Federated Hermes Inc (FHI) 2013 Q1 法說會逐字稿

Greetings and welcome to the Federated Investors first quarter 2013 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ray Hanley, President of Federated Investors Management Company. Thank you, sir. You may now begin.

Good morning and welcome. Today as usual we will have some brief remarks before opening up for questions. Leading today's will be Chris Donahue, Federated CEO and President, and Tom Donahue, Chief Financial Officer, and joining us for the Q&A is Debbie Cunningham who is the Chief Investment Officer for our money market area.

Let me say that during today's call we may make forward-looking statements and we want to note that Federated's actual results may be materially different than the results implied by such statements. We invite you to review the risk disclosures in our SEC filings. No assurance can be given as to future results and Federated assumes no duty to update any of these forward-looking statements.

With that, I will turn it over to Chris.

Thank you, Ray.

I will begin today with a brief review of Federated's recent business performance and Tom will comment on our financials. Looking first at cash management, average money market fund assets were up about $2 billion from Q4. In period end, money fund assets decreased by $13 billion. As in prior years we saw money fund assets grow going into year end and then decrease in the first quarter. Most of the decrease came from bank-related channels where we saw about $9 billion come in, in Q4 and then the same amount leave in Q1.

We had a similar experience in the broker dealer channel where we gained $3 billion in the fourth quarter and decreased by about the same amount in the first quarter. Our market share for money market funds decreased slightly in the first quarter. Money market separate account assets were up $8 billion in the first quarter with most of the increase coming from the addition of previously discussed state of Massachusetts mandate. As expected, the impact of yield related fee waivers increased in Q1, and Tom will cover that.

On the regulatory front, public comments from an SEC commissioner indicate that a proposal may be forthcoming in the next couple of months, quote, near term, closed quote. Unless and until a proposal is put out for comment, there is not much in the way of additional commentary that I can make.

We continue to advocate for sound policy that enhances the resiliency of money funds for our clients who fully understand that money funds, like other investments, have elements of risk. They are not interested in radical and unnecessary changes like floating NAVs, hold backs or capital requirements. Money fund investors have remained confident in the product as presently constructed, a dollar in and a dollar out, uninsured, transparent, invested in a diversified portfolio of high quality securities, and supported by proper accounting and market valuations.

Our position is straightforward. We will continue to champion those things that enhance the resiliency of money funds while retaining the core features of a sound product with an unparalleled long safety record and success all based on daily liquidity at par with the market rate of interest.

Now turning to equities. While flows for equity mutual funds and separate accounts combined were slightly negative in the first quarter, we had solid results in a number of products. Fund strategies with net inflows included international equities led by international leaders, a core blend fund, and the International Strategic Dividend Fund.

The Kaufmann Large Cap growth fund had a step up in flows in the first quarter and this has continued in the early part of the second quarter. Blend products, including capital income and muni and stock advantage, also produced solid inflows. Our net sales results were impacted by model changes made by a couple of clients using the Strategic Value Dividend Strategy. These changes resulted in about $600 million of lumpy redemptions in the first quarter. The clients attributed the changes to a desire to add more beta to their mixes.

The Strategic Value Dividend strategy continues to be in demand by investors attracted by its income objective, a 5% yield and a 5% growth rate in its income stream. For the first couple of weeks of the second quarter the fund returned to solidly positive inflows. Pru Bear had negative flows in the first quarter not surprising, given the strong equity market conditions. This fund has had positive flows for the first couple of weeks of April. Q1 flows in equity separate accounts were solidly positive driven by strategic value SMA strategy. We also saw inflows in a couple of Clover Value strategies and in an international equity strategy.

A comment on early second quarter flows, equity flows are solidly positive led by domestic and International Strategic Value Dividend strategies, Kaufmann Large Cap and Capital Income Fund. 11 different equity funds have positive flows for the first three weeks of April including Pru Bear, managed volatility, the aforementioned capital income in Kaufmann Large, muni stock, intercontinental, international leaders, Clover Small, and equity income fund.

Equity SMA flows are negative early in the second quarter due to model changes that have impacted one of the MDT strategies. Combined equity and SMA flows are slightly negative. Looking at equity performance at the end of the first quarter, we had 13 equity strategies in a variety of styles with top quartile three year records and 10 in the top quartile for the one-year period.

Turning now to fixed income, high yield strategies had another strong quarter of inflows. Ultra short funds were positive as were floating rate, total return, emerging market debt, and Federated Bond Funds. At quarter end, we had 11 fixed income strategies with top quartile three year records and 8 in the top quartile on a one year basis.

Fixed income separate accounts were slightly negative. Results included a $360 million redemption from a client whose asset allocation decision was really re-risking. Our RFP activity for fixed income increased in the first quarter verses the rate in 2012. Our fixed income flows are slightly negative for the first three weeks of April. However, we're pleased to announce this week that we won about a $200 million account from the state of Delaware in the short duration mandate area.

Turning to overall fund investment performance and looking at the Morningstar rated funds, just under half of the rated equity fund assets are in four and five star products as of the end of the quarter and a little over 75% are in three, four and five star products. For bond funds, the comparable percentages are just over 40% four and five star and just under 80% three, four, and five star.

During the first quarter two of our income funds, the capital income fund and the Federated Strategic Income Fund won Lipper awards as leaders in their respective categories for consistent return for the 10-year period ended 12-31-2012. As of April 24, managed assets were approximately $375 billion including $277 billion in money markets, $38 billion in equities, and $60 billion in fixed income which includes the liquidation portfolios. Money market mutual fund assets stand at about $239 billion. So far in April, money fund assets have ranged between $237 billion and $245 billion and have averaged $241 billion. As a reminder we and the industry typically see tax related outflows in money fund assets in April.

Looking at distribution, equity fund gross sales grew by 24% in the first quarter compared to the fourth quarter. We saw the strongest growth in the wealth management trust channel at plus 32% followed by broker dealer at plus 23% and institutional at plus 12%. Fixed income sales grew by 20% in broker dealer channel versus Q4 and were up 9% in wealth management trust channel. In the broker dealer channel we continue to leverage our investment in additional distribution capacity. We are expanding the number of advisors doing business with us and grow the products that use by these advisors. The number of advisors doing business with us is nearing 39,000, up from 29,000 in 2008.

On the institutional side, we completed the on boarding process to begin management of the $7.1 billion Massachusetts municipal deposit trust in March and continue to be active in pursuing other state mandates for both cash management and fixed income pools. I just recently mentioned the Delaware victory. At quarter end, we had about $200 million in equity and fixed income institutional accounts yet to be funded. To this, we would add the Delaware amount, giving us about a $400 million pipeline.

Acquisitions and offshore business, we continue to develop our Asia PAC operation in Australia. We're evaluating strategies to offer and expect to begin adding sales personnel later in 2013. In Europe, we had our first trades booked in April from our expanded distribution efforts with Bury Street Capital and look forward to growing this during 2013. We continue to look for alliances and acquisitions to advance our business in Europe and Asia, as well as the United States.

Tom.

Thank you, Chris.

Taking a look first at money fund fee waivers, as expected, the impact to pretax income in Q1 was $21.7 million, up from $15.5 million in the prior quarter. The increase was due mainly to lower rates for treasury and mortgage related securities. Based on current assets and expected yield levels, the impact of minimum yield waivers to pretax income in Q2 could be similar to the level it was in the first quarter. Looking forward and holding all other variables constant, we estimate that gaining 10 basis points in gross yields would likely reduce the impact of minimum yield waivers by about 40%, and a 25 basis point increase would reduce the impact by about 70%. It is important to note that the variables impacting waivers can and do frequently change.

Revenues in Q1 decreased 7% from the prior quarter, due largely to minimum yield waivers and fewer days, partially offset by higher average assets for equities, fixed income, and money markets. Operating expenses decreased from Q4 due largely to lower distribution expenses due to minimum yield waivers and fewer days.

Comp and related included a reversal of $3 million of incentive compensation expense that was accrued in 2012 but not paid. For Q2 comp and related expense an early forecast is around $69 million. The increase in professional service fees was due to $3 million of insurance reimbursements in Q4, and change in nonoperating income was due mainly to the Q4 $3 million charge related to the impairment of our minority interest investment.

Looking at our balance sheet, cash and investments totaled $307 million at quarter end of which about $224 million is available to us. Our net debt remained below $100 million. Looking forward cash and investments, combined with expected additional cash flows from operations and availability under present debt facilities, provide us with significant liquidity to be able to take advantage of acquisition opportunities and related contingent payments, share repurchases, dividends, new product seeds and other investments, capital expenditures and debt repayment.

That completes our presentation and we would now like to open the call up for questions.

Thank you.

(Operator Instructions)

Michael Kim, Sandler O'Neill.

Hi, guys. Good morning. Chris, maybe to follow up on the regulatory front, it does seem like the FSOC and the SEC are still kind of working through the next round of recommendations if you will but if in fact they do opt to go down the floating NAV route, just any sense of what sort of contingency plans maybe some of your institutional clients are considering, particularly as it relates to potential alternatives that they might be looking at?

Well, as regards what these guys might come up with, whether it's a variable NAV or not, it's a separate subject which we can get into. To get to your question as to the alternatives, we've discussed this on the calls before. We have a very large Separate Account business which works very well for large clients, very large clients. And so that is one thing that can be considered. Moving funds to offshore can be considered. Moving funds to other types of products enhanced cash, et cetera, can be considered. Moving products to depository institutions and largely larger banks would also be considered.

So all of these things and there are other new products which I think could get created that haven't even shown up yet. Some have filed, including us, various forms of ETS. The thing about all of these alternatives is none of them are as good for the customer, the economy, or the issuer as the money market fund. But that would be an array of potential options. Obviously, the simplest one is if they throw product funds under the bus and everybody runs over the government fund.

Okay. That's helpful. Then for Tom, I am just wondering broadly speaking where you see the leverage in the model? Are there sort of further expense efficiencies that can drive margins higher or is it really mostly a function of kind of the underlying mix and revenue growth going forward?

I think we're on the latter part. We continue to manage things pretty efficiently on a cost basis and if we get some growth in here, we would expect some nice leverage.

Okay. Then just finally, can you just give us an update on what you're seeing in terms of M&A opportunities out there as it relates to kind of supply or the level of competition or maybe some pricing trends, particularly as it relates to the types of properties that you sort of highlighted, sort of institutional equities -- sorry international equities if you will.

That's kind of been a bigger part of our focus, although a couple different ways of looking at it. We have a roll up in the US which we continue to look to do, but we have particular focus on the Asia PAC business with Gordy Ceresino and Craig Bingham out talking to many different parties and looking for opportunities. They're building relationships. There is nothing to grab onto to say here is something that we're going to do yet but I think they're having good discussions. Craig has a good reputation and a lot of contacts that looks to be pretty opportunistic for us. On the European side, we also had numerous meetings and calls and it takes a long time to develop a relationship and then to move forward. But we're also optimistic on something coming that way too.

Okay. Thanks for taking my questions.

Robert Lee, KBW.

Thanks for taking my question. I'd actually like to follow up on the Bury Street comments. Chris, could you maybe flesh that out a little bit more? I am just kind of curious. I know it is just getting up and running, the relationship. Are there any particular products or distribution channels that they are really focusing on where they think they can really make some headway with your products? Just maybe what your own expectations are for contributions from that relationship in the next year or two. I don't know if you think it will be a noticeable or meaningful contributor to sales events in '13.

Put simply, we expect billions. What they're selling primarily right now, having just started an actual sale, is an on high yield. Okay. They are also presenting, in addition to high yield emerging market debt, strategic value dividend, and a core ag. Those are the four usage products that they are presenting. We did this in order to jump start our usage distribution in London and on the continent. We expect that we might be able to also hire new sales individuals on the institutional side with consultants, et cetera, to do some of that business direct and end up having a two pronged attack that's well organized and not overlapping. So that's kind of what we're expecting out of this.

And maybe shifting to the other side of the world with Asia PAC. It's come up, and you've mentioned it a couple times, I am just curious as the products that you're thinking about targeting there, is it really pretty much the same product set that you're looking at within Europe, same kind of list?

Yes.

Okay nothing -- no new product development specifically for them?

What's going on there in addition is that, as Tom was describing, there is a worthy search going on in both Australia and then throughout the Asia PAC region for operations or businesses that have both good investment management capabilities and some sort of distribution footprint. And so I would expect that some acquisition on the Asia PAC side would involve new mandates that are being generated and managed locally in various jurisdictions.

Thanks. And maybe one last question just shifting back to the M&A. Understanding that in the US, your primary focuses have been kind of the incremental kind of buying portfolios and of small mutual fund assets from banks and others. But when you look at your product set here and it's fairly full but are there any -- as the industry evolves, are there any product holes you have started thinking about in regards to your existing domestic footprint, that maybe it would make more sense to fill through an acquisition versus internal development?

There are product sets that we think we're working on, but we've decided to do it more or less internally. When you add a managed vol and a managed tail risk product and put them into insurance type products, when you create an unconstrained bond fund and go-anywhere balanced-type asset allocation-type funds and combine them with the Pru Bear and Pru Dollar Bear funds, you have a pretty good gang of what the world would call alternatives.

We have looked at whether to do that by acquisition many times. We just can't get convinced of the value proposition for the underlying clients and sometimes not even the repeatability of the performance. So we've taken those ideas, put them into various mutual fund components managed by various of the teams that we have going here, but we package them and refer to them as two pods of one is alternative and one is our asset allocation that addressed this need. That's how we've approached what we saw as a need in the product array.

All right. Thanks for taking my questions.

Cynthia Mayer, Bank of America Merrill Lynch.

Hi, good morning.

Good morning.

Maybe just a flow question to start just to clarify. I think you said on the separate account flows in April it sounded like equity SMA flows are negative due to a change in allocation away from MDT you said, and then fixed income separate account flows are also negative due to a change in allocation. So is that -- are either of these something that you could see recurring? On the fixed income side, which strategy is that? And on MDT maybe you could give us a sense of how large the assets are for SMA? Could there be more allocations? Is there anything particular about now?

It's Ray. Just to clarify, the color we made on the equity SMA is correct on MDT. What actually happened was the manager model changed. They reduced the number of managers on their platform and that resulted in the MDT strategy change. The MDT assets are about $2.2 billion and about half of that would be SMA.

The performance there has really rebounded quite strongly. All seven of their strategies are ahead from inception and a number of them, the majority of them are ahead on one and three years as well. And so we don't know of any other changes in the pipeline for that strategy and, as I said, a performance has been quite good of late.

On the fixed income side, the comment was not on separate accounts in terms of quarter to date. The comment was on the mutual fund flows being slightly negative. That's really a function of an ultra short product we think that would have similar characteristics to the money markets in terms of its utilization for things like tax payments. So, within the fixed income world we have a number of strategies that are doing well from a flow standpoint. I would highlight the high yield in particular. Then we have other positive ones, capital preservation, short duration product would be the next one that comes to mind.

Okay. Sorry about that. So, within fixed income separate accounts then you're positive in April?

Well we don't measure the larger separate accounts until the end of the quarter. We don't have the same kind of flow reporting there. We do for SMAs because they're more of a retail like product and that's why we're able to make the equity SMA comment. We do have a fixed income SMA business but it's much, much smaller than the equity business and it actually has positive flows quarter to date.

Got it. Got it. So I'll just think more about your pipeline that you mentioned, the $400 million on for the fixed income side.

Yes and on the $400 million, Chris talked about the $200 million state of Delaware. That's clearly fixed income. The other $200 million of other institutional accounts is actually about 75% equity. It is about 150 equity and 50 fixed.

Great. Thanks for clarifying that. And then maybe one other clarification. Tom, I thought you said -- did you give guidance for comp in Q2 of 69?

Yes.

Last quarter I think guidance was also 69? But it came in lower? Was there anything particularly that was --

We over accrued by $3 million. So we had a reversal in Q1.

Okay. But you're thinking it goes back to 69. Okay.

Right.

Okay. Then maybe one big picture question which is coming back to the question of some of the alternatives to money funds that you mentioned like ETFs, enhanced cash. Some of the firms we see are announcing this or that innovation. If you step back and look at the industry in the last few years there has been grown concentration in money market products. I'm just wondering if you think maybe we're going to see kind of a wave of innovation which could reverse some of the concentration and institutional clients could begin dispersing their cash around a lot of different products, a lot of different firms.

I don't see that. I see more the impact of the regulatory environment that we live in as the continuing the oligopolization of the business. Perhaps that's not it's intent but that's certainly its effect. It's very difficult to start off brand new products, especially on the cash management side, when what the customer wants is daily liquidity of par and you need a bigger bunch of assets in order to make that viable. And so I just don't see that.

More likely, depending on what the proposal is, it will follow the line of a bunch of money moving into govis if they trash prime and moving into large bank deposits for the rest of the money. That will be the main show. Then all these other products that could come up will take their place in line, but it will be well behind. And I just don't see the underlying business efficacy of all new businesses for new type cash management products which don't do what people want and require a lot more of assets than are available.

Got it. Okay. Thanks a lot.

Bill Katz, Citigroup.

Good morning. This is actually Neil filling in for Bill. You did mention a pick up in RFP activity year over year. How would you characterize the incremental activity between equities and fixed income?

Neil, it's Ray. I would say that in Q1 equity was consistent with the trend that we saw in 2012. Fixed income would be running at a higher pace and slightly higher than the rate we saw in 2012. The interesting thing aside from that is the variety of strategies that we have RFP interest in.

So on the equity side in particular the International Strategic Value Dividend strategy has generated good RFP activity but we've also had Kaufmann Large, the Clover Small Value and in fact MDT Small Cap which has had some wins and had positive flows on the fund side. Within fixed income it's weighted toward short duration. But high yield continues to be very strong. Emerging market debt and core broad.

Okay. And then my second question is you mentioned a step up in Kaufmann flows in 1Q with that continuing so far in 2Q. All else equal, how would you see that impacting the fee realization? Thank you.

The Kaufmann step up is in particular on the large cap fund. And that fund is about a little over $500 million against an equity fund base of $24 billion, north of $24 billion. So on the margin it would be positive but I wouldn't expect a measurable change in our overall fee rate because of the success of that particular product.

Eric Berg, RBC Capital Markets.

Good morning. It's Eric Berg here with [Glenn Dustanem]. We have questions regarding the Money Fund business and in particular sort of your sense of expectations among customers and also questions around the needs of customers for money funds.

My first question is this. While you talk about how customers expect daily liquidity at a dollar, NAD at a dollar, isn't it quite possible that if we have this money market fund reform, say, go to a floating NAV, that corporate treasurers understand that the underlying assets in a money fund carry risk to them, that there has always been risk and that their expectations really, they like -- is it possible that they like NAV at a dollar but, that they never really expected it, because they know there is risk in the funds?

Well, with respect to corporate treasurers, they do know there is risk in the funds. And if reserve fund accomplished anything, it underscored that and made it an absolute certainty. But they know anyway. The reason the corporate treasurers like the money funds is because of ease of operation. It is because it is first and foremost a cash management system.

So when a corporate treasurer decides to use the money fund for their salary payments and things like that, they know exactly what to put in and they know exactly what it's going to be coming out. They don't have to put in extra money for reserves or things like that and it works very, very efficiently. They don't have to hire extra clerks like they used to have to do in the old days to buy T bills and roll them over. And so it is a very, very efficient system.

They've also designed their systems to be able to accommodate $1 net asset value. Not everybody says okay fine you can change any system, I guess that's true. But that comes with a lot of cost and consternation, as well. And so yes, they have consistently on survey after survey indicated that they strongly prefer the use of the money fund.

And when you look at the pricing of that when they could have gotten in a ultra short fund 100 basis points more in yield and they still remain with the money market fund it tells you that it is very, very serious item for them. The ultra short funds are what? $100 billion against $2.5 trillion. So the evidence on surveys, on use and then on the practical aspects of a corporate treasurer's life are really overwhelming in favor of the $1 NAV.

Then our second and related question relates to just what is required? We've heard that there are many -- and the ultimate question is, is this true -- that there are many professional money managers, particularly in the public sector that have to have NAV of $1. Is that true that there are municipalities, states so forth that if the NAV were floating in certain circumstances they would be required to take their money out?

Yes. Yes, that is exactly the case. It happens in a number of ways. The first way is under state law. I think it's now all 50 states have state laws that have declared certain types of money market funds to be the functional equivalent of the underlying investment so long as it is in a money fund that pays $1, that's a dollar in, dollar out. There are trust indentures that are operated under those laws. There are trust accounts operating under those laws. And they would all have to leave.

The next area where it happens is under the individual trust instrument or under the individual trust arrangement due to beneficiaries or due to what the donors have intended that cash had to be invested in cash and couldn't take a gain or a loss position. And so that would be another gain. There is yet a third one that's a little further than what you are getting at. But when you have these omnibus systems that go in dollar in dollar out, it is impossible for them to function unless you have the dollar in, dollar out because they are giving us net positions for underlying accounts that could number in the thousands.

But there are large number of our accounts that would have to quit the money fund if it had a variable NAV for legal reasons. There would also be others who would quit because of technical reasons, efficiency reasons and computer systems reasons, but a large component of them would quit because of the state law provisions.

Thank you.

Patrick Davitt, Autonomous Research.

Hi, good morning, guys. I am curious if for the NAV was enacted on solely prime funds do you get the sense that, that money would just move to the govis or not and why?

As I said, I think, twice already on this call, I think that there would be some movement to govis. How much? I just can't say. I just don't know. But there would be a good bit. And I think the other place people would move would be into deposits at primarily the largest banks. So those would be the first two beneficiaries if they simply throw prime funds under the bus. But as you know, we're not in favor of that and don't think that, that's a very logical or proper thing to do in the market place, nor is it justified.

Okay. I think there is a perception that, that's where the SEC is going and FSOC is going though, right? Or is that not your understanding?

Well, everybody has their own opinion about it and somehow it's interesting that everybody's opinion seems to follow their own book, including me. Okay so we have $100 billion of prime funds, and so we're a big player. And we tend to argue strenuously for our clients, for the issuers, and for the efficacy of these funds. Others who may have only a little bit of prime fund are happy to throw them under the bus. And others who have a different clientele that they may want to approach want to approach the other clientele. So, yes, everyone's talking their book.

Now what these proposals will be, I don't think anybody knows. We have been told for years that this proposal or that proposal was going to come out, is going to come out at this time. That isn't exactly what happened. At the FSOC meeting yesterday they said, well if the SEC comes out with meaningful proposals then they will demur because they have acknowledged the importance and the legitimacy of SEC regulation here because they have done an excellent job, the SEC, and are very knowledgeable about money market funds. That's what convinces me that good policy will win out and the resiliency of money funds will govern the outcome of any proposal, or any proposal that then turns into a rule.

Okay. Thank you.

Matthew Kelley, Morgan Stanley.

This is Tom Whitehead filling in for Matt. Just a quick question on fee rates. Have you seen a change in fee rates in the last quarter, even looking at the last year if you back out the money fund fee waivers, C rates, they ticked down a little bit? Any comments you have on that would be great. Thanks.

Well as you point out, Tom, the money fund fee waivers really are the primary thing that have affected fee rates, and that was the primary driver of the decrease in the first quarter change. To a lesser extent the equity fee rate ticked down a little bit, and that would have been driven by the gains on the separate account side where the fees are a bit lower. That's really apropos of Q1. I would say the same trends were in play looking back over the last year.

Okay. Great. Thanks.

Ken Worthington, JPMorgan.

Hi. Good morning. Maybe first for Debbie, overnight rates have fallen off most recently looking at repo rates, what's driving the recent declines and how do you kind of see your outlook for short term rates over the next couple of quarters?

Sure. If you looked at overnight rates during the second half of 2012 they averaged in the low 20s. 22, 23 basis points. In the first quarter we were a little bit pleasantly surprised that they did not fall down into the high single digits. They were instead right around 15, 16 basis points. They have subsequently now, in the month of April, for the last week and a half, been fairly volatile in that single digit, high single digit to mid double digit range.

We do believe that the April time frame is reflective of a large amount of tax payments being received and a lack of a need for funding if you will because of that in the second half of the month of April. We do expect that to rebound a little bit at the end of the month when there is some issuance of -- expected issuance of treasury securities that will be put back into the market place.

Our outlook depends to some degree on what we think will happen from a QE perspective. Right now we all know that the QE buy back program by the fed on a monthly basis is about $85 billion. Our expectation is with a little bit better pace in the economy from the US perspective at least that, that buying program will taper off to some degree or be modified in the second half of 2013 which in our minds will put a little bit more collateral out there for the financing side of the equation and keep a floor under the repo rates of, again, back in that mid teens area. Probably not back up to the high end of the zero to 25 basis point range that has obviously been in place for many years now, but better than the high single digits which was sort of the low end of expectations.

Okay. Great. And then maybe Chris. Federated had gained meaningful market share since the financial crisis. Percentages really increased quite a bit, but over the last year or so it seems as though Federated has been giving back share, it looks like a little less than 50 basis points has been given back. You mentioned in latest quarter it declined a little bit more.

What's happening there? Is there anything that you can point to? Is it just mix in distribution? Your focus is a little bit different than some of the others? Is competition getting a little bit more active on the pricing side? Is there a reason or is it just kind of noise?

I would view it as the latter. When you look at the total picture from a 5% market share in 2000 to 7% in 2007 and 8.5% as we concluded '08 and 8.7% in 2010, 9.4% in June of 2012. Then it got to 9.5%. And so, then at the end of 2012 we were 9.6% and now we're at 9.2%.

Okay. To me, this is just the ebb and flow of natural moving money. We don't see any particular aspect of this Business that has been under fire or isn't performing or where competition is taking more. We generally have a large component of taxpayers in our mix. And maybe that is a little bit of what's going on here. But I just wouldn't make too much of the move from 9.6 at the end of the year to the 9.2 right now.

And then finally, in a world that transitions to floating NAVs, does price competition for treasury funds start to increase? My thought is there is a lot of money moving around. Treasury funds, government funds are more commoditized than a prime fund which has much bigger credit component to it. Do you think the competition will start to use price as a way to kind of gain share, given what probably is a lot of potential business moving around?

It's very difficult to see price competition when the return, ie, the price competition, the effect of it, is either zero or one. And that's where these funds are. And so, it's just I just don't see how that materializes, at least under the current rate environment.

Okay. And does that mean it's zero for one for you as well, or is that sort of more for the --

Oh, no, no, no. You're seeing gross yields of 9, 10.

Sorry, okay.

Whatever the repo rate is that you and Debbie were talking about would be the gross yield. I am talking about the net yield to the customer, because when you talk about price competition you have to be talking about what the experience is to the investor. So, right now all of those funds from anyone who is offering them are either zero or one.

Great. Thank you very much.

Thank you. It appears there are no further questions at this time. I would like to give the floor back over to management for any concluding remarks.

Well. Thank you for joining us today. That concludes our remarks. We appreciate your time.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.