Invesco Ltd. (IVZ) Q4 2025 Earnings Call Transcript
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Overview
The earnings call highlights strong financial performance, including record AUM and significant inflows, particularly in China and private markets. The Q&A session reveals management's focus on organic growth, strategic partnerships, and capital management, with plans to increase share buybacks. Despite some uncertainties in expense guidance, the overall sentiment is positive, driven by strong partnerships, growth in key markets, and strategic initiatives like the hybrid investment platform. These factors, combined with a stable net revenue yield and deleveraging efforts, suggest a positive stock price movement.
Key Financial Performance
Net Revenues Grew 6% in 2025 year-over-year. ETF and index investment capability produced record revenues and grew the top line by 22%. Revenue growth from Asian and EMEA regions was up 13%. Fundamental equity revenue was flat to the prior year but up 4% from 2023. Reasons include scaling of ETF and index business, growth in Asian and EMEA regions, and stabilization in fundamental equity trends.
Operating Margin Increased by 230 basis points in 2025 year-over-year. Reasons include disciplined expense management and revenue growth.
Operating Income Grew 14% in 2025 year-over-year. Reasons include revenue growth and well-managed expenses.
Earnings Per Share (EPS) Improved by 19% in 2025 year-over-year. Reasons include revenue growth, expense management, and balance sheet improvements.
Net Long-Term Inflows Generated over $80 billion in 2025, representing 6% organic growth. Reasons include strong product offerings and client demand.
Assets Under Management (AUM) Reached a record $2.2 trillion at the end of the fourth quarter of 2025, up $324 billion or 18% year-over-year. Reasons include net long-term inflows of $19 billion in Q4, market gains of $11 billion, and the QQQ ETF conversion.
ETF and Index AUM Stood at a record $630 billion excluding QQQ, with nearly $12 billion of net inflows in Q4 2025. Reasons include strong demand for equity and fixed income products.
China JV AUM Reached a record $132 billion, with $8.9 billion in net long-term inflows in Q4 2025, marking a 36% annualized organic growth rate. Reasons include strong demand for fixed income and equity strategies.
Private Markets Net Inflows Posted $300 million in Q4 2025, driven by direct real estate and private credit activities. Reasons include strong demand for real estate debt strategies and private credit products.
Net Revenue Yield Declined to 22.5 basis points in Q4 2025, continuing a slower pace of decline. Reasons include a shift in asset mix towards lower-fee products like ETFs and fixed income.
Preferred Stock Repurchase Repurchased $1.5 billion in 2025, reducing outstanding preferred stock from $4 billion to $2.5 billion. Reasons include balance sheet deleveraging and cost reduction.
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Operating Highlights
Hybrid Alpha investment platform: Onboarded several waves of assets and on pace to finish by the end of the year. This platform will drive simplification, improve investment systems consolidation, and future cost avoidance.
Private markets partnerships: Announced partnerships with Barings and LGT Capital Partners to launch co-managed credit and multi-asset products targeting U.S. wealth and defined contribution markets. These partnerships include $650 million in committed capital and seed capital support.
Modernization of QQQ ETF: Completed conversion of the fund, reducing fees for shareholders and generating revenue on $400 billion of AUM.
Canadian market transformation: Entered a strategic partnership with CI Global Asset Management, selling Canadian mutual fund and ETF complex ($19 billion AUM) while retaining sub-advisory role for $10 billion AUM.
India market realignment: Sold majority interest in Indian asset management business to Hinduja Group, forming a joint venture to leverage local market growth.
China JV growth: Achieved record AUM of $132 billion with $8.9 billion in net long-term inflows, driven by fixed income and equity strategies.
Revenue growth: Net revenues grew 6% in 2025, with ETF and index investments growing 22% and Asian/EMEA regions up 13%.
Expense management: Maintained a flat expense base while redeploying resources, resulting in a 230 basis point increase in operating margin and 19% improvement in EPS.
Balance sheet recapitalization: Repurchased $1.5 billion in preferred stock, reducing leverage and increasing earnings available to common shareholders.
Focus on private markets: Accelerated growth of $130 billion private markets platform through partnerships and innovative product launches.
Strategic divestitures: Sold Intelliflo and majority interest in Indian business to refocus resources and unlock value.
Client-centric growth strategy: Generated $80 billion in net long-term inflows, with 40 products achieving over $1 billion each in net inflows.
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Risk or Challenges
Market Concentration in Canada: The Canadian market has become increasingly concentrated and more vertically integrated, posing challenges for Invesco's operations in this region. This led to the decision to transform the Canadian business through a strategic partnership with CI Global Asset Management.
Decline in Fundamental Equity Demand: There is a broader secular outflow trend in actively managed equities, particularly in the United States, which has negatively impacted Invesco's fundamental equity segment. This was compounded by expected net outflows from the developing markets fund.
Private Credit Deployment Challenges: Despite robust fundraising in private credit, deployment challenges persist due to fewer transactions in the current environment. This could impact the growth and profitability of private credit offerings.
Hybrid Investment Platform Costs: The implementation of the hybrid investment platform is expected to incur higher costs in 2026, with combined implementation costs and expenses associated with AUM on the system projected to be $25 million to $30 million higher than in 2025.
Net Revenue Yield Decline: The net revenue yield has been declining due to a shift in asset mix towards lower-fee products like ETFs and Index and fundamental fixed income capabilities. This trend, while stabilizing, continues to impact overall revenue generation.
China Market Dynamics: While the China JV has shown strong growth, there is slower regeneration of demand for stand-alone active equity strategies, which could limit growth in this segment.
Marketing Expenses for QQQ ETF: Marketing expenses related to the QQQ ETF are expected to be significant, ranging from $60 million to $100 million in 2026, which could impact overall profitability.
Compensation Expense Timing Changes: Changes in retirement eligibility criteria for long-term awards in 2026 will result in a timing change for recognizing retirement-related expenses, leading to a $30 million increase in compensation expense in the first quarter of 2026.
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Guidance & Outlook
Revenue Growth: Invesco projects continued revenue growth driven by ETF and index investment capabilities, which grew 22% in 2025. The company expects further scaling of this business and revenue growth from Asian and EMEA regions, which grew 13% in 2025.
Operating Margin: The company anticipates further improvement in operating margin, which increased by 230 basis points in 2025, supported by disciplined expense management and revenue growth.
Private Markets Growth: Invesco plans to expand its $130 billion private markets platform through strategic partnerships with Barings and LGT Capital Partners. New co-managed products targeting U.S. wealth and defined contribution markets are expected to launch later this year.
China JV Growth: The company expects continued strong growth in its China JV, which achieved a record $132 billion in AUM and 36% annualized organic growth in 2025. Secular and cyclical tailwinds are anticipated to support further growth.
Hybrid Investment Platform: The hybrid Alpha investment platform is expected to be fully implemented by the end of 2026, driving cost efficiencies and investment system consolidation.
Capital Management: Invesco plans to continue deleveraging and returning capital to shareholders, targeting a total payout ratio near 60% for 2026. The company also expects to capture additional EPS benefits from preferred stock repurchases and debt repayments.
Net Revenue Yield: The company anticipates stabilization in net revenue yield, which declined at a slower pace in recent quarters. The exit net revenue yield at the end of 2025 was higher than the quarterly average, indicating potential stabilization.
Marketing Expenses: Marketing expenses related to the QQQ ETF are expected to be near the midpoint of the $60 million to $100 million range in 2026.
Tax Rate: The non-GAAP effective tax rate for 2026 is estimated to be in the range of 25% to 26%, excluding discrete items.
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Shareholder Return Plan
Dividend Payments: The company has not explicitly mentioned any specific dividend payments or changes to its dividend policy in the transcript.
Share Repurchase Program: The company repurchased $25 million worth of common shares during the fourth quarter, amounting to 1 million shares. Additionally, the company plans to increase common share repurchases to $40 million in the first quarter of 2026. The total payout ratio, including common dividends and share buybacks, is targeted to be near 60% for 2026.
Preferred Stock Repurchase: In 2025, the company repurchased $1.5 billion of preferred stock, reducing the outstanding preferred stock from $4 billion to $2.5 billion. This action is expected to generate a $0.20 EPS benefit once the associated debt is repaid. The company has already captured $0.11 of this benefit due to early repayment of $500 million of term loans.
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Key Q&A
Q:What are the priorities for capital deployment and balance sheet management?
A:The company has repurchased $1.5 billion in 2025 and plans to use operating cash flows to reduce the revolver balance and focus on near-term maturities. They aim to increase share buybacks to $40 million this quarter and target a payout ratio closer to 60% this year. M&A is considered opportunistically, but the focus remains on organic growth and leveraging partnerships for shareholder-friendly growth.
Q:What is the outlook for implementation costs and platform expenses in 2027?
A:Implementation costs are expected to trail off and disappear over the course of 2027. Additional savings will come from decommissioning existing systems and streamlining processes. Further guidance will be provided as 2026 progresses.
Q:How should we think about the net revenue yield and its future impact?
A:The addition of QQQ revenue creates stabilization in the net revenue yield, with an expected range of 22% to 23% per quarter in 2026. The relationship between third-party plus distribution fees and management fees is changing due to QQQ, moving higher from 13%-14% to 22%-23%.
Q:What is the outlook for the compensation ratio and its impact on expenses?
A:The compensation ratio is expected to return to the 38%-42% range in 2026, likely at the high end. The addition of QQQ revenue helps stabilize the revenue base, allowing for selective investments in growth areas.
Q:What is the strategy for private market partnerships and branding?
A:The partnerships aim to complete the product capability set, focusing on income, total return, and growth strategies. The branding will combine the company's brand with partners' where appropriate, avoiding channel conflict. The partnerships are co-managed and exclusively distributed by the company.
Q:What is the expense outlook for 2026, and how should we think about the $3.2 billion starting point?
A:The $3.2 billion is a good starting point for 2026 expenses, but the final figure will be higher due to factors like QQQ marketing budgets and other variable expenses. The company aims to expand operating margins and create positive operating leverage.
Q:What is the outlook for the China JV and its growth drivers?
A:The China JV achieved over $20 billion in flows in 2025, driven by balanced strategies and passive ETF business. Growth is supported by domestic reforms, increased market participation, and easing trade tensions.
Q:What is the long-term outlook for the hybrid investment platform?
A:The hybrid investment platform will result in cost savings in 2027 relative to 2026, as implementation expenses taper off and systems are decommissioned. The platform aims to simplify operations and create future cost avoidance.
Q:What is the strategy for the defined contribution channel and private markets?
A:The company sees long-term opportunities in private markets for defined contribution plans, with traction in the U.K. and Europe. Partnerships like LGT will focus on institutional markets, leveraging their reputation.
Q:What are the financial implications of the Canada partnership with CI?
A:The partnership will result in a $15-$20 million quarterly revenue decline and $5-$10 million lower expenses starting in Q3 2026. The operating income impact will ease over time, and the partnership is expected to drive long-term growth.
Q:Review of Unclear Management Responses
A:Management avoided providing a specific total dollar amount for 2026 expenses, citing too many moving parts and quarter-to-quarter fluctuations. They also did not disclose cash flow implications or proceeds from the Canada partnership sale, stating it would be immaterial.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUM ETF
AUM ex
AUM fund
AUM investment
AUM term
Global
Head Investor
INCREF
LGT Capital
United States
action
activity
breadth platform
capability record
client product
contribution market
conversion
demand equity
effort
end income
environment
equity flow
equity income
flow number
flow term
fund AUM
fund demand
fund market
headwind
high
investment capability
investment sub
momentum
platform flow
product wealth
prospect
rate cut
record AUM
resource
sale
sub adviser
venture
wealth contribution
IVZ Transcript
Invesco Ltd. (IVZ) Q4 2025 Earnings Call Transcript
Positive1-27
The earnings call highlights strong financial performance, including record AUM and significant inflows, particularly in China and private markets. The Q&A session reveals management's focus on organic growth, strategic partnerships, and capital management, with plans to increase share buybacks. Despite some uncertainties in expense guidance, the overall sentiment is positive, driven by strong partnerships, growth in key markets, and strategic initiatives like the hybrid investment platform. These factors, combined with a stable net revenue yield and deleveraging efforts, suggest a positive stock price movement.
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Positive10-28
The earnings call reflects a generally positive outlook, with strong fixed income flows, robust growth in China, and strategic divestitures to support shareholder returns. The Q&A section reassured analysts on expense management and capital return priorities. Despite some management vagueness, the overall sentiment remains positive due to strategic growth plans and strong market positions, particularly in China and fixed income. However, the absence of guidance and ongoing high implementation costs for the Alpha platform temper the outlook slightly.
IVZ Slides
IVZ Report
Frequently Asked Questions
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