Annual Report & Financial Statements - Federated Hermes

Annual Report & Financial Statements

Hermes Fund Managers Limited 31 December 2020

hermes-

Registered No: 1661776

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Annual Report and Financial Statements 2020

Index

Federated Hermes International

3

Our purpose

4

Our business

5

Our year in brief

7

Chairman's Statement

8

Strategic Report

10

Our growth strategy

11

Holistic returns

16

Business development review

25

Financial review

27

Section 172 Statement ? stakeholder engagement 31

Employee alignment

37

Risk management

40

Directors52

Committee Reports

58

Report of the Audit Committee

59

Report of the Risk and Compliance Committee 63

Report of the Remuneration Committee

66

Report of the Nominations Committee

78

Directors' Report

79

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements 83

Auditor's Report

84

Financial Statements

88

Consolidated profit and loss account

89

Consolidated statement of comprehensive income 90

Consolidated balance sheet

91

Consolidated statement of changes in equity

93

Consolidated cash flow statement

95

Notes to the financial statements

97

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Annual Report and Financial Statements 2020

Our purpose

Ever since our 1983 origin, our purpose has been to deliver sustainable wealth creation: generating wealth through investments that enrich investors, society and the environment over the long term.

Sustainable Wealth Creation

From day one to the present day, this purpose drives everything we do. We aim to deliver sustainable outcomes for investors through our unique investment approach. Sustainable wealth creation is achieved through four core actions.

A First, high-active-share investment: we invest actively and with conviction over long time periods;

A Second, best-in-class environmental, social and governance ("ESG") integration in public and private markets, from equities and credit to private debt and real estate;

A Third, stewardship: harnessing investor capital to change companies for good, from within; and

A Fourth, our Responsibility Office: independent of investment teams, it ensures that we integrate ESG and stewardship insights with integrity and continue to innovate.

The delivery of sustainable wealth creation is driven by all employees at our firm and is overseen by our CEO, Investment Office, Responsibility Office and Equity Ownership Services ("EOS") at Federated Hermes.

Seeking to fulfil this purpose, we have aligned companies' strategies and behaviours with the long-term holistic interests of investors, and will strive to continue doing so.

Important information

This Annual Report discusses the business, financial results and risk factors of Hermes Fund Managers Limited which, together with its consolidated subsidiaries, constitutes the international business of Federated Hermes ("HFML"), and not the consolidated business, financial results and risk factors of HFML's majority owner, Federated Hermes, Inc. Accordingly, unless the context clearly requires otherwise, or unless specifically specified otherwise, references in this Annual Report and Financial Statements to "our", "the Board," "ExCo", "CEO", Board committees, directors, officers, employees, service providers, agents, performance, plans, or similar expressions should be construed as referring to "HFML", "HFML's Board", "HFML's ExCo", "HFML's CEO" and Board committees, directors, officers, employees, service providers, agents, employees, plans, etc. of HFML (rather than HFML's

majority owner, Federated Hermes, Inc.). For the purposes of this report, any reference to `headcount', `employees' or `staff' are measured by full time equivalents rather than individual persons. For information regarding Federated Hermes, Inc.'s consolidated business, financial results, and risk factors, as well as other information, please see Federated Hermes, Inc.'s most recent Annual Report on Form 10-K for the year ended 31 December 2020 which is available under "Annual Report" under the "Investor Relations" tab at .

For the purposes of this report, Hermes Fund Managers Limited will be referred to as "the international business of Federated Hermes" or "HFML". Hermes GPE LLP will be referred to as "HGPE" and MEPC Limited referred to as "MEPC".

Forward-looking statement

Certain statements in this report constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance or achievements of Hermes Fund Managers Limited and its subsidiaries (collectively, HFML), or industry results, to be materially different from any forecast 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", "may" and similar expressions.

HFML's business and financial results are subject to business, operational and financial risks. Past performance is not a guarantee of future results. Both risks and mitigants are discussed on pages 43 to 50. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither HFML nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

Federated Hermes International

5

INTRODUCTION

STRATEGIC REPORT

DIRECTORS

COMMITTEE REPORTS

Our business

The Federated Hermes group consists of two specialist investment managers operating under one global brand, leveraging each other's expertise and commitment to sustainability to outperform for clients and create positive outcomes in the wider world.

Federated Hermes, Inc. Established 1955 Headquartered in Pittsburgh Listed on the NYSE as FHI

The international business of Federated Hermes Active investment and stewardship since 1983 Headquartered in London Majority owned by Federated Hermes, Inc.

As a global leader in active investment and sustainability, Federated Hermes, Inc., offers specialised investment capabilities and pioneering stewardship services to investors around the world. At 31 December 2020, this included:

Active Equity Fixed Income Liquidity Solutions Private Markets and Alternatives

Stewardship

$91.8bn $84.3bn $420.3bn $23.0bn

$1.3tn

Diverse range of high-active-share strategies Dynamic security selection across the credit spectrum Cash-management pioneer and money-market leader

Multiple access routes to world-class assets Driving outcomes-focused stewardship and advocate for sustainability

We are the international business of Federated Hermes

By pioneering global stewardship, developing innovative ESG strategies and advocating for a financial system that works for all, the international business of Federated Hermes has been at the forefront of investment and sustainability since 1983.

Stewardship assets under advice ("AUA") reached ?938.5bn by 31 December 2020, a record high for the Group. This ground-breaking work in ESG integration across asset classes plays a key role in developing the Principles for Responsible Investment ("PRI") and illustrates our commitment and influence.

With industry-leading investment, stewardship and advocacy experts, we aim to deliver sustainable wealth creation that enriches investors, benefits society and preserves the environment ? for current generations and those to come.

Investment and stewardship services

Our investment strategies are focused on achieving the financial goals of clients and end investors while supporting positive change in society and environmental preservation.

We manage investment funds, segregated mandates, coinvestment partnerships and sub-advisory accounts for a range of clients, including pension funds, discretionary wealth managers, private banks, official institutions and distribution platforms.

Our global stewardship capability covers public equity and fixed-income markets, providing corporate engagement, proxy voting, advisory, policy advocacy and portfolio screening services. Our private markets teams also engage intensively with the assets they invest in to meet interests of clients and broader stakeholders.

Our Investment Office oversees the quality and client focus of our investment activities and manages portfolio management teams. Of equal influence, the Responsibility Office ensures integrity in ESG and stewardship integration in our investment strategies. Both entities report directly to our CEO.

DIRECTORS' REPORT

AUDITOR'S REPORT

FINANCIAL STATEMENTS

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