T. Rowe splits investment unit in face of capacity challenges

T. Rowe Price is to split its investment research organization in two as part of plans to cope with ongoing capacity challenges. 

By the second quarter of 2022 the firm plans to launch a new entity called T. Rowe Price Investment Management (TRPIM), which will house the following strategies, and their related mutual funds:

  • US Capital Appreciation;
  • US Mid-Cap Growth Equity;
  • US Small-Cap Core Equity;
  • US Small-Cap Value Equity;
  • US Smaller Companies Equity;
  • and US High Yield Bond Strategies.

The new unit will be led by Stephon Jackson, currently associate head of US equity, and a number of high-profile managers, who run the above strategies, will move to the new unit, including Brian Berghuis and David Giroux. The managers are among 85 investment professionals who will make the switch. 

There will be no manager changes on funds as a result of these strategies moving to the new division from the firm’s current registered investment adviser, T. Rowe Price Associates (TRPA).

In a statement announcing the plans, T. Rowe Price said the rationale for the move was to allow its US equity strategies ‘increased flexibility to own more of certain holdings and maximize investment capacity for both TRPIM and TRPA, while maintaining the firm’s investment culture at both entities.’

Rob Sharps, T. Rowe Price head of investments and group CIO, said in a statement: ‘Managing capacity to support performance is in our DNA and has long been a hallmark of our investment process and our fiduciary responsibility to our clients. This additional step will ensure that over time our portfolio managers can continue to select the right securities, in the right amounts, at the right time, while also adhering to risk management and regulatory guidelines, with the goal of delivering superior investment performance for clients.’

Katie Rushkewicz Reichart, a director of equity strategies for Morningstar, said the move made sense given the firm’s current capacity constraints.

‘The move is a logical solution to the firm’s long-standing capacity challenges that have particularly constrained its renowned small- and mid-cap strategies,’ she wrote in a note. ‘Indeed, 10 strategies, totaling around 30% of the firm’s $1.3tn in assets under management as of September 2020, are currently closed to new investors. Beyond the sheer asset size of T. Rowe’s small- and mid-cap franchises, the shrinking universe of small-cap public companies has also contributed to a limited opportunity set.

‘Splitting into two entities… allows each side to adhere to its own company ownership limits and provides more bandwidth for portfolio managers to claim bigger stakes in companies than they would be able to under the current setup.’

Rushkewicz Reichart highlighted that three of the six funds moving to the new unit had some form of restrictions for new investors. These were T. Rowe Price Mid-Cap Growth, T. Rowe Price Capital Appreciation, and T. Rowe Price Small-Cap Stock. She added that there were no plans currently to reopen these funds when the new unit launched. 

The firm said it has been hiring additional analysts over the last two years in anticipation of the move, and that it planned to recruit more in the coming year.

This article originally appeared on CityWire.


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