Sale of Rydex to insurer: They love it, they hate it

Advisers are reacting to the impending sale of Rydex Investments to the Security Benefit Group of Companies with a mixture of enthusiasm, caution and disapproval.
JUL 09, 2007
By  Bloomberg
NEW YORK — Advisers are reacting to the impending sale of Rydex Investments to the Security Benefit Group of Companies with a mixture of enthusiasm, caution and disapproval. “It’s a strategic acquisition that should be a positive for everybody across the board,” said Victor Vuskalns, portfolio manager for Tango Capital Management LLC in Long Valley, N.J., and vice president of the Littleton, Colo.-based National Association of Active Investment Managers. “Rydex should be able to expand products and fund projects that they were unable to do before.” Key to success But others, such as Peter Mauthe, president of Dallas-based Rhoads Lucca Capital Management Inc., are taking a more wait-and-see approach. “The success of the acquisition will depend on the buyer’s ability to utilize the structure that [Rydex founder] Skip Viragh put into place and exploit those strengths,” Mr. Mauthe said. “The proof of that has yet to be seen.” Others are more downbeat.
Rockville, Md.-based Rydex is “selling to the highest bidder without a thought or care to cultural differences,” said Sam Jones, president of Denver-based All Season Financial Advisors Inc. and a past president of what is now the NAAIM. He was particularly critical of Topeka, Kan.-based Security Benefit, which he described as a “commission-based insurance company” buying “a product company catering to independent fee-only RIAs.” “Insurance companies are not as willing to listen or adapt to clients,” Mr. Jones asserted. He predicted that the Rydex sale will be “a great boon to ProFunds” of Bethesda, Md., Rydex’s chief competitor for asset managers who are active traders. Predictably, Carl Verboncoeur, Rydex’s chief executive, strongly disagrees. “I don’t view [Security Benefit] as a traditional insurance company at all,” he said. “They are much more a retirement and investment solutions company. They are very entrepreneurial and forward-thinking, and have many of the same attributes the marketplace associates with Rydex, which makes this such a good fit.” Although Security Benefit’s status as an insurance company won’t necessarily sour advisers on Rydex, Mr. Mauthe said, it will “increase management’s challenge to meld cultures that are fundamentally different.” “Insurance organizations by their culture look at investing through a long-term time frame, while Rydex was built on the concept of looking at the marketplace one day at a time,” he said. “While those are opposite ends of the spectrum, it’s a great opportunity to benefit from both of those positions.”
Mr. Verboncoeur described Security Benefit’s “traditional long-only [investment] approach” and Rydex’s “quantitative” investment management style as complementary, with “not a lot of overlap.” Opportunity seen In fact, he predicted, Rydex is poised to “gain access to new markets” because of Security Benefit’s expertise and experience in the retirement markets. Mr. Verbonceur also is confident that Rydex will keep its customers — a sentiment shared by Mr. Mauthe. “Rydex customers are very loyal,” Mr. Verbonceur said. “I don’t think you’ll see customers anxious to make a change unless they see a cultural change at the Rydex end of the deal.” Security Benefit’s purchase of Rydex, which was announced late last month, is scheduled to close in the fourth quarter. The deal is valued at between $800 million and $1 billion (Investment News, June 11).

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