Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- T. Rowe Price Group Inc (TROW, Financial) ended the quarter with $1.57 trillion in assets under management and $3.7 billion in net outflows, showing steady progress in flows and investment performance.
- Two-thirds of T. Rowe Price Group Inc (TROW)'s funds beat their peer group one-year medians, with over 40% in the top quartile.
- The company's ETF business grew significantly, reaching $5.3 billion in assets under management as of June 30, 2024, up from $1.2 billion in June 2023.
- T. Rowe Price Group Inc (TROW) reported strong performance in both equity and fixed income franchises, with several funds achieving top quartile performance across multiple time periods.
- The company recorded $10.5 billion in net inflows to target date strategies in the first half of the year, indicating strong demand for these products.
Negative Points
- T. Rowe Price Group Inc (TROW) reported $3.7 billion in net outflows for Q2 2024, indicating ongoing challenges in retaining assets.
- The annualized effective fee rate for Q2 2024 was 41.6 basis points, down from the prior quarter, due to a mix shift in assets under management to lower fee products and asset classes.
- Adjusted operating expenses increased by 7.8% from Q2 2023, driven by higher interim bonus accruals, distribution and servicing fees, and increased advertising and promotional spend.
- Outflows remain concentrated in equity products, despite some equity products experiencing strong inflows.
- The company expects 2024 adjusted operating expenses to be up 6% to 8% over the comparable full year 2023 amount, driven by the sustained rise in equity markets and the impact on market-driven expenses.
Q & A Highlights
Q: How does T. Rowe Price handle cash and retirement account options, particularly in target date funds?
A: Robert Sharps, CEO, explained that it is predominantly client-driven. In their individual investor business, clients have multiple options for money market funds. They do not have a big sweep business in the retirement plan services. For plan sponsors, they offer stable value as a short duration option and highly liquid options, including money market funds.
Q: Can you expand upon the sales pipeline and the geographical differences in flows?
A: Robert Sharps, CEO, highlighted that the net outflows were significantly reduced in the first half of 2024 compared to 2023. Target date flows were strong, and there was notable momentum in alternatives and ETFs. The sales pipeline is improving broadly across channels and geographies, with a sharp decrease in at-risk assets due to stronger investment performance.
Q: What does the new partnership with a large independent broker-dealer mean for T. Rowe Price?
A: Robert Sharps, CEO, stated that this partnership will provide additional shelf space and engagement opportunities with their advisers, allowing T. Rowe Price to grow its share. This relationship is one of many, and it is expected to meaningfully gain share over time.
Q: Can you provide details on the large bond mandate and the six new wins of $1 billion plus?
A: Robert Sharps, CEO, mentioned that the six new wins funded in the second quarter and highlighted T. Rowe Price's strong positioning with scale buyers. While the specific size of the bond mandate was not disclosed, it was substantial.
Q: Which distribution channels are most sensitive to improved performance, and what is the pipeline for adding new ETF products?
A: Robert Sharps, CEO, noted that individual and wealth business channels react more quickly to performance improvements, while institutional channels react with a lag. The ETF pipeline includes recently launched and upcoming products, with a focus on delivering differentiated and compelling offerings.
Q: How does T. Rowe Price's sales and distribution approach for ETFs differ from traditional mutual funds?
A: Eric Veiel, Chief Investment Officer, explained that they have a specialist ETF capability with dedicated expertise to support their field team. They target advisers who solely use ETFs and leverage their research platform to offer new capabilities. The approach includes both clones of existing strategies and new offerings.
Q: How is OCRED differentiated from established offerings like BCRED, and how is this communicated to distribution partners?
A: Robert Sharps, CEO, emphasized that OCRED leverages OHA's 30-year track record in private credit and T. Rowe Price's relationships with wealth platforms. The combination of these strengths helps differentiate OCRED in a competitive marketplace.
Q: What factors contributed to the sequential increase in fee rate compression, and how do you expect this to evolve?
A: Jennifer Dardis, CFO, explained that fee compression is influenced by client choices of lower fee products and periodic realignments of clients into different vehicles. Over time, they expect fee compression to be consistent with historical trends.
Q: Why do you expect a seasonal pickup in redemptions in the second half of the year?
A: Robert Sharps, CEO, clarified that the expectation is for gross sales to be lower in the second half due to the absence of a large mandate that funded in Q2. Redemption pressure is easing, and there is seasonality in the target date fund business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
