Thank you for standing by, and welcome to Invesco's Fourth 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 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.

All right. Thanks, operator, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address on the call today. The press release and presentation are available on our website at invesco.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on slide 2 of the presentation regarding these statements and measures as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference 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'll open up the call for questions. I'll now turn the call over to Andrew.

Thanks, Greg, and hello, everyone, and I'm pleased to be speaking with you today. In a reversal from the third quarter, overall market sentiment in the fourth quarter turned more constructive as investors began to gain confidence, putting money back to work in the last several weeks of the calendar year. Equities and fixed income were both beneficiaries of a growing belief that central banks would cut rates sooner in 2024. The S&P was the best-performing major equity index and while outside the US, there was solid market growth in Europe, while China continued to lag. Fixed income markets performed well, led by government bonds as expectations for tightening interest rates earlier in 2024 prevailed. The market volatility and shifting macro trends exhibited this past quarter, strengthened our conviction in the areas we focused on throughout 2023, and continuing to reposition Invesco to perform through various market cycles and in front of the rapid evolution underway in our industry. As discussed on previous calls, we continue to streamline and simplify the company for the benefits of our clients, colleagues and shareholders. The focus of these efforts is to further emphasize long-term investment quality, strengthen our diverse product offering and build on our value proposition that uniquely meets a broad range of client needs around the world. We are also tightening our financial discipline, which will further enable us to allocate resources to drive innovation and acceleration for the benefits of clients. We're going to continue to leverage our scale to more effectively invest in profitable growth and further strengthen a culture that attracts and retains the top talent in our industry. While our work in each of these areas continues, we are making good progress, and I'm appreciative of the client focus and dedication of my Invesco colleagues around the…

Thank you, Andrew and good morning everyone. I'll begin on Slide 4. Overall investment performance was solid in the fourth quarter with 64% and 71% of actively managed funds in the top half of peers were beating benchmark on both a three-year and a five-year basis, respectively. Investment performance improved considerably on a five-year basis, going from 65% in the third quarter to 71% in the fourth quarter reflective of improved performance that we're seeing across several categories, including in US, global, and international equity. We continue to have excellent performance in fixed income across nearly all capabilities and time horizons. An important fact given our strong conviction in our ability to attract flows as investors deploy money into these strategies. Turning to Slide 5. AUM was nearly $1.6 trillion at the end of the fourth quarter, $100 billion higher than last quarter end. The fourth quarter began with weak markets in October and then recovered as the quarter progressed ending the year with equity and fixed income markets higher versus the third quarter. Higher markets, coupled with net long-term inflows and favorable foreign exchange movements drove the increase in assets under management during the fourth quarter. We generated $6.7 billion in net long-term inflows, which was an organic growth rate of 2.4%, but we expect to once again outperform peers in what has been a challenging environment for organic asset growth. Looking at flows by investment approach, client demand for passive capabilities remain strong as we garner nearly $14 billion [ph] of net long-term inflows during the quarter. ETF inflows were $12.4 billion, an annualized organic growth rate of 17%, marking this as one of our best quarters for ETF. The S&P 500 Equal Weight Index bond once again led the quarter with $4.6 billion of net long-term inflows.…

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

Hi. Thank you. I'm sure you said something very intriguing towards the beginning. You said you expect clients to move out of cash into longer duration fixed income at some point. And I think a lot of us have been waiting on that. You saw some fixed income flows, but a lot more money market outflows the last couple of quarters. I'm curious where the money market outflows going in general? And how do we determine the cash sitting on the sidelines is actually waiting to move out versus it's just treasuries and money markets that used to sit in cash, meaning is it just another cash alternative or is it actually weighting? I hope that makes sense.

Yes, it does. Let me start and Allison can pick up. It's a little of both. So, some of the money market flows out of Invesco and our business is largely corporate treasurers they're buying T-bills directly. So I wouldn't look at that as a great indicator from Invesco. As we're out talking to clients and we're looking at of where flows are going. Early signs have been clearly into ETFs, which might be telling you a little bit about conviction and maybe the lack of there full conviction. And then on the fixed income side, active and otherwise, starting to move into municipal bonds, in particular, some investment-grade strategies. Europe is picking up a little bit, but I'd say it's pretty early days on assets moving off the sidelines.

And maybe just to put a finer point on our money market products, in particular, our liquidity products. Our client base there is about 85% institutional. So, when we see fluctuations in some of those balances, it is to Andrew's point, really corporate treasurers taking advantage of the increase in T-bill rates and moving out of money markets in the T-bill. It is only about 15% retail, which is where -- and of course, on the institutional side, they're just limited in where they're going to go. So, they're going to stay and cash yielding kind of products there. The retail side is a smaller component of our client base there.

Makes sense. So, in that revenue yield slide, you showed us the come down and you talked about not degradation of product pricing, but just mix shift. With the markets up so much, average assets ending assets way above average assets, how much of that revenue yield pickup could we see coming back the other way in the first quarter? I'm not sure you've gone through that math yet, but obviously, markets are up a bunch.

Yes. No, they are, for sure. And I mean, the exit rate for net revenue yield will be -- it was modestly higher coming into the first quarter. I mean the delay, frankly, in the market pickup in the fourth quarter didn't do much for revenue, as you could see, but it does portend well for just the average AUM mix coming into the quarter, and it does give us a net revenue yield coming into the quarter that's modestly higher than the exit call it, two of the basis point there. So, very modestly higher. I think within those asset categories that we showed on that page, it's really the mix within there as well as the mix between those categories. So, one of the elements of our revenue performance in the quarter was even in our net revenue yield within our passive capabilities. And you saw our net revenue yield in passive declined about a basis point inside of the quarter as well, which really speaks to where client demand was in the quarter, largely for some of our lower fee products there, like the Q2 QM and the S&P 500 Equal Weight product that I noted earlier. So we do continue to see strong client demand. It's hard to predict where the client demand will be in the first quarter, and that has a huge impact on our revenue. All things being equal though, the market run has been helpful.

And the other thing I'd add, and you're seeing it as well. I'm sure the broadening out of the market, and as Allison mentioned earlier, the greater diversification in our overall portfolio of client assets puts us in a position under any kind of market environment where we think we're relatively well positioned.

All right. Thanks. Thanks for all of that. Appreciate it.

Thanks, Glenn.

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

Thanks. Good morning. I wanted to follow up on Slide 7 and talk a bit more about the Alternatives in private markets dynamics in the quarter and more prospectively, how you were thinking about the potential growth in that business, considering the broader alts bucket has been seeing outflows for you, but yes, I think there's some underlying trends. I think you've talked about seeing some inflows. But curious to get a little bit more of an update.

So let me start with just maybe an update on the flows, so I think we noted modest inflows on the direct real estate side, so about $400 million. And again, that's really divestitures net of acquisitions. And so we continue to see some modest improvement, which is nice to see just given some of the challenges in the real estate market. On the private credit side, we talk about $1.2 inflows. Again, our business there is only about $42 billion. So a relatively nice pickup inflows there. That was primarily driven by bank loans and CLOs. And some modest inflows in there are distressed credit capabilities as well. That's all on the private side, and that was largely offset by outflows on the public alternative side. And that's driven by commodity ETFs, listed real estate and global asset allocation that I noted on the call. So you've got a bit of a mix in our alternative strategies, again, with good gains on the private side being offset by some outflows in the public alternative strategies.

And as we look forward, we continue to view private markets and alternatives as one of our best opportunities. As Allison said, on the credit side, about $45 billion in assets. And on the private real estate side, another $70 billion in assets and seeing some moderation of flows and some positive gains, as Allison mentioned, we're first to see in this environment. I think if we take the long-term view, what we've been very focused on over the last several years is diversifying from a largely institutional base into a wealth management base and the issuance of our non-traded REIT credit real estate credit strategies and other sort of distressed and direct lending strategies, both into institutional, but probably more impactfully into retail, we continue to see as a great long-term opportunity for us.

Understood. And then just switching to expenses. I understand some of your comments. But maybe Allison, if you could talk to, is the State Street project? Is the goal to ultimately reduce expenses or just flat – get flatter growth going forward? So I just want to understand the components post the $10 million a quarter you mentioned for this year. And then underneath that, how we should think about the general growth rate of kind of G&A and other expense items for the year in terms of inflation or other factors?

Let me start with Alpha. And if you think back around the implementation costs for the last few quarters, they have been growing. So we -- it was $7 million in the second quarter, $8 million in the third quarter, $12 million in this most recent quarter. And then our guide was to roughly $10 million a quarter per quarter throughout 2024, there will be fluctuations. It is not precise. We are deep into implementation. And so there is going to be some variability and some uncertainty quarter-to-quarter, but I think the $10 million expectation is reasonable with what we know today. The expectation is we are building to a peak, and then there are expenses that will be coming out the other side. So – and that is 2025 and beyond. So we're not ready to give exact guidance on that yet. But it isn't just a flattening out. It is building to a peak, and then there are some expenses that start to come back down. As implementation cost fade and there are some – the ability to continue to rationalize and streamline some of our systems, which will lead to some expense rationalization on the other side. And as a reminder, that is as much about -- the whole effort is as much about really eliminating the duplication of systems and some of the heavily customized processes that we have today and really moving towards a single operating model to streamline our operations and accelerate some of what we can deliver from a client experience perspective. I think you mentioned some of the other expense line items, maybe let me touch on some of those. Note that the G&A was seasonally high in the fourth quarter, and I would expect that to be a bit lower in the first quarter. From a compensation expense perspective, as we noted, there's always seasonality in the first quarter. We typically expect to see compensation expense about $25 million higher in the first quarter for taxes, FICA and the like, but we also expect to fully realize our $50 million in expense savings. So there's another $6 million that we expect will be realized in the first quarter. All of that is, of course, assuming flat markets at 12/31, et cetera, et cetera. But hopefully, that gives you some color that relates to the primary driver of alpha seasonality of G&A coming back down, seasonality and compensation expense going up modestly, but that's offset by the realization of our expense savings.

Great. Thank you.

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

Hi. Thanks for taking my question. I wanted to follow-up on margins on slide 10. Excluding the unusual items, margins in 4Q 2023 were the lowest level on the page. Can you give us some color as to how business mix is impacting margins? To what extent is margin pressure being impacted by growth of lower fee, lower margin businesses and slower negative growth in higher margin, higher fee businesses. And I know it used to be some of the non-US businesses were the highest margin. At this point, can you kind of call out what are your highest margin and lowest margin businesses?

Sure. Let me take a stab at that. So yes, you are correct. The fourth quarter adding back severance expenses would be our lowest quarter. And so what is impacting that? Certainly, it's business mix. Before I go to business mix, I will also note, just from an underlying expense base standpoint, keep in mind, for all the years prior to the last three quarters on this chart, we had TIR as a line item. And there was a significant amount of our expense base that within TIR. So our expense base has been fully loaded for the last three quarters inclusive of all the alpha implementation costs. So that is part of the pressure on margins, although it is not the whole story. The business mix story and the degradation in revenue is absolutely part of the story as well. Business mix is a big driver of it as you continue to see the shift in our business mix, as we highlighted on page 7, from fundamental equities into some of our lower fee capabilities, including ETFs and index even global liquidity to some extent as well. And within that, as I noted, even within those passive capabilities, you see some business mix pressure just in the most recent couple of quarters with demand for products like the S&P 500 Equal Weight and QQQM as opposed to commodity ETFs, bank loans and some of the other higher fee capabilities that would be within that asset category. So it is business mix among the categories and within the categories. In terms of margins, margins sort of by region are relatively consistent. I think it's worth noting in China, we've often pointed to our margins there, which you can look at and see really as you add back the joint venture there are higher than the firm average. They are modestly lower now with the implementation of the regulatory mandated fee cuts in China, which we have noted -- that -- the margins there are still stronger than the firm average and still very attractive, very positive in our positioning there and our growth rate there. We're very optimistic there. But modestly lower than it would have been previously. And the fourth quarter was our first full quarter of the realization of those fee cuts, which has an overall impact of about $10 million per quarter in revenue.

Great. Okay. Thank you very much.

Thank you. Ken.

Thank you. The next question comes from Bill Katz with TD Cowen. Your line is open.

Okay. Thank you very much for taking the question this morning. Maybe to mix up a little bit. I was wondering if you could just sort of expand a little bit on where you stand with your relationship with Mass Mutual and the opportunity to potentially accelerate growth either into the alternative segment or perhaps even on building out some retail democratization products?

Hey, Bill, thanks for the question. Maybe just to refresh everyone's memory Mass Mutual in addition to owning our comment and being a preferred shareholder, has about $12 billion invested with us across broker-dealer, annuity, sub-advised general account capabilities. One of the most important parts of that has been the $3 billion they have invested into the seating and co-investment of many of our private market strategies, in particular, the ones we've been bringing to wealth management over the last several years. And so it's a very, very important partner in that regard. And that's a multiple of three times, what we carry on our own balance sheet around those sorts of strategies. So opportunities to continue to develop the relationship there are something we're focused on, although a lot of that growth has come already. I think the second area is just taking our relationship further where it makes sense on their insurance platform, with things like our alternative strategies, models, SMAs and ETFs and then select fixed income and equity products. And we're well placed there, but we're continuing to look for opportunities and ways to grow effectively. So it's an important partnership on many levels.

Maybe just a follow-up on capital. So it sounds like you're in a much better spot just in terms of reengaging on buyback. Allison, are you expecting to be able to buy back stock in concert with carrying the line of credit? Or do you need to get on the other side of that before you'd restart buyback? And then more broadly, what kind of payout rates should we be thinking about now that your earnings are more diversified and the earnings power is higher?

All good questions. And I'd say short answer is, yes, we'd like on the other side of -- we're very committed to getting our net debt down to zero. And that has been a stated goal of ours and something we've been working closely in concert with our Board on achieving a stronger balance sheet. And so as we approach that, we look forward to having conversations with the Board and evaluating the opportunity to reengage more regular share buybacks. I think our payout ratio would stay kind of modestly in that 40% to 60% range as it has been in the past. I think that's a reasonable range for us to operate in as we think about both modestly increasing the common dividend each year as well as buying back stock. But we are a couple of quarters away from where we want to be there, just given the seasonality of cash needs that are before us over the next few months. We are within sight for the first time in a long time, and we're really pleased about the progress we're making with the balance sheet, just the growth in cash and where the debt is heading. So, it does feel like for the first time in a long time, we're kind of getting back into a position where we can be a lot more opportunistic than we've been able to be in the last few years.

Thank you.

Thank you. And next question comes from Mike Brown with KBW. Your line is open.

Great. Thank you for taking my questions. Maybe just a quick follow-up on that last question on capital allocation and -- as you get further along on your goals on the balance sheet, do you expect M&A to kind of come back into the equation not necessarily large M&A, but perhaps maybe more on the bolt-on side as you think about adding capabilities and perhaps altering the strategic asset mix as you start to look out to, say, 2025?

Hey, it's Andrew. At the moment, the focus is very much on the organic side, the priorities around the balance sheet and the uses of cash, as Allison described stay true. As we have described in the past, the place where we see opportunity for us to add on in time for the right situation, opportunity would likely be in that private market space as extensions to the things that we already believe we do well today and could continue to grow both organically and inorganically. And that would be in the real asset space and in the private credit areas. But for now, very focused on the work we have to do organically.

Okay, great. That's good to hear. And then maybe if I just change gears to the developing markets fund. You had flagged performance has improved there. That product is still outflowing, but assuming that performance can continue to improve. I guess my question is what causes client interest to really come back to this fund, just given that seems like investor sentiment and interest in EM strategies is just kind of remains tepid. Is this going to be more about a kind of lower redemption story and kind of narrowing on the redemptions? Or can that eventually translate to more of a growth story?

Yes. Look, I think you outlined the question well. It's probably a bit of both. I mean the first thing is continue to strengthen the investment performance there. And we're unknown, as you know, a known emerging markets manager well known in the space, well placed in the wealth management channels. So, the things we can control our investment quality. What we have started to see a bit is the redemption picture improved, and that's sort of early sign. I think you're not really going to see a material uptick in gross sales until you see more demand come back in the marketplace from investors. And it's -- we've been waiting for that moment, and we haven't seen it difficult to predict, but it's an important category as is more broadly what we're doing in international equities and global equities, where those categories as well have been under some pressure. Our performance has improved materially, redemption rates declining, but same comment on the gross sales side.

Okay. Thank you, Andrew.

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

Good morning. Thanks for taking my questions. Allison, I appreciate the color on 1Q expense. But when we're thinking about full year 2024, is the right base by which to grow off of that 3.06 billion that's adjusted for some of the charges. And how should we think about -- are you able to keep that flat? Or is that going to be having some positive pressure here through 2024?

Good morning. Brennan, good question. Yes. If you look at the expense base and 2023 adjusted for the severance and retirement expenses that we incurred in 2023, which we aren't anticipating at this point, more of at 2024. When I look at our 2024 expectations relative to where the markets are, where we ended the year in AUM, the usual caveat of all things being equal, I would say we expect the expense base to be flat to 23% to just relatively very, very modestly, perhaps higher. But I'm going to call it just flat plus and that, importantly, in 2023 -- excuse me, in 2024 is inclusive of a full year of all four quarters, no TIR. So it is a four quarter no TIR year as compared to a three-quarter year last year, inclusive of some of the inflationary pressures, merit increases and the like. So we did a lot of work on our expense base last year. We've got a lot going on as it relates to output implementation costs in the $10 million per quarter guide we put out there. All those things taken into account, we're expecting relatively flat this year.

Okay. Thanks for that color. I appreciate it.

And I'll note with that, with some of where we are in the market, some of what we've seen in terms of the appreciation and average AUM exiting the fourth quarter and coming into this year. We are optimistic that we start to see modest improvement in operating margin from here.

Thanks for taking my questions.

Thanks, Brennan.

And our next question comes from Brian Bedell with Deutsche Bank. Your line is open.

Hi. Great. Thanks. Good morning folks. Thanks for taking my questions. Switch the conversation to the QQQ franchise. I guess as you -- obviously, there's the earning products, but do you think about monetizing that whole franchise. Can you talk about how you think you might be able to monetize that asset base? I think obviously, QQQM is, I think, $20 billion in AUM and QQQs more than 10x that. First of all, the 15 bps on QQQM is that also the asset management revenue yield? Or is that just the extent ratio -- and then how do you think about potentially -- are there opportunities to effectively try to cannibalize the QQQ in favor of developing a more sort of fee-bearing QQQ franchise at the Invesco level?

Great questions. And precisely, the topic we spend a lot of time talking about thinking about and really working on as a team. That the QQQ is a tremendous asset for us and the brand awareness that that creates can't be underestimated. The opportunity that creates for us in terms of the marketing budget that comes from that. All of our sort of ad campaigns, the brand work we do is really fueled by the QQQ. And so it's it is a tremendous asset to us. And it is certainly unique in nature and that's the value it creates. So we have to be very thoughtful about how do we optimize the value that is created from that capability. The QQQM, as you note, is approaching $20 billion and has been a cannibalization strategy and a very successful one, given it's only about three years old, and it has grown that quickly and assuming there is continued demand in the underlying or interest in the underlying exposure there, we expect the growth in that capability to continue. In terms of the actual net revenue yield from the published fee rate, it would be about half net of all of the costs there. So it is -- it would be one of the lower-yielding capabilities, again, part of what we were pointing to in terms of the business mix that is driving some of the pressure on net revenue yield overall. So it's a two-sided coin but one that is certainly well positioned to capture client demand.

The relationship with the NASDAQ on the Q goes back celebrating, I think its 25th year coming up soon. And very much what Allison was describing, how we've been growing that relationship. In addition to it being the QQQM being an alternative -- it's also -- we're creating a situation where the Q – the traditional Q is really for traders and the QQQM can be more for buy-and-hold investors. And I think it's indicative of what's happening in the ETF industry in general is it's a preferred vehicle now for people that have short-term interest and long-term interest. And so I think part of our strategy is just indicative of that. You should expect to see more of that from us, whether it's passive or active.

Great. That's great color. And then maybe just a follow-on. I think Allison, you mentioned it, of course, you are investing in the business as well, sort of reinvesting some of those cost saves. Maybe if you can just talk about the top two or three areas from an investment management perspective in terms of product that you are investing in to Catalyst growth? You just talked about the QQQ franchise, maybe you can leave that one out. And I think on private markets, you mentioned that's an investment area, however, that can also be an area where M&A can play a role. So maybe if there -- if you can talk about any other say, a couple of areas that you're most excited about in terms of investment dollars that you're putting in and growth that could result from that?

Sure. I'd probably point you back to our key capability areas and those being the areas where we've really focused the most on continuing to grow and invest. So certainly, within our ETFs, SMAs factor and indexer capabilities, we continue to look at how do we build those capabilities out to really capture the client demand that's there. Private markets both for the retail channel and the institutional channel. The institutional product capability really being our legacy capabilities and our strength where we've got a tremendous amount of history and success and continuing to build those out, invest in those capabilities and position those for client demand, but increasingly so on the retail side. And I think as we've talked about before, it's not just seeding and launching the product that's really building out the distribution capabilities there, and working closely with our clients as we expect that shift to be a multi-year shift in transformation in the education that's involved there and investing significantly in the education that's involved on that side. I'd also point to China and continuing to invest in our capabilities there. That is a -- it is self-funded and largely speaking, as we've discussed before, it is a very attractive business, highly profitable, cash flow positive but we are able to continue to invest in those capabilities. Your question was primarily around our product and client-facing capabilities, but I would also note a lot of what we invest in the benefit of clients, is it just the products, but the systems, the client experience and really streamlining the overall client experience behind the themes there. A lot of our investment goes into our platform, our technology and our capabilities in order to continue to deliver a better client experience.

And to a forward room on our shelf for that, I mean, we've been routinely pruning and closing parts of the product line that we haven't seen demand in and closed several hundred strategies over the last few years. The only other thing I'll point to beyond what Alison covered would be it's probably less investment capabilities that you'll see extensions on and more how it gets delivered to the market. So the trend towards vehicles like ETFs and SMA and bringing things beyond passive capabilities or fixed income capabilities is something we're going to continue to seek to lead in.

Okay. That’s great color. Thank you.

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

Thanks. Good morning, everyone. My first question is on the 40% to 60% payout target after you reach your goal of zero net debt later this year. So why not a higher payout target because it sounds like M&A isn't a big part of the intermediate-term strategy?

Reasonable question. I would say, as Andrew said, we do continue to think about the opportunities we have from a bolt-on perspective with certain capabilities from an M&A perspective. And given our balance sheet, is returning to a better position, but we want to be in a position to continue to build cash as we think about some of those opportunities and making sure we're in position should we find the right bolt-on capabilities to be able to execute. So it's a balance of making sure we have the ability to execute on several of those priorities, and it's not going to be all in returning cash to capital to shareholders.

Makes sense, Allison. And just as my follow-up, with the $3 billion in alt seed capital for MassMutual, can you remind us, which products the $3 billion has been invested in and then to date, how successful has that been? Like one way to quantify that is how much third-party AUM have you been able to attract around that $3 billion of initial seed capital from MassMutual?

Let me start and then Allison can pick up. Probably the two most important strategies were the non-traded REIT or in REIT strategy where MassMutual was – or early seating partner. I don't have the exact percent that they have, but I would say it's still relatively large, although we've been generating a decent amount of volume over time from one of the big wealth platforms in the US. And then the second one was our real estate debt strategy that we just brought to the wealth management market. That was the other sort of strategically important strategy. But I'll turn it to Alison maybe for more specifics on the numbers you asked about.

Yeah. I would say -- it's largely their general account and where they would want to make sure they've got exposure as well across various capabilities. So I mean, they are invested in everything from Enrique, which we've been public on that strategy to things like municipals and CLOs and some of our private credit capabilities it's really kind of the breadth of those types of capabilities where you would see them really both invested.

And aside from the capital, which is clearly important, I think the signaling and showing up at these wealth management platforms in particular, not with new investment capabilities, but there are new packages that we're putting things together in. And I think that's really critical in terms of credibility that we show up at these platforms with.

Andrew, thank you.

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

Hey, guys. This is Luke on for Alex. I appreciate some of the color on expenses and revenues in 2024, and I appreciate that it's not easy to forecast going out so far. But do you have any high-level goalposts for margins over the longer period into 2025, especially as some of the State Street Alpha costs coming down? Thanks.

I would say, high-level goalposts and this is going to -- longer term, and it's going to take us some time to get there. But getting back into the mid-30s is absolutely our high-level kind of goalpost. I hope everybody here is loud and clear. We are in no way satisfied with where our margins are today and getting them back on a quarterly basis, north of 30% and starting to climb back into the low 30s and mid-30s from there, absolutely the goal over the next handful of years. Our focus coming into 2024 is absolutely around expense discipline. We've done a lot of work on our expense base. We've got a lot of headwinds and things we have to make our way through at the implementation being the most notable and sizable of that -- but despite that, our expectation is to really try to hold our expense base relatively flat. And as you know, and thank you for giving us a little bit of grace on that one, that it is hard to predict it quarter-to-quarter, especially with the impact of revenue in market. So it's really about being very disciplined on everything we can control and where we can continue to take expenses out in places where it's not necessary and evaluate opportunities to eliminate those expenses or reinvest them in areas that will help facilitate and fuel further growth.

Awesome. Thanks for the color. Just for my follow-up. You guys highlighted the plans to continue to shift from institutional to wealth and some of the strategies that you're looking to build on. Do you have any upcoming product launches in the wealth space that you guys are either working on or are free to talk about at this point? Thanks.

Yeah. Look, I think the -- I'll just speak generally about them because getting specific is difficult. The real estate debt strategy, we were seeing a lot of demand and interest for that, and you should expect to more of that in the market, and we should be talking more about that going forward. And then private credit strategies, whether they're distressed or direct lending, how we can position and factor those into the wealth channels and just to be clear, this isn't just in the US. It's in Europe and Asia Pacific as well.

Operator, we have time for one more question.

Okay. And our last question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Hey good morning. Thanks for squeezing me in here. Just a follow-up question on expenses. I was hoping you could maybe elaborate on some of the steps you guys are taking to drive greater operational efficiency in the business, additional steps you might look to take over the next couple of years? And how is the variable nature of the expense base evolve? And how should we think about the sort of sensitivity of expenses if markets are up, say, in 2024? I know you guided to around flattish expenses adjusted for things, but that was assuming flat markets if markets are up 10%, how do we think about the impact on expenses?

Thanks Mike. I would say, what the relationship our expense base being about a third variable is still a reasonable relationship and expectation to think about as you think about the potential growth in revenue. So, I would start with that, certainly, as we've seen some of the real revenue pressure. It has made it difficult because there is some element of our expense base that's fixed. But I think as we anticipate starting to climb out from a revenue perspective, I think the one-third relationship is still a reasonable expectation. In terms of what we will do and how we will continue to think about streamlining, I mean, look, it's a continuation of so much of what we've done and a lot of what I just said, which is -- we are going to continue to evaluate our expense base everywhere. We're looking at our margins at a granular level on where we can really unlock some costs and evaluate some of what's been done in the past and perhaps where it doesn't need to be done that way in the future. We have been on a multiyear effort as it relates to facilities and rationalization of office space. And I would say -- I'd call out some usual suspects that you would expect us to be focused on elements like that, that's going to continue. That takes many years to really make it dent in, and we will continue to do things like that. But it's broader than that and really thinking about how we streamline our business, how do we really think about operating more holistically and a lot of the work that started almost a year ago now. I mean maybe with that, Andrew, if you want to kind of close on some of our thoughts there.

Yes. And Mike thanks for the question. Look, the simplification efforts in 2023, we believe were some of the most impactful things that we did that will bear fruit as we go forward here. I think bringing together elements of the investment platform and investment areas, the distribution areas, marketing and product, and then allowing our enterprise and operational areas to match off against a much more simplified platform was the goal. I think the areas and investments where we started to bring some things together -- it also gives us an opportunity to think about the margins in those businesses and the way that we make money and how to run those strategies and disciplines, not from the investment side, but from the platform side at scale where scale is needed at quality enhancement or quality enhancements needed, et cetera. So, the simplified organization helps us in those ways.

Great. Thanks so much.

So, maybe just to wrap up here in closing. As we enter 2024, hopefully, as you can tell, we feel well-positioned to help clients navigate the impact of the evolving market dynamics and subsequent changes to their portfolio that we expect. I had the pleasure of meeting with many of our clients around the globe this past year and hearing directly from them as assured me that we really are well positioned across a range of outcomes. And when and as the market sentiment improves, we believe this should translate to even greater scale, performance and improve profitability. And finally, I'd like to thank my colleagues around the world, the executive leadership team, our Board of Directors for their efforts in 2023, they're focused on our clients and our shareholders and their support for a smooth transition during the year. And given the work that we've done to strengthen our ability to anticipate, understand and meet evolving client needs, we're -- I'm truly excited for the future of Invesco. So I want to thank everyone for joining the call today. Please continue to reach out to our Investor Relations team for any additional questions, and we appreciate all of your interest in Invesco and look forward to speaking again soon. Thank you.

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