Federated Investors Inc.'s pending acquisition of $5 billion in money market fund assets from Fifth Third Bancorp is seen as the start of a buying spree for the firm.
Low interest rates, increased capital requirements for banks and the possibility of further money fund regulation are forcing smaller money market players to rethink their role in the business, according to observers.
Federated president and chief executive Chris Donahue thinks that his firm could be the beneficiary of banks' being “more open” to selling, particularly as potential regulation by the Securities and Exchange Commission begins to take form.
“We're not only keeping our eyes on banks to see if they're looking to sell, we're calling them all the time to stimulate the conversation,” he said.
Federated said that it is acquiring Fifth Third's money funds because the regional bank wants to focus on an open-architecture platform for clients.
Federated has been a vocal opponent of the SEC's upcoming proposal regarding further money fund reform, which could force money funds' net asset value to float or require firms to have a capital buffer in place to protect against runs on the funds.
Despite the possibility of further tightening of regulation, Mr. Donahue sees money funds as a good long-term investment.
“It's a cash management service as much as an investment, and that service is what is needed,” he said.
Federated has about $285 billion in money fund assets, or about 9% of the retail money market industry.