Christopher Donahue, chief executive officer of Federated Investors Inc., is sticking up for the family business when he defends money-market funds.
Donahue, whose family-controlled firm has three-fourths of its assets in the cash-like products, is the most outspoken opponent of an effort to impose new regulations on the $2.6 trillion industry. Donahue, who refers to the funds as “the eighth wonder of the world,” called one of the proposals “totally brain dead” in an interview.
Federated’s money-fund assets rose along with the industry’s, the result of both organic growth and acquisitions. The firm ranked second in money-fund assets at the end of July, behind only Boston-based Fidelity Investments and New York-based JPMorgan Chase & Co., according to research firm Crane Data LLC in Westborough, Massachusetts.
The run abated only after the U.S. Treasury guaranteed money-fund shareholders against losses on more than $3 trillion in securities for a year and the Fed began financing the purchase of fund holdings at face value to help them make redemptions. Congress has since prohibited the Treasury from acting in the same way.
The run on money funds was the only one in the industry’s 40-year history, according to Donahue. Shoring them up didn’t cost the federal government any money, and the 2010 changes made the funds resilient enough to handle the stresses they are likely to face, he said.
Federated has risen 1.3 percent since the Federal Reserve lowered its target rate to a range of zero to 0.25 percent in December 2008, compared with the 26 percent average gain for the Standard & Poor’s 20-member index of asset managers and custody banks. The firm has continued to make acquisitions during that time, including a pending deal announced in April to acquire $5 billion in money-fund assets from Cincinnati-based Fifth Third Bancorp.
Volcker, in a September 2011 speech, spoke in favor of tougher rules.