The paragraph details the opening of T. Rowe Price's Third Quarter 2024 Earnings Conference Call, led by operator Daniel and Linsley Carruth, the Director of Investor Relations. The call is being recorded and will last about 45 minutes, featuring remarks from Chair, CEO, and President Rob Sharps, and CFO Jen Dardis, who will discuss company results for 15 minutes before taking questions. The company reported $1.63 trillion in assets under management as of the end of the third quarter, a 3.9% increase since June 30th, despite $12.2 billion in net outflows. The call will also include forward-looking statements and non-GAAP financial measures, with references to investment performance using Morningstar peer groups.

The article discusses the company's expansion in its active ETF franchise and retirement solutions, emphasizing strategic advancements and efforts to reduce net outflows this year. While long-term investment performance is strong, recent results have been softer. Their equity and ETF franchises show top quartile performance in several categories, and fixed income strategies, particularly muni and floating rate ETFs, also perform well. Despite some challenges in stock selection and US equities, flagship retirement funds maintain strong long-term performance. Alternative strategies saw positive returns, but net outflows were $12.2 billion in Q3, with further increases anticipated in Q4 due to seasonal trends and a major termination.

The paragraph discusses the company's progress and future expectations despite experiencing an unexpected loss. While they aim to reduce net outflows, their success is not as significant as initially anticipated. They are actively expanding their ETF business and advancing in retirement strategies. Recent launches include a technology ETF, two retirement offerings—Personalized Retirement Manager and Managed Lifetime Income—to provide customized asset allocation and stable retirement income. There's growing interest in customizing target date capabilities, highlighted by an expected custom glide path win next year. Additionally, they achieved milestones in private lending, marked by a significant increase in unfunded capital commitments.

The paragraph discusses the company's financial performance and business activities. Despite a termination affecting VA, the weighted net pipeline showed growth. The third quarter results indicate an 18% increase in adjusted earnings per share from the previous year, attributed to higher average assets under management, improved operating income, and a lower tax rate. The company experienced $12.2 billion in net outflows, with US Equity products being the main contributors, yet some US Equity and other product categories saw net inflows. The company had strong inflows in fixed income, multi-asset, and alternatives, with notable success in its target date franchise and ETF business. Internationally, positive net inflows were recorded in the APAC and EMEA regions.

The paragraph discusses a recent significant termination of a sub-advised variable annuity, anticipated to cause substantial asset outflows in the fourth quarter. The VA business, managing $104 billion in assets or about 6% of total AUM, has seen net outflows for years, a trend expected to continue, especially due to the large termination impacting 2024 outflows. Despite not driving organic growth, the business maintains important client relationships. Financially, Q3 adjusted net revenues rose to $1.8 billion due to higher average AUM, although the effective fee rate decreased as assets moved to lower-fee options. Q3 investment advisory revenue reached $1.6 billion, including $5.6 million from performance-based fees. Adjusted operating expenses increased by 3.6%, attributed to higher compensation, benefits, and distribution fees.

In Q3 2023, the company recorded a $20 million non-recurring cost recovery, resulting in an adjusted operating income of $718 million, up 13% from Q3 2023 and nearly 10% from the previous quarter. For the rest of the year, it expects 2024 adjusted operating expenses to be 6% to 8% higher than 2023's $4.19 billion. This rise is anticipated due to seasonal factors and timing, such as higher stock-based compensation, advertising, and professional fees in Q4. The company also bought back $71 million in shares during Q3, totaling $264 million for the year, and has returned over $1.1 billion to stockholders with dividends included. With over $3.6 billion in cash and investments, the company is focusing on 2025 growth investments while maintaining expense discipline.

In the paragraph, Alexander Blostein asks Rob Sharps for insights on organic growth and outflows in the VA business, noting expected outflows in Q4. Sharps responds that outflows excluding the VA mandate are aligned with typical seasonal trends, seeing a slight increase in redemption pressure towards year-end. He indicates improvement in outflow levels for 2024 compared to 2023, and expects continued progress into 2025, potentially achieving positive flows. Despite challenges for active equities and mutual funds, Sharps is optimistic about performance improvements in key areas like large cap growth, which shows positive trends in sales and redemptions.

The paragraph discusses the company's positive performance in asset classes and sales channels, with expectations for growth in retirement date funds in 2025 and beyond. There is optimism about contributions from alternatives, ETFs, and SMAs, with opportunities in fixed income, especially in insurance. The company acknowledges the difficulty in predicting flows but aims for a return to organic growth by 2025, even if full-year goals are not met. The discussion transitions to a question from Michael Cyprys about the retirement market and the company's growth strategies, including a new lifetime managed payout product and a Glide Path win.

In this paragraph, Rob Sharps discusses T. Rowe Price's recent achievements and strategic developments in retirement solutions. He highlights a specific win involving a custom Glide Path, tailored to specific participant demographics, with fees categorized under assets under administration (AUA) rather than investment advisory fees. Sharps emphasizes strong momentum across T. Rowe Price's offerings, particularly in flagship and blended retirement date funds. He mentions two new products launched on their record-keeping system: a Personalized Retirement Manager offering customized managed accounts, and a lifetime income product with a QLAC design. Both are new to the market, and T. Rowe Price plans future expansion to other record-keeping platforms once they demonstrate success. Jen Dardis is also mentioned as someone who may contribute additional insights.

The article paragraph discusses a company's go-to-market strategy, highlighting its work with retirement plans through both its own record-keeping platform and a DC investment-only strategy. The company collaborates with major retirement franchises, focusing on co-development to enhance its suite of retirement products. Then, in a Q&A session, Benjamin Budish from Barclays Capital asks about the company's private credit business, specifically concerning senior direct lending and fixed income opportunities in insurance. Rob Sharps responds by pointing out that the opportunities in insurance are widespread across the firm's fixed income business.

The paragraph discusses the investment strategies of a fixed insurance general account, highlighting opportunities in investment-grade corporate credit and private credit. Insurance investors seek to enhance portfolio yields through private strategies. The conversation mentions OHA's (presumably Oak Hill Advisors) involvement, noting they have launched their first dedicated senior private lending fund, despite historically not specializing in this area. OHA recently had a record quarter of capital raising with $5.5 trillion in new commitments, totaling over $9 billion for the year, with a substantial portion in private credit. The capital commitments are expected to boost flows and alternatives flow is anticipated to increase into 2025. The paragraph concludes with the transition to a question from Dan Fannon at Jefferies.

In the paragraph, Rob Sharps responds to Dan's question about the institutional backlog and sales cycle. He explains that the backlog is a weighted pipeline spanning over a year and includes various asset classes, not just institutional ones. Despite a significant termination, the risk-weighted pipeline increased quarter-over-quarter because new opportunities are expected to close in the next 12 months. This growth is broad-based across the business, with notable momentum in active equity, particularly large growth, structured research, global equity strategies, fixed income, and the retirement date suite.

Rob Sharps explains that the expansion of their ETF franchise both broadens customer reach and involves some degree of cannibalization of existing fund assets. Some investors prefer ETFs over open-ended mutual funds if the same strategy is available, but ETFs also attract new buyers who are exclusive to this investment type. Certain strategies are only available as ETFs, providing incremental opportunities. Although there is some potential for existing fund investors to switch to ETFs, many have significant embedded gains, making it costly to sell. Additionally, some wealth platforms prefer not to offer the same strategy in both funds and ETFs, thus a substantial portion of the ETF business is new and incremental.

The paragraph discusses the impact of adding an insurance guarantee to investment products, specifically focusing on Managed Lifetime Income. Craig Siegenthaler from Bank of America asks about the internal rate of return (IRR) and cost implications of these insurance riders, particularly given that plan sponsors are fee-sensitive. Rob Sharps responds by acknowledging the complexity of the question and suggests further discussion with Linsley for detailed specifics. He notes that the product is well-designed, incorporating a Qualified Longevity Annuity Contract (QLAC) which offers a deferred guaranteed payout. This setup provides plan participants with flexibility during the early retirement years and ensures guaranteed payouts later in life, aligning with T. Rowe Price's management options.

The paragraph discusses the economic considerations and design of QLACs (Qualified Longevity Annuity Contracts), highlighting their affordability compared to other fixed annuities and how they balance risk and cost. The conversation shifts to a question from Glenn Schorr about the integration of private market allocations in target date funds and retirement plans. Rob Sharps answers, noting that the timing depends on regulatory developments, influenced by an upcoming election. While interest exists, there is uncertainty about when and how integration will happen. T. Rowe Price is prepared to incorporate private market alternatives into offerings, leveraging their brand and distribution network, but awaits regulatory clarity to proceed.

The paragraph discusses the challenges and potential opportunities of incorporating private market alternatives into the defined contribution market, which is sensitive to fees and currently lacks the necessary infrastructure and regulatory clarity. It suggests that once these issues are resolved, T. Rowe Price could become an attractive partner by offering compelling options to plan sponsors and participants. The paragraph transitions to a conversation where Patrick Davitt from Autonomous Research asks about the composition of clients managing $85 billion outside of variable annuity (VA) assets, noting that these assets, primarily in retirement plans, are considered more stable or "sticky." Jen Dardis and Rob Sharps provide clarification and some details about this client base.

The paragraph discusses differing trends in the sub-advisory platform compared to the VA (Variable Annuities) business. VA has been deprioritized by some clients or lost share to fixed index annuities and RILAs in a higher rate environment, whereas the sub-advisory business in wealth and retirement does not face similar pressure. Brennan Hawken from UBS asks about the company's performance, which has suffered significantly in the last quarter, particularly on a one-year basis. Rob Sharps responds by acknowledging the weak performance, attributing it partly to a risk-on rally when a 50-basis point cut became evident, which didn't align with their portfolio's positioning. Despite current challenges, he expresses confidence in their research platform and portfolio managers, noting improvements in areas like US large-cap growth.

The paragraph discusses the outlook for a US structured research strategy, highlighting its strengths and areas for improvement. The speaker is confident in the strategy's potential to deliver positive performance over time without drastic measures. They acknowledge a past period of poor performance, starting in late 2021 and continuing through 2022, but expect metrics to improve in the coming quarters. Additionally, the speaker, Jen Dardis, addresses a question about expense growth for 2025, noting that while they are still in the planning process, the aim is to align expense growth with revenue growth, based on current asset management trends and market forecasts.

The paragraph discusses T. Rowe Price's financial outlook and strategy. The company started last year with an expense growth expectation of 3% to 5%, excluding carried interest compensation, but later increased it to 6% to 8% due to higher market returns and expenses. The revenue momentum from 2024 to 2025 is stronger than in the previous year, suggesting a slightly higher initial expense guide for the upcoming year, though a final figure will be shared in the next quarter. The company is investing in several key areas such as enhancing their ETF franchise, expanding marketing efforts outside the US, investing in alternative sales platforms, and improving operational efficiency. The operator then concludes the conference call after brief remarks from Rob Sharps.

This summary was generated with AI and may contain some inaccuracies.