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On Monday, Federated Investors Inc. (FII - Analyst Report) and Trustmark Corporation (TRMK - Snapshot Report) closed a deal under which, Federated acquired assets worth $929 million from Performance Funds Trust, a wing of Trustmark. Increased assets under management furnish Federated with various new fund offerings that would benefit its clients.
Trustmark Investment Advisors Inc, which operates as a subsidiary of Trustmark, acted as investment adviser to Performance Funds. Following the closure of the deal, Trustmark will no longer act as investment adviser to Performance Funds and these funds will be terminated.
The money market fund managers are under pressure due to the lingering low interest rate environment and the increasing number of regulations. Therefore, Federated came up with the plan of buying more mutual fund assets to enhance its business in strategically important segments.
Terms of the Deal
Under the agreement, Federated, one of the largest investment managers, reorganized four equity, two fixed income and two money market Performance Funds. Federated merged these acquired assets into its seven existing funds, which possess the same investment objectives, after Performance Funds’ shareholders approval on September 19.
Moreover, Trustmark Investment Advisors sold certain assets which were related to the management of the Performance Funds to Federated and some Federated advisory subsidiaries.
For quite sometime, Federated has been working with different banks to offer investment products catering to the needs of the clients. Therefore, Federated’s experience, coupled with its proficiency in providing customer service, will be opportunistic for Performance Funds’ shareholders. Moreover, the completion of deal will enable the shareholders to access a wider array of investment products. Federated is looking forward to many such opportunities in order to provide cream services to its clients.
Similar Acquisitions in the Past
This deal marks Federated’s third consecutive completed transaction of acquiring assets since the beginning of 2012. Earlier in September, Federated acquired money market assets worth $4.4 billion from four Fifth Third money market funds of Fifth Third Asset Management Inc. (FTAM), the asset management subsidiary of Fifth Third Bancorp (FITB - Analyst Report). These assets were merged into four existing Federated money market funds, which have the same investment objectives.
Previously, in April, Federated completed the expansion of its operation in United Kingdom by acquiring London-based Prime Rate Capital Management, LLP from Matrix Group Limited. The firm provides institutional liquidity and fixed-income products. UCITS (Undertakings for Collective Investments in Transferable Securities) products, offered by Prime Rate, include Prime Rate Sterling Liquidity Fund, Prime Rate Euro Liquidity Fund and Prime Rate US Dollar Liquidity Fund.
Federated has the potential to grow in the long run on the back of its diversified asset and product mix, global expansion and a fairly healthy balance sheet. Going forward, management expects to maintain this balanced growth structure.
Moreover, investors’ increased demand for the company’s wide range of income-oriented products will help it increase profitability. However, certain factors like regulatory backdrop, waning equity markets and sluggish global economic growth, will likely keep the earnings under pressure.
Federated currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain our long-term ‘Neutral’ recommendation on the shares.