Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Martin Flanagan – President and CEO

Loren Starr – CFO

Analysts

Ken Worthington – JPMC

Robert Lee – KBW

Michael Kim – Sandler O'Neill

Craig Siegenthaler – Credit Suisse

Glenn Schorr – Nomura

Cynthia Mayer – Bank of America

Daniel Fannon – Jefferies

William Katz – Citi

Michael Carrier – Deutsche Bank

Marc Irizarry – Goldman Sachs

Brennan Hawken – Collins Stewart

Roger Freeman – Barclays Capital

Jonathan Casteleyn – Susquehanna

Jeffrey Hopson – Stifel

Invesco Ltd. (IVZ) Q3 2010 Earnings Call Transcript October 25, 2010 9:00 AM ET

Unidentified Participant

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, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, AUM, acquisitions, debt and our ability to obtain additional 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, intends, plans, estimates, projects, forecasts, and future or conditional verbs such as will, may, could, should, and would, as well as any other statement 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 statement and urge you to carefully consider the risks described in 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 Invesco’s third 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 at this time. Now, I would like to turn the call over to the speakers for today, Mr. Martin L. Flanagan, President and CEO of Invesco, and Mr. Loren Starr, Chief Financial Officer. Mr. Flanagan, you may now begin.

Martin Flanagan

Good morning and thank you, everybody, for joining us today. This is Marty Flanagan along with Loren Starr, as was just pointed out. Loren and I will be speaking through the presentation that’s available on our website if you’re still inclined to follow along.

What we’ll do today is, I’ll highlight the business results and we’ll spend a few minutes just on the current update on the combination with Morgan Stanley/Van Kampen – the combination that we just closed in June, and then Loren will go into greater detail on the financials, and then finally we will open up to Q&A.

And so those that are inclined to follow on, I’m going to start on page two of the presentation deck. So if you look at the quarter in spite of the continued volatility that we saw in the markets, Invesco’s commitment to investment excellence really did yield a strong quarter with continued strong investment performance across the enterprise. It remained very strong and with some arrays of the exceptional performance. The strong investment performance contributed to a continued trend of positive long-term inflows into the organization.

And as many of you know, not all of you, on June 1, we completed the combination with Morgan Stanley/Van Kampen retail asset management business. And our goal from the day we announced the transaction was to complete the integration work prior to the close. And thanks to the tremendous amount of effort on everybody’s part, we accomplished that goal and we are able to deliver the value of the combined firm on day one as we referred to it.

And now, since we’ve completed it, we’ve now had a full quarter of the combined organization together and we are seeing strong momentum of that combined business. I’d also like to mention, during this third quarter, we resumed our share repurchase program and purchased 6.4 million shares at the value of about $127 million.

Later in this presentation, Loren is going to give some insight into our capital management approach. And also I’d like to note that Standard & Poor’s increased our enterprise risk management rating from adequate to strong. Invesco is now one of four asset managers with a strong rating.

So if you take a look at slide three, assets under management ended the quarter at $604 billion, and that compares to $557 billion at the end of the second quarter, reflecting the improved markets and also strong momentum in our combined business.

Adjusted operating income for the third quarter was $245 million, an increase of 30% quarter-over-quarter. And long-term net inflows for the quarter were $4.9 billion, continuing the positive trend we’ve demonstrated over the past several quarters. And consistent with the second quarter, we will provide third quarter dividend of $0.11 per share. And again, Loren will go into much greater detail of the financials in just a moment.

If you take a look at the quarter at flows on page four, you will see the strength in the third quarter gross sales led to continued positive momentum in our long-term net inflows. As I mentioned earlier, the long-term net inflows for the quarter were $4.9 billion. This represents the seventh consecutive quarter of positive inflows for Invesco.

And if you take a look on slide five at the gross sales, gross retail and institutional channels, they continued to contribute positive net flows to Invesco overall. And also, if you look at the private wealth management segment of the business, it continued to experience consistent asset growth quarter-over-quarter, and we’ve seen net inflows for the past three years in the private wealth management business.

And if you take a look at investment performance for the group, it’s just, I’d say, one of the key reasons for the enhanced strength and stability of flows that we’ve seen over the past seven quarters. And if you look at the enterprise, 78% of the assets were ahead of peers on a three-year basis, and that compares to 71% one year ago. So, continued improvement in strength and consistent good long-term performance. And again, the detailed charts of performance are in the appendix, if you’re so inclined.

I would like to take a minute just to highlight some of the pockets of exceptional performance. And starting with the long-term investment performance that Invesco Perpetual remains just outstanding with more than 90% of the assets in the top half of peers over one, three and five years. We continue to see improvement in Invesco Trimark with 81% of the Canadian equity assets in the top half of peer groups on a three-year basis and 65% on a one-year basis.

Our global fixed income capability continues to achieve outstanding performance with 90% of the assets in the top half of peers on a one-year basis and 86% of assets in the top half of five years. Invesco Real Estate maintained a strong competitive position with 99% above benchmark for three years and 92% of benchmark across five years, really just outstanding performance. And Morningstar ratings in the US retail business remain near the highest levels since October 2000, with 58% of the US retail assets rated four or five stars.

So I’d like to take a few minutes in just brief everybody on the momentum we are seeing in the combined business and on page nine, just a couple of the highlights. As I’ve mentioned, we are very pleased to report that we are fully integrated with minimal transaction issues. And from that period, it’s been really supported by an intensive pre-close training effort, which we discussed previously.

Now, retail sales force has been actively engaged with clients and we are seeing steadily increasing momentum in that business, a relevance as a top-10 US fund managers really enhancing Invesco’s profile in the marketplace and it’s helping us gain greater access to top platforms and driving new business. And the Phase II work of rationalizing our product lineup is on schedule.

So if you take a look at page 10, at the time of close last quarter, we told you what we had accomplished at the close. And it would not have happened without the tremendous amount effort on both sides, both Invesco and Morgan Stanley. And that was an important milestone. But really, let’s spend a minute on what’s the progress since the close. And we’ve made steady progress building the combined business across three broad areas; clients, operational excellence, and employee engagement.

And most notably, the US retail asset flows were on target and growing. We continue to enhance our profile on key platforms. We are actively engaging clients with business plans with each client and deeper coverage teams aligned against them. Our product realignment efforts are on track, and we achieved our expense target that we laid out at the beginning of the combination. Loren will discuss that more. And most importantly, we have a strong, engaged, stable investment management team in place, producing strong results for our clients.

So if you take a look at page 11 and give this greater focus in your minds, we’ve highlighted from the initial announcement of the combination with Morgan Stanley/Van Kampen that it was highly complementary to Invesco’s existing capabilities. And if you look at the two organizations pre-close, you can get a sense of the product mix and we know Morgan Stanley/Van Kampen was very complementary in specialized fixed income and equity.

You can see the vehicle mix here. And post the close, you can look at the long-term business in the United States as ETF/UIT has been 31%, mutual funds 44%, and DC and insurance 25%. And the point is, in a really challenging US equity mutual fund environment, the diversity provides real balance and clear benefits, not just for the clients, but also for the business.

And if you look at page 12, you can see what happened post-close. We continued to see solid momentum in this US retail business, I guess, driven by the strong investment performance, the client focus and the engagement. But what you will note is the incremental impact of the combined organization is clearly positive.

And so if you look month-over-month pre-close and post-close, what you will note is the trend month-over-month of increased gross sales. And you will see that, post-close – the punch line is this – average monthly gross sales are up 40% and the average monthly redemption rate has declined 12 percentage points, which is really quite amazing that I’d be kept within the context of the flash crash in May, which was very pronounced here in the United States. So that would be the early results of the combination. I’d still say we are very early in what we expect out of the combination, as we look forward.

The other thing that we’ve seen is we continue to expand our presence on key client platforms. There has been a 240% increase to the platform placements since the month of June so that a number of funds are being put in a preferred rating with the different platforms. And again, we just continue to see growing interest in activity with the business.

So our view is that, right now, we are on track – very, very much on track, and we think more good things to come. And just to bring you up to speed on where we are, slide 13, really Phase II of the integration, it’s really just a very, very sharp focus on the product offering for our clients. We anticipate this process to be done six to nine months after the September 30th close. We are well into the effort of seeking approval from the fund board to ultimately fund shareholders, but that process is on track and moving forward.

So I’m going to stop there and hand it over to Loren.

Loren Starr

Thanks very much, Marty. Basically, during the quarter, our net long-term flows provided $4.9 billion in AUM. Market gains provided $34.4 billion FX added $8.2 billion. And then acquisitions net of disposition added $1.7 billion. These increases in AUM were partially offset by net outflows from money market funds of $2.4 billion, but the increase in AUM quarter-over-quarter was $46.8 billion or 8.4%, resulting in the ending assets of $604.5 billion.

Our average assets under management actually increased more strongly, 21.4% to $583.3 billion. And this was primarily due to three full months of the Morgan Stanley/Van Kampen asset management business in Q3 as opposed to only one month in Q2. Our net revenue yield in Q3 was 48.5 basis points, down only slightly quarter-over-quarter.

Now let me turn to the operating results. The quarter-over-quarter variances in P&L that you are going to see are largely due to the two additional months of the Morgan Stanley/Van Kampen retail asset management business in Q3 versus Q2. Net revenues increased $118.1 million or 20.1% quarter-over-quarter. The acquired business accounted for approximately $96 million of this increase, while favorable FX rates added about $8.1 million.

Now going down a little more deeply into that, you will see that investment management fees grew by 14.7% or $95.7 million. And again, that was driven mostly by the contribution of the acquired business. FX contributed $11 million while the Morgan Stanley/Van Kampen business contributed approximately $74 million. The remaining management fee variance of $10.7 million was due to the positive impact of the markets on AUM relative to the second quarter.

Service and distribution revenues increased by $52.2 million or 37.4%, with the acquisition accounting for about $50 million of this variance. Performance fees declined $1 million to end at $2.5 million. Other revenues improved by $16.9 million relative to Q2, again driven largely by the two months more of the Van Kampen business in Q3. $14 million of the $16.9 million favorable variance was a result of new UIT issuance, which continues to run at a higher level than initially expected. Remaining $2.9 million increase is due to greater retained front-end loads as well as due to transaction commissions from our real estate business.

Third-party distribution, service and advisory expenses, which we net against gross revenues, increased by $45.7 million, with the VK-MS acquisition contributing approximately $42 million of this and FX adding the remaining $3.9 million.

Moving down the slide, you will see that our adjusted operating expenses at $451.3 million, increased by $61 million or 15.2%. FX accounted for $5.4 million of this. The remainder largely being explained by the acquisition.

Employee compensation expenses increased by $37.6 million or 14.5% versus the second quarter. The acquisition contributed to the majority of this variance. So we also had an increase in variable compensation, primarily bonus and sales commissions in line with improving operating results and sales. And furthermore, we recognized $3.4 million of severance costs in Q3, which was $1.4 million less than what we recognized in Q2. And FX increased compensation expense by $3.7 million.

Marketing expense increased by $9.6 million or 27%, again largely due to the acquired business. Property, office and technology increased by $7.8 million or 13.8%, again for the same reason. G&A expenses came in at $54.3 million in the quarter that was up $6.0 million versus the second quarter. FX added about $0.7 million while the remaining $5.3 million in expense variance was explained equally by the impact of the acquisition as well as a variety of other non-acquisition related G&A expenses in the quarter.

Continuing on down the page, you will see that our effective tax rate on pretax adjusted cash net income in Q3 was unusually low relative to the other quarters, 23.1%, and in comparison to 29.3% in Q2. If you remember, however, this is in line with what happened in Q3 of 2009, and it’s a function of our releasing the FIN 48 provisions for uncertain tax position.

What I would tell you is that going forward this pattern of slightly lower tax rates in Q3 should subside, as we don’t expect to be releasing similarly large provisions in the future. For Q4 2010, I’d say that we expect our effective tax rate on an adjusted basis to return to a more normalized ongoing level of about 29% to 30%.

Before I move from the slide, I’ll just point out that our adjusted EPS came in at $0.39 and increased 44.4% versus Q2. And our adjusted net operating margin was 34.8% improvement of 2.8 points versus Q2.

So let me now shift gears. I’d like to provide an update on our progress towards achieving the cost synergy that we discussed. Moving to the next slide, distinct from most other large transactions you’ve seen, we did take on imperative to fully integrate the business essentially day-one at the closing of the deal. While that’s a difficult challenge, it did set up the possibility for us to generate full cost synergies very quickly.

As we mentioned in our Q2 release after we closed the acquisition and simultaneously integrated a business, we’d no longer be able to track the Morgan Stanley/Van Kampen business expenses separately from Invesco’s. With that in mind, it is still possible to demonstrate what we – we are delivering the promised expense synergies.

Our original estimated cost synergies of $80 million to $85 million in year one, I’d point out, were net of $15 million of reinvestment in marketing for a US retail business. So excluding the impact of incremental marketing investment, the comparable growth year-one cost synergy expectation is $95 million to $100 million.

And the reason I’m saying this is, given the requisite lead-time and planning, we’ve not yet begun investing the incremental $15 million in marketing. And so we do expect to begin the investing at the end of 2010 or early 2011, with a pace of spend at roughly $3.7 million per quarter. But what that means is that for the Q3 results we discussed with you today, we would want to see growth, annualized run rate synergies in the $95 million to $100 million range and not the $80 million to $85 million range.

So, on this slide, we can demonstrate that we fully achieved the targeted annualized run rate of $95 million to $100 million of gross cost synergies, with the one caveat that it’s not a precise method since post-integration. As I’ve discussed, we’re not able to track the MS-VK expenses separately.

Let me take a moment to explain this table. Column A on this table shows two times the adjusted one month of operating expenses that the VK-MS acquisition contributed in June 2010. And we showed in the second quarter release. You will recall that we provided – Column A, excuse me, represents the expected Q3 versus Q2 expense variance due to the acquired business assuming no further cost synergies were created relative to the June results.

Column B on this table details our activity that contributed to Invesco’s quarter-over-quarter variances, but were unrelated to the VK-MS and US retail business. And that includes foreign exchange and other identifiable variances such as severance, as I discussed, from our re-tooling of the US institutional sales force, increases in variable compensation, another known expense items for Invesco specifically.

Column Company is the sum of A and B, and they represent the hypothetical Q3 versus Q2 expense variances, assuming no additional run rate synergies created during Q3 relative to the run rate imbedded in June. So essentially, it assumes that in Q3 we operated the MS-VK business as in the same way we did in June.

And Column D is the actual quarter-over-quarter adjusted operating expense variances results for the firm. So if you take the difference between D and C, that’s what you will find in Column E. That represents the incremental cost synergies we achieved during the third quarter relative to the second quarter, and Column F is purely the annualization of Column A.

So taking it all that in summary, subject to the caveat I mentioned earlier, this does show that we achieved an incremental $45.6 million in run rate annual cost synergies during Q3. If you add this to the $51 million, which represents the annualized run rate synergies we calculated in June, we delivered a total annualized run rate of $96.6 million in Q3. And this amount is square within a one year target of $95 million to $100 million in gross cost synergies, which of course exclude the impact of the new marketing investments.

So again, a little bit of complicated table, but I hope it gives you comfort that we’re on track to deliver no less than what we projected in year one. And as we discussed, we would expect to deliver at least another $10 million in savings at the end of year-two after the US fund range product rationalization has been completed.

So with that, let me take a moment to turn to the next slide and talk about our capital management. So our priorities remain consistent, no surprise. We will first look to reinvest our cash flow back in our business, followed by making acquisitions that they make strategic and financial strength. Thirdly, we wish to provide and moderately increasing dividend every year, approximately 46% annual growth. And then fourth would be opportunistic stock buybacks.

We’ll continue operating capital priorities against the foundation of maintaining a strong balance sheet. In reality, post financial crisis is that our client and consultants require investment management firms that they work with to have a strong financial profile. In addition, for Invesco a strong balance sheet provides us with the flexibility to take advantage of strategic opportunities that could arise in future. Therefore, as we discussed in the past, our priority is to decrease the incremental leverage we took on at the close of the Morgan Stanley-Van Kampen transaction and pay off the $650 million of borrowing that’s drawn on a credit facility.

So, despite this, we also told you not to assume that our hands are completely tied with respect to buying back stocks. And given where the stock was trading during the quarter coupled with our normal practice of eliminating dilution from deferred equity compensation, we did undertake to buy back 127.7 million stocks equating to 6.4 million shares at an average price of $19.82. And so, as you saw this last quarter, we will continue to maintain an opportunistic stance with respect to stock buyback.

So let me now turn over to Marty.

Martin Flanagan

Thank you, Loren. Loren and I are happy to answer any questions anybody might have.

Question-and-Answer Session

Operator

(Operator instructions) Our first question does come from Ken Worthington of JPMC. Your line is open.

Ken Worthington – JPMC

Hi, good morning. Couple questions on distribution. What kind of impact are you noticing thus far from LPL and Edward Jones in terms of retail sales? And then talk about the wholesaling effort there. And then separately on Van Kampen, you have been talking about elevating Van Kampen on various platforms. How is that going?

Martin Flanagan

Yes. So just with those two organizations, obviously very, very strong organizations. Edward Jones continued to just be very strong. And probably the reason is, as we match it up against Edward Jones, there were the fewest changes. Right? So the leadership on our side had not changed. The wholesaling forces really did not change at all. So we just continue to move forward from that point of view. So it continues to be a very strong relationship. And as we mentioned earlier, there’s a broad – a broader array of products now that Jones has put on their platform and from I'll call the traditional Invesco part of the business. LPL, we are a preferred partner right now, and literally just completed – it is a – as you enter into new relationships like that, there has been a broad effort, and I’d say, earlier days, but one of the highlights is that we completed, what they call, sort of a client engagement plan and they received the top marks within their system. So again, I’d say that’s early days, but we expect that to be a very strong relationship going forward. And Ken, I’m sorry, what was the third – last one?

Ken Worthington – JPMC

On the Van Kampen side, in discussions with platforms like Merrill Lynch and UBS to elevate the Van Kampen status there, how is that going? And I guess, over what time period do you think that starts the season? Is that multiple quarters? Could we see something from either LPL or Van Kampen 4Q, 1Q, or do you think it takes longer than that?

Martin Flanagan

I think – so again, much of what I talked about earlier, I call them sort of leading indicators. Right? So the broadening of funds on platforms is, I think, prerequisite for ultimate success. And as I mentioned, that just improved quite dramatically. So Van Kampen on to some of the platforms that were less strong on, that is going very, very well. And if you look at the performance in the key areas, the US value in particular and the broader muni bond platform that we have now, very, very strong. I don’t think you are going to see – I think where you are hopefully going, Ken, you know, what kind of flows you’re going to see, it’s all going to be fully dependent upon really when do investors start to look to that US value equity is an asset class.

And what I do feel when that starts to happen, we’re going to participate very, very nicely because it’s just a very strong track record. And so I personally think, Ken, this is a multiple quarter effort. And the other reality is that if you look at the performance, if you look at the depth and breadth of the organization of platforms that are being accepted and the funds on to the different platforms, that’s very, very good. We still have some work to do. We are a new name in the retail channel. I mean, that’s a fundamental fact. So, as I’ve said, if you put us against a firm that’s been operating with a single name for 15 years in the channel, that will run ahead of us out of the box. But I’d say we’re making very, very good progress, along the way to be a very, very important partner.

Ken Worthington – JPMC

Okay. Thank you. And then for Loren, in the press release, you break out net revenue yield before performance fees. Based on the world at September 30th, so based on FX, equity markets, sales, et cetera, how does that yield look next quarter? Does it kind of start to cheat up? Does it cheat down? Can you just help us in direction there?

Loren Starr

The biggest driver of that will have to do with performance fees. But you’re saying ex-performance fees.

Ken Worthington – JPMC

Yes.

Loren Starr

It will generally move up with equity markets. So I would say, given the fact that assets are somewhat higher, we will have that. Obviously, UIT and Passive could change a little bit of the mix, but I’d say generally, with equity markets where they are and FX contributing, it should move marginally up.

Ken Worthington – JPMC

Great. Thank you very much.

Martin Flanagan

And I’m just going to add one more comment to Ken’s question just to make the point. And as I was talking about, if you look at pre and post-close, average gross flow has been up 40%, which is quite, I think, dramatic in light of the markets we are in and also the redemption rate dropping 12 percentage points. But it’s really this broadening on the platforms and keep the client platforms. And since June, we’ve seen a 250% increase. Right? So that’s the number of products that are being put in preferred positions on platforms. So that’s a very, very good start, but again, I don’t think we’re going to be satisfied until we get probably through next year.

Ken Worthington – JPMC

Thank you.

Operator

Our next question does come from Robert Lee of KBW. Your line is open.

Robert Lee – KBW

Great. Thank you. Good morning, guys.

Martin Flanagan

Hi, Rob.

Robert Lee – KBW

A couple of quick questions. First, just looking at compensation cost, I’m just curious, I mean, putting aside the transaction, I mean, are you seeing any kind of leading or building pressure on comp costs? You’ve had – the revenues have come back, earnings have come back, performance is good. I would assume that for a lot of teams across the globe maybe expectations are starting to kind of creep up again and competition for people. Are you starting to see any kind of pressure there globally?

Martin Flanagan

I think – the reality is we have a very consistent competition philosophy in it; very, very clear plans in place that sort of match performance and results around the investment teams to compensation levels. And so, as the performance continues to improve and as the business does better, our mechanism is such to reflect that. But I’d also say we are very consistent. Because of that during the downturn, we had the ability also to use Invesco stock and the products that the investors invest in as long-term deferrals. So I think our mechanism is very, very good and very consistent. And again, I think you have to go back to – because we had got through these things, I think surface involved during the downturn and it will put us in a position to continue to report results and – but I think the reality is that we do better, so will, not just our shareholders, but also the organization.

Robert Lee – KBW

Okay. And next question, in understanding that a month does not necessarily make a trend or so. But could you talk a little bit about what you are seeing in the new business trends broadly breaking out institutional versus retail? I mean, since the end of this summer, you’ve had the market come back. Any signs in the retail end? There is starting to be a little more activity. And then institutionally, I mean, how or where do you characterize kind of the strength in the RFP activity?

Martin Flanagan

Maybe I’ll a couple comments and Loren can chime in. I think you have to look at the world in different ways. And funneling enough, I think the US retail world was uniquely impacted by the flash fashion. I think you saw that across the, which, Robert, you talked to, some of the investment banks with distribution. I mean, it just literally went on strike. And so you saw that. And I’d say, what you’re starting to see right now is, in mutual funds, and I think that was the area that was most impacted, mutual funds in particular, starting to get some confidence coming back a little bit in investors from that point of view and probably ultimately moving up the risk curve a little bit as people preferred to taking on risk. But I'd still say it's early. Where you did see it and what we saw, very much going into UITs, and ETFs and that was a real positive, I'd say for us and you probably saw that across the industry.

But if you go to different parts of the world, whether it be Asia or Europe or the United Kingdom, we had inflows – retail inflows in each of those areas. So it was not as impacted as the United States was. If you look at the institutional pipeline, it just continues to grow. And for us, the mandates tend to continue to be very strong real estate. There's going to be very strong stable value, also some asset allocation capabilities that we have premium plus are really getting high degrees of interest. And so I'd say that's still a little more conservatively positioned than what we are seeing in the retail side of the business. And you do have some consultants that are actually very focused on fixed income and really limiting exposure to the equity market. And we can all pass our judgments whether or not we think that's the right asset allocation, but I suspect we're a lot (inaudible) to have some people moving towards the equity side of the business.

Robert Lee – KBW

Okay. Maybe one last question. I guess, to some degree, kind of money funds have kind of popped up a little bit again. I guess the President's Council issued their report late last week. And I guess one of your peers decided they are going to take in a small charge to kind of top-off some money funds in advance to having to report shadow NAVs on a delayed basis. I mean, any preliminary reports or takeaways from the President Council's report and have you could be impacting or think about your money fund business? And then, I guess the second thing would be, would you see any need to a little top-off of money funds similar to what your competitors did?

Martin Flanagan

Right. So, first of all, I'd say from an industry point of view, the President's working group’s comments and we are very consistent I think with what the industry was expecting to come out of it. From an industry perspective, we think we did a very, very good job in the first round of changes to money funds, and we think we have a very, very, very thoughtful next phase through the liquidity bank, which we think creates again a very compelling product as time goes on. So, at an industry level, I think, we're heading very much in the right direction. With regard to our own money funds, we don't have any – we haven't had any problems with our money funds. They are very well run. We didn't have any downgrades of credit. We didn't have SIVs, none of those types of things. So it's probably those firms that had SIV-type exposure that might be having to look to do some top-ups and we don't have to do that. So from a specific company point of view, we are in a good spot.

Robert Lee – KBW

Great. Thanks for taking my questions.

Operator

Your next question does come from Michael Kim, Sandler O'Neill. Your line is open.

Michael Kim – Sandler O'Neill

Hey, guys, good morning.

Martin Flanagan

Hi, Michael.

Michael Kim – Sandler O'Neill

First, just a follow-up on some of your comments earlier. In terms of pension plans, maybe increasingly looking to immunize their liabilities, I guess, the two takeaways that maybe are in play here, just first being that we could see a more permanent shift in favor of low risk mandates, but then at the same time, maybe we see a step-up in contributions, just given the fact that a lot of these plans are still meaningfully underfunded. So just curious to get your take on that dynamic and then how that could potentially impact your business.

Martin Flanagan

I think we can make some broad comments, but the fundamental fact, it's got be company-by-company because they are all in different spots. And the notion of immunizing your portfolio at the bottom of the market cycle to meet doesn't seem very wise. So the combination of some firms that are able to get contributions, which we saw just in the last week or two, we saw some of those, I personally believe you're going to see some equity exposure go against that is very hard to close that gap by immunizing your portfolio just mathematically, you can't do it. But that doesn't mean that you won't see some firms that are fully funded or close to it that would take some risk off the table by immunizing their portfolio. So the reality is, well, I think we're all of us see where we see retirement growth, it's going to be in the DC world, but there is a tremendous amount of assets in the DB world right now. And I still think the merits of a well-balanced portfolio to deliver results are going to make sense. And maybe once funds or fully funded and they can offset the liability, you will see a massive immunization trend. But I personally can imagine that right now, considering the market cycle we came out of and one that we're likely to go into.

Michael Kim – Sandler O'Neill

Okay. And then kind of maybe turning to the retail side of the story, as we look across the industry, it does seem like flows remain pretty concentrated and a relatively limited number of products that either have strong performance or maybe are filling a particular strategy. What are some specific funds at Invesco that you think can really become market share leaders going forward if and when we do get this reallocation back into equities?

Michael Kim – Sandler O'Neill

Yes. Maybe why don't I do it by category instead of fund-by-fund? I mean, I think the fundamental fact, as we’ve pointed out a few quarters ago, and if you are asking specifically about the United States, our equity lineup is very, very strong. And if you look at the US value, US core international growth, it's about a competitive as you are going to find out there. And if you look within our fixed income lineup, the muni bond lineup, we think, is very, very strong. The bank loan group is very, very strong. Those are the things that are probably going to continue through a market cycle. I think many of us would be expecting probably pressure on tax rates, which make muni bonds attractive and bank loans, and high yield is another area where we are quite strong. I think even in this rising interest rate environment, they will continue to be attractive. So the broad categories, I think, we line up very, very nicely. And if you look at the growth lineups, small-cap growth is very strong. And large-cap growth, we actually have more recently added a very strong growth team leadership and feel very good about that also. So it is broad.

Michael Kim – Sandler O'Neill

Okay. And then maybe just a final question for Loren. It seems like you've had a nice balance here in margins and you are kind of running just shy of maybe the 35% to 40% range that you've talked about in the past. So assuming – we continue to get cooperative markets, it seems like you got some tailwinds here whether it's an improving mix or further efficiencies and just kind of natural leverage in the model. So, do you feel like you can get closer to kind of the high end of that range maybe a bit quicker than you might have expected previously?

Loren Starr

I think, Michael, again just to say, we don't have any specific margin target. So we will obviously move in line with equity markets and general markets. But I think the reality is that the – clearly you saw the impact of the acquisition was very helpful for improving margins and the idea that we could be in the high-30s in short period. It seems quite feasible if we maintain sort of levels of assets where we are today. So again, I think it is certainly in line of sight for us.

Michael Kim – Sandler O'Neill

Okay. Thanks for taking my questions.

Operator

Your next question does come from Craig Siegenthaler, Credit Suisse. Your line is open.

Craig Siegenthaler – Credit Suisse

Thanks. Good morning, everyone.

Loren Starr

Hey, Craig.

Craig Siegenthaler – Credit Suisse

Just a follow-up on Michael's last question on the expense reductions. How big of a driver is the fund mergers in 4Q and 1Q relative to the future expense synergies? Is that base (inaudible) of it?

Loren Starr

Craig, there is no real expense reduction in 4Q and 1Q due to the mergers. The mergers will actually take place sometime – well, it could be the end of first quarter, sometime in the second quarter. We said there is an extra $10 million of expenses that would come out at that point in time, but all of the expense reductions that you've seen to date are really a result of just the taking on the business on our operating platforms and facilities and all the things that we've talked about in the past.

Martin Flanagan

Just on the timing point of view, it seems it would be very late first quarter. I think it should probably be more likely first half of second quarter, but again, the reason why we can't be more specific as we last time, I mean, there's multiple approvals and probably the hardest one that takes least predictable is the individual shareholder approvals.

Craig Siegenthaler – Credit Suisse

And then with the timing there, should we really think about that $5 billion of kind of net redemptions driven by the kind of the product mergers here? Should that really be a 1Q and 2Q event and not really as much a 4Q event?

Loren Starr

Craig, it depends again on when ultimately we get approval for the transactions that are being proposed. If they are accepted by the fund boards, there actually would be information out this quarter through the (inaudible) of the funds that would perhaps begin some of the outflow at that point. So it could be somewhat in the fourth quarter as well.

Craig Siegenthaler – Credit Suisse

And then, were there any Wilbur Ross Fund V flows included in the third quarter?

Loren Starr

No, there weren't.

Craig Siegenthaler – Credit Suisse

Okay. All right, great. Thanks for taking my questions.

Martin Flanagan

Thanks, Craig.

Loren Starr

Thank you.

Operator

Glenn Schorr of Nomura, your line is open.

Glenn Schorr – Nomura

Thanks very much. Just two quickies. One is just the reminder on the geography of cash, US versus UK, and how that plays a role in your detailed cash management update slide in terms of buybacks, pay-down of credit facility and such.

Loren Starr

In terms of the firm’s cash, yes. So in terms of the firm’s cash, we had about $460 million of cash in the European – what we call the European subgroup. It's not just the UK. It's really cash that can be used throughout Europe out of the total of 664.

Glenn Schorr – Nomura

Got it. So when we think about credit facility or buyback, it's really coming at the net of those two, correct?

Loren Starr

The 204, which is the FX, is available for that type of activity. Correct. Plus the cash flow.

Glenn Schorr – Nomura

Right, plus future cash flow, right. And then Loren, just maybe just one other numbered question. What do you have in the way of funds or assets under management with performance fees attached? And is fourth quarter the bigger strike date or is that first quarter?

Loren Starr

The total amount of assets under management with performance fees is roughly $20 billion to $25 billion. It's probably closer to $20 billion. The fourth quarter, first quarter phenomenon that you've seen in the past in terms of performance fees had typically been driven through the UK. I think we've said in the past that we weren't expecting performance fees in the fourth quarter from the UK. And again, it's a point-in-time calculation. So it's something that we typically find very difficult to forecast. And so I would still suggest to you that you should not assume that we are going to see anything large coming from the UK in the fourth quarter. There may be some performance fees from some other parts of our business coming in the fourth quarter, as we've always seen some parts of the business having some level of performance fees, but probably nothing dramatic.

Glenn Schorr – Nomura

Okay. I’m good. Thanks, Loren.

Loren Starr

Yes.

Operator

Cynthia Mayer of Bank of America, your line is open.

Cynthia Mayer – Bank of America

Hi, good morning. I'm wondering if you could give a little color on the other revenues. Maybe give a breakout of what that was. Was there increase versus last quarter, the two extra months of UIT fees and FX, or was there something else in there?

Loren Starr

Cynthia, the total increase in other revenues was $16.9 million. And of that, again, there is – $14.4 million was a result of new UIT issuance. Now, if you remember in June, there was $5.5 million of UIT revenues. Okay? So the $14 million difference is showing that we are at a much higher run rate than we were at June. But it was really driven by – the $14 million driven by UITs, and there was $2.9 million that was a result of a more traditional Invesco-related business, real estate transactions, and front-end loads.

Cynthia Mayer – Bank of America

Okay. And since the UIT issuance is running at a higher rate than you expected, what is driving that and what's your outlook for that? How profitable is that business?

Loren Starr

I think – again, it’s being driven by, I think, interest in the product itself, which is tax efficient, very transparent. It is one of these products that I think appeals to many individuals who are looking to buy and hold. And it is something that I think we've seen the expansion of UITs go beyond where they traditionally were within the Morgan Stanley network, as they have sort of become part of the broader Invesco network. And so I think that's another contributing factor to the success. But they are a leader in the industry, and it is something that I think we feel that we can do a lot with. Fixed income has been a very big part of the interest in the UIT side, you know the Build America bond piece, but interestingly, and more recently equities have been factoring into that mix as well now.

Cynthia Mayer – Bank of America

Great. One more question. Can you update us on the outlook for acquisition-related outflows and give us a sense of what impact they had this quarter and what flows would have been without them?

Loren Starr

Right. Well, Cynthia, we would say that the acquisition-related outflows are going to really be a function of the product mergers and the announcements of the product mergers, which have not happened yet. So we would not attribute to any of the $5 billion that we had originally discussed to this quarter or prior quarters. We think the $5 billion is still a number that we are guiding people to, that would take begin once the information is out there. We're still hopeful that it's less than that, but given kind of our analysis, we think that $5 billion could be the case. So we think that would be centered around the fourth quarter, starting in the fourth quarter, assuming the approval takes place and continuing on to the first and the second quarters of 2011.

Cynthia Mayer – Bank of America

Great. And finally, can you tell us what there was in the way of fee waivers in the quarter and also with the ending share count list?

Loren Starr

Yes. Fee waivers were never a major factor for us simply because we have an interest in our money market business. So if there is a number in there, it's probably under $5 million in terms of fee waivers. So it's not a significant component. In terms of ending share count, it was 474.3 million.

Cynthia Mayer – Bank of America

Great. Thanks a lot.

Loren Starr

Sure.

Operator

The next question does come from Dan Fannon, Jefferies. Your line is open.

Daniel Fannon – Jefferies

Good morning. Marty, could you maybe expand upon the comments about the product placement and increase of roughly 250% sequentially, kind of let us know where we are in that process, if we should still see increased penetration or more products being placed going forward, or are we kind of done the majority of that already?

Martin Flanagan

Look, I think you have to look at it as, on an immediate jump out of the box. Edward Jones being an important part of that, and then a couple of others. But – we don't think we're done. Right? And we think it's literally going to be all of next year before we get that sort of state that we think is sort of a more normal state. But it's – one of the questions earlier was just around LPL where very strong relationship, very strong – just want to call it, planning phase out of the box, but that's different than getting the depth of product that you want on their platforms, and it is just a lot of work as everybody knows it's really no different than trying to get buy ratings in consultant platforms. And so I'd say we are early days of where we want to get to.

Daniel Fannon – Jefferies

Would some of that increase be attributable to Morgan Stanley and Smith Barney, also having a bigger exposure there as well?

Martin Flanagan

That's absolutely a part of it, yes.

Daniel Fannon – Jefferies

And then maybe if you guys could update us on Wilbur Ross and kind of the timing here for when we should start to see or could see some of the flows coming in?

Loren Starr

Dan, I'll just say unfortunately as much as we'd like to talk about it, we can't, given where we are in the cycle. So I apologize. But anything that we say could be used against us.

Daniel Fannon – Jefferies

Okay. Thank you.

Operator

Our next question does come from William Katz of Citi. Your line is open.

William Katz – Citi

Thank you. Good morning, everyone. I just want to come back to your margin opportunity again Loren. By the existing right, you mentioned that the fee rate might tick up a little bit marginally if equities continue from where equities are today, I guess. And you've gotten the bulk of the cost saves. And from the conversation, it seems like retail leverage is probably more of a 2012 phenomenon. Can you just help me walk through how you get that extra 700 basis points of margin improvement from here, all else being equal?

Loren Starr

Well, obviously, it's the same thing that have allowed us to, in the past, generate higher margins where if equities grow, it's the higher fee rate part of our mix. There is certainly some amount of compensation that gets built up against those revenues. But incremental margins, as we've discussed, are somewhere at 60 – sort of say, 60% and in that range. So you can generate higher margins just through that expansion.

I think the other parts of the business to the extent that we are able to continue the positive trend on sales and organic growth is going to be helpful for profitability, particularly if we are selling higher fee products, which again if equities are sort of coming into light, I think we would benefit from that as well. So there is one more element in the mix, not a major one. We've talked about in the past, as we continue to transition to our enterprise support centers and lower cost locations, there is some element of margin expansion that's going to take place there. And we are looking at taking on our India operation to our books sometime in early part of next year, and there is going to be some cost benefits to that as well.

William Katz – Citi

Okay. That’s helpful. Just couple other questions. Marty, you mentioned before about just sort of from the President's Working Group. My read of it, they sort of came up with seven or eight different alternatives, but really didn't have any solutions within those that the passing on to the FSO seat and sort of take a look at, but you mentioned with little more clarity maybe the possibility of liquidity bank. Just sort of curious, is that the most likely scenario in your mind in terms of all the optionality that they have identified?

Martin Flanagan

Let’s see. So let me answer it this way. So, as I said, our absolute understanding consistently was that the President's Working Group was going to lay out a bunch of options and the pros and cons along those, and that's what happened. The liquidity bank from my point of view and I think the industry's point of view really is a very, very constructive powerful thing that helps meet a primary goal that's trying to be achieved by the President's Working Group. And so I'd say, from our perspective, we think it's the more likely outcome just because it achieves goals that have been set out by the President's Working Group.

William Katz – Citi

Okay. So I may have misinterpreted it. I apologize for that. Just last question. You mentioned that retailers are going to take a little while to sort of hit full run rate, but yet on a sequential basis, your gross sales did pop and your redemptions did slow. Can you talk a little bit about and maybe answer and maybe UITs and ETFs, but what you are seeing in terms of lift sequentially? Could you give me the balance in the gross sales?

Martin Flanagan

I’m trying to – thanks for asking the question, Bill, because I’m answering sort of two questions. Right? So what we try to point out just by giving sort of pre-close, post-close, month-over-month gross sales, sales redemptions in that close, but we are literally trying to show out of the box you see. And again, it’s only four months of 40% – excuse me, five months of 40% average increase month-over-month in gross flows. So the message is strong out-of-the-box impact already.

And what I think the next question that I was hearing was, are we done? And the answer is, no, we are not done at all. And we think getting through next year is with – my view is we’ll just see a continuation of broadening importance to important counter parties during that period of time. So again, where we saw a lot of the flows is really UITs were very important during this period largely around fixed income. We're seeing equities coming through right now in UITs, as Loren mentioned earlier. ETFs were very strong. But again, we're seeing just some much broader penetration within the channel that we are in. So I think we are strong out of the box and going to get stronger.

William Katz – Citi

Okay. Thanks for taking all my questions.

Martin Flanagan

Thanks, Bill.

Operator

Our next question does come from Michael Carrier of Deutsche Bank. Your line is open.

Michael Carrier – Deutsche Bank

Good morning, guys. Just one question on the distribution side. I know it's hard to quantify it, but if we look at the number of platforms that you are on right now, where you're getting preferred status, and then the number of products that you have to offer these distribution platforms, when you're looking over the next, call it, 12, 18 months, like you think you're in second or third inning, or fourth, fifth inning? Like, how much more penetration do you think there you have?

Martin Flanagan

Well, it’s – you're asking the right question. And again, I'd put in the context of – we're probably third or fourth inning from where I think we are going to get to.

Michael Carrier – Deutsche Bank

Okay. And then just any color – looks like the flows in the Asia market continue to do fairly well despite a hardest market gain, lot of insight too. So, any color from in terms of like where the demand is coming from, which products? And that's it. Thanks.

Loren Starr

We saw some significant, interesting products in Japan. I think there was about $900 million of new sales in the quarter for US real estate product, say, as an example of our ability to sort of bring the best in Invesco to different locations. So, that was definitely one piece that stands out.

Martin Flanagan

Just following up on that, again, we focused though a lot of our conversation around Morgan Stanley/Van Kampen transaction on the US side, which is obviously very impactful. But it has put us in a very strong position in Japan too, and just with local capabilities, but also institutionally there so.

Loren Starr

I think there was also a large technology fund that was also launched that we provided too in the quarter. So again, all in Japan. So I think Japan has really been a very positive part.

Martin Flanagan

And I would just add one more thing. It's just – asking a question about Asia. I think as we look forward and just as the world goes in investor appetite from a US perspective, looking outside the United States, we have a very, very strong Greater China business, as you all know. But also when the largest managers of Chinese equities securities and in time, what we're – the feedback we are getting is some real interests starting to begin around Chinese equities, there is a greater possibility in US, not just retail where we've been, but into some institutional portfolios.

Loren Starr

Yes. I'll also say that the acquisition that we did in Australia, I think, is going to help certainly improve our competitive positioning in that market. So, with a large-cap Australian product, now that is probably one of the best regarded and highest performing. So again, I think that's something we look forward to.

Michael Carrier – Deutsche Bank

Okay. Thanks, guys.

Loren Starr

Yes.

Operator

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

Marc Irizarry – Goldman Sachs

Great, thanks. Marty, can you talk a little bit about, as you enter Phase II, just sort of what the new business product opportunities are for you, sort of combining some of your capabilities? When you think about the opportunities sort of filling out some of the white spaces out there that you don't have today, how do you think you're – how do you sort of plan to move forward in terms of products?

Martin Flanagan

Our view is once we start in the US, once we – so if you look at the depth and breadth of a product, quality of a product, we feel very, very good. And it's led by our investment management teams, and we think they are very, very strong. And so the next phase in United States on the retail side is just cleaning up the lineup, which we've sort of dwelled on today. But if you look at the separate distinction of best management teams, the quality of the teams, the performance, it's not just the United States, but outside the United States.

We've started to talk about Asia for a second, and we find that to be very, very attractive for us. But quite frankly, our European business where – when the top-10 Pan European players, we think there is much greater scope for us to be impactful in Europe. And so again, our attention continues to look at what are some of the historical strengths of this firm and that's outside of the United States. And we don't feel that we are – there is lots of white space. There is always room for improvement with what we have, but at the moment, it's all looking quite strong for us.

Marc Irizarry – Goldman Sachs

I know this is probably a little bit further out, but I think some of your capital priorities include acquisitions. Loren, can you talk about some of the criteria. And then Marty, maybe from a scope perspective, where would you be looking at these days?

Loren Starr

The criteria that we discussed in the past is financial. Well, first, it’s strategic. We wanted to do a strategic acquisition. We don't like generally to do passive sort of types of acquisition, I don't think we’ve ever done any that are sort of just buying assets for the sake of growing. So it's going to complement the business, add the capability that we don't have, as an example. The financial criteria would be IRR's in excess of 20%. We’d like a cash payback within seven years. And we also like to see the deal to be accretive from day one. It's a combination of those three things that will generally give us a sense of comfort that we could move ahead financially. Marty, I don’t know if you want to talk about –?

Martin Flanagan

No. I think you hit it pretty well. Just from where we are, I mean, there is nothing imminent. As I said, we just don't sense that we have gaps and we think our greatest utility for our clients and shareholders is that put our head down and do a very, very god job with what we have.

Marc Irizarry – Goldman Sachs

Okay, great. Thanks.

Martin Flanagan

Yes.

Operator

Our next question does come from Brennan Hawken of Collins Stewart. Your line is open. Brennan Hawken, please check your mute button. Your line is open.

Brennan Hawken – Collins Stewart

Sorry about that. Thanks for taking the question. I was hoping that you guys could talk a little bit more about the UITs. Is this roughly $5 million per month run rate sort of the right way to think about it? And then what were the specific issuance that skewed the quarter. And also talk about the margins on this business.

Loren Starr

Brennan, in terms of the run rate, obviously June was at $5.5 million. I think we suggested that we are moving at a higher run rate even this quarter with about $14 million differential. So call it $6 million to $7 million. I think, again, the profitability on these products are pretty well set by the industry standards in terms of what the sales charges are and what's retained. So there is nothing specific about any one UIT or any particular type of UIT that we are generating that is creating this. I think the other thing to note is the number of UITs are significant. It’s not one big UIT. It’s many, many different ones being continually launched throughout the course of the quarter. So it's a portfolio.

And as they – as a particular UIT sort of comes to maturity, we have the opportunity to create a new one and bring – put those clients into a new UIT. And so it is sort of a self-perpetuating very positive cycle. The profitability is very strong with margins at the higher end of range of the types of the businesses that we have. So it's a very good business for us financially and it’s one that I think we do believe have some opportunity even outside of the US at some point. Obviously, regulatory barriers may still exist that would not allow us to bring us to different countries, but we are looking at that as well.

Brennan Hawken – Collins Stewart

Okay. And how many of your customers – I mean, it's a pretty much all of them just re-up for the new UIT when it expires. And then generally speaking, the fixed income based UITs last longer, right? So, is that effectively walking up to cash for a longer period of time than the equities?

Loren Starr

Yes. In terms of the actual how successful we are re-upping, I don't actually have that information. But you are correct about the fixed income products. They tend to be in excess of five years, five to 10, even 15 years. So when you are in one of those, they are into a very longer period of time.

Brennan Hawken – Collins Stewart

Great, thanks.

Operator

Roger Freeman of Barclays Capital, your line is open.

Roger Freeman – Barclays Capital

Good morning. Just a few clarifications on things that were asked. In terms of cost synergies, on the merger, if I look at – basically you're running inside on a growth basis of your target. I mean, is there anything identifiable? I know you're on track, that's sort of separately merged. Sort of anything besides the fund merger and any associated impact with that that's still to be done or is this the run rate?

Loren Starr

I would suggest that this is the run rate. Obviously for all the business, we continue to look for opportunities to improve. But I'd say, in terms of kind of achieving what we wanted to achieve, I'd say we've delivered it.

Roger Freeman – Barclays Capital

Okay. And then the $10 million of expense you mentioned around the fund mergers, is that $10 million coming off of stepped-up cost effect there or is that just ongoing administrative cost that potentially came out?

Loren Starr

It's the extra cost to administer all the mutual funds that obviously we suggested are going to be streamlined. So that will come out when the funds go out. The only other stepped-up cost that we’ve already discussed is from the $95 million to $100 million is the actual implementation of the $15 million of marketing investment. That will start end of this quarter, early next quarter.

Roger Freeman – Barclays Capital

Okay. That’s helpful. And then just back on this 250% increase in preferred product placement, can you just help us with what kind of number that is? Like, how many additional products this is? Is this – are we talking 5 to 12, or is it something bigger than that?

Martin Flanagan

That's a very fair point. And we've struggled with this. We are trying to give insights without – there are sensitivities from our distribution partners. So let's put it this way. It’s in – since we started, let's call it about 50, 60, 70-type funds. How's that?

Roger Freeman – Barclays Capital

That’s super helpful. Has some of that – some of that's already started to fund or would you say the vast majority of that has not funded yet?

Martin Flanagan

They have been approved. But that's just – that's on the platforms. That then means we have to meet the need of the clients. But –

Roger Freeman – Barclays Capital

(inaudible)

Martin Flanagan

Right.

Roger Freeman – Barclays Capital

Okay. Last question, just in terms of the blended net revenue yield, excluding performance fees, that came down slightly. I guess, thinking with Van Kampen coming in and that's around 50 basis points. Did they decline sequentially? What explains that? Is it just mix of the legacy Invesco business?

Loren Starr

No. I think it has more to do with the growth of some of the passive products that we have seen. There has been a real surge in that type of products.

Roger Freeman – Barclays Capital

Okay. Great. All right. Thanks.

Martin Flanagan

Thank you.

Loren Starr

Absolutely.

Operator

Our next question does come from Jonathan Casteleyn of Susquehanna. Your line is open.

Jonathan Casteleyn – Susquehanna

Yes. Good morning. I know you can't say a lot about Wilbur Ross Fund V. Can you just remind us sort of historically about Fund IV, when it was closed? And then sort of historically, how long does it take these funds to get seasoned that potentially qualify for performance fees on sort of a look forward basis?

Loren Starr

Fund IV closed in end of 2007, and $4 billion. There were two closes as part of that. One in the third quarter, one in the fourth quarter. And in terms of the timing around performance fees or the carrier that we'd be receiving, it's hard to obviously predict and has everything to do with how quickly things get invested and then get harvested and then has a lot to do with the current market environment. I think for Fund IV, it did not get invested as quickly as maybe some of the other funds have been, given the market that was prudent to wait and probably smart to have done that. And we have obviously been waiting for it to get to 75% invested because we could not launch another fund until that happens. In terms of the harvesting period, I think it's still going to be several years to be thinking about the timing before we actually see a performance fee. It's above the hurdle too. So you need to generate – I think it's 8.5% hurdle rate generally. So I would guide couple of years before you begin to think about performance fees for Fund IV.

Jonathan Casteleyn – Susquehanna

Thanks. That’s helpful. And then just quickly, the buyback was listed as sort of the last priority as far as capital allocation. Can you then just sort of flush out in the quarter or just generally how the company tries to evaluate the stock and determine value or not, because as I say, in the fourth priority position you did buy back stock in the quarter? Is there any way to sort of just highlight?

Loren Starr

Well, we have our own models. We look out several years and we understand kind of our target growth rates and still we spend a lot of time thinking about the value of the firm and kind of our growth trajectory. We also look at ourselves. We also look to competitors, as you'd imagine. And so when we see that the market is not giving us value for – certainly this acquisition is a good example of something where we saw a disconnect. We felt very good about our ability to go in and buy in the stock at a lower price.

Jonathan Casteleyn – Susquehanna

Great. Thanks again.

Operator

Jeff Hopson of Stifel, your line is open.

Jeffrey Hopson – Stifel

Hey, thanks a lot. In terms of the UITs, did you give us the actual flows this quarter? And then in the UK business, your performance has been fantastic. The flows have been solid, but perhaps at lower levels than historically. So, is that just the environment? I mean, you would seem to have the product that would fit with the environment. So how do you view kind of what's happening in the UK right now?

Loren Starr

I'll do the UITs. In terms of the UITs, in Q2, net flows were $0.4 billion, and in Q3, it was $0.9 billion. So, that was kind of the step-up there. I think obviously the UK sales were a bit at record levels. They came off a little bit in the third quarter. But I think the general feeling is it was a very positive element. So the only thing I would say that that's causing us to think that there is a trend going down or anything, I think it's just noise that may (inaudible) fund.

Martin Flanagan

And I actually looked as they have done a tremendous job. And it’s really – if anything, it's the environmental factor.

Jeffrey Hopson – Stifel

Okay. And then fixed income, I’m having trouble tracking. They were strong this quarter. So, was that more retail or institutional on the – besides the UITs, the fixed income flows?

Loren Starr

That was more institutionally driven and one of our very successful products. So we have a very strong competitive position and a stable value, which is the type of product that goes into retirement accounts and it sort of used to be the default option. People who want to protect their assets will use that. And many of the large players in that space have been exiting, and we continue to have one of the best performing products there. So we've been seeing huge amount of interest in this quarter and then also in terms of the pipeline.

Jeffrey Hopson – Stifel

Okay, great. Thank you.

Operator

At this time, we show no further questions.

Martin Flanagan

Well, Loren and I would just like to thank everybody very much for anticipating the questions. And again, we think it was a very strong quarter. We think we've positioned ourselves very well, do very good job for our clients and also for shareholders. And we will continue to move the business forward. So, thank you very much. Have a good day.

Operator

Thank you. Today's conference has ended. All participants may disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Invesco CEO Discusses Q3 2010 Results - Earnings Call Transcript
This Transcript
All Transcripts