T. Rowe Price Group, Inc. (TROW) Earnings Call Transcript & Summary

Well, good morning, everybody. I get a lot of slack at T. Rowe Price because often I start the management committee meetings a minute early, and it's a minute early. So should we start or should we wait a minute to get going? So we want to welcome you. My colleagues and I are delighted to be here. This is our fourth annual Investor Day. We're happy to talk about our strategic priorities. I'll talk about our execution against those priorities. Presentation, we think will take about 70, 75 minutes. And we've left about 45, 50 minutes for questions. You are familiar with forward-looking statement pages. Simply says that our presentation today could contain estimates about our future business results that actual results might be different than those, and we encourage you to read the 10-K to learn about the risk before investing. Our agenda, specifically for today, is on this page. After I give some overview remarks, talk about '19 a little bit, talk about strategic priorities for 2020, Rob Sharps will come up. Rob, is our Head of Investments and Chief Investment Officer, and he's going to talk about our progress with performance, within product development, within equity and a bit of an outlook, if you will, about where we're headed. Next up is a really important session on multi-asset. Multi-asset, as you know, is a really big business for us. Sebastien Page leads to that effort. We made an announcement last week about our Target Date strategies, and he's happy to fill you in more on that and other parts of our multi-asset business, too. Robert Higginbotham, you've seen present before, Robert's Head of Global Distribution and Head of Product for us, and he'll talk about how we're distributing through all of our channels and how we're developing product for a global marketplace. Céline Dufétel, our Chief Financial Officer, will be next, and she'll talk about some of the key value drivers for the company, how we're doing with our balance sheet, update on our expense management, our capital management and, of course, the balance sheet. Then all of us will be available to take your questions, along with a few other members of the management committee here today. Thought it might be helpful to talk about the company and the way we present it to clients, and we use this slide just like this with our clients. And it shows that we are a -- think of ourselves as a global investment management firm that we are intensely focused on delivering good outcomes for clients, investment performance and service. We now operate out of 16 countries around the world. We are an independent, publicly traded firm with rock-solid financial shape, significant inside ownership and a stable leadership team. Over the past few decades, we worked really hard to build a global investment platform. That collaborates gets the best thinking of all of our people into our clients' portfolios. It's hard work because of the collaboration piece of it, and we find it delivers real alpha, and we think it's a real competitive advantage. You've seen a slide like this from me before. We've done well as a company for many years, and we think culture is a key reason why. I have it in every presentation I do because I think it's just that important. We are driven by investment excellence. We really work hard to put our clients' interest at the forefront of everything we do. We emphasize collegiality and collaboration across our platform to get the best thinking on the table, and we operate within an environment of trust, and hopefully, mutual respect. Increasingly, as people join us, they have a shorter-term horizon. As a firm, we think and act with a long-term horizon. I can't say we're perfect on each of these elements every day of the week, but I will tell you that when times get tough for us, when our performance might not be what we think it should be, bear markets come along every once in a while, we do fall back on these. They make us stronger and I think they bind us together in a good way. And I also want to highlight that diversity plays an important role in each of these 5 elements of our culture. We believe that our long-held reputation for reliability and for excellence starts and it's made possible by the diversity of backgrounds, prospective skills, experiences, you name it, of our associates. We bring this to light inside of our company a couple of different ways: Attracting diverse talent, developing diverse talent and promoting it within the firm. Developing inclusion, we have 4 business resource groups within our company right now and soon to add more for women, ethnicity, LGBT and military veterans. We provide ongoing training around all elements of inclusion to our leaders, and increasingly, to all of our population. We hold our leaders accountable for goals within their individual business units, and we're making very good progress. So diversity is an essential, and I would say, increasingly central part of our business plan, of our culture and the way we work. We are not as diverse today as we ultimately want to be, I think, like many of our peers in the business. But we are on a journey towards an ever more diverse global workforce and having a kind of inclusion that makes T. Rowe Price an even stronger culture over the long term. Our vision. You've seen this slide from us as well. Our vision is to be a premier global active asset manager. And to be really good at all elements of that. You see some of the elements of that here on the page. Retirement expertise, solutions expertise, strong process as a company and effective controls as we grow larger, more global or complex. We're spending a lot of effort to make our operating platform and processes as strong as possible. Destination of choice for top talent. The new one on the page is ESG and sustainability. All of you are aware of it. It's a key issue in the marketplace. It's becoming more and more of a global issue. And I would just say that we're investing hard here. You'll hear more about it as we go through the presentation, but we're trying to embed sustainability principles throughout the company so that we can be a leader here over the long term. And again, I think you'll hear more from Rob Sharps and others throughout the presentation on this topic. Things have gone generally well in recent years for the firm. As you can see here, our assets under management have grown at 12% compounded over the last 10 years, driven by healthy markets, by the alpha we create on top of that and by the net flows that come in on top of that. We also continue to be very pleased with the growth of our Target Date series, Retirement series of funds. And you can see the orange line there, compounding at 18%, very important business for us, as you know, and we're continuing to invest behind that series of products. If you take a step back even further, this is a long-term view. So our IPO was in April 2, 1986, nearly 34 years ago. And the company's financial performance has been very consistent, and I'd say very strong since then. On the left, we show the growth of diluted earnings per share in the gray line with $8.70 last year, and you can see the dividend line compounding at a nice pace. We raised the dividend last week. That was the 34th consecutive dividend increase. We take great pride in that, and we hope to continue that streak. On the right-hand side of the page, you see compound annual growth rates, 5, 10, 20 and 30 years, and you see net revenues, earnings per share, dividends per share and annualized total stock for holder return over those time periods. Over the longer time period, as you can see, total return basically match the growth in earnings per share, over the 5 and 10-year periods, it did not. Competition has arrived at the doorstep of the asset management business, as you all know, and everyone is assigning a lower P/E ratio to stocks like ours, and that's -- that makes up the difference. We continue to manage the business with a long-term horizon with the goal of achieving growth like you see on this page today. And over the long term, we have a belief that if -- that's total return to stockholders will basically follow the growth in earnings per share for the company. We are, as you know, proud members of the S&P 500 index. So we thought let's compare ourselves to that index overall. And you see here a 5-year look on revenues, earnings per share and dividends per share. So during a period of disruption in our business, we feel like we posted pretty solid results relative to the index overall. You all know the challenges in our business, and we've talked about it pretty consistently, particularly since the financial crisis. On the left-hand side of this chart, we show some of the trends affecting our business. You're familiar with all of these trends. On the right, we show some of the impacts on some of the asset management companies, and that sort of thing. I just want to highlight a few. We all know about the secular shift from active investing to passive investing. Our sense is that though this shift is likely to continue, we think the pace of it is likely to slow when U.S. large-cap stocks have competition for returns, when U.S. large-cap stocks aren't leading the world in total returns. And that period feels like it could be ahead for us. In the meantime, this shift from active to passive has raised the bar on performance and it's lowered the bar on fees. We feel very well prepared to compete with passive in all aspects, and we're going to talk about that throughout the presentation. A second trend here is that distributors are consolidating their relationships. Many of you have written about that. And we understand that. We work with our clients and have been building strong relationships for a very, very long time. It's more important than ever to have deep embedded relationships with your clients. And you've seen us add to our client service capabilities, client-facing capabilities over the last, call it, 4, 5 years, if you will, partly for this reason, to get closer and closer and closer to our clients. Finally, the marketplace, particularly in EMEA is very concerned about ESG. I've talked about us investing hard here. I wanted to mention it again. And again, you'll hear more about it later in the presentation. We're hearing a lot about scale in our business from other players. We're seeing it drive M&A. We're seeing it drive significant investment. We think our scale positions us well to deal with these industry trends within investments, for instance. Our scale allows us to invest in this global platform. We continue to add to our investment teams, and we're really pleased with the way they're coming together. Because of our scale, we have the means to pay for the talent and the capabilities, the quantitative support, increasingly, the big data analytics, if you will, to make us stronger and deliver good investments. We also, as we have announced that we will be paying global hard dollar for research of our P&L. This is the third year of doing that. And so this year fully reflects all the costs from that effort. Within distribution, we can invest in delivering the best service in the world, we can have intelligent marketing and lots of data to help us help our clients better. Skill is also helping us to deliver a stronger global tech and operating platform. I don't want to underestimate this. You'll hear this from others in the presentation, but we have been investing in strengthening that platform. It is a long-term journey. And I think we're making really good progress on that. Nonetheless, we're in the middle of this journey, we're not at the end of that journey. So the other issue about scale is that there's another side to it. Scale makes it harder to deliver outstanding results at scale. We have been working on this for a long time. We have managed our capacity very carefully. We have monitored our growth very carefully. We are continuing to do that. And so we'll always be careful about scale so that we can deliver the best results for clients. Right now, a significant portion of our strategies are closed, and we do that to protect the interest of the existing clients. 2019 was a good year for T. Rowe Price, and we were pleased with the progress we made on a number of areas. We list a lot of them there. I'm not going to go through all of them, but I want to highlight at least a few. We strengthened our investment teams, as I mentioned earlier. We added 9% to our investment teams globally last year. That's a big number. So we're investing hard behind this investment division so it can have more products, and a greater percentage of them that continue to be -- pass the benchmarks. We launched 6 new strategies, including our China evolution equity fund. And after a 6-year review period, we've received final exemptive relief from the SEC for our semitransparent ETFs, and we expect to launch our first round of those in 2020. We also launched in -- we will be launching in 2020, some sustainable products. We have 2 in the marketplace right now. And I think you'll see a continued launch in the SICAV for -- from T. Rowe Price. We continue to generate very high client satisfaction scores in our Individual Investor and our Retirement record-keeping business. We've always had those high client scores there, and they continue. And we're really encouraged internationally in just about all the markets where we operate, that our brand recognition scores are on the rise. So we made good progress around the company. I'm very pleased with it, more to do in 2020. And you see some of those priorities here on this page. There are some evergreen goals here around excellent investments, top-tier talents, continued diversification and that operating and technology platform I talked about. A couple of specific things, though, I want to call out about investments for this year, simply enhancing our retirement leadership through innovative work around retirement income. We read a lot about retirement income. It's one of those things. It will be way -- we thought -- all of us have thought was coming to this marketplace. We feel like it's finally here, and we want to be very well prepared to help our clients here. We want to launch our series of semitransparent ETFs. We want to make sure our middle office outsourcing that we're working with, with an outside vendor, goes well, and we want to further embed ESG principles and build products within that world to roll out over the course of time. So we have, I think, a really solid growth plan for 2020. We have started the year earnestly, off to a good start, and we look forward to managing the company very closely and deliberately through this period. So those are my thoughts. I'd like to bring up next, our Head of Investments and Chief Investment Officer, Rob Sharps, to talk about that. Thank you.

Good morning. It's good to be back here. In the next 15 minutes, I'd like to do 3 things. First, I want to give a detailed review of investment performance where our results continue to be among the industry's best. Second, I'd like to highlight some of our current initiatives to strengthen our investment platforms. And then finally, I'd like to give you an update on some of our strategies that we believe are positioned to contribute to our growth going forward. I think you'll find some of the material familiar and consistent with last year's presentation. But there's also some new content here that hopefully will further your understanding of our approach and our priorities. So with that, I'll jump right into performance. I think the numbers here show that we've consistently delivered value for our clients. 75%, 80% and 82% of our funds have outperformed their Morningstar category over 3, 5 and 10 years. And about half of our funds have outperformed their benchmark over 3, 5 and 10 years. And that's something that I'll go into a little bit more detail on as we move throughout the presentation. If you look at the top 2 lines and combine them, you look at our global equity numbers, you'll see that about 2/3 of those strategies exceed their benchmark over the time horizons presented here. In Fixed Income, you'll see that most of our funds are beating their peers, and while we would like to see more of the funds in the top quartile and ahead of their benchmarks, it's important to note that the performance of these funds compare favorably to passive vehicles, including many of the prominent ETFs in the same category. And when I go into a little more detail on Fixed Income later, I'll come back to this point. At the bottom of the chart, multi-asset, which houses our flagship Retirement Date franchise, you'll see that our results also compare very favorably against the competition. And I would note that they compare very favorably against active and the passive competition. The benchmark metrics here, I don't think are as meaningful. If you recall, passive Target Date offerings don't replicate the benchmark as a result of different underlying building blocks and glide paths. And I think it's an important point to note, given that passive Target Date funds overall are gaining share of the industry, that if you were to do a head-to-head analysis across vintages of our Retirement Date funds versus the prominent passive competitors, you would see that over almost every vintage, our results net of fees are better than the passive competition. And Sebastien will give a much more comprehensive overview of our broad multi-asset capabilities, including the Target Date funds in the next session. We also look at performance on an asset-weighted basis. The AUM-weighted results presented here are quite good. In fact, they're even stronger than the equal-weighted results that we presented on the previous page. These figures are for mutual funds, but they're representative of our performance across strategies and vehicles. So separate accounts, subadvised accounts, models, et cetera. These are directionally consistent. And I think what these AUM-weighted basis numbers show is, that we are delivering at scale across our largest pools of client assets. If we can say that a majority of our clients' mutual fund dollars are invested in funds that have exceeded their benchmark over each of the 3, 5 and 10-year periods, and not on this page, but 84% of our mutual fund AUM is invested in funds that are Morningstar 4 or 5-star rated. I think it's particularly noteworthy that many of our largest funds rank in the top decile in each of the 3, 5 and 10-year periods. So special call out for most vintages of the Retirement Date series, New Horizons Fund, institutional large-cap growth, capital appreciation, global stock fund and communications and technology. So all scaled funds that are top decile in 3, 5 and 10 years.

Thank you, Rob.

That was meant to be the forward button, not the off button. Okay, we're back. All right. Asset-weighted results. Good. Let's drill down by asset class. And start with our largest asset class, U.S. equity. This is a slide that I presented last year as well. It looks at a metric we call success rates, which basically is a measure of how often our funds outperformed their benchmark. But more specifically, this calculation shows the percentage of our funds that have beaten the benchmark in more than half of the monthly observations enrolling 3, 5 and 10-year periods. So for this analysis, we used all of our U.S. equity mutual funds that have at least a 20-year track record, and 89%, 16 of 18, outperform in more than half of those observations. I think the basic conclusion here is that our mutual fund investors are getting a better outcome than they would if they invested in a passive portfolio most of the time. And you'll also see at the bottom half that it's by a meaningful amount, especially when compounded over longer periods of time. Across mid- and large-cap U.S. equity, it's about 100 basis points average annual excess return, and for small cap, 200 basis points. So moving from U.S. equity to international and global equity, I would say that our international and global equity teams are also performing at a very high level. If you look in the bottom left of this chart, you'll see that -- or bottom right, I guess, as you face it, you'll see that a remarkable 95% and 98% of the AUM and our international and global equity funds are in funds that outperform their benchmarks over 5 and 10 years. We have differentiated results across this platform, whether it's strategies focused on single countries like Japan, regional strategies like Asia opportunities or Latin America or multi-region strategies like international small-cap growth, global focused growth and global emerging markets. All of those strategies have very consistently outperformed their benchmark and deliver better results than their peers. I'll spend a little extra time on Fixed Income. I think our story in Fixed Income is a little less straightforward, but is a positive one, nonetheless. I emphasized last year that global Fixed Income is a priority for T. Rowe Price. I think it's an area where we have a substantial opportunity to grow over time. We are building momentum here. We're building on our historical strength in corporate and sovereign credit research by deepening our capabilities in several areas, including macro and quantitative research, derivatives, currencies and risk management. And as I said at the outset, I would like to see a greater percentage of our bond funds ahead of the benchmark. But I would note that on the right side of this slide, that you'll see that a much higher percent of our composites are outperforming the benchmark than the funds. Part of the reason for that is that a number of our funds don't have neat matches from a benchmark perspective. A lot of them are very specific funds, Maryland muni fund or have a very specific duration mandate. And if you look at the benchmarks that they're compared against by their prospectus, ultimately, the fit isn't great. The fit with the composites is much better. Additionally, as I pointed out last year, benchmarks and fixed income are difficult to replicate. You can't invest in the benchmark. And the benchmarks don't appropriately cost for transaction costs. So what investors can actually invest in, passive funds or ETFs, often fall short of the benchmark. And we did an internal study where we tried to match the most appropriate passive offering, including ETFs relative to our funds. And what we find is that about 70% of the time, our fixed income funds outperform. If you drill down by sector, we have very compelling results in noninvestment grade, both high-yield bond and bank loan, domestically and globally in the high-yield bond category. We've also established a lot of performance momentum in some big categories, including U.S. and global core and U.S. investment grade. There are a handful of sectors where our results are lagging right now, municipal bond, unconstrained bond and emerging market sovereign. But I would point out that I think we have a lot of confidence in the teams and the process behind those, and are confident that they'll deliver over time. So I'm going to shift away from performance and start to drill down a little bit with regard to our recipe for success. And I'd say the 2 key ingredients are experienced talent and a collaborative long-term oriented culture. You'll see here, and as Bill mentioned, that despite continued pressure in the industry and retrenchment from many of our active peers, we continue to invest in talent. We've added over 50 investment professionals around the globe since I updated you last year. Total investment professional counts 661. And I'll assure you that while we're growing, we continue to remain exceedingly selective in our hiring. We believe we're a destination of choice for top talent. We follow our offer acceptance metrics as well as our investment professional retention, and believe that we are best-in-class. I will say that we've had to adapt our recruiting approach, as fewer MBAs are pursuing careers in investment management. Our directors of research have been very innovative in growing our associate analyst program, looking at new approaches to attract diverse talent and doing some increased lateral hiring. Thanks to the scale that Bill referred to earlier, we're able to invest to develop capabilities to support our investment professionals and enhance our investment process. I'd like to highlight 3 of these areas: corporate access, equity data insights and ESG. First, corporate access over the last 3 years, we've built robust internal corporate access functions in Baltimore and in London. And this has proven to be a great resource for our investment professionals. It's not meant to supplant the sell side, but basically to supplement the access and meetings arranged by our sell-side partners. But it is something that's been embraced by our platform. And in 2019, these internal teams sourced over half of our nonconference meetings. This year, this team has organized and is sponsoring 2 buy side only conferences in partnership with 3 other firms. So we should learn something from that as well. Shifting to equity data insights. This team continues to grow. If you recall, this is a team of dedicated investment professionals and data scientists that are focused on using big data to augment and supplement our investment decision-making, whether it's a security selection process or a portfolio construction process. I'd say the internal demand for this capability has continued to grow. Our investment professionals have really embraced this capability. And over the last 2 years, our platform have worked with this team on over 100 different projects. And finally, ESG, an area that I will spend a little more time than the others, given our expanded efforts, I would say, substantial progress and heightened client interest. So we have a dedicated team of governance and socially responsible investment professionals who sit in Baltimore and in London, and partner closely with our portfolio's -- our portfolio managers and our analysts to incorporate ESG factors into their decision-making. Over the last couple of years, this team has developed a proprietary model, affectionately called RIIM, which stands for responsible investing indicator model. It draws on a variety of ESG data sources and enables our investment professionals to systematically identify securities where there are elevated ESG risks or where a business model of practice is particularly well situated to benefit from sustainability trends. The RIIM model covers over 14,000 securities from both corporate and sovereign issuers. It is embedded in our research database, which gives our analysts and portfolio managers, direct access to this framework. Our approach to ESG investing also emphasizes stewardship. In 2019, our investment professionals, analysts and PMs held over 650 engagements with executive management teams addressing environmental, social or governance issues. We typically engage with companies when we're convinced that an ESG issue will influence our investment thesis and could potentially alter our conclusion. And I think this is a distinct difference from passive investment managers who generally pick engagement themes and don't really have the ability or flexibility to change their exposure. Our experience and feedback from clients suggest that an engagement program that informs actual buy and sell decisions, resonates with clients who prioritize ESG integration. But we've worked hard over the course of the last couple of years to integrate ESG into decision-making across our investment platform, and now we're developing strategies that bring this work front and center. We've actually had a long-standing practice of managing socially responsible portfolios for our separate account clients. It's about 6% of our AUM right now. And as Bill mentioned, we're launching commingled vehicles that leverage this capability. Real-time, we've actually launched 3 of our sustainable in -- 3 funds in our sustainable fund to SICAV range, and we intend to launch 2 additional later this year. We're also carefully evaluating opportunities to meet client need and interest with impact investing and other SRI portfolios. Shifting from ESG to ETFs. As most of you are aware, late last year, we received final exemptive relief from the SEC for our application for semitransparent active ETFs. We've filed the registration statement and prospectuses for the 4 flagship equity strategies that we intend to include in our initial launch. We filed a 19b-4 trade rule with the trading and markets division of the SEC and expect it will be ruled on within 270 days of the initial filing. So if you take a step back, I think ETFs are largely an extension of things we already do well. That said, they do require some additional expertise, particularly in the area of capital markets. And as a result, we brought on Tim Coyne, who's with us here today. Tim has 2 decades of experience with ETFs at exchanges and issuers. And Tim will be responsible for leading not only our initial launch, but also developing a road map of ETF strategies across asset classes, including fixed income. So a quick conclusion here, we're very excited about the long-term opportunity presented by semitransparent active ETFs. And we're also committed to trying to pioneer this market, to delivering the education and thought leadership to the market to try and win the hearts and minds of ETF users who have traditionally been more focused on passive or smart beta strategies. This is another slide that should be familiar to most of you. Something that we've shared during past investor days that show the strategies in our current lineup that have a combination of strong performance and meaningful capacity runway. I just note here that these include both newer strategies like emerging markets corporate bond and U.S. high yield, which just crossed 5-year track records, and established strategies like U.S. equity dividend growth, and Japan equity, which have been around for decades. And it's important to note here that Fixed Income and international global equity are well represented. I believe we've invested in our platforms and have the opportunity to manage much larger base of AUM in those investment divisions. We also have a pipeline of recently launched strategies that are building strong track records and a number of strategies in development or under consideration. Now I'll just conclude by saying we are investing and adding capabilities in anticipation of evolving client needs. We prioritize maintaining a culture that attracts top-tier investors, and focusing on the long-term in an effort to deliver great performance. As Bill said early in the presentation, investment excellence is at the heart of everything we do. Thank you. And with that, I'll turn it over to Sebastien.

Today, I want to emphasize 3 takeaways with regards to our multi-asset franchise. First, we are a leader in this space. Second, we relentlessly focus on investment performance. And third, we continue to invest in our business to diversify. 3 years ago, I presented our business plan at a similar Investor Day. So let's review progress and next steps. The gray area on this slide shows the evolution of our assets under management for our multi-asset franchise over time, starting in 1990. Clearly, we've benefited from strong market returns. But the growth pattern here goes way beyond market appreciation. We now manage $360 billion across 200 different multi-asset strategies and vehicles. We are the largest provider of active Target Date funds. How have we achieved this success? First, excellence in distribution. You'll hear more about our distribution capabilities from Robert, but clearly, they've been a factor in our success. Second, innovation. On that chart, you see on top of the gray area, our product launches historically. It shows that innovation has accelerated in our division. We now have, for example, robo capabilities. We have alternatives, liquid alternatives capabilities. Third factor for our success, of course, the most important factor has been our investment performance, the ability to deliver superior outcomes to the end investor. Rob talked about our performance, and he showed performance relative to benchmarks and relative to peers. He explained how comparisons to benchmarks in multi-asset space aren't always relevant. Ultimately, the strategic asset allocation decision is an active decision. So this chart focuses on performance relative to peers, and it emphasizes consistency in the performance. Let's look at the top row and go to the middle. It's a 92% number there. This number means that since 2002, in our retirement funds, we have outperformed our peers in 92% of all possible rolling 5-year periods. The rest of the chart shows that we get these types of results at different time horizons as well as on a risk-adjusted basis. Consistency is key. So how do we achieve that consistency? Through 3 sets of investment capabilities: First, strategic asset allocation. We have designed an industry-leading process to position portfolios for superior long-term risk-adjusted performance. Second, tactical asset allocation. We take advantage of relative valuation opportunities across markets with a 6 to 18-month horizon, and we account for macro factors, policy factors, sentiment, fundamentals and so on. Third, the security selection capabilities. We allocate to actively manage T. Rowe Price building blocks. So we give the end client access to the entire investment platform that Rob just described, the 661 investment professionals. So we give clients, in multi-asset space, access to all of T. Rowe Price in one vehicle, one strategy. Importantly, the integration of those capabilities is key. At T. Rowe Price collaboration, the way we collaborate, is our secret sauce, if you will. So suppose we want to decide whether we should overweight or underweight emerging markets equities. We'll look at top-down macro factors. These days, we'll look at the impact of the coronavirus. We'll look at China's stimulus response. We'll look at U.S. monetary policy. At the same time, we get input from our analysts on the ground from their one-on-one CEO meetings, what do they hear from CEOs in China, for example, about whether they're planning to invest or pull back. So what we've built here through our asset allocation committee is very hard to replicate. It's a seamless integration of top-down and bottom-up active management. Each of the capabilities stands on its own. It adds value over time. This chart speaks to, again, consistency. It shows the percentage of times a single capability has added value on rolling 3, 5 and 10-year horizons. In investments, nothing works all the time. The key here is that these are diversified sources of value add. They make our process consistent and replicable over time. This consistency adds up to significantly better outcomes for the end investor. Suppose that in 2002, you invested $100,000 in our retirement 2030 fund. And suppose that at the same time, your friend invested the same amount, $100,000, in the S&P Target Date index, which represents the average allocation for our peer groups. By the end of December '19, you would have accumulated an extra $79,000 relative to your friend. That's the orange area that shows our value add. Of that $79,000, $52,000 would have come from strategic glide path and diversification decisions, 27,000 would have come from active tactical and security selection decisions. This is what we do. This is our why: to deliver better outcomes to the end clients. So overall, our multi-asset business is in a position of strength. Good distribution, innovation and a proven investment process. However, we are facing competitive pressures in our core business in the U.S. Retirement space. To respond to these pressures, we've put in place a strategic plan comprised of 3 pillars, which I introduced 3 years ago at Investor Day. First, maintain our retirement leadership. We must continue to deliver strong performance to the end client. We continue to invest to refine and improve our strategic and tactical asset allocation decisions. And you've heard from Rob that as a firm, we continue to invest to improve our overall investment platform. Second, globalize our business. Competitors of our size have about 20% to 30% of their multi-asset AUM sourced from investors outside the U.S. That percentage is much lower for us, and that is an opportunity. You'll hear from Robert that we have broad, world-class distribution capabilities. Third, broadening our solutions capabilities. By solutions, we mean advice and custom portfolios. Broadening our role as trusted adviser to investors. And also transforming the way the entire firm engages with professional buyers globally. These 3 pillars of our strategic plan are well integrated, as I will show. So it's a simple, focused and integrated strategic plan. Now let's review the progress and next steps, and how have we done over the last 3 years, basically. And where do we go from here? First, let's take the Retirement pillar of our strategic plan. It's clear that some planned sponsors and end investors, some prefer higher equity allocations, while others prefer lower equity allocations. At the same time, investors have different preferences for how they want to mix active and passive capabilities. We are now a full-scale solutions provider in our core Target Date fund business in the sense that we filled out that matrix with a range of products and solutions. Not shown here is that we've also launched custom or open architecture capabilities. We've launched the first of a series of Retirement Income solutions and there's more in the pipeline. Of note, the Retirement Blend Trust was launched in February 2018. So that's recent. It now has $4 billion in assets under management. This might be the firm's most successful product launch ever. 40% of the flows have come from existing clients that were in other products and 60% from new clients. I saw a survey of consultants and advisers recently that predicted that the demand for blend, Target Date strategies would outpace the demand for strategies that 100% invest in index building blocks for passive strategies by 2x. So in addition to delivering strong investment performance, this is how we maintain our leadership in our core business by expanding the capabilities. The second important thing to mention about our Target Date funds is that in our core products, we continue to innovate as well. So we've announced in the press release last week that we are adjusting our glide paths. We're enhancing them to improve expected risk-adjusted retirement outcomes. We've also announced that we are reoptimizing the strategic asset allocation for our equity portfolios. We're adding an emerging markets value, building block, as well as a new core U.S. equity building block. And third, we've introduced a top-level pricing methodology, which is going to give us a lot more flexibility. You'll hear more from Céline about this, but it's going to make us a lot more competitive. The takeaway here for our core business is that we're stepping up our game in how we compete in that marketplace. Our second pillar is to Globalize. Since I presented at Investor Day 3 years ago. We've established solutions teams in the U.K., in Hong Kong and in Japan. Our global allocation fund, CCAF, has reached its 3-year mark for its track record. It is in the top percentile of its peer group. We've just launched a local multi-asset strategy with a partner in China. Our Target Date funds in Korea are growing steadily, 50% growth in AUM last year. And we've just launched a multi-asset global income CCAF product aimed at the strategically important global retirement market. Now to globalize our business, clearly, our solutions capabilities are the key enabler. So let's look at that pillar. Over the last 3 years, we've had 1,500 engagements with clients and prospects globally, providing advice and thought leadership. We've delivered 450 studies. Providing advice on asset allocation, manager selection, risk management and so on. Those activities have led to increased flows in off-the-shelf existing T. Rowe Price products based on our advice, single-asset class and multi-asset class products, as well as the launch of 35 new custom portfolios and strategies in the multi-asset space, specifically. Importantly, this year, for our solutions business, we're revitalizing our target allocation franchise. The flagship target allocation portfolios have a 30-year track record. They're celebrating their 30th year this year. There's -- about $21 billion, stable AUM based in that -- in those products. We want to give access to clients to these capabilities in different ways through a Solutions model. So of course, we'll continue to offer the [ 40F ] vehicles, but we'll also offer other vehicles. We'll offer asset allocation model portfolios, which are quite popular in the intermediary space. And then we'll even offer those capabilities in the form of advice. And this is working well so far. We've just launched a series of models and investments platform. And without a track record, which is highly unusual. We got assigned a bronze medal from Morningstar. And the reason was that we got credit for the process and a 30-year history in the flagship portfolios. So key this year to our solutions initiative is to revitalize this target allocation franchise as well. But the main takeaway for this presentation is that most active managers as well as low-fee passive providers will call themselves solutions providers. It's a buzzword. But to pull it off as a world-class solutions provider, one needs all the building blocks and the track records that provide credibility. These are significant barriers to entry. Our platform is our competitive advantage in the solutions space. When I joined T. Rowe several years ago to lead the transformation of our multi-asset franchise. I was like a kid in a candy store, looking at all the strategies and how they're almost all 4 or 5-star rated by Morningstar. That's our advantage. How many firms have platforms like this? Maybe a handful. Now let me ask how many firms have the right collaborative culture to pull off a dominant position in the solution space. You need the right collaboration culture because when you're in the solutions business, you're aligning all of your firm's capabilities to meet specific client needs, less than a handful in my mind. Perhaps that's us. Again, the platform is key and the collaboration in how we organize those resources to meet client needs is rare and difficult to achieve, and we're really proud to have done that. So we are a leader in the multi-asset space, but we are facing pressures, especially in our core business. To respond to these pressures, we have a simple, focused and integrated strategic plan focused on 3 pillars: maintain our leadership in the retirement space, globalize our business and broaden our solutions capabilities. 3 years later, we're seeing a lot of wins from this strategy. But importantly, we're now positioned in a less concentrated way in our marketplace, and we're better positioned to compete across multiple channels. And from here, we'll continue to focus on investment performance, the outcomes to the end client and innovation. Thank you. I'll turn it over to Robert now. Thanks.

Good morning, ladies and gentlemen. My name is Robert Higginbotham. I'm responsible for global distribution and global product at our firm, I've also got my colleague, George Riedel, who leads our U.S. intermediary business. So George will be more than happy to answer questions if you've got -- particular questions around what we're doing with U.S. intermediaries. I'd like to talk you through a few key points. Firstly, we believe that we're well positioned against all of the key trends in the marketplace. And that we are well positioned for all of the major areas of the major asset pools in the world. We believe that we've demonstrated good net organic growth in the recent past. We believe, as Bill mentioned, a scale, if it's well managed, is a critical competitive advantage both for our clients and for our business. And then over the last 3 or 4 years, we've laid out plans to you about how we're looking to grow the business. And essentially, we're looking to carry those plans on in 2020 and 2021. So we've laid out our plan and our strategy by geography, by client type, and we're looking really just to continue to execute those. So I said that we were well positioned against the major market trends. Bill outlined some as they impact asset management firms in general. These are some -- many of which are consistent with what Bill talked about, but also some which focus more on what we're seeing from a distribution and client perspective. I won't take you through all of them, but I'll pick up 2 or 3 specifics. The first one I'd call out is the increasing demand for vehicles. You've heard from Rob and from Sebastien about the breadth of our investment capability. That clearly is the heart of our value proposition. But we also have to be able to deliver that in the form that meets the needs that the client wants, given their regulatory tax jurisdictional needs. And we believe that we've got the scale to do that. We've done that to enable all of our distribution businesses, and I'll give you more of a summary of that towards the end of my remarks. Secondly, we've talked about the growth around the world, but particularly outside the U.S., as growth has moderated here. And as you will have seen from our results and as I'll take you through, we're pleased with the progress we're making in EMEA and APAC, and we think we're well positioned to continue to that -- to see that trend continue. And then lastly, the institutionalization of buying power. And what I mean by that is really 2 facets. One, we are definitely seeing a significant part of the world, get more sophisticated in its buying of asset management products. So with our institutional heritage, we believe that we're well positioned to respond to that increasing buyer sophistication. And then secondly, as we are seeing some larger and larger distributors appear, whether it be in the institutional markets with outsourced CIO services or whether it be in the intermediary market with large or growing either regional or global distributors, they want to have a partner that is invested in the scale to be able to respond to the needs that they have. And frankly, also to be able to respond to the pricing and the vehicle requests that they have for them to be able to continue to grow their businesses. And we believe that the footprint we've laid down, leaves us well positioned in that regard. So this slide really serves 3 purposes. First, it will give you the structure for my remarks as to how I will talk about our businesses. Second, I believe that it is demonstrative of probably one of the broadest global distribution platforms anywhere in asset management. And we believe that, that is a significant competitive advantage for us, and I'll explain to you why that is. And thirdly, it is also another example of how the scale of the firm that we have, if it's well managed, we believe, is a competitive advantage for us to be able to build out the breadth of this distribution model requires significant scale and resources over time. So let me give the context around AUM growth. Bill showed you the numbers which had that 12% compound annual growth rate that you can see on the right, the main points I want to draw out of this slide is, firstly, it's been sustained growth. Secondly, it's been diversified growth. We have a number of businesses here that are more than $100 billion in size, none of which is immaterial. And thirdly, if I just ask you to apply industry standard persistency or redemption rates to $1.2 trillion of AUM. Whilst we don't talk about this data very often. If you work out the math on that, it means that we have a distribution team that has to generate something like $200 billion a year of gross new business in order to deliver the net new business numbers that you can see. $200 billion a year when we wake up on the 1st of January, that's the size of a midsized global asset management firm. And that's the scale and capability that we have. So if I then take that through to net organic growth and net flows, which is clearly a key data point and derivative that we often talk to you about and that you will look at. On the left-hand side of the chart, you can see that broken down by region. You all know our AUM split between U.S. and international. You can see that over the last 3 years, our growth in EMEA and APAC and also Canada has been somewhere between 40% to 60% of our net organic growth over the last 3 years. So if we continue to do that, we're confident that the AUM split will continue to move in the right direction and will generate a more diversified business. And on the right-hand side, as you look at the chart, you can see the breakdown by channel. And overwhelmingly for the last 3 years, all of our key businesses have contributed. And you can also see that which businesses have contributed at various points in time has changed, but that's one of the key benefits of having the diversification that we have. The one exception being our bundled defined contribution business, and I'll come on to talk about that in a few minutes. We often get questions that I would regard as slightly more thematic rather than around individual specific businesses. So hopefully, this content here will help you just understand some of those more thematic questions that you often raise with us. First one is around the breadth and depth of our U.S. intermediary business. We have traditionally been, if you go back 5, 7 years ago, we were more of a home office or wholesale-oriented intermediary business. Sometimes that perception continues. We have done a lot to diversify our U.S. intermediary business by building out our platform coverage with Schwab, Fidelity going NTF, as you know, in 2016, building out our RIA and our broker-dealer coverage, so we have more coverage of the broad adviser base in the U.S., not just the home office environment. And that progress that we've seen over the last 3 years has been very pleasing and is substantial as part of the U.S. intermediary business we have. Our retention rate, we believe, is a key advantage of ours, the ability to manage down redemption rates, particularly as we see competition increase. Often that is ascribed to our bundled defined contribution business. That's no doubt, one of the advantages, which I'll talk more about, but also our direct retail business with $190 billion of AUM and very low redemption rates is a significant benefit for the firm. Our institutional business typically brings more stability. And within our U.S. intermediary business, our U.S. variable annuity business also adds stability. So we have a broad base of relatively stable businesses that add retention power at the group level. And we also have a strong retirement franchise. We've talked a lot about that, and I'll talk about that again in a minute. And often that is ascribed historically to our bundled DC business. But actually, our defined contribution investment only business across our intermediary and institutional businesses is a significant part of our total firm assets. So again, giving us breadth that sometimes is not fully understood. And that's a good jumping off point, if I may, to talk about the last thematic element before I go into individual businesses. I think there's little doubt that the retirement market in the U.S. is the single largest opportunity, both in terms of stock and flow of assets in global asset management. I talked about how I believe that we have one of the broadest distribution franchises in the world. And I think no more -- nowhere is that more true than in the U.S. retirement business, which is that largest single opportunity. And you can see that depicted in both structure and data on this chart. And I would really call out 2 elements to this chart. First and foremost, you need a number of discrete component parts. You need channel coverage to make sure you can access all of the individual pools of retirement flow and assets. And you need, as you can see on the right-hand side, all of the range of available vehicles to enable our clients and their advisers and consultants to access that investment capability in the form they need it. So all of the discrete parts are necessary. We have those, and we have them to real scale and market presence, but also the interaction of those discrete part is as important. So if you think about our de-bundled-defined contribution business, for example, when we see underlying retail investors roll over, we have our direct retail business that can capture that rollover effect. And the flow that we get in that transfer is a material part of our overall flow for the firm, but particularly for our direct retail business. It also goes the other way. If we get a plan to deconvert. So it goes unbundled from having record-keeping and investment management combined. And the record-keeping may go to another provider, we have an ability to capture those assets through the investment-only channels that we have, whether they be institutional, with their consultants or advisers. We have that distribution platform. So the interaction, not only of all the individual discrete parts. But having them all working in tandem is an important competitive advantage, we believe, for our firm in the largest opportunity in global asset management. Let me go through some of the discrete parts. If you recall that chart I showed earlier that laid out how we think about our distribution businesses. Firstly, U.S. intermediary, as you saw on our AUM chart and on our net flow chart, it's our single biggest business. We have laid out over the last 3 years, our plan, as I said earlier, to build out our adviser coverage. We're very happy with how that's going. We're happy with the growth that we've seen NTF since we did that in 2016, and we're now getting a strong and stable level of flows through the platform businesses. But we are also investing in a significant part of other capabilities as we build out that adviser coverage. We need broader marketing capability, we need greater use of data and technology to enable us to both identify and then better service the advisers that we're dealing with. We need more than just investment product. We need to be able to give tools and services to the advisers to help them build their business and do franchise management or practice management on their behalf. And George and the team have been doing that, and you can see the market presence we have in all of those channels, which, we believe, is strong today in areas where we've got long-term history and is growing and has already made significant presence, both in terms of our market position, but also the contribution to our net flows. As happened with Rob, the next slide has gone blank. It was around our Individual Investor and Retirement Plan Services business. These 2 form an important part for us. Not only do they add stability, as I said earlier, they're both substantial businesses in their own right at $191 billion and $128 billion of AUM. They are service-oriented business, more than some of our directly investment-driven businesses in intermediary and institutional. Bill talked about how we use the scale that we have to continue to invest in new capabilities and services. And you can see those Net Promoter Score numbers, which, when we benchmark those relative to our peers in each of those businesses, are highly, highly competitive, and we focus a lot on continuing to drive client satisfaction in these channels. The other benefit, as I described earlier, is that there's a significant interplay between these businesses as we get rollover capture into our direct retail business, and we get IO capture into some of our other businesses. I did refer earlier to the net outflows we're seeing in our bundled-defined contribution business. And you can see, we've essentially seen one trend, which is at the larger end of the client book. We've seen an outflow of assets. We have been building up our small market and mid-market coverage channel to offset that. We do benefit from higher capture of proprietary assets in the small and mid-market. So that is a good offset, but in 2017 and 2019, it wasn't enough to offset some of the outflow we saw at the larger end. We talked about our international growth, EMEA and APAC. I would call out a few key markets. So in EMEA, we've always talked about our key markets being U.K., Germany and Italy. They continue to perform well for us. In Asia, we have key markets, particularly in Australia and Japan, and I'd like to highlight really Japan. You will have seen mention of some of our flows into our locally-domiciled investment trusts. That's really just the tip of the iceberg. We started 6 or 7 years ago, moving from a model where we were almost entirely working with a joint venture in Japan, and in fact, that joint venture was itself a joint venture to other Japanese businesses. So working with a joint venture of joint ventures was never going to lead us to us owning our own business in the long term. So we started with the full knowledge and cooperation of our joint venture partner to build out our own direct access to the Japanese market. So that's building out distribution coverage, but it's also building out a product range. And you saw last year that we got over $1 billion of flow into our new Japanese locally-domiciled investment trust. The other thing that we're particularly pleased at is that we actually won our first domestic Japanese client in domestic Japanese equities. So we are clearly putting our roots down in Japan as a proper local manager, not just operating via a joint venture, and that's been a transition we've been managing for the last few years. I talked about the importance of our product range. This is a chart, much of which the data you've seen before. Essentially, it's meant to reinforce 2 points. One, we have the scale to build the platform to match the distribution strategy that we have, which, in turn, is linked to where we believe the largest asset pools are. We believe in building out the infrastructure that we've got, that we are largely complete in terms of all of the key building blocks around the world. But we also believe that another significant benefit of scale is the seed capital. You can see there, $1.3 billion invested. Not only does that help us get capital into a product, which we believe is good for our clients by getting the product up to some good critical mass early days, it also allows us to see a lot of new capabilities and get ahead of where we believe the client pool of demand is going to be. And at $1.3 billion, we believe that's a significant competitive advantage of scale. So as T. Rowe -- Thomas Rowe Price said 83 years ago, if we look after our clients, they will look after us. We continue to have that as the primary way in which we manage our sales teams and our distribution capabilities. We do believe we're well positioned against the key pools of global demand, and we believe that we've demonstrated that by generating good net organic growth over the last few years. And we do believe that scale, that's well-managed, is a serious competitive advantage, whether that be in seed capital, building out the product platform or building out client coverage in a number of parts of the world. So I'll look forward to having any questions you may have. Otherwise, I'll pass on to Céline Dufétel, our Chief Financial Officer, to take you through the finances of the company.

Everyone. As you heard from Bill in his opening remarks, and as all of you know, we've had a very long and consistent track record of strong financial performance and good value creation for our stockholders. And as all of us here, we're collaboratively to sustain that trajectory going forward. There are 4 themes I wanted to touch on today. The first one is talk about how we're continuing to drive that diversified and sustainable growth. As you see here, and as you know, 1.4% over the course of 2019. The second thing I'll talk about is how our established approach to pricing continues to be an important strategic lever for us to drive both AUM retention as well as attracting new clients, and I'll talk about some of the recent decisions around the Target Date franchise, for instance. Third thing I'll talk about is how we're continuing to invest in the firm. Obviously, to drive growth, while we're also carefully managing expenses as we work to sustain the high non-GAAP operating margins that you see on this page on a 1-year and a 5-year basis. And then finally, I'll touch a little bit on how we continue to drive strong returns of capital to stockholders over time. So first, driving organic growth. Our organic growth target remains unchanged at 1% to 3% of AUM, which as you heard from Robert, represents generating gross sales in excess of $200 billion a year for our teams. Very important, though, our focus is really on making sure that the sources of that growth continue to be sustainable and diversified and that we're able to renew them over time. We're very pleased to have half of our net flows over the course of 2019 come from outside the U.S., which is enabling us to continue to diversify the client base of the firm. But we're also equally pleased with our ability to continue to generate positive organic growth in the U.S., which obviously is the strongest area of pressure for passive and obviously, for us in U.S. equities. So as we started 2020, we continue to feel good about the demand for our strategies and our approach to active management. As we look across our different distribution channels as well as our different geographies. The second theme I wanted to touch on today is pricing. So for many years, we've cultivated a very thoughtful and strategic approach to pricing, and we continue to view pricing as a very important capability and a very important strategic lever both to drive new opportunities for the firm, but also equally important to retain our existing clients. And the 5 of us presenting today as well as other leaders of our investment divisions and our distribution channels we collectively spent a lot of time on all of the pricing decisions that are made across the firm. Our long-standing approach is grounded in a number of important guiding principles. First, among which is to make sure that we have reasonable pricing for the alpha we generate for our clients. And equally important, that we also treat all similarly situated clients fairly. As illustrated on the chart on the left-hand side of this page, we start from a very reasonable position. With over -- with 80% of the assets under management in our mutual funds in the top 2 pricing quintiles as defined by Morningstar, relative to our peers. That being said, pricing is evolving quickly in the industry, and we want to be able to stay ahead of industry shifts and also adapt to client preferences, which have led us to make a number of decisions around offering new vehicles and offering new pricing structures, those 2 being often intertwined. So I'll touch on 3 examples of that. And the first thing I wanted to say, which is quite important, which is, when we've made these decisions, there are ones that have been mutually beneficial to our clients and to the firm. And that's quite important. So if you think about Commingled Investment Trust, CITs, we've enabled clients to benefit from their scale. While driving what has been very strong asset retention for the firm in our core and very strategic retirement franchise. With the launch of the semitransparent active ETFs, we're going to enable clients to benefit from greater tax efficiency and a lower total expense ratio. While on our end, maintaining our advisory fee and also finding new sources of growth as we try to distribute these ETFs in clients and advisers that historically have had more of a preference for an ETF vehicle over the mutual fund. And then last but not least, last week, as you know, we announced the restructure of the Target Date fund series from a pricing perspective. So that decision will enable us to pass on some of the benefits of our scale to our clients, we're going to be giving them a fixed fee, which is independent of the asset allocation changes or the underlying building blocks. And then from our standpoint, we are going to benefit from a more flexible strike -- pricing structure, which we can control. And also, frankly, an even more competitive pricing position as we lower the total expense ratio on some of the funds. So here, you see 2:7 basis point lower total expense ratio for the Retirement Date I Class. And we think this is a decision that will continue to help us drive our market share, whether it's through retention or the acquisition of new clients. The third topic I wanted to touch on today, was the investments we've been making across the business. And obviously, we're making them towards the kind of sustainable growth that I started my remarks with. We're pleased with the results that we've been able to yield from these investments. In 2019, as you know, we had slower than we had initially planned non-GAAP operating expense growth, which was really driven by what happened at the tail end of 2018 and then early in 2019 from a market perspective, which led us to a slower pace of execution, which in turn translated into slower hiring and lower professional fees across the firm. This year, we're starting from a different point early in 2020. We had strong equity markets run up at the end of 2019 into the new year, which, as you know, has an impact on -- about 1/3 of our expenses that are primarily driven by the levels -- our levels of assets under management. We also start the year -- we're confident that markets are supportive and also some of the -- we carry some of the execution momentum with some of these projects that we had delayed early in 2019 and then accelerated on the back end of the year. As always, though, our budgeting approach is one that remains flexible. And as you saw in 2019, we flex what we had initially planned to do, which allows us to either reduce or accelerate our pace based on both how well we think our investments are doing and also how supportive markets are. So where are those investments going? In 2020, we'll be making investments really across the firm. The top 3 boxes on this page outline what will be the vast majority of our investments. Investments, distribution and then technology and operations. Rob and Robert have touched on a lot of the areas in their organizations, where we'll be making some of these investments, ESG, ETF, our expansion in APAC and EMEA and the broker-dealer channel. And then in a minute, I'm going to talk a little bit about technology and operations and where we are there on our road map. But before that, I was going to touch also on the 3 boxes at the bottom of this page. So Bill in his opening comments talked about the increasing complexity as a firm as we operate in new geographies with more vehicles, different strategies and that's one that obviously has an impact in -- on us in terms of making sure that we globalize our shared services across the firm to support the business, comply with regulation, everywhere where we do business, of course. And of course, have the right controls and the right controls and operations to support the business. Finally, Research. Bill mentioned this in his remarks as well. 2020 is the last year of our 3-year phased implementation or paying through the P&L for all of our costs of external research. One thing I want to mention here is that this is really an important decision, not just for us but for our clients, one that gives them greater transparency and lower transaction costs. And it's yet another way that we are sharing some of the benefits of our scale with our clients which, in turn, makes us a competitive and a compelling partner for our clients. So technology. Technology has been an area of important strategic spend for us. We are entering the 5th year of our journey to modernize our technology broadly across the firm. In order to be more agile, more secure, but also more cost-effective, while we support the investment of our distribution and investment teams and their agendas. A word of caution here, technology investments are never done. As all of you know, there's always something new to be pursuing. That being said, we have a number of foundational programs that have been launched over the last few years that we expect to conclude towards the end of 2021 and in early 2022. These foundational programs span across our fundamental office, some distribution and client-facing capabilities as well as relating to our core infrastructure. So for example, in the front and middle office, we've been setting up a team, supporting our equity data insights, which Rob touched on, we've been enabling further use of derivatives that scale for investment teams then you've heard us talk about in the past, the outsourcing of our middle office, which is also a big technology initiative on our end, in addition to -- for our vendor. And then from a distribution client perspective, we've had quite a few efforts to digitize and personalize the client experience, that's more in the individual investor and the Retirement Plan services business. And then from a broader distribution perspective, making sure that we have a modern integrated marketing and distribution technology stack to better target the right opportunities with clients. So in parallel to investing for growth, though, we've also been increasing our expense management discipline. This is what makes me very popular at the firm. And we've done that through our 3-year strategic and financial planning process. We've installed strong budget discipline and accountability, and we're trying to continue to foster a mindset of reassessing what we can stop doing and where we can find opportunities to redeploy existing resources. Our efforts to drive efficiencies for reinvestment really span across the firm, but I'm highlighting here 4 particular areas of effort. One is we've established a very strong procurement team to drive vendor consolidation, a number of renegotiations and generally help manage demands for greater transparency. We've also been driving technology spend optimization, in particular, through rationalization of our portfolio of applications and better optimizations of our storage. We've also continued to move our client transactions online and try to automate as much as we can, some of our back end processing. And then finally, the modernization of our core middle and back office through more modern software and more automation. Last thing to -- for today is just our consistent track record of strong return of capital to stockholders. You heard from Bill in his opening remarks, we continue to be very proud of our history of year-on-year dividend increase since the IPO, including the most recent 18% increase. And we're also proud of our strong payout ratio over the last 5 years, and these both remain very important priorities for us. We've continued to be opportunistic in our share repurchase program, we've taken advantage of market fluctuation, we always have a long-term goal of offsetting dilution from our compensation programs, as you know, and you see here the results on a 5-year basis, have been very strong. Finally, after the reinvestments in the business and strong return of stockholders, we continue to have a very strong balance sheet, no debt, strong levels of cash and discretionary investment. You heard Robert talk about how that ability to seed new strategies, in particular, is a competitive advantage for us. As we make sure that we can meet client demand across the globe in different vehicles and formats. And then before we transition to Q&A, I just wanted to briefly touch on how -- what our perspective is, on evaluating inorganic opportunities. You've heard us in this forum before talk about how we've been building our capabilities to assess opportunities that may come up, but also hone our perspectives on what areas of interest might be for us. We do continue to believe that M&A in our industry is very hard for many reasons that all of you know, including dis-synergies in terms of client flows, but also potential departures of key [ talent ]. That being said, for us, the first and foremost is to think about how do we advance our strategy? What are new capabilities or diversifying capabilities that could be additive to the firm. On our end, we are not particularly in search of scale to improve margins, given kind of the scale that we already benefit from. If we were to evaluate any transaction, we'd obviously have an eye towards aligning with best-in-class investors. We think that's first and foremost. And then, of course, minimizing any disruption to our existing business while we add value to our stockholders. So in summary, we remain quite confident in our ability to create value for stockholders over time by driving diversified and sustainable organic growth, maintaining strong margins and also providing very good returns of capital. And with that, I will turn it over back to Bill for his closing remarks and our Q&A.

Just a few closing thoughts. So we understand we're in a business under disruption. We are investing in our company to meet that disruption as head on as we can. We're making good progress with it. We still see further investment opportunities ahead. So we have a focused business plan for 2020. And we think we have a good team and talent to attack it. And we think if we do that, we can make our clients happy and make our shareholders happy at the same time. So maybe with that, I'm going to invite my team to come up to the stage, so we can take your questions. I highlight -- Robert already highlighted that George Riedel's here, leads our Intermediaries business, a very big chunk of our business. Come on up everybody. Nigel Faulkner is here, Head of IT for us as well. Tim Coyne, Head of our emerging ETF business is here as well. So questions. Dan?

Start with price -- sorry. If we could start with pricing. I think in these platforms -- or many -- you've talked about 1% a year generally being kind of a good guidepost for pricing pressure. You made some moves last week. You've kind of talked about the competitive environment a little bit more today than normal, I guess, is that -- do you see that 1% kind of increasing from here?

Yes. So the question is about pricing. On average, overall, we've experienced about 1%. Is that a reasonable estimate going forward? I think it is, but I'll ask my team.

Yes. I mean, I think I've mentioned it in the past, I think when you look at, for instance, the effective theory quarter-to-quarter, there's just a lot of noise in there because what would happen in the quarter in terms of asset appreciation just blurs it. I -- if you want to look at kind of what's happened over time, you look at a long-term horizon, you kind of have a good sense of what the impact of either pricing decisions or fund-to-trust conversions, which are sort of implicit pricing decisions have had on the business. And that's kind of the trend that we think about.

Thank you. I thought a very thoughtful presentation. I'd like to hear your thoughts about investing in private markets, maybe from both Rob and Sebastien. So how important are private market investments when thinking about alpha generation. And then is the theme of private investments a place where T. Rowe can differentiate itself from its peers going forward? And do you expect private investments will be a bigger part of T. Rowe as we look out over the next 3 to 5 years?

Sure. Thanks, Ken. I'll start. And maybe I'll answer the question in 2 segments. First, addressing private investments in our primarily public market portfolios, including our mutual funds, which is something that we've done for quite some time, and we've done with a great deal of success. That said, I think if you look at the exposure within the mutual funds and within our separate accounts, it's fairly limited. Kind of most of the portfolios, it's low single digit. And even to the extent that you're very successful in time with that limited amount of exposure, kind of, ultimately, it's not going to be a huge generator of excess return or a huge differentiator. Oftentimes, what we do find is that we learn a tremendous amount by being involved with these private market investments. Oftentimes, these are companies that are emerging business models, potentially disruptive to establish much larger publicly traded enterprises. So I think it's a very valuable expertise. It's something that we intend to continue doing. But I would say, in the scope of what we do, it's likely to be consistent with what we've done in the past as opposed to kind of something that is on a meaningfully greater scale or scope. So that would be the first part. The second part is kind of, do we anticipate developing dedicated investment capability addressing private markets, private equity, direct investment in real estate, private credit. And I think that's something that we constantly evaluate. I think we think hard about what sort of synergy there might be in investing in private markets with our expertise and insight in fundamental investing. We also think hard about what sort of conflicts doing that on a dedicated basis could have with our existing business model. And then finally, I'd say we think hard about the skill sets. And there are -- there's some very different skill sets in private market investing. It's a lot about being networked and sourcing deals. It's a lot about structuring deals. It's a lot about being on the inside, getting the right CEO in place, being on the Board, influencing the outcome. And those skill sets are pretty different than public market investing. So to the extent that we were going to do that, I think we'd have to, kind of, be very thoughtful about sources of talent and kind of how we would do it. I think we evaluate a number of different inorganic opportunities in that realm. Private market investing as more endowments foundations and institutions have allocated more is professionalizing, if you will, and becoming a more institutional business. You have the big publicly traded players that have already gone through that process. But you also have a number of smaller players that are facing pretty substantial investments in either infrastructure or distribution. And as those sorts of folks evaluate that decision, some of them may make the decision to sell. So it's something that we'll evaluate. But I would say the bar for us is really high. We'd have to, again, figure out how to navigate all of those issues that I laid out and make sure that the cultural fit was also something that was consistent with who we are as a firm.

Sebastien?

So in principle, if you ask about the asset investor, do you want more building blocks? And do you want more diversifying building blocks that are uncorrelated? The answer will always be yes. And in practice, in some of our portfolios, we have sourced externally illiquid investments in the form of a fund of hedge fund, and it's delivered great performance for us. Also in practice, the reality is that the demand from my seat for multi-asset portfolios that blend liquid and illiquid markets at the moment is relatively small.

In Target Dates, right?

In Target Dates, for example, and different intermediaries markets. I think the reason is that, at the moment, the buying process and the people responsible at the asset owner level to allocate to those strategies are different people and different teams. So unless you're going to want to be a fully outsourced OCIO, where you replace the plan sponsor in their asset allocation decisions. Demand is not -- it's not very big for those bundled liquid and illiquid multi-asset portfolios.

Rob Lee, KBW. Just kind of curious, I mean really, capital allocation and strategic question combined. So a lot of your peers have gone down the path. And if you look at the transaction yesterday, you talked about bigger financial resources, doing more strategic, investing in start-ups or fintech or the idea of changing distribution channels, getting close to the consumer. Can you maybe talk a little bit given your balance sheet and doing a lot of development internally, but how do you view some of those types of things as part of your framework? Or do you have more of the view, those are the things that we think we can better develop internally or leverage some of our private investing through maybe our liquid strategy? So how do you use your balance sheet for those types of things?

Well, maybe I'll start, and I'll ask my colleagues to chip in. We do have a very strong balance sheet. We like having a strong balance sheet. It doesn't necessarily need to get any stronger. The way we think about M&A, if you will, I think Céline went through it, we look at -- we are open to the idea. We have a high bar, as Rob said. We want things that are strategically aligned. We want to be associated with really good investors. We want to be mindful of disruption and the cultural impact, and it should add to shareholder value. We've looked at a number of things over the course of time. And we've had very modest participation, if you will. It doesn't mean that we don't intend to be there. We do think we have a growth plan that we've outlined for you that can deliver organic growth even in a sort of a disrupted world that is satisfactory to our shareholders but also helps us to deliver well for clients. But we're still on the -- just still on the case, if you will, and we're still looking at things. Maybe, Robert, you might highlight where it might be helpful from a distribution standpoint or something like that.

Sure. I mean, I'll pick up on one particular trend you said, which is certain firms out there looking maybe to go down the value chain to avoid them being too constrained as just an institutional or intermediary player. We have over $300 billion in AUM in our bundled DC business and our direct retail business that is directly with the end participant. We think that's of real value to us today. And a lot of other firms are looking at how they can get into that. We have over 2 million participants in bundled DC. We have over 1 million in direct retail. So I think we've already got some of the things that others are now looking to say, how can they use either their balance sheet or how can they do organic or fintech stuff to try and get closer to the end participant. We've got that. And that's why I described the distribution franchise we've got, as I think one of the broadest and deepest in global asset management because we've already got it.

Craig Siegenthaler, Crédit Suisse. Rob, you talked about forming strategic partnerships with large investors. You probably can't mention any names because they're clients, but if they're public, maybe you can, but maybe talk about what type of investors are they? Insurance companies, wealth managers, wealth funds? And what does T. Rowe do to help them?

Sure. I'll bring George in because some of our largest relationships are in the U.S. intermediary business. So I'll give a quick introduction and then let George have his perspective in our largest single business. Ultimately, our business is relatively straightforward in that people come to us because we have outstanding investment capability and the universe of providers that do that in the way that we do it, with the breadth that we do it is not a huge universe. So that puts us in a peer group where people naturally want to have conversations with us. The breadth of spread that we have from that, you mentioned it, I mean, it goes right from sovereign wealth funds in Asia, particularly right through to some of the largest intermediary businesses. One of the reasons that we talked to you 4 years ago about building out in EMEA or APAC was not just to access those narrow asset pools on their own, but also some of the partners that George and the team had spent 10, 15, 20 years building relationships with in terms of the large global financial banks and global financial intermediaries, were saying to us, we like you, but we need you to be present wherever we are. So we need you to have a presence in Zurich and Geneva. We need you to have a presence in Hong Kong and Singapore. And that's one of the reasons why we built those out. So whether it be some of the larger institutions who are looking for us, Sebastien mentioned, our first multi-asset opportunity in China, they're looking for us to help them solve their investment solutions because that's the heart of what we are as a business, and they're looking for us to match their distribution coverage. The combination of the investment capability and the breadth of distribution coverage is something that puts us in a -- I wouldn't say it's quite a unique position, but it's certainly a small handful of firms that they then want to deal with. But George, do you want to mention something about some of the largest U.S. insurance firms particularly and banks?

Sure. Just a couple of examples. I think back couple of decades ago, we had a great relationship with John Hancock. They were trying to get into this new business called 529. We had a relationship with the state of Alaska and the state of Maryland. You needed a state in order to access that business. And so we tied up them with a multi-managed product that they could sell through their adviser network. John Hancock has been a client of ours for a long time and pretty significant in size. Their business is morphed and gone in different ways. And today, we do significant business with some of the big variable annuity providers, Prudential, Jackson National. I think about the big record keepers as they -- Sebastien mentioned, tying into retirement income. The SECURE Act is now allowing insurers to use their balance sheet for the defined contribution business. And so I think there's going to be a lot more opportunities to tie up with some of these bigger companies and do strategic things that allow us to embed our asset management, but also extend the life of a participant in plan or even roll over to some type of annuity chassis that has our capabilities built into it, but there's tons of opportunities like that, and we're working with some of our big clients every day on those things.

Yes, I'd just add, Craig, I think [indiscernible] the different types of clients and prospects, right? Whether it's intermediaries like George talked about or whether it's institutions, whether it's a corporate plan or a public plan, and it's really about delivering the breadth of what we do, delivering the whole firm. In some instances, that might be sharing retirement expertise that we garner from our direct individual investor business or from the participants on our recordkeeping platform. Some instances, it might be helping develop content. It might be managing a custom portfolio. It might be a solutions initiative. It might be sharing just market views and strategic asset allocation advice or tactical asset allocation perspective. So I think the sort of thing that we can bring to the table really depend on the need and the interest of the type of client, but I don't think it's unique to just an intermediary or just a particular type of institution. So to your question, is it insurance companies? Yes. Is it pension plans? Yes. Is it big intermediaries? Yes.

Brian Bedell, Deutsche Bank. A question for -- 2-pronged active passive question both for Rob and Sebastien. So Rob, can you talk a little bit more about the active semi-transparent ETF launch, a little bit more granularity on your expected timing of that launch? But more importantly, how big of a weapon against passive do you think this could become, in general, for the industry and certainly for T. Rowe? And what are you hearing from initial distribution partners and initial sort of thoughts about the demand that they're seeing? And the second part of the question is within it, what portion of the Target Date retirement funds are in index strategies? I know you can use that to reduce the overall [indiscernible] fee. And do you see that trend continue to go in that direction or not so much?

Tim, do you want to take the ETF question in terms of [Audio Gap] And what we're hearing from the marketplace and kind of what our expectations might look like?

Yes, absolutely. Thank you. In terms of timing, we don't have a specific time right now. We're still working with the regulators. Our hope is that we will see a final approval in the not-too-distant future. It is somewhat time-bound in terms of the SEC approval process. So that could take up to 270 days. So unfortunately, we don't have a specific date. I can say that we continue to build our foundation internally to support a broad-based ETF product lineup.

Fair to say that we'd expect to be in market by the back half -- sometime in the back half of this calendar year.

It will be a 2020 event.

In terms of what we're hearing from potential partners in the marketplace?

Yes. In terms of what we're hearing, so there's been a lot of interest, a lot of buzz. This is a whole new category that's essentially opening up, not only in the ETF industry, but I think, as you mentioned, kind of across the asset management industry. So we're continually involved with both market participants from the liquidity provision side, market makers, authorized participants, et cetera, but also working with end clients. We've had a lot of conversations and continue to have conversations with the various platforms and advisory type wealth management type of clients. So this is clearly a lot of interest in this. I think there's a lot of due diligence that is going on right now. And I think, ultimately, this will be transformative, not only to T. Rowe Price, but also to the asset management business.

So in 401(k) space, it's a competitive pressure to our business, no doubt. The popularity of strategies that index 100% of the underlying building blocks. I am encouraged by the trend towards blend strategies and the expected demand for blend strategies that have both passive and active building blocks. And the successful launch of our blend that I mentioned earlier as well as the -- perhaps eventual deceleration of the trend towards passive, where blends maybe take over. At the same time, look, our #1 response to this trend is to deliver better net of fee performance and better outcomes for the end participants, and we continue to do so. So that's how we're going to remain competitive as well as offering blends.

Brennan Hawken, UBS. Thanks for the day. It's really interesting. Just 2 questions, actually. One, just to, kind of, clarify for Céline and maybe Bill. The inorganic comments, is there a change in the message there? It seems as though maybe a little bit more open than in the past, albeit, subject to all of the bars, as you laid out, just to be clear. Just was curious about that.

I'll let Bill answer first.

I don't think that there's a significant change. I think what's changed is our capabilities internally and ability to evaluate quickly. We've put a number of people together on a team that can help us do that. So I would say our diligence around this has grown. I'm not sure our priorities have changed enormously, if you will, or our inclination to participate. We don't feel we need to participate, but there might be an opportunity to do so.