BALTIMORE - Two pension plan terminations dropped T. Rowe Price Associates Inc. to the bottom of the mutual fund heap, with the third worst net redemption rate among mutual fund companies last year.
The lion's share of the $2.5 billion net flow out of the firm's long-term mutual funds resulted from the restructuring of the $5 billion California Savings Plus Plan, Sacramento, which dropped three of four T. Rowe Price funds from its investment roster, and the merger of a major corporate defined contribution plan client with a sister company's plan managed by another provider. Steve Norwitz, a T. Rowe Price spokesman, would not identify the corporate client.
Among all mutual fund companies, only two posted worse net flows for long-term mutual funds last year, according to Financial Research Corp. data: Merrill Lynch & Co., with negative $6.6 billion; and Franklin Resources Inc., $6.8 billion.
Also, T. Rowe withdrew $483 million of corporate cash from its own money market funds to help fund the buyout last year of Robert Fleming Holdings, London, its partner in their 50%-50% joint venture, Rowe Price-Fleming International Inc., Baltimore.
For T. Rowe Price, the client terminations, coupled with $5.5 billion in net market depreciation in its mutual funds, dropped total assets under management to $166.7 billion as of Dec. 31, compared with $179.6 billion a year earlier, according to the company's earnings statement for the fourth quarter.
T. Rowe's downturn is nothing to worry about "if it's a one-time occurrence," said Avi Nachmany, managing director at mutual fund consultant Strategic Insight Inc., New York. "T. Rowe Price is the kind of company that doesn't grow or shrink rapidly in response to the markets. Their pattern over the years has been to expand when the wind is behind them and to hold their own when the wind is against them. It's not surprising that a value-oriented manager like T. Rowe Price wouldn't show dramatic growth in a market that's been against their style until last year."
But 2000 wasn't all bad for T. Rowe. Some investment strategies did attract positive net cash flow. Mr. Norwitz pointed to the $4.5 billion in new net cash that flowed into four growth equity mutual funds.
This year, net outflows of nearly $4 billion from its two largest value funds - Equity Income and Growth & Income - are likely to be reversed if the market continues to favor the company's more value-oriented investment style, Mr. Norwitz said.
And rather than dwell on the past, T. Rowe Price has a plan for global expansion.
With the purchase of the team from Rowe Price-Fleming, T. Rowe Price was freed from a restriction in its deal with Robert Fleming Holdings that prohibited it from selling anything but U.S. strategies outside the United States, said Todd Ruppert, president of new marketing unit T. Rowe Price Global Investment Services Ltd., London. The unit markets global strategies to non-U.S. clients using domestic management from T. Rowe Price Associates and non-U.S. strategies managed by T. Rowe Price International, London.
T. Rowe Price wasted no time after the deal closed Aug. 9 in incorporating the international investment management team and establishing a seamless global platform. T. Rowe Price Global is aggressively pursuing the European institutional market. Tom Pedersen was hired to manage institutional marketing in Europe and the Mideast from London and Flemming Madsen was hired for sales to Scandinavian clients from Copenhagen.
In January, its first month of concerted marketing to non-U.S. clients, T. Rowe Price was hired to manage more than $500 million in several asset classes by institutional investors domiciled in the United Kingdom, Finland, Sweden, Norway and Liechtenstein. Mr. Ruppert said he could not identify the new clients.
The focus now is on the institutional market, but Mr. Ruppert said a new family of Liechtenstein-based mutual funds is planned for use by non-U.S. defined contribution plans and retail investors that will span the spectrum of asset classes.
European fund consultant Fernand Schoppig, president of F.S. Associates, West Orange, N.J., noted that the Fleming name "has tremendously good branding, especially in the U.K. It is among the best-known of the U.K. managers. T. Rowe will probably be marketing the Fleming reputation in a guarded, disguised way. They won't want to be unfair to J.P. Morgan Fleming, of course. But since the T. Rowe Price name is not very well-known, they would be smart to do this."