Federated Investors, Inc. Q2 2008 Earnings Call Transcript

Jul.25.08 | About: Federated Investors (FII)

Federated Investors, Inc. (NYSE:FII)

Q2 FY08 Earnings Call

July 25, 2008, 09:00 AM ET

Executives

Ray Hanley - IR

J. Christopher Donahue - President and CEO

Thomas R. Donahue - President, CFO and Treasurer

Analysts

Craig W. Siegenthaler - Credit Suisse Securities LLC

William Katz - Buckingham Capital Research

Cynthia Mayer - Merrill Lynch

Michael Carrier - UBS

Robert A. Lee - Keefe, Bruyette & Woods

Michael Hecht - Banc of America Securities

Operator

Greetings, and welcome to the Federated Investors' Q2 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 Mr. Raymond Hanley, President of Federated Investors Management. Thank you Mr. Hanley, you may begin.

Ray Hanley - Investor Relations

Good morning and welcome. Today, we plan a brief presentation before opening up for your questions. Leading today's call will be Chris Donahue, Federated's CEO; Tom Donahue, Chief Financial Officer. And with us is Denis McAuley and Lori Hensler from the Corporate Finance Group.

Let me say that certain statements in the presentation, including those related to money market assets investment performance, sales, new product and acquisitions, constitute forward-looking statements, which involve known and unknown risks and other factors that may cause the actual results to differ from any future results, implied by such forward-looking statements. For a discussion of the risk factors, see Federated SEC filings and other reports. And as a result, no assurance can be given as to future results and neither Federated nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

And with that, I will turn it over to Chris to talk about Q2.

J. Christopher Donahue - President and Chief Executive Officer

Thank you very much, Ray and good morning. I will begin by reviewing Federated's recent business performance, before turning the call over to Tom to discuss our financials.

Starting with the cash management business, money market assets decreased by $6.4 billion or 2% from the prior quarter, and increased $78 million or 40% since Q2 of '07. Seasonal separate account decreases accounted for most of the change from the prior quarter, decreasing about $4.7 billion.

On this matter, as we have discussed previously, the $30 billion that we manage in money market separate accounts is nearly all from large state mandate. And as such, we tend to have inflows in Q4 and Q1 as tax payments are made to the state and outflows in Q2 and Q3. This is a pattern that has been observed over a number of years. And with the addition of the state of Florida accounts last quarter, the dollar amounts of these swings are likely to be larger going forward.

Regarding money market mutual funds, they decreased by $1.7 billion, or less than 1% from the prior quarter. Average fund assets for the quarter were up, however.

Looking at the quarter in more detail, our money market fund assets were up slightly in April. We saw solid inflows in May and then outflows in June. We've seen growth in money market fund assets so far in July. July assets have ranged from about $241 billion to above $246 billion and have averaged about $244 billion.

The modest Q2 money fund asset decrease occurred mainly in the retail broker/dealer channel, while institutional assets increased slightly. Each area performed in line with industry results, and we believe that our market shares stayed about the same during the quarter.

Credit concerns remain a significant market issue. We believe that our credit culture and skills are competitive advantage that has been strengthened by our performance over the last year, as our experience team of money market portfolio managers, analysts and traders has successfully negotiated difficult market conditions.

We remain comfortable with each of our money market fund investments and have continued to see the winding down of the Sigma investments, as expected, with all payments received when and as due. Our remaining exposure is $450 million with the final notes maturing in mid-August.

Turning to equities, on a combined basis, equity, mutual funds and separate accounts had positive flows for the second quarter. Separate accounts showed positive flows while mutual funds were negative, though continuing to improve. Assets decreased slightly from the prior quarter, due to market depreciation.

Among equity mutual funds, the InterContinental Fund, remained our top selling product on a net basis in the second quarter. Kaufmann product had net positive flows on a combined basis, as inflows to the small and large cap funds were greater than the modest outflows to the mid-cap product. MDT mutual funds produced solid growth and net sales.

Outflows remain concentrated in large cap value and in flexible portfolios with the contrarian market opportunities fund showing net outflows in the second quarter. Index funds continued to show outflows as well.

Net outflows in our equity funds are running on a higher pace for the first three weeks of July, compared to the second quarter.

Turning to equity separate accounts, we continued to have success with MDT strategies for institutional accounts with three more wins in the second quarter. And we expect these to fund for over $200 million. Funding of prior MDT institutional wins drove Q2 net inflows in this area.

In addition, the MDT SMA strategies produced net inflows in the second quarter. Turning these flows positive has been an important goal since we reopened these strategies in early '07.

Overall, equity separate accounts, including SMAs and institutional accounts had $209 million in net inflows in the second quarter.

On the fixed income side, Federated continued to navigate difficult credit market conditions very successfully. After turning positive in Q1, our Q2 fixed income net fund sales accelerated to over $800 million, and this was led by strong inflows into our Total Return Bond Fund and into the Ultrashort bond products.

Fixed income separate accounts showed $1.1 billion of inflows from a run-off portfolio of distressed securities from the state of Florida that will decline over time to expected asset sale. Fixed income flows remain solidly positive here early in the third quarter.

As of July 23rd, our managed assets were approximately $333 billion, including $271 billion in money market, $36 billion in equity, and $25 billion in fixed income. Money market mutual fund assets stand at about $241 billion.

Looking at investment performance in using the quarter end Lipper rankings for Federated's equity fund, 38% of rated assets were in the first or second quartile over the last year, 74% three years, 78% five years and 68% for 10 years.

For bond fund assets, the comparable first and second quartile percentages are: 72% for one year, 83% for three years, 79% for five years and 77% for 10 years.

Specifically addressing distribution, on a combined basis, net sales of our stock and bond mutual funds turned positive in Q2 with good results in each of our distribution channels.

In the wealth management and trust market, combined net sales of equity and bond funds were positive. We had a particular success with the total return bond fund in this channel, including a significant wrap program win during the second quarter.

In the broker/dealer channel, net equity and bond fund sales were also positive. Money market assets decreased during the second quarter but have re-gained ground here early in the third quarter.

In the global institutional channel, we have had success with MDT strategies for institutional accounts, as previously mentioned. We've also had success in Florida, since winning the LGIP mandate last quarter.

In addition to the distressed bond portfolio, I mentioned earlier, we received a mandate for a new $550 million cash management pool added on July 1st. And this is separate from the LGIP A pool, and we are also talking to Florida about other opportunities.

The original LGIP mandate is performing well, and we have been successful in launching an extensive communication program for the participants. We are also actively seeking new cash management mandate from other states.

On the acquisition front, as you probably are aware, we recently announced the deal with David Tice and Associates for the $1.7 billion Prudent Bear family of mutual fund. We expect to close this transaction late in the year, at which time the investment management team will join Federated bringing with them a long-term record of success.

Along with two excellent funds with strong performance record, the deal will add investment expertise and will enhance our ability to expand into alternative assets. We continue to evaluate candidates for both center of excellence and consolidation deals. For the financials, I will now turn you over to Tom.

Thomas R. Donahue - President, Chief Financial Officer and Treasurer

Thank you, Chris.

For Q2, revenues increased 12% compared to Q2 '07 and 2% from the prior quarter. Increases were mainly due to higher money market assets, reduced mainly by lower equity assets from market decline, and to a lesser extent, changes in the mix of equity asset. We had a couple of notable items in the second quarter. We booked and expect to receive an after-tax gain of $2.8 million in discontinued operations from the 2006 sale of our trade-clearing business.

On the expense side, and primarily in the professional service line item, we added $2.2 million pre-tax to our estimates of the cost to complete the distribution of the 2005 regulatory settlement, and incurred $1.8 million pre-tax costs related to the fund perspectives modifications, which we talked about last quarter. We expect to have additional costs for this item in the third quarter of approximately $1.2 million.

Compensation and related decreased from the prior quarter, due mainly to seasonality from payroll taxes and 401(k) contribution, and to the Q1 true-up on 2007 incentive compensation expense.

Marketing and distribution expense increased from prior quarter, due mainly to the growth in average money market fund asset.

On the balance sheet, cash and short-term investments were at $155 million at the end of the second quarter. We continue to generate strong free cash flow and expect that we will continue to use cash for acquisitions, dividends, share repurchases and capital expenditures.

Chris mentioned that the Prudent Bear acquisition... acquisition which we expect will close later this year, we will pay $43 million upfront and can pay an additional $100 million over four years, based on reaching significant revenue growth target.

We'll have further color on the impact of the deal after it closes. Our best estimate today is based on the asset levels in the press release. And assuming closing the deal in 2008, the deal will add about $0.01 per share to book earnings in 2009 and about $0.06 to cash earnings in 2009.

That concludes our prepared remarks, and we would like to open up the call for questions now.

Question And Answer

Operator

Thank you. Ladies and gentlemen we will now be conducting a question answer session. [Operator Instructions]. Ladies and gentlemen, our first question comes from the line of Craig Siegenthaler with Credit Suisse. Please proceed with your question.

Craig W. Siegenthaler - Credit Suisse Securities LLC

Hi, good morning.

J. Christopher Donahue - President and Chief Executive Officer

Good morning.

Craig W. Siegenthaler - Credit Suisse Securities LLC

First question iskind of more a macro question. Just wondering why or how in this cycle maybe changes in Fed action here, either up or down or also maybe a peaked inflation could impact your money market business. Because when you look at historical cycles, the Fed going higher is normally a negative thing for money market flows. If they go hold or down might be more of a positive. Just wondering your thoughts on that macro event.

J. Christopher Donahue - President and Chief Executive Officer

Youhave generally outlined the usual effect of Fed action. It is important to remember, however, that there are other factors there as well. The most important of which is that the lion share of our money market fund business is cash management service that is needed regardless of the actions of the Fed. So the actions of Fed tend to, if you will, affect the top head of our barge in terms of our assets.

Now, in terms of Fed action, it's our view that we don't think that Fed is going to reduce further. And when and as if they start increasing, it's probably going to be later in the year, if this year. So, another factor, remember there is, as long as those moves are measured, meaning in the 25 and 50 basis point type moves, the money market funds do not fall meaninglessly behind the market, such as to cause regular cash management customers to alter their cash management activities.

It may, of course, affect short-term players, SEC lending people, maybe even some corporate treasurers when you get five or 10 or 15 or whatever basis points off of whatever they perceived to be the spot market. So, overall yes, the Fed has an effect and you have correctly outlined it.

There is one other effect that is important in this too, and that is the slope of the short-term curve. And if the short-term curve has some steepening to... some positive slope to it, then that enables the fund manager to develop a portfolio that can compete successfully even though rates are increasing. So, that's another factor that has to be added into the equation.

Craig W. Siegenthaler - Credit Suisse Securities LLC

Got it. And the other issue though is, if inflation is increasing, could the stable value nature of your money market products... could that make it appear more attractive as long-duration bond products actually have capital losses? Does that... I mean and that would also correlate with the Fed rating here?

J. Christopher Donahue - President and Chief Executive Officer

Generally speaking, our clients look at the money market fund as a cash management vehicle. The extent to which inflation may or may not take off and money market funds are perceived as a better value because they pay the interest. And that's a possibility but that usually doesn't drive the truck of flows here.

Craig W. Siegenthaler - Credit Suisse Securities LLC

Got it. And just one more question on your fixed income platform. It seems like the performance there was better. Is there anything that was driving flows in new distribution channels? Maybe a new product that's been added or is it your performance, your distribution specifically or is it more of a retail macro impact right now with the industry?

J. Christopher Donahue - President and Chief Executive Officer

I think it is a proper confluence of excellent long-term consistent product in the core fund that enlivened that particular marketplace. And you combine that with the team that's been here since on my demand run is not [ph] for the contrary, with sales people who have been through the cycles before and have been able to present these products successfully in the past. You have a confluence of those factors and that's what it is. The new products are not really the drivers although, we are seeing assets in our fixed income SMA and things like that. But the main show is the Total Return Bond Fund, which is a standard bear here at Federated.

Thomas R. Donahue - President, Chief Financial Officer and Treasurer

And, Craig I'd add, the long-term record outstanding, the record over the last year with the credit market issues has also been outstanding and we think differentiates us.

Craig W. Siegenthaler - Credit Suisse Securities LLC

Okay, great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from the line of William Katz with Buckingham Capital Research. Please proceed with your question.

William Katz - Buckingham Capital Research

Okay. Thank you. Good morning.

J. Christopher Donahue - President and Chief Executive Officer

Hi, Bill.

William Katz - Buckingham Capital Research

Couplequestions, and it's on the money market business. Just maybe you can take it one layer deeper. It seems like you snapped back at where you stand right now in terms of money markets, is lagging some of the observations being made by some of your peers, who said same thing that at the end of the quarter, lot of volatility but things snapped back decisively. When they say around 241 right now, just trying to understand how much of that might reflect some... the seasonal run-up, you mentioned in your prepared remarks versus just less growth. The reason why I ask is, it sounds like for the first time in a couple of quarters now, when you said your market share is steady, rather than taking share. I am just sort of wondering, is there a more pronounced slowdown going on than meet the eye?

J. Christopher Donahue - President and Chief Executive Officer

You are dealing there, Bill, with some rather infinitesimal differences. You are dealing with small tenths of a basis... tenths of a point in terms of the market share. So I can't make much of that, and as I've often said that even growing quarter-to-quarter on market share is very, very difficult. So, we don't perceive ourselves in any way share performers losing ground here. That's our best guesstimate of where we are, when we don't have the numbers. So, we are short of rounding off, what we think the numbers will be and that's what we've concluded for this call.

Now on the 241, that's a one-day total, and there are a lot of risks in one-day quotes. We look at our daily volumes, and we can have multi-billions go in and out every single day for a thousand different reasons. And that's why we always caution, not to make too much of it. So, I wouldn't combine those two, Bill, and conclude that something different is happening here because it just isn't true.

William Katz - Buckingham Capital Research

Okay, fair point. On the institutional account win related to State of Florida in terms of the workout, could you give a sense of the economics behind that, in terms of the type of revenue yield? Or what type of performance fee you might have in place with the state as it relates to workout? And what kind of incremental pipeline do you think it might be out there in your ongoing conversations with them?

Thomas R. Donahue - President, Chief Financial Officer and Treasurer

Bill, in that particular portfolio, really all of the Florida money is there in a similar bandwidth, as we've talked about before. If you translate into basis points, it would be in the 2 to 2.5 basis point range. So you can apply that across... actually all of our state business that's like that and...

J. Christopher Donahue - President and Chief Executive Officer

It's cash.

Thomas R. Donahue - President, Chief Financial Officer and Treasurer

That's cash, that's correct. And it's a portion of fixed income. In terms of additional managed, we have a lot of discussions going on with other states and across asset classes, I would add. So, we would hope to have some additional good news in the future on that front.

William Katz - Buckingham Capital Research

Okay, sure. Thank you very much.

Operator

Thank you. Our next question comes from the line of Cynthia Mayer with Merrill Lynch. Please proceed with your question.

Cynthia Mayer - Merrill Lynch

Hi, good morning. Wonder if you could talk a little about Prudent Bear, which channels you see the most opportunity and then how quickly you think you can develop products, which will actually make a difference in net flows?

J. Christopher Donahue - President and Chief Executive Officer

Taking the second part of that, first, Cynthia, we don't envision at this point new products. We envision the two products that they have... being brought in. Now, as you can see from what we have done with Kaufmann or from MDT over time, we come up with new products. But the first focus is to get these excellent products organized into Federated Group, which means do the closing, the due dili [ph] etcetera., then do the training, road show and explanation to the client bases. And then see these products take on in our distribution before we even think about new products.

Now, which areas, we think it could easily be across the board, in terms of where these products would take interest. Because don't forget, these products are basically a portion of people's investing... investment dollars. And so, it can find a proper home in both wealth and trust as well as in the broker/dealer area. The institutional will be its own challenge; those products aren't exactly designed for that. But there is some modest interest there as well. But that isn't the main focus at this point.

Cynthia Mayer - Merrill Lynch

Is this something you could get the Jones channel to take an interest in?

J. Christopher Donahue - President and Chief Executive Officer

Well, we have to see about that. The Jones has a very solid system of evaluating those funds and then putting them on their list. And we would certainly plan to do that. But they tend to focus on the main show of value-oriented growth and income fund. That is the principal ingredient in their investment triangle. And this type of activity would be a very small portion of anything that they would really sell, even if they were able to get on to their list.

Cynthia Mayer - Merrill Lynch

A little synergy [ph], okay. Can I ask a quick question on the administered assets? It looks like they went down and I'm just wondering if there's anything behind that and what sort of impact, if any, that would have?

Thomas R. Donahue - President, Chief Financial Officer and Treasurer

The impact, Cynthia, would... for any changes in the administered assets, would be very modest. And we are really down to literally a couple of third party complexes for which we provide fund administrative services. So, I would not... there would not be much impact to any changes in that category.

Cynthia Mayer - Merrill Lynch

Great, okay. And I'm just wondering you mentioned... last thing as you mentioned, something about I guess a pipeline of wins to be funded. Did you give the amount for those?

J. Christopher Donahue - President and Chief Executive Officer

$200 million was what had funded. But we didn't give a number for a future. We keep working on it.

Cynthia Mayer - Merrill Lynch

Okay. All right, thanks a lot.

Operator

Thank you. Our next question comes from the Mike Carrier with UBS. Please proceed with your question.

Michael Carrier - UBS

Thanks guys. Just one question on the money market flows, seems like in June, there is a lot of, I don't like, different trends going on in the market. Given what happened in equity markets, you would have kind of expected, and this goes for the industry as well as, your flows to be stronger. And there was a lot of stuffs like corporate tax month. But you also had the expectations for potential higher rate. I'm just trying to figure out like, what exactly was going on in June, that led to that? And then obviously, you said that it bounced back in July. I'm just trying to figure out what the trends... what has shifted in terms of the client's mind?

J. Christopher Donahue - President and Chief Executive Officer

You have touched on some of them and you have characterized it correctly. It was a mixed bag of activities that caused the variety of actions in June. You did have corporate taxes. You had... at least some of our people believe there is some evidence that some people who had gone on to higher quality, went back from whence they came, because of the size of the spreads and some of their improved confidence. And don't make that bigger than what I'm saying, it's just the hints of the start of something like that. You also had sometimes during June, when on reflection the thirty day LIBOR rates were very competitive with many of the money fund rates which can attract some people to move as well. So, you really did have a mixed bag of features going on in the money market fund business in June.

Michael Carrier - UBS

Okay. And then just the money that was going out... if your money was going out of equities, money is going out of money markets, and for you guys, the area inside Max [ph], I guess Ultrashort fund seemed to be gaining in. Did you see money shifting into that or like as a different product it takes some of the money or was it just leaving altogether?

J. Christopher Donahue - President and Chief Executive Officer

But what's always hard for us do is precisely follow the switch, because all of these accounts deal with us on an omnibus basis.And there are many accounts underneath. So, yes we did see money go out of some of the government money funds, and we did see money coming into barriers of the Ultrashorts. But I can't fully say that we know which clients went along and that it was a direct exchange. We suspect that there is a handsome amount of that going on but we can't identify it precisely.

Michael Carrier - UBS

Okay, that makes sense. And just one last question on the growth in revenues versus assets you obviously have with the equity markets down, and then the increase over the last 12 months in money market funds. You have the natural mix shift in terms of lower key products. It seems a little bit more pronounced. And I am just trying to figure out besides the increase in like the State of Florida and some of those lower key products. Is there any more like intense competition on any certain products that we should be looking out for and that we can see further key pressure?

J. Christopher Donahue - President and Chief Executive Officer

I think you have outlined pretty much the range of features to that realization rate. The competition just continues in terms of money market funds and marketing and distribution, but there is nothing new or revolutionary there. It's repeating the same old thing of dealing with our clients on that side.

Michael Carrier - UBS

Okay, thanks guys.

Operator

Thank you. Our next question comes from the line of Robert Lee with KBW. Please proceed with your question.

Robert A. Lee - Keefe, Bruyette & Woods

Thanks, good morning guys.

J. Christopher Donahue - President and Chief Executive Officer

Hi, Rob.

Robert A. Lee - Keefe, Bruyette & Woods

Couple of... just couple of quick questions. One had already been answered. But going to the M&A environment, Chris I know that you guys obviously have always looked at fill-in acquisition and bolt-on acquisitions. And I'm just curious where your current appetite or thoughts are around; there has clearly been a lot of speculation about larger properties, potentially having to be sold as banks and others and need to show their balance sheets. And could you maybe just talk a little bit about, how you look at that, if number one, you're actually seeing those books come across your desk? And then number two, if there is any appetite within the organization for tackling something that may be fairly large?

J. Christopher Donahue - President and Chief Executive Officer

Okay. As soon as you said banks, you're into a wide range of potential deals. As you know, we have attempted to buy the... we'll call them the intermediate size, assets of various banks, some of which have been in the newspaper recently, for years. In fact, we created most of them. And so, we continue to be interested in all of those deals as they come up. These would all function as what you're referring to as bolt-on or what we refer to as roll-up type operations.

And in terms of larger deals, we would say certainly look at those as well. And there may be opportunities for big hairy deals that we would think worthwhile. And we would look at every one of them, with open enthusiasm to see if it's a proper confluence for the shareholders of bank and the shareholders of the Federated Funds as well.

So, as I've said on here before, we don't look at it just sitting around, just saying no. We look at it, as evaluating it to score on those two streets, namely the shareholders of the bank and the shareholders of the fund.

Robert A. Lee - Keefe, Bruyette & Woods

Okay,fair enough. And maybe just one follow-up question. This is actually more of a generic kind of money fund question. But, I mean, if you're in the auction rate preferred market which clearly... and it's been pretty frozening, you've had, there are some close end fund, the manager come up with new any securities structures, that they're trying to make enticing to various money funds, I guess, mainly on the Muni side. Is that all parts of the comment about, what your people are thinking about are those structures, any of them appear feasible and attractive at all?

J. Christopher Donahue - President and Chief Executive Officer

Well, we have been working with many of those providers in order to make sure that the structures are compatible with 2a-7, and that we would be enthusiastic to purchase those on our side. Think about it from their perspective. They do not want to create something that only in their mind solves the problem. They want to create something that really truly solves the problem, meaning, that you can, in fact, position those securities with the money fund.

So, our lawyers, PMs and analysts have been working with the various people trying to solve these issues, in order to make sure that that happens. So, we would view those securities, I believe, with open arms. And if they meet the kinds of things we've talked about, it wouldn't surprise me to see us owning a bunch in our money funds. Don't forget that the whole existence of the auction-rate preferred securities was a way to get away from money funds, get higher yield and avoid the strictures of 2a-7. And now, it's just coming back home to pop up.

Robert A. Lee - Keefe, Bruyette & Woods

Okay. Great. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Michael Hecht with Banc of America. Please proceed with your question.

Michael Hecht - Banc of America Securities

Hey, guys, good morning. How are you doing?

J. Christopher Donahue - President and Chief Executive Officer

Well, Mike.

Michael Hecht - Banc of America Securities

I just want to come back again on the money funds, flow trends. And I guess, outside of the rate environment, some of the cyclical drivers, I think you guys touched on this a little bit. But, just continue to seem a little bit counter-intuitive, with the risk aversion, reflect [ph] the quality that's out there or the volatility in the markets. And maybe one way to get a sense of it, can you give us a sense of what the flow trends were in the government funds, versus your say prime funds in the quarter?

J. Christopher Donahue - President and Chief Executive Officer

Mike, the government funds were really where we had some outflows, the prime funds actually had inflows now. On the government side, we're talking low single-digit percentages and the same on the prime, I mean the money. In total, there wasn't much change in the money within particularly month. We had big ups and then outflows, but on the margin it'd have come out of government funds, and we caught some of it back into prime funds.

Michael Hecht - Banc of America Securities

Okay.

J. Christopher Donahue - President and Chief Executive Officer

And, I would also say annuity funds were up, interestingly, given the noise around that market, our annuity our tax free funds actually had a pretty solid quarter.

Michael Hecht - Banc of America Securities

Okay. And then, I guess, with some... a lot of the outflows that you saw in the quarter, coming out some of the lower yielding separate account money fund. I mean, would it be reasonable to see some upward pressure on revenue yield in the second half, which have come under pressure, as some of this money has come in?

J. Christopher Donahue - President and Chief Executive Officer

I mean, that's, as we commented, is normal seasonality, and what we would expect would be in this quarter, that will decline further, because it's not a big tax collection quarter. As we get to the fourth quarter and the first quarter, then we would expect to see that money flow back in as it has over the... all the years that we've managed this type of money.

Michael Hecht - Banc of America Securities

Okay. And then, thanks for the update on Sigma. I just was hoping to get a rough sense of SIP assets overall. I mean, in Sigma that was really the only big non-sponsored state bank saver, rest were all bank sponsored and therefore, consolidate back on sponsoring bank balance sheets, if any other exposure updates?

J. Christopher Donahue - President and Chief Executive Officer

There is nothing else that does not have a bank sponsor beyond Sigma. And Sigma, our exposure there is down to a couple of weeks.

Michael Hecht - Banc of America Securities

Okay. That's cool. And then, just a follow up on the acquisition question, maybe to take a different stab. I mean, what other types of products or gaps are you guys looking to fill at this point? I mean, on the equity side in particular, including some areas where you guys have had performance issues like on the large cap value side, and maybe a little bit more color on how your growth offerings are faring today?

J. Christopher Donahue - President and Chief Executive Officer

On the... you mentioned it, and we've mentioned on the call before, the large cap value remains an attractive project for us on the M&A side. So, we continue to look there, on the product side. And we think, we have a great array of growth products. So, we wouldn't be hunting for M&A opportunities there, if that's what you were getting at Mike.

Michael Hecht - Banc of America Securities

Yes, well, how were the flows kind of trending? And I think the performance has gotten better, but is it paying off in flows there, or is it still too early on the growth side?

Thomas R. Donahue - President, Chief Financial Officer and Treasurer

Well, we've talked about, the cost inflows in Q2 were net positive, and that obviously, would be the flagship of growth. We're... I can't tell you we're seeing an acceleration there but it's... that those will be the products to watch.

Michael Hecht - Banc of America Securities

Okay. And then last question, how is the pace of discussions for potential money fund acquisitions and do you expect any pick up in deals there, on that fund of over the next 12 months to 18 months or so?

J. Christopher Donahue - President and Chief Executive Officer

No, we continue to see some deals, and we're optimistic that we would be able to complete some things there. We don't have anything to announce, right now. But, there is a continuing interest in people who have smaller money fund operations to understand that, this is real work that requires real staff. And you got to get this stuff right, in order to play this game during difficult times. And as you might suspect, that causes some people to think that maybe they are in some other business better. And that's why we would remain optimistic that we'll be able to complete some deals over the timeframe you talked about.

Michael Hecht - Banc of America Securities

Okay. Great. Thanks guys.

Operator

Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back to management for closing comments.

Ray Hanley - Investor Relations

That concludes our call. And thank you for joining us today.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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