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Schwab Seeks to Adopt Growth Manager


The Charles Schwab Corp. of San Francisco is on a crusade and hoping to find just the right large-cap growth manager to adopt. The goal? To round out the newest of its proprietary mutual fund families, the Laudus Funds group, which now includes 14 sub-advised Laudus Rosenberg funds that are predominantly managed in Orinda, Calif.

Schwab aims to identify great growth fund portfolio managers with a solid track record who manage a mutual fund with $50 million to $100 million in assets, and can hit the ground running, said Jana Thompson, president of the Laudus Funds, in an interview.

The adoption will follow other recent expansion efforts at Schwab. On May 2, Schwab seeded the new Laudus Rosenberg Large-Cap Value Fund. And just last week, Schwab began offering advanced subscriptions to five new target mutual funds, funds-of-funds each possessing a different target retirement date. The funds, which will be in subscription through June 30 and commence operations July 1, will combine both Schwab's proprietary funds with selected Laudus Funds under different allocation models.

Back on the growth front, any adoption agreement would include having that manager continue to sub-advise the fund, she added. But the fund would be artfully woven into the Laudus Funds group.

"What I want to do is grow by rifle shot rather than shotgun," Thompson said. "We're looking for investment managers who stick to their knitting." But the biggest challenge right now is "to identify the right candidate for a long-term partnership," she added.

In February 2004, Charles Schwab Investment Management, Schwab's asset management unit, completed its adoption of the 12-fund family with $1.6 billion in assets. Since 1999, the funds had been known as the Axa Rosenberg Funds, and before that as the Barr Rosenberg funds, having been incepted in 1985 by company co-founders Drs. Barr Rosenberg and Kenneth Reid.

Schwab rebranded the funds under the Laudus banner name at the time of adoption, deriving the Laudus name from "laud" which in Latin means "to praise."

At the time, that transaction was hailed as one of the largest adoptions within the mutual fund industry, and jumpstarted two new strategies for Schwab, Thompson said. It allowed Schwab to offer financial advisers a new, institutional-style group of mutual funds, and paved the way for Schwab, for the first time, to distribute mutual funds outside of its Schwab customer base, which includes registered investment advisors that custody assets with Schwab under its Schwab institutional division.

According to Thompson, two-thirds of the Laudus Funds' assets are held by financial advisers outside of the Schwab Institutional network, while one-third is held by retail customers.

Since then, the fund group has grown to $2.5 billion. That's quite an accomplishment considering that at adoption, $1.2 million of that $1.6 million was held in one single fund, the group's flagship U.S. small-cap fund, Thompson noted. That fund has since been closed. But other funds, including the Laudus Rosenberg U.S. Discovery Fund, which invests in the small- to mid-cap sector of the market, and the Laudus Rosenberg Value Long-Short Equity Fund, have seen good performance and consequently grown assets significantly, Thompson added.

In 2003, Schwab adapted a clone of the value long/short fund for use with variable insurance trusts, and last year Schwab shifted its proprietary Schwab MarketMasters Funds, all possessing multiple managers, into the Laudus group, rebranding them in the process.

The Laudus Funds group is Schwab's third and smallest mutual fund entity, joining the large SchwabFunds complex, which launched in 1989 and now sports 62 funds with a collective $140 billion in assets. Schwab also has a stake in the 26-fund, $15 billion Excelsior Funds, managed by Schwab subsidiary U.S. TrustM.

Schwab is perhaps best known for selling other sponsors' mutual funds. The financial services company revolutionized the mutual fund industry by launching its Mutual Fund Marketplace in 1984 and its highly successful Mutual Fund OneSource no-load, no transaction fee mutual fund supermarket platform in 1992.

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