PRICE T ROWE GROUP INC 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. EQUITY PRICE RISK. During the first quarter of 2020, the impact of the global coronavirus pandemic began to rapidly spread throughout the world and caused increasing disruption to populations, economic activity, and the global financial markets. While markets recovered sharply in the second and third quarters of 2020, the impact and ongoing uncertainty related to the pandemic continued into the end of September 2020. Since our investments in T. Rowe Price investment products are carried at fair value, these investments are subject to market risk. The following table presents the equity price risk from our investments in T. Rowe Price investment products. Investments in these products generally moderate market risk as they are diversified and invest in a number of different financial instruments. T. Rowe Price manages its cash and discretionary investments exposure to market risk by diversifying its investments among equity and fixed income portfolios. In addition, investment holdings may be altered from time to time in response to changes in market risks and other factors, as management deems appropriate. We do not actively manage the market risk related to our our seed capital investments. In order to quantify the sensitivity of our investments to changes in market valuations, we have chosen to use a variant of each product's net asset value to quantify the equity price risk, as we believe the volatility in each product's net asset value best reflects the underlying risk potential as well as the market trends surrounding each of its investment objectives. The potential future loss of value, before any income tax benefits, of these investments at September 30, 2020 was determined by using the lower of each product’s lowest net asset value per share during the first nine months of 2020 or its net asset value per share at September 30, 2020, reduced by 10%. In considering this presentation, it is important to note that: not all products experienced their lowest net asset value per share on the same day; it is likely that the composition of the investment portfolio would be changed if adverse market conditions persisted; and we could experience future losses in excess of those presented below. (in millions) Fair value 9/30/2020 Potential lower value Potential loss Investments in T. Rowe Price products Discretionary investments $ 1,005.6 $ 901.7 $ 103.9 10 % Seed capital not consolidated 160.0 74.5 85.5 53 % Investments designated as an economic hedge of supplemental savings plan liability held at fair value 565.3 413.6 151.7 27 % Total $ 1,730.9 $ 1,389.8 $ 341.1 20 % Direct investment in consolidated T. Rowe Price investment products Discretionary investments $ 284.4 $ 193.4 $ 91.0 32 % Seed capital 771.2 633.4 137.8 18 % Total $ 1,055.6 $ 826.8 $ 228.8 22 % Investment partnerships and other investments held at fair value $ 99.4 $ 83.2 $ 16.2 16 % Any losses arising from the change in fair value of investments in T. Rowe Price products would result in a corresponding decrease, net of tax, in our net income attributable to T. Rowe Price Group. The direct investment in consolidated T. Rowe Price investment products represents our portion of the net assets of the product. Upon consolidation of these products, our direct investment is eliminated, and the net assets of the products are combined in our consolidated balance sheet, together with redeemable non-controlling interests, which represents the portion of the products that is owned by unrelated third-party investors. Any losses arising from the change in fair value of our direct investments in consolidated T. Rowe Price investment products would also result in a corresponding decrease, net of tax, in our net income attributable to T. Rowe Price Group. Further, we have investments that are used to economically hedge the change in our supplemental savings plan liability. Since we are hedging the liability, the impact on our net income attributable to T. Rowe Price Group would result from any ineffectiveness of this economic hedge. Page 39