April 25, 2012
This year T. Rowe Price celebrates its 75th anniversary. Thomas Rowe Price, Jr., an early proponent of growth stock investing, founded the company and devoted its first decade to learning how to be an effective and successful asset manager. In a recent interview, CEO and President James Kennedy discusses how the firm's drive to provide the best possible service has fueled its growth into becoming an industry leader.
Kennedy says that a simple formula drives all the decisions the firm makes: clients come first, employees second, and shareholders third. Under his leadership, the firm strives to follow the priorities set out by its founder in the Depression era. First among those is hiring and retaining outstanding people who will put the client first and encouraging an environment of openness and debate where diverse viewpoints are valued.
The firm's independence is also a critical part of its success, according to Kennedy. He argues that while a merger with another company or a buyout by a conglomerate could bring in more money to manage, it wouldn't be right for the firm's current clients—especially if that company did not have the same values or culture. "Our priority is to service our clients. We don't want someone else telling us that our priorities [should be] different," he says.
The benefits of the firm's collaborative culture become most clear in times of financial or market crises. For example, Kennedy points to the efforts of Susan Troll, an analyst for the firm, prior to the housing market collapse. Troll grew troubled by fundamentals in the subprime mortgage market and started pushing her colleagues to pay attention to what she was seeing—well before the market actually began to collapse. This approach—portfolio managers and analysts helping each other but also questioning each other—pays off for clients and shareholders.
The firm also has maintained a commitment to a prudent balance sheet and currently has no debt. A strong balance sheet also has a definable benefit for shareholders and clients. Kennedy doesn't mind hearing from outsiders that the firm is conservative: "We will remain really conservative when it comes to our balance sheet," he says, "so that we can stay focused on the clients."
Long-term perspective has a double meaning for T. Rowe Price. As the firm's clients know, its mutual funds invest with the longer-term time horizon in mind. Its equity funds tend to have lower turnover than their competitors, meaning that portfolio managers hold onto stocks longer and get to know those companies better.
It's also true that, when it comes to running the firm itself, Kennedy and his management team consider decisions in the context of how they will play out in the years ahead. One example of this long-term focus is that if too much cash is coming into a mutual fund, the firm will temporarily close it to new investments to protect the performance potential of the fund for existing shareholders.
In today's media-driven world, chasing short-term trends has become common and even expected. But it doesn't always help investors meet their needs—like retirement or college—that are years in the future. Long-term thinking is T. Rowe Price's secret ingredient. As Kennedy explains: "When we perform for clients over time, those clients stay with us."