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T. Rowe Price Earnings Miss on Record Client Redemptions

July 24 (Bloomberg) -- T. Rowe Price Group Inc. reported second-quarter earnings that missed analysts’ estimates after institutional clients led a record $8 billion in withdrawals from the asset manager. The shares fell by the most in almost 21 months.

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 5 percent, the most since Nov. 9, 2011, to close at $75.61 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.

‘Disappointing’ Redemptions

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.”

T. Rowe Price said 83 percent of its mutual funds outperformed peers over five years, 78 percent outperformed over three years and 62 percent over one year.

The firm’s retail mutual funds lost $200 million in withdrawals in the quarter, including transfers by clients out of funds and into trusts managed by T. Rowe Price. Excluding those transfers, mutual funds attracted $2.9 billion in deposits.

Industrywide, U.S.-registered equity mutual funds added about $10 billion in the second quarter after gathering $67 billion in the first quarter, according to the Investment Company Institute.

Revenue Rises

T. Rowe Price’s assets under management declined $3.4 billion from the previous quarter to $614 billion as of June 30. Assets were up 13 percent from a year earlier, helping boost revenue 16 percent to $854.3 million. Operating expenses climbed 11 percent to $455.5 million.

“We’ve been picking up the pace of investment in technology and distribution, both institutional and retail, and in the U.S. and globally,” Kennedy said. He said the new investments would occur over “multiple years.”

BlackRock Inc., the world’s largest asset manager, said July 18 its second-quarter net income rose 32 percent as investors deposited a net $11.0 billion in BlackRock funds, driven by multi-asset products and index funds.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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