Welcome to Invesco’s first quarter results conference call. All participants will be in a listen-only mode until the question and answer session. At that time, to ask a question, press star, one. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. Now I’d like to turn over the call to your speakers for today: Marty Flanagan, President and CEO of Invesco; Loren Starr, Chief Financial Officer; Colin Meadows, Senior Managing Director and Head of Global, Institutional and Private Markets; Andrew Schlossberg, Senior Managing Director and Head of Americas; and Greg McGreevey, Senior Managing Director, Investments. Mr. Flanagan, you may begin.

Thanks very much, and thanks everybody for joining. I’ll spend a few minutes just talking about the environment in the quarter. Loren will spend the bulk of the time talking about the results. Colin has joined and he’s going to talk about the institutional business, Andrew will talk about the Americas, Greg will also join us for questions, and I’m also especially pleased to introduce Allison Dukes, who joined Invesco as Deputy CFO and will be taking over as Senior Managing Director and CFO on August 1, when Loren Starr takes on the new role of Vice Chairman. I will note that we’re not in the same room and taking the call from different locations, as you can imagine in this environment, and you’re also welcome to follow along using the presentation that’s available on the website. First, I hope you, your families and colleagues remain safe and healthy during these unprecedented, challenging times. I’ll tell you we’ve been intensely focused on protecting our employees and their families while continuing to robustly engage with our clients and serving them in any way possible and just operating a disciplined business in this highly turbulent environment. We’ve been dealing with the effect of COVID from the time it first affected our business in China in February. Several weeks ago, we reached the point where literally 99% of our workforce was working from home. The operating outcomes have been outstanding, which is a testament to my colleagues and the strength of our global operating platform. Despite working in this remote environment, we’ve been highly engaged with our clients around the world, as I said, supporting them in any way necessary during this period. We’ve had thousands of digital and virtual interactions with our clients since the start of the crisis which have been incredibly effective, and this experience will no doubt change permanently how we operate and interact with clients going forward. Financial pressures and the client demand presented by the coronavirus will only accelerate with global trends where global multi-channel, multi-capability firms with operating scale will grow in the years ahead. For the past decade, we’ve had the discipline to act on our high conviction industry views ahead of key macro trends that have positioned us well and helped us achieve record operating results in 2019. Today, we now have a diversified platform with approximately 90% of our business in key growth areas when you look to the future, including our leading presence in China, our leading global ETF franchise, a broad range of global equity, international and emerging markets equity, alternative capabilities, strong fixed income capabilities, and our leading digital wealth platform. Our efforts over the past years have placed us in a very strong position to manage through the current crisis while continuing to meet our clients’ needs. The resilience of our employees, the strength of our client relationships, and the breadth of our capabilities were reflected in our consolidated operating results and stable total flows during the quarter, with new outflows of only $2 billion. Despite the extreme market volatility, long-term assets under management increased nearly 40% to a record $87.4 billion, resulting in net inflows in a number of diverse areas for the quarter, including institutional, China joint ventures, money funds, ETFs and global fixed income in particular. Long-term investment performance during the quarter remained strong in capabilities with high demand, which would include international equities, emerging markets, and a number of fixed income capabilities. In light of the current operating environment, a key priority of ours is supporting our long-term financial strength and flexibility to ensure we continue to operate from a position of strength for the benefit of our clients and shareholders. Last year, we captured $500 million in efficiencies post the Oppenheimer transaction, creating operating scale as we entered 2020. This was a significant achievement ahead of schedule. Since the start of the COVID-19 crisis, we’ve been executing a number of measures across our expense base while working in an uncertain environment to create further operating flexibility to strengthen our liquidity position. We see these actions as creating roughly $80 million in average quarterly expense savings relative to the guidance we’d previously provided for 2020, and this includes variable compensation in a number of discretionary expense areas. Loren will provide more detail later on in the call. Importantly, beyond these short-term tactical responses, we’re building on the program we started with the integration of Oppenheimer to leverage our experience to drive further efficiencies and scale into our operating platform, and I’m confident that the experience of the team and the track record will enable us to navigate through these challenges. In addition to these expense measures, we believe it’s imperative to maintain financial flexibility during this uncertain market period, and let me highlight a few of those. First, our partnership with MassMutual continues to yield positive results, including the recent approval of $425 million in capital for real estate strategies and ongoing discussions about funding across our alternative platform. These investments and others that may follow speak to the strength of our growing partnership capabilities. We also plan to redeem approximately $200 million of seed capital from certain of our investment products year over year. Finally, we’ve reduced our quarterly common dividend from $0.31 per share to $0.155 per C-share, which we’ll establish as a sustainable dividend going forward and provide almost $300 million in cash annually. Loren will touch more on our decision to reduce the common dividend, but I want to say upfront, this is a proactive decision we’re making. Our liquidity is good and it puts us in a position of strength and protection should the market deteriorate from here. It is clear that 2020 is turning out to be a much more challenging year than any one of us ever would have anticipated. These combined actions will help us maintain financial flexibility, build ample liquidity to further strengthen our balance sheet in the present uncertain environment, which will allow us to continue to operate from a position of strength. With that, let me turn it over to Loren, who will run through some of the details of the results for the quarter.

Thanks Marty. Before I cover the topic of flows, expenses, and capital management, I want to pause on the investment performance slide, which is Slide 5 of the deck that we have posted on our website. You’ll see our long-term investment performance does remain strong at the end of March. We reported 60% and 69% of our capabilities in the top half of peers for the five-year and 10-year time periods, and that’s up slightly from the end of 2019. Marty talked about our diversified global platform with exposure to the industry’s key growth areas. Our platform is aligned with these growth trends. It’s in these areas that we’re delivering strong investment performance, particularly in global, emerging markets and international equities, global fixed income, liquidity, and alternatives. Next, let’s move onto flows. As you can see on Slide 7, we had net inflows in our institutional channel and we continue to see positive net long-term flows in Asia Pacific. Positive net flows of $11.2 billion in our institutional business were driven by the partial funding of the previously disclosed Amalgamated Solutions win, and we also saw inflows into our stable value products as well as other active fixed income mandates. Additionally, we had just under a billion dollars in net long-term inflows into our China joint venture, driven by our balanced fund but also across equities and fixed income products. Colin is going to talk a little bit more about the institutional business a bit later. Our retail flows do remain challenged in the quarter. You’ll see $30.3 billion in net retail outflows driven by ETF net outflows of $6 billion, which did include $1 billion from previously disclosed ETF closures. We also saw outflows in OFI global equity funds, senior loan funds, U.K. equities, and high yield municipal funds. Our ETF product range in the U.S. is weighted to domestic U.S. equity, and that was impacted by the flight to liquidity in the period. Offsetting this was $2 billion in net inflows in our European commodities ETFs, particularly in our physical gold ETF. In fact, we were number two in terms of net new assets or new flows in ETFs in EMEA markets. You’ll hear Andrew Schlossberg talk a little bit more about the wealth management and the Americas business a little bit later in the presentation. Next, let’s move to revenues and expenses, turning to Slide 8. You’ll observe that our results were impacted by the reduced market value of our assets under management. The decline in revenues in the quarter was driven by lower average assets under management, one less day in the quarter than in Q4 2019, and lower performance fees relative to the prior quarter. It’s important to note that the impact of the March market declines and the flight to liquidity were quite impactful to our mix and the level of assets under management as we entered the second quarter. In fact, the pro forma net revenue yield reduction due to market and mix in the month of March alone was approximately two basis points of net revenue yield, and you’d see that on a go-forward basis. In addition to the impact of the market declines in the period, the weakening of the pound and the euro against the U.S. dollar in Q1 impacted operating expenses. We saw operating expenses flex down in the period by a net $29 million, and that was comprised of a $40 million combined market and FX impact which was offset by a net $11 million increase in other expenses, largely in compensation. As you know, compensation expense is typically higher in the first quarter due to the seasonality of payroll taxes. In light of the uncertainty in the markets and the economic environment, we have undertaken a thoughtful review of our operating expense base with a focus on what we can do in the near term to minimize costs. We’ve determined that we will freeze hiring for the time being. Additionally, we are aggressively managing discretionary expenses and reviewing other aspects of the firm’s expense base. You’ll remember last quarter, we offered quarterly run rate operating expense guidance of $755 million a quarter. We now expect our quarterly operating expenses to be approximately $80 million lower on average for the remaining quarters of 2020, largely due to the lower compensation as well as the reduced general and administrative and marketing line items. These expense numbers were based on market and FX levels as of March 31, and they will of course fluctuate up and down based on seasonality and the nature of certain areas of spend. A portion of the reduced expense base is tied to the temporary suspension of travel, events, consulting, and other spending affected by this unusual environment. We remain highly focused on identifying additional discretionary and structural levers that we can pull, such that we deliver most effectively and efficiently for our clients within the present environment and longer term. Let me move on to Slide 9 and just briefly point out that non-operating factors impacted our EPS by about $0.14. That was driven by non-cash mark-to-market losses on our seed portfolio as well as an elevated tax rate this quarter. The 27.9% tax rate in Q1 was elevated for two primary reasons: our lower share price resulted in less of a deduction on the vesting of shares, and the fact that our seed capital is domiciled in Bermuda where there is no tax deduction for the seed mark-to-market losses. We would expect the tax rate to return to the 23% level going forward. Moving onto Slide 10, looking at the capital management, you will see that we have a credit facility balance of approximately $500 million at the end of the quarter, reflecting the typical Q1 draw down on our facility to fund annual bonus payments, as well as we also had a $190 million prepayment of a portion of our forward contract liability with respect to the share repurchases we made last year. As Marty mentioned, we determined to reduce our common dividend to allow us financial flexibility and to strengthen our balance sheet. This was a very thoughtful decision and one that we believe is both proactive and prudent in the present environment. I want to spend just a few minutes walking through some of the considerations that led to this decision. First, in light of the present uncertain market environment, a reduction in dividend allows us to preserve liquidity and enhance financial flexibility. It also reflects a more balanced payout ratio given lower expected earnings as a result of the March-ending assets under management levels. This action around our dividend also allows us to target the common dividend payout ratio at about 40% to 60%. Over time, and as market conditions firm, the enhanced liquidity will give us flexibility for the strength in our balance sheet and with an eye towards improving our leverage profile and continuing to invest in the business for growth. We’re committed to a sustainable dividend and the return of capital to our shareholders. We do not anticipate additional share buybacks in 2020. Reducing our common dividend leaves us with ample capacity to buy back stock in the future, however. The combination of the dividend reduction, continued focus on expense management, and our operating cash flow generation creates ample cushion for liquidity and provides us with financial flexibility. We generate significant cash flow each quarter, and I want to just take a moment to walk you through a few key elements on our cash flow. As a reminder, our net income includes some fairly significant non-cash elements, particularly this quarter with $74 million in non-cash money market declines. In addition, net income includes deductions of $48 million for non-cash depreciation and amortization, and $47 million for non-cash share-based compensation expense. Also, as part of our efforts to improve our financial strength, we’re looking to redeem about $200 million of seed money investments, all done without impacting our clients, so that will be done in 2020. It’s also important to keep in mind, as I mentioned a moment ago, that in the first quarter we prepaid $190 million of the forward share repurchase liability in connection with posting additional collateral. We have a remaining $220 million obligation which is net of $90 million of collateral that we posted, which will be fully settled by April of 2021. Then finally and perhaps most importantly, we have no debt maturities until Q4 of 2022. The combination of our actions this quarter puts us in a position to be thoughtful about managing our capital structure, improving our leverage profile, and also include the ability to reduce our revolver borrowings to zero and to pay off our 2020 maturity. We’re not committing to any specific actions right now in our capital structure - it would be premature, but our objective is to maintain flexibility through a volatile environment. Nevertheless, we feel good about the optionality that we will have to strengthen our balance sheet while further improving liquidity. In summary, we remain prudent and diligent in our approach to expense and capital management. The steps that we’re taking will further strengthen our balance sheet and provide us with enhanced liquidity to manage through the market volatility and uncertainty while allowing us to create flexibility for investment and growth in the future for our business. Let me now turn it over to Colin, who will have a discussion about our institutional business.

Thank you, Loren. I would like to echo my colleague’s hopes that all of you are staying healthy and safe in this challenging time. Our institutional business had a strong quarter as our clients by and large are taking a measured long-term view in line with their investment objectives. We realized gross flows of $26.9 billion in the quarter with mandates funding in a variety of strategies, including custom solutions, stable value, investment-grade credit, and real estate. Redemptions stayed largely in line with prior quarters at $15.7 billion, largely as a result of rebalancing decisions. These results allowed us to realize long-term net flows of $11.2 billion in the first quarter. We also saw significant net flows of $26.3 billion into liquidity products as clients look to ensure financial flexibility through the crisis. A growing share of these flows resulted from direct liquidity mandates, which will provide us with the opportunity to help our clients meet their diverse investment objectives as they eventually transition these assets into other strategies. Our won not funded pipeline remains very robust at $31.9 billion. Our focus on becoming trusted partners to our institutional clients has resulted in wins across a variety of strategies, including factors, solutions, alternatives, and fixed income. This result compares favorably to prior periods as it’s twice our won not funded pipeline on a year ago this quarter and is a 20% increase over our pipeline in the fourth quarter. We are especially encouraged that institutional clients have remained engaged through the crisis as $14 billion of that total are mandates that were won in the first quarter. As a result of the COVID-19 crisis and social distancing measures across the globe, we’ve transitioned to a completely digital engagement model, and institutional clients have responded. We’ve hosted 20 webinars and webcasts that have attracted over 2,000 clients globally. Our weekly Market Pulse webinars have been particularly impactful as we responded to client areas of interest, including investment implications of COVID-19, updates on global financial markets, government and regulatory interventions, and implications for key investment strategies and products. Institutional clients are increasingly looking beyond the crisis to understand what’s next for their portfolios and member plans. Clients have expressed interest in a diversity of strategies, including multi-asset, stressed credit, real assets, emerging markets equity, and liquidity. We’re also working closely with our Invesco solutions team to engage clients on changes to their investment priorities and portfolios and are introducing Invesco Vision, our portfolio analytics tool to these conversations to provide real-time modeling of various scenarios. We believe that supporting our clients as partners through all environments will allow us to deepen these important relationships and ensure client success. Now I’ll turn it over to Andrew Schlossberg to discuss our Americas wealth management and global ETFs business.

Great, thank you Colin. I’ll refer to Page 12 for some of my comments; however, before discussing the flow results, I’d like to take a moment to describe how our Americas wealth management intermediary team is matching off with the marketplace. The strength of our newly formed distribution group, our consolidated and diverse product lines, and our total client experience strategy that were all put in place late last year, went full force in the first quarter and delivered with much success against multiple market environments of the past few months. Through the combination last year of Invesco and Oppenheimer, we’ve built a distribution engine that is pointed to the future. It’s comprised of top talent in the industry. We’re re-apportioned resources to key channels and clients, and we’re deploying both traditional and more digitally inclined coverage models and tools to the marketplace. Our go-to-market strategy in the North American wealth management platform and advisor market is anchored on a differentiated three-part client experience model which includes investment insights and thought leadership, portfolio risk and positioning through asset allocation and investment analytics capabilities, and business consulting for advisors to help them grow and manage their practice. While our distribution model was not designed to be 100% virtual in its client engagement, we’ve been operating in this format since early March and we’re deploying this distribution strategy now digitally, with really strong success. Feedback over the past six months has been positive. It confirms to us that the winners in this space will need to have scale going forward to maintain strong relationships, will need to have advanced technology for both client service and interaction, and a holistic client experience like the one I described. Just a few stats to give you a sense of the relevance we’ve had with clients the past six weeks. We’ve done over 100,000 virtual and digital engagements with wealth management platforms and advisors. We’ve had over 200 proactive media placements of Invesco thought leaders, and we’ve seen a 50% increase in our web and social media traffic while print fulfillment has declined by virtually the same rate. The team looks forward to being able to combine this virtual engagement with the in-person engagement soon, but we’re confident the past six weeks have validated our strategies, those capabilities, and our ability to accelerate next-generation distribution. Now I’ll just touch a little bit on the Q1 results in our active U.S. retail business. First, we saw a very strong pick-up in gross sales in Q1 following the integration of our distribution teams in 2019, so $20.3 billion of Q1 gross sales were recorded. That’s our best quarter since combining as one organization, and it’s 50% greater than our Q4 results. We saw record growth in gross sales across all asset classes, in particular global and emerging equities, and taxable and tax-free fixed income. As you can see on the chart, the March acceleration was really marked by unprecedented amounts of money in motion and a retreat to cash and conservative strategies, and maybe an early stage equity and risk asset reallocation, which I’ll touch on. All propelled the gross sales forward in March. The net flows in Q1 were really a tale of two markets. In January and February, we showed really strong progress with net flows increasing nearly 30% over the Q4 monthly averages, and improvements were recorded across all major asset classes. In particular fixed income moved into positive net flows during that period; however, March changed the picture, as everyone knows. The industry net flows declined in the active mutual fund space by over $300 billion, which represented a 2.7% monthly decline from February’s ending AUM. Our March results in net flows were slightly better than those industry averages at negative 2.5% as investor redemptions spiked and clients raised cash and de-risked. Our hardest hit in March were some of the asset classes where we are market leaders and we have high AUM exposure, like municipals, international equity, and bank loans, which together were responsible for nearly half of those outflows in the month of March. But we believe these market-leading strategies are some of the same that are positioned to benefit from heavy reallocations and consolidations of client portfolios in the weeks and months ahead. Just a little color since the last week of March, we’re seeing flows moderate quite a bit. The benefit of first stage government interventions, market stabilizing, and early stage reallocations have benefited our gross sales, while not at the same levels as the large March spike. They remain 10% stronger than pre-crisis, January and February levels, and 55% higher than Q4. On the redemption side, it’s stabilizing as well. Net flows are about 60% better than the month of March, but still remain below January and February levels by around 20%, primarily due to risk assets like high yield and emerging, that continued to have a higher than normalized redemption levels in the meantime. Perhaps just a moment or two on ETF flows before I turn it back to you, Marty. While the ETF flows are not detailed on the page, I did want to give you a sense of the global franchise in our results. Industry-wide, the ETF structures held out very well in the market volatility and liquidity squeeze of the past six weeks. We believe the structural advantages of the ETF, notably its liquidity and the tax management benefits in the United States, should encourage high demand as investors cautiously reallocate, wade back into the market, and at Invesco we’re ready for the potential acceleration in those flows. Our business has $250 billion of ETF assets under management, which gives us top status in smart beta ETFs and provides us with breadth, scale, liquidity, and most importantly long-term track records for managing through volatility, diversifying income, and targeting growth. The distribution profile we have, both with existing large ETF users in the U.S. wealth advice channels, one of the fastest growing usage platforms in EMEA, and strong exposure to emerging channels in digital wealth model portfolios and asset allocation put us in a really strong position. With this backdrop, just a little more detail on what Loren mentioned on the global ETF franchise. We had a very strong start to the year in January with net inflows of around $2.5 billion, which was a great continuation from the $16 billion positive net flows we recorded in 2019, but like our active funds, the second half of the quarter saw major declines at the industry ETF levels, and it impacted our business as well. It resulted in negative $6 billion of net ETF outflows globally, but that’s inclusive of the $1 billion that Loren mentioned from the pre-announced closures. We were negatively impacted by smart beta funds in key sectors of equity and fixed income which were impacted as investors looked to de-risk, but it was particularly focused on a few funds in U.S. large cap equities, bank loans, and emerging market fixed income. But we had several bright spots with commodities growing by $6 billion in the quarter and alternatives up a billion, led by our commodity and currency strategies. All of that said, net flows have improved significantly since the heightened market volatility at the back end of the quarter, and we’re seeing our U.S. range improve by around 75% on a net flow basis and we’ve turned positive in a few important categories in taxable and alternative suites, and earning signs of people returning to smart beta strategies. EMEA has remained strong, and we have continued in positive flow territory post the first quarter. With that, Marty, I’ll turn it back to you.

Thanks Andrew, and before we get to Q&A, let me just close out this section by saying we had a good quarter in what was an incredibly challenging macro environment. The key points to take away from the conversation we just had, investment performance in key areas continues to be aligned against where marked demand is and a strong investment performance supports us as we look forward. Total outflows of negative $ billion, an extremely challenging quarter really reflects our diverse platform, including long-term flow scenarios we consider strategic. Average assets under management remained flat to Q4 and since that time has gone up since March. Margins are 4% higher than the same period a year ago, reinforcing the power of the combination with Oppenheimer and the benefits of scale. Finally, we’re making prudent decisions around expenses and capital and liquidity, allowing us to build ample liquidity and financial flexibility to support our long-term growth. With that, why don’t we open up to Q&A.

Our first question comes from Dan Fannon with Jefferies. Your line is open.

Thanks, good morning. My first question is about the balance sheet and the dividend. Considering today's actions and recognizing that you’re establishing a solid foundation for the future, I’m curious about how this affects the institutional business. Clients evaluating your financial stability might be concerned regarding large mandates, especially in fixed income, as we recall from the financial crisis when this was crucial for securing or maintaining business. Can you discuss how clients are interacting with you regarding parent liquidity and balance sheet strength, and the potential implications for business trends moving forward?

Yes Dan, let me make a couple comments and then I’ll turn it over to Colin in particular. Look, the whole point is the balance sheet is strong. We’re taking proactive measures around the dividend in particular and then all the other actions that we talked about today as we focus on expenses in this uncertain environment, and freeing up capital from the seed capital. Again, our institutional business has never been stronger and it just continues to grow, so again these actions today, they’re just proactive. It’s just not been a topic for us at all, and what we do today will probably only strengthen that. Colin, anything you’d add to that?

No, I think you nailed it, Marty. Obviously institutional clients do care very much about the financial stability of the parent. It has not been a topic on clients’ minds up to now. I think they feel that Invesco is a very strong company and, to Marty’s point, I think we think that the actions that we’ve taken to date honestly reinforce that and would expect that our institutional clients would view it the same way.

I think the other thing, which is a really important point we’re trying to make, we’ve built scale in this organization. We came into 2020 with some of the highest EBITDA margins in the industry, so that puts you in a very different cash flow position than a number of your competitors. Again, that will all the other actions we’re taking, the company is very strong and, again, we’re just trying to be very prudent at this moment.

I understand. As a follow-up, regarding the $80 million in additional quarterly savings, it appears that some of this is related to ongoing business practices like reduced travel, as well as conditions in the market affecting assets under management. Could you elaborate on the distinction between permanent and temporary cost reductions, specifically if any of this relates to headcount or areas beyond just employees working from home and the impact of lower market conditions?

Yes, so let me start on that and then I’m going to turn it to Loren. We talked about really in the last quarter post-Oppenheimer, we already had turned our eyes to driving additional operating efficiency into the platform, and that is platform-type undertakings, so that’s where we get the additional scale. That slowed down, quite frankly, in this first quarter as we turned our attention to making sure that all our employees are safe, that they were able to work from home, that we could interface with our clients and serve our clients, so the immediate actions to do just what you’re talking about. The things that you should do in a crisis is hit the brakes, stop spending, and where you can stop spending, stop spending, always with an eye to making sure that you’re serving your clients, and that’s what we’ve done. We’re now at a place where we’re back to looking at going forward and building this program that we started, and that’s where you’re going to take the longer, more permanent types of expenses out of the organization. So back to the point - we know how to do it, we’re not just talking about it. We’ve proven it time and time again, and last year with the Oppenheimer combination, it’s just not an idea. We know how to do it and we have a proven track record of doing it. Loren, anything to add?

The only thing I would add is that no one is assuming everything will return to normal after the COVID situation. We are all learning how to operate differently, which affects our usual costs, particularly around travel. We have become very adept at using digital methods to interact with clients and manage our space, so there are various aspects we are examining and will continue to explore regarding our future operating model. Right now, we have definitely slowed down our spending. This situation feels very similar to how we managed during the financial crisis, and we can reflect on that experience. We have been careful about controlling expenses in areas where we can maintain oversight for a while. The larger opportunity, as Marty mentioned, lies in the structural possibilities related to technology and operating platforms, which we are already advancing in.

Yes, and I do want to reiterate Loren’s comment, and I tried to highlight that. The way that we’re operating, and I’m sure many organizations, it is absolutely going to change how we operate going forward, just how we operate the business. But really, the client interactions, they have never been more robust, more frequent, and more meaningful than this period that we’re in, and it’s good for our clients, it’s good for the organization, and it will just create a very different dynamic. The operating model and costs associated with it will definitely change going forward. Do we know what any of that looks like right now? No, we don’t, because frankly our heads have been down taking care of our clients and taking care of the business, but it is going to be a changed world, and I’d say for the better, frankly.

Got it, thank you.

Thanks Dan.

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

Hi, good morning. You cut the dividend by half, but it still seems like you’re taking a defensive position here given market conditions and outflows. You talk about the preservation of capital in the press release, you talked about not buying back stock this year. That sort of seems like the cut may have been a half measure. Why not consider dropping the preferred dividend for a number of quarters in order to strengthen the balance sheet, allow yourself to buy back stock, and really take advantage of the downturn in the market that we see?

Yes Ken, good question. Our decision to reduce our common dividend by 50% was done certainly with an understanding that the environment could weaken from here. It wasn’t necessarily our working assumption, but certainly we’re not thinking that we’re seeing a snap back going forward. But we don’t intend, and we certainly don’t intend to make another difficult decision like this again, and we do feel confident that this was the right action at the sufficient level to give us the flexibility that we desire to manage the balance sheet, even if the environment were to deteriorate from here, and we’ve stress tested this all which ways. I do think it’s important to note that while 2020 is emerging to be more challenging than we anticipated, we are still operating, as Marty mentioned, from a position of strength. This isn’t a reactive move driven by liquidity concerns at all. Instead, we are proactively addressing the opportunity that we have to improve our leverage profile and to maintain financial flexibility, which is going to be required to invest in client enhancing and growth capabilities going forward. We feel comfortable that this was absolutely enough, that what you were suggesting is not needed, and of course we looked at everything when we were setting this. It was not a decision taken casually, and there was a lot of stress testing involved.

Then I think you guys regularly disclose quarter to date net flows on these earnings conference calls. How do things look so far in 2Q for long term net sales?

Yes, I don’t think we typically have done that. We sort of stopped that practice a while back, Ken, so I think we’re going to continue to not do that, just because it’s still too short a time frame to really judge what is going on. I think obviously March was a horrible month. Things are better, clearly, in the way the market is evolving, but beyond that I don’t want to get into actual numbers.

Okay, great. Thank you very much.

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

Great, thanks. Good morning folks. Just a clarification, Loren, on a couple of the guidance points you made, just the absolute level of the fee ratio in 2Q, the down two basis points. Is that implying a little under 37 basis points - do I have that right, or is that a different number? And then the cost run rate, I think you said, if I’m not mistaken, $80 million lower than the $755, so the second quarter quarterly adjusted expense run rate should be about $675. Do I have those correct?

Yes, so on the latter one, yes, $675 is what we’re suggesting as the average run rate for the remainder of ’20, and so yes, we’re saying that in terms of the net revenue yield less performance fees, that we’d be suggesting two basis points off of where we ended in Q4. That is the guidance that we’re providing.

I’m sorry, could you clarify where you ended in Q4?

I’m sorry, for Q4, not where we ended. For the Q4 net revenue yield.

I’m just trying to get the actual level of the revenue yield that you’re talking about for 2Q on an ex-performance fee basis.

All right, so the actual quarter was 38.7 for the quarter, so we’re talking about two basis points less, so 36.7.

I just wanted to confirm that the figure is 36.7. It appears that there is strong sales momentum in both institutional and retail segments. Could you elaborate on the specific areas within the institutional side where you are noticing this sales momentum? Additionally, can you provide insights on the timing for the $31 billion to $32 billion pipeline that has not yet been funded? It seems that only a few billion from the solutions mandates are part of that $31 billion pipeline, so if you could discuss the sales momentum specifically for the institutional side, that would be helpful.

Colin, will you pick that up?

Sure, I'm happy to share. The momentum has been strong. As I mentioned earlier, the won but not funded pipeline is expanding. In fact, it has increased every quarter for the last five quarters, which shows our responsiveness to the needs of institutional clients and is evident in our wins. Generally, this pipeline will be mostly funded by the end of the year, typically taking about two to three quarters at any given time to fully fund. There may be some elements that taper off after that, but that's a reasonable expectation. Regarding product offerings, it will depend on client needs. We're noticing strong and ongoing momentum in our solutions and factors capabilities, as well as in alternatives, real estate, real assets, and various fixed income categories. This reflects the portfolio dynamics of institutional clients on a global scale.

Have you been able to create institutional products for the Oppenheimer funds yet or is that still a work in process, and what would be the timing of availability for those separate accounts?

It’s still a work in progress, but we are getting increased inquiry, particularly in the current environment. It’s not reflected enormously in the pipeline as we see it, but in the longer-term pipeline that we have that’s beyond won not funded, so these would be things that were more on the qualified side, we’re starting to see early interest.

In particular, where we’ve seen it so far is on the retail side of the platform. It’s global equity, emerging markets equity, and institutionally that is exactly what’s happening now, so those are the conversations that there’s a lot of interest.

I think particularly in Europe and Asia.

I was going to say, yes, on the CCABs and Luxembourg sales product, are you getting traction there on the Oppenheimer side in terms of demand?

There’s still strong interest. It hasn’t grown dramatically. We are still talking about a couple of hundred million in terms of AUM, but the interest is still there. The product is still considered very attractive. Obviously in the current environment, things slowed down, and that number is with all the market impacts.

Great, thank you.

I don’t know if you want to add anything.

No, I think you captured it. I think the interest is in the areas that you mentioned, and we’re seeing that interest continue to pick up, so I think we’re pretty excited about the longer-term opportunity or the intermediate-term opportunity for a lot of the products, that demand is strong and our performance in those products is incredibly strong.

Great, thank you.

Thanks Brian.

Thank you. Our next question comes from Bill Katz with Citigroup. Your line is open.

Okay, thank you very much for taking the questions. Appreciate some of the new disclosure in your supplement as well. First question, you had mentioned the targeted payout ratio of 40% to 60% for the dividend. Is that GAAP payout ratio or an adjusted payout ratio?

That’s based on adjusted, Bill.

Okay. Is that a forward 12-month type of dynamic?

That’s a forward 12-month type of dynamic - yes, absolutely.

Okay, then just turning to the fee rate for a moment, I appreciate some of the color from the conversation as well. Could you break down the net impact of volumes coming versus going out in both retail and fixed income, you know, setting market dynamics to the side because there seems to be a lot of different moving parts? Just trying to get a sense of how to think about the fee rate, other than your outside market moves.

There are many factors at play. We experienced significant inflows in money market, which typically comes with a lower fee rate of just over 10 basis points. Additionally, we funded a notable solutions win that also had a single-digit fee rate. We had some Qs coming in that do not contribute to fee revenue. It's challenging to break all of this down, which is why I provided guidance; it's difficult for anyone to fully grasp the overall impact. Plus, the market has been compressing some of the higher fee equity components within our portfolio. Therefore, the fee rate situation is complex, and it's challenging for me to make forecasts, which is why I usually avoid doing so. However, we wanted to give you a baseline of two basis points, which we believe reflects where you should be based on March.

Okay. Just one final one - thanks for taking all three of them this morning. In terms of looking at your balance sheet, debt went up, cash went down. How do we think about a targeted leverage ratio, whether it be a function of market cap or enterprise value, or maybe more focused in terms of debt to EBITDA? What’s a reasonable target and when do you think you can get there?

That's a great question. As I mentioned, we are not making any commitments regarding de-levering at this time. However, we are very confident in our ability to achieve the financial flexibility needed to do so. This could involve reducing our credit facility from $508 million to zero, addressing the remaining obligation on the forward purchase of $220 million by April, and managing the $600 million due in November 2022. Even in a very challenging scenario, we believe we could easily meet these obligations through our existing liquidity without needing to borrow more. Our focus is on maintaining the flexibility to de-lever as those deadlines approach, or possibly even sooner if we decide that is the best course of action. Currently, our debt to EBITDA ratio is higher than our preferred level. Ideally, we would like to see our ratio, taking into account only our long-term debt, move closer to the long-term target of between 1.25 times to 1 time. We are not too far from achieving that target, and we see opportunities to reduce it further as we move forward.

I think the main point that we’re trying to make today is just literally to create optionality, right, and it’s such an uncertain market and I don’t think any one of us has the answers as to what things will look like, but these steps again are very proactive. It just puts us in a much stronger position to navigate if markets start to recover, and that gives us the different options. That’s the main point.

Okay, thank you very much for taking all the questions this morning. Thank you.

Thanks Bill.

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

Hi guys, this is actually Shaun Kelley on for Mike. With the pullback in the seed capital, can you give us an update on the outlook for launching new strategies and products?

I will address this briefly, and then Marty, Greg, or others can chime in. We have been very focused on launching products that benefit our clients, especially in the area of ETFs. We’ve been fortunate to have our clients provide the seed capital, so we haven't needed to invest our own funds to launch these products, which is generally our preferred approach. However, this isn't feasible for all products; some alternative products require co-investment. As Marty mentioned, our partnership with MassMutual has really opened up opportunities, as they have stepped in to provide seed and co-investment for some of these launches, which alleviates the pressure on our balance sheet. Marty, would you like to add anything?

Why don’t I ask both Andrew and Colin to make a comment or two? Andrew, you want to start?

Yes, from a seeding perspective, the only thing I’d mention is the product line that we have across the ETF complex and the mutual fund complex, given all the work that we did over the course of the last year or two in consolidating acquisitions and right-sizing our product line, our seed capital needs in those areas are fairly limited at this point and, as Loren said, much of it coming from clients, where we do have launches on the drawing board for the ETF side.

Maybe Colin, you can provide your thoughts.

Sure. From an institutional standpoint, I think we feel quite comfortable with the support that we’ve received over the years from a seed capital standpoint, so I can’t think of anything that’s been slowed down, nor would I anticipate anything going forward. I might reinforce Marty’s point and Loren’s point, MassMutual has been a fantastic partner to us in the support that they’ve shown for a number of our strategies, particularly in alternatives. They’ve been just tremendous, and we would expect that relationship to continue to blossom going forward.

Okay, thanks. Then just going back to flows, are you starting to see any improvement in Asia, since they’re a little bit further along with dealing with the pandemic?

Yes. There was improvement in the quarter, and it just continues to accelerate at a retail level. The institutional engagements with the important clients out of there also continues to be quite strong. Again, that’s continuing as we move into this quarter. Maybe Greg, do you want to add anything from your perspective, because there’s a lot of demand from the fixed income group too over there.

No, I think you’ve got it covered, Marty.

So did I get your question?

Yes, I think I’ll just mention, I think Asia continues to be a positive contributor to flows. They’ve continued to, even in the height of this, produced positive long-term flows. There is nothing indicating that that’s slowing down. We’re still launching products, people still are interested in the products that are being launched, and it is broader than just China. I think Japan as well is beginning to show up as a potential contributor with opportunities around fixed income in particular.

Thank you. Our next question comes from Kenneth Lee with RBC Capital Markets. Your line is open.

Hi, good morning. Thanks for taking my question. I wanted to ask about the non-cash items included in your net income. What is your outlook on the company's ongoing free cash flow generation, and how might it change in the near term? Thank you.

Cash flow from operations is strong. Based on current levels as of March, we anticipate cash flow from operations will exceed $950 million to $1 billion going forward. Even under stressful scenarios, that figure remains stable, making it a significant contributor. Additionally, when you account for the non-cash elements added back to earnings, you reach those amounts. This illustrates the level of cash generation we are achieving from the business.

Great, and just one follow-up, if I may, just in terms of the MassMutual. Wonder if you could provide a little more detail in terms of that approval of capital for, I think you mentioned it was real estate or alternative strategies. What are the potential time frames that we could see some initial products, and perhaps you could better frame the opportunity you’re expecting there. Thanks.

Colin, could you take that, please?

Sure, happy to. I think as we mentioned earlier, MassMutual has contributed $425 million to two of our real estate strategies. The first is a non-traded REIT strategy, really targeted at the retail market. We’ll figure out the timing of when we would launch that strategy as the markets start to settle down in real estate, so you can get some sense of value and valuation. That was a key capital investment, and then they’ve also contributed an anchor LP position in one of our Asia real estate funds as well.

Great, thank you very much.

Thank you.

Thank you.

Thank you. Our next question comes from Robert Lee with KBW. Your line is open.

Great, thank you. Thanks for taking all the questions. Sorry to go back to the balance sheet questions, but just to clarify, Loren, should we be thinking in terms of use of cash over this year, obviously some liquidity, but that’s to kind of chip away at the revolver over the course of the year and then it kind of reloads first quarter of next year? Is that the right way to think about it?

In general, yes. I mean, this is obviously extraordinary times, and I think you’ve certainly seen other companies draw fully on their credit facilities just to get cash. That’s not what we’ve done, but I’d say the normal sequence would be, yes, there’s a normal draw that happens on the credit facility in the first quarter, and then we generally pay that down. I’d say that would be the right way to think about it, and the cash flow that we generate would allow us to do that, for sure, would allow us to pay down the credit facility, would allow us to, as I mentioned, fully pay back the forward commitments and still generate excess cash.

Okay, great. Then maybe as a follow-up, and I appreciate the disclosure on the pipeline and quantifying it, but give us a sense of if we look at that mix, I know there’s a lot of factor-based strategies there, how would the fee mix compare to the overall? Your overall fee rate, is it in line, a little lower? How should we be thinking of that, with that in the mix?

Yes, I want to make a comment. I’m not sure if we have that information, but as you know, Rob, I wouldn’t equate fee rate levels with fee rate profitability. The factor business has very high margins, and honestly, it's similar with the other specialty business. Loren, do you have an idea?

Yes, I think the pipeline has a fee rate, because of the growth in solutions, that’s just a handful of basis points below the firm’s aggregate fee rate, so it has come down a little bit, but it is still roughly in line with the firm’s overall metrics.

Okay, great. That was all I had, and everyone stay safe and healthy. Thank you.

Thank you Rob, appreciate it.

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

Good morning, this is Ryan Bailey on behalf of Alex. I actually had a question about the OFI MLP dynamic that was going on. I was wondering if of the $400 million accrual that you guys have taken, about how much of that you expect to recover, and then if you have any color on timing and whether the $400 million is the maximum we should be thinking about underwriting as an expense.

Yes, during the quarter, we reflected over $380 million through a purchase price adjustment, with a small portion going towards transaction integration. We believe the figure we've recorded on our balance sheet is accurate, although it remains an estimate that will be confirmed as we analyze client-specific impacts, which likely won’t be fully clear for several quarters, probably not until 2021. We expect to recover a significant portion, if not the entirety, of that amount. However, we still need to navigate insurance claims and the normal indemnification associated with acquiring the business. At this point, we don’t anticipate any major cash outflows related to this situation.

Got it, okay. Thank you. Then maybe just one more. Can you give us a reminder on any impact of fee waivers on the money market business as we roll through maybe another couple of months at lower yields on those products?

Yes, it’s an interesting dynamic. I’d say we’re fortunate in that the majority of our business is institutional money market business, which tends to be lower fee, so the topic of waiving is not nearly as relevant or impactful as it is if you had a large retail component. That said, I think as we move into 2020, there probably could be some amount of fee waiving that we’ll need to do in order to maintain a certain limited amount of yield on these products. I don’t think it’s going to be a material amount of money. It’s probably order of magnitude, and again these are sort of estimates a little bit, so it could be a little more than $10 million on an annualized basis. But we are still looking at those numbers right now, but as I said, it’s not that material for us given our mix of business.

Got it, thank you very much.

You got it.

Thank you. Our last question comes from Brennan Hawken with UBS. Your line is open.

Good morning. Thanks for taking my questions. Most of them have been answered. I guess number one, could you remind us of or maybe update us about any regulatory or other calls on cash and liquidity at this point?

I can confirm that the amount of cash we have within our European subgroup remains consistent with the past, approximately $700 million. There has been no change in that figure. As far as I know, there are no regulatory requirements for us to provide additional cash or capital. If you have a specific concern or question, please let me know. I'm not certain if I've fully addressed your question.

I was just curious if that number had changed or if there was anything we weren’t aware of. If you don’t have that information, then...

No, there is nothing else. It’s the same old thing.