UPDATE 2-T. Rowe Price net rises; reports rare investor outflow
* Investment advisory fees up 19 pct
* Customers pull out $4.2 billion, mainly from non-U.S. portfolios
* CEO Kennedy latest to support "floating NAV" for some money funds
* Shares down 2.9 pct
Jan 29 (Reuters) - Asset manager T. Rowe Price Group Inc's fourth-quarter profit rose 23 percent on higher investment advisory revenue, but the Baltimore firm on Tuesday reported a rare outflow of customer cash.
The results sent down the company's shares and showed the importance of flow trends for one of the largest publicly-traded fund companies.
T. Rowe Price's assets rose $2.4 billion to a record $576.8 billion during the quarter. But that was only because market gains and income offset the $4.2 billion that customers withdrew, mainly from institutional separate account portfolios outside the U.S. that faced what the company called "performance challenges."
Shares in T. Rowe Price were down 2.9 percent in early trading to $70.17 after the outflow disappointed several analysts. "(T)he magnitude of the outflows should give investors some pause," wrote UBS analyst Alex Kramm in a note to investors.
Others cautioned against overreaction, however. Nomura analyst Glenn Schorr wrote, "while we're not used to seeing TROW in outflow, we think it should fare better" in the current quarter amid rising markets.
In a telephone interview, T. Rowe Price Chief Executive James Kennedy said the portfolios' performance has improved lately with a new manager.
"Clients are seeking performance, and we did not do well for those clients in those portfolios," he said.
Kennedy said the company was doing well overall, however. In all 78 percent of its mutual funds outperformed their comparable averages from Lipper, a unit of Thomson Reuters, over the three years ended December 31, 2012, T. Rowe Price said.
FLOATING NAV FOR SOME FUNDS
Separately, Kennedy said he would accept allowing the net asset values of some institutional money funds to vary, or "float," away from their traditional $1 per share, as a way to reduce the risk that large clients would rush to pull out their cash during a crisis.
T. Rowe Price has about $15 billion in money funds, a modest slice of the $2.6 trillion industry. Larger money fund sponsors and the industry's main trade group have resisted calls to drop the $1 per share value, worried about losing investors. But others including Charles Schwab Corp have backed the idea lately for some institutional funds, which could presage a compromise with regulators in Washington.
T. Rowe Price reported net income of $232 million, or 88 cents per share, compared with $188.4 million, or 73 cents per share, a year earlier.
Analysts surveyed by Thomson Reuters I/B/E/S on average had expected 89 cents per share.
Investment advisory fees increased 19 percent to $677.6 million.