Release Date: April 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Assets under management increased to $1.54 trillion, a 15% rise from the previous year, driven by strong market performance.
- First quarter net outflows were significantly reduced to $8 billion, half the level of the previous year, indicating improved client demand and investment performance.
- 65% of T. Rowe Price Group Inc (TROW, Financial)'s funds outperformed their peer group medians on a 1-year basis, showcasing strong investment performance.
- The firm's retirement business remains robust, with over $1 trillion in retirement assets, highlighting its critical role in the company's portfolio.
- T. Rowe Price Group Inc (TROW) retained its #2 position among over 330 asset managers in Institutional Investors 2024 ranking, and was named one of Fortune Magazine's World's Most Admired Companies for the 14th consecutive year.
Negative Points
- Despite overall improvement, T. Rowe Price Group Inc (TROW) still expects net outflows in 2024, though less severe than previous years.
- Net flows in April showed weakness due to rebalancing activities among large clients, indicating potential volatility in short-term flows.
- U.S. equity, particularly large and mid-cap growth strategies, continued to see outflows, although at a reduced rate compared to the previous year.
- Fixed income experienced mixed results, with strong investment-grade flows offset by continued outflows from stable value in the Defined Contribution channel.
- Adjusted operating expenses are expected to rise by 5% to 7% over the previous year, driven by market-driven expenses and ongoing investments in strategic initiatives.
Q & A Highlights
Q: Given that Dee is joining us, I do have a retirement question for her. If alternative investments enter the retirement channel, is it more likely through single investment elections or inside of a Target Date fund? And given that T. Rowe's ownership now includes OHA, is there potential for alts inside of a T. Rowe Target Date fund anytime soon, because we understand price may be one headwind with DC plan sponsors.
A: Dorothy C. Sawyer, VP at T. Rowe Price Advisory Services, noted that introducing alternatives within a 401(k) plan faces complexities such as daily NAV requirements. However, T. Rowe could quickly act with Target Date solutions, potentially in a custom solution with a plan sponsor. CEO Robert W. Sharps added that there's been limited interest from plan sponsors in incorporating alternatives due to issues like daily liquidity and higher fees associated with alternatives.
Q: Maybe just sticking with the retirement theme. I was hoping to double click on decumulation. Could you talk a little bit more about the opportunity set that you see for decumulation products? What product structures, in particular, do you think have the biggest opportunity as you look out over the next 10 years?
A: Dorothy C. Sawyer highlighted the diversity of participant needs in the decumulation phase and the importance of offering a variety of solutions. T. Rowe Price plans to launch a Managed Lifetime Income product and a personalized retirement manager, which are part of their broader strategy to address retirement income needs comprehensively.
Q: Rob, I was hoping you could provide additional context around the trends you discussed of better gross sales as well as lower redemptions. It seems like April here is a bit more mixed. But can you talk to maybe the difference in the channels and/or geographies where you're seeing the biggest improvements versus what we saw last year?
A: CEO Robert W. Sharps explained that T. Rowe Price expects substantially lower outflows this year compared to last, driven by improved investment performance, particularly in U.S. equity. He noted that the retirement date fund flows remain strong and that the ETF momentum is building, contributing positively to the overall flow dynamics.
Q: My question is on the expense guide. Are you factoring in the full 1Q AUM mark to that? Or did you discount it a bit given the Q-to-date beta quite negative?
A: CFO Jennifer Benson Dardis clarified that they used the first quarter average as an estimate for their expense growth guide, providing a range around reasonable assumptions for market movement from that average.
Q: Maybe just to go back to the retirement business. Can you talk a little bit about how you viewed the DCIO segment versus the full-service record-keeping segment in terms of economics to T. Rowe Price?
A: Dorothy C. Sawyer discussed the dynamics between T. Rowe Price's DCIO and full-service record-keeping segments, noting that while full-service is more costly, it offers a better ability to capture IRA rollovers, which can be advantageous in meeting participant needs and enhancing overall economics.
Q: I was curious about a couple of things on the expense front. You mentioned that there's a capitalization of labor in the U.K. So curious about what that impact was in the quarter and how you expect that would impact the expense growth going forward. You also referenced a change in practice around explicit payment for research.
A: CFO Jennifer Benson Dardis addressed the expense queries, explaining the nonrecurring benefit related to their U.K. entity and discussing the shift in how external research fees are handled, emphasizing T. Rowe Price's ongoing commitment to external research despite changes in the mix of hard and soft dollar expenses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
