NOTE: Watch for News postings beginning Monday afternoon from the opening of Crane's Money Fund Symposium, which takes place through Wednesday at The InterContinental Boston....

As we noted Friday, Federated Investors hosted its latest quarterly earnings call Friday. Today we excerpt some highlights, which include evidence that fee waivers are decreasing and that money fund outflows are nearing an end. CEO Chris Donahue said, "Money market asset changes are best understood within the context of the unprecedented cycle we're experiencing.... While market conditions continue to be challenging, our clients have remained strong, stable and growing. Our clients have appreciated the strength, the stability and the availability of our products. We remain confident that our cash management business is well positioned, and we expect this business to grow over time with higher highs and higher lows during particular cycles."

He also commented, "We also expect further growth from consolidation. The transaction we announced last week with SunTrust (see Crane Data's July 19 News "Federated to Take Over SunTrust's RidgeWorth Money Mkt Fund Assets") is expected to result in the transition of about $17 billion in money market fund assets into Federated money market products during Q4. We expect to see more of these arrangements as banks and other organizations are attracted to our long-term commitment to this business and our long-term record of providing high quality products and service that they can rely on for their clients."

Donahue added, "Turning to money market fund yield waivers, Q2 saw some relief in the impact from these waivers. As we expected, repo rates moved into the upper portion of the zero to 25 bps target range. LIBOR rates further increased.... This helped to decrease the waivers more than anticipated. We expect these waivers to decrease going forward, though at a slower rate than we saw in Q2.... We remain active in looking for consolidation deals, including money market business."

CFO Tom Donahue explained, "As expected, we saw less impact from money market fee waivers in Q2 [$13 million vs. $17.8 million in Q1].... We do not expect the impact from fee waivers to decrease materially from this level until the Fed begins to increase interest rates.... In terms of sensitivity, we have estimated that a 10 basis point increase in gross money fund yields would decrease waivers by about one-third, and this is essentially what we experienced in the second quarter. Looking forward, we estimate that gaining another 10 basis points in gross yield will likely reduce the impact of these waivers by another one-third from our current levels, and a 25 basis point increase would reduce the impact by about two-thirds."

When asked where money fund assets would bottom out, MM CIO Debbie Cunningham responded, "If you look at where some of those assets went, they went into some bank deposit-type instruments that, with the increase in the yield curve that we've seen over the last quarter, has made funds competitive with those products again. That's why you’ve seen sort of a leveling off of those asset flows. The expectation would be that that would be maintained. Having said that, any time you go into a rising rate environment, although we're pushing that out ... we can't go lower.... Rising rate environments are accompanies on a cyclical basis with a decline in money fund assets.... [But] we think a good portion of that has already played itself out."

She added, "Money funds are definitely the vehicle of choice from an ease and a usage perspective, and to the extent that they are even with, or even close to, what's happening from a direct market perspective, I think they win the game in that regard."

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