Charles Schwab plans its own long/short SMA, CEO Rick Wurster says
Wurster gave no launch date on the Oct. 15 call; DGS Capital's Ashish Sharma expects a second-quarter 2027 rollout.
At a glance
Charles Schwab plans to offer its own long/short separately managed account strategy, CEO Rick Wurster said on the company's Oct. 15 earnings call, giving no launch date.
Long/short SMA strategies require trading on margin, and Schwab's balance sheet carries $188 billion in total client margin loans, according to RIABiz.
RIABiz also reported interviewing a breakaway RIA that moved all its breakaway assets to Altruist after learning Schwab could not promise long/short supply.
Charles Schwab plans to offer its own long/short separately managed account strategy, CEO Rick Wurster said on the company's Oct. 15 earnings call, giving no launch date. Analysts pressed him three times on when the custodian would widen access to long/short strategies, which Schwab has rationed since April.
According to RIABiz's account of the call, Wurster said Schwab can retrofit an existing direct-indexing SMA with a track record of producing alpha. He described that repurposing as faster than building a strategy from scratch. "We will be able to run that product in a very efficient way from a balance sheet and operational standpoint that will help us sustain the ability to deliver long/short capabilities to our clients."
Long/short SMA strategies require trading on margin, and Schwab's balance sheet carries $188 billion in total client margin loans, according to RIABiz. About $61 billion of that traces to long/short SMA strategies — roughly a third of the margin book supporting the strategy line Schwab has been restricting.
Since April, Schwab has raised account minimums for standard margin and portfolio margin, and cut the gross leverage cap on portfolio margin strategies to 300% from 667%. In September it eliminated portfolio margin for the strategies and set a $10 million minimum account value.
What third-party managers expect
Ashish Sharma, chief investment officer of DGS Capital Management, told RIABiz he expects the Schwab offering in the second quarter of 2027. His firm manages $1.5 billion in long/short SMAs and serves multiple Schwab RIAs; Sharma views the offering as more a wallet-share grab than a capacity fix and says it will most likely widen Schwab's margins.
RIABiz also reported interviewing a breakaway RIA that moved all its breakaway assets to Altruist after learning Schwab could not promise long/short supply. Sharma says the shortage is acute enough that RIAs are moving assets to other custodians to access DGS strategies whose trades are funded elsewhere; Altruist promised a robust supply in early August.
Wurster acknowledged that long/short capacity helps attract assets to Schwab Advisor Services, but argued the franchise is strong enough to win without the inventory. It is unclear whether a proprietary Schwab offering would carry the $10 million account minimum that now governs long/short access, or whether the balance-sheet efficiency Wurster describes would let Schwab set a lower one.
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