Game on for active equities

The pressure is on. Chris Alderson, CEO of the international arm of T. Rowe Price, said one of the major challenges facing the active equities manager was the need to prove its ability to consistently outperform as institutional investors plough more capital into passive investment strategies. The London-based head of T. Rowe Price’s ex-US operations said the “big onslaught” from passive funds managers meant the longonly firm needed to deliver in the current challenging markets. “We have to demonstrate that we add alpha. We have to justify our fee. We talk about our big, global research network and these people have to deliver the alpha,” Alderson said. He listed exchange-traded funds (ETFs) providers – which had “taken quite a lot of share in this industry” – as another threat, and said T. Rowe Price was not willing to use its research team to manage the instruments actively because they would be forced to disclose their positions after each trading day under current regulation.

“That would give away the DNA of the company.” The manager is currently searching for a head of Australian equities research to join its newly launched local manufacturing, headed by director Murray Brewer and portfolio manager Randal Jenneke. The new hire will contribute to this ‘DNA’ of T. Rowe Price: the ability to find companies with good long-term prospects, and rank them on its global research platform. Each of the firm’s investment analysts – no matter where they work – are paid in accordance with the quality of their recommendations and how deeply the companies they rate well are used in T. Rowe Price portfolios. For instance, a banking analyst in Hong Kong could be rewarded for recommending that certain financial institutions in Asia not only used in regional portfolios, but also in the manager’s global financials fund.

T. Rowe Price’s Australian presence would serve two purposes: to deepen the manager’s coverage of the local market – its Baltimore and London teams currently research 11 Australian stocks, and it runs global sector funds covering metals and mining – and to “set up a business to sell Australian equities to Australian clients,” Alderson said. “There’s a great opportunity here, and we thought – despite it being pretty competitive with 150- plus [Australian equities] managers – there was a gap in the market for a stable, long-only, committed institution.” In Australia, the manager would cover the largest 130 companies, Jenneke said. He believed the proprietary global research platform, fed by analysts around the globe, would provide information about multinationals listed in Australia – such as James Hardie, CSL and Cochlear – that was out of reach for many domestic boutiques.