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    Invesco Ltd (IVZ)

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    Invesco Ltd. is an independent investment management firm that provides a wide range of active, passive, and alternative investment capabilities to help clients meet their investment goals . The company manages approximately $1.6 trillion in assets as of December 31, 2023, and serves clients in over 120 countries . Invesco offers retail and institutional investment products across major asset classes, with its retail products distributed through third-party financial intermediaries and institutional products distributed globally to a diverse client base . The company's revenue primarily comes from investment management fees based on assets under management, which can be affected by market price fluctuations .

    1. Retail Investment Products - Offers a variety of investment options distributed through third-party financial intermediaries, catering to individual investors seeking to achieve their financial objectives.
    2. Institutional Investment Products - Provides investment solutions to a diversified global client base, including public and private entities, unions, and financial institutions, focusing on meeting the specific needs of institutional investors.
    Initial Price$14.98July 1, 2024
    Final Price$17.25October 1, 2024
    Price Change$2.27
    % Change+15.15%

    What went well

    • Invesco is experiencing strong growth in its private real estate and alternative investment strategies, particularly in real estate debt strategies within wealth management channels, which are expected to continue growing , .
    • The company is seeing positive developments in China and the Asia Pacific region, including the launch of new equity ETFs and the potential benefits from China's economic stimulus, which are expected to enhance investor sentiment and demand for Invesco's products in the region , .
    • Invesco is effectively driving positive operating leverage through expense management and growth across various investment capabilities, leading to improved profitability even without relying on market beta, demonstrating strong operational efficiency , .

    What went wrong

    • Increasing expenses due to the implementation of the State Street Alpha platform are impacting profitability, with integration costs rising $3 million sequentially and expected to peak next year.
    • Uncertainty and volatility in the Chinese market pose risks to Invesco's business, as the recent stimulus has not materially impacted results, and the company acknowledges the market remains challenging.
    • Reliance on lower-fee products like passive investments, fixed income, and SMAs may challenge Invesco's ability to drive positive operating leverage without changes to underlying growth drivers.

    Q&A Summary

    1. China Stimulus Impact on IGW
      Q: How will China's stimulus affect IGW's performance?
      A: The management noted that while it's early days in China, they've observed positive effects from the stimulus on investor sentiment. There's a mix shift occurring from fixed income to equities and balanced portfolios. Since IGW's business is about 30% equities, 30% fixed income, 20% balanced, and 20% money market, they expect demand to improve but caution against speculating too much at this stage.

    2. MassMutual Preferred Shares
      Q: Any plans to repurchase MassMutual's preferred shares?
      A: Management is in ongoing conversations with MassMutual about the preferred shares, which are a non-call instrument owned entirely by MassMutual. Repurchasing them isn't straightforward due to their duration and associated liabilities. In the meantime, they've focused on deleveraging the balance sheet and returning capital to common shareholders.

    3. Fixed Income Flows and Opportunities
      Q: What's driving fixed income flows, and where are the opportunities?
      A: The company saw strong institutional inflows in fixed income, accounting for 70% of the volume this quarter. There's increased money in motion as investors seek clarity on interest rates and reposition portfolios. Demand is growing globally, with particular strength in U.S. municipals and separately managed accounts.

    4. Operating Leverage and Fee Rates
      Q: Can you achieve positive operating leverage without changes in growth drivers?
      A: Management believes they can drive positive operating leverage by focusing on growth in key investment capabilities and maintaining expense discipline. Despite shifts towards lower-fee products like ETFs, they're committed to improving operating margins and aim to reach a mid-30s operating margin.

    5. M&A Strategy and Partnerships
      Q: How do you view partnerships to expand offerings?
      A: Partnerships are integral to their growth strategy. They've historically engaged in partnerships geographically and in distribution and investment capabilities, such as their joint venture in India. They continue to explore opportunities to leverage their brand and distribution through partnerships.

    6. Private Real Estate Flows and Distribution
      Q: What's driving private real estate flows, and how are distribution capabilities?
      A: Growth is broad-based, not just from new platform additions. They've seen strong demand for their real estate debt strategy and separately managed accounts. Redemption pressures are moderating. They have specialist teams alongside generalists to distribute private market products and have made necessary investments in distribution.

    7. Expense Outlook and Alpha Integration
      Q: When will Alpha integration expenses peak and profits improve?
      A: Implementation costs increased this quarter, and they expect expenses to peak next year as they transition assets onto the Alpha platform. Cost benefits are anticipated to start in 2026 as they transition off old systems.

    8. India Joint Venture
      Q: Can you elaborate on the India JV and lessons learned?
      A: They're working through regulatory approvals, expecting completion in the first quarter. They believe in the Indian market and have chosen a good partner with captive distribution. Lessons learned include the importance of strong partnerships for expansion.

    9. Competitiveness in Fixed Income
      Q: Are there opportunities for market share gains in fixed income?
      A: Management notes that increased money in motion due to interest rate clarity is leading to more fixed income flows globally. While the market is competitive, they are seeing strong demand across regions and believe assets are coming from both new allocations and competitors.

    10. Money Market Fund Outflows
      Q: What's causing outflows in global liquidity products?
      A: Outflows are primarily due to institutional clients reallocating assets as interest rate dynamics change. Their liquidity business is largely institutional, comprising about 85% of assets. They continue to expect their liquidity business to be profitable and scalable.

    11. MassMutual Distribution Partnership
      Q: How are you growing within MassMutual's channel?
      A: They're exploring opportunities like model portfolios in MassMutual's broker-dealer network and sub-advised insurance products across equities and fixed income. They see potential in leveraging the partnership given MassMutual's role as a significant distribution partner and common shareholder.

    12. Service and Distribution Fees
      Q: Why did service and distribution fees decline despite higher AUM?
      A: The decline is due to a product mix shift towards ETFs, which generate less service and distribution fee revenue than mutual funds. This shift affects the ratio of service and distribution fees to management fees, trending it higher due to increased third-party expenses like licensing fees.

    13. Retirement Eligibility Accounting Change
      Q: How will the accounting change for retirement eligibility benefit results?
      A: The change provides clarity for employees and reduces volatility in compensation expenses. By accelerating expense recognition for retirement-eligible employees, it allows better planning and aligns with common practices.

    14. BulletShares ETF Flows
      Q: What's driving strong BulletShares flows, and will it continue?
      A: BulletShares are seeing strong demand due to investor interest in fixed income strategies. They expect this trend to continue, especially as maturities in December get repopulated in the first quarter.

    15. Liquidity Impact on Bond Allocations
      Q: Where are strong bond flows coming from if not from money funds?
      A: Investors are moving further out in duration, with flows coming from the sidelines and competitors rather than their own money funds. The money fund dynamics are different, and the bond flows are not directly linked to outflows from their money funds.

    Guidance Changes

    Quarterly guidance for Q4 2024:

    • Performance Fees: Expected to decrease due to seasonality (no prior guidance)
    • Operating Expenses: $756 million in Q3 with Alpha-related one-time implementation costs expected to be closer to $15 million in Q4
      • Alpha Platform Implementation Costs: $15 million in Q4 (raised from $10 million )
    • Effective Tax Rate: Near the lower end of 23% to 25% (no change from 23%–25% )
    • Share Buybacks: Around $25 million in Q4 (no change from $25 million )
    • Total Payout Ratio: Anticipated to move closer to 60% (raised from 50%–60% )
    • Alpha Platform Implementation: Transitioning AUM onto the platform starting in Q4 2024 through 2025, possibly into early 2026 (no change from prior guidance extending through 2025 into 2026 )

    Annual guidance for 2024:

    • Expenses: Expected to be around $3 billion (no change from $3 billion )
    NamePositionStart DateShort Bio
    Andrew R. SchlossbergPresident and Chief Executive OfficerJune 30, 2023Andrew R. Schlossberg has served as the President and CEO of Invesco Ltd. since June 30, 2023. He joined Invesco in 2001 and has held multiple leadership roles, including Senior Managing Director and Head of the Americas from 2019 to June 2023, and Senior Managing Director and Head of EMEA from 2016 to 2019 .
    Stephanie C. ButcherSenior Managing Director and Co-Head of InvestmentsFebruary 2023Stephanie C. Butcher has served as Senior Managing Director and Co-Head of Investments at Invesco since February 2023. Prior to this role, she was the Chief Investment Officer in Invesco's EMEA business, overseeing the Henley Investment Centre from 2020 to February 2023 .
    L. Allison DukesSenior Managing Director and Chief Financial Officer2020L. Allison Dukes has served as Senior Managing Director and CFO of Invesco Ltd. since 2020. She leads all global corporate finance functions, including strategic and financial planning, investor relations, corporate development, accounting, corporate tax, treasury, and procurement .
    Jeffrey H. KuporSenior Managing Director and General CounselJanuary 1, 2023Jeffrey H. Kupor has served as Senior Managing Director and General Counsel at Invesco Ltd. since January 1, 2023. He joined Invesco in 2002 and has held various legal roles, including Head of Legal, Americas from 2018 to 2022 .
    Andrew T.S. LoSenior Managing Director and Head of Asia Pacific2001Andrew T.S. Lo has served as the Senior Managing Director and Head of Asia Pacific at Invesco since 2001. He is responsible for Invesco's businesses in the Asia Pacific region, which includes Greater China, Japan, Australia, and India .
    Douglas J. SharpSenior Managing Director and Head of the Americas & EMEAJune 2023Douglas J. Sharp has served as Senior Managing Director and Head of the Americas and EMEA since June 2023. He joined Invesco in 2008 and has held multiple leadership roles across the company, including his previous role as the Head of EMEA Retail .
    Alan L. SmithSenior Managing Director and Chief Human Resources OfficerMarch 2024 (expected)Alan L. Smith has served as Senior Managing Director and Chief Human Resources Officer at Invesco since March 2024. Before joining Invesco, he was the Chief Human Resources Officer for Corebridge Financial, a subsidiary of AIG, from 2020 to February 2024 .
    Tony L. WongSenior Managing Director and Co-Head of InvestmentsFebruary 2023Tony L. Wong has served as Senior Managing Director and Co-Head of Investments at Invesco since February 2023. Prior to this role, he was the Head of Fixed Income Investments from 2019 to February 2023 .
    1. Given the volatility in China, particularly in fixed income where you reported outflows after a strong second quarter, how confident are you in the sustainability of your business in that region, and what specific actions are you taking to mitigate the risks associated with such volatility?

    2. Despite some moderation, your fundamental equity flows continue to experience net outflows of approximately $1 billion to $2 billion per quarter, down from quarterly peak outflows of $6 billion in 2022. What concrete strategies are you implementing to reverse this trend and gain market share in the fundamental equity categories?

    3. You achieved positive long-term organic flow growth in each of your three regions, but the Americas showed a lower growth rate of 4% compared to Asia Pacific at 9% and EMEA at 5%. What challenges are you facing in the Americas, and how do you plan to enhance growth in this region?

    4. While you've focused on improving fundamental equity performance, only 28% of your AUM is in the top quartile over 1 and 5 years, and 24% over 3 years, with 61% in the top half over 5 years. What specific steps are you taking to improve this performance, and when do you expect to see material improvements?

    5. You've strengthened your balance sheet, meeting your zero net debt goal and executing $25 million of share buybacks during the quarter. How do you balance these capital return initiatives with the need to invest in growth areas, and could this impact your ability to improve operating leverage?

    Program DetailsProgram 1
    Approval DateJuly 22, 2016
    End Date/DurationN/A
    Total additional amountN/A
    Remaining authorization$357.2 million
    DetailsPart of capital management strategy to maintain a strong balance sheet and return capital to shareholders.

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Performance Fees: Expected to decrease due to seasonality.
      2. Operating Expenses: Total adjusted operating expenses were $756 million in Q3, with Alpha-related one-time implementation costs expected to be closer to $15 million in Q4.
      3. Effective Tax Rate: Estimated to be near the lower end of 23% to 25%.
      4. Share Buybacks: Expected to continue with around $25 million in Q4.
      5. Total Payout Ratio: Anticipated to move closer to 60%.
      6. Alpha Platform Implementation: Transitioning AUM onto the platform starting in Q4 2024 through 2025, possibly into early 2026.
      7. Expenses: Expected to be around $3 billion for 2024, with some seasonal increases in Q4 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      1. General and Administrative (G&A) Expenses: Expected to be in the $3 billion range for the year, with compensation to revenue trending above 42%, likely closer to 43%.
      2. Alpha Platform Implementation Costs: Approximately $10 million per quarter for the remainder of 2024.
      3. Effective Tax Rate: Estimated between 23% and 25%.
      4. Stock Buyback Program: Planned to buy back around $25 million per quarter.
      5. Total Payout Ratio: Expected to move into the 50% to 60% range.
      6. Alpha Platform Implementation Timeline: Expected to continue through 2025 and into 2026 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024
    • Guidance:
      1. Alpha Platform Implementation Costs: Expected to be approximately $10 million per quarter.
      2. Non-GAAP Effective Tax Rate: Estimated between 23% and 25%.
      3. Compensation to Net Revenue Ratio: Expected to be slightly above the higher end of the 38% to 42% range.
      4. Net Debt: Expected to approach zero in the second half of the year.
      5. Stock Buyback Program: Aiming to begin a more regular program.
      6. Dividend: Increased to $0.205 per share.
      7. Third-Party Contra Revenue: Expected to be around 43% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      1. Compensation to Net Revenue Ratio: Expected to be at or slightly above the higher end of the 38% to 42% range, exceeding 42% in the first half of 2024.
      2. Non-GAAP Effective Tax Rate: Estimated between 23% and 25%.
      3. Alpha Platform Implementation Costs: Approximately $10 million per quarter.
      4. Expense Base for 2024: Expected to be relatively flat compared to 2023.
      5. Operating Margin Goal: Long-term goal to reach mid-30% range .