T. Rowe Price (TROW) Q3 2025: Buybacks Double as Expense Controls and Alternatives Drive Strategic Reset

October 31, 2025 | By EarningsIQ Research

T. Rowe Price doubled its share repurchases year-to-date, signaling disciplined capital allocation amid persistent U.S. equity outflows and a strategic pivot toward alternatives, digital assets, and ETFs. The firm’s collaboration with Goldman Sachs anchors a multi-year push to diversify products and distribution, while cost management and headcount reductions preserve investment capacity for growth initiatives. Management’s tone underscores both near-term flow headwinds and conviction in long-term active management and scalable solutions.

Summary

• Expense Discipline Unlocks Growth: Headcount cuts and real estate actions free capital for ETF, alternatives, and digital expansion.
• Alternatives and Digital Strategy Scales: Goldman Sachs partnership and digital asset ETF filings broaden addressable markets.
• Equity Outflows Remain a Drag: U.S. equity redemptions persist, pressuring flows and fee rates despite strong fixed income and alternatives momentum.

Performance Analysis

T. Rowe Price’s third quarter results reflect a business in transition, balancing legacy headwinds with targeted growth initiatives. Net outflows of $7.9 billion were driven by continued U.S. equity redemptions, a trend that management attributes to passive share gains and client rebalancing after strong market returns. However, these outflows were partly offset by institutional wins in fixed income and growing demand in multi-asset and alternatives, including a standout $2.6 billion of net inflows in the target date franchise and nearly $2 billion into ETFs.

Revenue growth outpaced expense increases, with adjusted operating expenses up just over 3% year-over-year, aided by lower compensation and advertising spend. The effective fee rate declined to 39.1 basis points as business mix shifted toward lower-priced vehicles such as target date trusts and ETFs. Notably, the company’s buybacks reached $484 million through September—double last year’s pace—reflecting strong cash generation and a focus on shareholder returns even as reinvestment in growth areas continues.

• Alternatives Capital Raising Surges: OHA, the firm’s alternatives platform, secured over $6 billion in gross capital commitments, setting the stage for future fee growth.
• ETF Business Gains Traction: Twelve T. Rowe ETFs now top $500 million in AUM, with five surpassing $1 billion, underscoring the wrapper’s growing relevance.
• Expense Reduction Drives Margin Flexibility: Headcount down 4% year-to-date, with further real estate and technology outsourcing underway.

Despite these positives, the persistent drag from U.S. equity outflows and fee compression remains a material watch point, with management signaling that new growth engines will take time to scale and offset legacy pressures.

Executive Commentary

Strategic Positioning

1. Alternatives and Private Markets Expansion

The partnership with Goldman Sachs marks a pivotal move to embed alternatives and private market exposure within retirement and wealth solutions. Four co-developed product lines—target date sister series, model portfolios, multi-asset solutions, and managed accounts—are set to launch through 2026. OHA, the firm’s private credit affiliate, anchors the alternatives sleeve, and early capital raising momentum ($6 billion in the quarter) signals institutional appetite. Management sees these offerings as highly scalable, with ambitions “meaningfully greater than a couple billion dollars” over a multi-year horizon.

2. Digital Assets and ETF Momentum

T. Rowe Price’s digital asset strategy is moving from incubation to commercialization, with a multi-token crypto ETF (technically an ETP, exchange-traded product) in the pipeline. Internal seed capital and a proprietary digital asset platform underpin the firm’s conviction that digital assets will become a material portfolio allocation for clients. Meanwhile, the ETF business is gaining share, doubling its U.S. active ETF market share over the past two years and expanding both product breadth and distribution. Management is investing in specialized ETF sales and marketing resources to accelerate adoption across RIA and wealth channels.

3. Expense Management and Capital Allocation

Cost controls are central to T. Rowe’s ability to reinvest in growth, with a multi-pronged program targeting headcount, technology sourcing, and real estate rationalization. The exit of two unoccupied buildings will trigger a $100 million non-recurring charge in Q4, but management emphasizes that these actions will keep controllable expense growth in the low single digits through 2027. The firm’s robust balance sheet ($4.3 billion in cash and discretionary investments) and accelerated buybacks underscore disciplined capital deployment amid industry change.

4. Active Management Conviction Amid Market Concentration

Management remains steadfast in its belief that active management will regain ground post-concentration, citing historical parallels (Nifty 50, TMT bubble) and the risks of passive exposure at current market extremes. While recent performance has lagged in some equity segments due to narrow market leadership, fixed income and target date blends are delivering strong relative results. Portfolio manager changes and introspective attribution reviews are underway to address stock selection shortfalls.

Key Considerations

This quarter underscores the tension between legacy business headwinds and the scaling of new growth engines. Investors should weigh the pace of alternatives and ETF adoption against continued equity outflows and fee compression.

Key Considerations:

• Alternatives Pipeline Conversion: The $6 billion in OHA capital commitments must translate into fee-generating AUM to materially impact results.
• ETF Share Gains Require Platform Placement: Success hinges on third-party model adoption and deeper penetration of wealth channels.
• Expense Savings Must Fund Growth: Real estate exits and technology outsourcing are designed to preserve investment in AI, digital, and product innovation.
• Equity Outflows Remain a Core Risk: U.S. equity redemptions and passive migration continue to weigh on flows and fee rates, with no near-term inflection signaled.
• Digital Assets Offer Optionality: Early digital asset initiatives position T. Rowe for emerging demand, but regulatory and adoption risks remain.

Risks

Persistent U.S. equity outflows and fee compression threaten near-term revenue stability, especially if passive share gains accelerate or market concentration persists. Alternatives and digital bets require sustained execution and regulatory clarity, while expense actions carry cultural and operational risks. Regulatory developments around retirement plan alternatives and digital assets could materially alter product adoption timelines.

Forward Outlook

For Q4 2025, T. Rowe Price expects:

• Seasonal expense increases in long-term incentive compensation, advertising, and G&A, not expected to carry into Q1 2026.
• Non-recurring $100 million real estate charge, excluded from adjusted results.

For full-year 2025, management maintained guidance:

• Adjusted operating expense growth (ex-carried interest) of 2% to 4% over 2024, with low single-digit controllable expense growth targeted for 2026 and 2027.

Management highlighted several factors that will shape the outlook:

• Alternatives and ETF growth must accelerate to offset equity outflows.
• Expense discipline will fund continued investment in distribution, digital, and AI capabilities.

Takeaways

Investors face a crosscurrent of headwinds and strategic pivots as T. Rowe Price reshapes its growth profile.

• Capital Allocation Shift: Doubling of buybacks and expense discipline reflect a pragmatic approach to balancing shareholder returns and strategic reinvestment.
• Growth Hinges on Execution: Success in alternatives, ETFs, and digital assets is essential to offsetting legacy outflows and compressing fee rates.
• Watch for Flow Inflection: Continued U.S. equity redemptions and slow institutional pipeline signal that new growth levers must scale rapidly to change the trajectory.

Conclusion

T. Rowe Price’s Q3 2025 results reveal a firm leaning into expense management and product innovation, even as legacy equity outflows and fee pressures persist. The strategic collaboration with Goldman Sachs, digital asset initiatives, and ETF expansion offer credible paths to diversification, but the speed of transition remains the central investor question.

Industry Read-Through

T. Rowe Price’s pivot toward alternatives, digital assets, and ETF wrappers is emblematic of broader asset management industry trends, as traditional active equity franchises face sustained outflows and fee pressure. The Goldman Sachs partnership highlights the growing importance of scale, distribution alliances, and multi-asset solutions for retirement and wealth channels. The focus on cost controls and capital return will likely become more prevalent across the sector, especially as firms seek to fund digital and AI investments without compromising profitability. Competitors with strong alternatives platforms and digital distribution will be best positioned to capture the next phase of industry growth.

TROW Financials Asset Management Alternatives ETFs Digital Assets Expense Management Share Buybacks