INVESCO LTD. The discussion and analysis disclosed herein apply to material changes in the Consolidated Financial Statements for 2022 and 2021. For the comparison of 2021 and 2020, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the company's 2021 Annual Report on Form 10-K, filed with theSEC onFebruary 18, 2022 . 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 in Part I and the "Risk Factors" set forth in Item 1A of Part I of this Annual Report on Form 10K, 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 supplements and should be read in conjunction with the Consolidated Financial Statements of Invesco and the notes thereto contained elsewhere in this Annual Report on Form 10-K. Global capital markets in 2022 were challenging for the asset management industry and for Invesco, as investors reacted to uncertainty associated with rising interest rates and high inflation in most major economies as well as geopolitical tensions. The table below summarizes the year endedDecember 31 returns based on price appreciation/(depreciation) of several major market indices for 2022 and 2021: Year ended December 31, Index expressed in Equity Index currency 2022 2021 S&P 500 U.S. Dollar (19.4)% 26.9% FTSE 100 British Pound 0.9% 14.3% FTSE 100 U.S. Dollar (9.8)% 13.3% S&P/TSX 60 Index Canadian Dollar (9.2)% 24.4% S&P/TSX 60 Index U.S. Dollar (15.1)% 25.5% MSCI Emerging Markets U.S. Dollar (22.4)% (4.6)% Bond Index Barclays U.S. Aggregate Bond U.S. Dollar (13.0)% (1.5)%
The company's financial results are impacted by the fluctuations in exchange
rates against the
Invesco benefits from our long-term efforts to ensure a diversified base of AUM. One of Invesco's core strengths, and a key differentiator for the company within the industry, is our broad diversification across client domiciles, asset classes and distribution channels. Our geographic diversification recognizes growth opportunities in different parts of the world. This broad diversification mitigates the impact on Invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels.
Despite the volatile markets, our diversified product lineup maintained net
long-term inflows in certain key capabilities, notably ETFs, Fixed Income,
We remain highly focused on our capital priorities, investing in our key capabilities, and efficiently allocating our resources. Consistent with our commitment to improve our leverage profile, we continue to manage our debt to lower levels. We redeemed$600 million of senior notes inMay 2022 , ended the year with no balance on our credit facility and our cash and cash equivalents balance increased to over$1.2 billion . Our debt of$1.5 billion is the lowest level in ten years. The progress we have made in our efforts to build financial flexibility has Invesco well-positioned to navigate volatile 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 nearing completion of our strategic evaluation of the business that we began in 2020 and expect to be complete by the end of first quarter of 2023. Our strategic evaluation was primarily focusing on four key areas of our expense base: our organizational model, our real estate footprint, management of third-party spend and technology and operations efficiency. 27
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Through this evaluation, we invested and will continue to invest in key areas of growth aligned with our strategic plan, including ETFs, Fixed Income,China , Solutions,Alternatives and Global Equities , which has had a positive impact on the company's results. We achieved$213 million in annualized savings in 2022, surpassing our original goal of$200 million of savings. We remain focused on identifying areas of expense improvement that will deliver positive operating leverage when markets recover and organic growth resumes. OnFebruary 8, 2023 we announced thatMartin L. Flanagan will retire as President and CEO of the company and as a member of the Board of Directors effectiveJune 30, 2023 .Andrew R. Schlossberg will succeedMr. Flanagan as President and CEO and as a member of the Board of Directors effectiveJune 30, 2023 .Mr. Schlossberg is currently Senior Managing Director and Head ofAmericas and has served in multiple leadership roles across the company's businesses and locations since joining the company in 2001. Upon his retirement,Mr. Flanagan will serve as Chairman Emeritus for the company and will provide advice, guidance and support toMr. Schlossberg throughDecember 31, 2024 .
Presentation of Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Consolidated Investment Products
The company provides investment management services to, and has transactions with, various retail mutual funds and similar entities, private equity, real estate, fund-of-funds, CLOs and other investment entities 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 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 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 underU.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, 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 comparableU.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 2022, 2021 and 2020 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 2022 2021 2020
Operating revenues 6,048.9 6,894.5 6,145.6
Operating income 1,317.7 1,788.2 920.4
Operating margin 21.8 % 25.9 % 15.0 %
Net income attributable to Invesco Ltd. 683.9 1,393.0 524.8
Diluted earnings per share (EPS) 1.49 2.99 1.13
Non-GAAP Financial Measures Summary(1)
Net revenues 4,645.0 5,261.1 4,501.0
Adjusted operating income 1,614.8 2,182.6 1,664.5
Adjusted operating margin 34.8 % 41.5 % 37.0 %
Adjusted net income attributable to Invesco Ltd. 773.2 1,439.6 892.9
Adjusted diluted earnings per share (EPS ) 1.68 3.09 1.93
Assets Under Management
Ending AUM (billions) 1,409.2 1,610.9 1,349.9
Average AUM (billions) 1,452.5 1,499.9 1,194.9
_________
(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 is to achieve 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%) 43 % 42 % 31 % 16 % 22 % 27 % 27 % - %
U.S. Growth (5%) - % 46 % 46 % 46 % - % 30 % 31 % 31 %
U.S. Value (7%) 91 % 91 % 91 % 87 % 86 % 60 % 47 % 42 %
Sector (1%) - % 10 % 1 % 52 % 10 % 34 % 25 % 53 %
UK (1%) 56 % 38 % 45 % 44 % 93 % 30 % 43 % 38 %
Canadian (<1%) 100 % 100 % 66 % 58 % 87 % 100 % 42 % - %
Asian (4%) 44 % 65 % 85 % 91 % 77 % 25 % 74 % 84 %
Continental European (2%) 78 % 80 % 21 % 93 % 92 % 78 % 37 % 92 %
Global (5%) 22 % 22 % 4 % 83 % 15 % 7 % - % 22 %
Global Ex U.S. and Emerging
Markets (8%) 16 % 32 % 95 % 99 % 14 % 12 % 14 % 11 %
Fixed Income (2)
Money Market (29%) 83 % 95 % 97 % 100 % 86 % 86 % 85 % 98 %
U.S. Fixed Income (11%) 23 % 78 % 80 % 97 % 35 % 64 % 76 % 92 %
Global Fixed Income (6%) 48 % 87 % 94 % 90 % 62 % 66 % 75 % 93 %
Stable Value (6%) 100 % 100 % 100 % 100 % 17 % 97 % 97 % 100 %
Other (2)
Alternatives (6%) 24 % 39 % 31 % 33 % 45 % 45 % 41 % 41 %
Balanced (7%) 80 % 93 % 63 % 62 % 81 % 79 % 80 % 94 %
____________
(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 CDOs. 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 in the one, three, five and ten year quartile rankings represents
47%, 47%, 46% and 42% of total Invesco AUM, respectively, and AUM measured
versus benchmark on a one, three, five and ten year basis represents 61%, 58%,
57% and 51% of total Invesco AUM as of December 31, 2022 . 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 parenthesis reflect AUM for each investment product (see Note 1
above for exclusions) as a percentage of the total AUM for the 5 year peer group
($651.3 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 on the maturity. We present net flows into money market funds separately because shareholders of those funds typically use them as short-term funding vehicles and because their flows are particularly sensitive to short-term interest rate movements.
Changes in AUM were as follows:
2022 2021 2020
$ in billions Total AUM Active Passive Total AUM Active Passive Total AUM Active Passive
January 1 1,610.9 1,082.5 528.4 1,349.9 979.3 370.6 1,226.2 929.2 297.0
Long-term inflows 330.3 197.9 132.4 426.8 260.2 166.6 310.9 204.3 106.6
Long-term outflows (330.8) (226.2) (104.6) (345.4) (242.0) (103.4) (326.6) (236.1) (90.5)
Net long-term flows (0.5) (28.3) 27.8 81.4 18.2 63.2 (15.7) (31.8) 16.1
Net flows in non-management fee
earning AUM (3.2) - (3.2) 20.6 (0.1) 20.7 (5.1) - (5.1)
Net flows in money market funds 56.4 56.4 - 39.7 39.7 - 14.3 14.3 -
Total net flows 52.7 28.1 24.6 141.7 57.8 83.9 (6.5) (17.5) 11.0
Reinvested distributions 15.2 15.2 - 31.6 31.6 - 16.9 16.9 -
Market gains and losses (243.5) (125.6) (117.9) 94.0 18.3 75.7 103.0 40.8 62.2
Foreign currency translation (26.1) (24.0) (2.1) (6.3) (4.5) (1.8) 10.3 9.9 0.4
December 31 1,409.2 976.2 433.0 1,610.9 1,082.5 528.4 1,349.9 979.3 370.6
Average AUM
Average long-term AUM 1,104.8 820.8 284.0 1,177.1 919.1 258.0 952.0 784.6 167.4
Average AUM 1,452.5 988.2 464.3 1,499.9 1,050.2 449.7 1,194.9 893.0 301.9
Average QQQ AUM 169.1 - 169.1 176.0 - 176.0 115.2 - 115.2
2022 2021 2020
Revenue yield (bps) (1)
U.S. GAAP gross revenue yield 44.5 48.7 53.7
Net revenue yield ex performance fees ex QQQ (2) 35.5 39.1
40.7
Active net revenue yield ex performance fees 40.7 44.0 45.2
Passive net revenue yield ex QQQ (2) 18.1 20.1 19.2
____________
(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 $93.5 billion in 2022 (2021: $84.0 billion , 2020: $50.0 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.
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.
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Average AUM during the year ended
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 of Financial Condition and Results of Operations summarizes returns based on price appreciation/(depreciation) of several major market indices for the years endedDecember 31, 2022 andDecember 31, 2021 .
Foreign Exchange Rates
During the year endedDecember 31, 2022 , we experienced a decrease in AUM of$26.1 billion due to changes in foreign exchange rates (December 31, 2021 : AUM decreased by$6.3 billion ). 32
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Changes in our AUM by channel, asset class, and client domicile, and average AUM by asset class, are presented below:
Total AUM by Channel (1) $ in billions Total Retail Institutional December 31, 2021 1,610.9 1,106.5 504.4 Long-term inflows 330.3 243.9 86.4 Long-term outflows (330.8) (257.5) (73.3) Net long-term flows (0.5) (13.6) 13.1 Net flows in non-management fee earning AUM (3.2) 0.9 (4.1) Net flows in money market funds 56.4 1.8 54.6 Total net flows 52.7 (10.9) 63.6 Reinvested distributions 15.2 14.8 0.4 Market gains and losses (243.5) (227.3) (16.2) Foreign currency translation (26.1) (10.8) (15.3) December 31, 2022 1,409.2 872.3 536.9 December 31, 2020 1,349.9 947.1 402.8 Long-term inflows 426.8 301.2 125.6 Long-term outflows (345.4) (265.7) (79.7) Net long-term flows 81.4 35.5 45.9 Net flows in non-management fee earning AUM 20.6 20.2 0.4 Net flows in money market funds 39.7 3.3 36.4 Total net flows 141.7 59.0 82.7 Reinvested distributions 31.6 31.1 0.5 Market gains and losses 94.0 69.0 25.0 Foreign currency translation (6.3) 0.3 (6.6) December 31, 2021 1,610.9 1,106.5 504.4 December 31, 2019 1,226.2 878.2 348.0 Long-term inflows 310.9 221.6 89.3 Long-term outflows (326.6) (267.6) (59.0) Net long-term flows (15.7) (46.0) 30.3 Net flows in non-management fee earning AUM (5.1) 7.2 (12.3) Net flows in money market funds 14.3 2.0 12.3 Total net flows (6.5) (36.8) 30.3 Reinvested distributions 16.9 16.3 0.6 Market gains and losses 103.0 85.4 17.6 Foreign currency translation 10.3 4.0 6.3 December 31, 2020 1,349.9 947.1 402.8 ____________
See accompanying notes immediately following these AUM tables.
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Ta ble of Contents Active AUM by Channel (1) $ in billions Total Retail Institutional December 31, 2021 1,082.5 631.7 450.8 Long-term inflows 197.9 117.0 80.9 Long-term outflows (226.2) (157.5) (68.7) Net long-term flows (28.3) (40.5) 12.2 Net flows in money market funds 56.4 1.8 54.6 Total net flows 28.1 (38.7) 66.8 Reinvested distributions 15.2 14.8 0.4 Market gains and losses (125.6) (115.6) (10.0) Foreign currency translation (24.0) (10.1) (13.9) December 31, 2022 976.2 482.1 494.1 December 31, 2020 979.3 601.1 378.2 Long-term inflows 260.2 163.5 96.7 Long-term outflows (242.0) (167.9) (74.1) Net long-term flows 18.2 (4.4) 22.6
Net flows in non-management fee earning AUM (0.1) (0.1)
-
Net flows in money market funds 39.7 3.3 36.4
Total net flows 57.8 (1.2) 59.0
Reinvested distributions 31.6 31.1 0.5
Market gains and losses 18.3 (0.1) 18.4
Foreign currency translation (4.5) 0.8 (5.3)
December 31, 2021 1,082.5 631.7 450.8
December 31, 2019 929.2 602.4 326.8
Long-term inflows 204.3 128.0 76.3
Long-term outflows (236.1) (178.6) (57.5)
Net long-term flows (31.8) (50.6) 18.8
Net flows in non-management fee earning AUM - (0.1) 0.1
Net flows in money market funds 14.3 2.0 12.3 Total net flows (17.5) (48.7) 31.2 Reinvested distributions 16.9 16.3 0.6 Market gains and losses 40.8 27.5 13.3 Foreign currency translation 9.9 3.6 6.3 December 31, 2020 979.3 601.1 378.2 ____________
See accompanying notes immediately following these AUM tables.
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Ta ble of Contents Passive AUM by Channel (1) $ in billions Total Retail Institutional December 31, 2021 528.4 474.8 53.6 Long-term inflows 132.4 126.9 5.5 Long-term outflows (104.6) (100.0) (4.6) Net long-term flows 27.8 26.9 0.9 Net flows in non-management fee earning AUM (3.2) 0.9 (4.1) Total net flows 24.6 27.8 (3.2) Market gains and losses (117.9) (111.7) (6.2) Foreign currency translation (2.1) (0.7) (1.4) December 31, 2022 433.0 390.2 42.8 December 31, 2020 370.6 346.0 24.6 Long-term inflows 166.6 137.7 28.9 Long-term outflows (103.4) (97.8) (5.6) Net long-term flows 63.2 39.9 23.3 Net flows in non-management fee earning AUM 20.7 20.3 0.4 Total net flows 83.9 60.2 23.7 Market gains and losses 75.7 69.1 6.6 Foreign currency translation (1.8) (0.5) (1.3) December 31, 2021 528.4 474.8 53.6 December 31, 2019 297.0 275.8 21.2 Long-term inflows 106.6 93.6 13.0 Long-term outflows (90.5) (89.0) (1.5) Net long-term flows 16.1 4.6 11.5 Net flows in non-management fee earning AUM (5.1) 7.3 (12.4) Total net flows 11.0 11.9 (0.9) Market gains and losses 62.2 57.9 4.3 Foreign currency translation 0.4 0.4 - December 31, 2020 370.6 346.0 24.6 ____________
See accompanying notes immediately following these AUM tables.
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Ta ble of Contents Total AUM by Asset Class (2) $ in billions Total Equity Fixed Income Balanced Money Market Alternatives December 31, 2021 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) 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 % December 31, 2020 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 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 % December 31, 2019 1,226.2 598.8 283.5 67.3 91.4 185.2 Long-term inflows 310.9 134.6 102.9 30.5 - 42.9 Long-term outflows (326.6) (167.4) (76.8) (29.7) - (52.7) Net long-term flows (15.7) (32.8) 26.1 0.8 - (9.8) Net flows in non-management fee earning AUM (5.1) 17.2 (22.3) - - - Net flows in money market funds 14.3 - - - 14.3 - Total net flows (6.5) (15.6) 3.8 0.8 14.3 (9.8) Reinvested distributions 16.9 11.5 2.3 1.8 - 1.3 Market gains and losses 103.0 92.2 4.7 7.1 1.2 (2.2) Foreign currency translation 10.3 2.7 2.1 1.9 1.6 2.0 December 31, 2020 1,349.9 689.6 296.4 78.9 108.5 176.5 Average AUM 1,194.9 573.1 275.3 65.1 108.4 173.0 % of total average AUM 100.0 % 48.0 % 23.0 % 5.4 % 9.1 % 14.5 % ____________
See accompanying notes immediately following these AUM tables.
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Ta ble of Contents Active AUM by Asset Class (2) $ in billions Total Equity Fixed Income Balanced Money Market Alternatives December 31, 2021 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) 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 % December 31, 2020 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 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 % December 31, 2019 929.2 381.7 224.6 66.4 91.4 165.1 Long-term inflows 204.3 61.2 90.3 30.4 - 22.4 Long-term outflows (236.1) (104.4) (65.3) (29.7) - (36.7) Net long-term flows (31.8) (43.2) 25.0 0.7 - (14.3) Net flows in money market funds 14.3 - - - 14.3 - Total net flows (17.5) (43.2) 25.0 0.7 14.3 (14.3) Reinvested distributions 16.9 11.5 2.3 1.8 - 1.3 Market gains and losses 40.8 30.8 5.5 7.1 1.2 (3.8) Foreign currency translation 9.9 2.4 2.0 1.9 1.6 2.0 December 31, 2020 979.3 383.2 259.4 77.9 108.5 150.3 Average AUM 892.9 335.7 234.5 64.1 108.4 150.2 % of total average AUM 100.0 % 37.6 % 26.3 % 7.2 % 12.1 % 16.8 % ____________
See accompanying notes immediately following these AUM tables.
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Passive AUM by Asset Class (2)
$ in billions Total Equity Fixed Income Balanced Money Market Alternatives December 31, 2021 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 % December 31, 2020 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 % December 31, 2019 297.0 217.1 58.9 0.9 - 20.1 Long-term inflows 106.6 73.4 12.6 0.1 - 20.5 Long-term outflows (90.5) (63.0) (11.5) - - (16.0) Net long-term flows 16.1 10.4 1.1 0.1 - 4.5 Net flows in non-management fee earning AUM (5.1) 17.2 (22.3) - - - Total net flows 11.0 27.6 (21.2) 0.1 - 4.5 Market gains and losses 62.2 61.4 (0.8) - - 1.6 Foreign currency translation 0.4 0.3 0.1 - - - December 31, 2020 370.6 306.4 37.0 1.0 - 26.2 Average AUM 301.9 237.5 40.8 0.8 - 22.9 % of total average AUM 100.0 % 78.6 % 13.5 % 0.3 % - % 7.6 % ____________
See accompanying notes immediately following these AUM tables.
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Total AUM by Client Domicile (3)
$ in billions Total Americas APAC EMEA(4) December 31, 2021 1,610.9 1,132.5 247.3 231.1 Long-term inflows 330.3 184.0 76.6 69.7 Long-term outflows (330.8) (193.8) (62.5) (74.5) Net long-term flows (0.5) (9.8) 14.1 (4.8) Net flows in non-management fee earning AUM (3.2) (3.6) 1.1 (0.7) Net flows in money market funds 56.4 58.3 (0.3) (1.6) Total net flows 52.7 44.9 14.9 (7.1) Reinvested distributions 15.2 14.9 - 0.3 Market gains and losses (243.5) (191.3) (22.6) (29.6) Foreign currency translation (26.1) (1.6) (16.1) (8.4) December 31, 2022 1,409.2 999.4 223.5 186.3 December 31, 2020 1,349.9 959.9 171.3 218.7 Long-term inflows 426.8 213.2 139.0 74.6 Long-term outflows (345.4) (197.7) (71.8) (75.9) Net long-term flows 81.4 15.5 67.2 (1.3) Net flows in non-management fee earning AUM 20.6 15.9 2.4 2.3 Net flows in money market funds 39.7 35.7 4.1 (0.1) Total net flows 141.7 67.1 73.7 0.9 Reinvested distributions 31.6 31.2 0.1 0.3 Market gains and losses 94.0 74.4 5.9 13.7 Foreign currency translation (6.3) (0.1) (3.7) (2.5) December 31, 2021 1,610.9 1,132.5 247.3 231.1 December 31, 2019 1,226.2 879.5 128.6 218.1 Long-term inflows 310.9 176.2 64.1 70.6 Long-term outflows (326.6) (206.7) (44.8) (75.1) Net long-term flows (15.7) (30.5) 19.3 (4.5) Net flows in non-management fee earning AUM (5.1) 3.6 0.7 (9.4) Net flows in money market funds 14.3 10.9 3.1 0.3 Total net flows (6.5) (16.0) 23.1 (13.6) Reinvested distributions 16.9 16.6 0.1 0.2 Market gains and losses 103.0 79.3 13.7 10.0 Foreign currency translation 10.3 0.5 5.8 4.0 December 31, 2020 1,349.9 959.9 171.3 218.7 ____________
See accompanying notes immediately following these AUM tables.
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Active AUM by Client Domicile (3)
$ in billions Total Americas APAC EMEA(4) December 31, 2021 1,082.5 724.5 208.8 149.2 Long-term inflows 197.9 104.0 69.3 24.6 Long-term outflows (226.2) (133.4) (56.1) (36.7) Net long-term flows (28.3) (29.4) 13.2 (12.1) Net flows in non-management fee earning AUM - - 0.1 (0.1) Net flows in money market funds 56.4 58.3 (0.3) (1.6) Total net flows 28.1 28.9 13.0 (13.8) Reinvested distributions 15.2 14.9 - 0.3 Market gains and losses (125.6) (96.0) (16.3) (13.3) Foreign currency translation (24.0) (1.5) (14.5) (8.0) December 31, 2022 976.2 670.8 191.0 114.4 December 31, 2020 979.3 656.9 163.4 159.0 Long-term inflows 260.2 113.6 110.5 36.1 Long-term outflows (242.0) (125.4) (67.4) (49.2) Net long-term flows 18.2 (11.8) 43.1 (13.1) Net flows in non-management fee earning AUM (0.1) (0.2) 0.1 - Net flows in money market funds 39.7 35.7 4.1 (0.1) Total net flows 57.8 23.7 47.3 (13.2) Reinvested distributions 31.6 31.2 0.1 0.3 Market gains and losses 18.3 12.8 0.3 5.2 Foreign currency translation (4.5) (0.1) (2.3) (2.1) December 31, 2021 1,082.5 724.5 208.8 149.2 December 31, 2019 929.2 639.5 123.7 166.0 Long-term inflows 204.3 108.6 61.3 34.4 Long-term outflows (236.1) (147.2) (42.6) (46.3) Net long-term flows (31.8) (38.6) 18.7 (11.9) Net flows in money market funds 14.3 10.9 3.1 0.3 Total net flows (17.5) (27.7) 21.8 (11.6) Reinvested distributions 16.9 16.6 0.1 0.2 Market gains and losses 40.8 27.9 12.0 0.9 Foreign currency translation 9.9 0.6 5.8 3.5 December 31, 2020 979.3 656.9 163.4 159.0 ____________
See accompanying notes immediately following these AUM tables.
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Passive AUM by Client Domicile (3)
$ in billions Total Americas APAC EMEA(4) December 31, 2021 528.4 408.0 38.5 81.9 Long-term inflows 132.4 80.0 7.3 45.1 Long-term outflows (104.6) (60.4) (6.4) (37.8) Net long-term flows 27.8 19.6 0.9 7.3
Net flows in non-management fee earning AUM (3.2) (3.6)
1.0 (0.6)
Total net flows 24.6 16.0 1.9 6.7
Market gains and losses (117.9) (95.3) (6.3) (16.3)
Foreign currency translation (2.1) (0.1) (1.6) (0.4)
December 31, 2022 433.0 328.6 32.5 71.9
December 31, 2020 370.6 303.0 7.9 59.7
Long-term inflows 166.6 99.6 28.5 38.5
Long-term outflows (103.4) (72.3) (4.4) (26.7)
Net long-term flows 63.2 27.3 24.1 11.8Net flows in non-management fee earning AUM 20.7 16.1
2.3 2.3
Total net flows 83.9 43.4 26.4 14.1
Market gains and losses 75.7 61.6 5.6 8.5
Foreign currency translation (1.8) - (1.4) (0.4)
December 31, 2021 528.4 408.0 38.5 81.9
December 31, 2019 297.0 240.0 4.9 52.1
Long-term inflows 106.6 67.6 2.8 36.2
Long-term outflows (90.5) (59.5) (2.2) (28.8)
Net long-term flows 16.1 8.1 0.6 7.4Net flows in non-management fee earning AUM (5.1) 3.6
0.7 (9.4)
Total net flows 11.0 11.7 1.3 (2.0)
Market gains and losses 62.2 51.4 1.7 9.1
Foreign currency translation 0.4 (0.1) - 0.5
December 31, 2020 370.6 303.0 7.9 59.7
____________
(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 disclosure groups AUM by the domicile of the underlying clients.
(4) EMEA includes
Results of Operations for the Year Ended
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
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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, 2022 vs 2021 2021 vs 2020
$ in millions 2022 2021 2020 $ Change % Change $ Change % Change
Investment management fees 4,358.4 4,995.9 4,451.0 (637.5) (12.8) % 544.9 12.2 %
Service and distribution fees 1,405.5 1,596.4 1,419.0 (190.9) (12.0) % 177.4 12.5 %
Performance fees 68.2 56.1 65.6 12.1 21.6 % (9.5) (14.5) %
Other 216.8 246.1 210.0 (29.3) (11.9) % 36.1 17.2 %
Total operating revenues 6,048.9 6,894.5 6,145.6 (845.6) (12.3) % 748.9 12.2 %
Revenue Adjustments:
Investment management fees (764.7) (844.1) (779.8) 79.4 (9.4) % (64.3) 8.2 %
Service and distribution fees (961.1) (1,087.5) (986.1) 126.4 (11.6) % (101.4) 10.3 %
Other (160.4) (217.7) (181.7) 57.3 (26.3) % (36.0) 19.8 %
Total Revenue Adjustments (1) (1,886.2) (2,149.3) (1,947.6) 263.1 (12.2) % (201.7) 10.4 %
Invesco Great Wall 432.7 473.5 263.2 (40.8) (8.6) % 210.3 79.9 %
CIP 49.6 42.4 39.8 7.2 17.0 % 2.6 6.5 %
Net revenues (2) 4,645.0 5,261.1 4,501.0 (616.1) (11.7) % 760.1 16.9 %
_________(1) Total revenue adjustments include 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.
The impact of foreign exchange rate movements decreased operating revenues by$153.1 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 ($87.6 million increase in 2021). 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), 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 endedDecember 31, 2022 andDecember 31, 2021 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. In addition, as a significant proportion of our AUM are based outside of theU.S. , changes in foreign exchange rates can result in a change to the mix ofU.S. Dollar denominated AUM for AUM denominated in other currencies. As fee rates differ across geographic locations, changes to exchange rates have an impact on revenues and net revenue yields. Average AUM were$1,452.5 billion in the year endedDecember 31, 2022 , as compared to$1,499.9 billion in the year endedDecember 31, 2021 . In addition to the impact of lower AUM, investors continued to shift AUM toward lower yield passive products, such as ETFs, during 2022. As a result, net revenue yield ex performance fees ex QQQ declined from 39.1 basis points (bps) for the year endedDecember 31, 2021 to 35.5 bps for the year endedDecember 31, 2022 .
Investment Management Fees
Investment management fees were$4,358.4 million for year endedDecember 31, 2022 as compared to$4,995.9 million for year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased investment management fees by$127.5 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange movements, investment management fees decreased by$510.0 million as a result of decline in average AUM and lower revenue yields when compared to the 2021 period. 42
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Ta ble of Contents Service and Distribution Fees For the year endedDecember 31, 2022 , service and distribution fees were$1,405.5 million , as compared to$1,596.4 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased service and distribution fees by$20.9 million in the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange movements, service and distribution fees decreased by$170.0 million . The total decrease is driven primarily by lower distribution fees of$92.2 million , transfer agency fees of$41.3 million and administrative fees of$37.1 million . The decrease is primarily driven by lower AUM to which these fees apply. Performance Fees For the year endedDecember 31, 2022 , performance fees were$68.2 million , as compared to$56.1 million for the year endedDecember 31, 2021 . Performance fees in 2022 were primarily generated from real estate, institutional, bank loans and private equity products. Performance fees in 2021 were primarily generated from real estate, institutional products and various institutional mandates inJapan .
Other Revenues
In the year endedDecember 31, 2022 , other revenues were$216.8 million , as compared to$246.1 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased other revenues by$2.1 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . The decrease in other revenues was primarily driven by lower front end fees of$53.7 million which were partially offset by higher real estate transaction fees and other revenues of$13.1 million and$13.3 million , respectively.
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$432.7 million and average AUM was$93.5 billion for the year endedDecember 31, 2022 (net revenues were$473.5 million and average AUM was$84.0 billion , for the year endedDecember 31, 2021 ). The impact of foreign exchange rate movements decreased net revenues from IGW by$16.7 million for the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange movements, net revenues from IGW were$449.4 million . The decrease in revenue was primarily due to a change in the mix of AUM and lower performance fees.
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$49.6 million in the year endedDecember 31, 2022 , as compared to$42.4 million for the year endedDecember 31, 2021 . The increase is due to higher management fees earned from newly launched retail funds. 43
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Ta ble of Contents Operating Expenses
The main categories of operating expenses, and the dollar and percentage changes between periods, are as follows:
Variance
Years ended December 31, 2022 vs 2021 2021 vs 2020
$ in millions 2022 2021 2020 $ Change % Change $ Change % Change
Third-party distribution, service
and advisory 1,886.2 2,149.3 1,947.6 (263.1) (12.2) % 201.7 10.4 %
Employee compensation 1,725.1 1,911.3 1,807.9 (186.2) (9.7) % 103.4 5.7 %
Marketing 114.9 98.6 83.3 16.3 16.5 % 15.3 18.4 %
Property, office and technology 539.8 526.0 512.3 13.8 2.6 % 13.7 2.7 %
General and administrative 380.2 424.1 480.8 (43.9) (10.4) % (56.7) (11.8) %
Transaction, integration and
restructuring 21.2 (65.9) 330.8 87.1 N/A (396.7) N/A
Amortization of intangibles (1) 63.8 62.9 62.5 0.9 1.4 % 0.4 0.6 %
Total operating expenses 4,731.2 5,106.3 5,225.2 (375.1) (7.3) % (118.9) (2.3) %
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.
% of Total % of Total % of Total
Operating % of Operating Operating % of Operating Operating % of Operating
$ in millions 2022 Expenses Revenues 2021 Expenses Revenues 2020 Expenses Revenues
Third-party distribution,
service and advisory 1,886.2 39.9 % 31.2 % 2,149.3 42.1 % 31.2 % 1,947.6 37.3 % 31.7 %
Employee compensation 1,725.1 36.5 % 28.5 % 1,911.3 37.4 % 27.7 % 1,807.9 34.6 % 29.4 %
Marketing 114.9 2.4 % 1.9 % 98.6 1.9 % 1.4 % 83.3 1.6 % 1.4 %
Property, office and
technology 539.8 11.5 % 8.8 % 526.0 10.4 % 7.7 % 512.3 9.8 % 8.3 %
General and administrative 380.2 8.0 % 6.3 % 424.1 8.3 % 6.2 % 480.8 9.2 % 7.8 %
Transaction, integration and
restructuring 21.2 0.4 % 0.4 % (65.9) (1.3) % (1.0) % 330.8 6.3 % 5.4 %
Amortization of intangibles
(1) 63.8 1.3 % 1.1 % 62.9 1.2 % 0.9 % 62.5 1.2 % 1.0 %
Total operating expenses 4,731.2 100.0 % 78.2 % 5,106.3 100 % 74.1 % 5,225.2 100.0 % 85.0 %
_________
(1) In prior periods, amortization of intangible assets was included in the
transaction, integration and restructuring line item. From the beginning of
2021, amortization of intangible assets was presented on a separate line item.
There was no impact on operating expenses, operating income or net income.
Operating expenses decreased $375.1 million in 2022 compared to 2021. The impact
of foreign exchange rate movements decreased operating expenses by $146.2
million during the year ended December 31, 2022 , as compared to the year ended
December 31, 2021 .
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Third-Party Distribution, Service and Advisory
Third-party distribution, service and advisory expenses include periodic "renewal" commissions paid to brokers and independent financial advisors for the continuing oversight of their clients' assets over the time they are invested and are payments for the servicing of client accounts. 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'sU.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. Third-party distribution expenses also include the amortization of upfront commissions paid to broker-dealers for sales of fund shares with a contingent deferred sales charge (a charge levied to the investor for client redemption of AUM within a certain contracted period of time). 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$1,886.2 million for the year endedDecember 31, 2022 , as compared to$2,149.3 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased third-party costs by$44.7 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange rate changes, the decrease in costs was$218.4 million . The decrease was primarily due to decreases of$113.6 million in service fees,$59.5 million in renewal commissions,$40.8 million in transaction fees, and$16.1 million in front end commissions, partially offset by$11.6 million of higher administrative and other third-party management fees. The decrease is primarily driven by lower average AUM, partially offset by changes in AUM mix as discussed above. See "Schedule of Non-GAAP Information" for additional disclosures.
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$1,725.1 million in the year endedDecember 31, 2022 , as compared to$1,911.3 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased employee compensation by$58.6 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange rate changes, the decrease in employee compensation was$127.6 million . This decrease was due to decreases of$79.9 million in variable compensation as a result of lower revenues in 2022 compared to 2021 and$95.7 million related to mark-to-market losses on deferred compensation liabilities. These decreases were partially offset by an increase of$41.9 million in salaries, staff costs and benefits as well as a$5.6 million increase in deferred compensation expenses.
Headcount at
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$114.9 million in the year endedDecember 31, 2022 , as compared to$98.6 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased marketing expenses by$5.0 million . After allowing for foreign exchange rate movements, marketing expenses increased$21.3 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . The increase was related to increased client events and marketing travel and entertainment costs as travel activity returned to more normalized levels with the easing of COVID-19 related travel restrictions.
Property, Office and Technology
Property, office and technology expenses include rent and utilities for our
various leased facilities, depreciation of company-owned property, capitalized
software and computer equipment costs, 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.
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Property, office and technology expenses were$539.8 million in the year endedDecember 31, 2022 , as compared to$526.0 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased property, office and technology expenses by$16.6 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange rate movements, property, office and technology expenses increased$30.4 million . The increase was primarily driven by increased technology costs including software maintenance costs of$24.7 million related to investments in foundational technology projects that will enable future scale in our operating platform. Property expense also increased by$4.2 million due to higher property and office costs as a result of overlapping rent associated with the move of our newAtlanta headquarters which we expect to complete in mid-2023 and higher outsourced administration costs of$6.6 million , which were partially offset by lower depreciation and other expense of$5.2 million .
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$380.2 million in the year endedDecember 31, 2022 , as compared to$424.1 million for the year endedDecember 31, 2021 . The impact of foreign exchange rate movements decreased general and administrative expenses by$21.3 million during the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . After allowing for foreign exchange rate movements, the decrease was$22.6 million . The decrease is due to$70 million of recoveries received during the year relating to losses incurred in prior periods, a$16.6 million decrease in the impact of CIP on general and administrative expenses, and$11.5 million in charitable contributions to the Invesco foundation and other charitable causes in the prior year. The decrease was partially offset by increases of$24.0 million in professional services costs relating to our investment in foundational technology projects,$29.3 million in fund-related client and administrative expenses,$11.5 million in travel and entertainment expenses, and$10.8 million in market data services costs.
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
Transaction and integration expense (excluding restructuring) was a benefit to expense of$43.6 million in the year endedDecember 31, 2022 , as compared to a benefit to expense of$186.5 million in the year endedDecember 31, 2021 . The benefit in 2022 was primarily due to$55.0 million of recoveries related to the previously disclosedOppenheimerFunds acquisition-related matter. The benefit in 2021 was primarily due to a$131.1 million reduction to theOppenheimerFunds acquisition-related liability and$100.0 million of recoveries received related to the matter (See Item 8, Financial Statements and Supplementary Data, - Note 18, "Commitments and Contingencies," for additional details). Restructuring costs were$64.8 million for the year endedDecember 31, 2022 (year endedDecember 31, 2021 :$120.6 million ). Restructuring costs related to the strategic evaluation were$41.0 million for the year endedDecember 31, 2022 (year endedDecember 31, 2021 :$100.5 million ) and are primarily composed of compensation and property, office and technology costs (see Item 8, Financial Statements and Supplementary Data, - Note 13, "Restructuring," for additional details). The remaining restructuring costs are primarily composed of professional service costs related to other initiatives.
Operating Income, Adjusted Operating Income, Operating Margin and Adjusted Operating Margin
Operating income was$1,317.7 million in the year endedDecember 31, 2022 , as compared to$1,788.2 million for the year endedDecember 31, 2021 . Operating margin (operating income divided by operating revenues), decreased to 21.8% for the year endedDecember 31, 2022 from 25.9% in the year endedDecember 31, 2021 . Adjusted operating income decreased to$1,614.8 million for the year endedDecember 31, 2022 from$2,182.6 million in the year endedDecember 31, 2021 . Adjusted operating margin decreased to 34.8% for the year endedDecember 31, 2022 from 41.5% in the year endedDecember 31, 2021 . 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. 46
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Ta ble of Contents 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, 2022 vs 2021 2021 vs 2020
$ in millions 2022 2021 2020 $ Change % Change $ Change % Change
Equity in earnings of unconsolidated
affiliates 106.1 152.3 72.7 (46.2) (30.3) % 79.6 109.5 %
Interest and dividend income 24.4 25.2 20.5 (0.8) (3.2) % 4.7 22.9 %
Interest expense (85.2) (94.7) (129.3) 9.5 (10.0) % 34.6 (26.8) %
Other gains and losses, net (139.5) 120.5 44.9 (260.0) N/A 75.6 168.4 %
Other income/(expense) of CIP, net 24.2 509.0 139.9 (484.8) (95.2) % 369.1 263.8 %
Total other income and expenses (70.0) 712.3 148.7 (782.3) N/A 563.6 379.0 %
Equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates decreased to$106.1 million for the year endedDecember 31, 2022 , as compared to the year endedDecember 31, 2021 . The decrease is primarily driven by decreases in private equity investments and our joint venture investment in IGW due to lower revenue as discussed above, which were partially offset by an increase in the earnings of the real estate investments. Interest expense Interest expense was$85.2 million in the year endedDecember 31, 2022 , as compared to$94.7 million for the year endedDecember 31, 2021 . The decrease is primarily driven by the early redemption of$600 million of our senior notes inMay 2022 .
Other gains and losses, net
Other gains and losses was a net loss of$139.5 million for the year endedDecember 31, 2022 , compared to a net gain of$120.5 million for the year endedDecember 31, 2021 . The net loss in 2022 included$17.9 million of losses related to the mark-to-market on seed money investments and$132.5 million of losses on investments and instruments held for our deferred compensation plans which were partially offset by$9.7 million of gains on pension and other investments.
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 endedDecember 31, 2022 , interest and dividend income of CIP increased by$94.6 million to$374.3 million (year endedDecember 31, 2021 :$279.7 million ). Interest expense of CIP increased by$62.5 million to$223.2 million for the year endedDecember 31, 2022 (year endedDecember 31, 2021 :$160.7 million ). The increase in interest income and interest expense was primarily due to higher net interest income earned by the CLOs in 2022. For the year endedDecember 31, 2022 , other gains and losses of CIP were a net loss of$126.9 million , as compared to a net gain of$390.0 million for the year endedDecember 31, 2021 . The net loss during 2022 was 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 endedDecember 31, 2022 and 2021. 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 are taxed at the investor level, not at the product level; therefore, a tax provision is not reflected in the net impact of CIP.
Additionally, CIP represent less than 1% of the company's AUM. Therefore, the net gains or losses of CIP are not indicative of the performance of the company's aggregate AUM.
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Ta ble of Contents Income Tax Expense Our effective tax rate increased to 25.8% for the year endedDecember 31, 2022 from 21.2% for the year endedDecember 31, 2021 primarily due to the decline in income attributable to CIP and the change in the mix of income across tax jurisdictions. For additional income tax information, refer to Note 15, "Taxation," in Item 8. Financial Statements and Supplementary Data.
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 comparableU.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income, operating margin, net income attributable to Invesco and diluted EPS. Each of these measures is discussed more fully below. The following are reconciliations of operating revenues, operating income (and by calculation, operating margin) and net income attributable to Invesco (and by calculation, diluted EPS) on aU.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 anyU.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 2022 2021 2020
Operating revenues, U.S. GAAP basis 6,048.9 6,894.5 6,145.6
Revenue Adjustments: (2)
Investment management fees (764.7) (844.1) (779.8)
Service and distribution fees (961.1) (1,087.5) (986.1)
Other (160.4) (217.7) (181.7)
Total Revenue Adjustments (1,886.2) (2,149.3) (1,947.6)
Invesco Great Wall (1) 432.7 473.5 263.2
CIP (3) 49.6 42.4 39.8
Net revenues 4,645.0 5,261.1 4,501.0
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Reconciliation of Operating income to Adjusted operating income:
$ in millions 2022 2021 2020 Operating income, U.S. GAAP basis 1,317.7 1,788.2 920.4 Invesco Great Wall (1) 262.7 276.6 143.7 CIP (3) 65.7 67.7 62.0 Transaction, integration and restructuring (4) 21.2 (65.9) 330.8 Amortization of intangible assets (5) 63.8 62.9 62.5
Compensation expense related to market valuation changes in deferred compensation
plans (6) (46.3) 53.1 39.8 General and administrative (7) (70.0) - 105.3 Adjusted operating income 1,614.8 2,182.6 1,664.5 Operating margin* 21.8 % 25.9 % 15.0 % Adjusted operating margin** 34.8 % 41.5 % 37.0 %
Reconciliation of Net income attributable to Invesco to Adjusted net income attributable to Invesco:
$ in millions, except per common share data 2022 2021 2020 Net income attributable to Invesco Ltd., U.S. GAAP basis 683.9 1,393.0 524.8 CIP (3) - - (9.4)
Transaction, integration and restructuring, net of tax (4) 15.1
(52.8) 253.5
Amortization of intangible assets and related tax benefits (5) 78.0
83.7 86.2
Deferred compensation plan market valuation changes and dividend income less compensation expense, net of tax (6)
57.5 0.3 (20.1)
General and administrative, net of tax (7) (54.5) - 80.0
Change in contingent consideration, net of tax (8) - (7.7) (11.5)
Impact of income tax rate changes (9) (6.8) 23.1 (0.7)
Other reconciling items, net of tax (10) - - (9.9)
Adjusted net income attributable to Invesco Ltd. 773.2 1,439.6 892.9
Average common shares outstanding - diluted 459.5 465.4 462.5
Diluted EPS $1.49 $2.99 $1.13
Adjusted diluted EPS*** $1.68 $3.09 $1.93
____________* Operating margin is equal to operating income divided by operating revenues.
** Adjusted operating margin is equal to adjusted operating income divided by net revenues.
*** Adjusted diluted EPS is equal to adjusted net income attributable to
(1) Invesco Great Wall: The company reflects 100% of Invesco Great Wall in its net revenues and adjusted operating expenses. 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 noncontrolling interests. (2) 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 withU.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 distribution fees are primarily adjusted by distribution fees passed through to broker dealers for certain share classes and pass through fund-related costs. Other is primarily adjusted by transaction fees passed through to third parties. 49
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(3) CIP: See Item 8, Financial Statements and Supplementary Data, Note 19, "Consolidated Investment Products," for a detailed analysis of the impact to the company's Consolidated Financial Statements from the consolidation of CIP. The reconciling items increase net revenues to reflect the management and performance fees earned by Invesco on the CIP, which are eliminated upon consolidation, and remove the underlying revenues and expenses of the CIP that have been included in theU.S. GAAP Consolidated Statements of Income. The company 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 and operating income for the impact of CIP in calculating the respective net revenues and adjusted operating income. (4) Transaction, integration and restructuring related adjustments: The company believes it is useful to investors and other users of our Consolidated Financial Statements to adjust for the transaction, integration and restructuring charges in arriving at adjusted operating income, adjusted operating margin 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. See "Results of Operations for the Year EndedDecember 31, 2022 compared toDecember 31, 2021 -- Transaction, Integration and Restructuring" for additional details. (5) Amortization of intangible assets: The company believes it is useful to investors and other users of our financial statements to remove amortization expense related to acquired assets net of the tax benefits realized on the tax amortization of goodwill and intangible assets in arriving at adjusted operating income, adjusted operating margin 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. Invesco hedges economically the exposure to market movements for these investments.
Since these plans are hedged economically, management 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 in 2022 and 2020 related to the previously disclosed S&P 500 equal weight funds rebalancing correction. The 2022 adjustment removes insurance recoveries related to the fund-related loss. The 2020 adjustment removes the fund-related loss from adjusted operating income and adjusted net income.
(8) Change in contingent consideration: The adjustments in 2021 and 2020 represents the change in the fair value of contingent consideration liabilities for acquired investment management contracts.
(9) Impact of income tax rate changes: The company believes it is useful to
investors and other users of our financial statements to remove non-cash income
tax (benefits)/expense related to the remeasurement of deferred tax assets and
liabilities due to enactment of changes in corporate income tax rates.
(10) Other reconciling items: The adjustment in 2020 primarily relates to a tax
benefit related to the reversal of an accrual for an unrecognized tax benefit.
This benefit has been removed from the company's non-GAAP results to be
consistent with the exclusion of the tax expense for the accrual in a prior
period.
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Ta ble of Contents Balance Sheet Discussion (1) The following table represents a reconciliation of the balance sheet information presented on aU.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 ofDecember 31, 2022 As ofDecember 31, 2021 Balance sheet information $ in millionsU.S. GAAP Impact of CIP Impact of Policyholders As AdjustedU.S. GAAP Impact of CIP Impact of Policyholders As Adjusted ASSETS Cash and cash equivalents 1,234.7 - - 1,234.7 1,896.4 - - 1,896.4 Investments 996.6 (376.8) - 1,373.4 926.3 (454.8) - 1,381.1 Assets of CIP: Investments and other assets of CIP 8,735.1 8,735.1 - - 9,575.1 9,575.1 - - Cash and cash equivalents of CIP 199.4 199.4 - - 250.7 250.7 - - Assets held for policyholders 668.7 - 668.7 - 1,893.6 - 1,893.6 -Goodwill and intangible assets, net 15,698.9 - - 15,698.9 16,110.5 - - 16,110.5 Other assets (2) 2,223.4 (9.8) - 2,233.2 2,033.0 (6.4) - 2,039.4 Total assets 29,756.8 8,547.9 668.7 20,540.2 32,685.6 9,364.6 1,893.6 21,427.4 LIABILITIES Liabilities of CIP: Debt of CIP 6,590.4 6,590.4 - - 7,336.1 7,336.1 - - Other liabilities of CIP 329.6 329.6 - - 846.3 846.3 - - Policyholder payables 668.7 - 668.7 - 1,893.6 - 1,893.6 - Debt 1,487.6 - - 1,487.6 2,085.1 - - 2,085.1 Other liabilities (3) 3,838.3 - - 3,838.3 3,845.7 - - 3,845.7 Total liabilities 12,914.6 6,920.0 668.7 5,325.9 16,006.8 8,182.4 1,893.6 5,930.8 EQUITY Total equity attributable toInvesco Ltd. 15,213.6 (0.1) - 15,213.7 15,495.8 (0.1) - 15,495.9 Noncontrolling interests (4) 1,628.6 1,628.0 - 0.6 1,183.0 1,182.3 - 0.7 Total equity 16,842.2 1,627.9 - 15,214.3 16,678.8 1,182.2 - 15,496.6 Total liabilities and equity 29,756.8 8,547.9 668.7 20,540.2 32,685.6 9,364.6 1,893.6 21,427.4 ____________ (1) These tables include 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, prepaid assets, property, equipment and software, right-of-use assets and other assets.
(3) Amounts include accrued compensation and benefits, accounts payable and accrued expenses, lease liability 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 decreased by$661.7 million from$1,896.4 million atDecember 31, 2021 to$1,234.7 million atDecember 31, 2022 . 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 Item 8, Financial Statements and Supplementary Data - Note 1, "Accounting Policies - Cash and Cash Equivalents," regarding capital adequacy requirements in certain jurisdictions. 51
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Ta ble of Contents Investments As disclosed in Note 3, Investments, balances comprise largely equity method investments in our Chinese joint venture, seed money and co-investments in affiliated funds, and investments related to the company's deferred compensation plans. As ofDecember 31, 2022 , the company had$909.2 million in seed capital and co-investments (December 31, 2021 :$856.7 million ), 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, net of deferred compensation investments, joint ventures and other investments. The following table reconciles the investment balance to the total seed capital and co-investment balance. As of $ in millions December 31, 2022 December 31, 2021 Investments 996.6 926.3 Net investment in CIP 376.8 454.8
Less: Investments related to deferred compensation plans, joint ventures, and other investments
(464.2) (524.4)
Total seed capital and co-investments (1) 909.2 856.7
____________
(1) Included in the total seed and co-investment balance as of
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 theU.K. The entity holds assets that are managed for its clients on its balance sheet with an equal and offsetting liability. The decrease in the balance of these accounts from$1,893.6 million atDecember 31, 2021 to$668.7 million atDecember 31, 2022 , resulted from net business outflows of$1,038.2 million and negative foreign exchange rate movements of$64.8 million , and negative market movements of$121.9 million .
Liquidity and Capital Resources
Our capital structure, together with available cash balances, cash flows generated from operations, existing capacity under our credit facility and further capital market activities, if necessary, should provide us with sufficient resources to meet present and future cash needs, including operating, debt and other obligations as they come due and anticipated future capital requirements.
Sources of Liquidity by Type
As of
$ in millions December 31, 2022 December 31, 2021
Cash and Cash Equivalents 1,234.7 1,896.4
Available Revolver 1,500.0
1,500.0
Total Sources of Liquidity by Type 2,734.7
3,396.4
OnMay 6, 2022 , the company completed an early redemption of the$600 million , 3.125% Senior Notes due onNovember 30, 2022 and successfully managed debt down to$1.5 billion , the lowest level in 10 years. As ofDecember 31, 2022 , the balance on the$1.5 billion capacity credit facility was zero. 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 ofDecember 31, 2022 , the company's purchase obligations totaled$770.7 million (December 31, 2021 :$619.7 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. 52
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Ta ble of Contents 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. 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 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. All of our regulatedEuropean Union (EU) andU.K. subsidiaries are subject to consolidated capital requirements under applicable EU andU.K. requirements, and we maintain capital within this European sub-group to satisfy these regulations. We meet these requirements in part by holding cash and cash equivalents. 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 capital restrictions, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences. We are in compliance with all regulatory minimum net capital requirements. As ofDecember 31, 2022 , the company's minimum regulatory capital requirement was$639.8 million (December 31, 2021 :$724.9 million ); the decrease was primarily driven by the impact of foreign exchange rate movements in theU.K. The total amount of non-U.S. cash and cash equivalents was$755.4 million atDecember 31, 2022 (December 31, 2021 :$1,088.3 million ). The consolidation of$8,934.5 million and$6,590.4 million of total assets and debt of CIP as ofDecember 31, 2022 , respectively, did not impact the company's liquidity and capital resources. See Item 8, Financial Statements and Supplementary Data - Note 19, "Consolidated Investment Products," for additional details. 53
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Ta ble of Contents 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 aU.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 endedDecember 31, 2022 Year endedDecember 31, 2021 Year endedDecember 31, 2020 $ in millionsU.S. GAAP Impact of CIP Excluding CIPU.S. GAAP Impact of CIP Excluding CIPU.S. GAAP Impact of CIP Excluding CIP Cash, cash equivalents and restricted cash, beginning of the period (2) 2,147.1 250.7 1,896.4 1,839.3 301.7 1,537.6 1,701.2 652.2 1,049.0 Cash flows from operating activities (1) 703.2 (414.1) 1,117.3 1,078.1 (436.1) 1,514.2 1,230.3 (72.7) 1,303.0 Cash flows from investing activities (375.6) (81.5) (294.1) (847.9) (755.4) (92.5) (859.6) (729.9) (129.7) Cash flows from financing activities (966.9) 449.4 (1,416.3) 117.3 1,148.0 (1,030.7) (285.9) 426.3 (712.2) Increase/(decrease) in cash and cash equivalents (639.3) (46.2) (593.1) 347.5 (43.5) 391.0 84.8 (376.3) 461.1 Foreign exchange movement on cash and cash equivalents (73.7) (5.1) (68.6) (39.7) (7.5) (32.2) 53.3 25.8 27.5 Cash, cash equivalents and restricted cash, end 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 and cash equivalents 1,234.7 - 1,234.7 1,896.4 - 1,896.4 1,408.4 - 1,408.4 Restricted cash(2) - - - - - - 129.2 - 129.2 Cash and cash equivalents of CIP 199.4 199.4 - 250.7 250.7 - 301.7 301.7 - Total cash, cash equivalents and restricted cash per consolidated statement of cash flows 1,434.1 199.4 1,234.7 2,147.1 250.7 1,896.4 1,839.3 301.7 1,537.6 ____________
(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.
(2) Restricted cash of$129.2 million as ofDecember 31, 2020 is recorded in Other assets on the Consolidated Balance Sheets. There was no restricted cash as ofDecember 31, 2021 or 2022. 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. Although some receipts and payments are seasonal, particularly bonus payments which are paid out during the first quarter, in general, after allowing for the change in cash held by CIP and investment activities, our operating cash flows move in the same direction as our operating income. Cash inflows for the year endedDecember 31, 2022 , excluding the impact of CIP, included a$470.5 million decrease in operating income, net investment purchase of$41.0 million , including seed money and deferred compensation investments (2021: net investment redemptions of$62.1 million ) and an Invesco Great Wall dividend of$65.5 million (2021:$38.8 million ). Inflows were partially offset by net outflows from the changes in payables and receivables due to the timing of payments and receipts. Investing Activities Cash outflows for the year endedDecember 31, 2022 , excluding the impact of CIP, includes a net outflow of$101.2 million , which is comprised of purchases of investments of$274.3 million (year endedDecember 31, 2021 :$210.7 million ), partially offset by collected proceeds of$173.1 million from sales and returns of capital of investments (year endedDecember 31, 2021 :$227.0 million ). During the year endedDecember 31, 2022 , the company had capital expenditures of$192.9 million (2021:$108.8 million ). Our capital expenditures related principally to technology initiatives related to investments in foundational technology projects as well as facilities costs. A portion of these facilities costs relate to leasehold improvements made to various buildings and workspaces in several global locations, including preparations for our move to our newAtlanta headquarters. 54
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Ta ble of Contents Financing Activities Financing cash outflows during the year endedDecember 31, 2022 included the$600.0 million redemption of the senior notes dueNovember 2022 (2021: none),$334.8 million of common dividend payments for dividends declared in January, April, July andOctober 2022 (year endedDecember 31, 2021 : dividends paid of$307.7 million ),$236.8 million of preferred dividend payments for dividends declared in January, April, July andOctober 2022 (year endedDecember 31, 2021 :$236.8 million ), the repurchase of$200 million of common stock (year endedDecember 31, 2021 : none), and the payment of$44.7 million to meet employees' withholding tax obligations on common share vestings (2021:$60.9 million ). The year endedDecember 31, 2021 also included a$309.4 million settlement of the forward contracts on treasury shares, the return of$104.1 million of net collateral on the forward contracts to the counterparty, and a repayment of$11.8 million of contingent consideration. Net borrowings under the credit facility were zero during the years endedDecember 31, 2022 andDecember 31, 2021 . 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 stock 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, or 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. OnJanuary 24, 2023 the company declared a fourth quarter 2022 dividend of$0.1875 per common share to the holders of common shares, payable onMarch 2, 2023 , to shareholders of record at the close of business onFebruary 16, 2023 with an ex-dividend date ofFebruary 15, 2023 . OnJanuary 24, 2023 , the company announced a preferred dividend of$14.75 per preferred share to the holders of preferred shares, representing the period fromDecember 1, 2022 throughFebruary 28, 2023 , payable onMarch 1, 2023 , to shareholders of record at the close of business onFebruary 15, 2023 . 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 2022, the company repurchased 8.9 million shares in the open market at a cost of$200 million . The company did not purchase any of its shares in the open market during the year endedDecember 31, 2021 . AtDecember 31, 2022 , approximately$532.2 million remained authorized under the company's common share repurchase authorization approved by the Board onJuly 22, 2016 (December 31, 2021 :$732.2 million ).
Debt
The carrying value of our debt at
For the year ended
Financial covenants under the credit facility agreement include: (i) the quarterly maintenance of an Adjusted debt/Earnings before income tax, depreciation and amortization (EBITDA) leverage ratio, as defined in the credit facility agreement, of not greater than 3.25:1.00, (ii) an interest coverage ratio (EBITDA, as defined in the credit facility agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. As ofDecember 31, 2022 , we were in compliance with our financial covenants. AtDecember 31, 2022 , our leverage ratio was 0.78:1.00 (December 31, 2021 : 0.79:1.00), and our interest coverage ratio was 19.51:1.00 (December 31, 2021 : 25.21:1.00). 55
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The
Last four quarters ended
$ millions December 31, 2022 December 31, 2021
Net income attributable to Invesco Ltd. 683.9 1,393.0
Dividends on preferred shares 236.8 236.8
Tax expense 322.2 531.1
Amortization/depreciation 195.3 205.3
Interest expense 85.2 94.7
Common share-based compensation expense 106.2 140.1
Unrealized (gains)/losses from investments, net (1) 87.7 17.9
OppenheimerFunds acquisition-related matter recoveries (2) (55.0) (231.1)
EBITDA (3) 1,662.3 2,387.8
Adjusted debt (3) $1,290.3 $1,888.1
Leverage ratio (Adjusted debt/EBITDA - maximum 3.25:1.00) 0.78 0.79
Interest coverage (EBITDA/Interest Expense - minimum 4.00:1.00) 19.51 25.21
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(1) Adjustments for unrealized gains and losses from investments, as defined in
our credit facility, 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 facility, are adjusted for in the determination of EBITDA. The insurance
recoveries related to the OppenheimerFunds acquisition-related matter are
considered unusual and have been removed from the determination of EBITDA.
(3) 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 EBITDA above (a reconciliation from net
income attributable to Invesco Ltd. ) is defined by our credit facility
agreement, and therefore net income attributable to Invesco is the most
appropriate GAAP measure from which to reconcile to EBITDA. The calculation of
Adjusted debt is defined in our credit facility and equals debt of $1,487.6
million plus $2.7 million in letters of credit less $200.0 million of excess
unrestricted cash (cash and cash equivalents less the minimum regulatory capital
requirement, not to exceed $200 million ).
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.
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 ofDecember 31, 2022 , our maximum exposure to credit risk related to our cash and cash equivalent balances is$1,234.7 million . See 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.
The company does not utilize credit derivatives or similar instruments to mitigate the maximum exposure to credit risk. The company does not expect any counterparties to its financial instruments to fail to meet their obligations.
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Ta ble of Contents 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$1,487.6 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 facility, 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 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 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.
During our annual impairment test in 2022 and 2021, management performed the optional qualitative approach which indicated that a quantitative assessment of the goodwill impairment test was not necessary. The company cannot predict the occurrence of future events that might adversely affect the reported value of goodwill that totaled$8,557.7 million and$8,882.5 million atDecember 31, 2022 andDecember 31, 2021 , respectively. 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. When management utilizes the option to first assess goodwill impairment on a qualitative basis, the sum of certain events and circumstances is assessed to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount. Such events and circumstances include macroeconomic conditions, industry and market considerations, overall financial performance of the company and/or significant changes in share price. If the qualitative assessment indicates that an impairment may be likely or management elected to not perform the qualitative assessment, management performs a quantitative test to determine the fair value of the reporting unit. The fair value of the reporting unit is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount. The income approach includes inputs that require significant management judgment, including AUM growth rates, projected effective fee rates, pre-tax profit margins, effective tax rates and discount rates. The quantitative test includes assumptions updated 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. Market gains are based upon historical returns of the S&P 500 index, treasury bond returns and treasury bill returns, as applicable to the company's AUM mix on the testing date. The most sensitive of these assumptions are the AUM growth rate, fee rates, operating expense and the discount rate to determine present value. The discount rates used are estimates of the weighted average cost of capital for the investment management sector reflecting the overall industry risks associated with future cash flows and have been calculated consistently from period to period. While the company believes all assumptions 57
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utilized in our assessment are reasonable and appropriate, changes in these estimates could produce different fair value amounts and therefore different goodwill impairment assessments.
Intangible Assets
Where evidence exists that the underlying agreements have a high likelihood of continued renewal at little or no cost to the company, the intangible asset is assigned an indefinite life and reviewed for impairment on an annual basis. Similar to goodwill, 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, which was$63.8 million ,$62.9 million and$62.5 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively. Intangible assets not subject to amortization are tested for impairment annually as ofOctober 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 with 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. If required, fair value is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount. The income approach includes inputs that require significant management judgment, including AUM growth rates, product mix, projected effective fee rates, pre-tax profit margins, effective tax rates and discount rates. The most sensitive of these assumptions to the determination of the estimated fair value are the AUM growth rate, fee rates, operating expense and discount rate, which is a weighted average cost of capital including consideration of company size premiums. Changes in these estimates could produce different fair value amounts and therefore different impairment conclusions. During 2022 and 2021, our annual impairment reviews of indefinite-lived intangible assets determined that no impairment existed at the respective review dates, the classifications of indefinite-lived and definite-lived remain appropriate, and no changes to the expected lives of the definite-lived intangible assets were required.
Income Taxes
The company filesU.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 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 on the Consolidated Statements of Income as components of income tax expense. 58
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Ta ble of Contents 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.
Recent Accounting Standards
See Item 8, Financial Statements and Supplementary Data - Note 1, "Accounting Policies - Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements."
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