Greetings and welcome to the Federated Investors Management Company First Quarter 2017 Earnings Call and Webcast. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ray Hanley, President of Federated Investors Management Company. Please go ahead, sir.

Good morning, thank you, and welcome. Leading today’s call will be Chris Donahue, Federated’s CEO and President, and Tom Donahue, Chief Financial Officer. And joining us for the Q&A is Debbie Cunningham, our Chief Investment Officer for the money markets. During today’s call, we may make forward-looking statements and we want to note that Federated’s actual results may be materially different than the results implied by such statements. We invite you to review the risk disclosures in our SEC filings. No assurance can be given as to future results and Federated assumes no duty to update any of these forward-looking statements. Chris.

Thank you, Ray and good morning all. I will briefly review Federated's business performance, then Tom will comment on our financial results. Looking first at equities, with favorable markets and solid investment performance we closed Q1 with record high equity assets of just under $65 billion. Total assets in the domestic and international strategic value dividend strategies increased 4% in the first quarter to reach a record high of $38.9 billion. The strategic value dividend funds investment performance was solid in the first quarter returning 5.3%. This ranks it in the top 9% of funds in the Morningstar category which it has been assigned namely large cap value. We have emphasized in the past that this fund pursues a strategy different than many of the funds in this category and has moved regularly between the first and fourth quartiles over its history. In fact looking at the funds quarterly returns since its 2005 inception it has been either in the first or fourth quartile 92% of the time and the time spent in the first quartile and the fourth quartile has been split evenly. So the fund ranked in the top 13% on a trailing three year basis at quarter end, the top half for five years, and then 98 percentile for the trailing one year. Importantly for the funds objective of producing a high and growing dividend income stream from high quality companies, the funds 12 month distribution yield of over 3% ranked in the categories 3rd percentile at quarter end. Now while the $14 billion fund at first quarter redemptions net of 630 million, net redemptions were lower for each month of Q1 compared to December. The $21 billion SMA strategy had Q1 net redemptions of 28 million. Net sales for all equity funds in separate accounts in…

Thank you, Chris. Revenue was up 1% compared to Q1 of last year due to lower yield waivers and higher revenues from equities largely offset by lower money market related revenues which included the impact of the previously discussed change in the customer relationship. The revenues decreased 6% from the prior quarter due largely to the same change in the customer relationship and to fewer days. Q4 revenues in 2016 also included approximately $3 million related to a non-recurring fee credit from a fund service provider. These amounts were partially offset by lower yield waivers. Equities contributed 41% of Q1 revenues and combined equity and fixed income revenues were 58% of the total. Operating expenses decreased 1% compared to Q1 of last year and decreased 5% from the prior quarter. The decrease from Q1 of 2016 was due mainly to lower comp and related expense reflecting lower incentive comp accruals and lower professional service fees. This decrease was partially offset by an increase in distribution expense and lower yield waivers and higher equity and fixed income assets. The decrease from the prior quarter was due mainly to lower distribution expense reflecting the change in a customer relationship, lower average money market assets into fewer days. In addition Q4 distribution expense included a $2 million expense to correct certain under payments of past distribution costs. This decrease was partially offset by higher comp and related expenses. Comp and related for Q1 was impacted by seasonality and a reversal of approximately $2 million of incentive comp accrued for 2016 but not paid. An early estimate of Q2 comp and related expense is about 72 million. As previously discussed, the customer relationship change near the end of January resulted in a decrease of approximately $1 million of pretax income in Q1 and is expected to impact Q2 by an additional $1 million or $2 million total when compared to Q4 2016. The pretax impact of money fund yield related with fee waivers of 800,000 was down from the prior quarter of 3.4 million and Q1 of last year 9.4 million. The decreases were due mainly to changes in the customer relationship, higher gross yields, and lower fund average assets. Based on current assets and yields we expect the impact of these waivers on pretax income going forward to be immaterial. Our effective tax rate for the quarter was about 37% and we expect the same rate for Q2. At quarter end we had cash and investments of 278 million of which 247 million is available to us. We continue to be active in the share repurchase program by purchasing 513,000 shares in the first quarter. Latanya we would now like to open the call up for questions.

Thank you. [Operator Instructions]. Our first question comes from Bill Katz with Citigroup. Please proceed with your question.

Okay, thank you very much for taking the questions this morning. Chris maybe to start with just the some of the news the hires you added in the Asia Pacific region. I guess I was wondering -- I know you have been at this now for a bit of time and I know you have been thinking about design through de novo or through acquisition type of strategy, do these hiring’s sort of signal more M&A or more of a de novo type of effort to drive growth in that region?

They would single Bill more of a de novo effort than M&A. But one of the idea is to try and duplicate the kinds of relationships we have with LBM in Germany where you develop a good strong relationship with a large institution which would mean money being managed by us in all kinds of different mandates all the way from cash to high yield to total return bond and some global stuff on the one hand. And then some retail connections on the other side. So it's a search for big type partnership relationships that we can grow from.

Okay and just one follow up today, you sort of highlighted at the beginning of your commentary that performance is pretty good, you call that strategic value, and yet your guidance around flows into the second quarter is relatively muted atleast for equities overall. What's it going to take for the business to flip back into net sales and is there anything else that maybe going on either the asset class level or the fee rate level that you think is affecting the ability to grow the business?

Thank you Bill, let's -- I don't usually get into daily numbers but our strategic value dividend, the growth sales so far this month have averaged about 10 million a day and the redemptions at the beginning of the month were a lot closer to 25 million a day. And now they're down to numbers like $12 million and $13 million a day which means that the net sales are threatening to go even par for the tournament. And what you're seeing here in some of our guesses is the roll off of those assets that came in because this fund was purchased not with the idea of a dividend and a growing dividend but last January when it was declared to be the world's number one fund in every condition. And so I think we're seeing a very much diminishing of the net redemption picture on that front, looked at so far this April on a daily basis. And that is the largest thing going on in terms of the redemption profile here. The second one is the Kaufmann fund and that has over the years as you know been a negative sales producer at Federated. However, with the outstanding performance of that fund over the recent timeframe bringing its numbers up for one, three and five years into the top quartile we're starting to see some diminishing in those net redemptions as well. So it is the performance that over the long haul is going to drive the truck and once that gets the candidate into the marketplace we have a lot of confidence that we have the mandates with the performance to get back on to a positive flow.

Okay, just some two qualifications, I am taking those, I apologize. The $3 million number you referenced on revenues, is that a Q1 event? And then Chris you mentioned that your fixed income mutual fund sales were slightly positive I think it was for the quarter. Can you tell me what -- assuming what was in – did that include SMA? And thanks for taking my questions.

The $3 million was a Q4 item, it was a revenue item where we got a refund of past fees. So that's a onetime item.

Okay, thank you.

And Bill on the fixed income as we said there is slightly negative. High yield is very slightly negative. Of course that has been solidly positive for several quarters and years. The institutional fund actually is a little bit positive but the retail portion has slipped to slight outflows. Still positive on floating rate and on ultra shorts. Very slightly negative on total return bond despite the outstanding performance profile that Chris went through. So we have a lot of confidence that that will flip back to where it's been as well.

Okay, thank you. Sorry for the questions. Thank you.

Our next question comes from Ken Worthington with JP Morgan. Please proceed with your question.

Hi, good morning and thank you for taking my questions. You highlighted the transition from funds to separate accounts in the press release, 25 billion over the last 12 months. How did the economics change and if possible excluding the impact of the fee waiver which I think has a lot of noise around it on the business that moves from funds to separate accounts. And I think that the 21 billion is a lot maybe different than the 4 billion and if that's the case if you could separate those and then you mentioned you're getting traction in the private and comingle prime funds as well, how do the economics differ in those products versus the funds?

Okay we'll divide this into three questions. In terms of the two economic ones namely on the prime funds and the collective funds I’ll do that one and then also on the economics of the SMA and then Ray will take care of the other question. So on the relative economics of the prime and the collective funds it's basically the same as the other money market funds. But obviously these funds are smaller meaning that together they are 460 million but we're trying to grow them and working hard and you know getting a money market fund up to a size where people are willing to take a big position is part of the challenge. And that's why I mentioned that both higher rates gross and higher spreads net are going to be important ingredients as we present those products to the marketplace. But basically it's the same drill whether you're in one of our other money funds or in those. Then on the SMA depending on whether its SMA or UMA, the basic pricing is half or a little less than half of the pricing on the mutual fund and the reason for that is that obviously the account sizes are way different, much higher but you're fitting into a mechanism on the broker dealer or the advisor side where they are charging a fee for the flat service. And you do not have all of the expenses associated with running a mutual fund. And so that's about the difference there. Ray you want to handle the third one.

Sure Ken, without commenting on the specific separate accounts just generally and fund rates, on the first -- in the first quarter if you take our total money market fund business on a net revenue basis, net of the distribution expenses it comes out to roughly around 10 basis points, a little above 10 basis points. And on the institutional separate accounts side, that’s more like around a four basis point rate which is dominated by a handful of very, very large accounts. But in terms of individual separate accounts they are essentially priced on an individual basis.

Okay. Thank you, that was really very helpful. On to the flyer here, can you talk about competitive fee waiver so I know like the discussion for the last five years about like interest rate fee waivers but in terms of competitive fee waivers in the money market fund business have there been any changes say today versus where they were a year ago in either the prime side or the government side that the industry is sort of requiring to get the product sold? Thanks.

Well, obviously there is a huge change in the amount of money that went into guvies [ph] and there were some participants who over that time frame reduced their pricing. And that was a factor that we've talked about on these calls before. In terms of the prime because some people shut their primes down and because of the requirements of those October 14 implemented October 16 amendments it's difficult to get that money back in over $1 trillion less the industry. I'm not aware of people doing a lot of shenanigans on the prime side with those assets but I would ask Debbie to give you an up to date version.

Certainly on the government side as Chris mentioned there have been a few in the market that have chosen strategically to lower fees and capture some of the assets that were flowing out of prime and into government. I would say year-to-date 2017 that has been less of an issue, it was more of an issue in the third and fourth quarters of last year and maybe one or two smaller ones are still in that mode in the year-to-date 2017 standpoint. But it's not necessarily prevalent as much as it was just two quarters ago. From a prime standpoint we're not seeing that. I think those funds are now at this point enjoying a yield curve that is fairly steep and has a lot of spread associated with it versus treasury and government agency yield curves. And at this point at least it's more a battle of how do you get asset size not from a fee waiver perspective but just getting clients comfortable with the new product, with the structural changes that went into those products. It's not being done through a fee waiver standpoint.

Okay, great. Thank you very much.

Our next question comes from Robert Lee with KBW. Please proceed with your question.

Great, thanks and good morning everyone. I'm just curious, I mean historically there's always been I guess a lag between when short rates start to rise and you start to see a greater demand for money fund assets but, given we've had a couple of increases I know it takes some time to filter through though maybe it's a little quicker just given shorter durations in money funds. But do you think there's -- are you seeing any change in the competitive landscape versus bank deposits that maybe banks re-pricing deposits up more aggressively and although I don't get a sense if that's the case but is there anything besides kind of a prime guvi switch that is you think will delay, how long it takes institutions to start becoming more attractive to money funds as rates go up?

Well it's interesting from a history perspective generally in a rising rate environment money funds lose assets to the direct market whether it's you know repo or deposit instruments. We're not seeing that so much in this case. But we're not seeing a whole lot flow back in. In fact we're trying to emphasize that at this point, the attractiveness of funds versus bank deposits, the average bank deposit rate which is a difficult thing to come up with and it is a varied range but the average that we can find at this point is right around 53 basis points. Our government funds are yielding 80 plus basis points, our prime funds are yielding about 20. There's, easily 30 to 70 basis points in spread over bank deposits and I think it's just an awareness not granted about 53 basis points. Like I said some let down the few that are out in the 1%, 1.05 but quite a few that are still down at the basis point. So it's an awareness and I think again a comfortability with the new product set as its been changed from a regulatory standpoint by the SEC back in October of last year. That's our challenge at this point.

Okay, great and then maybe a follow up question on the strategic value. I mean it's -- I guess total assets and the different strategies that I think you said about 38 billion overall, I mean how do you think of capacity for that. I mean are there obviously a lot of it is large cap stocks but do you feel like there's any kind of capacity constraints in some of the I guess I’ll call it sub strategies that you could start bumping up against?

We do not Rob. We've looked at it and so you could double this fund looking at it from the whole strategy of 38.9 billion. And we've looked at it in terms of whether you can get the positions we want, the liquidity on exit if you had to the [Indiscernible] and purchasing exercises if you go through to take positions. And we just don't see limitations on the size of that and it is in part because of the large cap stocks that are in there. The other thing that we have done anyway but it is much a strategic diversification as anything is to create an international version, a global version, sell it over in Canada, and this does expand the percentages of some of those foreign stocks that you're able to put into the overall mandate which is a little bit helpful.

Great and just one quick follow up question. I think Chris you mentioned that you have about 500 million roughly of an unfunded pipeline institutionally and then I thought you made a comment that there's some offsetting redemptions, just wanted to clarify that, was that kind of known redemptions largely offset that, I just want to make sure I understood the commentary?

Yes.

Okay, thanks for taking my questions guys.

Our next question comes from Michael Carrier with Bank of America. Please proceed with your question.

Hi, thanks guys. I guess the first question just on and this is on more of equity side maybe a little bit on the fixed income, Chris you mentioned potentially more demand you and the SMAs, whether it's with DOL or not and just wanted to get a sense, I know you went through it on the money market side but the economics on the funds, the university SMAs if it differs any more than what you went through on the money fund side, just that we continue to see more of a shift into those types of accounts, what does it mean, it’s either the fee rates or the bottom line?

Mike, it is Ray. I’ll just comment on the fee rates in the same way we did on money markets. If you take the equity mutual funds in the first quarter and again on a net revenue basis net of the distribution revenue and related expense that kind of passes through, that would get you to about 75 basis points. And if you take the separate accounts in total and of course they're dominated by a strategic value and by SMA, it would run about half of that. And that's a rather typical relationship I think in the industry, separate account fees compared to mutual fund fees where of course the services are quite different.

Got it, okay, it makes sense. And then I guess the other one, I know this is tough and you guys have given the net impact on the change and the customer relationship, the extra like 1 million reduction in the second quarter. Just given all the movement in the revenue and expense lines, just wanted to see like in terms of the pretax margin if all else is equal do we know where that kind of stabilizes as we get maybe into like the third quarter or you're just too tough to tell?

Mike under the margin even the unwinding, the change actually the relationship really didn't impact the margin very much just as the margin had nothing changed what would have been very, very close to what it was. So you should not expect to see the full follow through on a full quarter basis to move the margin.

Okay, got it. Alright, thanks a lot.

At this time I would like to turn the call back over to management for closing comments.

Well that concludes our comments for today and we thank you for joining us.

This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a great day.