Invesco at Bernstein Conference: Strategic Moves in Volatile Times

On Thursday, 29 May 2025, Invesco (NYSE:IVZ) presented at the Bernstein 41st Annual Strategic Decisions Conference 2025, where CEO Andrew outlined the company’s strategic direction amid market volatility. The company highlighted strong net inflows and growth in key regions, while also addressing challenges in active equity performance. Despite a focus on streamlining operations, Invesco remains committed to expanding its presence in Asia and growing its ETF and alternative investment offerings.

Key Takeaways

• Invesco reported $1.5 billion in net inflows in April, driven by strong performance in EMEA and Asia.
• Operating income increased by 18% year-over-year, with a four-point margin expansion.
• The company is focusing on simplifying operations and improving efficiency, retiring $1 billion of preferred stock for financial flexibility.
• Invesco’s ETF business is scaling well, with net flow market share twice that of asset market share.
• Strategic partnerships in the alternative space are expanding Invesco’s offerings into the wealth sector.

Financial Results

• April net inflows were $1.5 billion, with significant contributions from EMEA and Asia.
• Invesco’s China joint venture reported approximately 50% margins, with a fee rate of 35% to 40%.
• The company’s Q1 operating income grew by 18% compared to the previous year, with a margin expansion of four percentage points.
• Invesco manages $600 billion in fixed income assets and $130 billion in private market assets.

Operational Updates

• In Asia, Invesco benefits from a strong domestic business in China and is selling a stake in its Indian operations to enhance market growth.
• The company focuses on improving active equity performance through investment quality and product consolidation.
• Invesco’s ETF business continues to grow, particularly in alternative weighted indexes and unique access indices.

Future Outlook

• Invesco aims to capitalize on mid-term growth drivers like demand for fixed income and private market strategies.
• The company plans to maintain a payout ratio between 40% and 60% while continuing to invest in business growth and deleveraging the balance sheet.
• M&A activity remains a low priority as Invesco focuses on internal growth and efficiency.

Q&A Highlights

• Invesco is optimistic about the potential of active ETFs and has filed for ETF share classes of mutual funds.
• The company is not currently focused on increasing its stake in the China JV, as the current strategy is effective.
• Invesco believes it can achieve expense synergies with a single platform, moving to a hybrid approach with State Street Alpha and BlackRock Aladdin.

For further insights, readers are encouraged to refer to the full conference call transcript.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Patrick Davitt, US, asset manager analyst, Autonomous: Good afternoon, everyone. I’m Patrick Davitt, the US, asset manager analyst here at, Autonomous. It’s my pleasure to welcome, Invesco back to the conference. Thank you. Thanks so much for being here, Andrew.

Thanks, Patrick. As a reminder, if you want to, ask any questions, I’ll try to throw them in. You can do it through Pigeonhole, on your device, and and I’ll work them in as as it makes sense. So, maybe to start, Andrew, I think, we’ve all probably had a little bit of whiplash over the last couple of months into last night, with with the court news. So I think it’d, be helpful to get a reset, on what you’re seeing in the marketplace.

Firstly, investor behavior. How how has that evolved through the worst of April and now since the earnings call, obviously, with markets opening back up?

Andrew, CEO, Invesco: Yeah. Well, thanks for Yeah. Thanks for tale of tale of two markets. If you kind of would have gone to sleep in mid late March and woke up today, it it at the face of it, it doesn’t look that different. But it’s been, as you said, a lot of whipsawing.

I’ll start by saying client behavior or client reactions or client sentiment has been pretty orderly. So and I think for a couple of reasons. One, there is a lot of cash on the sidelines. So there’s something like 20 to 25% of the average private wealth platform would tell you their clients are in cash. So I think there was already a little bit of a buffer there.

I think everything happened so fast that people were trying to react, but it was very orderly, in particular from wealth and retail. And then as far as Invesco is concerned, given how diverse our business is and frankly given the strength of our non U. S. Businesses in EMEA and Asia, are around $550,000,000,000 of our assets under management, we actually had a result of plus $1,500,000,000 of net flows in April. And while we haven’t published our May figures yet, it’s trending better in May.

So we may have had a different experience. And the strengths that we’ve seen continue to be around fixed income mandates institutionally are still funding. We had a big one in Europe that funded in March and April. China for us is doing has done well and continues to flow. Global equities, in particular, amongst Asian clients has been quite strong.

And then in May, the addition we’ve seen is equity ETFs in The U. S. Have really picked up pace in May, where April was quite slow. So we’re seeing it’s not Q1 pace because Q1 was really strong for us, but it’s I think it’s weathered pretty well.

Patrick Davitt, US, asset manager analyst, Autonomous: Yeah. Sure. On that, I think a lot of people were shocked by the solid inflow you reported in April. Most of the coverage reported outflows. What would you point to as the key drivers of your outperforming what we saw from other players?

Andrew, CEO, Invesco: I think it’s that non U. S. Bit. So I think the we’ve been in the European markets and the Asian markets that we’re participating in for decades. We have high quality relationships.

We have depth on the field and end market. And so that’s where we saw the preponderance of our inflows, while The U. S. Was a little more challenged with some outflows. So back to what I was saying, it was China, onshore China.

It was global equities out in Asia, and it was fixed income in Europe was really what drove that performance.

Patrick Davitt, US, asset manager analyst, Autonomous: So that’s a good segue into China and APAC. Obviously, another topic you’re particularly well positioned to address. Firstly, I think you probably have the best domestic Chinese business of the large US Managers. So how has that business been tracking through all this volatility? And more broadly, how do you sense any risk of your ability to keep ownership of the platform through all of this tariff volatility?

Andrew, CEO, Invesco: Can I say a word about Asia more broadly and

Patrick Davitt, US, asset manager analyst, Autonomous: then get on

Andrew, CEO, Invesco: to China for a second? So out in Asia, we think it’s one of the great growth opportunities for our business and a place where we have a lot of strength. So I mentioned about $275,000,000,000 of client assets are out in the market. I think owing to how wealth creation is getting formed out in Asia and the transfer of wealth demographic changes, less developed in most of the country’s retirement systems and government reforms in a lot of those markets that are really favorable to asset management and wanting their citizens to be invested into the asset management and capital market. So all of those are good for us in Asia where we’ve been for a long time.

The key markets that we’re focused on are Japan, China, Australia, Southeast Asia, and India. So a lot of the core markets. Before I get to China, I’ll say Japan has been maybe the best example of where we bring our global capabilities into a domestic market and a place we’ve been for decades. And now we’re seeing the benefits of some of those macro forces I mentioned. So that business or in Japan, we manage now $80,000,000,000 for clients, and that’s two times what we managed four years ago.

And a lot of that growth has come in global equity and global bonds. China, in particular. China is a core market for us in Asia. It’s a domestic to domestic JV that we have. It’s about $100,000,000,000 of assets.

Its margins are about 50%. Its fee rate is 35% to 40% or basis points. And we’ve reached high watermarks of those assets, to answer your question about how has it been. The last several quarters, it’s been in positive flows. And the last two months, even with all of the tumult that’s going on, has also been in positive flows.

So we think it’s a place that’s going to go from strength to strength. It’s a domestic business. So the economy the quality and the strength of the economy in China, the quality and the strength of the capital markets in China will influence the success of that And the stimulus that’s going on in China, the focus on domestic consumption, the government reforms in general, but I think most importantly for Invesco strategically in the long run is the development of the retirement system in China, which they need for that growing middle class a safety net, a security safety net. And they’ve been vocal about building out the retirement market. So we’re really well positioned for all that.

We own 49% of the JV, so we’re the minority partner. But we have day to day management control. So we feel, despite the macro challenges going on geopolitically, the business is in really strong shape. Yep.

Patrick Davitt, US, asset manager analyst, Autonomous: And and no concerns that, you know, your ownership your ability to own something like that could be caught up as kind of collateral damage and all of the

Andrew, CEO, Invesco: So the fact that the business there is is domestic domestic, all it’s walled off. All of the investors that we have there are Chinese. All the people doing the investments are Chinese. Right. All the clients are Chinese.

It’s really pretty domestic. So I I I I don’t Yep. I don’t focus on that.

Patrick Davitt, US, asset manager analyst, Autonomous: Great. Another one on APAC. You recently announced selling a stake in your Indian Yes. Business and keeping, I think, 40%. What was the thought process behind that and the opportunity from doing something like that?

Andrew, CEO, Invesco: One of the strategic goals for Invesco that we’ve been talking about the last few years is continuing to simplify and streamline our business while staying focused on the core activities, asset classes and markets. We really like the Indian market, but our ability, we felt, to capitalize on the growth in India that a partner would be a wise thing to do. And just think about my China comments, it’s sort of similar. We’ve had a great partner. So we were able to find a partner that has bank distribution in the financial services space.

So we’ll be able to participate continue to participate in the Indian market growth as a minority owner. And in time, as that asset management business grows, there’ll be more opportunities for us to sub advise investment strategies into it. And it allows us to take some cash off the table and use it for other sources.

Patrick Davitt, US, asset manager analyst, Autonomous: Helpful. Thanks. What do you think the timeline is to getting more of that sub advisory?

Andrew, CEO, Invesco: On the Indian side.

Patrick Davitt, US, asset manager analyst, Autonomous: Yeah. The Indian.

Andrew, CEO, Invesco: Well, we’ve got to close the transaction, which hopefully is soon. I think it’s going to take a it’s a very domestic business at the moment, so I think it’s gonna take a little bit of time before they start really deploying into Greater Asia and then to Okay. Outside, so over the next few years.

Patrick Davitt, US, asset manager analyst, Autonomous: So that all sounds great. Probably the most challenged part of your business is active equity. So with the macro discussion in mind, it seems like active equity fund performance gotten a little better this year, but on average, most managers are still not outperforming benchmarks, and most of the large funds we track actually got worse through April volatility. So with all of that in mind, how are you thinking about the path forward for active equity? When are we going to ever see more traction there?

And what do think needs to change in the industry to kind of get the stubborn trend back in your favor?

Andrew, CEO, Invesco: Yes. So active equity is very important, Invesco. Mean it’s north of 35% of our revenues, so it’s a key part of our business. More than half of our active equity portfolios are global or international or emerging. So one of the ways that we will see hopefully a catalyst in that is as people move away from just the domestic U.

S. Trade and even the more narrow domestic large cap tech trade, more demand for these global international and emerging strategies, not just here in The U. S, but in Europe and Asia too. And we’re starting to see some of that traction. I mentioned global equity in Japan.

Our EMEA based clients and Asian based clients are actually in positive flows the last quarter for active equity. So I’d isolate it down to it’s a U. S. Mutual fund topic for us, and it’s somewhat getting that demand to come back on the international global side. I think you also mentioned performance.

Active equity managers at this stage need to be performing in the top quartile or decile to win and retain And so the bar has gotten very high. And so we spend all of our time ensuring that we have the right leadership on active equities, which we do, and single leader on that, which we’ve put in place in the last few years, that we have the best teams against the capabilities and consolidate the product line and the teams where there’s better teams that could be doing it. We’ve added risk talent and risk leadership to make sure that we have that in place. And then we keep trying to differentiate the products, be it fees or features. And you could see active ETFs as one of those ways to add features and being competitive in our pricing, which we are.

So I think it’s a lot of investment quality and then demand change. But our ultimate goal is we want to have NetFlow market share that’s greater than our market share of assets in the active equity piece regardless of market performance, whether it’s up, down, or indifferent, we wanna outperform. In in The US, we have a little more work to do.

Patrick Davitt, US, asset manager analyst, Autonomous: On the active ETF point, what’s your latest thinking on to what extent that’s really incremental or just keeping more money in the system? In other words, cannibalizing what’s in the mutual funds already.

Andrew, CEO, Invesco: Yeah. I think so much money has gotten pulled to passive from active. Right. And some of that’s structural and some of it’s cyclical. And I actually think that the growth that we’ll see in active ETFs is potentially pulling some of that back from passive.

It’s certainly going to be porting it from mutual fund assets into these other versions. But I think the pie can grow when the vehicle that active is housed in is a more efficient tax vehicle for taxable U. S. Investors. For sure.

So I think it’s got a lot of potential.

Patrick Davitt, US, asset manager analyst, Autonomous: So summing it up, I think you made some pretty significant realignment and changes to the portfolio management capabilities over the last year. Any anecdotes or helpful updates on how that’s impacted performance positively

Andrew, CEO, Invesco: I mean, look, our U. S. Equity range has delivered some pretty solid performance and we need to see demand. We’ve seen pockets of improvement in the international global side. It’s still not exactly where we want it to be.

Flow performance, as I said, has picked up materially in EMEA and Asia. So the performance of the strategies in The U. K. And Europe are quite strong. So we’re starting to see that trajectory change.

The bar just keeps being really high. Just want to remind everybody of that. You should expect us to just continue to focus on quality, number one.

Patrick Davitt, US, asset manager analyst, Autonomous: There there’s some people that are concerned that Europe in particular is starting to catch up to The US in terms of the pacification shift or and you’re seeing pretty significant uptick in adoption of ETF use. How are you thinking about the potential for EMEA to start to look a lot more like The U. S. And then you have more of a headwind there? Although you could win on the ETF side, obviously.

Andrew, CEO, Invesco: Yeah. I mean, maybe it’s worth saying this for a second the profile we have in Europe and The UK. It’s about $275,000,000,000 of assets, on the continent than The UK. It’s more active than it is passive, but we have $110,000,000,000 1 hundred and 20 billion dollars ETF business in EMEA. So it’s substantial what we’re already doing on the passive side with ETFs.

I’d say the market in Europe different than the market in U. S. For wealth. It’s more institutional. So the notion of talking to private banks, talking to home offices and gatekeepers that make sizable decisions is different in Europe than it is in The U.

S. I don’t see that becoming more like The U. S. I think in some ways, it’s a more institutional market already.

Patrick Davitt, US, asset manager analyst, Autonomous: Got it. Okay.

Andrew, CEO, Invesco: But we’re very well positioned there. And the flow picture for us, dollars 14,000,000,000 of flows out of Europe in the first quarter, and it was a mix of fixed income and ETFs. So it’s a good healthy business, good investment performance. And we bring into those markets strategies that are developed and managed in The U. S.

But also in Europe, but also in The U. S. And Asia.

Patrick Davitt, US, asset manager analyst, Autonomous: So let’s take a a big step back and maybe reflect on your first two years as CEO. What do you think Invesco’s gotten right? Where do you see room for improvement? And how how are your priorities evolving over the last few months?

Andrew, CEO, Invesco: Yeah. So over the last eighteen months, two years, we think we’ve really pivoted the company, I think, from playing more some defense to playing offense and taking obstacles out of the way that would allow us to grow. And so I characterize those as things like having a much greater strategic clarity that we’re executing against, having a more streamlined organization that’s allowed us to be much more efficient with our expense base. A much better balance sheet with some of the things that we’ve done that we can talk about, whether it was with the preferred or debt that we’ve paid down. We’re very focused on these growth vectors that I described and showing growth in those areas.

And we’ve seen operating leverage in the business. So each quarter last year, sequentially, we grew our margins. And quarter over quarter, first quarter this year or year over year first quarter this year, we grew operating income 18%, expanded margins four percentage points. So I think it’s starting to play through in some of the results. And so I think really a lot of momentum that we have in the business.

There’s just some things we need to pull through on the revenue side.

Patrick Davitt, US, asset manager analyst, Autonomous: ETFs obviously big driver of your flow outperformance versus the industry. Could you update us on the trends in the space and how Invesco is growing share amid what is still pretty significant competition increases? Yeah.

Andrew, CEO, Invesco: Yeah. So we’ve we’ve been in the ETF space for over twenty years. And what’s now an 800,000,000,000 ETF largely ETF, some passive franchise around the world started in The U. S. Wealth channel and started with alternative weighted indexes.

And, we’ve sort of carried that all the way through as we’ve grown it from from that, from, you know, $5,000,000,000.10000000000 dollars we acquired twenty years ago to 800 today, mostly organically by kind of sticking to that knitting. So we try to stay in places where fees are not the number one decision making. It’s something else. So we’ve done a lot of these alternative beta factor weighted indexes, a lot of unique access indices. And we’ve exported that into markets where we can win.

And The U. S. Wealth market is the biggest now in the world and it’s growing at a fast clip and we’ve been able to participate in that. So our you mentioned our growth. Our net flows have really been about two times net flow market share has been two times that of our asset market share.

So it’s working and it’s growing. The business scales incredibly well. So it’s very accretive firm level operating margin, and we’re just gonna keep putting more volume through it.

Patrick Davitt, US, asset manager analyst, Autonomous: More specifically on this topic, and it’s it fits with kind of the active ETF discussion too, there’s a lot of chatter about, you know, the ETF share class approval coming through and the pit the potential for that to also keep more mutual fund AUM in the system. What are your thoughts on Invesco going down that road?

Andrew, CEO, Invesco: Yes. We’ll follow multiple paths as the transition goes to active ETFs. I mean we’ve been in the active ETF space for almost ten years. We have 22 strategies, about $20,000,000,000 and we’ve got even more assets affiliated with active teams that are passive. I think this is the first time that I can passionately say that it’s going to happen this time, where active ETFs are really going to take hold.

But I think there’s no panacea. So it’s not going to happen in a week or in a month or in a year. Is going to take time. And there are some limitations of the ETF vehicle. You can’t close an ETF.

So if you got a capacity constraint strategy, it’s difficult to own international in an active ETF. You have to disclose your holdings every day. So all the fund managers that, you know, have concentrated portfolios, it’s difficult. But it will be one of the ways that it happens. Share classes, we’ve filed for ours.

Share classes of mutual funds will be one avenue. Generating new ETFs, which is largely what we’ve done, will be another avenue. And then there will be new strategies that come to fold. I think the ETF space has been has shown a lot of innovation. We’ve kind of been at the lead on that.

So we’re going to have multiple ways to grow the active ETFs, and we’ll see which one sticks with the clients.

Patrick Davitt, US, asset manager analyst, Autonomous: Makes sense. Thanks. Think Invesco probably has one of the better alts businesses of the more traditional asset managers. So everyone’s obviously hyper focused on, you know, the retail democratization trend. Could you update us on the products you have in the market, how they’re doing, what new product development looks like, where you see the most opportunity to launch new products, and where you are in expanding distribution for all

Andrew, CEO, Invesco: those products? No, that’s great. So for those of us familiar, we have 130,000,000,000 of private market assets, and thanks for the compliment. Two thirds of it is in real estate, real assets, primarily equity but some debt. And the other third is in alternative credit, a lot of structured loans and some direct lending in distress.

It’s almost all been institutional assets all over the world. In the last few years, we’ve now taken those capabilities into wealth like many others. We’ve built out alongside our generalist sales force a specialized distribution force to take those products into market. And we have three distinctive strategies in the wealth space, one for real estate equity, one for real estate debt, and one that’s a dynamic credit strategy. The real estate debt strategy has had the most traction thus far from $0 to $3,000,000,000 in assets over the last eighteen, twenty four months.

I think it fulfills a category that there’s a lot less supply for. It’s on two of the biggest wealth platforms here in The U. S, or the two biggest, and dozens of others. So we hope that flywheel will continue to spin for real estate debt. We just announced a partnership with Barings at the and MassMutual at our last quarterly earnings, which is going to allow us to extend into those off credit strategies and use their distinct capabilities or their distinct management in parts of direct lending and specialty finance and asset backed lending with our strengths in structured loans and lower end lower mid market direct lending.

And we’re going put that together for wealth clients. And MassMutual is going to feed those strategies, advance those two strategies with their capital up to $700,000,000 or so. So we’re going to continue to extend. We like the partnership structure that we just announced. It’s a good model for us because we feel like we have the distribution, we have the institutional pedigree with high quality capabilities, and we’ve built this operational element that can scale.

You don’t need dozens of products. You just need a few that hit the categories. And we’ll take that same model beyond The US to Europe and Asia too.

Patrick Davitt, US, asset manager analyst, Autonomous: There’s a question from the audience on this. Obviously, a newer trend, but you’re seeing some partnerships between traditionally alternative managers and and traditional managers. Sounds like, you know, what you’re doing with Barings fits this theme.

Andrew, CEO, Invesco: Yes.

Patrick Davitt, US, asset manager analyst, Autonomous: Would there be an opportunity to to look for other partners, or do you think this is kind of

Andrew, CEO, Invesco: So a a couple reasons we got together with Barings aside from them being a very high quality asset manager. We are connected together with MassMutual with ownership from both companies. We know each other well, and it’s an opportunity, we think, to execute relatively quickly. So these products that we’re talking about, we want them to be in market very soon, and the teams are familiar with one another. And I think that’s distinctive from some other partnerships where people are just getting to know each other and it takes a while to get capabilities to We won’t have that situation.

I think the template that we outlined for that, we would like to continue to do partnerships where it makes sense. And whether that’s with Barings hopefully or others as well, we’ve been pretty vocal that we want to grow in this space, but we want to be really disciplined with our capital.

Patrick Davitt, US, asset manager analyst, Autonomous: And you’re probably closer to the distribution side of this issue than the alternative managers I cover. So what is your latest thinking on how much demand there really is for these kind of hybrid liquid to liquid products?

Andrew, CEO, Invesco: Yes. So to be clear, what we’re going to do in our strategies is we are going to have a diversified credit strategy that’s all private.

Patrick Davitt, US, asset manager analyst, Autonomous: It’s all private.

Andrew, CEO, Invesco: And then we’ll consider doing public hybrids. I think they’re interesting. I think the wealth platforms definitely have a lot of interest in them because I think they straddle two different challenges they’re trying to solve for their clients. They create some more liquidity. I mean, liquidity still matters.

I mean, as much as we talk about illiquidity and you know, the capability of taking wealth clients up to 20%, I mean, they care a lot about liquidity when they when they need it. Mhmm. And I think the publicprivate are a good avenue.

Patrick Davitt, US, asset manager analyst, Autonomous: So up until now, I think the biggest driver of your alts growth and strength has been real estate. What are your thoughts around trying to build businesses in the other verticals or bigger businesses in the other Well,

Andrew, CEO, Invesco: obviously, real estate’s been a great asset class for us. We have we’re a very well known institutional manager around the world. Extensions on that real estate platform, whether it’s infrastructure or other related real asset capabilities, is something we definitely keep our eye out for. And we really want to make sure we do extensions from things we know very well. Real estate would be one of them.

And then on the as I said on the Alt Credit side, I think what we demonstrated with Barings is if we find partners that can be additive to what we do. But we have this distinctive strength in structured loans and emerging strengths in distressed and direct lending. In terms of the other sort of sectors, I guess, in alternatives, we’re going to be very thoughtful before we get into those. And we’re not interested in being the distribution partner where we don’t have some investment capability integrated into So we’re not gonna try to be everything to everybody in the private market space.

Patrick Davitt, US, asset manager analyst, Autonomous: Got it.

Andrew, CEO, Invesco: So And as I mentioned, Patrick, I mean, you don’t need to get on to to move things forward. You don’t want dozens of capabilities and products. A handful of things is is fine. Yeah.

Patrick Davitt, US, asset manager analyst, Autonomous: So taking it all together, I think it’s probably pretty clear from everything we’ve talked about. But what do you think the biggest contributors to organic growth will be in the near term versus medium term and long term? Yeah.

Andrew, CEO, Invesco: Well, think in the short run, it’s going to be volatility right now. So I think the short term is probably a little less relevant. So the mid term, middle term, I’d say the need for income and fixed income around the world has pretty high. And so I think that’s and that’s a part of our business that’s, I think, underappreciated. $600,000,000,000 fixed income player.

So income is going to continue to be in demand. These private market strategies into wealth will continue to be in demand. I think in the medium term, you’re going to see this shift of people redeploying some of their U. S. Exposure to international and other markets outside The U.

S. I think that’s to drive forward. And I think from a vehicle standpoint, the ETF and the SMA are going to be choice vehicles, whether that’s for passive or for active. So those are generally some of the demand trends we see. Okay.

Patrick Davitt, US, asset manager analyst, Autonomous: You mentioned cash, right, the amount of cash Yeah. The sidelines. And, you know, obviously, we’ve seen the money fund flows.

Andrew, CEO, Invesco: Yeah.

Patrick Davitt, US, asset manager analyst, Autonomous: There’s obviously still a lot of deposits Yeah. Earning zero. Yeah. If rates really are gonna be higher for longer, doesn’t cash actually become an asset class? So, like, is that really on the sidelines?

And I it’s a debate I have a lot with my clients. Yeah.

Andrew, CEO, Invesco: I think before the tariff or whatever we’ve got going on, I would have said watch rates and just say, you know, rates go is how to answer your question. I think now you have to factor in, you know, protection, and people are thinking about cash as an asset class. Know, I think for some of that, dry powder to basically pounce on situations as the world changes quickly. But I think those balances for the moment are probably we thought they were they started to go down. We thought they’d get into the to the teens, and and they’re still north of 20.

Yep. And that’s what we hear anecdotally from our clients. I mean, we’re not you know, we’re we’re a money market fund player and a liquidity player, but this is what I hear from platforms in the wealth side.

Patrick Davitt, US, asset manager analyst, Autonomous: Okay. Interesting. The other side of the organic growth story is obviously fees. And given the shift from active to passive to ETFs, you’re obviously well positioned for flows, but that comes with a fee rate headwind. Could you update us on the moving parts there?

To what extent you’re seeing that headwind abating? You’ve been talking about a tipping point where maybe the mix gets to a point where it’s not as severe. Yeah.

Andrew, CEO, Invesco: So there’s always a lot of focus on our net revenue yield. And I’d just probably be as clear as I can be, it’s it’s not fees. It’s not fee pressure. It’s really mix for And whether there’s some secular and some cyclical, it’s been, for the industry and us, ETFs over mutual funds, passive over active, short duration over long duration, all of those are lower fee yielding strategies. So for someone like Invesco, our asset flow growth is high.

We’re seeing improvements in our organic revenue growth, but our net revenue yield goes down just as a function of that math. And I point that only to say some of our some of the other competitors we have in the marketplace might have flat net revenue yields with declining asset flows, I’d rather have our situation. We’re not focused on net revenue yield as sort of a KPI. I mean, we’re really focused on operating income and operating leverage and what we do with those net revenue yields. I mean, the ETF business or our global liquidity business are highly profitable, highly scalable businesses.

And so regardless of the asset class, we’re trying to optimize for operating income and operating margin expansion. And really, it’s not a we don’t see a lot of fee pressure. Tend to compete in places like our ETF business where, as I mentioned before, fees aren’t the first feature. And in terms of your tipping point, we’re seeing organic revenue growth trend up. It’s still not at the place we want it to be, but it’s trending the right way.

So whether you look at net revenue yield or you at revenue or organic revenue, I think you’ll get a different picture.

Patrick Davitt, US, asset manager analyst, Autonomous: Got it. Aside from the revenue yield, expenses has has probably been one of the biggest frustrations for a lot of us, particularly through the lens of the next gen implementation. We got some interesting news this week that you’re actually gonna keep the platform in a hybrid platform, including both Alpha Nextgen and BlackRock’s Aladdin. So firstly, could you speak to what is behind that decision? And does it give you more visibility on the end date now?

Yeah.

Andrew, CEO, Invesco: As I answer that, just on the expense side, I mean, our expenses have it’s been an area we’ve been very focused on and I think pretty disciplined on. So expenses are we took $60,000,000 out of the business last year while reinvesting and growing. So expenses have more or less been flat to down over the last year or two in spite of all the other things we’ve been doing to grow and some of your comments. Alpha, just to reorient people, we had made the decision several years ago to move all of our assets onto the State Street Alpha platform from various different places that they had been before. And we’ve been working through that implementation for quite some time.

We made the decision and announced it this week that we’re going to move to what we’re calling a hybrid approach, which means finishing all of the movement of our equity assets onto State Street Alpha, using State Street as the middleware, so to speak, and then remaining with fixed income on Aladdin, which is where we are today. State Street has been a great partner and will continue to be a great partner, as has Aladdin BlackRock. We think this will reduce the time to completion. So we want to be finished by the end of twenty twenty six. We think we can generate virtually the same benefits that we were going get out of simplifying because we’re getting down to just one platform, two providers from hundreds and dozens of systems and processes that we’ll consolidate.

And the run rate cost that we’ll have going forward will be more or less the same as if we were on a single platform. So we just wanted to get certainty to completion. We’re on fixed income Aladdin today, so we just don’t need to convert to something else, which reduces the the time.

Patrick Davitt, US, asset manager analyst, Autonomous: So you don’t to just to put a bow on it, you do not expect us to decrease the potential expense synergies from having just the one platform?

Andrew, CEO, Invesco: We really believe we can achieve Yeah. Virtually the

Patrick Davitt, US, asset manager analyst, Autonomous: same Great.

Andrew, CEO, Invesco: And get the other benefits that come from it as well. Okay.

Patrick Davitt, US, asset manager analyst, Autonomous: Then higher level, to your point, you have you have been good on expenses away from this issue. How are you thinking about those kind of core expense run rates going forward? Are there other places you can look for savings?

Andrew, CEO, Invesco: Yeah. Look, as I was starting to mention sorry, didn’t mean to get in front of you but expense discipline has been important both in how we’re more efficient with what we’re doing, but also how we’re deemphasizing and emphasizing other things, so moving money around. Like I said, we’ve been able to take $60,000,000 out last year while investing in all the things I was talking about a little while ago. So we think there’s always room to continue to find operating efficiencies. About 25% of our expenses are variable.

That’s largely compensation. And we’ve been talking about we could flex that to 30%, thirty five % with some intervention from management decisions that we would make about choices or slowing down in different situations. But we feel really good that we’ve invested in all of these growth areas. And from here, revenue growth has a higher incremental margin.

Patrick Davitt, US, asset manager analyst, Autonomous: On that, as we think through all of these issues, obviously, stronger organic flow growth, revenue yield, expenses, alpha next gen, noise going away, how would you rank the things that need to happen to drive significantly more positive operating leverage from here? Yeah.

Andrew, CEO, Invesco: That’s a good question. So one of the things, as you said, we’ve really been focused on is going on to the offense, like I mentioned earlier, and getting some of these maybe obstacles to growth out of the way. Now that we think we’ve progressed past that, I’d probably put it in three buckets. So bucket one is, I’d say, parts of our business that scale really well and are in high demand and we have discernible strength. What falls in that is ETFs, fixed income and SMAs could all be margin enhancing and leverage improvement.

The second bucket I put around growth areas that maybe don’t scale as well, but they have high growth potential and relatively high fees, that’d be private markets into wealth management. And that would be the Asian region and China, things like that, that really could accelerate the revenue and the revenue mix. And then also in that would be defending and growing in pockets of active equity. So if we can reduce the redemption rate of active equity, that has significant impact on the margin. And then the third bucket would just be on the expense and efficiency side, so continuing to look to rationalize where we can and be really disciplined on the cost side.

So any combination of a few of those work, not all of them, and you can start to see a pretty different profit growth picture for the company.

Patrick Davitt, US, asset manager analyst, Autonomous: This morning, in a group meeting, sat in on we had an interesting conversation specifically on kind of the tipping point on on positive operating leverage in the ETF franchise and how that’s tracked. It it was kind of a headwind for a while, and it’s obviously shifted more positively to a tailwind as a lot of your marquee ETFs have gotten bigger. Could you kind of speak through that evolution and where you are, I guess, terms of scaling those ETFs to a point where they’re really additive to the margin? Yes.

Andrew, CEO, Invesco: Most all of the ETFs we have we don’t have a lot of small ETFs. I mean we have a little bit of a back book that you it rotates into favor and out of favor. Size of our business at this point and the investments we’ve made around distribution and technology, which are and the people that run the ETF business are basically your costs, the margins expand pretty rapidly from here. And I’d say even in our business where we were already large three or four years ago, as we’ve layered on hundreds of billions of assets since then, the margins have expanded by 10 to 15 percentage points even in that business. And they’re already we’re already well accretive to our current margin.

So I don’t know what the situation was you were talking about with the other company, but it’s not just at the fund level. It’s at the franchise level. Yeah. Yeah. Because funds scale, but then the franchise scales too.

Patrick Davitt, US, asset manager analyst, Autonomous: Got it. One from the audience on China, on the option to buy in more. I think you’ve had an option for a while now. What’s what’s the latest thinking on potentially doing that?

Andrew, CEO, Invesco: Yeah. It it we’re really not focused on it.

Patrick Davitt, US, asset manager analyst, Autonomous: Not focused on it. Okay. Yeah. At the moment. Yeah.

Maybe for obvious reasons.

Andrew, CEO, Invesco: I think maybe for obvious reasons. And also, what we’re doing today is working. Yeah.

Patrick Davitt, US, asset manager analyst, Autonomous: And so Exactly. Yeah.

Andrew, CEO, Invesco: Don’t mess with a good thing.

Patrick Davitt, US, asset manager analyst, Autonomous: Got it. I’ll finish up on capital. I think a lot of us are happy to see you, finally get some movement on taking down the 4,000,000,000 preferred at MassMutual. Maybe for those that aren’t as familiar with the situation, could you kind of update us on the structure of the paydown and the opportunity to bring it down further over the longer term?

Andrew, CEO, Invesco: Sure. Our capital priorities haven’t really changed at all. Invest back in the business, get our payout ratio between 4060%. It’s near 60% today through dividends modestly increasing and buybacks, which we got back into the market last year routinely buying back once we had hit zero net debt ex the preferred on our balance sheet. So coming into this year, and we’ve been paying down all the debt around the preferred.

Preferred was a $4,000,000,000 piece of paper. And as we were hearing more and more from investors that this was viewed as debt and maybe a more permanent instrument that wasn’t going to retire for a long time, we started to talk with MassMutual, who’s also an equity holder in the company, and we found the opportunity to that worked for both of us to retire a billion dollars of that preferred, which we did, and replaced it with short term callable term loans so we can pay that down as we wish. And we also left open it’s got to be a two way transaction with us at MassMutual. I think we also left open the notion that we can do more when those as those stars continue to align. And we could have done more, I think, even in this iteration.

All that said, it just gives us much more flexibility with our capital to determine what we want to do through that same priority stack. But we have debt retiring at the end of at the January or beginning of next year. We’ll continue to look at these term loans. We’ll continue to look at the preferred while making sure that the payout stays in returning capital to shareholders. So it just opens up the playing field, I think, for a lot more avenues for us to explore.

I think it also takes the skepticism away from some investors that viewed it as this permanent thing sitting there. We couldn’t we couldn’t move. And clearly, it’s not.

Patrick Davitt, US, asset manager analyst, Autonomous: Yeah. I definitely hear that from a lot of people. So I guess expanding on that, has there been any shift in kind of the priorities between balance sheet improvement, buybacks, dividends, and then I guess M and A? And to what extent is M and A really in the mix?

Andrew, CEO, Invesco: I think M and A is way down. Way down. And I think, as I said, that sort of balance between the payout ratio, which will keep between 4060% and last quarter it was 58 or 59%. So we want to be at the higher end of that. And that will probably be more buybacks than dividend and we’ll do modest dividend increases, but we want to continue we’re going be routinely in the market buying back stock, bought back 100,000,000 last year.

We’ll keep that pace, but if we can see opportunities, we’ll buy back more. And then really looking at the balance sheet after and all the things I talked about. Now we have a lot of flexibility to continue to delever as it were. And excess you know, all that goes with investing back in the business first, which we’ve been able to do. So I think m and a is way down there.

The partnership structures we were talking about, there’s ways to grow inorganically that that you don’t have to write a check for. Yeah. Yeah.

Patrick Davitt, US, asset manager analyst, Autonomous: I think on this point, the India stake sale should should generate a fair amount of capital. I don’t know if it’s public. How much?

Andrew, CEO, Invesco: I don’t know if we’ve disclosed

Patrick Davitt, US, asset manager analyst, Autonomous: it or not. But it’ll But how should we think about the potential for that to drive any kind of accelerated repurchase or dividend? Is that is that in the mix? Or would it just We’ll

Andrew, CEO, Invesco: make that decision kind of when when that closes. We’re waiting for regulatory approval. But all those all those options on the table.

Patrick Davitt, US, asset manager analyst, Autonomous: Got it. Cool. Well, we finished a little early. Got some of my questions.

Andrew, CEO, Invesco: Incredible. And I

Patrick Davitt, US, asset manager analyst, Autonomous: got through all the the audience questions. So thanks a lot.

Andrew, CEO, Invesco: Yeah. Yeah. Thank you.

Patrick Davitt, US, asset manager analyst, Autonomous: Yeah. Good time.

Andrew, CEO, Invesco: Good to see you.

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