Despite a strong fourth quarter that saw assets under management and investment fees surge, T. Rowe Price Group Inc. still plans to follow a more conservative strategy than some its peers.
It wants to pursue moderate international growth and has no plans to follow the pack into actively managed exchange-traded funds, James A.C. Kennedy, the money manager’s chief executive officer and president, said in an interview Thursday. “I’d say we don’t have anything phenomenal planned,” he said. “Don’t expect dramatic moves from us. We want to be continuous and not move with fits and starts.”
T. Rowe’s assets under management at T. Rowe [TROW] rose 42% to $391.3 billion last year and rose 6.9% during the fourth quarter. The Baltimore-based company reported Thursday that it had net cash inflows of $7.3 billion last year, compared with net outflows of $2.4 billion a year earlier.
Kennedy said he expects more modest growth this year.
“The market took a lot of client assets away through the downturn and when the market came back we had a phenomenal jump in assets under management, but when you look closer, a lot of that is attributable to market appreciation,” he said. “We can’t expect the market to go up that much in 2010.”
Analysts said that T. Rowe was hit hard by difficult economic conditions before assets under management revived last year. T. Rowe has had $39.8 billion of inflows in the past two years, Kennedy said. “I think this illustrates that through the worst market conditions of our lives, clients have trusted us,” he said. The company is always considering new products, he said, but “we don’t go with the flavor of the month. We always want to take a long-term perspective.” That longer-term perspective has left T. Rowe as one of the few large fund providers that is not offering exchange-traded funds. Kennedy said ETFs are still “primarily index products and that is not what we do.”
Even so, the company filed an application with the Securities and Exchange Commission for permission to introduce an actively managed ETF. But Kennedy said, “at this point we have to be careful about what we do offer.”
He said that a T. Rowe actively managed ETF is not imminent because transparency rules require a company to detail all trading, and “that does not make sense for us.”
“The trading and intellectual power behind our funds belongs to our clients and if we expose those everyday we’d be giving it away to the marketplace,” Kennedy said. “Unless we can do a nontransparent ETF, we cannot proceed with active ETF.”
T. Rowe is continually adding people and capabilities, Kennedy said. This month, it agreed to buy a 26% stake in UTI Asset Management Co., India's fourth-largest asset manager. “UTI is a natural extension of our interest for more global capabilities,” he said. “They have a strong team in Mumbai. By working with their team, we think we have an opportunity to learn about Indian markets and we can help them somewhat with product development.”
T. Rowe has investment offices in London, Buenos Aires, Hong Kong, Singapore and Tokyo. Kennedy said that the majority of the financial professional it hired in the past five years were for operations outside of the United States. “We have the global footprint. As we expand, we want to expand globally,” he said.
There are more opportunities for international growth, but T. Rowe wants to proceed cautiously, Kennedy said.
Currently, 12% of its assets under management are held outside of the United States. Considering the fact that some larger asset managers, like Bank of New York Mellon Corp. [BK] and State Street Corp. [STT], are talking about reaching 50% in the next few years, analysts said that T. Rowe has a lot of ground to make up if it wants to be an international player.
On Thursday, T. Rowe reported a profit of $152.5 million, or 57 cents a share, up from $24.3 million, or 9 cents, a year earlier. Revenue increased 31% to $543 million as investment-advisory revenue rose 40%. Analysts polled by ThomsonReuters [TRI] expected earnings of 55 cents on revenue of $547 million.