporate Credit Facility (SMCCF). Under the SMCCF, the Federal Reserve Bank of New York will lend, on a recourse basis, to an SPV that will purchase up to $250 billion in secondary market corporate debt issued by eligible issuers. The SPV will purchase eligible individual corporate bonds as well as eligible corporate bond portfolios in the form of exchange traded funds (ETFs) in the secondary market. The SMCCF is intended to provide liquidity for outstanding corporate bonds, including those held by fixed income mutual funds. The SMCCF will cease purchasing eligible corporate bonds and eligible ETFs no later than December 31, 2020, unless it is extended by the Fed. As of September 30, 2020, over $12.8 billion in loans to the SPV were outstanding under the SMCCF.

•~~On March 23, 2020, the Fed~~DOL also announced that, for the ~~FOMC~~period from December 21, 2021 through June 30, 2022, it will ~~purchase Treasury securities and agency mortgage-backed securities~~not pursue prohibited transactions claims against investment advice fiduciaries who are otherwise in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy. The FOMC had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. In addition, the FOMC will include purchases of agency commercial mortgage-backed securities.

•On March 23, 2020, the Fed established the Term Asset-Backed Securities Loan Facility to enable the issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and certain other assets. As of September 30, 2020, over $3.2 billion in loans were outstanding under this facility. This facility was extended by the Fed until December 31, 2020.

The current regulatory environment has affected, and is expected to continue to affect, to varying degrees, Federated Hermes' business, results of operations, financial condition and/or cash flows. Increased regulation and Regulatory Developments have required, and are expected to continue to require, additional internal and external resources to be devoted to technology, legal, compliance, operations and other efforts to address regulatory-related matters, and have caused, and may continue to cause, product structure, pricing, offering and development effort adjustments, as well as changes in asset flows and mix, customer relationships, revenues and operating income. The degree of impact of Regulatory Developments can vary and is uncertain.

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~~Management's Discussion and Analysis (continued)~~
~~of Financial Condition and Results of Operations (unaudited)~~

Since the beginning of the third quarter of 2020, the SEC proposed or adopted new rules and guidance that impact U.S. investment management industry participants, including Federated Hermes. For example:

•On October 28, 2020, the SEC adopted new rule 18f-4 under the 1940 Act, and related amendments, with the intent of providing an updated, comprehensive approach to the regulation of registered funds' use of derivatives and certain other transactions. New rule 18f-4 permits mutual funds (other than money market funds), ETFs, registered closed-end funds, and BDCs to enter into derivatives transactions and certain other transactions notwithstanding the restrictions under section 18 of the 1940 Act, subject to certain conditions. The conditions include the adoption of a derivatives risk management program and compliance with certain limits on fund leverage risk, among others. The rule provides an exception from the derivatives risk management program and leverage risk limits provided that a fund adopts and implements written policies and procedures reasonably designed to manage its derivatives risks and the fund's derivatives exposure is limited to 10% of its net assets, excluding certain currency and interest rate hedging transactions. The rule also provides an exception from the leverage limits for leveraged or inverse funds currently in operation that seek an investment return above 200% of the return (or inverse of the return) of the fund's underlying index and satisfy certain conditions. The rule permits a fund to enter into reverse repurchase agreements and similar financing transactions, as well as "unfunded commitments" to make certain loans or investments, subject to conditions tailored to these transactions. The rule permits funds, as well as money market funds, to invest in securities on a when-issued or forward-settling basis, or with a non-standard settlement cycle, subject to certain conditions. The rule also requires that a fund comply with certain recordkeeping requirements, including reporting confidentially to the SEC on a current basis on Form N-RN if the fund is out of compliance with the ~~leverage limits~~Final DOL Fiduciary Rule but for more than five business days. Funds currently required to file reports on Form N-PORT and Form N-CEN will be required to provide certain information regarding the fund’s derivatives use. The SEC also adopted amendments to rule 6c-11 under the 1940 Act to permit leveraged or inverse ETFs to rely on rule 6c-11 if they comply with all applicable provisions of rule 18f-4. Rule 18f-4, and the related amendments, will be effective 60 days after publication in the Federal Register and the SEC designated a compliance date that is 18 months after the effective date.

•On October 23, 2020, the staff of the Chief Accountant's Office of the SEC's Division of Investment Management issued a letter to investment company registrants addressing certain accounting, auditing, financial reporting and disclosure matters. The letter describes three new SEC staff positions, including that a fund may begin reporting performance from the date it begins investing in accordance with its investment objectives rather than the effective date of its registration statement.

•On October 16, 2020, the SEC issued a final rule adopting amendments to Rule 2-01 of Regulation S-X that seek to focus the SEC's auditor independence rules on relationships and services that are more likely to jeopardize the objectivity and impartiality of auditors. The final amendments, among other things: (i) amend the definitions of "affiliate of the audit client" and "investment company complex" to address certain affiliate relationships, including entities under common control; (ii) amend the auditor independence rule to add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships; (iii) amend the auditor independence rules to replace the reference to "substantial stockholders" in the business relationships rule with the concept of beneficial owners with significant influence; and (iv) replace the transition provision in the auditor independence rules to introduce a transition framework to address inadvertent independence violations that only arise as a result of a merger or acquisition transaction. The amendments will be effective 180 days after publication in the Federal Register. Voluntary early compliance is permitted after the amendments are published in the Federal Register in advance of the effective date provided that the final amendments are applied in their ~~entirety from the date of early compliance.~~

•At a recent industry conference on October 12, 2020, the Deputy Director and Chief Counsel of the SEC's Division of Investment Management indicated that the SEC staff is taking a fresh look at the SEC's prior guidance on the electronic delivery of regulatory documents. This followed comments by the Director of the SEC's Division of Investment Management in July 2020 acknowledging that issues that market participants had with the printing and delivery of paper documents as a result of Covid-19 create more urgency around e-delivery. Federated Hermes believes that guidance allowing e-delivery of regulatory documents to investors as an acceptable standard method of delivery would be beneficial to the investment management industry, funds and their investors.

•On October 7, 2020, the SEC adopted Rule 12d1-4 under the 1940 Act regarding fund of funds arrangements, simultaneously rescinding Rule 12d1-2 under the 1940 Act, which permits funds that primarily invest in funds within the same fund group to invest in unaffiliated funds and non-fund assets. Rule 12d1-4 will permit a registered investment company or business development company (BDC) (referred to as "acquiring funds") to acquire the securities of any other registered investment company or BDC (referred to as "acquired funds") in excess of the limits in section 12(d)(1) of the 1940 Act, subject to certain limits on control and voting of acquired fund shares by the acquiring fund, required evaluations and findings as to the lack of duplicative fees and certain other matters, and limits on complex structures. In addition, the

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~~Management's Discussion and Analysis (continued)~~
~~of Financial Condition and Results of Operations (unaudited)~~

rule will require funds that do not share the same investment advisor to enter into a fund of funds investment agreement memorializing the terms of the arrangement. This requirement and the evaluation and finding requirements replace a proposed requirement that would have prohibited an acquiring fund that acquires more than 3% of an acquired fund's outstanding shares from redeeming more than 3% of the acquired fund's total outstanding shares in any 30-day period. The SEC is also rescinding most exemptive orders granting relief from Sections 12(d)(1)(A), (B), (C) and (G) of the 1940 Act. The SEC also adopted related amendments to Rule 12d1-1 under the 1940 Act to allow funds that primarily invest in funds within the same fund group to continue to invest in unaffiliated money market funds, and amendments to Form N-CEN to require funds to report whether they relied on rule 12d1-4 or the statutory exception in section 12(d)(1)(G) of the 1940 Act during an applicable reporting period. Federated is evaluating the impact of the rule on its current fund structures. The rule will be effective 60 days after publication in the Federal Register, but, in order to facilitate a transition period, the compliance date for the amendments to Form N-CEN will be 425 days after publication in the Federal Register and the rescission of rule 12d1-2 and the SEC's exemptive orders will be effective one year from the effective date of the rule.

•On August 31, 2020, the U.S. Department of Labor (DOL) released a proposal under the Employee Retirement Income Security Act of 1974 (ERISA) to amend the "investment duties" regulation and address the application of ERISA's fiduciary duties of prudence and loyalty to the exercise of shareholder rights, including proxy voting, proxy voting policies and guidelines, and the selection and monitoring of proxy advisory firms. The "investment duties" regulation currently covers the prudence duty under ERISA as it applies to fiduciary decision-making on investments and investment courses of action. The regulation currently does not specifically address the exercise of shareholder rights or the application of ERISA section 404(a)(1)(A), which provides that a fiduciary must act for the exclusive purpose of providing benefits to participants and beneficiaries. While retaining core principles of the current regulation, among other changes, the proposed amendments would require that fiduciaries must vote proxies only when the fiduciary prudently determines that the matter being voted upon would have an economic impact on the plan. The amendments also would provide that fiduciaries are prohibited from voting proxies unless the fiduciary prudently determines that the matter being voted upon would have an economic impact. Federated Hermes submitted a comment letter on the proposal seeking clarification of certain requirements of the proposal and is evaluating the impact of the rule on Federated Hermes' advisory subsidiaries' proxy voting policies and practices. The public comment period ended on October 5, 2020 and on October 14, 2020, the DOL submitted its final rule, largely as proposed, to the White House Office of Management and Budget (OMB) for review. A final decision from OMB is expected within the coming weeks.

•~~On August 25, 2020, the SEC provided certain exemptive relief from the "locate" and close-out requirements of Regulation SHO for sales of owned physical securities.~~

•On August 5, 2020, the SEC proposed comprehensive modifications to the mutual fund and exchange traded fund disclosure framework. The proposal would: (i) require streamlined shareholder reports that would include, among other things, information on fund expenses, performance, illustrations of holdings, and material fund changes; (ii) significantly revise the content of these items in an effort to align disclosures with developments in the markets and investor expectations; (iii) encourage funds to use graphic or text features to promote effective communication; and (iv) promote a layered and comprehensive disclosure framework by continuing to make available online certain information that is currently required in shareholder reports but may be less relevant to retail shareholders generally. The proposed framework also would provide an alternative approach to keeping investors informed about their ongoing fund investments through the use of a streamlined shareholder report. In addition, the proposal would amend prospectus disclosure requirements in an effort to provide greater clarity and more consistent information regarding fees, expenses, and principal risks. While significant changes would be required if the amendments are adopted as proposed, Federated Hermes continues to evaluate the potential impact of the proposed rule on its compliance and disclosure operations. Comments on the proposal are due 60 days after the proposed rule is published in the Federal Register.

•On July 22, 2020, the SEC adopted amendments to its rules governing proxy solicitations. In addition to addressing changes to the procedure for submitting shareholder proposals, the proposed amendments largely seek to codify prior SEC guidance released on August 21, 2019. Among other provisions, the amendments codify the SEC's interpretation that proxy voting advice generally constitutes a solicitation within the meaning of the 1934 Act. Federated Hermes is assessing the potential impact of the amendments on its business (including EOS at Federated Hermes), results of operations, financial condition and/or cash flows. As of September 30, 2020, Federated Hermes does not believe the potential impact of this rule will be material. The amendments will be effective on November 2, 2020, but affected proxy voting advice businesses subject to the final rules are not requiredfailure to comply with certain proxy advice timing, conflict of interest disclosure, and policy and procedure requirements until December 1, 2021. The SEC also supplemented its prior guidance issued to investment advisors regarding their proxy voting responsibilities as fiduciaries under the ~~Advisers Act. The guidance became effective on September 9, 2020.~~

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Management's Discussion and Analysis (continued)
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•~~On July 6,~~disclosure and documentation requirements set forth under the relevant provisions of the Final DOL Fiduciary Rule or treat such fiduciaries as violating the applicable prohibited transaction rules. According to the DOL's Spring Reg Flex Agenda, the new proposed fiduciary rule will amend the regulatory definition of the term "fiduciary" to more appropriately define when persons who render investment advice for a fee to employee benefit plans and individual retirement accounts are fiduciaries for purposes of ERISA and the Internal Revenue Code. In its Spring Reg Flex Agenda, the DOL also indicated that, as required by Executive Order 14030, it would undertake a review of, and propose new rules regarding, the DOL's final proxy voting and shareholder rights rule (Final DOL Proxy Voting Rule), which was issued on December 11, 2020, and its final rule restricting fiduciaries from selecting plan investments on the ~~SEC adopted~~ ~~amendments, originally proposed~~basis of non-pecuniary factors, such as ESG factors (Final DOL ESG Rule), which was issued on October ~~18, 2019,~~30, 2020. Executive Order 14030, which was issued on May 20, 2021, also directs the Secretary of Labor to consider publishing, by September 2021, a proposed rule to suspend, revise, or rescind the Final DOL Proxy Voting Rule ~~0-5~~and Final DOL ESG Rule. On March 10, 2021, the DOL issued an indefinite non-enforcement policy with respect to the Final DOL ESG Rule and the Final DOL Proxy Voting Rule.

On October 13, 2021, the DOL issued for comment, its proposed "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" rule, which would replace the Final DOL ESG Rule and Final DOL Proxy Voting Rule (New DOL Proposed ESG/Proxy Voting Rule). The New DOL Proposed ESG/Proxy Voting Rule would amend the "Investment Duties" regulation, which addresses the duties of prudence and loyalty in selecting plan investments and exercising of shareholder rights, including proxy voting. The New DOL Proposed ESG/Proxy Voting Rule would retain the core principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on material risk-return factors and not subordinate the interests of participants and beneficiaries to objectives unrelated to the provision of benefits under the ~~1940~~plan, but clarify that, when considering investment returns, a fiduciary's duty of prudence may require an evaluation of the economic effects of climate change and other ESG factors on a particular investment or investment course of action. The New DOL Proposed ESG/Proxy Voting Rule also would apply the same standards to qualified default investment alternatives as apply to other investments. In a change from the Final DOL ESG Rule, the New DOL Proposed ESG/Proxy Voting Rule also would amend the "tie-breaker" standard by: (1) imposing a standard that would require a fiduciary to conclude prudently that competing investments, or competing investment courses of action, equally serve the financial interests of the plan over the appropriate time horizon; and (2) permitting a fiduciary to select an investment, or an investment course of action, based on economic or non-economic benefits other than investment returns. The New DOL Proposed ESG/Proxy Voting Rule also would adjust the Final DOL Proxy Voting Rule's requirements for the exercise of shareholder rights, including proxy voting, by: (1) removing from the current regulation the statement that "the fiduciary duty to manage shareholder rights appurtenant to shares of stock does not require the voting of every proxy or the exercise of every shareholder right;" (2) removing from the current regulation safe harbors relating to proxy voting that permit (a) a policy to limit voting resources to particular types of proposals that a fiduciary has prudently determined are substantially related to the issuer's business activities or are expected to have a material effect on the value of the investment and (b) a policy of refraining from voting on proposals or particular types of proposals when a plan's holding in a single issuer relative to the plan's total investment assets is below a quantitative threshold; and (3) eliminating from the current regulation the requirement that, when deciding whether to exercise, and in exercising, shareholder rights, a plan fiduciary must maintain records on proxy voting activities and other exercises of shareholder rights. Federated Hermes intends to comment on the New DOL Proposed ESG/Proxy Voting Rule with respect to, among other points, the interrelation between the New DOL Proposed ESG/Proxy Voting Rule and the exclusive benefit rule under relevant fiduciary law in the United States. The comment period for the New DOL Proposed ESG/Proxy Voting Rule ends on December 13, 2021.

On March 25 and 26, 2021, joint resolutions were introduced in the Senate and House of Representatives to rescind the amendments adopted in September 2020 to the SEC's proxy voting rules that, among other things, raised eligibility and resubmission thresholds for shareholder proposals. Under the Congressional Review Act, Congress can rescind rules that were sent to ~~expedite~~Congress in the ~~review process for exemptive relief applications that are "substantially identical" to recent precedent. The amendments~~previous 60 legislative days (or, in this case, beginning August 21, 2020). As of September 30, 2021, these resolutions have ~~the potential to streamline an important regulatory process often utilized when bringing new products to market.~~not progressed in Congress. The SEC also has ~~indicated that firms may not "mix~~been adjusting, or terminating, the targeted, temporary Pandemic-related relief and ~~match relief" from prior orders, and warned that "small changes~~assistance it provided to the terms and conditions of an application, compared to a precedent application, may either raise a novel issue, or require a significant amount of time for the SEC Staff to consider whether it raises such an issue." Federated Hermes believes these amendments will benefit the investment management industry.

Investment management industry participants, such as Federated Hermes, also continued, and will continue, to monitor, plan for and implement certain changes in response to previously-issued, new, proposed or adopted rules and guidance. These proposed and final rules and guidance included a new proposed DOL fiduciary rule and a new proposed DOL rule defining an ERISA plan fiduciary's duties when considering environmental, social and governance (ESG) factors for the investment of plan assets. It remains uncertain whether, or to what degree, broker-dealers or other intermediaries will roll-back, modify or continue changes made prior to the original DOL fiduciary rule, which was vacated in March 2018 by the United States Court of Appeals for the Fifth Circuit, or make new or additional changes in light of the new proposed DOL fiduciary rule, Regulation Best Interest, Form CRS, or SEC fiduciary duty interpretations. These proposed and final rules, and guidance, also included: (i) a new proposed SEC rule establishing a framework for funds' fair value determinations; (ii) final rules and amendments that permit registered closed-end funds and BDCs to use the registration, offering and communications reforms the SEC had previously adopted for operating companies under the 1933 Act; (iii) a re-proposed Rule 18f-4 under the 1940 Act (the "Derivatives Rule"), which would regulate the use of derivatives by mutual funds, closed-end funds, ETFs, and other investment companies by, among other requirements, imposing a requirement for funds to adopt and implement a derivatives risk management program that meets certain criteria (including stress testing and back-testing) with board oversight and reporting by a dedicated administrator appointed by the board; (iv) proposed amendments to the SEC's investment advisor advertising and cash solicitation rules under the Advisers Act, which attempt to update and modernize the existing regulations; and (v) a package of new rules (i.e. Regulation Best Interest), amendments and interpretations intended to enhance the quality of retail investors' relationships with broker-dealers and investment advisors and to enhance investor protections while preserving retail investor access and choice. On September 28, 2020, the SEC staff announced that it will hold a virtual roundtable on October 26, 2020, where SEC and FINRA staff will discuss initial observations on Regulation Best Interest and Form CRS implementation. The ~~SEC also requested comment on Rule 35d-1 under the 1940 Act (Names Rule) to determine whether the Names Rule can be improved to help ensure that fund names inform and do not mislead investors.~~

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows. Please refer to our prior public filings for more detailed discussions of these, and other, previously issued proposed and final rules and guidance.

In addition to the above Regulatory Developments, the SEC staff has been engaging in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including investment advisors and investment management companies such as Federated Hermes' investment management subsidiaries and the Federated Hermes Funds. In addition to routine examinations, the SEC examinations have included certain sweep examinations involving various topics. Examples of sweep examinations conducted, or being conducted, by the SEC staff include, among others, money market fund liquidity, business continuity plans, transition from the London Inter-bank Offered Rate (LIBOR) and compliance with Regulations Best Interest and Form CRS, among others. For 2020, the SEC announced that, as examination priorities, it will focus on mutual funds and ETFs, the activities of their registered investment advisors, and oversight practices of their boards of directors, and more generally on matters important to retail investors (including retirement investors), share class selection, information security, digital assets, electronic investment advice, anti-money laundering, and compliance in registrants responsible for critical market infrastructure, among other matters. At an industry conference on October 8 and 9, 2020, SEC staff members in the SEC's Office of Compliance Investigations and Examinations (OCIE) indicated that OCIE will likely assess the longer-term effects of COVID-19 in 2021, as well as issues related to conflicts of interest, fees and expenses, investment adviser compliance with fund prospectus ESG disclosure, and compliance with recently promulgated regulations. In addition to its recent Covid-19 actions and guidance, the SEC staff also ~~issued various~~is considering issuing updated guidance ~~statements~~to enable broader use of electronic delivery of disclosure documents and ~~risk alerts on a variety~~indicated support for related issues such as remote work, e-authorization and dematerialization of ~~compliance issues, including, among others, cyber-security, Covid-19-related risks~~physical security certificates. Federated Hermes supports many of these recommended actions, particularly allowing for increased use of electronic delivery of disclosure documents.

The number of new or proposed laws, rules and regulations remained low in the ~~transition from LIBOR. These investigations, examinations and actions have led, and may lead, to further regulation, guidance statements and scrutiny~~third quarter of 2021 in the ~~investment management industry. Given government regulatory policies and the impact of Covid-19, while~~U.S. On June 11, 2021, the SEC ~~staff continues their enforcement~~set forth in its Spring Reg Flex Agenda an aggressive schedule for proposing (or in certain cases, re-proposing) and/or finalizing 49 separate rules and ~~examination operations,~~regulations in the ~~degree to~~next year, several of which ~~regulatory investigations, actions and examinations~~ will ~~continue, as well as their frequency and scope, can vary and is uncertain.~~

~~Regulation or potential regulation by regulators other than~~impact the ~~SEC also continued, and may continue, to affect~~U.S. investment management industry participants, including Federated Hermes. For example, it includes rules and regulations on: climate risk disclosure; human capital management disclosure; cybersecurity risk governance; special purpose acquisition companies; proxy voting advice; custody rule amendments under the ~~Financial Industry Regulatory Authority~~Advisers Act; rule 17a-7 amendments under the 1940 Act; money market reforms; matters to address related to ESG factors for investment companies and investment advisers; open end-fund liquidity and dilution management; market structure modernization; and tailored shareholder reports. Other rules and regulations

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

~~(FINRA) also has undertaken,~~included on the SEC's Spring Reg Flex Agenda that will likely impact Federated Hermes as a public company include, for example, corporate board diversity, erroneously-awarded compensation, share repurchase disclosure, reporting of proxy votes on executive compensation, incentive-based compensation and continues to undertake, examinations, including bank sweep programs, zero commissions and cyber-security sweep examinations. Various state legislatures or regulators also have adopted or are beginning to adopt state-specific cyber-security and/or privacy requirements that may apply, to varying degrees, in addition to federal regulation.

The activities of the FSOC also continue to be monitored by the investment management industry, including Federated Hermes. Since the FSOC indicated in 2014 that it intended to monitor the effectiveness of the 2014 Money Fund Rules, concerns persist that the FSOC may recommend new or heightened regulation for "non-bank financial companies," which the Board of Governors of the Federal Reserve System (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds. In its past Annual Reports, the FSOC recommended thatpay versus performance. On April 16, 2021, the SEC ~~monitor~~voted to reopen the ~~implementation of these~~comment period on the proposed rules and evaluate the extent to which they address potential risks in the asset management industry. In its 2019 Annual Report published on December 4, 2019, the FSOC turned its focus to other types of cash management vehicles that continue to use amortized cost or have a stable NAV, and that may be sponsored or advised by registered investment advisors, but are nevertheless not subject to SEC oversight. These include entities such as local government investment pools and private liquidity funds. Noting that such entities are not subject to the 2014 Money Fund Rules, the FSOC recommended that financial regulators monitor developments concerning such short-term cash management vehicles for ~~any financial stability risk implications. The FSOC also identified liquidity and redemption risks, as well as~~ the use of ~~leverage, as an area of~~universal proxy cards in all non-exempt solicitations for contested director elections. On June 1, 2021, SEC Chair Gensler issued a statement directing the staff to consider whether to recommend further regulatory action regarding proxy voting advice.

The SEC has also increased its focus for investment funds and recommended that the SEC monitor the implementation and evaluate the effectiveness of rules intended to reduce such risks (e.g. the 2016 Liquidity Rule, and the re-proposed Derivatives Rule). The market volatility and liquidity stress on ~~money market funds experienced as a result of Covid-19 in late March and~~ESG-related disclosure. On April ~~of 2020 may spur additional money market fund regulation and/or attention by the SEC or FSOC. Most recently, on September 25, 2020, the Director of~~9, 2021, the SEC's Division of ~~Investment Management delivered an address~~Examinations issued a risk alert to ~~the Investment Company Institute, remarking that "despite the significant reforms to rule 2a-7, once again, financial regulators stepped in with emergency measures to assist these funds"~~highlight observations from recent exams of investment advisers, registered investment companies, and ~~stated that it is "critical for us to analyze the events in~~private funds offering ESG products and services. On March ~~[2020]~~15, 2021, SEC Commissioner and ~~how the framework of rule 2a-7 may have either alleviated or contributed to any~~then acting SEC Chair Allison Herren Lee issued a statement reminding issuers of the ~~events~~SEC's 2010 climate change disclosure guidance and soliciting public comment on the SEC's disclosure rules and guidance as they apply to climate change and other ESG-related disclosures. In its June 4, 2021 comment letter, the ICI called on the SEC to mandate disclosure of greenhouse gas emissions and workforce diversity to give fund managers the consistent, comparable, and reliable data they need to better assess current and future sustainability-related risks. However, the ICI also warned against an overly prescriptive approach to ESG disclosure, stating that ~~unfolded."~~the SEC should develop a regulatory framework that is flexible enough to allow disclosure practices to develop organically over time. In its June 14, 2021 comment letter, Federated Hermes urged the SEC to: (1) supplement, not replace, its principles-based disclosure regime with prescriptive metrics; (2) focus on material disclosures; and (3) maintain the global competitiveness of U.S. capital markets. EOS at Federated Hermes also submitted a comment letter that supported the SEC requiring companies to report on material climate-related information that may impact the long-term value of companies to allow investors the ability to access timely, accurate, comprehensive, consistent and comparable information.

~~The Democratic nominee in~~In a July 28, 2021 speech, SEC Chair Gensler outlined his views on likely components of the ~~2020 Presidential election has~~SEC's forthcoming climate disclosure rulemaking proposal. Chair Gensler discussed that the proposal could include: (i) mandatory climate risk disclosure; (ii) qualitative and quantitative data disclosures; (iii) climate-related risk management and strategy disclosures; and (iv) disclosure of metrics related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals. Chair Gensler indicated that he asked for SEC staff to consider recommendations regarding emission disclosures, industry-specific disclosures, whether fund managers should disclose the criteria and underlying data they use to make ESG-related claims about their products, and whether the SEC should review Rule 35d-1 under the 1940 Act (Names Rule) holistically. Chair Gensler also indicated that the proposal may consider which data or metrics companies might use to inform investors about how they are meeting their climate-related pledges. He also noted that the SEC will likely develop its own disclosure requirements rather than rely on external standard setters, and may look to existing frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) for guidance. On September 1, 2021, Chair Gensler stated that he has instructed SEC staff to prepare a "proposal for climate risk disclosure requirements" and that the proposal should be informed by other frameworks, including the TCFD. On September 14, 2021, Chair Gensler reiterated that "[t]oday's investors are looking for consistent, comparable, and decision-useful disclosures around climate risk," and that the SEC should "step in" when there is ~~open~~high demand for relevant information. Chair Gensler further noted that proposals developed by the SEC will be "informed by economic analysis" and will be available for public comment. On September 22, 2021, the SEC's Division of Corporation Finance published a sample comment letter that the SEC staff intends to issue to public companies regarding their climate change disclosures in SEC filings. In his remarks to the ~~idea~~House Financial Services Committee at the October 5, 2021 SEC oversight hearing, SEC Chair Gary Gensler signaled a phased-in climate disclosure approach that would take into account company size and the types of disclosure required.In his fireside chat on October 19, 2021, SEC Chair Gensler reaffirmed his previous remarks to the UN Principles for Responsible Investment that the SEC may look to international standard setters when setting climate change disclosure requirements, but will promulgate US-specific disclosure requirements. On October 21, 2021, the FSOC released a report on climate-related risks to financial ~~transactions tax (FTT) on securities transactions,~~stability in which it recognizes that climate change is an ~~idea proposed by certain former Democratic candidates, including~~emerging and increasing threat to U.S. financial stability and, among other recommendations, recommends that FSOC members issuing requirements for climate-related disclosures consider whether such disclosures should include disclosure of greenhouse gas emissions, as appropriate and practicable, to help determine exposure to material climate-related financial risks.

Since the Vice President nominee. On March 5, 2019, legislation was introduced in both the House of Representatives and Senate that, if passed and signed into law, would have imposed a 0.1% tax on stock, bond and derivative transactions. The tax would apply to sales made in the U.S. or by U.S. persons, while initial securities issuances and short-term debt would be exempt. A later proposal would tax stock trades at 0.5%, bond trades at 0.1%, and derivatives transactions at 0.005% coupled with an income tax credit for individuals with income of less than $50,000 ($75,000 for married couples), which is intended to offset the average burdenbeginning of the ~~tax~~third quarter 2021, other proposed rules, new guidance and other actions have been issued or taken that impact U.S. investment management industry participants, including Federated Hermes. For example:

•On October 14, 2021, the SEC re-opened the comment period for such individuals. Neither bill has progressed in Congress. Management does not believe this legislation will be enacted under President Trump's administration. On July 16, 2020, a bill was introduced intoits proposal to implement the ~~New Jersey state legislature, which has the support~~provisions of Governor Phil Murphy, which seeks to impose a $0.0025 tax per financial transaction on any person or entity that transacts more than 10,000 financial transactions through electronic infrastructure located in New Jersey during the year. It has been reported that the NYSE and the National Association of Securities Dealers Automated Quotations (Nasdaq) have threatened New Jersey lawmakers that they will move out of state if taxes are imposed on electronic trades. It also has been reported that certain New York lawmakers are in favor of an FTT.

The current regulatory environment has impacted, and will continue to impact, Federated Hermes' business, results of operations, financial condition and/or cash flows. For example, regulatory changes, such as the 2014 Money Fund Rules and Guidance, and the new fund of funds rule, can result in shifts in product structures as well as asset mixes and flows. These shifts impact Federated Hermes' AUM, revenues and operating income. Despite the FOMC's reductionSection 954 of the ~~federal funds target rate range~~Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The proposed rule and rule amendments would direct the national securities exchanges and national securities associations to ~~0% - 0.25% in response~~establish listing standards that would require each issuer to ~~market pressures resulting from Covid-19, management continues~~develop and implement a policy providing for the recovery (or claw back), under certain circumstances, of incentive-based compensation based on financial information required to ~~believe money market funds provide a more attractive investment opportunity than other products, such as insured deposit account alternatives. Management~~be reported under the securities laws that is monitoring and assessing the potential impact of the current low interest rate environment on money market fund and other fund asset flows, related asset mixes and the degree to which these factors impact Federated Hermes' prime money market business as well as Federated Hermes' overall business, results of operations, financial condition and/or cash flows generally. Management is also monitoring the potential for additional regulatory scrutiny of money market funds, including prime money market funds.

Covid-19, as well as changes made in response to the original DOL fiduciary rule, impacted, and any modifications or additional changes that may be made in response to Regulation Best Interest, Form CRS, SEC fiduciary duty interpretations, or the new fiduciary rule proposed by the DOL likely may impact, Federated Hermes' AUM, revenues and operating income. For example, while it remains uncertain whether, and to what degree, broker-dealers or other intermediaries will roll-back, modify or continue changes made prior to the DOL's original fiduciary rule being vacated, or to make new or additional changes in light of Regulation Best Interest, Form CRS, or SEC or DOL fiduciary duty interpretations and rules, if intermediaries continue

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

received by current or former executive officers, and require disclosure of the policy. The proposal was initially issued by the SEC in 2015. The comment period ends on November 22, 2021.

•On September 29, 2021, the SEC proposed changes to Form N-PX to enhance disclosure for mutual fund and ETF proxy voting records. The SEC indicated that the purpose of the proposal is to enhance the scope of N-PX reporting and to impose structured data reporting so that investors can more easily compare and analyze mutual fund and ETF proxy voting decisions, particularly in the areas of say-on-pay votes, and votes on ESG-related issues. The comment period ends on December 14, 2021.

It remains uncertain the degree to which regulators will change, or Congress will require regulators to change, certain recent Regulatory Developments. It also remains unclear whether, or to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made prior to the original, vacated DOL fiduciary rule, or make new or additional changes in light of the Final DOL Fiduciary Rule, the DOL's final investment duty amendments, Final DOL Proxy Voting Rule, Final DOL ESG Rule, Regulation Best Interest, Form CRS, or SEC fiduciary duty interpretations. As noted above, the DOL has taken non-enforcement positions with respect to the Final DOL Fiduciary Rule, and has proposed the New DOL Proposed ESG/Proxy Voting Rule, which increases this uncertainty.

In addition to the above Regulatory Developments, the SEC staff continues to engage in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including investment advisors and investment management companies such as Federated Hermes' investment management subsidiaries and the Federated Hermes Funds. It has been reported that the SEC's enforcement focus under the new administration could shift back to publicly-traded company matters (such as insider trading, issuer reporting, and accounting fraud), and to a more aggressive investor protection stance with a reinstitution of a "broken windows" enforcement philosophy under which enforcement actions are brought for minor violations. On October 13, 2021, the SEC's new Director of Enforcement announced that he intends to recommend aggressive use of available remedies in enforcement actions, including, among other tools, requiring admissions of wrongdoing in certain cases. On March 3, 2021, the SEC Division of Enforcement (DOE) released its examination priorities for 2021, which include, among other priorities: (1) compliance with Regulation Best Interest and Form CRS, as well as investment advisor fiduciary duties; (2) information security and operational resilience; (3) financial technology innovation; (4) anti-money laundering programs; (5) the transition from the London Inter-Bank Offered Rate (LIBOR) to an alternate reference rate; (6) investment advisor and fund ESG disclosures and practices; (7) fund valuation and other disclosures and fund governance practices; (8) the design, implementation and maintenance of investment advisor and fund compliance programs and fund liquidity risk management programs; and (9) money market fund compliance with stress-testing requirements. On March 4, 2021, the SEC announced the creation of a Climate Change and ESG Task Force in the SEC's DOE to develop initiatives to proactively identify ESG-related misconduct, with an initial focus on identifying any material gaps or misstatements in issuers' disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisors' and funds' ESG strategies. In addition to routine examinations, the SEC examinations have included sweep examinations involving various topics. For example, as previously announced in June 2021, the SEC conducted a sweep exam regarding the cyberattack involving the compromise of software created by the SolarWinds Corp. In addition to its Pandemic-related actions and guidance, the SEC staff has also issued various guidance statements and risk alerts on a variety of compliance issues, including, among others, fixed income principal and cross trades, managing client assets in wrap programs, ESG investing and product offerings, anti-money laundering, suspicious activity monitoring and reporting, digital assets,

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

securities issued by special purpose acquisition companies (or SPACs), the Executive Order on Securities Investments that Finance Communist Chinese Military Companies, cyber-security, large trader obligations, investment advisor compliance and the transition from LIBOR.

These investigations, examinations and actions have led, and can lead, to further regulation, guidance statements and scrutiny of the investment management industry. The degree to which regulatory investigations, actions and examinations will continue, as well as their frequency and scope, can vary and is uncertain.

Regulation or potential regulation by regulators other than the SEC and DOL also continued, and can continue, to affect investment management industry participants, including Federated Hermes. For example, on October 8, 2021, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice encouraging FINRA member firms to incorporate government-wide anti-money laundering and countering financing of terrorism priorities into their anti-money laundering programs. On August 13, 2021, FINRA issued a regulatory notice reminding firms of their supervisory obligations related to outsourcing to third party vendors. On June 23, 2021, FINRA issued a regulatory notice reminding firms of the requirements concerning best execution and payment for order flow. On March 4, 2021, FINRA issued a regulatory notice regarding common sales charge discounts and waivers for mutual funds. FINRA has also undertaken, and continues to undertake, examinations. FINRA continues to review firms' systems and procedures for providing customer waivers and rebates available through rights of reinstatement on mutual fund purchases. Other FINRA examinations have included, among others, options trading, bank sweep programs, zero commission and cyber-security sweep examinations. In a 2021 Report on its Examination and Risk Monitoring Program, FINRA identified, among other areas of concern, anti-money laundering, outside business activities, private securities transactions, Regulation Best Interest and Form CRS compliance, misrepresentation relating to cash management accounts and digital assets, best execution and liquidity risk management controls as areas of focus and potential examination. In addition to federal regulation, various state legislatures or regulators also have adopted or are beginning to adopt state-specific cyber-security and/or privacy requirements that can apply, to varying degrees, to investment management industry participants, including Federated Hermes.

The activities of FSOC also continue to be monitored by the investment management industry, including Federated Hermes. In December 2019, FSOC changed its systemically important designation approach for non-bank financial companies from an entity-based approach to an activities-based approach under which an individual firm would only be so designated if it were determined that efforts to address the financial stability risks of that firm's activities by its primary federal and state regulators have been insufficient. Since then, FSOC has been required first to focus on regulating activities that pose systemic risk through actions by primary regulators. FSOC has focused on potential risks in the asset management industry, including money market funds, and other types of cash management vehicles (such as local government investment pools), that continue to use amortized cost or have a stable NAV but are not subject to the 2014 Money Fund Rules and Guidance. As discussed above, the market volatility and liquidity stress on money market funds experienced as a result of the Pandemic beginning in March 2020 has drawn the attention of U.S. and global regulators, including FSOC. Certain policy advocates are beginning to call for FSOC to reverse its 2019 decision to change its approach as outlined above in order to better fulfill its statutory mandate to mitigate risks to financial stability. Any possibility of FSOC reverting to its pre-December 2019 systemically important designation practices, and recommending new or heightened regulation for non-bank financial companies, which the Fed's Board of Governors (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds, increases the potential for further regulation of the investment management industry, including Federated Hermes and the Federated Hermes Funds.

As a candidate, the current President stated that he is open to the idea of a financial transactions tax (FTT) on securities transactions, an idea proposed by certain former Democratic candidates, including the current Vice President. Prior federal legislative attempts to enact an FTT would have imposed a 0.1% tax on stock, bond and derivative transactions, which would have applied to sales made in the U.S. or by U.S. persons, while initial securities issuances and short-term debt would have been exempt. A later proposal would have taxed stock trades at 0.5%, bond trades at 0.1%, and derivatives transactions at 0.005% coupled with an income tax credit for individuals with income of less than $50,000 ($75,000 for married couples), which was intended to offset the burden of the tax for such individuals. The Wall Street Tax Act, introduced in the House of Representatives on January 15, 2021 together with its companion Senate bill introduced on March 18, 2021, would impose, if enacted, a 0.1% tax on stock, bond and derivatives transactions and reportedly would raise an estimated $777 billion over a decade. The Tax on Wall Street Speculation Act, introduced in the Senate and House of Representatives on April 21, 2021, would impose an FTT of 0.5% on stock trades, 0.1% on bond trades, and 0.005% on derivative transactions. These proposals are being introduced for a variety of reasons, including to fund infrastructure programs and college education programs or in an attempt to reduce speculation on Wall Street. While Congressional hearings have taken place during which the FTT proposals have been discussed, none of the bills introduced to date have progressed in Congress. The President has proposed a 15% minimum corporate tax rate and the President has proposed (and the House Ways and Means Committee has approved a reconciliation tax bill) raising the corporate income tax rate to 26.5%. The President has also proposed a "wealth tax" on the

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

investment income of Americans with at least $1 billion in assets, which reportedly is supported by certain Senators who initially opposed the President's budget proposals. While these tax increases, among others, are being proposed to fund a $1 trillion infrastructure plan and a roughly $1.75 trillion to $2 trillion budget proposal, the President has not proposed a specific FTT for broad application. Legislation also has been introduced in various states, such as New York, New Jersey and Illinois, that, if enacted, would have imposed FTTs on various types of securities, commodities or other financial transactions. In March 2021, a bill was re-introduced into the U.S. House of Representatives that would prohibit states from imposing FTTs on security industry participants. As of September 30, 2021, that bill has not progressed in Congress. Management believes that an FTT, particularly if enacted with broad application, would be detrimental to investors and Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

The regulatory environment has impacted, and will continue to impact, to various degrees, Federated Hermes' business, results of operations, financial condition and/or cash flows. For example, Regulatory Developments can result in shifts in product structures, as well as changes in asset flows and mix and customer relationships. It remains uncertain whether, and to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made in response to the original, vacated DOL fiduciary rule, the New DOL Fiduciary Rule, any changes to the New DOL Fiduciary Rule proposed by the DOL and other Regulatory Developments. If intermediaries continue to reduce the number of Federated Hermes Funds offered on their platforms, mutual fund-related sales and distribution fees earned by Federated Hermes ~~may~~can decrease. In that case, similar to other investment management industry participants, Federated Hermes could experience a further shift in asset mix and AUM, and a further impact on revenues and operating income. On the other hand, management continues to believe that Federated Hermes' business ~~may~~can be positively affected because separately managed account/wrap-fee strategies work well in level wrap-fee account structures and can provide transparency and potential tax advantages to clients, while Federated Hermes' experience with bank trust departments and fiduciary experience and resources presents an opportunity to add value for customers.

Federated Hermes has dedicated, and continues to dedicate, significant and additional internal and external resources to monitor, analyze and address regulatory responses to the impact from ~~Covid-19~~the Pandemic and ~~other~~ Regulatory Developments generally, and their effect on Federated Hermes' business, results of operations, financial condition and/or cash flows. ~~This effort includes considering~~Additional internal and external resources have been, and will continue to be, devoted to technology, legal, compliance, operations and other efforts to address regulatory-related matters. These efforts included, and will continue to include, having conversations internally, and with intermediaries, customers, service providers, counsel and other advisors regarding Regulatory Developments, and analyzing and/or affecting legislative, regulatory, product offering, development and structure ~~and development,~~adjustments, technology ~~and~~or information system development, reporting ~~capability,~~capabilities, business processes and other options, ~~that have been or may be available~~ in an effort to comply, and/or to assist Federated Hermes' intermediaries and customers to comply, with new Regulatory Developments or minimize the potential impact of any adverse consequences. Federated Hermes' efforts include having conversations with intermediary customers regarding Regulatory Developments, and analyzing product offering and structure adjustments, regulatory alternatives and other means to comply, and to assist its customers to comply, with new fiduciary rules or interpretations, the 1940 Act and other applicable laws and regulations.consequences stemming therefrom. As appropriate, Federated Hermes also participated, and will continue to participate, either individually or with industry groups, in the comment process for proposed regulations. Federated Hermes continues to expend legal and compliance resources to examine corporate governance, ~~and~~ public company and other disclosure proposals and final rules issued by the SEC, to adopt, revise and/or implement policies and procedures, and to respond to examinations, inquiries and other matters involving its regulators, including the SEC, customers or other third parties. Federated Hermes ~~continues~~also has devoted, and will continue to devote, resources to technology and system investment, business continuity, cybersecurity and information governance, and the development of other investment management and compliance tools, to enable Federated Hermes to, among other benefits, be in a better position to address ~~new or modified regulatory requirements.~~Regulatory Developments. In connection with ~~Covid-19,~~the Pandemic, Federated Hermes has devoted internal and external resources to complying with the requirements of federal and state orders imposing ~~work~~work- and ~~travel~~travel-related restrictions, and the requirements under the CDC's and state and local health departments' guidance, as well as enhanced disinfection and contamination procedures.

Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new Regulatory Developments ultimately will be successful. The degree of impact of Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows can vary, including in a material way, and is uncertain.

Management also continues to monitor and assess the potential impact of the Pandemic generally, and the impact of the low interest rate environment on money market fund and other fund asset flows, and related asset mixes, as well as the degree to which these factors impact Federated Hermes' prime and municipal (or tax-exempt) money market business and Federated Hermes' business, results of operations, financial condition and/or cash flows generally. Management also continues to monitor, and expend resources in connection with, the potential for additional regulatory scrutiny of money market funds, including prime and municipal (or tax-exempt) money market funds.

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The Regulatory Developments discussed above, and related regulatory oversight, also impacted, and/or ~~may~~can impact, Federated Hermes' intermediaries, other customers and ~~vendors,~~service providers, their preferences and their businesses. For example, these developments have caused, and/or ~~may~~can cause, certain product line-up, structure, pricing and product development changes, as well as money market, equity, fixed-income, alternative/private markets or multi-asset fund products to be less attractive to institutional and other investors, reductions in the number of Federated Hermes Funds offered by intermediaries, changes in the fees Federated Hermes, retirement plan advisors and intermediaries will be able to earn on investment products and services sold to retirement plan clients, changes in work arrangements and facility-related expenses, and reductions in AUM, revenues and operating profits. In addition, these developments have caused, and/or ~~may~~can cause, changes in asset flows, levels and mix, as well as customer and ~~vendor~~service provider relationships.

Federated Hermes will continue to monitor regulatory actions in response to ~~Covid-19~~the Pandemic and other Regulatory Developments as necessary and ~~may~~can implement additional changes to its business and practices as it deems necessary or appropriate. Further analysis and planning, or additional refinements to Federated Hermes' product line and business practices, ~~may~~can be required in response to market conditions, customer preferences or ~~regulatory changes and developments,~~new or modified Regulatory Developments, such as ~~new conflict of interest or fiduciary rules,~~ the new investment advisor advertising, valuation, derivatives, and fund of funds ~~rule~~rules, any proposed changes to the Final DOL Fiduciary Rule, the New DOL Proposed ESG/Proxy Voting Rule and other Regulatory Developments, or any additional regulation or guidance issued by the SEC, DOL or other regulatory authorities.

In addition to the impact on Federated Hermes' AUM, revenues, operating income and other aspects of Federated Hermes' business described above, ~~on a cumulative basis,~~ Federated Hermes' regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and ~~may~~can continue to have, on a cumulative basis, a material impact on Federated Hermes' expenses and, in turn, financial performance.

As of September 30, ~~2020,~~2021, given the ~~current~~ regulatory environment, ~~Covid-19~~the Pandemic and the possibility of future additional modified or delayed regulation or oversight, Federated Hermes is unable to fully assess the impact of regulatory actions in response to ~~Covid-19~~the Pandemic or other adopted or proposed regulations, and other Regulatory Developments, and Federated Hermes' efforts related thereto, on its business, results of operations, financial condition and/or cash flows. ~~The regulatory changes and developments~~Modified or new 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' business, results of operations, financial condition and/or cash flows. As of September 30, ~~2020, while the FSOC's change in focus and continuing transparency efforts have reduced the possibility of~~2021, management also believes that any ~~Federated Hermes products being designated~~designation as a systemically important non-bank financial ~~institution, in management's view any such designation and~~company, or any reforms ultimately put into effect by FSOC, would be detrimental to Federated Hermes' money market fund business and could materially and adversely affect Federated Hermes' business, results of operations, financial condition and/or cash flows.

International

Similar to the U.S., in 2020, the outbreak of the Pandemic shifted the regulatory environment in the UK and European Union (EU) toward the adoption of measures intended to provide regulatory flexibility and market stabilization. While the full impact of the Pandemic remains unclear through the third quarter of 2021, regulators in the UK and EU are continuing to allow certain regulatory relief granted in 2020 to expire, while extending other relief, and to advance new and proposed consultations, directives, regulations and laws while generally remaining in a remote working environment. These Regulatory Developments continue to impact the investment management industry in the UK and EU.

In the UK, the transition period under the European Union Withdrawal Agreement Bill (Withdrawal Agreement Bill), which implemented the withdrawal agreement reached between the UK and the other 27 EU Member States and set out the arrangements for the UK's withdrawal from the EU (Brexit), ended on December 31, 2020. On December 30, 2020, the EU–UK Trade and Cooperation Agreement (TCA) became effective. Among other things, the TCA provides for free trade for goods and limited mutual market access for services, creates certain border checkpoints, imposes visa requirements on UK nationals staying more than 90 days in the EU in a 180-day period, removes any role for the European Court of Justice in the UK, and eliminates the requirement for the UK to comply with EU data protection directives. The TCA also provides for cooperation between the UK and EU regarding a range of policy areas and UK participation in certain EU programs.

Political, economic, legal and regulatory uncertainty continues regarding the impact of Brexit on a post-Brexit UK. See Item 1A - Risk Factors under the captions General Risk Factors - Economic and Market Risks - Potential Adverse Effects of a Decline or Disruption in the Economy or Markets and General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules in Federated Hermes' Form 10-K for the year ended December 31, 2020 for further discussion of the risks of political instability, currency abandonment and other market disruptions on Federated Hermes and its business. Brexit has affected, and will likely continue to affect, the requirements and/or timing of implementation of

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~~of operations, financial condition and/or cash flows.~~legislation and regulations applicable to doing business in the EU and UK, including the laws and regulations applicable to Federated Hermes, ~~also is unable~~as well as to ~~assess at this time whether, or~~ the ~~degree to which, any continuing efforts or potential options being evaluated in connection with regulatory changes~~sponsoring, management, operation and ~~developments ultimately may be successful.~~

~~International~~

~~Similar to their U.S. counterparts, UK~~distribution of Federated Hermes' products and services, both within and outside the EU ~~regulators have acted directly in response to Covid-19. For example, the FCA acknowledged on September 24,~~and UK. On October 1, 2020, a statement from the UK Government advising firms to continue to follow UK Government advice on working from home if possible over the winter until notified otherwise. The FCA issued on May 6, 2020 a Modification by Consent extending the maximum period firms can arrange cover for a Senior Manager without being approved, from 12 weeks to 36 weeks in a consecutive 12-month period. Subsequently, on June 30, 2020, the UK Treasury agreed to delay the deadline for solo-regulated firms to have undertaken the first assessment of the fitness and propriety of their Certified Persons from December 9, 2020 until March 31, 2021. The FCA updated on April 24, 2020 previously issued temporary relief that extended the regulatory deadlines for funds to publish their annual reports and accounts by two months and their half-yearly reports by one-month, consistent with the European Securities and Markets ~~Authority's~~Authority (ESMA) ~~April 9, 2020 Public Statement~~issued an updated statement on the consequences of Brexit under the Benchmark Regulation, which indicates that ~~encouraged national competent authorities (NCAs)~~EU-supervised entities can continue to ~~apply a risk-based approach~~use third-country UK benchmarks until December 31, 2021 and ~~act in a proportionate manner~~that this transition period is also recognized in the ~~exercise~~UK. On September 20, 2021, the UK House of ~~supervisory powers~~Commons Treasury Committee published the UK Government's response (Response) to its report on the Future Regulatory Framework of Financial Services, which was published on June 30, 2021. Among other key points, the Response expresses support for incorporating into UK law EU financial services rules that were "on-shored" into the UK as a result of Brexit, and indicates that the UK Government will be setting forth more detailed proposals in ~~their day-to-day enforcement~~the fall of 2021,

While the TCA addresses the financial services industry, it does so on a limited basis and does not provide for passporting rights nor address equivalence decisions. Passporting ended at the expiration of the ~~regulatory deadlines that apply to the production of fund reports. The FCA published~~Brexit transition period and firms now must rely on ~~April 3, 2020 its expectations for solo-regulated firms to~~temporary permission regimes and comply with the ~~Senior Managers and Certification Regime (SMCR) addressing circumstances involving~~local laws of each country. The UK Financial Conduct Authority (FCA) has implemented a temporary changes to Senior Managers' responsibilities due to illness or other measures in response to Covid-19, including longer-term furloughs of Senior Managers. ESMA updated on April 2, 2020 their risk assessment to account for the impact of Covid-19, notingpermissions regime that ~~corporate and government bond markets and~~allows European Economic Area (EEA)-domiciled investment funds that were ~~showing signs~~marketed in the UK under a passport to continue temporarily to be marketed in the UK, and allows EEA-based firms that passported into the UK to continue new and existing regulated business within the scope of ~~stress~~their permissions in the UK for up to five years, while ~~market infrastructures have continued to function in an orderly manner despite significant surges in trading activity, use of circuit breakers and increases in derivatives margins. The~~they seek full FCA ~~released on~~authorization. On March 31, 2020 a "Dear CEO" letter regarding Covid-19 which, among other things, provided guidance for firms regarding their anti-money laundering obligations, the Markets in Financial Instruments Directive II (MiFID II) 10% depreciation reporting, responding to complaints and continued recording of telephone lines in accordance with MiFID II requirements. On September 30, 2020,4, 2021, the FCA ~~extended its decision~~provided further guidance on the UK temporary permissions regime by advising firms of the opening and closing dates during which firms must either apply for full permission or cancel their temporary permission and then cease any regulated financial conduct in the UK. The UK also has created a financial services contracts regime that allows, for a limited time, EEA-based firms not to take enforcement action against firms that cease providing 10% depreciation reports for professional clients until March 31, 2021. ESMA also released on March 11, 2020 recommended actions for financial market participants for Covid-19 related impacts. The recommended actions include: (i) preparing to deploy business continuity measures, (ii) preparing appropriate market disclosures and (iii) ensuring transparent financial disclosures. ESMA also counseled fund managerstaking advantage of the temporary permissions regime in the UK to continue to ~~adhere~~service UK customers under contracts entered into prior to the ~~requirements~~end of the transition period in order for ~~risk management.~~

them to conduct an orderly exit from the UK. In addition to the UK, EU governments, such as, among others, France, the Netherlands, Italy and ~~EU regulators~~Germany, also have ~~focused on extending~~adopted similar temporary permission regimes or other laws to permit UK products to be sold, and EU-UK financial transactions to continue, for a period of time in their countries. Pursuant to amendments implemented by the company financial reporting and disclosure requirements to accommodate the impact of Covid-19 on quarter-end audits and reporting. The FCA, Financial Reporting Council and Prudential Regulation AuthorityWithdraw of the United Kingdom ~~issued~~from the European Union (Consequential Provisions) Bill 2020, a firm that is authorized in the UK and/or Gibraltar, which has previously passported into Ireland, will be deemed to be authorized for specific and limited purposes in Ireland for a 15 year period following the end of the transition period, subject to the fulfillment of certain conditions.

The FCA, ESMA and EU regulators previously signed memoranda of understandings (MoUs) covering cooperation and exchange of information that came into effect at the end of the transition period (i.e., on December 31, 2020) and provide for some level of regulatory coordination until a new regime is agreed and in place. In a joint ~~statement announcing~~declaration dated December 24, 2020, the EU and UK committed to agreeing to a ~~series~~framework for regulatory cooperation and mutual equivalence which would be set forth in a subsequent MoU by March 2021. On March 26, 2021, Her Majesty's Treasury (HM Treasury) announced that technical discussions had concluded, and that the UK and the EU agreed to a MoU that creates a framework for voluntary regulatory cooperation in financial services and establishes a Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services matters. The MoU, however, does not reflect progress on equivalency determinations. In addition to a few other equivalency decisions, such as two time-limited equivalency decisions in connection with the UK relating to central counterparty clearing and settlement of ~~actions designed to ensure information continues to flow to investors and support~~Irish securities, on June 26, 2021, the ~~continued functioning~~European Commission issued two adequacy decisions recognizing the level of protection of the UK's ~~capital markets. The actions include: (i) allowing listed companies~~data protection laws as "essentially equivalent" with EU laws. These adequacy decisions allow EU to UK data flow to continue after Brexit. In September 2021, as part of a broader announcement on the future of the UK's data protection regime, the UK Government announced plans to work on granting adequacy decisions regarding the data protection laws of other countries, including the U.S., Australia, Singapore and others. HM Treasury has granted over 25 equivalency decisions to the EU, in addition to those granted to 32 other jurisdictions. UK regulators also are continuing with an ~~extra two months to publish their audited annual financial reports; (ii) issuing guidance for companies~~"onshoring" process of amending EU legislation and regulatory requirements so that they work in the ~~midst~~UK. In October 2020, the FCA, the Bank of ~~preparing audited financial statements in the current uncertain environment;~~England (BoE) and ~~(iii) issuing guidance for audit~~other UK regulators granted firms ~~seeking~~until March 31, 2022 to overcome challenges in obtaining audit evidence due to Covid-19. The FCA also provided on May 20, 2020 additional temporary relief that permits listed companies which need extra time to complete their half yearly financial reports an additional month in which to publish them, consistentcomply with ~~ESMA's March 27, 2020 statement that indicated that ESMA expects NCAs not to prioritize supervisory actions against issuers in respect~~certain of ~~half yearly financial reports for~~these regulatory changes including, among others, certain reporting obligations and market abuse requirements.

Despite these developments, there remains a ~~period~~risk of one month following the existing deadline. The FCA's May 27, 2020 Primary Market Bulletin also set forth guidance for issuers that have concerns about how to address Covid-19-related uncertainties in the "going concern" assessment they perform whenever they produce financial statements. In addition, UK financial regulators have modified previous market practices relating to the timing and content of financial information and audit work. The impact of Covid-19 on existing and recently proposed UK and European legislation, regulation and consultation can vary and is uncertain.

Covid-19 also is affecting the Brexit timeline. UK Prime Minister Boris Johnson previously indicated that, now that the UK is no longer a member of the EU as of January 31, 2020, he will not seek to extend the one-year Brexit transition period that is set to expire on December 31, 2020. With delays in negotiations due to Covid-19, the deadline for a joint decision on an extension passed on July 1, 2020 without an agreement being reached regarding the post-transition period relationship between the UK and EU.

~~The European Union Withdrawal Agreement Bill (Withdrawal Agreement Bill) implements the withdrawal agreement reached~~regulatory divergence between the UK and the ~~other 27~~EU. On July 1, 2021, Rishi Sunak, the UK Chancellor of the Exchequer, called an end to negotiations with the EU ~~member states~~on regulatory equivalence (or common regulations) with EU financial services regulation. This decision means that the UK is electing to have its own financial rules. EU investment firms in EU Member States were required to comply with the Investment Firms Directive (IFD) and ~~sets out~~Investment Firms Regulation (IFR) by June 26, 2021, the ~~arrangements for~~effective date of the ~~UK's withdrawal from~~IFD and IFR in the EU. ~~The Withdrawal Agreement Bill also establishes a time line~~On March 5, 2021, the European Banking Authority (EBA) published draft standards on supervisory reporting and disclosures for ~~the UK to repay approximately £33 billion in financial obligations to the EU. It also provides that a one-year transition period cannot be extended and that EU law will continue to be upheld~~investment firms as defined in the ~~UK during~~IFR, which are intended to ensure a proportionate implementation of the ~~transition period. The Withdrawal Agreement Bill establishes customs checks on goods being moved between~~new prudential framework for investment firms

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taking into account their different activities, sizes and complexity. On May 31, 2021, the EBA, together with ESMA, published a provisional list of instruments and funds that EU national competent authorities (NCAs) may use as own-funds for small investment firms. The IFD and IFR, however, do not bind the UK, and ~~Northern Ireland~~a new UK prudential regime for Markets in ~~order to avoid a hard border. Taxes would only have to be paid~~Financial Instruments (MiFID) firms titled Investment Firms Prudential Regime (IFPR) was included in the Financial Services Bill 2019-2021, which was based on ~~goods being moved from~~ the UK to Northern Ireland if those products are considered at risk of then being transported into the Republic of Ireland, with the ability to obtain a refund if the goods are not actually transported to the Republic of Ireland. Northern Ireland continues to follow EU regulations relating to labelingIFD and ~~manufacturing goods. In September~~IFR. On December 14, 2020, the FCA issued "Consultation Paper 20/24: A new UK ~~Parliament published~~prudential regime for MiFID investment firms," in which the ~~Internal Markets~~FCA solicited comment on its proposed rules on the IFPR. The consultation period closed on February 5, 2021. On April 19, 2021, the FCA issued "Consultation Paper 21/7: A new UK prudential regime for MiFID investment firms" in which the FCA solicited comment on its second set of proposed rules on IFPR. The consultation period closed on May 28, 2021. On April 29, 2021, the Financial Services Bill ~~which, if passed, would breach~~2019-2021 received Royal Assent and became UK law as the ~~Withdrawal Agreement Bill with respect to Northern Ireland.~~Financial Services Act 2021. Among other things, this Act introduces the ~~Internal Markets Bill~~IFPR as a new UK prudential regime for investment firms, amends the UK's on-shored Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) to provide the FCA with additional powers to clarify the scope of the regulations and amend the requirements within the PRIIPs Key Information Document (KID), increases the power of the FCA to ensure a smooth transition away from LIBOR, simplifies the process enabling non-UK investment funds to be marketed in the UK and requires the FCA to consult on whether it should make general rules providing that authorized persons owe a duty of care to consumers. On June 29, 2021, the FCA issued its first of three policy statements based on its first consultation on the IFPR that sets forth "near final" rules on consolidation, own-fund requirements, and concentration risk, which will apply to UK-authorized MiFID firms. On July 26, 2021, the FCA issued its second policy statement, which sets forth industry feedback to the first policy statement, and additional "near-final" rules to supplement and amplify those rules that were set forth in the first policy statement. On August 6, 2021, the FCA published its third and final consultation on the IFPR with additional disclosure requirements and other technical changes. The consultation period closed on September 17, 2021. UK regulators are targeting an implementation date for the IFPR of January 1, 2022.

As another example, EU regulators have previously issued or proposed directives, rules and laws regarding sustainable finance, including the Sustainability-Related Disclosures Regulation or Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation. The Taxonomy Regulation establishes a framework to facilitate sustainable investment, including when Member States establish measures (e.g., labels or standards), setting requirements regarding financial products or corporate bonds presented as "environmentally sustainable." On November 5, 2020, ESMA published a consultation setting out draft advice to the European Commission on Article 8 of the Taxonomy Regulation specifying the content, methodology and presentation of the key performance indicators for sustainable activities that non-financial undertakings and asset managers are required to disclose. The consultation period ended on December 4, 2020. On February 4, 2021, the European Supervisory Authorities (ESAs) published a final report containing draft regulatory technical standards on the content, methodologies and presentation of sustainability-related disclosures (the proposed "Level 2" requirements). On March 17, 2021, the ESAs published a consultation package setting out the proposed standards on content and presentation for disclosures under the SFDR. The consultation period ended on May 12, 2021. On April 21, 2021, the European Commission issued a Sustainable Finance Package that contains: (1) an EU Taxonomy Climate Delegated Act, which aims to support sustainable investment by clarifying which economic activities most contribute to meet the EU's environmental objectives; (2) a proposal for a Corporate Sustainability Reporting Directive (CSRD) and revisions to the Non-Financial Reporting Directive, which aim to make sustainability reporting by companies more consistent, so that financial firms, investors, and the broader public can use comparable and reliable sustainability information; and (3) amendments to delegated acts to better reflect sustainability preferences in insurance and investment advice and sustainability considerations in product governance and fiduciary duties. The amendments are subject to scrutiny by the European Parliament and the Council of the EU for a period of three months, which can be extended once by three additional months, and provide for a 12-month implementation period that is expected to end in October 2022.

On May 7, 2021, the European Commission published a draft delegated act setting out definitive standards for the disclosure of information on environmental sustainability that certain large companies must make, as required under the Taxonomy Regulation. On June 8, 2021, ESMA published a "Trends, Risks and Vulnerabilities (TRV) Report" in which it assesses EU investment funds' exposure to climate-sensitive economic sectors and identifies certain key risks. On July 6, 2021, the European Commission adopted a delegated regulation that supplements certain disclosure requirements under the Taxonomy Regulation which specify the content, methodology and presentation of information that certain large financial and non-financial entities must disclose concerning their environmentally-sustainable economic activities. By letter dated July 23, 2021, addressed to the ESAs, the European Commission stated that, due to the length and technical detail of the Level 2 technical standards, their late submissions to the European Commission, and forthcoming amendments to the draft Level 2 technical standards by the European Commission, the European Commission will bundle all of the regulatory technical standards in a single delegated act and defer the date of application from January 1, 2022 to July 1, 2022. On July 26, 2021, the European Commission published updated Questions and Answers concerning a number of questions raised by the ESAs regarding the application of the SFDR,

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Management's Discussion and Analysis (continued)
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including the application of the SFDR to AIFMs and AIFs. On August 2, 2021, the European Commission published additional regulations and a directive as part of its sustainable finance initiatives regarding sustainability risks and sustainability factors to be taken into account by AIFs, UCITS and investment firms, among other regulated entities. On August 3, 2021, the Platform on Sustainable Finance: Technical Working Group published a draft report on preliminary recommendations for technical screening criteria for the Taxonomy Regulation. Comments on the report were due by September 24, 2021, with a final report expected in November 2021. On October 7, 2021, the European Parliament issued a press release announcing the rejection of a supplement to the Taxonomy Regulation that would ~~give~~have specified the technical screening criteria under which certain economic activities qualify as contributing substantially to climate change mitigation and climate change adaptation and for determining whether those activities cause significant harm to any other relevant environmental objectives.

Rather than adopt the SFDR, the UK announced on November 9, 2020 that it will introduce ESG disclosure rules aligning with the TCFD, making the UK the ~~sole power~~first country to ~~interpret certain trade arrangements in Northern Ireland,~~adopt that approach. On December 22, 2020, the Financial Stability Board (FSB) issued a statement encouraging the International Financial Reporting Standards Foundation and ~~enable~~financial authorities to use the TCFD's recommendations as the basis for standards for climate-related financial disclosures. In a consultation launched on March 24, 2021, the UK government solicited views on proposals to ~~reduce or eliminate bureaucratic requirements for Northern Ireland~~require that UK companies ~~shipping goods to England.~~with more than 500 employees that are traded on a UK-regulated market disclose TCFD-aligned climate-related information. The ~~EU is pursuing legal action against the UK over the bill.~~

Under the Withdrawal Agreement Bill, UK nationals are able to live and work in EU countries, and EU nationals are able to live and work in the UK, during the transition period and UK citizens in the EU, and EU citizens in the UK, retain their residency and social security rights. An independent monitoring authority will be established to monitor the rights of EU citizensconsultation stated that ~~remain in the UK after Brexit. Without an agreement being reached between the EU and UK, certain travel restrictions will~~new regulations would come into ~~effect and EU citizens will no longer have the right to move freely to the UK to work and vice versa.~~

The UK and EU have been utilizing the transition period to negotiate a Free Trade Agreement. While the attention being paid to Covid-19 has initially slowed the progress of negotiations, and UK and EU leaders have agreed to intensify negotiations over a Free Trade Agreement, an agreement has not yet been reached. It has been reported that significant gaps continue to exist, with the UK seeking maximum independence from EU rules and the EU wanting to reduce the possibility of the UK having an unfair competitive advantage in the future. The UK has agreed to roll-over 19 free trade agreements covering 50 countries or territories that were part of approximately 40 free-trade agreements to which the UK was a party while a member of the EU. These free trade agreements cover just over 8% of the UK's total trade.force on April 6, 2022. It also has been reported that an ESG Template for funds to explain their ESG features is expected to be proposed in 2021, to supplement the MiFID Template, which is being revised to include ESG fields. On June 22, 2021, the FCA published "Consultation Paper 21/17: Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulation pension providers" in which the FCA proposes to introduce TCFD-aligned disclosure requirements for asset managers, life insurers and FCA-regulated pension providers, with a focus on ~~October 23, 2020,~~ the UKinformation needs of clients and ~~Japan signed~~consumers. The FCA also proposed to extend the TCFD-aligned climate disclosure requirements to all companies with standard listed equity shares, except for standard listed investment entities and shell companies. The consultation period ended on September 10, 2021. On June 7, 2021, the TCFD began to seek public comment on two documents, Proposed Guidance on Climate-related Metrics, Targets, and Transition Plans and the associated Measuring Portfolio Alignment: Technical Supplement, in order to update its final recommendations on climate-related financial disclosures as disclosure practices and the use of disclosures by financial and non-financial organizations have continued to progress since 2017. In a ~~free trade agreement under which nearly all~~July 10, 2021 statement, the G20 Finance Ministers indicated that, "[w]e will work to promote implementation of disclosure requirements or guidance, building on the ~~UK's exports~~[TCFD] framework, in line with domestic regulatory frameworks, to ~~Japan will be tariff free while removing UK tariffs on Japanese cars by 2026.~~pave the way for future global coordination efforts, taking into account jurisdictions' circumstances, aimed at developing a baseline global reporting standard."

~~Until an agreement with~~The post-Brexit regulatory environment (particularly the EU is reached or the transition period ends, significant political, economic, legal and regulatory uncertainty continues to exist regarding the impact of Brexit. Among other matters, issues persist regarding which courts will have greater authority, whether the UK will need to continue to comply with EU laws, the degree to which trade will be subject to quotas and/or tariffs, and fishing rights and quotas. See Item 1A - Risk Factors in Federated Hermes' Form 10-K for the fiscal year ended December 31, 2019 for further discussionobtain full authorizations on a country-by-country basis), also creates a level of the risks of political instability, currency abandonment and other market disruptions on Federated Hermes and its business. The UK's exit from the EU will likely affect the requirements and/or timing of implementation of legislation and regulation applicable to doing business in the UK, including the laws and regulations applicable to Federated Hermes, as well as to the sponsoring, management, operation and distribution of Federated Hermes' products and services, both in and outside the UK. Uncertainty existsuncertainty regarding the ability and requirements to ~~passport fund distribution~~distribute products and provide investment management services between the UK and EU, increasing regulatory burdens and compliance and other costs for UK funds being distributed in the EU and EU funds (such as Irish-domiciled funds) being distributed in the UK. The ability to engage investment managers for EU funds and UK funds also could be impacted, resulting in structural and other changes for UK- and EU-domiciled funds. The FCA, ESMA and EU regulators have signed memoranda of understandings (MoUs) covering cooperation and exchange of information in the event that the UK leaves the EU without an agreement. The MoUs will come into effect at the end of the transitional period (i.e., on December 31, 2020). The FCA has implemented a temporary permissions regime that allows EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK, and allows EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for up to three years, while they seek full FCA authorization. On July 1, 2020, the FCA announced that it would reopen the currently closed notification window on September 30, 2020, to allow firms that had not previously notified the FCA of their intention to use the temporary permissions regime to do so before the end of the Brexit transition period. EU governments, such as, among others, France, the Netherlands, Italy and Germany also have adopted similar temporary permission regimes or other laws to permit UK products to be sold, and EU-UK financial transactions to continue, for a period of time in their countries. UK and EU industry groups have been asking regulators to adopt an EU-wide temporary permissions regime to avoid having to comply with requirements imposed by each EU country.

In March 2020, HM Treasury released a consultation paper proposing an ~~overseas fund regime~~Overseas Fund Regime (OFR) which is targeted at Undertakings for the Collective Investment in Transferable Securities (UCITS) and ~~will enable~~would be a long-term replacement to the temporary permissions regime which enabled Federated Hermes' Irish UCITS funds to continue to be marketed in the UK after ~~the expiration of the transitional period and the temporary permissions regime.~~December 31, 2020. HM Treasury ~~proposes an~~proposed this equivalence regime which will determine countries which are equivalent to the UK and will work with the FCA to determine countries of equivalence. ~~The consultation closed to responses on May 11, 2020.~~ HM Treasury ~~intends to use~~used the Financial Services ~~Bill 2019 -~~Act 2021 to formally introduce the ~~Overseas Funds Regime (OFR) -~~OFR as an equivalence regime for overseas retail funds to be able to market to UK investors, including retail ~~investors.~~investors, on appropriate terms. HM Treasury has also proposed a separate regime for money market funds to be able to market to all investors, noting that the process will be different if the fund wants to market to

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retail or professional investors. These regimes will function similarly to the existing EU approach to equivalence. Federated Hermes has received permission from the FCA to allow certain Irish-domiciled UCITS ~~fund~~funds and Luxembourg-based direct lending funds to continue to be marketed in the UK ~~post-Brexit.~~

~~Federated Hermes is monitoring~~post-Brexit under the impact of Brexit, and, while Brexit has not had a significant impact on Federated Hermes' business as of September 30, 2020, given the ongoing transition period and potential impact of Covid-19, Federated Hermes remains unable to assess the degree of any potential impact Brexit, and resulting changes, may have on Federated Hermes' business, results of operations, financial condition and/or cash flows. Federated Hermes continues to expend internal and external resources on planning relating to Brexit. The Hermes Acquisition increased the potential impact Brexit, and resulting changes, may have on Federated Hermes' business, results of operations, financial condition and/or cash flows.temporary permissions regime.

Despite negative deposit interest rates, euro-denominated European money market funds have successfully operated and provided investors with high quality diversified investments which continue to provide same day liquidity, first through the use of an approved share cancellation methodology and more recently through the use of accumulating share classes. Federated Hermes ~~continues to work~~has worked with the FCA and ~~CBI~~the Central Bank of Ireland (CBI) on appropriate permissions to operate in each jurisdiction, in a manner similar to euro-denominated money market funds, should official rates in U.S. dollars or British pound sterling become negative. Additionally, Federated Hermes continues to work with the CBI on appropriate permissions to operate its U.S. dollar money market funds in a manner similar to euro-denominated money market funds, should official rates in U.S. dollars become negative.

Since the beginning of the third quarter of 2020, UK and EU regulators proposed or adopted new rules and guidance that impact UK and EU investment management industry participants, including Federated Hermes. For example:

•On October 20, 2020, the CBI issued a Dear CEO letter to all Irish management companies expressing the CBI's concerns with the implementation of CP86, which is a set of rules and guidance issued by the CBI related to the governance and effectiveness of Irish management companies, including self-managed funds. Among other matters, the CBI indicates in the letter that its expectation is that Irish management companies should have a minimum of three local staff members whom should be suitably qualified and of appropriate seniority to fulfil the role. The letter also expresses the CBI's concerns regarding how some designated persons discharge their role, delegate oversight, risk management frameworks, board approval of new funds, and fund governance. In the letter, the CBI announced that it has commenced supervisory engagement with Irish management companies where specific concerns have been identified. The CBI also announced in the letter that all Irish management companies are required to critically assess their day to day operational, resourcing and governance arrangements against all relevant rules and guidance, taking into account the findings of the review, and to implement a timely plan for making the necessary changes to ensure full and effective embedding of all aspects of the CBI's Fund Management Companies – Guidance, dated December 2016.

•On October 5, 2020, the European Commission confirmed that the level 2 requirements for the EU's Sustainable Finance Disclosure Regulation (SFDR) "will become applicable at a later stage." The Commission did not specify the revised compliance date.

•On October 1, 2020, ESMA issued a statement regarding the status of commodity derivatives traded on UK trading venues, and addressing Markets in Financial Instruments Regulations (MiFIR) post-trade transparency requirements applicable to EU firms concluding transactions on UK trading after the end of the transition period on December 31, 2020.

•On September 14, 2020, ESMA's Securities and Markets Stakeholder Group (SMSG) published advice to the ESA's Joint Consultation Paper on ESG Disclosures. The SMSG commented on the need for synergy between different pieces of legislation (in particular the Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, and the SFDR), and also adjacent legislation such as the Shareholders Rights Directive II and the scheduled reviews of the MiFID II, UCITS and the Alternative Investment Fund Managers (AIFM) Directive (2011/61/EU) (AIFMD), and how they contribute to enhancing sustainability. The SMSG therefore advocated for an iterative process to introduce the different pieces of legislation over a two to three year timeframe.

•On September 10, 2020, the FCA published its 2019/20 Annual Report, citing LIBOR as a general cross-sector priority, and among its relevant sector priorities were cost transparency and improved performance reporting, as well as disclosure, liquidity management and suspension of dealing for illiquid assets, and open-ended funds.

•On August 19, 2020, ESMA published its AIFMD Letter in light of the upcoming AIFMD review setting forth its recommendations for regulatory changes to the EU investment management model. ESMA's AIFMD Letter recommends changes in the manner in which EU-based Alternative Investment Funds (AIFs) and UCITs funds are managed, with

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~~recommendations for increased portfolio management substance within~~The activities of the EUInternational Organization of Securities Commissions (IOSCO) and ~~enhanced restrictions on delegation and~~FSB also continue to be monitored by the use of group company secondment arrangements. The European Commission is expected to issue a consultation in the fourth quarter of 2020. ESMA's AIFMD Letter and this consultation will likely result in a formal rule making proposal. The potential drafting and adoption of a European Commission rule proposal based on the ESMA AIFMD Letter could have a material impact on Federated Hermes' current operating model, and non-U.S. business, results of operations, financial condition and/or cash flows. Federated Hermes continues to evaluate ESMA's recommendations and the potential impact.

~~Investment~~investment management industry, ~~participants, such as~~including Federated ~~Hermes, also~~Hermes. Building on consultations and other reports published from 2015 through 2020 regarding methodologies for identifying non-bank, non-insurance company global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, IOSCO and FSB have continued, and will continue, to ~~monitor, plan for~~assess, recommend and implement regulatory reforms affecting money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry. In its 2021-2022 work program, published February 26, 2021, IOSCO indicated that, among other priorities, its priorities include financial stability and systemic risks of non-bank financial intermediation activities, as well as risks exacerbated by the Pandemic, such as misconduct risks, fraud, and operational resilience. IOSCO also indicated that, among other efforts, it will continue efforts (headed by the Sustainable Finance Task Force) to improve the completeness, consistency, and comparability of sustainability reporting. On June 30, 2021, IOSCO published a consultation report on "Recommendations for Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management" in which IOSCO focuses on asset managers and investor protection issues with an aim at improving sustainability-related practices, policies, procedures and disclosures. In this consultation report, IOSCO also encourages asset managers to take sustainability-related risks and opportunities into account in their investment decision-making and risk management processes and address greenwashing risk through transparency. IOSCO's recommendations in the report also cover product disclosures, supervision and enforcement, terminology, and financial and investor education.

On November 20, 2020, IOSCO published its final report providing a thematic review of the consistency in implementation of money market reforms across the nine largest money market fund jurisdictions. In this report, IOSCO concluded that these jurisdictions generally implemented money market fund reforms in line with 2012 IOSCO policy recommendations for money market funds, but that market conditions in March 2020 highlighted continuing vulnerabilities in certain ~~changes~~types of money market funds and the need for further reforms. Similar to the PWG Report in the U.S., IOSCO issued a paper on "Money Market Funds during the March-April Episode" (IOSCO Paper) in November 2020. The IOSCO Paper calls for further consideration of the functioning of money market funds, investor behavior and elements of the existing regulatory framework for money market funds which could have played a role in accelerating the outflow of assets from non-government money market funds in March 2020.

In a speech, the Vice Chair for Supervision of the Fed, who also serves as Chair of the FSB, identified nonbank financial intermediation, money market funds and cross-border payments as the FSB's priorities for 2021. In its 2020 Annual Report regarding the "Implementation and Effects of the G20 Financial Regulatory Reforms", among other topics, the FSB reviewed the status of money market fund reforms across G20 jurisdictions, ongoing vulnerabilities from liquidity and leverage in asset management, and measures taken by financial regulators relating to funds (including money market funds) in response to ~~previously~~the Pandemic. The FSB also issued ~~new proposed or adopted rules and guidance. These proposed and final rules and guidance, included: (i)~~ a ~~discussion paper published by~~report on its "Holistic Review of the ~~FCA~~March Market Turmoil" (FSB Review) on ~~June 23,~~November 17, 2020, in ~~relation~~which it specifically reviewed the impact of the markets in March 2020 on open-end funds, including money market funds. In its FSB Review, among other conclusions, the FSB concluded that redemptions from money market funds were "exacerbated by certain fund structures and regulations that could have created perceptions of first-mover advantage." Among other recommendations, the FSB Review calls for an examination of risk factors, including "liquidity risks, core functions and aspects of the structure or regulations in non-government [money market funds], which experienced large outflows and contributed to the stress in short-term funding markets." In its December 16, 2020 "Global Monitoring Report on Non-Bank Financial Intermediation", the FSB further examined the impact of the Pandemic on the markets and the role of non-bank financial intermediaries, including the importance of money market funds in this sector, particularly in the U.S. and UK. In this report, the FSB noted that U.S. regulations allow fund boards to impose redemption gates and liquidity fees if a ~~new~~money market fund's weekly liquid assets fall below 30% of the fund's total assets, and that a concern that redemptions could be limited or suspended might have led to additional outflows. On June 30, 2021, the FSB published a consultation report, "Policy Proposals to Enhance Money Market Fund Resilience," in which it identified characteristics of money market funds that, in their view, make them susceptible to vulnerabilities, such as sudden and disruptive redemptions and the forced sale of assets to meet significant redemptions. The FSB also evaluated policy proposals purporting to enhance funds' resilience, including: (1) swing pricing; (2) minimum balance at risk; (3) capital buffers; (4) removing ties between regulatory thresholds and imposition of fees and gates; (5) removing stable NAVs; (6) limiting eligible assets; and (7) imposing additional liquidity requirements and escalation procedures. The FSB held a virtual workshop on the policy proposals on July 12, 2021.

As a result of these IOSCO and FSB reports, similar to the SEC in the U.S., UK ~~prudential regime for investment firms authorized under the MiFID II, which becomes effective on June~~and EU regulators are re-examining existing money market fund regulation in 2021. On March 26, 2021, ~~and regarding which the FCA intends to publish~~ESMA published a consultation paper late in 2020; (ii) HM Treasury published its prudential standards in the Financial Services Bill, confirming that there will be legislation to enable the UK to introduce a new regime for investment firms; (iii) ESMA published on June 5, 2020 the final guidelines on the ~~MiFID II compliance function, which include updates intended to enhance clarity and foster greater convergence in the implementation and supervision~~legislative review of the new MiFID II compliance function requirements; (iv) ESMA issued on May 6, 2020 a Public Statement advising firms that it believes firms have even greater duties when providing investment or ancillary services to investors, especially when these investors are newEU money market regulation. Similar to the ~~market, or have limited investment knowledge or experience; (v) three European Supervisory Authorities (the European Banking Authority (EBA),~~PWG Report, IOSCO Paper and FSB Review, this consultation reviews the European Insurance and Occupational Pensions Authority (EIOPA) and ESMA) issued on April 23, 2020 a consultation paper seeking input through September 1, 2020 on proposed regulatory technical standards with regard to the content, methodologies and presentation of ESG disclosures for financial market participants, advisors and products; (vi) the European Commission issued on April 8, 2020 a consultation on its Renewed Sustainable Finance Strategy, building on the European Commission's previous initiatives and reports, such as its 2018 Action Plan on Financing Sustainable Growth and the reports of the Technical Expert Group on Sustainable Finance (TEG); (vii) ESMA published on April 3, 2020 its final guidance on performance fees in investment funds which is applicable to UCITS and certain types of AIFs, providing comprehensive guidance to fund managers when designing performance fee models for the funds they manage, including the assessment of the consistency between the performance fee model and the fund's investment objective, policy and strategy, particularly when the fund is managed in reference to a benchmark; and (viii) ESMA announced on March 31, 2020 that submission of the first reportsrole played by money market funds in the March 2020 market turmoil, perceived structural vulnerabilities of money market funds and possible money market fund ~~managers under the MMF Regulation will~~regulatory reforms that could be ~~moved back to September 2020.~~

In addition, EU regulators have previously issued rules and proposed legislation regarding sustainable finance. For example, ESMA published on February 6, 2020 its Strategy on Sustainable Finance, setting out how ESMA will place sustainability at the core of its activities by embedding ESG factors in its work. The European Commission issued four legislative proposals relating to its Action Plan on Sustainable Finance, addressing, among other things, the establishment of a framework to facilitate sustainable investment, including a unified EU classification system setting harmonized criteria to determine whether an economic activity is environmentally sustainable, disclosures relating to sustainable investments and sustainability risks, and amendments to the Benchmark Regulation to create a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks. The Counciladopted. Most of the EU adopted on November 8, 2019 the Low Carbon Benchmark Regulation (LCBR), which requires new categories of financial benchmarks, one being an EU climate transition benchmark and one being a "Paris-aligned" benchmark that brings investment portfolios in line with the Paris Agreement (a 2016 agreement within the United Nations Framework Convention on Climate Change dealing with greenhouse-gas-emissions mitigation, adaptation, and finance). The Council of the EU also adopted on November 8, 2019, the Disclosure Regulation, which, among other things, is aimed at raising market awareness of sustainability and eliminating "greenwashing" or the provision of unsubstantiated or misleading claims regarding the sustainability characteristics and benefits of an investment product. The European Parliament passed on November 27, 2019 the Sustainability-Related Disclosures Regulation (SRDR), which requires certain website, prospectus and annual report disclosures and implements a product classification system. The European Parliament and Council of the EU on December 18, 2019 agreed upon the Taxonomy Regulation, which is aimed at establishing a frameworkproposed reforms are similar to facilitate sustainable investment, including when Member States establish measures (e.g., labels or standards) setting requirements regarding financial products or corporate bonds presented as "environmentally sustainable." The Taxonomy Regulation will need to be complied with beginning December 31, 2021. The TEG released on March 9, 2020 its final report on the EU taxonomy, containing recommendations relating to the overarching design of the Taxonomy Regulation, as well as guidance on how companies and financial institutions can make disclosures using the taxonomy. Finally, the European Commission published on June 8, 2020 draft texts of six Commission Delegated Regulations and Directives as part of the EU's action plan on sustainable finance.those set

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forth in the PWG Report, including decoupling the link between regulatory liquid asset thresholds and redemption fees and gates. The consultation period closed on June 30, 2021. ESMA is expected to consider responses from the consultation in an opinion on the review of the EU money market regulations in the second half of 2021.

The BoE also published a May 12, 2021 speech by BoE Governor Andrew Bailey in which he advocated for reforms to money market regulations in response to the March 2020 "dash for cash". The proposals outlined by Mr. Bailey in that speech align to the proposals of other global regulators, including U.S. regulators. The five proposals discussed were: (1) redemption terms should be aligned with the underlying liquidity of assets; (2) running minimal maturity mismatch risk; (3) money market funds should not hold less liquid assets on a scale that would make them more suitable to be traditional investment funds; (4) money market funds should not be designed with regulatory thresholds or cliff-edges which create adverse incentives and amplify first-mover advantage behavior; and (5) reforms should improve the ability of funds to support short-term funding markets, including by making them more resilient. On July 13, 2021, the BoE published a report, "Assessing the resilience of market-based finance," which sets forth the conclusions from a joint BoE and FCA review of the vulnerabilities associated with liquidity mismatch in open-end funds, including money market funds. Regarding money market funds, the report states: "To address vulnerabilities in the global money market fund sector, a robust and coherent package of international reforms needs to be identified. As noted in a speech by the Governor of the [BoE], it is important that any package removes the adverse incentives introduced by liquidity thresholds related to the use of suspensions, gates and redemption fees." The report identifies the following three priorities for remediating vulnerabilities in market-based finance: (1) limiting the demand for liquidity rising unduly in stress periods; (2) increasing the resilience of the supply of liquidity in stress periods; and (3) agreeing upon appropriate options for central banks to backstop market function. The report also discusses possible frameworks for consistently and realistically classifying the liquidity of fund assets and enhancing the calculation and use of swing pricing.

On July 1, 2021, the European Systemic Risk Board (ESRB) published an "Issues note on systemic vulnerabilities of and preliminary policy considerations to reform money market funds (MMFs)," in which the ESRB provides an overview of the money market fund sector in the EU, sets out its analysis of systemic vulnerabilities in money market funds, and identifies a broad set of preliminary policy options for money market fund reform. The Issues note, which primarily focuses on non-public debt money market funds (i.e., non-Government money market funds), identifies the following systemic vulnerabilities: (1) the large footprint for these money market funds in the commercial paper and certificate of deposit markets; (2) high portfolio overlap; (3) lack of reliable asset liquidity in the commercial paper and certificate of deposit markets; and (4) interconnectedness and the pressure a low interest rate environment places on liquidity. The Issues note also identifies the following initial policy options for money market fund reform, among others: (1) decoupling regulatory thresholds; (2) capital requirements and buffers; (3) implementing redemption holdbacks; (4) imposing notice periods for redemptions; (5) removing stable NAV money market funds; and (6) improved availability and use of swing pricing.

On July 26, 2021, the EBA published a consultation paper "Draft Regulatory Technical Standards [(RTS)] on criteria for the identification of shadow banking entities under Article 394(4) of Regulation (EU) No 575/2013" that purports to set out criteria for the identification of shadow banking entities for the purposes of reporting large exposures. In the consultation, the EBA discusses money market UCITS funds as conducting shadow banking, which the EBA defines as entities that offer banking services and perform banking activities as defined in the draft RTS but are not regulated and are not being supervised in accordance with any of the acts that form the regulated framework for banking. Among other things, the consultation solicits comments on whether money market funds should be considered shadow banking entities. The consultation period ended on October 26, 2021.

On September 17, 2021, the Managing Director of the International Monetary Fund released a report stating that the March 2020 global financial crisis exposed fundamental vulnerabilities that could affect global financial stability, and advocating that global financial regulators work together to boost the resilience of investment funds. The Managing Director identified money market funds as particularly vulnerable to redemptions triggered by economic shocks and advocated for certain policy measures to address the identified vulnerabilities.

On October 11, 2021, the FSB issued its "Policy Proposals to Enhance Money Market Fund Resilience: Final Report" ("FSB Final Report") in which the FSB set forth its final policy proposals for money market fund reform. In the FSB Final Report, the FSB finds that money market funds are subject to two broad types of vulnerabilities that can be mutually reinforcing: (1) susceptibility to sudden and disruptive redemptions, and (2) challenges in selling assets, particularly under stressed conditions. The proposals include mechanisms to: (1) impose on redeeming fund investors the cost of their redemptions; (2) absorb credit losses; (3) address regulatory thresholds that may give rise to cliff effects; and (4) reduce liquidity transformation. In the FSB Final Report, the FSB notes that it will be working with IOSCO to review progress made by member jurisdictions in adopting reforms to enhance MMF resilience, which are to be completed by the end of 2023, and then to assess the effectiveness of those measures in addressing risks to financial stability by 2026.

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Management's Discussion and Analysis (continued)
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Federated Hermes does not believe money market funds are shadow banking entities. As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during the Pandemic. In an August 16, 2021 comment letter to the FSB, among other comments, Federated Hermes expressed its belief that the combination of delinking the potential imposition of redemption gates and liquidity fees with a money market fund's weekly liquid asset requirements and enhancing money market funds' ability to "know their customer", when combined with consideration of and improvements in the short-term funding markets generally, can address the FSB's concerns without adversely impacting the viability of money market funds and their benefits to investors, issuers and capital formation. In June 2021, among other comments, Federated Hermes provided similar comments to ESMA in response to its consultation. Federated Hermes intends to continue to engage with UK and EU (as well as U.S.) regulators in 2021, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds provide.

Since the beginning of the third quarter 2021, UK and EU regulators issued, proposed or adopted other new consultations, directives, rules, laws and guidance that impact UK and EU investment management industry participants, including Federated Hermes. For example:

•On September 24, 2021, ESMA published a "Consultation Paper: Review of the MiFID II framework on best execution reports," in which ESMA requests comments from execution venues, investment firms and other market participants regarding standards for the content, format and data required by a best execution reporting regime required under MiFID II. The consultation period ends on December 23, 2021.

•On September 21, 2021, ESMA published a "Consultation Paper: Review of certain aspects of the Short Selling Regulation," in which ESMA requests, as part of a systematic review of the Short Selling Regulation, comments from issuers, investment firms and other market participants who engage in short sales or transactions resulting in net short positions. The consultation period ends on November 19, 2021.

•On September 9, 2021, the FCA and Prudential Regulation Authority (PRA) published a Dear CEO letter to firms that carry on trade finance activity to reiterate the FCA's and PCA's expectations of such firms, including an expectation to demonstrate that they have taken a risk sensitive approach to their control environment to ensure that the inherent risks within trade finance activity are effectively mitigated.

•On September 7, 2021, the European Commission adopted a delegated regulation that amended the technical standards regarding the KIDs for retail and insurance-based investment products. Among other amendments, the regulation amends the technical standards regarding the methodology and presentation of performance scenarios, cost presentation, the methodology for the calculation of summary cost indicators, past performance presentation and information, and the presentation of costs by PRIIPs offering a range of investment options. The delegated regulation becomes effective on July 1, 2022.

•On September 7, 2021, IOSCO published a "Final Report" on the use of artificial intelligence and machine learning by market intermediaries and asset managers. In addition to recognizing the significant efficiencies and benefits that can be derived from the use of technology, IOSCO notes that this use can also create or amplify risks. IOSCO also proposes six measures reflecting expected standards of conduct by intermediaries and asset managers, including considering requiring firms to have a designated senior manager responsible for the oversight of the development, testing, deployment, monitoring and controls of such technology.

•On August 18, 2021, ESMA published the final guidelines on Markets in Financial Instruments Directive II (MiFID II) applicable to market data providers. National Competent Authorities (NCAs) must within two months of publication notify ESMA whether they (1) comply, (2) do not comply but intend to comply, or (3) do not comply and do not intend to comply with the guidelines.

•On August 2, 2021, ESMA published its final guidelines for marketing communications under the new EU Cross-Border Distribution of Funds Regulation, which applies to EU UCITS and AIFs.

•On July 26, 2021, IOSCO published a consultation report soliciting feedback on a set of proposed recommendations regarding ESG Ratings and Data Products Providers. The consultation requests comments on a set of proposed recommendations to address challenges faced by users of products and services from ESG ratings and data providers, and the companies that are the subject of these ESG ratings and data products. The consultation period ended on September 6, 2021.

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•On July 20, 2021, the FCA published a consultation titled "PRIIPs - Proposed scope rules and amendments to Regulatory Technical Standards," in which the FCA requests comments on proposed amendments to the PRIIPs disclosure regime. The amendments are intended to, among other things, clarify the scope of PRIIPs and address misleading performance scenarios and summary risk indicators. The consultation period ended on September 30, 2021.

•On July 19, 2021, the FCA published a "Dear Chair" letter to AFMs setting forth the FCA's guidance on the design, delivery and disclosures of ESG and sustainable investment funds.

•On July 19, 2021, ESMA published a "Consultation Paper: Guidelines on certain aspects of the MiFID II remuneration requirements," in which ESMA requests comments on certain aspects of the MiFID II remuneration requirements for the purposes of enhancing clarity and fostering convergence in the application of the requirements. The consultation period ended on October 19, 2021.

•On July 15, 2021, the FCA published its 2021-2022 business plan, which indicate that the FCAs priorities for the coming business year include, among other things, (1) adapting the regulatory framework to facilitate a market-based transition to net-zero carbon emissions; (2) amendments to the regulatory framework for money market funds; (3) adapting legacy EU regulatory regimes; and (4) LIBOR transition.

•On July 15, 2021, the European Commission published a draft directive that would extend the exemption from the KID requirement under the PRIIPs Regulation for an additional six months from December 31, 2021 to June 30, 2022. On July 27, 2021, the European Commission then invited the Joint Committee of the ESAs to provide advice on certain areas concerning the PRIIPs Regulation, including, among others, the use of KIDs across the EU, the practical application of the rules under the PRIIPs Regulation, and the amount and nature of costs per PRIIP to various market participants. The European Commission asked the Joint Committee of the ESAs for responses by April 30, 2022.

•On July 7, 2021, the FSB published the "FSB Roadmap for Addressing Client-Related Financial Risks," in which the FSB sets forth considerations to support and promote international coordination on disclosures, data collection, vulnerabilities analysis and regulation, and purports to set out a comprehensive and coordinated plan for addressing climate-related financial risks.

Investment management industry participants, such as Federated Hermes, also have continued and will continue, to monitor, plan for and implement certain changes in response to previously issued new, proposed or adopted consultations, directives, rules, laws and guidance. Previously proposed and final consultations, directives, rules, laws and guidance included, among others: (1) the ongoing amendment and implementation of MiFID II; (2) HM Treasury's ongoing review of the UK retail disclosure regime and the PRIIPs Regulation; (3) efforts by ESMA to update and modify collection of information for monitoring systemic risk among AIFMs; (4) ESMA guidance on marketing communications under the Regulation on Cross-Border Distribution of Funds; (5) ESMA regulation of financial institutions, including AIFMs, UCITs management companies, and MiFID investment firms, outsourcing to cloud service providers; (6) the FCA's expected framework for long-term asset funds; (7) proposals to amend the FCA financial promotion rules for high-risk investments; (8) ESMA's updated guidelines for money market fund stress tests under the Money Market Fund Regulation; (9) the FCA's proposed rules on the IFPR, which is the new prudential regime for UK firms authorized under MiFID II; (10) ESMA's report regarding the preparedness of investment funds with significant exposure to corporate debt and real estate assets for potential future adverse liquidity conditions and valuation shocks; (11) a call for input from HM Treasury on its review of the UK funds regime to identify options that will make the UK a more attractive location to set up, manage and administer funds; and (12) the CBI's draft cross-industry guidance on outsourcing, which was published in February 2021, remained open for consultation until July 26, 2021, and, when finalized by the CBI later in 2021, will require Irish management companies to assess functions that are outsourced and maintain and submit to the CBI, beginning in January 2022, a register of all outsourcing arrangements.

In addition to the above Regulatory Developments, the FCA, CBI and other global regulators, continue to monitor investment management industry participants by examining various reports, financial statements and annual reports and conducting regular review meetings and inspections. They also continue to take enforcement action when determined necessary. Examples of recent reviews include reviews regarding closet index fund managers, CP86 compliance, fitness and probity, best execution, client asset arrangements, and operational resilience. It has been reported that FCA enforcement priorities for 2021 will include financial crime, market abuse, non-financial misconduct and alternative investment managers. On February 8, 2021, the CBI published a Securities Market Risk Outlook Report that identifies key conduct risks to securities markets, actions investment firms should take to identify, mitigate and manage those risks, and the CBI's supervisory priorities. The CBI's priorities for 2021 include, among others, dealing with the Pandemic and Brexit, fund governance, money market fund reform, diversity and

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

inclusion, climate change, and bolstering systems to identify, mitigate and manage misconduct risk, including market abuse risk.

An EU FTT also continues to be discussed although it remains unclear if or when an agreement will be reached regarding its adoption. Since the European Commission first proposed an EU FTT in 2011, proponents of the FTT have sought the widest possible application of the FTT with low tax rates. In December 2019, Germany proposed a draft directive that would impose a 0.2% tax on purchases of shares of large companies worth more than €1 billion, which would cover over 500 companies. Initial public offerings (IPOs) would be excluded, and each Member State would be free to tax equity funds and similar products for private pensions. Under the German proposal, the five countries with the highest incomes would share a small part of their revenues with the other countries, so that each participating country would receive at least €20 million of FTT revenue. Despite Austria's rejection of the German proposal, on February 19, 2020, German Finance Minister Olaf Scholz stated he remains committed to the introduction of an FTT on an EU level along the lines proposed by Germany. Finance Minister Scholz also has indicated that Germany has enough support from other EU Member States for the FTT. On April 25, 2020, German Chancellor Angela Merkel stated that Germany would attempt to seek agreement on an FTT when it assumes the presidency of the EU in July 2020. No formal action has been taken on this German proposal.

On February 24, 2021, Portugal, the successor to the German Presidency of the EU Council, proposed at a meeting of the Working Party on Tax Questions to begin discussions at the EU level regarding the design of an EU FTT involving a gradual implementation by Member States based on the FTTs already implemented in France and Italy. Member States that would want to implement an FTT more quickly would be permitted to do so. Member States were invited to provide input on the proposed approach to the EU FTT ~~as of September 30, 2020, although~~design, whether the FTTs in France and Italy would be a solid basis for an EU FTT, ~~was reportedly discussed~~and whether an EU FTT should apply to equity derivative transactions. Subject to certain exemptions, the French FTT levies a tax of up to 0.3% on stock purchases of French publicly traded companies with a market value over €1 billion, American and European depository receipts of covered company securities, high frequency trades, credit default swaps against EU sovereign debt, and certain corporate actions. Subject to certain exemptions, the Italian FTT levies a tax on equity transactions, certain derivative transactions on equities and certain high frequency trades of up to 0.2% of the value of the net balance of purchase and sale transactions executed on the same day on the same financial instrument by the same party. The Italian FTT applies to shares issued by Italian companies with a capitalization of at least €500 million, cash equity contracts, equity derivative contracts, and certain other equity transactions. It has been reported that Austria's Finance Minister has spoken out against the ~~June 19, 2020 European Council meeting.~~ Portuguese proposal on the basis that an EU FTT would harm business. The Portuguese proposal on an EU FTT invited Member States electing not to participate in the enhanced cooperation initiative to provide input on whether the need to find additional sources for financing the EU recovery effort might increase their interest in further working on an EU FTT.

As attention turns to a ~~post-Covid-19~~post-Pandemic economy and as the EU ~~looks~~and EU Member States look to fund their budgets and the ~~Covid-19-related~~Pandemic-related measures ~~it has~~that have been adopted, an EU FTT ~~has resurfaced as an~~on securities transactions, or even bank account transactions, remains a potential additional source of revenue. ~~It has been reported~~On May 18, 2021, the European Commission issued a communication on "Business Taxation for the 21st Century," in which the European Commission indicated that, after July 2021, it would make certain additional proposals, which could include an FTT. In a meeting of the Council of the EU on June 3, 2021, the Council recognized that the ~~key sticking point currently among participating Member States~~European Commission recently clarified that, if there is no agreement by the ~~mechanism~~end of 2022, the European Commission will, based on impact assessments, propose a new resource for the EU budget based on a new FTT and ~~formula used~~that the Commission will endeavor to ~~distribute~~make those proposals by June 2024 with the ~~funds raised between the Member States.~~ FTT's planned introduction by January 1, 2026. The Council also indicated at its June 3, 2021 meeting that further work will be required before final policy choices are made and an agreement on a possible FTT can be reached.

The exact time needed to reach a final agreement on an EU FTT, implement any agreement and enact legislation is not known at this time. ~~Certain~~As discussed above, certain individual EU Member States, such as Italy and France, ~~and Spain~~ have ~~begun to introduce FTT proposals~~implemented FTTs at the Member ~~State level. On October 7, 2020,~~State-level. Spain's ~~financial transaction tax bill was approved by the upper house of its legislature, with an expected~~0.2% FTT on certain securities transactions, effective ~~date in~~on January ~~2021.~~16, 2021, is another example. The ~~weakening~~weakened economy in Europe ~~may~~can increase the risk that additional jurisdictions propose to implement FTTs. The Labour Party in the UK has also ~~separately~~previously proposed a UK FTT (in addition to the existing UK stamp duty), but ~~with the uncertainty surrounding the impact of Brexit,~~ it ~~is unclear whether a UK FTT will be~~has not been advanced ~~in 2020. Covid-19~~to date. The Pandemic also could delay agreement on, and the implementation of, an FTT in the EU, UK or other European countries.

Management believes that a UK FTT or EU FTT, particularly if enacted with broad application, would be detrimental to Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

The activities of the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) also continue to be monitored by the investment management industry, including Federated Hermes. Building on consultations and other reports published from 2015 through 2019 regarding methodologies for identifying non-bank, non-insurance company global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, the FSB and IOSCO continued, and will continue, to assess, recommend and implement regulatory reforms affecting money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry. On June 25, 2020, IOSCO issued a consultation report on Artificial Intelligence and Machine Learning by Market Intermediaries and Asset Managers. In this consultation report, IOSCO proposes six measures to assist regulators in creating appropriate supervisory regulatory frameworks and seeks to ensure that market intermediaries and asset managers use artificial intelligence and machine learning technology.

In light of the impact of Covid-19 on liquidity and the markets in the late first quarter and early second quarter of 2020, EU and global systemic risk regulators, such as the FSB and IOSCO, also continue to discuss imposing greater restrictions on EU-based money market funds. In a letter, dated April 11, 2020, citing "vulnerabilities" brought to light by the impact of Covid-19 on credit markets and investment funds, FSB chairman Randal Quarles announced the formation of a new working group of senior market regulators and macroprudential policy makers to develop a proposal on how to organize work on investment funds and other non-banking financial institutions going forward. The FSB has asked IOSCO to (i) conduct a post-mortem, or "holistic" review, of what transpired in money market funds globally between February 1, 2020 and April 30, 2020, and (ii) map the connections between market activity and regulator action. Actions in the third quarter of 2020 have focused on providing IOSCO with the information they need to provide an informed narrative. In remarks to the Hoover Institution on October 14, 2020, Mr. Quarles identified what he described as "vulnerabilities in money market funds" as an issue that perhaps may have caused liquidity imbalances and propagated stress, and indicated that the FSB would provide to the G20 Summit in November FSB's set of proposals for follow-up work on nonbank financial intermediation and a 2021 work plan.

Notwithstanding the impact of ~~Covid-19,~~the Pandemic, global securities regulators are urging the adoption of new risk free reference rates as alternatives to LIBOR. Separate working groups have been formed in the UK, the U.S., the EU, and other jurisdictions ~~(e.g,~~(e.g., Japan and Switzerland), to recommend an alternative to LIBOR for their respective markets. The FCA, the BoE and the PRA, as well as other global regulators, continue efforts started in September 2018 regarding the transition from LIBOR to the Sterling Overnight Index Average (SONIA) by the end of 2021. On March 5, 2021, Intercontinental Exchange, Inc. (ICE) published a feedback statement from the ICE Benchmark Administration Limited, a wholly-owned subsidiary of ICE and the

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~~Japan~~administrator of LIBOR, formally confirming its intention to: (1) cease the publication of the one-week and ~~Switzerland) to recommend an alternative to~~two-month USD LIBOR after December 31, 2021; (2) cease publication of the EUR, CHF, JPY and GBP LIBOR for ~~their respective markets. The FCA~~all tenors after December 31, 2021; and (3) cease the ~~Bank~~publication of ~~England (BoE) Prudential Regulation Authority continue efforts started in September 2018 regarding~~all other tenors of USD LIBOR after June 30, 2023. On June 2, 2021, IOSCO issued a statement urging all global market participants to "discontinue new use of USD LIBOR-linked contracts, as soon as practicable and no later than the end of 2021, to avoid the safety and soundness risks associated with the continued use." On June 2, 2021, the FSB released statements and reports that set out recommendations for financial and non-financial sector firms, as well as the authorities, to consider as they seek to transition away from LIBOR ~~to the Sterling Overnight Index Average (SONIA)~~ by the end of 2021. The statements and reports include: (1) a summary of high-level steps firms will need to take now and over the course of 2021 to complete their transition; (2) a paper reviewing overnight risk-free rates and term rates; (3) a statement on the use of the International Swaps and Derivatives Association's (ISDA) spread adjustments in cash products; and (4) a statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of USD LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked. On ~~January 16, 2020,~~May 13, 2021, the ~~BoE,~~ FCA and BoE published a statement encouraging market users and liquidity providers in the sterling exchange-traded derivatives market to switch the default-traded instrument from LIBOR to SONIA from June 17, 2021. On April 19, 2021, the Working Group on ~~Sterling Risk-Free Reference~~Sterling-Free Rates, ~~(RFRWG)~~of which the BoE and FCA are ex-officio members, published a ~~series~~paper supporting the transition of ~~documents outlining priorities~~legacy structured products where GBP LIBOR is used and ~~milestones~~encouraging market participants to amend existing structured products now and to issue new structured products based on compounded-in-arrears SONIA. On March 26, 2021, the FCA and BoE issued a "Dear CEO" letter urging firms to meet the deadlines for ~~2020~~the transition away from LIBOR to alternative reference rates and advising that they are intensifying their focus on firms' management and oversight of the risks associated with ~~respect~~the transition. In September 2021, the FCA issued a "Feedback Statement: FCA use of powers over use of critical benchmarks," in which the FCA discussed, among other topics, its authority to prohibit some or all new uses of a critical benchmark, which includes LIBOR in the UK. On September 9, 2021, the FCA also updated its website, and issued a consultation titled 'Proposed decisions on the use of LIBOR ~~transition. The priorities include: (i) ceasing issuance~~(Articles 23C and 21A BMR)," setting forth further guidance and requests for comment regarding further arrangements for the orderly wind-down of ~~cash products linked to sterling~~ LIBOR by the end of 2021. Although the ~~third quarter of 2020; (ii) throughout 2020, taking steps~~FCA found that ~~demonstrate that compounded SONIA is easily accessible and usable; (iii) taking steps to enable a further shift of volumes~~market participants have made good progress in actively transitioning contracts away from LIBOR, the FCA concluded that it will not be practicable to ~~SONIA in derivative markets; (iv) establishing~~convert all outstanding sterling and Japanese yen LIBOR contracts by year-end. Consequently, to avoid disruption to legacy contracts that reference the 1 month, 3 month and 6 month sterling and Japanese yen LIBOR settings, the FCA required the LIBOR benchmark administrator to publish these settings under a ~~framework~~'synthetic' methodology, based on term risk-free rates, for the ~~transition~~duration of legacy LIBOR products, in order to significantly reduce the inventory of LIBOR referencing contracts by the first quarter of 2021; and (v) considering how best to address issues such as "tough legacy" contracts. On April 29, 2020, the2022. The FCA published a statement on the impact of Covid-19 on firms' LIBOR transition plans, confirming that the central assumption remains that firms cannot rely on LIBOR being published after the end of 2021. On June 22, 2020, Edwin Schooling Latter, the head of markets policy at the FCA, announced that a formal declaration about the timing and manner of LIBOR's discontinuation could be made this year, with the effective date of LIBOR's cessation still expected to be the end of 2021. On June 23, 2020, the UK Parliament released a statement indicating that legislatures would be taking steps to address tough legacy contracts. Recognizing that the interim timetable for the LIBOR transition has been slowed by Covid-19, the UK Parliament is endeavoring to ensure that, by the end of 2021, the FCA, which regulates LIBOR in the UK, has powers to manage and direct the wind down period for LIBOR. Among other things, such legislation could result in the FCA's ability to change the methodology of a critical benchmark, strengthen the existing lawalso proposed to prohibit ~~the~~new use of ~~an individual critical benchmark~~overnight, 1 month, 3 month, 6 month and ~~the use of legacy contracts, and ensure that administrators have adequate plans in place for the~~12 month U.S. dollar LIBOR, ~~transition. The RFRWG, the FCA and the BoE~~which will continue to ~~assess the evolving impact of Covid-19 on firms' LIBOR transition efforts,~~be published through June 30, 2023.

Legislators and ~~provide further updates in due course.~~

~~Regulators~~regulators in the U.S. and other countries are also working on the transition from ~~LIBOR. For example,~~LIBOR, with particular emphasis on legacy financial agreements that lack sufficient "fallback" language to transition to a new reference rate in the event of LIBOR's cessation. The SEC and other regulators in the U.S. are undertaking efforts to identify risks and prepare for the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) by the end of 2021. The SOFR was selected as the preferred LIBOR replacement in the U.S. by the Alternative Reference Rates Committee (ARRC) at the Federal Reserve Bank of New York. ~~In early June 2019,~~On May 6, 2021, the ARRC published market indicators that would support a ~~representative~~recommendation of term SOFR and confirmed that "a recommended term rate is now in clear sight" and the recent guidance "would allow the ARRC to recommend a SOFR-based term rate relatively soon." Despite the extension of the ~~Federal Reserve Bank~~transition deadline to June 30, 2023 for certain tenors of New York urged the finance industry to ramp up preparations for the end of LIBOR and take the warnings seriously. The OCIE identified registrant preparedness for LIBOR cessation as an examination program priority for fiscal year 2020. On June 18, 2020, the OCIE released a Risk Alert announcing an intent to engage in sweep examinations to assess the preparations of a variety of registrant types, including investment advisors and investment companies, for the expected discontinuation of LIBOR and the transition to an alternative reference rate. The Risk Alert emphasizes that preparation for LIBOR cessation is key to minimizing adverse effects associated with LIBOR discontinuation. The OCIE is focused on, among other items, a firm's (i) exposure to LIBOR-linked legacy contracts extending past the end of 2021; (ii) operational readiness; (iii) disclosures and other representations to clients and investors regarding efforts to address LIBOR discontinuation; (iv) conflicts of interest associated with the LIBOR transition; and (v) efforts to replace LIBOR with an appropriate alternative reference rate. On June 4, 2020, the Consumer Financial Protection Bureau (CFPB) proposed rule changes and guidance to address issues arising from LIBOR cessation, including the impact on adjustable-rate mortgage loans. The CFPB generally replaced LIBOR with SOFR. On May 28, 2020, Fannie Mae and Freddie Mac announced plans to change to SOFR-indexed collateralized mortgage obligations (CMOs) beginning in June 2020 and cease issuing new LIBOR-indexed CMOs no later than September 30, 2020. They also posted changes to the governing legal documents of certain of their legacy LIBOR-indexed CMO and adjustable rate mortgage securities. The changes implement fallback language for replacement of LIBOR that is modelled on language endorsed by the securitization working group of the ARRC. On May 27, 2020, the ARRC released its recommended best practices to assist market participants as they prepare for LIBOR cessation. The best practices consist of four core milestones for market participants: (1) to the extent not already used, new USD LIBOR, ~~cash products should include ARRC-recommended, or substantially similar, fallback language as soon as possible; (2) third-party technology and operations vendors relevant~~U.S. regulators continue to ~~the transition should complete all necessary enhancements~~urge financial institutions to ~~support SOFR~~stop entering into new LIBOR transactions by the end of ~~2020; (3)~~2021. The Governors have indicated that, "[n]ew contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation." On October 23, 2020, ISDA published its ISDA 2020 IBOR Fallbacks Protocol, which enables parties to protocol-covered documents to amend their terms to: (1) regarding a protocol-covered document which incorporates, or references, a rate as defined in a Covered ISDA Definitions Booklet, include either the terms of, or a particular defined term included in, the Supplement to the 2006 ISDA Definitions; and (2) in respect of a protocol-covered document which otherwise references a relevant interbank lending rate (IBOR), include new ~~use of USD LIBOR should stop, with timing depending on specific circumstances in each cash product market; and (4)~~fallbacks for that relevant IBOR. This protocol became effective January 25, 2021. On March 24, 2021, New York passed a law that implements fallback provisions that favor the transition to SOFR plus a spread adjustment for contracts ~~specifying~~without effective fallback provisions that are written under New York law. The New York law also provides a ~~party will select~~safe harbor from litigation where SOFR is selected as a replacement rate ~~at their discretion following~~for USD LIBOR. Regulators have also taken note of the growing market demand for credit sensitive rates as alternatives to SOFR because term SOFR is not yet available and credit sensitive rates have a term component built in, which is operationally similar to LIBOR. During the open session of the June 11, 2021 FSOC meeting, SEC Chair Gensler delivered prepared remarks regarding the LIBOR transition ~~event,~~in which he specifically condemned one such rate, the ~~determining party should disclose their planned selection to relevant parties at least six months prior to~~Bloomberg Short Term Bank Yield Index (BSBY), as featuring many of the ~~date that a replacement rate would become effective. On June 30, 2020, the ARRC released updates with revised recommendations for syndicated loan fallback language~~same flaws as well as the results of its May 6, 2020 cash products spread adjustment consultation. On May 11, 2020, the International Swaps and Derivatives Association (ISDA) announced the final results of its consultation on the implementation of fallback language into derivative agreements referenced to LIBOR prior to LIBOR being discontinued. The results indicate a significant majority of respondents are in favor of including fallback language both prior to and after LIBOR is discontinued as standard language in the amended 2006 ISDA Definitions for LIBOR, and ~~in a single protocol~~generally advocated for including the updated definitions in legacy trades. ISDA announced that it would move forward with both proposals on the basis that fallback language would apply to all new and legacy derivatives referencing LIBOR that incorporate the amendedterm SOFR over BSBY.

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2006 ISDA Definitions. On September 21, 2020, ISDA issued a letter to the Co-Chairs, FSB's Official Section Steering Group confirming the effective date of the protocol would not be before the second half of January 2021.

The phase-out of LIBOR ~~may~~can cause the renegotiation or re-pricing of certain credit facilities, derivatives or other financial transactions to which investment management industry participants, including Federated Hermes and its products, customers 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, and ~~may~~can increase operating expenses. The extent of such renegotiation or re-pricing could be mitigated by the adoption of, or advocacy for, a historical five-year median difference spread adjustment methodology by certain regulators, self-regulatory organizations and trade groups (including, for example, the ARRC and ISDA). Federated Hermes continues to assess the impact that the transition from LIBOR will have on Federated Hermes and Federated Hermes' products and strategies, customers and service providers.

While Brexit has not had a significant impact on Federated Hermes' business as of September 30, 2021, given the post-Brexit regulatory environment and potential continuing impact of the Pandemic, Federated Hermes remains unable to fully assess the degree that any potential Brexit impact and resulting changes could have on Federated Hermes' business, results of operations, financial condition and/or cash flows. The 2018 HFML Acquisition and the 2021 Acquisition of HFML Noncontrolling Interest (together the HFML Acquisition), the HCL Acquisition, and HFML's acquisition of MEPC Limited effective as of January 1, 2020 (MEPC Acquisition), each increased the potential Brexit impact to Federated Hermes. Management also believes that a UK FTT or EU FTT, particularly if enacted with broad application, would be detrimental to Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

Management continues to monitor and evaluate the impact of ~~regulatory reforms~~Regulatory Developments (including potential new money market fund reforms) on Federated Hermes' business, results of operations, financial condition and/or cash flows. Regulatory ~~reforms~~changes stemming from Brexit, money market fund reform, a EU or UK FTT, or FCA, ~~FSB,~~ CBI, ESMA, FSB, IOSCO or other initiatives or Regulatory Developments, as well as the potential political and economic uncertainty surrounding ~~the full impact of~~ Brexit and ~~Covid-19,~~the Pandemic, also ~~may~~can adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows. Similar to its efforts in the U.S., Federated Hermes has dedicated, and continues to dedicate, significant internal and external resources to analyze and address European reforms and other international Regulatory Developments that impact Federated Hermes' investment management and stewardship business.

European Regulatory Developments, and Federated Hermes' efforts relating thereto, have had, and ~~may~~can continue to have, an impact on Federated Hermes' expenses and, in turn, financial performance. As of September 30, ~~2020,~~2021, Federated Hermes is unable to ~~conclusively~~fully assess the potential impact that an FTT or other ~~regulatory reforms or initiatives may~~international Regulatory Developments can have on its business, results of operations, financial condition and/or cash flows. Federated Hermes also is unable to ~~conclusively~~fully assess at this time whether, or the degree to which, Federated Hermes, any of its investment management subsidiaries or any of the Federated Hermes Funds, including money market funds, or any of its other products, could ultimately be determined to be a non-bank, non-insurance company global systemically important financial institution. The ~~Hermes~~HFML Acquisition, HCL Acquisition and MEPC Acquisition each increased the potential impact that the above matters ~~may~~can have on Federated Hermes' business, results of operations, financial condition and/or cash flows.

~~Subsequent Event - Special Cash Dividend~~

On October 29, 2020, the board of directors declared a $1.27 per share dividend to shareholders of record as of November 6, 2020 to be paid on November 13, 2020. The dividend, which will be paid from Federated Hermes' existing cash balance, is considered an ordinary dividend for tax purposes and consists of a $0.27 quarterly dividend and a $1.00 special dividend. The special dividend is expected to decrease diluted earnings per share for the fourth quarter 2020 by approximately $0.01 to $0.02 due to the application of the two-class method of calculating earnings per share.

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Asset Highlights

Managed Assets at Period End


		September 30,				Percent Change			September 30,				Percent Change
(in millions)	(in millions)	2020		2019				(in millions)	2021		2020
By Asset Class	By Asset Class							By Asset Class
Equity	Equity	$	80,405	$	80,750	0	%	Equity	$	97,425	$	80,405	21	%
Fixed-Income	Fixed-Income	79,546		65,824		21		Fixed-Income	97,226		79,546		22
Alternative / Private Markets1		18,146		17,156		6
Alternative / Private Markets								Alternative / Private Markets	22,064		18,146		22
Multi-Asset	Multi-Asset	3,737		4,140		(10)		Multi-Asset	3,692		3,737		(1)
Total Long-Term Assets	Total Long-Term Assets	181,834		167,870		8		Total Long-Term Assets	220,407		181,834		21
Money Market	Money Market	432,952		359,292		21		Money Market	413,713		432,952		(4)
Total Managed Assets	Total Managed Assets	$	614,786	$	527,162	17	%	Total Managed Assets	$	634,120	$	614,786	3	%

By Product Type	By Product Type							By Product Type
Funds:	Funds:							Funds:
Equity	Equity	$	46,093	$	42,575	8	%	Equity	$	58,218	$	46,093	26	%
Fixed-Income	Fixed-Income	49,779		42,329		18		Fixed-Income	60,262		49,779		21
Alternative / Private Markets1		11,393		10,826		5
Alternative / Private Markets								Alternative / Private Markets	14,299		11,393		26
Multi-Asset	Multi-Asset	3,546		3,952		(10)		Multi-Asset	3,518		3,546		(1)
Total Long-Term Assets	Total Long-Term Assets	110,811		99,682		11		Total Long-Term Assets	136,297		110,811		23
Money Market	Money Market	325,940		261,215		25		Money Market	292,311		325,940		(10)
Total Fund Assets	Total Fund Assets	436,751		360,897		21		Total Fund Assets	428,608		436,751		(2)
Separate Accounts:	Separate Accounts:							Separate Accounts:
Equity	Equity	34,312		38,175		(10)		Equity	39,207		34,312		14
Fixed-Income	Fixed-Income	29,767		23,495		27		Fixed-Income	36,964		29,767		24
Alternative / Private Markets	Alternative / Private Markets	6,753		6,330		7		Alternative / Private Markets	7,765		6,753		15
Multi-Asset	Multi-Asset	191		188		2		Multi-Asset	174		191		(9)
Total Long-Term Assets	Total Long-Term Assets	71,023		68,188		4		Total Long-Term Assets	84,110		71,023		18
Money Market	Money Market	107,012		98,077		9		Money Market	121,402		107,012		13
Total Separate Account Assets	Total Separate Account Assets	178,035		166,265		7		Total Separate Account Assets	205,512		178,035		15
Total Managed Assets	Total Managed Assets	$	614,786	$	527,162	17	%	Total Managed Assets	$	634,120	$	614,786	3	%

The balance at September 30, 2019 includes $8.0 billion of fund assets managed by a previously nonconsolidated entity, HGPE, in which Federated Hermes held an equity method investment. Effective March 1, 2020, HGPE became a consolidated subsidiary. See Note (4) to the Consolidated Financial Statements for additional information.

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Average Managed Assets


		Three Months Ended								Nine Months Ended													Three Months Ended										Nine Months Ended
		September 30,				Percent Change				September 30,								Percent Change					September 30,							Percent Change			September 30,					Percent Change
(in millions)	(in millions)	2020		2019				2020				2019				(in millions)				2021				2020				2021					2020
By Asset Class	By Asset Class																			By Asset Class
Equity	Equity	$	80,403	$	82,027			(2)	%			$	78,930			$	80,133				(2)	%	Equity		$	100,076			$		80,403		24		%	$	98,136	$	78,930		24	%
Fixed-Income	Fixed-Income	76,798		65,074		18				71,823				64,718				11		Fixed-Income			93,685			76,798				22			89,676			71,823		25
Alternative / Private Markets1	Alternative / Private Markets1	18,270		17,407		5				18,091				17,830				1		Alternative / Private Markets1			21,446			18,270				17			20,257			18,091		12
Multi-Asset	Multi-Asset	3,786		4,167		(9)				3,808				4,206				(9)		Multi-Asset			3,713			3,786				(2)			3,918			3,808		3
Total Long-Term Assets	Total Long-Term Assets	179,257		168,675		6				172,652				166,887				3		Total Long-Term Assets			218,920			179,257				22			211,987			172,652		23
Money Market	Money Market	448,795		349,313		28				442,381				328,664				35		Money Market			414,141			448,795				(8)			418,285			442,381		(5)
Total Average Managed Assets	Total Average Managed Assets	$	628,052	$	517,988	21	%			$	615,033			$	495,551			24	%	Total Average Managed Assets			$	633,061		$	628,052			1		%	$	630,272		$	615,033	2		%

By Product Type	By Product Type																			By Product Type
Funds:	Funds:																			Funds:
Equity	Equity	$	46,020	$	43,077	7	%			$	44,106			$	41,955			5	%	Equity			$	59,918		$	46,020			30		%	$	58,471		$	44,106	33		%
Fixed-Income	Fixed-Income	48,418		41,958		15				45,221				41,568				9		Fixed-Income			59,618			48,418				23			57,346			45,221		27
Alternative / Private Markets1	Alternative / Private Markets1	11,539		11,035		5				11,342				11,243				1		Alternative / Private Markets1			13,704			11,539				19			12,882			11,342		14
Multi-Asset	Multi-Asset	3,590		3,978		(10)				3,619				4,018				(10)		Multi-Asset			3,533			3,590				(2)			3,732			3,619		3
Total Long-Term Assets	Total Long-Term Assets	109,567		100,048		10				104,288				98,784				6		Total Long-Term Assets			136,773			109,567				25			132,431			104,288		27
Money Market	Money Market	338,814		249,846		36				328,730				227,130				45		Money Market			289,566			338,814				(15)			293,320			328,730		(11)
Total Average Fund Assets	Total Average Fund Assets	448,381		349,894		28				433,018				325,914				33		Total Average Fund Assets			426,339			448,381				(5)			425,751			433,018		(2)
Separate Accounts:	Separate Accounts:																			Separate Accounts:
Equity	Equity	34,383		38,950		(12)				34,824				38,178				(9)		Equity			40,158			34,383				17			39,665			34,824		14
Fixed-Income	Fixed-Income	28,380		23,116		23				26,602				23,150				15		Fixed-Income			34,067			28,380				20			32,330			26,602		22
Alternative / Private Markets	Alternative / Private Markets	6,731		6,372		6				6,749				6,587				2		Alternative / Private Markets			7,742			6,731				15			7,375			6,749		9
Multi-Asset	Multi-Asset	196		189		4				189				188				1		Multi-Asset			180			196				(8)			186			189		(2)
Total Long-Term Assets	Total Long-Term Assets	69,690		68,627		2				68,364				68,103				0		Total Long-Term Assets			82,147			69,690				18			79,556			68,364		16
Money Market	Money Market	109,981		99,467		11				113,651				101,534				12		Money Market			124,575			109,981				13			124,965			113,651		10
Total Average Separate Account Assets	Total Average Separate Account Assets	179,671		168,094		7				182,015				169,637				7		Total Average Separate Account Assets			206,722			179,671				15			204,521			182,015		12
Total Average Managed Assets	Total Average Managed Assets	$	628,052	$	517,988	21	%			$	615,033			$	495,551			24	%	Total Average Managed Assets			$	633,061		$	628,052			1		%	$	630,272		$	615,033	2		%

1 The average balance for the ~~three and~~ nine months ended September 30, ~~2019~~2020 includes ~~$8.1 billion and~~ $8.2 billion ~~respectively,~~ of ~~average~~ fund assets managed by a previously ~~nonconsolidated~~non-consolidated entity, HGPE, in which Federated Hermes held an equity method investment. Effective March 1, 2020, HGPE became a consolidated subsidiary. See Note ~~(4)~~(3) to the Consolidated Financial Statements for additional information.

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Changes in Equity Fund and Separate Account Assets


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Equity Funds	Equity Funds									Equity Funds
Beginning Assets	Beginning Assets	$	43,723	$	43,443	$	48,112	$	36,584	Beginning Assets	$	59,933	$	43,723	$	54,312	$	48,112
Sales	Sales	2,937		2,669		10,423		9,128		Sales	2,655		2,937		11,758		10,423
Redemptions	Redemptions	(3,299)		(2,991)		(12,431)		(8,734)		Redemptions	(3,522)		(3,299)		(11,717)		(12,431)
Net Sales (Redemptions)	Net Sales (Redemptions)	(362)		(322)		(2,008)		394		Net Sales (Redemptions)	(867)		(362)		41		(2,008)
Net Exchanges	Net Exchanges	31		(11)		(56)		193		Net Exchanges	3		31		(360)		(56)

Acquisitions/(Dispositions)										Acquisitions/(Dispositions)	408		0		408		0
Impact of Foreign Exchange1	Impact of Foreign Exchange1	306		(291)		61		(333)		Impact of Foreign Exchange1	(283)		306		(463)		61
Market Gains and (Losses)2	Market Gains and (Losses)2	2,395		(244)		(16)		5,737		Market Gains and (Losses)2	(976)		2,395		4,280		(16)
Ending Assets	Ending Assets	$	46,093	$	42,575	$	46,093	$	42,575	Ending Assets	$	58,218	$	46,093	$	58,218	$	46,093

Equity Separate Accounts	Equity Separate Accounts									Equity Separate Accounts
Beginning Assets	Beginning Assets	$	33,136	$	38,556	$	40,899	$	35,913	Beginning Assets	$	40,573	$	33,136	$	37,476	$	40,899
Sales3	Sales3	1,249		2,513		4,422		6,002		Sales3	1,677		1,249		5,700		4,422
Redemptions3	Redemptions3	(2,253)		(3,393)		(8,243)		(7,980)		Redemptions3	(2,185)		(2,253)		(7,938)		(8,243)
Net Sales (Redemptions)3	Net Sales (Redemptions)3	(1,004)		(880)		(3,821)		(1,978)		Net Sales (Redemptions)3	(508)		(1,004)		(2,238)		(3,821)
Net Exchanges	Net Exchanges	0		0		(6)		0		Net Exchanges	0		0		403		(6)
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		(71)		0		Acquisitions/(Dispositions)	0		0		0		(71)
Impact of Foreign Exchange1	Impact of Foreign Exchange1	272		(286)		188		(362)		Impact of Foreign Exchange1	(227)		272		(471)		188
Market Gains and (Losses)2	Market Gains and (Losses)2	1,908		785		(2,877)		4,602		Market Gains and (Losses)2	(631)		1,908		4,037		(2,877)
Ending Assets	Ending Assets	$	34,312	$	38,175	$	34,312	$	38,175	Ending Assets	$	39,207	$	34,312	$	39,207	$	34,312

Total Equity	Total Equity									Total Equity
Beginning Assets	Beginning Assets	$	76,859	$	81,999	$	89,011	$	72,497	Beginning Assets	$	100,506	$	76,859	$	91,788	$	89,011
Sales3	Sales3	4,186		5,182		14,845		15,130		Sales3	4,332		4,186		17,458		14,845
Redemptions3	Redemptions3	(5,552)		(6,384)		(20,674)		(16,714)		Redemptions3	(5,707)		(5,552)		(19,655)		(20,674)
Net Sales (Redemptions)3	Net Sales (Redemptions)3	(1,366)		(1,202)		(5,829)		(1,584)		Net Sales (Redemptions)3	(1,375)		(1,366)		(2,197)		(5,829)
Net Exchanges	Net Exchanges	31		(11)		(62)		193		Net Exchanges	3		31		43		(62)
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		(71)		0		Acquisitions/(Dispositions)	408		0		408		(71)
Impact of Foreign Exchange1	Impact of Foreign Exchange1	578		(577)		249		(695)		Impact of Foreign Exchange1	(510)		578		(934)		249
Market Gains and (Losses)2	Market Gains and (Losses)2	4,303		541		(2,893)		10,339		Market Gains and (Losses)2	(1,607)		4,303		8,317		(2,893)
Ending Assets	Ending Assets	$	80,405	$	80,750	$	80,405	$	80,750	Ending Assets	$	97,425	$	80,405	$	97,425	$	80,405

1 Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars 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 certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

4349

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Changes in Fixed-Income Fund and Separate Account Assets


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Fixed-Income Funds	Fixed-Income Funds									Fixed-Income Funds
Beginning Assets	Beginning Assets	$	46,046	$	42,084	$	44,223	$	40,490	Beginning Assets	$	58,486	$	46,046	$	53,557	$	44,223
Sales	Sales	7,183		3,971		21,811		12,266		Sales	7,273		7,183		24,724		21,811
Redemptions	Redemptions	(4,497)		(4,136)		(17,474)		(12,707)		Redemptions	(5,587)		(4,497)		(18,434)		(17,474)
Net Sales (Redemptions)	Net Sales (Redemptions)	2,686		(165)		4,337		(441)		Net Sales (Redemptions)	1,686		2,686		6,290		4,337
Net Exchanges	Net Exchanges	(36)		15		(5)		(184)		Net Exchanges	43		(36)		(10)		(5)

Acquisitions/(Dispositions)										Acquisitions/(Dispositions)	17		0		17		0
Impact of Foreign Exchange1	Impact of Foreign Exchange1	105		(81)		(23)		(95)		Impact of Foreign Exchange1	(71)		105		(90)		(23)
Market Gains and (Losses)2	Market Gains and (Losses)2	978		476		1,247		2,559		Market Gains and (Losses)2	101		978		498		1,247
Ending Assets	Ending Assets	$	49,779	$	42,329	$	49,779	$	42,329	Ending Assets	$	60,262	$	49,779	$	60,262	$	49,779

Fixed-Income Separate Accounts	Fixed-Income Separate Accounts									Fixed-Income Separate Accounts
Beginning Assets	Beginning Assets	$	27,097	$	22,968	$	24,800	$	22,668	Beginning Assets	$	32,315	$	27,097	$	30,720	$	24,800
Sales3, 4		2,676		834		6,426		3,148
Redemptions3, 4		(400)		(1,282)		(2,618)		(4,233)
Net Sales (Redemptions)3, 4		2,276		(448)		3,808		(1,085)
Sales3										Sales3	5,662		2,676		9,982		6,426
Redemptions3										Redemptions3	(1,017)		(400)		(3,872)		(2,618)
Net Sales (Redemptions)3										Net Sales (Redemptions)3	4,645		2,276		6,110		3,808
Net Exchanges	Net Exchanges	0		(5)		0		(30)		Net Exchanges	(50)		0		(48)		0
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		(1)		0		Acquisitions/(Dispositions)	0		0		0		(1)
Impact of Foreign Exchange1	Impact of Foreign Exchange1	30		(26)		32		(29)		Impact of Foreign Exchange1	(18)		30		(34)		32
Market Gains and (Losses)2, 4		364		1,006		1,128		1,971
Market Gains and (Losses)2										Market Gains and (Losses)2	72		364		216		1,128
Ending Assets	Ending Assets	$	29,767	$	23,495	$	29,767	$	23,495	Ending Assets	$	36,964	$	29,767	$	36,964	$	29,767

Total Fixed-Income	Total Fixed-Income									Total Fixed-Income
Beginning Assets	Beginning Assets	$	73,143	$	65,052	$	69,023	$	63,158	Beginning Assets	$	90,801	$	73,143	$	84,277	$	69,023
Sales3, 4		9,859		4,805		28,237		15,414
Redemptions3, 4		(4,897)		(5,418)		(20,092)		(16,940)
Net Sales (Redemptions)3, 4		4,962		(613)		8,145		(1,526)
Sales3										Sales3	12,935		9,859		34,706		28,237
Redemptions3										Redemptions3	(6,604)		(4,897)		(22,306)		(20,092)
Net Sales (Redemptions)3										Net Sales (Redemptions)3	6,331		4,962		12,400		8,145
Net Exchanges	Net Exchanges	(36)		10		(5)		(214)		Net Exchanges	(7)		(36)		(58)		(5)
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		(1)		0		Acquisitions/(Dispositions)	17		0		17		(1)
Impact of Foreign Exchange1	Impact of Foreign Exchange1	135		(107)		9		(124)		Impact of Foreign Exchange1	(89)		135		(124)		9
Market Gains and (Losses)2, 4		1,342		1,482		2,375		4,530
Market Gains and (Losses)2										Market Gains and (Losses)2	173		1,342		714		2,375
Ending Assets	Ending Assets	$	79,546	$	65,824	$	79,546	$	65,824	Ending Assets	$	97,226	$	79,546	$	97,226	$	79,546

1 Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars 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 certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

4 For one fixed-income separate account, Sales, Redemptions, Net Sales (Redemptions) and Market Gains and (Losses) were previously incorrectly reported for the quarters ended March 31, 2020 and June 30, 2020. Total assets were reported correctly and are not impacted. The nine months ended September 30, 2020 include corrections that increased Redemptions by $390 million and decreased Sales by $1.1 billion, with the offset increasing Market Gains and (Losses) by $1.5 billion.

4450

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Changes in Alternative / Private Markets Fund and Separate Account Assets


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Alternative / Private Markets Funds1
Beginning Assets		$	11,037	$	11,400	$	11,389	$	11,365
Alternative / Private Markets Funds										Alternative / Private Markets Funds
Beginning Assets1										Beginning Assets1	$	13,225	$	11,037	$	12,100	$	11,389
Sales	Sales	471		200		1,799		695		Sales	1,140		471		2,325		1,799
Redemptions	Redemptions	(386)		(651)		(1,511)		(1,251)		Redemptions	(494)		(386)		(1,483)		(1,511)
Net Sales (Redemptions)	Net Sales (Redemptions)	85		(451)		288		(556)		Net Sales (Redemptions)	646		85		842		288
Net Exchanges	Net Exchanges	0		(61)		(1)		(64)		Net Exchanges	0		0		(2)		(1)

Acquisitions/(Dispositions)										Acquisitions/(Dispositions)	81		0		81		0
Impact of Foreign Exchange2	Impact of Foreign Exchange2	440		(353)		(258)		(380)		Impact of Foreign Exchange2	(345)		440		(225)		(258)
Market Gains and (Losses)3	Market Gains and (Losses)3	(169)		291		(25)		461		Market Gains and (Losses)3	692		(169)		1,503		(25)
Ending Assets	Ending Assets	$	11,393	$	10,826	$	11,393	$	10,826	Ending Assets	$	14,299	$	11,393	$	14,299	$	11,393

Alternative / Private Markets Separate Accounts	Alternative / Private Markets Separate Accounts									Alternative / Private Markets Separate Accounts
Beginning Assets	Beginning Assets	$	6,448	$	6,517	$	6,713	$	6,953	Beginning Assets	$	7,737	$	6,448	$	6,984	$	6,713
Sales4	Sales4	115		184		467		322		Sales4	179		115		802		467
Redemptions4	Redemptions4	(25)		(162)		(443)		(722)		Redemptions4	(39)		(25)		(227)		(443)
Net Sales (Redemptions)4	Net Sales (Redemptions)4	90		22		24		(400)		Net Sales (Redemptions)4	140		90		575		24

Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		452		0		Acquisitions/(Dispositions)	0		0		0		452
Impact of Foreign Exchange2	Impact of Foreign Exchange2	268		(207)		(188)		(228)		Impact of Foreign Exchange2	(209)		268		(136)		(188)
Market Gains and (Losses)3	Market Gains and (Losses)3	(53)		(2)		(248)		5		Market Gains and (Losses)3	97		(53)		342		(248)
Ending Assets	Ending Assets	$	6,753	$	6,330	$	6,753	$	6,330	Ending Assets	$	7,765	$	6,753	$	7,765	$	6,753

Total Alternative / Private Markets1
Beginning Assets		$	17,485	$	17,917	$	18,102	$	18,318
Total Alternative / Private Markets										Total Alternative / Private Markets
Beginning Assets1										Beginning Assets1	$	20,962	$	17,485	$	19,084	$	18,102
Sales4	Sales4	586		384		2,266		1,017		Sales4	1,319		586		3,127		2,266
Redemptions4	Redemptions4	(411)		(813)		(1,954)		(1,973)		Redemptions4	(533)		(411)		(1,710)		(1,954)
Net Sales (Redemptions)4	Net Sales (Redemptions)4	175		(429)		312		(956)		Net Sales (Redemptions)4	786		175		1,417		312
Net Exchanges	Net Exchanges	0		(61)		(1)		(64)		Net Exchanges	0		0		(2)		(1)
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		452		0		Acquisitions/(Dispositions)	81		0		81		452
Impact of Foreign Exchange2	Impact of Foreign Exchange2	708		(560)		(446)		(608)		Impact of Foreign Exchange2	(554)		708		(361)		(446)
Market Gains and (Losses)3	Market Gains and (Losses)3	(222)		289		(273)		466		Market Gains and (Losses)3	789		(222)		1,845		(273)
Ending Assets	Ending Assets	$	18,146	$	17,156	$	18,146	$	17,156	Ending Assets	$	22,064	$	18,146	$	22,064	$	18,146

1 The ~~balance at~~beginning assets for the nine months ended September 30, ~~2019~~2020 includes ~~$8.0~~$8.2 billion of fund assets managed by a previously ~~nonconsolidated~~non-consolidated entity, HGPE, in which Federated Hermes held an equity method investment. Effective March 1, 2020, HGPE became a consolidated subsidiary. See Note ~~(4)~~(3) to the Consolidated Financial Statements for additional information.

2 Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

3 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.

4 For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

4551

Table of Contents



Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Changes in Multi-Asset Fund and Separate Account Assets


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Multi-Asset Funds	Multi-Asset Funds									Multi-Asset Funds
Beginning Assets	Beginning Assets	$	3,516	$	4,019	$	4,000	$	3,920	Beginning Assets	$	3,517	$	3,516	$	3,744	$	4,000
Sales	Sales	44		60		164		235		Sales	71		44		224		164
Redemptions	Redemptions	(146)		(208)		(538)		(665)		Redemptions	(99)		(146)		(779)		(538)
Net Sales (Redemptions)	Net Sales (Redemptions)	(102)		(148)		(374)		(430)		Net Sales (Redemptions)	(28)		(102)		(555)		(374)
Net Exchanges	Net Exchanges	(4)		57		(23)		59		Net Exchanges	9		(4)		27		(23)

Acquisitions/(Dispositions)										Acquisitions/(Dispositions)	54		0		54		0

Market Gains and (Losses)1	Market Gains and (Losses)1	136		24		(57)		403		Market Gains and (Losses)1	(34)		136		248		(57)
Ending Assets	Ending Assets	$	3,546	$	3,952	$	3,546	$	3,952	Ending Assets	$	3,518	$	3,546	$	3,518	$	3,546

Multi-Asset Separate Accounts	Multi-Asset Separate Accounts									Multi-Asset Separate Accounts
Beginning Assets	Beginning Assets	$	189	$	194	$	199	$	173	Beginning Assets	$	182	$	189	$	204	$	199
Sales2	Sales2	1		5		27		12		Sales2	0		1		2		27
Redemptions2	Redemptions2	(9)		(10)		(20)		(22)		Redemptions2	(4)		(9)		(38)		(20)
Net Sales (Redemptions)2	Net Sales (Redemptions)2	(8)		(5)		7		(10)		Net Sales (Redemptions)2	(4)		(8)		(36)		7
Net Exchanges										Net Exchanges	0		0		1		0

Impact of Foreign Exchange1		1		0		1		0
Impact of Foreign Exchange3										Impact of Foreign Exchange3	0		1		(1)		1
Market Gains and (Losses)1	Market Gains and (Losses)1	9		(1)		(16)		25		Market Gains and (Losses)1	(4)		9		6		(16)
Ending Assets	Ending Assets	$	191	$	188	$	191	$	188	Ending Assets	$	174	$	191	$	174	$	191

Total Multi-Asset	Total Multi-Asset									Total Multi-Asset
Beginning Assets	Beginning Assets	$	3,705	$	4,213	$	4,199	$	4,093	Beginning Assets	$	3,699	$	3,705	$	3,948	$	4,199
Sales2	Sales2	45		65		191		247		Sales2	71		45		226		191
Redemptions2	Redemptions2	(155)		(218)		(558)		(687)		Redemptions2	(103)		(155)		(817)		(558)
Net Sales (Redemptions)2	Net Sales (Redemptions)2	(110)		(153)		(367)		(440)		Net Sales (Redemptions)2	(32)		(110)		(591)		(367)
Net Exchanges	Net Exchanges	(4)		57		(23)		59		Net Exchanges	9		(4)		28		(23)

Impact of Foreign Exchange1		1		0		1		0
Acquisitions/(Dispositions)										Acquisitions/(Dispositions)	54		0		54		0
Impact of Foreign Exchange3										Impact of Foreign Exchange3	0		1		(1)		1
Market Gains and (Losses)1	Market Gains and (Losses)1	145		23		(73)		428		Market Gains and (Losses)1	(38)		145		254		(73)
Ending Assets	Ending Assets	$	3,737	$	4,140	$	3,737	$	4,140	Ending Assets	$	3,692	$	3,737	$	3,692	$	3,737

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 certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

3 Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Total Changes in Long-Term Assets


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		September 30,				September 30,					September 30,				September 30,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020		2021		2020
Total Long-Term Fund Assets1
Beginning Assets		$	104,322	$	100,946	$	107,724	$	92,359
Total Long-Term Fund Assets										Total Long-Term Fund Assets
Beginning Assets1										Beginning Assets1	$	135,161	$	104,322	$	123,713	$	107,724
Sales	Sales	10,635		6,900		34,197		22,324		Sales	11,139		10,635		39,031		34,197
Redemptions	Redemptions	(8,328)		(7,986)		(31,954)		(23,357)		Redemptions	(9,702)		(8,328)		(32,413)		(31,954)
Net Sales (Redemptions)	Net Sales (Redemptions)	2,307		(1,086)		2,243		(1,033)		Net Sales (Redemptions)	1,437		2,307		6,618		2,243
Net Exchanges	Net Exchanges	(9)		0		(85)		4		Net Exchanges	55		(9)		(345)		(85)

Acquisitions/(Dispositions)										Acquisitions/(Dispositions)	560		0		560		0
Impact of Foreign Exchange2	Impact of Foreign Exchange2	851		(725)		(220)		(808)		Impact of Foreign Exchange2	(699)		851		(778)		(220)
Market Gains and (Losses)3	Market Gains and (Losses)3	3,340		547		1,149		9,160		Market Gains and (Losses)3	(217)		3,340		6,529		1,149
Ending Assets	Ending Assets	$	110,811	$	99,682	$	110,811	$	99,682	Ending Assets	$	136,297	$	110,811	$	136,297	$	110,811

Total Long-Term Separate Accounts Assets	Total Long-Term Separate Accounts Assets									Total Long-Term Separate Accounts Assets
Beginning Assets	Beginning Assets	$	66,870	$	68,235	$	72,611	$	65,707	Beginning Assets	$	80,807	$	66,870	$	75,384	$	72,611
Sales4, 5		4,041		3,536		11,342		9,484
Redemptions4, 5		(2,687)		(4,847)		(11,324)		(12,957)
Net Sales (Redemptions)4, 5		1,354		(1,311)		18		(3,473)
Sales4										Sales4	7,518		4,041		16,486		11,342
Redemptions4										Redemptions4	(3,245)		(2,687)		(12,075)		(11,324)
Net Sales (Redemptions)4										Net Sales (Redemptions)4	4,273		1,354		4,411		18
Net Exchanges	Net Exchanges	0		(5)		(6)		(30)		Net Exchanges	(50)		0		356		(6)
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		380		0		Acquisitions/(Dispositions)	0		0		0		380
Impact of Foreign Exchange2	Impact of Foreign Exchange2	571		(519)		33		(619)		Impact of Foreign Exchange2	(454)		571		(642)		33
Market Gains and (Losses)3, 5		2,228		1,788		(2,013)		6,603
Market Gains and (Losses)3										Market Gains and (Losses)3	(466)		2,228		4,601		(2,013)
Ending Assets	Ending Assets	$	71,023	$	68,188	$	71,023	$	68,188	Ending Assets	$	84,110	$	71,023	$	84,110	$	71,023

Total Long-Term Assets1
Beginning Assets		$	171,192	$	169,181	$	180,335	$	158,066
Sales4, 5		14,676		10,436		45,539		31,808
Redemptions4, 5		(11,015)		(12,833)		(43,278)		(36,314)
Net Sales (Redemptions)4, 5		3,661		(2,397)		2,261		(4,506)
Total Long-Term Assets										Total Long-Term Assets
Beginning Assets1										Beginning Assets1	$	215,968	$	171,192	$	199,097	$	180,335
Sales4										Sales4	18,657		14,676		55,517		45,539
Redemptions4										Redemptions4	(12,947)		(11,015)		(44,488)		(43,278)
Net Sales (Redemptions)4										Net Sales (Redemptions)4	5,710		3,661		11,029		2,261
Net Exchanges	Net Exchanges	(9)		(5)		(91)		(26)		Net Exchanges	5		(9)		11		(91)
Acquisitions/(Dispositions)	Acquisitions/(Dispositions)	0		0		380		0		Acquisitions/(Dispositions)	560		0		560		380
Impact of Foreign Exchange2	Impact of Foreign Exchange2	1,422		(1,244)		(187)		(1,427)		Impact of Foreign Exchange2	(1,153)		1,422		(1,420)		(187)
Market Gains and (Losses)3, 5		5,568		2,335		(864)		15,763
Market Gains and (Losses)3										Market Gains and (Losses)3	(683)		5,568		11,130		(864)
Ending Assets	Ending Assets	$	181,834	$	167,870	$	181,834	$	167,870	Ending Assets	$	220,407	$	181,834	$	220,407	$	181,834

2 Reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.

3 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.

4 For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of total investment return.

5 For one fixed-income separate account, Sales, Redemptions, Net Sales (Redemptions) and Market Gains and (Losses) were previously incorrectly reported for the quarters ended March 31, 2020 and June 30, 2020. Total assets were reported correctly and are not impacted. The nine months ended September 30, 2020 include corrections that increased Redemptions by $390 million and decreased Sales by $1.1 billion, with the offset increasing Market Gains and (Losses) by $1.5 billion.

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

Changes in Federated Hermes' average asset mix period-over-period across both asset classes and product 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 product 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 product type for the periods presented:

Percent of Total Average Managed Assets Percent of Total Revenue
Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
By Asset Class
Money Market 72 % 66 % 42 % 39 %
Equity 13 % 16 % 37 % 41 %
Fixed-Income 12 % 13 % 13 % 14 %
Alternative / Private Markets 3 % 4 % 5 % 3 %
Multi-Asset 0 % 1 % 2 % 2 %
Other -- -- 1 % 1 %
By Product Type
Funds:
Money Market 53 % 46 % 39 % 36 %
Equity 7 % 8 % 29 % 31 %
Fixed-Income 8 % 8 % 11 % 12 %
Alternative / Private Markets 2 % 2 % 3 % 1 %
Multi-Asset 0 % 1 % 2 % 2 %
Separate Accounts:
Money Market 19 % 20 % 3 % 3 %
Equity 6 % 8 % 8 % 10 %
Fixed-Income 4 % 5 % 2 % 2 %
Alternative / Private Markets 1 % 2 % 2 % 2 %
Other -- -- 1 % 1 %


	Percent of Total Average Managed Assets				Percent of Total Revenue
	Nine Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
By Asset Class
Money Market	66	%	72	%	19	%	42	%
Equity	16	%	13	%	52	%	37	%
Fixed-Income	14	%	12	%	18	%	13	%
Alternative / Private Markets	3	%	3	%	8	%	5	%
Multi-Asset	1	%	0	%	2	%	2	%
Other	—	%	--		1	%	1	%
By Product Type
Funds:
Money Market	46	%	53	%	16	%	39	%
Equity	9	%	7	%	41	%	29	%
Fixed-Income	9	%	8	%	15	%	11	%
Alternative / Private Markets	2	%	2	%	5	%	3	%
Multi-Asset	1	%	0	%	2	%	2	%

Separate Accounts:
Money Market	20	%	19	%	3	%	3	%
Equity	7	%	6	%	11	%	8	%
Fixed-Income	5	%	4	%	3	%	2	%
Alternative / Private Markets	1	%	1	%	3	%	2	%

Other	—	%	—	%	1	%	1	%

Total managed assets represent the balance of 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.

As of September 30, ~~2020,~~2021, total managed assets increased ~~17%~~3% from September 30, ~~2019,~~2020, primarily due to ~~an increase~~increases in fixed-income and equity assets, partially offset by a decrease in money market ~~assets and, to a lesser extent, an increase in fixed-income~~ assets. Total average money market assets ~~increased 28%~~decreased 8% and ~~35%~~5% for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the same periods in ~~2019.~~2020. Period-end money market assets ~~increased 21%~~decreased 4% at September 30, ~~2020~~2021 as compared to September 30, ~~2019.~~2020. Average equity assets ~~decreased 2%~~increased 24% for both the three and nine months ended September 30, ~~2020~~2021, respectively, as compared to the same periods in ~~2019.~~2020. Period-end equity assets ~~were down slightly~~increased 21% at September 30, ~~2020~~2021 as compared to September 30, ~~2019.~~2020 primarily due to market appreciation. Average fixed-income assets increased ~~18%~~22% and ~~11%~~25% for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the same periods in ~~2019.~~2020. Period-end fixed-income assets increased ~~21%~~22% at September 30, ~~2020~~2021 as compared to September 30, ~~2019,~~2020 primarily due to net sales and, to a lesser extent, market appreciation. ~~During~~

Equity markets continued to rally the first two months of the third quarter ~~risk markets continued their rally off March's pandemic lows, lifted by~~before taking a ~~surprisingly strong economic recovery, an improving earnings outlook~~volatile turn in September as uncertainties ranging from the Delta variant's spread and ~~an ultra-dovish Fed. The technology-laden~~stubborn inflation to a slowing China and political brinkmanship in Washington, D.C., weighed on markets. Despite posting its worst month since March 2020, the Standard and Poor's 500 index managed to eke out a 0.6% return for the quarter, while both the Nasdaq Composite Index ~~returned 11% for the three-month period ended September 30, 2020, while the S&P 500 rose 8.5%~~ and ~~the~~ Dow Jones Industrial Average ~~climbed 7.6%~~slipped 0.2% and 1.5%, respectively, for the three months. Overseas markets were similar with the MSCI World ex USA Index down 1.2% for the quarter and the MSCI All Country World ex USA down 3.6%. ~~After setting record highs~~In the fixed-income markets, a July 2021 rally reversed in ~~early September 2020, all~~the subsequent two months and particularly near quarter-end, when the Fed signaled a slightly more aggressive policy tilt, leaving longer yields largely unchanged for the three ~~major equity indexes gave back some ground during the month~~months despite intra-period volatility. The yield on the inability of Congress and the White House to provide more fiscal stimulus amid renewed increases in Covid-19 cases and worries that improvement in the economy may moderate. In fixed income, markets vacillated between risk on and risk off during the period, with long rates trading in a narrow trading range while short rates remained anchored at historic lows on the Fed's pledge to keep benchmark rates near zero-bound10-year

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

~~for three years or until inflation hits and holds~~Treasury ended the quarter at ~~2%. In~~1.49%, up 2 basis points from where it started, while the yield on the 30-year Treasury dipped 4 basis points to end the quarter ~~ended roughly where it began, with the 2-year Treasury yield down 2 basis points and the 10-year Treasury yield up 2 points.~~at 2.05%.

Results of Operations

Revenue. Revenue ~~increased $24.1~~decreased $37.9 million for the three-month period ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 primarily due to ~~(1)~~ an increase ~~in alternative/private market revenue~~ of $10.4 million primarily due to the revenue of a previously nonconsolidated entity being recorded in operating revenue beginning in March 2020, (2) an increase in fixed-income revenue of $6.1 million primarily due to higher average fixed-income assets and (3) an increase in money market revenue of $5.1 million primarily due to higher average money market assets (includes a decrease in revenue related to $36.8$72.4 million in Voluntary Yield-related Fee ~~Waivers)~~Waivers (see Business Developments - Low Short-Term Interest Rates for additional information, including the impact to expense and the net pre-tax impact).

and a decrease in money market revenue of $17.5 million due to lower average money market assets. These decreases were partially offset by an increase in equity and fixed-income revenue of $34.5 million and $11.9 million, respectively, due to higher average assets.

Revenue ~~increased $115.5~~decreased $105.5 million for the nine-month period ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 primarily due to ~~(1)~~ an increase of $253.3 million in Voluntary Yield-related Fee Waivers and a decrease in money market revenue of ~~$73.6~~$32.9 million ~~primarily~~due to lower average money market assets. These decreases were partially offset by an increase in equity and fixed-income revenue of $110.4 million and $37.7 million, respectively, due to higher average ~~money market~~ assets, ~~(includes~~an increase of $9.3 million as a ~~decrease in revenue~~result of the consolidation of certain VIEs not previously consolidated prior to the first quarter of 2021 related to ~~$56.9 million in Voluntary Yield-related Fee Waivers)~~the HCL Acquisition (see ~~Business Developments - Low Short-Term Interest Rates for additional information, including~~Note (3) to the ~~impact to expense~~Consolidated Financial Statements) and ~~the net pre-tax impact), (2)~~ an increase in alternative/private market revenue of ~~$23.2~~$7.3 million primarily due to the revenue of a previously nonconsolidated entity being recorded into operating revenue beginning in March ~~2020 and (3) an increase in fixed-income revenue of $8.3 million primarily due to higher average fixed-income assets.~~

2020.

For the nine-month ~~periods~~period ended September 30, ~~2020~~2021 and ~~2019,~~2020, Federated Hermes' ratio of revenue to average managed assets was ~~0.23%~~0.21% and ~~0.26%~~0.23%, respectively. The decrease in the rate was primarily due to the ~~result~~reduction of revenue from higher Voluntary Yield-related Fee Waivers, partially offset by a higher proportion of revenue earned on average ~~money market~~equity and fixed-income assets ~~and the reduction of revenue from Voluntary Yield-related Fee Waivers~~ during the first nine months of ~~2020 as~~2021 compared to the same period in ~~2019.~~2020.

Operating Expenses. Total Operating Expenses for the three-month period ended September 30, ~~2020 remained flat~~2021 decreased $22.9 million as compared to the same period in ~~2019~~2020 primarily due to an increase of $13.9 million in Compensation and Related expense primarily due to (1) a $5.8 million increase related to the HCL activity being included in the Consolidated Financial Statements beginning on March 1, 2020, (2) an increase of $3.0 million primarily related to increased headcount and (3) an increase in incentive compensation of $2.9 million driven primarily by domestic sales efforts and performance. These increases were partially offset by a decrease of ~~$14.4~~$35.2 million in Distribution expense primarily related to a decrease in expense ~~related~~of $39.3 million due to ~~$33.0 million~~an increase in Voluntary Yield-related Fee Waivers (see Business Developments - Low Short-Term Interest Rates for additional information, including the impact to revenue and the net pre-tax impact),. This was partially offset by an increase in Compensation and Related expense of ~~$20.3~~$5.8 million ~~related~~driven primarily by the increase in the average Great British Pound (GBP)/United States Dollar (USD) exchange rate for the three-month period ended September 30, 2021 as compared to ~~higher average money market fund assets.~~

the same period in 2020.

Total Operating Expenses for the nine-month period ended September 30, ~~2020 increased $57.2~~2021 decreased $79.9 million as compared to the same period in ~~2019. Compensation and Related~~2020 primarily due to a decrease of $137.9 million in Distribution expense ~~increased $34.4~~primarily related to a decrease in expense of $153.9 million due to ~~(1)~~ an increase in incentive compensation of $14.9 million driven primarily by domestic sales efforts, (2) a $13.2 million increase related to the HCL activity being included in the Consolidated Financial Statements beginning on March 1, 2020 and (3) a $5.6 million increase primarily related to increased headcount. Distribution expense increased $11.2 million primarily related to higher average money market fund assets (includes a decrease in distribution expense related to $51.0 million in Voluntary Yield-related Fee ~~Waivers)~~Waivers (see Business Developments - Low Short-Term Interest Rates for additional information, including the impact to revenue and the net pre-tax impact). ~~Professional Service Fees~~This was partially offset by an increase in Compensation and Related expense of $43.3 million driven primarily by (1) an increase of $12.9 million due to the increase in the average GBP/USD exchange rate for the nine-month period ended September 30, 2021 as compared to the same period in 2020, (2) an increase of $9.2 million as a result of the consolidation of certain VIEs not previously consolidated prior to 2021 related to the HCL Acquisition (see Note (3) to the Consolidated Financial Statements), (3) an increase of $6.1 million related to the compensation expenses of a previously nonconsolidated entity being recorded to Compensation and Related expense beginning in March 2020 and (4) an increase of $5.2 million related to an increase in staff. Systems and Communications expense increased ~~$9.7~~$9.9 million primarily due to technology-related projects.

Nonoperating Income (Expenses). Nonoperating Income (Expenses), net decreased ~~$1.2~~$8.0 million for the three-month period ended September 30, ~~2020~~2021 as compared to the same period in ~~2019.~~2020. The decrease is primarily due to a ~~$6.8~~$6.5 million decrease ~~related to the income of a previously nonconsolidated entity no longer being recorded in nonoperating income beginning in March 2020. This decrease was partially offset by an increase of $6.4 million~~ in Gain (Loss) on Securities, net ~~primarily~~ due to the third quarter 2020 including an increase in the market value of ~~investments.~~investments compared to a slight decrease in the third quarter 2021 and a $1.3 million loss recorded to Nonoperating Income (Expenses) - Other, net related to a derivative financial instrument associated with the 2021 Acquisition of HFML Noncontrolling Interest in the third quarter of 2021 (FX Forward Loss).

Nonoperating Income (Expenses), net ~~increased $4.8~~decreased $6.3 million for the nine-month period ended September 30, ~~2020~~2021 as compared to the same period in ~~2019.~~2020. The ~~increase~~decrease is primarily due to a $7.5 million gain from a fair value adjustment to ~~the~~an equity investment of a previously nonconsolidated entity recorded in Nonoperating Income (Expenses) - Other, net in March 2020 and the ~~first~~$1.3 million FX Forward Loss recorded in the third quarter of ~~2020 and a $2.2 million increase in Gain (Loss) on Securities, net due to an increase in the market value of investments.~~2021. These ~~increases~~decreases were partially offset by a ~~$5.6~~$3.1 million

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

~~million decrease related~~increase in Gain (Loss) on Securities, net primarily due to higher gains recorded from the increase in the market value of investments in the first nine months of 2021 as compared to the ~~income of a previously nonconsolidated entity no longer being recorded~~same period in ~~nonoperating income beginning in March~~ 2020.

Income Taxes. The income tax provision was ~~$32.9~~$23.2 million for the three-month period ended September 30, ~~2020~~2021 as compared to ~~$23.2~~$32.9 million for the same period in ~~2019.~~2020. The decrease in the income tax provision was primarily due to (1) higher taxes in 2020 due to an increased deferred tax expense associated with the change in the UK tax rate from 17% to 19% ($3.3 million) and (2) lower taxable income ($6.2 million). The effective tax rate was 24.0% for the three-month period ended September 30, 2021 as compared to 27.5% for the same period in 2020. The decrease in the effective tax rate was primarily due to the increase in deferred tax expense in 2020 associated with the 2020 UK tax rate increase from 17% to 19%.

The income tax provision was $83.4 million for the nine-month period ended September 30, 2021 as compared to $81.9 million for the same period in 2020. The increase in the income tax provision was primarily due to ~~higher income before income taxes as a result of~~ the changes in revenues, expenses and nonoperating income (expenses) noted above. The effective tax rate was 27.5% for the three-month period ended September 30, 2020 as compared to 24.0% for the same period in 2019. Thenet increase in ~~the effective tax rate is primarily due to the revaluation of foreign~~ deferred taxes associated with the change in the UK ~~corporate income~~ tax rate in 2020 from 17% to 19% and in 2021 from 19% to 25% effective April 1, 2023 ($11.2 million), partially offset by a decrease in taxable income ($8.3 million).

The ~~income~~effective tax ~~provision~~rate was ~~$81.9 million~~29.3% for the nine-month period ended September 30, ~~2020~~2021 as compared to ~~$61.6 million~~25.9% for the same period in ~~2019.~~2020. The increase in the effective income tax ~~provision~~rate was primarily due to ~~higher income before income taxes as a result of~~ the ~~changes~~increase in ~~revenues, expenses and nonoperating income (expenses) noted above. The effective~~deferred tax expense associated with the aforementioned UK tax rate ~~was 25.9% for the nine-month period ended September 30, 2020 as compared~~increase from 19% to ~~24.3% for the same period in 2019.~~

25%.

Net Income Attributable to Federated Hermes, Inc. Net income ~~increased $12.9~~decreased $14.5 million for the three-month period ended September 30, ~~2020~~2021 as compared to the same period in ~~2019,~~2020, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the three-month period ended September 30, ~~2020 increased $0.13~~2021 decreased $0.12 as compared to the same period in ~~2019~~2020 primarily due to ~~increased~~decreased net income.

Net income ~~increased $41.0~~decreased $29.5 million for the nine-month period ended September 30, ~~2020~~2021 as compared to the same period in ~~2019,~~2020, primarily as a result of the changes in revenues, expenses, nonoperating income (expenses) and income taxes noted above. Diluted earnings per share for the nine-month period ended September 30, ~~2020 increased $0.41~~2021 decreased $0.25 as compared to the same period in ~~2019~~2020 primarily due to ~~increased~~decreased net income.

Liquidity and Capital Resources

Liquid Assets. At September 30, ~~2020,~~2021, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled ~~$457.5~~$411.8 million as compared to ~~$359.1~~$432.5 million at December 31, ~~2019.~~2020. The change in liquid assets is discussed below.

At September 30, ~~2020,~~2021, 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 (such as the UK in light of Brexit), 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 ~~$239~~$152 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 ~~$243.5~~$101.0 million for the nine months ended September 30, ~~2020~~2021 as compared to ~~$212.3~~net cash provided totaling $243.5 million for the same period in ~~2019.~~2020. The ~~increase~~decrease of ~~$31.2~~$142.5 million was primarily due to (1) ana net increase in cash received related to the $115.5 million increase in revenue previously discussed less $19.2 million in accrued performance fees discussed in the Financial Position section below and (2) a decrease of ~~$12.6~~$122.1 million in cash paid for trading securities for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019. These increases were partially offset by (1)~~2020, (2) a decrease in cash received related to the $105.5 million decrease in revenue previously discussed and (3) an increase of ~~$27.7~~$24.0 million in cash paid for incentive compensation for the nine months ended September 30, ~~2020 as compared the same period in 2019, (2) an increase of $19.9 million in cash paid for taxes primarily due to higher taxable income for the nine months ended September 30, 2020~~2021 as compared to the same period in ~~2019 and (3) an increase~~2020. These decreases were partially offset by a decrease in cash paid related to the ~~$11.2~~$137.9 million ~~increase~~decrease in Distribution expense previously discussed.

Cash ~~Used~~Provided by Investing Activities. During the nine-month period ended September 30, ~~2020,~~2021, net cash ~~used~~provided by investing activities was ~~$18.5~~$13.0 million, which primarily represented ~~$19.1~~$33.3 million in cash received from redemptions of Investments—Affiliates and Other partially offset by $7.8 million paid for property and equipment, $7.2 million paid for purchases of Investments—Affiliates and Other and ~~$8.6~~$5.3 million paid for ~~property and equipment, partially offset~~an asset purchase during 2021.

Cash Used by ~~$6.4~~Financing Activities. During the nine-month period ended September 30, 2021, net cash used by financing activities was $213.4 million ~~in cash received from redemptions~~due primarily to the payment to acquire additional equity of ~~Investments—Affiliates and Other.~~HFML (see Note (3) to the

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

~~Cash Used by Financing Activities.~~ ~~During the nine-month period ended September 30, 2020, net cash used by financing activities was $141.8 million due primarily to $110.0~~Consolidated Financial Statements), $92.4 million paid ~~in connection with its debt obligations, $81.6~~for treasury stock purchases, $79.7 million or $0.81 per share paid in dividends to holders of its common shares and ~~$53.1~~$55.0 million paid ~~for treasury stock purchases.~~in connection with its debt obligations. This was partially offset by ~~$100.0~~$101.3 million of contributions from noncontrolling interests in subsidiaries and $82.2 million borrowed from ~~its~~Federated Hermes revolving credit facility.

Borrowings. As of September 30, 2021, Federated Hermes' Credit Agreement consists of a ~~$375~~$350 million revolving credit facility with an additional $200 million available via an optional increase (or accordion) feature. The original proceeds were used for general corporate purposes including cash payments related to acquisitions, dividends, investments and share repurchases. As of September 30, ~~2020,~~2021, Federated Hermes has ~~$285~~$247.8 million available to borrow under the Credit Agreement. See Note ~~(12)~~(11) to the Consolidated Financial Statements for additional ~~information.~~

information on the Credit Agreement.

The Credit Agreement includes 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 nine months ended September 30, ~~2020.~~2021. An interest coverage ratio of at least 4 to 1 is required and, as of September 30, ~~2020,~~2021, Federated Hermes' interest coverage ratio was ~~173~~386 to 1. A leverage ratio of no more than 33.0 to 1 is required and, as of September 30, ~~2020,~~2021, Federated Hermes' leverage ratio was ~~0.2~~0.23 to 1. The Credit Agreement also has 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.

Future Cash Needs. 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, repaying debt obligations, paying taxes, repurchasing company stock, purchasing ordinary shares of a subsidiary, developing and seeding new products and strategies, modifying existing products, strategies and relationships, and funding property and equipment (including technology). Any number of factors may 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 may continue to increase.

On October ~~29, 2020,~~28, 2021, the board of directors declared a ~~$1.27~~$0.27 per share dividend to shareholders of record as of November ~~6, 2020~~8, 2021 to be paid on November 13, 2020. The dividend, which will be paid from Federated Hermes' existing cash balance, is considered an ordinary dividend for tax purposes and consists of a $0.27 quarterly dividend and a $1.00 special dividend. See Business Developments - Subsequent Event - Special Cash Dividend for more information on the estimated diluted earnings per share impact for the quarter ending December 31, 2020.

15, 2021.

After evaluating Federated Hermes' projected liquid assets, ~~following the special dividend payment,~~ expected continuing cash flow from operations, its borrowing capacity under the Amended Credit Agreement and its ability to obtain additional financing arrangements and issue debt or stock, management believes it will have sufficient liquidity to meet its present and reasonably foreseeable 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. This discussion excludes certain material fluctuations primarily due to the HCL ~~acquisition~~Acquisition (see Note ~~(4)~~(3) to the Consolidated Financial Statements).

Investments—Consolidated Investment Companies at September 30, ~~2020 increased $6.6~~2021 decreased $37.3 million from December 31, ~~2019~~2020 primarily due to ~~(1)~~a decrease of $73.0 million related to the deconsolidation of three VREs and the liquidation of a VRE during the first nine months of 2021. This decrease was partially offset by an increase of ~~$9.3~~$34.5 million due to the consolidation of a ~~VIE~~VRE and a ~~VRE~~VIE in the ~~third quarter~~first nine months of 2021.

Investments—Affiliates and Other at September 30, 2021 increased $43.7 million from December 31, 2020 (2) an increase of $9.6 million related to net purchases in existing consolidated products and (3) an increase of $3.7 million of market appreciation for existing consolidated products, partially offset by a $16.0 million decrease relatedprimarily due to the deconsolidation of ~~a VRE and the liquidation of a VIE during~~two VREs in the first ~~half~~nine months of ~~2020.~~2021 which reclassified Federated Hermes' investment into Investments—Affiliates and Other.

Accrued Compensation and Benefits at September 30, 2021 decreased $37.5 million from December 31, 2020 primarily due to the 2020 accrued annual incentive compensation being paid in the first quarter of 2021 ($133.9 million), partially offset by 2021 incentive compensation accruals recorded at September 30, 2021 ($95.9 million).

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Management's Discussion and Analysis (continued)
of Financial Condition and Results of Operations (unaudited)

~~Investments—Affiliates and Other~~Long-Term Deferred Tax Liability, net at September 30, ~~2020~~2021 increased ~~$16.3~~$17.4 million from December 31, ~~2019 primarily due to net purchases of $12.6 million and the deconsolidation of a VRE in the first half of~~ 2020 ~~which reclassified Federated Hermes' investment of $2.5 million into Investments—Affiliates and Other.~~

Receivables, net at September 30, 2020 included $19.2 million in accrued performance fees. Approximately $8 million of this will be paid to a third party in accordance with a revenue agreement and a corresponding liability is recorded in Accounts Payable and Accrued Expenses.

~~Accrued Compensation and Benefits at September 30, 2020 decreased $17.6 million from December 31, 2019~~ primarily due to the ~~2019 accrued annual incentive compensation being paid~~revaluation of the foreign net deferred tax liability associated with the change in the ~~first quarter of 2020 ($107.0 million), partially offset by 2020 incentive compensation accruals recorded at September 30, 2020 ($88.7 million).~~UK tax rate from 19% to 25% effective April 1, 2023.

Legal Proceedings

Federated Hermes has claims asserted against it from time to time. See Note ~~(16)~~(15) to the Consolidated Financial Statements for additional information.

~~Recent Accounting Pronouncements~~

~~For a 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 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 may differ from those estimates made by management and those differences may be material.

Of the significant accounting policies described in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, management believes that its policies regarding accounting for asset acquisitions and business combinations, goodwill and intangible assets and Hermes redeemable noncontrolling interest involve a higher degree of judgment and complexity. See Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations under the section Critical Accounting Policies for a complete discussion of these policies.

The continued uncertainty caused by ~~Covid-19~~the Pandemic resulted in management determining that an indicator of potential impairment existed asbeginning in the first quarter of ~~March 31, June 30 and September 30,~~ 2020 for certain indefinite-lived intangible assets totaling £150.3 million ($~~193.9~~202.5 million as of September 30, ~~2020)~~2021) acquired in connection with the 2018 ~~Hermes acquisition.~~HFML Acquisition. A discounted cash flow analysis resulted in no impairment as of ~~March 31,~~each quarter end for 2020 and ~~June 30, 2020~~the first and second quarters of 2021 since the estimated fair value of these intangible assets exceeded the carrying value. An additional discounted cash flow analysis prepared as of September 30, ~~2020~~2021 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 and the long-term growth rate.~~flows. The risk of future impairment increases with a decrease in projected cash flows ~~a decrease in the long-term growth rate~~ and/or an increase in the discount rate. As of September 30, ~~2020,~~2021, 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 6% and 5%, respectively. An increase or decrease of 10% in pre-tax profit margins would result in a corresponding change to estimated fair value of approximately 12%. 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% ~~in estimated fair value. Similarly, an increase or decrease in~~. The market volatility and other events related to the ~~long-term growth rate of 25 basis points would~~Pandemic could further reduce the AUM, revenues and earnings associated with these intangible assets and may result in ~~a corresponding change of approximately 1%~~subsequent impairment tests being based upon updated assumptions and future cash flow projections, which may result in ~~estimated fair value. Indefinite-lived intangible assets will be reviewed for impairment by management as part of the fourth quarter annual impairment test.~~an impairment. For additional information on risks related to ~~Covid-19,~~the Pandemic, see ~~Part II,~~ Item ~~1A.~~1A - Risk ~~Factors.~~Factors included in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2020.

Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk

Federated Hermes has certain investments in foreign operations, whose net assets and results of operations are exposed to foreign currency risk when translated into U.S. dollars upon consolidation. During 2021, a British Pound Sterling-denominated, majority-owned subsidiary of Federated Hermes entered into foreign currency forward transactions in order to hedge against foreign exchange rate fluctuations in the U.S. Dollar (combined notional amount of £67.6 million as of September 30, 2021). This subsidiary is exposed to foreign currency exchange risk as a result of a portion of its revenue being earned in U.S. Dollars. Management considered a hypothetical 20% fluctuation in the currency exchange rate and determined that the impact of such a fluctuation could impact Federated Hermes’ financial condition and results of operations by approximately $10 million.

As of September 30, ~~2020,~~2021, there were no other material changes to Federated Hermes' exposures to market risk that would require an update to the disclosures provided in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

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Part I, Item 4. Controls and Procedures

(a)Federated Hermes carried out an evaluation, under the supervision and with the participation of management, including Federated Hermes' President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of Federated Hermes' disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2020. The scope of management's assessment of the effectiveness of its disclosure controls and procedures did not include the internal controls over financial reporting at MEPC Limited (MEPC), which was acquired effective January 1, 2020 and HGPE Capital Limited and Hermes GPE (collectively, HCL), which was acquired effective March 1, 2020. MEPC represented less than 1% of both Federated Hermes' total and net assets as of September 30, 2020. MEPC represented less than 1% of Federated Hermes' total revenue and net income for the three and nine months ended September 30, 2020. HCL represented approximately 2% of both Federated Hermes' total assets and net assets as of September 30, 2020. HCL represented approximately 3% and 2% of Federated Hermes' total revenue for the three and nine months ended September 30, 2020, respectively, and approximately 4% and 3% of Federated Hermes' total net income for the three and nine months ended September 30, 2020, respectively. These exclusions are consistent with the SEC Staff's guidance that an assessment of a recently acquired business may be omitted from the scope of management's assessment of the effectiveness of disclosure controls and procedures that are also part of internal control over financial reporting for one year following an acquisition.2021. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that Federated Hermes' disclosure controls and procedures were effective at September 30, ~~2020.~~

2021.

(b)There has been no change in Federated Hermes' internal control over financial reporting that occurred during the quarter ended September 30, ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, Federated Hermes' internal control over financial reporting.

Part II, Item 1. Legal Proceedings

Information regarding this Item is contained in Note ~~(16)~~(15) to the Consolidated Financial Statements.

Part II, Item 1A. Risk Factors

~~The following updates~~There are no material changes to the risk factors included in Federated Hermes' ~~existing risk disclosure relating to Covid-19:~~

~~As previously disclosed in Item 1A-Risk Factors under the heading "Potential Adverse Effects of Unpredictable Events or Consequences" in Federated Hermes, Inc.'s~~Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, 2019, the outbreak of Covid-19 is an unprecedented event that has been, and continues to be, impossible to predict and may have a material adverse effect on Federated Hermes' business, results of operations, financial condition, cash flows and/or stock price. It has led to global economic uncertainty which has impacted financial markets negatively. The collective mitigation response to Covid-19 has resulted in a sharp contraction in many aspects of the U.S. and global economies, tightening liquidity, and increasing volatility and uncertainty in capital markets. The economic uncertainty and impact of Covid-19 may be short-term or may last for an extended period of time and result in a substantial economic downturn. Health crises caused by outbreaks, such as Covid-19, may exacerbate other pre-existing political, social and economic/market risks.

The overall impact of Covid-19 has negatively affected, and other epidemics and pandemics that may arise in the future could negatively affect, the worldwide economy, as well as the economies of individual countries, individual companies (including Federated Hermes, its products and service providers) and the market in general in significant, potentially material, and unforeseen ways. For example, market disruptions and other events relating to Covid-19 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, a decline in the value of Federated Hermes' AUM, an increase in the risk of reduction, elimination or clawback 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 Covid-19 also may cause impairment of intangible assets (including goodwill) or other assets, among other effects. If essential employees, or a significant number of employees, contract Covid-19 and are unable to perform their duties either at all or only in a significantly diminished capacity, the absence of these employees may adversely impact Federated Hermes' ability to continue to remain fully operational and/or to deliver Federated Hermes' investment products and services. Any scenario whereby Covid-19, and its resulting effects, persist for any significant period of time may adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition,

~~cash flows and/or stock price. Federated continues to monitor the impact of Covid-19 on its business, operations, financial condition and cash flows.~~

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 working can stress business processes, such as due diligence of vendors, client 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 may cause AUM, revenue and earnings to decline or impact Federated Hermes' ability to comply with regulatory obligations leading to reputational harm, regulatory fines and/or sanctions, and impact, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows. 2020.

Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table summarizes stock repurchases under Federated Hermes' share repurchase ~~programs~~program during the third quarter of ~~2020.~~2021.


		Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs1		Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs1
July2	July2	91,900	$	19.73	75,000	2,951,755	July2	1,900	$	3.00	0	3,166,755
August	August	275,000	25.38		275,000	2,676,755	August	130,000	32.58		130,000	3,036,755
September		500,000	22.46		500,000	2,176,755
September2							September2	461,719	29.16		425,000	2,611,755
Total	Total	866,900	$	23.10	850,000	2,176,755	Total	593,619	$	29.82	555,000	2,611,755

1 In April ~~2020,~~2021, the board of directors authorized a share repurchase program with no stated expiration date that allows the ~~buy back~~repurchase of up to ~~3.5~~4.0 million shares of Class B common stock. No other ~~programs~~program existed as of September 30, ~~2020.~~2021. See Note ~~(14)~~(13) to the Consolidated Financial Statements for additional information on this program.

2 In July ~~2020, 16,900~~and September 2021, 1,900 and 36,719 shares, respectively, of ~~restricted~~Class B common stock with a weighted-average price of $3.00 and $0.87 per share, respectively, were repurchased as employees forfeited restricted stock.

Part II, Item 6. Exhibits

The following exhibits required to be filed or furnished by Item 601 of Regulation S-K are filed or furnished herewith and incorporated by reference herein:

Exhibit 31.1 – Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

Exhibit 31.2 – Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

Exhibit 32 – Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

Exhibit 101.INS – Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH – Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL – Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF – Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LAB – Inline XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE – Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104 – Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Federated Hermes, Inc.

(Registrant)

Date

October ~~30, 2020~~29, 2021

By:

/s/ J. Christopher Donahue

J. Christopher Donahue

President and Chief Executive Officer

Date

October ~~30, 2020~~29, 2021

By:

/s/ Thomas R. Donahue

Thomas R. Donahue

Chief Financial Officer

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Part I. Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets	4
		Consolidated Statements of Income	5
		Consolidated Statements of Comprehensive Income	6
		Consolidated Statements of Changes in Equity	7
		Consolidated Statements of Cash Flows	98
		Notes to the Consolidated Financial Statements	109
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2524
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5358
	Item 4.	Controls and Procedures	5459
Part II. Other Information
	Item 1.	Legal Proceedings	5459
	Item 1A.	Risk Factors	5459
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5559

	Item 6.	Exhibits	5560
Signatures			5661


(in millions)	September 30, 2020		December 31, 2019

Investments—Consolidated Investment Companies	6.8		13.3
Other Assets	0.2		0.3
Less: Liabilities	0.1		0.1
Less: Redeemable Noncontrolling Interest in Subsidiaries	0.0		9.3
Federated Hermes' Net Interest in Federated Hermes Fund VIE	$	6.9	$	4.2