The paragraph is an introduction to Invesco's Fourth Quarter Earnings Conference Call. It states that the call will be in listen-only mode until the Q&A session and will last for an hour. Participants can submit one question and a follow-up. The call is recorded, and materials like the press release and a presentation are available on Invesco's website. The presentation includes forward-looking statements and non-GAAP financial measures, with disclosures on Slide 2. Invesco is not responsible for the accuracy of transcripts provided by third parties. Presentations will be made by Andrew Schlossberg, President and CEO, and Allison Dukes, CFO, before opening up for questions. Andrew Schlossberg then begins by mentioning progress in strategic priorities and performance improvements.

The paragraph discusses the company's strong performance in 2024, despite volatile markets and geopolitical risks. They achieved a 5% organic growth rate with $65 billion in net inflows, resulting in an increase in operating income to $1.4 billion and improved operating margins. The firm gained market share, particularly in global ETF, fixed income, and SMA product ranges. Growth was bolstered by private and alternative credit strategies in the institutional and wealth management sectors, with significant contributions from the Asia-Pacific and EMEA regions. The company also focused on retaining and growing its fundamental equity investment strategies amidst industry outflows.

In 2024, the company focused on strengthening its balance sheet by reducing debt and enhancing financial flexibility, ending the year with nearly $100 million in net cash. The firm increased returns to shareholders through dividends and share buybacks, amounting to 54% of earnings. The fourth quarter saw significant growth driven by innovative ETF and Index platforms, achieving a 25% annualized organic growth rate, with $30 billion in flows. In the US, growth was led by S&P 500 Equal Weight and Equity Momentum strategies, and the Innovation Suite, which includes the QQQM ETF. Additionally, there was strong ETF growth in the EMEA region, with $11 billion in net inflows, and the launch of a new ETF tailored for a Finnish pension insurer.

The ETF launched with a record $2.5 billion in assets and contributed to a strong quarter with increased AUM and revenues, marking significant growth. While there were modest outflows in fundamental fixed income due to stable value being out of favor, other strategies saw solid growth, particularly municipal bonds and the fast-growing SMA platform. Overall, the fixed income product line, which is expansive, achieved 8% AUM growth and $27 billion in net inflows in 2024. The fixed income strategies demonstrated strong performance, catering to diverse client needs across various credit, duration, and geographic preferences.

The paragraph highlights a positive outlook on asset class investments, with significant growth in private markets and the Asia-Pacific region. Private credit saw net inflows of $3.5 billion driven by bank loans and CLOs, while direct real estate, particularly the INCREF fund, expanded to $2.5 billion in assets under management. The real estate team also retains $5 billion for opportunities. In Asia-Pacific, net inflows reached $7.5 billion, led by India and China, with China seeing $2.5 billion in net inflows due to strong ETF demand and new fixed income products. Despite weak market sentiment in China, government economic stimulus is seen as encouraging.

The paragraph discusses the company's success in achieving strong investment inflows in Southeast Asia and Japan, particularly through ETFs and global equity and income strategies. Despite facing challenges with net long-term outflows in multi-asset strategies and modest pressures on fundamental equity flows, there has been some moderation in global, international, and emerging market segments. Emerging market outflows are partially offset by strong global equity and small cap equities inflows. The company has seen a 10% increase in net revenues due to market growth, although asset flows are below long-term expectations. The focus remains on enhancing investment performance, improving talent and risk management, and gaining market share in key equity categories. Slide 6 provides further details on assets under management and flows for additional context on business results.

The paragraph discusses key highlights from the company's investment performance and financial results. It emphasizes the diversity of assets and investment styles, which helps the company adapt to various market conditions and meet client needs. Investment performance is a crucial factor for market share, with nearly half of the funds performing in the top quartile of peers. Two-thirds of the assets under management (AUM) are outperforming their benchmarks. The company is focused on improving equity performance, with significant progress made. Financial results presented by Allison Dukes indicate strong AUM growth, with a total of $1.85 trillion, up 3% from the previous quarter and 16% higher than the end of 2023.

The paragraph outlines the growth in long-term assets under management (AUM), which reached over $1.3 trillion, reflecting a 4% increase from the previous quarter and a 20% increase from the same quarter last year. This growth was primarily due to net long-term inflows, particularly from the QQQ ETF and money market funds, with net long-term inflows driving a $26 billion increase in AUM. Revenue, operating income, and operating margin have all improved compared to both the previous quarter and the same quarter last year. Earnings per share rose to $0.52 from $0.44. The firm strengthened its balance sheet, ending the quarter with cash exceeding debt by $100 million. Additionally, it repurchased $25 million in shares and plans to continue buybacks. The company has adapted to changing client demands by diversifying its portfolio, reducing concentration risk, and positioning itself to better handle market changes and client preferences.

In the fourth quarter, the company's net revenue was $1.2 billion, reflecting an 11% increase from the previous year and a 5% increase from the third quarter. This growth was driven by higher investment management fees, attributed to increased average assets under management (AUM), despite a mix shift. Performance fees also rose, contributing to the revenue increase. Operating expenses were well-managed, with a slight year-over-year decrease and a modest quarter-over-quarter increase. Compensation expenses increased due to higher revenue, while general and administrative expenses were lower compared to both the previous year and quarter.

The paragraph discusses the company's financial adjustments and future expectations regarding General and Administrative (G&A) expenses and the implementation of the alpha platform. Compared to the previous quarters, G&A expenses were significantly reduced due to lower professional fees and an insurance reimbursement. Alpha platform implementation costs were consistent with expectations and are projected to range between $10 million to $15 million per quarter in 2025, with a noted increase in total costs as asset transitions and execution continue through 2026. The combined costs related to alpha are expected to rise by $20 million to $25 million compared to 2024. However, overall operating expenses for 2025 are anticipated to increase by 1% due to higher revenue levels, assuming stable market conditions. Continuous updates on progress and costs will be provided.

The paragraph discusses the company's financial performance and strategic initiatives. In the fourth quarter, the company achieved positive operating leverage, with a notable increase in operating income and improved operating margins. The effective tax rate was 22.2%, and the non-GAAP effective tax rate is expected to be around 25% for the first quarter of 2025. The company ended the quarter with strong balance sheet metrics, having a net cash position surpassing debt by $100 million and a low leverage ratio of 0.25 times. They continued their share buyback program, purchasing $25 million in shares, and plan to maintain this initiative. The total payout ratio, including dividends and buybacks, is expected to approximate 60% by 2025. The company is focused on simplifying operations, fortifying its balance sheet, and investing in growth areas while enhancing shareholder returns.

In the conference call, a question was raised by Dan Fannon from Jefferies regarding the expected expense increase for 2025 compared to 2024, specifically about "alpha" expenses. Allison Dukes responded by stating that the alpha expenses for 2024 were just under $50 million, and they are anticipated to increase by $20 million to $25 million in 2025. She also mentioned that overall expenses for 2025 would be about 1% higher than 2024, assuming spot market conditions as of December 31st. Dukes further noted that the first quarter typically sees seasonal expense fluctuations such as payroll taxes, estimated between $15 million and $20 million, and higher compensation-related to performance fees in the fourth quarter, along with increased marketing expenses. The full-year expense guidance for 2025 accounts for these variations.

The paragraph is a discussion on capital management and expenses between Daniel Fannon and Allison Dukes, with a follow-up from Alex Blostein. Allison Dukes explains that the company's main priority is investing in organic growth while keeping an eye on inorganic opportunities. They focus on expanding their capabilities and regional diversification, particularly noting a gap in their private credit offerings, which is a competitive and costly area. The company's strategy is to grow both organically and inorganically. Alex Blostein then asks for clarification on expenses related to the alpha implementation, noting that it will cost $10 to $15 million per quarter and reach its peak around 2025 or 2026, at which time expenses toward State Street will also begin to rise.

In this exchange, Allison Dukes discusses the financial implications of transitioning assets to State Street, which is expected to be completed by 2026. She explains that current implementation costs will remain between $10 million to $15 million per quarter, consistent with previous quarters. Total costs for 2025 are projected to be $20 million to $25 million higher than in 2024, due to ongoing implementation and fees to platform providers. This cost increase is factored into their overall expense guidance, which is set to rise by 1% compared to the previous year. Dukes notes that cost reductions from decommissioning legacy systems are anticipated after full transition, but it's too early to provide specific guidance on potential savings.

In the conversation, Allison Dukes confirms that once fully implemented, the construction costs of $10 million to $15 million per quarter will no longer be incurred, with benefits expected by 2027. Alex Blostein then inquires about developments in China, to which Andrew Schlossberg responds, noting $2.5 billion in flows this quarter, mainly from equity ETFs and fixed income strategies due to rising demand. He highlights the diversity of their business in China, with a balanced focus on equities, fixed income, and money markets. The additional economic stimulus is gradually increasing confidence among investors, though more improvement is needed.

In the paragraph, several financial clarifications are discussed during a call. Brennan Hawken from UBS asks for clarity on expense increases and specific costs. Allison Dukes explains that a $22 million charge for organizational change was specific to 2023, with no similar expenses anticipated for the fourth quarter of 2024. She confirms a 1% expense increase guidance for 2024 based on a fully reported $3.03 billion operating expense base, assuming flat market conditions. Additionally, she mentions that implementation costs of $10 to $15 million per quarter are expected through 2025 as assets are moved, but she's not ready to comment on costs for 2026. These implementation costs will continue until the asset transition to "alpha" is complete.

The paragraph discusses a discussion between Brennan Hawken and Andrew Schlossberg about an organizational change and its impact on operational effectiveness. Schlossberg mentions that the integration of new assets in the fourth quarter was relatively small, so it's too early for a comprehensive assessment, but the initial experience has been positive. He explains that the company's strategy is focused on simplifying their investment platform to facilitate efficiency by consolidating systems and improving process execution. This simplification is expected to enhance their investment management capabilities and operational leverage as they continue to transition onto the new platform.

The paragraph discusses a conversation about asset migration and implementation costs. Bill Katz asks about the percentage of assets expected to migrate by 2025 and subsequent onboarding costs once migration is complete. Allison Dukes responds by stating that specific percentage details for 2025 and 2026 are not being provided yet, as they are working on minimizing disruption and maximizing efficiency. She mentions that asset migration will continue through 2025 and into 2026, ultimately aiming for nearly all assets to move to a new platform, which will streamline systems and offer benefits. Updates will be given quarterly.

The paragraph discusses the benefits of a software transition to an alpha platform, which is helping the organization reduce costs and improve operations. Andrew Schlossberg highlights that by using a wave approach to implement the platform, the company gains incremental benefits in speed and complexity management. He also mentions the focus on growing opportunities in private markets and alternative investments. Schlossberg notes that there's organic growth potential by expanding private real estate, alternative credit, and private credit strategies into wealth management and institutional markets globally. Bill Katz questions about the low payout rate, considering the company's strong balance sheet diversification and scale.

The paragraph discusses the expected growth in wealth management, highlighting the success of the INCREF real estate debt strategy due to increased demand and limited supply. The fund's size has doubled recently, reaching around $2.5 billion. The company is also expanding into alternative credit in wealth management, aiming for diversification through multi-asset strategies. Their inorganic strategy focuses on forming partnerships, including successful ventures in Asia, to enhance products, distribution, and access to capital. Allison Dukes emphasizes the importance of investing in capabilities, using capital for organic growth opportunities, and maintaining an appropriate payout ratio.

The paragraph discusses the company's approach to upcoming financial decisions, including whether to pay off or refinance a $500 million debt due next January, based on market conditions and growth opportunities. It also highlights the importance of maintaining flexibility to pursue different strategies, such as stock buybacks. Glenn Schorr asks about the company's margin outlook for 2025, considering factors like expense growth and fee rate compression, and Allison Dukes responds by expressing hope for market growth while emphasizing the need for a cautious plan based on flat markets, given the company's reliance on market dynamics.

The paragraph discusses the company's optimism for a positive year, focusing on disciplined expense management and organic revenue growth. The company reports a 1% year-over-year expense growth despite costs related to strategic initiatives like "alpha." The top priority is improving flows across investment capabilities to achieve operating margin expansion by 2025. The company highlights its strong organic fee rate growth in areas like fixed income, ETFs, and private markets, aiming for better performance in 2025. The main challenge is reducing outflows in fundamental equities, which is crucial for revenue expansion. The company prioritizes protecting its business in fundamental equities and pursuing growth opportunities to enhance its financial performance.

The paragraph involves a discussion about the strategy and growth of an ETF (Exchange-Traded Fund) business, focusing on active ETFs. Andrew Schlossberg emphasizes the importance of delivering high-quality investment results to drive success, particularly in fundamental equities. The company aims to differentiate its product line and strengthen its sales and client service efforts. They currently have around $10 billion in active ETFs and $20 billion in more passively oriented ETFs. Schlossberg highlights plans to grow in both areas, leveraging their operational capability and scale. The company has been launching new products and will continue seeking opportunities to expand.

In the paragraph, Allison Dukes addresses a question about fee rates, emphasizing that the changes are primarily due to ongoing mix shifts within various categories. Specifically, in the ETF segment, there's strong demand for offerings like the QQQM and the S&P 500 equal weight, driving the fee rates towards the lower end, while less demand is seen for commodity strategies. Additionally, fee rate reductions in the APAC region have occurred due to regulatory changes in 2023, although these are not expected to cause long-term pressure on their product lineup. Dukes notes that these trends are largely demand-driven and not influenced by any lasting secular pressures.

The paragraph is part of a discussion where Andrew Schlossberg addresses questions about custom indexing and ETF adoption in Europe. Schlossberg notes that large institutional custom indexing opportunities, like the recent $2.5 billion deal with a Finnish pension insurer, are more episodic but there is growing demand for custom indexing overall. This demand could come from institutions, wealth platforms, or index providers. Patrick Davitt then points out the increasing adoption of ETFs in Europe, suggesting it's catching up with the US, and asks Schlossberg whether this trend is a positive or negative for Invesco given their higher fee legacy products in Europe.

The paragraph discusses the anticipated growth of the ETF market in Europe, highlighting its early stage as a promising secular trend. The company already has significant ETF assets in the region and expects demand to increase, potentially shifting from an institutional focus to greater retail involvement. Their current offerings are largely equity-focused, but they have developed a robust fixed-income line. They anticipate trends seen in the U.S., such as bringing active portfolios into ETF wrappers, to occur in Europe as well, making them cautiously optimistic about ETF growth in the EMEA region. Additionally, fee rates are lower in Europe compared to the U.S., but the focus remains on organic revenue growth from these developments. The company emphasizes the importance of efficient platforms leveraging technology and operational scale across different regions.

The paragraph discusses ongoing discussions between a company and Mass Mutual regarding options for preferred shares originally used to finance the acquisition of Oppenheimer. Despite higher rates potentially affecting Mass Mutual's attractiveness to these options, factors such as tax, capital, and rating considerations are influencing their decision. No updates are provided, but there is exploration of potential flexibility for the future. The conversation shifts to Ken Worthington from JPMorgan inquiring about Invesco's institutional business success. Allison Dukes responds by indicating that the institutional business pipeline is growing and improving, with promising prospects looking into 2025, although she cautions that the pipeline is not a definitive measure of future success.

The article discusses the expansion and growth across various investment regions and capabilities, highlighting significant growth in ETFs, indexing, private markets, and real estate. Fee rates are at the high end of the typical range. Andrew Schlossberg notes strong demand in fixed income and increased interest in Asian and global equities, despite a competitive environment. Ken Worthington inquires about business losses, to which Allison Dukes responds that outflows were noted in the balanced risk strategy with DIA and stable value, primarily due to unfavorable market conditions and rate differences with money market rates.

In the discussion, Andrew Schlossberg and Allison Dukes address questions about market trends and operating margin outlooks. There is a focus on the compensation-to-revenue ratio, which has historically been around 40% to 42% but recently increased to over 43%. Dukes explains that this ratio is considered independently of market conditions, and there is a long-term goal to return to the 38% to 42% range. She notes that factors like severance and organizational change expenses have contributed to the current higher ratio. They expect the ratio to remain around 42% to 43% in 2025 unless there are strong revenues.

The paragraph discusses the future of active equity ETFs, specifically exploring the idea of cloning successful active mutual fund strategies into ETFs. Andrew Schlossberg mentions several possible approaches, including conversions, cloning, and the creation of an ETF share class for mutual funds, which are being explored in regulatory discussions. He notes that while cloning might seem appealing, it isn't necessarily the primary approach they will pursue. Schlossberg emphasizes the importance of offering high-quality products across different vehicles and wrappers to meet client demand. In closing remarks, he states that they are well-positioned to help clients navigate changing market dynamics and their portfolio impacts.

The paragraph outlines the positive outlook for Invesco as market sentiment improves, leading to stronger client convictions, enhanced performance, and profitability. The speaker expresses excitement for Invesco's future and expresses gratitude to colleagues for their hard work in upcoming years. The speaker thanks participants in the call and encourages them to contact investor relations for further questions, concluding the conference call.

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