Martin Flanagan – President, Chief Executive Officer Loren Starr – Chief Financial Officer Andrew Schlossberg – EMEA Business Dan Draper – PowerShares ETF Business.

Michael Carrier – Bank of America Ken Worthington – JPMorgan Patrick Davitt – Autonomous Glenn Schorr – Evercore Dan Fannon – Jefferies Bill Katz – Citi Brennan Hawken – UBS Alex Blostein – Goldman Sachs Brian Bedell – Deutsche Bank Chris Shutler – William Blair Robert Lee – KBW Michael Cyprys – Morgan Stanley Chris Harris – Wells Fargo.

Operator:.

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 condition, AUM, geopolitical events and their potential impact on the company, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions.

In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future or conditional verbs such as will, may, could, should and would, as well as any other statement that necessarily depends on future events are intended to identify forward-looking statements.

Forward-looking statements are not guarantees and they involve risks, uncertainties and assumptions. 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 the 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 and any public disclosure if any forward-looking statements, later turns out to be inaccurate..

Welcome to Invesco's First Quarter Results Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I would like to turn the call over to your speakers for today, Marty Flanagan, President and CEO of Invesco; and Loren Starr, Chief Financial Officer. Mr. Flanagan, you may begin..

Thank you very much, and thank you for joining us today on the call. Just to point that out, that's Loren Starr, Invesco's CFO. And we'll be going through the first quarter results, and if you're so inclined, you can follow along to the presentation which is on our website. As is our practice, I will do a review of the business for the first quarter.

Loren will go into greater detail of the financials. But also today, with us is Andrew Schlossberg who leads our EMEA business; and Dan Draper who leads our PowerShares ETF business, and they will help provide an overview of our efforts to further enhance our client offerings. And then of course, we'll get into Q&A.

So let me begin with the first quarter. So if you happen to be following along, I'm on slide four of the debt. So let me highlight the first quarter results. Long-term investment performance remained strong, ending the quarter at 69% and 83% of assets ahead of peers on a three and five year basis.

Our strong investment performance and our focus on providing outcome-oriented solutions to clients contributed to the strong long-term net inflows of $1.8 billion and an organic growth rate of 1% for the quarter. Adjusted operating margins for the quarter was 37.7%, and we returned $150 million to shareholders during the quarter through dividends.

Based on strong fundamentals of our business, we're increasing our dividends to $0.29 per share. This represents a 3.6 increase over the prior period. Assets under management were $834 billion at the end of the quarter, up from $812 billion at the end of 2016.

Adjusted operating income was $327 million for the quarter versus nearly $336 million in the prior quarter. Adjusted EPS for first quarter was $0.61, up from $0.59 in the prior quarter. We did not purchase any stock during the quarter instead using the available cash for the transaction – transactional discuss in just a few minutes.

And before Loren get into the details of the financials, let me take a minute to review the investment performance and flows. I'm on page seven now.

We continue to strengthen our investment platform to provide global expertise and support minimizing distractions for our investment professionals so they can focus on delivering investment outcomes to clients.

Our strong investment performance during the quarter reflects these efforts with 69% of assets in the top half of peers in -- on a three-year basis, and 83% in the top half on a five-year basis. You'll see on page eight, passive flows are strong during the quarter while redemptions offset strong growth sales in active assets during the quarter.

Flows into passive capabilities were driven by strong demand for PowerShares ETF with net inflows of more than $2.5 billion globally for the quarter.

Although long-term flows were slightly negative on the active side, we saw strong demand for alternative capabilities, including senior loan products with more than $3 billion in net flows and GTR with nearly $2 billion in net flows during the quarter. Retail flows were solid during the quarter, reflecting continuous strength in PowerShares and GTR.

Our pipeline of one, but not funded institutional opportunities remain strong, but the timing of those are spread out over the next several months. We saw solid demand for GTR in our senior loan products during the first quarter, continuation of recent trends. So with that as a backdrop, let me turn to Loren to review the financials..

Thanks very much, Marty. Quarter-over-quarter, our total AUM increased $21.9 billion or 2.7%. This is driven by market gains of $23.1 billion. We saw a positive foreign exchange translation of $4.1 billion.

Our long-term net inflows came in at $1.8 billion and we also saw inflows from QQQs of $1 billion and these factors were somewhat offset by outflows from the money market – institutional money market product of $8.1 billion. Our average AUM for the first quarter was $829.8 billion, that's up 2.6% versus the fourth quarter.

Our annualized long-term organic growth rate in Q1 was 1% compared to negative 1.5% that we saw in the fourth quarter. Our net revenue yield came in at 41.8 basis points and our net revenue yield excluding performance fees was at 40.9 basis points, which was in line with the guidance we provided on last quarter's earning call.

Two fewer days in the period reduced the yield by 0.8 basis points. We also saw a decrease in other revenues, which accounted for the remaining 0.1 basis points. On slide 12, we provide the full U.S. GAAP operating results for the quarter.

My comments today, however, will focus exclusively on the variances related to our non-GAAP adjusted measures, which will be found on slide 13. So let's go to 13. You saw, in 13, net revenues increased by $3.3 million or 0.3% quarter-over-quarter to $867.1 million which included a modest negative FX rate impact of $0.3 million.

Within the net revenue number, you'll see that adjusted investment management fees increased by $8.5 million or 0.9% to $973.6 million. This reflects our higher average AUM during the first quarter compared to the fourth quarter of 2016, partially offset by the impact as we've discussed in the past of fewer days in the first quarter.

Adjusted service and distribution revenues decreased by $2.7 million or 1.3%, again reflecting higher average AUM offset by lower service revenue and fewer days in the quarter. FX increased adjusted service and distribution revenues by $0.1 million.

Our adjusted performance fees came in at $17.7 million in Q1 and were earned from a variety of investment capabilities, including $12 million from bank loan products, $3.3 million from real estate and $1.2 million from our U.K. investment trusts.

Adjusted other revenues in the first quarter were $20.8 million, a decrease of $2.4 million from the prior quarter. This is generally due to $2.6 million less in transaction fees from real estate which was offset by a $1.6 million increase in unit investment trust revenues.

Largely driven by higher-than-anticipated UIT revenues, this line item came in above our stated guidance, if you remember, of $12 million to $15 million per quarter in 2017. Next in Q1, our third-party distribution service and advisory expense, which we net against gross revenues, decreased $5.1 million.

Moving on down the slide, you'll see that our adjusted operating expenses at $540 million increased by $12.2 million or 2.3% relative to Q4. These amounts were generally in line with the guidance that we provided on last quarter's call. Foreign exchange reduced adjusted operating expenses by $0.6 million during the quarter.

Adjusted employee compensation came in at $361.2 million, an increase of $23.3 million or 6.9%. This was generated by a normal seasonal increase in payroll taxes as well as retirement costs and one month impact of higher base salaries.

Our adjusted marketing expenses in Q1 decreased by $10.4 million or 29.4% to $25 million, reflecting seasonal reduction in client events and other marketing activities.

Our adjusted property office and technology expenses were $85.6 million in the quarter, an increase of $0.6 million or 0.7% over the fourth quarter due to higher outsourced administration costs. And then our adjusted G&A expenses at $68.2 million, decreased by $1.3 million or 1.9%. The G& A decrease were driven by lower professional services expense.

Continuing on down the slide, you'll see that our adjusted net operating income increased $18.5 million compared to the fourth quarter. This increase was primarily due to earnings from our real estate partnerships and lower mark-to-market gains on our seed money investments.

The first quarter included a $7.8 million gain realized on our pound sterling U.S. dollar hedge, which was similar to what we saw actually in Q4 as well. Moving to taxes. The firm's effective tax rate on pretax adjusted net income in Q1 was 26.6%.

The first quarter tax rate included a 0.4% rate decrease related to our excess tax benefits on share-based compensation related to divesting of our annual share awards which then brings us to our adjusted EPS of $0.51, and our adjusted net operating margin of 37.7%.

So before turning things over to Marty, I just want to mention a few additional items. The first is related to our pound hedge. Given the recent run-up in the pound, we took the opportunity to extend our pound hedges through the end of 2018.

As a reminder, these hedges are in the form of put-option contracts designed to hedge approximately 75% of our pound-based quarterly operating income out of U.K. and are all set at the same strike level of 1.25% -- I'm sorry, $1.25. Additionally, I'd like to provide an update on our business optimization work that began in late 2015.

Given the size of the opportunities, including potentially the outsourcing of back-office functions, we expect the optimization work to continue past the original targeted completion date and to incur – we will incur additional cost of approximately $38 million through mid-2018.

However, in terms of reporting and consistent with our past practice, an approach with dealing with material and one-off expenses, that $38 million related to the incremental optimization charges will be adjusted out of our non-GAAP presentation and are all detailed and tracked of course, in each quarter in our U.S.

GAAP reconciliation within the earnings release. At the end of the first quarter, we have recognized approximately $28 million in run rate savings due to optimization with the additional work being performed as we speak that we expect to exceed our high-end of the initial targeted savings range, which we describe as $30 million to $45 million.

We expect to come in with a run rate savings of approximately $50 million once these efforts are fully implemented.

And we believe this additional optimization work will help make Invesco an even stronger company, further increasing our effectiveness and efficiency of our operating platform but informally will allow us to continue to fund our most crucial strategic initiatives. Next I'd like to just quickly turn to MiFID II.

So on the regulatory front, one of the questions that frequently comes up is Invesco's planned approach on the implementation of MiFID II slated for early 2018. As you may know, we're a very strong believer that research is a key contributor to our investment process and results.

Our preferred approach, with respect to MiFID II, will be to use commission sharing accounts, or CSAs, to fund the research payment accounts contemplated by MiFID II to the extent permissible under the final rules.

Note that there are still a number of legal and regulatory inconsistencies, which regulators must address, together with potential competitive developments which create uncertainties to – regarding the degree to which our preferred approach may be fully implemented.

And while it's possible that we will be required or possibly choose to purchase certain research on a hard dollar basis, we are monitoring developments in this area closely.

And ultimately, we expect to be able to clarify our approach in any financial impact to our business as we get closer to implementation date and as the current regulatory uncertainties are resolved. Buybacks. For the last time, I want to provide an update on – it was around our capital allocation policy and specifically buybacks.

We do not purchase – repurchased any shares in Q1 given the seasonal cash needs in the first quarter along with the upcoming need to seed new products and obviously given the recently announced acquisition of Source, we elected not to repurchase shares in the quarter.

I would like to point out though that this should not be viewed as a change of our capital priority, and we will continue to maintain opportunistic – remain opportunistic around our timing and the extent of – to the extent of repurchasing shares.

This also has no impact on any other capital priorities of the investment, dividend growth or the strength of our balance sheet. And with that litany of things, I'm going to turn it over to Marty..

Okay, thanks, Loren. So we want to get back to the announcement that we made today about the combination with Source.

And as we've discussed before, here we are intensely focused on helping clients achieve their investment objectives and it's really through our comprehensive range of active passive and alternative investment capabilities that's been constructed over many years to help institutional and retail clients achieve their investment objectives.

We believe our ability to provide meaningful solutions to clients for a broad array of capabilities and vehicle is inherent strength of the firm and sets us apart the marketplace.

And with that as a backdrop, I'm going to hand the call over to Andrew, who will speak to the EMEA business, and then Dan, who will highlight the strengths of our investment.

Andrew?.

Thank you, Marty. This is Andrew Schlossberg and I lead our business here in EMEA. And I'll pickup on page 16 of the materials that were distributed. As many of you know, we have a strong and highly regarded position across the markets here in EMEA.

We built that platform through our investment reputation here over many, many years, maintaining a strong and consistent investment culture that's been built by the depth and tenure of our investment teams here, clear philosophies and consistent processes.

And all of these has enabled us to deliver top-tier returns for our clients with 88% of our client AUM in the region performing in the top half of peers over the past five years.

As a result, we've developed a diverse all-weather products range that is well positioned to meet client needs across asset classes and markets, and our brand, as such, is highly rated in the region and our market penetration has expanded over time. We're currently number two in the U. K.

retail market, and we're growing in Continental Europe, where we've been – where we're ranked in the top 10 within 8 of the markets on the continent. We continue to see growth despite – in the region despite the volatility of Brexit and other macro headwinds.

Notably, our net flows in the region here in EMEA have actually – were actually up $2.1 billion in positive net flows since last June 23, 2016, in the U.K., when the Brexit referendum was announced, so growing at a decent clip.

Furthermore, the diversity and the strength in our business has allowed us to achieve March ending AUM this year as measured in British pound that's set a high watermark for us in the EMEA region as a whole and in each of our respective client channels across institutional U.K. retail and across other retail businesses, respectively.

I call your attention to page 17 in the presentation deck. And core to our long-term strategy is really being focused on markets and channels where we believe we can be highly relevant while maintaining a close proximity to our clients and innovating with the broad range of capabilities that will meet their demand.

And over the past five years, we've been able to maintain our quality while growing, as I just referenced to high watermarks, and diversifying our business as you can see on this chart here. Notably, you can see on the left-hand side of the chart that we have maintained leadership in the U.K.

which has been a dominant position for us, while also expanding our AUM in EMEA ex with the U.K. from 45% five years ago to 60% of our regional client and AUM today.

Furthermore, as you'll see in the middle part of the chart, we are more evenly balanced between fixed income and equities, and we've rapidly grown our multi-asset and alternative capabilities in the region which now represent nearly one-third of our assets under management for clients in the region.

Finally, you'll see on the right-hand chart that from a client channel perspective, we've increased our relevance in the institutional markets and we've broadened our retail strength beyond just the U.K. to even more robust pan-European retail profile over the last five years.

And while – I'll say while we're pleased with the strong foundation that we've built, we believe there's exceptional growth potential in the region for asset managers that are focused on being truly active and factor strategies asset managers that provide exceptional in-market client service and maintain scalable platforms to manage through dynamic markets, no doubt, in this part of the world.

So with that, let me hand it over to Dan Draper, who will expand a bit more on our factor and ETF profile in particular..

Thank you, Andrew. I'm Dan Draper, and I head up the PowerShare ETF Business. Based on more than 40 years of experience, Invesco is a market leader in factor investing and then as you'll see on slide 18, we have more than $175 billion in assets under management in terms of factors.

We're the fourth largest ETF provider globally, and have significant market positions in quantitative strategy and unitrust businesses. Our expertise, product breadth and global profile provide a number of key competitive advantages. First, we're diverse. Time-tested and have across in our investment strategies.

Number two is we have experienced product specialists and tremendous field wholesaler depth and three, strong global profile with key strengths in key markets. If you move over to slide 19, I really want to use this chart to compare kind of growth and give you some idea of the EMEA ETF growth market compared to the U.S.

And as you'll see, the EMEA ETF market is one of the fastest growing areas in asset management today. And as you'll see again on this slide, basically the growth trajectory in EMEA ETF as you see on the left chart and then we overlay that with the historical growth in the U.S.

on the chart on the right hand on slide 19, you can really see a very common pattern. There may be an approximate seven-year lag in that chart on the right but you can really see the growth that has been experienced. So it's overall, ETFs in EMEA have grown at a 23% compounded annual growth rate since 2005.

And as Morningstar states here, it's projected to reach $1 trillion by the end of the decade. I think with that, I'll turn it back to you, Marty..

Thanks, Dan, thanks, Andrew. And so now let's talk about Source within the context that Andrew and Dan went through and we'll open up to Q&A. So you saw the announcement this morning. We did sign a definitive agreement via Source, a leading independent ETF specialist focused in EMEA.

We're very excited about the opportunity which we believe will meaningfully enhance our ability to meet client needs across the globe and specifically in EMEA.

Source brings to Invesco additional expertise across the entire ETF chain, strong talent in London and on the continent, and I guess specifically the transaction $18 billion of Source-managed, assets under management plus $7 billion in externally managed funds.

The combination of Source and Invesco significantly benefits clients by further expanding the depth and breadth of our factor-based strategies and ETFs, adding to the comprehensive range of investment of active passive and alternative capabilities Invesco offers in EMEA and across the globe, enhancing Invesco's expertise and ability to meet needs of institutional and retail clients in EMEA with the addition of dedicated underground ETF specialist spanning sales, marketing, capital markets, product management and development.

Strength in Invesco's position in EMEA, while achieving additional scale and relevance in a growing ETF market globally that Dan just addressed. And as you can imagine, our focus over the past several weeks is really just been getting to signing the definitive agreement.

Our focus today and over the next few days will be engaging with clients of both firms, speaking with all of you, reaching out to regulators, index providers and others to bring them up to speed of our plans.

We'll then turn our attention to the integration of the two firms, building on Invesco's significant expertise in bringing companies together for the benefit of clients, employees and shareholders. And as I mentioned, we're all very excited about this opportunity.

We think it's going to meaningfully enhance our ability to help clients across the globe and meet their investment objectives. And with that as a backdrop, I want to open it up to questions. And again, so is myself, Loren, Andrew and Dan will all be available.

Operator, can you open?.

Operator:.

[Operator Instructions] Our first question comes from Michael Carrier of Bank of America. Your line is now open..

Thanks guys. You’ll meet me Marty. Just first on the Source transaction, a lot of things that you said makes sense in terms of the product distribution.

Just wanted to get a sense, when you think about Invesco's positioning in factor in smart beta, it seems like you're already one of the leaders to why maybe couldn't you do what you're thinking of the opportunity is with Source without it? Meaning is it – the products are really differentiated, is it more the distribution within Europe on that they have a better penetration and to that where you can increase your kind of foothold in that new geography? I just wanted to get a sense because it seems like you already have a pretty good new traction there..

Yes. So I agree with the points. I think one of the strengths that is becoming more evident is we have a 40-year track record in factor-based investing, and PowerShares is now over 11 years has been a meaningful contributor to us. As Dan pointed out, and Andrew, I mean, the ETF business actually in – on the continent is quite different.

And we've been making efforts over the last number of years; more recently, turned our attention there. It's just a very different market and what Source does is it rapidly advances our presence there from where we were with scale, lots of talents. I think it would take us multiple years to get close to what Source offers on day one.

And we think it has every elements of the great success that PowerShares brought to us over a decade ago..

Okay. That’s helpful.

And then as a follow-up, Loren, just on, I guess, some of the line items that sometimes you provide a little bit of guidance on anything on the expenses, I guess, we get normal seasonality, and then maybe G&A and then the other just given maybe the dynamics in the UIT market in terms of the outlook versus what you guys were thinking last quarter, just any change there?.

So I think you're going to see and you've seen it a little bit in the first quarter just normal flexing due to incentive compensation growing as operating income grows.

You also saw, or you will see probably as we move into the second quarter impacts around foreign exchange, right? So those are the things that I'd say are going to happen just naturally and mechanically. In terms of the guidance right now, I think, we're sort of generally saying that what we put in place in the last quarter call stays right now.

And maybe we'll be in a position to provide a more thorough and robust update midyear, particularly after the Source transaction is closer in terms of happening. So but I mean we're pretty much on our path to continue along the strategy that we've described in the past. And so there is no big change or need to adjust kinds at this point.

I think around UIT business, where the only thing we got a little surprised on, on the upside was better revenues around UIT than we originally anticipated. I would like to – I'd like to believe although I don't at this point that that's a continuing trend right now. I think we're happy to see that, maybe we'll continue.

It’s still too early to say definitively that the UIT business is going to sort of pullout yet, the DOL rules are still very much in flux and now people are reacting to them are still in flux. But I would say that's probably a greater level of uncertainty around the revenue line item than we had in the past with some potential upside..

Okay. Thanks a lot..

Thank you. Our next question is coming from Ken Worthington of JPMorgan. Your line is now open..

Hi, good morning. One of your competitors has been more vocal about steep rates and fee cutting in active management.

So maybe how does Invesco see its positioning in terms of fees? And do you think Invesco's organic growth could be enhanced with some targeted fee reductions? And maybe is that something under consideration?.

Yes. I'd say the headline that is active management is not easy, right? And I've made a comment that those that are strong active managers generating the returns that they're meant to will continue to do well. We are in an extended period of this beta run that we've all talked about.

We still see great opportunity for active management, but let me get more specifically.

I think from some of the fee cuts that you've seen, from the media in particular maybe the analyst community, very quick to extrapolate that price cuts is the answer to everything in the marketplace when I think when you actually look at it firm by firm, the price cuts announced by these firms have really been more substantial in nature relative to investment performance and the like and then in some just not being properly priced within the marketplace.

And we believe the question is and always has been, our clients receiving value for money. And so we look at it, we have a spectrum from cap weighted indexes all the way through alternatives. And you pay more for value for money. And the only way that a client can ultimately generate excess returns, manage downside risk is with active.

And so we think is really a combination of active passive and alternative is the right answer. I don't think the cut is slow. You have clients, and I think some and I think where you're going, Ken, some are future state of the industry where asset owners won't care about value for money.

I just think that's false and it's the best way to generate returns for clients is a combination of active passive and alternatives. And I think within the context, value for many matters. If you're doing a good job, you're going to get paid for it. And that's not to ignore the industry pressures.

And I think what I really focus on, Ken, is the enemy of active is not passive. The enemy of active is bad active managers. And so flushing out bad is probably a very good thing. And if you looked at our results over extended period of times, we've done a very good job generating value for money..

Thank you. With Source, you're clearly focused on kind of focused M&A. As we think about the industry, maybe can you share your view on large scale M&A? We've seen a few examples of large-scale deals. They appear to be ripping out a lot of costs.

I guess does large-scale consolidation make sense? And would you expect to see more of it over the next, I don't know, call it 12 to 24 months? And if we do see more – I'm sorry, and if we don't see more deals, what might be the leading issues holding back that sort of large scale M&A?.

Yes. Look, Ken, you and I and many on the phone have talked about this. Since I've been in the industry, there has been declarations of massive consolidation.

I do think though this time, there are a set of factors in place that weren't in place before where scale does matter, largely driven by the cost coming out of the regulatory environments and the low rate environments, cyber and the like. You have to be, as a firm, you have to be able to invest in the future.

And I think a number of smaller-sized firms are finding that hard. They can – they're really just investing and keeping up with certain regulatory environments, cyber and the like, and you just lose your competitive positioning. So getting to your question, intellectually, you would suggest that large-scale combinations make sense.

The reason why we've not seen lots of consolidation in the industry is because it's very difficult. We are fiduciaries and taking care of clients comes first. And clients have choices and done poorly, it becomes a melting ice cube. And so I think consolidation for solely to – for cost saves is not the answer to success.

If two firms get together and they're poorly performing, not doing a good job for their clients taking costs up doesn't do anything; in fact, I think it could probably accelerate client departures. So all in all, I guess my point is, intellectually, it makes sense. They're very difficult to do.

I think there'll be fewer and farther in between just because people are wise enough to know how difficult it is. And I come to one more point and then I'll stop. We've been in the management team here for decades has been involved in various combinations of some of scale and you have to have the expertise of properly pulling firms together.

And I think the other thing to pay attention to if firms don't have a history of success; it's another warning sign as far as I'm concerned..

Great. Thank you very much for all the color..

Martin Flanagan:.

Thank you. Next question is coming from Patrick Davitt of Autonomous. Your line is now open..

Hey good morning. Thanks for taking my call. On Source, I have a couple of questions on source actually. Is there a lot of redundancy here? Or is there – is it – or do you feel like you really need the double platform in Europe? In other words, could we expect some expense synergies? And the second question is around the PIMCO-branded funds.

To what extent do you have assurances those are locked up because I imagine they will beat you as more of a competitor? And do you think there's a risk that they want out of that, I guess, agreement post deal?.

Yes. So let me make an overall comment then I can turn it to Andrew and Dan. And yes, we look at this as a tremendous opportunity. It feels like gap of expertise, on the comment for us, Dan pointed to the prospects of growth in the ETF market in EMEA, we believe that very, very strongly.

We think the combination of the two firms together can rapidly expand from where we are today. I look at it a little bit analogous to PowerShares 11 years ago that you put the platforms together, and you can be very, very successful. So it's very much a – we look at it as a growth opportunity.

And we think it's all the makings of PowerShares combination within EMEA.

But with that as a backdrop, Andrew, do you want to pick up on it?.

Yes, yes, sure, Marty. And just building up on what Marty was saying, it's clearly we're looking at this as a growth opportunity, not as a cost savings opportunity for us. And Marty mentioned some of the growth drivers behind this. Clearly the market is growing at a good rate and we think it's in the early stages of growth as Dan pointed out.

We think there's opportunity to expand the distribution of Source and strategies through some of the market that I described and the positions that we have complementing what Source has.

We see opportunity with the distributors server is that they want to do more business with firms that can bring a whole range of capabilities and frankly packaging vehicles as well which helps us with. And then the combination creates an even more scaled platform in the ETF space.

And there are some efficiencies but more importantly, that whole ecosystem of how an ETF comes to market and how you scale, especially in a part of the market that we're in, where innovation matters, all those aspects are key and Source brings depth and talent there that will help us build what we've started here in Europe and complement certainly what we've done around the world.

I think that as we look at – well, Dan, do you have anything you want to add to that?.

No, I just think exactly what you described. What I would say it's crucial difference between Europe and U.S. again comparable growth rates. But the fact is that the institutional market demand really dominates in Europe versus the financial adviser and intermediate retail demand in the U.S. has really grown.

So I think that's really where, if you will, the buy versus build or especially the inorganic approach to Europe, really something you have consider much more so as you're able to show up in the markets that Andrew mentioned at scale and have large enough products in front of institutional clients who can really buy into that.

So I think that's a crucial difference..

And I think relating to the question about the partnerships that Source has, a big foundation of the ETF industry has been a series of partnerships. And PowerShares, as we built it over time, also has a number of partnerships that it works with across all parts of the ecosystem I described.

And so we're just getting to know all Source partnerships a bit better and spending time with them and the team and we're going to look to develop and expand them on many different levels but it's kind of an early days in those conversations..

Okay. Thank you..

The next question is coming from Glenn Schorr of Evercore. Your line is now open..

Hi, thanks very much. Looking for a little more color on the institutional side, I think this was one of the lower gross sales and flows quarters for a while.

I’m curious if you're seeing trends like in-sourcing and going passive like we've seen in some other places? But also you mentioned the one but not yet funded pipeline is pretty good, and I don't know if you can throw numbers at that, but I'll appreciate it? Thank you..

Hey, Glen, it's Loren. Yes, the – I think of it as just sometimes as we've seen lumpiness in timing. Some of the elements within the quarter that I think kind of stood out on the downside, there was about $1 billion withdrawal with the commonwealth-related situation.

So I don't think people understand that dynamic but that was kind of a one-off thing that hits EMEA and equities. We also saw about a $700 million Japanese passive real estate, a very low-fee outflow in the quarter.

And then there was about $1.2 billion of quant outflow that cut across Asia-Pac and Continental Europe all in equities going active, so that's kind of a little bit of highlights on what just happened that took that quarter down. In terms of the pipeline though, I mean it's actually very robust.

The revenue yield is definitely at a level we haven't seen in a long time. I mean, really, really high, highest that we've seen in the last five quarters for sure. And so the revenue run rate is right in line with what we saw last quarter.

And so I think again, just in terms of timeliness, I'd say the second quarter is probably going to be much more robust than we saw in the first quarter just because of the way we report..

Okay. I just want to add, yes, so continues to be an area where I have just growing confidence in its contribution to the business in time for all the reasons we've talked about.

So the leadership is in place, the breadth and capabilities that we have, so I just look at it as being really just a continued relatively rapidly more growing part of our business. And as we all know, we all wish things were neat and happened quarter-by-quarter, but it's just happened that way with institutions as you know.

But the picture for the whole year looks very, very strong and we expect it to just and strengthening, and it will just get stronger next year too..

Qualified opportunities at an all-time high, which is again you can't bank those, but those are the ones where our team comes out and says the prospects seem quite viable and seasonal so..

Excellent! Maybe a follow-up is thankfully the exact opposite question on the retail side. You had 20%-ish growth sales growth over last year, then last year is we're a quarter, but still it's a good number here to high there as well.

You mentioned GTR but I'm curious, A, what else drove the strength? And B, can it sustain itself? April seems like a good environment so far..

Yes, great question, Glenn. So we saw a variety of things kicking. Obviously, PowerShares generally continues to do very well so that's been a very strong contributor across a variety of asset classes variable rate prefer, we saw bank loans as well.

We saw a lot of the strength in senior loans just generally I'd say the bank loan capability was in high demand as you can imagine in the quarter. But we continue to see strong interest in some of the products that are yield-oriented like diversified dividend. And GTR as well continue to flow very strongly.

I think GTR, in total, is about $21 billion in size now. Again, both attractive as retail and institutional and continuing to find strength. Uni was another area where we saw high yield in Uni flow nicely. So those are some elements within the retail picture and one that I think has been good.

I'd say on the flipside, just to explain, we did see some outflow in Inchinko that was the global, the U.S. REIT is about $1 billion out of Japan, actually $1.1 billion out. I think that's a temporary thing but that also sort of took a little bit away from the retail story.

UITs, even though stronger, without $800 million again, so it has been an outflow and continues to be a little bit of a negative on the retail picture. The other thing that I would like to just mention since everyone expects it if I don't say it, it's a problem, is we are in positive flow through April. We have the latest April numbers.

It's modest again it's certainly around $200 million in that range, a lot of which is driven a lot by PowerShares. PowerShares has been extremely strong through April.

I think it's about $1.1 billion in aggregate, and that continues to flow, but also importantly, our cross-border business is doing very well in Europe, about $1 billion, and so some very strong elements within the second quarter shaping up..

Okay. Thanks very much Marty..

Dan Fannon of Jefferies. Your line is now open..

Thanks. Good morning. Loren, you mentioned a handful of reasons for the dry – or use of capital with regards to the seed and obviously to the acquisition. Can we think about I guess how should we characterize the buyback kind of you've been pretty consistent the last several quarters thinking about it going forward.

Is this something we should be modeling or until the deal closes we should kind of see more of a pause?.

I think the reality is I mean, it's probably a little bit of a pause I think we've talked about some substantial feeding, $200 million-ish net increase and then obviously this transaction which incidentally I know a question will come up, is substantially less than the number that's been discussed in the media in terms of the prices but there's obviously a real cash need to fund that.

The good news is that it's all been drawn out of existing cash out of the European subgroup. So there's no need for us to draw down and finance that other than using existing capital in our European business that's already there.

So I think the general message will be it is business as usual around our capital policy and our implementation of the capital policy other than sort of probably just first half of the year, and then we'll will take it off obviously and [ph] some more thoughts. The other thing I would say is we will continue to be opportunistic.

But that doesn't mean we're not doing any buyback this quarter, forget about it, I mean, if we see opportunity, we'll absolutely be opportunistic as we always have been because we're not sort of living quarter-to-quarter, right, but some pause sort of restriction on use of cash..

Great. And then I guess some follow-up on Source. Can you talk about the trajectory of growth in terms of flows? And then from an economic perspective, the difference in fee rates between, obviously, their managed AUM versus the externally managed AUM? And we might think about that from an economic perspective..

Loren, why don't you get the fee rates? And then Andrew and Dan, will you pick up on the growth opportunity?.

Yes. For the fee rates, there's obviously a big difference between the Source-managed assets and the externally managed assets. So of the $18 billion which was Source-managed, that's roughly 30, 31 basis points in line roughly with kind of where PowerShares is. Again this is a very good fee.

On the $7 billion externally managed, it's about six basis points that comes to Source, and so that averages about 24 basis points in aggregate across the $25 billion. And then in terms of the growth prospects, maybe Andrew or Dan can talk about it..

Yes, I mean I touched on them categorically before, but maybe just a few more specifics. I mean, the Source run rate growth has been good, it's been growing rapidly. We have a relatively small ETFs business here in PowerShares that also experienced its record growth last year in terms of net sales, so both have momentum.

Our focus here, as I mentioned before, is to build on that momentum. The Source product line is 70-plus products, I think, and it's pretty well diverse across a number of asset classes.

So part of the thing that appealed to us was it has some diversity across all sorts of unique access, smart beta, some active strategies and so we see it able to kind of weather through a variety of market conditions like PowerShares has over the last several years.

A few things maybe where we see some opportunity immediately, in particular in the European markets, as I said where we have top position at Invesco, top 10 position in eight markets on the continent, good momentum and really sort of deep relationships with fund to funds and private banks through our increasingly larger users of ETFs and Source has done well there too.

We view those as opportunities to accelerate together in the future. And you look at the U.K., where our adviser channel is quite strong across our business in the U.K.

from an active and fundamental perspective, and we're going – we see factor strategies picking up in use of growth there, so we think there is opportunity there as well as the financial institutions in the U. K.

So I don't know, Dan, if you have anything else you want to add?.

I'll just add anecdotally that, I mean, you look year-to-date Source has contributed with our strong inflows, net inflows and they launched particularly commodity product at the beginning of the year and it's proven to be very popular. So we continue to see just ongoing growth in Source business..

I guess just a follow-up, is there any numbers on the LTM or year-to-date just in terms of what the total flows are for Source?.

I think we'll have to see what we can disclose at this stage and then we'll get back to you..

Okay. Thank you..

Thank you. Bill Katz of Citi, your line is now open..

Okay. Thanks very much for taking the question. Just staying on Source for a moment, you mentioned in your press release that this was a deminimis to not material to earnings. I'm trying to counter that with franchise that seems to be growing and it's possibly for some synergies internally.

So how should we think about the go-forward financial impact? And then I have a follow-up question..

Yeah, let me make a comment and turn it to Marty. Bill, we give Source a lot of credit for what they accomplished in eight years. They definitely -- they've created something very, very competitive in the market place, they did it very rapidly and so they were definitely in investment mode.

And as I said, we couldn't have replicated anything like this in that period of time or short period of time. So we strongly believe that we are going to see contribution to the overall operating results in the not-too-distant future with the combination of source and Invesco.

Loren, do you want to?.

Yes, I mean, I think, we will probably be in a position to provide some guidance midyear, specifically around some of the elements, revenues and costs. I think it's obviously we need to develop a plan around the growth, but it is more of a revenue growth opportunity than a synergy discussion for sure.

There's not an anticipation of that synergies being extracted because we really think that this is going to provide us with a platform to grow. So again, I think that that's why there's no immediate accretion expectations and it's really just how quickly can we grow the business which is obviously -- our expectation is to grow it rapidly..

And let me just add, I don't know how with -- Loren did make a comment I just want to back to it. So we did pay substantially less than what's being bantered about in the media and I think that's important. And we're not disclosing the details for competitive reasons which you don't know.

That said, you will see the financial impact of balance sheet cash flows, et cetera, in the not-too-distant future after we close so..

Yeah, it will become a very apparent..

Yes..

Okay, great. And here's the follow-up just being within the U.K. just generally. Are you seeing a lot of pricing pressure, not to your point, some pricing pressure on the active and mutual fund business? We're seeing it in certain parts of alternatives and we've seen it obviously at the market can level of ETFs.

Could you talk a little bit how you sort of see it playing out in the smart beta segment? It seems like you and many of your peers are incrementally focused on that space. Sort of wondering if there will be any reason to think that pricing will come down as competition picks up..

Yeah. Let me make a comment and then turn it over Dan and I do, Bill, I think that's a really good comment and I would just encourage everybody to really have to look at each instance specifically within the context of the firm and the action.

I think the sweeping comments I think aren't necessarily helpful and again I just think any firm that is generating value for money, along that spectrum from cap weighted to alternatives, and they're competitively priced, they're going to continue to do fine. If you are outside of that band, you're going to be in trouble.

And I don't think that it's always been the case, it might be more cute these days, but it's not going to change.

But Dan, you want to pick up on that?.

Yeah. Sure, Marty. I think just to differentiate from kind of the market cap for both beta space, and if you look where I think smart beta and factor products really found a strong place with fee-based advisers who are really focused on client outcomes and solutions. So I think that's what's interesting.

If you take that kind of end solution which again a lot of regulators around the world are kind of pushing, that kind of fiduciary standard, then if you think about portfolio completion, it's really, as Marty said from the beginning, it's the kind of the products that add value in the outcome.

So I think that along with the Invesco solutions business focusing on giving better asset allocation advice, that's where positioning smart beta products like low volatility or products that generate higher income or perhaps a better quality, this is really where I think the smart beta tilts, if you will, really start to have impact.

And never say never but I think that's where once you look at the value add of those products compared to frankly just kind of a core market cap-weighted approach, that's really where you're getting either some combination of better returns or lower risks.

And again, I think this is as the world moves to again this more kind of fee-based advisory type world, that's where the placement and use of those smart beta products really come into play.

And I what I'd also just add at PowerShares specifically, we've been doing versions of smart beta factor investing before those terms were around for over 13 years.

And so I think when you're bringing these kind of new one strategies rather than relying on back testing, you need to have the track record, the size, liquidity that investors are looking for when they're putting a solution together and just a reminder, over 70% of our U.S. smart beta range has more than a five-year history..

And let me, Dan is making a really good point and I think it's something to pay attention to. Dan's fond of saying barriers to entry are very low, that barriers are very high.

And it's actually there are very few firms that have decades of experience in factor base investing, have the long track records, and people look at fees, but the liquidity of the products matter an awful lot. And so the incumbents are in a much stronger position to continue to be successful going forward.

And again, I think that's a very important dynamic that maybe doesn't get enough attention in the space..

Okay. That's helpful. Thank you so much..

Thank you. Brennan Hawken of UBS your line is now open..

Thanks for taking the question. So I just wanted to follow-up on a question that Dan asked on the $7 billion piece that is sub-advised for Source.

So do you – are there plans to adjust the arrangements with those external managers? Does Invesco have the capabilities to allow for those to be shifted to in-house management? Is that part of your plans? And when you move forward here?.

Andrew, do you want to pick that up?.

Yeah. And I think maybe in the release, we bifurcated the numbers just to give clarity. It's about US18 billion in managed AUM by the Source team and $7 billion in this – in the platform assets that are being referred to that are largely managed by PIMCO. And there's probably two things to keep in mind.

One is the relationship between Source and PIMCO without getting into all the details, the revenue stream that's generated by Source in that relationship is relatively small. And Source plays a very distinct role around the product and PIMCO and other. And so those, as I said, the relationship and the discussion, we need to get into it more.

And it's really our whole decision on the product line and the partnership is going to be guided by clients and by investors. And our focus is going to be on them in the first instance. And we'll work through the issues from there, but I did want to point out but it is a relatively small revenue source..

Okay. Appreciate that. Then on MiFID. Loren, you completely get that there's a great deal of uncertainty, regulatory and competitive.

But is it possible maybe just to frame the issue? And appreciate that you guys want to use the RBAs as a solution, minimally disruptive, that makes a lot of sense? But if that turns out to be either competitively or from a regulatory perspective, not a viable outcome, what's the worst-case scenario impact for hard checks getting cut in payment for resource -- research rather to Invesco?.

Yeah I don’t think that that's a number at this point ready to sort of lay out because we don't think that's actually realistic in terms of happening. And it is something that's because it is just so dynamic, there's something that we would not expect to be that worst case is not even an outcome that we're focused on.

I do think there are variety of outcomes within where we think is a likely outcome. And I'd say from completely not material to something that's a little bit more material, but we're not talking about $100 million we're talking about $10 million.

And so right now, based on where we're seeing this landing, it's hopefully going to be in that latter part. And it is something where it's perfectly manageable within our current business as usual operating plan and budget.

So that's kind of the message that we'd like to leave you with as opposed to a number that is we think is probably not the most [Indescribable]?.

Sure. Great deal of uncertainty thanks for the additional color..

Alex Blostein of Goldman Sachs. Your line is now open..

Thanks hey good morning everybody, a question to Loren just around the fee rate dynamic. I guess at a high level, obviously, the active bucket as a whole, so a little bit of a challenging quarter this quarter again.

But I guess taking a step back, it really does feel like some of the higher fee products are growing significantly faster than maybe perhaps some of the stuff that's out flowing even within the active equity bucket.

So can you help us dissect that a little bit more kind of how the evolution of a mix shift within the active bucket could look like taking into account a, what you're seeing from GTR and the loan product, but also the comments being around the institutional pipeline..

Yeah. I think it's really a function of the value for money we're able to create a lot of value for our client and that generally allows us to charge a somewhat higher fee, right? So in terms of the solutions and the alternatives, capabilities, I mean, those are the fastest-growing parts of our business.

I'd say geographically too, I'm very pleased to see cross-border product being picked up, Europe just generally feels much healthier and that's a very important part of our business and one that tends to have a higher fee.

Where we don't really focus on a lot of commoditized capabilities, ones that are in price war or we're having to cut fees and so we're not really having to deal with that dynamic within our mix.

So I think, I mean, for those reasons and then we build it from the bottom up in terms of the sales forecast, the products that are really interesting to institutions and to retail are either in the alternative capability, bank loans, some real estate, GTR, these are things that are unique and differentiated, not everyone has those capabilities, and we are very good at managing those products.

And then on the retail side, again, I think there's a lot of interest in bank loan and other products that provide uncorrelated returns like GTR, plus if we are able to provide some of our ETFs factor-based, I mean, these are again not commoditized ETFs, these are the ones that have tend to have higher fees and as I've discussed kind of have more than 30 basis point type of fee; those are very good margin dynamics as well.

The other point I would just like to mention on fee rate, which is important for people to realize because they look at our numbers and they kind of sense that there's a lot of pressure on fee rate, there's been about a two basis point drop over the last two years excluding performance fees. I'd say 70% of that is just due to foreign exchange.

And as we discussed, the 10% improvement in FX particularly say around the pound gives us about a 0.8 basis point lift and we're seeing the pound beginning to improve.

So I'm not saying that the pound is going to – on their way up, but we are seeing some very favorable things within sort of foreign exchange is actually going to be net helpful for our fee rate going forward.

And – so it's mix and it's hopefully nothing negative on FX and more positive on FX, those things should help us at least achieve the guidance that we talked about, where we’re reviewing the fee rate, pickup through the last half of the year, not do better..

Got it. Thanks for the color. And then the second question just around comments you made around potentially some upside to the kind of the $30 million to $40 million number in costs or cost savings from the program you outlined earlier.

I guess, one of the things you highlighted was potential outsourcing, I was wondering if you could provide more color on kind of the middle back-office, what specifically around this part of business you're looking to outsource.

And is that kind of included in the $50 million of potential total savings, or that would be on top of that?.

Yeah. I think, I mean, it goes back to 2015 when we started this thing where we benchmark a lot of our internal capabilities, and we wanted to see where we're operating kind of the best of the best in terms of the metrics.

We challenge ourselves across any, I mean, there are a lot of different areas of the firm that got involved in this process, and they still are involved. And in certain cases we saw an opportunity to do better by centralizing to a single location, going to single processes using technology more effectively.

And so that – part of that optimization work we did in certain cases say there are others who can do it better. And so, for example, we outsourced the private equity back-office, because we didn't think that we were going to be able to do – build the scale and be able to do it as cheaply and as effectively.

So, I mean, that's the nature of the work that's being done. I think in terms of other large parts of the organization, looking at that, those definitely in scope. And I think that is absolutely part of the 50 million that we're talking about. I don't want to get into too much specifics right now because we're still in the midst of it.

And then unfortunately, it's taken a little bit longer as all these large projects do to fully understand, but no question when we get to a point of announcement, you'll know about it as we sort of get to certainty. So hopefully, I know it does not exactly answer your question, but that's definitely part of it..

And maybe it's in the context of – we just look at process improvement generating efficiencies and effectiveness as a core activity of the firm, always has been, always will be, and there's no end date to things like that. And again, I think good progress to date, but we'll just continue to embrace the best talent and technologies available..

Okay. Thanks for the answers..

Thank you. Brian Bedell of Deutsche Bank. Your line is now open..

Great. Thanks very much. Just one in the back, outsource again.

Obviously, it's a play on at least the capabilities in Europe, but can you talk about whether there is actually a global dimension to this? Is there enough differentiation in the source product, or do you plan to keep the brand name separate? And then potentially market that globally throughout your franchise?.

Andrew, Dan, why don't you guys take that?.

Yeah, maybe I'll start, Dan, then you can pick up from your end. As I mentioned the product, the product line from Source is robust and diverse. Complements lots of aspects of what we do globally with PowerShares, I think it creates a set of building block products that we can take directly to our clients as we normally would.

Also as the growth of solutions both internally here at Invesco and multi-asset strategies in general across the industry grow, ETFs factor strategies and in particular, the source of ETFs that Source and PowerShares have, we think we're going to be growing parts of those solutions.

And so we see opportunity to leverage these building blocks that way. Dan, you might want to pick up on other growth opportunities on the ETF side and maybe the brand too..

Sure. I think in terms of just global synergies, you think that starting at a product range level we see a lot of potential, the combining on both sides whether it's in EMEA or actually back in the U.S. I think clearly the U.S. market is a little bit ahead in terms of smart beta and specifically factor investing.

So clearly for us to be able to globalize a lot of our success and low volatility, quality, all those different factor and even factor combinations, high dividend, low volume what have you, as we've down to continue to take that and then you really look at the upscale distribution of Source, that's pretty exciting.

And then if you actually look at Source, some very unique products on their side, for example, a leadership position in commodities within Europe, particularly in precious metals. And again, that's something where in we have a very big commodity platform in the U.S. but we don't have precious metals.

So the product line synergies really work, we think, on both sides over the Atlantic. I think in terms of brand, obviously, we just signed the agreement a number of hours ago. I think clearly, we want to be able to kind of transition through that and really consider what makes the most sense.

But I think absolutely, thinking from an Invesco perspective, we tend to really want to get the maximum efficiency and scalability from the global platform, most notably portfolio management products, capital markets, operations; all those areas we think are big differentiators and ultimately if executed well can really improve operating leverage for Invesco..

That’s great color. Thank you. Maybe and then just one question on DOL, Marty, maybe if you can talk, and if Loren also talk about what you're seeing given the shift or the delay of the DOL rule to June, and if you're seeing incremental different behaviors on advisers and more people rushing to meet that deadline in the second quarter.

And then also Loren, you mentioned on the flow side in the second quarter so far, I think where you got $2 billion of inflows, I don't think you mentioned GTR in that, assuming they're inflowing what is then conversely outflowing to get to you back to that $200 million?.

Yes, with regard to DOL, I don't know if I can -- those were great insights, but I think we pretty consistently, the 60-day delay was not very helpful, right? The people are anticipating that ultimately there will be delay, and the incoming Chairman of the SEC made a comment recently that the best outcome would be a comprehensive fiduciary rule for the industry.

We are very supportive of that idea, but we're a long way from that. So ourselves and our distribution partners are continuing to be prepared for the fiduciary rule to go to in affect, some version of what it is right now. And again I think people are hopeful that there's something different, but it's just an awkward time for that.

Probably more importantly though -- I think the most important dynamic to come back to is there is a movement that will not stop and that is the movement to advisory and distribution partners view that as the future, they view that as the best way to provide services to their clients and every money manager will participate in that movement.

So we're managing our business accordingly. And I think that's probably the main headline that you should probably focus on. So behaviors will not change..

Yes. And I would say around GTR, particularly I think as we mentioned the GTR product has reached a year track record at the end of last year, which puts it into the position of being able to use in U.S. platforms having a lot of dialogue, lot of engagements on the product.

I think there still unfortunately really the derivative rule that would inquire to understand is the product going to be able to be used in the current form.

It's still not definitively -- yet, and so that's been a little bit of a headwind on moving forward, but there's a lot of enthusiasm and excited about being able to bring the product into the U.S.

channel as soon as that becomes more and more -- so definitely they are waiting but again, there's general delay around regulatory certainties, is not going to help..

And then just on the flipside, and it will be the balance of the inputs you mentioned I think PowerShares and I forgot the other one that was....

PowerShare is in the cross-border where....

Cross-border that’s right. Is the U.S.

equity still outflowing then I guess?.

US equity is in positive flow if you take the PowerShares, but yes, excluding PowerShares slight negative outflow..

Great. Thanks so much..

Thank you..

Thank you. Chris Shutler of William Blair. Your line is now open..

Hi, guys. Good morning. Just two real quick ones on Source. So I know Source was started by a handful of large banks, Warburg, I think, had owned about half the company.

Can you give us a rough sense of is there much AUM concentration amongst those former bank owners?.

Andrew or Dan, do you want to take that?.

Dan is going to go ahead..

Yes. I was just going to say, well, if you think about the – as you mentioned the five investment banks actually formed, and you're right, formed the company and then later Warburg Pincus bought a majority stake.

I think if you look in practice, the AUM that would have been held and remember, these were the investment banking arms of these five investment banks that they would just normally hold maybe seeding and inventory for the trading and their market-making purposes.

So aside from that, there wouldn't be strategic holdings coming from that, so just like not only those banks but other market-makers as well would normally hold some level of inventory for market-making purposes..

Okay.

And then just looking quickly at the product list on your website, it looked like they have maybe call it $8 billion somewhere in that range of S&P 500 ETFs, I just want to confirm those asses are not included in there AUM?.

Those assets are included in their AUM..

Those are, okay.

And they're at like five basis points?.

That's correct, that would be their core range of their profits..

Okay. Got it. Thank you..

Thank you. Robert Lee of KBW, your line is now open..

Great. Thanks, thanks for your patience. I just have two quick ones. First, I mean, just going back to Source.

Knowing that you can't talk about the financial arrangements with too much specifics, but just curious, is it reasonable to assume this is somewhat structured like you did with PowerShares? With a moderated front payment, but earnouts based on some aggressive asset growth targets?.

I think you can assume as an upfront payment with some contingent earnout based on growth. I wouldn't characterize it exactly like PowerShares, but I mean, conceptually, yes..

And then maybe on a different topic. We all talked about the active to passive shift ad nauseam over the last couple of years, and could you maybe compare and contrast what you're seeing outside the U.S. as it relates to particularly in the retail channels? Maybe your thoughts on -- excuse me, the trends there? Chocking on my words..

Yes. I'd say the debate is most acute in the United States, and it probably is because of the relative size of the cap-weighted index providers in the United States.

And but it is -- let me put it this way, what we are doing as a firm is we do actually believe that right answers are a combination of active passive and alternatives, and we'll just overlay that Loren was talking about, and we do think it's the way of the future, and it will be varying degrees in different markets.

And probably again most acute in United States, probably followed by the U.K. The least along those ways would be Asia at the moment..

Great. That’s it. Thanks for taking my questions..

Thank you. Michael Cyprys of Morgan Stanley. Your line is now open..

Hi, good morning everyone. Thanks for patience just wading out the questions. Just going back to the optimization work.

Just curious how we should think about those savings flowing to the bottom-line versus, I guess, keeping margins flat or maybe even expanding that versus how you're thinking about investing in the business?.

Yes, I think again we'll probably in a position to give you a bit more color about how that might mend itself. We've generated about, as I mentioned, roughly $30 million of run rate savings so far.

You haven't seen a lot of that drop to the bottom-line that's because it helped to offset some of the acquisition cost associated with Jemstep and with our Religare business.

So again, it is more likely than not that some of that is going to go to allow us to invest beyond our most critical investments while keeping expenses reasonably stable and flat.

So that's really the greatest opportunity for us is to free up funding as we always have done, but in a much more significant way as the need to invest is probably greater in this market that we've ever seen before with so much opportunities and so much change.

And so again, we'll give you more color as we probably get to midyear around what to expect and then Marty….

Let me stand a point again that we again talked about it at various times on these calls. And let's get back to it, Ken's comment earlier on the call about the M&A environment. This is probably the worst time for firms not to invest in the future.

And the good news is we started investing more than a decade ago in alternatives and passive and in ETF business et cetera, et cetera. And so we've been able to continue to invest while still being very responsible in delivering returns for shareholders.

And Loren raised a very good point so the efficiency that we gained, it is allowing us to continue to develop the business strategically today. And obviously one comment on Jemstep, we're relatively, so a year into it. The highlight, what I would say is we're going to be much more impactful than we probably imagined at the time.

It is creating opportunities that we didn't even imagine. And again, it feels like it was all the opportunities for what PowerShares did for us 11 years ago when we bought it. And again, we'll be more clear later in the year on that.

But you have to make those strategic investments and when you end up getting some of the outcomes, which might accrue with something like Jemstep, I think that's what creates competitive advantages for firms and the ability to do better jobs for your clients..

Great. Thanks very much..

Yeah..

Thank you. Chris Harris of Wells Fargo. Your line is open..

Thanks guys for all the patients. Just a quick one. I wanted to follow-up on the active versus passive discussion ex U.S. You guys really do have a great chart in here on slide 19, just showing the growth of ETF in EMEA.

And if we do expect that trajectory to hold and have a similar path as it's had in the U.S., what are the implications for your active business in the region, in EMEA? And I guess what I'm really wondering, is there a reason to think that this penetration in EMEA might not be as disruptive as it's been in the U.S.?.

So what I would say for ourselves is, we have an absolutely outstanding set of investors in EMEA, I'd say some investors quite frankly in the world, and Andrew talked about the success and penetration, and that only happens because of doing a good job for clients.

We look at this probably very similar to again what happened in the United States if these are complementary vehicles and products to active management, and all it did for us was strengthen our core business. And so we see our active business only getting stronger on the back of this.

And needless to say, we're very excited about the future and the opportunity..

Okay. Thank you..

Thank you. And speakers, there are no more questions on queue..

Well, thank you very much. Thank you, everybody for your time and the questions, and as always, so we appreciate your time and your efforts following the company. We'll speak to you very soon..

That concludes today's conference. Thank you for participating. You may now disconnect..