Welcome to Invesco's Third Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session. [Operator Instructions] As a reminder, today's call is also being recorded. Now, I'd like to turn the call over to Greg Ketron, Invesco's Head of Investor Relations. Thank you. You may begin.

Okay. Thanks operator and to all of you joining us today. In addition to today's press release, we've provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website, 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 or the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third-parties. The only authorized webcast are located on our website. Andrew Schlossberg, President and CEO; and Allison Dukes, Chief Financial Officer will present our results this morning and then we will open the call up for questions. I'll now turn the call over to Andrew.

Thanks Greg and good morning to everyone. I'm pleased to be speaking with you today. But before I begin my commentary on the quarter, I did want to take a moment to acknowledge the humanitarian crisis in the Middle East. We are deeply saddened by the loss of life and devastation and the impact it's had on civilians across the region. We're focused on the safety and the well-being of our colleagues and their families and our thoughts are with everyone who has been impacted by the heartbreaking recent events. But now turning to the topic of the third quarter earnings, I'll start today's presentation on Slide 3. Volatility and uncertainty continue to define global financial markets with interest rates rising and investors awaiting more clarity from central bankers, there's an extraordinary amount of cash that's been moved to the sidelines where investors can earn acceptable returns, while they await more certainty. The slowing and narrowing investor activity has been a near-term challenge for our industry, but it also sets the course for an eventual reallocation and money moving back into higher risk-based assets. Our results, which are highlighted on Slide 3, in many ways, reflect these dynamics. However, our unique positioning with deep client relationships, a strong geographic mix and a broad suite of investment solutions helped us deliver positive net long-term inflows in the third quarter. One of the primary contributors to our relative net flow strength is our robust ETF and SMA platforms. Our ETF business delivered record flows in the third quarter, which were concentrated in our leading factor-based capabilities. It was one of the strongest ETF quarters we have experienced as we continue to gain market share. We captured nearly three times our industry share of net asset lows to our market share of AUM,…

Thank you, Andrew and good morning everyone. I'll begin on Slide 6 with investment performance. Overall, our investment performance was solid in the third quarter with 67% and 65% of actively managed funds in the top half of peers are beating benchmark on both a three-year and a five-year basis, respectively. This is in line with those time frames in the second quarter. We did see investment permits improved considerably on a one-year basis, going from 67% in the second quarter to 70% in the third quarter, reflective of the improved investment performance we are seeing across several categories, including global and international equities and alternatives. As Andrew noted, we have excellent performance in fixed income across nearly all capabilities and time horizons, an important fact given our strong conviction and our ability to attract flows as investors deploy money into these strategies. Turning to Slide 7, AUM was $1.49 trillion at the end of the third quarter, $51 billion lower than last quarter. The quarter began with what appeared to be a continuation of a recovery in markets, albeit uneven that we saw in the second quarter. However, that quickly shifted to a risk of posture again as the quarter progressed and uncertainty grew, marking another volatile quarter for markets worldwide. Market declines, coupled with foreign exchange movements, drove the decline in AUM. Despite the market volatility, we did generate $2.6 billion in net long-term flows, and we expect we will outperform peers in what has been a very difficult environment for organic asset growth. Client demand for passive capabilities remain strong as we garnered $13.5 billion of net long-term inflows during the quarter. ETF inflows were $11.8 billion, marking one of our best quarters for ETFs. Our SMB 500 Equal Weight Index funds led the quarter with $3.6…

Thank you. [Operator Instructions] And our first question comes from Glenn Schorr with Evercore. Your line is open.

Hi, thanks very much. So, I appreciate all the commentary you made around fixed income. I'm still, I guess, a little surprised for everybody that flows haven't been stronger. Can you talk about what signed post you think clients are looking for? Is it literally just the end of rate hikes and economic outlook? And are you seeing that in dialogue with in solutions, through RFPs, things like that? And then maybe just the same comment on with -- in your words, an extraordinary amount of casing on the sideline money market or money markets were in outflow? Thanks a lot.

Hey Glenn, thanks, it's Andrew. I'll start and Allison will chip in as well. The cash on the sidelines a bit, but whether it's from wealth managers or from institutions, it's something like 25% to 35% portfolios are allocated to that from best we can tell from lots of conversations with clients. And I think it's exactly what you described, waiting for clarity from central banks, waiting for a reason to move off the sidelines and get paid to do so. Conversations have been very active whether it's through our solutions efforts or just through direct conversations. And it's -- I think it's really those things and that's straightforward and simple. On the money market side, Allison, why don't you pick up?

Good morning Glenn. What I would say about our money market portfolio is about 85% of our portfolio is positioned with an institutional client base. So, think about that is being managed by corporate treasurers and those funds are going to stay and save for assets. So, I think what we saw in this quarter was a repositioning in the treasuries just given the opportunity that those presented and just the yield that the treasurers are seeking. That will also, in many respects, prevent those funds from being deployed into more risk on strategies like equity. So, the composition of our money market client base, I think, is important as you think about it being 85% institutionally owned.

I appreciate. One just quick follow-up is as you noted, the fee rate on fixed income is obviously lower than overall. But I would imagine there's some pretty high incremental margins. If flows do happen in the way you think into fixed income as people start extending duration, how should we think about that interplay between fee rate and margins kind of like the same conversation we've had for years? Thanks.

No, your assumption is correct and that you've got a relatively fixed cost base underpinning that fixed income portfolio. So, you should think about flows into fixed income as being accretive to the overall firm operating margin. So -- and I think that's look, that's a lot of what we want to draw out in providing some of this additional color is where we are seeking to grow through scale and where that will be accretive to margins, overall fixed income is certainly an area where that is true.

And Glenn, we -- some of the things we talked about last quarter and this quarter, we further brought together elements -- disparate elements of our fixed income platform, and we wanted to call up a scale in that platform for just the reasons Allison described.

Thank you.

Thank you. And our next question comes from Craig Siegenthaler with Bank of America. Your line is open.

Thanks. Good morning everyone. So, maybe just starting where you left off, with 25% of portfolios sitting in cash and waiting for rates to stop going higher, which bond verticals are you the most positive on in 2024? And also, do you think active fixed income can garner significant share? Or do you expect most of the flows to come from passive, which you'd also benefit through the ETF platform?

Yes, hi, it's Andrew. Just maybe I'll pick up on the second part first. We think it will come in both active and passive. And as you said, the diverse range that we have in both, in some ways, we're a bit indifferent, but the conversations are happening on both sides of the equation. In terms of areas that are particularly of focus and things that we're having conversations about it, we're well positioned, the municipal portfolio, whether that's investment grade or high yield, the performance is stellar. The funds are highly rated, they're well known, and that's probably the first protocol we would point to. On the investment-grade side, European corporate bonds had been of interest and have been an area where we're positioned well. And then really just anything across as people move a little further on the curve, even elements of our short-term fixed income portfolio. So, it's pretty wide ranging, but I'd sort of point out those areas, in particular, especially because we're just well -- we're well placed there to take share.

Thank you. And just for my follow-up on Investor of Great Wall in China. Flows are negative in 3Q. I just wanted your perspective on if you thought they would snap back on a near-term basis. Or if you think we'd go through a longer term time period here where you'd see net outflows from China?

Good morning Craig, I'll start. I think the most important component of the flows in IGW was really that it was driven by fixed income. And I think we're just seeing with the interest rate tightening that's happening inside of China, a diminished appetite for fixed income overall. We actually saw inflows in equities over the quarter. So, we do think it's hard to gauge exactly the timing as to when economic sentiment will recover there. I think we're confident the government is doing quite a bit to try to stimulate some stabilization there and improvement in the sentiment overall. Hard to say exactly which quarter that will be and when things will snap back, we do -- we are very confident -- very well-positioned when that does occur.

Thank you, Allison.

Thank you. And our next question comes from Daniel Fannon with Jefferies. Your line is open.

Thanks. Good morning. A question on expenses. First, a clarification. I believe Allison, you mentioned that the savings from some of the charges won't be in until next year. So, curious as to why you're not seeing some of the savings here in 4Q? And then there's a lot of changes or kind of streamlining, I think, that was talked about. Could you maybe summarize like what you see is the most impactful in some of these changes that you raised?

Sure, good morning Dan. So, on the expenses, let me clarify that, we expect that, that $50 million will be fully realized by the first half of 2024. And so that -- I expect we will actually start to see some of those savings materialize here in the fourth quarter. I'm expecting somewhere around like $10 million improvement in compensation expense in the fourth quarter. So, that run rate is out to almost probably $40 million. So, I actually think we'll start to see the majority of those savings materialize in the fourth quarter and then continue into next year. That, of course, is all things being equal and dependent of AUM and where markets go in variable compensation. A part of the increase in the severance and reorganizational expenses in the third quarter is because we did pull forward some of those savings, so we would start to realize the benefits of them in the fourth quarter. And so again, I know there were some expectations because we provided an expectation that severance is expended to be closer to $20 million in the third quarter. It was $39 million as we seek to pull forward some of those savings. Where do we expect to see them? Honestly, it's quite broad-based as we are looking at just making thoughtful streamlining decisions across our entire organization. It's everywhere from areas of operations to streamlining some of our investment teams. As Andrew noted in his remarks, to just pocket the simplification where we can globalize some of our teams and seek to do things one way across the globe instead of multiple ways. I couldn't point to any one particular area. I will tell you the majority of the savings you will see are in compensation expense, and that is, of course, excluding any first quarter seasonality that you see in payroll and taxes and the like.

Thank you. That's helpful. And then just on the institutional outlook, the overall pipeline, I think the numbers you didn't disclose. You talked about the slide is 35% still solutions, which has been in the range it's been. So, maybe just some context around the institutional activities you see it in building into fourth quarter and obviously into next year.

Sure. The institutional pipeline, the one not funded pipeline, so the same as we typically provide some color to, it was about $20 billion in the third quarter so a little bit lower than the prior quarter, although the fee rate was a little bit better, the composition pretty consistent. So, it still looks pretty good. I would say, if I look at our inflows, excluding the GTR, very sizable redemption that we pointed to. If I look at our gross inflows in the quarter, it was about $17.5 billion in gross inflows from the institutional channel and that was about 43% of that was from our pipeline. So, our pipeline continues to be healthy, strong. It does not really reflect the full breadth of the activity in the institutional channel. But it's certainly a good health measure and it's kind of consistent in that $20 billion to $30 billion range.

Great. Thank you.

Thank you. And our next question comes from Ken Worthington with JPMorgan. Your line is open.

Hi, good morning and thanks for taking the question. To follow-up on the pipeline question, what was the backlog for alternatives? If solutions increased to 35%, I guess, what sort of shrunk relative to -- in the pipeline? And where does alternative stand? And -- well, to start there. Thank you.

Sure. Good morning. What shrunk would have been equity. Alternatives actually held pretty consistent to the prior quarter. And I think we mentioned we've got about $6 billion in dry powder and that's been pretty consistent. So, it's actually been one of the challenges is it's been difficult to deploy just because the transaction activity, particularly in private real estate is relatively low, just given some of the financing dynamics that are going on. But what we saw was a little bit of diminishment in the pipeline for equities overall.

Okay, great. And then in private markets, so on the $6 billion of dry powder, where -- what represents the bulk of that dry powder? Is it real estate? Is it credit? Is it sort of split between the two? And are there any big funds in private markets that you expect to come to market in the next 12 months or so?

The bulk of the $6 billion would be more real estate-oriented than it would be private credit. We've got several things that are -- we are working on, I would say, in terms of what we're trying to bring to market in both the real estate space and the private credit space as we look to capture some of the opportunities there out there right now, particularly from an opportunistic standpoint and a stress standpoint.

Yes. And Ken, in particular, real estate debt for both institutions, but mostly in the wealth management channels is probably the area where we're seeing the greatest amount of demand and we're in market with strategies there. And then as Allison said, on the private credit side, just traditional direct lending, both in Europe and the US.

Great. Thanks very much.

Thank you. And our next question comes from Brennan Hawken with UBS. Your line is open.

Good morning. Thanks for taking my questions. I wanted to start on fee rate. So, the actual investment advisory fee was a lot of pressure, but distribution offset kind of allowed the net revenue yield to be only down modestly. So, was there any noise in that net distribution line? Or is that the right way to think about that going forward?

I'll take that. Good morning Brennan. The net distribution line, it tends to -- in that third-party line, it runs about 41% to 42% of management fees on an annual basis. I think last year it was about 41.5%. Year-to-date, it's about 42%. Third quarter was a touch lower, though. So, I mean, there's just some noise and it fluctuates quarter-to-quarter. But I would say in line, it's pretty in line with history right now.

So, are you saying that we should look at it more on a year-to-date basis than this quarter specific?

I would. Absolutely. I would think about it in that 41% to 42% range and this quarter kind of brings up 42%, starts to bring it down a bit. I would look at it in the range. That's how we think about it. It's hard to manage to it quarter-to-quarter.

Excellent. That's great. And not that I want to give Greg more work, but it definitely would be great to see like fee rate or like revenue by asset class along with the flow disclosure that might help to given -- particularly given the dynamics at play for your business, just a recommendation. On -- for my follow-up, you said that there was a big loss of a single account with GTR. Was the fee rate given that, that was a single large investor, was that fee rate sort of below the average for your alts business for the firm broadly just given the size?

Yes. Thanks Brennan. Okay. First, I'm going to point you to Page 9 because Greg did do the extra work, and we've got some of the fee rates disclosed from an AUM standpoint there to try to provide exactly that and give a little bit more color. And then on GTR, no, that fee rate, that capability was priced significantly above the firm average. And so that has been, as you think about some of the challenges and the remixing and some of what we are trying to draw out on Slide 9. GTR would have been one of the challenges we've been experiencing along with the pressure from developing markets and global equities. Those would have all had fee rates quite north of the firm average, consistent with what you would see in that fundamental equities fee rate range on Slide 9.

Yes. Okay, great. And thanks for pointing out that on page -- on Slide 9, of course, I just more meant in a way that we could actually embed within the financial models, right? So, we could have it in greater detail. Does Slide 9 tie to the AUM disclosures you guys have in your pressor?

Not exactly. And I think that's part of the challenge, and we hear you on that one, and I know that is a desire you have expressed, and we will continue to work through our data in a way that we can make it as digestible as possible. Although I do think this gives you quite a bit of color as to what's been going on over the last four years and a lot of the challenge in the results that we've experienced being increasingly captured.

Sure. Of course. Sorry to be a pain in the butt. Thank you.

Not at all Brennan. Thank you.

Thank you. The next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Great. Good morning. Thanks for taking the question. Just one on regulation, Basel III end game rules for the banks are slated to potentially raise capital requirements. Just curious how you see that trickling down to the asset management industry and your business whether it's availability and cost to warehousing, you spoke derivatives, accessing leverage? Just what areas you think might be impacted from the new capital rules? And then can you speak to the opportunity set just in terms of where you guys might be a beneficiary where you might be able to press to innovate, to create new products to be able to take some share from the banking system?

Good morning. I'll take that one. I'd say, honestly, the Basel III capital requirements have little to no impact on us at all. There's very little that we do that has have any relationship to the areas that are impacted by Basel III. So, I would say, in terms of where might we have some opportunities, we could take advantage of. Certainly, we're all seeing the opportunity to continue to think about capturing some private credit share as we continue to see that be a challenge for the banking system and a lot of that getting pushed out of the banking system. We've certainly already seen the impact of that over the last five years, and I expect that those trends will continue. I think it also creates opportunity on the real estate debt financing side, and I think consistent with Andrew's prior comments and where we see some opportunities in our positioning our capabilities there to take advantage of that as well.

I'd just add bank loans where we've been an innovator as well as different things on the liquidity side of the business. But I'd echo Allison's comment it's just not Basel has not been a focus of ours.

Sure. I get it doesn't apply to you, but just curious how you see that impacting the banks, which then may reprice or pull back capacity, which is to the question I was getting at. But maybe we'll move on. Just a question here on efficiencies. That's an area of focus for you guys in streamlining the organization. I was just hoping you might be able to speak to some of the potential from generative AI, how you guys are experimenting with that today? How do you see the opportunity set from that? How might be able to quantify the benefit there over time?

Yes, it's a great question. Early days, of course, data and organizing our data and making it strategic asset is one of our priorities and how we apply artificial intelligence and generative artificial intelligence to it is high on the order. We're early days in experimenting with traditional applications that we think will and could lower costs and drive efficiency going forward. But also speed to market and friction that exists inside the client experience. So, things like marketing material and content legal and regulatory procedures and filings, onboarding of accounts, things like that, that are pretty operationally intensive at the moment. We haven't started to experiment yet, but how we'd apply that on the investment side. But on the sales side, we're applying it internally with finding ways to get ourselves to products and get ourselves to attributes that we can express to clients rapidly. So, we're going to continue to invest in the area, explore it and seek to make it a part of our efficiency going forward. But it's a little too early to quantify.

Great. Thank you.

Thank you. Our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Great. Thanks. Good morning folks. Thanks for taking my question. Maybe just back to Slide 9, maybe on the fundamental equities franchise. Obviously, given industry pressures, that's -- that shrunk as a proportion of your overall asset base, but it is the highest revenue yielding area. So, can you talk about maybe what types of investments you're making in the overall fundamental equities franchise that might help the organic growth prospects of that? And then also maybe just to what extent are you viewing active ETFs as a potential vehicle enhancement for that platform?

Great. Thanks for the question. It's -- let me start with how we're seeking to improve fundamental equities, both from an investment standpoint and from a client standpoint. On the investment side, clearly, our investment leadership, we put new investment leadership in place. That leadership is focused on not just improving performance over time, but risk and tools and analytics and controls around it. Performance will be the biggest driver in addition to where market demand is and getting strong investment quality across the piece is a high priority. And you're seeing some of those investment performance returns sort of play through into the results. And I think that's what's mitigating some of the redemptions in particular, on the international emerging and global equity side of things. From a distribution standpoint, given our history in both the US and in the UK and Europe, where a lot of those assets are placed on retail platforms, we're very well placed. We have strong distribution in place. We have high education there as well. So, it's really about just being in front of clients more actively where when demand comes and when we have quality. The one thing I'd really want to point out as you kind of decompose that fundamental equities is really around the places in international, global, and emerging markets, which are the relatively high field and component parts. They are the component parts that are less susceptible to passive and there are places where we think we can differentiate on product, et cetera. And those are the areas where I was pointing out in my earlier comments as well, where we're seeing the most improvement in terms of net flows. In fact, for the quarter, those categories globally were just $1 billion of net outflows compared to many multiples of that in 2022. So, I think that's our first port of call in terms of where we could see growth in time. And then I think it's a little more challenging on the domestic equity side, but the same comments I made would apply. Allison, I don't know if you want to add anything there. On the shift from mutual funds to ETFs, we're well placed in the ETF platform. We've brought active strategies to market over many years. We're going to continue to look for ways to take active strategies from the mutual fund vehicle to other vehicles in time and not just ETFs, I'd say SMAs are going to be another place, custom SMAs, both on the fundamental and index side, but on the fundamental side, in particular. So, we're going to look for ways to bring that forward. I think the development of active ETFs is going to take some time. But as it develops, we'll definitely be a frontrunner there.

That's great color. Thanks for that. And then maybe just on the expense side, Allison, just a clarification, the $10 million in the fourth quarter improvement in the compensation line. Does that exclude or include the dynamic of the charges between the two quarters, 3Q and 4Q?

That would be run rate improvement. So, that is independent of the $39 million of this quarter and the $15 million to $20 million that we anticipate in severance reorganizational costs in the fourth quarter, that would be true underlying run rate improvement. And we'll -- give you more transparency to that as we realize those savings.

Yes. No, that makes sense. And just I don't know if you're able to comment on other 4Q expenses in EMEA marketing is typically seasonally high but anything else on the property line and the G&A line, other than the -- you made the State Street output commentary, obviously, but anything else on those two lines for 4Q?

Yes, I would say we do often see a little bit of seasonality in both marketing and G&A in the fourth quarter as there are just professional services fees and the like that's usually true up there in the fourth quarter. So, there might be a touch of seasonality marketing those two line items higher. We are thoughtfully and very aggressively managing our discretionary expenses though.

Okay, great. Thanks very much.

Thank you.

Thank you. And our next question comes from Alex Blostein with Goldman Sachs. Your line is open.

Great. Thank you for taking the question as well. Good morning. Lots of noise and expenses, obviously, for you guys this year. So, maybe you can kind of help us level set and as you go through all these changes provide some color on how you're thinking about margins for 2024? Obviously, the revenue backdrop could be volatile as we know, but assuming more stable markets. It looks like you guys are doing sort of low 30s percent kind of clean operating margin. Assuming there's no additional charges in 2024, is there room to build off of that into 2024 versus 2023? So any color you provide on that would be helpful.

Sure. Good morning Alex. Our expenses this year a little bit noisy for two reasons. One, a lot of the executive retirement, the reorganization efforts and the severance associated with that and then the fact that we no longer have TIR after the first quarter. So, I will say when you back that out, it's actually quite consistent. They've been quite flat. And Alpha has been running in our expense base to the tune of $7 million or $8 million a quarter since the second quarter when it moved out of TIR and fully into our expenses. So, there's sort of that -- it's a fully loaded expense base and we are trying to call out where there are some one-timers associated with that. We will continue our simplification efforts well into next year. We aren't going to let up and continuing to find efficiencies. I don't know that they will be to the tune of the materiality we've seen in these last couple of quarters as we've sought to bring a lot of that forward. But we will continue with those efforts, and we'll call it out when it is material. As I think about next year and what could help us improve operating margin above that 30%-ish range, it absolutely becomes -- it's largely a revenue story, and we are very, very focused on revenue and just the impact, again, that we have experienced with the remixing of our asset base and the market depreciation that has impacted us quite significantly starting late last year, again, in developing markets and global equities, especially as Andrew noted earlier. I think independent of where revenue goes, we are highly focused on really managing that expense base next year. We will provide more guidance as we get into January. Alpha is…

Also, we're going to continue to have the expense discipline that Allison has been talking about in addition to these streamlining efforts playing through over time and helping us grow our revenue base but also be much more efficient with our expenses and be able to reallocate additionally to these growth areas in time as well. So, you should expect to see both of those sides of the expense equation in the coming quarter.

Got it. All right. That's helpful. Thank you. And just a quick clarification question for you guys on the net revenue yield. So, I appreciate the comments around diversification of the business improving and that should provide some stability to the net revenue yield. Just a quick reminder on China, I think there are some decreases in pricing that either already occurred or yet to occur. So, just remind us maybe the magnitude of that and whether it's already fully in the run rate and what you expect that to hit? Thanks.

Sure. So, in China, that we do expect with some of the changes that happened there and the impact to fee rates that it will have an impact of about $10 million on our revenue overall, given the AUM that's impacted there. The impact to operating income will be quite a bit less than that, just given there will be some comp expense takeout that's associated with that reduction in the fee rate. And that's a 100% so keep in mind how we reflect 100% and then back out the 51%, excuse me, that we don't own below the line. So, the one thing I would say to that is while that is an impact to revenue upfront, we actually think this portends very well for our business in China as regulation seeks to just further strengthen the capital markets there. We know as the 12th largest asset manager, we are well positioned to be a net winner, and we think we will benefit from some of these fee rate changes and the impact to some of the smaller players.

Got you. great. Thank you very much.

Thank you. The next question comes from Patrick Davitt with Autonomous Research. Your line is open.

Hey, good morning. Thanks for squeezing me in. So, it sounds like you're changing your tone a bit on the path to future fee rate declines. But at the same time, it sounds like you expect much more bonds, fund flows and ETF demand from here, which are among the lowest fee buckets. So, what changed to kind of change your tone on the potential for fee cuts if the lowest fee buckets end up being the biggest inflow contributors?

Sure. Thanks Patrick. A couple of things. I don't I would say we're changing our tone. I mean, I do expect you'll continue to see some modest downward pressure in our fee rate as we just continue to see some of this mix shift. We're not calling it into mix shift and we know we all are quite aware of the secular trends that are out there. The demand for passive and the weaker demand for active and we're certainly benefiting from one side of that trend. But increasingly, those -- the impact of that is captured in our results. And so if you look at our net revenue yield, ex performance fees and ex QQQ, it's $32.9 million basis points this quarter. So, it was actually four times basis points higher than last quarter. That's in some respects due to one additional day in the quarter. But I will say we have that seasonality occurs every year. And this is one of the first third quarters in a long time where you saw it be flat or positive. Typically, the pressure is downward. I still think we'll have some downward pressure, but it's going to start to moderate and $32.9 million is a lot closer to an average passive fee rate of 18-ish basis points than 40 was. And so at some point, you start to see where we get closer to that average and that remixing starts to have less of an impact on fee rate. I would also say, keep in mind, while we're focusing on fundamental equity and passive and the difference in that net revenue yield, important to look at APAC managed, again, largely China and Japan under there with a 40 to 50 basis point fee range and the growth we're seeing over -- through the cycle in those two areas, very accretive to the overall fee rate and also the growth that we expect to continue to see in private markets and multi-asset accretive. So, while the biggest drivers and the biggest change in terms of outflows and inflows have been passive and outflows in fundamental equity, there are other aspects of our portfolio that are very accretive. And our objective is to take that $1.5 trillion in average AUM that's been relatively flat over the last couple of years, given the market depreciation and grow that. And as we grow that and these pieces of the pie grow, you start to see the impact of the last couple of years really better realized in our average fee rate and you start to see some stabilization in the decline.

Yes, Patrick, I'd just add to what Allison said, the APAC multi-asset private markets that you see on Page 9, volume would increase that in time. relative to where we are. And then on the fundamental equity side, we've -- we sort of underperformed on our market share capture and our redemptions. And so as you see redemptions start to mitigate and get into positive flows eventually, that's going to be through market share gains. And so I think on both sides of that and I think Allison covered it well.

Great, that's helpful. And then one quick follow-up on margins. I think many years ago, you used to say the ETF business was a drag on margin as it hasn't scaled yet. So, similar to Glenn's point on bonds, I'm not getting to a point where we start to see a lot more incremental margin from the CTF growth, given how big some of the funds are getting. So, do you think we're at a point where we could see kind of a step-up on change in the margin contribution from the ETF growth you're seeing?

Yes, I would say going back to when I joined the firm a few years ago, we were saying the ETF business was neutral to the firm margin. It's been quite some time since it would have been dilutive. We are certainly in a position now where it is accretive to the firm's margin overall and we're very focused on continuing to grow that business because it is accretive to the firm's margin. And I think as you think about what could -- one of the two biggest things that could really improve margin for this firm overall, it is rapidly growing the size of that business, stemming the redemptions and fundamental equities and again, growing that pie overall from $1.5 trillion in AUM, so something quite a bit larger than that. Scale is what is going to add contribution from a margin perspective.

Thanks a lot.

We do have time for one final question. And our last question comes from Finian O'Shea with Wells Fargo Securities. Your line is open.

Hi, good morning. Thank you. A question on the MassMutual partnership commentary in the beginning. Are you working toward a broader, say, private markets, organic product build-out with hopeful seating through master -- or is this more a focus on executing what's in the ground already for those areas of partnership? Thank you.

Yes, thanks for the question. Much of the private market seeding for the strategies we talked about earlier has happened already and so the comments we made around the $3.5 billion are largely inclusive of all of that. As we move forward and bring additional private market strategies, MassMutual will hopefully will continue to be that kind of partner, but much of its happened already, which leads us to executing on the ground, as you said with growing third-party assets from institutions and wealth managers, which is what we've been doing the last several years and getting ourselves situated for that demand to continue to come. So, that's that. What was the other piece on the MassMutual -- do you have another piece of MassMutual?

That was pretty much it. Thank you.

Okay. All right. Okay. Well, thanks, everybody, for joining the call today and we continue to believe that we have great opportunities at Invesco as we discuss today and that we have momentum from which to build. We're very well-positioned as investors gain better visibility on rates and market direction and put their money back to work. Hopefully, you've seen that we have the breadth of products, scale, performance, and competitive strength to meet the spectrum of client needs and we are simplifying and streamlining the organization to better position for greater scale, performance and improve profitability. So, thank you for your interest in Invesco and we look forward to speaking again soon and next quarter.

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