The Rice Stuff
In the high-risk, highly volatile world of energy trading, Dan Rice ’73 powered to the top of the market — and stayed there
By Ian Aldrich, photograph by Phyllis Graber Jensen
It was senior year, and Dan Rice ’73, a self-described mediocre Bobcat pitcher with an academic cred to match, was moving in on a biology degree and thinking about a career.
“I wanted to be a forest ranger,” he says. “I wanted to be outside, until” — and here he flashes a grin — “I realized there really aren’t any women [in that field]. I guess it took me a while to figure it out.”
Well, that’s only part of how Rice made a pivotal life decision back in 1972. Truth is, Rice, a competitive bridge player, had read that those who had a talent for the game often did well in the stock market. And so, on a bit of a whim, he crammed a couple of economics courses, one in accounting, into his senior-year schedule. A high score on a business aptitude test followed, and by spring Rice had a lineup of job interviews and his eyes set on an M.B.A., which he would earn from New York University.
Fast-forward 35 years. Today Rice is a managing director at BlackRock, the country’s largest publicly traded mutual fund manager. Within the volatile confines of the energy market, Rice is a star. His portfolios top out at just over $8 billion and his most recognized asset, the firm’s $1.4 billion Global Resources mutual fund, has soared right alongside the increasing prices of natural gas, coal, and oil. At this writing in late September — as the market “went down a rathole,” in Rice’s words — the Global Resources fund was up 7 percent over the last 12 months against the S&P’s 20-percent drop.
In the last year, the fund has yielded a return of more than 40 percent, and it ballooned from a not exactly paltry $300 million since 1997, putting Rice on the radar screen of desperate reporters seeking an explanation for the cranky swings of the energy sector. On the walls of his office, located on the 31st floor of a downtown Boston skyrise, hang framed stories from the likes of The Wall Street Journal, USA Today, and The New York Times, all prominently showcasing Rice.
“He doesn’t get frustrated easily,” says Harlan Juengling, a longtime friend and managing director at SHM Capital. “And he’s driven to do well in whatever he does. But he’s also got a lot of information coming at him and he’s able to assimilate it very well.”
|“A lot of guys in this business let the stock market dictate whether they’re a good person or a bad person. They personalize it. I don’t.”|
For Rice, assembling that complicated patchwork goes far beyond the realm of just number-crunching. It’s about having a handle on global politics — knowing, for example, the effect that a Hugo Chavez in Venezuela can have on Saudi oil prices.
It’s also about developing innovative methods for seeing market trends. Consider the American natural gas sector. Along a major rail line just outside of Beijing, Rice employs a man whose part-time job is simply to count the number of coal trains that chug through the area. These are massive pieces of transportation: each one about a mile long, 100 cars carrying 20,000 tons of rock. On a typical day a new train rolls past every three minutes.
China’s hunger for coal is so strong, Rice explains, that if enough coal can’t make it to market, the country has to take it from the rest of the world. “That sucks coal out of the U.S. Because coal is competitive with natural gas, when that happens it lifts the barrier that keeps natural gas prices in check.”
Making sense of that kind of information is one thing; pulling the trigger on a deal worth hundreds of millions of dollars is quite another. Rice, who got his start with energy funds in 1979, learned early in his career that he was far more tolerant of risk than most of his colleagues. “When I can’t sleep at night, that’s when I know things are really, really bad,” he says.
Part of that can be attributed to his approach. Rice’s forecasting is measured in years, not months, a tactic that has helped him weather periods like 1998, when he found himself down more than 50 percent on the year.
“I don’t know what ‘short term’ means,” he says. “I don’t look at short-term earnings. I don’t look at short-term prices. That’s my defense mechanism in dealing with day-to-day swings. I just assume there’s going to be market volatility and you can’t control it.
“What you can control is the long-term market analysis of where we’re going to be.”
Almost on cue, Rice, who’s sitting in his office, swivels his chair to the right to face a monitor. Red numbers cascade across the screen. Rice leans in to look at the screen, then scrunches his face. “Hmmmm,” he says. “In the last hour my clients have lost $90 million.” He leans closer. “Natural gas is down 10 percent, which is the biggest one-day correction I’ve seen in the last five years.”
Which isn’t to say he foresees the plummet continuing. Rice paints a fairly bleak not-so-distant future for U.S. consumers, one in which the price of a barrel of oil crosses the $200 threshold and we’re all pining for the day when gasoline only cost $4 gallon. And it’s here that Rice’s viewpoints are as complex as the subject matter. He’s both liberal and conservative, as frustrated at America’s lack of political willpower to form an energy plan as he is with a Beltway environment that insists on casting complete blame on oil executives for the spike in prices.
He’s for offshore drilling but thinks we erred in not placing a higher tax on SUVs and other big vehicles when oil was still cheap. And he’s skeptical of global warming alarm calls, but believes Americans need to curb their energy consumption.
“It’s only going to get worse until we’re forced into a huge recession or China stops growing,” says Rice. “And that has huge moral implications. Why should America have all these electrical devices while denying the Chinese the same?”
Heavy issues, indeed. The fact that they still fire him up speaks volumes about his own energy for a business that, well, if you’re 56, like Rice, and the father of six children — whose photos way outnumber those framed clippings at the office — you’re a bit of an anomaly.
“A lot of guys in this business let the stock market dictate whether they’re a good person or a bad person,” he says. “They personalize it. I don’t. This market will suck it out of you so much that you’re gone by the time you’re 40. But I can’t see myself not doing this. I suppose all of my clients would have to fire me before I would retire.”