Invesco Ltd

Welcome to the 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, please 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.

Thanks, operator, and to all of you joining us on the call today. In addition to the 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, as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for the accuracy of our earnings transcripts provided by third parties. The only authorized webcasts are located on our website. Andrew Schlossberg, President and CEO, and Allison Dukes, Chief Financial Officer, will present our results this morning, and 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. Before we review this quarter's results, I'd like to reiterate our strategic priorities and our key performance drivers, as highlighted on slide three of today's presentation. These strategic imperatives focus our efforts, guide our decisions, and provide a clear framework for navigating a rapidly evolving asset management landscape. Our strategic priorities remain grounded in a simple conviction. Regardless of broader market conditions, geopolitical events, or cyclical, structural, or fundamental headwinds, Executing against these priorities will leverage the best of Invesco, accelerate our key areas of opportunity, and drive profitable growth. And that is exactly what we are seeing in our business. Profitable organic growth is paramount. As such, we are focusing on high demand, scalable investment capabilities like fixed income, and delivery vehicles like ETFs. We continue to drive value through our expansive global footprint with a significant and unique Asia-Pacific presence, including a hard-to-replicate Chinese JV, and a strong performing and growing EMEA business. Together, these regions represent nearly $700 billion of our client AUM. We are also well positioned to generate increasing value in our private markets business, where we have a strong institutional heritage in real asset and alternative credit strategies. which are now leveraging as we bring those products into faster growing wealth management space. These existing Invesco strategies are being augmented by our recently announced partnerships with Barings and LGT Capital. Each of these relationships are progressing well, and we look forward to updating you on developments with additional product launches later this year. We also continue to sharpen our focus and accelerate innovation across products and vehicles such as active ETFs, SMAs, models, customized solutions, and digital assets. We are seeing momentum build in each of these areas, and we have launched several new products and partnerships this year already. Our progress on strategic priorities also includes continued strengthening of our balance sheet and efficient capital deployment, including returning a portion of it to our shareholders through increasing common share repurchases and dividends. We continue to prioritize the intersection of market size and secular change, where Invesco is uniquely positioned to drive growth in the highest opportunity regions, channels, and asset classes. This is the guiding principle by which we measure opportunities, de-emphasize when needed, and focus resources to drive growth across the organization. We will continue to execute with discipline, allocate capital and resources accordingly, and measure progress against our key performance drivers indicated on the far right-hand side of this slide. So let's turn to slide four and take a look at how our efforts translated into asset flow results in the first quarter. Markets had strong momentum coming into the quarter, but ultimately gave way to heightened volatility as geopolitical uncertainty, sharp moves in energy prices, and changing interest rate expectations weighed on public markets. It is in this type of operating environment that the benefits of our broad-scale, diversified global platform are most evident. With elevated volatility, money was in motion, and clients continued to entrust Invesco with significant capital across our global product set. Net long-term inflows were $21.8 billion, marking the 11th straight quarter of net inflows and representing annualized organic growth of 4%. It is also worth noting that we generated $11.6 billion in global liquidity inflows, and we ended the period with over $200 billion in AUM. We continue to be encouraged by the breadth of our overall growth. We have solid positive flows across several dimensions, including in many of our strategically important investment capabilities across each of our three regions in both our active and passive strategies, and across wealth management and institutional channels. The Asia Pacific and EMEA regions again produced very strong net inflows with 17% and 8% annualized organic growth respectively. We also saw our strongest quarter of active net inflows with nearly $15 billion generated around the world. Additionally, institutional demand has remained strong with our fifth consecutive quarter of annualized organic growth in excess of 5%. So let me spend a few minutes clicking into growth drivers in each of these investment capabilities, starting with our ETF and index capability, where we continue to meaningfully scale and diversify our platform to meet evolving client demand. Our ending AUM stood at a record $638 billion, or over $1 trillion, including the QQQ. We had nearly $19 billion of net inflows during the quarter, or 11% annualized organic growth. Within our ETF range, we garnered net inflows across a diverse set of products in both equity and fixed income. Our equal weight S&P 500 delivered record net inflows, and we saw strong demand for QQQM from investors with long-term horizons. We continue to see strength in our S&P quality and momentum lineup as well. We remain focused on innovation in the ETF space as we launched four new active ETFs this quarter, strengthening our market position in this high demand segment as investors continue to use the ETF wrapper to access active equity and fixed income strategies, particularly in more volatile market environments like we are seeing today. We have built a robust active ETF platform, currently managing over $20 billion in assets, which increases to more than $35 billion when you include index strategies implemented by our active teams. With our QQQ fund conversion on December 20th, we had a full quarter of the fund's flows included in our results. The fund continues to attract good demand, but after multiple quarters of very strong inflows, we ultimately had net outflows this quarter. This reflected normal rotation and profit-taking as investors broadened exposures amidst the more volatile market environment. However, with abating market volatility in April, we have seen strong demand and net inflows return for this flagship product. Let me take a moment here to address the recent developments that NASDAQ has expanded its licensing to allow two additional U.S.-listed ETFs to track the NASDAQ 100. We see this as an evolution of a highly successful benchmark, reflecting the global importance of the NASDAQ 100, where we dominate with our flagship QQQ fund, which is one of the world's most actively traded ETFs and a core exposure vehicle globally for the NASDAQ 100. As you know, QQQ's position is supported by unmatched liquidity with tight spreads, deep options and derivative markets, and a very large and broad institutional and retail investor base. These critical characteristics, coupled with the immense brand recognition that's synonymous with Invesco QQQ being a one of a kind and a large marketing spend and positive client outcomes built over 25 plus years, minimizes the dependence on being the sole licensed product from an index provider. Our installed base is tough to erode and it's been proven that switching costs are higher than assumed with taxes being a major factor. By example, the introduction of our own QQQM expanded the NASDAQ 100 ecosystem without cannibalizing the QQQ. NASDAQ has historically been selective in how it licensed the NASDAQ 100 index, and that selectivity resulted in the QQQ being the primary U.S.-listed ETF tracking the index for decades. NASDAQ has publicly reaffirmed its commitment to our QQQ innovation suite as a cornerstone of their NASDAQ 100 ecosystem. Further, NASDAQ's licensing for these new NASDAQ 100 exchange traded funds is consistent with our QQQ at eight basis points, meaning any competitor fund will pay the same amount, and the existing licensing agreements are not impacted by these filings. Our relationship with the NASDAQ remains strategic and longstanding. To put a fine point on it, our installed base where we have built a dominant entrenched position over decades, will be difficult to displace. More so, we believe that the attention will create an increasingly large pool of assets behind this important benchmark. So let's move on to fundamental fixed income, where we garnered a very healthy $3.7 billion in net long-term inflows, or 5% annualized organic growth, with strong attribution across geographies and channels. This only considers the narrower view of our fundamental fixed income capability. Looking more broadly at the asset class across all of our investment capabilities, that net flow number jumps to $14 billion, with the inclusion of our related ETF and China-based fixed income assets. Momentum in our fundamental fixed income capability was broadly driven by institutional inflows in investment-grade products, as well as fixed income SMAs, where we continue to see strong demand. Our entire SMA platform, which also includes a portion of equity assets, now stands at $37 billion in AUF. We have one of the fastest growing SMA offerings in the United States wealth management market, generating an annualized organic growth rate of 19% this quarter. So moving on to China, JV, where we produced another exceptionally strong quarter, demonstrating that we are well positioned in this market. We reached a record high AUM of $142 billion and delivered $8.7 billion of net long-term inflows for a 31% annualized organic growth rate. In a volatile global market environment, the China JV demonstrated the benefits of its diversified platform. Looking at the quarter as a whole, net inflows continued to be driven by fixed income plus strategies, which have now reached $40 billion in AUM on our JV platform. We have developed a diversified product lineup in our China JV, which is designed to meet varying client risk appetites, and we like the position we have built and the opportunity it presents long-term. To support this growth during the quarter, we launched 14 funds with total AUM of $2.5 billion, mostly aligned with the growing demand for balanced and equity ETF strategies. Shifting to private markets, we've posted $400 million of net inflows driven by direct real estate. The asset classes gained momentum led by NCREF, our real estate debt fund for the U.S. Wealth Management Channel, which continues to gain scale, and our U.S. Core Plus Real Estate Equity Fund, which is seeing strong institutional engagement. Assets in NCREF with leverage now total $5 billion after a little more than two years in the market. This is one of the fastest ramp-ups in the wealth channel for a commercial real estate credit product and is a reflection of how our innovation mindset is helping drive our results. Additionally, we continue to prioritize private markets product development for the defined contribution channels around the world. During the quarter, we launched the Invesco Core Plus Real Estate Trust, which is a collective investment trust designed to provide U.S. defined contribution plans access to private real estate. Among the first of its kind, this CIT introduces institutional real estate capabilities that support the long-term needs of defined contribution investors. We launched this fund with a mandate from a large U.S. corporate institutional investor as the anchor client, marking a significant win for our business. Our real estate net inflows were modestly offset by net outflows and alternative credit which were exclusively driven by our bank loan products. BKLN, our industry-leading ETF, experienced redemptions of $400 million in Q1 instigated by the technology-led sell-off. However, the fund remains a well-scaled and positioned in the market. Regarding the market dynamics in private credit at large, the headlines are oftentimes drowning out the fundamentals and conflating various products. Invesco's alternative credit platform, built around broadly syndicated loans, CLOs, and disciplined direct lending had zero software exposure, showcasing the diversified nature of the platform that is designed precisely for environments like this one. From a product standpoint, it's important to note that we are not in the BDC space. We have dry powder, diversification, and extensive experience. For managers with their discipline, this volatility may ultimately prove to be an opportunity. The growth potential in private credit has not fundamentally changed, and manager selection remains key given the wide dispersion in the sector. The current turbulence has not impacted our long-term views, and we believe we have a very favorable position. We're excited about the prospects in private markets, with organic growth opportunities amplified through our innovative partnerships with Barings and LGT Capital to further penetrate the wealth management and defined contribution markets. Moving on to multi-asset capabilities, we also had a strong long-term net inflow driven by our institutional quantitative equity strategies, which generated $4.7 billion of net inflows during Q1. And finally, in fundamental equities, U.S. value equities turned to net inflows during the quarter, which was matched by continued positive net flows in global, international, and regional equities from clients in Asia Pacific and EMEA. The ongoing momentum in these markets is headlined by our Global Equity Income Fund, which remains the top-selling retail active fund in the Japanese market. This fund posted net inflows of $3 billion during the quarter, rapidly growing to $23 billion in AUM, while generating a very favorable net revenue yield for Invesco. Despite these positive fundamental equity flow highlights this quarter, we did remain in net outflows of $2.4 billion overall in the segment. This included the expected $1.2 billion in net outflows from our developing markets fund, albeit a significant moderation from recent history. However, it's important to highlight that our overall fundamental equity outflows this quarter were the smallest we have seen in nearly nine years. And on a gross sales basis, we had our best fundamental equities flow quarter since the beginning of 2022. So moving on to slide five, which shows our overall investment performance relative to benchmarks and peers, as well as our performance and key capabilities where information is readily comparable and more meaningful to drive results. Investment performance is key to winning and maintaining market share regardless of overall market demand and achieving first quartile investment performance remains a top priority for Invesco. Overall, 46% of our active funds are performing in the top quartile of peers on a three-year time horizon, with nearly half reaching that bar on a five-year basis. Further, over 70% of our active AUM is beating its respective benchmark on a five-year basis. So with that, I'm going to take a pause and turn the call over to Allison to discuss the quarter's financial results, and I look forward to your questions.