# PRICE T ROWE GROUP INC (TROW) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from PRICE T ROWE GROUP INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1113169/000111316923000007/trow-20221231.htm
Accession: 0001113169-23-000007
Filing date: 2023-02-15
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TROW/
All MD&A years: /company/TROW/mda/
Previous year: /company/TROW/mda/fy2021/ (FY 2021)
Next year: /company/TROW/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW.

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. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; 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. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients. 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. In this regard, we have ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings in order to provide our clients with strong investment management expertise and service.

On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that had common ownership (collectively, OHA). We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities"). 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

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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).

MARKET TRENDS.

Major U.S. 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.

Returns of several major equity market indexes for 2022 are as follows:

[[GREPCENT_TABLE]]
[["S&P 500 Index","(18.1)%"],["NASDAQ Composite Index(1)","(33.1)%"],["Russell 2000 Index","(20.4)%"],["MSCI EAFE (Europe, Australasia, and Far East) Index","(14.0)%"],["MSCI Emerging Markets Index","(19.7)%"]]
[[/GREPCENT_TABLE]]

(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. The 10-year U.S. Treasury note yield increased from 1.52% to 3.88% in 2022.

In the U.S. 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.

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.

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Returns of several major bond market indexes for 2022 are as follows:

[[GREPCENT_TABLE]]
[["Bloomberg Barclays U.S. Aggregate Bond Index","(13.0)%"],["JPMorgan Global High Yield Index","(10.2)%"],["Bloomberg Barclays Municipal Bond Index","(8.5)%"],["Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index","(18.7)%"],["JPMorgan Emerging Markets Bond Index Plus","(24.7)%"],["ICE Bank of America U.S. High Yield Index","(11.2)%"],["Credit Suisse Leveraged Loan Index","(1.1)%"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["(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","","","","","\u2014"],["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)","","","\u2014","","","(.2)","","","","","(3.1)"],["Acquired assets under management","","\u2014","","","\u2014","","","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","","","","","\u2014"],["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)","","","\u2014","","","(.2)","","","","","(6.5)"],["Change during the period","","76.8","","","26.1","","","67.5","","","","","170.4"],["Acquired fee-basis assets under management","","\u2014","","","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","","","","","\u2014"],["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)","","","\u2014","","","\u2014","","","","","(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"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["(in billions)","","Equity","","Fixed income, including money market","","Multi-asset(1)","","Alternatives(2)","","Total"],["Assets under management at December 31, 2019","","$","698.9","","","$","147.9","","","$","360.0","","","$","\u2014","","","$","1,206.8"],["Net cash flows","","\u2014","","","14.1","","","(8.5)","","","\u2014","","","5.6"],["Net market appreciation and income(3)","","196.9","","","5.5","","","54.5","","","\u2014","","","256.9"],["Acquired assets under management","","\u2014","","","1.2","","","\u2014","","","\u2014","","","1.2"],["Change during the period","","196.9","","","20.8","","","46.0","","","\u2014","","","263.7"],["Assets under management at December 31, 2020","","895.8","","","168.7","","","406.0","","","\u2014","","","1,470.5"],["Net cash flows","","(44.6)","","","1.2","","","14.9","","","\u2014","","","(28.5)"],["Net market appreciation and income(3)","","141.5","","",".6","","","56.8","","","\u2014","","","198.9"],["Acquired fee-basis assets under management","","\u2014","","","5.2","","","\u2014","","","41.7","","","46.9"],["Change during the period","","96.9","","","7.0","","","71.7","","","41.7","","","217.3"],["Assets under management at December 31, 2021","","992.7","","","175.7","","","477.7","","","41.7","","","1,687.8"],["Net cash flows","","(72.7)","","","4.1","","","4.9","","","2.0","","","(61.7)"],["Net market depreciation and losses(3)","","(255.8)","","","(12.8)","","","(82.5)","","","(0.3)","","","(351.4)"],["Change during the period","","(328.5)","","","(8.7)","","","(77.6)","","","1.7","","","(413.1)"],["Assets under management at December 31, 2022","","$","664.2","","","$","167.0","","","$","400.1","","","$","43.4","","","$","1,274.7"]]
[[/GREPCENT_TABLE]]

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

(3) Reported net of distributions not reinvested.

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. 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. 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 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:

[[GREPCENT_TABLE]]
[["","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"],["U.S. 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","","","","\u2014","","",".6","","","0.8"],["","$","334.2","","","$","391.1","","","$","332.2","","","","$","11.3","","","$","11.3","","","$","(6.5)"]]
[[/GREPCENT_TABLE]]

We also provide strategic investment advice solutions for certain portfolios. These advice solutions, which the vast

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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.

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S. mutual funds, collective investment trusts and funds managed outside of the firm's complex. As of December 31, 2022, our assets under administration were $214 billion, of which nearly $133 billion were assets we manage.

INVESTMENT PERFORMANCE(1).

Strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success. The following table presents investment performance for the one-, three-, five-, and 10-years ended December 31, 2022. Past performance is no guarantee of future results.

[[GREPCENT_TABLE]]
[["% of U.S. mutual funds that outperformed Morningstar median(2),(3)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","53%","","52%","","62%","","73%"],["Fixed Income","","53%","","63%","","65%","","66%"],["Multi-Asset","","20%","","81%","","80%","","90%"],["All Funds","","41%","","64%","","68%","","74%"],["% of U.S. mutual funds that outperformed passive peer median(2),(4)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","47%","","45%","","53%","","69%"],["Fixed Income","","47%","","53%","","55%","","48%"],["Multi-Asset","","27%","","87%","","76%","","80%"],["All Funds","","39%","","60%","","60%","","64%"],["% of composites that outperformed benchmarks(5)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","36%","","53%","","58%","","67%"],["Fixed Income","","26%","","48%","","50%","","76%"],["All Composites","","32%","","51%","","54%","","71%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["AUM Weighted Performance"],["% of U.S. mutual funds AUM that outperformed Morningstar median(2),(3)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","52%","","50%","","57%","","69%"],["Fixed Income","","63%","","75%","","77%","","81%"],["Multi-Asset","","3%","","92%","","94%","","98%"],["All Funds","","39%","","64%","","69%","","78%"],["% of U.S. mutual funds AUM that outperformed passive peer median(2),(4)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","51%","","41%","","49%","","61%"],["Fixed Income","","52%","","62%","","58%","","55%"],["Multi-Asset","","5%","","96%","","96%","","96%"],["All Funds","","38%","","60%","","64%","","70%"],["% of composites AUM that outperformed benchmarks(5)"],["","","1 year","","3 years","","5 years","","10 years"],["Equity","","37%","","43%","","47%","","54%"],["Fixed Income","","17%","","37%","","39%","","74%"],["All Composites","","33%","","42%","","46%","","57%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2022, 72 of 125 (57.6%) of our rated U.S. mutual funds (across primary share classes) received an overall rating of 4 or 5 stars. By comparison, 32.5% of Morningstar's fund population is given a rate of 4 or 5 stars(6). In addition, 65.9%(6) of AUM in our rated U.S. mutual funds (across primary share classes) ended 2022 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T. Rowe Price sponsored mutual funds and composites AUM.

(2) Source: © 2022 Morningstar, Inc. All rights reserved. The information contained herein: 1) is proprietary to Morningstar and/or its content providers; 2) may not be copied or distributed; and 3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

(3) Source: Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the Morningstar category median. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total Fund AUM included for this analysis includes $298B for 1 year, $297B for 3 years, $297B for 5 years, and $293B for 10 years.

(4) Passive Peer Median was created by T. Rowe Price using data from Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, funds with fewer than three peers, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. This analysis compares T. Rowe Price active funds with the applicable universe of passive/index open-end funds and ETFs of peer firms. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the passive peer universe. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $282B for 1 year, $252B for 3 years, $249B for 5 years, and $236B for 10 years.

(5)Composite net returns are calculated using the highest applicable separate account fee schedule. Excludes money market composites. All composites compared to official GIPS composite primary benchmark. The top chart reflects the percentage of T. Rowe Price composites with 1 year, 3 year, 5 year, and 10 year track record that are outperforming their benchmarks. The bottom chart reflects the percentage of T. Rowe Price composite AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $1,117B for 1 year, $1,112B for 3 years, $1,108B for 5 years, and $1,070B for 10 years.

(6) The Morningstar Rating™ for funds is calculated for funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. Morningstar gives its best ratings of 5 or 4 stars to the top 32.5% of all funds (of the 32.5%,10% get 5 stars and 22.5% get 4 stars). The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with a fund’s 3, 5, and 10 year (if applicable) Morningstar Rating™ metrics.

RESULTS OF OPERATIONS.

The following table and discussion set forth information regarding our consolidated financial results for 2022, 2021 and 2020 on a U.S. GAAP basis and a non-GAAP basis. The non-GAAP basis adjusts for the impact of our consolidated sponsored investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, acquisition-related amortization and costs, impairment charges, and certain nonrecurring charges and gains, if any.

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.

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[[GREPCENT_TABLE]]
[["","","","2022 compared with 2021","","2021 compared with 2020"],["(in millions, except per-share data)","2022","","2021","","2020","","$ Change","","% Change","","$ Change","","% Change"],["U.S. GAAP basis"],["Investment advisory fees","$","5,969.1","","","$","7,098.1","","","$","5,693.1","","","$","(1,129.0)","","","(15.9)","%","","$","1,405.0","","","24.7","%"],["Net revenues","$","6,488.4","","","$","7,671.9","","","$","6,206.7","","","$","(1,183.5)","","","(15.4)","%","","$","1,465.2","","","23.6","%"],["Operating expenses","$","4,114.7","","","$","3,961.9","","","$","3,461.0","","","$","152.8","","","3.9","%","","$","500.9","","","14.5","%"],["Net operating income","$","2,373.7","","","$","3,710.0","","","$","2,745.7","","","$","(1,336.3)","","","(36.0)","%","","$","964.3","","","35.1","%"],["Non-operating income(1)","$","(425.5)","","","$","284.6","","","$","496.5","","","$","(710.1)","","","n/m","","$","(211.9)","","","n/m"],["Net income attributable to T. Rowe Price Group","$","1,557.9","","","$","3,082.9","","","$","2,372.7","","","$","(1,525.0)","","","(49.5)","%","","$","710.2","","","29.9","%"],["Diluted earnings per common share","$","6.70","","","$","13.12","","","$","9.98","","","$","(6.42)","","","(48.9)","%","","$","3.14","","","31.5","%"],["Weighted average common shares outstanding assuming dilution","227.1","","","228.8","","","231.2","","","(1.7)","","","(.7)","%","","(2.4)","","","(1.0)","%"],["Adjusted basis(2)"],["Operating expenses","$","4,087.8","","","$","3,840.3","","","$","3,342.7","","","$","247.5","","","6.4","%","","$","497.6","","","14.9","%"],["Net income attributable to T. Rowe Price Group","$","1,864.8","","","$","2,995.3","","","$","2,276.8","","","$","(1,130.5)","","","(37.7)","%","","$","718.5","","","31.6","%"],["Diluted earnings per common share","$","8.02","","","$","12.75","","","$","9.58","","","$","(4.73)","","","(37.1)","%","","$","3.17","","","33.1","%"],["Assets under management (in billions)"],["Average assets under management(3)","$","1,398.4","","","$","1,599.3","","","$","1,247.9","","","$","(200.9)","","","(12.6)","%","","$","351.4","","","28.2","%"],["Ending assets under management","$","1,274.7","","","$","1,687.8","","","$","1,470.5","","","$","(413.1)","","","(24.5)","%","","$","217.3","","","14.8","%"],["Annualized Effective Fee Rate (in bps)","42.7","","44.4","","45.6","","(1.7)","","","n/m","","(1.2)","","","n/m"]]
[[/GREPCENT_TABLE]]

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

(2) 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.

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 .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

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

Operating expenses. Operating expenses were $4,114.7 million in 2022, an increase of 3.9% over the comparable 2021 period. Our operating expenses for 2022 include impairment charges of $175.1 million related to certain investment management contract intangible assets whose assessed fair value has declined below their respective carrying values. On a non-GAAP basis, operating expenses were $4,087.8 million, a 6.4% increase over the comparable 2021 period. Our operating expenses for 2022 also include OHA's operating expenses, which primarily impact compensation expense; technology, occupancy, and facility costs; and general, administrative and other costs.

The increase in our non-GAAP operating expenses was primarily attributable to the addition of OHA operating expenses; salaries and benefits; severance and other costs associated with the fourth quarter of 2022 workforce reduction action; higher costs related to the ongoing investment in the firm's technology capabilities; higher recordkeeping expenses due to the expanded relationship with FIS; and information services and travel-related costs. 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. Our operating margin in 2022 was 36.6%, compared with 48.4% in 2021. The decrease in our operating margin in 2022 compared with 2021 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 $6.70 in 2022 as compared to $13.12 in 2021. On a non-GAAP basis, diluted earnings per share was $8.02 in 2022 as compared to $12.75 for 2021. The decrease in both 2022 GAAP and non-GAAP diluted earnings per share compared to 2021 was primarily driven by lower operating income, net investment losses in 2022 as compared to net investment gains in 2021, and a higher effective tax rate. 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.

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

Net revenues

[[GREPCENT_TABLE]]
[["","","","2022 compared with 2021","","2021 compared with 2020"],["(in millions)","2022","","2021","","2020","","$ Change","","% Change","","$ Change","","% Change"],["Investment advisory fees"],["U.S. mutual funds","$","3,486.2","","","$","4,388.9","","","$","3,639.9","","","$","(902.7)","","","(20.6)","%","","$","749.0","","","20.6","%"],["Subadvised funds, separate accounts, collective investment trusts, and other investment products","2,482.9","","","2,709.2","","","2,053.2","","","(226.3)","","","(8.4)","%","","656.0","","","32.0","%"],["","5,969.1","","","7,098.1","","","5,693.1","","","(1,129.0)","","","(15.9)","%","","1,405.0","","","24.7","%"],["Administrative, distribution, and servicing fees"],["Administrative fees","481.4","","","453.5","","","402.3","","","27.9","","","6.2","%","","51.2","","","12.7","%"],["Distribution and servicing fees","92.2","","","120.3","","","111.3","","","(28.1)","","","(23.4)","%","","9.0","","","8.1","%"],["","573.6","","","573.8","","","513.6","","","(.2)","","","\u2014","%","","60.2","","","11.7","%"],["Capital allocation-based income(1)","(54.3)","","","\u2014","","","\u2014","","","(54.3)","","","n/m","","\u2014","","","n/m"],["Net revenues","$","6,488.4","","","$","7,671.9","","","$","6,206.7","","","$","(1,183.5)","","","(15.4)","%","","$","1,465.2","","","23.6","%"]]
[[/GREPCENT_TABLE]]

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

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.

[[GREPCENT_TABLE]]
[["","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)"],["U.S. 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"]]
[[/GREPCENT_TABLE]]

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

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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 2022 were $573.6 million, a decrease of $.2 million from 2021. 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. 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. This $22.9 million reduction includes $40.5 million related to the amortization and impairment charges offset in part by $17.6 million in compensation expense related to the accrued carried interest.

Net revenues are presented after the elimination of $2.0 million for 2022, $5.5 million for 2021, and $9.9 million for 2020, earned from our consolidated sponsored investment products. The corresponding expenses recognized by these consolidated products were also eliminated from operating expenses.

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Operating expenses

[[GREPCENT_TABLE]]
[["","","","2022 compared with 2021","","2021 compared with 2020"],["(in millions)","2022","","2021","","2020","","$ Change","","% Change","","$ Change","","% Change"],["Compensation and related costs, excluding acquisition-related retention agreements, capital allocation-based income compensation, and supplemental savings plan","$","2,405.8","","","$","2,300.0","","","$","2,070.6","","","$","105.8","","","4.6","%","","$","229.4","","","11.1","%"],["Acquisition-related retention agreements","70.2","","","\u2014","","","\u2014","","","70.2","","","n/m","","\u2014","","","n/m"],["Capital allocation-based income compensation","(22.9)","","","\u2014","","","\u2014","","","(22.9)","","","n/m","","\u2014","","","n/m"],["Supplemental savings plan","(132.3)","","","83.0","","","111.8","","","(215.3)","","","(259.4)","%","","(28.8)","","","(25.8)","%"],["Compensation and related costs","$","2,320.8","","","$","2,383.0","","","$","2,182.4","","","(62.2)","","","(2.6)","%","","200.6","","","9.2","%"],["Distribution and servicing costs","301.5","","","373.9","","","278.5","","","(72.4)","","","(19.4)","%","","95.4","","","34.3","%"],["Advertising and promotion","97.3","","","100.2","","","83.7","","","(2.9)","","","(2.9)","%","","16.5","","","19.7","%"],["Product and recordkeeping related costs","300.1","","","236.3","","","155.5","","","63.8","","","27.0","%","","80.8","","","52.0","%"],["Technology, occupancy, and facility costs","560.5","","","484.9","","","444.8","","","75.6","","","15.6","%","","40.1","","","9.0","%"],["General, administrative, and other","412.2","","","383.6","","","316.1","","","28.6","","","7.5","%","","67.5","","","21.4","%"],["Change in fair value of contingent consideration","(161.2)","","","\u2014","","","\u2014","","","(161.2)","","","n/m","","\u2014","","","n/m"],["Acquisition-related amortization and impairment costs","283.5","","","\u2014","","","\u2014","","","283.5","","","n/m","","\u2014","","","n/m"],["Total operating expenses","$","4,114.7","","","$","3,961.9","","","$","3,461.0","","","$","152.8","","","3.9","%","","$","500.9","","","14.5","%"]]
[[/GREPCENT_TABLE]]

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. Contributing to the increase was $131.7 million associated with an increase in base salaries and related benefits from higher average headcount and base salary increases in January and July 2022, and a total of $10.8 million in additional costs associated with non-cash stock-based compensation expense. 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. The decrease was primarily driven by lower average assets under management in certain share classes of the U.S. mutual funds that earn 12(b)-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.

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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. Both of these costs are offset entirely by the revenue we earn and report in net revenues: 12B-1 revenue recognized in administrative, distribution, and servicing fees for the U.S. 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. 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 $300.1 million for 2022, an increase of $63.8 million, or 27.0%, compared with 2021. Approximately 86% of the increase in 2022 was driven by the recordkeeping costs incurred as part of our expanded relationship with Fidelity National Information Services, Inc. ("FIS") that began in August 2021. 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 $560.5 million for 2022, $484.9 million for 2021, and $444.8 million for 2020. 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. General, administrative, and other costs were $412.2 million for 2022, $383.6 million for 2021, and $316.1 million for 2020. 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. Should conditions that led us to recognize these impairment charges deteriorate, additional impairments may be recognized in future periods.

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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 activity for the years ended December 31, 2022, 2021 and 2020 comprised the following:

[[GREPCENT_TABLE]]
[["","","","","","","","2022 compared with 2021","","2021 compared with 2020"],["(in millions)","2022","","2021","","2020","","$ Change","","$ Change"],["Net gains (losses) from non-consolidated sponsored investment products"],["Cash and discretionary investments"],["Dividend income","$","34.7","","","$","34.7","","","$","25.2","","","$","\u2014","","","$","9.5"],["Market related gains (losses) and equity in earnings (losses)","(59.1)","","","(6.0)","","","67.5","","","(53.1)","","","(73.5)"],["Total cash and discretionary investments","(24.4)","","","28.7","","","92.7","","","(53.1)","","","(64.0)"],["Seed capital investments"],["Dividend income",".8","","",".9","","","2.2","","","(.1)","","","(1.3)"],["Market related gains (losses) and equity in earnings (losses)","(60.1)","","","41.6","","","32.2","","","(101.7)","","","9.4"],["Net gains recognized upon deconsolidation","3.0","","","2.4","","",".7","","",".6","","","1.7"],["Investments used to hedge the supplemental savings plan liability","(139.4)","","","83.0","","","91.1","","","(222.4)","","","(8.1)"],["Total net gains (losses) from non-consolidated sponsored investment products","(220.1)","","","156.6","","","218.9","","","(376.7)","","","(62.3)"],["Other investment income","15.4","","","59.2","","","27.9","","","(43.8)","","","31.3"],["Net gains (losses) on investments","(204.7)","","","215.8","","","246.8","","","(420.5)","","","(31.0)"],["Net gains (losses) on consolidated sponsored investment portfolios","(203.5)","","","74.7","","","251.7","","","(278.2)","","","(177.0)"],["Other losses, including foreign currency losses","(17.3)","","","(5.9)","","","(2.0)","","","(11.4)","","","(3.9)"],["Non-operating income (loss)","$","(425.5)","","","$","284.6","","","$","496.5","","","$","(710.1)","","","$","(211.9)"]]
[[/GREPCENT_TABLE]]

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.

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The impact of consolidating certain sponsored investment products on the individual lines of our consolidated statements of income for 2022, 2021, and 2020 is as follows:

[[GREPCENT_TABLE]]
[["","","","2022 compared with 2021","","2021 compared with 2020"],["(in millions)","2022","","2021","","2020","","$ Change","","","","$ Change"],["Operating expenses reflected in net operating income","$","(8.2)","","","$","(12.2)","","","$","(16.4)","","","$","4.0","","","","","$","4.2"],["Net investment income reflected in non-operating income","(203.5)","","","74.7","","","251.7","","","(278.2)","","","","","(177.0)"],["Impact on income before taxes","$","(211.7)","","","$","62.5","","","$","235.3","","","$","(274.2)","","","","","$","(172.8)"],["Net income attributable to our interest in the consolidated T. Rowe Price investment products","$","(108.3)","","","$","15.6","","","$","84.7","","","$","(123.9)","","","","","$","(69.1)"],["Net income attributable to redeemable non-controlling interests (unrelated third-party investors)","(103.4)","","","46.9","","","150.6","","","(150.3)","","","","","(103.7)"],["Impact on income before taxes","$","(211.7)","","","$","62.5","","","$","235.3","","","$","(274.2)","","","","","$","(172.8)"]]
[[/GREPCENT_TABLE]]

Provision for income taxes

The following table reconciles the statutory federal income tax rate to our effective tax rate for the years ended December 31, 2022, 2021, and 2020:

[[GREPCENT_TABLE]]
[["","2022","","2021","","2020"],["Statutory U.S. federal income tax rate","21.0","%","","21.0","%","","21.0","%"],["State income taxes for current year, net of federal income tax benefits(1)","3.4","","","3.7","","","3.8"],["Net income attributable to redeemable non-controlling interests(2)","1.3","","","(.1)","","","(1.2)"],["Net excess tax benefits from stock-based compensation plans activity","(.4)","","","(2.1)","","","(1.9)"],["Other items",".3","","","(.1)","","",".5"],["Effective income tax rate","25.6","%","","22.4","%","","22.2","%"]]
[[/GREPCENT_TABLE]]

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

(2)    Net income attributable to redeemable non-controlling interests represents the portion of earnings held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income.

Our effective tax rate for 2022 was 25.6%, compared with 22.4% for 2021 and 22.2% for 2020. 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. 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 2022, 2021 and 2020 were 24.7%, 22.5%, 23.3%, respectively.

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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. Our U.S. 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%.

NON-GAAP INFORMATION AND RECONCILIATION.

We believe the non-GAAP financial measures below provide relevant and meaningful information to investors about our core operating results. These measures have been established in order to increase transparency for the purpose of evaluating our core business, for comparing current results with prior period results, and to enable more appropriate comparison with industry peers. However, non-GAAP financial measures should not be considered a substitute for financial measures calculated in accordance with U.S. GAAP and may be calculated differently by other companies.

The following schedules reconcile certain U.S. GAAP financial measures for each of the last three years.

[[GREPCENT_TABLE]]
[["","2022"],["(in millions)","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)"],["U.S. GAAP Basis","$","4,114.7","","","$","2,373.7","","","$","(425.5)","","","$","498.6","","","$","1,557.9","","","$","6.70"],["Non-GAAP adjustments:"],["Acquisition-related non-GAAP adjustments:"],["Investment and NCI amortization and impairments(1) (Capital allocation-based income and Compensation and related costs)","40.5","","","57.5","","","\u2014","","","15.5","","","42.0","","",".18"],["Acquisition-related retention arrangements(1) (Compensation and related costs)","(70.2)","","","70.2","","","\u2014","","","18.9","","","51.3","","",".22"],["Contingent consideration(1)","161.2","","","(161.2)","","","\u2014","","","(43.3)","","","(117.9)","","","(.52)"],["Intangible assets amortization and impairments(1)","(283.5)","","","283.5","","","\u2014","","","76.2","","","207.3","","",".89"],["Transaction costs(2) (General, admin and other)","(.9)","","",".9","","","\u2014","","",".2","","",".7","","",".01"],["Total acquisition-related non-GAAP adjustments","(152.9)","","","250.9","","","\u2014","","","67.5","","","183.4","","",".78"],["Supplemental savings plan liability(3) (Compensation and related costs)","132.3","","","(132.3)","","","139.4","","","1.9","","","5.2","","",".02"],["Consolidated T. Rowe Priceinvestment products(4)","(6.3)","","","8.2","","","203.5","","","27.8","","","75.6","","",".33"],["Other non-operating income(5)","\u2014","","","\u2014","","","58.2","","","15.5","","","42.7","","",".19"],["Adjusted Non-GAAP Basis","$","4,087.8","","","$","2,500.5","","","$","(24.4)","","","$","611.3","","","$","1,864.8","","","$","8.02"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2021"],["(in millions)","Operating expenses","","Net operating income","","Non-operating income","","Provision (benefit) for income taxes(6)","","Net income attributable to T. Rowe Price Group","","Diluted earnings per share(7)"],["U.S. GAAP Basis","$","3,961.9","","","$","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","","","\u2014","","","7.2","","","24.7","","",".11"],["Supplemental savings plan liability(3)(Compensation and related costs)","(83.0)","","","83.0","","","(83.0)","","","\u2014","","","\u2014","","","\u2014"],["Consolidated T. Rowe Priceinvestment products(4)","(6.7)","","","12.2","","","(74.7)","","","(10.6)","","","(36.3)","","","(.16)"],["Other non-operating income(5)","\u2014","","","\u2014","","","(98.2)","","","(22.2)","","","(76.0)","","","(.32)"],["Adjusted Non-GAAP Basis","$","3,840.3","","","$","3,837.1","","","$","28.7","","","$","870.5","","","$","2,995.3","","","$","12.75"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2020"],["(in millions)","Operating expenses","","Net operating income","","Non-operating income","","Provision (benefit) for income taxes(6)","","Net income attributable to T. Rowe Price Group","","Diluted earnings per share(7)"],["U.S. GAAP Basis","$","3,461.0","","","$","2,745.7","","","$","496.5","","","$","718.9","","","$","2,372.7","","","$","9.98"],["Non-GAAP adjustments:"],["Supplemental savings plan liability(3) (Compensation and related costs)","(111.8)","","","111.8","","","(91.1)","","","7.2","","","13.5","","",".06"],["Consolidated T. Rowe Priceinvestment products(4)","(6.5)","","","16.4","","","(251.7)","","","(19.5)","","","(65.1)","","","(.27)"],["Other non-operating income(5)","\u2014","","","\u2014","","","(61.0)","","","(16.8)","","","(44.3)","","","(.19)"],["Adjusted Non-GAAP Basis","$","3,342.7","","","$","2,873.9","","","$","92.7","","","$","689.8","","","$","2,276.8","","","$","9.58"]]
[[/GREPCENT_TABLE]]

(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.

(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. GAAP consolidated statements of income. Specifically, we add back the operating expenses and subtract the investment income of the consolidated sponsored investment products. The adjustment to operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees. The adjustment to net income attributable to T. 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

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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.

(6)    The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 24.7% for 2022, 22.5% for 2021 and 23.3% for 2020. 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

    T. Rowe Price Group divided by the weighted-average common shares outstanding assuming dilution. The calculation of net income allocated to common stockholders is as follows:

[[GREPCENT_TABLE]]
[["","","Year ended"],["(in millions)","","2022","","2021","","2020"],["Adjusted net income attributable to T. Rowe Price Group","","$","1,864.8","","","$","2,995.3","","","$","2,276.8"],["Less: net income allocated to outstanding restricted stock and stock unit holders","","43.3","","","77.9","","","62.4"],["Adjusted net income allocated to common stockholders","","$","1,821.5","","","$","2,917.4","","","$","2,214.4"]]
[[/GREPCENT_TABLE]]

CAPITAL RESOURCES AND LIQUIDITY.

During 2022, stockholders’ equity attributable to T. 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.

Sources of Liquidity

We have ample liquidity, including cash and investments in T. Rowe Price products as follows:

[[GREPCENT_TABLE]]
[["(in millions)","12/31/2022","","12/31/2021"],["Cash and cash equivalents","$","1,755.6","","","$","1,523.1"],["Discretionary investments","449.7","","","554.1"],["Total cash and discretionary investments","2,205.3","","","2,077.2"],["Redeemable seed capital investments","1,120.3","","","1,300.1"],["Investments used to hedge the supplemental savings plan liability","760.7","","","881.5"],["Total cash and investments in T. Rowe Price products","$","4,086.3","","","$","4,258.8"]]
[[/GREPCENT_TABLE]]

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. 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.

Our seed capital investments are redeemable, although we generally expect to be invested for several years for the products to build an investment performance history and until unrelated third-party investors substantially reduce our relative ownership percentage.

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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.

[[GREPCENT_TABLE]]
[["(in millions)","","Cash and cash equivalents","","Investments","","Net assets of consolidated sponsored investment products(1)","","Total"],["Cash and discretionary investments","","$","1,755.6","","","$","441.6","","","$","8.1","","","$","2,205.3"],["Seed capital investments","","\u2014","","","320.8","","","799.5","","","1,120.3"],["Investments used to hedge the supplemental savings plan liability","","\u2014","","","760.7","","","\u2014","","","760.7"],["Total cash and investments in T. Rowe Price products attributable to T. Rowe Price","","1,755.6","","","1,523.1","","","807.6","","","4,086.3"],["Investment in UTI and other investments","","\u2014","","","258.5","","","\u2014","","","258.5"],["Investments in affiliated private investment funds(2)","","\u2014","","","641.6","","","50.0","","","691.6"],["Investments in CLOs","","\u2014","","","116.0","","","\u2014","","","116.0"],["Total cash and investments attributable to T. Rowe Price","","1,755.6","","","2,539.2","","","857.6","","","5,152.4"],["Redeemable non-controlling interests","","\u2014","","","\u2014","","","656.7","","","656.7"],["As reported on consolidated balance sheet at December 31, 2022","","$","1,755.6","","","$","2,539.2","","","$","1,514.3","","","$","5,809.1"]]
[[/GREPCENT_TABLE]]

(1)The consolidated 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. Financial Statements of this Form 10-K.

(2)    Includes $190.7 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. 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. Additionally, the assets of these sponsored investment products are not available to our general creditors. Our interest in these sponsored investment products was used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed. We assess the discretionary products and, when we decide to liquidate our interest, we seek to do so in a way as to not impact the product and, ultimately, the unrelated third-party investors.

Uses of Liquidity

We paid $4.80 per share in regular dividends in 2022, an increase of 11.1% over the $4.32 per share paid in 2021. Further, we expended $855.3 million in 2022 to repurchase 6.8 million shares, or 2.9%, of our outstanding common stock at an average price of $126.69 per share. These dividends and repurchases were expended using existing cash balances and cash generated from operations. We will generally repurchase our common stock over time to offset the dilution created by our equity-based compensation plans.

During 2021, our Board of Directors declared a special cash dividend of $3.00 per share, or $699.8 million, on June 14, 2021, that was paid on July 7, 2021. Further, on December 29, 2021, we paid approximately $2.5 billion in cash and issued $881.5 million of T. Rowe Price Group, Inc. common shares, approximately 4.4 million shares, to complete the acquisition of OHA.

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Since the end of 2019, we have returned $6.8 billion to stockholders through stock repurchases, our regular quarterly dividends, and a special dividend of $3.00 per share in 2021, as follows:

[[GREPCENT_TABLE]]
[["(in millions)","Recurring dividend","","Special dividend","","Stock repurchases","","Total cash returned to stockholders"],["2020","$","846.0","","","$","\u2014","","","$","1,192.2","","","$","2,038.2"],["2021","1,003.7","","","699.8","","","1,136.0","","","2,839.5"],["2022","1,108.8","","","\u2014","","","855.3","","","1,964.1"],["Total","$","2,958.5","","","$","699.8","","","$","3,183.5","","","$","6,841.8"]]
[[/GREPCENT_TABLE]]

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

The following tables summarize the cash flows for 2022, 2021 and 2020, that are attributable to T. Rowe Price Group, our consolidated sponsored investment products, and the related eliminations required in preparing the statement.

[[GREPCENT_TABLE]]
[["","2022"],["","Cash flow attributable to:"],["(in millions)","T. Rowe Price Group","","Consolidated sponsored investment products","","Elims","","As reported"],["Cash flows from operating activities"],["Net income","$","1,557.9","","","$","(211.7)","","","$","103.4","","","$","1,449.6"],["Adjustments to reconcile net income to net cash provided by operating activities"],["Depreciation, amortization and impairments of property, equipment and software","225.7","","","\u2014","","","\u2014","","","225.7"],["Amortization and impairment of acquisition-related assets and retention agreements","420.1","","","\u2014","","","\u2014","","","420.1"],["Fair value remeasurement of contingent consideration liability","(161.2)","","","\u2014","","","\u2014","","","(161.2)"],["Stock-based compensation expense","285.4","","","\u2014","","","\u2014","","","285.4"],["Net losses recognized on investments","314.0","","","\u2014","","","(103.4)","","","210.6"],["Net change in sponsored investment products used to economically hedge supplemental savings plan liability","(18.8)","","","\u2014","","","\u2014","","","(18.8)"],["Net change in trading securities held by consolidated sponsored investment products","\u2014","","","87.9","","","\u2014","","","87.9"],["Other changes in assets and liabilities","(182.8)","","","46.6","","","(3.7)","","","(139.9)"],["Net cash provided by (used in) operating activities","2,440.3","","","(77.2)","","","(3.7)","","","2,359.4"],["Net cash provided by (used in) investing activities","(179.3)","","","(8.7)","","","146.5","","","(41.5)"],["Net cash provided by (used in) financing activities","(2,028.5)","","","94.4","","","(142.8)","","","(2,076.9)"],["Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products","\u2014","","","9.5","","","\u2014","","","9.5"],["Net change in cash and cash equivalents during period","232.5","","","18.0","","","\u2014","","","250.5"],["Cash and cash equivalents at beginning of year","1,523.1","","","101.1","","","\u2014","","","1,624.2"],["Cash and cash equivalents at end of period","$","1,755.6","","","$","119.1","","","$","\u2014","","","$","1,874.7"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","2021"],["","Cash flow attributable to:"],["(in millions)","T. Rowe Price Group","","Consolidated sponsored investment products","","Elims","","As reported"],["Cash flows from operating activities"],["Net income","$","3,082.9","","","$","62.5","","","$","(46.9)","","","$","3,098.5"],["Adjustments to reconcile net income to net cash provided by operating activities"],["Depreciation, amortization and impairments of property, equipment and software","204.8","","","\u2014","","","\u2014","","","204.8"],["Stock-based compensation expense","274.6","","","\u2014","","","\u2014","","","274.6"],["Net gains recognized on investments","(169.4)","","","\u2014","","","46.9","","","(122.5)"],["Net change in sponsored investment products used to economically hedge supplemental savings plan liability","(85.7)","","","\u2014","","","\u2014","","","(85.7)"],["Net change in trading securities held by consolidated sponsored investment products","\u2014","","","14.9","","","\u2014","","","14.9"],["Other changes in assets and liabilities","121.1","","","(51.9)","","","(1.8)","","","67.4"],["Net cash provided by (used in) operating activities","3,428.3","","","25.5","","","(1.8)","","","3,452.0"],["Net cash provided by (used in) investing activities","(1,134.9)","","","(16.9)","","","53.7","","","(1,098.1)"],["Net cash provided by (used in) financing activities","(2,922.0)","","","(14.9)","","","(51.9)","","","(2,988.8)"],["Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products","\u2014","","","2.6","","","\u2014","","","2.6"],["Net change in cash and cash equivalents during period","(628.6)","","","(3.7)","","","\u2014","","","(632.3)"],["Cash and cash equivalents at beginning of year","2,151.7","","","104.8","","","\u2014","","","2,256.5"],["Cash and cash equivalents at end of period","$","1,523.1","","","$","101.1","","","$","\u2014","","","$","1,624.2"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","2020"],["","Cash flow attributable to:"],["(in millions)","T. Rowe Price Group","","Consolidated sponsored investment products","","Elims","","As reported"],["Cash flows from operating activities"],["Net income","$","2,372.7","","","$","235.3","","","$","(84.7)","","","$","2,523.3"],["Adjustments to reconcile net income to net cash provided by operating activities"],["Depreciation, amortization and impairments of property, equipment and software","189.6","","","\u2014","","","\u2014","","","189.6"],["Stock-based compensation expense","246.2","","","\u2014","","","\u2014","","","246.2"],["Net gains recognized on investments","(274.3)","","","\u2014","","","84.7","","","(189.6)"],["Net change in sponsored investment products used to economically hedge supplemental savings plan liability","(142.9)","","","\u2014","","","\u2014","","","(142.9)"],["Net change in trading securities held by consolidated sponsored investment products","\u2014","","","(798.8)","","","\u2014","","","(798.8)"],["Other changes in assets and liabilities","87.7","","","6.8","","","(3.4)","","","91.1"],["Net cash provided by (used in) operating activities","2,479.0","","","(556.7)","","","(3.4)","","","1,918.9"],["Net cash provided by (used in) investing activities","(65.3)","","","(53.9)","","","82.9","","","(36.3)"],["Net cash provided by (used in) financing activities","(2,043.8)","","","637.0","","","(79.5)","","","(1,486.3)"],["Effect of exchange rate changes on cash and cash equivalents of consolidated sponsored investment products","\u2014","","","1.9","","","\u2014","","","1.9"],["Net change in cash and cash equivalents during period","369.9","","","28.3","","","\u2014","","","398.2"],["Cash and cash equivalents at beginning of year","1,781.8","","","76.5","","","\u2014","","","1,858.3"],["Cash and cash equivalents at end of period","$","2,151.7","","","$","104.8","","","$","\u2014","","","$","2,256.5"]]
[[/GREPCENT_TABLE]]

Operating activities

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

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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. 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.

Operating activities attributable to T. Rowe Price Group during 2021 provided cash flows of $3,428.3 million as compared to $2,479.0 million during 2020. 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. 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.

Investing activities

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. 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.

Net cash used in investing activities that are attributable to T. Rowe Price Group totaled $1,134.9 million in 2021, compared with $65.3 million of cash used in investing activities in 2020. 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. 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 $37.0 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

Financing Activities

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 $1.1 billion 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. In addition, $35.1 million in net distributions to non-controlling interests in consolidated entities increased net cash used in financing activities. The remaining change in reported cash flows from financing activities is primarily attributable to 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

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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. Some of these contractual amounts may be cancellable under certain conditions and may involve termination fees. We expect to fund these cash commitments from future cash flows from operations.

Our obligations under the supplemental savings plan are disclosed on our consolidated balance sheet with more information included in Note 17 to the consolidated financial statements. Our lease obligations are disclosed in Note 8 to the consolidated financial statements. Additionally, there are unrecognized tax benefits discussed in Note 11 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 $84.7 million. The vast majority of these additional contributions will be made to investment partnerships in which we have an existing investment. In addition to such amounts, a percentage of prior distributions may be called under certain circumstances.

As part of the OHA acquisition, T. Rowe Price has committed $500 million to fund OHA products through 2026. As of December 31, 2022, T. Rowe Price has $464.1 million remaining to commit to the OHA products. T. 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES.

The preparation of financial statements often requires the selection of specific accounting methods and policies from among several acceptable alternatives. Further, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in our consolidated balance sheets, the revenues and expenses in our consolidated statements of income, and the information that is contained in our significant accounting policies and notes to the consolidated financial statements. These policies and estimates are considered critical because they had a material impact or are reasonably likely to have a material impact on our consolidated financial statements and because they require management to make significant judgments, assumptions or estimates. Making these estimates and judgments requires the analysis of information concerning events that may not yet be complete and of facts and circumstances that may change over time. Accordingly, actual amounts or future results can differ materially from those estimates that we include currently in our consolidated financial statements, significant accounting policies, and notes.

We present those significant accounting policies used in the preparation of our consolidated financial statements as an integral part of those statements within this 2022 Annual Report on Form 10-K. In the following discussion, we highlight and explain further certain of those policies and estimates that are most critical to the preparation and understanding of our financial statements.

Consolidation

We consolidate all subsidiaries and sponsored investment products in which we have a controlling 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. 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. We continually review and reconsider our VIE or VOE conclusions upon the occurrence of certain events, such as changes to our ownership interest, changes to an entity’s legal structure, or amendments to governing documents.

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Our VIEs are primarily sponsored investment products and our variable interest consists of our equity ownership in and investment management fees earned from these entities.

We are the primary beneficiary if we have the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the VIE that could potentially be significant. Our SICAV funds and other sponsored investment products regulated outside the U.S. are determined to be VIEs. In addition, in connection with the OHA acquisition, we acquired certain carried interest entities, which are considered VIEs. These carried interest entities hold interests in general partners of affiliated private investment funds that are also VIEs; 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

We evaluate our equity method investments, including our investment in UTI, certain investments in sponsored investment products, and our investments in the affiliated private investment funds, for impairment when events or changes in circumstances indicate that the carrying value of the investment exceeds its fair value, and the decline in fair value is other than temporary. For our investments in our affiliated private investment funds, we consider the length of time and the extent to which market value has been less than cost, any specific events that may influence the operations of the funds and our intent and ability to retain the investment for a period of time to allow for any anticipated recovery in market value. 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.

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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.

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. Management must first determine the level at which indefinite-lived intangible assets are tested for impairment (i.e., unit of account). We have concluded that each of the trade name and investment advisory agreements indefinite-lived intangible asset will be considered their own separate unit of account. Once the unit of account is determined, management has the option to first assess indefinite-lived intangible assets for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. If a quantitative impairment test is required, the impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If required, fair value is generally 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. 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.

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). Management must first determine the level at which definite-lived intangible assets are tested for impairment (i.e., asset group). The determination of the asset group is judgmental and the intangible assets can be grouped based on the lowest level for which identifiable cash flows are largely independent of identifiable cash flows for other groups of assets. Since each affiliated private investment fund has identifiable cash flows separate from other funds, we determined that the asset group for testing is each individual affiliated private investment fund. Once the asset group is identified, we next determine whether there are any triggering events that would cause us to believe that the carrying value would not be recoverable. If there is a triggering event, then we would perform a test of recoverability. Based on that test, if the carrying value is not recoverable, then a fair value measurement is required of the asset group to determine if the fair value is less than the asset group's carrying amount. 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. 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.

Goodwill

We internally conduct, manage, and report our operations as one reportable business segment - investment advisory business. This reflects how the chief operating decision maker allocates resources and assesses performance. Accordingly, we have one reporting unit - our investment advisory business, consistent with our single operating segment, to which all goodwill has been assigned.

We evaluate the carrying amount of goodwill in our consolidated balance sheets for possible impairment on an annual basis in the fourth quarter of each year using a fair value approach. Goodwill would be considered impaired whenever our historical carrying amount exceeds the fair value of our investment advisory business. Our annual testing has demonstrated that the fair value of our investment advisory business (our market capitalization) exceeds our carrying amount (our stockholders’ equity) and, therefore, no impairment exists. Should we reach a different conclusion in the future, additional work would be performed to ascertain the amount of the noncash impairment charge to be recognized. 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

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

Provision for income taxes

After compensation and related costs, our provision for income taxes on our earnings is our largest annual expense. We operate in numerous states and countries through our various subsidiaries and must allocate our income, expenses, and earnings under the various laws and regulations of each of these taxing jurisdictions. Accordingly, our provision for income taxes represents our total estimate of the liability that we have incurred in doing business each year in all of our locations. Annually, we file tax returns that represent our filing positions with each jurisdiction and settle our return liabilities. Each jurisdiction has the right to audit those returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. From time to time, we may also provide for estimated liabilities associated with uncertain tax return filing positions that are subject to, or in the process of, being audited by various tax authorities. Because the determination of our annual provision is subject to judgments and estimates, it is likely that actual results will vary from those recognized in our financial statements. As a result, we recognize additions to, or reductions of, income tax expense during a reporting period that pertain to prior period provisions as our estimated liabilities are revised and actual tax returns and tax audits are settled. We recognize any such prior period adjustment in the discrete quarterly period in which it is determined.

NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.

See Note 1 - Basis of Preparation and Summary of Significant Accounting Policies within Item 8, Financial Statements for a discussion of newly issued but not yet adopted accounting guidance.

FORWARD-LOOKING INFORMATION.

From time to time, information or statements provided by or on behalf of T. Rowe Price, including those within this report, may contain certain forward-looking information, including information or anticipated information relating to: our revenues, net income, and earnings per share of common stock; changes in the amount and composition of our assets under management; our expense levels; our tax rate; the timing and expense related to the integration of OHA with and into our business; legal or regulatory developments; geopolitical instability; 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. Rowe Price is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information because of various factors including, but not limited to, those discussed below and in Item 1A, Risk Factors, of this Form 10-K Annual Report. Further, forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.

Our future revenues and results of operations will fluctuate primarily due to changes in the total value and composition of assets under our management. 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. The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the T. Rowe Price mutual funds and other managed investment products as compared with competing offerings and market indexes; the ability to maintain our investment management and administrative fees at appropriate levels; the impact of changes in interest rates and inflation; 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; and our ability to attract and retain key personnel. Our revenues are substantially dependent on fees earned under contracts with the T. Rowe Price funds and could be adversely affected if the independent directors of one or more of the T. 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

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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: changes in the level of our advertising and promotion expenses in response to market conditions, including our efforts to expand our investment advisory business to investors outside the U.S. 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; 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; any goodwill, intangible asset or other asset impairment that may arise; fluctuation in foreign currency exchange rates applicable to the costs of our international operations; expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure; 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.