Participants

Greg Ketron; Head of Investor Relations; Invesco Ltd

Andrew Schlossberg; President, Chief Executive Officer, Director; Invesco Ltd

L. Allison Dukes; Chief Financial Officer, Senior Managing Director; Invesco Ltd

Dan Fannon; Analyst; Jefferies LLC

Alex Blostein; Analyst; Goldman Sachs & Company, Inc.

Brennan Hawken; Analyst; UBS Securities LLC

Bill Katz; Analyst; TD Cowen (Research)

Glenn Schorr; Analyst; Evercore ISI Institutional Equities

Ben Budish; Analyst; Barclays Capital Inc.

Patrick Davitt; Analyst; Autonomous Research

Ken Worthington; Analyst; J.P. Morgan Securities LLC

Brian Bedell; Analyst; Deutsche Bank Securities Inc.

Presentation

Operator

Thank you for standing by and welcome to Invesco's Fourth Quarter Earnings Conference Call. (Operator Instructions) Today's call is being recorded.
Now I turn the call over to Greg Ketron, Invesco's Head of Investor Relations. Sir, you may begin.

Greg Ketron

Thanks, Cedric, and to everyone joining the call today. In addition to today's press release, we have provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website at Invesco.com. This information can be found by going to the Investor Relations section of the website.
Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide 2 of the presentation regarding these statements and measures, as well as the Appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcript provided by third parties. The only authorized webcasts are located on our website.
Andrew Schlossberg, President CEO; and Allison Dukes, Chief Financial Officer, will present our results this morning, and then we'll open up the call for questions. I'll now turn the call over to Andrew.

Andrew Schlossberg

Thanks a lot, Greg, and good morning to everyone. I'm pleased to be speaking with you today. During the fourth quarter and throughout 2024, we continue to make meaningful progress in executing our strategic priorities and leveraging our competitive advantages to improve on several key performance drivers. Amid a backdrop of volatile markets across the world, mixed economic signals, and geopolitical risks, our focus remains steadfast. This enabled us to deliver for clients and shareholders and meaningfully improve our operating results. I want to thank my colleagues around the world for their focus and teamwork throughout the year.
But before we get into the specifics of the fourth quarter, we thought it would be helpful to look at the whole of 2024 and the progress made against the eight key financial measures that are noted on slide 4 of our presentation. The combination of strong long term net inflows of $65 billion or a 5% organic growth rate, higher revenues, and disciplined expense management while reinvesting into the business drove an increase in operating income to $1.4 billion. We generated positive operating leverage of over 100 basis points and improved our operating margins to over 31% for the year and 34% for the fourth quarter, marking good sequential momentum throughout 2024.
While client demand and net flows remained more narrowly focused in the aggregate, we continued to gain market share and revenue growth in key high-demand strategic capabilities, including our global ETF, fixed income, and SMA product ranges, all of which are highly scalable. We saw momentum build throughout the year for private and alternative credit strategies, both for institutional and wealth management clients.
Geographically, our net long-term flows remain positive across all three of our regions, with a notable pickup through the second half of the year in both our Asia Pacific and EMEA markets. Specifically in Asia Pacific, we generated 10% organic growth, marking its best year since 2021.
Throughout 2024, we remain highly focused on retaining and selectively growing our fundamental equity investment strategies against the backdrop of outflows in the industry and for Invesco. This remains a key focus for the firm.
As we stressed throughout 2024, strengthening our balance sheet continues to be a priority. Through disciplined execution, we made strong progress and improved the financial flexibility of the firm. During the year, we reduced our debt, we improved our operating leverage and ended the year with a net cash position of nearly $100 million.
Additionally, after commencing a more consistent share buyback program in the second half of the year, we returned 54% of earnings to common shareholders through buybacks and dividends in 2024, which was an increase from the previous year. Our success in 2024 gives us conviction in our focus, strategic priorities, our execution mindset, and our ability to continue to deliver enhanced and consistent operating performance and returns for our shareholders.
Turning now to slide 5 and focusing on the fourth quarter, growth continues to be led by our highly innovative ETF and index platform, which had near -- historic organic long-term flows of $30 billion, which is a 25% annualized organic growth rate. Importantly, we continue to see our flows for ETFs broadened by asset classes in factors across our clients in all three regions.
Growth in the US market continues to be led by our S&P 500 Equal Weight strategy; our equity momentum strategies, which accounted for nearly $5 billion of the net flows; and our Innovation Suite, which is headlined by QQQM, which garnered $3 billion of net inflows. This fund, which was launched just over four years ago, had one of its best quarters on record and has grown to nearly $40 billion in assets today. We also saw strong ETF growth from the EMEA, region with nearly $11 billion of net inflows on a source basis, with our locally listed S&P 500 topping the list.
We also continue to innovate at scale. In the fourth quarter, we launched a new ETF that we customized in partnership with a Finnish pension insurer to meet climate-focused investment objectives. This ETF began trading with nearly $2.5 billion in assets, and set a new milestone as the largest ETF launched on record. Our ETF platform finished the quarter with record AUM and revenues. Revenue growth remained strong, up 7% from the third quarter and 31% from the fourth quarter last year. We remain very well positioned to continue to gain market share and use this scale platform for profitable growth.
Shifting to fundamental fixed income. After a strong third quarter, we saw modest net long-term outflows in the fourth quarter, primarily driven by stable value, which continues to be out of favor in the current rate environment, as money market yields are paying a premium to stable value.
Excluding this specific US-defined contribution product, our fundamental fixed income strategies continue to see solid flow growth of $1.5 billion in the quarter. Within the fundamental fixed income category, flow growth was led by our municipal bond strategies and driven by our fast-growing SMA platform, which reached $28 billion in AUM or 33% organic growth rate. Additionally, revenue generated from fundamental fixed income strategies grew by 9% in the fourth quarter as compared with the same quarter in '23.
It's important to note that our large and diverse fixed income product line, which totaled over $600 billion at year end, spans our geographic footprint and encompasses more than just our fundamental fixed income capability that's expressed on this slide. Looking at this more holistic view of our fixed income product set, which also includes fixed income ETFs, our China JV, private credit strategies, and global liquidity, we generated 8% AUM growth and net long-term inflows of nearly $27 billion in 2024.
Our fixed income capabilities have strong performance and are well positioned to meet client needs across the credit and duration spectrum, geographic preferences, active and passive exposures in public and private markets. We have plenty of reasons to be optimistic about our ability to capture flows as money increasingly rotates into these asset classes.
Shifting now to private markets, which in aggregate drove long-term net inflows of nearly $1 billion in the quarter. Within the category, our private credit capabilities reported net inflows of $3.5 billion or 31% annualized organic growth rate. Growth was driven by bank loans and CLOs across several fund structures, including our industry leading senior loan ETF.
In direct real estate, we also continue to see flows into INCREF, which is our real estate debt strategy targeting the wealth management channel. Launched only in 2023, this fund has doubled in size over the past two quarters and now stands at nearly $2.5 billion in AUM. I'll also note that our real estate team is well positioned in the institutional markets, with over $5 billion of dry powder to capitalize on emerging opportunities.
Moving on to Asia Pacific. On a managed basis, in Asia, we saw a rebound this quarter, with net long-term inflows of $3.5 billion, led by positive flows from India, and $2.5 billion of net inflows into our China JV. Our China growth was driven by equity, particularly ETFs, which are becoming a fast-growing part of our China business, and where we see strong demand continuing. These flows were augmented by net inflows into fixed income. We have six new products launched in our China JV this quarter, including three ETF products. At a macro level in China, we're encouraged by the government's recent focus on economic stimulus, but overall, market sentiment has remained relatively weak and volatility remains high.
Looking more broadly at Asia Pacific as a region on a client-sourced basis, net inflows were even stronger at $7.5 billion for the quarter, which is a 13% annualized organic growth rate. This broader flow strength in the region highlights our success in leveraging our global product suite and our investment capabilities to meet demand across this important growth region. We had good inflows in Southeast Asia, driven by ETFs, along with continued strong inflows in Japan through our global equity and income strategy, which had $1.5 billion in net inflows and continues to be one of the top-selling active retail equity funds in the growing Japanese market.
Turning to our multi-asset related capabilities, we saw net long-term outflows of $1.5 billion, driven by global asset allocation, particularly in our Balanced-Risk Allocation Strategy.
Finally, the relative pressure on fundamental equity flows have continued. However, as I pointed out previously, we have seen some moderation over time in the global international and emerging market segments. Net outflows in these strategies have been in the $2 billion per quarter range. Outflows in our emerging market strategies have been partially offset by the continued strength of global equity and income that I noted earlier, as well as net inflows in small-cap equities. While asset flows and our fundamental equity capabilities remain below our long-term expectations, market growth has aided revenue, resulting in a 10% increase in net revenues this quarter compared with the fourth quarter of 2023.
Our team continues to focus on driving high-quality alpha, upgrading our talent bench, and continuing to strengthen our risk management tools. Regardless of client demand, our focus remains on improving investment performance and gaining market share in key fundamental equity categories in which we compete.
Now moving on to slide 6, we provide an alternative aggregation of our AUM and flows to provide additional context for our business results. I've covered most of these key highlights underlying these charts, but I'll point out that the diversity of our assets and our flows across geography, channel, and investment style provide us the balance -- and to weather any market condition and our ability to meet a range of client needs, which is an important part of our ongoing positive organic flow growth story.
Moving on to slide 7, which shows our overall investment performance relative to benchmarks and peers, as well as our performance and key capabilities, where information is readily comparable and more meaningful to drive results. Investment performance is key to winning and maintaining market share, despite overall market demand. Achieving first-quartile investment performance remains a top priority, and we're making progress on this front.
Overall, nearly half of our funds are performing in the top quartile of peers across the one-, three-, and five-year time horizons. Further, two-thirds of our AUM is beating its respective benchmark over all measurement periods. We continue to have strong fixed income performance, with approximately 40% of our funds in the top quartile on a three- and five-year basis. We are acutely focused on improving fundamental equity performance, and we're making progress here too. We have continued to improve the percentage of AUM in the top quartile of peers across each timeline shown, with a third or more now hitting that target.
With that, I'm going to turn the call over to Allison to discuss our financial results for the quarter, and I look forward to your questions.

L. Allison Dukes

Thank you, Andrew, and good morning, everyone. I'll begin on slide 8, with our fourth quarter financial results. We continue to see strong growth in assets under management during the fourth quarter with total AUM at the end of the quarter at $1.85 trillion, $50 billion or 3% higher than last quarter end, and $261 billion or 16% higher than the end of 2023.
Average long-term assets under management were over $1.3 trillion, an increase of 4% over last quarter and 20% over the fourth quarter of last year. The increase in AUM was mainly driven by net long-term inflows, net inflows into our QQQ, ETF and net inflows in the money market funds. Unlike recent quarters, markets did not have a significant impact on AUM in the fourth quarter.
Net long-term inflows drove a $26 billion increase in assets under management during the quarter, representing an organic growth rate of nearly 8%. As Andrew noted, net inflows and our ETF and index capabilities were nearly $30 billion. QQQ net inflows were $10 billion and money market fund inflows were strong at $25 billion.
Net revenue, adjusted operating income and adjusted operating margin all improved from the third quarter and showed substantial improvement from the fourth quarter of last year. I'll cover the drivers of that shortly.
Adjusted diluted earnings per share was $0.52 for the fourth quarter versus prior quarter EPS of $0.44. We continue to strengthen the balance sheet, ending the quarter in a net cash position with cash and cash equivalents exceeding debt by nearly $100 million, better than our goal of zero net debt. We also continued share buybacks, repurchasing $25 million during the quarter, and we intend to continue buying back on a regular basis going forward.
Moving to slide 9. As we stated in prior calls, secular shifts in client demand have altered our asset mix and net revenue yields as our broad set of capabilities has allowed us to capture evolving client product preferences. Client demand has led to continued diversification of our portfolio, a trend we've seen for a number of years now. As a result, concentration risk and higher-fee fundamental equities and multi-asset products has been reduced. The firm is increasingly better positioned to navigate various market cycles, events and shifting client demand. Consistent with prior quarters, current net revenue yield trends are included on the slide. The ranges by capability are representative of where the net revenue yield has ranged over the past five quarters, and we note the net revenue yield drivers and where in the range, the yields have trended more recently.
To provide context for the net revenue yield trend during the fourth quarter, our overall net revenue yield was 24.6 basis points. The exit net revenue yield was 24.1 basis points, 0.5 basis points lower due to continued mix shift during the quarter.
Turning to slide 10. Net revenue of $1.2 billion in the fourth quarter was $111 million higher than the fourth quarter of last year, an 11% increase and $53 million were 5% higher than the third quarter. Investment management fees were $123 million higher than last year and $29 million higher than the third quarter. The increases were driven by higher average AUM, partially offset by the AUM mix shift previously noted.
Performance fees were $14 million higher than last year and $32 million higher than the third quarter, reflecting typical seasonality.
Operating expenses continued to be well managed. Total adjusted operating expenses in the fourth quarter were $767 million, a slight decrease of $4 million or less than 1% from the fourth quarter of last year. There was a slight increase of $11 million or less than 2% in adjusted operating expenses over the third quarter.
Compensation was $14 million higher than the fourth quarter of last year, which included $22 million of organizational change related expense. Higher compensation expense was driven mainly by higher revenue in 2024. Compensation expense was $15 million higher than the prior quarter and mainly driven by higher revenue, including compensation associated with seasonally higher performance fees.
G&A was lower on both the year-over-year and sequential quarter basis. G&A was $28 million lower than the fourth quarter of last year, mainly to lower professional related fees and an insurance reimbursement of $13 million in the fourth quarter of this year. G&A was $11 million lower compared to the third quarter, mainly due to the insurance reimbursement, partially offset by slightly higher professional related fees.
Outlook platform implementation costs of $14 million were in line with our expectations in the fourth quarter and consistent with the $15 million incurred in the third quarter. We did move a small first wave of AUM on the Alpha platform in the fourth quarter. Fees paid on the assets transitioned in the first wave were nominal expense wise in the fourth quarter.
As the implementation continues, we expect Alpha-related onetime implementation cost to be in the $10 million to $15 million range per quarter in 2025. Depending on the timing of when future waves are executed, which we currently expect will continue through 2026, the implementation costs will begin to fade as we approach full implementation of Alpha. Fees paid to State Street as we transition assets to Alpha will increase as future ways are executed. Under this scenario, the combination of implementation costs and total platform fees paid to third parties could peak late this year or during the first half of 2026.
Looking at 2025, we expect costs related to Alpha, which includes both the implementation costs and fees paid to platform providers to be $20 million to $25 million higher than 2024. We'll continue to update our progress and related costs as we move forward with the implementation.
Regarding operating expenses for 2025, we will continue our disciplined expense management. We expect a slight uptick in expenses, driven by the higher revenue levels that we are currently generating. If you assume flat markets from year-end '24, we would expect total operating expense to increase by approximately 1% over 2024. That includes the higher Alpha-related costs in 2025 that I noted.
Back to the fourth quarter. Our quarter-over-quarter positive operating leverage was 330 basis points, driving a $41 million or a 12% increase in operating income and a 210 basis point improvement in our operating margin to 33.7%. The effective tax rate was 22.2% in the fourth quarter. We estimate our non-GAAP effective tax rate will be near 25%, the high end of our historic range for the first quarter of 2025, excluding any discrete tax items. The actual effective rate can vary due to the impact of nonrecurring items on pretax income and discrete tax items.
I'll wrap up on slide 11. As I noted earlier, we continued to make progress on building balance sheet strength in the fourth quarter. We ended the quarter in a net cash position with cash and cash equivalents, exceeding debt by nearly $100 million, better than our goal of zero net debt. We ended the quarter with no draws on our credit facility. Our leverage ratios continue to improve, and we're now down to a leverage ratio excluding the preferred stock of 0.25 times, a significant improvement over the past several years.
We continued share buybacks in the fourth quarter, repurchasing $25 million or 1.4 million shares during this quarter. We intend to continue a regular share buyback program going forward, and we expect our total payout ratio, including common dividends and share buybacks to move closer to 60% in 2025, as we continually evaluate our capital return levels.
To conclude, the resiliency and strength of our firm's net flows performance is evident again this quarter, and we continue to make progress on simplifying the organization and building a stronger balance sheet while continuing to invest in areas of growth. We remain committed to driving profitable growth, a high level financial performance, and enhancing the return of capital to shareholders.
With that, I'll ask the operator to open up the line to Q&A.

Question and Answer Session

Operator

(Operator Instructions) Dan Fannon, Jefferies.

Dan Fannon

I wanted to follow up on the outlook for expenses in 2025. The $20 million to $25 million increase of the alpha versus '24, can you just remind us what '24 was?
And then also, just given some of the seasonality of -- (technical difficulty)

L. Allison Dukes

Dan, you got totally jumbled for us there on the end. The one thing we heard was at alpha and looking for what it was in 2024.

Dan Fannon

Yeah, so then maybe some sequential -- the sequential expense bills for the first quarter, given the seasonality of things like payroll.

L. Allison Dukes

Okay. So let me address the alpha in 2024 first. Alpha was probably just under $50 million for 2024. And so in comparing that to 2025, as I noted, we would expect it to be, in total, $20 million to $25 million higher than 2024. That's inclusive of all costs related to alpha. And then the expense guidance for the full year, as I noted, would be about a 1% increase over 2024, assuming flat markets from the end of -- from 12/31. That includes all of the alpha cost.
In terms of the sequential quarter build, I would just say, as I noted, the implementation costs for the quarter are going to be in that, again, that $10 million to $15 million range. In terms of other expense line items, I would say there's always the typical seasonality in the first quarter as it relates to payroll taxes, which tend to run in the $15 million kind of context, $15 million to $20 million context. Of course, you've got seasonality in the fourth quarter with compensation related to the performance fees. Keep in mind, marketing tends to be seasonally higher in the fourth quarter. And I just don't expect a lot else to be very different, so I point to those seasonal items and then point you back to the full year guidance of 1%.

Dan Fannon

Great. Thank you. And hopefully, I come in clear here for the second one, but wanted to follow up on capital management, and just given the improved liquidity position, how your M&A and inorganic thought processes evolve, given the stable and/or improving liquidity profile.

L. Allison Dukes

Okay. Yes, got it. On the capital management, I would say our priorities continue to be the same, which is we remain focused primarily in investing in our own organic growth, which I think we're demonstrating that we've got a fair amount of firepower there. And investing in those capabilities is, in fact, demonstrating the organic growth that we're looking for. So that is, first and foremost, our focus, just given the diversified platform we have.
How that relates to our inorganic focus, I would say it's very consistent with a lot of the conversations we've had in the past. And our capabilities are fairly well built out across both the capability set, but also our regional diversification.
The one area where we probably don't have the full set of capabilities would be on the private credit side. We continue to be very thoughtful there. It is -- we have some depth of private credit capabilities, but probably not the full suite we would like to have. Also, a very crowded and expensive space, as you know, right now. And so we remain focused on growing both organically while keeping our eyes open inorganically.

Dan Fannon

Thank you.

Operator

Alex Blostein, Goldman Sachs.

Alex Blostein

Also another one on expenses for you, just to make sure I have that clear. So the Alpha implementation will run $10 million to $15 million per quarter. It will peak at some point of time at the end of '25, maybe early '26, at which point you will also start to have sort of the expenses that you'll start paying State Street ramp as well.
So maybe help us understand kind of what are the run rate expenses you expect to pay State Street once all the assets migrated over, so which I guess will be at some point of time in 2026. And then ultimately, are there any legacy costs that you expect to fall off once Alpha is sort of fully implemented? Or is that kind of baked into your $10 million to $15 million guidance?

L. Allison Dukes

No. So let me kind of walk back through that again. So I just -- I'll try to piece this together. And I can't tell you, I can't answer the question of what are the fees we would be paying to State Street because, of course, that's contractual.
And so the way to think about it is this, implementation costs will continue to be $10 million to $15 million per quarter. That's consistent with what we've been running for the last number of quarters. If I look at the total cost of Alpha this year, which is both the implementation costs, which think of those as onetime, the construction cost, if you will, combined with fees paid to platform providers, which there are existing and that will be coming on.
That's why we will be peaking as we are running parallel paths on a number of platforms. The combined cost of all of that for 2025 will be $20 million to $25 million higher than the cost than '24. So thinking about that baked into our expense run rate for '25, relative to '24. That is a piece of the overall expense guidance, which is inclusive of everything that we provided, which is an increase of 1% over last year.
The costs that will start to come out, that will be not until we are fully transitioned with all waves. So as we noted, the waves they're going to continue through 2026, then we can begin to decommission systems. So the benefits we might see are too far out to guide to at this point. Does that help, Alex?

Alex Blostein

I got you. Yes. I was just kind of trying to get like once those costs fade out, like what is the net expense benefit we should expect, which sounds like some of that 10% to 15% will start to leave, but the ultimate benefit of that really won't show up until '27, if that -- if I hear you correctly?

L. Allison Dukes

Correct. And you are correct. Once we are fully implemented, you will not have the implementation cost of $10 million to $15 million a quarter. Those are truly construction costs, if you want to think about it that way.

Alex Blostein

Yes. Got you. Okay. And then my follow-up question, I didn't want to ask you guys around China. It sounds like things have been up there, you and I had a conversation about this later last quarter just in terms of the momentum you guys are seeing in the ground that's showing up in flows. So talk to us maybe a little bit about the pipeline that you're seeing in the products there and your expectations for flows over the next couple of quarters.

Andrew Schlossberg

Yes. So maybe I'll start and then Allison can pick up as well. We did -- as we said, we saw $2.5 billion or so of flows this quarter. Importantly, the launches we did and the focus in the market was on equity ETFs, which we're seeing more demand for equity markets through ETFs right now in China, and we're relatively early in building that out, and the market is relatively early as well.
We're also seeing flows into what's called fixed income plus, which is more like a balanced strategy. And so demand has been picking up there as well. To remind everybody, our business there is pretty diverse and balanced. So we're about 30% equities, 30% fixed income, 20% in this fixed income plus, and 20% or so in money markets.
The stimulus that's been put in place and what we expect to be future stimulus throughout the balance of this year, is starting to raise confidence modestly. But I think the markets and the retail investors going to need to see more. But to be getting organic growth despite all of that, we feel is a pretty good accomplishment.

Operator

Brennan Hawken, UBS.

Brennan Hawken

A couple just sort of clarification items on the expenses, sorry to dwell here. But the 1% increase, that's versus the $3.30 billion adjusted reported base. Just want to confirm that. And then the $10 million to $15 million that we should expect in 2025 those construction costs and then that's not expected to go into '26. I just wanted to confirm that.
And Allison, I believe you noted a $22 million charge related to organizational change. Could you maybe give some color around what that is and what impact we could expect from that?

L. Allison Dukes

The $22 million organizational change was 2023. So that was in my year-over-year comment. So that's rearview mirror, no organizational change expenses noted in fourth quarter of 2024.
The expense guidance of 1% over 2024, yes, that is relative to the fully reported $3.30 billion operating expense base for 2024, and that's assuming flat markets to 12/31. And then the implication cost of $10 million to $15 million a quarter. That guide is through 2025.
I'm not prepared to speak to 2026 yet, but if we are still in the moving AUM over, there will be some implementation costs, depending on where we are on the waves and the continued build of Alpha. If it is possible, it could be higher, it could be lower than $10 million to $15 million, as we continue to move assets in waves. So but implementation costs will be a part of our expense base so long as we are moving assets over to Alpha until that transition is fully complete. Does that help, Brennan?

Brennan Hawken

It does. Thanks for clarifying on the organizational change. I guess I didn't hear that correctly. One of the things you guys talked -- I'd like to shift gears on Alpha, and not talk about the actual expense blocking and tackling. You've spoken in the past how you expect that this migration is going to enhance your operational effectiveness across the organization.
So -- and it sounds like you're beginning to migrate cohorts over it might be too early, but like what has been the experience so far? What are your expectations for some of that operational -- increased operational effectiveness? And how should we expect that to manifest itself as you continue to progress through this rather substantial change in the organization?

Andrew Schlossberg

Brennan, it's Andrew. Thanks for the question. Look, I'll say the assets that we brought on board in the fourth quarter were relatively small. So it's too early to give a full answer, but the experience has been good from those equity investors and the team that's come across -- or the platform that's come across.
In terms of the wider simplification efforts and the advantages we'll get over time, I'd sort of tie it back to the corporate strategy and the execution we've been on, which is to bring the investment platform closer and closer together.
And so as we scale through that platform as we have teams managing assets across market as we shift into different product lines, a simple singular platform that helps us decommission all sorts of homegrown systems and legacy third-party systems just makes that process, makes us much quicker and executing that process and makes our investment portfolio managers and teams much more efficient at the way that they're able to execute.
So I think we're ready to get this further moved onto the platform so we can continue to have it enhance and drive the strategy and drive the operating leverage, frankly, that we've been seeing in the business.

Operator

Bill Katz, TD Cowen.

Bill Katz

Okay. I'm going to spend more time on Alpha, and I again, apologize, but the guidance here, I think, is very constructive versus where the Street is sitting today. But I think the bigger question that I have, I think investors have is, what does this look like in the end state? And I think Alex was trying to get you there.
So what percentage of your assets would you anticipate being migrated over in 2025? And then as we get into some kind of quote-unquote normalized world where everything is migrated over and implementation costs phase out, how do we think about or how do we model to the onboarding costs on a go-forward basis? That's my first question.

L. Allison Dukes

So I mean I'll start with -- we're not going to provide the detail of what percentage in '25 versus '26, as we continue to work with our partners on really thinking through how to build out these waves in a way that creates the least amount of disruption and really helps drive the efficiency of the business, and it's really just the preparedness there.
So I'll probably hold on how the waves are constructed and what percentage we anticipate moving in '25 just yet, but we will update you quarter-to-quarter as we are moving that on. As I noted, we expect to continue moving assets over through '25 and into '26. And so that end state on the other side, we will give you more guidance as we continue to work through what that looks like. We do anticipate it as the vast majority, it's not almost all of our assets, but ultimately move on to the platform.
So it has a number of system implications behind it as we look to streamline from a number of systems to a single operating system there. And that end state does have benefits. It has benefits in terms of elimination of software costs as well as benefits from an organizational perspective, and so there are implications related to teams as well.
So there are benefits on the other side. They just -- as we are really focused on 2025 at the moment, they're a little further out than we're prepared to give the full guidance to given the business continues to evolve in every other aspect.

Andrew Schlossberg

Bill, the only thing I'd add is just to add extra clarity, all -- pretty much all of our public market assets will be ultimately on the Alpha platform. This wave construct of using it's helpful because as we learn from each wave, we apply to the next wave and get those incremental benefits, hopefully, in speed, but also in working through the complexity of it.

Bill Katz

Okay. And then maybe I'm just sticking with you for a question. I think some of the themes out in terms of the opportunity set going forward are more on the alternative side.
So I was wondering if you could click a layer deeper and speak to your strategy to grow Private Markets, you gave a little bit of a detail on your retail democratization, maybe where you can grow there on INCREF, maybe even leveraging on the insurance side.
And then it's related to that, if there's not a lot of deals to be had, how should we be thinking about the payout rate, 60% seems relatively low given that you've enhanced the balance sheet and you have pretty good diversification and scale.

Andrew Schlossberg

Yes. Let me start. So on the Private Markets and Alternative build-out, as we noted, we do think there's a lot of organic opportunity here. And it's not just in taking our private real estate and Alternative Credit strategies and private credit strategies to the wealth management market.
We also see opportunities to enhance the institutional markets around the world. But wealth management should have the greatest growth rate, and we pointed out a few places where we're starting to see that take hold. The real estate debt strategy that we launched, INCREF, is a flagship for us both because there's increasing demand in that space, and there's less supply. And so we were pleased to see that fund double in size the last few quarters and now be at around $2.5 billion.
You'll also start to see us build out around the Alternative Credit space into those wealth management channels as well. I think one of the things that we're finding as we build out in the wealth space, is that people want diversification as well. And so we're going to continue to look for strategies that might be multi-asset in nature.
And then on the inorganic side, in addition to what Allison shared before about our capital priorities and she can expand on the payout in a moment. Think about our inorganic strategy, as focusing on partnerships as well. And so there's lots of conversations out there ways that we can find partners to work with. We've been successful with joint ventures and partnerships like we've had out in Asia. And so those conversations are continuing to be ones that we'll look at that can enhance the product line, can enhance our distribution channels or access to capital from alternative sources.

L. Allison Dukes

And as it relates to the payout ratio, there's a couple of things that point to as we just think about what's the appropriate payout ratio is, first, as I noted, our focus remains really investing in our own capabilities.
And so as we think about launching new capabilities, particularly in the Private Market space or along the partnership route, as Andrew noted, those require cash. And we invest our own capital in order to get these things off the ground. And so we want to preserve or cash capital for those organic growth opportunities that we have.
The second aspect on my mind is we do have a debt maturity coming up a year from now, next January, another $500 million note. I don't know yet whether or not we will pay that off or refinance it. It kind of depends on the set of opportunities we have before us from an organic growth perspective and just where the markets are in the rate environment. But we want to preserve flexibility to completely pay that down if that's the best opportunity we have. And so as we think about the payout ratio for this year, those are a couple of things in our mind.

Andrew Schlossberg

I mean the choices and flexibility that we built that Allison was just pointing out with our goal in '24 to be back in the market buying back stock, which we did. But having that flexibility gives us a lot more choices here to deploy against our strategy.

Operator

Glenn Schorr, Evercore.

Glenn Schorr

Okay. So in the fourth quarter, we had the insurance reimbursement. But besides that, the margin was still up markets, big inflows, down fee rate, controlled expenses. So my question is, I'm hoping for better than flat assets this year. But what's your thoughts around the margin knowing what we know -- what you just said about the 1% expense growth knowing that you're still inflowing nicely, but the fee rate does have some compression. How are you thinking about the margin in '25?

L. Allison Dukes

We're hoping for better than flat markets, too. And obviously, we build our plan with flat markets because we think it's prudent, but this is certainly a business where we're all counting on and a tenant upon growth in markets.
And I think we're in a pretty diversified set of markets. And in any given year, we see we've got some markets working for us and some are working against us, but net-net, we're hoping for also a positive year.
Independent of that, I'm bullish on our margin, and I'm bullish for a couple of reasons. The number 1 thing we're managing to, I mean we noted expenses, I would say 1% expense growth year-over-year, inclusive of all of these costs associated with Alpha, I feel really good about. And it's really a testament to some pretty disciplined expense management going on to make sure we make room for this really important strategic focus we have and continuing to execute against Alpha.
But on the top line, what we're managing to is flows and flows across all of our investment capabilities and really thinking about that organic revenue growth. And I think if we can continue executing well against our focus there, we're going to see operating margin expansion in 2025.
In particular, I mean, we -- we're giving you more and more color, and we hope it's helpful to really get to that organic fee rate trajectory. And I think you can see over the last couple of quarters where we've had very strong organic fee rate growth and investment capabilities like fixed income and ETFs and Private Markets. We're really at about a breakeven place for '24 and APAC managed and we're very optimistic that we can do a lot better than that in 2025. The biggest opportunity we have, no question, is narrowing the outflows in Fundamental Equities. That's been the headwind as it relates to that organic fee rate growth.
And so our focus and our investment performance in Fundamental Equities and really defending our book of business there and really focused on the pockets of growth and the sales there. That's the number 1 thing we can do to expand revenue independent of any market changes, and that's going to really get us to that operating margin expansion trajectory that we think we're on.

Glenn Schorr

Well, that's a perfect lead into the follow-up I had was -- and maybe, a, how do you defend Fundamental Equities besides just, hey, everybody put up great performance. But my question is on what do you -- how are you thinking about the active ETF lineup. Your ETF business has been growing. How do you think about what to transition to have an active tag along product, if you will? And can that be part of the solution?

Andrew Schlossberg

Yes. I mean driving success for Fundamental Equities, in particular, number 1 is delivering investment quality. So that's going to be the number 1 core of focus, and that includes all the things that you'd expect from us on talent and risk, et cetera. Continuing to differentiate the product line and how we quote-unquote wrap equity to go to market is going to be an important way that we both grow and defend. Also the way that we deliver through our sales and client service efforts. So it is continuing to be blocking and tackling.
As it relates to active ETFs, just the starting point for us just for everyone has a baseline. We have about $10 billion in active ETFs, but we have another $20 billion or so of ETFs that are more passively oriented, but involve our more fundamental or quantitative investment teams. And I think both of those areas are places where you're going to see us continue to grow, as the ETF vehicle will continue to be a vehicle choice. And we have the ETF platform. We know how to operationalize that and to grow it at scale, and we have excellent active investment capabilities. So we've been launching some of those through the course of last year. We'll continue to look for opportunities this year.
But number 1 thing is having good, high-quality investment results because that's going to really drive the success, whether it's packaged in a mutual fund or an ETF. But regardless, we should be able to win with the scale that we have.

Operator

Ben Budish, Barclays.

Ben Budish

Just a high-level question around fee rates. It looked like the ranges for most of your categories were either kind of lower at the midpoint or narrowed. If you could kind of comment on what's been going on there? Is it sort of ongoing mix shift within each category? Is it sort of competitive forces?
And then I'm particularly curious in China, there's some headlines last quarter around some ongoing pressures to kind of lower ETF fee rates. So any color on what's going on there would be helpful.

L. Allison Dukes

Sure. I'll take that. I would say it is primarily ongoing mix shift within the various categories that you're seeing there. If you think about the ETFs in particular, and that's one where you've seen that fee rate that range narrow a bit and trend towards the low end.
We continue to see really strong demand for capabilities like the QQQM and the S&P 500 Equal Weight, those are going to be in the kind of low -- sorry, mid- to high single digits and really start to impact that fee rate down relative to perhaps the commodity strategy, which we just haven't seen a stronger demand for. So you've got mix shift going on within those capabilities.
At the same time, on APAC managed, I'd say, that rate came down over the last five quarters, six quarters because of the regulatory mandated cuts that went into effect in 2023. Those were fully washed through in 2024 at the ETF pressure. I think our set of capabilities are well within the regulatory mandate. So we don't see that pressure really impacting our set of our product lineup there.
So within that, I don't -- I wouldn't say any of those trends are sort of permanent in nature. It really is a function of the demand. And at the same time, we're seeing really strong demand for things like BKLN, which will be on the higher side. And so it's pretty demand-driven and not any sort of secular pressure.

Ben Budish

Understood. And maybe a follow-up, sticking on the ETF side. Andrew, I was wondering if you could talk a little bit more about, I think you mentioned $2.5 billion for a finished pension insurer that sounded fairly interesting. I'm curious what the pipeline is like for those sorts of opportunities, you sort of custom indexing within liquid ETFs. How do you see that opportunities had evolving?

Andrew Schlossberg

Yes. I mean something like the one we had last quarter is going to be more episodic. I wouldn't say that there's a huge pipeline behind it. But there were two of them, I think, last year that were similar. So the custom index is that's something that we see a continued demand for. And it might not be just for an institution, it could be for a wealth platform or it could be us customizing an index with one of the index providers to come up with a specific need that we see in the marketplace. So I see custom indexing demand growing for over time. These big chunky institutional type capabilities more episodic.

Operator

Patrick Davitt, Autonomous Research.

Patrick Davitt

There are signs that ETF adoption in Europe is really picking up steam, while some even starting to call the long anticipated quote-unquote catch-up with the US has really started. Firstly, do the trends you're seeing suggest that catch-up is in progress? And secondly, given your legacy book of much higher fee active funds in Europe, do you see that shift as a net positive or a net negative for Invesco?

Andrew Schlossberg

Yes. You're right to point out the growth in EMEA and some of the demand pickup there. We do think it's an early stage secular trend that we've been waiting for to come in Europe as we've been in that market for some time, both with our ETF range and with our broader institutional wealth management teams on ground. And so we do expect that to continue to pick up. We're, I think, over $125 billion or so in ETF assets out in that region.
With regard to where demand will come from, the private banks are quite strong in that market, and it's been largely an institutional market. We see that it could continue to pick up on the more retail side. I'd say our lineup ranges, it's equity heavy, but we have a strong fixed income lineup that we built and incubated over many years, and I think we'll see both sides of that equation and clearly bringing active portfolios into EMEA in ETF wrappers is something we expect to happen just like it's occurring in the US. So we're cautiously optimistic about EMEA ETF growth.

L. Allison Dukes

And I would just say as it relates to the fee rate, I mean, that would be a driver of some of the mix you're seeing in terms of the fee rates and the ranges being on the low end or kind of trending to the lower side on the ETF fee rate because you do see -- they are slightly lower fee rates in Europe relative to the US lineup.
But again, importantly, I'd go back to our focus is on organic fee rate, organic revenue generation and the growth we're seeing there and the demand there is extremely positive towards overall organic revenue growth. And so it's a net positive in our view.

Andrew Schlossberg

And just ETFs in general, running an efficient platform, one that uses technology, one that uses our operational prowess and uses our size and scale, whether we're bringing products in the US or Europe or out in Asia, we have the platform that we can create operating leverage from.

Patrick Davitt

Got it. And then as a quick follow-up, it seems like you started to ahead that you've been working with MassMutual on options for the preferred. Any updates on that front, as I imagine that the now higher for longer mentality could conceivably make the paper less attractive to them?

L. Allison Dukes

No updates. It is the topic of ongoing conversation on both sides. It's not just the rate for them. It is -- again, that was -- that was the financing mechanism for the acquisition of Oppenheimer, which they have a tax basis in, so there are tax capital and rating considerations on their side, not simply sort of rates relative to market rates. So it is a topic of ongoing conversation as we look at -- are there perhaps ways to make it maybe more flexible in the future, but no update.

Operator

Ken Worthington, J.P. Morgan.

Ken Worthington

I'd love to dig into the institutional business a bit more broadly. Where is Invesco having success in building the pipeline and winning new business? I know you called out Alternatives, but other areas as well? And how does the business that you're winning compared to the business you're losing?

L. Allison Dukes

Maybe I'll just start at the highest level of kind of how the business is doing. I'd say in pipeline, which I always caution is not the best indication because the pipeline is only as good as what we enter into a sales management system. But we do obviously look at it as an indicator.
It continues to expand actually and improving coming into 2025 and in terms of both absolute size and the quality of the capabilities that are -- we're really looking at being probable in 2025. It really spans all three regions and all investment capabilities. And you do see the barbelling impact there, and there are continued growth and kind of ETF and indexing capabilities but also continued growth on the Private Market side. And the real estate pipeline remains strong there with a fair amount of committed capital that is yet to be deployed.
So the fee rates there look good, too. They continue to be on the high end of our range, which is usually that mid-20s to mid-30s range, and we continue to see the pipeline to be on the high end of that range. So I'd say, overall attractive characteristics and maybe Andrew can add a little more color in terms of what we're seeing from just kind of a client and regional perspective.

Andrew Schlossberg

Yes. To add to what Allison was saying, fixed income is the other area where institutional demand and flows have been pretty good. And the strength of our fixed income platform that I described, we think we'll be in a place in addition to the Alternative and Private Market side, where we should -- we're focused on picking up momentum in fixed income. The other place I'd say is select into equities institutions are reallocating their portfolios. And we're seeing increased demand for Asian equities, global equities in that space as well, but it's very, very competitive.

Ken Worthington

Great. And then the other side of the equation, the business you're losing, what does that look like?

L. Allison Dukes

I wouldn't say -- if I look at what the outflows were in the fourth quarter, a lot of it we noted, there were some outflows in our balanced risk strategies in GAA, and that's just a strategy that's been out of favor. We also saw out for some stable value in the quarter, and that's really because of just the rates and the arbitrage there in terms of where money market rates were relative to stable value. So those are maybe what I would point to from a trend perspective, and I think that last point being temporary or cyclical in nature.

Andrew Schlossberg

We're the leading, if not one of the leading stable value providers. So when that market comes back in demand, we should do just fine.
Gregory Ketron Head of Investor Relations & Treasury Yes, Cedric, we have time for one more question.

Operator

Brian Bedell, Deutsche Bank.

Brian Bedell

Most of my questions have been asked and answered, but maybe to one just back on the operating margin outlook. Maybe Allison, just your view on the comp to revenue ratio that's within your 1% guide under flat markets. And then, let's say, if equity markets are up 10% on a linear basis throughout the year. How would that impact your comp to revenue ratio.

L. Allison Dukes

Yes. I would say our comp to revenue expectations are -- really, we think about it independent of where markets are, and we really look at it relative to revenue. Historically, we have been closer to the 40% to 42% kind of context. You saw us in the past year at just over 43%. I don't know that in 2025, it is very revenue dependent. If we had really strong revenue, could we get back down to 42%? Possibly. Without that, we may be looking at something closer to 43%. Our longer-term objective is to bring that back to that 38% to 42% range. But we have historically operated.
And I will point out when we think about total compensation and in the past years ago, we didn't always have things like severance expense and organizational change expense in there because we don't have TIR, it is a fully loaded P&L, and that has driven it a bit higher than that 42% to 43% context. And I think that's still a reasonable expectation for '25.

Brian Bedell

Great. That's helpful. And then just lastly, just to come back to the active ETFs, and I thank Andrew for your comments on that prior question. Maybe more specifically for active equity ETFs, if you can talk about the -- your view on cloning active, like current active mutual fund strategies. Obviously, the ones that you think are successful and have and would have demand for either a clone or something that was very similar to those strategies within the ETFs?
And I guess, is the only pushback either on fee pressure, from a cannibalization perspective? Or are you seeing maybe potential pushback from the distribution channels that prefer -- that may prefer the mutual funds, in terms of the sales practice.

Andrew Schlossberg

Yes. I mean there's many paths to where active can further end up in ETF, and you mentioned a few of them. Some of them could be conversions. Some of them could be people doing cloning. The other is potential ETF share class on mutual fund, which there's regulatory discussions going on in the marketplace.
So I think all of those avenues will continue to be ones that we look at to move forward. I can't speak for every distribution of wealth platform, but my experience, our experience is they want high-quality products and they want it in multiple vehicles and wrappers. Being able to clone things and moving it over sounds nice and elegant, but it's not always the simplest way to do it. And it's an avenue we'll look at, but it's not the core path, I think we'll be on.

Operator

Okay. Mr. Schlossberg, back to you.

Andrew Schlossberg

Yes. Thank you, operator. And in closing, I just want to say we're very well positioned to help clients navigate the impact of evolving market dynamics and subsequent changes to their portfolio. As market sentiment improves and client convictions continue to strengthen, this should translate to even greater scale, performance and improved profitability for Invesco as we discussed today.
Given all the work we have done to strengthen our ability to anticipate, understand and meet evolving client needs, I am very excited for the future of Invesco. Again, I want to thank all of my colleagues at Invesco for their continued hard work in '24. And as we turn into 2025, I'm proud of our collaboration and our focus on our clients. I want to thank everyone for joining our call today. Please continue to reach out to our Investor Relations team for any additional questions, and we appreciate your ongoing interest in Invesco and look forward to speaking with all of you again soon.

Operator

Thank you. And that concludes today's conference. You may all disconnect at this time.