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    T Rowe Price Group Inc (TROW)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$108.83Last close (Apr 25, 2024)
    Post-Earnings Price$113.00Open (Apr 26, 2024)
    Price Change
    $4.17(+3.83%)

    What went well

    • Significant Improvement in Net Outflows due to Strong Investment Performance: Net outflows for Q1 2024 were $8 billion, about half the level of the first quarter last year, driven by improved investment performance, particularly in U.S. equity funds, and higher sales. The CEO expects substantial improvement in flows over the year.
    • Launch of New Retirement Income Solutions Enhancing Product Offerings: T. Rowe Price is expanding its retirement solutions with the upcoming Personalized Retirement Manager launching in Q3 2024 and a Managed Lifetime Income product launching in Q4 2024, aiming to meet diverse client needs in decumulation. Existing managed payout solutions are used by nearly 60 retirement plans, representing approximately 20% of assets under administration. ,
    • Growth Potential in Alternatives Business via Oak Hill Advisors (OHA): OHA's capital raising pipeline is strengthening, with expectations of mid-teens growth in capital under management and high single-digit growth in fee-based AUM in 2024. The OCREDIT product has $1.4 billion in invested assets as of March 31, 2024, and is launching on multiple platforms, indicating potential for future revenue growth.

    What went wrong

    • Growth in Oak Hill Advisors' fee-based AUM has been slower than anticipated, with some redemptions and challenges in deployment; expecting only high single-digit growth in fee-based AUM this year, potentially impacting TROW's revenue from alternatives.
    • Ongoing fee compression of about 1% to 1.5% annually as clients seek scale discounts, which may impact TROW's revenue growth.
    • April net flows are weaker due to client rebalancing and softer industry backdrop, indicating that improvement in net outflows may not be linear and that flows are hard to predict.

    Q&A Summary

    1. Improving Flows and Redemptions
      Q: What's driving better sales and lower redemptions?
      A: CEO Robert Sharps noted that despite industry flows being soft in April, T. Rowe Price's outlook for flows hasn't changed since January. They expect outflows this year to be substantially lower than last year's. Improved investment performance, especially in U.S. equity and large-cap growth, is leading to normalized redemption rates and early signs of gross sales recovery. Retirement date fund flows remain strong at just shy of $7 billion in Q1.

    2. Oak Hill Advisors (OHA) Growth Drivers
      Q: How will OHA accelerate revenue growth?
      A: CEO Robert Sharps acknowledged that growth in OHA's fee-based AUM has been slower due to redemptions and deployment challenges. However, he expects mid-teens growth in capital under management, with momentum in their dedicated senior private lending product. The non-traded BDC, OCREDIT, has launched and reached nearly $1.4 billion in invested assets as of March 31.

    3. Expense Guidance and AUM Impact
      Q: Is expense guidance factoring the full Q1 AUM mark?
      A: CFO Jen Dardis said they used the first quarter average AUM to estimate expense growth. Despite market decreases in April, they expect expenses to align with guidance as markets return to average levels.

    4. Fee Rates and Performance Fees
      Q: What's the outlook for fee rates and performance fees?
      A: CFO Jen Dardis stated that fee compression continues at about 1% to 1.5% annually due to scale and strategic relationships. Performance fees contributed positively this quarter from a few equity products, but such contributions are typically one-off. CEO Robert Sharps feels good about their value proposition and fee competitiveness.

    5. DCIO vs. Full-Service Recordkeeping Economics
      Q: How do DCIO and full-service segments compare economically?
      A: Dorothy Sawyer explained that 75% of U.S. defined contribution AUM is in the DCIO channel, which they value. The retirement services business benefits from 60% of assets being proprietary products and the ability to capture IRA rollovers. In-house recordkeeping allows quicker rollout of solutions and insight into global DC opportunities.

    6. Alternative Investments in Retirement Plans
      Q: Will alternatives enter target date funds soon?
      A: Dorothy Sawyer stated that while they've researched adding alternatives to 401(k) plans, complexities like daily NAV and regulations pose challenges. They could introduce alternatives quickly in custom target date solutions with plan sponsors. CEO Robert Sharps noted limited interest from plan sponsors due to liquidity and fee sensitivity issues.

    7. Decumulation Products and Retirement Income
      Q: What opportunities exist for decumulation products?
      A: Dorothy Sawyer emphasized offering diverse retirement income solutions due to varying participant needs. They currently offer managed payout solutions in nearly 60 retirement plans covering about 20% of assets under administration. Plans include launching a Managed Lifetime Income product in Q4 and a personalized retirement manager in Q3.

    8. Competitive Position in Decumulation
      Q: Does BlackRock's Paycheck affect T. Rowe's position?
      A: Dorothy Sawyer believes T. Rowe Price is well-positioned, already offering comparable retirement income products and planning new launches later this year. She highlights their unique breadth across plan sponsors, investors, intermediaries, institutions, and global clients.

    9. Expense Items: UK Benefit and Research Fees
      Q: What impacts expenses: UK benefit and research fees?
      A: CFO Jen Dardis clarified that a non-recurring UK benefit in Q1 won't materially affect future operations. On research fees, they remain committed to external research, but the mix of hard and soft dollars will vary due to regulations and client preferences.

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