T. Rowe Price Group Inc. reported yesterday that its second-quarter profit rose 20 percent as the Baltimore mutual fund company continued to attract investment dollars from clients.
The company had net income of $162 million, or 58 cents a share, up from $136 million, or 49 cents a share, a year earlier and matching the consensus estimate from Wall Street analysts polled by Thomson Financial. It also notched a new record in assets under management, which rose 8.5 percent during the quarter to $380 billion, the result of a surging stock market and clients adding $8 billion.
Price has become a major player in the retirement market, which has ballooned as the baby boom generation prepares to retire. More than half of new money from clients went to Price's mutual funds, including the target-date retirement funds that automatically adjust asset allocations to become more conservative as an investor ages.
The nation's retirement nest eggs reached a record $16.4 trillion last year, up more than 10 percent from the year before and up 55 percent since the 2002 bear-market bottom, according to the Investment Company Institute, a mutual funds industry trade group. Defined-contribution plans and individual retirement accounts invested in mutual funds accounted for about one-fourth of the total.
Price Chief Executive Officer James A.C. Kennedy said Price might roll out new products, such as annuity-like vehicles, to cater to retirees. Some analysts have said that the company could take a hit when baby boomers start withdrawing from retirement accounts.
"Customers worked hard at accumulating assets and get to the point where they need to manage distributions," Kennedy said, "and we are looking at helping them manage those finances."
Price shares edged up 32 cents, or less than 1 percent, to $51.74 yesterday on the Nasdaq stock market.
Friedman Billings Ramsey analyst Matt Snowling said in a report that Price's results could be held back the company's need to invest in its infrastructure as it expands. He noted that total operating expenses rose 4 percent in the second quarter.
Kennedy said the company has added investment staff in Baltimore and globally, and is considering expanding its Owings Mills operation, which handles transaction and back-office functions.
What isn't in Price's growth plan is a big acquisition, Kennedy said. The company, which has no debt, has used its free cash to buy back shares, repurchasing nearly 1.6 million in the second quarter.
"If you're going to perform for the clients every time, you have to keep investing in your people, infrastructure and technology," Kennedy said. "We would much rather expand that way as opposed to major acquisitions. If we are focused on our clients, why go out and do a major acquisition? How is that going to help our current clients?"
laura.smitherman@baltsun.com