Federated Hermes, Inc. has recently released its 10-Q report, revealing that it is a publicly owned investment manager with $800.5 billion in managed assets as of September 30, 2024. The majority of its revenue comes from advising Federated Hermes Funds and Separate Accounts in domestic and international public and private markets. It also derives revenue from providing administrative and other fund-related services, as well as stewardship and real estate development services.
The report further details that during the second quarter of 2024, a $66.3 million non-cash impairment of an indefinite-lived intangible asset associated with the 2018 FHL acquisition was recorded in Intangible Asset Related expense on the Consolidated Statements of Income. Additionally, the business and regulatory environments in which Federated Hermes operates globally remain complex, uncertain, and subject to change. Federated Hermes and its investment management business are subject to extensive regulation, both within and outside of the U.S., including various laws, rules, and regulations globally that impose restrictions, limitations, registration, reporting, and disclosure requirements on its business, and add complexity to its global compliance operations.
The primary regulator in the U.S. for Federated Hermes is the SEC. Key regulatory developments and requirements in the U.S. since June 30, 2024, that could significantly impact or relate to Federated Hermes’ business and offerings include, among others, the SEC Spring 2024 Reg Flex Agenda. The SEC published its Spring 2024 Unified Agenda of Regulatory and Declaratory Actions (SEC Spring 2024 Reg Flex Agenda) on July 8, 2024, identifying 34 rulemaking initiatives on the SEC’s calendar for 2024 and 2025, including 19 final rules and 15 additional proposed rules. Among other developments, the SEC Spring 2024 Reg Flex Agenda signals that the SEC Staff is considering recommending that the SEC re-issue proposed rules on open-end fund liquidity risk management programs and swing pricing by April 2025, safeguarding advisory client assets (i.e., amendments to the Custody Rule under the Advisers Act) by October 2024, and conflicts of interest associated with the use of predictive data analytics (or artificial intelligence) by broker-dealers and investment advisors by October 2024. The original proposed rules on these topics were subject to significant public comments that were opposed to many aspects of the proposed rules.
Examples of other proposed rules currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, human capital management disclosure, board diversity disclosure, amendments to the Rule 144 holding period, amendments to Regulation D, including updates to the accredited investor definition and Form D, fund fee disclosure, and broker-dealer and investment advisor conflicts in the use of predictive data analytics, artificial intelligence, machine learning, and similar technologies. Examples of final rules that are currently identified by the SEC Spring 2024 Reg Flex Agenda to be issued by October 2024 or April 2025 include, among others, enhanced disclosure by certain investment advisors and investment companies about ESG investment practices, cybersecurity risk management for investment advisors and investment companies, and outsourcing by investment advisors. These final and proposed rules are expected to impose significant new requirements on the investment management industry, including Federated Hermes. The market has reacted to these announcements by moving the company's shares 0.1% to a price of $38.63. Check out the company's full 10-Q submission here.
