Federated Investors is forming a subsidiary in a bid to build its position in the business of providing services to mutual fund companies.

Because Pittsburgh-based Federated also acts as a manager of its own mutual funds, the company hopes that the services unit will help give a more distinct identity to that business line.

Federated is following the lead of its rival SEI Corp., Wayne, Pa., which in October reorganized its management along product lines to better compete for bank clients.

Spinning off its fund services into a separate company "is designed to help us market to a broader audience and gives a cleaner picture of what financial services we have to offer," said James J. Dolan, president of Federated's administrative services division.

The new subsidiary, Federated Services Co., will provide mutual fund administration and distribution services, portfolio management, and accounting, as well as transfer agency and retirement plan record-keeping services.

"Federated may be responding to the way the industry is going," said Glen Casey, a consultant with Cerulli Associates, Boston. Because Federated services its own funds, as well as those for banks, the new subsidiary "will give a perception that the level of service to all of its clients will be equal."

He added that forming a subsidiary "can foster more of an entrepreneurial spirit for the group, because it can generate its own profits and losses."

Even so, at least one industry expert, who asked not to be identified, said the restructuring could make it easier for Federated to sell off its fund servicing division in the future, should the unit detract from Federated's core business of managing and selling its own mutual funds.

A Federated spokesman denied the company has plans to sell the new unit.

Mutual fund services represented 40% of the parent company's revenue last year, Mr. Dolan said. The remaining 60% came from the firm's fund management business.

Fund administrators handle all filings with federal regulators, and oversee compliance matters, among other things. A distributor is in charge of marketing the funds through the bank's sales force.

Federated Services will devote more resources to developing and selling new systems and software for financial reporting and management, especially in the highly competitive areas of 401(k) and trust services.

Mr. Dolan said that several joint ventures are in the making with other firms for the creation of trust accounting systems designed to speed up the automated clearing and settlement of mutual fund transactions. Federated works with the trust departments of more than 800 banks.

He declined to name the companies Federated is considering forming joint ventures with.

Mr. Dolan will become president of Federated Services when the subsidiary begins operating in June, officials said. Some 1,150 Federated employees will move to the new subsidiary, but no layoffs are expected, he said.

As part of the restructuring, Federated will move all non-mutual fund related administration for the company to a second subsidiary, Federated Investors Management Co. The new unit will be headed by John W. McGonigle, former vice president and general counsel for Federated Investors.

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