RobertSharps: I’ll start and then Jen or Eric can add any perspective. Look, our sub-advisory business is broad. We have sub-advisory opportunities in the wealth channel, and we have a meaningful variable annuity sub-advisory business. The variable annuity sub-advisory business over time is likely to be under more pressure. In terms of sizing it, it is meaningful, but kind of well less than 10% of our overall book. Overall, sub-advisory is a very, very good business for us and a business that we are committed to. We think it’s a channel that values our brand. We think it’s a channel that values performance. We do see some additional opportunity over the long-term in sub-advisory, particularly in the wealth channel, but we don’t anticipate that there’ll be much opportunity for growth outside of perhaps consolidating some market share, which is really dependent on very good service, as well as excellent performance in that VA channel.
Operator: Thank you.
Robert Sharps: Yeah. I would note quickly with regard to the VA channel, the challenges in the VA channel, something that we’ve navigated for a very long period of time. So that’s not something that’s new or specific to the elevated outflows this year. It may be in a particular month or a particular quarter. But it’s a part of the book that we’ve navigated some pressure over a relatively long period of time.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Brian Bedell with Deutsche Bank. Your line is now open.
Brian Bedell: Great. Thanks. Good morning, folks. Thanks for taking my question. Maybe just one on the investment process, good to see the improved performance. But if you can comment on — have there been any major changes to how you incorporate ESG risks? I know that’s something that’s been — you’ve been working on for several years, particularly this year, and given the political backlash against ESG, is that changing how you incorporate that into the investment process? And then similarly, what are you hearing from distribution partners in terms of demand for either ESG products or the inclusion within the investment process. Particularly, I know in Europe, it was — it has always been table stakes there. Are you seeing any change in the institutional demand in Europe?
Robert Sharps: Yeah. Hi, Brian. Very good question. Look, we incorporate ESG into our investment decision-making process consistently and we don’t let near-term or long-term political issues affect it. Our process is very much based on using insights generated by our fundamental analysts are using our fixed income team, using our responsible investing team. And what the RI team specifically does it helps our portfolio managers and analysts identify risks and opportunities understand the parts of the company’s long-term strategy that could be materially affected by changes across ESoG and then incorporating that into our investment decision-making process. So it is not affected by short-term political wins, and it leads us to better outcomes for our clients in all environments.
In terms of demand, the ESG set broadly defined still grew in 2023. And across the channels geographically. If you look at EMEA, APAC and even North America, if you exclude one very large reallocation that was done by a competitor firm within their retirement set. So we still think that there’s commercial opportunity here and we work with clients to meet them where they want to be. We have the capabilities to do that across fixed income and equities. And we feel really good about that — the capability that we’ve built over many years.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Ken Worthington with JPMorgan. Your line is now open.
Ken Worthington: Hi. Good morning and thanks for taking the question. You seem to have critical mass in your active ETF offering with the recent launches. A couple of questions here. One, can you talk about how you’re marketing the ETFs and what resources you’re dedicating here? Maybe second, where is distribution today versus your goals? And then the bigger picture question is certain active managers like a JPMorgan have been particularly successful in taking in pretty significant assets into relatively new active equity ETF offerings. Do you see a path forward for similar success at T. Rowe or is there something fundamentally different with your approach and others that you’re seeing in the industry?
Eric Veiel: Yeah. Hey, Ken. This is Eric. I’ll start, and then Rob or Jen may want to come in as well. The way we’ve approached this market has been, I think, a very thoughtful one. As you know, we started first with five semitransparent active ETFs, which were clones of existing strategies that we’re well known for. We then added five fixed income fully transparent ETFs and then this year launched five fully transparent active equity ETFs. Our approach to marketing these is to target the channels where we think that there’s the most uptake for the improved structure that the ETF offers, especially for taxable accounts. So that would be ideally the US wealth channel. And within that, the RIA channels as well as now we’re starting to gain some traction on the larger broker/dealers as we get to our 12-month track records across this different suite.
In the case of TCAF, because the capital appreciation strategy and the portfolio manager, David Drew, are quite well known. We’ve been able to accelerate some of the placements with that specific strategy. We’ve also backed this with targeted marketing campaigns and some dedicated sales function as well. So we feel good about the approach that we’re taking. And I think long-term, over the next, call it, three to five-plus years, there’s no reason why this can’t be a very large and important business for us, and I think we’ll grow meaningfully. I’m not going to comment about how we’ll do versus other specific competitors. I’m very comfortable with the approach that we’re taking, and I’m bullish on our long-term prospects here.
Robert Sharps: I would just add quickly, we do think there’s a big opportunity for active ETFs in the wealth channel. We do have some ETF specialists that support our regional investment consultants and home office teams that engage with our broker/dealer and advisory clients. We think there’s a big opportunity given our multi-asset capabilities in models over time to use our ETFs as components of those underlying models. And I do think longer term, given the of the traits of the ETF vehicle that there will be more for us to do with regard to evaluating opportunities where we can deliver our unique investment capabilities and address needs that clients have. So I think I’m encouraged that we’re making some progress, but I do think we’ve got much more to do here.
JenDardis: I’d also add. I think thematically, as Eric talked about ESG and being able to be a point we can talk with clients about their needs and meeting where they are, ETFs are similar in the sense it’s another capability where we can have conversations with clients about where they have gaps in their lineups and how we can meet those with the capabilities that we can develop, given the suite of products we already have.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Brennan Hawken with UBS. Your line is now open.
Brennan Hawken: Good morning. Thanks for taking my question. I was hoping you spoke to a 4Q uplift in some expenses. So it would be helpful if you can maybe size that versus the 1% year-to-date expense growth next to the carry, you also said that it’s seasonal and shouldn’t carry it in 2024. So just hoping to clarify, are you saying that you don’t expect a seasonal uplift in 4Q 2024 from similar items because of your expense efforts? Or were you just saying that it won’t carry into the first quarter? Thanks.
