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Is T. Rowe's Split a Smart Way to Handle Growth?

A newly created entity will bring opportunities and trade-offs.

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T. Rowe Price Group (TROW) announced on Nov. 19 that it plans to split its investment-research organization in two with the launch of T. Rowe Price Investment Management in 2022’s second quarter. Six existing strategies and supporting analytical resources will move to the new entity, and this cohort will remain entirely separate from the legacy T. Rowe Price Associates; the two teams will not share research or investment resources once divided.

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. Indeed, 10 strategies, totaling around 30% of the U.S. Equity Division's $883 billion in assets under management as of September 2020, are closed to new investors or capacity constrained. 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, similar to Capital Group’s model, 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.

Katie Rushkewicz Reichart has a position in the following securities mentioned above: PRHYX. Find out about Morningstar’s editorial policies.

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