Concentration Risk

(a) Revenue Concentration by Asset Class

The following table summarizes the percentage of total revenue earned from Federated's asset classes for the periods presented:



	Nine Months Ended
	September 30,
	2017		2016
Money market assets	41	%	46	%
Equity assets	42	%	38	%
Fixed-income assets	17	%	16	%

The change in the relative proportion of Federated's revenue attributable to money market assets for the first nine months of 2017 as compared to the same period in 2016 was primarily the result of lower average money market assets and a decrease related to a change in a customer relationship. This was partially offset by a decrease in voluntary waivers (either through fee waivers or reimbursements or assumptions of expenses) in order for certain money market funds to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers).

The change in the relative proportion of Federated's revenue attributable to equity assets for the first nine months of 2017 as compared to the same period in 2016 was primarily the result of higher average equity assets due to market appreciation, partially offset by net redemptions.

Current Regulatory Environment

Federated and its investment management business are subject to extensive regulation in the U.S. and abroad. Federated and its products, both sponsored investment companies and other funds (Federated Funds) and strategies, are subject to: federal securities laws, principally the Securities Act of 1933, the Securities Exchange Act of 1934 (1934 Act), the Investment Company Act of 1940 (1940 Act) and the Investment Advisers Act of 1940; state laws regarding securities fraud and registration; and other rules and regulations, promulgated by various regulatory authorities, self-regulatory organizations or exchanges, as well as foreign laws, regulations or other rules promulgated by foreign regulatory or other authorities.

See the Business Developments - Current Regulatory Environment section of Management's Discussion and Analysis for additional information about the current regulatory environment.

Low Short-Term Interest Rates

After initiating short-term interest rate increases of 0.25% in late 2015 and 2016, the Federal Open Market Committee of the Federal Reserve Board (FOMC) raised the federal funds target rate by 0.25% twice in the first six months of 2017 to its current target range of 1.00%-1.25%. 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. The long-term low interest-rate environment resulted in the gross yield earned by certain money market funds not being sufficient to cover all of the fund's operating expenses. As a result, beginning in the fourth quarter of 2008, Federated implemented Voluntary Yield-related Fee Waivers. These 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 assets under management (AUM or managed assets) 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, and changes in expenses of, the money market funds. As an isolated variable, an increase in yields on instruments held by the money market funds will cause the pre-tax impact of waivers to decrease. Conversely, as an isolated variable, an increase in expenses of the money market funds would cause the pre-tax impact of 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 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 Voluntary Yield-related Fee Waivers on various components of Federated's Consolidated Statements of Income was as follows for the periods presented:



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in millions)	2017		2016			2017			2016
Revenue	$	0.0	$	(18.0	)	$	(4.4	)	$	(76.8	)
Less: Reduction in Distribution expense	0.0		13.8			3.6			58.2
Pre-tax impact	$	0.0	$	(4.2	)	$	(0.8	)	$	(18.6	)

The negative pre-tax impact of Voluntary Yield-related Fee Waivers decreased for the nine-month period ended September 30, 2017 as compared to the same period in 2016 due primarily to higher yields on instruments held by the money market funds. As previously mentioned, the FOMC increased the federal funds target rate range by 25 basis points in December 2016, and in March and June 2017. These rate increases have nearly eliminated the pre-tax impact of the Voluntary Yield-related Fee Waivers.

A listing of Federated's risk factors is included in Federated's Annual Report on Form 10-K for the year ended December 31, 2016 under Item 1A - Risk Factors (as updated under Part II, Item 1A - Risk Factors included in Federated's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017).

(b) Revenue Concentration by Investment Strategy

Approximately 18% of Federated's total revenue for both the three- and nine-month periods ended September 30, 2017, and 16% and 14% for the three- and nine-month periods ended September 30, 2016, respectively, was derived from services provided to a specific domestic strategy, the Federated Strategic Value Dividend strategy, which includes Federated Funds and Separate Accounts (which include separately managed accounts, institutional accounts, sub-advised funds and other managed products). 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 the Federated Funds managed in accordance with this strategy.

Approximately 16% of Federated's total revenue for both the three- and nine-month periods ended September 30, 2017, and 15% for both the three- and nine-month periods ended September 30, 2016, 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.