T. Rowe Price Group (TROW.O) reported an $8 billion net outflow of investor cash as part of second-quarter results that missed Wall Street expectations, and the asset manager's shares fell on Wednesday.
Although profit rose 20 percent, analysts expressed concern over the outflows since a key metric for fund firms is whether they are bringing in cash from investors.
T. Rowe Price of Baltimore said assets under management were $614 billion at June 30, up from $541.7 billion at the same point in 2012 but down from $617.4 billion at the end of March.
During the most recent quarter, market appreciation and income added $4.6 billion to T. Rowe Price's assets, but that was more than offset by the withdrawal of $8 billion by clients.
Most of the second-quarter outflows "were concentrated among a small number of large institutional and intermediary clients that changed their investment objectives or repositioned their strategy allocations," T. Rowe Price said in a statement.
T. Rowe Price Chief Executive James Kennedy said institutional clients withdrew money from investment products that were doing well as well as those with mixed track records.
"I don't want to hide and say we don't have any portfolio issues, we're not perfect," Kennedy said in a telephone interview.
But flows into other areas have held up, such as the company's popular target-date retirement funds, which now have about $101 billion in assets, Kennedy said.
For the three months ended June 30, T. Rowe Price reported net income of $247.8 million, or 92 cents per share, up from $206.8 million, or 79 cents per share, a year earlier.
Analysts had expected the company to earn 95 cents per share in the quarter, according to Thomson Reuters I/B/E/S.
The company's shares were down 5.6 percent to $75.15 in afternoon trading.
T. Rowe Price did not repurchase any shares during the quarter, which reduced profit per share about 1.5 cents below expectations, Kennedy said. He added that profit was cut by about another penny by investments the company made to seed new funds.
T. Rowe Price had posted net inflows for 2012 as a whole and during the first quarter this year, boosting its stature as one of the largest publicly traded asset managers. But funds run for large institutional investors can be volatile and T. Rowe Price reported outflows in the fourth quarter of last year.
Mac Sykes, analyst for Gabelli & Co, had expected the company to earn 96 cents per share and said he was surprised by the outflows. "Obviously it was disappointing," he said of the results.
Sykes said he plans to maintain his "buy" rating on the stock because of the relatively strong performance of its mutual funds.
"They should continue to take share in this environment," he said.
At the end of May the company closed nine of 15 investor centers and will rely more on serving retail customers via phone and online services. "Dealing with our clients over the Internet and phone has caught up to dealing with them face-to-face," Kennedy said.
Places where it closed investor centers include Century City and Walnut Creek, California; Boca Raton, Florida; and Paramus and Short Hills, New Jersey, company spokesman Brian Lewbart said via-email. Centers remain open in places close to other T. Rowe Price facilities such as in Maryland, Washington D.C. and Tysons Corner, Virginia, he said.
Also during the quarter a fund firm in India in which T. Rowe Price holds a 26 percent stake, UTI Asset Management, named Leo Puri as its managing director after two years without a top executive. The lag was reportedly tied to disagreements between T. Rowe Price its Indian partners.
Kennedy said the search that led to Puri's appointment was an open process among the company's board and that he was not troubled by Puri's lack of prior experience in asset management, as some had suggested.
"I want someone who understands the financial industry and is really smart, and that's who we have in Puri," Kennedy said. The other shareholders, all government-controlled, also liked Puri but had to be sure the government approved of the process, he said.
(Reporting by Ross Kerber; Editing by Lisa Von Ahn, Chizu Nomiyama, Chris Reese and David Gregorio)