The operator introduces the Invesco Second Quarter Earnings Conference Call and reminds participants that the call is being recorded. The Head of Investor Relations, Greg Ketron, then introduces the speakers, President and CEO Andrew Schlossberg and Chief Financial Officer Allison Dukes. The presentation will cover forward-looking statements and non-GAAP financial measures, and the company is not responsible for the accuracy of third-party transcripts. Schlossberg discusses the company's performance and growing business momentum in the second quarter, highlighting their client network, product suite, and investment results.

In the second quarter, Invesco experienced strong net long-term flows and reached a record high of $1.7 trillion in AUM. They also saw positive operating leverage and increased operating margin. However, the market environment remained choppy and uncertain, with higher interest rates impacting client behavior and business results. While U.S. markets performed well, there was a trend of narrow market returns. Outside the U.S., equity returns were mixed, with China's markets showing improvement. On the fixed income side, the Bloomberg global ag index declined while most major bond indices were flat.

Invesco is optimistic about the future, as they have a strong global presence and a diverse range of investment strategies. They are well-positioned in the ETF market and have a leading distribution platform, particularly in the U.S. wealth management market, which has potential for growth.

The company's strategic focuses are centered on prioritizing areas of potential growth and utilizing their strengths to drive growth in key regions, channels, and asset classes. The top priority is investment performance, with a focus on enhancing active equity strategies. The company is also working towards profitable organic growth through scalable investment capabilities and delivery vehicles, as well as expanding into private markets. Next generation technology is being utilized throughout the company's platform, and efforts are being made to improve financial flexibility and generate better returns for shareholders.

The key performance indicators outlined on Slide 3 reflect the outcomes that Invesco is seeking to achieve. These themes were also the focus of the discussion on second quarter results. In the second quarter, Invesco's strong organic flow growth was driven by its global ETF franchise, which saw $12.8 billion in net inflows and a 13% annual organic growth rate. The growth was led by various products, such as the QQQM and the recently launched sustainable energy ETF. Invesco's ability to offer customizable regional ETFs has also contributed to its success in the ETF space. Fixed income also saw growth in the second quarter.

The company believes that as investors gain more clarity on inflation and Central Bank policies, they will move away from cash and into a wider range of fixed income strategies. In the second quarter, the company saw strong demand for active fixed income strategies, particularly in municipal bonds and high-yield munis. They also saw solid inflows in their institutional channels, particularly from Asia. In private markets, the company reported net inflows of $2.6 billion, driven by credit strategies such as bank loans and CLOs. They also saw positive flows into direct lending and their non-exchange traded REIT focused on private real estate debt.

The global real estate team has $5 billion available to take advantage of market opportunities. In Asia Pacific, there were strong inflows of $6.7 billion in assets managed, driven by fixed income and balanced strategies. The team also launched four new equity products and collaborated with the global ETF team to launch Europe's first ETF linked to the ChiNext 50 Index. There were modest net outflows in multi-asset strategies and active fundamental equity flows have slowed in global, international, and emerging market segments.

The global equity and income strategy has been a successful area for Invesco, with significant inflows in the Japanese market. The company is confident in their active equity management and is focused on investment quality and performance. In terms of AUM and flows, there has been solid net inflows across all regions, particularly in Asia Pacific. This region includes not only products managed in the region, but also those managed globally and sold into Asia Pacific. The chart at the bottom of the slide shows a significant improvement in net flows for overall active investment strategies.

The paragraph discusses the positive flows and improvement in the institutional channel as well as the firm's investment performance. The slide shows that 70%, 65%, and 76% of the firm's assets under management have beaten their benchmark on a one, three, and five year basis. The firm has also improved in terms of performance relative to peers and has strong fixed income performance. The firm is focused on improving equity performance and believes there are significant opportunities for growth.

In the second quarter, Invesco's total assets under management reached a record high of $1.7 trillion, with a $53 billion increase from the previous quarter. This was driven by higher markets and net long-term inflows. The company saw strong net inflows across most of its investment capabilities, except for fundamental equity which had net outflows. Adjusted revenues, operating income, and operating margin improved from the previous quarter, resulting in an adjusted diluted EPS of $0.43. Invesco also paid down its credit facility and ended the quarter with nearly zero net debt.

The company expects to resume share buybacks in the third quarter and has seen a shift in client demand which has resulted in a more diversified portfolio and reduced concentration risk. Net revenue yields have remained stable and the company's net revenue in the second quarter was higher than the first quarter due to an increase in average AUM and performance fees.

In the second quarter, total adjusted operating expenses decreased by $7 million or 1% from the previous quarter. This was due to lower compensation expenses offset by higher performance fee related compensation. G&A expenses were also lower due to decreased professional fees, partially offset by increased costs related to the implementation of the Alpha platform. On a year-over-year basis, adjusted operating expenses were $12 million lower. Operating income increased by $39 million or 13% and the operating margin improved by 270 basis points. The effective tax rate was 22.1% and is estimated to be between 23% and 25% for the third quarter. The company is also making progress in building balance sheet strength.

The company had $368 million drawn on their credit facility at the end of the first quarter, but improved their net debt position to nearly zero by paying down the credit facility in the second quarter. This resulted in an improved leverage ratio and the company plans to maintain or improve their net debt position going forward. They also plan to begin a regular stock buyback program in the third quarter and expect their total payout ratio to be in the 50% to 60% range. The company remains committed to driving profitable growth and enhancing return of capital to shareholders. During the Q&A session, it was clarified that the decrease in fee rates for ETFs and multi-assets was due to ongoing mix shift, not fee adjustments.

The company is seeing continued mix across the product spectrum with no real fee adjustments in both capability categories. They have noticed green shoots for fixed income, possibly due to RFPs picking up and demand for longer-duration assets. There has also been strong demand in Asia and China, particularly in fixed income and fixed income plus. However, the distribution and servicing fees have been a headwind for the company.

During the earnings call, Allison Dukes addressed a question about the relationship between service and distribution fees and third-party distribution contra revenue. She stated that last quarter's results were anomalous due to proxy costs, but over a series of quarters, the relationship between these fees and management fees has remained consistent. Dukes also mentioned that there may be some impact from mix shift. She also discussed the lower professional related fees in G&A, which drove G&A to be lower this quarter. She did not provide specific details on the sustainability of this trend, but it could potentially be a tailwind in the future.

In the paragraph, Allison Dukes discusses the variability of expenses in the company, including legal, consulting, and implementation costs. She clarifies that this should not be seen as a tailwind, but rather as a normal fluctuation. She also mentions that travel and entertainment expenses are included in this line item. In response to a question about retail democratization, Andrew Schlossberg mentions the success of their real estate debt and credit funds in various wealth management platforms. He also mentions the demand for these strategies globally.

The speaker explains that the company's strategy moving forward is to focus on both returning capital to shareholders and potentially making strategic acquisitions. They want to improve their balance sheet and increase earnings in order to have more flexibility in these areas. The company remains open to opportunities for organic growth and filling in any gaps in their capabilities. The questioner then asks about the 6% organic growth rate in the quarter and how it compares to the inflow of ETFs and outflow of fundamental equities.

Craig Siegenthaler asks Allison Dukes about the trend of organic revenue growth compared to AUM growth. Dukes points to Slide 8 for more detailed information and mentions that the focus is on driving organic revenue growth, which has been challenging due to pressure on fundamental equities and ETFs. Andrew Schlossberg adds that some headwinds are starting to abate, particularly in Asia and alternative credit. Siegenthaler then asks about when expenses related to the State Street Alpha implementation will start to decrease.

Allison Dukes discusses the implementation timeline for transitioning AUM onto the Alpha platform, which is expected to run through 2025. Craig Siegenthaler asks about the fee rate trajectory and Allison focuses on the exit rate for the second quarter, which was around 25.2 basis points. She also mentions the market fluctuations and their impact on the fee rate.

The company's net revenue yield for the quarter was slightly lower than average, and it is difficult to predict where it will end up. The focus is on driving organic revenue, and the 6% organic flow rate is something the company is proud of. The recent market trends have been positive, and the company's diverse range of assets and capabilities should benefit from any further broadening. As for the JV in China, it is a domestic business and the relationship with the partner is strong and resilient, providing some assurance in the face of potential trade tensions between the US and China.

In this paragraph, the speaker discusses the growth and performance of Invesco's ETF business. They mention that the fee rate has been decreasing, but the business has been seeing consistent and broad growth. The speaker also mentions that they are focusing on active ETFs as a key area of growth, as the market starts to adopt them.

The company has over $10 billion in assets in the investment space, with an additional $30 billion affiliated with its investment teams. Growth is expected to continue, particularly in Europe and Asia, as well as in fixed income and alternative strategies. The ETF business is also contributing to profitability. There were some ups and downs in G&A during the quarter.

During a recent earnings call, Allison Dukes, the CFO of a financial services company, was asked about the expectations for G&A expenses for the full year and for 2025. She stated that the company's guidance for the year was for expenses to be around $3 billion, but with increased AUM, the company has seen a positive impact on overall expenses. She also mentioned that comp to revenue is trending above 42% for the year and will likely be closer to 43%. The company manages expenses in totality and there may be some lumpiness quarter-to-quarter. Another analyst asked about the company's focus on profitable organic growth, and the CEO responded that this is always a focus for the company and there is nothing specific driving this focus, such as exiting certain RFPs or businesses.

Andrew Schlossberg discusses the company's focus on profitability, specifically in areas such as ETFs, SMAs, fixed income, and multi-asset. He mentions their use of technology and bringing together investment teams to scale well and expand profitability. He also provides an update on their strong relationship with MassMutual and their focus on growing private market capabilities. MassMutual currently has 3-4 times the amount of capital invested in their strategies compared to their balance sheet.

The speaker discusses the importance of seating and co-investing in strategies to grow the wealth management platforms, particularly in real assets. They continue to progress and grow through traditional insurance channels and are a leading provider on MassMutual's platform. They have strong partnerships with MassMutual and leverage their balance sheet to get products to market faster. The institutional pipeline is consistent with last quarter and is an okay but not excellent measure of expected flows.

The company has seen consistent flows from its pipeline, which accounts for about 30% of its flows. The fee rate remains high, ranging from 25 to 35 basis points. The institutional flows are well diversified across regions, with strength seen in Asia and Europe. Sales have picked up in the quarter, driven by gross sales. The company's business in Japan has grown, with a strong presence and growth in both public and private credit.

The speaker discusses the company's outlook for the Japanese market, specifically in terms of recent regulatory changes and the potential for growth in various areas such as ETFs and private markets. They also mention their established position and reputation in the market. The moderator then opens the floor for one final question from an analyst.

The speaker discusses the focus on performance and fundamental equities in the company's net revenue yield. They mention the potential for growth in the active ETF space and the need for improved investment performance and client demand to drive net flow rate.

The sales team is working closely with product design and investment teams to improve performance and increase gross sales. While the industry expects challenges, the company is focused on outperforming and improving investment performance to potentially return to inflows. In the meantime, the company is seeing profitable growth in other areas and is optimistic about potentially broadening into different markets.

The speaker concludes by saying that they are well-equipped to help clients navigate the changing market dynamics and improve profitability. They are excited for the future of Invesco and thank everyone for joining the call. They encourage further communication with their Investor Relations team and look forward to speaking with everyone again soon. The conference call has now ended.

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