Federated Investors Inc.'s (FII) third-quarter earnings were nearly flat as fee waivers on money-market funds cut into its revenue.

The Pittsburgh-based asset manager reported net income of $56.9 million for the three months ended Sept. 30 after the market's close Thursday, up from $56.2 million in the same quarter a year ago.

Federated, the third-largest manager of money-market funds, earned 56 cents a share in the quarter, up from 52 cents a share in the year-earlier period, which beat analysts average forecast of 52 cents a share.

Revenue slipped to $293.6 million in the latest quarter, below analysts average forecast of $302.5 million, and down from $305.9 million in the year-earlier period, primarily due to $36.5 million in fee waivers on money-market funds.

Federated and others money-market fund managers have been forced to waive fees as to maintain positive or zero net yields for investors. Lower average equity managed assets also contributed to decreased revenue, the company said.

"We expect the waivers to continue through the fourth quarter...," J. Christopher Donahue, Federated's president and chief executive, said in an interview late Thursday. "I don't think they're going to go raising interest rates any time soon either."

Thanks to the assets it built up in money-market funds, Federated has remained one of the strongest money managers, making acquisitions as many others suffered in the downturn.

Donahue said Federated will look to expand internationally, perhaps through an acquisition. It won't be this year, but "I would hope that by 2010, we have some points on the board to show what we're up to," he said, declining to elaborate.

In the quarter ended Sept. 30, Federated derived 63% of its revenue from money-market fund assets, 24% from equity assets, 12% from fixed-income assets and 1% from other products and services. As of Sept. 30, its fixed-income assets were $32 billion, up 41% from the year-earlier period and up 11% from June 30. Federated had net bond fund sales of $1.8 billion in the quarter ended Sept. 30.

Donahue dubbed net flows into equity funds in the quarter "politely positive," at $126 million. As of Sept. 30, Federated's equity assets were $29.1 billion, down 8% from the year-earlier period and up 11% from June 30.

Donahue's plan is to amass $100 billion in stock and bond assets within five years.

Though Federated would like to have more money coming into its equity funds, "we think that on a net sales basis, we are gaining market share," he said. Equity fund sales in the quarter ended Sept. 30 were $1.5 billion, up from $1 billion in the same quarter last year, he said. "I agree that the third quarter last year wasn't so hot; on the other hand, not everybody is experiencing that. We have a lot of good-performing products attractive to the marketplace."

Overall, the flows generally showed the strength of a diversified business model, Donahue said. While assets in money-market funds and separate accounts were at $318.1 billion as of Sept. 30, down 8% from June 30, they were up 11% from the year-earlier period, with positive bond and stock fund flows in the Sept. 30 quarter.

"What we would like to see is the percent of equity assets increased back to the place where they were in the third quarter of '04 and '05, just under 40%," Donahue said.

Federated's shares closed at $26.86 Thursday, up nearly 4%.

-By Daisy Maxey; Dow Jones Newswires; 212 416 2237; daisy.maxey@dowjones.com
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