Federated Investors, the third largest manager of money market mutual funds with almost $300 billion (according to our monthly Money Fund Intelligence XLS), reported quarterly earnings last night and hosted a conference call this morning. Federated's earnings, quarterly discussion and Q&A almost always offer a unique look into a number of issues impacting the money market industry as a whole. The company's Q2 money fund numbers reflect a tempered decline in overall money fund assets, a still modest impact from fee waivers due to ultra-low yields, and continued longer-term gains in market share by Federated in the money fund space.

On the conference call Q&A, CEO Chris Donahue (who also appeared on CNBC this a.m.) said, "I don't think you're going to see any serious changes or harm to money funds." He dismissed the possibility of capital requirements and a floating rate NAV, saying, "I don't think it's all that real.... You'll also note that there are no proposals for capital on money market funds." He pointed out that a floating NAV was mentioned by the SEC "not in terms of rules, but questions," and added, "From our point of view, a changing NAV is very bad for money funds. The SEC, we don't believe, is going to a floating rate asset or amortized cost. We think they're both under control."

The company's press release says, "Money market assets in both funds and separate accounts were $346.4 billion at June 30, 2009, up $75.3 billion or 28 percent from $271.1 billion at June 30, 2008 and down $13.7 billion or 4 percent from $360.1 billion at March 31, 2009. Money market mutual fund assets were $312.8 billion at June 30, 2009, up $72.2 billion or 30 percent from $240.6 billion at June 30, 2008 and down $16.0 billion or 5 percent from $328.8 billion at March 31, 2009."

Crane Data shows money fund assets as a whole declining by 6.0% in Q2'09 and increasing by 8.3% over the past year. Federated's market share of domestic U.S. money fund assets (tracked by our MFI XLS) was 8.6% in Q22009, down fractionally from 8.7% in Q1 but up sharply from 7.1% a year ago.

Federated explains, "For Q2 2009, revenue was $306.9 million compared to $310.3 million for the same quarter last year. The decrease in revenue primarily reflects decreases in revenue of $41.2 million from lower average equity managed assets ... and $17.0 million in fee waivers related to certain money market funds in order to maintain positive or zero net yields. These decreases in revenue were partially offset by increases of $43.5 million from higher average money market managed assets.... The aforementioned fee waivers were offset by a related reduction in marketing and distribution expenses of $11.4 million such that the net impact on operating income was a decrease of $5.6 million."

A disclaimer states, "Fee waivers to produce positive or zero net yields may increase and such increases could be significant. The amount of these waivers will be determined by a variety of factors including available yields on instruments held by the money market funds, changes in assets within money market funds, actions by the Federal Reserve and the U.S. Department of the Treasury, changes in the mix of money market customer assets, changes in expenses of the money market funds and the willingness of the fund adviser to continue these waivers." Look for more on waivers in coming days. (The Q&A on the conference call contained almost a dozen questions on this topic.)

Finally, the release says, "For Q2 2009, Federated derived 69 percent of its revenue from money market assets, 20 percent from equity assets and 11 percent from fixed-income assets." Look for more coverage once we transcribe this morning's conference call. (You can access the replay via the "About Us" section of http://www.federatedinvestors.com.)

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