Thank you for holding. Welcome to Invesco's Second Quarter Earnings Conference Call. This call will last 1 hour to provide ample time for participants to ask questions. Please note that today's call is being recorded. Now, I will hand it over to Greg Ketron, Invesco's Head of Investor Relations. You may proceed.

All right. Thanks, Andrew, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address on the call. The press release and presentation are available on our website, invesco.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for the accuracy of our earnings teleconference transcripts provided by third parties, daily authorized webcasts are located on our website. Andrew Schlossberg, President and CEO; and Allison Dukes, Chief Financial Officer, will present our results this morning, and then we'll open up the call for questions. I'll now turn the call over to Andrew.

Thanks, Greg, and good morning to everybody. I'm pleased to be speaking with you today. I'll start, as I have for the last several quarters, on Slide 3, which covers our strategic initiatives and our performance drivers, as it is an important framing for the second quarter and for highlighting significant recent accomplishments. We remain focused on generating positive client outcomes, executing against our strategic priorities, and making meaningful progress in our efforts to improve operating leverage while strengthening our balance sheet. I'm appreciative of the hard work of my colleagues around the world as we continue to look across the organization to unlock value. Before we review the quarterly results, I'd like to take a moment to highlight significant examples of this progress over the past several months. First, I'd point to our partnership with MassMutual and Barings. During the quarter, we completed the repurchase of $1 billion of cured stock held by MassMutual, a significant step in reducing our preferred position and ultimately further strengthening our balance sheet flexibility. We also announced in June MassMutual's intention to invest $150 million into the Invesco Dynamic Credit Opportunity Fund. This is the first example of our intention to pay the private credit strength of Invesco in bank loans, CLOs, and distressed and lower middle-market direct lending with Barings asset-backed finance, higher market direct lending, and capital solutions capabilities. This also presents the first tranche of the broader prime market strategic product and distribution partnership with Barings that focuses on the U.S. wealth channel, and which MassMutual will intend to support with a total of $650 million of capital. We are very pleased with the pace at which the teams are working to advance following our partnership announcement just a few months back in April. As the private credit market continues to grow and diversify, we are committed to leveraging the existing strength of our $130 billion private markets platform, evolving our wealth management product offering to better meet client needs and partnering with complementary private market managers. There will be more to come on our expanded relationship with Barings, and we will continue to keep you updated. Also, during the second quarter, we announced a realignment with our Fundamental Equity platform and made changes to our developing markets, global, and international investment teams to better serve our clients' interests. This included consolidating capabilities under a single CIO for these particular asset classes and making portfolio management changes to our U.S.-based developing markets and aspects of our international and regional fundamental equity strategies. This is part of our ongoing efforts to strengthen our investment returns in this important area of the firm, elevate our top talent, and use our scale advantages to gain efficiencies. An additional milestone occurred last week when we announced the filing of a preliminary proxy statement with the intent of seeking the approval of QQQ beneficial owners to change the operational structure of the Qs so that its classification changes from a unit investment trust to an open-end fund ETF, the latter being how the vast majority of ETFs, including those offered by Invesco, operate. As you can imagine, given that this is still subject to approval, there is little we can say about this at this time, other than directing you to the as-filed preliminary proxy statement. That said, Allison will walk you through some of the potential impacts of the proposed changes later in her remarks. As mentioned, these and other examples demonstrate our determination to unlock value across the organization for the benefits of clients and shareholders, including looking at how we fundamentally operate, leaving no stone unturned or opportunity unexamined as we seek to improve client outcomes and our employee value proposition, generate operating leverage and profitability, and continue building a strong balance sheet and enhance our ability to return capital to shareholders. Let's pivot now to Slide 4 to talk about our second quarter business highlights. As we all experienced, the second quarter market volatility was pronounced. After a challenging start to the quarter, markets ended the period with strong momentum that has carried forward into July as the volatile start to the second quarter ultimately gave way to a global rebound for equities, while bond markets began to steady later in the quarter. Against this backdrop, once again, our diversified platform, global scale, and breadth of products were integral to sustaining long-term organic flow growth and resilience during the period. For the quarter, we generated $15.6 billion in net long-term asset inflows or a 4.7% annualized growth rate, and we hit a record of $2 trillion in assets under management at the end of the period. We also built on the momentum of our first quarter financial results. We continue to deliver profitable growth with adjusted operating income up 3% and operating margins expanding 30 basis points in the second quarter when compared to the same quarter last year. As Allison will discuss later, we've also continued to strengthen our balance sheet while returning capital to shareholders at the top end of our projected range. From a client sentiment, asset class, and geographic perspective, we continue to see a diverse range of flows with positive results in both active and passive institutional and retail and broad geographic strength, particularly within Asia Pacific and EMEA, which collectively accounts for 40% of our overall long-term client assets under management and generated $31 billion in our first half 2025 long-term net flows. From a more specific perspective, our global ETFs and index platform continued to produce strong results recording 10% annualized organic growth or $12.6 billion of long-term net inflows in the quarter. ETF growth in the U.S. market was augmented by another solid quarter in EMEA and Asia Pacific. Top net flowing products in the U.S. were led by Q2 QM with record inflows of $5.6 billion. The fund has now passed $50 billion in AUM after starting the year at $38 billion. Additionally, our factor suite drove significant net flows as precise investments became a more critical buying decision with our momentum and quality ETFs generating $4 billion of net inflows. We also continue to innovate in the ETF space during the quarter. We launched 4 new active ETFs in addition to the 3 launched last quarter, bringing our total to 31 active ETFs, including expanding our active use of ETFs to a total of 8 products, while we also extended our Smart Beta range of products in the EMEA region as well. Shifting to fundamental fixed income, overall, we garnered nearly $3 billion of net long-term inflows, strictly looking at our fundamental fixed income platform, but looking more broadly at the asset class across all of our capabilities, that number jumps to nearly $10 billion of inflows with the inclusion of our fixed income ETFs and our China-based assets. Fixed income is another area where you can see the strength of our geographic profile within EMEA and Asia Pacific driving significant flows in this asset class during the quarter. There was obvious caution around fixed income risk-taking as the quarter commenced, and this translated into some softening of U.S. demand, particularly for municipal bonds. However, institutional interest for investment-grade bonds continued with demand in EMEA driving our net inflows. We also saw the remaining $4 billion of the Peoples pension fixed income mandate in the United Kingdom Fund during the quarter. This is an important win as we continue to build Invesco's leadership in the retirement market in the U.K. and globally. Additionally, our wealth management SMA platform in the U.S. continued to help drive fixed income flows. Our entire SMA platform, which also includes a portion of equity assets, continued to capture market share and now stands at nearly $32 billion in AUM. We have one of the fastest-growing SMA offerings in the U.S. wealth management market with an annualized organic growth rate of 15%. Shifting to private markets, overall, our private real estate franchise recorded net inflows of just over $200 million, driven by continued strong inflows into INCRAFT, which is our real estate debt strategy targeting the wealth management channel. This saw its largest fundraising to date in June and where we continue to onboard new platforms and clients. Assets in this fund with leverage now totaled $3.5 billion in AUM after just 2 years in the market. Our performance in direct real estate was somewhat clouded by the planned wind-down of the St. James Place U.K. real estate portfolios. We were appointed earlier this year to take over management and wind down of these portfolios, which totaled $1.8 billion. St. James Place is a key U.K. client, both in real estate and beyond. Being selected for this mandate affirms our wider service and relationship with SJP. The associated outflow totaled $400 million this quarter. Overall, our real estate team remains well positioned in the institutional markets with $7 billion of dry powder to capitalize on emerging opportunities. Within our private credit franchise, we were in negative flows in the quarter, but this was driven exclusively by April risk-off sentiment in our market-leading bank loan ETFs and funds. However, as the quarter progressed and investor sentiment improved, so did net inflows in these products, which totaled $1 billion in aggregate from May and June and offset some of April's losses. Additionally, we saw good demand for CLOs. We closed a $500 million CLO at the end of June, and the pipeline remains strong going into the back half of the year. Moving to our China JV and India capability, where we saw further strengthening this quarter. We delivered $5.6 billion of net long-term inflows, led by fixed income and strong hybrid bond flows from Invesco Great Wall. Later in the quarter, these hybrid bond inflows were augmented with additional inflows into Fixed Income Plus, which is a more balanced strategy as risk appetite improved amid lower interest rates and an improving equity market. We reached a record high period ending AUM in our China JV of $105 billion, surpassing the previous record of $102 billion set over 3 years ago. While we launched 5 new products this quarter at Invesco Great Wall, our organic growth in this market continues to be driven by existing products, which is a good sign for the strength of the platform we have built. We are well positioned for the near- and long-term emerging trends in this market, and we should benefit from both the secular and now cyclical tailwinds developing. Turning to our multi-asset related capabilities, we saw net long-term inflows of $0.5 billion, driven by quantitative strategies. Finally, the relative pressure on fundamental equities was maintained as the secular shifting demand challenges to active equities continue, particularly among U.S. clients. Our results reflect that change albeit at a better rate than recent history, with overall net outflows of $3.6 billion for the quarter. Despite this, we have continued to see positive flows for fundamental equities coming from our clients in EMEA and Asia Pacific, specifically for global and regional equities. Headlined by our Global Equity Income Fund, which is managed out of the U.K., this fund posted record net inflows of $2.4 billion during the quarter, rapidly growing the fund's AUM to $17 billion, predominantly from clients in the Japanese market. Among retail active funds, this is the #1 ranked product in Japan on a flow basis and has a very favorable net revenue yield for Invesco. Offsetting this are continued fundamental equity outflows in the U.S. wealth management channel, particularly from our emerging markets fund. The aforementioned fundamental equity platform changes this past quarter further our focus on investment performance and risk management as we continue to identify areas of demand within fundamental equities and mitigate redemptions that are better than the market. Moving to Slide 5, which highlights the diversity of our business that I was referencing earlier, our geographic profile with $600 billion of our client assets coming from markets outside of America is a key Invesco differentiator and empowers organic growth in various operating environments like we are seeing today. Furthermore, our broad range of public and private market portfolios and our active, passive, and multi-asset range of capabilities provides the opportunity to capture reallocations occurring in client portfolios. The bottom line is that our diverse profile provides a more resilient asset flow, revenue, and profit growth profile. Moving on to Slide 6, which shows our overall investment performance relative to benchmarks and peers as well as our performance in key capabilities where information is readily comparable and more meaningful to driving results. Investment performance is key to winning and maintaining market share despite overall market demand. Achieving first quartile investment performance remains a top priority for us. Overall, half of our funds are performing in that top quartile compared to peers over a 3-year time horizon, with 46% reaching that bar on a 5-year basis. Of note, we saw significant improvement in some of our fundamental equity performance, which is reflected in our 1-year peer ranking. Further, over 2/3 of our AUM is beating its respective benchmarks over those measurement time periods. So with that, let me take a pause here and turn the call over to Allison to discuss this quarter's financial results, and I look forward to taking your questions.

Thank you, Andrew, and good morning, everyone. I'll start with the second quarter financial results on Slide 7. After a challenging start to the second quarter in April, we experienced strong growth in assets under management during the remainder of the quarter. We ended the second quarter at a record level for total AUM, slightly over $2 trillion. This was $157 million or 8% higher than the end of the first quarter and $286 million or 17% higher than the end of the second quarter of 2024. Average long-term assets under management were $1.34 trillion, an increase of 1% over last quarter and 12% over the second quarter of last year. The increase of only 1% in average AUM was driven by market weakness early in the quarter, with AUM growth rebounding in May and June. Growth in total assets under management during the quarter was mainly driven by market gains of $126 billion, of which $52 million was driven by the QQQ. ETF and index market gains were $41 billion and fundamental equity market gains were $26 billion. Net long-term inflows drove a $16 billion increase in AUM during the quarter, representing an annualized organic growth rate of nearly 5% for the quarter. As Andrew noted, net inflows in our ETF capability totaled $13 billion. The China JV in India added $6 billion of net inflows, and fundamental fixed income contributed $3 billion of debt inflows. Net outflows of $4 billion in fundamental equities and $2 billion in private markets partially offset the net inflows. Net revenues, adjusted operating income, and adjusted operating margin all improved from the second quarter of 2024, while operating expenses continued to be well controlled. Adjusted diluted earnings per share was $0.36 for the second quarter. We continue to strengthen the balance sheet during the second quarter, repurchasing the $1 billion of preferred stock held by MassMutual and funding the repurchase with $1 billion in bank term loans. We ended the quarter with no draws on our revolving credit facility. We also continued common share repurchases in the second quarter, buying back $25 million. Given our cash position as we begin the third quarter, we believe we may be in a position to begin repaying a portion of the term loan during the second half of the year. The magnitude of the potential reduction in the term loans will depend on the level of cash flow we generate for the remainder of this year. We also intend to continue purchasing common shares at a similar level on a regular basis going forward. Comparing the first 2 quarters of 2025 versus 2024 demonstrates the strong performance we have achieved year-to-date despite the market volatility in the first half of this year. Our annualized organic growth was 5%, with average AUM growing 15% and average long-term AUM growing 13%. Over this period compared to the same period last year, net revenues increased 3.5% and expenses increased less than 1%, driving positive operating leverage of 270 basis points and operating margin improvement of 190 basis points. Moving to Slide 8. The secular shift in client demand continued to impact our asset mix and net revenue yields, and our broad set of capabilities has allowed us to capture evolving client product reference systems. Client demand continues to drive diversification of our portfolio, a trend we've seen for a number of years now. As a result, concentration risk and higher fee fundamental equities and multi-asset products has been reduced, and our asset mix has a higher concentration of ETFs, index, and fundamental fixed income capabilities. The more balanced AUM profile better positions the firm to navigate various market cycles, events, and shifting client demand. Consistent with prior quarters, current net revenue yield trends are included on the slide. The ranges by capability are representative of where the net revenue yield has trended over the past 5 quarters. To provide context for the net revenue yield trend during the second quarter, our overall net revenue yield was 23.2 basis points. This is a smaller decline than in prior quarters and may be a sign that we're closer to reaching stabilization for an inflection point in the net revenue yield, but this will be dependent on the future direction of asset mix shift. The exit net revenue yield at the end of the second quarter was 23.2 basis points, in line with the adjusted net revenue yield for the quarter. As Andrew noted earlier, our subsidiary, Invesco Capital Management, LLC, announced the filing of a preliminary proxy statement with the intent of seeking approval of QQQ beneficial owners to change the operational structure of the QQQ so that its classification under the 1940 Act changes from a unit investment trust to an open-end fund ETF. Given that it is preliminary and the SEC will first need to approve this and then the shareholders also need to approve it, there is not much I can share other than to direct you to the proxy itself, which has all of the material information about what is being proposed. The vote will happen at the earliest in the fourth quarter, and if approval occurs, the changes will likely be implemented shortly thereafter. That said, we will say a few things that we think will be helpful for you all to provide context on what is being proposed and how it may differ from the current treatment of the QQQ. Currently, the QQQ fee structure is allocated as follows: of the 20 basis points, 8 basis points is for the licensing fee, 8 basis points is for marketing expenses, and 4 basis points of the trustee fee. The current benefit to Invesco is marketing, as the expenses to market the Invesco QQQ are reimbursed through the 8 basis point marketing fee. On Invesco's adjusted operating income statement, the marketing expenses are recognized in third-party distribution, service, and advisory expenses, and the reimbursement is recognized as service and distribution fees. So there is virtually no impact on net revenue or adjusted operating income. If the new structure is approved, the revised fee allocation would work similar to how we currently recognize fees on most of our ETFs. The 8 basis point fee would be recognized as investment management fees, approximately 14 basis points, which is principally the 8 basis points for the licensing fee, 3.5 basis points for administrative, custody, and transfer agency services, as well as marketing, which will be at our discretion, but at intended amounts and ranges that we have put in the proxy. Most other expenses of the fund would be recognized as third-party distribution, service, and advisory expenses, for licensing, custodian, and other expenses. As a result, and while we can't be precise, net revenues and adjusted operating income would benefit by approximately 4 basis points. Now turning to Slide 9, net revenue of $1.1 billion in the second quarter was $19 million higher versus the same quarter last year. Investment management fees were $35 million higher than last year, with the increase driven by higher average AUM and FX impact, partially offset by the AUM mix shift previously noted. Performance fees were $14 million lower than last year due to a smaller number of funds generating performance fees this year. Operating expenses continue to be well managed, with total adjusted operating expenses only $10 million higher or 1% from the second quarter of last year, driven by the impact of FX on our expense base. Adjusting for the impact of FX, operating expenses were flat year-over-year. Sequential quarter adjusted operating expenses were also impacted by FX, with the impact increasing operating expenses by $14 million on a sequential basis. Excluding this, operating expenses declined by $14 million. Regarding the overall foreign exchange impact on our operating income, it is negligible, as the FX impact on net revenue is mostly offset by its impact on operating expenses. Alpha platform implementation costs of $12 million were in line with our expectations for the second quarter and consistent with the $13 million incurred in the first quarter. We announced in May that Invesco has decided to adopt a hybrid solution by utilizing platforms from both State Street for equities and BlackRock, who we currently use for fixed income. The hybrid approach allows us to leverage the strength of each platform, optimizing outcomes for our clients and enhancing our operational capabilities. The hybrid approach provides for more certainty of execution while maintaining the same benefits of the single provider approach, leveraging the best-of-breed platforms for both equities and fixed income. With this high approach, we expect to be complete with the implementation by the end of 2026. Regarding implementation costs going forward, we expect one-time implementation costs to be in the $15 million to $20 million range for the third quarter as we expect a higher level of implementation activity related to preparing to transition more AUM onto the platform. We then expect implementation costs to return to the $10 million to $15 million range for the fourth quarter of 2025. This may fluctuate to a degree due to timing as AUM has moved onto the platform while we work towards completion by the end of 2026. We'll provide further updates as the implementation progresses. Second quarter over year positive operating leverage was 40 basis points, driving a $9 million or nearly a 3% increase in operating income and a 30 basis point improvement in our operating margin to 31.2%. The effective tax rate was 26.5% in the second quarter versus 24.4% in the first quarter, with the increase primarily due to discrete tax items and a change in the mix of income across tax jurisdictions. We estimate our non-GAAP effective tax rate will be closer to 26% for the third quarter of '25, excluding any discrete items. The increase in the rate is driven by a shift of income across tax jurisdictions. The actual effect of rates can vary due to the impact of nonrecurring items on pretax income and discrete tax items. I'll wrap up on Slide 10. As I noted earlier, we continue to make significant progress on building balance sheet strength. The $1 billion repurchase of preferred stock held by MassMutual, funded by bank term loans, was completed on May 16. The full impact of the reduction in the preferred dividend will be realized in the third quarter, and the go-forward run will be $44.4 million per quarter, a reduction of $14.8 million per quarter that becomes earnings available to common shareholders. We ended the quarter with no draws on our revolving credit facility. Regarding the revolving credit facilities, we renewed and extended the facility in May, concurrent with the bank term loan funding. We increased our borrowing capacity through the revolver from $2 billion to $2.5 billion for the next 5 years. As I noted earlier, given our cash position as we begin the third quarter, we believe we may be in a position to begin repaying a portion of the term loans during the second half of this year. The magnitude of the potential reduction in the term loans will depend on the level of cash flow that we generate for the remainder of this year. We also continued common share repurchases in the second quarter, buying back $25 million or 1.7 million shares during this. We intend to continue a regular common share repurchase program going forward, and we expect our total payout ratio, including dividends and share buybacks, to be near 60% from 2025 as we continually evaluate our capital return levels. Given the repurchase of the preferred stock funded with the term loan, we will see some divergence in our leverage ratios, depending on whether the preferred stock is included or not. Excluding the preferred stock, the leverage ratio increased to a still very manageable level of 0.83x, with $1 billion in term loans now included in the ratio. Going forward, we expect this ratio to improve as we repay the loan. The leverage ratio, including the preferred stock, continued to show improvement, declining to 2.7x from 3.0x a year ago. The ratio was not as impacted by the transaction as we simply replaced the repurchased preferred stock with term loans, giving us the flexibility to substantially improve this ratio going forward as we repay the loan. To conclude, the resiliency and strength of our firm's net flow performance is evident again this quarter, and we continue to make significant progress on building a stronger balance sheet, enhanced further by the $1 billion repurchase of the preferred stock. We remain committed to driving profitable growth, a high level of financial performance, and enhancing the return of capital to shareholders. And with that, we'll end and open up for Q&A.

Our first question comes from Bill Katz with TD Cowen.

Maybe picking up on the QQQs. Just a couple of questions that were embedded in my first question. Maybe why now? Obviously, it's been around for quite a while. It looks like the marketing spend is going to be down versus the prior payout. So how do you think about flows on the other side? And then maybe the biggest part of the question for me is the 4 basis about what we figured out as well. How do we think about the incremental margin? In other words, would you look to let that all drop to the bottom line? Or would you look to spend some of that back for growth? And could you quantify what that might look like?

Let me start and Allison will pick up. Let me start with the why now question. Look, as I said in my opening remarks, the management team, we're looking across the entire business, looking for ways to enhance outcomes for our clients and enhance outcomes for shareholders. I think this is another area we looked at. We routinely examine our fund lineup, looking for ways to enhance the outcomes and remaining confident that the structure of the strategies we have are both efficient and responsive to evolving client needs and market conditions. As you know, the Q Unit Trust was launched in 1999. A lot has changed since then, and we felt like it was the right time to put forward this proposal to modernize the structure. And I'll let Allison pick up on the back-end parts of your questions.

Bill, I think as it relates to marketing, again, we’re going to point you to the proxy probably over and over again. But as the proxy states, we currently anticipate a marketing budget for the trust of $60 million to $100 million. So right now, that would translate to 2 to 3 basis points of annual assets. That is at our discretion, as I noted. It is really a result of significant levels of marketing expenditure for the Q over the years that have created strong brand awareness for the trust. As it relates to the net approximately 4 basis points, as I said in my comments, we would expect that to add 4 basis points to net revenue and to operating income. We don't expect any additional operating expenses associated with this conversion if the proposal is approved.

The next question comes from Glenn Shorr with Evercore.

Maybe I'll just pick up on where we left off there. So you've been improving margins in the balance sheet and delevering. I heard a lot of comments throughout the call on potential more delevering. So I just want to push a little bit and ask how much can this incremental revenue go towards growth because I see great diversification across product and geography, but I think there's a lot more to do in private markets. You have amazing distribution. So how do you balance the whole delevering combination that clearly shareholders keep asking you for with driving growth, which I want to keep asking you for?

Completely fair question, good question and exactly what we challenge ourselves with all the time. We want both. We want growth and we want to delever. We don't think it's a binary choice. So much of our focus is on improving our operating cash flow so that we provide that optionality for ourselves. I think we've made significant parts just in the announcement last quarter around the repurchase of $1 billion of preferred stock, changing that structure. As we said last quarter, the nature of that transaction does provide a pathway for conversations to do more in the future. However, we are not exclusively focused on delevering to the expense of growth. We continue to be extremely focused on growing a broad set of capabilities, namely private market capabilities through both organic growth and acquisitions. We continue to remain open to that. We think we've got good organic growth capabilities. We have been investing heavily in ourselves over the last few years, launching many new products, a number of which we highlighted today. You can see the success of that in our organic growth rate. Our organic growth, I dare say, is among the very best in our peer group, and we've really demonstrated broad growth potential; we think we have more to come. That said, we are not exclusively focused on organic growth; we continue to remain open to inorganic opportunities as well.

Yes. And Glenn, I'd add that in addition to private markets, investing behind the ETF business, particularly the active ETFs, and the growth of SMAs and models that we’re seeing, we want to accelerate that pace. We are looking at creative solutions, not just here in the U.S., but we want to continue to take advantage of our competitive edge in Europe and also very much in Asia Pacific.

Now the next question comes from Alex Blostein with Goldman Sachs.

Another one around the Qs, and I appreciate you guys might be limited relative to what's in a proxy, but I'm curious how you’re thinking about the licensing fee of 8 basis points relative to other rates that are out there in the market, how durable do you think that's going to be? Ultimately, do you see room for that to be negotiated lower at some point in time in the future?

Yes. I mean, look, we're really limited to what's in the proxy. But I'll say our principal partners on the fund are two outstanding partners. As was outlined, things remain the way that proposed is the way that it’s currently set up. We don’t really have much more to add there other than they are great partners.

The next question comes from Patrick Davitt with Autonomous Research.

One more I'll try on the Qs. There's been some reporting that the, I guess, roadblock to doing this in the past was a view that it was too tough to round up a quorum for the vote. Do you now think it would be easier to get that quorum for some reason? I'll leave it there and then ask my follow-up now.

I don't know that we can speculate on that one way or the other. I'm not sure there's much we can say there. I'm not sure that that’s exactly why maybe it hasn't been done in the past, but I don’t think we can speculate on the degree of difficulty. I'll point you back to the proxy and a lot of strong detail and statements around the path forward.

Yes. Okay. As a follow-up, will you now be able to also generate SEC lending revenue on top of that net 4 bps?

As it states in the practice, there is that opportunity. I will tell you the magnitude of that, I think, is going to be relatively small. That was not the primary motivation behind this at all. It's really to modernize the structure. I think it's going to be relatively immaterial for us. So I wouldn't put too much emphasis there. It’s really coming back to what that net revenue improvement is consistent with the approximately 4 basis points that we noted, recognizing there are some of those net expenses that are discretionary, and it is at our discretion.

Our next question comes from Benjamin Budish with Barclays Capital.

Maybe following up on some of your earlier comments on M&A. Just curious how you think about the missing pieces in the private market suite and how you think about your capacity? I think there's a view that to sort of achieve scale quickly, it requires maybe a bigger check. So how are you thinking about what may be missing? How quickly could you scale up some of those capabilities in the near term?

Yes. So thanks for the question. Maybe let me go back to the platform we have today just for a moment. With $130 billion in assets under management in private markets and a robust real estate franchise and alternative credit franchise, we have a lot to build from. We also have tremendous top-tier strength in places like U.S. Wealth Management, where a fair amount of private market growth we think will come both in retail and also eventually in retirement. For us, looking for things that we can do to be additive to that and to complement those capabilities is what's on our mind, and the partnership route is a fantastic route for us. You should look at the Barings and MassMutual announcement from last quarter that we followed through with and the things we've done in the last few months as a good illustration of where we think we can see growth in partnerships. We'll continue to keep our eyes and ears open to other M&A opportunities, but the bar to clear for doing acquisitions in that space will continue to be very high, and our focus on partnerships as a way to grow is going to remain priority number one. Those won't be just here in the U.S., but opportunities to do the same in other markets around the world to expand the capabilities that we can bring to clients. We've been investing over the last couple of years, not just in our own product capabilities but also in our specialized distribution capabilities and some of our operational practices that will help us add more private markets to the firm and really scale it in a way that can be profitable to shareholders too.

And our next question comes from Brian Bedell with Deutsche Bank.

Great. I have a brief question regarding the Triple Qs. Just to clarify, do the licensing expense to NASDAQ and the administrative expenses to Bank of New York both fall under the third-party distribution and servicing expense line?

Correct. The basis points that we noted, which would be to both NASDAQ and then the custodian fees to the Bank of New York, plus the discretionary marketing expense, which totaled to approximately 14 basis points, that would all be included in third-party distribution, service, and advisory expense.

Okay. That does include the marketing as well. So the 14 basis points. So then your net revenue yield is a clean 4 bps, depending on where you choose to do in the marketing, I guess.

That's correct.

Okay. Got it. And then the longer-term question is just on the 401(k) market and the potential adoption of private markets products. Maybe if you can talk about how you view your position there? What is your strategy? And I guess, just some thoughts on timing. There's a lot of, obviously, different viewpoints on what extent other things have to happen to get plan sponsors to be more comfortable with these products. Maybe just your views on that.

Yes. Maybe I'll start with the caveat that there are a lot of regulatory and litigation relief issues that I think would need to happen in order to accelerate the retirement market for private markets in the U.S. So with that, assuming those things could move forward and we see some relief, we think there's good promise for private markets in defined contribution plans. You know all the capabilities I mentioned them before and our ability to structure it. The other thing that we have is a trust company and collective trust being a really good wrapper, so to speak, to bring private markets to plan sponsors and clients. We've had several of those conversations. We look forward to moving some of those opportunities forward. We also think that private market solutions in larger target date, target risk, or other multi-asset strategies may be employing public and private together could be of great interest in the defined contribution space. We have all of those component parts. Our ability to meet that market demand will happen as the market progresses. I think it takes some time. But over time, you certainly could see this be an important part of DC plans just like it's been important in defined benefit plans.

The next question comes from Michael Cyprys with Morgan Stanley.

It's great to see the number of steps you guys have taken over the last couple of quarters to unlock meaningful value. Just curious, as you look at the firm today, what other stones might you be able to turn over? Curious where you might find incremental meaningful opportunities. Is there anything left on the revenue side? Is it more on the expense side or capital allocation from here? Just curious how you're thinking about that and to what extent some additional opportunities might be over time?

Yes. I'll start on the revenue side, and we were talking about it before. We want to enhance revenue and grow revenue at a faster clip than we're doing it today. Part of that are areas I mentioned before, where we see real growth opportunity: ETFs and SMAs, private markets, all will be revenue and ultimately profit enhancing. There’s also our need to retain better in the fundamental equity space, and we're doing a lot around that. The retention of those assets and the growth where there is demand will have a meaningful impact on our revenue picture, and it's a place where we’re significantly focused as a company. Allison, why don't you pick up from there?

Yes. I would say we think there's more opportunity on all of them, Mike—revenue, expense, and capital allocation. We, by no means, feel like we've just achieved. We're just really, I think, starting to hit our stride and we see opportunities. Obviously, that revenue opportunity that Andrew has already mentioned, on the expense side, I think we’ve demonstrated strong expense management and just a very controlled expense base for a number of years now even while we've been incurring pretty significant costs for the implementation of Alpha and now our hybrid approach with both Alpha and Aladdin. As I noted, we do continue to see and expect pretty significant implementation costs for the back half of this year, but that's all within the context of a well-managed expense base. I’m extremely optimistic that we will continue to see operating income improvement. We’ve really got positive operating leverage as we sit here today. We're focused very much so on organic fee rate growth, and that means we have to contend with some of these headwinds on the fundamental equity side and earn through that. That’s our focus day to day. In doing that, we create that positive operating leverage with a well-controlled expense base. As we noted, we think the implementation of the hybrid approach will conclude at the end of '26, and we feel good about our ability to continue to make progress in moving waves of AUM onto the platform. The higher implementation expense this quarter is associated with another wave of AUM that we anticipate moving toward the end of the quarter. So I think as we're able to do all of this, we reallocate our expense base, and we continue to find opportunity to shrink the expense base and create scale. Our focus is on scale. With $2 trillion in AUM and a lot of the moves we've made, we're starting to really see the benefits of that scale dropping to the bottom line. Last, on capital allocation, we’re not exclusively focused on debt repayment and delevering, but we do think it's an important part of the story over the next few years. We anticipate making continued progress. We’ve created a number of avenues for ourselves, especially with the upside of the revolver to $2.5 billion; it gives us the potential to use that in a way that we can delever in a more flexible manner without the fixed rate and rather fixed non-callable debt. As we do that, if both in the bottom line, it gives us additional operating cash flow that we can use to redeploy into areas of breadth. It’s the flywheel that we’re focused on. We see multiple opportunities ahead.

I mean the company is very much positioned to play offense. On Allison's last point, we've created a lot more flexibility in our ability to deploy capital.

Our last question for today comes from Ken Worthington with JPMorgan.

So first, you're a big cash manager through money funds and stable value. There's been a lot of talk about digital dollars, including stable coins and digital money market funds. Do you think digital dollars change cash management? How might Invesco fit into cash management in an increasingly digital dollar world?

Yes, thanks for the question. You're right. We're a big cash player, a big money market player, a big short-term fixed income and stable value manager. I think we’ve also proven to be a good innovator. So we're looking at many of the things you mentioned, getting to a place where there could be a tokenized money market fund, for example, or other kind of single assets around the payment stream and the cash management are very much on our operating agenda. But there's a lot that needs to happen for that to occur. We’re very focused on keeping pace in the digital asset space.

Okay. Great. And then just a little one. It looks like compensation fell quite a bit in the China JV this quarter. What happened there? And is this the good run rate, or was 2Q more of a one-off?

Yes. Thanks for the question. A couple of things I'd point to. You'll see relative to last year, revenue in the China JV was a little bit lower compared to the second quarter last year. That's largely driven by performance fees. You’ll note our overall performance fees were lower than last year. Historically, a significant level of performance fees have come from China. Given some regulatory changes there, our ability to earn performance fees is probably a little bit lower going forward than it has been in the past. You saw that come through in the quarter. As they have changed some of the regulation around what is required to earn a performance fee—namely, a client or an investor redemption or the closing of a fund. As we see that activity a little bit lower, that has correlated impact on compensation. There were also some discrete items within the compensation line or just that overall expense line item that we saw this quarter. So margins are a little bit elevated and maybe a little bit elevated next quarter. But longer term, I do expect our China JV operating margins would continue to be in that—overall.

And back to you, Mr. Schlossberg.

Okay. Well, thank you very much. In closing, we are well-positioned to help clients navigate the impact of evolving market dynamics and subsequent changes to their portfolios. When market sentiment becomes uncertain, we stay even closer to our clients. Uncertainty may sometimes create challenges over the short term, but we absolutely believe that over the long term, client convictions will strengthen, which creates opportunities in the future for greater scale, performance, and improved profitability for Invesco. Given all the work we have done to strengthen our ability to anticipate, understand, and meet evolving client needs, I'm very excited for the future of Invesco. Thanks, everybody, for joining the call today. Please reach out to our Investor Relations team with any additional questions. We certainly appreciate your interest in Invesco and look forward to speaking with you all again soon.

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