Eaton Vance Corp. is gunning for separate account assets.
Within four years it aims to derive half its new assets from these high-net-worth products, the executive in charge said in an interview last week.
The Boston mutual fund company manages $56.6 billion of assets, including $12 billion in separate accounts. It is shooting to bring in $2 billion of new separate account assets this year and $4 billion in 2003, said Lawrence Sinsimer, a managing director.
The company has been gearing up to reach those goals, Sinsimer said. The last step in the plan will be a deal to buy or team up with an international equity manager, he said. That deal should be announced next month, Sinsimer said.
The deal would complement the purchase last fall of controlling stakes in a growth- and a value-oriented asset manager.
Other steps in the separate account buildup have included the assignment announced last week of six wholesalers to the separate account business. And Sinsimer said that he had also recently hired three marketing executives to push the products.
Unlike a mutual fund, a separate account is a portfolio of securities managed for a single investor. Separate accounts offer some of the same advantages as mutual funds, such as diversification, but can also provide some extra benefits, such as more control over tax exposure.
Other mutual fund companies have also become interested in separate accounts in recent years as net inflows to mutual funds have declined.
Assets under management in separate accounts totaled nearly $400 billion at the end of March, the latest date for which a total is available, up from $240 billion at yearend 1997, according to the Money Management Institute, the trade organization for the separate account industry.
In addition to the growth possibilities, fund companies like the hefty profit margins on separate accounts. For those managing $1 billion or more in such accounts, margins are higher than on other investment management products, according to an October report from Financial Research Corp.
But size matters, the Boston research company found. Just to break even in separate accounts, management companies generally have to handle at least $500 million in the business, it said.
The new separate account wholesalers, some newly hired, others transferred from within the company, include veterans from companies such as Regent Investor Services, Lazard Freres & Co. and National Asset Management.
Sinsimer said veteran salespeople are more important in the separate account business than in the funds business. Seasoned separate account wholesalers are better than mostly fund-focused wholesalers at explaining the long-term benefits to brokers, he said.
Because separate accounts are complex and hard to explain to customers, brokers at the large wire houses and banks that sell them tend to push other products first, he said. "Getting shelf space is not the same as getting assets," Sinsimer said Eaton Vance also needs brokers who understand the products and can really sell them.
The wholesalers are essentially selling a relationship with a company more than an asset management product, he said. The concept is foreign to many brokers but improves the odds that the investor will stay with Eaton Vance for a long time, he said. "Retention in this business is the name of the game," Sinsimer said.
To help make asset retention a priority for its wholesalers, Sinsimer has set up a commission program that pays them a small percentage of the assets brought in for up to 10 years after the sale, as long as the assets stay with Eaton Vance.
Eaton Vance mutual fund wholesalers are also encouraged to sell separate account programs where appropriate. On such sales they get a slightly higher commission than for selling a mutual fund, but for the first year only.
Sinsimer is bucking much of the asset management industry in at least one respect: his refusal to lower account minimums to attract a wider spectrum of investors.
Companies moving into separate accounts are increasingly slashing minimums to as little as $50,000. Lockwood Financial Group was the latest to do so. But "I cant believe anybodys making money at $50,000," Sinsimer said.
The minimum at Eaton Vance, as at many other providers, remains about $300,000. The company charges management fees of 40 to 60 basis points, Sinsimer said.
Some analysts say Eaton Vance is better equipped for the separate account business than many other fund companies. Kevin Keefe, a senior consultant at FRC, noted that Eaton Vance has a history of managing money with an eye toward reducing tax liabilities, which is a big attraction of separate accounts and a service often demanded by the rich.
Alexander Paris, the director of research at Barrington Research in Chicago, said that Eaton Vance already has experience in separate accounts and does a lot of business for wealthy clients.
He said Sinsimer, who joined the company in November of 2000, has spent virtually his entire career in separate accounts and probably knows the business as well as anyone.
Eaton Vances focus has long been on fixed-income. To shore up its equity side it bought majority stakes in the equity value manager Fox Asset Management Inc. and equity growth manager Atlanta Capital Management Co. LLC last October.
"Add international and Ive got one in every category," Sinsimer said.