Q1 2024 T. Rowe Price Group Inc Earnings Call
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Norma: Good morning. My name is Norma, and I will be a conference facilitator today. Welcome to T. Rowe Price's first quarter 2024 earnings conference call. All participants will be in a listen-only mode until the question and answer period. I'll give you instructions on how to ask questions at that time. As a reminder, this call is being recorded and will be available for replay on T. Rowe Price's website shortly after the call concludes. I will now turn the call over to Linsley Carruth, T. Rowe Price's Director of Investor Relations. Please go ahead.
Normal: Good morning, My name is normal and that won't be a conference facilitator today welcome to T. Rowe Price's first quarter 'twenty 'twenty four earnings conference call.
Speaker Change: Participants will be in a listen only mode until question and answer period I'll give you instructions on how to ask questions at that time.
Speaker Change: This call is being recorded and will be available for replay on T. Rowe Price's website. Shortly after the call concludes I will now turn the call over to Lynn Sleep Conference T. Rowe Price's director of Investor Relations. Please go ahead.
Linsley Carruth: Hello, and thank you for joining us today for our first quarter earnings call. The press release and a supplemental materials document can be found on our IR website at investors.troweprice.com. Today's call will last approximately 45 minutes.
Hello, and thank you for joining us today for our first quarter earnings call. The press release and our supplemental materials document can be found on our IR website at investors <unk> T. Rowe price Dot Com today's call will last approximately 45 minutes, our CEO and president Rob Sharp CFO, Jen Dartos and head.
Linsley Carruth: Our CEO and President Rob Sharps, CFO Jen Dardis, and Head of Global Distribution Dee Sawyer will discuss the company's results for about 20 minutes. Then we'll open it up to your questions, at which time we'll be joined by Head of Global Investments Eric Veiel. We ask that you limit it to one question per participant. I'd like to remind you that during the course of this call, we may make a number of forward-looking statements and reference non-GAAP financial measures.
Global distribution D. Sawyer will discuss the company's results for about 20 minutes, then we'll open it up to your questions at which time, we'll be joined by head of global investments Eric file we ask that you limit it to one question per participant.
Speaker Change: Like to remind you that during the course of this call. We may make a number of forward looking statements and reference certain non-GAAP financial measures. Please refer to the forward looking statement language and the reconciliation to GAAP in the supplemental materials as well as in our press release and 10-Q.
Linsley Carruth: Please refer to the forward-looking statement language and the reconciliations to GAAP in the supplemental materials, as well as in our press release in the 10-Q. All investment performance references to peer groups on today's call are using the Morningstar Peer Group. Now I'll turn it over to Rob.
Speaker Change: All investment performance references to peer groups on today's call are using Morningstar peer groups now I will turn it over to Rob.
Robert W. Sharps: And thank you all for joining us this morning for our first quarter update. Before I get started, I'm pleased to say that Dee Sawyer, our Head of Global Distribution and a member of our Firms Management Committee, will be joining us today. D will provide an overview of our retirement, which is critical to our clients and integral to our firm's long-term success. We'll hear from Dee after Jen's update on our financial results.
Rob: Thank you.
Rob: And thank you all for joining us this morning for our first quarter update.
Rob: Before I get started I am pleased to say the D. Sawyer, our head of global distribution and a member of our firm's management committee will be joining us today.
Rob: Dave will provide an overview of our retirement business, which is critical to our clients and integral to our firm's long term success.
D. Sawyer: Well hear from D. After Jim's update on our financial results.
Robert W. Sharps: With that, I'll turn to first quarter performance. Tailwinds from stronger-than-anticipated markets drove assets under management up in the first quarter, bringing our total assets under management to $1.54 trillion as of March 31, a 15% increase over the first quarter of 2023. Our first quarter net outflows of $8 billion were about half the level we had in the first quarter of last year. This improvement came from increased client demand driving higher sales and stronger investment performance reducing redemptions, particularly in U.S. equities. As I said on last quarter's call, we expect to see net outflows in 2024 but anticipate substantial improvement compared to last year. However, this improvement will not be linear.
Speaker Change: With that I will turn to first quarter performance.
Speaker Change: Tailwind from stronger than anticipated markets drove assets under management up in the first quarter, bringing our total assets under management to 1.54 trillion as of March 31.
Speaker Change: A 15% increase over the first quarter of 2023.
Jim: Our first quarter net outflows of $8 billion were about half the level, we had in the first quarter of last year.
Jim: This improvement came from increased client demand driving higher sales and stronger investment performance, reducing redemptions, particularly in U S equity.
Jim: As I said on last quarters call, we expect to see net outflows in 2024, but anticipate substantial improvement compared to last year.
Jim: However, this improvement will not be linear it is important to understand the monthly flows can be heavily impacted by client activity, including rebalancing new mandates and terminations.
Robert W. Sharps: It's important to understand that monthly flows can be heavily impacted by client activity, including rebalancing, new mandates, and termination. So far in the second quarter, net flows are shaping up to be weaker in April, in part due to rebalancing at a handful of large clients. However, at this point, our pipeline suggests the balance of the quarter will be stronger. Investment performance was solid in the first quarter, with 65% of our funds beating their peer group's one-year median. I'd like to mention a few other performance highlights.
Jim: So far in the second quarter net flows are shaping up to be weaker in April in part due to rebalancing at a handful of large clients.
Jim: However, at this point, our pipelines suggest the balance of the quarter will be stronger.
Jim: Investment performance was solid in the first quarter with 65% of our funds, beating their peer group one year medians.
Speaker Change: I'd like to mention a few other performance highlights.
Robert W. Sharps: Our capital appreciation, U.S. equity research, mid-cap value, and financial services funds all had top quartile performance versus peers for the one-, three-, and five-year time periods. Our Integrated U.S. Small Cap Core and Integrated Global Equity Fund, which combine our fundamental and systematic processes, were also top quartile performers for these time periods and across our multi-asset class. Our nearer-dated retirement funds, the 2005 to 2035 vintages, as well as our managed payout fund, retirement income 2020, are all top quartile performers for the one, three, and five-year periods.
Speaker Change: Our capital appreciation U S equity research mid cap value and financial services funds, all had top quartile performance versus peers for the one three and five year time periods.
Speaker Change: Our integrated U S small cap core and integrated global equity funds, which combined our fundamental and systematic processes. We're also top quartile performers for these time periods.
Speaker Change: And in our multi asset range are nearer David retirement funds. The 2005 to 2035 vintages as well as our managed payout fun retirement income 2020 are all top quartile performers for the one three and five year periods.
Robert W. Sharps: All vintages of our more recently launched Retirement Blend funds are top quartile performers for the one-year, and over 50% of our fixed income funds beat their peer group medians for the one, three, and five-year time periods. And several of our fixed income muni funds, as well as our global multi-sector bond, credit opportunities, and U.S. dollar hedged international bond funds are in the top third of their peer groups for these same periods. Investment performance across the Alternatives platform in the first quarter was generally strong.
Speaker Change: All vintages of our more recently launched retirement blend funds are top quartile performers for the one year period.
Speaker Change: Over 50% of our fixed income funds beat their peer group medians for the one three and five year time periods.
Speaker Change: Several of our fixed income muni funds as well as our global multi sector bond credit opportunities and U S. Dollar hedged international bond funds are in the top third of their peer groups for these same periods.
Speaker Change: Investment performance across the alternatives platform in the first quarter was generally strong.
Robert W. Sharps: Private credit, structured products, and liquid portfolios generated attractive returns driven by strong credit selection and favorable market dynamics. Before I turn it over to Jen, I want to acknowledge our team. We reached important milestones in the first quarter thanks to their hard work and commitment to our clients, including our capital appreciation equity ETF surpassed $1 billion in assets under management less than a year after its launch last June. Across a number of channels, we are seeing sales momentum with significant year-over-year gross sales improvement for our wealth and individual investor clients.
Speaker Change: Private credit structured products and liquid portfolio has generated attractive returns driven by strong credit selection and favorable market dynamics.
Speaker Change: Before I turn it over to Jan I want to acknowledge our associates.
Speaker Change: We reached important milestones in the first quarter, thanks to their hard work and commitment to our clients.
Jan: Including our capital appreciation equity ETF surpassed $1 billion in assets under management less than a year. After its launch last June.
Jan: Across a number of channels, we're seeing sales momentum with significant year over year gross sales improvement with our wealth and individual investor clients.
Robert W. Sharps: Earlier this month, Ocredit launched on its first major wire house, demonstrating the close partnership of T. Rowe Price and OHA in successfully launching our first BDC with a key strategic partner in the Wealth Management Channel. We retained our number two position among the over 330 asset managers nominated in Institutional Investor's 2024 ranking of America's Top Asset Management Firm. This distinction reflects the value of our corporate access model and the importance of our differentiated research capability.
Jan: Earlier this month old credit launched on its first major wire house, demonstrating the close partnership with T Rowe price and OE and.
Jan: And successfully launching our first BDC with a key strategic partner in the wealth management channel.
Jan: We retained our number two position among the over 330 asset managers nominated and institutional Investor's 2024 ranking of America's top asset management firms.
Jan: This distinction reflects the value of our corporate access model and the importance of our differentiated research capabilities.
Robert W. Sharps: And for the 14th consecutive year, the firm was named one of Fortune Magazine's world's most admired companies. I'm proud of these accomplishments, and I'm grateful to our associates around the globe who continue to put our clients first in everything they do. With that, Jen will now provide an overview of our first quarter results.
Jan: And for the 14th consecutive year. The firm was named one of Fortune magazine's world's most admired companies.
Jan: I am proud of these accomplishments and I'm grateful to our associates around the globe, who continue to put our clients first in everything they do.
Jan: With that John will now provide an overview of our first quarter results.
Jennifer Benson Dardis: Thank you, Rob. And hello, everyone.
John: Thank you, Rob and Hello, everyone I'll review, our first quarter results before turning to <unk> for a look at our retirement business.
Jennifer Benson Dardis: I'll review our first quarter results before turning to Dee for a look at our retirement business. Our adjusted earnings per share of $2.38 for Q1 2024 was up 40% from Q1 2023, driven by higher average AUM and investment advisory revenue and offset marginally by higher expenses. As Rob mentioned, we had $8 billion in net outflows for the quarter. Across asset classes, outflows were concentrated in U.S. equity, particularly large and mid-cap growth strategies.
John: Our adjusted earnings per share of $2 38 for Q1 2024 was up 40% from Q1 2023, driven by higher average AUM and investment advisory revenue and offset marginally by higher expenses.
John: As Rob mentioned, we had $8 billion in net outflows for the quarter across asset classes outflows were concentrated in U S equity, particularly large and mid cap growth strategy.
Jennifer Benson Dardis: However, it's important to note that this quarter's U.S. equity outflows were less than half the level in the first quarter of last year, a meaningful improvement driven by higher sales and lower redemption rates and consistent with improved investment performance. There are a few notable areas of strength within the equity franchise, including U.S. structured research and U.S. smaller companies, both of which had strong flows to the CCAP product from EMEA-based In fixed income, strong investment-grade flows in the institutional channel were offset by continued outflows from stable value in the DC channel.
John: It's important to note that this quarter's U S equity outflows were less than half the level in the first quarter of last year, a meaningful improvement driven by higher sales and lower redemption rates and consistent with improved investment performance.
John: There were a few notable areas of strength within the equity franchise, including U S structured research and you're a smaller company.
Both of which had strong flows to the <unk> product from EMEA based clients.
John: In fixed income and strong investment grade flows in the institutional channel were offset by continued outflows from stable value in the DC channel.
Jennifer Benson Dardis: Our target date franchise was positive for the quarter, with inflows of $6.8 billion offset in part by outflows from other multi-asset products. And finally, we had just under $1 billion of outflows in alternative assets from manager-driven distribution. However, we are encouraged by recent trends in fundraising and expect capital raising to increase through the year. Turning to our income statement, Q1 adjusted net revenues were $1.8 billion, a nearly 14% increase from Q1 of last year, driven by higher average AUM.
John: Our target date franchise was positive for the quarter with inflows of $6 8 billion.
John: Offset in part by outflows from other multi asset products.
John: And finally, we had just under $1 billion of outflows in alternatives from manager driven and distributions.
However, we are encouraged by recent trends in fundraising and expect capital raising to increase through the year.
John: Turning to our income statement Q1, adjusted net revenues were $1 8 billion.
John: Nearly 14% increase from Q1 of last year, driven by higher average AUM.
Jennifer Benson Dardis: Our investment advisory revenue of $1.6 billion included $17.6 million in performance-based fees, predominantly from two of our U.S. equity strategies. These performance-based fees had a half a basis point impact on our effective fee rate of 42.1 basis points. Our Q1 adjusted operating expenses were $1.1 billion, which is up almost 5% over last year from market-driven expenses, including the interim bonus accrual and distribution and servicing costs. Expense growth was tempered by the cost savings efforts we announced last summer.
John: Our investment advisory revenue of $1 6 billion included $17 6 million in performance based fees.
John: <unk> from two of our U S equity strategy.
John: These performance based fees had a half a basis point impact on our effective fee rate of $42 one basis point.
John: Our Q1, adjusted operating expenses were $1 1 billion, which.
Which is up almost 5% over last year from market driven expenses, including the interim bonus accrual and distribution and servicing costs.
John: Expense growth was tempered by the cost savings efforts, we announced last summer.
Jennifer Benson Dardis: Our adjusted operating expenses were down nearly 7% from Q4 2023 due to the Q4 seasonality in stock-based compensation, professional fees, and advertising and promotion expenses. Adjusted operating income increased 31% from Q1 2023 to $692 million. This brings our rolling 12 month adjusted operating margin to 36%, up from 35% a year ago. Given the rise in equity markets over the last few months and the related impact on our market-driven expenses, which, as a reminder, are about one-third of our expense base, we now expect 2024 adjusted operating expenses, excluding carried interest expense, to be up 5 to 7 percent over 2023's $4.19 billion.
John: Our adjusted operating expenses were down nearly 7% from Q4 2023 due to the Q4 seasonality in stock based compensation professional fees and advertising and promotion expenses.
John: Adjusted operating income increased 31% from Q1, 2000 $23 million to $692 million.
John: This brings our rolling 12 months adjusted operating margin to 36% up from 35% a year ago.
John: Given the rise in equity markets over the last few months and related impact on our market driven expenses, which as a reminder is about one third of our expense base. We now expect 2024 adjusted operating expenses, excluding carried interest expense to be up 5% to 7% over 2020 threes for $1 9 billion.
Jennifer Benson Dardis: Maintaining a strong cash position and distributing capital back to our stockholders remains the priority. We bought back $80 million worth of shares during the first quarter, reducing the number of shares outstanding to $223.5 million as of March 31st, and have continued to buy back in April. Combined with our quarterly dividend of $1.24 per share, we returned $365 million in the first quarter. With $2.9 billion of cash and discretionary investments on our balance sheet, we have ample liquidity to support the recurring dividend, continue opportunistic buybacks, and, if they were to arise, to pursue select M&A opportunities to add capabilities to our business.
John: Maintaining a strong cash position and distributing capital back to our stockholders remains a priority we bought back $80 million worth of shares during the first quarter, reducing the shares outstanding to $223 5 million as of March 31, and.
John: And have continued to buy back in April.
John: Combined with our quarterly dividend of $1 24 per share we returned $365 million in the first quarter.
With $2 9 billion of cash and discretionary investments on our balance sheet, we have ample liquidity to support the recurring dividend continue opportunistic buybacks and if they were to arise to pursue select M&A opportunities to add capabilities to our business.
Jennifer Benson Dardis: We continue to manage the business with a long-term lens, balancing the investment in our strategic initiatives to drive growth over time with the need for ongoing expense discipline. From this position, we can continue delivering exceptional value for our clients by aligning resources against new opportunities and added capabilities, while also identifying process improvements and driving efficiency. And now I'll turn it over to Dee. Thank you, Jen. I am pleased to join today's call to talk about our retirement business. As Rob noted, our clients have entrusted us with 1.5
John: Continue to manage the business with a long term lens balancing the investment in our strategic initiatives to drive growth over time with the need for ongoing expense discipline.
John: From this position, we can continue delivering exceptional value for our clients by decking resources against new opportunities and added capabilities, while also identifying process improvements and driving efficiency and now I'll turn it over to Dee.
Dee: Thank you Jen I am pleased to join today's call to talk about our retirement business.
Dee: As Rob noted our clients have entrusted us with 154 trillion in assets of that over one trillion more than two thirds are identifiable as retirement assets demonstrating that retirement is a critical component of our business.
Dee Sawyer: Thank you, Jen. I am pleased to join today's call to talk about our retirement business. As Rob noted, our clients have entrusted us with $1.54 trillion in assets. Of that, more than two-thirds are identifiable as retirement assets, demonstrating that retirement is a critical component of our business. Slides 15 and 16 in the supplemental deck provide a detailed view of our retirement assets. I want to take a moment to share a few highlights.
Dee: Slides 15, and 16 in the supplemental deck provides a detailed view of our retirement assets.
Speaker Change: Wanted to take a moment to share a few highlights.
Dee Sawyer: First, the majority of our retirement assets, $676 billion, or 65%, are in U.S.-defined contribution plans, with a balance in defined benefits and individual IRA accounts. Taking a closer look at our U.S. defined contribution assets, $395 billion, or almost 60%, are in our target date franchise. In fact, we are the top manager of active target date assets, a position we have held for seven years, and we have the third largest market share overall.
Speaker Change: The majority of our retirement assets 676 billion or 65% are in U S defined contribution plans with the balance in defined benefit and individual IRA accounts.
Speaker Change: A closer look at our U S defined contribution assets 395 billion or almost 60% are in our target date franchise.
Speaker Change: In fact, we are the top manager of active targeting assets. Our position we have held for seven years and we have the third largest market share overall.
Dee Sawyer: But our D.C. business is more than target date. Plan sponsors select T. Rowe Price for equity and fixed income investment options as well, with U.S. large-cap growth equity and stable value being the largest proportion of the balance of our D.C. business. We serve the D.C. channel in two ways.
Speaker Change: Our D C business is more than target date plan sponsors select T Rowe price for equity and fixed income investment options as well with U S large cap growth equity and stable value being the largest proportion of the balance of our D C business.
Speaker Change: We serve the DC channel in two ways. The majority of our D. C assets, our DC investment only or <unk>, where the consultant adviser or plan sponsor <unk> T. Rowe price to provide one or more of the investment options in their plan that is a record kept on an external platform.
Dee Sawyer: The majority of our DC assets are DC investment only, or DCIO, where the consultant, advisor, or plan sponsor selects T. Rowe Price to provide one or more of the investment options in their plan that is recorded on an external platform. We are the fifth largest DCIO provider in the U.S. About one quarter of our DC assets are in our full-service record-keeping business, which we refer to as Retirement Plan Services, or RPS. Plan sponsors hire us to provide recordkeeping services as well as key investment options for their plan lineup.
Speaker Change: We are the fifth largest <unk> provider in the U S.
Speaker Change: About one quarter of our D. C assets are in our full service record keeping business, which we refer to as retirement plan services or Rps.
Speaker Change: Plan sponsors hire us to provide recordkeeping services as well as key investment options for their plan lineup.
Dee Sawyer: As of the end of 2023, we provided these services for over 8100 retirement plans. About 60% of all of our RPS assets under administration are invested in cheaper-priced products, which has been consistent over the past several years and is a significantly higher portion of proprietary assets than the industry average of 27%.
Speaker Change: As of the end of 2023, we provided these services for over 8100 retirement plans.
Speaker Change: About 60% of all of our Rps assets under administration are invested in Chiba priced product, which has been consistent over the past several years and has a significantly higher portion of proprietary assets.
Speaker Change: Industry average of 27%.
Dee Sawyer: We provide solutions for a wide variety of clients, including our broad array of equity and fixed income strategies and our market-leading target date franchise. These are offered through a range of funds, common trust, and custom solutions. Within our target date franchise, we offer higher and lower equity glide paths and approaches that include both active and passive building blocks.
Speaker Change: We provide solutions for a wide variety of clients, including our broad array of equity and fixed income strategies and our market leading target date franchise. These are offered through a range of funds common trust and custom solution.
Speaker Change: Within our target date franchise, we offer higher and lower equity glide path and approaches that include both active and passive building blocks.
Dee Sawyer: And our solutions extend to not only investment products but also to tools and services to help clients, plan sponsors, and participants manage their retirement accounts, track progress along their retirement journey, and help improve their overall financial wellness. Through our recordkeeping business, as well as our individual investors channel, we have direct retirement account relationships with over 3.2 million end investors. The insights we derive from these relationships, coupled with the emerging trends we identify from our work with plan sponsors and intermediaries, enhance our ability to design innovative solutions and research to pursue better retirement outcomes.
Speaker Change: And our solutions extend to not only invest in products, but also to tools and services to help clients plan sponsors and participants manage their retirement accounts track progress along their retirement journey and help improve their overall financial wellness.
Speaker Change: Sure our recordkeeping business as well as our individual investors channel, we have direct retirement account relationships with over $3.2 million and investors.
Speaker Change: The insights we derive from these relationships coupled with the emerging trends, we identify from our work with plan sponsors and intermediaries enhance our ability to design innovative solutions and research to pursue better retirement outcomes.
Dee Sawyer: As a generation of retirement savers has aged and shifted from the accumulation phase to the decumulation phase, developing solutions to help people convert their retirement assets into income has become increasingly important. Our proprietary research suggests that participants will need a variety of retirement income products and services to meet their individual needs in the decumulation phase. So we take a broad approach to retirement income. That means standalone retirement income products such as our managed payout products, single-strategy investment products such as fixed income funds, along with the various services we offer, including guidance, retirement thought leadership, and calculators, are all included within our definition of retirement income.
Speaker Change: As a generation of retirement savers has aged and shifted from the accumulation phase to the de accumulation phase developing solutions to help people convert their retirement assets into income has become increasingly important.
Our proprietary research suggests that participants will need a variety of retirement income products and services to meet their individual needs in the accumulation phase. So we take a broad approach to retirement income.
Speaker Change: That means standalone retirement income products, such as our managed payout products.
Speaker Change: <unk> strategy investment products, such as fixed income funds along with the various services, we offer including guidance retirement thought leadership and calculators are all included within our definition of retirement income.
Dee Sawyer: Our broad distribution organization allows us to access all retirement client segments, whether directly to the consumer or through intermediaries, institutions, consultants, or advisors. We have also been adapting the expertise we have honed in the U.S. retirement market to pursue opportunities in the large retirement savings markets in other countries. This access, along with directly managing end investor relationships, uniquely positions us to anticipate and deliver what our clients need. And as a result, we are continuously innovating and adding new capabilities.
Speaker Change: Our broad distribution organization allows us to access all retirement client segments with our direct to the consumer or through intermediaries institutions consultants or advisers.
Speaker Change: We also have been adapting the expertise we have honed in the U S retirement market to pursue opportunities in the large retirement savings markets in other countries.
This access along with directly managing and investor relationships uniquely positions us to anticipate and deliver what our clients need.
Speaker Change: And as a result, we are continuously innovating and adding new capability a.
Dee Sawyer: A few examples include our managed payout products, an all-in-one solution for retirees, which offers the familiarity of our target date product with the benefit of providing stable monthly income throughout retirement. We added a 2025 version of these funds in January. The recently launched Social Security Optimizer Tool, which is designed to help individual investors and participants maximize social security benefits, which are a critical part of the retirement income equation for many savers.
Speaker Change: A few examples include our managed payout products and all in one solution for retirees, which offers the familiarity of our target date product with the benefit of providing stable monthly income throughout retirement, we added a 2025 version of these funds in January.
Speaker Change: The recently launched social security Optimizer tool, which is designed to help individual investors and participants maximize social security benefits.
Speaker Change: Which are a critical part of the retirement income equation for many failures. This is an early example of the impact of last year's Retiree, Inc acquisition.
Dee Sawyer: This is an early example of the impact of last year's Retiree Inc. acquisitions and the Retirement Advisory Service, which offers ongoing access to advisors and personalized financial planning. The financial plans include tax-aware retirement income planning and actively managed portfolios led by the expertise of our multi-asset investment professionals. We are excited to be launching our new Personalized Retirement Manager in the third quarter. This is an evolution of our robust target date offerings driven by a highly customized approach.
Speaker Change: And the retirement Advisory service, which offers ongoing access to advisors and personalized financial planning. The financial plans include tax aware retirement income planning an actively managed portfolio led by the expertise of our multi asset investment professional.
Speaker Change: We are excited we will be launching our new personalized retirement manager in the third quarter. This is an evolution of our robust target date offerings driven by a highly customized approach we plan to deliver a dynamic personal glide path for each participant by using plan level data additional factors provide.
Dee Sawyer: We plan to deliver a dynamic personal glide path for each participant by using plan level data, additional factors provided by participants, and analyzing their portfolio through a monthly multi-factor assessment. And in the fourth quarter, we plan to launch a managed lifetime income solution that will allow participants to combine a managed payout strategy with a Qualified Longevity Annuity Contract, or a QLAC. The product is designed to enable a consistent income stream in retirement while guaranteeing a minimum level of income for life after a defined age.
Speaker Change: By participants and analyzing their portfolio through a more monthly multifactor assessment.
And in the fourth quarter, we plan to launch a managed lifetime income solution that will allow participants to combine our managed payout strategy with a qualified longevity annuity contracts are acute lack.
Speaker Change: The product is designed to enable a consistent income stream and retirement, while guaranteeing a minimum level of income for life. After a defined age.
Dee Sawyer: It is also important to mention that the breadth of our retirement platform enables us to develop industry-leading thought leadership and research on key retirement topics. We leverage both to build client relationships, advance our position as a retirement leader, and enable clients and participants to pursue better retirement outcomes. I will close by saying that the leadership team and our associates are deeply committed to helping our clients confidently prepare for, save for, and live during retirement.
Speaker Change: It is also important to mention that the breadth of our retirement platform enables us to develop industry, leading thought leadership and research on key retirement topics.
We leveraged both to build client relationships advance our position as a retirement leader and enable clients and participants to pursue better retirement outcomes.
Speaker Change: I will close by saying that the leadership team and our associates are deeply committed to helping our clients confidently prepare for phase four and live in retirement, we are grateful for their trust in us and we will continue to use our expertise to drive capabilities and solutions that meet their evolving needs.
Dee Sawyer: We are grateful for their trust in us, and we will continue to use our expertise to drive capabilities and solutions that meet their evolving needs. With that, I'll ask the operator to open the line for questions.
Speaker Change: With that I'll ask the operator to open the line for questions.
Speaker Change: Yeah.
Operator: Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. Please wait for your name to be announced. We ask that you please limit your questions to one until all have had a chance to ask a question. Please stand by while we compile a Q&A list. Our first question comes from the line of Craig Siegenthaler with Bank of America. Your line is now open.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced we ask that you. Please limit your questions to one until all have had a chance to ask a question. Please.
Speaker Change: Please standby, while we compile the Q&A roster. Our first question comes from the line of Craig Siegenthaler with Bank of America. Your line is now open.
Craig William Siegenthaler: Good morning, everyone. I hope you're all doing well.
Good morning, everyone hope, you're all doing well.
Dee Sawyer: Given that D is joining us, I do have a retirement question. 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 alternative investments inside of a T. Rowe target date fund anytime soon? Because we understand price may be one headwind with DC Grant sponsors. Thank you.
Given that he is joining us I do have a retirement question for her.
Craig William Siegenthaler: If alternative investments and or the retirement channel is it more than likely through single investment elections are inside of a target date fund and given that T. Rowe's ownership. Now includes Ohh is there potential for all inside of a tiered target date fund anytime soon because we understand price maybe one <unk>.
Speaker Change: The DC plan sponsors thank you.
Dee Sawyer: Thank you, Craig, for your question. With regard to alternatives, this is an area we have been actively researching. Given preferences and regulatory guidance, there is some complexity around adding alternatives within a 401k plan, such as the daily NAV. However, if we were to introduce alternatives for our target date strategy, we could act quickly with target date solutions, including tiered price solutions, or OHA solutions, or others, because we have a long, long list of partners that would be able to work with us in order to do that.
Speaker Change: Thank you Craig for your question with regard to alternatives. This is an area. We have been actively researching given preferences and regulatory guidance. There are some complexity around adding alternatives within a four one K plan such as the daily NAV. However, if we were to introduce alternatives.
Speaker Change: Our target date strategy, we could act quickly with targeted with target date solutions, including T Rowe price solutions or <unk> solutions or others, because we have a long list of partners that would be able to work with us in order to do that.
Dee Sawyer: In regards to the specifics, we would likely offer that in a custom solution with a plan sponsor, and we have the benefit of being able to work with many plan sponsors who are asking us around how we can continue to advance solutions. Certainly, we could offer this also in a standalone parallel solution, and that would be another way that we could bring this to market when and if it makes sense.
In regards to the specifics we would likely offer that in a custom solution with a plan sponsor and we have the benefit to be able to work with many plan sponsors who are asking us around how can we continue to advance solutions.
Speaker Change: We can offer this also in our Standalone parallel solution and that would be another way that we can bring this to market when and if it makes sense.
Robert W. Sharps: Craig, this is Rob. I'd just like to add a few things. One, it's a priority for us to continue to evolve and improve our target date offering, and this is an area that we've given a lot of thought to. My first observation is that we've seen very limited interest from plan sponsors in incorporating alternatives into the defined contribution lineup, either as a standalone investment offering or as part of target date funds. And as Dee mentioned, there are some limitations around accommodation of the record-keeping system, daily liquidity, daily pricing, those sorts of things.
Speaker Change: Yes, Craig this is Rob I'd, just add a few things one its a priority for us to continue to evolve and improve our target date offering and this is an area that we have given a lot of thought to my first observation is that we've seen very limited interest from plan sponsors and incorporating alternatives into defined.
Rob: Contribution lineup, either as a standalone investment offering or as part of target date funds and as Dave mentioned, there are some limitations around accommodation of the record keeping system daily.
Rob: Daily liquidity daily pricing those sorts of things. There's also a tremendous amount of fee sensitivity in the defined contribution marketplace in alternatives naturally have higher fees, where we have seen interest in where we've engaged are primarily in custom target dates that are designed by corporate clients usually.
Robert W. Sharps: There's also a tremendous amount of fee sensitivity in the defined contribution marketplace, and alternatives naturally have higher fees. Where we have seen interest and where we've engaged are primarily in custom target dates that are designed by corporate clients, usually where they have a defined benefit plan and they have an investment staff and an existing roster of alternative investment managers. So it's something that we're paying a lot of attention to. We're engaging with our plan sponsor clients and listening to what they want. But so far, there's been really very little adoption or interest in alternatives to defined contribution.
Rob: Where they have the defined benefit plan and they have an investment staff in an existing roster of alternative.
Rob: Investment managers, so it's something that we're paying a lot attention to we are engaging with our plan sponsor clients and listening to what they want but so far there has been really very little adoption or interest in alternatives and defined contribution.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is now open.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Michael Cyprus with Morgan Stanley. Your line is now open.
Michael J. Cyprys: ...
Dee Sawyer: The retirement theme, I was hoping to double click on decumulation, just hoping you could 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? And with the products you have so far, just curious what traction you're seeing, and with the new managed lifetime income solution that you're slated to launch later this year. Just curious what, ultimately, you think will be the most successful way to approach that from a distribution standpoint to win as you think about the channels and go-to-market strategy.
Michael J. Cyprys: Great. Thanks. Good morning, Thanks for taking the question, maybe just sticking with the retirement theme I was hoping to double click on Decumulation, just hoping you could 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 and with the <unk>.
Michael J. Cyprys: Alex you have so far just curious what traction you're seeing and what the new managed lifetime income solution that you're slated to launch later this year just curious what ultimately you think will be the most successful way to approach that from a distribution standpoint to win as you think about the channels and go to market strategy.
Dee Sawyer: Great, thank you so much for the question. I'll start us off.
Alex: Great. Thank you so much for the question I'll start us off.
Dee Sawyer: So first, I think I would highlight the breadth of our retirement platform, which gives us access to plan sponsors, intermediaries, and participants. And this is really important because it allows us to really understand what types of retirement income solutions are critical for the varying types of participant needs in the decumulation phase. What our research indicates is that these needs and preferences are diverse, and our perspective is that there will not be a one-size-fits-all solution for retirement income.
Alex: So first I think I want to highlight the breadth of our retirement platform, which gives us access to plan sponsors intermediaries and participants and this is really important because it allows us to really understand what types of retirement income solutions are critical for the varying types of participant needs.
Alex: The Cumulation phase what our research indicates is that these needs and preferences are diverse and our perspective is that there will not be a one size fits all solution for retirement income.
Dee Sawyer: As you noted, we currently offer managed payout solutions, and we do have nearly 60 retirement plans that are using those solutions, which represents approximately 20% of our AUA in terms of overall coverage. Our payout solutions, our retirement income 2020 solution, was launched seven years ago, and then we extended that to offer it through our retirement plan services solution. As you noted, we are working on a retirement insurance solution, which we're calling the Managed Lifetime Income Product.
Alex: As you noted we currently offer a managed payout solutions and we do have nearly 60 retirement plans that are using those solutions, which represents approximately 20% of our way in terms of overall coverage.
Alex: Our payout solutions. Our retirement income 2020 solution has been launched seven years ago, and then we extended that to offer it through our retirement plan services solution.
Alex: As you noted we are working on our retirement insurance solution, which we're calling manage lifetime income product. This will be a collective investment trust vehicle and we're planning to launch that in the fourth quarter of this year.
Dee Sawyer: This will be a collective investment trust vehicle, and we're planning to launch that in the fourth quarter of this year. We also are planning to launch, as I mentioned earlier, a personalized retirement manager, which is also a way to extend retirement income as time goes by. This is a managed account program that we're excited about launching, and it will be introduced in the third quarter of this year. So, in a long-winded way, perhaps, of saying that we do believe that it's really important to offer a variety of types of solutions in order to meet different types of needs, and that's what we found by working with participants, individual investors, plan sponsors, as well as advisors.
Alex: We also are planning to launch as I mentioned.
Alex: Earlier personalized retirement manager, which is also a way to extend as time goes by into retirement income as well. This is a managed account program that were excited about launching and it will be introduced in the third quarter of this year, So long winded way, perhaps of saying that we do believe.
Alex: And that it's really important to offer a variety of types of solutions in order to meet the different types of needs and that's what we found by working with participants individual investors plan sponsors as well as advisors.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Dan Fannon with Jeffreys. Your line is now open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Dan Fannon with Jefferies. Your line is now open.
Daniel Thomas Fannon: Hi, Thanks, Good morning, Rob was hoping you could provide additional context around the trends you discussed a better gross sales as well as lower redemptions. It seems like April here's a bit more mixed but can you talk to maybe the difference in the channels in our geographies, where youre seeing the biggest improvements versus what we saw last year.
Daniel Thomas Fannon: Yeah, Dan, thanks for the question. At a high level, I would say that our outlook for flows for the year really hasn't changed from what we discussed in January on the fourth quarter call, although I would say that we have higher conviction now that our outflows this year will be substantially lower than they were last year. As I've talked about in the past, I think investment performance is a good leading indicator and continue to be pleased with what we're seeing, particularly in U.S. equity. Performance in U.S. large-cap growth is clearly having an impact.
Speaker Change: Yes, Dan Thanks for the question.
Daniel Thomas Fannon: At a high level I would say that our outlook for flows for the year really hasnt changed from what we discussed in January on the fourth quarter call. Although I would say that we have higher conviction now that our outflows this year will be substantially lower than they were last year.
Daniel Thomas Fannon: As I talked about in the past I think investment performance is a good leading indicator and continue to be pleased with what we're seeing particularly in U S equity performance in U S. Large cap growth is clearly having an impact we've seen redemption rates theyre normalize and we've begun to see the beginnings of a recovery in gross sales.
Robert W. Sharps: We've seen redemption rates there normalize, and we've begun to see the beginnings of a recovery in gross sales in that suite. Obviously, outflows in Q1 being half of last year's level is an encouraging data point. I'm encouraged that the retirement date fund flows remain strong, just shy of $7 billion in Q1. I'd say our ETF momentum, Dan, is building. It's small, but it is growing to a point where it is having an impact.
In that suite.
Daniel Thomas Fannon: Obviously outflows in Q1 being half of last year's level as an encouraging data point I am encouraged that the retirement date fund.
Daniel Thomas Fannon: Flows remained strong just shy of 7 billion in Q1, I would say our ETF momentum Dan is building its small but growing to a point where it.
Robert W. Sharps: I would just say our pipeline is healthier in general. With improved performance, we have less AUM marked as at risk. We have more in the way of notified unfunded wins, fewer notified terminations, and there's just more activity around new opportunities. At OHA, I think the capital-raising pipeline there is going well, and ultimately that will convert to growth-in-fee basis, AUM, and flows.
Daniel Thomas Fannon: It is having an impact at all.
Daniel Thomas Fannon: I would just say our pipeline is healthier in general with improved performance. We have let's say you were marked as at risk we have more in the way of notified unfunded wins fewer notified terminations.
Daniel Thomas Fannon: And there's just more activity around new opportunities.
Daniel Thomas Fannon: At OE, Jay I think the capital raising pipeline, there is going well and kind of ultimately that will convert to growth in fee basis.
Robert W. Sharps: With regard to channels, we actually had modest positive inflows in three of our channels in Q1. And even in the areas where we remain without flows, we did see fewer redemptions and improving gross sales. Look, flows are extraordinarily hard to predict. You know, as I noted in the prepared remarks, we did have some rebalancing impact in April that, you know, was very short notice and went against us. That easily could have gone the other way.
Daniel Thomas Fannon: And flows.
Daniel Thomas Fannon: With regard to channels, we actually had modest positive inflows in three of our channels.
Daniel Thomas Fannon: In Q1.
Daniel Thomas Fannon: EBIT in the areas, where we remained with outflows, we did see lesson redemptions and improving gross sales.
Daniel Thomas Fannon: Look our flows are extraordinarily hard to predict.
Daniel Thomas Fannon: As I noted in the prepared remarks.
Daniel Thomas Fannon: We did have some rebalancing impact in April that was very short notification.
Daniel Thomas Fannon: And when against Us that easily could have gone the other way I mean, ultimately there are instances, where you have really compelling performance or you manage an asset class that has outsized performance.
Robert W. Sharps: I mean, ultimately, there are instances where you have really compelling performance or you manage an asset class that has outsized performance, and the underlying clients need to target back or rebalance back to their target allocation. So, you know, those sorts of flows are part of the business. I think that makes me much less concerned than when we're losing mandates or being terminated. The last thing I would say with regard to flows is that the industry backdrop really seemed to be firming in the first part of the year, really through Q1, and it's been softer in April from the high-frequency data that we get.
Daniel Thomas Fannon: The underlying clients need to target back our rebalanced back to their target allocation.
Daniel Thomas Fannon: So those sorts of flows are part of the business I think that is makes me much less concerned than when we're losing mandates or being terminated.
Daniel Thomas Fannon: I would say with regard to flows as the industry backdrop really seem to be firming in the first part of the year really through Q1 and it has been softer in April from the high frequency data that we get so I think we'll just have to watch with regard to whether that's a blip or whether it's the beginning of a period.
Robert W. Sharps: So I think we'll just have to watch with regard to whether that's a blip or, you know, whether it's the beginning of a period of softer underlying flows, broadly. But, you know, ultimately, there are a lot of things that I see that are encouraging that will allow us to, as I said, have substantially less in the way of outflows throughout the course of the year, even if it isn't linear improvement. Thank you. One moment for our next question. Our next question comes from the line of Patrick Davitt with
Daniel Thomas Fannon: Those softer underlying flows broadly but.
Daniel Thomas Fannon: Ultimately there are a lot of things that I see that are encouraging that will allow us to as I said, you'll kind of have substantially less in the way of outflows throughout the course of the year, even if it isn't linear improvement.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Patrick Davitt with Autonomous Research. Your line is now open.
Patrick Davitt: One moment for our next question. Our next question comes from the line of Patrick Davitt with Autonomous Research. Your line is now open.
Patrick Davitt: Hey, Thanks. Good morning, everyone. My question is on the expense guide are you factoring in the full one Q AUM mark to that or did you discounted a bit given the.
Operator: Thanks, Patrick. Similar to last quarter, we used the first quarter average as an estimate for our expense growth guide, and we tried to give a range around reasonable assumptions for market movement from that average in our percentage guide. And as you noted, we've had some decrease in markets in the first start of the, in the first quarter of the year, but that puts us back around the place we started from an average perspective.
Patrick Davitt: Q to date data quite negative thank you.
Patrick Davitt: Yeah. Thanks, Patrick we similar to last quarter, we used first quarter average as an estimate for our expense growth guide and we tried to give a range around reasonable assumptions for market movement from that averaged in in our percentage guide and as you. As you noted we've had some decrease in markets in the first start of the.
Patrick Davitt: In the start of April in the quarter, but that puts us back around the place we started from an average perspective.
Speaker Change: Got it.
Brian Bertram Bedell: Thank you. Our next question, in one moment, comes from the line of Brian Bedell with Deutsche Bank. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question one moment.
Speaker Change: Comes from the line of Brian Bedell with Deutsche Bank. Your line is now open.
Brian Bertram Bedell: Great. Thanks. Good morning.
Dee Sawyer: Thanks for taking my question. 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 for T. Rowe Price? I know full-service is more costly and can be a lower margin, but you, I think, have a better ability to capture IRA rollovers there. So, if you can talk about that dynamic, And then, as you evolve your solutions, do you have more flexibility to do that with the record-keeping plans? Hence, that makes that segment more attractive than DCIO from that standpoint.
Brian Bertram Bedell: Great. Thanks. Good morning, Thanks for taking my question, maybe just to go back to the retirement business could you talk a little bit about.
How you view the <unk> segment versus the full service record keeping segment in terms of economics to T. Rowe price I know full services more costly can be lower margin, but you I think have a better ability to capture IRA rollovers. There. So if you can talk about that dynamic.
Brian Bertram Bedell: And then.
Brian Bertram Bedell: As you evolve your solutions do you have more flexibility to do that with the record keeping plans, hence hence that makes that segment more attractive than Dci you from that from that standpoint.
Dee Sawyer: Sure. So, thanks for the question.
Dee Sawyer: Let me offer a couple of points. The first point that I would offer is when you look at our U.S. defined contribution assets under management, roughly 75% of those defined contribution assets are our DCIO channel. And so, we feel really strongly about the fact that we continue to offer solutions across many different types of record keepers and through many different types of accounts in that DCIO channel, and that's through hard work with partners on the intermediary side of our business.
Speaker Change: Sure. So thanks for the question, let me offer a couple of points. So the first point that I would offer is when you look at our U S defined contribution assets under management roughly 75% of those defined contribution assets are our <unk> channel and so.
Speaker Change: We feel really strongly about the fact that we continue to offer solutions across many different types of record keeper then through many different types of accounts.
Speaker Change: In that <unk> channel and Thats through hard work with our partners on the intermediary side of our business with specifically about our retirement services business, we feel really good about that business and the fact of two things so number one.
Dee Sawyer: With specifically regard to our retirement services business, we feel really good about that business for two things. So, number one, as I mentioned in my earlier remarks, the fact that 60% of that business overall is in proprietary products, and that's unique for T. Rowe Price. The second thing about that retirement business is that we do also have an individual investor channel where a participant, if they should choose, can roll over, and we do see that that is an advantage for us in terms of overall economics, but overall meeting participant needs where they are. So, hopefully that's a helpful perspective.
Speaker Change: As I mentioned in my earlier remarks in the fact that 60% of that business overall is in proprietary products and that's unique for T Rowe price and.
Speaker Change: The second thing about that retirement business as we do also have an individual investor channel, where a participant if they should choose can roll over and we do see that that is an advantage for us in terms of overall economics, but overall meeting participant needs where they are so hopefully that's helpful perspective.
Robert W. Sharps: Yeah, the one thing that I would add quickly is within our individual investors, one area that we've been investing in is our advisory capability, specifically around rollovers and retirement. So in addition to the retiree acquisition last year, which is another tool to help optimize decumulation, we've been investing in retirement advisory services, and it's a part of the individual investor business that's growing.
Speaker Change: Yes, the one thing that I would add quickly is within our individual investors one area that we've been investing in is our advisory capabilities specifically around rollovers in retirement. So in addition to the retiree acquisition last year, which is another tool to help optimize decumulation, we've been investing in retirement advisory services and it is a part.
Speaker Change: Of the individual investor business Thats growing.
Dee Sawyer: Maybe picking up on one more point that you mentioned, Brian, because we do have the recordkeeping business in-house, we are able to more quickly roll out solutions that we want to add on from a plan sponsor perspective. So all the services that he talked about earlier, because we have the inner workings of the plan recordkeeping, we're able to launch those more quickly than if we had to do that on another platform. But it does allow us to kind of test those and then roll them out more broadly as clients prefer.
Speaker Change: Maybe maybe picking up on one more point that you mentioned, Brian because we do have the record keeping business in house, we are able to more quickly rollout solutions that we want to add on from a plan sponsor perspective. So all of the services that you talked about earlier, because we have the inner workings of the plan record keeping we're able to launch those more quickly than if we had to do that on another platform.
Speaker Change: But it does allow us to kind of test those and then roll them out more broadly as clients prefer.
Robert W. Sharps: It also gives us some pretty meaningful perspective to engage with clients outside of the U.S. as defined contribution schemes evolve. So we have an existing opportunity in Asia. We're working on another one, and there are a handful of opportunities to partner with folks to leverage the expertise that we have as a retirement fund provider but also as a plan sponsor to kind of partner with people outside of the U.S., as they really
Speaker Change: It also gives us some pretty meaningful perspective to engage with clients outside of the U S. As defined contribution schemes evolved so yes.
Speaker Change: We have.
Speaker Change: Existing opportunity in Asia, we are working on another one and there are a handful of opportunities to partner with folks to leverage the expertise that we have as a retirement fund provider, but also as a plan sponsor to partner with people outside of the U S. As they really develop.
Speaker Change: Their approach to defined contribution.
Operator: Thank you. And our next question will come from the line of Alexander Blostein with Goldman Sachs. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question will come from the line of Alexander <unk> with Goldman Sachs. Your line is now open.
Alexander Blostein: Thanks. Thanks. Good morning, everybody.
Alexander: Thanks. Thanks, Good morning, everybody I was hoping we could dig into.
Robert W. Sharps: I was hoping we could dig into OHA a little more, just kind of thinking about the underlying growth drivers from here. The revenue base has been a little bit more range-bound over the last couple of quarters, and it's nice to see you guys launch the non-traded BDC out, so that's up and running. But as you think forward, what do you see as kind of the key building blocks to accelerating revenue growth in this business? And are there any other known redemptions that you might call out that are kind of related similar to what you've seen recently?
Alexander: A little more just kind of thinking about the underlying growth drivers from here. The revenue base has been a little bit more range bound over the last couple of quarters and it's nice to see you guys launched a non traded BDC out so that's up and running but as you think forward what do you see as kind of the key building blocks to accelerating revenue growth in this business.
Are there any other known redemptions that you that you might call out kind of unrelated similar to what you've seen recently.
Robert W. Sharps: Yeah, Alex, thanks for the question. On the latter, you know, I would say nothing that would be material enough to call out in terms of known redemptions there. If you take a step back, I'd say there are many elements of the OHA deal that I'm very happy with. I think it's been an excellent cultural fit. They're very good investors. They have associates that are deeply committed to their clients.
Speaker Change: Yes, Alex Thanks for the question on the ladder.
Speaker Change: I would say nothing that would be material enough to call out in terms of known redemptions there.
Alex: If you take a step back I'd say there are many elements of.
Alex: The <unk> deal that I am very happy with I think it's been an excellent cultural fit there are very good investors. They have associates that are deeply committed to their clients their investment performance across a range of strategies from distressed to structure to multi sector has been very strong.
Robert W. Sharps: Their investment performance across their range of strategies from distressed to structured to multi-sector has been very strong. We have some emerging distribution synergies. You mentioned launching the BDC and the Wealth Channel. So, that's the first of many potential opportunities there. And I'll spend a few seconds more specifically on that.
Alex: We have some emerging distribution synergy you mentioned launching the BDC in the wealth channel.
Alex: So thats the first of many potential opportunities there and I'll spend a few seconds more specifically on that but we've also seen multiple T. Rowe price referrals from institutional relationships around the globe that are now translating into new business for <unk>, but as you noted the growth in.
Robert W. Sharps: But we've also seen multiple T. Rowe Price referrals from institutional relationships around the globe that are now translating to new business for OHA. But, as you noted, the growth in fee basis at U.M. has been slower, particularly over the course of the last couple quarters.
Alex: Fee basis, AUM has been slower, particularly over the course of the last couple of quarters. There have been some redemptions primarily in their liquid book there has been some challenges around deployment some of what they do in distressed as trigger based then.
Robert W. Sharps: There have been some redemptions, primarily in their liquid book. There have been some challenges around deployment. Some of what they do in distressed is trigger-based.
Robert W. Sharps: And it, I suppose, is a good thing that there hasn't been a lot of distressed, or spreads haven't been wide enough to actually trigger calling and deploying some of that capital. There's been less new issuance in private credit in general, and OHA has been less active in some of the parts of the market that have grown most rapidly. So, insurance or senior direct lending.
Alex: I suppose there is a good thing that there hasnt been a lot of distressed or spreads haven't been wide enough to actually trigger calling in deploying <unk>.
Alex: Some of that capital.
Alex: Then less new issuance in private credit in general.
Alex: And <unk> been less active in some of the parts of the market that have grown most rapidly so insurance.
Robert W. Sharps: That said, I think the direction of travel here is encouraging. I noted earlier when I was talking about flows that their capital raising pipeline is strengthening. I would expect you'd call it mid-teens growth in capital under management.
Alex: Or senior direct lending that said I think the direction of travel here is encouraging I noted earlier when I was talking about flows that their capital raising pipeline is strengthening.
Alex: I would expect call it mid teens growth in capital under management and in particular their dedicated senior private lending product is gathering a lot of momentum I do think ultimately they'll have call it kind of mid.
Robert W. Sharps: And in particular, their dedicated senior private lending product is gathering a lot of momentum. I do think ultimately they'll have to call it kind of a mid-High Single-Digit Growth and Fee Basis AUM this year, and that will start to build momentum going forward. Specifically, as it relates to Ocredit, we had almost $1.4 billion in invested assets in Ocredit as of March 31st, and I think we're doing all of the things we need to do to deliver a great experience for our wealth partners and their underlying clients.
Alex: High single digit growth in fee basis, AUM this year and that will start to build.
Alex: Momentum going forward, specifically as it relates to old credit.
Alex: We had almost $1 4 billion in invested assets and no credit at March 31, and I think we're doing all of the things we need to do to deliver a great experience for our wealth partners and their underlying clients. The most important order of business right now is scaling and successfully launching on multiple platforms.
Robert W. Sharps: The most important order of business right now is scaling and successfully launching. We had an important launch, our first wire house earlier this month, and we've had several smaller launches and have several lined up for the May to July timeframe and are working on filling things in beyond that. And I would say I'm encouraged by those discussions and the visibility with regard to how this will unfold over the course of the next year.
Alex: Important launch our first wire house earlier this month and we've had several smaller launches and have several lined up for the may to July timeframe and are working on filling things in beyond that and I would say I'm encouraged by those discussions and the visibility.
Alex: With regard to how that will unfold over the course of the next year. We've got really good conversations with a range of clients from large broker dealers and private banks to regional ROI as we are investing in our sales capacity and field support including education and additional alternatives specialists again. This is the first of several offerings that we.
Robert W. Sharps: We've had really good conversations with a range of clients, from large broker dealers and private banks to regional RIAs. We're investing in our sales capacity and field support, including education and additional alternative specialists. Again, this is the first of several offerings that we hope to bring to the Wealth Channel. But I think what I've found is that this is a long sales cycle. It's the first time we've done this, so it has taken longer than I would have anticipated or I think the OHA folks would have anticipated at the outset, but I still think that it's a very, very large opportunity and I'm really enthusiastic about what it will bring in time.
Alex: Hope to bring to the wealth channel.
Alex: I think what I found is that this is a long sales cycle. It's the first time we've done this.
Alex: It has taken longer than I would've anticipated or I think the IHA folks would have anticipated at the outset, but I still think that it's a very very large opportunity and I'm really enthusiastic about kind of what it will bring in time.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Ken Worthington with J.P. Morgan. Your line is now open.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Ken Worthington with Jpmorgan. Your line is now open.
Kenneth Brooks Worthington: Hi, good morning, and thank you for taking the question. D, thank you for joining the call. A couple more questions for you, please.
Kenneth Brooks Worthington: Hi, good morning, and thank you for taking the question.
Kenneth Brooks Worthington: Thank you for joining the call a couple more questions for you. Please.
Dee Sawyer: BlackRock announced its Paychex product. Does the BlackRock announcement change the equation at all for deaccumulation or the competitive environment in retirement? Maybe second, do you feel that TRO is ahead of peers in deaccumulation or retirement customization? And if so, are you ahead enough to win new business, or is this more about keeping existing business?
Kenneth Brooks Worthington: Blackrock announced its paychex product does the Blackrock announcement change the equation at all for D accumulation or the competitive environment in retirement.
Kenneth Brooks Worthington: Second do you feel that T. Rowe is ahead of peers and do accumulation or retirement customization.
Kenneth Brooks Worthington: If so are you ahead enough to win new business or is this more about keeping existing business.
Dee Sawyer: In terms of, let me answer your second question first. I think we are in a really good position where we are with our overall approach to retirement income and how we are making sure that we are continuing to meet the evolving needs and addressing the complexity of decumulation. And so we certainly already have products in the marketplace, and then I mentioned a couple that are already in development that we're excited about launching later in the year.
Speaker Change: Thanks for the question in terms of let me answer. Your second question first I think we are in a really good position, where we are with our overall approach to retirement income and how we are making sure that we are continuing to meet the evolving needs and addressing that complexity of D. <unk>.
Speaker Change: Relation and so we certainly already have products in the marketplace and then I mentioned a couple that are already in development that we're excited about launching later in the year and so I would tell you I feel really well really good about our position overall to be able to meet the needs of plan sponsors and and and and investors I think it is.
Dee Sawyer: And so I would tell you, I feel really good about our position overall to be able to meet the needs of plan sponsors and end investors. I think it's also important to note that we do plan to continue to extend those relationships through our other channels, including our intermediary channel, making sure that we're partnering with advisors and their end clients. And so we feel good about the lineup that we have today, as well as the lineup coming up. So that would answer the first question or the second part of your question.
Speaker Change: Also important to note that we do plan to continue to extend those relationships through our other channels, including our intermediary channel, making sure that we're partnering with advisers and their end clients and so we feel good about our lineup that we have today as well as the lineup coming so that would answer the first question or the second part of.
Dee Sawyer: Regarding the first part of your question, what I would tell you, though, is that as we think about retirement income, it's just important to note that there are a fair number of solutions in the marketplace. And where I would say we are differentiated is in the fact of the breadth of our platform. If you think about the fact that Turo Price is uniquely positioned in the fact that we work with plan sponsors, we work with end investors, we work with intermediary clients, we work with institutions, we work with clients across the globe, we are uniquely positioned to be able to support that all the way across.
Speaker Change: Your question.
Speaker Change: Regarding the first part of your question.
What I would tell you though is.
Speaker Change: As we think about retirement income it's just important to note that there is a fair number of solutions in the marketplace and where we're I would say we are differentiated is and the fact of the breath of our platform. If you think about the fact that T. Rowe Price's uniquely positioned in the fact that we work with plan sponsors we work with and <unk>.
Speaker Change: <unk> as we work with intermediaries clients, we work with institutions, we work with clients across the globe. We are uniquely positioned to be able to support that all the way across more specifically around retirement income. We also have solutions comparable to the solutions that you've mentioned and so I do feel.
Dee Sawyer: More specifically, around retirement income, we also have solutions comparable to the solutions that you've mentioned. And so I do feel that we are well-positioned, and there isn't anything that I would say is notable to say that we're behind to mention on this call.
Speaker Change: That we are well positioned and there isn't anything that I would say is notable to say that we're behind.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.
Speaker Change: Tim mentioned on this call.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.
Brennan Hawken: Good morning. Thank you for taking the time to answer my questions. I was curious about a couple things on the expense front. You mentioned that there's capitalization of labor in the UK. I am curious about what that impact was in the quarter and how you expect that it would impact expense growth going forward. You also referenced the change of practice around explicit payment for research. I am so curious about what sort of impact that has on 2024 growth in expenses. Thank you.
Brennan Hawken: Good morning, Thank you for taking my questions.
Brennan Hawken: Curious about a couple of things on the expense front.
Brennan Hawken: You mentioned that there is a capitalization of labor in the UK. 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 in change of practice around explicit payment for research. So curious about what sort of impact.
Brennan Hawken: That has on 2020 for growth.
Unknown Executive: Sure. Thanks.
Unknown Executive: I think for the first part of the question, just maybe to clarify, it wasn't about capitalization of labor. This was related to our UK entity where we moved into a new building at the end of last year, and we had a nonrecurring benefit in the first quarter of this year related to that. It's not material in terms of operations and really wouldn't be expected going forward. We just called it out as a one-time benefit.
Brennan Hawken: And expenses. Thank you.
Speaker Change: Sure. Thanks, I think for the first part of your question just maybe to clarify it wasn't about a capitalization of labor. This was related to our U K entity, where we moved into a new building at the end of last year, and we had a nonrecurring benefit in the first quarter of this year related to that.
Speaker Change: Not material in terms of operations and really wouldnt be expecting going forward, we just called it out as a onetime benefit with regard to research fees, Yes, we did call that out as a benefit in 2024, I think what I would say is that we remain fully committed to external research and its value, but the mix of hard and soft dollar, we'll we'll flex over.
Unknown Executive: With regard to research fees, yes, we did call that out as a benefit in 2024. I think what I would say is that we remain fully committed to external research and its value, but the mix of hard and soft dollars will flex over time as we work with different regulations and work with how our clients want to receive those costs. Yeah, that mix is really...
Speaker Change: Time, as we as we work with different regulations and work with how our clients want to receive.
Speaker Change: Those costs, yes that mix is really driven by the regulatory environment and client preference.
Unknown Executive: Yeah, that mix is really driven by the regulatory environment and client property.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Aiden Hall with KVW. Your line is now open. Great.
Speaker Change: One moment for our next question please.
Yes.
Speaker Change: Our next question comes from the line of Adam Hull with <unk>. Your line is now open.
Aiden Hall: Great, thanks for taking my question. I'm just wondering if you could provide us with some color on the trajectory of, you know, fee rates by asset class, just given some of the makeshift that's taken place in the asset base. And then it was nice to see the contribution of performance fees this quarter. I know it's tough to predict, but, you know, should we be thinking about that as a more normal contributor on a going forward basis? Have you seen some stronger performance from your products?
Adam Hull: Great. Thanks for taking my question.
Adam Hull: Just wondering if you could provide us with some color on the trajectory of the fee rates by asset class just given some of the mixed shift that's taken place.
Adam Hull: Asset base and then.
Adam Hull: It's nice to see the contribution of performance fees. This quarter I know, it's tough to predict but should we be thinking about that as a more normal contributor on a go forward basis have you seen some stronger performance from your products.
Unknown Executive: Sure. So, I mean, we've spoken in the past.
Speaker Change: Sure. So I mean, we've spoken in the past on average if we take a step back I mean, a number of our products whether its by different vehicles or by larger institutional clients. We tend to see about one to one 5% fee compression annually again that can be higher or lower depending on.
Eric Lanoue Veiel: On average, if we take a step back, I mean, a number of our products, whether it's by different vehicles or by larger institutional clients, we tend to see about 1 to 1.5 percent fee compression annually. Again, that can be higher or lower depending on specific choices we make about fees. But certainly, the direction of travel has been that when clients can take advantage of scale, they will get discounts on pricing when they come in, and we have a number of large relationships that we manage as part of our strategic relationships.
Speaker Change: On specific choices, we make about about fees, but certainly the direction of travel has been that.
Speaker Change: When clients can take advantage of scale, they will get discounts for the pricing and when they come in and we have a number of large relationships that we manage as part of our strategic relationships.
Eric Lanoue Veiel: With regard to performance fees, this was a one-off. I mean, there are a handful of equity products that we have, not a significant number that have fee arrangements. Of course, within the OHA product range, there are more. This one, in particular, this quarter, related to a handful of equity products on the TRO side.
Speaker Change: With regard to performance fees. This was one off I mean, there are a handful of equity products that we have not a significant number that has a fee arrangements of course within the <unk> product range. There are more of this one in particular this quarter related to a handful of equity products.
Eric Lanoue Veiel: We use our scale to invest in our value proposition, and I would say that within asset classes, the trend of fee compression is something that we've navigated for a very long time and is comparatively stable right now. A few years ago, we made a substantial investment in the fee competitiveness of target date funds and called that out specifically at the time. But I would say, overall, I feel very good about our value proposition and our fee competitiveness right now.
Speaker Change: On the Trs side.
We use our scale to invest in our value proposition.
Speaker Change: I would say that within asset classes.
Speaker Change: The trend of fee compression is something that we've navigated for a very long time and is comparatively stable right now.
Speaker Change: Years ago, we made a substantial investment in fee competitiveness of the target date funds and called that out specifically at the time, but I would say overall I feel very good about our value proposition and our fee competitiveness right. Now so where are you seeing fee compression I think it would be natural where you have the migration from funds to trust where.
Eric Lanoue Veiel: So, where you see fee compression, I think it would be natural, where you have a migration from funds to trusts, where you have more rapid growth in some lower-fee vehicles, or ultimately, there are puts and takes. I'd say market movement also drives a fair bit of this from quarter to quarter, but I don't think that there's anything unusual or that I would call out with regard to the fee environment right now.
Speaker Change: You have more rapid growth.
Speaker Change: In some lower fee vehicles or ultimately there are puts and takes I would say market movement also drives a fair bit of this.
Speaker Change: From quarter to quarter, but I don't.
Speaker Change: If there was anything unusual or that I would call out with regard to the fee environment right. Now yes. This is Eric the one other thing I would add to that is that even within asset class again client preferences and important part of that and when you have really strong performance in something like structured research and in the U S equity business, which competes directly with passive but it.
Eric Lanoue Veiel: Yeah, this is Eric. The one other thing I would add to that is that even within asset classes, client preference is an important part of that. And when you have really strong performance in something like structured research in the U.S. equity business, which competes directly with passive, but at a better fee, you know, versus passive, but lower than our overall average fee, you'll see some mix within asset classes. But that's really good business for us and is a really strong endorsement of our underlying research.
Eric: Better fee.
Eric: Versus passive but lower than our overall average fee youll see some mix within asset class, but thats really good business for us and is a really strong endorsement of our underlying research capabilities.
Robert W. Sharps: Thank you. This completes our Q&A portion. I'll now turn the call back over to Mr. Rob Sharp for closing remarks.
Eric: Thank you. This concludes our Q&A portion I will now turn the call back over to Mr. Rob Sharp for closing remarks alright.
Robert W. Sharps: All right, great. Well, we appreciate your questions and your interest in T. Rowe Price. Thank you for joining us this morning. Hopefully, you found Dee's retirement update informative. We will continue to evaluate special topics to integrate into future calls so we can give you a deeper understanding of our business. So, again, thanks for joining us, and have a good day.
Robert W. Sharps: Alright, great.
Robert W. Sharps: I appreciate your questions and your interest in interior price. Thank you for joining US. This morning, hopefully you found these retirement update in <unk>.
<unk>, we will continue to evaluate special topics to integrate into future call. So we can give you a deeper understanding of our business. So again, thanks for joining us and have a good day.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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