The Invesco First Quarter Earnings Call will last one hour and will include forward-looking statements and non-GAAP financial measures. The call will be led by Invesco's Head of Investor Relations, Greg Ketron, with presentations from President and CEO Andrew Schlossberg and CFO Allison Dukes. Economic conditions were relatively stable in the first quarter and equity markets continued to rise, with the S&P 500 gaining 10%.

The market showed signs of improvement in terms of breadth, with large-cap growth and tech stocks leading the rally. Developed markets outside of the U.S. also saw modest growth, while China continued to lag. Fixed income markets were weak due to changing Fed expectations. Invesco saw an increase in client demand and delivered net long-term inflows of $6.3 billion. Their net revenue and adjusted operating income dropped slightly from the previous quarter, but they remain optimistic about market clarity and increasing investor appetite. The company's investment capabilities align with their net revenue yield and portfolio migration disclosures, which will be expanded on later in the presentation.

In this paragraph, the author discusses the different areas of their business, their investment capabilities, and their performance in Q1. They highlight their strong organic flow growth driven by their ETF and Index platform, which saw a record high in long-term AUM. They also mention their equity innovation suite and the success of their fund QQQM. In addition, they discuss their expansion into the ETF and Index franchise and their focus on both passive and active ETFs. Finally, they mention their belief that as investors gain clarity on inflation and interest rate policies, they will move towards a wider range of fixed income strategies.

In the first quarter, the company saw continued growth in their fundamental fixed income and fixed income related ETF and Index strategies, as well as a rapidly expanding retail SMA offering. The company is also seeing interest in their intermediate tax-exempt and taxable investment-grade strategies. In addition, the company had net long-term flows of $1 billion in their Private Markets division, driven by inflows in their credit strategies, specifically bank loans. The company is well positioned to continue growing their retail SMA platform and is seeing a lot of opportunities in this space.

The company saw positive flows into Direct Real Estate, driven by their non-exchange traded REIT and has $6 billion in dry powder for future opportunities. In the Asia-Pacific region, there were modest positive flows in China and India, and the company announced a joint venture in India. In Multi-Asset and Other capabilities, there were net inflows led by quantitative equity strategies, but there were outflows in their GTR capability. There was continued pressure on fundamental equity flows.

In the first quarter, there was a decrease in outflows in global, international, and emerging market segments, with net outflows of $1 billion to $2 billion per quarter. However, the global equity and income strategy saw a significant increase in net flows, thanks to the growing Japanese market. In terms of investment performance, the company's AUM is beating benchmarks and peers, with a significant number of funds in the top quartile of performance. The company remains focused on investment quality, product breadth, and client engagement to drive sustained asset flows.

In this paragraph, the speaker discusses the strong performance of Invesco's fixed income and equity capabilities, with 92% of their fixed income capabilities beating their benchmark and 68% in the top quartile on a five-year basis. They also mention improving results in domestic and global equity strategies. The focus of the company is on simplifying and focusing their business, as well as tightening financial discipline to drive innovation and growth. The financial results for the first quarter show a $77 billion increase in assets under management, driven by higher markets and net long-term inflows, particularly in ETFs. Overall, the company saw organic growth of 2.2% from net inflows.

In the first quarter, Invesco saw $11.2 billion in ETF inflows, partially offset by $5.6 billion in fundamental equity net outflows. Net revenues, adjusted operating income, and adjusted operating margin all improved from the previous quarter. The company also simplified and streamlined its organization, resulting in $60 million in annual net savings. Operating expenses remained well-managed and the company strengthened its balance sheet by redeeming a $600 million senior note. There has been a significant shift in the company's asset mix since the acquisition of Oppenheimer Funds, with ETF and Index AUM growing from $171 billion to $398 billion since 2019.

The QQQ has grown significantly in size, along with global liquidity, while demand for fundamental equities and Multi-Asset products has weakened. This has led to a decline in the overall net revenue yield, but it is due to a shift in asset mix rather than a decrease in yield from investment strategies.

The net revenue yields by investment strategy have been stable and the company has been able to capture the shift in client preferences. The portfolio is more diversified now, reducing concentration risk and improving profitability. The first quarter net revenue of $1.05 billion was lower than the same period in 2023, but higher than the previous quarter. The decline was due to a shift in asset mix, while the increase was due to higher investment management and service and distribution fees. Operating expenses were reclassified for more accurate reporting.

The company has reclassified certain expenses as G&A expenses, but this had no impact on operating revenues, total operating expenses, operating income, or net income. Adjusted operating expenses increased by $8 million from the first quarter of last year, but were $14 million lower than the fourth quarter, mainly due to lower G&A expenses. Employee compensation was higher due to seasonal factors, but this was partially offset by lower costs related to organizational changes. G&A expenses were $21 million lower than the previous quarter, primarily due to lower professional services fees. The company also spent $7 million on the Alpha platform implementation, lower than the previous quarter's $12 million.

In the first quarter of 2024, the company expects to incur around $10 million in one-time implementation costs for Alpha, with some fluctuations. The effective tax rate was 24.6% and is estimated to be between 23% and 25% for the second quarter. The company achieved $4 million in net expense savings related to organizational changes, exceeding their target of $50 million for 2024. The full benefits of these changes will be seen over time. The company manages variable compensation to a full-year outcome and expects it to be slightly above the higher end of the range for 2024. The company redeemed a $600 million senior note and ended the quarter with $900 million in cash and $368 million drawn on the credit facility.

The company ended the quarter with a net debt of $362 million, which is an improvement from the previous year. They plan to pay down their credit facility and begin a stock buyback program. The board has approved an increase in the quarterly common stock dividend. The company's net flows performance has been strong and they are making progress in simplifying the organization and building a stronger balance sheet. They are committed to driving profitable growth and have the right strategic positioning to do so. There was a discrepancy in the Service and Distribution revenues and third-party expenses this quarter.

The company had an increase of $21 million in fund related expenses due to a shareholder meeting to elect new trustees. This was an infrequent occurrence, with the last time being in 2017. The majority of the expense was offset by the funds themselves. The ratio of third-party contra revenue to management fees is running higher this year, possibly around 43%. This is due to fixed costs and a lower revenue trajectory at the start of the year. The fee rates and mix have been impacted by the Oppenheimer deal, with fundamental equities assets seeing a 9% increase and representing the highest fee bucket.

The speaker is asked about the confidence in fundamental equity being a continued headwind, and they respond by saying that while it could still be a headwind, they are managing the exposure down and seeing strong organic growth in other categories. They also mention the importance of investment performance and acknowledge that geopolitical challenges will likely continue to be a headwind for fundamental equities.

Andrew Schlossberg and Allison discuss Invesco's performance in fundamental equities, highlighting areas of demand and their efforts to improve the stock price. They acknowledge that the stock price has lagged in the past year and address mixed issues that have negatively impacted earnings, but express confidence that these will moderate and allow for growth in the future. They also mention strong demand in areas such as passives, ETFs, and fixed income, but note that demand has not picked up in other areas such as global and international emerging equities.

The company is focusing on driving growth and being disciplined with expenses. They hope this will increase profitability and share price. There is a mathematical tipping point when it comes to the mix of assets and net revenue yield, but they do not expect fundamental equities to disappear completely. They are seeing positive net revenue growth in ETFs, index, fixed income, and global liquidity, but this is being offset by headwinds in fundamental equities. These headwinds are expected to diminish over time due to client demand and asset allocation.

The speaker discusses how markets have been narrow and client demand has been low, but they are optimistic that as clarity comes into the markets, demand will broaden out. They mention a tipping point that they believe they are getting closer to, but it is hard to predict when it will happen. They are encouraged by strong organic growth and well-managed expenses, and feel confident that they are reaching a pivot point, but cannot be certain due to uncertainty in client demand and markets.

The speaker, Allison Dukes, clarifies that the shift in expenses was not a way of signaling potential cuts, but rather a reclassification for more accurate reporting. The speaker also confirms that the AUM disclosures are net revenue yields, excluding performance fees and distribution. They may provide more granular disclosures in the future for better modeling and historical time series.

The speaker discusses the updated disclosure format and how it will be more helpful going forward. They mention that fee rates will be provided in ranges and will be adjusted if necessary. The speaker also talks about the different categories within the Private Markets business, including Direct Real Estate and listed Real Estate.

In this paragraph, the speaker discusses the breakdown of the company's private credit and real estate investments, as well as their potential for growth. They mention that bank loans and floating rate strategies are in high demand and that they are a market leader in that space. They also mention their efforts to bring their institutional real estate franchise into the wealth space, with a focus on their equity and debt strategies. The speaker also addresses the fee rate dynamics and how they are thinking about margin expansion over the next 12-18 months. They clarify that the decrease in fee rate does not necessarily mean a decrease in revenue and that they are working to refine their disclosures on this matter.

The speaker discusses the potential for growth in ETFs and fee rate degradation, as well as the company's efforts to manage expenses and streamline the organization. They believe there is an opportunity for positive operating leverage, but market and geopolitical factors may continue to be headwinds.

The company is investing in growth capabilities and creating a more flexible and streamlined organization with a long-term focus. The SMA platform has grown to $23 billion and has seen success in the fixed income space, with plans to introduce custom indexes and active strategies. The company believes there is still room for growth in the SMA platform and plans to bring in more strategies in the future.

Andrew Schlossberg discusses the company's active ETFs and their $25 billion AUM that is connected to active teams. He mentions that half of the AUM is in traditional active ETFs and the other half is in passive strategies supported by investment teams. Schlossberg believes that the ETF chassis will continue to bring in both traditional and alternative active strategies, and that the company is well positioned to be a leader in this space. He also mentions that the company is streamlining their Indian platform and reinvesting in faster growth areas.

The speaker discusses the company's use of India as a back office and middle office center, as well as their joint venture with Hinduja Group. They also mention their focus on growing and deploying resources in different markets. In terms of distribution, they mention a 26.1-basis-point average fee rate for the quarter and the potential for capital return in the second half of the year. They also mention a $18 million revenue and $21 million contra revenue related to a proxy event.

The speaker discusses the $3 million cost borne by Invesco and its impact on net revenue yield. They state that it is not a significant factor and guide to thinking about 43% of third-party contra revenue as a percentage of management fees. They also mention that buybacks may resume in the middle to back half of the year and their total payout ratio will be in the 40% to 60% range. The speaker then addresses a question about the creation of active ETFs that are clones of fundamental strategies and their appetite for such strategies.

The company is driven by client demand when it comes to offering fundamental strategies in ETF form. They expect to see a mix of new and converted funds in the industry. The fee rates for these ETFs will be included in the ETFs and Index investment capability category and may be adjusted in the future if there is significant growth.

The analysts ask about the scalability and profitability of the ETF franchise. The executives confirm that the franchise is margin accretive and that they are seeing the benefits of scale. They also mention the importance of the ecosystem behind the products, such as technology and operations. The last question is about the net outflow in the APAC region, and the executives are asked about the largest sources of redemptions by geography and product in the region.

Andrew Schlossberg and Allison Dukes discuss the positive flows in the Asia-Pacific region, driven by strong inflows in Japan and India. They also mention a $1 billion inflow in Private Markets, but clarify that this includes both redemptions and realizations.

The paragraph discusses the outflows and listed real estate at Invesco. Craig Siegenthaler, Allison Dukes, and Andrew Schlossberg thank everyone for joining the call and express their confidence in Invesco's ability to help clients navigate market changes. They believe that improved market sentiment will lead to strong performance and profitability for Invesco. The call concludes and participants are encouraged to reach out to the Investor Relations team for any questions.

This summary was generated with AI and may contain some inaccuracies.