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Eaton Vance builds equity assets

Eaton Vance Corp., a money management firm known for its municipal bond mutual funds, is changing its focus and location.

The firm last year increased the equity assets it manages to $9.7 billion or 39 percent of its total assets under management. That represents an increase of 86 percent from 1997 and marks another step in Eaton Vance's drive to have half of its assets under management in higher-margin equity products.

In addition, Eaton Vance plans to sell all of its real estate holdings this year as part of a move to concentrate on the asset management business. This spring, Eaton Vance will move from two office buildings it now owns and a third which it leases in the Boston financial district to renovated space in a popular tourist area on the city's waterfront.

Eaton Vance officials disclosed their plans in the firm's annual report for fiscal 1998 filed with the SEC Jan. 28. Eaton Vance's fiscal year ended Oct. 31.

Last year, equity assets under management at Eaton Vance rose from $5.2 billion to $9.7 billion as overall sales doubled to a record $8.4 billion, according to the annual report. Half of fiscal 1998 sales were in equity products.

In 1995, only six percent of Eaton Vance's $1.6 billion in sales were in equities. In 1997, equity assets accounted for about 30 percent of Eaton Vance's $21.3 billion in assets.

"They've been very successful in diversifying" away from municipal bond products, said Bruce Brewington, an equity analyst for Putnam, Lovell, de Guardiola & Thornton, an investment banking and research firm.

A variety of factors, including Eaton Vance's success in selling stakes in a private placement offering for high-net-worth investors and the company's designation early last year by Barron's as the best performing mutual fund family of 1997, helped boost the company's percentage of equity assets under management, said Brewington.

Building equity products, which usually have a higher margin than fixed-income products, has been a goal of James B. Hawkes, Eaton Vance president and ceo. William Steul, the chief financial officer for Eaton Vance said last week the company was aiming at having at least 50 percent of its assets invested in equity products. Eaton Vance is close to its goal and might even have achieved it last year had it not been for the popularity of its bank loan funds, whose assets grew by 58 percent to $6.2 billion last year, said Steul.

Even excluding Eaton Vance's private placements and market appreciation, sales for the firm were strong last year. The company was among the fastest growing of the 25 best-selling fund groups last year as measured by net sales, according to Financial Research Corp., the Boston fund tracking firm. Eaton Vance had net sales of $3.6 billion in its long-term funds for calendar year 1998, up from about $685 million in 1997, FRC said. Eaton Vance's market share rank last year rose from 37th to 28th among mutual fund companies, according to Strategic Insight, a mutual fund consulting firm.

Eaton Vance's financial position is obscured somewhat by accounting charges, however. Net income last year was $20.5 million, down from $40.2 million in 1997. The net income figure decreased because of an accounting charge associated with a new rule issued by the Financial Accounting Standards Board last year. The ruling requires companies to expense rather than capitalize sales commissions for closed-end funds. (MFMN 10/26)

Hawkes said in a letter to shareholders accompanying the annual report that Eaton Vance had earned a record $48.3 million in 1998 before adjusting for the accounting change. The new accounting rule, which Hawkes said created a, "confusing and distorted picture of Eaton Vance's progress" has the effect of reducing earnings when sales increase.

At the same time the company is shifting the focus of its money management business, it is also increasing its concentration in that business. The company expects to sell its two financial district offices in 1999 and to move all its Boston employees to offices on the waterfront. Three remaining Eaton Vance properties also are for sale, according to the annual report. "We just want to focus on money management," said Hawkes.