Federated Hermes reported its First Quarter earnings late Thursday and hosted its Q1'26 earnings call on Friday. CEO Chris Donahue says in the press release, "Investors with interest in capital preservation and liquidity continued to rely on our money market offerings and -- for those interested in moving further out the yield curve in the pursuit of higher yields than money market products -- our ultrashort funds." The release tells us, "Money market assets were a record $684.7 billion at March 31, 2026, up $47.6 billion or 7% from $637.1 billion at March 31, 2025 and up $2.1 billion from $682.6 billion at Dec. 31, 2025. Money market fund assets were $502.8 billion at March 31, 2026, up $37.9 billion or 8% from $464.9 billion at March 31, 2025 and down $5.6 billion or 1% from $508.4 billion at Dec. 31, 2025."
On the earnings call, Donahue comments, "Market conditions remain favorable for cash as an asset class. In addition to the appeal of relative safety in periods of volatility, money market strategies present opportunities to earn attractive yields compared to alternatives like bank deposits and direct investments in T-bills and commercial paper. Our estimate of money market mutual fund market share, including sub-advised funds, was about 6.9% at the end of Q1, down from 7.0% at the end of 2025. Let's have a little discussion on digital assets and what we're doing there. We are focused on this area as an infrastructure evolution, not a speculative asset class."
He explains, "We are working on digital initiatives designed to enhance distribution efficiency, settlement speed, transparency, operational automation, and global reach while maintaining regulatory, fiduciary, and governance standards. Importantly, digital structures must enhance access, efficiency, and integration into modern treasury portfolio and collateral workflows. They must operate within regulatory frameworks, preserve investor protections, and provide valuation integrity. Through deep engagement with our operational partners, we are well-positioned to properly evaluate governance, ownership representation, transfer restrictions, and risk management implications of tokenized funds as we build out our digital capabilities. While we are initially prioritizing products aligned with our core strength and liquidity management, we of course expect over time to see digital products developed for ETFs or other mutual funds, private market vehicles across many or all market classes."
Donahue continues, "The firm's digital initiatives include the upcoming launch of our Money Market Management Digital Treasury Fund, which is expected to support both traditional and on-chain distribution. The initial Reserve Shares class will provide a non-tokenized, GENIUS-compliant structure geared to institutional investors and stablecoin issuers seeking high-quality reserve assets."
He states, "We are also developing an on-chain share class intended to place official books and records on the blockchain infrastructure once a fully digital transfer agency model is available. This dual-track approach offers flexibility between traditional custody and fully on-chain models. We have selectively engaged with regulated digital asset intermediaries focusing on tokenized funds as regulated financial instruments. Initial use cases emphasize cash on-chain liquidity solutions with a longer-term view towards supporting additional asset classes as market structures evolve."
Donahue tells the call, "As we have previously mentioned, we are participating in the launch of a collaborative initiative between BNY and Goldman Sachs that will involve mirrored tokenization of money market fund shares to improve transferability, collateral utility, and real-time ownership tracking of money market fund shares. We are also expanding digital engagement beyond U.S. money markets towards a global strategy. In the U.K. and Europe, we are exploring digital sterling liquidity products and assessing tokenization for broader regulated fund distribution."
He also says, "We are participating in tokenized offerings where Federated Hermes funds are used as the underlying assets rather than being directly tokenized. This includes our alliance with Archax, the first FCA-regulated digital securities exchange, to offer tokenized access to a U.S. money market fund. The platform enables professional investors to hold beneficial ownership tokens across multiple blockchains and access money market liquidity directly on-chain. We are exploring similar partnership opportunities."
Donahue adds, "Finally, looking at recent asset totals as of a few days ago, managed assets were approximately $902 billion, including $668 billion in money markets, $107 billion in equities, $101 billion in fixed income, $22 billion in alternatives private markets, and $3 billion in multi-asset. Money market mutual fund assets were $487 billion."
During the Q&A, J.P. Morgan's Ken Worthington asks, "What portion of your existing clients today do you think care about and will utilize digital money market funds versus traditional cash product structures over time? And if you think out about a decade, what portion of the entire cash market do you think cares about tokenized money market funds versus other forms of tokenized cash?"
Donahue answers, "Out 10 years is pretty tough to see. Right now it's a very low percentage of the clients that are asking for, demanding or wanting these tokenized products. What you see with us and with others is a grand effort to get ready for tomorrow. If you want to say you're feeling us protecting our franchise, you're right. If you want to say you're feeling us with a little FOMO in it, you're right. This is not the usual customer demand, 'we got to have it' type deal. Over time, as you see the digitization of things catching on, we are going to be there. Over 10 years, I think it would be a routine deal, but it's really hard for me to say how much it would be."
Money Market CIO Debbie Cunningham adds, "Wow, 10 years, that's a long time.... To add to what Chris was saying, I mean, if you build it, they will come. That's sort of the attitude now with that historically, as sort of a premise, success has followed. I don't know, maybe, probably less than 25% of retail customers. I think from an institutional customer standpoint, you're looking at something that maybe is in the 25%-50% utilization. Once all the comfortability is there with the, you know, the fiduciary aspects of it that Chris was mentioning at the beginning."
Donahue adds, "I'll close with this one more, Ken. That is that, remember, the basic product is daily liquidity at par. However all the fancy stuff works, that's what you need. The next thing is, if they don't have fundamental trust in the whole thing, then it doesn't work. You got to work on those two things in addition to all of the neat toys that are being created."
Lastly, Patrick Davitt of Autonomous Research queries, "Deborah Cunningham, last quarter you suggested that money fund organic growth could be a bit lower this year. It's tough to tell what's going on in money funds the last couple of months, obviously, given the tax noise. With more signs the Fed could be on hold all year, I'd be curious to get your updated thoughts on the potential for more rotation into the asset class from either retail or institutional or both, given that change in outlook."
Cunningham replies, "You know, it hasn't changed much. I mean, we've seen double-digit growth in the high teens and then in the lower teens in both 2024 and 2025. 2026, in my opinion, is going to be more in the single-digit growth area. I do think it's something that from a safe haven standpoint and from a just a general utilization, with [govt] yields ... in the 3.72-3.75ish area, prime yields 3.86-3.90%. You know, with tax-free taxable equivalents, you're still looking depending upon what, you know, whether it’s state tax-free or just federally tax-free, you know, yields in the 4%, 5%, and 6% from a taxable equivalent standpoint."
She adds, "Those are real long-term returns in a very, very low risk product. I think the growth will continue. I think it probably we find new use cases as some of these digital product innovations are rolled out for the funds. I think that the traditional as well as new clients into the asset class will grow, just not as quickly as it has in the 2024 and 2025 timeframe. I mean, at assets reaching, it depends on who you're looking at -- whether it's Crane Data, iMoneyNet [or] ICI -- somewhere in the $7.5 trillion-$8.2 trillion range as a peak. I think that continues to grow steadily over the $8 trillion range. The larger it gets, the more, you know, obviously the percentage growth, even if it's the same dollar amount, starts to go down."
