Eaton Vance Earnings Call NUGGETS: Global Macro Mandate, Investment Spending

On Wednesday, Eaton Vance Corporation (NYSE:EV) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Global Macro Mandate

Daniel Fannon – Jefferies: I guess Tom, first just to clarify you mentioned the $1.5 billion of advised mandates within the global macro fund, did you quantify the Parametric community, I might have missed that?

Thomas E. Faust, Jr. – Chairman, CEO, and President: I did, we actually expect the global macro mandate to come in somewhere in a range of $1.5 billion to close to $2 billion, the $1.5 billion we think is a conservative number that hasn’t been finalized. The size of the Parametric is slightly bigger than that. Part of that is funded and part of that is expected to fund towards the end of the quarter, so I think one of them between $1.5 billion and $2 billion and the other between $2 billion and $2.5 billion I think is the range we’re expecting for that, but part of that has fund and the other part is expected to fund toward the end of October that may possibly slow it, but that’s the expected timing on that.

Daniel Fannon – Jefferies: Can you talk about the fee rate deferential between what the global macro product is being sold, retail you’re launching this institutional version, now this appears to be a sub-advised, can you give us a sense of coming the fee rate differential amongst those?

Thomas E. Faust, Jr. – Chairman, CEO, and President: Yeah, so we offer global macro in two different plays – there is the initial version, which we think of it being one time (levered) and that there is no – we think of that (risk leverage) as opposed to there is no underlying borrowings because there are lot of derivatives involved in the strategy, and then there is what we call global macro advantage, which is approximately two times the risk profile and volatility of the initial strategy and similar to fees on those scale up proportionally the retail fund I believe the base management fee on, advantage version is about 100 basis points and the initial or global macro asset return is about half of that. In sub-advisory generally, I would say fee rates are approximately half what they are in retail funds. That’s consistent with our experience both where we bring in outside sub-advisors for our funds as well as when we sub-advise mandates for third parties. The strategy we’re looking at here is a global macro advantage type strategy, so think about something in the range of a little more than half that retail advisory fee rates, or I think it’s been a 50 to 60 basis points range. So a pretty healthy piece.

Daniel Fannon – Jefferies: Then just one final question on the comment around margins and fee rates basically I think being flat quarter-over-quarter, does that assume the market movement we had thus far in August, or is that just (indiscernible) some of the factors that are being incorporated into those comments?

Daniel C. Cataldo – Treasurer: Yeah. That is primarily based on where we finish the third quarter, so July 31 and we had to chase the market too quickly up and down on the forecast given the volatility.

Thomas E. Faust, Jr. – Chairman, CEO, and President: So in fact we have not updated that margin forecast for recent upticks in equity markets.

Investment Spending

Michael Kim – Sandler O’Neill: Just a couple of quick questions. First, can you give us any color on the distribution footprint of the large cap value fund in terms of the fund’s presence on platforms or within model portfolios, and then any visibility into any further (redemptions) that may be coming in the near term?

Thomas E. Faust, Jr. – Chairman, CEO, and President: So, I mentioned that assets peaked at about $33 billion in April of last year and at that point the distribution profile was, I want to say, about $20 billion of that was in the retail mutual funds or couple of different flavors of that and the balance split between sub-advisory, traditional institutional, and retail managed accounts. So all of those businesses have scaled back, I wouldn’t say proportionately, but they’ve all scaled back somewhat over the last five quarters. Where we’ve seen the stickiest assets have been in retail managed accounts, which has grown as a proportion of the overall business as our sub-advisory business has pulled away mostly due to performance issues and the same with the retail fund. So, the mix has gone somewhat heavier towards retail managed accounts, but we still have very substantial business in traditional institutional. We’ve got continuing sub-advisor relationships in certainly the fund, the key funds while not as big as they were, continued to be big products for us. What’s happened over the last I guess really two quarters is that we’ve seen decisions that were made to terminate or reduce exposure to the strategy that were made, that might have been made in the first quarter, that might have been made early in the second quarter, but essentially looking at investment results mostly through 12/31/2011. Those have been hitting us really continuing to this day. Decisions made coming well before the upturn in the performance that started in a major way in the second quarter, so we had a very good second quarter. August has also been a good period for us, but we are seeing the impact today and investment decision generally made prior to that uptick. Certainly as I mentioned in my prepared comments, we’re certainly hopeful that we are getting – we’re near to the end of the redemption process or the accelerated redemption rate, performance has been better, there is some visibility on some of the institutional and sub-advisory type redemptions, that’s not all behind us, but we think most of it is to the extent we have visibility. Clearly if performance were to turn down again this is quite competitive category. Money is flowing out of U.S. equity. Generally money is flowing out of large cap, value, active managers all those things are working against us. I must say even with those factors we have been a bit dismayed at the pace of redemptions for a strategy that from a long-term perspective we think continues to offer significant appeal where the long-term performance of the manager continues to look very good versus the peer group and the benchmark doing a three year basis. We’ve certainly lag the peer group and the benchmark, although those numbers are getting better as we put a good numbers in recent months but also at least as important as we move out on a three-year basis of the difficult comparisons of the second and third quarter of 2009.

Michael Kim – Sandler O’Neill: Maybe question of Laurie, just given the turn in flows, at least this quarter maybe a less favorable blended fee rate going forward like you talked about and just ongoing market volatility, are you starting to maybe look at scaling back on investment spending to any degree just during kind of tougher revenue environment?

Laurie G. Hylton – CFO: I think we’re certainly looking at and I think we’re really entering our budget season as we speak. I think we are already having conversations and trying to make sure that we are making very judicious spend decisions in looking at our opportunities in terms of new initiatives for next year and ensuring that the things that we are doing are contributing meaningfully either to revenue or reducing expense. So, I think we’re certainly looking at that in relation to what we’ve seen in terms of margin pressure that’s here.