Sophisticated investors want solutions, not product-oriented approaches. That's the message Sanjay Yodh gets from advisors when they vet Rydex/SGI on behalf of their wealthy clients, and he's delighted to hear it. Solutions, he says, are what the new firm, a merger of Rydex Investments and Security Global Investors, is in a perfect position to deliver.

"[The merger] elevates our game," says Yodh, head of the Rydex/SGI alternative product line. "Now we can discuss how we think about traditional approaches and alternative approaches and the combination of the two."

SGI and Rydex, sister companies under the Security Benefit Corp. umbrella, merged in January 2009 with the goal of building a new entity that combined Rydex's expertise in bringing institutional-style investments mainstream and SGI's institutional-quality asset managers. The combined firm has $21 billion under management.

"SGI is predicated on fundamental, bottom-up research [and] alpha-driven strategies; they were born in the institutional landscape," says Yodh. "Rydex has traditionally offered quantitatively driven trading strategies that are more beta in orientation."

Now, the combined firm is able to create the right combination of alternative alpha and alternative beta, and everything in between, says Yodh. "There are bridges to alpha and beta we're thinking about today," he says. "The core competencies of these organizations coming together allow us to do  it in a more seamless manner. We've already launched strategies in that vein, and we continue to look at strategies that are offshoots of current ones or that are entirely new."

Highest-End Clientele
Part of Marc Zeitoun's job as the firm's head of distribution is to explain Rydex/SGI's alpha-oriented equity strategies and its liquid alternative investment strategies to potential investors. His approach to the marketplace is decidedly new. "We have said that we wish to cater to a certain element of the population because our solutions make the most sense to them-single family offices, multifamily offices, trust banks, very high-end advisors who do institutional consulting," he says.

Zeitoun says Rydex/SGI has a number of competencies-a major one being its alternative suite-with potential benefits that require a certain level of sophistication to be fully appreciated. "If it were only about returns, we would just wait for money to fly in based on Morningstar reports," he says. "We need to awaken sensitivity to liquidity within our client base and show them it's possible to construct very thoughtful and intelligent portfolios with exposures to different classes while not threatening the necessary liquidity of that portfolio. I understand that single family offices don't necessarily manage to liquidity, but unfortunately, when they end up having too much illiquidity, their clients get upset."

When Zeitoun introduces Rydex/SGI to single family offices, high-end RIAs and private trusts, he has several competitive advantages on his side. "One thing is that no one knows us. We are truly new in this high-end private client market; we haven't been managing individuals' money to the point of losing it in 2008," he says. "Our management style on the value side is very focused on downside risk management. Over the last five years, we outperformed 86% of our peers in down markets. That kind of thing resonates with advisors."

Zeitoun says capital preservation is a very important investment objective at the highest end in client segmentation. "It's not a traditional retail investment objective of wanting a 35% return year after year; they care very much about how managers perform on the downside," he says. "People are looking for capital preservation, but not at the expense of growth. Our value competency is just as impressive on the upside, having outperformed another 80% to 90% of its peers over a five-year period, but we strike a chord with capital preservation and defensive equity management."

The value strategies seek investment opportunities in which a company's current stock price is materially lower than Rydex/SGI's internal assessment of the firm's intrinsic value. The value team is a long-term investor, seeking companies that can create value over the next three to five years. It uses a bottom-up approach in picking stocks. The team sells a company when its expected value is reached, when a change in the investment thesis occurs or when a new name presents significantly more upside.