Yahoo Finance

L. Allison Dukes

Thank you, Andrew, and good morning, everyone. I'll start on slide 8 with the strategic rationale and impact of the $1 billion repurchase of Invesco's preferred stock. We're very pleased that we were able to reach an agreement with MassMutual to repurchase 25% of the preferred stock which they hold. There are a number of advantages for Invesco in being able to repurchase the stock. We'll be funding the repurchase with committed floating rate three- and five-year bank term loans.
They have a rate in the 5.5% to 5.75% range based on SOFR today or an after-tax cost in the 4.2% to 4.4% range. This compares favorably to the fixed 5.9% dividend rate on the preferred stock, which is not tax deductible. We expect the transaction, both the repurchase and financing, will close in May. The transaction will be earnings accretive in the second half of this year, and the accretion will increase over time as we pay down the term loans.
Ultimately, once the loans are repaid, we expect the EPS accretion related to this transaction will reach $0.13 on a run rate basis. Based on our projected future cash flows, we expect to have the loans fully repaid by mid- to late 2029. We would also anticipate paying the loans off earlier, should cash flows provide the opportunity to do so. By repurchasing the preferred stock, we will save $59 million in annual preferred stock dividends that become earnings available to common shareholders. And while the initial annualized borrowing costs associated with the term loans will be in the $40 million to $45 million range after tax, this will decrease as the loans are paid down through future cash flows.
The terms and conditions are similar to our floating rate revolving credit facility, and they're prepayable at any stage with no make-whole fees. There are no principal payments required for the first three years. The five-year term loan does have a principal amortization feature in years four and five at 10% per year. Our balance sheet flexibility will be enhanced by the repurchase in the sense that we are pulling forward a $1 billion reduction in the preferred stock that is otherwise noncallable until May of 2040. This will enable us to further deleverage and increase balance sheet flexibility nearer term.
It's important to note that our capital deployment priorities remain intact. We anticipate ample cash flow capacity to repay the bank term loans and a $500 million senior note that matures in January of 2026 without restricting our current capital deployment priorities. These include continued investment in growth initiatives, regular share repurchases and modest dividend increases, as underscored by our announced common dividend increase today. We do expect that our cash and cash equivalents will remain near $1 billion going forward. It's also important to note that the repurchase agreement with MassMutual provides for discussions regarding future repurchases of the remaining $3 billion of preferred stock.
On the next slide, we show the expected progression of the EPS accretion through time that the term loans are repaid in 2029 and the expected run rate EPS accretion after the term loans are fully repaid. There is a 15% premium being paid to MassMutual to repurchase the $1 billion of preferred stock based on the present value of 5.9% dividend rate being eliminated 15 years ahead of the first call date. The premium will be included in our second quarter GAAP results, but it will not impact our adjusted operating results. We also show the expected impact that repurchase will have on our leverage ratios and the progression of our debt by maturity.
Looking at the leverage ratio, excluding the preferred stock, we do see a near-term increase in leverage from the term loans, but to a very manageable level near 1x, followed by significant improvement as we repay the loan. The change to the leverage ratio, including the preferred stock, is not as impacted near term as we are effectively replacing the preferred stock with the term loan. However, with this transaction, we're able to meaningfully improve our leverage profile over the next five years in a way we could otherwise not attain without the repurchase. The leverage ratio shown here are pro forma, assuming no change in EBITDA from what we are reporting as trailing four-quarter EBITDA for the first quarter of this year.
I'll move on to the first quarter financial results on slide 10. We continue to see strong growth in assets under management during the first half of the quarter before weaker markets set in during the second half of the quarter. Total AUM at the end of the quarter was $1.84 trillion, nearly flat to the end of the fourth quarter of '24 and $182 billion or 11% higher than the end of the first quarter of 2024. Average long-term assets under management were over $1.3 trillion, and increase of 1% over last quarter and 14% over the first quarter of last year. Growth in assets under management during the first quarter was mainly driven by net long-term inflows, net inflows into our QQQ ETF, net inflows into money market funds and positive FX impact.
The impact of market declines in the latter half of the first quarter offset this growth by quarter end.
Net long-term inflows drove an $18 billion increase in AUM during the quarter, representing an organic growth rate of over 5%. As Andrew noted, net inflows in our ETF and Index capabilities, excluding the QQQ, were over $16 billion. Fundamental Fixed Income contributed $8 billion of net inflows, and the China JV in India added $2.2 billion of net inflows. Net outflows of $7 billion in Fundamental Equities partially offset these inflows.
Net revenue, adjusted operating income and adjusted operating margin all improved from the first quarter of '24, while adjusted operating expenses continued to be well controlled. Adjusted diluted earnings per share increased by 33% to $0.44 for the first quarter versus prior year EPS of $0.33. We continue to strengthen the balance sheet during the first quarter, ending in a net debt position of $143 million, substantially better than the first quarter of 2024's net debt position of [$362 million], below historical seasonal levels.
We also continued share repurchases in the first quarter, buying back $25 million. We intend to continue repurchasing shares at a similar level on a regular basis going forward. Our Board also improved an increase in our quarterly common stock dividend from [$0.205] to $0.21 per share, reflective of our strong cash position and cash flow.
Moving to slide 11. As we've noted in prior calls, secular shifts and client demand have altered our asset mix and net revenue yields as our broad set of capabilities has allowed us to capture evolving client product preferences. This dynamic has been increasingly reflected in our results. Client demand has led to continued diversification of our portfolio, a trend we have seen for a number of years now. As a result, concentration risk and higher fee Fundamental Equities and Multi-Asset products has been reduced.
The firm is increasingly better positioned 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 ranged over the past five quarters. We note the net revenue yield drivers and where in the range the yields have trended more recently.
To provide context for the net revenue yield trend during the first quarter, our overall net revenue yield was 23.5 basis points, including the impact of two fewer days in the first quarter compared to the fourth quarter, which accounted for 0.5 basis point or [0.5] basis point of the decline. Excluding the day count impact, the net revenue yield declined 0.6 basis point compared to the fourth quarter yield of 24.6 basis points. The exit net revenue yield at the end of the first quarter was 23.8 basis points, only 0.2 basis points lower than the day count adjusted net revenue yield for the first quarter of 24 basis points.
Turning to slide 12. Net revenue of $1.1 billion in the first quarter was $55 million higher than the first quarter of last year, a 5% increase. Investment management fees were $59 million higher than last year. The increase was driven by higher average AUM, partially offset by the AUM mix shift previously noted. Higher performance and other fees were offset by lower service and distribution fees and higher third-party expense.
Operating expenses continue to be well managed, with total adjusted operating expense only $2 million higher or 0.3% from the first quarter of last year. Sequential quarter adjusted operating expenses were $8 million lower despite seasonal expenses and compensation due to payroll tax and other compensation-related expense resets that typically occur in the first quarter.
Declines in marketing, property, office and technology and G&A offset the increase in compensation expense on both a year-over-year and sequential [quarter] basis. We did have $7 million of nonrecurring expense benefits in the first quarter that mainly impacted G&A expenses.
Alpha platform implementation costs of $13 million were in line with our expectations for the first quarter and consistent with the $14 million incurred in the fourth quarter. We did move a small first wave of AUM on the Alpha platform in the fourth quarter of 2024. Fees paid on the assets under management that were transitioned over in the first wave were nominal expense-wise in the first quarter. As the implementation continues, we expect Alpha-related onetime implementation cost to be in the $10 million to $15 million range next quarter.
Regarding operating expenses for 2025, we're focused on disciplined expense management. Given the recent market volatility, it's become more difficult to provide specific guidance on operating expenses, but we're managing it carefully day by day. In terms of expense flexibility, without any management intervention, our expenses are approximately 25% variable. With management intervention, some of which can take several quarters to fully realize the variability increases to 30% to 35%.
First quarter year-over-year positive operating leverage was over 500 basis points, driving a $53 million or 18% increase in operating income and over a 330 basis point improvement in our operating margin to 31.5%. Effective tax rate was 24.4% in the first quarter. We estimate our non-GAAP effective tax rate will be between 25% to 26% for the second quarter of 2025, excluding any discrete items. A slight increase in the rate is driven by shift of income across tax jurisdictions. The actual effective rate can vary due to the impact of nonrecurring items on pretax income and discrete tax items.
I'll wrap up on slide 13. As I noted earlier, we continued to make progress on building balance sheet strength in the first quarter. We ended the quarter with a net debt position of $143 million, significantly better than the prior year first quarter net debt level of $362 million. We ended the first quarter with just $74 million drawn on our credit facility, substantially lower than what we have drawn historically, with the first quarter being a seasonally high cash usage quarter.
Our leverage ratios continued to show improvement versus a year ago, with the leverage ratio excluding the preferred stock at 0.3x versus 0.54x a year ago, and including the preferred going from 3.36x a year ago to 2.77x in the first quarter. We expect continued share repurchases, buying back $25 million or 1.5 million shares during the quarter. I'm sorry, we continued share repurchases, buying back $25 million, 1.5 million shares during the quarter. And as noted earlier, our Board approved an increase in our quarterly common stock dividend.
We intend to continue a regular share repurchase program going forward, and we expect our total payout ratio, including common dividends and share buybacks, will move closer to 60% in 2025 as we continually evaluate our capital return levels. 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. With that, I'll ask the operator to open up the line for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Alex Blostein, Goldman Sachs.

Alex Blostein

Congrats on the announcement this morning. So maybe starting with a strategic update, I would love to get your perspective on how you envision sort of the product and distribution opportunities developed with Barings and MassMutual. Is it more of a gradual product build, so it might take some time to scale? Or are there places where you guys could see more immediate impact on the business or either kind of a larger sub-advisory arrangement or something along those lines?

Andrew Schlossberg

It's Andrew. Let me take that one. The initial phases of this partnership are going to focus, as I mentioned, on areas of Private Credit. And we have a few capabilities mapped out that we intend to get to market in the next little while, but those need approvals, and we need to work through various details. But we see that first phase kind of happening relatively quickly.
And then we'll look at second and third phases over time as opportunities create themselves. We're really going to focus on these Private Credit opportunities in the US wealth management channel to start.

Alex Blostein

I got you. And then Allison, one for you on the prep, nice to see that done. So maybe just kind of a couple of comments on what ultimately got MassMutual over the hump to agree to this? And as you think about the remaining, I think, $3 billion, how are you guys thinking about opportunities to repurchase more?

L. Allison Dukes

Sure. Well, look, I think you can tell from the variety of announcements today and just the partnership we've had with MassMutual over these last six years, they're a good partner. And while we do have a contract with them and the preferred is noncallable for another 15 years, they also recognize and understand some of the challenges that the preferred has created in terms of the perception overall in just the coupon itself. And so they've been great partners as we continue to look for opportunities and alternatives to make some progress with the preferred and also even bringing this product partnership to bear through the relationship with Barings.
So I mean, it was really multifaceted. And I think a real testament to just the strength of the partnership and the commitment that we have to each other. As a reminder, they are an 18% common shareholder. So they're as invested as everybody else and really continuing to see the stock free rate, and we think this is a positive improvement.
In terms of opportunities we have around the remainder of the $3 billion, I think as we said, the repurchase agreement provides opportunities for us to continue to think about ways that we can reduce that in the future on terms that are mutually agreeable to both parties. The way we think about it, it's really going to depend on the nature of our cash flows. The opportunities we have with the free cash flow that we generate, the rate environment, which will be relevant to MassMutual and to ourselves. And really looking at what's the organic and inorganic opportunity set that's out there. I think, look, this is a really strong first step.
And we're all very optimistic that this provides opportunities for us to continue discussions in the future.

Andrew Schlossberg

Yes. And just one other thing I'd say is I don't want to have -- to get lost in this. The commitment from MassMutual to put up to $650 million of capital behind those initial couple of strategies that I mentioned in Phase 1 in this product partnership is not insignificant in helping us get to those US Wealth platforms more swiftly.

Alex Blostein

Yes. No, that's great. Congrats to everyone involved.

Operator

Craig Siegenthaler, Bank of America.

Craig Siegenthaler

My question is also on the MassMutual announcement relating to the Barings US Wealth partnership. I'm curious, could this potentially be a first step in an Invesco-Barings merger, especially given that your capabilities are complementary?

Andrew Schlossberg

We've got a lot to do as two individual companies. And I think we found this opportunity after discussing ways to get into the US wealth space more productively together and have our complementary capabilities in this particular space come together to put a couple of products to market. And so we're going to focus exclusively on that going forward.

Craig Siegenthaler

Thank you, Andrew. And then this past quarter, we saw EQH take a larger stake in AllianceBernstein, and we're watching MassMutual sell part of their preferred. I'm wondering, are there any limitations to them increasing their 18% common equity stake or voting interest and investment in the future?

L. Allison Dukes

There are some limitations. It's all filed in the shareholder agreement, which was initially filed with the closing of the Oppenheimer transaction back in 2019. I believe it limits them to 22.5%. There are a variety of kind of regulatory kind of considerations around that, why it's at that level. So there is some ceiling there in the shareholder agreement as it stands today.
I don't think anyone should view their agreement for us to repurchase $1 billion of the preferred as anything other than just continued progress on the partnership on all sides. Inclusive of, as Andrew said, the continued capital commitment on top of the $3 billion they've already committed and just their real willingness to continue to support Invesco's growth in a variety of facets.

Craig Siegenthaler

Thank you, Allison.

Operator

Mike Brown, Wells Fargo Securities.

Mike Brown

Sorry, can you hear me now?

Operator

Yes.

Mike Brown

Okay. Great. So on the partnership announcement, just given Invesco and Barings' current capabilities, can you just expand on that $650 million? How will that be used specifically? That's just to see the new fund vehicle?
Or is it also to kind of help add capabilities? For example, to maybe expand in the investment-grade private credit side a bit more? And then in terms of the vehicle, is -- just to clarify, is the plan to launch like an interval fund-type of structure with a public private sleeve and that would then be targeting the below accredited threshold?

Andrew Schlossberg

Yes. Let me try to address both questions. The initial seed capital is to launch and instigate the initial product or two that we'll bring to market exclusively. That's what it's meant to do. And just -- it's not new capabilities for either firm.
And just to clarify, the strengths of Barings and the things that we're going to use in these capabilities include specialty finance and special situations in the higher upper end parts of direct lending where we, Invesco, really aren't today. And it's going to complement where we are today, which is in distressed credit, lower, mid direct lending, bank loans, CLOs and real estate debt. So think of it truly as just complementary investment capabilities, seeded with this initial capital or instigated with this initial capital and brought into a multi-asset type solutions to the marketplace.
In terms of structures and the like, not something we can get into today. They're not -- these products aren't filed and things like that. But do think of them as vehicles that will be relevant, credible and easy to attain by the wealth management platforms that we serve today. And similar to strategies we have out there in market already in the real estate and alternative credit space.

Mike Brown

Okay. Great. And then, Allison, just on expenses, understanding the market volatility here makes it they're challenging to kind of forecast where that could be for the year. But maybe if we consider markets stay flattish from here, is that kind of a baseline? How should we think about what expenses could look like for the year?
Could they be kind of flattish year-over-year? Does that variable component give you the ability for them to actually be a bit lower year-over-year? Just -- some helpful thoughts -- some thoughts there would be helpful.

L. Allison Dukes

Yes. Maybe I'll take maybe a couple of component pieces just to think through all of that. I'd say compensation, of course, is the most variable component of our expense base as you think about the revenue environment. I think our compensation as a percentage of revenue has been running in that 43% to 44% range. That's probably a reasonable expectation of a range as I think about the revenue environment for this year if revenue were to stay flat.
So I think that gives you some sense around a pretty major element of our expense base. Alpha expenses, keep in mind, we are continuing to implement Alpha. And as I said, we expect implementation costs to continue to be in that $10 million to $15 million range. And so that's sort of with or without any improvement or deterioration in the revenue environment. We do intend to continue moving forward in the implementation of Alpha.
So that doesn't have a lot of variability to it.
Everything else, we're certainly looking at all of our expenses from a very disciplined perspective, as you would expect in this revenue environment. I mean, I want to be careful to read too much into three weeks of volatility, it's been three pretty volatile weeks. But it remains to be seen how things will unfold from here. Nonetheless, we're being very thoughtful about every element of discretionary expenses we have. And think about it from everything from travel and entertainment to just slowing down hiring, all the things we can do to just really slow the growth of our expense base.
So if revenues flat from here, could expenses be flat? It's not an unreasonable expectation, but we're going to be looking at everything we can do to continue to pull forward some of the transformational opportunities. We've done a lot of work, as you know, over the last few years on our simplification of our organization. We still -- we're working on that all the time. We came into this year continuing to make progress on that.
We're going to stay focused and execute and accelerate with speed wherever we can so we can continue to recognize some real disciplined expense management, which we think has really become a hallmark of our operating performance for a number of years now.

Operator

Dan Fannon, Jefferies.

Dan Fannon

Andrew, you talked about some of the trends in April. If you could talk more broadly, I think you mentioned China was positive. But as you think about other regions or client conversations in this type of market backdrop, how you're seeing things unfold and maybe also just from a backlog perspective, do you anticipate fundings to maybe be slowed as a result of all the uncertainty?

Andrew Schlossberg

Yes. Thanks, Dan. Look, we're three weeks into a relatively volatile month. And we're also three weeks away from releasing our April flows, and the facts, as you can imagine, continue to evolve. What I'd say thus far in April, though is that we've seen investors largely stay pretty well invested, but they are absolutely moving to a more defensive stance as it relates to their -- how they're deploying new capital as they're kind of rethinking asset allocations, but also trying to assess the market environment.
As I mentioned in my comments earlier, I mean, this is where the diversified nature of our business is really helpful. And it puts us in a position to navigate the current operating environment and capture flows as investors gain clarity. What I would say is that in the fixed income, the focus really has remained more on the shorter duration side. And with equity strategies in the US facing headwinds, what we are seeing is a broadening, and in many instances, a more positive investment flow environment in places like Europe and in Asia, which is going to be a helpful mitigant for some of those headwinds in the US that you can see on a daily basis.
[By sailing] institutional side of the business, we -- it remains pretty resilient and, frankly, pretty positive. We funded the key retirement mandate that I mentioned in the UK, but also seeing strength in our US retirement platform in places like stable value, and that resiliency and those commitments haven't changed.
And then I think China, what I'd say is that given that our business is a fully domestic to domestic business, as you know, and then we're in very strong position in that marketplace, a known brand. We've seen a lot of resiliency in the region with actually positive organic flow growth into April and in April, which is helping to offset some of the market declines. So it's a mixed bag. And we'll see when we release in a couple of weeks where the month shakes out.

Dan Fannon

Great. That's helpful. And then, Allison, just one more on expenses. You mentioned a onetime benefit of $7 million in G&A. Can you also remind us how much of the seasonal kind of comp was in the first quarter?
Just trying to get a sense of just the starting point of the jump-off point for 2Q.

L. Allison Dukes

Sure. On the second question, seasonal comp usually runs about $15 million higher in the first quarter. And then again, I think about that comp as a percentage of revenue guidance in that 43% to 44% context tends to run on the higher side with revenue down and of course, lowers revenue increases. On the $7 million onetime, yes, it's predominantly in G&A. There was some in property, office and technology too.
And so as you think about those two line items quarter-over-quarter, expect some increase just removing those one-timers as we roll into the second quarter.

Operator

Brian Bedell, Deutsche Bank.

Brian Bedell

Congrats also on the partnership with MassMutual and Barings. And maybe just on that, can you talk a little bit about the economic participation for Invesco? Is it simply a matter of the assets that you are managing in the partnership and you're getting your fees for that for the economics? Or are there other sharing arrangements? And do you expect your asset management participation to be commensurate with Barings, where -- might it skew one way or the other?
And I don't know if there's any guideposts of how large you think this could end up being over the next, say, couple of years? Maybe it's too early for that one.

Andrew Schlossberg

Yes. Thanks for the questions. The partnership is pretty straightforward, just to put a line under it. These are going to be Invesco products that we're going to bring to market into the US Wealth management channel, with parts of the assets managed by Barings and parts by Invesco, and we'll be sharing management fee revenues in an undisclosed way.
So we didn't disclose the terms of the arrangement. But Invesco is going to be the distributor. Invesco is going to be the product operator. We'll be compensated for that as well.
In terms of the growth, it's really too early to say. We think these are compelling -- it's going to be compelling offerings, private credit, broadly in an allocated way across all elements of the spectrum that I described before, inclusive of things like real estate debt. And being able to do that with all of the education that we have, all the boots on the ground we have around wealth management is going to be a nice complement to the offering we already have, and we think accelerate our brand in private markets in the wealth channel as well as the capabilities that we can put forward to those advisers who are looking for things like this. So we'll continue to update you as this develops over the next several quarters. But too early to describe how big this could be.

Brian Bedell

Yes. That's helpful. And then maybe just to go to the global landscape, your local profile globally, both in China and really, across the world. How are you seeing -- or I guess, are you seeing any substantial differences within those local regions, given the -- all of the tariff negotiations that are going on and any kind of sentiment globally towards investment products and investment in US products?

Andrew Schlossberg

Okay. Yes, thanks. Maybe just before we discuss how it's looking right now, just a reminder, $550 billion of our assets are held by clients outside of the United States, and that's evenly dispersed between Asia Pacific and EMEA. And as I mentioned, Asia Pacific has been a fast grower for Invesco in a really differentiated position because we're so local and because we've been so long term in those markets. And the capabilities that are being brought to those markets are both domestic and international capabilities.
And in EMEA, where we've been for a long, long time, has started to show some very good growth over the last few quarters from an asset flow perspective, strong investment performance and a similar sort of local profile that I was mentioning around Asia. So we're really well positioned in those places, and those businesses have been moving forward. So as the current market environment takes hold, that diversity is, I think, we think is really going to continue to pay off. And as people continue to invest internationally but also invest in their domestic markets, this will be good for the resiliency of Invesco.
As I mentioned on our April flows, it's still a little bit early to get a full picture of things. But we will -- I will say in the short run, the markets outside of the US in terms of asset flow and resiliency have been better than the flows in the United States. But there's just so many moving parts right now that it's hard to call things to trend.

Operator

Bill Katz, TD Cowen.

Bill Katz

Congrats on all the news today. Just maybe on the retirement market. Sort of curious, there's an increasing focus for that market to potentially have great allocation for alternatives. I was wondering if you could talk a little bit about how you're positioned, both maybe the opportunity set? Are there any threats to the extent that that would move forward and sort of see a pickup in all allocations?

Andrew Schlossberg

Yes. The retirement markets have been a focus for Invesco for a long time, and we're an investment only manager, meaning we don't record keep assets and we really are not a target date player, per se. So the opportunity is, I think they're endless really if and as alternatives in private markets can find their way into defined contribution plans in the US or around the world. We have active -- we have the active strategies to do that that are stood up.
The partnership today could present even more opportunities for us to create product for that market. And we're going to utilize the relationships we have with plan sponsors and consultants and record keepers and other inputs into that market to find a way to be a part of -- whether it's growth in target date for alternatives or some other vehicle types, we have all the requisite pieces to do it.
And I think that's not just a US phenomenon, that's a global phenomenon. And I think examples of -- that we talked about today of our growing retirement business in the United Kingdom or the advances were made in the United States or in the long run in Asia Pacific, if and as alternatives find their way into defined contribution, we'll be right there.

Bill Katz

Okay. And just as a follow-up, I think you mentioned in your prepared commentary and not surprising at the institutional, decision make has been pushed off a little bit. I was wondering in those conversations that you are having with them, are allocation dynamics shifting? And if so, where might they be shifting?

Andrew Schlossberg

Yes. I mean, it's really a bit early to say. I mean one of the key things is the fundings that we expected in April happened. And so they're not stopping their fundings. I think during periods like this we've seen in the past and conversations we're having, they tend to pause a little bit in thinking about their future asset allocations.
I think they're all trying to digest the same things we're all trying to digest. The conversations are really active. They're looking for consultation, and they're looking for partners that can bring a range of solutions to them, custom or otherwise. And that's generally what we're seeing in the market. It's too early to say exactly where they're placing bets because they're not making those changes.

Operator

Patrick Davitt, Autonomous Research.

Patrick Davitt

I have a follow-up to Brian's question. Chatter -- I think he was trying to get to this, but chatter about like large institutions pulling money from US institutions for either ESG or just anti-American sentiment. I think you guys actually won some of that money in motion, to your point earlier. So could you speak to what extent you are hearing any of those conversations, how non-US
investors are evaluating those issues? And to what extent you believe having that established local presence is enough to avoid being painted with the "US manager" tag?

Andrew Schlossberg

Yes. I mean, part of it, you mentioned in your answer, I mean, we're winning mandates. So we really haven't seen that. And I -- we haven't heard any of that sort of anti rhetoric. What I will say, though, is the broadening out of the markets and where people are looking at valuations in Europe or where they're looking at diversification into value or into domestic markets away from where money has predominantly just been very, very focused in the US
equity markets, large-cap growth. We're seeing people rethink those allocations. But we have not heard it's an anti movement. It's a broadening out of markets. That's -- to the point of our local presence in these local markets, we'll -- we should do just fine in terms of capturing some of that sentiment of flows trying to even out.
And frankly, it's a good thing for Invesco because we have such a diverse book of assets. I don't know if you'd add anything else?

L. Allison Dukes

I mean I think you've said it a few times, but I would just underscore our business in China, in particular, is a domestic to domestic business. And so we're very much viewed as a business that has started locally over 20 years ago has grown organically this whole time, and that's really a testament to, I think, where -- how our business has grown across all continents. While we happen to be headquartered in the US, our business is very local on a number of levels, and our clients see us that way. And we've got that broad set of diversified capabilities, and I think that's important as well as you think about some of the trends that are out there in the macro environment right now.

Andrew Schlossberg

Yes. I mean, seeing positive flows in that market in April is one good sign.

Patrick Davitt

Okay. Helpful. And obviously, you've been more focused on fixing the balance sheet, organic growth. But historically, big dislocations like this have opened up rare inorganic opportunities for asset managers. So could you update us on your willingness to do a larger transaction if something came up?
And if so, what would be at the top of your wish list for kind of a once-in-a-lifetime type deal?

L. Allison Dukes

Well, I think nothing's changed in terms of our perspective around that and the way we've entered it probably for a few quarters, even a few years now. I mean, we're always looking. And so I would say our willingness has not changed. One of the things we are always focused on is overlap with existing capabilities and really needing to make sure we're being thoughtful about where we've got capability gaps. We have been consistent in saying -- we probably don't have our suite of products that's fully built out as we would like in areas like private credit and infrastructure.
I think the partnership today is good progress towards actually starting to build that out in a slightly inorganic way. It's a mix of an organic and inorganic, I would say, opportunity as you think about how we can continue to fill those gaps in.
So I don't think anything has changed in our willingness. The announcements we made today in terms of the balance sheet are designed to give us additional capacity. By pulling forward the $1 billion that we otherwise could not have done anything about for 15 years, it gives us an opportunity to fully transition that away over the next few years. It gives us increased flexibility and opportunity in our balance sheet to do something larger and more substantial on the inorganic side. So I would say nothing's changed, if anything.
The announcements today underscore our forward focus on making sure we've got the opportunity to be opportunistic.

Andrew Schlossberg

In partnerships like the one we announced today, and we've talked about in previous quarters, we really like, and we're really excited about this with MassMutual and Barings. And the ability to do alliances and things like this like we've done in geographic markets around the world are great opportunities, and we're going to continue to be looking to advance those opportunities.

Operator

Ken Worthington, JPMorgan.

Ken Worthington

So maybe first, Allison, you mentioned in the prepared remarks, the ability to make expenses more variable if needed. Is this largely comp? And how far can you take it? And given that the market volatility or market levels have been more recent, but deeper correction, have you already started to take the steps to adjust to the more challenging environment?

L. Allison Dukes

Yes. Maybe kind of doubling back on that. So what we noted in the prepared remarks is that the variability in our expense base is there's no management intervention, it's about a 25% variable component. That's without us doing anything. And that primarily comes out of compensation.
There are some other elements of operating expenses that are variable in nature, but it is largely driven by compensation.
That's without any management intervention. When we start to actually take action, I think we can drive that to something that's more like 30% to 35%, as we noted. And yes, as I said earlier, we have already started to take action. There are things we can be doing immediately like slowing down hiring and slowing down some of our plans there, slowing down things like internal travel. We are focused on clients.
We're going to make sure we are putting that first in everything we do right now. But there are a number of other kind of discretionary decisions that get made every day that we can slow down to make sure we try to bend the curve on the expense base as meaningfully as possible and as quickly as possible in light of the volatility in the revenue line that we've seen just over the last few weeks.
But in addition to all of that, as I said earlier, we're going to stay focused on pulling forward some of the transformational opportunities that we have had underway for a number of years now. You've seen our expense base be very well managed over the last several years as we're constantly looking for opportunities to simplify our organization to create capacity, to reinvest that capacity, or perhaps in this environment, to delay reinvesting some of that capacity. And those are some of the ways in which we'll continue to manage the expense base.

Ken Worthington

Okay. On the wealth management side, with the announcement today, is what you plan to launch different from what you're seeing in the market already either by structure distribution or target customer? What we're seeing is maybe more success from the alternative managers sort of launching alternative products into the wealth management channel than traditional asset managers launching alternative product into the wealth channels. So if your products or focus is similar to what's already there, how do you frame what drives success for you when maybe some of your direct peers have not been as successful going along this path?

Andrew Schlossberg

Yes. I mean, look, Invesco is a private market player. I mean we have $130 billion in assets. We've been serving institutions for a long time. What we've done over the last few years is bring those capabilities into interval-type vehicles and leverage our very, very strong US
wealth management distribution relationships that we have. And we have been seeing success, in particular with our real estate debt strategy that we mentioned before, INCREF, working through those networks and channels. And we, going forward, expect to use capabilities like we described today with Invesco and Barings to bring similar type capabilities with all those same attributes of our distribution, our product structuring, all the education that we have and the success that we've started to build. And so we think those attributes differentiate managers that are going to win and those that aren't, going forward into the marketplace. And we think we have all those attributes, and we're going to continue to progress them.

Operator

Michael Cyprys, Morgan Stanley.

Michael Cyprys

Just wanted to dig in for a moment on the SMA platform. Sounds like you guys are having some good traction and success there. I think you mentioned $30 billion of assets, $25 billion -- 25% organic growth. Maybe just remind us how many strategies you guys offer in SMAs today, how you see that evolving? And if you could just talk about your ambitions how you think about meaningfully scaling these capabilities as you look out in the next couple of years?

Andrew Schlossberg

Yes. The growth there has been almost exclusively on fixed income, and it's actually one of the reasons we've been able to grow is that we're pretty differentiated in the fixed income space, in particular. There are several dozen strategies. They're placed on all the well-known platforms. A lot of that growth has been in short and intermediate duration.
Some taxable, mostly tax-free, but it's right in the sweet spot of growth for both SMAs as a vehicle into wealth, as well as fixed income being a little less represented by some of our competitors. And so that's where we've been able to pick up a lot of that growth, and we expect to continue.
On the equity side, we have several traditional fundamental equity strategies, but also tax optimized strategies that we brought to market on some unique indexes. So it's pretty well placed, but I think it's hitting the sweet spot of two big trends which are more income-oriented strategies and the SMA vehicle. It scales well with deep technology, and we've made those investments in those technology platforms. We already have all the requisite distribution, and we'll continue to kind of invest behind the operational elements of it so that we can get -- continue to get incremental margin and profit expansion too.

Michael Cyprys

Great. And then just a quick follow-up on the Alpha implementation. I think you mentioned also $10 million to $15 million range for the next quarter. Maybe you could just remind us how we should think about the cadence of that throughout the remainder of the year and into '26? And ultimately, how do we see the path of that and timing for that falling off?

L. Allison Dukes

Yes. So $10 million to $15 million is the implementation cost guidance. And in terms of timing of waves, as I noted, we moved to small wave over at the end of the fourth quarter. We are expecting to move a second wave of assets onto the platform sometime in the second half of the year. And then timing on additional waves would progress into -- late into 2026, it could even drag into that first quarter of '27.
So I think we're really looking at '27 before we actually start to see kind of the benefit of reducing some of the redundancies of systems that we currently run today.

Michael Cyprys

So that 10 to 15 continues till early '27, is that right? And then trails off pretty quickly after that?

L. Allison Dukes

That 10 to 15 we said was an expectation for this year for 2025 for that -- back in January, we gave the guidance of expected, the $15 million a quarter for this year. And reiterating that is a good guide for the second quarter. Beyond 2025, too hard to say, as you start to get waves behind you, the nature of the implementation changes. And so we'll update that guidance as we get later into this year.

Andrew Schlossberg

Cedric, we have time for one more question.

Operator

Benjamin Budish, Barclays Capital.

Benjamin Budish

Just one final follow-up perhaps on the Barings deal. Could you just maybe talk about the sort of distribution time line? You have the relationships already with a lot of the platforms, the wires, the RIAs. Once you sort of were able to file a registration statement, how long does it take to start getting the product available on the platform? When might we start to see some more meaningful inflows?
And could you maybe provide some color on the investment required here in terms of adviser education, placement fees, anything like that?

Andrew Schlossberg

Yes. Let me start on the back end. We have all of the -- we have everything built out in terms of the distribution, product structuring, distribution specialists, relationships. And so we're going to leverage off of that complete existing platform that we've developed with private market specialization. So that's -- those have already been made.
In terms of time lines, it's difficult to speculate, I'll say, quarters from now. We're also going to look at ways to enhance existing strategies that we have. So some could be sooner than others, but it's going to be -- I would think quarters is the best way for you to think about that. And we look forward to giving everybody an update on the next quarterly call.

Benjamin Budish

Great. And thanks again for squeezing me in.

Andrew Schlossberg

No problem. Okay. Well, thanks, everybody. And let me say in closing that we feel very well positioned to help clients navigate the impact of evolving market dynamics and the subsequent changes to their portfolios. As market sentiment has become more uncertain, it's important that we stay close with our clients.
And while we do think that uncertainty creates challenges over the short term, we do believe over the long term that client convictions will strengthen and should create opportunities in the future for greater scale, performance and improved profitability for Invesco. Given all the work we've done to strengthen our ability to anticipate, understand and meet evolving client needs, we are very excited for the future of Invesco. I want to thank everybody for joining our call today. Please reach out to our Investor Relations team for any additional questions. And we very much appreciate your interest in Invesco and look forward to speaking with you all again soon.

Operator

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