Federated Hermes Q3 2026 Earnings: Equity Assets Reach a Record as Operating Income Rises 18%

Federated Hermes (NYSE: FHI) reported Q3 2026 revenue of $507.3 million, up 8% year over year, and diluted EPS of $1.50, up 12% from $1.34, for the quarter ended September 30, 2026. Operating income rose 18% as higher average equity assets and the FCP acquisition supported revenue, while operating expenses increased at a slower rate. Equity assets reached a record $110.5 billion, although lower money market assets pulled total managed assets down 3% sequentially.

Core Earnings Data

Revenue growth was primarily driven by higher average equity assets and the Q2 2026 acquisition of FCP Fund Manager, now Federated Hermes FCP Manager. Investment advisory fees increased 12% to $346.8 million, while administrative service fees rose 3% and other service fees declined 3%.

Operating expenses increased 4%, including an $8.5 million rise in distribution expenses and a $7.1 million increase in compensation and related costs. Because revenue grew twice as fast as expenses, operating margin expanded by approximately 2.6 percentage points.

Business and Asset Performance

The quarter showed a clear divergence between equity and liquidity assets. Equity AUM benefited from $1.9 billion of net sales and reached a record, while money market AUM fell by $27.0 billion from the end of Q2.

Federated Hermes recorded $2.42 billion of total long-term net sales, reversing net redemptions of $140 million in the prior-year quarter. Separate accounts generated $2.73 billion of net sales, more than offsetting $306 million of fund net redemptions. Equity separate accounts accounted for $1.89 billion of net sales.

Fixed-income products produced $700 million of net sales, but approximately $1.76 billion of market losses contributed to the decline in ending assets. Alternative/private markets recorded $139 million of net redemptions, while market gains helped the category finish slightly above its Q2 level.

The asset mix remains important to revenue. Long-term assets generated 50% of Q3 revenue, including 32% from equity, 10% from fixed income, and 8% from alternative/private markets and multi-asset strategies. Money market assets produced another 49% of revenue. The year-over-year equity and multi-asset comparisons also reflect a separate account reclassification effective October 1, 2025.

Balance Sheet and Capital Returns

Cash and other investments totaled $580.3 million at September 30, down from $724.3 million at the end of 2025. Long-term debt was nearly unchanged at $348.6 million, compared with $348.4 million at December 31, 2025.

Federated Hermes repurchased 992,312 Class B shares for $57.4 million during Q3. The board also declared a quarterly dividend of $0.38 per share, compared with $0.34 in the prior-year quarter, payable on November 13, 2026 to shareholders of record on November 6.

Higher Fee Revenue Expanded Margin, but Investment Marks Limited Net Income Growth

The central earnings dynamic was the gap between operating and bottom-line growth. Higher average equity assets and the FCP acquisition lifted revenue 8%, while operating expenses rose 4%, allowing operating income to increase 18%. Sequentially, expenses also benefited from the absence of certain FCP acquisition-related compensation and professional service costs recorded in Q2.

That operating improvement was partly offset below the operating line. Net nonoperating results moved from income of $10.9 million in Q3 2025 to an expense of $1.2 million in Q3 2026, primarily because investment values declined rather than increased and interest and dividend income was lower. The tax provision also increased 20% to $41.2 million, leaving net income growth at 7%.

Diluted EPS still rose 12%, faster than net income, helped by a lower diluted weighted-average share count of approximately 71.0 million versus 74.1 million a year earlier.

Management Commentary

President and CEO J. Christopher Donahue highlighted positive net equity sales, including demand across the company’s MDT quantitative investment products. Assets in MDT institutional separate accounts, MDT subadvised accounts, and total equity strategies reached record levels.

Management also reported continued demand for alternative strategies, including MDT Market Neutral offerings. Alternative/private markets fund assets reached a record during the quarter, even though the broader asset class recorded modest net redemptions.

Recent Insider Transactions

The supplied six-month insider summary shows 112,200 shares acquired across six transactions and 39,237 shares sold across nine transactions, resulting in net purchases of 72,963 shares. Total insider holdings were listed at approximately 2.75 million shares, with net purchases equal to 2.70% of those holdings.

Nine of the 10 latest reported transactions were sales, while one was a stock gift. All were reported as direct transactions.

Risks Investors Need to Watch

• Money market assets declined sequentially. The category produced 49% of Q3 revenue, but ending assets fell 4% from Q2. A sustained decline could reduce the associated fee base.
• Market movements can offset positive sales. Long-term products generated $2.42 billion of net sales, but $2.44 billion of market losses largely neutralized those inflows at the asset level.
• Nonoperating results remain volatile. Changes in the market value of company investments caused a $12.1 million year-over-year deterioration in net nonoperating results, limiting the conversion of operating growth into net income.
• FCP increased both revenue and costs. The acquisition contributed to revenue growth but also raised compensation expense. Future operating leverage will depend on the relationship between the acquired revenue and its continuing cost base.

Summary

Federated Hermes delivered faster operating income growth in Q3 2026 as record equity assets and the FCP acquisition lifted revenue more quickly than expenses. Positive long-term net sales and expanding operating margin were offset by a sequential decline in money market assets and a negative swing in investment-related nonoperating results. The main follow-up items are money market balances, the durability of equity and separate-account inflows, and whether operating leverage continues as FCP becomes part of the ongoing cost structure.