Q4 2023 Invesco Ltd Earnings Call

Operator: Thank you for standing by and welcome to Invesco's fourth quarter earnings conference call. All participants will be in a listen-only mode and to the question and answer session. At that time, to ask a question, please press star one. This call will last one hour to allow more participants to ask questions, one question and a follow-up can be submitted per participant. As a reminder, today's call is being recorded.

Greg Ketron: Now I'd like to turn the call over to, excuse me, Greg Ketron. Invesco's head of it, Invesco's relations. Thank you. You may begin. All right.

Greg Ketron: Thanks, operator, until I'll be joining us today. In addition to the press release, we have provided a presentation that covers the topics we've planned to address on the call today. The press release and presentation are available on our website, at vasco.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-get financial measures. Please review those closures on slide two of the presentation regarding these statements and measures.

Greg Ketron: As well as the appendix for the appropriate reconciliation to gap. Finally, Invesco is not responsible for and does not edit nor do you achieve the accuracy of our earnings teleconference transcripts provided by third parties. The early authorized webcasts are located on our website.

Greg Ketron: Andrew Schlossberg, President and CEO and Alison Duke's Chief Financial Officer will present our results this morning, and then we'll open up to call for questions.

Andrew Schlossberg: I'll now turn a call over to Andrew. Thanks, Greg, and hello, everyone, and I'm pleased to be speaking with you today. In a reverse, a reversal from the third quarter, overall market sentiment in the fourth quarter turned more constructive as investors began to gain confidence, putting money back to work in the last several weeks of the calendar year. Equities and fixed income were both beneficiaries of a growing belief that central banks would cut rates sooner in 2024.

Andrew Schlossberg: The S&P was the best performing major equity index, and while outside the U.S, there was solid market growth in Europe while China continued to lag. Fixed income markets performed well led by government bonds as expectations for tightening interest rates earlier in 2024 prevailed.

Andrew Schlossberg: The market volatility and shifting macro trends exhibited this past quarter strength and our conviction in the areas we focused on throughout 2023, continuing to reposition Invesco to perform through various market cycles and in front of the rapid evolution underway in our industry. As discussed on previous calls, we continue to streamline and simplify the company for the benefits of our clients, colleagues, and shareholders. The focus of these efforts is to further emphasize long-term investment quality, strengthen our diverse product offering, and build on our value proposition that uniquely meets a broad range of client needs around the world. We are also tightening our financial discipline, which will further enable us to allocate resources to drive innovation and acceleration for the benefits of clients.

Andrew Schlossberg: We're going to continue to leverage our scale to more effectively invest in profitable growth and further strengthen a culture that attracts and retains the top talent in our industry. While our work in each of these areas continues, we are making good progress and I'm appreciative of the client focus and dedication of my Invesco colleagues around the world. Our results, which are highlighted on slide three of the presentation, summarize many of these external and internal factors that play.

Andrew Schlossberg: During the quarter, we continue to benefit from growing client demand and assets beginning to move off the sidelines. In the fourth quarter, we delivered $6.7 billion in net long-term inflows, which is a testament to our advantageous position with deep client relationships, strong geographic mix, and a broad suite of in-demand solutions. While organic flow growth and improving sediment prove asset levels higher, most of the gains occurred later in the quarter limiting the revenue impact in the fourth quarter, but increasing AUM nearly 7% from September 30 levels.

Andrew Schlossberg: Several factors contributed to our strong organic flow growth in the fourth quarter. Most notably demand for our ETFs and our SMAs continue to drive market-shared gains in these important product platforms. During the quarter, we achieved $14 billion in positive flows in our ETF factor and index capabilities globally and hit a record high of $634 billion in AUM.

Andrew Schlossberg: We also produced our 13th consecutive quarter of positive flow growth in SMAs as we continue to see strong demand for custom tax-optimized solutions in the US Wealth Management Channel in particular. The second set of quarterly organic growth drivers where the return to positive flows in two of our most critical growth areas are China business as well as the broader Asia-Pacific region and private market alternatives. While overall sentiment in China remained relatively weak, our well-established position in the country drove positive organic growth in the fourth quarter. The majority of the flow growth came from the launch of seven new products, which were augmented by equity products sales in existing capabilities.

Andrew Schlossberg: Strong demand for these new products could signal a more constructive 2024 in China. Long-term, we remain optimistic about this market and our unique leadership position within it. We continue to believe that the Chinese asset management industry will grow and mature in the coming years with the development of the local retirement and capital market systems in the world's second largest economy. In private markets, we generated net-long-term inflows led by a stabilization and modest inflow into direct real estate and inflows to credit strategies notably bank loans, which includes CLOs.

Andrew Schlossberg: We have over six billion dollars in dry powder to capitalize on opportunities emerging from the market dislocation of the last several quarters, but we will need greater market clarity before we begin to see significant growth. Shifting to fixed income, which is a key area of strength for investment, we continue to see steady on ongoing growth, having recorded positive inflows in 19 of the past 20 quarters. Leading contributors in the fourth quarter included investment grade, custom SMAs, as well as municipal bond strategies.

Andrew Schlossberg: As investors gain greater clarity on inflation and central bank interest rate policy, we expect clients to move out of cash and extend the duration profiles of their fixed income allocations into a wider range of strategies. As previously highlighted, fixed income is one of our absolute strengths in investment, and we remain focused on ensuring we're well positioned to capture an outside share of the ongoing reallocation. Finally, pressure on active equity flows continued in the fourth quarter for both the industry and for investment.

Andrew Schlossberg: We continue to emphasize investment quality, product differentiation, and client engagement to ensure we remain a leading provider in the space, with a focus on our end demand capabilities where we can gain market share. Despite the continued headwinds, we have seen some moderation in certain areas of active equity flows, particularly in global, international, and emerging market segments. Our net outflows into these important strategies moderated during 2023 to $1 to $2 billion a quarter significantly lower than what we experienced in 2022.

Andrew Schlossberg: These early signs of reversal have been led by our global equity and income strategy, which achieved top retail selling status in Japan and delivered an incremental $1.4 billion of net inflows in the fourth quarter. While we are cautiously optimistic about market conditions for 2024, we remain prepared to meet client and shareholder expectations across a range of scenarios. We have the breadth of capabilities, the discipline to drive performance, as well as the organizational structure and focus to ensure we are well positioned to meet evolving client demand. As market sentiment improves, this should translate to even greater scale, performance and improve profitability.

Allison Dukes: With that I'm going to turn the call over to Allison for a closer look at our results and I look forward to your questions. Thank you Andrew and good morning everyone.

Allison Dukes: I'll begin on slide 4. Over investment performance was solid in the 4th quarter was 64% and 71% of actively managed funds in the top half of peers were beating bench mark on both a 3 year and a 5 year basis for respectively investment performance improved considerably on a 5 year basis going from 65% in the 3rd quarter to 71% in the 4th quarter reflective of improved performance that we're seeing across several categories including in US global and international equity.

Allison Dukes: We continue to have excellent performance and income across nearly all capabilities and time horizon and important fact given our strong conviction and our ability to attract flows as investors deployed money into the strategy. Turning to slide 5, AUM was nearly $1.6 trillion at the end of the 4th quarter $100 billion higher than last quarter end. The 4th quarter began with weak markets in October and recovered as the quarter progressed ending the year with equity and fixed income markets higher versus the 3rd quarter.

Allison Dukes: Higher markets coupled with net long-term inflows and favorable foreign exchange movements drove the increase in assets under management during the 4th quarter. We generated $6.7 billion in net long-term inflows which was an organic growth rate of 2.4% that we expect will once again outperform peers and what has been a challenging environment for organic asset growth. Looking at flows by investment approach, client demand for passive capabilities remained strong as we garnered nearly $14 billion of net long-term inflows during the quarter.

Allison Dukes: ETFs in flows were $12.4 billion and annualized organic growth rate of 17% marking this is one of our best quarters for ETFs. The F&T 500 equal weight index bond once again led the quarter with $4.6 billion of net long-term inflows.

Allison Dukes: This ETF was also our leading flow driver for the year with nearly $13 billion of inflows. Our Q22M ETFs threw the second highest inflows and our ETFs tweet with over $2 billion for the quarter. The Q22M was launched a little over three years ago and now stands at over $18 billion of AUM, making it our third largest ETF outside the Q22.

Allison Dukes: We demonstrated the ability to sustain growth in ETFs throughout the full market cycle with organic growth in 13 of the past 14 quarters. Offsetting some of the growth in passive was $7.2 billion of net outflows and active strategies. What's encouraging is that the level of outflows in the fourth quarter was the second lowest since the market sell off began in early 2022.

Allison Dukes: The lower level of net outflows was driven by growth and active fixed income products, led by our custom fixed income SMA, which totaled $2.1 billion in inflows. Regarding active equity strategies, we experienced another quarter of strong growth in Japan, with our Henley Global Equity and Income Fund garnering $1.4 billion in net inflows from Japanese companies. This fund continues to be the top selling retail fund for the industry in Japan on both a quarterly and a year-to-date basis. Lewis.

Allison Dukes: Active global equity products experienced net outflows of $1.6 billion of which $1.2 billion came from the developing markets fund. The level of outflows from this investment class had declined after significantly elevated redemption in the second half of 2022. Looking at flows by channel, the retail channel generated $4.6 billion of net long-term inflows while institutional channel had net inflows of $2.1 billion. Driving the growth in the retail channel were the ETF products I noted previously, as well as the custom fixed income SMA.

Allison Dukes: Growth in the institutional channel resumed after net long-term outflows in the third quarter that were driven by the global target returns redemption. Moving to slide 6 and flowed by geography, Asia Pacific delivered net long-term inflows of $5.8 billion, representing organic growth of 12 percent, driven by growth in Japan, and a resumption of growth in our China joint venture. Japan's net long-term inflows were $3 billion in the fourth quarter, representing an organic growth rate of 21 percent, and driven by the Henley Global Equity and Income Fund as well as fixed income products. We believe Japanese markets are seeing the most constructive conditions for risk-gone assets in many years and were well positioned to capture that growth.

Allison Dukes: Our China joint venture generated $1.7 billion in net long-term inflows, driven by ETF and fixed income strategies. Turning to flows by asset class, equity generated $8.3 billion in net long-term inflows mainly driven by strong growth in ETF. Fixed income flows were impacted by our planned bullet-share ETF maturity that incurred each December, which totaled $2.8 billion. This is an annual occurrence, and these outflows are typically offset by new bullet-share products launched in the first quarter, where we are already seeing strong inflows in January, including these maturity. Fixed income and net long-term inflows were $2.9 billion.

Allison Dukes: In alternatives, we generated $1 billion of net long-term inflows in bank loans, including field loans, and $400 million of net long-term inflows into direct real estate. These inflows were offset by outflows and other products that we classified alternative products, such as global asset allocation and commodity ETFs. We have a strong track record in our private market platform with alternatives and our well-positioned to capture long-term flows in this asset class of client-demand shifts to these strategies.

Allison Dukes: Moving to slide 7, secular shifts in client-demand across the asset management industry coupled with more recent market dynamics have significantly changed our asset mix since the acquisition of off-and-himer funds. Going back to 2019 after the acquisition, ETFs and index AUM, excluding the QQQ have grown from $171 billion or 14% of our overall 1.2 trillion in average AUM in 2019 to $362 billion or 22% of our average AUM of $1.5 trillion in the fourth quarter. The QQQ, a product we are no management fees from, but does provide a substantial marketing benefit.

Allison Dukes: It has tripled inside over this time, going from $74 million to $230 billion or from $6% to $14% of total average AUM. We've also seen very strong growth in global liquidity going from $82 billion or $7% of average AUM, to 170 billion or 12% of average AUM in the fourth quarter. These products, these product areas carry lower net revenue yields compared to our overall net revenue yield. During the same time frame, we've seen weaker demand for fundamental equities and multi asset products, which carry higher net revenue.

Allison Dukes: This has been driven apart by the risk of sentiment that was sparked in early 2022, coupled with the pressure that we experienced in developing markets and global equities, as well as the closure of our GGR capabilities. Our fundamental equity portfolio in 2019 was 348 billion or 29% of our average AUM. By the fourth quarter, that portfolio had declined to 261 billion or 16% of our average AUM. Multi asset also declined from 7% to 3% of the average AUM over this time frame.

Allison Dukes: Looking at the fourth quarter, as compared to the third quarter of 2023, we continued to experience similar dynamics with ETFs going from 21 to 22% and the QGT going from 13 to 14% of average AUM, while fundamental equities declined from 17 to 16% and multi asset from 4% to 3% of average AUM in the quarter. The result of revenue headwinds created by these dynamics has weighed on our results over the last four plus years.

Allison Dukes: While we've experienced excellent organic growth and lower fee capabilities like ETFs and global liquidity, it was not enough to offset the revenue loss from higher fee fundamental equity and multi asset output. Our overall net revenue yield has declined meaningfully during this time frame, but that decrease has been driven by the shift in our asset mix, not degradation in the yield in our investment strategy. Net revenue yields by investment strategy have been relatively stable within the ranges provided on the slide. The other point that I want to emphasize is that this multi-year secular shift in client preferences has been increasingly captured in our results.

Allison Dukes: Our portfolio is better diversified today than four years ago and our concentration risk and higher fee fundamental equities and multi asset products has been reduced. These dynamics are challenging to manage through as they occur should pretend well for future revenue growth and marginal profitability improvement and dependent of market gain further. We now have a more diversified business next, which better positions the firm to navigate various market cycles events and shifting client demand.

Allison Dukes: Turning to slide eight net revenue of $1.05 billion in the fourth quarter with $62 million lower than the fourth quarter of 2022 and $52 million lower than the third quarter of 2023. The decline from last year was due largely to a $35 million decline in performance fees and the shift in our asset mix that was just discussed. The decline in performance fees was mainly driven by lower fees generated from real estate related and other private markets activity.

Allison Dukes: The decline from the prior quarter was primarily due to incremental asset mix shift and lower average assets under management, partially offset by higher performance fees in the quarter. Total adjusted operating expenses in the fourth quarter were $771 million, relatively unchanged from the fourth quarter of last year. Included in fourth quarter 2023 are $22 million related to organizational change expenses and $12 million of alpha platform related implementation expense. Houses.

Allison Dukes: Adjusting for these items, fourth quarter expenses were $32 million lower than the fourth quarter of 2022. Total adjusted operating expenses were $18 million lower than the third quarter. More specifically looking at employee compensation that has been impacted by the organizational change expenses, compensation was $26 million lower than the fourth quarter, which includes $11 million in expense savings related to the organizational changes that I'll provide more detail on shortly. Marketing expenses of $28 million were $6 million lower than the fourth quarter of 2022, and we continue to tightly manage discretionary spend giving the ongoing challenging revenue environment.

Allison Dukes: Property office and technology expenses were flat to last year and $4 million higher than last quarter. DNA was $19 million higher than last quarter as we typically see higher DNA in the fourth quarter. We also had $12 million in spending related to our alpha platform implementation higher than the $8 million incurred in the third quarter due to incremental implementation cost than the fourth quarter. Going forward, we expect one time implementation cost to be approximately $10 million per quarter in 2024 with some fluctuation quarter to quarter. We will continue to update our progress on the implementation and related costs as we move forward.

Allison Dukes: Now, moving to slide 9, we realized $11 million in expense savings from the fourth quarter related to the organizational changes. On an annualized basis, we have achieved $44 million for nearly 90% of the $50 million in expense savings we expect to realize in 2024. We expect to realize the remaining $6 million in the first quarter. We're not expecting any further significant restructuring costs associated with these efforts.

Allison Dukes: The full benefits from our simplification efforts will be seen every time as we generate revenue growth and margin recovery. As we've discussed, we manage variable compensation to a full-year outcome in line with company performance and competitive industry practices. Historically, our compensation and at revenue ratio has been in the 38-42% range, trending toward the upper end of the range in periods of revenue decline. At current AUM levels, we would expect the ratio to be at or slightly above the higher end of this range for 2024.

Allison Dukes: Seasonally, we see approximately $25 million in higher compensation expenses related to payroll tax and other benefit resets in the first quarter. And as a result, we would expect the ratio will exceed 42% during the first half of 2024.

Allison Dukes: Moving to slide 10, adjusted operating income was $275 million in the fourth quarter, which included the cost related to organizational changes. Adjusted operating margin was 26.3% for the fourth quarter. Excluding the cost related to organizational changes, fourth quarter operating margin would have been 210 basis points higher. Earnings per hair was 47 cents in the fourth quarter. Excluding the cost related to organizational changes, fourth quarter earnings per share would have been 4 cents higher.

Allison Dukes: The effective tax rate decreased to 9.9% in the fourth quarter from 23.6% last quarter. The decrease was primarily due to a discrete tax benefit related to the resolution of certain tax matters. Favorable tax treatment related to a gain on sale of certain Hong Kong pension sponsorship rates. And the favorable impact of a change in mix of income across characteristics. We estimate our non-gap effective tax rate to be between 23 and 25 percent for the first quarter of 2024. The actual effective rate can vary due to the impact of non-recurring items of pre-tax income and a free tax item.

Allison Dukes: I'll conclude on side 11. The stated priority for us is building balance sheet strengths. This quarter, our cash balance was $1.5 billion and we ended the year with nothing drawn on our credit facility. We have lowered our net debt significantly and it now stands near zero. We have a $600 million senior note maturing on January 30th and we are in position to redeem the note at maternity. We estimate we'll have approximately $500 million in excess cash and we'll draw approximately $100 million on our credit facility to fully redeem the note.

Allison Dukes: The first quarter is a seasonally high cash sheet stitch quarter so we do expect to have a balance on the credit facility at quarter end which will pay down as we move through the second and third quarters and reach our goal of zero net debt. We also hope to begin a more regular stock buyback program as we move towards this goal. To conclude, the resiliency of our firm's net flow performance and a difficult market for organic growth is evident again this quarter and we're pleased with the progress we're making to simplify the organization and build a stronger balance sheet while continuing to invest in key capability areas. We're committed to driving profitable growth in a high level of financial performance and we have the right strategic positioning to do so.

Operator: And with that, I'll ask the operator to open up the line for Q&A. Thank you as a quick reminder, if you'd like to ask a question from the phone lines, please press star then one. Remember to unmute your phone and record your name clearly when prompted. If you'd like to withdraw your question, please press star two, one moment for our first question.

Glenn Schorr: Okay, now first question comes from Glential with Evercore, your line is open. Hi, thank you.

Andrew Schlossberg: I'm sure you said something very intriguing towards the beginning. You said you expect clients to move out of cash into long duration fixed income at some point and I think a lot of us have been waiting on that. You saw some fixed income flows but a lot more money market outflows less couple of quarters. I'm curious where the money market outflows going in general. And how do we determine the cash sitting on the sidelines is actually waiting to move out versus it's just treasuries and money markets that used to sit in cash? Meaning is it just another cash alternative or is it actually waiting? I hope that makes sense. Yeah, it does. Let me start and Allison can pick up.

Allison Dukes: It's a little above. So some of the money market flows out of in Vesco and our business is largely corporate treasures. They're buying P bills directly so I wouldn't look at that as the great indicator from from in Vesco. As we're out talking to clients and we're looking at where flows are going early signs have been clearly into ETFs, which might be telling you a little bit about conviction and maybe the lack of their full conviction.

Allison Dukes: And then on the fixed income side active and otherwise starting to move into municipal bonds in particular some investment grade strategies. Europe's picking up a little bit but I'd say it's pretty early days on assets moving off the sidelines.

Allison Dukes: It may be just to put a finer point on our money market products in particular, our liquidity products, our client base there is about 85% institutional. So when we see fluctuations and some of those balances, it is Andrew's point, really corporate treasures, taking advantage of the increase in T Bill rates and moving out of money markets in the T Bill. It is only about 15% retail, which is where, of course, on the institutional side, they're just limited where they're going to go. So they're going to stay. And, you know, cash yielding kind of products there, the retail side, the smaller component of our client base there. Makes sense.

Allison Dukes: So in that revenue yield slide, you showed us to come down and you talked about not the aggregation of product pricing, but just makes shift. With the markets up so much, average assets, ending assets, wave above average assets, how much of that revenue yield pickup could we see coming back the other way in the first quarter? I'm not sure you've gone through that mess yet, but obviously markets are up a bunch. Now, they are for sure.

Allison Dukes: And I mean, the exit rate for net revenue yield will be it was modestly higher coming in to the first quarter. I mean, the delay, frankly, in the market pickup in the fourth quarter didn't do much for revenue, as you could see, but it does pretend well for just the average AUM next coming into the quarter. And it does give us a net revenue yield coming into the quarter that's modestly higher than the exit, you know, call it two tenths of the basis point there, the very modestly higher.

Allison Dukes: You know, I think within those asset categories that we showed on that page, it is, it's really the mix within there as well as the mix between those categories. So, you know, one of the elements of our revenue performance in the quarter was even in our net revenue yield within our passive capabilities. And you saw our net revenue yield and passive decline about a basis point inside of the quarters, well, which really speaks to where client demand was in the quarter largely for some of our lower fee products there, like the QQQM and the S&P 500 equal weight product that I noted earlier. So, we do continue to see strong client demand. It's hard to predict where the client demand will be in the first quarter.

Andrew Schlossberg: And that has a huge impact on our revenue. All things being equal though the market run has been helpful. And the other thing I'd add, and you're seeing it as well, I'm sure the broadening out of the markets, and as Alison mentioned earlier, the greater diversification in our overall portfolio, client assets, you know, put this in a position under any kind of market environment where we think we're relatively well positioned.

Glenn Schorr: All right. Thanks. Thanks for all that. Appreciate it. Thanks, Glenn. Thank you.

Daniel Fannon: Now, the next question comes from Daniel Fanning with Jeffries. Your line is open. Thanks. Good morning.

Andrew Schlossberg: One of the follow-up on slide seven and talk a bit more about the alternatives and private markets dynamics in the quarter and more prospectively how you are thinking about the potential growth in that business, considering the broader oldspocket has been seeing outflows for you. But yet, I think there's some underlying trends. I think you've talked about it seeing some inflows, but curious to get a little bit more of an update. Let me start with just maybe an update on the flows.

Allison Dukes: So, I think we noted modest inflows on the direct real estate side. So, about $400 million, and again, that's really the vestiture's net of acquisitions. And so, we continued to see some, you know, modest improvement, which is nice to see just given some of the challenges on the real estate market. On the private credit side, we saw about $1.2 billion of inflows. Again, our business, there's only about $42 billion, so relatively tonight's pickup inflows there that was primarily driven by bank loans and CLOs, and some modest inflows and there are distrust credit capabilities as well.

Allison Dukes: That's all on the private side, and that was largely offset by outflows on the public alternative side. And that's driven by commodity ETF listed real estate and global asset allocation that I noted on the call. So, you've got a bit of a mix in our alternative strategies. Again, with the good gains on the private side being offset by some outflows on the public alternative strategies. And as we look forward, we continue to view private markets and alternatives as one of our best opportunities. Allison said, on the credit side, about $45 billion in assets, and on the private real estate side, another $70 billion in assets.

Allison Dukes: Seeing some moderation of flows and some positive gains, as Allison mentioned, we're good for us to see in this environment. I think if we take the long-term view, what we've been very focused on over the last several years is diversifying from a largely institutional base into a wealth management base. And the issuance of our non-traded read, real estate credit strategies, and other sort of distressed and direct lending strategies, both into institutional but probably more impactfully into retail, we continue to see as a great long-term opportunity for us. I understand. And then just switching to expenses, understand some of your comments.

Allison Dukes: But maybe Allison, if you could talk to the State Street project is the goal to ultimately reduce expenses or just flat get flatter growth going forward. So just want to understand the components post of the 10 million accord that you mentioned for this year. And then underneath that, how we should think about the general growth rate of kind of G&A and other expense items for the year in terms of inflation or other factors.

Allison Dukes: Let me start with Alpha. And if you think back around the implementation cost of last few quarters, they have been growing. So it was 7 million and the second quarter, 8 million and the third quarter, 12 million and the first recent quarter. And then our guide was to roughly 10 million dollars a quarter per quarter throughout 2024. There will be fluctuations. It is not precise, we are deep into implementation. And so there is going to be some variability in some uncertainty quarter to quarter. But I think the 10 million dollar expectation is reasonable with what we know today.

Allison Dukes: The expectation is we are building to a peak. And then there are expenses that will be coming out the other side. So and that, you know, was 2025 and beyond. So we're not ready to give, you know, exact guidance on that yet. But it isn't just a flattening out. It is building to a peak.

Allison Dukes: And then there are some expenses that start to come back down as implementation cost paid. And there are some the ability to continue to rationalize and streamline some of our systems, which will lead to some expense rationalization on the other side. You know, and as a reminder, that is as much about, and the whole effort is as much about really eliminating the duplication of systems and some of the heavily customized processes that we have today.

Allison Dukes: And really more moving towards a single operating model. So streamline our operations and accelerate some of what we can deliver from a client experience. I think you mentioned some of the other expense line items. Maybe let me touch on some of those.

Allison Dukes: Noted the GNA was seasonally high in the fourth quarter, and so I would expect that to be a bit lower in the first quarter from a compensation expense perspective. As we noted, there's always seasonality in the first quarter. We typically expect a compensation expense about $25 million higher in the first quarter for taxes and the like, but we also expect to fully realize our $50 million in expense savings, so there's another $6 million that we expect will be realized in the first quarter.

Allison Dukes: All of that is, of course, assuming flat markets at $12.31, et cetera, et cetera, but hopefully that gives you some color that relates to the primary driver about the seasonality of GNA coming back down, seasonality and compensation expense going up modestly, but that's offset by the realization of our expense savings. Great, thank you. Thank you.

Ken Worthington: Our next question comes from Ken Worthington with JP Morgan. Your next question.

Allison Dukes: I wanted to pump a margin on slide 10, excluding the usual items, margins in 4Q23, for the lowest level on the page. Can you give us some color as to how business mix is impacting margins? To what extent is margin pressure being impacted by growth of lower feed, lower margin businesses, and slower negative growth in higher margin, higher feed businesses? I know it used to be some of the non-US businesses where the highest margin. At this point, can you kind of call out what are your highest margin and lowest margin businesses? Sure, let me take a stab at that.

Allison Dukes: So yes, you are correct. The fourth quarter, adding back, severance expenses would be our lowest quarter, and so what is impacting that? Certainly it's business mix. Before I go to business mix, I will also note just from an underlying expense base standpoint, keep in mind for all the years prior to the last three quarters on this chart, we had TIR as a line item, and there was a significant amount of our expense base that was in TIR, and so our expense base has been fully loaded for the last three quarters, inclusive of all the Delta implementation costs.

Allison Dukes: So that is part of the pressure on margins, although it is not the whole story, the business mix story, and the degradation and revenue is absolutely part of the story as well. Business mix is a big driver of it as you continue to see the shift in our business mix as we highlighted on page 7 from fundamental equity into some of our lower fee capabilities, including ETFs and index, even global liquidity to some extent as well.

Allison Dukes: And within that, as I noted, even within the passive capabilities, you see some business mix pressure just in the most recent couple of quarters with the strong demand for products like the S&P 500 equal weight, the QQQM, as opposed to commodity ETFs, bank loans, and some of the other higher fee capabilities that would be within that asset category. So it is business mix among the categories and within the categories, in terms of margins, margins sort of by region are relatively consistent.

Allison Dukes: I think it is worth noting, in China, we have often pointed to our margins there, which you can look at and see, really as you add back the joint venture there, are higher than the firm average. They are modestly lower now with the implementation of the regulatory mandated seat cuts in China, which we have noted. The margins there are still stronger than the firm average, and still very attractive, very positive, and are positioning there, and are growth rate there.

Allison Dukes: We are very optimistic there, but modestly lower than it would have been previously. And the fourth quarter was our first full quarter of the realization of those fee cuts, which had an overall impact of about $10 million per quarter in revenue.

Ken Worthington: Great. Thank you very much. Thank you, Ken. Thank you.

Bill Katz: The next question comes from Bill Katz with TD Count. Your mind is open. Thank you very much for taking the questions this morning.

Bill Katz: Maybe to mix up a little bit, if you could just expand a little bit on where you stand with your relationship with mass mutual and the opportunity to potentially accelerate growth either into the alternative segment or perhaps even on building out some retail democratization products. Hey, Bill.

Andrew Schlossberg: Thanks for the question. Maybe just to refresh everyone's memory and mass mutual in addition to owning our comment and being a preferred shareholder, has about $12 billion invested with us across broker-deal or annuity sub-advised general account capabilities. One of the most important parts of that has been the $3 billion they have invested into the seeding and co-investment of many of our private market strategies. In particular, the ones we've been bringing to wealth management over the last several years.

Allison Dukes: It's a very, very important partner in that regard. That's a multiple of three times what we carry on our own balance sheet around those sorts of strategies. So opportunities to continue to develop the relationship there are something we're focused on although a lot of that growth has come already. I think the second area is just taking our relationship further where it makes sense on their insurance platform with things like our alternative strategies, models, SMAs and ETFs, and then select fixed income and equity products. We're well placed there but we're continuing to look for opportunities and ways to grow effectively. So it's an important partnership on many levels.

Allison Dukes: Maybe just to follow up on capital. So it sounds like you're in a much better spot just in terms of re-engaging on buyback. Allison, are you expecting to be able to buy back stock in concert with carrying the line of credit or do you need to get on the other side of that before you'd restart buyback?

Allison Dukes: And then more broadly, what kind of pair rate should we be thinking about now that your earnings are more diversified and the earnings power is higher? All good questions and I'd say short answer is yes, we'd like to be on the other side of, we're very committed to getting our net dot down to zero. And that has been a stated goal of ours and something we've been working closely in concert with our board on achieving a stronger balance sheet.

Allison Dukes: And so as we approach that and we look forward to having conversations with the board and evaluating the opportunity to re-engage and some more regular share by back. I think our payout ratio would stay kind of modestly in that 40 to 60 percent range as it has been in the past. I think that's a reasonable range for us to operate in as we think about those modestly increasing common dividend each year as well as buying back stock.

Allison Dukes: But we are, you know, a couple of quarters away from where we want to be there just given the seasonality of cash needs that are before us over the next few months. We are within site for the first time in a long time and we're really pleased about the progress for making with the balance sheet just the growth and cash and where the debt is heading. So it does feel like for the first time in a long time we're kind of getting back into a position where we can be a lot more opportunistic than we've been able to be in the last few years. Thank you.

Michael Brown: Next question comes from Mike Brown with KBW. Your line is open.

Andrew Schlossberg: Great. Thank you for taking my questions. Maybe just a quick follow-up on that last question on on cat beligation and the buybacks. As you get further along on your goals on the balance sheet, do you expect M&A to kind of come back into the equation? You know not necessarily large M&A, but perhaps maybe more on the bolt-on side as you think about adding capabilities and perhaps altering the strategic asset mix as you start to look out to say 2025. Yeah, hey, Sandra, at the moment the focus is very, very much on the organic side.

Andrew Schlossberg: The priorities around the balance sheet and the uses of cash as Allison described, you know, stay true. You know, as we have described in the past, you know, the place where we see opportunity for us to add on in time for the right situation, opportunity would likely be in that private market space as extensions to the things that, you know, we already believe we do well today and could continue to grow both organically and organically. And that in the private credit areas, but for now, very focused on the work we have to do organically. Okay, great, that's good to hear.

Andrew Schlossberg: And then if I just change gears to the developing markets fund, you had black, you know, performance has improved there, that product is still outflowing, but assuming that performance can continue to improve, I guess my question is what causes client interest to really come back to this fund? Just given that, seems like investor sentiment and interest in EM strategies, it just kind of remains taped. Is this going to be more about a kind of lower redemption story and kind of narrowing on the redemptions, or can that eventually translate to more of a growth story? Yes, look, I think you outlined the question well. It's probably a bit of both.

Andrew Schlossberg: I mean, the first thing is continue to strengthen the investment performance there. And we're unknown, as you know, a known emerging markets manager, well-known in the spellet space, well-placed in the wealth management channels. So the things we can control are investment quality. What we have started to see a bit is a redemption picture improve. And that's sort of early sign. I think you're not really going to see a material uptick in gross sales until you see more demand come back in the marketplace from investors.

Andrew Schlossberg: And you know, it's, we've been waiting for that moment and we haven't seen it difficult to predict, but it's an important category as is more broadly what we're doing in international equities and global equities where those categories as well have been under suppression. Our performance has improved materially, redemption rates declining, but same comment on the gross sales side. Okay, thank you, Andrew. Thank you.

Brandon Hawken: The next question comes from Brandon Hocken, what's UBS? Your line is open. Good morning.

Allison Dukes: Thanks for taking my questions. Allison, appreciate the color on one Q expense, but you know, when we're thinking about full year 2024, it is the right base by which to grow off of that three billion and six that's adjusted for some of the charges. And, and you know, how should we think about? Are you able to, you know, keep that flat? Where is that going to be having some positive pressure here through 2024? No, good morning, Brennan, good question.

Allison Dukes: Yes, if you look at the expense base in 23 adjusted for the severance and retirement expenses that we incurred in 23, which we aren't anticipating at this point more of in 24. When I look at our 24 expectations relative to where the markets are, where we end of the year and age. The usual caveat of all things being equal, I would say we expect the expense base to be flat to 23 to just relatively very, very modestly perhaps higher, but, you know, I'm going to call it just flat, flat, and that's importantly in 23 and excuse me in 24 is inclusive of a full year about all four quarters, no TIR.

Allison Dukes: So it is a four quarter, no TIR year is compared to a three quarter year. And last year, inclusive of some of the inflationary pressures merit increases and the like so we did a lot of work on our expense base last year, we've got a lot going on as it relates to implementation costs of the $10 million per quarter guide we put out there. All those things taken into account, we're expecting relatively flat this year.

Allison Dukes: Okay, thanks for that color, I appreciate it. And I'll know with that with some of where we are in the markets, some of what we've seen in terms of the appreciation and average AUM exiting the fourth quarter and coming into this year, we are optimistic that we start to see modest improvement and operating margin from here. Thanks for taking my question. Thanks, Brennan.

Brian Bedell: And our next question comes from Brian Badell with Deutsche Bank, Ilan is open. Oh, great, thanks. Good morning, both thanks for taking my questions.

Michael Cyprys: This is switch the conversation to the triple Q franchise. I guess as you obviously did not be earning products, but do you think about monetizing that whole franchise? Can you talk about how you think you might be able to monetize that asset base? I think obviously triple QM is I think 20 billion AUM and triple Q's more than 10X that.

Michael Cyprys: First of all, the 15 bits on triple QM is that also the asset management revenue yield or that just takes the administration to do. And then how do you think about potentially, are there opportunities to effectively try to cannibalize the triple Q in favor of developing a more, you know, through a fee bearing triple Q franchise at the investor level? Great questions.

Andrew Schlossberg: And precisely the topic we spend a lot of time talking about thinking about and really working on as a team. That the QQQ is a tremendous asset for us and the brand awareness that that creates can't be underestimated the opportunity that creates for us in terms of the marketing budget that comes from that. All of our, for the ad campaign, the brand work we do is really fueled by the QQQ. And so it's a, it is a tremendous asset to us. It is certainly unique in nature.

Andrew Schlossberg: And that's the value it creates. We have to be very thoughtful about how do we optimize the value that is created from that capability. The QQQM, as you note, is approaching $20 billion and has been a cannibalization strategy and a very successful one and given it's only about three years old and it has grown that quickly and, you know, assuming there is continued demand and the underlying interest and the underlying exposure there, we expect the growth and that capability to continue.

Andrew Schlossberg: In terms of the actual net revenue yield from the published fee rate, you know, it'd be about half net of all of the cost there. So it is, it would be one of the lower yielding capabilities. Again, part of what we were pointing to in terms of the business mix that is driving some of the pressure on net revenue yield overall. So it's a two sided coin.

Andrew Schlossberg: But one that is certainly well positioned to capture client demand. The relationship with the NASDAQ on the Qs goes back, celebrating I think it's 25th year coming up soon. And very much what Alice was describing, how we've been growing that relationship. You know, in addition to it being a QQQM being an alternative, it's also worth creating a situation where the Q, the traditional Qs is really for traders. And the QQQM can be more for buy and hold investors.

Andrew Schlossberg: And I think it's indicative of what's happening in the ETF industry in general is it's a preferred vehicle now for people that have short term interest and long term interest. And so I think part of our strategy is just indicative of that.

Allison Dukes: You should expect to see more of that from us, whether it's passive or act, and then maybe just to follow on, I think Allison, you mentioned it, of course, you are investing in the business as well, you're sort of revesting some of those cost saves. Maybe if you can just talk about the top two or three areas from an investment management perspective in terms of product that you are investing in to catalyze growth.

Allison Dukes: You just talked about the triple queue for interest, maybe you can leave that one out and I think on private markets you mentioned that that's an investment area, however, that can also be an area where M&A can play a role.

Allison Dukes: So maybe if you can talk about any other, take a couple areas that you are most excited about in terms of investment dollars that you're putting in and growth that could be focused on that. Sure, I'd probably point you back to our key capability areas and those being the areas where we really focus the most on continuing to grow and invest. So certainly within our ETFs, SMAs, factor and index there at capabilities, we continue to look at how do we build those key abilities out to really capture the client demand that's there, private markets.

Allison Dukes: Both for the retail channel and institutional channel, the institutional product capability really being our legacy capabilities and our strength where we've got a tremendous amount of history and success and continuing to build those out and invest in those capabilities and position those for client demand, but increasingly so on the retail side. And I think as we've talked about before, it's not just seating and launching the product that's really building out the distribution capabilities there and working closely with our clients as we expect that shift to be a multi year shift and transformation and the education that's involved there and investing significantly in the education that's involved on that side.

Allison Dukes: I'd also point to China and continuing to invest in our capabilities there. That is a, it is self funded and largely speaking as we've discussed before, it is a very attractive business, highly profitable cash flow positive, but we are able to continue to invest in those capabilities. Your question was primarily around our product and client facing capabilities, but I would also note a lot of what we invest in for the benefit of clients isn't just the products, the systems, the client experience and really streamlining the overall client experience behind the scenes there.

Allison Dukes: A lot of our investment goes into our platform, our technology and our capabilities in order to continue to deliver a better client experience into a forward room on our shelf for that. I mean, we've been routinely pruning and closing parts of the product line that we haven't seen demand in and close several hundred strategies over the last few years. The only other thing I'll point to beyond what I was uncovered would be, it's probably less investment capabilities that you'll see extensions on and more how it gets delivered to the market. So the trend towards vehicles like ETFs and FMAs and bringing things beyond passive capabilities or fixed income capabilities is something where we're going to continue to seek to lead. Great, that's great color. Thank you.

Craig Siegenthaler: Our next question comes from Craig Siegenthaler with Bank of America. Your line is open. Thanks. Good morning everyone.

Allison Dukes: Michael, my first question is on the 40 to 60% pale target after you reach your goal of zero net debt later this year. So why not a higher pale target? Because it sounds like MNA isn't a big part of the intermediate term strategy. A reasonable question.

Allison Dukes: I would say, as Andrew said, we do continue to think about the opportunities we have from a bolt-on perspective with certain capabilities from an MNA perspective and given our balance sheet is returning to a better position, but we want to be in position to continue to build cash as we think about some of those opportunities and making sure we're in position should we find the right bolt-on capability to be able to execute. So it's a balance of making sure we have the ability to execute on several of those priorities and it's not going to be all in returning cash to our capital shareholders. Big sense Allison.

Allison Dukes: And just as my follow up with the 3 billion in alt seed capital for mass mutual, can you remind us which products the 3 billion has been invested in and then to date how successful has that been like one way to quantify that is how much third party AUM have you been able to attract around that 3 billion of initial seed capital for mass mutual. Yeah, let me start the analysis and can pick up probably the most the two most important strategies were the non-traded read or in-read strategy where you know mass mutual was in exist or early seeding partner.

Allison Dukes: I don't have the exact percent that they have, but you know, I would say it's still it's still relatively large, although we've been generating a decent amount of volume over time from one of the big wealth platforms in the US. And then the second one was our real estate debt strategy that we just brought to the wealth management market. That was the other sort of strategically important strategy, but I'll turn it to Allison maybe for more specifics on the numbers you asked about.

Andrew Schlossberg: Yeah, I would say it's largely their general account and where they would want to make sure they've got exposure as well across various capabilities. So I mean, they are invested in everything from in-read, which we've been public on that strategy to things like municipal and CLOs and some of our private credit and capabilities. You know, it's really kind of the breadth of those types of capabilities where you would see them really both invested.

Andrew Schlossberg: And aside from the capital, which is which is clearly important, I think the signaling and showing up at these wealth management platforms in particular, not with new investment capabilities, but you know, they're new packages that we're putting things together in. And I think that's really critical in terms of credibility that we show up at these platforms with. Andrew, thank you.

Luke: Thank you. The next question comes from Alex Blostin with Coleman Fax. Open. Hey guys, this is Luke on for Alex.

Allison Dukes: Thanks for taking the question. Appreciate some of the color on expense and revenues in 2024, and appreciate that it's not easy to forecast going out so far, but do you have any high level goal posts for margins over the longer period into 2025, especially as some of the state street alpha costs coming down? Thanks.

Allison Dukes: I would say high level goal post, and this is going to, you know, longer term is going to take us some time to get there, but getting back into the mid-30s is absolutely our high level kind of goal post. We, I hope everybody here is as loud and clear, we are in no way satisfied with where our margins are today, and getting them back on a quarterly basis, north of 30, and starting to climb back into the low 30s and mid-30s from there, that's absolutely the goal over the next handful of years.

Allison Dukes: You know, our focus coming into 2024 is absolutely around expense discipline. We've done a lot of work on our expense base. We've got, you know, a lot of headwinds and things we have to make our way through alpha implementation being the most notable and sizable of that, but despite that our expectation is to really try to hold our expense base relatively flat, and as you know, thank you for giving us a little bit of grace on that one, that it is hard to predict a quarter to quarter, especially with the impact of revenue and market.

Allison Dukes: So, you know, it's really about being very disciplined on everything we can control, and then where we can continue to take expenses out in places where it's not necessary, and evaluate opportunities to eliminate those expenses, or reinvest them in areas that will help facilitate and fuel further growth. Awesome. Thanks, thanks for the color.

Andrew Schlossberg: Just for my follow-up, you guys highlighted the, you know, plans to continue shifts from institutional to wealth, and some of the strategies that you're looking to build on. Do you have any upcoming product launches in the wealth space that you guys are either working on, or are free to talk about at this point? Thanks. Yeah, and look, I think they're, I'll just speak generally about them because getting specific is difficult. The real estate debt strategy, we were seeing a lot of demand for an interest for that, and you should expect to see more of that in the market, and we should be talking more about that going forward, and then private credit strategies, whether they're distressed or direct lending, how we can position and factor those into the wealth channels, and just to be clear, this isn't just in the US, it's in Europe and Asia Pacific as well. The operator, we have time for one more question.

Michael Cypress: Okay, and our last question comes from Michael Cypress with Morgan Stanley. Your line is open. Hey, good morning. Thanks for excusing me in here.

Allison Dukes: Just a follow-up question on expenses. I was hoping you could maybe elaborate on some of the steps you guys are taking to drive greater operational efficiency in the business, additional steps you might look to take over the next couple of years, and how is the variable nature of the expense space evolved, and how should we think about the sort of sensitivity of expenses of markets are up, say in 24? I know you got to turn around flatish expenses adjusted for things, but that was assuming flat markets of markets are up 10%. How do we think about the impact on expense? Thank Mike.

Allison Dukes: I would say what the relationship of our expense base being about a third variable is still a reasonable relationship and expectation to think about as you think about the potential growth and revenue. So I would start with that certainly as we've seen some of the real revenue pressure, it has made it difficult because there is some element of our expense base that's fixed. But I think as we can, as we anticipate starting to climb out from a revenue perspective, I think the one third relationship is still a reasonable expectation.

Allison Dukes: In terms of what we will do and how we will continue to think about streamlining, I mean, look, it's a continuation of so much of what we've done in a lot of what I just said, which is we are going to continue to evaluate our expense base everywhere. We're looking at our margins at a granular level and where we can really unlock some costs and evaluate some of what's been done in the past and perhaps where it doesn't need to be done that way in the future.

Allison Dukes: We have been on a multi-year effort related to facilities and rationalization of office space and I would say call that some usual suspects that you would expect us to be focused on elements like that. That's going to continue.

Andrew Schlossberg: That takes many years to really make a dent and we will continue to do things like that. But it's broader than that and really thinking about how we streamline our business, how do we really think about operating more holistically and a lot of the work that started almost a year ago now. I mean, maybe with that Andrew, if you want to kind of close on some of our thoughts there.

Andrew Schlossberg: Yeah, and Mike, thanks for the question. Look, the simplification efforts in 2023. We believe we're some of the most impactful things that we did that will bear fruit as we go forward here. I think bringing together elements of the investment platform and investment areas, the distribution areas, marketing and product and then allowing our enterprise and operational areas to match off against a much more simplified platform was the goal. I think the areas and investments where we started to bring some things together, it also gives us an opportunity to think about the margins in those businesses and the way that we make money and how to run those strategies and disciplines, not from the investment side, but from the platform side at scale where scales needed, you know, quality enhancement, quality enhancements needed, et cetera. And so this simplified organization helps us in those ways. Great. Thanks so much.

Andrew Schlossberg: So maybe just to wrap up here and closing as we enter 2024. Hopefully, as you can tell, we feel well positioned to help clients navigate the impact of the evolving market dynamics and subsequent changes to their portfolios that we expect. I had the pleasure of meeting with many of our clients around the globe this past year and hearing directly from them is assured me that we really are well positioned across a range of outcomes.

Andrew Schlossberg: And when and as the market sentiment improves, we believe this should translate to even greater scale performance and improve profitability. And finally, I'd like to thank my colleagues around the world, the executive leadership team, our board of directors for their efforts in 2023. You know, they're focused on our clients and our shareholders and their support for a smooth transition during the year. And given the work that we've done to strengthen our ability to anticipate, understand and meet evolving client needs, you know, where I'm truly excited for the future of investment.

Andrew Schlossberg: I want to thank everyone for joining the call today. Please continue to reach out to our investor relations team for any additional questions. And we appreciate all of your interest and investment on look forward to speaking again soon. Thank you. Thank you and that concludes today's conference. You may all disconnect at this time.

Okay.

[music].

Thank you for standing by and welcome to Invesco is fourth quarter earnings Conference call. All participants will be in a listen only mode until the question and answer session at that time to ask a question. Please press star. One this call will last one hour to allow more participants to ask questions. One question and a follow up can be submitted per participant.

As a reminder, today's call is being recorded now I would like to turn the call over to excuse me, Greg that's wrong Invesco as head of Investor Relations. Thank you you may begin.

Greg: Alright, Thanks, operator, and so all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address on the call today. The press release and presentation are available on our website at <unk> Dot Com. This information can be found by going to the Investor Relations section of the website a presentation today will include.

Greg: Forward looking statements and certain non-GAAP financial measures. Please review the disclosures on slide two of the presentation regarding these statements in measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, invesco is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties the only authorized.

Greg: <unk> are located on our website Andrew.

Andrew: Andrew Schlossberg, President and CEO, and Allison Dukes, Chief Financial Officer will present, our results. This morning, and then we'll open up the call for questions I will now turn the call over to Andrew Thanks, Greg and Hello, everyone and I'm pleased to be speaking with you today.

Andrew Ryan Schlossberg: A reversal from the third quarter overall market sentiment in the fourth quarter churn more constructive as investors began to gain confidence putting money back to work in the last several weeks.

Andrew Schlossberg: Calendar year.

Andrew Schlossberg: Equities and fixed income were both beneficiaries of a growing belief that central banks would cut rates sooner in 2020 for the S&P was the best performing major equity index, and while out and while outside the U S. There was solid market growth in Europe, while China continued to lag fixed income markets performed well led by government.

Andrew Schlossberg: As expectations for tightening interest rates earlier in 2024 prevailed.

Andrew Schlossberg: The market volatility and shifting macro trends exhibited this past quarter strengthened our conviction in the areas. We focused on throughout 2023, continuing to reposition invesco to perform through various market cycles and in front of the rapid evolution underway in our industry.

Andrew Schlossberg: As discussed on previous calls, we continue to streamline and simplify the company for the benefit of our clients colleagues and shareholders.

Andrew Schlossberg: Focus of these efforts is to further emphasize long term investment quality strengthen our diverse product offering and build on our value proposition that uniquely meet a broad range of client needs around the world.

Andrew Schlossberg: We're also tightening our financial discipline, which will further enable us to allocate resources to drive innovation and acceleration for the benefits of clients.

Andrew Schlossberg: We're going to continue to leverage our scale to more effectively invest in profitable growth and further strengthen a culture that attracts and retains the top talent in our industry.

Andrew Schlossberg: All our work in each of these areas continues we are making good progress and I'm appreciative of the client focus and dedication of my invesco colleagues around the world.

Andrew Schlossberg: Our results, which are highlighted on slide three of the presentation summarize many of these external and internal factors at play during.

Andrew Schlossberg: During the quarter, we continued to benefit from growth from growing client demand and assets beginning to move off the sidelines in the fourth quarter, we delivered $6 $7 billion in net long term inflows, which is a testament to our advantageous position with deep client relationships strong geographic mix and a broad suite.

Andrew Schlossberg: The end demand solutions.

Andrew Schlossberg: While organic slow growth and improving sentiment drove asset levels higher most of the gains occurred later in the quarter limiting the revenue impact in the fourth quarter, but increasing AUM nearly 7% from.

Andrew Schlossberg: From September 30 levels. Several factors contributed to our strong organic slow growth in the fourth quarter, most notably demand for Etfs in our SMA has continued to drive market share gains in these important product platforms. During the quarter, we achieved $14 billion in positive flows in our ETF factor.

Andrew Schlossberg: <unk> and index capabilities globally and hit a record high of $634 billion in AUM.

Andrew Schlossberg: We also produced our 13th consecutive quarter of positive PLO growth in Sma's as we continue to see strong demand for custom taxed optimized solutions in the U S wealth management channel in particular.

Andrew Schlossberg: The second set of quarterly organic growth drivers, where the return to positive flows in two of our most critical growth areas, our China business as well as the broader Asia Pacific region, and private markets alternatives.

Andrew Schlossberg: While overall sentiment in China remained relatively weak our well established position in the country drove positive organic growth in the fourth quarter. The majority of the slow growth came from the launch of seven new products, which were augmented by equity product sales in existing capabilities strong demand for these new products could signal a more constructive.

Andrew Schlossberg: 2024 in China long term, we remain optimistic about this market and our unique leadership position within it we continue to believe that the Chinese asset management industry will grow and mature in the coming years with the development of the local retirement and capital market systems in the world's second largest economy.

Andrew Schlossberg: In private markets, we generated a net long term inflows led by our stabilization and modest inflow into direct real estate and inflows to credit strategies, notably bank loans, which include Clo's, we have over $6 billion in dry powder to capitalize on opportunities emerging from the market dislocation of the last several quarters.

Andrew Schlossberg: But we will need greater market clarity before we begin to see significant growth shift.

Andrew Schlossberg: Shifting to fixed income, which is a key area of strength for Invesco, we continued to see steady ongoing growth having recorded positive inflows in 19 of the past 20 quarters, leading contributors in the fourth quarter.

Andrew Schlossberg: Included investment grade custom SMA as well as municipal bond strategies as investors gain greater clarity on inflation and central Bank interest rate policy, we expect clients to move to move out of cash and extend the duration profiles of their fixed income allocations into a wider range of strategies as <unk>.

Andrew Schlossberg: Previously highlighted.

Andrew Schlossberg: Fixed income is one of our absolute strengths at Invesco and we remain focused on ensuring we're well positioned to capture an outsized share of this ongoing reallocation.

Andrew Schlossberg: Finally pressure on active equity flows continued in the fourth quarter for both the industry and for Invesco, We continue to emphasize investment quality product differentiation and client engagement to ensure we remain a leading provider in this space with a focus on our end demand capabilities, where we can gain market share.

Despite the continued headwinds we have seen some moderation in certain areas of active equity flows, particularly in global international and emerging market segments. Our net outflows into these important strategies moderated.

Andrew Schlossberg: In 2023 to $1 billion to $2 billion, a quarter significantly lower than what we experienced in 2022.

Andrew Schlossberg: These early signs of reversal had been led by our global equity and income strategy, which achieved top retail selling status in Japan and delivered an incremental $1 $4 billion of net inflows in the fourth quarter. While we are cautiously optimistic about market conditions for 2024, we remain prepared to meet client and shareholder expectations.

Operator: music Thank you for standing by, and welcome to Invesco's 4th Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, please press star 1.

Andrew Schlossberg: Patients across a range of scenarios, we have the breadth of capabilities the discipline to drive performance as well as the organizational structure and focus to ensure we are well positioned to meet evolving client demands.

Operator: This call will last for one hour. To allow more participants to ask questions, one question and a follow-up can be submitted per person. As a reminder, today's call is being recorded. Now, I'd like to turn the call over to Greg Ketron, Invesco's Head of Investment Relations. Thank you. You may begin.

As market sentiment improves this should translate to even greater scale performance and improved profitability with that I'm going to turn the call over to Alison for a closer look at our results and I look forward to your questions. Thank.

All right, thanks, Operator, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address on the call today. The press release and presentation are available on our website, Invesco.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide 2 of the presentation regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website.

Alison: Thank you Andrea and good morning, everyone.

Alison: I'll begin on slide four.

Alison: Okay.

Alison: That's was solid in the fourth quarter was 64% and 71% of actively managed funds in the top half of peers are beating benchmark, that's a three year and a five year basis, respectively.

Alison: And that's my performance improved considerably on a five year basis coming from 65% in the third quarter, 71% in the fourth quarter, reflecting improved performance that we're seeing across several categories, including in U S Global and international equity.

Alison: We continue to have excellent performance in fixed income across nearly all capabilities and time horizons.

Andrew Ryan Schlossberg: Andrew Schlossberg, President and CEO, and Alison Dukes, Chief Financial Officer, will present our results this morning, and then we'll open up the call for questions. I'll now turn the call over to Andrew. Thanks, Greg, and hello, everyone, and I'm pleased to be speaking with you today. In a reversal from the third quarter, overall market sentiment in the fourth quarter turned more constructive as investors began to gain confidence, putting money back to work in the last several weeks of the calendar year. Equities and fixed income were both beneficiaries of a growing belief that central banks would cut rates sooner in 2024. The S&P was the best-performing major equity index, and while outside the U.S., there was solid market growth in Europe while China continued to lag. Fixed income markets performed well, led by government bonds, as expectations for tightening interest rates earlier in 2024 prevailed.

Alison: An important fact, given our strong conviction in our ability to attract flows as investors deploy money in to the strategy.

Alison: Turning to slide five.

Alison: AUM with nearly $1 six trillion at the end of the fourth quarter $100 billion higher than last quarter at.

Alison: The fourth quarter began with weak market in October and then recover against the corner progressed, ending the year with equity and fixed income markets higher versus the third quarter.

Alison: Higher markets, coupled with net long term inflows and favorable foreign exchange business drove the increase in assets under management during the fourth quarter.

Alison: We generated $6 $7 billion of net long term inflows, which was an organic growth rate of two 4% that we expect will once again outperformed peers and what has been a challenging environment for organic asset growth.

Looking at flows by investment approach highest demand for passive capabilities remain strong as we garner nearly one excuse me nearly $14 billion of net long term inflows during the quarter.

Andrew Ryan Schlossberg: The market volatility and shifting macro trends exhibited this past quarter strengthened our conviction in the areas we focused on throughout 2023, continuing to reposition Invesco to perform through various market cycles and in front of the rapid evolution underway in our industry. As discussed on previous calls, we continue to streamline and simplify the company for the benefit of our clients, colleagues, and shareholders. The focus of these efforts is to further emphasize long-term investment quality, strengthen our diverse product offerings, and build on our value proposition that uniquely meets a broad range of client needs around the world. We are also tightening our financial discipline, which will further enable us to allocate resources to drive innovation and acceleration for the benefit of our clients.

Alison: ETF inflows were $12 $4 billion in annualized organic growth rate of 17%, marking this as one of our best quarters for Etfs.

Alison: The S&P 500 equal weight index on once again, let the quarter with $4 $6 billion of net long term inflows.

Alison: This ETF was also a leading player driver for the year nearly $13 billion of implants.

Alison: Q2, Q M E T. After the second highest in fluids, and our ETF suite with over $2 billion for the quarter.

<unk> launched a little over three years ago, and now stands at over $18 billion.

Alison: Making it our third largest ETF outside the Q to Q.

Alison: We demonstrated the ability to sustain growth in etfs throughout the full market cycle with organic growth in 13 of the past 14 quarters.

Andrew Ryan Schlossberg: We're going to continue to leverage our scale to more effectively invest in profitable growth and further strengthen a culture that attracts and retains the top talent in our industry. While our work in each of these areas continues, we are making good progress, and I'm appreciative of the client focus and dedication of my Invesco colleagues around the world. Our results, which are highlighted on slide three of the presentation, summarize many of these external and internal factors at play.

Alison: Setting some of the grants and passive a $7 $2 billion of net outflows in active strategies.

Alison: What's encouraging is that the level of outflows in the fourth quarter with the second lessens the market sell off again in early 2022.

Alison: The lower level of net outflows was driven by growth in active fixed income product led by our custom fixed income SMA, which totaled $2 $1 billion in unpledged.

Andrew Ryan Schlossberg: During the quarter, we continued to benefit from growing client demand and assets beginning to move off the sidelines. In the fourth quarter, we delivered $6.7 billion in net long-term inflows, which is a testament to our advantageous position with deep client relationships, a strong geographic mix, and a broad suite of in-demand solutions. While organic flow growth and improving sediment drove asset levels higher, most of the gains occurred later in the quarter, limiting the revenue impact in the fourth quarter but increasing AUM nearly 7% from September 30. Several factors contributed to our strong organic flow growth in the fourth quarter.

Alison: Regarding active equity strategies, we experienced another quarter of strong growth in Japan, but our Henley global equity and income fund garnering $1 $4 billion of net inflows from Japanese clients.

Alison: This time continues to be the top selling retail fund for the industry in Japan on both the coronary and a year to date basis.

Alison: Active global equity products experienced net outflows of $1 6 billion of which $1 $2 billion came from the developing markets.

The level of outflows from this investment class has declined after significantly elevated redemptions in the second half of 2022.

Alison: Looking at flows by channel the retail channel generated $4 $6 billion of net long term inflows, while our institutional channel had net inflows of $2 $1 billion.

Andrew Ryan Schlossberg: Most notably, demand for our ETFs and our SMAs continues to drive market share gains in these important product platforms. During the quarter, we achieved $14 billion in positive flows into our ETF factor and index capabilities globally and hit a record high of $634 billion in AUM. We also produced our 13th consecutive quarter of positive flow growth in SMAs as we continue to see strong demand for custom tax-optimized solutions in the U.S. Wealth Management Channel, in particular. The second set of quarterly organic growth drivers was the return to positive flows in two of our most critical growth areas, our China business, as well as the broader Asia-Pacific region and private markets alternatives. While overall sentiment in China remained relatively weak, our well-established position in the country drove positive organic growth in the fourth quarter. The majority of the flow growth came from the launch of seven new products, which were augmented by equity product sales in existing capacities. Strong demand for these new products could signal a more constructive 2024 in China.

Alison: Driving the growth in the retail channel with ETF products I noted previously as well as the custom fixed income SMA.

Alison: Growth in the institutional channel resumed after net long term outflows in the third quarter that were driven by the closet global targeted returns redemptions.

Alison: Moving to slide six and fluids by geography Asia Pacific delivered net long term inflows of $5 $8 billion.

Alison: Representing organic growth of 12% driven by growth in Japan, and a resumption of growth in our China joint venture.

Alison: Japan's net long term inflows for $3 billion in the fourth quarter, representing an organic growth rate of 21% driven by the Henley Global equity and then kind of signed as well as fixed income products.

Alison: We believe Japanese markets are seeing the most constructive conditions for risk on assets in many years, and we're well positioned to capture that growth.

Alison: Our China joint venture generated $1 $7 billion in that long term inflows driven by ETF and fixed income strategies.

Alison: Turning to flows by asset class equities generated $8 $3 million and that long term and but mainly driven by the strong growth in ETF.

Andrew Ryan Schlossberg: Long term, we remain optimistic about this market and our unique leadership position within it. We continue to believe that the Chinese asset management industry will grow and mature in the coming years with the development of the local retirement and capital market systems in the world's second largest economy. In private markets, we generated net long-term inflows led by a stabilization and modest inflows into direct real estate and inflows to credit strategies, notably bank loans, which include CLOs.

Alison: Fixed income flows were impacted by our planned bullet share ETF maturity that occur each December which totaled $2 $8 billion. This is an annual occurrence and these outflows are typically offset by new bullet share products launched in the first quarter.

Alison: We're already seeing strong inflows in January.

Alison: Excluding these maturity fixed income and net long term inflows were $2 $9 billion.

Alison: And alternatives, we generated $1 billion of net long term inflows in bank loans, including CLO and $400 million of net long term inflows into direct real estate.

Andrew Ryan Schlossberg: We have over $6 billion in dry powder to capitalize on opportunities emerging from the market dislocation of the last several quarters, but we will need greater market clarity before we begin to see significant growth. Shifting to fixed income, which is a key area of strength for Invesco, we continue to see steady ongoing growth, having recorded positive inflows in 19 of the past 20 quarters. Leading contributors in the fourth quarter included investment grade, custom SMAs, as well as municipal bond strategies. As investors gain greater clarity on inflation and central bank interest rate policy, we expect clients to move out of cash and extend the duration profiles of their fixed income allocations to a wider range of strategies. As previously highlighted, fixed income is one of our absolute strengths at Invesco, and we remain focused on ensuring we're well-positioned to capture an outsized share of this ongoing reallocation. Finally, pressure on active equity flows continued in the fourth quarter for both the industry and for Invesco.

Alison: These inflows were offset by outflows in other products that we classify as alternative products, such as global asset allocation and commodity Etfs.

Alison: We have a strong track record in our private markets platform with alternatives and are well positioned to capture long term flows in this asset class as client demand shifts to these strategies.

Alison: Moving to slide seven secular shifts in client demand across the asset management industry, coupled with more recent market dynamics have significantly changed our asset mix since the acquisition of Oppenheimer.

Alison: Going back to 2019 after the acquisition of Etfs and index AUM, excluding the Q2 to have grown from 171 billion or 14% of our overall $1 two trillion and average AUM in 2019 to 362 billion or 22% of our average AUM of one and a half trillion dollars in the fourth quarter.

In Q2 to a product we are no management fees from but it does provide a substantial marketing benefit has tripled in size over this time selling from 74 million to $230 million or from 6% to 14% of total average AUM.

Andrew Ryan Schlossberg: We continue to emphasize investment quality, product differentiation, and client engagement to ensure we remain a leading provider in this space with a focus on our in-demand capabilities where we can gain market share. Despite the continued headwinds, we have seen some moderation in certain areas of active equity flows, particularly in global, international, and emerging market segments. Our net outflows into these important strategies moderated during 2023 to $1 to $2 billion a quarter, significantly lower than what we experienced in 2022. These early signs of reversal have been led by our global equity and income strategy, which achieved top retail selling status in Japan and delivered an incremental $1.4 billion of net inflows in the fourth quarter. While we are cautiously optimistic about market conditions for 2024, we remain prepared to meet client and shareholder expectations across a range of scenarios.

Alison: We've also seen very strong growth in global liquidity coming from 82 billion or 7% of average AUR.

170 billion or 12% of average AUM in the fourth quarter.

Alison: These products these product areas carrying lower net revenue yields compared to our overall net revenue yield.

Alison: During the same timeframe, we've seen weaker demand for fundamental equities and multi asset products, which carry higher net revenue.

Alison: This has been driven in part by the risk off sentiment that was sparked in early 2022, coupled with the pressure we experienced in developing markets and global equities as well as the closure of our GTR capabilities.

Alison: Our fundamental equity portfolio in 2019 was $348 million or 29% of our average AUR by the fourth quarter that portfolio had declined to 261 billion or 16% of our average num.

Andrew Ryan Schlossberg: We have the breadth of capabilities, the discipline to drive performance, as well as the organizational structure and focus to ensure we are well positioned to meet evolving client demand. As market sentiment improves, this should translate to even greater scale, performance, and improved profitability. With that, I'm going to turn the call over to Allison for a closer look at our results, and I look forward to your questions. Thank you, Andrew, and good morning, everyone.

Alison: Multi asset also declined from 7% to 3% of the average AUR over this timeframe.

Looking at the fourth quarter as compared to the third quarter of 2023, we continue to experience similar dynamics for the ETF going from 21% to 22% and the key G. T O going from 13% to 14% of average AUM, our fundamental equity declined from 17% to 16% and multi asset from 4% to 3% of average AUM in the quarter.

I'll begin on slide four. Overall investment performance was solid in the fourth quarter, with 64% and 71% of actively managed funds in the top half of peers beating benchmarks on both a three-year and a five-year basis, respectively. Investment performance improved considerably on a five-year basis, going from 65% in the third quarter to 71% in the fourth quarter, reflective of improved performance that we're seeing across several categories, including US, global, and international. We continue to have excellent performance in fixed income across nearly all capabilities and time horizons, an important fact given our strong conviction and our ability to attract flows as investors deploy money into these strategies. Turning to slide 5, AUM was nearly $1.6 trillion at the end of the fourth quarter, $100 billion higher than the end of the previous quarter. The fourth quarter began with weak markets in October, then recovered as the quarter progressed, ending the year with equity and fixed income markets higher versus the third quarter.

Alison: Sure.

The resultant revenue headwinds created by these dynamics has weighed on our results over the last four plus years, while we've experienced excellent organic growth and lower fee capabilities like ETF global liquidity, but not enough to offset the revenue loss from higher feed fundamental equity and multi asset outflows.

Alison: Our overall net revenue yield has declined meaningfully during this timeframe, but that decrease that decrease has been driven by the shift in our asset mix not degradation in the yields in our investment strategy.

Alison: Net revenue yields by investment strategy have been relatively stable within the ranges provided on the slide.

Alison: The other point that I want to emphasize is that this multiyear secular shifts in client preferences has been increasingly captured in our results.

Our portfolio is better diversified today than four years ago, and our concentration risk and higher fee fundamental equities and multi asset products has been reduced.

Alison: These dynamics are challenging to manage through as they occur should portend, well for future revenue growth and marginal profitability improvement independent of market great gain further we now have a more diversified business, Max which better positions the firm to navigate various market cycles events and shifting client demand.

Higher markets coupled with net long-term inflows and favorable foreign exchange movements drove the increase in assets under management during the fourth quarter. We generated $6.7 billion in net long-term inflows, which was an organic growth rate of 2.4%, that we expect will once again outperform peers in what has been a challenging environment for organic asset growth. Looking at flows by investment approach, client demand for passive capabilities remains strong as we garnered nearly $14 billion of net long-term inflows during the quarter. ETF inflows were $12.4 billion, an annualized organic growth rate of 17%, marking this as one of our best quarters for ETFs. The S&P 500 Equal Weight Index Fund once again led the quarter with $4.6 billion of net long-term investment.

Turning to slide eight net revenue of $1.05 billion in the fourth quarter was $62 million lower than the fourth quarter of 2022 and $52 million lower than the third quarter of 2023.

Alison: The decline from last year was due largely to a $35 million decline in performance fees and the shift in our asset mix that was just discussed.

Alison: The decline in performance fees, but mainly driven by lower fees generated from real estate related and other private market activity.

Alison: The decline from the prior quarter was primarily due to incremental asset mix shift and lower average assets under management, partially offset by higher performance fees in the quarter.

This ETF was also our leading flow driver for the year with nearly $13 billion of inflows. QQQM ETF threw the second highest inflows in our ETF tweet with over $2 billion for the quarter. The QQ2M was launched a little over three years ago, and now stands at over $18 billion of AUM, making it our third largest ETF outside the QQ2.

Alison: Total adjusted operating expenses in the fourth quarter were $771 million relatively unchanged from the fourth quarter of last year.

Alison: Included in fourth quarter, 2023, or $22 million related to organizational change expenses and $12 million of alpha platform related implementation expenses.

We demonstrated the ability to sustain growth in ETFs throughout the full market cycle with organic growth in 13 of the past 14 quarters, although offsetting some of the growth in passive with $7.2 billion of net outflows and active strategies. What's encouraging is that the level of outflows in the fourth quarter was the second lowest since the market sell-off began in early 2022.

Alison: Adjusting for these items fourth quarter expenses were $32 million lower than the fourth quarter of 2022.

Alison: Total adjusted operating expenses were $18 million lower than the third quarter.

Alison: Specifically looking at employee compensation that has been impacted by the organizational change expenses compensation was $26 million lower than the fourth quarter, which includes $11 million in expense savings related to the organizational changes that will provide more detail on shortly.

The lower level of net outflows was driven by growth in active fixed income products, led by our custom fixed income SMA, which totaled $2.1 billion in inflows. Regarding active equity strategies, we experienced another quarter of strong growth in Japan with our Henley Global Equity and Income Fund, garnering $1.4 billion of net inflows from Japanese clients. This fund continues to be the top-selling retail fund for the industry in Japan on both a quarterly and a year-to-date basis. However, active global equity products experienced net outflows of $1.6 billion, of which $1.2 billion came from the Developing Markets Fund.

Alison: Marketing expenses of $28 million or $6 million lower than the fourth quarter of 2022.

Alison: We continue to tightly manage discretionary spend given given the ongoing challenging revenue environment.

Alison: Property office and technology technology expenses were flat to last year and $4 million higher than last quarter.

Alison: G&A was $19 million higher than last quarter as we typically see higher G&A in the fourth quarter.

Alison: We also had $12 million in spending related to our alpha platform implementation higher than the $8 million incurred in the third quarter due to incremental implementation costs in the fourth quarter.

The level of outflows from this investment class has declined after significantly elevated redemptions in the second half of 2022. Looking at flows by channel, the retail channel generated $4.6 billion of net long-term inflows, while our institutional channel had a net inflow of $2.1 billion. Driving growth in the retail channel were the ETF products I noted previously, as well as the Custom Fixed Income Estimate. Growth in the institutional channel resumed after net long-term outflows in the third quarter that were driven by the global targeted returns redemption. Moving to slide six and flows by geography, Asia Pacific delivered net long-term inflows of $5.8 billion, representing organic growth of 12% driven by growth in Japan and a resumption of growth in our China joint venture. Japan's net long-term inflows were $3 billion in the fourth quarter, representing an organic growth rate of 21% and driven by the Henley Global Equity and Income Fund and fixed income products.

Alison: Going forward, we expect one time implementation cost to be approximately $10 million per quarter in 2024, with some fluctuation quarter to quarter.

Alison: We will continue to update our progress on the implementation and related costs as we move forward.

Alison: Now moving to slide nine we realized $11 million in expense savings in the fourth quarter related to the organizational changes.

Alison: On an annualized basis, we have achieved $44 million or nearly 90% of the $50 million in expense savings, we expect to realize in 2024.

Alison: We expect to realize the remaining $6 million in the first quarter.

Alison: We're not expecting any further significant restructuring costs associated with these efforts the full benefits from our simplification efforts will be seen over time, as we generate revenue growth and margin recovery.

Alison: As we've discussed we manage variable compensation to a full year outcome in line with company performance and competitive industry practices.

We believe Japanese markets are seeing the most constructive conditions for risk on assets in many years, and we're well positioned to capture that growth. Our China joint venture generated $1.7 billion in net long-term inflows driven by ETFs and fixed income strategies. Turning to flows by asset class, equities generated $8.3 billion in net long-term inflows, mainly driven by strong growth in ETFs. Fixed income flows were impacted by our planned bullet share ETF maturities that occur each December, which totaled $2.8 billion. This is an annual occurrence, and these outflows are typically offset by new bullet share products launched in the first quarter, where we are already seeing strong inflows in January. Excluding these maturities, fixed income and net long-term inflows were $2.9 billion.

Alison: Historically, our compensation to net revenue ratio has been in the 38% to 42% range trending towards the upper end of the range in periods of revenue decline.

Alison: Our current AUM levels, we would expect the ratio to be at or slightly above the higher end of this range for 2024.

Alison: Seasonally we see approximately $25 million and higher compensation expenses related to payroll tax and other benefit resets in the first quarter and as a result, we would expect the ratio will exceed 42% during the first half of 'twenty 'twenty four.

Alison: Yeah.

Alison: Moving to slide 10, adjusted operating income was $275 million in the fourth quarter, which included the costs related to organizational changes adjust.

Alison: Adjusted operating margin was 26, 3% for the fourth quarter exclude.

Alison: Excluding the costs related to organizational changes fourth quarter operating margin would've been 210 basis points higher.

In alternative products, we generated $1 million of net long-term inflows into bank loans, including CLOs, and $400 million of net long-term inflows into direct real estate. These inflows were offset by outflows and other products that we classify as alternative products, such as global asset allocation and commodity ETFs. We have a strong track record in our private markets platform with alternatives and are well positioned to capture long-term flows in this asset class as client demands shift to these strategies. Moving to slide seven, secular shifts in client demand across the asset management industry, coupled with more recent market dynamics, have significantly changed our asset mix since the acquisition of Oppenheimer Funds. Going back to 2019, after the acquisition, ETFs and index AUM, excluding Q2Q, have grown from $171 billion, or 14% of our overall $1.2 trillion in average AUM in 2019, to $362 billion, or 22% of our average AUM of $1.5 trillion in the fourth quarter.

Alison: Earnings per share was <unk> 47 in the fourth quarter, excluding the costs related to organizational changes fourth quarter earnings per share would have been four cents higher.

Alison: The effective tax rate decreased to nine 9% in the fourth quarter from 23, 6% last quarter.

Alison: The decrease was primarily due to a discrete tax benefit related to the resolution of certain tax matters.

Alison: Favorable tax treatment related to a gain on sale of certain Hong Kong pension sponsorship rights.

Alison: And the favorable impact of a change in mix of income across tax jurisdictions.

Alison: We estimate our non-GAAP effective tax rate to be between 23 and 25% for the first quarter of 2024.

Alison: The actual effective rate can vary due to the impact of nonrecurring items on pre tax income and discreet tax items.

Speaker Change: I'll conclude on slide 11.

Speaker Change: Our stated priority for us and building balance sheet strength this quarter, our cash balance was $1 $5 billion and we ended the year with nothing drawn on our credit facility we.

Speaker Change: We have lowered our net debt significantly significantly and it now stands near zero.

Speaker Change: We have a $600 million senior note maturing on January 30th and we are in position to redeem the note attorney.

Speaker Change: We estimate we will have approximately $500 million in excess cash and we will draw approximately $100 million on our credit facility to fully redeem the notes.

The QQQ, a product we earn no management fees from, but does provide a substantial marketing benefit, has tripled in size over this time, going from $74 billion to $230 billion, or from 6% to 14% of total average AUM. We've also seen very strong growth in global liquidity, going from 82 billion, or 7% of average AUM, to $170 million, or 12% of average AUM in the fourth quarter. These products and these product areas carry lower net revenue yields compared to our overall net revenue yield.

Speaker Change: The first quarter is a seasonally high cash usage quarter. So we do expect to have a balance on the credit facility at quarter end, which we'll pay down as we move through the second and third quarters and reach our goal of zero net debt.

Speaker Change: We also hope to begin a more regular stock buyback program as we move towards this goal.

Speaker Change: To conclude the resiliency of our firm's net flow performance in a difficult market for organic growth is evident again this quarter and we're pleased with the progress we're making to simplify the organization and build a stronger balance sheet, while continuing to invest in key capability areas where.

During the same time frame, we've seen weaker demand for fundamental equities and multi-asset products, which carry higher net revenue. This has been driven in part by the risk-off sentiment that was sparked in early 2022, coupled with the pressure that we experienced in developing markets and global equities, as well as the closure of our GTR capability. Our fundamental equity portfolio in 2019 was $348 billion, or 29% of our average AUM. By the fourth quarter, that portfolio had declined to $261 billion, or 16% of our average AUM. Multi-asset also declined from 7% to 3% of the average AUM over this time frame.

Speaker Change: We're committed to driving profitable growth and a high level of financial performance and we have the right strategic positioning to do so.

Speaker Change: And with that I'll ask the operator to open up the line for Q&A.

Speaker Change: Yes.

Speaker Change: Okay.

Thank you as a quick reminder, if you'd like to ask a question from the phone lines. Please press Star then one.

Speaker Change: Remember to mute your phone and record your name clearly when prompted.

Speaker Change: If you'd like to withdraw your question. Please press star two one moment for our first question.

Speaker Change: Okay and our first question comes from Glenn Schorr with Evercore. Your line is open.

Glenn Schorr: Hi, Thank you.

Glenn Schorr: I'm curious you said something very intriguing towards the beginning you spent so do you expect our clients to move out of cash into longer duration fixed income at some point and I think a lot of us have been.

Looking at the fourth quarter as compared to the third quarter of 2023, we continue to experience similar dynamics with ETFs going from 21 to 22% and the QG2 going from 13 to 14% of average AUM, while fundamental equities declined from 17 to 16% and multi-assets from 4% to 3% of average AUM in the quarter. The results of revenue headwinds created by these dynamics have weighed on our results over the last four-plus years. While we've experienced excellent organic growth in lower-fee capabilities like ETFs and global liquidity, it was not enough to offset the revenue loss from higher-fee fundamental equity and multi-asset outflows. Our overall net revenue yield has declined meaningfully during this time frame, but that decrease has been driven by the shift in our asset mix, not a degradation in the yield of our investment strategy. Net revenue yields by investment strategy have been relatively stable within the ranges provided on the slide.

Waiting on that you saw some fixed income flows, but a lot more money market outflows last couple of quarters, I'm curious, where the money market outflows going in general.

Glenn Schorr: And how do we determine the cash sitting on the sidelines is actually waiting to move out versus it's just treasuries and money markets that used to sit in kashi, meaning is it just another cash alternative or is it actually waiting.

Glenn Schorr: Hope that makes sense.

Speaker Change: Yes, It does let me start and Alison can pick up.

Alison: It's a little of both so some of the money market flows out of Invesco.

Alison: Our business is largely corporate treasurers, but theyre buying T bills directly so I wouldn't look at that as a great indicator from from Invesco.

Alison: We're out talking to clients and we're looking at where flows are going early signs have been clearly into etfs, which might be telling you a little bit about conviction and maybe the lack there of full conviction and then on the fixed income side.

Alison: Active and otherwise starting to move into municipal bonds in particular are some investment grade strategies.

The other point that I want to emphasize is that this multi-year secular shift in client preferences has been increasingly captured in our results. Our portfolio is better diversified today than four years ago, and our concentration risk and higher fee fundamental equities and multi-asset products have been reduced. These dynamics, though challenging to manage through as they occur, should bode well for future revenue growth and marginal profitability improvement, independent of market gains. Further, we now have a more diversified business mix, which better positions the firm to navigate various market cycles, events, and shifting client demands. Turning to slide eight, net revenue of $1.05 billion in the fourth quarter, $62 million lower than the fourth quarter of 2022 and $52 million lower than the third quarter of 2023. The decline from last year was due largely to a $35 million decline in performance fees and the shift in our asset mix that was just discussed. The decline in performance fees was mainly driven by lower fees generated from real estate-related and other private market activities.

Alison: Europes picking up a little bit, but I'd say, it's pretty early days.

Alison: On assets moving off the sidelines.

Alison: Maybe just to put a finer point on our money market products in particular, our liquidity products at our client base. There is about 85% institution also when we see fluctuations and some of those balance as it is to Andrew's point really corporate treasurers, taking advantage of the increase in T bill rates and moving out of money markets and the T Bill and it is.

Alison: About 15% retail, which is where and of course on the institutional side, they're just limited to where they're gonna go so they're gonna stay and <unk>.

Alison: Cash yielding kind of products, there and the retail side, the smaller component of our of our client base there.

Speaker Change: Makes sense.

So you use in that revenue yield slide you showed us to come down and you talked about not degradation of product pricing, but just mix shift.

Speaker Change: With the market's up so much average assets.

Speaker Change: And the gas is way above the average assets how much of that revenue yield pick up could we see coming back the other way and in the first quarter I'm not sure you've gone through that math, yet, but obviously markets are up a bunch.

Speaker Change: Yeah, no. They are for sure and I mean, the exit rate for a net yeah, but net revenue yield will be and what modestly higher coming in to the first quarter I E.

The decline from the prior quarter was primarily due to incremental asset makeshift and lower average assets under management, partially offset by higher performance fees in the quarter. Total adjusted operating expenses in the fourth quarter were $771 million, relatively unchanged from the fourth quarter of last year. Included in fourth quarter 2023 are $22 million related to organizational change expenses and $12 million of alpha platform related implementation expenses. Suggestions for these items, fourth quarter expenses were $32 million lower than the fourth quarter of 2022. Total adjusted operating expenses were $18 million lower than in the third quarter.

Speaker Change: The delay in frankly in the market pick up in the fourth quarter didn't do much for revenue as you can see them and but it does portend well for just the average AUR mix coming into the quarter and it does give us the net revenue yield coming into the corner, that's modestly higher than the exit you know call. It.

Speaker Change: Two tenths of a basis point, there I'm, so very modestly higher.

Speaker Change: I think within those asset categories that we showed on that page. It is it's really the mix within there as well as the mix between those category. So one of the.

Speaker Change: One of the elements of our revenue performance in the quarter was even in our net revenue yield within our passive capabilities and you saw our net revenue yield in passive decline about a basis point inside of the quarter as well, which really speaks to and where client demand was in the quarter largely for some of our lower fee products there like that.

More specifically, looking at employee compensation that has been impacted by organizational change expenses, compensation was $26 million lower in the fourth quarter, which includes $11 million in expense savings related to the organizational changes that I'll provide more detail on shortly. Marketing expenses of $28 million, or $6 million lower than the fourth quarter of 2022 as we continue to tightly manage discretionary spend given the ongoing challenging revenue environment. Property office and technology technology expenses were flat compared to last year and $4 million higher than last quarter.

Speaker Change: Keith UQM in the S&P 500 equal weight product that I noted earlier. So we do continue to see strong client demand its hard to predict where the client demand will be and the first quarter and that has a huge impact on our revenue.

Speaker Change: As being equal, though the the market run has been helpful.

Speaker Change: Only thing I'd add in and you're seeing it as well I'm sure the broadening out of the markets and as Alison mentioned earlier.

Speaker Change: Greater diversification in our in our overall portfolio of client assets.

It puts us in a position under any kind of market environment, where we think were relatively well positioned.

DNA was $19 million higher than last quarter, as we typically see higher DNA in the fourth quarter. We also had $12 million in spending related to our alpha platform implementation, higher than the $8 million incurred in the third quarter due to incremental implementation costs in the fourth quarter. Going forward, we expect one-time implementation costs to be approximately $10 million per quarter in 2024, with some fluctuation quarter to quarter. We will continue to update our progress on the implementation and related costs as we move forward. Now, moving to slide nine, we realized $11 million in expense savings in the fourth quarter related to the organizational changes. On an annualized basis, we have achieved $44 million, or nearly 90% of the $50 million in expense savings we expect to realize in 2024. We expect to realize the remaining $6 million in the first quarter. We're not expecting any further significant restructuring costs associated with these changes.

Speaker Change: Alright, thanks, Thanks for all that I appreciate it.

Speaker Change: Glen.

Speaker Change: Our next question comes from Daniel Fannon with Jefferies. Your line is open.

Daniel T. Fannon: Oh. Thanks, Good morning wanted to follow up on slide seven and talk a bit more about the alternatives and private markets.

Daniel T. Fannon: It makes them a quarter in more prospectively, how you were thinking about.

Potential growth in that business, considering the broader alts bucket has been seen the outflows for you, but yet I think there are some underlying trends that could you talk about seeing some inflows, but I'm curious to get a little bit more of an update.

Speaker Change: So let me start with just maybe an update on the flows.

So I think we noted modest inflows on the direct real estate side, so about $400 million and again, that's really divestitures net of acquisitions and so we continue to see some modest improvement which is nice to see just given some of the challenges on the real estate market on the.

Speaker Change: The private credit side, we saw about $1 $2 billion of inflows and again, our business Theres only about $42 billion. So relatively nice pickup in flows there that was primarily driven by bank loans and CLO.

The full benefits from our simplification efforts will be seen over time as we generate revenue growth and margin recovery. As we've discussed, we manage variable compensation to a full year outcome in line with company performance and competitive industry practices. Historically, our compensation to net revenue ratio has been in the 38 to 42% range, trending towards the upper end of the range in periods of revenue decline. At current AUM levels, we would expect the ratio to be at or slightly above the higher end of this range for 2024. Seasonally, we see approximately $25 million in higher compensation expenses related to payroll tax and other benefit receivables in the first quarter.

Speaker Change: Inflows into our distressed credit capabilities as well.

Speaker Change: That that's all on the private side and that was largely offset by outflows on the public alternative side and that's driven by commodity Etfs listed real estate and global asset allocation that I noted on the call I missed it.

Speaker Change: You've got a bit of a mix in our alternative strategies are again with the board.

Speaker Change: Good gains on the private side being offset by some outflows on the public alternative strategies and as we look forward. We continue to view private markets and alternatives is one of our best opportunities as Alison said on the credit side about 45 billion in assets and on the private real estate side, another 70 billion.

And as a result, we would expect the ratio will exceed 42% during the first half of 2024. Moving to slide 10, adjusted operating income of $275 million in the fourth quarter, which included the costs related to organizational change. Adjusted operating margin was 26.3% for the fourth quarter. Excluding the costs related to organizational changes, the fourth quarter operating margin would have been 210 basis points higher. Earnings per share was $0.47 in the fourth quarter; excluding the costs related to organizational changes, fourth quarter earnings per share would have been $0.04 higher. The effective tax rate decreased to 9.9% in the fourth quarter from 23.6% last quarter.

Speaker Change: And assets.

Speaker Change: You are seeing some moderation of flows and some positive gains as Alison mentioned, we're good for us to see in this environment I think if we take the long term view, what we've been very focused on over the last several years is diversifying from a largely institutional base into a wealth management base and the issuance of our non traded REIT.

Speaker Change: Credit real estate credit strategies, and other sort of distressed and direct lending strategies, both into institutional, but probably more impactful into retail.

Speaker Change: We continue to see as a great long term opportunity for us.

Speaker Change: Understood.

Speaker Change: Just switching to expenses.

The decrease was primarily due to a discrete tax benefit related to the resolution of certain tax matters, favorable tax treatment related to a gain on the sale of certain Hong Kong pension sponsorship rights, and the favorable impact of a change in the mix of income across tax jurisdictions. We estimate our non-GAAP effective tax rate to be between 23 and 25% for the first quarter of 2024. The actual effective rate can vary due to the impact of non-recurring items on pre-tax income and discrete tax items.

Speaker Change: I understand some of your comments, but maybe also if you could talk to the State Street project is the goal to ultimately reduce expenses or just flat.

Speaker Change: Get flatter growth going forward. So just want to understand the components post the $10 million a quarter you mentioned for this year and then underneath that how we should think about the general growth rate of kind of our G&A and other.

Speaker Change: The expense items for the year in terms of inflation or other factors.

Speaker Change:

Speaker Change: Let me, let me start with Alpha and if you think back around the implementation cost for last few quarters. They have been growing so we it was 7 million in the second quarter $8 million in the third quarter $12 million in this most recent quarter and then our guide was to roughly $10 million a quarter per quarter throughout 2024, there will be fluctuations.

I'll conclude on slide 11. The stated priority for us is building balance sheet strength. This quarter, our cash balance was $1.5 billion, and we ended the year with nothing drawn on our credit facility.

We have lowered our net debt significantly, and it now stands near zero. We have a $600 million senior note maturing on January 30th, and we are in position to redeem the note at maturity. We estimate we'll have approximately $500 million in excess cash, and we'll draw approximately $100 million on our credit facility to fully redeem the note. The first quarter is a seasonally high cash usage quarter, so we do expect to have a balance on the credit facility at quarter end, which will be paid down as we move through the second and third quarters and reach our goal of zero net debt. To conclude, the resiliency of our firm's NetFlow performance in a difficult market for organic growth is evident again this quarter, and we're pleased with the progress we're making to simplify the organization and build a stronger balance sheet while continuing to invest in key capability areas. We are committed to driving profitable growth and a high level of financial performance, and we have the right strategic positioning to do so. And with that, I'll ask the operator to open up the line for Q&A. Thank you. As a quick reminder, if you'd like to ask a question from the phone lines, please press star then 1. Remember to unmute your phone and record your name clearly when prompted.

Speaker Change: And it is not precise we are deep into implementation and so there is going.

Speaker Change: Going to be some variability and some uncertainty quarter to quarter, but I think the $10 million expectation is reasonable with what we know today. The expectation is we are building to a peak and then there are expenses that will be coming out the other side, so and that is 2025 and beyond so we're not ready to give you.

Speaker Change: No exact guidance on that yet, but it isn't just a flattening out it is building to a peak and then there are some expenses that start to come back down as implementation costs fade and there are some the ability to continue to rationalize and streamline some of our systems, which will lead to some expense rationalization on the other side.

Speaker Change: You know and it's a reminder that is as much about the whole the whole effort is as much about really eliminating the duplicate keisha and a systems and some of the heavily customized processes that we have today and really more moving towards a single operating model. So streamline our operations and accelerate some of what we can deliver from a client experience.

Speaker Change: Perspective.

Speaker Change: I think you mentioned some of the other expense line items, maybe let me touch on some of those.

Speaker Change: Note that G&A was seasonally high in the fourth quarter, and so I would expect that to be a bit lower in the first quarter up from a compensation expense perspective, as we noted there's always seasonality in the first quarter, we typically expect to see compensation expense about $25 million.

Operator: If you'd like to withdraw your question, please press star 2. One moment for our first question. Okay, now our first question comes from Glenn Schorr with Evercore. Your line is open. Hi, thank you.

Speaker Change: Higher in the first quarter for <unk>.

Speaker Change: Taxes, FICA and the like.

Andrew Ryan Schlossberg: I'm curious, you said something very intriguing at the beginning; you said you expect clients to move out of cash into longer-duration fixed income at some point, and I think a lot of us have been waiting for that. You saw some fixed income flows, but a lot more money market outflows in the last couple of quarters. I'm curious, where are the money market outflows going in general? And how do we determine whether the cash sitting on the sidelines is actually waiting to move out versus it's just treasuries and money markets that used to sit in cash, meaning is it just another cash alternative or is it actually waiting? I hope that it does. Let me start, and Allison can pick it up.

Speaker Change: But we also expect to fully realize our $50 million and expense savings. So there's another $6 million that we expect will be realized in the first quarter and all of that is of course, assuming flat markets at 12, 31 et cetera et cetera.

Speaker Change: But hopefully that gives you some color as it relates to the primary driver of Alpha Ah seasonality of G&A coming back down seasonality in compensation expense going up modestly, but that's offset by the realization of our expense savings.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Speaker Change: Oh, Thank you and our next question comes from Ken Worthington with JP Morgan. Your line is open hi.

Andrew Ryan Schlossberg: It's a little of both. So some of the money market flows out of Invesco, and our business is largely, you know, corporate treasurers. They're buying T-bills directly, so I wouldn't look at that as a great indicator from Invesco. As we're out talking to clients and we're looking at where flows are going, early signs have been clearly into ETFs, which might be telling you a little bit about conviction and maybe the lack there of full conviction. And then on the fixed income side, active and otherwise, starting to move into municipal bonds in particular, some investment grade strategies. Europe's picking up a little bit, but I'd say it's pretty early days for assets moving off the sidelines. Maybe just to put a finer point on our money market products, in particular, our liquidity products, our client base there is about 85% institutional. So when we see fluctuations in some of those balances, it is, to Andrew's point, really corporate treasurers taking advantage of the increase in T-bill rates and moving out of money markets into T-bills. It is only about 15% retail, which is where, of course, on the institutional side, they're just limited as to where they're going to go.

Kenneth B. Worthington: Hi, Thanks for taking my question I wanted to pulp of margins on slide 10, excluding didn't usual items margins in <unk> 23 for the lowest level on the page can you give us some color as to how business mix is impacting margins to what extent is margin pressure being <unk>.

Kenneth B. Worthington: Impacted by growth of lower feed lower margin businesses.

Kenneth B. Worthington: Slow or negative growth in higher margin higher fee businesses.

Kenneth B. Worthington: It used to be some of the non U S businesses were the highest margin at this point can you kind of call out what are your highest margin and lowest margin businesses.

Speaker Change: Sure, let me take a stab at that so yes, you are correct the fourth quarter I'm, adding back severance expenses would be our lowest quarter and so what is impacting that.

Speaker Change: It's business mix before I go to a businessman I will also note just from an underlying expense base standpoint keep in mind for all the years prior to the last three quarters. On this chart, we had T. I R. As a line item and there was a significant amount of our expense base that with NTIA arent. So our expense base has been fully loaded for the last three quarters.

So they're going to stay in cash-yielding kinds of products there. The retail side is a smaller component of our client base there. It makes sense.

Speaker Change: Of all these I'll say implementation costs. So that is part of the pressure on margins. Although it is not the whole story of the business make story and the degradation in revenue is absolutely absolutely part of the story as well mm business mix is a big driver of it as you continue to see the shift in our business mix as we highlighted on page seven are from fundamental eco.

So in that revenue yield slide, you showed us the comedown, and you talked about not the degradation of product pricing, but just a makeshift. With the markets up so much, average assets, and ending assets wave above average assets. How much of that revenue yield pickup could we see coming back the other way in the First Quarter? I'm not sure you've gone through that math yet, but obviously, markets are up a bit. Yeah, no, they are for sure.

Speaker Change: And to some of our lower fee capabilities, including Etfs and index.

Speaker Change: Even global liquidity to some extent as well and then within that as I noted I'm, even within those passive capabilities you see some business mix pressure and just in the most recent couple of quarters with the strong demand for products like the S&P 500 equal weight in acute UQM as opposed to commodity Etfs bank loans and some of the other higher fee.

And I mean, the exit rate for net revenue yield will be, it was modestly higher coming into the first quarter. I mean, the delay, frankly, in the market pickup in the fourth quarter didn't do much for revenue, as you can see, and but it does pretend well for just the average AUM mix coming into the quarter.

Speaker Change: Capabilities that would be within that asset category.

Speaker Change: So it is business mix among the categories and within the categories in terms of margins and margins are you sort of by region are relatively consistent and I think it's worth noting.

And it does give us a net revenue yield coming into the quarter that's modestly higher than the exit, you know, call it. I think within those asset categories that we showed on that page, it is really the mix within there as well as the mix between those categories. So one of the elements of our revenue performance in the quarter was even our net revenue yield within our passive capabilities. And you saw our net revenue yield in passive decline by about a basis point inside of the quarter as well, which really speaks to where client demand was in the quarter, largely for some of our lower fee products there, like the QQQM and the S&P 500 equal weight product that I noted earlier. So we do continue to see strong client demand. It's hard to predict where client demand will be in the first quarter, and that has a huge impact on our revenue.

Speaker Change: China, we've often pointed to our margins there what you can look out and see really as you add back the joint venture there are higher than the firm average.

Speaker Change: We they are modestly lower now with the implementation of the regulatory mandated fee cuts in China, which we have noted.

Speaker Change: That the margins are still stronger than the affirm average and so very attractive very positive and our positioning there and our growth rate. There, we're very optimistic there, but modestly lower than it would have been previously in the fourth quarter was our first full quarter of the.

Realization of those fee cap fee cuts, which has an overall impact of about $10 million per quarter in revenue.

Great. Okay. Thank you very much.

Speaker Change: Thank you Ken.

Andrew Ryan Schlossberg: All things being equal, though, the market run has been helpful. The other thing I'd add, and you're probably seeing it as well, the broadening out of the markets, and, as Allison mentioned earlier, the greater diversification in our overall portfolio of client assets, puts us in a position under any kind of market environment where we think we're relatively well positioned. Thanks. Thanks for all that. Thanks, Glenn.

Speaker Change: Thank you. The next question comes from Bill Katz with TD Cowen Your line is open.

William Katz: Okay. Thank you very much for taking the questions. This morning, maybe to mix it up a little bit I was wondering if you could just sort of expand a little bit on where you stand with your relationship with massmutual and the opportunity to potentially accelerate growth either into the alternatives segment or perhaps even on a building out some retail democratization products.

Speaker Change: Hey, Bill Thanks for the question.

Speaker Change: Maybe just to refresh everyone's memory mass mutual in addition to owning.

Glenn Schorr: Thank you. Our next question comes from Daniel Fannon with Jefferies. Your line is open. Thanks. Good morning.

Speaker Change: Owning our comment and being a preferred shareholder has about $12 billion invested with us across.

I wanted to follow up on slide seven and talk a bit more about the alternatives and private markets dynamics in the quarter and, more prospectively, how you were thinking about the potential growth in that business, considering the broader alts bucket has been seeing outflows for you. But, yet, I think there are some underlying trends. I think you've talked about seeing some inflows, but I'd be curious to get a little bit more of an update. So, let me start with just maybe an update on the flows. So I think we noted modest inflows on the direct real estate side, so about $400 million. And again, that's really divestiture net of acquisitions. And so we continue to see some, you know, modest improvement, which is nice to see, just given some of the challenges in the real estate market. On the private credit side, we saw about $1.2 billion of inflows.

Speaker Change: Broker dealer annuities sub advised.

Speaker Change: General account.

Speaker Change: Oh capabilities.

Speaker Change: One of the most important parts of that has been the $3 billion. They have invested into the seeding and co investment of many of our private market strategies in particular, the ones, we've been bringing the wealth management over the last several years and so it's a very very important partner in that regard.

Speaker Change: And that's a multiple of three times, what we carry on our own balance sheet.

Speaker Change: Around those sorts of strategies. So our opportunity is to continue to to develop the relationship there are something we're focused on although.

Speaker Change: A lot of that growth has come already I think the second area is just taking our relationship further.

Speaker Change: Where it makes sense on their on their insurance platform with things like our alternative strategies models SMA is in Etfs.

Again, our business there is only about $42 billion, so relatively nice pick-up inflows there. That was primarily driven by bank loans and CLOs, and some modest inflows into our distressed credit capabilities as well. That's all on the private side, and that was largely offset by outflows on the public alternative side.

Speaker Change: And then select fixed income and equity products and we're well placed there, but we're continuing to look for opportunities and ways to to grow effectively. So it's an important partnership on many levels.

Maybe just to follow up on capital so it sounds like you're in a much better spot just in terms of re engaging on buyback Alison or you expect them to be able to buy back stock in concert with carrying the line of credit or do you need to get on the other side of that before you would restart our buyback and then more broadly what kind of payout rates should we be thinking about now that your earnings.

And that's driven by commodity ETFs, listed real estate, and global asset allocation that I noted on the call. And so you've got a bit of a mix in our alternative strategies, again, with good gains on the private side being offset by some outflows on the public alternative strategies. And as we look forward, we continue to view private markets and alternatives as one of our best opportunities. As Allison said, on the credit side, about $45 billion in assets, and on the private real estate side, another $70 billion in assets.

Speaker Change: The more diversified and the earnings power is higher.

Speaker Change: I all good questions and I would say short answer is yes, we'd like to be on the other side of and we're very committed to getting our net debt down to zero and that has been our stated goal of ours and something we've been working closely.

Speaker Change: In concert with our board on achieving a stronger balance sheet and so as we approach that and we look forward to having conversations with the board and evaluating the opportunity to reengage them and more regular share buybacks I think our payout ratio.

Andrew Ryan Schlossberg: And, you know, seeing some moderation of flows and some positive gains, as Allison mentioned, was good for us to see in this environment. I think if we take the long-term view, what we've been very focused on over the last several years is diversifying from a largely institutional base into a wealth management base. And the issuance of our non-traded REIT, real estate credit strategies, and other sorts of distressed and direct lending strategies, both into institutional but probably more impactfully into retail, we continue to see as a great long-term opportunity.

Speaker Change: We'd stay kind of modestly in that 40% to 60% range as it has been in the past I think that's a reasonable range for us to operate in as we think about those modestly increasing the common dividend each year as well as buying back stock, but we are you know a couple of quarters away from where we want to be there just given the seasonality of <unk>.

Speaker Change: Cash needs that are before us over the next few months.

Speaker Change: We are within sight for the first time in a long time and we're really pleased about the progress, we're making with the balance sheet and just the growth in cash and where the debt is heading so it does feel like for the first time in a long time, we're kind of getting back and to a position where we can be a lot more opportunistic and then we've been able to be in the last few years.

And then just switching to expenses, I understand some of your comments, but maybe, Allison, if you could talk to the State Street project, is the goal to ultimately reduce expenses or just flatten, get flatter growth going forward? So just want to understand the components after the $10 million a quarter you mentioned for this year. And then underneath that, how we should think about the general growth rate of kind of G&A and other expense items for the year in terms of inflation or other factors. Let me start with Alpha, and if you think back around the implementation costs for the last few quarters, they have been growing, so it was $7 million in the second quarter, $8 million in the third quarter, $12 million in this most recent quarter, and then our guide was to roughly $10 million per quarter throughout There will be fluctuations because it is not precise.

Speaker Change: Thank you.

Speaker Change: Thank you and our next question comes from Mike Brown with K B W. Your line is open.

Michael Carrier: Great. Thank you for taking my questions maybe.

Michael Carrier: Maybe just a quick follow up on that on that last question on capital allocation and the buybacks.

Michael Carrier: As you get further along on your goals on the balance sheet.

Michael Carrier: Do you expect M&A to kind of come back into the equation, you don't not necessarily large M&A, but perhaps maybe more on the bolt on side as you think about adding capabilities and perhaps you know altering the strategic asset mix.

Michael Carrier: As you start to look out to say 2025.

Michael Carrier: Yeah, Hey, it's Andrew at the moment the focus is.

We are deep into implementation, and so there is going to be some variability and some uncertainty quarter to quarter, but I think the $10 million expectation is reasonable with what we know today. The expectation is that we are building to a peak, and then there are expenses that will be coming out the other side, and that is 2025 and beyond, so we are not ready to give exact guidance on that yet, but it is not just flattening out. It is building to a peak, and then there are some expenses that start to come back down as implementation costs fade, and there is the ability to continue to rationalize and streamline some of our systems, which will lead to some expense rationalization on the other side. And as a reminder, that is as much about, and the whole effort is as much about, really eliminating the duplication of systems and some of the heavily customized processes that we have today and really moving towards a I think you mentioned some of the other expense line items. Let me touch on some of those.

Michael Carrier: Very very much on the organic side.

Michael Carrier: The priorities around the balance sheet and the uses of cash as Alison described.

Michael Carrier: Stay true.

Michael Carrier: You know as we have described in the past the place where we see opportunity for us to add on in time for the right situation opportunity would would likely be in that private market space.

Michael Carrier: As extensions to the things that we already believe we do well today and could continue to grow both organically and inorganically and that would be in the real asset space and in the in the private credit areas, but for now very focused on the work we have to do organically.

Speaker Change: Okay, great. That's good to hear that you've heard this change gears to the developing markets fun you yet black performance has improved there that product is still out flowing.

Speaker Change: Assuming that performance can continue to improve I guess my question is what causes client interests to really come back to this fund just given that it seems like investors sentiment and interest in EM strategies, just kind of remains tepid is this going to be more about a kind of lower redemption story kind of narrowing on the redemptions or can that eventually trends.

To more of a growth story.

Speaker Change: Yeah look I think you outlined the question well, it's probably a bit of both I mean, the first thing is continue to strengthen the investment performance there.

I noted that G&A was seasonally high in the fourth quarter, and so I would expect that to be a bit lower in the first quarter. From a compensation expense perspective, as we noted, there's always seasonality in the first quarter. We typically expect to see compensation expense about $25 million higher in the first quarter for taxes, FICO, and the like, but we also expect to fully realize our $50 million in expense savings, so there's another $6 million that we expect will be realized in the first quarter. All of that is, of course, assuming flat markets at 1231, et cetera, et cetera, but hopefully that gives you some color that relates to the primary Great, thank you.

Speaker Change: We're a known as you know and unknown emerging market's manager well known in the spirit space well placed in the wealth management channels. So the things we can control our investment quality, what we have started to see a bit as the redemption picture <unk>.

Speaker Change: Improve and that's sort of early signs I think youre, not really going to see a material uptick in gross sales and until you see more demand come back in the marketplace from investors.

Speaker Change: It's we've been waiting for that moment, and we havent seen it are difficult to predict but it's an important category as is more broadly what we're doing in international equities and global equities where are those.

He says well had been under some pressure our performance has improved materially redemption rates declining, but the same comment on the gross sales side.

Yeah.

Speaker Change: Okay. Thank you Andrew.

Speaker Change: Thank you and our next question comes from Brennan Hawken with UBS. Your line is open.

Thank you. Our next question comes from Ken Worthington with J.P. Morgan. Your line is open.

Brennan Hawken: Hi, good morning, Thanks for taking my questions Allison I appreciate the color on <unk> expense, but you know when we're thinking about full year 2024 is the right base I wish to grow off of that 3 billion and six are that's just for some of the charges and and you know how should we.

Hi, thanks for taking my question. I wanted to follow up on margins on slide 10. Excluding the unusual items, margins in 4Q23 were the lowest level on the page.

Can you give us some color as to how business mix is impacting margins? To what extent is margin pressure being impacted by growth of lower-fee, lower-margin businesses and slower or negative growth in higher-margin, higher-fee businesses? And I know it used to be that some of the non-U.S. businesses were the highest-margin businesses. At this point, can you kind of call out what are your highest-margin and lowest-margin businesses? Sure, let me take a stab at that.

Brennan Hawken: Think about it.

Allison Dukes: Are you able to keep that flat or is that gonna be having some positive pressure here through 2024.

Speaker Change: Yeah. Good morning Brennan good question.

Speaker Change: Yes, if you look at the expense base and 23 adjusted for the severance and retirement expenses that we incurred in 'twenty, three which we arent anticipating at this point more of in 'twenty, four and when I look at our 24 expectations relative to where the markets are and where we ended the year in a U M. The usual caveat.

So yes, you are correct, the fourth quarter, adding back severance expenses, would be our lowest quarter. And so what is impacting that? Certainly, it's business mix. Before I go to business mix, I will also note, just from an underlying expense base standpoint, keep in mind that for all the years prior to the last three quarters on this chart, we had TIR as a line item, and there was a significant amount of our expense base that was in TIR. And so our expense base has been fully loaded for the last three quarters, inclusive of all the DALFA implementation costs.

Speaker Change: All things being equal I would say, we expect the expense base to be flat to 23 two.

Speaker Change: Well, it's been very very modestly, perhaps higher but you know what I'm going to call. It just flat plus map.

Speaker Change: And that importantly in 'twenty, three and excuse me in 'twenty four is inclusive of a full year about all four quarters No T. I R. So it is a four quarter, no ti or ear as compared to a three quarter at year end last year inclusive of some of the inflationary pressures merit increases and the like so.

So that is part of the pressure on margins, although it is not the whole story. The business mix story and the degradation in revenue are absolutely part of the story as well. Business mix is a big driver of it, as you continue to see the shift in our business mix, as we highlighted on page seven, from fundamental equities into some of our lower fee capabilities, including ETFs and index, and even global liquidity to some extent as well. And within that, as I noted, even within those passive capabilities, you see some business mix pressure just in the most recent couple of quarters with the strong demand for products like the S&P So there is business mix among the categories and within the categories. In terms of margins, margins sort of by region are relatively consistent.

Speaker Change: And we did a lot of work on our expense base last year, we've got a lot going on as it relates to alpha implementation costs in the $10 million per quarter guide, we put out there all of those things taken into account, we're expecting relatively flat this year.

Speaker Change: Okay. Thanks for that color I appreciate it.

And I'll I'll I'll note with that with some of where we are.

Speaker Change: And the markets some of what we've seen in terms of the appreciation in average a U M exiting the fourth quarter and coming into this year. We are optimum optimistic that we start to see modest improvement in operating margin from here.

Speaker Change: Thanks for taking my question.

Speaker Change: Thanks, Brendan and our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Brian Bedell: Hi, great. Thanks, Good morning folks thanks for taking my questions.

I think it's worth noting, you know, in China, we've often pointed to our margins there, which you can look at and see, really, as you add back the joint venture there, are higher than the firm average. They are modestly lower now with the implementation of the regulatory mandated fee cuts in China, but we have noted that the margins there are still stronger than the firm average and still very attractive, very positive in our positioning there and our growth rate there. We're very optimistic there, but modestly lower than we would have been previously. And the fourth quarter was our first full quarter of the realization of those fee cuts, which had an overall impact of about $10 million per quarter in revenue. Great Okay. Thank you very much.

Brian Bedell: He just switch the conversation to the triple Q a franchise.

Brian Bedell: I guess, there's as you know obviously that's a non.

Brian Bedell: The earning products, but do you think about monetizing that coal franchise.

Brian Bedell: Can you talk about how you think you might be able to monetize that asset base I think obviously triple QM is I think 20 billion in AUM and triple cues no more than 10 X that.

Speaker Change: First of all the 15 bps on Triple QM is that also the asset and revenue yield or is that just the expense ratio.

Speaker Change: And then how do you think about potentially or are there opportunities to effectively try to cannibalize the triple Q in favor of developing.

Speaker Change: A more.

Speaker Change:

Thank you, Ken. I think the next question comes from Bill Katz with TD Cowen. Your line is open. Okay, thank you very much for taking the questions this morning. Maybe to mix it up a little bit, I was wondering if you could just sort of expand a little bit on where you stand with your relationship with MassMutual and the opportunity to potentially accelerate growth either into the alternative segment or perhaps even on building out some retail democratization products. Hey Bill, thanks for the question.

Speaker Change: Our fee bearing.

Speaker Change: Q franchise, that's the basketball.

Speaker Change: Great questions and precisely the topic, we spend a lot of time talking about thinking about and really working on as a team and that that keeps your T O as a tremendous asset for us and the brand awareness, but that creates can't be underestimated.

Speaker Change: The opportunity that creates for us in terms of the marketing budget that comes from that all of our AD campaign. The brand work. We do is really fueled by the keep Q2 and so it's a it is a tremendous asset to us and it is certainly unique in nature and that's the value. It creates so we have to be very thoughtful.

Andrew Ryan Schlossberg: Maybe just to refresh everyone's memory, MassMutual, in addition to, you know, owning our common and being a preferred shareholder, has about $12 billion invested with us across broker-dealer annuity, sub-advised, and general account capabilities. One of the most important parts of that has been the $3 billion they have invested in the seeding and co-investment of many of our private market strategies, in particular the ones we've been bringing to wealth management over the last several years. And so it's a very, very important partner in that regard, and that's, you know, a multiple of three times what we carry on our own balance sheet in terms of those sorts of strategies. So opportunities to continue to develop the relationship there are something we're focused on, although a lot of that growth has come already.

Bob how do we optimize the value that is created from that capability.

Speaker Change: The key to QM as you note is approaching $20 billion and had been a cannibalization strategy and a very successful one and given it's only about three years old and has grown that quickly and.

Speaker Change: Assuming there is continued demand and the underlying or interest in the underlying exposure there and we expect the growth in that capability to continue.

Speaker Change: In terms of the actual net revenue yield from the published fee rates you know it would be about half now net of all of the costs there and so it is it would be one of the lower yielding capabilities again part of what we were pointing to in terms of the business mix that is driving some of the pressure on net revenue yield.

Andrew Ryan Schlossberg: I think the second area is just taking our relationship further where it makes sense on their insurance platform with things like our alternative strategies, models, SMAs, and ETFs, and then select fixed income and equity products. And we're well-placed there, but we're continuing to look for opportunities and ways to grow effectively. So it's an important partnership on many levels. Maybe just a follow-up on capital. So it sounds like you're in a much better spot just in terms of reengaging on buyback. Allison, are you expecting to be able to buy back stock in concert with carrying the line of credit? Or do you need to get on the other side of that before you restart buyback?

Overall, so it's a two sided coin and but one that is certainly well positioned to capture client demand.

Speaker Change: Our relationship with the NASDAQ was accused goes back celebrating its 25th year coming up soon and.

Speaker Change: Very much what else it was describing how we've been growing that that relationship is.

Speaker Change: In addition to it.

Speaker Change: Being a.

Speaker Change: The QQ QM being an alternative it is also worth creating a situation where the Q. The traditional acute is really for traders and the QQ QM can be more for buy and hold investors and I think it's indicative of what's happening in the ETF industry. In general is it's a preferred vehicle now for people that have short term interest and long term interest in so.

And then more broadly, what kind of payout rate should we be thinking about now that your earnings are more diversified and your earnings power is higher? All good questions. And I'd say the short answer is yes, we'd like to be on the other side of. We're very committed to getting our net debt down to zero. And that has been a stated goal of ours and something we've been working closely in concert with our board on achieving a stronger balance sheet. And so as we approach that, we look forward to having conversations with the board and evaluating the opportunity to re-engage in some more regular share buybacks. I think our payout ratio would stay kind of modestly in that 40 to 60% range as it has been in the past.

Speaker Change: Part of our strategy is just indicative of that you should expect to see more of that from us whether it's passive or active.

Speaker Change: Great that's great color and then maybe just a follow on.

Speaker Change: You mentioned of course Uh huh.

Speaker Change: You are in you know investing in the business as well.

Speaker Change: Sort of reinvesting some of those cost saves.

Speaker Change: Maybe if you could just talk about the top two or three areas.

Speaker Change: I'm, an investment management perspective in terms of product.

That you were investing in.

Speaker Change: To catalyze growth or are you just talked about the triple T franchise.

Speaker Change: Leave that one out and I think on private markets you mentioned that.

Speaker Change: That's an investment area. However that can also be an area, where M&A can play a role. So maybe if you could talk about any other just say a couple of areas.

I think that's a reasonable range for us to operate in as we think about both modestly increasing the common dividend each year as well as buying back the stocks. But we are, you know, a couple of quarters away from where we want to be, just given the seasonality of cash needs that are before us over the next few months. We are within sight for the first time in a long time, and we're really pleased about the progress we're making with the ballot sheet, just the growth in cash and where the debt is heading. So it does feel like, for the first time in a long time, we're kind of getting back into a position where we can be a lot more opportunistic than we've been able to be in the last few years. Thank you. Thank you. Our next question comes from Mike Brown with KBW. Your line is open.

Speaker Change: That you're most excited about.

Speaker Change: In terms of investment dollars that you're putting in and in group.

Speaker Change: No.

Speaker Change: Sure.

Speaker Change: Probably point you back to our key capability areas and those being the areas, where we've really focused the most on continuing to grow and invest so certainly within our Etfs SMA factor an inductor. It capabilities. We continue to look at how do we build those capabilities out to really capture the client demand that's there.

Speaker Change: They're private markets.

Speaker Change: Both for the retail channel and the institutional channel the institutional product capability really being our legacy capabilities and our strength, where we've got a tremendous.

Andrew Ryan Schlossberg: Great, thank you for taking my questions. Maybe just a quick follow-up on that last question on capital allocation and buybacks. As you get further along on your goals for the balance sheet, do you expect M&A to kind of come back into the equation, you know, not necessarily large M&A but perhaps maybe more on the bolt-on side as you think about, you know, adding capabilities and perhaps, you know, altering the strategic asset mix as you start to look out to say 2025? Yeah, hey, it's Andrew.

Speaker Change: Mount of a history and success and continuing to build those out invest in those capabilities and position those.

Speaker Change: For client demand, but increasingly so I'm on the retail side and I think as we've talked about before it's not just seating and launching the product that's really building out the distribution capabilities, there and working closely with our clients as we expect that shift to be a multi year, a shaft and transformation in the education. That's involved there in inverse.

Andrew Ryan Schlossberg: At the moment, the focus is very, very much on the organic side; the priorities around the balance sheet and the uses of cash, as Allison described, you know, stay true. You know, as we have described in the past, the place where we see opportunity for us to add on in time, for the right situation, opportunity would likely be in that private market space, as extensions to the things that, you know, we already believe we do well today and could continue to grow both organically and inorganically. And that would be in the real asset space and in the private credit areas, but for now, very focused on the work we have to do organically. Okay, great.

Speaker Change: Sting out significantly in the education, that's involved on that side.

Speaker Change: I'd also point to China, and continuing to invest in our capabilities. There that is a it is self funded and largely speaking as we've discussed before it is a very attractive.

Speaker Change: Attractive business highly profitable cash flow positive.

Speaker Change: But we are able to continue to invest in those capabilities and your question was primarily around our product and client facing capabilities, but I would also note a lot of what we invest in for the benefit of clients isn't just the products, but the systems the client experience and really streamlining the overall client experience behind the scenes there are a lot of.

Speaker Change: Our investment goes into our platform, our technology and our capabilities in order to continue to deliver a better client experience and into afford room on our shelf for that I mean, we've been.

Andrew Ryan Schlossberg: That's good to hear. And then if I just change gears to the developing markets fund, you know, performance has improved there. That product is still outflowing. But assuming that performance can continue to improve, I guess my question is, what causes client interest to really come back to this fund? Just given that seems like investor sentiment and interest in EM strategies is just kind of tepid, is this going to be more about a kind of lower redemption story and kind of narrowing on the redemptions?

Speaker Change: Routinely pruning in closing parts of the product line that we haven't seen demand in and closed several hundred strategies over the last few years.

Speaker Change: The only other thing I'll point to beyond what Alison covered would be.

Speaker Change: It's probably less investment capabilities that you'll see extensions on and more how it gets delivered to the market. So the trend towards vehicles like Etfs in Sma's.

Speaker Change: And bringing things beyond passive capabilities or fixed income capabilities.

Speaker Change: It's something where we're going to continue to seek to lead it.

Andrew Ryan Schlossberg: Or can that eventually translate to more of a growth? Look, I think you outlined the question well. It's probably a bit of both.

Speaker Change: Okay, Great that's great color. Thank you.

Speaker Change: Yeah.

Speaker Change: Taking our next question comes from Craig Siegenthaler with Bank of America. Your line is open.

Andrew Ryan Schlossberg: I mean, the first thing is to continue to strengthen the investment performance there. And we're a known, as you know, a known emerging markets manager, well-known in the space, well-placed in the wealth management channels. So the things we can control are investment quality. What we have started to see a bit is the redemption picture improve, and that's sort of an early sign.

Craig Siegenthaler: Thanks, Good morning, everyone.

Craig Siegenthaler: Mike My first question is on the 40% to 60% payout target. After you reach your goal of a zero net debt later this year, so why not a higher payout target because it sounds like M&A isn't a big part of the intermediate term strategy.

Speaker Change: Uh huh.

Speaker Change: Reasonable question I would say as Andrew said, we do continue to think about the opportunities we have from a bolt on perspective with certain capabilities from an M&A perspective, and given our balance sheet.

Andrew Ryan Schlossberg: I think you're not really going to see a material uptick in gross sales until you see more demand come back into the marketplace from investors. And, you know, we've been waiting for that moment, and we haven't seen it. Difficult to predict, but it's an important category, as is more broadly what we're doing in international equities and global equities, where those categories, as well, have been under some pressure. Our performance has improved materially, redemption rates declining, but same comment on the gross sales side. Okay, thank you, Andrew.

Speaker Change: You know as.

Speaker Change: Returning to a better position, but we want to be in position to continue to build cash as we think about some of those opportunities and making sure. We're in position should we find the right bolt on capabilities to be able to execute so.

Speaker Change: It's a balance of making sure we have the ability to execute on several of those priorities app and it's not going to be all in returning cash to capital to shareholders.

Andrew Ryan Schlossberg: Thank you. Our next question comes from Brennan Hawken with UBS. Your line is open.

Speaker Change: It makes sense Allison and just as my follow up with the 3 billion in all seed capital for mass mutual.

Good morning, thanks for taking my questions. Allison, I appreciate the color on 1Q expenses, but when we're thinking about full year 2024, is the right base by which to grow off of that $3.6 billion that's adjusted for some of the charges, and you know, how should we think about it? Are you able to keep that flat, or is that going to be putting some positive pressure here through 2020? No, good morning, Brennan.

Speaker Change: Can you remind us which products are the 3 billion has been invested in and then to date. How successful has that been like one way to quantify that is how much third party AUM have you been able to attract around that third bullet 3 billion of initial seed capital from mass mutual.

Speaker Change: Yeah. Let me start then Alison can can pick up probably the most the two most important strategies were.

Good question. Yes, if you look at the expense base in 23 adjusted for the severance and retirement expenses that we incurred in 23, which we aren't anticipating at this point more of in 24, when I look at our 24 expectations relative to where the markets are, where we end the year in AUM, the usual caveat of all things being equal, I would say we expect the expense base to be flat to 23, or, relatively, very modestly, perhaps higher, And that importantly, in 23, excuse me, in 24, is inclusive of a full year of alpha, all four quarters, no TIR, so it is a four-quarter no TIR year as compared to a three-quarter year last year, inclusive of some of the inflationary pressures, merit increases, and the like. So we did a lot of work on our expense base last year. We've got a lot going on as it relates to output implementation costs and the $10 million per quarter guide we put out there. All those things taken into account, we're expecting relatively flat growth this year. Okay, thanks for that, Cutler.

Speaker Change: The non traded REIT or in REIT strategy, where you know massmutual was and exist already early seeding partner.

Speaker Change: I don't have the exact percent that they have but I would say, it's still it's still relatively large although we've been generating a decent amount of.

Speaker Change: Volume over time from one of the big wealth platforms in the U S. And then the second one was our.

Speaker Change: Real estate debt strategy that we just brought to the wealth management market.

Speaker Change: It was the other sort of strategically important strategy, but I'll turn it to Alex and maybe for more specifics on the numbers you asked about.

Alex: Yeah, I would say, but it's largely their general account and where they would want to make sure they've got exposure as well across various capabilities. So I mean, they are investing in everything from an right, which you know we've been public on that strategy too.

Alex: Things like you know municipals and CLO, then and some of our private credit and our capabilities.

Alex: You know I think it's really kind of the breadth of those types of capabilities, where you would see them really most invested in aside from the capital, which is which is clearly important I think the signaling and showing up at these wealth management platforms in particular, not with new investment capabilities, but you know their new packages that we're putting things together and I think that's real.

I appreciate it. And I'll note that, with some of where we are in the markets, some of what we've seen in terms of the appreciation and average AUM exiting the fourth quarter and coming into this year, we are optimistic that we start to see modest improvement in operating margin for. Thanks for taking my question. And our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Critical in terms of credibility.

Brian Bedell: Great. Thanks. Good morning, folks.

Alex: Credibility that we show up at these platforms with.

Andrew Ryan Schlossberg: Thanks for taking my questions. Let me just switch the conversation to the QQQ franchise. I guess as you – obviously, they're non-fee-earning products, but if you think about monetizing that whole franchise, can you talk about how you think you might be able to monetize that asset base? I think obviously QQQM is I think $20 billion in AUM, and QQQ is more than 10x that. First of all, the 15 bips on QQQM, is that also the asset management revenue yield, or is that just the expense ratio? And then how do you think about potentially – are there opportunities to effectively try to cannibalize the QQQ in favor of developing a more fee-bearing QQQ franchise at the investment level? Great questions, and precisely the topic we spend a lot of time talking about, thinking about, and really working on as a team.

Speaker Change: Andrew Thank you.

Speaker Change: Okay.

Speaker Change: Thank you. The next question comes from Alex Blaustein with Goldman Sachs. Your line is open.

Speaker Change: Hey, guys. This is Luke on for Alex Thanks for taking the question.

Luke: Appreciate some of the color on expenses and revenues in 2024 and I appreciate that it's not easy to a forecast going out so far but do you have any high level goalpost for margins over the longer period into 2025, especially as some of the state Street alpha costs coming down.

Speaker Change: I would say high level goalpost and then this is going to you know longer term and it's going to take us some time to get there, but getting back into the mid Thirty's is absolutely our high level kind of goalpost as we.

Speaker Change: I hope everybody hears it loud and clear we are in no way satisfied with where our margins are today and getting them back on a quarterly basis, north of 30, and starting to climb back into the low thirties and mid thirties from there is absolutely the goal over the next handful of years.

Andrew Ryan Schlossberg: The QQQ is a tremendous asset for us, and the brand awareness that that creates can't be underestimated. The opportunity that it creates for us in terms of the marketing budget that comes from that, all of our ad campaigns, the brand work we do is really fueled by the QQQ, and so it is a tremendous asset to us. It is certainly unique in nature, and that's the value it creates, so we have to be very thoughtful about how we optimize the value that is created from that capability. The QQQM, as you note, is approaching $20 billion and has been a cannibalization strategy and a very successful one, given it's only about three years old and it has grown that quickly. Assuming there is continued demand or interest in the underlying exposure there In terms of the actual net revenue yield from the published fee rate, it would be about half of all of the costs there.

Speaker Change: Our focus coming into 'twenty 'twenty four is absolutely around the expense discipline. We've done a lot of work on our expense base. We've got you know a lot of headwinds and things we have to make our way through alpha implementation being the most notable inside the Beaumont that.

Speaker Change: But despite that our expectation is to really try to hold our expense base relatively flat and as you know and thank you for giving us a little bit of a grade so not one that it is hard to predict it quarter to quarter, especially with the impact of revenue in markets.

Speaker Change:

Speaker Change: So it's really about being very disciplined on everything we can control and where we can continue to take expenses out and places, where it's not necessary and evaluate opportunities to eliminate those expenses or reinvest them in areas that will help facilitate and fuel further growth.

Speaker Change: Yeah.

Speaker Change: Awesome. Thanks, Thanks for the color just for my my follow up you guys highlighted the plans to continue to shift from institutional to wealth at some of the strategies that you are looking to build on do you have any.

It would be one of the lower yielding capabilities, again, part of what we were pointing to in terms of the business mix that is driving some of the pressure on net revenue yield overall. So it's a two-sided coin, but one that is certainly well-positioned to capture client demand. The relationship with NASDAQ on the Qs goes back celebrating, I think, its 25th year coming up soon. And very much what Alison was describing, how we've been growing that relationship, in addition to it being the QQQM being an alternative, we're also creating a situation where the traditional Qs is really for traders, and the QQQM can be more for buy-and-hold investors. And I think it's indicative of what's happening in the ETF industry in general, that it's a preferred vehicle now for people that have short-term interests and long-term interests. And so I think part of our strategy is just reflective of that. You should expect to see more of that from us, whether it's passive or active. Great, that's a great color.

Speaker Change: Upcoming product launches in the wealth space that you guys are either working on or are free to talk about at this point. Thanks.

Speaker Change: Yeah look I think I'll, just speak generally about them because getting specific is difficult.

Speaker Change: Real estate debt strategy, where we're seeing a lot of demand and interest for that and you should expect to see more of that in the market and we should be talking more about that going forward and then.

Speaker Change: Private credit strategies, whether they are distressed or direct lending, how we can position and factor those into the wealth channels and just to be clear. This isn't just in the U S. It's in Europe.

Asia Pacific as well.

Speaker Change: The operator, we have time for one more question.

Okay and our last question comes from Michael Cyprus with Morgan Stanley. Your line is open.

Andrew Ryan Schlossberg: And then maybe just to follow on, Allison, you mentioned that you are in, you know, investing in the business as well, sort of reinvesting some of those cost savings. Maybe if you could just talk about the top two or three areas, from an investment management perspective, in terms of the product that you are investing in to catalyze growth. You just talked about the triple key franchise. Maybe you can leave that one out. And I think about private markets. You mentioned that that's an investment area. However, that can also be an area where M&A can play a role. So maybe if you can talk about any other, say a couple areas that you're most excited about, in terms of investment dollars that you're putting in and growth, that could result in that. Sure.

Michael J. Cyprys: Hey, good morning, Thanks for squeezing me in here just a follow up question on expenses I was hoping you could maybe elaborate on some of the steps you guys are taking to drive greater operational efficiency in the business additional steps you might look to take over the next couple of years and how is the variable nature of the expense space evolved and how should we think about the sort of sensitivity of.

Michael J. Cyprys: Expenses of markets are up say in 'twenty four I know you got a turnaround flattish expenses adjusted for things, but that was assuming flat markets. If markets are up 10%, how do we think about the impact on expenses.

Speaker Change: Thanks, Mike and I would say, but the the relationship of our expense base being about a third variable is still a reasonable relationship and expectation to think about as you think about the potential growth in revenues. So I'm I would start with that and certainly as we've seen some of the real revenue pressure.

You know, I'd probably point you back to our key capability areas, and those being the areas where we really focus the most on continuing to grow and invest. So certainly within our ETFs, SMAs, factor, and index capabilities, we continue to look at how we build those capabilities out to really capture the client demand that's there in private markets. Both for the retail channel and the institutional channel, the institutional product capabilities really are our legacy capabilities and our strength, where we've got a tremendous amount of history and success and are continuing to build those out, invest in those capabilities, and position those for client demand, but increasingly so on the retail side.

It has made it difficult because there is some element of our expense base effects, but I think as we can as we anticipate starting to climb out from a revenue perspective, I think the one third our relationship is still a reasonable expectation in terms of what we will do and how we will continue to think about streamlining I mean look it's a continuation of so much of what we.

Speaker Change: Done and a lot of what I, just said which is.

Speaker Change: We are going to continue to evaluate our expense base everywhere were looking at our margins.

Speaker Change: At a granular level and where we can really unlock some cost and evaluate some of what's been done in the past and perhaps where it doesn't need to be done that way in the future. We have been on a multi year effort as it relates to facilities and rationalization of office space and I wouldn't say I've called out some usual suspects that you would expect us to be focused on elements like that that is going.

And I think, as we've talked about before, it's not just seeding and launching the product; it's really building out the distribution capabilities there and working closely with our clients as we expect that shift to be a multi-year shift and transformation in the education that's involved there and investing significantly in the education that's involved on that side. I'd also point to China and continue to invest in our capabilities there. That is, it is self-funded, and largely speaking, as we've discussed before, it is a very attractive business, highly profitable, cashflow positive, but we are able to continue to invest in those capabilities.

Speaker Change: To continue and that takes many years to to really make a dent in and we will continue to do things like that but it's broader than that and really thinking about how do we streamline our business. How do we really think about operating more holistically and a lot of the work that started almost a year ago now I mean, maybe without Andrew if you wanted to kind of close on some of our thoughts there.

Yeah, and Mike. Thanks for the question look the simplification efforts in 2023, we believe were some of the most impactful things that we did that will bear fruit as we go forward here I think bringing together elements of the investment platform and investment areas.

Speaker Change: The distribution areas marketing and product and then, allowing our enterprise and operational areas to match off against a much more simplified platform was the goal.

Your question was primarily around our product and client-facing capabilities, but I would also note a lot of what we invest in for the benefit of clients isn't just the products, but the systems, the client experience, and really streamlining the overall client experience behind the scenes there. A lot of our investment goes into our platform, our technology, and our capabilities in order to continue to deliver a better client experience. And to afford room on our shelf for that, I mean, we've been routinely pruning and closing parts of the product line that we haven't seen demand for and closing several hundred strategies over the last few years.

I think the areas and investments, where we started to bring some things together. It also gives us an opportunity to think about the margins in those businesses and the way that.

Speaker Change: We make money.

Speaker Change: How to run those strategies and disciplines not from the investment side, but from the platform side at scale where scale is needed.

Speaker Change: Our quality enhancement, where quality enhancements needed et cetera, and so the simplified organization helps us in those ways.

Speaker Change: Great. Thanks, so much.

Speaker Change: Yeah.

Speaker Change: So maybe just to wrap up here in closing as we enter 2024, hopefully as you can tell we feel well positioned to help clients navigate the impact of the evolving market dynamics and subsequent changes to their portfolios and we expect I had the pleasure of meeting with many of our clients around the globe. This past year adhering to.

Andrew Ryan Schlossberg: The only other thing I'd point to beyond what Allison covered would be, it's probably less investment capabilities that you'll see extensions on and more how it gets delivered to the market. So the trend towards vehicles like ETFs and SMAs, and bringing things beyond passive capabilities or fixed income capabilities, is something where we're going to continue to seek to lead. Okay, great, that's great, thank you.

Speaker Change: <unk> from them has assured me that we really are well positioned across a range of outcomes and when and as the market sentiment improves. We believe this should translate to even greater scale performance and improve profitability and finally I'd like to thank my colleagues around the world are the executive leadership team our board of directors for their efforts in 2020.

Speaker Change: Three you know their focus on our clients and our shareholders and their support for a smooth transition during the year and given the work that we've done to strengthen our ability to anticipate understand and meet evolving client needs. We're I'm truly excited for the future of invesco. So I want to thank everyone for joining the call today. Please continue to reach out to them.

Craig Siegenthaler: Thank you. Our next question comes from Craig Siegenthaler with Bank of America. Your line is open. Thanks. Good morning, everyone.

Andrew Ryan Schlossberg: Mike, my first question is on the 40... A reasonable question, I would say, as Andrew said, we do continue to think about the opportunities we have from a bolt-on perspective with, you know, certain capabilities from an M&A perspective. And given our balance sheet, you know, returning to a better position, but we want to be in a position to continue to build cash as we think about some of those opportunities and make sure we're in position should we find the right bolt-on capability to be able to execute, so It's a balance of making sure we have the ability to execute on several of those priorities, And it's not going to be all about returning cash or capital to shareholders And then, to date, how successful has that been? One way to quantify that is, how much third-party AUM have you been able to attract around that $3 billion of initial seed capital? Let me start, and then Allison can pick it up.

Speaker Change: Esther relations team for any additional questions and we appreciate all of your interest in Invesco and look forward to speaking again soon thank you.

Speaker Change: Yes.

Speaker Change: Thank you and that concludes today's conference you may all disconnect at this time.

Probably the two most important strategies were the non-traded REIT or in-REIT strategy, where MassMutual was an early seeding partner. I don't have the exact percent that they have, but I would say it's still relatively large, although we've been generating a decent amount of volume over time from one of the big wealth platforms in the U.S. And then the second one was our real estate debt strategy that we just brought to the wealth management market. That was the other sort of strategically important strategy. But I'll turn it to Allison maybe for more specifics on the numbers you asked for.

Andrew Ryan Schlossberg: Yeah, I would say it's largely their general account and where they would want to make sure they've got exposure as well across various capabilities. So, I mean, they are invested in everything from InReach, which we've been public about that strategy, to things like municipals and CLOs and some of our private credit capabilities. It's really the breadth of those types of capabilities where you would see them really invested. And aside from the capital, which is clearly important, I think the signaling and showing up at these wealth management platforms, in particular, not with new investment capabilities, but there are new packages that we're putting things together in, and I think that's really critical in terms of the credibility that we show up on these platforms with. Andrew, thanks. Thank you. Our next question comes from Alex Blostein with Goldman Sachs. Your line is open. Hey guys, this is Luke on behalf of Alex.

Operator: Thanks for taking the question. Appreciate some of the color on expenses and revenues in 2024. And I appreciate that it's not easy to forecast going out so far. But do you have any high-level goal posts for margins over the longer period into 2025, especially as some of the State Street alpha costs come down? Thanks.

I would say high-level goalposts, and this is going to, you know, the longer term, and it's going to take us some time to get there, but getting back into the mid-30s is absolutely our high-level kind of goalpost. We, I hope everybody hears this loud and clear, are in no way satisfied with where our margins are today. Getting them back on a quarterly basis north of 30 and starting to climb back into the low-30s and mid-30s from there is absolutely the goal over the next handful of years.

You know, our focus coming into 2024 is absolutely around expense discipline. We've done a lot of work on our expense base. We've got, you know, a lot of headwinds and things we have to make our way through, alpha implementation being the most notable and sizable of those. But despite that, our expectation is to really try to hold our expense base relatively flat.

And as you know, and thank you for giving us a little bit of grace on that one, it is hard to predict them quarter to quarter, especially with the impact of revenue and markets. So, you know, it's really about being very disciplined on everything we can control and where we can continue to take expenses out in places where they're not necessary and evaluate opportunities to eliminate those expenses or reinvest them in areas that will help facilitate and fuel further growth. It was awesome.

Thanks for the call, Eric. Just for my follow-up, you guys highlighted the plans to continue to shift from institutional to wealth and some of the strategies that you're looking to build on. Do you have any upcoming product launches in the wealth space that you guys are either working on or are free to talk about at this point? Thanks.

Yeah, and look, I think they're, I'll just speak generally about them, because getting specific is difficult. The real estate debt strategy, we're seeing a lot of demand and interest for that. And you should expect to see more of that in the market. And we should be talking more about that going forward. And then private credit strategies, whether they're distressed or direct lending, how we can position and factor those into the wealth channels. And, just to be clear, this isn't just in the US; it's in Europe and Asia Pacific as well.

Operator: Operator, we have time for one more question. Okay, and our last question comes from Michael Cyprys with Morgan Stanley. Your line is open. Hey, good morning.

Thanks for squeezing me in here. Just a follow-up question on expenses. I was hoping you could maybe elaborate on some of the steps you guys are taking to drive greater operational efficiency in the business, additional steps you might look to take over the next couple of years, and how has the variable nature of the expense space evolved, and how should we think about the sort of sensitivity of expenses if markets are up, say, in 24? I know you got into around flattish expenses, adjusted for things, but that was assuming flat markets. If markets are up 10 percent, how should we think about the impact on expenses?

Thanks, Mike. I would say the relationship of our expense base being about a third variable is still a reasonable relationship and expectation to think about as you think about potential growth and revenue. So I would start with that.

Certainly, as we've seen some of the real revenue pressure, it has made it difficult because there is some element of our expense base that's fixed. But I think as we anticipate starting to climb out from a revenue perspective, I think the one-third relationship is still a reasonable expectation. In terms of what we will do and how we will continue to think about streamlining, I mean, look, it's a continuation of so much of what we've done and a lot of what I just said, which is that we are going to continue to evaluate our expense base everywhere. We're looking at our margins at a granular level and where we can really unlock some costs and evaluate some of what's been done in the past and perhaps We have been in a multiyear effort as it relates to facilities and rationalization of office space, and I would call that some usual suspects that you would expect us to be focused on elements like that. That's going to continue.

That takes many years to really make a dent in, and we will continue to do things like that. But it's broader than that and really thinking about how we streamline our business, how we really think about operating more holistically, and a lot of the work that started almost a year ago now. I mean, maybe with that, Andrew, if you want to kind of close on some of our thoughts there.

Andrew Ryan Schlossberg: Yeah, and Mike, thanks for the question. Look, the simplification efforts in 2023 are believed to be some of the most impactful things that we did that will bear fruit as we go forward here. I think bringing together elements of the investment platform and investment areas, the distribution areas, marketing, and product, and then allowing our enterprise and operational areas to match off against a much more simplified platform was the goal. I think the areas and investments where we started to bring some things together also give us an opportunity to think about the margins in those businesses and the way that we make money and how to run those strategies and disciplines, not from the investment side, but from the platform So the simplified organization helps us in those ways. Great, thanks so much.

Andrew Ryan Schlossberg: So maybe just to wrap up here in closing, as we enter 2024, hopefully, as you can tell, we feel well-positioned to help clients navigate the impact of the evolving market dynamics and subsequent changes to their portfolios that we expect. I had the pleasure of meeting with many of our clients around the globe this past year, and hearing directly from them has assured me that we really are well-positioned across a range of outcomes. And when and as market sentiment improves, we believe this should translate to even greater scale, performance, and improved profitability. And finally, I'd like to thank my colleagues around the world, the executive leadership team, and our board of directors for their efforts in 2023, their focus on our clients and our shareholders, and their support for a smooth transition during the year.

Andrew Ryan Schlossberg: And given the work that we've done to strengthen our ability to anticipate, understand, and meet evolving client needs, you know, I'm truly excited for the future of Invesco. So I want to thank everyone for joining the call today. Please continue to reach out to our investor relations team for any additional questions, and we appreciate all of your interest in Invesco and look forward to speaking with you again soon. Thank you. Thank you, and that concludes today's conference. You may all disconnect at this time.