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Invesco Ltd. (NYSE:IVZ)

Q1 2009 Earnings Call

April 23, 2009 09:00 AM ET

Executives

Martin Flanagan - President and Chief Executive Officer

Loren M. Starr - Chief Financial Officer

Analysts

Michael Kim - Sandler O'Neill & Partners L.P.

William R. Katz - The Buckingham Research Group

Robert Lee - Keefe, Bruyette & Wood

Jeffrey Hopson - Stifel Nicolaus & Co.

Marc Irizarry - Goldman Sachs

Cynthia Mayer - Banc of America

Cynthia Mayer

Daniel T. Fannon - Jefferies & Co.

Unidentified Company Representative

This presentation and comments made in the associated conference call today may include forward-looking statements. forward-looking statements include information concerning future results of our operations, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, AUM, acquisitions, debt and our ability to obtain financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions.

In addition, words such as believes, expects, anticipates, intend, plans, estimates, projects and future or conditional verbs such as will, may, could, should and would, as well as any other statements that necessarily depends on future events, are intended to identify forward-looking statements.

Forward-looking statements are not guarantees and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described on our most recent Form 10-K and subsequent Forms 10-Q filed with the Securities and Exchange Commission.

You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure, if any forward-looking statement later turns out to be inaccurate.

Operator

Welcome to the Invesco's First Quarter Results Conference Call. All participants will be on a listen-only mode until the question-and-answer session. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect now.

Now I'd like to turn the call over to the speakers for today, Mr. Martin L. Flanagan, President and CEO of Invesco and Loren Starr, Chief Financial Officer. Mr. Flanagan, you may begin.

Martin Flanagan

All right thank you very much and I want to thank everybody for joining us for our first quarter call in 2009 and it was just highlighted Loren's here -- Loren Starr is here with me, our CFO. And I'm going to be speaking to the presentation that is been posted to the website if you are so inclined to follow. I'm going to hit a few of the business highlights. Loren will talk about the financial results in more detail and then importantly, we'll open it up to Q&A.

And I think to start with, its I think important to always to put the results in the context of the marketplace and everybody on this call and all of us realize that first quarter was one of the most volatile and difficult markets that we have all operated in. I think all of us were also very happy to see the recovery that we saw at the end of March. But again, I think very few of us would've expected that we'd be sitting here in April with largely equity markets being down again from 2008, when we were sitting where we were last December. But in spite of the external challenges, I believe the work we've done to simplify the organization, to strengthen the business and our continued focus to be very-very disciplined about how we run our business and our approach to the market had put us in a really relatively strong position to compete in this environment.

You'll see again, our relative investment performance across the firm remains quite strong and obviously that's something that helps you build relationship with your current clients and also give the opportunity for further relationships, when the markets do turn. During the quarter, we did see strong organic growth in several areas which contributed to long-term positive flows again -- and also total flows were positive for the quarter also.

We did remain very-very focused on managing expenses during the period and trying to find ways to ever improve our operating efficiencies. And I think also important feedback that we're all getting, with clients and the problems (ph), quite extensively over the past few months and in those discussions it is quite clear from clients that they are intensely interested in the stability of the firms that they are working with. They want to work with firms that have the resources to meet their needs and really the stability to deliver against the commitment that we have made to those firms and also to avoid problems.

And I think we all are very aware to there is an enormous amount of money sitting on the sidelines and at some point that will comeback into the market, and we believe given our stability during this market dislocation and our relative investment performance, we're well positioned to do well when that does happen. More specifically, let me hit a few of the highlights for the operating results during the quarter. We did end the quarter with assets under management $348 million. We did see the improvement in net long-term flows during the quarter. Again we had another strong quarter of flows into the money fund business.

Our net operating margin for the quarter was 16.5%, as compared to 19% in the prior quarter. But overall, earnings per share was flat this quarter to last quarter. Loren, will go into much more details he takes finance results in just a minute. We continue to be very focused on managing our capital position during this period of time. But I think the bottom-line with our operating results is the things that we can't control that we could control we in fact did. Whether it be the operating expenses of the business; but then also that complemented by the net inflows in the quarter and the relative investment performance. Finally, the Board did declare an increased dividend, the first quarter dividend will be $10.25, that's a 2.5% increase over the fourth quarter dividend last quarter.

And let me spend a minute just on flows. Overall gross flows for long-term assets declined 7.7% quarter-over-quarter, but importantly redemptions dropped 31% during this past quarter. And as a result, that's how we had the net long-term inflows of $0.7 billion. That's 1.8 billion improvement quarter-over-quarter. And again, our cash management business had another very strong quarter, growing almost 11% during the period and we continue to see strong interest in that area of our business.

If you take a look at the flows by distribution channel, you can see that net inflows improved in both retail and institutional channels for us. The net inflow improvement in the retails channel was largely driven by continued strong flows Invesco for our cash flow and also the Invesco power shares side of the business. Institutionally, net inflows also improved largely due to a sharp decline in redemptions during the period.

And again -- the quarter, the markets were very-very volatile, the S&P, if you want to use that as somewhat of a proxy indicator for some of the markets around the world was down 11% during the quarter, and ending the quarter all of the markets firmly in negative territory. But in spite of that, our long-term investment performance remains strong and if you look at the end of March and look at our relative performance over one, three and five years, on a one year basis, 71% of all the assets be peers, on a three year basis 69% assets be peers and on the five year basis 80% of the assets on the management be peers. There are the detailed charts on our relative investment performance in the appendix, if you're so inclined. But let me just take a minute and talk about a couple of the investment performance highlights.

Invesco AIM continued to have strong investment performance. 54% of the assets now are rated four and five star by Morningstar. Invesco Asia Pacific did well versus peers in the one, three and five year basis. And also during the quarter, the Asian investment team won 13 awards in eight countries at the 2009 Lipper Fund Awards and also that includes being awarded the best equity group for our China joint venture, which again I think is, quite a nice recognition.

Long-term investment performance remains very strong at Invesco Perpetual, in our traditional equity business but also our fixed income business which is just a growing strength within the organization. Our global and quantitative equity performance did well again as benchmarked and finally the worldwide fixed income team continued to have strong results for clients during the quarter and again building this reputation as being sort of the safe hands manager in what has been a very-very volatile and challenging time for those people management and credit also. So let me stop there. Those are the highlights and Loren will talk about the operating results and then we'll get to questions.

Loren M. Starr

Thanks Marty. During the quarter, we saw a total net inflows of 9.3 billion, which were more than offset by 18.3 billion related to declining markets and FX. And this led to a $9 billion decline in assets under management. So as a result, we ended the quarter with 348.2 billion and assets under management decreased 2.5% since the end of December.

Our net revenue yield came in at 46.7 basis points, at somewhat larger decline than normal relative to the prior quarter and this was due to a couple of factors that I will review in more details shortly. But first, let's go to the income statement.

You'll see that total operating revenues declined 13.5% during the quarter and this is driven primarily by a negative AUM fee mix shift as well as lower performance fees and other revenues. Investment management fees were down 8.8% versus the prior quarter and this decrease is explained by the impact of declining global equity markets on our higher fee equity assets, our equity AUM as a percentage of total AUM fell from 36% in the fourth quarter to 33% at the end of the first quarter of '09.

Importantly, performance fees came in at 11 million as a result of strong investment performance in both U.K. and Australia. However, this is less than half of what we earned in Q4, when we were able to generate an additional $13 million due to out-performance by several of our quantitative equity strategies.

Service and distribution revenues were down 12.2% due to the lower average assets as well as lower fund administration fees earned in Canada. Other revenues came in at $12 million, net down $19 million compared to Q4. And this decline is explained by much lower levels of transaction the activity to both our real estate and private equity businesses which is a direct function of the current market environment.

Moving on down the slide, you'll see that our total operating expenses for the quarter at 487 million, declined by 11.5% versus Q4. And this is consistent with the annual guidance that we presented you last quarter which called for a total decrease in year-over-year expenses of 450 million or 17.6% which is to markets in FX were flat to year end level. We believe that we're very solidly on track to achieve this level of saving and we're working very hard to do even better than what this guidance suggests.

Employee compensation expenses came in at 235.8 million in the first quarter versus 236 million in the fourth quarter. Our first quarter compensation expenses included a seasonal increase in payroll taxes of 8.8 million as well as 13 million related to saving initiatives. You'll note that, we had 12.1 million in costs related to savings initiatives in the fourth quarter. Including these impacts compensation would have been down 4.4% in the first quarter.

Third party distribution service and advisory declined by 8.9% and this was in line with lower investment management and service and distribution fees. Marketing came in down 14.1% as we scaled back advertising and sales related travel and entertainment. Also marketing support payments declined on lower average assets under management. Property, office and technology decreased 20.9%, due to continued cost discipline measures. In addition, there was 5.1 million in costs incurred during the fourth quarter related to vacating lease properties. Including the fourth quarter items property, office and technology would have been down 13.2%.

D&A declined 51.6% in the quarter. And the first quarter expenses included a 9.5 million insurance recovery. And in the fourth quarter there was 3.9 million related cost savings initiatives. Excluding these impacts, G&A would have declined 32% quarter-over-quarter. Below the operating income line, equity earnings of unconsolidated affiliates decreased to 2.5 million, and this was due to net losses of 3.9 million in turn of our partnership investments which were unrelated to our Great Wall joint venture in China.

Moving on down gains of consolidated investment products, as we've seen in the past were largely offset by the losses attributable to non-controlling interest in consolidated entity. These two lines items are a result of FIN 46, which required to consolidate certain investment products. I'd also like to note that the minority interest line item that have been in previous presentations is now called losses attributable to non-controlling interest in consolidate entity and this change is consistent with our adoption of FAS 160 that occurred at the beginning of the year.

We saw that other losses in the quarter came in at 4.2 million. This included 6.6 million in unrealized investment write-downs related to CLOs and seed capital. And similar to the fourth quarter, our effective tax-rate which came in at 39.8% was unusually elevated and this was a result of the investment write-downs and partnership losses that occurred in zero or low tax rate jurisdictions. And we had previously provided guidance to you, that our 2009 effective tax rate forecast would be 31.5%. Given the Q1 impact, I just discussed, in our current profit mix, we now expect the full year rate to be closer to 34%. However, you should be aware that this is based on the assumption of no further investment write-downs occurring this year.

So as a result, EPS came in at $0.08 for the quarter, which is basically flat to the prior quarter. And the combined EPS impacts of the 10.5 million in non-operating losses as well as the 13 million in savings initiatives expense offset by this 9.5 million of insurance recovery with a total impact of $3.2.

Now I'd like to turn to the next slide and talk a little bit about the change in our net revenue yields. So as I mentioned quarter-over-quarter, our net revenue yield declined by 7.3 basis points on an annualized basis. We thought that it would be helpful to explain the change in a little more detail. The biggest factor contributing to the variance was the market driven change in our asset mix, our equity AUM, with a blended net revenue rate of approximately 79 to 80 basis points, decreased inline with global equity markets during the quarter. And at the same time through inflows, we added 8.6 billion of institutional money market AUM with a net revenue yield of about 11 to 12 basis points. And that explained three basis points of the 7.3 basis points variance.

The decline in other revenues and performances fees accounted for 3.6 basis points in the change of yield. And then finally with two fewer billing days in Q1 versus Q4 for our retail office, that accounted for about 0.7 basis points in yield change. So with that, I'd now like to turn it over to Marty before we open up to Q&A.

Martin Flanagan

Great. Just as -- wrap up the quarter I think you've to put it in a context of obviously the markets. We think we've made great progress over the last three years, strengthening the relative position of our business and the interest that we're seeing. I think it's really the going forward prospects for the industry and for our company within it. We think we're very-very well positioned and we think the efforts that we've undertaken position us very-very well, again with relative performance of where we are standing. But why don't we stop there and get to questions and move on from there.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Michael Kim with Sandler O'Neill. Your line is open now.

Michael Kim - Sandler O'Neill & Partners L.P.

Hi guys, good morning.

Loren Starr

Hi Michael.

Michael Kim - Sandler O'Neill & Partners L.P.

The first question I had is just more technical in nature. Can you talk about the share count for the quarter? It looks like it was a bit higher than I had expected.

Loren Starr

All right, yeah Michael we typically provide equity grants at during February for the full year performance of 2008 in this case -- and so, you saw that the share count ticked up as a result of those grants being distributed.

Michael Kim - Sandler O'Neill & Partners L.P.

Okay. And then kind of a more broader question as it relates to the institutional side of the business. Are you guys starting to see a pick up in RFP activity now that, markets have stabilized more recently and if that's the case, kind of what are some of the strategies that seem to be generating the most interest?

Martin Flanagan

Yeah. It's a very interesting dynamic and I think we are all living it from the time we are spending, the middle of fourth quarter through recently. In the fourth quarter you characterized the interactions with consultants and clients is just frozen, and really just wondering what to do. The feedback that we got starting in January was what large endowments (ph) foundation pension plans and like were doing they we're stepping back to reassess their asset allocation plans and that in expectation of and that in expectation of changes mandate movements versus second half of the year. And with the exception being sort of, situations where there were sort of emergency needs to move.

It seems to me that as the markets get better, you can see that start to pickup more, what we are seeing very specifically for us is obviously the cash business for those people in the business has been a very active area. But longer dated on the risk side, it is looking at bank loan type products; real estate continues to be a very high level of interest for us institutionally. Also our asset allocation capabilities with -- are getting an awful lot of interest from clients and just generally on the alternative side what we are seeing more on the fee side is more enquiries along in some of the core equity type products, is what's happening right now.

Michael Kim - Sandler O'Neill & Partners L.P.

Okay. And then just finally, I know its still early but given the recent market rally. How is your thinking in terms of reinstating the share buyback program, changed at all -- or are you kind of just likely to remain on the sidelines until you get past, I guess the debt repayment at the end of the year?

Loren Starr

Yeah. Michel this is Loren. It's the latter. I think we're still not we can't predict where the markets are going to go and we do think that looking at the debt repayments it's probably a more likely scenario for us at this stage.

Michael Kim - Sandler O'Neill & Partners L.P.

Okay. That's helpful thanks.

Operator

Thank you. Our next question is from William Katz with Buckingham Research. Your line is open now.

William Katz - The Buckingham Research Group

Okay. Thank you and good morning -- afternoon everyone. My last quarter and Loren you provided a slide about expense outlook relative to a flat market, I think was the way you positioned it and FX being flat. Sort of wondering if you could give an update if you are thinking relative to that expectation?

Loren Starr

Okay Will. Yeah we -- I think we feel good at -- in the quarter we certainly managed well within what we were guiding. Obviously, it was annual guidance and not a quarterly guidance and the market has been quite volatile, just even within the quarter with quite a bit of a decline and then snap back. So we think we're certainly on track to manage to that guidance. And again I think we feel that we're going to be working hard and then hopefully we'll be successful to do better than what the guidance suggested.

William Katz - The Buckingham Research Group

Okay within that, I noticed I guess the comp was relatively flattish ex the cycle of change and the restructuring charge, I guess that reflects the step up of restricted stock grants. But your headcount was down about 4% sequentially. Is there any relief to compensation just related to that change?

Loren Starr

Well I think again, if you look at -- in fully compensation with excluding the severance impacts and you look at quarter-over-quarter, comp would have been down around 4.4% again excluding the payroll go (ph) forward. Again, I think it is one of these things that some of the changes took place throughout the quarter and so it wasn't a full quarter's worth of impact. But I'd tell you again that generally our guidance is structured more around kind of looking at the total expenses and again getting focused just on the implied (ph) comp line, maybe the premium or in terms of what we're able to do, in terms of our total outlook on managing expenses.

William Katz - The Buckingham Research Group

Okay, that is very helpful. And then Marty, I'm sort of curious few of your competitors have talked about interest in TELF and PPIP.

Martin Flanagan

Right.

William Katz - The Buckingham Research Group

You know the government mandate. Sort of wondering -- it seems like you'd have the criteria to at least put your name in the hat. Sort of wondering where you stand in terms of that opportunity, and then one other follow-up question.

Martin Flanagan

Yeah, sure. We are very-very interested in the PPIP which is -- everybody referring to it right now that we filed our RFP response yesterday. Needless to say, you can expect me say, we think it is very-very competitive response and we are very hopeful that we end up being one of the people that are selected to be one of the managers.

William Katz - The Buckingham Research Group

Okay and the last one -- last question I had is that you may advance in your question around the debt and capital management. But there are a number of sort if seemingly other properties now coming up for sale, there's been some talk of Columbia, whether B of A (ph) is going to sell or not, I think we get financial announced here today that they're looking to sell Delaware and I'm sure there are other names like that are likely to come out in next few weeks and months. Just sort of curious how are you thinking strategically now, given that the core business seems to now turning an inflection point. Is there enough leverage to the core business to continue to ride that or are you now sort of at a point where you could step function the franchise to an acquisition?

Martin Flanagan

I think your question is almost the answer. We feel really good about where we've gotten to with our business. Obviously I think, we're all going to look back and this is likely going to be coming out in one of the most difficult quarters in our history. But that said, the way we position the business, we feel very good about where it is organically. That said, we also feel we have the capacity if it make sense for us and our business to acquire an organization if that make sense. But I just -- I want to stay on track to say it's got to be consist with our strategy. We're still going to be financially very thoughtful. When we do it, but we won't -- we're not going to do something stupid and I think what you're seeing also in the core business if you look at the depth and breadth of our capabilities from cash to alternatives and the global nature of such, we feel good about our relative positioning within the marketplace.

William Katz - The Buckingham Research Group

Okay, thanks very much.

Martin Flanagan

Thanks Bill.

Operator

Our next question is from Robert Lee with KBW. Your line is open now.

Robert Lee - Keefe, Bruyette & Wood

Thanks, good morning everybody.

Loren Starr

Hi Rob.

Robert Lee - Keefe, Bruyette & Wood

Hey, quick question on actually on the money fund business. Just like to get your thoughts of it. I mean obviously you had another strong quarter, but putting aside probably some expectations of, markets stay better, get better -- you have some outflows. Longer terms strategically, I mean how do you think of that and I mean in the context of the ICI proposals which to some degree seems commoditized the business in a way a little bit more and there's been some chatter about putting in capital requirements here or there. I mean, definitely some of your competitors view that, others don't. Could you maybe update us on your thoughts on that business and where do you think it's headed?

Martin Flanagan

Sure. Yeah, just in total, our money fund business we look that as a part of our whole fixed income capability and I think if you look at the -- relative results, it's because of very strong credit capabilities and that sort of follows through to the rest of the fixed income capability. For us it's an important business, we're its going to continue to be an important business. And Bob, I don't know if that report that was shared by Jack Brennan or the ICI, it was -- a number of us in the industry that did an enormous amount of work with some good-good support from the expertise of the ICI. And I feel really good about the recommendations there. They are very thoughtful. They also were not just as looking at each other across the table, but literally getting out in the marketplace and talking to the issuers of commercial paper, the people that are users of money funds, very-very broad deep amount of work.

And I think I disagree with you a little bit, the commoditization of the money fund business. The fact is it's sort of up the ante (ph). The fact if you are going to be in the business, you need to have a very strong credit capability and so I think at some level, the bar went up in the recommendation and I think the recommendations are very-very thoughtful from a standpoint of minimizing the outlier risk if you want to say; if want a call at that.

So, in summary, I'd say it's a very-very good vehicle. It's a necessary vehicle and it will continue to exists and I personally think with the recommendations that have been put forward the likelihood of capital requirements behind it are, are not very high at all.

Robert Lee - Keefe, Bruyette & Wood

Okay. Great, and may be one follow-up question. Recognizing that it's probably still early in the process and they're going through some turmoil, but are you starting to get any sense from some of the big movements in the broker, dealer world. Whether it's in the Merrill, B of A and Wachovia or whoever; Smith Barney, Morgan Stanley that, trying to get any sense of how things are going to shakeout? Whether you think that's kind of good or bad for you or that they are start into move ahead with making decisions about who is going to be in their preferred list and, things like that?

Martin Flanagan

Yeah. I think, so far I think it is too early. I think all of those combinations are big and important and difficult as they always are. And they are really just getting their line up in order organizationally. So, I think all of us has there is any number of predictions out there of what the outcome is and so I'll leave them sort of speculation on all peoples parts. But I will say probably, stating the obvious the most important thing you can do is as an organization is to have broad deep capability and good relative investment performance and the ability to match off against those organizations and meet their needs and those firms will do fine. But my sense is, the conclusions are still by a quarter two or three away.

Robert Lee - Keefe, Bruyette & Wood

Great. Thanks a lot.

Operator

Our next question is from Jeff Hopson with Stifel Nicolaus. Your line is open.

Jeffrey Hopson - Stifel Nicolaus & Co.

Okay. Thanks a lot. One of your competitors talked about in the U.K. some movement on retail side away from fixed income in the equity. It didn't seemingly have any impact on you guys in this quarter, any thoughts there? And there maybe in Asia give us a sense of what's happening market-by-market?

Martin Flanagan

Yeah, no. I we're not seeing that. Again, the Invesco Perpetual franchise is just very-very strong in the U.K. and has historically been off would for its great performance on the equity income product. But it's broadened into European equity and quite frankly the fixed income team has done a very good job there. So we're seeing flows into fixed income also in the U.K. So, that's been our experience. I can't speak to others experience.

With regard to what's going on in Asia. As you know, we have a strong Asian business. The Greater China business in particular is very strong. The -- our local joint venture in China is still leading -- the third largest joint venture in China. And again, it's somewhat of a similar story to what you're seeing in the United States, as the markets are covered you can sense some recovering in attitudes. Probably the slowest from our perspective is Japan right now, and again I think that's probably an industry-wide situation also. So, our outlook for Asia is continuing to be quite optimistic.

Jeffrey Hopson - Stifel Nicolaus & Co.

Okay, great. Thank you.

Operator

Our next question is from Marc Irizarry of Goldman Sachs. Your line is open.

Marc Irizarry - Goldman Sachs

Oh great, thanks. Can you guys just comment on the performance fees? Just seasonally it looks like the historic over the last couple of quarters -- at least the second quarter has been a historically seasonally stronger period for performances. Can you give us some color there?

Loren Starr

Yes Marc, hi. It's Loren. I mean I think we've certainly seen seasonality in the first and the fourth quarters. I mean those are the quarters that I think we've definitely seen trends in terms of performance, and that usually comes largely from the U.K. investment trusts and again, given the strength of the U.K. business, we saw that again this quarter. I think the off first and fourth quarter performance fees have come from a variety of different places, whether it's from our quantitative strategies group, real estate or Asia, they are much harder to predict.

And so again, I think it is something that we would have a hard time providing any real guidance on in terms of timing. Obviously the markets were extremely volatile in the first quarter. Hard to see where things go in the fourth quarter. Lot of these fees are paid on performance our performance versus the benchmark and has a lot do with how the benchmark is moving and what's driving the benchmark as to whether we've generated performance fee on a quantitative strategy side.

So, I'd say, hard to give you any real forecast as to what to expect in the second and third quarters other than, again I think the first and fourth quarter phenomenon are the ones that have shown up every year I've been here.

Marc Irizarry - Goldman Sachs

Okay. And then maybe Loren, you can just give a little color on the comp line, some of the severance items there. I presume we should consider that's somewhat one time and maybe you can talk about what the headcount reductions were this quarter and your plans for if we do see continued market weakness overtime, over the next couple of quarters, what that means for cost cutting going forward?

Loren Starr

I think, I mean generally I'd point you to the guidance first and foremost Marc, as in terms of what you should expect from us and in that guidance we actually provided a fair amount of detail as to what to expect in the various buckets of expense; employee compensation, third-party distribution and marketing. So, of the 450, I think we guided to roughly 158 million reduction in employee compensation. And then that's really just again straight from what we showed last quarter.

So I'd say that's probably again kind of a starting point where you should expect things to set. We, obviously given the environment in the first quarter, it was a worst environment that we expected at the end of the year. So there was probably a heavier amount of transition expenses that we incurred this quarter, than we had originally provided guidance for. Because we'd originally talked about 15 million of transition expenses as part of our guidance. There was 30 million of transition expenses in this quarter. So, that was more front loaded than we had originally anticipated. So, again I think, that should provide some degree of benefit for us, through the rest of the year but beyond that I'm not sure if we're comfortable sort of telling you, what to expect further on, on headcounts.

Martin Flanagan

And -- Marc this is Marty. If I'd add some color to it. Its rightfully a very specific question, but I think we have to answer in the whole and if you've looked at what we've done over the last three years you'd see a sequential decrease in the number of employees that we've had and that's been a result of the strategic direction of the firm in executing against those efforts. And it is leading with out separate distinct investment management teams and sort of aligning sort of the delivery and service mechanisms behind it, and what you can't see under -- looking at just an absolute number is where, the overall numbers have been coming down over time.

There are areas where we are hiring and we continue to hire. And so, the areas where we think we need to and want to strengthen we're still hearing. So, we're really -- and that's why we went out to give guidance for the context of the whole for the whole year and we think that's different what others have down because again we want you to look it our efforts in total of the strategy that we are executing against. So, I know that's not as specific as you'd like. But again I think the way that we want you -- I don't think you're going to get as clear, total guidance from anybody else as the way that we've given it to you.

Marc Irizarry - Goldman Sachs

No, that's really helpful. I appreciate it. Marty, maybe you can just elaborate a bit more on the differentiation of retail behavior, particularly in overseas, maybe in the U.K. versus what you've seen in other parts of the globe, as the markets have strengthened a bit?

Martin Flanagan

Yeah, it's again, I'd be somewhat careful on the forward-looking type of information. But again for us, just an absolute strength has been the Invesco Perpetual business in the U.K. and it's gotten pretty quite broad in result. Where we have, special leader in Neil Woodford there. But again, it's really the European equity team coming along the fixed income team; very-very strong.

But if you sort of follow that around the world, you're also seeing is confidence is coming back here in the United States and I think we'd probably all in their sense is -- we're seeing people coming back into the markets really through ETS which I think we would probably all sort of say that sort of makes sense. As you're putting your toe in the water. We're seeing that followed by really the historical retail business here in United States gaining some level of -- I don't want to overstate it, but lets call it momentum on the back of that. And we're also seeing that in Asia and in Continental Europe.

So as the markets are coming back, we are starting to see ourselves in some better activity with investors. But again, I think it's -- I think for all us, we don't want to get ahead of ourselves. It's tentative, but I think all very positive signs.

Marc Irizarry - Goldman Sachs

Okay, that's great. And just Loren, just one more if you'd -- technical question on that. The on some of the other gains and losses how big is that portfolio of CLOs, like what's sort of left in that bucket as we look forward with -- how big is that bucket?

Loren Starr

Sure, Marc. After the write-downs, what's left on CLOs is just about 14 million. And other -- kind of the other areas where we've seen some write-downs, we have about 20 million left on seed capitals related to some of the EPS which is where we've seen some of these other write-downs take place in the past. And again, these are non-realized and other than temporary impairments as required by U.S. GAAP. So, the mark-to- market rules did not apply to this type of assets.

Marc Irizarry - Goldman Sachs

Okay. Great, thanks.

Loren Starr

Illusions, yes. Thanks.

Operator

Our next question from Ms. Cynthia Mayer, Banc of America. Your line is open.

Cynthia Mayer - Banc of America

Hi. Good morning.

Martin Flanagan

Hey Cynthia.

Cynthia Mayer

Just a question on PowerShares, it just seemed like in terms of ETFs in 1Q there was a bit of a swing back to active managers for ETFs in terms of flows. And I'm wondering if you see this as a seasonal pattern because of 401(k)s or a reverse in demand or something else. And I guess in general do you expect PowerShares to follow overall ETF trends?

Martin Flanagan

Hard to answer the question but, let's compare and contrast what PowerShares is and isn't. And our as -- our interest in it was if you compare it to some of the other ETF providers they largely are more passive managers, index bonds (ph) that were expressed for ETFs. What PowerShares created was, I'd call it relates sort of further up the risk spectrum and you have to the point now where we're starting to take active ETFs to the market where it make sense. So, the people that you'll see moving into PowerShares are those that are trying to get different types of exposure whether it's sort of a fundamental view to the marketplace and the like so. Again we are positive on PowerShares generally and we think as the market gains some confidence, we expect to see the flows continue to increase in PowerShares specifically.

Cynthia Mayer

Okay. And just some follow-ups on some of the other questions, on the Perpetual flows are those mostly retail or institutional and what's the pricing like on those? Would those effect the fee rate at all?

Martin Flanagan

Yeah. I'll talk about the flows and Loren can -- the fees. It's broadly into unit trusts but you have, a lot of institutional investors within them.

Loren Starr

Yeah. And then so I think it's, it is the industry line we've been selling a quite bit of fixed income in the U.K. and the fee rates are very similar to the equity fee rates there. There may a couple 10 basis points differential but it's a very similar net fee rate somewhere around I think 80 to 90 days basis points.

Cynthia Mayer

Okay. And Loren maybe you went over this but in terms of expense initiatives I guess some of them entail upfront costs and I wasn't really clear on whether there would be some more, of that ahead for instance in this quarter, paying a little upfront for longer terms savings?

Loren Starr

Well again we provide guidance of transition expenses that we felt were important in order to get to get savings and as I mentioned there were 30 million in this quarter relative to our guidance of 15. And again we are working hard to do better than the guidance might suggest and so, I do you think -- there is a potential that, that there maybe more transition expenses that we incur through the course of '09, as we strive to do that. But it's again too early to really tell you exactly and how much and when that would occur.

Cynthia Mayer

Okay, thanks.

Loren Starr

Sure.

Operator

Thank you. Our next is from Mr. Dan Fannon with Jefferies. Your line is open.

Daniel Fannon - Jefferies & Co.

Good morning guys. In terms of the other income, just given the reduced level of activities, is it safe to say this is kind of a low point for that kind of item or is this something we should look at given the continued uncertainty in the markets is kind of a base line for the next couple of quarters? In terms of the revenue -- other revenue.

Loren Starr

Yeah I think again, the other revenue is hard to predict. But given the current market and the fact that there has been really a lack of activity on sales and transactions just generally, I'm not sure if I would predict the market turning around immediately into the second quarter. So, I'd say probably with as much information as you have, I'd say it's probably going to be sort of modest levels along the lines of what we might have seen in the first quarter for and probably the next quarter. But again, it could turn around. So again, it is very hard to predict for us at to when an actual transaction might happen when we actually might sell a property or buy a property or have a transaction take place.

Daniel Fannon - Jefferies & Co.

Okay and then in terms of your guys interaction with the consultants, wondering how that's changed here in light of your improvement on a relative basis in performance across the board and has there been any change in your positioning within the with the consultants and then particularly on the fixed income side?

Martin Flanagan

Yeah absolutely and as I said, we've been out -- spending awful lot of time with consultants and clients also and a couple of things. I mean if you look at the depth and breadth of the investment capability and the performance, it's very-very strong. And so, relative positioning is quite good with consultants. But again, I don't think you can underestimate the value of being a stable institution in this marketplace. And if you just put yourself in a position of consultants or a large institution, the last thing they need to be worried about is their money manager being challenged in this marketplace.

So our stability is affirm and our ability to having so far dodge these bullets has served us very-very well. And again, I -- you don't want to we'll claim success after it happens. But from a leading indicator point of view. I think our relative position has improved quite dramatically with the consultant community again; which is great.

And on the fixed income side, we are very -- have historically been very-very strong and said that two ends of the curve, the cash side and that scenario where the consultants are getting very-very involved where they had not been historically. So we'll do well there. Then also adjust our capability and -- certain bank loans, in the light that is the area of interest in the risk spectrum and quite frankly, we have some real strength in the global fixed income capability where we're getting interest and also very-very much in mortgage related capabilities and that is an area where we think there is a great opportunity, not just in the marketplace but also for us. And we're going to be working very-very hard to be successful there.

Daniel Fannon - Jefferies & Co.

Great. Thank you. That's helpful.

Operator

Thank you very much. Our last question today is from Roger Freeman with Barclays Capital. Your line is open sir.

Unidentified Analyst

Yeah Hi. Good morning, its Steven here for Roger. Just wondering a little more about the fee capture rates, I appreciate the slide you provided. And wanted to know if there was anything underlying that was more kind of permanent in nature such as perhaps fee pressure or anything like fee waivers given the growth in many markets. Any kind of color in terms of underlying trends here would be helpful. Thank you.

Loren Starr

Yeah Steve, I mean good question and I think we're happy to say no. There is nothing fundamentally that's changed in our business. We did provide some detail around the fee rates for the different products and noted -- I mean these are the net fees. So, no pressure on fee waivers, no pressure on extra -- I mean no more than the usual on the distribution expenses. What really took place in the quarter finally in terms of the impact was the drop-off in other revenues and performance fee is hard to predict. They can come back. It's really just a function of what's happening in the portfolios on a particular quarter. And then the mix which is really being driven by the equity markets. To the extent equity markets will rise and some of our ROC equity assets will rise as well. And so, this slide should probably give you a better tool for forecasting what you to expect in terms of our net revenue yield quarter-over-quarter.

Unidentified Analyst

Okay, that's helpful. Thank you and then just wanted to talk a little bit more about fixed income. Can you talk in terms of what sort of initiatives, additional initiatives you're doing in terms of more core type products and you talked about the cash and the bank loans and more of the specialized products. But what about more of the core fixed income offering please? Thank you.

Martin Flanagan

Yeah, I know. As I said our real strength there and right now, again we have applied to be one of the PPIP managers. We are -- we think the depth and breadth of our capability from security side through the whole loan side through well ROCs (ph) capability there is really very-very strong. We have actually filed in January a -- two active fixed income ETFs of around mortgage related securities. Again it's still in the registration. So, it's in the marketplace but, again it's very reflective of our capability there. And our relative investment performance on mortgage related portfolios is very-very strong. So, it is in an area that we are spend -- going to be spending an awful lot of time in the marketplace.

Unidentified Analyst

Okay. Thank you.

Operator

As I have no further questions, I'll turn the call back over to Invesco management.

Martin Flanagan

Thank you very much. I want to thank everybody for their time. And again I think we're all happy to look back on this very-very difficult environment. But looking forward again just hitting the highlights, strong relative investment performance, net in flows for the quarter. We think we delivered very strongly only those things that we can control within the organization and again all the changes that we are making. We feel very strongly that they've been strategic in nature and strengthening our business. So, as we look forward we have an optimistic outlook and we just need a little wind in our backs from the marketplace all of us and I think we'll be doing an awful lot better. So thank you very much and have a good rest of the day.

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Source: Invesco Q1 2009 Earnings Call Transcript
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