T. Rowe Price Leverages AUM Growth and Alternatives Push to Offset Equity Outflows, EPS Rises 13% YoY

Rob Sharps, chair, CEO and president, opened the call by framing the quarter as a test of the firm’s “active‑management approach, rooted in strong fundamental research and a consistent long‑term focus.” He noted that market turbulence in March – sparked by the Iran conflict and a spike in energy prices – briefly depressed equities, but a rebound in early Q2 has already lifted major indices to new highs.

“While we continue to face outflows in our equity and mutual‑fund businesses, our teams are making progress in stabilizing flows and are advancing innovative strategies, new vehicles and compelling solutions to meet the needs of our clients,” Sharps said.

The numbers reflected that mixed picture. Adjusted net revenue topped $1.8 billion, up 5% year‑over‑year, driven primarily by higher investment‑advisory fees and accrued carried interest. Investment‑advisory revenue alone rose 5.3% YoY to nearly $1.7 billion, though it slipped 3.2% from the prior quarter as the effective fee rate fell to 38.4 basis points – the lowest since the fourth quarter of 2025.

The fee‑rate compression stems from growth in lower‑fee vehicles such as the Target‑Date franchise and trust/separate‑account business, offset by outflows from higher‑fee equity mutual funds.

Operating expenses, net of carried interest, were $1.14 billion, a modest 1% increase from Q1 2025 but 7% lower than the fourth quarter, reflecting the seasonal nature of compensation and the impact of the firm’s expense‑management program. “We expect 2026 adjusted operating expenses, excluding carried interest, to be up 3% to 6% over 2025, comfortably within our 36% expense‑to‑revenue guide,” CFO Jen Dardis told analysts.

Cash and discretionary investments held steady at $4.1 billion, enabling the company to continue its capital‑return policy. The board approved a 40th consecutive quarterly dividend increase to $1.30 per share, and the firm repurchased $340 million of stock in Q1, bringing total buybacks to just under $400 million and reducing shares outstanding to 214.9 million.

Product‑line performance was a bright spot. The firm launched two new ETFs this quarter, expanding its lineup to 32 tickers and pushing eight of them past the $1 billion AUM threshold. ETF net inflows reached $2.8 billion, lifting total ETF assets to more than $25 billion.

The SMA platform grew to 42 offerings with $17 billion AUM and $962 million of net inflows. “Much of the flow into active ETFs is coming from investors who historically used open‑ended mutual funds,” Sharps explained, adding that the firm is also pursuing mutual‑fund‑to‑ETF conversions and ETF share classes for select funds.

The alternatives business, represented by OHA (Oak Hill Advisors), delivered its own narrative of expansion. OHA’s CEO, Glenn August, highlighted that the unit now manages $112 billion of total assets – including committed capital and leverage – up from roughly $88 billion at the end of 2024.

He described a “significant interest across our product suite” from institutional clients, who are “leaning in” amid the current credit‑market dislocation. August pointed to widened spreads of 25–50 basis points on new deals and a “dry powder” position of over $30 billion, positioning OHA to deploy capital as spreads normalize.

Analysts pressed August on the firm’s exposure to software and AI‑related credit risk. August responded that OHA has “40 years of experience in software credit, $40 billion of track record and a 9% unlevered return,” emphasizing a focus on mission‑critical, recurring‑revenue models and avoidance of “ARR loans” that carry higher technology risk.

He also noted that the firm’s default rate remains “extremely low” – roughly 30 basis points versus a market average of 2.25% – underscoring the rigor of its underwriting process.

The Q&A also surfaced concerns about fee‑rate pressure and expense trajectory. Jen Dardis clarified that the softer Q1 expense profile reflects both the seasonal compensation lag and the tailwinds from recent cost‑rationalization initiatives, such as vendor rationalization and real‑estate footprint optimization. She warned that expense growth will likely pick up in the second half as the firm continues to invest in strategic priorities, including retirement‑oriented outcomes, ETF and SMA expansion, and the development of advice capabilities for its individual‑investor platform.

Despite the positive earnings beat, the market reacted modestly. T. Rowe Price shares closed at $100.47, down 0.30% on the day, marginally below the week’s 0.23% gain and still 1.87% below the start‑of‑year level. The stock sits about 14% off its 52‑week high, reflecting lingering investor caution over equity fund outflows and the broader macro uncertainty.

Looking ahead, management did not revise its guidance but reiterated confidence that the firm’s diversified product suite and strong balance sheet will enable it to capture “opportunity in dislocated markets” while continuing to return capital to shareholders.

The firm’s emphasis on “outcome‑oriented solutions” and its deepening partnership with Goldman Sachs – slated to deliver co‑branded target‑date strategies and interval funds by mid‑2026 – signals an intent to broaden its distribution channels and capture more of the growing demand for private‑market exposure among both institutional and wealth clients.

Overall, T. Rowe Price’s Q1 results showcase a firm navigating a challenging environment by leaning on fee‑sensitive, low‑cost vehicles and a growing alternatives platform. While equity fund outflows and net withdrawals remain a headwind, the firm’s ability to generate earnings growth, expand its ETF and SMA businesses, and leverage OHA’s credit expertise positions it to sustain profitability and shareholder returns in the months ahead.