T. Rowe Price Group Inc., the asset manager that has posted a profit every quarter since going public in 1986, reported second-quarter earnings that missed analysts’ estimates after institutional clients pulled a record $8 billion from the firm.
Net income increased 20 percent to $245.8 million, or 92 cents a share, from $205.6 million, or 79 cents, a year earlier, the Baltimore-based company said today in a statement. Earnings fell short of the 96-cent average estimate of 13 analysts in a Bloomberg survey.
“They suffered some pretty sizable redemptions in non-U.S. institutional” assets, Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview before results were announced. “It does seem they are at risk of further redemptions” if institutional investors continue to make changes to their investment strategies, Kim said.
The institutional withdrawals stemmed in part from poor performance in the firm’s global equity portfolio, where the manager in charge was replaced about nine months ago, and from decisions unrelated to performance by a small number of large clients to change their investment objectives, Chief Executive Officer James Kennedy said in a telephone interview.
T. Rowe Price fell as much as 6.3 percent, the most since Oct. 31, 2011, and traded 3.9 percent lower at $76.48 by 9:33 a.m. in New York. The shares had risen 22 percent this year through yesterday, compared with a 31 percent gain for the Standard & Poor’s 20-company index of asset managers and custody banks.
The withdrawals canceled out much of the benefit from an 18 percent increase by the Standard & Poor’s 500 Index in the year ended June 30, and a 14 percent gain in global stocks. T. Rowe Price has about 75 percent of assets invested in stocks.
“It’s disappointing to have these outflows, but am I worried? Not really,” Kennedy said. “I’d be worried if performance were not strong pretty much across the board.”
Of T. Rowe Price’s mutual funds, 83 percent outperformed peers over five years, 78 percent outperformed over three years and 62 percent over one year.
After pouring $67 billion in U.S.-registered equity mutual funds in the first quarter, investors added about $10 billion in the second quarter, according to the Investment Company Institute.