As the market turmoil pushes small, struggling mutual fund businesses toward buyouts, Federated Investors Inc. in Pittsburgh is well situated to be a buyer, according to a senior company executive.
"Federated remains in very good position to be able to take advantage of those opportunities," said Joe Machi, director of alliances at the fund company, which has $344 billion under management.
It enjoys not only a strong balance sheet but also a reputation as a savvy acquirer that can use its distribution network to boost sales of acquired portfolios, he said, and it is also known for taking care of shareholders in the funds it buys.
Federated is already an active acquirer. On Dec. 9 it announced the closing of its purchase from David W. Tice & Associates LLC of the $1.1 billion Prudent Bear Fund and the $363.8 million-asset Prudent Global Income Fund. The Prudent Bear Fund aims to make money in a falling market, and true to form it had returned 25% for the year through October. The Prudent Global Income Fund, which aims to perform in the opposite direction from the U.S. dollar, was down 5.6% during the same period.
Federated's history of successful acquisitions includes its 2001 deal to buy the assets of Edgemont Asset Management Corp., the adviser for the high-profile $3.23 billion-asset Kaufmann Fund, said Burton Greenwald, a mutual fund analyst in Philadelphia at BJ Greenwald & Associates. This acquisition helped Federated expand its product line.
More recently the company announced Dec. 2 that it had bought Clover Capital Management Inc., a Rochester, N.Y., investment manager that has $2.1 billion of assets. It also made a deal in April 2007 for the $321 million-asset Rochdale Atlas Portfolio from Rochdale Investment Management LLC in New York.
Yet such purchases, aimed at acquiring investment management expertise the company lacks, have largely run their course with the most recent deal, said Mr. Machi. "As far as our offerings, I'm thinking we're in pretty good shape," he said. "I'm not really out there shopping in an aggressive way to round out our offerings."
The company is poised to focus more on "the roll-up type of deal" that accumulates assets and rolls them into existing Federated products, he said.
Mr. Machi declined to offer specifics about the company's acquisition plans, saying only that "we have been very active and we remain very active in evaluating all opportunities that come by."
But he described the number of opportunities in the asset management marketplace as "the highest I've seen yet," adding, "I think opportunities will even increase into the next 12 months."
Mr. Machi questioned whether the market carnage has left firms in a strong position to buy. Federated is in a strong position, he said.
Mr. Greenwald agreed that Federated is in good shape compared with other fund companies, in part because of its longtime emphasis on money market funds.
Federated's focus on such funds, considered a very conservative place to park money, has allowed it to boast strong inflows even as rival firms struggled with redemption demand. Still, Mr. Greenwald argued that more than a few fund companies have the capacity to buy "smaller, struggling players." Most of the major publicly owned fund managers still have fairly strong balance sheets, he said.
Asked whether banks and insurers that are disenchanted with their mutual fund families would make good targets, Mr. Machi cracked, "I've yet to meet a bad target."
"Any opportunity for us to talk to any type of organization that has mutual funds or investment products where they're looking to exit and want their customers taken care of, we're there," he said.