Federated Expands Globally - Analyst Blog
Yesterday, Federated Investors Inc. ( FII">FII ) has announced the expansion of its operation in United Kingdom. The company is acquiring London-based Prime Rate Capital Management, LLP from Matrix Group Limited. The firm provides institutional liquidity and fixed-income products.UCITS products offered by Prime Rate include Prime Rate Sterling Liquidity Fund, Prime Rate Euro Liquidity Fund and Prime Rate US Dollar Liquidity Fund.
Founded in 1987, Matrix Group is a privately owned and autonomous financial services business. The company's main focus is on advising clients, raising funds and management of assets. Matrix's range of activities includes hedge funds, private equity,UCITS , and property. The financial terms of the agreement was not yet disclosed.
The above deal is awaiting regulators' approval, including the UK Financial Services Authority, and other customary conditions. The transaction is anticipated to be completed during the first quarter of 2012.
Prime Rate Capital Management provides liquidity funds named Qualifying Money Market Funds to the corporate and institutional clients having assets worth £1.5 billion ($2.4 billion). These funds are rated AAA by both Fitch Ratings and Standard & Poor's.
Moreover, Federated has AAA-rated money market funds worth $189 billion and these funds occupy 12% of the U.S. market share.
Through this acquisition, Federated aims at future growth and global expansion. Prime Rate Capital's qualified team, astute strategies and superior liquidity management will be integrated into Federated's money market business. Therefore, with the addition of euro, sterling and dollar-denominatedUCITS products, Federated will be positioned well to prosper in the market.
Moreover, Prime Rate Capital Management's headquarters will be retained in London though the existing investment management team will be operating as a subsidiary of Federated Holdings (UK) Limited, a group company of Federated.
On the flip side, Prime Rate Capital opted for acquisition based on Federated's existing market position and its excellence in business. The company aims to help its clients and shareholders with the skilled managers of Federated's money market products.
Federated continues to look for more opportunities to crack profitable deals. It is on track to expand globally. During the nine months ended September 2011, Federated added $2 billion in new business from a large offshore client besides working on two new money market entry opportunities in the U.K. Federated launched a new sterling-denominated money fund in the third quarter of 2011 while adding the fund to a multiple of global portals that already offered other Ireland domicile products.
Meanwhile, the company has completed two deals - one with theEquiTrust Funds and the other with the Tributary International Equity Fund. Both these deals added approximately $600 million in new assets in a variety of strategies.
We expect that certain factors like regulatory backdrop, waning equity markets and sluggish global economic growth, will likely keep the earnings under pressure. However, 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.
Federated currently retains aZacks #3 Rank, which translates into a short-term 'Hold' rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares. However, among Federated's peers, BlackRock Inc. ( BLK">BLK ) retains aZacks #2 Rank (a short term Buy rating).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.