T. Rowe Price acquires alternative credit manager for $4.2 billion

T. Rowe Price will acquire Oak Hill Advisors, L.P., an alternative credit manager, for $4.2 billion in cash and stocks, the firm announced Thursday. Coming in the final months of Bill Stromberg’s tenure as T. Rowe’s CEO, the acquisition is the firm’s largest in over 20 years and aims to propel T. Rowe’s expansion into the alternative investments market. 

The acquisition will add $53 billion in assets under management to T. Rowe. 

Stromberg said the acquisition mirrors the firm’s last major, strategic acquisition in 2000 when it bought full ownership of Rowe Price-Fleming International Inc., an international investment company and a joint venture between T. Rowe and Robert Fleming Holdings Ltd., a British company.  

That acquisition, for which T. Rowe paid $780 million in cash, according to reporting in The Baltimore Sun at the time, had a massive impact on the trajectory of T. Rowe’s business model, launching it to its current status as a global firm. 

“That, too, was very strategic, very important to the long-term diversification of the company,” Stromberg said. “This one feels, in many ways, a lot like that because we are adding a new growth leg in a new area to the company that has tremendous long-term upside potential. We are approaching it (in) a long-term fashion and we want to build something really special, but really sustainable, for the long term.” 

Alternative credit, which encompasses investments outside of traditional, public credit markets and often includes riskier investments with higher interest rates and yield potential, has risen in demand over the past several decades, according to Rob Sharps, T. Rowe’s current president, head of investments, group chief investment officer, and Stromberg’s successor as CEO.

While the firm has already made some investments in private credit, this will be its first dedicated push into that market.  

“Many of the broker-dealers and financial advisers are starting to incorporate private market alternatives and private credit into their clients’ portfolios. It started with ultra-high net worth, and it’s kind of worked its way down to high net worth and now the mass affluent,” Sharps said. “Working with those clients in the wealth channel is a really important part of our strategy.” 

The deal was largely spearheaded by Sharps, who will come into the position of CEO in January. He said that OHA was first identified as a candidate for acquisition last spring and was ultimately chosen due to its credibility within the private credit market, strong investment track record and cultural values it shares with T. Rowe. 

“OHA is exactly the sort of partner that we hoped to find when we embarked on this journey,” Sharps said. 

OHA, which employs over 300 people across seven international offices, will act as a standalone business within T. Rowe Price, with continued autonomy over its investment process. Its founder and CEO, Glenn August, will continue in his role, as will its senior leadership.  

“Joining with T. Rowe Price will better position us to meet the evolving investment needs of clients, as well as the financing needs of companies and financial sponsors, while maintaining our record of measured and thoughtful growth,” said August in a news release. “T. Rowe Price and OHA share a consistent approach, focusing on investment excellence, integrity, collaborative culture and client partnership that will help us build a stronger combined organization.” 

The news comes as T. Rowe Price continues to experience major growth. The company announced its third-quarter results on Thursday, reporting that assets under management for Q3 were $1.61 trillion, up 23.0% from the third quarter last year but down slightly from $1.62 trillion in the previous quarter. Its net client outflows were $6.4 billion and net revenues were just under $2 billion, a year-over-year increase of 22.5%.  

Its adjusted non-GAAP diluted earnings per common share, $3.27, fell short of estimates for the first time in over a year. The firm missed the Zacks Consensus Estimate of $3.31 per share by 1.21%.  

The OHA deal is anticipated to close late in the fourth quarter of 2021.