Rydex SGI aims to refocus on asset management

Rydex Investments, now Rydex SGI, is repositioning itself to focus on an expanded set of asset management capabilities.

That is the idea behind the re-branding of the firm, the result of a merger last month between Rydex Investments of Rockville, Md., and Security Global Investors of New York.

The two money management operations have been a division of the same parent company since January 2008, when Rydex Investments was acquired by Security Benefit Corp. of Topeka, Kan.

TERMS NOT DISCLOSED

It is also the idea behind the upcoming sale of Rydex Financial Services — a broker-dealer custody platform with $2.5 billion under custody and administration — to Boston-based Ceros Financial Services Inc., a unit of Ceros Holding AG of Lucerne, Switzerland.

“The brokerage custody business is not part of our asset management business,” said Rich Goldman, chief executive of Rydex SGI. “That’s why we have made the decision to divest.”

The deal — details of which Mr. Goldman declined to disclosed — is expected to close this summer.

That Securities Benefit wants to get rid of Rydex Financial Services doesn’t come as a surprise, said Geoff Bobroff, an East Greenwich, R.I.-based mutual fund consultant.

Rydex Financial Services never really fit into the asset management business that Securities Benefit is trying to build, he said.

And it makes perfect sense for Securities Benefit to integrate Rydex and Securities Global Investors, Mr. Bobroff said.

That doesn’t mean, however, that it will work.

Securities Benefit’s purchase of Rydex proved to be an awkward fit from the start, Mr. Bobroff said.

Rydex was a niche provider of alternative investments and exchange traded funds, while Securities Benefit was a rather conservative insurance company, he said.

As a result, rumors have circulated for months that Securities Benefit was looking to unload Rydex, Mr. Bobroff said.

Mr. Goldman insisted that Securities Benefit “is not shopping the asset management business,” and is looking to invest in Rydex SGI, he said.

For example, Allen Williamson was hired in April as national sales director after serving as president of Chicago-based Nuveen Investments’ managed asset group.

EDUCATIONAL TOOLS

Rydex SGI also has “a whole suite of educational tools we’re about to launch,” Mr. Goldman said.

It is all part of helping advisers deal with “unprecedented challenges” surrounding asset allocation, he said.

“Static asset allocation has failed many investors,” Mr. Goldman said.

Rydex SGI, however, will provide advisers with the products and tools that they need to go beyond traditional buy-and-hold asset allocation, he said.

“A lot of investors are looking for change,” Mr. Goldman said.

Rydex has been very upfront about the changes that it is going through and has tried to be mindful of what those changes mean for advisers, said Paul Schatz, president and chief investment officer of Heritage Capital LLC in Woodbridge, Conn., which advises on about $130 million in assets.

For example, he said that he was assured that the same Rydex Financial Services team he uses for custody services will remain in place after the sale goes through.

As a result, Mr. Schatz said that he feels more comfortable with the sale. That is important, because eliminating custodial services can be tricky.

The Vanguard Group Inc. of Malvern, Pa., learned that the hard way when it got out of the business in 2003. Many advisers still hold a grudge against Vanguard, feeling that the company left them in the lurch.

Rydex, however, has worked to make sure that advisers will be taken care of, said Gary Clemmons, founder and senior portfolio manager of Texas Capital Management, a Baytown, Texas-based adviser with $50 million under management.

“I am very pleased with the transaction,” he said.

The deal preserves Rydex Financial Services, thus preserving a broker-dealer custody platform that is truly geared toward registered investment advisers, said Mr. Clemmons, who was one of the first to sign on at RFS.

Whether such good will help Rydex SGI, however, is debatable.

The changes at Rydex may help it gather more assets, but it will be a battle, Mr. Bobroff said.

To really become a significant player, Securities Benefit would have to make another acquisition, he said.

“CROWDED AND COMPETITIVE’

It seems unlikely, however, that it has the capital or will to do that, Mr. Bobroff said.

Rydex SGI can make it without further acquisitions, said spokeswoman Lori Klash Winkler.

“The financial services space is crowded and competitive, but with the integration of Rydex and SGI, we’re in a better position to compete,” she said.

A call to Securities Benefit was not returned.

E-mail David Hoffman at [email protected].