Allison Dukes
Chief Financial Officer at Invesco
Thanks, Marty, and good morning everyone. I'll start with slide five. Our investment performance was strong in the fourth quarter with 64% and 75% of actively managed funds in the top half of peers or beating benchmark on a five-year and a 10-year basis. These results reflect continued strength in fixed income and foreign equity, most notably, emerging markets in Asian equities, all areas where we continue to see demand from clients globally.
Turning to slide six. We ended the year with over $1.6 trillion in AUM, a 19% increase over year-end 2020. As Marty noted earlier, our diversified platform generated net long-term inflows in the fourth quarter of $12.5 billion, representing a 4.1% annualized organic growth rate. Active AUM net long-term inflows were $1.8 billion and passive AUM net long-term inflows were $10.7 billion. Net market gains led to an increase in the AUM of $18.4 billion in the quarter. The retail channel generated net long-term inflows of $3 billion in the quarter, driven by inflows in the global ETF products in Greater China. The institutional channel demonstrated the breadth of our platform and generated net long-term inflows of $9.5 billion in the quarter with diverse mandates, both regionally and by capability funding in the period. Inflows in the Asia-Pacific region were particularly strong.
Regarding retail net inflows, our ETF capabilities generated net inflows of $21.7 billion. Excluding the QQQ, our net long-term inflows were $8.8 billion. As Marty noted in 2021, our global ETF business generated record net inflows of $62 billion, which was more than 2.5 times net inflows in 2020. Our global ETF platform captured 5.6% of net new flows in 2021, increasing our market share of ETF AUM to 4.9% at the end of 2021. Our share capture of incremental ETF revenues was also above market share at 5.2%, excluding the QQQ.
Looking at flows by geography on slide seven, you'll note that the Americas had net long-term outflows of $4.3 billion in the quarter. While we saw strength in ETFs and our institutional business, we did see pressure from select active equity strategies, including developing markets and diversified dividends. Our BulletShares suite also experienced gearing maturity activity, which is expected. Asia-Pacific delivered another strong quarter with net long-term inflows of $12.9 billion. Net inflows were diversified across the region, including a record $9.7 billion of net long-term inflows from our joint venture in China. Invesco Great Wall and $3.2 billion from other countries including Australia with $1.8 billion in India at $800 million. EMEA, excluding the UK also delivered a strong quarter of net long-term inflows totaling $4.7 billion, representing organic growth of 12%. This was driven by strength in ETF, sales of senior loan products and institutional mandates, and investment-grade fixed income.
From an asset class perspective, we continue to see broad strength in fixed income in the fourth quarter with net long-term inflows of $9.1 billion. Drivers of fixed income flows include institutional net flows and various fixed income strategies through our China JV and EMEA, global investment grade, stable value, and municipal strategies. Our alternatives asset class holds many different capabilities and this is reflected in the flows we saw in the fourth quarter. Net long-term flows and alternatives were $3.1 billion, driven primarily by our private markets business, which included direct real estate property acquisitions, a newly launched CLO, and senior loan capabilities. When excluding global GTR net outflows of $700 million, alternative net long-term inflows were $3.8 billion. The strength of our alternatives platform can be seen through the flow that is generated over the past four quarters with net long-term flows totaling over $17 billion, representing a 10% organic growth rate over this time excluding the impact of GTR net outflows over the period.
Moving to slide eight. Our institutional pipeline was $26 billion at year-end. The decline in the pipeline from the prior quarter was due to the funding of several significant mandates in the fourth quarter as reflected in our strong institutional inflows for the quarter. While the size of the pipeline will fluctuate quarter-to-quarter, it remains consistently strong, typically running in the $25 billion to $35 billion range, dating back to 2019. The pipeline also remains relatively consistent with prior quarter levels in terms of fee composition. Overall, the pipeline is diversified across asset classes and geographies. Our solutions capability enable 35% of the global institutional pipeline and created wins and customized mandates. This has contributed to meaningful growth across our institutional network.
Turning to slide nine. You'll note that net revenues increased $40 million or 3% from the third quarter as a result of higher-than-expected performance fees as well as higher average AUM in the fourth quarter. The net revenue yield ex-performance fees was 33.4 basis points, a decrease of 1 basis point from the third quarter yield level. The decrease was driven mainly by asset mix shift, including higher QQQ and money market average balances. The incremental impact from higher discretionary money market fee waivers was minimal relative to the third quarter and the fullest impact on the net revenue yield for the fourth quarter was six-tenths of a basis point.
Looking forward, we expect most of the dynamics impacting net revenue yield will continue. In addition, the first quarter contains two fewer days than the fourth quarter, which always impacts net revenue yield. Regarding discretionary money market fee waivers, given the current prospects for higher rates in the near term, we anticipate that 75% to 90% of these waivers would seek within the first 60 to 90 days after the first 25 basis point increase in the Fed funds rate. That would result in a recovery of about four-tenths to five-tenths of the negative impact waivers have had on our annualized net revenue yield. Performance fees for the fourth quarter were $53 million, higher than our expectations, and were driven by certain portfolios that have annual absolute return performance hurdles, including approximately $20 million from our JV in China. Given the strong influence of the market on these portfolios, these performance fees are clearly difficult to forecast.
Total adjusted operating expenses increased 3.1% in the fourth quarter. The increase was mainly driven by the typical seasonal increase we see in marketing and higher G&A expense, which were partially offset by a decrease in compensation expense. Also impacting marketing and G&A expense was an increase in client events and travel in the fourth quarter before we saw the impact of the new Omicron variant. With the impact of the new variant, we have seen a slowdown of travel and in-person client activity in January and we would not expect first quarter activity to be as high as fourth quarter. G&A expense in the fourth quarter also included a non-recurring $10 million charitable contribution to the Invesco Foundation. The Invesco Foundation exists that support our communities and further progress pillars of education and financial literacy. We're pleased to have the ability to make this contribution at the conclusion of a very strong year.
As we look ahead to the first quarter of 2022, consistent with prior years, we expect an increase in compensation expenses related to the seasonal increase in payroll taxes and the reset of other benefits, such as our 401K Plan Match. Typically, this is about $25 million to $30 million higher in the first quarter relative to the fourth quarter. As noted, one area that's still more difficult to forecast at this point is when COVID impacted travel and entertainment expense levels will begin to normalize.
Moving to slide 10, we update you on the progress we have made with our strategic evaluation. In the fourth quarter, we realized $5 million in savings. $4 million of the savings was related to compensation expense, reflecting the planned transition of certain roles in concert with our strategic review and $1 million is related to a reduction in property expense as we continue to right-size our facilities portfolio. The $5 million in cost savings or $19 million annualized combined with $148 million in annualized savings realized through the third quarter in 2021 brings us to $167 million in total or 84% of our $200 million net savings expectation.
As it relates to timing, the remainder of our net savings will be realized by the end of 2022 as planned. We expect the total program savings of $200 million through 2022 would be roughly 65% from compensation and 35% spread across property, office, technology, and G&A expense. In the fourth quarter, we incurred $32 million of restructuring costs related to the initiative. In total, we've recognized nearly $220 million of our estimated $250 million to $275 million in restructuring costs associated with the program. We expect the remaining restructuring costs for the realization of this program to be in the range of $30 million to $55 million in 2022. As a reminder, the costs associated with the strategic evaluation are not reflected in our non-GAAP results.
Going to slide 11. Adjusted operating income improved $16 million to $578 million for the quarter, driven by the factors we have reviewed. Adjusted operating margin was relatively stable at 42%. Excluding the non-recurring contribution to the foundation, we generated positive operating leverage in the fourth quarter. For the year, the degree of positive operating leverage was 1.8 times, underscoring our focus on driving scale and profitability across the company's diversified platform.
Non-operating income was $51 million, driven primarily by recognition of gains from funds that are in liquidation. The effective tax rate was 21.9% in the fourth quarter compared to 24.4% in the third quarter. The decrease in the effective tax rate was primarily due to a decrease in the valuation allowance recorded against net operating losses and a decrease in the expense for uncertain tax positions in the fourth quarter. We estimate our non-GAAP effective tax rate to be between 23% and 24% for the first quarter of 2022. The actual effective tax rate may vary from this estimate due to the impact of non-recurring items on pre-tax income and discrete tax items.
Slide 12 illustrates our ability to drive adjusted operating margin improvement against the backdrop of the client demand-driven change in our AUM mix and the resulting impact on our net revenue yield excluding performance fees. We also illustrate the impact, the exceptional growth of our QQQ product, which does not earn a management fee have had on our net revenue yield. Our operating margin two years ago, in the fourth quarter of 2019 was 39.9%. At that time, we reported a net revenue yield of 40.5 basis points. In the fourth quarter of 2021, our net revenue yield declined a little over 7 basis points to 33.4 basis points, yet our operating margin improved to 42%. As Marty noted earlier, the operating margin we have generated in the third and fourth quarters of 2021 are the highest since Invesco became a US-listed company in 2007. This is against the backdrop of a mix-driven decline in net revenue yield.
We have been building out our product suite to meet client demand and client demand has been skewed towards lower-fee products including the highly successful QQQ product. Growth of the QQQ product over this period is remarkable, growing from 7% of our AUM mix in the fourth quarter of 2019 to 13% in the fourth quarter of '21. Even though we do not earn a management fee, a sponsor of the QQQ, we managed fee of $100 million annual marketing budget generated by this product. Growth in the QQQ accounts for 2 basis points of the net revenue yield decline over this period shown on this chart. And as I noted earlier, discretionary money market fee waivers account for six-tenths of a basis point decline in the net revenue yield. The combination of the extraordinary growth in the QQQ combined with the temporary drag for money market fee waivers account for over one-third of the decline in net revenue yield over this time period. Realizing our business mix is shifting, we continue to focus on aligning our expense base with these changes. This has enabled the firm to generate positive operating leverage and operating margin improvement, despite the decline in the net revenue yield.
Now turning to slide 13, a few comments here. Our balance sheet cash position was $1.9 million on December 31 and approximately $725 million of this cash is held for regulatory requirements. The cash position has improved meaningfully over the past year, increasing by nearly $500 million. We were able to drive improvement in our cash position while also funding the resolution of the remaining contingent liabilities in 2021. These included $294 million in forward repurchase liabilities that we funded earlier in the year and the $254 million in fund shareholder reimbursements to complete the remediation of the MLP matter in the fourth quarter. We also received an insurance recovery of $100 million related to that matter in the fourth quarter. Our debt profile has improved considerably as well. As a result, we have substantially improved our leverage position with the leverage ratio as defined under our credit facility agreement at 0.79 times at year-end as compared to 1.37 times a year ago. If you choose to include the preferred stock, leverage has declined from almost four times to 2.47 times.
With respect to our capital strategy, we are committed to a sustainable dividend and to returning capital to shareholders through a combination of modestly increasing dividends and share repurchases. As we stated, we intend to build towards the 30% to 50% total payout ratio over the next several years by steadily increasing our dividend and resuming a share buyback program. As Marty noted earlier, given our strong and growing cash position combined with continued opportunity in our valuation, we expect to repurchase $200 million in common shares during the first quarter. Overall, we believe we're making solid progress in our efforts to improve liquidity and build financial flexibility and our 2021 results demonstrate that progress.
In summary, 2021 was a very strong year for Invesco. We remain focused on executing the strategy that aligns with our key areas of focus and we continue to invest ahead of client demand in these areas. At the same time, we're focused on optimizing our organizational model and disciplined expense management. This approach has resulted in strong organic growth, driving positive operating leverage and operating margin improvement. This has also facilitated stronger cash flows, further strengthening our balance sheet and driving the improvement in our leverage profile. As we look towards the future, Invesco is in a very strong position to deliver value over the long run to all of our stakeholders.
And with that, operator, I'd ask you to open-up the line for Q&A.
