View source for PRIMECAP

{{Short description|Asset management firm based in Pasadena, California}}
{{Use mdy dates|date=December 2023}}
{{Infobox company
| name = PRIMECAP Management Company
| logo = PRIMECAP Logo.png
| image =
| image_caption =
| image_size =
| type = [[Privately held company|Private]]
| industry = [[Investment Management]]
| founded = {{Start date and age|1983|09|15}}
| founders = {{ubl
|Howard Schow
|Mitchell Milias
|Theo Kolokotrones
}}
| hq_location = {{nowrap|[[Pasadena, California]], U.S.}}
| key_people = {{ubl
|Theo Kolokotrones (Chairman)
|Joel Fried  (President)
}}
| aum = US$134&nbsp;billion (July 2024)
| num_employees = 40 (July 2024)
| parent =
| subsid =
| homepage = {{URL|www.primecap.com}}
| footnotes =<ref name="ADV">{{cite web |title=Form ADV |url=https://reports.adviserinfo.sec.gov/reports/ADV/105516/PDF/105516.pdf |website=SEC |access-date=August 19, 2023 |archive-date=August 18, 2023 |archive-url=https://web.archive.org/web/20230818133319/https://reports.adviserinfo.sec.gov/reports/ADV/105516/PDF/105516.pdf |url-status=live }}</ref>
}}
'''PRIMECAP Management Company''' (Primecap) is an American [[investment management]] firm based in [[Pasadena, California]]. The firm is known for managing US-focused [[Equity (finance)|equity]] portfolios for [[The Vanguard Group]] (Vanguard). In 2004, it launched its own [[mutual fund]]s, the Odyssey Funds. In addition, it also handles [[separately managed account]]s for [[institutional investor]]s.
Despite its strong investment performance and large number of [[assets under management]] (AUM), the firm keeps a low profile.
== Background ==
Primecap was founded On September 15, 1983, by Howard Schow, Mitchell Milias and Theo Kolokotrones. The three of them previously worked at the [[Capital Group Companies]] where Schow was chairman of its investment committee as well as Capital Research and Management Company. A dispute between Schow and Jon B. Lovelace Jr. (the company's chief and son of founder [[Jonathan Bell Lovelace]]) eventually led to Schow leaving to found Primecap with Milias and Kolokotrones where they opened an office just 20 minutes away from the headquarters of the Capital Group.<ref name=":0">{{Cite web |last=Norton |first=Leslie P. |title=Primecap in the Spotlight |url=https://www.barrons.com/articles/primecap-in-the-spotlight-1460174680 |access-date=August 18, 2023 |website=www.barrons.com |language=en-US |archive-date=August 18, 2023 |archive-url=https://web.archive.org/web/20230818135437/https://www.barrons.com/articles/primecap-in-the-spotlight-1460174680 |url-status=live }}</ref><ref name=":5">{{Cite web |author1=Nellie S. Huang |date=December 2, 2014 |title=Primecap: The Best Stock Pickers You've Never Seen |url=https://www.kiplinger.com/article/investing/t041-c009-s002-primecap-best-stock-pickers-youve-never-seen.html |access-date=August 19, 2023 |website=Kiplinger.com |language=en |archive-date=August 19, 2023 |archive-url=https://web.archive.org/web/20230819032500/https://www.kiplinger.com/article/investing/t041-c009-s002-primecap-best-stock-pickers-youve-never-seen.html |url-status=live }}</ref><ref name=":8">{{Cite web |last=Bogle |first=John |date=July 2015 |title=The Annals of Vanguard—The Story of PRIMECAP Fund |url=https://boglecenter.net/wp-content/uploads/PRIMECAP-30th-Anniversary.pdf |archive-url=https://web.archive.org/web/20230316085613/https://boglecenter.net/wp-content/uploads/PRIMECAP-30th-Anniversary.pdf |archive-date=March 16, 2023 |access-date=August 19, 2023}}</ref><ref name=":1">{{Cite web |date=August 19, 2023 |title=PRIMECAP - Asset Management Company {{!}} Morningstar |url=https://www.morningstar.com/asset-management-companies/primecap-BN000009NW |access-date=August 19, 2023 |archive-url=https://web.archive.org/web/20230819023140/https://www.morningstar.com/asset-management-companies/primecap-BN000009NW |archive-date=August 19, 2023 }}</ref><ref name=":2">{{Cite web |last=Petruno |first=Tom |date=October 22, 2004 |title=Primecap Diversifies Beyond Vanguard |url=https://www.latimes.com/archives/la-xpm-2004-oct-22-fi-primecap22-story.html |access-date=August 19, 2023 |website=Los Angeles Times |language=en-US |archive-date=August 19, 2023 |archive-url=https://web.archive.org/web/20230819025844/https://www.latimes.com/archives/la-xpm-2004-oct-22-fi-primecap22-story.html |url-status=live }}</ref><ref name=":3">{{Cite book |last=Kinnel |first=Russel |url=https://books.google.com/books?id=7-VpKxARBqcC&pg=PT48 |title=Kiplinger's Personal Finance |date=October 2008 |publisher=Kiplinger Washington Editors, Inc. |language=en |access-date=August 19, 2023 |archive-date=August 19, 2023 |archive-url=https://web.archive.org/web/20230819025844/https://books.google.com/books?id=7-VpKxARBqcC&pg=PT48 |url-status=live }}</ref><ref name=":4">{{Cite book |last=Kinnel |first=Russel |url=https://books.google.com/books?id=ZJnM5mEgfgsC&pg=PA92 |title=Fund Spy: Morningstar's Inside Secrets to Selecting Mutual Funds that Outperform |date=March 23, 2009 |publisher=John Wiley & Sons |isbn=978-0-470-47349-8 |language=en |access-date=August 19, 2023 |archive-date=August 19, 2023 |archive-url=https://web.archive.org/web/20230819030657/https://books.google.com/books?id=ZJnM5mEgfgsC&pg=PA92 |url-status=live }}</ref><ref name=":7">{{Cite web |last=Schifrin |first=Matt |title=The Greatest Investor You've Never Heard Of Died Last Weekend |url=https://www.forbes.com/sites/schifrin/2012/04/10/the-greatest-investor-youve-never-heard-of-died-last-weekend/ |access-date=August 19, 2023 |website=Forbes |language=en |archive-date=October 7, 2022 |archive-url=https://web.archive.org/web/20221007200854/https://www.forbes.com/sites/schifrin/2012/04/10/the-greatest-investor-youve-never-heard-of-died-last-weekend/ |url-status=live }}</ref>
In 1984, [[John C. Bogle]], the founder and chief of Vanguard met with management team of Primecap to discuss a deal to set up a fund together. According to Bogle, Primecap was selected as it met the "four Ps": People, philosophy, Portfolio and Performance. It was reported that initially Primecap rejected Bogle's offer. On November 1, 1984, Primecap and Vanguard launched the Vanguard Primecap fund with $100,000 in seed money from Bogle himself. While the fund was owned by Vanguard, it would be managed by Primecap. In 2015 it was reported that a $10,000 investment in the Vanguard Primecap fund would be worth nearly $500,000 that year which would be almost double the return of the [[S&P 500]] index. The annualized average return was 13.7%.<ref name=":0" /><ref name=":5" /><ref name=":8" /><ref name=":1" /><ref name=":3" /><ref name=":4" /><ref name=":7" />
In a rare interview with ''[[Forbes]]'' in 1994, Schow said the firm does not go for 20% or 30% gains but rather for triples, quadruples, octuples which takes years to obtain.<ref name=":0" />
In 1998, Primecap briefly put itself up for sale but the bids were too low and there were concerns that Vanguard would pull out its assets if Primecap was sold to a rival.<ref name=":0" />
In 2004, Primecap launched its own mutual funds, the Odyssey Funds, which would be three different funds. They paid homage to Kolokotrones’ Greek ancestry and were referencing [[Odyssey|the Odyssey]], the [[Greek epic poetry|Greek epic poem]] featuring the legendary warrior [[Odysseus]] who was known for his cunningness and patience. This was in line with Primecap's strategy of being patient to obtain superior long-term results. There was some speculation there was a spat between Primecap and Vanguard and this was done to reduce dependency on Vanguard.<ref name=":0" /><ref name=":2" /><ref name=":3" /><ref name=":4" />
Regarding Primecap's performance, the Vanguard Primecap fund had a return of 621% in the 1990s compared to the S&P 500 index of 432%. In 2000 after the [[Dot-com bubble]], the firm returned 18% while many other funds suffered significant losses.  In 2004, the Vanguard Primecap fund had a return of 300% in the last 10 years compared to the [[S&P 500]] index of 186%. In 2008, Primecap funds held up far better than other growth funds despite the [[2007–2008 financial crisis]]. In 2014, all Primecap managed funds landed in the top 20% of their peer groups over the past five years. In 2016, it was reported that all six of the mutual funds managed by Primecap beat 86% of its peers over the past decade. Throughout its history, Primecap has closed its funds to new investors and resisted broadening its lineup.<ref name=":0" /><ref name=":5" /><ref name=":8" /><ref name=":1" /><ref name=":4" /><ref name=":7" /><ref name=":6">{{Cite news |date=March 13, 2000 |title=Three Contrarians Share Their Secrets |language=en |work=Bloomberg.com |url=https://www.bloomberg.com/news/articles/2000-03-12/three-contrarians-share-their-secrets |access-date=August 19, 2023}}</ref>
At the end of 2022, 80% of Primecap's assets were with its three Vanguard funds and has held around this proportion throughout its history. The Vanguard Primecap fund is its flagship fund and stocks stay in the fund for an average of 20 years. Primecap is Vanguard's second largest relationship after [[Wellington Management Company]] and in 2015, it took in $148&nbsp;million in fees from Vanguard. It is reported that Primecap charges only 0.5% in [[management fee]]s which is around half the industry average.<ref name=":0" /><ref name=":1" /><ref name=":2" />
Apart from Vanguard, other institutional clients of the firm include [[General Motors]], [[Caterpillar Inc.]], [[Hewlett-Packard]] and the [[Metropolitan Museum of Art]]. However the number of institutional clients it manages money for is considered quite limited with only 25 as reported in 2012.<ref name=":0" /><ref name=":5" /><ref name=":7" />
Regarding its original founders, in 2012, Schow passed away and in 2014, Milias stepped down from portfolio-management duties. Kolokotrones remains at the firm serving as its chairman and a [[portfolio manager]]. The president of firm is Joel Fried who joined in 1986 and tends to be more conservative while investing in sectors Kolokotrones does not invest in.<ref name=":0" /><ref name=":5" /><ref name=":1" />
The firm is small in size with 35 employees in 2016. Each analyst was chosen by the principals of the firm. Each year Fried, Kolokotrones or other principals would go to top [[business school]]s to hire. Once hired its employees are given a few months to learn and make stock recommendations with little guidance in a sink or swim approach. The analysts follow Schow's dicta of finding stocks with superior prospects based on new products, markets, management or some kind of structural shift in demand or supply then once they are bought, they shall be held onto for a long period. It isn't uncommon for analysts to meet with a company 8-10 times before actually investing. Primecap avoids [[groupthink]] by allowing each portfolio manager to run his own portion of each portfolio independently.<ref name=":0" /><ref name=":5" /><ref name=":1" /><ref name=":6" />
Primecap focuses almost entirely on research and portfolio management with little regard to sales and marketing. The firm tends to avoid media interviews as it does not see it helping achieve superior returns. In addition, the firm does not want to become too big with regards to AUM as it would limit the universe of investable stocks making its portfolio look like a [[stock market index]] which it is trying to outperform.<ref>{{Cite web |date=2024-02-02 |title=Where Primecap Management Got Its Start |url=https://www.morningstar.com/funds/where-primecap-management-got-its-start |access-date=2024-02-16 |website=Morningstar, Inc. |language=en |archive-date=February 16, 2024 |archive-url=https://web.archive.org/web/20240216165433/https://www.morningstar.com/funds/where-primecap-management-got-its-start |url-status=live }}</ref>
==References==
{{Reflist}}
==External links==
* {{Official website| https://www.primecap.com}}
{{authority control}}
[[Category:The Vanguard Group]]
[[Category:1983 establishments in California]]
[[Category:Companies based in Pasadena, California]]
[[Category:Financial services companies established in 1983]]
[[Category:Investment companies of the United States]]
[[Category:Mutual funds of the United States]]