Q2 2020 Invesco Ltd Earnings Call
Good morning, and thank you all for joining us as a reminder, just comp.
This call and the related presentation may include forward looking statement, which reflects management's expectations about future then overall operating claims and performance.
These forward looking statement I made as of today and I'm not guarantee they involve risks uncertainties assumptions and there can be no assurance that actual results well not differ materially from our expectation.
My discussion of these risks and uncertainties, we see the risks described in our most recent one can't pay and subsequent filings with the F. G and best I'd make no obligation to update any forward looking statement.
We may also discuss non-GAAP financial measures during todays call reconciliations of these non-GAAP financial measures may be found at the end of our earnings presentation.
Welcome to Invesco second quarter results conference call, all participants will be and I listen only mode until the question and answer session at that time to ask a question.
Press Star one to a lot more question participants to ask questions. Only one question and follow up can be submitted per participant today's conference is being recorded if you have any objections. You may disconnect. At this time now I would like to turn the call over to your speakers for today, Marty Flanagan President and Chief.
Ill have invesco, Loren Starr, Chief Financial Officer, Allison Dukes, Deputy Chief Financial Officer, Greg Mcgreevey.
Senior managing director investments Mr. Find a good you may begin.
Hi, Thanks, very much and this is worth one [laughter], what we'll do today, it's almost universal [laughter] pictures.
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Before we begin [laughter] recognized over 15 years this was Lourdes Flores.
Earnings call.
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Thank you [laughter], well, let's get started and I'm on slide three.
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Prior to the yachts endemic we're on schedule.
You're welcome strategy, which was.
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With Yasuda [laughter] reactor dramatically as many firms.
I think are clients.
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Great work.
During the quarter, we remain committed to release clients committees navigate [laughter] challenges that they presented themselves.
Spread.
It's actually transform our employees work or.
We interact with each and every day, the fast which were always continue to work [laughter].
[laughter] officially together.
Now lets you know reach.
Communication and supporting our team [laughter] top priority [laughter] loss reshaped our clients with remodeled two ways, we usually engagement platform, which allows us to be our clients.
She loves wherever they are in the world [laughter] rates were effectively to see will certainly are classified as well.
These efforts combined with strong performance in high demand to be slow to low levels are at work.
Water flows on the other possible [laughter], it's true pipeline set a record.
[laughter], so like Y grade of wins in customers and they started work. She is very strong [laughter] retail flows improved during the quarter what were net outflows.
Walter close to fixing I'll keep it was a strong archer rich.
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Sources for real true or false is doing on rate skill set.
Total operating expenses were one guidance [laughter], despite the worry about demonstrating.
In addition, we strengthened our balance sheet worry you know bolivar [laughter] proven or whatever so [laughter].
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A significant fraud solutions effort and reposition true, yes fixed income backers emerging markets, you can really well yes.
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The resilience of our employees and strength of our client relationships and the breadth.
It's worth solid Robert.
We remain focused on helping our clients navigate shallots you more bar [laughter] work towards returned to work [laughter] [noise].
Let me close my introductory comments [laughter] addressing along [laughter] raced Warner Center.
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With that I'll turn it over.
No those results.
Great. Thank you very much Marty.
Slide five summarizes our investment performance, we had 57% and 69% of actively manage funds in the top half appears [laughter] on a five year and the 10 year basis, reflecting strength in fixed income and global emerging market.
Equity.
All areas, where we expect to see strong demand from clients globally.
Moving to slide six we ended the quarter with 1.14 parts really.
Well.
You have increased 118 billion in the quarter from increased market values.
Turning to slide seven long term net outflows in the second quarter were 14.2 billion I was largely reflecting the market dynamics and U.S. retail.
Flows in this market improved from levels experienced in Q1, net long term outflows and activate when were 13.4 billion and that long term outflows in Pasadena U.M. were point 8 billion or each yes, yes, yes experienced net outflows a point 4 billion, but I was largely driven by net outflows in the S&P.
500, low volatility you T F or the Invesco puts you Rafi U.S.. So 1008, yes, Oh, which was offset by net inflows in our EMEA physical gold exchange traded funds and the Invesco National A.M.T. free Muni bond each yes.
VTR flows are against an industry backdrop, very narrow slow it's about 90% or 119 billion of totally T.F. flows over 131 billion went into fixed income and alternative last commodity strategies. In fact, the top 10 phones in the industry drove more than half what industry.
Flows are QQ fund on Sac was among the top 10 I saw net inflows of 6.1 billion in Q2, but I'll note that we do not include our Q QQ net inflows in our net long term flows, but as non management fee, earning flows.
We saw improvement in our retail net outflows with 14.6 billion and out slow down from 30.3 billion in Q1 on the institutional side or net flows were slightly positive at a net point 4 billion in the quarter, but that was down from net inflows of 11.2 billion in Q1 and.
I will provide a little more color on these flows in the next few slides.
Looking at flows by geography, you'll see that sales outside the Americas in EMEA and Asia were positive.
Ex UK returned to positive flows in the quarter of 1.8 billion from net outflows of 1.2 billion in Q1 and that was driven by strong flows into our goal exchange traded funds. We also had net inflows in Asia Pacific.
Positive 2 billion and that's up from <unk> point 2 billion in Q1, driven by institutional investment grade fixed income mandates in Japan, and net inflows into our balance funds.
Our China joint venture.
So we don't have net flows by asset class on this slide however, I want to point out that we saw strength in the fixed income across all channels and markets in the second quarter, what's not long term inflows of six billions.
Now, let's move to slide eight [noise].
The timing of institutional funds can be lumpy.
We did see some slowdown it slows in the quarter well, but as you can see our institutional pipeline remains full and in fact grew to a record level. During the second quarter. Just 33.4 billion from 31.9 billion. Our pipeline is robust across both asset classes and geography and significantly our saloon.
Since effort enable more than half of the pipeline underscoring the success of the consultation of approach. So the sales process that we're using.
Moving to slide nine let me add a few comments about our active a U.S. retail.
[noise] long term slows it for the industry.
Were slightly negative negative 2 billion, but they were highly bifurcated between fixed income, which was positive 145 billion and equity which was out 115 billion [noise].
[noise] industry inflows into fixed income were led by taxable funds, which is about 90% of the total inflow for the industry.
You can see on the active U.S. retail slide that are ending June you I'm grew 11% from the end of March and importantly, our fee rates are strong and remain consistent period to period or average monthly gross sales remained at a healthy pace for Q2 similar to the growth trajectory of the pre called the December January and February levels.
Oh, and that's also up 7% from the effectively combined firms Oppenheimer Invesco results in Q2 2019.
[noise] net flows improved 30% in Q2 versus Q1 across all asset classes, but they were challenged by our large exposure to equity funds equity funds. So for invesco represent about 65% of our active U.S. retail or you EM and we also had limited exposure to taxable fixed income that's only about.
8% of our active U.S. retail you M. A C and a and so again given what happened in the industry you can sort of see the context of what happened to our close.
Fixed income in the Americas, However, along with the industry shifted back into positive net long term inflows for the quarter.
And that was led by our Muni products suite.
You want exposure in the five largest industry outflowing sectors in Q2, which were U.S. largecap value U.S. large cap core bank loans international equity in global allocation that accounted for 70% of our active U.S. retail net long term outflows.
No I'm not ever done the slowest, let me turn it over to Allison I will comment on revenues expense management efforts in the period as well as our capital management activities.
Thank you learn and good morning.
Turning to slide 10, you'll note that our revenues decreased 112 million from Q1 by lower average at U.M. in Q2.
Average the U.M. in Q2 was 1.12 trillion, 5% lower than 1.18 trillion in Q1.
Net revenue yield ex performance fees was 36.8 basis point.
Down 1.9 basis points. Since you are largely in line with guidance, we provided for the quarter.
Net revenue yield was impacted by the change in mix of our E U M.
Following a flight to liquidity experienced in March we slightly by the increase in markets in the period.
Even the mix shift we're seeing in our at U.S., including the impact of larger lower fee institutional mandates. We expect continued modest decline in our net revenue yield ex performance fees in Q3.
Our total adjusted operating expenses were 675 million acute yet.
In April that we expected operating expenses to be around 675 million based on market opex levels as at March 31st.
[laughter] mismatch, we were able to maintain the total operating expense level, despite the markets rebound.
Like many firms were taking a hard look at our expense base in light of the ongoing global pandemic.
And its impact on both markets and client.
[laughter].
Our operating expense improvement.
That's been realized through pandemic related restriction.
On travel and other business operation.
Additionally, we are being thoughtful about hiring tighten discretionary spending.
While these measures have and will continue to benefit our operating expense. They are temporary improvement and we would expect as expense categories to return to more normalized level when travel and in person engagements for that.
Marketing expense was unusually low this quarter and we would expect that to modestly increase in threeq yet.
Temporary reductions we believe we have an opportunity to create more permanent improvements in our [laughter] aligned with our strategic plan.
The benefit of scale with nearly 1.2 trillion and assets under management, which allows us to allocate resources to simplify our operating complexity coordinated execution across our global for all tied to our long term client centric strategy.
Marty noted me administrative process of rotating to work from home status for nearly all of our employee and we've ramped up our ability to virtually engage [laughter]. We're now focused on strategically positioning the firm to deliver positive outcomes for clients and compete effectively in an industry that is being reshape like so many others to oppose pandemic new reality.
Our strategic evaluation has several components, including enhancing client outcome, improving organic growth, reducing complexity of cross functional activity and streamlining our operating environment.
Well provide more detail around the expected improvements to our expense base in the coming quarters as we complete the strategic evaluation.
Moving to slide 11, you'll see that not operating expenses negatively impacted earnings for the quarter.
Adjusted EPS of 35 cents compared to 34 cents in Q1.
Adjusted non operating expenses, reducing <unk> [laughter].
This included 53.2 million of net losses in equity in earnings driven by non cash market valuation adjustments, primarily in our CLL building, which are reflected in our results on a one month lag.
The unrealized yellow losses, do not provide tax benefits due to the jurisdiction of our holding contributing to an elevated tax rate for the quarter of 24.4%.
For the remaining quarters and 2020, we estimate our tax rate to be between 24, 25%, while the actual effective tax rate may differ due to nonrecurring four discrete items.
Turning to slide 12.
We reduced our revolver about $582 million in the quarter, [laughter] and our commitment to improve our leverage profile.
In addition to using excess cash to reduce leverage we seek to improve liquidity and financial flexibility do that in our balance sheet cash position improved to $987 million in Q2, EUR $941 million at the end of Q1.
Our goal remains to build cast a 1 billion in excess of our regulatory capital requirement and at June Thirtyth, we were holding approximately $280 million in excess of regulatory requirement.
As we've indicated we're building financial flexibility in these uncertain times and we believe are making solid progress in our we're committed to a sustainable dividend and returning capital to our shareholders.
In summary, we remain cautious in our approach to expense in capital management, while reallocating our resources to position us for Fred.
Our focus on driving greater efficiency and effectiveness into our platform combined with the work we've done over the top 15 years to build a global business what the comprehensive range of capability puts invesco and a very strong position to meet gladney, rather just one business and grow our franchise over the long term.
With that I'll turn it back from Marty for some closing remarks.
Thank you operator very much.
Excuse me Elsinore aren't too we turn to questions. Please.
[noise] at this time, if you would like to ask a question and audio question. Please press Star one you will be announced prior to asking your question. Please pick up your handset when asking your question to withdraw your request. Please press star to one moment.
For the first question.
And I first question comes from Glenn Schorr.
Evercore Sir your line is open.
Oh, thanks, very much what wanted to ask a follow up on your comments on on.
The retail industry in that part of the business see you, obviously mentioned that positive flows for the industry and fixing some negative equity.
And that's been going on despite.
Pretty good equity markets overall, obviously this year can switch some ups and downs. So you had really strong gross sales, but redemptions are also high so can we talk about what what's within your control how are you adapting.
Maybe your retail service, saying and platform portfolio construction, you put that all in a package of what we can do because there isn't I ask obviously is retail in equity outflows is offsetting altogether good stuff that's going on invesco.
Yeah, well Oh, Great College.
Oh, you're right I I will say the the closest last quarter what acute.
Yes.
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So what do you do.
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Well it is building walls platforms hobby ability solutions that are self indexing capability.
The models to the platforms. That's also something that's very very different Oh, yes.
Yeah.
Well the important platforms, but just below the malls literally have tempered imports. So you literally E.
Asset classes.
Actually.
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What we see happening in the future war or it's going to be.
Solutions engagement.
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Either through advisory seriously.
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I've been saying they are asking if I could just ask one <unk>.
But if you're doing one I'll move onto the back it's cool.
No. Please go ahead.
Okay. Just a quick follow up then sorry.
You mentioned the CLL Mark could you give us a little more detail. It in terms of the composition and the size of the COO holdings, and where do you fit in that stack.
Sure. So yeah, I think probably most in Florida to recognize about the yellow Mark this quarter as we noted it's on a one month flat so that mark to market. It reflects a the valuation at the end of May, which obviously is quite substantially from white annihilation what Ben.
The end of February and what was reflected our first quarter was all I see over the course of that timeframe I wish it.
The 1% thereabout.
And yeah, we would expect our third quarter Mark would be reflected as of August 31st we know through June or yellow valuations continue to improve so that yeah. So some modest improvement from their hard to predict then we wouldn't want to protect but we do think we took that the majority of that pain.
And our losses, there Oh in terms of our equity in earnings and yeah, what surprises that it's not declare co investment. This year was also private market fun and it's about a 75% of of that Mark came from yellow isn't about 25% came from our private equity.
Well, Yeah, Glenn I was just say our or co investment is it's all equity Oh that so we have the lowest level when the stock. So it does move around quite a bit based on these I'm kind of valuation work smart.
Again, it's all unrealized non cash flow.
I think we have roughly in terms of aggregate numbers about 60 million of investment and the say low equity as of end of May.
Thank you for all that detail I appreciate it.
<unk>.
And thank you. Our next question is from Brian Bedell with Deutsche Bank. Your line is helping.
Great. Thanks to many folks <unk> are going to be expenses I'm. The 675, obviously, good and given the market had rebounded quite a bit since oh.
Well I just wanted to check if that's it's it's even with this rebound that seems to be sustained anymore glimpses into threeq you at that so if you're viewing as a good comp rate and are on a quarterly in the back half and then I'm. Just you mentioned about the expense a strategic revaluation just.
Usually there's there's much more to come on that but did that include strategic actions on the revenue side your books on product rationalization and other areas to try to improve your organic rose by eliminating products that aren't growing.
So let me start thank you, let me start with a third quarter guidance.
I would say again.
What we are as I noted some of what we've enjoyed thus far would be considered temporary in nature I don't expect anything changes there in the third quarter as it relates to travel or in person engagement. We are operating in a very consistent environments in the third quarter Avnet and like all that's don't really know when that Ed we would it.
That marketing expense the advertising component of that might tick up modestly in third quarter that those expenses can be lumpy quarter to quarter I'm certainly not going dark we're actively out there in the market with our clients virtually I'm in so I wouldnt expect that might be a little bit higher than what we saw this particular quarter, but net net our expenses.
Probably be somewhat in line quarter to quarter.
No we think about brought or a expense reviewed.
Yeah. It not at this point, what I feel like we're in a position that make any decisions around any sort of strategic decisions that would a impact revenues, but rather what we wouldn't be thinking about it looking it up what I would consider all the typical area you would expect us to review and that would include organizational efficiency and effectiveness.
Real estate optimization.
It often a efficiency and yeah third parties that so well be thinking about all those different expense categories, and making sure that we're creating a really disciplined expense base.
So whether any revenue environment.
Uh huh.
Okay, great. Thanks for that and I mean, maybe just the trajectory of flows.
To July in terms of it gets <unk> how is the sale you combine salesforce doing it there.
More traction obviously it is still a tough environment and then on that institutional pipeline that continues to be strong maybe if there's any commentary on on timing of when you think.
Some of that will fund just to get a sense of the trajectory of overall flows into threeq.
So Brian Yeah, I'd say, a we're gaining more traction on there on the U.S. retail side. So it's it's definitely sort of it in improving but still challenged environment I.
I think you have access or you can see the flows on the T. upset has definitely improved EMEA was steadily improving every single month or within Q2 and a true.
Sort of mid late July we've got a 2.3 billion a positive long term mountain Ts flows. So we're seeing you know definitely some more traction I think Allison kind of mentioned that we think to the overall slow pictures is gonna be improves you know generally relative to where you know we are is in the first half.
Which is not say much.
For the tough tough first half, but or we do see a sort of signs of green shoots coming through and certainly as I mentioned.
Both.
In Asia Pac everything you know outside the U.S. is definitely a nicely positive at this point and continues to look to be so.
Instead, the timing on the on the institutional side with type one ardent and so on on the pipeline, we feel pretty good about the timing of zogby pipeline sort of funding a generally you know within the next two or three quarters. I mean, that's generally what's happened I mean, there has been some slow down in some of those for example, more traditional.
Real estate fundings as that market as a sort of obviously I just sort of readjusted revalue, one uncertain the properties, but some of the other.
I point elements are which is sort of broad based across so no different tape is always picks in calling my Qs and so forth a those those are look like they're going to be funding.
Within this year for sure.
Thank you.
Thank you and our next question is from Patrick Davitt with Autonomous your line is helping.
Hey, good morning, Thanks, one more quick follow up on the expense guide.
We think about.
Heading into Threeq, you against the market improvement why would we not see more fresh from the compensation side given.
The market the market recovery and so to what extent there is there is some variable compensation tied to that or or or is there not really any of that relationship.
No I think it's important to note in our expense guidance, but as it related to the guidance for second quarter and going forward that was a assuming market in FX levels corridor.
Certainly it fair, yeah that that could fluctuate and there wouldn't be variability in several on expense line items compensation being the biggest driver should we have.
That's sort of market improvement that we would expect those two to work in tandem, but absent any change all things being equal Ah that's really what our expense guidance is based on.
Okay. That's helpful.
More broadly I guess, there was some chatter over the last month or so about a new QQ tracker in a more traditionally T.F. wrapper that you could actually make money on so could you speak to how you came to market that alongside the existing QQ trucks are talking about the opportunity there because I imagine the clinic kikuchi users care more about its liquidity.
Tough to get them to move to something else.
I've got you're talking Oh, you want to go.
Yes, so again just in terms of or the QQ announcement, I mean, I guess just step back and you know we that's because already I had a very long term relationship with the NASDAQ you know by a U M. NASDAQ has the largest a index partnership for Invesco Cts business.
In the U.S., we have 24, yes manage against NASDAQ indices accounting for over 120 billion.
In aggregate assets.
The tax NASDAQ also.
Plays a critical role as a calculation agent for our butchers index, but were you in terms of this particular announcement, we are not actually at liberty to discuss new offerings. So specifically because we're in this quiet period.
But what I would say that this announcement and then the addition of new funds. So to the Invesco Q2, Q suite, a and quotes out you know really does show how we're strengthening our relationship between boats invesco and NASDAQ so more to more to come on that one Patrick it's very exciting.
But we can't really get into much detail because of its just the timing of the.
Registration.
Thank you.
Thank you. Your next question is some Dan Fannon with Jefferies. Your line is open.
[noise] [noise] [noise], Yeah, Dan you maybe on you.
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[laughter].
They have done it your line is open up with Jefferies.
Can you hear me now.
Yeah, we can area.
Darren so thanks.
Questions on expenses in humans emerging in the second quarter, what drove the outsized decreasing the expense I mean I believe.
She's Robyn it's.
Hi, so what what drove the improvement in second quarter versus first quarter relative to revenues I mean at Barclays compensation expense, a you know concurrent with a market as we obviously, that's where a little bit better, but still relatively low certainly.
Relative to what we expected and then a large part of that's a fair amount was did come from GE Anat.
And the suspension of travel and enforcement engagement that is a significant driver of the expense reduction and again would be considered somewhat temporary in nature all though.
Well, certainly not enough positions us to flip Catholic normal looks like anymore, and again you'd mentioned marketing. Some working was down significantly from 35 million in Q1 to 16.6 million in Q2, and that's what I was the driver yeah and that would be both advertising expenses than some of the out a travel related.
Operating expenses some of that advertising, we would expect to be modestly higher really quite right.
Okay I apologize my question was on the distribution expense relationship, which reduced the revenues in the exchange <unk> net distribution margin improved quarter over quarter.
All right, we didn't hear distribution at all [laughter] distribution fees were abnormally low in the quarter, given really the t. a waiver lower activity.
Lower marketing support which would just be related to a lot of the lower coded related activity to and we would expect some of those activity seems to be a little bit higher in the third quarter, but it was unusually low in the third quarter something that's for second.
I'm sorry, the second quarter.
Okay. Thank you and then just.
In terms of the sea Ray I get your comments around mix shifts going into third quarter continued to see some pressure there, but if you look at you know the institutional mix based on the chart you provided and other dynamics you know it is this this trend seems like it shouldn't beyond one quarter, but I guess I'll do other things that you see in the pipeline worn activity that would.
Make no.
Stabilization on that you meet somebody you can talk to beyond what's really cool.
Hi, Good Allison I mentioned that I mean, the pipeline is going to record levels, but it is largely a sort of being enabled by kinda solutions efforts as well as no some index or kind of capabilities like U.S. and those tend to be at a fairly low rates. So what we're saying probably both on the on the Institute.
No side as well the retail side in terms of interest around lower feed product Cts is that I mean this is a continuing trend that we've seen for years now and so there isn't any any sort of course stabilization and what we did show obviously on a one of the slides was some of the actual fee rates on the products themselves are pretty stable, but just in terms of whereas.
The client demand is coming it's it's largely around you know sort of these although or see things now the margin on these capabilities are still very good they're larger there you know bigger wins and so you do have very fine margin dynamics, but it will you know sort of drive to fee rate as you know sort of modestly lower sort of quarter to quarter.
It's hard for us to forecast and we don't provide no real guidance because it is really just a matter of time in how these mandates fund and you know where the client demand comes from I mean, if we were just see for example international emerging market capability coming back with strengths. A you know that would obviously have a very positive impact on on fee rate a you're right now that's.
And we talked about that's been sort of a an outflow for the industry and we did we see that as well that tends to be a higher fee part of the mix. Yes. So I I think I'd just reiterate forcepoint. It. It has also consistent with where demand is right. So you just saw outsized semantics enrollment.
Yeah.
Again, lower feed dynamic than you know some of the international.
It will be reflective of a.
From there.
[music].
Awesome.
Yes.
Okay. Thank you.
Thank you. Our next question is some Ken Worthington with JP Morgan.
Hi, good morning.
Maybe first a invesco is a big manager of direct real estate and reach or maybe first remind us how big your real estate investment business is.
What kind of exposure you have to retail hospitality in other Kobe exposed investments and in your slides you had 24% of your won but not funded mandates.
We're in alternatives how much of these are focused on real estate.
So, let's say in terms of real estate or total Oh, you when it is.
Oh about 80 80 billion of.
The U.M. isn't isn't real estate I think about two thirds of that is gonna be direct real estate and the rest is securities.
In terms of the pipeline. It is a good a good component of it but it's not the majority.
Is.
Still a you know sort of.
Multibillion element within that 34, but what we're seeing in terms of the pipeline, it's being dominated more by the.
The solutions, which is really not necessarily real estate aren't U.S. type related mandates.
So there's still a strong interest, but it's it's not one that is driving our pipeline it as part of the growth, but it's not about the majority of that growth.
This is a whole as is doing very well there's been a lot of Klein outreach and you know sort of working through I'm, just do environment [noise].
There isn't an overexposure to sort of those hospitality elements of per se and globally are there are a couple of funds and couples you know sort of mandates that probably do have some some degree of more exposure than others, but we're not a sort of positioned on on the outside of sort of our exposure to those types of.
Mandates, which is a good thing and so it has not had no major impacts on our business at all.
I would say you know the bigger topic is really just working through the tenants and others you know the clients.
To make sure that we continue to see a income streams comes off of those properties, which we are we're still seeing strong income.
Oh generation on those properties. So so far so good.
We feel pretty comfortable that the business is continuing to grow and as I mentioned it is a component of our pipeline not the dominant one.
Okay, great. Thank you and then other revenue was down I think you guys called out lower front and fees.
What is that is there any offset in distribution.
Or is it 100% margin and what is the outlook going forward for for that fee a component.
Just to the lower front end fees. It's it's a small that I mean is phrased. It all accounted for $4 million difference at quarter to quarter is not a large mount a those or.
Elements that still get paid and or offset though on the other although the distribution Oh pass through so it's not a major no sort of margin topic or the transaction or commissions and transaction real stick transaction fees were a component of the other.
Revenue as well as you as I talked about things kind of slow down as a sort of the market was taking a pause and understand evaluations. So we did see sort of a it did have a dip in Q2 and other revenue we see we'd hope to see a that line item begin to sort of at least stay at this level of Santa Cruz somewhat modestly and into next quarter.
Okay. Thank you very much.
Thank you. Our next question So my carrier with Bank of America.
Hi, good morning, Thanks for taking the interesting thing.
Just one.
You know capital and cash flow I think you mentioned, a you know where your cash that wasn't I think you wanted you to get that above you like a billion or show up you can just kind of run through how you think about like quarterly cash flow, which you know kind of tied up or you know were taken.
And then just priorities for that cash flow you mentioned paying down the revolver, but also you kinda expanding that that cash level. So just trying to get a sense over the next.
A few years, you know where those priorities are you just given what's free each quarter you had that comes out.
Sure.
So yeah noted.
This quarter, we're at about $280 million, an excess of our regulatory and liquidity requirements and we do have a target I'm trying to get to about a billion dollars of cash in excess of those requirements and we get make good progress. This quarter, we continue to pay down the revolver and so those cash.
As we think about a inside the quarter at any particular.
Cash capital requirement.
Nothing out of it that wouldn't be I would say quite obvious in terms of I commented our preferred dividends.
But otherwise inside the quarter it fairly straight forward from here and our priority.
Our to continue to support our future growth and strengthen our balance sheet and also to return excess cash to shareholders. So we think about that we do see two one I continue to make progress towards the billion dollar excess cash target to continue to reinvest in the business.
Form of capital.
I had three I remain committed to a sustainable dividend returning capital their shareholders a man and right now as we've noted before share repurchases are in a priority at this moment as we continue to.
Focused on de levering and improving our balance sheet Ah, but yeah. That's certainly a hard option one that we won't keep Oh front and center over time.
Our revolver balances down to about $336 million, we didnt make $580 million progress there or would you seek to continue to manage sat down every time, we don't have any other.
But that requirements coming up and so our 22 said we've got some time before our next maturity actually well be looking to just modestly.
Three of our leverage over time and seek to keep ourselves a within the targets that we set ourselves Oh Wow, the rating agencies and a financial flexibility, we're trying to create or the uncertainty given the environment where it.
Okay. Thanks, a lot.
The balance I would say they've taken in totality, we're trying to balance all these attacks.
Thank you aren't next question is some bill Katz with Citigroup Your line is helping.
Okay. Thank you very much for taking the questions and Lauren Best of luck quick question on direct index could talk little bit about how you sort of see the pros and cons to the business through the prism of your existing passive business and and the opportunity a threat to the active business to the extent that that takes off.
Oh.
Comments and I agree to try and.
Lisa.
For a good number of years.
Alan gives clients are using the common issue.
After I finish.
All those yeah.
So we got capabilities, we're growing in all those areas. If you look over the years are grown quite dramatically.
Each line that also with what our clients were platforms doing fewer money managers stairs cannot offer the totality.
Ah, yes, it classes, but they watch you're really.
To be disappears and I'd say, that's because it works you [laughter] period, where there's no question in my mind.
Clients are turning to their existing relationships.
So I think this this is mark has accelerated and Oh, we can do more lives.
With that requires yeah.
We just think instead of <unk> or strategy, you think it's been right one.
Yes, I think I'd add to that Bill is I think you know mortise spot on at this allows us to come in as clients are really changed their risk budget or use in lot of indexing among other things what they're trying to get their returns we can come in and have that conversation about indexing with them and it requires us to holistically understand their portfolios.
So we can come in and be more relevant by providing an index solution. So I don't think you know when the premise of your question look this is anything but complementary to both the client relevance not ultimately we think we can do given our broad capabilities or other things that we might be able to add onto the client to have a more holistic relationship and that's starting to.
Actually bear fruit and some other relationships that we've got some index wins already it's just changes the conversation on a go forward basis.
Okay, and just to fall upsell tactical nature, So I apologize for that but just on the institutional money more business I. Appreciate it's probably a low fee starpointe is there any incremental pressure on the underlying fee waiver or if there is a fee waiver could you maybe quantify what that pressure might be as we look into the third quarter.
Yeah, Hey, Bill I think right now actually very little is being waves. So you know we have says you know sort of traditionally all been really focused on its on the institutional money market business and so we do you have a very small a retail component.
And so you know to us or the idea of sort of two waivers or you know probably could be engine, a worst case sort of $10 million to $20 million, we've not seen any that sort of come through.
You know so we continue to watch that space, but you know that would be kind of done one of them. The man kind of paying that we would see of it I don't think there's anything eminent a in Q3 that were sort of need to sort of put you on alert on but it is sort of if you sort of stress test us even further that's kind of the pain that we would suggest you yeah, maybe just a little finer point.
On a build the appeal of the second quarter <unk> Waiving advisory fees on only two of our institutional funds. It's really a diminimus amount. We've also waved additional fees to support certain fund share classes. So any fee waivers have really been more on the retail side and I think learn gave you kind of the aggregate numbers, which is.
He said today at the end of the second quarter, it's a fraction or you're roughly half of the number that you mentioned on a go forward basis.
I squeeze just one quick question on that I, just was curious as rates are tumbling globally and more moyes moving into fixed income is there pressure on just sort of active fixed income fee rates for either invesco or the industry at large just given what's happening with two of the net yield that component.
Yeah. So I mean on Sercel basis always a you know I think there's all competitively did and so you know there's always a threshold where it doesn't make sense and so.
Certainly walked away from you know things that don't make sense well, we are seeing though is more interested in using index products and sort of a there which is again just a theme that we continue to see which tends to be lower fee and maybe not as much around active oh. So we we are in a good position to be able to talk to clients about both.
And be able to serve them in a way that again could create a solution that might actually mix the best to both to defer that client. So I'd say you know that does continue to sort of be part of the fabric of you know discussions with clients just generally fees, whether its fixed income equities alternatives. That's that's all.
Hi, there.
Great. Thank you very much taking the questions. This morning.
Hi, good thing so [noise].
Thank you our next question some Brennan hawken with P.S.
Oh, Hey, good morning, Thanks for taking the questions I'm just wanted to try to see if it was possible I know that it's really really hard to.
Predicts this stuff but.
I believe Alison you said that.
You expect some continued you read pressure you called that modest so how should we contextualize modest.
Does that mean that it might not be as significant as it was in the second quarter or we should look to the general trend in recent years is there.
Is there a good way to think about quantifying that.
Yeah, Okay, but I I would say a it your first gas, which as it should not be as significant as it was and the and the second quarter.
And it is we talked about before given the mix shift given if I imagine where that client demand goes it's very hard to put to act and we wouldn't want to fall in the trial just trying to have a project that I thought we would not expect its decline at the magnitude it did in second quarter.
We would expect it to be somewhat.
I am talking tens of basis, yes, not in a whole basis points, so definitely modest.
Got it okay. Thank you for that.
You know sort of small item, but just saw the headline and it was struck me as a little a little on it. It's why headline just the other day that the you guys. It turned over to the PM.
Had messed up the rebalancing a in the or in the product.
The equal weighted.
Product this quarter.
At first sort of not surprised to see the headline and then I sent and thought well [laughter].
[laughter].
Why did such a product need a pea and actually after all is it just like a program that automatically goes through and and Reallocates on an automated basis. So again, sorry. If this is a little bit of a simplistic or or stupid question, but.
The management of those products work.
But it's really good okay. So I think just in terms of you know that the title a portfolio manager I do think it's it's one that may mean different things and different Qantas contact. So you know they they are the named portfolio manager for these products and every product needs of a name portfolio.
Manager, but in terms of sort of active bats, and other things. It is more operational than it is sort of accident selection. So I won't get wrapped up and in the in the terminology Oh P M.
I do think in terms of so you know what particularly happened. There you know again, we number one you know take care of our clients. That's our first job well, ladies and a you know so that is so what we did a in terms of sort of correcting the.
The impact on the fund and then ultimately.
Correcting you know the source of the error in terms of what what happened, where we moved to operations to our existing center of excellence around that type of index of rebalancing and other activity, which is done for the G.S. generally and they've had no issues whatsoever and that's all that.
It has been moved over to to that center.
So a in terms of just kind of what.
We've been telling our clients and then trying to make sure that people understand is you know that that particular errors has been addressed and we feel good that we've taken care of clients overall.
So again, we're not not happy that happened, but are we do feel it has been addressed.
Okay fair enough. Thank you.
Thank you. Our next question is from Chris Harris with Wells Fargo.
Oh, great everybody.
So to positive flows in the institutional channel I think redemptions are probably a bit higher then you guys would like to see can you talk a bit about a what's driving the redemptions in that channel and how should how should we be thinking about the prospects for redemptions for us what is a record backlogs for sales.
Yeah. Good question I mean, when we look at sort of likely to.
Terminates you know that that.
That number is sort of lower than we've seen in a long time too. So we are not seen sort of a spike up in sort of redemptions are aligned.
Sort of offsets this is growing pipeline that we've seen so there's always it's hard to predict and we've said please don't take guidance or asked for guidance on redemptions. Because you know clients will just tell us.
I've already.
Their own circumstances, or whether it's a middle east you know sometime it takes a middle these current client who needs money for because oil prices or whatever might be I mean, those types of things happen in the completely outside of our control.
It's generally not a performance topic, it's often klein topic, a that drives that.
And Ah, but you're right I mean, we have seen it is on some rebalancing the movements in the portfolios as imagine given the change environment a was radically different post it's covered and situation, where where some people are sort of taking.
Sort of well wait and see mode, and you know maybe more prone to put things into more liquid type of assets.
So I too in some cases, the most liquid assets are the ones that have been eliminated because they they wanted to get it out and so you know where they could take assets. They did and then in many cases, you know we had a liquid alternatives or products that you know sold.
So there you know there's a whole set of stores probably around each client redemption. So it's hard to sort of characterize them going with an easy.
Okay. Thank you.
Got it.
Thank you. Our next question is from Alex [noise].
Blostein <unk> with Goldman Sachs.
Great. Good morning, Thanks, everybody I'm just a quick follow on the capital management I was curious if you could talk to sort or any additional free cash flow need sort of post dividends over the next 12 months, including the forward purchase liabilities, which I think it was around 300 million as of last quarter, but but a quick reminder, that would be helpful.
And I guess, just any unresolved issues related to the MLP calculation or anything like that so really just trying to get a sense for any sort of normal demands on cash flows as we think about you guys working back towards rebuilding the cash position. Thanks.
So yes, the remaining obligation on the Fort worth about 242 million. It does fluctuate quarter to quarter, just based on stock price and that would be fully settled in April of next year. So at that we've still got some time on that.
As it relates to any other cash flow you know on the MLP matter at that that is a complicated matter and it is one that involves.
Layers of accounting over the years and it's going to take some time to work through we don't expect.
There to be any cash obligation on that until late in 21 at this stage.
Great. Thanks.
And thank you and there's no further questions at this time.
Okay. Okay.
Again, thank you everybody for joining us thanks for your questions in the dialogue too so.
So the rest of that.
And thank you. This does conclude today's conference call you may disconnect your lines and thank you for your participation.