景順投信 (IVZ) 2015 Q1 法說會逐字稿

This presentation and comments made in the associated conference call today may include forward-looking statements. Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures. Industry or market conditions, AUM, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products, and other aspects of our business or general economic conditions.

In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as will, may, could, should and would. As well as any other statements that necessarily depend on future events, are intended to identify forward-looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions.

There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements, and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q filed with the SEC. You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

Welcome to Invesco's first-quarter results conference call.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'd like to turn the call over to the speaker for today, Mr. Martin L. Flanagan, President and CEO of Invesco; and Mr. Loren Starr, Chief Financial Officer. Mr. Flanagan, you may begin.

Thank you very much, and thank you, everybody, for joining us. I'm joined with Loren Starr, and we'll be speaking to the presentation that's available on the website, if you wish to follow that way. As has been our practice, we'll review the business results for the first quarter, Loren will go into greater detail on the financial results, and then both of us will answer any questions that people might have.

So let me start by highlighting the operating results for the first quarter, and you'll find those on slide 3. Long-term investment performance remained strong during the quarter. 81% and 80% of actively managed assets were ahead of peers over three and five years, respectively. Strong investment performance, combined with the comprehensive range of strategies and solutions we offer to help clients achieve their desired investment outcomes, contributed to long-term net inflows of $10.3 billion during the quarter.

Adjusted operating income was up 3.1% compared to the first quarter of the prior year. Reflecting continued confidence in the fundamentals of our business, we're raising the quarterly dividend to $0.27 per share, up 8% over the prior period. And also returning $185 million to shareholders during the quarter through dividends and buybacks.

Assets under management were $798 billion during the first quarter, up from $792 billion in the prior quarter. Operating income was $374 million in the quarter versus $373 million in the prior quarter. Earnings per share were $0.63, the same as we saw in the prior quarter.

Before Loren goes into the Company's detailed financials, let me take a minute and review investment performance. I'm now on slide 6. Our commitment to investment excellence and our work to build and maintain a strong investment culture helped us maintain solid long-term investment performance across the enterprise during the quarter. Looking at the Firm as a whole, 81% of assets were in the top-half on a three-year basis, and 80% were in the top-half on a five-year basis.

There's been a tremendous amount of debate in the marketplace recently about active versus passive investing. Here at Invesco, we take a more balanced view on this topic. Clients seek better returns with less volatility at reasonable fees. Our focus, as always, is on helping clients achieve their investment objects with a broad range of capabilities and vehicles. We take a high-conviction approach to both active strategies -- high active share -- and our passive strategies through strategic data. Separately and combined, they are better tools to build portfolios in a more precise way that helps clients achieve their investment objectives.

With our hard-conviction approach to investing, our broad range of capabilities in vehicles, Invesco is well-positioned to help advisors and clients build better portfolios. We're developing a series of white papers to provide further clarity on both active strategies and passive strategies, to help investors and clients build portfolios that better meet clients' investment objectives.

Our focus on meeting client needs with a broad range of active and passive capabilities drove solid flows into the business during the first quarter. On page 8, you'll see that active and passive flows were quite strong during the quarter, reflecting continued effort to deliver strong investment performance and provide excellent outcomes for clients. I'd also like to note that these are the highest active flows we have achieved in two years.

We also saw strong flows across our institutional and retail channels during the quarter. Inflows were positive across all three regions during the quarter as well. These figures on slide 9 reflect the broad diversity of flows we saw across our global business during the quarter, which included strength in GTR, fixed income, quantitative equities, real estate, international growth, amongst others. The institutional pipeline of won-but-not-funded mandates remains at an all-time high, including a broad range of investment capabilities.

Drawing on discussions with clients and others, we've identified several key themes that will drive growth in shareholder value within our industry over the long-term. Invesco is well-positioned to deliver for clients, which is a core element of these major themes. We have a strong long-term investment performance. In fact, Invesco was recently cited by Barron's Magazine as one of the top three fund families for 2014 in their annual fund ranking. Invesco was the only fund family to place in the top five over 1, 5 and 10 years.

We have a comprehensive range of distinctive investment capabilities, delivered through a set of investment vehicles that are fully aligned with client needs. We have deep and stable teams in local markets across the globe, with the street investment perspective, and experience across diverse market cycles. This puts us in a very strong competitive position and will help us continue to deliver value to our clients and shareholders.

We feel good about the results for the quarter. The strong flows we saw in the first quarter are continuing into second quarter across our global business, both in retail and institutional channels, and also within the region, continued strength in EMEA and Asia-Pacific, and across a broad range of asset classes.

April month to date, we have generated nearly $3 billion of net long-term inflows. These flows are a result of the progress we continue to make to deliver strong investment performance in meeting client needs, with a range of strategies and solutions which positions us well for long-term success. I'll now turn it over and to Loren for more details on the financials.

Thank you very much, Marty. Quarter over quarter, total AUM increased to $5.9 billion or 0.7%. This was driven by market gains of $14.4 billion and long-term net inflows of $10.3 billion, which translates to an annualized organic growth rate of more than 6% on long-term assets. These gains were partially offset by negative foreign exchange of $9.5 billion and outflows from money market and the QQQs of $6 billion and $2.6 billion, respectively. Assets also fell by $0.7 billion due to the ETNs that did not come over as part of the transaction with Deutsche Bank that closed this quarter.

Average AUM for the quarter was $795.4 billion, and that was up 0.7% versus the fourth quarter. Our net revenue yield came in at 46.1 basis points, an increase of 0.2 basis points versus Q4. This was driven by higher performance fees in the quarter, which added 1.6 basis points. The increase was partially offset by a few items -- two fewer days during the quarter, the negative impact from FX on product mix, and lower other revenues, which collectively reduced our net revenue yield by 1.4 basis points.

Next I'm going to turn to the operating results. Our net revenues increased $11.7 million or 1.3% quarter over quarter, to $917.5 million, which included a negative FX impact of $20.9 million. Within the net revenue number, you'll see that investment management fees declined by $9.3 million or 0.9%, to $1.02 billion. This was a result of two fewer days during the quarter, and the impact of the strengthening dollar on our product mix. The decrease was partially offset by higher-average AUM. And FX decreased investment management fees by $26.7 million.

Service and distribution revenues declined by $4.3 million or 2%, also in line with day count. FX decreased service and distribution revenues by $0.7 million. Performance fees came in at $51.7 million, an increase of $32.7 million relative to Q4. Real estate accounted for roughly $35 million of the increase, the UK accounted for $10 million, and the remainder came equally from Asia and bank loan capabilities. Foreign exchange decreased performance fees by $0.6 million. Although very difficult to predict, as we discussed, for the remainder of the year, we'd expect performance fees to be approximately $5 million per quarter.

Other revenues in the first quarter were $31.2 million, a decrease of $2.9 million. The decline was largely due to a lower level of real estate transaction fees versus the prior quarter. Foreign exchange decreased other revenues by $0.2 million. Looking forward, we'd expect other revenues to be roughly $35 million per quarter. Third-party distribution service and advisory expense, which we net against gross revenues, increased by $4.5 million or 1.1%. This increase was in line with higher average AUM. FX decreased these expenses by $7.3 million.

Moving further on down the slide, you'll see that our adjusted operating expenses, at $543.1 million, grew by $10.4 million or 2% relative to the fourth quarter. Foreign exchange decreased operating expenses by $11.2 million during the quarter.

Employee compensation came in at $362.7 million, an increase of $15.7 million or 4.5%. This step-up was a result of seasonal payroll taxes, variable compensation linked to performance fees earned in the quarter, and one-month impact of higher base salaries that became effective March 1. Foreign exchange decreased compensation by $7.3 million in the quarter.

Given the anticipated drop in performance fees for the remaining quarters in 2015, we'd expect compensation to decline by approximately $10 million to $15 million in Q2, and then remain roughly flat during the remainder of the year. Note, importantly, that this guidance assumes flat markets and consistent FX to current levels.

Market expense decreased by $5.6 million or 17%, to $27.4 million. This decline was driven by a lower level of advertising in the quarter, due to delays in the timing of certain campaigns. Foreign exchange decreased these expenses by $0.7 million. Consistent with our prior guidance, we'd expect marketing to run at about $30 million per quarter.

Property, office and technology expense was $77.8 million in the first quarter, which was up $2.2 million. FX decreased these expenses by $1.3 million. Property, office and technology costs should run at approximately $80 million per quarter -- again, in line with our prior guidance.

G&A expense at $75 million was down $1.9 million or 2.5%. FX decreased G&A by $1.3 million. Again, this is in line with our prior guidance. And we believe G&A costs will average around this level through the remainder of the year.

Continuing on down the page, you'll see that our non-operating income increased $4.8 million compared to the fourth quarter. The increase was driven by higher equity in earnings by unconsolidated affiliates, which benefited from favorable marks in certain of our Invesco private capital and real estate portfolios.

The Firm's effective tax rate on pretax-adjusted net income in Q1 was 26.3%. With respect to our future tax rate, I need to point out that in Q2, we'd expect a one-time tax increase, due to New York City tax legislation enacted in April, resulting in a 2 percentage point increase in that quarter. The rate will then return to the 25.5% to 26.5% level through the last half of the year and going forward. Which then brings us to our adjusted EPS of $0.63 and adjusted net operating margin of 40.8%.

Given the continued momentum behind our business, we believe we're on track to produce good margin expansion relative to last year. Given where we sit today, year-over-year incremental margin is at the high end of our 50% to 65% target. And with that, I will turn things back over to Marty.

Thank you. We'll open up to questions, please.

(Operator Instructions)

Brennan Hawken, UBS.

Good morning.

Good morning

If we normalize for day count and FX, what was the delta in the revenue yield ex performance fees sequentially?

Does normalize mean eliminating it or taking out the -- because what we saw was, FX obviously had a negative impact in the quarter. The impact was probably somewhere in the line of 0.3 basis points due to FX. That was offset by some benefit in terms of the mix, which was good in terms of flows. But overall, the overall impact on the amount of non-US higher-fee product was reduced, due to FX. So on not sure if I fully explained what you were looking for, but hopefully I got some part of it.

Yes, basically, it sounds like what you are saying is, if we exclude out FX and day count, we're probably looking at a flat to moderately improving revenue yield, ex performance fees? Am I paraphrasing that right?

Yes, the day count impact was about 0.8 basis points. We talked about the FX mix being about 0.3. And the other revenues was about the remainder. So that's the normalizing [amounts].

Okay, great, thanks. And then on the performance numbers, the three- and five-year performance numbers have been really steady. But the last two quarters, the one-year performance numbers have deteriorated a bit. Can you help us understand what's driving that, and whether or not this is a concern to you guys at this point?

For us and probably everybody, the one-year numbers tend to be the most volatile. Largely, the movement in energy had some impacts on the number of the larger portfolios. That said, when we look at dispersion, the dispersion section is very tight, on that shorter-term number. So it's nothing that we're worried about at the moment.

Okay. Thanks for the color.

Michael Kim, Sandler O'Neill.

Hi, guys, good morning. First, just at a high level, obviously you guys are one of the biggest and most diversified franchises out there. But are there any manufacturing or distribution pockets that you think might make sense to fill? And then how do you think about the build-versus-buy decision, particularly in light of what seems to be the rising importance of scale across the industry?

When we look at the organization today, it's just like -- investment capabilities pretty-well covered, as far as we're concerned. When we look in it, what are the qualities of the team, and what are the results that they're generating, and they're all very strong. The probably largest organic, if you want to call, build that we've undertaken in the last three years has been in fixed income.

And the talent that's here right now, the numbers are very strong. We mentioned that three years ago, when we started to go down that path, my personal opinion ahead of where you would imagine they would be when you do something organically like that. And again, I think we're in a very strong position there. So we don't really feel like we have gaps right now. We'll just continue to get better with what we have.

Okay, great. And then separately, just given the pending money market fund regulatory changes, maybe an update on your plans on how you might potentially transition that business? And then stepping back, any shift in how you might be thinking about the money market fund business, just from a strategic standpoint?

Again, really talented group that we've had, been in the business a very long time. I think you probably have seen with some of the new regulation and some people [folks is on] 60 days and in shorter duration. We've had a fund in that space for 30 years. So we're naturally, I'd say, positioned strongly there. We're also seeing institutional clients -- they still launch short-duration cash management. And it's going to be [bare weathers] and funds are separate accounts, it will continue to be there.

I'd say we've had very productive dialogue with distributors of our traditional products, in terms of other types of products that would be very interesting. So we feel that the business is going to be quite resilient, despite the regulation changes.

Okay, great. Thanks for taking my questions.

Dan Fannon, Jefferies.

Thanks. A little more color on April in the institutional backlog would be helpful. Anything different than you've been talking about, whether there's products that are becoming increasingly a bigger component of the sales or vice versa, on the slowdown?

Yes I'd say from my perspective, the almost 10 years that I've been here, I've never seen it more broad and more deep. We have had, once before, where we've been in a situation where we've had all regions in net flows. But we never been all regions, both retail and institutional. And even when that was happening, it was maybe more narrow in the investment capabilities. We're seeing it in things like GTR, risk parity, international equities, real estate, fixed income, quantitative capabilities. It just is really broad and very deep. And usually, I'd say for most organizations, the first quarter, historically, is one of your stronger quarters for net flows, for various reasons.

Again, we can't predict the future. But April -- it looks like our second quarter is very much on the same path as the first quarter, which would also just, again, suggest that things are looking really quite strong for the organization.

Great, that's helpful. Just on that, in terms of the regions, everything looks positive except Canada, which is right around breakeven. Anything happening there that can change the outlook to be a little bit more robust, or you're seeing demand or product shifts there?

Two things. The ETF business there has actually been really a very important thing. It's almost following some version of -- again, you've been following the Company for while. So it was almost a -- ETFs were a reinforcement of our active management, and we're starting to see that happen there. There's also some very thoughtful product introductions that we've done in Canada, and I think that's also going to help in the retail channel.

But also, the other area of focus is the institutional business. It is an area that we think we should be much more successful than what we have been, and that's an absolute focus for us in Canada. And we expect that we will be successful there.

I will point out that Canada was positive. So, round it to zero. But they were positive this quarter.

Okay, thank you.

Patrick Davitt, Autonomous.

Good morning. On the regulatory front, we're hearing whispers and some chatter from some of your competitors that the F stock and other bodies are really starting to focus in on the liquidity issue. And the fact that a lot of products are being marketed as liquid products, but the underlying assets can become illiquid quite quickly. Are you hearing similar issues? And is there any more color you can give us on where you think that trend is going, from a regulatory standpoint? And what, if anything, they could do that could aleve that issue?

I wouldn't call them whispers. I'd say it's an open dialogue. And I'd start by the regulars trying to get a better understanding at the F stock level of how do money managers manage portfolios. And the idea of managing liquidity is not new; it's a fundamental core strength of the industry. It's what the industry has done forever. The difference is the broadening oversight of F stocks, so it's actually educating the other set of regulators that have an interest there.

That said, there's a lot underway from an industry point of view, that where there can be improvements and potential liquidity, they're being addressed. There's been some good developments in the bank loan area, and there's further developments there. So again, I think it's a good dialogue, it's an important dialogue. But I think education is a big part of it, and as an industry, we'll just continue to -- where we can get better, we will.

Is there a sense that any regulatory changes, or the outcome, would be a significant negative for you? From either some sort of capital issue or having some sort of reserves?

Again, I would classify it -- it's a topic, it's a dialogue right now. You have to first -- your question is assuming there's a problem. On the margin, there's areas where you can improve, but that's no different than anything the industry does. I'd say we're a long way away from any regulatory changes, just because we're just too early in the process.

Right, thanks.

Yes.

Bill Katz, Citigroup.

Okay, thanks so much, and good morning, everybody.

Good morning, Bill.

It looks like Europe continues to be an area of significant growth for you. This is probably a bit of a naive question, given you're going to say it's still a relatively small AUM base, but two-part question. One, can you talk about what the success is there, how broad is it? And then given the rapidity of growth, are you running into any capacity issues yet?

No. Again, it's an area we've been discussing for some period of time. Again, it's not an overnight development. When we put our focus on it three, three-and-a-half years ago, it was broad-based, ensuring the product offering was robust and strong. And it is very robust and strong, an excellent investment performance. It was also -- on an execution side, were we covering clients in the manner we should and delivering, and that's been a big change. And that's helped also, frankly, a redo of the servicing capability underneath, and that's been in place too. So it was really broad.

And that was, again, largely -- the UK has always been very strong. It was really getting the cross-border retail market on the continent into a very strong position. And that has happened. It continues to grow. And we don't have any issues with capacity at the moment.

And the other opportunity, again, for us -- and you were starting to see it actually in the numbers -- is, institutionally, we think we should be doing better than we have historically. And you're actually starting to see some of those results come through. I would still say, we're pretty early in what we expect over the next one, two, three years, institutionally, in EMEA.

And Bill, I would also comment that, I think in terms of country-wide, Italy has been a big driver of some of the flows and success. But Spain as well. And Spain, a lot of the dynamics that happened in Italy are now showing up in Spain. So Spain, Germany, Switzerland, all are contributing nicely. But Italy, right now, it's probably outsized in terms of its contributions on the cross-border flows.

Very helpful. And then, Loren, just for yourself, I think you said you're running at the high-end of your incremental margin. I just want to make sure I interpret that correctly. From here you're at the high-end? Or you were at the high-end, and therefore, you're not going to sustain at the high-end?

No, for the full year, year over year, when you're looking at our incremental margins, if all things flat and goes well, we'll be at the high-end of that range, in terms of delivering incremental margins.

2015 over 2014, full year?

Yes.

Okay, thanks for clarifying. Thank you, guys

Thank you, Bill.

Luke Montgomery, Bernstein Research.

Good morning, guys

Good morning

You've talked about the efforts to increase traction inside third-party distribution channels in the US. And I think you've been slightly frustrated by the progress there, given your strong performance. Retail flows were pretty robust this quarter. So any data on how that's going? A little color on what's selling, and whether you feel increased brand recognition might suggest some sustainability there?

Let me start at the end. Brand recognition in the last -- I don't know if you want to call it -- it came out [eight]. So as you know, we've had some tremendous improvement from five years ago, where we weren't on the list. And I do think that is an important thing. We still have not closed, fully, the perception-reality gap. That is something that we continue to do. And from prior experience, it just takes longer than you think it should. But good progress.

And if you look at the underlying fundamentals, in addition to the breadth of capabilities and the performance, it's placements on the different platforms. And that continues to just be stronger and stronger. I will say the other element too, is, as a number of the distributors went through a number of changes, the bigger distributors, as they have settled down and gotten organized, quite frankly, that's a good thing for us. And we think we'll see some greater impact in a couple of the principal distributors than we might have had two and three years ago because of that.

Okay, great, thanks. And then staying with retail distribution, I think we can agree the independents in RA channels are growing in importance. They're far more fragmented channels and so, I think, a lot more expensive to sell-through. So any sense of how much of your retail flows have been going to those channels? And more broadly, how you're thinking tactically about selling into that channel without driving up costs too much?

Again, as probably almost everybody -- we all do, in different versions of the same flavor, but it is a channel that is covered, and we are focused on it. We do see it continuing to grow. But quite frankly, the output of that channel vis-a-vis some of the main wire houses out there, it's just no comparison at the moment. That said, longer-term, it's something we'll continue to focus on. And what I think you're suggesting is probably a wise thing to do, and we have been, and we will continue to do it.

Okay, thanks much.

Thanks, Luke.

Michael Carrier, Bank of America.

Thanks, guys. Marty, on the alternative side, you mentioned that you feel like you have the products that you need. I just wanted to get a sense -- when you see the demand in that product category -- I know it's pretty diverse -- but are you seeing more on the institutional side? Are you seeing some uptake on some of the newer products on the retail side that's driving those flows?

I'll make a couple comments, and then Loren can pitch in. Institutionally, it continues to -- what would be the more recent -- real estate continues to be very strong for us. World Bank loans continues to be very strong. The newer thing -- risk parity continues to do very well, institutionally, for us as an organization. And also adding to it now, multi-sector credit is starting to get some real traction for us. And GTR is another one that has actually been very successful. Total GTR assets are about $5 billion. And that's in a year, year-and-a-half maybe that it's been in the market for us. So it's continued to be a focus, I'd say, for institutional investors.

On the retail side, if you start with the United States, a year ago, we introduced that very broad range of alternatives into the retail channel. Our expectation at the time was, we'll look back three years from then to determine how successful it's been. It's a long process.

And back to Luke's comment a bit, the distributors are very slow in adopting. If you look at their commentary, that they anticipate alternatives being -- pick a number -- 15% to 20% of clients in the portfolio, what is available in their channels can't meet that asset allocation capability. So I think that's a headwind to that. But I do think if you look at things like risk parity, GTR and some of those extensions that we've had, those are the types of things that are gaining a lot of interest in the retail channels. And we see flows against it.

Okay, that's helpful. And then Loren, just a quick one. Buybacks in the quarter just ticked up. Just wanted to get a sense -- is that seasonal because of grants? Or just given where your cash level is and the net debt, are you having more flexibility?

It tends to be a little seasonal, as we've discussed in the past. Because we have some of the restricted stock grants granted March 1, and we certainly do our best to eliminate the dilution associated with those grants as quickly as possible. So going into the second half, you may see the levels step down a bit.

Okay, thanks a lot.

Ken Worthington, JPMC.

Hi, good morning. First, cross-border. Having huge success in Europe. Can you talk about the sales of DC cap products in Asia? You've got a lot of product; you have a fabulous track record in this product. Do you have the right product in distribution to meet investors' tastes in Asia? And I know this is a hard benchmark, but you're doing so well in Europe, how do you make Asia as good for Invesco in cross-border as it is in Europe?

Good question. I'd say, different ways I'd answer that question. What we look at as a core strength of ours -- and where we think the market is going, is really Greater China. Investment capabilities and performance is strong there for us, and we're actually starting to see quite a bit of uptake in flows there. I think also you saw probably the Hong Kong-Shanghai connect launch of our fund. It raised almost $2 billion in three days. So I think it's part of the mechanisms opening up in the marketplace, along with the asset classes that people are interested in.

Also it is, again, for us -- just want to be more effective in the marketplace. We have a new retail leader out there, and I think that's also going to help very much make us more effective in the area. And I would also say, you're seeing things -- Japan, for us, it is day and night from two years ago. It is a very busy place for us, and probably for some other managers too. That's largely fixed income, and it's really some broader equity capabilities too. We're going to see, I think, results in Asia-Pacific this year that we've not seen for some period of time.

Great. Loren, in terms of performance fees, love the guidance. Can you help us understand which areas you have the greatest visibility on, in terms of performance fees, and what areas you have less?

They're all pretty murky. (laughter) I think in terms of the real estate and private equity, which are two ones where we've seen a lot of built-up performance fees, it had a lot to do for real estate, in terms of timing of certain sales of certain properties. And we had visibility, we just didn't have a lot of sense of timing. Obviously some of that materialized this quarter. We had said we knew there was something out there and we didn't know when it was going to hit. And obviously, the bulk of it hit this quarter.

That doesn't mean there's not going to be more. There will be probably some more real estate performance fees we're going to see, but nothing of the magnitude that we just saw this year. Or we wouldn't expect it to happen.

But in terms of private capital, private equity --, we discussed this -- because of our very strict accounting rules, we can't recognize any carry until essentially there's no mathematical possibility of claw-back. And that really means that it's going to be close to when the funds that has to carry at a wind-down, late into the wind-down mode. So that's probably not going to happen this year, it's more like a 2016, possibly into 2017-type of event. But that's much harder for us to forecast.

In terms of the visibility, we do have good sense of visibility. UK Trust is pretty good. We have provided guidance there. And you've done a lot of work on that too, I know, Ken, where we can actually take a look at the performance and the trigger date, and you can get a sense of whether they're going to be there or not. We've generally seen some $10 million-ish numbers or higher in the first quarter.

Bank loans, it's sort of hard. We do have some sense of it, in terms of the timing of when a bank loan is coming to its end, and when we often can see a performance fee. And also often connected with the launch of a new [CLL]. And [Quant] is also pretty decent, because it also has certain trigger points on investment performance. That's why the $5 million guidance, I'd say, is pretty good. We could be surprised by something else coming in that we didn't see. But generally, I think the $5 million a quarter is probably the right guidance.

Okay, great. And lastly, for Marty. There are a number of new non-transparent ETF structures that have been proposed, and Invesco's partnering with one such provider. What are your thoughts on the opportunities of the new wrapper, or the new structure? What does that mean for the active management mutual fund industry, if anything?

Ken, we've talked about it before. It's my personal opinion, it's interesting, but I don't think it's a game changer, by any stretch of the imagination. I think if you look at the ETF structure, when it provides, the fundamental elements are well-known and enjoyed by market participants, right? So the deal liquidity, some of the tax benefits that come along with it, and really the ability to see the portfolios. As opposed to the open-ended mutual fund, where it is really a longer-term vehicle, for sure. And I think for active management it's a net better vehicle.

It may take hold, but if we're sitting here in 5 or 10 years, it'll probably be there. I don't see it being an important part of the marketplace as it's currently being discussed or designed. But again, we'll pay attention. We don't want to be -- my opinion could be exactly wrong. We're going to make sure that we're there.

Great, thank you.

Robert Lee, KBW.

Great, good morning guys

Good morning.

On the ETF business, you've had a lot of success in Europe with the traditional businesses. And I know it's been a focus to grow ETFs there. But it seems like that's one part of your business where you've had less traction than hoped. So can you update us, just given the potential growth prospects of ETFs in the UK and the continent, how you're looking to re-energize that part of your business, and where you're thinking about the opportunities there?

Very good point, and you're correct. On the continent is where we started the ETF business a number of years ago. We got very little traction, and it was, just frankly, a very different market. I would say we are ahead of the curve. We thought there would be retail take-up similar to the United States, and it just really wasn't the case. It was much more of an institutional tool. And as you know, it went through quite a large change, from derivatives-based ETFs more to physical. And that was really coming to an end.

We still think there's quite an opportunity there. We have just more recently, in the last 12 months, stepped back to determine how to go forward. And there is a more recent launch of an ETF on the continent. We also look at the UK as more of an institutional opportunity for us in the shorter-term. And that is in area where we have, in the last six months, been starting to put some effort.

Is part of that what I think you've done in the US, where your retail distributors also market the PowerShares product? Is it part of this combining distribution efforts?

That is on the continent, that is the case. There's still a open strategic question for us. With RDR, what is the best way to use ETFs in the retail channel in the UK? And we're still working on that. So in the meantime, we are actually using our US-listed ETFs in the UK, into the institutional market there.

Okay, great. And the second question is really just -- I'll call it a big-picture industry question. But interested in your take on it. You talked about this morning how the marketplace misunderstands the active versus index performance dynamic over time. And some of your peers have made similar comments today and in the past.

So I'm just curious. What besides some white papers -- I mean, is there anything as an industry, or maybe individually as a Company, you feel you can do to get that message out? Because it feels like it certainly gets way overshadowed by the press and whatnot. So I'm just curious what kind of things you could do as an industry to actually get that point across?

That's a great question, and that's why we're reacting as other people are. We feel we have an obligation to educate the marketplace about what are the facts. I would say the reality is, the active managers really did not do a good job of it. At one level, we just thought that everybody knows this, of course. It just wasn't true. And then you end up in a situation where you go from this last market cycle -- which is not over yet, from 2009 on, you've had -- with an unprecedented market, because of bouncing off the bottom, all the [QE]. So passive was never going to be attractive. This is the market -- and it probably wouldn't have happened since 1929.

So it was too easy to come to an answer that active is dead. When in fact, if you look at -- the way you have to look at it, you have to look at market cycles peak to peak, trough to trough. And the other thing that's totally misunderstood too is not just relative out-performance, but risk mitigation and draw-down, and those other -- so that the work that we did, it just shows active management is a very important thing. I also think you're going to a market where active management results are going to be more profoundly understood. But we owe it to our clients to get the facts out in the marketplace.

Along those lines, I was curious. There's been some inklings that maybe in the institutional world, that the argument resonates, or is resonating somewhat more. But any sense as you think about the retail world, that you're getting some traction with those kind of --?

Absolutely. Our retail -- they are desperate for the facts. Again, the paper we just put out, it is -- the interest level is enormous within the advisory community. Because they really need the facts to talk to their clients. It's been too easy to read USA Today and they say -- buy a passive index. That's what they're responding to, with no facts. Or should say, limited facts.

I think getting the facts out there, in our view, is -- we take a very balanced view. Because we have our active business and our passive business. And we think high-conviction active -- and frankly, high-conviction passive, which we describe as smart data -- that's how you get better outcomes for clients. We're not wedded to a single answer because we only have one capability. We have a broad range of capabilities, and we just want to meet client needs. I think that resonates with the advisor community too. And again, just helping them construct their portfolios to meet investor outcome is -- that's what we do.

Great. I appreciate the commentary. Thanks for taking my questions.

Thank you.

Eric Berg, RBC Capital Markets.

Thanks very much, good morning. I have a two-part question that actually follows on from the question just asked. Are you essentially saying that -- putting aside the admittedly important issues of risk and draw-downs -- I'm certainly not dismissing those dimensions as not important; they're very important. But are you essentially saying that if one looks at a full market cycle, that it is simply not the case that active managements have under-performed typically passive strategies?

Again, you can get the white paper. Basically what we did is (technical difficulty) in place so it doesn't go on too long. We looked at peak-to-peak, trough-to-trough market cycles from the past five cycles, and through all US mutual funds' 17 different asset classes, holistically. I think it was 61% of all managers outperformed the passive index. And that was with active share of 60%, which is not much. It only took out something like 10% of the funds.

Our point is not that active shares is a predictor of results. All we were starting with was take-out positive indexers, and what is the result. And that's before you try to pick a good manager. Again, you can read the paper and draw your own conclusions, but I think it's really quite compelling.

I appreciate that. I will read it. I have one follow-up. One dimension to this whole active-passive that has not been discussed, at least today, is the whole tax issue and the idea that it is supposedly the case -- I have never really documented this myself -- that there are too many active managers who are not tax-mindful. What does Invesco have to say about that part of the discussion?

That is, I'd say, one of the benefits of an active manager, that they can actually -- part of what they think about is managing the tax element of the holdings that they have. So I would put that in another positive category for active managers. I can't speak for every active manager, but I would say the vast majority of asset managers pay deep attention to that, and have teams that help them work through those types of topics, as do we.

And I think the other reality is, that's important, but the vast majority of all investments are frankly in some type of a retail -- excuse me, in a retirement vehicle. So it might realize the benefit for many people. It is an important topic.

All right then, thank you very much.

Thank you.

Chris Harris, Wells Fargo.

Thanks, guys. I see you guys are performing at such a high level right now, in so many different areas. Just wondering, can you share your thoughts about your strategic priorities over the next few years? And really wondering what areas are you guys really focused on, trying to grow further? Or if there are areas that are under-represented, or perhaps not in your suite at all, that you're really taking a hard look at it, at making some additional investments there?

It's a good question. I don't know that -- if any earth-shattering news. We're going to really very much stay on the path that we're on. As I've said during this call, and Loren has too, it is really the first focus of broad, deep investment capabilities, to perform well. Again, we're focused on getting better there, and where we can be more thoughtful on product capabilities, we will.

We are doubling down in a number of areas that we've been on. We think we can do a better job of having our investment abilities available around the world more effectively. That is an area of focus for us. We also think that the broader acceptance of alternatives around the world for the organization is an area of focus for us. And probably the third leg is, the institutional business, we think, collectively -- we're at different phases, in different parts around the world. We think that is a real opportunity for us as an organization also.

Interesting. Great, thank you.

Douglas Sipkin, Susquehanna.

Thank you, and good morning, gentlemen. I apologize if this has been hit on already, but I just wanted to get a sense obviously with the great growth out of Europe. I'm assuming but I'm not certain, does that net revenue yield see accretive, given that, that's growing so much faster than everything else right now?

Yes, absolutely, it is. The D rate in Europe tends to be, on a net basis, 80 and above. So it's certainly at the higher-end of our product offerings.

Great, that's helpful. And then secondly, obviously PowerShares has been a great story this year. Can you guys update us on your product development plans? Have you been raising the budget there to launch new ETFs, given that you've seen a big move into smart beta in 2015?

I would say, it's a continuation of what we've done. I think we try to be thoughtful about our product introductions. And we'll continue to do that, as opposed to put things in the market and hope they work. I'd say it would be a more deliberate development, as opposed to many things.

I would say, some of the things that we've just recently done, like our equal-weight Russell product, was just a very big seller this quarter. Buyback Achievers has continued to do well, S&P 500 high dividend. So these are ones that are already out. And some of them up have been pretty new. High Beta actually was a pretty good winner this quarter too. The products that have been launched are now beginning to take root, and there's probably more opportunity to seeing growth in their existing product set than necessarily going out and trying to fill other holes.

Great, that's helpful. Thank you.

Thank you.

Chris Shutler, William Blair.

Hi, guys, good morning. Most of the questions have been answered already. But just one quick one on performance, which remains really strong across the franchise. US seems like it would be the one area that continues to have some challenges, particularly in the core end-growth areas. So Marty, just wanted to get your thoughts there, and any changes you think are necessary. Thanks.

Thank you. If you look at core relative under-performance, again, very good team. They're sticking to the discipline. It's what we've seen happen in prior market cycles. They tend to build up cash during these periods of time, and they have done that. But again, I have confidence that they're very strong. The growth team actually has put up some very strong numbers actually. The leadership there in the last three years, I think it truly has brought in the large-cap growth. They've done a really good job. We feel comfortable in both areas.

All right, thank you.

Thank you.

Brian Bedell, Deutsche Bank.

Great, thanks for taking my question. Good morning, folks. I joined late; I'm sorry if you've covered this already. But Marty, if you could just comment a little bit on -- I know it's early -- but a little bit on the Department of Labor fiduciary proposals? If you're hearing anything from your wholesalers as they talk to the distribution channels, both in Wirehouse and RIA side?

And also your view on the defined contribution channel, whether you think that will have any impact? And across your product set, if you think there's certain product areas, like multi-asset and [parishers] that do especially well if more strict rules are proposed on the fiduciary side? Thanks.

Brian, that last part of the question, I couldn't hear. I don't know if, Marty, you could?

On the fund contribution side? On the product side? Yes, I'm sorry. On the product side, if any products, such as, say, multi-asset or products in the PowerShares complex would -- do you think may benefit from more stringent fiduciary standards?

A few comments. As a proposal right now, I'd say the fundamental idea is a good idea. You can't argue with the principles that are in place. I think that is thoughtful. I would also say -- by the way, I do think the financial advisors have been very thoughtful and very minded about our clients.

That said, raising the bar is always a good thing. I think the DLL is very focused on making sure that there's not unintended consequences by what they are putting forward, where some smaller plans in smaller accounts are disadvantaged where they can't get advice anymore. That, I think, is one of the topics that they're focused on right now.

With regard to us as an organization, we provide the investment capabilities. So it's more of an issue for the financial intermediaries, and how do we lay into that? It's really -- if you have strong investment performance, broad range of capability, you're probably still in a pretty good place. And if you have competitive fees, you're probably still in a good place, which we are. Just how we interface with the intermediaries using -- on their models and different types of things, it's what we do already.

So I would put the whole element, without knowing what the details are -- good idea to continue to raise the bar. As a Firm, I think we're positioned well for what we can see coming down the path, whether that's in the DC channel or the retail channel.

Great, that's helpful, thanks very much.

Okay. Thank you very much. On behalf of Loren and myself, thank you for your time and questions. And look forward to speaking to everybody soon. Have a good rest of the day.

Thank you. And this does conclude today's conference. All parties may disconnect.