Federated Hermes reported its Second Quarter earnings late Thursday and hosted its Q2'26 earnings call on Friday. CEO Chris Donahue comments, "For Q3 ... turning to fixed income, assets ended Q2 at just over $100 billion, up $689 million.... We had 26 fixed income funds and SMAs with net sales in Q2, led by Core Plus and Core Agg SMA, which combined for $190 million, with three Ultrashort Bond Funds that were up a combined $134 million, and the conservative Muni Micro Short Fund was up almost $100 million.... Fixed income is expected to have net sales of about $300 million, including total return bond, low duration, and high yield."
He says, "Moving on to money markets, total money market assets decreased by $7.9 billion or about 1%. Money market funds decreased by $2.9 billion or 1% from Q1, yet were up almost $32 billion or 7% year-over-year. After ending 2025 at a record high of $508 billion, money market fund assets have decreased slightly over the first half of the year to $500 billion at the end of Q2. Money market separate accounts decreased by about $5 billion or 3%, similar to last year’s Q2 decrease of $5.8 billion."
Donahue continues, "Still, these assets were up about $10 billion or 6.4% year-over-year at the end of Q2. Money market separate account assets are impacted by the liquidity levels of the large state pools that we manage and typically peak with tax collections at year-end through mid-April before decreasing in Q2 and Q3. Our estimate of money market mutual fund market share, including sub-advised funds, was about 6.7% at the end of Q2, down from 6.9% at the end of Q1."
He explains, "Now looking back at the last seven and a half years or so of quarterly money market fund market share changes, we gained share in 14 quarters. We lost share in 14 quarters, with 2 quarters of no change. The average share gain was 0.20. The average share loss was about 0.23. Our money market fund managed assets more than doubled from $208 billion to $500 billion over that period. This is certainly entrepreneurial delight from an owner/operator. Of course, it's important to note that we remain in the top 10 in every category of money market fund managed asset levels in the top 5 in prime and tax-free."
Donahue states, "Now let's talk about digital. Our digital initiatives include the recent launch of Money Market Management Digital Treasury Fund, which is expected to support both traditional and on-chain distribution. The initial Reserve Shares class provides a non-tokenized GENIUS compliance structure geared to institutional investors and stablecoin issuers seeking investments aligned with stablecoin reserve requirements. We are also developing an on-chain share class intended to place official books and records of that share class on blockchain infrastructure as we implement a digital transfer agency model."
He comments, "This dual track approach offers flexibility between traditional and on-chain record-keeping models. We have selectively engaged with regulated digital asset intermediaries focusing on tokenized funds as regulated financial instruments. We've previously discussed our participation in the BNY [LiquidityDirect]/Goldman domestic initiative involving mirrored tokenization and the Archax initiative to offer tokenized assets to a UCITS money market fund in the U.K. We are engaged in the digital asset development discussion with several other intermediaries. These are early-stage efforts. Our clients are currently looking more for digital asset information than transaction ability."
Donahue then says, "We expect our engagements with intermediaries to grow as regulations clarify and as our digital assets platform and product development progress. Now let's look at the recent asset totals as of a few days ago. Managed assets were approximately $899 billion. We should have picked the day before, including $665 billion in money markets, $109 billion in equities, $100 billion in fixed income, $23 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were $490 billion. Money market fund assets have ranged from $490 billion-$501 billion during July with average asset levels of $496 billion."
When asked about rates and money fund assets, Donahue responds, "Well, let me comment first. Then I know Debbie's chomping at the bit to get at this one. In terms of the money market fund overall, we've been at this for 50 years. There's all sorts of things that come together, like our rivers in a big confluence, month to month. That's why I went through all those percentages of changes in market share. Because of the seasonality, I think that says for itself that we do expect that seasonality to come back just like it has. All these years we've had these pools. Some other interesting things have happened in the marketplace. One of the big firms offered a sort of a bonus yield program that moved some assets. We had some big clients move. That always happens."
He adds, "As I mentioned in the previous question, we had some ultrashort and people moving out the curve a little bit. With the Fed situation, if it is really higher for longer, i.e., they don't do anything, that's fine with us. Remember, a 3.5% or so yield on a money fund is a great thing. Debbie?"
Cunningham replies, "Thanks, Chris. Yes, I agree, a lot of volatility in the first half of the year. There were some very large market deals that occurred from an IPO standpoint and a long-term debt standpoint, Amazon, Alphabet, Anthropic, SpaceX. They issued large amounts in the marketplace, which subsequently, for a period of time, came into the money market universe, and has subsequently gone out. Still, some of it's left in there. A lot of volatility and noise around the first half of the year. Ultimately, what Chris mentioned with regard to a Warsh-led Fed, that at this point is showing no signs of being in the mode of lowering rates. Keeping rates higher for longer where they are now. The market is actually predicting that the rate environment is increased at the September meeting, which I don't particularly think will be the likely scenario."
She tells us, "Nonetheless, with rates on the short end, somewhere between 3.5% and 4.5% on a yield curve basis over the first half of the year, money market funds look very attractive. Most of the industry, including ourselves, has lowered their weighted average maturities to have some fuel available to light the fire even further. As rates and the yield curve steepen to some degree, floaters are a really good use of investments in these funds during a rising rate environment, and those have been plentiful in the marketplace. Sometimes we like the spread in the floater, sometimes we don't."
Cunningham adds, "All of this really leads us to a conclusion that with rates where they are marginally higher from a steeper yield curve standpoint, the attractiveness of cash and the attractiveness of money market funds, as well as the separate accounts and the pools that we manage, will continue to gather assets as does the industry."
Asked another question on money fund market share, Donahue responds, "That's why I tried to list a whole bunch of confluence of factors that all jump around every single quarter. Debbie talked about all these big IPOs that came out, where the cash came in, then that goes out. Who has more of it than the other guy, then that changes the market share. The movement of some of the clients, the Ultrashort and Conservative Microshort, that does it. You already commented on the one, there's some big retail programs. Then there's just the ebb and flow of cash, and it is volatile. There's nothing that you can do about it. We look for the seasonality, the steady eddy of the program. As I tried to hint in my remarks, we would trade every time to go from $200 billion to $500 billion and have the market share."
