T. Rowe Price Group, Inc. (TROW) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Asset Management Performance: Two-thirds of funds outperformed their peer group one-year medians, with over 40% in the top quartile across various categories.
• Growth in ETF Business: Assets under management in ETFs reached $5.3 billion, up from $1.2 billion the previous year, with $2.4 billion of inflows in the first half of the year.
• Strategic Partnerships and Expansions: Named a strategic partner to a large independent broker-dealer, expanding access to over 10,000 financial advisors and 2 million end clients.
• Solid Financial Results: Adjusted earnings per share up nearly 12% from Q2 2023, driven by higher operating income and a lower effective tax rate.
• Positive Flow Trends: Net outflows were $24 billion less in the first half of 2024 compared to 2023, with significant improvements across most channels and geographies.

Pessimistic Highlights

• Net Outflows: Reported $3.7 billion in net outflows, although market gains supported financial results.
• Fee Rate Compression: The annualized effective fee rate for Q2 2024 decreased, influenced by client flows and transfers to lower fee products and asset classes.

Company Outlook

• Continued Growth in ETFs: Expectation of growing appetite for ETFs, with plans to broaden the product lineup and make additional investment strategies available as ETFs over time.
• Strategic Initiatives Progress: Focus on reducing net outflows, with a healthy sales pipeline and stabilizing redemption pressure indicating positive momentum towards achieving positive flows by 2025.
• Investment in Brand and Capabilities: Ongoing investment in brand promotion and professional services to support future growth and expand in growth areas of the market.

Q & A Highlights

• Q: How do you handle cash in retirement accounts and target date funds? (Glenn Schorr, Evercore ISI)

  A: It's predominantly client-driven. In our individual investor business, clients have multiple options for money market funds. We offer stable value and money market funds in the retirement plan services business. (Rob Sharps)

• Q: Can you expand upon the sales pipeline? (Dan Fannon, Jefferies)

  A: Gross sales were up in most channels and asset classes, with net inflows in Americas institutional, EMEA, and APAC businesses. Six new wins of greater than $1 billion funded in the quarter. (Rob Sharps)

• Q: What does the new distribution broker partnership mean for T. Rowe Price? (Ken Worthington, JPMorgan)

  A: The partnership with a large wealth platform will give additional shelf space and opportunity to engage with their advisors, aiming to grow our share. (Rob Sharps)

• Q: Can you give the actual size of the bond mandate to better understand the flows without it? (Patrick Davitt, Autonomous Research)

  A: The size of the particular mandate was not disclosed, but it was substantial. (Rob Sharps and Jen Dardis)

• Q: Could you talk about the distribution channels most sensitive to improved performance? (Brian Bedell, Deutsche Bank)

  A: Direct individual and wealth business tend to react more quickly to performance improvements. Institutional or large mandate channels react with more of a lag. (Rob Sharps)

• Q: Could you elaborate on your sales and distribution approach with ETFs? (Michael Cyprys, Morgan Stanley)

  A: We have a specialist ETF capability with dedicated expertise to support our field team and target parts of the market that historically haven't used ETFs. (Eric Veiel)

• Q: Can you discuss the pace of fee rate compression? (Alexander Blostein, Goldman Sachs)

  A: Fee compression of about 1% to 1.5% is seen over time, with quarter-to-quarter noise influenced by client choices and vehicle realignments. (Jen Dardis)

• Q: How do you differentiate OCREDIT from established offerings? (Brennan Hawken, UBS)

  A: OCREDIT is differentiated by OHA's track record, T. Rowe Price's relationships, and our ability to penetrate the wealth channel with a compelling private credit strategy. (Rob Sharps)

• Q: What's the reason for the expected seasonal pick-up in redemptions in the second half? (Bill Katz, TD Cowen)

  A: The comment was about net flows, not an increase in redemptions. Sales in Q2 were inflated by a sizable mandate, and the expectation is for outflows to be somewhat higher in Q3 and Q4 but still below last year's levels. (Rob Sharps)