Invesco Ltd. Q2 FY2025 earnings call

• Partnership with MassMutual and Bearings: Completed repurchase of $1 billion preferred stock held by MassMutual, and MassMutual intends to invest $150 million in Invesco Dynamic Credit Opportunity Fund.
• Realignment of Fundamental Equity's platform: Changes in developing markets and global investment teams, consolidating capabilities under a single CIO for asset classes.
• Filing preliminary proxy for QQQ structure change: Proposal to change QQQ from unit investment trust to open-end fund ETF, which could benefit net revenues and adjusted operating income by ~4 basis points.
• $2 trillion AUM at end of quarter, $15.6 billion net long-term asset inflows, and $10 billion net inflows in fixed income including ETFs.
• China JV reached record AUM $105 billion, with organic growth from existing products.

Global ETFs and index platform

• Generated $12.6 billion in long-term net inflows, with 10% annualized organic growth.
• U.S. ETF growth augmented by strong quarters in EMEA and Asia Pacific. Top net flowing product Q2 QM had record inflows of $5.6 billion, now over $50 billion in AUM. Launched 4 new active ETFs, totaling 31 active ETFs, and extended Smart beta range in EMEA.

Fundamental fixed income

• Nearly $10 billion of net long-term inflows including fixed income ETFs and China-based assets. Nearly $3 billion on the fundamental fixed income platform. Flows driven by EMEA and Asia Pacific. U.S. demand softened for municipal bonds, but institutional interest in investment-grade bonds in EMEA. $4 billion win in Peoples pension fixed income mandate in the U.K. SMA platform in U.S. had $32 billion AUM with 15% annualized organic growth.

Private markets

• Private real estate franchise had net inflows over $200 million, with real estate debt strategy In Craft having largest fundraising in June and AUM of $3.5 billion. Direct real estate had outflow due to St. James Place U.K. real estate portfolios wind-down. Private credit franchise had negative flows in quarter but inflows from May-June. China JV and India had $5.6 billion net long-term inflows, record AUM $105 billion, and launched 5 new products with organic growth from existing products.

Multi-asset related capabilities

• Net long-term inflows $0.5 billion driven by quantitative strategies.

Fundamental equities

• Overall net outflows $3.6 billion, but positive flows in EMEA and Asia Pacific. Global Equity Income Fund had $2.4 billion net inflows, but U.S. wealth management channel had outflows.

• Expect to begin repaying term loan in second half of year depending on cash flow generated.
• Continue common share repurchases, with total payout ratio near 60% from 2025.
• Expect leverage ratio to improve as term loan is repaid.
• Focus on profitable growth, enhancing financial performance, and capital return.

• Market volatility impacting asset flows.
• Potential challenges in private markets adoption, including regulatory and litigation risks affecting retirement market.
• Impact of foreign exchange on expenses.
• Changes in client demand affecting fundamental equities.

Q: Picking up on the QQQs, why now and thoughts on incremental margin?

A: Management is looking across the business to enhance client and shareholder outcomes. The QQQ structure is being modernized. If approved, net revenues and adjusted operating income would benefit by ~4 basis points with no additional operating expenses.

Q: On delevering and growth, how to balance?

A: Not a binary choice; focus on improving operating cash flow for optionality. Focus on growing private markets, active ETFs, SMAs, and leveraging competitive edge in Europe and Asia Pacific.

Q: Thoughts on licensing fee durability of 8 basis points?

A: Limited to proxy details, but partners are outstanding and proposed structure is outlined.

Q: On QQQ quorum and sec lending potential?

A: Can't speculate on quorum difficulty. Sec lending revenue from conversion is relatively immaterial.

Q: On M&A in private markets, missing pieces?

A: Focus on partnerships, like with Bearings and MassMutual. High bar for acquisitions; partnerships priority for growth in private markets globally.

Q: On QQQ fees and 401(k) market for private markets?

A: Licensing and administrative fees go into third-party distribution expense. On 401(k) market, private markets have promise with regulatorily and litigation relief, using trust company and collective trust wrappers.

Q: On incremental opportunities for revenue, expense, capital allocation?

A: Focus on enhancing revenue in ETFs, SMAs, private markets; well-controlled expense base with ongoing Alpha and hybrid approach implementation; capital allocation not exclusively on delevering but also growth with flexible capital deployment.

Q: On digital dollars and China JV compensation?

A: Focused on digital asset space, but much needed for tokenized funds. China JV revenue lower due to performance fee changes and discrete items; margins may be elevated temporarily but long-term outlook positive.