Federated Investors, Inc. — FY 2013 Form 10-K
Period: Fiscal year ended December 31, 2013. The filing identifies the registrant as Federated Investors, Inc.; it does not identify the company as Federated Hermes, Inc.
Business context
Federated was an investment manager with $376.1 billion in assets under management (AUM) at year-end, deriving its principal revenue from advisory fees and also earning administrative and other service fees. It managed money market, fixed-income and equity products, separate accounts, and a liquidation portfolio.
Financial and operating metrics
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Total revenue | $878.4 million | $945.7 million | Down 7% |
| Investment advisory fees, net | $571.0 million | $630.8 million | Down 9% |
| Administrative service fees, net | $222.5 million | $225.5 million | Down 1% |
| Other service fees, net | $79.6 million | $85.9 million | Down 7% |
| Average managed assets | $371.1 billion | $365.1 billion | Up 2% |
| Year-end managed assets | $376.1 billion | $379.8 billion | Down 1% |
Year-end equity AUM rose 26% to $44.1 billion, while fixed-income AUM fell 5% to $50.1 billion and money market AUM fell 3% to $276.0 billion. The liquidation portfolio declined 20% to $5.9 billion. Equity products generally earn higher fee rates than money market and fixed-income products, so asset mix affects revenue.
Net income, operating income margins, cash flow, cash balances, debt balances, and detailed liquidity measures are not stated in the supplied filing text. The 10-K incorporates the related financial statements and management discussion from the 2013 Annual Report to Shareholders, which is not included in the supplied text.
Material changes and unusual items
- Average managed assets increased 2%, but reported revenue decreased 7%; advisory fees declined 9%.
- Low short-term interest rates led Federated to waive or reimburse fees to maintain positive or zero yields in certain money market funds. The waivers reduced revenue by $389.0 million in 2013, partly offset by $277.1 million in lower distribution expense and $6.8 million in lower noncontrolling interest. The resulting negative pretax impact was $105.1 million, versus $71.2 million in 2012.
- Federated estimated a negative pretax fee-waiver impact of approximately $30 million for Q1 2014, assuming asset levels and mix remained constant and based on then-current market conditions. It estimated that 10- and 25-basis-point increases in gross portfolio yields could reduce the waiver impact by approximately 45% and 70%, respectively; these were estimates, not guarantees.
- During Q4 2013, the company repurchased 250,000 shares under its public share-repurchase program at a reported average price of $23.73. Additional shares were repurchased in connection with employee separations.
Outlook, risks, and contingencies
- Management could not predict when short-term rates would rise and said money-market fee waivers could continue for the foreseeable future. Waivers depend on interest rates, fund asset levels and mix, fund expenses, distribution arrangements, and regulatory actions.
- Proposed U.S. money market reforms included a floating net asset value for certain funds or liquidity fees and redemption gates. Federated warned that a floating NAV or changes to valuation rules could harm the attractiveness of its money market products and materially affect its business. Final rules were pending.
- European money market reform proposals and a proposed financial transactions tax were additional risks; the filing stated that their final form and effects were uncertain.
- Potential systemic-risk regulation, including possible FSOC designation, could bring additional requirements. The filing also cites competition, market and asset-flow changes, regulatory and compliance costs, and state and local tax changes as risks.
- The filing refers readers to the incorporated annual report for full results, cash flows, debt, liquidity, risk factors, and legal proceedings. The supplied text does not provide clear values for these items.
Most important facts to verify
- Consult the incorporated 2013 Annual Report for net income, margins, cash-flow statement, balance sheet, debt, liquidity, and full risk disclosures.
- Reconcile the $389.0 million gross revenue impact of money-market waivers with the $105.1 million net pretax impact after expense and noncontrolling-interest offsets.
- Assess whether the expected Q1 2014 waiver impact and yield sensitivities matched subsequent results.
- Track changes in money-market AUM and product mix, fee rates, and final U.S. and European money-market regulations.
- Confirm the registrant identity and reporting period: this supplied filing is Federated Investors, Inc.’s FY 2013 Form 10-K, not a filing under the name Federated Hermes, Inc.