Asset manager T Rowe Price warns outflows will persist in 2024

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US asset manager T Rowe Price beat earnings expectations but its shares fell on Friday after chief executive Rob Sharps warned that organic growth would not resume until 2025.

The Baltimore-based group said its adjusted diluted earnings per share were $2.17 in the third quarter, about 23 per cent higher than Wall Street estimates of $1.77 and 17 per cent more than the same quarter a year ago. Net profit was $499.5mn, well above the $430.6mn it reported in the third quarter of 2022.

T Rowe has been struggling with large outflows since 2021, particularly in its equity strategies, and had previously reported quarterly net outflows of $17.4bn.

“My base case is that while we will continue to face outflows in 2024, they will be at a meaningfully lower level,” Sharps told the Financial Times. “My hope is that we will return to organic growth at some point in 2025.”

The company’s stock traded down more than 4 per cent and has fallen 19 per cent since the start of the year.

T Rowe’s reported assets under management of about $1.3tn as of September 30 were down about 3.8 per cent from the previous quarter, but 9.5 per cent higher year-over-year. Assets peaked at $1.7tn in 2021.

Company officials over the past year have attempted to cut down costs with two rounds of lay-offs. Sharps said the company plans to further reduce expenses through “real estate optimisation” — consolidating offices into less space — rather than by eliminating more staff.

Profits increased as T Rowe’s net revenues rose by about 5.2 per cent year on year to nearly $1.7bn, while total adjusted operating expenses increased 3.2 per cent. The manager’s investment advisory fees ticked up by about 1.5 per cent, or roughly $22mn, and the firm also reported a $65mn increase in accrued carried interest.

Sharps said he was optimistic about the recent performance of the active manager’s funds and the prospects of competing against passive managers, which have attracted assets in recent years. “We have improved performance and in time performance tends to be a leading indicator of flows,” he said.

Additional reporting by Madison Darbyshire in New York