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T. Rowe Price Associates, Inc.

T. Rowe Price Associates, Inc.

100 East Pratt Street
Baltimore, Maryland 21202
U.S.A.
Telephone: (410) 345-2000
Fax: (410) 345-2394
Web site: http://www.troweprice.com

Public Company
Incorporated:
1950 as T. Rowe Price & Associates
Employees: 3,500
Sales: $1.04 billion (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: TROW
NAIC: 52393 Investment Advice; 523991 Trust, Fiduciary, and Custody Activities; 52312 Securities Brokerage; 52392 Portfolio Management (pt)

T. Rowe Price Associates, Inc. is a Baltimore-based investment management firm that provides a broad range of mutual funds and other investment services, including retirement planning, discount brokerage, trust, and international investment programs. In addition to serving as investment adviser to the T. Rowe Price family of mutual funds (Price Funds), the firm offers a full spectrum of investment advice on equity, bond, and money market securities. The companys diverse client base ranges from individual investors to institutions.

Providing Financial Advice and Services: 1930s-40s

Thomas Rowe Price, Jr., set the groundwork for his own investment counsel firm in the mid-1930s. Mr. Prices original goal was to provide stock investors with a new and virtually unavailable service, which he called investment counseling. Prices idea was to recommend investment picks and strategies by applying sound research, basing his fees on expertise, not on standard commission income. With that goal in mind, the young entrepreneur founded Price Associates, a financial counseling business, in 1937; ten years later the partnership was renamed T. Rowe Price & Associates.

If Prices idea to market financial advice was novel, then the growth stock theory of investing that he championed was unheard of. Price was not satisfied with the common treatment of stocks as cyclical investments, which rise and fall in value according to prevalent economic trends and should be bought or sold at the right time to make a profit. Instead, he believed that investor interests were best served by a long-term view of the investment processone by which a financial advisor helped clients identify stocks in well-managed companies that would grow over a long period of time. Rather than buying and selling stocks for speculative profits, Price emphasized the value of investing in growing businesses and sticking with them through thick and thin. Price believed that true growth companiesidentified with careful researchwould enjoy earnings growth that would augment both market value and growth of dividend income over the long haul.

Prices early experience and some of his distinct personality traits helped prepare him for the rigors of starting his own firmespecially one that would initially run against the grain of generally accepted investment practices. After studying for a career as an industrial chemist and landing two short-lived jobs in that field, he decided to turn his energies toward his real passion: investing. Brief stints at a brokerage house and a small bond house in the early 1920s provided him with enough experience to land a more permanent position in finance. In 1925, he became a stockbroker at the Baltimore investment firm Mackubin, Goodrich & Co. (later known as Mackubin, Legg & Co. and ultimately as Legg, Mason & Co. by the late 1980s). There, he climbed the corporate ladder, becoming head of the bond department and, by 1930, head of the investment management department.

By 1934, Price had convinced senior management at Mackubin, Goodrich to let him start up an investment management department at the firm. Several factors, however, worked against Price. First, his growth-stock philosophy met with unusual resistance from many principals at the firm. In addition, the residual effect of the Great Depression still cast somber light on investing in general. Finally, Price was reputed as iron-willed and often difficult to work with, adding some disfavor to his already unprofitable department. By 1937, the principals of Mackubin, Goodrich decided to phase out the investment management program altogether, prompting Price to set out on his own. Several of Prices closest colleagues joined his entrepreneurial venture. Marie Walper, Isabella Craig, Walter Kidd, and Charles Schaeffer comprised the original Associates of the newly established partnership, T. Rowe Price & Associates.

Prices fledgling investment management firm struggled through its early years. Even in the best of financial markets, such a business depended on the time-consuming and uncertain process of winning client confidence. From the late 1930s right through the 1950s, moreover, financial markets were unfavorable. For several years, T. Rowe Price & Associates boasted few individual and no institutional clients. The partners accepted irregular salaries and exchanged actual pay for shares in the new enterprise. Fortunately, Prices wife had the financial resources to bankroll many of the firms early losses. Even though Prices initial objectivethat of building a company with 25 employees and $60 million in assets under managementwas reasonable, it remained dubious for nearly the first decade in operation.

By the late 1940s, however, T. Rowe Prices growth-style of investing had started to chalk up a few of the successes that would give the firm forward momentum. The key was careful research, on which T. Rowe Price placed tremendous importance. For example, the firm would only invest in stock of a company whose president had been carefully interviewed by a T. Rowe Price analyst. The result was several winning stock picks between 1938 and 1949: Sharp & Dohme, the pharmaceutical company, jumped 468 percent over that period; Abbott Laboratories (334 percent); USF&G Corporation, the insurance provider (198 percent); Addressograph-Multigraph (140 percent). In the late 1930s and early 1940s, the companys investments in companies such as Minnesota Mining and Manufacturing (later 3M Corp.) and IBM Corp. also proved invaluable.

Despite the tremendous odds facing T. Rowe Price before the end of World War II, the company managed to expand at a reasonable rate. According to records kept by Walter Kidd, director of research, total assets under management increased from $2.3 million in 1938 to $28 million in 1945 and $42 million in 1949. That year marked an important milestone: 12 years after the companys inception, T. Rowe Price finally broke into the black.

Steady Growth and Focus on Mutual Funds in the 1950s and 1960s

The 1950s marked an overall transition into a faster rate of growth and change for the company. In 1950, the firm converted from a three-person partnership to a corporation. Also that year, T. Rowe Price contracted its first institutional client, American Cyanamid, which remained a major account into the 1990s. In 1950, Price also introduced the Growth Stock Fund, the firms first mutual fund. At that time, mutual funds were still not in vogue. Price regarded the new fund merely as a service to clients who wanted to capitalize on the Uniform Gift to Minors Act. Recently passed by Congress, the act permitted parents to manage trusts for their children and pay taxes at a relatively negligible rate. Moreover, the fund charged no load, or sales charge, adding extra appeal to its subscribers. Although the Growth Stock Fund began as a low-profile product, it ultimately showcased the success of T. Rowe Prices growth-stock strategy in action; by 1960, Weisenbergers fund-rating service rated it as the countrys best performer for the ten-year period.

The success of the Growth Stock Fund through the 1950s reflected an improved investment environment. With the exception of some economic fallout from the Korean Warsuch as a new Excess Profits Taxthe 1950s was a decade of strong economic growth and low inflation. Growth stocks made a comeback, and Mr. Price stood in the limelight, claiming center stage through a series of articles he contributed to Forbes magazine on a regular basis. Meanwhile, a vigorous market for pension funds had taken shape, and T. Rowe Price jumped on the bandwagon. In all, economic recovery and a turnaround in growth stocks set the groundwork for an upcoming decade of new institutional clients and a broader range of mutual fund offerings, including pension funds.

One such fund was the New Horizons Fund, which Price introduced in 1960 in order to capitalize on the growth potential of so-called emerging growth companies, or small, rapidly growing companies in the early stage of corporate development. Some of the first stocks in New Horizon Funds portfolio of investments included Texas Instruments, Hertz, and Haloid-Xerox, the precursor of Xerox Corp. To manage New Horizons (and a projected progeny of other mutual funds to follow) Price founded Rowe Price Management, which he headed while remaining at the helm of the parent company.

The New Horizons Fund, like T. Rowe Price itself, suffered difficult beginnings. In fact, the fund not only lagged in the 1961 bull market but also when the market turned bearish in 1962: New Horizons dropped by 29 percent, versus a decline of nine percent for the Standard and Poors (S&P) 500a common index of leading company performance. Not surprisingly, critics coined derogatory variations on the funds forward-looking name: New Horizontal, Blue Horizons, and Lost Horizons.

Company Perspectives:

The objective of our firm is to help individuals achieve their financial goals. Toward this end, we offer investors comprehensive financial planning information and the tools to make confident investment decisions.

By 1965, yet another market correction worked in favor of small growth companies, and the New Horizons Fund lived up to its real name. The funds total return leaped 44 percent in one year, compared to 12 percent for the S&P 500. Such success attracted new investors, and both New Horizons and T. Rowe Price snowballed; by the end of 1965, the firm had topped the $1 billion mark. In fact, emerging growth stocks grew so heated that Price decided to temporarily step back. Price thought shareholders might be ill-served if the New Horizons Fund continued to invest new assets in an overvalued growth. From October 1967 to June 1970 and from March 1972 to September 1974, Price closed the fund to new investors. As John Train suggested in The Money Masters, Price was clearly not driven by short-term greed but had the best interest of his shareholders in mind through these maneuvers. Meanwhile, the Growth Stock Fund also rode the wave and would continue to do so into the 1970s. From 1966 through 1972, shares of that fund appreciated 80 percent, assuming reinvestment of dividends and capital gains.

As T. Rowe Price grew in the 1960s, Mr. Prices relationship with the firm loosened and a new generation of leaders began to move toward the helm. Employing roughly 200 personnel and offering new and diverse products and services required a more formal administrative structure. Prices various colleagues gradually moved away from their multiple-chore posts and into more specialized cadres. Mr. Schaeffer gravitated toward public relations and Mr. Kidd became the equivalent of chief operations officer, while other associates such as E. Kirdbride Miller and John Ramsay became senior investment counselors. In 1968, Price relinquished presidency of the Growth Stock Fund, and he resigned as president of New Horizons Fund the following year. In addition, in 1968, he sold the remaining shares of Rowe Price Management (RPM) to T. Rowe Price Associates, which held a controlling interest in RPM since 1966.

Along with his responsibilities at the company, Prices overall economic outlook began to change. He foresaw the onset of a bleak new era in which the dollar would decline, inflation would rage, natural resources would diminish, and growth stocks would suffer. In near antipathy to his previous growth theories, he told Forbes in 1969 that: People will not want paper dollars. They will want tangible property: land, natural resources, timber, minerals in the ground. They will want investments in companies that can increase their profits faster than the decline in the value of the dollar.

To accommodate such a shift, Price founded the New Era Fund in 1969. The funds portfolio of investments emphasized natural resource companies (gold, silver, uranium, copper, and forest products), while mixing in some technology and a measure of more traditional growth stocks. As was often the case with Prices initiatives, the New Era Fund performed badly at first and eventually proved itself. In the early 1970s, growth stocks held up well, and the New Era Fund lost ground. When the oil embargo aggravated economic recession until the end of 1974, the New Era Fund and its growth-driven cousins all suffered comparable pains. By the late 1970s and early 1980s, however, rampant inflation finally paid off for Prices Anti-Inflation Fund, as he had originally intended to call the New Era Fund. Between 1978 and 1981with inflation approaching the 20 percent mark and the price of gold topping $800 an ounceNew Era jumped almost 130 percent. A key lesson that the firm derived from New Eras performance was that its traditional growth strategy could be effectively combined with other strategies to best accommodate economic change.

Diversification in the 1970s and 1980s

Starting in the 1970sand to a much greater degree in the 1980s and onwardT. Rowe Price Associates began diversifying its strategies and its products. Indeed, Prices retirement in 1971 marked just one of many momentous changes. In 1971, George J. Collins was hired to start a fixed-income division. By the end of 1973, Collins had created New Income Fund, a balanced, fixed-income mutual fund. Though the new bond fund was not an immediate eye-opener, it soared when interest rates increased dramatically in the latter half of the decade; by 1977, New Income ranked as the third largest corporate bond fund in the United States.

When Congress passed legislation permitting tax-free municipal bond funds, Collins launched the Tax-Free Income Fund in 1976. By 1978, that fund boasted $215 million in assets and ranked third among more than 40 rivals. By the early 1990s, T. Rowe Prices lineup of tax-free mutual funds offered nearly every maturity category, as well as an insured fund for investors seeking extra credit protection and a high-yield fund for the more risk-tolerant.

A combination of sociopolitical and technological advances in the late 1970s and early 1980s greatly facilitated international trade and investing, virtually turning the financial world into a global marketplace. In 1979, T. Rowe Prices joint venture with Robert Fleming Holdings Ltd., a London-based merchant bank, rode the wave. Meanwhile, the growing popularity of mutual funds throughout the 1980s gave individual investors the resources to invest globallythrough fund managers with the ability to conduct international research, probe credit and currency risk, and employ sophisticated hedging techniques. By 1994, Rowe Price-Fleming International, Inc. had become one of the largest managers of overseas assets in the United States, with approximately $17 billion under management.

Key Dates:

1937:
Thomas Rowe Price, Jr., founds Price Associates.
1947:
Price Associates becomes T. Rowe Price & Associates.
1950:
Firm converts from a partnership to a corporation and introduces its first mutual fund.
1961:
Rowe Price Management, designed to manage new mutual funds, is founded.
1971:
Thomas Rowe Price retires; firm launches a fixed-income division.
1979:
Firm expands internationally through the formation of a joint venture with London-based Robert Fleming Holdings Ltd.
1986:
Firm goes public.
1999:
Firm establishes joint venture with Sumitomo Bank Ltd. and Daiwa Securities Co. to serve Japanese investors.

In addition to new vigor in the international investment arena, numerous other influences prompted T. Rowe Price to diversify its financial services and products. Entering the 1980s, the rapidly growing firm had struck a delicate balance between its past growth tradition and a wide slew of new investment alternatives. Indeed, in 1984the year after Mr. Price passed awayGeorge J. Collins stepped up as president. The man who had brought bond investing to the exclusively growth-stock-driven firm 13 years earlier was now in command. Responding to greater competition in the financial services fieldlargely spurred by deregulation in the early 1980sthe company launched numerous new types of stock and bond funds.

Special emphasis was placed on retirement funds for both large institutional clients and small retail investors. After Congress created tax incentives for individuals to establish retirement accounts, T. Rowe Price correctly anticipated a decline in defined benefit retirement programspension plans in which a retired worker was assured a fixed income. Instead, the firm began developing funds geared toward 401(k) plans, funds sponsored by an employer in which workers can invest money tax-free until it is withdrawn after age 59. Although T. Rowe Price barely placed among the top ten mutual fund companies in assets by October 1993, it stood third in the 401(k) market, according to Leslie Wayne in a 1993 New York Times article.

In an effort to diversify its services, T. Rowe Price also made available innovative limited partnerships starting in the early 1980s. In 1983, the Threshold Limited Partnership was formed to help finance select private companies expected to go public within 12 to 18 months. T. Rowe Price eventually joined the bandwagon itself; it went public in 1986, anddisregarding a slight dip in 1990enjoyed steadily rising earnings into the early 1990s. The New Frontier Fund Limited Partnership was also introduced to help non-U.S. clients invest in very small U.S. public companies.

Applying many of the venture-capital techniques from its limited partnership dealings, T. Rowe Price moved into real estate in 1984. That year, it developed the first real estate limited partnership available to investors nationwide with no sales commission. According to the companys 1986 annual report, the real estate business was an excellent source of diversification and improved long-term returns for all investors. Consequently, a real estate management subsidiary was formed.

A Volatile Market and Heavy Competition in the 1990s

The early 1990s saw continued efforts to diversify in order to compete in an increasingly ferocious investment market. In 1992, for example, the company acquired six mutual funds managed and distributed by USF&G Corporation. Then in 1993, T. Rowe Price, the CUNA Mutual Insurance Group, and the Credit Union National Association & Affiliates formed a joint venture to provide a family of proprietary no-load mutual funds for credit union members.

These and other initiatives called for more effective programs in customer support. By the late 1980s, the company had already implemented a sophisticated computerized telephone systemTele*Accesswith which customers could use a touchtone phone to access their accounts 24 hours a day, or to buy, sell, and exchange shares in the T. Rowe Price fund family. The company also implemented advanced administrative tools, such as PAS, a computerized record keeping system for defined contribution retirement plans.

Meticulously planned marketing campaigns also helped support T. Rowe Prices services into the 1990s. In 1989, the company first introduced its Retirement Planning Kit and Retirees Financial Guide, designed for both employed people planning ahead and retired investors seeking advice. While other financial houses offered similar free guides, Prices stood out for their lucid language and current details on tax and Social Security laws, according to Susan Antilla in a 1992 New York Times article. Accompanying Retirement Planning Kit software was described as friendly to the point of being verbose, but its price makes it a package to consider, by PC Magazine. By 1994, when the company offered new editions, investors had requested more than one million kits.

T. Rowe Price advertising was consistent with a low-key, honest approach. In September 1993, for example, the company introduced its first corporate campaign designed to burnish its corporate image rather than specific products. The broadcast and print campaign, by McCaffrey & McCall New York, carried the slogan, Invest with confidence. The campaign was intended to correspond with the companys product-oriented promotions, which have been consistently noted for their lucidity and usefulness by such independent rating agencies as Morningstar, Inc.

As T. Rowe Price entered the mid-1990s, the firm introduced several new funds, including Emerging Markets Stocks and Health Sciences, in 1995. The following year, George Collins, who had headed the firm since 1984, retired, passing on the CEO position to George Roche. Roche began working at T. Rowe Price in 1968 and had developed a reputation as a detail-oriented and conservative manager. Prior to taking over as president and CEO in April 1997, Roche had served as the firms CFO.

Conservative investing continued to guide T. Rowe Price in the late 1990s, and the policy proved to be a bit of a hindrance as the market remained highly volatile. Risky investments often outperformed low-risk alternatives, but T. Rowe Price managed to boost revenues nonetheless, helped by growing numbers of clients putting money into mutual funds. By mid-1997, T. Rowe Price was the 25th biggest mutual fund company in the nation. The firms revenues had more than doubled between 1992 and 1997, and net income had nearly tripled to reach $98.5 million. Industry analysts voiced confidence in T. Rowe Prices financial future. Alexander Brown Inc. analyst John Hall told the Baltimore Sun, Their numbers have been great. I think the growth prospects from a long-term perspective are pretty good.

T. Rowe Price counted on its investors to focus on long-term growth as the unpredictable market continued to pose challenges. Many investors began to shy away from stock funds because of the poor performance by international and small stocks, opting instead to invest in more stable money market and bond funds. T. Rowe Prices net sales of stock and bond funds declined from $9 billion in 1997 to about $3.5 billion in 1998. Still, the firm managed to generate record revenues of $886.1 million in 1998, and assets under management increased from $124.3 billion to $147.8 billion. Of the total assets under management, the majority, $94 billion, consisted of mutual funds. Rose Price-Fleming International also performed well, increasing its assets under management by $2.9 billion to end the year at $32.9 billion.

Maintaining strength and remaining competitive were priorities for T. Rowe Price in the late 1990s, and the firm introduced new funds and undertook new ventures to ensure the companys growth. In early 1999, T. Rowe Price announced it would form an asset management company with Sumitomo Bank Ltd. and Daiwa Securities Co. to serve retail and institutional investors in Japan. T. Rowe Price planned to acquire ten percent of the joint venture, known as Daiwa SB Investments, for about $15 million. Though Japan had not yet recovered from a recession, the country had ample potential in the eyes of U.S. financial firmsJapans pension market was undergoing deregulation, and the nation had about $11 trillion in household savings. T. Rowe Price also said it would form a joint venture with Robert Fleming Holdings designed to manage the non-Japanese security investments of Japanese clients.

Also in 1999, T. Rowe Price opened a customer service call center in a leased building in Colorado Springs, Colorado, and made plans to further expand its operations in Colorado. The firm agreed to purchase 31 acres in a business development area in Colorado Springs and said it intended to build a new call center and, if warranted, a second building. Work also continued on the expansion of its headquarters, including the completion of two office buildings and parking facilities in Owings Mills, Maryland.

In October, T. Rowe Price received a boost when its common stock was added to the S&P 500 index. News of the announcement sent its share price up 12.8 percent in one day. The firms share price was also affected by rumors that T. Rowe Price was a prime target for acquisition. Not only had other mutual fund firms, such as Pimco Advisors, been purchased by foreign companies, but some industry analysts stated their opinions that T. Rowe Price would make a fine acquisition for a foreign business trying to break into the United States. Though CEO Roche said the firm, which by 1999 was the seventh largest mutual fund company in the United States, was not for sale, speculation caused the stock price to rise 4.9 percent in one day.

The year 1999 proved to be a standout one for T. Rowe Price, and the firm reported record revenues of more than $1 billion, up 17 percent from the previous year. Net income rose 37 percent from 1998 to reach $239 million, and for the first time in the companys history, three of its funds had returns of at least 100 percent. T. Rowe Price International Discovery, which was heavy on foreign, small company stocks, achieved a total one-year return of 155 percent. T. Rowe Price Japan was up 112.7 percent, and T. Rowe Price Science & Technology was up 101 percent. Despite such outstanding performance, however, the firm advised investors to temper their expectations, as such continued growth was not sustainable over the long term. In addition, some analysts continued to criticize T. Rowe Prices conservative approach. With a long and dependable history of steady growth, however, few could question T. Rowe Prices abilities to survive. T. Rowe Price vice-chairman James Riepe told the Wall Street Journal, Weve got to stick to our principles, even though those principles might hurt us in the short term. We have discipline, and well keep on doing this for a long time.

Principal Subsidiaries

T. Rowe Price Investment Services, Inc.; T. Rowe Price Investment Technologies, Inc.; T. Rowe Price Retirement Plan Services, Inc.; T. Rowe Price Services, Inc.; T. Rowe Price Stable Asset Management, Inc.; TRP Finance, Inc.; T. Rowe Price (Canada), Inc.; Daiwa SB Investments (Japan; 10%); Rowe Price-Fleming International, Inc. (50%); TRP Suburban Second, Inc.

Principal Competitors

FMR Corp.; The Vanguard Group, Inc.; Merrill Lynch & Co. Inc.

Further Reading

Antilla, Susan, Does Little Pay off a Lot? T. Rowe Price Does, New York Times, June 17, 1992, p. C15.

Atkinson, Bill, Staying on Course, Baltimore Sun, July 20, 1997, p. Dl.

Brown, Ken, T. Rowe Price to Offer Funds with Fees, Wall Street Journal, February 3, 2000, p. C21.

Eliott, Stuart, To a Company That Sells Mutual Funds, a Return on Its Image Is the Goal of a New Campaign, New York Times, September 7, 1993, p. C6.

History of T. Rowe Price, Baltimore: T. Rowe Price Associates, 1987.

McGough, Robert, and Patrick McGeehan, Market Gyrations Prompt Nervous Investors to Cut Back on Stock of Mutual-Fund Firms, Wall Street Journal, February 24, 1999, p. C3.

Michaels, James W., Thomas Rowe Price 1898-1983, Forbes, November 21, 1983, p. 51.

Rulison, Larry, Takeover Talk Fuels Price Stock, Baltimore Business Journal, November 5, 1999, p. 1.

Tarn, Pui-Wing, T. Rowe Price Joins Japanese Venture, Wall Street Journal, January 26, 1999, p. C27.

Tarn, Pui-Wing, and Aaron Lucchetti, T. Rowe Price Pays High Price for Avoiding Tech Craze, Wall Street Journal, March 6, 2000, p. Rl.

Train, John, The Money Masters, New York: Harper & Row, 1979, p. 139.

Trivette, Don, T. Rowe Price Retirement Planning Kit (Software Review), PC Magazine, November 24, 1992, p. 596.

Wayne, Leslie, T. Rowe Price Sticks with Its Niche, New York Times, October 18, 1993, p. C1.

Kerstan Cohen

updated by Mariko Fujinaka

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"T. Rowe Price Associates, Inc." International Directory of Company Histories. 2000. Encyclopedia.com. 25 Jun. 2016 <http://www.encyclopedia.com>.

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T. Rowe Price Associates, Inc.

T. Rowe Price Associates, Inc.

100 East Pratt Street
Baltimore, Maryland 21202
U.S.A.
(410) 547-2000
Fax: (410) 539-7645

Public Company
Incorporated:
1947 as T. Rowe Price & Associates
Employees : 1,665
Operating Revenues : $310 million
Stock Exchanges : NASDAQ
SICs : 6282 Investment Advice; 6289 Services Allied with
the Exchange of Securities or Commodities, Not
Elsewhere Classified; 6211 Security Brokers, Dealers, and
Flotation Companies

T. Rowe Price Associates, Inc. is a Baltimore-based investment management firm that provides a broad range of investment services in mutual funds, real estate partnerships, discount brokerage, venture capital, and international investment programs. In addition to serving as investment adviser to the growing T. Rowe Price family of mutual funds, the firm offers a full spectrum of investment advice on equity, bond, and money market securities. The companys diverse client base ranges from individual investors to institutions, including pension, profit sharing, and other employee benefit plans, endowments, and foundations. As of September 1994, T. Rowe Price managed $60 billion in more than three million investor accounts.

Such a grand scale was hardly part of T. Rowe Prices design when the firms namesake founder set the groundwork for his own investment counsel firm in the mid-1930s. Mr. Prices original goal was to provide stock investors with a new and virtually unavailable service, which he called investment counseling. Prices idea was to recommend investment picks and strategies by applying sound research, basing his fees on expertise, not on standard commission income. With that goal in mind, the young entrepreneur founded Price Associates, a financial counseling business, in 1937, and incorporated as T. Rowe Price & Associates ten years later.

If Prices idea to market financial advice was novel, then the growth stock theory of investing that he championed was unheard of. Price was not satisfied with the common treatment of stocks as cyclical investments, which rise and fall in value according to prevalent economic trends and should be bought or sold at the right time to make a profit. Instead, he believed that investor interests were best served by a long-term view of the investment processone by which a financial advisor helped clients identify stocks in well-managed companies that would grow over a long period of time. Rather than buying and selling stocks for speculative profits, Price emphasized the value of investing in growing businesses and sticking with them through thick and thin. Price believed that true growth companiesidentified with careful researchwould enjoy earnings growth that would augment both market value and growth of dividend income over the long haul.

Prices early experience and some of his distinct personality traits helped prepare him for the rigors of starting his own firmespecially one that would initially run against the grain of generally accepted investment practices. After studying for a career as an industrial chemist and landing two short-lived jobs in that field, he decided to turn his energies toward his real passion: investing. Brief stints at a brokerage house and a small bond house in the early 1920s provided him with enough experience to land a more permanent position in finance. In 1925, he became a stockbroker at the Baltimore investment firm Mackubin, Goodrich & Co. (later known as Mackubin, Legg & Co. and ultimately as Legg, Mason & Co. by the late 1980s). There, he climbed the corporate ladder, becoming head of the bond department and, by 1930, head of the investment management department.

By 1934, Price had convinced senior management at Mackubin, Goodrich to let him start up an investment management department at the firm. Several factors were working against Price, however. First, his growth-stock philosophy met with unusual resistance from many principals at the firm. In addition, the residual effect of the Great Depression still cast somber light on investing in general. Finally, Price was reputed as iron-willed and often difficult to work with, adding some disfavor to his already unprofitable department. By 1937, the principals of MacKubin, Goodrich decided to phase out the investment management program altogether, prompting Price to set out on his own. Several of Prices closest colleagues joined his entrepreneurial venture. Marie Walper, Isabella Craig, Walter Kidd, and Charles Schaeffer comprised the original Associates of the newly established partnership, T. Row Price & Associates.

Prices fledgling investment management firm struggled through its early years. Even in the best of financial markets, such a business depended on the time-consuming and uncertain process of winning client confidence. From the late 1930s right through the 1950s, moreover, financial markets were unfavorable. For several years, T. Rowe Price & Associates boasted few individual and no institutional clients. The partners accepted irregular salaries and exchanged actual pay for shares in the new enterprise. Fortunately, Prices wife had the financial resources to bankroll many of the firms early losses. Even though Prices initial objectivethat of building a company with 25 employees and $60 million in assets under managementwas reasonable, it remained dubious for nearly the first decade in operation.

By the late 1940s, however, T. Rowe Prices growth-style of investing had started to chalk up a few of the successes that would give the firm forward momentum. The key was careful research, on which T. Rowe Price placed tremendous importance. For example, the firm would only invest in stock of a company whose president had been carefully interviewed by a T. Rowe Price analyst. The result was several winning stock picks between 1938 and 1949: Sharp & Dohme, the pharmaceutical company, jumped 468 percent over that period; Abbott Laboratories (334 percent); USF&G Corporation, the insurance provider (198 percent); Addressograph-Multigraph (140 percent). In the late 1930s and early 1940s, the companys investments in companies like Minnesota Mining and Manufacturing (later 3M Corp.) and IBM Corp. also proved invaluable.

Despite the tremendous odds facing T. Rowe Price before the end of World War II, the company managed to expand at a reasonable rate. According to records kept by Walter Kidd, director of research, total assets under management increased from $2.3 million in 1938 to $28 million in 1945 and $42 million in 1949. That year marked an important milestone: 12 years after the companys inception, T. Rowe Price finally broke into the black.

The 1950s marked an overall transition into a faster rate of growth and change for the company. In 1950, the firm converted from a three-person partnership to a corporation. Also that year, T. Rowe Price contracted its first institutional client, American Cyanamid, which remained a major account into the 1990s. In 1950, Price also introduced the Growth Stock Fund, the firms first mutual fund. At that time, mutual funds were still not in vogue. Price regarded the new fund merely as a service to clients who wanted to capitalize on the Uniform Gift to Minors Act. Recently passed by Congress, the act permitted parents to manage trusts for their children and pay taxes at a relatively negligible rate. Moreover, the fund charged no load, or sales charge, adding extra appeal to its subscribers. Though the Growth Stock Fund began as a low-profile product, it ultimately showcased the success of T. Rowe Prices growth-stock strategy in action; by 1960, Weisenbergers fund-rating service rated it as the countrys best performer for the ten-year period.

The success of the Growth Stock Fund through the 1950s reflected an improved investment environment. With the exception of some economic fallout from the Korean Warsuch as a new Excess Profits Taxthe 1950s was a period of strong economic growth and low inflation. Growth stocks made a comeback, and Mr. Price stood in the limelight, claiming center stage through a series of articles he contributed to Forbes magazine on a regular basis. Meanwhile, a vigorous market for pension funds had taken shape, and T. Rowe Price jumped on the bandwagon. In all, economic recovery and a turnaround in growth stocks set the groundwork for an upcoming decade of new institutional clients and a broader range of mutual fund offerings, including pension funds.

One such fund was the New Horizons Fund, which Price introduced in 1960 in order to capitalize on the growth potential of so-called emerging growth companies, or small, rapidly growing companies in the early stage of corporate development. Some of the first stocks in New Horizon Funds portfolio of investments included Texas Instruments, Hertz, and Haloid-Xerox, the precursor of Xerox Corp. To manage New Horizons (and a projected progeny of other mutual funds to follow) Price founded Rowe Price Management, which he headed while remaining at the helm of the parent company.

The New Horizons Fund, like T. Rowe Price itself, suffered difficult beginnings. In fact, the fund not only lagged in the 1961 bull market but also when the market turned bearish in 1962: New Horizons dropped by 29 percent, versus a decline of nine percent for the Standard and Poores (S&P) 500a common index of leading company performance. Not surprisingly, critics coined derogatory variations on the funds forward-looking name: New Horizontal, Blue Horizons, and Lost Horizons.

By 1965, yet another market correction worked in favor of small growth companies, and the New Horizons Fund lived up to its real name. The funds total return leaped 44 percent in one year, compared to 12 percent for the S&P 500. Such success attracted new investors, and both New Horizons and T. Rowe Price snowballed; by the end of 1965, the firm had topped the $1 billion mark. In fact, emerging growth stocks grew so heated that Price decided to temporarily step back. Price thought shareholders might be ill-served if the New Horizons Fund continued to invest new assets in an overvalued growth. From October 1967 to June 1970 and from March 1972 to September 1974, Price closed the fund to new investors. As John Train suggested in The Money Masters, Price was clearly not driven by short-term greed but had the best interest of his shareholders in mind through these maneuvers. Meanwhile, the Growth Stock Fund also rode the wave and would continue to do so into the 1970s. From 1966 through 1972, shares of that fund appreciated 80 percent, assuming reinvestment of dividends and capital gains.

As T. Rowe Price grew in the 1960s, Mr. Prices relationship with the firm loosened and a new generation of leaders began to move toward the helm. Employing roughly 200 personnel and offering new and diverse products and services required a more formal administrative structure. Prices various colleagues gradually moved away from their multiple-chore posts and into more specialized cadres. Mr. Schaeffer gravitated toward public relations; Mr. Kidd became the equivalent of chief operations officer; while other associates like E. Kirdbride Miller and John Ramsay became senior investment counselors. In 1968, Price relinquished presidency of the Growth Stock Fund, and he resigned as president of New Horizons Fund the following year. In addition, in 1968, he sold the remaining shares of Rowe Price Management (RPM) to T. Rowe Price Associates, which held a controlling interest in RPM since 1966.

Along with his responsibilities at the company, Prices overall economic outlook began to change. He foresaw the onset of a bleak new era in which the dollar would decline, inflation would rage, natural resources would diminish, and growth stocks would suffer. In near antipathy to his previous growth theories, he told Forbes in 1969 that People will not want paper dollars. They will want tangible property: land, natural resources, timber, minerals in the ground. They will want investments in companies that can increase their profits faster than the decline in the value of the dollar.

To accommodate such a shift, Price founded the New Era Fund in 1969. The funds portfolio of investments emphasized natural resource companies (gold, silver, uranium, copper, and forest products), while mixing in some technology and a measure of more traditional growth stocks. As was often the case with Prices initiatives, the New Era Fund performed badly at first and eventually proved itself. In the early 1970s, growth stocks held up well, and the New Era Fund lost ground. When the oil embargo aggravated economic recession until the end of 1974, the New Era Fund and its growth-driven cousins all suffered comparable pains. By the late 1970s and early 1980s, however, rampant inflation finally paid off for Prices Anti-Inflation Fund, as he had originally intended to call the New Era Fund. Between 1978 and 1981with inflation approaching the 20 percent mark and the price of gold topping $800 an ounceNew Era jumped almost 130 percent. A key lesson that the firm derived from New Eras performance was that its traditional growth strategy could be effectively combined with other strategies to best accommodate economic change.

Starting in the 1970sand to a much greater degree in the 1980s and onwardT. Rowe Price Associates began diversifying its strategies and its products. Indeed, Prices retirement in 1971 marked just one of many momentous changes. In 1971, George J. Collins was hired to start a fixed-income division. By the end of 1973, Collins had created New Income Fund, a balanced, fixed-income mutual fund. Though the new bond fund was not an immediate eye-opener, it soared when interest rates increased dramatically in the latter half of the decade; by 1977, New Income ranked as the third largest corporate bond fund in the United States.

When Congress passed legislation permitting tax-free municipal bond funds, Collins launched the Tax-Free Income Fund in 1976. By 1978, that fund boasted $215 million in assets and ranked third among more than 40 rivals. By the early 1990s, T. Rowe Prices lineup of tax-free mutual funds offered nearly every maturity category, as well as an insured fund for investors seeking extra credit protection and a high-yield fund for the more risk-tolerant.

A combination of socio-political and technological advances in the late 1970s and early 1980s greatly facilitated international trade and investing, virtually turning the financial world into a global marketplace. In 1979, T. Rowe Prices joint venture with Robert Fleming Holdings Ltd., a London-based merchant bank, rode the wave. Meanwhile, the growing popularity of mutual funds throughout the 1980s gave individual investors the resources to invest globallythrough fund managers with the ability to conduct international research, probe credit and currency risk, and employ sophisticated hedging techniques. By 1994, Rowe Price-Fleming International, Inc. had become one of the largest managers of overseas assets in the United States, with approximately $17 billion under management.

In addition to new vigor in the international investment arena, myriad other influences prompted T. Rowe Price to diversify its financial services and products. Entering the 1980s, the rapidly growing firm had struck a delicate balance between its past growth tradition and a wide slew of new investment alternatives. Indeed, in 1984the year after Mr. Price passed awayGeorge J. Collins stepped up as president. The man who had brought bond investing to the exclusively growth-stock-driven firm 13 years earlier was now in command. Responding to greater competition in the financial services fieldlargely spurred by deregulation in the early 1980sthe company launched numerous new types of stock and bond funds.

Special emphasis was placed on retirement funds for both large institutional clients and small retail investors. After Congress created tax incentives for individuals to establish retirement accounts, T. Rowe Price correctly anticipated a decline in defined benefit retirement programspension plans in which a retired worker was assured a fixed income. Instead, the firm began developing funds geared toward 401(k) plans, funds sponsored by an employer in which workers can invest money tax-free until it is withdrawn after age 59. Although T. Rowe Price barely placed among the top ten mutual fund companies in assets by October 1993, it stood third in the 401(k) market, according to Leslie Wayne in a 1993 New York Times article.

In an effort to diversify its services, T. Rowe Price also made available innovative limited partnerships starting in the early 1980s. In 1983, the Threshold Limited Partnership was formed to help finance select private companies expected to go public within 12 to 18 months. T. Rowe Price eventually joined the bandwagon itself; it went public in 1986, anddisregarding a slight dip in 1990enjoyed steadily rising earnings into the early 1990s. The New Frontier Fund Limited Partnership was also introduced to help non-U.S. clients invest in very small U.S. public companies.

Applying many of the venture-capital techniques from its limited partnership dealings, T. Rowe Price moved into real estate in 1984. That year, it developed the first real estate limited partnership available to investors nationwide with no sales commission. According to the companys 1986 annual report, the real estate business was an excellent source of diversification and improved long-term returns for all investors. Consequently, a real estate management subsidiary was formed.

The early 1990s saw continued efforts to diversify in order to compete in an increasingly ferocious investment market. In 1992, for example, the company acquired six mutual funds managed and distributed by USF&G Corporation. Then in 1993, T. Rowe Price, the CUNA Mutual Insurance Group, and the Credit Union National Association & Affiliates formed a joint venture to provide a family of proprietary no-load mutual funds for credit union members.

These and other initiatives called for more effective programs in customer support. By the late 1980s, the company had already implemented a sophisticated computerized telephone systemTele*Accesswith which customers could use a touch-tone phone to access their accounts 24 hours-a-day, or to buy, sell, and exchange shares in the T. Rowe Price fund family. The company also implemented advanced administrative tools, such as PAS, a computerized record keeping system for defined contribution retirement plans.

Meticulously planned marketing campaigns also helped support T. Rowe Prices services into the 1990s. In 1989, the company first introduced its Retirement Planning Kit and Retirees Financial Guide, designed for both employed people planning ahead and retired investors seeking advice. While other financial houses offered similar free guides, Prices stood out for their lucid language and current details on tax and Social Security laws, according to Susan Antilla in a 1992 New York Times article. Accompanying Retirement Planning Kit software was described as friendly to the point of being verbose, but its price makes it a package to consider, by PC Magazine. By 1994, when the company offered new editions, investors had requested more than one million kits.

T. Rowe Price advertising was consistent with a low-key, honest approach. In September 1993, for example, the company introduced its first corporate campaign designed to burnish its corporate image rather than specific products. The broadcast and print campaign, by McCaffrey & McCall New York, carried the slogan, Invest with confidence. The campaign was intended to correspond with the companys product-oriented promotions, which have been consistently noted for their lucidity and usefulness by such independent rating agencies as Morningstar, Inc.

From its beginning, in fact, T. Rowe Price tried to eschew catchy marketing and yield-driven investment strategies in favor of a moderate approach. As the 1993 annual report explained, the companys primary objective is always to make sure our shareholders understand the risk and reward tradeoffs each investment involves. In order to do so amidst shifting markets, the firm had to adapt to a changing financial climate. Over the course of 60 years, it changed from a three-person partnership to a multinational corporation; from an exclusive growth-stock house to a leader in limited partnerships, real estate management, money market funds, and mutual funds ranging from growth stocks to tax-free municipal bonds and emerging markets. Indeed, between January 1 and December 31 1993, the company introduced 11 new mutual funds to its roster of dozens.

To be sure, the company faced momentous changes in the worldwide financial landscape of 1994including passage of the North American Free Trade Agreement and the Federal Reserves multiple interest-rate hikes designed to temper incipient inflation in the U.S. But as Mr. Price habitually remarked, change remains the investors only certainty.

Principal Subsidiaries

TRP Finance, Inc.; TRP Finance MRT, Inc.; Rowe Price-Fleming International, Inc. (50%); TRP Suburban, Inc.

Further Reading

Antilla, Susan, Does Little Pay off a Lot? T. Rowe Price Does, New
York Times
, June 17, 1992, p. C15.

Eliott, Stuart, To a Company that Sells Mutual Funds, a Return on its
Image is the Goal of a New Campaign, New York Times, September 7, 1993, p. C6.

History of T. Rowe Price, Baltimore: T. Rowe Price Associates, 1987.

Michaels, James W., Thomas Rowe Price 1898-1983, Forbes, November 21, 1983, p. 51.

Train, John, The Money Masters, New York: Harper & Row, 1979, pp. 139-157.

Trivette, Don, T. Rowe Price Retirement Planning Kit (Software Review), PC Magazine, November 24, 1992, p. 596.

T. Rowe Price and USF&G Corporation Announce Plans for T. Rowe Price to Acquire Six Mutual Funds, PR Newswire, April 16, 1992.

Wayne, Leslie, T. Rowe Price Sticks With Its Niche, New York Times, October 18, 1993, p. Cl.

Kerstan Cohen

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"T. Rowe Price Associates, Inc." International Directory of Company Histories. 1995. Encyclopedia.com. 25 Jun. 2016 <http://www.encyclopedia.com>.

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