INVESCO LTD. Forward-Looking Statements The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto, which appear elsewhere in this Report. Except for the historical financial information, this Report may include statements that constitute "forward-looking statements" underthe United States securities laws. Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, assets under management, geopolitical events, the COVID-19 pandemic and their potential impact on the company, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "forecasts," and future or conditional verbs such as "will," "may," "could," "should," and "would" as well as any other statement that necessarily depends on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in this Report and our most recent Form 10-K and Forms 10-Q filed with theSecurities and Exchange Commission (SEC). You may obtain these reports from theSEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate. References In this Report, unless otherwise specified, the terms "we," "our," "us," "company," "firm," "Invesco," and "Invesco Ltd. " refer toInvesco Ltd. , a company incorporated inBermuda , and its subsidiaries. Executive Overview The following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented. This overview and the remainder of this management's discussion and analysis supplements and should be read in conjunction with the Condensed Consolidated Financial Statements ofInvesco Ltd. and its subsidiaries and the notes thereto contained elsewhere in this Report. The three months endedJune 30, 2020 saw a reversal in equity values following the extreme lows in the beginning of the quarter when global markets were first reacting to the COVID-19 pandemic and the corresponding economic and market disruption. The central banks' monetary easing efforts, economic relief measures enacted by governments in major developed countries, the softening of social containment measures and reported successes in the early phases of COVID-19 vaccine trials led to significant recoveries across all major indices during the quarter. In the US, equities saw substantial recoveries following extreme lows in the beginning of April. At the beginning of the quarter, COVID-19 related social containment measures enacted to reduce the number of new COVID-19 cases had a severe impact on the economy depressing equity values and resulting in increased unemployment and decreased consumer spending. However, the softening of social containment measures, the reopening of businesses, the impact of the CARES Act and a commitment by theFederal Reserve to continue its accommodative monetary policy led to a substantial recovery in equity markets during the period. Returns flattened at the end of the period following the rise in COVID-19 cases inthe United States , which tempered investor sentiment by prompting questions as to whether stronger social containment measures were once again needed and the market and economic impact of such measures. The S&P 500 index finished the quarter up 20.0%. Overall European equity markets posted strong gains in the three months endedJune 30, 2020 , recovering from the deflated equity values at the beginning of the period. These strong gains stemmed from the re-opening of economies, the sustained decrease of new COVID-19 cases inEurope and accommodative fiscal and monetary policies. In theUK , equities recovered in the three months endedJune 30, 2020 as theUK began a staged re-opening of its economy. To further support the markets and the economy, theBank of England widened its fiscal easing efforts. However, the long-term relationship between theUK and the EU remains uncertain following theUK's formal withdrawal from the EU onJanuary 31, 2020 , as discussed in greater detail below. TheFTSE 100 ended the quarter up 8.8%. 30
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Japanese markets improved significantly in the three months ended June 30, 2020
as data indicated a decrease in the number of new COVID-19 cases in that region
during the period. The Nikkei 225 finished the period up 17.8%. China
experienced a return of economic growth in the three months ended June 30, 2020
after lifting its lockdown, however, at a substantially lower rate than the
economic growth experienced pre-COVID-19. Despite this economic growth, there is
an ongoing threat of further trade and other economic or political disruptions
between the U.S. and China as tension deepens.
U.S. Bond returns for the quarter were broadly positive in the three months
ended June 30, 2020 . As the rate of new COVID-19 cases declined across many
countries, there was a revived desire for higher-yielding assets, which pushed
corporate bonds higher relative to government bonds. U.S. Treasury yields
remained at all-time lows as the Federal Reserve continued their accommodative
monetary policy. The U.S. Aggregate Bond Index rose 2.9% in the quarter.
The table below summarizes returns based on price appreciation/(depreciation) of
several major market indices for the three and six months ended June 30, 2020
and 2019:
Index Three months ended June 30 ,
Six months ended
expressed in
Equity Index currency 2020 2019 2020 2019
S&P 500 U.S. Dollar 20.0 % 3.8 % (4.0 )% 17.4 %
British
FTSE 100 Pound 8.8 % 2.0 % (18.2 )% 10.4 %
FTSE 100 U.S. Dollar 8.6 % (0.3 )% (23.7 )% 9.9 %
Nikkei 225 Japanese Yen 17.8 % 0.3 % (5.8 )% 6.3 %
Nikkei 225 U.S. Dollar 17.8 % 3.0 % (4.9 )% 8.8 %
MSCI Emerging Markets U.S. Dollar 17.3 % (0.3 )% (10.7 )% 9.2 %
Bond Index
Barclays U.S. Aggregate Bond U.S. Dollar 2.9 % 3.1 % 6.1 % 6.1 %
The company's financial results are impacted by the fluctuations in exchange
rates against the U.S. Dollar, as discussed in the "Foreign Exchange Impact on
Balance Sheet, Assets Under Management and Results of Operations" section and
the "Results of Operations" section below.
Our revenues are directly influenced by the level and composition of our AUM. As
a significant proportion of our AUM is based outside of the U.S. , changes in
foreign exchange rates result in a change to the mix of U.S. Dollar denominated
AUM with AUM denominated in other currencies. As fee rates differ across
geographic locations, changes to exchange rates have an impact on the net
revenue yields. Therefore, movements in global capital market levels, net new
business inflows (or outflows) and changes in the mix of investment products
between asset classes and geographies may materially affect our revenues from
period to period.
Invesco benefits from our long-term efforts to ensure a diversified base of AUM.
One of Invesco's core strengths, and a key differentiator for the company within
the industry, is our broad diversification across client domiciles, asset
classes and distribution channels. Our geographic diversification recognizes
growth opportunities in different parts of the world. This broad diversification
mitigates the impact on Invesco of different market cycles and enables the
company to take advantage of growth opportunities in various markets and
channels.
Update on significant events and transactions
OnMay 24, 2019 , the company completed the acquisition ofOppenheimerFunds , an investment management subsidiary of MassMutual. As part of the acquisition, the company acquired the management contracts of the SteelPath-branded MLP funds and became the Adviser to the funds. As previously disclosed, the company identified an accounting matter which has required that the historical financial statements for these funds be restated. The company adjusted the initial accounting for the acquisition by recording a liability of an estimated amount of$380.5 million and a deferred tax asset of$93.5 million (for expected future tax benefits) during the first quarter of 2020 for pre-acquisition activity related to the matter. The liability and associated deferred tax asset recorded represents management's current best estimate based on its current understanding of the facts and circumstances. As this accounting adjustment was recorded during the measurement period of one year after the acquisition date, a corresponding adjustment of$287.0 million ($380.5 million net of$93.5 million of deferred tax asset) was made to goodwill. As additional information about the matter is finalized, the estimate may change. The measurement period for this transaction closed during the three months endedJune 30, 2020 ; therefore, any further adjustments to the estimate, including any recoveries from insurance or indemnifications, will be recorded through earnings. See Note 13, "Commitments and Contingencies", for additional details regarding the accounting matter. 31 --------------------------------------------------------------------------------
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During the second quarter of 2020, the company discovered and corrected an error
with respect to two funds: the Invesco Equally-Weighted S&P 500 Fund and Invesco
V.I. Equally-Weighted S&P 500 Fund (the Funds). The Funds are passive funds that
are managed to track the S&P 500 Equal Weight Index (the Index). In March 2020 ,
due to volatility in the equity markets, S&P Dow Jones Indices communicated the
decision to delay, and ultimately to separate, the rebalancing dates for its
indices and noted some indices would be rebalanced in April and others in June.
The company noted this delay but not the separation of rebalance dates and
omitted rebalancing the Funds on April 24, 2020 when S&P rebalanced the Index.
The company discovered this omission and rebalanced the Funds on April 29, 2020 .
The company has paid the Funds $105.3 million to compensate them for the
performance difference that arose from market movements between April 24 and
April 29 . This amount has been reflected in general and administrative expenses
for the three and six months ended June 30, 2020 . The company will seek
reimbursement under applicable insurance coverages (subject to the terms of such
policies, including applicable deductibles and policy limits). See Note 13,
"Commitments and Contingencies" , for additional details regarding the matter.
The company reduced its outstanding balance on the credit facility during the
second quarter to $325.6 million at June 30, 2020 from $508 million at March 31,
2020 , demonstrating the company's commitment to maintaining financial strength.
We have made progress during the second quarter towards our goal of redeeming
approximately $200 million of seed capital investments where appropriate from
certain of our investment products this year.
Managing our business and meeting client needs through COVID-19
Invesco is committed to helping our employees, our clients and our communities
navigate the challenges presented by the spread of COVID-19. The primary focus
of our efforts is to ensure the health and safety of our employees while
preserving our ability to serve clients and manage assets in a highly dynamic
market environment.
As always, we are committed to helping our clients achieve their investment
objectives through disciplined long-term investing. To this end, we have
intensified our efforts to support clients by proactively engaging with them and
providing thought leadership and other value-added services to help them
navigate the volatile markets. We believe our client-centric approach in this
time of stress will have a lasting impact and allow us and our clients to emerge
from this crisis stronger.
To help ensure we can continue to meet client needs, the significant majority of
our global employees are working remotely, with small select teams working at
alternate sites or operating in split shifts to mitigate the risks associated
with the virus. Our portfolio managers, research analysts and traders are
successfully working remotely or in secure locations with access to all systems
necessary to do their jobs and an ability to connect with their teams in
managing client assets. Additionally, our operational, control and support teams
have successfully transitioned to a remote working environment. This thoughtful,
coordinated approach helps ensure our ability to continue meeting client needs
and running our business.
As markets began to rebound in the second quarter, AUM increased to more than
$1.1 trillion . However, average AUM for the second quarter was lower than the
prior quarter. Lower average AUM, combined with the mix shift into lower
yielding products, negatively impacted revenues. Despite this, our financial and
liquidity position improved during the second quarter through prudent expense
management and the reduced common equity dividend. These steps enabled the firm
to improve both debt and cash balances, consistent with our longer-term
objectives. Given the mix shift we are seeing in our AUM, including the impact
of larger, lower-fee institutional mandates, we expect a continued modest impact
to our revenue yield in the near term.
In light of the ongoing global pandemic and its impact on both markets and
clients, the company continues to manage discretionary expenses. Much of our
recent operating expense improvement has been realized through pandemic-related
restrictions on travel and other business operations. While these measures have
and will continue to benefit our operating expenses, they are expected to be
temporary improvements.
Beyond these temporary reductions, we are focused on strategically positioning
the firm to deliver positive outcomes for clients and compete effectively over
the long term. We are evaluating several components, including enhancing client
outcomes, improving organic growth, reducing complexity of cross-functional
activities and streamlining our operating environment.
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Other External Factors Impacting Invesco
Invesco has a larger global presence in key markets than many of our peers. As
one of the leading investment managers in the UK and Europe , we were more
impacted by continuing uncertainties surrounding Brexit. Additionally, our
strong position in Asia Pacific meant that Invesco was more affected than others
by market uncertainties over the trade and other issues between China and the
U.S.
The UK exited the EU under the terms of the Withdrawal Agreement on January 31,
2020 , and the longer term relationship between the UK and the EU is still
subject to ongoing negotiations. Depending on the outcome of those negotiations,
there may be an impact on the levels and composition of our AUM and investor
sentiment, which may result in reduced or negative flows. In addition, because
the UK Pound Sterling is the functional currency for certain of our
subsidiaries, any weakening of the UK Pound Sterling relative to the U.S. Dollar
could impact our reported financial results.
Investment exposure to the London Interbank Offered Rate (LIBOR) based interest
rates could impact our client portfolios. The UK Financial Conduct Authority
(FCA), which regulates LIBOR, has made it clear that the publication of LIBOR is
not guaranteed beyond 2021. As a result, firms must transition away from LIBOR
to alternative risk-free rates no later than the end of 2021. The discontinuance
of LIBOR may adversely affect the amount of interest or other amounts payable or
receivable on certain portfolio investments. These changes may also impact the
market liquidity and market value of these portfolio investments. Invesco
finalized its global assessment of exposure in relation to funds utilizing LIBOR
based instruments and benchmarks and is prioritizing the mitigation of risks
associated with the forecast changes to financial instruments and performance
benchmarks referencing existing LIBOR rates, and concurrently any impact on
Invesco portfolios and investment strategies.
Presentation of Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impact of Consolidated Investment Products
The company provides investment management services to, and has transactions
with, various retail mutual funds and similar entities, private equity, real
estate, fund-of-funds, collateralized loan obligation products (CLOs), and other
investment entities sponsored by the company for the investment of client assets
in the normal course of business. The company serves as the investment manager,
making day-to-day investment decisions concerning the assets of the products.
Investment products that are consolidated are referred to in this Form 10-Q
(Report) as consolidated investment products (CIP). The company's economic risk
with respect to each investment in CIP is limited to its equity ownership and
any uncollected management and performance fees. See also Note 14, "Consolidated
Investment Products", for additional information regarding the impact of the
consolidation of managed funds.
The majority of the company's CIP balances are CLO-related. The collateral
assets of the CLOs are held solely to satisfy the obligations of the CLOs. The
company has no right to the benefits from, nor does it bear the risks associated
with, the collateral assets held by the CLOs, beyond the company's direct
investments in, and management and performance fees generated from, the CLOs. If
the company were to liquidate, the collateral assets would not be available to
the general creditors of the company, and as a result, the company does not
consider them to be company assets. Likewise, the investors in the CLOs have no
recourse to the general credit of the company for the notes issued by the CLOs.
The company therefore does not consider this debt to be a company liability.
The impact of CIP is so significant to the presentation of the company's
Condensed Consolidated Financial Statements that the company has elected to
deconsolidate these products in its non-GAAP disclosures among other
adjustments. See Schedule of Non-GAAP Information for additional information
regarding these adjustments. The following discussion therefore combines the
results presented under U.S. generally accepted accounting principles (U.S.
GAAP) with the company's non-GAAP presentation. This Management's Discussion and
Analysis of Financial Condition and Results of Operations contains four distinct
sections, which follow the AUM discussion:
• Results of Operations (three and six months ended June 30, 2020 compared
to three and six months ended
• Schedule of Non-GAAP Information;
• Balance Sheet Discussion; and
• Liquidity and Capital Resources.
Wherever a non-GAAP measure is referenced, a disclosure will follow in the narrative or in the note referring the reader to the Schedule of Non-GAAP Information, where additional details regarding the use of the non-GAAP measure by the company
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are disclosed, along with reconciliations of the most directly comparable U.S.
GAAP measures to the non-GAAP measures. To further enhance the readability of
the Results of Operations section, separate tables for each of the revenue,
expense, and other income and expenses (non-operating income/expense) sections
of the income statement introduce the narrative that follows, providing a
section-by-section review of the company's income statements for the periods
presented.
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Summary Operating Information
Summary operating information is presented in the table below:
$ in millions, other than per common share
amounts, operating margins and AUM Three months ended June 30, Six months ended June 30,
U.S. GAAP Financial Measures Summary 2020 2019 2020 2019
Operating revenues 1,419.0 1,439.4 3,017.9 2,654.0
Operating income 117.1 18.3 434.1 218.5
Operating margin 8.3 % 1.3 % 14.4 % 8.2 %
Net income attributable to Invesco Ltd. 40.5 40.1 122.0 217.8
Diluted EPS 0.09 0.09 0.26 0.52
Non-GAAP Financial Measures Summary
Net revenues(1) 1,034.3 1,031.5 2,180.1 1,918.6
Adjusted operating income(2) 359.7 363.4 772.4 647.7
Adjusted operating margin(2) 34.8 % 35.2 % 35.4 % 33.8 %
Adjusted net income attributable to Invesco
Ltd.(3) 159.7 280.4 315.0 505.2
Adjusted diluted EPS(3) 0.35 0.65 0.68 1.21
Assets Under Management
Ending AUM (billions) 1,145.2 1,197.8 1,145.2 1,197.8
Average AUM (billions) 1,118.7 1,055.9 1,147.5 994.4
_________(1) Net revenues is a non-GAAP financial measure. Net revenues are operating
revenues plus the net revenues of our Great Wall joint venture; less
pass-through revenue adjustments to investment management fees, service and
distribution fees and other; plus management and performance fees earned from
CIP. See "Schedule of Non-GAAP Information" for the reconciliation of
operating revenues to net revenues.
(2) Adjusted operating income and adjusted operating margin are non-GAAP
financial measures. Adjusted operating margin is adjusted operating income
divided by net revenues. Adjusted operating income includes operating income
plus the net operating income of our joint venture investments, the operating
income impact of the consolidation of investment products, transaction,
integration and restructuring adjustments, compensation expense related to
market valuation changes in deferred compensation plans and other reconciling
items. See "Schedule of Non-GAAP Information," for the reconciliation of
operating income to adjusted operating income.
(3) Adjusted net income attributable to
non-GAAP financial measures. Adjusted net income attributable to
is net income attributable to
of CIP, transaction, integration and restructuring adjustments, the net
income impact of deferred compensation plans and other reconciling items.
Adjustments made to net income attributable to
in arriving at adjusted net income attributable to
calculation, adjusted diluted EPS is adjusted net income attributable to
outstanding (for diluted EPS). See "Schedule of Non-GAAP Information," for
the reconciliation of net income attributable to
income attributable to Invesco Ltd.
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Investment Capabilities Performance Overview
Invesco's first strategic priority is to achieve strong investment performance
over the long-term for our clients. The table below presents the one-, three-,
five-, and ten-year performance of our actively managed investment products
measured by the percentage of AUM ahead of benchmark and AUM in the top half of
peer group.(1)
Benchmark Comparison Peer Group Comparison
% of AUM Ahead of Benchmark
% of AUM In Top Half of
1yr 3yr 5yr 10yr 1yr 3yr 5yr 10yr
Equities(2)
U.S. Core (4%) 16 % 12 % 10 % 14 % 25 % 21 % 21 % 67 %
U.S. Growth (6%) 86 % 51 % 51 % 43 % 100 % 51 % 33 % 51 %
U.S. Value (7%) 47 % 47 % 47 % 11 % - % - % - % - %
Sector (1%) 46 % 95 % 71 % 94 % 52 % 52 % 51 % 52 %
UK (1%) 26 % 14 % 15 % 41 % 16 % 18 % 18 % 22 %
Canadian (0%) - % - % - % 11 % - % - % - % 10 %
Asian (3%) 60 % 70 % 97 % 97 % 49 % 59 % 88 % 86 %
Continental European (2%) 6 % 5 % 40 % 73 % 4 % 2 % 5 % 51 %
Global (7%) 73 % 66 % 73 % 84 % 29 % 36 % 37 % 44 %
Global Ex U.S. and Emerging
Markets (13%) 88 % 88 % 89 % 99 % 88 % 70 % 68 % 87 %
Fixed Income(2)
Money Market (18%) 83 % 98 % 99 % 99 % 81 % 81 % 82 % 97 %
U.S. Fixed Income (11%) 42 % 69 % 78 % 95 % 44 % 41 % 79 % 94 %
Global Fixed Income (6%) 61 % 55 % 61 % 82 % 43 % 33 % 60 % 61 %
Stable Value (6%) 100 % 100 % 100 % 100 % 97 % 100 % 100 % 100 %
Other(2)
Alternatives (8%) 34 % 32 % 52 % 37 % 19 % 37 % 49 % 50 %
Balanced (7%) 72 % 73 % 74 % 51 % 30 % 42 % 45 % 52 %
_________(1) Excludes passive products, closed-end funds, private equity limited
partnerships, non-discretionary funds, unit investment trusts, fund of funds
with component funds managed by Invesco, stable value building block funds
and CDOs. Certain funds and products were excluded from the analysis because
of limited benchmark or peer group data. Had these been available, results
may have been different. These results are preliminary and subject to
revision. AUM measured in the one, three, five and ten year quartile rankings
represents 56%, 55%, 54% and 49% of total Invesco AUM, respectively, and AUM
measured versus benchmark on a one, three, five and ten year basis represents
67%, 66%, 63% and 56% of total Invesco AUM as of 6/30/20. Peer group rankings
are sourced from a widely-used third party ranking agency in each fund's
market (Lipper, Morningstar, IA, Russell, Mercer, eVestment Alliance, SITCA,
quarter-end for most institutional products and prior month-end for
Australian retail funds due to their late release by third parties. Rankings
are calculated against all funds in each peer group. Rankings for the primary
share class of the most representative fund in each composite are applied to
all products within each composite. Performance assumes the reinvestment of
dividends. Past performance is not indicative of future results and may not
reflect an investor's experience.
(2) Numbers in parenthesis reflect percentage of Total Ranked AUM. Total Ranked
AUM is $622.0 billion for the second quarter.
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Foreign Exchange Impact on Balance Sheet, Assets Under Management and Results of
Operations
A significant portion of our business is based outside of the U.S. The
strengthening or weakening of the U.S. Dollar against other currencies,
primarily the Pound Sterling, Euro and Japanese Yen will impact our assets,
liabilities, AUM and reported revenues and expenses from period to period. The
assets, liabilities and AUM of foreign subsidiaries are translated at period end
spot foreign currency exchange rates. The income statements of foreign currency
subsidiaries are translated into U.S. Dollars, the reporting currency of the
company, using average foreign exchange rates.
The table below illustrates the spot foreign exchange rates used for translation
of non-U.S. Dollar denominated assets, liabilities and AUM into U.S. Dollars:
March March
Spot Foreign Exchange Rates June 30, 2020 31, 2020 December 31, 2019 June 30, 2019 31, 2019 December 31, 2018
Pound Sterling ($ per £) 1.236 1.241 1.324 1.273 1.306 1.274
Japan (¥ per $) 107.885 107.995 108.650 107.745 110.575 109.735
Euro ($ per Euro) 1.123 1.097 1.122 1.139 1.122 1.143
The table below illustrates the average foreign exchange rates used for
translation of non-
Three months ended June 30, Six months ended June 30,
Average Foreign Exchange Rates 2020 2019 2020 2019
Pound Sterling ($ per £) 1.241 1.286 1.261 1.294
Japan (¥ per $) 107.575 109.930 108.281 110.026
Euro ($ per Euro) 1.101 1.124 1.102 1.130
A comparison of period end spot rates between June 30, 2020 and December 31,
2019 shows a weakening of the Pound Sterling relative to the U.S. Dollar, while
the Euro and the Japanese Yen strengthened, which is reflected in the
translation of our Pound Sterling-based, Euro-based, and Japanese Yen-based
assets, liabilities and AUM into U.S. Dollars, respectively.
A comparison of the average foreign exchange rates used for the three and six
months ended June 30, 2020 when compared to the three and six months ended
June 30, 2019 shows a weakening of the Pound Sterling and the Euro relative to
the U.S. Dollar, while the Japanese Yen strengthened, which is reflected in the
translation of our Pound Sterling-based, Euro-based, and Japanese Yen-based
revenue and expenses into U.S. Dollars.
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Assets Under Management movements for the three and six months ended June 30,
2020 compared with the three and six months ended June 30, 2019
The following presentation and discussion of AUM includes Passive and Active
AUM. Passive AUM include index-based ETFs, unit investment trusts (UITs),
non-management fee earning AUM and other passive mandates. Active AUM is total
AUM less Passive AUM.
Non-management fee earning AUM includes non-management fee earning ETFs, UIT and
product leverage. The net flows in non-management fee earning AUM can be
relatively short-term in nature and, due to the relatively low revenue yield,
these can have a significant impact on overall net revenue yield.
The AUM tables and the discussion below refer to certain AUM as long-term.
Long-term inflows and the underlying reasons for the movements in this line item
include investments from new clients, existing clients adding new accounts/funds
or contributions/subscriptions into existing accounts/funds. Long-term outflows
reflect client redemptions from accounts/funds and include the return of
invested capital on the maturity. We present net flows into money market funds
separately because shareholders of those funds typically use them as short-term
funding vehicles and because their flows are particularly sensitive to
short-term interest rate movements.
In 2019, the company made certain reclassifications between geographies, asset
classes and active and passive classifications to better reflect the underlying
AUM. In the AUM tables below, all periods have been reclassified to conform to
the new presentation and reclassifications.
Changes in AUM were as follows:
For the three months ended June 30,
2020 2019
$ in billions Total AUM Active Passive Total AUM Active Passive
March 31 1,053.4 807.3 246.1 954.8 704.3 250.5
Long-term inflows 62.7 42.3 20.4 54.4 34.3 20.1
Long-term outflows (76.9 ) (55.7 ) (21.2 ) (58.3 ) (42.8 ) (15.5 )
Long-term net flows (14.2 ) (13.4 ) (0.8 ) (3.9 ) (8.5 ) 4.6
Net flows in non-management fee earning
AUM (8.7 ) - (8.7 ) 3.7 - 3.7
Net flows in institutional money market
funds (6.6 ) (6.6 ) - (4.3 ) (4.3 ) -
Total net flows (29.5 ) (20.0 ) (9.5 ) (4.5 ) (12.8 ) 8.3
Reinvested distributions 1.8 1.8 - 2.0 2.0 -
Market gains and losses 117.7 72.8 44.9 21.5 14.7 6.8
Acquisitions (1) - - - 224.4 219.9 4.5
Foreign currency translation 1.8 1.6 0.2 (0.4 ) (0.5 ) 0.1
June 30 1,145.2 863.5 281.7 1,197.8 927.6 270.2
Average AUM
Average long-term AUM 879.3 728.7 150.6 849.0 700.1 148.9
Average AUM 1,118.7 848.8 269.9 1,055.9 795.9 260.0
Revenue yield
Gross revenue yield on AUM (2) 52.9 63.6 20.9 56.4 67.6 23.6
Gross revenue yield on AUM before
performance fees (2) 52.7 63.4 20.9 55.8 66.8 23.6
Net revenue yield on AUM (3) 37.0 44.9 12.1 39.1 47.3 13.9
Net revenue yield on AUM before
performance fees (3) 36.8 44.6 12.1 38.5 46.5 13.9
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For the six months ended June 30,
2020 2019
$ in billions Total AUM Active Passive Total AUM Active Passive
December 31 1,226.2 929.2 297.0 888.2 667.2 221.0
Long-term inflows 147.4 97.0 50.4 108.2 68.0 40.2
Long-term outflows (180.7 ) (131.0 ) (49.7 ) (117.5 ) (85.8 ) (31.7 )
Long-term net flows (33.3 ) (34.0 ) 0.7 (9.3 ) (17.8 ) 8.5
Net flows in non-management fee earning
AUM (18.0 ) - (18.0 ) 5.8 - 5.8
Net flows in institutional money market
funds 19.7 19.7 - 2.5 2.5 -
Total net flows (31.6 ) (14.3 ) (17.3 ) (1.0 ) (15.3 ) 14.3
Reinvested distributions 2.9 2.9 - 2.7 2.7 -
Market gains and losses (45.0 ) (47.2 ) 2.2 82.4 52.0 30.4
Acquisitions (1) - - - 224.4 219.9 4.5
Foreign currency translation (7.3 ) (7.1 ) (0.2 ) 1.1 1.1 -
June 30 1,145.2 863.5 281.7 1,197.8 927.6 270.2
Average AUM
Average long-term AUM 917.2 760.7 156.5 792.8 650.0 142.8
Average AUM 1,147.5 869.0 278.5 994.4 745.4 249.0
Revenue yield
Gross revenue yield on AUM (2) 54.7 65.8 21.9 55.2 66.1 24.2
Gross revenue yield on AUM before
performance fees (2) 54.6 65.6 21.9 54.5 65.0 24.2
Net revenue yield on AUM (3) 38.0 46.1 12.7 38.6 46.7 14.2
Net revenue yield on AUM before
performance fees (3) 37.7 45.7 12.7 37.8 45.7 14.2
____________
(1) The acquisition of
AUM during the second quarter of 2019.
(2) Gross revenue yield on AUM is equal to annualized total operating revenues
divided by average AUM, excluding Invesco Great Wall AUM. The average AUM for
Invesco Great Wall in the three and six months ended
billion and
billion and
Invesco Great Wall for purposes of computing gross revenue yield on AUM,
because the revenues resulting from these AUM are not presented in our
operating revenues. Under
equity in earnings of unconsolidated affiliates on our Condensed Consolidated
Statements of Income. Gross revenue yield, the most comparable
GAAP-based measure to net revenue yield, is not considered a meaningful
effective fee rate measure. Additionally, the numerator of the gross revenue
yield measure, operating revenues, excludes the management fees earned from
CIP; however, the denominator of the measure includes the AUM of these
investment products. Therefore, the gross revenue yield measure is not
considered representative of the company's effective fee rate from AUM.
(3) Net revenue yield on AUM is equal to annualized net revenues divided by
average AUM. See "Schedule of Non-GAAP Information" for a reconciliation of
operating revenues to net revenues.
Flows
There are numerous drivers of AUM inflows and outflows, including individual investor decisions to change investment preferences, fiduciaries and other gatekeepers making broad asset allocation decisions on behalf of their clients and reallocation of investments within portfolios. We are not a party to these asset allocation decisions, as the company does not generally have access to the underlying investor's decision-making process, including their risk appetite or liquidity needs. Therefore, the company is not in a position to provide meaningful information regarding the drivers of inflows and outflows. Average AUM during the three months endedJune 30, 2020 were$1,118.7 billion , compared to$1,055.9 billion for the three months endedJune 30, 2019 . Average AUM during the six months endedJune 30, 2020 were$1,147.5 billion , compared to$994.4 billion for the six months endedJune 30, 2019 . The acquisition ofOppenheimerFunds business onMay 24, 2019 added$224.4 billion in AUM at that date, impacting the comparison between periods. 39 --------------------------------------------------------------------------------
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Market Returns
Market gains and losses include the net change in AUM resulting from changes in
market values of the underlying securities from period to period. As discussed
in the "Executive Overview" section of this Management's Discussion and
Analysis, global equity markets saw significant volatility due to the COVID-19
pandemic beginning in March 2020 and continuing through June 2020 . The resulting
decline in average AUM adversely impacted our revenues during the second
quarter, and we expect it will continue pressuring revenues in the near term.
Foreign Exchange Rates
During the three months ended June 30, 2020 , we experienced an increase in AUM
of $1.8 billion due to changes in foreign exchange rates. In the three months
ended June 30, 2019 , AUM decreased by $0.4 billion due to foreign exchange rate
changes. During the six months ended June 30, 2020 , we experienced decreases in
AUM of $7.3 billion due to changes in foreign exchange rates. In the six months
ended June 30, 2019 , AUM increased by $1.1 billion due to foreign exchange rate
changes.
See the company's disclosures regarding the changes in foreign exchange rates
during three and six months ended June 30, 2020 in the "Foreign Exchange Impact
on Balance Sheet, Assets Under Management and Results of Operations" section
above for additional information regarding the movement of foreign exchange
rates.
Revenue Yield
As a significant proportion of our AUM is based outside of the U.S. , changes in
foreign exchange rates result in a change to the mix of U.S. Dollar denominated
AUM with AUM denominated in other currencies. As fee rates differ across
geographic locations, changes to exchange rates have an impact on the net
revenue yields. See the company's disclosures regarding the changes in foreign
exchange rates in the "Foreign Exchange Impact on Balance Sheet, Assets Under
Management and Results of Operations" section above for additional information
regarding the movement of foreign exchange rates.
In the three months ended June 30, 2020 , the net revenue yield was 37.0 basis
points compared to 39.1 basis points in the three months ended June 30, 2019 , a
decrease of 2.1 basis points. In the six months ended June 30, 2020 , the net
revenue yield was 38.0 basis points compared to 38.6 basis points in the six
months ended June 30, 2019 , a decrease of 0.6 basis points. As a result of the
acquisition of OppenheimerFunds , AUM increased $224.4 billion during the second
quarter of 2019, which was comprised of $219.9 billion of active and $4.5
billion of passive AUM, increasing the proportion of active AUM and positively
impacting net revenue yield. However, the first and second quarters of 2020 were
also impacted by shifts in the mix of AUM, resulting from flows into lower fee
products and from the market impact of the COVID-19 pandemic, both of which
increased the proportion of lower-risk, lower fee AUM. This change has adversely
impacted our revenue and resulting revenue yields in the second quarter, and we
expect it will continue to pressure revenues and yields in the near term.
At June 30, 2020 , active AUM were $863.5 billion , representing 75.4% of total
AUM at that date; whereas at June 30, 2019 , active AUM were $927.6 billion ,
representing 77.4% of our total AUM at that date. In the three months ended
June 30, 2020 , the net revenue yield on active AUM was 44.9 basis points
compared to 47.3 basis points in the three months ended June 30, 2019 , a
decrease of 2.4 basis points. In the six months ended June 30, 2020 , the net
revenue yield on active AUM was 46.1 basis points compared to 46.7 basis points
in the six months ended June 30, 2019 , a decrease of 0.6 basis points.
At June 30, 2020 , passive AUM were $281.7 billion , representing 24.6% of total
AUM at that date; whereas at June 30, 2019 , passive AUM were $270.2 billion ,
representing 22.6% of our total AUM at that date. In the three months ended
June 30, 2020 , the net revenue yield on passive AUM was 12.1 basis points
compared to 13.9 basis points in the three months ended June 30, 2019 , a
decrease of 1.8 basis points. In the six months ended June 30, 2020 , the net
revenue yield on passive AUM was 12.7 basis points compared to 14.2 basis points
in the six months ended June 30, 2019 , a decrease of 1.5 basis points.
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Changes in our AUM by channel, asset class, and client domicile, and average AUM
by asset class, are presented below:
Total AUM by Channel(1)
As of and for the Three Months Ended June 30, 2020 and 2019:
$ in billions Total Retail Institutional
March 31, 2020 1,053.4 702.5 350.9
Long-term inflows 62.7 47.4 15.3
Long-term outflows (76.9 ) (62.0 ) (14.9 )
Long-term net flows (14.2 ) (14.6 ) 0.4
Net flows in non-management fee earning AUM (8.7 ) (2.9 ) (5.8 )
Net flows in institutional money market funds (6.6 ) (2.3 ) (4.3 )
Total net flows (29.5 ) (19.8 ) (9.7 )
Reinvested distributions 1.8 1.7 0.1
Market gains and losses 117.7 103.0 14.7
Foreign currency translation 1.8 1.0 0.8
June 30, 2020 1,145.2 788.4 356.8
March 31, 2019 954.8 619.5 335.3
Long-term inflows 54.4 42.6 11.8
Long-term outflows (58.3 ) (48.6 ) (9.7 )
Long-term net flows (3.9 ) (6.0 ) 2.1
Net flows in non-management fee earning AUM 3.7 1.8 1.9
Net flows in institutional money market funds (4.3 ) 0.3 (4.6 ) Total net flows (4.5 ) (3.9 ) (0.6 ) Reinvested distributions 2.0 1.9 0.1 Market gains and losses 21.5 19.1 2.4 Acquisitions (4) 224.4 215.8 8.6 Foreign currency translation (0.4 ) (0.4 ) - June 30, 2019 1,197.8 852.0 345.8 As of and for the Six Months EndedJune 30, 2020 and 2019: $ in billions Total Retail Institutional December 31, 2019 1,226.2 878.2 348.0 Long-term inflows 147.4 105.2 42.2 Long-term outflows (180.7 ) (150.1 ) (30.6 ) Long-term net flows (33.3 ) (44.9 ) 11.6
Net flows in non-management fee earning AUM (18.0 ) 0.8 (18.8 ) Net flows in institutional money market funds 19.7 2.6
17.1 Total net flows (31.6 ) (41.5 ) 9.9 Reinvested distributions 2.9 2.8 0.1 Market gains and losses (45.0 ) (46.3 ) 1.3 Foreign currency translation (7.3 ) (4.8 ) (2.5 ) June 30, 2020 1,145.2 788.4 356.8 December 31, 2018 888.2 566.7 321.5 Long-term inflows 108.2 82.9 25.3 Long-term outflows (117.5 ) (93.4 ) (24.1 ) Long-term net flows (9.3 ) (10.5 ) 1.2 Net flows in non-management fee earning AUM 5.8 1.1
4.7
Net flows in institutional money market funds 2.5 3.6 (1.1 ) Total net flows (1.0 ) (5.8 ) 4.8 Reinvested distributions 2.7 2.5 0.2 Market gains and losses 82.4 72.1 10.3 Acquisitions (4) 224.4 215.8 8.6 Foreign currency translation 1.1 0.7 0.4 June 30, 2019 1,197.8 852.0 345.8 ____________
See accompanying notes immediately following these AUM tables.
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Passive AUM by Channel(1)
As of and for the Three Months Ended June 30, 2020 and 2019:
$ in billions Total Retail Institutional
March 31, 2020 246.1 230.8 15.3
Long-term inflows 20.4 20.0 0.4
Long-term outflows (21.2 ) (20.9 ) (0.3 )
Long-term net flows (0.8 ) (0.9 ) 0.1Net flows in non-management fee earning AUM (8.7 ) (2.9 ) (5.8 ) Net flows in institutional money market funds - -
- Total net flows (9.5 ) (3.8 ) (5.7 ) Market gains and losses 44.9 43.2 1.7 Foreign currency translation 0.2 0.2 - June 30, 2020 281.7 270.4 11.3 March 31, 2019 250.5 231.3 19.2 Long-term inflows 20.1 20.0 0.1 Long-term outflows (15.5 ) (15.5 ) - Long-term net flows 4.6 4.5 0.1 Net flows in non-management fee earning AUM 3.7 1.8
1.9
Net flows in institutional money market funds - - - Total net flows 8.3 6.3 2.0 Reinvested distributions - - - Market gains and losses 6.8 6.8 - Acquisitions (4) 4.5 4.5 - Foreign currency translation 0.1 0.1 - June 30, 2019 270.2 249.0 21.2 As of and for the Six Months EndedJune 30, 2020 and 2019: $ in billions Total Retail Institutional December 31, 2019 297.0 275.8 21.2 Long-term inflows 50.4 42.9 7.5 Long-term outflows (49.7 ) (49.3 ) (0.4 ) Long-term net flows 0.7 (6.4 ) 7.1
Net flows in non-management fee earning AUM (18.0 ) 0.8 (18.8 ) Net flows in institutional money market funds - -
- Total net flows (17.3 ) (5.6 ) (11.7 ) Reinvested distributions - - - Market gains and losses 2.2 0.4 1.8 Foreign currency translation (0.2 ) (0.2 ) - June 30, 2020 281.7 270.4 11.3 December 31, 2018 221.0 204.6 16.4 Long-term inflows 40.2 40.1 0.1 Long-term outflows (31.7 ) (31.7 ) - Long-term net flows 8.5 8.4 0.1 Net flows in non-management fee earning AUM 5.8 1.2
4.6
Net flows in institutional money market funds - - - Total net flows 14.3 9.6 4.7 Market gains and losses 30.4 30.3 0.1 Acquisitions (4) 4.5 4.5 - Foreign currency translation - - - June 30, 2019 270.2 249.0 21.2 ____________
See accompanying notes immediately following these AUM tables.
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Total AUM by Asset Class(2)
As of and for the Three Months Ended June 30, 2020 and 2019:
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives
March 31, 2020 1,053.4 459.4 259.8 54.5 117.5 162.2
Long-term inflows 62.7 25.1 23.0 4.6 - 10.0
Long-term outflows (76.9 ) (42.5 ) (17.0 ) (5.4 ) - (12.0 )
Long-term net flows (14.2 ) (17.4 ) 6.0 (0.8 ) - (2.0 )
Net flows in non-management fee
earning AUM (8.7 ) 5.9 (14.6 ) - - -
Net flows in institutional money
market funds (6.6 ) - - - (6.6 ) -
Total net flows (29.5 ) (11.5 ) (8.6 ) (0.8 ) (6.6 ) (2.0 )
Reinvested distributions 1.8 0.7 0.5 0.2 - 0.4
Market gains and losses 117.7 95.5 8.7 6.7 0.6 6.2
Foreign currency translation 1.8 0.8 0.3 0.3 - 0.4
June 30, 2020 1,145.2 544.9 260.7 60.9 111.5 167.2
Average AUM 1,118.7 514.3 259.2 58.4 120.2 166.6
% of total average AUM 100.0 % 46.0 % 23.2 % 5.2 % 10.7 % 14.9 %
March 31, 2019 954.8 412.5 220.3 58.2 97.0 166.8
Long-term inflows 54.4 24.2 16.5 5.5 - 8.2
Long-term outflows (58.3 ) (30.2 ) (11.4 ) (5.0 ) - (11.7 )
Long-term net flows (3.9 ) (6.0 ) 5.1 0.5 - (3.5 )
Net flows in non-management fee
earning AUM 3.7 1.1 2.6 - - -
Net flows in institutional money
market funds (4.3 ) - - - (4.3 ) -
Total net flows (4.5 ) (4.9 ) 7.7 0.5 (4.3 ) (3.5 )
Reinvested distributions 2.0 1.2 0.5 0.1 - 0.2
Market gains and losses 21.5 16.4 2.6 1.5 (0.4 ) 1.4
Acquisitions (4) 224.4 149.7 42.5 3.7 3.7 24.8
Foreign currency translation (0.4 ) (0.3 ) - 0.1 (0.3 ) 0.1
June 30, 2019 1,197.8 574.6 273.6 64.1 95.7 189.8
Average AUM 1,055.9 478.5 243.4 61.1 95.7 177.2
% of total average AUM 100.0 % 45.3 % 23.1 % 5.8 % 9.1 % 16.8 %
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As of and for the Six Months Ended June 30, 2020 and 2019
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives
December 31, 2019 1,226.2 598.8 283.5 67.3 91.4 185.2
Long-term inflows 147.4 61.0 51.8 11.2 - 23.4
Long-term outflows (180.7 ) (94.8 ) (42.7 ) (13.7 ) - (29.5 )
Long-term net flows (33.3 ) (33.8 ) 9.1 (2.5 ) - (6.1 )
Net flows in non-management fee
earning AUM (18.0 ) 10.6 (28.6 ) - - -
Net flows in institutional money
market funds 19.7 - - - 19.7 -
Total net flows (31.6 ) (23.2 ) (19.5 ) (2.5 ) 19.7 (6.1 )
Reinvested distributions 2.9 1.0 0.9 0.3 - 0.7
Market gains and losses (45.0 ) (28.4 ) (3.1 ) (3.2 ) 1.1 (11.4 )
Foreign currency translation (7.3 ) (3.3 ) (1.1 ) (1.0 ) (0.7 ) (1.2 )
June 30, 2020 1,145.2 544.9 260.7 60.9 111.5 167.2
Average AUM 1,147.5 535.2 270.6 60.9 108.4 172.4
% of total average AUM 100.0 % 46.6 % 23.6 % 5.3 % 9.4 % 15.0 %
December 31, 2018 888.2 369.1 208.6 55.4 89.9 165.2
Long-term inflows 108.2 48.6 32.7 8.4 0.2 18.3
Long-term outflows (117.5 ) (57.6 ) (23.7 ) (9.8 ) (0.1 ) (26.3 )
Long-term net flows (9.3 ) (9.0 ) 9.0 (1.4 ) 0.1 (8.0 )
Net flows in non-management fee
earning AUM 5.8 0.1 5.7 - - -
Net flows in institutional money
market funds 2.5 - - - 2.5 -
Total net flows (1.0 ) (8.9 ) 14.7 (1.4 ) 2.6 (8.0 )
Reinvested distributions 2.7 1.5 0.7 0.2 - 0.3
Market gains and losses 82.4 62.6 6.9 6.0 (0.5 ) 7.4
Acquisitions (4) 224.4 149.7 42.5 3.7 3.7 24.8
Foreign currency translation 1.1 0.6 0.2 0.2 - 0.1
June 30, 2019 1,197.8 574.6 273.6 64.1 95.7 189.8
Average AUM 994.4 438.7 228.6 59.4 95.3 172.4
% of total average AUM 100.0 % 44.1 % 23.0 % 6.0 % 9.6 % 17.3 %
____________See accompanying notes immediately following these AUM tables.
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Passive AUM by Asset Class(2)
As of and for the Three Months Ended June 30, 2020 and 2019:
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives
March 31, 2020 246.1 182.8 43.2 0.7 - 19.4
Long-term inflows 20.4 12.4 3.3 - - 4.7
Long-term outflows (21.2 ) (15.1 ) (2.4 ) - - (3.7 )
Long-term net flows (0.8 ) (2.7 ) 0.9 - - 1.0
Net flows in non-management fee
earning AUM (8.7 ) 5.9 (14.6 ) - - -
Net flows in institutional money
market funds - - - - - -
Total net flows (9.5 ) 3.2 (13.7 ) - - 1.0
Market gains and losses 44.9 42.2 1.0 0.1 - 1.6
Foreign currency translation 0.2 0.1 0.1 - - -
June 30, 2020 281.7 228.3 30.6 0.8 - 22.0
Average AUM 269.9 210.9 37.0 0.7 - 21.3
% of total average AUM 100.0 % 78.1 % 13.7 % 0.3 % - % 7.9 %
March 31, 2019 250.5 178.9 52.9 0.8 - 17.9
Long-term inflows 20.1 15.0 2.0 - - 3.1
Long-term outflows (15.5 ) (11.1 ) (0.9 ) - - (3.5 )
Long-term net flows 4.6 3.9 1.1 - - (0.4 )
Net flows in non-management fee
earning AUM 3.7 1.1 2.6 - - -
Net flows in institutional money
market funds - - - - - -
Total net flows 8.3 5.0 3.7 - - (0.4 )
Reinvested distributions - - - - - -
Market gains and losses 6.8 6.1 0.2 - - 0.5
Acquisitions (4) 4.5 4.5 - - - -
Foreign currency translation 0.1 0.1 - - - -
June 30, 2019 270.2 194.6 56.8 0.8 - 18.0
Average AUM 260.0 186.4 54.9 0.8 - 17.9
% of total average AUM 100.0 % 71.7 % 21.1 % 0.3 % - % 6.9 %
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As of and for the Six Months Ended June 30, 2020 and 2019:
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives
December 31, 2019 297.0 217.1 58.9 0.9 - 20.1
Long-term inflows 50.4 32.5 6.8 - - 11.1
Long-term outflows (49.7 ) (35.0 ) (5.6 ) - - (9.1 )
Long-term net flows 0.7 (2.5 ) 1.2 - - 2.0
Net flows in non-management fee
earning AUM (18.0 ) 10.6 (28.6 ) - - -
Net flows in institutional money
market funds - - - - - -
Total net flows (17.3 ) 8.1 (27.4 ) - - 2.0
Reinvested distributions - - - - - -
Market gains and losses 2.2 3.2 (0.8 ) (0.1 ) - (0.1 )Foreign currency translation (0.2 ) (0.1 ) (0.1 )
- - - June 30, 2020 281.7 228.3 30.6 0.8 - 22.0 Average AUM 278.5 210.2 46.8 0.8 - 20.7 % of total average AUM 100.0 % 75.5 % 16.8 % 0.3 % - % 7.4 % December 31, 2018 221.0 155.3 47.2 0.7 - 17.8 Long-term inflows 40.2 28.9 5.6 - - 5.7 Long-term outflows (31.7 ) (22.5 ) (2.5 ) - - (6.7 ) Long-term net flows 8.5 6.4 3.1 - - (1.0 ) Net flows in non-management fee earning AUM 5.8 0.1 5.7 - - - Net flows in institutional money market funds - - - - - - Total net flows 14.3 6.5 8.8 - - (1.0 ) Reinvested distributions - - - - - - Market gains and losses 30.4 28.3 0.8 0.1 - 1.2 Acquisitions (4) 4.5 4.5 - - - - Foreign currency translation - - - - - - June 30, 2019 270.2 194.6 56.8 0.8 - 18.0 Average AUM 249.0 178.0 52.2 0.8 - 18.0 % of total average AUM 100.0 % 71.5 % 21.0 % 0.3 % - % 7.2 % ____________
See accompanying notes immediately following these AUM tables.
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Total AUM by Client Domicile(3)
As of and for the Three Months Ended June 30, 2020 and 2019:
$ in billions Total Americas UK EMEA Ex UK Asia
March 31, 2020 1,053.4 756.8 53.9 122.1 120.6
Long-term inflows 62.7 37.2 1.3 13.2 11.0
Long-term outflows (76.9 ) (52.1 ) (4.4 ) (11.4 ) (9.0 )
Long-term net flows (14.2 ) (14.9 ) (3.1 ) 1.8 2.0
Net flows in non-management fee earning AUM (8.7 ) (0.6 ) - (8.3 ) 0.2
Net flows in institutional money market funds (6.6 ) (4.1 ) - 0.1 (2.6 )
Total net flows (29.5 ) (19.6 ) (3.1 ) (6.4 ) (0.4 )
Reinvested distributions 1.8 1.8 - - -
Market gains and losses 117.7 89.9 4.5 14.6 8.7
Foreign currency translation 1.8 0.9 (0.2 ) 0.6 0.5
June 30, 2020 1,145.2 829.8 55.1 130.9 129.4
March 31, 2019 954.8 629.8 78.9 131.2 114.9
Long-term inflows 54.4 27.2 2.0 14.1 11.1
Long-term outflows (58.3 ) (33.3 ) (4.7 ) (12.2 ) (8.1 )
Long-term net flows (3.9 ) (6.1 ) (2.7 ) 1.9 3.0
Net flows in non-management fee earning AUM 3.7 2.6 0.3 0.9 (0.1 )
Net flows in institutional money market funds (4.3 ) (5.6 ) - 0.9 0.4
Total net flows (4.5 ) (9.1 ) (2.4 ) 3.7 3.3
Reinvested distributions 2.0 1.9 0.1 - -
Market gains and losses 21.5 16.9 0.8 3.4 0.4
Acquisitions (4) 224.4 223.7 0.7 - -
Foreign currency translation (0.4 ) 0.6 (1.8 ) 0.8 -
June 30, 2019 1,197.8 863.8 76.3 139.1 118.6
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As of and for the Six Months Ended June 30, 2020 and 2019:
$ in billions Total Americas UK EMEA Ex UK Asia
December 31, 2019 1,226.2 879.5 74.4 143.7 128.6
Long-term inflows 147.4 91.8 3.2 29.8 22.6
Long-term outflows (180.7 ) (120.1 ) (11.0 ) (29.2 ) (20.4 )
Long-term net flows (33.3 ) (28.3 ) (7.8 ) 0.6 2.2
Net flows in non-management fee earning AUM (18.0 ) (8.8 ) (0.1 ) (9.6 ) 0.5
Net flows in institutional money market funds 19.7 19.2 0.1 0.2 0.2
Total net flows (31.6 ) (17.9 ) (7.8 ) (8.8 ) 2.9
Reinvested distributions 2.9 2.8 - - 0.1
Market gains and losses (45.0 ) (33.4 ) (7.2 ) (3.1 ) (1.3 )
Foreign currency translation (7.3 ) (1.2 ) (4.3 ) (0.9 ) (0.9 )
June 30, 2020 1,145.2 829.8 55.1 130.9 129.4
December 31, 2018 888.2 581.6 76.6 125.5 104.5
Long-term inflows 108.2 57.0 5.2 26.5 19.5
Long-term outflows (117.5 ) (64.1 ) (10.4 ) (26.3 ) (16.7 )
Long-term net flows (9.3 ) (7.1 ) (5.2 ) 0.2 2.8
Net flows in non-management fee earning AUM 5.8 4.0 0.2 1.6 -
Net flows in institutional money market funds 2.5 (2.3 ) - 1.0 3.8
Total net flows (1.0 ) (5.4 ) (5.0 ) 2.8 6.6
Reinvested distributions 2.7 2.5 0.2 - -
Market gains and losses 82.4 60.5 3.9 11.0 7.0
Acquisitions (4) 224.4 223.7 0.7 - -
Foreign currency translation 1.1 0.9 (0.1 ) (0.2 ) 0.5
June 30, 2019 1,197.8 863.8 76.3 139.1 118.6
___________See accompanying notes immediately following these AUM tables.
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Passive AUM by Client Domicile(3)
As of and for the Three Months Ended June 30, 2020 and 2019:
$ in billions Total Americas UK EMEA Ex UK Asia
March 31, 2020 246.1 194.9 0.6 45.8 4.8
Long-term inflows 20.4 12.0 0.1 7.7 0.6
Long-term outflows (21.2 ) (14.5 ) (0.2 ) (6.1 ) (0.4 )
Long-term net flows (0.8 ) (2.5 ) (0.1 ) 1.6 0.2
Net flows in non-management fee earning AUM (8.7 ) (0.6 ) - (8.3 ) 0.2
Net flows in institutional money market funds - - - - -
Total net flows (9.5 ) (3.1 ) (0.1 ) (6.7 ) 0.4
Market gains and losses 44.9 37.2 0.1 6.7 0.9
Foreign currency translation 0.2 - - 0.2 -
June 30, 2020 281.7 229.0 0.6 46.0 6.1
March 31, 2019 250.5 207.4 0.6 38.4 4.1
Long-term inflows 20.1 10.7 0.1 8.8 0.5
Long-term outflows (15.5 ) (9.0 ) (0.1 ) (5.7 ) (0.7 )
Long-term net flows 4.6 1.7 - 3.1 (0.2 )
Net flows in non-management fee earning AUM 3.7 2.6 0.3 0.9 (0.1 )
Net flows in institutional money market funds - - - - -
Total net flows 8.3 4.3 0.3 4.0 (0.3 )
Reinvested distributions - - - - -
Market gains and losses 6.8 5.3 - 1.4 0.1
Acquisitions (4) 4.5 4.5 - - -
Foreign currency translation 0.1 - - 0.1 -
June 30, 2019 270.2 221.5 0.9 43.9 3.9
As of and for the Six Months Ended June 30, 2020 and 2019:
$ in billions Total Americas UK EMEA Ex UK Asia
December 31, 2019 297.0 240.0 0.7 51.4 4.9
Long-term inflows 50.4 30.5 0.4 18.3 1.2
Long-term outflows (49.7 ) (34.2 ) (0.4 ) (14.3 ) (0.8 )
Long-term net flows 0.7 (3.7 ) - 4.0 0.4
Net flows in non-management fee earning AUM (18.0 ) (8.8 ) (0.1 ) (9.6 ) 0.5
Net flows in institutional money market funds - - - - -
Total net flows (17.3 ) (12.5 ) (0.1 ) (5.6 ) 0.9
Reinvested distributions - - - - -
Market gains and losses 2.2 1.6 - 0.3 0.3
Foreign currency translation (0.2 ) (0.1 ) - (0.1 ) -
June 30, 2020 281.7 229.0 0.6 46.0 6.1
December 31, 2018 221.0 184.0 0.7 32.6 3.7
Long-term inflows 40.2 23.7 0.2 15.5 0.8
Long-term outflows (31.7 ) (20.2 ) (0.2 ) (10.1 ) (1.2 )
Long-term net flows 8.5 3.5 - 5.4 (0.4 )
Net flows in non-management fee earning AUM 5.8 4.0 0.2 1.6 -
Net flows in institutional money market funds - - - - -
Total net flows 14.3 7.5 0.2 7.0 (0.4 )
Reinvested distributions - - - - -
Market gains and losses 30.4 25.5 - 4.3 0.6
Acquisitions (4) 4.5 4.5 - - -
Foreign currency translation - - - - -
June 30, 2019 270.2 221.5 0.9 43.9 3.9
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____________(1) Channel refers to the internal distribution channel from which the AUM
originated. Retail AUM represents AUM distributed by the company's retail
sales team. Institutional AUM represents AUM distributed by our institutional
sales team. This aggregation is viewed as a proxy for presenting AUM in the
retail and institutional markets in which the company operates.
(2) Asset classes are descriptive groupings of AUM by common type of underlying
investments.
(3) Client domicile disclosure groups AUM by the domicile of the underlying
clients.
(4) The acquisition of
billion in AUM at that date.
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Results of Operations for the three and six months ended June 30, 2020 compared
to the three and six months ended June 30, 2019
The discussion below includes the use of non-GAAP financial measures. See
"Schedule of Non-GAAP Information" for additional details and reconciliations of
the most directly comparable U.S. GAAP measures to the non-GAAP measures.
Operating Revenues and Net Revenues
The main categories of revenues, and the dollar and percentage change between
the periods, are as follows:
Variance Variance
Three months ended June 30, 2020 vs 2019 Six months ended June 30, 2020 vs 2019
$ in millions 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Investment management
fees 1,037.1 1,071.3 (34.2 ) (3.2 )% 2,205.4 1,995.0 210.4 10.5 %
Service and distribution
fees 332.7 294.1 38.6 13.1 % 698.5 513.4 185.1 36.1 %
Performance fees 3.5 15.7 (12.2 ) (77.7 )% 8.3 37.5 (29.2 ) (77.9 )%
Other 45.7 58.3 (12.6 ) (21.6 )% 105.7 108.1 (2.4 ) (2.2 )%
Total operating revenues 1,419.0 1,439.4 (20.4 ) (1.4 )% 3,017.9 2,654.0 363.9 13.7 %
Invesco Great Wall 48.8 36.7 12.1 33.0 % 101.9 68.5 33.4 48.8 %
Revenue Adjustments:
Investment management
fees (175.9 ) (203.8 ) 27.9 (13.7 )% (380.5 ) (391.3 ) 10.8 (2.8 )%
Service and
distribution fees (228.5 ) (201.8 ) (26.7 ) 13.2 % (485.1 ) (342.2 ) (142.9 ) 41.8 %
Other (39.6 ) (46.2 ) 6.6 (14.3 )% (93.5 ) (86.3 ) (7.2 ) 8.3 %
Total Revenue
Adjustments(1) (444.0 ) (451.8 ) 7.8 (1.7 )% (959.1 ) (819.8 ) (139.3 ) 17.0 %
CIP 10.5 7.2 3.3 45.8 % 19.4 15.9 3.5 22.0 %
Net revenues(2) 1,034.3 1,031.5 2.8 0.3 % 2,180.1 1,918.6 261.5 13.6 %
____________(1) Total revenue adjustments includes passed through investment management,
service and distribution, and other revenues and equal the same amount as the
third party distribution, service and advisory expenses.
(2) Net revenues are operating revenues less third-party distribution, service
and advisory expenses, plus net revenues from Invesco Great Wall, plus
management and performance fees earned from CIP. See "Schedule of Non-GAAP
Information" for additional important disclosures regarding the use of net
revenues.
The impact of foreign exchange rate movements decreased operating revenues by$7.9 million , equivalent to 0.6% of total operating revenues, during the three months endedJune 30, 2020 when compared to the three months endedJune 30, 2019 . The impact of foreign exchange rate movements decreased operating revenues by$13.4 million , equivalent to 0.4% of total operating revenues, during the six months endedJune 30, 2020 when compared to the six months endedJune 30, 2019 . Additionally, our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net new business inflows (or outflows), changes in the mix of investment products between asset classes and geographies and acquisitions may materially affect our revenues from period to period. The results of theOppenheimerFunds acquisition are included fromMay 24, 2019 (date of acquisition), which impacts comparison between the periods presented here. As discussed in the "Executive Overview" section above, equity markets showed extreme volatility as global markets reacted to the COVID-19 pandemic during the six months endedJune 30, 2020 , with all time highs at the beginning of the period and followed by an extreme downturn and partial recovery. The three months endedJune 30, 2020 finished with a substantial recovery from depressed values at the start of the period. This extreme volatility impacted our 2020 results, offsetting some of the acquisition-related increases when comparing between 2020 and 2019. The 2020 results were also impacted by shifts in the mix of AUM, resulting both from flows and from the market impact of the COVID-19 pandemic, which has adversely impacted our revenue and resulting revenue yields in 2020. We expect market uncertainty and movement into lower yield products will continue to pressure revenues in the near term. 51 --------------------------------------------------------------------------------
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Investment Management Fees
Investment management fees decreased by $34.2 million (3.2%) in the three months
ended June 30, 2020 to $1,037.1 million as compared to $1,071.3 million in the
three months ended June 30, 2019 . The impact of foreign exchange rate movements
decreased investment management fees by $7.1 million during the three months
ended June 30, 2020 as compared to the three months ended June 30, 2019 . After
allowing for foreign exchange movements, investment management fees decreased by
$27.1 million (2.5%). Average AUM increased 5.9% when compared to the 2019
period. The increase in average AUM relates to the acquired OppenheimerFunds
business (acquired May 24, 2019 ). However, shifts in the mix of AUM, resulting
both from flows and from the market impact of the COVID-19 pandemic, resulted in
a lower revenue yield on AUM in 2020, which more than offset the increase from
the acquisition.
Investment management fees increased by $210.4 million (10.5%) in the six months
ended June 30, 2020 to $2,205.4 million (six months ended June 30, 2019 :
$1,995.0 million ). This compares to a 15.4% increase in average AUM. The impact
of foreign exchange rate movements decreased investment management fees by $12.0
million during the six months ended June 30, 2020 as compared to the six months
ended June 30, 2019 . After allowing for foreign exchange movements, investment
management fees increased by $222.4 million (11.1%). The increase in average AUM
relates to the acquired OppenheimerFunds business (acquired May 24, 2019 ).
However, shifts in the mix of AUM, resulting both from flows and from the market
impact of the COVID-19 pandemic, resulted in lower revenue yields, partially
offset the increase from the acquisition.
See the company's disclosures regarding the changes in AUM and revenue yields
during the three and six months ended June 30, 2020 and June 30, 2019 in the
"Assets Under Management" section above for additional information regarding the
impact of changes in AUM on management fee yields.
Service and Distribution Fees
In the three months ended June 30, 2020 , service and distribution fees increased
by $38.6 million (13.1%) to $332.7 million when compared to three months ended
June 30, 2019 of $294.1 million . The impact of foreign exchange rate movements
decreased service and distribution fees by $0.8 million during the three months
ended June 30, 2020 as compared to the second quarter of 2019. The total
increase is made up of higher distribution fees of $22.3 million , transfer
agency fees of $14.6 million , and custody fees of $2.3 million . The increase is
primarily a result of revenues earned from the acquired OppenheimerFunds
business (acquired May 24, 2019 ).
In the six months ended June 30, 2020 , service and distribution fees increased
by $185.1 million (36.1%) to $698.5 million when compared to six months ended
June 30, 2019 of $513.4 million . The impact of foreign exchange rate movements
decreased service and distribution fees by $1.2 million during the six months
ended June 30, 2020 as compared to the six months ended June 30, 2019 . The total
increase is made up of higher distribution fees of $102.8 million and transfer
agency fees of $63.1 million , administrative fees of $12.1 million and custody
fees of $7.1million . The increase is primarily a result of revenues earned from
the acquired OppenheimerFunds business (acquired May 24, 2019 ).
Performance Fees
Of our $1,145.2 billion in AUM at June 30, 2020 , approximately $47.7 billion
(4.2%) could potentially earn performance fees, including carried interests and
performance fees related to partnership investments and separate accounts.
In the three months ended June 30, 2020 , performance fees decreased by $12.2
million (77.7%) to $3.5 million when compared to the performance fees in the
three months ended June 30, 2019 of $15.7 million . Performance fees during the
second quarter of 2020 were primarily generated from institutional products.
In the six months ended June 30, 2020 , performance fees decreased by $29.2
million (77.9%) to $8.3 million when compared to the performance fees in the six
months ended June 30, 2019 of $37.5 million . Performance fees during the six
month period ended June 30, 2020 were primarily generated by real estate and
institutional products.
Other Revenues
In the three months ended June 30, 2020 , other revenues decreased by $12.6
million (21.6%) to $45.7 million (three months ended June 30, 2019 : $58.3
million ). There was no impact of foreign exchange rate movements during the
three months ended June 30, 2020 as compared to the three months ended June 30,
2019 . The decrease in other revenues was primarily driven by a decreases in
commissions of $3.4 million , UIT revenues of $6.4 million and real estate
transaction fees of $2.5 million .
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In the six months ended June 30, 2020 , other revenues decreased by $2.4 million
(2.2%) to $105.7 million (six months ended June 30, 2019 : $108.1 million ). There
was no impact of foreign exchange rate movements during the six months ended
June 30, 2020 as compared to the six months ended June 30, 2019 . The decrease in
other revenue was primarily driven by decreases in UIT revenues of $10.0 million
and real estate transaction fees of $4.6 million offset by an increase in
commissions of $11.6 million .
Invesco Great Wall
The company's most significant joint venture arrangement is our 49% investment
in Invesco Great Wall Fund Management Company Limited (Invesco Great Wall).
Management believes that the revenues from Invesco Great Wall should be added to
operating revenues to arrive at net revenues, as it is important to evaluate the
contribution to the business that Invesco Great Wall is making. See "Schedule of
Non-GAAP Information" for additional disclosures regarding the use of net
revenues.
Net revenues from Invesco Great Wall were $48.8 million and average AUM was
$45.1 billion , for the three months ended June 30, 2020 (net revenues were $36.7
million and average AUM was $35.2 billion in the three months ended June 30,
2019 ). The increase in revenue is a result of higher AUM as well as increased
performance fees and front-end fees.
Net revenues from Invesco Great Wall were $101.9 million and average AUM was
$44.2 billion for the six months ended June 30, 2020 (net revenues were $68.5
million and average AUM was $33.3 billion in the six months ended June 30,
2019 ). The increase in revenue is a result of higher AUM as well as increased
performance fees and front-end fees.
Management, performance and other fees earned from CIP
Management believes that the consolidation of investment products may impact a
reader's analysis of our underlying results of operations and could result in
investor confusion or the production of information about the company by
analysts or external credit rating agencies that is not reflective of the
underlying results of operations and financial condition of the company.
Accordingly, management believes that it is appropriate to adjust operating
revenues for the impact of CIP in calculating net revenues. As management and
performance fees earned by Invesco from the consolidated products are eliminated
upon consolidation of the investment products, management believes that it is
appropriate to add these operating revenues back in the calculation of net
revenues. See "Schedule of Non-GAAP Information" for additional disclosures
regarding the use of net revenues.
The elimination of management fees earned from CIP was $10.5 million in the
three months ended June 30, 2020 (three months ended June 30, 2019 : $7.2
million ). The increase is due to the increase in management fees earned from
newly launched CLOs.
The elimination of management fees earned from CIP was $19.4 million in the six
months ended June 30, 2020 (six months ended June 30, 2019 : $15.9 million ). The
increase is due to the increase in management fees earned from newly launched
CLOs.
Operating Expenses
The main categories of operating expenses, and the dollar and percentage changes
between periods, are as follows:
Variance Variance
Three months ended
June 30, 2020 vs 2019 Six months ended June 30, 2020 vs 2019
$ in millions 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Third-party distribution,
service and advisory 444.0 451.8 (7.8 ) (1.7 )% 959.1 819.8 139.3 17.0 %
Employee compensation 454.6 421.9 32.7 7.8 % 876.5 803.2 73.3 9.1 %
Marketing 14.4 33.4 (19.0 ) (56.9 )% 47.1 61.4 (14.3 ) (23.3 )%
Property, office and
technology 128.3 114.9 13.4 11.7 % 258.7 222.1 36.6 16.5 %
General and administrative 188.9 94.2 94.7 100.5 % 295.2 178.0 117.2 65.8 %
Transaction, integration, and
restructuring 71.7 304.9 (233.2 ) (76.5 )% 147.2 351.0 (203.8 ) (58.1 )%
Total operating expenses 1,301.9 1,421.1 (119.2 ) (8.4 )% 2,583.8 2,435.5 148.3 6.1 %
The tables below set forth these expense categories as a percentage of total operating expenses and operating revenues, which we believe provides useful information as to the relative significance of each type of expense.
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Three months % of Total Three months % of Total
ended June 30, Operating % of Operating ended Operating % of Operating
$ in millions 2020 Expenses Revenues June 30, 2019 Expenses Revenues
Third-party
distribution,
service and
advisory 444.0 34.1 % 31.3 % 451.8 31.8 % 31.4 %
Employee
compensation 454.6 34.9 % 32.0 % 421.9 29.7 % 29.3 %
Marketing 14.4 1.1 % 1.0 % 33.4 2.4 % 2.3 %
Property, office
and technology 128.3 9.9 % 9.0 % 114.9 8.1 % 8.0 %
General and
administrative 188.9 14.5 % 13.3 % 94.2 6.6 % 6.5 %
Transaction,
integration, and
restructuring 71.7 5.5 % 5.1 % 304.9 21.5 % 21.2 %
Total operating 100.0 %
expenses 1,301.9 100.0 % 91.7 % 1,421.1 98.7 %
Six months % of Total Six months % of Total
ended June 30, Operating % of Operating ended June 30, Operating % of Operating
$ in millions 2020 Expenses Revenues 2019 Expenses Revenues
Third-party
distribution,
service and
advisory 959.1 37.1 % 31.8 % 819.8 33.7 % 30.9 %
Employee
compensation 876.5 33.9 % 29.0 % 803.2 33.0 % 30.3 %
Marketing 47.1 1.8 % 1.6 % 61.4 2.5 % 2.3 %
Property, office
and technology 258.7 10.0 % 8.6 % 222.1 9.1 % 8.4 %
General and
administrative 295.2 11.4 % 9.8 % 178.0 7.3 % 6.7 %
Transaction,
integration, and
restructuring 147.2 5.7 % 4.9 % 351.0 14.4 % 13.2 %
Total operating 100.0 % 100.0 %
expenses 2,583.8 85.6 % 2,435.5 91.8 %
During the three months ended June 30, 2020 , operating expenses decreased by
$119.2 million (8.4%) to $1,301.9 million (three months ended June 30, 2019 :
$1,421.1 million ). The impact of foreign exchange rate movements decreased
operating expenses by $8.6 million , or 0.7% of total operating expenses, during
the three months ended June 30, 2020 as compared to the three months ended
June 30, 2019 .
During the six months ended June 30, 2020 , operating expenses increased by
$148.3 million (6.1%) to $2,583.8 million (six months ended June 30, 2019 :
$2,435.5 million ). The impact of foreign exchange rate movements decreased
operating expenses by $13.2 million , or 0.5% of total operating expenses, during
the six months ended June 30, 2020 as compared to the six months ended June 30,
2019 .
Third-Party Distribution, Service and Advisory
Third party distribution service and advisory expenses decreased $7.8 million
(1.7)% to $444.0 million in the three months ended June 30, 2020 (three months
ended June 30, 2019 : $451.8 million ). The impact of foreign exchange rate
movements decreased third party costs by $1.3 million during the three months
ended June 30, 2020 as compared to the three months ended June 30, 2019 . After
allowing for foreign exchange rate changes, the decrease in costs was $6.5
million . Included are decreases of $16.6 million in renewal commissions, $16.3
million in transaction fees, $3.9 million in asset and sales based fees, and
$2.9 million in unitary fees. These decreases were partially offset by increases
of $24.4 million in service fees (primarily 12b-1 and transfer agent fees), $7.4
million in other management fee costs and $1.1 million in fund expenses. The
decrease is due to lower revenues as discussed above, partially offset by
increases from the acquired OppenheimerFunds business (acquired May 24, 2019 ).
See "Schedule of Non-GAAP Information" for additional disclosures.
Third party distribution service and advisory expenses increased $139.3 million
(17.0%) to $959.1 million in the six months ended June 30, 2020 (six months
ended June 30, 2019 : $819.8 million ). The impact of foreign exchange rate
movements decreased third party costs by $1.9 million during the six months
ended June 30, 2020 as compared to the six months ended June 30, 2019 . After
allowing for foreign exchange rate changes, the increase in costs was $141.2
million . Included are increases of $133.6 million in service fees (primarily
12b-1 and transfer agent fees), $10.7 million in fund expenses, $8.0 million in
asset and sales based fees and $23.8 million in other management fee costs and
front load commissions. These increases were partially offset by decreases of
$18.5 million in renewal commissions, $15.1 million in transaction fees, and
$2.0 million in unitary fees. The increase is primarily a result of costs from
the acquired OppenheimerFunds business (acquired May 24, 2019 ). See "Schedule of
Non-GAAP Information" for additional disclosures.
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Employee Compensation
Employee compensation increased $32.7 million (7.8%) to $454.6 million in
the three months ended June 30, 2020 (three months ended June 30, 2019 : $421.9
million ). The impact of foreign exchange rate movements decreased employee
compensation by $4.2 million during the three months ended June 30, 2020 as
compared to the three months ended June 30, 2019 . After allowing for foreign
exchange rate changes, there was an increase in employee compensation of $36.9
million . This increase was primarily related to increases related to the
mark-to-market on the deferred compensation liability of $29.0 million , and base
salaries and staff benefits of $28.7 million , partially offset by a decrease of
$16.4 million in variable compensation. The base salary and benefit increase was
driven by increased headcount for a full quarter in the three months ended
June 30, 2020 versus a partial quarter in the three months ended June 30, 2019
as a result of the OppenheimerFunds acquisition (acquired May 24, 2019 ).
Employee compensation increased $73.3 million (9.1%) to $876.5 million in
the six months ended June 30, 2020 (six months ended June 30, 2019 : $803.2
million ). The impact of foreign exchange rate movements decreased employee
compensation by $6.8 million during the six months ended June 30, 2020 as
compared to the six months ended June 30, 2019 . After allowing for foreign
exchange rate changes, there was a increase in employee compensation of $80.1
million . This increase was related to an increase of $68.6 million in base
salaries and staff benefits and an increase of $25.1 million in variable
compensation, partially offset by a decrease related to the mark-to-market on
the deferred compensation liability of $17.1 million . The increase was driven by
increased headcount for the full six months ended June 30, 2020 versus a partial
period in the six months ended June 30, 2019 as a result of the OppenheimerFunds
acquisition (acquired May 24, 2019 ).
Headcount at June 30, 2020 was 8,717 (June 30, 2019 : 8,902), with the decrease
due to realized synergies occurring after the OppenheimerFunds acquisition.
Marketing
Marketing expenses decreased $19.0 million (56.9%) to $14.4 million in the three
months ended June 30, 2020 (three months ended June 30, 2019 : $33.4 million ).
The impact of foreign exchange rate movements decreased marketing expenses by
$0.2 million during the three months ended June 30, 2020 as compared to the
three months ended June 30, 2019 . After allowing for foreign exchange rate
changes, the decrease in marketing expenses was $18.8 million . The decrease was
related to decreased travel, client events and advertising as a result of the of
the COVID-19 pandemic.
Marketing expenses decreased $14.3 million (23.3%) to $47.1 million in the six
months ended June 30, 2020 (six months ended June 30, 2019 : $61.4 million ). The
impact of foreign exchange rate movements decreased marketing expenses by $0.4
million during the six months ended June 30, 2020 as compared to the six months
ended June 30, 2019 . After allowing for foreign exchange rate changes, the
decrease in marketing expenses was $13.9 million . The decrease was related to
decreased travel, client events and advertising as a result of the of the
COVID-19 pandemic.
Property, Office and Technology
Property, office and technology costs increased by $13.4 million (11.7%) to
$128.3 million in the three months ended June 30, 2020 (three months ended
June 30, 2019 : $114.9 million ). The impact of foreign exchange rate movements
decreased property, office and technology expenses by $1.4 million during the
three months ended June 30, 2020 as compared to the three months ended June 30,
2019 . After allowing for foreign exchange rate movements, the increase was $14.8
million . This increase was primarily comprised of lease expenses of $8.0
million , software maintenance of $4.2 million and depreciation of $2.5 million .
The increase is primarily a result of the acquired OppenheimerFunds business
(acquired May 24, 2019 ).
Property, office and technology costs increased by $36.6 million (16.5%) to
$258.7 million in the six months ended June 30, 2020 (six months ended June 30,
2019 : $222.1 million ). The impact of foreign exchange rate movements decreased
property, office and technology expenses by $2.1 million during the six months
ended June 30, 2020 as compared to the six months ended June 30, 2019 . After
allowing for foreign exchange rate movements, the increase was $38.7 million .
This increase was primarily comprised of lease expenses of $16.7 million ,
software maintenance of $10.2 million , depreciation of $6.4 million and
outsourced administration costs of $5.2 million . The increase is primarily a
result of the acquired OppenheimerFunds business (acquired May 24, 2019 ).
General and Administrative
General and administrative expenses increased by $94.7 million (100.5%) to
$188.9 million in the three months ended June 30, 2020 (three months ended
June 30, 2019 : $94.2 million ). The impact of foreign exchange rate movements
decreased general and administrative expenses by $1.5 million during the three
months ended June 30, 2020 as compared to the three
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months ended June 30, 2019 . After allowing for foreign exchange rate movements,
the increase was $96.2 million .The increase was primarily driven by the
previously disclosed S&P 500 equal weight funds rebalancing correction of $105.3
million (See Note 13, "Commitments and Contingencies", for additional details).
Other increases include $3.3 million in market data services costs, $1.7 million
of irrecoverable taxes, $1.6 million in professional services and regulatory
costs and $1.2 million in fund expenses, partially offset by decreases of $10.4
million in travel expenses and $4.0 million in fund expenses incurred by CIP.
General and administrative expenses increased by $117.2 million (65.8%) to
$295.2 million in the six months ended June 30, 2020 (six months ended June 30,
2019 : $178.0 million ). The impact of foreign exchange rate movements decreased
general and administrative expenses by $2.0 million during the six months ended
June 30, 2020 as compared to the six months ended June 30, 2019 . After allowing
for foreign exchange rate movements, the increase was $119.2 million . The
increase was primarily driven by the previously disclosed S&P 500 equal weight
funds rebalancing correction of $105.3 million . Other increases include $8.7
million in fund expenses incurred by CIP, $7.8 million in market data services
costs, $5.3 million of irrecoverable taxes, $4.9 million in professional
services and regulatory costs and $3.6 million in fund expenses, partially
offset by a decrease of $11.5 million in travel expenses.
Transaction, Integration, and Restructuring
Transaction, integration, and restructuring charges were $71.7 million for the
three months ended June 30, 2020 (three months ended June 30, 2019 : $304.9
million ). Transaction and integration related costs were $57.4 million during
the three months ended June 30, 2020 (three months ended June 30, 2019 : $303.0
million ) primarily related to the OppenheimerFunds acquisition. Transaction and
integration costs include $20.6 million in compensation related expenses, $21.6
million for non-compensation related expenses and $15.2 million of amortization
of management contracts and other intangible assets. Other costs during the
quarter include severance and other personnel-related charges of $11.2 million
including expenses of the EMEA investment team restructuring.
Transaction, integration, and restructuring charges were $147.2 million for the
six months ended June 30, 2020 (six months ended June 30, 2019 : $351.0 million ).
Transaction and integration related costs were $130.4 million during the six
months ended June 30, 2020 (June 30, 2019 : $346.8 million ) primarily related to
the OppenheimerFunds acquisition. Transaction and integration costs include
$57.9 million in compensation related expenses, $41.4 million for
non-compensation related expenses and $31.1 million of amortization of
management contracts and other intangible assets. Other costs during the six
months ended June 30, 2020 include severance and other personnel-related charges
of $12.7 million including expenses of the EMEA investment team restructuring.
Other Income and Expenses
The main categories of other income and expenses, and the dollar and percentage
changes between periods are as follows:
Variance Variance
Three months ended
June 30, 2020 vs 2019 Six months ended June 30, 2020 vs 2019
$ in millions 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Equity in earnings of
unconsolidated affiliates 11.2 12.1 (0.9 ) (7.4 )% 28.1 27.1 1.0 3.7 %
Interest and dividend income 2.4 3.9 (1.5 ) (38.5 )% 8.8 8.6 0.2 2.3 %
Interest expense (34.8 ) (33.0 ) (1.8 ) 5.5 % (71.1 ) (66.1 ) (5.0 ) 7.6 % Other gains and losses, net 60.0 24.1 35.9 149.0 %
(46.5 ) 55.2 (101.7 ) N/A Other income/(expense) of CIP, net
(50.5 ) 51.1 (101.6 ) N/A (70.6 ) 90.0 (160.6 ) N/A Total other income and expenses
(11.7 ) 58.2 (69.9 ) N/A (151.3 ) 114.8 (266.1 ) N/A
Equity in earnings of unconsolidated affiliates Equity in earnings of unconsolidated affiliates decreased by$0.9 million to$11.2 million in the three months endedJune 30, 2020 (three months endedJune 30, 2019 :$12.1 million ). Equity in earnings of unconsolidated affiliates increased by$1.0 million to$28.1 million in the six months endedJune 30, 2020 (six months endedJune 30, 2019 :$27.1 million ). 56
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Other gains and losses, net
Other gains and losses, net was a gain of $60.0 million in the three months
ended June 30, 2020 (three months ended June 30, 2019 : $24.1 million gain).
Included in the gain were $56.8 million on investments and instruments held for
our deferred compensation plans, $9.7 million of net gains related to the
mark-to-market on seed money investments and $3.9 million on the mark-to-market
of an acquisition-related contingent consideration liability. These gains were
partially offset by net realized investment losses of $9.8 million .
Other gains and losses, net was a loss of $46.5 million in the six months ended
June 30, 2020 (six months ended June 30, 2019 : $55.2 million gain). Included in
the $46.5 million loss were $35.0 million of net losses related to the
mark-to-market on seed money investments, $10.9 million losses on investments
and instruments held for our deferred compensation plans, net realized
investment losses of $9.8 million and $3.6 million of net foreign exchange
losses on intercompany loans. These losses were partially offset by net gains of
$12.7 million on the mark-to-market of an acquisition-related contingent
consideration liability.
Other income/(expense) of CIP
Other income/(expense) of CIP includes interest and dividend income, interest
expense, and other gains/(losses) of CIP.
In the three months ended June 30, 2020 , interest and dividend income of CIP
decreased by $7.0 million (8.1%) to $79.7 million (three months ended June 30,
2019 : $86.7 million ). Interest expense of CIP decreased by $2.3 million (4.2%)
to $52.5 million (three months ended June 30, 2019 : $54.8 million ).
In the six months ended June 30, 2020 , interest and dividend income of CIP
decreased by $6.5 million (3.8%) to $164.9 million (six months ended June 30,
2019 : $171.4 million ). Interest expense of CIP decreased by $3.4 million (3.0%)
to $109.4 million (six months ended June 30, 2019 : $112.8 million ).
Included in other gains/(losses) of CIP, net, are realized and unrealized gains
and losses on the underlying investments and debt of CIP. In the three months
ended June 30, 2020 , other gains and losses of CIP were net losses of $77.7
million as compared to net gains of $19.2 million in the three months ended
June 30, 2019 . The losses in the second quarter were driven by unrealized losses
on collateralized loan obligation products (CLOs). CLOs are valued on a
one-month lag, therefore the losses recorded in the second quarter reflect the
valuation as of May 31, 2020 .
Included in other gains/(losses) of CIP, net, are realized and unrealized gains
and losses on the underlying investments and debt of CIP. In the six months
ended June 30, 2020 , other gains and losses of CIP were net losses of $126.1
million as compared to net gains of $31.4 million in the six months ended
June 30, 2019 . The net losses during the six months ended June 30, 2020 were
attributable to market-driven losses of investments held by consolidated funds.
Net impact of CIP and related noncontrolling interests in consolidated entities
The net impact to net income attributable to Invesco Ltd. in each period
primarily represents the changes in the value of the company's holding in its
consolidated CLOs, which is reclassified into other gains/(losses) from
accumulated other comprehensive income upon consolidation. The consolidation of
investment products during the three months ended June 30, 2020 resulted in a
net decrease in net income attributable to Invesco Ltd. of $0.1 million (three
months ended June 30, 2019 : $1.6 million increase). The consolidation of
investment products during the six months ended June 30, 2020 resulted in a net
decrease in net income attributable to Invesco Ltd. of $0.2 million (six months
ended June 30, 2019 : $0.6 million increase). CIP are taxed at the investor level
and not at the product level; therefore, there is no tax provision reflected in
the net impact of CIP.
Noncontrolling interests in consolidated entities represent the profit or loss
amounts attributed to third-party investors in CIP. The impact of any gains or
losses resulting from valuation changes in the investments of non-CLO CIP
attributable to the interests of third-parties are offset by resulting changes
in gains and losses attributable to noncontrolling interests in consolidated
entities and therefore do not have a material effect on the financial condition,
operating results (including earnings per common share), liquidity or capital
resources of the company's common shareholders. Similarly, any gains or losses
resulting from valuation changes in the investments of CLOs attributable to the
interests of third-parties are offset by the calculated value of the notes
issued by the CLOs (offsetting in other gains/(losses) of CIP) and therefore
also do not have a material effect on the financial condition, operating results
(including earnings per common share), liquidity or capital resources of the
company's common shareholders.
Additionally, CIP represent less than 1% of the company's AUM. Therefore, the
net gains or losses of CIP are not indicative of the performance of the
company's aggregate AUM.
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Income Tax Expense
The company's subsidiaries operate in several taxing jurisdictions around the
world, each with its own statutory income tax rate. As a result, the blended
average statutory tax rate will vary from year to year depending on the mix of
the profits and losses of the company's subsidiaries.
Our effective tax rate increased to 41.2% for the three months ended June 30,
2020 (three months ended June 30, 2019 : 19.0%). The inclusion of non-controlling
interests in consolidated entities increased our effective tax rate by 10.9% for
the three months ended June 30, 2020 (three months ended June 30, 2019 :
decreased 7.6%). The remainder of the rate movement for the quarter was
primarily due to changes in the mix of pre-tax income.
Our effective tax rate increased to 35.6% for the six months ended June 30, 2020
(six months ended June 30, 2019 : 24.2%). The six months ended June 30, 2020
includes a 3.5% rate increase related to the vestings of our annual common
share-based compensation awards partially offset by a 3.1% rate decrease related
to the reversal of an uncertain tax position due to the expiration of the
statute of limitations. The inclusion of income from non-controlling interests
in consolidated entities increased our effective tax rate by 6.1% for the six
months ended June 30, 2020 (six months ended June 30, 2019 : decreased 2.8%). The
remainder of the rate movement for 2020 was primarily due to changes in the mix
of pretax income.
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Schedule of Non-GAAP Information
We utilize the following non-GAAP performance measures: net revenue (and by
calculation, net revenue yield on AUM), adjusted operating income, adjusted
operating margin, adjusted net income attributable to Invesco Ltd. and adjusted
diluted earnings per common share (EPS). The company believes the adjusted
measures provide valuable insight into the company's ongoing operational
performance and assist in comparisons to its competitors. These measures also
assist the company's management with the establishment of operational budgets
and forecasts and assist the Board of Directors and management of the company in
determining incentive compensation decisions. The most directly comparable U.S.
GAAP measures are operating revenues (and by calculation, gross revenue yield on
AUM), operating income, operating margin, net income attributable to Invesco
Ltd. and diluted EPS. Each of these measures is discussed more fully below.
The following are reconciliations of operating revenues, operating income (and
by calculation, operating margin), and net income attributable to Invesco Ltd.
(and by calculation, diluted EPS) on a U.S. GAAP basis to a non-GAAP basis of
net revenues, adjusted operating income (and by calculation, adjusted operating
margin) and adjusted net income attributable to Invesco Ltd. (and by
calculation, adjusted diluted EPS). These non-GAAP measures should not be
considered as substitutes for any U.S. GAAP measures and may not be comparable
to other similarly titled measures of other companies. Additional reconciling
items may be added in the future to these non-GAAP measures if deemed
appropriate. The tax effects related to the reconciling items have been
calculated based on the tax rate attributable to the jurisdiction to which the
transaction relates. Notes to the reconciliations follow the tables.
Reconciliation of Operating revenues to Net revenues:
Three months ended June 30, Six months ended June 30,
$ in millions 2020 2019 2020 2019
Operating revenues, U.S. GAAP basis 1,419.0 1,439.4 3,017.9 2,654.0
Invesco Great Wall(1) 48.8 36.7 101.9 68.5
Revenue Adjustments(2)
Investment management fees (175.9 ) (203.8 ) (380.5 ) (391.3 )
Service and distribution fees (228.5 ) (201.8 ) (485.1 ) (342.2 )
Other (39.6 ) (46.2 ) (93.5 ) (86.3 )
Total Revenue Adjustments (444.0 ) (451.8 ) (959.1 ) (819.8 )
CIP(3) 10.5 7.2 19.4 15.9
Net revenues 1,034.3 1,031.5 2,180.1 1,918.6
Reconciliation of Operating income to Adjusted operating income:
Three months ended June 30, Six months ended June 30,
$ in millions 2020 2019 2020 2019
Operating income, U.S. GAAP basis 117.1 18.3 434.1 218.5
Invesco Great Wall(1) 25.6 19.2 57.7 34.1
CIP(3) 12.0 12.6 37.9 24.1
Transaction, integration, and
restructuring(4) 71.7 304.9 147.2 351.0
Compensation expense related to market
valuation changes in deferred compensation
plans(5) 28.0 8.4 (9.8 ) 20.0
Other reconciling items(6) 105.3 - 105.3 -
Adjusted operating income 359.7 363.4 772.4 647.7
Operating margin* 8.3 % 1.3 % 14.4 % 8.2 %
Adjusted operating margin** 34.8 % 35.2 % 35.4 % 33.8 %
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Reconciliation of Net income attributable to Invesco Ltd. to Adjusted net income
attributable to Invesco Ltd. :
Three months ended June Six months ended June
30, 30,
$ in millions, except per common share data 2020 2019 2020 2019
Net income attributable to Invesco Ltd. ,
U.S. GAAP basis 40.5 40.1 122.0 217.8
CIP(3) 0.1 (1.6 ) 0.2 (0.6 )
Transaction, integration, and restructuring,
net of tax(4) 64.7 243.5 132.1 288.3
Deferred compensation plan market valuation
changes and dividend income less
compensation expense, net of tax(5) (22.6 ) (1.3 ) - (6.0 )
Other reconciling items, net of tax(6) 77.0 (0.3 ) 60.7 5.7
Adjusted net income attributable to Invesco
Ltd. 159.7 280.4 315.0 505.2
Average common shares outstanding - diluted 463.1 433.8 461.0 418.2 Diluted EPS$0.09 $0.09 $0.26 $0.52 Adjusted diluted EPS***$0.35 $0.65 $0.68 $1.21 ____________
* Operating margin is equal to operating income divided by operating revenues.
** Adjusted operating margin is equal to adjusted operating income divided by
net revenues.
*** Adjusted diluted EPS is equal to adjusted net income attributable to
Invesco Ltd. divided by the weighted average number of common and
restricted common shares outstanding. There is no difference between thecalculated EPS amounts presented above and the calculated EPS amounts
under the two class method.
(1) Invesco Great Wall
Management reflects 100% of Invesco Great Wall in its net revenues and adjusted operating expenses. The company's non-GAAP operating results reflect the economics of these holdings on a basis consistent with the underlying AUM and flows. Adjusted net income is reduced by the amount of earnings attributable to non-controlling interests. (2) Revenue Adjustments
In the fourth quarter of 2019, the company changed its presentation of the reconciliation between operating revenues and net revenues. All periods have been conformed to the new presentation. Neither operating revenues nor net revenues totals have changed for any historic periods.
Management believes that adjustments to investment management fees, service and distribution fees and other revenues from operating revenues appropriately reflect these revenues as being passed through to external parties who perform functions on behalf of, and distribute, the company's managed funds. Further, these adjustments vary extensively by geography due to the differences in distribution channels. The net revenue presentation assists in identifying the revenue contribution generated by the business, removing distortions caused by the differing distribution channel fees and allowing for a fair comparison withU.S. peer investment managers and within Invesco's own investment units. Additionally, management evaluates net revenue yield on AUM, which is equal to net revenues divided by average AUM during the reporting period. This financial measure is an indicator of the basis point net revenues we receive for each dollar of AUM we manage and is useful when evaluating the company's performance relative to industry competitors and within the company for capital allocation purposes. Investment management fees are adjusted by renewal commissions and certain administrative fees. Service and distribution fees are primarily adjusted by distribution fees passed through to broker dealers for certain share classes and pass through fund-related costs. Other is primarily adjusted by transaction fees passed through to third parties. While the terms used for these types of adjustments vary by geography, they are all costs that are closely linked to the value of AUM and the revenue earned by Invesco from AUM. Since the company has been deemed to be the principal in the third-party arrangements, the company must reflect these revenues and expenses gross underU.S. GAAP on the Consolidated Statements of Income. 60 --------------------------------------------------------------------------------
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(3) CIP
See Part I, Item 1, Financial Statements - Note 14, "Consolidated Investment
Products", for a detailed analysis of the impact to the company's Condensed
Consolidated Financial Statements from the consolidation of CIP. The reconciling
items add back the management and performance fees earned by Invesco from the
consolidated products and remove the revenues and expenses recorded by the
consolidated products that have been included in the U.S. GAAP Condensed
Consolidated Statements of Income.
Management believes that the consolidation of investment products may impact a
reader's analysis of our underlying results of operations and could result in
investor confusion or the production of information about the company by
analysts or external credit rating agencies that is not reflective of the
underlying results of operations and financial condition of the company.
Accordingly, management believes that it is appropriate to adjust operating
revenues, operating income and net income for the impact of CIP in calculating
the respective net revenues, adjusted operating income and adjusted net income.
(4) Transaction, integration, and restructuring related adjustments
Management believes it is useful to investors and other users of our Condensed
Consolidated Financial Statements to adjust for the transaction, integration,
and restructuring charges in arriving at adjusted operating income, adjusted
operating margin and adjusted diluted EPS, as this will aid comparability of our
results period to period, and aid comparability with peer companies that may not
have similar acquisition and disposition related income or charges. See "Results
of Operations for the three and six months ended June 30, 2020 and 2019 --
Transaction, Integration, and Restructuring" for additional details.
(5) Market movement on deferred compensation plan liabilities
Certain deferred compensation plan awards involve a return to the employee
linked to the appreciation (depreciation) of specified investments, typically
the funds managed by the employee. Invesco hedges economically the exposure to
market movements.
Since these plans are hedged economically, management believes it is useful to
reflect the offset ultimately achieved from hedging the investment market
exposure in the calculation of adjusted operating income (and by calculation,
adjusted operating margin) and adjusted net income attributable to Invesco Ltd.
(and by calculation, adjusted diluted EPS), to produce results that will be more
comparable period to period.
See below for a reconciliation of deferred compensation related items:
Three months ended June 30, Six months ended June 30,
$ in millions 2020 2019 2020 2019
Market movement on deferred compensation
plan liabilities:
Compensation expense related to market
valuation changes in deferred
compensation liability 28.0 8.4 (9.8 ) 20.0
Adjustments to operating income 28.0 8.4 (9.8 ) 20.0
Market valuation changes and dividend
income from investments and instruments
held related to deferred compensation
plans in other income/(expense) (57.5 ) (10.2 ) 9.9 (27.9 )
Taxation:
Taxation on deferred compensation plan
market valuation changes and dividend
income less compensation expense 6.9 0.5 (0.1 ) 1.9
Adjustments to net income attributable to
Invesco Ltd. (22.6 ) (1.3 ) - (6.0 )
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(6) Other reconciling items
Each of these other reconciling items has been adjusted from U.S. GAAP to arrive
at the company's non-GAAP financial measures for the reasons either outlined in
the paragraphs above, due to the unique character and magnitude of the
reconciling item, or because the item represents a continuation of a reconciling
item adjusted from U.S. GAAP in a prior period.
Three months ended June 30, Six months ended June 30,
$ in millions 2020 2019 2020 2019
Other non-GAAP adjustments:
Fund rebalancing correction(a) 105.3 - 105.3 -
Adjustments to operating income 105.3 - 105.3 -
Foreign exchange hedge(b) (0.2 ) 0.2 (1.2 ) 2.3
Acquisition-related contingent
consideration(c) (3.6 ) (0.5 ) (12.3 ) 5.3
Taxation:
Taxation on fund rebalancing correction(a) (25.3 ) - (25.3 ) - Release of uncertain tax position(d) - - (9.0 ) - Taxation on foreign exchange hedge amortization(b) 0.1 (0.1 ) 0.3 (0.6 ) Taxation on acquisition-related contingent consideration(c) 0.7 0.1 2.9 (1.3 ) Adjustments to net income attributable to Invesco Ltd. 77.0 (0.3 ) 60.7 5.7 (a) The company recorded a charge of$105.3 million in the second quarter of 2020 due to a previously disclosed S&P 500 equal weight funds rebalancing correction. Due to the unique character and magnitude of this item, it has been adjusted fromU.S. GAAP to arrive at the company's non-GAAP financial measures. (b) Included within other gains and losses, net is the mark-to-market of
foreign exchange put option contracts intended to provide protection
against the impact of a significant decline in the Pound Sterling/
Dollar foreign exchange rates. The Pound Sterling contracts provided
coverage through
non-GAAP earnings removes the impact of market volatility; therefore,
the company's non-GAAP results include only the amortization of the
cost of the contracts during the contract period.
(c) In 2019, the company made digital wealth acquisitions, which resulted
in a contingent consideration liability. Adjustment to the fair value
of contingent consideration liability is a decrease of
the three and six months ended June 30, 2020 . See Note 3, "Fair Value
of Assets and Liabilities".
(d) The income tax provision for the six months ended June 30, 2020
includes a tax benefit of
an uncertain tax position due to the expiration of statute of
limitations. This benefit has been removed from the company's non-GAAP
results to be consistent with the exclusion of the original provision
in a prior period.
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