Few in the $2.7 trillion money market industry are as protective of the product as Federated Investors' J. Christopher Donahue.
He's the scion of a family business propagated by his father and controlled by the large, perpetually expanding Donahue clan, which owns all of Federated's voting stock. Because the Pittsburgh company and money funds are joined at the hip, Mr. Donahue, 63, takes the product very personally, championing the cause with particular relish in recent years.
The 2008 financial crisis prompted federal regulators to impose new restrictions on money funds in 2010, then seek additional regulations last year.
In June, while the industry's regulatory future was uncertain, Mr. Donahue accused regulators of demonizing money funds. Those government efforts were halted in August. In an interview last month, Mr. Donahue said he expects regulators will try again, contending they have never stopped trying to put his family's baby out of business.
"The first time the [Federal Reserve] wanted to eliminate money market funds was 1976. It's still the same game," Federated's president and CEO said.
"It's like an endless playoff series. You never have a victory. You just survive until the next round."
Some say Mr. Donahue is too defensive, noting tougher regulations have prompted some money fund operators to sell their business to Federated, increasing the company's share of the market. They contend Federated's ability to work its way through the regulatory thicket and to tailor money funds to customer needs has made it the third-largest money fund operator, behind only Fidelity Investments and JPMorgan Chase.
Industry observers say the key to that success has been the depth of Mr. Donahue's knowledge of why bank trust departments, corporate treasurers, institutional investors and other clients want money funds -- despite today's paltry returns.
Money funds invest in U.S. Treasuries and other short-term securities. Investors like them because they can park cash safely, earn interest and get it when they need it. Although not government guaranteed like bank deposits, money funds in all but a few cases have given investors their money back dollar for dollar -- plus interest.
"He understands this product and how it works and its uses as well as anybody," said Paul Schott Stevens, president and CEO of the Investment Company Institute, the lobbyist for the mutual fund industry.
But success with money funds -- which account for nearly half of Federated's revenue and 74 percent of the $364 billion it manages -- has come at a price.
Federated's shares typically trade at a discount to many of its competitors. Money funds are a low margin business, and Federated's stock and bond funds are not big enough to compete with many fund companies.
Since going public in May 1998, Federated's publicly traded stock has generated average annual returns of 7.6 percent including dividends, lagging such competitors as Eaton Vance, up 14.7 percent annually over the same period; Waddell & Reed, up 8.6 percent; and Franklin Resources, up 8.2 percent.
The three Fs
Mr. Donahue joined the company in 1972 as a part-time law clerk, a year after graduating from Princeton University with a history degree. He went full time in 1974 after earning a law degree at the University of Pittsburgh. Mr. Donahue was named president and chief operating officer in 1993 and president and CEO in 1998.
He is one of 13 children of John and Rhodora Donahue, who have made their Catholic faith the center of their family, which includes 84 grandchildren and 69 great-grandchildren. John Donahue, 88, who co-founded Federated in 1955 with two Central Catholic classmates, is the company's chairman.
Catholicism's influence is evident in the work Donahue family members do.
Chris Donahue's oldest son, the Rev. Jay Donahue, is parish administrator at Sts. Simon and Jude in Scott. A daughter, Colleen Gornick, is admissions director at Oakland Catholic High School, where Katherine Freyvogel, Chris Donahue's sister, has been president since 1997.
Another sister, Patricia Dolan, is a trustee of Ave Maria University, the conservative Catholic school founded by Domino's Pizza's Thomas Monaghan. The K-12 school affiliated with Ave Maria is named after Rhodora Donahue. Yet another sister, Carol Moore, helped found Royal Palm Academy, a Catholic elementary school in Naples, Fla., where their parents live.
Mr. Donahue said his parents were the greatest influence on him because of their commitment to the three Fs: faith, family and Federated.
"We have lived family, faith and work inside our company and inside our family," he said during a 2007 speech at the Lumen Institute, a Christian leadership organization.
In an interview, Mr. Donahue said several of his 12 siblings worked for Federated, including at least three sisters who left after they got married and started having children, "with great enthusiasm and success." His brother, Thomas, is Federated's chief financial officer.
The family's controlling interest in the voting stock, which is not publicly traded, has given some investors pause. Family members and other stockholders have benefited from three special dividends since 2008, including a $1.51 per share special payout last year.
"Despite the apparent nepotism in the corporate suite, the Donahue family has tended to do right by shareholders," Morningstar analyst Greggory Warren wrote in a recent report.
In the Lumen Institute presentation, Mr. Donahue said his "highest and best use is as a camp director," organizing family vacations that he tried to make so much fun that his children would keep going no matter how old they were.
He prepared their school lunches, often slipping in silly notes so they would know their father was thinking about them. Mr. Donahue described his lunches as "high-quality deals," offering such items as lamb and shredded lettuce on pita bread.
"I never made a peanut butter-and-jelly sandwich," he said proudly.
His son Jay took advantage of his father's culinary skills, asking for a second sandwich when he attended Central Catholic. It was only after Jay became Father Donahue that Mr. Donahue learned his son had been selling the extra sandwich to other students.
The Donahue family home, a six-bedroom Beechwood Boulevard mansion built in 1920, was the scene of family court, where offending children could appeal their punishments either to a jury composed of whomever was in the house at the time or a judge, oftentimes Mr. Donahue's father-in-law. The court made his children realize there were consequences to their actions and gave them a chance to get things off their chest.
Mr. Donahue said the family court was dissolved around the time his last child got a driver's license. One of his daughters, threatened with having her license taken away for a speeding ticket, bribed family members on the jury by offering to wash their cars. No cars were ever washed, but the offender got off, Mr. Donahue said with a wry smile.
Commitment to his family initially prevented Mr. Donahue from getting involved at Saint Vincent College in Latrobe, said Archabbot Douglas Nowicki, Saint Vincent's chancellor.
The archabbot said Mr. Donahue begged off until all of his children were out of high school. Mr. Donahue, who along with other family members has donated well over $1 million to the school, has been on the college's board for about 12 years and has been chairman for the last 10.
He also is chairman of the Extra Mile Education Foundation, which provides subsidies and scholarships to Catholic elementary schools in Pittsburgh, Wilkinsburg, Braddock and Penn Hills.
"He's just a good human being who genuinely cares about our students," Archabbot Nowicki said. "He has a tremendous sense of humor. He's able to see the lighter side of life."
Archabbot Nowicki said one of the highlights of his Christmas season is receiving the annual Donahue family Christmas card.
Mr. Donahue said 2,500 copies of the Christmas 2012 edition, more of a booklet than a card, were printed. It featured 21 color pictures of Donahue family members, starting with John and Rhodora, followed by pictures of their 13 children, then grandchildren and great-grandchildren.
"Chris' real joy, I think, is his family," said Keith "Kim" Schappert, a former Federated executive.
Money fund burden
Chronically low interest rates have made it more costly to support Mr. Donahue's ninth child: money funds. At the end of the third quarter, Federated managed $270 billion in money fund assets, down from $356 billion at the end of 2008.
More importantly, the company has waived fees it normally charges money funds investors to assure they break even or have a small return. Since 2009, the waivers have reduced Federated's pretax income by $225 million.
Federated's "commitment to money market funds has become a burden in the post-financial crisis world," Mr. Warren, the Morningstar analyst, wrote recently.
He said Federated may need to make more acquisitions if it is to achieve its long elusive goal of making stock and bond funds a larger part of its business. It could have problems financing those purchases if regulators impose tougher capital requirements on money funds, he said.
A run on a failed $62 billion money fund in September 2008 spurred new regulations in 2010 intended to help other funds withstand large, sudden redemptions and limited the amount of lower-quality securities the funds can own.
But some said the rules did not go far enough, including former Securities and Exchange Commission chairwoman Mary Schapiro, who called money funds "one of the pieces of unfinished business from the financial crisis."
Last year, Federated and other money fund operators beat back an attempt by Ms. Schapiro to issue new regulations that could have curbed fund redemptions, imposed tougher capital requirements and forced the value of money market fund shares to float daily based on the value of securities a fund held.
Currently, fund shares are priced at a constant $1, a feature that assures investors they will get at least $1 back for every $1 they put in. Mr. Donahue said that's why the funds remain popular despite record low interest rates.
"When you have $2.6 trillion in these funds with no interest and lots of regulatory abuse, that's really an accomplishment," he told the U.S. Senate Banking Committee in June.
On Friday, Federated disclosed it will start providing daily pricing for shares of five of its money funds later this month, joining other fund operators who have said they will do the same. The disclosure is expected to show share prices do not vary from $1, thwarting regulators who want the share price to float.
Industry observers credit Federated with being able to generate profits in all kinds of regulatory and interest rate environments. One of the company's strengths is its ability to work closely with customers to tailor products that meet their needs and pass regulatory muster.
"It's a partnership we don't see quite as vividly in other money market fund companies," said Anthony J. Carfang of Treasury Strategies, which advises treasurers on how to manage corporate cash.
"It's an industry that knows its customers well, and Federated is first among them," said Mr. Carfang, who is vice chairman of the board of directors at Duquesne University, home of the John F. Donahue Graduate School of Business.
He and others attribute much of that customer focus to Mr. Donahue.
"With Chris Donahue, money funds are job 1," said Peter Crane of Crane Data, a Westboro, Mass., firm that publishes money fund data. "If money funds do get out of this alive, they owe a bouquet of flowers to Chris Donahue."
Len Boselovic: firstname.lastname@example.org or 412-263-1941.