Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Invesco Ltd (IVZ, Financial) achieved record long-term assets under management (AUM) of $1.8 trillion, marking a 5% increase from the previous quarter and a 21% increase year-over-year.
- The company reported strong net long-term inflows of $16.5 billion, representing a 5.2% annualized organic growth rate, with positive contributions from all three regions: Asia Pacific, EMEA, and the Americas.
- Invesco Ltd (IVZ) demonstrated improved operating leverage, with a 4% increase in adjusted operating income and a 70 basis point improvement in operating margin from the previous quarter.
- The firm strengthened its balance sheet by achieving a net cash position, surpassing its zero net debt goal, and executed $25 million in share buybacks during the quarter.
- The ETF platform experienced significant growth, with organic long-term inflows of $17.7 billion, marking one of the highest ETF growth quarters in the company's history.
Negative Points
- The Chinese market remained challenging, with market volatility impacting fixed income appetite and resulting in some outflows.
- Invesco Ltd (IVZ) faced net outflows of $6.3 billion in fundamental equity during the quarter, continuing pressure on fundamental equity flows.
- The company incurred a one-time noncash acceleration expense of $148 million related to changes in retirement criteria for long-term awards, impacting GAAP operating results.
- Service and distribution fees declined sequentially despite higher AUM levels, while distribution expenses increased, creating a drag on profitability.
- The liquidity business experienced outflows, with institutional clients shifting allocations due to changing interest rate dynamics.
Q & A Highlights
Q: Andrew, you spoke to the stimulus in China not really impacting the third quarter, but that you've seen some positive effects over the past few weeks. Could you maybe provide a bit more specificity to that? What have you seen? And how should we be thinking about the potential impact of the stimulus on IGW?
A: Hey, Brennan, thanks. Look, it's early days in China and we know how much volatility exists in that marketplace. The stimulus, I think, obviously we saw what happened in markets and that's good for our business. That's good for investor sentiment. I think what we've seen mostly is a mix shift going on. So I think what had predominantly been earlier this year and the end of last year, a focus on fixed income is starting to shift a bit more towards the equity side of things or the fixed income plus we call it, which is a balanced portfolio. I think it's also important to remember that the mix of our business at IGW and in the Chinese market is more skewed towards fixed income and balance. So our IGW business is about 30% equities, 30% fixed income, 20% balance and 20% money market. So we expect to see, I think, demand improve, but it's early days to speculate too much.
Q: Allison, you have effectively delivered the balance sheet really well. And it's certainly encouraging to see the buyback restart. But I'm curious if you considered rather than buying back common approach MassMutual to see whether or not you could do a buyback program for the preferreds.
A: Thanks, Brennan. Yes, we have ongoing conversations with MassMutual about the preferred and it is a non-call instrument as you know, and they own 100% of it. So it is certainly negotiated conversation and one that given the duration of that piece of paper and the liabilities that they wrote against it, it's not a straightforward exercise to think about any opportunity that might exist to repurchase any element of that. Certainly, top of mind for us and something we've been talking about for years now but not straightforward, not simple. And one that I think they certainly understand as well as they are as you know, our largest common shareholder and take quite a bit of attention to how that preferred impact us on both sides of the equation as well. In the meantime, our strategy has been and as you noted, successfully delever around that preferred instrument everywhere we can. And I think we've done a nice job doing that. We've got a little bit further to go. The next maturity isn't until 2026. In the meantime, we're really focused on continuing to build capital and liquidity and returning capital to our common shareholders.
Q: Andrew just following up on fixed income, obviously a good quarter for you in terms of flows. Can you talk about the dialogue and where you see opportunity, particularly both, I guess in the US and globally and maybe in the context also, you guys used to give us a backlog of unfunded wins. Just curious how that sits today and the makeup of that in terms of the contribution of asset classes?
A: Yeah. Thanks for the question. Let me start and Allison can chip in on the pipeline a little bit. From a fixed income perspective, as I noted, 70% of the volume we saw this quarter in flows came from institutions. And maybe the first thing I'll say is I think we're starting to see more money kind of move into motion partially with greater clarity around interest grade, but I think also with backlogs of mandate and reallocations that had kind of been put on hold and quarters delayed as we've talked about previously. So in the institutional marketplace, I just think we're just sort of seeing a greater velocity in particular in fixed income. And then in the retail space, the wealth space, we continue to see positive flows largely for us in the municipal space. In the US, it has been quite strong and mostly active but some passive. And then people using separately managed accounts in wealth management, again, particularly in the US, that's starting to increase more rapidly in fixed income in particular, where we have a competitive edge and a strength, and we were relatively early in that space. So volume is definitely picking up across the board for fixed income and you saw it in our flows this quarter.
Q: Maybe a big picture question now that your balance sheet is more healed, there's been a significant amount of M&A around you, whether it be some nutritional managers trying to bulk up in the alts or your alt managers is trying to bulk up further into the alts space with a focus on driving opportunity to fix income replacement or retail democratization. I was wondering if you could talk a little bit about how you're positioned to participate in those trends, either de novo or perhaps inorganically.
A: Yeah. Hey, Bill, thanks. Look, the number one thing for us as you mentioned in terms of opportunity and growth is in the private market space and you can see as I mentioned, what's happening there in wealth management. For us, there's a ton of organic opportunity for us to continue to pursue, especially if we take our real asset capabilities and our alternative credit capabilities to that wealth management market. And we're beginning to see sort of that pace pick up with our real estate debt strategy, in particular, the interest has been quite high in the US wealth management arena. We were added to another one of the largest platforms just at the end of the latter part of the third quarter. So I guess what I'm saying is we continue to see lots of organic opportunity to take private markets and the wealth management, but we have distribution strength, we have product origination capability. We've invested in already the specialized skills and tools you need to pull that through and create less friction in the marketplace. And we'll continue to look in organically if there's places where we can bolt on to that set of strategies. But we really do feel like we have a tremendous amount of opportunity right here in Invesco.
Q: Wanted to first ask about the competitive dynamics in the fixed income business. In the prepared marks, you called out a number of factors, new investment grade mandates, US wealth management flows. But just curious, I guess, I suppose you don't always know where the flows are coming from if they're from somewhere else. But is there an opportunity for share gains in that space? Was there anything you saw in the quarter? Do you see that as an opportunity for the fourth quarter? Or is this more money in motion rates coming down, more of a organic pick up?
A: Yeah. It's a great question. It's also hard to parse it completely. I think the trends are -- what we're largely seeing is money that's in motion for the reasons that we mentioned before, fixing comes to competitive space. And so, you're largely also having to compete and take assets from competitors even as money is in motion could be growing. But also, it's takeover mandate. There's nothing in particular that we can point to from this quarter in that regard. I'd also say that a lot of the assets
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
