(Bloomberg News) 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.
"How can I defend them with anything but passion," Donahue, 63, said in the interview at Federated's Pittsburgh headquarters from his office overlooking the Allegheny River. "I've got passion for the beauty of money funds."
Donahue's lobbying campaign, aided by allies in the mutual- fund business and in Congress, may defeat a lineup of regulators pushing for change in the wake of a 2008 fund collapse that sent clients fleeing from the industry. Securities and Exchange Commission Chairman Mary Schapiro, who along with Treasury Secretary Timothy F. Geithner and former Federal Reserve Chairman Paul Volcker has championed rules to make funds safer, can count on only one backer as her five-member agency prepares to vote on the proposals as early as this month.
The fact that Schapiro has yet to bring the matter to a showdown is telling, said John Hawke, a Washington lawyer who represents Federated.
"The measure of Chris's success is that the chairman has been talking about this since early in the year and nothing has happened," Hawke said in a telephone interview.
'Shortsighted' Industry
Should Donahue prevail, the U.S. financial system will be more vulnerable to instability, Douglas W. Diamond, a finance professor at the University of Chicago Booth School of Business, said in a telephone interview.
"The industry is being shortsighted about risk," Diamond said.
John Donahue, Christopher's father, started Federated in 1955 to sell mutual funds. The senior Donahue previously sold funds from other companies door-to-door in the Pittsburgh area.
Christopher Donahue joined the company in 1972, a year after the first money-market fund was introduced. The product gave investors access to a liquid account that also earned a market rate of interest.