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 and the COVID-19 pandemic and their respective 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 "
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 table below summarizes returns based on price appreciation/(depreciation) of several major market indices for the three months endedMarch 31, 2022 and 2021: Index expressed in Three months ended March 31, Equity Index currency 2022 2021 S&P 500 U.S. Dollar (5.0) % 5.8 % FTSE 100 British Pound 1.8 % 3.9 % FTSE 100 U.S. Dollar (1.2) % 5.1 % Nikkei 225 Japanese Yen (3.4) % 6.3 % Nikkei 225 U.S. Dollar (8.4) % (0.8) % MSCI Emerging Markets U.S. Dollar (7.3) % 2.0 % Bond Index Barclays U.S. Aggregate Bond U.S. Dollar (5.9) % (3.4) %
The company's financial results are impacted by the fluctuations in exchange
rates against the
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
18
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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
We remain highly focused on our capital management and believe we are making solid progress in our efforts to build financial flexibility. OnApril 6, 2022 , we announced that we will redeem the$600 million senior notes due inNovember 2022 onMay 6, 2022 , consistent with our commitment to improve our leverage profile. We remain committed to a sustainable dividend policy and to returning capital to shareholders through a combination of modestly increasing dividends and share repurchases. As a result of our progress, the Board approved a 10% increase in our dividend to$0.1875 per share beginning with the dividend that will be paid in the second quarter of 2022. During the first quarter of 2022, the company repurchased$200 million (8.9 million shares) of common stock in the open market. As previously disclosed, we have undertaken a strategic evaluation of our business focusing on four key areas of our expense base: our organizational model, our real estate footprint, management of third-party spend and technology and operations efficiency. Through this evaluation, we have invested and will continue to invest in key areas of growth aligned with our strategic plan, including ETFs, Fixed Income,China , Solutions,Alternatives and Global Equities , which has had a positive impact on the results for the year. This helped us achieve seven straight quarters of net long-term inflows across a variety of products. While investing in key areas of growth, we plan to create permanent annual net operating expense improvements of$200 million . A significant element of the savings will be generated from realigning our workforce to support key areas of growth, as well as repositioning some of our workforce to lower cost locations. In the first quarter of 2022, we realized$26 million in annualized savings, which when combined with the$167 million in annualized savings realized in 2020 and 2021, results in$193 million , or 96%, of our$200 million net savings expectation. The remainder of our net savings is expected to be realized by the end of the year. Remaining restructuring costs related to the strategic evaluation are estimated to be up to$35 million through the end of 2022. TheRussia /Ukraine conflict has created a somber humanitarian crisis and has disrupted markets worldwide. Throughout the crisis we have been dedicated to supporting our clients in this period of uncertainty and market volatility. We believe we are in full compliance with all applicable sanctions. Our overall exposure to Russian securities is limited, and we do not expect a material impact to our financial results. Invesco is committed to helping our employees, our clients and our communities navigate the challenges presented by the continued impacts of COVID-19. With restrictions and COVID-19 cases easing in many parts of the world, a number of our offices have started to re-open. As we transition to "new normal" ways of working in a post-COVID-19 world, our employees will either be working in-office, working remotely or (for the significant majority of employees) working in a hybrid of these two models. Looking ahead, we will balance our employees' desire for increased flexibility with the needs of our clients and our business. This thoughtful and coordinated approach helps ensure our ability to continue to meet the needs of our clients and our employees. Invesco, similar to the broader industry, is transitioning its corporate and investment exposure away from LIBOR to alternative risk-free rates according to regulator and working group defined timelines and guidance. Invesco continues to actively monitor its portfolios holding LIBOR based instruments and strategies utilizing LIBOR as a benchmark and/or performance target and remediate as necessary. Regarding operational readiness, Invesco has implemented a number of process and system enhancements to support the remediation of legacy LIBOR instruments as well as trading of new alternative risk-free rates-linked instruments. The company continues to engage external service providers and technology vendors to validate whether they can support transition activities and requirements, including processing of fallback language following the applicable LIBOR cessation dates. Invesco continues to monitor overall industry transition progress and completes ongoing analysis of the suitability of alternative risk-free rates in executing Invesco's LIBOR transition plan. Despite the company's preparations, 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. 19 --------------------------------------------------------------------------------
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 owned by these 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 12, "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 underU.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 Assets Under Management discussion:
•Results of Operations (three 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 are disclosed, along with reconciliations of the most directly comparableU.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. 20 --------------------------------------------------------------------------------
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 March 31,
U.S. GAAP Financial Measures Summary 2022 2021
Operating revenues 1,629.4 1,659.7
Operating income 377.7 344.3
Operating margin 23.2 % 20.7 %
Net income attributable to Invesco Ltd. 197.7 267.8
Diluted EPS 0.43 0.58
Non-GAAP Financial Measures Summary
Net revenues (1) 1,252.4 1,251.0
Adjusted operating income (2) 494.6 503.0
Adjusted operating margin (2) 39.5 % 40.2 %
Adjusted net income attributable to Invesco Ltd. (3) 259.3 316.6
Adjusted diluted EPS (3) 0.56 0.68
Assets Under Management
Ending AUM (billions) 1,555.9 1,404.1
Average AUM (billions) 1,545.1 1,395.1
_________
(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 Great Wall joint venture plus or minus
adjustments to remove the operating income impact of CIP, transaction,
integration and restructuring adjustments, amortization of intangibles,
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 Invesco Ltd. and adjusted diluted EPS are
non-GAAP financial measures. Adjusted net income attributable to Invesco Ltd. is
net income attributable to Invesco Ltd. adjusted to exclude the net income of
CIP, transaction, integration and restructuring adjustments, amortization of
intangibles adjusted for the tax benefits resulting from tax amortization of
goodwill and intangible assets, the net income impact of deferred compensation
plans and other reconciling items. Adjustments made to net income attributable
to Invesco Ltd. are tax-affected in arriving at adjusted net income attributable
to Invesco Ltd. By calculation, adjusted diluted EPS is adjusted net income
attributable to Invesco Ltd. divided by the weighted average number of common
shares outstanding (for diluted EPS). See "Schedule of Non-GAAP Information,"
for the reconciliation of net income attributable to Invesco Ltd. to adjusted
net income attributable to Invesco Ltd.
21
--------------------------------------------------------------------------------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 In Top Half of Benchmark % of AUM in Top Half of Peer Group
1yr 3yr 5yr 10yr 1yr 3yr 5yr 10yr
Equities (2)
U.S. Core (4%) 38 % 19 % 14 % 14 % 29 % 18 % 14 % - %
U.S. Growth (6%) 10 % 43 % 43 % 43 % 41 % 84 % 28 % 50 %
U.S. Value (7%) 92 % 54 % 54 % 54 % 63 % 55 % 40 % 50 %
Sector (2%) 29 % 1 % 23 % 60 % 63 % 62 % 61 % 61 %
UK (2%) 35 % 39 % 43 % 45 % 100 % 30 % 35 % 42 %
Canadian (<1%) 77 % 77 % 65 % 37 % 65 % 77 % 65 % 37 %
Asian (3%) 48 % 57 % 85 % 90 % 26 % 22 % 64 % 86 % Continental European (2%)
29 % 16 % 8 % 91 % 49 % 7 % 16 % 83 % Global (6%)
9 % 17 % 55 % 80 % 10 % 8 % 3 % 32 %
Global Ex U.S. and Emerging Markets
(10%) 1 % 28 % 29 % 99 % 10 % 1 % 11 % 12 %
Fixed Income (2)
Money Market (21%) 90 % 96 % 97 % 100 % 78 % 79 % 79 % 98 %
U.S. Fixed Income (11%) 66 % 84 % 96 % 96 % 56 % 87 % 90 % 92 %
Global Fixed Income (7%) 56 % 88 % 89 % 97 % 63 % 76 % 80 % 83 %
Stable Value (5%) 100 % 100 % 100 % 100 % 97 % 97 % 96 % 100 %
Other (2)
Alternatives (7%) 79 % 38 % 40 % 44 % 54 % 40 % 39 % 46 %
Balanced (7%) 39 % 64 % 60 % 62 % 66 % 64 % 87 % 94 %
_________
(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.
Data as of March 31, 2022 . AUM measured in the one, three, five and ten year
quartile rankings represents 47%, 46%, 45% and 41% of total Invesco AUM,
respectively, and AUM measured versus benchmark on a one, three, five and ten
year basis represents 58%, 56%, 55% and 50% of total Invesco AUM. Peer group
rankings are sourced from a widely-used third party ranking agency in each
fund's market (e.g., Morningstar, IA, Lipper, eVestment, Mercer, Galaxy, SITCA,
Value Research ) and asset-weighted in USD. Rankings are as of prior 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 AUM for each investment product (see Note
above for exclusions) as a percentage of the total AUM for the five-year peer
group ($705.1 billion ).
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Assets Under Management
The following presentation and discussion of AUM includes Passive and Active AUM. Passive AUM includes 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 the flows are particularly sensitive to short-term interest rate movements.
Changes in AUM were as follows:
For the three months ended
2022 2021
$ in billions Total AUM Active Passive Total AUM Active Passive
December 31 1,610.9 1,082.5 528.4 1,349.9 979.3 370.6
Long-term inflows 106.3 61.7 44.6 120.2 76.3 43.9
Long-term outflows (89.1) (60.9) (28.2) (95.7) (68.8) (26.9)
Net long-term flows 17.2 0.8 16.4 24.5 7.5 17.0
Net flows in non-management fee earning
AUM (1.0) - (1.0) 0.1 - 0.1
Net flows in money market funds 12.8 12.8 - 7.3 7.3 -
Total net flows 29.0 13.6 15.4 31.9 14.8 17.1
Reinvested distributions 0.8 0.8 - 0.9 0.9 -
Market gains and losses (80.9) (50.0) (30.9) 24.6 14.2 10.4
Foreign currency translation (3.9) (4.2) 0.3 (3.2) (2.9) (0.3)
March 31 1,555.9 1,042.7 513.2 1,404.1 1,006.3 397.8
Average AUM
Average long-term AUM 1,187.7 895.6 292.1 1,110.3 892.7 217.6
Average AUM 1,545.1 1,050.0 495.1 1,395.1 1,008.4 386.7
Average QQQ AUM 189.0 N/A 189.0 153.1 N/A 153.1
For the three months ended
2022 2021
Revenue yield (bps) (1)
U.S. GAAP Gross revenue yield 45.1 50.4
Net revenue yield ex performance fees ex QQQ 36.6 40.1
Active net revenue yield ex performance fees 41.9 44.5
Passive net revenue yield ex QQQ 18.4 20.7
23
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(1)U.S. GAAP gross revenue yield is not considered a meaningful effective fee rate measure. Gross revenue yield on AUM is equal toU.S. GAAP annualized total operating revenues divided by average AUM, excluding Invesco Great Wall (IGW) AUM. The average AUM for IGW in the three months endedMarch 31, 2022 was$99.3 billion (three months endedMarch 31, 2021 :$76.6 billion ). It is appropriate to exclude the average AUM of IGW as the revenues resulting from these AUM are not presented in our operating revenues. This ratio is not a good measure because the numerator of theU.S. GAAP gross revenue yield excludes the management fees earned from CIP; however, the denominator of the measure includes the AUM of these investment products. Net revenue yield metrics include the net revenues and average AUM of IGW and CIP. 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 ended
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. The table in the "Executive Overview" section of this Management's Discussion and Analysis summarizes returns based on price appreciation/(depreciation) of several major market indices for the three months endedMarch 31, 2022 and 2021.
Foreign Exchange Rates
During the three months endedMarch 31, 2022 , we experienced a decrease in AUM of$3.9 billion due to changes in foreign exchange rates. In the three months endedMarch 31, 2021 , AUM decreased by$3.2 billion due to foreign exchange rate changes. 24
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Total AUM by Channel (1)
As of and for the Three Months Ended
$ in billions Total Retail Institutional December 31, 2021 1,610.9 1,106.5 504.4 Long-term inflows 106.3 81.1 25.2 Long-term outflows (89.1) (70.7) (18.4) Net long-term flows 17.2 10.4 6.8 Net flows in non-management fee earning AUM (1.0) 0.4 (1.4) Net flows in money market funds 12.8 2.1 10.7 Total net flows 29.0 12.9 16.1 Reinvested distributions 0.8 0.7 0.1 Market gains and losses (80.9) (74.3) (6.6) Foreign currency translation (3.9) (1.1) (2.8) March 31, 2022 1,555.9 1,044.7 511.2 December 31, 2020 1,349.9 947.1 402.8 Long-term inflows 120.2 95.0 25.2 Long-term outflows (95.7) (73.8) (21.9) Net long-term flows 24.5 21.2 3.3 Net flows in non-management fee earning AUM 0.1 (1.4) 1.5 Net flows in money market funds 7.3 5.0 2.3 Total net flows 31.9 24.8 7.1 Reinvested distributions 0.9 0.8 0.1 Market gains and losses 24.6 17.2 7.4 Foreign currency translation (3.2) (0.2) (3.0) March 31, 2021 1,404.1 989.7 414.4 ________
See accompanying notes immediately following these AUM tables.
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Active AUM by Channel (1)
As of and for the Three Months Ended
$ in billions Total Retail Institutional December 31, 2021 1,082.5 631.7 450.8 Long-term inflows 61.7 37.1 24.6 Long-term outflows (60.9) (43.4) (17.5) Net long-term flows 0.8 (6.3) 7.1 Net flows in money market funds 12.8 2.1 10.7 Total net flows 13.6 (4.2) 17.8 Reinvested distributions 0.8 0.7 0.1 Market gains and losses (50.0) (45.4) (4.6) Foreign currency translation (4.2) (0.9) (3.3) March 31, 2022 1,042.7 581.9 460.8 December 31, 2020 979.3 601.1 378.2 Long-term inflows 76.3 53.8 22.5 Long-term outflows (68.8) (48.4) (20.4) Net long-term flows 7.5 5.4 2.1 Net flows in money market funds 7.3 5.0 2.3 Total net flows 14.8 10.4 4.4 Reinvested distributions 0.9 0.8 0.1 Market gains and losses 14.2 8.1 6.1 Foreign currency translation (2.9) - (2.9) March 31, 2021 1,006.3 620.4 385.9 ________
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
$ in billions Total Retail Institutional December 31, 2021 528.4 474.8 53.6 Long-term inflows 44.6 44.0 0.6 Long-term outflows (28.2) (27.3) (0.9) Net long-term flows 16.4 16.7 (0.3)
Net flows in non-management fee earning AUM (1.0) 0.4
(1.4)
Total net flows 15.4 17.1 (1.7)
Market gains and losses (30.9) (28.9) (2.0)
Foreign currency translation 0.3 (0.2) 0.5
March 31, 2022 513.2 462.8 50.4
December 31, 2020 370.6 346.0 24.6
Long-term inflows 43.9 41.2 2.7
Long-term outflows (26.9) (25.4) (1.5)
Net long-term flows 17.0 15.8 1.2Net flows in non-management fee earning AUM 0.1 (1.4)
1.5
Total net flows 17.1 14.4 2.7
Market gains and losses 10.4 9.1 1.3
Foreign currency translation (0.3) (0.2) (0.1)
March 31, 2021 397.8 369.3 28.5
____________
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
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives December 31, 2021 1,610.9 841.6 334.8 88.6 148.8 197.1 Long-term inflows 106.3 50.6 29.4 5.5 - 20.8 Long-term outflows (89.1) (45.0) (24.6) (6.3) - (13.2) Net long-term flows 17.2 5.6 4.8 (0.8) - 7.6 Net flows in non-management fee earning AUM (1.0) 0.4 (1.4) - - - Net flows in money market funds 12.8 - - - 12.8 - Total net flows 29.0 6.0 3.4 (0.8) 12.8 7.6 Reinvested distributions 0.8 0.2 0.3 0.1 - 0.2 Market gains and losses (80.9) (66.5) (12.7) (8.3) 0.4 6.2 Foreign currency translation (3.9) (1.3) (1.9) (0.1) - (0.6) March 31, 2022 1,555.9 780.0 323.9 79.5 162.0 210.5 Average AUM 1,545.1 776.6 327.8 83.6 154.5 202.6 % of total average AUM 100.0 % 50.3 % 21.2 % 5.4 % 10.0 % 13.1 % December 31, 2020 1,349.9 689.6 296.4 78.9 108.5 176.5 Long-term inflows 120.2 58.0 28.3 21.2 - 12.7 Long-term outflows (95.7) (48.2) (20.7) (13.9) - (12.9) Net long-term flows 24.5 9.8 7.6 7.3 - (0.2) Net flows in non-management fee earning AUM 0.1 (1.3) 1.4 - - - Net flows in money market funds 7.3 - - - 7.3 - Total net flows 31.9 8.5 9.0 7.3 7.3 (0.2) Reinvested distributions 0.9 0.2 0.4 0.1 - 0.2 Market gains and losses 24.6 27.3 (2.7) (0.9) - 0.9 Foreign currency translation (3.2) (0.6) (1.5) (0.2) (0.1) (0.8) March 31, 2021 1,404.1 725.0 301.6 85.2 115.7 176.6 Average AUM 1,395.1 714.4 300.6 85.5 115.8 178.8 % of total average AUM 100.0 % 51.2 % 21.6 % 6.1 % 8.3 % 12.8 % ________
See accompanying notes immediately following these AUM tables.
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--------------------------------------------------------------------------------Active AUM by Asset Class (2)
As of and for the Three Months Ended
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives December 31, 2021 1,082.5 389.6 293.1 87.4 148.8 163.6 Long-term inflows 61.7 19.1 24.5 5.5 - 12.6 Long-term outflows (60.9) (24.2) (22.0) (6.2) - (8.5) Net long-term flows 0.8 (5.1) 2.5 (0.7) - 4.1 Net flows in money market funds 12.8 - - - 12.8 - Total net flows 13.6 (5.1) 2.5 (0.7) 12.8 4.1 Reinvested distributions 0.8 0.2 0.3 0.1 - 0.2 Market gains and losses (50.0) (35.2) (10.7) (8.2) 0.4 3.7 Foreign currency translation (4.2) (1.6) (1.9) (0.1) - (0.6) March 31, 2022 1,042.7 347.9 283.3 78.5 162.0 171.0 Average AUM 1,050.0 358.7 287.1 82.5 154.5 167.2 % of total average AUM 100.0 % 34.2 % 27.3 % 7.9 % 14.7 % 15.9 % December 31, 2020 979.3 383.2 259.4 77.9 108.5 150.3 Long-term inflows 76.3 22.6 25.1 21.2 - 7.4 Long-term outflows (68.8) (27.1) (18.6) (13.9) - (9.2) Net long-term flows 7.5 (4.5) 6.5 7.3 - (1.8) Net flows in money market funds 7.3 - - - 7.3 - Total net flows 14.8 (4.5) 6.5 7.3 7.3 (1.8) Reinvested distributions 0.9 0.2 0.4 0.1 - 0.2 Market gains and losses 14.2 15.0 (2.0) (0.9) - 2.1 Foreign currency translation (2.9) (0.5) (1.4) (0.2) (0.1) (0.7) March 31, 2021 1,006.3 393.4 262.9 84.2 115.7 150.1 Average AUM 1,008.4 394.4 262.4 84.5 115.8 151.3 % of total average AUM 100.0 % 39.1 % 26.0 % 8.4 % 11.5 % 15.0 % ________
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
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives December 31, 2021 528.4 452.0 41.7 1.2 - 33.5 Long-term inflows 44.6 31.5 4.9 - - 8.2 Long-term outflows (28.2) (20.8) (2.6) (0.1) - (4.7) Net long-term flows 16.4 10.7 2.3 (0.1) - 3.5 Net flows in non-management fee earning AUM (1.0) 0.4 (1.4) - - - Total net flows 15.4 11.1 0.9 (0.1) - 3.5 Market gains and losses (30.9) (31.3) (2.0) (0.1) - 2.5 Foreign currency translation 0.3 0.3 - - - - March 31, 2022 513.2 432.1 40.6 1.0 - 39.5 Average AUM 495.1 417.9 40.7 1.1 - 35.4 % of total average AUM 100.0 % 84.4 % 8.2 % 0.2 % - % 7.2 % December 31, 2020 370.6 306.4 37.0 1.0 - 26.2 Long-term inflows 43.9 35.4 3.2 - - 5.3 Long-term outflows (26.9) (21.1) (2.1) - - (3.7) Net long-term flows 17.0 14.3 1.1 - - 1.6 Net flows in non-management fee earning AUM 0.1 (1.3) 1.4 - - - Total net flows 17.1 13.0 2.5 - - 1.6 Market gains and losses 10.4 12.3 (0.7) - - (1.2) Foreign currency translation (0.3) (0.1) (0.1) - - (0.1) March 31, 2021 397.8 331.6 38.7 1.0 - 26.5 Average AUM 386.7 320.0 38.2 1.0 - 27.5 % of total average AUM 100.0 % 82.8 % 9.9 % 0.3 % - % 7.0 % ________
See accompanying notes immediately following these AUM tables.
30
--------------------------------------------------------------------------------Total AUM by Client Domicile (3)
As of and for the Three Months Ended
$ in billions Total Americas Asia Pacific EMEA Ex UK UK December 31, 2021 1,610.9 1,132.5 247.3 171.5 59.6 Long-term inflows 106.3 61.5 21.4 21.5 1.9 Long-term outflows (89.1) (53.6) (15.8) (15.6) (4.1) Net long-term flows 17.2 7.9 5.6 5.9 (2.2) Net flows in non-management fee earning AUM (1.0) (2.2) (0.1) 1.1 0.2 Net flows in money market funds 12.8 12.4 1.2 (0.8) - Total net flows 29.0 18.1 6.7 6.2 (2.0) Reinvested distributions 0.8 0.8 - - - Market gains and losses (80.9) (60.0) (12.4) (7.2) (1.3) Foreign currency translation (3.9) 0.1 (1.8) (0.8) (1.4) March 31, 2022 1,555.9 1,091.5 239.8 169.7 54.9 December 31, 2020 1,349.9 959.9 171.3 151.7 67.0 Long-term inflows 120.2 61.0 37.8 19.1 2.3 Long-term outflows (95.7) (51.0) (21.1) (15.4) (8.2) Net long-term flows 24.5 10.0 16.7 3.7 (5.9) Net flows in non-management fee earning AUM 0.1 - 0.4 (0.3) - Net flows in money market funds 7.3 2.6 4.9 (0.2) - Total net flows 31.9 12.6 22.0 3.2 (5.9) Reinvested distributions 0.9 0.8 0.1 - - Market gains and losses 24.6 23.7 (1.5) 0.9 1.5 Foreign currency translation (3.2) 0.2 (2.9) (1.0) 0.5 March 31, 2021 1,404.1 997.2 189.0 154.8 63.1 ________
See accompanying notes immediately following these AUM tables.
31--------------------------------------------------------------------------------
Active AUM by Client Domicile (3)
As of and for the Three Months Ended
$ in billions Total Americas Asia Pacific EMEA Ex UK UK December 31, 2021 1,082.5 724.5 208.8 90.5 58.7 Long-term inflows 61.7 34.5 19.8 5.7 1.7 Long-term outflows (60.9) (35.5) (14.7) (6.9) (3.8) Net long-term flows 0.8 (1.0) 5.1 (1.2) (2.1) Net flows in money market funds 12.8 12.4 1.2 (0.8) - Total net flows 13.6 11.4 6.3 (2.0) (2.1) Reinvested distributions 0.8 0.8 - - - Market gains and losses (50.0) (33.6) (10.5) (4.6) (1.3) Foreign currency translation (4.2) 0.1 (2.3) (0.6) (1.4) March 31, 2022 1,042.7 703.2 202.3 83.3 53.9 December 31, 2020 979.3 656.9 163.4 92.8 66.2 Long-term inflows 76.3 31.1 34.5 8.7 2.0 Long-term outflows (68.8) (34.1) (20.0) (6.7) (8.0) Net long-term flows 7.5 (3.0) 14.5 2.0 (6.0) Net flows in non-management fee earning AUM - (0.1) 0.1 - - Net flows in money market funds 7.3 2.6 4.9 (0.2) - Total net flows 14.8 (0.5) 19.5 1.8 (6.0) Reinvested distributions 0.9 0.8 0.1 - - Market gains and losses 14.2 14.3 (1.7) 0.1 1.5 Foreign currency translation (2.9) 0.2 (2.8) (0.8) 0.5 March 31, 2021 1,006.3 671.7 178.5 93.9 62.2 ________
See accompanying notes immediately following these AUM tables.
32--------------------------------------------------------------------------------
Passive AUM by Client Domicile (3)
As of and for the Three Months Ended
$ in billions Total Americas Asia Pacific EMEA Ex UK UK December 31, 2021 528.4 408.0 38.5 81.0 0.9 Long-term inflows 44.6 27.0 1.6 15.8 0.2 Long-term outflows (28.2) (18.1) (1.1) (8.7) (0.3) Net long-term flows 16.4 8.9 0.5 7.1 (0.1) Net flows in non-management fee earning AUM (1.0) (2.2) (0.1) 1.1 0.2 Total net flows 15.4 6.7 0.4 8.2 0.1 Market gains and losses (30.9) (26.4) (1.9) (2.6) - Foreign currency translation 0.3 - 0.5 (0.2) - March 31, 2022 513.2 388.3 37.5 86.4 1.0 December 31, 2020 370.6 303.0 7.9 58.9 0.8 Long-term inflows 43.9 29.9 3.3 10.4 0.3 Long-term outflows (26.9) (16.9) (1.1) (8.7) (0.2) Net long-term flows 17.0 13.0 2.2 1.7 0.1 Net flows in non-management fee earning AUM 0.1 0.1 0.3 (0.3) - Total net flows 17.1 13.1 2.5 1.4 0.1 Market gains and losses 10.4 9.4 0.2 0.8 - Foreign currency translation (0.3) - (0.1) (0.2) - March 31, 2021 397.8 325.5 10.5 60.9 0.9 ____________ (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.
33
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Results of Operations for the three months ended
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
Operating Revenues and Net Revenues
The main categories of revenues, and the dollar and percentage change between the periods, are as follows:
Variance
Three months ended March 31, 2022 vs 2021
$ in millions 2022 2021 $ Change % Change
Investment management fees 1,180.5 1,206.6 (26.1) (2.2) %
Service and distribution fees 379.0 381.1 (2.1) (0.6) %
Performance fees 1.0 6.7 (5.7) (85.1) %
Other 68.9 65.3 3.6 5.5 %
Total operating revenues 1,629.4 1,659.7 (30.3) (1.8) %
Invesco Great Wall 124.1 104.0 20.1 19.3 %
Revenue Adjustments:
Investment management fees (205.9) (203.2) (2.7) 1.3 %
Service and distribution fees (257.7) (261.5) 3.8 (1.5) %
Other (49.0) (58.1) 9.1 (15.7) %
Total Revenue Adjustments (1) (512.6) (522.8) 10.2 (2.0) %
CIP 11.5 10.1 1.4 13.9 %
Net revenues (2) 1,252.4 1,251.0 1.4 0.1 %
____________
(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 revenue adjustments, 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$18.2 million , equivalent to 1.1% of total operating revenues, during the three months endedMarch 31, 2022 when compared to the three months endedMarch 31, 2021 . Our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net business inflows (or outflows), changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period. See the company's disclosures regarding the changes in AUM during the three months endedMarch 31, 2022 andMarch 31, 2021 in the "Assets Under Management" section above for additional information. 34 -------------------------------------------------------------------------------- Passive AUM generally earn a lower effective fee rate than active asset classes, and therefore, changes in the mix of AUM have an impact on revenues and net revenue yield. In addition, as a significant proportion of our AUM is based outside of theU.S. , changes in foreign exchange rates can result in a change to the mix ofU.S. Dollar denominated AUM for AUM denominated in other currencies. As fee rates differ across geographic locations, changes to exchange rates have an impact on revenues and net revenue yields. Average AUM was$1,545.1 billion in the three months endedMarch 31, 2022 , as compared to$1,395.1 billion in the three months endedMarch 31, 2021 , an increase of 10.8%. However, the impact of the increase in AUM on our revenues was offset by changes in the mix of the AUM between the periods. At the industry level, investors continue to shift towards passive products such as ETFs. As a result of this change in AUM mix, revenues and the resulting net revenue yield ex performance fees ex QQQ has declined from 40.1 basis points for the quarter endedMarch 31, 2021 to 36.6 basis points for the quarter endedMarch 31, 2022 .
Investment Management Fees
Investment management fees decreased by$26.1 million (2.2%) in the three months endedMarch 31, 2022 to$1,180.5 million as compared to$1,206.6 million in the three months endedMarch 31, 2021 . The impact of foreign exchange rate movements decreased investment management fees by$14.0 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange movements, investment management fees decreased by$12.1 million (1.0%). See discussion above on the impact of AUM changes on our investment management fees. The discretionary money market fee waivers (see Item 1. Financial Statements - Note 7, "Revenue") also impact our investment management fees. During the quarter endedMarch 31, 2022 , waivers reduced management fees by$26.3 million , an improvement from waivers of$29.0 million in the quarter endedMarch 31, 2021 .
Service and Distribution Fees
In the three months endedMarch 31, 2022 , service and distribution fees decreased by$2.1 million (0.6%) to$379.0 million as compared to the three months endedMarch 31, 2021 of$381.1 million . The impact of foreign exchange rate movements decreased service and distribution fees by$2.9 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange movements, service and distribution fees increased by$0.8 million .
Performance Fees
Of our$1,555.9 billion in AUM atMarch 31, 2022 , approximately$62.3 billion (4.0%) could potentially earn performance fees, including carried interests and performance fees related to partnership investments and separate accounts. In the three months endedMarch 31, 2022 , performance fees decreased by$5.7 million (85.1%) to$1.0 million as compared to$6.7 million for the three months endedMarch 31, 2021 . Performance fees during the three months endedMarch 31, 2022 were primarily generated from real estate products.
Other Revenues
In the three months endedMarch 31, 2022 , other revenues increased by$3.6 million (5.5%) to$68.9 million as compared to$65.3 million for the three months endedMarch 31, 2021 . The impact of foreign exchange rate movements decreased other revenues by$1.3 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange movements, other revenues increased by$4.9 million . The increase in other revenues was primarily driven by an increase of$13.8 million in real estate transaction fees, partially offset by lower front end fees of$9.1 million . 35 --------------------------------------------------------------------------------
Invesco Great Wall
The company's most significant joint venture is our 49% investment inInvesco Great Wall Fund Management Company Limited (the "Invesco Great Wall" joint venture). Management reflects 100% of Invesco Great Wall's activity in its net revenues and adjusted operating expenses because it is important to evaluate the contribution that Invesco Great Wall is making to the business. 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 the 51% non-controlling interests. See "Schedule of Non-GAAP Information" for additional disclosures regarding the use of net revenues. Net revenues from Invesco Great Wall were$124.1 million and average AUM was$99.3 billion for the three months endedMarch 31, 2022 (net revenues were$104.0 million and average AUM was$76.6 billion in the three months endedMarch 31, 2021 ). The impact of foreign exchange rate movements during the three months endedMarch 31, 2022 increased net revenues by$2.6 million as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange movements, net revenues from Invesco Great Wall were$121.5 million . The increase in revenue is a result of higher AUM, partially offset by a reduction in net revenue yield due to changes in the mix of AUM.
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.
Management and performance fees earned from CIP were
36
--------------------------------------------------------------------------------Operating Expenses
The main categories of operating expenses, and the dollar and percentage changes between periods, are as follows:
Variance
Three months ended March 31, 2022 vs 2021
$ in millions 2022 2021 $ Change % Change
Third-party distribution, service and
advisory 512.6 522.8 (10.2) (2.0) %
Employee compensation 432.9 489.2 (56.3) (11.5) %
Marketing 21.7 15.8 5.9 37.3 %
Property, office and technology 132.0 129.3 2.7 2.1 %
General and administrative 102.2 96.6 5.6 5.8 %
Transaction, integration and restructuring 35.2 45.8 (10.6) (23.1) %
Amortization of intangibles 15.1 15.9 (0.8) (5.0) %
Total operating expenses 1,251.7 1,315.4 (63.7) (4.8) %
The table below sets 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.
% of Total % of Total
Three months ended Operating % of Operating Three months ended Operating % of Operating
$ in millions March 31, 2022 Expenses Revenues March 31, 2021 Expenses Revenues
Third-party distribution,
service and advisory 512.6 41.0 % 31.5 % 522.8 39.8 % 31.5 %
Employee compensation 432.9 34.6 % 26.6 % 489.2 37.2 % 29.5 %
Marketing 21.7 1.7 % 1.3 % 15.8 1.2 % 1.0 %
Property, office and
technology 132.0 10.5 % 8.1 % 129.3 9.8 % 7.8 %
General and administrative 102.2 8.2 % 6.3 % 96.6 7.3 % 5.8 %
Transaction, integration and
restructuring 35.2 2.8 % 2.2 % 45.8 3.5 % 2.8 %
Amortization of intangibles 15.1 1.2 % 0.8 % 15.9 1.2 % 1.0 %
Total operating expenses 1,251.7 100.0 % 76.8 % 1,315.4 100.0 % 79.4 %
During the three months ended March 31, 2022 , operating expenses decreased by
$63.7 million (4.8%) to $1,251.7 million (three months ended March 31, 2021 :
$1,315.4 million ). The impact of foreign exchange rate movements decreased
operating expenses by $16.0 million , or 1.3% of total operating expenses, during
the three months ended March 31, 2022 as compared to the three months ended
March 31, 2021 .
Third-Party Distribution, Service and Advisory
Third-party distribution, service and advisory expenses decreased$10.2 million (2.0%) to$512.6 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$522.8 million ). The impact of foreign exchange rate movements decreased third-party costs by$6.2 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange rate changes, the decrease in costs was$4.0 million . The decrease is primarily due to a decrease of$14.1 million in renewal commissions, front end commissions and transaction fees, partially offset by$10.1 million of higher asset and sales-based fees and unitary fees.
Employee Compensation
Employee compensation decreased$56.3 million (11.5%) to$432.9 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$489.2 million ). The impact of foreign exchange rate movements decreased employee compensation by$5.9 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange rate changes, there was a decrease in employee compensation of$50.4 37 -------------------------------------------------------------------------------- million. This decrease was driven by decreases of$26.0 million related to the mark-to-market on the deferred compensation liability and$7.2 million in share-based compensation expenses as a result of savings realized from our strategic evaluation, which includes realigning our client facing workforce to support key areas of growth and repositioning to lower cost locations. The remaining decrease was driven by lower variable compensation due to the performance of the company in 2022 compared to 2021, combined with savings realized from our strategic evaluation.
Headcount at
Marketing
Marketing expenses increased$5.9 million (37.3%) to$21.7 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$15.8 million ). The impact of foreign exchange rate movements decreased marketing expenses by$0.5 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange rate changes, the increase in marketing expenses was$6.4 million . The increase was related to increased client events, advertising and travel.
Property, Office and Technology
Property, office and technology costs increased by$2.7 million (2.1%) to$132.0 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$129.3 million ). The impact of foreign exchange rate movements decreased property, office and technology expenses by$1.7 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange rate movements, the increase was$4.4 million . The increase was driven by increases in outsourced administration costs of$4.5 million and software maintenance costs of$4.1 million , partially offset by lower property expenses of$4.8 million .
General and Administrative
General and administrative expenses increased by$5.6 million (5.8%) to$102.2 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$96.6 million ). The impact of foreign exchange rate movements decreased general and administrative expenses by$1.7 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . After allowing for foreign exchange rate movements, the increase was$7.3 million . The increase was primarily driven by increases of$6.1 million in professional services costs,$4.3 million of market data services costs and$4.2 million of increased fund client expenses, irrecoverable taxes and travel. The increase was partially offset by decreases of$4.0 million from foreign currency revaluations and$3.6 million from fund expenses incurred by CIP.
Transaction, Integration and Restructuring
For the three months ended
Transaction and integration expense (excluding restructuring) was$8.1 million during the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$12.3 million expenses), composed of$5.4 million of compensation-related expenses and$2.7 million of non-compensation expenses primarily related to theOppenheimerFunds acquisition. Restructuring costs were$27.1 million for the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$33.5 million ). Restructuring costs related to the strategic evaluation were$22.3 million for the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$30.0 million ) and are primarily composed of non-cash property, office and technology costs (see Note 9, "Restructuring", for additional details). 38 --------------------------------------------------------------------------------
Other Income and Expenses
The main categories of other income and expenses, and the dollar and percentage changes between periods, are as follows:
Variance
Three months ended March 31, 2022 vs 2021
$ in millions 2022 2021 $ Change % Change
Equity in earnings of unconsolidated
affiliates 33.4 27.5 5.9 21.5 %
Interest and dividend income 1.2 1.3 (0.1) (7.7) %
Interest expense (23.2) (23.8) 0.6 (2.5) %
Other gains/(losses), net (45.5) 34.1 (79.6) N/A
Other income/(expense) of CIP, net (23.3) 94.7 (118.0) N/A
Total other income and expenses (57.4) 133.8 (191.2)
N/A
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates increased by$5.9 million to$33.4 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$27.5 million ). The increase is primarily driven by increases of$27.9 million in our joint venture investment in Invesco Great Wall due to increased revenues as discussed above and$11.4 million from real estate investments.
Interest expense
Interest expense decreased by
Other gains/(losses), net
Other gains/(losses), net was a loss of$45.5 million in the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 :$34.1 million gain). Included in the loss were$42.9 million of losses on investments and instruments held for our deferred compensation plans and$5.9 million of net losses related to the mark-to-market on seed money investments, partially offset by$2.4 million of net foreign exchange gains on intercompany loans. Included in the gain for the three months endedMarch 31, 2021 were$15.7 million of gains on investments and instruments held for our deferred compensation plans,$8.1 million of gains on the mark-to-market of acquisition-related contingent consideration liabilities,$4.4 million of net gains related to the mark-to-market on seed money investments,$3.5 million of net foreign exchange gains on intercompany loans and$2.2 million of net gains related to our defined benefit pension plan.
Other income/(expense) of CIP
In the three months endedMarch 31, 2022 , interest and dividend income of CIP increased by$5.8 million (8.4%) to$74.5 million (three months endedMarch 31, 2021 :$68.7 million ). Interest expense of CIP increased by$1.6 million (3.9%) to$42.5 million (three months endedMarch 31, 2021 :$40.9 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 endedMarch 31, 2022 , Other gains/(losses), net losses of CIP were net losses of$55.3 million as compared to net gains of$66.9 million in the three months endedMarch 31, 2021 . The net losses during the three months endedMarch 31, 2022 were attributable to market-driven losses on investments held by consolidated funds.
Net impact of CIP and related noncontrolling interests in consolidated entities
The net impact of CIP on net income attributable toInvesco 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 endedMarch 31, 2022 resulted in no net change in net income attributable toInvesco Ltd. (three months endedMarch 31, 2021 : resulted in no net change in net income attributable toInvesco Ltd ). 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. 39 -------------------------------------------------------------------------------- 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.
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 from each jurisdiction. Our effective tax rate increased to 25.9% for the three months endedMarch 31, 2022 (three months endedMarch 31, 2021 : 22.3%). The rate increase is primarily due to the decrease in income attributable to interests in CIP. 40 --------------------------------------------------------------------------------
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 toInvesco 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. The most directly comparableU.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income, operating margin, net income attributable toInvesco 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 toInvesco Ltd. (and by calculation, diluted EPS) on aU.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 toInvesco Ltd. (and by calculation, adjusted diluted EPS). These non-GAAP measures should not be considered as substitutes for anyU.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 March 31 ,
$ in millions 2022 2021
Operating revenues, U.S. GAAP basis 1,629.4 1,659.7 Invesco Great Wall (1) 124.1 104.0 Revenue Adjustments (2) Investment management fees (205.9) (203.2) Service and distribution fees (257.7) (261.5) Other (49.0) (58.1) Total Revenue Adjustments (512.6) (522.8) CIP (3) 11.5 10.1 Net revenues 1,252.4 1,251.0
Reconciliation of Operating income to Adjusted operating income:
Three months ended March 31,
$ in millions 2022 2021
Operating income, U.S. GAAP basis 377.7 344.3
Invesco Great Wall (1) 73.7 66.5
CIP (3) 14.8 17.0
Transaction, integration and restructuring (4) 35.2 45.8
Amortization of intangible assets (5) 15.1 15.9
Compensation expense related to market valuation changes in deferred compensation plans (6)
(21.9) 13.5
Adjusted operating income 494.6 503.0
Operating margin* 23.2 % 20.7 %
Adjusted operating margin** 39.5 % 40.2 %
41
--------------------------------------------------------------------------------
Reconciliation of Net income attributable to
Three months ended March 31,
$ in millions, except per common share data 2022 2021
Net income attributable to Invesco Ltd., U.S. GAAP basis 197.7 267.8
Transaction, integration and restructuring, net of tax (4) 27.0 35.1
Amortization of intangible assets and related tax benefits (5) 18.8 21.8
Deferred compensation plan market valuation changes and dividend income less compensation expense, net of tax (6)
15.8 (1.9)
Other reconciling items, net of tax (7) - (6.2)
Adjusted net income attributable to Invesco Ltd. 259.3 316.6
Average common shares outstanding - diluted 462.4 464.7
Diluted EPS $0.43 $0.58
Adjusted diluted EPS*** $0.56 $0.68
____________
* 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 toInvesco Ltd. divided by the weighted average number of common and restricted common shares outstanding. There is no difference between the calculated earnings per common share amounts presented above and the calculated earnings per common share amounts under the two class method.
(1) Invesco Great Wall
The company 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 The company calculates net revenues by reducing operating revenues to exclude fees that are passed through to external parties who perform functions on behalf of, and distribute, the company's managed funds. The net revenue presentation assists in identifying the revenue contribution generated by the company, 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, as 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.
(3) CIP
See Part I, Item 1, Financial Statements - Note 12, "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 theU.S. GAAP Condensed Consolidated Statements of Income. The company 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, 42 --------------------------------------------------------------------------------
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
The company 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 restructuring related charges. See "Results of Operations for the three months endedMarch 31, 2022 and 2021 -- Transaction, Integration and Restructuring" for additional details.
(5) Amortization of intangible assets and related tax benefits
The company believes it is useful to investors and other users of our financial statements to remove amortization expense related to acquired assets net of the tax benefits realized on the tax amortization of goodwill and intangible assets 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-related charges.
(6) 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 toInvesco 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 March 31,
$ in millions 2022 2021
Market movement on deferred compensation plan liabilities: Compensation expense related to market valuation changes in deferred compensation liability
(21.9) 13.5
Adjustments to operating income (21.9) 13.5
Market valuation changes and dividend income from investments and instruments held related to deferred compensation plans in other income/(expense)
42.4 (15.9)
Taxation:
Taxation on deferred compensation plan market valuation changes and dividend income less compensation expense
(4.7) 0.5
Adjustments to net income attributable to Invesco Ltd. 15.8 (1.9)
(7) 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.
43
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Three months ended March 31,
$ in millions 2022 2021
Other non-GAAP adjustments:
Change in contingent consideration estimates - (8.1)
Taxation:
Taxation on change in consideration estimates - 1.9
Adjustments to net income attributable to Invesco Ltd. - (6.2)
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