Q2 2025 Invesco Ltd Earnings Call
Thank you for standing by and welcome to investco second quarter earnings conference call. All participants will be on a listen-only mode until the question and answer session. At that time to ask a question. Please press star 1, this call will last 1 hour to allow more participants to ask questions. 1 question and a follow-up can be submitted per participant. As a reminder, today's call is being recorded now like to turn the call over to Greg ketron and vesco is head of investor relations, sir you may begin.
Us today.
In addition to the press release, we have provided a presentation that covers the topics. We plan to address on the call. The press release and presentation are available on our website and bestow.com. This information can be found by going to the investor relations section of the website.
A presentation today will include forward-looking statements and certain non-gaap Financial measures. Please review the disclosures on slide 2 as well as the appendix for the appropriate. Reconciliations, the gap.
See of our earnings transcripts provided by Third parties, the only authorized webcast are located on our website, Andrew slosberg, president and CEO. And I also View 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. Uh, thanks Greg and good morning to everybody, I'm pleased to be speaking with you today. I'll start as I have for the last several Quarters on slide 3, which covers our strategic initiatives and our performance drivers as it's an important framing for the second quarter and for highlighting significant recent accomplishments.
We remain focused on generating positive client outcomes, executing against our strategic priorities and making meaningful progress in our efforts to improve operating leverage while, strengthening our balance sheet.
I'm appreciative of the hard work of my colleagues around the world as we continue to look across the organization to unlock value.
Uh, before we review the quarterly results, I'd like to take a moment to highlight a few significant examples of this progress over the past several months.
First, I point to our partnership with Mass Mutual and bearings during the quarter, we completed the repurchase of 1 billion dollars of preferred stock held by Mass Mutual a significant step in reducing our preferred position and ultimately further, strengthening our balance sheet flexibility
We also announced in June Mass mutual's, intention to invest 150 million dollars into the Invesco Dynamic. Credit Opportunity fund. This is the first example of Our intention to pay the private credit. Strengths of investco in bank loans cos and distressed and lower Middle Market. Direct lending with barings asset back Finance, higher Market. Direct lending and Capital Solutions capabilities.
this also represents the first tranche of the broader private Market strategic product, and distribution partnership with bearings that focuses on the US wealth Channel, and which Mass Mutual intends to support with the total of 650 million dollars of capital,
We are very pleased with the pace at which the teams are working together. Following our partnership announcement, just a few months back in April.
As the private credit Market continues to grow and diversify we are committed to leveraging. The existing strengths of our 130 billion private markets platform. Evolving our wealth management product offering to better meet client needs and partnering with complimentary private Market managers.
There will be more to come on our expanded relationship with bearings and we will continue to keep you updated.
also during the second quarter, we announced a realignment with our fundamental equities platform and may changes to our developing markets and Global and International Investment teams to better serve our clients interests
This included consolidating capabilities under a single CIO. For these particular asset classes and making portfolio management changes to our us-based, developing markets, and aspects of our International and Regional fundamental Equity. Strategies.
This is part of our ongoing efforts to strengthen our investment returns in this important area of the firm.
To also Elevate our top talent and to use our scale advantages to gain efficiencies.
An additional Milestone occurred last week when we announced the filing of a preliminary proxy statement with the intent of seeking the approval of QQQ beneficial owners to change the operational structure of the cues. So that its classification changes from a unit Investment Trust to an open-end fund ETF the latter being held the vast majority of ETFs including others offered by investo operate
As you can imagine given that this is still subject to approval. There is little we can say about this at this time other than directing you to the as filed preliminary proxy statement that said Alison will walk you through some of the potential impacts of the proposed changes later in her remarks.
As we speak to improve client outcomes and our employee value proposition generate operating, leverage, and profitability and continue building a strong balance sheet and enhance our ability to return Capital to shareholders.
Uh, let's pivot now to slide 4 to talk about our second quarter business highlights.
As we all experienced the second quarter Market, volatility was pronounced.
After a challenging start to the quarter markets entered, the period with strong momentum that has carried forward into July.
As the volatile start to the second quarter ultimately gave way to a global rebound for equities, while Bond markets, began to steady later in the quarter.
Against this backdrop. Once again, our Diversified platform global scale and breadth of products were integral to sustaining long-term organic flow growth and resilience During the period.
For the quarter, we generated 15.6 billion in Le and net long-term asset inflows for a 4.7% annualized growth rate. And we hit a record of 2 trillion dollars in assets under management at the end of the period.
We also built in the momentum of our first quarter Financial results.
Uh, we continue to deliver profitable growth with adjusted operating income up 3% and operating margins, expanding 30 basis points in the second quarter when compared to the same quarter last year.
As Alison will discuss later. We've also continued to strengthen our balance sheet while returning Capital to shareholders at the top end of our projected range.
From a client sentiment asset class. And Geographic perspective, we continue to see a diverse range of flows with positive results in both active and passive, institutional and Retail, and Broad Geographic strength, particularly with an asia-pacific and Amia, which collectively accounts for 40% of our overall long-term client assets under management and generated 31 billion dollars of our first half 2025 long-term, net flows,
From a more specific perspective, our Global ETFs and index platform continue to produce strong results reporting 10% annualized organic growth or 12.6 billion dollars of long-term. Net inflows in the quarter.
ETF growth in the US market was a augmented by another solid quarter in Amia and Asia Pacific.
Top net flowing products in the US were led by qqqm with record inflows of 5.6 billion dollars. The fund is now has 50 billion dollars in AUM. After starting the year at 38 billion,
Additionally our Factory Suites Rose significant, net flows as Precision Investments, became a more critical buying decision with our momentum and quality ETFs generating 4 billion of net inflows.
We also continue to innovate in the ETF space during the quarter, we launched 4 new active ETFs. In addition to the 3 launched last quarter, bringing our total to 31 active ETFs, including expanding our active, use of ctfs to a total of 8 products. While we also extended our smart bar data range of products in the Amia region as well.
Shifting to fundamental fixed income. Overall, we garnered nearly 3 billion dollars of net. Long-term inflows would strictly looking at our fundamental fixed income platform.
But looking more broadly at the asset class across all of our capabilities that number jumps to nearly 10 billion dollars of inflows, with the inclusion of our fixed income ETFs and our China based assets,
Fixed income is another area where you can see the strength of our Geographic profile with within a Mia and Asia Pacific, driving significant Flows In This asset class during the quarter.
There was obvious caution around fixed income risk-taking as the quarter commenced and this translated into some softening of us, demand particularly for municipal bonds. However institutional interests for investment grade bonds continued with demand and Amia driving. Our net inflows.
We also saw the remaining 4 billion dollars of the people's pension fixed income mandate in the United Kingdom fund. During the quarter, this is an important win as we continue to build investco leadership in the retirement markets, in the UK and globally.
Additionally, our wealth management. SMA platform in the US continued to help Drive fixed income flows, our entire SMA platform which also includes a portion of equity assets continue to capture market share. And now stands in nearly 32 billion dollars in AUM.
Shifting to private markets overall, our private real estate franchise recorded, net inflows of just over 200 million dollars.
Driven by continued strong inflows into increased which is our real estate debt strategy targeting the wealth management Channel which saw its largest fundraising to date in June and where we continue to onboard new platforms and clients.
Assets in this fund with leverage now, total 3 and a half billion dollars in AUM after just 2 years in Market.
Our performance and direct real estate was somewhat clouded by the planned wind down of the St. James Place, UK real estate portfolios. We were appointed earlier this year to take over management and wind down of these portfolios which totaled 1.8 billion dollars.
St. James Place is a key UK client. Both in real estate and Beyond and being selected for this mandate affirms, our wider service and relationship with fjp
The associated outflow totaled, 400 million dollars this quarter.
Overall, our real estate team remains well, positioned in the institutional markets, with 7 billion, dollars of dry powder to capitalize on emerging opportunities.
Within our private credit franchise, you were in negative flows in the quarter. But this was driven exclusively by April risk off sentiment and our Market leading bank loan, ETF and funds.
However, as the quarter progressed and investor sentiment improved. So did net inflows in these products which totaled billion dollars in aggregate for May and June and offset some of April's losses.
Additionally, we saw good demand for cos we closed the 500 million Colo, at the end of June and the pipeline remains strong going into the back half of the year.
Moving to our China JV and India capability where we saw further strengthening this quarter.
We delivered 5.6 billion dollars of net. Long-term inflows led by fixed income and strong, pure Bond, and flows from investco, Great Wall.
Later in the quarter. These pure Bond and flows were augmented with additional inflows into fixed income plus which is a more balanced strategy as risk appetite improved amid, lower interest rates and an improving Equity Market.
We reached a record high period ending AUM in our China JB of 105 billion dollars surpassing the previous record of 102 billion set over 3 years ago.
And while we launched 5 new products, this quarter at Invesco, Great Wall, our organic growth in this market, continue to be driven by existing products, which is a good sign for the strength of the platform. We have built.
We are well positioned for the near and long-term emerging Trends in this market, and we should benefit from both the secular and now cyclical Tailwind developing.
Turning to our multi-asset related capabilities. We saw net. Long-term inflows of half a billion dollars, it's driven by quantitative strategies.
Finally, the relative pressure on fundamental equities was maintained as a secular shifting demand challenges to active equities continued, particularly Among Us clients.
Our results reflect that change albeit at a better rate than recent history with overall net outflows of 3.6 billion dollars for the quarter. Despite this we have continued to see positive flows for fundamental equities coming from our clients in Amia and Asia Pacific specifically for Global and Regional equities headlined by our Global Equity income fund which is managed out of the UK. This fund posted record, net inflows of 2.4 billion dollars during the quarter rapidly growing. The fund to 17 billion dollars in AUM. Predominantly from clients in the Japanese Market.
Among retail active funds. This is the number 1 ranked product in Japan on a flow basis and has a very favorable, net revenue, yield to investco
Offsetting this are continued, fundamental equity, outflows in the US wealth management, Channel particularly from our Emerging Markets fund.
The aforementioned fundamental Equity platform changes, this past quarter further, our focus on investment performance and risk management. As we continue to identify areas of demand within fundamental equities and mitigate redemptions and a better rate than the market.
Moving to the side 5 uh which highlights the diversity of our business that I was referencing earlier, our Geographic profile with 600 billion dollars of our client assets. Coming from markets outside of America is a key investor differentiator and empowers organic growth in various operating environments like we are seeing today.
Range of public and private Market portfolios and are active passive and multi-asset range of capabilities provides the opportunity to capture reallocations occurring in client portfolios.
The bottom line is that our diverse profile provides a more resilient asset flow revenue and profit growth profile.
Moving on to slide 6, which shows our overall investment performance relative to benchmarks and appears as well as our performance and key capabilities, where information is readily comparable and more meaningful to driving results.
Investment performance is a key to winning and maintaining market share despite overall market demand.
Achieving first quartile investment, performance remains a top priority for us.
Overall, half of our funds are performing in that top quartile appears over a 3 year, time Horizon with 46%, reaching that bar on a 5-year basis.
Of note, we saw significant Improvement in some of our fundamental Equity performance, which is reflected in our 1-year period ranking.
Further over 2/3 of our AUM is beating. Its respective benchmarks over those measurement time periods.
So with that, let me take a pause here and turn the call over to Allison to discuss this quarter's Financial results and I look forward to taking your questions.
Allison: I'll start with the second quarter Financial results on slide 7.
Allison: After a challenging start to the second quarter in April, we experienced strong growth in assets under management. During the remainder of the quarter, we ended the second quarter at a record level for total AUM slightly over 2 trillion dollars. This was 157 million or 8% higher than the end of the first quarter and 286 billion or 17% higher than the end of the second quarter of 2024.
Average, long-term math is under management where 1.34 trillion dollars and increase of 1% over last quarter and 12% over the over the second quarter of last year.
Allison: The increase of only 1% and average AUM was driven by market weakness, early in the quarter with AUM growth rebounding in May and June.
Allison: Growth in total assets under management during the quarter was mainly driven by market gains of 126 billion dollars of which 52 billion was driven by the QQQ.
Allison: ETF and Index market gains, from 41 billion and fundamental equities market gains for 26 billion.
Allison: Net long-term inflows drove a 16 billion dollar increase in AUM. During the quarter representing an annualized, organic growth rate of nearly 5% for the quarter.
As Andrew noted net inflows, in our ETF and index capability for 13 billion dollars, China JV. And India added 6 billion dollars of net, inflow and fundamental fixed income contributed 3 billion of net inflow.
Allison: Net outflows of 4 billion and fundamental equities and 2 billion. In private markets, partially offset, the net flow,
Allison: Net revenues adjusted operating income and adjusted operating margins all improved from the second quarter of 2024. While adjusted operating expenses continue to be well controlled
Allison: adjusted diluted earnings per share with 36 Cents for the second quarter.
Allison: We continue to strengthen the balance sheet. During the second quarter repurchasing, the 1 billion dollars of preferred stock held by Mass Mutual and funding, the repurchase was 1 billion dollars in Bank term loans.
We ended the quarter with no drawers on our revolving credit facility. We also continued common share repurchases on the second quarter, buying back 25 million.
Given our cash position as we begin. The third quarter, We believe We may be in position to begin repaying, a portion of the term loan during the second half of this year.
Allison: The magnitude of the potential reduction in the term loans will depend on the level of cash flow. We generate for the remainder of this year,
Allison: We also intend to continue repurchasing, common shares at a similar level on a regular basis going forward.
Comparing the first 2 quarters of 2025, versus 2024 demonstrates, the strong performance, we have achieved year to date, despite the market volatility, in the first half of the year.
Allison: Our annualized organic growth was 5% with average am growing. 15% and average long-term AUM growing 13%.
Over this period compared to the same period last year, net revenues increased 3 and a half percent and expenses. Increased less than 1% driving positive, operating leverage of 270 basis points and operating margin Improvement of 190 basis points.
Allison: Moving to slide 8, the secular shift.
Allison: And client demands.
Allison: A set of capabilities has allowed us to capture evolving client product preferences.
Allison: For a number of years now.
Allison: As a result concentration risk and higher fee fundamental equities and multi-asset products has been reduced.
Allison: And our asset mix has a higher concentration of ETFs index and fundamental fixed income capabilities.
Allison: The more balanced AUM, profile, better positions, The Firm to navigate various Market, Cycles events and shifting client demand.
Allison: Consistent with prior quarters. Current net revenue, yield Trends are included on the slide, the ranges by capability are representative of where the net revenue yield has trended over the past 5 quarters.
Allison: We note in the bullets, what the net revenue you'll drivers are and where in the range yields have trended more recently.
Allison: To provide context for the net revenue. Yield Trend. During the second quarter, our overall, net revenue yield was 23.2 basis points.
Allison: This is a smaller decline than prior quarters and may be a sign that we're closer to reaching stabilization or an inflection point and the net revenue yield, but this will be dependent on the future direction of asset makes shift.
Allison: The exit, net revenue, yield at the end of the second quarter was 23.2 basis points.
Allison: In line with the adjusted net revenue yield for the Border.
Speaker Change: and Andrew noted earlier, our subsidiary Invesco Capital Management, LLC announced the filing of a preliminary proxy statement with the intent of seeking the approval of QQQ, beneficial owners to change the operational structure of the QQQ so that its classification under the 1940 act changes from a unit Investment Trust
Speaker Change: To an open-end fund ETF.
As you know, given that it is a it is preliminary and the SEC will first need to approve this and then the shareholders also need to approve it. There is not much I can share other than to direct you to the proxy itself which has all of the material information about what is being proposed.
Speaker Change: The boat will happen at the earliest and the first fourth quarter.
Speaker Change: And if approval occurs, the changes likely will be implemented shortly thereafter.
Speaker Change: That said, we will say a few things that we think will be helpful for you all to provide contact on what is being proposed and how it may differ from the current treatment of the QQQ.
Speaker Change: Currently the QQQ fee structure is allocated as follows.
Speaker Change: Of the 20 basis point fee, 8 basis points is for the licensing. Fee, 8 basis points is for marketing, expenses and 4 basis points is the trustee fee.
The current benefit to investco is marketing as the expenses to market. The Invesco QQQ are reimbursed through the 8 basis, point marketing fee
Speaker Change: On investco is adjusted operating income statement. The marketing expenses are recognized in third-party distribution service and advisory expense and the reimbursement is recognized and service and distribution fees. So there is virtually no impact net revenue or adjusted operating income.
Speaker Change: If the new structure is approved, the revised, the allocation would work similar to how we currently recognized fees on most of our ETFs.
Speaker Change: The 18 basis point fee would be recognized as Investment Management fees.
Approximately 14 basis points which is principally the 8 basis points for the licensing. Licensing fee, 3 and a half basis points for administrative custody and transfer agency Services, as well as marketing, which will be at our discretion, but at intended, amounts and ranges that we have put in the proxy.
Speaker Change: And most other expenses of the fund would be recognized as third-party distribution service and advisory expense for licenses licensing, custodian and other expenses.
Speaker Change: As a result. And while we can't be precise, net revenues and adjusted. Operating income would benefit by approximately 4 basis points.
Speaker Change: Now turning to slide 9.
Speaker Change: Net revenue of 1.1 billion dollars. In the second quarter was 19 million higher versus the same quarter last year.
Speaker Change: Investment Management fees were 35 million higher than last year with the increased driven by higher, average AUM, and FX impact, partially offset by the AUM, mix shift, previously noted,
Speaker Change: Performance fees were 14 million dollars lower than last year, due to a smaller number of funds, generating performance fees this year.
Speaker Change: Operating expenses, continue to be well-managed, the total adjusted operating expenses, only 10 million dollars, higher or 1% from the second quarter of last year, driven by the impact of FX on our expense base.
Speaker Change: Adjusting for the impact of XX operating expenses were flat year-over-year.
Speaker Change: And expenses were also impacted by FX. The impact increased operating expenses by 14 million dollars on a sequential basis and excluding this operating expenses declined by 14 million dollars.
Speaker Change: Contact on operating expenses.
Speaker Change: Alpha platform, implementation costs of 12 million dollars were in line with our expectations for the second quarter and consistent with the
Speaker Change: We announced in May that Invesco has decided to adopt a hybrid Solution by utilizing platforms, from both State Street for equities and BlackRock who we currently use for fixed income.
Speaker Change: The hybrid approach allows us to leverage the strengths of each platform.
Optimizing outcomes for our clients and enhancing our operational capabilities.
Speaker Change: The hybrid approach provides for more certainty of execution, while maintaining the same benefits of the single provider approach.
Leveraging, the best of breed platforms for both equities and fixed income.
Speaker Change: with this hybrid approach, we expect to be complete with the implementation, by the end of 2026,
Regarding implementation costs going forward.
Speaker Change: The expect 1-time implementation costs to be in the 15-20 million dollar range for the third quarter, as we expect a higher level of implementation, activity related to preparing to transition more AUM onto the platform.
Speaker Change: We then expect implementation costs to return to the 10 to 15 million dollar range for the fourth quarter of 2025.
Speaker Change: The snake fluctuate to a degree due to timing. And as AUM is moved onto the platform, as we work towards completion, by the end of 2026.
Speaker Change: Provide further updates as the implementation progresses.
Speaker Change: second quarter year-over-year positive, operating leverage was 40 basis points, driving a 9 million or nearly a 3% increase in operating income and a 30 basis, point improvement in our operating margins of 31.2%,
Speaker Change: the effective tax rate was 26.5% and the second quarter versus 24.4% and the first first quarter.
Speaker Change: With the increase, primarily due to discrete tax items and a change in the mix of income across tax jurisdictions.
Speaker Change: We estimate our non-gaap effective tax rate will be closer to 26% for the third quarter of 25.
Speaker Change: Excluding any discrete items?
Flight increase in the rate is driven by a shift of income across tax jurisdictions.
The actual effective rate can vary due to the impact of non-recurring items on pre-tax income and discreet, tax items.
I'll wrap up on slide 10.
as I noted earlier, we continue to make significant progress on building balance sheet strength,
Speaker Change: 1 billion dollar repurchase of preferred stock held by Mass Mutual funded by 3 and 5 year Bank term LGE was completed on May 16th.
The full impact of the reduction in the preferred dividend will be realized in the third quarter. And the go forward run rate will be 44.4 million per quarter, a reduction of 14.8 million per quarter, that becomes earnings available to Common shareholders.
Speaker Change: We ended the quarter with no drawers. On our revolving credit facility.
Regarding the revolving credit facility, we renewed and extended the facility in May concurrent with the bank termine funding, and we increase our borrowing capacity through the revolver from 2 to 2 and a half billion for the next 5 years.
Speaker Change: As I noted earlier, given our cash position. As we begin, the third quarter, We believe We may be in position to begin repaying, a portion of the term lines, during the second half of this year.
Speaker Change: The magnitude of the potential reduction of the timelines will depend on the level of cash flow that we generate for the remainder of this year.
Speaker Change: we also continue to comment, share repurchases in the second quarter buying back 25 million or 1.7 million shares during the
Speaker Change: We intend to continue our regular common share repurchase program going forward. And we expect our total payout ratio including dividends and share BuyBacks to be near 60% from 2025 as we continually evaluate our Capital returns levels.
Speaker Change: Given a repurchase of the preferred stock funded, with the term loans, we will see some Divergence in our leverage ratios depending on whether the preferred stock is included or not.
Speaker Change: Excluding the preferred stock, the leverage ratio increased to a still very manageable level of 0.83 times as the 1 billion dollars in term loans are now included in the ratio.
Speaker Change: Going forward. We expect this ratio to improve as we repay the loans.
Speaker Change: The leverage ratio, including the preferred stock continued to show Improvement the declining to 2.7 times from 3.01 times a year ago.
Speaker Change: The ratio was not as impacted by the transaction, as we simply replace the repurchase preferred, stock with term limits.
Giving us the flexibility to substantially improve, this ratio going forward as we repay the loans.
To conclude the resiliency and strength of our firm's net flow performance is evident again this quarter and we continue to make significant progress on building, a stronger balance sheet and enhanced further by the 1 billion dollar repurchase of the preferred stock.
Financial performance and enhancing the return of capital to shareholders.
Speaker Change: And with that, we'll open up the line to Q&A.
Speaker Change: Thank you at this time. If you'd like to ask a audio question, please press star. Then 1, you will be announced prior to asking your question, please. Pick up your handset when asking your question to withdraw your request? You may press star 2.
And our first question comes from Bill cats with TD, Colin, your line is open.
Speaker Change: Okay, thank you very much for taking the questions this morning, maybe give me maybe pick it up on the qqq's, just a couple of questions. So in bed, my first question, maybe why? Now obviously it's been around for quite a while. Uh, looks like the marketing spend is going to be down versus the prior, um, payout. So how do you think about flows on the other side and then maybe the biggest part of the question for me is the 4 basis points about what we figured out as well. How do we think about the incremental margin? In other words, would you look to let that all drop to the bottom line? Or would you look to spend some of that back for growth and could you quantify what that might look like? Thank you.
Uh, hey Bill. Thanks for the question. Let let me start and Alison will pick up. Um, let me start with the, the why now question. Look, as I said in my, uh, was saying in my opening remarks, uh, the management team. We're looking across the entire business looking for ways to, you know, um, enhance outcomes for our clients, uh, and enhance outcomes for shareholders. And I think this is, um, uh, another area we looked. And we, we look at our fund lineup.
Speaker Change: Routinely um looking for ways to enhance the outcomes and remaining uh confident that the structure of the strategies we have are both a fish and and being responsive to evolving client needs and evolving market conditions. You know as you know the the cues unit trust was launched in 1999. So A lot's changed since then and uh we just felt like it was the right time to put forward this proposal to to modernize the structure. Uh and we'll um Let me let Alison pick up on the the back end parts of your questions.
Bill: Hey Bill.
Over and over again. But is the proxy stage. We currently anticipate a marketing budget for the trust of 60 to 100 million dollars.
Um, and so right now, you know, that would translate to 2, to 3 basis points of annual assets. Um, that is at our discretion as I noted. And um, it's really on the heels of really significant levels of marketing expenditure for the QQQ. Over the years that have created significant brand awareness for the trust.
Um, as it relates to the net, approximately for basis points, um, I think what I would say there is as I said in my comments, you know, we would expect that that 4 basis points to net revenue and to operating income, we don't expect, uh, any additional operating expenses associated with this, uh, conversion. If the proposal is approved,
Speaker Change: Thank you. Now, next question comes from, Glenn Shaw with evercore, your line is open.
Glenn Shaw: Thanks very much. Maybe I'll just pick up on on on where we left off there. Um, so you've been improving margins in the balance sheet and de-levering and I heard a lot of comments throughout the call on potential more de-levering,
Speaker Change: um,
Speaker Change: So I just want to push buttons a little bit and and and ask how, how much can this incremental Revenue go towards growth? Because I I see great diversification, gross product and and geography, but but I think there's a lot more to do in private markets and you have amazing distribution. So, um, how do you balance the whole de-levering combo that clearly shareholders? Keep asking you for with driving growth, which I want to keep asking you for thanks.
Speaker Change: For your question. Good question. And exactly what we challenge ourselves with all the time, um, we want both, we want growth and we want to do love her. Um, we don't think it's a, a binary choice. And, uh, so much of our focus is improving our operating cash flow. So that we provide that optionality for ourselves. Um, I think we've made significant progress just in the announcement last quarter around the repurchase of the billion dollars of preferred changing that structure. As we said last quarter, um the nature of that transaction, does provide uh a pathway for conversations to do more and
Last few years, uh, and launching a lot of new products, a number of which we highlighted today. And you can see the success of that, through our organic growth rate. I mean, our organic growth. Um, I I dare say, is among the very best, um, of our peer group, we've really demonstrated broad, uh, growth potential, and we think we've got, uh, more to come. That said, we're not exclusively focused on organic growth, we continue to remain open to inorganic opportunities as well.
Speaker Change: Yeah. Go ahead. Maybe what I add in addition to private markets um and we were mentioning it before you know investing behind the ETF business and and in particular the active ETFs the growth of smas and models um that we're seeing we you know, we we we want to accelerate that pace um and also looking at uh Creative Solutions, not just here in the US But continuing to take advantage of our competitive Advance our Competitive Edge in Europe and and also uh very much an asia-pacific
Okay, thank you. And our next question comes from Alex, blasting with Goldman Sachs, your line is open.
Alex: Hi, good morning, thank you for the question. Um another 1 around the cues and appreciate you guys. Might be limited um relative to what's in the proxy of screws. How you thinking about the licensing fee of a basis points relative to other ways that are out there in the market, how how durable you think that's going to be? And ultimately, do you see room for that to be negotiated lower, at some point of time in the future?
Yeah, I mean, look, we're really limited to what's what's in the proxy, but I'll say, our principal Partners on the fund are 2 outstanding partners. And um, as we as was outlined, um, things remain, uh, the way that, uh, uh, proposed is the way that it was. Um, it it currently is set up. So, um, you know, we don't really have much more to add there. Other than there are 2, great partners.
Alex: Okay, fair enough. Thanks.
Patrick David: Thank you. The next question comes from Patrick, David with autonomous research, your line is open,
Patrick David: Uh, good morning, thanks guys. Uh, 1 more, I'll try on the cues. There's been some reporting that um, the I guess, um, roadblock to doing this in the past was a view that it was tough too tough to round up a quorum for the vote. So do you now think it it would be easier to to get that Quorum for some reason. Um, I'll leave it there and then ask my follow-up.
Speaker Change: you know, I don't know that we can speculate on that 1 where the other
Patrick David: um, I
Speaker Change: There's much we can say there. I'm not sure that's exactly why maybe it hasn't been done in the past, but I don't think we can speculate on on the degree of difficulty. Um, and I'll point you back to the proxy and a lot of I think strong detail and statements uh, around the passport right there. Yep. Okay. And then um, as a follow-up we will you now be able to also generate SEC lending revenue on top of that net for bips
Patrick David: As it states in the parking, there is that opportunity. I will tell you the magnitude of that I think is going to be relatively small. That was not the primary sort of um motivation behind this at all. It's really the modernized the structure. Um, I think it's going to be, you know, relatively immaterial for us. Uh and so I wouldn't as you think about the opportunity that's associated with this, I wouldn't put too much there. I think it's really coming back to what that net revenue Improvement, uh, consistent with the approximately 4 basis points, that we noted recognizing there are some of those net expenses that are discretionary and it is at our discretion.
Speaker Change: Awesome. Thank you, helpful.
Benjamin Buddhist: Thank you to. Our next question comes from Benjamin Buddhist with Barclays, Capital. Your line is open.
Hi, good morning, and thank you for taking the question. Um, maybe following up on some of your earlier comments on m&a. Just curious how you think about, you know, the missing pieces in the private Market Suite. Um, and how you think about your capacity? I mean, I think there's a view that, um, to sort of achieve scale, quickly, it it requires maybe a, a bigger check. Um, so how are you thinking about what, what may be missing and, you know how quickly could you scale up some of those capabilities um, in in sort of the near term? Thank you.
Benjamin Buddhist: Capabilities is what's on our mind and, uh, the partnership routes a fantastic route for us and something. Um, that you should look at the the bearings in Mass Mutual announcement from last quarter that we followed through with, um, and things. We've done the last few months, as a really good illustration of where we think, uh, we can see, um, growth in Partnerships. Uh, we'll continue to keep our uh, eyes and ears open to, to other m&a, but the bar to clear for doing Acquisitions and that space will continue to be, you know, very high, um, and our focus on Partnerships as a way to grow. Um, is going to start as priority number 1 and those won't be just here in the US, but opportunities, to do the same in other markets around the world, uh, to expand the capabilities that we can bring to clients. We've been investing over the last couple of years. Um, not just in our own product capabilities, but also in our specialized distribution capabilities and some of our operational uh practices
Benjamin Buddhist: That will help us add more private markets, uh, to the firm and really scale it in a way uh, that can be profitable to shareholders too.
Speaker Change: Thank you. Now, next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Brian Bedell: Great. Thanks. Good morning, folks. Um, maybe just 1 housekeeping and then 1 longer term question, the housekeeping, um, back to the triple Q's. Um, so so the the licensing expense to NASDAQ and the administrative expense, to Bank of New York, do those, um, just to clarify, to those both go into the third-party distribution and servicing, uh, expense line.
Correct. Uh, the the
14 basis points, uh, that we noted, which would be, uh, to both NASDAQ and then the custodian fees to make New York plus the discretionary marketing expense, which totals to approximately 14 basis points, that would all be in third-party distribution, service and advisory expense.
Okay. It does include the sir uh, the the marketing as well. Okay, so at the 14th based Sprint. So then your net revenue, yield is a clean 4 bits. Um, it depending on, where you choose to do in the marketing, I guess.
Speaker Change: That's correct. Okay, got it. Uh, and then the longer term question is just on the 401K Market um, private. Um, you know the potential adoption for private markets products. Maybe if you can talk about how you view your your position there, um, you know what, what is your strategy? And I guess just thoughts on on timing. There's a lot of obviously, a different viewpoints on, you know, you know, to what extent other things have to happen to get plan sponsors to be more comfortable with these products. Maybe just your, your views on that.
Speaker Change: Yeah, maybe I'll I'll start um, you know, with with the caveat that there's a lot, you know, Regulatory and from a litigation, you know um relief standpoint that I think would need to have that would need to happen in order to accelerate the the retirement market for private markets in the US. Um, so with that, you know, assuming that, that those things, uh, could move move forward, and we see some relief, you know, we think there's good promise for private markets in the defined contribution plans. Um, you know, all the capabilities, I mentioned them before and our ability to structure it. The other thing that we have is a is a trust company and Collective trusts, um, being a really good rapper, so, to speak to be able to bring private markets, uh, to plant sponsors and to clients. Uh, you know, we've had several of those conversations, uh, we look forward to hoping to move some of those opportunities forward. Um, we also think that uh, private Market Solutions in, uh, large Target dates Target risk or other multi.
Speaker Change: Asset strategies. Maybe employing public and private together, you know, also could be of great uh interest in the defined contribution space. We have all of those component parts, um, so our ability to meet that market demand and uh, will happen as the market progresses. I think it's going to take some time. Uh, but over time, you certainly could see uh, this be an important part of DC plans. Just like it's an important part of defined benefit plans.
Speaker Change: Yep.
Speaker Change: Great, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Michael Cyprus with Morgan Stanley. Your line is open.
Speaker Change: Yeah, I'll start on the revenue side, um, and we were talking about it before, you know, we, we want to enhance revenue and grow Revenue at a faster clip than we're doing it today. And part of that are the places I mentioned before, uh, where we see real growth opportunity, ETFs and smas private markets. Um, all will be revenue and ultimately profit enhancing. Um, but there's also our need to retain better in the fundamental Equity space and we're doing a lot around that the retention of those assets and the growth, uh, where there is demand, we'll have a meaningful impact on our Revenue picture and it's a place where we're significantly focused as as a company. Um, Alison wanted to pick up from. Yeah. I mean I would say we think there's more opportunity out of all of them. Like I mean, revenue expensive and capital allocation, we by no means feel like we've just kind of um, achieved. Um, we're just, you know, really. I think starting to hit our stride and uh, we see a lot of opportunity.
Alison: That Revenue opportunity that Andrew's already mentioned on the expense side. Um, I think we demonstrated really strong expense management and just a very well-controlled expense base for a number of years now. Even while we've been uh, incurring pretty significant costs for the implementation of alpha. Uh, and now our hybrid approach with both Alpha and Aladdin, uh, you know, as I noted, we do continue to see, uh, and expect, um, pretty significant implementation costs for the back half of this year. But
That's all within the context of a very well-managed expense base. I'm extremely optimistic that we will continue to see uh, operating income Improvement. We've really got positive operating leverage as we sit here today. We're focused, uh, very much so on, uh, organic fee rate growth. And um, that means we have to contend with some of these headwinds uh, on the fundamental Equity side and earn through that, and um, that's our Focus day today, in doing that, we create that positive, uh, operating leverage with a well-controlled expense base. Um, as we noted, we think the implementation of the hybrid approach, uh, will be, will conclude at the end of 26. Um, feeling good about our ability to continue to make progress, uh, and moving ways of AUM on to, um, the AMG platform as the higher implementation expenses quarter is associated with uh, another wave of AUM, that we anticipate moving towards the end of the quarter. And so, you know, I think as we're
Alison: We're able to do all of this. We reallocate our expense space and we continue to find Opportunities to shrink the expense base, um, and create scale, uh, our focus is scale, and I think with 2 trillion in AUM, and a lot of the moves we've made, we're starting to really see the benefits of that scale. Uh, and it, it drops to the bottom line, um, and then last on Capital, allocation, um, you know, following up on kind of Glens question, we're not exclusively focused on on debt repayment, um, and de-levering, but we do think it's an important part of
Alison: Of the story over the next few years. Uh, and starting to unlock that ability was the step we made last quarter, we anticipate making continued progress. We've created a number of avenues for ourselves, especially with the upsizing of the revolver.
Alison: The 2 and a half billion dollars. It gives us the potential uh, to use that in a way that we can de-lever and more of a flexible manner without, um, kind of this kind of fixed fixed rate and rather fixed non-callable debt. Uh, and as we do that, it, it falls and bottom line. It gets us additional operating cash flow that we can use to redeploy into areas of growth. So it's the flywheel that we're focused on. Uh, and we see multiple opportunities ahead. I mean, the company's very much, you know, positioned to play offense. Uh, and I think on Allison's last Point, uh, We've created a lot more flexibility on the, on the, on the ability to deploy capital.
Alison: Great. Thanks so much.
Speaker Change: Thank you. None last question for today, comes from Ken wington with JP Morgan. Your line is open.
Ken Wington: Hi, uh, good morning. Thanks for taking the questions. So first, uh, you're a big cache manager through money funds and stable value. There's been a lot of talk about digital dollars, including, um, stable coins and digital money market funds.
Ken Wington: Do you think digital digital dollars changes cash management and how might invest go fit into cash management and increasingly a digital Dollar World?
The payment stream and the the cash management are very much on our on our operating agenda. Uh, but there's there's a lot that needs to happen for that to to occur. But uh, we're very focused on keeping Pace in the digital asset space.
Speaker Change: Okay great. And then just a little 1 uh it looks like compensation fell quite a bit in the China JV. This quarter uh maybe what happened there and this is the good run rate or was 2q more of a 1-off
Speaker Change: Uh yes. Thanks for the question. Um, a couple of things I point to you'll see, you know, relative to last year revenue and the China JV was a little bit lower relative to the second quarter of last year. That's largely driven by performance fees. Um, so you'll note our overall performance fees were lower than last year. Uh, historically a significant level of performance fees have come from China and given some regulatory changes their. Our ability to earn performance fees is probably a little bit lower going forward than it has been in the past. You saw that come through in the quarter, uh, as they have changed some of the regulation around what is required to earn a performance fee, namely a client, or an investor redemption or or the closing of a fund.
Speaker Change: Um so as we you know, see that activity a little bit lower that has uh correlated impact to compensation. Of course, there were also some discrete items um within that compensation line. I or just that overall expense line item that we saw this quarter. So margins are a little bit elevated, there may be a little bit elevated next quarter but longer term, I do expect, uh, our China JV operating margins would continue to be in that 50 to 55%, uh, range. Uh, but I do think the overall level of performance fees that we will see in the future will be a bit diminished overall.
Okay, thank you very much.
Mrs. Lossburg: And back to you, Mrs. Lossburg.
Mrs. Lossburg: Okay. Well thank you very much. Uh, in closing, we are well positioned to help clients navigate the impact of evolving market dynamics and subsequent changes to their portfolios.
Mrs. Lossburg: When Market sentiment becomes uncertain, we stay even closer to our clients uncertainty. May sometimes create challenges over the short term but we absolutely believe that over the long term client convictions will strengthen which creates opportunities in the future for greater scale, performance and improved profitability for Invesco. Given all the work we have done to strengthen our ability to anticipate understand and meet evolving client needs. I'm very excited for the future of inesco. Thanks everybody for joining the call today. Please reach out to our investor relations team for any additional questions and we certainly appreciate your interest in Invesco and
Mrs. Lossburg: Look forward to speaking with you all again soon?
Mrs. Lossburg: Thank you, and that concludes today's conference. You may all disconnect at this time.