The incoming CEO of T. Rowe Price Group is very much like the outgoing one. James Kennedy, 52, who will become chief executive and president in the fourth quarter, and his soon-to-be-predecessor, George Roche, 64, a 38-year company man, have worked together since both were natural-resources analysts in the late 1970s. The protégé has in many ways followed his mentor's career path to the top of the Baltimore-based money manager, whose year-end 2005 assets totaled $270 billion.
Kennedy, who grew up down the street from Warren Buffett in Omaha, earned his BA from Princeton University and joined T. Rowe straight out of Stanford Business School in 1978. He rose through the investing ranks to become director of research in 1987 and director of equities in 1997.
"George Roche was one of the reasons that I came to T. Rowe Price over Capital Group or Fidelity," Kennedy recalled during a phone conversation from the firm's Singapore office soon after the succession plan was unveiled on March 16. "He's one of my greatest mentors."
Though the name of Roche's successor was kept from outsiders, Kennedy says he knew at least three years ago who would move into the firm's top three positions and found out a year ago that he would be the CEO.
Kennedy will be joined at the top by two other longtime managers at the firm: Brian Rogers, 50, chief investment officer and manager of the flagship Equity Income Fund, will add the chairman's position; and Edward Bernard, also 50, head of marketing and distribution, is taking on the vice chairman's title. (Roche's No. 2, James Riepe, 62, retired at the end of last year.)
"There was no jockeying," says Kennedy, who notes that he has worked closely with Rogers for more than 20 years and with Bernard for more than ten. "We know how each other thinks, and we agree more than we disagree. It's not like we've been shoved together for the first time."
Analysts don't expect big changes from the new leadership, and the firm's stock price barely budged from $77 a share in the days following the announcement. "This is a sane transition by a well-run company," says Chip Roame, principal of Tiburon Strategic Advisors in California. "They're not doing anything differently, and that's good." After all, T. Rowe earned $431 million on revenues of $1.5 billion last year, representing gains of 28 percent and 18 percent, respectively.
Nevertheless, in recent years T. Rowe -- best known for its 92 retail mutual funds -- has been pushing into the institutional market and expanding its overseas presence (Institutional Investor, December 2005) as fierce competition and declining fees put pressure on the margins of all predominantly retail firms.
"There's no grandiose plan," Kennedy says. "When I joined the firm, we managed about $5 billion and had about 300 people. So have we changed since 1978? Dramatically. But it has been an evolutionary change. You have to keep tweaking the model. That's how we've run our company for many decades. There will be nothing dramatic -- no major acquisitions or huge changes."
What type of changes might Kennedy engineer? The CEO-designate says he'll keep putting resources into international investment products. He sees the firm's institutional business, which accounts for 25 percent of assets, growing significantly.
Kennedy points to a small recent deal to illustrate T. Rowe's likely moves amid the investment industry's ongoing consolidation. In February the firm announced that it would buy the Preferred Group of Mutual Funds from construction equipment maker Caterpillar, which is getting out of the asset management business. T. Rowe will fold Peoria, Illinoisbased Preferred's less than $1 billion in assets into ten of its mutual funds.
"A lot of companies are getting out of money management, and we're very open-minded about helping people get out," Kennedy says. "It is our only business."
