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Wednesday, December 01, 2004

Steady as She Goes

Reported by Theresa Sim

Number one isn't always the best place to be; for some, being eleventh is just fine. That was the message conveyed by James Riepe, vice chairman of the board of directors of T. Rowe Price Group, at a press briefing on Tuesday.

The fund firm has no desire to be a Fidelity, and with $212 billion in assets under management, believes it's big enough to compete, but not too big.

That attitude is behind why T. Rowe is not likely looking far from home to keep up its growth. Organic growth, not acquisitions, hedge funds and exchange-traded funds, will likely be the engine behind T.Rowe Price's continued success. The fund firm pulled in $169 billion in fund flows for the first ten months of 2004, enough to keep T. Rowe's hands full, said Riepe.

That T. Rowe is not looking to open a hedge fund comes as no surprise for those familiar with the straight-laced fund firm. Riepe said in remarks after presentations that he could not see how the fund firm could run mutual funds and hedge funds under the same roof, given the discrepancy in fees.

And because T. Rowe prefers a wholly integrated culture, the company is loathe to acquire firms and simply "bolt" them on, unlike, say Legg Mason, Riepe said in comments after the presentations.

Don't hold your breath waiting for T. Rowe to roll out exchange-traded funds anytime in the near future, either. But with that said, Riepe did not rule the products out forever. ETFs are "something that we've looked into and continue to look into," said Riepe. But as long as the products attract active, short-term traders, it is "highly unlikely" that T. Rowe will be launching an ETF soon, said Riepe.

ETFs "don't seem to be the right for us now," said Riepe. He then said, somewhat cryptically, that T. Rowe is the 17th largest index manager.

All of this does not mean that T. Rowe will just sit on its laurels. The fund firm sees additional opportunities in demographic and regulatory shifts occurring in the U.S. and in Europe, said Riepe. But it is not clear that these changes will result in a windfall for T. Rowe Price or for money managers as a whole.

In the U.S., obstacles to Social Security reform, including the administrative burden of many accounts with small balances, cloud the picture, said Riepe during lunch. Riepe suggested that Social Security reform could take many forms, one of which is a situation where the government may administer accounts.

T. Rowe will also increase its efforts in "reaching a diversified group of investors." The fund firm's distribution channel is well diversified, with 28 percent of assets under management coming from the direct channel and 25 percent from defined contribution in the U.S. Another 47 percent of assets come from the institutional direct and third party channels; most of these assets are international.

The fund firm is also counting on keeping its costs low and performance up, said Riepe. "[Performance is] about as good as it gets - the question is can we keep it this way?" said Riepe in a presentation. 

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