China Flows and Political Risks
Q: Given political tensions, is the China JV safe in a trade war?
A: Management explained that their China JV is a domestic-to-domestic business. " All assets are managed for individual investors in China and managed within China, reducing exposure to international disputes. " The partnership is very strong and resilient. " They highlighted that the JV's performance relies on the Chinese domestic economy; thus, a trade war affecting the economy could pressure AUM through flows and market performance. "

ETF Business Growth and Fee Rates
Q: How will you broaden ETF growth and improve fee rates?
A: Management sees growth opportunities in active ETFs, with over $10 billion in that space and $30 billion in assets affiliated with their investment teams. " They plan to expand beyond the U.S., with growth in Europe now over $100 billion in AUM, and increasing demand in Asia, particularly in China and Japan. " They also focus on fixed income and alternative strategies like commodities and bank loans. " The ETF business continues to scale well, delivering accretive profitability despite lower fee rates. "

Fee Rate Trajectory and Mix Shift
Q: What is the outlook for fee rates given mix shifts?
A: The exit rate for Q2 was 25.2 basis points, slightly lower than the quarterly average. " Fee rates fluctuate with market movements and the mix of flows. " Management focuses on driving organic revenue, with an organic flow rate of 6% being a testament to client demand alignment. " Recent market broadening could be a net positive for fee rates. "

Capital Return Strategy
Q: Is capital return now the priority over M&A?
A: Management stated they aim to be opportunistic in both returning capital to shareholders and pursuing M&A opportunities. " With a healthier balance sheet, they can focus on returning capital while remaining open to filling capability gaps through acquisitions. " They emphasize improving earnings and reinvesting to drive organic growth. "

Institutional Flows and Pipeline
Q: Can you size the institutional pipeline and key areas?
A: The institutional pipeline remains consistent at around $14-15 billion. " Pipeline accounts for about 30% of flows, but many flows come outside of it. " Fee rates in this segment are on the higher side, ranging from 25 to 35 basis points. " Strength is seen across regions, particularly in public and private credit, with Asia and Europe picking up pace. "

Fundamental Equities Performance and Flows
Q: How are you leveraging improved performance in fundamental equities?
A: Improved investment performance is starting to occur in domestic equity categories in the U.S. and other developed markets. " The sales team is working closely with product design and investment teams to enhance client engagement and grow gross sales. " While recognizing industry challenges in active equities, management is focused on outperforming and narrowing outflows, aiming to return to a more stable position. "

G&A Expenses and Cost Guidance
Q: What are your expectations for G&A expenses going forward?
A: Overall expenses are expected to be around $3 billion for the year. " Compensation to revenue is trending above 42%, anticipated to be closer to 43% for the year. " Implementation costs for State Street Alpha are around $10 million per quarter. " Management notes expenses may be lumpy quarter-to-quarter but remain focused on cost management. "

State Street Alpha Implementation Expenses
Q: When will Alpha integration expenses decrease?
A: Implementation will continue through 2025 and into 2026. " Transitioning AUM onto the Alpha platform begins in Q4 of this year and runs through 2025. " Decommissioning and parallel testing will occur through 2026. " Therefore, integration expenses are expected to remain until after this period. "

MassMutual Relationship
Q: How is the MassMutual partnership developing?
A: The relationship is strong, focusing on growing private market capabilities. " MassMutual has 3-4x the capital invested in Invesco's strategies compared to Invesco's own balance sheet. " This partnership aids in seeding and co-investing, particularly in real assets. " Invesco is a leading provider on MassMutual's platform, especially in model portfolios and ETFs, where there's growing demand. "

Fixed Income Demand and Flows
Q: Can you expand on the green shoots in fixed income?
A: Fixed income growth is driven by RFP volume, flow volume, and demand for longer-duration assets as clients shift from short-term fixed income. " This is occurring in both retail and institutional channels. " In Asia, particularly China, there's strong demand in fixed income and balanced (fixed income plus) products. "

Retail Democratization and Alternative Strategies
Q: What initiatives are underway beyond INREIT?
A: Invesco launched a Real Estate Credit Fund about a year ago, now on two major wealth platforms and several RIA platforms. " Focus is on real estate equity and debt funds, with strong client demand globally. " They also offer alternative credit strategies. "

Profitability Focus and Cost Control
Q: Is there more behind your focus on profitable organic growth?
A: Management is focusing on scaling ETFs and SMA vehicles by utilizing technology and controlling expenses as they grow. " In fixed income and multi-asset, they've consolidated investment teams to improve scalability. " They believe they have a complete product range to expand profitability by layering on assets and revenues. "

Japan Business and Outlook
Q: Elaborate on your footprint and outlook in Japan.
A: Invesco has been in Japan for 30 years, managing around $60 billion in assets. " Growth has accelerated recently, especially in retail with a global equity income strategy. " They are optimistic about market reforms, inflation trends, and increased investor interest in equities. " ETFs and private markets are areas of increased demand. "

Distribution and Servicing Fees
Q: What's driving the trend in distribution fees?
A: There's some impact from mix shift away from products with distribution revenue components. " Last quarter had an anomaly due to proxy costs, which should be disregarded. " The relationship between service and distribution fees and third-party contra revenue remains consistent at 13-14% of management fees. "

Organic Revenue Growth vs Asset Growth
Q: How did organic revenue growth trend relative to 6% AUM growth?
A: Management pointed to narrowed net revenue yield ranges for more precision. " Organic revenue growth is trending better, almost neutral, despite challenges in fundamental equities and ETF fee pressures. " New disclosures help track organic revenue growth more closely. "

G&A Variability and Professional Fees
Q: Are lower G&A expenses sustainable as a tailwind?
A: Lower professional fees in G&A are not necessarily a tailwind, as these expenses vary quarter-to-quarter due to factors like legal, consulting, and project implementation costs. " Variability should be expected in this line item quarter-to-quarter. "

Impact of Market Broadening
Q: How does recent market broadening affect your outlook?
A: Management noted that recent market broadening is a net positive, especially as they have a diversified range of assets and investment capabilities. " They are optimistic that this could improve fee rates and revenue growth. "

Expected Operating Margin Improvement
Q: What's your outlook on operating margin improvement?
A: Management is optimistic about continuing to improve operating margins. " They've demonstrated strength across capabilities delivering profitable growth. " Focus remains on investment performance, narrowing outflows in fundamental equities, and leveraging growth opportunities in other areas. "