What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-07-28 · 201 added, 194 removed, 606 unchanged (39% of the section changed)

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The other affiliated products include:

open-ended investment products offered to investors outside the U.S., products offered through variable annuity life insurance plans in the U.S., affiliated private investment funds or private accounts, and collateralized loan obligations.

We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services;

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and non-discretionary advisory services through model delivery.

Additionally, we also derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements also known as carried interest.

Additionally, we derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements also known as carried interest.

We manage a broad range of U.S., international and global stock, bond, money market mutual funds, collective investment trusts and other investment products as well as affiliated private investment funds or private accounts, and collateralized loan obligations, which meet the varied needs and objectives of individual and institutional investors.

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We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities").

As of June 30, 2022, OHA had $57 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).

As of September 30, 2022, OHA had $56 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).

MARKET TRENDS.

stock indexes declined considerably in the second quarter of 2022, adding to first-quarter losses and capping the S&P 500 Index’s worst first half of a calendar year in decades.

As measured by various Russell indexes, growth stocks fared worse than value stocks across all market capitalizations.

Investors continued to shun riskier assets in response to Russia’s invasion of Ukraine, elevated inflation exacerbated by rising commodity prices, and a more aggressive pace of Federal Reserve interest rate increases following its raising of the fed funds target rate in mid-March.

Investors were also concerned about inflation’s impact on consumer spending and corporate profits, particularly as some high-profile companies and major retailers disappointed with their financial results or projections.

Developed European markets fell broadly in U.S.

dollar terms, as the European Central Bank prepared to begin raising short-term interest rates in July.

Stocks in Sweden fared worst, dropping 21%, while shares in the Netherlands and Ireland fell about 19%.

Shares in the UK held up relatively well, falling about 10%, as currency weakness helped support multinational companies with overseas earnings.

Most developed markets in Asia fell sharply, but shares in Hong Kong held up very well, falling only about 1%.

In emerging Asia, several markets fell sharply in dollar terms.

Chinese shares rose, however, helped by an easing of coronavirus lockdown measures in parts of the country.

In emerging Europe, shares in Poland and Hungary plunged 27% and 26%, respectively, hurt by their close proximity to the Russian-Ukrainian conflict.

In Latin America, markets in Chile and Mexico fell about 15%, while stocks in Peru plunged 30%.

stock indexes declined in the third quarter of 2022.

Shares advanced through mid-August, helped by second-quarter corporate earnings reports that were better than expected.

Investors were also hopeful that the Federal Reserve, which raised short-term interest rates in late July, would slow the pace of its rate increases in response to tentative signs that inflation was retreating from recent peaks.

However, equities plunged and U.S.

Treasury yields rose in the second half of the third quarter of 2022, as comments from Federal Reserve officials indicated that they would be willing to risk causing a recession by raising rates and keeping them at a higher level in order to bring inflation down.

Toward the end of September 2022, investor sentiment deteriorated further as the Federal Reserve raised rates again, Treasury yields reached multi-year highs, and UK government bond yields surged in reaction to the UK government’s plan to cut taxes, increase energy subsidies, and boost borrowing.

Stocks in developed non-U.S.

markets underperformed U.S.

shares, as a stronger U.S.

dollar reduced overseas returns to U.S.

Developed markets in Asia were broadly negative.

Shares in Singapore fell only about 1.5%, while Hong Kong stocks plunged about 17%.

In Europe, UK shares dropped almost 11% in dollar terms.

Two of the worst-performing European markets were Austria and Norway, where stocks fell about 15%.

Stocks in emerging markets generally performed worse than their counterparts in developed markets.

In Asia, Chinese stocks plunged amid concerns about slower growth in the world’s second-largest economy.

In emerging Europe, most major markets declined, but Turkish stocks surged 16% in dollar terms as the central bank reduced interest rates twice despite year-over-year inflation of about 80%.

Markets in Latin America were mixed.

Mexican stocks slipped 5%, while Brazilian stocks advanced more than 8%.

Returns of several major equity market indexes were as follows:

Three months ended Six months ended

Three months ended Nine months ended

Index 9/30/2022 9/30/2022

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(1) Returns exclude dividends

Global bond prices declined in the second quarter of 2022, extending first-quarter losses, as interest rates rose in many countries due to elevated inflation.

In the U.S., Treasury yields rose and the Federal Reserve increased official short-term interest rates twice.

The fed funds target rate range at the end of June was 1.50% to 1.75%.

Global bond prices declined in the third quarter of 2022, as bond yields rose and central banks increased short-term interest rates in many countries due to elevated inflation.

In the U.S., Treasury yields reached levels unseen since 2007-2008 and the Federal Reserve increased official short-term interest rates twice.

The fed funds target rate range at the end of September was 3.00% to 3.25%.

The 10-year U.S.

Treasury note yield increased from 2.98% to 3.83% during the quarter.

In the taxable investment-grade universe, corporate bonds fared worst as interest rates rose and credit spreads widened amid concerns about the economy and corporate earnings.

Treasury and mortgage-backed securities also declined materially.

In the investment-grade universe, corporate and mortgage-backed securities were among the worst-performing issues.

Treasury and commercial mortgage-backed securities also declined considerably.

Asset-backed securities lost value but held up better than other investment-grade segments.

Tax-free municipal bonds declined but outperformed the taxable bond market.

High yield bonds performed poorly as credit spreads widened and investors were concerned about weaker corporate earnings and a possible recession.

High yield bonds, which have less sensitivity to rising interest rates than higher-quality issues, held up well.

Bonds in developed non-U.S.

markets tumbled, as interest rates in many developed countries increased, and losses to U.S.

investors were exacerbated by a stronger U.S.

The British pound and the euro declined approximately 8% and 6%, respectively, versus the dollar.

The Japanese yen fell more than 10%—to levels not seen in more than two decades—as Japanese monetary policy remained stimulative and diverged from the tightening stances adopted by many other central banks.

Emerging markets bonds declined as investors were risk averse and as central banks in emerging countries raised interest rates to fight inflation and defend weakening currencies.

Most emerging markets currencies depreciated versus the dollar.

markets fell sharply;

losses to U.S.

investors were exacerbated by a stronger dollar.

The euro fell more than 6%, even though the European Central Bank raised short-term interest rates in July and September.

The British pound plunged 8%, and UK government bond yields surged in September, resulting in the Bank of England purchasing long-term UK government debt in an effort to stabilize the market.

The Japanese yen slumped more than 6%—to levels not seen in more than two decades—which prompted the Bank of Japan to intervene in the currency market in late September in an attempt to support the yen.

Emerging markets bonds declined as central banks in many developing countries raised interest rates to fight inflation and defend their weakening currencies.

Local currency bonds fared slightly worse than dollar-denominated debt, as most emerging markets currencies depreciated versus the dollar.

Returns for several major bond market indexes were as follows:

Three months ended Six months ended

Three months ended Nine months ended

Index 9/30/2022 9/30/2022

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JPMorgan Emerging Markets Bond Index Plus (5.5)% (30.7)%

Bank of America U.S.

High Yield Index (1.6)% (13.8)%

JPMorgan Leveraged Loan Index 1.9% (2.0)%

ASSETS UNDER MANAGEMENT.

Assets under management ended the second quarter of 2022 at $1,309.7 billion, a decrease of $242.1 billion from March 31, 2022 and $378.1 billion from the end of 2021.

The Q2 decrease in assets under management was driven by market depreciation, including net distributions not reinvested, of $227.4 billion and net cash outflows of $14.7 billion.

Assets under management ended the third quarter of 2022 at $1,230.0 billion, a decrease of $79.7 billion from June 30, 2022 and $457.8 billion from the end of 2021.

The decrease in assets under management during the third quarter of 2022 was driven by market depreciation, including net distributions not reinvested, of $55.1 billion and net cash outflows of $24.6 billion.

Clients transferred $3.3 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $2.2 billion transferred into the retirement date trusts.

For the six months ended June 30, 2022, the decrease in assets under management was driven by market depreciation, including net distributions not reinvested, of $358.1 billion and net cash outflows of $20.0 billion.

For the nine months ended September 30, 2022, the decrease in assets under management was driven by market depreciation, including net distributions not reinvested, of $413.2 billion and net cash outflows of $44.6 billion.

Clients transferred $10.3 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $7.1 billion transferred into the retirement date trusts.

The following tables detail changes in our assets under management, by vehicle and asset class, during the three- and six-month periods ended June 30, 2022:

Three months ended 6/30/2022 Six months ended 6/30/2022

The following tables detail changes in our assets under management, by vehicle and asset class, during the three- and nine-month periods ended September 30, 2022:

Three months ended 9/30/2022 Nine months ended 9/30/2022

(in billions) U.S.

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Change during the period (42.6) (26.3) (10.8) (79.7) (256.9) (130.6) (70.3) (457.8)

Assets under management at June 30, 2022 $ 657.1 $ 332.8 $ 319.8 $ 1,309.7 $ 657.1 $ 332.8 $ 319.8 $ 1,309.7

Three months ended 6/30/2022 Six months ended 6/30/2022

Assets under management at September 30, 2022 $ 614.5 $ 306.5 $ 309.0 $ 1,230.0 $ 614.5 $ 306.5 $ 309.0 $ 1,230.0

Three months ended 9/30/2022 Nine months ended 9/30/2022

(in billions) Equity Fixed income, including money market Multi-asset (2)

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Change during the period (51.8) (5.7) (21.8) (.4) (79.7) (344.9) (10.3) (103.6) 1.0 (457.8)

Assets under management at June 30, 2022 $ 699.6 $ 171.1 $ 395.9 $ 43.1 $ 1,309.7 $ 699.6 $ 171.1 $ 395.9 $ 43.1 $ 1,309.7

Assets under management at September 30, 2022 $ 647.8 $ 165.4 $ 374.1 $ 42.7 $ 1,230.0 $ 647.8 $ 165.4 $ 374.1 $ 42.7 $ 1,230.0

(1) Includes fee basis assets under management.

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(4) Includes distributions reinvested and not reinvested.

Investment advisory clients outside the United States account for 9.4% of our assets under management at June 30, 2022, 9.7% at March 31, 2022, and 9.9% at December 31, 2021.

Investment advisory clients outside the United States account for 9.0% of our assets under management at September 30, 2022, 9.4% at June 30, 2022, and 9.9% at December 31, 2021.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management.

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Net cash inflows (outflows)

Assets under management Three months ended Six months ended

Assets under management Three months ended Nine months ended

(in billions) 9/30/2022 6/30/2022 12/31/2021 9/30/2022 9/30/2021 9/30/2022 9/30/2021

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We also offer advice solutions through retail separately managed accounts and separately managed accounts model delivery.

As of June 30, 2022, total assets in these solutions were $405 billion, of which $398 billion are included in our reported assets under management in the tables above.

As of September 30, 2022, total assets in these solutions were $383 billion, of which $376 billion are included in our reported assets under management in the tables above.

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S.

mutual funds, collective investment trusts and funds outside of the firm's complex.

As of June 30, 2022, our assets under administration were $216 billion, of which nearly $133 billion are assets we manage.

As of September 30, 2022, our assets under administration were $206 billion, of which nearly $125 billion are assets we manage.

INVESTMENT PERFORMANCE.

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Our performance disclosures include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following tables present investment performance for the one-, three-, five-, and 10-years ended June 30, 2022.

The following tables present investment performance for the one-, three-, five-, and 10-years ended September 30, 2022.

Past performance is no guarantee of future results.

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All Composites 32% 44% 41% 71%

As of June 30, 2022, 69 of 124 (55.6%) of the firm's rated U.S.

As of September 30, 2022, 73 of 124 (58.9%) of the firm's rated U.S.

mutual funds (across primary share classes) received an overall rating of 4 or 5 stars.

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In addition, 72% (5) of AUM in the firm's rated U.S.

mutual funds (across primary share classes) ended June 30, 2022 with an overall rating of 4 or 5 stars.

mutual funds (across primary share classes) ended September 30, 2022 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T.

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RESULTS OF OPERATIONS.

The following table and discussion sets forth information regarding our consolidated financial results for the three and six months ended June 30, 2022 and 2021 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three and nine months ended September 30, 2022 and 2021 on a U.S.

GAAP basis as well as a non-GAAP basis.

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Three months ended Q3 2022 vs.

Q2 2021 Six months ended YTD 2022 vs.

Q3 2021 Nine months ended YTD 2022 vs.

(in millions, except per-share data) 9/30/2022 9/30/2021 $ change % change 9/30/2022 9/30/2021 $ change % change

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GAAP measures at the end of the Results of Operations section of this Management’s Discussion and Analysis.

Results Overview - Quarter ended June 30, 2022

Results Overview - Quarter ended September 30, 2022

Net revenues consist of investment advisory revenues;

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and capital allocation-based income.

Total net revenues were $1,513.0 million in the second quarter of 2022 compared with $1,929.3 million in the second quarter of 2021.

Total net revenues were $1,588.2 million in the third quarter of 2022 compared with $1,954.1 million in the third quarter of 2021.

Investment advisory fees are generally earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows.

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Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Capital allocation income will fluctuate quarter-to-quarter to reflect the adjustment made to accrued carried interest for the change in value of the affiliated funds as if the funds’ underlying investments were realized as of June 30, 2022, regardless of whether the funds’ underlying investments have been realized.

Capital allocation income will fluctuate quarter-to-quarter to reflect the adjustment to accrued carried interest for the change in value of the affiliated funds assuming the funds’ underlying investments were realized as of September 30, 2022, regardless of whether the funds’ underlying investments have been realized.

Operating expenses on a U.S.

GAAP basis were $844.4 million in the second quarter of 2022 compared with $971.2 million in the second quarter of 2021.

GAAP basis were $1,013.6 million in the third quarter of 2022 compared with $957.9 million in the third quarter of 2021.

On a non-GAAP basis, operating expenses were $1,028.2 million, a 7.4% increase over the comparable 2021 period.

Our non-GAAP operating expenses exclude the impact of the supplemental savings plan, consolidated sponsored products, the remeasurement of the contingent consideration liability, amortization of certain acquisition-related assets, and other acquisition-related costs.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Our operating expenses in the second quarter of 2022 include OHA's operating expenses as a result of the acquisition at the end of 2021.

OHA's operating

expenses primarily impact compensation expense;

Our operating expenses in the third quarter of 2022 include OHA's operating expenses, including the accrued carried interest compensation associated with the capital allocation-based income.

OHA's operating expenses primarily impact compensation expense;

technology, occupancy, and facility costs;

and general, administrative and other costs.

The increase in our non-GAAP operating expenses was primarily attributable to higher salaries and benefits, the addition of OHA operating expenses, and higher costs related to the ongoing investment in the firm's technology capabilities.

These increases were mostly offset by lower distribution and servicing costs due to lower average assets under management.

The second quarter of 2022 non-GAAP operating expenses includes compensation-related expenses associated with capital allocation-based income.

Operating margin in the second quarter of 2022 was 44.2%, compared to 49.7% earned in the 2021 quarter.

The decrease in our operating margin for the second quarter of 2022 compared to the 2021 period was primarily driven by larger decreases in net revenues, primarily investment advisory fee revenue, as compared to the decreases in operating expenses, primarily due to the decrease in the supplemental savings plan liability, in the second quarter of 2022.

Further, the impacts of capital allocation-based income and carried interest-related compensation are reflected in the operating margin for the second quarter of 2022.

Diluted earnings per share was $1.46 for the second quarter of 2022 as compared to $3.46 for the second quarter of 2021.

The decrease was primarily driven by lower operating income and by net investment losses recognized in the second quarter of 2022 as compared to net investment gains in the second quarter of 2021, as market performance in the second quarter of 2022 was outpaced by the strong market returns in 2021.

On a non-GAAP basis, diluted earnings per share was $1.79 for the second quarter of 2022 as compared to $3.31 for the second quarter of 2021.

In comparison to the third quarter of 2021, the increase in our non-GAAP operating expenses was primarily attributable to higher salaries and benefits, including higher non-cash stock-based compensation expense;

the addition of OHA operating expenses;

and higher costs related to the ongoing investment in our technology capabilities.

These increases were partially offset by lower distribution and servicing costs due to lower average assets under management and a lower interim bonus accrual.

Operating margin in the third quarter of 2022 was 36.2%, compared to 51.0% earned in the 2021 quarter.

The decrease in our operating margin for the third quarter of 2022 compared to the 2021 period was primarily driven by the decrease in investment advisory fee revenue and the increases in operating expenses, primarily due to the increase in the compensation expenses, in the third quarter of 2022.

Further, the impacts of capital allocation-based income and related compensation are reflected in the operating margin for the third quarter of 2022.

Diluted earnings per share was $1.66 for the third quarter of 2022 as compared to $3.31 for the third quarter of 2021.

The decrease was primarily driven by lower operating income and by higher net investment losses recognized in the third quarter of 2022 as compared to the third quarter of 2021, as market returns in the third quarter of 2022 were weaker than market returns in 2021.

On a non-GAAP basis, diluted earnings per share was $1.86 for the third quarter of 2022 as compared to $3.27 for the third quarter of 2021.

Similar to our U.S.

GAAP diluted earnings, the decrease is largely attributable to lower operating income compared to the 2021 period and net investment losses on our cash investment strategy recognized in the second quarter of 2022 as compared to net investment gains in the second quarter of 2021.

Results Overview - Year-to-Date ended June 30, 2022

GAAP diluted earnings per share, the decrease is largely attributable to lower operating income compared to the 2021 period.

Results Overview - Year-to-Date ended September 30, 2022

Net revenues consist of investment advisory revenues;

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and capital allocation-based income.

Total net revenues were $3,376.0 million in the six months ended June 30, 2022 compared with $3,756.1 million in the six months ended June 30, 2021.

Operating expenses were $1,830.0 million in the six months ended June 30, 2022 compared with $1,904.8 million in the 2021 period.

On a non-GAAP basis, our operating expenses for the six months ended June 30, 2022 increased 7.9% to $1,986.4 million compared to the 2021 period.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Our operating expenses for the six months ended June 30, 2022 include OHA's operating expenses as a result of the acquisition at the end of 2021.

Total net revenues were $4,964.2 million in the nine months ended September 30, 2022 compared with $5,710.2 million in the nine months ended September 30, 2021.

Operating expenses were $2,843.6 million in the nine months ended September 30, 2022 compared with $2,862.7 million in the 2021 period.

On a non-GAAP basis, our operating expenses for the nine months ended September 30, 2022 increased 7.7% to $3,014.6 million compared to the 2021 period.

Our operating expenses for the nine months ended September 30, 2022 include OHA's operating expenses, including the accrued carried interest compensation associated with the capital allocation-based income.

OHA's operating expenses primarily impact compensation expense;

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and general, administrative and other costs.

The increase in our non-GAAP operating expenses for the six months ended June 30, 2022 compared with the 2021 period was primarily due to higher compensation expenses, including increased salaries and benefits.

The addition of OHA operating expenses and higher technology and facility costs also contributed to the increase.

These increases were partially offset by lower distribution and servicing costs due to lower average assets under management.

We updated our forecasted 2022 non-GAAP operating expenses from a range of 10% to 14% to a range of 4% to 7% to reflect lower market-related expenses and a slower pace of hiring.

The addition of a full-year of OHA's operating expenses, since the acquisition at end of 2021, is driving most of the 2022 forecasted expense growth.

The increase in our non-GAAP operating expenses for the nine months ended September 30, 2022 compared with the 2021 period was primarily due to higher salaries and benefits, including non-cash stock-based compensation;

the addition of OHA operating expenses;

and higher costs related to the ongoing investment in our technology capabilities.

These increases were mostly offset by lower distribution and servicing costs due to lower average assets under management and a lower interim bonus accrual.

We continue to expect our forecasted 2022 non-GAAP operating expenses growth to be in the range of 4% to 7%.

The range reflects lower market-related expenses and continued efforts to manage expense growth.

The addition of OHA's operating expenses, since the acquisition at end of 2021, is driving nearly all of the 2022 forecasted expense growth.

We could elect to further adjust our expense growth should unforeseen circumstances arise, including significant market movements.

Operating margin in the six months ended June 30, 2022 was 45.8%, compared to 49.3% earned in the 2021 period.

The decrease in our operating margin for the six months ended June 30, 2022 compared to the 2021 period was primarily driven by larger decreases in net revenues, primarily investment advisory fee revenue, as compared to the decreases in operating expenses, primarily the decrease in the supplemental savings plan liability, for the six

months ended June 30, 2022.

Further, the impacts of capital allocation-based income and carried interest-related compensation are reflected in the operating margin for the six months ended June 30, 2022.

Diluted earnings per share was $3.88 for the six months ended June 30, 2022 as compared to $6.63 for the six months ended June 30, 2021.

The 41.5% decrease was primarily driven by net investment losses recognized in the six months ended June 30, 2022 as compared to net investment gains in the six months ended June 30, 2021, as the market performance in the second quarter of 2022 was outpaced by the strong market returns in 2021, and by lower operating income.

On a non-GAAP basis, diluted earnings per share was $4.42 for the six months ended June 30, 2022 as compared to $6.32 for the 2021 period.

The decrease in adjusted diluted earnings per share was primarily due to lower operating income compared to 2021 period and net investment losses on our cash investment strategy recognized in the six months ended June 30, 2022 as compared to net investment gains in the six months ended June 30, 2021.

Operating margin in the nine months ended September 30, 2022 was 42.7%, compared to 49.9% earned in the 2021 period.

The decrease in our operating margin for the nine months ended September 30, 2022 compared to the 2021 period was primarily driven by a larger decrease in investment advisory fee revenue as compared to the decrease in operating expenses, primarily the decrease in the supplemental savings plan liability, for the nine months ended September 30, 2022.

Further, the impacts of capital allocation-based income and carried interest-related compensation are reflected in the operating margin for the nine months ended September 30, 2022.

Diluted earnings per share was $5.54 for the nine months ended September 30, 2022 as compared to $9.94 for the nine months ended September 30, 2021.

The 44.3% decrease was primarily driven by net investment losses recognized in the nine months ended September 30, 2022, as compared to net investment gains in the nine months ended September 30, 2021, as market returns in the third quarter of 2022 were weaker than the market returns in 2021, and by lower operating income.

On a non-GAAP basis, diluted earnings per share was $6.28 for the nine months ended September 30, 2022 as compared to $9.59 for the 2021 period.

The decrease in adjusted diluted earnings per share was primarily due to lower operating income compared to 2021 period and net investment losses on our cash investment strategy recognized in the nine months ended September 30, 2022 as compared to net investment gains in the nine months ended September 30, 2021.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Three months ended Q3 2022 vs.

Q2 2021 Six months ended YTD 2022 vs.

Q3 2021 Nine months ended YTD 2022 vs.

(in millions) 9/30/2022 9/30/2021 $ change % change 9/30/2022 9/30/2021 $ change % change

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Investment advisory fees

Investment advisory revenues earned in the second quarter of 2022 decreased over the comparable 2021 quarter as average assets under management decreased $178.2 billion, or 11.2%, to $1,407.1 billion.

For the six months ended June 30, 2022, investment advisory revenues decreased over the comparable 2021 period as average assets under management decreased $64.1 billion, or 4.1%, to $1,483.0 billion.

In the second quarter of 2022, we did not waive a significant level of money market investment advisory fees.

For the six months ended June 30, 2022, we voluntarily waived $9.3 million, or less than 1%, of our investment advisory fees.

At June 30, 2022, combined net assets of the investment portfolios in which we waived fees for the six months ended June 30, 2022 were $23.6 billion.

For the six months ended June 30, 2021, we waived money market investment advisory fees of $29.3 million.

The total average annualized effective fee rate earned during the second quarter of 2022 was 42.7 basis points, compared with 45.2 basis points earned during the second quarter of 2021 and 43.2 basis points earned during the first quarter of 2022.

The total average annualized effective fee rate earned during the six months ended June 30, 2022 was 43.0 basis points, compared with 45.3 basis points during the six months ended June 30, 2021.

The total average annualized effective fee rate has declined in comparison to the first quarter of 2022 and the second quarter and year-to-date periods of 2021 due to transfers to lower fee vehicles and an asset class mix shift to lower fee strategies due to market volatility, offset slightly by a reduction in money market fee waivers.

Further, in comparison to second quarter and year-to-date period of 2021, the annualized effective fee rate was also impacted by the July 2021 target date fee reductions, partially offset by a higher-than-average effective fee rate earned on the firm's alternative asset class.

Investment advisory revenues earned in the second quarter of 2022 from our U.S.

Investment advisory revenues earned in the third quarter of 2022 decreased over the comparable 2021 quarter as average assets under management decreased $301.2 billion, or 18.3%, to $1,347.5 billion.

For the nine months ended September 30, 2022, investment advisory revenues decreased over the comparable 2021 period as average assets under management decreased $144.2 billion, or 9.1%, to $1,437.1 billion.

In the third quarter of 2022, we did not voluntarily waive money market investment advisory fees.

For the nine months ended September 30, 2022, we voluntarily waived $9.3 million, or less than 1%, of our investment advisory fees.

At September 30, 2022, combined net assets of the investment portfolios in which we waived fees for the nine months ended September 30, 2022 were $23.9 billion.

For the nine months ended September 30, 2021, we waived money market investment advisory fees of $43.0 million.

The total average annualized effective fee rate earned during the third quarter of 2022 was 42.5 basis points, compared with 43.6 basis points earned during the third quarter of 2021 and 42.7 basis points earned during the second quarter of 2022.

The total average annualized effective fee rate earned during the nine months ended September 30, 2022 was 42.8 basis points, compared with 44.7 basis points during the nine months ended September 30, 2021.

The total average annualized effective fee rate has declined in comparison to the second quarter of 2022 and the third quarter and year-to-date periods of 2021 due to a mix shift toward lower fee asset classes and vehicles as a result of market declines and net flows, partially offset slightly by a reduction in money market fee waivers.

Further, in comparison to third quarter and year-to-date period of 2021, the annualized effective fee rate was also impacted by a higher-than-average effective fee rate earned on the firm's alternative asset class.

Investment advisory revenues earned in the third quarter of 2022 from our U.S.

mutual funds were $841.7 million, a decrease of 25.2% from the comparable 2021 quarter.

Average assets under management in these funds for the second quarter of 2022 decreased 16.2% from the 2021 quarter to $711.1 billion.

The annualized effective fee rate of 49.4 basis points for the second quarter of 2022 decreased from 51.9 basis points in the second quarter 2021 primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee asset classes within the complex over the last twelve months.

For the six months ended June 30, 2022, investment advisory revenues earned from the firm's U.S.

Average assets under management in these funds for the third quarter of 2022 decreased 23.1% from the 2021 quarter to $677.6 billion.

The annualized effective fee rate of 49.3 basis points for the third quarter of 2022 decreased from 50.7 basis points in the third quarter 2021 primarily due to a mix shift towards lower fee asset and share classes as a result of market declines and net flows, including client transfers to the firm’s collective investment trusts.

For the nine months ended September 30, 2022, investment advisory revenues earned from the firm's U.S.

mutual funds were $2,694.4 million, a decrease of 17.7% from the 2021 period.

Average assets under management in these funds for the six months ended June 30, 2022 decreased 9.3% from the 2021 period to $754.3 billion.

The annualized effective fee rate of 49.5 basis points for the six months ended June 30, 2022 decreased from 52.1 basis points in the six months ended June 30, 2021, primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee asset classes within the complex over the last twelve months.

Average assets under management in these funds for the nine months ended September 30, 2022 decreased 14.1% from the 2021 period to $728.5 billion.

The annualized effective fee rate of 49.4 basis points for the nine months ended September 30, 2022 decreased from 51.6 basis points in the nine months ended September 30, 2021, primarily due to the July 2021 fee reductions in our target-date products and a mix shift towards lower fee asset classes as a result of market declines and net flows, partially offset by a reduction in money market fee waivers.

Subadvised funds, separate accounts, collective investment trusts and other investment products (other portfolios)

Investment advisory revenues earned in the second quarter of 2022 from these other portfolios were $620.5 million, a decrease of 10.0% from the comparable 2021 quarter.

Investment advisory revenues earned in the third quarter of 2022 from these other portfolios were $600.3 million, a decrease of 12.7% from the comparable 2021 quarter.

Average assets under management for these products decreased 12.7% from the 2021 quarter to $669.9 billion.

Investment advisory revenues and average assets under management in Q2 2022 reflect OHA's revenue and related average assets under management.

The annualized effective fee rate of 35.8 basis points for the second quarter of 2022 decreased from 37.5 basis points in the second quarter of 2021.

The decrease was primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee vehicles and asset classes within the complex over the last twelve months.

These fee pressures were partially offset by the higher-than-average fee rate earned on our alternative asset class.

For the six months ended June 30, 2022, investment advisory revenues earned from subadvised and separate accounts, as well as collective investment trusts and other investment products, were $1,306.1 million, a decrease of 1.6% from the 2021 period.

Average assets under management for these products increased 1.8% from the 2021 period to $728.7 billion.

The annualized effective fee rate of 36.1 basis points for the six months ended June 30, 2022 decreased from 37.4 basis points for the six months ended June 30, 2021.

Our annualized effective fee rate for our other portfolios decreased primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee vehicles and asset classes within the complex over the last twelve months.

The annualized effective fee rate of 35.6 basis points for the third quarter of 2022 increased from 35.5 basis points in the third quarter of 2021.

The increase was primarily due to the higher-than-average fee rate earned on our alternative asset class, mostly offset by a mix shift towards lower fee asset classes as a result of market declines and net flows, including client transfers

For the nine months ended September 30, 2022, investment advisory revenues earned from subadvised and separate accounts, as well as collective investment trusts and other investment products, were $1,906.4 million, a decrease of 5.4% from the 2021 period.

Average assets under management for these products decreased 3.4% from the 2021 period to $708.6 billion.

The annualized effective fee rate of 36.0 basis points for the nine months ended September 30, 2022 decreased from 36.7 basis points for the nine months ended September 30, 2021.

Our annualized effective fee rate for our other portfolios decreased primarily due to the July 2021 fee reductions in our target-date products and a mix shift towards lower fee asset classes and vehicles as a result of market declines and net flows.

These fee pressures were partially offset by the higher-than-average fee rate earned on our alternative asset class.

Administrative, distribution, and servicing fees in the second quarter of 2022 were $142.6 million, an increase of $.5 million, or .4%, from the comparable 2021 quarter.

For the six months ended June 30, 2022, these fees were $299.1 million, an increase of $18.0 million, or 6.4%, from the 2021 period.

Administrative, distribution, and servicing fees in the third quarter of 2022 were $145.1 million, an increase of $4.4 million, or 3.1%, from the comparable 2021 quarter.

For the nine months ended September 30, 2022, these fees were $444.2 million, an increase of $22.4 million, or 5.3%, from the 2021 period.

The increase in both periods was primarily due to higher transfer agent servicing activities provided to the T.

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The decrease in 12b-1 revenue is offset entirely by a decrease in the costs paid to third-party intermediaries that source these assets and are reported in distribution and servicing expense.

Capital allocation-based income in the second quarter of 2022 reduced net revenues by $126.3 million.

The second quarter of 2022 amount represents $113.0 million in market-related reductions of accrued carried interest from investments in affiliated private investment funds and $13.3 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

For the six months ended June 30, 2022, capital allocation-based income reduced net revenues by $81.9 million.

The six months ended June 30, 2022 amount represents $55.4 million in market-related reductions of accrued carried interest from investments in affiliated private investment funds and $26.5 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

Capital allocation-based income in the third quarter of 2022 increased net revenues by $1.1 million.

The third quarter of 2022 amount represents an increase of $14.3 million in accrued carried interest from investments in affiliated investment funds, substantially offset by $13.2 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

For the nine months ended September 30, 2022, capital allocation-based income reduced net revenues by $80.8 million.

The nine months ended September 30, 2022 amount represents reductions of $41.1 million in accrued carried interest from investments in affiliated investment funds and $39.7 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

Our net revenues reflect the elimination of advisory and administrative fee revenue earned from our consolidated

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The corresponding expenses recognized by these products, and consolidated in our financial statements, were also eliminated from operating expenses.

For the second quarter, we eliminated

net revenue of $.6 million in 2022 and $1.1 million in 2021.

For the six months ended June 30, we eliminated net revenue of $1.5 million in 2022 and $2.4 million in 2021.

For the third quarter, we eliminated net revenue of $.5 million in 2022 and $1.6 million in 2021.

For the nine months ended September 30, we eliminated net revenue of $2.0 million in 2022 and $4.0 million in 2021.

Operating expenses

Three months ended Q3 2022 vs.

Q2 2021 Six months ended YTD 2022 vs.

Q3 2021 Nine months ended YTD 2022 vs.

(in millions) 9/30/2022 9/30/2021 $ change % change 9/30/2022 9/30/2021 $ change % change

Compensation and related costs, excluding acquisition-related retention agreements and supplemental savings plan $ 544.6 $ 566.1 $ (21.5) (3.8) % $ 1,163.6 $ 1,127.4 $ 36.2 3.2 %

Compensation and related costs, excluding acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan $ 595.6 $ 564.9 $ 30.7 5.4 % $ 1,781.3 $ 1,692.3 $ 89.0 5.3 %

Acquisition-related retention agreements 17.1 — 17.1 n/m 54.3 — 54.3 n/m

Capital allocation-based income compensation .1 — .1 n/m (33.3) — (33.3) n/m

Supplemental savings plan (1)

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(1) The impact of the market on the supplemental savings plan liability drives the expense recognized each period.

Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention arrangements and supplemental savings plan were $544.6 million in the second quarter of 2022, a decrease of $21.5 million, or 3.8%, compared to the 2021 quarter.

For the six months ended June 30, 2022, these costs were $1,163.6 million, an increase of $36.2 million, or 3.2%, compared to the 2021 period.

Both the second quarter and six months ended June 30, 2022 periods include OHA’s compensation and related costs and carried interest-related compensation.

Further, both the second quarter and six months ended June 30, 2022 periods were impacted by a lower interim bonus accrual and an increase in salaries and benefits.

The firm employed 7,771 associates at June 30, 2022, an increase of 3.2% from the end of 2021.

Distribution and servicing costs were $75.7 million for the second quarter of 2022, a decrease of 18.3% from the $92.7 million recognized in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $161.6 million, a decrease of 9.4% over the $178.3 million recognized in the comparable 2021 period.

Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention arrangements, capital allocation-based income compensation, and supplemental savings plan were $595.6 million in the third quarter of 2022, an increase of $30.7 million, or 5.4%, compared to the 2021 quarter.

For the nine months ended September 30, 2022, these costs were $1,781.3 million, an increase of $89.0 million, or 5.3%, compared to the 2021 period.

Both the third quarter and nine months ended September 30, 2022 periods include OHA’s compensation and related costs as well as carried interest-related compensation.

The increase in both the third quarter and nine months ended September 30, 2022 periods were primarily due to an increase in base salaries in January and July 2022 and the related benefits, including non-cash stock-based compensation expense, partially offset by a lower interim bonus accrual.

The firm employed 7,990 associates at September 30, 2022, an increase of 6.1% from the end of 2021.

Distribution and servicing costs were $69.9 million for the third quarter of 2022, a decrease of 27.2% from the $96.0 million recognized in the 2021 quarter.

For the nine months ended September 30, 2022, these costs were $231.5 million, a decrease of 15.6% over the $274.3 million recognized in the comparable 2021 period.

The decrease in both periods was primarily driven by lower average assets under management in certain share classes of the U.S.

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mutual funds and our international products, such as our Japanese ITMs and SICAVs.

These costs are offset entirely by the revenue we earn and report in net revenues:

These costs are offset entirely by the distribution revenue we earn and report in net revenues:

12b-1 revenue recognized in administrative, distribution, and servicing fees for the Advisor and R share classes of the U.S.

mutual funds and investment advisory fee revenue for our international products.

Advertising and promotion costs were $21.4 million in the second quarter of 2022, an increase of $1.0 million, or 4.9%, compared to the $20.4 million recognized in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $44.8 million, an increase of $5.5 million, or 14.0%, compared to the 2021 period.

Advertising and promotion costs were $24.3 million in the third quarter of 2022, an increase of $2.2 million, or 10.0%, compared to the $22.1 million recognized in the 2021 quarter.

For the nine months ended September 30, 2022, these costs were $69.1 million, an increase of $7.7 million, or 12.5%, compared to the 2021 period.

The increase in both periods was driven primarily by an increase in sponsorships and promotion-related costs.

Increased media spend also contributed to the higher advertising and promotion costs for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Product and recordkeeping related costs were $76.3 million in the second quarter of 2022, an increase of $33.0 million, or 76.2%, compared to the $43.3 million in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $156.7 million, an increase of $72.4 million, or 85.9%, compared to the 2021 period.

Substantially all of

the increase in both the second quarter and year to date 2022 was driven by the recordkeeping costs incurred as part of our expanded relationship with Fidelity National Information Services, Inc.

Increased agency costs also contributed to the higher advertising and promotion costs for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Product and recordkeeping related costs were $75.6 million in the third quarter of 2022, an increase of $5.3 million, or 7.5%, compared to the $70.3 million in the 2021 quarter.

For the nine months ended September 30, 2022, these costs were $232.3 million, an increase of $77.7 million, or 50.3%, compared to the 2021 period.

Approximately 60% of the increase in the third quarter and more than 85% of the increase for the year-to-date 2022 period was driven by the recordkeeping costs incurred as part of our expanded relationship with Fidelity National Information Services, Inc.

(“FIS”) that began in August 2021.

The costs incurred from the FIS arrangement were partially offset by a reduction in compensation expenses as a result of the approximately 800 associates who transitioned to FIS in August 2021.

Technology, occupancy, and facility costs were $134.3 million in the second quarter of 2022, an increase of $15.0 million, or 12.6%, compared to the $119.3 million recognized in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $268.2 million, an increase of $31.6 million, or 13.4%, compared to the 2021 period.

The increase in both periods was primarily due to the ongoing investment in our technology capabilities, including hosted solution licenses, depreciation, and increased office facility costs.

General, administrative, and other expenses were $73.3 million in the second quarter of 2022, a decrease of $18.4 million, or 20.1%, compared to the $91.7 million recognized in the 2021 quarter.

The decrease was primarily related to the favorable impact of the change in fair value of the contingent consideration liability of $50.3 million, partially offset by $27.2 million in acquisition-related amortization and other acquisition-related costs.

Higher travel, information services and other nonrecurring administrative costs further offset the decrease in general, administrative and other expenses in the second quarter of 2022 compared to 2021.

For the six months ended June 30, 2022, these costs were $153.7 million, a decrease of $25.3 million, or 14.1%, compared to the 2021 period.

The decrease was primarily related to the favorable impact of the change in fair value of the contingent consideration liability of $95.8 million and lower legal fees.

This decrease was partially offset by $54.3 million in acquisition-related amortization and other acquisition-related costs as well as higher travel, information services and other nonrecurring administrative costs.

Technology, occupancy, and facility costs were $143.6 million in the third quarter of 2022, an increase of $20.5 million, or 16.7%, compared to the $123.1 million recognized in the 2021 quarter.

For the nine months ended September 30, 2022, these costs were $411.8 million, an increase of $52.1 million, or 14.5%, compared to the 2021 period.

The increase in both periods was primarily due to the ongoing investment in our technology capabilities, including hosted solution licenses, depreciation, and increased office facility costs, primarily due to higher rent expense and other facility-related costs.

General, administrative, and other expenses were $112.1 million in the third quarter of 2022, an increase of $30.3 million, or 37.0%, compared to the $81.8 million recognized in the 2021 quarter.

The increase was primarily related to higher travel and information services expenses as well as certain nonrecurring costs incurred during the 2022 quarter.

The 2022 quarter also includes a net favorable impact of $2.8 million as the $27.1 million in acquisition-related amortization was more than offset by the $29.9 million reduction in the fair value of the contingent consideration liability.

For the nine months ended September 30, 2022, these costs were $265.8 million, an increase of $5.0 million, or 1.9%, compared to the 2021 period.

The 2022 period includes a net favorable impact of $44.3 million related to our acquisition of OHA as $81.4 million in acquisition-related amortization and other costs were more than offset by the $125.7 million favorable change in fair value of the contingent consideration liability.

Partially offsetting this favorable impact were higher net business related expenses including higher travel and information services as well as certain nonrecurring costs incurred during 2022.

Non-operating income (loss)

Non-operating loss for the second quarter of 2022 was $279.9 million as compared to non-operating income of $143.9 million in the 2021 quarter.

For the six months ended June 30, 2022, non-operating loss was $478.4 million, a decrease of $724.4 million from non-operating income of $246.0 million in the comparable 2021 period.

The following table details the components of non-operating income (loss) for both the second quarter and six months ended June 30, 2022 and 2021.

Three months ended Six months ended

Non-operating loss for the third quarter of 2022 was $82.8 million as compared to non-operating loss of $11.5 million in the 2021 quarter.

For the nine months ended September 30, 2022, we recognized net non-operating losses of $561.2 million, compared with net non-operating income of $234.5 million in the comparable 2021 period.

The following table details the components of non-operating income (loss) for both the third quarter and nine months ended September 30, 2022 and 2021.

Three months ended Nine months ended

(in millions) 9/30/2022 9/30/2021 9/30/2022 9/30/2021

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Non-operating income (loss) $ (82.8) $ (11.5) $ (561.2) $ 234.5

The significant investment portfolio gains in both the second quarter and six months ended June 30, 2021 outperformed the investment portfolio losses in both the second quarter and six months ended June 30, 2022 as the

continued Russian invasion of Ukraine, elevated inflation and a more aggressive pace of the Federal Reserve interest rate increases heavily influenced the global economy and markets resulting in further lower valuations at the end of the second quarter 2022.

The cash and discretionary investment portfolio also experienced net investment losses of $30.6 million during the second quarter of 2022 and $54.4 million during the six months ended June 30, 2022.

Our investment portfolio valuations at the end of the third quarter 2022 were negatively impacted by market declines caused by the continued elevated inflation and more aggressive pace of the Federal Reserve interest rate increases.

The table above includes the net investment income of the underlying portfolios included in the consolidated

Rowe Price investment products and not just the net investment income related to our interest.

Rowe Price investment products and not just the net investment income related to our ownership interest in the products.

The table below shows the impact that the consolidated T.

Rowe Price investment products had on the individual lines of our unaudited condensed consolidated statements of income and the portion attributable to our interest:

Three months ended Six months ended

Three months ended Nine months ended

(in millions) 9/30/2022 9/30/2021 9/30/2022 9/30/2021

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The following table reconciles the statutory federal income tax rate to our effective tax rate on a U.S.

GAAP basis for both the three- and six- months ended June 30, 2022 and 2021:

Three months ended Six months ended

GAAP basis for both the three- and nine-months ended September 30, 2022 and 2021:

Three months ended Nine months ended

9/30/2022 9/30/2021 9/30/2022 9/30/2021

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(1) State income tax benefits are reflected in the total benefits for net income attributable to redeemable non-controlling interests and stock-based compensation plans activity.

GAAP effective tax rate for the second quarter of 2022 was 26.0%, compared with 23.5% in the 2021 quarter.

For the six months ended June 30, 2022, our U.S.

GAAP effective tax rate for the third quarter of 2022 was 27.2%, compared with 23.1% in the 2021 quarter.

For the nine months ended September 30, 2022, our U.S.

GAAP effective tax rate was 25.6%, compared with 23.3% in the 2021 period.

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The non-GAAP tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests.

Our non-GAAP effective tax rate was 23.9% in the second quarter of 2022 compared with 23.4% in second quarter of 2021 and 24.1% for the six months ended June 30, 2022 compared to 23.5% in the 2021 period.

The increase in the non-GAAP effective tax rate was primarily attributable to lower discrete tax benefits associated with the settlement of stock-based awards compared to the

second quarter of 2021.

The non-GAAP effective tax rate for the six months ended June 30, 2022 continues to be favorably impacted by the complete phase-in benefit of the 2018 Maryland state tax legislation.

Our non-GAAP effective tax rate was 24.4% in the third quarter of 2022 compared with 23.1% in third quarter of 2021 and 24.2% for the nine months ended September 30, 2022 compared to 23.4% in the 2021 period.

The increase in the non-GAAP effective tax rates for both the third quarter of 2022 and the nine months ended September 30, 2022 were primarily attributable to lower discrete tax benefits associated with the settlement of stock-based awards compared to the same periods of 2021.

The non-GAAP effective tax rates for the 2022 quarter and year-to-date periods continue to be favorably impacted by the complete phase-in benefit of the 2018 Maryland state tax legislation.

Our effective tax rate will continue to experience volatility in future periods as the tax benefits recognized from stock-based compensation are impacted by market fluctuations in our stock price and timing of option exercises as well as the remeasurement of the contingent consideration liability.

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GAAP financial measures for the three months ended

June 30, 2022 and 2021.

September 30, 2022 and 2021.

Three months ended 9/30/2022

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Acquisition-related non-GAAP adjustments:

Investment amortization (1) (Net Revenues)

Investment and NCI amortization (1) (Net Revenues and Compensation and related costs)

5.6 7.6 — 1.4 6.2 .03

Compensation arrangements amortization (1) (Compensation and related costs)

Acquisition-related retention arrangements (1) (Compensation and related costs)

(17.1) 17.1 — 3.0 14.1 .06

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The following schedules reconcile certain U.S.

GAAP financial measures for the six months ended June 30, 2022 and 2021.

Six months ended 6/30/2022

GAAP financial measures for the nine months ended September 30, 2022 and 2021.

Nine months ended 9/30/2022

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

4 unchanged sentences

Acquisition-related non-GAAP adjustments:

Investment amortization (1) (Net Revenues)

Investment and NCI amortization (1) (Net Revenues and Compensation and related costs)

16.9 22.8 — 6.5 16.3 .07

Compensation arrangements amortization (1) (Compensation and related costs)

Acquisition-related retention arrangements (1) (Compensation and related costs)

(54.3) 54.3 — 15.4 38.9 .17

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Adjusted Non-GAAP Basis $ 3,014.6 $ 1,991.4 $ (58.1) $ 468.1 $ 1,465.2 $ 6.28

Six months ended 6/30/2021

Nine months ended 9/30/2021

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

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(6) The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 24.2% for 2022 and 23.4% for 2021.

As such, the non-GAAP effective tax rate for three months ended June 30, 2022 and 2021 was 23.9% and 23.4%, respectively.

As such, the non-GAAP effective tax rate for three months ended September 30, 2022 and 2021 was 24.4% and 23.1%, respectively.

We estimate that our effective tax rate for the full-year 2022 on a non-GAAP basis will be in the range of 24% to 26%.

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The calculation of adjusted net income allocated to common stockholders is as follows:

Three months ended Six months ended

Three months ended Nine months ended

9/30/2022 9/30/2021 9/30/2022 9/30/2021

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Our discretionary investment portfolio is comprised of short duration bond funds, which typically yield higher than money market rates, and asset allocation products.

Cash and discretionary investments experienced market losses of $30.6 million and $54.4 million in the three- and six- months ended June 30, 2022 compared to investment gains of $17.8 million and $31.5 million in the three- and six- months ended June 30, 2021.

Our subsidiaries outside the United States hold cash and discretionary investments of $923.8 million at June 30, 2022 and $764.2 million at December 31, 2021.

Cash and discretionary investments experienced market losses of $3.7 million and $58.1 million in the three- and nine-months ended September 30, 2022 compared to market losses of $3.0 million and $28.5 million of market gains in the three- and nine-months ended September 30, 2021.

Our subsidiaries outside the United States held cash and discretionary investments of $915.5 million at September 30, 2022 and $764.2 million at December 31, 2021.

Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity.

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The following table details how T.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of June 30, 2022.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of September 30, 2022.

(in millions) Cash and cash equivalents Investments Net assets of consolidated T.

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Redeemable non-controlling interests — — 580.8 580.8

As reported on unaudited condensed consolidated balance sheet at June 30, 2022 $ 2,116.0 $ 2,563.7 $ 1,264.1 $ 5,943.8

As reported on unaudited condensed consolidated balance sheet at September 30, 2022 $ 2,366.3 $ 2,480.2 $ 1,236.8 $ 6,083.3

(1) The consolidated T.

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mutual funds as well as those funds regulated outside the U.S.

The $34.1 million and the $665.4 million represent the total value at June 30, 2022 of our interest in the consolidated T.

The $13.0 million and the $643.0 million represent the total value at September 30, 2022 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at June 30, 2022 of $1,264.1 million includes assets of $1,307.2 million, less liabilities of $43.1 million as reflected in our unaudited condensed consolidated balance sheets.

Rowe Price investment products at September 30, 2022 of $1,236.8 million includes assets of $1,284.3 million, less liabilities of $47.5 million as reflected in our unaudited condensed consolidated balance sheets.

(2) Includes $207.0 million of non-controlling interests in consolidated entities and represents the portion of these investments, held by third parties, that we cannot sell in order to obtain cash for general operations.

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We increased our quarterly recurring dividend per common share in February 2022 by 11.1% to $1.20 per common share from $1.08 per common share.

Further, we expended $519.6 million in the first half of 2022 to repurchase 3.8 million shares, or 1.6% of our outstanding common stock, at an average price of $137.92 per share.

Further, we expended $744.0 million in the first nine months of 2022 to repurchase 5.7 million shares, or 2.5% of our outstanding common stock, at an average price of $130.35 per share.

These dividends and repurchases were expended using existing cash balances and cash generated from operations.

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2021 1,003.7 699.8 1,136.0 2,839.5

Six months ended 6/30/2022 556.4 — 519.5 1,075.9

Nine months ended 9/30/2022 832.8 — 744.0 1,576.8

Total $ 2,682.5 $ 699.8 $ 3,072.2 $ 6,454.5

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We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.

The following table summarizes the cash flows for the six months ended June 30, 2022 and 2021, that are attributable to T.

The following table summarizes the cash flows for the nine months ended September 30, 2022 and 2021, that are attributable to T.

Rowe Price, our consolidated T.

Rowe Price investment products, and the related eliminations required in preparing the statement.

Six months ended

Nine months ended

9/30/2022 9/30/2021

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Operating activities attributable to T.

Rowe Price during the first half of 2022 provided cash flows of $1,659.8 million as compared to $2,025.2 million during the first half of 2021.

Rowe Price during the first nine months of 2022 provided cash flows of $2,452.8 million as compared to $3,072.6 million during the first nine months of 2021.

Operating cash flows attributable to T.

Rowe Price decreased $365.4 million, including a $657.6 million decrease in net income from the first half of 2021 and a decrease in timing differences primarily on the cash settlement of our assets and liabilities of $348.3 million.

These decreases were partially offset by $658.5 million in higher non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other noncash items.

The non-cash adjustments were primarily driven by $443.9 million in net investment losses in the first half of 2022 compared with $184.9 million in net investment gains in the first half of 2021.

Rowe Price decreased $619.8 million, including a $1,050.4 million decrease in net income from the first nine months of 2021 and a decrease in timing differences primarily on the cash settlement of our assets and liabilities of $337.0 million.

These decreases were partially offset by a higher add back of $761.9 million in non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other noncash items.

The non-cash adjustments were primarily driven by $506.6 million in net investment losses in the first nine months of 2022 compared with $188.3 million in net investment gains in the first nine months of 2021.

Additionally, in 2022, we had net proceeds of $33.8 million from certain investment products that economically hedge our supplemental savings plan liability compared to net proceeds of $28.1 million in the same period of 2021.

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Net cash used in investing activities that are attributable to T.

Rowe Price totaled $1.6 million in the first half of 2022 compared with $129.8 million of cash provided by investing activities in the 2021 period.

Rowe Price totaled $54.7 million in the first nine months of 2022 compared with $108.0 million of cash provided by investing activities in the 2021 period.

During 2022, net proceeds from the sale of certain of our discretionary investments of $113.1 million were lower compared to $238.1 million during 2021.

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Rowe Price investment products we consolidate in preparing our unaudited condensed consolidated statement of cash flows.

Partially offsetting these decreases were increased property, equipment and software expenditures of $1.0 million.

In addition, we decreased our property, equipment and software expenditures by $1.5 million.

The remaining $6.9 million change in reported cash flows from investing activities is related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

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Net cash used in financing activities attributable to T.

Rowe Price were $1,065.3 million in the first half of 2022 compared with $791.8 million in the 2021 period.

During the first half of 2022, we used $519.6 million to repurchase 3.8 million shares compared to $308.9 million to repurchase 1.9 million shares in the first half of 2021.

During the first half of 2022, there was a $51.1 million increase in dividends paid in 2022 as a result of the 11.1% increase in our quarterly dividend per share.

Rowe Price were $1,554.9 million in the first nine months of 2022 compared with $1,913.8 million in the 2021 period.

During the first nine months of 2022, we used $744.0 million to repurchase 5.7 million shares compared to $526.6 million to repurchase 2.9 million shares in the first nine months of 2021.

The $621.6 million decrease in dividends paid in 2022 is a result of a special cash dividend paid in July 2021 that did not recur in 2022, partially offset by the 11.1% increase in our quarterly dividend per share in 2022.

In addition, $8.4 million in net distributions to non-controlling interests in consolidated entities increased net cash used in financing activities.

The remaining change in reported cash flows from financing activities is primarily attributable to $65.7 million in net redemptions from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2022 as compared to $299.1 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2021.

The remaining change in reported cash flows from financing activities is primarily attributable to $61.8 million in net redemptions from redeemable non-controlling interest holders of our consolidated investment products during the first nine months of 2022 as compared to $22.7 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first nine months of 2021.

CRITICAL ACCOUNTING POLICIES.

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the timing and expense related to the integration of OHA with and into our business;

and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, and other market conditions.

legal or regulatory developments;

geopolitical instability;

interest rates and currency fluctuations;

Readers are cautioned that any forward-looking information provided by or on behalf of T.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis