Invesco Ltd

Thank you for standing by and welcome to Invesco's first quarter earnings conference call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, press star one. This call will last one hour. To allow more participants to ask questions, one question and a follow-up can be submitted per participant. As a reminder, today's call is being recorded. Now I'd like to turn the call over to Greg Ketron, Invesco's Head of Investor Relations. Thank you. You may begin.

Okay, thanks Cedric, and to all of you joining us on the Invesco's quarterly earnings call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website, Invesco.com. This information can be found by going to the investor relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide two of the presentation. regarding these statements and measures, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Daily authorized webcasts are located on our website. Andrew Schlossberg, President and CEO, and Allison Dukes, Chief Financial Officer, will present our results this morning, then we'll open up the call for questions. I'll now turn the call over to Andrew.

Thank you, Greg, and good morning to everyone. I'm pleased to be speaking with you today, not only about our Q1 results, but also the significant developments that we announced in our ongoing relationship with MassMutual, which we are very excited about. Allison and I will walk through the details of this new strategic product and distribution partnership and the $1 billion repurchase of preferred stock a little later in the call. In recent quarters, I've been commencing our earnings calls with a recap of our strategic focuses and advantageous market position, as seen on slide three of your presentation. During this period of uncertainty in capital markets and economies around the world, I cannot think of a more pertinent time to highlight our position and our steadfast focus. Our strategic priorities were conceived with conviction that regardless of near-term market volatility, cyclical, structural, or fundamental developments our focus would leverage the best of Invesco, ignite our growth engines, and deliver durable results. The hallmarks of the global Invesco platform place us in a position of strength to navigate the current operating environment. Our geographic diversity and local presence is a differentiator across the Americas, EMEA, and our significant and unique Asia Pacific profile. Furthermore, our broad range of public and private market portfolios and active and passive multi-asset range of capabilities provides the opportunity for us to stay closely connected to clients and capture expected reallocations in their portfolios. Furthermore, our diverse profile provides a more resilient asset flow, revenue, and profit growth profile. Our strategic clarity has helped us drive organic growth through various operating environments and continue to prove effective in the first quarter. We generated $17.6 billion and long-term net asset inflows were a 5.3% annualized growth rate. And we delivered strong profitable growth with adjusted operating income up 18% and operating margins expanding over 330 basis points when compared to the same quarter last year. Furthermore, against the backdrop of a turbulent start of the second quarter, our diversified platform provided some resilience in our asset flows and an ability to use our global scale for the benefits of our clients and our shareholders. Turning to slide four, I'll cover our first quarter flow performance by investment capability and provide some additional context in which to think about the new uncertain operating environment that we have now entered. Before I begin, though, I want to point out a change we have made to the reporting of our investment capabilities to isolate the performance of our China JV and India business. It's important to note that this line item now only represents products managed through our China JV and India business. The approximately $10 billion in other assets that were previously in the Asia Pacific managed capability but not managed directly through the JV or India are now allocated to the representative investment capabilities with the majority being allocated to fundamental equities. We made this reporting change to better reflect how we view our business and the unique dynamics in the Asia Pacific region, where we are increasingly able to bring more international products managed outside of the region to our clients in these local markets. A good example of this is our global equity income fund managed out of the UK, which has rapidly grown to $14 billion of assets under management, predominantly from clients in the Japanese market. We've provided an eight-quarter look back in the appendix of today's presentation to help you align to this adjustment. And currently, we'll continue to report our assets and flows sourced from clients and in each region, which you can see on page five of the presentation. The Asia Pacific and EMEA regions account for $276 billion each in assets under management, representing nearly a third of the overall company. And between them, they generated $15 billion in net long-term inflows in quarter one, a positive trend we've seen the past several quarters. This further highlights the importance of our local profile in key markets around the world. Shifting to our recent business results, the year started with a risk on client sentiment, which shifted to a more cautious stance at the end of the quarter, continuing through April. By illustration, money markets for the industry recently topped $7 trillion, a record level for the asset class. Thus far in April, we've seen investors largely stay invested, but they remain more muted with new capital deployments as they rethink their asset allocations. Despite the volatility, we continue to see strong client activity in the first quarter with significant growth across channels, asset classes, and product vehicles. A key headline for us was the funding of a $10 billion mandate to deliver a range of customized fixed income portfolios for the People's Pension Fund, which is one of the largest master trusts in the United Kingdom. $6 billion of this mandate funded in the first quarter with the incremental $4 billion funded during April. This is an important mandate as we continue to build Invesco's leadership in the retirement markets in the UK and globally. Our global ETF and index platform continue to produce strong results, recording 13% annualized organic growth in the first quarter. More recently, in the March timeframe and continuing into April, ETF demand has cooled, as global financial markets experienced increasing volatility. That said, we have continued to see our ETF flows broaden by asset class and factors across our clients in Americas, EMEA, and Asia. Strong ETF growth in the U.S. market was augmented by another solid quarter for growth in EMEA, where we saw $8 billion in net new ETF flows. Top net flowing products in the U.S. were led by our QQQM, with a near record flow of $4 billion. Additionally, our factor suite drove significant net flows as precision investments become an even more critical buying decision. We continue to innovate in the ETF space, launching three new active ETFs in the quarter, with plans for increased expansion this year. Further, our QQQ ETF was successfully listed on the Hong Kong Stock Exchange in February. This launch marks the first cross-listing of Invesco QQQ outside of North America and represents a milestone in the expanding market for ETFs into Asia. Shifting to fundamental fixed income. In the current environment of uncertainty and tight valuations, there is caution around risk taking. We saw this play out with our fixed income results, particularly during the back end of the quarter. But given our range and strength of our fixed income offering, we garnered $8 billion in net long-term inflows with an additional nearly $9 billion in global liquidity flows during the quarter. During the period, demand for investment grade and certain municipal bond strategies continued to be strong, and we also had net inflows into our ultra-short duration strategies and saw a positive reversal in our stable value platform with net long-term inflows for the quarter, a trend line that has strengthened into April. Our retail SMA platform, which tends to be more focused on short duration, continued to capture flows and now stands nearly $30 billion in AUM. We have one of the fastest-growing SMA offerings in the U.S. wealth management market with an annualized growth rate of 25%. Shifting to private markets, in direct real estate, we recorded net inflows of $1.1 billion, driven by the funding of a large U.K. mandate, as well as continued inflows into NCREF, which is our real estate debt strategy targeting the wealth management channel, where we continue to onboard new platforms and clients. Our real estate team remains very well positioned in the institutional markets with over $5 billion of dry powder to capitalize on emerging opportunities. Our private credit capabilities recorded modest net outflows for the quarter as our market-leading bank loan ETF turned from a strong net inflow position at the beginning of the quarter to net outflows in March, which continued into April as recession fears have increased. Client interest in private markets remains high, and we expect to see continued activity in the key areas where we focus in real estate and alternative credit, including the advancements announced today with our partnership with MassMutual and Barings. Moving to our China, JV, and India capability, we saw continued net long-term inflows of $2.2 billion, which was led by fixed income and augmented by continued growth in ETFs, which have been gaining traction in China. While six new products were launched in our China JV this quarter, our organic growth in this market was largely driven by existing products, which is a good sign for the strength of our platform. Furthermore, within these markets, we've seen resiliency thus far in April with continued positive organic flow growth in these local fund ranges. Clearly, the most recent heightened trade tensions have created an overhang for the domestic Chinese economy, but continued anticipated government stimulus heightened domestic consumption, and reforms on social service will have an impact on the development of capital markets and the retirement system, both of which are benefits for our domestic-to-domestic business. Turning to our multi-asset related capabilities, we saw net long-term outflows of $1.1 billion driven by our global risk parity strategies. Finally, the relative pressure on fundamental equities has continued. We saw outflows in our global equities in developing markets funds in the U.S. region, But importantly, by contrast, in our EMEA and Asia Pacific regions, we had modest net inflows in fundamental equities, which is an important change in the trajectory. Overall, our focus will remain on delivering strong investment performance and gaining market share in key fundamental equity categories in which we compete. Moving on to slide five, as mentioned earlier, we provide an alternative aggregation of our AUM and our flows to provide additional context for our business results. I've covered most of the key highlights, but I will reiterate that the diversity of our asset flows across geography, channel, and investment style provide a balance to market conditions and an ability to meet a range of client needs, which is an important part of our organic growth potential through various market cycles. Moving to slide six, which shows our overall performance relative to benchmarks and peers, as well as our performance in key capabilities, where information is readily comparable and more meaningful to driving results. Investment performance is key to winning and maintaining market share despite overall market demand. Achieving first quartile investment performance remains our top priority. Overall, roughly half of our funds are performing in the top quartile of peers across the three- and five-year time horizons. Further, over two-thirds of our AUM is beating its respective benchmarks over these measurement periods. Moving on to slide seven. Two important strategic priorities for Invesco have been expanding our footprint in private markets, particularly with wealth management clients, and ensuring that we have balance sheet and capital management flexibility to continue to invest in our growth and deliver shareholder returns. The partnership we announced today with MassMutual and Barings for private market product development and distribution in the U.S. wealth management market and the repurchase of part of our preferred stock are exciting developments in driving these strategic priorities for the benefits of our clients and our shareholders and it also demonstrates the commitment strength and strategic nature of our relationship with mass mutual the near-term focus of our partnership with bearings will be on delivering differentiated and industry-leading private credit oriented income solutions and product structures suitable to reach a wide set of our U.S. wealth management clients. We're going to leverage both Invesco and Barings capabilities in global private credit and public fixed income. The partnership is going to rely on Invesco's deep client relationships in the U.S. wealth management channels for our distribution and the extensive product structuring and unique asset allocation capabilities of both firms. We're also excited that MassMutual intends to support this initiative with an initial investment of $650 million and seed and co-investment capital to accelerate bringing these initial and innovative solutions to our clients. This augments MassMutual's previous commitments to Invesco's private market and other strategies, which has exceeded $3 billion in total. Today's announcement of this partnership with an institutional private markets leader like Barings complements nicely the existing strengths of our $130 billion private markets platform and will allow us to expand the existing real estate, alternative and private credit strategies that we currently have in market for wealth management clients in the United States. It also demonstrates our ongoing commitment to look for opportunities to broaden our private market offerings to meet client needs across all market cycles and across the full spectrum of sectors and geographies. With that, I'm going to turn the call over to Allison to discuss the important aspects of our announcement with MassMutual, including the details and benefits of the $1 billion repurchase of preferred stock, and also our financial results for the first quarter. I look forward to your questions.