ティー・ロウ・プライス（TROW）2026年第3四半期決算説明会：資金流出が続くなかETFの成長が加速

ティー・ロウ・プライス・グループ（TROW）の2026年第3四半期は、平均運用資産残高（AUM）の増加に支えられ、調整後利益と売上高がともに増加して着地した。しかし、アクティブ株式、投資信託、ターゲット・デート戦略に対する圧力が続くなか、全社的な純資金流出は高水準にとどまった。

主要なポイント

• 調整後希薄化後1株当たり利益（EPS）は2.86ドルとなり、主に平均AUMの増加により、2026年第2四半期の2.57ドル、2025年第3四半期の2.81ドルから増加した。
• 期末AUMは1兆8,600億ドルに達した一方、純資金流出は283億ドルとなった。経営陣は、第4四半期の資金流出について前四半期比で鈍化するものの、引き続き高水準にとどまると予想している。
• ETFの四半期純資金流入額は38億ドル、年初来では110億ドルとなった。ETFのAUMは338億ドルに達し、2年前の69億ドルから拡大した。
• 債券戦略は34億ドルの純資金流入を記録し、11四半期連続で純流入となった。オルタナティブ投資も第3四半期に純資金流入となった。
• 調整後純売上高は前年同期比5.3%増、前四半期比5.1%増の20億ドルとなった。手数料率の低い製品のシェア拡大に伴い、年率換算の実効手数料率は37.8ベーシスポイント（bp）に低下した。
• ティー・ロウ・プライスは、キャリード・インタレスト費用を除く2026年の調整後営業費用について、2025年の基準額（46億ドル）から4%〜7%増加すると予想しており、支出は中間点付近で推移している。

主要財務データ

事業・営業業績

ETF、SMA、モデル・ポートフォリオ

ティー・ロウ・プライスのアクティブETFプラットフォームは、引き続き主要な成長要因となった。同社は第3四半期中に6本のETFを設定し、ラインナップは39本（うち11本はAUMが10億ドル超）となった。2026年初め以降のETF純資金流入額は月平均10億ドルを超え、同社はアクティブETF運用会社として第13位にランクインした。

経営陣は、今後のETF成長の牽引役として、富裕層向けプラットフォームでの採用拡大、モデル・ポートフォリオへの組み入れ、投資信託からの選択的な移管、および将来的なETFシェアクラスの導入を挙げた。同社はまた、欧州での2本のUCITS ETFを皮切りに、米国外への展開も拡大している。

9月末時点のSMA資産残高は206億ドルに達し、前年末の168億ドルから増加した。年初来のSMA純資金流入額は22億ドルとなった。運用口座数は前年同期比で50%以上増加して約36,000口座となり、40のウェルス管理・プラットフォーム関係を通じて戦略が提供されている。

同社は、自社開発、サードパーティ製、カスタマイズのモデル・ポートフォリオに投資している。また、モデル・ポートフォリオおよびウェルス・チャネルの販売を支援するため、中間金融機関向け事業に50名の社員を追加配置する計画である。

債券およびオルタナティブ

債券戦略の第3四半期純資金流入額は34億ドルとなった。運用パフォーマンスは引き続き好調で、1年、3年、5年、10年の各期間において、債券ファンド資産のそれぞれ85%、74%、76%、82%がピアグループを上回った。

ティー・ロウ・プライスは、買収予定のF/M Investmentsの買収完了を2027年初頭と見込んでいる。F/M Investmentsは、ETF、機関投資家向け個別運用口座、課税および地方債SMAにわたり約200億ドルのAUMを有している。経営陣は、この取引により同社の債券プラットフォームが拡大し、ETFおよびソリューションの成長が加速すると期待している。

OHA戦略は、ソフトウェア関連エクスポージャー、プライベート・クレジット、CLO、ローン、マルチアセット・クレジット、ディストレストおよびオポチュニスティック投資に支えられ、第3四半期に力強いパフォーマンスを記録した。調整後キャリード・インタレストは、OHAのプライベート・クレジット製品および2026年第1四半期に設定されたレイトステージ・ベンチャー・ファンドからの寄与を含め、6,310万ドルに増加した。

運用パフォーマンスおよびリタイアメント

全ファンド資産の50%以上が、1年、3年、10年の各期間でピアグループを上回り、5年期間では44%が上回った。大型成長株ファンドのパフォーマンスは当四半期中に改善し、3つのファンドすべてがピアグループを上回った。

ターゲット・デート戦略内では、資産の80%が1年および3年の期間でピアを上回り、5年で55%、10年で98%が上回った。この良好なパフォーマンスにもかかわらず、マルチアセット商品は主にターゲット・デート戦略からの資金流出と、以前公表された大型確定拠出年金プランの解約を含め、76億ドルの純資金流出を記録した。

パートナーシップおよびテクノロジー

ティー・ロウ・プライスは、ゴールドマン・サックスとの提携により2本のインターバル・ファンドを設定し、6番目となる「ゴールドマン・サックス ティー・ロウ・プライス」モデル・ポートフォリオを追加した。経営陣によると、複数のプラン・スポンサーが「T. Rowe Price Goldman Sachs Retirement Blend Plus」シリーズの導入に向けて準備を進めている。

同社はまた、投資リサーチ、販売、開発、オペレーション全般でAnthropicのClaudeツールの利用を拡大している。経営陣は、人間の判断と責任を中核に維持しつつ、AIを活用したワークフローにより今後12〜24か月間で投資プロセスと業務効率が向上すると予想している。

経営陣の業績見通し（ガイダンス）

経営陣は、2026年第4四半期の純資金流出額が2026年第3四半期および2025年第4四半期の双方の水準から改善すると予想している。それにもかかわらず、アクティブ株式および投資信託に対する圧力が続いているため、資金流出は上半期のペースと比較して引き続き高水準にとどまる見込みである。

10月は低調と説明されたが、パイプラインからは11月と12月に結果が改善することが示唆された。経営陣は、年末の年金プランの動きが12月下旬から1月上旬の間にズレ込む可能性があるため、四半期ごとの資金流出入のタイミングの予測は困難であると注意を促した。

第3四半期の平均AUMに基づき、ティー・ロウ・プライスは、キャリード・インタレスト費用を除く2026年の調整後営業費用について、2025年の46億ドルから4%〜7%増加するとの見通しを維持している。支出は同レンジの中間点付近で推移していた。

リスクと注視すべきポイント

• 経営陣は、アクティブ株式および投資信託に対する構造的な圧力が今後も続くと予想している。
• 実効手数料率は、ターゲット・デート・ブレンド、ハイブリッド製品、その他の低手数料ヴィークルのシェア拡大に加え、高手数料の米国株式製品からの資金流出により低下した。
• 加入者の高齢化に伴い退職給付金やIRA移管（ロールオーバー）が増加しているため、ターゲット・デートの資金流出入は新規プランの獲得への依存度を高めている。これにより資金流出入の振れ幅が大きくなる可能性がある。
• 経営陣は通常4〜6か月前に通知を受けるものの、第4四半期の資金流出入の見通しは、年末のプラン新規獲得や契約終了のタイミングに影響を受ける。
• より広範な中間金融機関のエコシステムは、大規模なデュアルETFシェアクラスをサポートする準備がまだ十分整っていない。
• 経営陣は、M&Aを選択的な手段と位置づけており、戦略的適合性、企業文化の一致、財務的価値、顧客への潜在的影響の観点から高いハードルを維持している。

アナリスト質疑応答のハイライト

経営陣によると、機関投資家顧客は債券、インフレ耐性資産、インフラ、セカンダリー、プライベート・クレジット、レイトステージ・ベンチャー戦略への関心を高めている。同時に、アクティブ株式ポートフォリオからインデックス製品への移行は今後も続くとみられる。

オーガニック成長について、経営陣はアクティブ株式の逆風を相殺するためには、ETF、SMA、モデル・ポートフォリオ、債券、オルタナティブ、リタイアメント・ソリューションをさらに拡大する必要があると強調した。同社は、その移行を加速させるために選択的に買収を活用する可能性がある。

ティー・ロウ・プライスは、上半期に約5億ドル弱で約530万株を購入した後、第3四半期中の自社株買いを行わなかった。経営陣は一時停止の理由の一端を売買禁止期間（ブラックアウト期間）によるものとし、自社株買いは引き続き機動的に行う方針を改めて示した。

AIに関して、経営陣は、広く利用可能なAIツールと組み合わせることで、過去20年間の社内情報を含むティー・ロウ・プライス独自の受託・取引・リサーチデータが差別化の源泉になり得ると指摘した。

決算説明会全文文字起こし

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good morning. My name is Daniel, and I will be your conference facilitator today. Welcome to T. Rowe Price's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded and will be available for replay on T Rowe Price's website shortly after the call concludes. I will now turn the call over to Linsley Carruth, T. Rowe Price's Director of Investor Relations.

Linsley Carruth

Hello, and thank you for joining us today for our third quarter earnings call. The press release and the supplemental materials document can be found on our IR website at investors.price.com. We'll start our call with our Chair and CEO, Rob Sharps and CFO, Jen Dardis, discussing the company's results. Dee Sawyer, our Head of Global Distribution, will then share an update on our ETF SMA and model businesses. Then we'll open it up to your questions at which time will be joined by our President, Co-Head of Global Investments and CIO, Eric Veiel. We ask that you limit it to 1 question per participant. I'd like to remind you that during the course of this call, we may make a number of forward-looking statements and reference certain non-GAAP financial measures.

Please refer to the forward-looking statement language and the reconciliations to GAAP in the supplemental materials as well as in our press release and 10-Q. Discussions related to the funds is intended to demonstrate their contribution to the organization's results and are not recommendations. All investment performance references to peer groups on today's call are using Morningstar peer groups and for the quarter that ended September 30, 2026. Now I'll turn it over to Rob.

Robert Sharps

Thank you, Linsley. I'm joined today by Dee Sawyer, Head of Global Distribution; who will share an update on our ETF, SMA and model portfolio businesses, areas where we are investing, innovating and gaining traction. Before we hear from Dee, I'll share a few thoughts on the quarter and then Jen Dardis, our Chief Financial Officer, will take you through our financial results. We ended the quarter with $1.86 trillion in assets under management and $28.3 billion in net outflows. Looking ahead, we anticipate some sequential improvement in net flows in the fourth quarter with outflows moderating from third quarter levels but remaining elevated.

Regardless, we're making notable progress with improving performance, innovative product launches and continued advancements across our partnerships. Let me start with investment performance. Over 50% of our fund assets beat their peer groups on the 1-, 3- and 10-year time periods. The 5-year time period fell short of that mark with 44% of fund assets outperforming. Results improved notably from last quarter for the 1- and 3-year time periods, particularly in equities, with 48% and 58% of fund assets outperforming their peers, respectively.

For the 5 and 10 year, 37% and 60% outperformed. Our Large Cap Growth Suite delivered a strong quarter, with all 3 funds beating their peer group, reversing the underperformance we saw in the prior quarter. U.S. equity research remains a top quartile performer for the 3-, 5- and 10-year time periods and the 1 year just missed coming in at the 26 percentile. Both capital appreciation and global stock beat their peer groups across all reported time periods. Capital appreciation is top decile for the 5 and 10-year and global stock is top decile for the 1 in 10 year.

Fixed income performance remained strong with 85%, 74%, 76%and 82% of fund assets beating their peer groups for the 1-, 3-, 5- and 10-year time periods, respectively. Global multisector floating rate in several municipal strategies stood out. In target date, 80% of assets outperformed their peers for the 1- and 3-year time periods, 55% for the 5 year and 98% for the 10-year. Nearly all the Target data assets outperformed in the third quarter, driven by the retirement Glidepath higher relative equity exposure, a tactical underweight to bonds and our allocation to inflation mitigating assets.

Shifting to alternatives. Performance across OHA strategies was strong in Q3. Among the underlying drivers with strength in software exposures, both public and private, this dynamic contributed to strong performance across private credit, both in institutional and wealth and CLOs as well as positive relative performance in loans and multi-asset credit. Distressed and opportunistic funds also generated gains driven by positive idiosyncratic developments.

In addition to strong investment performance, there were a number of other highlights from the quarter. In August, we announced that we plan to acquire FM investments with the closing expected early in 2027. FM is a fixed income asset manager and ETF specialist with approximately $20 billion in assets under management across exchange-traded funds, institutional separate accounts and both taxable and municipal separately managed accounts. With this transaction, we will enhance our fixed income platform and accelerate growth in our ETFs and solutions. This is consistent with our overall approach to M&A, extending our capabilities with limited overlap, strengthening our competitive position and adding top talent.

We're also growing our fixed income franchise organically, where we had another strong quarter with $3.4 billion of net inflows. Earlier this year, we extended our platform with 2 TRO price managed CLOs. The most recent CLO, which closed in August issued approximately $400 million in notes. We are also making progress through our strategic partnerships. As part of our relationship with Aspida, we launched the first index strategy in a Aspida's fixed index annuity suite, which extends our investment capabilities into the growing retirement and insurance marketplace.

We also reached several milestones in our collaboration with Goldman Sachs. We launched 2 interval funds in the quarter, the T. Rowe Price Goldman Sachs private markets fund launched early in the quarter and is now available on several external platforms. All Equity Access Fund received SEC approval in late August and launched in early September. The fund brings together our public equity research and late-stage venture investing experience with Goldman Sachs Asset Management's institutional private equity expertise.

We added a sixth model the Goldman Sachs T. Rowe Price dynamic ETF and alts portfolio, which includes the private markets interval fund as a building block. And we continue to build momentum toward the launch of our Target Date sister series. T. Rowe Price Goldman Sachs Retirement Blend Plus. We have an active pipeline of interested plan sponsors with several progressing toward implementation. The product is operationally ready, and we are working closely with these sponsors to finalize launch time lines. In early October, Robinhood announced plans to bring tokenized versions of actively managed ETFs on chain for eligible investors outside the U.S. We're pleased that Robinhood has chosen T. Rowe Price's active ETF strategies to be first. This initiative offers a valuable opportunity to learn how tokenization is developing and how investors may engage with established investment strategies in new ways.

Being able to explore this opportunity with Robinhood reflects the growing strength of our active ETF capabilities and our commitment to innovation. We're also advancing our use of AI through our strategic relationship with anthropic. The relationship is expanding our enterprise capabilities by giving portfolio managers and analysts access to Claude and co-work and developers access to Claude code. AI is moving into the core of how we invest, helping our teams enhance research, synthesize information and create capacity for the judgment that drives client outcomes. We're moving beyond broad adoption toward AI-enabled workflows with measurable business value across investments, distribution and operations.

Every application is governed by the firm's standards for responsible use and built to keep human judgment and accountability at the center of our work. We also refined our AI leadership model embedding AI leaders in investments in global distribution and charging T. Rowe Price Labs, our enterprise AI innovation hub with evaluating and scaling AI across the firm with strong governance and risk oversight.

While the environment for active equity is difficult, we are broadening how clients can access our capabilities and investing in the partnerships and technology that will differentiate us over time. I remain confident in where we're headed. I want to thank our associates for their focus and commitment to our clients. And now Jen will share an update on our financial results.

Jen Dardis

Thank you, Rob, and hello, everyone. I'll review our third quarter financial results before turning the call over to Dee. Our adjusted diluted earnings per share for Q3 2026 was $2.86, up from $2.57 in Q2 2026 and $2.81 in Q3 2025. The increases over both prior periods were driven by higher average AUM. A lower share count was also a factor in the year-over-year increase. As Rob mentioned, we had $28.3 billion in net outflows during the third quarter. This was driven by continued outflows from our strategies and mutual funds. Multi-asset net outflows were $7.6 billion, primarily from our target date strategies. This included a previously disclosed large redemption from a defined contribution plan in our active target date series in September.

Fixed income and alternatives were positive during the quarter, and we saw net inflows from clients in APAC. Within our expanding ETF lineup, net inflows were $3.8 billion, bringing year-to-date ETF net inflows to $11 billion. These results demonstrate the breadth of client demand across several areas of our business. Moving to the income statement. Our third quarter adjusted net revenue was $2 billion, up 5.3% from Q3 2025 and up 5.1% from the prior quarter. Investment advisory revenue of $1.8 billion was up 5.8% from Q3 2025 and 3% from the prior quarter on higher average AUM, partially offset by a lower effective fee rate.

Adjusted carried interest was $63.1 million compared with $15.2 million in Q2 2026. This includes carry earned on OHA's private credit products in addition to our late-stage venture fund that launched in Q1 2026. Our Q3 annualized effective fee rate, excluding performance-based fees, was 37.8 basis points compared with 38.1 basis points in Q2 2026. About 2/3 of the decline was driven by the continued growth in our Target Date Blend and hybrid suite with the remainder reflecting ongoing outflows from U.S. equities and vehicle mix shift. These trends continue to reflect client demand for solution-oriented products and lower fee vehicles.

We continue to invest in these areas and broaden our range of offerings. Looking at expenses. Q3 adjusted operating expenses, excluding carried interest expense, were nearly $1.2 billion, down 1.6% from Q2 2026 and up 5.7% from Q3 2025. The decrease from the prior quarter reflects lower compensation and related costs. The third quarter of 2026 also included the reversal of about $10 million of accrued technology-related expenses for work that's now expected to occur in future periods. The increase from Q3 of last year was primarily due to expenses that track with AUM and revenues, including higher compensation and related costs and higher distribution and servicing expenses.

Based on the third quarter's average AUM, we continue to expect 2026 adjusted operating expenses excluding carried interest expense to be up 4% to 7% over 2025, $4.6 billion. We are trending towards the middle of that range. Turning to capital management. Our balance sheet remains strong with $4.9 billion in cash and discretionary investments. From this position, we can continue to invest in growth initiatives and seed capital support our dividend and opportunistically repurchase shares. And now I'll turn it over to Dee.

Dorothy Sawyer

Thank you, Jen. I'm pleased to join today's call to highlight how we're expanding the ways clients can access our investment capabilities through EPS and model portfolios. Across our global wealth channels, clients tell us that they want more choice, more personalization, more tax efficiency and more control. And advisers need ways to deliver that consistently and efficiently across our entire client base. ETFs, SMAs and models are a few of the ways we are meeting these needs. Our active ETF franchise has become an important growth platform for us with strong recent flows and market share momentum in the rapidly growing active ETF marketplace and we're investing in our ETF franchise by adding sales roles to further this growth.

We've launched 6 new ETFs in the third quarter, 2 new fixed income ETF securitized income and dynamic emerging market bond, 3 new equity ETFs, mid-cap equity research, SmallCap and biotech and our active crypto ETF. That brings our lineup to 39 ETFs, including 11 with more than $1 billion in assets under management. Our total ETF AUM has grown to $33.8 billion, up from just $6.9 billion, 2 years ago. That growth, which was driven by over $23 billion of net flows over those 2 years demonstrates strong demand for the products we've launched. We generated $3.8 billion in ETF net inflows this quarter, and we've averaged over $1 billion a month since the start of the year.

We are pleased that our organic growth rate has outpaced the active ETF industry every month since March, and we're now the 13th largest active ETF manager. Put us together, and it tells you 2 things: We're gaining share in a market that's growing quickly and we're winning in a market where assets remain concentrated among a relatively small number of firms. Our goal isn't to maximize the number of ETFs we offer. It's to build a coherent lineup around client portfolio needs, focusing on areas where we have differentiated capabilities and a credible path to scale. That starts with covering the core.

We have offerings across the major categories, asset classes and style boxes that form the foundation of most client portfolios. This includes our fully transparent growth, value, international equity and small mid-cap ETFs that all reached 3-year track records in June as well as 12 taxable and municipal fixed income ETF. From there, we innovate to meet client needs, adding satellite and differentiated exposures where we have a strong investment proposition behind them. That includes our active Crypto EPS, which is an actively managed multi-token exchange-traded products, sector ETFs that include technology, health care, natural resources, financials and the recently launched biotech ETF.

And our multi-sector income ETFs that leverages our deep credit research capabilities to identify differentiated sources of income across a broad range of fixed income markets. In addition to new stand-alone ETFs that we've launched, selective mutual fund ETF conversions are a key priority. We are focusing on funds where the ETF wrapper has the potential to improve outcomes for existing fund shareholders, including potentially lower costs and greater tax efficiency while maintaining continuity of the strategy and performance history.

And now that there is regulatory approval, we are considering opportunities for ETF share classes, however, we hear from intermediaries and other industry participants that the broader ecosystem is not yet fully ready to support dual share classes at scale. We're also starting to extend our active ETF capabilities beyond the United States, and we're doing it in the same disciplined way we've built our U.S.-based lineup, starting with the core.

In Europe, we're beginning with core equity building blocks in the largest categories. Earlier this month, we launched Integrated Global Equity and integrated U.S. Equity enhanced index as UCITS ETF. These first 2 ETFs built on proven strategies. By combining quantitative and fundamental research insights, our integrated equity approach broadens the source of potential alpha as well as enabling downside protection. We plan to launch additional core exposures first and then move into more differentiated thematic outcome-oriented strategies.

Additionally, Robinhood announced pending regulatory approval, they are planning to launch a stock token that has economic exposure to T. Rowe Price active ETFs. SMAs are another important way we're delivering our active capabilities into the wealth channel. And in SMA, the client owns the underlying securities directly rather than shares in a pool of fund. That distinction matters for tax management and customization.

We've expanded our SMA lineup, launching U.S. core bond, U.S. short-duration bond, U.S. investment-grade corporate bond, active core U.S. equity and diversified mid-cap growth SMAs in the third quarter, bringing us to 44 externally available SMA strategies. On scale, SMA assets reached $20.6 billion as of the end of September, up from $16.8 billion at year-end, driven in part by $2.2 billion in net flows to our SMAs year-to-date.

We now have roughly 36,000 funded SMA accounts, up over 50% from the prior year and more than double where we were in mid-2023. Currently, these strategies are available across 40 wealth and platform relationships, and we continue to add new relationships and expand the number of strategies available across existing platforms. At the heart of it, we're combining T. Rowe Price's fundamental active investment capabilities with technology that can personalize implementation at the individual account level. That means to the extent possible, daily tax of harvesting, tax-aware transitions, concentrated physician management, client-specific restrictions and tax reporting.

We use each client's own cost basis and realize gains as we seek to preserve the active exposure they look to us to provide. As Rob mentioned, we're excited about the pending F/M acquisition. This will accelerate growth in both our ETF and SMA businesses, building on the strong momentum that I've described. I'll turn now to model. which are becoming 1 of the most important ways advisers construct and manage client portfolios, and therefore, create a significant distribution opportunity for both our EPS and SMA. We participate in models in 2 ways.

First, we build our own tier price developed asset allocation models that combine our investment building blocks into complete portfolio solutions. These include our risk-based and completion models. In our retail direct business, T Rowe Price developed models, which use our mutual funds and ETFs building blocks are the foundation of our retirement advisory services. Through our financial intermediary partners, these models help advisers deliver consistent portfolio construction, while they retain responsibility for the broader client relationship.

We also have a team within our multi-asset division that works with advisers to develop custom models based on their objectives or constraints. Second, our products show up as building blocks inside other firms' models. Our ETFs, SMAs and other capabilities get selected as components within intermediary or partner models. For example, in the third quarter, our international value SMA was selected for placement in a large wealth management firms model. And winning a position inside a model is a different kind of win than winning an individual account.

It's broader and more repeatable as it extends across many accounts and has the potential to build over time. In addition, Models are an important part of our collaboration with Goldman Sachs. T Rowe Price products, including OHA-managed strategies are building blocks across 6 Goldman models. Overall, we aim to earn a place in the portfolio construction frameworks that advisers rely on to manage client portfolios. Let me close with 4 key points. Clients increasingly want choice, personalization, tax efficiency and greater control. Advisers want scalable ways to deliver those capabilities to their clients. T. Rowe Price's combining deep active investment expertise with ETFs, SMAs and models to meet these needs.

We're investing thoughtfully to build durable growth platforms for the long term. We believe ETFs, SMAs and models represent important long-term growth opportunities for T. Rowe Price. They let us meet clients where clients want to invest and help advisers deliver increasingly personalized solutions at scale. Importantly, they let us extend to T. Rowe Price's active investment management expertise to more clients through a broader range of solutions.

We see substantial runway ahead in ETFs, SMAs and models, and we're committed to continuing to invest in the capabilities that will sustain back growth. Now we'll open the line for questions.

Operator

[Operator Instructions] Our first question comes from Glenn Schorr with Evercore.

質疑応答

Glenn Schorr

I thought that was a very helpful conversation with ETF SMAs and models. It's interesting because I have a similar question for the institutional side. So I wanted to pick your brains on how we should be thinking about LP thought process as we go into next year. So the active to passive trend is probably a dominant thing is going to continue. But levering the conversation you just had on ETFs, SMAs and models, LPs are also thinking about having control and taking a big portfolio solution approach. And so as they're balancing big AI CapEx to chain, the move up in interest rates.

I'm curious on how you see allocations changing as we head into '27. Is it the same also? Or are these same themes taking place. I'm just curious how much of that conversation applies to the institutional side.

Robert Sharps

Yes, Glenn, thank you for the question. I think the facts and circumstances of each individual institutional clients often are different. And it's hard to discern an overall theme. At a high level, as you said, the shift from actively managed equity portfolios to index-based portfolios is something that's been underway across client type for some period of time. I think that's partly reflective of the composition of market returns and perhaps is something that's likely to continue. I think we have seen a resurgence in interest in broader strategy approaches, more interest in value-based approaches we've kind of shifted away from the returns being dominated just by hyperscalers and broadening out to all of the beneficiaries of AI CapEx.

I think there is also a greater interest in fixed income, as you said, rates are higher. I think there's a greater sensitivity to inflation. So among certain client types, we've seen a real interest in portfolios that provide exposure to inflation hedges or asset classes that will be resilient in an environment where you have more persistent inflation. Within alternatives this year, I think we've seen kind of more interest in infrastructure or more interest in secondaries than we certainly have in traditional PE and in private credit. I do think that there is pretty significant opportunity from a private credit perspective.

I guess the last thing I would say is that there is, I think, significant opportunity in late-stage venture, which is an area where we're active given a lot of the really dynamic newer businesses and business models that AI is enabling.

Operator

Our next question comes from Alex Blostein with Goldman Sachs.

Alexander Blostein

So lots of interesting growth dynamics underneath the surface. So Rob, I was hoping if you take a slightly broader step back and, sort of, you think about all the new wrappers and new partnerships, new initiatives. And as you think about T. Rowe's organic growth over the next kind of 2 to 3 years, how much do you expect these initiatives to ultimately add to the organic growth profile, acknowledging that obviously, the active equity business continues to be still somewhat challenged.

Robert Sharps

Yes, Alex, thank you for the question. I mean we're clearly navigating significant structural change. And we do expect pressure on active equities and mutual funds to persist. I think we fully recognize these trends and we're investing to compete successfully as the industry evolves. And as these comments reflected, I do think we're seeing tangible results, not just in ETF, SMA and models, but I would point out in fixed income, we've had 11 quarters of net inflow. As you noted, we continue to expand our alternative offerings, late-stage venture the collaboration with Goldman, a lot of growth opportunity with OHA.

We're strengthening distribution to go-to-market and connect with clients in all of those areas. And we're also broadening our retirement offerings. I would say in each of these areas, we have the opportunity and, frankly, need to be bigger. We need to deliver great performance, which will allow the more mature businesses to be more stable. And then we need to scale these businesses where client demand is growing. I will also say that given the growing importance of distribution, we have a significant opportunity to invest in our direct business and our record-keeping platforms and our advice capabilities to drive great, more direct wealth and workplace experiences with our clients.

So we're very focused on all of these. And I'd say not to confuse the near-term flow outlook with our confidence in the business over time. I do think that we have a very solid foundation, and we have the opportunity to return the business to growth. There are, as I said, we're getting traction in a number of these things. They need to be bigger. I think we have the opportunity to make them bigger organically, but we'll also use M&A as a tool where appropriate. And again, selectively, I'm with a high bar to allow us to evolve the overall portfolio and business mix.

Operator

Our next question comes from Dan Fannon with Jefferies.

Daniel Fannon

So sticking with you, Rob and kind of your comments around the sequential improvement in flows. Just unpacking that a bit, is that just kind of the lack of a large redemption, which happened in the third quarter? Or is there some gross sales trends that maybe are improving that you could talk about, obviously, ETFs, I would assume as part of that. And then also just in the fourth quarter, typically, there is some DC changes. And wondering just how that pipeline looks at this point in time as well.

Robert Sharps

Yes, Dan, thank you. Yes, as you said, we do expect sequential improvement in Q4 relative to Q3 and relative to Q4 '25, but I think given the trends in active equity in particular, we would expect flows to remain at an elevated level relative to the run rate that we experienced in the first half of the year. October is weak, but we see based on the pipeline, better results in November and December. As you said, there's a lot of year-end related plan activity. And that makes Q4 difficult to predict in the sense that there are instances where operationally those things can slip into early next year.

But we have a really good engagement with clients and I think a very healthy set of opportunities across the business to at least partially offset the ongoing active growth equity and mutual fund related headwinds. In terms of the specifics sequentially, we did have RDF plan termination in Q3 that impacted the results. It's probably worth spending a few minutes on the target date flow dynamic. I think there are 2 trends that we see impacting retirement date flows.

The first is participant flows where contributions and distributions are increasingly reflecting an aging participant base. So you have baby boomers retiring, taking distributions or rolling plan balances over into IRAs and often particularly given the market dynamic over the last couple of years, those balances are quite large. That means that there's less of a tailwind from participant net contributions than there has been in the past. And I think that's an industry-wide trend that's likely to persist for a couple of years.

What that means is that our growth opportunity will be more dependent on winning net new plans. And the second trend I would say is in that area, we're seeing tremendous interest in blend and hybrid right now. I would say, across our lineup, we feel very good about the investment performance over all time frames. But kind of particularly, I think if you look at 98% of our AUM outperforming over a 10-year time horizon, we feel it's a very compelling value proposition. We'll continue to innovate in the retirement area with retirement income-oriented solutions with the Goldman Sister Series incorporating alternatives into the target date building blocks.

So we see substantial opportunity in retirement solutions going forward. But I think it would be fair to characterize our target date flows is more dependent on winning new plans which means there'll be more uneven. And you saw that unfold over the difference between Q2 and Q3, where in Q2, we brought on a sizable new plan. And in Q3, we had, as I said, a sizable termination.

Operator

Our next question comes from Michael Cho with JPMorgan.

Y. Cho

I just wanted to drill down on the active ETF conversation. Do you appreciate all the discussion and comprehensive overview there on the active ETF. You noted that T. Rowe is the 13th largest factor ETF manager. When you think about some of these initiatives in place in terms of magnitude of impact, can you just help us think through the execution road map from a distribution perspective from taking here on T. Rowe on 13 on list to maybe getting to top 5, if that's even the goal.

Dorothy Sawyer

Sure. Thank you for the question. So as I said earlier, we do have 39 ETFs in the market, which represents 72% of the Morningstar category. So we feel really good about our lineup, but we will continue to add to our lineup, particularly where we see opportunities to meet client needs. And you've seen that we have really good momentum in the lineup that we have. We have 11 ETFs that have more than $1 billion in AUM, and we have -- even if you look at our net flows for the past year 4 ETF have $1 billion in net flows over the course of the year. So we feel really good about where we are. We are particularly focused in terms of kind of where we are on the leaderboard.

What we really want to make sure is that we have a lineup that is meeting client needs and that we continue to see the strength in our lineup by the assets, and then that closes that as a result of meeting those client needs. So we don't have a particular goal in terms of the leader board, but we are looking to continue to accelerate our overall flows, and we have good momentum and expect that to continue over time.

Robert Sharps

I would just say, I think we do expect to move up the leader board in the sense that I think we have a significant opportunity to gain share in the category. We're -- our growth over the course of the last couple of years has been substantial. And as we've broadened our lineup as we scale that line up as we get more placement on wealth platforms as we get more placement in models as more of our ETF models are placed on those platforms. We think there's a very significant opportunity to move up the ranks. Although, as Dee said, there isn't a specific objective to be top 3 or top 5.

I think we have a big opportunity to gain market share. I would also say that we've been able to build this business largely organically without converting existing mutual fund assets or doing ETF as a share class. But as Dee said in her prepared remarks, those are also opportunities, and we'll do that where but we think that it's the right thing to do for the underlying client and where we have the opportunity to preserve a track record and potentially access a broader base of clients and client interest for a set of strategies that have particularly compelling underlying investment results. And I think there are a number of things in fixed income that we're evaluating in that regard right now.

Operator

Our next question comes from Alex Bond with KBW.

Alexander Bond

I wanted to follow up on the model portfolio build-out. So as this build-out continues, can you just elaborate on the different opportunities that you see between the T. Rowe designed asset allocation models versus having your ETFs fit into third-party models. I think this was touched on a little bit, but hoping to drill down there. And also just wondering where you're seeing greater traction to date between those 2 routes and then also thinking how you're thinking about the distribution investment between those 2 avenues as well moving forward.

Dorothy Sawyer

Sure. So a couple of things to note. So we think about models in multiple ways, as I mentioned earlier. And one of the things that we're seeing traction on is our own proprietary developed models. And as I mentioned, we see this in our individual investor retail direct business, but we also see this in the intermediary channel, and we expect continued growth there. The second part that I think is exciting and compelling, and we're investing behind it is continued growth in home office model. So this is where T. Rowe Price participates as a building block.

But the last one that I think is most compelling and exciting where we see incredible demand from advisers is around customized models. And customized models are designed to meet specific client needs. This is an area of focus, and this is where you can see greater customization at the client level, which we think is really compelling. And so what I think is exciting about our value proposition is that we have multiple ways to deliver models, and we're investing behind it.

From your question on distribution, you may have seen that we recently announced that we're adding to our intermediary business with an additional 50 associates. And that also is about our belief and expansion of our model business.

Operator

Our next question comes from Ben Budish with Barclays.

Benjamin Budish

I wanted to ask one on the buyback. I noticed that there wasn't any this quarter. It looks like you've been very consistently buying back your shares for, I think, many quarters now. So just curious if there's any color there on where should we think about towards? Anything you could add would be helpful.

Jen Dardis

Thanks for the question. It broke up a little bit at the end, but I think we got the gist of the question is where are we on the buybacks and any change in posture. So thanks for the question. Taking a step back, I mean, there's no change in our posture. Our priorities for capital haven't changed. Our goals are to maintain financial strength, invest in the business, make sure we have seed capital available to be able to invest for growth, support the dividend and then return excess capital to stockholders over time.

So if you look at where we are this quarter, sitting at just about $4.9 billion in cash and discretionary investments I just -- 1 thing to point out that that's a high watermark for us during the year. We have fourth quarter payoffs of our variable compensation plans and the quarterly dividend that will come in the fourth quarter. So this is a high watermark from a capital perspective. But specifically from the buybacks, we made really good progress in the first half of the year. We bought just over -- just about 5.3 million shares for just under $500 million.

So as we got into the third quarter, we took a bit of a pause.

Robert Sharps

Yes. I'll just add that we've been pretty consistent in describing our approach to share repurchase as opportunistic, which means that the activity can vary from quarter-to-quarter. We continue to have the same approach where we have every intention of returning excess capital to shareholders through the regular dividend, through repurchases, but also want to maintain a very strong balance sheet, which we think gives us flexibility and optionality around whether it's M&A or the ability to seed and launch new strategies.

For us it is providing the equity behind the CLOs that were mentioned earlier in the prepared remarks, seeding things like the integral funds that we launched through the Goldman Sachs collaboration. Ultimately, that seed capital as the strategy scale will be recycled, but it is a commitment of capital. So we have a holistic approach to basically how we use our balance sheet and how we return capital to shareholders. And as I said, our buyback approach will continue to be opportunistic, but it is our intent to continue to return excess capital to shareholders.

Operator

Our next question comes from Michael Cyprys with Morgan Stanley.

Michael Cyprys

I want to just circle back to some of the commentary earlier on AI. I was hoping you could elaborate a little bit on the AI-enabled workflows. Where that is today relative to where you'd like that to be. Talk about the steps you guys are going to be taking over the next 12 to 24 months. Curious any sort of early lessons learned on that and ultimately, how you see this translating to top and bottom line results at T. Rowe?

Eric Veiel

Yes. I'll take that. This is Eric here. We've invested heavily in our AI capabilities, and I would focus on sort of 2 main areas. First is on our investment process and getting these tools into the hands of our teams so that they can use it across their work to enhance research, synthesize information and frankly, create capacity for the judgment that drives client outcomes. The second area that we're very focused on is value creation for clients and part of that is some of these workflow discussions that you're talking about there.

That work is really important, but to do it really well, you've got to think about your processes from a ground-up basis and really and think about them from scratch. And I was just in an event with a bunch of executives across different industries. And this is a journey that every company and every industry is going on as they think about the workflows that they have. For us, specifically, I think there's a lot of opportunity for some of the things that we do in our middle and back office. And we've engaged in those journeys right now with some of our best people working on those. And they're going to come through over the next kind of 12 to 24 months as we really think thoughtfully about how to improve our processes. So you'll see impact on the investment side, and you'll also over time, see impact on the efficiency side.

Robert Sharps

Yes. I would just add quickly, I think investing in AI is a competitive necessity. Everybody is going to have access to these tools. I think the nature of how their use. The context is really going to be the opportunity to differentiate. And I think we believe, particularly in investments that we have the opportunity to deliver differentiated results. I think if you combine the power of these tools with the insight that our research platform brings into the organization that we really can improve the outcomes that we're delivering for clients. And I'd say we're beginning to see some early signs of that, but it will take time for that to prove out.

Eric Veiel

Yes, it's a really good point, Rob, one of the things I should have mentioned is ultimately what's going to drive differentiation and success here is your data, your proprietary data because everybody is going to have access to the same public sources. We have 20 years of unique research and trading information proprietary to us, and we're reloading that every year with thousands of new research insights, meetings with CEOs and that proprietary data, coupled with our tools, I think, will be something that's special for us.

Operator

Our next question comes from Bill Katz with TD Cowen.

William Katz

So I just want to sort of come back to capital management for a moment. A couple of things aren't really adding up to me. You mentioned that you didn't buy any stock since June, but the stock is down significantly from the July highs. I'm sort of curious as to how you're thinking about value opportunity. But I think the broader question is, as I think about your business model, the active equity book is going down at very high fee rates and probably higher growing margins. You're growing nicely, but small in ETFs and SMAs and you see subscale in the credit platform with Oak kill, even though it's growing a little bit.

Why not more strident in terms of M&A opportunity to potentially accelerate the reshift of the business, particularly given your comments on the target date fund and how that seems the second bit of slowing down, and there will be more aggressive on buyback to help shrink the share count.

Robert Sharps

Yes, Bill, thanks for the question. I would say, first, you could maybe look at the pattern of the share price over the period of time since the end of the second quarter, and I think that would probably inform your answer. There's also a blackout period associated with kind of certain things that occurred during the quarter as well as from the period of time from quarter end until we report earnings. So I think there's really nothing more to read into it than that. In terms of understanding the challenges around active equity and the need to make some of these higher growth areas bigger, but we understand it.

As I said, I view M&A as a tool. I think you can do more harm than good, if you do M&A for M&A's sake. I don't think M&A can be a strategy. We have a very high bar, but kind of where we see opportunity to accelerate our growth in whether it's alts ETF SMA to expand our investment capabilities to reach more clients who are to really garner more share with existing clients, then we absolutely will lean in. The pace of activity in the industry right now is frenetic. So I think there is a lot of potential opportunity.

And our teams are very, very busy evaluating that. But again, we're going to have a high bar. I think to do M&A and do it right, you have to have alignment culturally, it has to be financially compelling. It has to fit with your strategy. You have to be very careful not to disrupt your existing client, your existing commitment to clients. So we understand the question. We understand that the industry is consolidating. And kind of all I would say is that we do have a vision to evolve the business to be bigger in many of these areas that are growing and M&A is a tool that is available where we see a compelling opportunity to deploy it.

Operator

And our final question comes from Patrick Davitt with Autonomous Research.

Patrick Davitt

I have a follow-up on the sequential 4Q flow improvement comment. As you said, October looks pretty bad in the public data we can see. But as we think about December, when I think you typically have some lumpier redemptions and/or planned losses. When do you usually find out about those year-end redemptions when they come through? Like how much lead time do you usually get?

Dorothy Sawyer

Thanks for the question. We typically do see a fair amount of lead time in the short term, around new plan wins as well as planned terminations. And so there's a fair amount of visibility in the quarter around that. And it depends, of course, on the client, it depends on whether that's consultant-driven search, but we tend to get a fair amount of lead time looking for -- in 4 to 6 months would be the approximate time I would give you.

Robert Sharps

Yes. Patrick, I would say there is some variability, particularly right around year-end. And kind of while that can impact the -- our quarterly reported results, I mean whether we get the business the last week of December or the first week of January, kind of really doesn't have much of an impact fundamentally on the underlying business.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.