Variable Interest Entities

Federated is involved with various entities in the normal course of business that may be deemed to be voting rights entities (VREs) or variable interest entities (VIEs). In accordance with Federated’s consolidation accounting policy, Federated first determines whether the entity being evaluated is a VRE or a VIE. Once this determination is made, Federated proceeds with its evaluation of whether or not to consolidate the entity. The disclosures below represent the results of such evaluations pertaining to September 30, 2014 and December 31, 2013.

(a) Consolidated Variable Interest Entities

From time to time, Federated invests in investment companies that meet the definition of a VIE for general corporate investment purposes or, in the case of newly launched products, in order to provide investable cash to establish a performance history. Most of Federated’s sponsored investment companies meet the definition of a VIE primarily due to their typical series fund structure in which the shareholders of each participating portfolio underlying the series fund generally lack the ability as an individual group to make decisions through voting rights regarding the board of directors/trustees of the fund. Federated’s investment in investment companies represents its maximum exposure to loss. Federated’s conclusion to consolidate an investment company may vary from period to period, most commonly as a result of changes in its percentage interest in the entity resulting from changes in the number of shares held by either Federated or third parties. Given that the entities follow investment company accounting, which prescribes fair-value accounting, a deconsolidation generally does not result in gains or losses for Federated.

The following table presents the balances related to the consolidated investment companies that were included on the Consolidated Balance Sheets as well as Federated's net interest in the investment companies for each period presented:



(in millions)	September 30, 2014		December 31, 2013
Cash and cash equivalents	$	1.9	$	1.1
Investments—consolidated investment companies	114.7		53.5
Receivables	0.2		0.9
Less: Liabilities	2.5		1.6
Less: Redeemable noncontrolling interest in subsidiaries	78.8		15.5
Federated's net interest in consolidated investment companies	$	35.5	$	38.4

Federated's net interest in the consolidated investment companies of $35.5 million and $38.4 million at September 30, 2014 and December 31, 2013, respectively, represents the value of Federated's economic ownership interest in these sponsored investment companies. The assets of the consolidated investment companies are restricted for use by the respective investment company. The liabilities of the consolidated investment companies primarily represent investments sold short and operating liabilities of the entities. The liabilities are primarily classified as Other current liabilities on Federated’s Consolidated Balance Sheets.

During the quarter ended September 30, 2014, Federated consolidated a sponsored money market fund for which it was deemed to be the primary beneficiary following a September 30, 2014 vote by the fund shareholders' approving the merger of the fund into another sponsored money market fund and Federated absorbing the majority of the remaining net operating expenses of the fund through the merger date (estimated at $35 thousand) in early October 2014. Accordingly, Federated consolidated $90.5 million in Investments—consolidated investment companies (of which $14.7 million represented Federated's investment previously recorded as Cash and cash equivalents) and $75.7 million in Redeemable noncontrolling interest in subsidiaries on the Consolidated Balance Sheets as of the date of consolidation.

This consolidated investment company is party to enforceable master netting arrangements for repurchase agreements entered into as part of the consolidated investment company's strategy. These repurchase agreements, totaling $90.5 million, are shown gross in Investments—consolidated investment companies on the Consolidated Balance Sheets. There were no financial instruments subject to netting agreements for which Federated is currently netting. Prior year information is not applicable, as the investment company was not consolidated at that time.

In addition, during the quarter ended September 30, 2014, Federated deconsolidated an investment company. The decision to deconsolidate was based on a determination that Federated was no longer the primary beneficiary of the investment company as a result of new subscriptions in fund shares by unrelated third parties. Accordingly, Federated deconsolidated $30.6 million in Investments—consolidated investment companies, $6.8 million in Cash and cash equivalents and $21.0 million in Redeemable noncontrolling interest in subsidiaries on the Consolidated Balance Sheets as of the date of deconsolidation.

Neither creditors nor equity investors in the investment companies have any recourse to Federated’s general credit. In the ordinary course of business, Federated may choose to waive certain fees or assume operating expenses of these sponsored investment companies for competitive, regulatory or contractual reasons (see Note (1)(o) of Federated’s Annual Report on Form 10-K for the year ended December 31, 2013 for information regarding fee waivers). Federated has not provided financial support to any of these entities outside the ordinary course of business.

(b) Non-Consolidated Variable Interest Entities

Federated's involvement with certain investment companies that are deemed to be VIEs includes serving as the investment manager, or at times, holding a minority interest or both. Federated’s variable interest in these entities is not deemed to absorb the majority of the entity’s expected losses or receive the majority of the entity's expected residual returns. Therefore, Federated is not the primary beneficiary of these VIEs and has not consolidated these entities.

At September 30, 2014 and December 31, 2013, Federated’s investment and maximum risk of loss related to unconsolidated VIEs were entirely related to investment companies and totaled $225.0 million and $220.5 million, respectively. AUM for these unconsolidated investment companies totaled $261.1 billion and $280.3 billion at September 30, 2014 and December 31, 2013, respectively. Accounts receivable from sponsored investment companies for advisory and other services totaled $12.3 million and $13.5 million at September 30, 2014 and December 31, 2013, respectively.

In the ordinary course of business, Federated may choose to waive certain fees or assume operating expenses of these sponsored investment companies for competitive, regulatory or contractual reasons (see Note (1)(o) of Federated’s Annual Report on Form 10-K for the year ended December 31, 2013 for information regarding fee waivers). Federated has not provided financial support to any of these entities outside the ordinary course of business.