Rydex Reduces its Ranks ... Is Another Sale in the Works?
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Wednesday, January 14, 2009

Rydex Reduces its Ranks ... Is Another Sale in the Works?

A year-and-half after Security Benefit won its bid to purchase Rydex Investments, the Topeka, Kansas-based insurer is making big changes at the fund firm. Those changes include a reorganization and possible sale of the firm, say multiple mutual fund industry sources.

Among those on the way out as part of the cuts is CEO Carl Verboncoeur, who took the helm of the firm in 2003 after founder Skip Viragh was diagnosed with pancreatic cancer.

Security Benefit's other asset management business, Security Global Investors (SGI), confirmed Verboncoeur's departure when it issued a press release on Wednesday afternoon announcing its integration with Rydex. SGI CEO Richard Goldman will serve as CEO of the combined asset management firm and Verboncoeur will transition to an advisory role. His duties include serving on Rydex Funds' board of trustees.

Verboncoeur did not respond to an email request for comment. Spokespeople for both Rydex and Security Benefit did not return calls seeking comment on the events at Rydex.

Verboncoeur will not be the only Rydex executive leaving as a part of the cutbacks at the Rockville, Maryland-based investment manager. The source said the departures also include nine-year Rydex veteran Kevin Farragher, senior vice president of business line management. Farragher referred inquiries to a Rydex spokeswoman.

All together, the source told The MFWire that around 30 Rydex employees were affected by the job cuts on Tuesday. The reduction covered workers in sales, marketing, shareholder services, and portfolio management, the source said.

In the press release, SGI executives said the integration "has had no impact on the current investment teams, which will continue to operate without any disruption while retaining their autonomous investment management focus."

The cuts at Rydex coincide with plans at Security Benefit to eliminate as many as 120 jobs this year, according to The Topeka Capital-Journal, Security Benefit's hometown paper. Those cuts are equal to about 12 percent of the insurer's workforce. The paper also reported that Security Benefit will reduce compensation of key executives.

The article did not say how many jobs were being cut at Rydex. It did report, however, that: "Other steps the company is taking to save money include finalizing the integration and consolidation of its asset management firms, Security Global Investors and Rydex Investments."

On Wednesday afternoon, Security Benefit officials confirmed that the two investment arms will operate under the Security Global Investors brand.

The latest news from Security Benefit comes amid whispers that it is trying to find a buyer for Rydex, which it purchased from the Viragh family trust for around $775 million in a deal that closed in mid-January of last year. Goldman Sachs, which advised Rydex on its sale to Security Benefit, was retained to help find a new owner, according to an industry source who works in M&A. A second source who also has seen a pitch book for the deal could not confirm the identity of the advisor.

Why would Security Benefit sell Rydex so soon after buying it? At the time, Security Benefit's top executives saw Rydex as a way into the retirement market. That plan may have crashed on the market's rocky shoals last fall.

Even as rival ProShares has doubled its ETF assets to nearly $20 billion over the past year, Rydex has seen its asset base slimmed along with the market.

Rydex managed just $10.3 billion at the end of November, according to data from Mercatus' Financial Research Corp. (FRC). That figure includes $4.8 billion in long-term funds, $3.9 billion in ETFs and $1.5 billion in money market funds. The number does not count non-mutual fund assets.

The fund firm's own Web site reported AUM of $12 billion at the end of October.

That shrinkage represents a change in momentum from 2007 when Rydex saw its AUM rise briskly.

When Security Benefit first announced its deal to buy Rydex in June of 2007, the fund firm managed close to $15 billion in assets across more than 80 mutual funds, ETFs and institutional products. By January 2008, when its sale to Security Benefit was completed, its AUM had risen to $16 billion.

Who might be interested in purchasing Rydex? Fund industry consultants said Invesco, one of the bidders for Rydex in 2007, also looked at the business this time around. Invesco owns ETF provider PowerShares. Invesco spokesman Bill Hensel said the company does not comment on market speculation.

There is also possible interest from private equity firms, said a source familiar with the business.

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