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    T Rowe Price Group Inc (TROW)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$115.49Last close (Jul 25, 2024)
    Post-Earnings Price$113.21Open (Jul 26, 2024)
    Price Change
    $-2.28(-1.97%)

    What went well

    • T. Rowe Price's acquisition of Oak Hill Advisors (OHA) has positioned the firm strongly in alternative investments, particularly in private credit. They are leveraging OHA's 30-year track record and T. Rowe Price's distribution network to penetrate the wealth channel with products like OCREDIT, expecting to establish more momentum going forward.
    • Significant large mandate wins in fixed income demonstrate T. Rowe Price's strong positioning with scale buyers. The firm secured six new wins over $1 billion each in the second quarter, and the pipeline suggests additional opportunities, indicating healthy demand for their fixed income offerings.
    • Expansion of distribution channels through strategic partnerships is expected to drive market share gains. T. Rowe Price has formed a new partnership with a large wealth platform, providing additional shelf space and the opportunity to engage with over 10,000 financial advisers, allowing the firm to meaningfully increase its share over time.

    What went wrong

    • T. Rowe Price reported $3.7 billion in net outflows in Q2 2024, with outflows remaining concentrated in equity products, indicating ongoing challenges in attracting and retaining assets.
    • The company is experiencing fee rate compression, with the annualized effective fee rate decreasing to 41.6 basis points in Q2 2024 as clients shift to lower-fee products, which may pressure revenue growth.
    • Adjusted operating expenses increased by 7.8% from Q2 2023 due to higher market-driven expenses, and the firm expects 2024 expenses to rise by 6% to 8% over 2023 levels, potentially impacting profitability.

    Q&A Summary

    1. Improving Sales Pipeline
      Q: Can you expand on the sales pipeline and outlook?
      A: Rob Sharps highlighted a significant improvement in flows, with net outflows $24 billion less in the first half of 2024 compared to 2023. Target Date flows were strong at $10.5 billion, exceeding last year's $9.9 billion. He noted strength in alternatives, with $172 million of flows into OCREDIT , and gross sales were up in most channels and geographies. While Q2 benefited from a sizable mandate, he expects some seasonality ahead but believes outflows will remain below last year's levels.

    2. Fee Rate Compression
      Q: Why did the pace of fee rate compression pick up?
      A: Jen Dardis explained that although they typically see 1% to 1.5% annual fee compression, this quarter experienced noise due to clients choosing lower-fee products and vehicle realignments. Rob Sharps added that success in lower-fee areas like fixed income and integrated equity pressures the fee rate but remains good business, and growth in alternatives may offset some compression.

    3. Second Half Flows and Competition
      Q: Why expect higher outflows in the second half?
      A: Rob Sharps clarified that he doesn't expect redemptions to pick up but noted that Q2 net flows were elevated due to a sizable mandate, and future quarters may not match that level. He emphasized opportunities in multi-asset, ETFs, and alternatives, preferring to focus on T. Rowe Price-controlled strategies while remaining open to partnerships when beneficial.

    4. Large Bond Mandate Details
      Q: What's the size and status of the bond mandate?
      A: While not disclosing the exact size, management stated it was substantial and funded in the second quarter, contributing significantly to fixed income assets. The six new wins over $1 billion each also funded in Q2.

    5. ETF Strategy and Distribution
      Q: Elaborate on your ETF sales approach and strategy.
      A: Management described a dedicated ETF sales team supporting efforts to reach ETF-focused advisers, expanding beyond traditional mutual fund clients. They offer both clones of existing strategies and new products, aiming to provide full investment capabilities in ETF form. The ETFs have attracted a diverse investor base, including institutional and international clients, and they plan to broaden their ETF offerings thoughtfully.

    6. New Distribution Partnership
      Q: What's expected from the new broker partnership?
      A: The new partnership grants additional shelf space and access to 10,000 representatives, enhancing opportunities to increase market share where their presence was previously limited. They anticipate mutual benefits from the arrangement without disclosing specific terms.

    7. Differentiation of OCREDIT
      Q: How is OCREDIT differentiated from competitors?
      A: Rob Sharps emphasized that OCREDIT leverages Oak Hill Advisors' 30-year track record in private credit and T. Rowe Price's strong relationships in the wealth channel. Their field team engages advisers new to alternatives, helping wealth platforms broaden alternatives penetration with a compelling, differentiated offering.

    8. Handling Cash in Retirement Accounts
      Q: How do you handle cash options for clients?
      A: Rob Sharps stated it's predominantly client-driven, offering multiple money market fund options in the individual investor business. They provide stable value funds and money market funds in retirement plan services but don't have a significant sweep business like some wealth platforms.

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