Eagle Global Advisors, a Houston-based money manager that services 1,000 high-net-worth and institutional clients across the nation, has maintained the boutique character with which it started in late 1997 by forging strategic alliances with a wide variety of financial intermediaries. The firm has leveraged this business strategy to amass $3.9 billion in assets under management as of September 30.

The firm's founding partners-Eddie Allen, Thomas Hunt, Steven Russo and John Gualy-joined a small Houston firm in the early 1990s with a mandate to develop an international equities strategy. In the middle of the decade, two changes in ownership of the firm in two years prompted them to move out on their own. "We decided to start our own firm so that we could focus on having a business that was more consistent and more sustainable than what we saw as revolving nameplates in the firm," says Allen. "This was primarily to create a wealth management firm to give our clients consistency of management as well as good service."

Importantly, the partners were able to maintain the majority of their existing relationships, and within the first year, had transferred more than $250 million of client assets. This gave the new organization positive cash flow from an early stage and took the pressure off marketing, allowing the partners to focus on the investment side of the business. Most new business came by way of referrals.

During 2003 and 2004, as markets were recovering from the tech bubble, Eagle Global began to be recognized on databases and various investment consultants started to take notice of the firm, according to Richard Hellmann, a vice president in the firm. "The prior years' work started to pay off in the sense that it began to market itself," he says.

From that came a business plan that centers on having strategic relationships with different types of financial intermediaries, from private wealth management firms to brokerage houses and institutional consultants. Eagle Global may have, say, 100 clients at a multifamily office, but it doesn't service those clients individually; it services the family office. "They, in turn, disseminate what we tell them to their clients," says Hellmann. "It's a very effective way for us to gain assets without straining our service capacity. Our ability to sufficiently service 900-plus clients with 26 employees is not there."

He says the firm currently works with about 50 different strategic partners, ranging in size from a couple of clients with $10 million to a number of clients with several hundred million dollars. "That enables us to focus on what we do best, which is make investment decisions, and allows them to focus their efforts on what they do best, which is gather assets and work with clients on asset allocation, financial planning and all the other things," Hellmann says.

Eagle Global prefers to establish relationships with private wealth managers, he says, "because they have nice clients and can open nice-sized accounts with us. Also they're sophisticated in how they go about things, they make educated decisions; it's not an emotionally driven process. From a consistency standpoint in terms of our business, we want steady and growing cash flows, and going to those types of organizations is a way that we can work toward that goal."
The relationships almost exclusively involve separate accounts, says Hellmann. The family offices create best-of-breed manager platforms, whereby they seek money managers to fill specific slots in their portfolios, such as international equities. "These groups want to find managers they're comfortable with so they won't have to revisit the decision," Hellmann says. "They understand that managers are going to have periods of both out- and underperformance, but that the organization is going to remain intact and the people they're meeting with are going to be there throughout."
High-net-worth individuals make up 51% of Eagle Global's client base, foundations and endowments constitute 36% and mutual funds about 13%.

In the spring of 2005, Eagle Global received a mandate from Eaton Vance to take over the subadvisory role on its Tax-Managed International Equity Fund. That relationship has grown to include two more subadvisory portfolios and some separate account work whereby Eaton Vance represents Eagle Global on broker-dealer platforms, says Hellmann. Until then, Eagle Global hadn't participated in any mass market business because it lacked the infrastructure to do so, he says. "The benefit to us is that we don't have to deal with the retail money, which tends to be fickle and performance-chasing. In a downturn, we lose the revenue, but the operational risks are put off onto Eaton Vance," he says.
"The key hallmark we try to have in all our strategies is that they follow a disciplined, consistent and repeatable investment process," says Hunt. "Our focus is on the long term, building wealth and providing investment strategies that are profitable for our clients."
The bulk of the firm's assets under management, some $2.5 billion, is managed through its international equity strategy. Several factors make this a compelling strategy today, says Allen. First and foremost is diversification. Beyond that are higher expected returns relative to U.S. equity investments, he says.
According to Hunt, Eagle Global typically owns 50 different companies domiciled outside the U.S. It purchases these on U.S. exchanges in the form of American Depositary Receipts. It holds stocks four years on average. "We have low turnover, and our process leads us to trim losers and let our winners run, which tends to be a very tax-efficient thing to do," he says.

The firm's investment process involves both top-down and bottom-up analyses, says Hunt. "We spend 15% to 20% of our thought and effort on top-down considerations, such as which countries to invest in and which sectors," he says. "Once we get a direction, we then spend about 85% of our effort on selecting the right companies in those countries and sectors."
The top-down methodology uses a combination of quantitative models and the firm's own analysis, according to Allen. The firm ranks countries and sectors by their attractiveness for investments, in an attempt to identify certain anomalies, including countries or sectors that are cheap at a time when their prospects are improving, he says. The model uses several quantitative measures of valuation, and measures of earnings growth, currency over- and undervaluation, and leading indices for economic growth. Then, using the direction provided by the country and sector models, the portfolio managers drill down to mine from a universe of 1,500 companies that warrant further fundamental research.
About 18% of Eagle Global's portfolio is invested in emerging markets. Brazil has the largest weighting, about 5%. "We think the country has a good domestic economic backdrop," Allen says. "We're invested in the materials and energy sectors, which will do well during the economic rebound we foresee for the world economy."

As for the world's other emerging economies, Allen says: "Right now, we don't have any investments in China because we view China as too expensive at the current time. We have some investment in India, about 2%. And we also have 2% in Russia, in the energy sector. Russia is our most recent addition, and we are getting more favorable toward Russia at the present time."
Outside emerging markets, the international portfolio's largest single allocation is to the U.K., with about 17%. "The U.K. looks good because it has good valuation statistics, a very high dividend yield and very low PEs," says Allen. "Furthermore, the currency depreciated dramatically last year, and that cheap currency is helping spur an economic rebound there and helping fuel growth for companies in their benchmark."

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