T. Rowe Price Group Inc.'s change in leadership will not mean a shift in strategy away from emphasizing organic growth over acquisitions, its top executive said.
Last year, T. Rowe's earnings grew 20% on a 20% revenue increase as assets under management rose 24.2% to $334.7 billion. James Kennedy, who became chief executive officer and president of the Baltimore fund company in January, said it would maintain its "controlled growth" strategy.
"We believe in evolution here, not in making a major transaction to make revolutionary changes," he said in an interview last week. "I don't think that [making a big deal] ever really works."
Mr. Kennedy, who has worked at the company for 28 years, said he expects T. Rowe will increase its assets under management 12% annually for the next five to seven years.
International expansion, new products, and possibly some smaller deals will contribute to that growth, he said.
T. Rowe added $12.18 billion of assets to its long-term funds last year, according to Financial Research Corp. in Boston. Larger rivals — like American Funds, with $74 billion of growth; Vanguard Group, $41.4 billion; and Fidelity Investments, $17 billion — added more, but off much larger asset bases.
Geoffrey Bobroff, the president of Bobroff Consulting in East Greenwich, R.I., said T. Rowe's model of slow, compounding growth is "a solid strategy for them organizationally and works with their systematic investment style."
"They are not attracting volatile assets, and that fits with how they run their funds," he said.
Mr. Kennedy, 53, said T. Rowe wants to hire people that are focused on clients. "Our driving motivation is not to just grow our assets under management," he said. "We have to grow [the asset base] in order to create opportunities for people internally, not to overwhelm people."
T. Rowe has a strategy of "steady growth" rather than overwhelming growth, he said. Analysts have recently become more optimistic about the company's 2007 outlook and have raised their ratings. They say they expect T. Rowe's earnings to rise 20% this year and 15% next year, but Mr. Kennedy said he remains cautious.
"People have to rein in their expectations about market conditions," Mr. Kennedy said. "There have been some nice moves in [the] market. We are just preparing ourselves and our investors for more moderate returns. We don't want ourselves or our investors driven by short-term moves in the marketplace."
T. Rowe's growth last year came from favorable market conditions globally and from a steady inflow of new assets, Mr. Kennedy said. Institutional clients have started to give T. Rowe more retirement assets because of an interest in the company's target-date funds, which it began to introduce in September 2002.
The 12 target-date portfolios, which are branded as the T. Rowe Price Retirement funds, are being used as the product into which investors are automatically enrolled when they join an employer-sponsored defined contribution plan. The funds doubled in size last year, to $17.3 billion of assets under management.
"A lot of people on the street don't know how to invest," Mr. Kennedy said. "They have a job to keep, and they don't have time to educate themselves on how to invest. Target-date funds provide them with a solution, so, regardless of whether markets succeed or fail, they have a solution that can succeed over time."
"This is a much better default option than money market funds," he added.
T. Rowe will keep introducing products, Mr. Kennedy said. Specifically, it is considering international and fixed-income products.
The company also continues to consider small deals, he said, especially if they can help develop T. Rowe's fixed-income capabilities, but will probably not be a major buyer or seller as the market continues to consolidate.
"T. Rowe is not interested in any transformational transactions or any large integrations," Mr. Bobroff said. "They have been involved in looking at a few under-$2 billion deals, and that is really more their style. They are just not interested in a fund acquisition a la Putnam to double their size because of the integration challenges."
Rather than spend on major deals, T. Rowe's board announced this month, it has approved a 15 million-share increase in its stock buyback authorization. The company now has authorized repurchasing 18.8 million shares.
"We have looked at major acquisition possibilities but never anything seriously," Mr. Kennedy said. "We take a look, but I just don't see the wisdom in pursuing any of them."
T. Rowe also wants to continue developing its international capabilities.
It has added analysts and traders in the past three years in markets including Northern Europe, Australia, Japan, China, and India. "If you have intelligence in China, India, and Europe, you can invest more intelligently in the" United States, Mr. Kennedy said.
He said T. Rowe wants to expand its assets under management, its products, and its client base but not necessarily in that order.
"Our drive is to be the best investment management company we can be for our clients," he said. "If we do that, we will have plenty of growth and plenty of opportunities for profit."
