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

Good morning, everyone, and thank you for joining us. My name is Linsley Carruth with T. Rowe Price Investor Relations. Thank you for joining us to discuss T. Rowe Price's definitive agreement to acquire OHA. Joining me today from T. Rowe Price are Bill Stromberg, Chief Executive Officer; our Chief Financial Officer, Jen Dardis; and Rob Sharps, our President, Head of Investments and Group CIO. Rob is also our incoming CEO, effective January 1. We're pleased to welcome Glenn August, OHA's Chief Executive Officer and are also joined by Bill Bohnsack, OHA's President, who will be happy to answer questions after the presentation. This morning, we disseminated 2 press releases, 1 announcing the acquisition agreement and 1 detailing our Q3 earnings, both of which are available on our IR website. A slide deck with details on the transaction is available to download from this webcast portal and is also on our IR website. On today's call, we'll begin with some opening comments from Bill, after which Rob, Glenn and Jen will speak about the transaction. We will then open up the call for your questions related to the acquisition. [Operator Instructions] Before we start, I'd like to remind you that this presentation and other statements that T. Rowe Price may make may contain forward-looking statements with respect to T. Rowe Price's future financial or business performance, strategies or expectations, including with respect to the disclosed transaction with OHA. T. Rowe Price cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time and actual results or the timing or benefits of the transaction could differ materially from the forward-looking statements. With that, I'm very pleased to introduce Bill Stromberg, our Chief Executive Officer. Bill?

Good morning, everyone. We announced some exciting news today. We've agreed to acquire Oak Hill Advisors, a leading alternative credit manager. This transaction will accelerate our expansion into alternative investment markets. It's an area we have prioritized for strategic investment in the coming years as we respond to our clients' needs. While we have developed several liquid alternative strategies internally, and we'll continue to do that, we've also been searching deliberately for an acquisition opportunity in private credit to complement our strong global investment platform and distribution capabilities. Our top priority remains organic growth, but in recent years, we have developed the capability to evaluate inorganic opportunities, and we have very deliberately been studying a variety of companies, setting a very high bar for any transaction and we prioritized 4 attributes for inorganic growth. First, we want any acquisition to advance our strategy, adding capabilities, help us grow and diversify. Second, any business we bring into the fold should align with our commitment to being outstanding investors. It should have proven investment performance with sustainable sources of alpha and a strong investment culture. Third, we want to avoid disruption to our current business. That means finding partners with similar values, like-minded operating culture, minimal overlap of our existing capabilities. And finally, we want any acquisition to add value to our stockholders over the long term. OHA easily exceeds each of these criteria, and I'm confident that they're the right partner for us in the alternative space. I and my colleagues are very excited to welcome OHA to T. Rowe Price in the coming months. And with that, I'll turn the call over to Rob Sharps, our incoming CEO, for his perspective on the transaction.

Thank you, Bill. Hi, and good morning to all of you. I'd like to start by reiterating Bill's point with regard to why this announcement is so important to our leadership team. This transaction advances an essential part of our long-term growth strategy by accelerating our expansion into alternative investment markets. Alternative credit and specifically, private credit, continues to be in growing demand from institutional and retail investors across the globe seeking attractive yields and risk-adjusted returns. Investors are projected to almost double their private credit exposure over the next 4 years, and we want to make sure that we're at the forefront of meeting that demand. As a clear market leader with a strong pedigree and very strong investment results, we're confident that OHA will enable us to do just that. OHA brings $53 billion in capital under management as of the end of July across private credit, distressed, special situations, liquid, structured credit and real asset strategies. Importantly, their long-standing presence in the market for alternative credit has allowed them to create deep relationships among key market participants. Their proven investment process like ours is based on deep fundamental research and has driven very attractive risk-adjusted returns over their more than 30-year history. Finally, thanks to that strong performance, the global institutional client base and a very positive industry backdrop, OHA has been able to raise over $19 billion of capital since January of 2020. From my perspective, people and culture are so important in any acquisition and especially in the investment management industry, and culture was a critical element of our decision-making process. As we've gotten to know the OHA team throughout the course of our negotiations, it's become very clear that we share a culture that is focused on long-term investment excellence and delivering value for clients, all grounded in collaboration, trust and integrity. I firmly believe that together we'll add value for our clients and for our stockholders for years to come. As we do that, given the limited overlap in investment strategies and client bases, we expect to leverage complementary distribution opportunities across our respective client bases. In addition, we plan to co-develop new products and strategies in wealth and retail channels. We've also agreed to commit $500 million for co-investment in seed capital alongside OHA management and investors. Over time, both firms intend to explore opportunities to expand into other alternative private market asset categories. Over our 84-year history, T. Rowe Price has built a $1.6 trillion diversified investment platform focused primarily on public securities. With this purchase, OHA will become the foundation of our platform for alternative offerings that invest primarily in private markets, complementing the global scale and comprehensive research platform of our equity, fixed income and multi-asset solutions. While we're seeking to leverage our combined strengths, OHA will operate as a stand-alone business within T. Rowe Price. The OHA team will have autonomy over their investment process and maintain their team, culture and investment approach. From a structure and operating point of view, little will change at OHA and T. Rowe Price. We deeply want OHA to continue doing the things that have led to their past success. This is an exciting opportunity, and I'm very much looking forward to working with Glenn August and Bill Bohnsack, who will continue to lead OHA. And Glenn is expected to join T. Rowe Price's Board of Directors and Management Committee following the close. Glenn, the CEO and Founder of OHA, has helped build the firm over 30 years into one of the finest credit managers in the world. He's a terrific leader, a great entrepreneur and shares our vision. We're looking forward to partnering with Glenn and his team to build a world-class business in private markets that we expect to bolster our success for years to come. With that, I'd like to turn it over to Glenn to introduce you to OHA and then to Jen to walk you through financial highlights of the transaction.

Thanks, Rob. I appreciate the kind words and the opportunity to speak with all of you today. We are very excited about this transaction and the opportunities we are creating by bringing our businesses together. Let me take a moment on Slide 7 to introduce OHA to all of you. OHA has been one of the leading alternative credit specialist firms for more than 30 years. And as Rob mentioned, we manage $53 billion of capital across a range of multi-strategy and single strategy businesses. We've had a front row seat to the dramatic growth and changes in the alternative credit markets in recent years. As private credit has climbed past $1 trillion in assets, investors have become increasingly attracted to a range of alternative credit strategies as they pursue yield in a low-rate environment. At the same time, borrowers and private equity sponsors are increasingly embracing the private credit markets for larger customized financings contributing to a surge in opportunities we are sourcing for investors. These changes on both sides of the market mean that scale has become increasingly important to our business. As a leading investor with a diversified platform across both strategies and investor base, OHA is in a great position to capture future growth and joining with T. Rowe Price is an excellent next step for both our investors and our team. Our investor base includes some of the world's largest investors. We manage capital for numerous sovereign wealth funds, many major pension plans in the U.S. and Europe and a number of the world's largest high net worth investors. By geography, our investor capital comes about 45% from the U.S., 46% from Europe and the Middle East and just under 10% from Asia Pacific. We've built an amazing team at OHA with more than 300 people with approximately 100 investment professionals in New York, London, Fort Worth, Texas, where we have the bulk of our operations and around the globe. Turning to the next slide. As Rob mentioned, the OHA business participates across the spectrum of credit, and we have developed a range of products in private markets, liquid strategies and structured credit. This breadth of financing solutions is an important point of differentiation as we work to build deep and enduring relationships with our investors and with the companies and sponsors we partner with. Simply put, we see an extraordinary opportunity in the alternative credit space. As I mentioned earlier, in a low-rate environment, investors are looking for incremental yield in products like private credit, distressed credit, structured credit, liquid credit, have all benefited as a result. We are committed to value-oriented investing, leveraging our deep industry expertise and deploying active portfolio management with a focus on maximizing risk-adjusted returns. We look forward to working with T. Rowe Price's global teams to bring OHA's capabilities to a larger and broader mix of clients as well as to developing new products together in the future. Before I turn the call over to Jen, I want to express my gratitude to the entire T. Rowe team, to Bill, to Rob, to Jen and to others I've had the pleasure and opportunity to meet and, of course, to the team at OHA around the world. I'm excited to bring our teams together and work closely with Rob and the entire T. Rowe Price Board and its team to drive growth to create long-term value. With that, I'll turn it over to Jen to discuss the financial details of the transaction.

Thanks, Glenn. Good morning, everyone. I will now provide some more details on the terms of the transaction. We have agreed to purchase 100% of the equity of OHA and certain other entities that have common ownership for a purchase price of up to approximately $4.2 billion, with $33 billion -- $3.3 billion payable at closing, approximately 74% in cash and 26% in T. Rowe Price common stock and up to an additional $900 million in cash upon achievement of certain business milestones beginning in 2025. The purchase price also includes the retirement of OHA debt outstanding at closing. Importantly, after this deal, we will maintain a strong balance sheet and overall financial position. To put some context on the financials, OHA's combined management fees and incentive fees have averaged about 1% on average -- for the past few years on fee basis AUM. Those performance fees can vary year-to-year. As Glenn outlined, remember that this is a mix of 3 businesses with different fee levels and average fees can shift over time as the mix of business shifts. From a valuation perspective, depending on how you model the earn-outs, we view the purchase price as mid- to high teens multiple on forecasted 2022 after-tax distributable earnings. And excluding amortization of intangibles and the expense impact of the earn-out, the transaction is expected to be accretive to T. Rowe Price diluted earnings per share by a low to mid-single-digit percentage in 2022. OHA employees will continue in their roles and OHA partners are committed to remaining with the company and growing the business. All members of OHA's partner management team will sign long-term agreements and continue to lead the business in their current roles. While we look for ways to work together going forward to drive growth, we do not expect cost synergies. Please note that the transaction is subject to the receipt of regulatory clearances and approvals and client consent. It is expected to close late in the fourth quarter of 2021. We look forward to working together with the OHA team to advance our strategy and evolve and expand our capabilities to serve clients in new ways. I'll now turn it back to Linsley and we're happy to take your questions.

Thank you, Jen. We have quite a few questions already submitted. [Operator Instructions] I'd also like to remind you that on this call, we'll be taking your questions on the acquisition announced today, but not taking questions on Q3 earnings. If you have any questions on Q3 earnings, please follow up with me. The first question of Bill Stromberg, we'll be sending this one to you, is from Brennan Hawken at UBS. When calculating the accretion, what opportunity cost could be used for the cash? Is the accretion math impacted if you allocate all this money to buying back T. Rowe Price shares?

The low to mid-single-digit percentage accretion compares a combined T. Rowe Price and OHA versus our internal forecast for T. Rowe stand-alone for 2022. And that stand-alone includes a typical buyback amount for us. Our current intention -- as Jen mentioned, our balance sheet remains strong and our current intention is to continue with the share repurchase program, which, as you know, has been opportunistic over time depending on price.

Thank you, Bill. For the next question, we're going to start with Rob Sharps and then pass it over to OHA. It's from Alex Blostein at Goldman Sachs. Key revenue areas of current opportunities being OHA and T. Rowe, particularly, are there any opportunities you see in leveraging Oak Hill products in T. Rowe's retirement business?

Yes. Thank you, Linsley. I think OHA has very attractive growth prospects on a stand-alone basis. I think there is meaningful opportunity to leverage our global distribution, particularly our relationships in the intermediary channel. And I think there's real opportunity for us to co-develop products over time to deliver private credit solutions to the wealth channel. In terms of whether or not there will be opportunity to leverage OHA strategies in our multi-asset offerings, it's not something that we contemplate at the outset, but it is something that we can evaluate over time. So I don't think the rationale of the transaction is contingent on that, but it is something that could present opportunity for us over time.

And Glenn and Bill, would you like to add anything?

Sure. I believe that credit alternatives have been a great focus for institutional investors for many, many years. And the private credit market, in particular, is attractive because in a low-yield investment environment where investors are looking for yield, the opportunity to get incremental spread for taking the liquidity premium is very, very attractive. And so I believe the opportunity for OHA to continue to grow in the institutional market that have access to T. Rowe's distribution and gives individual investors and intermediaries the opportunity to access our world-class private credit capability is very exciting. And I might just add that the private credit market continues to show enormous growth. As I commented earlier, financial sponsors are looking for customized financial solutions. And that gives us the opportunity to design capital structures and generate very attractive returns for our investors. So I think enormous growth in the industry and I think enormous opportunity to access the distribution.

Thank you. We've got a number of questions around repurchases. So I'm going to start with this one and hopefully bundle a couple of them here together, but we'll read the one from Alex Blostein at Goldman Sachs. How should we think about share repurchases for T. Rowe from here given significant amount of cash used for this deal? And Jen, would you like to start on that?

Sure, I can start. I would say that this transaction doesn't affect our ability to continue to opportunistically buy back shares as we have in the past, and we would continue -- we would plan to continue to do that going forward.

I would agree.

If I were to add anything at all, it would be that we generate a tremendous amount of cash flow. And even post transaction, we will have very substantial net cash and investments on our balance sheet. So this should not impact our historical approach to share repurchase in any way.

Okay. Thank you very much. I'm going to put together another 2 questions here regarding the extension of the platform through [ alts ]. The first and the shorter one comes from Bill Katz at Citigroup. Is OHA a key focus? Or should we assume now more acquisitive to further scale [ alts ]? And then Glenn Schorr asks from Evercore, OHA is a strong and broad private credit manager, and T. Rowe's done a pretty good job investing in private company one deal at a time in recent years. My question is, how will your private market effort and aspirations change? And how can you make OHA be the platform for expansion across other private asset classes like PE, real estate, infrastructure and secondaries? Rob, would you like to start with that?

I would. First and foremost, OHA will be our key focus, right? The first order of business is executing against the opportunity that this transaction presents. T. Rowe Price's strategy on a go-forward basis will continue to be primarily organically driven. In time, the OHA leadership team will work with us to identify other opportunities in private markets to expand into, whether that be organically or through additional acquisitions, but that's not something that is a focus in the immediate future. In terms of how we access private markets in our existing portfolios, nothing will change. We've been very deliberate in investing in our capabilities around investing in private placements, both on the equity side and the credit side for our existing strategies. That will continue to remain an important capability inside of T. Rowe Price. And the private markets credit function that OHA have will, as we said earlier, run independently on a go-forward basis. Glenn, maybe you can give some perspective with regard to the types of opportunities you see and what we might pursue together longer term?

Thanks, Rob. I'm actually joined as was noted earlier by Bill Bohnsack, our President. I'm going to have Bill to fill in.

Sure. I will flip maybe back over to you in a moment, Glenn, because I'm sure you have some thoughts on this. But our focus has always been, first and foremost, on continuing to deliver excellent risk-adjusted returns to our investors. And I think that, that -- by virtue of the transaction, that is not going to change. And yet, we also see the opportunity presented in the market for organizations like OHA and like T. Rowe Price to become increasingly important to their investors by taking advantage of scale, developing deeper, broader engagement. And we see that in our markets today with some of our competitors who have broadened out their alternative offerings. And one of the things that we are excited about over time is thinking about the OHA platform, the relationships we've developed with our investors and the expectation that we can broaden and deepen that as Glenn and Rob and Bill talked about in terms of distribution with T. Rowe Price. And so we look at the alternative sector today and think that beyond alternative credit, whether it's the real estate credit world, whether it's the secondary private equity opportunity. There are different ways we think that, that might, over time, make sense for us to broaden our platform.

I would just kind of echo Bill's comments and say that investment performance comes first, we built a 30-year track record that we're very proud of. But tomorrow is what counts, we need to continue to deliver excellent returns for investors. Secondly, I do believe that the evolution of the private credit markets is leading to a place where the greater scale you have, the better results you can achieve for both your investors and for the financial sponsors and companies that are seeking customized capital solutions. And so we think there's enormous opportunity to build and grow our business organically. I think over the longer term, as Bill mentioned, there's certainly a desire on the part of our institutional investor base to have access to incremental product from a trusted partner. And we internally have today been building our real estate credit capability and certainly envision that fitting and growing that business, both for our investor base and for the T. Rowe investor base, but this is one step at a time.

Great. Thank you. We're going to turn to fees for a second, and there are a number of questions, including a few that came in before Jen spoke on the call. But -- so we'll start with one for a request for a repeat. Dan Fannon from Jefferies asks, what percentage of AUM has performance fees? And can you please repeat the split of management performance fees mentioned on the call? This has also been asked in other ways around the weighted average management fee at OHA and how much AUM is eligible to earn performance fees, all getting at this mix between performance fees? So Jen, maybe we could start with a reiteration of what you said and understand that some of these questions came in before you started talking?

Sure. So I'll start with what we had already said, and that was that if you look back over the past few years, the average fee total all-in fee rate was about 1%. And that's across a couple of different streams. So they have management fees, they have performance fees that are [ in-year ], so in your performance fees on a number of products and then also a deferred performance fee on some of the products that is more like a traditional carry. There was another question I think I saw in here that talked about what portion of each one of these fee streams did we buy? And I'd say for the first 2, we acquired 100% of those fee streams. The last one, the deferred performance fees we acquired between 50% and 60% of those deferred performance fees with 40% to 50% of that will remain with the management team. So if we think about the average fees for the business, we haven't disclosed what the mix is of management fee versus performance fees. But it's safe to say, if you think about the mix of those 3 different businesses, the management fees are in line with the traditional peer set for those different types of businesses.

Great. Thank you. Rob, next, we're going to turn to you for a question around organic growth. Alex Blostein from Goldman Sachs asks organic growth profile. T. Rowe still has 1% to 3% organic growth target over time. Recently, the firm has not been able to achieve it. Do you expect Oak Hill will be enough to get you back into your targeting organic growth range?

We're not going to give guidance on growth or change our goals. What I will say is that, this opportunity certainly increases our conviction that we can hit that 1% to 3% organic growth goal in a more consistent way. We believe this will be additive. OHA has very attractive growth prospects on a stand-alone basis. And part of the attractiveness of this opportunity is the potential to leverage our global scale and distribution which would even enhance their stand-alone growth prospects. So over time, this does increase our conviction in our ability to generate 1% to 3% organic growth. I'd say notwithstanding weaker kind of immediate or near-term flows, we're also very confident in the future and the prospects of our existing franchise. And I think if you look at things like gross flows, performance, client engagements and client satisfaction, our vital statistics are very robust.

Thank you. We're going to turn it over to OHA for a second on the growth of our private market business. Brennan Hawken again from UBS asks private market AUM has roughly doubled since year-end 2019. What strategies drove that growth? How much was from the distressed credit during the pandemic?

So -- thank you. We've seen growth really across our private credit platform over the last several years and over the last, I would say, 1 to 2 years. A particular driver is reflective of what we see happening in the financing markets themselves. And that is a shift by private equity sponsors and owners of companies toward doing a larger, direct originated private financing. And as Glenn was talking about the benefits of scale in our business, we're seeing that with private equity sponsors wanting to do financing directly, whether they're unit tranche financings, second lien financings and they're looking for either a single large credit partner or a small group in a club style format to do these financings. And so that has certainly been a big driver of growth over the last 2 years. In terms of the distressed business, certainly through the pandemic-related volatility of 2020, there was an extraordinary opportunity created in the secondary markets as well as opportunity for our organization to provide rescue financing or other liquidity financings that the companies that were looking to bolster their financials. And so that was a terrific opportunity for investors like ours. And we continue to see sort of through cycles that there's always idiosyncratic opportunity in the distressed business, and I think that will likely continue. Glenn, I don't know if there's other comment?

Look, we've deployed over $10 billion in private credit in the last 2 years and see the opportunity growing to bring our scale resources. And again, with the incremental scale afforded us from the transaction, to bring to our clients. Our clients being both the borrowers of capital and our clients being our investors. So we think it's an exceptional opportunity. And as Bill mentioned the distressed opportunity is opportunistic, but we've been a leading distressed player for the last 3-plus decades. And we certainly leaned in when the pandemic came and were able to generate some very attractive results for our investors.

Great. Thank you. Next question is going to be around fund raising from OHA from Robert Lee at KBW. What has fundraising done like year-to-date? And are they in a fundraising cycle? And he asks about color on expected growth, but we'll probably disappoint Rob on that part of the question.

So we shared some capital growth in the presentation that T. Rowe has provided you and are advised that that's about as far as we should be talking about growth of the business. And I would say that commentary about the environment that investors are seeing low yields have continued to drive investors to look at alternatives broadly in private credit, as has been mentioned, has been of specific interest. But I think that really across the markets, that we are seeing investors continuing to explore different ways to add credit exposure to their portfolios.

I might just add that besides our private credit capability, we have a very large multi-strategy liquid capability as well. And like T. Rowe who has the multi-asset class and multi-strategy model, we believe the ability to allocate capital across the liquid markets also gives investors the opportunity to generate attractive returns with liquidity as well. And so again, I think you have the combination of the growth opportunity and delivering results for our investors in both the liquid markets and in the private markets. And as Bill mentioned, the tailwinds continue and the growth that we generated over the last 2 years is indicative of investor demand for alternative credit with a manager that they trust.

Thank you. We're going to turn to questions about the earn-out for a second. And there are a couple of them. And at the risk of disappointing Rob Lee from KBW again, I'm going to ask his and we'll answer that for him, hopefully. Jen, what are the target Oak has to hit to earn the earn-out?

Sure. So the earn-outs are based on revenues. So forecasted revenues that we use as part of the evaluation of the business and talk about how the base business might grow over time. It's using a rolling 3-year period so that we can capture the long-term growth of the business. And then there are opportunities -- 3 different opportunities in '25, '26 and '27 for them to be able to hit those revenue targets.

Thank you. We're going to turn to a question from Craig Siegenthaler now joining us from Bank of America, and welcome back, Craig. Can you provide us some color on the underlying profitability of Oak Hill? And then he has a second part of the question that's a little bit different. Could you leverage Oak Hill -- can you leverage out those privates inside your target-based funds at T. Rowe price? So should we start with the economics part of it?

So we aren't going to talk about the net economics of the business at this point. As we go to put together our guidance on expenses, we'll pull together some thoughts on the business as we get later into the year about what our guidance is for expenses as a combined firm going forward.

Great. And Rob, would you like to take the part of the privates inside our target-based?

Yes. Maybe before I do that, I'll just give a little bit of color that you all could use to kind of work a little bit of the arithmetic on yourself. There was a question about kind of the mid- to high single digit -- or mid- to high teens multiple in 2022 after-tax distributable earnings and how the earn-out was treated in that. I think it's fair to say that if you exclude the earn-out, it's at the lower end of that range towards mid-teens. And if you include the net present value of the full earn-out achieved over that time, it's closer to high teens. Irrespective, we think it's a very fair deal. We think it's a deal that's consistent with public market comparables as well as recent transactions and one that is well structured to meet the goals of both sides. In terms of integrating OHA or any other private market strategies into our retirement date funds, we do not have any plans to do that right now. We honestly have not seen any client interest in integrating private market alternatives into the retirement date funds. There are a handful of challenges with regard to daily liquidity, daily NAV and different fee structures. I certainly think to the extent that we were to see client interest building having this as part of our toolkit, it would give us the option to address it. I certainly could see a scenario where you might have a large custom opportunity where there was some interest in integrating some of the OHA strategies. But in terms of our flagship retirement date fund or our blend funds, I do not see and have no plans to integrate OHA strategies. Again, OHA has plenty of growth opportunity on a stand-alone basis. In time, I think we can work together to create products that can address different parts of the market. But our goal here is to do this in a very measured way that keeps the OHA team's focus on delivering excellent investment results for their existing base of clients. So this isn't going to be kind of a mad push for growth. This is going to be something that's very consistent with what we've done. You all have observed us close strategies in time when we thought it was appropriate. Our first order of business and OHA's first order of business is going to be to continue to generate great investment results.

Right. Thank you. We're going to go -- thank you. We're going to go to hopefully just a clarification question here for Jen from Bill Katz at Citigroup. Is the mid- to high teens multiple based on $4.2 billion or $3.3 billion or NPV of the 2?

And that was the question that Rob just answered. So it's the lower end of the range is if you use just without the earn-out and the higher end of the range is if you use an NPV on the full $4.2 billion.

Great. Thank you very much. Let's change gears a little bit. Bobby Blue from Morningstar asks how relevant was OHA's global investor base for the acquisition? Rob and Jen, would you like to talk about that?

I'd just start by saying that not only is this additive to growth, it's also diversifying. It's diversifying from the perspective of a fee stream that isn't sensitive to the equity markets, and it's diversifying from the perspective of a client base that kind of is sourced around the globe. So that was another element that made OHA attractive for us as a potential partner.

And that gets back to one of the founding tenets that Bill talked about at the beginning was complementary business. And I think on every axis, this is complementary from a client base and an asset class perspective.

All right. I'm going turn a second about the seed question. Mike Cyprys from Morgan Stanley asks what's the time frame for putting the $500 million seed to work? And what sort of strategies would they invest into?

Well, it's a commitment over 5 years. And it is a commitment to use our capital to seed new vehicles and strategies as well as to co-invest alongside the OHA team and their clients as a signal in our confidence of the ongoing investment excellence that we expect from the OHA team. In terms of the time frame, we don't have a set time frame because that capital work is 5 years. I think I said that.

Yes. But within the 5-year period, it depends on the market and opportunities that come up as we see them arise.

Yes. Look, I think importantly, this is one of a number of signals of alignment and commitment here, right? As we've said, not only are we committing $500 million to seed capital and to co-invest, Glenn is joining our Board and our Management Committee, and many members of the OHA team are taking a substantial portion of their proceeds in T. Rowe Price stock. So there's very clear alignment here. And I think both teams go into this with kind of very consistent expectations and very aligned goals.

Great. We're going to turn to some questions on products for a second. We'll go start with the OHA team. Patrick Davitt from Autonomous asks, could you give us some color on the portfolio mix between fixed and floating rate securities ahead of likely higher rates? Do you know how the portfolio would perform in a more stressed credit environment?

So I'm not going to share the data on our mix of fixed versus floating. But obviously, in our structured credit business, there's substantially floating rate assets, almost entirely floating rate assets. And certainly, the private credit business is predominantly a floating rate asset. And so when we think about the return opportunity, whether rates go up or whether rates go down, our opportunity is really in generating a combination of credit spread and the liquidity premium. And in our 30 years, we have built a track record of being able to generate attractive credit spread with limited losses and we hope that will continue. And our belief is that the illiquidity premium is also likely to continue. And that combination of incremental credit spread and illiquidity premium makes for a very attractive investment prospect for investors. And so again, I think we have protection by virtue of a substantial portion of our portfolio being floating rate assets. And even where we do fixed income, where we do a fixed rate investing, we are always incredibly focused on duration, and that's a key to our thought process.

All right. We're going to turn back or stay on products that turn over at T. Rowe Price for a second for Rob. Robert [ Tusic ] asks, will existing fixed income strategies that invest in below investment grade start using private credit. What are the product level synergies?

The market continues to evolve. And I would say, increasingly, there are opportunities for our portfolios broadly to participate in placements, whether it's on the equity side or the credit side. And we already do some of that again, in our existing noninvestment-grade strategies. In terms of the opportunities to work together, that's something that ultimately, I think we'll have to assess. There are regulatory issues that we will need to navigate. But it will be our goal where we can to share investment perspective and insight and to bring scale to opportunities that present themselves in the private credit markets. So again, I mean, that's not something that is a key underlying tenet at the outset, but it is something that we'll explore and very well may be able to take advantage of in the future.

Thank you. We're going to turn now to a question from Mike Cyprys from Morgan Stanley. Can you expand on how T. Rowe might go about helping accelerate the growth at OHA? Which strategies could make the most sense by the T. Rowe customers? Which vehicles makes the most sense? Could we see us leave within a target date, which we've already answered, our BDC or interval fund, what's most compelling? And Rob, can you talk about some of this target date. Perhaps we could expand this a little bit more beyond that.

Well, I think there are a number of opportunities. OHA has obviously been very successful stand-alone in the institutional marketplace, but we have a very broad -- we have very broad distribution reach in the institutional channel globally. So I think a number of their existing strategies would be of interest to many of our existing clients and prospects in the institutional space. So I think there's meaningful opportunity there. Second, a number of players in this market have had success with interval vehicles or BDCs in taking private credit solutions to the wealth channel. And we have very strong relationships. And it's a strategic priority of ours to continue to grow our business in the wealth channel. We have, again, deep relationships with broker-dealers, financial advisory platforms. And that's been an important part of the growth, and I expect it will be on a go-forward basis. And I think there will be real opportunity to bring the OHA strategies in different vehicles to that channel over time. But again, I think it's really important to reiterate that we want to do this in a durable and sustainable way. So whatever we do will be very measured and will be done in normal course in a way that will allow the OHA folks to continue to deliver from an investment perspective.

Thanks. We're going to turn back over to Glenn and Bill at OHA for a second. Mike Cyprys from Morgan Stanley asks, how much of the OHA business is sponsored finance? And as you look out, which part of the OHA business do you see the strongest growth potential versus which part may be relatively slower growth?

So I'm not going to give exact percentages, but what I would offer up is that we have experienced substantial growth in our private credit business. As you saw on the chart in the slide presentation since year-end '19 to today, we've gone from $11 billion to $20 billion of capital in the private markets and a very meaningful part of that growth has been in providing financing to sponsor on a customized basis. But we also include in that category distressed, and we also include our growing real estate business. And so there's lots of opportunity, as Bill mentioned -- Bill Bohnsack mentioned earlier and that I mentioned as well. Large financial sponsors are looking for customized solutions that meet the needs of an individual transaction. We have 30 years of deep industry knowledge. We have 30-plus years of relationships with all of the major sponsors. And so the ability to work together as partners is giving us an awesome opportunity for our investors to benefit from the product that we're creating. It's also giving it an exceptional capital structure and partner to provide financing for their transactions.

I might just jump in on that. I'd say that in addition to the work we're doing with sponsors, which, as Glenn said, has been a very big and important part of our business across both private and liquid opportunities. I'd say where we've seen, I think, significant growth in terms of opportunity and pipelines today are in commercial real estate, in aviation, in shipping, in structured credit, renewables, sustainable energy, across a whole range of sectors, we're seeing, again, the same driving needs of borrowers where they're looking for customized financings with partners who can understand the complexity of their needs and can tailor our solution. And so I'd say that that's certainly an important and growing element of our business.

Thank you. We're going to turn to tax for a moment. Jen, there's a question from Rob Lee at KBW. As an LLC, Oak likely has a low tax rate. So it's at Oak's current or T. Rowe pro forma?

Sure. So all the modeling, all the numbers we gave you, both from a multiple and accretion perspective, were based on pro forma tax rate for T. Rowe, including factoring in the potential impact of changes that we might see in U.S. federal tax rates in the coming years.

And then I think we're going to wrap it up with one last question for Glenn -- or excuse me, I guess for Glenn from Glenn Schorr at Evercore. We'd love to hear Glenn's views on all the recent insurance risk transfer deals that we've seen other private credit managers do.

So first of all, I love the name, Glenn. So look forward to questions in the future. But I'm not going to comment much on insurance risk transfer, but what I will comment on is that the insurance industry has obviously been tapping into alternatives for their capital. And there are a number of our competitors in the market who have either acquired or partnered with large -- the largest insurance companies in the world, to generate attractive yields and private credit is right in the center of that focus. And so I believe the opportunity for OHA going forward ourselves and with T. Rowe is to design products and partner with insurance companies as well. Because, again, it's just indicative of this growing desire for yield and the benefits of being able to provide the liquidity premium to investors. And so I do think that will be opportunity on a going-forward basis. But again, I want to just echo what Rob said multiple times, I just want to share my own perspective, and that is that we have been in business for 34 years. And we have approached growth over that time in a brick-by-brick mentality because the most important thing we do is generate attractive risk-adjusted returns for our investors. And so there's a lot of excitement here of what we can do on our own, what we can do and will do with our partnership with T. Rowe Price. We have a long-term perspective. We think T. Rowe has a long-term perspective. Obviously, they've been doing this for a lot longer than 34 years. And so we are incredibly excited about being partners and as Bill Stromberg said at the onset, the cultural fit of our organizations with the focus on investment performance first and then doing it in an organizational basis of clients first and team orientation respect, well that cultural combination and focus on investments is really what brought the 2 of us together.

Thank you, Glenn. We had a lot of similar questions, so I apologize if I didn't get to read your specific question. I'm now going to turn it over to Rob Sharps for a few last comments.

Yes. Thank you, Linsley. I'll just close by saying I couldn't be more excited. I think we had very strong prospects going into this. And I think our future is even brighter with OHA as our partner. I think this deal makes a tremendous amount of sense. It enters us into a part of the market that our clients are focused on. It is additive to our growth in a durable and sustainable way. And as Glenn said, we're in this for the long term. And it's just -- I feel very privileged to be able to do it with a great team who are good people. So kind of on behalf of the T. Rowe Price team, we are really, really excited about this.

Thank you for joining us today.