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Thursday, August 19, 2004

Eaton Vance Sits Pretty

News summary by MFWire's editors

Eaton Vance reported third fiscal quarter earnings of $0.50 per diluted share, beating analysts' estimates by one penny.

Assets under management totaled $89.4 billion, up 19 percent from the quarter ending October 31, and up 39 percent from the same period last year.

Long-term fund assets were $65.9 billion at the end of the third quarter, up three percent from $63.9 billion at the start of the quarter. Third quarter fund assets were composed of 53 percent equity funds, 26 percent fixed income funds, and 21 percent bank loan funds.

Long-term fund assets account for 74 percent of Eaton Vance's total assets under management, separately managed accounts account for 26 percent, and money market assets account for 0.5 percent.

Net long-term fund flows for the third quarter were $2.4 billion -- $624 million in equity flows, $2.0 billion in bank loan fund flows, and net outflows of $227 million in fixed income.

Eaton Vance benefited from two acquisitions in the past twelve months, including Parametric Portfolio Associates in September 2003 and Deutsche Bank's Scudder Private Investment Counsel's Boston office in July 2004. The two acquisitions resulted in $7.3 billion in assets.

In comparison, long-term fund and separate account net inflows for the twelve month period were $13.2 billion, and market appreciation accounted for $4.7 billion.

"The real story is our internal growth," said Jim Hawkes, chief executive officer of Eaton Vance, in an earnings call on Wednesday, citing net flow data.

Eaton Vance added 14 new employees in July from the Scudder acquisition, which added $2 billion in high net worth client assets, said Hawkes. Hawkes added that shareholders should watch for Eaton Vance's private client investment business to add to the company's growth in the future. While the company will remain opportunistic in terms of acquisitions, it does not have any active targets in mind, said Hawkes in response to an analyst's question.

Also expect that Eaton Vance will add to its investment management staff in the future. The firm could add managers in "core competencies" or "new core competencies," said officials. The company has already spent the past few years adding to its sales and marketing personnel, and does not anticipate "significant hiring increases there," said officials.

Officials said that the market for managers was strong because of the financial pressures and scandals hitting other fund firms. Hawkes emphasized that Eaton Vance has no market timing agreements, does not use directed brokerage, and pays revenue sharing out of Eaton Vance's cash, not fund assets.

But business is not booming in every line. Officials said "we're a bit frustrated that we aren't seeing stronger open-end equity flows," despite the funds' strong performance. Officials said that equity flows were disproportionately going to one company -- American Funds. Eaton Vance's efforts to reverse that trend have included focusing on equity products with their sales team, said officials.

With mutual funds, institutional, separate accounts and private clients business, the money manager has "four strong engines to pull the Eaton Vance train down the track," said Hawkes. 

Edited by: Theresa Sim


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