Eaton Vance (EV) Analysis - Oct 2014

Category - Cyclical 
  • AUMs enter the market during bull market (economic growth, rising stock market etc) and exit the market during bear market, this attributes to cyclical nature of earnings. 
Business Characteristics 
  • Switching cost and intangibles asset provide most durable competitive advantages across the asset management industry. 
    • Switching cost 
      • Given the lack of clarity around the benefits of moving asset to another asset management company, most customers tend to stay with the current company. 
      • This advantages can be further amplified by the asset management companies through product mix, distribution channel concentration, geographic reach and intangible assets like brand name. 
    • Asset stickiness 
      • Being a diversified asset manager allows companies to better hold on to assets during turbulent market conditions. 
It is a leading issuer and manager of closed-ended funds. Eaton Vance makes money by charging fees on assets-under-management (AUMs). 

AUM - Breakdown
  • Equity (33% of AUM) 
  • Equity related implementation services (33%) 
  • Fixed income (15%) 
  • Floating rate bank loan (14%) 
  • Alternative asset (4%) 
  • Money market funds (remainder) 
Competitive advantages
  • Niche (tax sensitive clients) 
    • It provides equity and fixed-income investments to tax-sensitive clients. 
  • Stickiness 
    • Fairly diverse range of AUMs, which tend to be stickier during turbulent market conditions. 
    • A focus on closed-ended funds and tax-managed investments help attract and retain sticky funds. 
  • Strong brand name 
Growing popularity of passive investment vehicles (ETFs)

Trends/Changing landscape 
  • Bush era tax-cuts expired at the end of 2012. 
  • As interest rates rise, the fixed-income AUMs are expected to decline. 
  • In July 2012, the company invested 190 million for 49% stake in Hexavest (Cannadian asset manager - long only equity investment) 
  • In 2013, EA acquired Clifton Group, provider of futures-and-options based overlay services. 
  • EA posted 12% organic revenue growth of assets-under-management (AUM). 
  • Launched several closed-ended funds. 
  • As interest rates rise, the floating-rate bank loan funds are expected to rise moderatly. 
  • Growth in equity related implementation services (33% of total AUM) likely to have marginal positive impact on revenue due to lower fees associated with implementation services AUM. 

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