Good morning, and thank you all for joining us. As a reminder, this conference call and the related presentation may include forward-looking statements, which reflect management's expectations about future events and overall operating plans and performance. These forward-looking statements are made as of today and are not guarantees. They involve risks, uncertainties, and assumptions, and there can be no assurance that actual results will not differ materially from our expectations. For a discussion of these risks and uncertainties, please see the risks described in our most recent Form 10-K and subsequent filings with the SEC. Invesco makes no obligation to update any forward-looking statement. We may also discuss non-GAAP financial measures during today's call. Reconciliations of these non-GAAP financial measures may be found at the end of our earnings presentation.
Welcome to Invesco's Q1 results conference call. All participants will be in a listen-only mode until the question-and-answer session. At that time, to ask a question, please press star one. This call will last for one hour. To allow more participants to ask questions, only one question and a follow-up can be submitted per participant. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'd like to turn the call over to your speakers for today, Marty Flanagan, President and CEO of Invesco, and Allison Dukes, Chief Financial Officer. Mr. Flanagan, you may begin.
Thank you very much, operator, and thanks, everybody, for joining us. It's typically what we'll do. I'll hit some of the highlights, Allison will get more details of the results, and then we'll open up to Q&A. I'm gonna start on slide three, if you happen to be following along with the deck. Solid business momentum continued during the first three months of the year. We did have net long-term inflows of $17.2 billion in the Q1 . This is the seventh consecutive quarter of net long-term inflows. Our annualized organic growth rate in the quarter was 6% despite the market backdrop we are all experiencing. This is a key outcome of the broadly diversified set of capabilities we've built over the past decade.
In this volatile market environment, we continue to be extremely focused on our clients, and the strength and diversification of our business enable us to continue anticipating and meeting their evolving needs. In the Q1 , we continued to see strong demand for our key capability areas, in particular ETFs and fixed income. We maintain our focus on and investment in several key areas, including ETFs, fixed income, factor index, private markets, active global equity, Greater China, and solutions. This approach has helped us generate consistent, strong, and broad organic growth rate, and we ended the quarter with $1.6 trillion in assets under management. Looking at our specific capabilities, our global ETF platform closed out a very strong quarter. ETFs generated net inflows of $19 billion in the Q1 . This includes the flagship QQQ product.
We did increase market share in both ETF assets under management and revenues, and Allison's gonna spend a few minutes today going more in-depth into the ETF platform. We continue to see clients increasing their allocation to alternative strategies as they search for diversification and higher returns. Invesco has built a broad and competitive platform across real estate and private credit to meet these client demand needs. We are confident in our ability to accelerate growth in these capabilities. In private real estate, net long-term inflows were $300 million in the Q1 . This comprised new acquisition activities of $2.1 billion and investment realizations of $1.8 billion. In our private credit business, robust bank loan product demand results in net long-term inflows of $3.1 billion, including the launch of two new CLOs.
Our active fixed income business remained strong, generating long-term net inflows of $2.5 billion in the Q1 , including $2.2 billion from Greater China. Our active global equity business, our flagship product, including Invesco Developing Markets Fund, did see net long-term outflows of $1.5 billion due to the impact of the geopolitical environment that we are experiencing. On the institutional side, our solutions-enabled opportunities accounted for 30% of our institutional pipeline at the end of the quarter. Within Greater China, our JV had net long-term inflows of $3.2 billion in the quarter, and our business in China continues to be a source of strength and diversification, and we expect continued strong growth in the years ahead while recognizing the near-term headwinds in China.
The momentum in our business has generated strong cash flows, improving our cash position to the point where we resumed share buybacks in the Q1 , buying back $200 million in common shares during the quarter. Our focus on building a strong balance sheet and improving our financial flexibility put us in a position to take advantage of an economically attractive opportunity to redeem $600 million in debt that matures in November, which will now be redeemed in early May. Given the strong momentum and growth in our business, the board has also approved a 10% increase in the quarterly dividend. As we look forward, we're determined to continue to. Excuse me.
Delivering consistent organic growth together with our disciplined approach to expense management, which should enable us to generate attractive operating margins over the long term, while at the same time allowing us to continue investing in growth and the efficiency of our global business. Invesco's position as an investor and client-led firm differentiates us in the marketplace. Combined with the depth and breadth of our capabilities, our competitive strength, we are well-positioned to win in a dynamic operating environment. We continue to focus our efforts on delivering positive outcomes for clients while driving future growth and delivering value over the long term for our stakeholders. With that, I'll turn it over to Allison. Allison?
Thank you, Marty, and good morning, everyone. I'll start with slide four. Our investment performance continued to be solid in the Q1 , with 59% and 68% of actively managed funds in the top half of peers or beating benchmark on a five-year and 10-year basis. These results reflect continued strength in fixed income, balanced products, and Asian equities, all areas where we continue to see demand from clients globally.
Moving to slide five. We ended the quarter with $1.6 trillion in AUM, a decrease of $55 billion from December 31st. As Marty noted earlier, our diversified platforms generated net long-term inflows in the Q1 of $17.2 billion, representing nearly 6% annualized organic growth. Active AUM net long-term inflows were $800 million, and passive AUM net long-term inflows were $16.4 billion. Despite the inflows, market declines and FX rate changes led to a decrease in AUM of $85 billion in the quarter. The retail channel generated net long-term inflows of $10.4 billion in the Q1 , driven by inflows into global ETF products.
The institutional channel demonstrated the breadth of our platform and generated net long-term inflows of $6.8 billion, with diverse mandates, both regionally and by capability funding in the period. Regarding retail net inflows, our ETF capability generated net inflows of $19.2 billion. Excluding the QQQ, our net long-term inflows were $18.7 billion. I'll provide a little more commentary on our global ETF platform on the next several slides, but before I do, let me take a moment and touch on flows by both geography and asset class on slide six. You'll note that the Americas had net long-term inflows of $7.9 billion in the quarter. While we saw strength in ETFs and our institutional business, we did see pressure from select active equity strategies, including Developing Markets and the Diversified Dividend funds.
Asia Pacific saw net long-term inflows of $5.6 billion, representing organic growth of 11%. Net inflows were diversified across the region and included $3.2 billion of net long-term inflows from Invesco Great Wall, our joint venture in China. EMEA, excluding the U.K., also delivered a strong quarter of net long-term inflows, totaling $5.9 billion, representing organic growth of 16%. This was driven by strength in ETFs and sales of senior loan products. From an asset class perspective, we continue to see broad strength in fixed income in the Q1 , with net long-term inflows of $4.8 billion. Drivers of fixed income flows included institutional net flows into various fixed income strategies through our China JV, global investment grade, stable value, and various fixed income ETF strategies.
Our alternatives asset class holds many different capabilities, and this is reflected in the strong flows we saw in the Q1 . Net long-term inflows in alternatives were $7.6 billion, representing organic growth of 15%, and was driven primarily by our private credit business. This included two newly launched CLOs and net long-term inflows into our senior loan capabilities. In addition, we saw net inflows into commodity ETFs in both the Americas and EMEA. When excluding global GTR net outflows of $1.6 billion, alternatives net long-term inflows were over $9 billion. Strength of our alternatives platform can be seen through the flows that is generated over the past five quarters, with net long-term inflows totaling nearly $27 billion, representing a 12% organic growth rate over this time when excluding the impact of the GTR net outflows.
Now moving to slide seven. As Marty noted earlier, given the strong growth in our ETFs and other index capabilities, we wanted to provide a little more detail, a more detailed view on the business. With over 15 years of experience managing index assets and a team of seasoned ETF professionals in different strategic regions, Invesco's index business has always differentiated itself due to the innovative and value-added nature of our products. Examples of this include first to market types of products like the Invesco Senior Loan ETF, distinctive families of ETFs like the Low Volatility Suite, the BulletShares ETF, and our diversified range of commodity pools. We created the fast-growing QQQ Innovation Suite just a little over one year ago, and it has grown to $5.4 billion at the end of the Q1 .
We manage $528 billion in ETFs and other index capabilities. The platform is diversified in terms of strategies, asset classes, and client geographies. Over the last 12 months, net inflows into ETFs and other index capabilities were $87 billion, a 21% growth rate. Net inflows into global ETFs over this period were $66 billion, which is a growth rate of 17%. New fees from these flows were $130 million, a 16% increase over the prior 12 months. Now turning to slide eight. Over the past five quarters, the ETF industry has seen over $1 trillion in net inflows, a 12% growth rate. Over the same period, Invesco's 17% growth rate has exceeded that of the industry.
In addition, our market share of flows has exceeded our market share of ending AUM for four of the last five quarters, increasing our overall global ETF market share 40 basis points over this period to 4.9%. Moving to slide nine. Invesco is the fourth-largest ETF AUM advisor globally. Our platform is much more diverse than just broad beta. We continue to innovate our product line, focusing on specialized strategies in growth areas such as smart beta, commodities, fixed income, and more niche traditional beta. These capabilities carry higher fee rates compared to broad beta fee rates. On a fee basis, we rank fourth in the industry with a 5.6% market share of annual fees. Given the commoditized nature of broad beta products, almost 60% of the industry ETF AUM carries a fee rate of less than 10 basis points.
In contrast, our ETF capabilities are anchored on strategies that help investors achieve targeted investment goals. The value add proposition of our ETF business is expressed through sought-after products. If you exclude the QQQ, over 90% of our ETF AUM has a fee rate 10 basis points or higher, with the average fee rate being 33 basis points. Our ETF flows in the Q1 were also differentiated, with over 80% of our ETF net inflows being in products that carry a fee rate of 10 basis points or higher. Looking at net flows in these higher fee products, our market share was nearly 14% of the industry, almost 3 times our market share of ending AUM. Slide 10 shows that the ETF industry is expected to almost double in size to $18 trillion or 18% annually by 2025.
Invesco is well-positioned to continue to gain market share. With our global scale, as well as being a leader in commodity, smart beta, fixed income, and our focus on innovative and thematic offerings such as the QQQ Innovation Suite and ESG products, we are positioned to capture client demand around the globe. Our ability to capture flows in excess of our market share is driven by a number of factors, including our understanding of markets and clients, multi-decade ETF relationships in institutional and wealth management channels, a fast-growing European ETF product lineup that is now the second fastest-growing ETF business in the region, and our ability to build loyalty with a new generation of retail investors. Finally, the brand recognition of the QQQ elevates Invesco's visibility in the global ETF market. The QQQ product has become the fifth-largest ETF globally.
Its popularity has spurred growth in the rest of our global ETF platform and laid the groundwork for the launch of adjacent fee-generating products as part of the QQQ Innovation Suite. We launched that suite in October 2020, and it has been highly successful, growing to $5.4 billion by the end of the Q1 , as I previously noted. Now moving to slide 11. Our institutional pipeline was $29 billion at quarter end, consistent with the prior quarter level. Pipeline remains strong and has been running in the $25 billion-$35 billion range dating back to late 2019. Pipeline also remains relatively consistent to prior quarter levels in terms of fee composition. Overall, the pipeline is diversified across asset classes and geographies. Our solutions capability enabled 30% of the global institutional pipeline and created wins in customized mandates.
This has contributed to meaningful growth across our institutional network. Turning to slide 12. Market volatility had a significant impact on our Q1 net revenue. This is most evident in the $93 million decline in investment management fees from the Q4 , as noted on the slide. In prior quarters leading up to the Q1 , we have been generating strong year-over-year net revenue growth, growing at a 17% rate in the second half of 2021. This was being driven by both strong markets and organic growth. As the Q1 unfolded, pressure from market volatility negatively impacted net revenues. As a result, our net revenue were essentially flat year-over-year. We did see improvement in money market fee waivers during the quarter as short-term rates increased and the Fed raised rates 25 basis points in mid-March.
The net money market fee waiver impact had been running in the $20 million to $25 million range per quarter. The impact declined to $12 million in the Q1 . We expect the impact will decline to near $5 million in the Q2 , and by the Q3 , we expect little to no impact from money market waivers. Total adjusted operating expenses were up about $10 million or 1% as compared to the Q1 of 2021. $6 million of the increase was due to certain changes to the pricing of transfer agency services that we provide to our funds, which went into effect in the Q3 of last year. The increase impacted property, office, and technology expenses, which was offset by a corresponding increase in service and distribution revenue.
Taking this into account, adjusted operating expenses were essentially flat year over year. Reductions in employee compensation were offset by higher marketing and G&A expenses, partly due to higher reopening activity in these areas as compared to the Q1 of 2021 when there was no travel. Going forward, the degree of activity in these areas is expected to increase as travel continues to come back. Moving to slide 13, we're very close to our goal of achieving $200 million in net savings this year. In the Q1 , we realized an additional $6.4 million in cost savings. $3 million of the savings was related to compensation expense, and $3 million related to a reduction in property expense as we continue to rightsize our facilities portfolio.
The $6 million in cost savings, or $26 million annualized, combined with the $167 million in annualized savings realized through 2021, brings us to $193 million in total, or 96% of our $200 million net savings expectation. In the Q1 , we incurred $22 million of restructuring costs related to this initiative. In total, we've recognized approximately $240 million of our estimated $250 to $275 million in restructuring costs associated with the program. We expect the remaining restructuring costs for the realization of the program to be up to $35 million. As a reminder, the costs associated with the strategic evaluation are not reflected in our non-GAAP results. Now moving to slide 14.
Adjusted operating income decreased $8 million from the Q1 of last year to $495 million, driven by the factors I previously noted. Adjusted operating margin was 39.5%, slightly lower than the Q1 of last year. EPS was $0.56 versus $0.68 a share last year, with the main driver being lower non-operating income. In the Q1 of 2021, equity and earnings of unconsolidated affiliates was $37 million, favorably impacted by the improving CLO valuations at the time, as compared to $4 million in the Q1 of 2022.
Other gains and losses declined $30 million from last year to a loss of $20 million in the Q1 of 2022, driven by lower mark-to-market valuations of our seed capital due to negative market performance. The effective tax rate was 24.2% in the Q1 . We estimate our non-GAAP effective tax rate to be between 24%-25% for the Q2 of 2022. The actual effective rate may vary from this estimate due to the impact of non-recurring items on pre-tax income and discrete tax items. Slide 15 illustrates our ability to drive adjusted operating margin expansion against the backdrop of the client demand-driven change in our AUM mix and the resulting impact on our net revenue yield. Our operating margin two years ago in the Q1 of 2020 was 36%.
At that time, we reported a net revenue yield ex performance fees and excluding the QQQ of 41.8 basis points. In the Q1 of 2022, our net revenue yield declined 5.2 basis points to 36.6 basis points, yet our operating margin has improved to 39.5%. We've been building out our product suite to meet client demand, and client demand has been skewed towards lower fee passive products as evidenced by the mix shift between active and passive AUM. Realizing our business mix is shifting, we continue to be focused on aligning our expense base with these changes. This has enabled the firm to improve and maintain a strong operating margin despite the client demand-driven decline in net revenue yields. Now, a few comments on slide 16.
Our balance sheet cash position was $1.3 billion on March 31, and approximately $708 million of this cash is held for regulatory requirements. The cash position improved from the Q1 of 2021, even as we deployed $200 million in cash to fund share buybacks in the Q1 . Our leverage ratio is defined under our credit facility agreement with 0.8 times at the end of the quarter. If you choose to include the preferred stock, the leverage ratio was 2.5 times, both being substantial improvements in our leverage profile over the past year.
As Marty noted earlier, our stronger balance sheet and financial flexibility put us in position to capitalize on an economically attractive opportunity to early redeem the $600 million of senior notes that have a maturity date of November 30th of this year. As short-term interest rates increased in the Q1 , the make-whole related to an early redemption of the debt became attractive enough to provide a financial benefit to redeem the debt early, and it will be fully redeemed on May 6th. This will save us approximately $11 million in interest expense over the period beginning in early May through what would have been the November 30th maturity date. The make-whole and other fees will be approximately $5 million based on current indications, and these will be recognized at the time of redemption. Both the savings and the fees will impact interest expense.
With respect to our capital strategy, we are committed to a sustainable dividend and to returning capital to shareholders through a combination of modestly increasing dividends and share repurchases. As we've stated, we intend to build towards a 30%-50% total payout ratio over the next several years. We completed the previously announced share buybacks of $200 million in the Q1 , and our board approved a 10% increase in our quarterly common dividend. Overall, we believe we're making solid progress in our efforts to improve liquidity and build financial flexibility, and our Q1 results demonstrate that progress. We remain focused on executing the strategy that aligns with our key areas of focus, continuing to invest ahead of client demand in these areas. At the same time, we're focused on optimizing our organizational model and disciplined expense management.
This approach has resulted in a stronger and more resilient operating margin. This has also facilitated stronger cash flows, further strengthening our balance sheet and driving the improvement in our leverage profile, putting us in position to capitalize on opportunities such as the early debt redemption. As we look toward the future, Invesco is in a strong position to deliver value over the long run to all of our stakeholders. With that, I'll ask the operator to open up the line for Q&A.
As a quick reminder, if you'd like to ask a question, please press star, then one. Remember to unmute your phone and record your name clearly when prompted. If you'd like to withdraw your question, you may press star two. Our first question comes from Brian Bedell with Deutsche Bank. Your line is open.
Great. Thanks very much. Good morning, Allison and Marty.
Morning.
Maybe just to start with the ETF presentation, you know. Thanks for all of that detail. Just thinking about that, sort of the base fee organic growth potential in the ETF business and, you know, how you called out, you know, sort of the higher fee rates and the product development, I see a sort of long-term runway for further product development in this area, whether that's, you know, coming mostly from the innovation side or just add-ons to other products, maybe including thematic ETFs and sort of your optimism maybe for the overall ETF fee rate, excluding the triple Qs, you know, to potentially increase over time.
Yeah, I'll make a couple comments. Look, I mean, if you just look at the franchise as Allison went through, I mean, it's evolved, you know, enormously over the last from when we got into 2006, and it is an absolute source of strength. You know, a fundamental strength really is the non-cap weighted part of the business. Product innovation and development is as fundamental to success in the ETF business. You know, we anticipate that to continue. Yeah. Again, I think the results, you know, speak for themselves, and we would anticipate that, you know, to continue as we go forward. I don't know if that's helpful, Brian, but.
Yep.
That's helpful.
I'm sure there's a lot more to come in the future. Maybe on the geopolitical backdrop, what you're seeing, obviously a lot of cross currents, you know, in China, of course, with lockdowns accelerating and then of course the whole situation in Europe. Maybe if you could just comment on how you're seeing flow trends evolve into the Q2 now that this is, you know, going on longer. Within Europe, whether you're seeing a difference in the U.K. versus the continent in terms of sales growth, in terms of whether the geopolitical situation there is affecting one region versus the other.
Yeah, look, it's a great point, and it is a contrast, right? There's definitely a sentiment headwind both in China and in Europe, and I'd say largely for different reasons, right? It is really the Russia-Ukraine situation, which is quite acute on the continent and in the U.K. I'd say the first element was a slowdown and people sort of moving more towards risk off. We'll just have to see as we go forward. It's just so hard to predict. If it sort of settles in to still a horrible situation, but you could see some sentiment sort of balance out there. With China, it's a different.
I mean, it is COVID, and, you know, this is the, you know, they're in the worst situation with COVID, you know, since the beginning, and that has definitely impacted sentiment, and it is impacting flows, you know, from retail equity products to fixed income products. You know, we continue to see flows there. You know, but again, I think it's, you know, it is an economy that, you know, the leadership is very focused on, and, you know, they want growth, they need growth, and I anticipate they're gonna, you know, do what they need to support, you know, the growth in China.
I'd say picking up on your question of do we see a difference in sentiment between the U.K. and continental Europe. I don't think I'd point to a difference in sentiment related to the geopolitical issues going on there. I think, you know, if you look, if you kind of peel back the results in the Q1 , the impact of the outflows in our GTR product are felt most acutely in the U.K., as the majority of that is based in the U.K. Some headwind in continental Europe. But in terms of sentiment, a little bit of a shift, a bit of a risk-off sentiment and a shift into commodities, which is certainly driving some of the strength in our ETF flows in the Q1 .
you know, I wouldn't point to any major differences between the two areas.
Okay. Great. That's great clarity. I'll get back in the queue for a couple follow-ups. Thanks.
Thank you.
Thank you. The next question comes from Brennan Hawken with UBS. Your line is open.
Good morning. Thanks for taking my questions. So curious about how we should think about fee rate pressure. I know it's always a tricky one to think about, but maybe something that might help a little bit is to think about it tactically. What did you see in the trends through the quarter? Then based upon what we've been seeing so far, I know the markets are really volatile, so not necessarily asking for a forward look. Maybe, you know, what was the exit rate and what are the general trends here so far quarter to date when we think about trailing up and at least tactically?
I'll do my best, Brennan, to take a stab at that. It's rather difficult, as you note. Maybe I'll start with just a reminder, that the net revenue drivers are always going to be organic growth, mix of flows in AUM and market dynamics. Over the last year, we've also had the impact of money market fee waivers, which as I noted, you know, we expect that to be going away. Trying to unpack that and develop a view around where we see it going, over the next quarter or two is very difficult. Maybe kind of, again, separating what are some of the trends we see.
If we look at in particular the decline in our active net revenue yield, and we do provide some additional disclosures around active versus passive net revenue yield in the appendix of the presentation this quarter. I think some of what we see there is just this divergent market beta, where both our emerging markets and China equities have underperformed relative to the developed market indices. You know, that's put real pressure on our active net revenue yield. We've also seen outflows, particularly in developing markets and some of our other higher fee active equity products, while experiencing inflows into active fixed income, which of course are going to be on the lower end of the fee range.
You look at the passive net revenue yield and some of the declines there, and that's really a more, I'd say, recent impact of some of the really sizable low-fee, large institutional index mandates that we put into the AUM mix last year. Think IOOF, as well as some of the growth of our ETFs in EMEA, and the QQQ Innovation Suite, which while the Innovation Suite is fee generating, it will be on the slightly lower end of our passive fee rate. As those are some of the trends that we're experiencing. I think, you know, the biggest issue looking forward will absolutely be market dynamics as I think about, you know, what we could expect in the second and Q3 .
I'd add to it, and look, it's you know, the right question to ask, and you and continues to be focused on it, and we as a team too. You have to ask the question hand in hand with profitability. I think what we've demonstrated is that, you know, we've been continuing to drive profitability with this, you know, movement in fee mix. You know, internally, and Allison talked about it, you know, we continue to, you know, make sure our resources are aligned, you know, are right-sized against, you know, where we're seeing, you know, the profitability within the organization. Again, I think that's that look back from 2020 forward, I think demonstrates that we've been able to do that, and we intend to continue to do that too.
Okay. Thanks for that. Marty, that it's a great segue, and it kind of tees up the next question, which is, you know, the environment has been challenging, volatile certainly. Seems like there's less risk appetite, here at least in the near term. How are you guys thinking about the expense base here, this year? Compensation trends seemed a little bit better than certainly we had been expecting. Is that better-than-expected comp sustainable, in the near term? How should we be thinking about truing up our outlook for expenses, and how are you guys thinking about managing it given the environment?
Yeah. Let me make a couple comments and give to Allison. Look, I think, you know, you're hitting on the high points. You know, the first thing you have to do to be successful is you can't cut, you know, cost cut yourself to success. You know, we've been very focused on it over the last few years as Allison has spoken to. But really we're in a position where, you know, driving the resources against things that really matter for the future, that's what we've been doing. Also in this environment of what matters, our clients and employees, ensuring that we're keeping that right balance where clients continue to have confidence in us as an organization, and quite frankly, you know, the talent in the organization to keep them energized against generating the results.
You know, that is something that we've continued to be very focused on. We'll continue to do it, but ensuring that we're being responsible, and I'll stop and have Allison, you know, pick up on that and-
Yeah.
Make some comments.
Thanks, Marty. A couple of things. One, just a reminder, our expense base is about a third variable and two-thirds fixed. When we think about that variable component of the expense base, you know, it just can't react fast enough when you have a pretty strong market downdraft like what we experienced late February and through March. Of course, we continue to experience that as we make our way through April. It takes some time for that variable expense base to fully catch up to the lower revenue. At the same time, two-thirds of our expense base is fixed.
I think that's an area where we've been spending a lot of time, as you know, the last couple of years, really thinking about our overall cost structure, and making some choices as we think about how to continue to shift that, and lighten up some of the cost structure. We've made really good progress, we believe, with $193 million of that expense base really well addressed over these last couple of years. Getting back to your observations on comp. Comp, you know, is well managed because we've been just really thoughtful and disciplined around headcount over the last year or so.
While there is seasonality in our compensation expense in the Q1 , and it does tend to run $20 million to $25 million higher than the Q4 , comp was pretty well managed against that as we look at headcount. Of course, the variable, part of our compensation expense reflects the lower revenue we experienced in the Q1 as well. As I think about the rest of our expense base, you see where we've continued to make some progress on our facilities expense. We will continue to address our facilities portfolio overall, as we just think about you know, our footprint and the role the office plays in our future and take advantage of some opportunities there.
The other thing I'd point to is we've been experiencing this very low to no travel environment for some time now. As I think about our expense base going into the Q2 and beyond, I do expect we will continue to see some pickup in activity. We saw some pickup in the Q4 and the Q1 . You know, we get the start stop, as we all understand, from kind of country to country and region to region. We still remain completely closed in China as an example. We are seeing travel really start to pick back up and clients wanting to see us again across North America and Europe. With that, I expect a little bit of pickup in activity.
I do not expect us to get back to pre-COVID levels, for a variety of reasons, but, you know, I do expect it to trend just a little bit higher from here. Long way of saying, while we do think there will continue to be this market pressure and revenue pressure, we'll be thoughtful and selective in managing our expense base, but not knee-jerk reactive because it's really important that we continue to invest, for the business, that we expect will be here, a year from now, despite some of the geopolitical tension we experience right this minute.
Thanks for that very, very thorough response. Just one clarifying question, Allison. You made reference to reviewing the facilities footprint. Do you have any expected timeframe for when you all might have an idea about what that review will suggest for changes?
You know, I think ongoing because leases are, you know, they're rolling. As we have the opportunity to make decisions, we're being thoughtful and selective, just given that we work in a different environment than we would have a few years ago. That's gonna be an ongoing opportunity. I'd point just beyond our facilities portfolio to a lot of components of our expense base. As opportunities arise to address that, we're going to be very thoughtful about where we continue to invest and where we may be able to free that up to invest somewhere else.
Thanks for all the color.
Thank you. The next question comes from Glenn Schorr with Evercore. Your line is open.
Thank you. I'm curious. We've seen different markets. I'm just curious on the higher rates and the impact on flows. You've obviously mentioned and benefited from the floating rate and bank loan product. You also mentioned some flows into some IG index products as people de-risk. Can you give us the full lay of the land on where the pluses and minuses are coming impacted in the higher rates and what to expect as the Fed does its thing? Because I think it's always a little more on the positive side than people expect. I think they braced for impact of big outflows and there's some different moving parts. Thanks.
I'll make a couple comments, and Allison will also. Glenn, you're hitting on really the topic. I mean, you know, so where are we seeing flows? Allison was hitting the high mark, you know, fixed income, short duration, bank loans. We have a very strong commodity suite within the ETF business. We've had that for a very long time, and it's really just, you know, in this market, it's become, you know, quite popular, as you would imagine. Real assets is another one. Direct real estate, you know, will continue to be an opportunity for us. Quite frankly, you know, we're seeing, you know, marked improvement in our value equity capabilities, and, you know, that's sort of been an asset class for the last decade. There's not been a lot of interest.
You know, we'll have to see, you know, what the client demand is for that. You know, strong investment performance coming on the back of it. Again, it's really the breadth of this product lineup that it's not a sort of one answer to the marketplace. I think we're well suited for the environment that we're gonna go into.
The only thing I'd add to that is just, not surprisingly, investors are gonna be looking for more floating rate credit-sensitive assets, and that's really what you see driving the strength in our senior loan flows and where we would continue to see demand. I think just again, the breadth of the capabilities we have there are well-positioned to capture that demand.
Thank you. Maybe just to follow up on relates to MassMutual, obviously, an even bigger owner now. Can you remind us what you're managing for the general account, what kind of flows you're getting out of retail and what the future holds in terms of the future synergies between the two organizations? Thanks.
Sure. I'll take that. In terms of what we're managing for them, we manage about $5 billion on their broker-dealer platform. They have also committed over $1 billion to various Invesco alternative strategies. The relationship is, I would say mutually beneficial and has the opportunity to continue to grow and expand from here. As you note, they are a larger owner. They continue to be very bullish on the overall profile of Invesco and our opportunity to continue to grow market share and position our product capabilities to capture the demand that's out there.
We're working with them, really on both sides of the ledger as we think about the opportunity we have to manage more on their broker-dealer platform and also the opportunity that we have together to co-invest in various alternative capabilities and strategies. You wanna add anything to that, Marty?
Again, just it's a very strong relationship, strategically, and we're both looking for, you know, ways that we continue to, you know, mutually benefit from the relationship as we go forward.
Thank you for all that.
Thank you. The next question comes from Robert Lee with KBW. Your line is open.
Great. Good morning. Thanks for taking my questions. Maybe a question on the Great Wall JV. Just wanna, you know, excuse me, think about the economic impact of it. Obviously, it's been a, you know, strong source of flows for the last couple of years, even if it's slowing down right in the moment. What's the right way to think of the economic contribution? I believe most of non-controlling interest is from the Great Wall JV, or so if we're trying to think of its impact, is it as simple as just, you know, adjusting that for your 49% share, or is there, you know, a different way that we should be thinking of it?
Yeah. Let me start with, when you look at our non-GAAP results, we look at that in terms of in revenue, you see 100%, and then below the line, we back out the 51% we don't own. We can, you know, spend some time walking through that, making sure that's clear. That's how it's reflected in the P&L. You see 100% on the top line, but by the time you get to the bottom line, we reflect 49% of our ownership.
Okay.
Is that your question, Rob?
Well, yeah, I guess my understanding was the $29 million non-controlling interest was mainly the 51% that flows, you know, was mainly the Great Wall JV, right? So that'd be that.
That's correct.
51%. Yeah. Okay. Great. And then-
Correct. Yeah, go ahead. Sorry.
No. That. Well, please finish your comment. Sorry.
No, there was nothing else to add. Sorry. Go ahead, Rob.
Okay. We're just back and forth. Sticking with the Great Wall JV, and I know this has come up in the past, and I know for a while, you know, you've been looking at how you get a majority stake, and can you update us on that? More specifically, given that understanding you have operational control of the JV and you run it, you know, day to day, year to year. Can you maybe update us what kind of maybe safeguards you feel like you have? You haven't been able to get to the majority ownership, still a minority ownership, even though you have operational control, you know, are there other safeguards we should be thinking of that kinda help protect your position in that joint venture?
Yeah, let me make a couple comments. Look, you're hitting on the most important part. You know, from the beginning, we've had management control, and that's really why we've been successful. You know, that has really been the competitive differentiator with us versus you know, many of our competitors you know, in the market. The reason for not getting the majority, you know, this in and out on COVID is just not helpful, right? You know, it's just in lockdown. Every time, you know, we start to get to it really was geopolitical elements, I'd say probably you know, two years ago, and it's really been more of the COVID lockdown right now.
Until that calms down, you know, we're probably not gonna get it done, you know, for a few quarters. We'll just have to see how that goes. The desire is there on both parties. The pathway is something that we know what we wanna accomplish, and we will in time, but I would not be worried about, you know, the risks associated with the relationship. It is very strong and very well laid out for us as an organization.
Okay, great. Thanks for taking my questions.
Thanks, Rob.
Thank you. Our next question comes from Bill Katz with Citigroup. Your line is open.
Okay, thank you very much. Thanks for taking the question this morning. Good morning, everybody. Maybe just starting with the balance sheet a little bit. Appreciate the update on the debt for May. As you think about into the second half of the year, could you talk a little bit about what your priorities might be, how much sort of residual cash you're willing to run with on the balance sheet between sort of excess cash and required cash, and then maybe the delta between incremental debt repurchase versus share repurchase, just given where the stock is trading? Thank you.
I'd say in terms of priorities, just overall our capital priorities are consistent and just first and foremost reinvesting in the business to support future growth. We continue to prioritize that and will, and you've seen that, and I think that's what's put us in a good position to capture the flows we did in the Q1 despite a really challenging environment. Next is to maintain a strong balance sheet and then to return excess cash to shareholders. You know, I actually think we checked each one of those boxes nicely in the Q1 as we had the opportunity to further strengthen the balance sheet, and return cash to shareholders through the dividend increase and share repurchases.
As I think about moving forward, when we get on the other side of redeeming this debt, you know, and I'll point to the fact that we'll be using a combination of cash and, perhaps some draw on the revolver to early redeem that $600 million. You know, we have been building cash in anticipation of paying this debt off at the end of this year. We pulled it forward by six months. It's a bit of a challenging environment as well in terms of just cash flow generation being slightly weaker than we would have expected or hoped for in 2022, just given the market pressure and dynamics that we're experiencing, through revenue.
Against that, you know, I think we will continue to be focused on building cash so that we can be in an opportunistic position to reinvest in the business, and to think about continued progress on the balance sheet. Our next debt maturity won't be until 2024, so we've got some time in advance of that next $600 million maturity. I think I missed the last part of your question. I think you asked something about share repurchases.
I'm just trying to understand, like, as you, as you think about maybe the second half of the year and you pay down the debt and hopefully markets will stabilize, but how much residual cash you wanna work with on the balance sheet? Then when you sort of look at the stock trading, you know, sub 20 versus your next debt payment not coming due until 2024, how to think about just sort of buyback versus, you know, further husbanding of capital?
Sure. You know, I think in general, we'd love to see cash be somewhere around, and I'm gonna use generalities here, one and a half billion dollars or so. That just puts us in a nice comfortable position beyond our regulatory requirements, to have cash for opportunistic needs and also weather any downturns. I do think, as we think about this year, we're cautious, not knowing what the environment might hold from this point forward. We're watching closely, and we're gonna err on the side of conservatism, as we think about the impact the market might have on our overall revenue dynamics, and cash position.
You know, I don't know if we're husbanding cash so much as being very thoughtful and prudent as we think about our balance sheet and keeping our balance sheet in a very strong position. We're operating in a different environment than we were two years ago. When I think about the Q1 of 2020 and how much pressure that put on our balance sheet and on our profile overall, we're in a much, much stronger position two years later because of the work that we've done and because of our prudent approach to the balance sheet. This would not be the time to back off that strategy.
Understood. Just as a follow-up, and I apologize, a bit of a two-part unrelated question. Just, I might have missed your commentary, Allison, just on the sequential decline in the equity earnings line. The bigger picture question, just as you look at the alts bucket, could you talk a little bit about what you have coming in terms of opportunity for growth into maybe the second half of this year, any flagship funds or just general new product initiations? Could you sort of clarify how much you're sort of tapping into retail democratization? I thought I heard $300 million. I just wanted to see if I heard something different. Thank you.
Let me take the first one. Just in terms of equity and earnings, if you think about Q1 of 2021, there was a gain of about $36.7 million. That's because of the CLO marks at the time. You had just CLO mark-to-market moving in a pretty strong upward direction in the Q1 of 2021. Compare that to this quarter, which was about $4 million, so just modest gains there. Again, this is all just mark-to-market unrealized gains and losses. That's the difference year-over-year.
As it relates to alternatives and opportunities going forward, you know, I'll continue to point to our private markets capabilities, and what we've, you know, spent the last couple of quarters talking about, both in terms of real estate, and our senior loan capabilities. You're certainly seeing both of them be in demand right now, particularly the senior loan capabilities, as we noted, just given the investor move towards short-term floating rate credit sensitive assets. It provides a really significant opportunity for growth in that asset class for the balance of the year. Also our private real estate business does as well as we continue to grow our capabilities there. Marty, you wanna add anything there?
No, I think you hit it.
Hit it.
I thank you all.
Thanks, Bill.
Thank you. Our next question comes from Ken Worthington with JP Morgan. Your line is open.
Hi. Good morning. Thanks for taking my question. Different parts of the real estate market have bounced back, others are still struggling. I guess how are Invesco's direct real estate portfolio, how is it positioned and performing here? It does look like both, an Invesco Asia and an Invesco U.S. direct fund have been in market, more recently. How is fundraising going in those products if they haven't yet wrapped up? I guess maybe lastly here, the outlook for real estate transaction fees. I think you called it out in the quarter as being, I think $10 million or $11 million in the quarter. Are we back to normal, for those transaction fees? If so, what does normal look like from here versus, you know, the depressed level that we saw, more recently? Thanks.
All right. Let me try to take that maybe in reverse order. On the transaction fee, I think you're pointing to the $10 million transaction fee that we noted as other revenue, and that's really a property disposition fee within private real estate. Net inflows were about $300 million in real estate, but there's obviously transaction activity behind that, and was pretty broad across the platform. I think we commented on the acquisition activity was about $2.1 billion in the quarter. The realization, which is what can trigger the property disposition fees, was about $1.8 billion in the quarter. You know, from time to time, you're going to trigger some of those property disposition fees.
I don't know if we could point to normal because it's going to be somewhat episodic in nature, depending on the nature of those dispositions. You know, I think I'll add on to that. It's important just to remember that a large percentage of that AUM through realization doesn't actually leave Invesco. It's really redeployed into new properties. I don't know if I'd point to that as normal, or something we should, you know, expect quarter to quarter. As I think about just again coming back then to the part of your question around our real estate portfolio, it's pretty well positioned and well diversified across the different real estate classes, multifamily, office, industrial, retail.
You know, we've obviously been quite thoughtful over the last few years, given some of the various pressures on some of those categories. It's also well diversified across regions. It is a global business. Our strategy is not to be, you know, too concentrated at any one particular area or asset class. We feel like they're pretty strong growth profile, growth dynamics for that one going forward.
Okay, great. Thank you very much.
Thanks, Ken.
Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open.
Thanks. Good morning. Wanted to follow up. I appreciate the comments on the balance sheet, the flexibility in the capital and priorities. I guess the one area that hasn't been discussed is just M&A, and so curious about your appetite for potential M&A in this type of backdrop, you know, alternatives or private market capability, expanding that, you know, certain areas of focus or if it's in terms of priorities, this is just further down the spectrum and not really something you're focused on at this point.
It's a good question, and I would really point to, you know, right now, as Allison has been talking about just on this call, really private markets is a very important area for us. You know, we have the two fundamental strengths that we've been talking about, and our head is focused on growing those organically right now. If there was an opportunity in the alternative space that complemented our current portfolio, you know, we'd surely be very open-minded to it. That would, you know, be the priority, you know, as we thought about, you know, M&A, but we're not waiting to continue to build that business. We're continuing to invest in it.
Got it. Then, a follow-up on just the institutional pipeline. Curious, just the solutions business, if you could talk about the kind of client profile that you're, you know, typically having success with and expand upon that. We know some of the larger mandates last year, but you know, kind of on the ongoing business. Then within active equities, which also is a little bit larger slice of the pie, can you talk about what strategies are driving or where the demand is on that front from the institutional pipeline that you guys disclose?
Let me talk about solutions. It's the client breadth is very, very broad. You know, it's from you know, corner office wealth management teams in the United States, you know, using you know, the solutions capability to you know, large sovereign wealth funds you know, around the world. It really serves all different types of clients in doing you know, various different services for them. As we said, it's been fundamental to you know, our success institutionally and very supportive of our you know, wealth management business also.
I think then maybe coming to the other part of your question there, part of what we're seeing in terms of the growth in active equities in the pipeline would be driven by China and some of the institutional mandates that we're seeing through our JV there, you know, I would point to. I mean, you note the pickup in just the overall component of active equity, not surprisingly, as a result of the average fee rate of the unfunded pipeline. Well, it continues to be within our range of high 20s-low 30s. It's on the high end of that range as you would expect. And our alternatives mandates continue to grow there as well. The pipeline is shaping up quite nicely.
It's certainly a leading indicator, we believe, of you know future AUM growth. We're pleased with how that's shaping up. The pull-through this quarter was a little bit lower than usual, somewhat in the normal range, but lower as we just saw you know some pushing of those mandates out given some of the geopolitical risks and a little bit of a pause on that. The pipeline itself is shaping up quite nicely.
Great. Thank you.
Thank you. The next question comes from Patrick Davitt with Autonomous Research. Your line is open.
Hey, good morning, guys. Just one on the ETF disclosure. You know, the fee premium obviously that you highlight in the deck is a great position to be in. But I think it begs the question, if that doesn't just mean that those funds are lagging the broader ETF industry in terms of seeing more compression. First, to what extent are you seeing pressure from competitors on those higher fee products in the ETF side? And second, what gives you confidence that those higher fee rates are defensible in the long run through the lens of what we've seen, you know, with other ETFs, you know, more passive-like ETFs?
Yeah, it, where the fee pressure really comes in broad beta, right? Where there's, you know, you know, any number of competitors and it's easy to get into. Obviously, it's dominated by a few. There's just been less of that, you know, across the industry once you leave that, and it's largely because there aren't, you know, many, you know, duplicative ETFs, and they are generating the returns and the results that, you know, clients want. I would say as long as clients are, you know, feeling they're getting value for the ETFs, those fees will stay in place.
In the broad beta side, there's just very little. There are very few ways to compete other than through fees. In the space in which we operate, there is the opportunity to differentiate. I don't know that we would say the fee pressure is lagging, because you really can create a differentiated product offering there.
Thanks.
Next question comes from Michael Cyprys with Morgan Stanley.
Hey, good morning. Thanks for squeezing me in. Just maybe coming back to expenses. I think, Allison, you mentioned the expense base is one-third variable, two-thirds fixed. I guess, where would you like to see that over time? What's the opportunity to shift more of the expense base to variable, and what actions might you be able to take?
I would always love to see it go more towards variable. If we had that opportunity, you know, we'll push everything we can. But it's not totally realistic. You know, I think the opportunity we have is just really longer term and it's broader based. As we think about the fact that our business continues to shift, and you see that through everything we've discussed this morning, and the real demand for our passive capabilities, it's creating a fundamental shift in just the revenue dynamics of our business. Against that, we've got to be very thoughtful about positioning the chassis of our expense base.
Some elements of that are going to be fixed, but we've got to address even the fixed components to really reflect where demand is today and where we expect it's going to continue to be three, four, five years from now. Where we have the opportunity to variabilize the expense base, we will. Compensation is a pretty highly variable component of our expense base. We are a people-driven business and we will continue to be a people-driven business. That gives us opportunity, but we're thoughtful about how we use that opportunity as well. It's hard to say exactly where else we can go, but I think the biggest thing we can do is continue to address some of our fixed costs. You know, I'll point back to the property portfolio as an example of that.
As we think about facilities and the opportunity we have to take some fixed costs out, that's how we're thinking about really adjusting the operating expense base going forward.
Just given some of the changes that you've made to the expense base already, I guess what would you expect the pace of expense growth to be over the next few years, assuming flat markets?
That's hard to say, of course, given the inflationary environment we're operating in. You know, I think in a lot of ways, inflation doesn't hit us in quite the same way it hits other industries. I'm not sure we felt it entirely yet either. I'll point to travel as an example of that. I think, you know, the inflationary pressure on travel is going to find its way back into our expense base and that of others. I just don't know how long that environment might persist or whether or not it resets to some new level that we have to contend with. I think we can manage our expense base reasonably well, again, putting aside market. The real unknown is just the overall macroeconomic environment and the inflationary impact on the expense base.
I think that's the bigger probably pressure. I'm not gonna call it risk, but upward pressure on our expense base, as we think about just managing our business going forward.
Great. Thank you.
Okay. Well, thank you very much. I appreciate the engagement and the discussion, and have a good rest of the day. Much appreciated.
Thank you. That concludes today's conference. You may all disconnect at this time.