Andrew Schlossberg: Yeah. I mean, let me talk about both. On the SMA platform, as I mentioned, it’s now grown to about $23 billion, which is which is multiples higher than just a few years ago. The immediate success that we’ve been having is in the fixed income space, where there’s been decent demand and a lot less supply of offering and we’re seeing that kind of across the piece and fixed income. More recently, we’ve been introducing custom indexes and elements of the active strategies, which have had a slower pick up where there’s more supply in the market. But we think off the backdrop of what we’ve built, there’s opportunity there. And then in time, we think the SMA platform like the ETF is going to continue to be a preferred vehicle, which will allow us to bring other strategies — fundamental strategies or other fundamental and quantitatively developed strategies together into that SMA platform.
So we’re — we think we’re in early stages of growth in SMAs and I think going to the way the technology and operational platforms set up now in a more modern way, it scales a lot better than SMA businesses did a decade or two ago. On active ETFs, we’ve been in that space, we’ve been one of the pioneers in active ETFs starting as far back as 10 years to 15 years ago. We have — as I mentioned in my remarks, we have about $25 billion of AUM that has an active team connected to it, which doesn’t mean just active funds. So about half of that is in active ETFs in the classically defined sense and the other half is passive oriented strategies, but supported by or working with one of our investment, active investment teams, things like Multi-Asset or Bank Loans are examples of that.
And we continue to think that the ETF chassis and which we’re large and scaled in is going to continue to bring in not just traditional active strategies, but also alternative active strategies, meaning ones that combine fundamental and quantitative approaches. And we think we’re set up well to be a leader there, given the quality of our active, the depth of our ETF range and the recognition I think we have on the wealth platforms, which will drive this growth. So, it — both areas are vehicles that we’re excited about and I think there’s a lot of opportunity to bring our capability to.
Glenn Schorr: Okay. I appreciate that. Thanks.
Operator: Thank you. And our next question comes from Bill Katz with TD Cowen. Your line is open.
Bill Katz: Thanks. Maybe a big picture question first? There’s a couple of articles just about sort of streamlining your India platform seem to be a little bit different when I heard just now in terms of the JV, just sort of wondering if you could talk a little bit about just the opportunity to continue to streamline globally or to reinvest into faster growth areas and how that might ultimately feed back to earnings?
Andrew Schlossberg: Great. Let me — I’ll start and then, Allison, can pick up. Two different components of our Indian business that are — our Indian profile that are worth mentioning. We use India as a very large enterprise back office, middle office center, and that’s been phenomenal for us in a place where we’re going to continue to invest behind and continue to — it will be one of the places that helps us streamline the cost base over time. Separate to that, we have an Indian Fund business and what we announced in the last few weeks was that we were forming a joint venture with a large Indian business called Hinduja Group. And Hinduja Group is bought 60% of our interest, so we’ll have a minority interest and Hinduja is well recognized company in India and also financial services company in India, which we think in a combined way can help us grow and accelerate the pace of development that we have there and we can we’re better suited as a minority interest in that regard.
And those are the sorts of things I think you could think about as we continue to go market-by-market, looking for ways to both grow and to think about where we deploy our resources, capital and operating expense.
Bill Katz: Okay. My next question, I’m going to cheat a little bit. Allison, you just go back to the distribution discussion, I was taking notes, but I want to make sure I understand it and maybe apply it to the 26.1-basis-point average fee rate for the quarter and what would be the exit rate if you normalize for the sort of the unique fund cost? And then you mentioned that you’re going to be sort of back to sort of net zero by the second half of this year, but you might be able to sort of rethink capital return along the way. At what point should we anticipate buyback, particularly where the stock is trading now? Thank you.
Allison Dukes: Sure. I don’t know that the net of that, third-party distribution is that meaningful. So, if I go back and just kind of recap what I said there, you’ve got about $18 million related to that proxy event that was recorded as revenue and $21 million that’s recorded than a third-party contra revenue. So, effectively $3 million that was borne by Invesco there. Not terribly meaningful as you think about net revenue yield. So, I don’t — so I’m not trying to dodge your question, but I don’t know that it’s terribly meaningful to net revenue yield. I know it is a bit confusing, though, and I would continue to guide to the thinking about that, something around 43% of third-party contra revenue as a percentage of management fees is the right way to think about that relationship in a low revenue environment, and as revenue improves, you should expect that to kind of come back down into that 41% to 42% range and that proxy event being a bit of an anomaly.
As it relates to our return of capital, and I’m sorry, I might have missed that question was when buybacks might resume. Buybacks, again, I think, as we approach our target of zero net debt, which we expect to be middle back half of this year and we are being very thoughtful in our cash management overall, very pleased with what we’ve been able to do so far and very much in line with our expectations. We expect we’ll reach it middle to back half of this year and we do hope to be resuming more regular share buybacks. I think I’ve noted in the past our total payout ratio would be in the 40% to 60% range. I might expect it and just sort of these lower earnings environments to be on the higher end of that range. Hopefully I covered that question there, Bill.
Bill Katz: Thanks so much. Yes. You did. Thank you.
Allison Dukes: Great. Thanks.
Andrew Schlossberg: Thanks, Bill.
Operator: Thank you. And our next question comes from Brian Bedell with Deutsche Bank. Your line is open.
Brian Bedell: Great. Thanks. Good morning, folks. Maybe just come back to the active ETF question. To the extent you’re cloning these from fundamental strategies, or I guess the question is, what is your appetite to create active ETFs that are either clones of the fundamental strategies or similar types of strategies? And can you capture a fee rate on those ETFs, a management fee rate or net revenue yield on those ETFs that are similar to the fundamental strategies, and I guess, as you’re growing them, are they included in the ETF bucket or the — or would they be in the fundamental buckets?
Andrew Schlossberg: Yeah. Let me start and Allison can pick up on that last part in particular. It’s very much driven by client demand. And what I mean by that is, where there is interest in fundamental strategies that are the same or similar to ones that we offer today, we’ll offer them and we’ll bring them forward. We haven’t seen that so much to-date. They’ve either been a new strategy or a variant of, but we’ll continue to bring the best capabilities we have into the active ETF wrapper where it completely makes sense. You’re going to see some of that, I think, in the industry come through conversions. You’re going to see some of that come as cloned or as newly originated funds. But I think, ultimately, you’re really going to see the ETF as a preferred wrapper for many investors to have lots of different ways of deploying active into it.
As I was saying before, some fundamental, some quantitative, some that are going to be a variety of both. So I think there’s going to be a decent amount of product development and I think each firm is going to have a different strategy on it. We’ve got some of the unique attributes that I mentioned and you’ll probably see all the above from us. In terms of the fee rates and where they’re included, I’ll leave it to Allison.
Allison Dukes: So, as we — as those grow and as we start to embark on that, they would show up in the ETFs and Index investment capability category. And when and as and if it changes the fee rate, we would adjust that range as well in the disclosures. But we’ve got a way to go and just creating critical mass there that would actually create a change in that range.
Brian Bedell: Okay. Okay. That’s a good color. And then just on the classic ETF franchise, just maybe if you can talk about how you view the scalability of that and clearly you’re always making investments across your product lines. But if we continue to see outsized growth in that franchise, should we expect that to be positively contributing to your margins over time?
Andrew Schlossberg: Yeah. I’ll let — well, Allison, you start and I’ll pick up.
Allison Dukes: Well, I mean, I say in the bottom part of your question, yes. And it is positively contributing to our margin today. It’s just offset by some of the outflows on the fundamental equity side. So to be very clear, our overall traditional ETF franchise is margin accretive as it stands today and we are starting to see the benefits of scale, although I think we’re just scratching the surface of it and continuing to grow that is a true focus for us.
Andrew Schlossberg: Really across all parts. I mean, we often talk about product when we — in origination, new product or scaling existing products. But there’s the whole ecosystem behind it, which as we get larger, allows us to continue to have operating leverage. Technology plays a big part. Operations plays a big part. Capital markets plays a big part. And I think these are some of the advantages we have of having been in the ETF business for multiple decades on having the size and scale we have. So, it does scale well and incremental margin should improve over time.
Brian Bedell: Great. Great. Thank you for the call.
Greg Ketron: Hey, Operator, we have time for one more question.
Operator: Okay. And our final question comes from Craig Siegenthaler with Bank of America. Your line is open.
Craig Siegenthaler: Thank you, guys. I hope everyone’s doing well. My first one’s on Asia. So you had positive flows from the China JV and in India, but your overall APAC business had net outflow. So I was curious, what were the largest sources of redemptions by geography and product in APAC this past quarter?
Andrew Schlossberg: Yeah. I know it could be a little bit confusing, so I’ll let Allison pick up. I think in the region, did we have positive flows in the region? Let me distinguish. The managed assets that you see on Page 3, the negative is driven by a Japanese equity capability that we have that had some net flows — net outflows in the first quarter. So that was the only driver of negative impact on what we call Asia-Pacific Managed Assets on Page 3. But maybe from a regional perspective, Allison, why don’t you pick up?
Allison Dukes: From a sourced perspective, we were in inflows. In fact, it was pretty strong, about $3.3 billion of inflows, so a 6.6% organic growth rate. Largely driven by Japan, continued to see a lot of success in Japan with our Henley Global Equity and Income Fund. We’ve noted some success in that for the last several quarters that garnered over a $1 billion of inflows in the first quarter. Continued success in India, just under a $1 billion of inflows in India. Positive flows in the China JV as we noted as well. So, overall, strong growth in the region from a sourced perspective.
Andrew Schlossberg: And Craig, you can see some of that on Page 13 in the appendix. We show it on a sourced flow perspective.
Craig Siegenthaler: Got it. Thank you for that. And just my follow-up, you had $1 billion of Private Market net flows and I can see there were $2.8 billion of long-term outflows. Does your definition of outflow include both redemptions and realizations? Because as you know, some of your competitors exclude realizations from the net flow definition.
Allison Dukes: Yes. Ours includes redemptions and realizations. And so when you look at our flows in Private Markets, largely driven by bank loans, which I think Andrew noted, it’s a little over a $1 billion in bank loans. We did see inflows on the Real Estate side as well in Direct Real Estate and that would be net of realization. Some of the outflows were actually on the listed side and some of the listed Real Estate.
Craig Siegenthaler: Thank you very much.
Allison Dukes: Thank you, Craig.
Andrew Schlossberg: Thank you. All right. Well, thanks to everybody for joining. And in closing, I really want to reiterate that we’re well positioned to help clients navigate the impact of evolving market dynamics and subsequent change to their portfolios. And we very much believe that as market sentiment improves, this should translate into even greater scale performance and improved profitability. Given the work we’ve done to strengthen our ability to anticipate, understand and meet evolving client needs, I’m very excited for the future of Invesco. I want to thank everybody for joining the call today and please reach out to our Investor Relations team for any additional questions and we continue to appreciate your interest in Invesco and look forward to speaking again very soon. Thank you.
Operator: Thank you. And that concludes today’s conference. You may all disconnect at this time.
