Federated Buys Assets Worth $903M - Analyst Blog

By Zacks | June 28, 2012 AAA

On Wednesday, Federated Investors Inc. (FII) and Trustmark Corporation (TRMK) entered into a deal under which, Federated will acquire assets worth $903 million from Performance Funds Trust, a wing of Trustmark. Increased assets under management give Federated various new fund offerings that would benefit its clients.

Trustmark National Bank is a subsidiary of Trustmark, while Trustmark Investment Advisors Inc. operates as a wholly-owned subsidiary of Trustmark National Bank and acts as investment adviser to Performance Funds.

The money market fund managers are under pressure attributable to the lingering low interest rates environment and the increasing number of firm regulations. Therefore, Federated came up with the plan of buying more mutual fund assets to grow its business in strategically important segments.

Under the agreement, Federated, one of the largest investment managers, will acquire money market mutual fund assets worth $571 billion from eight funds of Performance Funds Trust. Moreover, the remaining assets will be purchased in fixed income and equities.

Federated will merge these acquired assets into its existing seven funds having same investment objectives. The financial terms of the transaction were undisclosed. Moreover, on the closure of the deal, Trustmark will no longer act as investment adviser to Performance Funds.

The agreement awaits certain regulatory approvals and consent of the shareholders of Performance Funds. The meeting between Performance Funds Trust's board and its shareholders is expected to take place in September 2012.

For quite a long time, Federated has been working with different banks to offer investment products according to the needs of the clients. Therefore, Federated's experience, coupled with its proficiency in providing customer service, will be opportunistic for Performance Funds' shareholders.  Moreover, the completion of deal will enable the shareholders to have an access to a wider choice of investment products. Federated is looking forward to many such opportunities in order to provide cream services to its clients.

This deal marks Federated's third consecutive announcement of acquiring assets since the beginning of 2012. In April 2012, Federated completed the expansion of its operation in United Kingdom by acquiring London-based Prime Rate Capital Management, LLP from Matrix Group Limited. The firm provides institutional liquidity and fixed-income products. UCITS (Undertakings for Collective Investments in Transferable Securities) products, offered by Prime Rate, include Prime Rate Sterling Liquidity Fund, Prime Rate Euro Liquidity Fund and Prime Rate US Dollar Liquidity Fund.

Further, Federated announced a definitive agreement to acquire money market assets worth $5 billion from four Fifth Third money market funds, which will be merged into Federated's existing four money market funds having same investment objectives. The agreement is anticipated to be closed in the third quarter of 2012.

Federated has the potential to grow in the long run on the back of its diversified asset and product mix, and global expansion along with a fairly healthy balance sheet. Going forward, management expects to maintain this balanced growth structure.

Moreover, investors' increased demand for the company's wide range of income-oriented products will help it increase profitability. In addition to this, certain factors like regulatory backdrop, waning equity markets and sluggish global economic growth, will likely keep the earnings under pressure.

Federated currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain our long-term 'Neutral' recommendation on the shares.
 
 
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