Q3 2024 T. Rowe Price Group Inc Earnings Call
Yeah.
Good morning, My name is Daniel and I.
I will be your conference facilitator today.
Welcome to the T Rowe Price's third quarter 2024 earnings conference call.
All participants will be in listen only mode until the question and answer period.
I'll give you instructions on how to ask a question at that time.
Reminder, this call is being recorded and will be available for replay on T. Rowe Price's website. Shortly after the call concludes.
Speaker Change: I'll now turn the call over to Lindsay Crouse T Rowe Price's director of Investor Relations.
Speaker Change: Okay.
Lindsay Crouse: Hello, and thank you for joining us today for our third quarter earnings call. The press release and our supplemental materials documents can be found on our IR website at investors thought T. Rowe price Dot Com today's call will last approximately 45 minutes or chair CEO and president, Rob Sharps and CFO agenda artists will discuss the company's results for.
Lindsay Crouse: About 15 minutes and we'll open it up for your questions. 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 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.
Lindsay Crouse: Q al.
Speaker Change: All investment performance references to peer groups on today's call are using Morningstar peer groups and for the quarter that ended September 30th 2024, now I will turn it over to Rob.
Rob Sharps: Thank you Lindsay and thank you all for joining our third quarter earnings call.
Rob Sharps: We closed the quarter with 1.63 trillion dollars in assets under management up three 9% from June 30th despite $12 $2 billion in net outflows.
While net outflows increased in the third quarter, we are seeing encouraging signs that we are on the right path.
Rob Sharps: Our active ETF franchise is expanding we are deepening our retirement leadership position with the launch of innovative retirement solutions and our associates are advancing our strategic initiatives across the business.
Rob Sharps: We remain on track to reduce net outflows this year.
I'll now turn to investment performance.
Rob Sharps: Our long term investment performance remained solid despite softer results this quarter.
Rob Sharps: And our equity franchise.
Rob Sharps: U S mid cap value.
Rob Sharps: <unk> equity research.
Rob Sharps: Integrated U S small mid cap core equity and integrated global equity all continue to be top quartile performers for the one three and five year time periods.
Rob Sharps: In our ETF franchise, our semi transparent U S equity research ETF now have top quartile performance for both the one and three year time periods.
Rob Sharps: And our more recently launched transparent equity Etfs.
Rob Sharps: Growth and small mid cap Etfs remain top quartile performers for the one year time period.
Rob Sharps: In fixed income our muni strategies continued to be strong performers as do our floating rate and ultra short term bond Etfs.
Rob Sharps: All of which have top quartile performance across multiple time periods.
While underlying stock selection in an overweight towards U S equities were detractors to relative performance in the third quarter.
Rob Sharps: Our flagship retirement funds and the new retirement blend funds continue to have strong long term performance.
Rob Sharps: Over 90% of our target date assets are in the top quartile for the 510 and 15 year time periods on an AUM basis.
Rob Sharps: Returns across alternative strategies were positive during the quarter and broadly consistent with the constructive market backdrop.
Rob Sharps: Private structured and liquid strategies generated stronger results, while distressed and special situations lag.
Rob Sharps: As I shared earlier third quarter net outflows totaled $12 $2 billion.
We do expect further increases in net outflows during the fourth quarter, reflecting seasonal trends and a large sub advised variable annuity termination now expected in late Q4.
Rob Sharps: Even with this loss we remain on track to reduce net outflows this year, although not as significantly as we had previously expected.
Rob Sharps: Excluding the VA termination, we estimated 2024 net outflows to be less than half of 2023 levels.
Rob Sharps: John will share more detail in a moment, but I want to underscore that while theres, an unanticipated loss was deeply disappointing.
Rob Sharps: It doesn't undo the progress we have made in other areas.
Rob Sharps: We are expanding our ETF business and deepening our leadership in retirement with innovative new strategies.
Rob Sharps: With our recently launched technology ETF, we provide investors our first sector focused fully transparent portfolio with the tax efficient convenient and cost effective benefits of the ETF wrapper.
Rob Sharps: We also recently launched two new retirement offerings.
Rob Sharps: Personally retirement manager and manage lifetime income.
Rob Sharps: Personalized retirement manager is the industry's first managed account designed to create a unique asset allocation tailored for the individuals and.
Incorporating personal data into the proven lifecycle investment philosophy and process that underpin our leading target date strategies.
Rob Sharps: Manage lifetime income is a new retirement solution designed to provide retirees in a defined contribution plan with stable and predictable monthly income for life.
Manage lifetime income combines our managed payout investment from T. Rowe price with a qualifying longevity annuity annuity contract from Pacific life to offer a unique union of professional asset management.
Rob Sharps: And guaranteed monthly payouts.
Rob Sharps: We are also seeing increased client interest and co developing and customizing our target date capabilities and were notified of a sizeable custom glide path when expected next year.
Rob Sharps: We are reaching key milestones in areas beyond retirement as well.
Rob Sharps: We had our first close for Olin, our senior private lending funds, which drove much of this quarter's 3 billion increase in unfunded capital commitments.
Rob Sharps: Our focus on U S wealth resulted in new relationships that are launching this year, new placements and home office models and more partnerships focused on Etfs in SMA.
Rob Sharps: Finally, despite the VA termination I noted earlier, our weighted net pipeline grew quarter over quarter, suggesting that elevated fourth quarter outflows are not indicative of the underlying trajectory of our business.
I want to recognize the tremendous work our associates are doing on behalf of our clients our firm and our stockholders.
Rob Sharps: It's their focus on continuous improvement and our agile mindset that are driving our progress.
Speaker Change: I'll now turn to Jen to provide an overview of our financial results.
Jen Dardis: Thank you, Rob and Hello, everyone I'll review, our third quarter results before opening the line for questions.
Jen Dardis: Our adjusted earnings per share of $2 57 for Q3 2024 is up over 18% from Q3 of last year, driven by higher average AUM higher adjusted operating income and a lower effective tax rate.
Jen Dardis: These factors also drove a nearly 14% increase in EPS from Q2 of this year.
Jen Dardis: We reported $12 2 billion and net outflows this quarter, which is an improvement from Q3 2023, but higher than the first half of 2024.
Jen Dardis: U S equity products remain the primary driver of outflows, particularly in our growth strategy.
Jen Dardis: Our U S equity research strategy, However had net inflows of over $1 5 billion this quarter we.
Jen Dardis: We also had positive net inflows across fixed income multi asset and alternatives.
Jen Dardis: Within multi asset we had another strong quarter in our target date franchise with net inflows of $3 6 billion.
Jen Dardis: Our year to date inflows of $14 $1 billion outpaces, the active industry growth rate, particularly in the blend category.
Jen Dardis: Our ETF business had just under $1 billion of net inflows in the quarter, bringing our September 30th two.
Jen Dardis: Over $6 5 billion and outside the U S. We had positive net inflows driven by global equity in the APAC region and alternatives in the EMEA region.
Speaker Change: As Rob mentioned, we were recently notified of a large sub advise variable annuity termination.
Speaker Change: We expect that nearly all of the assets related to the termination will be redeemed during the fourth quarter given the size of this outflow I want to provide some background on our VA business, which you'll find on page 15 of the supplement.
Speaker Change: At a high level, we provide investment management services for VA products sold by insurance company sponsors.
In some cases, we are the sole manager and the product may be branded as T. Rowe price while in other cases, where one sleeve of our multi manager products.
VA assets are 104 billion or a little over 6% of our total AUM, which is down from 9% in 2019.
Speaker Change: Similar to the overall VA industry, our VA business has experienced net outflows for the past several years and we don't expect that trend to change meaningfully.
Speaker Change: Said, given the large fourth quarter termination the level of VA outflows for the full year 2024 will be higher than we would've otherwise expected.
Speaker Change: While this area is not an organic growth driver for the firm. This book of business has many longstanding and important clients and we will continue to deliver on their behalf.
Speaker Change: Shifting to our financials, our Q3 adjusted net revenues were $1 8 billion.
Speaker Change: Which is up 7% from last year and up 3% from the second quarter.
Speaker Change: Driven by higher investment advisory revenue from higher average AUR.
Speaker Change: Our Q3 annualized effective fee rate of 49 basis points decline from Q3 2023 in Q2 2024 as assets continue to shift into lower fee vehicles and asset classes.
Speaker Change: This quarter's investment advisory revenue of $1 $6 billion included $5 6 million in performance based fees from alternatives products, primarily from the BDC.
Speaker Change: Our adjusted operating expenses of $1 1 billion were up three 6% from Q3, 2023, due mainly to increases in compensation and benefits and related costs and distribution and servicing fees on higher AUM.
Speaker Change: G&A is also up from last year Q3, 2023 included a $20 million nonrecurring cost recovery.
Speaker Change: Our adjusted operating income of $718 million was up 13% from Q3, 2023, and almost 10% from last quarter.
Speaker Change: For the balance of the year, we continue to expect 2024 adjusted operating expenses, excluding carried interest expense to be 6% to 8% over the comparable full year 2023 amount of $4, one 9 billion.
Speaker Change: While we're at the bottom end of this range through nine months similar to last year, we anticipate an increase in a number of expense categories. In Q4, some of which are due to seasonal factors and timing and will not carry into the 2025 run rate.
Notably our stock based compensation is typically higher in December given the timing of our annual grant and we expect advertising and promotion expenses to be higher due to the seasonality of our advertising effort.
Speaker Change: We are also forecasting higher professional fees as we complete projects before the close of the year.
Speaker Change: Turning our attention to capital management, we repurchased $71 million worth of shares during the third quarter, bringing the year to date value of buybacks to nearly $264 million.
Speaker Change: We feel comfortable with our current pace of buybacks as we evaluate repurchases through the remaining months of 2024.
Speaker Change: Combined with our quarterly dividend of $1 24 per share. We have returned over $1 1 billion to stockholders in the first nine months of the year.
Speaker Change: Our balance sheet remains strong with over $3 6 billion in cash and discretionary investments at the end of Q3.
Speaker Change: As we approach year end, our teams are focusing on 2025 and identifying the areas, where we will invest to drive future growth and deliver new capabilities to best serve our clients well.
Speaker Change: We'll continue to balance this investment with the need for ongoing expense discipline.
Speaker Change: And now I'll ask the operator to open the line for Q&A.
Speaker Change: To ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: And our first question comes from Alex <unk> with Goldman Sachs. Your line is open.
Alex <unk>: Hey, good morning, everyone. Thank you for the question.
Speaker Change: Rob would love to get your perspective on the organic growth to start good good perspective on the VA business on Slide 15, I think you mentioned that.
Speaker Change: You guys, obviously made progress on the business, excluding DVA sub advisory outflows.
Speaker Change: It would be I guess less than half of the outflows. We saw last year, that's still I think implies a pretty meaningful step up in outflows in Q4.
Speaker Change: Excluding the DVA sub advisory issue, so maybe just unpack, what you're seeing in the fourth quarter and whether or not the outflows. There on a core basis are also a bit more elevated than normally and any thoughts you have a 25% I appreciate it. Thanks.
Speaker Change: Yeah, Good morning, Alex.
Speaker Change: Specifically as it relates to 'twenty four.
Speaker Change: I would say that what we're seeing.
Speaker Change: Outside of the specific VA mandate is pretty consistent with typical seasonal patterns, we tend to have a little bit more in the way of redemption pressure in the fourth quarter, and particularly near year end.
Outside of that I think the underlying trends are pretty clearly headed in the right direction. So I'd take a step back.
Speaker Change: As you said and as I noted earlier that.
Speaker Change: Excluding the VA lost 24 outflows would have been less than half of 'twenty three levels.
Speaker Change: I think that reflects pretty substantive progress relative to where we were.
Speaker Change: Regarding 25, I would say, we expect sizable further improvement as we trend towards positive flows.
Speaker Change: You take a step back and think about the trends and drivers.
Speaker Change: Active equities as an asset class in mutual funds as a vehicle or in outflow and have been for some time.
Speaker Change: That said I think there's meaningful room for improvement in active equities given performance improvement in a few of our key franchises, notably large cap growth, where we're seeing both gross sales and redemptions following improved performance and trending in the right direction.
Speaker Change: Outside of that we have positive flows in all of the other asset classes in most other vehicles gross sales are up.
Speaker Change: In all but one of our channels and geographies year over year, so far in 'twenty four.
Speaker Change: We continue to expect strong growth in retirement date funds in 'twenty five.
Speaker Change: Beyond so this year year to date is up relative to last year, we expect the year to.
Speaker Change: To be up and feel very good about the momentum that we have across the retirement date franchise.
Speaker Change: In 25, you can expect that we will have a larger contribution from alternatives Etfs and SMA.
Speaker Change: I also think we have opportunity to build further momentum in fixed income, especially in areas like insurance and we.
We have work to do to bring those opportunities to fruition, but they're out there and I think we're well positioned to capitalize on them.
Speaker Change: It flows are really hard to predict I would say, it's very difficult to say, whether all of this will be enough to move us into positive territory and twenty-five my base case at this point based on our most current forecast is that we will make meaningful further progress but.
Speaker Change: We won't get there for the full year, regardless I think will demonstrate that we're on a path that will take us back to organic growth, whether we get there in 2025 are not Jim would you add anything no I think you've covered it.
Speaker Change: Thank you and our next question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Michael Cyprus: Hey, good morning, Thanks for taking the question just wanted to ask about retirement I was hoping maybe you could just update us on your views there on the retirement market competitive landscape. Some of the steps you guys were taken to drive growth in the retirement channel, including the new lifetime manage payout product, maybe you could talk about how that works or go to market strategy for that how you sort of plan to build <unk>.
Michael Cyprus: Traction and then I think you mentioned a life path win for next year, maybe you can help quantify that thank you.
Michael Cyprus: Yes.
Hi, good morning.
Speaker Change: So the specific win that we referenced is custom glide path win.
Speaker Change: So.
Speaker Change: As you know we have a tremendous amount of research behind our lifecycle investing approach and we have a glide path that underlies the asset allocation of our target date funds. There are certain instances, where you have a plan sponsor that once a client a glide path that is designed specifically to the demographics of their.
And Paul and for US typically a fee for that would be relatively small and it would come in.
Speaker Change: Yes.
Speaker Change: So it wouldn't come in the investment advisory fee line.
Speaker Change: So that was what that specific reference was.
Speaker Change: In terms of broad trends I would say, we've got a lot of momentum across our set of offerings flagship retirement date fund.
Speaker Change: But also blend.
Speaker Change: Our pipeline there is very strong.
Specifically as it relates to the two new products that were launched their launched on our record keeping system, which I think shows the strategic benefit of having a record keeper.
Speaker Change: Personalized retirement manager is a managed account strategy that's customized based on.
Speaker Change: Input from the participant in addition to just their estimated retirement date.
Speaker Change: And we think its particularly compelling it uses a lot of the research and assumptions that underlie the poor target date franchise, but custom tailor it to.
Speaker Change: The particular interest in positioning of the underlying participant I would also say that the fees on that are attractive relative to other managed account offerings in retirement overall.
Speaker Change: Finally with regard to the.
Speaker Change: The lifetime income product that incorporates acute like we think it's a compelling design structure. It's also initially being launched on the T. Rowe price record keeping platform both products are new to market, but in time as we build scale and demonstrate the attractiveness, we expect to be able to extend them to other recordkeeping platforms and Todd.
Speaker Change: Yes, I might just add I mean.
You asked about the go to market strategy and many of the things that Rob highlighted as you just mentioned are on our record keeping platform, but we serve retirement plans not only on our own record keeping platform, but even more so on what we call <unk> or D C investment only.
Speaker Change: <unk> and we have opportunities to either provide our target date products over time to be able to sell some of these more extended strategies, but also to be able to participate as a sleeve in certain cases of other people's products that they're that they're developing yes, we've really leaned in to.
Speaker Change: Build our partnership with a number of the leading retirement franchises both firms that focus on retirement consulting, but also the record keeping platforms. We've worked hard with co development and as a result of that I think we're very very well positioned with our suite of retirement date products as well as some of the things that we're doing for retire.
From an income.
Speaker Change: Across record keepers, not just on the T Rowe price record keeping platform.
Speaker Change: Thank you. Our next question comes from Benjamin <unk> with Barclays Capital. Your line is open.
Speaker Change: Hi, good morning, and thanks for taking the question I wanted to ask about private credit I guess, maybe kind of a two parter first can you remind us how much of the business is sort of related to like senior direct lending just thinking about sort of the opportunity set going into next year. If that's what the market seems to be expecting happens which is.
Speaker Change: We see a big pickup in transaction activity. How are you positioned for that and then Rob you mentioned something about doing more on the fixed income side insurance I'm curious to what extent could that perhaps be related to private credit or what else did you mean there. Thank you.
Rob Sharps: Yes, Ben I'll take the latter part of the question first specifically with regard to opportunities in insurance, it's really across our fixed income business.
Speaker Change: Fixed income insurance general account.
Speaker Change: It tends to have very very sizable investments in investment grade corporate credit.
Speaker Change: And we see some opportunity there we also would see opportunity to offer private credit and alternative strategies to insurance investors I think many insurance investors are looking to increase yield on their underlying portfolio and looking to private strategy.
Speaker Change: As a way to do that attractively on a risk adjusted basis.
Speaker Change: That would basically improve their own economics, but also improve the attractiveness of their underlying products. So.
Speaker Change: It certainly would incorporate opportunities with OE, Jay, but wouldnt be exclusive or limited I think it would also include opportunities on the liquid side.
Speaker Change: Both with OE, Jay, but also with T Rowe Price's fixed income platform.
Speaker Change: Specifically as it relates to private credit dedicated senior private lending is not an area that <unk> historically had operated.
Speaker Change: Had offered to their clients they've got a lot of experience in private credit broadly, but they have actually closed their first dedicated senior private lending funds.
If you zoom out a little bit Ohk had a record quarter of capital raising $5 $5 billion of new capital commitments this quarter, bringing the year to date number to over $9 billion and I would say a meaningful portion of that and no. Notable portion was in private credit. So they closed their first close on their senior private lending fund which was.
Speaker Change: <unk> $2 billion.
Speaker Change: So these increased capital commitments will boost flows as the capital is deployed.
Speaker Change: So that will be based on where there's origination and where <unk> opportunities, but I am pretty confident based on what we're seeing from a capital commitment perspective that alternatives flows should accelerate into 2025.
Speaker Change: Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open.
Speaker Change: Thanks, Good morning.
Dan Fannon: Rob wanted to follow up on your Congress your comments around the institutional backlog building ex the sub advised mandates. So can you put some context around that in terms of the products.
Dan Fannon: And ultimately how you think about I guess the sales cycle here today is that the.
Dan Fannon: The fundings that looking into next year or is that more of a kind of three or four months kind of window.
Speaker Change: Yes. Thank you for the question it is over a year. It is a weighted pipeline. It's not just institutional it is really across our book of business and across asset classes.
Speaker Change: So basically we have.
Speaker Change: Mandates that are risk weighted and marked at risk as well as opportunities that are risk weighted and.
Speaker Change: I think it was very notable that despite the fact that we were notified of this sizable termination that the risk weighted pipeline actually increased on a quarter over quarter basis. Now. This particular mandate was partially marked at risk, but not fully marked at risk, which it clearly is now given that we've been notified.
Speaker Change: <unk> of termination, but we were able to on a risk weighted basis bring in enough new opportunity that we think will close over the course of the next 12 months that despite taking that to a full loss that the pipeline has increased and I would say that it's broad based again.
Speaker Change: I think it is reflective of the trends that you see in the underlying business is less at risk and more opportunity in active equity in particular large growth. Its continued momentum in equity in areas like structured research in certain of our global equity strategies.
Speaker Change: It shows some momentum in fixed income and clearly a very nice pipeline across the retirement date suite.
Speaker Change: Thank you. Our next question comes from Ken Worthington with JP Morgan Your line is open.
Ken Worthington: Hi, good morning, and thanks for taking the question in terms of your ETF franchise to what extent is it expanding your customer reach and allowing you to get into district different distribution channels.
Ken Worthington: And to what extent is it just sort of cannibalizing your existing fund assets for an extra basis points.
Ken Worthington: And in terms of the cost of distribution here for Etfs is it any different than kind of what you are paying for access.
Ken Worthington: With the fund franchise. Thanks.
Speaker Change: So on the first part of the question Ken I would say there is some element of both right I mean in other words I think there are some buyers that have historically used open ended mutual funds that at the margin have a preference, particularly if the same strategy as available.
Speaker Change: For Etfs that said, we have a number of strategies that were offering in etfs, particularly the fully transparent suite that are not strategies that are available and open ended fund I'd also say that we're reaching a different set of buyers. There are a number of advisers that are exclusive to ETF. So bye.
Speaker Change: Definition historically, they wouldn't have been involved in our open ended fund we actually just hosted.
Speaker Change: Due diligence event for a number of ETF focused advisers here. So I do think we are reaching new buyers I think in particular with several of those strategies that arent offered an open ended fund we can clearly ascribe that to so to being an incremental opportunity but there.
Speaker Change: There has to be some element, particularly with the semi transparent clone.
Speaker Change: Cannibalization I don't I can't say that we see a lot of people moving from one to the other you have to remember a lot of the investors in the open ended funds have sizable embedded gains so it would be costly for them to sell the open ended fund just to buy the ETF I think there are a lot of wealth platforms that prefer not to offer the same strategy in both vehicles.
Speaker Change: <unk>.
Speaker Change: So I think we can say with reasonable confidence that a substantial portion of what we're getting in the ETF business is new and incremental but there clearly is some cannibalization with regard to cost to access.
Speaker Change: I would say it really is no different it really varies by platform.
Speaker Change: Have some partnerships with folks that are focused on etfs that we're developing and I would say the same sort of <unk>.
Speaker Change: Distribution economics apply to Etfs that they do too.
Speaker Change: Open ended funds with the exception being that you don't have.
Speaker Change: Some of the the.
Speaker Change: Don management fee expense ratio opportunity it with an ETF that you do with an open ended fund.
Speaker Change: Thank you and our next question comes from Craig Siegenthaler with Bank of America. Your line is open.
Craig Siegenthaler: Hey, good morning, everyone hope, you're all doing well.
Craig Siegenthaler: I have a follow up to Mike's question on managed lifetime income. So many view the rider as a positive by recreating a defined benefit like experienced retirees, but I was curious on the IRR math by adding an insurance guarantee onto a foreign key investment product just given the added costs and de <unk>.
Craig Siegenthaler: <unk> downside risk, but what is the annual cost of these riders. So so essentially how does it impact the long term return math.
Craig Siegenthaler: And given that foreign K plan sponsors are generally pretty sensitive how does the guarantee you get around that constraint.
Yes, that's a pretty specific question.
Craig Siegenthaler: I think to get into the detailed specifics I'll have you follow up with Wednesday, but.
But we think this is a really well designed product, we think incorporating the queue lack and having the guaranteed pay out start on a deferred basis creates a.
Craig Siegenthaler: A more optimal outcome for the plan participant I think our team believes that marrying it with.
Craig Siegenthaler: T Rowe price to manage payout option gives a tremendous amount of flexibility in the early years of retirement when the participant is more active and may require greater flexibility and then the guaranteed pay outcomes later in life, where it ultimately becomes more important specifically with regard to the tradeoffs in the economics of <unk> are quite afford.
Craig Siegenthaler: Relative to other fixed annuity so.
Craig Siegenthaler: Ultimately there is some cost to getting the guarantee obviously, but in terms of the specific economics I, probably should have somebody from that team and lindsley will follow up with you on that.
Craig Siegenthaler: And part of the design of it is that it's not the full amount of the assets that the client has designed to do a small portion of it. So that you are balancing the risks and costs tradeoff.
Thank you. Our next question comes from Glenn Schorr with Evercore ISI. Your line is open.
Glenn Schorr: Thanks, Tom.
Glenn Schorr: Quickie.
Glenn Schorr: How close do you think we are seeing private market allocations inside target date funds and retirement plans and maybe more importantly, how are you thinking about leveraging the great T Rowe price brand and distribution network, specifically related to private markets. Thanks.
Speaker Change: Yeah, Glenn I would say, it's really hard to know obviously, we've got an election next week and the results of that election will determine.
Speaker Change: Kind of where we're headed from a regulatory perspective look I think there's a lot of discussion and potentially some interest.
Speaker Change: But until we get some regulatory clarity I think it's unlikely to happen. So we.
Speaker Change: We don't have a lot of visibility on.
Speaker Change: When that will happen, let alone how it would happen I think we have a tremendous amount of flexibility you are kind of once there is an interest among plan sponsors to incorporate private market alternatives in the defined contribution offerings in things like target date funds to be thoughtful about how we would incorporate what we would do that is related to <unk>.
Speaker Change: Hero price proprietary who we would partner with.
Speaker Change: We've we've had a lot of discussions and done a lot of work and I think we have a really good sense of what our range of options are but as things stand I'll reiterate what I've said before.
Speaker Change: The defined contribution market is a fee sensitive market and the record keeping platforms are not designed to deal with the lack of daily pricing lack of liquidity that private market alternatives would introduce.
Speaker Change: I'll also say that again, there is not any clarity at all from a regulatory perspective with regard to.
Speaker Change: Incorporating private market alternatives and I think many plan sponsors are quite concerned with regard to litigation so.
I think in some ways out I think even once you get regulatory clarity getting the plan sponsors to buy in and getting the infrastructure in place to incorporate and accommodate it will take some amount of time, but what I guess my message to you is that I think when that happens will be an extraordinarily attractive partner it will create an opportunity.
Speaker Change: And for us with some of the things that we do inside of T. Rowe price and whatever we do we'll make sure that it's attracting attractive and compelling as part of our offering to plan sponsors and participants.
Speaker Change: Okay.
Speaker Change: That wasn't such a quickie.
Speaker Change: Our next question comes from Patrick Davitt with Autonomous Research Your line is open.
Patrick Davitt: Hi, good morning, everyone.
Patrick Davitt: Thanks for the VA disclosure helpful could you remind on the makeup of the client base of the other 85 billion and why why that stickier than the VA side. Thank you.
Patrick Davitt: Alright.
Speaker Change: Rest of the other 85 billion or thereabouts based on once we would have the outflow. They are VA I just wanted to clarify you said outside of VA, but those are Oh, I'm, sorry, I'm getting a clarity there other $85 billion outside of the VA just wanted to clarify because there could be some discontinuities between those numbers.
Patrick Davitt: So.
Speaker Change: Yes, yes.
Speaker Change: Sorry, so in other cases, we are the sub advised carrier for other types of plans outside of variable annuity and that could be.
Speaker Change: In retirement that could be in.
Speaker Change: Well its primarily in retirement and those assets tend to be more sticky.
Speaker Change: And then that would go into more detail on that.
Speaker Change: Yes, I think we're not seeing the same trends across the sub advisory platform that we're seeing with NBA VA is a business that.
Speaker Change: Several of our clients have de emphasized or within their portfolio have lost share to fixed index annuities <unk> fixed annuities in a higher rate environment. So the underlying product is one that kind of while still important and still prioritized by certain of our clients.
Speaker Change: It's across the book, that's not necessarily the case that the rest of the sub advisory business, which would be across wealth and retirement doesn't face some of that same underlying pressure.
So the trends would not be consistent with what we're showing in VA.
Speaker Change: Thank you. Our next question comes from Brennan Hawken with UBS. Your line is open.
Brennan Hawken: Good morning, Thanks for taking my questions.
The performance.
Brennan Hawken: This quarter it seemed to take a rather meaningful hit, especially on a one year basis.
Brennan Hawken: Could you maybe provide some color around what you think might have driven that and.
Brennan Hawken: Any potential adjustments or actions you guys can be taken on the back of it.
Speaker Change: Yes sure.
Speaker Change: In terms of what drove it.
Speaker Change: I don't want to get into too much detail around one specific quarter and I won't I don't want to kind of make too much of one quarter, but it wasn't a great quarter I would say that there was a pretty meaningful risk on rally once it became clear that the fed was going to cut 50 basis points in September and a lot of our portfolio goes weren't as well positioned.
Speaker Change: For that if you had to generalize again, it's difficult to generalize across the range and breadth of what we do but I'm. The first to acknowledge that the aggregates aggregates statistics as they stand today are soft and not where we want them, but yeah I would say, it's a moment in time I'm really confident in our research platform and our portfolio managers I think if you look at the <unk>.
Speaker Change: Year to date and the one year Theres clear continued improvement an important franchises, including U S large cap growth.
Speaker Change: The performance of our U S. Structured research strategy shows that the research platform is very strong.
Speaker Change: In my prepared remarks, I mentioned, a number of places where the numbers are really good.
Speaker Change: There are clearly places we need to do better, but I am confident that we have an approach that will deliver over time and I don't think there are any kind of drastic measures or steps that will need to take in order to deliver performance. I would also say that we are we're at a point now where if you look at the starting point for <unk>.
Speaker Change: Three and five year in particular, the very poor performance here in 2022.
Speaker Change: Luna pretty large that poor performance period actually started in Q4 of 'twenty. One so for a number of our big strategies, we start to begin to roll off that that period, where we were in a negative performance cycle. So as long as we do our job over the course of the next several quarters I expect those aggregate metrics to steadily.
Speaker Change: Increase or improve.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Mike Brown with WNS. Your line is open.
Mike Brown: Hi, good morning, Thanks for taking my question.
Mike Brown: Janet I appreciate the expense comments for next quarter and for the full year I guess I know, it's early and probably the planning process, but as you look to 2025, how are you thinking about expense growth next year and what are some kind of key areas of investment that you'll be focusing on next year.
Speaker Change: Thank you Sir.
Speaker Change: Thanks for the question. So we are still in the middle of our annual planning process and I'm not prepared to give formal guidance on 2025 today, but that said similar to last year. Our ingoing goal as we've been going through the planning process has been to roughly try to align expense growth with forecasted revenue growth on a planned basis, assuming our current AUM trajectory and average mark.
Speaker Change: Returns.
Speaker Change: So last year, we started the year with 3% to 5% expense growth excluding carried interest comp and have increased that range to 6% to 8% based on higher average market returns and the resulting higher market driven expenses. If you think about where we are with revenue momentum from 24% to 25. Its stronger this time than last year. So I would expect our opening expense guide would be.
Speaker Change: A little bit higher.
Speaker Change: Then last year, but we won't get to a final number for you all until next quarter.
Speaker Change: We're mindful of Berry balancing those areas of investment as you mentioned with the need to manage expense growth. If we think about the places where we've been investing it's really behind the momentum that Rob mentioned earlier investing in ETF franchise. Some of our other vehicles continuing to expand our marketing and reach outside of the U S.
Speaker Change: Continuing to invest behind our alternative sales plans and platforms and contain continuing to invest in ways to make sure that we can be more efficient in our core operating and operations and technology.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Rob Sharps for closing remarks.
Rob Sharps: Alright, very good. Thank you all for your questions and your interest in T. Rowe price and we look forward to speaking to you next quarter.
This concludes today's conference call.
Thank you for participating you may now disconnect.
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