Federated Hermes Inc (FHI) 2004 Q3 法說會逐字稿

Good morning, my name is Shateena [ph] I will be your conference facilitator today. At this time I would like to welcome everyone to the Federated Investors Inc. 3rd quarter 2004 earnings conference call.

[Operator Instructions]

After the speakers is remarks there will be aG&A question and answer period. [Operator Instructions]

I would now like to turn the conference over the Ray Henly. Please go ahead sir.

Thank you.

Good morning and welcome. We have about a 15 to 20 minute presentation today, followed by opening up for your questions. Leading the discussion will be Federated's CEO, Chris Donahue and Federated's Chief Financial Officer, Tom Donahue. Also joining us are Dennis McCauly [ph] and Rich Novak [ph] from the corporate finance group.

By way of disclaimer let me say that this discussion will include forward-looking statements and actual results could vary materially. For a discussion of factors which could cause actual results to vary from these forward looking statements see the section titled Risk Factors in the company's annual report on form 10-K for the year ended December 31, 2003, on file with the SEC.

And with that I'll turn it over to Chris.

Thank you Ray and good morning all.

On todays call I will review our business performance in the 3rd quarter before turning the call over the Tom to discuss the financials. I'll start with the comments on assets and flows in each asset class before looking at the distribution channels. Equity assets were down slightly, just about 1% overall from the prior, and up about 17% for last 12 months. During the quarter market depreciation led to the asset decrease as our flows were slightly positive in the equity mutual funds and more positive in equity separate accounts. Our strongest inflows in the quarter were in the Federated market opportunity fund, a deep value fund that has performed well with a very low correlation to the broader stock market. Flows were also positive in the Federated Coffman [ph] and Coffman small cap funds and the Federated union stock advantage fund.

On the fixed income side, the somewhat surprising strength in the bond market helped to substantially decrease the redemption's that we and others in the industry experienced in 2nd quarter. More than one half of our 800 plus million of bond fund net redemtions were from ultrashort funds. We were tracking at about negative 400 million for net fixed income fund outflows until the last days of the quarter when one particular bank client redeemed 420 million in bond fund assets due to a technical accounting reason that is appeared to prohibit one of their clients from using pooled investment vehicles. This seems to be an aberration we've not experienced anything else like it and are working to our client to solve this problem.

Turning to the money market area. We announced yesterday the acquisition of Alliance Capital's 29 billion cash management business. We are excited about the addition of hundreds of new clients and substantial assets into the Federated complex. This acquisition will strengthen our position as the top third party provider of cash management products to broker dealers. Pending approvals by the various fund boards we expect to see assets begin to transition during the 1st quarter of 2005. Tom will comment on the financial aspects of the acquisition in his remarks.

We also concluded the acquisition of the mutual fund business of Bank North adding about $266 million of assets during the 3rd quarter.

We continue to look to develop money market consolidation opportunities as well as other types of acquisitions and remain confident in our ability to add value through these transactions.

During the 3rd quarter, assets in Federated's money market mutual funds in separate accounts decreased from the prior quarter from Q3 '03. The 3rd quarter average money fund assets of about 117 billion were about the same as the 2nd quarter ending level of about 117.5 billion. Money fund assets ended the 3rd quarter at just under 113 billion and have averaged about 114 billion so far here in October.

Rising short term interest rates make it more challenging to increase money market assets from existing customers. We continue to add customers, develop new money fund applications, and pursue acquisitions for growth. I'll discuss new clients in my remarks on the different distribution channels.

In term of new applications we are continuing to make progress on various functional equivalency efforts for money funds including the 15C33 broker cash balances and the OCC efforts that we have discussed before as well as other opportunities to grow cash management assets.

Seasonally in the text pool or text pool accounts drove -- let me repeat that seasonality in the text pool accounts drove the reported decrease in the money market separate accounts. These accounts peaked during 1st quarter as taxes are collected, and then decrease in subsequent quarters. In terms of total assets as of October 27th, our managed assets were 180 billion, including 127 billion in money market, 27 billion in equities and 26 billion in fixed income. For the three weeks of -- the first three weeks of October, equity fund fund flows were slightly positive, about 16 million or so, and bond funds net redemtions are down, net redemtions being about 80 million. We caution, once again, as we always do against drawing conclusions, for the quarter from this early data.

Turning to investment performance, we continue to offer competitive equity products across a variety of disciplines, 62% of our rated equity assets are in four or five star funds, down slightly from the prior quarter of 64%. And our percentage of 3, 4 and 5 star rated assets increased slightly to 73% from 72%. In the fixed income area, 4 and 5 star rated assets increased from 27 to 33% and assets in funds rated 3, 4, or 5 star were at 77%, up from 75%. In total, 34 funds were rated 4 or 5 stars down from 35 in the prior quarter and of these funds 12 were equity and 22 were bonds.

Looking at lippor [ph] ratings for our domestic equity funds, 33% of our rated assets are in the first or second quartile funds over the last year, 69% over the last last 3 years, 65% over 5 years, and 71% over 10 years. For taxable bonds the comparable first and second quartile percentages are 79% for 1 year, 69% for 3 years, 65% for 5 years, and 77% for 10 years. As we asses our progress with our revamped equity process, I want to point out that we have a number of equity funds with first or second quartile performance over the last year, basically ended September. There's include the equity income fund; the market opportunity fund, which we already mentioned; the capital income fund; MUNY stock advantage fund; capital appreciation fund; large cap growth fund; coffman small cap; our technology fund; and our mid-cap gross strategies fund. This last fund, inn particular, has been at or near the top quartile of its peer group for much of the last last 10 years with top decile performance over the last year. Some of the funds also have competitive longer term records, while others have shown good progress in turning around past periods of less than first or second quartile performance.

We continue to add experienced talent to our equity management team. At the end of the 3rd quarter we announced the addition of Bill Dirger [ph] as a Senior Portfolio Manager In our value equity group. Bill brings 20 years of industry experience to the group. We also added another experienced analyst, Steve Crane [ph], to focus on the banking sector.

Let's turn to distribution. In the trust market, money market assets decreased approximately $3 billion during the 3rd quarter, due mostly to normal cash flow activity. There were no significant customer changes here, nor do we suspect that this was really a rate driven move. The fixed income sales increased while redemtions decreased from the elevated 2nd quarter levels. Equity fund sales decreased basically in line with other channels.

The bank managed account product continues to grow equity assets by adding new accounts and growing existing accounts. During the 3rd quarter these equity assets grew about 8% to 175 million and have more than doubled over the last year.

In the broker dealer channel money market assets were down slightly. We added 3 new broker dealer cash management accounts in the 3rd quarter and we are expect that these will fund with about 300 million during this quarter and another 600 million in the 1st quarter of '05.

Fixed incomes sales and redemtions decreased . For equity funds, sales decreased from the prior quarter while redemtions stayed about the same. The managed account product continues to grow well in the broker channel. Equity assets increased about 110 million or 19%. Up to over $680 million during the quarter. We continue to broaden the client base and to add new accounts as we expand the distribution.

We recently had three equity products added to fidelities managed account program which is used by registered investment advisors. The major platforms that we utilize include AG Edwards, Raymond James, Legg Mason, Leighman, Bank of America, LPL, GE Private Asset Management and others. Over the past 12 months the number of broker dealer clients, including including bank broker dealer and capital markets went from 29 to 57. The number of accounts has tripled from 728 to over 2300. The number of accounts at the 2nd quarter was about 2000.

In the Edward Jones channel we are beginning to see some success from a new 401K offering geared to smaller companies. Overall we continue to sell a fairly broad mix of products, led by market opportunity fund, coffman fund, and MUNY stock advantage fund.

In the institutional channel money market assets decreased by less than $1 billion from the prior quarter the lowest quarterly decrease this year. Most of this decrease came from a company that exited bankruptcy.

We added three new institutional cash management customer with initial funding of about $32 million during the 3rd quarter. Also in the institutional channel we added a couple of small fixed income separate accounts and saw some new cash flows from existing insurance company fixed income accounts, about 85 million from a couple of accounts.

As an update on new products and initiatives we've discussed the manage account product at the channel level, total assets in this product, when you combine the channel assets are now over 900 million, double the total from the beginning to have year. Our target for '04 is is 1 billion. We a lot of confidence in that number and we, of course, look forward to billions in the years to follow.

In Germany our sales continue to grow and assets in the retail funds in our LBM partnership reached 470 million, up 12% from year end. We expanded our distribution in Europe outside of Germany by adding one of the LBM funds to the preferred list of a major spanish bank.

At this point I would offer a regulatory update, that on this front we continue to cooperate and communicate with various regulatory agencies and provide information as requested, but I can offer no timetable or details on the ultimate resolution of these matters.

At this point I would turn it over to Tom to discuss the financials. Thank you Chris.

Before commenting on the quarter's results I would like to talk a minute about the Alliance transaction. The deal was outlined broadly in the press release. Current assets in the funds total about $29 billion in the transaction. We expect assets, map over to begin in Q1, 2005 and to continue to move over through Q3 of 2005. Of course, the exact timing and amount of the assets that is will transfer is not known. Based on the current asset level and business mix, for the first full year we expect to add approximately 141 million in revenue. Much of this revenue is offset by marketing and distribution expenses related to the intermediaries use of these funds. So, you will see about 120 million of operating expenses, most of which, as I already said will be marketing and distribution expense. In addition, we will book related amortization of intangible expense. We do not know the specific value of assets and we won't know until Q1 when assets already transferred and specific valuations are assigned by the independent appraiser. Though this is uncertain we estimate an additional 12-16 million of related amortization of intangible expense in year one of the deal. Netting these items results in an estimated range of 3-5 cents EPS accretion, for the first full year of the transaction. Based on estimate of the timing, and of the assets as to the timing of when they were transferred over, we think that 2005 EPS will be in a range accretive of 2-3.5 cents.

Moving over to the 3rd quarter results. The press release included a necessary detail on the impact to both revenue and expenses from the changes in our B share related accounting and portfolio accounting contracts. Apart from these items, Q3 revenues decreased 3% compared to Q3, 2003 and decreased 4% from the prior quarter. The decreases were due mainly to lower money market and fixed income assets. Higher average equity assets partially offset the year- over-year decreases in these categories. As we discussed last quarter, we were seeing the beginnings of substantial changes in the bank client based for fund administrative services due to banks exiting the fund business, acquisitions and decisions to change service providers. We were informed by two more bank that they will change their fund administration business, one due to internalization and the second due to acquisition. Over the next 6 months we expect that the 36 billion of third party assets for which we provide varying level of administrative services will decrease to about 18 billion. The net decrease in revenue is not directly proportionate to the asset decrease. Since the largest asset change is for an institution for which we provide very limited services. In addition we recapture some revenue when banks exit the fund business by transitioning their assets into federated funds.

In 2004, our total revenue from providing third party fund administration services will be approximately 16 million. We expect the revenues to be about 9 million for 2005. And the client of about 7 million. About 2 million of this decline will be offset by investment management and other revenues from the management of assets that have transitioned to Federated and by associated cost reduction.

Turning to the expense side, operating expenses, excluding the impact of changes related to B share accounting, portfolio accounting contracts, and internal internal investigation and related costs, decreased 3% from Q3 '03 and decreased 2% from the prior quarter. Compensation and related expense decreased from Q3 '03 due to lower coffman earn out accruals since the prior year accrual was for 2 years worth of payments. The current accrual is for 1 year. Downward adjustments to accruals for other incentive compensations also impacted the comparison.

Marketing and distribution expense decreased from Q3 '03 and from the prior quarter due mainly to lower assets.

Professional service fees decreased from Q3 '03 due to the previously mentioned changes in portfolio accounting contracts. The decrease from the prior quarter was largely from higher Q2 investigation and related expenses. In Q2 we had approximately 5 million of professional service fees and other expense from the internal investigation and related other areas. These expenses decreased to 1.3 million in Q3. Though it is difficult to forecast a run rate for those types of cost, we're going to do it anyway, we expect them to continue above this level of 1.3 million and we estimate it to be approximately 2 million per quarter.

In the other expense category Q3 included 1.9 million of nonrecurring expenses from remedial actions related to various fund transaction and trading issues.

On the balance sheet, our cash and short term investments stood at 209 million at September 30.

The press release contains details on the 22.5% increase to our quarterly dividend and the addition of another 5 million share authorization to the share repurchase program through 2006. The tax changed has heightened the importance of dividends in the total return to shareholders and I'm talking about the 15% tax change there. The additional share authorization will be used for open market purchases. During the Q3 we repurchased 1.7 million shares due to option exercises and the changes in certain compensation programs new shares were included in our share count so the shares outstanding did not change much. Diluted shares decreased by about 1 million shares from Q2.

That completes our comments and we would like to open the conference call up to questions now.

Thank you.

[Operator Instructions]

We will pause for a moment to compile item Q&A roster.

Your first question comes from David Hoss [ph] with Fox-Pit Kelton.

Good morning.

Good morning

First couple of questions on channels and if we focused on the institutional channel here if you can give a little bit of a sense on what sort of progress you're make and specifically what sort of process you are going through in terms of getting your brand known in in that channel going forward.

In terms of the institutional channel, the way we are structured at Federated what is included in institutional are different groups of focused sales individuals. So, for example, we have a group of five individuals who call only on corporations and institutions to raise cash, and that is one group. We have another group that calls on major pension plans for large mandates and that is another five or six individuals. We have another group that focus on insurance companies and these people focus on selling our regular insurance qualified variable annuity products by putting them into other peoples variable annuity offerings and by winning and attempting to win sub-advisor mandates in order provide investment management to other insurance companies variable annuity offerings and that is another another group of half a dozen. Then there is another group who call specifically on investment advisors who use largely things like Schwab excetera in their business. And so those are the four ways that we have focused on what we call the institutional channel. What most of the rest of the world calls institutional would be the first two groups I mentioned namely the individuals who are calling on large institutions for cash and the group at our place that's calling on large institutions for equity and fixed income mandates, so the principal way that we function is with focused distribution and then building the records in order to win the mandates.

Right, I guess the focus on my question also would be, just on the longer term assets, in looking at the equity business it seems like a track record in investment process is the most important and the fixed income side maybe a broad product sweep is little bit more important. Are there any sort of hurdles you are clearing now or is this sort of a buildup that is still going to take awhile?

In terms of winning large institutional mandates, in addition to your process, the people, and the principals, the performance is obviously essential and you've got to have a 3 year record at any one of those mandates in order begin to complete and get into finals and win the mandates, and that is an ongoing process for us. If you look at our plan, say over 5 years to double the assets that is something that has to occur in, surely, the out years. In the shorter term we have excellent records that have just come around on market opportunity on the equity side and on the leeman aggregate and on the -- what we call total return bond fund side on the fixed mandates. And as I mentioned the -- in my remarks we did win a couple of smaller fixed income mandates during the quarter.

If I could just add onto that, on the fixed income side obviously, it is a concentrated marketed in terms of people who win the mandates and what we're looking to do there, is to come up with some innovative strategies and specific client solutions geared to, for example, our bank client base helping them with their balance sheet and their issues trying to work into that crowded field and we have some things that we think will, that are in progress there that we hope will lead lead us to asset growth.

Okay. Great.

And then I guess -- just a question on the money market business and it seems like the Alliance deal is somewhat of a win/win for both of you. Can you give us a sense for what the margin differential on the money market business for a company that is at scale such as yours versus a company, such as Alliance, that may not be so much at scale?

I'll go first and if Ray has a follow up fine. Basically, we look at this deal, it is going to reduce our margins when you look at the revenue that we're bringing in and the expenses that we're going to take on, it is going if reduce our margins maybe, you know, 5% or so, we'll see what happens, but we model it out -- we see a reduction there. Now, do we have scale and do we have to add a lot of things? Well, their business, the way they perform things the -- you know, with the broker related aspects of what they do, they have different types of additional services then to just the straight institutional type of things so there is more expenses and things that we'll have adjust an take on there. But we're still working through that. I don't know if, Ray, you have a follow up to that or not?

I think the nature of the assets are what lead to the margin compression that we'll see. We would have varying margins across different parts of our our money market business when you are distributing these types of products through intermediaries you get the kind of numbers that Tom went through already with the marketing and distribution so you get this kind of what appears to be a lower margin. It mainly has to do with how you book the revenues. We changed this year to booking those gross of the 12 B1's and other payments that essentially arise from the funds, but go from us to the third parties.

Okay.

So if we sort of of think about an IRR on this deal, if that is even the the right way to look at it. Do you have a hurdle rate that you look at for this deal?

Yeah, we definitely look at it at IRR basis, we kind of have -- on this kind of transaction we would say look at IRR or hurdle rate and, you know, we kind of have in our minds 15% there and an accretive deal that would be our two leading criteria on something like this. If you are not spending your time talking about we're a major money player and this brings us our market share up and brings us a lot of new customers that we can do a lot of of exciting things with, but you have got the main things.

Okay that's great.

Okay and just a last quick question on the progress on the equity build out do you have any, sort of, turn over statistics for us, has there been -- been any turnover on the equity side?

I don't believer there's been turnover on the equity side over the last couple of quarters, there has been accretion. If there's been one -- there may be one, in terms of a percentage, it is not even a meaningful percentage -- it seems staying together very well.

Okay, great. Thanks very much.

Your next question comes from Bill Katz [ph] with Buckingham Research.

Thanks very much, good morning

I wanted to go back to the acquisition a little bit, Chris, and sort of get your thoughts of a big picture perspective. With Alliance sort of capitulating in the cash management business would you expect sort of a cascade effect here and a pickup in consolidation. And so the second part of that question is, are you constrained in any kind of resource way from doing multiple deals should they crop up over the next 6-18 months in reaction to this.

In terms of being constrained, the answer is no, we are not constrained in terms of doing other types of deals. In terms of the first, I I would challenge your characterization of Alliances' side of this transaction, but leave it to be said that they sold their business to us, which is fine and will that start a cascade? Well, I think it is part of an already going cascade. So, will it accelerate it? I believe it will, because like any other market who are the largest players? Who are the best players? Who is committed to it? What is your focus? And how will the marketplace react to those things? So, I think it is part of an already going trend of increase consolidation in money market fund providers.

So, just sort of the converse to that, I'm sort of curious, are you loosing a significant amount of assets now in the past couple of quarters in the administration business, apart from administrating to your own funds is there any reason why you need to be in this business?

Yes, there is, and don't forget the reason that that business was created, and I will take some pride of authorship of that because I and another fellow here went around, starting in the late 80's, selling those administrative contracts to banks, when our partners, namely the banks, wanted to create funds. And so this was largely a customer service effort where we could figure out a way to creatively get the banks in the business which is what they wanted to do for their strategic purposes. Now, you look at it many many years later and you are see the unraveling of that same strategy. So the reason that we are in the business is for serving those customers and as long as they want to be served we will continue to serve them even though the assets have a downward slope on them and the earnings from that portion of our business over the last several years have had a downward slope on them, the reason we went into it still remains Bill.

Okay just more tactically on, sort of, the foregone revenues, will you be able to offset the revenues with any kind of cost savings?

A little, but not to the tune of the differential, of 5 million.

Okay, and then just -- Chris, one more question, just sort of curious if we look, perhaps maybe you might be close to a regulatory settlement, it seems like the Attorney Generals are running out of other people to settle with, just sort of curious, if you would look to ramp up your advertising and promotion spending beyond what has historically been a run rate to try and accelerate market recapture?

We will be looking at the advertising for '05 at our regular budget meetings which occur in the month of December, so we we haven't made a decision as regards the -- you know, what our -- what exactly our advertising would be for next year. We would expect to want to increase that advertising; however, for '05.

Okay, would it be something that would be more typical of the run rate for the first three quarters of this year or would it be something more typical --

We don't have a number even in our minds yet, I can't give you one. Or related to something that we had done before we just haven't come to that decision Bill.

Okay, okay thank you very much.

Your next question comes from Robert Lee with KBW.

Good morning everyone.

Just a couple of quick questions, first I'm just curious in the fixed income business, obviously fixed income sales for the whole industry, have been declining -- for the most part net outflows, I am just curious, you had a pretty sharp drop in gross sales in the fixed income business, I think it is almost -- year-over-year it is close to 50% is that mainly short duration products, just people not using them at this point? Obviously that is where you are also losing some of your assets. What is sort of driving that sharper decline?

Bob, we have seen a lower use on the short duration products and what we saw when these really took off, 2 or 3 years ago, was with the lower money fund yields people were extending out to pick up a bit more yield, and so you have some of the same dynamics that you have seen this year for money market funds affect the short end of the bond funds, when direct market alternatives can pay more than the fund products. We are positioning those funds now increasingly, as a way to lower the overall duration of an investors fixed income portfolio rather than the way investors seemingly wanted to use them which was as an extension of their cash management program. So, we think they have a place in a fixed income portfolio, and -- and more so from an overall duration standpoint than from a way to necessarily pickup more yields.

Just to fill in a factor too, you know, in the 3rd quarter the ultrashorts were about a third of gross bond fund sales. And in the 2nd quarter they were about 44% of the gross bond fund sales. So you get some idea from that.

Great would it be reasonable to assume as the ultrashorts become a, I guess, a small proportion of fixed income puzzle that we should see that redemption rate there then start to moderate, it has started to moderate, should we expect that it moderate some more then?

I think so, and let give you -- you know we had, in the 2nd quarter the net outflows in ultrashorts were about 725 million and in the 3rd quarter they were a little under 500 million. So give you some idea of the slope of the curve that you are talking about.

What we're really trying to do there Rob, is to, especially with the bank clients, is to work with them to have a more robust fixed income strategy rather than laddering treasuries we are working to bring into play high yield and international type of products. Things that bank typically wouldn't have expertise in house to do. Help and have an overall better fixed income strategy and to take away from a straight laddering thing which is where you get movement around these different duration points.

Next question, is a couple of years back, you did a couple of CDO's and similar structure products and really haven't, I guess since the days had to take some write offs in some of the equity, haven't heard much about those, do you see any -- are there any opportunities out there or any desire to get in a that marketplace as a way to raise some decent sized assets?

Because of the change in some of the structures, they've settled on the accounting and they have dramatically lessened the amount of the investment that someone like us would be required to make. Those kind of things remain opportunities worth looking at from our point of view. In fact, some of the people here have been looking into some of those ideas recently and Ray will offer you a little comment.

Rob, it is rather striking how the CDO's have become an embedded part of the whole fixed income product suite and they are certainly in demand from investors and so, it is a category as we progress in our fixed income strategy that we need to be involved in and take a look at and to deal smartly. The write offs were an issue but that had more to do with the timing of when we went into a couple of the high yield back yields. We certainly would be sensitive to that going forward, but we would be looking for those kind of opportunities.

Okay, and one last question just on the Alliance transaction, I am just curious, Chris I know you have a pretty active calling program where you are constantly kind of knocking on people's doors, but I'm just curious if you can give any color, was this a product of you're sort of calling on Alliance in the past or did they sort of ring you up and say would you be interested? [inaudible] you can comment on that?

I think they had a normal process. A normal sale of business process that we got identified and participated in that process an we're successful. I think everybody knew that we were open for business. . This club, so to speak up, of money market -- large money market fund providers, is not that big. It is not like you hide as to who you are or what you want to do in this business, so, it was well known on both sides who the players were.

Fair enough thanks a lot guys.

Your next question comes from Ken Worthington [ph] with CIBC World Market.

Hi, my questions were -- have been answered already thank you.

Your next question comes from Glenn Schorr [ph] with UBS.

Hi guys.

Hi Glenn

Just related to the money market business, it goes off from some previous questions, but two bigger picture; one some ICI numbers came out last night that said money market outflows in September were 43 billion and it feels like it is more then just the rate environment I'm just not sure if you have any other color just regarding industry overall money market flows? Cause wasn't just retail either it was pretty balanced -- I mean, it wasn't just institutional it was balanced between retail and institutional.

It is very hard to react to any short term moment to moment thing in the money funds in a could be driven by factors that are just not endemic or systemic to the marketplace. That having been said, there are other factors which is what you are really hinting at that are going on in this business. One of the things that we pick-up in the Alliance transaction is a insured product that is being offered and those are seeing some assets come into them. And I think it was last week, there was an article in the journal about enhanced cash and some interviews by some people and some discussions and that is another one that is picking up some assets and and we of course are looking into those kind of products, so you do have those kind of things at the margin working, but I don't think those kinds of product offerings have that kind of impact on a short term basis on across the board money fund assets moving.

The other thing, Glenn, there are some cyclical factors I mean you have tax payments that come out at other points besides April so September was a corporate tax payment month. We have bank clients that is do securitization business where they are building up cash during the quarter, at some point the cash goes back out, that tends to happen late in quarter and that tends to be another reason why we have the rather predictable effect of decreases at quarter end and subsequent increases, but -- and then you have these other opportunities as Chris mentioned, another one would be repatriation of -- with the changes in the rules there. We see that as an opportunity for picking up additional cash.

That is interesting.

The, a little more Federated specific, tell me if I got these numbers right, because I look at it as quarter to date your money market fund asset were down, I'll use round numbers 4% and the industry was down 3% and year-to- date you are down 12.5%, industry is down 7. It is the first time in many, many, many years that it seems to be a little share slippage, I can't put my finger finger on what would drive that under performance given your prominence everywhere.

Let me first give you the exact market share data because I can't check your numbers I'm not disagreeing with them exactly, but our market share was -- the way we've calculate it was 5.95% at 9/30, it is at 6.03 at 6/30, and 6.07 at 3/31, and -- so you have those percentage movements. One of the the reasons for that is that because we have a higher disproportionate amount of institutional and intermediary decision making money than retail, when you have the kind of rate situation that you've had since then, we will be disproportionately affected like those numbers and that is what is going on there. Because the retail money, tends, I mean the institutional money, tends to respond quicker. Those who are going to respond.

I would add on to that, we had events that, for example, a big company building up a lot of cash, not building up, but having a lot cash, essentially in bankruptcy and then coming coming back out of bankruptcy and then using that cash, so that would have had some impact there. What you really have is the benefit of our business being able to take that kind of money in and out, but the door swings both ways.

Fair enough. I guess it is fairly obvious that Alliance then steadies the ship?

Yes.

Right.

30 billion is a lot of balance.

Okay thanks guys.

[Operator Instructions]

Your next question comes from Cynthia Mayer [ph] with Merrill Lynch.

Hi good morning. Just a couple of questions, one a follow up on the ultrashort question. When you look at the remaining assets is it fair to say that most of it is still assets in which people are using it as a substitute for money markets or is it a half/half mix at this point. I'm just trying to get at how low these could go before your new strategy stabilizes the balances. And, also on that note can you give give a sense of how much of those outflows went into other Federated products?

It is really hard for us to to track that, I mean, we report the net exchanges, but I don't have a number for you specific to products. And on the first question we are having discussion with people to position it that way and to think about it in a new light, but again, we wouldn't really have anyway to be able to measure how that's being thought of by the client base.

Okay. And then, in money market business, I know you focus on adding accounts rather than trying to control the flows every single quarter, can you give us a sense of what the growth has been like in terms of the numbers of accounts say year-over-year?

We've continued to add a handful of accounts that we track directly on the corporate side each quarter, certainly they're -- on the institutional side I should say, because it would be institutions like corporations, government entities, with charitable foundations, things like that -- the rate of adding new accounts has certainly declined. We had been, over the prior couple of years, adding 10 or 12 a quarter that has been more more like 3 or 6 a quarter, this year, part of that is simply there is a finite number of these accounts. It is also part and parcel of the fact that portals have taken on more prominence by users of institutional cash management products. So we are not always able to identify new accounts with as much precision when they come to us through portals. If you go through each one of our channels, we mentioned in my remarks on the institutional account we added 3 accounts, in the broker dealer side we added 3 broker dealer accounts on the cash, not counting anything to do with Alliance, and on bank trust it is almost impossible to find a new account because we are already in all the accounts.

Right, right. Okay.

And just in terms of your building out your equity business, are you going to be adding more people there or are you pretty much there at this point?

We are pretty much there, but there are single entries we could make as we move along, but the vast amount of it -- we have approximately 80 people now, professionals in that group. And that is pretty much where we want to be. But as I said, we could still still add a person or two here or there where we feel a need.

Okay great, thanks a lot.

At this this time there are no further questions Mr. Henly will there be any closing remarks?

No, that concludes our call and thank you for joining us today.

Thank you this now concludes today's Federated Investors Inc., 3rd quarter 2004 earnings conference call you may now disconnect