Magazine Issues » July 2008

INTERVIEW: Todd plays it down the middle ...

T. Rowe Price’s fund range might not be flashy, but this is deliberate. It works for clients as far part as the USA and China. Todd Ruppert, CEO (pictured), speaks to Fiona Rintoul

todd_ruppert.jpg “These are nice dependable funds where management changes are rare and strategy changes happen almost never,” runs a Morningstar assessment of T. Rowe Price's funds quoted by the firm in its corporate literature. It says a lot about T. Rowe Price that it takes this as a compliment.

Founded in 1937 by Thomas Rowe Price, Jr, the Baltimore-based asset manager T. Rowe Price prides itself on its sobriety, its independence and its long-term view. T. Rowe Price is not a firm that wants to be known for being crazy or cutting edge.

“Nothing flashy or sexy,” says  Todd Ruppert, president and CEO of T. Rowe Price Global Investment Services, describing the firm's new product plans. “It's all down-the- middle stuff where we already have pretty good expertise to begin with, and leveraging from there.”

The firm's catchphrase is “invest with confidence” and it describes itself is as “a focused, stable and successful organization”. By pursuing this policy, it has built up a business over the last 70 years which by 31 March 2008 had a market capitalisation of $14.9bn and assets under management of $379bn, making it the third largest pure play asset manager globally.

T. Rowe Price came over to Europe in 2001 when it opened an office in London. Since then it has opened an office in Copenhagen, and built up a European business that spans the Nordic countries, the Baltic states, the Netherlands, Switzerland and the UK.

T. Rowe Price likes to stick to its knitting, which is not to say it's boring. Last year, it was one of the first firms to launch a fund investing in Africa. But it's not a fan of innovation for innovation's sake – or of expanding into new areas because they are the current fad.

“You will not see T. Rowe Price getting into the private equity business or getting into the structured product business,” says Ruppert. “We're going to be doing our bread-and-butter, blocking-and-tackling, fundamental research, long-only management.”

This is a philosophy that has paid off particularly well in the current challenging climate. In the first quarter of this year, the firm had record revenues, record profitability and record flows. "I think some of that is due to the fact that in the past and during the recent credit crunch, we have avoided some of the problems,” says Ruppert. “That has caused the volatility of flows to us to dissipate and has led clients to have a high degree of confidence that we are prudent in what we've done.”

Prudence has also been a watchword of the firm's European expansion. T. Rowe Price's aim has been more to grow in a methodical and sustainable fashion over time rather than to conquer Europe in five months.

“Our focus was to look for long-term optimisation not short-term maximisation in terms of how we deal with clients and how we've developed,” says Ruppert. “There are certain markets that we're not yet in and we'll take our time to determine what niches we want to go after.”

T. Rowe Price is applying a similarly sober approach to its expansion in other areas of the globe. Currently, it's in Asia, Europe, the Middle East and the US. Last year, it became the first US asset manager to be appointed as a sub-adviser by a Chinese mutual company, an appointment that was heralded as giving a pivotal role in China's mutual fund industry. However, the firm isn't rushing into China – or anywhere else for that matter – with all guns blazing.

“Geographically we'll continue to grow and we feel very comfortable about the opportunities for us internationally going forward,” says Ruppert. “We'll continue to evaluate all of these markets and  distribution channels within them, and we'll go into those where we think there's alignment between what we do, what our business practices are and what our fee disciplines are. If they match up with the marketplace and we see demand we'll enter those markets.”

In Europe, where distribution has traditionally been a formidable stumbling block for asset managers from overseas, T. Rowe Price has built up its business by focusing on third-party distribution and institutional business.

“In the US we're in four businesses – retail, direct, 401k and pure institutional,” says Ruppert. “Here in Europe we are not focused on retail direct. Our focus is purely on third-party distribution and institutional with the vast amount of business being institutional and then very selectively working with third-party distributors.”

This distribution mix has helped to insulate T. Rowe Price from flow volatility in the current crisis. The firm works with high net worth investors through intermediaries, with multi-managers and with institutional investors.

“That has protected us,” says Ruppert. “If you look at the players that have had huge volatility in flows they've typically been the ones that have been more focused on retail distribution.”

T. Rowe Price may have found its own way through the maze that is fund distribution in Europe. But Ruppert is nonetheless critical of the fragmentation that is the root cause of the distribution difficulties that many asset managers experience in Europe.

“With fragmentation, with the lack of a unified marketplace, you have the ability for more incumbent local country players to hide behind some of their distribution in terms of the products that they're selling,” he says. “In some cases, you might have products that are sold that are perhaps not of the highest quality.”

Fragmentation also causes issues with pricing, a subject particularly close the heart of T. Rowe Price, which prides itself on its low expense ratios.

“The cost structure of the products might be higher than what one would get in a less fragmented marketplace,” says Ruppert. “At the end of the day, fragmentation is always going to be to the detriment of the end client.”

Despite these difficulties, the firm is committed to the European market. Indeed, it is a feature of its corporate structure that its international activities are fully integrated with the mother ship rather than being an experimental offshoot.

“One thing that we've done that I think is different from other firms is that everything is very closely integrated,” says Ruppert. “All of our global activities here in Europe as well as out in Australia and Asia and in the US are all, from an institutional standpoint, under my responsibility. By doing that we're getting best thinking, best practice in terms of client service, sales, consultant relationships, other distribution activities on a global basis.”

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