T Rowe Price happy to play the long game

Todd Ruppert, the tall, flaxen-haired American responsible for institutional and intermediary distribution business at Baltimore-based T Rowe Price is a big enthusiast of Ucits III funds, which form the cornerstone of the group’s non-US expansion plans.

In addition to the work he puts in supervising relationships between the traditional firm and insurance companies and banks in the US, Mr Ruppert’s role as CEO of the global arm sees him handling $50bn (€39bn) – out of a total of $391bn in managed assets – for European clients. This means spending increasing amounts of time in group offices in London, Luxembourg and Zurich, plus further afield in Tokyo and Sydney.

While Mr Ruppert recognises key cultural and operational differences between US and European markets, and is a well known figure at European discussion forums looking to identify optimal product structures and distribution channels, there is a sense that he is happiest with the direct client and 401k financial intermediary relationships central to the industry in his native land.

Sweeping changes

He expects the type of changes in the distribution landscape occurring in the US to eventually sweep through Europe too. “In the States, people are leaving broker dealers and setting up on their own,” says Mr Ruppert, pointing out that this trend dates back to the recession caused by Sadam Hussein’s invasion of Kuwait in 1990.

“Since the introduction of RIA [Registered Investment Adviser] business, these independent brokers caught a wave of growth and the quality of advice has greatly improved. Commission is now declining dramatically in the US and there is more focus on building up the asset base rather than selling products.”

The big institutions like Merrill Lynch have also moved with the trend, and transformed their sales-led culture by re-training and re-labelling commission-based brokers as fee-seeking private bankers and financial advisers.

“The problem in Europe is that products are sold for an up-front fee. There is no packaged solution available like lifecycle or target date funds in the US,” of which his firm, along with Vanguard and Fidelity are the leading providers in T Rowe Price’s home market.

He believes greater alignment of interest between product providers and clients in the US has arisen from such a system, combined with stronger levels of customer education than in the UK. “Trust and confidence are the life blood of people’s savings,” says Mr Ruppert. “The US boom in mutual funds did not happen until the late 1980s and early 1990s. The level of knowledge of investment products is still not that great, but higher than it is in Europe.”

Distribution of investment products in the US is divided between multiple sources, he believes, whereas in most of Europe, there is a stranglehold held by the banks. “These banks wanted to shore up their capital during the crisis, so they moved clients’ money into bank CDs. That may have been good for the banks, but not for their clients.”

Adding value

Rather than just acting as a middle-man, taking a regular cut of clients’ savings for no effort, distributors must be persuaded by regulators to add extra value for customers through asset allocation, believes Mr Ruppert. “There is not enough emphasis in Europe on meeting clients’ needs,” he believes, with investor confidence suffering as a result.

As well as identifying that growth is much more likely to come now from international than domestic business, T Rowe Price’s US masters are clear that it is the international strategies – whether targeting broadly diversified global equities or more specialised emerging market portfolios – which are most likely to attract the interest of key clients.

“If you look at growth in GDP terms, emerging markets are doing phenomenally well,” says Mr Ruppert, “especially if you consider the bifurcation between developing and developed markets. In the developed world, debt as a percentage of GDP is at its highest since World War II. Developed economies are blighted by high unemployment matched with consumer and government indebtedness.”

Emerging markets, on the other hand are typically industrialising nations, with a growing, affluent population, with higher savings rates and without the level of debt plaguing developed countries, says Mr Ruppert. “I can increasingly understand them being part of a client’s core portfolio, rather than just a fringe allocation.”

But there are areas where Mr Ruppert has decided his company should not field a product. “We don’t do anything in the alternatives space and are content to be in long-only. This is unusual as everybody else is getting in there. But we already have $400bn plus in client money and the question is: do we want to raise several billion in a hedge fund, which might jeopardise some of this? It’s not worth it. A successful firm needs dynamism, but also a healthy respect and tradition for what they have been doing well.”

When distributors were demanding global value products, copycat launches were considered at T Rowe Price, but management eventually decided against this in the short term, although a future launch is expected.

“We are currently not running global value portfolios,” says Mr Ruppert. “Do we have people who can do that? Yes, but we have to pull them away from another strategy where they are running clients’ assets. We will eventually do it, but in a disciplined way. We don’t feel necessity to go into the market right away.”

The lion’s share of money is still institutional outside the US, but Mr Ruppert is choosing his wholesale distribution markets with a huge degree of circumspection. His conservative strategy is already paying off in home territory, as T Rowe Price gathered $16bn in US mutual funds over the 12 month period to April. The greater challenge will be in Europe.

Changing priorities

“We are working with private banks and multi-managers and will continue to do more with those,” says Mr Ruppert. “But we are not in all of the markets.” Currently in favour are the UK, the Nordic countries, the Netherlands and Switzerland. Spain and Italy were on a previous hitlist but appear to have been shelved as distribution priorities due to volatile flows, closed architecture, requirement for significant local presence and preference for bank-managed products.

This growth strategy and the pragmatic downgrading of some major European economies gains a seal of approval from fund consultants Strategic Insight. “T Rowe Price has done very well by going into the Nordics first,” believes the group’s consultant Daniel Enskat. “They gave distributors what they were looking for, so it’s a very good match.”

But stepping back from Southern Europe was also necessary, he adds. “The reality is that for T Rowe Price, as for other groups, Spain and Italy is tough. What Todd has done is to focus not on the latest fund or hottest product, but long-term investing through a back-to-basics approach.”

Part of this success is clearly based on exploiting the American approach and re-creating it in Europe, believes Mr Enskat, with the US firm’s success down to long-term asset allocation, re-balancing and dollar-cost averaging. “If a process or culture has worked for you, you are going to try and re-create it,” he says.

Todd Ruppert, T Rowe Price