Updated with correction
Parametric Portfolio Associates is taking on a more prominent role in the fate of its parent, Eaton Vance Management, as the subsidiary has taken the lead in driving new assets to the overall firm.
The increasing focus on Parametric, Eaton Vance's Seattle-based $82.4 billion quantitative and alternative asset subsidiary, comes as Parametric's assets are growing both organically and through the acquisition of The Clifton Group at the end of last year.
At the same time, Eaton Vance's more traditional equity strategies have seen net outflows as market volatility has sent investors fleeing for the exits. Investors withdrew a net $10.6 billion, $3.5 billion of which was institutional, from Eaton Vance's large-cap strategies in the 12 months ended Jan. 31.
Some 20% of Eaton Vance's revenue is derived from Parametric, which accounts for 39% of Eaton Vance's assets under management.
Institutional investors in particular have become increasingly skeptical of whether traditional active equity strategies will produce the desired alpha in the long run and whether they will pick the right firm to do it, Thomas Faust Jr., CEO, president and chairman of Boston-based Eaton Vance Management, said in an interview.
“Success can be achieved with fundamental equity strategies, but it's hard to achieve that success on a sustained basis,” he said.
On the other hand, he said, institutional investors are seeking lower-cost rules-based investment strategies and services, such as those offered by Parametric and Clifton.
Parametric's biggest strategy for institutional investors is a $9.8 billion emerging markets strategy that holds between 1,000 and 1,600 securities. The stocks are selected from a universe of 3,000 public companies in 44 countries using a rules-based approach.
Minneapolis-based Clifton, which operates under its own name as a division of Parametric, has around 180 institutional clients for its $35 billion futures and options based overlay serviceshttp://edit.pionline.com/apps/pbcsedit.dll/red# and risk management solutions.
Mr. Faust said both Clifton and Parametric are focused on customizing portfolio solutions, so joining them together made sense. He said he expects Parametric to be among the biggest generators of Eaton Vance's growth in coming years.
It already is happening. The company's traditional equity strategies grew only 1% to $134.4 billion in the 12 months ended Jan. 31. On the other hand, Parametric saw an almost 40% increase in AUM in the same period, not counting the Clifton deal.
The close of the Clifton deal on Dec. 31 increased the percentage of Eaton Vance's assets under management from institutions to 34% from 22%.
As of March 31, the company reported $255.1 billion in total AUM, with about $47.4 billion from Parametric ($18.6 billion in institutional) and $35 billion from Clifton (all institutional).
In contrast, another subsidiary of Eaton Vance, Atlanta Capital Investment Managers had $17.4 billion in assets ($9.4 billion from institutions) and contributes 7% to 8% of revenue on an on-going basis compared with Parametric's 20%.
Eaton Vance also holds a 49% stake in Hexavest Inc., Montreal, but does not break down its contribution to the company because it is a minority position. Hexavest manages $14.9 billion in assets, 99% of which is institutional.
In buying Clifton, the company got an overlay manager with a solid reputation in the institutional community. The Clifton team is well-respected and has been winning contracts among small and midsize pension plans, said Eyal Bilgrai, a consultant at Wurts & Associates, Seattle.
Parametric executives are planning joint offerings with Clifton, Parametric CEO Brian Langstraat said in an interview. “When you combine our potential, we can increase the robust choices offered to institutional investors,” said Mr. Langstraat.
He would not be specific with the strategies or the timing, but did say one approach might be a commodities strategy that meshes Parametric's asset allocation approach with Clifton's understanding of futures.
He said that Parametric has a systematic commodity strategy based on an understanding of how commodities act in various situations and how they correlate with each other, while Clifton understands the real-world implementation issues in commodities and how to use appropriate investment vehicles for gaining exposure.
A separate institutional sales and consulting team also will be a first for Parametric and will double the three-person Clifton sales team. Just this month, Parametric named two directors of consultant relations. Michi McDonough, who was a consultant relations manager at Wellington Management, will be based in Boston; Chris Wisdom, who joins Parametric from Dimensional Fund Advisors, will be based in Seattle.
Parametric previously relied on the sales force of its parent to sell its strategies.