Federated Investors Inc.'s pending acquisition of $5 billion in money market fund assets from Fifth Third Bancorp is seen as a signal of the start of a buying spree for the firm.
The current market environment of rock-bottom interest rates, increased capital requirements for banks and the possibility of further money market fund regulation are combining to force smaller money market players to rethink their role in the business, according to experts.
Federated president and chief executive Chris Donahue believes his firm could be the beneficiary of banks' being “more open” to selling, particularly as any potential new regulation by the Securities and Exchange Commission begins to take actual 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
announced last week it was acquiring Fifth Third's money market funds because the regional bank was looking to focus on an open architecture platform for its clients.
Federated has been one of the most vocal opponents of the SEC's upcoming proposal regarding further money market fund reform, which could possibly force money market 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 still sees money market 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 market fund assets, or about 9% of the retail money market industry.
