T. Rowe Price Group Q1 Earnings Call Highlights

Key Points

• T. Rowe Price reported adjusted EPS of $2.52 (up 13% year‑over‑year) with AUM of $1.71 trillion and average AUM of $1.78 trillion, but experienced $13.7 billion of net outflows and continued fee pressure as the annualized effective fee rate fell to 38.4 basis points.
• Product growth was driven by ETFs and SMAs: ETF AUM surpassed $25 billion across 32 funds (eight above $1 billion), with ETF and SMA net inflows of $2.8 billion and $962 million, respectively, while target‑date products added $4.9 billion in net inflows.
• Alternatives via Oak Hill Advisors expanded to $112 billion of assets and management says it holds over $30 billion of dry powder, viewing current credit market volatility as an opportunity to deploy capital rather than a systemic threat.

T. Rowe Price Group NASDAQ: TROW executives highlighted improving earnings, continued progress in exchange-traded funds and separately managed accounts, and ongoing efforts to stabilize net flows during the firm’s first quarter 2026 earnings call. Management also provided a detailed update on its alternative credit business through Oak Hill Advisors (OHA), emphasizing opportunity in a more volatile market environment.

Market backdrop and investment performance

Chair, CEO, and President Rob Sharps said markets were “relatively stable” early in the quarter before declining in March, which he attributed to “the conflict with Iran” that pushed energy prices higher and increased uncertainty around global growth expectations. Sharps noted those declines “have reversed in the early part of the second quarter, with the market recently reaching new highs.”

Sharps said T. Rowe Price’s active management approach is positioned to take advantage of market volatility, even as the company continues to face outflows in equities and mutual funds. He reported that “around 1/2 of our funds outperformed,” with 39%, 56%, 43%, and 59% beating peer group medians over one-, three-, five-, and 10-year periods, respectively. On an asset-weighted basis, Sharps said long-term performance remained stronger: 71%, 46%, and 78% of funds outperformed over three, five, and 10 years, though “the one-year time period remains challenged.”

Fixed income results were a bright spot. Sharps said that on an asset-weighted basis, “over three-quarters of the funds outperformed for the one, three, five, and 10-year time periods.” In target date strategies, he said 94%, 54%, and 98% of fund AUM outperformed peers over the three-, five-, and 10-year periods, while one-year performance was weaker. However, Sharps added the most recent quarter showed improvement, with “86% of AUM outperforming peers,” driven by security selection in active equity strategies and tactical asset allocation decisions.

Financial results: higher EPS, fee pressure, and expense discipline

Chief Financial Officer Jen Dardis reported adjusted earnings per share of $2.52, up 3% from the prior quarter and up 13% from the year-ago quarter. Dardis said the year-over-year increase was driven by revenue growth from higher average AUM, while quarter-over-quarter improvement reflected lower expenses, alongside a lower tax rate and reduced share count.

The company ended the quarter with $1.71 trillion in AUM and $13.7 billion in net outflows. Average AUM of $1.78 trillion was nearly flat sequentially and up 9.6% from the first quarter of 2025. Dardis said multi-asset, fixed income, and alternatives posted positive net flows, while equities—“particularly U.S. growth-oriented strategies”—remained in outflows.

Dardis highlighted several flow contributors, including:

• Target date net inflows of $4.9 billion, driven by momentum in blend products
• ETF net inflows of $2.8 billion and SMA net inflows of $962 million
• Positive net flows in international bond and U.S. equity research

Adjusted net revenue was over $1.8 billion, up 5% year over year, which Dardis said reflected higher investment advisory fees and accrued carried interest. Investment advisory revenue was almost $1.7 billion, up 5.3% from the year-ago quarter but down 3.2% from the fourth quarter. Dardis attributed the sequential decline to a lower effective fee rate and “two fewer days in the quarter.”

The annualized effective fee rate (excluding performance-based fees) was 38.4 basis points, down from the prior quarter. Dardis said fee-rate pressure was driven by growth in target date assets, including the blend series, and outflows in higher-fee equity strategies. She also pointed to vehicle mix, noting that growth in trusts and separate accounts and outflows from mutual funds “are also compressing effective fee rate.”

On expenses, Dardis said adjusted operating expenses (excluding carried interest) were $1.14 billion, up 1% year over year but down 7% sequentially due in part to typical fourth-quarter seasonality. She reiterated guidance that 2026 adjusted operating expenses, excluding carried interest, are expected to rise 3% to 6% over 2025’s $4.6 billion and said it was “still too early to narrow our guidance.”

In response to a question on the expense outlook, Dardis said first-quarter expenses are usually “softer than Q4” because year-end compensation is recorded in the fourth quarter. She also cited “tailwinds from our expense management exercises,” including “realignment within our marketing teams,” progress on a “sourcing strategy” using vendors for select capabilities, and “rationalization of our real estate footprint.” She added that those tailwinds are expected to be offset through the year by continued investment in strategic initiatives.

ETFs, SMAs, and product expansion

Sharps described ETF growth as a top priority and said T. Rowe Price is seeing both new client acquisition and adoption by existing clients, including “some direct switching.” He said “a significant portion, and I’d go as far as to say a majority of our ETF business is coming from investors that we would not have reached with traditional open-ended funds.”

During the quarter, T. Rowe Price launched two ETFs, bringing the lineup to 32 funds. Sharps said eight ETFs had reached more than $1 billion in AUM by the end of March. He also noted that ETF AUM surpassed $25 billion as of the prior week and said the firm is developing plans to launch its first ETFs in Europe.

Sharps outlined three “core tenets” of the ETF strategy: offering compelling active ETFs across Morningstar categories, supporting asset allocation models and home office models, and developing innovative strategies reflecting evolving investment capabilities. He said the firm is also exploring mutual fund-to-ETF conversions and, over time, “ETF share classes in certain of our mutual funds.”

On SMAs, Sharps previously noted that the platform expanded to 42 offerings with more than $17 billion in AUM and over $900 million in net flows during the quarter.

OHA: credit market volatility and alternative credit growth

Glenn August, CEO of OHA, said the credit market is in “a particularly dynamic period” and laid out OHA’s strategies across private credit, opportunistic credit, structured credit, and liquid credit. He said OHA had $112 billion of total assets under management as of March 31, including committed capital and leverage, up from approximately $88 billion at year-end 2024.

August attributed recent volatility to several factors, including fraud-related “cockroach risks” that emerged in the second half of the prior year, rapid AI advancements that raised disruption concerns—particularly in software-heavy loan markets—and the Iran conflict, which he said disrupted trade and energy supplies and reignited inflation concerns. Despite those pressures, August said OHA believes the challenges are “idiosyncratic, not systemic.”

He also drew a contrast between institutional and wealth investors. August said institutional clients “are viewing the current environment as an opportunity to lean in,” while individual investors are “highly sentiment-driven and more reactive to negative headlines.” He noted increased liquidity requests in non-traded business development companies (BDCs) across the industry but argued those vehicles’ liquidity mechanics and portfolio cash flows reduce the likelihood of widespread forced selling.

August said OHA currently has two co-branded wealth products, including OCREDIT, a perpetual non-traded BDC with approximately $3 billion of investments at fair value as of year-end. He said the fund has generated regular distributions, had “zero defaults since inception,” and in the first quarter had redemptions “well below the 5% limit” with positive net flows. He also highlighted OFLEX, a newly registered multi-strategy credit interval fund.

Discussing deployment, August said spread widening in new deals has been “in the neighborhood of 25 basis points-50 basis points,” which he attributed to supply-demand dynamics, including reduced demand in the wealth channel and quieter private equity deal activity. He also said OHA has “over $30 billion in dry powder” across strategies, positioning the firm to deploy capital as spreads widen and terms improve for lenders.

On software and AI disruption risk, August said OHA’s software credit allocation is “basically in line with the market,” which he described as roughly 15% to 20%. He said the firm focuses on “vertical and mission-critical software” and “contractual recurring revenue models,” adding that OHA has “avoided ARR loans” and “avoided technology risk.” August said OHA continuously re-underwrites and uses AI risk management tools for company-level assessments.

Capital management and balance sheet flexibility

Dardis said the firm ended the quarter with over $4.1 billion of cash and discretionary investments. She highlighted what she called the company’s “40th consecutive annual increase” in the quarterly dividend to $1.30 per share. She also said the company repurchased $340 million of stock in the first quarter, largely toward quarter-end, and ended March with 214.9 million common shares outstanding.

In response to a question on M&A appetite, Sharps said T. Rowe Price expects to participate in industry consolidation “over time” if opportunities offer cultural fit and either expand capabilities or deepen client reach. He added that the company is evaluating multiple capital deployment options—including M&A, share repurchases, and investing in the business through seed and co-invest—and said he does not see “any need for our cash levels to build from here.”

About T. Rowe Price Group NASDAQ: TROW

T. Rowe Price Group, Inc is a global investment management firm headquartered in Baltimore, Maryland, founded by Thomas Rowe Price Jr. in 1937. The company provides a broad range of investment products and services for individual investors, financial intermediaries, retirement plan sponsors and institutional clients. Its offerings are built around active investment management and in-house research across equity, fixed income and multi-asset strategies, reflecting a long history as a research-driven asset manager.

The firm's product lineup includes mutual funds, separate accounts, collective investment trusts, target-date and target-risk funds, and managed account solutions, as well as services for defined contribution and defined benefit retirement plans.

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