Martin L. Flanagan - Chief Executive Officer, President and Executive Director Loren M. Starr - Chief Financial Officer and Senior Managing Director.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division Kenneth B. Worthington - JP Morgan Chase & Co, Research Division William R. Katz - Citigroup Inc, Research Division Michael Carrier - BofA Merrill Lynch, Research Division M.

Patrick Davitt - Autonomous Research LLP Craig Siegenthaler - Crédit Suisse AG, Research Division Daniel Thomas Fannon - Jefferies LLC, Research Division Eric N. Berg - RBC Capital Markets, LLC, Research Division Betsy Graseck - Morgan Stanley, Research Division Lucas Montgomery - Sanford C.

Bernstein & Co., LLC., Research Division Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division Christopher Harris - Wells Fargo Securities, LLC, Research Division Brian Bedell - Deutsche Bank AG, Research Division Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division Greggory Warren - Morningstar Inc., Research Division.

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 statement that necessarily depends on future events are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. 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 Fourth 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 speakers 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. Today, we'll kind of review the business results for the fourth quarter. We'll include some highlights for the full year, then Loren will go into greater detail on the financials and then we'll open up to Q&A has been our practice.

So -- and if you're so inclined, the presentation's posted on the web. So let me begin by hitting the highlights of the operating results for the quarter, and if you are following, I'm on page slide right now -- that's Slide 3.

Long-term investment performance remained very strong for the quarter, 81% of actively managed assets were ahead of peers over a 5-year period.

Strong investment performance combined with the comprehensive range of strategies and solutions we offer helped clients achieve their desired outcomes and contributed net long-term inflows of $2.5 billion during the quarter.

Adjusted operating income was up 7.5% compared to fourth quarter of the prior year, and a continued focus on the disciplined approach to our business drove improvement in our operating margin to 41.2% from 40.5% in the same quarter a year ago.

Assets under management were $792 billion during the fourth quarter, up from $789 billion in the prior quarter. Operating income is $373 million versus $382 million in the prior quarter. And earnings per share were $0.63 versus $0.64 in the prior quarter.

The quarterly dividend remained at $0.25 per share, and we returned $158 million to shareholders during the quarter. Now let me take a minute to look back over the achievements over the past year, which will provide some insights into our longer-term plans also.

First and foremost, we remain very focused on delivering strong long-term investment performance to our clients, which continue to drive growth in the business. 77% and 81% of the assets were ahead of peers on a 3- and 5-year period, respectively, at the end of 2014.

By delivering strong investment performance and focusing on client needs, we achieve further growth across our global business. Our U.S. business achieved net flows of $3.6 billion, excluding the Qs in 2014. IBRA flows are stabilizing with continued strong performance garnering attention among clients and advisers.

We continue to gain strong shelf space support for our broad product range. We currently rank #3 among peers in the industry for the number of mutual fund placements on broker-dealer recommended lists. Our Canadian business continues to strengthen its retail presence, capturing greater share of the full-service broker channel.

Institutionally, Invesco's direct real estate capability is fueling institutional asset growth in defined benefit segment. Our Asia Pacific business continue to grow. We saw strong inflows into our Japanese, Greater China, Asia and European equities as well as real estate strategies.

Our EMEA business continue to grow and become more diversified with significant flows into fixed income, non-U.K. equities, real estate and multi-asset capabilities. In particular, we should note the U.K. retail business achieved record gross sales across a range of capabilities, and U.K.

equity redemptions normalized in the fourth quarter, demonstrating the strength and resilience of our business. We continue to invest in capabilities where we see strong client demand or future opportunities, such as ETFs, multi-asset strategies, fixed income and alternatives.

By extending the teams that we have or hiring talent where need be, also upgrading the technology platforms and launching new products and providing additional resources where necessary.

The ability to leverage the capabilities developed by our investment teams to meet client demands across the globe is a significant differentiator for our firm, and will continue to bring the best of Invesco to different parts of our business where it makes sense for our clients.

By delivering strong investment performance, Invesco Global Targeted Return achieved strong inflows in its initial Europe offering, with assets under management passing $3 billion at the end of 2014. GTR's strong performance positions us well heading into 2015, and we think this will continue to be a strong growth story.

Additionally, I would highlight the other range of alternatives that we introduced a year ago have very strong 1-year performance. Based on our continued efforts to take a disciplined approach to running the business, the firm was upgraded to A/Stable and A2/Stable by both S&P and Moody's.

We continue to make progress strengthening our operating margin to 41.4%, while returning nearly $700 million of capital to shareholders during the year. Before Loren goes into detail on the company's financials, let me take a moment to review the investment performance during the quarter. Turning to Slide 8.

Our commitment to investment excellence and our work to build and maintain strong investment culture help us maintain a long-term investment performance across the enterprise during the quarter. Looking at the firm as a whole, 77% of assets were in the top half on a 3-year basis, and 81% were in the top half on a 5-year basis.

Turning to flows, on Page 9 you'll see that passive flows outpaced active during the volatile quarter and again demonstrated the benefits of broadly diversified range of investment strategies. This is also coming off a very strong active organic growth rate we saw in the third quarter.

We also saw renewed strength in the institutional flows during the quarter. The figures on Slide 10 reflect the broad diversity of flows we saw across the global business during the quarter, which included strength in real estate, fixed income, GTR, quantitative equities amongst others.

The institutional pipeline of one but not funded mandate continues to look strong. We feel good about the quarter results and the full year. We're pleased with the progress we've made in delivering strong investment performance and meeting client needs with a range of strategies and solutions throughout 2014.

We believe our achievements and the continuing efforts to deliver great outcomes for clients positions us well as we head into 2015. Now I'd like to turn it over to Loren to review the financials..

Thanks, Marty. Quarter-over-quarter, our total AUM increased $2.8 billion or 0.4%. This was driven by market gains of $10.5 billion and long-term net inflows of $2.5 billion. These gains were partially offset, however, by negative foreign exchange of $7 billion and outflows of the QQQs of $3.2 billion.

Our average AUM for the quarter was $789.8 billion, that was down 1.5% versus the third quarter. Since our retail-related average AUM is calculated on a daily basis, the volatility in the equity markets during the quarter resulted in a lower average AUM while the period-end AUM was actually higher.

Our net revenue yield came in at 45.9 basis points, which was up 0.3 basis points versus Q3. Let me decompose this a bit. The negative impact from FX on product mix as well as the market impact on equities during the quarter reduced our investment management fee yield by 1.1 basis points.

And this was offset, however, by higher performance fees and lower third-party distribution, service and advisory expense, which added 1.4 basis points. Next, I'm going to turn to the operating results.

Our net revenue yield decreased $7.9 million or 0.9% quarter-over-quarter, which -- to $905.8 million, that included a negative FX rate impact of $19.8 million. Within the net revenue number, you'll see that investment management fees declined by $38.1 million or 3.6% to $1.03 billion.

This was a result of the lower level of average AUM in the quarter and the 1.1-basis-point drop in management fee yield that I discussed on the last slide. FX decreased investment management fees by $25.3 million. Service and distribution revenues declined by $4.4 million or 2%, also in line largely with lower average AUM.

FX decreased service and distribution revenues by $0.3 million. Performance fees came in at $19 million, that was an increase of $8.7 million from Q3.

Real estate accounted for roughly half of the quarter's performance fees, while the other half was driven by a variety of other investment capabilities, including bank loans, quant equity and global asset allocation. Foreign exchange decreased performance fees by $0.4 million. Other revenues in the third quarter came in at $34.1 million.

That was a decrease of $0.4 million. FX decreased other revenues by $0.6 million. Third-party distribution, service and advisory expense, which we net against gross revenues, decreased by $26.3 million or 6.2%. This decrease was largely the result of lower average AUM and foreign exchange. FX decreased these expenses by $6.8 million.

And given the impact on our AUM mix and management fee yields resulting from the continued strengthening of the dollar, we thought it would be useful at this point to provide you with some guidance on our net revenue yield for 2015.

Based on current FX rates and AUM levels, we expect our full year 2015 net revenue yield, excluding performance fees, to be approximately 44.2 basis points or 0.6 basis points lower than last year.

Moving on down the slide, you'll see that our adjusted operating expenses came in at $532.7 million, and that grew by $0.9 million or 0.2% relative to the third quarter. Our foreign exchange decreased operating expenses by $9.8 million during the quarter. Employee compensation at $347 million decreased by $2.5 million or 0.7%.

The impact of headcount growth and higher incentive compensation related to performance fees were more than offset by foreign exchange. FX decreased compensation by $6.3 million. Looking ahead to 2015, seasonal payroll taxes and a 1-month impact from base salary increases will lift Q1 compensation by approximately $10 million.

Compensation will then decline by approximately $5 million in Q2 and remain largely flat through the rest of the year. Note that all this guidance assumes flat assets from year end. Marketing expenses increased by $5.6 million or 20.4% to $33 million. This was driven by advertising expenses, particularly in EMEA.

FX decreased these expenses by $0.9 million. We would expect that marketing expenses would average approximately $30 million per quarter in 2015. Property, office and technology expense came in at $75.6 million in the third quarter, which was down $1.7 million. FX decreased these expenses by $1.3 million.

We'd expect property, office and technology expense to be approximately $80 million per quarter in 2015, the result of continued technology investment to support our fixed income and alternatives business as well as due to increased property-related costs. G&A expenses in the quarter came in at $77.1 million, that was down $0.5 million or 0.6%.

FX decreased G&A by $1.3 million. Looking forward, we'd expect G&A to average approximately $75 million per quarter. Continuing on down the page, you'll see that nonoperating income decreased $6.3 million compared to the third quarter. The decrease was primarily caused by lower equity in earnings from unconsolidated affiliates.

As you'll recall, this line item is the function of the co-investments we have made in our private equity and real estate partnerships, and these investment valuations are booked on a quarter lag. Given the quarterly lag and the somewhat negative markets we saw in Q4, we may see this line item decline from the Q4 levels in Q1 of 2015.

The firm's effective tax rate on pretax adjusted net income in Q4 was 26.1%. Looking forward, in terms of guidance, we'd expect the effective tax rate remain between 25.5% and 26.5%. Which brings us to our adjusted EPS in the quarter of $0.63 and our adjusted net operating margin of 41.2%.

So before finishing on the slide, I'd like to do a couple things. One, I'd like to take a moment to let you know that this month, we took some tactical steps to protect our P&L against further negative FX impacts in 2015. As you all know, a strengthening U.S. dollar has a negative impact on our fee rate and revenues.

Invesco's most significant foreign exchange exposure is to the pound sterling. In fact, based on our calculations, a 10% decline in the pound from the current rate would result in an approximately $0.05 to $0.06 decline in annual EPS and an erosion of about 10 to 20 basis points of operating margin.

So given this exposure, we entered into a series of out-of-the-money put option contracts, which will protect about 75% of our sterling pretax income, and this is at a strike of 1.493, and this will be in effect through the course of 2015.

The premium cost of these options, of course, there is some money involved here, will reduce our full year 2015 EPS by approximately $0.05. Under U.S. GAAP accounting rules, these options will be mark-to-market below the line in other gains and losses.

And we believe this hedge will help reduce the bottom line financial impact of any further significant strengthening of the dollar. And finally, before I turn things off to Marty, I know there's always a question about how things are going on flows. And I would say that we're off to a good start in net flows in January.

We've seen about $2 billion, about half of that is in the passive category and the other half is in active. We continue to see Europe grow quite strongly. There's about an 18% organic growth rate, just based on January, again it's 1 month, so take that with a grain of salt, but we're continuing to see strong growth there.

And our traditional PowerShares products are growing about 15%, which again, seems like a pretty good rate. Overall, based just again, just based on January, what we've seen about 3.5% overall organic growth rate on long-term AUM. So again, we are not quite done with the month.

We may see -- actually see some more month-end institutional flows coming in. Marty mentioned we have a very strong pipeline, so where you could actually see that number improve from here. And so with that, now I'm going to turn it over to Marty..

So we'll open up to questions..

[Operator Instructions] Your first question comes from Michael Kim from Sandler O'Neill..

First, just curious to get your take on some of the trends you're seeing across the institutional landscape in terms of potentially de-risking or moving into passive from an asset allocation standpoint, either here in the U.S. or outside of the U.S.

And just related to that, are you still sort of seeing decision-making processes delayed just given sort of the environment?.

A good question. So let me -- I've been traveling quite a bit, so I can -- just coming back from Asia. And quite frankly, the appetite still seems strong.

The asset classes that institutionally people are looking at for us continues to be our alternatives, which GTR, IBRA, prosperity, real estate, the bank loans, but quite frankly, also Asian equities, European equities, Japanese equities, so really continue to be very broad.

Also quantitative strategies are another area that is gaining quite a bit of interest, and on the comment, the same is happening.

I can't speak to the timing specifically, but what we have seen traditionally is that when there's uncertainty, people do slow down in the funding, but we don't have that indication right now, but back to the point I made earlier -- and Loren, I mean, the institutional pipeline really is quite robust.

So we don't -- we've not had indications that it's people going on hold yet and sort of de-risking..

Okay. That's helpful. And then maybe for Loren, if you could just sort of give us an update on where you stand as it relates to excess cash beyond regulatory requirements; seeing capital needs and maybe your marketing some funds to potentially buy in the residual stake in Religare.

Just trying to frame the share repurchase opportunity above sort of offsetting annual grants..

Sure, Michael. So at the end of the quarter, we had about $1.5 billion in cash versus about $1.35 billion last quarter. In our European subgroup, which is what we need to keep in terms of regulatory requirements, about $940 million of that is in that group.

So we still need to hold a significant amount of cash in our European subgroup as you are well aware. I would say that phenomenon is here to stay and it's probably not going away anytime soon.

In fact, generally, we think, just based on the regulatory environment, it's probably only going to get worse from here as opposed to better, so that's just a general sort of overarching comment. With that said, though, you should expect us to continue to follow the policies that we've been following.

We want to build up some excess cash, about $1 billion over that subgroup level and it is something that -- is, again, self-imposed discipline that we're seeking to achieve. In terms of the seeding and the need for capital, those are elements that are still very much in sight for 2015.

Given the number of opportunities that we have in the space of alternative products and alternative fixed income, which tend to use a fair amount of capital, real estate as well, we see an ongoing trend of some of our cash being dedicated to facilitate those flows and those products.

In terms of the Religare opportunity to complete our ownership, that's an option that we have. We've certainly made no decision to do that at this point. But if we were ever to do it, it would be something probably in the order of magnitude of $150 million total cash needed.

We would need to put $50 million just to have that ownership stake, it's required by India if you have more than 50% stake, you have to put in $50 million. So anyway, that's something that we can evaluate in the future..

Okay. That's helpful. And then just final question on sort of -- just a follow-up on hedging, sort of the pound exposure.

Any change in thinking as it relates to the euro? I know that's not necessarily as big of a position for you, but any thoughts there?.

Yes, so the euro exposure is about half of what it is for the pound. The impacts are about half of what is for the pound, something we've looked at. We don't want to get overly complicated and get into a massive hedging strategy at this point. We think that the prudent thing was to put the pound in place and we'll evaluate that.

We think that, that will really do the bulk of what we wanted to do in terms of protecting us from a further strengthening dollar..

The next question is from Ken Worthington, JPMorgan..

A couple follow ups on the hedge.

First, when did the hedge start? Was it January 1, earlier or more recently, given the currencies have gotten creamed a lot in January so far?.

It was the middle of January, roughly. I don't know the exact date that we put it in place, but think of it mid-Jan..

Okay. So given the pound stills decline, zero decline, et cetera, it would imply still an incremental hit to 1Q. Now if the equity markets got creamed, I would expect Invesco to tighten the belt with reduced costs. FX seems different.

How do you, as managers, think about the business, employees and shareholders in a situation where FX is having a pretty decent impact on earnings? Does it change investment? Does it change the bonus pool? Like, how should we expect that to kind of flow through as we think to 4 quarters, even with the hedge?.

Ken, that's a great question. And so our view is just look at the fundamental strength of the business, right? And you were sort of heading that way in that FX is something we can't control, right? And to the degree other than trying to be thoughtful and reasonable with hedges.

But as I talked about and Loren talked about, if you just looked at the fundamental -- go back to the U.K., go back to EMEA, go back to the continent, the business is strong and growing robustly.

And I think it would be an absolute mistake for us to, because of ForEx, stop making the investments when we're making such strong progress in the different parts of the world that way. So at the end of the day, we have to do right by clients and do a good job, but be good stewards, and I think we've shown a track record of being good stewards.

So is it -- we'll see where this goes, but we're -- I think as you've picked up from myself and Loren, we're on it and we're driving it hard..

Okay. Great. And then changing gears. Just on performance fees. There's a little seasonality with some of the trusts in 1Q and we saw a nice pickup. Got a lot of different businesses that charge performance fees.

As we think about the rest of the year and maybe even to early next year, what is the view there on performance fees? It would seem like the quant business has kind of come back, the -- Wilbur Ross seems to be poised to harvest.

How are you thinking about it? And ultimately, if you're getting this cash flow, I kind of consider it found money, what do you do with it?.

So in terms of performance fees, as we've talked about in the past, it is hard for us to forecast with any great accuracy because of the very strict accounting standards in terms of realizations and when we can reflect those things in our P&L.

I mean, in terms of overall levels, because performance is strong in our products relative to what we saw last year, maybe we're sort of in that range again this year. But again, there's a lot of potential change that can come off that baseline based on what happens.

And I do think in terms of the most line of sight, real estate seems to have probably the best opportunity to generate performance fees in some magnitude this year. They obviously contributed this last quarter, and we would hope to see more of that coming through in 2015.

In terms of the Wilbur Ross, again, that is one where it's very much tied to kind of end-of-life of the funds. It's mathematical impossibility of any claw back is kind of the standard with which the accounting holds us to recognize on that one.

And I could say quite honestly, I mean, the volatility around the carry in those funds can be quite significant. So again, that's something that we're going to keep our eyes on, but that we wouldn't be looking directly for any sort of realizations from Wilbur Ross in 2015 at this point in time.

But again, some of the other parts of the business that we talked about are generating a bank loan and quant generating some good, consistent performance fees. So I think that will be there. And in terms of what we do with that, I mean, a lot of that does drop to the bottom line, right? And so it helps margin, it helps the business.

But one of the things we've often said is that we don't want to sort of make a business on performance fees and sort of lock in long-term expenses against sort of things that are going to be tied to potentially things that won't -- revenue that won't recur.

So we're very cautious about capturing that revenue when we think about our plans, when we think about our opportunities, investments that we tend to not count that in. In terms of where the cash goes, it will be part of the operating cash along with the rest of the operating cash that we generate.

So we're going to continue to use it, but we don't earmark it specifically for one activity or another, it's sort of fungible in our operating cash..

I would just add, Ken, to Loren's first point that we do run the business sort of thinking -- ex performance fees, I think it can get you trouble otherwise because of the volatility of them, and then secondly, to clarify the second point that Loren made that -- what do we do with the money? It is part of our normal thinking, and we would continue to, as you call it, if it's found money, although I'd say people work pretty hard for it, it would accelerate some of the plans that Loren talked about, have a rising dividend increase or stock buybacks, and while at the same time, building that cash buildup that we talk about.

So....

Next question is from Bill Katz from Citi..

Marty, in your prepared remarks, you mentioned you've said good success in terms of placement opportunities on distribution channels in the U.S.

From some experience, either from Invesco or other places you've been, how long does it take before you start to see a ramp in related gross sales against that?.

Yes, that's a great question, and I wish I had a very specific answer. I think the main point, and you go back a few years ago, where that wasn't the case for us, and yes, that was part of the effort of building out a more robust retail capability, that is now in place, and range of capabilities to performance, but frankly, placement is critical.

And so it's a prerequisite to success. And I think it puts us in a position as the retail environment, as it gains steam, and this is going to put us in a very different position and you would hope and expect that our retail results would be that much stronger than what we've seen historically.

So I don't have a specific date, but again, I think the main point, it's absolutely a prerequisite for success..

Okay. Second question I have is -- you mentioned that you're seeing a pickup of quant and we've heard some mixed dialogue on that so far from those reporting fourth quarter to date.

Is that a geographic-centric answer or outlook of what you're seeing or is it a market [indiscernible], so curious what's driving the differentiated opportunity for you?.

Yes, interesting. So where relative strength I would say, kind of only Europe is really quite strong, we're starting to see some traction in the U.K. and these are institutions, and again, as just in Japan, China and Australia, and it was topical every area there we're actually seeing some real interest in the capabilities.

It also, I think, is relating to the use of institutions using more factor investing or whatever you might want to call it and we have just such a strong capability there, whether it be through quantitative team within the PowerShares, what was referred to more as smart data, but one and the same.

And so it is, I'd say, a growing interest around the world, and that's what we're seeing so far..

And my last question, I think your January update is probably a little better than people were anticipating, can you break that down a little bit on where you're seeing some of the incremental recovery of volumes?.

So Bill, so I think it's in the passive area, it's going to be probably overrated in the PowerShares traditional products, and we're seeing that. I don't have the January notice, but I think it's sort of the smart beta type of products that are doing well. In terms of UITs are doing well.

Those are sort of passive products that get packaged through the broker-dealers. We're also seeing, as I mentioned, good strong flows in our cross-border products and it's the same kind of thing that we're seeing in terms of euro corporate bond, Pan European structured equity, GTR, Pan European high income, those products are doing quite well.

I'd say institutional, generally, is showing up nicely. GTR is really a very bright spot, I think generally. I mean, Marty mentioned that it's now at $3 billion and growing. When we last spoke, I think we mentioned it was $1 billion. So it's really -- it's ramping up nicely and it's in -- prominently in our pipeline, our institutional pipeline.

So again, more to come on that story as we get into the next quarter, but it's looking quite promising. So I think that's kind of the highlights in terms of where we're seeing.

Now IBRA I'd say, also, just generally is sort of stabilizing to some of the things that have been sort of somewhat negatives on the flow picture, are we going to stabilize in the performance, and IBRA is really quite strong now, and so I think it is positioned to do much better.

There was a sort of one small -- large institutional outflow in the quarter on IBRA. If you subtracted that one impact, you'd see this trend very clearly in terms of what IBRA is doing. So we're encouraged by that. And then on the flip side, the bank loan, ETF, which I think some people have talked about, that also seems to be generally stabilizing.

I mean, it's still an outflow, but it's -- certainly the outflows are nothing that we can't manage and it's been managed quite effectively, and I think there's only about $5.5 billion in that product, just so people know..

The next question is from Michael Carrier, Bank of America..

Loren, just on the, I guess, the distribution revenues and expenses. It just seems like there is maybe -- I don't know if it was an offset or something, it just seems like the expenses declined a bit more. So I didn't know if there was anything unusual this quarter or if it was just one-off activity..

Yes, I think it's more one-off activity. Michael, again, there's always a little bit of noise and adjustments around some of these distribution things as things get trued up through the course of the year. So in terms of our net revenue yield guidance, that probably will be the best way for you to be normalizing that going forward..

Got it. Okay. And then you guys just gave some color on like the January flows. And if I look at the fourth quarter, the whole industry is a kind of a crazy quarter just in terms of the volatility and the impact that it had on flows.

If I look at the categories, so it looks like equity balanced and then Asia were sort of the areas where we saw weakness in the net flows for you guys. Just want to -- when I look in the outlook, it seems like things are pretty favorable.

But anything that you saw during the quarter that was not environmental? And it looks like the performance for 3, 5 years still good across the board. 1 year dipped a bit.

But anything else that you would say there's more cautious or cautiousness from investors on certain products versus the longer-term trend which you had been good, and it seems like January is off to a good start..

Yes. I would say -- you described it as environmental, I think is the right way to capture it, and impact your other point. If you look at the depth and breadth of the performance across the globe, it's really strong. And so there is something that -- to meet investors needs in almost any way that they are looking at how to build their portfolios.

And you're right, in the fourth quarter, there's literally, I think it was a $4 billion change quarter-over-quarter just in equities alone because of how people reacted to the volatility. So that was probably the biggest impact overall to us. But again, if you look into 2015, as Loren and I have been talking, it looks like it should be a strong year.

I can't speak to what the markets are going to do, but if it's sort of a sideways to slightly up market, I would imagine a very, very good flow picture for us..

Yes, I mean, one of the things -- that if we do continue to get served up in very volatile markets where people are less prone to be putting money directly into active equities, I mean, some of our liquid alternative products, even though they are early days, have really strong performance.

I mean, they are sort of top decile 1-year numbers, which again bodes well for the positioning of these products and then again, how they get taked on -- taken on by the distributors, that there's a lag, it takes a while to get through. But we're probably as well positioned as anybody to sort to be first-in-line as these things sort of come in.

So again, we could probably do quite well under whatever environment comes our way..

The next question comes from Patrick Davitt from Autonomous..

I have a couple of questions on nontransparent active ETFs.

I guess, more broadly, how do you guys kind of view that product relative to your current product suite in terms of viability and as a competitor to PowerShares? And more specifically, now that Presidian has refiled its proposal, could you kind of update us on the degree to which you think the changes they've made can be approved and what the time line is for that approval or rejection?.

Again, very topical, when it came out what, now, a couple of quarters ago. Honestly, I think the quarter ETF and the things that are in place are the things that have been driving the industry. Could, over time, it have some traction? Possibly, but it's nothing that we're overreacting to at the moment.

So we think there's actually the combination of the existing mutual funds and ETFs, we think they're both great structures that really gets you to where you need to be. Not so sure what the whole benefit of a nontransparent ETF is vis-a-vis a mutual fund.

So again, as a competitor product, again, I can't describe the future, but it's nothing that we see as sort of a dominant disruptive technology as people would describe it as..

I don't think there's the same sort of first-mover advantage of being out there first with the nontransparent active ETF because it's all very specific to whatever investment team is managing it as opposed to capturing a particular space with an index.

So that is one of these things that we probably going to remain vigilant but not necessarily being a first mover..

And let me put in context. We say that from experience. So we launched, I'm going lose track of time, maybe 5 years ago active ETFs and if there's $4 million in the 3 funds I'd be shocked. So it just hasn't really taken hold. Maybe it's different here, but that's been our experience..

Okay. And that's great color.

And any update on the Presidian product, which I think you guys are part of?.

Yes, I've not heard -- only what I've personally read on this thing, so again, don't have any much insight as to how they're going..

The next question is from Craig Siegenthaler from Crédit Suisse..

First, what specific themes is Perpetual seeing in the U.K.

given strong sales activity in 4Q?.

I'm sorry, Craig, we couldn't quite hear your question..

All right. What specific themes is Perpetual seeing in U.K.

given the strong sales results this quarter?.

Themes or asset classes? Well....

Product themes, distribution trends?.

Got it. Okay. So it's -- the firm couldn't -- it just couldn't be stronger. So if you go asset class by asset class, whether it be Asian equities, European equities, fixed income, global equities, the performance is very, very strong. I think everything is in net inflows but for the U.K.

equity income capability, it's actually back to net outflows similar to where they were before the change with Neil, and Mark Barnett's done an incredible job in his team generating the performance. So really strong.

And that was the point I was making, that I don't think anybody would have expected that 2014 would have been a record gross sales year for Invesco Perpetual. And that is really a result of the strength and depth of the teams.

And a lot of those capabilities, those teams are -- they make up the bulk of the product range that has been so strong in the cross-border area. So again, very, very strong positioning in EMEA for us..

Marty, from the outside here it looks like maybe 4 drivers are kind of driving the strong sales results. You had a bunch of product launches over the last year and 2 years, that was probably helpful. I don't know if you reinvested back into distribution, but I thought that maybe a lever too. There seems to be more open architecture going on in the U.K.

And maybe RDR is benefiting some your products like passive.

But any of those things do you kind of view as drivers as benefiting your business in the U.K?.

Yes. It's, again, it's a continuation of what we continue to do, right? I mean, we do the obvious. We try to understand what clients need, and we ensure that we have the capabilities in place to do it.

Probably the most recent areas that -- of relative greater investment have been in fixed income with multi-credit and the like and again, we look at it as a longer-term capability that performance across fixed income is very, very strong right now. That was an area that we had abroad, and which we have done.

And we also believe that extending our alternative capabilities into the retail market was an important thing and that's why the effort at the end of 2013, and as Loren pointed out, the performance has been very, very strong and the second set of launches in '14.

And we looked at that as we told you, we think of it as a 3-year time horizon, the best -- you really need a 3-year track record, every once in a while there are capabilities that do well.

Sooner than that, historically, we saw that with IBRA, we're actually seeing it specifically with GTR right now, and again, I think it's -- we're probably going to be in more volatile markets for a period of time.

Investors are looking for a broader range of ways to diversify their capabilities, and that was the whole point of taking the alternatives into the retail market also. And as Loren said, it's only 1 year, but the 1-year performance is just very, very strong.

So it probably bodes well for trends that we see -- that we believe are going to be here for a good long time..

And the only thing I would say is the continued focus on, I mean, RDR is sort of an underpinning for sort of broader changes within the whole U.K. environment, the fact that we've gone out with a single transparent fee has been a very positive thing. I think we talked about that before, it affected some of our -- where our revenue showed up.

But we're certainly at the forefront in terms of doing things that we think are going to be quite friendly for shareholders, for the IFAs who want to sell our products. And we think we're very well positioned with the brand.

And the advertising that we put in place have been really helpful for our recognition and it's something that we expect to continue to do in 2015..

And the thing I don't want to have lost in this conversation, though, is we're talking about sort of advancements, if you want to call it that, but let's not lose track of the fundamental core capabilities, the long-running capabilities in this organization are very, very strong.

And not just that, I firmly believe that the active management is a very important thing, it's been topical to the contrary. But that said, we're into the markets where they're doing well and you can see demand for them more permanently. And I think it's going to be a time for active managers over the next 3 years..

The next question comes from Dan Fannon from Jefferies..

My question's on the IBRA franchise and it's kind of been through a little bit of fits and starts. Obviously, it came out of the gates very hot with good performance and very solid flows and then we went through the underperformance and now performance is good again.

I guess, just wondering how it's being sold or what changes have been made in terms of the messaging, in terms on how that product can perform? And do you think it can get back to the momentum it had 2 years ago?.

Good question. And so I'll answer it this way. So I'd start by the reality and the right way is that clients have a range. Every client has a different set of investment objectives and risk tolerances and they build their portfolios with ranges of capabilities, as you know, that's what you do.

But IBRA was always meant to be an anchor in a portfolio, greater -- a diversifier and a risk mitigator. And we always believed and have said that when you had a very strong equity market, the likelihood is that it would relatively underperform, and at the same time, you saw the flows happen. So we saw that exactly.

But I would also come back to if you look at the performance 1 year, 3 year, since inception, it's very, very strong. So since inception, top 11 percentile, 7 percentile over 5 years, the 3 year is 40 percentile, 1 year is 16 percentile. So it's just a really strong performer.

I mean, it is an anchor in a portfolio and again I think we have to separate flows from portfolio construction and we think it's really well placed, especially if we're going to be in a volatile market environment..

Great. And then just to follow up on the January transitors [ph] that have been so strong.

Is this the combination of both lower redemptions and higher gross sales or more just a gross sales pick up?.

I believe it's combination of both. I think our redemption rate is much lower and sales have come back in January..

The next question is from Eric Berg, RBC..

It feels like that the -- there are not only important product preferences being expressed by investors, alternatives, real estate, fixed income.

But it feels, too, like there's an important difference that needs to be articulated, and I'm hoping you can do it for me to sharpen my understanding, of investors thinking about investing abroad, investors thinking abroad versus that in the United States.

It just seems like they're approaching investing and what they want and what they're doing is completely different in Europe and Asia than in the United States.

My question is, is that right? And if so, how would you sum it up?.

Yes. Look, I think you're right and I think that's not a new trend. I think if you look at equity preferences and fixed income preferences around the world, just using those 2 categories they have historically been different, they've been different for, I'd say, structural pension reasons is 1 level and frankly also people's risk tolerance.

But you also are seeing some changes where if you just go to Japan, Abenomics has -- it is making a real change, where in the pension plans dominated by fixed income, Japanese bonds and some Japanese equities, there is absolutely movement into non-Japanese equities, non-Japanese fixed income. And so that is a very big change.

But you're also seeing the preference towards equities outside of the States has probably been higher and with active managers in particular, and it's served them well. So that's what we're seeing and it's a good observation..

One separate question.

I noticed again in the back of your press release in the final table or right around the final table were your -- you're displaying both your performance relative to benchmark and performance relative to peers, but there are quite a few circumstances, I don't suspect this is distinctive for Invesco and I suspect this has been the case for a while, where there are quite a few instances in which performance is below benchmark but quite strong relative to peers.

My question, do you think that -- I think that, that may -- that the public's tolerance for that sort of performance, strong relative to peers, weak relative to benchmark, is their tolerance is going to become less and has become less and less and will become even less and less.

Do you agree or disagree? And what do you think the implications, what do you think the implications of that would be?.

So tolerance of underperformance vis-à-vis benchmark?.

Versus -- yes, in other words, imagine a manager who was doing very well relative to peers, in the top quartile or top half or let's say top quartile, but is underperforming his benchmark consistently..

So a good question. And what I would say is, very hard to draw a conclusion from that, and so here's what I mean by that. Again, I don't care if it's an institution or an individual. They're going to have a set of things that we know, a set of investment, check of time [ph] prices, risk tolerances.

And that benchmark doesn't necessarily represent what they're trying to accomplish with the different investment capabilities. And I think that's really the very, very important key there and I think you'd have to look institution-by-institution and mandate-by-mandate to come to that conclusion.

But -- so I can't give you a broad answer to that specific question..

The next question comes from Betsy Graseck, Morgan Stanley..

I just wanted to follow up on something you mentioned earlier regarding the active ETFs, that 5 years ago you put it in place, there's maybe only $4 million in AUM.

Could you just give us a sense as to why you think that is? Is it a function of the distribution? And what seemingly seems like there's a difference in connectivity between distribution of active ETFs and other products that needs to be fixed or do you think it's a function of pricing? Or it was just ahead of its day?.

Maybe all of those. And I wish that we had a specific answer. I mean, we've asked ourselves that. I think probably what it does come back to is how people are using ETFs and mutual funds.

And I think people have generally -- this is a broad statement, if you look what's in mutual funds, they tend to be longer-term time horizon type capabilities that people use.

Now that's not to say ETFs aren't but I think they tend to be used in overall portfolio to sort of modify exposures or get access to an asset class they might not be able to in a mutual fund. So I think it's really how the group portfolio construction, how they're using them. That would be my take on it..

Okay. And then just separately, you've obviously had great success at taking the ETF PowerShares product and applying it to different portfolios that might not appear liquid but you're providing liquidity, i.e. the bank loan product.

Can you talk about what the plans and opportunities are to expand that into other fixed income markets?.

Yes. I'm really not prepared to describe what we're going to do next, or I prefer not to. And that said, what we -- again, the answer is we continue to try and understand what investors are looking for and then we determine the best way to deliver it, whether it's a separate account, a mutual fund or an ETF.

So, sorry, I just don't want to get more specific..

Sure. No, I get that. So then I guess just lastly, the -- Loren, for longer interest rate structure that we've got, does seem like it would provide an opportunity to expand the product set because part of the challenge is the liquidity in the underlying product set versus what you're offering to the client in the ETF.

And does -- is that a fair assumption that a lower interest rate environment enables you the opportunity to provide potentially more liquidity than you would otherwise be able to do? And then separately maybe you could talk to how you're thinking about liquidity for these products in general, given in December we had some commentary from Congress on liquidity and how asset managers are providing liquidity to their investors..

Yes. A lot there. So let me just get to liquidity question. So I think it's like this is a new idea that liquidity management is something new to the money management industry. It is absolutely fundamental to how all portfolio managers that manage portfolios for price since inception.

And I think that is something that's not fully understood by maybe some of the regulators. And I think money managers do a tremendous job of liquidity management. It's just core to their job, and they all do it in different ways, right.

So whether it's keeping levels of cash, having backup lines of credit if they detect [ph] in a way, so there are just many different ways to do it. So I don't know that it's such a new idea and topical as others are bringing up.

That said, we continue to do what we've done for decades and just make sure that all the different portfolios have -- the portfolio managers are managing them soundly and appropriately. So that's my perspective and that might be too simple of a view but that's how I look at it..

The next question is from Luke Montgomery, Bernstein Research..

So on the currency translations, I realize it's a crude comparison, but we've seen more of a natural currency hedge, I think, between fees and expenses at some of the other firms like the trust banks. And based on the last 2 quarters it looks like you guys have a 1 for 2 offset from expenses.

So perhaps, it's an obvious answer, but is it the higher-margin of the model or some other issue related to where you keep staff versus where you generate the revenue. I know it will be changing with the hedge obviously but understanding the underlying operating structure and how that translates to the P&L would be helpful..

Yes, so we tend to -- because we have fairly large portfolios particularly in the U.K. relative to the portfolio -- number of portfolio managers, there tends to be good scale there and good scale, better fees, higher fees than other parts -- in particular in the U.S., similar topic with Europe in terms of the fees.

The margins in that region tend to be at the higher level relative to some of the other regions. So I'd say it is a margin topically, you described it, that is causing that ratio..

Okay. And then I know it doesn't necessarily apply to your performance, but as you noted there's been a lot of noise in the press on the poor showing of active management versus benchmarks in 2014. I think the measure of that most often cited leaves a lot to be desired, but to Eric's point, there is a commercial issue here.

So I wondered if you could just get a little more detailed about what in the investment environment you think is so challenging for active managers and why you feel that outlook for 2015 and beyond is better, as you said..

So it's a great question and something that we've taken a look at and I think what we're reading in the popular press is, by our calculations, not exactly correct.

And if you look at performance over the last 5 market cycles, peak-to-peak, trough-to-trough, and you look at managers of active share of 60%, so that probably excludes -- this is just mutual funds, that probably excludes about 15% of the population. All managers have outperformed during that period, 63%.

And that's -- there's lots of detail here but I won't go into it. My point is, and that's before you start to pick good managers, and so what it's really saying is you really need to look at money managers through the cycle and what to expect during the different cycles and not some calendar or arbitrary date. That's not how the world works.

And so I think people could be making bad decisions based on a simple calendar-to-calendar element, but if you are ever going to see active underperformed, it would be from 2009 on when you consider the chunk rally off the bottom and 3 grounds of QE, so there's never been an environment like this.

And I think people could be making bad decisions by drawing the conclusions that they have..

The next question is from Robert Lee, KBW..

And I apologize if this may have been asked earlier in the call, but I just wanted to follow up. I know you guys have been, as you invest in products like GTR and whatnot, have been building up your seed capital over time as new product launches have accelerated the last couple years.

How should we -- do you think you're kind of getting to the point, you're kind of near the end of that and it'd be more of kind of just recycling and harvesting? Do you see much more need to build the seed capital book further? And that's the question I have..

Yes. I mean, I think that we're still a little bit in the bubble of development, particularly as we rolled some of these capabilities out to different regions. It may be sort of the same type of capability but sort of see it in different regions. So I'd say that's sort of a continuation to 2015.

I would expect, probably as we get into 2016, that would begin to slow down. But it's still early days. I mean, there are some things that we did in the liquid alternative world that were launched specifically in the U.S. and we're not fully rolled out everywhere, too. So again, I don't want to sort of get too ahead of what could be the case.

Real estate, just as a theme, though, as we continue to grow, it's a very, very successful franchise that we've got here. And we think that we could do more in there, I mean they're obviously well established in U.S., becoming more and more established outside the U.S.

That will continue to probably demand some amount of capital that is going to be consistent..

And maybe on a related topic, I know you guys are clearly very hopeful about the GTR and its potential on a global basis to gather flow, so -- and Loren, you did just mention real estate but are there any other maybe a couple of products that you could point to that you think fairly new but that you feel that given seed in different jurisdictions, whether U.S., U.K., Europe, Asia that there's -- you feel like they have a potential to build what I'll call maybe a global scale franchise off of it?.

I would say absolutely, I mean, unconstrained bonds. We think that we've developed some really, really fantastic products with our team. And again, just because of the newness of it, they really haven't been able to sort of get established.

So I think there's probably quite a variety of fixed income capabilities that are yet to come and will position us in a very large market. So that's something that's in the future, probably a couple of years away still but something that, I think, will provide a lot of opportunity for flow and growth..

Great. And then just one last question on PowerShares.

And I'm just curious, to what extent, if you think of product development for PowerShares, do you or can you leverage the quant skills you have on kind of the separate account side of the business and more traditional side of the business? I mean, is that really kind of a -- I mean, can you take strategies as you do there and leverage them into PowerShares? Or are they kind of help you develop what maybe good, smart beta strategies for PowerShares? Just trying to get a sense of how they kind of, if at all, work together and kind of leverage each other..

Yes. So that is exactly what has been emerging for us over the last 18 months in particular, where, as factor investing or smart beta, whatever you want to call it, institutions are looking at it and some institutions want to use the ETFs and they do.

But by the way, there's others who want separate accounts, and utilizing our quantitative team to do that is something that has been emerging and is a really strong complement.

So it's really -- and we look at it -- we can become vehicle independent in that and do what you really want to do and just understand what the capabilities the clients want and deliver them. So it's really the combination of those 2 that are really putting us in a very strong position..

The next question is from Chris Harris, Wells Fargo..

A quick follow up on the U.K. Was there any negative impact from Woodford this quarter? I know in prior quarters, there had still been a little bit of leakage from retail and I just didn't know if there was any kind of modest outflows that hit the U.K. this quarter as a result of that..

No. I mean, as I mentioned earlier, the net outflows in those, they're now back to the same levels that they were when Neil was managing the portfolios..

And just, I mean, on that one there's a natural redemption rate against the large portfolio and so pre any changes, there was always sort of an ongoing outflow in those large portfolios. And it's gone back to those levels which are really de minimis now..

Okay. The other question I have was on PowerShares, specifically the Qs. I know you guys really don't have any economics there, but certainly how the Qs do does have some impact on the brand of PowerShares. So just wondering if you guys could maybe comment a little bit on why flows in Qs were so weak in 2014..

Yes. I don't know if it's -- so, the Qs do what they're supposed to do because there -- it's actually a passive portfolio, just a typical passive portfolio.

But if you're responding to the flows, again, a lot of that is used by institutions wanting access, and what you can really see is almost all investor sentiment is the way I would be looking at that. When you have strong flows to the Qs, you can sense where people's confidence levels are in the U.S. market, in the segment of the U.S. market.

And when you see those outflows, that's what you've got and so if you look at Q4 in particular, that's exactly probably a great indicator of investor sentiment and how they were feeling about the risk they were taking in the market..

Okay. So there's no product switching or anything like that, it's more like a sentiment issue..

Very much -- yes, I mean that's....

Next question is from Brian Bedell from Deutsche Bank..

Most of my questions have been asked and answered. But maybe just 1 further, Marty, on the active and passive side of the story.

How has the positioning within your sales force, within the retail channels of active versus passive, I guess, changed over the last year? And as you're thinking -- and moving into 2015 obviously being bullish on active performance, how are you positioning that versus the PowerShares franchise? And if you could talk about the retail distribution landscape in that regard in both Europe and the U.S..

So good question. I'm glad you asked. So again, the way that we look at it is very basic. We absolutely try to understand what clients are trying to accomplish and we'll use a range of capabilities to meet those needs.

And so that would include whether it be our passive or our active capabilities and so we're 1 firm, if you want to say, from, an economic point of view, we're indifferent. The good news is because it's so broad and so deep our capabilities, we can focus on the clients and that's how we look at it.

So we just listen and then lead with whatever capability meet those needs of a client. And to use an analogy that a colleague of mine says, if you're a hammer everything's a nail.

And so the point is since we have such a broad range of capabilities, we actually can absolutely focus on what clients needs and so we don't look at them as competing with one another. We look at them as complementary to one another in helping clients get done what they need to..

And maybe just a follow up to that, I guess, where are you seeing -- maybe again in the last few quarters, where are you seeing that demands change on the active and passive side, I guess, looking, again, both at Europe and the U.S. and the financial advisory channels.

Are you seeing any significant difference in the demand for the PowerShares versus the active products?.

No. No, we're not. I mean, if anything I think PowerShares continues to be strong and I -- as we were talking a question or 2 ago, I mean, it's -- the factor investments is really taking hold, I'd say, maybe more so outside of the United States within institutions.

And as you've heard Loren and I talk, quite frankly, there is a range of institutional investors in particular, if you want to use them as a, really, bellwether that are also very much investing long only equity capabilities along with fixed income and alternatives. So it's really quite broad environment at the moment.

What the whole year looks like, I can't speak to, but that's just what we're seeing right now..

Next question is from Douglas Sipkin from Susquehanna..

Just 2 questions. First, wanted to just follow up on some of the mechanics of the currency, the hedge, I guess. So in terms of sort of the impact on revenues and expenses, that still will be vulnerable or benefit from exchange movements.

But below the line -- excuse me, in the sort of, I guess, other comprehensive income account, the gains and losses from the hedge will show up.

So it's still possible -- is it still possible that currency weakness or strength can weigh on sort of the revenues and expenses in the operating income number?.

Yes, Doug. Unfortunately, yes. The hedge is going to be reflected below the line other gains and losses, it'll be mark-to-market, so it's non-operating, I mean, it'll protect our cash, it will protect the bottom line EPS, but the operating will definitely be subject to whatever changes we might see around the yield.

And certainly, expenses will move in line with revenues in the U.K. and in Europe largely. So it will certainly have that natural hedge. It's really the operating income that is still going to be exposed.

And so again as we talked about in terms of the margin impact, a 10% decline is going to have 0.2, 0.3 basis points' degradation in margin, if you saw a 10% decline. So in any event, it's still on operating -- still are operating results will be exposed to FX..

Okay. So just a little bit more on that, I mean, will it hit the income statement, though? The gain from the hedge or when....

Absolutely. It will hit the income statement and it'll offset any operating income. So there'll be an offset that will even out EPS impact..

Got you. And then I guess, just digging in a little deeper, I mean, obviously, it does create a little bit of noise in your numbers, but -- and my math could be wrong, but like the actual EPS impact doesn't seem too material. I mean, I know you're more vulnerable with pound weakness, but there is some element of matching on the expenses.

So I guess, I'm just wondering, given -- looking in the rearview mirror, obviously, the currencies have come down a lot. But at this point, I mean, I'm just trying to think the methodology.

I mean, is it sort of like something you guys are thinking, you know what, let's just take the currencies out of this, we don't want to make any bets on anything? Because I just -- just from that standpoint, I feel like maybe we're past a lot of this currency movement and maybe it doesn't make sense to do it at this time..

Well, we certainly would hope that's the case. We put the options really just as protection against any further strengthening of the dollar. So we're not trying to do anything relative to where we are today. The floor is at 1.493. I think the pound is at 1.5 something, right now.

So again, if we see the pound start to strengthen from here, my forecast around net revenue yields x performance fees would improve, which would certainly help margins and any estimates around earnings.

So it's really -- we felt important just to protect us against any significant further strengthening of the dollar, which again I don't think there's anybody who really knows clearly what is going to happen in terms of that story.

And so we just didn't want it to be an ongoing concern for our investors or for others, and so we sort of just kind of took that topic off the table..

I got you. So effectively, you're protecting on more downside but if the pound did sort of change direction driven by whatever, you guys still look -- position for upside..

Well positioned, nothing lost, yes..

Okay. Perfect. And then just in terms of investor sentiment, I know it's been very early days with the European announcement.

Any preliminary sense that the risk-taking in some of the European areas is going to pick up or has picked up already from what the ECB did?.

Yes, 2 parts to that. I think, no question, I think the ECB move helped sentiment. I think the anchor right now is what's happening in Greece, and I think that's going to keep some volatility in the market until some greater clarity is there.

So one's a positive and you'll probably -- you just have to mention that the Greece situation gets into something that's a manageable outcome but lots of noise in the meantime until that happens..

The next question is from Greggory Warren from Morningstar..

Just a quick look at your balanced segment over the last year. Organic growth was down about 4% on the year. It's traditionally been one of your better growth areas. Yes, I know Atlantic Trust was a big part of that historically.

But when you look at where industry growth was for that particular segment last year, just wondering what potentially impacted that last year that's different from any other period, was it performance, was it distribution, lack of interest? I'm not sure, can you add some color there?.

Yes. So Gregg, thanks for the question. It was really 2 primary things. One you're quite familiar with, I think, in terms of IBRA. IBRA is booked into that category, so we've been seeing some strong outflows in the earlier part of 2014 progressively improving quarter-to-quarter. So again, we think from a trend perspective, that is on a good plane.

We also saw just episodically, lower -- outflows in a European high income lower. So that was a balanced product, and so that was just kind of a onetime thing.

So we don't think that there's anything this quarter on the balance side that's really worth saying that there's something fundamentally shifting other than we think there's a positive trend and we would expect to see balanced, sort of, go positive again..

Okay. Good. Good. And then just a quick follow up on what's going on in Canada. You've got a couple of independent providers up there struggling a bit with poor performance, poor flows, the market shifting somewhat where banks are moving both into manufacturing and distribution of mutual funds.

Just kind of curious where you guys feel yourself positioned, how you potentially get better growth out of the active piece of the business and then sort of what the plan is for PowerShares there..

So a couple things. So first of all, as you go back a number of years, we struggled with performance, investment performance lagging into the period of time. Now we've had, it's probably, 3 years of strong growth and that's been really important to get in place. So again, the first principle in place, have a range of capabilities performing well.

So that's been a good sign and that's been really what moved Canada to almost as breakeven last year in the retail channel. It's always been broadening in the retail channel and PowerShares are in Canada and that has been another thing that has -- following the playbook that was used in the United States.

It is broadening the things that we can do for our clients up there, so I think that's going to help a lot in the retail channel. The other opportunity for us is that we think that, that we should be able to do just much better in the institutional business in Canada.

So again, a very important part of our business, some real talented people there with some good capabilities. And you are right, Canada, compared to I'd say almost anywhere in the world, maybe Brazil would be about the same, but the dominance of the banks is quite extraordinary..

Is there any sort of key to unlocking that to getting on those platforms? Is it just -- is it a fee differential? Is it a performance issue? Or is it just that they're more hungry for the business?.

Well, I think you've hit it. I mean it's -- they like selling their products more than they like selling other people's products and yes, I mean, it's -- when I got into the business decades ago, I thought that would change and it's not changed a bit up there.

So again, it just -- you really just have to continue to do a good job and just recognize the strength of the banks. And also you have to expand your range of offerings beyond what they would be doing themselves and that's what we're doing..

The next question is from Bill Katz from Citi..

Just to follow up, and I did have to hop off for a second, so I apologize if you did cover this in some of the other Q&A.

You mentioned quant coming back a little bit more I asked earlier, can you give me a sense of where the mandates are coming from? Is it replacement to active long only equity, fixed income cash, where are the mandates being funded from, if you have a sense?.

So you're talking about the institutional pipeline, Bill, sorry?.

Well, on the quant equity you mentioned that factor based investment is scientific..

Yes. So it's, again, kind of [ph] in Europe is probably the strongest followed by the U.K. and again, Australia and emerging interest in Japan, which is again, I think relatively new and follow-on to sort of Abenomics and some interest in China..

I understand that but -- I'm sorry if my question wasn't clear enough.

Where you think the mandates are coming from in terms of from other allocations from equity, within asset class or fixed income, et cetera?.

Bill, I wish I knew. That's a good question I don't have the answer to it. So sorry about that..

And so with that, I'm showing no further questions..

Well, again, on behalf of Loren and myself, thank you for attending, and thank you very much for the questions and we look forward to talking to you next quarter..

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