T. Rowe Price Group, Inc. (TROW) Earnings

Management highlights

- Business Overview & Market Environment * Markets rebounded in Q2 2026 after a weak start to the year, with overall Q2 2026 net outflows of $6.5 billion, though positive flows were recorded in May and June 2026 * Fundamental active equity remains under pressure, a trend management expects to continue in H2 2026 * The 2026 June Russell reconstitution was an unusually large reshaping of benchmark risk characteristics that increased market volatility, creating new opportunities for research-driven active management - Strategic Growth Initiatives * Growing demand for integrated fundamental-quantitative active strategies with controlled tracking error, offered across multiple vehicle types; the firm extended this franchise with two new low tracking error active core equity ETFs earlier in 2026 * Expanded the equity research franchise to cover international, global, emerging markets, U.S. mid-cap and SMID strategies beyond the flagship U.S. offering * Expanded product offerings: launched the T. Rowe Price Capital Appreciation Market Opportunities ETF in June 2026 and the active T. Rowe Price Active Crypto ETF (the firm's first non-investment company ETF) in mid-July 2026 * Launched the T. Rowe Price Goldman Sachs Private Markets Fund (the first collaboration interval fund with Goldman Sachs) on July 1, 2026; completed filing for a second public-private equity interval fund expected to launch in late 2026 * The late stage venture fund platform expects to exceed target fund size in 2026, with a second fund planned for 2027 - AI Adoption * Over 130 AI solutions are currently deployed across end-to-end business workflows, with over 70% of associates using implemented AI tools * AI is being scaled across investment research, portfolio insights, sales and client workflows to improve decision speed and consistency, while retaining human investment judgment and fiduciary oversight * AI expansion is supported by a formal governance framework, internal controls and associate upskilling to enable responsible scaling - Leadership Updates * Eric Veiel was appointed President, while retaining his role as Co-Head of Global Investments and CIO; Sébastien Page, previously Head of Global Multi-Asset, is now the second Co-Head of Global Investments * The leadership changes are designed to sharpen execution of high-priority strategic initiatives and improve cross-functional alignment

Guidance

- Full-year 2026 adjusted operating expenses (excluding carried interest expense) are expected to increase 4% to 7% compared to 2025's total of $4.6 billion, updated based on sustained first half 2026 average AUM and revenue trends - Controllable (fixed) expenses (representing approximately two-thirds of the total expense base) are targeted to grow at low single-digit rates for 2026 and 2027, maintaining guidance provided in 2025 - Management expects H2 2026 net flows to be meaningfully more challenging than H1 2026, due to ongoing active equity mutual fund outflows, the absence of the large H1 2026 strategic mandates, expected portfolio rebalancing away from equities after strong year-to-date market gains, and a near-term lull in target date pipeline flows - 2026 is on track to be a record year for gross inflows, driven by strong demand for the firm's lower tracking error integrated equity strategies, active ETFs, and fixed income strategies - The firm expects consistent positive net flows across fixed income strategies, and building momentum in alternatives throughout the second half of 2026

Segment performance

T. Rowe Price reports overall AUM of $1.9 trillion as of Q2 2026. The firm's key business segments have the following performance: 1. Active Equity: Holds $900 billion in AUM, continues to experience net outflows with ongoing pressure on higher fee mutual fund share classes, but lower tracking error integrated equity strategies have brought $16 billion in net inflows year-to-date on a $200 billion AUM base; 2. Fixed Income, Multi-Asset & Alternatives: Delivered positive net flows in Q2 2026. On an asset-weighted basis, over 75% of fixed income funds outperformed peers across all measured time periods. Alternatives segment includes OHA (acquired) private credit strategies, the late stage venture fund, and the joint venture with Goldman Sachs; the late stage venture fund is expected to exceed its target size in 2026; 3. ETF: Grew to 34 funds and $30 billion in AUM, with $4.4 billion in net inflows during Q2 2026; 4. Separately Managed Accounts (SMA): Grew to 43 products and $20 billion in AUM; 5. Target Date Retirement Strategies: Hybrid/blend strategies now account for 25% of overall target date AUM, with 80% of target date AUM outperforming peers for the one-year period ending Q2 2026 and 98% outperforming over 10 years.

Risks & headwinds

- Sustained net outflows from higher-fee traditional active equity mutual funds create ongoing top-line and fee rate pressure, and the large size of this segment means it continues to weigh on overall net flow results despite growth in other segments - Ongoing industry vehicle migration from higher-fee mutual funds to lower-fee ETFs, SMAs, and hybrid retirement products continues to push the firm's effective fee rate lower - The uneven private market and credit environment has led to mixed performance for distressed and opportunistic alternative funds in the first half of 2026 - Abrupt benchmark changes from the 2026 Russell reconstitution increased near-term market and individual stock volatility, though management frames this as a long-term opportunity for active management

Analyst Q&A

• Q: Bill Katz (TD Securities) asked: Given ongoing fee pressure from the shift to lower-fee vehicles and rising expenses, how is T. Rowe Price reshaping its business strategy, and what role could M&A play?

  A: Management confirmed traditional active equity remains core to the firm, holding $900 billion in AUM and underpinning other businesses like target date funds, so the firm will not de-emphasize it. The firm is strategically diversifying into growing areas including fixed income, alternatives (organic late stage venture, acquisition of OHA, partnership with Goldman Sachs), lower-fee vehicles (ETFs, SMAs) and direct-to-consumer advice capabilities, which requires targeted organic investment driving moderate expense growth. Management will continue to evaluate strategically aligned, financially compelling M&A opportunities as industry consolidation continues. ---

• Q: Michael Cypress (Morgan Stanley) asked: How will T. Rowe Price's digital asset and tokenization strategy evolve over the long term, and will digital wallets become an important client interface?

  A: Management views tokenization as a structurally important long-term evolution of the investment management industry. The firm's established digital assets group is actively engaging with industry partners and intermediaries to explore opportunities aligned with three core goals: meeting existing client needs, reaching new investors, and improving operational efficiency. Digital wallets and tokenized products are expected to enable more customized client solutions over time, so the firm is investing in this area despite its long development timeline. ---

• Q: Glenn Shore (Evercore) asked: Can you provide color on size of the Q2 large mandate wins, July flows, and the H2 2026 flow outlook?

  A: Management confirmed the firm gained two large new mandates in Q2 2026, but expects H2 2026 flows to be more challenging than H1 due to ongoing active equity outflows, the absence of similar large one-time mandates, planned portfolio rebalancing away from equities after 2026 YTD market gains, and a temporary lull in the target date pipeline. Despite this, 2026 is set to be a record year for gross flows, with strong momentum in lower-tracking error equities, active ETFs, fixed income, alternatives, and positive net flows in EMEA and APAC. ---

• Q: Alexander Bloestein (Goldman Sachs) asked: What is your long-term expense management strategy, especially with AI advances, and can you structurally slow expense growth amid top-line pressure?

  A: Management has maintained a consistent balanced approach: focusing on purposeful expense management to deliver low single-digit growth in controllable fixed expenses, while freeing up resources to invest in strategic growth priorities. Ongoing initiatives include leveraging third-party providers for scalable tech functions, automating and streamlining internal processes, closing low-interest strategies, and optimizing real estate capacity. Management expects AI will enable further cost savings and efficiency improvements to limit base expense growth, freeing up capital for strategic investments. ---

• Q: Alex Bond (KBW) asked: For the growing active ETF business, will you prioritize new launches or scaling existing products, and where do you see differentiated opportunities?

  A: Management confirms active ETFs are a top strategic priority with a long growth runway, and after reaching 34 funds covering all key Morningstar categories, the pace of U.S. new launches will slow while the firm focuses on scaling existing products and expanding ETF offerings in non-U.S. geographies. Differentiated growth opportunities include innovative thematic and satellite offerings (such as the newly launched active crypto ETF, which can expand its investable universe over time), ETF conversions of existing strategies, and active ETFs as building blocks for third-party model portfolios. Management also highlighted municipal fixed income ETFs as a large underpenetrated opportunity.