The rumor mill is hot and heavy with word that Rydex Investments will be sold and soon, for a price that could approach $1 billion.
Investment News called a deal imminent, and highlighted two potential acquirers: E*Trade (NASDAQ:ETFC) and Invesco PLC (NYSE:IVZ) (formerly Amvescap). The latter company recently bought the exchange-traded funds provider PowerShares Capital Management, in a deal worth $60 million up front, and an additional $670 million in incentive payments. At the time, PowerShares had $3.5 billion in assets under management.
Rydex, for its part, manages over $14 billion in assets spread among 80 products, including nearly $5 billion among 25 different ETFs. Its largest ETF, the Rydex S&P Equal Weight ETF (NYSEARCA:RSP), boasts over $2.3 billion in assets.
A merge with E*Trade might be the more interesting of the two possibilities, as it would introduce a new player to the ETF space. E*Trade has been eager to grow its mutual funds business for some time, and has aggressively priced its equity index funds in an attempt to move into that market.
The company, however, has some of the more sophisticated and institutional-style mutual funds on offer, including leveraged funds, “absolute return” strategies, and other similar products. How those would mesh with E*Trade’s or Invesco other products remains to be seen.
One question for any acquiring company is what to do with the huge number of leveraged, inverse and inverse-leveraged ETFs on file with the SEC. Rydex has long since lost first-mover advantage in that space to ProShares (NYSEARCA:SDS), and it will be a challenge to gain traction with those funds, should they ever come to market. Still, the ETF franchise is a key asset for Rydex, and the acquiring company will want to expand that business one way or another