Vice President, Treasurer, Chief Financial Officer & Director, FEDERATED HERMES INC
Federated's Donahue `Optimistic,' Sees S&P 500 at 1,450
March 24 (Bloomberg) -- Christopher Donahue, chief executive officer of Federated Investors Inc., talks about the outlook for U.S. ...
About Thomas Donahue
Thomas Donahue, Vice President, Treasurer, Chief Financial Officer & Director at Federated Hermes, has spoken publicly about the mutual fund industry and market conditions. In a 2013 Senate hearing, Donahue defended sponsor support for money market funds, comparing it to supporting a family and arguing that such support demonstrates the "inherent resiliency of the funds." He stated that fund sponsors are "making independent voluntary marketplace analysis and judgments" and noted that firms are "100% on waiving investment advisory fees" to keep funds viable during low interest rates. Donahue also described the $2.6 trillion in money funds as "an accomplishment" despite what he called "lots of regulatory abuse." In a 2012 interview, Donahue expressed optimism about the stock market, predicting an S&P 500 level of 1,450 that year. He discussed new fund offerings, including a floating rate strategic income fund and an unconstrained bond fund, and described the challenges of running an asset management business amid volatility and regulatory uncertainty. Regarding Dodd-Frank, Donahue said the law was "not exactly fully impacting" at the time and that it was "very challenging to figure out how it will be listed." Separately, in 2011, Donahue delivered opening remarks at a conference on Cuban economic policies, criticizing the Cuban government's labor policies and quoting President Obama's statement that "Cuban authorities must take meaningful actions to respect the basic rights of the Cuban people."
Transcript (21 segments)
L
Lisa0:00
Well, Federated Investors is a global investment firm with $358 billion of assets under management. And year to date, its stock is up marginally, outperforming other asset managers, but lagging the broader market. Well, the president and CEO Chris Donahue says that investors are at the beginning of a re-risking environment and he is positioning Federated to take advantage of that and he joins us now here live in the studio with more. Chris, it's such a pleasure to have you in. Thanks for joining us today.
T
Thomas Donahue0:29
Well, thank you very much, Lisa. It's a pleasure to be here.
L
Lisa0:30
Well, let's talk about re-risking. Is there a shift? We saw this a little bit, I think, at the end of last year was definitely in the fixed income markets was a desire for yield and a willingness to really take any risk to get it. It's been a tough market though so far this year. A lot going on of course overseas. So, explain the re-risking.
T
Thomas Donahue0:50
Well, from an industry standpoint, we've seen it on the stock side where US stock funds during the first quarter have gone to positive whereas all last year they were negative.
L
Lisa0:59
Are you talking in terms of industry?
T
Thomas Donahue1:01
This is on the industry on flows. Yes. And on balanced funds, the accumulation of flows in balanced funds this year so far equals what the whole of last year was. And though the flows on fixed income are still strong, they're much less than they were last year. And we're seeing that same reflection in Federated's numbers where we're seeing strong flows on fixed income but not what they were before and a different shift of look at the individual stock funds for example the strongest performer this year is our strategic value dividend fund which is you can feel it being a little step out the yield curve from going from fixed income to stocks but stocks with heavy dividend component.
L
Lisa1:41
Are you able to trace where the flows are going from and to? Are you able to see that it's coming out of a fixed income fund and going into a dividend value fund?
T
Thomas Donahue1:49
Lisa, because we go through intermediaries and deal with all of our accounts on an omnibus basis, we cannot see that precise flow but we can see it in terms of the macros in terms of the funds but not the precise flow.
L
Lisa2:02
Well, we've had events in North Africa and the Middle East. We have seen oil rise what 35% I think since events in Egypt erupted initially at the beginning of the year. We've seen events of course in Japan. How has that affected investor sentiment? Are you starting to see evidence of maybe risk aversion?
T
Thomas Donahue2:22
Because Lisa, we go through intermediaries there's an intelligent speed bump between the investor and a market decision and this slows things on the way out and gives consideration on the way in. So that for example our view that the resiliency of the Japanese people is going to enable them to solve their problems will be able to be communicated through our investor base the intermediary and the ultimate customer. And that's the kind of thing we want is savvy intelligent decisions running through to the ultimate investor. And so our view is if you asked our house view it's that we're going to see an S&P in the 1450 range this year. And we remain optimistic about the market to that extent.
L
Lisa3:04
Let's talk about the new funds you're launching. Is this really driven by investor appetite or where you see investment opportunity?
T
Thomas Donahue3:10
It is a beautiful confluence of both. One of course is a low duration product which basically means we're buying securities bonds that have a fixed net asset value and the rate floats. That's a floating rate strategic income fund. The floating rate strategic income fund and it has a component of trade finance in it too. So it basically has about a 3% coupon on it now and people can get into it and then when as and if rates go up they won't get killed on the downside.
L
Lisa3:41
What's the unconstrained bond fund? The unconstrained bond that sounds risky.
T
Thomas Donahue3:46
Well it could be but the idea is to limit risk. The idea of being unconstrained is exactly designed to take care of all of the opportunities and all the balancing available in the world. And so that's what that is. And that's for the kind of investor that wants to turn over the bond management to somebody who knows what's going on in all corners of the world, all types of securities, a go anywhere product as compared to an investment advisor who is selecting the various sandboxes and wants a constrained product to various sandboxes.
L
Lisa4:16
Now, the global equity fund I, you know, seems to be self-explanatory, but I do want to put that in the context of where you see opportunity given so much volatility around the world at the moment.
T
Thomas Donahue4:27
Well, volatility is interesting, but more important is the 6 billion people that live in other countries that are growing right now. I'm talking about India, Brazil, I'm talking about a lot of places like that. And so, a global equity fund is designed to take advantage of those kinds of opportunities. And the people in the United States are seeing those as opportunities as we've seen in flows on international funds over last year and continuing into this year.
L
Lisa4:51
All right, Chris, I want you to give me some perspective as a CEO. Being a CEO always gives you such an interesting vantage point and what's very interesting about your role at Federated is it's sort of a family business, so to speak. Your father was a co-founder of Federated. You've worked there pretty much all your life. How are things today running a business as an asset manager different from your prior experience?
T
Thomas Donahue5:15
Well, the primary difference I would say is the volatility and the necessity to be doing your homework and working on what's going on in the marketplace. It is a lot tougher to make it work. So we try to develop a franchise where with a component of money funds, stock funds and bond funds, we are able to withstand the onslaught in the market and have products that keep the franchise stable and all of the products viable. And that's pretty much the biggest challenge that we have.
L
Lisa5:44
You know, we talk a lot about Dodd-Frank regulatory reform and how it impacts the banks, but how does it impact an asset manager?
T
Thomas Donahue5:51
Well, Dodd-Frank right now is not exactly fully impacting. There's some analysis going on by the Fed and others on whether or not who should be designated into the Dodd-Frank ambit and so that's causing some issues but there haven't been regulations published yet so it's very challenging to figure out how it will be listed. Basically Dodd-Frank calls for banks over 50 billion to be listed and then it's open-ended as to non-bank financial companies as to what will happen. So, that's something you're keeping your eye on, but not something that's affecting your daily operations at the moment.
L
Lisa6:27
Well said. All right. Thank you, Chris, for joining us. We appreciate the insight. That was Chris Donahue, president and CEO of Federated Investors. Okay.