Q4 2025 Earnings Call Transcript

Welcome to Invesco Ltd.'s Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode until the question and answer session. This call will last one hour. 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.

All right. Thanks, Shirley, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website, invesco.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 2 as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for the accuracy of our earnings transcripts provided by third parties.

The only authorized webcast are located on our website. Andrew Schlossberg, President and CEO; and Allison Dukes, Chief Financial Officer, will present our results this morning, then we'll open up the call for questions. I'll now turn the call over to Andrew.

Okay. Thanks, Greg, and good morning to everyone. I am pleased to be speaking with you today. 2025 marked a year of significant milestones for Invesco. We focused on our clients, transformed key aspects of our business, unlocked value across the organization and accelerated strategic priorities to position the firm for continued profitable growth in the evolving global asset management market.

Slide 3 of our presentation highlights several of our most impactful initiatives, which are allowing us to streamline our business, drive profitability and margin expansion and strengthen our balance sheet. Significant among these accomplishments is the recapitalization of our balance sheet. We have now pulled forward a total of $1.5 billion in preferred stock that was otherwise noncallable, enabling us to further deleverage, increase our balance sheet flexibility and free up earnings available to common shareholders. Allison is going to provide more details on the progress we have made recently with debt repayments thus accelerating the earnings accretion of these transactions.

We have also made substantial progress in our efforts to narrow our organizational focus. Following our April 2025 announcement that we were moving to a hybrid alpha investment platform, we have onboarded several waves of assets and are now on pace to finish by the end of this year. The hybrid platform will drive simplification, improve investment systems consolidation and future cost avoidance. Also in 2025, we took several strategic actions to focus and realign our resources across the company.

In the fourth quarter, we completed the sale of Intelliflo to Carlyle as well as the sale of a majority interest in our Indian asset management business to the Hinduja Group, establishing a local venture -- joint venture in India. Our ongoing minority ownership structure in this JV will allow us to participate in the growth of the market and utilize the strength of our local partner while refocusing our resources accordingly. Earlier this month, we also announced the decision to transform our Canadian business through a strategic partnership with CI Global Asset Management. Through this transaction, CI GAM will acquire our entire Canadian mutual fund and ETF complex, which is comprised of 100 funds, totaling approximately $19 billion in AUM.

Importantly, we will continue as an investment sub-adviser for 63 of the funds, totaling approximately $10 billion of the AUM. We're excited about the prospects of this ongoing relationship with CI. The Canadian market has become increasingly concentrated and more vertically integrated, and we believe that CI is the right partner to address these market dynamics. As an ongoing investment sub-adviser and strategic partner to CI, we will participate in the success of their growth, larger platform and strong presence in the Canadian market.

Allison is going to detail the financial implications of these transactions later in the call, but I will note that these strategic actions are clear examples of how we are rethinking, refocusing and unlocking value in innovative ways across Invesco. One of the key pillars of our strategy is to accelerate the growth of our $130 billion private markets platform. To that end, in 2025, we announced 2 strategic private markets partnerships targeting both the U.S. wealth and the defined contribution markets. In the second quarter, we announced our partnership with Barings to launch 2 jointly managed credit strategies with $650 million in capital committed by MassMutual.

We're pleased with the progress of this partnership as we recently brought our first co-managed product to the U.S. wealth management market. A second co-managed product is currently in development and expected to be launched later this year. In December, we also announced our second strategic partnership with LGT Capital Partners, who is a leading private market specialist. We're developing co-managed total return growth-oriented multi-asset products that are targeting U.S. wealth and defined contribution investors. LGT Capital is also committing seed capital to support these new launches, which will begin later this year.

These 2 partnerships complement our investment strength and real estate and alternative credit capabilities, and the progress we have made with our existing evergreen funds in the market, such as our rapidly growing real estate debt fund. These partnerships and new product offerings are indicative of our commitment in private markets and our objective to bring more innovative solutions and education to wealth management and retirement investors, both in the United States and globally. Finally, our 2025 transformative growth initiatives were capped off in late December with the modernization of our sizable QQQ ETF.

We received the necessary votes and completed the conversion of the fund on December 20. Fund shareholders are now paying a lower fee, and we are earning revenue on the more than $400 billion of AUM in the fund. I hold deep gratitude for our team. What we collectively accomplished this past year was remarkable in bringing so many of these large-scale initiatives to fruition while also delivering exceptional operating performance. And I feel all of this bodes well for the future of Invesco.

So turning now to Slide 4 for a snapshot of our financial progress in 2025. We performed extraordinarily well against our key performance drivers, leveraging Invesco's unique position to deliver profitable growth in the highest opportunity regions, channels and asset classes. We grew net revenue 6% in 2025 with several encouraging signs for the future trajectory of our top line results. Our ETF and index investment capability produced record revenues and grew the top line by 22% as we continue to scale this business. We also generated considerable revenue growth from our Asian and EMEA regions where combined revenue was up 13% for the year.

Fundamental equity revenue was flat to the prior year, but up 4% from 2023. This is an encouraging data point as we consider the headwinds of client demand for fundamental equities and our work to stabilize this trend and focus on investment performance. On the expense side, we continue to be disciplined, maintaining a relatively flat expense base while continuing to redeploy resources and invest in our business. This revenue growth and well-managed expenses translated into a significant operating leverage and a 230 basis point increase in our operating margin, 14% growth in our operating income and 19% improvement in earnings per share in 2025 as compared with the prior year.

Further, our clients continue to demonstrate that we have the right products in the right markets at the right time. We generated over $80 billion in net long-term inflows in 2025 or 6% organic growth. Importantly, nearly 40 products, each generated at least $1 billion in net inflows, reflecting the diversity and breadth of our client offering. Considering the work we have done on the balance sheet, our leverage ratio over the past year has also significantly improved.

We will continue to see progress here as we actively manage our balance sheet while continuing to return capital to shareholders. Allison is going to outline our expectations in this regard for 2026. Finally, the advancements we have made on our strategic initiatives and our efforts to unlock value across the organization have yielded a significant increase in our total shareholder returns and resulted in Invesco having the highest TSR among our publicly listed peers. We're pleased with the overall strong results in 2025, and we will continue to stay focused on our highly defined growth strategy with an emphasis on relentless execution, client centricity and teamwork across our firm.

So let's now pivot to Slide 5, focusing on fourth quarter flows. We delivered another strong quarter of broad-based net inflows, resulting in an annualized long-term organic growth rate of 5%. Markets had strong momentum coming into the quarter, which continued as U.S. and global capital markets remained resilient. Equities were robust through year-end, fixed income rebounded with clearer rate cut expectations, and we began to see broadening investor demand beyond technology stocks.

Against that backdrop, we reached a record AUM of $2.2 trillion with strong net long-term inflows of $19 billion in the fourth quarter. Even more encouraging was the breadth of this growth, reflecting our diversified scale and global platform. We had solid positive flows across several dimensions including many of our strategically important investment capabilities in both our active and passive strategies in equity and fixed income and across wealth management and institutional channels. Specifically, we were pleased to see continued strong flow growth in EMEA and Asia Pacific regions, which together account for nearly $700 billion of our long-term AUM.

We continue to scale our ETF and index capability, which now stands at a record $630 billion in AUM ex the QQQ. We had nearly $12 billion of net inflows during the quarter or 8% annualized organic growth. Within our ETF range, we garnered net inflows across a diverse set of products in both equity and fixed income despite a nearly $4 billion headwind from the bullish share redemption that happens annually in the fourth quarter. We also continue to build out our active ETF suite.

With our most recent launches, we now have nearly 40 active ETFs across a range of asset classes. Bringing the depth of our active investment capabilities into the ETF wrapper has long been a part of our overall strategy and will continue to be as we innovate to meet evolving client demands. With our QQQ fund conversion on December 20, flows are now included in our long-term view. However, for the fourth quarter, that means we just had a fraction of the $13 billion in total QQQ net flows counted into our overall long-term flow number presented here.

The fund continues to attract strong demand, reaching a record high of $407 billion in AUM at quarter end. Moving on to fundamental fixed income where we garnered $2.2 billion in net long-term inflows. However, this only considers what is included in our fundamental fixed income strategies. If you look more broadly at the asset class across all of our investment capabilities, that net flow number jumps to nearly $12 billion of inflows in the quarter with the inclusion of related ETF and China-based fixed income products.

Fundamental fixed income flows were driven by continued strength in investment grade with institutional interest particularly strong from EMEA and Asia Pacific. We also saw ongoing demand for our leading stable value product in the U.S. defined contribution market. Additionally, our SMA platform in the U.S. continued to help drive flows, particularly in municipal bond strategies. Our entire SMA platform, which also includes a portion of equity assets, now stands at $35 billion in AUM.

We have one of the fastest-growing SMA offerings in the U.S. wealth market, generating an annualized organic growth rate of 7% this quarter. Moving on to our China JV, which now only reflects our domestic Invesco Great Wall business. Here, we produced another exceptionally strong quarter, demonstrating that we are exceedingly well positioned for the shifting dynamics in this market. We reached a record-high AUM of $132 billion, delivering a robust $8.9 billion of net long-term inflows, marking one of our best quarters to date and representing a 36% annualized organic growth rate.

Flows of the China JV were led by fixed income plus demand from both retail and institutional clients. This product line has industry-leading investment performance and is benefiting from increased client risk appetite as these funds provide an effective means of balancing fixed income with enhanced equity exposure. We're also seeing interest in pure equity strategies via passive funds as demand for stand-alone active equity has been slower to regenerate. We continue to innovate in our China JV to meet evolving client demand across active, passive and multi-asset capabilities.

We launched 4 new products in the JV this quarter, but it's important to note that existing products remain the predominant driver of organic growth, an indication of the breadth of our platform. We expect to continue to benefit in the China JV as both the secular and now cyclical tailwinds develop. Shifting to private markets where we posted $300 million of net inflows driven by direct real estate. INCREF, which is our real estate debt strategy targeting the U.S. wealth management channel continues to generate net inflows and be onboarded with new platforms and clients.

INCREF is now on 3 of the 4 major U.S. wealth management platforms. Assets in this fund with leverage now total $4.7 billion after just over 2 years in the market. In private credit, we had good activity during the quarter. We closed another U.S.

CLO, bringing our issuance total to $2.5 billion across the U.S. and Europe in 2025, as these products continue to offer meaningful value versus corporate bonds. In direct lending, we launched our first European long-term investment fund or LTIF. This European upper middle market income fund was launched with the support from several anchor clients. Private Credit remains in a strong position.

Despite a lower M&A environment, fundraising continues to be robust. However, deployment challenges persist due to fewer transactions in the current environment. With rate cuts pending this year, it's anticipated that deal activity will pick up, particularly within direct lending. CLOs are expected to benefit from increased allocation to broader fixed income even as [ carry ] compresses.

Furthermore, our real estate team remains well positioned in the institutional markets with $7 billion of dry powder to capitalize on emerging opportunities. As we look ahead, we are excited for our prospects in private markets driven by our organic growth opportunities and amplified by our partnerships with Barings and LGT Capital to further penetrate the wealth management and defined contribution markets. Finally, in fundamental equities, we continue to see aggregate positive flows from our clients in EMEA and Asia Pacific, specifically for global and regional products. Ongoing momentum in these markets is headlined by our Global Equity Income Fund managed out of the U.K., which remains the top-selling retail active fund in the Japanese market and is gaining increased interest more broadly.

This fund posted net inflows of $3 billion for the quarter, rapidly growing to $23 billion in AUM while generating a very favorable net revenue yield for Invesco. Despite these positive fundamental equity flow highlights, we did record $5.5 billion in net outflows overall in this segment. Our results partially reflect the broader secular outflow trend in actively managed equities, particularly in the United States. This was compounded by the expected net outflows from a developing market funds, which totaled $1.5 billion for the quarter.

This was partially driven by our strategic decision to reposition this fund with a new internal portfolio management team this past summer. The outflow rate in this fund has moderated from the recent high we experienced last quarter. I will also point out that on a gross sales basis, we had our best fundamental equity flow quarter since the beginning of 2022, giving us optimism of future prospects. Moving to Slide 6, which shows our overall investment 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 regardless of overall market demand. As such, achieving first quartile investment performance remains a top priority for Invesco. Overall, 44% of our active funds are performing in the top quartile of peers on a 3-year time horizon with nearly half reaching that bar on a 5-year basis. Further, 70% of our active AUM is beating its respective benchmark also on a 5-year basis.

With that, I'm going to take a pause, and I'm going to turn the call over to Allison to discuss this quarter's financial results and I look forward to your questions.

Thank you, Andrew, and good morning, everyone. I'll start with the fourth quarter financial results on Slide 7. Strong markets and net asset inflows drove assets under management to $2.2 trillion at quarter end. This was $45 billion or 2% higher than at the end of the third quarter, and $324 billion or 18% higher than the end of the fourth quarter of 2024. With the QQQ conversion in late December, long-term AUM now includes the QQQ ETF. Ending long-term AUM increased significantly over prior periods due to the addition of the QQQ.

Average long-term AUM, which includes the 12 days that the Q was classified as long term reached nearly $1.6 trillion, an increase of 8% over last quarter and 21% over the same quarter last year. Growth in total assets under management during the quarter was driven largely by net long-term inflows of $19 billion and market gains of $11 billion. Net revenues, adjusted operating income and adjusted operating margin all significantly improved from last quarter and the fourth quarter of 2024, while adjusted operating expenses continued to be well managed. This drove meaningful positive operating leverage on both a sequential quarter and year-over-year basis.

On a sequential quarter basis, positive operating leverage was 340 basis points, delivering a 220 basis point operating margin improvement in the fourth quarter improving to 36.4%. On a year-over-year basis, positive operating leverage was 440 basis points, delivering a 270 basis point improvement in the operating margin. Adjusted diluted earnings per share was $0.62 for the fourth quarter. Our focus on strengthening the balance sheet continued during the quarter.

We repurchased an additional $500 million of preferred stock in December, bringing the total amount repurchased to $1.5 billion in 2025, and reducing the outstanding preferred stock from $4 billion to $2.5 billion at year-end. We also repaid the remaining $240 million of the 3-year term loan used to finance the preferred stock repurchase in May, meaning $500 million of the term loans used to finance the May repurchase are now repaid. The $1.5 billion of preferred stock repurchased in 2025 is expected to generate a $0.20 EPS benefit once the associated debt to fund the repurchases is repaid. Given that we've repaid $0.5 billion of the $1 billion in term loans earlier than projected, coupled with the benefit of replacing the higher cost preferred stock with lower-cost floating rate debt, we've now captured $0.11 of the EPS run rate benefit on a go-forward basis.

The magnitude of the potential reduction in the remaining $500 million term loan that matures in 2030 will depend on the level of cash flow we generate going forward. Additionally, as our focus on deleveraging continues, we recently redeemed a $500 million senior notes that matured on January 15. Finally, we also continued common share repurchases, buying back $25 million or 1 million shares during the quarter. Moving to Slide 8. The decline in our net revenue yield continued at a slower pace than a year ago. Client demand continues to drive diversification of our portfolio with strong growth in ETF and index and fundamental fixed income capabilities, while demand for fundamental equity, particularly global equity, has been weaker.

While the concentration of higher fee fundamental equity per product has been reduced, our asset mix has shifted towards a higher degree of lower fee products, namely ETFs and index and fundamental fixed income capabilities. The more balanced AUM profile better positions the firm to navigate various market cycles, events and shift in client demand, but this has also resulted in a decline in the net revenue yield over time. To provide context for the net revenue yield trend during the fourth quarter, our overall net revenue yield was 22.5 basis points. This is similar to the sequential quarter decline that we have experienced in the prior 2 quarters and the magnitude of the last 3 quarterly declines is notably lower than prior quarters, a sign we're closer to reaching a degree of stabilization in the yield.

The future direction of asset mix shift will dictate the net revenue yield trajectory. The exit net revenue yield at the end of the fourth quarter was actually higher than the yield for the quarter at 22.7 basis points, partly driven by the QQQ reclassification in late December. Turning to Slide 9. Net revenue of $1.3 billion in the fourth quarter was $102 million higher compared to the same quarter last year. Increase in net revenue was largely from investment management fees, mainly driven by higher average AUM and augmented by the QQQ reclassification in late December.

Operating expenses continue to be well managed with an increase of $34 million versus the same quarter last year, mainly driven by higher employee compensation. The $17 million increase in G&A was largely due to a $13 million insurance reimbursement recognized in the fourth quarter of 2024. On a sequential quarter basis, the increases in net revenues and operating expenses were driven by similar operating dynamics. The net result was a substantial increase of positive operating leverage on both the year-over-year and sequential quarter basis. The hybrid investment platform implementation costs were $13 million in the fourth quarter, in line with our expectation and prior quarters.

The incremental operating expense associated with AUM has been moved on to the hybrid platform was $3 million in the fourth quarter. We continue to implement a hybrid approach with expected completion by the end of 2026. Regarding the hybrid investment platform costs for 2026, we expect onetime implementation quarterly costs to start in the $10 million to $15 million range and trend more towards $15 million per quarter as implementation continues with the push to have implementation completed by year-end. As we transition more AUM onto the platform throughout the year, the incremental expense related to AUM on the platform will build towards $10 million per quarter later this year.

Expenses associated with the platform may fluctuate quarter-to-quarter due to timing. Comparing 2026 to 2025, we expect incrementally higher costs related to the hybrid platform the combined implementation costs and expenses associated with AUM on the system to be $25 million to $30 million higher in 2026 versus 2025. We'll provide further updates as the implementation progresses. Regarding our overall operating expense outlook, level setting to fourth quarter AUM, annualized operating expenses would be $3.2 billion, which is a good base to start with for 2026. We still believe that our operating expense base is approximately 25% variable in relation to changes in net revenue, and this still holds true with the QQQ now earning revenue.

There are other factors that will impact the 2026 operating expenses to consider. While the transactions that were completed in the fourth quarter, namely the creation of the India JV and the sale of Intelliflo have de minimis impact on operating income, there will be an impact from these transactions on net revenues and operating expenses in 2026. On a combined basis, the 2 entities contributed net revenue and operating expenses of approximately $100 million in 2025. Going forward, India's operating results will no longer be reported of Invesco's operating income, including the associated revenues and expenses.

Our 40% share of the JV's net income will be reported in equity and earnings of unconsolidated affiliates. As for Intelliflo, the results from operations no longer impact Invesco's operating results. Andrew noted the benefits of transforming our Canadian business through a strategic partnership with CI Investments. This will have a nominal impact on our operating results after the expected closing towards the end of the second quarter.

Beginning in the third quarter, operating income will be negatively impacted by $5 million to $10 million per quarter initially, comprised of a $15 million to $20 million -- excuse me, comprised of a $15 million to $20 million reduction in net revenue per quarter and an operating expense reduction of $5 million to $10 million per quarter. We expect this will improve as the long-term growth benefits of the strategic partnership are realized with net revenues growing while the operating expense benefit moves closer to $10 million per quarter in the future. As we've outlined, marketing associated with the QQQ will now be recognized in marketing operating expenses starting in 2026, and we expect marketing expenses related to the QQQ will be near the midpoint of the $60 million to $100 million range we have previously disclosed.

We're also making incremental changes to our retirement eligibility criteria for our long-term awards in 2026 that will result in a timing change on how we recognize retirement-related expenses. We expect the net impact of these changes will be an increase of approximately $10 million in compensation expense for the full year 2026, with compensation expense being approximately $30 million in the first quarter -- excuse me, with the compensation expense being approximately $30 million higher in the first quarter than fourth quarter of 2025 and then offset by lower compensation expense for the remainder of the year, netting to the total $10 million impact for the year.

As a reminder, we typically see seasonally higher compensation expense in the first quarter due to payroll tax and other compensation-related expense, with other compensation-related expense resets that total approximately $20 million. And as I noted earlier, hybrid platform expenses are expected to be $25 million to $30 million higher in 2026. Effective tax rate for the quarter was 21%, below our expectation due to the gain on sale of India being tax-free and other discrete items. For the first quarter, we estimate our non-GAAP effective tax rate will move back to the 25% to 26% range, excluding any discrete items.

The actual effective rate can vary due to the impact of nonrecurring items on pretax income and discrete tax items. Now I'll wrap up on Slide 10. As I noted earlier, we continue to make considerable progress on building balance sheet strength and improving our leverage profile. In December, we repurchased an additional $500 million of preferred stock held by MassMutual, bringing the total preferred stock repurchased in 2025 to $1.5 billion, which will ultimately create a $0.20 run rate EPS benefit. And as I noted, we also repaid the remaining $240 million of the $500 million 3-year term loan used to fund the first repurchase of preferred stock last year, leaving only $500 million in the 5-year maturity term loan.

By repurchasing $1.5 billion of preferred stock, we have reduced the preferred dividend by $88.5 million annually, and this will now become earnings available to common shareholders in the future. We also continued common share repurchases in the fourth quarter, buying back $25 million or 1 million shares during the quarter. We anticipate to continue a regular common share repurchase program going forward and expect common share repurchases to increase to $40 million in the first quarter. We will continually evaluate our capital return levels as we target a total payout ratio, including common dividends and share buybacks to be near 60% for 2026. The repurchase of the preferred stock and repayment of the 3-year term loan improved our leverage ratio from 2.8x a year ago to 2.2x for the fourth quarter.

The leverage ratio, excluding the preferred stock remained well below 1 at 0.73x. We also redeemed the $500 million senior notes that matured on January 15. Going forward, we expect further progress in our leverage profile as we repay revolving credit and term loan debt through operating cash flow. To conclude the strength of our net flows performance and diversity of our business is evident once again this quarter, and we delivered strong revenue growth. This, combined with well-managed expenses resulted in significant operating leverage and a sizable improvement in our operating margin.

We also continued to make progress on building a stronger balance sheet. We're committed to driving profitable growth, a high level of financial performance and enhancing the return of capital to our shareholders. And with that, Shirley will open up the operator -- sorry, will open up the line for Q&A.

[Operator Instructions] Our first question comes from Bill Katz with TD Cowen.

Just maybe picking up where you left off, Allison, on the capital return. Clearly, the extra $500 million of pay down with the MassMutual was a bit earlier than most people expected. As you look ahead, can you talk a little bit about the priorities to bring down the remaining preferred and how you're sort of thinking about capital deployment more broadly? And now that your balance sheet is in a better spot, would you start to think about M&A as a potential use of capital rather than continue to repair the balance sheet?

Sure, Bill. So yes, as we think about our capital priorities from here and the [ prep, ] I mean, look, we have $1.5 billion repurchased in 2025. We were very pleased with that progress, $2.5 billion remaining. We did end the year with some balance on the revolver and of course, then redeemed another $500 million note in January. So as we think about the balance sheet from here, we've definitely got continued opportunity to, as I noted, using operating cash flows to work that revolver down and then we've got the 5-year term loan that matures in 2030. I think with that, we're going to continue to make really good progress, and we're getting the balance sheet into a place where we're quite pleased.

We do have the opportunity to continue discussions with MassMutual on repurchasing more of the preferred at some point. But we've got these near-term maturities that we want to focus on as we continue to make good progress. And I think freeing up nearly $90 million in capital that's now available to the common shareholder we're very pleased with. So with that in mind, and as we think about our capital priorities from here, and I'd start with, one, the increase in our share buybacks on the common side to $40 million this quarter as we seek to get our payout ratio up closer to 60% this year.

We want to make sure we are balancing our capital priorities with returning capital to our common shareholders. And then as we think about M&A, I mean, look, we've always said that we -- our best opportunity is to continue to invest in ourselves and grow our own business. And I think you see the results of that over the last year. With the organic flows that we had and the base fee growth that we demonstrated in 2025, we've got tremendous opportunity within our own business profile to grow organically and to do so in a really shareholder-friendly manner.

And we still see a lot of momentum behind that, and we're going to continue to invest behind our own capabilities. And then we're leveraging that with the partnerships that we discussed today as well, and it gives us, again, a very capital-efficient and shareholder-friendly way to continue to grow our capabilities. So as we've always said, we'll never say never to M&A. It's just got to be the right fit, and we have a very well diversified and broad set of capabilities.

And so where there might be opportunities to tuck other capabilities in, we're always opportunistic there. But we're very pleased with the opportunities that we've had to invest in ourselves and just balance our capital priorities.

Yes. The only -- Bill, the only thing I'd add, picking up where Allison left off, not just the private market partnerships that we structured last year, but also the Canadian and Indian partnerships or JVs in the case of India that we set up. We feel really good about those as additional growth levers for the company.

Great. And just one follow-up. Thanks for the extra detail on the expense outlook. And I appreciate, we're sitting here in January of 2026. As you look into next year, can you talk a little bit about just the off-ramp on the implementation costs?

I presume that should trend towards 0. And then how do we think about maybe the incremental spend on the platform cost? And I would presume that will be more related to the equity book. Any color there as we think about '27 would be helpful.

Sure. So yes, you're correct that you should expect the implementation cost to trail off and then go away over the course of 2027, unless we get deeper into 2026, we'll give you further guidance on that. But it is reasonable to assume that those implementation costs do appear over time. And there will be additional savings as we decommission existing systems and continue to streamline processes.

That is, you are correct, somewhat offset by the quantum of AUM as we continue to progress with moving AUM onto the hybrid platforms. We will be giving additional guidance to that as we get deeper into '26 and move into '27.

And next question comes from Brennan Hawken with BMO Capital Markets.

Would love to start out with the net revenue yield. Allison, you spoke to the exit rate at 22.7. There were some moving pieces in the quarter for sure, not the least of which was the Qs that came in late. So what's the right way to think about all those moving pieces and the impact to net revenue yield on a go-forward basis? I know it's a hard one to try to predict, but maybe based upon what you know today, what would you say would be the further impact as we average in some of these factors that happened in the quarter?

Sure. You're absolutely correct. With the addition of the Qs of revenue, it does create some different dynamics. I think, namely, it does create some level of stabilization in the net revenue yield.

So as you start to see just given the size of the QQQ, and that converts into 6 basis points of net revenue yield, you will start to see that stabilize. I think the overall average and the mix there a bit more. It's very difficult to forecast that revenue yield, as you know, and it certainly has lots of quarterly dynamics, including things like day count and the market impact. All things being equal though, we do think we're starting to see more and more stabilization and the Qs will offer even a further level of stabilization.

I think as you're thinking about just how you model revenue overall and how you think about some of our revenue dynamics, I do think it's important to look at third-party plus distribution fees as a percentage of management fees, which we've talked about a lot in the past, and that relationship is certainly changing with the addition of the Qs. You've got 18 basis points of Qs revenue that will run through management fees, the licensing and custodial fees of 12 basis points run through third-party contra revenues. And so that relationship is really moving higher, probably closer to the 22% to 23% range per quarter in 2026, which is quite a bit higher than where it previously been around 13% or 14%.

So I think those are all important factors as you think about some of the dynamics that could change now.

Brennan, it's Andrew. The one thing I'd add is that beyond the revenue yield, if you look at things like ETFs, fixed income, our cash business, these are all very at scale. And so thinking about the drive-through to profitability is also pretty critical.

Got it. Okay. And then sort of related, I know there's a lot of moving pieces with the expenses. A little tricky to follow all those parts.

But just focusing in maybe on one part to start out here. You've historically talked about a 38% to 42% comp ratio, and it looked like you were starting to get back into that. But how should we think about the impact of the Qs and all the other moving pieces potentially impacting the comp ratio outlook? I would think moving to the lower end or maybe even adjusting the historical frame of reference of the 38% to 42% might make sense, but I would love to hear your thoughts on that and how we should think about the comp ratio going forward.

Sure. Good question. And there are a lot of moving pieces to the expense guidance. We recognized that and tried to be as clear as we could.

But there are a lot of ins and outs as we continue to transform the business. As it relates to the comp ratio, the comp ratio that we point to is always a full year comp ratio. We really don't manage it quarter-to-quarter. We're always managing on a full year basis.

And in 2025, the comp ratio ended at 42.7%. So again, above our historical guide of 38% to 42%. As I think about 2026, I think we will come back within that range. I think we'll be at the high end of that range.

But with the addition of the Qs, it does help and it does start to stabilize the revenue base. The reason we got out of line with that guide in some recent years is really as we saw a real pullback in revenue. So that stabilization and growing revenue back to where we needed to be, I think gives us the opportunity to pull the comp ratio back down, but it will be on the high end of that range. As we think about long term, look, we want to continue to invest in our business.

We are continuing to remix our expense base. We are hiring in areas of growth and not really -- I think the addition of the Qs revenue gives us the opportunity to continue to make selective and strong investments in our hiring.

Next question comes from Glenn Schorr with Evercore ISI.

I guess a big picture question on your private market strategy thought process going forward. You did a couple of interesting, what I call, capital-light partnerships, get you into other geographies, other asset classes. So is the big picture game plan to piece together a full across asset classes offering and maybe through capitalized JVs for now? And then if that's the case, I'm very curious on how branding is going to work in the wealth channel as you piece that together.

Yes, let me start. Thanks for the question. Yes, the partnerships are meant to complete and build out the product capability set. The ones with Barings, we're focused on income and the partnership with LGT, a little more towards total return and growth.

That leaves us with other opportunities that we could look at with other partnerships to fill that out. But we're starting to get a pretty complete product lineup in particular trying to reach the wealth management markets in the U.S. and around the world in the defined contribution market, in particular, here in the U.S. Those partnerships did come, as you said, with capital committed by our respective partners. And that's a really great way to get these strategies launched into those markets.

So I think the combination of them plus our real estate offerings, our existing real estate offerings and our existing alternative credit offerings do give us a pretty complete picture. We don't want to oversaturate our product line either. We want to stay focused. But you -- we really like this partnership model and structure.

They're going to be co-managed both by us and our partners, which is really critical, and they're going to be singularly distributed by us in those markets in the U.S. as we announced. The branding will be pretty straightforward. It will be our brand, coupled with theirs where it makes sense. But given that we're the exclusive distributor, we're really trying to avoid and will avoid any kind of channel conflict whatsoever, that's critical to us, too.

Our next question comes from Alex Blostein with Goldman Sachs.

Just maybe another cleanup on expenses before I have my follow-up more on the strategic side. But Allison, I appreciate lots of moving pieces here. Maybe it would be helpful just to kind of level set where you guys expect the total dollar amount of expenses to be for 2026, assuming sort of flat markets. I heard you on the $3.2 billion jumping off point, but that's really just kind of annualizing Q4. There's a bunch of things that's going to come out.

There's a bunch of things that's going to go in. So just to kind of level set, it might be helpful to get your sense of where '26 expenses could shake out again ex beta.

I think given all these moving parts and trying to land, that would be probably not wise at this stage. I do think it's best to look at some of the moving parts, given there's so much quarter-to-quarter fluctuation. I recognize it's rather frustrating. I find it rather challenging myself.

But I'll say a couple of things. One, it's the right jumping off point, I do think it's important to remove the right revenues and the right expenses as we guided to as it relates to the sale of India and the sale of Intelliflo. Of course, we add back in 40% of India, but that's below the line. Important to look at some of what we were guiding to beginning in the second half of the year, beginning in the third quarter as it relates to Canada and the repositioning of that market, there will be impacts to both revenue and expenses.

And then, of course, there are some, all the alpha and the hybrid platform expense guide, those will fluctuate quarter-to-quarter. I do think the 25% sort of variable expense assumption is the right one on the comp to rev again, kind of in that 38% to 42% range. But probably closer to 40%, 41% is where I would be thinking about that. I think it will get you pretty close to where we need to be, and we'll continue to give you guidance throughout the year.

The one thing I want to point to is everything we're doing is with a focus towards operating margin expansion. And we have every expectation we will continue to grow operating margin this year. Everything we are doing is with an eye towards creating that positive operating leverage and expanding operating margin. And I feel very confident we are on a good, strong trajectory to continue to expand operating margin this year.

On a full year basis, there will be some quarter-to-quarter fluctuations. We said all along, our objective is to get our operating margin into the mid-30s on a path back to the high 30s. And I think we will continue to make really good progress this year in our operating margin expansion objectives.

Great. No, that's super helpful. And I appreciate all the moving pieces as well. Strategically, just one for you guys as well.

So incredible year really over the last 12 months, a number of big steps you guys made. As you look forward, do you still see parts of the business that are sort of subscale where you could do something similar where you exit them or JV them or kind of try to maneuver them to where sort of it makes sense? Or the sort of future strategic moves are likely to be more of kind of growth-related partnerships like we've seen you guys do with Barings and perhaps some of the others.

Yes, let me start and Allison should chip in as well. Look, we made a lot -- thank you for your comments. We made a lot of moves this year. I think it also presents or describes a lot of the creativity that I think is in the company to look for alternative ways to grow, all different ways to grow.

And I think we exhibited that. I would say from here, a lot of that foundation work has been done, and the execution now is, I think, more clear. And the resource alignment that we have towards these growth initiatives organically, I think, is more set. Things like expanding out our ETF business and our SMA business and our models business as personalization takes hold.

We're taking these private market partnerships and really starting to generate the organic growth in the retail markets in D.C. that we expect or the shift to fixed income as cash comes off the sidelines, the real growth that we've established in Asia and EMEA now that those are 40% of the long-term AUM base. So just a few examples of we have a lot to build off of the foundational work that we did. If we see opportunities to align with others and partnerships or other JVs, we will. But we've really laid a lot of that foundation, I think, thus far.

I think that's right. I mean there's not a lot that's obviously subscale, but there's still a lot of opportunity, I think, for improvement in our performance overall. And that's really our focus in 2026, around execution and continuing to drive a lot of these strategic initiatives all the way through. Some of these things are kind of announced, but not yet executed, and we've got a lot of work to do to bring these partnerships to life and to close the partnership with CI in the second quarter of this year and to really then drill even deeper into the opportunity we have to improve execution overall.

Andrew noted some of the strategic highlights that we see in our platform, but I don't want to leave anybody with the impression we kind of got all the fun things behind us. We now -- we got a lot of big rocks done, and we cleared a lot of ground for us to now focus I think even deeper into the firm this year and really refine our execution from here.

And our next question comes from Dan Fannon with Jefferies.

So really strong flows from the China JV in the quarter. I was hoping you could discuss the outlook as we think about 2026, and maybe the diversity of some of the products that are driving that growth.

Yes. Dan, the growth in the China JV really persisted throughout the entire year. I think we did north of $20 billion in flows. And it was each quarter got successively better.

A lot of that growth this year came in the balance strategies. They call it fixed income plus. Those strategies, I think, really demonstrated people starting in China to get a little more confident in both the fixed income markets, but in this case, getting into the equity markets through these balanced funds. The stimulus and reforms that have happened in China continue to, I think, stimulate investors' interest in the markets.

They're pushing up consumption. There's less emphasis on the property sector. There's continued to be programs, emphasizing market participation, long-term retirement growth. And then the easing trade tensions with the U.S., I think, has helped interest grow domestically, but also by foreign investors, in particular in Europe and Asia into those markets.

So the growth has been good. It's been pretty focused in those areas I mentioned. And we're seeing our passive ETF business also pick up, which is good to see.

Great. And then just as a follow-up, Allison. One more just on expenses and the hybrid investment platform. Obviously, those costs you said will roll off as we get into next year. But could you remind us, is this more about cost avoidance or we should actually see savings as we get into 2027?

That will be -- relative to 2026, yes, we will see savings in 2027. Cost avoidance, if we take it all the way back to the beginning of this over multiple years, I mean, look, Invesco is an entirely different Invesco than we were 5 years ago when we started this. And the opportunity was always about simplifying the overall operating system and really try to create future cost avoidance. So it's hard to point to year-over-year savings going back to the beginning because our AUM is going to be almost double when we finish this from where we started. But the cost avoidance in the future as we think about the opportunities to garner the benefits of scale and the size of our AUM, I think we will be pleased in the long run.

But '27 relative to '26, yes, there will absolutely be savings, namely the implementation expenses that have been running in that $10 million to $15 million range per quarter. Those will taper off as effectively construction costs go away. And then as we move AUM fully onto the hybrid platform and have the opportunity to decommission systems on the other side, I think some of the operating expenses will improve in '27 relative to '26 as well. We're focused entirely right now on completing implementation in '26. As we get closer to that, we will also begin getting more and more focused on how do we make sure we start to really drive the cost curve down in '27 and beyond.

Our next question comes from Brian Bedell with Deutsche Bank.

Great. Maybe just one more on expenses, just to clarify. So Allison, I think if I could tally the things that you mentioned that have discrete impacts to that $3.2 billion expense base in '26, I think of kind of 5 different things. But they look like they mostly offset from things that you know.

I know the timing is going to evolve throughout the year. So you did start that part in your commentary about $3.2 billion being a good starting point. It sounds like with those specific impacts, $3.2 billion is also a good starting point for 2026. Obviously, we're going to be layering in variable expenses and investment in the business on top of that. But I just wanted to make -- I just wanted to clarify if that $3.2 billion is the right number to start with, given the isolated impacts that you mentioned for the different businesses, including the QQQ marketing budget?

It's the right number to start with. But you just highlighted a great one, yes, with the QQQ marketing budget getting fully layered in, in 2026, which was not present in 2025 or in the fourth quarter of that run rate that we start with. So it is absolutely the right number to start with. And then as you think about the puts and takes, I think it will get you to something a bit higher than $3.2 billion, but also with revenue that's quite a bit higher than 2025 as well.

Yes. Okay. Great. And then more strategically, can you talk about traction?

Maybe Andrew, talk about traction in the defined contribution channel, what are you hearing from different potential plan sponsors in terms of their warming up to adding private markets to 401(k) and how do you view that positioning? And I know it's a great long-term opportunity, but are you seeing actual traction building here this coming year?

Yes. I mean we've seen a lot of discussions, a little bit of traction in the United States, but where we're actually seeing more traction is in the United Kingdom and in places across Europe where there's also retirement reform going on and more private market participation and things like defined contribution plans. So we do think this is a long-term trend private markets into DC. We also would point out it's not just a U.S. trend.

And I think owing to the fact how diverse our portfolio is and how strong we are outside of the U.S., too, that we view this as kind of a multilayer proposition. We certainly have the product offering to start to fill that out for institutions and plan sponsors. But we're also going to be, with the addition of the LGT partnership, focusing on that with them as well. And they have a very strong reputation in the institutional markets.

Operator, we have time for one more question.

Our next question comes from Ben Budish with Barclays.

Maybe just a couple more housekeeping questions on Canada and some of the moving parts from this quarter. So Allison, you mentioned that we should see an operating income drag starting in the third quarter, but you expect it to ease over time. Any more color in terms of what assets we -- what sort of asset groups we should see that come out of? Any other sort of geography impacts we should be aware of?

And then just what's your thoughts on the time line for when you expect that to start to grind more closer to breakeven or positive?

So again, we don't expect to close that transaction until late in the second quarter. So we believe this will start to impact results in the third quarter. From a revenue perspective, you would see revenue on a quarterly basis declined by $15 million to $20 million net on a net basis for the sale of those mutual funds, net of the sub-advisory revenue that we expect to garner there. On an expense basis, we expect expenses to kind of start in the kind of $5 million to $10 million range in terms of $5 million to $10 million lower beginning in the third quarter, but trending higher towards that $10 million range over, call it, 2 to kind of 4 quarters as we get into 2027. So that net operating income impact of $5 million to $10 million starting on the high side of $10 million lower quarter, kind of trending lower as we get into 2027. When you think about those expenses and the $5 million to $10 million of expenses, a majority -- half to more of that is going to be on the compensation side.

So that will actually take a little bit of time to work down as we continue to really reposition our overall workforce in Canada related to this transaction. But there's also some impact to property and office as we will have some reduction in locations in Canada and some impact to G&A as well. So it's split between those 3 categories with the majority in compensation.

Yes. I mean when you look at the strategy behind what we did in Canada and partnering with CI, we'll be managing, as I mentioned, the sub-advised portion of the assets for all the global strategies, all the non-Canadian strategies with all of our existing teams. And as those -- as demand and flows grow through CI, that will give us a good opportunity to continue to grow revenue through our existing investment teams. We'll no longer manage the Canadian portion of those funds.

That will stay with CI.

So while there is some short-term operating income impact, we absolutely believe this is the long-term right strategic move for Canada, and that as we get into the latter half of '27 and beyond, that this will absolutely have been the right move. We really do feel strongly that this partnership positions this business for better growth than we were going to be able to deliver on our own. And in doing so, we're going to take the opportunity to really look at our expense base and see where we can go even further as we get into 2027 related to all of our operations in Canada that gives us that opportunity to turn this into, I think, a long-term really positive move for the firm.

Understood. If I could just double check. Are there any cash flow implications and any proceeds from the sale? Or has that not been disclosed?

It's pretty negligible relative to the cost that we will incur with some of the repositioning that we're referring to. So it will be immaterial.

Okay. So just in closing here, we really want to stress that we're unlocking value across the organization for the benefit of our clients and for our shareholders. And as you can see, we made significant progress in 2025. This includes looking at how we fundamentally operate and evaluating every opportunity as we strive to improve client outcomes, generate operating leverage and profitability, continue to build a strong balance sheet, enhance our ability to return capital to shareholders. We have resilient operating performance across many key value drivers and our global platform has a significant and unique Asia Pacific presence and a strong performing EMEA business, coupled with our scale and breadth of products positions us really well to perform through shifting market dynamics.

We continue to demonstrate that we have durable performance and reason to be optimistic about the future. I want to thank everybody for joining the call today, and please do reach out to our Investor Relations team for any additional questions. And we really appreciate your interest in Invesco, and we look forward to speaking with all of you again soon.

And this concludes today's conference. We thank you for your participation. At this time, you may disconnect your lines.