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Invesco Ltd (NYSE:IVZ)
Q4 2020 Earnings Call
Jan 26, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 statements. 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.

And welcome to Invesco's 4th Quarter Results Conference Call. [Operator Instructions] And now I would like to turn the conference 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.

Martin L. Flanagan -- President and Chief Executive Officer

Thank you, operator and thanks everybody for joining and Happy New Year to everybody. I think we're all very ready to turn the page and what was a very challenging 2020 and while the global pandemic remains very pervasive, we do all see light at the end of the tunnel and we look forward to 2021 with cautious optimism that conditions will improve. Throughout 2020, we focused on executing our long-term strategy while recognizing the necessity to focus on employee health and safety, finding ways to work, and serving and delivering expected outcomes for our clients. I would like to thank all our employees and our clients during what has been a challenging period. Over the past decade, we've been successful investing ahead of shift in client demand, placing us in a strong position to take advantage of key industry tailwinds in the future. Our investments in these capabilities and our tremendous focus on our clients is now again producing good momentum in our business that became more visible as the year progressed by working better to anticipate, understand, and meet client needs during the challenging times. We've achieved six straight months of net long-term inflows, totaling nearly $18 billion in the second half of 2020 with progress across channels, geographies, asset classes. Retail flows improved in the second half significantly. Our solutions enabled institutional pipeline remain near record levels. We saw net inflows in Asia Pacific, totaling $17 billion in the second half of the year and improving flows in EMEA within the Americas over this timeframe and net long-term flows in the fixed income remained robust during that period. All of these factors combined build a strong foundation as we head into 2021 and maybe a few highlights of the 4th quarter. On slide 4, if you happen to be following along more specifically during the quarter, investment performance for a large portion of our high demand capabilities were in the upper quartile. We had net long-term inflows and then nearly $10 billion during the quarter, long-term inflows in the fixed income capabilities continued while we saw client demand for equities within ETFs, quantitative and index strategies in particular. We saw another quarter of strong inflows from Asia-Pacific region and flows in the Americas turn positive. Alison will provide more information in a few minutes on the flow's strategic evaluation and more details of the quarter. But I would like to note, we also improved our operating leverage during the period, paid our credit facility to zero, and made progress improving our cash position. I would like to spend a few minutes on slides 5 and 6 to talk about our competitive strength and key capabilities in areas with high client demand and our focus for 2021. Slide 5 illustrates the market opportunities we see for these key growth areas and demonstrates the majority of our investment capabilities are aligned with these opportunities. In these areas, our investment performance is strong. We're highly competitive and well positioned for growth and as we move into 2021, we plan to further expand our market leading position in ETFs in the US and EMEA in particular and build our passive presence in Asia-Pacific. We are the fourth largest ETF provider globally, and our capabilities span passive active strategies in establishing and developing a spectrum of ETF-ESG ETFs and building on our 15-year legacy of innovation, we continue to develop the products in this space as demonstrated by the launch of the QQQ innovation suite and our first non-transparent ETFs that we delivered in the 4th quarter. Strong alternative platform and our focus is growing our private markets business led by our market leading real estate and bank loan businesses, and active fixed income and global equity remain key areas of opportunity for us and our offerings are well positioned with strong investment performance and high client demand. In addition, we are focused on our solutions efforts and as we have seen by the contribution to the institutional pipeline, clients value the service, the ability to offer solutions that builds the full power of our competitive set of capability and services-services to client continues to be a priority for us during 2021. We continue to invest in our leadership position in Greater China. We have been managing dedicated Chinese products for nearly 40 years. We have already seen the benefits of our early mover[Phonetic] advantage in the China onshore market through our joint venture, which [Technical Issue] our position in the fast-growing China market and further develop our media solutions and asset allocation offerings. Given our investment in the business over the past decade, our most recent efforts to better align the organization with our strategy, I'm confident that we have the talent, the capabilities, the resources, and momentum to [Technical Issue] future growth and success. [Technical Issues] happy New year and remain focused on helping our clients achieve their desired outcomes regardless of where the markets take us. And with that, I will turn it over to Allison to get in further the details.

Allison Dukes -- Deputy Chief Financial Officer

Thank you, Marty and good morning everyone. Moving to slide 7, we had 61% and 70% of actively managed funds on the top half of peers on a 5-year and a 10-year basis, reflecting strength in fixed income, global equities, including emerging market equities and Asian equities, all areas where we continue to see demand from clients globally. Looking at our AUM on slide 8, we ended the quarter with $1.35 trillion in AUM. Of the $132 billion in AUM growth, approximately $95 billion as a function of increased market values. Turning to flows on slide 9, our diversified platform generated long-term net inflows in the 4th quarter of $9.8 billion representing 3.9% annualized organic growth, which we generated positive net inflows in active AUM of $400 million and passive AUM of $9.4 billion. Our ETFs experienced net inflows of $6.1 billion including $4.7 billion in long-term ETF and $1.4 billion in our QQQ. Our US-listed ETFs excluding the QQQs have their best quarter in their 15-year history. We saw net long-term ETF flows in the US focused on equities in the 4th quarter including a high level of interest in our S&P 500 equal weight ETF which had $2.7 billion in net inflows in the quarter. Two of our top 5 end-flowing ETFs were ESG related. We continue to see momentum in our ETF business and demand for ESG funds and as Marty highlighted, the market opportunity is significant for this key growth area in 2021. Retail net outflows were $800 million in the quarter, helped by the positive ETF flows. On the institutional side, we had net inflows of $10.6 billion. I'll provide a little more color on these flows on the next few slides, but importantly, the growth in our passive AUM and our institutional AUM is meaningful for the firm and contributed to the positive operating leverage we generated in the period. Also, as Marty noted earlier, we are seeing the mix of ETF inflows being weighted toward higher fee-generating products. Looking at flows by geography, you will note that the Americas had net inflows of $2.2 billion in the quarter, an improvement of $6.6 billion from the prior quarter. This improvement was driven by net inflows into ETFs, institutional inflows, various fixed income strategies, and importantly, focused sales efforts and improvement in redemption rates. Our global equity products improved by over $1 billion or 37% from Q3 driven by our developing market fund, which returned to positive net flows in the 4th quarter following negative net flows in the first three quarters of the year.

The UK experienced net outflows of $100 million in the quarter, as positive flows into our institutional quantitative equity capability were offset by net outflows in multi-asset in UK equities. EMEA net outflows were $1.4 billion driven by institutional lumpiness and ETF outflows largely in our S&P 500 and Nasdaq-100 use ETF. And finally, I noted last quarter that Asia Pacific delivered one of its stronger-strongest quarters ever with net inflows of $8 billion. In the 4th quarter, net inflows were even higher at $9.1 billion. Net inflows were diversified across the Asia Pacific region. $4 billion of these net flows were from Japan, $3.8 billion arose from our China JV, and the remaining $1.3 billion was generated from several other countries in the region. It's worth noting that we continue to see strength in fixed income across all channels and markets in the 4th quarter with net long-term inflows of $8.2 billion. This following net long-term inflows of $8.8 billion in the 3rd quarter and $6 billion in the second quarter. It's also important to note that of the $26.1 billion in fixed income net inflows in 2020, $25 billion of these net inflows were from active fixed income capabilities. Active fixed income has been a growth area for us in 2020 and remains a key investment area in 2021.

Now, moving to slide 10. Our institutional pipeline remains robust at $30.5 billion on the heels of strong pull through in the institutional pipeline during the 4th quarter. This pipeline is diversified across asset classes and geographies, and our solutions capability has contributed to meaningful growth across our institutional network warranting our continued investment in this key capability in 2021. Turning to slide 11, you will note that our revenues increased $135 million or 12.4% from the 3rd quarter, driven by higher average AUM in Q4, as well as a meaningful increase in performance fees. Net revenue yield at performance fees was 36 basis points flat and flat at the, at the Q3 yield level. The impact of rising markets on our yield was offset by modest fee rate decline from the mix shift we experienced across products in the quarter as well as the impact of non-management fee earning AUM. We recorded performance fees of $78 million in the 4th quarter, $48 million of these performance fees arose from our real estate business and $21 million from our institutional business and our China JV, two of our key growth areas. Seasonally, we tend to see higher performance fees in the 4th quarter. Total adjusted operating expenses increased 8.3% in Q4. The $57 million increase in operating expenses was driven by higher variable compensation as a result of both market growth and compensation related to the performance fees in the quarter. Operating expenses remained at lower than historic activity levels due to pandemic driven impacts to discretionary spending, travel, and other business operations that persisted in the quarter. That being said, we did see a seasonal increase in marketing expenses as expected.

Moving to slide 12, we wanted to update you on the progress we have made with our strategic evaluation. As we noted previously, we conducted a strategic evaluation across four key areas of our expense base, our organizational model, our real estate footprint, management of third-party spend, and technology and operations efficiency. Through this evaluation, we will invest in key areas of growth, including ETF, fixed income, China solutions, alternatives, and global equities while creating permanent net improvement of $200 million in our normalized operating expense base. As we noted, a large element of the savings will be generated from compensation which includes realigning our client facing workforce to support key areas of growth and repositioning to lower cost locations. In the 4th quarter, we realized $7.5 million in cost savings, $7 million of these savings were related to compensation expense as depicted on slide 12. The remaining $500,000 in savings were related to facilities, which are shown in the property, office, and technology category. The $7.5 million in cost savings were $30 million annualized is 15% of our $200 million net savings expectation. Of the remaining $170 million in net savings, we anticipate we will realize roughly 50% of the savings through compensation expense. The remaining 50% would spread across occupancy, tech spends, and G&A. As it relates to timing, we still expect approximately $150 million or 75% of the run rate savings to be achieved by the end of this year, with the remainder recognized by the end of '22. We estimate that we will realize roughly 75% of the anticipated compensation reductions in 2021, roughly 50% of the anticipated reduction in occupancy expense also in 2021, and all of the reduction in G&A this year. The majority of efficiencies identified in our tech spend will not be realized until 2022. In the 4th quarter, we incurred $104 million of our total estimated $250 million to $275 million in restructuring costs. We expect the remaining transaction costs for the realization of this program to be in the range of $150 million-$175 million over the next two years, roughly two-thirds of this remaining amount occurring in 2021. As a reminder, the costs associated with the strategic evaluation are not reflected in our non-GAAP results. With respect to Q1, after improved market performance and asset inflows in the 4th quarter, we start the year with ever $1.3 trillion in AUM. Given the market improvement with more back-end weighted toward the end of the quarter, we expect both operating revenues excluding performance fees and the associated variable expenses to be modestly higher in the first quarter. This reflects the follow through from the market and slow growth that occurred over the course of the 4th quarter, even if we assume no change in markets from year-end. On the expense side, this will include higher associated variable compensation from the seasonal increase in payroll taxes, partially offset by lower compensation related to the seasonal decline in performance fees and the execution of our targeted cost savings.

Turning to slide 13, adjusted operating income improved $78 million to $485 million for the quarter, driven by the factors we just reviewed. Adjusted operating margin include 230 basis points as compared to the 3rd quarter to 39.5%, demonstrating the operating leverage in our model. This helped drive a 19% increase in adjusted EPS to $0.72 a share. In addition, we benefited from higher non-operating income and lower non-operating expenses in the quarter. Non-operating income included $31.9 million in net gains for the quarter compared to $15.2 million in net gains last quarter. The increase was driven by unrealized gains primarily in our seed money holdings. Interest expense of $24.4 million was 28% lower than the prior quarter. Q3 was the final quarter in which we paid dividends related to our forward purchase agreements, a portion of which we settled in January with the remaining portion to be settled in April 2021. Our tax rate for the 4th quarter was 21.7%. The reduction in the rate reflects the lower taxes on unrealized gains in our seed portfolio due to the jurisdiction of our holdings. We estimate our 2021 non-GAAP effective tax rate to be between 23% and 24%. The actual effective tax rate may vary from this estimate due to the impact of non-recurring items on pre-tax income and discrete tax items.

A few comments on slide 14. As Marty mentioned, we reduced revolver balance by $90 million to 0 in the quarter, consistent with our commitment to improve our leverage profile. In addition to using excess cash to reduce leverage, we seek to improve liquidity and our financial flexibility. To that end, our balance sheet cash position improved to $1.4 billion in the 4th quarter from $1.1 billion at the end of Q3, $764 million of this cash is held for regulatory requirements. I will note, we paid $117 million earlier in January to settle a portion of the forward share repurchase liability with the remaining liability of $177 million to be settled in April. We believe we're making solid progress in our efforts to build financial flexibility. We remain committed to a sustainable dividend and to returning capital to shareholders longer term through a combination of modestly increasing dividends and share repurchases. In summary, Marty will walk through our key capabilities through organic growth opportunity each presents and our focus on executing the strategy that aligns with these areas. We're also focused on our strategic evaluation and reallocating our resources to position us for growth, and we remain prudent and cautious in our approach to capital management. Our focus on driving greater efficiency and effectiveness into our platform, combined with the work we've done to build a global business with a comprehensive range of capabilities, puts Invesco in a very strong position to meet client needs, run a disciplined business, and to continue to invest in and grow our franchise over the long term. With that, I'll ask the operator to open up the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question this morning is from Dan Fannon from Jefferies.

Daniel Thomas Fannon -- Jefferies LLC -- Analyst

Thanks, Good morning. My question is on the fee rates and kind of the outlook, I just, I guess in terms of the 4th quarter, is there anything abnormal in this period? Obviously mix and data were positive. So just want to clarify that this is a good exit kind of run rate for the fee rate and then thinking about next year, assuming flat markets in the mix of business that you're seeing in terms of demand and institutionally and otherwise, how we should think about the trends in the fee rates for next year?

Allison Dukes -- Deputy Chief Financial Officer

Sure. Good morning, Dan. So I'd say, first on the 4th quarter, your question around with anything abnormal. Let me just start with, obviously, we had pretty high performance fees in the 4th quarter. So, excluding performance fees as you saw, net revenue yield was flat at 36 basis points than that of the 3rd quarter and the 4th quarter. It's fairly straightforward in terms of what was driving that. You've got the impact of the rising markets on our yield and then that's, which was a positive of course, and then we've got some offset there. Given the modest pressure, we continue to see just from the client demand and the mix shift that is there. We've got, consistent with industry, high interest and our passive capabilities and some churn within our active. And that does put some downward pressure on net revenue yield and this was a quarter where the impact of really strong market growth helped to offset that. In terms of what does that mean for this year, I would say that trend right there, we would expect to continue. I do expect we will continue to see high interest in our passive capabilities and some continued churn with an active. What does that mean for net revenue yield going forward, it's very difficult to predict, as you know. What I would point you to is that our focus is not simply on net revenue yield, and we've really got the breadth of capabilities to serve our clients well. I think that's really starting to be demonstrated in the results over the last couple of quarters and as we focus on that, we really are focusing on operating margins and making sure that we are managing our expense base to the top line of the firm and really driving profitable growth across our platform.

Daniel Thomas Fannon -- Jefferies LLC -- Analyst

Great, thanks. And then just as a follow-up on expenses and your commentary, sequentially both an increase in revenue and expenses, so obviously performance fees will be lower given the seasonality. So just want to clarify the, you're still talking sequential comp increase from a dollar perspective in the first quarter and then also on the synergies are not the kind of expense savings. Just the cadence as we think about the year. Are they more back-end loaded in terms of the realization. I get the exit by year-end numbers you gave, but just thinking about kind of the flow through the year, how we should think about the timing throughout '21?

Allison Dukes -- Deputy Chief Financial Officer

Sure. So yeah, let me start with Q1, and there are a lot of puts and takes, as you think about it, just given the really strong growth that we saw in the back half of the 4th quarter. That market growth excluding performance fee, we really did come in the back half of the year and we started the year with a very high level of AUM and you see what I see in terms of the markets thus far that we enter with strong revenue growth, as that maintains and we hope that maintains and along with that we've got the associated variable compensation. And that does drive compensation higher, all things being equal for the quarter and then we have the seasonality of payroll taxes and some pension expenses that occur in the first quarter of the year. Now those are going to be offset by the, what we're doing in terms of our targeted cost saves, and of course the lower compensation that we would have in this quarter, excluding performance fees. The net of that the puts and takes. Hard to say exactly, given the strong run-up in revenue and the associated expenses. But it's, I would say flattish in, I'm talking total expenses 4th quarter. In terms of the cadence of the cost saves, I think it's reasonable to look at those as being spread relatively equally over the year, there may be a little bit of front-end loading into the first half of the year, but relatively equal.

Operator

Thank you. And our next question is from Craig Siegenthaler from Credit Suisse.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks, good morning everyone.

Martin L. Flanagan -- President and Chief Executive Officer

Good morning, Craig.

Craig Siegenthaler -- Credit Suisse -- Analyst

I wanted to see if you could update us on your M&A priorities and specifically what investment capabilities or distribution efforts would Invesco target or be interested in adding?

Martin L. Flanagan -- President and Chief Executive Officer

Thanks, Craig. So our perspective really has not changed. As we look at M&A, it always has to start-has to be strategic. It has to be additive to the business in areas of client demand where just really don't have a competitive capability or the scale to compete. We also very much focused on the culture of the organization, as I pointed out. Historically, you have to have cultural alignment to be successful and that will continue to be our criteria and, but we don't think it makes sense is sort of the roll ups where there's just lot of duplication. Clients don't like it, shareholders don't like it. It's just really hard. And so we will continue to stay away from that.

Craig Siegenthaler -- Credit Suisse -- Analyst

Got it. And then just as my follow-up. When we think of potential M&A targets in the various sizes the different businesses, I'm wondering what are the largest managers by AUM net investment could target or what is the upper band of the universe of firms that you would consider acquired?

Martin L. Flanagan -- President and Chief Executive Officer

Craig, it's always facts and circumstances. And I think size is a factor, but size, the level of complexity is quite different with any organization. So it would really be facts and circumstances as opposed to some hard and fast-hard and fast rule.

Operator

Thank you. Our next question is from Glenn Schorr from Evercore.

Glenn Schorr -- Evercore -- Analyst

Hi, thanks very much. So a lot of good things to point to in the quarter. I do want to get a little more color on lot of flows, I mean on the institutional side. Retail seemed in the flat range, so wondering what efforts you can do to spur growth there and then also if you can focus on the outflows on the alternative side and what the plan is for private markets from here? Thanks, Martin.

Martin L. Flanagan -- President and Chief Executive Officer

Yeah, a couple of things. So again, as you saw, gross flows were a record high for us, and taking them a region by region, channel by channel, Allison I think worked through that pretty clearly. We continue to see momentum in the retail channels. It did slow down [Technical Issue] Allison spoke of some of that was the Brexit related sort of risk off is, it came down the final negotiations and quite frankly, there were some left over to the elections in the United States. The US retail channel is really starting to make a tremendous change in progress. We're not where we want to be, that's for sure, but the momentum there. The gross flows are there. We're seeing flows, as you look into the year outside of ETFs, in the traditional asset classes munis[Phonetic] and short duration, fixed income, emerging markets is actually which is really good news at back, back in the flow. So, cautiously optimistic with in alternatives, it has largely been around GTR and that was really the driver of this past quarter. Bank loans were also an area that we're still in outflows. As we look into this year, we'll see what the opportunities are with bank loans in particular. But again, we're obviously very, very focused on any area where we're relatively underperforming.

Allison Dukes -- Deputy Chief Financial Officer

Only thing I'd add to that on the alternative outflows with the 3rd area we saw some outflows would be in real estate dispositions and that would be somewhat the normal course of that business, but it did contribute to the negative flows there, and I'd say one positive point as it relates to our retail flows is if we look at our active US retail net outflows, they were actually $2.6 billion better than the 3rd quarter. Now, they were still negative at $6.7 billion dollars, but that was an improvement of $2.6 billion over the prior quarter, really on the heels of higher gross sales and redemption levels that were significantly lower than what we saw across the industry. So, signs of growth and improvement there.

Glenn Schorr -- Evercore -- Analyst

I appreciate all that color. Just maybe one little follow-up on the alternative side. Do you feel like you have the suite of proxy want[Phonetic] to Marty, as you said compete and scale effectively as growth continues there or is that one of the areas where you could see Invesco add into overtime, right place, right fit up?

Martin L. Flanagan -- President and Chief Executive Officer

Good question. So we clearly have a leadership position in real estate and bank loans. Private credit has been an area where there is some good performance, we don't have to scale that we would have wanted. The team is very strong, turning to 3-year track record. So that's important opportunity for us as we look forward and again, we'll just continue to focus on expanding our business over the next year.

Operator

Thank you. Our next question is from Robert Lee from KBW.

Robert Lee -- KBW -- Analyst

Great. Good morning, Marty you. Excuse me, good morning, Allison. Thanks for taking my questions. I was wondering if maybe, Marty, put a little bit -- I guess a little bit more meat on the bone. If I think the areas for growth me talking about leveraging solutions, client engagement sales, but could you maybe dig into that a little bit, I mean is that that leveraging technology that reorganization of sales functioning or reengineering of its, kind of maybe give some of the, for what that is and what's driving it?

Martin L. Flanagan -- President and Chief Executive Officer

Yeah, OK. So, look, this has been in the making for, I don't know four years now, and so the overnight success. Our approach has been to have a very talented quantitative solutions team that is very strong at asset adaptation, building anything from models to customized solutions for clients and also advisory to clients, whether it'd be sort of the big corner office suites in the retail channel, but quite frankly large pension plans around the world and our approach has been to use our capabilities, whether it be our passive capabilities, factor capabilities, all the way through alternative capabilities. So, it's not the duplicative set of skills. It is literally using what we've had in existence. We have built what is a very, very strong analytical tool that we use with clients as a way to help them analyze their portfolios, that's how the engagements happen. And any one of those outcomes can happen simply from an advice engagement to building a customized solution. During that journey as you build it out, how do you engage, how you face up a client are clearly modifications to how you do that, and we seem to have found ourselves in a situation where we seem to have a formula right based on the outcomes that we're, that we're seeing, and I come back to, this really is, is the fundamental topic that is driving the change in the industry as clients are working with fewer money managers that are expecting more from money managers. So, if you don't have that breadth of capability and if you don't have the ability to serve clients through these engagements, you are truly disadvantaged. And so, it is really making a difference for us and we expect that will be the case in the years ahead. So, hopefully that gives you a little more color.

Robert Lee -- KBW -- Analyst

Yeah. Yes, thank you. Maybe quick follow-up just on capital management. Q update us. I mean there sense of the forward contract you pretty much the revolvers down to zero. You had reset the dividend building liquidity that once you get to the April payment, how are you thinking at point about your capital management priorities, should we think that you may go back to starting to kind of, to restart some dividend growth to reengage share repurchases. How should we think of kind of the priorities kind of post April full in payment.

Allison Dukes -- Deputy Chief Financial Officer

Sure, Rob, I'll take that. So, you don't look as we think about sort of where we are now and as I think about rolling forward over the next couple of quarters, you note we built our cash balances. I'll also just remind everyone, we do have seasonality and comp expense that is seasonality and cash flow related comp expense in the first quarter. Historically, the Company has drawn on the revolver in the first quarter. We've obviously managed our cash balances a little bit higher there, strong cash flow, just given the AUM dynamics that we see right now. I don't know what that will look like exactly as we work through the quarter, and we do have the liability to settle in April. All that said, we're in a very strong possession and I continue, I expect us to continue to build our cash balances longer term and improve net leverage. And then as I think about just what does that mean for the financial flexibility that we're looking to achieve and returning capital to shareholders, we are committed to that financial flexibility. We do want to invest in the business first and foremost to support future growth and the business, and we do remain committed to strengthening our balance sheet and ultimately we want to be in a position to return excess cash to shareholders. And I do expect that we'll be doing that through a stable and modestly growing dividend and eventually share repurchases and so we are coming up soon here on the one year of having made some decisions around that and we've got the opportunity to think about what our capital, our return of capital to shareholders looks like, and we will be working through that in the coming months. We are, I'll say that we're pleased to be in a very strong position to be having those conversations and look forward to sharing more.

Robert Lee -- KBW -- Analyst

Great, thanks for taking my questions.

Martin L. Flanagan -- President and Chief Executive Officer

Thanks, Rob.

Operator

Thank you. And our next question is from Ken Worthington from JPMorgan.

Ken Worthington -- JPMorgan -- Analyst

Hey, good morning.

Martin L. Flanagan -- President and Chief Executive Officer

Good morning, Ken.

Ken Worthington -- JPMorgan -- Analyst

What long-term organic asset growth was I think 3.9% in the quarter, can you estimate the organic revenue growth in the quarter? There's lots of cross current inflows outflows by different products and geographies. So, how does it all shake out from an organic revenue perspective and then maybe I'll stick in my followup at the same time. As we think about the shift from active to passive, how is that impacting your margins? So, you're cutting costs. Equity markets have appreciated meaningfully, FX is now helping, but if we exclude those and just focus on these inflows and outflows of migration to passive and solutions in your mix, does that end up helping margins, and if so, to what degree is that helping?

Allison Dukes -- Deputy Chief Financial Officer

Okay. Let me, let me take your first one around the long-term organic revenue growth, I mean, I guess it's not a, that's not a number we would disclose or think about exactly, but if you think about, it's what you're looking at is excluding market and you surely look at the fee rate associated with where interest is, you as we point to every quarter, you continue to see a little bit of mix shift from some of the higher fee products to some of the lower fee products. So that is, that does put pressure on your organic fee growth, no question. Without some market improvement in there, you would see downward pressure there. Our focus then really does shift to profitability. So, I'll come to your second question. How do we think about the profitability given those dynamics because markets go up and markets go down and we've seen the pressure that can put on the top line. As we think about the profitability and I'm not sure I'm going to answer your question exactly, I'm not sure I caught all the different puts and takes you were thinking about there, but I guess I would answer it this way. While the absolute fee rate of some of our lower fee products would be lower. So take an ETF for example in the United States, the absolute fee rate there would be about half of a US based mutual funds. That said, the margin contribution is about the same, very similar because you have lower servicing costs and so the, so the margins on both are neutral to positive to our overall firm margins. And it really then becomes a function of volume. Because, while the margin is the same, the absolute operating income yield would be lower, and so you have to drive more volume of a lower fee products to contribute the same dollar of operating income that you would over a higher fee product. And that's really how we think about it. I mean, these are just the facts of our business, and the fact of where demand is and making sure we're positioned to capture all of that demand. And then making sure we are well positioned to maintain our margins at a minimum, even in markets where we could be under pressure.

Ken Worthington -- JPMorgan -- Analyst

Okay. Okay, that's super helpful. But I guess part of the core of this and maybe you can opine on this for a second. The organic growth, organic asset growth was like quite good this quarter like 3.9%. Is that contributing to revenue or is the underlying mix such that even though it was a solid 3.9% asset growth is that actually detracting from revenues because it happens to be EMEA was out, some were out, you've got high fee ETFs, but they're not quite high enough and even 3.9% asset growth is not enough to boost revenue growth, that I guess, that's kind of what I was really hoping to get and I'm still not sure I have a sense of that answer.

Allison Dukes -- Deputy Chief Financial Officer

In a quarter like this, a 3% organic growth is contributing to revenue. I think that, yes it's contributing to revenue and then obviously even contributing more as we look at the positive operating leverage that comes from it, but you do get positive contribution. It is, the high fee, low fee products are not necessarily always obvious as to what category they are in and you do see revenue contribution in a quarter like we just have.

Operator

Thank you. Our next question is from Bill Katz from Citigroup.

Bill Katz -- Citigroup -- Analyst

Okay, thank you. Good morning, everybody. So first question is a two-part question for Allison and then I have for Marty. Allison, could you just unpack the compensation dynamics between the 4th quarter and the 1st quarter and maybe help us understand what might roll off for the performance fees, since they were so elevated. And then maybe the seasonal increase if you will, just trying to get a sort of like a level of how to think about maybe the exit pacing for the second quarter?

Allison Dukes -- Deputy Chief Financial Officer

So, I'll do my best to unpack that. I mean if you look at just the performance fees and the compensation expense that's associated with those it's going to be kind of closer to 50%. So, it comes at a higher rate than what you would see in terms of the compensation associated with other elements of revenue. So, that's a roll off and then in terms of what would be higher, the seasonality of payroll taxes and some benefit. So, that's somewhere in the $25 million to $30 million range. Then you've, you've got the targeted cost saves that will be in there somewhere, we're not giving specific guidance around that any more so than what I've already provided. And I think that's probably the best way to think about it. The one thing that is not totally, the same is the run-up in the 4th quarter is what we only had that for kind of call it six weeks or so at the end of the quarter. If asset levels hold where they began the year and we've certainly seen them hold through this, thus far into the month, you can expect that revenue and the associated compensation expense with that would be higher than what you would see in the 4th quarter and that's just thinking about the typical relationship between revenue and compensation expense.

Bill Katz -- Citigroup -- Analyst

Okay and then just you had mentioned in terms of building cash, where are you in terms of your excess cash goal?

Allison Dukes -- Deputy Chief Financial Officer

Our cash balances at the end of the year were $1.4 billion. We have $764 million of that is committed to European regulatory and liquidity requirements.

Operator

Thank you. The next question is from. I'm sorry. Our next question is from Patrick Davitt from Autonomous Research.

Patrick Davitt -- Autonomous Research LLP -- Analyst

Hey, good morning.

Martin L. Flanagan -- President and Chief Executive Officer

Good morning Patrick.

Patrick Davitt -- Autonomous Research LLP -- Analyst

So, bond flows have always been a bright spot for you and others but concern around kind of the taper tantrum or even more significant rate shock has grown over the last few weeks with investors seemingly particularly worried about how large bond complexes will perform through that. So through that lens, could you remind us of Invesco's experience in the 2013 tantrum and maybe compare contrast, how you feel Invesco is now positioned for another tantrum or even bigger rate shock from here?

Martin L. Flanagan -- President and Chief Executive Officer

It's an interesting question. 2013 was a long time ago, but is that, we did find through it and I suspect, what's really going to matter. I think the question is where the concentrations within your, within your fixed income, if there is something like that and if you look at the range of fixed income capabilities that we have, and it really is quite broad and not a heavy concentration in an area where sort of long duration shock could be quite a painful to the organization. So that's my initial reflection on the question, if that's helpful.

Patrick Davitt -- Autonomous Research LLP -- Analyst

Sure. Thank you.

Operator

Our next question comes from Brian Bedell from Deutsche Bank.

Brian Bertram Bedell -- Deutsche Bank -- Analyst

Great, thanks, good morning folks. Thank you for taking my questions. First one is on ESG. You mentioned that as a potential increase in contributors '21, if you could talk a little bit about what you think your ESG dedicated AUM is as of now. I know it's being integrated more thoroughly throughout the organization and then talk about how much do you think that can potentially contribute to your institutional pipeline and whether you see it becoming a bigger factor in the US as well.

Martin L. Flanagan -- President and Chief Executive Officer

Yeah. So look at. Let me circuit. The bigger question get specific. ESG is something that were integrated throughout all our investment management teams and probably most advance through our capabilities [Technical Issue] our fixed income teams real estate. So we're, we're pretty well into it right now. We're not done, but that is something that is absolutely a top focus of ours as an organization. The reality is, if you are not skilled at managing ESG capabilities even within their traditional asset classes, you really are going to be challenged in EMEA. I'd say in the United States, it is moving beyond what was a conversation 12 to 18 months ago to being something very, very real. And you're seeing commercial implications of it and that is the same thing in Asia Pacific, specifically using that more narrow the definition that you so that we have about $34 billion in ESG AUM. But it's really quite proud that we have about 90 ESG funds are mandates than that comes through and I think the other area where we're seeing outside of institutional is really picking up on a retail basis, and right now we're the second largest provider of ESG ETFs in the United States and there is about $9 billion in those assets. So, again, more to go. As I said, we have a developed capability, but it's also developing and we're really being quite aggressive in the area.

Brian Bertram Bedell -- Deutsche Bank -- Analyst

Yeah, that's super helpful and then just a follow-up is on M&A, I guess some from two different side you. Thanks for the commentary about reiterating the, your stance on that. From a, from a product perspective, how would you view adding a beta ETF franchise as opposed to a smart beta suite that you have right now? And then just in terms of overall stock price that we see for the asset managers in the last few years that we had a peak in early 2018, a very few managers have been able to make it back that for that peak, you've tripled your stock price since the lows of last, last summer. But I guess, what is your confidence in being able to get the stock back to that peak early 2018 level organically?

Martin L. Flanagan -- President and Chief Executive Officer

So let me start stock price and again actually careful that you're working on mind, what drives the stock price, it's operating outcomes and the business momentum in [Technical Issue] talking about today, you're just seeing a markedly different set of outcomes in the last couple of quarters, as you look into 2021. Again, without getting into forward guidance. Yeah, it is many more tailwinds beyond, behind the organization than I've seen since 2018 and it is quite broad by region, by channel. And also within the various capabilities where we pointed out, this very, very high demand. Now that said, there is always areas where we have areas for improvement, and we will continue to do that, but again the tailwinds are very different than what we've seen since the middle of 2018. So, from my perspective, that's going to drive stock price. With regard to adding a beta provider through M&A, again I'll just answer the question as I had before. It all depends on the facts and circumstances. It has to be additive to the organization. It cannot be something that is a net negative through the combination. So again, if you just, just really depends on the situation.

Operator

Thank you. And our next question is from Brennan Hawken from UBS.

Brennan Hawken -- UBS -- Analyst

Good morning, thanks for taking my questions. The operating metrics in Great Wall look impressive and thanks for providing the flow, definitely a big contributor, but what are the options for your stake with that entity? Marty, I think in the past you've referenced getting your ownership above 49%. But I think your last comment on that was a little over a year ago. So, is that still on the table and what would be the timeframe for that? How should we think about the potential impact of you getting that over 50% there?

Martin L. Flanagan -- President and Chief Executive Officer

Yeah, good question. So, let me answer that in two parts. So, I think what has been differentiated, which is important to recall is even 49% we uniquely have management control and so it is really operate as part of Invesco. So, we operate as Invesco in total within Mainland China and that has helped our institutional business there for our traditional Invesco and also we go through Invesco Great Wall institutional also and retail. So, that's really the success is because we've been able to operate as really a single organization there. With regard to the 49%, it is a conversation we continue to have with one on. It's obviously slowed down. I'd say the conversations between US and China were not helpful in advancing that. So we'll just have to see, I really can't put the timeframe on it, as clarity between the relationship between US and China eases, I think that will be a net positive.

Brennan Hawken -- UBS -- Analyst

Okay, that's fair. Thanks for that.

Martin L. Flanagan -- President and Chief Executive Officer

Like the the bottom line, we just like it's not getting in the way of our business success. So I think that's really the bottom line I don't want to, want to make.

Brennan Hawken -- UBS -- Analyst

But that is clear from the results, and thanks for that, Marty. Follow-up is a two parter. So, first, you've got some questions so far today and a bunch in the past on M&A and Invesco as a buyer, but and just to be provocative, how should we think about you as a seller, I mean, I know you're the company is large, and so the list isn't really long of who could are you, but there are some large buyers out there talking pretty vocally about writing checks. So, curious about how you would think about that and I believe you have had, there has been at least one Board meeting since Nelson Peltz and Ed Garden joined the Board. So, could you add maybe some color on what kind of impact that has had on the Board dynamic and any incremental details about plans or areas of focus for your new Board members? Thanks.

Martin L. Flanagan -- President and Chief Executive Officer

Good questions. It's a good way to get three questions and not two, but very good, you have done this before. So, look, with regard to, let's be very, very clear today, the Board is absolutely dedicated to driving success of this organization. They value Invesco be an independent global asset manager and again, the results are, as I said, you can see the momentum and we anticipate we're on a good track. So, that's the first point. Secondly, within any conversation around M&A, my comments will be very similar to somebody booking at any money manager and it is not strategic if there is a lot of overlap, if it's inconsistent with what clients want. It is very hard to do. And so, as you say that, but that would get you to an even narrower set of options, if you consider something like that. So, again the criteria works both ways. And I think that's important to understand. And then with regard to the Board, again we've had a very strong Board and Nelson, Ed, and Tom Finke from Barings have joined. All three are very, very talented. Tom was the former CEO of Barings. Nelson and Ed had been around the space for a very long time. They know the space. They've obviously our bench very outspoken about the opportunities that they see within the asset management space. The dynamics have been very good. I mean you got three new experts on to the Board. And again, just making sure we as organizations are laser focused on providing for our clients and shareholders and that with the existing Board members, I think if anybody who is on the stock, they should feel really good about it.

Operator

Thank you. Our next question is from Mike Carrier from Bank of America.

Mike Carrier -- Bank of America -- Analyst

Good morning, and thanks for taking the question. Just one question, is on growth versus value on the performance chart in the appendix looks like the growth performance remained strong, but value continues to be on the weaker side. I just wanted to get your thoughts. But we continue to get a shift toward value do you have some active product that are performing well that can benefit from flows versus maybe what we see in the chart, which is just the average across the full category?

Martin L. Flanagan -- President and Chief Executive Officer

Yeah. So, the value related equity give the delays have been the area of focus for us as an organization is no question about it. Relative performance, we're absolutely focused on making sure that the portfolios are in a position to perform and again I don't want to get too far ahead of myself. But if you look at that value suite during the 4th quarter, the relative performance was really, really quite strong and that said, let's be clear, it's a quarter, it's not one year, three year, five years, but it was important to see that, yeah, within the 4th quarter.

Mike Carrier -- Bank of America -- Analyst

Okay. Yeah, OK.

Martin L. Flanagan -- President and Chief Executive Officer

Thank you.

Operator

Chris[Phonetic], your line is open.

Chris -- Analyst

Yeah, great question on operating margin. You guys have a target in mind for this, as you execute on your expense savings plan and then related what do you think is the long-term potential for this business as it relates to operating margin?

Allison Dukes -- Deputy Chief Financial Officer

Good question. We have not set a targeted operating margin coming out of this. Our focus has really been to think about the continued dynamics that are really driving client demand and thinking about getting our business oriented to capture that demand and make sure we're doing so in the most profitable way, and we continue to see how these trends are playing out, what do I think as long term, I think that's a hard one to answer, because I think we continue to see some of these shifts. We remain committed to our active capabilities, and we do believe we will continue to see interest there and demand there, and we could see even more positive growth coming from that. So, as client preferences continue to evolve, we're going to continue to evolve our platform to operate at the highest profitability we can with it.

Chris -- Analyst

Okay, thank you.

Operator

Thank you. And our next question is from Chris Shutler from William Blair.

Chris Shutler -- William Blair -- Analyst

Hi, everybody. Good morning. Marty, what are your thoughts on the potential for direct custom indexing and is this a place that Invesco plans to participate and if so how?

Martin L. Flanagan -- President and Chief Executive Officer

Sorry, I didn't get the question, I apologize.

Chris Shutler -- William Blair -- Analyst

Sorry about that. Just director custom indexing, is that a place where Invesco plans to participate.

Martin L. Flanagan -- President and Chief Executive Officer

Yeah. So, we have a self-indexing capability and it actually has been an area of growing success recently. We just turned our attention to it a couple of years ago and it's really been, it's with through the Solutions Group, where we got the greatest success in building unique indexes for clients. So again, we look at it as a real area of growth but forward and what we really looking forward. It's just really building that deeper relevance for our clients and it's off to very strong start.

Chris Shutler -- William Blair -- Analyst

Okay and then separately, just on the, in the registered investment advisor space. Maybe just the financial advisor space overall. Can you give us an update on Jemstep and Intelliflo and Jested what's been going at those platforms, how are they growing and it's, at what point should we expect those to generate some meaningful flows for Invesco?

Martin L. Flanagan -- President and Chief Executive Officer

Yeah, it's a good question. There is about 900 billion in assets under administration right now. And the last year has been really focused on pulling together that that platform through the last couple of acquisitions and so we're looking for this year to be the beginning of some, some additive growth after a period of just really pulling out that platform. So again, we'll have more to say later in the year. But we're hopeful that we're at that spot right now.

Operator

And I am showing no further questions at this time.

Martin L. Flanagan -- President and Chief Executive Officer

Okay. Again on behalf of Allison and myself, thank you for your time and the questions. I appreciate the dialog and that we'll be in touch. Thank you.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Martin L. Flanagan -- President and Chief Executive Officer

Allison Dukes -- Deputy Chief Financial Officer

Daniel Thomas Fannon -- Jefferies LLC -- Analyst

Craig Siegenthaler -- Credit Suisse -- Analyst

Glenn Schorr -- Evercore -- Analyst

Robert Lee -- KBW -- Analyst

Ken Worthington -- JPMorgan -- Analyst

Bill Katz -- Citigroup -- Analyst

Patrick Davitt -- Autonomous Research LLP -- Analyst

Brian Bertram Bedell -- Deutsche Bank -- Analyst

Brennan Hawken -- UBS -- Analyst

Mike Carrier -- Bank of America -- Analyst

Chris -- Analyst

Chris Shutler -- William Blair -- Analyst

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