Eaton Vance, the Boston-headquartered multi-affiliate group, led by CEO Thomas Faust, has placed greater globalisation at the heart of its strategy. As Kurtosys met with business development director – financial institutions David Miles, he told us they may well be the biggest asset manager the European funds industry has never heard of, about the growing importance of tailored separately managed accounts and how AI is helping power its research capability.
Eaton Vance could be described as hiding its light under a bushel, particularly in the UK and Europe. For anyone who is not familiar with the business, can you give an overview?
I admit in the UK and Europe, the brand of Eaton Vance isn’t quite as high profile as some of the other big asset managers out there. However, we have just shy of $500bn (£388bn) in assets under management (AUM). It might sound like a bit of a cliché, but you could almost say, to some European investors, we might be one of the biggest asset managers you’ve never heard of, but that is changing.
The business can trace its roots back to 1924. Our headquarters are in Boston, with our international head office in London.
Our CEO Thomas Faust has been talking about the increasing importance of globalisation of the business for a number of years now as one of the key strategic initiatives he is focusing on. We now have more than 50 people based in London and have also grown the presence across other parts of the world, including offices in Europe and in Asia.
Our affiliate model includes Eaton Vance Management, Parametric, Atlanta Capital, Hexavest and most recently Calvert.
Tell me a little more about Eaton Vance and each of the affiliates, just a brief summary.
We work on an intermediated model, so we are not trying to market our products direct to the end consumer. We have great relationships with many of the big wire houses and financial advisor organisations in the US, which is something we have been building on in Europe.
We know ‘cheap beta’ is everywhere; we are striving to deliver what we refer to as advanced investment solutions, targeting a market of forward-thinking investors, which could mean different things depending on where you are. In the US, for instance, we’ve built a substantial business in tax-managed strategies.
If investors are looking for income, growth or asset protection, we have many strategies that we believe can help the lives of our clients.
- Eaton Vance Management (EVM) and Parametric make up a substantial part of the $490bn AUM.
- EVM is a fundamental, active investor with fund offerings in income, equities and alternatives.
- Parametric is much more a systematic and quantitative manager, delivering clients customisable strategies with a high degree of transparency.
- Atlanta Capital is an Atlanta-based specialist in US equity and fixed income, focused very much on quality companies, with a particularly strong track record in US small- and mid-cap equity investing.
- Hexavest is based in Montreal, Canada, and takes the unusual approach of managing equities on a top-down basis.
- Calvert is a business that we acquired at the end of 2016. It is a US-based asset management business and a leader in responsible investments whose roots date back about 40 years.
If some of the pros of a multi-affiliate, multi-brand outfit is that you have a broader, yet specialist, offering, what might some of the challenges be?
I think for an external party, there can be perceived complexity around understanding the different parts of the multi-affiliate business. Our five affiliates are trying to deliver different approaches to investment management. So, if I go and speak to a client and if – in very simplistic terms – they have a greater lean towards responsible investing, it may be a more obvious conversation to talk to them about Calvert.
If they have a greater leaning to more systematic investing, obviously a Parametric conversation might be more appropriate.
But I think we have an advantage versus a waterfront provider of different approaches. For instance, if you are an asset management business that has both passive and active management capabilities under the one roof, are those capabilities in direct competition with each other?
We offer true diversification not only in the strategies we offer, but in the investment approach behind them. When we talk to clients, we can quickly convey our offering, and how the benefits of the multi-affiliate approach make sense.
What challenges do you see facing the asset management industry at the moment?
For a start, I think the traditional assumptions of asset allocation. If you look at what an investor may have expected to receive from different asset classes over the last 10 years since the financial crisis, versus its preceding 15 or 20 years, and then look where we are today in the world of low and in some cases negative-yielding assets from governments, I think investors need to challenge many of those assumptions when they think about how they plan to achieve their returns, ultimately for a happy retirement.
Estimations about the length of the cycle have been pushed out, and if you add in quantitative easing etc, the returns from what would have been traditionally risk-free assets are not the same as they would have been for those investing in the 25 years running up to the financial crisis.
People often talk about the ‘stretch for yield’ which I think sounds like a pejorative term, but I believe that new assumptions need to be made. Asset classes that may have traditionally been more niche or esoteric could well become more mainstream and the beneficiaries of greater interest from investors in the coming years.
Elsewhere, trust is a huge challenge, certainly for the UK market, where this year we’ve seen a number of different reasons for the man on the street, and even the more articulate financial adviser or wealth manager to say, ‘I have concerns about the liquidity’, for example.
This feeds into things like regulatory concern, so there’s been lots of press discussion at least about whether we need to consider how UCITS funds work in the future. What kind of assets should go into them?
Remember three years ago, when the Brexit vote happened, obviously that caused a period of difficulty for commercial property funds.
What can the industry do to regain some of that trust?
It has a lot of work to do, but there are some great organisations out there already helping to do that. Think of City Hive, which is helping build the conversation about inclusivity and diversity in the City, moving it away from the somewhat Victorian male-dominated environment it may have been for the last hundred years.
I think that makes the industry much more relevant and approachable to the external parties that look at it.
There is also – and I know lots of others who are involved with – the Investment20/20 organisation, which is trying to give access to the industry via less traditional routes, such as the one-time typically ‘right’ kind of school or college. I think all that will make us more appealing and relevant as a sector.
You mentioned at the start about being more forward-looking. How are emerging technologies being used across the business, either at Parametric or the broader group?
We operate programmes with Parametric we call PIOS (Policy Implementation and Overlay Services) and CPM (Centralised Portfolio Management). Essentially, we offer a solution to third parties where Parametric looks at their total business, and for example, if they have a degree of exposure to European equities but they are uncomfortable with the level of currency exposure, we could offer a currency overlay solution to hedge out that risk.
The CPM means Parametric can combine the inputs from various strategies into a centralised single account for simpler implementation. So, if you are XYZ multi-asset investor, and your portfolios consist of four different underlying asset management solutions from different companies, Parametric can work with those managers, get their holdings information and replicate those four portfolios directly for the customer. Some of the benefits include the reduction of transaction costs, reduction of overall fees and smoother portfolio implementation.