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, 2021~~March 31, 2022


☐			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~~April 22, ~~2021,~~2022, the Registrant had outstanding 9,000 shares of Class A ~~Common Stock~~common stock and ~~96,843,698~~91,665,902 shares of Class B ~~Common Stock.~~common stock.

Table of Contents



Table of Contents

FORWARD-LOOKING STATEMENTS

Certain statements in this report on Form 10-Q constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that could cause the actual results, levels of activity, performance or achievements of Federated Hermes, Inc. and its consolidated subsidiaries (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," "can," "may," and similar expressions.Among other forward-looking statements, such statements include certain statements relating to, or, as applicable, statements concerning management's assessments, beliefs, expectations, assumptions, judgments, projections or estimates regarding: the coronavirus and pandemic, their impact and ~~status, and~~ plans in response; Russia's invasion of Ukraine and its impact; 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 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, under what circumstances and the degree to which Fee Waivers will be implemented; the integration of environmental, social and governance factors; the impact of market volatility, liquidity, and other market conditions; whether and when revenue or expense is recognized; whether performance fees or carried interest will be earned ~~or repaid~~ or clawed-back; whether and when capital contributions could be made; the components and level of, and prospect for, distribution-related expenses; guarantee and indemnification obligations; the timing and ~~nature~~amount of acquisition-related payment obligations; ~~acquisition-related matters, including future contingent 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 ~~expenses and repayment obligations;~~or expenses; taxes, tax rates and the impact of tax 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' 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; regulatory matters, including the pace, timing, impact, effects and other consequences of the current regulatory ~~environment, regulatory developments and continuing regulatory oversight by United States (U.S.) and foreign regulators and other authorities;~~environment; the attractiveness and resiliency of money market funds; dedication of resources; ~~the adoption and impact of accounting policies, new accounting pronouncements and accounting treatment~~accounting-related 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;~~risks and their impact; and various other items set forth under Item 1A - Risk Factors in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 and Part II, Item 1A - Risk Factors. Among other risks and uncertainties, market conditions can change

significantly and impact Federated Hermes' business and results, including by changing Federated Hermes' asset flows, levels, and mix, and business mix, which could cause a decline in revenues and net income, result in impairments and ~~increase~~change the amount of Fee

Waivers incurred by Federated Hermes. 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 can be based on satisfaction of certain conditions set forth in those arrangements. Future cash needs, cash flows and 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 intermediary 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, Fee Waivers, changes in fair values of 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 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 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, ~~2020.~~2021 and Part II, Item 1A - Risk Factors.

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, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$	201,692	$	301,819	Cash and Cash Equivalents	$	262,043	$	233,327
Investments—Consolidated Investment Companies	Investments—Consolidated Investment Companies	54,075		91,359		Investments—Consolidated Investment Companies	104,370		105,542
Investments—Affiliates and Other	Investments—Affiliates and Other	89,318		45,593		Investments—Affiliates and Other	91,067		87,805
Receivables, net of reserve of $16 and $16, respectively		67,374		64,857
Receivables, net of reserve of $21 and $21, respectively						Receivables, net of reserve of $21 and $21, respectively	55,510		65,317
Receivables—Affiliates	Receivables—Affiliates	31,381		41,107		Receivables—Affiliates	29,315		30,956
Prepaid Expenses	Prepaid Expenses	27,445		22,130		Prepaid Expenses	32,283		29,322
Other Current Assets	Other Current Assets	6,757		8,478		Other Current Assets	7,257		7,178
Total Current Assets	Total Current Assets	478,042		575,343		Total Current Assets	581,845		559,447
Long-Term Assets	Long-Term Assets					Long-Term Assets
Goodwill	Goodwill	798,258		800,267		Goodwill	794,788		798,871

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		49,421		52,610
Intangible Assets, net of accumulated amortization of $41,717 and $39,618, respectively						Intangible Assets, net of accumulated amortization of $41,717 and $39,618, respectively	458,663		471,209
Property and Equipment, net of accumulated depreciation of $116,888 and $113,624, respectively						Property and Equipment, net of accumulated depreciation of $116,888 and $113,624, respectively	44,579		46,965
Right-of-Use Assets, net	Right-of-Use Assets, net	111,718		122,078		Right-of-Use Assets, net	105,583		108,306
Other Long-Term Assets	Other Long-Term Assets	36,050		28,788		Other Long-Term Assets	33,064		33,389
Total Long-Term Assets	Total Long-Term Assets	1,468,367		1,485,496		Total Long-Term Assets	1,436,677		1,458,740
Total Assets	Total Assets	$	1,946,409	$	2,060,839	Total Assets	$	2,018,522	$	2,018,187
LIABILITIES	LIABILITIES					LIABILITIES
Current Liabilities	Current Liabilities					Current Liabilities
Accounts Payable and Accrued Expenses	Accounts Payable and Accrued Expenses	$	62,648	$	61,736	Accounts Payable and Accrued Expenses	$	65,135	$	64,019
Accrued Compensation and Benefits	Accrued Compensation and Benefits	133,123		170,646		Accrued Compensation and Benefits	73,435		162,203
Lease Liabilities	Lease Liabilities	17,181		15,845		Lease Liabilities	17,883		17,447

Income Taxes Payable						Income Taxes Payable	11,448		501
Other Current Liabilities	Other Current Liabilities	21,760		17,219		Other Current Liabilities	13,072		26,537
Total Current Liabilities	Total Current Liabilities	234,712		265,446		Total Current Liabilities	180,973		270,707
Long-Term Liabilities	Long-Term Liabilities					Long-Term Liabilities
Long-Term Debt	Long-Term Debt	102,150		75,000		Long-Term Debt	397,383		223,350
Long-Term Deferred Tax Liability, net	Long-Term Deferred Tax Liability, net	205,317		187,937		Long-Term Deferred Tax Liability, net	204,745		205,206
Long-Term Lease Liabilities	Long-Term Lease Liabilities	109,290		121,922		Long-Term Lease Liabilities	101,439		105,270
Other Long-Term Liabilities	Other Long-Term Liabilities	34,617		36,550		Other Long-Term Liabilities	27,492		36,435
Total Long-Term Liabilities	Total Long-Term Liabilities	451,374		421,409		Total Long-Term Liabilities	731,059		570,261
Total Liabilities	Total Liabilities	686,086		686,855		Total Liabilities	912,032		840,968
Commitments and Contingencies (Note (15))		0		0
Commitments and Contingencies (Note (17))						Commitments and Contingencies (Note (17))	0		0
TEMPORARY EQUITY	TEMPORARY EQUITY					TEMPORARY EQUITY
Redeemable Noncontrolling Interest in Subsidiaries		55,472		236,987
Redeemable Noncontrolling Interests in Subsidiaries						Redeemable Noncontrolling Interests in Subsidiaries	48,569		63,202
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, 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 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		Class B, No Par Value, 900,000,000 Shares Authorized, 109,505,456 Shares Issued	458,217		448,929
Additional Paid-In Capital from Treasury Stock Transactions	Additional Paid-In Capital from Treasury Stock Transactions	30		0		Additional Paid-In Capital from Treasury Stock Transactions	3,518		0
Retained Earnings	Retained Earnings	1,153,539		1,027,699		Retained Earnings	1,191,575		1,187,001
Treasury Stock, at Cost, 12,531,058 and 10,174,013 Shares Class B Common Stock, respectively		(403,807)		(324,731)
Treasury Stock, at Cost, 17,441,863 and 16,094,488 Shares Class B Common Stock, respectively						Treasury Stock, at Cost, 17,441,863 and 16,094,488 Shares Class B Common Stock, respectively	(594,806)		(538,464)
Accumulated Other Comprehensive Income (Loss), net of tax	Accumulated Other Comprehensive Income (Loss), net of tax	12,976		15,171		Accumulated Other Comprehensive Income (Loss), net of tax	(772)		16,362

Total Permanent Equity	Total Permanent Equity	1,204,851		1,136,997		Total Permanent Equity	1,057,921		1,114,017
Total Liabilities, Temporary Equity and Permanent Equity	Total Liabilities, Temporary Equity and Permanent Equity	$	1,946,409	$	2,060,839	Total Liabilities, Temporary Equity and Permanent Equity	$	2,018,522	$	2,018,187

(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
		September 30,				September 30,					March 31,
		2021		2020		2021		2020			2022		2021
Revenue	Revenue									Revenue
Investment Advisory Fees, net—Affiliates	Investment Advisory Fees, net—Affiliates	$	163,806	$	202,978	$	496,747	$	573,242	Investment Advisory Fees, net—Affiliates	$	170,221	$	183,833
Investment Advisory Fees, net—Other	Investment Advisory Fees, net—Other	66,404		57,111		195,441		172,633		Investment Advisory Fees, net—Other	62,773		63,856
Administrative Service Fees, net—Affiliates	Administrative Service Fees, net—Affiliates	76,853		83,028		228,904		238,960		Administrative Service Fees, net—Affiliates	73,507		74,302
Other Service Fees, net—Affiliates	Other Service Fees, net—Affiliates	15,377		17,952		46,439		87,765		Other Service Fees, net—Affiliates	13,607		15,869
Other Service Fees, net—Other	Other Service Fees, net—Other	4,149		3,386		11,271		11,750		Other Service Fees, net—Other	4,656		3,313
Total Revenue	Total Revenue	326,589		364,455		978,802		1,084,350		Total Revenue	324,764		341,173
Operating Expenses	Operating Expenses									Operating Expenses
Compensation and Related	Compensation and Related	131,996		126,186		408,385		365,104		Compensation and Related	133,965		143,620
Distribution	Distribution	38,486		73,726		120,990		258,925		Distribution	48,562		44,389
Systems and Communications	Systems and Communications	18,537		16,193		56,086		46,179		Systems and Communications	19,494		18,594
Professional Service Fees	Professional Service Fees	14,294		14,006		44,052		41,162		Professional Service Fees	13,468		14,636
Office and Occupancy	Office and Occupancy	11,036		10,578		33,358		32,539		Office and Occupancy	11,322		11,240
Advertising and Promotional	Advertising and Promotional	4,660		2,921		12,107		10,981		Advertising and Promotional	2,732		2,824
Travel and Related	Travel and Related	1,643		542		2,838		4,026		Travel and Related	1,795		296
Other	Other	7,535		6,922		23,297		22,058		Other	9,477		8,096
Total Operating Expenses	Total Operating Expenses	228,187		251,074		701,113		780,974		Total Operating Expenses	240,815		243,695
Operating Income	Operating Income	98,402		113,381		277,689		303,376		Operating Income	83,949		97,478
Nonoperating Income (Expenses)	Nonoperating Income (Expenses)									Nonoperating Income (Expenses)
Investment Income, net	Investment Income, net	686		770		2,466		3,171		Investment Income, net	1,093		632
Gain (Loss) on Securities, net	Gain (Loss) on Securities, net	(644)		5,852		6,980		3,840		Gain (Loss) on Securities, net	(11,695)		1,379
Debt Expense	Debt Expense	(476)		(494)		(1,313)		(2,211)		Debt Expense	(1,222)		(491)
Other, net	Other, net	(1,319)		103		(1,158)		8,426		Other, net	83		345
Total Nonoperating Income (Expenses), net	Total Nonoperating Income (Expenses), net	(1,753)		6,231		6,975		13,226		Total Nonoperating Income (Expenses), net	(11,741)		1,865
Income Before Income Taxes	Income Before Income Taxes	96,649		119,612		284,664		316,602		Income Before Income Taxes	72,208		99,343
Income Tax Provision	Income Tax Provision	23,163		32,928		83,353		81,852		Income Tax Provision	17,611		24,997
Net Income Including the Noncontrolling Interests in Subsidiaries	Net Income Including the Noncontrolling Interests in Subsidiaries	73,486		86,684		201,311		234,750		Net Income Including the Noncontrolling Interests in Subsidiaries	54,597		74,346
Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	2,124		862		(419)		3,554		Less: Net Income (Loss) Attributable to the Noncontrolling Interests in Subsidiaries	(1,266)		(138)
Net Income	Net Income	$	71,362	$	85,822	$	201,730	$	231,196	Net Income	$	55,863	$	74,484
Amounts Attributable to Federated Hermes, Inc.	Amounts Attributable to Federated Hermes, Inc.									Amounts Attributable to Federated Hermes, Inc.
Earnings Per Common Share—Basic		$	0.73	$	0.86	$	2.05	$	2.30
Earnings Per Common Share—Diluted		$	0.73	$	0.85	$	2.04	$	2.29
Earnings Per Common Share—Basic and Diluted										Earnings Per Common Share—Basic and Diluted	$	0.61	$	0.75

Cash Dividends Per Share	Cash Dividends Per Share	$	0.27	$	0.27	$	0.81	$	0.81	Cash Dividends Per Share	$	0.27	$	0.27

(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
		September 30,				September 30,					March 31,
		2021		2020		2021		2020			2022		2021
Net Income Including the Noncontrolling Interests in Subsidiaries	Net Income Including the Noncontrolling Interests in Subsidiaries	$	73,486	$	86,684	$	201,311	$	234,750	Net Income Including the Noncontrolling Interests in Subsidiaries	$	54,597	$	74,346

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)	(7,248)		16,239		(2,195)		(9,333)		Foreign Currency Translation Gain (Loss)	(17,134)		3,558

Temporary Equity	Temporary Equity									Temporary Equity
Foreign Currency Translation Gain (Loss)	Foreign Currency Translation Gain (Loss)	(9,953)		7,316		(7,655)		(4,573)		Foreign Currency Translation Gain (Loss)	(457)		1,430
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	(17,201)		23,555		(9,850)		(13,906)		Other Comprehensive Income (Loss), net of tax	(17,591)		4,988
Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	56,285		110,239		191,461		220,844		Comprehensive Income Including the Noncontrolling Interests in Subsidiaries	37,006		79,334
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interest in Subsidiaries		(7,829)		8,178		(8,074)		(1,019)
Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests in Subsidiaries										Less: Comprehensive Income (Loss) Attributable to Redeemable Noncontrolling Interests in Subsidiaries	(1,723)		1,292

Comprehensive Income Attributable to Federated Hermes, Inc.	Comprehensive Income Attributable to Federated Hermes, Inc.	$	64,114	$	102,061	$	199,535	$	221,863	Comprehensive Income Attributable to Federated Hermes, Inc.	$	38,729	$	78,042

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


Consolidated Statements of Changes in Equity	Consolidated Statements of Changes in Equity											Consolidated Statements of Changes in Equity
(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, 2020		$	418,858	$	0	$	1,027,699	$	(324,731)	$	15,171		$	1,136,997	$	236,987
Balance at December 31, 2021																	Balance at December 31, 2021	$	449,118	$	0	$	1,187,001	$	(538,464)	$	16,362	$	1,114,017	$	63,202

Net Income (Loss)	Net Income (Loss)	0		0		74,484		0		0			74,484		(138)		Net Income (Loss)	0		0		55,863		0		0		55,863		(1,266)
Other Comprehensive Income (Loss), net of tax	Other Comprehensive Income (Loss), net of tax	0		0		0		0		3,558			3,558		1,430		Other Comprehensive Income (Loss), net of tax	0		0		0		0		(17,134)		(17,134)		(457)
Subscriptions—Redeemable Noncontrolling Interest Holders	Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0			0		25,762		Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		30,340
Consolidation (Deconsolidation)	Consolidation (Deconsolidation)	0		0		0		0		0			0		(16,237)		Consolidation (Deconsolidation)	0		0		0		0		0		0		(16,034)
Stock Award Activity	Stock Award Activity	9,216		0		(15,234)		15,249		0			9,231		2,481		Stock Award Activity	9,288		0		(12,116)		12,147		0		9,319		707
Dividends Declared	Dividends Declared	0		0		(26,788)		0		0			(26,788)		0		Dividends Declared	0		0		(24,952)		0		0		(24,952)		0
Distributions to Noncontrolling Interest in Subsidiaries		0		0		0		0		0			0		(1,898)
Distributions to Noncontrolling Interests in Subsidiaries																	Distributions to Noncontrolling Interests in Subsidiaries	0		0		0		0		0		0		(4,339)
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)		Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		0		(14,221)		0		0		(14,221)		14,221
Acquisition of Additional Equity of HFML																	Acquisition of Additional Equity of HFML	0		3,518		0		34,048		0		37,566		(37,805)
Purchase of Treasury Stock	Purchase of Treasury Stock	0		0		0		(45,030)		0			(45,030)		0		Purchase of Treasury Stock	0		0		0		(102,537)		0		(102,537)		0

Balance at March 31, 2021		$	428,074	$	0	$	1,062,831	$	(354,512)	$	18,729		$	1,155,122	$	245,717

Net Income (Loss)		0		0		55,884		0		0			55,884		(2,405)
Other Comprehensive Income (Loss), net of tax		0		0		0		0		1,495			1,495		868
Subscriptions—Redeemable Noncontrolling Interest Holders		0		0		0		0		0			0		899,962
Consolidation (Deconsolidation)		0		0		0		0		0			0		(894,175)
Stock Award Activity		7,760		0		(189)		205		0			7,776		2,518
Dividends Declared		0		0		(26,550)		0		0			(26,550)		0
Distributions to Noncontrolling Interest in Subsidiaries		0		0		0		0		0			0		(1,016)
Balance at March 31, 2022																	Balance at March 31, 2022	$	458,406	$	3,518	$	1,191,575	$	(594,806)	$	(772)	$	1,057,921	$	48,569

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

Balance at June 30, 2021		$	435,834	$	0	$	1,091,976	$	(386,104)	$	20,224		$	1,161,930	$	251,469

Net Income (Loss)		0		0		71,362		0		0			71,362		2,124
Other Comprehensive Income (Loss), net of tax		0		0		0		0		(7,248)			(7,248)		(9,953)
Subscriptions—Redeemable Noncontrolling Interest Holders		0		0		0		0		0			0		66,903
Consolidation (Deconsolidation)		0		0		0		0		0			0		(74,836)
Stock Award Activity		6,279		30		0		0		0			6,309		2,557
Dividends Declared		0		0		(26,301)		0		0			(26,301)		0
Distributions to Noncontrolling Interest in Subsidiaries		0		0		0		0		0			0		(1,178)
Acquisition of Additional Equity of HFML		0		0		0		0		0			0		(165,112)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests		0		0		16,502		0		0			16,502		(16,502)
Purchase of Treasury Stock		0		0		0		(17,703)		0			(17,703)		0

Balance at September 30, 2021		$	442,113	$	30	$	1,153,539	$	(403,807)	$	12,976		$	1,204,851	$	55,472







Balance at December 31, 2020	$	418,858	$	0	$	1,027,699	$	(324,731)	$	15,171	$	1,136,997	$	236,987

Net Income (Loss)	0		0		74,484		0		0		74,484		(138)
Other Comprehensive Income (Loss), net of tax	0		0		0		0		3,558		3,558		1,430
Subscriptions—Redeemable Noncontrolling Interest Holders	0		0		0		0		0		0		25,762
Consolidation (Deconsolidation)	0		0		0		0		0		0		(16,237)
Stock Award Activity	9,216		0		(15,234)		15,249		0		9,231		2,481
Dividends Declared	0		0		(26,788)		0		0		(26,788)		0
Distributions to Noncontrolling Interests in Subsidiaries	0		0		0		0		0		0		(1,898)
Change in Estimated Redemption Value of Redeemable Noncontrolling Interests	0		0		2,670		0		0		2,670		(2,670)
Purchase of Treasury Stock	0		0		0		(45,030)		0		(45,030)		0

Balance at March 31, 2021	$	428,074	$	0	$	1,062,831	$	(354,512)	$	18,729	$	1,155,122	$	245,717

(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					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021
Operating Activities	Operating Activities					Operating Activities
Net Income Including the Noncontrolling Interests in Subsidiaries	Net Income Including the Noncontrolling Interests in Subsidiaries	$	201,311	$	234,750	Net Income Including the Noncontrolling Interests in Subsidiaries	$	54,597	$	74,346
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

Depreciation and Amortization	Depreciation and Amortization	22,639		22,431		Depreciation and Amortization	7,462		7,473
Share-Based Compensation Expense	Share-Based Compensation Expense	23,283		20,224		Share-Based Compensation Expense	9,288		9,216
Subsidiary Share-Based Compensation Expense	Subsidiary Share-Based Compensation Expense	7,556		6,404		Subsidiary Share-Based Compensation Expense	707		2,482
(Gain) Loss on Disposal of Assets	(Gain) Loss on Disposal of Assets	(6,975)		1,590		(Gain) Loss on Disposal of Assets	(150)		(1,684)
Provision (Benefit) for Deferred Income Taxes	Provision (Benefit) for Deferred Income Taxes	19,495		11,907		Provision (Benefit) for Deferred Income Taxes	2,342		3,597

Consolidation/(Deconsolidation) of Other Entities	Consolidation/(Deconsolidation) of Other Entities	10,379		(3,051)		Consolidation/(Deconsolidation) of Other Entities	(20)		11,789

Net Unrealized (Gain) Loss on Investments	Net Unrealized (Gain) Loss on Investments	27		(5,397)		Net Unrealized (Gain) Loss on Investments	11,847		322
Net Sales (Purchases) of Investments—Consolidated Investment Companies	Net Sales (Purchases) of Investments—Consolidated Investment Companies	(129,647)		(7,516)		Net Sales (Purchases) of Investments—Consolidated Investment Companies	(30,937)		(51,127)

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	3,914		5,998		(Increase) Decrease in Receivables, net	9,843		6,742
(Increase) Decrease in Prepaid Expenses and Other Assets	(Increase) Decrease in Prepaid Expenses and Other Assets	3,887		(9,317)		(Increase) Decrease in Prepaid Expenses and Other Assets	(2,892)		(3,342)
Increase (Decrease) in Accounts Payable and Accrued Expenses	Increase (Decrease) in Accounts Payable and Accrued Expenses	(36,769)		(27,411)		Increase (Decrease) in Accounts Payable and Accrued Expenses	(88,206)		(101,616)
Increase (Decrease) in Other Liabilities	Increase (Decrease) in Other Liabilities	(18,144)		(7,154)		Increase (Decrease) in Other Liabilities	6,872		11,789
Net Cash Provided (Used) by Operating Activities	Net Cash Provided (Used) by Operating Activities	100,956		243,458		Net Cash Provided (Used) by Operating Activities	(19,247)		(30,013)
Investing Activities	Investing Activities					Investing Activities
Purchases of Investments—Affiliates and Other	Purchases of Investments—Affiliates and Other	(7,221)		(19,050)		Purchases of Investments—Affiliates and Other	(2,008)		(1,811)
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	33,291		6,415		Proceeds from Redemptions of Investments—Affiliates and Other	1,321		2,466
Cash Paid for Property and Equipment	Cash Paid for Property and Equipment	(7,753)		(8,559)		Cash Paid for Property and Equipment	(1,853)		(2,159)

Net Cash Provided (Used) by Investing Activities	Net Cash Provided (Used) by Investing Activities	12,993		(18,497)		Net Cash Provided (Used) by Investing Activities	(2,540)		(1,504)
Financing Activities	Financing Activities					Financing Activities
Dividends Paid	Dividends Paid	(79,668)		(81,612)		Dividends Paid	(24,953)		(26,788)
Purchases of Treasury Stock	Purchases of Treasury Stock	(92,426)		(53,145)		Purchases of Treasury Stock	(113,338)		(39,073)
Distributions to Noncontrolling Interest in Subsidiaries		(4,092)		(10,455)
Contributions from Noncontrolling Interest in Subsidiaries		101,297		15,014
Payments to Acquire Additional Equity in HFML		(163,696)		0
Distributions to Noncontrolling Interests in Subsidiaries						Distributions to Noncontrolling Interests in Subsidiaries	(4,339)		(1,898)
Contributions from Noncontrolling Interests in Subsidiaries						Contributions from Noncontrolling Interests in Subsidiaries	30,340		25,762

Proceeds from New Borrowings	Proceeds from New Borrowings	82,150		100,000		Proceeds from New Borrowings	488,300		0

Payments on Debt	Payments on Debt	(55,000)		(110,000)		Payments on Debt	(311,650)		(5,000)

Other Financing Activities	Other Financing Activities	(1,948)		(1,616)		Other Financing Activities	(9,499)		(1,993)
Net Cash Provided (Used) by Financing Activities	Net Cash Provided (Used) by Financing Activities	(213,383)		(141,814)		Net Cash Provided (Used) by Financing Activities	54,861		(48,990)
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	(2,758)		(3,408)		Effect of Exchange Rates on Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	(4,505)		1,270
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	(102,192)		79,739		Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	28,569		(79,237)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Beginning of Period	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, Beginning of Period	238,052		308,635
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	206,443		329,250		Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, End of Period	266,621		229,398
Less: Restricted Cash Recorded in Other Current Assets	Less: Restricted Cash Recorded in Other Current Assets	4,449		6,091		Less: Restricted Cash Recorded in Other Current Assets	4,289		6,507
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	302		312		Less: Restricted Cash and Restricted Cash Equivalents Recorded in Other Long-Term Assets	289		286
Cash and Cash Equivalents	Cash and Cash Equivalents	$	201,692	$	322,847	Cash and Cash Equivalents	$	262,043	$	222,605

(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 and provides stewardship and real estate development 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.~~United States (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, ~~2020.~~2021. Certain items reported in previous periods have been reclassified to conform to the current period's presentation.

(2) 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, ~~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.2021.

(3) Equity Acquisition ~~and~~ ~~Business Combination~~

~~2021 Acquisition of HFML Noncontrolling Interest~~

On ~~August 31, 2021 (Closing Date),~~March 14, 2022, Federated Hermes completed a tender offer resulting in the acquisition of ~~a 29.5%~~the remaining approximate 10% noncontrolling ~~interest~~interests in Federated Hermes Limited (formerly known as Hermes Fund Managers Limited, ~~(HFML)~~HFML) from ~~BT Pension Scheme (BTPS) for £116.5 million ($160.2 million) pursuant to the terms~~a non-U.S. domiciled trustee 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 established for the benefit of certain members of HFML's management, a non-U.S. resident former HFML employee and other non-U.S. resident key employees under a long-term incentive plan established in connection with the 2018 acquisition of HFML ~~Acquisition.~~

(2022 Acquisition of HFML Noncontrolling Interests). Pursuant to the ~~Option Deed,~~2022 Acquisition of HFML Noncontrolling Interests, HFML became a 100% indirect, wholly-owned subsidiary of Federated Hermes.

The 2022 Acquisition of HFML Noncontrolling Interests was transacted in shares exchanged whereby Federated Hermes issued awards of restricted Class B common stock under Federated Hermes Stock Incentive Plan and ~~BTPS agreed upon~~Federated Hermes UK Sub-Plan, as amended, and treasury Class B common stock, in exchange for the beneficial interests in shares of HFML. The HFML shares were exchanged at fair value for Federated Hermes shares valued at £36.4 million or $47.5 million, which was based on a third-party valuation ~~company, which determined~~of HFML. See Note (12) for additional information regarding the ~~fair value of HFML for purposes of the Option Deed.~~ share exchange.

(4) Revenue from Contracts with Customers

The ~~Option Deed provided that the consideration~~following table presents Federated Hermes' revenue disaggregated by asset class:


	Three Months Ended
	March 31,
(in thousands)	2022		2021
Equity	$	146,856	$	166,357
Money market	86,290		80,692
Fixed-income	57,874		56,777
Other1	33,744		37,347
Total Revenue	$	324,764	$	341,173

1 Primarily includes Alternative / Private Markets (including but not limited to ~~be paid for BTPS' remaining interest in HFML would be based on BTPS'~~private 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~~real estate 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.infrastructure), multi-asset and stewardship services revenue.

Table of Contents

Notes to the Consolidated Financial Statements

(unaudited)

~~HCL 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 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 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, 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.

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 this equity interest in HGPE using primarily the discounted cash flow methodology under the income approach. The acquisition-date fair value of 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 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. 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 related redeemable noncontrolling interest in subsidiary. This adjustment reflected 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 final purchase price allocation determined as of the purchase date:~~


~~(in millions)~~
~~Cash and Cash Equivalents~~	$	~~32.7~~
~~Other Current Assets~~1	~~11.8~~
~~Goodwill~~2	~~19.1~~
~~Intangible Assets~~3	~~27.6~~
~~Other Long-Term Assets~~	~~16.4~~

~~Less: Liabilities Acquired~~	~~(44.1)~~
~~Less: Fair Value of Redeemable Noncontrolling Interest in Subsidiary~~4	~~(43.1)~~
~~Total Purchase Price Consideration~~	$	~~20.4~~

~~1 Includes $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.~~

~~Table of Contents~~

~~Notes to the Consolidated Financial Statements~~

~~(unaudited)~~

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

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

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2021 2020 2021 2020
Equity $ 172,349 $ 138,590 $ 510,302 $ 399,208
Fixed-income 60,622 49,407 175,115 139,705
Money market 55,726 143,391 185,704 452,240
Other1
37,892 33,067 107,681 93,197
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
		September 30,				September 30,					March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Asset Management1	Asset Management1	$	230,210	$	260,089	$	692,188	$	745,875	Asset Management1	$	232,994	$	247,689
Administrative Services	Administrative Services	76,853		83,028		228,904		238,960		Administrative Services	73,507		74,302
Distribution2	Distribution2	12,460		15,273		37,679		79,786		Distribution2	11,077		13,028
Other3	Other3	7,066		6,065		20,031		19,729		Other3	7,186		6,154
Total Revenue	Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350	Total Revenue	$	324,764	$	341,173

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
		September 30,				September 30,					March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Domestic	Domestic	$	237,543	$	295,422	$	718,316	$	884,569	Domestic	$	246,809	$	256,491
Foreign1	Foreign1	89,046		69,033		260,486		199,781		Foreign1	77,955		84,682
Total Revenue	Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350	Total Revenue	$	324,764	$	341,173

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

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021
Federated Hermes Funds	Federated Hermes Funds	$	256,036	$	303,958	$	772,090	$	899,967	Federated Hermes Funds	$	257,335	$	274,005
Separate Accounts	Separate Accounts	66,404		57,111		195,441		172,633		Separate Accounts	62,773		63,855
Other1	Other1	4,149		3,386		11,271		11,750		Other1	4,656		3,313
Total Revenue	Total Revenue	$	326,589	$	364,455	$	978,802	$	1,084,350	Total Revenue	$	324,764	$	341,173

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, 2021.~~March 31, 2022. Generally, contracts are billed in arrears on a quarterly basis and have a ~~three year~~three-year duration, after which the customer can terminate the agreement with notice, generally from three to 12 months. Based on existing contracts and the applicable foreign exchange rates as of ~~September 30, 2021,~~March 31, 2022, Federated Hermes may recognize future fixed revenue from these services as presented in the following table:


(in thousands)	(in thousands)			(in thousands)
Remainder of 2021		$	4,418
2022		9,057
Remainder of 2022				Remainder of 2022	$	9,544
2023	2023	4,486		2023	5,714
2024 and Thereafter		2,687
2024				2024	3,092
2025 and Thereafter				2025 and Thereafter	969
Total Remaining Unsatisfied Performance Obligations	Total Remaining Unsatisfied Performance Obligations	$	20,648	Total Remaining Unsatisfied Performance Obligations	$	19,319

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Notes to the Consolidated Financial Statements

(unaudited)

(5) Concentration Risk

(a) Revenue Concentration by Asset Class

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


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021
Equity Assets	Equity Assets	52	%	37	%	Equity Assets	45	%	49	%
Money Market Assets	Money Market Assets	19	%	42	%	Money Market Assets	27	%	24	%
Fixed-Income Assets	Fixed-Income Assets	18	%	13	%	Fixed-Income Assets	18	%	16	%

The change in the relative proportion of Federated Hermes' revenue attributable to money market assets for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, as compared to the same period in ~~2020,~~2021, was primarily the result of ~~an increase~~a decrease in ~~fee waivers.~~Voluntary Yield-related 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~~three months ended ~~September 30, 2021,~~March 31, 2022 as compared to the same period in ~~2020,~~2021, was primarily the result of ~~decreased~~lower average equity assets, higher average fixed-income assets and increased money market revenue ~~and higher average equity and fixed-income assets~~ in ~~2021.~~2022.

Low Short-Term Interest Rates

In March 2020, in response to disrupted economic activity as a result of the outbreak of a novel coronavirus ~~(Covid-19, or the~~(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~~implement Voluntary Yield-related Fee Waivers 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. In response to the recovering U.S. economy and elevated inflation levels, during its March 2022 meeting, the FMOC raised the federal funds target rate range 25 bps to 0.25% - 0.50%.

During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, Voluntary Yield-related Fee Waivers totaled ~~$109.2 million and $310.2 million, respectively.~~$75.8 million. These fee waivers were partially offset by related reductions in distribution expenses of ~~$72.3~~$57.5 million ~~and $204.9 million, respectively,~~ such that the net negative pre-tax impact to Federated Hermes was ~~$36.9 million and $105.3~~$18.3 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2022. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, Voluntary Yield-related Fee Waivers totaled ~~$36.8 million and $56.9 million, respectively.~~$83.1 million. These fee waivers were partially offset by related reductions in distribution expenses of ~~$33.0~~$61.4 million ~~and $51.0 million, respectively,~~ such that the net negative pre-tax impact to Federated Hermes was ~~$3.8 million and $5.9~~$21.7 million for the three ~~and nine~~ months

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~~Notes to the Consolidated Financial Statements~~

~~(unaudited)~~

ended ~~September 30, 2020, respectively.~~March 31, 2021. 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					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020			2022		2021
Federated Hermes Strategic Value Dividend strategy1										Federated Hermes Strategic Value Dividend strategy1	10	%	8	%
Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II	Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II	12	%	9	%	11	%	9	%	Federated Hermes Kaufmann Fund and Federated Hermes Kaufmann Fund II	9	%	11	%

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

1Strategy includes Federated Hermes Funds and Separate Accounts

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.

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Notes to the Consolidated Financial Statements

(unaudited)

(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.~~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 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, rebates or expense reimbursements for various Federated Hermes Funds for competitive reasons (such as Voluntary Yield-related Fee Waivers or to maintain certain fund expense ratios/yields), to meet regulatory requirements or to meet contractual requirements (collectively, Fee Waivers). For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, Fee Waivers totaled ~~$233.9~~$198.5 million and ~~$680.0~~$201.1 million, respectively, of which ~~$197.2~~$164.8 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$168.0 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~~March 31, 2022 and no material contributions for the ~~nine~~three months ended ~~September 30,~~March 31, 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~~March 31, 2022 and December 31, ~~2020.~~

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~~Notes to the Consolidated Financial Statements~~

~~(unaudited)~~

2021.

(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~~Interests in Subsidiaries.

(b) Consolidated Variable Interest Entities

As of the periods ended ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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)	(in millions)	September 30, 2021		December 31, 2020		(in millions)	March 31, 2022		December 31, 2021
Cash and Cash Equivalents	Cash and Cash Equivalents	$	3.3	$	0.2	Cash and Cash Equivalents	$	3.7	$	3.0
Investments—Consolidated Investment Companies	Investments—Consolidated Investment Companies	35.3		12.1		Investments—Consolidated Investment Companies	43.2		35.9
Other Assets	Other Assets	0.5		0.1		Other Assets	0.2		0.1
Long-Term Investments	Long-Term Investments	12.0		0.0		Long-Term Investments	14.4		13.8
Less: Liabilities	Less: Liabilities	1.7		0.1		Less: Liabilities	1.4		1.4
Less: Redeemable Noncontrolling Interest in Subsidiaries		27.2		0.0
Less: Redeemable Noncontrolling Interests in Subsidiaries						Less: Redeemable Noncontrolling Interests in Subsidiaries	42.4		33.3
Federated Hermes' Net Interest in VIEs	Federated Hermes' Net Interest in VIEs	$	22.2	$	12.3	Federated Hermes' Net Interest in VIEs	$	17.7	$	18.1

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Notes to the Consolidated Financial Statements

(unaudited)

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~~new material consolidations or deconsolidations of VIEs during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

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~~March 31, 2022 and December 31, ~~2020,~~2021, Federated Hermes' maximum risk of loss related to investments in variable ~~interest~~interests in non-consolidated VIEs was ~~$150.7~~$94.1 million and ~~$106.0~~$170.6 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~~$6.0 billion and ~~$9.1~~$8.0 billion at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Of the Receivables—Affiliates at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020, $0.6~~2021, $1.0 million and ~~$0.4~~$0.7 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~~March 31, 2022 and December 31, ~~2020,~~2021, Federated Hermes held investments in non-consolidated fluctuating-value Federated Hermes Funds of ~~$78.8~~$80.9 million and ~~$36.0~~$77.6 million, respectively, primarily in mutual funds which predominantly invest in equity securities, and held investments in Separate Accounts of ~~$10.5 million and $9.6~~$10.2 million at ~~September 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively,~~2021, that were included in Investments—Affiliates and Other on the Consolidated Balance Sheets. Federated Hermes' investments held in Separate Accounts as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, were primarily composed of domestic debt securities ($~~5.3~~4.8 million and $5.2 million, respectively) and stocks of large domestic and foreign companies ($~~3.5~~3.8 million and ~~$3.1~~$3.4 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 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 March 31, 2022 and December 31, 2021 were primarily composed of domestic and foreign debt securities ($56.9 million and $65.2 million, respectively), stocks of large domestic and foreign companies ($36.1 million and $28.5 million, respectively) and stocks of small and mid-sized domestic and foreign companies ($6.8 million and $7.4 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
	March 31,
(in thousands)	2022		2021
Investments—Consolidated Investment Companies
Net Unrealized Gains (Losses)	$	(5,188)	$	(1,903)
Net Realized Gains (Losses)1	(462)		1,261
Net Gains (Losses) on Investments—Consolidated Investment Companies	(5,650)		(642)
Investments—Affiliates and Other
Net Unrealized Gains (Losses)	(6,659)		1,581
Net Realized Gains (Losses)1	614		440
Net Gains (Losses) on Investments—Affiliates and Other	(6,045)		2,021
Gain (Loss) on Securities, net	$	(11,695)	$	1,379

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

1413

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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)	(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
September 30, 2021
March 31, 2022										March 31, 2022
Financial Assets	Financial Assets									Financial Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$	201,692	$	0	$	0	$	201,692	Cash and Cash Equivalents	$	262,043	$	0	$	0	$	262,043
Investments—Consolidated Investment Companies	Investments—Consolidated Investment Companies	28,955		25,120		0		54,075		Investments—Consolidated Investment Companies	46,190		58,180		0		104,370
Investments—Affiliates and Other	Investments—Affiliates and Other	83,656		5,343		319		89,318		Investments—Affiliates and Other	85,713		5,306		48		91,067
Other1	Other1	7,095		2		0		7,097		Other1	7,007		0		0		7,007
Total Financial Assets	Total Financial Assets	$	321,398	$	30,465	$	319	$	352,182	Total Financial Assets	$	400,953	$	63,486	$	48	$	464,487

Total Financial Liabilities2	Total Financial Liabilities2	$	71	$	2,099	$	11,856	$	14,026	Total Financial Liabilities2	$	0	$	4,082	$	4,708	$	8,790

December 31, 2020
December 31, 2021										December 31, 2021
Financial Assets	Financial Assets									Financial Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$	301,819	$	0	$	0	$	301,819	Cash and Cash Equivalents	$	233,327	$	0	$	0	$	233,327
Investments—Consolidated Investment Companies	Investments—Consolidated Investment Companies	13,622		77,737		0		91,359		Investments—Consolidated Investment Companies	38,799		66,743		0		105,542
Investments—Affiliates and Other	Investments—Affiliates and Other	40,010		5,247		336		45,593		Investments—Affiliates and Other	82,594		5,165		46		87,805
Other1	Other1	9,188		5,143		0		14,331		Other1	7,105		0		0		7,105
Total Financial Assets	Total Financial Assets	$	364,639	$	88,127	$	336	$	453,102	Total Financial Assets	$	361,825	$	71,908	$	46	$	433,779

Total Financial Liabilities2	Total Financial Liabilities2	$	0	$	89	$	12,896	$	12,985	Total Financial Liabilities2	$	0	$	1,644	$	11,652	$	13,296

1 Amounts primarily consist ofof restricted cash and security deposits as of ~~September 30, 2021~~March 31, 2022 and ~~restricted cash, security deposits and derivative assets as of~~ December 31, ~~2020.~~2021.

2 Amounts primarily consist of acquisition-related future contingent consideration liabilities and a derivative ~~liabilities~~liability as of ~~September 30, 2021~~March 31, 2022 and ~~acquisition-related future contingent consideration liabilities as of~~ December 31, ~~2020~~2021.

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~~March 31, 2022 or December 31, ~~2020.~~2021.

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~~$221.3 million and ~~$244.3~~$183.4 million at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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.

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Notes to the Consolidated Financial Statements

(unaudited)

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,~~March 31, 2022, acquisition-related future consideration liabilities of ~~$11.9~~$4.7 million were primarily related to business combinations made in the first quarter of 2020 and were recorded in Other Current Liabilities ($~~7.5~~0.4 million) and Other Long-Term Liabilities ($~~4.4~~4.3 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~~2021	$	~~12,896~~11,652

Changes in Fair Value	~~1,206~~ (31)
Contingent Consideration Payments	~~(2,246)~~(6,913)
Balance at ~~September 30, 2021~~March 31, 2022	$	~~11,856~~4,708

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~~March 31, 2022 and December 31, ~~2020,~~2021, these investments totaled ~~$17.2~~$18.4 million and ~~$6.9~~$17.5 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.~~March 31, 2022.

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,~~March 31, 2022, 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)

forward derivative instruments with a combined notional amount of £70.7 million and expiration dates ranging from June 2022 through December 2022. Federated Hermes recorded $4.1 million in Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of March 31, 2022.

As of December 31, 2021, HFML held foreign currency forward derivative instruments with a combined notional amount of £69.6 million and expiration dates ranging from March 2022 through September 2022. Federated Hermes recorded $1.6 million in Other Current Liabilities on the Consolidated Balance Sheets, which represented the fair value of these derivative instruments as of December 31, 2021.

(10) Intangible Assets, including Goodwill

Intangible Assets, net at ~~September 30, 2021~~March 31, 2022 decreased ~~$8.8~~$12.5 million from December 31, ~~2020~~2021 primarily due to ~~$10.4 million of amortization expense and~~ a ~~$4.7~~$9.5 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~~fluctuations and $3.3 million of ~~intangible assets recorded in connection with an asset purchase during 2021.~~amortization expense.

Goodwill at ~~September 30, 2021~~March 31, 2022 decreased ~~$2.0~~$4.1 million from December 31, ~~2020~~2021 primarily as a result of foreign exchange rate fluctuations on goodwill denominated in a foreign currency.

(11) Debt

Unsecured Senior Notes

On March 17, 2022, Federated Hermes entered into a Note Purchase Agreement (Note Purchase Agreement) by and among Federated Hermes and the purchasers of certain unsecured senior notes in the aggregate amount of $350.0 million (Notes), at a fixed interest rate of 3.29% per annum, payable semiannually in arrears on the 17th day of March and September in each year of the agreement. Citigroup Global Markets Inc. and PNC Capital Markets LLC acted as lead placement agents in relation to the Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note Purchase Agreement. As of March 31, 2022, $347.4 million, net of issuance cost in the amount of $2.6 million, was recorded in Long-Term Debt on the Consolidated Balance Sheets.

The entire principal amount of the Notes will become due March 17, 2032, subject to certain prepayment requirements under certain limited conditions. Federated Hermes may elect to prepay the Notes under certain limited circumstances including with a make-whole amount if mandatorily prepaid without the consent of the holders of the Notes. The Note Purchase Agreement does not feature a facility for the further issuance of additional Notes or borrowing of any other amounts and there is no commitment fee payable in connection with the Notes.

The Note Purchase Agreement includes an interest coverage ratio covenant and a leverage ratio covenant as well as other customary terms and conditions. Federated Hermes was in compliance with all of its covenants at and during the period ended March 31, 2022. See the Liquidity and Capital Resources section of Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.

The Note Purchase Agreement includes certain stated events of default and cross default provisions which would permit the lenders/counterparties to accelerate the repayment of the Notes if not cured within the applicable grace periods. The events of default generally include breaches of contract, failure to make required payments, insolvency, certain material misrepresentations and other proceedings, whether voluntary or involuntary, that would require the repayment of Notes prior to their stated date of maturity. Any such accelerated amounts would accrue interest at a default rate and could include an additional make-whole amount upon repayment. The Notes rank without preference or priority, with other unsecured and senior indebtedness of Federated Hermes.

Revolving Credit Facility

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~~$350.0 million revolving credit facility with an additional ~~$200~~$200.0 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

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Notes to the Consolidated Financial Statements

(unaudited)

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, each having a benchmark adjustment applied based on its historical relationship to LIBOR, 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,~~quarter 2022, Federated Hermes borrowed ~~$82.2~~$138.3 million and repaid ~~$55.0~~$311.7 million of the revolving credit facility under the Credit ~~Agreement and Prior Credit~~ Agreement.

As of ~~September 30,~~March 31, 2022 and December 31, 2021, the ~~amount~~amounts outstanding onunder the revolving credit facility ~~under the Credit Agreement was $102.2~~were $50.0 million and ~~was~~$223.4 million, respectively, and were recorded as Long-Term Debt on the Consolidated Balance Sheets. The interest rate was ~~1.084%~~1.354% and 1.161% as of ~~September 30, 2021.~~March 31, 2022 and December 31, 2021, respectively, which was calculated at LIBOR plus a spread. 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,~~March 31, 2022, Federated Hermes has ~~$247.8~~$300.0 million available for borrowings under the revolving credit facility and an additional ~~$200~~$200.0 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~~three months ended ~~September 30, 2021.~~March 31, 2022. See the Liquidity and Capital Resources section of Item 2 - 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.

(12) Share-Based Compensation Plans

In connection with the 2022 Acquisition of HFML Noncontrolling Interests, Federated Hermes granted 1,183,066 shares of restricted Federated Hermes Class B common stock pursuant to award agreements to certain HFML employees in exchange for their beneficial interests in awards of restricted HFML shares held on March 14, 2022. These shares of Federated Hermes Class B common stock were reserved for issuance under the Federated Hermes Stock Incentive Plan. Federated Hermes also issued a combined 318,807 shares of treasury Federated Hermes Class B common stock to a non-U.S. resident former HFML employee, and to the trustee of a non-U.S. domiciled employee benefit trust, in exchange for beneficial interests in the HFML shares held by them on March 14, 2022. The shares being held by the employee benefit trust are to be used for future restricted stock awards for HFML management and key employees. See Note (3) for additional information.

During the three months ended March 31, 2022, Federated Hermes awarded 504,043 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 received 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 a three-year period.

During 2021, Federated Hermes awarded 1,218,613 shares of restricted Federated Hermes Class B common stock under its Stock Incentive Plan. Of this amount, 726,613 shares were awarded in connection with the aforementioned bonus program. The remaining shares were awarded to certain key employees and generally vest over a 10-year period.

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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~~December 2021, the board of directors authorized a share repurchase program with no stated expiration date that allows the repurchase of up to ~~4.0~~7.5 million shares of Class B common stock. No other program existed as of ~~September 30, 2021.~~March 31, 2022. 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,~~quarter 2022, Federated Hermes repurchased approximately ~~3.1~~3.0 million shares of its Class B common stock for ~~$94.5~~$102.5 million ($~~3.2~~1.7 million of which was accrued in Other Current Liabilities as of ~~September 30, 2021)~~March 31, 2022), nearly all of which were repurchased in the open market. At ~~September 30, 2021,~~March 31, 2022, approximately ~~2.6~~3.0 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~~March 31, 2022 and ~~2020.~~2021. Class A shares have been excluded as there was no activity during these same periods.


		Three Months Ended		Nine Months Ended			Three Months Ended
		September 30,		September 30,			March 31,
		2021	2020	2021	2020		2022	2021
Class B Shares	Class B Shares					Class B Shares
Beginning Balance	Beginning Balance	97,558,017	100,279,043	99,331,443	101,130,379	Beginning Balance	93,410,968	99,331,443
Stock Award Activity	Stock Award Activity	10,000	22,500	734,674	728,831	Stock Award Activity	1,692,542	712,924
Purchase of Treasury Stock	Purchase of Treasury Stock	(593,619)	(866,900)	(3,091,719)	(2,424,567)	Purchase of Treasury Stock	(3,039,917)	(1,505,000)
Ending Balance	Ending Balance	96,974,398	99,434,643	96,974,398	99,434,643	Ending Balance	92,063,593	98,539,367

Treasury Shares	Treasury Shares					Treasury Shares
Beginning Balance	Beginning Balance	11,947,439	9,226,413	10,174,013	8,375,077	Beginning Balance	16,094,488	10,174,013
Stock Award Activity	Stock Award Activity	(10,000)	(22,500)	(734,674)	(728,831)	Stock Award Activity	(1,692,542)	(712,924)
Purchase of Treasury Stock	Purchase of Treasury Stock	593,619	866,900	3,091,719	2,424,567	Purchase of Treasury Stock	3,039,917	1,505,000
Ending Balance	Ending Balance	12,531,058	10,070,813	12,531,058	10,070,813	Ending Balance	17,441,863	10,966,089

(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
	March 31,
(in thousands, except per share data)	2022		2021
Numerator
Net Income Attributable to Federated Hermes, Inc.	$	55,863	$	74,484
Less: Total Net Income Available to Participating Unvested Restricted Shareholders1	(2,579)		(3,008)
Total Net Income Attributable to Federated Hermes Common Stock - Basic	$	53,284	$	71,476
Less: Total Net Income Available to Unvested Restricted Shareholders of a Nonpublic Consolidated Subsidiary	0		(259)
Total Net Income Attributable to Federated Hermes Common Stock - Diluted	$	53,284	$	71,217
Denominator


Basic and Diluted Weighted-Average Federated Hermes Common Stock2	88,050		95,218
Earnings Per Share
Net Income Attributable to Federated Hermes Common Stock - Basic and Diluted2	$	0.61	$	0.75

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.

1918

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Notes to the Consolidated Financial Statements

(unaudited)

~~(14) Earnings Per Share~~(15)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, 2021	$	16,362
Other Comprehensive Income (Loss)	(17,134)




Balance at March 31, 2022	$	(772)

Balance at December 31, 2020	$	15,171
Other Comprehensive Income (Loss)	3,558




Balance at March 31, 2021	$	18,729

(16)Redeemable Noncontrolling Interests in Subsidiaries

The following table ~~sets forth~~presents the ~~computation of basic and diluted earnings per share using the two-class method for amounts attributable to Federated Hermes:~~changes in Redeemable Noncontrolling Interests in Subsidiaries:

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


(in thousands)	Consolidated Investment Companies		HFML and other entities		Total
Balance at December 31, 2021	$	24,659	$	38,543	$	63,202
Net Income (Loss)	(1,744)		478		(1,266)
Other Comprehensive Income (Loss), net of tax	0		(457)		(457)
Subscriptions—Redeemable Noncontrolling Interest Holders	29,577		763		30,340
Consolidation/(Deconsolidation)	(16,034)		0		(16,034)
Stock Award Activity	0		707		707
Distributions to Noncontrolling Interests in Subsidiaries	(771)		(3,568)		(4,339)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests in HFML	0		14,221		14,221
Acquisition of Additional Equity of HFML	0		(37,805)		(37,805)
Balance at March 31, 2022	$	35,687	$	12,882	$	48,569

~~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.~~



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 Interests in Subsidiaries	(1,320)		(578)		(1,898)

Change in Estimated Redemption Value of Redeemable Noncontrolling Interests in HFML	0		(2,670)		(2,670)
Balance at March 31, 2021	$	22,178	$	223,539	$	245,717

~~(15)~~(17) 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~~Table of Contents

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.

Notes to the Consolidated Financial Statements

(unaudited)

~~(c)~~(b) Guarantees and Indemnifications

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~~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

~~Table of Contents~~

~~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,~~March 31, 2022, management does not believe that a material loss related to any of these matters is reasonably possible.

~~(d)~~(c) 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,~~March 31, 2022, 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)~~

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~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~~April 28, ~~2021,~~2022, the board of directors declared a $0.27 per share dividend to shareholders of record as of ~~November 8, 2021~~May 6, 2022 to be paid on ~~November 15, 2021.~~May 13, 2022.

2320


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.~~2021.

General

Federated Hermes is one of the largest investment managers in the U.S. with ~~$634.1~~$631.1 billion in managed assets as of ~~September 30, 2021.~~March 31, 2022. The majority of Federated Hermes' revenue is derived from advising Federated Hermes Funds and Separate Accounts in both domestic and international, and in public and private markets. Federated Hermes also derives revenue from providing administrative and other fund-related services (including distribution and shareholder servicing) as well as stewardship and real estate development services.

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' public market investment products and strategies can be redeemed or withdrawn at any time with no advance notice requirement. Generally, managed assets in Federated Hermes private market investment products and strategies are subject to restrictions on withdrawals. 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' public market 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, 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.~~funds and, as required by law, fund shareholders. 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,~~March 14, 2022, Federated completed the ~~2021~~2022 Acquisition of HFML Noncontrolling ~~Interest.~~Interests. See Note (3) to the Consolidated Financial Statements for additional information.

Pandemic

Federated Hermes continues to actively monitor the ongoing Pandemic and resulting developments and their potential impact on Federated Hermes' employees, business and operations. The ~~outbreak~~Pandemic has adversely impacted the global economy and contributed to significant volatility in financial markets. Over the course of the ~~Covid-19 respiratory disease was first detected in China in late 2019, spread globally in 2020~~Pandemic, many jurisdictions instituted quarantines, imposed limitations on travel, and ~~continues~~restricted access to ~~spread in 2021. The Pandemic initially resulted in travel bans, closing~~offices and public venues, some of ~~borders, changes to the ways in~~ which ~~healthcare workers prepare~~are ongoing or may reoccur, 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,many businesses implemented similar precautionary measures. Such measures, as well as the general ~~concern~~uncertainty surrounding the containment and ~~uncertainty. The~~impact of the Pandemic, ~~also initially resulted~~have created significant disruption in economic ~~uncertainty, market volatility, trading halts, market illiquidity~~activity. Federated Hermes continues to implement technological, enhanced cleaning, 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)~~measures 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 variantslight of the ~~initial strain of~~Pandemic, particularly in jurisdictions (such as the ~~coronavirus, including the Delta variant. Breakthrough infections of vaccinated individuals are also prevalent in certain jurisdictions. These variants, spikes~~U.S. 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.

UK) where Federated Hermes has ~~not instituted its~~significant employee populations and/or business ~~continuity plans in its U.S. offices as~~activity. Throughout the Pandemic, there has not been a significant disruption of ~~its~~Federated Hermes' 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 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 its business. Examples include transferring processes to alternate personnel, prioritizing technology resources to service critical processing, and leveraging service providers and counterparties to promote efficient delivery of services.

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,~~March 31, 2022, 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~~Financial Condition except to the extent that the increased net Voluntary Yield-related Fee Waivers ~~discussed below~~ resulting from the near-zero interest rate environment that existed throughout 2021 and into the first quarter 2022 can be attributed to the Pandemic. ~~See Item 1A - Risk Factors under~~A further prolonged period of economic and financial distress and volatility as a result of the ~~caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19)~~Pandemic could exacerbate human resource capital management, economic, market and other risks, and could impact, including in a material way, Federated Hermes' ~~Annual Report~~Financial Condition. The aggregate extent to which the Pandemic, including existing and new variants, and its related impact on ~~Form 10-K for~~ the ~~year ended December 31, 2020 for information regarding~~global economy and financial markets, affects Federated Hermes' Financial Condition, will depend on future developments that are highly uncertain and cannot be predicted, including the ~~risks~~scope and duration of the Pandemic and any recovery period, the emergence and spread of variants, the continuing prevalence of severe, unconstrained and/or escalating rates of infection in certain countries and regions, the availability, adoption and efficacy of treatments and vaccines, and future actions taken by governmental authorities, central banks and other third parties in response 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

In March 2020, in response to disrupted economic activity as a result of 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~~were 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. In response to the recovering U.S. economy and elevated inflation levels, during its March 2022 meeting, the FOMC raised the federal funds target rate range 25 bps to 0.25% - 0.50%.

During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, Voluntary Yield-related Fee Waivers totaled ~~$109.2 million and $310.2 million, respectively.~~$75.8 million. These fee waivers were partially offset by related reductions in distribution expenses of ~~$72.3~~$57.5 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.~~$18.3 million. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, Voluntary Yield-related Fee Waivers totaled ~~$36.8 million and $56.9 million, respectively.~~$83.1 million. These fee waivers were partially offset by related reductions in distribution ~~expense~~expenses of ~~$33.0~~$61.4 million ~~and $51.0 million, respectively,~~ such that the net negative pre-tax impact to Federated Hermes was ~~$3.8 million~~$21.7 million.

As noted above, the FOMC raised rates in March 2022 and ~~$5.9 million for~~market expectations are that the ~~three and nine months ended September 30, 2020, respectively.~~

~~Assuming asset levels and mix remain constant and based~~FOMC will raise interest rates several more times in 2022. Higher yields in 2022 will continue to lower the impact of Voluntary Yield-related Fee Waivers. The net negative impact on ~~recent and projected market conditions, including potential additional government measures to further stimulate the economy,~~pre-tax income from Voluntary Yield-related Fee Waivers ~~for~~in the ~~fourth~~second quarter ~~of 2021~~2022 may result in a net negative pre-tax impact on income of approximately ~~$39~~$1 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, 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

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

instruments, actions by the FOMC, the U.S. Department of Treasury, the SEC, the Financial Stability Oversight Council (FSOC), Congress 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 following discussion focuses on various aspects of the ~~Pandemic shifted the~~current regulatory environment in which Federated Hermes operated its business during the ~~U.S.,~~first quarter 2022. Please see Federated Hermes' prior public filings, including, the discussions under Item 1 – Business – Current Regulatory Environment – Domestic 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)~~1 – Business – Current Regulatory Environment – International, in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, for ~~a discussion~~historical information on the regulatory environment, and related regulatory developments, for periods prior to January 1, 2022, which also includes further background information relevant to certain 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~~matters discussed below.

Regulators continue in 2022 to focus on ~~maintaining~~ the ~~continuity~~impact 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~~on 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~~markets. As of the end of the first quarter 2022, 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~~2022 progresses due to the continued distribution of vaccines on a larger scale, the potential for continued, but lessened, market intervention from the U.S. Federal Reserve Board (Fed), or other Central Banks, and the possibility of additional stimulus ~~packages, similar~~packages. Please see Item 1A – Risk Factors in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2021, for a discussion of the risks posed by the Pandemic.

Russia's February 24, 2022 invasion of Ukraine also has led to sanctions being imposed against Russia, certain Russian nationals, and Belarus. These sanctions are restricting certain trading, creating securities valuation volatility, and otherwise impacting the ~~$900 billion Consolidated Appropriations~~investment management industry and global political and trade stability. Please refer to Part II, Item 1A – Risk Factors in this Quarterly Report on Form 10-Q for the period ending March 31, 2022 for additional information regarding the geopolitical risks posed by Russia's invasion of Ukraine.

Regulators continue to review remaining regulatory relief initially granted in 2020, policy efforts to address the effects of the Pandemic and related market instability, and to re-examine existing and propose new laws, rules, regulations, directives, and consultations. Regulatory actions taken to address the effects of 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, regulations and directives or consultations (collectively, both domestically and internationally, as applicable, Regulatory Developments) continue to impact the investment management industry. Federated Hermes and its investment management business are subject to extensive regulation both within and outside the U.S. Federated Hermes and its products, such as the Federated Hermes Funds, and strategies are subject to: various federal securities laws, such as the 1933 Act, 1934 Act, 1940 Act, and Advisers Act; state laws regarding securities fraud and registration; regulations or other rules promulgated by various regulatory authorities, self-regulatory organizations, or exchanges; and various foreign laws, regulations or other rules promulgated by foreign regulatory or other authorities. Regulatory Developments, and the resulting regulatory environment, have impacted, and will continue to impact, to various degrees, Federated Hermes' business, results of operations, financial condition, cash flows and/or stock price (collectively, Financial Condition).

Domestic

With the SEC's aggressive 54 item rulemaking schedule announced in its Fall 2021 Unified Agenda of Regulatory and Declaratory Actions (Fall Reg Flex Agenda), the pace of new proposed and final laws, rules and regulations and other regulatory activity has increased (and is expected to continue to increase) in 2022. For example, in the fourth quarter 2021 and first quarter 2022, among other rules, the SEC has issued a final rule regarding performance-based investment advisory fees, proposed rules on money market fund reform, enhancement and standardization of climate-related disclosures for investors, cybersecurity risk management for investment advisors, registered investment companies and business, cybersecurity risk management strategy, governance and incident disclosure, private fund advisors, reporting on securities loans, special purpose acquisition companies (SPACs), modernization of beneficial ownership reporting, share repurchase disclosure modernization, Rule 10b5-1 and insider trading, and proxy voting advice, and reopened the comment period on previously issued proposed rules regarding reporting on securities loans and pay versus performance. The SEC's Fall Reg Flex Agenda also signals additional upcoming proposals on Rule 35d-1 under the 1940 Act (Names Rule), human capital management disclosures, corporate board diversity, and reporting of proxy votes on executive compensation, among other proposals.

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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 regulatorsRegulators 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~~Following the December 22, 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 confirmationreport by the ~~Senate~~President's Working Group on ~~January 25, 2021, Treasury Secretary Janet Yellen expressed comfort with the idea~~Financial Markets (PWG) titled, "Overview 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 FedRecent Events 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~~Potential Reform Options 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."

OnFunds" (PWG Report), an April 15, 2021 article by the SEC Division of Investment Management's Analytics Office ~~issued an article~~titled, "Prime MMFs at the Onset of the Pandemic: Asset Flows, Liquidity Buffers, and NAVs," ~~which concluded (among~~and other ~~things)~~regulator publications, and despite extensive comments that ~~March 2020 outflows reduced prime~~strongly disagreed with the conclusions reached in the PWG Report by Federated Hermes and other investment management industry participants following the SEC's request for comment thereon, on December 15, 2021, the SEC Commissioners voted to propose new amendments to money market ~~funds' liquidity buffers and that volatility of prime money market funds' NAV per share increased at~~fund rules. According to the ~~onset of~~SEC, 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 possibleproposed money market fund reforms ~~including:~~would improve the resilience and transparency of money market funds by: (1) increasing minimum liquidity requirements for daily and weekly liquid assets to 25% and 50%, respectively, to provide a more substantial buffer in the event of rapid redemptions; (2) removing the ~~tie between~~ability of money market funds to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds, which would eliminate an incentive for preemptive redemptions; (3) requiring certain money market funds (e.g., institutional prime and institutional municipal (or tax-exempt) money market funds) to implement swing pricing, which involves a process of adjusting a fund's current NAV such that the ~~30% weekly liquid asset threshold for~~transaction price effectively passes on costs stemming from shareholder redemptions to redeeming shareholders, so that they bear the liquidity costs of their redemptions; (4) enhancing certain reporting requirements (e.g., Form N-MFP and Form N-CR) to improve the SEC's ability to monitor and analyze money market fund ~~liquidity~~data; 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)~~(5) requiring ~~certain liquidity management changes, such as an additional weekly liquid asset threshold; (5) permitting weekly liquid asset requirements the flexibility~~stable NAV money market funds to ~~automatically decline in certain circumstances, such as when redemptions are large; (6) requiring~~convert to a floating NAV if future market conditions result in negative money market fund yields. The comment period for ~~all prime~~the SEC's proposed money market fund reforms ended on April 11, 2022.

On March 3, 2022, the SEC also requested comment on the information collection and ~~municipal (or tax-exempt),~~reporting requirements applicable to money market funds under Rule 2a-7 under the 1940 Act. Among other comment requests, the SEC invited comments on: (1) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including ~~retail funds; (7) requiring swing pricing; (8) imposing capital buffer requirements; (9) requiring membership in a private liquidity exchange bank capitalized by~~whether the information shall have practical utility; (2) ways to enhance the quality, utility, and clarity of the information collected; and (3) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. The comment period will end on May 9, 2022.

After the SEC's issuance of its proposed money market fund reforms, other regulators continued to discuss the impact of 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. At a joint meeting of the FOMC and the Board of Governors of the Federal Reserve System (Governors) on January 25, 2022, the potential vulnerabilities of prime money market funds to a sudden withdrawal of liquidity were discussed. At its February 4, 2022 meeting, the FSOC recognized that open-end funds were not the sole or primary cause of market turmoil in 2020, but mistakenly noted that the ~~ICI MMF Report~~size of their asset liquidations indicates that they were one of the significant contributors to the market stress. At the same meeting, the FSOC reviewed the SEC's proposed money market fund reforms and indicated that the FSOC supports the ~~view~~SEC's efforts to reform money market funds and to strengthen short-term funding markets.

The FSOC's conclusion that open-end funds were significant contributors to the March 2020 turmoil contradicts the Investment Company Institute's (ICI) November 2020 report titled, "Experiences of U.S. Money Market Funds During the Covid-19 Crisis" (ICI MMF Report), and Federated Hermes' comments on the PWG Report, which demonstrated that the March 2020 market turmoil resulted from the Pandemic and the unprecedented global response and economic shut-down, and that the Treasury securities markets, rather than money market funds, triggered the market turmoil. The ICI MMF Report ~~rebukes~~rebuked 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~~noted 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,~~April 11, 2022, Federated Hermes submitted two comment letters, a Primary Comment Letter (115 pages) and a separate Swing Pricing Comment Letter (45 pages). These comment letters strongly disagree with a majority of 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~~reform proposal.

In its Primary Comment Letter, Federated Hermes concurred with the ~~implementation of the potential policy measures described in the PWG Report. The SEC staff also requested comments on other topics~~ICI that ~~are relevant to potential money market fund reforms, including other approaches for improving the resilience of~~ money market funds are critically important for (1) over 50 million retail investors, as well as corporations, municipalities, and ~~short-term funding markets generally.~~other institutional investors, who rely on the $5

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trillion money market fund industry as a low cost, efficient, transparent, cash management investment vehicle that offers market-based rates of return, and (2) governments (federal, state and local), businesses, and financial institutions who utilize money market funds as an important source of financing. Federated Hermes ~~along~~also agreed with the ~~ICI~~ICI's comments on the SEC's money market fund reform proposal with only a few differences regarding: (1) the application of liquidity fees; (2) availability of discretionary redemption gates; (3) increases to the required daily and ~~other industry participants, have submitted comment letters that strongly disagree~~weekly liquidity requirements; (4) support of reverse distribution mechanisms (RDMs) as the most appropriate means to manage money market funds in a negative interest rate environment; and (5) opposition to swing pricing.

Federated Hermes specifically agreed with the ~~conclusions reached~~SEC that the link between liquidity fees and redemption gates and the 30 percent weekly liquid asset requirement in Rule 2a-7 under the 1940 Act should be eliminated. Federated Hermes asserted that, unlike the SEC's proposal, it supports the retention of a fund board's ability to impose either a liquidity fee or a redemption gate, in its discretion and in accordance with its fiduciary duty, when doing so is in the ~~PWG Report. In~~best interest of the fund and its ~~first comment letter, dated April 12, 2021,~~shareholders, without reference to any specific level of liquidity. Federated Hermes ~~emphasized, among other points,~~opposed increasing required daily and weekly liquidity requirements for money market funds because of the negative effect such increased requirements would have on money market fund yields, and once unencumbered from the perils of an inappropriate linkage between liquidity levels and liquidity fees and redemption gates, Federated Hermes believes that money market funds ~~did not cause or exacerbate~~have sufficient liquidity levels currently to protect investors from dilution. Federated Hermes opposed the ~~turmoil in~~SEC's prohibition on the ~~financial markets in March 2020, and~~use of RDMs to maintain the stable NAVs of government money market funds ~~have no "structural vulnerabilities" warranting~~because, among other reasons, the ~~more significant policy options outlined in~~SEC's prohibition on the ~~PWG Report, such~~use of RDMs: (1) does not reflect any formal investment management industry feedback; and (2) will eliminate the use of government money market funds as ~~capital buffers and holdbacks.~~sweep investments. Federated Hermes ~~stressed~~also asserted that, due to the significant technology investments that would be necessary for market participants to modify transaction systems to process transactions in a hypothetical negative yield scenario without using RDMs, the absence of RDMs could lead to potential material outflows in U.S. government money market funds to bank deposits or non-regulated investment products, consistent with the notion of regulating government money market funds out of existence. Federated Hermes argued that the use of RDMs is the clear investor preference and would preserve money market ~~turmoil~~funds as an investment product for all stakeholders, and that the SEC's concerns over investor confusion regarding the operation of RDMs can be addressed through disclosure. Federated Hermes concluded its Primary Comment Letter on the SEC's proposed money market fund reforms by asserting that: (1) the SEC's final rule should be limited to (a) delinking compliance with daily and weekly liquidity levels to considerations on imposition of liquidity fees and redemption gates, (b) requiring fluctuating NAV money market funds to use bid prices on portfolio assets to calculate NAV and purchase and redemption prices, and (c) specifying criteria upon which a money market fund board's independent trustees/directors could impose a discretionary liquidity fee or redemption gate; and (2) the remaining aspects of the SEC's proposed money market fund reforms should not be adopted, including in ~~March 2020 was created by~~particular the ~~Pandemic~~swing pricing proposal, as they will (a) not achieve the desired result to reduce investor redemptions in stressed market conditions, but instead will be harmful to investors in money market funds and those who use money market funds to obtain short-term financing, and (b) interfere with capital formation and the ~~unprecedented global government response~~stability and ~~economic shut-down~~efficiency of short-term markets.

In its Swing Pricing Comment Letter, Federated Hermes opposed the SEC's proposal for the mandatory use of swing pricing because, among other reasons, swing pricing would eliminate a fundamental tenet of money market funds – the ability for investors to ~~stem~~transact intra-day and same day. Federated Hermes asserted that swing pricing for money market funds is deeply flawed, and investors would be damaged, not protected, by its implementation. Federated Hermes asserted that swing pricing will fail to reduce systemic risk while creating other significant adverse consequences. Among other things, Federated Hermes argued that swing pricing would cause investors to pre-emptively redeem from money market funds, as they did before the ~~spread~~effective date of the coronavirus. In its comment letter, Federated Hermes supported the SEC eliminating the requirement for a fund's board to consider imposing redemption gates and liquidity fees if weekly liquid assets drop below 30% of the fund's total assets. This is one of the requirements 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 was required on October 14, 2016. In its second comment letter, dated June 1, 2021,~~ Federated Hermes ~~recommended certain structural reforms~~further asserted that ~~address~~this would cause more short-term commercial paper to be directly owned, or owned through less regulated vehicles, without the ~~root causes~~professional management provided through regulated money market funds that seek safety and stability of money market fund NAVs. Federated Hermes also asserted that swing pricing would inevitably lead to efforts to market-time or "game" trading in a manner that would harm investors and the integrity of money market funds generally, based, among other things, on known heavy redemptions at month and quarter ends, and at tax payment dates, and other factors. Federated Hermes identified significant new operational and compliance costs to implement swing pricing or to mitigate the new risks posited by it, which would be borne by money market fund shareholders without a corresponding benefit. Federated Hermes identified significant market impacts that could result from implementing swing pricing, including the potential that institutional prime and tax-exempt money market funds could no longer qualify to be designated as "cash and cash equivalents," and the elimination of the ~~failure of critical funding markets in March 2020~~impacted money market funds from use as sweep investments. Federated Hermes also set forth several recommendations and ~~the consequent systematic risks, including:~~conclusions, including, among others, that: (1) the ~~provision~~SEC should abandon its swing pricing proposal, and eliminate the link between the 30 percent weekly liquid asset requirement and mandatory liquidity fees and redemption gates; (2) discretionary liquidity fees are preferable to swing pricing;

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(3) mandatory liquidity fees, as contemplated by some commenters, would have the effect of triggering preemptive redemptions in stressed markets as ~~well as reforms~~investors would try to ~~promote market-making in stressed conditions; (2) amendments to rule 2a-7 to delink~~ascertain the ~~consideration of redemption gates and~~criteria for triggering the mandatory liquidity fees from ~~the 30% of a fund's total assets threshold; (3) reforms to the short-term market structure itself to improve liquidity in times of stress; and~~publicly available data; (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 combination of delinking the potential imposition of redemption gates anddiscretionary liquidity fees ~~with a money market fund's weekly liquid asset requirements, adoption~~are preferable to mandatory liquidity fees because they preserve the role and responsibility of ~~certain liquidity fee procedures, and enhancements to~~the money market funds' ~~ability~~board to ~~"know their customer" via an amendment~~act to ~~Rule 22c-2 under~~prevent material dilution or other unfair results for all fund shareholders based on actual circumstances; (5) the ~~1940 Act, when combined~~SEC should not be ensnared in a redirection or usurpation of its defined mission toward goals that cannot be reconciled with ~~consideration~~its statutory mandate; and (6) Congress should require that banking regulators fix the problems created by the array of ~~and improvements~~post-financial crisis reforms that materially impaired market-making, particularly in ~~the short-term markets generally, can address the concerns identified in the PWG Report without adversely impacting the viability of money~~stressed 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.conditions.

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 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. Legislation has been re-introduced in both the Senate and ~~is being reintroduced in~~ the House of Representatives in a continuing effort to get these revisions to money market fund reform regarding the use of amortized cost passed and signed into law.

~~With~~In addition to the ~~transition of Presidential administrations, and new agency leadership, certain~~anticipated proposed regulations ~~promulgated by~~included in the SEC's Fall Reg Flex Agenda discussed above, the SEC has also increased its focus on ESG-related disclosures. Following the SEC's creation of a Climate Change and ESG Task Force in the SEC's Division of Enforcement (DOE) on March 4, 2021, the SEC's Division of Examinations' April 9, 2021 ESG product and service risk alert, the FSOC's recognition that climate change is an emerging and increasing threat to U.S. financial stability, and other regulatory actions, statements and industry commentary, on March 21, 2022, the SEC issued a climate disclosure proposal titled, "The Enhancement and Standardization of Climate-Related Disclosures for Investors". The proposal mandates, among other things, certain climate-risk disclosures by public companies, including on Form 10-K, about a company's governance, risk management, and strategy with respect to climate-related risks. The proposal incorporates certain concepts and vocabulary from the Task Force on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol (GHG Protocol) as part of the proposed disclosure regime. For example, the proposal would require disclosure of quantitative metrics to assess a company's exposure to greenhouse gas emissions. A company would be required to disclose its Scope 1 and Scope 2 greenhouse gas emissions, which would be emissions under the GHG Protocol that "result directly or indirectly from facilities owned or activities controlled by a registrant." Certain registrants also would be required to disclose Scope 3 emissions, which would be the emissions from upstream and downstream activities in a company's value chain, if such emissions were material to investors or if the company had made a commitment that included reference to Scope 3 emissions. The comment period on the SEC's climate disclosure proposal ends on May 11, 2022.

On March 21, 2022, FSOC Chairperson Yellen praised the SEC's climate risk disclosure proposal, stating: "The SEC's proposal is an important step to protect investors and strengthen the overall resilience of the financial system. Investors and businesses have for years asked for reliable information that can be used to assess climate-related risks and opportunities. I commend Chair Gensler and the SEC for their work on this critical issue." On April 5, 2022, certain Republican senators, including members of the Senate Banking and Environment and Public Works Committees, issued a letter to SEC Chair Gensler calling on the SEC to withdraw the proposal. Consistent with its June 14, 2021 comment letter submitted in response to then acting SEC Chair Allison Herren Lee's request for public comment on the SEC's disclosure rules and guidance as they apply to climate change and other ESG-related disclosures, Federated Hermes believes that any SEC rule on climate disclosure should: (1) supplement its principles-based disclosure regime, not replace it with prescriptive metrics; (2) focus on material disclosures; and (3) maintain the global competitiveness of U.S. capital markets.

In addition to the SEC and the FSOC, regulations adopted, and actions taken, by the Department of Labor (DOL) ~~in 2020 are being re-examined and could be reversed or modified. On January 20, 2021,~~impact the new administration issued a number of regulatory directives freezing regulatory rulemaking, rescinding various executive orders concerning the 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 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.investment management industry, including Federated Hermes. 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, 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~~would 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~~would remain in place until December 20, 2021. ~~On October 25, 2021, the DOL issued~~In Field Assistance Bulletin No. 2021-02, ~~in which~~ the DOL ~~announced that, for the period from December 21, 2021~~provided further transition relief by extending its position on pursuing prohibited transaction claims 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 Final DOL Fiduciary Rule or treat such fiduciaries as violating the applicable prohibited transaction rules. In this Field Assistance Bulletin, the2022. The DOL also ~~announced~~stated that it would not enforce the specific documentation and disclosure requirements for ~~the period from December 21, 2021~~individual retirement account rollovers through June 30, 2022, ~~it will not pursue prohibited transactions claims against investment advice fiduciaries who are otherwise in compliance with the Final DOL Fiduciary Rule~~ but ~~for their failure to comply with~~that all other requirements of the

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~~disclosure and documentation requirements set forth under the relevant provisions of the~~ Final DOL Fiduciary Rule ~~or treat such fiduciaries~~would be subject to full enforcement as ~~violating~~of February 1, 2022. In its Fall Reg Flex Agenda, the ~~applicable prohibited transaction rules.~~DOL indicated that it would be proposing another new fiduciary rule. According to the DOL's ~~Spring~~Fall 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. As of March 31, 2022, a new fiduciary rule has not yet been proposed. It has been reported that a proposed new fiduciary rule will be issued following the appointment of a new Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA). In ~~its Spring Reg Flex Agenda,~~January 2022, President Biden's nominee for the position advanced through the Senate Health, Education, Labor, and Pensions Committee. As of [April 21], 2022, the nominee has not yet been approved by a full Senate vote.

On October 13, 2021, the DOL ~~also indicated that, as required by Executive Order 14030, it~~issued for comment, its proposed "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" rule (New DOL Proposed ESG/Proxy Voting Rule), which would ~~undertake a review of, and propose new rules regarding,~~replace 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 basis of non-pecuniary factors, such as ESG factors (Final DOL ESG Rule), which was issued on October 30, 2020. ~~Executive Order 14030, which was issued~~Previously, 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 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 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;"~~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. In a December 10, 2021 comment letter, Federated Hermes ~~intends to comment~~commented on the New DOL Proposed ESG/Proxy Voting Rule with respect to, among other points, the ~~interrelation~~interrelationship between the Final DOL Fiduciary Rule and New DOL Proposed ESG/Proxy Voting Rule and the exclusive benefit rule under a relevant ~~fiduciary law~~fiduciary's own prudent analysis, which in Federated Hermes' view would unnecessarily subject fiduciaries to regulatory and litigation risk and expose any final rulemaking to further scrutiny over time.

Since the ~~United States. The comment period for~~beginning of the ~~New DOL Proposed ESG/Proxy Voting Rule ends on December 13, 2021.~~

~~On March 25~~first quarter 2022, other proposed rules, new guidance 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~~other actions have been issued or taken 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 Congress in the previous 60 legislative days (or, in this case, beginning August 21, 2020). As of September 30, 2021, these resolutions have not progressed in Congress. The SEC also has been adjusting, or terminating, the targeted, temporary Pandemic-related relief and assistance it provided to the investment management industry. The SEC staff also is considering issuing updated guidance to enable broader use of electronic delivery of disclosure documents and indicated support for related issues such as remote work, e-authorization and dematerialization of 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 third quarter of 2021 in the U.S. On June 11, 2021, the SEC 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 regulations in the next year, several of which will impact ~~the~~ U.S. investment management industry participants, including Federated Hermes. For ~~example, it~~example:

•On March 30, 2022, the SEC staff released a bulletin on Regulation Best Interest, in the form of questions and answers, reiterating the standards of conduct for broker-dealers and investment advisors when they are making account recommendations to retail investors. The bulletin clarifies the applicable standards, disclosures, and considerations when making account recommendations.

•On March 30, 2022, the SEC proposed rules intended to enhance investor protections in initial public offerings by SPACs and in subsequent business combination transactions between SPACs and private operating companies. The proposal includes specialized disclosure requirements with respect to, among other things, compensation paid to sponsors, conflicts of interest, dilution, and the fairness of these business combination transactions. The proposed new rules and ~~regulations on: climate risk disclosure; human capital management disclosure; cybersecurity risk governance; special purpose acquisition companies; proxy voting advice; custody rule~~ amendments to certain rules and forms under the ~~Advisers Act; rule 17a-7 amendments under~~1933 Act and the ~~1940 Act; money market reforms; matters to~~1934 Act would address ~~related to ESG factors for investment companies~~the application of disclosure, underwriter liability, and ~~investment advisers; open end-fund liquidity~~other provisions in the context of, and ~~dilution management; market structure modernization; and tailored shareholder reports. Other rules and regulations~~specifically address concerns associated

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~~included on~~with, business combination transactions involving SPACs as well as 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 pay versus performance. On April 16, 2021, the SEC voted to reopen the comment period on the proposed rules for the use 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 on ESG-related disclosure. On April 9, 2021, the SEC's Division of Examinations issued a risk alert to highlight observations from recent exams of investment advisers, registered investment companies, and private funds offering ESG products and services. On March 15, 2021, SEC Commissioner and then acting SEC Chair Allison Herren Lee issued a statement reminding issuersscope of the ~~SEC's 2010 climate change disclosure guidance~~Private Securities Litigation Reform Act of 1995. The proposed rule would deem any business combination transaction involving a reporting shell company, including a SPAC, to involve a sale of securities to the reporting shell company's shareholders and ~~soliciting public comment on the SEC's disclosure rules and guidance as they apply~~would amend certain financial statement requirements applicable 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 ICItransactions involving shell companies. The proposed rule also ~~warned against an overly prescriptive approach to ESG disclosure, stating that the SEC should develop~~includes 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.

In a July 28, 2021 speech, SEC Chair Gensler outlined his views on likely components of the 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-1new safe harbor 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 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 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~~provide that a SPAC that satisfies 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 stability in which it recognizes that climate change is an 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 beginning~~conditions of the ~~third quarter 2021, other~~ proposed ~~rules, new guidance and other actions have been issued~~rule would not be an investment company. The comment period for this proposed rule will end 30 days after publication in the Federal Register or ~~taken that impact U.S. investment management industry participants, including Federated Hermes. For example:~~on May 31, 2022 (which is 60 days after issuance), whichever is later.

•On ~~October 14, 2021,~~March 9, 2022, the SEC ~~re-opened~~proposed rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and cybersecurity incident reporting by public companies that are subject to the reporting requirements of the 1934 Act. This includes proposed amendments to require current reporting about material cybersecurity incidents. The SEC also proposed to require periodic disclosures about a registrant's policies and procedures to identify and manage cybersecurity risks, management's role in implementing cybersecurity policies and procedures, and the board of directors' cybersecurity expertise, if any, and its oversight of cybersecurity risk. Additionally, the proposed rules would require registrants to provide updates about previously reported cybersecurity incidents in their periodic reports. The comment period for this proposed rule will end on May 9, 2022.

•On March 7, 2022, the EBSA published a compliance assistance release cautioning plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu for plan participants. According to EBSA Acting Assistant Secretary Ali Khawar: "At this stage of cryptocurrency's development, fiduciaries must exercise extreme care before including direct investment options in cryptocurrency."

•On February 25, 2022, the SEC reopened the comment period for its prior proposal regarding reporting of securities loans. On November 18, 2021, the SEC had proposed a new rule that would require lenders of securities to ~~implement~~provide the ~~provisions~~material terms of securities lending transactions within 15 minutes of "being effected" or modified. The terms would need to be reported to a registered national securities association, such as FINRA, which would then make the data available publicly. On January 7, 2022, Federated Hermes submitted a comment letter to the SEC in which it expressed concern that the proposed rule imposes impractical reporting requirements that are likely to increase transaction costs and undermine an important source of potential fund income (i.e., securities lending). The new comment period ended on April 1, 2022.

•On February 25, 2022, the SEC proposed new Rule 13f-2 and amendments to Regulation SHO and CAT to increase market transparency regarding short selling. Under the proposed changes, market participants would be required to collect and submit certain short sale-related data to the SEC on a monthly basis. The SEC then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security. The proposed changes would fulfill Congress' mandate under Section ~~954~~13(f)(2) of the 1934 Act, added under Section 929X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of ~~2010.~~2010 (Dodd-Frank Act) to prescribe rules to make certain short sale data publicly available. The comment period for this proposed rule ended on April 26, 2022.

•On February 14, 2022, the DOL published a Request for Information (RFI), in furtherance of the Executive Order on Climate-Related Financial Risk, to solicit public comment on the DOL's future work relating to retirement savings and climate-related financial risk. The request contains 22 questions, including whether the DOL should publish research to improve data and analytics that ERISA plan fiduciaries could use to evaluate climate-related financial risks and whether ERISA plan administrators should be required to publicly report on the steps they take to manage climate-related financial risks. The comment period will end on May 16, 2022.

•On February 10, 2022, the SEC proposed to amend certain rules that govern beneficial ownership reporting. Among other things, the SEC proposed changes to Schedules 13D and 13G, including updates to the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G and the dates on which such filings are deemed to have been made, as well as requiring the use of a structured, machine-readable data language on these filings. The comment period for this proposed rule ended on April 11, 2022.

•On February 9, 2022, the SEC proposed new Rule 206(4)-9 under the Advisers Act and new Rule 38a-2 under the 1940 Act, as well as other amendments, ~~would direct~~which constitute new cybersecurity risk management rules and amendments that purport to enhance cybersecurity preparedness and improve the ~~national securities exchanges~~resilience of investment advisors and ~~national securities associations~~investment management companies against cybersecurity threats and attacks. The new rules and amendments would: (1) require investment advisors and funds to ~~establish listing standards that would require each issuer to develop~~adopt and implement ~~a policy providing for the recovery (or claw back), under certain circumstances, of incentive-based compensation based on financial information required~~written policies and procedures that are reasonably designed to ~~be reported under the securities laws that is~~

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~~received by current or former executive officers, and~~address cybersecurity risks; (2) require ~~disclosure of the policy. The proposal was initially issued by~~investment advisors to report significant cybersecurity incidents to the SEC ~~in 2015.~~on proposed Form ADV-C; (3) enhance investment advisor and fund disclosures related to cybersecurity risks and incidents; and (4) require investment advisors and funds to maintain, make, and retain certain cybersecurity-related books and records. The comment period ~~ends~~for this proposed rule ended on ~~November 22, 2021.~~April 11, 2022. As expressed in its April 11, 2022 comment letter to the SEC, Federated Hermes believes the proposed rule imposes overly burdensome reporting and disclosure requirements, and potentially requires overly specific disclosure that could be used by cyber threat actors to orchestrate future cyber incidents.

•On ~~September 29, 2021,~~February 9, 2022, 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.

~~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. Previously proposed and final rules and guidance included, among others: (1) final~~ rules and amendments to the investment advisor advertising and solicitation rules; (2) a final rule providing an updated regulatory framework for fund valuation practices; (3) a final rule regulating the use of derivatives in mutual funds and other funds registered under the 1940 Act; (4) final rules and amendments to the existing regulatory framework governing fund of funds arrangements among investment funds governed by the 1940 Act; (5) proposed extensive changes to fund shareholder reports and other fund disclosure documents; (6) SEC staff statements and other communications related to registered investment companies investing in Bitcoin futures; (7) rule changesAdvisers Act intended to enhance the ~~ability~~regulation of private fund advisors. The proposed new rules would: (1) require private fund advisors registered with the SEC to ~~clear~~provide investors with quarterly statements detailing information about private fund performance, fees and expenses; (2) require registered private fund advisors to obtain an annual audit for each private fund and cause the private fund's auditor to notify the SEC upon certain ~~trades, particularly~~events occurring; (3) require registered private fund advisors, in connection with an advisor-led secondary transaction, to distribute to investors a fairness opinion and a written summary of certain material business relationships between the advisor and the opinion provider; (4) prohibit all private fund advisors, including those ~~involving repurchase agreements through the Fixed Income Clearing Corporation;~~that are not registered, from engaging in certain activities and ~~(8) the Presidential executive order prohibiting investment in companies linked~~practices that are contrary to the ~~Republic~~public interest and the protection of ~~China's military~~investors; and ~~state security apparatus,~~(5) prohibit all private fund advisors from providing certain types of preferential treatment that have a material negative effect on other investors, while also prohibiting all other types of preferential treatment unless disclosed to current and ~~related SEC risk alerts and other staff statements.~~prospective investors. The SEC is also ~~has requested comment on the Names Rule~~proposing to ~~determine whether it can be improved to help ensure~~require all registered advisors, including those that ~~fund names inform and~~ do not ~~mislead investors.~~advise private funds, to document the annual review of their compliance policies and procedures in writing. The comment period for this proposed rule ended on April 25, 2022.

~~It remains uncertain~~•On February 9, 2022, the ~~degree~~SEC proposed to ~~which regulators will change, or Congress will require regulators~~reduce risks in the clearance and settlement of securities. The proposed changes would: (1) shorten the standard settlement cycle for securities transactions from two business days after trade date (T+2) to ~~change, certain recent Regulatory Developments. It also remains unclear whether, or to what degree,~~one business day after trade date (T+1); (2) eliminate the separate T+4 settlement cycle for firm commitment offerings priced after 4:30 p.m.; (3) improve the processing of institutional trades by proposing new requirements for broker-dealers and registered investment advisors ~~broker/dealers or other intermediaries will roll-back, modify or continue changes made prior~~intended to improve the rate of same-day affirmations; and (4) facilitate straight-through processing by proposing new requirements applicable to clearing agencies that are central matching service providers. The comment period for this proposed rule ended on April 25, 2022.

•On January 27, 2022, the SEC reopened the comment period for the pay versus performance proposing release, which was issued in 2015. The proposed rule would amend Item 402 of Regulation S-K to implement Section 14(i) of the 1934 Act, as added by Section 953 of the Dodd-Frank Act. Section 14(i) of the 1934 Act requires the SEC to adopt rules relating to how executive compensation actually paid by a registrant relates to the ~~original, vacated DOL fiduciary rule, or make new or additional changes in light~~financial performance of the ~~Final DOL Fiduciary~~registrant. The new comment period ended on March 4, 2022.

•On January 25, 2022, the SEC proposed amendments to Form PF, which is a confidential reporting form for certain SEC-registered investment advisors that manage private funds. The proposed amendments would: (1) require new current reporting of certain events for large hedge fund advisors and advisors to private equity funds; (2) decrease the reporting threshold for large private equity advisors; and (3) revise reporting requirements for large private equity advisors and large liquidity fund advisors. The comment period for this proposed rule ended on March 21, 2022.

•On January 15, 2022, the SEC proposed amendments to Rule 10b-5 under 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 respect1934 Act that would: (1) add new conditions to the ~~Final DOL Fiduciary~~availability of the affirmative defense under 1934 Act Rule 10b5-1(c)(1) which allows trading on behalf of a director, officer or issuer while in possession of material nonpublic information provided certain conditions are satisfied; (2) create new disclosure requirements regarding issuers' insider trading policies and ~~has~~regarding the adoption, modification and termination of Rule 10b5-1 and certain other trading arrangements by directors, officers and issuers; (3) create new disclosure requirements for executive and director compensation regarding the timing of certain equity compensation awards; and (4) update Form 4 and Form 5 to require corporate insiders subject to Section 16 of the 1934 Act to identify transactions made pursuant to Rule 10b5-1(c)(1) trading arrangements and to disclose all gifts of securities on Form 4 (rather than on Form 5). The comment period for this proposed ~~the New DOL Proposed ESG/Proxy Voting Rule, which increases this uncertainty.~~

~~Federated Hermes continues to analyze the potential impact of these Regulatory Developments~~rule ended 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.April 1, 2022.

In ~~addition~~response to the ~~above Regulatory Developments,~~SEC's shortened comment periods for these new proposed rules, on April 5, 2022, the ICI, the Securities Industry and Financial Markets Association (SIFMA), and over 20 other organizations submitted a joint letter to the SEC ~~staff continues~~regarding the need for sufficient comment periods, cost benefit analysis and meaningful public input in the regulatory rulemaking process. Citing the need for commenters to ~~engage~~review and analyze roughly 3,570 pages and respond to roughly 2,260 individually identified questions 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 thatconnection with 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,recent rule proposals, these organizations reminded 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,that

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~~securities issued by special purpose acquisition~~the Administrative Procedure Act (APA) requires regulatory agencies to provide interested persons with a meaningful opportunity to comment on proposed rules. These organizations also asserted that exceedingly short comment periods associated with numerous concurrent, potentially inter-connected rule proposals that touch on significant changes to the operational and regulatory regime applicable to financial firms could result in rules that hurt investors, damage the financial system, implicate the SEC's obligations under the APA and internal rulemaking guidelines, and ultimately violate the SEC's mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

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 ~~(or SPACs), the Executive Order on Securities Investments that Finance Communist Chinese Military Companies, cyber-security, large trader obligations,~~such as Federated Hermes' investment ~~advisor compliance~~advisory subsidiaries and the ~~transition from LIBOR.~~Federated Hermes Funds. On March 30, 2022, the SEC's DOE released its examination priorities for 2022, including, among other priorities: (1) private funds; (2) ESG investing; (3) retail investors; (4) cybersecurity; (5) fintech; and (6) digital assets. The DOE's focus in the areas of investment advisors and investment companies remains largely on perennial issues such as marketing practices, advisory fee calculations, portfolio management, brokerage and execution, conflicts of interest, compliance programs, service provider oversight, and other related matters. In addition to routine examinations, additional sweep examinations addressing various topics have been conducted. For example, the SEC has been conducting sweep examinations regarding ETF revenue sharing payments and ESG practices and disclosures, among others. The SEC staff has also issued various guidance statements, investor bulletins and risk alerts on a variety of compliance issues, including private funds and cryptoasset interest-bearing accounts, among others.

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~~March 8, ~~2021,~~2022, the Financial Industry Regulatory Authority (FINRA) ~~issued~~published its Regulatory Notice 22-08 regarding complex products and options in which FINRA expressed concerns about retail investors trading these products without understanding their characteristics and risks. In this Regulatory Notice, FINRA describes a ~~regulatory notice encouraging~~complex product as a product with features that can make it difficult for a retail investor to understand its essential characteristics and risks (including the payout structure and how the product may perform in different market and economic conditions). A product that combines features of multiple products and strategies also can be a complex product. Examples of complex products provided by FINRA ~~member firms to incorporate government-wide anti-money laundering~~include, among others: (1) exchange-traded funds (ETFs) with inverse, defined outcome, volatility-linked, or leveraged strategies; (2) mutual funds and ~~countering financing of terrorism priorities into their anti-money laundering programs. On August 13, 2021,~~ETFs that employ cryptocurrency futures; (3) closed-end interval funds or tender offer funds that provide limited liquidity; (4) equity-indexed annuities; (5) reverse convertibles; (6) commodity futures-linked securities; (7) alternative funds (including hedge funds); and (8) non-traded real estate investment trusts. Among other requests for comment, FINRA ~~issued a regulatory notice reminding firms of their supervisory obligations related to outsourcing to third party vendors. On June 23, 2021,~~requests comment on how FINRA ~~issued a regulatory notice reminding firms of the~~members define "complex products" and whether different or additional 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 reinstatementshould be applied thereto. The comment period will end on ~~mutual fund purchases. Other FINRA examinations have included, among others, options trading, bank sweep programs, zero commission and cyber-security sweep examinations.~~May 9, 2022. In ~~a 2021~~its 2022 Report on its Examination and Risk Monitoring Program, published on February 9, 2022, 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,~~the Consolidated Audit Trail, order handling, best execution, and ~~liquidity risk management controls as areas~~conflicts of ~~focus~~interest, mobile apps, SPACs, cybersecurity, complex products, anti-money-laundering, outside business activities, net capital, books and ~~potential examination.~~records, firm short positions and fails-to-receive in municipal securities, trusted contact persons, funding portals and crowdfunding offerings, disclosure of order routing information, portfolio margining, and intraday trading. 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 the 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.The 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 the FSOC. Certain policy advocates ~~are beginning to call~~have called for the FSOC to reverse its 2019 decision to change its approach to designating individual firms as ~~outlined above~~systemically important (from its current activities-based approach under which an individual firm would be designated only 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 to the FSOC's prior entity-based approach) in order to better fulfill its statutory mandate to mitigate risks to financial stability. Any possibility of the FSOC reverting to its ~~pre-December 2019~~prior systemically important designation practices, and recommending new or heightened regulation for ~~non-bank~~nonbank financial ~~companies,~~

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institutions, 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. On February 4, 2022, the FSOC issued a Statement on Nonbank Financial Intermediation in which the FSOC recounted that, in 2021, it had made it a priority to evaluate and address the risks to U.S. financial stability posed by hedge funds, open-end funds and money market funds; indicated that at its February 4, 2022 meeting it had received updates on these three types of nonbank financial institutions; and announced that it will continue in 2022 to evaluate, monitor, and address the risks that these institutions pose to financial stability.

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.

In the latest budget proposal released in March 2022, the White House proposes raising the corporate income tax rate from 21 percent to 28 percent and raising the top tax rate on capital gains and dividends from 20 percent to 39.6 percent. The President ~~has proposed a 15% minimum corporate tax rate and the President has~~had previously proposed (and the House Ways and Means Committee ~~has~~had approved a reconciliation tax bill) raising the corporate income tax rate to 26.5%., but the White House later abandoned that proposal in favor of a new separate 15% minimum tax on firms with more than $1 billion in profits. The latest budget proposal also would raise taxes on households with net wealth over $100 million by imposing a minimum effective annual tax rate of 20 percent on certain income, including unrealized capital gains. The President ~~has also~~had previously proposed a "wealth tax" on the unrealized investment income of Americans with at least $1 billion in assets. A one percent excise tax on the value of stock repurchased by publicly-traded U.S. corporations also has been proposed in Congress. While these tax increases, among others, are being proposed to fund infrastructure plans and the proposed budget, the President has not signaled an intent to include an FTT in any tax proposals. Legislation also was previously 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. On January 11, 2022, a New Jersey assemblyman reintroduced a 2020 FTT proposal that would impose $0.0025 for each financial transaction processed by high-quantity processors that process 10,000 or more financial transactions through electronic infrastructure located in New Jersey during the year. 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 March 31, 2022, that bill has not progressed in Congress.

International

Political, economic, legal, and regulatory uncertainty continues regarding the impact of Brexit on a post-Brexit UK. See Item 1A - Risk Factors - 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' Annual Report on Form 10-K for the year ended December 31, 2021 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 legislation and regulations applicable to doing business in the EU and 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 within and outside the EU and UK.

UK regulators are continuing with the process of rationalizing the EU legislation and regulatory requirements that were quickly "on-shored" upon Brexit taking effect. The UK Financial Conduct Authority (FCA), the Bank of England (BoE) and other UK regulators granted firms until March 31, 2022 to comply with certain of these regulatory changes including, among others, certain reporting obligations and market abuse requirements. Other Regulatory Developments related to Brexit in the first quarter 2022 included, among others:

•The consultation period ended on February 9, 2022 for Her Majesty's Treasury's (HM Treasury) November 9, 2021 consultation, "Financial Services Future Regulatory Framework Review: Proposals for Reform," its second consultation on the UK government's proposals for adapting the UK regulatory framework for financial services following Brexit.

•On January 18, 2022, the FCA issued a statement regarding the temporary permissions regime that allows European Economic Area (EEA)-domiciled investment funds that were marketed in the UK under a passport to continue

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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 their permissions in the UK for up to five years, while they seek full FCA authorization. The FCA advised that it would seek to ensure that firms relying on the temporary permissions regime, where appropriate, cannot expand their UK business while in the temporary permissions regime. The FCA also indicated that, if firms miss their deadline for applying for full FCA authorization, fail to respond to mandatory information requests, do not intend to apply for full authorization, or have their authorization application refused, and do not voluntarily leave the temporary permissions regime, the FCA will take action to remove them.

•On February 21, 2022, the UK Government published regulations that brought the offshore funds regime (OFR) into effect from February 23, 2022. The OFR is targeted at Undertakings for the Collective Investment in Transferable Securities (UCITS) and is 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 December 31, 2020. Federated Hermes has received permission from the FCA to allow certain Irish-domiciled UCITS funds and Luxembourg-based direct lending funds to continue to be marketed in the UK under the temporary permissions regime. HM Treasury is working with the FCA to undertake equivalence assessments for different countries and different fund types in order to identify those that can take advantage of the OFR. The FCA is continuing to consider the requirements that will apply under the OFR and whether those funds will need to put in place some form of value assessment process.

There remains a risk of regulatory divergence between the UK and the EU post-Brexit. For example, the UK has elected to have its own financial rules. EU investment firms in EU Member States are required to comply with the Investment Firms Directive (IFD) and Investment Firms Regulation (IFR); however, the IFD and IFR do not bind the UK, and a new UK prudential regime for Markets in Financial Instruments (MiFID) firms titled Investment Firms Prudential Regime (IFPR) is included in the UK's Financial Services Act 2021. The IFPR, which became effective on January 1, 2022, introduced a single prudential regime, and represents a significant change for FCA-authorized investment firms in the UK that are authorized under MiFID, including alternative investment fund managers with MiFID top-up permissions. On March 4, 2022, the FCA released a consultation paper setting out proposed amendments to the Prudential sourcebook for MiFID investment firms (MIFIDPRU) section of the FCA Handbook. The proposed amendments provide for a MIFIDPRU TP 7, which is the form that firms must use to count their existing instruments as own funds if they were not previously subject to the UK Capital Requirements Regulation (CRR). The FCA proposed amendments to provide more flexibility for firms to come into compliance.

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." Pursuant to the Sustainable Finance Package issued by the European Commission, firms have a 12-month period that is expected to end in October 2022 to implement certain sustainability reporting requirements and investment advice and sustainability considerations in connection with product governance and fiduciary duties. Following its 2021 "Trends, Risks and Vulnerabilities (TRV) Report," on February 15, 2022, ESMA published a revised TRV which, for the first time, designated environmental risk as a distinct category of risk. On March 24, 2022, the European Supervisory Authorities (ESAs) issued a revised joint supervisory statement on the application of the SFDR, which includes a new timeline for compliance, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation, and the use of estimates. The ESAs recommended that national competent authorities (NCAs) and market participants utilize the period to January 1, 2023 to prepare for the application of the European Commission's delegated regulation, which will contain SFDR Level 2 regulatory technical standards. On April 6, 2022, the European Commission adopted the final regulatory technical standards supplementing the SFDR, specifying the mandatory website, pre-contractual, and periodic reporting templates for financial market participants and in-scope financial products. Provided there are no objections by the European Parliament and Council of the EU over the next three months, the final regulatory technical standards will be published in the Official Journal of the EU later in 2022 and, if there are no further delays, will apply beginning on January 1, 2023.

Rather than adopt the SFDR, the UK decided to align with the TCFD. On November 3, 2021, the FCA published a discussion paper, "Sustainability Disclosure Requirements (SDR) and investment labels" in which the FCA sought views on new sustainability disclosure requirements for asset managers and FCA-regulated asset owners, as well as a new classification and labelling system for sustainable investment products. The consultation period ended on January 7, 2022.

On March 31, 2022, the International Sustainability Standards Board (ISSB) published a consultation setting forth its first two draft sustainability disclosure standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, and a six-point plan for how it will build on Sustainability Accounting

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Standards Board (SASB) standards and embed SASB's industry-based standards development approach into its own. The two draft standards propose disclosure of (among other things): (1) all material information about all significant sustainability-related risks and opportunities to which a company is exposed; (2) information regarding a company's governance and risk management processes, controls and procedures used to monitor and manage climate-related risks and opportunities; (3) sustainability-related financial information as part of a company's general-purpose financial reporting; (4) a company's strategy for managing and making decisions in light of climate-related risks and opportunities; (5) performance and outcome measures that support the qualitative disclosures across governance, risk management, and strategy disclosure requirements; and (6) targets that a company uses to measure its performance goals related to significant climate-related risks and opportunities. These draft standards build upon TCFD recommendations and incorporate industry-based disclosure requirements derived from SASB standards. IOSCO has issued a statement welcoming the publication of these two draft standards for proposed climate and general sustainability disclosure requirements. The consultation period will end on July 29, 2022.

The post-Brexit regulatory environment (particularly the need to obtain full authorizations on a country-by-country basis) also creates a level of uncertainty regarding the ability and requirements to 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 impact of Brexit on Federated Hermes' UK domiciled funds is difficult to quantify and remains uncertain given the overlap with the Pandemic and recent surge in the number of ESG-related money market funds in both the EU and UK. As of March 31, 2022, EU-resident shareholders in Federated Hermes' UK domiciled funds and the UK-resident shareholders in Federated Hermes' Irish-domiciled funds were permitted to remain in the funds. Subscriptions also can continue as long as there is not a proactive sales effort. Regarding the regulatory environment for money market funds post-Brexit, UK-domiciled money market funds remain on par with current EU regulatory requirements; however, it is possible that the UK may deviate from - or simply not adopt - any new or amended EU money market fund laws, rules or regulations that may be adopted in the future.

The activities of the IOSCO and the FSB also continue to be monitored by the investment management industry, including Federated Hermes. Building on consultations and other reports published from 2015 through 2021 regarding methodologies for identifying nonbank, noninsurance company global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, IOSCO and the FSB have continued, and will continue, to assess, recommend and implement regulatory reforms affecting open-end funds, including money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry. On April 13, 2022, the FSB and IOSCO publicly invited submissions of papers for a conference on the financial stability risks arising from liquidity mismatch in open-ended funds and on policies to address them. According to the FSB and IOSCO, the conference, which will form part of the FSB's 2022 work program to enhance the resilience of nonbank financial intermediation, will provide an opportunity for participants to discuss the findings of IOSCO's and the FSB's work on the experience of open-end funds in the March 2020 market turmoil as well as provide input to ongoing work by the FSB and IOSCO to assess their respective recommendations in this area.

Consistent with remarks by the Chair of the FSB to the G20 Finance Ministers and Central Bank Governors on February 14, 2022, the FSB included the following areas and initiatives (among others) in its 2022 work program: (1) enhancing the resilience of the nonbank intermediation sector, while preserving its benefits; (2) harnessing the benefits of digital innovation while containing its risks; (3) addressing risks from climate change; and (4) cyber and operational resiliency. In its 2021-2022 work program, published February 26, 2021, IOSCO indicated that its priorities include financial stability and systemic risks of nonbank 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. IOSCO also previously published on November 2, 2021 a Final Report setting forth its "Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management," which aims to improve sustainability-related practices, policies, procedures, and disclosures in the asset management industry.

Following various consultations, reports, and speeches by representatives of IOSCO and the FSB in 2020 and 2021, similar to the SEC in the U.S., ESMA, the BoE, the European Systemic Risk Board (ESRB), the European Banking Authority (EBA), and the International Monetary Fund (IMF), among other regulators, have been re-examining existing money market fund regulation, soliciting public comment on proposed money market fund reforms, and issuing reports and recommendations.

On February 16, 2022, ESMA published an opinion, "ESMA Opinion on the review of Money Market Fund Regulation," which makes recommendations to improve the resiliency of money market funds. Among other recommendations, it recommends: (1) addressing the threshold effects for constant NAV money market funds by removing the possibility to use amortized cost for

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low volatility NAV money market funds; (2) decoupling regulatory thresholds from suspensions, gates and redemption fees for low volatility NAV and constant NAV money market funds; (3) addressing liquidity concerns by ensuring mandatory availability of at least one liquidity management tool for all money market funds; (4) amending daily liquid asset and weekly liquid asset ratios; (5) adjusting the pool of eligible assets to require money market funds to hold public debt assets, which could be used to satisfy the daily and weekly asset liquidity ratios; (6) reinforcing the possibility of temporarily using liquidity buffers in times of stress; and (7) enhancing reporting and disclosure requirements and the stress testing framework for money market funds. On February 14, 2022, ESMA published a separate final report, "Guidelines on stress test scenarios under the MMF Regulation," in which it sets forth updated guidelines and specifications on the types of money market fund stress tests and their calibration in order to allow managers of money market funds to have the information needed to complete the reporting required under the EU Money Market Fund Regulation. ESMA has sent its opinion to the European Commission and is expected to work closely with it throughout the Review of the EU's Money Market Fund Regulation.

As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during the Pandemic. Federated Hermes intends to continue to engage with UK and EU (as well as U.S.) regulators in 2022, 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 first quarter 2022, 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 April 6, 2022, IOSCO published a consultation, "Exchange Traded Funds – Good Practices for Consideration," in which it solicits public comment on a proposed set of good practices regarding the operation of ETFs and trading of ETF shares. The proposed set of good practices cover effective product structuring, disclosure, liquidity provision and volatility control mechanisms. The consultation supplements IOSCO's previous 2013 Final Report on Principles for the Regulation of Exchange Traded Funds. The consultation period will end on July 6, 2022.

•On March 30, 2022, the FCA released its quarterly consultation paper which includes changes to research inducement rules for UK FCA-AIFMs. Similar changes to the research inducement rules applicable to UK MiFID investment firms came into effect on March 1, 2022. The changes applicable to AIFMs align the AIFM rules to those now applicable to UK MiFID investment firms. The consultation period ended on April 11, 2022.

•On March 28, 2022, ESMA issued two Final Reports in which it proposed targeted amendments to certain of its regulatory technical standards (RTS 1 and RTS 2) which specify the Markets in Financial Instruments Regulation (MiFIR) transparency requirements for equity and non-equity instruments, respectively. These amendments aim to clarify, improve, and simplify the transparency regime for equity and non-equity instruments. ESMA submitted the Final Reports to the European Commission on March 28, 2022, which has three months to decide whether to endorse the proposed amendments.

•On March 24, 2022, the FCA released a notice reminding all regulated firms of their existing obligations when they are interacting with or exposed to cryptoassets and related services. The notice sets out some areas of risk that firms need to consider, including maintaining clear communication with customers about cryptoassets, compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, prudential considerations, and custody.

•On January 27, 2022, ESMA published a consultation paper, "Guidelines on certain aspects of the MiFID II suitability requirements," in which it requests comments on proposed updates to its November 2018 Guidelines on certain aspects of the MiFID II suitability requirements. MiFID II is the Markets in Financial Instruments Directive II (MiFID II). The consultation period ended on April 27, 2022. ESMA expects to then publish a final report followed by the final guidelines in the third quarter 2022. ESMA also intends to consult separately on the product governance changes to MiFID II made under the EU's ESG framework in August 2021.

•On January 19, 2022, the FCA published a consultation paper, "Strengthening our financial promotion rules for high-risk investments, including cryptoassets," in which it solicits comments on proposed changes to (1) the FCA's classification of high-risk investments; (2) the consumer journey into high-risk investments; (3) strengthen the role of firms approving and communicating financial promotions; and (4) apply its financial promotion rules to qualifying cryptoassets. The consultation period ended on March 23, 2022.

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•On January 13, 2022, IOSCO issued a consultation report, "Operational resilience of trading venues and market intermediaries during the COVID-19 pandemic," in which it solicits comments on the operational resilience of trading venues and market intermediaries. The final report highlights a series of "lessons learned" from the Pandemic that may be useful to enhance practices in the future, including: (1) greater automation and less dependence on physical documents and manual processes; (2) considering the role of service providers and offshore services; (3) reviewing, updating, and testing business continuity plans, including scenario planning; and (4) monitoring processes to help ensure information security in order to prevent cyberattacks. The consultation period ended on March 14, 2022.

•On January 3, 2022, ESMA published a Final Report, "Guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements," based on prior consultations. The purpose of the Guidelines is to enhance clarity and foster convergence in the application of the appropriateness and execution-only requirements applicable under MiFID II to investment ~~income~~firms providing non-advised services to request information on the knowledge and experience of ~~Americans with at least $1 billion~~clients or potential clients to assess whether the investment service or product is appropriate and to issue a warning in ~~assets, which reportedly~~case the investment service or product is ~~supported by certain Senators who initially opposed~~deemed inappropriate.

In addition to the ~~President's budget proposals. While these tax increases, among others, are being proposed to fund a $1 trillion infrastructure plan~~above Regulatory Developments, the FCA, CBI 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~~global regulators 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 can decrease. In that case, similar to othermonitor 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. FCA enforcement priorities have included financial crime, market abuse, non-financial misconduct, and alternative investment managers. The Chief Executive of the FCA has echoed the priorities set forth in the FCA's 2021/22 Business Plan and indicated that the FCA wants to be a regulator that "tests [its] powers to their limits" to ensure market integrity, and that over time it plans to "become as much a data regulator as a financial one". In terms of its approach to enforcement actions, it has been reported that these statements follow the ongoing narrative that the FCA will be willing to take more risks and to act quickly. It also has been reported that the FCA is focusing on what it considers to be the six most important cross-market issues: (1) fraud; (2) financial resilience; (3) operational resilience; (4) diversity and inclusion; (5) ESG work; and (6) international cooperation. On February 8, 2022, the CBI published its second 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. In this report, the CBI highlights that it "will take appropriate supervisory action" against securities markets participants who do not appropriately consider the risks outlined in the Report or whose behavior is identified by the CBI as falling short of its expectations. The key risks identified by the CBI include, among others, greenwashing and SFDR implementation, fund liquidity, fund leverage, board oversight, governance structures and due diligence, fund management companies guidance, investment advisors acting as investment managers of funds, conflicts of interests caused by connected party transactions or the influence of third parties, SPACs, cryptoassets, and cybersecurity, including operational resilience and data quality. The CBI's priorities for 2022 include the following, among others: (1) completing a Common Supervisory Action (CSA) on Valuations in the funds sector; (2) following up on the CBI's Fund Management Company Guidance Review and the CSA on UCITS Costs and Fees; (3) undertaking a number of full conduct risk assessments on firms in Ireland while continuing to develop and enhance the CBI's supervisory approach to market abuse risks; (4) pursuing a defined plan of work with CBI Enforcement, to include both specific cases and assessment and investigation of suspected market abuse; and (5) continuing to develop the CBI's data capabilities, including new tools and enhanced infrastructure to improve data quality and better inform the CBI's approach to, and understanding of, risk assessments.

An EU FTT also continues to be discussed, although it remains unclear if or when an agreement will be reached regarding its adoption. The last proposal was 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 have been permitted to do so. Member States were invited to provide input on the proposed approach to the EU FTT design, whether the FTTs in France and Italy would be a solid basis for an EU FTT, and whether an EU FTT should apply to equity derivative transactions. As attention continues on a post-Pandemic economy and as the EU and EU Member States continue to look to fund their budgets and the Pandemic-related measures that have been adopted, an EU FTT on securities transactions, or even bank account transactions, remains a potential additional source of revenue. The Council of the EU has recognized that the European Commission has clarified that, if there is no agreement by the 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 that the European Commission will endeavor to make those proposals by June 2024 with the FTT's planned introduction by January 1, 2026. The Council also has indicated 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. The weakened economy in Europe can increase the risk that additional jurisdictions propose to implement FTTs. The Pandemic also could further delay agreement on, and the implementation of, an FTT in the EU, UK, or other European countries.

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Management's Discussion and Analysis (continued)
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The transition from LIBOR also continues. On March 5, 2021, Intercontinental Exchange, Inc. (ICE) published a feedback statement from ICE Benchmark Administration Limited, a wholly-owned subsidiary of ICE and the administrator of LIBOR, formally confirming its intention to: (1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021; (2) cease publication of the EUR, CHF, JPY and GBP LIBOR for all tenors after December 31, 2021; and (3) cease the publication of all other tenors of USD LIBOR after June 30, 2023. The specified LIBOR tenors ceased to be published as of January 1, 2022. On September 29, 2021, to avoid disruption to legacy contracts that reference the 1 month, 3 month and 6 month sterling and Japanese yen LIBOR tenors, the FCA required the LIBOR benchmark administrator to publish these tenors under a 'synthetic' methodology, based on term risk-free rates, for the duration of 2022. The synthetic panels are not intended for new issues, as the FCA also proposed to prohibit new use of overnight, 1 month, 3 month, 6 month and 12 month U.S. dollar LIBOR, which will continue to be published through June 30, 2023. On April 5, 2022, the FSB issued a statement, "FSB Statement Welcoming a Smooth Transition Away from LIBOR," in which FSB advised that (among other things): (1) given the significant use of USD LIBOR globally, firms must have plans in place to ensure their preparedness for the cessation of USD LIBOR; and (2) firms should have ceased new use of USD LIBOR, as the continued use of some USD LIBOR tenors through June 30, 2023 is intended only to allow legacy contracts to mature.

The phase-out of LIBOR 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 ~~experience~~require additional internal and external resources, and can increase operating expenses. The extent of such renegotiation or re-pricing could be mitigated by the adoption of, or advocacy for, a ~~further shift~~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 has closely monitored regulatory statements and industry developments regarding the obligations of registered investment advisors and funds when recommending and purchasing securities or other investments that use LIBOR as a reference rate or benchmark. Federated Hermes has focused on identifying LIBOR-linked securities or other investments, including, but not limited to: derivatives contracts; floating-rate notes; municipal securities; and tranches of securitizations, including collateralized loan obligations. With respect to LIBOR-linked securities or other investments with maturities after the applicable LIBOR tenor cessation date, Federated Hermes has sought to proactively address transition-related questions with the issuers or lead arrangers of such securities and other investments, as applicable, including, for example, questions regarding transition events, benchmark replacement, and benchmark replacement adjustments. As necessary, Federated Hermes has sought to negotiate modifications to benchmark fallback language for such securities and other instruments to contemplate the permanent cessation of LIBOR. Federated Hermes will be continuing these efforts with respect to any remaining securities or other investments held by Federated Hermes' products and strategies that continue to use a U.S. LIBOR tenor with a cessation date of June 30, 2023. For example, Federated Hermes has sent over 550 letters to issuers or lead arrangers setting forth its expectations regarding the transition from LIBOR. Federated Hermes also negotiated fall back language that provides for the use of an alternative reference rate or benchmark in ~~asset mix~~its corporate credit facility and ~~AUM, and a further impact on revenues and operating income. On the other hand, management~~its U.S.-registered Federated Hermes Funds' credit facility. Federated Hermes continues to ~~believe~~monitor the impact that the transition from LIBOR will have on Federated Hermes and Federated Hermes' ~~business can be positively affected because separately managed account/wrap-fee~~products and strategies, ~~work~~customers, and service providers.

Federated Hermes continues to monitor, analyze, and assess the potential impact of current and previous Regulatory Developments, both domestic and international, on its Financial Condition, as well as plan for and implement certain changes in ~~level wrap-fee account structures~~response to such Regulatory Developments. Federated Hermes also continues to monitor, analyze, and ~~can provide transparency~~assess the potential impact of the Pandemic generally, Russia's invasion of Ukraine, and ~~potential tax advantages~~the impact of low and increasing interest rate environments on money market fund and other fund asset flows, and related asset mixes, as well as the degree to ~~clients, while~~which these factors impact Federated Hermes' ~~experience with bank trust departments~~institutional prime and ~~fiduciary experience~~municipal (or tax-exempt) money market business and ~~resources presents an opportunity to add value for customers.~~Federated Hermes' Financial Condition.

Federated Hermes has dedicated, and continues to dedicate, significant and additional internal and external resources to monitor, analyze, assess, and address Regulatory Developments (including, without limitation, the potential for additional regulatory

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scrutiny of money market funds), its responses to the impact from the Pandemic and Regulatory Developments generally, and their effect on Federated Hermes' ~~business, results of operations, financial condition and/or cash flows.~~Financial Condition. 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~~Regulatory Development-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 adjustments, technology or information system development, reporting capabilities, business processes and other options, in an effort to comply, and/or to assist Federated Hermes' intermediaries and other customers to comply, with new Regulatory Developments or minimize the potential impact of any adverse 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.~~Regulatory Developments. Federated Hermes continues to expend legal and compliance resources to examine corporate governance, public company, ESG, climate change, and other disclosure proposals and final rules issued by the SEC and other regulators, 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 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 Regulatory Developments. ~~In connection with the Pandemic,~~ Federated Hermes has ~~devoted~~also expended, and will continue to expend, significant internal and external resources to ~~complying~~engage with the requirements of federal and state orders imposing work- and 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~~regulators on 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 reforms, including through meetings with U.S. and global regulators and legislators, the ICI 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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~~Management's Discussion and Analysis (continued)~~
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industry participants.

The Regulatory Developments discussed above, and related regulatory oversight, also impacted, and/or can impact, Federated Hermes' intermediaries, other customers and service providers, their preferences, and their businesses. For example, these developments have caused, and/or 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 can cause, changes in asset flows, levels, and mix, as well as customer and service provider relationships.

Federated Hermes will continue to monitor regulatory actions in response to the Pandemic and other Regulatory Developments as necessary and 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, can be required in response to market conditions, customer preferences or new or modified Regulatory Developments, such as the new investment advisor advertising, valuation, derivatives, and fund of funds rules, any proposed changes to laws, rules, regulations and directives, such as 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,~~ 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 can continue to have, on a cumulative basis, a material impact on Federated Hermes' expenses and, in turn, ~~financial performance.~~Financial Condition.

As of ~~September 30, 2021,~~March 31, 2022, given the regulatory environment, the continuing Pandemic and the possibility of future additional ~~modified or delayed~~ regulation or oversight, Federated Hermes is unable to fully assess the impact of Regulatory Developments or the regulatory or other actions in response to the Pandemic, Russia's invasion of Ukraine, Brexit 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/~~Financial Condition. Federated Hermes is also unable to fully assess at this time whether, or ~~cash flows.~~the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new Regulatory Developments ultimately will be successful. 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.~~Financial Condition. As of ~~September 30, 2021,~~March 31, 2022, management also believes that a FTT, particularly if enacted with broad application, any designation as a systemically important ~~non-bank~~nonbank financial ~~company,~~institution, or any related 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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~~Management's Discussion and Analysis (continued)~~
~~of Financial Condition and Results of Operations (unaudited)~~

legislation and regulations applicable to doing business in the EU and 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 within and outside the EU and UK. On October 1, 2020, the European Securities and Markets Authority (ESMA) issued an updated statement on the consequences of Brexit under the Benchmark Regulation, which indicates that EU-supervised entities can continue to use third-country UK benchmarks until December 31, 2021 and that this transition period is also recognized in the UK. On September 20, 2021, the UK House of 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 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 Brexit transition period and firms now must rely on temporary permission regimes and comply with the local laws of each country. The UK Financial Conduct Authority (FCA) has implemented a temporary permissions regime that allows European Economic Area (EEA)-domiciled investment funds that were 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 their permissions in the UK for up to five years, while they seek full FCA authorization. On March 4, 2021, the FCA 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 taking advantage of the temporary permissions regime in the UK to continue to service UK customers under contracts entered into prior to the end of the transition period in order for 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 Germany, also have adopted similar temporary permission regimesFSOC 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 Withdraw of the United Kingdom 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 declaration dated December 24, 2020, the EU and UK committed to agreeing to a 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 Irish securities, on June 26, 2021, the European Commission issued two adequacy decisions recognizing the level of protection of the UK's 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 "onshoring" process of amending EU legislation and regulatory requirements so that they work in the UK. In October 2020, the FCA, the Bank of England (BoE) and other UK regulators granted firms until March 31, 2022 to comply with certain of these regulatory changes including, among others, certain reporting obligations and market abuse requirements.

Despite these developments, there remains a risk of regulatory divergence between the UK and the EU. On July 1, 2021, Rishi Sunak, the UK Chancellor of the Exchequer, called an end to negotiations with the EU 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 Investment Firms Regulation (IFR) by June 26, 2021, the effective date of the IFD and IFR in the EU. On March 5, 2021, the European Banking Authority (EBA) published draft standards on supervisory reporting and disclosures for investment firms as defined in the IFR, which are intended to ensure a proportionate implementation of the new prudential framework for investment firms

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

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 a new UK prudential regime for Markets in Financial Instruments (MiFID) firms titled Investment Firms Prudential Regime (IFPR) was included in the Financial Services Bill 2019-2021, which was based on the IFD and IFR. On December 14, 2020, the FCA issued "Consultation Paper 20/24: A new UK prudential regime for MiFID investment firms," in which the 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 2019-2021 received Royal Assent and became UK law as the Financial Services Act 2021. Among other things, this Act introduces the 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)~~
~~of Financial Condition and Results of Operations (unaudited)~~

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 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 first country to adopt that approach. On December 22, 2020, the Financial Stability Board (FSB) issued a statement encouraging the International Financial Reporting Standards Foundation and 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 require that UK companies with more than 500 employees that are traded on a UK-regulated market disclose TCFD-aligned climate-related information. The consultation stated that new regulations would come into 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 the information needs of clients and 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 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 [TCFD] framework, in line with domestic regulatory frameworks, to pave the way for future global coordination efforts, taking into account jurisdictions' circumstances, aimed at developing a baseline global reporting standard."

The post-Brexit regulatory environment (particularly the need to obtain full authorizations on a country-by-country basis), also creates a level of uncertainty regarding the ability and requirements to 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.

In March 2020, HM Treasury released a consultation paper proposing an Overseas Fund Regime (OFR) which is targeted at Undertakings for the Collective Investment in Transferable Securities (UCITS) and 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 December 31, 2020. HM Treasury 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. HM Treasury used the Financial Services Act 2021 to formally introduce the OFR as an equivalence regime for overseas retail funds to be able to market to UK investors, including retail 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 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 funds and Luxembourg-based direct lending funds to continue to be marketed in the UK post-Brexit under the 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 has worked with the FCA and 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.

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

The activities of the International Organization of Securities Commissions (IOSCO) and FSB also continue to be monitored by the investment management industry, including Federated 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 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 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 the Pandemic. The FSB also issued a report on its "Holistic Review of the March Market Turmoil" (FSB Review) on November 17, 2020, in 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 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 and EU regulators are re-examining existing money market fund regulation in 2021. On March 26, 2021, ESMA published a consultation paper on the legislative review of the EU money market regulation. Similar to the PWG Report, IOSCO Paper and FSB Review, this consultation reviews the role played by money market funds in the March 2020 market turmoil, perceived structural vulnerabilities of money market funds and possible money market fund regulatory reforms that could be adopted. Most of the proposed reforms are similar to those set

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

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)~~
~~of Financial Condition and Results of Operations (unaudited)~~

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

•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

~~Table of Contents~~



~~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.~~

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 proposed and final rules and guidance.

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. 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 design, whether the FTTs in France and Italy would be a solid basis for an EU FTT, 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 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-Pandemic economy and as the EU and EU Member States look to fund their budgets and the Pandemic-related measures that have been adopted, an EU FTT on securities transactions, or even bank account transactions, remains a potential additional source of revenue. 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 European Commission recently clarified that, if there is no agreement by the 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 that the Commission will endeavor to make those proposals by June 2024 with the 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. As discussed above, certain individual EU Member States, such as Italy and France, have implemented FTTs at the Member State-level. Spain's 0.2% FTT on certain securities transactions, effective on January 16, 2021, is another example. The weakened economy in Europe can increase the risk that additional jurisdictions propose to implement FTTs. The Labour Party in the UK has also previously proposed a UK FTT (in addition to the existing UK stamp duty), but it has not been advanced to date. The Pandemic also could delay agreement on, and the implementation of, an FTT in the EU, UK or other European countries.

Notwithstanding the impact of 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., 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

~~Table of Contents~~



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

administrator of LIBOR, formally confirming its intention to: (1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021; (2) cease publication of the EUR, CHF, JPY and GBP LIBOR for all tenors after December 31, 2021; and (3) cease the publication of 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 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 May 13, 2021, the 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-Free Rates, of which the BoE and FCA are ex-officio members, published a paper supporting the transition of legacy structured products where GBP LIBOR is used and 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 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 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 (Articles 23C and 21A BMR)," setting forth further guidance and requests for comment regarding further arrangements for the orderly wind-down of LIBOR by the end of 2021. Although the FCA found that market participants have made good progress in actively transitioning contracts away from LIBOR, the FCA concluded that it will not be practicable to 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 'synthetic' methodology, based on term risk-free rates, for the duration of 2022. The FCA also proposed to prohibit new use of overnight, 1 month, 3 month, 6 month and 12 month U.S. dollar LIBOR, which will continue to be published through June 30, 2023.

Legislators and regulators in the U.S. and other countries are also working on the transition from 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. On May 6, 2021, the ARRC published market indicators that would support a 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 transition deadline to June 30, 2023 for certain tenors of USD LIBOR, U.S. regulators continue to urge financial institutions to stop entering into new LIBOR transactions by the end of 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 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 without effective fallback provisions that are written under New York law. The New York law also provides a safe harbor from litigation where SOFR is selected as a replacement rate 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 in which he specifically condemned one such rate, the Bloomberg Short Term Bank Yield Index (BSBY), as featuring many of the same flaws as LIBOR, and generally advocated for term SOFR over BSBY.

~~Table of Contents~~



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

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~~Financial Condition. The degree of ~~operations, financial condition and/or cash flows.~~

~~Management continues to monitor and evaluate the~~ impact of Regulatory Developments ~~(including potential new money market fund reforms)~~ on Federated Hermes' business, results of operations, financial condition and/or cash flows. Regulatory changes stemming from Brexit, money market fund reform, a EU or UK FTT, or FCA, CBI, ESMA, FSB, IOSCO or other initiatives or Regulatory Developments, as well as the potential political and economic uncertainty surrounding Brexit and the Pandemic, alsoFinancial Condition can ~~adversely affect, potentially~~vary, including 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 can continue to have, an impact on Federated Hermes' expenses and, in turn, financial performance. As of September 30, 2021, Federated Hermes is unable to fully assess the potential impact that an FTT or other international Regulatory Developments can have on its business, results of operations, financial condition and/or cash flows. Federated Hermes also is unable to 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 HFML Acquisition, HCL Acquisition and MEPC Acquisition each increased the potential impact that the above matters can have on Federated Hermes' business, results of operations, financial condition and/or cash flows.

uncertain.

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

Asset Highlights

Managed Assets at Period End


		September 30,				Percent Change			March 31,				Percent Change
(in millions)	(in millions)	2021		2020				(in millions)	2022		2021
By Asset Class	By Asset Class							By Asset Class
Equity	Equity	$	97,425	$	80,405	21	%	Equity	$	91,676	$	96,170	(5)	%
Fixed-Income	Fixed-Income	97,226		79,546		22		Fixed-Income	92,146		86,464		7
Alternative / Private Markets	Alternative / Private Markets	22,064		18,146		22		Alternative / Private Markets	23,109		19,301		20
Multi-Asset	Multi-Asset	3,692		3,737		(1)		Multi-Asset	3,555		3,981		(11)
Total Long-Term Assets	Total Long-Term Assets	220,407		181,834		21		Total Long-Term Assets	210,486		205,916		2
Money Market	Money Market	413,713		432,952		(4)		Money Market	420,596		419,080		0
Total Managed Assets	Total Managed Assets	$	634,120	$	614,786	3	%	Total Managed Assets	$	631,082	$	624,996	1	%

By Product Type	By Product Type							By Product Type
Funds:	Funds:							Funds:
Equity	Equity	$	58,218	$	46,093	26	%	Equity	$	51,890	$	56,767	(9)	%
Fixed-Income	Fixed-Income	60,262		49,779		21		Fixed-Income	54,830		55,581		(1)
Alternative / Private Markets	Alternative / Private Markets	14,299		11,393		26		Alternative / Private Markets	14,847		12,231		21
Multi-Asset	Multi-Asset	3,518		3,546		(1)		Multi-Asset	3,401		3,797		(10)
Total Long-Term Assets	Total Long-Term Assets	136,297		110,811		23		Total Long-Term Assets	124,968		128,376		(3)
Money Market	Money Market	292,311		325,940		(10)		Money Market	279,514		297,182		(6)
Total Fund Assets	Total Fund Assets	428,608		436,751		(2)		Total Fund Assets	404,482		425,558		(5)
Separate Accounts:	Separate Accounts:							Separate Accounts:
Equity	Equity	39,207		34,312		14		Equity	39,786		39,403		1
Fixed-Income	Fixed-Income	36,964		29,767		24		Fixed-Income	37,316		30,883		21
Alternative / Private Markets	Alternative / Private Markets	7,765		6,753		15		Alternative / Private Markets	8,262		7,070		17
Multi-Asset	Multi-Asset	174		191		(9)		Multi-Asset	154		184		(16)
Total Long-Term Assets	Total Long-Term Assets	84,110		71,023		18		Total Long-Term Assets	85,518		77,540		10
Money Market	Money Market	121,402		107,012		13		Money Market	141,082		121,898		16
Total Separate Account Assets	Total Separate Account Assets	205,512		178,035		15		Total Separate Account Assets	226,600		199,438		14
Total Managed Assets	Total Managed Assets	$	634,120	$	614,786	3	%	Total Managed Assets	$	631,082	$	624,996	1	%

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

Average Managed Assets


		Three Months Ended								Nine Months Ended													Three Months Ended
		September 30,				Percent Change				September 30,								Percent Change					March 31,						Percent Change
(in millions)	(in millions)	2021		2020				2021				2020				(in millions)				2022				2021
By Asset Class	By Asset Class																			By Asset Class
Equity	Equity	$	100,076	$	80,403			24	%			$	98,136			$	78,930				24	%	Equity		$	92,034		$			95,167	(3)	%
Fixed-Income	Fixed-Income	93,685		76,798		22				89,676				71,823				25		Fixed-Income			95,475			86,939			10
Alternative / Private Markets1		21,446		18,270		17				20,257				18,091				12
Alternative / Private Markets																				Alternative / Private Markets			22,848			19,278			19
Multi-Asset	Multi-Asset	3,713		3,786		(2)				3,918				3,808				3		Multi-Asset			3,621			3,974			(9)
Total Long-Term Assets	Total Long-Term Assets	218,920		179,257		22				211,987				172,652				23		Total Long-Term Assets			213,978			205,358			4
Money Market	Money Market	414,141		448,795		(8)				418,285				442,381				(5)		Money Market			433,254			412,720			5
Total Average Managed Assets	Total Average Managed Assets	$	633,061	$	628,052	1	%			$	630,272			$	615,033			2	%	Total Average Managed Assets			$	647,232		$	618,078		5	%

By Product Type	By Product Type																			By Product Type
Funds:	Funds:																			Funds:
Equity	Equity	$	59,918	$	46,020	30	%			$	58,471			$	44,106			33	%	Equity			$	52,419		$	56,832		(8)	%
Fixed-Income	Fixed-Income	59,618		48,418		23				57,346				45,221				27		Fixed-Income			57,413			55,416			4
Alternative / Private Markets1		13,704		11,539		19				12,882				11,342				14
Alternative / Private Markets																				Alternative / Private Markets			14,746			12,239			20
Multi-Asset	Multi-Asset	3,533		3,590		(2)				3,732				3,619				3		Multi-Asset			3,460			3,783			(9)
Total Long-Term Assets	Total Long-Term Assets	136,773		109,567		25				132,431				104,288				27		Total Long-Term Assets			128,038			128,270			0
Money Market	Money Market	289,566		338,814		(15)				293,320				328,730				(11)		Money Market			291,157			288,403			1
Total Average Fund Assets	Total Average Fund Assets	426,339		448,381		(5)				425,751				433,018				(2)		Total Average Fund Assets			419,195			416,673			1
Separate Accounts:	Separate Accounts:																			Separate Accounts:
Equity	Equity	40,158		34,383		17				39,665				34,824				14		Equity			39,615			38,335			3
Fixed-Income	Fixed-Income	34,067		28,380		20				32,330				26,602				22		Fixed-Income			38,062			31,523			21
Alternative / Private Markets	Alternative / Private Markets	7,742		6,731		15				7,375				6,749				9		Alternative / Private Markets			8,102			7,039			15
Multi-Asset	Multi-Asset	180		196		(8)				186				189				(2)		Multi-Asset			161			191			(16)
Total Long-Term Assets	Total Long-Term Assets	82,147		69,690		18				79,556				68,364				16		Total Long-Term Assets			85,940			77,088			11
Money Market	Money Market	124,575		109,981		13				124,965				113,651				10		Money Market			142,097			124,317			14
Total Average Separate Account Assets	Total Average Separate Account Assets	206,722		179,671		15				204,521				182,015				12		Total Average Separate Account Assets			228,037			201,405			13
Total Average Managed Assets	Total Average Managed Assets	$	633,061	$	628,052	1	%			$	630,272			$	615,033			2	%	Total Average Managed Assets			$	647,232		$	618,078		5	%

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

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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
		September 30,				September 30,					March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021
Equity Funds	Equity Funds									Equity Funds
Beginning Assets	Beginning Assets	$	59,933	$	43,723	$	54,312	$	48,112	Beginning Assets	$	57,036	$	54,312
Sales	Sales	2,655		2,937		11,758		10,423		Sales	3,960		5,649
Redemptions	Redemptions	(3,522)		(3,299)		(11,717)		(12,431)		Redemptions	(4,118)		(4,441)
Net Sales (Redemptions)	Net Sales (Redemptions)	(867)		(362)		41		(2,008)		Net Sales (Redemptions)	(158)		1,208
Net Exchanges	Net Exchanges	3		31		(360)		(56)		Net Exchanges	(174)		(372)
Acquisitions/(Dispositions)		408		0		408		0

Impact of Foreign Exchange1	Impact of Foreign Exchange1	(283)		306		(463)		61		Impact of Foreign Exchange1	(290)		(261)
Market Gains and (Losses)2	Market Gains and (Losses)2	(976)		2,395		4,280		(16)		Market Gains and (Losses)2	(4,524)		1,880
Ending Assets	Ending Assets	$	58,218	$	46,093	$	58,218	$	46,093	Ending Assets	$	51,890	$	56,767

Equity Separate Accounts	Equity Separate Accounts									Equity Separate Accounts
Beginning Assets	Beginning Assets	$	40,573	$	33,136	$	37,476	$	40,899	Beginning Assets	$	39,680	$	37,476
Sales3	Sales3	1,677		1,249		5,700		4,422		Sales3	3,032		2,111
Redemptions3	Redemptions3	(2,185)		(2,253)		(7,938)		(8,243)		Redemptions3	(2,952)		(2,723)
Net Sales (Redemptions)3	Net Sales (Redemptions)3	(508)		(1,004)		(2,238)		(3,821)		Net Sales (Redemptions)3	80		(612)
Net Exchanges	Net Exchanges	0		0		403		(6)		Net Exchanges	0		404
Acquisitions/(Dispositions)		0		0		0		(71)

Impact of Foreign Exchange1	Impact of Foreign Exchange1	(227)		272		(471)		188		Impact of Foreign Exchange1	(164)		(334)
Market Gains and (Losses)2	Market Gains and (Losses)2	(631)		1,908		4,037		(2,877)		Market Gains and (Losses)2	190		2,469
Ending Assets	Ending Assets	$	39,207	$	34,312	$	39,207	$	34,312	Ending Assets	$	39,786	$	39,403

Total Equity	Total Equity									Total Equity
Beginning Assets	Beginning Assets	$	100,506	$	76,859	$	91,788	$	89,011	Beginning Assets	$	96,716	$	91,788
Sales3	Sales3	4,332		4,186		17,458		14,845		Sales3	6,992		7,760
Redemptions3	Redemptions3	(5,707)		(5,552)		(19,655)		(20,674)		Redemptions3	(7,070)		(7,164)
Net Sales (Redemptions)3	Net Sales (Redemptions)3	(1,375)		(1,366)		(2,197)		(5,829)		Net Sales (Redemptions)3	(78)		596
Net Exchanges	Net Exchanges	3		31		43		(62)		Net Exchanges	(174)		32
Acquisitions/(Dispositions)		408		0		408		(71)

Impact of Foreign Exchange1	Impact of Foreign Exchange1	(510)		578		(934)		249		Impact of Foreign Exchange1	(454)		(595)
Market Gains and (Losses)2	Market Gains and (Losses)2	(1,607)		4,303		8,317		(2,893)		Market Gains and (Losses)2	(4,334)		4,349
Ending Assets	Ending Assets	$	97,425	$	80,405	$	97,425	$	80,405	Ending Assets	$	91,676	$	96,170

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.

4940

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
		September 30,				September 30,					March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021
Fixed-Income Funds	Fixed-Income Funds									Fixed-Income Funds
Beginning Assets	Beginning Assets	$	58,486	$	46,046	$	53,557	$	44,223	Beginning Assets	$	59,862	$	53,557
Sales	Sales	7,273		7,183		24,724		21,811		Sales	5,429		9,235
Redemptions	Redemptions	(5,587)		(4,497)		(18,434)		(17,474)		Redemptions	(8,422)		(6,732)
Net Sales (Redemptions)	Net Sales (Redemptions)	1,686		2,686		6,290		4,337		Net Sales (Redemptions)	(2,993)		2,503
Net Exchanges	Net Exchanges	43		(36)		(10)		(5)		Net Exchanges	148		(44)
Acquisitions/(Dispositions)		17		0		17		0

Impact of Foreign Exchange1	Impact of Foreign Exchange1	(71)		105		(90)		(23)		Impact of Foreign Exchange1	(79)		(38)
Market Gains and (Losses)2	Market Gains and (Losses)2	101		978		498		1,247		Market Gains and (Losses)2	(2,108)		(397)
Ending Assets	Ending Assets	$	60,262	$	49,779	$	60,262	$	49,779	Ending Assets	$	54,830	$	55,581

Fixed-Income Separate Accounts	Fixed-Income Separate Accounts									Fixed-Income Separate Accounts
Beginning Assets	Beginning Assets	$	32,315	$	27,097	$	30,720	$	24,800	Beginning Assets	$	37,688	$	30,720
Sales3	Sales3	5,662		2,676		9,982		6,426		Sales3	1,995		1,952
Redemptions3	Redemptions3	(1,017)		(400)		(3,872)		(2,618)		Redemptions3	(1,015)		(1,552)
Net Sales (Redemptions)3	Net Sales (Redemptions)3	4,645		2,276		6,110		3,808		Net Sales (Redemptions)3	980		400
Net Exchanges	Net Exchanges	(50)		0		(48)		0		Net Exchanges	(2)		0
Acquisitions/(Dispositions)		0		0		0		(1)

Impact of Foreign Exchange1	Impact of Foreign Exchange1	(18)		30		(34)		32		Impact of Foreign Exchange1	(25)		(22)
Market Gains and (Losses)2	Market Gains and (Losses)2	72		364		216		1,128		Market Gains and (Losses)2	(1,325)		(215)
Ending Assets	Ending Assets	$	36,964	$	29,767	$	36,964	$	29,767	Ending Assets	$	37,316	$	30,883

Total Fixed-Income	Total Fixed-Income									Total Fixed-Income
Beginning Assets	Beginning Assets	$	90,801	$	73,143	$	84,277	$	69,023	Beginning Assets	$	97,550	$	84,277
Sales3	Sales3	12,935		9,859		34,706		28,237		Sales3	7,424		11,187
Redemptions3	Redemptions3	(6,604)		(4,897)		(22,306)		(20,092)		Redemptions3	(9,437)		(8,284)
Net Sales (Redemptions)3	Net Sales (Redemptions)3	6,331		4,962		12,400		8,145		Net Sales (Redemptions)3	(2,013)		2,903
Net Exchanges	Net Exchanges	(7)		(36)		(58)		(5)		Net Exchanges	146		(44)
Acquisitions/(Dispositions)		17		0		17		(1)

Impact of Foreign Exchange1	Impact of Foreign Exchange1	(89)		135		(124)		9		Impact of Foreign Exchange1	(104)		(60)
Market Gains and (Losses)2	Market Gains and (Losses)2	173		1,342		714		2,375		Market Gains and (Losses)2	(3,433)		(612)
Ending Assets	Ending Assets	$	97,226	$	79,546	$	97,226	$	79,546	Ending Assets	$	92,146	$	86,464

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.

5041

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
September 30, September 30,
(in millions) 2021 2020 2021 2020
Alternative / Private Markets Funds
Beginning Assets1
$ 13,225 $ 11,037 $ 12,100 $ 11,389
Sales 1,140 471 2,325 1,799
Redemptions (494) (386) (1,483) (1,511)
Net Sales (Redemptions) 646 85 842 288
Net Exchanges 0 0 (2) (1)
Acquisitions/(Dispositions) 81 0 81 0
Impact of Foreign Exchange2
(345) 440 (225) (258)
Market Gains and (Losses)3
692 (169) 1,503 (25)
Ending Assets $ 14,299 $ 11,393 $ 14,299 $ 11,393
Alternative / Private Markets Separate Accounts
Beginning Assets $ 7,737 $ 6,448 $ 6,984 $ 6,713
Sales4
179 115 802 467
Redemptions4
(39) (25) (227) (443)
Net Sales (Redemptions)4
140 90 575 24
Acquisitions/(Dispositions) 0 0 0 452
Impact of Foreign Exchange2
(209) 268 (136) (188)
Market Gains and (Losses)3
97 (53) 342 (248)
Ending Assets $ 7,765 $ 6,753 $ 7,765 $ 6,753
Total Alternative / Private Markets
Beginning Assets1
$ 20,962 $ 17,485 $ 19,084 $ 18,102
Sales4
1,319 586 3,127 2,266
Redemptions4
(533) (411) (1,710) (1,954)
Net Sales (Redemptions)4
786 175 1,417 312
Net Exchanges 0 0 (2) (1)
Acquisitions/(Dispositions) 81 0 81 452
Impact of Foreign Exchange2
(554) 708 (361) (446)
Market Gains and (Losses)3
789 (222) 1,845 (273)
Ending Assets $ 22,064 $ 18,146 $ 22,064 $ 18,146


	Three Months Ended
	March 31,
(in millions)	2022		2021
Alternative / Private Markets Funds
Beginning Assets	$	14,788	$	12,100
Sales	395		304
Redemptions	(436)		(461)
Net Sales (Redemptions)	(41)		(157)
Net Exchanges	0		(1)

Impact of Foreign Exchange1	(397)		82
Market Gains and (Losses)2	497		207
Ending Assets	$	14,847	$	12,231

Alternative / Private Markets Separate Accounts
Beginning Assets	$	8,132	$	6,984
Sales3	249		174
Redemptions3	(69)		(170)
Net Sales (Redemptions)3	180		4


Impact of Foreign Exchange1	(240)		57
Market Gains and (Losses)2	190		25
Ending Assets	$	8,262	$	7,070

Total Alternative / Private Markets
Beginning Assets	$	22,920	$	19,084
Sales3	644		478
Redemptions3	(505)		(631)
Net Sales (Redemptions)3	139		(153)
Net Exchanges	0		(1)

Impact of Foreign Exchange1	(637)		139
Market Gains and (Losses)2	687		232
Ending Assets	$	23,109	$	19,301

1 The beginning assets for the nine months ended September 30, 2020 includes $8.2 billion of fund assets managed by a previously non-consolidated entity, HGPE, in which Federated Hermes held an equity method investment. Effective March 1, 2020, HGPE became a consolidated subsidiary. See Note (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.

32 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.

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

5142

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
		September 30,				September 30,					March 31,
(in millions)	(in millions)	2021		2020		2021		2020		(in millions)	2022		2021
Multi-Asset Funds	Multi-Asset Funds									Multi-Asset Funds
Beginning Assets	Beginning Assets	$	3,517	$	3,516	$	3,744	$	4,000	Beginning Assets	$	3,608	$	3,744
Sales	Sales	71		44		224		164		Sales	73		65
Redemptions	Redemptions	(99)		(146)		(779)		(538)		Redemptions	(128)		(141)
Net Sales (Redemptions)	Net Sales (Redemptions)	(28)		(102)		(555)		(374)		Net Sales (Redemptions)	(55)		(76)
Net Exchanges	Net Exchanges	9		(4)		27		(23)		Net Exchanges	5		5
Acquisitions/(Dispositions)		54		0		54		0

Market Gains and (Losses)1	Market Gains and (Losses)1	(34)		136		248		(57)		Market Gains and (Losses)1	(157)		124
Ending Assets	Ending Assets	$	3,518	$	3,546	$	3,518	$	3,546	Ending Assets	$	3,401	$	3,797

Multi-Asset Separate Accounts	Multi-Asset Separate Accounts									Multi-Asset Separate Accounts
Beginning Assets	Beginning Assets	$	182	$	189	$	204	$	199	Beginning Assets	$	172	$	204
Sales2	Sales2	0		1		2		27		Sales2	1		2
Redemptions2	Redemptions2	(4)		(9)		(38)		(20)		Redemptions2	(4)		(29)
Net Sales (Redemptions)2	Net Sales (Redemptions)2	(4)		(8)		(36)		7		Net Sales (Redemptions)2	(3)		(27)
Net Exchanges		0		0		1		0

Impact of Foreign Exchange3	Impact of Foreign Exchange3	0		1		(1)		1		Impact of Foreign Exchange3	0		(1)
Market Gains and (Losses)1	Market Gains and (Losses)1	(4)		9		6		(16)		Market Gains and (Losses)1	(15)		8
Ending Assets	Ending Assets	$	174	$	191	$	174	$	191	Ending Assets	$	154	$	184

Total Multi-Asset	Total Multi-Asset									Total Multi-Asset
Beginning Assets	Beginning Assets	$	3,699	$	3,705	$	3,948	$	4,199	Beginning Assets	$	3,780	$	3,948
Sales2	Sales2	71		45		226		191		Sales2	74		67
Redemptions2	Redemptions2	(103)		(155)		(817)		(558)		Redemptions2	(132)		(170)
Net Sales (Redemptions)2	Net Sales (Redemptions)2	(32)		(110)		(591)		(367)		Net Sales (Redemptions)2	(58)		(103)
Net Exchanges	Net Exchanges	9		(4)		28		(23)		Net Exchanges	5		5
Acquisitions/(Dispositions)		54		0		54		0

Impact of Foreign Exchange3	Impact of Foreign Exchange3	0		1		(1)		1		Impact of Foreign Exchange3	0		(1)
Market Gains and (Losses)1	Market Gains and (Losses)1	(38)		145		254		(73)		Market Gains and (Losses)1	(172)		132
Ending Assets	Ending Assets	$	3,692	$	3,737	$	3,692	$	3,737	Ending Assets	$	3,555	$	3,981

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.

5243

Table of Contents



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

~~Total~~ Changes in Total Long-Term Assets

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2021 2020 2021 2020
Total Long-Term Fund Assets
Beginning Assets1
$ 135,161 $ 104,322 $ 123,713 $ 107,724
Sales 11,139 10,635 39,031 34,197
Redemptions (9,702) (8,328) (32,413) (31,954)
Net Sales (Redemptions) 1,437 2,307 6,618 2,243
Net Exchanges 55 (9) (345) (85)
Acquisitions/(Dispositions) 560 0 560 0
Impact of Foreign Exchange2
(699) 851 (778) (220)
Market Gains and (Losses)3
(217) 3,340 6,529 1,149
Ending Assets $ 136,297 $ 110,811 $ 136,297 $ 110,811
Total Long-Term Separate Accounts Assets
Beginning Assets $ 80,807 $ 66,870 $ 75,384 $ 72,611
Sales4
7,518 4,041 16,486 11,342
Redemptions4
(3,245) (2,687) (12,075) (11,324)
Net Sales (Redemptions)4
4,273 1,354 4,411 18
Net Exchanges (50) 0 356 (6)
Acquisitions/(Dispositions) 0 0 0 380
Impact of Foreign Exchange2
(454) 571 (642) 33
Market Gains and (Losses)3
(466) 2,228 4,601 (2,013)
Ending Assets $ 84,110 $ 71,023 $ 84,110 $ 71,023
Total Long-Term Assets
Beginning Assets1
$ 215,968 $ 171,192 $ 199,097 $ 180,335
Sales4
18,657 14,676 55,517 45,539
Redemptions4
(12,947) (11,015) (44,488) (43,278)
Net Sales (Redemptions)4
5,710 3,661 11,029 2,261
Net Exchanges 5 (9) 11 (91)
Acquisitions/(Dispositions) 560 0 560 380
Impact of Foreign Exchange2
(1,153) 1,422 (1,420) (187)
Market Gains and (Losses)3
(683) 5,568 11,130 (864)
Ending Assets $ 220,407 $ 181,834 $ 220,407 $ 181,834


	Three Months Ended
	March 31,
(in millions)	2022		2021
Total Long-Term Fund Assets
Beginning Assets	$	135,294	$	123,713
Sales	9,857		15,253
Redemptions	(13,104)		(11,775)
Net Sales (Redemptions)	(3,247)		3,478
Net Exchanges	(21)		(412)

Impact of Foreign Exchange1	(766)		(217)
Market Gains and (Losses)2	(6,292)		1,814
Ending Assets	$	124,968	$	128,376

Total Long-Term Separate Accounts Assets
Beginning Assets	$	85,672	$	75,384
Sales3	5,277		4,239
Redemptions3	(4,040)		(4,474)
Net Sales (Redemptions)3	1,237		(235)
Net Exchanges	(2)		404

Impact of Foreign Exchange1	(429)		(300)
Market Gains and (Losses)2	(960)		2,287
Ending Assets	$	85,518	$	77,540

Total Long-Term Assets
Beginning Assets	$	220,966	$	199,097
Sales3	15,134		19,492
Redemptions3	(17,144)		(16,249)
Net Sales (Redemptions)3	(2,010)		3,243
Net Exchanges	(23)		(8)

Impact of Foreign Exchange1	(1,195)		(517)
Market Gains and (Losses)2	(7,252)		4,101
Ending Assets	$	210,486	$	205,916

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

32 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.

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

5344

Table of Contents



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					Percent of Total Average Managed Assets				Percent of Total Revenue
		Nine Months Ended				Nine Months Ended					Three Months Ended				Three Months Ended
		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020			March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
By Asset Class	By Asset Class									By Asset Class
Money Market	Money Market	66	%	72	%	19	%	42	%	Money Market	67	%	67	%	27	%	24	%
Equity	Equity	16	%	13	%	52	%	37	%	Equity	14	%	15	%	45	%	49	%
Fixed-Income	Fixed-Income	14	%	12	%	18	%	13	%	Fixed-Income	15	%	14	%	18	%	16	%
Alternative / Private Markets	Alternative / Private Markets	3	%	3	%	8	%	5	%	Alternative / Private Markets	3	%	3	%	7	%	8	%
Multi-Asset	Multi-Asset	1	%	0	%	2	%	2	%	Multi-Asset	1	%	1	%	2	%	2	%
Other	Other	—	%	--		1	%	1	%	Other	—	%	—	%	1	%	1	%
By Product Type	By Product Type									By Product Type
Funds:	Funds:									Funds:
Money Market	Money Market	46	%	53	%	16	%	39	%	Money Market	45	%	47	%	23	%	20	%
Equity	Equity	9	%	7	%	41	%	29	%	Equity	8	%	9	%	35	%	39	%
Fixed-Income	Fixed-Income	9	%	8	%	15	%	11	%	Fixed-Income	9	%	9	%	15	%	14	%
Alternative / Private Markets	Alternative / Private Markets	2	%	2	%	5	%	3	%	Alternative / Private Markets	2	%	2	%	5	%	6	%
Multi-Asset	Multi-Asset	1	%	0	%	2	%	2	%	Multi-Asset	1	%	1	%	2	%	2	%

Separate Accounts:	Separate Accounts:									Separate Accounts:
Money Market	Money Market	20	%	19	%	3	%	3	%	Money Market	22	%	20	%	4	%	4	%
Equity	Equity	7	%	6	%	11	%	8	%	Equity	6	%	6	%	10	%	10	%
Fixed-Income	Fixed-Income	5	%	4	%	3	%	2	%	Fixed-Income	6	%	5	%	3	%	2	%
Alternative / Private Markets	Alternative / Private Markets	1	%	1	%	3	%	2	%	Alternative / Private Markets	1	%	1	%	2	%	2	%

Other	Other	—	%	—	%	1	%	1	%	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, 2021, total~~Total average managed assets increased ~~3% from September 30, 2020, primarily due to increases in fixed-income and equity assets, partially offset by a decrease in money market assets. Total average money market assets decreased 8% and~~ 5% for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020. Period-end~~2021. As of March 31, 2022, total managed assets increased 1% from March 31, 2021. Average money market assets ~~decreased 4% at September 30, 2021 as compared to September 30, 2020. Average equity assets~~ increased ~~24%~~5% for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020.~~2021. Period-end ~~equity~~money market assets ~~increased 21%~~remained flat at ~~September 30, 2021~~March 31, 2022 as compared to ~~September 30, 2020 primarily due to market appreciation.~~March 31, 2021. Average ~~fixed-income~~equity assets ~~increased 22% and 25%~~decreased 3% for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, as compared to the same ~~periods~~period in ~~2020.~~2021. Period-end equity assets decreased 5% at March 31, 2022 as compared to March 31, 2021 primarily due to net redemptions. Average fixed-income assets increased 10% for the three months ended March 31, 2022, as compared to the same period in 2021. Period-end fixed-income assets increased ~~22%~~7% at ~~September 30, 2021~~March 31, 2022 as compared to ~~September 30, 2020~~March 31, 2021 primarily due to net sales, partially offset by market depreciation. Average alternative/private market assets increased 19% for the three months ended March 31, 2022, as compared to the same period in 2021. Period-end alternative/private market assets increased 20% at March 31, 2022 as compared to March 31, 2021 primarily due to market appreciation and ~~to a lesser extent, market appreciation.~~net sales.

~~Equity markets continued to rally~~Markets struggled through the first ~~two months~~quarter 2022 as a confluence of negative factors – including sharply rising interest rates, an aggressive Fed pivot, elevated inflation, a slowing economy and in late February, Russia's invasion of Ukraine – fueled uncertainty. Outside of energy stocks, the bulk of the third quarter before taking a volatile turn in September as uncertainties ranging from the Delta variant's spread and stubborn inflation to a slowing China and political brinkmanship in Washington, D.C., weighed on markets. Despite posting its worst month since March 2020,equity market stumbled, with the Standard and Poor's 500 index ~~managed to eke out a 0.6% return for~~and the ~~quarter, while both the Nasdaq Composite Index and~~ Dow Jones Industrial Average ~~slipped 0.2%~~down 4.9% and ~~1.5%~~4.6%, respectively, ~~for~~and the ~~three months. Overseas~~rate-sensitive Nasdaq Composite Index down 9.1% during the quarter. International markets ~~were~~experienced similar ~~with~~woes, as the MSCI World exEx USA ~~Index down 1.2%~~declined 5.5% for the quarter and the MSCI All Country World ex USA was down ~~3.6%~~6%. InFixed-income markets offered little refuge, as the fixed-income markets, a July 2021 rally reversed in 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 months despite intra-period volatility. The yield on the 10-yearBloomberg US

5445

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

Aggregate Bond Index - a broad gauge of the bond market that includes U.S. Treasuries and credit sector securities - suffered its worst quarter in more than 40 years. Virtually every sector of the bond market was down as interest rates rose across the curve, driven by inflation running at its highest levels since the early 1980s, and the Fed signaled an aggressive interest rate path as it initiated the first policy interest rate increase in four years. Yields on the short-to-intermediate end rose the most, with the 2-year U.S. Treasury ~~ended the quarter at 1.49%,~~yield up 2161 basis points, ~~from where it started, while~~ the ~~yield on~~10-year up 83 basis points and the 30-year ~~Treasury dipped 4~~up 55 basis points ~~to end~~over the ~~quarter at 2.05%.~~course of the three months.

Results of Operations

Revenue. Revenue decreased ~~$37.9~~$16.4 million for the three-month period ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020~~2021 primarily due to ~~an increase~~a decrease in equity revenue of ~~$72.4~~$18.1 million due to lower average equity assets and a decrease of $9.3 million in carried interest and performance fees primarily related to $6.9 million of carried interest recorded in the first quarter 2021 as a result of the consolidation of certain VIEs. These VIEs did not incur carried interest in the first quarter 2022. These decreases were partially offset by a decrease of $7.3 million in Voluntary Yield-related Fee 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~~alternative/private market and ~~fixed-income~~fixed income revenue of ~~$34.5~~$3.9 million and ~~$11.9~~$3.1 million, respectively, due to higher average assets.

~~Revenue decreased $105.5 million for~~For the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2022 and 2021, as compared to the same period in 2020 primarily due to an increase of $253.3 million in Voluntary Yield-related Fee Waivers and a decrease in money market revenue of $32.9 million 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 assets, an increase of $9.3 million as a result of the consolidation of certain VIEs not previously consolidated prior to the first quarter of 2021 related to the HCL Acquisition (see Note (3) to the Consolidated Financial Statements) and an increase in alternative/private market revenue of $7.3 million primarily due to the revenue of a previously nonconsolidated entity being recorded to operating revenue beginning in March 2020.

~~For the nine-month period ended September 30, 2021 and 2020,~~ Federated Hermes' ratio of revenue to average managed assets was ~~0.21%~~0.20% and ~~0.23%~~0.22%, respectively. The decrease in the rate was primarily due to ~~the reduction of~~a decrease in revenue from ~~higher Voluntary Yield-related Fee Waivers, partially offset by a higher proportion of revenue earned on~~lower average equity ~~and fixed-income~~ assets during the first ~~nine months of 2021~~quarter 2022 compared to the same period in ~~2020.~~2021.

Operating Expenses. Total Operating Expenses for the three-month period ended ~~September 30, 2021~~March 31, 2022 decreased ~~$22.9~~$2.9 million as compared to the same period in ~~2020~~2021 primarily due to a decrease in Compensation and Related expense of ~~$35.2~~$9.7 million primarily due to $6.9 million related to the compensation expense recorded in the first quarter 2021 as a result of the consolidation of certain VIEs. These VIEs did not incur compensation expense in the first quarter 2022. This is partially offset by an increase of $4.2 million in Distribution expense primarily related to ~~a decrease~~an increase in ~~expense~~competitive payments of ~~$39.3~~$4.0 million and an increase of $3.9 million due to ~~an increase~~a decrease 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 $5.8 million 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 the same period in 2020.

~~Total Operating Expenses for the nine-month period ended September 30, 2021 decreased $79.9 million as compared to the same period in 2020 primarily~~a decrease due to a decrease of $137.9 million in Distribution expense primarily related to a decrease in expense of $153.9 million due to 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 $43.3 million driven primarily by (1) an increase of $12.9 million due to the increase in thelower 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 $9.9 million primarily due to technology-related projects.equity fund assets ($2.1 million).

Nonoperating Income (Expenses). Nonoperating Income (Expenses), net decreased ~~$8.0~~$13.6 million for the three-month period ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020.~~2021. The decrease is primarily due to a ~~$6.5~~$13.1 million decrease in Gain (Loss) on Securities, net due to the third quarter 2020 including an increase in the market value of 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 decreased $6.3 million for the nine-month period ended September 30, 2021 as compared to the same period in 2020. The decrease is primarily due to a $7.5 million gain from a fair value adjustment to an equity investment of a previously nonconsolidated entity recorded in Nonoperating Income (Expenses) - Other, net in March 2020 and the $1.3 million FX Forward Loss recorded in the third quarter of 2021. These decreases were partially offset by a $3.1 million

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

~~increase~~ in Gain (Loss) on Securities, net primarily due to ~~higher gains recorded from the increase~~a decrease in the market value of investments in the first ~~nine months of 2021~~quarter 2022 as compared to an increase in the market value of investments during the same period in ~~2020.~~2021.

Income Taxes. The income tax provision was ~~$23.2~~$17.6 million for the three-month period ended ~~September 30, 2021~~March 31, 2022 as compared to ~~$32.9~~$25.0 million for the same period in ~~2020.~~2021. 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).~~before income taxes. The effective tax rate was ~~24.0%~~24.4% for the three-month period ended ~~September 30, 2021~~March 31, 2022 as compared to ~~27.5%~~25.2% 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%.~~2021.

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 the net increase in deferred taxes associated with the change in the UK 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 effective tax rate was 29.3% for the nine-month period ended September 30, 2021 as compared to 25.9% for the same period in 2020. The increase in the effective income tax rate was primarily due to the increase in deferred tax expense associated with the aforementioned UK tax rate increase from 19% to 25%.

Net Income Attributable to Federated Hermes, Inc. Net income decreased ~~$14.5~~$18.6 million for the three-month period ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020,~~2021, 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, 2021~~March 31, 2022 decreased ~~$0.12~~$0.14 as compared to the same period in ~~2020~~2021 primarily due to decreased net ~~income.~~

~~Net~~ income ~~decreased $29.5 million for the nine-month period ended September 30, 2021 as compared to the same period~~($0.19), partially offset by a decrease in 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, 2021 decreased $0.25 as compared to the same period in 2020 primarilyshares outstanding due to ~~decreased net income.~~share repurchases ($0.05).

Liquidity and Capital Resources

Liquid Assets. At ~~September 30, 2021,~~March 31, 2022, liquid assets, net of noncontrolling interests, consisting of cash and cash equivalents, investments and receivables, totaled ~~$411.8~~$502.4 million as compared to ~~$432.5~~$492.7 million at December 31, ~~2020.~~2021. The change in liquid assets is discussed below.

At ~~September 30, 2021,~~March 31, 2022, 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), Russia, China and certain other countries subject to economic sanctions. Federated Hermes' experienced portfolio managers and analysts work to evaluate credit risk through

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

quantitative and fundamental analysis. Further, regarding international exposure, certain money market funds (representing approximately ~~$152~~$211 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~~Used by Operating Activities. Net cash ~~provided~~used by operating activities totaled ~~$101.0~~$19.2 million for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to ~~net cash provided totaling $243.5~~$30.0 million used for the same period in ~~2020.~~2021. The decrease ~~of $142.5 million~~in cash used was primarily due to (1) a net ~~increase~~decrease of ~~$122.1~~$20.2 million in cash paid for trading securities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020,~~2021 and (2) a decrease ~~in cash received related to the $105.5 million decrease in revenue previously discussed and (3) an increase~~ of ~~$24.0~~$9.5 million in cash paid for incentive compensation for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as compared to the same period in ~~2020.~~2021. These decreases in cash paid were partially offset by (1) a decrease in cash received related to the $16.4 million decrease in revenue previously discussed and (2) an increase in cash paid related to the ~~$137.9~~$4.2 million ~~decrease~~increase in Distribution expense previously discussed.

Cash ~~Provided~~Used by Investing Activities. During the ~~nine-month~~three-month period ended ~~September 30, 2021,~~March 31, 2022, net cash ~~provided~~used by investing activities was ~~$13.0~~$2.5 million, which primarily represented ~~$33.3~~$2.0 million paid for purchases of Investments—Affiliates and Other and $1.9 million paid for property and equipment, partially offset by $1.3 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 $5.3 million paid for an asset purchase during 2021.~~.

Cash ~~Used~~Provided by Financing Activities. During the ~~nine-month~~three-month period ended ~~September 30, 2021,~~March 31, 2022, net cash ~~used~~provided by financing activities was ~~$213.4~~$54.9 million due primarily to ~~the payment to acquire additional equity~~(1) $488.3 million of ~~HFML (see Note (3) to the~~

~~Table~~new debt, including $350.0 million in Notes and amounts borrowed from Federated Hermes' revolving credit facility and (2) $30.3 million of ~~Contents~~



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

~~Consolidated Financial Statements), $92.4~~contributions from noncontrolling interests in subsidiaries. These increases in cash were partially offset by (1) $311.7 million of debt paid, (2) $113.3 million paid for treasury stock purchases ~~$79.7~~and (3) $25.0 million or ~~$0.81~~$0.27 per share paid in dividends to holders of its common shares and $55.0 million paid in connection with its debt obligations. This was partially offset by $101.3 million of contributions from noncontrolling interests in subsidiaries and $82.2 million borrowed fromshares.

Long-term Debt. On March 17, 2022, pursuant to a Note Purchase Agreement, Federated Hermes ~~revolving credit facility.~~

~~Borrowings.~~issued unsecured senior notes in the aggregate amount of $350.0 million at a fixed interest rate of 3.29% per annum, payable semiannually in arrears on the 17th day of March and September in each year of the agreement. The entire principal amount of the Notes will become due March 17, 2032. Citigroup Global Markets Inc. and PNC Capital Markets LLC acted as lead placement agents in relation to the Notes and certain subsidiaries of Federated Hermes are guarantors of the obligations owed under the Note Purchase Agreement. As of ~~September 30, 2021,~~March 31, 2022, the outstanding balance of Federated Hermes' Notes Payable was $347.4 million, net of issuance cost in the amount of $2.6 million, and was recorded in Long-Term Debt on the Consolidated Balance Sheets. The proceeds were or will be used to supplement its cash flow from operations, to fund share repurchases and potential acquisitions, to pay down part of Federated Hermes' existing debt and for other general corporate purposes. See Note (11) to the Consolidated Financial Statements for additional information on the Note Purchase Agreement.

As of March 31, 2022, Federated Hermes' Credit Agreement consists of a ~~$350~~$350.0 million revolving credit facility with an additional ~~$200~~$200.0 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, 2021,~~March 31, 2022, Federated Hermes has ~~$247.8~~$300.0 million available to borrow under the Credit Agreement. See Note (11) to the Consolidated Financial Statements for additional information on the Credit Agreement.

~~The~~Both the Note Purchase Agreement and Credit Agreement ~~includes~~include an interest coverage ratio covenant (consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) to consolidated interest expense) and a leverage ratio covenant (consolidated debt to consolidated EBITDA) as well as other customary terms and conditions. Federated Hermes was in compliance with all of its covenants, including its interest coverage and leverage ratios at and during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. An interest coverage ratio of at least 4 to 1 is required and, as of ~~September 30, 2021,~~March 31, 2022, Federated Hermes' interest coverage ratio was ~~386~~210 to 1. A leverage ratio of no more than 3.0 to 1 is required and, as of ~~September 30, 2021,~~March 31, 2022, Federated Hermes' leverage ratio was ~~0.23~~0.94 to 1. ~~The~~

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

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~~purchasing company stock, ~~purchasing ordinary shares of a subsidiary,~~ developing and seeding new products and strategies, modifying

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

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.

After evaluating Federated Hermes' projected liquid assets, expected continuing cash flow from operations, cash available from the Note Purchase Agreement, 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 both its ~~present~~short-term and reasonably foreseeable long-term cash needs.

Financial Position

The following discussion summarizes significant changes in assets and liabilities that are not discussed elsewhere in Management's Discussion and Analysis of Financial Condition and Results of Operations. ~~This discussion excludes certain material fluctuations primarily due to the HCL Acquisition (see Note (3) to the Consolidated Financial Statements).~~

Investments—Consolidated Investment Companies at ~~September 30, 2021~~March 31, 2022 decreased ~~$37.3~~$1.2 million from December 31, ~~2020~~2021 primarily due to a decrease of ~~$73.0~~(1) $12.4 million related to the deconsolidation of ~~three VREs~~a VRE and ~~the liquidation of a VRE~~(2) $5.9 million net depreciation on existing consolidated funds during the first ~~nine months of 2021. This decrease was~~quarter 2022. These decreases were partially offset by an increase of ~~$34.5~~$17.2 million ~~due to the consolidation of a VRE and a VIE~~in net purchases in existing consolidated funds in the first ~~nine months of 2021.~~quarter 2022.

Investments—Affiliates and Other at ~~September 30, 2021~~March 31, 2022 increased ~~$43.7~~$3.3 million from December 31, ~~2020~~2021 primarily due to an increase of $10.0 million related to the deconsolidation of ~~two VREs~~a VRE in the first ~~nine months of 2021~~quarter 2022 which reclassified Federated Hermes' investment into Investments—Affiliates and Other. This increase was partially offset by a decrease of $6.8 million in net depreciation on existing investments.

Accrued Compensation and Benefits at ~~September 30, 2021~~March 31, 2022 decreased ~~$37.5~~$88.8 million from December 31, ~~2020~~2021 primarily due to the ~~2020~~2021 accrued annual incentive compensation being paid in the first quarter ~~of 2021~~2022 ($~~133.9~~123.4 million), partially offset by ~~2021~~2022 incentive compensation accruals recorded at ~~September 30, 2021~~March 31, 2022 ($~~95.9~~25.2 million).

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

~~Long-Term Deferred Tax Liability, net~~Income Taxes Payable at ~~September 30, 2021~~March 31, 2022 increased ~~$17.4~~$10.9 million from December 31, ~~2020~~2021 primarily due to an accrual for the ~~revaluation~~first quarter estimated federal tax payment that was paid in April 2022.

Other Current Liabilities at March 31, 2022 decreased $13.5 million from December 31, 2021 primarily due to a decrease in the accrual for treasury stock purchased but not yet settled as of the ~~foreign net deferred tax liability associated with~~end of the ~~change in the UK tax rate from 19% to 25% effective April 1, 2023.~~quarter.

Legal Proceedings

Federated Hermes has claims asserted against it from time to time. See Note ~~(15)~~(17) to the Consolidated Financial Statements for additional information.

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, ~~2020,~~2021, management believes that ~~its policies regarding accounting for asset acquisitions and business combinations, goodwill and~~indefinite-lived intangible assets included in its Goodwill and ~~Hermes redeemable noncontrolling interest involve~~Intangible Assets policy involves a higher degree of judgment and complexity. See Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, 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.~~this policy.

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

The ~~continued~~ uncertainty caused by the Pandemic resulted in management determining that an indicator of potential impairment existed beginning in the first quarter of 2020 for certain indefinite-lived intangible assets totaling £150.3 million ($~~202.5~~197.4 million as of ~~September 30, 2021)~~March 31, 2022) acquired in connection with the 2018 HFML Acquisition. A discounted cash flow analysis resulted in no impairment as of each quarter end for 2020 and ~~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, 2021~~March 31, 2022 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. The risk of future impairment increases with a decrease in projected cash flows and/or an increase in the discount rate. As of ~~September 30, 2021,~~March 31, 2022, 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%2%. ~~The market volatility and other events related~~Further reductions to ~~the Pandemic could further reduce~~ the AUM, revenues and earnings associated with these intangible assets ~~and~~ may result in subsequent impairment tests being based upon updated assumptions and future cash flow projections, which may result in an impairment. For additional information on risks related to the Pandemic, see Item 1A - Risk Factors included in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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, 2021,~~March 31, 2022, 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, ~~2020.~~2021.

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, 2021.~~March 31, 2022. 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, 2021.~~March 31, 2022.

(b)There has been no change in Federated Hermes' internal control over financial reporting that occurred during the quarter ended ~~September 30, 2021~~March 31, 2022 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 ~~(15)~~(17) to the Consolidated Financial Statements.

Part II, Item 1A. Risk Factors

~~There are no material changes to~~As discussed in Item 1A – Risk Factors – General Risks Factors – Economic and Market Risks - Potential Adverse Effects of a Decline or Disruption in the ~~risk factors included~~Economy or Markets in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021, geopolitical tensions or military escalation or other instability in certain countries or regions, and technology-related or cyber-attacks, can cause or contribute to economic or market downturns, disruptions or other conditions and have potentially adverse effects. See also Item 1A – Risk Factors – General Risk Factors – Other General Risks – Potential Adverse Effects of Unpredictable Events or Consequences (including the Pandemic) in Federated Hermes' Annual Report on Form 10-K for the year ended December 31, 2021. Russia's February 24, 2022, invasion of Ukraine has led to sanctions being imposed against Russia, certain Russian nationals, and Belarus. Based on the Russian government's aggression in Ukraine, many countries around the world — including the U.S., UK, Canada, Germany, and France — reduced Russia's access to the world's financial system through sanctions ranging from freezing assets to removing Russian banks from the SWIFT global transactions banking network, among others. In the U.S., an executive order has been issued blocking property of certain persons and prohibiting certain transactions with respect to continued Russian efforts to undermine the sovereignty and territorial integrity of Ukraine. The initial sanctions generally prohibited investment in the Russian dominated so-called Donetsk People's Republic (DNR) and Luhansk People's Republic (LNR) breakaway regions of Ukraine. New sanctions were issued on March 2, March 11, and March 15, 2022, extending the sanctions to investments and persons within Russia, and broadening the sanctions to nearly every sector of the Russian economy. The private sector also has taken action to reduce, or

stop, engaging in business in Russia. Among other adverse effects, these sanctions and actions are (among other adverse effects) restricting certain trading, creating securities valuation volatility, and otherwise impacting the investment management industry and global political, market and trade stability. The Russian invasion of Ukraine also has increased, or created the possibility of increased, cybersecurity attacks. Any further sanctions, actions or escalation of cyber-attacks can exacerbate these risks. The impact of these geopolitical tensions and escalation, and resulting sanctions, actions, and escalation of cyber-attacks, is uncertain and can vary, including in material ways. Federated Hermes' will continue to monitor developments regarding these geopolitical tensions and military escalation, and the resulting sanctions, actions, and escalation of cyber activity, and assess their impact on Federated Hermes' Financial Condition.

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

(a) On March 14, 2022, Federated Hermes issued via a tender offer 318,807 treasury shares of Federated Hermes Class B common stock valued at $10.1 million in a non-public offering pursuant to Section 4(a)(2) of the 1933 Act given the limited number of participants in the tender offer, their sophistication and the amount of information regarding Federated Hermes that was provided to them. See Note (3) and Note (12) for additional information regarding this transaction.

(b) not applicable

(c) The following table summarizes stock repurchases under Federated Hermes' share repurchase program during the ~~third~~first quarter ~~of 2021.~~2022.

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
1,900 $ 3.00 0 3,166,755
August 130,000 32.58 130,000 3,036,755
September2
461,719 29.16 425,000 2,611,755
Total 593,619 $ 29.82 555,000 2,611,755


	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
January2	752,600	$	36.82	750,000	5,315,000
February2	926,800	33.05		925,000	4,390,000
March2	1,360,517	32.48		1,358,000	3,032,000
Total	3,039,917	$	33.73	3,033,000	3,032,000

1 In ~~April~~December 2021, the board of directors authorized a share repurchase program with no stated expiration date that allows the repurchase of up to ~~4.0~~7.5 million shares of Class B common stock. No other program existed as of ~~September 30, 2021.~~March 31, 2022. See Note (13) to the Consolidated Financial Statements for additional information on this program.

2 In ~~July~~January, February and ~~September 2021, 1,900~~March 2022, 2,600, 1,800 and ~~36,719~~2,517 shares, respectively, of Class B common stock with a weighted-average price of $3.00, $3.00 and ~~$0.87~~$0 per share, respectively, were repurchased as employees forfeited restricted stock.

Part II, Item 5. Other Information

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the Annual Meeting of Shareholders of Federated Hermes held on Thursday, April 28, 2022, via teleconference, the holder of Federated Hermes' Class A common stock, which constituted all of the shares entitled to vote at the meeting, approved the following proposal, which is described in more detail in Federated Hermes' Information Statement to shareholders dated March 16, 2022.

The holder of Federated Hermes' Class A common stock elected six individuals to the Board of Directors of Federated Hermes, Inc. as set forth below:


Director	Shares Voted For	Shares Voted Against	Shares Withheld
Joseph C. Bartolacci	9,000	—	—
J. Christopher Donahue	9,000	—	—
Thomas R. Donahue	9,000	—	—
Michael J. Farrell	9,000	—	—
John B. Fisher	9,000	—	—
Marie Milie Jones	9,000	—	—

APPROVAL OF INCREASE IN INDEPENDENT DIRECTOR COMPENSATION.

On April 28, 2022, the Board of Directors of Federated Hermes approved increasing (1) the annual base fee received by independent directors from $50,000 per year to $53,000 per year, effective with the first quarterly installment payable in July 2022, and (2) the number of shares of unrestricted Class B Common Stock annually granted pursuant to Federated Hermes' Stock Incentive Plan (as amended, Stock Incentive Plan) to independent directors from 2,250 shares per year to 2,350 shares per year, effective as such annual awards may be approved and granted by the Compensation Committee consistent with the Stock Incentive Plan. With this increase, for their service as directors, Federated Hermes' independent directors receive (i) $53,000 per year; (ii) $5,000 per year for each Board Committee Membership; (iii) $5,000 per year for Compliance Committee Chair, Compensation Committee Chair and service as Lead Independent Director, and $10,000 per year for Audit Committee Chair (each of the aforementioned payable in quarterly installments); (iv) $1,500 per attendance at a special meeting of the Board payable when such meetings occur; and (v) 2,350 shares of unrestricted Class B Common Stock annually pursuant to the Stock Incentive Plan.

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:

Ex hibit 10.1 – Federated Hermes, Inc. $350,000,000 3.29% Senior Notes due March 17, 2032 Note Purchase Agreement dated March 17, 2022 (filed herewith) *

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)

* Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Federated Hermes agrees to furnish supplementally to the SEC a copy of any omitted schedule or exhibit upon request.

6051

Table of Contents

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 29, 2021~~May 3, 2022

By:

/s/ J. Christopher Donahue

J. Christopher Donahue

President and Chief Executive Officer

Date

~~October 29, 2021~~May 3, 2022

By:

/s/ Thomas R. Donahue

Thomas R. Donahue

Chief Financial Officer

6152


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	8
		Notes to the Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2421
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5849
	Item 4.	Controls and Procedures	5949
Part II. Other Information
	Item 1.	Legal Proceedings	5949
	Item 1A.	Risk Factors	5949
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5950
	Item 5.	Other Information	50
	Item 6.	Exhibits	6051
Signatures			6152