T Rowe Price Group Inc 2026 Q3 Earnings Call

Hello, and thank you for joining us today for our third quarter earnings call. The press release and a supplemental materials document can be found on our IR website at investors.troweprice.com. We will start our call with our Chair and CEO, Rob Sharps, and CFO Jen Dardis, discussing the company's results. Dee Sawyer, our Head of Global Distribution, will then share an update on our ETF, SMA, and models businesses. Then we will open it up to your questions, at which time we will be joined by our President, Co-Head of Global Investments, and CIO, Eric Veiel. We ask that you limit it to one question per participant. I would 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 reconciliations to GAAP in the supplemental materials, as well as in our press release in 10-Q. Discussions related to the funds is intended to demonstrate their contribution to the organization's results and are not recommendations. All investment performance references to peer groups on today's call are using Morningstar peer groups and for the quarter that ended September 30, 2026. Now I will turn it over to Rob.

Thank you, Linsley. I am joined today by Dee Sawyer, Head of Global Distribution, who will share an update on our ETF, SMA, and model portfolio businesses, areas where we are investing, innovating, and gaining traction. Before we hear from Dee, I will share a few thoughts on the quarter, and then Jen Dardis, our Chief Financial Officer, will take you through our financial results. We ended the quarter with $1.86 trillion in assets under management and $28.3 billion in net outflows. Looking ahead, we anticipate some sequential improvement in net flows in the fourth quarter, with outflows moderating from third quarter levels, but remaining elevated. Regardless, we are making notable progress with improving performance, innovative product launches, and continued advancements across our partnerships. Let me start with investment performance. Over 50% of our fund assets beat their peer groups on the one, three, and 10-year time periods.

The five-year time period fell short of that mark, with 44% of fund assets outperforming. Results improved notably from last quarter for the one and three-year time periods, particularly in equities, with 48% and 58% of fund assets outperforming their peers respectively. For the five and 10 year, 37% and 60% outperformed. Our large cap growth suite delivered a strong quarter, with all three funds beating their peer group, reversing the underperformance we saw in the prior quarter. U.S. Equity Research remains a top quartile performer for the three, five, and 10-year time periods, and the one-year just missed, coming in at the 26th percentile. Both Capital Appreciation and Global Stock beat their peer groups across all reported time periods. Capital Appreciation is top decile for the five and 10 year, and Global Stock is top decile for the one and 10 year.

Fixed income performance remains strong, with 85%, 74%, 76%, and 82% of fund assets beating their peer groups for the one, three, five, and 10-year time periods respectively. Global Multi-Sector, floating rate, and several municipal strategies stood out. In target date, 80% of assets outperformed their peers for the one and three-year time periods, 55% for the five year, and 98% for the 10 year. Nearly all the target date assets outperformed in the third quarter, driven by the retirement glide path's higher relative equity exposure, a tactical underweight to bonds, and our allocation to inflation mitigating assets. Shifting to alternatives, performance across OHA strategies was strong in Q3. Among the underlying drivers was strength in software exposures, both public and private. This dynamic contributed to strong performance across private credit, both in institutional and wealth, and CLOs, as well as positive relative performance in loans and multi-asset credit.

Distressed and opportunistic funds also generated gains driven by positive idiosyncratic developments. In addition to strong investment performance, there were a number of other highlights from the quarter. In August, we announced that we plan to acquire F/m Investments, with the closing expected early in 2027. F/m is a fixed income asset manager and ETF specialist with approximately $20 billion in assets under management across exchange traded funds, institutional separate accounts, and both taxable and municipal separately managed accounts. With this transaction, we will enhance our fixed income platform and accelerate growth in our ETFs and solutions. This is consistent with our overall approach to M&A, extending our capabilities with limited overlap, strengthening our competitive position, and adding top talent. We're also growing our fixed income franchise organically, where we had another strong quarter with $3.4 billion of net inflows. Earlier this year, we extended our platform with two T.

Rowe Price managed CLOs. The most recent CLO, which closed in August, issued approximately $400 million in notes. We are also making progress through our strategic partnerships. As part of our relationship with Aspida, we launched the first index strategy in Aspida's fixed index annuity suite, which extends our investment capabilities into the growing retirement and insurance marketplace. We also reached several milestones in our collaboration with Goldman Sachs. We launched two interval funds in the quarter. The T. Rowe Price Goldman Sachs Private Markets Fund launched early in the quarter and is now available on several external platforms. The All Equity Access Fund received SEC approval in late August and launched in early September. The fund brings together our public equity research and late-stage venture investing experience with Goldman Sachs Asset Management's institutional private equity expertise. We added a sixth model, the Goldman Sachs T.

T. Rowe Price Dynamic ETF and Alts portfolio, which includes the private markets interval fund as a building block. We continue to build momentum toward the launch of our target date sister series, T. Rowe Price Goldman Sachs Retirement Blend Plus. We have an active pipeline of interested plan sponsors, with several progressing toward implementation. The product is operationally ready, and we are working closely with these sponsors to finalize launch timelines. In early October, Robinhood announced plans to bring tokenized versions of actively managed ETFs on chain for eligible investors outside the U.S. We are pleased that Robinhood has chosen T. Rowe Price's active ETF strategies to be first. This initiative offers a valuable opportunity to learn how tokenization is developing and how investors may engage with established investment strategies in new ways.

Being able to explore this opportunity with Robinhood reflects the growing strength of our active ETF capabilities and our commitment to innovation. We are also advancing our use of AI through our strategic relationship with Anthropic. The relationship is expanding our enterprise capabilities by giving portfolio managers and analysts access to Claude and Cowork, and developers access to Claude Code. AI is moving into the core of how we invest, helping our teams enhance research, synthesize information, and create capacity for the judgment that drives client outcomes. We are moving beyond broad adoption toward AI-enabled workflows with measurable business value across investments, distribution, and operations. Every application is governed by the firm's standards for responsible use and built to keep human judgment and accountability at the center of our work. We also refined our AI leadership model, embedding AI leaders in investments in global distribution, and charging T.

Rowe Price Labs, our enterprise AI innovation hub, with evaluating and scaling AI across the firm with strong governance and risk oversight. While the environment for active equity is difficult, we are broadening how clients can access our capabilities and investing in the partnerships and technology that will differentiate us over time. I remain confident in where we are headed. I want to thank our associates for their focus and commitment to our clients. Jen will share an update on our financial results.

Thank you, Rob, and hello, everyone. I will review our third quarter financial results before turning the call over to Dee. Our adjusted diluted earnings per share for Q3 2026 was $2.86, up from $2.57 in Q2 2026 and $2.81 in Q3 2025. The increases over both prior periods were driven by higher average AUM. A lower share count was also a factor in the year-over-year increase. As Rob mentioned, we had $28.3 billion in net outflows during the third quarter. This was driven by continued outflows from our equity strategies and mutual funds. Multi-asset net outflows were $7.6 billion, primarily from our target date strategies. This included a previously disclosed large redemption from a defined contribution plan in our active target date series in September. Fixed income and alternatives were positive during the quarter, and we saw net inflows from clients in APAC.

Within our expanding ETF lineup, net inflows were $3.8 billion, bringing year-to-date ETF net inflows to $11 billion. These results demonstrate the breadth of client demand across several areas of our business. Moving to the income statement, our third quarter adjusted net revenue was $2 billion, up 5.3% from Q3 2025 and up 5.1% from the prior quarter. Investment advisory revenue of $1.8 billion was up 5.8% from Q3 2025 and 3% from the prior quarter on higher average AUM, partially offset by a lower effective fee rate. Adjusted carried interest was $63.1 million, compared with $15.2 million in Q2 2026. This includes carry earned on OHA's private credit products, in addition to our late-stage venture fund that launched in Q1 2026. Our Q3 annualized effective fee rate, excluding performance-based fees, was 37.8 basis points, compared with 38.1 basis points in Q2 2026.

About two-thirds of the decline was driven by the continued growth in our target date blend and hybrid suite, with the remainder reflecting ongoing outflows from U.S. equities and vehicle mix shift. These trends continue to reflect client demand for solution-oriented products and lower-fee vehicles. We continue to invest in these areas and broaden our range of offerings. Looking at expenses, Q3 adjusted operating expenses, excluding carried interest expense, were nearly $1.2 billion, down 1.6% from Q2 2026 and up 5.7% from Q3 2025. The decrease from the prior quarter reflects lower compensation and related costs. The third quarter of 2026 also included the reversal of about $10 million of accrued technology-related expenses for work that's now expected to occur in future periods.