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Lehman to Exit Mutual Fund Business

Securities: The sale of nine funds overseeing $5 billion to Federated Investors comes as other brokerages are expanding.

September 10, 1996|From Bloomberg Business News

NEW YORK — Lehman Bros. Holding Inc. is getting out of the U.S. mutual fund business.

Lehman said Monday that it agreed to sell its nine money market funds to Federated Investors for an undisclosed amount. The funds, which jointly oversee about $5 billion in assets, are designed for institutions and wealthy investors.

The announcement comes about six months after Lehman, the No. 4 U.S. securities firm in terms of capital, sold its sole U.S.-registered equity mutual fund to AMT Capital Advisors Inc. and closed its "offshore" fund business.

Once the money fund transaction is completed, Lehman said, it will no longer manage any proprietary mutual funds for individual investors.

Lehman is leaving the mutual fund business at the same time other leading brokerage firms, including Merrill Lynch & Co. and Morgan Stanley Group Inc., are taking steps to bolster their fund businesses and increase their managed assets through acquisitions.

Merrill is in the process of acquiring Los Angeles-based Hotchkis & Wiley, and Morgan Stanley is close to completing its purchase of Van Kampen/American Capital Inc.

Brokerage firms are increasing their asset management businesses to benefit from the stable revenues these businesses generate and to offset big swings in profits when underwriting or trading revenue sinks.

Lehman is changing the way it serves investors from a money management standpoint, providing a range of options, not just internal or in-house funds, said James Carbone, Lehman's managing director.

To be sure, most other leading brokerage houses offer in-house funds alongside other firms' offerings.

As part of the agreement with Federated, Lehman said, its 300 brokers will use the money funds for their "cash sweep" accounts, or interest-bearing accounts for non-invested funds. The nine Lehman money funds will take on the Federated name when the merger is completed.

"Federated's assumption of the investment management responsibilities for these money market funds is consistent with our refocusing," Carbone said.

"Lehman has never been known as a big marketer of mutual funds," said William Daugherty, president of Kanon Bloch Carre, a retirement-plan consulting firm in Boston. "It makes sense that management would want to get out of the business."

The company has mostly concentrated on sales to institutions and wealthy investors.

Lehman was spun off from American Express Co. in 1994. That came after American Express sold its Shearson brokerage and asset management unit in 1993 to what is now Smith Barney Inc. When Lehman and Shearson were owned by American Express, most mutual fund sales were done by Shearson.

Federated's acquisition of the Lehman funds represents its latest step to bolster its position in the $850-billion money market fund business. Federated ranks No. 5 in the U.S. with about $44 billion, according to IBC's Money Market Insight, a monthly newsletter that tracks the money fund business.

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