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Thank you for standing by, and welcome to Invesco Ltd.'s First Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session. One question and a follow-up can be submitted per participant. As a reminder, today's call is being recorded.
Now I'd like to turn the call over to Gregory Ketron, Invesco Ltd.'s head of investor relations. You may begin.
Thank you, Cedric, and to all of you joining us on Invesco Ltd.'s quarterly earnings call. In addition to today's press release, we have provided a presentation that covers topics we plan to address. The press release and presentation are available on our website investgood.com. This information can be found by going to the Investor Relations section of the website.
Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide two of the presentation regarding these statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco Ltd. is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties. Daily authorized webcasts are located on our website.
Andrew Schlossberg, President and CEO, and Allison Dukes, Chief Financial Officer, will present our results this morning. We'll open up the call for questions. I'll now turn the call over to Andrew.
Thank you, Greg, and good morning to everyone. I'm pleased to be speaking with you today not only about our Q1 results, but also the significant developments that we announced in our ongoing relationship with MassMutual, which we are very excited about. Allison and I will walk through the details of this new strategic product distribution partnership and the $1 billion repurchase of preferred stock a little later in the call. In recent quarters, I've been commencing our earnings calls with a recap of our strategic focuses and advantageous market position, as seen on Slide three of your presentation.
During this period of uncertainty in capital markets and economies around the world, I cannot think of a more pertinent time to highlight our position and our steadfast focus. Our strategic priorities were conceived with conviction that regardless of near-term market volatility, cyclical, structural, or fundamental developments, our focus would leverage the best of Invesco Ltd., ignite our growth engines, and deliver durable results. The hallmarks of the global Invesco Ltd. platform place us in a position of strength to navigate the current operating environment. Our geographic diversity and local presence is a differentiator across the Americas, EMEA, and our significant and unique Asia Pacific profile.
Furthermore, our broad range of public and private market portfolios and active and passive multi-asset range of capabilities provides the opportunity for us to stay closely connected to clients and capture expected reallocations in their portfolios. Furthermore, our diverse profile provides a more resilient asset flow, revenue, and profit growth profile. Our strategic clarity has helped us drive organic growth through various operating environments and continue to prove effective in the first quarter. We generated $17.6 billion in long-term net asset inflows, a 5.3% annualized growth rate.
And we delivered strong profitable growth with adjusted operating income up 18%, and operating margins expanding over 330 basis points, compared to the same quarter last year. Furthermore, against the backdrop of a turbulent start of the second quarter, our diversified platform provided some resilience in our asset flows and an ability to use our global scale for the benefits of our clients and our shareholders. Turning to Slide four, I'll cover our first quarter flow performance by investment capability and provide some additional context in which to think about the new uncertain operating environment that we have now entered.
Before I begin though, I want to point out a change we have made to the reporting of our investment capabilities to isolate the performance of our China JV and India business. It's important to note that this line item now only represents products managed through our China JV and India business. The approximately $10 billion in other assets that were previously in the Asia Pacific managed capability but not managed directly through the JV or India, are now allocated to the representative investment capabilities with the majority being allocated to fundamental equities. We made this reporting change to better reflect how we view our business and the unique dynamics in the Asia Pacific region, where we are increasingly able to bring more international products managed outside of the region to our clients in these local markets.
A good example of this is our global equity income fund managed out of the UK, which has rapidly grown to $14 billion of assets under management predominantly from clients in the Japanese market. We provided an eight-quarter look back in the appendix of today's presentation to help you align to this adjustment. And currently, we'll continue to report our assets and flows sourced from clients in each region, which you can see on page five of the presentation. The Asia Pacific and EMEA regions account for $276 billion each in assets under management, representing nearly a third of the overall company.
And between them, they generated $15 billion in net long-term inflows in quarter one, a positive trend we've seen in the past several quarters. This further highlights the importance of our local profile in key markets around the world. Shifting to our recent business results, the year started with the risk-on client sentiment which shifted to a more cautious stance at the end of the quarter continuing through April. By illustration, money markets for the industry recently topped $7 trillion, a record level for the asset class.
Thus far in April, we've seen investors largely stay invested but they remain more muted with new capital deployments as they rethink their asset allocation. Despite the volatility, we continue to see strong client activity in the first quarter with significant growth across channels, asset classes, and product vehicles. A key headline for us was the funding of a $10 billion mandate to deliver a range of customized fixed income portfolios for the People's Pension Fund, one of the largest master trusts in the United Kingdom. $6 billion of this mandate funded in the first quarter, with the incremental $4 billion funded during April.
This is an important mandate as we continue to build Invesco Ltd.'s leadership in the retirement markets in the UK and globally. Our global ETF and index platform continued to produce strong results recording 13% annualized organic growth in the first quarter. More recently in the March timeframe and continuing into April, ETF demand has cooled as global financial markets experienced increasing volatility. That said, we have continued to see our ETF flows broaden by asset class and factors across our clients in the Americas, EMEA, and Asia.
Strong ETF growth in the US market was augmented by another solid quarter for growth in EMEA, where we saw $8 billion in net new ETF flows. Top net flowing products in the U.S. were led by our QQQM with a near-record flow of $4 billion. Additionally, our factor suite drove significant net flows as precision investments become an even more critical buying decision. We continue to innovate in the ETF space, launching three new active ETFs in the quarter, with plans for increased expansion this year.
Further, our QQQ ETF was successfully listed on the Hong Kong Stock Exchange in February. This launch marks the first cross-listing of Invesco Ltd.'s QQQ outside of North America and represents a milestone in the expanding market for ETFs into Asia. Shifting to fundamental fixed income, in the current environment of uncertainty and tight valuations, there is caution around risk-taking. We saw this play out with our fixed income results particularly during the back end of the quarter.
But given our range and strength of our fixed income offering, we garnered $8 billion in net long-term inflows with an additional nearly $9 billion in global liquidity flows during the quarter. During the period, demand for investment-grade and certain municipal bond strategies continued to be strong and we also had net inflows into our ultra-short duration strategies and saw a positive reversal in our stable value platform, with net long-term inflows for the quarter, a trend line that has strengthened into April. Our retail SMA platform, which tends to be more focused on short duration, continued to capture flows, and now stands at nearly $30 billion in AUM.
We have one of the fastest-growing SMA offerings in the US wealth management market, with an annualized growth rate of 25%. Shifting to private markets, in direct real estate, we recorded net inflows of $1.1 billion driven by the funding of a large UK mandate as well as continued inflows into Incref, which is our real estate debt strategy targeting the wealth management channel where we continue to onboard new platforms and clients. Our real estate team remains very well positioned in the institutional markets with over $5 billion of dry powder to capitalize on emerging opportunities. Our private credit capabilities recorded modest net outflows for the quarter as our market-leading bank loan ETF turned from a strong net inflow position at the beginning of the quarter to net outflows in March, which continued into April, as recession fears have increased.
Client interest in private markets remained high and we expect to see continued activity in the key areas where we focus in real estate, and alternative credit. Including the advancements announced today with our partnership with MassMutual and Barings. Moving to our China JV and India capability, we saw continued net long-term inflows of $2.2 billion led by fixed income and augmented by continued growth in ETFs which have been gaining traction in China. While six new products were launched in our China JV this quarter, our organic growth in this market was largely driven by existing products which is a good sign for the strength of our platform.
Furthermore, within these markets, we've seen resiliency thus far in April, with continued positive organic flow growth in these local fund ranges. Clearly, the most recent heightened trade tensions have created an overhang on the domestic Chinese economy but continued anticipated government stimulus, heightened domestic consumption, and reforms on social service will have an impact on the development of capital markets and the retirement system. Both of which are benefits for our domestic-to-domestic business. Turning to our multi-asset related capabilities, we saw net long-term outflows of $1.1 billion driven by our global risk parity strategies.
Finally, the relative pressure on fundamental equities has continued. We saw outflows in our global equities and developing markets funds in the US region, but importantly by contrast in our EMEA and Asia Pacific regions, we had modest net inflows in fundamental equities. Which is an important change in the trajectory. Overall, our focus will remain on delivering strong results.
Moving on to slide five. As mentioned earlier, we provide an alternative aggregation of our AUM and our flows to provide additional context for our business results. I've covered most of the key highlights, but I will reiterate that the diversity of our asset flows across geography, channel, and investment style provide a balance to market conditions and an ability to meet a range of client needs. Which is an important part of our organic growth potential through various market cycles.
Moving to slide six, which shows our overall performance relative to benchmarks and peers, as well as our performance in key capabilities where information is readily comparable and more meaningful to driving results. Investment performance is key to winning and maintaining market share despite overall market demand. Achieving first quartile investment performance remains our top priority. Overall, roughly half of our funds are performing in the top quartile of tiers, across the three and five-year time horizons.
Further, over two-thirds of our AUM is beating its respective benchmark over these measurement periods. Moving on to slide seven. Two important strategic priorities for Invesco Ltd. have been expanding our footprint in private markets, particularly with wealth management clients. And ensuring that we have balance sheet and capital management flexibility to continue to invest in our growth, and deliver shareholder returns.
The partnership we announced today with MassMutual and Barings for private market product development and distribution in the US wealth management market and to repurchase a part of our preferred stock, are exciting developments in driving these strategic priorities for the benefits of our clients, and our shareholders. The near-term focus of our partnership with Barings will be on delivering differentiated and industry-leading private credit-oriented income solutions and product structures suitable to reach a wide set of our US wealth management clients. We are going to leverage both Invesco Ltd. and Barings' capabilities in global private credit and public fixed income.
The partnership is going to rely on Invesco Ltd.'s deep client relationships in the US wealth management channels for our distribution and the extensive product structuring and unique asset allocation capabilities of both firms. We're also excited that MassMutual intends to support this initiative with an initial investment of $650 million in seed and co-investment capital to accelerate bringing these initial and innovative solutions to our clients. This augments MassMutual's previous commitments to Invesco Ltd.'s private market and other strategies, which has exceeded $3 billion in total. Today's announcement of this partnership with an institutional private market leader like Barings complements nicely the existing strengths of our $130 billion private markets platform and will allow us to expand the existing real estate alternative, and private credit strategies that we currently have in market for wealth management clients in the United States.
It also demonstrates our ongoing commitment to look for opportunities to broaden our private market offerings to meet client needs across all market cycles and across the full spectrum of sectors and geographies. With that, I'm going to turn the call over to Allison to discuss important aspects of our announcement with MassMutual, including the details and benefits of the $1 billion repurchase of preferred stock and also our financial results for the first quarter. I look forward to your questions.
Thank you, Andrew, and good morning, everyone. I'll start on slide eight with the strategic rationale and impact of the $1 billion repurchase of Invesco Ltd.'s preferred stock. We're very pleased that we were able to reach an agreement with MassMutual to repurchase 25% of the preferred stock, which they hold. There are a number of advantages for Invesco Ltd. in being able to repurchase the stock.
We'll be funding the repurchase with committed floating rate three and five-year bank term loans. They have a rate in the 5.5% to 5.3% range based on SOFR today. Or an after-tax cost in the 4.2% to 4.4% range. This compares favorably to the fixed 5.9% dividend rate on the preferred stock, which is not tax deductible.
We expect the transaction, both the repurchase and financing, will close in May. The transaction will be earnings accretive in the second half of this year. And the accretion will increase over time as we pay down the term loans. Ultimately, once the loans are repaid, we expect the EPS accretion related to this transaction will reach $0.13 on a run rate basis.
Based on our projected future cash flows, we expect to have the loans fully repaid by mid to late 2029. We'd also anticipate paying the loans off earlier should cash flows provide the opportunity to do so. By repurchasing the preferred stock, we will save $59 million in annual preferred stock dividends that become earnings available to common shareholders. And while the initial annualized borrowing costs associated with the term loans will be in the $40 million to $45 million range after tax, this will decrease as the loans are paid down through future cash flows. The terms and conditions are similar to our floating rate revolving credit facility.
And they're prepayable at any stage with no make-whole fees. There are no principal payments required for the first three years. The five-year term loan does have a principal amortization feature in years four and five at 10% per year. Our balance sheet flexibility will be enhanced by the repurchase in the sense that we are pulling forward a $1 billion reduction in the preferred stock that is otherwise non-callable until May of 2040. This will enable us to further deleverage and increase balance flexibility nearer term.
Important to note that our capital deployment priorities remain intact. We anticipate ample cash flow capacity to repay the bank term loans and a $500 million senior note that matures in January of 2026 without restricting our current capital deployment priorities. These include continued investment and growth initiatives, regular share repurchases, and modest dividend increases as underscored by our announced common dividend increase today. We do expect that our cash and cash equivalents will remain near $1 billion going forward.
It's also important to note that the repurchase agreement with MassMutual provides for discussions regarding future repurchases of the remaining $3 billion of preferred stock. On the next slide, we show the expected progression of the EPS accretion through time as the term loans are repaid in 2029. And the expected run rate EPS accretion after the term loans are fully repaid. There is a 15% premium being paid to MassMutual to repurchase the $1 billion of preferred stock based on the present value of the 5.9% dividend rate being eliminated 15 years ahead of the first call date. A premium will be included in our second quarter GAAP results but it will not impact our adjusted operating results.
We also show the expected impact the repurchase will have on our leverage ratios, and the progression of our debt by maturity. Looking at the leverage ratio excluding the preferred stock, we do see a near-term increase in leverage from the term loans, but to a very manageable level near one time. Followed by significant improvement as we repay the loans. The change to the leverage ratio including the preferred stock is not as impactful in the near term as we are effectively replacing the preferred stock with the term loans.
However, with this transaction, we're able to meaningfully improve our leverage profile over the next five years in a way we could otherwise not attain without the repurchase. The leverage ratios shown here are pro forma, assuming no change in EBITDA from what we are reporting as trailing four-quarter EBITDA for the first quarter of this year. I'll move on to the first quarter financial results on slide ten. We continue to see strong growth in assets under management during the first half of the quarter before weaker markets set in during the second half of the quarter.
Total AUM at the end of the quarter was $1.84 trillion, nearly flat to the end of the fourth quarter of 2024 and $182 billion or 11% higher than the end of the first quarter of 2024. Average long-term assets under management were over $1.3 trillion, an increase of 1% over last quarter. And 14% over the first quarter of last year. Growth in assets under management during the first quarter was mainly driven by net long-term inflows, net inflows into our QQQ ETF, net inflows into money market funds, and positive FX impact. The impact of market declines in the latter half of the first quarter offset this growth at quarter-end.
Net long-term inflows drove an $18 billion increase in AUM during the quarter, representing an organic growth rate of over 5%. As Andrew noted, net inflows in our ETF and index capability excluding the QQQ were over $16 billion. Fundamental fixed income contributed $8 billion of net inflows, and the China JV in India added $2.2 billion of net inflow. Net outflows of $7 billion in fundamental equities partially offset these inflows.
Net revenues, adjusted operating income, and adjusted operating margin all improved from the first quarter of 2024 while adjusted operating expenses continued to be well controlled. Adjusted diluted earnings per share increased by 33% to $0.44 for the first quarter versus prior year EPS of $0.33. We continue to strengthen the balance sheet during the first quarter ending in a net debt of $143 million, substantially better than the first quarter of 2024's net debt position of $362 million. We ended the quarter with only $74 million drawn on the credit facility, below historical seasonal levels. We also continued share repurchases in the first quarter, buying back $25 million.
We intend to continue repurchasing shares at a similar level on a regular basis going forward. Our board also approved an increase in our quarterly common stock dividends from $0.205 to $0.21 per share, reflective of our strong cash position and cash flow. Moving to slide eleven, as we've noted in prior calls, secular shifts and client demand have altered our asset mix and net revenue yield as our broad set of capabilities has allowed us to capture evolving client product preferences. This dynamic has been increasingly reflected in our results.
Client demand has led to continued diversification of our portfolio, a trend we have seen for a number of years now. As a result, concentration risk in higher fee fundamental equities and multi-asset products has been reduced. The firm is increasingly better positioned to navigate various market cycles, events, and shifting client demand. Consistent with prior quarters, current net revenue yield trends are included on the slide.
The ranges by capability are representative of where the net revenue yield has ranged over the past five quarters. We note the net revenue yield drivers and where in the range the yields have trended more recently. To provide context for the net revenue yield trend during the first quarter, our overall net revenue yield was 23.5 basis points. Including the impact of two fewer days in the first quarter compared to the fourth quarter, which accounted for a half a basis point or 0.5 tenths of a basis point of the decline.
Excluding the day count impact, the net revenue yield declined 6 tenths of a basis point compared to the fourth quarter yield of 24.6 basis points. The exit net revenue yield at the end of the first quarter was 23.8 basis points, only 2 tenths of a basis point lower than the day count adjusted net revenue yield for the first quarter of 24 basis points. Turning to slide twelve, net revenue of $1.1 billion in the first quarter was $55 million higher than the first quarter of last year, a 5% increase. Investment management fees were $59 million higher than last year.
The increase was driven by higher average AUM, partially offset by the AUM mix shift previously noted. Higher performance and other fees were offset by lower service and distribution fees and higher third-party expense. Operating expenses continue to be well managed, with total adjusted operating expenses only $2 million higher or 0.3% from the first quarter of last year. Sequential quarter adjusted operating expenses were $8 million lower despite seasonal expenses and compensation due to payroll tax and other compensation-related expense resets that typically occur in the first quarter.
Declines in marketing, property office and technology, and G&A offset the increase in compensation expense on both the year-over-year and sequential basis. We did have $7 million of non-recurring expense benefits in the first quarter that mainly impacted G&A expenses. Alpha platform implementation costs of $13 million were in line with our expectations for the first quarter and consistent with the $14 million incurred in the fourth quarter. We did move a small first wave of AUM onto the alpha platform in the fourth quarter of 2024. Fees paid on the assets under management that were transitioned over in the first wave were nominal, expense-wise in the first quarter.
As the implementation continues, we expect related one-time implementation costs to be in the $10 to $15 million range next quarter. Regarding operating expenses for 2025, we're focused on disciplined expense management. Given the recent market volatility, it's become more difficult to provide specific guidance on operating expenses, but we're managing it carefully day by day. In terms of expense flexibility, without any management intervention, our expenses are approximately 25% variable.
With management intervention, some of which can take several quarters to fully realize, the variability increases to 30% to 35%. First quarter year-over-year positive operating leverage was over 5%, driving a $53 million or 18% increase in operating income. Over a 330 basis point improvement in our operating margin to 31.5%. The effective tax rate was 24.4% in the first quarter.
We estimate our non-GAAP effective tax rate will be between 25% to 26% for the second quarter of 2025, excluding any discrete items. The slight increase in the rate is driven by a shift of income across tax jurisdictions. The actual effective rate can vary due to the impact of nonrecurring items on pretax income, and discrete tax items. To wrap up on slide thirteen, as I noted earlier, we continue to make progress on building balance sheet strength in the first quarter.
We ended the quarter with a net debt position of $143 million, significantly better than the prior year first quarter net debt level of $362 million. We ended the first quarter with just $74 million drawn on our credit facility, substantially lower than what we have drawn historically with the first quarter being a seasonally high cash usage quarter. Our leverage ratios continue to show improvement versus a year ago. The leverage ratio excluding the preferred stock is 0.3 times versus 0.54 times a year ago, and including the preferred going from 3.36 times a year ago to 2.77 in the first quarter.
We expect continued share repurchases, buying back $25 million or 1.5 million shares, during the quarter. And as noted earlier, our Board approved an increase in our quarterly common stock dividend. We intend to continue a regular share repurchase program going forward. We expect our total payout ratio, including common dividends and share buybacks, will move closer to 60% in 2025 as we continually evaluate our capital return level.
To conclude, the resiliency and strength of our firm's net flow performance is evident again this quarter and we continue to make significant progress on building a stronger balance sheet, enhanced further by the $1 billion repurchase of the preferred stock. We remain committed to driving profitable growth, a high level of financial performance, and enhancing the return of capital to shareholders. With that, I'll ask the operator to open up the line for Q&A.
Thank you. At this time, if you'd like to ask an audio question, please press star one. To withdraw your request, please press star two. One moment for our first question. Our first question comes from Alex Blostein with Goldman Sachs. Your line is open.
Hey. Good morning, everyone, and congrats on the announcement this morning. So maybe starting with a strategic update, I would love to get your perspective on how you envision sort of the product and distribution opportunities develop with Barings and MassMutual. Is it more of a gradual product build?
So it might take some time to scale, or are there places where you guys could see more immediate impact on the business through either kind of a larger sub-advisory arrangement or something along those lines?
Yeah. Thanks. Hi. It's Andrew.
Let me take that one. The initial phases of this partnership are gonna focus, as I mentioned, on areas of private credit. And we have a few capabilities mapped out that we intend to get to market in the next little while. But those need approvals and we need to work through various details.
But we see that first phase kinda happening relatively quickly. Then we'll look at second and third phases over time as opportunities create themselves. We're really gonna focus on these private credit opportunities in the US wealth management channel to start.
I gotcha. Thanks. And then, Allison, one for you on the preferred. Nice to see that done. So maybe just a couple of comments on what ultimately got MassMutual over the hump to agree to this. As you think about the remaining, I think, $3 billion, how are you guys thinking about opportunities to repurchase more?
Sure. Well, look, I think you can tell from the variety of announcements today and just the partnership we've had with MassMutual over the last six years, they're a good partner. And while we do have a contract with them and the preferred is non-callable for another fifteen years, they also recognize and understand some of the challenges that the preferred has created in terms of the perception overall. It's just the coupon itself.
And so they've been great partners as we continue to look for opportunities and alternatives to make some progress with the preferred and also even bringing this product partnership to bear through the relationship with Barings. So, I mean, it was really multifaceted. And, you know, I think a real testament to just the strength of the partnership and the commitment that we have to each other. As a reminder, they are an 18% common shareholder.
So they're as invested as everybody else in really continuing to see the stock rerate, and we think that this is a positive improvement. In terms of opportunities we have around the remainder of the $3 billion, you know, I think as we said, the repurchase agreement provides opportunity for us to continue to think about ways that we can reduce that in the future on terms that are mutually agreeable to both parties. The way we think about it, you know, it's really gonna depend on the nature of our cash flow, the opportunities we have with the free cash flow that we generate, the rate environment, which will be relevant to MassMutual and to ourselves, and, you know, really looking at what's the organic and inorganic opportunity set that's out there.
I think this is a really strong first step, and we're all very optimistic that this provides opportunities for us to continue discussions in the future.
Yeah. And just one other thing I'd say is I don't want to have it get lost in this. The commitment for MassMutual to put up to $650 million of capital behind those initial couple of strategies that I mentioned in phase one of this product partnership is not insignificant in helping us get to those US wealth platforms more swiftly.
Yeah. No. That's great. Congrats to you & everyone involved.
Thank you.
Thank you. The next question comes from Craig Siegenthaler with Bank of America. Your line is open.
Thanks. Good morning, everyone. My question is also on the MassMutual announcement relating to the Barings US wealth partnership. I'm curious, could this potentially be a first step in an Invesco Ltd.-Barings merger, especially given that your capabilities are complementary?
We've got a lot to do as two individual companies, and I think we found this opportunity after discussing ways to get into the US wealth space more productively together. And have our complementary capabilities in this particular space come together to put a couple of products to market. And so we're gonna focus exclusively on that going forward.
Thank you, Andrew. And then, you know, this past quarter, we saw EQH take a larger stake in AllianceBernstein. And, you know, we're watching MassMutual sell part of their preferred. I'm wondering, are there any limitations to them increasing their 18% common equity stake or voting interest in Invesco Ltd. in the future?
There are some limitations. It's all filed on the shareholder agreement, which was initially filed with the closing of the Oppenheimer transaction back in 2019. I believe it limits them to 22.5%. There are a variety of kind of regulatory considerations around why it's at that level. So there is some ceiling there in the shareholder agreement as it stands today.
I don't think anyone should view their agreement for us to repurchase $1 billion of the preferred as anything other than just continued progress on the partnership on all sides. Inclusive of, as Andrew said, the continued capital commitment on top of the $3 billion they've already committed. And just their real willingness to continue to support Invesco Ltd.'s growth in a variety of facets.
Thank you, Allison.
Thank you. The next question comes from Mike Brown with Wells Fargo Securities. Your line is open. Mike, please check your headset. Got a bad connection reached.
Hi. Good morning, sir. Can you hear me now?
Yep. Yes. I can hear you.
Okay. Great. Thank you. So on the partnership announcement, just given Invesco Ltd. and Barings current capabilities, can you just expand on that $650 million?
How will that be used specifically? Is that just to seed the new fund vehicle, or is it also to kind of help add capabilities, for example, to maybe expand in the investment-grade private credit side a bit more? And then in terms of the vehicle, just to clarify, is it planned to launch like, an interval fund type of structure with a public-private sleeve, and that would then be targeting the below-accredited threshold? Thank you.
Yeah. Let me try to address both questions. The initial seed capital is to launch and instigate the initial product or two that we'll bring to market. Exclusively.
That's what it's meant to do. And just to clarify, you know, the strengths of Barings and the things that we're going to use in these capabilities include specialty finance and special situations, in the higher upper end parts of direct lending where we aren't today. And it's gonna complement where we are today, which is in distressed credit, lower mid direct lending, bank loans, CLOs, and real estate debt. So think of it truly as just complementary investment capabilities seeded with this initial capital or instigated with this initial capital and brought to a multi-asset type solutions to the marketplace.
In terms of structures and the like, not something we can get into today. You know, these products aren't filed and things like that. But do think of them as vehicles that will be relevant, credible, and easy to attain by the wealth management platforms that we serve today. And similar to strategies we have out there in market already in the real estate and alternative credit space.
Okay. Great. And then, Allison, just on expenses, understanding the market volatility here makes it very challenging to kind of forecast where that could be for the year. But maybe if we consider markets stay flattish from here, is that kind of a baseline?
How should we think about what expenses can look like for the year? Could they be kind of flattish year over year? Does that variable component give you the ability for them to actually be a bit lower year over year? Just some helpful thoughts here would be helpful.
Thank you.
Yeah. But maybe I'll take maybe a couple of component pieces just to think through all of that. I'd say compensation, of course, is the most variable component of our expense base as you think about the revenue environment. I think, you know, our compensation as a percentage of revenue has been running in that 43% to 44% range.
That's probably a reasonable expectation of a range as I think about the revenue environment for this year if revenue were to stay flat. So, I think that gives you some sense around, you know, a pretty major element of our expense base. Also, expenses, keep in mind, we are continuing to implement Alpha. And as I said, we expect implementation costs to continue to be in that $10 to $15 million range.
And so that's sort of with or without any improvement or deterioration in the revenue environment. We do intend to continue moving forward in the implementation of Alpha. So that doesn't have a lot of variability to it. You know, everything else, we're certainly looking at all of our expenses from a very disciplined perspective as you would expect in this revenue environment.
I mean, I want to be careful to read too much into three weeks of volatility. It's been three pretty volatile weeks, but it remains to be seen how things will unfold from here. Nonetheless, we're being very thoughtful about every element of discretionary expenses we have, and think about it from everything from travel and entertainment, to slowing down hiring, all the things we can do to just really slow the growth of our expense base. So if revenue's flat from here, could expenses be flat?
It's not an unreasonable expectation but we're gonna be looking at everything we can do to continue to pull forward some of the transformational opportunities. We've done a lot of work, as you know, over the last few years on our simplification of our organization. We still are working on that all the time. We came into this year continuing to make progress on that.
We're gonna stay focused and execute and accelerate with speed wherever we can as we can continue to recognize some real disciplined expense management, which we think has really become a hallmark of our operating performance for a number of years now.
Great. Thank you very much.
Thank you. Our next question comes from Daniel Fannon with Jefferies. Your line is open.
Thanks. Good morning. Andrew, you talked about some of the trends in April. If you could talk more broadly, I think you mentioned China was positive.
But as you think about other regions, or client conversations in this type of market backdrop, how you're seeing things unfold, and maybe also just from a backlog perspective, do you anticipate funding to maybe be slowed as a result of all the uncertainty?
Yeah. Thanks, Dan. Look, we're three weeks into a relatively volatile month, and we're also three weeks away from releasing our April flows. And the facts, as you can imagine, continue to evolve.
What I'd say thus far in April though is that we've seen investors largely stay pretty well invested but they are absolutely moving to a more defensive stance as it relates to how they're deploying new capital. They're kind of rethinking asset allocations, but also trying to assess the market environment. As I mentioned in my comments earlier, I mean, this is where the diversified nature of our business is really helpful. And it puts us in a position to navigate the current operating environment and capture flows as investors gain clarity.
What I would say is that in the fixed income, the focus really has remained more on the shorter duration side. And with equity strategies in the US facing headwinds, what we are seeing is a broadening and in many instances a more positive investment flow environment in places like Europe and in Asia. Which is gonna be a helpful mitigant for some of those headwinds in the US that you can see on a daily basis. I'd say on the institutional side of the business, it remains pretty resilient and frankly pretty positive.
We funded the key retirement mandate that I mentioned in the UK, but also seeing strength in our US retirement platform, places like Stable Value and that resiliency and those commitments haven't changed. And then I think China, what I'd say is that given that our business is a fully domestic-to-domestic business as you know, and that we're in a very strong position in that marketplace and known brand. We've seen a lot of resiliency in the region with actually positive organic flow growth into April and in April. Which is helping to offset some of the market declines.
So, you know, it's a mixed bag. And we'll see when we release in a couple of weeks where the month shakes out.
Great. That's helpful. And then, Allison, just one more on expenses. Just you mentioned there a one-time benefit of $7 million in G&A. Can you also remind us how much of the seasonal kind of comp was in the first quarter to try to get a sense of just the starting points of the jump-off points for 2Q?
Sure. On the second question, seasonal comp usually runs about $15 million higher in the first quarter. And then again, I think about that comp as a percentage of revenue guidance in that 43% to 44% context tends to run on the higher side with revenue down. And or slower as revenue increases.
On the $7 million one-time, yeah. This was predominantly in G&A. There were some in property office and technology too. And so as you think about those two line items quarter over quarter, you know, expect some increase just removing those one-timers as we roll into the second quarter.
Great. Thank you.
Thank you. The next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Okay. Thanks. Good morning. Congrats also on the partnership with MassMutual and Barings.
Maybe just on that, can you talk a little about the economic participation for Invesco Ltd.? Is it simply a matter of the assets that you are managing in the partnership and you're getting your fees for that for the economics? Or are there other sharing arrangements? And do you expect your asset management participation to be commensurate with Barings or might it lean one way or the other?
And I don't know if there's any guideposts of how large you think this could end up being over the next, say, couple of years. Maybe it's too early for that one.
Yeah. Thanks for the questions. The partnership is pretty straightforward just to put a line under it. These are gonna be Invesco Ltd. products that we're gonna bring to market into the US wealth management channel.
With parts of the assets managed by Barings and parts by Invesco Ltd. We'll be sharing management fee revenues in an undisclosed way. So we didn't disclose the terms of the arrangement. But Invesco Ltd. is gonna be the distributor.
Invesco Ltd. is gonna be the product operator. You know, will be compensated for that as well. In terms of the growth, it's really too early to say. We think these are gonna be compelling offerings, private credit.
Broadly in an allocated way across all elements of the spectrum that I described before, inclusive of things like real estate debt, and being able to do that with all of the education that we have, all of the boots on the ground, we have around wealth management is gonna be a nice complement to the offering we already have, and we think accelerate our brand in private markets in the wealth channel as well as all the capabilities that we can put forward to those advisors who are looking for things like this. So, you know, we'll continue to update you as this develops over the next several quarters.
You know, but too early to describe how big this could be.
Yep. That's helpful. And then maybe just to go to the global landscape, your local profile globally, both in China and really across the world. How are you seeing or I guess are you seeing any substantial differences within those local regions, given all of the tariff negotiations that are going on in any kind of sentiment globally towards investment products and investment in US products?
Okay. Yeah. Thanks. Maybe just before we discuss how it's looking right now, just a reminder, $550 billion of our assets are held by clients outside of the United States, and that's evenly dispersed between Asia Pacific and EMEA.
And as I mentioned, Asia Pacific has been a fast grower for Invesco Ltd. and a really differentiated position because we're so local. And because we've been so long-term in those markets. And the capabilities that are being brought to those markets are both domestic and international capabilities. And then EMEA where we've been for a long, long time, has started to show some very good growth over the last few quarters from an asset flow perspective, strong investment performance, and a similar sort of local profile that I was mentioning around Asia.
So we were really well positioned in those places and those businesses have been moving forward. So as the current market environment takes hold, that diversity is I think we think is really gonna continue to pay off. And as people continue to invest internationally, but also invest in their domestic markets, this will be good for the resiliency of Invesco Ltd. As I mentioned on our April flows, it's still a little bit early to get a full picture of things.
But I will say in the short run, the markets outside of the US in terms of asset flow and resiliency have been better than the flows in the United States. But there's just so many moving parts right now that it's hard to call things a trend.
Yep. That's super helpful. Thank you.
Thanks, Brian.
Thank you. Our next question comes from Bill Katz with TD Cowen. Your line is open.
Great. Thank you very much, and congrats on all the news today. Just maybe on the retirement market. Sort of curious.
There's an increasing focus for that market to potentially have greater allocation to alternatives. I was wondering if you could talk a little bit about how you're positioned both maybe the opportunity set and if there are any threats to the extent that that were to move forward and sort of see a pickup in all allocations. Thank you.
Yeah. The retirement markets have been a focus for Invesco Ltd. for a long time, and we're an investment-only manager, meaning we don't record-keep assets and we really are not a target date player per se. So the opportunity is I think they're endless, really. If and as alternatives in private markets can find their way into defined contracts and you know, we have the active strategies to do that that are stood up.
The partnership today could present even more opportunities for us to create product for that market. And we're gonna utilize the relationships we have with plan sponsors and consultants and record keepers and other inputs into that market to find a way to be a part of whether it's growth and target date for alternatives or some other vehicle types. We have all the requisite pieces to do it. I think that's not just a US phenomenon.
That's a global phenomenon. And I think examples of that we talked about today of our growing retirement business in the United Kingdom or advances were made in the United States. Or in the long run in Asia Pacific, if and as alternatives find their way into defined contribution, we'll be right there.
Okay. Thank you. And just as a follow-up, I think you mentioned in prepared commentary and not surprising that the institutional decision makes been pushed off a little bit. I was wondering in those conversations that you are having with them, are allocation dynamics shifting, and if so, to where might they be shifting?
I mean, it's really a bit early to say. I mean, one of the key things is fundings that we expected in April have happened. And so they're not stopping their fundings. You know, I think during periods like this we've seen in the past and conversations we're having, you know, they tend to pause a little bit and thinking about their future asset allocations.
You know, I think they're all trying to digest the same things we're all trying to digest. The conversations are really active. They're looking for consultation. And they're looking for partners that can bring a range of solutions to them.
Custom or otherwise. And that's generally what we're seeing in the market. It's too early to say exactly where they're placing bets because they're not making those changes.
Thank you.
Thank you. The next question comes from Patrick Davitt with Autonomous Research. Your line is open.
Hi. Good morning, everyone. I have a follow-up to Brian's question. I think he was trying to get to this, but chatter about, like, large institutions pulling money from US institutions for either ESG or just anti-American sentiment.
I think you guys actually won some of that money in motion to your point earlier. So could you speak to what extent you are hearing any of those conversations, how non-US investors are evaluating those issues, and to what extent you believe having that established local presence is enough to avoid being painted with the quote-unquote US manager tag?
Yeah. I mean, part of it you mentioned in your answer, I mean, we're winning mandates. So we really haven't seen that. And I, you know, we haven't heard any of that sort of anti-rhetoric.
What I will say though is the broadening out of the markets and where people are looking at valuations in Europe or where they're looking at diversification into value or into domestic markets away from where money has, you know, predominantly just been very, very focused in the US equity markets. Large cap growth. We're seeing people rethink those allocations, but I we have not heard it's an anti-movement. It's a broadening out of markets.
That's to the point of our local presence in these local markets. You know, we'll we should do just fine in terms of capturing some of that sentiment, of flows trying to even out. And frankly, it's a good thing for Invesco Ltd. because we have such a diverse book of assets.
I don't know if you'd add anything else. I mean, I think you've said it a few times, but I would just underscore our business in China in particular is a domestic-to-domestic business. And so we have, you know, and it's very much viewed as a business that has started locally over twenty years ago, has grown organically this whole time. And that's really a testament to, I think, how our business has grown across all continents.
And while we happen to be headquartered in the US, our business is very local on a number of levels, and our clients see us that way. And we've got that broad set of diversified capabilities, and I think that's important as well as, you know, you think about some of the trends that are out there in the macro environment right now.
Yeah. I mean, seeing positive flows in that market in April is one good sign.
Yep. Okay. Helpful. Thanks.
And, obviously, you've been more focused on fixing the balance sheet, organic growth. But historically, big dislocations like this have opened up rare inorganic opportunities for asset managers. Could you update us on your willingness to do a larger transaction if something came up? And if so, what would be at the top of your wish list for kind of a once-in-a-lifetime type deal?
Well, I think nothing's changed in terms of our perspective around that in the way we've answered it probably for a few quarters, even a few years now. I mean, we're always looking. And so I would say our willingness has not changed. One of the things we are always focused on is overlap with existing capabilities, and really needing to make sure we're being thoughtful about where we've got capability gaps.
We have been consistent in saying we probably don't have our suite of products that's fully built out as we would like in areas like private credit and infrastructure. I think the partnership today is good progress towards actually starting to build that out in a slightly inorganic way. It's a mix of an organic and inorganic, I would say, opportunity as you think about how we can continue to fill those gaps in. So I don't think anything has changed in our willingness.
The announcements we made today in terms of the balance sheet are designed to give us additional capacity. By pulling forward this $1 billion that we otherwise could not have done anything about for fifteen years, it gives us an opportunity to fully transition that away over the next few years. It gives us increased flexibility and opportunity in our balance sheet to do something larger and more substantial on the inorganic side. So, I would say nothing's changed.
If anything, the announcement today underscores our forward focus on making sure we've got the opportunity to be opportunistic.
Yeah. In partnerships, like the one we announced today and we've talked about on previous quarters, we really like and we're really excited about this with MassMutual and Barings and the ability to do alliances and things like this, like we've done in geographic markets around the world, are great opportunities and we're gonna continue to be looking to advance those opportunities.
Okay.
Next question comes from Ken Worthington with JPMorgan. Your line is open.
Hey, hi. Good morning, and thanks for taking the questions. So maybe first, Allison, you mentioned in the prepared remarks the ability to make expenses more variable if needed. Is this largely comp, and how far can you take it?
And given that the market volatility or market levels have been more recent, but deeper correction, have you already started to take the steps to adjust to the more challenging environment?
Yeah. Maybe kind of doubling back on that. So what we noted in the prepared remarks is that the variability in our expense base, if there's no management intervention, is about a 25% variable component. That's without us doing anything.
And that primarily comes out of compensation. There are some other elements of operating expenses that are variable in nature, but it is largely driven by compensation. That's without any management intervention. We start to actually take action.
I think we can drive that to something that's more like 30% to 35% as we noted. And, yes, as I said earlier, we have already started to take action. There are things we can be doing immediately, like slowing down hiring. And slowing down some of our plans there.
Slowing down things like internal travel. We are focused on clients. We're gonna make sure we are putting that first in everything we do right now, but there are a number of other kind of discretionary decisions that get made every day that we can slow down to make sure we try to bend the curve on the expense base as meaningfully as possible and as quickly as possible in light of the volatility in the revenue line that we've seen just over the last few weeks. But in addition to all of that, as I said earlier, we're gonna stay focused on pulling forward some of the transformation opportunities that we have had underway for a number of years now.
You know, you've seen our expense base be very well managed over the last several years as we're constantly looking for opportunities to simplify our organization to create capacity, to reinvest that capacity, or perhaps in this environment, to delay reinvesting some of that capacity. And those are some of the ways in which we'll continue to manage the expense base.
Okay. Thank you. On the wealth management side, with the announcement today, is what you plan to launch different from what you're seeing in the market already either by structure, distribution, or target customer? What we're seeing is maybe more success from the alternative managers sort of launching alternative products into the wealth management channel, than traditional asset managers launching alternative products into the wealth channels.
So if your products or focus is similar to what's already there, how do you frame what drives success for you when maybe some of your direct peers have not been as successful?
Yeah. I mean, look, Invesco Ltd. is a private market player. I mean, we have $130 billion in assets. We've been serving institutions for a long time.
What we've done over the last few years is bring those capabilities into interval type vehicles and leverage our very, very strong US wealth management distribution relationships that we have. And we have been seeing success in particular, with our real estate debt strategy that we mentioned before, Incref, working through those networks and channels. And going forward, we expect to use capabilities like we described today with Invesco Ltd. and Barings to bring similar type capabilities with all those same attributes of our distribution, our product structuring, all the education that we have, and the success that we've started to build.
And so we think, you know, those attributes differentiate managers that are gonna win and those that aren't. Going forward into the marketplace. We think we have all those attributes and we're gonna continue to progress them.
Okay. Great. Thank you.
Thank you. The next question from Michael Cyprys with Morgan Stanley. Excuse me, Morgan Stanley. Your line is open.
Hey. Good morning. Thanks for taking the question. Just wanted to dig in for a moment on the SMA platform.
Sounds like you guys are having some good traction and success there. I think you mentioned $30 billion of assets, 25% organic growth. Maybe just remind us how many strategies you guys offer in SMAs today, how you see that evolving, and just talk about your ambitions as you think about meaningfully scaling these capabilities as you look out on the next couple of years.
Yeah. The growth there has been almost exclusively on fixed income, and it's actually one of the reasons we've been able to grow is that we're pretty differentiated in the fixed income space in particular. There's several dozen strategies. They're placed on all the well-known platforms.
A lot of that growth has been in short and intermediate duration, you know, some taxable, mostly tax-free. But it's right in the sweet spot of growth for SMAs as a vehicle into wealth. As well as fixed income being a little less represented by some of our competitors. So that's where we've been able to pick up a lot of that growth, and we expect to continue.
On the equity side, we have several traditional fundamental equity strategies, but also tax-optimized strategies that we brought to market on some unique indexes. So it's pretty well placed, but I think it's hitting the sweet spot of two big trends, which are more income-oriented strategies and the SMA vehicle. You know, it scales well with deep technology, and we've made those investments in those technology platforms. We already have all the requisite distribution and we'll continue to kind of invest behind the operational elements of it so that we can get, you know, continue to get incremental margin and profit expansion too.
Great. Thank you. And then just a quick follow-up on the alpha implementation. I think you mentioned, Allison, $10 to $15 million range for the next quarter. If you could just remind us how we should think about the cadence of that throughout the remainder of the year and into 2026 and ultimately how do we see the path of that and timing for that falling off?
Yeah. So $10 to $15 million is the implementation cost guidance. And in terms of timing of waves, as I noted, we moved a small wave over at the end of the fourth quarter. We are expecting to move a second wave of assets onto the platform sometime in the second half of the year.
And then timing on the additional waves would progress into late into 2026. It could even drag into that first quarter of 2027. So I think we're really looking at 2027 before we actually start to see kind of the benefit of reducing some of the redundancy of the systems that we currently run today.
So that $10 to $15 million continues till early 2027? Is that right? And then trails off pretty quickly after that?
That $10 to $15 million, we said, was an expectation for this year, for 2025. Back in January, we gave the guidance of expected $15 million a quarter for this year. And reiterating that is a good guide for the second quarter. Beyond 2025, too hard to say. As you start to get waves behind you, the nature of the implementation changes, and so we'll update that guidance as we get later into this year.
Great. Thank you.
Better if we have time for one more question.
Okay. And last question for today comes from Benjamin Budish with Barclays Capital. Your line is open.
Hi. Good morning, and thanks for squeezing me in. Just one final follow-up perhaps on the Barings deal. Could you just maybe talk about the sort of distribution timeline?
You have the relationships already with a lot of the platforms, the wires, the RIAs. Once you sort of are able to file a registration statement, how long does it take to start getting the product available on the platforms? When might we start to see some more meaningful inflows? And could you maybe provide some color on the investment required here in terms of adviser education, placement fees, anything like that?
Thank you.
Yeah. Let me start on the back end. We have everything built out in terms of the distribution, product structuring, distribution specialists, relationships. And so we're gonna leverage off of the complete existing platform that we've developed with private market specialization.
So those investments have already been made. In terms of timelines, it's difficult to speculate. I'll say quarters from now. We're also gonna look at ways to enhance existing strategies that we have.
So some could be sooner than others, but it's gonna be I would think quarters is the best way for you to think about that. And we'll look forward to giving everybody an update on the next quarterly call.
Great. Thanks again for squeezing me in.
No problem. Okay. Well, thanks, everybody. And let me say in closing that we feel very well positioned to help clients navigate the impact of evolving market dynamics and the subsequent changes to their portfolios.
As market sentiment has become more uncertain, it's important that we stay close with our clients. And while we do think that uncertainty creates challenges over the short term, we do believe over the long term, the client convictions will strengthen and should create opportunities in the future for greater scale, performance, and improved profitability for Invesco Ltd. Given all the work we've done to strengthen our ability to anticipate, understand, and meet evolving client needs, we are very excited for the future of Invesco Ltd. I want to thank everybody for joining our call today.
Please reach out to our investor relations team for any additional questions. And we very much appreciate your interest in Invesco Ltd. and look forward to speaking with you all again soon.
Thank you. And that concludes today's conference. You may all disconnect at this time.