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Author: EightTrack2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 105  
Subject: Re: How does this company make money? Date: 3/10/2005 11:45 AM
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I have read all posts and the latest annual report. I am still not sure how this business operates.

Can anyone explain how they make money?

Do you think they can sustain the growth?


Eaton Vance is an asset manager. Basically, they operate a large number of mutual funds, closed end funds, and other investment accounts for investors.

All of these various financial assets make up Eaton Vance's AUM (assets under management). Most of Eaton Vance's revenues consist of the small portion of AUM it receives from its customers' accounts on a regular basis (usually quarterly).

For simplicity sake, let's say an asset manager has $1 billion in AUM on average during a quarter. If it received 1% of that AUM figure annually, the asset manager would generate $2.5 million (10/4) for the quarter. It would have to pay its salaries and other costs from that amount.

One nice attribute of asset managers is that they scale nicely. What I mean by that is that asset managers don't need a heck of a lot more personnel and other costs to manage additional funds.

If our asset manager example doubled its assets to $2 billion, does it really need double the staff and cost structure it did at $1 billion? Probably not.

So it's a very profitable business IF you can raise and maintain assets.

*****

Historically, EV has proven to be a great asset generator. Will it continue? That's a tough question. I would guess yes.

The next question, of course, is how much are you willing to pay for a share of stock? Even a good company can be a bad investment if the purchase price is too high.

ET
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