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T. Rowe bounces back from market’s late December swoon

T. Rowe Price CEO William Stromberg. (The Daily Record / Maximilian Franz)

T. Rowe Price CEO William Stromberg. (The Daily Record / Maximilian Franz)

T. Rowe Price Group Inc. grew its assets under management and earnings per share, but its net revenue was flat and net operating income fell as the Baltimore money manager recovered from a volatile end to 2018.

Last quarter, the firm’s assets under management fell under $1 trillion for the first time since it reached that mark. The decline happened during a particularly volatile 4th quarter, and the underlying numbers suggested that the firm outperformed expectations.

For the first quarter of 2019, the firm grew its assets to $1.08 trillion, up 6.7% from 2018’s first quarter. The difference between the fourth quarter of 2018 and this year’s first quarter was a market that steadily rose.

“I think you almost have to take this first quarter and the fourth quarter of last year to get the whole picture,” William J. Stromberg, T. Rowe’s president and CEO, said. “I think we navigated these two quarters, or six months, very well on behalf of our clients. Our long-term investment performance remains very very strong.”

While T. Rowe’s assets under management recovered from the volatile fourth quarter, in some other ways the firm still took a bit of a hit. Revenue from investment fees grew just 0.4 percent, a sign of the recovery.

But the firm may soon have access to products that are popular among passive managers: exchange-traded funds, commonly called ETFs. These funds are typically transparent and the vast majority are traded passively.

The Securities and Exchange Commission gave preliminary approval this month for semi-transparent ETFs, which would allow active managers, like T. Rowe, to get into the format.

“We are largely an active manager. So far at least, ETFs have been doing very very well, but the vast majority of ETFs are passive,” Stromberg said. “This sets up a potential pathway for active managers to use ETFs in an active way, and that could be beneficial for our clients.”

The past couple of months have also seen some significant initial public offerings from Lyft and Pinterest and other significant IPOs are expected soon, including one from ride-hailing firm Uber.

T. Rowe, which holds a stake in Uber, believes that more of these private firms coming to the equity markets is a good thing, Stromberg said.

“We have always spent a lot of time looking at private companies,” he said. “We examine each one of them on their own merits. …We do think it is a healthy thing for many of these companies to come to the public market.”

In cases where T. Rowe already owns a stake in a private firm, it typically has a right to purchase more shares from the IPO, but cannot sell its existing shares.

The firm also grew its earnings per share from the same time last year, up to $2.09 from $1.77 during the 2018 first quarter. On an adjusted basis, earnings per share grew to $1.87, up 7.5% from $1.74 last year.

Its net revenues were essentially flat at $1.3 billion this quarter and last quarter.

Its net operating income fell to $532.5 million, down 8.8% from $583.8 million in last year’s first quarter. That came as the firm’s expenses rose to $794.8 million, up 6.8% from $744.2 million last year. On an adjusted basis, operating expenses rose 2.1%, up to $756.6 million from $740.1 million last year. That is within what the firm forecast.

The firm attributed the higher expenses to strategic investments and salary increases that included increasing its employment to more than 7,100 employees.

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