The CEO of Charles Schwab Investment Management got poached from BlackRock after the YieldPlus debacle but now an ex-McKinsey-ite will take on the more strategic race-to-zero challenge of the next decade

October 5, 2018 — 10:21 PM UTC by Oisin Breen


Brooke's Note: Unless you are Vanguard, BlackRock or DFA, the last eight years were pretty rough in the asset management realm. Passive ETFs chewed up active mutual funds. So did factor mutual funds to a lesser degree. That Charles Schwab doubled assets in its asset management division in the past eight years is a mediocre accomplishment considering that the market more than doubled -- especially considering Schwab's position as a titanic asset distributor. That said, Schwab increasingly pushed short-term assets away from managed assets and toward the FDIC-protected sanctuary of its bank accounts. Headwinds were everywhere. Marie Chandoha was mostly brought aboard to assure Schwab stayed out of trouble after YieldPlus tanked. Now that she's gone, Jonathan de St. Paer is about to get his chance.

It's job done for turnaround artist Marie Chandoha, who is stepping down after eight years as president and CEO of Charles Schwab Investment Management (CSIM). She's retiring just as micro-fee ETFs soak up assets and make the division more strategic than revenue rich.

Jonathan de St. Paer
Jonathan de St. Paer will become CEO of Charles Schwab Investment Management in March 2019.

Replacing her is Jonathan de St. Paer, currently senior vice president for business strategy and product management at CSIM. He will take the reins in Mar. 2019, when Chandoha retires.

In contrast to Chandoha, who has significant experience in portfolio management, and the nitty gritty of the fixed-income business, de St. Paer has a resume more redolent of a strategist and a generalist.

A holder of Wharton MBA (1999), de St. Paer cut his teeth as an analyst at Bear Stearns, and as an associate at McKinsey & Co.

Since 2003, he has worked his way up at CSIM, first as vice president for investment management services, then as senior vice president for business strategy and product development. Product management was added to this title in Aug. 2015.

Chandoha, 57, joined the San Francisco-based brokerage and custody giant in 2010 to help clean up Schwab's YieldPlus fixed-income fund after it plummeted in value due to ill-advised investments.

Because it was sold as a virtual no-risk place to park cash assets, its overreach on risky holdings put a rare black mark on Schwab's typically sterling brand. See: YieldPlus fallout darkens advisors’ view of Schwab as asset manager.

Her appointment was part of a changing of the guard after Schwab had to pay a $119 million fine to the Financial Industry Regulatory Authority (FINRA). It also had to put aside $18 million for investors as a result of an SEC complaint linked to fixed-income investments.

Allegedly, investors had been led to believe they were buying super-safe money-market like instruments, when they were buying far riskier securities and bonds. See: Schwab turns the YieldPlus page the old-fashioned way -- with a whole new CSIM team.

But now, as ETFs become an ever larger piece of the CSIM puzzle, Chandoha's fixed-income expertise may be less relevant than it was when she joined Schwab the year after it launched its first four ETFs.  Close to one third of its assets are in ETFs, and it is the fifth largest supplier in the US.

As far as the future of CSIM is concerned, the days of selling a huge catalog of investment products are over; it's now all about simple, cheap products like ETFs, Chandoha told in a May interview.

"Focusing on what's most valuable and serving it up in a way that’s consumable and easy to understand and on demand is where innovation really needs to go," she said ."We only have 22 ETFs, yet we're the fifth-largest provider in the industry. I'd rather have fewer products that clients really want ... it's not about product proliferation."

Mission accomplished, and relinquished

Chandoha also spent eight years at Montgomery Securities (now Wells Capital Management) as co-head and senior portfolio manager, during which time its assets grew from $1 billion to $18 billion. When she joined CSIM from the now $5 trillion NYC asset-management giant, CSIM had $197 billion in assets under its management, mostly as part of its money market funds.

She lived up to her reputation. During her time at Schwab, CSIM's assets under management almost doubled to $362 billion, according to the firm. The doubling, however, reflects modest net new asset growth. During her tenure the S&P 500 more than doubled.

Over the course of her time at CSIM, it became a market-leader, spokeswoman Erin Montgomery told Investment News on Oct. 4. "The enterprise is well-positioned for future growth."

Chandoha's resume includes two years as global head of fixed income at Barclays Global Investors, now part of BlackRock; and she has held senior positions at Goldman Sachs and Credit Suisse, as well as served as an economist for the Fed.

This news was first reported by InvestmentNews.


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