Finally, we continue to make progress with our exchange rate and managed fund initiative. We've had productive conversations with regulators, potential business partners and potential licensees and remain convinced that, if approved, ETMFs can be game-changing products for Eaton Vance, and the actively managed fund industry as a whole.

Our goal here is an ambitious one. To transform the delivery of active fund strategies into a higher-performing, more tax-efficient structure with built-in operating cost savings and shareholder protections.

We view 2013 as a pivotal year for this initiative. Looking ahead, our second fiscal quarter is shaping up well, with solidly positive net flows continuing so far in February and a strong pipeline of visible new business ahead of us.

POINT #2: Eaton's Newly Acquisitions Are Helping the Firm Jump at These Growth Areas
A big driver behind Eaton's stretch out of its comfort zones were a number acquisitions and new hires, including those of Hexavest as well as the Clifton Group, which was conducted by Eaton subsidiary Parametric. Also critical was the hiring away of Kathleen Gaffney from Loomis Sayles. These moves helped to significantly bolster Eaton's reach in a number of areas.

During various points in the conference call, Faust had this to say on these new assets.

Not included in our reported net flows for the quarter are the $1.8 billion of net inflows, or 49%-owned affiliate, Hexavest, Inc., achieved during the quarter. Since we closed the Hexavest transaction in August of last year, they have grown their managed assets from $11 billion to $14.5 billion, an increase of 32%, driven primarily by $2.7 billion of net inflows over the period.

We are pleased to welcome our Minneapolis-based colleagues from the Clifton Group to the Parametric and Eaton Vance families. Led by Jack Hansen, Kip Chaffee and Tom Lee, Clifton is recognized by major institutional investors and consultants as the leading provider of futures and options-based overlay services and risk management solutions.

The Clifton business complements and enhances Parametric's existing line up of engineered investment solutions and implementation services. Clifton strategies have made an immediate impact on our business growth, accounting for $1 billion in net inflows in the month of January.

At the end of January, we launched the Eaton Vance bond fund managed by Kathleen Gaffney. You may recall that Kathleen joined us this past October from Loomis Sayles as Co-Head of Investment Grade Fixed Income.

I guess, I would highlight may be the general factors that attracted us to Hexavest, which is that they've got a very strong, long-term track record. They have a quite differentiated top-down or primarily top-down approach. And they have a generally strong position of better performance in periods of market weakness. And although we've been in the period of market strength, and that's usually the case, they've been underperforming in that environment. There are enough investors out there that are cautious about the long-term outlook that are attracted to that track record and the current positioning of Hexavest, which by the way, remains somewhat defensive. I would add to that, that the growth of Hexavest has certainly been influenced in a positive way by adding the distribution resources of Eaton Vance. And certainly, some of the inflows they've had, Eaton Vance sales team plays a significant role in that. I would also just, in closing, comment that they are in the institutional business and the nature of institutional flows is that they are somewhat lumpy. And I wouldn't necessarily expect that the rate of growth that we've seen over the last 6 months or so since we acquired them will necessarily continue for the near-term. But nonetheless, we see Hexavest as a highly differentiated and attractive manager in the global equity space. And we do see significant room for long-term growth.

The major components of implementation services, as we define that category, are Parametric's tax-managed core, centralized portfolio management and specialty indexes businesses, and the former Clifton's groups futures and options-based overlay services.

We believe the market-leading lineup of implementation services now offered by Parametric is a real strength and differentiator for Eaton Vance. Increasingly, sophisticated investors are looking for solutions to help them manage their portfolios more efficiently. Through both legacy and new capabilities, Parametric is now positioned to be a key provider of investment solutions.

Whether the client's objective is to minimize cash drag, control volatility, balance risk, manage taxes or maximize risk-adjusted returns, we are well-suited for the task.

Parametric's rules based, engineered strategies and services work in harmony with both traditional active and passive investment approaches. We reported adjusting -- adjusted diluted earnings per share of $0.50, as compared to $0.47 for the year ago quarter and $0.53 in the previous quarter. The sequential decline in adjusted diluted EPS is largely due to lower performance fees received and higher compensation costs related to our strong sales success and normal seasonal increases.

POINT #3: Things Seem to Be Looking Up for Eaton When it Comes to Equities
Faust had this to say on whether Eaton's equity flows would turn positive this year:

I mean, it certainly could be. We were, I believe, very close to that in the first quarter. Our -- on an overall basis, just sort of big picture is we've been growing in emerging market and international equities, much of that has been strategies managed by Parametric. And we've been shrinking in U.S. equity strategies. Much of that managed by Eaton Vance, where we've had growth at Atlanta Capital that has been offset by shrinkage, primarily in U.S. Large-Cap Value, driven by our Eaton Vance teams. This is a reminder, that was a strategy that was really a big source of our growth in the 2006 to 2009 period, where we got up to $33 billion in assets. We're now down to about $13 billion. So we think that with the improvement in performance that we've seen and we're significantly ahead of our peer group average over the last 12 months, that given the pressure of a lot of the short-term oriented, performance-sensitive money, a lot of that's already gone, we think that we will see less pressure there on outflows going forward. One of the key parts of our equity strategy, of course, doesn't show up in our consolidated flow numbers and that's Hexavest. Those are all equity flows, primarily, global or global all country mandates, where we've seen an incremental, I think, $2 billion, a little over $2 billion of net flows since they became part of the Eaton Vance family in August. So generally, a better outlook. We think the Parametric strategies have performed well and continue to attract nice flows. The Eaton Vance strategies show signs of stabilizing.

For more information, turn to SeekingAlpha's transcript of the earnings call as well as the company's earnings information.


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