has severed its relationship with American Skandia
because the insurer insisted on using multiple managers, bringing ProFunds
and possibly others into the mix. As a result, the firm will be losing approximately $700 million in business, ten percent of its $7 billion in assets under management, and the bulk of its $900 million in variable products.
The Rockville, MD firm, which joined up with American Skandia eighteen months ago, initially came on board to satisfy the need for funds suitable for active traders. According to Dennis Hearns
, director of distribution for the broker/dealer channel at Rydex, American Skandia ended up bringing in a lot of money with nowhere to put it.
"They had a problem. We were a solution to a problem. They didn't look at it as an opportunity," he said. "Skandia's been an aggressive marketing and sales organization. They took any and all money in the door that was coming in."
The relationship soured when American Skandia looked to bring on Rydex's competition, both companies started by former Rydex employees. Hearns suggested the move was intended to drive down cost.
"Skandia's model is multi-manager, so they wanted to add ProFunds and maybe others into the mix. We really think we can be the single dynamic portfolio provider," he said. "Also, some of the fee-sharing relationships we just couldn't agree with."
The retreat from American Skandia does not signal a change in Rydex's attitudes towards variable products. Not only does the firm think that annuities make sense for active traders, but it also sees a huge gap in the market.
"The annuity happens to be the vehicle that folks like to steer money to for non-qualified dollars, to mitigate any tax consequences," explained Hearns. "We just think they're not the only game in town. There's other fish to fry."
Rydex's pan is hot; the firm is partnering with the Security Benefit Group
in Topeka, KS, and has deals in the works with three other companies. The firm is involved in a variable annuity with Security Benefit that's targeted toward the RIA market.
"We have a variable annuity coming out and Rydex is a significant partner for us in the relationship," said Elliott Schifman
vice president of strategic business development for Security Benefit. "I would describe it as a first of its kind product and we're excited about what it's going to be able to do in the RIA marketplace."
Hearns said, "While we've resigned from Skandia's offerings, we're really moving forward with a couple of other platforms, where we'll be the single provider of these types of portfolios."
Hearns said he sees a shift in the market as investors and advisers become more attuned to the realities of mutual fund management.
"There's a sort of interesting dynamic in the marketplace that the industry has geared reps to seek out active managers," he said. "The fact of the matter is that three-quarters of them don't outperform the benchmark. You're seeing more and more advisers and investors utilizing quantitative products in their holdings."
With a growing gap in the market, Rydex may see new entrants competing on its turf.
"There's a very low barrier to entry in this business," Hearns explained. "The thing is takes it critical mass. If you don't have the assets to get their attention, then you can't get the trading relationships to move the money."
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