On Monday, PNC, the 25th largest manager of money market mutual fund assets with $11.3 billion, merged its assets into Federated, the 5th largest MMF manager (with $299.6 billion as of 10/31/19 before the merger). A press release entitled, "Federated Investors, Inc. Completes Acquisition of Certain Investment-Related Assets from PNC Bank, N.A.," tells us, "Federated Investors ... announced the acquisition of certain components of the PNC Capital Advisors LLC (PCA) investment management business. The transaction involved the reorganization of 18 PNC equity, fixed-income and liquidity mutual funds into 16 corresponding Federated mutual funds and the transition of a five-person Cleveland-based international equity portfolio management team from PCA to Federated. The acquisition also included a portion of PCA's separate account and separately managed account businesses."
It explains, "The reorganization of $14.0 billion in assets comprised approximately $11.3 billion in liquidity assets, $2.3 billion in equity assets and $450 million in fixed-income assets. Each mutual fund reorganization was approved by PNC fund shareholders.... Federated will pay PCA an estimated total purchase price of approximately $56 million for the acquisition."
Federated President & CEO J. Christopher Donahue comments, "This transaction builds upon Federated's long-term relationship with PNC and provides the shareholders of the funds and other PNC customers access to Federated's diverse range of investment strategies, proven performance and extensive customer service capabilities. Federated continues to seek alliance and acquisition opportunities in the U.S. and throughout the world."
Federated's initial press release announcing the deal in May, "Federated Investors, Inc. to Acquire Certain Investment-Management-Related Assets from The PNC Financial Services Group," explains, "The proposed transaction includes the reorganization of PNC's family of liquidity, equity and fixed-income mutual funds into corresponding Federated mutual funds, the acquisition of a portion of PNC's separate account and separately managed account business, and the transition of a six-person international equity management team from PNC to Federated."
It continues, "Post-closing, PCA will manage approximately $21 billion of custom liquidity and fixed-income solutions to address the needs of PNC's corporate and institutional clients, including corporations, healthcare organizations, insurance companies, unions, higher education, government entities and endowment, and foundations. The employees of PNC's liquidity and taxable fixed-income teams will remain with PCA, focused on managing separate accounts."
The release adds, "The Liquidity Product transitions include: PNC Government Money Market Fund ($13.0B) will merge into Federated Government Obligations Fund, PNC Treasury Money Market Fund ($1.8B) will merge into Federated U.S. Treasury Cash Reserves Fund, and PNC Treasury Plus Money Market Fund ($424M) will merge into Federated Treasury Obligations Fund."
A statement on PNC's website says, "On November 5, 2019, shareholders of each PNC Fund approved an Agreement and Plan of Reorganization pursuant to which a Federated fund would acquire the assets of the corresponding PNC Fund as shown in the mapping schedule below. The Reorganizations took place after close of business November 15, 2019. For information on a specific Federated fund, please click the link found below."
While this is the latest example of consolidation in the money fund space, it has been relatively slow over the past 2 years. In the June 2019 issue of our Money Fund Intelligence we wrote about "Consolidation's Slow March Resumes in Cash Space." MFI explained, "`The Federated/PNC deal will become the largest money fund merger since BofA funds were merged into BlackRock in April 2016, and one of the only deals ever among the 25 largest managers." Federated's Deborah Cunningham commented then, "We've done over 60 roll ups and acquisitions over the course the last 10 years or so, so it's not something that's new to us."
Other recent examples of consolidation include Invesco buying Oppenheimer, and TD liquidating its money funds. For more, see these Crane Data News articles: June MFI: Consolidation, Morgan Stanley Ultra Short, Fin-Tech Invasion (6/7/19), Oppenheimer Funds Now Invesco Oppenheimer; Dreyfus Keeping Name (6/3/19), Nov. MFI: Consolidation, Vanguard's Smith, Yields Break 2.0 Percent (11/7/18), and Invesco Buying OppenheimerFunds; DWS ESG, Northern's RAVI Advertise (10/22/18).
In other news, Bloomberg writes that the, "Fed's Money-Market Fix May Be Affecting Where People Park Cash." They explain, "While the Federal Reserve has said short-term interest rates are back under control following September's upheaval, its solution may be having knock-on effects for money-market investors."
They state, "The amount of cash that was parked at the central bank's facility for overnight reverse-repurchase agreements on Monday spiked to $27 billion. `That's the most since the end of the first half of 2019, when money-market funds and other counterparties pushed usage up to $44 billion. And although usage typically picks up around the 18th day of the month, this month's increase is noticeably bigger."
Bloomberg adds, "The uptick suggests that the central bank's recent endeavors to control short-term interest rates -- such as Treasury-bill buying and repurchase-agreement offerings -- may be displacing some investors. Money-market funds and others with cash to invest on a short-term basis typically put it to work by buying T-bills or lending in the repo market. But with the central bank now active on both of those fronts, the Fed’s reverse repo operations may be an attractive alternative."
