Invesco Ltd

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. Sir, you may begin.

All right. Thanks, Cedric, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address on the call. 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, as well as the appendix for the appropriate reconciliation of the GAAP. Finally, Invesco is not responsible for the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. Andrew Schlossberg, President and CEO, Allison Dukes, Chief Financial Officer. We'll present our results this morning, and then we'll open up the call for questions.

I'll now turn the call over to Andrew. Thanks, Greg, and good morning to everybody. I'm pleased to be speaking with you today. I'll start as I have for the last several quarters on slide three, which covers our strategic initiatives and our performance drivers, as it's an important framing for the second quarter and for highlighting significant recent accomplishments. We remain focused on generating positive client outcomes, executing against our strategic priorities, and making meaningful progress in our efforts to improve operating leverage while strengthening our balance sheet. I'm appreciative of the hard work of my colleagues around the world as we continue to look across the organization to unlock value. Before we review the quarterly results, I'd like to take a moment to highlight a few significant examples of this progress over the past several months. First, I point to our partnership with MassMutual and Barings. During the quarter, we completed the repurchase of $1 billion of preferred stock held by MassMutual, a significant step in reducing our preferred position and ultimately further strengthening our balance sheet flexibility. We also announced in June MassMutual's intention to invest $150 million into the Invesco Dynamic Credit Opportunity Fund, This is the first example of our intention to pair the private credit strengths of Invesco in bank loans, CLOs, and distressed and lower middle market direct lending with Barings asset-backed finance, higher market direct lending, and capital solutions capabilities. This also represents the first tranche of the broader private market strategic product and distribution partnership with Barings that focuses on the U.S. wealth channel and which MassMutual intends to support with a total of $650 million of capital. We are very pleased with the pace at which the teams are working together following our partnership announcement just a few months back in April. As the private credit market continues to grow and diversify, we are committed to leveraging the existing strength of our $130 billion private markets platform, evolving our wealth management product offering to better meet client needs, and partnering with complimentary private market managers. There will be more to come on our expanded relationship with Barings, and we will continue to keep you updated. Also during the second quarter, we announced a realignment with our fundamental equities platform and made changes to our developing markets and global and international investment teams to better serve our clients' interests. This included consolidating capabilities under a single CIO for these particular asset classes and making portfolio management changes to our U.S.-based developing markets and aspects of our international and regional fundamental equity strategies. This is part of our ongoing efforts to strengthen our investment returns in this important area of the firm, to also elevate our top talent and to use our scale advantages to gain efficiencies. An additional milestone occurred last week when we announced the filing of a preliminary proxy statement with the intent of seeking the approval of QQQ beneficial owners to change the operational structure of the Qs so that its classification changes from a unit investment trust to an open-end fund ETF, the latter being how the vast majority of ETFs, including others offered by Invesco, operate. As you can imagine, given that this is still subject to approval, there is little we can say about this at this time, other than directing you to the as-filed preliminary proxy statement. That said, Allison will walk you through some of the potential impacts of the proposed changes later in her remarks. As mentioned, these and other examples demonstrate our determination to unlock value across the organization for the benefits of clients and shareholders, including looking at how we fundamentally operate, leaving no stone unturned or opportunity unexamined, as we seek to improve client outcomes and our employee value proposition, generate operating leverage and profitability, and continue building a strong balance sheet and enhance our ability to return capital to shareholders. Let's pivot now to slide four to talk about our second quarter business highlights. As we all experienced, the second quarter market volatility was pronounced. After a challenging start to the quarter, markets ended the period with strong momentum that has carried forward into July, as the volatile start to the second quarter ultimately gave way to a global rebound for equities, while bond markets began to steady later in the quarter. Against this backdrop, once again, our diversified platform, global scale, and breadth of products were integral to sustaining long-term organic flow growth and resilience during the period. For the quarter, We generated $15.6 billion in net long-term asset inflows, or a 4.7% annualized growth rate. And we hit a record of $2 trillion in assets under management at the end of the period. We also built on the momentum of our first quarter financial results. We continued to deliver profitable growth with adjusted operating income up 3%, and operating margins expanding 30 basis points in the second quarter when compared to the same quarter last year. As Allison will discuss later, we've also continued to strengthen our balance sheet while returning capital to shareholders at the top end of our projected range. From a client sentiment, asset class, and geographic perspective, we continue to see a diverse range of flows with positive results in both active and passive, institutional and retail, and broad geographic strength, particularly within Asia Pacific and EMEA, which collectively accounts for 40% of our overall long-term client assets under management, and generated $31 billion of our first half 2025 long-term net flows. From a more specific perspective, our global ETFs and index platform continue to produce strong results, recording 10% annualized organic growth, or $12.6 billion of long-term net inflows in the quarter. ETF growth in the U.S. market was augmented by another solid quarter in EMEA and Asia Pacific. Top net flowing products in the U.S. were led by QQQM with record inflows of $5.6 billion. The fund is now past $50 billion in AUM after starting the year at $38 billion. Additionally, our factor suites rose significant net flows as precision investments became a more critical buying decision. with our momentum and quality ETFs generating $4 billion of meta inflows. We also continued to innovate in the ETF space during the quarter. We launched four new active ETFs in addition to the three launched last quarter, bringing our total to 31 active ETFs, including expanding our active use of ETFs to a total of eight products, while we also extended our smart data range of products in the EMEA region as well. Shifting to fundamental fixed income, overall we garnered nearly $3 billion of net long-term inflows when strictly looking at our fundamental fixed income platform. But looking more broadly at the asset class across all of our capabilities, that number jumps to nearly $10 billion of inflows with the inclusion of our fixed income ETFs and our China-based assets. Fixed income is another area where you can see the strength of our geographic profile within EMEA and Asia Pacific, driving significant flows in this asset class during the quarter. There was obvious caution around fixed income risk taking as the quarter commenced, and this translated into some softening of U.S. demand, particularly for municipal bonds. However, institutional interest for investment grade bonds continued, with demand in EMEA driving our net inflows. We also saw the remaining $4 billion of the people's pension fixed income mandate in the United Kingdom fund during the quarter. This is an important win as we continue to build Invesco's leadership in the retirement markets in the UK and globally. Additionally, our wealth management SMA platform in the US continues to help drive fixed income flows. Our entire SMA platform, which also includes a portion of equity assets, continued to capture market share, and now stands in nearly $32 billion in AUM. We have one of the fastest-growing SMA offerings in the U.S. wealth management market, with an annualized organic growth rate of 15%. Shifting to private markets, overall, our private real estate franchise recorded net inflows of just over $200 billion, driven by continued strong inflows into NCREF, which is our real estate debt strategy targeting the wealth management channel, which saw its largest fundraising to date in June and where we continue to onboard new platforms and clients. Assets in this fund with leverage now total $3.5 billion in AUM after just two years in market. Our performance in direct real estate was somewhat clouded by the planned wind down of the St. James Place UK real estate portfolios. We were appointed earlier this year to take over management and wind down of these portfolios, which totaled $1.8 billion. St. James Place is a key UK client, both in real estate and beyond, and being selected for this mandate affirms our wider service and relationship with SJP. The associated outflow totaled $400 million this quarter. Overall, our real estate team remains well-positioned in the institutional markets, with $7 billion of dry powder to capitalize on emerging opportunities. Within our private credit franchise, we were in negative flows in the quarter, but this was driven exclusively by April risk-off sentiment in our market-leading bank loan ETF and funds. However, as the quarter progressed and investor sentiment improved, so did net inflows in these products. which totaled $1 billion in aggregate for May and June and offset some of April's losses. Additionally, we saw good demand for CLOs. We closed a $500 billion CLO at the end of June, and the pipeline remained strong going into the back half of the year. Moving to our China JV and India capability, where we saw further strengthening this quarter. We delivered $5.6 billion of net long-term inflows led by fixed income and strong pure bond inflows from Invesco Great Wall. Later in the quarter, these pure bond inflows were augmented with additional inflows into fixed income plus, which is a more balanced strategy, as risk appetite improved amid lower interest rates and an improving equity market. We reached a record high period ending AUM in our China JV of $105 billion. surpassing the previous record of $102 billion set over three years ago. And while we launched five new products this quarter at Invesco Great Wall, our organic growth in this market continued to be driven by existing products, which is a good sign for the strength of the platform we have built. We are well positioned for the near and long-term emerging trends in this market, and we should benefit from both the secular and now cyclical tailwinds developing. Turning to our multi-asset related capabilities, we saw net long-term inflows of half a billion dollars driven by quantitative strategies. Finally, the relative pressure on fundamental equities was maintained as the secular shifting demand challenges to active equities continued, particularly among U.S. clients. Our results reflect that change, albeit at a better rate than recent history, with overall net outflows of $3.6 billion for the quarter. Despite this, we have continued to see positive flows for fundamental equities coming from our clients in EMEA and Asia Pacific, specifically for global and regional equities, headlined by our Global Equity Income Fund, which is managed out of the UK. This fund posted record net inflows of $2.4 billion during the quarter, rapidly growing the funds to $17 billion in AUM, predominantly from clients in the Japanese markets. Among retail active funds, this is the number one ranked product in Japan on a flow basis and has a very favorable net revenue yield to Invesco. Offsetting this are continued fundamental equity outflows in the U.S. wealth management channel, particularly from our emerging markets fund. The aforementioned fundamental equity platform changes this past quarter further our focus on investment performance and risk management as we continue to identify areas of demand within fundamental equities and mitigate redemptions at a better rate than the market. Moving to side five, which highlights the diversity of our business that I was referencing earlier, our geographic profile with $600 billion of our client assets coming from markets outside of America is a key Invesco differentiator and empowers organic growth in various operating environments like we are seeing today. Furthermore, our broad range of public and private market portfolios and our active, passive, and multi-asset range of capabilities provides the opportunity to capture reallocations occurring in client portfolios. The bottom line is that our diverse profile provides a more resilient asset flow, revenue, and profit growth profile. Moving on to slide six, which shows our overall investment performance relative to benchmarks and to peers, as well as our performance and key capabilities where information is readily comparable and more meaningful to driving results. Investment performance is a key to winning and maintaining market share despite overall market demand. Achieving first quartile investment performance remains a top priority for us. Overall, half of our funds are performing in that top quartile of peers over a three-year time horizon. with 46% reaching that bar on a five-year basis. Of note, we saw significant improvement in some of our fundamental equity performance, which is reflected in our one-year peer ranking. Further, over two-thirds of our AUM is beating its respective benchmarks over those measurement time periods. So with that, let me take a pause here and turn the call over to Allison to discuss this quarter's financial results, and I look forward to taking your questions.