T. Rowe Price plans to continue expanding its distribution and buying the assets of small, struggling mutual fund units after nearly doubling its assets under management in the past eight years, a top executive says.
Edward C. Bernard, the chairman of T. Rowe Price Investment Services, said the Baltimore fund company wants to continue to add fund families with $200 million to $5 billion or $6 billion of assets, including those owned by some regional banks.
Mr. Bernard said he knows that there is stiff competition from companies like Federated Investors Inc. and Pioneer Investment Management Inc., which bought AmSouth’s fund unit in July 2005, but that many opportunities will crop up as more banks and financial service companies look to quit the business.
For example, he said, Washington Mutual Inc.’s fund unit is up for sale. But the Seattle thrift’s fund unit has $16.4 billion under management. Alan Gulick, a spokesman for Washington Mutual, said it does not comment on rumors or speculation.
“There are companies that got into investment management for whatever reason — maybe they thought this could be a new profit center — and now, in the wake of the fund scandals, it is just no longer that attractive to be in the mutual fund business,” he said. “We have made it well-known with banks, especially the regional banks, that we’d like to acquire and merge their assets into our funds.”
The company has made two purchases in the past year. In June, it bought a family of mutual funds, as well as assets in separately managed accounts, totaling $700 million under management, from Caterpillar Inc. And last summer, it bought a family of index funds from TD Waterhouse that had $400 million under management.
Analysts said some companies, including some banks, still want to divest their mutual fund operations because of rising compliance costs. In the past year, even larger regional banks, like AmSouth Bancorp in Birmingham, Ala., have divested their proprietary funds.
“Divestitures will continue to occur because growth has become so anemic in the mutual fund industry,” said Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I. “The top of the industry seems OK, but it is just not widespread. People have to make hard decisions about which business lines are important and which are better off being sold.”
Federated in Pittsburgh, which has been one of the most prolific buyers of bank fund families in recent years, had $213.4 billion of assets under management at Dec. 31. It added $774 million of assets through purchases of fund units in 2004 and 2005 from FirstMerit Corp. in Akron, Ohio; Riggs National Corp. in Washington; and the former Banknorth Group in Portland, Maine. It has closed nine deals for equity and bond assets since 2000.
“The opportunities are out there, and we believe more opportunities will be available over time,” Mr. Bernard said. “We are going to be patient.”
Mr. Bobroff said many institutions, including banks, have succeeded at money management but that few had been good at gathering assets. Companies need “at least a couple billion dollars” in order to have a profitable fund arm, he said. “The economics just aren’t there for small fund arms,” he said. “A lot of firms are engaging in activities to liquidate these assets.”
Mr. Bernard said T. Rowe will be able to expand its bank distribution by acquiring banks’ fund units. Such deals mean “developing ongoing relationships with banks and their clients because the clients’ assets remain in those funds,” he said.
T. Rowe Price has nearly doubled its assets under management, from $150 billion in November 1998 to $292.9 billion at March 31. Financial Research Corp., a Boston research company, said T. Rowe Price has had $19.65 billion of inflows since the beginning of last year, while scandal-plagued competitors Janus and Putnam Investments had $6.6 billion and $25.9 billion of outflows, respectively.
T. Rowe has had strong growth in the past five years, Mr. Bernard said, because it maintained a long-term investment strategy even during the market’s upswing in the late 1990s.
“There was a period during the bubble where we underperformed compared to the relatively high-flying, high-octane growth funds,” he said. “Our flows were lagging, and our growth suffered, but we have since come through the bear market with strong growth because we stuck to our fundamental approach to investing.”
The company’s growth during the bear market early this decade let it invest in and develop its institutional and third-party distribution, he said. In 2000, the company began distributing its products and services in Europe, Japan, and Australia.
Last week, T. Rowe announced plans to double the size of its facility in Colorado Springs, with the construction of a second building on its campus. Preliminary work on the $55 million, three-story, 145,000-square-foot building is to begin this month, and construction is expected to be completed by yearend.
T. Rowe, which employs more than 500 people in Colorado Springs, has similar operations centers in Owings Mills, Md., and Tampa. Mr. Bernard said the size of the company’s staff in Colorado Springs would not double overnight but that a “disproportionate” amount of hiring would be done there for a couple of years because of the new space.
He said he is confident that many opportunities exist for the company to expand distribution, specifically through banks that are adopting an open architecture array of nonproprietary products.
“We have come out on the other side of the bear market stronger than when we entered,” he said. “That is a stark contrast to some fund companies that saw assets trickle out over that same time period. Our distribution efforts have been strengthened across the board, and we are looking to grow from here.”
