T. Rowe Price Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2023

Key Takeaways

  • Markets posted gains in Q1 and investment performance showed signs of improvement, notably in the target date franchise, value and core equity strategies, and U.S. equity research despite macro uncertainty.
  • Net outflows totaled $16.1 billion in Q1, driven by continued weak demand for large-cap growth equity strategies, particularly in U.S. defined contribution and broker dealer channels.
  • Assets under management ended at $1.3 trillion, up $67 billion from December 31 driven by $83 billion in market gains offset by outflows, while adjusted EPS declined to $1.71 from $2.62 a year ago amid lower AUM and revenues.
  • The firm is prioritizing strategic investments in high-growth areas, including bolstering its U.S. intermediary wealth channel as a top-tier partner with six of the ten largest firms and expanding in key international markets.
  • T. Rowe Price is broadening its product lineup with new active ETFs and SMAs, the acquisition of Retiree Inc. for retirement planning software, and the planned launch of the co-branded OHA Select Private Credit Fund later this year.
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Earnings Conference Call
T. Rowe Price Group Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning. My name is Shannon, and I will be your conference facilitator today. Welcome to T. Rowe Price's First Quarter Earnings Conference Call. All participants will be in listen only mode until the question and answer period.

Operator

I will give you instructions on how to ask questions at that time. As a reminder, this call is being recorded and will be available for replay on T. Rowe's website shortly after the call concludes. I will now turn the call over to Lindsey Carruth, T. Rowe Price's Director of Investor Relations.

Speaker 1

Hello, and thank you for joining us today for our 1st quarterly earnings call. The press release and a new supplemental materials Today's call will last 45 minutes. Our CEO and President, Rob Sharps and CFO, Jen Dardis, will discuss the company's results for a little over 15 minutes, and then we'll open it up to your questions. I'd like to remind you that during the course and the reconciliations to GAAP in the supplemental materials as well as in our press release and 10 Q. Now I'll turn it over to Rob.

Speaker 2

Thank you, Lindsey, and welcome to everyone joining us today for our inaugural earnings call. I'd like to start by saying that In rapidly evolving market conditions like the ones we experienced this quarter, what we deliver for our clients matters more than ever. Our clients have entrusted us with over $1,300,000,000,000 of assets and we are deeply focused on helping them meet their long term financial objectives. I'm pleased by how our teams have responded in these times, staying close to our clients, sharing insights and helping them navigate uncertainty. Our Q1 shows some encouraging signs.

Speaker 2

Markets posted gains And our investment performance showed signs of improvement. However, the market environment remains uncertain And our flows remain under pressure. In light of this uneven backdrop, we continue to carefully manage our financials to preserve our With that, I'll provide an overview of the market context and our investment performance as well as an update on our strategic priorities Before turning it over to Jen to review the quarterly financial results, stocks in the U. S. And most other major equity markets Recorded solid gains in the Q1, although returns were trimmed by the banking turmoil in the U.

Speaker 2

S. And later Switzerland. Bonds also offered good returns as growth and interest rate expectations moderated. A flight to safety following the banking The yield curve stayed inverted however, which may be an indicator of a coming recession. Stock returns in the U.

Speaker 2

S. Vary markedly. Turmoil in the banking sector and signs of ebbing growth in inflation pressures led to lower treasury yields and boosted gross shares By increasing the implied value of future earnings, the NASDAQ Composite Index jumped nearly 17% And technology shares within the S and P 500 Index returned nearly 22%, including dividends during the Q1. Conversely, declines in bank stocks and oil prices contributed to a modest overall decline in the small cap Russell 2,000 Value Index. Monetary and fiscal tightening, healing supply chains and easing energy prices help lower inflation in most major economies, Even if not yet to Central Bankers' satisfaction.

Speaker 2

The annual headline inflation rate fell from 6.4% While it was reassuring to see performance rebound in a number of key strategies in the Q1, We are keenly aware that 1 quarter does not make a trend, especially in such an unsettled macro environment. Periods of market transition and elevated uncertainty can work to the advantage of quality active managers. Near term dislocations often create long term opportunities as the market refocuses on fundamental drivers such as valuation and earnings quality. Our firm has navigated both sides of the investment performance cycle before. We persevered by adhering to our rigorous investment process and leveraging the insights generated by our global research platform.

Speaker 2

The solid long term track record of our target date franchise reflects these strengths As does the performance of our value and core equity strategies last year. And I'm encouraged by the resilience of our U. S. Equity research strategy, where more than 25 of our TRPA research analysts contribute to the portfolio in their focused area of expertise. As a fundamental research driven investment organization, our deep sector expertise and long standing engagement with management Teams is pivotal to understanding the long term strategy and goals of the companies we invest in.

Speaker 2

We are proud that Among more than 330 asset management firms nominated, we came in a very close second in Institutional Investors inaugural 2023 ranking of America's Top Asset Management Firms. I am pleased that so many corporate voters recognized our differentiated research and corporate access model. Despite these bright spots, net flows continue to be under pressure. As we reported, Net outflows for the Q1 were $16,100,000,000 The primary driver was net outflows in our large cap growth equity strategies, reflecting both continued weak industry demand and the lagging impact of investment performance challenges in these strategies. While those net outflows were broad based, they were particularly apparent in our United States defined contribution investment only and broker dealer channels.

Speaker 2

We continue to face headwinds with net flows to our large cap growth strategies, but We expect that they will abate with sustained investment performance and time. On the positive side, We recorded $7,500,000,000 of net inflows into the Target Date franchise and over $250,000,000 in net flows in each of global multi sector bond, U. S. Dividend growth, U. S.

Speaker 2

Taxable cash management, U. S. All cap opportunities and U. S. Short Term Bond Strategies during the quarter.

Speaker 2

We expect that we will return the firm to positive organic growth over With a combination of more constructive markets, sustained improved performance in key strategies, traction with a broader range of vehicles and continued progress with our strategic initiatives. Although excellent investment performance is central to our long term success, Our industry has gotten more competitive. We are committed to investing in the areas where we have scaled businesses such as our leading retirement franchise and to building capabilities to support future growth. We see an opportunity to elevate our focus on areas where we have already invested resources over many years and where we believe we have the greatest opportunity for growth and long term success. I would like to highlight some areas of focus and our progress against our strategic initiatives.

Speaker 2

We are bolstering our U. S. Intermediary wealth channel, Leveraging and extending the partnerships we have built. This quarter, we were named a top tier provider to another one of the largest intermediary firms in the industry. With this decision, we are now a top tier partner with 6 of the 10 largest intermediary firms in this space.

Speaker 2

We are also broadening our range of products to ensure we deliver our investment strategies in the vehicle of choice. As more advisors look to do more with fewer With a focus on unlocking growth in select countries where we have existing businesses that offer the greatest opportunity. During this quarter, I spent 2 weeks in Asia where we have 365 associates and clients representing $50,000,000,000 of assets under management. I had a chance to spend time with several of our clients and it reinforced for me the depth of relationships that we are building in the region and the opportunity that we have to do much more with them over time. In our direct retail business, We are enhancing our individual investor client experience through an improved digital experience and differentiated service offering.

Speaker 2

We recently completed the acquisition of Retiree Inc, a fintech firm that offers innovative retirement income planning software. This acquisition will complement and expand our retirement income capabilities across our audiences with planning tools for individuals and Practitioner Tools for Financial Professionals. We expect to use the technology in our retail direct, defined contribution and Wealth Management Channels. Finally, we are expanding our private markets and alternatives capabilities by leveraging our distribution channels and OHA's investment capabilities. As we previously shared, we acquired OHA to accelerate our expansion into alternative investments.

Speaker 2

Our first joint co branded product, T. Rowe Price OHA Select Private Credit Fund or O Credit is advancing. This business development company is a retail product developed to leverage OHA's private credit investment expertise with T. Rowe Price's distribution capabilities. We expect to close the C round in the 2nd quarter and launch Ocredit more broadly later this year.

Speaker 2

I am grateful to our associates around the world for focusing on delivering for our existing clients and for continuing to find new ways to bring what we do to a broader, more global base of clients. I will now turn to Jen to cover our financial results for Q1.

Speaker 3

Thank you, Rob, and hello, everyone. Today, I'll provide a summary of our financial results and key drivers, including assets under management and flows, revenue and operating expenses, and I'll conclude with a few comments on capital management before we take questions. Our adjusted earnings per share was 1 point for Q1 2023 versus $1.74 in Q4 2022 and $2.62 in Q1 2022. Compared with Q4 2022, adjusted operating income was up 3.7 percent to $528,000,000 primarily on a decline in expenses. A higher effective tax rate in the quarter drove the modest decline in adjusted EPS from Q4 2022.

Speaker 3

The change versus Q1 2022 reflects the decline in AUM and revenues from sharply lower markets and net outflows over the last 12 months. Looking at the drivers behind these results, we ended the quarter with $1,300,000,000,000 in AUM, an increase of $67,000,000,000 from December 31, 2022. Improving markets in Q1 increased assets by $83,000,000,000 offset by $16,000,000,000 in net outflows. Our average assets for the quarter were $1,300,000,000,000 which was up 3% from Q4 2022, but down 15.2% from Q1 2022. We've provided some detail on flows on Page 6 of the supplemental materials, but as Rob mentioned, outflows in Q1 were concentrated.

Speaker 3

We posted $23,500,000,000 of outflows in global equities with the majority of the net amount attributable to our U. S. Large Cap Growth Equity strategies. On a channel view, outflows were largely focused in our U. S.

Speaker 3

DCIO and broker dealer channels and with a few institutional clients. We experienced net outflows across all regions with the percentage of AUM sourced from outside the U. S. Ending the quarter at 8.9%. There were a few notable areas of strength in the quarter, including $7,500,000,000 of net inflows into the Target Date franchise, $1,300,000,000 of net inflows into international fixed income strategies and nearly $200,000,000 of net inflows into alternatives.

Speaker 3

During Q1, we typically see some seasonality in target date flows in part due to planned sponsor lineup activity around the turn of the year. We've provided an AUM inflows breakdown by institutional and retail client type, which replaces the vehicle views we have provided in the past. The assets and flows for Global Institutions and DC Plans, including those we record keep and those we manage on an investment only basis are reflected in the institutional bar. The retail assets inflows include both direct and intermediary sold retail accounts, including our platform and burger dealer channels. Our effective fee rate of 42.7 basis points for the quarter was a slight uptick from Q4 2022.

Speaker 3

This reflects a bit of noise from mix shift during the quarter. Over time, we continue to see modest downward fee pressure in line with new vehicle adoption and overall industry pricing headwinds. Turning to revenues. Our Q1 adjusted net revenues were $1,500,000,000 with $1,400,000,000 from investment advisory revenues. We saw a small increase in net investment advisory revenues from Q4 2022 on higher average assets versus the 4th quarter.

Speaker 3

Compared with Q1 2022, investment advisory revenues were down 16.3%, reflecting the decline in average AUM. Capital allocation based income for the quarter was $16,900,000 And as a reminder, capital allocation based income includes the change in accrued carried interest from some of our alternative funds along with acquisition related amortization. Additionally, accrued carried interest will fluctuate quarter based on the underlying portfolio company specific performance along with the market environment at the end of each quarterly period. This quarter was down from Q1 2022 due to a more challenging market environment than a year ago. It was also down from Q4 2022 as that period included additional crude carried interest to cover required tax distributions.

Speaker 3

Typically, 50% to 60% of accrued carried interest is expected to be retained in operating income as the remainder is passed through to fund partners who are also employees and recognized as compensation expense. We've included additional details about accrued carried interest on Page 11 of the supplemental materials. Now shifting to expenses. Adjusted operating The decline from Q4 2022 is largely driven by the declines in compensation, benefits and related along with the accrued carried interest related compensation. Compensation, benefits and related costs, which excludes the carried interest related compensation, was $593,000,000 for the quarter, which was in line with Q1 2022 and down about $31,000,000 from Q4 2022.

Speaker 3

Lower compensation expenses in Q1 primarily reflect Lower stock based compensation expense related to the firm's annual equity grant as well as the absence of severance and other costs associated with the workforce reduction recognized in Q4 2022, which more than offset the Q1 impact of annual increases. As a reminder, about a third of our adjusted operating Expenses excluding compensation related to carried interest are driven by AUM and revenues. This is predominantly cash and stock based incentive compensation and distribution expenses. For the balance of the year, we maintained the prior guidance that we expect our adjusted operating expenses, excluding capital allocation based income to grow in the range of 2% to 6% over the comparative full year 2022 amount of $4,100,000,000 Though we have started the year below the 2% to 6% range, the savings associated with the workforce reduction action in late 2022 will be offset through the year as we rehire for new skill sets aligned to our strategic initiatives. Based on the current market environment, we are trending to land at or below the midpoint of that range.

Speaker 3

Our Q1 non GAAP tax rate of 30.3% was outside the annual range we gave in January as we increased the valuation In a more cash constrained environment, we continue to prioritize the recurring dividend, which we increased for the 37th consecutive year since the firm's initial public offering in 1986. Our near term focus beyond the dividend is to balance the needs for seed capital and opportunistic buybacks over the long term to offset dilution from the equity incentive programs and to preserve cash for potential M and A. In Q1, we initiated minimal stock buybacks. We expect to repurchase Some during the remainder of the year, though not at the same level as 2021 2022 when we were offsetting the shares issued for the OHA purchase. We've also been modestly rebuilding our cash position since the purchase of OHA in late 2021 to maintain our strong balance sheet.

Speaker 3

We added roughly $233,000,000 in cash reserves in 2022. We are more focused than ever on prioritizing investment in our strategic initiatives, maintaining efficient operations and carefully managing our cash position. This financial discipline gives us the strength to navigate through market volatility and stay focused on the long term. With that, I'll ask the operator to open the line for Q and A.

Operator

Thank you. We ask that you please limit yourself to one question. Please stand by while we compile the Q and A roster. Our first question comes from the line of Daniel Fannon with Jefferies LLC. Your line is now open.

Speaker 4

Thanks. Good morning and thanks for doing the call. I was hoping you could give us a broader progress report on the OHA transaction. You talked about a product But more broadly, can you talk about their performance? What growth has been standalone?

Speaker 4

Because we know they were growing reasonably well before you bought them, but AUM hasn't really moved that much. So maybe just a little bit more context around that business today and what's done since you've owned it And maybe what you see is the opportunity over the next 12 months to 24 months?

Speaker 2

Good morning, Dan. Thank you for the question. I would characterize our 1st year with OHA at a high level as very successful. We've integrated the appropriate functions and worked really hard to identify distribution synergies, the ability to take their strategies to Institutional clients and prospects around the globe and also to take OHA capabilities into the wealth channel. I think the specific product that you're referring to is our T.

Speaker 2

Rowe Price OHA credit BDC. We've made a lot of progress with regard to the institutional seed and expect to launch it late this year in the wealth channel. In terms of their performance, it's remained quite strong. Their absolute results have been impacted by the difficult overall Fixed income in credit markets over the course of the last year, that's also impacted their Incentive income and fees and carry, but their relative performance has remained very, very strong. So we're really pleased right now with the progress that we've made and Feel very confident with regard to the opportunity and potential that our teams have together.

Operator

Thank you. Our next question comes from the line of Glenn Schorr with Evercore. Your line is now open.

Speaker 5

Hello. Thank you. Maybe a follow on on OHA and broaden a little bit. I'm curious on how OHA and the T. Rowe Price fixed income teams can work together, can learn from each other and maybe any observations you might have on trends in private versus public credit markets and how you can design products, how you can learn from each other from that?

Speaker 5

Thanks,

Speaker 2

Rob. Yes, Glenn. We've purposefully kept the investment teams largely separate. OHA had a 30 year track record of delivering great investment results for their clients in Private credit and distressed in their liquid offerings. I do think there's some overlap in We really wanted to minimize disruption in terms of the overall investment philosophy and process, and in terms of the culture.

Speaker 2

We are exploring ways to leverage ideas across the two platforms and share perspectives, particularly at The industry level, but we don't have any intention of integrating the T. Rowe Price fixed income platform with the OHA J platform, I think that's was one of the tenants of the acquisition at the outset. We are really, really focused on driving distribution synergy. We see a very large opportunity long term, Again, to take OHA to institutions around the globe, but also to take them into the broker dealer and advisory channel. And that's a place where T.

Speaker 2

Rowe Price has very strong relationships at the home office. It's a place where T. Rowe Price has very strong relationships and support in the field. Many of the wealth platforms have done business with OHA in the past in their more traditional structures and vehicles, And we're really excited for the opportunity to use more evergreen vehicles to take their capabilities there. Again, we expect to show some progress in that I will say that in general, the demand for Private credit broadly is a little softer than what it was 12 or 18 months ago.

Speaker 2

There's A denominator effect where people's allocation to private assets has risen is as marks have lagged the decline in public markets. I think in general, particularly on the wealth platforms, a number of advisors and clients are more taking a more cautious approach. I think there's a lot on the sidelines. And I think if you look at where spreads and absolute rates are now, the Return and risk return profile of a well managed private credit strategy is really compelling. So we do see substantial But I think the current demand and the current capital raising is softer than the trends that you would have seen if you go back to 2020, 2021 or early 2022.

Operator

Thank you. Our next question comes from the line of Patrick Davitt with Autonomous Research. Your line is now open.

Speaker 4

Hey, good morning, everyone. Thanks. So I appreciate the strong seasonal target date But in that channel more broadly, any sign that last year's performance issues are driving plans or consultants to rethink having T. Rowe in the lineup? And secondly, remind us how active you can be in those discussions or do you just find out after they make the decision?

Speaker 4

Thank you.

Speaker 2

Yes. I'll take the second part of the question first. We're very engaged And generally have the opportunity to share our outlook and give performance update. I think that's not the case in every instance. We reach plans in a number of ways.

Speaker 2

In some instances, we are the record keeper and we have direct interaction. In some instances, we go directly to the plan sponsor. And in those instances, have Through a direct DCIO opportunity on another record keeper's platform have the opportunity to interact with the client or prospect. And in a number of instances, we work through aggregators or advisors. And there, we really are able to articulate our value proposition with those folks and it's more indirect to the end client.

Speaker 2

When I think about the target First thing I would say is that in general, people are less sensitive to near term performance than they might be with single strategies. People tend to focus much more on 3, 5 10 year results, just given the nature of the objective Being Retirement and the long dated return objective of retirement investing and savings. If you look at our flows in Q1, as you mentioned, they were very strong. I think our pipeline remains very robust. Long term performance is important and when you have an active offering, ultimately you're going to need to deliver it.

Speaker 2

I think if you look at our retirement date fund, it offers the strongest value proposition in the industry. We have a number of Alpha rich diversifiers in our building block lineup from non investment grade credit To emerging markets and small and mid cap equity areas where you can add a tremendous amount of value as an active manager. And I'm very confident that if you continue to look at rolling 3 5 year periods that Our retirement date franchise will sort to the top and that we can continue to grow that franchise. And Yes, I feel quite good about it.

Operator

Thank you. Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.

Speaker 6

Good morning. Thanks for taking my questions and thanks for hosting the earnings call. Really appreciate the increased transparency And a chance to engage regularly. So on expenses, no change to the growth expectations. That's helpful Helpful to get the color around what the profile of the quarter the year will look like.

Speaker 6

Could you maybe give a breakdown of how much of this expense growth is tied to core inflation, Maybe impact of market sensitive expenses and then how much of the growth you are allocating to continued investments in the firm? Thank you.

Speaker 3

Thanks, Brennan. So I'll start as a reminder, we had in the commentary that about a third of our expenses are market give a sense for what the range might be for those market driven expenses. So that would be built into the guide that we have with the 2% to 6%. As far as investments in strategic initiatives, we haven't broken it out specifically, but last when we had their earnings release at the end of the year, we talked So that's about the level that we're looking at for investments in new things. Again, most of these are not new areas that we're investing in.

Speaker 3

They're extensions of existing Places where we're already active either in a distribution sense or in a product construct. So, again, not as many de novo investments, but Further follow on investments that we have in the business. If we think about the first part of your question about inflation, certainly that's in salaries and that impact has obviously rolled through into our expense base this year. But some of the steps we've taken have been try to mitigate that headwind in the labor market. Obviously, we've also seen cost increases in other places where we have 3rd party spend, But again, trying to actively manage that as we go forward.

Speaker 2

Yes. I would just say we really believe we have a big opportunity to drive share in U. S. Wealth and in our focus markets Around the world, but we also recognize that we need to drive efficiency and productivity in order to Fund those investments going forward and we're laser focused on doing that.

Operator

Thank you. Our next question comes from the line of Alexander Blostein with Goldman Sachs. Your line is now open.

Speaker 4

Hey, good morning. Thanks for taking the question as well. Rob, a little bit maybe bigger picture question about sort of the firm's EPS and operating income growth algorithm over the next couple of years. So As you sort of think about your comments regarding organic growth and organic base year growth being maybe challenged for some period of time, expense growth is kind of like in this Mid single digit range, so then obviously just kind of comes down to the market, but do you see areas we could flex expenses more Where the sort of earnings growth algorithm can improve even if organic growth remains challenged for some time?

Speaker 2

Yes. Alex, thanks for the question. The first thing I would say is that we see a path back to organic growth, but it is going to take some time. And in the interim, I do think we'll need to manage expenses in order to bridge that gap. So as I said before, we do want to continue to invest in our strategic initiatives to get back to consistent organic growth.

Speaker 2

But we need to be very disciplined with regard to how we get there. In terms of the algorithm, The market does play a big part when you have a $1,300,000,000,000 AUM installed base and where kind of over That said, flows can play a part in time, excess return and performance can play a part in time, We have a number of areas that I think can drive longer term growth, whether it's OHA or Deep partnerships in the intermediary channel, whether it's continued growth in our focus markets. But look, I think it's realistic to say during this period of Time where our flows are under pressure and our organic growth is negative that we will have to be more focused on expenses and that There'll be just a less robust overall EPS growth algorithm. And that's just the arithmetic of it.

Operator

Thank you. Our next question comes from the line of Kenneth Worthington with JPMorgan. Your line is now open.

Speaker 7

Hi, good morning and thanks for taking the question. Investors domiciled outside the U. S. Was 9% in the quarter. This has historically been a faster growing part of the business.

Speaker 7

It got to, I think, 9.9% at the end of 'twenty one after the OHEA deal closed. I think you have allocated significant resources to this build out outside the U. S. I guess, first, are you getting the results Commensurate with the resources allocated. And second, can you talk about the outlook for returning the non U.

Speaker 7

S. Business growth to its better than enterprise growth period again. Thanks.

Speaker 3

Thanks, Ken, and appreciate the question. So as we look at the business outside the U. S, obviously, it's not a single market. Those are a number of individual markets And we've been investing across a series of focused markets outside the U. S.

Speaker 3

I would say over the long term, we continue to see Growth out in those markets is an important leg of area for potential growth, particularly in core markets in Japan and Australia, The UK, Italy, Germany and Canada as we think about opportunities to grow the business. If we think about the near term and you're referencing, I believe, the first quarter flows. You can see some lumpiness within that business because there are some institutional flows. And obviously, if we think about the intersection between the comments we made on the large cap Equity business and the flows there, we have exposure to those asset classes in all of those markets as well. So in the short term, you can see the impact of the same trends that we saw across the broader part of the business, but over the long term, we expect that that's an opportunity for growth for us.

Speaker 3

And Specifically about the results that we're seeing for what we've invested there, I think we've been very pleased with the places where we've made core investments. Rob mentioned during his comments the client meetings that he had had while he was in Asia and we think there are some really good opportunities for us over the long term.

Speaker 2

Yes, I would say our pipeline in Japan and Australia in particular is encouraging, Ken. But again, this is a business where there are some sizable mandates and I don't think you can necessarily read quarter in and quarter out. You can make a trend. I do expect that this business will grow More quickly than the rest of the business, probably more so APAC than EMEA. But kind of overall, I think We're reasonably confident that if you look at it, you're kind of on a 2 or 3 year planning horizon that the growth rates will be meaningfully higher than the overall book.

Operator

Thank you. Our next question comes from the line of Bill Katz with Credit Suisse. Your line is now open.

Speaker 8

Thank you very much and thank you for hosting the call and the added disclosure is very helpful. Just focusing on Page 6 of the supplement and thank you for the extra detail. It would appear that you're losing share across vehicle, product and geography and maybe distribution channel. And I appreciate it's 1 quarter, but last 5 quarters sort of seems has to be the trend. So how do you think about the urgency to drive better growth versus M and A?

Speaker 8

You mentioned the focus on sort of rebuilding cash. You have a very strong balance sheet to begin with. How much cash is necessary? And then how you think about incremental M and A

Speaker 2

Thanks for the question, Bill. The first thing I would say is in terms of share, there's a meaningful element of it That is mix related. I'll note that we have had positive flows in fixed income overall, which is above category. I think our target date results continue to be robust. We've had positive flows Turning to this category, but you're right, we have had meaningful outflows in parts of our equity franchise and those Our equity franchise are a substantial part of the business.

Speaker 2

So kind of ultimately, I think if you look at that in aggregate, it has led to Share loss over the more recent time horizon. We want to manage this business with a very long term lens. I think that we do want to have more exposure to parts of the business, whether it is Product or vehicle or asset class or geography that have more tailwinds of growth and we think we can do that organically, We also will continue to look very seriously at acquisition opportunities. But I think we have a very high bar for acquisition. They need to have minimal disruption to our ability to deliver on our existing commitments to clients and our culture.

Speaker 2

They have to be strategic fit. They have to make financial sense. Most deals in this industry, the weight of the evidence would suggest They haven't been compelling. So again, I think we will continue to look and I think OHA and retiree were both examples The sorts of things that can be meaningfully additive, OHA obviously much, much greater in scale and scope. But nonetheless, I mean, we think that M and A is a tool that can help us

Operator

Thank you. Our next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is now open.

Speaker 9

Great. Thank you. You mentioned that you're looking to broaden out the range of products and vehicles. I was hoping you could elaborate on that, where you see white space from a product standpoint and vehicle standpoint and maybe you could talk a little bit about how you're building out the SMA platform and also active ETFs and some of the actions that you could take there to accelerate growth.

Speaker 2

Sure. I'll start with ETFs. We have been in market for a couple of years. We just Crossed $1,000,000,000 in AUM and our ETFs and I would say that momentum is building. Our first offerings in the equity space were semi which was new and I'd say it took a little while for advisors and investors to get comfortable with the semi transparent approach.

Speaker 2

But as I say, we've been building substantial momentum with P Chip, with PDVG. We also are in market with some transparent active fixed income ETFs, which are also beginning to build momentum. We will launch an additional series of ETFs toward the middle of this year And are really excited about the opportunity that those will bring. In mid March, we filed registration statements with the SEC for 5 new active equity ETFs, a value ETF, a growth ETF, an international ETF, Small and Mid Cap ETF and Capital Appreciation Equity ETF, and feel very good based on feedback that we've gotten From investors, advisors and kind of users of ETFs that these will kind of really allow us to meet the Clearly strong demand in the ETF category and ultimately will also allow us to be in market with ETF models using our asset allocation capabilities. So We'll be quite active and you kind of really feel like we've got an approach that will allow us to continue to build momentum and have a bigger impact in ETFs.

Speaker 2

In terms of SMA, we lastly or in late April seeded 4 new muni SMAs, which will be available later in That will bring us to 20 strategies offered as SMAs. We have placement with all of the top 10 SMA distributors And you'll kind of continuously hear feedback from the wealth platforms that they want to do more with fewer high quality investment management firms And that they want strategies available across vehicle ranges. So mutual funds, ETFs, SMAs, Model account delivery, etcetera. I also would add, globally, we'd continue to Scale vehicles that will allow us to penetrate the intermediary market in those focus markets that Jen mentioned earlier. And then finally, the BDC is A new vehicle and a new product for us.

Speaker 2

So I think we're investing to be top of mind and very relevant with our intermediary partners Globally, again, whether that's at the home office level or in the field.

Speaker 3

I would just add to that. Beyond the products themselves and the vehicles that they're offered in, this intersects with the investments that Rob mentioned earlier, where we're making investments behind our distribution sales, marketing teams With the U. S. Wealth channel where a lot of these vehicles are sold and so it's not just developing the products and putting them out there, but actually putting the marketing and sales resources

Operator

Our next question comes from the line of Finian O'Shea with Wells Fargo Securities. Your line is now open.

Speaker 4

Hi, everyone. Good morning. Another for Oak Hill. Can you give us a sense of employee retention as the firm integrates into T. Rowe?

Speaker 4

And is O! Credit intended to expand into direct lending as many of your peers focus on Or might you draw on more of a mix of the firm's private credit capabilities? Thank you.

Speaker 2

With regard to OHA associate retention, There's really been no change. It's been very strong. That's a big part of the reason why we kept the Investment platform separate again to minimize disruption and to allow them to sustain their momentum. They've got great talent And there's generally in our business some Small amount of turnover, particularly among more junior associates, but we've seen we have not seen any regrettable attrition at the more senior associate Partner level at OHA. OHA.

Speaker 2

OHA Credit will have the opportunity to invest In both private and liquid credit, I think the target for O credit is We'll be more in private credit, but kind of really will have flexibility to make investments where the risk return is most compelling.

Operator

Thank you. Our last question comes from the line of Craig Siegenthaler with Bank of America. Your line is now open.

Speaker 6

Hey, good morning, everyone. Rob, my question is a long term one in the 4 ks business. From a timing standpoint, where do you think we are in the unbundling theme Where foreign ks plan sponsors have been separating record keepers from asset manager. And I know this doesn't impact your bigger DCO business, but we wanted your perspective on if

Speaker 2

Craig, I think it's difficult to say. This is a trend that's been unfolding for a relatively long period of time And there continues to be consolidation in the record keeping business. Record keeping is a scale business. That said, I think T. Rowe Price has a very compelling value proposition In RPS and particularly in core market, we're growing the number of plans and Continuing to get attractive economics with the majority of the AUM on the plan managed by T.

Speaker 2

Rowe Price and in particular, Having very strong representation of our target date funds. So look, I think the trend toward consolidation And unbundling of asset management and record keeping is probably fairly far along. I also would say, I think there will always be a place For a well done bundled record keeping offering in parts of the market, particularly in what we characterize as the core market. So Below the large enterprise level, where I think you can really deliver a very compelling value proposition. And if you were to look at our plant count, If you were to look at our flows, the core RPS market is a market that we're investing in.

Speaker 2

We're investing in Our coverage and territories and one that we think will be a growth driver for us over the course of the next several years. So while the unbundling trend I think is Particularly important at the very large enterprise level, I don't think it's something that is a meaningful threat to our business. Again, as you mentioned, We have a very sizable representation in DCIO. We interact with the 401 market in a number of different ways, Right. DCIO direct to the plant sponsor, DCIO through consultants and advisors, record keeping where we sell directly to the plant sponsor, record Through aggregators and advisors, over 60% of our AUM is retirement related and we've got a multi pronged strategy to penetrate that opportunity.

Speaker 2

Yes. I think we've got a great value proposition with, as I've mentioned before, our range of retirement date funds. So this is a business that I'm pretty enthusiastic about. And I would say I don't spend a lot of time thinking about the disaggregation of record keeping and asset management at the very large plan level. And that's something that we've lived with for a decade or more.

Speaker 3

And if anything that's benefited us over time because as we've been able to bring our target date to plans, we don't record keep because obviously we're not among the largest record So if anything, this trend has helped us to build the target date franchise over time.

Speaker 2

Okay. I think that was the last question. In closing, I just thank you all for joining us today and for your interest in T. Rowe Price. As we shared, I think Q1 showed Promising signs in the market backdrop and also some improved investment performance as well as strong target date net flows.

Speaker 2

And while the market environment remains uncertain, I'm very pleased with how our associates and our teams are responding. And we remain deeply committed and focused on helping our clients meet their long term financial objectives. So again, thank you.

Operator

Thank you. That concludes today's call. You may now disconnect.

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