T. Rowe Price, the Baltimore-based money manager that has posted a profit every quarter since going public in 1986, said net income in the first quarter increased 1.4 percent to $196.5 million, or 75 cents a share. Janus, the Denver-based owner of the Janus, Intech and Perkins funds, said profit fell 40 percent to $22.6 million, or 12 cents a share, missing the 16-cent average estimate of 5 analysts surveyed by Bloomberg.
Chief Executive Officer James Kennedy has expanded T. Rowe Price’s retirement products, driving a record $12.4 billion in net deposits in the first three months of the year, a period in which Janus’s clients pulled $2.5 billion. The difference highlights the challenges for Glenn S. Schafer, who was named in January to replace chairman Steven L. Scheid after eight years during which at least 15 fund managers and senior executives left and the company lost more than half of its market value.
T. Rowe Price “saw a nice step up in flows in the first quarter that is likely to reflect the seasonal increase to retirement-related accounts,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in a telephone interview before results were announced. Janus is facing “continued pressure from falling performance fees given their long-term track records.”
T. Rowe Price rose 1.5 percent to $61.95 in New York, bringing gains this year to 8.8 percent, compared with the 14 percent increase in the Standard & Poor’s index of asset managers and custody banks. Janus declined 2.4 percent to $7.74. Janus has gained 23 percent since the start of the year.
Investors poured $5.3 billion into T. Rowe Price’s mutual funds, including $3.5 billion into bond funds and $2.5 billion into stock and blended assets funds. Institutional investors and wealthy individuals added $7.1 billion. The deposits, and an 11 percent increase in the MSCI ACWI Index (MXWD) of global stocks, boosted assets under management by 13 percent to $554.8 billion. About three-fourths of T. Rowe Price’s assets are invested in equities.
Target-date retirement funds and trusts, which automatically shift money into more conservative investments as the client ages, attracted $4.2 billion in the first quarter, up from $2.9 billion a year ago. Target-date products hold 14 percent of the firm’s assets under management.
“We had better performance than others in target-date funds and the asset class as a whole is gaining momentum,” Kennedy said in a telephone interview.
T. Rowe’s target-date funds beat 92 percent of competing funds, on average over the past three and five years, according to data compiled by research firm Lipper.The firm said 73 percent of its mutual funds beat their average competitors over one year and 75 percent over three years, according to Lipper.
Janus’s stock fund performance remained “challenged,” the company said, with just 39 percent of fundamental equity funds ranking in the top half of similarly managed funds over one year. Fixed-income funds did better, with 100 percent in the top half. More than four-fifths of Janus’ assets are invested in equities.
Janus’s fixed-income funds, which account for about 14 percent of assets, were the firm’s only product category to report net deposits after drawing $1.2 billion from investors. Assets under management fell 5.5 percent from a year earlier to $164 billion.
The drop contributed to a 10 percent decline in investment management fees. Revenue fell 18 percent to $218.4 million as poor performance reduced fees by $19 million. Expenses fell 10 percent, primarily because of a 12 percent drop in compensation.
Money-management firms earn fees on the funds they manage for clients. Janus’s mutual funds adjust fees lower or higher based on the funds’ performance over trailing 12- to 36-month periods.
Janus’s performance issues coincided with a number of departures under Scheid. When the firm was sued by former fund manager Ed Keely for alleged contract violations, Scheid testified during the May 2009 trial that portfolio managers had threatened to “smear Janus’s name in the marketplace” if Scheid didn’t fire then CEO Gary Black. Janus lost the case and was ordered to pay $7.5 million in compensation and legal costs.
Schafer, a director since December 2007, will replace Scheid as chairman when he retires this month. CEO Richard M. Weil, a former executive at Pacific Investment Management Co. who replaced Black in February 2010, has worked to diversify Janus’s offerings, improve sales and cut costs.
BlackRock Inc. (BLK:US), the world’s largest asset manager, said in reporting results April 18 that clients withdrew $48 billion in the first quarter. Market gains and foreign-exchange swings helped the New York firm increase net income by 0.7 percent to $572 million as assets rose to $3.68 trillion.
Chief Executive Officer Laurence D. Fink said clients are still overwhelmed by fear as global markets remain “fragile” despite the first-quarter rally.
T. Rowe’s revenue rose 6.8 percent to $728.7 million. Expenses climbed 11 percent to $412.5 million that included a 7.3 increase in compensation. The company said it expects advertising and promotion costs to rise “modestly” in 2012 over last year.
“We are reasonably confident the economic recovery is sustainable,” Kennedy said. “We think people will take more risk in their portfolios as they gain more confidence in the marketplace.”
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