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Home Office News: Morgan Stanley CEO Defends Eaton Vance Price Tag, Envestnet’s ESG Push, and More

By Julie Daclag October 30, 2020

Below is a look at some changes major distributors have made to their platforms that may have flown under your radar in the past month, collected from Distributor Profiles, a service of sister publications Ignites and FundFire.

Morgan Stanley CEO: We had to act fast on Eaton Vance

Morgan Stanley CEO James Gorman said during an earnings call with analysts earlier this month that the firm needed to act fast to acquire asset manager Eaton Vance.

The firm announced the planned $7 billion deal in early October, a week after it closed its acquisition of E*Trade. The Eaton Vance deal is expected to close in the second quarter of 2021.

"We didn’t control the timing," Gorman said. He said he considers Eaton Vance a quality asset that any other company would want to acquire.

Gorman identified four critical factors in acquisitions: strategy, culture, price and timing. If the first three align, timing is the least important, he said.

A company’s strategy is the most sought after in an acquisition, Gorman said. Morgan Stanley wants to build on areas it is already competent in, and that applies to the E*Trade and Eaton Vance, he said.

Culture fit is also an essential factor to consider, especially in the complex finance and asset management industries, according to Gorman. Eaton Vance fits well into Morgan Stanley’s culture because of its long-lasting relationship, including having the wirehouse as its funds’ biggest distributor, he said.

Gorman added that all 25 of Eaton Vance’s internal voting shareholders voted in favor of the deal.

James Gorman
He also defended the $7 billion price tag for acquiring Eaton Vance. "You don’t buy quality assets cheaply," he said.

The Eaton Vance deal also provides growth opportunities for Morgan Stanley through environmental, social and governance investments specialist Calvert, including the firm’s Parametric custom separate account business, Gorman noted. The deal also helps fill out Morgan Stanley’s fixed-income offerings.

Gorman adds that Morgan Stanley aims to grow Eaton Vance’s international distribution and amplify sales of its proprietary products stateside with Eaton Vance’s sales team’s support.

Envestnet adds impact and ESG strategies to its product lineup

Envestnet’s quantitative research group has created impact global climate solutions quantitative strategies. The strategies consist of global stocks associated with companies working to mitigate pollution and climate change. The new impact portfolios are available as standalone separately managed account or a sleeve within a unified managed account.

The portfolio has 200 domestic large-cap and international developed market companies. It mimics its underlying benchmark, consisting of a mix of 69% CRSP U.S. large-cap index and 31% S&P/BNY Mellon D.M. ex-U.S. classic ADR index.

The impact portfolio has a minimum investment ranging between $100,000 to $200,000.

The firm’s research team evaluates each company in the new impact climate portfolio using environmental ratings, revenue information, and carbon-risk data from Sustainalytics.

The research team avoids companies and fossil fuel producers that were involved with environmental controversies. The team also uses environmental tilts such as renewable energy, energy efficiency, green transportation, green building, and sustainable agriculture in assessing companies that want to address climate issues.

Envestnet also added new ESG model portfolios through a partnership with Federated Hermes. The portfolios consist of ESG-focused mutual funds and can be customized to fit seven different risk tolerances. That has an investment minimum of $10,000.

Morningstar merges manager ratings and quantitative fund scores teams

Morningstar has merged its manager ratings and quantitative fund scores into one team. The former head of quantitative research, Lee Davidson, leads the team as the new head of manager research and quantitative research.

Davidson oversees forward-looking medal ratings generated by Morningstar analysts and quantitative ratings generated by a machine-learning method.

The Chicago-based firm hopes that the teams’ integration encourages collaboration, helps match investors’ growing interest across asset classes and spark innovation.

The firm expects that manager research will level up by incorporating more tools from the quant team, such as risk modeling, scenario analysis, portfolio decomposition tools, according to Davidson. Moreover, quantitative research tools is expected to improve through the manager research team’s insights.

The company hopes that the teams’ fusion will make it easier to develop analytics and intellectual property from the manager research team into tools and solutions that clients can use with the help of the quantitative group.

Morningstar has also appointed Jeff Ptak, the former global head of manager research, as the new chief ratings officer. Ptak manages Morningstar’s ratings and the performance-based star ratings for funds and stocks. He is also responsible for approving new investment ratings’ methodologies and addressing it to the investors and advisors.

Additionally, Ptak leads a small team of researchers who will serve as the firm’s voice of portfolio constructions and personal finance. Christine Benz, Jon Rekenthaler, and Amy Arnott are also on the team. The team gathers Morningstar research topics on portfolio construction, retirement income, and other personal finance issues to address best practices.

The change will not impact Morningstar’s due diligence process over its partnership with wirehouses UBS and Merrill Lynch, and the recently acquired ESG risk ratings company, Sustainalytics.

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Tags:  Finding and winning new clients , Client retention , Staffing and recruiting , Investment strategies , Portfolio management , E*Trade , Eaton Vance , Envestnet , Merrill Lynch , Morgan Stanley , Morningstar , UBS

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