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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-15 · 325 added, 333 removed, 609 unchanged (52% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our 2022 revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other sponsored products.

The other sponsored 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 and collateralized loan obligations.

Our 2023 revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in a broad range of investment solutions across equity, fixed income, multi-asset, and alternative capabilities.

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.

We manage a broad mix of equity, fixed income, multi-asset, alternative, and money market asset classes and solutions that meet the varied needs and objectives of individual and institutional investors.

Investment advisory revenues depend largely on the total value and composition of assets under our management.

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These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management.

The general trend to passive investing has been persistent and accelerated in recent years, which has negatively impacted our new client inflows.

However, over the long term we expect well-executed active management to play an important role for investors.

The investment management industry has been evolving and industry participants are facing several challenging trends including passive investments taking market share from traditional active strategies;

continued downward fee pressure;

demand for new investment vehicles to meet client needs;

and an ever-changing regulatory landscape.

In this regard, we have ample liquidity and resources that allow us to take advantage of attractive growth opportunities.

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The acquisition accelerates our expansion into alternatives investment markets and complements our existing global platform and ongoing strategic initiatives in our core investments and distribution capabilities.

Alternative credit strategies continue to be in demand from investors

across the globe seeking attractive yields and risk-adjusted returns.

As of December 31, 2022, OHA had $57 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).

Alternative credit strategies continue to be in demand from investors across the globe seeking attractive yields and risk-adjusted returns.

MARKET TRENDS.

stock indexes fell sharply in 2022, the worst year for equities since the 2008 global financial crisis.

Growth stocks significantly underperformed value stocks across all markets.

Investors shunned riskier assets in response to Russia’s invasion of Ukraine, elevated inflation exacerbated by rising commodity prices and global supply chain disruptions, surging U.S.

Treasury yields, and the U.S.

Federal Reserve’s ("Federal Reserve") short-term interest rate increases starting in March.

Although many indexes finished the year above their lowest levels of 2022, the year ended with many investors concerned that ongoing Federal Reserve rate hikes would hurt corporate earnings and push the economy into a recession in 2023.

Stocks in developed non-U.S.

markets declined in 2022, as elevated inflation prompted many central banks to tighten their monetary policies.

A stronger U.S.

dollar versus major currencies exacerbated local losses in dollar terms.

Developed European and Asian markets fell broadly in dollar terms, though stocks in the UK, Hong Kong, and Australia held up relatively well.

Stocks in emerging markets fared worse than developed non-U.S.

markets in 2022.

Emerging Asian markets were mostly lower in dollar terms, especially South Korea, Taiwan, and China.

In emerging Europe, many markets declined amid close proximity to the Russian-Ukrainian conflict.

However, Turkish stocks soared as the central bank reduced interest rates in the latter half of the year despite elevated inflation.

Several markets in Latin America performed well, thanks in part to elevated commodity prices for much of the year.

stock indexes produced strong gains in 2023.

Due in part to generally favorable corporate earnings, a resilient economy, and increased investor interest in artificial intelligence, equities were led by a relatively small group of high-growth, technology-oriented mega-cap companies.

The market overcame bearish factors such as regional bank turmoil in the spring;

uncertainty about Congress and President Biden agreeing to raise the debt ceiling;

geopolitical tensions;

and a sluggish Chinese economic recovery amid property sector distress.

Arguably the most significant factor affecting the U.S.

economy and the financial markets throughout the year was rising interest rates in response to elevated inflation.

The Federal Reserve raised short-term interest rates four times through the end of July, lifting the fed funds target rate to the 5.25% to 5.50% range.

Long-term U.S.

Treasury yields climbed for much of the year, peaking in October, before falling sharply in response to weaker-than-expected inflation and labor market data.

Equities rallied through year-end, as Fed officials projected at their mid-December policy meeting that there could be three quarter-point rate cuts in 2024.

Developed non-U.S.

equity markets produced strong gains in U.S.

dollar terms;

returns to U.S.

investors were lifted by a weaker dollar versus major European currencies.

In Europe, equity markets advanced broadly.

UK shares gained about 14% but lagged various markets in the European Union.

In developed Asia, equities in Japan led the region with a gain of about 21%, helped by the continuation of a highly stimulative monetary policy.

Hong Kong stocks declined nearly 15%, hurt in part by Chinese economic and property market weakness.

Emerging equity markets produced solid gains but underperformed stocks in developed markets in U.S.

dollar terms.

Most markets in Latin America produced very strong returns.

In the emerging Europe, Middle East, and Africa

(EMEA) region, market performance was largely positive.

In emerging Asia, several markets rose sharply, but Chinese shares tumbled more than 11%.

Returns of several major equity market indexes for 2023 are as follows:

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(1) Returns exclude dividends

Global bond returns were broadly negative as bond market interest rates climbed worldwide and many central banks increased their key interest rates to fight inflation.

In the U.S., yields rose across the Treasury yield curve, with short- and intermediate-term yields rising above longer-term yields—often a signal of an approaching recession—as the Federal Reserve raised the fed funds target rate from near-zero in March to the 4.25% to 4.50% range by the end of the year.

Global bond returns produced positive returns in U.S.

dollar terms in 2023, thanks to a late-year drop in longer-term interest rates in many countries.

In the U.S., Treasury bill yields rose as the Federal Reserve lifted the fed funds target rate to the 5.25% to 5.50% range by the end of July and kept the target range steady through the end of the year.

Intermediate- and long-term U.S.

Treasury yields climbed to multi-year highs by late October.

The 10-year U.S.

Treasury note yield increased from 1.52% to 3.88% in 2022.

taxable investment-grade universe, corporate bonds fell sharply as interest rates rose and credit spreads widened.

Treasury and mortgage-backed securities also fared poorly.

Asset-backed securities held up relatively well but still produced losses.

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

High yield bonds also fared poorly as credit spreads widened.

Treasury note yield reached the 5.00% level for the first time in about 16 years.

Yields plunged in the last two months of the year, however, amid signs of disinflation, labor market softening, and expectations for Fed rate cuts in 2024.

The 10-year U.S.

Treasury note yield started and ended the year at 3.88%.

investment-grade bond universe, sector performance was broadly positive.

Corporate bonds produced very strong gains.

Mortgage-backed, commercial mortgage-backed, and asset-backed securities performed in line with the broad market index.

Treasury securities trailed with milder gains.

Tax-free municipal bonds outpaced the broad taxable bond market.

High yield corporate bonds, which are less sensitive to interest rate movements and more sensitive to credit-related trends, strongly outperformed higher-quality bonds.

Bonds in developed non-U.S.

markets declined in 2022, as interest rates in most developed countries increased amid elevated inflation, and losses to U.S.

investors were exacerbated by a stronger U.S.

dollar versus many other currencies.

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

markets produced positive returns in U.S.

dollar terms, helped by a weaker dollar versus major European currencies.

In Europe, long-term government bond yields climbed as major central banks raised short-term rates for most of the year.

Long-term yields retreated with U.S.

Treasury yields in the fourth quarter as inflation pressures eased and the major central banks kept short-term rates steady.

In Japan, long-term Japanese government bond (JGB) yields were fairly steady in the first half of the year but climbed from July through late October.

During that timeframe, the Bank of Japan (BoJ) increased the flexibility of its yield curve control policy, and the 10-year JGB yield approached 1.00%—its highest level in more than a decade.

Yields retreated in November and December.

Emerging markets bonds produced strong returns in dollar terms.

Bonds denominated in local currencies fared better than dollar-denominated issues, as most emerging markets currencies strengthened versus the U.S.

Returns of several major bond market indexes for 2023 are as follows:

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Aggregate Bond Index 5.5%

JPMorgan Global High Yield Index (10.2)%

Morgan Global High Yield Index 13.3%

Bloomberg Barclays Municipal Bond Index 6.4%

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Dollar Bond Index 5.7%

JPMorgan Emerging Markets Bond Index Plus (24.7)%

ICE Bank of America U.S.

High Yield Index (11.2)%

Morgan Emerging Markets Bond Index Plus 10.3%

Bank of America US High Yield Index 13.5%

Credit Suisse Leveraged Loan Index 13.0%

ASSETS UNDER MANAGEMENT.

Assets under management ended 2022 at $1,274.7 billion, a decrease of $413.1 billion from the end of 2021.

This decrease was primarily driven by net market depreciation and losses, including distributions not reinvested, of $351.4 billion and net cash outflows of $61.7 billion for 2022.

Clients transferred $12.4 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts, of which $8.7 billion transferred into the retirement date trusts.

The following table details changes in our assets under management by vehicle during the last three years:

(in billions) U.S.

mutual funds Subadvised and separate accounts Collective investment trusts and other investment products Total

Assets under management at December 31, 2019 $ 682.7 $ 313.8 $ 210.3 $ 1,206.8

Net cash flows before client transfers (11.5) 8.0 9.1 5.6

Client transfers (13.7) 2.0 11.7 —

Net cash flows after client transfers (25.2) 10.0 20.8 5.6

Net market appreciation and income 140.0 76.3 43.7 260.0

Distributions not reinvested (2.9) — (.2) (3.1)

Acquired assets under management — — 1.2 1.2

Change during the period 111.9 86.3 65.5 263.7

Assets under management at December 31, 2020 794.6 400.1 275.8 1,470.5

Net cash flows before client transfers (4.9) (34.0) 10.4 (28.5)

Client transfers (23.8) 2.7 21.1 —

Net cash flows after client transfers (28.7) (31.3) 31.5 (28.5)

Net market appreciation and income 111.8 57.4 36.2 205.4

Distributions not reinvested (6.3) — (.2) (6.5)

Change during the period 76.8 26.1 67.5 170.4

Acquired fee-basis assets under management — 10.9 36.0 46.9

Assets under management at December 31, 2021 871.4 437.1 379.3 1,687.8

Net cash flows before client transfers (43.1) (23.8) 5.2 (61.7)

Client transfers (12.4) 1.5 10.9 —

Net cash flows after client transfers (55.5) (22.3) 16.1 (61.7)

Net market depreciation and losses (184.8) (94.3) (69.0) (348.1)

Distributions not reinvested (3.3) — — (3.3)

Change during the period (243.6) (116.6) (52.9) (413.1)

Assets under management at December 31, 2022 627.8 320.5 326.4 $ 1,274.7

Assets under management ended 2023 at $1,444.5 billion, an increase of $169.8 billion from the end of 2022.

This increase was primarily driven by net market appreciation and income, net of distributions not reinvested, of $251.6 billion, offset by net cash outflows of $81.8 billion.

The following table details changes in our assets under management by asset class during the last three years:

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Assets under management at December 31, 2020

$ 895.8 $ 168.7 $ 406.0 $ — $ 1,470.5

Net cash flows (3)

Net market appreciation and income (3)

(44.6) 1.2 14.9 — (28.5)

Net market appreciation (depreciation) and income (4)

141.5 0.6 56.8 — 198.9

Acquired assets under management — 5.2 — 41.7 46.9

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Assets under management at December 31, 2021

992.7 175.7 477.7 41.7 1,687.8

Net cash flows (3)

Net market appreciation and income (3)

(72.7) 4.1 4.9 2.0 (61.7)

Acquired fee-basis assets under management — 5.2 — 41.7 46.9

Net market appreciation (depreciation) and income (4)

(255.8) (12.8) (82.5) (0.3) (351.4)

Change during the period (328.5) (8.7) (77.6) 1.7 (413.1)

Assets under management at December 31, 2022

664.2 167.0 400.1 43.4 1,274.7

Net cash flows (3)

Net market depreciation and losses (3)

(85.4) (6.8) 9.1 1.3 (81.8)

Net market appreciation (depreciation) and income (4)

164.8 9.8 73.8 3.2 251.6

Change during the period 79.4 3.0 82.9 4.5 169.8

Assets under management at December 31, 2023

(1) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.

(2) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans, mezzanine, real assets/CRE, structured products, stressed/distressed, non-investment grade CLOs, special situations, or have absolute return as its investment objective.

$ 743.6 $ 170.0 $ 483.0 $ 47.9 $ 1,444.5

(1) The underlying AUM of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.

(2) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans, mezzanine, real assets/CRE, structured products, stressed/distressed, non-investment grade CLOs, special situations, business development companies, or that have absolute return as its investment objective.

Generally, only those strategies with longer than daily liquidity are included.

(3) Reported net of distributions not reinvested.

Unfunded capital commitments of $11.6 billion at December 31, 2023 and $10.6 billion at December 31, 2022 and are not reflected in AUM above.

(3) Alternatives net cash flows include outflows of $2.6 billion in 2023 and $2.6 billion in 2022 that represent investment manager-driven distributions.

(4) Reflects net distributions not reinvested of $2.9 billion in 2023, $3.3 billion in 2022, and $6.5 billion in 2021.

Investment advisory clients outside the U.S.

account for 9.1% of our assets under management at December 31, 2022 and 9.9% at December 31, 2021.

Our net cash outflows in 2022 are driven primarily by our growth-oriented equity strategies sourced from U.S.

accounted for 8.6% of our assets under management at December 31, 2023 and 9.1% at December 31, 2022.

Assets under management in our target date retirement products, which are included in the multi-asset column shown above, were $408.4 billion at December 31, 2023, compared with $334.2 billion at December 31, 2022, and $391.1 billion at December 31, 2021.

Net inflows into these products were $13.1 billion in 2023, $11.3 billion in 2022, and $11.3 billion in 2021.

Our net cash outflows in 2023 were driven primarily by our growth-oriented equity strategies sourced from Americas financial intermediaries and institutional clients.

These outflows were partially offset by net cash inflows in our multi-asset strategies, predominately our target date retirement products, and alternative strategies.

From a geography perspective, net outflows were predominantly from U.S.

clients invested in equity strategies though all regions experienced net outflows.

For 2022, net outflows were driven primarily by our growth-oriented equity strategies sourced from U.S.

intermediaries.

These outflows were partially offset by net cash inflows in our international fixed income, multi-asset, and alternative strategies.

From a geography perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had positive net flows.

From a geographical perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had positive net flows.

Net cash flows for 2021 reflect net outflows from domestic equity as well as domestic fixed income.

These outflows also reflect the redemption of about $2.5 billion from our U.S.

mutual fund investments to fund the cash portion of the OHA acquisition.

These outflows also reflect the redemption of about $2.5 billion from fixed income to fund the cash portion of our OHA acquisition.

These outflows were partially offset by cash inflows in our multi-asset franchise and international fixed income.

From a geography perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had positive net flows.

Net cash flows for 2020 reflect positive flows into fixed income and international equity, while experiencing net outflows in domestic equity and our multi-asset franchise resulting from macroeconomic headwinds and ongoing pressure from passive investments.

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.

Assets under management in our target date retirement products as well as net cash inflows/(outflows), by vehicle, are as follows:

Assets under management Net cash inflows/(outflows) for year ended

(in billions) 12/31/22 12/31/21 12/31/20 12/31/22 12/31/21 12/31/20

mutual funds $ 148.8 $ 187.1 $ 176.1 $ (6.4) $ (12.5) $ (12.7)

Collective investment trusts 174.7 191.1 145.4 17.7 23.2 5.4

Separately managed accounts 10.7 12.9 10.7 — .6 0.8

$ 334.2 $ 391.1 $ 332.2 $ 11.3 $ 11.3 $ (6.5)

We also provide strategic investment advice solutions for certain portfolios.

From a geographical perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had net inflows.

We provide strategic investment advice solutions for certain portfolios.

These advice solutions, which the vast

majority is overseen by our multi-asset division, may include strategic asset allocation, and in certain portfolios, asset selection and/or tactical asset allocation overlays.

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

As of December 31, 2022, total assets in these solutions were $410 billion, of which $403 billion are included in our reported assets under management in the tables above.

majority is overseen by our multi-asset division, may include strategic asset allocation, and in certain portfolios,

asset selection and/or tactical asset allocation overlays.

We also offer advice solutions through retail separately

managed accounts and separately managed accounts model delivery.

As of December 31, 2023, total assets in

these solutions were $499 billion, of which $487 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.

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We completed the acquisition of OHA on December 29, 2021.

As a result, our results of operations for 2021 and 2020 do not include any financial results of OHA.

As a result, our results of operations for 2021 does not include any financial results of OHA.

2023 compared with 2022 2022 compared with 2021

(in millions, except per-share data) 2022 2021 2020 $ Change % Change $ Change % Change

(in millions, except per-share data) 2023 2022 2021 $ Change % Change (1)

$ Change % Change (1)

Investment advisory fees $ 5,747.7 $ 5,969.1 $ 7,098.1 $ (221.4) (3.7) % $ (1,129.0) (15.9) %

Capital allocation-based income (2)

$ 161.9 $ (54.3) $ — $ 216.2 n/m $ (54.3) n/m

Net revenues $ 6,460.5 $ 6,488.4 $ 7,671.9 $ (27.9) (0.4) % $ (1,183.5) (15.4) %

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Net operating income $ 1,986.2 $ 2,373.7 $ 3,710.0 $ (387.5) (16.3) % $ (1,336.3) (36.0) %

Non-operating income (1)

$ (425.5) $ 284.6 $ 496.5 $ (710.1) n/m $ (211.9) n/m

Non-operating income $ 504.1 $ (425.5) $ 284.6 $ 929.6 n/m $ (710.1) n/m

Net income attributable to

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Operating expenses $ 4,260.7 $ 4,087.8 $ 3,840.3 $ 172.9 4.2 % $ 247.5 6.4 %

Operating expenses, excluding accrued carried interest related compensation $ 4,190.7 $ 4,070.2 $ 3,840.3 $ 120.5 3.0 % $ 229.9 6.0 %

Net operating income $ 2,263.2 $ 2,500.5 $ 3,837.1 $ (237.3) (9.5) % $ (1,336.6) (34.8) %

Non-operating income (loss) $ 140.8 $ (24.4) $ 28.7 $ 165.2 n/m $ (53.1) n/m

Net income attributable to

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Diluted earnings per common share $ 7.59 $ 8.02 $ 12.75 $ (0.43) (5.4) % $ (4.73) (37.1) %

Assets under management (in billions)

Average assets under management (3)

Assets under management (AUM) (in billions)

Average AUM (4)

$ 1,362.3 $ 1,398.4 $ 1,599.3 $ (36.1) (2.6) % $ (200.9) (12.6) %

Ending assets under management $ 1,274.7 $ 1,687.8 $ 1,470.5 $ (413.1) (24.5) % $ 217.3 14.8 %

Ending AUM $ 1,444.5 $ 1,274.7 $ 1,687.8 $ 169.8 13.3 % $ (413.1) (24.5) %

Annualized Effective Fee Rate (in bps) 42.2 42.7 44.4 (0.5) n/m (1.7) n/m

(1) The percentage change in non-operating income is not meaningful (n/m).

(1) The percentage change is not meaningful (n/m).

(2) Capital allocation-based income represents the change in accrued carried interest.

(3) See the reconciliation to the comparable U.S.

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

(3) Average assets under management for 2021 and 2020 do not include the impact of the acquired fee-basis assets under management related to the OHA acquisition.

(4) Average assets under management for 2021 does not include the impact of the fee-basis assets under management acquired in the OHA acquisition.

Results Overview - 2023 as compared to 2022

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Investment advisory revenues earned in 2023 decreased 3.7% over the comparable 2022 period as average assets under our management decreased $36.1 billion, or 2.6%, to $1,362.3 billion.

The average annualized effective fee rate earned on our assets under management was 42.2 basis points in 2023, compared with 42.7 basis points earned in 2022.

Our effective fee rate has declined largely due to a mix shift toward lower fee asset classes and vehicles as a result of net equity outflows, partially offset by higher market

returns and higher performance-based fees during the same period.

The average annualized fee rate earned on our assets under management was 42.2 basis points for the fourth quarter of 2023.

Operating expenses.

Operating expenses were $4,474.3 million in 2023, an increase of 8.7% over the comparable 2022 period.

The impact of market movements on the supplemental savings plan liability accounted for about 70% of the increase in U.S.

GAAP operating expenses.

Non-operating income has a corresponding increase due to our economic hedge of the liability.

On a non-GAAP basis, operating expenses were $4,260.7 million, a 4.2% increase over the comparable 2022 period.

The increase in our non-GAAP operating expenses was primarily driven by higher costs across compensation and benefits, accrued carried interest related compensation expense, technology, facility, advertising, and professional fees.

These increases were offset in part by higher capitalized labor, lower stock-based compensation, and a non-recurring recovery of general and administrative costs incurred in 2022.

We currently estimate our 2024 non-GAAP operating expenses, excluding non-GAAP accrued carried interest compensation, will grow in the range of 3%-5% from the comparable 2023 amount of $4,190.7 million.

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

Operating margin.

Our operating margin in 2023 was 30.7%, compared with 36.6% in 2022.

The decrease in our operating margin in 2023 compared with 2022 is primarily driven by a decrease in investment advisory revenue as a result of lower average assets under management and higher operating expenses.

Diluted earnings per share.

Diluted earnings per share was $7.76 in 2023 as compared to $6.70 in 2022.

On a non-GAAP basis, diluted earnings per share was $7.59 in 2023 as compared to $8.02 in 2022.

The increase in 2023 GAAP basis diluted earnings per share from 2022 was primarily due to net investment income in 2023 as compared to net investment losses in 2022.

These increases were partially offset by lower operating income and a higher effective tax rate.

For non-GAAP diluted earnings per share, the decrease in 2023 was primarily due to lower operating income and a higher effective tax rate.

These decreases were offset by net investment income earned on our cash and discretionary investment portfolio in 2023 as compared to net investment losses in 2022.

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

Results Overview - 2022 as compared to 2021

Investment advisory revenues.

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

As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner.

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.

Investment advisory revenues earned in 2022 decreased 15.9% over the comparable 2021 period as average assets under our management decreased $200.9 billion, or 12.6%, to $1,398.4 billion.

For the first half of 2022, we voluntarily waived $9.3 million, or less than 0.2%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors.

No fees were waived in the second half of 2022.

The average annualized fee rate earned on our assets under management was 42.7 basis points in 2022, compared with 44.4 basis points earned in 2021.

Our effective fee rate has declined largely due to a mix shift toward lower fee asset classes and vehicles as a result of market declines and net flows, partially offset by a reduction in money market fee waivers and a higher-than-average effective fee rate earned on our alternative asset

No money market fees were waived in the second half of 2022.

The average annualized effective fee rate earned on our assets under management was 42.7 basis points in 2022, compared with 44.4 basis points earned in 2021.

The average annualized fee rate earned on our assets under management was 42.3 basis points for the fourth quarter of 2022.

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These increases were offset in part by lower distribution and servicing costs and lower bonuses.

We currently estimate our 2023 non-GAAP operating expenses, excluding non-GAAP accrued carried interest compensation, will grow in the range of 2% to 6% from the comparable 2022 amount of $4,070.2 million.

This range reflects the redeployment of $85 million in savings realized from the expense management actions taken in 2022 to fund strategic priorities.

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

Operating margin.

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These decreases were partially offset by lower weighted average outstanding shares.

Impairment charges recorded in the fourth quarter of 2022 impacted the lower operating income that drove the GAAP diluted earnings per share decrease.

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

Results Overview - 2021 as compared to 2020

Investment advisory revenues.

In 2021, investment advisory revenues increased 24.7% over the comparable 2020 period as average assets under our management increased $351.4 billion, or 28.2%, to $1,599.3 billion.

The average annualized fee rate earned on our assets under management was 44.4 basis points in 2021, compared with 45.6 basis points earned in 2020.

Our effective fee rate declined largely due to the July 2021 fee reductions in our target date products, client transfers within the complex to lower fee vehicles or share classes, higher money market fee waivers, and lower performance-based fees.

These were partially offset as higher market valuations led to an asset class shift towards equity strategies.

Operating expenses.

For 2021, operating expenses were $3,961.9 million as compared with $3,461.0 million in the 2020 period.

On a non-GAAP basis, operating expenses were $3,840.3 million as compared with $3,342.7 million in 2020.

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

The increase in both GAAP and non-GAAP operating expenses was primarily due to higher compensation expenses, including higher annual bonuses, salaries and benefits, and stock-based compensation expenses as a result of continued investment in hiring for our business as well as higher distribution and servicing costs due to higher average assets under management.

The 2021 period also reflects costs incurred from an expanded relationship with FIS Capital Markets US LLC ("FIS"), which began providing technology development and core operations for our full-service recordkeeping offering in August 2021.

These 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.

Operating margin.

Our operating margin in 2021 was 48.4%, compared with 44.2% in 2020.

The increase in our operating margin in 2021 compared to 2020 was primarily driven by revenue growth outpacing the increase in operating expenses.

Diluted earnings per share.

Diluted earnings per share was $13.12 in 2021 as compared with $9.98 in 2020.

On a non-GAAP basis, diluted earnings per share were $12.75 in 2021 as compared with $9.58 in 2020.

The increase in both GAAP and non-GAAP diluted earnings per share in 2021 compared to 2020 was primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate.

These drivers of the increase were partially offset by lower net investment gains recognized in 2021 than in 2020.

Impairment charges recorded in the fourth quarter of 2022 also impacted the lower operating income that drove the GAAP diluted earnings per share decrease.

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

2023 compared with 2022 2022 compared with 2021

(in millions) 2022 2021 2020 $ Change % Change $ Change % Change

(in millions) 2023 2022 2021 $ Change % Change 1

$ Change % Change 1

Investment advisory fees

mutual funds $ 3,486.2 $ 4,388.9 $ 3,639.9 $ (902.7) (20.6) % $ 749.0 20.6 %

Subadvised funds, separate accounts, collective investment trusts, and other investment products 2,482.9 2,709.2 2,053.2 (226.3) (8.4) % 656.0 32.0 %

Equity $ 3,445.5 $ 3,759.7 $ 4,899.9 $ (314.2) (8.4) % $ (1,140.2) (23.3) %

Fixed income, including money markets 401.5 427.4 409.8 (25.9) (6.1) % 17.6 4.3 %

Multi-asset 1,583.4 1,508.9 1,788.4 74.5 4.9 % (279.5) (15.6) %

Alternatives 317.3 273.1 — 44.2 16.2 % 273.1 n/m

5,747.7 5,969.1 7,098.1 (221.4) (3.7) % (1,129.0) (15.9) %

Capital allocation-based income 161.9 (54.3) — 216.2 n/m (54.3) n/m

Administrative, distribution, and servicing fees

2 unchanged sentences

550.9 573.6 573.8 (22.7) (4.0) % (0.2) — %

Capital allocation-based income (1)

(54.3) — — (54.3) n/m — n/m

Net revenues $ 6,460.5 $ 6,488.4 $ 7,671.9 $ (27.9) (0.4) % $ (1,183.5) (15.4) %

(1) The percentage change for capital allocation-based income is not meaningful (n/m).

Average AUM (in billions):

Equity $ 705.2 $ 763.6 $ 972.0 $ (58.4) (7.6) % $ (208.4) (21.4) %

Fixed income, including money market 169.3 173.4 177.7 (4.1) (2.4) % (4.3) (2.4) %

Multi-asset 442.3 418.7 449.6 23.6 5.6 % (30.9) (6.9) %

Alternatives 45.5 42.7 — 2.8 6.6 % 42.7 n/m

Average AUM $ 1,362.3 $ 1,398.4 $ 1,599.3 $ (36.1) (2.6) % $ (200.9) (12.6) %

Ending AUM (in billions) $ 1,444.5 $ 1,274.7 $ 1,687.8 $ 169.8 13.3 % $ (413.1) (24.5) %

(1) n/m - the percentage change is not meaningful.

Investment advisory fees.

The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2022, 2021 and 2020 are presented below.

2022 compared with 2021 2021 compared with 2020 2022 2021

Decrease in average assets under management Decrease in investment advisory fees Increase in average assets under management Increase in investment advisory fees Annualized effective fee rate (in bps)

mutual funds (17.6) % (20.6) % 24.6 % 20.6 % 49.4 51.2

Subadvised funds, separate accounts, collective investment trusts, and other investment products (6.7) % (8.4) % 32.6 % 32.0 % 35.8 36.5

Total (12.6) % (15.9) % 28.2 % 24.7 % 42.7 44.4

The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2023, 2022 and 2021 are presented above.

In 2023, the decline in overall advisory revenues was driven by lower average AUM and a mix shift toward lower fee asset classes and vehicles.

A lower starting AUM and net outflows in 2023 were the primary drivers of a lower average AUM in 2023.

These impacts were partially offset by stronger overall market returns in 2023 and $38.3 million of performance-based fees primarily earned on alternative strategy accounts in 2023 compared to an insignificant amount of performance-based fees in 2022.

In 2022, volatile markets and net outflows, overall, shifted the asset strategy and share class mix toward lower fee strategies and classes.

These drivers were offset in part by a reduction in money market fee waivers and higher-than-average fee rates earned on our alternative asset class.

In 2021, strong market returns shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures.

Additionally, we reduced the management fees of certain products over the last few years, including fee reductions in our target date products in July 2021.

The relationship between U.S.

mutual funds' average assets under management and investment advisory fee growth was impacted by the July 2021 fee reductions in our target date products and increased money market fees waivers.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, the July 2021 target date

products fee reductions and lower performance fees reduced our effective fee rate, but was partially offset by a mix shift towards equities and inflows into our international products.

These investment advisory revenues include fees earned for distribution-related services that we contract third-party intermediaries to provide.

The costs we incur to pay the third-party intermediaries are recorded as part of distribution and servicing expenses.

Administrative, distribution, and servicing fees.

Administrative, distribution, and servicing fees in 2023 were $550.9 million, a decrease of $22.7 million from 2022.

Lower 12b-1 revenue earned in 2022 primarily on the Advisor and R share classes of the U.S.

The decrease is primarily driven by lower transfer agent servicing activities provided to the T.

Rowe Price mutual funds, and lower 12b-1 revenue earned from the Advisor and R share classes of the U.S.

mutual funds as a result of lower average assets under management in these share classes.

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 is reported in distribution and servicing expense.

For 2022, lower 12b-1 revenue earned in 2022 primarily on the Advisor and R share classes of the U.S.

mutual funds as a result of lower assets under management in these share classes was offset by higher trustee services revenue and transfer agent servicing activities provided to our U.S.

mutual funds for retail shareholders.

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 is reported in distribution and servicing expense.

For 2021, administrative, distribution, and servicing fees were $573.8 million, an increase of $60.2 million from 2020.

The increase in fees were primarily due to higher transfer agent servicing activities provided to our U.S.

mutual funds, higher model delivery revenue, as well as higher 12b-1 revenue earned on the Advisor and R classes of the U.S.

mutual funds as a result of higher assets under management in these share classes.

Capital allocation-based income.

Capital allocation-based income reduced net revenues by $54.3 million.

This amount includes an increase of $43.7 million in accrued carried interest from investments in affiliated investment funds.

The increase in accrued carried interest was more than offset by non-cash amortization of $53.0 million associated with the difference in the acquisition closing date fair value and the carrying value of investments acquired as part of the OHA acquisition (basis difference).

Additionally, during the fourth quarter of 2022, we determined that certain of our investments in affiliated investment funds that earn capital allocation-based income were other-than-temporarily impaired, and we recognized related impairment charges totaling $45.0 million due to reduced incentive fee growth expectations for these specific investments and a higher discount rate.

Subsequent to the impairment charge, the remaining weighted average amortization period for these basis differences is 5.9 years.

Capital allocation-based income increased net revenues by $161.9 million.

The 2023 amount includes an increase of $223.2 million in accrued carried interest from investments in affiliated investment funds, partially offset by $61.3 million of non-cash amortization and impairments associated with the difference between the assets' fair value and carrying value on the date they were acquired.

The firm realized carried interest of $109.8 million compared with $87.7 million in the 2022 period.

We recognized corresponding compensation expense of $44.6 million related to total capital allocation-based income, consisting of $70.0 million related to the accrued carried interest offset in part by $25.4 million in amortization and impairment charges.

While impairments recognized in 2023 were immaterial, should market and performance conditions deteriorate, additional impairments may be recognized in future periods.

Comparatively, capital allocation-based income reduced net revenues by $54.3 million for 2022.

This amount includes an increase of $43.7 million in accrued carried interest that was completely offset by $98.0 million of non-cash amortization and impairments, consisting of $53.0 million of non-cash amortization associated with the difference in the acquisition closing date fair value and the carrying value of investments acquired as part of the OHA acquisition (basis difference), and $45.0 million of impairment charges due to reduced incentive fee growth expectations for certain investments in affiliated investment funds that earn capital allocation-based income, which we determined were other-than-temporarily impaired in 2022, and a higher discount rate.

We recognized a corresponding net reduction in compensation expense of $22.9 million related to the total capital allocation-based income that is attributable to the non-controlling interests.

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Capital allocation-based income compensation 44.6 (22.9) — 67.5 n/m (22.9) n/m

Supplemental savings plan (132.3) 83.0 111.8 (215.3) (259.4) % (28.8) (25.8) %

Supplemental savings plan 123.2 (132.3) 83.0 255.5 n/m (215.3) n/m

Compensation and related costs $ 2,673.5 $ 2,320.8 $ 2,383.0 352.7 15.2 % (62.2) (2.6) %

7 unchanged sentences

Total operating expenses $ 4,474.3 $ 4,114.7 $ 3,961.9 $ 359.6 8.7 % $ 152.8 3.9 %

Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan increased $105.8 million, or 4.6%, as compared with 2021.

Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan were $2,450.7 million, an increase $44.9 million, or 1.9%, compared with 2022.

The increase in 2023 was driven by $99.1 million in higher salaries and related benefits as a result of base salary increases in January 2023 and July 2022.

These increases were offset by higher capitalized labor, lower non-cash stock-based compensation, and lower other employee-related costs.

The firm employed 7,906 associates at December 31, 2023, an increase of 0.5% from the end of 2022.

For 2022, compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan, increased $105.8 million, or 4.6%, as compared with 2021.

The 2022 period includes OHA's compensation and related costs.

1 unchanged sentence

These increases in compensation and related costs were offset in part by a decline in bonuses of $48.6 million.

For 2021, compensation and related costs, excluding non-cash amortization of certain acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan, increased $229.4 million, or 11.1%, for 2021 as compared with 2020.

This increase was primarily due to our strong operating results which led to an $107.6 million increase in our annual bonus compensation and $28.4 million in higher stock-based compensation expense.

Also contributing to the increase in costs was a $88.5 million increase in salaries, benefits and related employee costs due to modest increases in base salaries at the beginning of the year as well as an increase in our average headcount, excluding the transition of 800 T.

Rowe Price operations and technology associates to FIS on August 1, 2021 and the addition of OHA associates at the end of the year.

These increases in compensation and related costs were offset in part by $11.7 million in higher labor capitalization related to internally developed software in 2021.

Distribution and servicing costs were $301.5 million for 2022, a decrease of $72.4 million, or 19.4%, compared to 2021.

Distribution and servicing costs were $289.9 million for 2023, a decrease of $11.6 million, or 3.8%, compared to $301.5 million in 2022.

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

mutual funds that earn 12b-1 fees and SICAVs.

These decreases were partially offset by higher costs incurred to distribute certain products through U.S.

intermediaries as the average assets under management in these products were higher.

For 2022, distribution and services costs were $301.5 million, a decrease of $72.4 million, or 19.4%, compared to $373.9 million for 2021.

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

mutual funds that earn 12b-1 fees.

Additionally, lower average assets under management in our international products, including our Japanese Investment Trusts (ITMs) and certain SICAV share classes, contributed to lower distribution costs.

Distribution and servicing costs were $373.9 million for 2021, an increase of $95.4 million, or 34.3%, compared with 2020.

The increase was primarily driven by higher AUM-based distribution costs as a result of continued market appreciation and inflows into our international products, including our Japanese ITMs and SICAVs.

Higher costs incurred to distribute certain other products through U.S.

financial intermediaries also contributed to the increase.

Distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S.

mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense.

mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense category.

Both of these costs are offset entirely by the revenue we earn and report in net revenues:

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

Advertising and promotion.

Advertising and promotion costs were $97.3 million for 2022, a decrease of $2.9 million, or 2.9%, compared with 2021.

Advertising and promotion costs were $114.2 million for 2023, an increase of $16.9 million, or 17.4%, compared with 2022.

The increase was primarily driven by higher media advertising and agency costs in 2023

For 2022, advertising and promotion costs were $97.3 million, a decrease of $2.9 million, or 2.9%, compared with 2021.

The decrease was primarily driven by a decrease in media advertising spend during 2022, partially offset by higher promotion-related costs.

For 2021, advertising and promotion costs were $100.2 million, an increase of $16.5 million, or 19.7%, compared with 2020.

The increase was primarily driven by increased media spend during 2021.

Product and recordkeeping related costs.

Product and recordkeeping related costs were $291.0 million for 2023, a decrease of $9.1 million, or 3.0%, compared with 2022.

The decrease was driven by lower recordkeeping related costs.

Product and recordkeeping related costs were $300.1 million for 2022, an increase of $63.8 million, or 27.0%, compared with 2021.

2 unchanged sentences

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

Product and recordkeeping related costs were $236.3 million for 2021, an increase of $80.8 million, or 52.0%, compared with 2020.

More than 85% of the increase in 2021 was driven by the recordkeeping costs incurred as part of our expanded FIS relationship, including certain transition expenses that will not recur in 2022.

Technology, occupancy, and facility costs.

Technology, occupancy, and facility costs were $632.6 million for 2023, $560.5 million for 2022, and $484.9 million for 2021.

The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including hosting solution licenses, depreciation, and increased office facility costs, primarily due to higher rent expense and other facility-related costs.

General, administrative, and other costs.

The increases over the last two years were primarily due to ongoing investment in our technology capabilities, including depreciation and hosting solution licenses, and increased office facility costs, mainly related to rent expense associated with a new London office that we began leasing in the second half of 2022 and occupied in September 2023.

General, administrative, and other costs were $421.3 million for 2023, $412.2 million for 2022, and $383.6 million for 2021.

The increase in 2023 compared to 2022 was primarily due to higher professional fees and travel costs.

Partially offsetting these increases was a recovery of $20.8 million in nonrecurring costs that were incurred in 2022.

The increase in 2022 as compared to 2021 was primarily due to higher net business-related expenses, including higher travel and information services as well as certain nonrecurring costs incurred during 2022.

Partially offsetting this increase were the absence of transaction costs incurred to complete the acquisition of OHA in December 2021 and lower professional and legal fees.

Nearly 50% of the increase in 2021 as compared to 2020 was related to the transaction costs incurred to complete the acquisition of OHA in December 2021.

Higher information services, legal, and third-party research costs contributed to the remaining increase in 2021 compared with 2020.

Travel-related expenses in 2021 were lower than 2020.

Change in fair value of contingent consideration.

Our contingent consideration consists of an earnout arrangement as part of our acquisition of OHA in December 2021 in which additional purchase price may be due to OHA upon satisfying or exceeding certain defined revenue targets.

Every reporting period, we record the potential amount due under this arrangement at fair value.

During the year ended December 31, 2022, we recognized a reduction in the fair value of the contingent consideration liability of $161.2 million as the challenging market conditions have reduced revenue expectations and increased the discount rates used in the fair value determinations.

Acquisition-related amortization and impairment costs.

As part of the purchase accounting for the acquisition of OHA in December 2021, we identified and separately recognized at fair value certain indefinite- and definite-lived intangible assets.

In 2022, we recognized $108.5 million in amortization related to the definite-lived intangible assets.

Additionally, during the fourth quarter of 2022, we determined that certain of these intangible assets were impaired and recognized related impairment charges totaling $175.1 million.

The impairment charges were comprised of $99.2 million for the indefinite-lived investment advisory agreement assets, $17.6 million related to the trade name, and $58.2 million for definite-lived investment advisory agreements assets.

The impairment of these assets were primarily the result of reduced growth expectations for both management and incentive fees and a higher discount rate as well as net client outflows for the indefinite-lived investment advisory agreement assets.

Subsequent to the impairment charge, the remaining weighted average amortization period for our definite-lived intangible assets is 6.5 years.

Our contingent consideration consists of an earnout arrangement as part of the 2021 acquisition of OHA in which additional purchase price may be due to the sellers upon satisfying or exceeding certain defined revenue targets.

Each reporting period, we record the fair value of the contingent consideration due under this arrangement.

We recognized a reduction in the fair value of the contingent consideration liability of $82.4 million in 2023 and $161.2 million in 2022 as challenging market conditions reduced revenue expectations and increased the discount rates used in the fair value determinations.

Acquisition-related amortization and impairment costs primarily relate to the indefinite- and definite-lived intangible assets identified and separately recognized, at fair value, as part of the purchase accounting of the 2021 acquisition of OHA.

In 2023, we recognized acquisition-related amortization and impairment costs of $134.2 million, a decrease of $149.3 million or 52.7%, compared with 2022.

The decrease from 2022 was primarily driven by an insignificant amount of impairment charges for certain intangibles compared to $175.1 million in 2022.

The impairment charges for both periods were the result of reduced growth expectations for both investment management and incentive fees.

Specific to 2022, the impairment charges were also impacted by a higher discount rate compared to when the acquisition closed in 2021.

The remaining weighted average amortization period for our definite-lived intangible assets is 5.5 years.

Should conditions that led us to recognize these impairment charges deteriorate, additional impairments may be recognized in future periods.

Non-operating income (loss)

Non-operating investment income decreased $710.1 million to a non-operating loss of $425.5 million in 2022 compared to a non-operating gain of $284.6 million in 2021.

Non-operating investment income decreased $211.9 million in 2021 compared with 2020.

Non-operating investment income was $504.1 million in 2023 compared to a non-operating loss of $425.5 million in 2022 and non-operating income of $284.6 million in 2021.

Non-operating investment activity for the years ended December 31, 2023, 2022 and 2021 comprised the following:

17 unchanged sentences

Non-operating income (loss) $ 504.1 $ (425.5) $ 284.6 $ 929.6 $ (710.1)

While market declines tempered some in the last quarter of 2022, our overall investment portfolio valuations for 2022 were negatively impacted by market declines caused by the continued elevated inflation, supply chain disruptions, and a more aggressive pace of Federal Reserve interest rate increases.

Our investment portfolio for 2021 generated lower market gains than our investment portfolio in 2020.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised approximately 55% of the net gains recognized in 2021.

In 2023, stronger market returns contributed to the increased valuation and gains of our investment portfolio, while higher interest rates increased dividend income earned on our cash equivalents.

In 2022, our overall investment portfolio valuations were negatively impacted by market declines caused by the continued elevated inflation, supply chain disruptions, and a more aggressive pace of Federal Reserve interest rate increases.

The impact of consolidating certain sponsored investment products on the individual lines of our consolidated statements of income for 2023, 2022, and 2021 is as follows:

17 unchanged sentences

Net excess tax benefits from stock-based compensation plans activity 0.1 (0.4) (2.1)

Valuation allowance 3.4 — —

Other items — 0.3 (0.1)

3 unchanged sentences

Our effective tax rate for 2023 was 26.3%, compared with 25.6% for 2022 and 22.4% for 2021.

The increase in our effective tax rate in 2022 from 2021 was primarily due to the unfavorable impact of net losses attributable to redeemable non-controlling interests held in our consolidated investment products and a reduction in the discrete tax benefits associated with option exercises and restricted stock vests.

Furthermore, our effective tax rate was unfavorably impacted by a valuation allowance recorded to recognize only the portion of a UK-based deferred tax asset that is more likely than not to be realized.

The increase in our effective tax rate in 2023 from 2022 was primarily due to an increase in the valuation allowances recorded mainly against UK-based deferred tax assets, including net operating losses, and a decrease in discrete tax benefits associated with option exercises and restricted stock vests.

These unfavorable impacts were partially offset by a favorable impact of net gains attributable to redeemable non-controlling interests held in our consolidated investment products and state tax liability settlements.

For 2022, the increase in our effective tax rate from 2021 was primarily due to the unfavorable impact of net losses attributable to redeemable non-controlling interests held in our consolidated investment products and a reduction in the discrete tax benefits associated with option exercises and restricted stock vests.

Furthermore, our effective tax rate was unfavorably impacted by a valuation allowance recorded to recognize only the portion of UK-based deferred tax assets that are more likely than not to be realized.

These unfavorable impacts were partially offset by the favorable impacts of the reduction of the effective state tax rate due to the full phase-in of the 2018 Maryland state tax legislation and the remeasurement of the contingent consideration liability.

For 2021, the increase in our effective tax rate from 2020 was primarily due to lower net gains attributable to non-controlling interests.

We continued to see benefit from the phased-in implementation of the 2018 Maryland state tax legislation and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2021.

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 rates for 2023, 2022 and 2021 were 27.2% , 24.7%, 22.5%, r espectively.

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.

GAAP rate will also be impacted by changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity as well as the remeasurement of the contingent consideration liability.

We currently estimate our GAAP effective tax rate for the full-year 2023 will be in the range of 24.5% to 28.5% and our non-GAAP effective tax rate for the full-year 2023 will be in the range of 24.5% to 27.5%.

Our effective tax rate will continue to experience volatility in future periods due to, among other things, the impact on the stock-based compensation tax benefits recognized from market fluctuations in our stock price and timing of option exercises, changes in the mix of our earnings among countries with differing tax laws, and changes in the valuation allowance of foreign based deferred tax assets.

As of December 31, 2023, the total valuation allowance recorded was $102.8 million, of which nearly all is related to UK-based deferred tax assets.

We intend to continue maintaining a full valuation allowance on these and future deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

GAAP effective tax rate will also be impacted by changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity as well as the remeasurement of the contingent consideration liability.

We currently estimate our effective tax rates for the full-year 2024 will be in the range of 23.0% to 27.0% on a GAAP basis, and 23% to 26% on a non-GAAP basis.

This range reflects lower expected valuation allowances related to our foreign based deferred tax assets and a lower state rate associated with changes in income apportionment rules in certain jurisdictions.

The Organization of Economic Co-operation and Development has issued Pillar Two Model Rules (Pillar Two) introducing a global 15% minimum tax effective January 1, 2024 within certain countries in which we operate.

Our preliminary determination is that the Pillar Two implementation is unlikely to have a material impact on the company's future consolidated results of operations, cash flows, and overall financial position.

We will continue to monitor and evaluate the impacts of enacted and pending Pillar Two legislation on our operations.

NON-GAAP INFORMATION AND RECONCILIATION.

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Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Acquisition-related:

Investment and NCI amortization and impairments (1) (Capital allocation-based income and Compensation and related costs)

6 unchanged sentences

(134.2) 134.2 — 28.8 105.4 0.46

Transaction costs (2) (General, admin and other)

(.9) .9 — .2 .7 .01

Total acquisition-related non-GAAP adjustments (152.9) 250.9 — 67.5 183.4 .78

Total acquisition-related (81.4) 142.7 — 36.9 105.8 0.46

Supplemental savings plan liability (3) (Compensation and related costs)

6 unchanged sentences

Adjusted Non-GAAP Basis $ 4,260.7 $ 2,263.2 $ 140.8 $ 653.9 $ 1,750.1 $ 7.59

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

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

Net income attributable to T.

Rowe Price Group Diluted earnings per share (7)

GAAP Basis $ 3,961.9 $ 3,710.0 $ 284.6 $ 896.1 $ 3,082.9 $ 13.12

Rowe Price Diluted earnings per share (7)

GAAP Basis (FS line item) $ 4,114.7 $ 2,373.7 $ (425.5) $ 498.6 $ 1,557.9 $ 6.70

Non-GAAP adjustments:

Acquisition-related transaction costs (2)

(General, admin and other)

Acquisition-related:

Investment and NCI amortization and impairments (1) (Capital allocation-based income and Compensation and related costs)

40.5 57.5 — 15.5 42.0 0.18

Supplemental savings plan liability (3)

(Compensation and related costs)

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

(70.2) 70.2 — 18.9 51.3 0.22

Contingent consideration (1)

161.2 (161.2) — (43.3) (117.9) (0.52)

Intangible assets amortization and impairments (1)

(283.5) 283.5 — 76.2 207.3 0.89

Transaction costs (2) (General, admin and other)

(0.9) 0.9 — 0.2 0.7 0.01

Total acquisition-related (152.9) 250.9 — 67.5 183.4 0.78

Supplemental savings plan liability (3) (Compensation and related costs)

132.3 (132.3) 139.4 1.9 5.2 0.02

Consolidated T.

investment products (4)

Rowe Price investment products (4)

(6.3) 8.3 203.5 27.8 75.7 0.33

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Rowe Price Group Diluted earnings per share (7)

GAAP Basis $ 3,461.0 $ 2,745.7 $ 496.5 $ 718.9 $ 2,372.7 $ 9.98

GAAP Basis (FS line item) $ 3,961.9 $ 3,710.0 $ 284.6 $ 896.1 $ 3,082.9 $ 13.12

Non-GAAP adjustments:

Acquisition-related transaction costs (2) (General, admin and other)

(31.9) 31.9 — 7.2 24.7 0.11

Supplemental savings plan liability (3) (Compensation and related costs)

1 unchanged sentence

Consolidated T.

investment products (4)

Rowe Price investment products (4)

(6.7) 12.2 (74.7) (10.6) (36.3) (0.16)

2 unchanged sentences

Adjusted Non-GAAP Basis $ 3,840.3 $ 3,837.1 $ 28.7 $ 870.5 $ 2,995.3 $ 12.75

(1) These non-GAAP adjustments remove the impact of acquisition-related amortization and impairments of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization and impairment of acquired investments and non-controlling interest basis differences, and amortization of compensation-related arrangements.

Management believes adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(2) This non-GAAP adjustment removes the transaction costs incurred related to the acquisition of OHA.

Management believes adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(1) These non-GAAP adjustments remove the impact of acquisition-related amortization and costs, including amortization of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization of acquired investment and non-controlling interest basis differences and amortization of compensation-related arrangements.

We believe adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(2) This non-GAAP adjustment removes acquisition-related transactions costs.

We believe adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(3) This non-GAAP adjustment removes the compensation expense impact from market valuation changes in the supplemental savings plan liability and the related net gains (losses) on investments designated as an economic hedge against the related liability.

Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by participants.

We use sponsored investment products to economically hedge the exposure to these market movements.

Management believes it is useful to offset the non-operating investment income (loss) realized on the economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(4) These non-GAAP adjustments remove the impact that the consolidated sponsored investment products have on our U.S.

Rowe Price investment products to economically hedge the exposure to these market movements.

We believe it is useful to offset the non-operating investment income (loss) recognized on the

economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(4) These non-GAAP adjustments remove the impact the consolidated sponsored investment products have on our U.S.

GAAP consolidated statements of income.

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Rowe Price represents the net income of the consolidated products, net of redeemable non-controlling interests.

Management believes the consolidated sponsored investment products may impact the reader’s ability to understand our core operating results.

(5) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our non-consolidated investment portfolio that are not designated as economic hedges of the supplemental savings plan liability and that are not part of the cash and discretionary investment portfolio.

Management retains the investment gains recognized on the non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of

our core operations.

Management believes adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years.

Additionally, management does not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our performance.

We believe the consolidated sponsored investment products may impact the reader’s ability to understand our core operating results.

(5) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our investment portfolio that are not designated as economic hedges of the supplemental savings plan liability and that are not part of the cash and discretionary investment portfolio.

We retain in our non-GAAP measures the investment gains recognized on the cash and discretionary investments as these assets and related income (loss) are considered part of our core operations.

We believe adjusting for the remaining non-operating income (loss) helps the reader’s ability to understand our core operating results and increases comparability to prior years.

Additionally, we do not emphasize the impact of this portion of non-operating income (loss) when managing and evaluating our performance.

(6) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 27.2% for 2023, 24.7% for 2022 and 22.5% for 2021.

We estimate that our effective tax rate for the full-year 2023 on a non-GAAP basis will be in the range of 24.5% to 27.5%.

(7) This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to

Rowe Price Group divided by the weighted-average common shares outstanding assuming dilution.

Rowe Price Group and dividing by the weighted-average common shares outstanding assuming dilution.

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

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Rowe Price Group, Inc.

decreased from $9.0 billion to $8.8 billion.

Tangible book value decreased to $5.8 billion at December 31, 2022.

increased from $8.8 billion to $9.5 billion.

Tangible book value increased to $6.5 billion at December 31, 2023 from $5.8 billion at December 31, 2022.

Sources of Liquidity

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Rowe Price products $ 4,795.8 $ 4,086.3

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

Of these cash and discretionary investments, $809.1 million at December 31, 2022, and $764.2 million at December 31, 2021 were held by our subsidiaries located outside the U.S.

Cash and discretionary investment portfolio experienced market losses of $24.4 million in 2022 compared to market gains of $28.7 million in 2021.

Our discretionary investment portfolio is comprised primarily of short duration fixed income ETFs, which typically yield higher than money market rates.

Of our cash and cash equivalents, $699.0 million at December 31, 2023, and $809.1 million at December 31, 2022 were held by our subsidiaries located outside the U.S.

Our cash and discretionary investment portfolio experienced market gains of $140.8 million in 2023 compared to market losses of $24.4 million in 2022.

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 cash and investment presentation on the consolidated balance sheet is based on how we account for the cash or investment.

The following table details how our investments, including those acquired as part of the OHA acquisition, relate to where they are presented in the consolidated balance sheet as of December 31, 2022.

The following table details how our investment interests relate to where they are presented in the consolidated balance sheet as of December 31, 2023.

(in millions) Cash and cash equivalents Investments Net assets of consolidated sponsored investment products (1)

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Rowe Price 2,066.6 1,418.2 1,311.0 4,795.8

Investment in UTI and other investments — 258.5 — 258.5

Investments in affiliated private investment funds (2)

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Investments in CLOs — 102.5 — 102.5

Investment in UTI and other investments — 260.7 — 260.7

Total cash and investments attributable to T.

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December 31, 2023

(1)The consolidated T.

$ 2,066.6 $ 2,554.7 $ 1,905.1 $ 6,526.4

(1) The c onsolidated T.

Rowe Price investment products are generally those products we provided seed capital at the time of their formation and we have a controlling interest.

These products generally represent U.S.

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

The $8.1 million and the $799.5 million represent the total value at December 31, 2022 of our interest in the consolidated sponsored investment products.

The total net assets of consolidated sponsored investment products at December 31, 2022 of $1,514.3 million includes assets of $1,603.4 million less liabilities of $89.1 million as reflected in the consolidated balance sheet in Item 8.

The $1,311.0 million represents the total value at December 31, 2023 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at December 31, 2023 of $1,905.1 million includes assets of $1,959.3 million, less liabilities of $54.2 million as reflected in the consolidated balance sheet in Item 8.

Financial Statements of this Form 10-K.

(2) Includes $192.0 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.

Our consolidated balance sheet reflects the cash and cash equivalents, investments, other assets and liabilities of those sponsored investment products we consolidate, as well as redeemable non-controlling interests for the portion of these sponsored investment products that are held by unrelated third-party investors.

Our consolidated balance sheet reflects the assets and liabilities of those sponsored investment products we consolidate, as well as redeemable non-controlling interests for the portion of these sponsored investment products that are held by unrelated third-party investors.

Although we can redeem our net interest in these sponsored investment products at any time, we cannot directly access or sell the assets held by the products to obtain cash for general operations.

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Total $ 3,234.4 $ 699.8 $ 2,245.6 $ 6,179.8

We anticipate property and equipment expenditures for the full-year 2023 to be about $350 million, of which more than two-thirds is planned for technology initiatives.

We anticipate property and equipment expenditures for the full-year 2024 to be about $487 million.

More than one-half is planned for technology initiatives, while the remaining will be facility related, including the completion of our new corporate headquarters.

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

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Stock-based compensation expense 265.6 — — 265.6

Net losses recognized on investments 314.0 — (103.4) 210.6

Net gains recognized on investments (567.3) — 106.5 (460.8)

Net change in sponsored investment products used to economically hedge supplemental savings plan liability (10.3) — 66.4 56.1

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Depreciation, amortization and impairments of property, equipment and software 225.7 — — 225.7

Amortization and impairment of acquisition-related assets and retention agreements 420.1 — — 420.1

Fair value remeasurement of contingent consideration liability (161.2) — — (161.2)

Stock-based compensation expense 285.4 — — 285.4

Net gains recognized on investments (169.4) — 46.9 (122.5)

Net losses recognized on investments 314.0 — (103.4) 210.6

Net change in sponsored investment products used to economically hedge supplemental savings plan liability (18.8) — — (18.8)

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Operating activities attributable to T.

Rowe Price Group during 2022 provided cash flows of $2,440.3 million as compared to $3,428.3 million during 2021.

Operating cash flows attributable to T.

Rowe Price Group decreased $988.0 million, including a $1,525.0 million decrease in net income, a decrease in timing differences on the cash settlement of our assets and liabilities of $303.9 million.

These decreases were partially offset by a higher add back of $774.0 million in non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization

and impairments of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other non-cash items.

The non-cash adjustments were primarily driven by $314.0 million in net investment losses in 2022 compared to $169.4 million of net investment gains in 2021 as well as $420.1 million in amortization and impairments of acquisition-related assets and retention agreements incurred in 2022.

Rowe Price Group during 2023 provided cash flows of $2,058.6 million, a decrease of $381.7 million from $2,440.3 million during 2022.

This decrease in cash flows provided by operating activities attributable to T.

Rowe Price Group was primarily driven by a lower add-back of $986.5 million in non-cash items.

The impact of these non-cash adjustments was offset in part by a $230.8 million increase in net income combined with $365.5 million from the cash settlement timing of our assets and liabilities.

These non-cash adjustments were primarily driven by $567.3 million in net investment gains in 2023 compared to $314.0 million of net investment losses in 2022 as well as $226.8 million in amortization and impairments of acquisition-related assets and retention agreements incurred in 2023 compared to $420.1 million incurred in 2022.

Additionally, in 2023, we had net investments of $10.3 million from certain investment products that economically hedge our supplemental savings plan liability, compared to net investments of $18.8 million in 2022.

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Operating cash flows attributable to T.

Rowe Price Group increased $949.3 million, including a $710.2 million increase in net income, timing differences on the cash settlement of our assets and liabilities of $33.4 million, and $148.5 million of higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense.

The non-cash adjustments were primarily driven by a $104.9 million decrease in net investment gains in 2021 compared to 2020.

Additionally, in 2021, we had net investments of $85.7 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $142.9 million in 2020.

Rowe Price Group decreased $988.0 million, including a $1,525.0 million decrease in net income, timing differences on the cash settlement of our assets and liabilities of $303.9 million, and $774.0 million of higher non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization and impairments of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other non-cash items.

The non-cash adjustments were primarily driven by $314.0 million of net investment losses in 2022 compared to $169.4 million of net investment gains in 2021.

Additionally, in 2022, we had net investments of $18.8 million from certain investment products that economically hedge our supplemental savings plan liability, compared to net investments of $85.7 million in 2021.

The remaining change in reported cash flows from operating activities was attributable to the net change in trading securities held in our consolidated investment products’ underlying portfolios.

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

Rowe Price Group totaled $179.3 million in 2022 compared with $1,134.9 million of cash used in investing activities in 2021.

During 2022, net proceeds from the sale of certain discretionary investments of $208.5 million were lower compared to $1,577.8 million during 2021 as investments were sold in 2021 to fund part of the consideration paid to complete the acquisition of OHA.

In 2022, we also increased the level of seed capital in those sponsored investment products we consolidate by $92.8 million.

We eliminate our seed capital in those sponsored investment products we consolidate in preparing our consolidated statements of cash flows.

Rowe Price Group totaled $310.2 million in 2023 compared with $179.3 million in 2022.

During 2023, net proceeds from the sale of investments of $36.1 million were lower compared to $62.0 million during 2022.

In 2023, we increased our property and equipment expenditures by $70.3 million and our other investing activity by $34.7 million.

We eliminate our capital in those sponsored investment products we consolidate in preparing our consolidated statements of cash flows.

The remaining change in reported cash flows from investing activities of $48.1 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

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Rowe Price Group totaled $179.3 million in 2022, compared with $1,134.9 million of cash used in investing activities in 2021.

During 2021, we used $2,450.8 million as part of the consideration paid to complete the acquisition of OHA.

In addition, we increased our property and equipment expenditures by $24.5 million and increased the level of seed capital provided by $29.3 million.

In 2022, we also increased the level of seed capital in those sponsored investment products we consolidate by $92.8 million.

We eliminate our seed capital in those sponsored investment products we consolidate in preparing our consolidated statements of cash flows.

Decreasing the cash used in investing activities were higher net proceeds from the sale of certain discretionary investments of $1,577.8 million during 2021 compared to net proceeds of $181.7 million during 2020.

The remaining change in reported cash flows from investing activities of $8.2 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

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Rowe Price Group totaled $1,437.4 million in 2023 compared with $2,028.5 million in 2022.

During 2022, we used $849.8 million to repurchase 6.8 million shares compared to $1.1 billion to repurchase 5.9 million shares in 2021.

During 2023, we used $254.4 million to repurchase 2.4 million shares compared to $849.8 million to repurchase 6.8 million shares in 2022.

The $14.3 million increase in dividends paid in 2023 is a result of the 1.7% increase in our quarterly dividend per share in 2023.

In addition, net distributions to non-controlling interests in consolidated entities increased by $8.2 million and cash flow related to common stock issued under stock compensation plans increased by $18.2 million during 2023 compared to 2022.

The remaining change in reported cash flows from financing activities is primarily attributable to a $407.2 million increase in net subscriptions from redeemable non-controlling interest holders of our consolidated investment products during 2023.

Net cash used in financing activities attributable to T.

Rowe Price Group totaled $2,028.5 million in 2022, compared with $2,922.0 million in 2021.

During 2022, we used $849.8 million to repurchase 6.8 million shares compared to

$1,138.5 million to repurchase 5.9 million shares in 2021.

The $594.5 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.

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The remaining change in reported cash flows from financing activities is primarily attributable to a $18.4 million decrease in net redemptions from redeemable non-controlling interest holders of our consolidated investment products and a $45.4 million increase in cash flow related to common stock issued under stock compensation plans during 2022 compared to 2021.

Net cash used in financing activities attributable to T.

Rowe Price Group totaled $2,922.0 million in 2021, compared with $2,043.8 million in 2020.

During 2021, there was a $856.1 million increase in dividends paid in 2021 as a result of an 20.0% increase in our quarterly dividend per share and a special dividend paid in July 2021.

During 2021, we used $1.1 billion to repurchase 5.9 million shares compared to $1.2 billion to repurchase 10.9 million shares in 2020.

The remaining change in reported cash flows from financing activities is primarily attributable to a $624.3 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated

investment products and a $85.5 decrease in cash flow related to common stock issued under stock compensation plans during 2021 compared to 2020.

MATERIAL CASH COMMITMENTS.

Our material cash commitments primarily include our obligations under the supplemental savings plan, our lease obligations, and other contractual amounts that will be due for the purchase of goods or services to be used in our operations.

Our material cash commitments primarily include our obligations under the supplemental savings plan, our lease obligations, our headquarters build out, and other contractual amounts that will be due for the purchase of goods or services to be used in our operations.

Some of these contractual amounts may be cancellable under certain conditions and may involve termination fees.

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Additionally, there are unrecognized tax benefits discussed in Note 10 to our consolidated financial statements.

While most of our other material cash commitments consist of goods and services used in our operations, these commitments primarily consist of obligations related to long-term software licensing and maintenance contracts.

We also have outstanding commitments to fund additional contributions to investment partnerships totaling $94.1 million.

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As part of the OHA acquisition, T.

Rowe Price has committed $500 million to fund OHA products through 2026.

Rowe Price committed $500 million to fund OHA products through 2026.

As of December 31, 2023, T.

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Rowe Price has also entered into certain earnout and other arrangements as part of that acquisition.

For more detail on these arrangements, see Note 2 to our consolidated financial statements.

For more detail on these arrangements, see Note 5 and Note 15 to our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

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Consolidation

We consolidate all subsidiaries and sponsored investment products in which we have a controlling interest.

We consolidate all subsidiaries and sponsored investment products in which we have a controlling financial interest.

We are deemed to have a controlling interest when we own the majority of the voting interest of an entity or are deemed to be the primary beneficiary of a variable interest entity ("VIE").

VIEs are entities that lack sufficient equity to finance its activities or the equity holders do not have defined power to direct the activities of the entity normally associated with an equity investment.

VIEs are entities that lack sufficient equity

to finance its activities or the equity holders do not have defined power to direct the activities of the entity normally associated with an equity investment.

Our analysis to determine whether an entity is a VIE or a voting interest entity ("VOE") involves judgment and considers several factors, including an entity’s legal organization, capital structure, the rights of the equity investment holders, our ownership interest in the entity, and our contractual involvement with the entity.

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however, the carried interest entities are not the primary beneficiaries to these investment funds.

At December 31, 2022, we consolidated VIEs with net assets of $1.3 billion.

Other-than-temporary impairments of equity method investments

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We generally believe an assessment period of four consecutive quarters of sustained market losses is a reasonable period to allow for an anticipated market recovery.

Business Combinations

We account for business combinations under the acquisition method of accounting, whereby we recognize assets acquired and liabilities assumed, including separately identified intangible assets, contingent liabilities, and non-controlling interests, based on the fair value estimates as of the date of the acquisition.

Any excess purchase consideration over the fair value of the identified net assets acquired is recognized as goodwill.

The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets and the fair value of contingent payment obligations.

During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded in earnings.

As a result, if the subsequent actual results and updated projections of the underlying business activity change, compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.

Intangible assets acquired in business combinations consist primarily of investment advisory agreements and a trade name.

We also acquired certain carried interest entities that primarily hold interests in general partners of affiliated private investment funds with capital allocation-based income arrangements.

The fair values of the acquired advisory agreements and the investments with the capital allocation-based income arrangements are based on the net present value of estimated future cash flows attributable to the agreements, which include significant assumptions about revenue growth rate, discount rate and effective tax rate.

Our estimates are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, may differ from actual results.

In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate amortization expense.

If our estimates of the economic lives change, amortization expense could be accelerated or decelerated.

We record contingent consideration resulting from a business combination at its fair value on the acquisition date.

We generally determine the fair value of the contingent consideration using the Monte Carlo simulation methodology of valuation.

Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating expenses within the consolidated statements of income.

Changes in the fair value of the contingent consideration can result from changes in assumed discount periods and rates, and from changes pertaining to the achievement of the defined financial targets.

Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period.

Intangible asset impairments

As a result of our December 2021 acquisition of OHA, we recorded separately identifiable indefinite-lived and definite-lived intangible assets consisting primarily of investment advisory agreements and a trade name.

Intangible assets

Indefinite-lived intangible assets are tested for impairment annually, in the fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the intangible asset is impaired.

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Changes in these inputs could produce different fair value amounts and therefore different impairment conclusions.

During 2022, our annual impairment review of our indefinite-lived intangible assets determined that both our indefinite-lived investment management agreements intangible asset and trade name were impaired at the review date.

These intangible assets were determined to have had triggering events due to a combination of lower than expected cash flows and revenue projections from the most recent fair value determination in December 2021.

During 2022, we recognized $116.8 million of non-cash impairment charges on these indefinite-lived intangible assets.

During 2023, our annual impairment review of our indefinite-lived intangible assets determined that they were not impaired at the review date.

Definite-lived intangible assets are reviewed for impairment whenever events or circumstances indicate that the asset group's carrying amount may not be recoverable (i.e., the carrying amount is less than the undiscounted estimated future cash flows).

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If required, fair value would be determined using a discounted cash flow analysis where estimated future cash flows are discounted to arrive at a single present value amount.

This approach includes inputs that require significant management judgment, the most relevant of which include revenue growth, discount rates, and effective tax rates.

This approach includes inputs that require

significant management judgment, the most relevant of which include revenue growth, discount rates, and effective tax rates.

Any impairment loss would be the difference between the fair value of the asset group and its carrying amount.

During 2022, we determined in the fourth quarter that certain definite-lived intangible assets carrying value were not recoverable due to lower than expected cash flows and revenue projections.

Accordingly, during 2022, we recognized a non-cash impairment charge on these intangible assets of $58.2 million.

During 2023, we recognized an immaterial non-cash impairment charge on these intangible assets.

We internally conduct, manage, and report our operations as one reportable business segment - investment advisory business.

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We must also perform impairment testing at other times if an event or circumstance occurs indicating that it is more likely than not that an impairment has been incurred.

The maximum future impairment of

goodwill that we could incur is the amount recognized in our consolidated balance sheets, $2,642.8 million as of December 31, 2022.

The maximum future impairment of goodwill that we could incur is the amount recognized in our consolidated balance sheets, $2.6 billion as of December 31, 2023.

Provision for income taxes

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We recognize any such prior period adjustment in the discrete quarterly period in which it is determined.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized.

In making such a determination, we consider all available positive and negative evidence, including

future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.

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our tax rate;

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

legal or regulatory developments;

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interest rates and currency fluctuations;

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 industry or market conditions.

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

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Such changes result from many factors, including, among other things:

cash inflows and outflows in the U.S.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, performance fees, capital allocation-based income, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the coronavirus pandemic.

client-related cash inflows and outflows in our products, performance fees, capital allocation-based income, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new investment products, and changes in retirement savings trends relative to participant-directed investments and defined contribution plans.

The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence;

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competitive conditions in the mutual fund, asset management, and broader financial services sectors;

our level of success in implementing our strategy to expand our business, including our establishment of T.

Rowe Price Investment Management as a separate registered investment adviser;

our level of success in implementing our strategy to expand our business;

and our ability to attract and retain key personnel.

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Rowe Price funds terminated or significantly altered the terms of the investment management or related administrative services agreements.

Non-operating investment income will also fluctuate primarily due to the size of our investments, changes in their market

valuations, and any other-than-temporary impairments that may arise or, in the case of our equity method investments, our proportionate share of the investees’ net income.

Non-operating investment income will also fluctuate primarily due to the size of our investments, changes in their market valuations, and any other-than-temporary impairments that may arise or, in the case of our equity method investments, our proportionate share of the investees’ net income.

Our future results are also dependent upon the level of our expenses, which are subject to fluctuation for the following or other reasons:

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and to further penetrate our distribution channels within the U.S.;

the pace and level of spending to support key strategic priorities, including the integration of OHA with and into our business;

the pace and level of spending to support key strategic priorities;

variations in the level of total compensation expense due to, among other things, bonuses, restricted stock units and other equity grants, other incentive awards, our supplemental savings plan, changes in our employee count and mix, and competitive factors;

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the timing of the assumption of all third party research payments, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients;

and disruptions of services, including those provided by third parties, such as fund and product recordkeeping, facilities, communications, power, and the mutual fund transfer agent and accounting systems.

Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including, but not limited to, effects on costs that we incur and effects on investor interest in sponsored investment products and investing in general or in particular classes of mutual funds or other investments.

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-K

Item 7. Management’s Discussion and Analysis