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Invesco's earnings falter, but problems began before the coronavirus

One of Invesco CEO Martin Flanagan’s biggest bets was the $5.7 billion takeover of Oppenheimer Funds — a wager on the future of active management despite investors' continued to move to passive.
One of Invesco CEO Martin Flanagan’s biggest bets was the $5.7 billion takeover of Oppenheimer Funds — a wager on the future of active management despite investors' continued to move to passive.
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Invesco is having a tough year, even by 2020 standards.

Investors continued to yank money from the asset manager’s funds in the second quarter, bringing total first-half net outflows to about $31.6 billion, according to a statement Tuesday. The stock has tumbled more than 40% this year, versus a roughly 9% drop for an S&P industry index, putting it well below peers.

Fee pressure and a move away from active management has hurt the Atlanta-based firm in recent years. While senior executives made a series of bets to keep pace in a changing industry, some have yet to pay off, creating concern among clients and investors.

Invesco has aggressively pursued acquisitions ever since CEO Martin Flanagan, 60, joined from Franklin Resources in 2005. The moves helped boost assets under management to about $1.1 trillion, but two years of outflows put Invesco in a tougher position than peers, even before the crisis triggered by the COVID-19 pandemic.

“They came into this downturn more vulnerable,” said Bloomberg Intelligence analyst Alison Williams.

On Tuesday, the firm reported second-quarter adjusted earnings of 35 cents a share, short of the average estimate of 43 cents by analysts in a Bloomberg survey. The stock slid 2.9%.

Oppenheimer Deal
One of Flanagan’s biggest bets was the $5.7 billion takeover of Oppenheimer Funds — a wager on the future of active management that came even as investors placed more money in passive, index-tracking funds.

Invesco spent much of the past year stitching together the two businesses, sowing uncertainty with some clients: withdrawals from its long-term funds, a category excluding cash, topped $34 billion in 2019. While he didn’t have a “crystal ball” to see what the future had in store, Flanagan said the deal was necessary for the firm as clients look for bigger fund managers with more investment options.

But Invesco derives most of its assets from retail investors, a group that has increasingly focused on costs in the years since the 2008 financial crisis. It does offer its own passive products, even though these funds saw net outflows of $800 million in the second quarter. The firm is a distant fourth in the U.S. exchange-traded fund sector, with a 5% share compared with BlackRock’s approximately 38% slice, Bloomberg data show.

China Venture
Another of Invesco’s big bets is on the future of asset management in China. Its China joint venture, Invesco Great Wall Fund Management, was an early wager on the nation easing restrictions on competition from foreign financial firms.

"It's now June and if you’ve been on a deserted island for the last five months you couldn’t have fathomed the movements we’ve seen," an expert says.
June 10

But President Trump and Chinese counterpart Xi Jinping are still sparring over trade and exchanging barbs over who’s to blame for the pandemic. That raises questions about whether finance will be dragged into the fracas.

“The reality is the U.S. and China need each other,” Flanagan said. “China continues to be one of the most important parts of our business.”

Bloomberg News