A Turning Point
In this weeks Investment News, there are two stories that stand out, both regarding Schwab. One says that Schwab will no longer custody hedge fund assets, and the other is reporting on Schwab recent SEC filing for an ETF.
Regarding hedge funds, this one more point of pressure on that industry. Certainly increased regulation is on the way, and losing access to one of the largest custodians will certainly have a big impact. Practically the very large, established (trustworthy) firms will not be dramatically impacted. A significant number of firms who truly leverage the Schwab service will feel the impact, and if you are a small firm without the resources to afford the expense associated even custody capability from Schwab, the future prospects must look incredibly dim. Even the hedge funds with positive performance last year are experiencing significant redemption requests. Hopefully this is not the end of an important investment structure. Hedge funds provide access to assets and investment strategies which cannot be accessed in a traditional 1940 Act (mutual fund and ETF) structure. This industry is ripe for innovation that can provide the right kind of transparency and accountability that is needed to build back trust in the hedge fund structure.
Schwab and an ETF, it’s a no-brainer. Brokerage trading and a very successful asset management arm are the perfect combination for an ETF.
In a few years we will look back on these events as milestones for the asset management industry.