Invesco Q3 Earnings Call Highlights

Key Points

• Invesco reported strong third-quarter growth, with $35.1 billion in net long-term inflows, assets under management above $2.5 trillion and annualized organic growth of 6.3%. ETFs, index products, multi-asset strategies and international markets were key contributors.
• Higher average AUM and lower expenses boosted adjusted operating income 13% sequentially to $562 million, while the adjusted operating margin expanded to 40.7%, its highest level since 2021.
• Invesco repurchased an additional $1.5 billion of preferred stock from MassMutual, expected to save $88.5 million in annual dividends; total preferred-stock repurchases over 18 months now reach $3 billion.

Invesco NYSE: IVZ reported third-quarter net long-term inflows of $35.1 billion, representing annualized organic growth of 6.3%, as growth in ETFs, index products, multi-asset strategies and international markets helped drive assets under management above $2.5 trillion.

President and CEO Andrew Schlossberg said the firm generated more than $100 billion of net long-term inflows in the first nine months of the year, or a 6.5% annualized organic growth rate. More than half of those flows originated outside the United States, underscoring the company’s global distribution reach.

“The continued growth of our diversified AUM base is driving revenue growth and substantial operating leverage,” Schlossberg said. Net revenue rose 4% sequentially while operating expenses declined 1%, lifting adjusted operating income 13% and expanding adjusted operating margin by more than three percentage points to 40.7%.

Assets, flows and investment demand

Assets under management increased nearly 3% from the second quarter and stood 19% above the prior-year period. In addition to long-term flows, Invesco recorded $47 billion of global liquidity inflows during the quarter, ending with $262 billion in liquidity assets. CFO Allison Dukes said money market fund flows were $53 billion, while market movements had a negative $26 billion impact on assets.

ETFs and index strategies remained a major driver of growth. ETF and index AUM reached a record $775 billion after nearly $29 billion of net inflows, equating to 15% annualized organic growth. Fourteen ETFs brought in more than $500 million each, while EMEA accounted for nearly half of the segment’s quarterly inflows and posted 26% annualized organic growth.

Invesco’s QQQ products drew particular demand. The flagship QQQ fund attracted nearly $7 billion in net inflows, while the broader global QQQ product suite, including QQQM, generated $16 billion of net inflows. Schlossberg said the QQQ franchise benefits from its large institutional and retail investor base, liquidity and established options and derivatives markets.

The company launched seven targeted ETFs during the quarter, including five active ETFs. Invesco manages $30 billion in active ETF assets across nearly 50 products, according to Schlossberg. That figure rises above $45 billion when including index-based ETF strategies run by active investment teams.

In fundamental fixed income, Invesco reported $2.6 billion of quarterly net outflows, largely reflecting several institutional reallocations from stable-value and low-fee investment-grade index mandates. Including fixed-income strategies reported in ETFs and its China joint venture, however, the firm recorded $1.3 billion of net inflows. Schlossberg pointed to continued demand for active fixed-income ETFs and separately managed accounts in wealth channels.

Multi-asset strategies generated more than $3 billion of net inflows, supported by systematic equity demand and particularly strong EMEA activity. Invesco’s model portfolio assets surpassed $20 billion, and the company said it expects further growth in both custom and pre-built model portfolios.

Fundamental equity outflows moderated to $1.5 billion, while gross sales remained strong. Invesco’s Global Equity Income Fund generated more than $4 billion of inflows and grew to more than $30 billion in AUM, aided by demand from Japanese retail investors. U.S. small- and mid-cap value funds added nearly $1 billion, the company said.

China, private markets and performance

Invesco’s China joint venture reached a record $166 billion in AUM and produced $1.5 billion of net inflows, or 5% annualized organic growth. Flows moderated amid market volatility and equity drawdowns but were supported by institutional demand for bond strategies. The venture launched nine new funds during the quarter.

Private markets posted $400 million of net outflows. Demand for alternative credit and collateralized loan obligation products was offset by nearly $700 million of outflows from the company’s U.S. bank-loan ETF. Its INCREF real estate debt fund, aimed at U.S. wealth-management clients, brought in $500 million and reached $7 billion in assets including leverage.

Schlossberg said Invesco’s active investment performance remained a priority. Forty-seven percent of active funds ranked in the top quartile of peers over three years, increasing to 58% over five years. Seventy percent of active AUM outperformed its benchmark over both periods.

Profitability and preferred-stock repurchase

Third-quarter adjusted operating income increased nearly 13% sequentially to $562 million, while adjusted diluted earnings per share rose to $0.72 from $0.71 in the second quarter. Net revenue totaled $1.4 billion, up $53 million sequentially and nearly $200 million from a year earlier. The adjusted operating margin of 40.7% was the highest since 2021, Dukes said.

Revenue growth reflected higher average AUM and, year over year, the reclassification of QQQ to fee-earning status. The company also reported $19 million in performance fees, which Dukes said were elevated due mainly to the timing of when fees were earned.

The company’s net revenue yield was 21.5 basis points for the quarter, with an exit rate of 21.3 basis points. Dukes attributed pressure on the yield primarily to asset mix, including growth in money market funds, QQQ and other lower-fee ETFs. She said Invesco expects third-party expenses plus distribution fees to represent about 23% of management fees going forward.

Invesco announced an additional $1.5 billion repurchase of preferred stock held by MassMutual, bringing total preferred-stock repurchases to $3 billion over the past 18 months. The latest transaction leaves $1 billion of preferred shares outstanding.

The company funded the purchase with a five-year, floating-rate $1.5 billion bank term loan carrying a current rate of roughly 5.35% to 5.4%, or an estimated after-tax cost of 4% to 4.05%. Dukes said that compares favorably with the preferred stock’s 5.9% non-tax-deductible dividend.

• The latest repurchase is expected to save $88.5 million in annual preferred dividends.
• Total annual preferred-dividend savings from the two repurchases are expected to reach $177 million.
• Invesco expects the latest transaction to become earnings accretive in 2027.
• The company expects associated term loans to be fully repaid in 2031, based on projected cash flows.

Net debt declined by nearly $400 million during the third quarter. Invesco’s leverage ratio, including preferred stock, fell to 1.6 times from 1.9 times in the prior quarter. The company repurchased $65 million, or 2.1 million shares, of common stock and said it intends to maintain a regular repurchase program while targeting a total payout ratio, including dividends and buybacks, near 60%.

For the fourth quarter, Invesco expects adjusted operating expenses of $830 million to $840 million assuming flat markets. It expects property, office and technology expenses of $120 million to $125 million, while hybrid investment-platform implementation costs are expected to remain near $15 million before becoming immaterial in the first quarter, according to Dukes.

About Invesco (NYSE:IVZ)

Invesco Ltd. NYSE: IVZ is a global investment management company that provides investment products and services to individual investors, financial professionals, institutions and governments. The company manages assets across a range of strategies, including equities, fixed income, multi-asset portfolios, alternatives, money market funds and cash management.

Invesco offers mutual funds, exchange-traded funds, separately managed accounts, model portfolios and institutional investment solutions.

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