By 1975, he was selling Federated money funds to bank trust departments in New Jersey and Georgia. Because the concept was so new, he didn't always get a warm reception.
"I was thrown out of plenty of trust departments," Donahue said.
Asset Growth
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.
Money-market assets in funds and separate accounts, at $265.5 billion, accounted for 75 percent of Federated's $355.9 billion in assets and 47 percent of revenue in the second quarter, the company reported in July. At Fidelity, money funds made up 27 percent of assets as of July 31. At JPMorgan, they were 35 percent as of June 30.
Federated remains a family affair. Donahue's father, 88, is still the chairman, and his brother Thomas is the chief financial officer. John Donahue has 13 children and 84 grandchildren, and a handful of other relatives have worked at the company, Christopher Donahue said. The family owns a separate class of stock that allows it to maintain control.
Shadow Banking
The Federated sign on top of the firm's building is one of the most visible in the city skyline. Donahue, fit and trim, brought a marked-up, inches-thick copy of the 2010 Dodd-Frank Act to the interview. Dodd-Frank established, among other things, the Financial Stability Oversight Council, a multi- regulator panel that could impose restrictions on money funds should the SEC fail to pass Schapiro's proposal.
Money-market mutual funds, which hold short-term debt and are used by clients for liquidity, are the biggest source of short-term credit in the U.S. They're part of the so-called shadow banking system, along with hedge funds and other institutions that provide cash globally and are not subject to banking regulation.
The business has drawn scrutiny since the September 2008 collapse of the $62.5 billion Reserve Primary Fund, which held debt issued by Lehman Brothers Holdings Inc. Its shutdown a day after Lehman's bankruptcy triggered an industry run on funds eligible to buy corporate debt, helping to freeze global credit markets.