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Invesco (NYSE:IVZ)

Q4 2011 Earnings Call

January 26, 2012 9:00 am ET

Executives

Loren M. Starr - Chief Financial Officer and Senior Managing Director

Aaron Uhde - Director of Investor Relations and Assistant Treasurer

Martin L. Flanagan - Chief Executive Officer, President and Executive Director

Analysts

Craig Siegenthaler - Crédit Suisse AG, Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

William R. Katz - Citigroup Inc, Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Alex Kramm - UBS Investment Bank, Research Division

Aaron Uhde

This presentation and comments made in the associated conference call today may include forward-looking statements. Forward-looking statements include information concerning future results for 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 statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q filed with the SEC. You may obtain these reports from the SEC 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 First (sic) [Fourth] Quarter Results Conference Call. [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, to Mr. Martin L. Flanagan, President and CEO of Invesco; and Mr. Loren Starr, Chief Financial Officer. Mr. Flanagan, you may begin.

Martin L. Flanagan

Thank you very much, and thank you, everybody, for joining us. First of all, there's a presentation that's on the website if you're so inclined to follow it. As is our common practice, I'll go through the business results for the fourth quarter. We'll hit some highlights of 2011, since it is the end of our year. And Loren will go into the details of the financials and then we'll open it up to Q&A.

So those that are following the presentation, I'm now on Slide 3. So taking a look at the fourth quarter and some of the overview points. Long-term investment performance remained very strong across Invesco for the fourth quarter with, again, some areas of exceptional performance. Our strong investment performance contributed to the trend of positive long-term flows in spite of what continued to be a very volatile market. During the quarter, we saw long-term net inflows across all distribution channels.

Also during the quarter, we reduced long-term debt by $105 million, further strengthening our balance sheet. Reflecting the continued confidence in the fundamentals of our business, we purchased $436 million worth of Invesco shares during 2011. In looking ahead, we plan to take advantage of the many strengths of Invesco, continuing to invest in the business and further enhancing our relative position in the marketplace. We also remain focused on providing our clients with solutions to help meet their needs and their financial objectives regardless of the market environment.

We believe that important parts of the global economy are on the road to recovery over the long term, but expect that the road will remain bumpy in the near term. And consequently, we will continue to be very disciplined in our approach to our business and the markets while investing for the long term. The steps we've taken to enhance our business in 2011 positions us very solidly. As we look into 2012, we expect solid results, but again, as markets improve, our results in 2012 could improve on the back of those markets.

Taking a look at 2011 on Page 4 now. If you take a look at the accomplishments over the past year, it really provides some insight into the long-range plans of the organization. First and foremost, we remained absolutely focused and committed on delivering strong, long-term investment performance to our clients, which will continue to drive growth in the core business. And in spite of the volatile markets, we further enhanced our business in key areas. As you all know, we've had a focus on Continental Europe. We advanced that business there. Fixed income continues to be an area where we have great strengths, but further strengths our areas of focus of the organization. And again, our very, very strong real estate team continued to see success, and we continued to expand that business in parts of Asia during 2011. We'll continue to invest in capabilities we see where we see strong client demand or future opportunities by continuing to develop that talent or, where necessary, hire world-class talents, upgrade technology platforms, launch new products or provide the necessary resources. Bottom line, we'll continue to do whatever is necessary to continue to improve our competitive position for the benefit of our clients.

And also during 2011, we increased the number of PowerShares products available to clients in Canada. That continues to be a nice growing part of the business there. We continued to expand our industry-leading balanced risk allocation capability in different parts of the business around the world, different channels, as that continues to be something that is very much desired by clients. And really, the ability to leverage capabilities such as balanced risk or real estate capabilities around the world or different investment management teams that we have is a key differentiator for us as an organization. We expect that to continue to develop over 2012 and in the years to come.

Taking a look at the fourth quarter results on Page 5. We ended the quarter with $625 billion in assets under management versus $598 billion at the end of the third quarter. Invesco continued to generate strong long-term investment performance for our clients during the quarter, which contributed to the net long-term inflows of $5.6 billion. This further extended the positive trends we've demonstrated over the past several quarters of net inflows. Reflecting the challenges, the volatile market, adjusted operating income for the fourth quarter was $250 million -- $256 million, consistent with the third quarter. And earnings per share was $0.42 during the quarter, also consistent with the prior quarter. And as I've mentioned, Loren will go into greater detail in just a minute.

I'd like to turn to investment performance. And on Page 7, you can see our investment performance over 1, 3, 5 years at an aggregate level. It continues to be very, very strong. And the 1-year performance being 71% of assets beating peers, that's the highest percentage since August '09. And on a 5-year basis, 80% of assets beating peers, again, very, very strong. The relative softness in the 3-year number is reflective of some very strong performance rolling off of the fourth quarter 2008 and the brief period where we trailed the market during that -- the beta rally after sort of March '09. But based on the strength of the recovery subsequent to that, we would expect the 3-year numbers to solidify by the middle of 2012. And again, looking at the underlying performance, it really is quite strong. A small number of funds represent some of this underperformance, they're literally only a hundred -- less than a hundred basis points off the 50 percentile. They continue a positive returns for clients during the period. Half of them continue to be in net flows. So again, it's something very, very -- we feel very good about.

Taking a look at quarterly flows. Again, on the back of the strong investment performance, the enterprise contributed to positive flows during the quarter in spite of the markets. And as I mentioned earlier, net long-term flows totaled $5.6 billion for the quarter, but also $24.5 billion for the year. So during the quarter and the year in total, quite strong from a flow basis.

Taking a look at sales across channel. Gross sales in the retail and institutional channels contributed to the positive flows for Invesco as a whole, and we continued to see positive flows in nearly every part of the global business during the fourth quarter.

Turning to Page 10. Let's take a look at U.S. retail redemption rates and how we continue to do relative to the industry. And reflecting a very challenging, volatile market, gross sales in the U.S. retail business dropped 15% quarter-over-quarter. Redemption rates, however, continued to outpace the industry, reflecting the differentiation we're achieving with our strong investment performance, the depth and breadth of our investment capabilities and a focused client engagement effort. In spite of the volatility we saw, we believe the combination of solid performance, the number of high demand capabilities will continue to drive good momentum in the business. And by our internal calculations, we're seeing market share increases in gross mutual fund flows increasing relative to the market, of course, but also trending positive over the long term.

One of the goals that we've talked to you all about is building brand recognition within the U.S. And during 2011, we got after those efforts, and our brand awareness in the U.S. intermediary and advisory market advanced considerably. A recent third-party study showed that, among mutual fund companies, Invesco achieved the most significant 1-year gain in brand penetration in these markets and is now among the top 10. We're not where we want to be nor do we think we are where we need to be. We'll continue to focus on this, and we expect further improvements in 2012.

As always, I remain very focused on making further progress to achieve the full potential of the U.S. franchise. All the indications, all the trends look quite positive, and we feel very good about where we are going with that part of the business.

I'm going to stop there and turn it over to Loren.

Loren M. Starr

Thanks very much, Marty. So turning to Slide 12, you'll see during the quarter, we generated total net flows of $6 billion, with $5.6 billion being long-term, and there was $0.4 billion from Money Market. And similar to Q3, the aggregate flows reflected continued strong client demand for ETFs and other passive products. If you just look at the actively managed assets within the mix, we saw demand grow for the balanced risk and other income-oriented products in the quarter. And that was offset by outflows and active equities, again, as market volatility generally kept clients on the sidelines for these riskier assets.

With that said, however, we are pleased to see the markets and FX working in our favor as we approached year end. And we added $20.9 billion to our assets under management. And this, quite honestly, is a very stark contrast to Q3 where we lost $57.5 billion in AUM to these same factors. So the resulting increase in AUM quarter-over-quarter was $26.9 billion or 4.5%, leaving us with $625.3 billion AUM at the end of the quarter. It is interesting to note, however, that our average AUM for Q4 ended 1.7% lower than Q3 since we started the quarter at $598.4 billion in AUM, which is, in fact, the lowest AUM level we had seen all year.

Our net revenue yield in Q4 came in at 46.1 basis points, and that was an increase of 1.5 basis points versus Q3, driven by larger performance fees and other revenues relative to the prior quarter.

Let's now turn to the operating results and the P&L. You'll see that the net revenues in the quarter grew $10.7 million or 1.5%. And that included an unfavorable FX rate impact of $6.1 million. Drilling down onto that, you'll see that the investment management fees in the quarter fell $3.3 million -- I'm sorry, $33.3 million to $770.8 million. And that was due to lower average AUM but also the market impact on our asset mix and the fee rate during the quarter. The FX reduction accounted for $7.7 million of the $33.3 million.

Our service and distribution revenues were down by $8 million or 4.2%, and this was in line with our lower average AUM and the investment management fees. And FX accounted for just $0.8 million of the decrease. And truly, again, the 2 line items that came in pretty big this quarter were performance fees and other revenues. You saw that performance fees came in at $24 million, and that was an increase of $21 million versus Q3. And these were generated from our private wealth management business but also our real estate business. And in other revenues in the third quarter -- sorry, in the quarter came in at $44.9 million, and that's up $18.2 million. And this increase was due to a step-up in transaction fees in both our private equity business and also real estate businesses.

Third-party distribution, service and advisory expenses, which we net against gross revenues, fell $12.8 million or 4%, and that was in line with a decline in investment management fees and service and distribution fees. And FX reduced these expenses by $2.6 million.

Next, going to operating expenses. These came in at $460.5 million, and that was an increase of $10.1 million or 2.1% relative to Q3. The foreign exchange impact for this was $4.2 million quarter-over-quarter. Looking at the pieces, employee compensation came in at $312.3 million, and that was an increase of $6 million or 2%. And that increase was largely due to the bonuses that were linked to the increase in performance and transaction fees earned in the quarter. And the FX decreased compensation expense by $2.7 million.

Marketing expenses fell just by $2.3 million to $22.1 million, that was a 9.4% decrease. And FX was just a modest amount on that, $0.2 million. Property, office and technology expense came in $61.9 million in the fourth quarter, and that was a decrease of $0.9 million. And FX accounted for most of that, that was $0.6 million. G&A actually came in a bit higher than our normal run rate this quarter at $64.2 million. That was up $7.3 million quarter-over-quarter. Roughly half of that increase was attributable to a general step-up in the level of business activities in the quarter, which included travel but also, in particular, professional services, costs associated with our increased marketing and IT initiatives. The remaining half of the increase was what I would characterize as one-off product-related costs in the quarter that we don't expect to continue going forward. And FX had a $0.6 million reduction on G&A during the quarter.

Continuing on down the page. Non-operating income decreased $1.7 million, and that was due to the mark-to-market on certain of our partnership investments, as well as to a general lower level of realized gains on some of our seed capital disposals during the quarter. The firm's effective tax rate came in on pretax adjusted net income at 22.9%, again, a little bit lower than we had originally thought. But going forward for 2012, we continue to see the tax rate drop. There are many regimes around the world that are seeing their tax rate drop. So we forecast that to be around 25% next year, but again, this will move around based on the mix of our businesses and where profits are earned. So overall, EPS came in at $0.42, basically flat to the third quarter. And our adjusted net operating margin was 35.8%, which was a small decrease from the prior quarter.

And that concludes my section. I'll turn it back to Marty.

Martin L. Flanagan

Great. Thank you, Loren. And just really to sum up the quarter, we thought it was a very good quarter in light of the environment that we've been in. We continue to see strong investment performance across the organization, and we continue the trend of net long-term inflows across all channels of the company, which we think is, again, very, very strong in light of the market that we have been operating in. We do remain cautiously optimistic about the markets, and we will continue to be very disciplined managing the business, while at the same time, continuing to look forward for organic growth during that period. But first and foremost, we'll continue to be very, very focused on delivering excellent investment performance for our clients.

So let me stop there. And Loren and I will answer any questions people have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question does come from Michael Kim of Sandler O'Neill.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

First, you've clearly benefited from the growth of the Premia Plus strategies, but my sense is that it's still relatively a small piece of your overall AUM base. So just curious, given demand for multi-asset class strategies continues to be high, and how scalable is this business? And what are some of the initiatives that are in place to further penetrate different markets?

Martin L. Flanagan

Well, first of all, as you point out, it's a spectacular product. I mean, it has a very good track record. It's now -- this one in particular, depending on the channel you're in, it's over a 3-year track record right now. The team has been together 12 years, so highly respected. And this is an example of something that is being introduced in different markets and has been introduced in different markets around the world, whether it be retail or institutional. And there are varying different subsets of the capability that clients are interested in. There's commodities focus and very different elements that way. So it is just one of the different multi-asset strategies that we have. We think we're very, very well placed in doing it. And again, we have a long track record in different markets. So it's very scalable, and we think we're on a good path. And it's early days to where we think it could be.

Loren M. Starr

I think we have, what, about $6 billion in that class, from nothing essentially. So, I mean, $6 billion in a year, and that's without the 3-year track record fully hitting in. So I do think the idea that this could continue to move at the pace and maybe even accelerate into 2012 is quite feasible.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then maybe can you just talk about how the sales and redemption sort of progressed through the quarter? And then any early read into trends thus far this year, particularly as it relates to any pick-up in contributions from retirement accounts?

Martin L. Flanagan

Sure. So I think probably not just for us but for everybody in the asset management industry, context is important. And let me just use the most public data. And it's -- for us, it's only a subset of our business. But if you look at U.S. mutual fund flows as somewhat of an indicator of investors, I think we've all seen it. You ended up 2011 with $62 billion in net inflow. And that is -- if you go back to 2003, it's really 1/4 of the net inflows you saw during that period of time, but for 2008 where it was almost $170 billion out, and we all know what that was. So it was really a very, very difficult environment. And then, again, within that, the flows, 2011 was almost $90 billion in equity outflows. And the only other period that you saw anything close to that was 2008, which was $152 billion. So if you use that somewhat as a proxy of how investors were thinking around the world and, to some degree, in the institutional market, although recognizing it's a slower period, having net inflows, having gross sale, market appreciation, increasing penetration as we did, we feel very, very good about where we stand. And again, I think it's on the back of, first and foremost, just broad, deep investment management capabilities and our ability to move around the world with these capabilities and into multichannels. So, again, I think our relative success in what really was a very difficult market, I think we feel confident about -- as we look forward into 2012. If these markets stay where we are, we expect we're going to have a -- quite a good year.

Operator

Our next question does come from William Katz of Citigroup.

William R. Katz - Citigroup Inc, Research Division

Just in terms of free cash flow, obviously, you took down the credit exposure a little bit and bought back a little stock. Just looking to this year, someone mentioned sort of manage the business prudently, but could you sort of maybe highlight your priorities for free cash flow? And then secondly, as you're looking at the business, are there any product gaps or areas that you might be able to shed to further hone in the story?

Loren M. Starr

Yes, Bill, I'll try to handle the first part and maybe Marty will take the second one. I think they are somewhat linked, clearly. But in terms of free cash flow, we certainly took more of our free cash flow and used it for stock buyback this year. Our general interest to continue to return capital when we don't see a clear need for it is there. And certainly, when our stock is trading at a discount, which it continues to do, and certainly, when we see the fundamentals improving and maybe it not being reflected in our stock, it's far more interesting for us to be buying our stock now than ever before. We do also clearly buy back our stock to eliminate any dilution associated with year-end grants. So, again, I think you can certainly assume by looking at our history as to how we're going to be thinking about things going forward. There isn't really a change in our capital priority. We want to continue to have dividends to be ever-increasing. I do think the topic about the certainty of dividends and the use of dividends is one that we're still looking at in terms of what's the right level. But between dividends and buybacks, I think it's largely business as usual. And really, the only thing that comes into play other than that is largely acquisitions. And maybe, Marty, you want to talk to that.

Martin L. Flanagan

Yes. So maybe picking up on your point, Bill, just about product gaps. I think we'd maintain we don't have a lot of product gaps, but there are areas where we're always looking to improve relative to performance within an area or success within an area within the product gaps. So our focus will continue to be on really organic development, product development. My other personal opinion is the depth and quality of our investment teams is really -- I've been here 6.5 years, it's really strong. I feel really good about them. And -- so as we look forward, we think that we're going to be able to meet our needs largely through continued organic product development. And as you look at and hear about some of these big transactions that might be in the marketplace, it just -- we've been very clear about what our acquisition strategy is. I would suggest that, that's inconsistent with our need or our strategy at this time.

William R. Katz - Citigroup Inc, Research Division

Very helpful. And just sort of a follow-up question. I think, and maybe it's just sort of seasonal, but I noticed that headcount was down about 30% or so quarter-to-quarter. So I'm intrigued by your comment about sort of leverage to improving market. So as you think about the incremental margin for the business, where are you if the market sort of continues to sort of trend a bit higher? Is it still 50%, 60%? Or is there room for that to be a little bit higher as well?

Loren M. Starr

So, Bill, I think to the extent that the markets are strong and charging forward, we'll definitely see the incremental margins be at the higher end of the range. And so I think when you think about 50% to 60%, it's probably closer to the 60% side. When it's flatter and we're really growing through organic methods, it's harder to sort of generate those same incremental margins, and they tend to be sort of in the -- closer to the 50%. So depending on the markets, that's probably how you're going to see things pan out.

Martin L. Flanagan

Yes. And I think what I'd add to it, too, I think what you -- again, if you just look at, it's really the asset mix element, too, which has been a driver in the effective fee rate. And I think that's, again, not just for us but for everybody in the industry, if you have those positive equity markets. And for us, if you have relative flows into that, again, that's going to drive to the higher end of that range, too.

Operator

Alex Kramm of UBS.

Alex Kramm - UBS Investment Bank, Research Division

First of all, maybe a little bit of a numbers question. But, Loren, you just walked through all the volatile items in the income statement, i.e. performance, the other and G&A. Can you talk a little bit about what you expect there for the next quarter given what you see out there in terms of spending, but also in terms of realizing performance fees in the U.K. and things like that?

Loren M. Starr

Yes, I think -- great question and one that is particularly difficult to answer. So, I mean, just -- when we think about our plan and when we think about what we're going to spend and do, we generally don't assume performance fees are coming in. We are very conservative because they're very hard to forecast and it will be very dependent on the market environments in a particular -- for a particular product. We'd say, generally, we'd see performance fees be higher or higher in the first quarter and the fourth quarter. And that's a trend that has been in place for a while. The one place where we've seen higher first quarter performance fees in the past has been the U.K., and that will be very dependent on -- how much we get will be dependent on the market environment that we're in when that's calculated. And if you look at our U.K. product and the performance, it's very sensitive to what is happening in the U.K., whether the banks start performing or not, as an example. And so that's something that is hard to forecast, and it can swing quite a bit. So I do think there's the potential for a nice performance fee given the strength of the performance of the U.K., generally. So I'll just put that out there. But it is something that is hard to bank. I think the other part that I do feel better about is real estate and the transaction fees and the performance fees that we continue to see coming from that activity. As Marty mentioned, real estate has been a very strong product for us, and we've seen a lot of client demand. And we've seen a lot commitments to new products. And as those get invested, we are able to generate some transaction fees on some of those products. And certainly, we have a fairly large pipeline of investment activity in our real estate business that should produce pretty good transaction fees. And then, as well, performance fees will also be -- will come in because it's a well-performing product. So I'm generally quite hopeful. I think the other parts of the business where you've not seen performance fees, whether that's in our private equity business or some of the PPIP products, for example, those are the things that are probably going to be more weighted towards 2013 and later because we can't recognize those performance fees until there is virtually no opportunity for call back. But there is a lot of built-up performance fees, I would say, in those products as well, quite significant. So I'm pretty hopeful overall, the next couple of years, we're going to see the stepping up certainly off of the 2011 levels.

Alex Kramm - UBS Investment Bank, Research Division

And in terms of the other and G&A line?

Loren M. Starr

And the other and G&A line, so we definitely called out half of the increase, call it roughly $4 million, that was nonrecurring. And those were really related to sort of the step-up in some of the costs of some of our products, dead deal costs and other cost of correction type of items that, again, were really unusual in the quarter and would not recur. So I feel pretty comfortable that $4 million off of that would be kind of the right thinking in terms of run rate going forward. Again, it's sort of hard to predict quarter-to-quarter exactly what happens, but that's the one that I feel pretty good about.

Alex Kramm - UBS Investment Bank, Research Division

Sure. And then just maybe as my follow-up, following on what Bill just asked around capital deployment. I mean, you didn't call out any sort of buybacks in the -- for the first quarter, and you did that in the fourth quarter. I know you didn't do much in the third quarter. So is your hesitation to actually give us a number related to maybe you're looking at a couple of opportunities out there? Or is it just not something you want to communicate at this time and that flexibility? And then just related to the M&A question again, you said maybe not anything large scale right now. But do you think some of the uncertainties out in Europe, in particular, give you opportunity to maybe get little pieces out of some of the assets that are for sale or maybe even, as some people are -- don't know what their future is, pick up some teams? Or do you think we need to hold off a few quarters for that?

Loren M. Starr

Okay. I think I can probably answer. I mean, the sort of number of what the buyback could be, again, I think it's a little hard because the market is moving -- is volatile. And so laying out a specific number is one that people will remember, but it will definitely shift depending on what sort of market you're in. So it's probably more a percentage of cash flow or something like that metric that is more important. And I'm saying, between dividends and buybacks, I think you should look at what we've been doing is sort of roughly in line with how you should be thinking about us going forward. There may be a topic just between the split between dividends and buybacks that we're going to want to look at, how much to dividends, how much to buybacks. But that's really kind of the only science that I think we want to spend a little more time in. And in terms of the acquisitions, no, there isn't any sort of hidden agenda here in terms of holding some offer or -- I think you can take us literally what Marty said, that there isn't any grand plan or sort of money being hidden off to the side because we might be doing something. That's certainly not the thought process now.

Operator

Our next question comes from Glenn Schorr of Nomura.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

So definitely take it in this weak environment, but all the flows are on the more passive product side. That's the trend of the world, and I don't know if you see that accelerating. But maybe if you could remind us the fee differential of your passive versus active products. I know the margin held up. And then maybe an additional comment on there about incremental margins on the passive new money because my gut is, is that's even better than the overall firm.

Loren M. Starr

Yes, Glenn, I think we do provide some of that detail in our number of pages on our quarterly asset roll-forwards. And so if you were to look at the passive products for, let's say Q4, you're going to see something around 10.6 basis points. And you're going to see our active being closer to 52. So that's the general spread. It can move around a lot depending on what's happening in a particular quarter, because the passive products can really generate some pretty good fees. Some of the ETFs in Canada so far, I mean, you could definitely see higher fees in some of the ETF products than in the past. And I'd say the incremental margins are probably very similar to both products, it's just you need to generate a whole lot more because it's a lower revenue fee generation level for it to really move the dial. So we don't really look to sort of grow products that are going to dilute margins. We really think all our products need to be contributing positively with similar incremental margin characteristics. So, again, I think we -- we like our passive products, we think they're great. We're very pleased that we have great capability there. And it is a trend that I'd say probably has some legs to continue. But I mean, certainly, early days are showing some of the active product beginning to take hold. Too soon to call it a trend, but January has generally been, I think, more favorable to active products than passive.

Martin L. Flanagan

Just adding to that, I can just tell you what we're seeing. So where our client is interested in and, as you would imagine, the risk -- the balanced risk asset allocation products, multi-strat, very, very interested in that. Our real estate products globally, whether they're global REITs, REITs, direct real estate, very, very interested in that. Bank loan products. And then on the equity side, you're seeing a lot of interest in our equity income type products quite broadly, whether it be DC plans or traditional retail. And so you're starting to see people move more into riskier asset classes, which is a very -- I think it's a very positive and hopeful trend for the market and, frankly, for us as a company.

Loren M. Starr

Also looking at our -- just the institutional business, I mean, we're actually seeing a growth in the amount of interest in equity products. And actually, I think it's about 30% of our unfunded -- one but unfunded business is in equities now. So we're actually beginning to see, I think, some of the smart money coming back into active equities.

Martin L. Flanagan

Yes. And adding to that, also the international growth products also seem to be getting quite a bit of interest. So as Loren said, early days, but it does feel like investor sentiment is moving towards what does look like very attractive valuations and return characteristics in those products.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Good to hear. One quickie follow-up on the capital usage. It's great to see the share count shrinkage over time. Is there anything special on issuance front in the first quarter that we should have in our models, that there would be, even if you do buy back some stock, no net shrinkage in the share count?

Loren M. Starr

Well, I think we will try to work as quickly and diligently as we can to reduce any impact. And generally, that's been the case in terms of how we've operated. In terms of the amount of equity issued, it can -- you can look to our past history, it ranges around somewhere between -- it can be 130 to 180. I mean, it's in that range. So you can sort of think about that range in terms of equity coming in. Easy enough for us to go in and eliminate that pretty quickly without it having a major impact on EPS.

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Great. And just a last quickie is, if you look at the full-year operating leverage, your adjusted revenue is up 15 and your comp and other expenses, 12 to 13. Is that the right operating leverage thought process in a okay market backdrop as you continue to still build out the capabilities?

Loren M. Starr

I mean, again, it depends. I mean, some of the revenue impacts are performance fees-related. And there's different payouts for performance fees than there are from management fees. So, again, it's a little hard to sort of nail exactly what the right sort of relationship between revenues and compensation. That's not the way our plans work. It's not really the way we do it. So I think the way -- the best way to think about it is sort of broadly, year-to-year, this incremental margin concept as to how we manage. Again, that's more a result than anything, but it is one that's sort of held up in terms of sort of 50% to 60% incremental margins, depending on how much revenue is coming from markets versus organic growth.

Operator

Our next question comes from Ken Worthington of JPMorgan.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

On the direct real estate side, it seems like you put a bunch of money to work in 4Q. So the questions there are, how much money did you put to work in 4Q? How does the market environment look for putting more money to work in, say, the first half of the year? And if you can, what's the pipeline, the amount of money that's funded but not yet invested or maybe collected but not yet invested?

Martin L. Flanagan

Ken, it's Marty. Let me try to take -- make a couple comments there. I don't know that we've disclosed all those details or Loren is going to see what he has handy. But let me just make this comment. As you probably know, it's just a spectacular team. Our point of view, it's one of the very few global real estate teams in the world now, literally on the ground around the world with clients around the world. There continues to be an awful lot of client interest in the direct real estate capability quite broadly, and you're even seeing clients in Europe interested in the Asian capability.

[Audio Gap]

hoping was going to come out of the transaction, the AIG transaction that was done a year ago. So -- and again, the global reproduct, the reproduct in particular, continues to have a lot of interest and is consistent with the commentary I was making earlier where people are seeking income. And that's at the institutional level, too, not just at the retail level. So it's probably been one of the most active areas in the company. So I know that's very high level responding to your question without the details, but...

Loren M. Starr

I mean, I think without getting into specifics, I mean, it's billions of dollars is what we've got in terms of what is to be invested. I do think our real estate team is very disciplined. And so in terms of how quickly they deploy it will be very much, is this in the best interests of the clients? And so it can take time. And I don't have a clear line of sight, quite honestly, in terms of what's moving and what's not. That's really in the heads of our real estate team and sort of transactions that I'm not even privy to and shouldn't be. So it is a little hard to answer exactly how quickly it's going to get deployed, Ken, I apologize. But that's...

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Okay. Worth a shot. And then on the management fee rate, in terms of the fee rate on the active assets, excluding the performance fees, what are kind of the dynamics that are moving the fee rates around? Obviously, like Stable Value has been a big, big source of success for you, but what are the other kind of dynamics that are impacting that active fee rate?

Martin L. Flanagan

You're hitting exactly on an important question. So if you go back and look at sort of the effective fee rate at the end of 2007 and compare to the end of '11, it was probably 50 versus 45 during that period. And the vast, vast majority of that movement in the effective fee rate is driven by the asset mix shift, as you're highlighting. There's probably -- so you would then ask the question: so could you expect it to go back to that level? I don't expect it necessarily to go back to that level. At one point when we did the Morgan Stanley/Van Kampen transaction, some of the important long, very long history funds have lower effective fee rates. So there is a little bit of a cap to where we'll get to, but that doesn't stop the organization from being able to generate the margins that we have talked about in a growing market environment. So that's the main dynamic.

Operator

Jeff Hopson of Stifel.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

I was curious on Europe, where there was improvement quarter-over-quarter. What's been helping you there? And then in Asia, it looks like that was -- the flows were primarily on the passive side, I guess, institutional. Is that right?

Loren M. Starr

All right. So, I mean, I think Europe, it's a similar topic, quite honestly, as it is in the U.S. where we've seen great strength in certain products and we have a multi-asset, risk -- balanced risk product in Europe that is flowing very well, very strongly. And so it is really the strength of that. We've also seen sort of lower redemption rates, generally. So that's been helpful for the flow picture quarter-over-quarter. What was the second part of your question?

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

On Asia, it looked like most of that was passive institutional.

Loren M. Starr

Right. So that was largely real estate. We actually have certain situations where we manage individual properties, which we put into passive. So it's not really a portfolio management function, it actually gets into an individual property management opportunity. And so that's why we put that in passive. But it's actually got a decent fee rate.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

I got you. Okay. And in Europe, is that -- the sale of that product, is that retail or institutional?

Loren M. Starr

Both. Both. It cuts both ways.

Operator

Our next question does come from Dan Fannon of Jefferies & Company.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

I guess, Loren, my question would be on the comp. I'm just trying to get what the normalized level of comp would be x the payouts from performance fees and the real estate. I think you might have said flat quarter-over-quarter, but I just want to get a sense if we think about going into the first quarter next year.

Loren M. Starr

Yes, I mean, the first quarter has got some interesting dynamics, as you know. We've got payroll taxes that come into play. We're going to have some of the stock grants and other deferred grants coming in, in February, that begin to roll in. We've got some things that are expiring, too. We have some modest increase across salary. So in terms of thinking about Q1, I think if you look at our Q4, obviously, the $6 million performance fees, you might have some of that again recurring in Q1. So it's -- I think if you look more to Q3 as sort of a starting point level, it's probably easier to think about what the run rate is into Q1 and forward. But, again, it can be very market dependent as to if we continue to see assets do what they're doing, it will obviously flex some of the variable parts of our comp, which will be helpful. But, again, if you're sort of thinking flat markets to end of year Q4, no asset increases, sort of modest performance fees, I think, again, sort of the Q3 level is sort of the general right run rate for thinking about comp.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Okay, great. That's helpful. And then the comment around the backlog and 30% being equity base, is that quantitative products? And if not, maybe give a sense, talk about what those products are. And then also the outlook for kind of the demand around the quant products would be helpful.

Loren M. Starr

Yes, it's actually spread across many different equity capabilities, so it's not just quant. Quant does factor in. Particularly, European quant is doing very, very well. But I think there are strong interest in some of the global products, emerging equity -- emerging market equity products, Asia equity products. So it is a spectrum of equity offerings that we have that's featuring there. There's no one that I'd say points out as dominating.

Martin L. Flanagan

Just on the quantitative capability, again, as we've said, we've had a very, very strong team, been together for a long, long time, highly qualified. And that was an area just in the marketplace where quant fell totally out of favor, '09, '10. But you've seen with our team, in particular, the performance has come back quite strongly. It's done exactly what it's supposed to do. And there's actually a fundamental bias underneath it, so it's not -- it's different than a lot of the quant capabilities out there. And we are actually -- as Loren said, the global quantitative capability, in particular, is starting to get a lot of interest again, and we're seeing net new clients into that capability. Where if you were asking that question a year ago, I don't know that you would have thought that, you'd be saying that a year today.

Operator

Our next question does come from Roger Freeman of Barclays Capital.

Roger A. Freeman - Barclays Capital, Research Division

Just a couple of questions on the retail business. Just looking at flows, gross, looks like gross redemptions decreased more than gross sales. And can you talk to whether or how much of this is coming from increased benefits off the Van Kampen deal? And did you move higher on any of the broker platforms this quarter, or get into any of the model portfolios?

Loren M. Starr

I mean, I think, Roger, the sales probably dipped down a bit. That was in line with industry trends. I think so much of our product is equities, and equities were, as Marty mentioned, in significant outflow. More than we've seen ever, I think in this year. Roger was just talking about the year. But certainly, the quarter was -- we did see a continued pressure on equities. So I don't think the experience that we're having, looked at in isolation, is the right way to think about it. You've got to think about it relative to the mix of businesses we've got. So it's actually not a bad sales results, and we're seeing, as I said, sort of the things that are really selling strong offsetting things that are sort of not selling as strongly. And that would be in the -- again, the multi-asset product, some of the fixed income products. And then off of that equities were down. The redemption rate just continues to be a very good story for us. I think we -- performance is a very important driver of that as well. Obviously, I think the depth of our relationships with our advisors and how we're selling it into those channels is also a factor. We are very pleased with the progress that we continue to have in all the channels that we're in. I don't know if there's anything in particular that I'd call out as sort of being fee changing or -- it's just progress, steady progress that we continue to have in each of these channels that gives us confidence. And again, based on early results for 2012, again, we're seeing -- and this sort of a thesis if people start coming, wanting more equity products, we'll see the benefit significantly to us, is something that we're hopeful is going to continue.

Roger A. Freeman - Barclays Capital, Research Division

Okay. And then I guess -- I think you mentioned in the G&A commentary, there was a piece of that, that was marketing related. Just wondering, off the back of the survey work you were doing, sort of measuring your advertising campaign around increasing penetration of the Invesco brand, are you working on a new advertising campaign? What's your sort of -- where do you think you stand in terms of brand recognition?

Martin L. Flanagan

Yes. So the -- we're continuing advertising. We're continuing to sort of evolve the campaign that's out there. And where it was -- and whatever the level of interest is. But it was very much brand awareness. There is actually now some very specific advertising around the strong investment performance of the organization. So it's closing that perception/reality gap. We've got now years of good performance, and that is probably not recognized in the advisor channel to that degree. So that's a focus. And to be very specific, the core -- we like to measure things, right? So before we started this advertising campaign, we measured where we were. We didn't even show up on the -- they couldn't find us, right? So there was no awareness, is where we started. And as I mentioned, about 12 months later, something less than that, we were certainly sort of top 10 in recognition. But, again, that's not where it needs to be. I mean, we think we really need to move up to get closer to 4, 5, 6, somewhere in that, and that's probably going to be a good place to be. And we would expect that staying on this path with continued focus in that area, we should move up those categories.

Roger A. Freeman - Barclays Capital, Research Division

What's your timeframe in terms of goal to get to that 4, 5, 6?

Martin L. Flanagan

Let's put it this way, if you asked me if we would've gone from nowhere to 10 in 12 months, I would have said that's not possible. So I don't want to extrapolate that because I think we'll have a failed outcome. So it's got to be probably, who knows, 3 years? And we should make some progress again this year.

Operator

Our next question comes from Michael Carrier of Deutsche Bank.

Michael Carrier - Deutsche Bank AG, Research Division

Just 2 quick ones. Maybe on the flow side, you're still in an environment where, for the whole industry, flows are few and far between. But certain products, you guys have the passives, the risk management products, the real estate, all doing fairly well. Any like -- when you look at where those products are distributed, any increased penetration or new distribution into channels over the next 12, 24 months that you see? And then particularly on the real estate side, because it seems like in '07, '08, a lot of firms pulled out. So if you have a good franchise right now, you're obviously benefiting. But just anything from the distribution side where either you can continue to sell those products where you might have some traction relative to peers?

Martin L. Flanagan

You're hitting on -- the 2 areas you talked about are just absolute strengths of the firm. I mean, just pick up on the real estate side, it is exactly the model that we've been talking about in the firm for as long as I've been here. If you have a strong investment capability, identify client needs around the world by channel. And the real estate team, whether listed or direct, it is literally -- we have clients all around the world in those capabilities. And the penetration is quite successful already and will continue to be. So -- but maybe where you're going -- the next question is just this balanced risk capability. I mean, there is no question. I think we all see it. If the Fed is halfway correct in their forecast, these ideas of balanced risk capabilities, multi-strat capabilities over the next number of years, and with an income bias in particular, they're going to do quite well. And that is a capability that started in the institutional market in the United States, ended up in the retail market and is now in multiple places around the world. So again, you could just see that just continue to probably make greater incremental penetration simply because it's relatively new to the market. But it's really these -- the equity income capabilities we have, some of the fixed income capabilities, bank loans, et cetera. I just think -- again, we think we're positioned quite strongly for the market environment, subject to it changing quite dramatically again. But it's -- that's how we see it right now.

Michael Carrier - Deutsche Bank AG, Research Division

Okay, that's helpful. And then, Loren, just on the performance fees and then the transaction or the other revenues, just so we don't get too carried away. When you start thinking about 2012, I guess in the first quarter, if we think about the U.K., based on today, any type of range that you could give? Obviously, performance could change drastically throughout the quarter. But just in terms of the 24 versus a normal step-down versus what comes out next quarter that was just in the fourth quarter and what could come in. And then same thing on the transaction side, if the flows into real estate continue, and so you have to continue to put money to work. And then you also will have exits and realizations that will drive transaction fees as well. We've kind of been used to that like 25, 30 level, but obviously, from historical levels, that's very, very low. So any kind of guidance or generalities there, because I know it's volatile from any given quarter.

Loren M. Starr

It is. And you're exactly right. So I think, generally, the step-up, Q4 may be a high point. So the idea of not extrapolating that, I appreciate that because you probably would get it wrong. I mean, I think the idea of 25 is too low. 30 is probably still too low. I mean, 35 is probably the right sort of number. But, again, this is sort of very generic forecasting on my part to sort of get you in line. And then performance fees, really, I mean, for the U.K., it can have gone from 0 to 12. I mean, it could really move all over the place. So that one is just binary up or down depending on kind of that day when they take that picture of that performance. But there are some other things other than U.K. that will continue to show. And so I think, overall, performance fees for 2012, and it's hard to say exactly when and how they all come in, could be sort of roughly in line with what 2011 is, if not maybe a little bit better. But that's really hard for me to lay out exactly.

Operator

Craig Siegenthaler of Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Loren, just a question again on performance fees. Can you remind us what type of asset classes crystallized in the second and the third quarter, so have the potential to generate performance fees?

Loren M. Starr

Yes. Historically, and again, you have to go back a few years, we had our quant group were able to generate pretty significant performance fees on a quarterly basis in the second and third quarters. For us, in terms of that particular product, performance has significantly improved. It's still, I'd say, away from the point where there'd be something I'd say you should start thinking about it for your model. I think there's sort of things that might hit second and third quarter would be around some other capabilities that we have, whether it's bank loans, it could be real estate. And, again, very hard for me to say exactly when that happens because it will have to do with what is going on in the portfolio at that particular time. So, again, those are the harder quarters to really sort of forecast from my perspective.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. Then just a big picture question for Marty. Marty, just kind of based on your perspective of what you're seeing in talking to clients in terms of future organic growth punch rates, how would you rank client demand over the next several years in alternatives versus passives versus active equity versus balanced? I know it's a difficult question, but where do you think demand will trend versus those asset classes?

Martin L. Flanagan

Well, I think if you asked me 6 months ago, I could have given you more clear feedback. I think 6 months ago, let me -- so institutionally, you would have said, everybody is going into immunization mode, how can I limit downside but at the same -- sort of passive, fixed income, really locking -- at the same time, topping growth, because people are just so scared about a market depreciation. You are now, at least the feedback we're seeing, you're starting to get the beginning of evolving thoughts. And I was with one important client, multinational client, that literally we just -- of the 3 mandates, 2 of the 3 were, one was international capability, one was equity income type mandate. And the thought of these types of mandate 6 months ago going into pension plans, I don't know that I would have thought would have been on the table. So I think there could be movement again back to some risk assets, which I think everybody would have said that was sort of off the table. But where we are seeing it again, back to what Loren said, bank loans, real estate, commodities within it, Premia Plus type things, so those still are on balance, the headline type things. So I think there is a softening again towards equity products, which I would never have told you that 6 months ago.

Craig Siegenthaler - Crédit Suisse AG, Research Division

It sounds like really kind of improvement in a lot of alternative classes, active equities, but still maybe that doesn't catch up to maybe ETF growth.

Martin L. Flanagan

Well, look, let me say this from this standpoint. So we're happy to say we have very, very strong ETF business. We think it's excellent and growing. So I can say this with -- I don't think the ETFs are going to take over the world. And I don't think -- my history has been, as soon as -- if you extrapolate that into passive, as soon as everybody says the world's going passive, that's probably the exact inflection point in the market where you start to see people going into active equity. And that has been, at least as long as I've been paying attention to the market, that's what's happened. So I think that's probably a hopeful sign, not scientific, but hopeful.

Operator

Our next question does come from Robert Lee of KBW.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Obviously, most of my questions have been answered. Just real one quick one, Loren, back to the capital management. I guess the one piece that wasn't really touched on in that was managing the debt side of it. And you obviously have about $500-odd million on the facility. I think $260 million comes due in April, if I'm not mistaken. Kind of just update us on your thought about kind of managing the debt of the firm. And I would assume, given current rates, there may be an opportunity to refinance the existing debt, plus maybe add some of the facility debt to it at a pretty favorable rate?

Loren M. Starr

Great question, Rob. So, I mean, I think, again, we have articulated that we want to bring the debt down on the credit facility. We've been doing that. We've been chipping away at it, I think, reasonably successfully. It is something that we will continue to work on. So that's kind of one point. I think there isn't sort of this fear -- I mean, for us, it's just we want to be -- have a strong balance sheet, want to have a lot of financial flexibility. It will allow us to actually take advantage of opportunities if they surface in the future. And that's kind of the way we think about debt, too, quite honestly. I mean, it's not debt for the sake of debt. Debt is cheap. I mean, certainly, you go out and raise a lot of debt. But we wouldn't really raise debt unless there was a reason to raise debt. And so, again, I think it would have to be lined up with a reason to need to finance something, if it was an acquisition, that would be out there. And for the same reason that debt that's coming due, it's $250 million in April. Probably all things considered -- we haven't made a decision yet, we don't need to make a decision. I mean, it could be quite easy for us to let that just sort of retire it and let it roll on to our credit facility and continue to chip away at the credit facility. So we are focused on definitely returning actively capital back to shareholders, the buyback is quite important. So, again, there's kind of this confusion about what comes first, what doesn't. I think, again, the message is a balanced, something that's going to sort of work for all parties involved. And so we would expect to see continued sort of work on bringing down the credit facility over time. And probably that debt coming due, we'd probably just retire. Again, if a transaction came up and it was -- again, you heard us talk about there's nothing imminent. But if something were to come up, that could change the dynamics.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

And maybe as an adjunct to that, of the $730 million of cash and equivalents at the end of the quarter, I know some of that you have to maintain for regulatory purposes. But how much of that do you actually consider kind of available and free outside of kind of your normal -- what you like to have as kind of a backstop, so to speak, working capital?

Loren M. Starr

Sure. We've said in the past and we still believe strongly that we'd like to see about $1 billion of cash in excess of what is in the European subgroup, again, to help us have the financial flexibility. It's certainly in line, if not even a little bit less than some of our peers in terms of what they've done. And, again, we don't think it's an extreme position in the sense that we saw how uncomfortable it can be when you need capital, if you can't get access to it, then you're really in a difficult situation. So having some cash that would be available. So that would be over time we'd want to get to that level. Right now, we have about $440 million in the subgroup, European subgroup, of the $724 million. So what's free and available is about $288 million. So that's kind of where the number is right now. But that number can move around quite a bit, and actually in the fourth quarter is when it gets to be -- the European subgroup requirement is the highest in the fourth quarter, and then it can actually drop down to quite a bit lower because that's really dependent on how the bonuses and the accruals for bonuses get paid.

Martin L. Flanagan

Let me -- Rob, it's a good question. Let me step back and just sort of circle sort of the big point that we've talked about over the last couple of years, in that, first and foremost, we're going to be good stewards of shareholders' capital. And as Loren said, we're going to, in combination through dividends and stock buyback, ensure that in a balanced approach, continue to get that back to shareholders. During this past crisis, what is a business fact is that clients actually care about the strength of a business. And if you asked 2005 if clients cared about how strong is the business, how strong is the balance sheet, it just wasn't a topic. It is a topic these days. And we've determined that, over time, if we get this excess capital or excess cash of $1 billion, we think that hits it and we'll have some of the higher ratings ultimately by the rating agencies. And, again, we just think it's a business necessity to get to that point. And I think that's the other color. But, again, we'll continue to do very, very good things for shareholders, so no one should feel that, that's not...

Loren M. Starr

Well, in the end, it's all for shareholders.

Martin L. Flanagan

Right. Exactly. Good point. Yes.

Operator

Our next question does come from Marc Irizarry of Goldman Sachs.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Marty, we're hearing a lot about convergence between traditional and alternative product. Obviously, with Wilbur Ross and his businesses, there's probably an opportunity there. How do you think about product in terms of both the convergence between traditional and alternatives? And are you seeing that in your business as an opportunity?

Martin L. Flanagan

There's no question about it. And I think that's -- people call it different things, but the current phraseology is multi-asset strategies. And I think it's beyond what -- take off the phraseology, it's meeting client needs and demands. And probably for us, probably the most interesting of that in most recent years was the combination when we became -- when the PPIP managers of Treasury, it was our fixed income team, it was our direct real estate team and it was our distressed private equity, WL Ross, that came together to meet the needs of the treasury. And we've done versions of that for clients around the world. So it's really putting together some of our different capabilities through the different strong investment teams meeting these needs. So it's a realism. I think it's out there, and I think some firms are talking about it, others are doing it. And we have a long history of doing it, whether it be having teams like that come together or, again, through this team that's been together 12 -- more than 12 years, asset allocation team that's doing Premia Plus type product. So it's real, we're seeing it and we're doing it and there's probably going to be more of it.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Great. And then just maybe one for both you and Loren. If you look at fee rates obviously moving lower just on investment management fees. But the redemption rates, I mean, it appears that the assets are becoming stickier. You had mentioned maybe it was performance, maybe it was -- maybe it's related to mix. Just wondering if you could address the sort of trade-off that you're seeing between the asset base that you have today and the stickiness and the fee rate. And then, Loren, just in terms of the areas, if we are in sort of a lower mix, lower fee mix place, if you will, where do you think you could pull back in terms of distribution and, alternatively, where are you investing?

Martin L. Flanagan

Picking up on just the so-called stickiness. I mean, at a more subgroup you saw, we continue to have a relatively low redemption rate against the industry. We continue to have -- that sort of extends through institutional clients around the world, and I attribute it largely to, first and foremost, doing what we're meant to do for clients and meeting their investment objectives and strong client engagement and service. So as long as we're doing a good job, we would expect that to continue. And, again, I made the point earlier, the lower effective fee rate, if you look at maybe it was a peak around end of '07, and I think that was the year where the vast majority of that is explained by asset mix shift from equity to fixed income, which you would understand with the markets that have been around with one caveat being as equity markets come back, we would expect that effective fee rate would increase with that asset mix. It probably won't get as high as it did just because of some of the very long history of Van Kampen funds that came overhead, lower effective fee rates. But, again, it's very, very strong capabilities. And I don't know if Loren has feedback.

Loren M. Starr

I think you handled that one right.

Operator

Our last question does come from Jonathan Casteleyn of Susquehanna.

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

Can you talk to remaining capacity in the real estate business on the listed or direct side? I mean, realistically, should we expect some level of saturation over time or are these businesses that can still call it double from here? Is there still ample room to grow? Can you comment there, please?

Martin L. Flanagan

Yes. Let me make a comment, then Loren can. I mean, I think first and foremost, all of our investment management teams are driven by generating the returns for clients. And when they say it's too much, it's too much and they'll stop. And I don't think -- there are natural limitations in different areas. And, again, I don't have -- I have not had the specific conversation. On the direct side, there's probably some limitations. On the listed side, there's probably some limitations, too. So I think extrapolating through the moon is not a good thing, but I don't know if you...

Loren M. Starr

Yes, I think that's true, and I think the good news is with our footprint in real estate, in particular, the fact that we now have a global capability, I mean, there is opportunity for us to grow and in certain types of disciplines within direct that we haven't had before, as well. So if we focus on core and value, we're now looking at some other opportunity type of funds. So I think our ability to grow is growing, put it that way, through some of the recent acquisitions that we did of AIG's real estate business at the end of the year and our success in the region. So I don't think there's anything that's going to stop our real estate business from continuing to grow.

Martin L. Flanagan

And I didn't want to leave that as a -- we're not near that story yet.

Jonathan E. Casteleyn - Susquehanna Financial Group, LLLP, Research Division

Okay, great. And then just quickly on the Canadian PowerShares business. Can you remind us what percentage of the current PowerShare business it represents? And then maybe the contribution in the quarter, was the delta solely contributed to Canadian business in the quarter? It was a very strong ETF result in 4Q.

Loren M. Starr

Yes, so I think the Canadian business ETF growth has been significant for Canada in the sense that they've seen a lot of interest in those types of products. And we had listed some products. So I think it's probably at the point of maybe getting to $1 billion. So it's new. And within the quarter, that's not going to be all coming in that quarter because it started before, so maybe it's $0.5 billion. But that is the smallest piece of what's going on with the ETFs in the quarter. I mean, I know people asked and I probably should just let you know. In terms of, in the quarter, we had, in terms of the Qs -- let me just give you that. But between the Qs, the QQQs and the Deutsche Bank PowerShares product, it was $2.2 billion of the flows related to those 2 products. They can move around. Just as a point of comparison in Q3, it was about $1 billion between those 2 pieces. So the thing that's really moving the most would be in somewhat those 2 volatile categories.

Martin L. Flanagan

Well, thank you very much, everybody. We appreciate the interest and the questions, and we look forward to talking to you next quarter. Have a good rest of the day.

Operator

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Source: Invesco's CEO Discusses Q4 2011 Results - Earnings Call Transcript
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