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Executives

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

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

Analysts

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

Michael Carrier - Deutsche Bank AG, Research Division

William R. Katz - Citigroup Inc, Research Division

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

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

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

Roger A. Freeman - Barclays Capital, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Kaimon Chung - Nomura Securities Co. Ltd., Research Division

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

Cynthia Mayer - BofA Merrill Lynch, Research Division

Christopher Shutler - William Blair & Company L.L.C., Research Division

Matthew Kelley - Morgan Stanley, Research Division

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

Invesco (IVZ) Q2 2012 Earnings Call July 26, 2012 9:00 AM ET

Operator

Good morning, and welcome to Invesco Second 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, 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 today. I'm on the call with Loren Starr. And I'll be speaking the presentation that's available on our website if you're so inclined to follow. And it's our practice, I'll review the business results for the quarter and Loren will spend more time on the financials. And then the both of us will answer any questions anybody might have. So if you happen to be following on the presentation, I'm on the Overview slide.

But before we go into the numbers, I'd like to provide a sense of the macroeconomic environment that our business operate in, in the second quarter. Your, clearly, investor confidence was under pressure with deteriorating economic climate in Europe and sluggish U.S. growth, and even people's perception of the strength of China entered into the psyche of investors. And in this uncertain economic environment, investors naturally were seeking safe havens and acting very defensively like the difference from the first quarter. We're spending a lot of time with our clients as many are trying to navigate the environment. But given our broad range of investment capabilities, we believe we're well-positioned to provide outcome-oriented solution to meet our clients' needs in this challenging environment.

But with that as a backdrop, let me highlight the firm's operating results for the quarter. I'm on Slide 3 now. Long-term investment performance was strong across all time periods for the second quarter. Our investment performance contributed to solid operating results despite of the challenging markets. Invesco's quarterly dividend is now $0.1725 per share, representing a 41% increase over last year's dividend and reflecting continued confidence in the fundamentals of our business. Return of capital to shareholders totaled $153 million during the quarter. Reflecting the challenge of the operating -- of operating in a volatile market, assets under management ended the quarter at $646 billion versus $672 billion at the end of the first quarter. Total net long-term outflows were $4.9 billion for the quarter. Operating income was $249 million for the second quarter versus $269 million in the first. The operating margin was 35% for the second quarter as compared to 36.6% in the first quarter and earnings per share were $0.41 versus $0.44 in the prior quarter.

Turning to investment performance. A continued focus on investment excellence and our efforts to build and maintain strong investment culture helps us achieve solid investment performance in spite of the volatile market environment during the quarter. And as you can see, 73% of the assets were ahead of peers on a 1-year basis. This is the highest number since August of 2009. 73% of the assets were ahead of peers on a 3-year basis and 77% of assets were ahead of peers on a 5-year basis, so very, very strong investment performance across the organization. And as I mentioned earlier, net long-term outflows were $4.9 billion, clearly reflecting the challenges in the market during the quarter as investors reacted to a barrage of negative economic news. But importantly, in the first few weeks of July, we've seen a sharp turnaround in flows, and we'll talk about that in more detail.

Before I take a look at -- before we look forward, let me highlight some of the movements of the flows in the second quarter. After a very robust quarter for ETFs, marketplace demand reversed and investors' sentiment turned towards risk aversion. Retail asset outflows were composed largely of $2.1 billion and assets related to the PowerShares QQQs and another $900 million in PowerShares DB commodity products. Traditional PowerShares ETF business continued to be less volatile and saw $736 million of inflows during the quarter, at a rate of growth well in excess of our industry market share.

Institutional flows were marked by one-off outflows of $3.2 billion in low fees, stable value, fixed income assets and global equity assets, reflecting the risk off behavior we saw during the quarter. As I mentioned earlier, we saw a turnaround in the direction of flows during July, and we're confident of the future organic growth in spite of the challenging quarter. Contributing to our optimism within the institutional channel is a sharp increase in the number of buy ratings amongst U.S. consultants on a broad number of capabilities. Buy ratings nearly doubled over the past year to an all-time high for Invesco and there's still plenty of upside.

We're also seeing very strong RFP activity with a 49% increase in momentum during the second quarter of this year versus the second quarter of the prior year. Specifically, during July, we're already seeing strong demand with flows into real estate, international growth, bank loans, balance risks and stable value. We also saw strong demand in July for Invesco mortgage capital with an equity raise, which will result in $1 billion of assets under management. As importantly, yields on the inflows are significantly higher than [ph] the assets that outflowed during -- from the business during the quarter.

Turning to Page 9. Again the depth and breadth of the investment capabilities are strong investment performance, and our focus on client engagement have resulted in solid momentum in our U.S. Retail business during the second quarter.

U.S. net flows, excluding the PowerShares QQQs, remained positive at $700 million were driven by continued market share gains in gross sales and below industry redemption rates were at 25% versus the industry's 32%. Also very importantly, 38 of our U.S. mutual funds, representing 60% of our assets under management are rated 4 and 5 stars by Morningstar. These funds include U.S. in International Equity, fixed income, alternatives and asset allocation. The strong ratings for these funds combined with solid growth in platform placements are contributing to robust growth in our mutual fund and self-advised business. While we experienced a modest slowdown from the first quarter, our year-on-year growth in the first half continues on a strong positive trajectory after normalizing for the large stable value wins in the first quarter of 2011. U.S. Retail mutual fund gross flows were up 28 -- gross sales were up 28% in the first half versus the same period a year ago.

Moving on to Page 10. Global multi-asset suite of products has generated tremendous interest in clients all over the world to a capability with strong long-term performance and survived high level of protection in a volatile market. And you'll find the appropriate footnotes regarding the performance in the appendix.

The Balanced-Risk Allocation mutual fund in the U.S. achieved a 3-year track record and a 5 star Morningstar rating on the load weight basis in June and as a result, we're seeing more clients add this capability to their platforms. As of June 30, 1-year performance for that Class A share Mutual Fund in the U.S. is top percentile and a 3-year performance in top decile. As a result of the strong performance multi-asset suite flows have moved up very nicely over the period. With assets growing steadily to nearly $16 billion. And although we're pleased with the performance of our asset allocation capabilities, it's important to note that they represent only 25% of the first half mutual fund gross flows -- gross sales, while equities remained the majority at 60%. And beyond ABRA, we've been focused over the past year on broadening the penetration of the risk parity suite, which includes the ABRA commodity product and also the ABRA premium income product; secondly, strengthening our income suite of strategies in equities and fixed income; thirdly, emphasizing our top-tier International Growth products. And with this as a foundation, we're very well-positioned for when the clients begin to move towards equities.

Given the activity we're seeing in July, we are cautiously optimistic as it appears clients are easing back into the markets, particularly in the United States. There are a number of reasons for that. One might be that the housing seems to be lifting itself off the floor. U.S. companies continue to perform quite well and there's a growing consensus that the Fed might be accommodative again in the third quarter.

More importantly, clients realize that the low level of returns provided by safe havens like U.S. Treasuries are not going to get them where they need to be, earning nominal 1% equates to a real loss over the long-term and will provide growth that the pension funds need to meet their commitments or individuals' need for retirement. And I mentioned earlier, we're spending a lot of time with clients, certainly, our balanced risk capability is part of the conversation, but we're also seeing strong interest across a broad range of asset classes and our very competitive investment performance is helping us win additional mandates from clients -- from current clients and is also attracting new clients to the organization. So with that, even though it has been a difficult backdrop, we feel we're very, very well-positioned in this marketplace. So Loren, turn it over to you

Loren M. Starr

Thanks, Marty. So turning to the financial part. We'll look at AUM. So you see that AUM declined $26.2 billion quarter-over-quarter or 3.9%. That was a combination of the following: market and FX, which contributed to $17.9 billion of the decline; long term net outflows of $4.9 billion; and then net outflows from Money Market products of $3.4 billion.

Our average AUM for Q2 was down 1.1% to $651.2 billion. In addition, our net revenue yield in Q2 came in at 43.7 basis points, and that was a decrease of 1 basis point quarter-over-quarter. And this drop was due to the combination of 3 factors: first is lower transaction fees in other revenues and that accounted for 0.4 basis points of the decline; lower performance fees, and that had an impact of 0.3 basis points decline; and then the mix net of distribution resulted in the final piece, which is a decline of 0.3 basis points.

Let's turn to the next slide and cover operating results. We're seeing that net revenues declined $24.2 million or 3.3% quarter-over-quarter and that included a negative FX rate impact of $3 million. Second, it's a bit [ph] further. You'll see that investment management fees decreased $10 million, 1.2% to $802.1 million, and this decrease was in line with the decline in average AUM we experienced from Q1 to Q2. FX decreased our investment management fees by $4.1 million quarter-over-quarter.

Service and distribution revenues were down $1.9 million or 1%, also roughly in line with our lower average AUM and investment management fees. And FX decreased this line item by $0.4 million. The performance fees came in at $15.5 billion. That was a decrease of $5.7 million versus Q1. The performance fees earned in the quarter were generated primarily from bank loans and also our Global Quantitative Equity group.

Other revenues in the second quarter were $26 million, that was down $7.1 million. And this decrease was a result of lower transaction fees from our real estate business, as well as lower UIT revenues. As Marty mentioned, we saw a lot of uncertainty in the second quarter, and this uncertainty adversely affected both of these revenue streams. FX decreased the revenue in this line item by only $0.1 million.

Third-party distribution service and advisory expenses, which we net against gross revenues, decreased to $0.5 million or 0.2%, and FX had an impact of $1.6 million on this line item. Moving on down the slide, you'll see that our adjusted operating expenses at $463.1 million decreased by $4 million or 0.9% relative to Q1, and FX decreased operating expenses by $2.4 million.

Employee compensation at $306.5 million fell by $6.5 million or 2.1% the first quarter, as we talked about before, includes seasonally higher payroll tax costs and retirement costs. So the benefit of these expenses rolling off into the second quarter were offset by a full 3 months worth of salary, increases in deferred compensation increases that took effect at March 1. So the net reduction in the quarter was the result of variable compensation flexing down. FX decreased compensation expenses by $1.3 million.

Marketing expenses decreased by $0.2 million or 0.7% to $26.8 million. The entire decrease was due to FX. Property office and technology expense came in at $67.8 million, an increase of $1.5 million. And that was due to a $1.7 million exit charge for leased space, as we consolidated office space in the Chicago area. FX decreased these expenses by $0.5 million.

G&A expenses came in at $62 million. That was up $1.2 million or 2%. We've seen our professional services cost increase somewhat, as we prepare for several new regulatory compliance requirements with the onset of new rules, such as [indiscernible] ADR and [ph] to name just a few. FX decreased G&A by $0.4 million.

To continuing on down the page, to nonoperating income you saw that, that decreased $3.4 million versus the first quarter. This decrease was due to a negative FX impact on our intercompany loans, as well as the noncash write-down on certain seed capital during the quarter.

The terms -- the firm's effective tax rate on pre-tax adjusted net income in Q2 came in at 24.5%, consistent with our previous guidance. Going forward, we continue to expect our effective tax rate to be somewhere between 24.5% and 25.5%, which brings us to adjusted EPS at $0.41 and a net operating margin of 35%.

So before turning things back to Marty, I just wanted to point out additional disclosures that we'll provide as part of our regular quarterly press release and which we hope you will find and our investors will find helpful. As you've seen in this quarter's release, we included a full balance sheet and cash flow statement that fully eliminates the distortive noise of consolidated investment products. As you probably know, U.S. GAAP forces us to consolidate about $7 billion of our investment products, consisting of many of the CLOs we manage. The impact of these products that we consolidate ripple through all our financial statements and quite often provide a very misleading view of the firm's true financial position. And we believe that deconsolidating these products from our balance sheet and cash flow will provide you, our investors, with a more accurate picture of our financial position and will allow for more appropriate comparison with our peers. For example, based on our U.S. GAAP balance sheet, you would think we're a highly levered institution with the debt-to-equity ratio of 70.3%. In fact, that's what Bloomberg fact set [ph] virtually all the other third-party data providers will show because they're using the U.S. GAAP numbers.

Our ratio, without the consolidated product is only 16.9%. And in fact, we have seen an almost 20% improvement in our true debt-to-equity ratios and debt-to-EBITDA ratios over the last year, while our operating cash flow in the first half of 2012 has improved almost 200% versus the first 6 months of 2011. So it's our hope that by going forward and going forward that these new disclosures will provide a more accurate picture of the firm's financial position, and that the investment community will see this. And then I will now turn it over to Marty.

Martin L. Flanagan

Thank you, Loren, and we'll just open up to Q&A, please.

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, can you just maybe dimension the snapback and flows thus far in July that you mentioned earlier, and then sort of talk a little bit about which products or channels are generating those flows?

Loren M. Starr

Hey, Michael, it's Loren. The snapback has been pretty dramatic. I would use the word. I mean I don't like to use such a explosive [ph] hyperbole, but it's been pretty dramatic. So we're definitely seeing something that's much more like I'd say the first quarter than what we saw in the second quarter just to give you a sense of the size. Obviously, we're only into the quarter so many weeks in and so again we're cautiously optimistic that we're going to see a continuation. It's across many different products. So it's certainly the Qs, you can see those numbers pretty clearly, but it's not just the Qs. It's definitely across some of the real estate, bank loans, RDR that we talked about so it's across many, many different categories and geographies, so I would say as well.

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

Okay, that's helpful. And then just thinking about retail distribution as IBR continues to broaden the fund's reach, particularly with the 3-year anniversary. Is there maybe an opportunity to showcase some of your other funds as you have these discussions with the gatekeepers? Or is this something your wholesalers are kind of already out there doing?

Loren M. Starr

Mike, let's just say you're talking about the ABRA, not the IDR, right? [indiscernible]

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

Yes, that's right.

Martin L. Flanagan

I was trying to make that point. I think very, very importantly, just come back to a couple of comments. One, if you just look at gross sales in the first half of the year, the 20% of the sales are represented by the ABRA suite -- the 25% by the ABRA suite; 60%, still are represented by our equities. And if you then look at the ratings, as I said, 38% of our retail funds representing 6% of the assets are 4 and 5 star rated. And we have for over a year been focused with our distribution partners, a broad range of our capabilities, our flagship funds, the equity income products, the international products, the high-yield munis, so a very, very broad range of capabilities. And I think that's very important just from, I think -- by the way, you're asking the question. We think it's the right thing to do for clients. And we have a very, very strong range of opportunities for the different firms, and we're very, very focused on that.

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

Okay. And then just finally, it seems like you're more focused on streamlining the franchise. So just given the potential for regulatory reform and the outlook for rates, how are you thinking about the Money Market fund business these days? What's the argument here for continuing to kind of absorb the fee waivers and the outflows?

Loren M. Starr

Mike, I just -- one point, I would say the fee waivers that we've had to -- now that we've had with our Money Market has been minimal probably about 5, maybe a little bit more million for a full year. So because we really has been mostly institutional basis. And in fact, we're seeing repo rates improve. And so the fee waiver topic has actually been a little bit alleviated generally for the industry, I would say just in this -- coming into this quarter. And obviously, the outflow that you saw this quarter, I think, was a little bit of anomaly. I think it was 1 client who -- there's a lot of specific sort of 1-client activity that caused some of the outflows. Generally, we think that the Money Market business will continue to grow x any regulatory overlayer topic that's still a very important product for institutions and they're using them.

Martin L. Flanagan

And I would just add, from where are we in this first and foremost, it's -- the money fund product is an excellent one. The other forms the SEC put in place in 2010, they are absolutely working. There is clear evidence of that. There is -- you could be responding to a lot of noise from the regulators right now about further reforms. And again, we and the industry continue to make the very ballad and accurate comment that the reforms are working. It's a great product. It should stay in place. And as you can see from the other recent public comments from a number of the SEC commissioners, they are also uneasy with moving forward with further regulation and something that seems to be working very well until you have to give these reforms more time to continue to improve, make them successful and to have a robust cost benefit analysis. So again, if you could just come back to us specifically, our money front team is very, very strong. And we think it's a great product and it's doing good things for clients. So we're happy where we are.

Operator

Our next question does come from Michael Carrier of Deutsche Bank.

Michael Carrier - Deutsche Bank AG, Research Division

Marty, you hit on some of the unusual items just in the quarter when we look at the flow number. And maybe a little additional color. It just seems like when you look at the overall performance, things are good, and particularly just given this environment and relative to a lot of your peers. And so when you look at where the outflows were coming from, is it more product-specific? Is it more certain clients? And probably more importantly, are there some of those trends you know that you're likely to continue to see or like you said in July you've seen a pick-back up in activity but just more like the outlook like is there still decent demand in some of the products versus what you saw in terms of some of these anomalies in the second quarter?

Martin L. Flanagan

Yes, it's a good question, so let me try to refine my comments. So I believe that the world is going to exist. I believe that the markets are actually going to ultimately be positive, and that there will be greater clarity of confidence for investors to move forward. Every time that we have these scares, right, we're still coming out of a crisis period where clients seems to be, they get scared, they stop. And so you saw in the second quarter, really, this fear enter into clients again and not just retail, but also institutional clients where they stopped a number of decisions or they would make a risk off move. And so our basic view is you have to separate that from what we're trying to point out is the underlying growing strength of the business, whether it'd be the broad, deep investment performance of the organization, the buy ratings, the number of buy ratings being increased, the number of RFPs that are being picked up. So when you look at RFPs, buy ratings, there is definitely a movement towards people wanting to make decisions. They know they can't be earning 1% in a cash product. And so it's really, when confidence is in place, they'll move forward. Then if you look just specifically for us and, again, I think, it was an area where you had a big stable value decision, where a firm decided to go to a Money Market fund from a stable value movement out of a big global Equity decision was a risk off type decision. So again so they look exaggerated in a quarter when people continue to make these strong moves, risk on, risk off. I personally think we have a couple of big topics whether it'd be Europe or our fiscal situation in the United States. But I think frankly you can see the end of the tunnel in looking into next year. Pretty good outlook.

Loren M. Starr

Another thing I would add is -- I mean, all these things are pretty chunky, right? So things come in, things come out. They really do sort of create some noise within the quarter. I think as Marty said when things get volatile, things slow down in terms of coming in, you'll tend to see more coming out, but on balance, the stuff that we see on the horizon, big chunky things coming in, by far, outweigh stuff that might go out. So I'm not saying things don't go out, things will go out still, but far and away the stuff coming in that we're seeing is well in excess of those elements going out. So that's why we're confident.

Michael Carrier - Deutsche Bank AG, Research Division

Okay. And then, Loren, maybe just on a couple items just in terms of the waivers not in the money fund but just on the core funds that you're likely going to get that benefit. Just wanted, like, any update on that. And then just some of the items that tend to be more volatile like the other revenue line, or anything in expenses that stood out this quarter that might not be recurring.

Loren M. Starr

So our waivers, I mean, good news is that's going to happen, and so you'd expect to see that starting. Well it's always happening. So we're looking forward to seeing that improve our revenue yields into the last half and then going forward. The other revenues that you said was probably the biggest surprise. Not -- it wasn't really a surprise in a sense that we've seen in the past and where when markets get volatile, transactions slow down and sellers become less willing to sell and buyers become more cautious. And that's kind of what we saw. We think that, that will recover somewhat. But again I think we need to sort of be realistic that it could remain at somewhat lower levels into the last half of the year depending on what sort of market we're going to see. But I would be hopeful that we'll see some left off of the current number being closer to high 20s, 30s, as opposed to mid-20s. So that's something I think it's hard to model. I couldn't tell you exactly what to put in there other than I'm hoping it's going to be somewhat better. Given -- certainly given what we are seeing in July. Generally, there seems to be a lot -- slightly better mood in terms of the markets. So I think that's the kind of one part of it. In terms of the expenses, I think we highlighted that we're sort of a one-off $1.7 million exit charge, obviously, that would not be recurring. I don't think there's anything that I would say is particularly noteworthy in the quarter that I need to point out as being unusual or sort of falling away or coming in.

Operator

Your next question comes from William Katz of Citi.

William R. Katz - Citigroup Inc, Research Division

A couple of questions. First one, just you mentioned that you're seeing nice pickup in both the RFP as well as some of the number of consultants that have you on their recommendation list. Can you talk a little bit about maybe some of the dimensions that's driving qualitatively the increase, obviously, very good development?

Martin L. Flanagan

Let's see. So from a qualitative point of view, I think, Bill, it's a combination of consistent, good, long-term performance like that. That allows you to have a conversation with consultants and clients, right? That's the prerequisite to it. Then at the same time, over the years, as the consultant team has now been in place probably 1.5 years, and they are dramatically improved from what we've had in the past. And they are very, very capable and they are doing a very good job connecting with the consultants. And then thirdly, I'd say just from the RFP pickup separately from existing clients or new ones, it's really, frankly, again, just the combination of the performance of the firm, the stability of the firm and the range of capabilities of the firm. And I think those are really the quality, the factors that are ultimately driving what we're seeing. Now with the RFPs being much higher, I mean, obviously, we still have to win them but I mean it's a very different -- and the same thing, just gaining a buy rating doesn't mean -- buy plus rating doesn't mean you're going to get the business, but they're absolutely prerequisites for success.

William R. Katz - Citigroup Inc, Research Division

Just on that, is there a way to qualify, I mean, what your win rate might be among those RFPs and what's the lead lag when you get onto a consult -- a new buy recommendation perhaps?

Martin L. Flanagan

So I don't have the win-loss ratio, Bill. But so and again, this is probably from the lead times to conclusion. I mean they just tend to be quite a bit longer institutionally, right? And they can be a couple of quarters just because that's the timing that the meetings with the different consultants. And again, I just want to reiterate as important it is to have the buy ratings in place. It doesn't mean necessarily that you're going to -- it's going to be a dramatic uptick in flows in the next quarter.

William R. Katz - Citigroup Inc, Research Division

And then just one last question. Obviously, very well-positioned with the risk premium platform broadly. Where do you think the industry itself stands particularly in U.S. retail in terms of adoption of the product? It's obviously been a strong product for a bit of time now. Is there any ease or letup that you're seeing in any of the distribution channels away from the allocation or is that still sort of full speed ahead?

Martin L. Flanagan

No, it's full speed ahead. I mean I think what we've talked about in the past, Bill, and I think everybody on the call would realize -- it's -- what's been abnormal about it is that it's usually you need it through your track record before you move forward, and it's been great success prior to a 3-year track record. And yes, frankly, because of quality of the team has been together so long I think was something but it was still very unique. So even post -- look, it's only a few weeks post the 3-year track record, but all the negations are the platforms. It was not because of it that they're going to go on and there just continues to be interest. And I think even more broadly, the marketplace, the financial advisers are -- there is a broader movement. I think going forward and I don't think it's a 3-month, 6-month phenomenon, but by a multi-year phenomenon that we're looking more to asset managers more and more to be solutions providers for them. And asset allocation type capabilities are going to be here for a long time.

Operator

Our next question comes from Ken Worthington of JPMorgan.

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

You changed the head of the retail distribution with Peter Gallagher. Can you maybe talk about what he brings to the table? And obviously the goals are better retail sales but what are maybe his more specific mandates in improving and growing the retail business?

Martin L. Flanagan

Yes. So I wouldn't put it necessarily around an individual. There are a number of changes that we made during the quarter and frankly, what it was more of a response into the marketplace evolving. So we just see a much tighter integration between marketing, sales, product development, execution, and so a number of the changes were much more reflective of trying to match up that way. Peter is obviously a very important part of that, driving the sales component, very talented, been with us for many, many years. And so we think, again, we're responding to strategic directive in the marketplace, and we have -- it's really building on success, and we think we've been effective over the last number of years, and we think this approach will make us even that much more effective.

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

Right. Kind of on the same line, the Van Kampen performance numbers looked particularly good. And as you think about kind of market conditions, changes that have happened at Invesco and distribution over the last couple of years, how do you capitalize on that? How confident are you that you can capitalize on that, or is this just kind of a situation where market conditions are still really the real driver here and it's always nice to have better performance than worst performance but it's hard to have conviction that this can turn into a turn in sales even if it persists for -- a good performance persists for a while?

Martin L. Flanagan

That's a good question, Ken. So here's been our approach. They are very strong performing. There is a market condition that is adverse to equities, generally. That said, what have we been doing and we have been doing it again for over a year is that what we're focused on what's the right answer for clients. And looking at how should the clients be positioned into the markets going ahead. And that we frankly are concerned that you could get -- a client could end up upside down they're -- have too much money and Fixed Income products, and we really think a broader allocation into equities, equity income-type products, yes, and Fixed Income, and so we have had a program for over a year with head offices. And again head offices understand this, they're working it very hard, but so are we. So our conversation is not a single threaded [ph] fund. It is a broad range of capabilities of which, I will call our flagship funds. And yes, Van Kempen, the Equity Income-value type products are an important part of that, have been a part of that dialogue. And again, we are thinking that we are probably going to be closer to that being attractive again for individual investors than not. So we're not going to let -- we are not ignoring it and we think it is the right thing for clients and we think it will ultimately do very well.

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

Okay, great. And then for Loren, just a little one. For the bank loan performance fees, is there a payout here, or is there any component of compensation associated with that element of performance fees?

Loren M. Starr

There is, Ken. There's a small percentage, usually performance fees could be 15% comp paid out, but it can range up to 50, so it depends on the area. I don't want to get specific about what our bank loan group gets paid. But yes, there is a comp element.

Operator

Our next question does come from Jeff Hopson of Stifel.

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

Could you maybe drill down a little bit from a geographic standpoint and give us the highlight, lowlights in the U.K., Europe and Asia, please?

Loren M. Starr

You talking about for the quarters?

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

Outflows in the quarter?

Loren M. Starr

Because we -- all right. We certainly do provide some detail in the back, and I think it's in the presentation. So we saw sort of outflows across most of the regions other than Continental Europe, if I'm correct here. And we -- some of the one-off things that Marty talked about rippled through the geographic elements, the stable values will be a U.S. phenomenon. There were certainly some -- we talked about in the past in terms of the U.K, there was 1 placement, 1 platform placement that adjusted the amount of corporate bond product that we had, so that was probably the biggest piece of what was going on in the U.K. Canada is actually an improving story. I would say that the outflows continue to get less, and we're seeing more growth in sales and the performance, I would just highlight, we didn't talk about it. It continues to improve significantly across the time frames that people care about. So I would say Invesco, Canada, Trimark product are all sort of really on the right trajectory to say that we're seeing improvement here. The Continental Europe positive flows were off of a lot of the balance risk product and also some of the Fixed Income product. And then in Asia, we saw some outflow really was one capability. That was really saw [ph] Australian equities an that probably limited. So that's not something that's going to recur. So it's a one-off thing around each region. Generally, good strengths across all the regions if you back those pieces out.

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

Okay. And on Premia Plus in Europe and the U.K., I think the U.K, it was just more recently added. So the question is, how significant are the flows outside the U.S.? And would you say that, that can ramp up?

Loren M. Starr

So outside the U.S., the biggest elements would be in Canada and in Continental Europe. I think within -- the biggest one will be Continental Europe out of the 2 right now. I think that was probably somewhere around $500 million within Continental Europe for the ABRA product, and that's one we think we will continue to grow, and we do think that one on Canada will continue to grow. The U.K. is pretty new. The introduction was just happened at the beginning of the year. They've spent some time introducing the product. I think that it'll take more time before it will take -- and get traction but it's one that, I think, if you ask the U.K. team, they're very optimistic that it has a lot of potential to grow, but it just takes time. It took a lot of time in the U.S. It'll take time in the U.K. Now we recently introduced it into Asia as well, I think, in Japan. That's also pretty new so it's going to take some time there as well. But overall, I think there's a lot of demand for this product. It's one that is our hope bowl [ph]. See [ph] what will happen in Continental Europe will also happen in each of the regions.

Operator

Our next question does come from Daniel Fannon of Jefferies.

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

I guess, Loren, first just in regards to kind of buybacks in capital and you paid down some debts this quarter. I guess how should we think about kind of the mix going forward for the remainder of the year?

Loren M. Starr

Yes, I think we did about half in buyback and half in dividends. I think we have said we're trying to make dividends the bigger feature in terms of how we return capital. So we didn't do that. Dividends will be more of the future going to the second half than buybacks. I'd say in the vacuum, obviously, we do pay attention to the stock price. We do look at opportunities. And so we don't have some sort of formulaic approach to how we would do buybacks, so we will take advantage if we see an opportunity. So again I think we're -- our interest is probably still pretty high in terms of buybacks just generally because the price seems depressed and relative to our level of optimism. There's a disconnect there. But we are obviously going to be disciplined in terms of how we use our capital and then return capital, and we do have some desire to continue to work on the credit facility, which picked up a little bit in the second quarter. So I do think it's going to be a balanced approach through the second half.

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

Okay, that's helpful. And then I guess one of the other segments you talked about was real estate in terms of pickup, I think, in July. So does that mean you're basically deploying more capital in terms of investment activity picking up?

Loren M. Starr

Well, I think in terms of the level of new fund launches and the things that were supposed to happen in the second quarter that didn't, that got pushed in the third quarter, that stuff is happening now. And so I'd say we feel very optimistic about the pipeline there on real estate. I think generally in terms of the speed with which they are deploying capital, I think, may still be at a slightly lower level than what we've seen historically. But in terms of the interest of the products and the win rates and the RFPs, that is going very strong.

Operator

Our next question does come from Roger Freeman from Barclays.

Roger A. Freeman - Barclays Capital, Research Division

I guess on ABRA. I think, I heard you say it's been about 25% of flows year-to-date. I'm wondering if that curve is steep, and I think the flagship one hit, it's 3-year performance margin in June. I'm wondering if you've seen any acceleration on that yet, or is it too early?

Loren M. Starr

Roger, well it's like the day after that 3-year record we got, I think, 2 huge -- 2 large platforms that came in. So it definitely had an impact, and I'd say we do think it's going to have continued impact going forward. We obviously got the Morningstar rating too. It took a little later after we got the 3-year record. I think there is going to be some advertising promotion around the 5-year. We've got a 5-star rating what [ph] waived on that product, and so that probably will also help accelerate the knowledge of this product, which is again pretty new on the scene.

Roger A. Freeman - Barclays Capital, Research Division

Okay. And broadly on the U.S. retail, new equities mutual fund complex just the redemption rates obviously are still below industry norms, but seems to pickup slightly versus the industry staying flat. I'm just wondering as we think about the Van Kempen and they continue towards synergies around that, and getting on new platforms. Has that at all plateaued? Do you have new products that were launched or platforms that launched in the quarter? Or is it just more a function of product mix and how that played out?

Loren M. Starr

Roger, I think it's going to be mostly a function of existing product mixes. I mean we have merged a few new product -- a few -- there was some other fund mergers and there's definitely some closed and fund mergers that took place. So I don't want to say that everything's completely done because we still have a little bit of activity that completed and needs to get completed by the Q3. But I'd say, generally, it's not about new products and new positioning. It's really just execution on the existing set of relationships that we have.

Roger A. Freeman - Barclays Capital, Research Division

Okay. And then lastly, on the institutional side, you commented the -- as you look out, the wins exceed the losses, is that not almost always the case? And as the lead time, obviously, on new wins has to be a lot longer than what kind of warning you get when money is going to come out. And I'm wondering if maybe you can answer that and somehow quantify like on a weighted basis, thinking about what odds you think you have of winning in a business that you're prospecting right now. How that compares to say a year ago? I mean how much is that up?

Martin L. Flanagan

So if I'm understanding the question as I said the RFP activity is up quite dramatically period-over-period along with all the buy ratings. And to your point, yes, we -- probability weighs in all these different types of things and I would not have the confidence to publish those by any stretch of the imagination. But I think you're also very much on the right point where we also like any good organization, you're always trying to pay attention to the client. And when you have a topic, whether you're relatively underperforming or a client is going through a rethink of the asset allocation, you're engaged in those processes. But by the way, the least transparent bits of information you get are when you're going to be terminated. And they can literally happen and that's where we just said, very imperfect information. I think that's probably broadly across the industry. We're trying to stay on top of it, but it happens very specifically and that would happen again the sort of past quarter, right? It's literally driven by 2 things. Recently, I'd say, recently over the last 1.5 years, it would be de-risking within portfolios and all of a sudden liquidity-driven-type reallocation. So again, we try to get better and better at it, but again that is the hardest part of the whole thing.

Operator

Our next question does come from Craig Siegenthaler of Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

As we look over into the third and the fourth quarter, can you help us think about performance fee potential composition just in terms of seasonality because there some products that only payout in certain quarters. So just which products have the potential to payout in the third and fourth quarter? And also maybe help us think about, which of these products are at high-water marks or above high-water marks that could actually generate fees?

Loren M. Starr

So I guess in terms of things that would payout in Q3, I think there is an emerging hope I would say on our side. That we're going to begin to see more Quant [ph] performance fees. We saw some small performance fees. Their performance is really dramatically turned, and so I'd say they're moving closer into the territory where we might begin to see performance fees coming back on that capability. Still too early I'd say to clear that, but it's sort of if you remember, it features a lot in our prior performance fees historically and then it stopped for a while. So that's some kind of one element. But Q4, you'd see the U.K. and you'd see Atlantic Trust as 2 elements. The products and our network business might trust that is generating performance to MLP product is doing well. It's above its benchmark and so it certainly, at this point, if you were to stop the music and you see a nice performance fee there. But it's very volatile. So again it's hard to predict and hard to forecast. The U.K. would also have some amount of performance fees. It tends to be more of a first quarter than a fourth quarter event. And then real estate is another element that could definitely show performance fees. We've seen some good performance fees coming from real estate. I think we would hope to continue to see performance fees coming from real estate, could be Q3, could be Q4. But the performance is very good there, and so that would be another place. Bank loans can also generate it as I mentioned, and we saw some of this quarter, but that's usually, it's is some [ph] sort of a wind down of an existing CLO sort of rolled into another one. And so those don't happen all the time, but when they do you can definitely see those fees come in.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. Great color, Loren. And then just on the Van Kempen Invesco Inc. [ph] Fund Mergers, June 15, was one of the numbers you talked about previously, but can you talk about the potential for pickup in fees and revenues in 3Q versus 2Q? And just help us think about, if some of these actually close maybe a little bit later how we should think about the step up in fees.

Loren M. Starr

Well, I think we've said that fee waiver was sort of $30 million annualized. That was kind of the impact, and so we'd see sort of coming in $7.5 million a quarter in revenues Q3 versus Q2. So that'd be the numbers I'd point to. I think that's largely directionally correct, plus or minus. It's probably not much more complicated than that.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. And if I can just ask one more. How should we think about the run rate of alternative flows, you've had kind of 2 weak quarters in a row here, but then you have some potential drivers, some areas that are actually raising assets. How should we think about kind of how alternative flows should trend over the next few quarters here?

Loren M. Starr

Yes. It's a good question. So when we think about alternative flows, we have to sort of pull into various pieces. Some of the noise that you've been seeing in terms of the outflows have been related to the Deutsche Bank PowerShares products, which are the commodity products. And so commodities were [indiscernible] out, as Marty mentioned, I think $0.8 billion or something like that or $0.9 billion in the quarter. So that can sort of run, plus or minus depending on what people are doing with in thinking about commodities. The real estate is another piece. And as I mentioned, I think that's one that will continue to run. We did see a little bit of slowdown in terms of acquisition activity meaning the funds acquiring new assets, just because the volatility in the markets. We're hopeful that, that will sort of lift a little bit into the second half, which could help flows come in because we don't recognize those commitments until they translate into investments. So we think that will help. We saw some private equity come in this quarter. That probably is not something that would continue. Obviously, that was related to just the fund 5. And then bank loans, it would be an area where I think we would hope to see more activity. We've seen a lot of interest sort of emerged in Asia and other places for this capability. It's one that has been put on buy-plus ratings with our consultants and so we think it is sort of in a good position because we are one of the market leaders in that space right now.

Operator

Our next question does come from Glenn Schorr of Nomura.

Kaimon Chung - Nomura Securities Co. Ltd., Research Division

It's Kaimon Chung in place of Glenn Schorr. I just wonder if could comment on the new rule by the Europe Securities Market Authority that's going to eliminate securities lending profits for funds operating in Europe. What's potential impact for IBC and maybe additional commentary on other rules on the EPS?

Martin L. Flanagan

So for us it's obviously very European-focused topic. And so 2 levels. One, we don't have a lot of exposure in European EPS so it's not applicable. But secondly, just as a practice, that's not what we do. So if we securities lend, all the benefit goes back to the funds, which we think is frankly appropriate.

Loren M. Starr

So there'd be no impact to the firm if this rule took place in terms of lost revenues or P&L.

Operator

Our next question comes from Robert Lee of KBW.

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

Just a question on the Perpetual in the U.K. I'm just curious big important business for you and can you maybe talk a little bit about some of the trends you're seeing there. Are you seeing kind of similar trends there, maybe you've talked about with some pickup in the U.S. and the U.S. retail business, but maybe just give us an update on that business.

Martin L. Flanagan

Yes, so obviously a very, very strong business. We have a couple different factors going on so maybe the macro environment in the U.K. being a little more pessimistic than the United States. That is a driver on flows. That said, strong equity performance and obviously traditionally through the equity income products but also importantly, the Asian products has been very attractive. The global equity product is something that we're feeling very, very strong about in the area, too. The Japan products, there's a range of things emerging there. Earlier we talked about in the beginning of introductions of multi-strategy asset allocation capabilities, early days there. We anticipate doing more in that area. We think that same phenomenon is going to be emerging in the United Kingdom for a handful of reasons some of the same reasons here in the United States, but also coming out of RDR, the regulatory developments in the area. So we feel we're positioned very, very well in what is a difficult macroeconomic environment but also broad regulatory change in that area also, driven by just the strong, strong, strong investment reputation of the firm.

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

I mean are at all much risk at that business -- you have a lot of good things going on in the U.S. in the retail business. I mean, any concerns that, that's going to somehow be like a drag on overall results just given the more pessimistic environment there?

Martin L. Flanagan

No. Look, I think it's in the strongest position I would argue, in the U.K of almost any firm. Worst case, we're top 3, but I think, again, I think we just could not be better positioned. I think maybe what you're getting into, Rob, is that the economic environment is so bad that people take their money and put it somewhere else. And I don't know that the banks are -- I think it would suggest the opposite. Actually, people putting money into the funds away from the banks.

Loren M. Starr

One thing I would just mention is that a lot of the teams in the U.K. are now managing assets that are being sold into Europe, actually into Canada, into the U.S. now. So there is a flow of assets that are coming in, not just from the U.K. that is going to support positive flows for that team.

Operator

Our next question does come from Cynthia Mayer of Merrill Lynch.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Maybe just a couple of questions on PowerShares. Could you talk a little bit about what you think ETF flows in industry-wide to slowed in 2Q given the volatility went up? And also there's been some discussion on other calls this quarter about ETF fees and market share gains. So I'm just curious whether you see any fee pressure for PowerShares into the extent some of the bigger players in the industry lower fees, would PowerShares feel a need to do that?

Martin L. Flanagan

So let's see. Just on the more some of the macro things that you're seeing on the fee side, so we largely do not compete in traditional commodity-type areas. And that seems to be where there's a lot of the fee pressure. We feel we're positioned very, very well and really leading position. We have a fundamental unique aspect-type alternative ETFs. We continue to see our market share actually increase in those areas. And it's going to continue to increase as best we can tell. So we think we're positioned very, very well there. And again this gets -- it's interesting to watch ETFs from a sentiment point of view when I think what you saw in the second quarter was when the risk off element came on, what you saw happened was much of the flow start to move into Fixed Income quite dramatically beyond the typical asset allocation into Fixed Income in the area, and we are seeing the exact opposite happen in ETFs moving into July. So again it's probably going to be for everybody the most volatile area, because they're using such different ways and people responding to exposure.

Loren M. Starr

I'll also just mention that what we saw in the Qs Deutsche Bank PowerShares tend to be lower fees, lower economics. So it's not one that I would say is totally material to our P&L even though generally big headline numbers.

Martin L. Flanagan

Correct.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay. I guess just a quick follow-up to that, is RDR an opportunity for PowerShares, or do you think it's really more pertains just more to Perpetual and positioning Perpetual for that?

Martin L. Flanagan

Cynthia, that's a great question, and actually our team is actually spending time on that too. And we just think again one of those strategic topical things that we are focused on. That said, at a more macro level, we feel as disruptive as RDR is going to be a firm like us which from all the information we see is the most highly recognized investment firm in the retail market will do very fine in a move to RDR and brand recognition's going matter an awful lot.

Loren M. Starr

And to your point, Cynthia, the fact is before -- advisors were not necessarily sell ETFs in the U.K. because they weren't [indiscernible] -- there wasn't any way for them to get paid but to do so. So with RDR, which says that essentially, the client is going to pay the advisor directly for managing their account. There is a way now for the advisor to get paid to use ETFs whereas before it really didn't exist. And so I think it is the potential for an opening of ETFs in the U.K. that we have not seen in the past.

Operator

Our next question does come from Chris Shutler of William Blair.

Christopher Shutler - William Blair & Company L.L.C., Research Division

Just one big picture question I know that you guys have said in the past that you'd like to develop a bigger presence in global and international funds, and we obviously saw that you're going to be leveraging the asset allocation team to do that with the new fund in the next couple of months. But just hoping to get a little bit more of additional color around what you're doing to increase your exposure to those areas.

Martin L. Flanagan

Yes. So again we have a range of existing very, very good capabilities. The one probably most well-known to you is -- and others is the International Growth capabilities into Emerging Markets also just world-class team that'll continue to do very, very well. Loren talked about the quantitative team and it's really a fundamental quantitative capability and their global capability. It's long, and it's a very good track record and it's traditionally operated in the institutional markets and, frankly, more successful outside of the United States than inside of united states, so we see that as another opportunity for us. And again when we talked about a little bit earlier, the Invesco Perpetual Global Equity capability global income Equity capability is one that's coming on a 3-year track record, and we think obviously a very, very strong team, very, very capable. So those are areas that we think we have a lot of room for us to be just much more successful in total as an asset class than what we have been. So to your point, we have very strong existing capabilities that we just need to be more successful with our clients.

Operator

Our next question does come from Matt Kelley of Morgan Stanley.

Matthew Kelley - Morgan Stanley, Research Division

So Marty, you gave some good color on clients -- institutional clients and, specifically, pension funds. So realizing the returns aren't high enough in treasuries and you said when confidence comes back in place, potentially the outlook looks better heading into next year. So I'm just curious to get a sense from you as to how you think the ramp-up in risk-taking will take place for these clients? Will they gradually increase risk or are these clients that you think could move from treasuries into alternatives? Or where on the scale of risks, do you think they go first?

Martin L. Flanagan

It's great question because I think, Matt, it's sort of all over different, right? And -- but let's talk about it. I think where you can start to see it already, and we've seen bits [ph] over the last 18 months. It's broadly what you would say I'm talking about investors generally, you see them first move into ETFs and probably risk on type ETFs then to equity [ph]. So that was something we saw probably over a year ago all of us as an industry. Where we then start to see the natural progression so you're seeing in credit. Actually you're seeing in high yields, a U.S. phenomena high-yield munis is another area strangely -- I shouldn't strangely, but, yes, uniquely, has an opportunity there. But then again something we've just been talking about really we think is core for us our Equity Income-type capabilities. We think that is -- there is a very strong bias towards a little bit back to the future Equity high-yield dividend-type capability. So our diversified dividend products, the Van Kampen value products we talked about having income. So we see that as going to be an area along frankly with international and emerging markets within it. So that's really the progression. So then when you then get into the pension plan where our DB plan, it's going to be slow-moving and quite frankly, the consultants are advising clients to really de-risk, I personally question that. I think that's -- feels -- it's a day late and a dollar short, and really missing the whole point of it. That said what we are seeing -- that's not all consultants but some of them, but what we are seeing actually within some of our DC plans are they are adding where we've seen and again this might be unique to us, I don't want to suggest it's industry-type thing, but, yes, we are seeing more additions of our international products, and our U.S. Equity products again with sort of the more dividend buys to them. So I don't know if that's helpful. But that's what we're sort of seeing.

Matthew Kelley - Morgan Stanley, Research Division

Very helpful. And then just one follow-up for me. I understand the value proposition for Premia Plus and obviously you guys have a very strong performance track record there. When you're talking to new clients there, what's the explanation for how the performance has been as strong as it has and are they asking that question, or do they fully understand the -- how the products been able to outperformed benchmarks by so much?

Martin L. Flanagan

Yes. I mean, this is just core to what we want to do as a firm and I think everybody as an industry, it's absolutely incumbent upon us to make sure the clients understand what the product is and what it isn't and what type of returns you should expect in different types of market. What clients are responding to, in a very real way coming out of the crisis, it's the fundamental idea of allocating risk. And so it doesn't resonate, right? So if you allocate risk, they can understand that more and it resonates quite nicely with clients, and it has a place, and it has a nice place next to traditional, whether it'd be loan only Equity products or more traditional asset allocation-type capability. So it is -- we spent a lot of time on it, but by the way, this is where I'd say the home offices of the distribution channel is doing excellent job, the consultants frankly doing an excellent job, and we're focused on it, too, and I think it's a nice positive evolution for the industry.

Loren M. Starr

The one point, it's interesting, I mean, so the market we're in which is sort of [indiscernible] this product does very well, because it really does have sort of a balanced approach in terms of its exposure, and so it's not taking a huge outside bet [ph] on equities coming back or Fixed Income. I think the point that we've said is there is big Equity rally, we probably will see this product slow down because it will not perform like an Equity product. And so I mean, it is right now the perfect product in this type of market. We hope we don't stay in this market forever, but to the extent we are, this product does seem to have the right legs [ph] to continue to appeal to people.

Martin L. Flanagan

And let me just make one more point, and I've said it earlier today, and I'd said in the past, but I think, importantly, it has been very strong performing product onto itself. It is a suite of capabilities that we built out, but also what we spent time with clients on is understanding what their needs are, and putting forward a broad range of solutions, of which this is one component, and we have been for an extended period of time looking at the same combination with a diversified dividend capability or an international capability, or if it's individual maybe a high-yield muni. So I think that gets back to the heart of who we are of a firm with depth and breadth of investment capabilities. And again, we keep talking about performances. If you look at the that, that's the good performance 1, 3, 5 years, those are really what we think are foundational for ongoing success for our clients, which means we, as a firm, and then, obviously, very importantly, shareholders will do very well by that.

Operator

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

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

Just on fees, just given everything that you mentioned, Marty, about the institutional, well it looks like more institutional strength than maybe a little more data [ph] on, but maybe coming a bit more through some passive product. How should we think about the outlook for fees? And maybe I don't know, Loren, if you can give us also an update maybe on Wilbur -- on Wilbur Ross and sort of what we should expect -- should we expect a step-up in the second half from fees from Wilbur Ross fund?

Martin L. Flanagan

So just generally on fees I think we, as you and everybody, if we can look at the effective fee rate as an indication of profitability. But I think importantly, effective fee rates doesn't necessarily translate to profitability. So I think that's really getting to the core of one of the topics. The institutional fees tend to be lower but there's awful lot less cost associated with the institutional capabilities so the profitability is still very, very attractive to us. So we don't see that being a topic and then frankly within maybe we're talking about using what ETFs for short and for passives as we just continue to grow profitability will be supported there, and we would imagine increasing profitability if our ETF business continues to expand.

Loren M. Starr

And on Wilbur Ross fund close just to be clear, I mean, we did see the fund closed this quarter so that the total raise, I think, it was about 2.2, but within that 2.2, there was the fund itself. The partnership was about $640 million, just to be clear. That's the one that has 150 basis points in terms of what you're going to see on those things. There was a separate account that was raised alongside that, which was fee raising so total of about $1.2 billion. There was about $1 billion that was coming in through co-investment that we're not going to see fees on. So in terms of the modeling, the biggest number that has an impact would be the 640. Now not all that came in, in the quarter. There was about 190 that came in because some other of those assets had funded earlier. So 150 basis points on the 190 is probably the biggest impact in terms of modeling for your purposes.

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

So does this core include the catch-up, or is there sort of the catch-up in...

Loren M. Starr

It's small catch-up, a pretty minor because it was not a big coming in. So I think about 1.5 million or 1.3 million something like that was the catch-up, so not material.

Operator

At this time, we show no further questions.

Martin L. Flanagan

Well thank you. And perhaps Loren and myself wanted thank you very much for your time and engagement, and look forward to speaking to everybody next quarter. Have a good rest of the day.

Operator

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

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