MutualFundWire.com: Invesco's Flanagan Sees a Very Important Opportunity In Liquid Alts

MutualFundWire.com

The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication

Friday, October 31, 2014

Invesco's Flanagan Sees a Very Important Opportunity In Liquid Alts

Liquid alternatives are still top of mind for Invesco [profile] CEO Marty Flanagan, despite slower going with platforms.

Flanagan made that point yesterday morning on the Atlanta-based asset manager's third-quarter earnings call with analysts [see the Seeking Alpha transcript of the call]. Invesco reported adjusted, diluted earnings per share of $0.64, beating analysts' estimates of $0.62 (Seeking Alpha reports) despite operating revenues of $1.311 billion missing analysts' estimates by $20 million [see the earnings report].

Assets under management reached $789.6 billion on September 30, 2014 up 5.9 percent from the end of Q3 2013 but down 1.6 percent since the end of Q2 2014. Net inflows for Q3 2014 reached $2.0 billion, up from outflows of $8.8 billion in Q2 2014 but down from net inflows of $9.1 billion in Q3 2013.

In his opening remarks on the call, Flanagan told analysts that his team is "working very diligently" to gain "shelf space for [Invesco's] liquid alternative capabilities, which are gaining traction amongst advisers and platforms." Later, in response to a question from Sandler O'Neill analyst Michael Kim, Flanagan dug deeper into that push:

I do think we're, frankly, ahead of the market at the retail market with the range of alternative capabilities that we've had. People are very focused on it. But quite frankly, the update on the distribution platforms is probably slower than we would have thought. And it's just them getting their hands around their internal -- things that they need to work through. But we think it's a very important opportunity for us and our clients.

That opportunity, Invesco chief financial officer Loren Starr confirmed in response to a question from Jefferies analyst Dan Fannon, comes with the higher fee rate generally associated with "some of these alternative products."

To take advantage of Invesco's liquid alts opportunity, Flanagan said, "education is a really, really important part." He explained in response to a question from KBW analyst Robert Lee:

We have spent an enormous effort on education ... So we even have soft of an internal group that spends time with the distribution channel to help the -- all the advisers be successful with it. So we think education is a really, really important part. And that's why what I've been saying, it is an important opportunity but it's not a 2-, 3-quarter opportunity. It's going to be looking back for 3 years and see where it is in total. And also, and I say rightfully, the advisers or distribution partners, they are slow in putting capabilities on platforms because they want to get it right, too. And I think that's really important. That's good for everybody. You've got to get it right for the clients first. So I'd say it's progressing in a thoughtful manner.

As for alternative asset classes (as opposed to alternative strategies), Autonomous Research analyst Patrick Davitt asked about the deal, unveiled yesterday, whereby Invesco's PowerShares [profile] unit will take over the exchange-traded commodity funds it previously marketed and distributed in partnership with Deutsche Bank's DB Commodity Services [see the article that ran yesterday].

I mean, it's been a very, very good partnership. And what we're really doing is just changing some of the responsibilities ... They will continue to be a very important partner in the underlying indexes and the like. And we'll continue to work together for a good number of years.