Invesco Ltd. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Focus on market size, secular change, and leveraging position to drive growth in high-opportunity regions, channels, and asset classes.
• Initiatives:
  • Recapitalization: Repaid ~25% of term loans for preferred stock repurchase, improving earnings accretion.
  • Hybrid Investment Platform: Launched second wave of equity AUM onto Alpha platform, on track to complete by end 2026 for simplification and cost avoidance.
  • Organizational Realignment: Realigned fundamental equities teams, consolidated global equity platform.
  • Asset Sales: Sold Intelliflo for ~$100 million in net cash, with potential earn-outs.
  • Business Development: Launched first joint product with Barings private markets partnership, nearing sale of majority interest in Indian business.
• Financial Performance: Record AUM over $2.1 trillion, strong net long-term inflows, adjusted operating margin improved to 34.2% sequentially, balance sheet strengthened through loan repayments.

Segment Performance

• ETF and Index: Reached $1 trillion in AUM, with an annualized organic growth of 15%. Record net inflows in diverse products like QQQM, S&P Factor suite ETFs, and China technology ETF. EMEA saw strong flows in QQQ ETF and synthetic product suite. Ending active ETF AUM firm-wide stands at $16 billion, with total active-related AUM near $30 billion.
• Fundamental Fixed Income: Generated over $4 billion in net long-term inflows in Q3. Broader fixed income class had nearly $13 billion net long-term inflows, with over half of inflows from outside the U.S. The U.S. Wealth Management SMA platform has $34 billion in AUM with a 19% annualized organic growth rate.
• China JV and Indian Capabilities: China JV reached record AUM of $122 billion (16% increase from prior quarter) with $8.1 billion net long-term inflows, 34% annualized organic growth from fixed income plus and ETF funds. Indian business sale expected in Q4, with $15 billion AUM and $140-150 million cash proceeds.
• Private Markets: Posted $600 million net inflows from private credit and direct real estate. Launched 3 new CLOs, with INCREF real estate debt strategy on 3 major U.S. wealth management platforms and over $4 billion in assets.
• Fundamental Equities: Overall net outflows of $5 billion, but Global Equity Income Fund had record net inflows of $3.8 billion. Repositioning of developing markets fund occurred, with focus on investment performance and risk management.

Guidance

• Balance Sheet: Plan to repay remaining $240 million of 3-year term loan by end of month. Expect $140-150 million cash proceeds from India sale. Aim to return 60% of capital to shareholders.
• ETF Vote: Anticipate positive impact on earnings once QQQ vote is approved, with reclassification of marketing expenses having minimal impact on operating income.
• Private Markets: Expect growth from Barings partnership and new product launches, including second co-managed fund in development.

Risks

• Market Volatility: Potential impact on fixed income flows, particularly bank loans.
• Regulatory Changes: Impact on proxy voting and marketing expense classification, but minimal operational impact.
• India Sale: Future asset flows and operating results of India business will no longer be reported in Invesco's results.

Question and Answer

Q: Bill Katz on QQQ vote and marketing expense reclassification A: Allison Dukes on progress with QQQ vote, stating it's an overwhelming majority voting in favor, and reclassification of marketing expenses has minimal impact on operating income.

Q: Brennan Hawken on proxy voting and marketing expense A: Allison Dukes on proxy solicitation as fund marketing expense, noting it's accrued in the fund and no impact on Invesco's operating expenses.

Q: Glenn Schorr on fixed income flows A: Andrew Schlossberg and Allison Dukes on strong fixed income performance, with slight softening in bank loans but overall positive trends.

Q: Alex Blostein on divestitures and capital return A: Allison Dukes on proceeds from divestitures, focus on balance sheet improvement, returning 60% of capital to shareholders, and investing in growth capabilities.

Q: Benjamin Budish on variable expenses and operating leverage A: Allison Dukes on variable expenses, focus on simplifying operating platform and managing fixed expenses to drive operating leverage.

Q: Patrick Davitt on expense run rate and ETF AUM A: Allison Dukes on non-comp expenses potentially modestly higher in Q4, and Andrew Schlossberg on incremental AUM from active ETF launches being new strategies.

Q: Brian Bedell on ETF strategies and India AUM A: Andrew Schlossberg on ETF strategy growth across various vehicles, and Allison Dukes on India AUM impact and QQQ vote conversion immediately after approval.

Q: Michael Cyprys on India sale A: Andrew Schlossberg on partnership with Hinduja Group for India business growth, allowing focus on other areas while participating in Indian market growth.

Q: Ken Worthington on M&A A: Andrew Schlossberg on focus on organic growth and balance sheet improvement, keeping eye on M&A in private markets but prioritizing organic opportunities.