Federated looking to snap up more money funds, says Donahue

Acquisitive company looking at 'everything that goes by'; Pioneer Investments being eyed?
JUN 18, 2010
Just two months after it announced that it was acquiring SunTrust Banks Inc.'s $17 billion money market business, Federated Investors Inc. is on the prowl to buy more money funds. The fund company also is looking to purchase an international asset manager with a global distribution network, Chris Donahue, chief executive of Federated Investors, said in an interview. In June, Gordon Ceresino, vice chairman and president of Federated International Management Ltd., told InvestmentNews that the firm was looking to acquire a global asset manager that could add to the firm's fixed-income offerings. Nevertheless, Mr. Donahue said, the firm is casting a wide net. “Everything that goes by, we are looking at,” he said. He declined to comment on whether the firm is bidding to buy Pioneer Investments from UniCredit SPA, which is reportedly up for sale. Despite the fact that money fund yields have been close to zero, Mr. Donahue thinks now is a good time to acquire money fund assets. “We realize that because of the [fund] waivers, the economics are not as attractive as they should be, but when you are doing things over the course of decades for customers, you wait and see,” he said. He also noted that there are a lot of potential acquisition targets in the money fund space these days. “From our perspective, anyone who isn't in the top 25 on the money fund list is someone who can seriously consider turning their money fund business to us,” Mr. Donahue said. “Years ago, there used be 300 money fund managers; now there are less than 150.” Money market funds made headlines in 2008 in the wake of the collapse of Lehman Brothers Holdings Inc. — then Neuberger Berman LLC's parent — when The Reserve Primary Fund “broke the buck,” meaning that its net asset value fell below $1 a share. To address concerns that more money market funds may have liquidity issues, the Securities and Exchange Commission passed rules mandating that money funds hold more liquid assets, limit their investments to the highest-quality securities and reduce the average maturity of the securities in their portfolios. But regulators are looking at placing additional restrictions on money funds. In a speech yesterday, Paul Volker, chairman of President Barack Obama's Economic Recovery Advisory Board and former Federal Reserve chairman, said that money funds need capital requirements. Such requirements would force money funds to shut down and in general don't make sense, Mr. Donahue said. “Money funds are not banks. These are not deposits, and they don't fail like banks,” he said.

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