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Rating:Three Things to Know From Eaton Vance's Q4 2013 Earnings Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, November 29, 2013

Three Things to Know From Eaton Vance's Q4 2013 Earnings

Reported by Neil Anderson, Managing Editor

Earnings, AUM and revenue all rose last quarter at Eaton Vance [profile]: to 55 cents per share, $280.7 billion and $357 million, respectively.

When digging through the Boston-based mutual fund shop's fiscal 2013 fourth quarter (which ended on October 31, 2013) earnings report and Seeking Alpha's transcript of the subsequent earnings call, three points stand out.

Point 1: Faust is personally working on a turnaround in Eaton Vance's equities business.

Eaton Vance's chief equity investment officer, Duncan Richardson, retired on October 31. And chairman, president and CEO Tom Faust knows they have their work cut out for them in the equities department. He addressed the issue in the earnings call:
A search for Duncan' replacement is now well underway, and I am serving as head of the group on an interim basis until the new permanent leader is in place.

Our goal here is a simple one: To restore this $39 billion AUM business to the ranks of performance leaders among equity managers and to make EVM-managed equities once again a leading growth franchise for the company.

Although this won't happen overnight, I know we have all the elements in place to be successful. I've been quite pleased with the caliber of the candidates we have seen and look forward to moving forward with this transition over the coming months.
Later, during the Q&A section of the call, analyst Ken Worthington of J.P. Morgan Chase asked Faust about Eaton Vance's equity performance woes, noting that few of its equity funds currently boast top Morningstar ratings:
Worthington: why aren't we seeing more representation there? Like what is the issue with performance on the equity side?

Faust: We, as a general matter, we've struggled to keep up with the market, the equity markets in our U.S. equities really since the bottoming of the market in the first quarter of 2009 with the worst relative performance occurring in 2009. So those numbers will be flowing, will be coming out of our 5-year numbers, which should help our Morningstar ratings. Of course, the other factor that drives ratings and performance is what are you doing on a current basis, not what happens historically. There too, we are also working hard to improve performance. As I mentioned in my prepared remarks, we are in the process of searching for a new head of our equity group here in Boston. And the focus of that search is very much a leader that can position the group for a return to strong performance. And we had a very long period of quite outstanding performance results through most of the decade of the 2000s until that turn of the market in 2009. Since then we've lagged, and we're looking for a leader to help us, to position us again for a winning performance record in equities.

Point 2: Parametric is on the rise

Faust's remarks on the earnings call were full of praise for Eaton Vance's Seattle-based subsidiary, Parametric Portfolio Associates. He described fiscal 2013 as "a landmark year" for Parametric, thanks to the December 2012 acquisition of the $34.8-billion AUM Clifton Group Investment Management Company, the launch of dedicated institutional marketing and client service group, and net inflows of $16.5 billion (driving AUM up $62 billion):
we fully expect Parametric to continue to grow strongly for the foreseeable future, as they are positioned as market leaders in a number of high-value, fast-growing investment areas, including systematic alpha, managed options, tax-managed core, centralized portfolio management and, through Clifton, exposure management and risk management services.

As you may be aware, Parametric now accounts for 42% of our consolidated AUM and 21% of consolidated revenue
Later, in response to a question from Sandler O'Neill and Partners analyst James Howley (pinch-hitting for Sandler analyst Michael Kim), Faust cited Parametric when talking about his optimism regarding Eaton Vance's institutional pipeline.


Point 3: Eaton Vance is Building a New High End Retail Sales Force

During the call Faust confirmed that Eaton Vance is building a new, niche sales force, thanks in large part to Parametric's sucess:
To better capitalize on opportunities we see to offer Parametric's strategies in the high end retail market, we are in the process of building out a dedicated wealth strategy sales team with 12 people in total, 7 incremental new hires. The team will focus on selling Parametric and our other specialty strategies for the high net worth market, and we expect to have it up and running by the end of January.
Later, in response to a question from Keefe, Bruyette, & Woods analyst Robert Lee, Eaton Vance chief financial officer and chief accounting officer Laurie Greenwald Hylton reiterated that they expect to have most of the new team "built out in the first quarter." And Daniel Cataldo, treasurer of Eaton Vance, clarified that they are "repurposing some folks on staff" and incrementally hiring seven new folks to fill out the new team.

To find out more about what's next for Eaton Vance, read the full Seeking Alpha transcript of the Eaton Vance earnings call here

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