T. Rowe Price, Building Wealth for the Long Term

T. Rowe Price, Building Wealth for the Long Term

By
Jonathan Berk, Nate Blair
2009|Case No.F273| Length 23 pgs.

As James A.C. Kennedy, CEO and president of T. Rowe Price Group, reviewed the 2008 annual letter to shareholders, he reflected on the state of the economy and his firm. 2008 had been a horrendous year for the financial markets and saw the demise or takeover of several venerable Wall Street firms. The S&P 500 Index declined 37 percent over the course of the year, and international markets fared even worse as investors flocked to the safety of Treasuries. T. Rowe Price’s own stock price declined more than 40 percent (Exhibit 1) and the firm’s assets under management declined 30 percent.

Even though Kennedy was concerned about the state of the markets and the economy, he felt the firm was on solid footing. The annual letter to shareholders reflected this sentiment: “Strong organizations can withstand the challenges of a demanding environment, learn from the experience, and emerge stronger after a period of adversity. We believe we are such an organization.” After all, the firm had done it before.

This case describes the history of money manager T Rowe Price and its philosophy and culture. Goes into detail regarding the firm’s hiring, development, compensation and retention practices. The case also provides comparative data on T Rowe Price actively managed funds with similar Vanguard passive funds.

Learning Objective

This case highlights that the profits of a money management firm are divided amongst the firm’s employees, shareholders and investors in the firm’s funds. Provides student with data such that they can analyze whether an active management investing strategy can consistently generate positive alpha above a passive one and possible reasons for that being the case.

This material is designated for use in specific Stanford GSB classes only. For inquiries, contact the Case Writing Office.