Q1 2025 T Rowe Price Group Inc Earnings Call
Daniel: Good morning. My name is Daniel and I will be your conference facilitator today. Welcome to T. Rowe Price's first quarter 2025 earnings conference call.
Speaker Change: I will now turn the call over to Lindsay Crouse T Rowe Price's director of Investor Relations.
Daniel: Okay.
Hello, and thank you for joining us today for our first quarter earnings call. The press release and the supplemental materials document can be found on our IR website at investors that your price Dot Com today's call will last approximately 45 minutes or chair CEO and President Bob Sharp and CFO, John <unk> will discuss the company's results for about 50.
Daniel: 10 minutes, then we'll open it up for your questions at which time, we'll be joined by head of global investments.
Daniel: I ask that you limit it to one question per participant.
Daniel: 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 reconciliations to GAAP in the supplemental materials as well as in our press release from 10 to.
Daniel: A discussion related to the funds as intended to demonstrate their contribution to the organization as a result and are not recommendations.
Daniel: Investment performance references to peer groups on today's call are using Morningstar peer group and for the quarter that ended March 31, 2025, now I'll turn it over to Ron.
Ron: Thank you Leslie.
Ron: And thank you all for joining our first quarter update.
Speaker Change: Despite policy driven market volatility pressuring our assets under management and revenues we.
Ron: We are making important progress.
Ron: Our world class investment platform powered by broad and deep active research.
Ron: Makes us uniquely well positioned to navigate periods of uncertainty.
Ron: And to help our clients do the same.
Ron: We are extending our reach by leveraging our leadership position in retirement and the strength of our brand.
Ron: I'd like to start with investment performance, which versus peers improved meaningfully from the fourth quarter with gains across asset classes.
Ron: Over 60% of our funds beat their peer groups for the 135 and 10 year time periods.
Ron: Results were even stronger on an asset weighted basis were 61% beat for the one year time period, 73% for the three year, 68% for the five year and 87% for the tenure.
Ron: And equity value outperformed growth in the quarter amid a shift in sentiment driven by tariff concerns and the sell off in the technology sector.
Ron: Against this backdrop most of our value products delivered with strong performers across the franchise, including the equity income large cap value and value funds.
Ron: <unk> moved from the bottom quartile in the prior quarter to the top quartile in the first quarter.
Ron: Boosting their 135 and 10 year performance track Records.
International value and small cap value also delivered strong performance in the quarter improving their long term track records as well.
Ron: In contrast, new horizons mid cap value U S equity research and a few of our sector funds had more challenging quarters.
Ron: Target date performance was strong.
Ron: 99% of our target date assets beat their peer groups for the three five and 10 year time periods.
Ron: Our retirement strategies benefited from an overweight too and strong outperformance within value.
Ron: As well as the tactical overweight to international in real assets and strong security selection.
Ron: However, the glide pass overall level of equity exposure detracted across vintages.
Ron: Fixed income performance was solid with 64% of funds, beating their peer group median on a one year basis and 65% on a five year basis.
Ron: We had more mixed results for the three year time period with 50% of funds, beating their medians.
Ron: The best performing fixed income segment in the quarter was U S taxable bonds.
Ron: Alternative portfolio has produced mixed results in the first quarter.
Ron: Private lending strategies generated the strongest gains followed by structured strategies, which benefited from timely monetization.
Ron: Performance of opportunistic and liquid strategies was mixed driven by negative developments in certain positions.
Ron: Deployment of capital in private lending funds was muted due to the generally slow M&A environment.
Ron: In addition to improved investment performance, we also strengthened our leadership position in retirement in the first quarter, including expanding our reach beyond the United States.
Ron: We launched the sub advisor retirement date fund series in partnership with a Japanese asset manager, marking the first time, we've offered our customize glide path design expertise in this market.
Ron: We were selected as one of four external asset managers to partner with a leading global banking institution to develop a series of custom retirement related funds to be distributed in Asia, The U K and the middle East.
Ron: We are growing our long standing custom target date relationship in Korea with increased net flows in the quarter.
Ron: Outside of Asia Pacific, We were notified of our first client commitment for the newly launched T. Rowe price retirement date series in Canada.
Ron: In the U S. We launched social security analyzer, a tool designed to help financial advisers optimize their clients' benefits by building custom strategies conducting in depth analysis, and providing side by side comparisons among various social security, claiming strategies.
Ron: And we are examining how allocations to private market alternative investments could add to our target date franchise.
Ron: So we are ready if or when planned sponsor demand materializes.
Ron: We remain the largest provider of active target date products and continue our work to adapt the target date franchise and to bring this capability to new clients and new markets.
Ron: Beyond our strengths in global retirement, we built momentum with our ETF and SMA offerings.
Ron: We launched two transparent equity Etfs hedged equity and capital appreciation premium income. Our latest addition to the capital appreciation suite.
Ron: Both Etfs integrate our strong equity research platforms with hedging strategies.
Ron: These additions bring our roster to 19 Etfs with over $12 $5 billion in assets under management as of March 31, including allocations from our multi asset products.
Ron: Nine of our Etfs have surpassed $500 million with three reaching over $1 billion.
Ron: We also broadened our lineup of SMA offerings with the launch of integrated U S small cap growth and integrated U S. Small mid corps, which combined are fundamental and quantitative processes in this tailored vehicle structure.
Ron: In the first quarter, we continued to be recognized for our people our products and services and our workplace.
Ron: The T Rowe price IHA select private credit fund referred to as <unk> credit was named 2020 for BDC of the year Americas by private debt investor.
Ron: For the 15th consecutive year, we were named one of Fortune magazine's world's most admired companies.
Ron: And for the third year in there were in a row our firm placed in the top 10 in <unk> 2024 ranking of America's top asset management firms.
Ron: T Rowe price associates maintained its number two position among the over 350 asset managers nominated.
Ron: And this was the first year that T. Rowe price investment management was recognized in the corporate survey at seventh place.
Ron: We also officially opened our global headquarters at Harbor point in Baltimore designed to support our culture of collaboration and enhance the associate experience.
Ron: Despite this important investment we're being thoughtful about controllable expenses to preserve our ability to invest in our strategic initiatives and strengthen our right to win.
Ron: Finally, our balance sheet remains strong with $3 $3 billion of cash and discretionary investments.
Ron: We continue to prioritize returning capital to our stockholders and recently announced a quarterly dividend of $1 27, which increased for the 39th consecutive year.
Ron: We will be opportunistic in our approach to stock repurchases strategically leveraging market downturns for selective buying opportunities.
Jan: Before I turn to Jan I want to thank our associates for their resilience and their steadfast commitment to clients for nearly 90 years, our associates have been trusted to help people navigate the ups and downs of the markets and they continue to build on that legacy today.
Jan: Now Jim will share a view of our first quarter financial results.
Jim: Thank you, Rob and Hello, everyone I'll review, our first quarter results before turning to Q&A.
Jim: Our adjusted earnings per share of $2.23 for Q1 2025 is down from $2 38 in Q1 2024, but up from $2 12 in Q4 2020 for.
Jim: This quarter's $8 6 billion and net outflows were largely driven by U S equities and rebalancing activity later in the quarter. However, we saw a few positive areas.
Jim: Our target date franchise had $6 3 billion of net inflows led by the continued success of our blend products.
Jim: In fixed income we had strong net inflows of $5 4 billion, primarily from institutional clients.
Jim: Global multi sector floating rate bank loan and global government bond high quality each had over $1 billion of net inflows.
Jim: And our ETF business had another successful quarter with net inflows of $3 6 billion.
Jim: Notably eight of our Etfs, each had inflows of over $100 million in capital appreciation equity had almost $1 billion of inflows.
Jim: We will report April assets and flows on May 12, but it's worth highlighting that the rebalancing. We saw in late March accelerated in the first two weeks of April with equity market declines in volatility.
Jim: This increased our retail outflows from recent trend, but that pattern normalized in the second half of April.
Jim: Turning our attention to the income statement. Our Q1 adjusted net revenue of $1 8 billion increased marginally from Q1 2024 and is down three 6% from Q4 2024.
Jim: This quarter's investment advisory revenue of $1 6 billion increased 4% compared to the first quarter of last year due to higher average AUM.
Jim: The impact of higher AUM was offset in part by a lower effective fee rate.
Jim: Performance based fees from certain equity and alternative strategies for the quarter were $10 million.
Jim: The increase in investment advisory revenues was offset by a lower change in accrued carried interest.
Jim: The Q1 annualized effective fee rate excluding performance based fees was 40 basis points, which declined from the prior quarter and Q1 2024.
Jim: This decrease continues to be driven by a mix shift in assets both from market impacts.
Jim: Regarding the flow impact gross sales are concentrated in strategies and vehicles that have lower than average fee rate, while a large portion of redemptions occur any equity asset class and the mutual fund vehicle, which have higher than average fee rates.
Jim: Our Q1 2025, adjusted operating expenses, excluding carried interest expense totaled $1 1 billion a.
Jim: Seven 4% increase from Q1 of 2024.
Jim: This rise was primarily due to higher market driven expenses, resulting from the growth in AUM throughout 2024, as well as increased compensation costs.
Jim: Additionally, Q1 2024 included a onetime cost benefit related to our UK facility that didn't recur in Q1 2025.
Jim: Our adjusted operating expenses were down seven 2% from Q4 2024 as a few expense categories on seasonally higher in the fourth quarter.
Jim: We moved into our new global headquarters in Baltimore at the end of Q1, given the timing of our moves there was minimal expense impact during the first quarter depreciation began in April and our lease at our former location also ended in April.
Jim: We now expect 2025 adjusted operating expenses, excluding carried interest expense to be up 1% to 3% over 2024 for $4 6 billion.
Jim: Which is down from the 4% to 6% range given in February.
Jim: The lower range is largely driven by market share and expenses, but we are also taking steps to more closely manage other expense categories.
Jim: As Rob mentioned, our balance sheet remains strong and we continue to prioritize redistributing capital we returned over $500 million to stockholders in the first quarter with 289 million supporting the quarterly dividend of $1 27.
Jim: We also bought back $217 $5 million worth of shares in Q1, bringing our weighted average share count to $222 6 million.
Jim: Under our share repurchase plan in April we bought back an additional $65 $4 million worth of shares bringing the total buyback through April $30 million to $283 million.
Jim: With recent market volatility, we will continue to focus on execution for our clients and on investing in opportunities to drive growth at the same time, we will carefully prioritize our expenses to reflect the market environment.
Jim: And now I'll ask the operator to open the line for questions.
Jim: 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.
Jim: In the interest of time, we ask that you. Please limit yourself to one question.
Jim: You may rejoin the queue. If you have any additional questions.
Jim: Please standby, while we compile the Q&A roster.
Jim: Our first question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Michael Cyprus: Hi, good morning, Thanks for taking the question, maybe just to kick off on Etfs, it's great to see the expanded flows and reaching $12 5 billion of AUM. There I'm, just hoping you could elaborate a bit on the steps that you're taking to drive. This early success. How you see your ETF business progressing over the next 12 to 24 months and then just more broadly.
Michael Cyprus: On Etfs, how are you thinking about the opportunity set for ETF share class on existing strategies, given vanguard's patent on the ETF share class expire maybe just talk about the opportunity set that you see for the industry and for T. Rowe.
Michael Cyprus: I might see that playing out whats the path and timing look like for that thank you.
Michael Cyprus: Yes, Mike Good morning. This is Rob thanks for the question.
Speaker Change: Im really excited about our opportunity in Etfs.
Michael Cyprus: Notice, we are really building momentum.
Michael Cyprus: We've broadened our range of offerings, we've got 19 in the market now and I think a number of them are compelling and differentiated.
Michael Cyprus: We've also got several on the roadmap.
Michael Cyprus: As we scaled the funds and build track records.
Michael Cyprus: Excited about the placement that we're getting on a number of wealth platforms.
We are investing in specialist sales capabilities to drive sales in the field and to reach more ETF users with regard to your question with regard to the keys to success. So far I pointed out a handful of things, but one strong performance from our investments team to being able to scale the products a lot of clients were.
Michael Cyprus: Wire a minimum level of AUM in order to put them.
Michael Cyprus: On their platform.
Michael Cyprus: Driving platform placement, which our U S team is doing a very good job with I think again, having a COO.
Michael Cyprus: Compelling and differentiated offering is obviously helpful. This is an area that is intensely competitive.
Michael Cyprus: And then I would say finally as you bring that altogether with more scaled and well placed etfs it will make sense for us to put more marketing muscle and invest more dollars.
Michael Cyprus: Behind our ETF suite.
Michael Cyprus: If you look ahead as we round the suite out one area, where I think there's a big opportunity that we haven't largely tapped into yet is third party asset allocation models.
Michael Cyprus: I think adoption of T Rowe price asset allocation models using T Rowe price Etfs as an underlying building block.
Michael Cyprus: As a big opportunity and it's an important offering for many advisors. So again the more building blocks, we have that are scaled with a compelling track record the more.
Michael Cyprus: Underlying opportunity we have to build attractive models.
Michael Cyprus: I would say longer term. There is also really accelerating demand for etfs outside of the U S. So that can drive another leg of growth I think for us that'll be more of a 26 and beyond story, but I think we've got a very very long way to go in the U S.
Michael Cyprus: Regarding your question on ETF as a share class.
Michael Cyprus: We our.
Speaker Change: Washington Research folks believe that it is likely.
Speaker Change: And my perspective is that it will create some opportunity to offer an ETF version of an existing open ended fund which is helpful. In the sense that youre already scaled and you already have a track record that.
Speaker Change: That said, we will be really thoughtful about where we choose to do this.
Speaker Change: Our understanding is that it will only be available for Etfs that are offered in a fully transparent format.
Speaker Change: So we'll have intellectual property considerations.
Since you can't close an ETF, we'll also have capacity considerations and finally I would say there are other client oriented considerations that will need to take into account. So.
Speaker Change: It's unlikely that we would utilize ETF is the share class for certain of our funds, but we've identified a number of them, where we think it's an attractive opportunity.
Speaker Change: Hey, Mike This is Eric I would just add to what Rob said around innovation. The two most recently launched Etfs.
Speaker Change: Capital appreciation premium income Etfs.
Speaker Change: And the hedged equity ETF, we think are really differentiated in the market and fill an important need.
Speaker Change: We're excited about those they came with some additional complexity from.
Speaker Change: Process perspective, and the teams internally did an excellent job getting them ready. So we're really excited about those out in the market. We also have a rich pipeline of additional etfs coming some of which we've already filed for including building out our suite of sector Etfs and then we have more behind that on both the fixed income side as well as addition.
Speaker Change: Equity Etfs coming.
Speaker Change: Thank you. Our next question comes from Ben <unk> with Barclays. Your line is open.
Speaker Change: Alright, good morning, and thanks for taking the question, Rob you talked a little bit about credit in your prepared remarks, and sort of private lending environment could you, perhaps remind us how much of your AUM is sort of related to direct lending and then for all credit I was wondering if you could give us an update in terms of what youre seeing in April any sort of change in investor appetite would be helpful. Thank you.
Speaker Change: Yeah. So.
Speaker Change: Our private market alternatives.
Speaker Change: Is roundly $20 billion and Thats, a largely private credit.
Speaker Change: Ohh has been very successful.
Speaker Change: With raising capital commitments in the senior private lending area over the course of the last couple of years.
Speaker Change: The deployment has been more limited given the.
Speaker Change: Relatively soft.
Speaker Change: LBO and M&A environment. So there's a lot of dry powder there that ultimately can go from committed capital.
Speaker Change: Into the fee basis AUM.
Speaker Change: Which is what drives flows for us with <unk>.
Speaker Change: In terms of Oh credit specifically, it's been slower than we would have liked it's an intensely competitive area.
Speaker Change: We had $54 million of flows in the quarter, but it's building.
Speaker Change: We're adding more placements were on <unk> platforms now were in advanced discussions with a.
Speaker Change: A few others were building out our field sales coverage in.
Speaker Change: Our team of regional investment consultants, our wholesalers are.
Speaker Change: At this point up to speed on credit. So we think there is a very big opportunity over time to deliver ohh capabilities through a range of different whether it's evergreen vehicles or more traditional GP LP structures.
Speaker Change: Two the wealth area, but it's been intensely competitive and slower than we would've liked.
Given the recognition of OE, Jay as BDC in the year I think that will be helpful. I think some of the placements on a few of the big wealth platforms. They came late last year. Early this year. We will also help to help us to see meaningfully better momentum as we work our way through 2025 and into 2026.
Speaker Change: Thank you. Our next question comes from Craig Siegenthaler with Bank of America. Your line is open.
Craig Siegenthaler: Thanks, Good morning, Rob our question is on the potential for alternative investments to gain access to the U S retirement channel. So we've all seen several announcements from some of your biggest competitors forming partnerships with private markets firms. So what are your updated thoughts on forming a private <unk>.
Craig Siegenthaler: Partnership do you need to and also what are your thoughts on all the gain share pretty much from zero in foreign K plans and target date funds. Thank you.
Craig Siegenthaler: Yes, Greg Thanks for the question.
Craig Siegenthaler: Look I think if you zoom out the defined contribution market and parts of the wealth market. At this point have not had broad access to private market alternatives. They are really the only big pools of capital that remain untapped.
Craig Siegenthaler: In my mind, there's no question that <unk>.
Craig Siegenthaler: Essentially it will happen I think you can debate timing and magnitude, but at some point and to some degree defined contribution more traditional high net worth and mass affluent will get access to private market alternatives.
Craig Siegenthaler: These are obviously really important end markets to us that there are big channels and we're close to our clients. So we understand their direction of travel and are anticipating their needs.
Craig Siegenthaler: If ultimately we can help them by creating offerings that have compelling risk reward that are at the right.
Craig Siegenthaler: The point that provide the right amount of liquidity, we will do that I do think that some of these solutions will combine liquid public and private market alternatives.
Craig Siegenthaler: If if there are crossover portfolios that makes sense for our clients regardless of channel, we're going to evaluate offering them.
Craig Siegenthaler: I would say depending on the underlying asset class. We are open to partnering and we have had substantial discussions with a number of alternative investment firms.
Craig Siegenthaler: The best partnerships work are the best partnerships are formed when you have alignment on both sides and both sides bring something compelling to the partnership as I said on an earlier call regarding credit specifically, we have very very broad capabilities.
<unk> public and private markets at IHA and within T. Rowe price fixed income division.
Craig Siegenthaler: Not to say there are things that we don't do where that we might not partner with somebody.
Craig Siegenthaler: So really important for me to point out that <unk> has a long and distinguished track record of running credit portfolios that incorporate both.
Craig Siegenthaler: Private credit and liquid non investment grade and it's an important part of our strategy to bring ohh capabilities to the wealth channel to retirement and to the insurance channel.
Craig Siegenthaler: In other parts of it in other asset classes from an alternative perspective, whether it's private investment grade infrastructure real estate PE secondaries, we'll certainly consider partnerships rigs.
Craig Siegenthaler: Regarding retirement, specifically T. Rowe Price's of retirement solutions provider I think it's one of our great strengths as a firm if you look at how we've evolved our retirement dates we are constantly evaluating ways to improve our range of offerings and innovating our product design.
Craig Siegenthaler: We talked in previous quarters about personalized retirement manager of model account, which offers a customize glide path. We talked about Matt is lifetime income, which allows participants to guarantee a portion of their income so as a solutions provider if our market research and our investment research shows that incorporating private market alternatives into DC offerings resolve.
Craig Siegenthaler: Visibly better outcomes for 401, K plans and participants will offer that.
Craig Siegenthaler: At a very high level I think it does make sense that 401K participants in retirement investors would trade liquidity for return given the very long time horizons debt retirement investors have that.
Craig Siegenthaler: That said I think our engagement with planned sponsors would suggest that they're taking a go slow approach here I think there is concern about fiduciary risk. There is concern about liquidity. There is concern about daily pricing and Theres concern about fees.
Craig Siegenthaler: I'm confident that we can address those in time, but whatever we do it will be based on investment research.
Craig Siegenthaler: Our conviction that it will result in a better risk reward profile for the underlying portfolios that we offer and that we'll be able to solve for these challenges I do think that it's reasonably likely that if and when we incorporate a broader range of private market alternative offerings that will do it with at least one if not.
Craig Siegenthaler: A number of partners.
Dan Fannon: Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is now open.
Dan Fannon: Thanks, Good morning wanted to talk about flows and really the gross sales versus gross redemptions kind of backdrop and clearly a lot of volatility in the market, but as you think about.
Dan Fannon: What we saw in the first quarter.
Dan Fannon: Then here in April, but then more importantly, like discussions in backlog and kind of sales momentum as you think about this year any color.
Dan Fannon: From a product asset class or channel would be helpful.
Dan Fannon: Yes, good morning, Dan I didn't think we'd get that question.
Dan Fannon: Yes.
Speaker Change: So no. It also thank you for the question.
Dan Fannon: Our flow outlook for the year is largely unchanged.
Dan Fannon: There are a lot of puts and takes right. If you look at where things stand through the end of April we're basically in line with last year.
Dan Fannon: Q1 was very slightly behind last year's first quarter and while April was soft it was still a meaningful improvement from April 2024, what we saw in April was a meaningful spike in retail oriented outflows in the first few weeks of the month.
Dan Fannon: But that's normalized I think it's basically gone back to what I would characterize as run rate levels over the last few weeks and it was partially offset by solid flows on the institutional side.
Dan Fannon: On the more positive side, our net pipeline for large mandates continued to develop favorably during the quarter. So when you net it all out our base case is still for full year 2005 to improve relative to 2024.
Dan Fannon: Which is encouraging given the challenging backdrop.
Dan Fannon: Given the environment, though I think it's hard to have a lot of conviction on how the rest of the year will play out.
Dan Fannon: I would point out that while we're fighting some pretty intense headwinds in open ended mutual fund is a vehicle in active equity as an asset class. We've got a lot to be excited about very strong momentum in fixed income, especially our global strategies continued strong momentum across retirement solutions.
Dan Fannon: Ohh capital commitments, which eventually will come into the fee basis, AUM and drive flows there we talked about Etfs.
Dan Fannon: We're growing our capital appreciation, we have a suite of.
Dan Fannon: What I would characterize as low fee low risk budget alternatives to passive that have a very compelling value proposition, where our pipeline is robust and where we're really leaning in so.
Dan Fannon: I'm confident that we have a path back to positive flows I think it's unlikely to be in 25, but I think 25 will take another step back in that direction.
Dan Fannon: The only thing I might add that talked about channel just from an asset class perspective, we did see some rebalancing not surprisingly given the market volatility in late part of March and the early part of April so that would have been more relatively more outflows in equities more inflows into fixed income and from a geographic perspective, we saw more strength outside the U S than inside.
Dan Fannon: Yes, I would say broadly our experience has been consistent with the industry. They're earlier in the quarter. There were some rebalancing given the strength of equity markets in 'twenty three 'twenty four there was just some normal rebalancing from equity to fixed income and then later in the quarter you actually saw some derisking activity from equity to fixed income.
Dan Fannon: So.
Dan Fannon: Given our overall equity heavy mix I think we face some cyclical headwind in addition to the ongoing headwinds that I outlined earlier so.
Dan Fannon: I am proud of the work that our team has done to be able to say that at this point, our outlooks are largely unchanged.
Speaker Change: Thank you. Our next question comes from Bill Katz with TD Cowen Your line is open.
Madhu: Hi, Good morning. This is madhu on for Bill.
Speaker Change: So Greg front ran my question on the Alts partnerships. So maybe I'll ask a question about fee rate dynamics in the quarter.
Madhu: What did the.
Madhu: Exit rate look like coming out of the quarter. What are you seeing in April and maybe how should we think about those dynamics going into the rest of 2025.
Madhu: Thanks for the question.
Madhu: If we think about fee rate given the breath of our asset classes strategies and vehicles that we offer is a lot goes into the effective fee rate and it can really vary quarter to quarter. So I will give you some context for what happened this quarter, but I think it's always better to think about it on a multi quarter basis as opposed to kind of one quarter to the next in Q1 about 60% of the impact is.
Madhu: The decrease in effective fee rate came from more structural shifts in the type of investment strategies and vehicles that we're selling at the margin and we're seeing that persistent trend toward lower cost vehicles, such as Etfs collective investment trusts and separate accounts.
Madhu: On the investment strategy side, particularly within our target date franchise Youre actually seeing the impact of both vehicle and investment strategy as we've seen uptake in our blend products and in the collective trust vehicle.
Madhu: The other 40% is more cyclical with the overall mix of AUN and both from market and flow impacts. So as an example, this quarter you'll see in the release equity assets under management declined from about 52% to about 49% of AUM in the quarter, while fixed income and multi asset both increased as a percentage.
Madhu: So you would say that this quarter the impact was more significant than typical because of the equity market decline, it's hard to predict going forward with that portion of it will be that certainly the structural changes will be persistent.
Speaker Change: Thank you. Our next question comes from Glenn Schorr with Evercore. Your line is now open.
Speaker Change: Glenn Please check your mute button.
Speaker Change: Our next question comes from Alexandra <unk> with Goldman Sachs. Your line is now open.
Alexandra: Hey, good morning, Thanks for the question.
Speaker Change: Sorry, I have to ask you a little bit of a boring expense question, but given the volatility of the market.
Envy your ability to I guess budget right now given the swings we've seen so Jen maybe help us understand the drivers between sort of the original guide versus we are now and what point I guess in April did you guys set the guide in terms of like what are you assuming for equity market returns that's baked into guidance.
Thanks for the question and I appreciate the sympathy for having to set budgets in this kind of an environment and.
Speaker Change: So with the back part of your question about what we took into account from a market perspective, we took into account the volatility in April both end markets and in assets under management in setting that 1% to 3% range specifically if assets had been as of March 31 at 157 trillion expense growth would have been toward the higher end of that right.
Speaker Change: <unk> and I would say when we're thinking about the move from 46% to 1% to three it's two things.
Speaker Change: Its both the natural adjustment of market driven expenses and some intentional management of controllable expenses and Thats really things like slowing the pace of hiring and variable expenses like internal travel all of that said as we've said in prior quarters, we're continuing to evaluate opportunities for more structural cost savings to limit expense growth in 2006 and beyond.
Speaker Change: Thank you. Our next question comes from Ken Worthington with Jpmorgan. Your line is now open.
Ken Worthington: Great. Thank you. Good morning, Thanks for taking the question I wanted to dig into the expansion of retirement outside the U S. That you had mentioned in your prepared remarks. So you mentioned expansion of retirement and handful countries in Asia, Canada, I think you even mentioned Europe.
Speaker Change: You mentioned, leveraging the glide path and structural expertise what exactly are you selling are you actually launching I think it's like Korean Japanese Canadian target date funds.
Speaker Change: What youre doing there more nuanced I guess the second part is you leverage record keeping in the U S to kind of build out that U S retirement business I know, it's more DSA DSA of right now, but I think it started with record keeping and then lastly, one of the themes and U S. Retirement is customization is this.
Speaker Change: Happening outside the U S as well.
Rob: Yes, Ken it's Rob I'll start with on this one I think it's hard to generalize defined contribution schemes.
Speaker Change: In different countries are at very different stages of development.
Rob: Look at for instance, the.
Rob: Superannuation scheme in Australia, it's very very developed obviously the U S is very developed but in a number of other places.
Rob: It's evolving rapidly the UK Japan.
Rob: Canada.
Rob: In many instances those countries are less far along and in each case the structure is different so if I basically went country by country.
Rob: In Korea, we are offering a target date series in partnership with a local investment manager and we also have a retirement income series, which is really what drove much of the flow. There. This quarter. So it's two strategies partnered with a local investment manager where they manage the local.
Rob: A portion of the allocation and where we manage the more global portions of the allocation.
Rob: In Japan. It is very early in terms of the development and evolution I think theres going to need to be a lot of market development and education, but we are partnered with a local investment management firm to provide a target date series, where again they provide we provide the overall glide path in portfolio construction and design.
Rob: We provide the building blocks for markets outside of Japan, and they manage the Japanese equity and fixed income allocations within that.
Rob: In Canada, it's large were largely partnered with local life insurer and are offering a series that is quite similar to our the series that we offer in the U S, where we referenced other parts of Asia and the U K we're partnered with.
Rob: A large private bank.
Rob: Retirement, offering that will be distributed across Asia as well as in the UK and the middle East So.
Rob: That is actually not a target date product, it's more of a target allocation product thats designed specifically for retirement oriented investors and was custom designed based on the proposal that they gave US. We are one of four global asset managers that were chosen to participate in that and we will launch with them. Later this year. So it's really bespoke it's.
Rob: In each instance, but these opportunities are opening up and most of them I would say it's early days I think the real impact for us. If we're successful we'll build in out years I mean, I'm talking about 345 years. These most of these arent meaningful drivers right now, perhaps with the exception of Korea and Canada.
Speaker Change: The one thing I would add here, Ken as well is increasingly the mind shift is more about capabilities than products and we've built out capabilities that allow us to partner in different regions as Rob talked about on both.
Speaker Change: The strategic asset allocation side, but increasingly on the local tactical asset allocation side of the regional tactical asset allocation side, which is valuable to these partners. It would obviously be different than just a traditional type of product it could be more of a consulting arrangement or something like that so we're thinking about this as much from a capabilities perspective.
Speaker Change: As a product perspective.
Speaker Change: Thank you. Our final question comes from Mike Brown with Wells Fargo Securities. Your line is now open.
Speaker Change: Okay.
Mike Brown: Great. Good morning, Thanks for taking my question.
Speaker Change: Yeah.
Speaker Change: Just wanted to ask on the balance sheet. So we observed that for our cash is now increased to about $2.8 billion and.
Speaker Change: <unk>.
Speaker Change: Just wanted to maybe touch on capital allocation, how are you thinking about.
Speaker Change: But at this moment.
Speaker Change: Given the opportunity would you increase the share buybacks. How are you thinking about inorganic growth and when you think about the opportunities on the inorganic growth side, what would be some of the areas that you would be kind of focused on do you still.
Speaker Change: You start thinking about expanding the private markets.
<unk> capabilities are something that would be kind of interesting to you as you think about inorganic growth.
Speaker Change: Thank you.
Speaker Change: Thanks for the question I'll start.
Speaker Change: And I would say I think you referenced a $2 $8 billion number we look at a $3 3 billion cash and discretionary investments that we have available and as we look at that a portion of that is held in countries outside the U S or for regulatory purposes or buffer. So I would say when we think about that number we think about that about half of that being available for.
Speaker Change: <unk> opportunities so that could be things like.
Speaker Change: As you mentioned share buybacks or M&A or really just general buffer as we think about the market environment.
Speaker Change: We mentioned the share buybacks that we did the first part of this year and if we look at 'twenty four 'twenty four was higher than 2003, and the first quarter run rate and into April has been higher end on the pace that we were on in 2024. So I think all of those things are on the table, we do want to make sure we keep some cash available for potential opera.
Speaker Change: <unk> on the inorganic side.
Speaker Change: Maybe I'll open it up for you want to talk about the yes look I would just say with.
Regard to the buyback we stepped up the pace and will continue to be opportunistic.
Speaker Change: To the extent that.
Speaker Change: Okay.
Speaker Change: To the extent that the market presents a sort of opportunity is presenting right now we want to take advantage of it with regard to M&A.
Speaker Change: Our framework is largely unchanged right, we've talked a lot about wanting to do acquisitions, where we can bring new capabilities capabilities that we don't otherwise have or it would be difficult to build internally.
Speaker Change: That are unique compelling differentiated sustainable meet emerging and growing client demand or that allow us to access.
Speaker Change: New clients or to gain market share with our existing clients. That's the framework they need to be culturally aligned.
Speaker Change: They need to make financial sense. So the bar is high.
Speaker Change: Obviously this is a consolidating industry. So we see and look at a lot of things, but I think our priorities are no different than they've been before and certainly private market alternatives would fall into the category that I just described but apropos to the conversation earlier. There are also some things that we could achieve through partnership so.
Speaker Change: We don't necessarily have to have to own everything.
Speaker Change: Okay.
Speaker Change: Thank you. This concludes today's conference call.
Speaker Change: Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
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Speaker Change: Yeah.
Speaker Change: Yes.
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Speaker Change: Okay.