The Role Of Pension Funds In The Growth Of T. Rowe Price

ValueWalk’s Raul Panganiban interviews Cornelius Bond, author of “T. Rowe Price The Man, The Company, and the Investment Philosophy.” In this part Cornelius discusses the role of pensions, his favorite detective novel, and Price’s advice.

• See part 1 here.
• See part 2 here.
• See part 3 here.

Q1 hedge fund letters, conference, scoops etc

Yeah, right. And getting back to the T. Rowe Price story, can you tell me about the role of pensions and how that transformed the business?

Yes. We had two major events that sort of happened at once, the first was the growth, which was the growth of the mutual fund industry and concurrently the growth of the pension fund business. And they actually both grew at about the same rate, I can’t remember exactly, but I think they grew at about 15-20% per year for quite a while and of course they were huge markets. And it just happened that in both cases our performance record as a firm had been clearly demonstrated to the world with the Growth Stock Fund, so that attracted a lot of shareholders to our fund. And similarly it attracted a lot of pension fund clients, and it really was an answer to us and we grew … and particularly then with New Horizons coming on so strongly and doing so well, we developed quite a reputation. And I think it was 1972 or 1971, we took in … we had a very strong positive inflow of cash, the rest of the mutual fund industry lost money. But as I mentioned before, that proved to be … it was very nice at the time, but all of this money coming into this field called growth stocks, as all our competitors started to follow us, because all of their clients wanted some of these growth stocks too. All this money came … Charlie Schaper called it the laser beam thesis because everything was kind of squeezed between the magnet, if you will, and compressed, which caused the prices to go up strongly of growth stocks.