T. Rowe Price Group, Inc. · NASDAQ:TROW
T. Rowe Price — Price T Rowe Group — Investor Day (February 2019)
58 slides from T. Rowe Price's investor day presentation, Feb 26, 2019
Slide 1: T. Rowe Price Group, Inc. Investor Day
T. Rowe Price Group, Inc. INVESTOR DAY February 26, 2019 A copy of this presentation which includes additional information is available at troweprice.gcs-web.com/investor-relations. Data as of December 31, 2018, unless otherwise noted.
Slide 2: Opening and T. Rowe Price Overview
Opening and T. Rowe Price Overview Bill Stromberg PRESIDENT AND CEO T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019
Slide 3: Forward-looking statements
Forward-looking statements This presentation, and other statements that T. Rowe Price may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to T. Rowe Price’s future financial or business performance, strategies, or
Slide 4: Agenda
Agenda Opening and T. Rowe Price Overview Bill Stromberg PRESIDENT AND CEO Investments, Performance, and Capabilities Rob Sharps HEAD OF INVESTMENTS AND GROUP CIO Global Intermediary and Institutional Robert Higginbotham Distribution HEAD OF GLOBAL INVESTMENT MANAGEMENT SERVICES Financial Overview C
Slide 5: Consistent results and long-term orientation
Consistent results and long-term orientation $8.00 $7.27 5 10 20 30 Diluted years years years years EPS (GAAP) $6.00 Net revenues 9% 10% 10% 13% Diluted EPS $4.00 13% 15% 13% 15% $2.80 (GAAP) Dividend per Share Dividends 13% 11% 15% 18% $2.00 Annualized total stock 5% 13% 11% 18% return $0.00 1986 1
Slide 6: Culture is central to our long-term success
Culture is central to our long-term success Investment Excellence The heart of everything we do Clients First We succeed if our clients succeed Long-Term Collegiality and Collaboration Success Leveraging our best ideas creates competitive advantage Trust and Mutual Respect Essential for a strong com
Slide 7: Our vision
Our vision We are executing on a longer-term plan Premier active asset manager Strong process orientation and system of internal controls Integrated investment solutions Destination of choice for top talent provider More global and diversified More adaptive and agile company asset manager Global par
Slide 8: Industry challenges continue
Industry challenges continue § Passive investments continuing to take share from active § Continued downward pressure on management fees § Institutional and intermediary clients demanding new vehicle types and fee structures § Aging population shifting demand from equities to income-oriented solutio
Slide 9: Solid execution against our 2018 goals
Solid execution against our 2018 goals Consistently Diversified assets Continued re-investments in strong relative under management our businesses, especially: investment (AUM) and related § Adding capabilities across our performance organic growth investment teams § Expanding the breadth of our inv
Slide 10: Investment performance is critical to our success
Investment performance is critical to our success U.S. mutual funds U.S. mutual funds Composites outperforming outperforming peers outperforming benchmarks benchmarks Morningstar median rankings1 Mutual fund net returns2 Composite net returns3 78% 82% 79% 72% 71% 70% 59% Top 42% 53% 54% quartile 40%
Slide 11: Diversified organic growth of $13.2b in 2018
C&h3>4F+$9zqr*8@O Diversified organic growth of $13.2b in 2018 Net flows by asset class ($b) Net flows by client geography $ $ 11.7 13.2 EMEA 9% $3.6 ($0.7) ($5.8) $4.4 APAC % $0 29 Americas 62% U.S. Int'l Equity U.S. Int'lInt’l Fixed Multi- Total Equity Fixed IncomeFixed Asset Income Income Data is
Slide 12: Diversified AUM by asset class and by client type
Diversified AUM by asset class and by client type Asset class1 Client type2 EMEA/APAC Int’l Fixed U.S. Retirement – Financial Income Int’l Equity Full-Service Intermediaries 8% 2% Recordkeeping 3% 11% U.S. Fixed Income 12% U.S. Individual Investors U.S. Equity Americas 17% Financial 48% Intermediari
Slide 13: Sustained progress on strategic priorities
Sustained progress on strategic priorities to strengthen and extend the core within investment and product § ~7% increase in total investment professionals, particularly in International Equity and Multi-Asset divisions § Introduced several new investment strategies and developed future product road
Slide 14: How we access clients
How we access clients T. Rowe Price IRPS GIMS U.S. EMEA Americas U.S. Retirement and APAC Global Financial Direct Plan Financial Institutions Intermediaries Sponsors Intermediaries Individual Investors IRPS: Individual & Retirement Plan Services | GIMS: Global Investment Management Services T. ROWE
Slide 15: Individual & Retirement Plan Services (IRPS)—Summary
Individual & Retirement Plan Services (IRPS)—Summary ~ Retirement Plans 4,600 2.1m Plan Participants $ 267b AUM $ 171b AUA1 1.4m Direct Retail Clients Accelerate digital transformation to enhance Retain and grow the client base client experiences and operational efficiency § Client satisfaction rema
Slide 16: Our 2019 priorities
Our 2019 priorities § Deliver excellent investment results § Attract and retain diverse talent Consistent, strong § Increase strength of our core businesses § Continue to diversify beyond the core financial results § Broaden our use of technology and and returns to operational capabilities to streng
Slide 17: Investments, Performance, and Capabilities
Investments, Performance, and Capabilities Rob Sharps HEAD OF INVESTMENTS AND GROUP CIO T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019
Slide 18: Investment performance overview
Investment performance overview Performance across asset classes is strong overall versus both active peers and benchmarks Outperforming Top Morningstar Outperforming U.S. mutual funds Morningstar median1 quartile1 benchmark2 3 5 10 3 5 10 3 5 10 Asset Class years years years years years years years
Slide 19: Overall performance—asset-weighted
Overall performance—asset-weighted Asset-weighted results exceed equal-weighted results1 over all time periods Funds outperforming Funds in top Funds outperforming Morningstar median2 Morningstar quartile2 benchmark3 % % 86% 89 89 87% 76% 78% 60% 55% 54% 3 years 5 years 10 years 3 years 5 years 10 y
Slide 20: Long-term benefits of our approach to active management in U.S. equity
Long-term benefits of our approach to active management in U.S. equity Percentage of U.S. equity funds with positive active success rates 3 years 5 years 10 years (205 rolling time periods) (181 rolling time periods) (121 rolling time periods) 89% 89% 89% Annualized, time-weighted excess returns, ne
Slide 21: Overall performance—fixed income
Overall performance—fixed income Fixed income funds consistently beat passive peers Fixed income funds outperforming Fixed income funds outperforming Morningstar median1 passive peers2,3 93% 73% % 65% 63 59% 54% 3 years 5 years 10 years 3 years 5 years 10 years Past performance cannot guarantee futu
Slide 22: Our approach to target date adds value
Our approach to target date adds value Target date design components Strategic design1 Tactical allocation2 Underlying active Percent of time added value Percent of time added value management3 Percent of time added value % % % 99 % 100 100 93 89% % 77% 77% 76 71% 3 years 5 years 10 years 3 years 5
Slide 23: Target date portfolios performance
Target date portfolios performance Strong performance and outcomes versus both passive and active peers 3 year rolling 5 year rolling 10 year rolling Outperformance over S&P Target Date Index Percent of time Retirement Funds exceeded the 87% 95% 100% S&P Target Date Index Average excess return vs. S
Slide 24: Target date approach and performance
Target date approach and performance What it all adds up to for participants: meaningful value relative to a passive approach Retirement 2030 versus S&P Target Date 2030 Index1 Cumulative growth of $100,000 $382,930 Retirement 2030 Fund $400,000 Tactical and Active Management + $23,600 $59,290 Glide
Slide 25: Multiyear investment to grow our investment capabilities globally
Multiyear investment to grow our investment capabilities globally Investment professional headcount 123 7 2003–2018 607 London/EMEA 421 Tokyo 65 Multi-Asset 41 Baltimore/U.S. Hong Kong 430 Global 197 6 19 Fixed Income 347 Singapore 14 151 9 217 107 140 Int’l Equity 105 Sydney 83 82 40 205 U.S. Equit
Slide 26: Meeting client demand across the globe
Meeting client demand across the globe Primary investment strategy count1 growth over time 126 114 106 18 Multi-Asset 15 91 15 12 Global 48 Fixed Income 44 38 32 30 Int’l Equity 25 27 20 27 28 28 30 U.S. Equity 2008 2013 2015 2018 1Strategy count does not include institutional separate account and s
Slide 27: Scaling outperforming, high-capacity strategies globally
Scaling outperforming, high-capacity strategies globally Assets under management 3 year annualized 3 year eVestment 5 year annualized 5 year eVestment Investment strategy ($m) excess returns (bps)1 percentile rank2 excess returns (bps)1 percentile rank2 US Dividend Growth Equity $9,979 108 12 88 11
Slide 28: Building new investment capabilities and strategies
Building new investment capabilities and strategies Global Equity Global Fixed Income Multi-Asset 2015 § Emerging Markets Discovery § Global High Income § Managed Volatility § Dynamic Global Bond 2016 § QM US Small & Mid-Cap Core § Institutional Cash Reserves § QM US Value § Total Return § QM Global
Slide 29: Meeting evolving client needs with solutions
Meeting evolving client needs with solutions Multi-Asset Solutions Environmental, Social Equity Data Insights and Governance (ESG) § Global team with in-market § Improving our investment experience § Focus on ESG integration outcomes through data-driven across portfolios insights § Leveraging dedica
Slide 30: Summary
Summary Evolving Investment capabilities Culture excellence T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019 30
Slide 31: Global Intermediary and Institutional Distribution
Global Intermediary and Institutional Distribution Robert Higginbotham HEAD OF GLOBAL INVESTMENT MANAGEMENT SERVICES T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019
Slide 32: Opportunity from current stock and future flow for active managers remains attractive
Opportunity from current stock and future flow for active managers remains attractive Total “stock” of existing global active Our 5 year forecast of total “flow”2 AUM in $t, 2018E1 for global active AUM Americas Americas $32.5t +$32.0t EMEA EMEA $16.2t +$17.5t APAC APAC $9.7t +$12.6t 1Source: © 2018
Slide 33: We are well positioned against key market trends
We are well positioned against key market trends Key industry trends Our positioning Passive investments continuing Continuing focus on excellent, active investment to take share from active management supporting flow momentum Clients demanding new vehicle Continuing build of new vehicle types types
Slide 34: Our strong positioning is shown by continued global growth
Our strong positioning is shown by continued global growth Global intermediary and institutional AUM $682b +18% $484 Intermediary Intermediary AUM CAGR 2008–2018 % $156b +12 Institutional $91 $198 Institutional AUM CAGR 2008–2018 $65 20082008 20172018 Source: T. Rowe Price. T. ROWE PRICE GROUP, INC.
Slide 35: Our focus in 2018 was consistent with prior years
Our focus in 2018 was consistent with prior years Maintained pace of investment Continued leadership in Americas in EMEA and APAC #11 #5 #4 +10.5% Organic growth3 U.S. broker- U.S. active U.S. active dealer market platform direct RIA and bank provider1 provider1 provider1 +35% +30% Increase in Incre
Slide 36: Our 2018 results show continued diversified organic growth
Our 2018 results show continued diversified organic growth Net flows by channel Net flows by client geography Global intermediary and institutional Global intermediary and institutional 55% Intermediary 52% 58% Americas 72% 18% 10% EMEA 45% Institutional 28% 30% 32% APAC 2017 2018 2017 2018 Source:
Slide 37: Our brand continues to develop globally
Our brand continues to develop globally Our global1 average brand impression +11% +13% +13% Increase in Increase in Increase in institutional retail gatekeeper retail advisor brand impression brand impression brand impression 1The overall study is conducted in 14 countries across North America, EMEA
Slide 38: Our priorities for the next few years are largely unchanged
Our priorities for the next few years are largely unchanged Americas EMEA and APAC § Strengthen U.S. defined contribution investment § Consolidate institutional position only market position § Continue EMEA and APAC home office § Continue U.S. broker-dealer build-out intermediary coverage build-out
Slide 39: A comprehensive product range is central to our success
A comprehensive product range is central to our success Target Our primary vehicle types Number of products Firmwide product country/region1 U.S. mutual fund2,3 179 U.S. statistics Société d'investissement à capital 48 EMEA/APAC variable (SICAV4) Collective investment trust3 41 U.S. Products Open-en
Slide 40: We continue to focus on product development and pipeline
We continue to focus on product development and pipeline 2018 2019 and beyond § Further built out SMA and model delivery § Launch ITM for public distribution § Continued work with SEC on ETFs § Continue to develop ETF plans § Launched new ITM for institutions § Build tailored products for key client
Slide 41: Summary
Summary Strong, sustainable, 2018 was a 2019 onwards Well positioned to diversified growth continuation of will see further access key pools occurred across much of the plan development with of global demand 2017 and 2018 from prior 3–5 years select expansion T. ROWE PRICE GROUP, INC. INVESTOR DAY 2
Slide 42: Financial Overview
Financial Overview Céline Dufétel CHIEF FINANCIAL OFFICER T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019
Slide 43: Creating value for stockholders over time
Creating value for stockholders over time Organic AUM Growth Operating Margin1 Return of Capital2 1 year 1 year 1 year 1.3% 44.0% 98% 5 year 5 year 5 years (average) (average) (cumulative) 0.7% 44.1% 99% Driving sustainable, Maintaining a strong Consistently returning diversified, organic operating
Slide 44: Driving organic AUM growth
Driving organic AUM growth Targeting 1–3% Net flows as a percent of prior year’s ending AUM organic AUM growth 3% over time 2% 1.3% 1% 0% -1% 2014 2015 2016 2017 2018 Net $3.7b $1.6b ($2.8b) $14.0b $13.2b flows Source: T. Rowe Price. T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019 44
Slide 45: Developing diversified and sustainable sources of flows
Developing diversified and sustainable sources of flows Scaling strategies across asset classes Launching successful products Products launched in the last 5 years +12 Multi- 111 Fixed Asset Equity +6 +5 Income U.S. mutual $ 88 funds with 13b AUM>$500m1 U.S. mutual in 2018 net inflows funds with AUM
Slide 46: Designing pricing to meet client needs
Designing pricing to meet client needs; only one of many effective fee rate (EFR) drivers Our pricing approach EFR drivers Impact on EFR2 Ensure we are delivering value for our clients and meeting their needs Relative market appreciation/ depreciation across asset classes + + - - § fair and competit
Slide 47: Investing for the long term
Investing for the long term Non-GAAP operating expense growth1 12.1% 8–11% Original 8.9% Guidance 7.7% Range 4–7% 2016 2017 2018 2019 Projected 1See the reconciliation between GAAP operating expenses and non-GAAP operating expenses in the Appendix. 2016 and 2017 figures were restated for the new rev
Slide 48: Furthering technology capabilities across the firm
Furthering technology capabilities across the firm Investments Distribution Infrastructure and operations § Develop advanced data science § Scale distribution efforts through practice to intelligently augment advanced client analytics § Transition to outsourced our investment processes § Integrate i
Slide 49: Optimizing our operating expense mix
Optimizing our operating expense mix Operational Effectiveness Coverage across major expense areas Operational Alpha Total Cost of Ownership Strategic Sourcing § Executing on Tampa Operations § Active application retirement focus § Firmwide savings enabled by demand Center closure to reduce 8–10% of
Slide 50: Effectively managing capital
Effectively managing capital Cash and discretionary § Investing for sustainable growth investments Business and diversification Reinvestments $ § Protecting margins over time 3.0b § Continued year-on-year increase since IPO Dividends § Strong payout ratio over time Seed capital investments 1 (41% av
Slide 51: Executing a consistent, opportunistic buyback approach
Executing a consistent, opportunistic buyback approach Over the 5 years ended December 31, 2018 9% 45.9m 11x 3.5% shares repurchased at decline in common stock average P/E over dividend yield of outstanding from 262m $ 2018 earnings1 repurchases2 to 238m 79.32 weighted average price per share 1Weigh
Slide 52: Summary
Summary Driving sustainable, diversified, organic Maintaining a strong Consistently growth across asset operating margin returning capital classes, channels, while investing for to stockholders and geographies long-term growth over time T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019 52
Slide 53: Closing thoughts
Closing thoughts Pleased Strong Investing to Attractive, Consistent, with leaders with grow and resilient disciplined progress focused diversify business capital business model return plans Moderating pace Responsive to market conditions T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019 53
Slide 54: Appendix
Appendix T. ROWE PRICE GROUP, INC. INVESTOR DAY 2019
Slide 55: Non-GAAP operating expenses reconciliation
Non-GAAP operating expenses reconciliation 2017/2016 2018/2017 2016 2017 2018 Change (%) Change (%) Operating expenses, GAAP basis $2,551.4 $2,746.1 $3,011.2 7.6% 9.7% Non-GAAP Adjustments: Expenses of consolidated T. Rowe Price investment products, net of elimination of its (6.5) (6.7) (6.5) relate
Slide 56: Additional information: Fixed income passive peer analysis
Additional information Fixed income passive peer analysis (p. 21) T. Rowe Price Product Name Passive Product Name T. Rowe Price Product Name Passive Product Name High Yield Low Duration Floating Rate Fund Invesco Senior Loan ETF Short-Term Bond Fund Vanguard Short-Term Bond ETF Institutional Floatin
Slide 57: Additional information: Scaling outperforming, high-capacity strategies globally
Additional information Scaling outperforming, high-capacity strategies globally (p. 27) Investment strategy eVestment Universe # of Peers US Dividend Growth Equity US Large Cap Core Equity Universe 393 U.S. Equity Emerging Markets Discovery Equity Global Emerging Markets All Cap Equity Universe 271
Slide 58: Important information
Important information This material, including any statements, information, data and content contained within it and any materials, information, images, links, graphics or recordings provided in conjunction with this material are being furnished by T. Rowe Price for general informational purposes on