Invesco Ltd. (IVZ) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Invesco Ltd.'s 10-K for fiscal year 2023. Filing date: 2024-02-21. Report date: 2023-12-31. Accession: 0000914208-24-000219.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: IVZ · All MD&A years: index · Previous year: FY 2022 · Next year: FY 2024

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis disclosed herein apply to material changes in the Consolidated Financial Statements for 2023 and 2022. For the comparison of 2022 and 2021, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the company’s 2022 Annual Report on Form 10-K, filed with the SEC on February 22, 2023. The following discussion and analysis of the results of operations and financial condition of Invesco should be read in conjunction with the “Forward-looking Statements” disclosure set forth before Part I and the “Risk Factors” set forth in Item 1A of Part I of this Annual Report on Form 10‑K, each of which describe our risks, uncertainties and other important factors in more detail.

Executive Overview

The following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented. This overview and the remainder of this management's discussion and analysis and supplements should be read in conjunction with the Consolidated Financial Statements of Invesco Ltd. and the notes thereto contained elsewhere in this Annual Report on Form 10-K.

During the year, global capital markets improved; however, the improvement was uneven and undercut by geopolitical events. Investors also reacted to the impact of persistently high interest rates and inflation in most major economies and moved significant amounts of assets to the sidelines to await greater clarity. The table below summarizes the year ended December 31 returns based on price appreciation/(depreciation) of several major market indices for 2023 and 2022:

		Year ended December 31,
Equity Index	Index expressed in currency	2023	2022
S&P 500	U.S. Dollar	24.2%	(19.4)%
FTSE 100	British Pound	3.8%	0.9%
FTSE 100	U.S. Dollar	9.5%	(9.8)%
S&P/TSX 60 Index	Canadian Dollar	8.2%	(9.2)%
S&P/TSX 60 Index	U.S. Dollar	10.9%	(15.1)%
MSCI Emerging Markets	U.S. Dollar	7.0%	(22.4)%
Bond Index
Barclays U.S. Aggregate Bond	U.S. Dollar	5.5%	(13.0)%

The company’s financial results are impacted by the fluctuations in exchange rates against the U.S. Dollar, as discussed in the “Results of Operations” section as applicable.

One of Invesco's core strengths, and a key differentiator for the company within the industry, is our diversification across asset classes, distribution channels and geographies. This broad diversification helps mitigate some of the impact on Invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels. During the year, our diversified product lineup maintained net long-term inflows with our strongest performance in ETFs.

We remain highly focused on our capital priorities, investing in our key capabilities, and efficiently allocating resources. Consistent with our commitment to improve our leverage profile, we continue to maintain our debt at lower levels. We ended the year with no balance on our floating rate credit agreement and our Cash and cash equivalents balance increased to $1.5 billion. We amended and restated the floating rate credit agreement, increasing facility capacity from $1.5 billion to $2.0 billion and extending the expiration date from April 26, 2026 to April 26, 2028. The Board approved a 7% increase in our quarterly dividend to $0.20 per share, and the company repurchased 9.6 million common shares for $150.0 million in the open market during the second quarter of 2023. The progress we made to build financial flexibility has Invesco well-positioned to navigate various market conditions and deliver long-term growth. We remain committed to returning capital to shareholders longer term through a combination of modestly increasing dividends and share repurchases.

We are simplifying and streamlining the organization to better position the company for greater scale, performance and improved profitability. During the year we established a unified, globally integrated fixed income platform. We created a single, highly focused multi-asset group from what was previously operated through three distinct teams. We are also bringing together leadership across our fundamental active equity teams and are further strengthening our private markets platform. Notably,

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these simplification efforts will enable us to more fully leverage the benefits of our State Street Alpha platform, which we have begun to test, as a single global investment operation engine across asset classes. Further, we have combined our ETF, SMA and model portfolios efforts into a single group to manage these high growth potential investment vehicles. And we have globalized many aspects of our marketing and digital delivery, consolidating our efforts across the organization. These efforts are intended to drive revenue growth, improve investment quality, reallocate our expenses and capital base and help deliver profitable growth. Also, through these efforts, we expect to reduce our expense base by $50 million in 2024.

As previously disclosed, Martin L. Flanagan retired as President and CEO of the company and as a member of the Board of Directors effective June 30, 2023. Andrew R. Schlossberg succeeded Mr. Flanagan as President and CEO and as a member of the Board of Directors effective June 30, 2023.

Presentation of Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Consolidated Investment Products (CIP)

The company provides investment management services to, and has transactions with, retail mutual funds and other investment products sponsored by the company for the investment of client assets in the normal course of business. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of the products. The company is required to consolidate certain of these managed funds from time-to-time, as discussed more fully in Part II, Item 8, Financial Statements and Supplementary Data, Note 1, "Accounting Policies -- Basis of Accounting and Consolidation." Investment products that are consolidated are referred to in this Report as CIP. The company's economic risk with respect to each investment in CIP is limited to its equity ownership, unfunded equity commitments and any uncollected management and performance fees.

The majority of the company's CIP balances are CLO-related. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company's direct investments in, and management and performance fees generated from the CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Likewise, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability.

Due to the significant impact that CIP has on the presentation of the company’s Consolidated Financial Statements, the company has elected to deconsolidate these products in its non-GAAP disclosures (among other adjustments). See "Schedule of Non-GAAP Information" for additional information regarding these adjustments. The following discussion therefore combines the results presented under U.S. Generally Accepted Accounting Principles (U.S. GAAP) with the company’s non-GAAP presentation.

To assess the impact of CIP on the company's Results of Operations and Balance Sheet Discussion, refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 19, "Consolidated Investment Products."

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Summary Operating Information

Wherever a non-GAAP measure is referenced, a disclosure will follow in the narrative or in the note referring the reader to the Schedule of Non-GAAP Information, where additional details regarding the use of the non-GAAP measure by the company are disclosed, along with reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures. To further enhance the readability of the Results of Operations section, separate tables for each of the revenue, expense and other income and expenses (non-operating income/expense) sections of the income statement introduce the narrative that follows, providing a section-by-section review of the company’s income statements for the periods presented.

Summary operating information for 2023, 2022 and 2021 is presented in the table below.

(in millions, other than per common share amounts, operating margins and AUM)	Year ended December 31,
U.S. GAAP Financial Measures Summary	2023		2022		2021
Operating revenues	$	5,716.4			$	6,048.9			$	6,894.5
Operating income/(loss)	$	(434.8)			$	1,317.7			$	1,788.2
Operating margin	(7.6)	%		21.8	%		25.9	%
Net income/(loss) attributable to Invesco Ltd.	$	(333.7)			$	683.9			$	1,393.0
Diluted earnings per share (EPS)	$	(0.73)			$	1.49			$	2.99
Non-GAAP Financial Measures Summary(1)
Net revenues	$	4,310.7			$	4,645.0			$	5,261.1
Adjusted operating income	$	1,213.5			$	1,614.8			$	2,182.6
Adjusted operating margin	28.2	%		34.8	%		41.5	%
Adjusted net income attributable to Invesco Ltd.	$	689.7			$	773.2			$	1,439.6
Adjusted diluted earnings per share (EPS)	$	1.51			$	1.68			$	3.09
Assets Under Management
Ending AUM (billions)	$	1,585.3			$	1,409.2			$	1,610.9
Average AUM (billions)	$	1,500.6			$	1,452.5			$	1,499.9

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(1)Net revenues, Adjusted Operating Income (and by calculation, adjusted operating margin), and Adjusted Net Income (and by calculation, adjusted diluted EPS) are non-GAAP financial measures, based on methodologies other than U.S. GAAP. See “Schedule of Non-GAAP Information” for a reconciliation of the most directly comparable U.S. GAAP measures to the non-GAAP measures.

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Investment Capabilities Performance Overview

Invesco's first strategic objective reflects a commitment to deliver the excellence our clients expect, which includes strong investment performance over the long-term for our clients. The table below presents the one-, three-, five-, and ten-year performance of our actively managed investment products measured by the percentage of AUM in the top half of benchmark and in the top half of peer group.(1)

	Benchmark Comparison		Peer Group Comparison
	% of AUM In Top Half of Benchmark		% of AUM In Top Half of Peer Group
	1yr	3yr	5yr	10yr		1yr	3yr	5yr	10yr
Equities (2)
U.S. Core (4%)	22	%	43	%	31	%	17	%		18	%	11	%	22	%	12	%
U.S. Growth (6%)	—	%	11	%	25	%	41	%		49	%	—	%	62	%	11	%
U.S. Value (7%)	63	%	92	%	63	%	92	%		63	%	63	%	63	%	50	%
Sector (1%)	64	%	8	%	2	%	25	%		73	%	29	%	31	%	54	%
UK (1%)	95	%	66	%	45	%	48	%		72	%	100	%	47	%	47	%
Canadian (1%)	89	%	100	%	100	%	47	%		100	%	89	%	100	%	—	%
Asian (4%)	48	%	64	%	67	%	88	%		45	%	42	%	36	%	82	%
Continental European (2%)	67	%	82	%	27	%	66	%		77	%	80	%	41	%	70	%
Global (6%)	84	%	44	%	82	%	74	%		96	%	42	%	45	%	35	%
Global Ex U.S. and Emerging Markets (7%)	89	%	18	%	46	%	99	%		43	%	42	%	34	%	13	%
Fixed Income (2)
Money Market (26%)	99	%	96	%	99	%	100	%		85	%	86	%	85	%	100	%
U.S. Fixed Income (11%)	84	%	86	%	85	%	97	%		48	%	44	%	70	%	92	%
Global Fixed Income (6%)	86	%	62	%	95	%	95	%		80	%	68	%	73	%	94	%
Stable Value (5%)	—	%	99	%	100	%	100	%		97	%	97	%	97	%	100	%
Other (2)
Alternatives (5%)	68	%	58	%	78	%	73	%		50	%	61	%	45	%	55	%
Balanced (7%)	38	%	47	%	64	%	63	%		56	%	79	%	93	%	94	%

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(1) Excludes passive products, closed-end funds, private equity limited partnerships, non-discretionary funds, UITs, fund of funds with component funds managed by Invesco, stable value building block funds and collateralized debt obligations. Certain funds and products were excluded from the analysis because of limited benchmark or peer group data. Had these been available, results may have been different. These results are preliminary and subject to revision.

AUM measured versus benchmark on a one, three, five and ten year basis represents 54%, 54%, 50% and 45% of total Invesco AUM, respectively, and AUM measured versus peer group on a one, three, five and ten year quartile rankings represents 42%, 42%, 42% and 38% of total Invesco AUM as of December 31, 2023. Peer group rankings are sourced from a widely-used third-party ranking agency in each fund’s market (e.g., Morningstar, IA, Lipper, eVestment, Mercer, Galaxy, SITCA, Value Research) and asset-weighted in USD. Rankings are as of prior quarter-end for most institutional products and prior month-end for Australian retail funds due to their late release by third parties. Rankings are calculated against all funds in each peer group. Rankings for the primary share class of the most representative fund in each composite are applied to all products within each composite. Performance assumes the reinvestment of dividends. Past performance is not indicative of future results and may not reflect an investor’s experience.

(2) Numbers in parentheses reflect AUM for each investment product (see Note 1 above for exclusions) as a percentage of the total AUM for the five year peer group ($661.9 billion).

Assets Under Management

The following presentation and discussion of AUM includes Passive and Active AUM. Passive AUM include index-based ETFs, UITs, non-management fee earning AUM and other passive mandates. Active AUM are Total AUM less Passive AUM.

Non-management fee earning AUM includes non-management fee earning ETFs, UITs and product leverage. The net flows in non-management fee earning AUM can be relatively short-term in nature and, due to the relatively low revenue yield, these can have a significant impact on overall net revenue yield.

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The AUM tables and the discussion below refer to certain AUM as long-term. Long-term inflows and the underlying reasons for the movements in this line item include investments from new clients, existing clients adding new accounts/funds or contributions/subscriptions into existing accounts/funds. Long-term outflows reflect client redemptions from accounts/funds and include the return of invested capital upon maturity. We present net flows into money market funds separately because shareholders of those funds typically use them as short-term funding vehicles and the flows are particularly sensitive to short-term interest rate movements.

Changes in AUM by Investment approach were as follows:

	2023		2022		2021
(in billions)	Total AUM		Active		Passive		Total AUM	Active		Passive	Total AUM		Active		Passive
Beginning Assets (January 1)	$	1,409.2			$	976.2		$	433.0		$	1,610.9			$	1,082.5		$	528.4		$	1,349.9	$	979.3	$	370.6
Long-term inflows	299.1			164.3			134.8		330.3		197.9			132.4			426.8		260.2		166.6
Long-term outflows	(288.9)			(193.3)			(95.6)		(330.8)		(226.2)			(104.6)			(345.4)		(242.0)		(103.4)
Net long-term flows	10.2			(29.0)			39.2		(0.5)		(28.3)			27.8			81.4		18.2		63.2
Net flows in non-management fee earning AUM	6.2			—			6.2		(3.2)		—			(3.2)			20.6		(0.1)		20.7
Net flows in money market funds	(11.1)			(11.1)			—		56.4		56.4			—			39.7		39.7		—
Total net flows	5.3			(40.1)			45.4		52.7		28.1			24.6			141.7		57.8		83.9
Reinvested distributions	11.5			11.5			—		15.2		15.2		—			31.6		31.6		—
Market gains and losses	161.1			40.0			121.1		(243.5)		(125.6)			(117.9)			94.0		18.3		75.7
Dispositions	(1.4)			(1.4)			—		—		—			—			—		—		—
Foreign currency translation	(0.4)			(0.9)			0.5		(26.1)		(24.0)			(2.1)			(6.3)		(4.5)		(1.8)
Ending Assets (December 31)	$	1,585.3			$	985.3		$	600.0		$	1,409.2			$	976.2		$	433.0		$	1,610.9	$	1,082.5	$	528.4
Average AUM
Average long-term AUM	$	1,091.3			$	780.4		$	310.9		$	1,104.8			$	820.8		$	284.0		$	1,177.1	$	919.1	$	258.0
Average AUM	$	1,500.6			$	992.3		$	508.3		$	1,452.5			$	988.2		$	464.3		$	1,499.9	$	1,050.2	$	449.7
Average QQQ AUM	$	187.5			$	—		$	187.5		$	169.1			$	—		$	169.1		$	176.0	$	—	$	176.0

	2023	2022		2021
Revenue yield (bps) (1)
U.S. GAAP gross revenue yield	40.4	44.5		48.7
Net revenue yield ex performance fees ex QQQ (2)	32.4		35.5		39.1
Active net revenue yield ex performance fees	37.7	40.7		44.0
Passive net revenue yield ex QQQ (2)	16.0		18.1		20.1

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(1) U.S. GAAP gross revenue yield is not considered a meaningful effective fee rate measure. Gross revenue yield on AUM is equal to U.S. GAAP annualized total operating revenues divided by average AUM, excluding IGW AUM. It is appropriate to exclude the average AUM of IGW as the revenues resulting from these AUM are not presented in U.S. GAAP operating revenues. The average AUM for Invesco Great Wall was $87.2 billion in 2023 (2022: $93.5 billion, 2021: $84.0 billion). Additionally, the U.S. GAAP gross revenue yield is not a good measure because the numerator of the U.S. GAAP gross revenue yield excludes the management fees earned from CIP; however, the denominator of the measure includes the AUM of these investment products. Net revenue yield metrics include the net revenues and average AUM of IGW and CIP. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues.

(2) Performance fees are earned when certain performance metrics are achieved and QQQ ETFs do not earn net revenues. Therefore, net revenue yield is calculated excluding performance fees and QQQ AUM. Passive net revenue yield is calculated excluding QQQ AUM.

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Flows

There are numerous drivers of AUM inflows and outflows, including individual investor decisions to change investment preferences, fiduciaries and other gatekeepers making broad asset allocation decisions on behalf of their clients, and reallocation of investments within portfolios. We are not a party to these asset allocation decisions, as the company does not generally have access to the underlying investor's decision-making process, including their risk appetite or liquidity needs. Therefore, the company is not in a position to provide meaningful information regarding the drivers of inflows and outflows.

Market Returns

Market gains and losses include the net change in AUM resulting from changes in market values of the underlying securities from period to period. The table in the “Executive Overview” section of this Management's Discussion and Analysis summarizes returns based on price appreciation/(depreciation) of several major market indices for the years ended December 31, 2023 and December 31, 2022.

Foreign Exchange Rates

During the year ended December 31, 2023, we experienced a decrease in AUM of $0.4 billion due to changes in foreign exchange rates (December 31, 2022: AUM decreased $26.1 billion; December 31, 2021: AUM decreased $6.3 billion).

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Total AUM by Channel (1)

	2023		2022		2021
(in billions)	Total		Retail		Institutional		Total	Retail		Institutional	Total		Retail		Institutional
Beginning Assets (January 1)	$	1,409.2			$	872.3		$	536.9		$	1,610.9			$	1,106.5		$	504.4	$	1,349.9	$	947.1	$	402.8
Long-term inflows	299.1			219.9			79.2		330.3		243.9			86.4			426.8		301.2	125.6
Long-term outflows	(288.9)			(214.5)			(74.4)		(330.8)		(257.5)			(73.3)			(345.4)		(265.7)	(79.7)
Net long-term flows	10.2			5.4			4.8		(0.5)		(13.6)			13.1			81.4		35.5	45.9
Net flows in non-management fee earning AUM	6.2			5.9			0.3		(3.2)		0.9			(4.1)			20.6		20.2	0.4
Net flows in money market funds	(11.1)			1.4			(12.5)		56.4		1.8			54.6			39.7		3.3	36.4
Total net flows	5.3			12.7			(7.4)		52.7		(10.9)			63.6			141.7		59.0	82.7
Reinvested distributions	11.5			11.0			0.5		15.2		14.8			0.4			31.6		31.1	0.5
Market gains and losses	161.1			145.2			15.9		(243.5)		(227.3)			(16.2)			94.0		69.0	25.0
Dispositions	(1.4)			—			(1.4)		—		—			—			—		—	—
Foreign currency translation	(0.4)			0.8			(1.2)		(26.1)		(10.8)			(15.3)			(6.3)		0.3	(6.6)
Ending Assets (December 31)	$	1,585.3			$	1,042.0		$	543.3		$	1,409.2			$	872.3		$	536.9	$	1,610.9	$	1,106.5	$	504.4

Total AUM by Client Domicile (3)

	2023		2022		2021
(in billions)	Total		Americas		APAC		EMEA	Total		Americas	APAC		EMEA		Total		Americas	APAC		EMEA
Beginning Assets (January 1)	$	1,409.2			$	999.4		$	223.5		$	186.3			$	1,610.9		$	1,132.5		$	247.3		$	231.1		$	1,349.9	$	959.9	$	171.3	$	218.7
Long-term inflows	299.1			154.0			77.1		68.0		330.3			184.0			76.6		69.7		426.8		213.2			139.0		74.6
Long-term outflows	(288.9)			(156.0)			(67.0)		(65.9)		(330.8)			(193.8)			(62.5)		(74.5)		(345.4)		(197.7)			(71.8)		(75.9)
Net long-term flows	10.2			(2.0)			10.1		2.1		(0.5)			(9.8)			14.1		(4.8)		81.4		15.5			67.2		(1.3)
Net flows in non-management fee earning AUM	6.2			7.2			(0.3)		(0.7)		(3.2)			(3.6)			1.1		(0.7)		20.6		15.9			2.4		2.3
Net flows in money market funds	(11.1)			(11.7)			1.3		(0.7)		56.4			58.3			(0.3)		(1.6)		39.7		35.7			4.1		(0.1)
Total net flows	5.3			(6.5)			11.1		0.7		52.7			44.9			14.9		(7.1)		141.7		67.1			73.7		0.9
Reinvested distributions	11.5			11.3			—		0.2		15.2			14.9			—		0.3		31.6		31.2			0.1		0.3
Market gains and losses	161.1			130.4			6.3		24.4		(243.5)			(191.3)			(22.6)		(29.6)		94.0		74.4			5.9		13.7
Dispositions	(1.4)			(1.4)			—		—		—			—			—		—		—		—			—		—
Foreign currency translation	(0.4)			0.7			(5.4)		4.3		(26.1)			(1.6)			(16.1)		(8.4)		(6.3)		(0.1)			(3.7)		(2.5)
Ending Assets (December 31)	$	1,585.3			$	1,133.9		$	235.5		$	215.9			$	1,409.2		$	999.4		$	223.5		$	186.3		$	1,610.9	$	1,132.5	$	247.3	$	231.1

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See accompanying notes immediately following these AUM tables.

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Total AUM by Asset Class (2)

(in billions)	Total			Fixed Income		Balanced		Money Market		Alternatives
January 1, 2023	$	1,409.2		$	637.0			$	313.7		$	67.1		$	203.5	$	187.9
Long-term inflows	299.1		151.3			104.5			12.4		—		30.9
Long-term outflows	(288.9)		(128.9)			(102.2)			(17.7)		—		(40.1)
Net long-term flows	10.2		22.4			2.3			(5.3)		—		(9.2)
Net flows in non-management fee earning AUM	6.2		6.1			0.1			—		—		—
Net flows in money market funds	(11.1)		—			—			—		(11.1)		—
Total net flows	5.3		28.5			2.4			(5.3)		(11.1)		(9.2)
Reinvested distributions	11.5		7.2			1.8			1.3		0.3		0.9
Market gains and losses	161.1		149.3			9.8			(0.1)		0.6		1.5
Dispositions	(1.4)		—			—			—		—		(1.4)
Foreign currency translation	(0.4)		1.7			(2.0)			(0.3)		(0.6)		0.8
December 31, 2023	$	1,585.3		$	823.7			$	325.7		$	62.7		$	192.7	$	180.5
Average AUM	$	1,500.6		$	723.0			$	318.4		$	64.7		$	212.0	$	182.6
% of total average AUM	100.0	%	48.2	%		21.2	%		4.3	%	14.1	%	12.2	%
January 1, 2022	$	1,610.9		$	841.6			$	334.8		$	88.6		$	148.8	$	197.1
Long-term inflows	330.3		143.7			119.3			15.2		—		52.1
Long-term outflows	(330.8)		(152.5)			(102.4)			(20.9)		—		(55.0)
Net long-term flows	(0.5)		(8.8)			16.9			(5.7)		—		(2.9)
Net flows in non-management fee earning AUM	(3.2)		1.0			(4.2)			—		—		—
Net flows in money market funds	56.4		—			—			—		56.4		—
Total net flows	52.7		(7.8)			12.7			(5.7)		56.4		(2.9)
Reinvested distributions	15.2		11.1			1.6			1.2		—		1.3
Market gains and losses	(243.5)		(198.8)			(27.3)			(13.2)		1.1		(5.3)
Dispositions	—		—			—			—		—		—
Foreign currency translation	(26.1)		(9.1)			(8.1)			(3.8)		(2.8)		(2.3)
December 31, 2022	$	1,409.2		$	637.0			$	313.7		$	67.1		$	203.5	$	187.9
Average AUM	$	1,452.5		$	697.1			$	315.1		$	73.3		$	167.6	$	199.4
% of total average AUM	100.0	%	48.0	%		21.7	%		5.1	%	11.5	%	13.7	%
January 1, 2021	$	1,349.9		$	689.6			$	296.4		$	78.9		$	108.5	$	176.5
Long-term inflows	426.8		205.0			118.1			48.5		—		55.2
Long-term outflows	(345.4)		(182.1)			(76.8)			(40.8)		—		(45.7)
Net long-term flows	81.4		22.9			41.3			7.7		—		9.5
Net flows in non-management fee earning AUM	20.6		20.6			—			—		—		—
Net flows in money market funds	39.7		—			—			—		39.7		—
Total net flows	141.7		43.5			41.3			7.7		39.7		9.5
Reinvested distributions	31.6		25.4			1.9			2.7		—		1.6
Market gains and losses	94.0		85.9			(2.0)			(1.1)		—		11.2
Dispositions	—		—			—			—		—		—
Foreign currency translation	(6.3)		(2.8)			(2.8)			0.4		0.6		(1.7)
December 31, 2021	$	1,610.9		$	841.6			$	334.8		$	88.6		$	148.8	$	197.1
Average AUM	$	1,499.9		$	778.3			$	316.1		$	86.5		$	131.1	$	187.9
% of total average AUM	100.0	%	51.9	%		21.1	%		5.8	%	8.7	%	12.5	%

____________

See accompanying notes immediately following these AUM tables.

Table of Contents

Active AUM by Channel (1)

	2023		2022		2021
(in billions)	Total		Retail		Institutional		Total	Retail		Institutional	Total		Retail		Institutional
Beginning Assets (January 1)	$	976.2			$	482.1		$	494.1		$	1,082.5			$	631.7		$	450.8	$	979.3	$	601.1	$	378.2
Long-term inflows	164.3			98.8			65.5		197.9		117.0			80.9			260.2		163.5	96.7
Long-term outflows	(193.3)			(126.0)			(67.3)		(226.2)		(157.5)			(68.7)			(242.0)		(167.9)	(74.1)
Net long-term flows	(29.0)			(27.2)			(1.8)		(28.3)		(40.5)			12.2			18.2		(4.4)	22.6
Net flows in non-management fee earning AUM	—			0.1			(0.1)		—		—			—			(0.1)		(0.1)	—
Net flows in money market funds	(11.1)			1.4			(12.5)		56.4		1.8			54.6			39.7		3.3	36.4
Total net flows	(40.1)			(25.7)			(14.4)		28.1		(38.7)			66.8			57.8		(1.2)	59.0
Reinvested distributions	11.5			11.0			0.5		15.2		14.8			0.4			31.6		31.1	0.5
Market gains and losses	40.0			33.7			6.3		(125.6)		(115.6)			(10.0)			18.3		(0.1)	18.4
Dispositions	(1.4)			—			(1.4)		—		—			—			—		—	—
Foreign currency translation	(0.9)			0.4			(1.3)		(24.0)		(10.1)			(13.9)			(4.5)		0.8	(5.3)
Ending Assets (December 31)	$	985.3			$	501.5		$	483.8		$	976.2			$	482.1		$	494.1	$	1,082.5	$	631.7	$	450.8

Active AUM by Client Domicile (3)

	2023		2022		2021
(in billions)	Total		Americas		APAC		EMEA	Total		Americas	APAC		EMEA		Total		Americas	APAC		EMEA
Beginning Assets (January 1)	$	976.2			$	670.8		$	191.0		$	114.4			$	1,082.5		$	724.5		$	208.8		$	149.2		$	979.3	$	656.9	$	163.4	$	159.0
Long-term inflows	164.3			78.0			61.1		25.2		197.9			104.0			69.3		24.6		260.2		113.6			110.5		36.1
Long-term outflows	(193.3)			(109.7)			(55.0)		(28.6)		(226.2)			(133.4)			(56.1)		(36.7)		(242.0)		(125.4)			(67.4)		(49.2)
Net long-term flows	(29.0)			(31.7)			6.1		(3.4)		(28.3)			(29.4)			13.2		(12.1)		18.2		(11.8)			43.1		(13.1)
Net flows in non-management fee earning AUM	—			—			—		—		—			—			0.1		(0.1)		(0.1)		(0.2)			0.1		—
Net flows in money market funds	(11.1)			(11.7)			1.3		(0.7)		56.4			58.3			(0.3)		(1.6)		39.7		35.7			4.1		(0.1)
Total net flows	(40.1)			(43.4)			7.4		(4.1)		28.1			28.9			13.0		(13.8)		57.8		23.7			47.3		(13.2)
Reinvested distributions	11.5			11.3			—		0.2		15.2			14.9			—		0.3		31.6		31.2			0.1		0.3
Market gains and losses	40.0			33.4			(1.0)		7.6		(125.6)			(96.0)			(16.3)		(13.3)		18.3		12.8			0.3		5.2
Dispositions	(1.4)			(1.4)			—		—		—			—			—		—		—		—			—		—
Foreign currency translation	(0.9)			0.7			(5.4)		3.8		(24.0)			(1.5)			(14.5)		(8.0)		(4.5)		(0.1)			(2.3)		(2.1)
Ending Assets (December 31)	$	985.3			$	671.4		$	192.0		$	121.9			$	976.2		$	670.8		$	191.0		$	114.4		$	1,082.5	$	724.5	$	208.8	$	149.2

____________

See accompanying notes immediately following these AUM tables.

Table of Contents

Active AUM by Asset Class (2)

(in billions)	Total			Fixed Income		Balanced		Money Market		Alternatives
January 1, 2023	$	976.2		$	277.5			$	273.0		$	66.3		$	203.5	$	155.9
Long-term inflows	164.3		49.3			85.0			12.3		—		17.7
Long-term outflows	(193.3)		(64.5)			(85.3)			(17.6)		—		(25.9)
Net long-term flows	(29.0)		(15.2)			(0.3)			(5.3)		—		(8.2)
Net flows in money market funds	(11.1)		—			—			—		(11.1)		—
Total net flows	(40.1)		(15.2)			(0.3)			(5.3)		(11.1)		(8.2)
Reinvested distributions	11.5		7.2			1.8			1.3		0.3		0.9
Market gains and losses	40.0		31.9			7.8			(0.2)		0.6		(0.1)
Dispositions	(1.4)		—			—			—		—		(1.4)
Foreign currency translation	(0.9)		1.5			(2.3)			(0.3)		(0.6)		0.8
December 31, 2023	$	985.3		$	302.9			$	280.0		$	61.8		$	192.7	$	147.9
Average AUM	$	992.3		$	291.6			$	273.1		$	63.9		$	212.0	$	151.8
% of total average AUM	100.0	%	29.4	%		27.5	%		6.4	%	21.4	%	15.3	%
January 1, 2022	$	1,082.5		$	389.6			$	293.1		$	87.4		$	148.8	$	163.6
Long-term inflows	197.9		54.2			98.1			15.2		—		30.4
Long-term outflows	(226.2)		(83.3)			(89.7)			(20.8)		—		(32.4)
Net long-term flows	(28.3)		(29.1)			8.4			(5.6)		—		(2.0)
Net flows in money market funds	56.4		—			—			—		56.4		—
Total net flows	28.1		(29.1)			8.4			(5.6)		56.4		(2.0)
Reinvested distributions	15.2		11.1			1.6			1.2		—		1.3
Market gains and losses	(125.6)		(86.4)			(22.4)			(12.9)		1.1		(5.0)
Dispositions	—		—			—			—		—		—
Foreign currency translation	(24.0)		(7.7)			(7.7)			(3.8)		(2.8)		(2.0)
December 31, 2022	$	976.2		$	277.5			$	273.0		$	66.3		$	203.5	$	155.9
Average AUM	$	988.2		$	309.6			$	275.2		$	72.3		$	167.5	$	163.6
% of total average AUM	100.0	%	31.3	%		27.8	%		7.3	%	17.0	%	16.6	%
January 1, 2021	$	979.3		$	383.2			$	259.4		$	77.9		$	108.5	$	150.3
Long-term inflows	260.2		70.9			103.5			48.3		—		37.5
Long-term outflows	(242.0)		(98.9)			(67.9)			(40.8)		—		(34.4)
Net long-term flows	18.2		(28.0)			35.6			7.5		—		3.1
Net flows in non-management fee earning AUM	(0.1)		(0.1)			(0.1)			0.1		—		—
Net flows in money market funds	39.7		—			—			—		39.7		—
Total net flows	57.8		(28.1)			35.5			7.6		39.7		3.1
Reinvested distributions	31.6		25.4			1.9			2.7		—		1.6
Market gains and losses	18.3		10.8			(1.3)			(1.2)		—		10.0
Dispositions	—		—			—			—		—		—
Foreign currency translation	(4.5)		(1.7)			(2.4)			0.4		0.6		(1.4)
December 31, 2021	$	1,082.5		$	389.6			$	293.1		$	87.4		$	148.8	$	163.6
Average AUM	$	1,050.2		$	401.5			$	275.0		$	85.4		$	131.1	$	157.2
% of total average AUM	100.0	%	38.2	%		26.2	%		8.1	%	12.5	%	15.0	%

____________

See accompanying notes immediately following these AUM tables.

Table of Contents

Passive AUM by Channel (1)

	2023		2022		2021
(in billions)	Total		Retail		Institutional		Total	Retail		Institutional	Total		Retail		Institutional
Beginning Assets (January 1)	$	433.0			$	390.2		$	42.8		$	528.4			$	474.8		$	53.6	$	370.6	$	346.0	$	24.6
Long-term inflows	134.8			121.1			13.7		132.4		126.9			5.5			166.6		137.7	28.9
Long-term outflows	(95.6)			(88.5)			(7.1)		(104.6)		(100.0)			(4.6)			(103.4)		(97.8)	(5.6)
Net long-term flows	39.2			32.6			6.6		27.8		26.9			0.9			63.2		39.9	23.3
Net flows in non-management fee earning AUM	6.2			5.8			0.4		(3.2)		0.9			(4.1)			20.7		20.3	0.4
Total net flows	45.4			38.4			7.0		24.6		27.8			(3.2)			83.9		60.2	23.7
Market gains and losses	121.1			111.5			9.6		(117.9)		(111.7)			(6.2)			75.7		69.1	6.6
Foreign currency translation	0.5			0.4			0.1		(2.1)		(0.7)			(1.4)			(1.8)		(0.5)	(1.3)
Ending Assets (December 31)	$	600.0			$	540.5		$	59.5		$	433.0			$	390.2		$	42.8	$	528.4	$	474.8	$	53.6

Passive AUM by Client Domicile (3)

	2023		2022		2021
(in billions)	Total		Americas		APAC		EMEA	Total		Americas	APAC		EMEA(4)		Total		Americas	APAC		EMEA
Beginning Assets (January 1)	$	433.0			$	328.6		$	32.5		$	71.9			$	528.4		$	408.0		$	38.5		$	81.9		$	370.6	$	303.0	$	7.9	$	59.7
Long-term inflows	134.8			76.0			16.0		42.8		132.4			80.0			7.3		45.1		166.6		99.6			28.5		38.5
Long-term outflows	(95.6)			(46.3)			(12.0)		(37.3)		(104.6)			(60.4)			(6.4)		(37.8)		(103.4)		(72.3)			(4.4)		(26.7)
Net long-term flows	39.2			29.7			4.0		5.5		27.8			19.6			0.9		7.3		63.2		27.3			24.1		11.8
Net flows in non-management fee earning AUM	6.2			7.2			(0.3)		(0.7)		(3.2)			(3.6)			1.0		(0.6)		20.7		16.1			2.3		2.3
Total net flows	45.4			36.9			3.7		4.8		24.6			16.0			1.9		6.7		83.9		43.4			26.4		14.1
Market gains and losses	121.1			97.0			7.3		16.8		(117.9)			(95.3)			(6.3)		(16.3)		75.7		61.6			5.6		8.5
Foreign currency translation	0.5			—			—		0.5		(2.1)			(0.1)			(1.6)		(0.4)		(1.8)		—			(1.4)		(0.4)
Ending Assets (December 31)	$	600.0			$	462.5		$	43.5		$	94.0			$	433.0		$	328.6		$	32.5		$	71.9		$	528.4	$	408.0	$	38.5	$	81.9

____________

See accompanying notes immediately following these AUM tables.

Table of Contents

Passive AUM by Asset Class (2)

(in billions)	Total			Fixed Income		Balanced		Money Market		Alternatives
January 1, 2023	$	433.0		$	359.5			$	40.7		$	0.8		$	—	$	32.0
Long-term inflows	134.8		102.0			19.5			0.1		—		13.2
Long-term outflows	(95.6)		(64.4)			(16.9)			(0.1)		—		(14.2)
Net long-term flows	39.2		37.6			2.6			—		—		(1.0)
Net flows in non-management fee earning AUM	6.2		6.1			0.1			—		—		—
Total net flows	45.4		43.7			2.7			—		—		(1.0)
Market gains and losses	121.1		117.4			2.0			0.1		—		1.6
Foreign currency translation	0.5		0.2			0.3			—		—		—
December 31, 2023	$	600.0		$	520.8			$	45.7		$	0.9		$	—	$	32.6
Average AUM	$	508.3		$	431.4			$	45.3		$	0.8		$	—	$	30.8
% of total average AUM	100.0	%	84.8	%		8.9	%		0.2	%	—	%	6.1	%
January 1, 2022	$	528.4		$	452.0			$	41.7		$	1.2		$	—	$	33.5
Long-term inflows	132.4		89.5			21.2			—		—		21.7
Long-term outflows	(104.6)		(69.2)			(12.7)			(0.1)		—		(22.6)
Net long-term flows	27.8		20.3			8.5			(0.1)		—		(0.9)
Net flows in non-management fee earning AUM	(3.2)		1.0			(4.2)			—		—		—
Total net flows	24.6		21.3			4.3			(0.1)		—		(0.9)
Market gains and losses	(117.9)		(112.4)			(4.9)			(0.3)		—		(0.3)
Foreign currency translation	(2.1)		(1.4)			(0.4)			—		—		(0.3)
December 31, 2022	$	433.0		$	359.5			$	40.7		$	0.8		$	—	$	32.0
Average AUM	$	464.3		$	387.6			$	39.9		$	0.9		$	—	$	35.9
% of total average AUM	100.0	%	83.5	%		8.6	%		0.2	%	—	%	7.7	%
January 1, 2021	$	370.6		$	306.4			$	37.0		$	1.0		$	—	$	26.2
Long-term inflows	166.6		134.1			14.6			0.2		—		17.7
Long-term outflows	(103.4)		(83.2)			(8.9)			—		—		(11.3)
Net long-term flows	63.2		50.9			5.7			0.2		—		6.4
Net flows in non-management fee earning AUM	20.7		20.7			0.1			(0.1)		—		—
Total net flows	83.9		71.6			5.8			0.1		—		6.4
Market gains and losses	75.7		75.1			(0.7)			0.1		—		1.2
Foreign currency translation	(1.8)		(1.1)			(0.4)			—		—		(0.3)
December 31, 2021	$	528.4		$	452.0			$	41.7		$	1.2		$	—	$	33.5
Average AUM	$	449.7		$	376.8			$	41.1		$	1.1		$	—	$	30.7
% of total average AUM	100.0	%	83.8	%		9.2	%		0.2	%	—	%	6.8	%

____________

See accompanying notes immediately following these AUM tables.

(1) Channel refers to the internal distribution channel from which the AUM originated. Retail AUM represent AUM distributed by the company's retail sales team. Institutional AUM represent AUM distributed by our institutional sales team. This aggregation is viewed as a proxy for presenting AUM in the retail and institutional markets in which the company operates.

(2) Asset classes are descriptive groupings of AUM by common type of underlying investments.

(3) Client domicile groups AUM by the domicile of the underlying clients.

Table of Contents

Results of Operations for the Year Ended December 31, 2023 compared to December 31, 2022

The discussion below includes the use of non-GAAP financial measures. See “Schedule of Non-GAAP Information” for additional details and reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures.

Operating Revenues and Net Revenues

The main categories of revenues, and the dollar and percentage change between the periods, are as follows:

							Variance
	Years ended December 31,		2023 vs 2022		2022 vs 2021
(in millions)	2023		2022		2021		$ Change	% Change		$ Change	% Change
Investment management fees	$	4,106.0			$	4,358.4		$	4,995.9		$	(252.4)		(5.8)	%		$	(637.5)	(12.8)	%
Service and distribution fees	1,374.6			1,405.5			1,596.4		(30.9)		(2.2)	%	(190.9)			(12.0)	%
Performance fees	46.7			68.2			56.1		(21.5)		(31.5)	%	12.1			21.6	%
Other	189.1			216.8			246.1		(27.7)		(12.8)	%	(29.3)			(11.9)	%
Total operating revenues	$	5,716.4			$	6,048.9		$	6,894.5		$	(332.5)		(5.5)	%		$	(845.6)	(12.3)	%
Revenue Adjustments:
Investment management fees	$	(766.4)			$	(764.7)		$	(844.1)		$	(1.7)		0.2	%		$	79.4	(9.4)	%
Service and distribution fees	(911.7)			(961.1)			(1,087.5)		49.4		(5.1)	%	126.4			(11.6)	%
Other	(147.1)			(160.4)			(217.7)		13.3		(8.3)	%	57.3			(26.3)	%
Total Revenue Adjustments (1)	(1,825.2)			(1,886.2)			(2,149.3)		61.0		(3.2)	%	263.1			(12.2)	%
Invesco Great Wall	368.3			432.7			473.5		(64.4)		(14.9)	%	(40.8)			(8.6)	%
CIP	51.2			49.6			42.4		1.6		3.2	%	7.2			17.0	%
Net revenues (2)	$	4,310.7			$	4,645.0		$	5,261.1		$	(334.3)		(7.2)	%		$	(616.1)	(11.7)	%

_________

(1) Total revenue adjustments remove pass through investment management, service and distribution, and other revenues and equal the same amount as the Third-party distribution, service and advisory expenses.

(2) See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues.

Our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net business inflows (or outflows), and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period. See the company’s disclosures regarding the changes in AUM during the year ended December 31, 2023 and December 31, 2022 in the “Assets Under Management” section above for additional information.

Passive AUM generally earn a lower effective fee rate than active asset classes, and therefore, changes in the mix of AUM have an impact on revenues and net revenue yield. Average AUM were $1,500.6 billion for the year ended December 31, 2023 as compared to $1,452.5 billion for the year ended December 31, 2022. During 2023, investors continued to shift AUM toward lower yield passive products, such as ETFs. As a result, net revenue yield excluding performance fees and QQQ declined from 35.5 basis points (bps) for the year ended December 31, 2022 to 32.4 bps for the year ended December 31, 2023.

In addition, as fee rates differ across geographic locations, changes to the mix of AUM between geographies and exchange rates have an impact on operating revenues and net revenue yields.

Investment Management Fees

Investment management fees were $4,106.0 million for year ended December 31, 2023 as compared to $4,358.4 million for year ended December 31, 2022 as a result of shifts in the asset mix to lower yield products as compared to the prior year. See discussion above on how AUM changes impact our Investment management fees.

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Service and Distribution Fees

For the year ended December 31, 2023, Service and distribution fees were $1,374.6 million as compared to $1,405.5 million for the year ended December 31, 2022. The decrease is primarily driven by lower transfer agency fees of $24.5 million and distribution fees of $17.3 million, partially offset by higher administrative fees of $9.4 million. The decrease is primarily due to lower AUM to which these fees apply.

Performance Fees

For the year ended December 31, 2023, Performance fees were $46.7 million as compared to $68.2 million for the year ended December 31, 2022. Performance fees in 2023 were primarily generated from institutional and real estate products. Performance fees in 2022 were primarily generated from real estate, institutional, bank loans and private equity products.

Other Revenues

For the year ended December 31, 2023, Other revenues were $189.1 million as compared to $216.8 million for the year ended December 31, 2022. The decrease in Other revenues was primarily driven by lower real estate transaction fees of $15.3 million and front end fees of $17.1 million, partially offset by higher other transaction fees of $6.6 million.

Invesco Great Wall

The company’s most significant joint venture is our 49% investment in IGW. Management reflects 100% of IGW's results in its Net revenues and Adjusted operating expenses because it is important to evaluate the contribution that IGW is making to the business. The company’s non-GAAP operating results reflect the economics of these holdings on a basis consistent with the underlying AUM and flows. Adjusted net income is reduced by the amount of earnings attributable to the 51% noncontrolling interests. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of Net revenues.

Net revenues from IGW were $368.3 million and average AUM was $87.2 billion for the year ended December 31, 2023 (Net revenues were $432.7 million and average AUM was $93.5 billion, for the year ended December 31, 2022). The impact of foreign exchange rate movements decreased Net revenues from IGW by $20.4 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease in revenue was primarily due to lower average AUM, shifts in the asset mix to lower yield products, lower performance fees and implementation of the regulatory mandated fee reductions in China.

Management, performance and other fees earned from CIP

Management believes that the consolidation of investment products may impact a reader's analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues for the impact of CIP in calculating Net revenues. As Management and Performance fees earned by Invesco from the consolidated products are eliminated upon consolidation of the investment products, management believes that it is appropriate to add these Operating revenues back in the calculation of Net revenues. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of Net revenues.

Management and Performance fees earned from CIP were $51.2 million in the year ended December 31, 2023, as compared to $49.6 million for the year ended December 31, 2022.

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Operating Expenses

The main categories of operating expenses, and the dollar and percentage changes between periods, are as follows:

							Variance
	Years ended December 31,		2023 vs 2022		2022 vs 2021
(in millions)	2023		2022		2021		$ Change	% Change		$ Change	% Change
Third-party distribution, service and advisory	$	1,825.2			$	1,886.2		$	2,149.3		$	(61.0)		(3.2)	%		$	(263.1)	(12.2)	%
Employee compensation	1,885.8			1,725.1			1,911.3		160.7		9.3	%	(186.2)			(9.7)	%
Marketing	103.4			114.9			98.6		(11.5)		(10.0)	%	16.3			16.5	%
Property, office and technology	546.0			539.8			526.0		6.2		1.1	%	13.8			2.6	%
General and administrative	450.4			380.2			424.1		70.2		18.5	%	(43.9)			(10.4)	%
Transaction, integration and restructuring	41.6			21.2			(65.9)		20.4		96.2	%	87.1			N/A
Amortization and impairment of intangibles	1,298.8			63.8			62.9		1,235.0		1,935.7	%	0.9			1.4	%
Total operating expenses	$	6,151.2			$	4,731.2		$	5,106.3		$	1,420.0		30.0	%		$	(375.1)	(7.3)	%

The table below sets forth these expense categories as a percentage of total Operating expenses and Operating revenues, which we believe provides useful information as to the relative significance of each type of expense.

(in millions)	2023			% of Operating Revenues		2022		% of Total Operating Expenses		% of Operating Revenues		2021		% of Total Operating Expenses		% of Operating Revenues
Third-party distribution, service and advisory	$	1,825.2		29.7	%		31.9	%		$	1,886.2			39.9	%		31.2	%	$	2,149.3		42.1	%	31.2	%
Employee compensation	1,885.8		30.7	%		33.0	%		1,725.1			36.5	%		28.5	%		1,911.3		37.4	%	27.7	%
Marketing	103.4		1.7	%		1.8	%		114.9			2.4	%		1.9	%		98.6		1.9	%	1.4	%
Property, office and technology	546.0		8.9	%		9.6	%		539.8			11.5	%		8.8	%		526.0		10.4	%	7.7	%
General and administrative	450.4		7.2	%		7.9	%		380.2			8.0	%		6.3	%		424.1		8.3	%	6.2	%
Transaction, integration and restructuring	41.6		0.7	%		0.7	%		21.2			0.4	%		0.4	%		(65.9)		(1.3)	%	(1.0)	%
Amortization and impairment of intangibles	1,298.8		21.1	%		22.7	%		63.8			1.3	%		1.1	%		62.9		1.2	%	0.9	%
Total operating expenses	$	6,151.2		100.0	%		107.6	%		$	4,731.2			100	%		78.2	%	$	5,106.3		100.0	%	74.1	%

Operating expenses increased $1,420.0 million in 2023 compared to 2022 and include a $1,248.9 million non-cash impairment of our indefinite-lived intangible assets related to prior acquisitions of management contracts of U.S. retail mutual funds. Excluding the intangible asset impairment, Operating expenses increased $171.1 million.

Third-Party Distribution, Service and Advisory

Third-party distribution, service and advisory expenses include periodic “renewal” commissions which are paid to brokers and independent financial advisors for servicing of their client accounts while they are invested in an Invesco product. Renewal commissions are calculated based upon a percentage of the AUM value and apply to much of the company's non-U.S. retail operations. The revenues from the company’s U.S. retail operations include 12b-1 distribution fees, which are largely passed through to brokers who sell the funds as third-party distribution expenses along with additional marketing support distribution costs. Both the revenues and the costs are dependent on the underlying AUM of the brokers' clients. The upfront distribution commissions are amortized over the redemption period. Also included in Third-party distribution, service and advisory expenses are sub-transfer agency fees that are paid to third parties for processing client common share purchases and redemptions, call center support and client reporting. These costs are reimbursed by the related funds.

Third-party distribution service and advisory expenses were $1,825.2 million for the year ended December 31, 2023 as compared to $1,886.2 million for the year ended December 31, 2022. The decrease was primarily due to decreases of $52.5 million in service fees, $36.1 million in renewal commissions, and $10.7 million in transaction fees, partially offset by $40.9 million of higher administrative and other third-party management fees. The decrease is primarily due to a net decrease in pass-through service and distribution fees due to lower average AUM to which these fees apply. See "Schedule of Non-GAAP Information" for additional disclosures.

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Employee Compensation

Employee compensation includes salary, cash bonuses and long-term incentive plans designed to attract and retain the highest caliber employees. Employee staff benefit plan costs and payroll taxes are also included in Employee compensation.

Employee compensation was $1,885.8 million for the year ended December 31, 2023 as compared to $1,725.1 million for the year ended December 31, 2022. The increase was primarily driven by costs related to executive retirements and organizational changes of $101.6 million which was partially offset by a net decrease in salaries, variable compensation and benefits costs of $16.9 million. In addition, there was a $40.7 million increase in expense related to the mark-to-market on deferred compensation liabilities in the year ended December 31, 2023 as compared to a $45.8 million decrease in the year ended December 31, 2022.

Headcount at December 31, 2023 was 8,489 (December 31, 2022; 8,611).

Marketing

Marketing expenses include the cost of direct advertising of our products through trade publications, television and other media, and public relations costs, such as the marketing of the company's products through conferences or other sponsorships, and the cost of marketing-related employee travel.

Marketing expenses were $103.4 million for the year ended December 31, 2023 as compared to $114.9 million for the year ended December 31, 2022. The decrease was primarily driven by lower advertising spend.

Property, Office and Technology

Property, office and technology expenses include rent and utilities for our various leased facilities, depreciation of company-owned property, minor non-capitalized computer equipment and software purchases and related maintenance payments, and costs related to externally provided operations, technology, middle office and back office management services.

Property, office and technology expenses were $546.0 million for the year ended December 31, 2023 as compared to $539.8 million for the year ended December 31, 2022.

General and Administrative

General and administrative expenses include professional services costs, such as information service subscriptions, irrecoverable indirect taxes, non-marketing related employee travel expenditures, consulting fees, audit, tax and legal fees, professional insurance costs and recruitment and training costs.

General and administrative expenses were $450.4 million for the year ended December 31, 2023 as compared to $380.2 million for the year ended December 31, 2022. The increase was due to $70 million of insurance recoveries received during the year ended December 31, 2022 as compared to $20.0 million of insurance recoveries received in the year ended December 31, 2023. The increase also includes consulting and professional fees primarily related to the State Street Alpha platform of $26.4 million.

Transaction, Integration and Restructuring

Transaction, integration and restructuring expenses include costs related to the acquisition and integration of a business and costs incurred by the company to restructure business operations to improve overall efficiency and longer-term profit, including legal, regulatory, advisory, valuation, professional services and consulting fees as well as costs for travel, severance, temporary staff and contract terminations.

Transaction, integration and restructuring charges were $41.6 million during the year ended December 31, 2023 (year ended December 31, 2022: $21.2 million). With the completion of strategic initiatives during the first quarter of 2023, any costs related to on-going projects are classified in the income statement based on the nature of the expense.

Transaction and integration expense (excluding restructuring) was a benefit to expense of $2.7 million for the year ended December 31, 2023 (year ended December 31, 2022: $43.6 million benefit). The benefit in 2022 was primarily due to $55.0 million of recoveries related to the previously disclosed OppenheimerFunds acquisition-related matter.

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Restructuring costs were $44.3 million for the year ended December 31, 2023 (year ended December 31, 2022: $64.8 million). These costs are primarily related to compensation-related restructuring costs in connection with our strategic evaluation during 2023. (see Note 13, "Restructuring," for additional details).

Amortization and impairment of intangible assets

Amortization and impairment of intangible assets was $1,298.8 million for the year ended December 31, 2023 as compared to $63.8 million for the year ended December 31, 2022. The increase was primarily due to a $1,248.9 million non-cash impairment of our indefinite-lived intangible assets related to prior acquisitions of management contracts of U.S. retail mutual funds.

Operating Income, Adjusted Operating Income, Operating Margin and Adjusted Operating Margin

Operating loss was $434.8 million in the year ended December 31, 2023, as compared to operating income of $1,317.7 million for the year ended December 31, 2022. Operating margin (operating income divided by operating revenues) decreased to (7.6%) for the year ended December 31, 2023 from 21.8% in the year ended December 31, 2022 primarily as a result of the $1,248.9 million intangible asset impairment in 2023.

Adjusted operating income decreased to $1,213.5 million for the year ended December 31, 2023 from $1,614.8 million in the year ended December 31, 2022. Adjusted operating margin decreased to 28.2% for the year ended December 31, 2023 from 34.8% for the year ended December 31, 2022. See “Schedule of Non-GAAP Information” for a reconciliation of Operating revenues to Net revenues, a reconciliation of Operating income to Adjusted operating income and additional important disclosures regarding Net revenues, Adjusted operating income and Adjusted operating margin.

Other Income and Expenses

The main categories of other income and expenses, and the dollar and percentage changes between periods are as follows:

							Variance
	Years ended December 31,		2023 vs 2022		2022 vs 2021
(in millions)	2023		2022		2021		$ Change	% Change		$ Change	% Change
Equity in earnings of unconsolidated affiliates	$	71.3			$	106.1		$	152.3		$	(34.8)			(32.8)	%		$	(46.2)		(30.3)	%
Interest and dividend income	47.8			24.4			25.2		23.4		95.9	%		(0.8)			(3.2)	%
Interest expense	(70.5)			(85.2)			(94.7)		14.7		(17.3)	%		9.5			(10.0)	%
Other gains and losses, net	98.0			(139.5)			120.5		237.5		N/A		(260.0)			N/A
Other income/(expense) of CIP, net	50.3			24.2			509.0		26.1		107.9	%		(484.8)			(95.2)	%
Total other income and expenses	$	196.9			$	(70.0)		$	712.3		$	266.9			N/A		$	(782.3)		N/A

Equity in earnings of unconsolidated affiliates

Equity in earnings of unconsolidated affiliates decreased to $71.3 million for the year ended December 31, 2023 as compared to $106.1 million for the year ended December 31, 2022. The decrease was primarily driven by decreases of $33.8 million in our income from our real estate investments and $20.3 million from our joint venture investment in IGW due to lower revenue as discussed above, which were partially offset by an increase of $20.1 million in the earnings from private equity and other investments.

Interest and dividend income

Interest and dividend income was $47.8 million for the year ended December 31, 2023 as compared to $24.4 million for the year ended December 31, 2022. The increase was primarily due to higher interest income earned from Cash and cash equivalents.

Interest expense

Interest expense was $70.5 million for the year ended December 31, 2023 as compared to $85.2 million for the year ended December 31, 2022 as a result of a decrease in outstanding debt.

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Other gains and losses, net

Other gains and losses was a net gain of $98.0 million for the year ended December 31, 2023 as compared to a net loss of $139.5 million for the year ended December 31, 2022. The net gain in 2023 included a $45 million gain on the sale of certain Hong Kong pension sponsorship rights, and $49.6 million on investments and instruments held for our deferred compensation plans.

Other income/(expense) of CIP

Other income/(expense) of CIP includes interest and dividend income, interest expense, and realized and unrealized gains and losses on the underlying investments and debt owned by CIP. For the year ended December 31, 2023, net interest income of CIP was $226.6 million as compared to $151.1 million for the year ended December 31, 2022. The increase in interest income was primarily a result of newly consolidated investment products in 2023 as well as higher net interest income earned by the CLOs. For the year ended December 31, 2023, other gains and losses of CIP were a net loss of $176.3 million as compared to a net loss of $126.9 million for the year ended December 31, 2022. The net losses in 2023 and 2022 were attributable to market-driven losses on investments held by consolidated funds.

Net impact of CIP and related noncontrolling interests in consolidated entities

The consolidation of investment products did not have an impact on Net income attributable to Invesco for the years ended December 31, 2023 and 2022. The adjustment to net income for the Net income/(loss) attributable to noncontrolling interests in consolidated entities represent the CIP profit or loss attributable to third-party investors. The impact of any realized or unrealized gains or losses attributable to the interests of third-parties, which is reflected in Other income/(expense) of CIP, is offset by this adjustment to arrive at Net income attributable to Invesco. Also, the net income or loss of CIP is taxed at the investor level, not at the product level; therefore, a tax provision is not reflected in the net impact of CIP.

Income Tax Expense

The tax provision was a benefit of $(69.7) million for the year ended December 31, 2023 compared to an expense of $322.2 million for the year ended December 31, 2022, resulting in effective tax rates of 29.3% and 25.8% for the years ended December 31, 2023 and 2022, respectively. The effective tax rate for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was favorably impacted by a change in the mix of income across tax jurisdictions which was partially offset by the tax impact of the loss attributable to noncontrolling interests in consolidated entities. For additional income tax information, please refer to Note 15, “Taxation,” in Part II, Item 8, Financial Statements and Supplementary Data.

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Schedule of Non-GAAP Information

We utilize the following non-GAAP performance measures: Net revenue (and by calculation, Net revenue yield on AUM), Adjusted operating income, Adjusted operating margin, Adjusted net income attributable to Invesco and Adjusted diluted EPS. The company believes the adjusted measures provide valuable insight into the company’s ongoing operational performance and assist in comparisons to its competitors. These measures also assist the company’s management with the establishment of operational budgets and forecasts. The most directly comparable U.S. GAAP measures are Operating revenues (and by calculation, Gross revenue yield on AUM), Operating income, Operating margin, Net income/(loss) attributable to Invesco and Diluted EPS. Each of these measures is discussed more fully below.

The following are reconciliations of Operating revenues, Operating income/(loss) (and by calculation, Operating margin) and Net income/(loss) attributable to Invesco (and by calculation, Diluted EPS) on a U.S. GAAP basis to a non-GAAP basis of Net revenues, Adjusted operating income (and by calculation, Adjusted operating margin) and Adjusted net income attributable to Invesco (and by calculation, adjusted diluted EPS). These non-GAAP measures should not be considered as substitutes for any U.S. GAAP measures and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate. The tax effects related to the reconciling items have been calculated based on the tax rate attributable to the jurisdiction to which the transaction relates. Notes to the reconciliations follow the tables.

Reconciliation of Operating revenues to Net revenues:

(in millions)	2023			2021
Operating revenues, U.S. GAAP basis	$	5,716.4		$	6,048.9		$	6,894.5
Revenue Adjustments: (1)
Investment management fees	(766.4)		(764.7)			(844.1)
Service and distribution fees	(911.7)		(961.1)			(1,087.5)
Other	(147.1)		(160.4)			(217.7)
Total Revenue Adjustments	(1,825.2)		(1,886.2)			(2,149.3)
Invesco Great Wall (2)	368.3		432.7			473.5
CIP (3)	51.2		49.6			42.4
Net revenues	$	4,310.7		$	4,645.0		$	5,261.1

Reconciliation of Operating income/(loss) to Adjusted operating income:

(in millions)	2023		2022		2021
Operating income/(loss), U.S. GAAP basis	$	(434.8)		$	1,317.7	$	1,788.2
Invesco Great Wall (2)	201.9		262.7		276.6
CIP (3)	84.8		65.7		67.7
Transaction, integration and restructuring (4)	41.6		21.2		(65.9)
Amortization and impairment of intangible assets (5)	1,298.8		63.8		62.9
Compensation expense related to market valuation changes in deferred compensation plans (6)	41.2		(46.3)		53.1
General and administrative (7)	(20.0)		(70.0)		—
Adjusted operating income	$	1,213.5		$	1,614.8	$	2,182.6
Operating margin (8)	(7.6)	%		21.8	%	25.9	%
Adjusted operating margin (9)	28.2	%		34.8	%	41.5	%

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Reconciliation of Net income/(loss) attributable to Invesco to Adjusted net income attributable to Invesco:

(in millions, except per common share data)	2023		2022		2021
Net income/(loss) attributable to Invesco Ltd., U.S. GAAP basis	$	(333.7)			$	683.9			$	1,393.0
Adjustments (excluding tax):
Transaction, integration and restructuring (4)	41.6			21.2			(65.9)
Amortization and impairment of intangible assets (5)	1,298.8			63.8			62.9
Deferred compensation plan market valuation changes and dividendincome less compensation expense (6)	(18.6)			73.6			0.3
General and administrative (7)	(20.0)			(70.0)		(10.1)
Total adjustments excluding tax	$	1,301.8			$	88.6			$	(12.8)
Tax adjustment for amortization of intangible assets and goodwill (10)	16.7		14.2		20.8
Tax adjustment for impairment of intangible assets	(296.1)			—			—
Other tax effects of adjustments above	1.0			(13.5)			38.6
Adjusted net income attributable to Invesco Ltd. (11)	$	689.7		$	773.2		$	1,439.6
Average common shares outstanding - diluted	456.2			459.5			465.4
Diluted EPS	$	(0.73)			$	1.49			$	2.99
Adjusted diluted EPS (12)	$	1.51			$	1.68			$	3.09

____________

(1) Revenue adjustments: The company calculates Net revenues by reducing Operating revenues to exclude fees that are passed through to external parties who perform functions on behalf of, and distribute, the company’s managed funds. The Net revenue presentation assists in identifying the revenue contribution generated by the company, removing distortions caused by the differing distribution channel fees and allowing for a fair comparison with U.S. peer investment managers and within Invesco’s own investment units. Additionally, management evaluates Net revenue yield on AUM, which is equal to Net revenues divided by Average AUM during the reporting period, as an indicator of the basis point Net revenues we receive for each dollar of AUM we manage.

Investment management fees are adjusted by renewal commissions and certain administrative fees. Service and distributions fees are primarily adjusted by distribution fees passed through to broker dealers for certain share classes and pass through fund-related costs. Other revenues are primarily adjusted by transaction fees passed through to third parties.

(2) Invesco Great Wall: The company reflects 100% of IGW in its Net revenues and Adjusted operating income (and by calculation, Adjusted operating margin). The company’s non-GAAP operating results reflect the economics of these holdings on a basis consistent with the underlying AUM and flows. Adjusted net income is reduced by the amount of earning attributable to the 51% noncontrolling interests.

(3) CIP: See Part II, Item 8, Financial Statements and Supplementary Data, note 19, “Consolidated Investment Products,” for a detailed analysis of the impact to the company’s Condensed Consolidated Financial Statements from the consolidation of CIP. The company believes that the CIP may impact a reader’s analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, the company believes that it is appropriate to adjust Operating revenues and Operating income for the impact of CIP in calculating the respective Net revenues and Adjusted operating income (and by calculation, Adjusted operating margin).

(4) Transaction, integration and restructuring: The company believes it is useful to adjust for the Transaction, integration and restructuring charges in arriving at Adjusted operating income, Adjusted operating margin, Adjusted net income, and Adjusted diluted EPS, as this will aid comparability of our results period to period, and aid comparability with peer companies that may not have similar acquisition and restructuring related charges.

(5) Amortization and impairment of intangible assets: The company removes amortization and non-cash impairment expense related to acquired assets in arriving at Adjusted operating income, Adjusted operating margin, Adjusted net income and Adjusted diluted EPS, as this will aid comparability of our results period to period, and aid comparability with peer companies that may not have similar acquisition-related charges.

(6) Market movement on deferred compensation plan liabilities: Certain deferred compensation plan awards involve a return to the employee linked to the appreciation (depreciation) of specified investments. The company hedges economically the exposure to market movements for these investments. Since these plans are hedged economically, the company believes it is useful to reflect the offset ultimately achieved from hedging the market exposure in the calculation of Adjusted operating income (and by calculation, Adjusted operating margin) and Adjusted net income (and by calculation, Adjusted diluted EPS) to produce results that will be more comparable period to period.

(7) General and administrative: The adjustments remove insurance recoveries related to fund-related losses incurred in prior periods.

(8) Operating margin is equal to Operating income divided by Operating revenues.

(9) Adjusted operating margin is equal to Adjusted operating income divided by Net revenues.

(10) Tax adjustment for amortization of intangible assets and goodwill: The company reflects the tax benefit realized on the tax amortization of goodwill and intangible assets in Adjusted net income. The company believes it is useful to include this tax benefit in arriving at the Adjusted diluted EPS measure.

(11) The effective tax rate on Adjusted net income attributable to Invesco Ltd. for the year ended December 31, 2023 is 20.6% (for year ended December 31, 2022 and 2021, was 26.0% and 23.3%, respectively).

(12) Adjusted diluted EPS is equal to Adjusted net income attributable to Invesco Ltd. divided by the weighted average number of common and restricted common shares outstanding.

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Balance Sheet Discussion (1)

The following table represents a reconciliation of the balance sheet information presented on a U.S. GAAP basis to the balance sheet information excluding the impact of CIP and policyholder balances for the reasons outlined in footnote 1 to the table:

	As of December 31, 2023		As of December 31, 2022
Balance sheet information (in millions)	U.S. GAAP		Impact of CIP		Impact of Policyholders		As Adjusted	U.S. GAAP		Impact of CIP	Impact of Policyholders		As Adjusted
ASSETS
Cash and cash equivalents	$	1,469.2			$	—		$	—		$	1,469.2			$	1,234.7		$	—	$	—	$	1,234.7
Investments	919.1			527.4			—		1,446.5		996.6			376.8			—		1,373.4
Assets of CIP:
Investments and other assets of CIP	9,016.0			(9,016.0)			—		—		8,735.1			(8,735.1)			—		—
Cash and cash equivalents of CIP	462.4			(462.4)			—		—		199.4			(199.4)			—		—
Assets held for policyholders	393.9			—			(393.9)		—		668.7			—			(668.7)		—
Goodwill and intangible assets, net	14,539.6			—			—		14,539.6		15,698.9			—			—		15,689.9
Other assets (2)	2,133.6			18.8			—		2,152.4		2,223.4			9.8			—		2,233.2
Total assets	$	28,933.8			$	(8,932.2)		$	(393.9)		$	19,607.7			$	29,756.8		$	(8,547.9)	$	(668.7)	$	20,540.2
LIABILITIES
Liabilities of CIP:
Debt of CIP	$	7,121.8			$	(7,121.8)		$	—		$	—			$	6,590.4		$	(6,590.4)	$	—	$	—
Other liabilities of CIP	492.1			(492.1)			—		—		329.6			(329.6)			—		—
Policyholder payables	393.9			—			(393.9)		—		668.7			—			(668.7)		—
Debt	1,489.5			—			—		1,489.5		1,487.6			—			—		1,487.6
Other liabilities (3)	3,520.5			—			—		3,520.5		3,838.3			—			—		3,838.3
Total liabilities	$	13,017.8			$	(7,613.9)		$	(393.9)		$	5,010.0			$	12,914.6		$	(6,920.0)	$	(668.7)	$	5,325.9
EQUITY
Total equity attributable to Invesco Ltd.	$	14,597.6			$	0.1		$	—		$	14,597.7			$	15,213.6		$	0.1	$	—	$	15,213.7
Noncontrolling interests (4)	1,318.4			(1,318.4)			—		—		1,628.6			(1,628.0)			—		0.6
Total equity	15,916.0			(1,318.3)			—		14,597.7		16,842.2			(1,627.9)			—		15,214.3
Total liabilities and equity	$	28,933.8			$	(8,932.2)		$	(393.9)		$	19,607.7			$	29,756.8		$	(8,547.9)	$	(668.7)	$	20,540.2

____________

(1) This table includes non-GAAP presentations. Assets of CIP are not available for use by Invesco. Additionally, there is no recourse to Invesco for CIP debt. Policyholder assets and liabilities are equal and offsetting and have no impact on Invesco’s shareholder’s equity.

(2) Amounts include Accounts receivable, Property, equipment and software, and Other assets.

(3) Amounts include Accrued compensation and benefits, Accounts payable and accrued expenses, and Deferred tax liabilities.

(4) Amounts include Redeemable noncontrolling interests in consolidated entities and Equity attributable to nonredeemable noncontrolling interests in consolidated entities.

Cash and cash equivalents

Cash and cash equivalents increased $234.5 million from $1,234.7 million at December 31, 2022 to $1,469.2 million at December 31, 2023. See “Cash Flows Discussion” in the following section within this Management's Discussion and Analysis for additional discussion regarding the movements in cash flows during the periods. See Part II, Item 8, Financial Statements and Supplementary Data - Note 1, “Accounting Policies - Cash and Cash Equivalents,” regarding capital adequacy requirements in certain jurisdictions.

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Investments

Investments are comprised primarily of the equity method investment in IGW, seed capital and co-investments in affiliated funds, and investments related to the company’s deferred compensation plans.

As of December 31, 2023 and December 31, 2022, the company had $956.0 million and $909.2 million in seed capital and co-investments, respectively, including direct investments in CIP. Total seed capital and co-investments is presented as a helpful measure for investors and represents our net investment including our net investment in CIP. The following table reconciles the investment balance to the total seed capital and co-investment balance.

	As of
(in millions)	December 31, 2023		December 31, 2022
Investments	$	919.1			$	996.6
Net investment in CIP	527.4			376.8
Less: Investments related to deferred compensation plans, joint ventures, and other investments	(490.5)			(464.2)
Total seed capital and co-investments (1)	$	956.0			$	909.2

____________

(1) Included in the total seed and co-investment balance as of December 31, 2023 is $314.1 million of seed capital and $641.9 million of co-investments (December 31, 2022: $305.4 million of seed capital and $603.8 million of co-investments).

Assets held for policyholders and policyholder payables

One of our subsidiaries, Invesco Pensions Limited, is an insurance company that was established to facilitate retirement savings plans in the U.K. The entity held assets that were managed for its clients on its balance sheet with an equal and offsetting liability. The decrease in the balance of these accounts from $668.7 million at December 31, 2022 to $393.9 million at December 31, 2023, resulted from net business outflows of $340.5 million and positive foreign exchange rate movements of $20.5 million, and favorable market movements of $45.2 million. In January 2024, all funds were distributed to customers.

Goodwill and intangible assets, net

Goodwill and intangible assets, net decreased to $14,539.6 million at December 31, 2023 from $15,698.9 million at December 31, 2022. The decrease was due to amortization expense of $49.9 million and a $1,248.9 million non-cash impairment of our indefinite-lived intangible assets related to prior acquisitions of management contracts of U.S. retail mutual funds, partially offset by foreign exchange impacts of $139.5 million. See "Critical Accounting Policies and Estimates” for additional information.

Liquidity and Capital Resources

Our capital structure, together with available cash balances, cash flows generated from operations, existing capacity under our credit agreement and further capital market activities, if necessary, should provide us with sufficient resources to meet present and future cash needs, including operating expenses, debt and other obligations as they come due and anticipated future capital requirements.

Sources of Liquidity by Type

	As of
(in millions)	December 31, 2023		December 31, 2022
Cash and cash equivalents	$	1,469.2			$	1,234.7
Available revolver	2,000.0			1,500.0
Total Sources of Liquidity by Type	$	3,469.2			$	2,734.7

On April 26, 2023, Invesco Ltd. and its indirect subsidiary, Invesco Finance PLC, amended and restated the $1.5 billion floating rate credit agreement, increasing facility capacity to $2.0 billion and extending the expiration date from April 26, 2026 to April 26, 2028. As of December 31, 2023, the balance on the $2.0 billion floating rate facility was zero.

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In the ordinary course of business, Invesco enters into contracts or purchase obligations with third parties whereby the third parties provide services to or on behalf of Invesco. Purchase obligations represent fixed-price contracts, which are either non-cancelable or cancellable with a penalty. As of December 31, 2023, the company's purchase obligations totaled $663.5 million (December 31, 2022: $770.7 million) and primarily reflect standard service contracts for portfolio, market data, office-related services and third-party marketing and promotional services. Purchase obligations are recorded as liabilities in the company's Consolidated Financial Statements when services are provided.

Capital Management

Our capital management priorities have evolved with the growth and success of our business and include, in no particular order of priority: reinvestment in the business, maintaining a strong balance sheet and returning capital to shareholders longer term through a combination of modestly increasing dividends and share repurchases.

During the year ended December 31, 2023, the company repurchased 9.6 million common shares for $150.0 million in the open market. As of December 31, 2023, approximately $382.2 million remained authorized under the company’s common share repurchase authorization approved by the Board on July 22, 2016.

Our capital process is executed in a manner consistent with our desire to maintain strong, investment grade credit ratings. As of the date of our filing, Invesco held credit ratings of A3/Stable, BBB+/Stable and A/Stable from Moody's, S&P, and Fitch, respectively.

Other Items

Certain of our subsidiaries are required to maintain minimum levels of regulatory capital, liquidity, and working capital. Such requirements may change from time-to-time as additional guidance is released based on a variety of factors, including balance sheet composition, assessment of risk exposures and governance, and review from regulators. These and other similar provisions of applicable laws and regulations may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities. Our financial condition or liquidity could be adversely affected if certain of our subsidiaries are unable to distribute funds to us.

We are in compliance with all regulatory minimum net capital requirements. As of December 31, 2023, the company's minimum regulatory capital requirement was $395.8 million (December 31, 2022: $639.8 million). The decrease was driven by a reduction in regulatory capital requirements as part of a transition into a new regulatory regime in the UK (Investment Firm Prudential Regime). However, there has been no change to the related regulatory liquidity and working capital requirements, and as such, there has not been a material reduction in the level of Cash and cash equivalents required outside of the US.

We meet the regulatory liquidity and working capital requirements by holding cash and cash equivalents in the European sub-group. This retained cash can be used for general business purposes in the European sub-group in the countries where it is located. Due to the liquidity and working capital requirements, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences.

The consolidation of $9,478.4 million and $7,121.8 million of total assets and debt of CIP as of December 31, 2023, respectively, did not impact the company’s liquidity and capital resources. See Part II, Item 8, Financial Statements and Supplementary Data - Note 19, “Consolidated Investment Products,” for additional details.

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Cash Flows Discussion

The ability to consistently generate cash flow from operations in excess of dividend payments, common share repurchases, capital expenditures and ongoing Operating expenses is one of our company's fundamental financial strengths. Operations continue to be financed from current earnings and borrowings.

The following table represents a reconciliation of the cash flow information presented on a U.S. GAAP basis to the cash flow information, excluding the impact of the cash flows of CIP for the reasons outlined in footnote 1 to the table:

Cash flows information (1)	Year ended December 31, 2023		Year ended December 31, 2022		Year ended December 31, 2021
(in millions)	U.S. GAAP		Impact of CIP		As Adjusted		U.S. GAAP	Impact of CIP		Excluding CIP	U.S. GAAP		Impact of CIP		As Adjusted
Cash and cash equivalents beginning of the period	$	1,434.1			$	(199.4)		$	1,234.7		$	2,147.1			$	(250.7)		$	1,896.4	$	1,839.3	$	(301.7)	$	1,537.6
Cash flows from operating activities (1)	1,300.8			(136.6)			1,164.2		703.2		414.1			1,117.3			1,078.1		436.1	1,514.2
Cash flows from investing activities	(244.3)			72.8			(171.5)		(375.6)		81.5			(294.1)			(847.9)		755.4	(92.5)
Cash flows from financing activities	(585.4)			(196.8)			(782.2)		(966.9)		(449.4)			(1,416.3)			117.3		(1,148.0)	(1,030.7)
Increase/(decrease) in cash and cash equivalents	471.1			(260.6)			210.5		(639.3)		46.2			(593.1)			347.5		43.5	391.0
Foreign exchange movement on cash and cash equivalents	26.4			(2.4)			24.0		(73.7)		5.1			(68.6)			(39.7)		7.5	(32.2)
Cash and cash equivalents, end of the period	$	1,931.6			$	(462.4)		$	1,469.2		$	1,434.1			$	(199.4)		$	1,234.7	$	2,147.1	$	(250.7)	$	1,896.4
Cash and cash equivalents	$	1,469.2			$	—		$	1,469.2		$	1,234.7			$	—		$	1,234.7	$	1,896.4	$	—	$	1,896.4
Cash and cash equivalents of CIP	462.4			(462.4)			—		199.4		(199.4)			—			250.7		(250.7)	—
Total cash and cash equivalents per consolidated statement of cash flows	$	1,931.6			$	(462.4)		$	1,469.2		$	1,434.1			$	(199.4)		$	1,234.7	$	2,147.1	$	(250.7)	$	1,896.4

____________

(1) These tables include non-GAAP presentations. Cash held by CIP is not available for use by Invesco. Additionally, there is no recourse to Invesco for CIP debt. The cash flows of CIP do not form part of the company’s cash flow management processes, nor do they form part of the company’s significant liquidity evaluations and decisions.

Operating Activities

Operating cash flows include the receipt of Investment management and Other fees generated from AUM, offset by Operating expenses and changes in operating assets and liabilities. After allowing for the change in cash held by CIP, investment activities, non-cash activity, including the $1,248.9 million intangible asset impairment in 2023, and seasonal payments, such as bonus payments in the first quarter, our operating cash flows generally move in the same direction as our Operating income/(loss).

Cash inflows for the year ended December 31, 2023, excluding the impact of CIP, were primarily driven by operating income and changes in payables and receivables due to the timing of payments and receipts.

Investing Activities

Cash outflows for the year ended December 31, 2023, excluding the impact of CIP, includes purchases of investments of $108.2 million (year ended December 31, 2022: $274.3 million) and property, equipment and software of $164.3 million (year ended December 31, 2022: $192.9 million), partially offset by collected proceeds from sales and returns of capital of investments of $54.8 million (year ended December 31, 2022: $173.1 million) and the sale of certain Hong Kong pension sponsorship rights of $46.2 million.

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Financing Activities

Financing cash outflows during the year ended December 31, 2023 included $357.9 million of common dividend payments for dividends declared in January, April, July and October 2023 (year ended December 31, 2022: dividends paid of $334.8 million), $236.8 million of preferred dividend payments for dividends declared in January, April, July and October 2023 (year ended December 31, 2022: $236.8 million), $150.0 million for the repurchase of common shares through the open market (year ended December 31, 2022: $200.0 million), and the payment of $37.5 million to meet employees' withholding tax obligations on common share vestings (2022: $44.7 million). Financing cash outflows during the year ended December 31, 2022 also included a $600.0 million redemption of senior notes. Net borrowings under the floating rate credit agreement were zero during the years ended December 31, 2023 and December 31, 2022.

Dividends

When declared, Invesco pays dividends on a quarterly basis in arrears. Holders of our preferred shares are eligible to receive dividends at an annual rate of 5.9% of the liquidation preference of $1,000 per share, or $59 per share per annum. The preferred dividend is payable quarterly on a non-cumulative basis when, if and as declared by our board of directors. However, if we have not declared and paid or set aside for payment full quarterly dividends on the preferred stock for a particular dividend period, we may not declare or pay dividends on, redeem, purchase or acquire our common stock or other junior securities in the next succeeding dividend period. In addition, if we have not declared and paid or set aside for payment quarterly dividends on the preferred stock for six quarterly periods, whether or not consecutive, the number of directors of the company will be increased by two and the holders of the preferred shares shall have the right to elect such two additional members of the Board of Directors.

On January 23, 2024, the company declared a fourth quarter 2023 cash dividend of $0.20 per common share to the holders of common shares. The dividend is payable on March 4, 2024, to common shareholders of record at the close of business on February 16, 2024, with an ex-dividend date of February 15, 2024.

On January 23, 2024, the company announced a preferred dividend of $14.75 per preferred share representing the period from December 1, 2023 through February 28, 2024. The preferred dividend is payable on March 1, 2024.

The declaration, payment and amount of any future dividends will depend upon, among other factors, our earnings, financial condition and capital requirements at the time such declaration and payment are considered. The company has a policy of managing dividends in a prudent fashion, with due consideration given to profit levels, overall debt levels and historical dividend payouts.

Common Share Repurchase Plan

During 2023, the company repurchased 9.6 million shares for $150 million in the open market as compared to 8.9 million shares for $200 million during 2022. At December 31, 2023, approximately $382.2 million remained authorized under the company's common share repurchase authorization approved by the Board on July 22, 2016 (December 31, 2022: $532.2 million).

Debt

The carrying value of our debt at December 31, 2023 was $1,489.5 million (December 31, 2022: $1,487.6 million), See Item 8, Financial Statements and Supplementary Data, Note 8, “Debt,” for additional disclosures.

For the year ended December 31, 2023, the company's weighted average cost of debt was 4.28% (year ended December 31, 2022: 4.15%).

Financial covenants under the credit agreement include: (i) the quarterly maintenance of an Adjusted debt/Earnings before income tax, depreciation, amortization, interest expense, common share-based compensation expense, unrealized (gains)/losses from investments, net, and unusual or otherwise non-recurring gains and losses (Covenant Adjusted EBITDA) leverage ratio, as defined in the credit agreement, of not greater than 3.25:1.00, (ii) an interest coverage ratio (Covenant Adjusted EBITDA/interest expense for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. As of December 31, 2023, we were in compliance with our financial covenants. At December 31, 2023, our leverage ratio was 0.69:1.00 (December 31, 2022: 0.78:1.00), and our interest coverage ratio was 20.40:1.00 (December 31, 2022: 19.51:1.00).

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The December 31, 2023 and 2022 coverage ratio calculations are as follows:

	Last four quarters ended
(in millions)	December 31, 2023		December 31, 2022
Net income/(loss) attributable to Invesco Ltd.	$	(333.7)			$	683.9
Dividends on preferred shares	236.8			236.8
Tax expense/(benefit)	(69.7)			322.2
Amortization/depreciation/impairment	1,431.7			195.3
Interest expense	70.5			85.2
Common share-based compensation expense	114.6			106.2
Unrealized (gains)/losses from investments, net (1)	(11.9)			87.7
OppenheimerFunds acquisition-related matter recoveries (2)	—			(55.0)
Covenant Adjusted EBITDA (3)	$	1,438.3			$	1,662.3
Adjusted debt (3)	$	992.4			$	1,290.3
Leverage ratio (Adjusted debt/Covenant Adjusted EBITDA - maximum 3.25:1.00)	0.69			0.78
Interest coverage (Covenant Adjusted EBITDA/Interest expense - minimum 4.00:1.00)	20.40			19.51

____________

(1) Adjustments for unrealized gains and losses from investments, as defined in our credit agreement, may also include non-cash gains and losses on investments to the extent that they do not represent anticipated future cash receipts or expenditures.

(2) Unusual or otherwise non-recurring gains and losses, as defined in our credit agreement, are adjusted for in the determination of Covenant Adjusted EBITDA. The insurance recoveries related to the OppenheimerFunds acquisition-related matter are considered unusual and have been removed from the determination of Covenant Adjusted EBITDA.

(3) Covenant Adjusted EBITDA and Adjusted debt are non-GAAP financial measures that are used by management in connection with certain debt covenant calculations under our credit agreement. The calculation of Covenant Adjusted EBITDA above (a reconciliation from net income attributable to Invesco Ltd.) is defined by our credit agreement, and therefore Net income attributable to Invesco Ltd. is the most appropriate GAAP measure from which to reconcile to Covenant Adjusted EBITDA. The calculation of 2023 Adjusted debt is defined in our amended credit agreement and equals debt of $1,489.5 million plus $2.8 million in letters of credit less $500.0 million of excess unrestricted cash (cash and cash equivalents less the minimum regulatory capital requirement, not to exceed $500 million (2022: $200.0 million).

On January 30, 2024, Invesco Finance PLC, a wholly-owned indirect subsidiary of the Parent, paid in full the outstanding balance of the $600.0 million senior notes which were due on January 30, 2024. Further, $128.5 million was drawn on the floating rate facility on January 31, 2024.

The discussion that follows identifies risks associated with the company's liquidity and capital resources. The Item 1. Business -- Risk Management section contains a broader discussion of the company's overall approach to risk management.

Credit and Liquidity Risk

The company manages its capital by reviewing annual and projected cash flow forecasts and by monitoring credit, liquidity and market risks, such as interest rate and foreign currency risks (as discussed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”), through measurement and analysis. The company is primarily exposed to credit risk through its cash and cash equivalent deposits, which are held by external firms. The company invests its cash balances in its own institutional money market products, as well as with external high credit-quality financial institutions. These arrangements create exposure to concentrations of credit risk.

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Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to meet an obligation. All Cash and cash equivalent balances are subject to credit risk, as they represent deposits made by the company with external banks and other institutions. As of December 31, 2023, our maximum exposure to credit risk related to our Cash and cash equivalent balances is $1,469.2 million, of which $927.8 million is invested in affiliated money market funds. No more than 10% of our Cash and cash equivalent balances is held with any one third-party financial institution. See Part II, Item 8, Financial Statements and Supplementary Data - Note 2, "Fair Value of Assets and Liabilities" for information regarding Cash and cash equivalents invested in affiliated money market funds.

Liquidity Risk

Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with its financial liabilities as the same become due. The company is exposed to liquidity risk through its $1,489.5 million in total debt. The company actively manages liquidity risk by preparing cash flow forecasts for future periods, reviewing them regularly with senior management, maintaining a committed credit agreement, scheduling significant gaps between major debt maturities and engaging external financing sources in regular dialogue.

Effects of Inflation

Inflation can impact our organization primarily in two ways. First, inflationary pressures can result in increases in our cost structure, especially to the extent that large expense components such as compensation are impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through pricing increases due to the competitive environment, our net income could be negatively impacted. Secondly, the value of the assets that we manage may be negatively impacted when inflationary expectations result in a rising interest rate environment. A decline in the value of AUM could lead to reduced revenues as management fees are generally calculated based upon the size of AUM.

Off Balance Sheet Commitments

See Part II, Item 8, Financial Statements and Supplementary Data - Note 18, “Commitments and Contingencies,” for more information regarding undrawn capital commitments.

Critical Accounting Policies and Estimates

Our significant accounting policies are disclosed in Part II, Item 8, Financial Statements and Supplementary Data - Note 1, “Accounting Policies." Critical accounting policies and estimates are those that require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made. Different estimates reasonably could have been used in the current period that would have had a material effect on these Consolidated Financial Statements, and changes in these estimates are likely to occur from period-to-period in the future. The discussion below provides information on the significant judgments and assumptions applied in each area and should be read in conjunction with the significant accounting policies footnote previously referenced.

Intangible Assets

Management has the option to first assess indefinite-lived intangible assets for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable (i.e., the carrying amount exceeds the fair value of the intangible asset). In addition, management's judgment is required to estimate the period over which definite-lived intangible assets will contribute to the company's cash flows and the pattern in which these assets will be consumed. A change in the remaining useful life of any of these assets, or the reclassification of an indefinite-lived intangible asset to a definite-lived intangible asset, could have a significant impact on the company's amortization expense.

Intangible assets not subject to amortization are tested for impairment annually as of October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. If a quantitative assessment is required, the impairment test consists of a comparison of the fair value of an intangible asset to its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Management used an income approach to value indefinite-lived intangible assets related to acquired management contracts of U.S. retail mutual funds. An income approach includes assumptions for current market conditions, including the asset’s updated forecasts of AUM to take into consideration market gains or losses, net long-term flows and the corresponding changes in revenue and expenses.

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The most sensitive assumptions used in the income approach are the revenue forecast, the long-term growth rate and the discount rate applied to the cash flow forecast to determine present value. The revenue projections used are within a range of (5)% to 1% over the forecast period. Taking into consideration the AUM mix of the U.S. retail mutual funds, the long-term growth rate was determined using the historical returns of the S&P 500 index, treasury bonds and treasury bills. The long-term growth rate used by management in the annual impairment test was 2.5% which decreased from the long-term growth rate used in prior periods of 4.5% due to sustained outflows of AUM related to U.S. retail mutual funds. The discount rate is an estimate of the weighted average cost of capital for the investment management sector reflecting the overall industry risks associated with future cash flows and considers an applicable size premium for the intangible asset. The discount rate used by management was 13.05% which increased 365 bps from the prior year due to increases in the risk-free discount rate and systematic risk inputs as well as the use of an asset-specific risk premium. We assessed the reasonableness of the estimated fair value of the intangible asset by considering applicable market data.

Based on our annual impairment analysis as of October 1, 2023, we determined that the carrying value of the indefinite-lived intangible assets related to acquired management contracts of U.S. retail mutual funds of $5,818.6 million exceeded the estimated fair value. As such, a $1,248.9 million impairment was recorded in Amortization and impairment of intangibles expense in the Consolidated Statements of Income which reduced the carrying value to $4,569.7 million. The impairment was driven by a decrease in the long-term growth rate, an increase in the discount rate and lower projected earnings as a result of lower AUM for these management contracts. While the company believes all assumptions utilized in our assessment are reasonable and appropriate, changes in these estimates could produce different fair value amounts which could drive impairment in future periods. For example, assuming all other assumptions remain static, a decrease to the revenue forecast of 2% would result in an incremental impairment of $79 million. A decrease to the long-term growth rate of 25 bps would result in an incremental impairment of $75 million. Also, an increase to the discount rate of 15 bps would result in an incremental impairment of $58 million. The impairment does not impact the company’s liquidity or capital resources.

Our annual impairment reviews of our other indefinite-lived intangible assets determined that there was not an impairment of these intangibles. The classifications of indefinite-lived and definite-lived intangible assets remain appropriate, and no changes to the expected lives of definite-lived intangible assets were required.

Goodwill

Management has the option to first assess goodwill for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Due to the sustained decline in our stock price into the fourth quarter, management opted to perform a quantitative annual impairment test as of October 1, 2023. Management used an income approach to value the reporting unit. An income approach includes assumptions for current market conditions, including the company's updated forecasts for changes in AUM due to market gains or losses, net long-term flows and the corresponding changes in revenue and expenses. The most sensitive assumptions used in the income approach are the long-term growth rate and the discount rate applied to the cash flow forecast to determine present value. Taking into consideration the company’s AUM mix, the long-term growth rate was determined using the historical returns of the S&P 500 index, treasury bonds and treasury bills. The long-term growth rate used by management in the annual impairment test was 4.5% which is consistent with prior periods. The discount rate used is an estimate of the weighted average cost of capital for the investment management sector reflecting the overall industry risks associated with future cash flows. The discount rate used by management was 11.2% which increased 180 bps from the prior year due to increases in the risk-free rate and systematic risk inputs as well as the use of a company-specific risk premium. We assessed the reasonableness of the estimated fair value of the reporting unit by giving consideration to our market capitalization and implied control premium over a reasonable period of time and to applicable market data.

Based on our annual impairment analysis of goodwill as of October 1, 2023, we determined that the estimated fair value of the reporting unit exceeded its carrying value by 5% due to lower profitability in 2023 and an increase in the discount rate from the prior year. While the company believes all assumptions utilized in our assessment are reasonable and appropriate, changes in these estimates could produce different fair value amounts which could drive impairment in future periods. For example, assuming all other assumptions remain static, a decrease to the long-term growth rate of 20 bps or an increase to the discount rate of 15 bps would cause the carrying value of the reporting unit to approximate its fair value. In addition, if in future periods, the price of our stock declines significantly for an extended period of time, there could be an impairment of goodwill.

The company cannot predict the occurrence of future events that might adversely affect the reported value of goodwill of $8,691.5 million at December 31, 2023. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the company's AUM or any other material negative change in AUM and related fee rates, or a significant and sustained decline in the company's stock price. An impairment in the future would not impact the company’s liquidity or capital resources.

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Income Taxes

The company files U.S. federal, state and numerous foreign income tax returns. The income tax laws are complex and subject to different interpretations by the taxpayer and the relevant taxing authorities. Significant judgment is required in the determination of our annual income tax provision, which includes the assessment of deferred tax assets and uncertain tax positions, as well as the interpretation and application of existing and newly enacted tax laws, regulation changes and new judicial rulings. Therefore, it is possible that actual results will vary from those recognized in our Consolidated Financial Statements due to changes in the interpretation of applicable guidance or as a result of examinations by taxing authorities.

Deferred tax assets, net of any associated valuation allowance, have been recognized based on management's belief that taxable income of the appropriate character, more likely than not, will be sufficient to realize the benefits of these assets over time. In the event that actual results differ from our expectations, or if our historical trends of positive operating income changes, we may be required to record a valuation allowance on some or all of these deferred tax assets, which may have a significant effect on our financial condition and results of operations. In assessing whether a valuation allowance should be established against a deferred income tax asset, the company considers all available evidence, which includes the nature, frequency and severity of recent losses, forecasts of future profitability and the duration of statutory carry back and carry forward periods, among other factors.

In the assessment of uncertain tax positions, significant judgment is required to estimate the range of possible outcomes and determine the probability, on a more likely than not basis, of favorable or unfavorable outcomes upon ultimate settlement of an issue. Changes in the estimate of uncertain tax positions occur periodically due to changes in interpretations of tax laws, the status of examinations by tax authorities and new regulatory or judicial guidance that could impact the relative merits and risk of tax positions. These changes, when they occur, impact tax expense and can materially impact results of operations. The company recognizes any interest and penalties related to unrecognized tax benefits (UTBs) on the Consolidated Statements of Income as components of income tax expense.

CIP

Assessing if an entity is a variable interest entity (VIE) or voting interest entity (VOE) involves judgment and analysis on a structure-by-structure basis. Factors assessed as part of the analysis include the legal organization of the entity, the company's contractual involvement with the entity and any related party or de facto agent implications of the company's involvement with the entity. If the company is deemed to have the power to direct the activities of the fund that most significantly impact the fund's economic performance and the obligation to absorb losses/right to receive benefits from the fund that could potentially be significant to the fund, then the company is deemed to be the fund's primary beneficiary and is required to consolidate the fund. Assessing if the company has the power to direct the activities that most significantly impact the fund’s economic results may involve significant judgment.

Recent Accounting Standards

See Part II, Item 8, Financial Statements and Supplementary Data - Note 1, “Accounting Policies - Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements.”

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