Unverifiable Participant Martin L. Flanagan - Invesco Ltd. Loren M. Starr - Invesco Ltd..

Michael Carrier - Bank of America Merrill Lynch Kenneth B. Worthington - JPMorgan Securities LLC Brennan Hawken - UBS Securities LLC Daniel Thomas Fannon - Jefferies LLC William Katz - Citigroup Global Markets, Inc. Craig Siegenthaler - Credit Suisse Securities (USA) LLC Glenn Schorr - Evercore Group LLC Kenneth S.

Lee - RBC Capital Markets LLC Alexander Blostein - Goldman Sachs & Co. LLC Brian Bedell - Deutsche Bank Securities, Inc. Michael J. Cyprys - Morgan Stanley & Co. LLC Chris Charles Shutler - William Blair & Co. LLC Patrick Davitt - Autonomous Research US LP Robert Lee - Keefe, Bruyette & Woods, Inc..

[Abrupt Start].

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, 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 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 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. 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; Loren Starr, Chief Financial Officer. Mr. Flanagan, you may begin..

Thank you very much; and thank you, everybody for joining us. And if you're so inclined, you can follow along the presentation, which is on our website.

And as has been our practice, I'll hit some of the highlights of the business during the first quarter; Loren will go into greater details within the financials of the quarter; I will then spend a few minutes really talking about some of the key differentiators of our strategy and put that in the context of growth opportunities; and then, of course, we'll open up to Q&A.

So, let me begin by highlighting the operating results for the first quarter, and that's on page 4 if you happen to be following along. Long-term investment performance remained strong during the quarter. We had net inflows of $300 million during the quarter.

We did see the impact of market volatility, impacting investor behavior, which impacted net flows during the quarter negatively. Adjusted operating margin for the quarter was 37.3% versus 39.6% in the prior quarter. We did return $120 million to shareholders through dividends during the quarter.

And reflecting the strength of the business and the focus on providing returns to shareholders, we are increasing the quarterly dividend to $0.30, which is a 3.4% increase. Turning to page 5. You'll note the investment performance continues to be strong in a three and five-year basis, 68% and 70%, respectively.

And although the long-term investment performance remained strong, we did see headwinds in one-year numbers, the short-term numbers being impacted by some relative underperformance in some of the larger strategies in the U.S. and the UK. Turning to flows.

What we did see is quite a bit of demand for our passive capabilities, and which is very robust, with particular strength in our commodity ETFs, both in Europe and the United States during the quarter.

On the active side, and in our retail business, the flow environment remained somewhat challenged with the uptick in volatility, which I mentioned, in particular, in the U.S. and UK equities, as well as outflows from our sub-advised REIT in Japan.

As an offset, we did see strong institutional demand and solid flows in areas such as stable value, Global Targeted Return and a number of our quantitative strategies globally. With that, as a summary, let me turn it to Loren and have him go to more detail in the financial results..

Thanks very much, Marty. So, quarter-over-quarter, our total AUM decreased $3.4 billion or 0.4%. That was driven by market losses of $12.2 billion. We saw outflows from non-management fee earning AUM of $0.4 billion. These factors were somewhat offset by a positive foreign exchange of $7.9 billion.

We saw our reinvested distributions of $0.6 billion positive. Inflows into our institutional money market products came in at $0.4 billion; and then, we had long-term net inflows of $0.3 billion. Our average AUM for the first quarter was $951.3 billion. That was up 2.3% versus Q4.

Our annualized long-term organic growth rate for the quarter was 0.2 percentage points compared to negative 0.8 percentage points in the fourth quarter.

So, before turning to net revenue yield, I just wanted to provide a quick update on a change this quarter to our presentation of AUM in response to investor feedback and to provide greater transparency into the composition of changes in our AUM.

We reverted to our historical presentation of sales-driven long-term flows and presented reinvested distributions on a separate line item in our AUM tables. So, you will see that in the back. We have also restated the third and fourth quarter of 2017 to allow for a consistent presentation and comparability.

So, now, let's turn to the net revenue yield discussion. Our net revenue yield came in at 40.3 basis points; and our net revenue yield excluding performance fees was 39.9 basis points. And that was a decrease of 1.4 basis points versus Q4. We saw two fewer days in the quarter. That reduced the yield by 0.9 basis points.

The impact in the change in asset mix, and the growth, we saw a non-fee earning AUM reduce the yield by 0.7 basis points. And we also saw an impact of the new revenue recognition standard, which I'll mention a little bit later. And that reduced the yield by 0.2 basis points.

And then we saw also a decrease in other revenues, reducing the yield by 0.1 basis points. So, all these factors were then somewhat offset by positive foreign exchange impact on the mix, which added 0.5 basis points. So, a lot of puts and takes there.

Anyway, given the changes discussed above, and the continuation of changes in our asset mix, and our focus on strategically pricing our products remain competitively positioned with new and existing clients, we expect our net revenue yield for the remainder of 2018 to come in at approximately 40 basis points, which is about 1 basis point less than our original guidance.

And again, this guidance assumes flat markets and foreign exchange from today's level. Slide 9 provides our U.S. GAAP operating results for the quarter as is customary. My comments today will focus exclusively on the variances related to our non-GAAP adjusted measures, which you'll find on slide 10.

And before returning to these results, I just want to quickly touch on the impact of this new revenue recognition accounting standard that impacted our revenues and expenses. So, overall, this new reporting standard has changed the way we present certain revenue and fund-related expenses and has an impact on many of our revenue line items.

The method we elected to adopt this guidance did not require us to restate prior periods. Our Q1 2018 results are presented under the new guidance, but the Q4 2017 numbers are presented under the old guidance. So, that will impact the variances quarter-over-quarter, as we'll discuss.

We have included in the appendix a slide that shows the line item impact that the new standard has on our revenues and expenses for the first quarter of 2018. And as you'll note, the revenue recognition changes have reduced gross revenues by $19.6 million. However, the overall impact to our operating income margin and net revenues are immaterial.

So, let's now get to the non-GAAP operating results on slide 10. You'll see that net revenue decreased by $46.9 million or 4.7% quarter-over-quarter to $958 million, which includes a positive foreign exchange impact of $16 million. The impact of revenue recognition reduced net revenues by $4.2 million.

So, excluding these impacts, net revenue decreased $58.7 million, and let's get into the variance there. So, within that number you'll see that adjusted investment management fees decreased by $52.4 million or 4.7% to $1.07 billion. The impact of revenue rec reduced adjusted investment management fees by $53.8 million.

FX increased these fees by $16.8 million. And so, excluding these two changes, our adjusted investment management fees decreased by $15.4 million quarter-over-quarter, which primarily reflects two fewer days in the quarter, which was partially offset by higher average AUM.

Our adjusted service and distribution revenues increased by $28.6 million or 13.1%. Compared to Q4, the impact of revenue recognition increased adjusted service and distribution revenues by $32.4 million.

Excluding these changes, our adjusted service and distribution revenues decreased by $3.8 million, which primarily reflects fewer days in the quarter. Adjusted performance fees came in at $9.1 million in Q1 and were primarily earned from real estate, U.K. equity, and bank loans products.

The $34.2 million decline from the fourth quarter was driven by the large real estate performance fee recognized in the prior quarter. Adjusted other revenues in the quarter came in at $58.1 million, an increase of $39.7 million from the prior quarter. The impact of revenue recognition changes increased adjusted other revenues by $41 million.

Excluding that change, our adjusted other revenues decreased modestly by $1.3 million. Next, adjusted third-party distribution, service and advisory expense, which we net against gross revenues, that increased $20.6 million or 7.3%. So, the impact of revenue recognition changes increased.

Our adjusted third-party distribution, service and advisory expenses by $23.8 million. Foreign exchange increased adjusted third-party distribution, service and advisory expenses by $1.3 million.

Excluding these two changes, our adjusted third-party distribution, service and advisory expenses increased by $3.5 million largely driven by some non-recurring reductions in third-party expense, which were recognized in the prior quarter. So, now, let's move to expenses.

Overall, moving down, you'll see that our adjusted operating expenses at $600.7 million decreased by $6.7 million or 1.1%. Relative to Q4, the impact of revenue recognition reduced our adjusted operating expenses by $4.2 million. FX increased adjusted operating expenses by $8.8 million in the quarter.

Excluding the impact of revenue recognition and FX, our adjusted operating expenses decreased by $11.3 million. Looking to the adjusted employee comp number that came in at $389.5 million, that was an increase of $11.5 million or 3%. Foreign exchange increased our adjusted compensation expense by $5.5 million.

Excluding FX, adjusted employee comp increased $6 million, which reflects seasonal payroll taxes, as well as employee benefit costs, which was partially offset by decreases in our variable compensation costs.

Our adjusted marketing expenses in Q1 decreased by $11.1 million or 27.9% to $28.7 million, reflecting again a seasonal decrease from Q4 related client events and marketing campaigns. Our adjusted property, office and tech expense came in at $101.3 million. That was an increase of $0.5 million or 0.5% over the fourth quarter.

That was in line with the guidance that we provided last quarter. Foreign exchange increased our adjusted property, office and tech expense by $1.2 million. Next, going onto the adjusted G&A expense. That came in at $81.2 million. That was a decrease of $7.6 million or 8.6% quarter-over-quarter.

The impact of revenue recognition reduced our adjusted G&A expenses by $4.2 million. Foreign exchange increased our adjusted G&A expense by $1.6 million.

Excluding these two points, our adjusted G&A expenses decreased $5 million, and that decrease reflects lower legal and regulatory costs, reduced irrecoverable taxes in the quarter, lower travel costs during the quarter, while MiFID II costs were in line with expected levels in this quarter.

And then, of course, they were not there in the prior quarter. Our adjusted non-operating income decreased $23.1 million compared to the fourth quarter, reflecting the difference in mark-to-market of our seed money investments compared with the prior quarter.

The firm's effective tax rate on pre-adjusted net income in Q1 was 20.6%, in line with guidance. And that provides us with our adjusted EPS of $0.67 and adjusted net operating margin of 37.3%. So, before turning over to Marty, I just want to touch on a few topics. First, long-term flows in April.

Overall, the flow picture has been a bit volatile with good growth opportunities, but we have also seen a spike-up in redemptions. Through the month of April, we have experienced net outflows in the current month of approximately $3.5 billion.

That was driven largely by a single sovereign wealth-related outflow and as well as a sub-advised mandate that outflowed. It's not great news, but certainly, we don't expect that trend to continue through the quarter.

On capital management, certainly something we want to touch on for 2018 now that we've completed the acquisition of the Guggenheim ETF business. The transaction was completed in early April. We funded it with a combination of approximately 30% cash and 70% borrowing on our short-term credit facility.

As previously noted, our goal is to pay down the balance of that credit facility over the course of 2018 to bring our leverage ratios back in line with pre-acquisition levels. And after our leverage ratios are reduced to these levels that we should return to a share buyback that's consistent with our historical practice.

And our current estimate is that will occur sometime in the fourth quarter. Let's move on to a topic we're all near and dear, is organic growth. So, I really want to talk about what to expect through the remainder of 2018 and then looking into 2019. The chart on slide 11 shows the composition of our flows over the last nine years.

And I think it helps to explain why the diversification of our business is actually significantly benefiting us. Each region, you'll see, has been the largest annual flow contributor at some point during the last nine years. And the firm's diversification has helped to drive overall positive organic growth in each period.

We see that diversifying our capabilities and our offerings in each region where we operate certainly allows us to better serve our clients and makes us stronger by not being overly reliant on any one geography, distribution channel, or asset class. Next, just turning – slide 12, this is a slide you've seen before.

Looks at the relationship between organic growth and the consistency or variability of that growth for Invesco and its public asset management peers. On the vertical axis is the average annual organic growth rate for the five-year period 2013 through 2017.

And then on the horizontal axis is the standard deviation of those flows to reflect the level of sustainability or variability of the organic growth. So, when viewing Invesco against this group, it's evident that our diversification is benefiting us.

Invesco has one of the lowest standard deviations of flows in the group, and it reflects a high level of flow consistency. We've previously talked about the long-term target, however, of the 3% to 5% organic growth. And we'll cover that in more detail today in the areas that will drive that growth.

But looking at the remainder of 2018, and given the overall volatility of markets, and given some performance challenges we (00:17:40) larger products, which have been completely a function of the market environment we've been in, realistically, we think our growth rate will continue to be around historic levels that we've seen for this year.

But looking past 2018, however, as many of the critical investments we're making in the business start to gain traction, and as we generate increased flows, we believe that organic growth can move into that targeted 3% to 5% range that we had discussed with you in the past.

And with that, I'm going to turn it over back to Marty, who will actually cover some of these growth areas in greater detail..

a combination of three regional institutional business with our solutions capability, which would enable us to become a leader in addressing the $30 trillion institutional market globally; bringing together multi-sector, our Asian institutional business, factor investing and solution, which would help us further penetrate the institutional market by bringing together the best of Invesco in solutions, factor investing and multi-sector capabilities; and finally, a combination of factor investing, digital advice, ETFs in the EMEA retail market, which would enable us to grow our UK digital advice business, with independent financial advisors and platforms by using next-generation individualized products, which is an emerging need in that marketplace.

So, as I mentioned at the outset, it's really the combination of our comprehensive range of investment capabilities, our global presence, our focus on both the retail and institutional channel that differentiates us in the marketplace and positions us for growth and success over the long term.

We are truly excited about the potential for the growth opportunities that these key factors and capabilities bring to the organization and to our clients. And we'll continue to update you as we make progress along. And with that, we'll stop; and Loren and I will open it up for questions..

Thank you. Okay. The first question comes from Michael Carrier of Bank of America Merrill Lynch. Your line is now open..

Thanks, guys.

Loren, maybe first one, just on the expense line items, I guess, just curious, given some of the moves, any update on how we should be thinking about 2018 relative to like the guidance that you gave on the last call, just whether it's by line item or just overall how we should be thinking about the expense?.

Yeah. Good question. So, we would expect the guidance to be, I mean, largely intact except for compensation is going to flex down in the sense that revenues are down, competition flexes down, too. So, without getting too explicit, I think we'll see where that goes. But it's probably some $10 million less than we had guided previously.

So, you're in more like the $400 million to $405 million per quarter range going through 2018. So, that's one change to the guidance in theory. And then, the other one would be G&A, which has the revenue recognition impact. So, $4.2 million has moved from G&A up to the revenue line items. And so, that would be a reduction of G&A by $4.2 million.

So, those would be the two I'd point you to. Obviously, we will continue to look at trying to be more effective and efficient with our resources. And it really will depend on what sort of market environment we're going to end up in. It's been rather volatile.

But certainly, people should understand that we are all currently flexed down comp in light of lower revenues..

Okay, thanks. And then just a follow-up, Marty. I think you pointed out a lot that the investments being made, and you have a lot of the products that when we look at where the demand is you're seeing in the industry.

Just as you think about transitioning from, say, 2018 to 2019 and beyond, Loren mentioned, you're sort of getting to that 3% to 5% new growth rate.

Like how should we be thinking about what it means to whether it's like the fee rate and revenue growth in the next couple of years, and then also, like the incremental margins? So, trying to translate a lot of the investments in the strategic impact, and ultimately, to the financials longer term..

Yeah. So, look, we look at these with a high conviction that this is where any of the market is going. And again, just like many of us, just traveling world, being in Asia, being in EMEA, and obviously, in the United States, the time spent with the clients, more and more, is very clear to me that clients and platforms are dealing with fewer firms.

Having strong investment capabilities is very important, but reality, I'd say, going forward, it's table stakes.

And the greater traction that we're seeing is the broader range of capabilities that we have the, the engagements with solutions, and even large sophisticated institutions looking for us to partner with them with analytical tools, even though they have those capabilities, it's really a very different mindset that is emerging.

And so, we see that those are the things that are going to continue to provide growth. So, the overall effect of fee rate though, I really put in the context is it's really going to be driven by where the clients are building their portfolios.

And as we are moving much more towards growing the factor capability in ETFs, the relative fee rate is lower than alternatives or high conviction active, and so, the blend's really going to depend on where clients go.

So, I can't give you a specific answer to where the fee rate goes, but what I do know the growth and profitability will continue to be – enhances our growth and earnings as we go forward..

Yeah. And, Mike, I think in terms of incremental margins, I mean, certainly for this year, we're probably still in the range that we've been talking about historically for this year, that sort of 40% to 50% incremental margin. Longer term, I don't think anybody sort of said we're changing the long-term view being closer to that 50% to 65%.

Obviously, we will continue to sort of see how the market is shifting and changing. But certainly, what we're doing is we're trying to build scale in our capabilities, which has very positive incremental margin impacts by doing so and trying to get a little bit less subscale in some parts of our capabilities.

So, overall, I think we're still quite optimistic on the incremental margin story. But that's changing landscape still with us getting into some new areas like digital advice, still brand new..

Got it. Okay. Thanks..

Thank you. The next question comes from Ken Worthington of JPMorgan. Your line is now open..

Hi. Thanks for taking my questions. So, Marty, you highlighted that Invesco is top two in smart beta in terms of AUM. What we'd really like to see is Invesco rank top two in sales of smart beta. So, you're buying, you bought two positively selling firms, Source and Guggenheim, that helps. It doesn't quite get you to top three in the U.S.

So, are the aspirations to be top three? And if so, can you give us maybe some more specifics on that path to break into the top one, two, or three?.

Yeah. So, where our aspirations are, is really to be the leader in smart beta factor. We think that's where the greatest impact is for clients, where there emerging need is, that has been our focus, it will continue to be our focus. The last two, Guggenheim and Source, have been very, very important. Guggenheim's been closed all of the handful of weeks.

The early responses are very, very positive. We are now in the mode of getting the range of those Guggenheim ETFs on the platforms. They were not broadly placed at all. That is the opportunity for us, which will drive the growth flows (00:35:05) that you're talking about.

We don't drive that timetable, but we've met with all the important platforms as you would imagine. The feedback's been extremely positive, but I can't tell you what their timeframe is for making those decisions. But, outside of that, the interactions that we've had with the FAs has been very, very strong already..

Okay. In terms of the April outflow number, $3.5 billion from the sovereign wealth fund and sub-advised.

Can you talk about the regions that this is taking place in and maybe the asset classes of the outflows? And ultimately, what happened here?.

All right. So, in terms of the region, the large sovereign wealth happened in our EMEA region. And the asset class was active equity, sub-advised U.S. active equity as well. They were not performance-based decisions; these were client-based decisions entirely. Our performance was excellent in these products.

So, again, I think, for the sub-advised, different models being employed, going to index versus active. And then, in the sovereign wealth, I think it's very specific to the client's needs for our cash..

Yeah. Okay. And then, a tiny one.

Loren, based on Guggenheim's ending AUM and based on the fee reductions and the tax code changes, what do the IRRs look like for that Guggenheim deal now? Has it gone up, or has it gone down?.

So, I think, again, early days to see, if we're going to change and maybe improve our growth trajectory, above and beyond what we have had originally modeled, because it's early days. I think we have a slightly lower IRR, just given some of the fee reductions that you heard about on the BulletShares.

But that impact was probably just 1 percentage point of IRR, so still, solidly in the 20s. And then EPS creation probably nicked off $0.01 in 2018, as a result of that. And again, so I think, it's modest move off of those prior levels. Hopefully, we can make that up to higher growth..

Okay. Okay. Thank you very much..

Yeah..

Thank you. Next question comes from Brennan Hawken of UBS. Your line is now open..

Good morning. Thanks for taking the question.

Hoping you could walk through maybe in a little more specificity the factors that drove you to lower your expectation for the revenue yield from here?.

Yeah. No problem, Brennan. So, we have a few things coming through. So, starting kind of at the 41 basis points, which was our original guidance. It's really AUM mix in terms of growth in non-revenue fee generating assets as well as where we're seeing the flows, which are more recently biased to lower fee products. And so, that's about 0.5 basis point.

The revenue recognition changes, which we talked about a little bit already, we think that's going to be about 0.3 basis points off of our original guidance, which had no rev rec impact there. Strategic pricing initiatives, just generally call that, pricing our products in a way that keeps them competitive. That's probably 0.1 basis point impact.

Foreign exchange is about 0.1 basis points negative, too. So, if you add up all those things, you go from 41 basis points to 40 basis points..

Okay. Thank you for that. And then, when we think about fee rate, hearing about more competition, more pressure on fees, especially in Europe, in light of MiFID and some of the increased clarity – transparency there.

What are your expectations for fee pressure in the region, and how do you think that, that's going to play through here on Invesco, broadly? How should we frame that as analysts and investors? Thanks..

Yeah. Our view really has not changed. I think, what we are seeing in the landscape is focus on value for money. And we still say, you have to be competitively priced.

And what we are seeing in most regions of the world, but probably, to varying different degrees, a broader use from cap weighted indexes, to factors, to high conviction active and alternatives. And yeah, that's really what's going to drive the mix.

And yeah, that's part of what we're seeing as an organization as we continue to bring factors up to a broader part of the footprint for us as an organization. So, I don't know that I can give you any greater insight than what you're seeing within the organization and what we've talked about historically..

No, that helps, Marty, for sure. I guess, I'm just – and certainly, at least you guys are positioned to a point where you have the factors, so you're in a good position to retain the assets to the extent that they become at risk.

But, if we want to think about clients remixing their traditional active into like a smart beta solution, you believe you're well-positioned to retain the assets, although maybe continued fee pressure through mix is probably something that we should assume here, it seems as though, from that region, for you guys.

Is that fair?.

I think, that's fair. But what you are still seeing though, and it's more pronounced in United States than in the UK, on the continent right now. So, you continue to see a very high use of high conviction active portfolios. We are seeing that still, so you've not seen that issue.

The issue that you do see, probably UK, in particular, has been a very high degree of focus. And I'd say rightfully on sort of closet indexers that are "active investors," and that is the most at risk group of money managers. We are not anywhere near that category. And so, from that perspective, we think we are very strongly placed..

Yeah. That helps a lot. Thanks. And hopefully, you can, of course, pick up more share in smart beta than it was elsewhere, so..

That's right..

Yeah. I get it. Thank you..

That's the intention. Yeah, thank you..

Thank you. The next question comes from Dan Fannon of Jefferies. Your line is now open..

Thanks. I just want to clarify, Loren, your comments about this year's growth rate. I think you said similar levels to thus far, so kind of slightly positive for the first quarter.

Are you including April in that kind of trajectory of the year?.

Yeah. No question. I mean, I think April was an anomaly, we certainly don't expect that to be a monthly run rate. It was really specific to two events that we don't think are going to be recurring. We'll get into a bit of pipeline. Institutional pipeline is still strong, still at the high level.

I think we have seen some creeping up of redemptions generally, and so I think that's sort of something that just keeps us a little less optimistic about getting to a higher level of growth rate than we've historically seen. Overall, opportunities still exist on sales.

So, I think when you look at what to expect in 2018, I think, again just looking to more recent history, is probably the right basis point – or the right point of focus..

Look, I think you all are having your conversations with your clients, too. And what we are definitely – there's more unease and conviction and where equity markets are going in particular. And we have seen people get more defensive – or the conversations are more defensive than what we've seen historically.

That can change as rapidly as it turned into that. And again, that is the one large redemption that Loren talked about that was exactly a result of moving to a defensive position. It's very hard for us, and frankly, impossible to predict those decisions. They tend to happen pretty quickly.

And where we have insight into the positive pipeline, we tend to not to do a great job of, as we've been very direct historically, is when people make these other decisions based on our portfolio repositioning..

Got it. And then, just a follow-up on that, like the sub-advised loss. I think this is the second one at least you guys have flagged in recent months. Can you give us a sense of kind of how big that – broadly, the sub-advised U.S.

book is? And is that something you expect to kind of shrink over time, or is that stable growth kind of any outlook within that?.

Yeah, it's a great question. The overall sub-advised book is more than $30 billion, and so, it's not small. When I asked that exact same question, I think – the answer is that this is not a trend. This is really just specific clients who have made some things.

And yes, there's been a few data points of it happening, but I don't think there's any expectation on our side that this is going to just sort of all go away. I think it is a factor. Several factors come into play in terms of these clients making these decisions. They're not all the same in terms of how they're being made.

But, there is a handful of (00:45:13) of onesies and twosies that are chunky. So, that's our hope based on our best intelligence..

Got it. Thank you..

Yes..

Thank you. The next question comes from Bill Katz of Citigroup. Your line is now open..

Okay. Thank you very much.

Could we come back to Jemstep for a moment? Can you give us a sense of how to sort of potentially size the revenue or the flows, and maybe even the timing of when you think some of the onboarding might translate into unit growth, and kind of think about some of the top line impact to that?.

Yeah. So, the timing again has not changed, right. Where we will start to see an impact is 2019, and it's once these institutions are on the platform. And we'll have to give you greater insight into the impact.

I would imagine it will be a relatively slow build, but what we are seeing, is what's really going to happen after these institutions, is the pipeline just getting that much more robust and much bigger onboarding into 2019. But we'll have to – as we get further into the year and have a greater sense of conviction, then we'll have that conversation.

I would be uncomfortable in extrapolating that right now..

Okay. And this is a – so, a two-part, I apologize, but unrelated question..

(00:46:42)..

On the $3.5 billion of – sorry to keep coming back to the same number, but the $3.5 billion, could you frame out the size of the one-offs, if you will? And then, where are you seeing the traction? And then a broader question is I'm sort of reading a lot about pricing pressure in the European ETF market.

Sort of wondering if you could talk about how you think you're positioned in terms of where the business is today from a price perspective, and what kind of risk there might be from a sort of revenue degradation perspective?.

So, on the $3.5 million, it was about $2 billion for the sovereign, $1.5 billion for the sub-advised, so that was kind of the mix, all decent fees unfortunately. So, the pricing pressure, I think, is probably more profound on the smart beta, in general ETF space.

I mean, as we're looking at how we position products against some of the competitors, and it's not everything has to go to a lower price, but making sure that our product lineup, particularly like Guggenheim coming over, is priced so it's competitively positioned against similar products of similar size, is critical for success.

And so, I'd say, that's probably where our focus is most on sort of strategically pricing product.

I think on the active product, to the extent that we have capabilities that are good, there's probably far less need for us to think about changing the pricing on those products, because one, they're generally priced well and in line with competitors; and number two, there's value there in terms of the alpha that they have historically generated into sort of – buy flows or buy assets through lowering fees has not been our strategy.

And I don't know, Marty, if you got....

Yeah, no. I agree with it..

Yeah..

Okay. Thank you for taking the question guys..

Yeah..

Yes..

Thank you. The next question comes from Craig Siegenthaler of Credit Suisse. Your line is now open..

Thanks. Good morning. I wanted to start on Jemstep. And really appreciate the color on slide 12, so thanks for that.

But how should we think about the net flow potential in 2019 from the six large financial institutions that should be live at some point this year? And I'm really just thinking about how should we frame this potential, because it's really a brand new source of business for you guys..

Yeah, no. It is no question, it is – we believe it's really important competitive advantage for us. It is also consistent with what we've been talking about. We see the future is – being a strong set of investment capabilities is very important, but it's table stakes.

And it's these types of developments is really what's going to create this competitive advantage and the necessity that's being driven as we look forward. So, again, Bill asked the same question. I really am not in a position to give you the potential sizing of the flow into 2019 at this point in time.

The fact is, the institutions are large, and we would anticipate that we will be successful, as we serve them going forward. And yeah, I wish, I could give you more insights, but I would....

Well, we have no data....

I guess, yeah..

...to base it on, really. So, I think we have a clear view that out to 2020 and kind of if this all kind of happens the way we think it is, I mean, we're talking about substantial amounts of assets with not so much penetration. I mean, even assuming modest penetration....

Yeah..

I mean we're certainly in the tens of billions, $50 billion – I mean, that kind of number of the assets being gathered through digital advice. How it gets there, because we don't have enough really to trend line anything, is what is the problem for us, Bill (sic) [Craig] (50:43), that, it's just too hard for us to guess..

And then just as my follow-up on the ETF approval process. The SEC is now allowing more asset managers to self-index, and also looks like there's a potential SEC ETF rule that could further lower the barriers to entry.

I'm just wondering, do you think a more open policy from regulators could open the door to more competition, or is it sort of like what I think Dan Draper always says, that ETFs have a very low barrier to entry, but a much higher barrier to succeed..

Yeah, we believe that very strongly, and I think evidence would – and the facts would support that. We've been at this now over a decade. Just having an ETF does not mean you're going to be successful, and the range of capability and the knowledge that goes along with it is really quite different.

It is not a natural extension to whether it'd be historical, retail, distribution success or institutional success either. It is quite different. And so, will it bring on new ETFs? Probably. Do we think it's going to change our competitive positioning? I don't think so..

Thank you..

Yeah..

Thank you. The next question comes from Glenn Schorr of Evercore. Your line is now open..

Hi. Thanks.

So, when looking at the pickup in – I don't want to call it churn, but just activity, lots of sales, lots of redemptions, pick-up, up and down, do you think that's mostly just a function of the obvious in volatility and people's changing macro outlook? And what I want to really get to is how much of it relates to the ins and outs related to broker/dealer channel shrinking (00:52:44) consolidating relationships, and focusing on model portfolios, things like that?.

Yeah. So, my sense of it is, it's the right question. And if you look at the gross and the net in the quarter, the outflows, I think, it's much more related to the sentiment change within the quarter, just the magnitude of the change. And Loren's hit on a couple things that we've seen happen.

I think to your point of the narrowing of the platforms in the U.S. in particular, that is going to put money in motion. But remember, being taken off the platform, or having your fund not available for future sales is not foreseeing immediate redemptions. So, I don't think that's – that's going to take time.

The people that, and the capabilities that remain on those platforms, they will be net beneficiaries, but I see that being slower than you might imagine because of, again, the correct answer, not foreseeing a client out of a capability that they chose to be in..

I appreciate that. The only follow-up I have there is, I think you and pretty much every other player that we all covered will talk towards the ability to try to cap – or the desire to try to capture flows as they move and client sentiment changes.

So, as this is going on right now, you have this awesome relationship within the channels, if you will, are we capturing as much as you'd like? In other words, if people are selling out certain components of active equity, switching into fixed income, switching to risk managers, switching even into cash, like are you capturing that within the channel? Because $56 billion in, $56 billion out looks like a flat today, but there's a whole lot more underneath the cover..

Yeah. No, you're right. Look, I would say, the fact is we were – I would say, we are not capturing what we would want to. And so, how do you change that? And I think historical efforts will not change that at all, right. So, historical practices of being in front of a platform or an FA aren't going to change it.

So, what will change it are things that we started to employ in – last year was really the pilot, and in really much more in action right now. And it's our use of predictive analytics, and it has been incredibly beneficial to us.

And you can really start to see – actually, literally predict where FAs are going to be putting money, where they're about to redeem, and we are using that in a very positive way to do exactly what you're talking about. So, yeah, again, we're 12 months into it right now.

Does it show up in the numbers? Not to the degree that would change your, as you say, the $56 billion in, $56 billion out, but we think it's that those types of things that will create the very different outcomes going forward. And again, I think it gets back to this topic that we have collectively been talking about the competitive environment.

You need to have the financial resources and the wherewithal to invest in those technologies to be effective going forward. And I'm just not sure that the totality of the money managers in the industry is going to have that wherewithal. Those that do will end up being much stronger going forward, and we happen to be one of them..

All right. Thanks very much, Marty..

Yeah..

Thank you. The next question comes from Kenneth Lee of RBC Capital Markets. Your line is now open..

The targeted organic growth range of 3% to 5%.

What's the expectation in terms of which asset categories could be either above or below this range? And specifically, which can be the biggest contributors toward that growth rate?.

So, I mean, the good question, I think it's going to depend on what sort of market environment we're in.

We're really looking at this more from a function that we have this broad set of capabilities that we can bring together in conjunction with sort of catalysts around digital advice, factors just generally – so, these are kind of general themes that cut across asset classes.

And so, I would say, I mean, generally, we think passive is probably going to continue to grow at a faster rate than active. So, that's one aspect to the 3% to 5%.

Whether it's going to be fixed income versus equity, versus alternatives that's a little harder to predict, although I think we're pretty well-positioned with both shares in particular to grow that asset class in the passive space.

But I don't think we are able to really lay it out with that degree of specificity with any sense of certainty, other than kind of the active versus passive split, I think, is probably the most real (00:58:17).

I think the other thing that we probably would say though is that we think alternatives will continue to grow probably at a faster rate generally than other sort of more traditional classes as been the history for us.

And so, we're just looking at the trend line there that, that would continue to be an area of higher growth for us, not just in our real estate, but in commodities. Some of the Global Targeted Return types of products, we think will have a lot of opportunity to grow faster. And Marty, I don't know if you have any....

Yeah, no. I think what I would like to put in context is what Loren talked about earlier during the presentation, and where he showed the advantages of diversification going back to 2009. And this range of 3% or 5%, it's not unknown to us. We've been in the range over those periods of time.

The other thing that's factual is that the consistency of our growth is very unique in the industry. What we want to change is have the consistency be within that 3% to 5% range. And I think, the clients are really going to decide where they're going to put their assets.

The effort is to drive the totality of our penetration up with our clients, and there's many areas that we can be doing a better job of that, and whether it be the institutional parts of our business that we've talked about, a broader penetration on platforms, et cetera, and greater success in the broadening of the penetration of our ETF platforms in the U.S.

and in EMEA probably, in particular. So, that's really what we think is going to drive it, in particular, it's the totality of the offering. And really, that's just being much more effective with our distribution capabilities..

Got you. And I just have one more. In terms of the recent additions to the Global Solutions team, I wondered if you can talk specifically about efforts to gain more insurance clients. We've seen few other competitors picking interest in this area, and just want to see how you view the growth opportunity there. Thanks..

Yeah, it is a real growth opportunity. And again, as you're saying, money managers are turning their attention to it. We have been quite successful in the area.

It is also an area where if you look at the skills that we've developed internally over the last few years, a number of the backgrounds are coming from the insurance industry and having that specific expertise really, really matters.

And again, it is an area where we have seen success, and we will continue to see success, and frankly, is probably going to be one of the relative areas of relative strength within our institutional business in particular..

Great. Thanks..

Thank you. The next question comes from Alex Blostein of Goldman Sachs. Your line is now open..

Great. Hey, Marty. Good morning, Loren. Good morning, guys. Wanted to go back to the Guggenheim discussion for a second with the recent fee rate reduction.

So, understand you guys are trying to be more competitive as you position this product, but looking out, are we largely done? Do you guys still see any incremental price reductions that need to be done in either of that product or kind of your broader PowerShares brand as you're kind of getting ready to roll this out more broadly, especially with Jemstep?.

Yeah. And Loren was talking about it. I think we have developed quite a strong discipline around pricing within the ETF capability. And again, it is back to the comment I made earlier. It is a very different set of capabilities.

And frankly, in the mutual fund world, we feel that the BulletShares are really one of the very attractive elements of Guggenheim. And we're not trying to be the low-cost provider at all, but really focused on this value for money. And we think it is appropriately priced right now, competitively priced.

We are looking at the whole range of our ETF lineup as we said we would post the acquisition. And you'll see probably some duplications and things like that, that will be addressed during that period of time. But nothing immediately in front of us, but we'll continue to look at the competitive positioning of our ETFs as we look forward..

Got it. And Loren, one for you. I guess , going back to the press release, it sounds like you guys are about 70% of the way through the cost-cutting program. Just kind of looking what's in the run rate as of the first quarter versus the total.

I guess, is there room to do more given a more challenging obviously revenue backdrop and sort of flattish organic growth here? And then as we think about 2019, obviously, lots of moving pieces, but using your kind of typical methodology, but also taking into account that you are investing in the business still and Jemstep pipeline sounds pretty robust, Is 50% plus realistic for 2019 in incremental margin, or that might get pushed out?.

So, on the cost opportunity side, we do think there's always further opportunity to do more. We continue to look at other things that are not currently in that run rate.

I think in terms of the overall program that was put in place a while back in terms of optimization with the specific activities being identified, that is going to come to a close in 2018.

We're really going to be, I think, done with the optimization program per se, but we are going to continue, I think, to roll through some fairly, hopefully, significant opportunities to continue to look at technology more effectively, potentially outsource other activities within the firm to the extent that it makes sense.

Someone can do it better, cheaper, faster, whatever. Those are the things that we need to continue to be focused on. Use of robotics is another one that people are looking at obviously. It's an opportunity for lots of firms, not just us.

So, I would say more to come on that one and should allow us to continue to grow with a good cost at a slower pace than revenues. And so, with that said, I don't think anybody internally has said that, that 50% to 65% goes away. And that 2019 opportunity may still certainly exist for us to be able to deliver at those levels.

But I also mentioned, we have to get through 2018 to sort of get a clear view of where we are in 2019. So, not ready to sort of commit at this point that, that is locked in, other than there's nothing that implicitly says it can't happen..

Yes. I understood..

Okay..

Thanks..

Thank you. The next question comes from Brian Bedell of Deutsche Bank. Your line is now open..

Great. Thanks for taking my questions. Good morning folks..

Hey, Brian..

Marty, maybe just to get back onto the factor-based and the smart beta franchise. Just in your view, obviously, we've been in a slower positive net flow environment for smart beta over the last year or so, given beta has done so well in the market. It's been up pretty strongly.

But as you see this develop, and you're making a bigger effort, what do you think are the biggest drivers that can actually positively move that needle? And I'm thinking like, first of all, the market conditions that you've been alluding to, of people getting more conservative versus how you're positioning the smart beta versus active products, and then versus passive products.

And it sounds like it continues to be more like a sold product rather than a bought product, so how are financial advisors perceiving smart beta as a better solution for them?.

You're on a really, really, really important point. If you listened to the commentary, you would think that – and I'll stay in the United States for a moment, because it's different than other markets. You would think that the adoption rate of smart beta factors is at a very high level; in fact, it's not. It's not at all, where it can be.

And what we are seeing, and this could be whether it'd be platforms, financial advisors, or some institutions, the intellectual merits are embraced. The how to use it, how to implement factors in a portfolio and build portfolios extending again high conviction active alternatives and factors, it is not well-developed.

And so, that's why I come back to how are we making an impact. There's a huge educational element of not just what it is, but how do you use it. That's where the Solutions team also comes into play, too, because we literally help people build model and analytics of how, in fact, to use them.

And it's just not at the institutional level, it's actually at corner offices, FAS, where our analytics team is helping them determine how to build portfolios more effectively to create the outcomes that they want.

So, the fact of the matter is, it is early days, and so, you're exactly right, it is – at the moment, it's not a bought capability, it's much more a learned or sold capability. And as the adoption rate goes up, I think, that's where you're going to start to see a much greater momentum in the flows in these areas.

Factors outside of the United States, and in particular, in Europe, institutionally have been embraced much more holistically for good long period of time, and that's just at a different level now. I would say, at a retail level, it's probably similar to the United States.

And quite frankly, there's still much greater appetite for active investing whether, it'd be fixed income and/or equities in the U.K. and on the continent. We have, frankly, the same thing for the retail channel in Asia.

I will also tell you it has been a marked change of interest in the beginning adoption of factor capabilities in Asia, China, and Japan, frankly, in particular, from the interactions that we've been having..

Okay. That's great color. And then, maybe a little different subject, as you think about quantitative strategies from the research side, you did talk about this a little bit in the presentation, obviously, there's been a reasonably decent push to embrace quantitative tools within research and different firms are implementing it in different ways.

And if you can talk about how you're implementing it at Invesco. I know you guys obviously operate on a more decentralized base with teams sort of a lot of them doing their own thing.

But how do you view your fundamental teams embracing quantitative strategies, and are you kind of trying to push that through within the organization?.

Yeah. So, let me clarify a point. The investment teams, they are built by – under unique philosophies and processes, but it's all on a single platform. And so, the tools are available to all of the teams, and they're used in different ways.

And the reality of the situation is every one of these teams, and if you go back to our quantitative team that's been since the early 1980s, they've always adopted new technologies to enhance their quantitative models, and that's exactly what's happening right now.

And so, the adoption of the tools is really driven by each of the investment management teams. And it'll be no different than in the past, and they will continue to be adopted in that manner. So, I don't know if that's helpful or not..

I do know – I mean, we are looking specifically at things like natural language as an opportunity to be able to go through some of the filings more effectively. So, that's work in progress right now. And I also know there's some exploration around the use of AI, specifically around macroeconomic views and the bets around macroeconomic events.

So, I think it's all been explored. I think there are – the teams that are embracing them. But it's additive to their existing processes, as opposed to taking parts out..

Great, and you're talking about the fundamental teams not the quantitative?.

Yes, this is all fundamental teams that we're talking about. The quantity teams have been doing this for a long time..

For a long time, yes. Okay, great. Thank you..

Thank you. The next question comes from Michael Cyprys of Morgan Stanley. Your line is now open..

Hi. Good morning Thanks for taking the question.

Just curious if you could update us on the Great Wall JV in China, how that's progressing, and your outlook there? And also, just given some of the recent regulatory changes in China, just curious how you're thinking about any sort of change to the JV structure, or how you're thinking about approaching China?.

Yeah. I'll make a couple comments. We probably don't talk about it a lot. Or our China position, I'd say, is arguably one of the strongest in the industry. Invesco Great Wall continues to do quite well in the marketplace, and the penetration continues to increase.

And back to some of the topics that we're talking about, the other thing, it's a very different market. And we are frankly learning a lot about using technologies and retail channels in China, because they are actually more advanced in many parts of the world. And that is one of the things that led to Jemstep a number of years ago.

So, we also see other opportunities with some of the digital platforms in China. And again, we'll just have to – we'd be more specific here on that. Institutionally, we continue to be very, very strong, I'd argue, probably top three institutional managers, multiple mandates with everybody that you would hope to be there.

As you say, the changing dynamics from a opportunity to change our 49% shareholding is top of mind right now. And as soon as we can have that change, it will be changed, which is also another real positive for us as an organization.

And to your point, Michael, the bigger topic is – the opportunity probably has never been bigger in China just because of some of the developments that are happening there. And we feel extraordinarily well placed in that market..

Yeah, I would just say, I mean, they're flowing really well. The products, fundamental and quantitative, fixed income, I mean, it's really doing well. I think, the overall joint venture is one of the largest and seem to be one of the most successful there. It's about $20 billion in size and rapidly growing.

So, there's a lot of focus on kind of how do we continue to grow our opportunities with the Great Wall.

And we also have a WOFE as well, so that is another element – that Wholly Owned Foreign Entity (sic) [Wholly Foreign Owned Enterprise] (01:14:16), I think, is what that stands for, which is yet another kind of element into the whole Greater China strategy..

And I'd just add, I mean, as you know, as best we can tell, we're the only Western firm, where the name is led by Invesco Great Wall. And we also have management control of the JV, and I think that's also unique in the market.

So, part of the success of the JV is we are able to utilize the capabilities of Invesco, whether it be investment disciplines and the like, that are probably not afforded to other JVs. And literally, we operate as a single organization in the market, and jointly going to clients, recognizing it as a JV even.

So, again, we just feel we're in a very strong place in that marketplace..

Great. Thanks for taking my questions..

Yes..

Thank you. The next question comes from Chris Shutler of William Blair. Your line is now open..

Hey, guys. Good morning. Just one real quick one on capital allocation priorities, just outline that, and where acquisitions fall in that mix right now? Thanks..

So, obviously we just finished an acquisition, and so our priorities is really paying down the credit facility, as we mentioned, to bring our leverage back down to pre-acquisition levels.

Once we get to that, which we expect to happen sometime in Q4, we would expect our normal capital priorities to kick back in, which really is investing behind the business, which would be mostly seeding products – have sort of contained needs there, roughly – historically, has been somewhere around $100 million, $200 million a year, then would be an ever-increasing dividend.

And you saw what we did in terms of that increase, modest, but again, consistent growth in our dividend. And then the remainder could be allocated to buybacks, which again, is something that we're looking forward to, given the stock price, where it is.

In terms of acquisition strategies, as I mentioned, I think our focus is really trying to leverage what has just come onboard between Source and Guggenheim. There are continuing opportunities that present themselves to us.

And I think just as we've always done, we've been open to looking at those in terms of what they might bring, but has not been the key focus to our success at all.

We think we should be able to grow organically, first and foremost, but we're paying attention as the industry is shifting and moving and certain things may be more interesting than others. And I don't know Marty if you want to add to that as well..

No, I agree. No, you're right on the mark..

All right. Thanks, Loren..

Sure..

Thank you. The next question comes from Patrick Davitt of Autonomous Research. Your line is now open..

Hey. Good morning. Thanks. Apologize if I missed this, I had to step away during the Jemstep conversation.

But are these new platforms a situation where there's – you'll be sitting next to other asset managers, robos, and the fee advisor chooses which one they want to use? And if so how do you kind of become the one that they choose, when I imagine there's some pretty powerful constituencies behind the other ones?.

Yeah, no. What we're talking about these clients, they pick one digital platform, so it is – think of you as an organization, you choose an application, you install the application in your environment, and that's really the point here.

No institution wants multiple digital platforms; they want one to serve their financial advisors and their wealth managers and the like. And so, that's really the point. Being first to market and the penetration with the clients puts you in a very unique situation. You become a service provider to these institutions.

It is white-labeled; it is open platform. But we think our decision to do that was, we think, very, very wise. No way would an institution want to not have open platform and not – an organization like us not recognize that we are their client, we are serving them. And I think that has served us very, very well to-date here.

And I think Loren also made a point, depending on the institution, what we are seeing is they start to turn to an organization like us to provide models for their platforms. And again, this gets back to how do the models happen.

It's a combination of being the digital advice platform; the combination of our Solutions team working with the client to determine what they want built for their clients; then using a combination again of our active factor capabilities, whether it'd be mutual funds and ETFs to build these models for the clients.

And again that just really gets back to – you have to look at the totality of the offering. And you have the relative market share and time. We are modeling to be quite dramatically different to the upside and a traditional relationship to a traditional platform..

Great. That's helpful. And then just a quick follow-up. There was some news a week or so ago about a fee dispute with the enhanced income trust in the UK.

Could you give us a total AUM exposure to those kind of trusts? And is this a trend we should worry about for all of them?.

I don't think the exposure is large. I think it's probably $5 billion or less. Some of the other trusts have already gone through and have made some adjustments. This was a particular situation that I don't know if we can really comment too deeply on in terms of kind of where that dispute was, and seems more anomalous again than sort of a theme..

Okay. Thank you..

Yeah..

Yeah..

Thank you. The next question comes from Robert Lee of KBW. Your line is now open..

Great. Good morning. Thanks for taking my questions and appreciate patience to a long call.

I guess, in a way, maybe it's a more of a hypothetical question than anything, but is organic growth really even the metric we should all be focusing on really? Because if you think about it and you talk about your net revenue yield and there's pressures there, and we all talk about fee pressure in the industry.

Clearly, there's a concern rightly so about the ability for any organic growth, for you and a lot of your peers, to translate into revenue growth.

But really, isn't the real measure the ability to generate EBITDA and earnings growth from incremental flow? So, shouldn't we really be thinking about, and how do you think about really growing pre-tax operating income regardless of revenues maybe or increment – not regards of revenues, but regards to kind of incremental fee rates..

Yeah..

I mean, isn't that really the conversation we should be having?.

It's a good question. And I guess, we collectively have talked down a path, it's been organic growth rate. And I think, what the organic growth rate does do, I mean, it is sort of a momentum measure, right, and penetration, so there is something healthy about it. But where I think the conversation gets lost probably is where you're going, right.

So, we've been focused on our effective fee rate and what's driving that change. Where we see the bulk of our effective fee rate changing, it's really going to be the asset mix more than anything else.

And what do we think is going to happen with – so if you start to dissect it, in a way, if you looked at this, – again the range of capabilities, over time where are the bulk of our assets are going to be? They're going to be in probably factor capabilities.

Why would that be the case? Because traditional active, you're going to hit – we know that equity capabilities, in particular, there's a limitation to the size if you're going to generate alpha. So, when an investment team says no more, we shut them down. And I think that's the right thing to do.

And that is – and I'd say, the same thing on alternatives, right. There's going to be a limitation to the size. And so, when we looked forward, we made the determination to fully service clients. We needed this whole range of capabilities and recognizing that you can build absolute scale and factor capabilities, while frankly, meeting client needs.

So, that is really the conversation we've been having. And you're really pulling it out in a different way. And I think understanding that is really important and the implications. What's the point of it, if you look at our ETF business or factor business, it's lower fee, but it's finally profitable, right.

And that is really what you're driving to, you're going to get scale, and you're going to get the profitability, and the earnings growth because of it..

Yeah. And I think, I mean, obviously, we're fiduciary and our focus is on our clients, and that doesn't mean earnings growth or profits don't matter, they absolutely do. And certainly, I spend a lot of time thinking about them myself. But, in terms of kind of the metric there, everybody internally is focused on, growth is really a measure.

We've got a growth measure. Do our client want our products? I mean, are we serving our clients well? It's really a measure of health. And then, from that, comes revenues and profits. So, again, I think from maybe your perspective, I certainly get the question.

I think internally, people would still find organic growth, sort of a very good measure of whether we're doing the right things by clients..

And I appreciate the color. Thanks..

Yeah..

Yeah..

Thank you. At this time, we don't have any questions in queue. Mr. Flanagan, you may proceed..

Thank you very much on behalf of Loren and myself and the Invesco team. Thank you for your time and interest. And we will be talking to you soon. Have a good rest of the day..

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