Federated Investors, the 3rd largest money fund manager and bellwether for the overall money fund industry, reported 3rd quarter earnings last night. The Pittsburgh-based company hosted its quarterly earnings conference call this morning, and discussed money fund asset flows, fee waivers, and other factors impacting the money markets.

CEO Chris Donahue's money fund related comments include, "It is clear that money funds are a vital part of the financial system.... We expect this core business to grow over time with higher highs and higher lows as it has over the past 30+ years. We will be looking for opportunities to add assets ... including MMMF consolidtion deals." He said in the Q&A, "We expect that you would continue to see net redemptions, but to a modest extent." Finally, he added, "We don't think that there will be a capital requirement or reserve requirement.... On the liquidity bank, we can only say we're aware that people are working on it."

Federated's release says, "Money market assets in both funds and separate accounts were $318.1 billion at Sept. 30, 2009, up $30.3 billion or 11 percent from $287.8 billion at Sept. 30, 2008 and down $28.3 billion or 8 percent from $346.4 billion at June 30, 2009. Money market mutual fund assets were $287.6 billion at Sept. 30, 2009, up $28.4 billion or 11 percent from $259.2 billion at Sept. 30, 2008 and down $25.2 billion or 8 percent from $312.8 billion at June 30, 2009." Crane Data's Money Fund Intelligence XLS shows that overall money fund assets decreased by 7.9% in the third quarter and have increased by 3.5% over the past 12 months.

It continues, "For Q3 2009, revenue decreased by $12.3 million or 4 percent from the same quarter last year. The decrease in revenue primarily reflects $36.5 million in voluntary fee waivers related to certain money market funds in order to maintain positive or zero net yields. The fee waivers were partially offset by a related reduction in marketing and distribution expenses of $27.9 million such that the net impact on operating income was a decrease of $8.6 million. Lower average equity managed assets also contributed to decreased revenue. These decreases were partially offset by increased revenue from higher average money market and fixed-income managed assets."

Federated cautions, "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 Federated's willingness to continue these waivers."

They say, "For Q3 2009, Federated derived 63 percent of its revenue from money market assets, 24 percent from equity assets, 12 percent from fixed-income assets and 1 percent from other products and services. Operating expenses for Q3 2009 were $198.9 million compared to $212.7 million for Q3 2008. Marketing and distribution expenses decreased because of the aforementioned fee-waiver-related reductions, partially offset by the impact of increases in average money market managed assets."

Finally, the release adds, "Compared to the prior quarter, revenue decreased by $13.3 million or 4 percent. The decrease in revenue primarily reflects a $19.6 million increase in voluntary fee waivers on certain money market funds in order to maintain positive or zero net yields. The fee waivers were offset by a related decrease in marketing and distribution expenses of $16.5 million such that the net impact on operating income was a decrease of $3.1 million compared to the prior quarter. In addition, revenue decreased due to lower average money market managed assets."

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