With Calvert Acquisition, Eaton Vance Gets into ESG

With the acquisition of Calvert Investment Management, announced today, the $343 billion asset manager Eaton Vance is getting into the business of investing in companies based on their commitment to environmental, social and governance issues for the first time.

For Calvert, which offers mostly U.S. actively and passively managed mutual funds, the deal offers a way to move beyond regulatory matters that have dogged the firm. It also gives Calvert the benefits of being part of a larger organization with scale, including global distribution and sales, as well as systems and compliance infrastructure. Thomas Faust, CEO of Eaton Vance, says the idea of acquiring Calvert, which has $12.3 billion in assets, was in the back of his mind during a company meeting with John Streur, Calvert’s president and CEO, in 2015. Calvert is the largest client of Atlanta Capital Management, one of Eaton Vance’s subsidiaries.

“I was thinking about a broader relationship then. These are times when the pressures on profitability and legal, regulatory and compliance for a small fund are growing more acute,” Faust tells Institutional Investor. “And Calvert’s focus on ESG fits into one of the predominant themes of today.”

Earlier this week, the Securities and Exchange Commission announced a settlement with Calvert over charges that the firm misvalued bond holdings and overstated the net asset value of certain mutual funds from 2008 to 2011. In addition, Calvert itself discovered in May that before Streur’s arrival, the Calvert mutual funds paid distribution-related fees that should have been paid by the company.

“The timing of the announcement is not coincidental. It was important to get that announcement out,” says Faust, who adds that Calvert’s problems pre-date current management. “That all happened before Streur arrived, and this purchase allows Calvert to separate itself from that by becoming part of a new parent,” says Faust.

Eaton Vance will keep the Calvert brand, maintain a separate board for its funds and retain the firm’s research team, which focuses on sustainability research on companies. Steur will remain as president. Eaton Vance’s earnings will go up from day one as a result of the acquisition, says Faust, because most of Calvert’s other functions are duplicates of Eaton Vance’s capabilities and can be cut.

Faust adds that Calvert also offers some passive products, including a global water fund and a global alternative energy portfolio. He expects Calvert to work with another Eaton Vance subsidiary, Parametric Portfolio Associates, to develop other index-based thematic products.