(Bloomberg) -- T. Rowe Price Group Inc., the asset manager that posted a profit every quarter since going public in 1986, reported first-quarter revenue that missed analysts’ estimates as institutional clients pulled money.

The shares fell the most in more than a year after the company said revenue rose 12 percent to $815.7 million, below the $819.8 million average estimate of 15 analysts surveyed by Bloomberg. Institutional products lost $4.3 billion in withdrawals, primarily related to “clients outside the U.S. who changed their investment objectives,” Baltimore-based T. Rowe Price in a statement.

The withdrawals partly offset the firm’s best mutual-fund deposits since the start of 2007. T. Rowe Price has about 75 percent of its assets invested in stocks, benefiting from this year’s stock market rally. Chief Executive Officer James Kennedy, who has relied on popular retirement-oriented products and strong performance among active fund managers to attract customers, said the market gains may not continue at this pace.

“Following a very strong start to the year, we would caution that the year-to-date pace of U.S. stock market gains is likely to be unsustainable,” Kennedy said in the statement.

T. Rowe Price fell as much as 6.2 percent, the biggest intraday decline since Nov. 1, 2011, before paring losses. The shares were down 3.5 percent at $73.62 at 9:52 a.m. New York time. Before today, the stock had gained 17 percent this year.

Profit Rises

Net income increased 22 percent to $240.1 million, or 91 cents a share, from $196.5 million, or 75 cents, a year earlier. Analysts had expected a profit of 88 cents a share, according to the average of 14 estimates in a Bloomberg survey.

Assets rose to a record $617.4 billion from $576.8 billion at the end of December after the Standard & Poor’s 500 Index of U.S. stocks gained 10 percent in the three months ended March 31. The MSCI ACWI Index of global stocks increased 6 percent. Assets rose 11 percent in the year ended March 31.

Despite the withdrawals by institutions, investors deposited a net $3.3 billion in the first quarter, driven by $7.6 billion to mutual funds.

“It was our strongest quarter for mutual-fund flows since the first quarter of 2007,” Kennedy said in an interview today.

Target-date portfolios, which invest in multiple underlying funds and automatically adjust to more a more conservative allocation as the client ages, attracted $3.8 billion.

Expenses increased 7.4 percent, contained by a 7.1 percent gain in compensation costs.

T. Rowe Price mutual funds continued to outperform peers, with 73 percent beating their comparable Lipper averages over three years, and 81 percent over five years.

‘Absolutely Insane’

Kennedy said the U.S. economy was proving to be “resilient” despite a lack of leadership in Washington. He called automatic federal spending cuts resulting from the lack of a long-term budget agreement, known as sequestration, as “crazy.”

“It’s absolutely insane to have that approach to constraining expenditures in this country,” Kennedy said. “But in terms of broad economic impact, it’s pretty minimal at this point.”

T. Rowe Price lost its best stock-picker in February when Kris Jenner, manager of the $6.2 billion T. Rowe Price Health Sciences Fund, left with two analysts to form his own hedge fund, Rock Springs Capital. Jenner had raised more than $100 million from investors as of April 10, according to a person with knowledge of the fund.

Assets in the Health Sciences fund rose 7.1 percent in March, when the fund returned 5.4 percent, suggesting investors deposited money into the fund in the month after Jenner left.

BlackRock Inc., the world’s largest asset manager, said April 16 its first-quarter net income rose 10 percent as the New York-based company attracted $40.5 billion in net deposits.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access