Concentration Risk

(a) Revenue Concentration by Asset Class

The following table summarizes the percentage of total revenue earned from Federated's asset classes over the last three years:



	2016		2015		2014
Money market assets	45	%	33	%	32	%
Equity assets	38	%	46	%	45	%
Fixed-income assets	17	%	21	%	22	%

The change in the relative proportion of Federated's revenue attributable to money market assets from 2015 to 2016 was primarily the result of a decrease in Voluntary Yield-related Fee Waivers. The change in the relative proportion of Federated's revenue attributable to equity and fixed-income assets from 2015 to 2016 was primarily the result of the increase in the proportion of revenue from money market assets mentioned above. At any point in time, a meaningful or significant portion of Federated's total AUM or revenue may be attributable to one or more products or strategies, or asset classes, offered by Federated, or one or more clients or customer intermediaries with whom Federated has a relationship. A significant change in Federated's investment management business (such as its money market business, equity business or separately managed account business) or a significant reduction in AUM (such as money market assets, equity assets or separately managed account assets) due to regulatory changes or developments, changes in the financial markets, such as significant and rapid increases in interest rates over a short period of time causing certain investors to prefer direct investments in interest-bearing securities, non-competitive performance, the availability, supply and/or market interest in repurchase agreements and other investments, significant deterioration in investor confidence, a return to declining or additional prolonged periods of low short-term interest rates and resulting fee waivers, investor preferences for deposit products or other FDIC-insured products, or exchange-traded funds, index funds or other passive investment products, changes in product fee structures, changes in relationships with financial intermediaries, or other circumstances, could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.

See Item 1 - Business under the caption Regulatory Matters and Item 1A - Risk Factors under the caption Potential Adverse Effects of Changes in Laws, Regulations and Other Rules on Federated's Investment Management Business for information about the current regulatory environment and related risks.

Low Short-Term Interest Rates

In December 2015, the FOMC increased the federal funds target rate range by 25 basis points to 0.25%-0.50%, slightly raising short-term interest rates. Throughout 2016, the FOMC deferred making increases in this target rate, but in December raised the federal funds target rate range by an additional 25 basis points to 0.50%-0.75%. The federal funds target rate, which drives short-term interest rates, had been close to zero for nearly seven years prior to the December 2015 increase. As a result of the long-term near-zero interest-rate environment, the gross yield earned by certain money market funds is not sufficient to cover all of the fund's operating expenses. Since the fourth quarter of 2008, Federated has experienced Voluntary Yield-related Fee Waivers. These fee waivers have been partially offset by related reductions in distribution expense and net income attributable to noncontrolling interests as a result of Federated's mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers.

These Voluntary Yield-related Fee Waivers are calculated as a percentage of AUM in certain money market funds and thus will vary depending upon the asset levels and mix in such funds. In addition, the level of waivers are dependent on several other factors including, but not limited to, yields on instruments available for purchase by the money market funds and changes in expenses of the money market funds. In any given period, a combination of these factors impacts the amount of Voluntary Yield-related Fee Waivers. As an isolated variable, an increase in yields on instruments held by the money market funds will cause the pre-tax impact of fee waivers to decrease. Conversely, as an isolated variable, an increase in expenses of the money market funds would cause the pre-tax impact of fee waivers to increase.

With regard to asset mix, changes in the relative amount of money market fund assets in prime and government money market funds (or between such funds and other money market funds or other products) as well as the mix among certain share classes that vary in pricing structure will impact the level of fee waivers. Generally, prime money market funds waive less than government money market funds as a result of higher gross yields on the underlying investments. As such, as an isolated variable, an increase in the relative proportion of average managed assets invested in prime money market funds as compared to total average money market fund assets should typically result in lower Voluntary Yield-related Fee Waivers. The opposite would also be true.

The impact of such fee waivers on various components of Federated's Consolidated Statements of Income was as follows for the years ended December 31:



in millions	2016			2015			2014
Revenue	$	(87.8	)	$	(333.6	)	$	(410.6	)
Less: Reduction in Distribution expense	65.8			240.6			280.9
Operating income	(22.0		)	(93.0		)	(129.7		)
Less: Reduction in Noncontrolling interest	0.0			7.1			10.7
Pre-tax impact	$	(22.0	)	$	(85.9	)	$	(119.0	)

The negative pre-tax impact of Voluntary Yield-related Fee Waivers decreased in 2016 as compared to 2015 primarily as a result of higher yields on instruments held by the money market funds. During 2015, the negative pre-tax impact of Voluntary Yield-related Fee Waivers decreased compared to 2014 primarily as a result of higher yields on instruments held by the money market funds, and to a lesser extent, by a decrease in average money market assets. (See Note (19) for information regarding the quarterly pre-tax impact of these fee waivers.)

As mentioned above, the FOMC increased the federal funds target rate range by 25 basis points in both December 2016 and 2015. While the FOMC implied in its economic projections that it would continue to raise the federal funds target rate in a measured and gradual way, Federated is unable to predict when, or to what extent, the FOMC will further increase their target for the federal funds rate. As such, Voluntary Yield-related Fee Waivers and the related reduction in distribution expense and net income attributable to noncontrolling interests could continue for the foreseeable future. See Management's Discussion and Analysis under the caption Business Developments - Low Short-Term Interest Rates for additional information on management's expectations regarding fee waivers.

A listing of Federated's risk factors is included in Item 1A - Risk Factors.

(b) Revenue Concentration by Investment Strategy

Approximately 15%, 14% and 13% of Federated's total revenue for 2016, 2015 and 2014, respectively, was derived from services provided to a specific strategy, the Federated Strategic Value Dividend strategy, which includes both Federated Funds and Separate Accounts. A significant and prolonged decline in the AUM of this strategy could have a material adverse effect on Federated's future revenues and, to a lesser extent, net income, due to a related reduction in distribution expenses associated with these funds.

Approximately 8%, 11% and 12% of Federated's total revenue for 2016, 2015 and 2014, respectively, was derived from services provided to the Federated Kaufmann Mid-Cap Growth strategy, which includes two Federated Funds. A significant and prolonged decline in the AUM of this strategy could have a material adverse effect on Federated's future revenues and, to a lesser extent, net income, due to a related reduction in distribution expenses associated with these funds.

Approximately 15%, 8% and 6% of Federated's total revenue for 2016, 2015 and 2014, respectively, was derived from services provided to one intermediary customer, The Bank of New York Mellon Corporation, including its Pershing subsidiary. Significant negative changes in Federated's relationship with this customer could have a material adverse effect on Federated's future revenues and, to a lesser extent, net income due to a related reduction in distribution expenses associated with this intermediary.