PRICE T ROWE GROUP INC Q4 FY2025 earnings call

• Market conditions: 2025 witnessed a third consecutive year of strong global market returns, but the market was narrow, dominated by a few mega-cap stocks, with riskier names outperforming quality and value. - Asset management: Ended the year with $1.78 trillion in assets under management, had net outflows but gross sales were higher than 2024 and up over 40% from 2023. - Investment performance: Saw improvement in several key areas. About half of funds beat their peer groups over different time periods. Fixed income had strong performance, target date franchise had strong long-term performance, and alternatives had generally strong performance in the quarter. - Strategic initiatives: Established a strategic collaboration with Goldman Sachs, launched co-branded model portfolios, extended retirement leadership globally, grew active ETF and fixed income ETF business, expanded alternatives business, made key organizational changes, and advanced the use of artificial intelligence. Also, OHA had a second consecutive record fundraising year, and the firm launched 13 ETFs in 2025.

As of the end of 2025, T. Rowe Price Group, Inc. had $1.78 trillion in assets under management, which was an increase of over 10% from the start of the year despite $56.9 billion in net outflows. Net outflows were concentrated in the equity and mutual fund business, with $75 billion net outflows from equity and nearly $64 billion from mutual funds in 2025. Fixed income and alternatives had positive net flows during the quarter. The ETF business saw $1.8 billion in net inflows in the fourth quarter of 2025, and for the entire year 2025, net inflows reached nearly $10.5 billion. The target date franchise ended the year with net inflows of $5.2 billion. Investment advisory revenue in the fourth quarter was $1.7 billion, which was a 2.3% increase from the prior quarter and a 4.2% increase from the fourth quarter of 2024, driven by higher average assets under management, partially offset by a lower effective fee rate.

• For 2026, adjusted operating expenses excluding carried interest expense are expected to be 3% to 6% higher than 2025's $4.6 billion. - The biggest factor influencing operating margin is equity market return, with a portion of the expense base being variable. - Expenses are balanced between cost savings efforts and investment in growth areas such as new vehicles, partnerships, and advice. Market-driven expenses from distribution and year-end compensation are key drivers.

• Market volatility can impact revenue. - Equity market performance affects the fee rate and flows. - Target date funds face competition from passive and blend products. - Uncertainty in the DOL guidance regarding private into the 401(k) channel presents challenges. - Equity outflows can affect overall flows, and changes in the credit environment can impact the alternatives business.

Q: How are you planning from an operating perspective for 2026?

A: The biggest factor in operating margin is equity market return. A portion of the expense base is variable. We need to balance investing for long-term success and ensuring efficiency with cost savings initiatives.

Q: How do you see tokenization playing out?

A: We're investing in digitization with three vectors: efficiency in the middle and back office, product opportunity with on-chain assets, and distribution to new investors. Working on end-to-end processes for efficiency, having an active crypto ETF in the market, and exploring distribution via partnerships, etc.

Q: Update on private into 401(k) channel?

A: The DOL update is delayed. Target date funds had outflows in the fourth quarter due to M&A and other factors. We are well-positioned with blend and hybrid offerings, which are growing market share.

Q: Impact of market shock on near-term equity flows?

A: Equity market returns impact flows differently by client type. Short-term knee-jerk reactions are possible, but the long-term effect is not substantial. Our equity exposure is no more than the market, and we are positioned for AI disruption with deep research.

Q: Oak Hill's exposure to AI-disrupted investments?

A: OHA has a rigorous credit process. They are performing well with record capital raises and are involved in collaborations with T. Rowe Price Group, Inc.

Q: M&A impact on target date sales and pipeline?

A: Outflows in the fourth quarter were due to plan consolidation on acquisition. There is less interest in fully active target date funds, and more in blend and hybrid. The pipeline is robust, but there is more opportunity in blend and hybrid.

Q: Cadence of lumpier plan losses?

A: There is no specific seasonality, and plan losses can occur throughout the year.