景顺 (IVZ) 2026年第三季度业绩电话会议：资产管理规模突破2.5万亿美元，利润率达40.7%

核心要点

• 景顺（Invesco）在2026年第三季度录得351亿美元的长期资金净流入，折合年化有机增长率为6.3%，创下连续第13个季度实现净流入的记录。
• 尽管受到260亿美元市场不利因素的影响，季度末资产管理规模仍突破2.5万亿美元，环比增长近3%，同比增长19%。
• 调整后营业收入环比增长近13%，达到5.62亿美元。调整后营业利润率达到40.7%，环比上升320个基点，同比上升650个基点。
• 调整后摊薄每股收益（EPS）从2026年第二季度的0.71美元和2025年第三季度的0.61美元增至0.72美元。
• 景顺同意从万通人寿（MassMutual）额外回购15亿美元的优先股，使自2025年5月以来的优先股回购总额达到30亿美元，剩余未回购余额为10亿美元。
• 管理层预计，在市场持平的假设下，2026年第四季度调整后营业费用为8.3亿至8.4亿美元，并预计全年薪酬占营收比重约为39%至40%。

核心财务数据

业务与运营业绩

ETF与指数策略引领有机增长

ETF及指数资产管理规模达到创纪录的7750亿美元。该业务吸引了近290亿美元的净流入，相当于15%的年化有机增长率。其中有14只ETF各自创造了超过5亿美元的季度净流入。

欧洲、中东和非洲地区（EMEA）贡献了近一半的ETF净流入，并录得26%的年化有机增长。景顺在EMEA地区的ETF资产管理规模达到近2400亿美元（包含QQQ）。

QQQ吸引了近70亿美元的净流入。在包括QQQM在内的更广泛的全球QQQ产品线中，净流入总计达160亿美元。景顺本季度还推出了7款定向ETF产品，其中包括5款主动型ETF。其主动型ETF平台通过近50款产品管理着300亿美元资产。

广泛的区域增长

EMEA地区和亚太地区的年化有机增长率分别达到近16%和11%。EMEA总资产管理规模约为4200亿美元，同比增长约25%；在季度净流入近90亿美元后，亚太地区资产管理规模达到3750亿美元。

合资公司景顺长城季度末资产管理规模创下1660亿美元的新高。在机构对债券策略需求的推动下，该合资公司录得15亿美元的净流入，即5%的年化有机增长。管理层指出，股票仅占该合资公司资产管理规模的15%左右，而其ETF业务已增长至约150亿美元。

基本面股票策略改善，固定收益表现参差

基本面股票策略录得15亿美元净流出，流出幅度显著放缓，同时总销售额连续另一个季度保持强劲。全球股票收益基金吸引了超过40亿美元资金，资产管理规模增长至300亿美元以上。美国中小盘价值基金带来了近10亿美元的净流入。

基本面固定收益策略净流出26亿美元，主要是由于若干机构客户对稳定价值和低费率投资级指数全权委托账户进行了资产重组。在景顺管理的所有固定收益产品（包括ETF和中国合资公司）中，净流入为13亿美元。

单独管理账户（SMA）平台资产管理规模达到近410亿美元，录得11%的年化有机增长。

私募市场与多资产策略

私募市场录得4.0亿美元资金净流出。对CLO产品的需求被美国银行贷款ETF近7.0亿美元的资金流出所抵消。景顺面向美国财富客户的房地产债权基金INCREF吸引了5.0亿美元资金流入，含杠杆在内的资产规模达到70亿美元。

在系统化股票以及所有三个地区需求的支撑下，多资产策略吸引了超过30亿美元的资金。模型投资组合资产规模突破200亿美元。

投资业绩

景顺报告称，按三年期计算，有47%的主动型基金排名跻身同类前25%（首四分位数）；按五年期计算，这一比例达58%。在这两个时期内，约70%的主动资产管理规模跑赢了业绩基准。

在基本面股票策略中，按五年期计算，40%的基金排名跻身同类前25%，近半数跑赢业绩基准。在基本面固定收益策略中，五年期排名同类前25%的基金比例升至45%。

管理层业绩指引

• 管理层预计，在市场持平的假设下，2026年第四季度调整后营业费用为8.3亿至8.4亿美元。
• 第四季度物业、办公及技术费用预计为1.20亿至1.25亿美元。
• 混合投资平台实施成本预计在第四季度维持在1500万美元附近，而新增平台费用预计将升至1000万美元左右。
• 管理层预计，随着迁移工作的结束，实施成本在2027年第一季度将变得微不足道，不过旧软件的停用工作将持续至2027年并延续到2028年。
• 不包括非经常性项目，第四季度非GAAP有效税率预计为25%至26%。
• 第四季度业绩报酬可能与第三季度的1900万美元持平或略高。
• 对于2026全年，管理层预计薪酬占营收比重约为39%至40%。
• 管理层仍专注于在各种市场环境下保持30%高位区间的营业利润率，同时保持投资于技术、产品和增长能力的灵活性。

资本结构与股东回报

额外15亿美元的优先股回购是通过一项五年期浮动利率银行定期贷款提供资金的。其当前利率约为5.35%至5.4%，估计税后成本为4%至4.05%，而优先股的固定股息率为5.9%且不可税前扣除。

该交易消除了另外8850万美元的年化优先股股息，使已完成回购所节省的年化优先股股息总额达到1.77亿美元。最新交易的初始税后借贷成本预计为每年6000万至6500万美元，并应随着贷款的还清而下降。

管理层预计，最新交易将在2027年增厚每股收益（EPS），并在相关贷款全部还清后带来0.20美元的年化运行率每股收益增厚。在总计30亿美元的优先股回购中，管理层预计2027年将增厚每股收益0.17美元，在相关贷款还清后年化运行率增厚将升至0.41美元。公司目前预计将在2031年全额还清，如果现金流允许，有可能提前还款。

景顺打算维持例行的普通股回购，并致力于使包括普通股股息和回购在内的总派息率接近净利润的60%。

风险与关注领域

• 产品组合继续向费率较低的ETF、QQQ和货币市场产品转移。第三季度净营收收益率为21.5个基点，季度末退出收益率为21.3个基点。
• 管理层将约0.7个基点的营收收益率压力归因于产品组合转移，约0.2个基点归因于加拿大交易。
• 较低费率ETF的高增长也拉高了第三方费用、许可费、托管人及托管费用。管理层表示，第三方费用加上分销成本可能会维持在管理费的23%左右。
• 基本面固定收益策略和私募市场录得资金净流出，而房地产股权需求依然疲软。
• 管理层提醒称，季度利润率存在季节性因素（特别是薪酬成本），且近期积极建设性的市场走势可能不会持续。
• 新的定期贷款采用浮动利率，这使得未来的借贷成本对利率敏感。

分析师问答集锦

利润率可持续性：管理层将营业杠杆归因于ETF和QQQ的规模效应、中国合资公司超过60%的营业利润率、全球一体化的投资平台以及严格的费用分配。然而，公司并不打算以牺牲增长投资为代价来优先追求利润率。

私募市场扩张：景顺专注于房地产债权、替代信用以及财富与养老渠道。与霸菱（Barings）和LGT的合作伙伴关系正在支持新的私募多资产信用、增长型和资产证券化融资产品，预计合作伙伴将提供超过10亿美元的种子资金。

兼并收购灵活性：管理层表示，资产负债表的改善和股价上涨增加了外延式增长的选择性，但战略重点仍集中在获取合适的能力同时保持内生性增长上。

数字资产：景顺预计代币化基金在美国和海外均将迎来增长。公司已接管其首只约10亿美元的代币化美国国债基金，并正在评估代币化货币市场储备、ETF及传统基金。

人工智能：管理层将投资业绩和客户互动确定为其AI的两大核心优先事项。管理层预计AI将改善投资组合管理、风险分析、信息流和客户交付，其主要重点是提升业务和营收，而非仅仅降低成本。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Welcome to Invesco's Third Quarter Earnings Conference Call.

[Operator Instructions]

As a reminder, today's call is being recorded. Now I would like to turn the call over to Greg Ketron, Invesco's Head of Investor Relations.

Gregory Ketron

Thanks, operator, 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 transcripts provided by third parties. The only authorized webcast 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.

Andrew Schlossberg

Great. Thanks, Greg, and good morning to everybody. I'm pleased to be speaking with you today. During the third quarter, we continued to execute against our strategic priorities, leveraging our advantageous market position globally to deliver for our clients and for our shareholders. We generated over $100 billion of net long-term inflows through the first 9 months of the year, representing a 6.5% annualized organic growth rate. Well over half of those flows came from outside the U.S. demonstrating the breadth of our global platform and the relevance of our capabilities in meeting clients' evolving needs.

The continued growth of our diversified AUM base is driving revenue growth and substantial operating leverage. On a quarterly sequential basis, net revenue increased 4%, while operating expenses declined 1%, driving operating income growth of 13% and operating margin expansion by more than 3 percentage points to 40.7%.

Furthermore, on a year-over-year basis, operating income increased 39% and operating margins expanded by 650 basis points. These strong business results are enhancing our financial flexibility and supporting the ongoing strength of our balance sheet while allowing us to continue investing in our business and returning capital to our shareholders. Over the past year, we have improved our operating -- our leverage ratio from 2.5 to 1.6x, inclusive of the outstanding preferred shares. We have also increased our common share buyback by over 100% year-to-date versus the same period last year. This morning, we announced the repurchase of an additional $1.5 billion of the preferred stock held by MassMutual. This brings the total repurchase to $3 billion over the past 18 months, leaving just $1 billion outstanding. Accelerating the retirement of these otherwise noncallable preferred shares ultimately enables reduced leverage, increases our balance sheet flexibility and enhances earnings available to common shareholders.

Allison is going to discuss this transaction and our financial results in greater detail. I want to emphasize that the platform we have built at Invesco and continue to scale is delivering profitable growth enabling us to hold true to our capital priorities of investing in our business for the future, meaningfully strengthening the balance sheet and returning capital to shareholders. We are immensely proud of the progress we have made through the continued disciplined execution of our strategic road map and the collaboration of our colleagues across the company. We remain firmly focused on sustaining and building on our momentum.

Shifting to asset flows, I'd like to spend a few minutes highlighting third quarter client demand results within each of our investment capabilities noted on Slide 4. The third quarter operating environment remained broadly constructive with resilient equity markets and strong pockets of demand amid rising rates and increased market dispersion. Our diversified scaled platform through a strong organic growth of 6.3% or $35.1 billion of net long-term inflows as clients continue to entrust Invesco with significant new capital. Additionally, we generated $47 billion in global liquidity inflows, ending the period with $262 billion in AUM in this category.

Importantly, we are encouraged by the continued breadth of our overall growth. We had positive flows across several dimensions, including in many of our strategically important investment capabilities across the Americas in the Asia Pacific region and in both our active and passive strategies. The breadth of our inflows is also demonstrated by the fact that 25 of our products generated more than $500 million in net inflows during the quarter. EMEA and Asia Pacific, again, produced very strong net inflows with nearly 16% and 11% in annualized organic growth, respectively. In our ETFs and index offering, we continue to substantially scale our platform and our profitability. Ending AUM stood at record $775 billion with nearly $29 billion of net inflows or a 15% annualized organic growth rate. We garnered net inflows across a diverse set of products with 14 ETFs generating more than $0.5 billion in net inflows. This growth was generated across the globe with EMEA producing nearly half of the net inflows for the quarter and posting a 26% annualized organic growth.

Our EMEA ETF AUM now stands at nearly $240 billion, including the QQQ. We remain focused on innovation in the ETF space. During the quarter, we launched 7 highly targeted strategically along products, including 5 active ETFs. We have built a robust active ETF platform globally, which continues to grow as demand has accelerated for high-quality differentiated strategies.

We currently manage $30 billion in active ETFs across nearly 50 products and this AUM base increases to more than $45 billion when including index-based ETF strategies that are executed by our active investment teams. Our QQQ fund also attracted strong interest during the quarter with nearly $7 billion of net inflows or 6% annualized organic growth. This performance reflects QQQ's differentiated competitive position supported by a very large and broad institutional and retail investor base, unmatched liquidity with tight spreads and deep options and derivative markets developed over multiple decades.

When looking more broadly across our full suite of QQQ products in the U.S. and globally, which includes QQQM, we generated a very strong $16 billion in net inflows during the quarter.

Moving on to fundamental fixed income. Within these capabilities, we had net outflows of $2.6 billion for the quarter, but this was heavily driven by a few relatively large institutional reallocation out of stable value and low fee investment-grade index-oriented mandates.

However, looking more broadly across all fixed income products managed throughout Invesco, including strategies reported within ETFs and our China JV, we generated a more respectable $1.3 billion of net inflows for the quarter. We continue to see strong inflows for active fixed income ETFs and SMAs within the wealth management channels. Our entire SMA platform, which also includes a portion of equity assets, now stands at nearly $41 billion in AUM. We have one of the fastest-growing SMA offerings in the market generating an annualized organic growth rate of 11% this quarter.

Moving on to our China JV and following strong momentum in the first half of the year, flows moderated amid third quarter market volatility and equity markets rolled out. Despite this, we reached record AUM of $166 billion and generated net inflows of $1.5 billion or 5% annualized organic growth, driven by institutional demand for our bond strategies. The continued growth overall in our domestic Chinese business is supported by a diversified product line with various style offerings which allows us to adapt to changing client needs in different market environments. To further support growth in the JV, we launched 9 new funds this quarter that are aligned with the growing demand for innovation and balanced as well as active and passive equity strategies, widening the scope to look at the entire Asia Pacific region from a client source perspective, our AUM has now reached $375 billion. During the quarter, we generated nearly $9 billion of net inflows or 11% annualized organic growth, led by continued strength in Japan, where our AUM has reached $95 billion. We also saw strong demand for our QQQ product suite supported by our cross listings in Hong Kong and Tokyo as well as for broader passive equity passive and active fixed income product lineup in the region.

We value our strong and advantageous position in Asia, which continues to scale as we see capital market expansion, wealth creation and extraordinary growth of the individual and retirement segments in several countries across the region over time.

Shifting to private markets where we posted a modest $400 million of net outflows. In our alternative credit, we saw strong institutional demand for our CLO products, including the funding of 2 new offerings, 1 in the U.S. and another in EMEA. This growth was offset by nearly $700 million of net outflows in our industry-leading bank loan ETFs in the United States. Overall, we continue to see strong demand for alternative and private credit solutions from institutional investors on a global basis.

And the current slower growth environment overall has not changed our long-term conviction for these strategies in both the retirement and wealth management channels. We have a favorable position with dry powder, diversification and extensive experience. For managers with our discipline and profile, continued volatility could ultimately prove to be an opportunity. Within our real estate capabilities, INCREF for our real estate debt fund for U.S. wealth management clients continued to gain scale and generated $0.5 billion in net inflows during the quarter. Assets in this fund, including leverage, now totals $7 billion.

Moving on to our multi-asset capabilities, where we had over $3 billion of net inflows in the quarter, driven by a positive results across all 3 regions, with particularly strong demand in EMEA. This momentum was driven by systematic equities as interest in quantitative strategies and custom equity products continues to grow. I will also note that asset allocation model portfolios and the wealth management channels are quickly becoming a core distribution venue for delivering the breadth of Invesco's investment solutions. We have over $20 billion in assets across our model portfolios and anticipate continued expansion in both our custom and prebuilt models where we are making investments to drive future growth.

Finally, in fundamental equities, we saw significantly moderated net outflows of only $1.5 billion and another strong gross sales quarter. We continue to record net inflows from clients in Asia, driven by the ongoing momentum in our Global Equity Income Fund, which remains one of the top selling retail active funds in the Japanese market. This fund, which generates a very favorable net revenue yield posted net inflows of over $4 billion during the quarter, rapidly growing to over $30 billion in AUM and reflecting the sustained appetite for income-oriented global equity strategies.

We also continue to see strength in our U.S. small and mid-cap value funds, which drove nearly $1 billion of net inflows in the U.S. during the quarter. Furthermore, our developing markets fund in the U.S. continues to experience significant moderation of outflows with just $400 million during the quarter. We have made substantial progress in building a fundamental equities platform globally taking decisive action to simplify our structure, bring capabilities closer together across regions, strengthen investment talent and oversight and create better pathways to work more efficiently and cohesively to build breadth and depth across our teams.

We believe this puts us in a much stronger position to improve investor outcomes and garner fundamental equity market share gains globally regardless of client demand and various market cycles. Finally, I'll take a moment to speak to our investment performance on Slide 5. This page shows our overall investment results relative to benchmarks and peers as well as our performance in key capabilities where information is readily comparable and more meaningful to driving client demand. Investment performance is integral to winning and maintaining market share and as such, achieving first quartile investment performance remains a key priority for Invesco. Overall, 47% of our active funds are performing in the top quartile of peers on a 3-year time horizon, with 58% reaching that bar on a 5-year basis. Further, 70% of our active AUM is beating its respective benchmark on both a 3- and 5-year basis. And as I mentioned, we are working to improve performance in our fundamental equities lineup, which currently has 40% of funds performing in the top quartile of peers on a 5-year time horizon with nearly half beating their benchmark.

Likewise, in fundamental fixed income, we saw the percentage of funds performing in the top quartile of peers over a 5-year time period increased to 45% this quarter. With that, I'm going to take a pause and turn the call over to Alison to discuss the details and the benefits of the additional $1.5 billion repurchase of preferred stock and our financial results for the quarter, and we look forward to your questions.

Allison Dukes

Thank you, Andrew, and good morning, everyone. I'll start on Slide 6 with the strategic rationale and impact of repurchasing an additional $1.5 billion of Invesco's preferred stock bringing the total repurchases to $3 billion since the initial repurchase in May of 2025. We're very pleased that we were able to reach an agreement with MassMutual to repurchase additional preferred stock as there are a number of advantages for Invesco in being able to repurchase the stock. We funded the purchase with a $1.5 billion 5-year floating rate bank term loan that currently has a rate in the 5.35% to 5.4% range based on SOFR today for an approximate after-tax cost in the 4 to 4.05 range. This compares favorably to the fixed 5.9% dividend on the preferred stock, which is not tax deductible. Both the preferred stock repurchase and related refinancing closed yesterday. We expect the transaction to be earnings accretive in 2027 and the accretion will increase over time as we pay down the term [indiscernible]. Ultimately, once the loan is fully repaid, we expect the EPS accretion related to the transaction will reach $0.20 on a run rate basis. Taking into account the aggregate $3 billion in preferred stock repurchases to date, we expect EPS accretion of $0.17 in 2027, reaching a run rate of $0.41 once the associated term loans are fully rebated.

Based on our projected future cash flows, we expect to have the loans fully repaid in 2031. We would also anticipate prepaying the term loan should future cash flows provide the opportunity to do so. By repurchasing the preferred stock, we will save an additional $88.5 million in annual preferred stock dividend bringing the total to $177 million that now becomes earnings available to common shareholders. And while the initial annualized borrowing costs associated with the additional repurchase will be in the $60 million to $65 million range after tax. This will decline as the loan is paid down through future cash flows.

The terms and conditions are similar to our floating rate revolving credit facility and the 5-year term loan funding last year's repurchase. They are prepayable at any stage with no make-whole fees. There is a 12.5% premium being paid to MassMutual to repurchase the $1.5 billion of preferred stock based on the present value of a 5.9% dividend rate being eliminated nearly 14 years ahead of the first call date. This is lower than the premiums paid on the 2025 repurchases, reflecting current higher market rates. The premium will be included in our fourth quarter GAAP results but will not impact our adjusted operating results. The slide shows the expected EPS accretion build and the forecasted repayment of the bank term loan and the impact the repurchase will have on our leverage ratio. Looking at the leverage ratio, excluding the preferred stock, we do see a near-term increase in leverage from the term loan, but to a very manageable level near 1x followed by significant improvement as we repay the loans.

The change to the leverage ratio, including the preferred stock is not materially impacted as we are effectively replacing the preferred stock with the term loan. However, with this transaction, we are able to meaningfully improve our leverage profile over the next 5 years. I would note the leverage ratio shown here are pro forma, assuming no change in EBITDA from what we are reporting as a trailing 4-quarter EBITDA for the third quarter of this year.

Now moving to the financial results on Slide 7. Strong organic growth and money market inflows more than offset a negative market impact in the third quarter and drove nearly a 3% increase in assets under management over the second quarter. Net long-term asset inflows were $35 billion in the third quarter, a 6% annualized organic growth rate, marking the 13th consecutive quarter of net inflows. Net flows in the money market funds were very strong at $53 billion, while the negative market impact was $26 billion for the quarter. AUM at the end of the quarter increased to over $2.5 trillion, 19% higher than the third quarter of last year. Average long-term AUM was $2.2 trillion, a 4% increase over last quarter and 52% higher than last year. Net revenue, adjusted operating income and adjusted operating margin continued to show significant improvement from the second quarter as well as the same quarter last year, while adjusted operating expenses continued to be well managed.

On a sequential quarter basis, net revenue growth was 4%, while adjusted operating expenses declined by 1%, generating over 500 basis points of positive operating leverage and a 320 basis point operating margin improvement in the third quarter, with operating margin improving to 40.7%, the highest level since 2021. Adjusted operating income increased nearly 13% to $562 million for the quarter, and adjusted diluted earnings per share increased to $0.72 from $0.71 in the second quarter. On a year-over-year basis, net revenue growth was over 16%, while adjusted operating expenses increased 5%, generating over 11 points of positive operating leverage and a 650 basis point operating margin improvement. Adjusted operating income increased over 38% and adjusted diluted earnings per share were up 18% from the $0.61 we reported for the third quarter last year. Our focus on strengthening the balance sheet continued as we reduced net debt by nearly $400 million in the quarter.

The reduction, combined with improved EBITDA, resulted in a substantial improvement in our leverage ratios. Finally, we increased common share repurchases in the third quarter as compared to prior quarters, buying back $65 million or 2.1 million shares.

Moving to Slide 8. Secular shifts in client demand continue to drive strong growth in lower fee products such as ETFs, including the QQQ, while the demand for higher fee products, such as fundamental equities, has not been as strong. We have seen the impact of the asset mix shift moderate over the past several quarters, resulting in a more modest decline in the net revenue yield.

Strong global liquidity growth through our money market funds did impact our net revenue yield trend to a greater degree in the third quarter than in recent quarters. We did see the net revenue yield stabilized towards the end of the third quarter. To provide context, the net revenue yield was 21.5 basis points for the third quarter and the exit yield at quarter end was 21.3 basis points.

Turning to Slide 9. Net revenue of $1.4 billion in the third quarter was nearly $200 million higher compared to the same quarter last year and $53 million higher compared to last quarter. The increase in net revenue was largely driven by investment management fees predominantly due to higher average AUM. On a year-over-year basis, the increase was also driven by the reclassification of the QQQ to fee earnings.

Performance fees of $19 million were also higher than we typically see in the third quarter, $10 million and $14 million higher on a year-over-year and sequential basis, respectively, due mainly to the timing of when the fees were earned. Given the level of performance fees in the third quarter, we would expect fourth quarter performance fees to not be as seasonally impacted and may be relatively flat to slightly higher than the third quarter. Operating expenses increased $39 million versus the same quarter last year and decreased $11 million compared to last quarter. The year-over-year increase was mainly driven by higher employee variable compensation related to the growth in net revenue and marketing expenses related to the reclassification of the QQQ. The decrease from last quarter was mainly due to timing differences that resulted in lower property office and technology expense in addition to a modest insurance recovery and G&A expense.

The hybrid investment platform implementation costs were $15 million in the third [indiscernible] in line with our expectations and prior quarters. The incremental operating expense associated with AUM that has been moved on to the hybrid platform was $8 million in the quarter. The majority of this expense is impacting property office and technology and will be going forward.

Regarding the hybrid implementation platform cost for the fourth quarter, we expect the onetime implementation cost to run closer to $15 million. As we continue to transition more AUM onto the platform, the incremental expense related to AUM on the platform will build towards $10 million in the fourth quarter. Expenses associated with the platform may fluctuate due to timing. Regarding property office and technology expense for the fourth quarter, we expect the expense to be in the $120 million to $125 million range.

Given these expense dynamics, we thought it would be helpful to provide our expectations for the fourth quarter total adjusted operating expenses. We expect the fourth quarter to be in the $830 million to $840 million range, assuming flat markets. The effective tax rate for the third quarter was 25.1%, in line with expectations. For the fourth quarter, we estimate our non-GAAP effective tax rate will be in the 25% to 26% range excluding any discrete items. 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 10. As I noted earlier, we continue to make progress on building balance sheet strength and improving our leverage profile. During the third quarter, we reduced net debt by nearly $400 million as compared to the second quarter. This included reducing the amount drawn on the revolving credit facility from $736 million at the end of the second quarter to $393 million at the end of the third quarter, accomplished through operating cash flow. The reduction in debt, coupled with improving EBITDA resulted in a substantial improvement in our leverage ratios.

The leverage ratio inclusive of the preferred stock declined by 0.3 of a turn in the third quarter to 1.6x and the leverage ratio, excluding the preferred stock declined by over 0.2 of a turn to 0.33x for the quarter. Looking back over the past year, the leverage ratio inclusive of preferred stock has improved by nearly a full turn driven by the $1.5 billion preferred stock repurchases in 2025, debt reduction and improving EBITDA. The $1.5 billion additional repurchase we announced today will further improve our leverage position. We also increased the degree of common share repurchases in the third quarter. We increased the amount repurchased to $65 million or 2.1 million shares. We intend to continue regular common share repurchase program going forward as we target a total payout ratio, including common dividends and share buybacks to be near 60%.

To conclude, we generated another quarter of significant organic growth and the diversity of our business continues to drive AUM higher. The resulting revenue growth, combined with well-managed expenses delivered another quarter of positive operating leverage and significant improvement in our operating margin. We also continued progress on building a stronger balance sheet, enhanced further by the additional preferred stock repurchase.

We are committed to driving profitable growth, high level of financial performance and enhancing the return of capital to our shareholders. And with that, I'll ask the operator to open up the line to Q&A.

Operator

[Operator Instructions]

Our first question comes from Michael Cho with JPMorgan.

分析师问答

Y. Cho

I just wanted to touch on margins just given the considerable operating leverage we saw this quarter I guess maybe in the context of the key AUM buckets, if I just look at the net revenue yield side, I appreciate the dynamics of the mix shift. But is there a way to frame the margin or operating leverage discussion relative to some of the key buckets and mix shifts occurring on the net revenue side?

Allison Dukes

Thanks for the question, Michael. I think it's hard to frame the operating leverage specifically to the buckets because we really look at those investment capabilities as a whole and we look at the business as a whole. But certainly, some of those investment capabilities scale matters. And ETFs in the QQQ would be the point -- a place I would point to where you certainly can see the difference maker of scale and the impact that's having on our overall operating margin expansion. [indiscernible] at point 2, and it's the 1 area where the operating margin is visible is our China JV. And you can see that in the schedules in the press release and the operating margin in the China JV is north of 60% and that it's a distinct entity. And so you can certainly see the power of growth in a business like that with that kind of operating margin. Our focus overall is growing each 1 of our investment capabilities and doing so with very responsible expense management.

We really think about our expenses from a global perspective and one of the drivers, I think, of our operating leverage improvement over the last several years has been that philosophy of managing expenses from a global priority perspective and not allocating them out and really driving prioritization against our strategy and remixing our expense base where we can. I think that's been really one of the main drivers of the improvement we've seen.

Andrew Schlossberg

Yes, I'd say also, if you go into fundamental equities and fundamental fixed income, we brought each of those together as single platforms, one for fixed income globally and one for equities globally. Of course, it has different teams inside of it. But I think running those more efficiently and for the benefit of scale is another reason we're seeing we're seeing some of the operating leverage improvement. I'd also say underneath many of these capabilities, our investment capabilities, things like SMA and model portfolios, quantitative strategies, these all scale relatively well.

Y. Cho

Great. If I could just follow up on ETF and some platform fees discussion or industry news that's been out there recently. Andrew talked through just the core strong stable of ETFs that Invesco has in launching some of the faster-growing active franchise as well. I guess, without commenting on any specific negotiations or anything like that? Do you see any areas of opportunity for Invesco to use its scale and ETF business to potentially take market share or focus on areas where you can create more robust partnerships?

Gregory Ketron

Yes. I mean, with the QQQ at $1.3 trillion of collective ETF assets and then really strong client relationships, for instance, in the U.S. wealth channel, where we're a top 10 player we have really strong relationships kind of all across the piece there. Fee negotiations or fee sharing has always been something that's part of those relationships. As we've said in kind of past quarterly calls, what we're seeing is what everyone is seeing a shift from mutual bonds as the predominant vehicle that will shift to other things as the predominant vehicle. And we're taking share as that shift is happening both on the passive side and as we build out the active ETF lineup as well as we bring our SMA lineup, which I was talking about as a major growth area and then model portfolios, which house a lot of ETFs. And so having a strong ETF business.

So all of those things bring a lot of relevance to our clients, not just the platforms but RIAs, independent advisers. They're looking to do more with fewer people, and we're seeing that happen not just in public markets, but in private markets, too.

Operator

And next question comes from Brennan Hawken with BMO Capital Markets.

Brennan Hawken

I wanted to touch quickly on the net revenue yield and distribution. So thanks for the exit rate on net revenue yield, you guys have the Canadian transaction and some elevated money fund flows in the quarter. So just curious about what kind of impact that had on the fee rate. And then we did see the net distribution tick down. Was that just continued trends there? Or was there something noisy that might have driven that?

Allison Dukes

Yes. Thanks, Brendan. You are correct. The Canadian sales did have some impact on the net revenue yield, maybe about two tenths of a basis point. Seven tenths or so would have been really just driven by mix shift. And that mix shift would include the really strong growth we saw in money market funds in the quarter. So nothing in there that I would say is especially concerning the money market fund growth certainly came with revenue, and the organic revenue growth in the quarter was very strong.

And I would point us all back to the organic revenue growth that we continue to generate even as the net revenue yield grind tighter. That's what we're trying to manage. That's what we're focused on, and that revenue yield is the outcome of where we're seeing the growth coming from. But was about [ 0.7 ] from that mix shift. And the growth in the QQQ and just ETFs overall was the other contributor to that mix shift. And then that does translate into some of what you see in the distribution fees. And I would come back to -- the best way to think about this is third-party expenses plus distribution should be as a percentage of management fees.

I think that relationship, the best relationship to think about, it was 22.9% this quarter, and I think it's quite fair to think about it in the 23% range or so going forward. That's really driven by the significant growth we continue to see in some of these lower fee yielding ETFs, like QQQ, the QQQM, RSP, those ETFs have lower management fees. They also have some higher licensing, trustee and custodial fees, and that's what drives that relationship somewhere around that 23% context.

Brennan Hawken

Great. And it was great to see you get to the low end of that 38% to 42% comp ratio range that you have laid out a few years ago. And it certainly sounds like from the 4Q expense outlook that a lower comp ratio is durable. Is that the right read? And how sustainable do you think it is to be at the low end of the range. And by the way, is there anything structural preventing you from breaking through the low end of that range?

Allison Dukes

And the range, that 38% to 42% range is an annual range. And so we don't really -- there's a lot of seasonality in our compensation. So the quarterly comp to revenue ratios are not all that meaningful because we really accrue based on our full year forecast, and we have to manage based on our full year forecast. So I would continue to point you back to that annual relationship. I think we will be for 2026 on the lower side of that range, probably in the 39% to 40% context for full year 2026.

And to your question of, is there anything keeping us from breaking through that range in the future? Well, first of all, it's not going to be this year. So as I said, I think that's surely in the 39% to 40% range. I think it really depends on how we continue to grow and scale our business going forward. I mean, it's a function of headcount, of course, and there's a pretty significant part of our compensation that is fixed.

The variable component of our compensation of total compensation is maybe 25% or so. So that fixed component is really driven by headcount. And as we continue to run an efficient business and grow our business and scale our business, that could certainly drive that range a little bit lower over time. But for now, I think it's still probably the right overall range, and we'll evaluate as the business continues to grow and shift.

Operator

Our next question comes from Glenn Schorr with Evercore ISI.

Glenn Schorr

So I listened to a good podcast that you guys did like 2 weeks ago, and you talked about prioritizing credit over yield in your real estate business. and all about downside protection and preserving capital, not chasing maximum yields. But within that, my main question is it specifically talked about avoiding data centers. And I was just curious, is that a stance specific to the real estate business and where you see value in real estate credit or something more firm wide because underneath that is how are you not participating in what is this humongous capital raising cycle. Sorry if that's involved, but thanks.

Andrew Schlossberg

Sure. I think that's certainly more specific to that team in real estate that would have been expressing review and I think real estate debt, in general, has been a phenomenal grower for Invesco. There's a ton of interest not just from wealth clients. I mentioned in craft, the strategy we've been building, it's performing quite well vis-a-vis its competitors, and there's not a lot of offerings out there for real estate debt in the U.S. wealth space, but also in the institutional markets and non-U.S. markets, we're continuing to see demand. And that team's discipline, it's a long tenured institutional team of good asset allocation, good security selection, I think we'll continue, but that view would be specific to that team.

Glenn Schorr

Okay. Maybe I'll just follow up with the second part of it is broader picture, as you see, I mean, I think yesterday it was something like $200 billion in financing across the AI food chain, if you will. Just where are -- where can you and where do you participate across that? And not sure if you have any specific views on debt load coming and how Invesco plans to participate in that?

Andrew Schlossberg

Yes. I mean most specifically, you know we have a large public fixed income franchise. And if you look at all of our public and private fixed income, inclusive of cash, it's about $800 billion. So we're participating in a lot of ways. Specifically on the private side, we have around $50 billion of alternative credit platform, which is made up of senior loans. It's made up of direct lending distressed and so we're participating throughout the lending on the private side. But as I said, also as it expands and as it continues to develop on the public side, will participate as well. So it's pretty broad. And look, that extends into the equity markets, too, when you look at where our exposure is.

Operator

Our next question comes from Alex Blostein with Goldman Sachs.

Alexander Blostein

I wanted to dig in a little more into the way the business is evolving from a mix perspective. And obviously, the active equity headwinds have been with us for a while. It's a relatively high fee rate product. And one of the ways to obviously mitigate it is to see faster growth in the private markets, which close to the similar fee rate. But that's been relatively muted for you guys still. So as you think on a forward basis, and let's say, if the active equity business remains kind of in the same range, is there anything more you guys could do to accelerate the private markets piece of the model to, sort of, offset some of the headwinds on a fee yield perspective you're seeing on the equity side?

Andrew Schlossberg

Yes. Yes, thanks for the question. I'd start with the profile of our private markets business. And so about $90 billion of the $135 billion is in real assets. And as we all know, the real estate equity side of demand has been quite muted. There's been challenges across the industry, obviously, in that business. But we think we've reached the bottom part of that and coming out the other side. And we have a very strong franchise there. So what we're doing on the equity side of that business, to repair and grow portfolios in the core and core plus space, but also get more into the value-add space is going to be important. The growth on the debt side that I was just talking about a moment ago in real estate is going to be critical. And then that platform is not just in the U.S. It's a European and Asian platform, too.

So as real estate improves and as we see opportunities for growth, that could be that could be important for Invesco. We've introduced wealth management strategies for both the equity and the debt side. And then on the credit side, I talked a little bit about our profile before, but the 2 partnerships we formed to reach the wealth management and retirement space with Barings and LGT last year. Those pipelines have come into or starting to come into formation. we have a multi-asset credit strategy end market. We'll have a multi-asset growth strategy. These are both private in market. We'll have a private ABF fund in market, all targeted towards the wealth space and ultimately towards the defined contribution space.

We've built out a private real estate strategy in a coming trust fund for defined contribution plans. We have over $1 billion of ceding capital coming from those partners. So we feel like the things we've done in the last couple of years to build that out are sort of waiting for market demand in those segments, all credit and private real estate. In terms of other places, we could grow and expand, we're still focused on the core of what we have in organic, but partnerships in other ways to form alliances to grow and be more expansive in private markets is definitely something on the docket.

Alexander Blostein

Got it. Just another one around capital, and it's awesome to see, obviously, all the progress you've made over the years and creating a lot more balance sheet flexibility on the forward. does that at all change your approach to M&A and anything inorganic given that you have a bit more financial flexibility today versus a couple of years ago?

Allison Dukes

No, it really doesn't. I mean to say -- let me say it differently, we are as opportunistic and open-minded to inorganic growth as we ever have been. So it's certainly by pulling that forward, it doesn't change it from a negative perspective. If anything, we think it gives us more flexibility, more optionality, the improvement in our stock price over the last few years also gives us more optionality as we've improved just the overall value of our currency. So we've been focused on finding the right capabilities. We've been focused most of all on our organic growth. We've been able to demonstrate that organic growth. And I think we've had peer-leading organic growth for several years now. we focused a lot in investing in ourselves, divesting certain businesses, getting a much more streamlined portfolio, and in doing that, I think we've created additional value that can be used as we think about inorganic growth in the future. So it doesn't change the strategy, if anything, perhaps it improves the optionality.

Operator

Our next question comes from Bill Katz with TD Cowen.

William Katz

Excuse me, I have a little bit of hoarse voice. So just thinking through capital return priorities going forward. So going to hear you on the graduating up to 60% total pay rate. And the accretion from pulling forward of the preferred redemptions. Just thinking like from a perspective of earnings yield, it looks like if you just simply multiply your fourth quarter and divide by the stock price, the earnings yield is about 10% and you mentioned that the after-tax cost of the debt is about 4. So how does it inform your decision in terms of buyback versus debt reduction as you look out to '27 and '28.

Allison Dukes

I'd say our strategy is maybe a bit more simple than that. As we think about buybacks versus debt reduction. I mean we think we've got to make progress against both. And we're always going to be evaluating in any given year what the highest and best use is as we move forward. We think it's really important. We continue to return capital to shareholders. We've heard that loud and clear over the years. We've seen the improvement as we continue to deliver these returns in more of a continuous fashion. But as we think about paying down debt, I mean, look, the debt floating rate, so that will certainly factor into our judgment calls year-to-year as we think about -- we return capital versus pay down debt. Right now, certainly, relative to the preferred, it was very advantageous to do it. We don't think the changes we've made in the capital structure today in any way impact our ability to target a return near 60% of net income to our common shareholders. And it also does not impact our ability to continue to invest in ourselves. We have a pretty aggressive CapEx and product launch strategy each year, and we will continue to do so as we look at how we can continue to generate the strongest organic growth for ourselves.

Andrew Schlossberg

So I think just adding to what Allison said, I think the thing we're most pleased about is that we have the flexibility to do the things that Allison mentioned and that flexibility is pretty different than it was 18 months ago.

William Katz

No question. Okay. Just a follow-up, just coming back to sort of think about the longer-term margin opportunity. Certainly great to see the margin crack grew 40% this quarter, I think well ahead of what most people were anticipating. So if I did the math right, you had about an 80% incremental margin year-on-year just to take out some of the seasonality, obviously, some puts and takes, plus the different line items. But nonetheless, I think you mentioned another question about 25% of your costs are fixed. Should we be positive that the incremental margin is still in that 70%, 75% range. And then within that, can you just give us an update on where you are in terms of the AlphaGen transition, when you might be done with the implementation costs? And then what might be a longer-term run rate on the servicing side or onboarding side?

Allison Dukes

Okay. There was a lot in there. So let me go back to 1 cleanup. My comment earlier was that of our total compensation, about 25% is variable. And so compensation itself a large component of it is fixed. So I think that's important as you think about margin and where we've got leverage. And so as we think about overall operating margins going forward, but our focus is -- as we said for a long time, our focus was getting back to the high 30 this quarter. We obviously did that on a quarterly basis. Quarters can have a lot of noise and there's also seasonality. Our focus is on maintaining and sustaining that margin in the high 30s. And that's -- as we think out all of our growth going forward, where we're most focused. The time side means generating a margin north of 40% and we're certainly opposed to moving that margin higher. But more than anything, we've been working on really rehabilitating the business. And of course, the year-over-year changes are pretty substantial because of the reclassification of the QQQ. So I think that's important to keep in mind when comparing 2026 to 2025.

In terms of the implementation of our hybrid investment platform, we are still working towards transitioning all of our AUM on the platform by the end of this year, perhaps some of it into the beginning of next year. So implementation costs, as I said, $15 million in the third quarter. We expect them to be about $15 million in the fourth quarter. And then from there, they should start trending off. They don't necessarily go automatically to 0 on January 1. It's not completely tied to a calendar year, but I think it becomes very immaterial in the first quarter. And I hope to not be talking about implementation costs in the first quarter at all.

And then with that, as we noted, the fees, the platform fees for transitioning all that AUM on will increase to about $10 million in the fourth quarter, and we will then start to turn our attention once we get into next year and hopefully, everything is running smoothly, we will start to turn our attention to decommissioning various software. And that will continue '27 and into 2028.

Andrew Schlossberg

One thing I'd add on the margin side, but it's more a strategic comment on just expenses in general. The business has been pretty disciplined, and we thank our colleagues for that. But that doesn't mean we haven't been reinvesting in the business. We've been remixing that expense base it's funded the product lines and launches that we've done, the private markets build-outs that are underway, things we're doing in ETFs, things we're doing overseas. So I think our ability to to reallocate our expense base and that discipline is much higher than in the past.

Operator

Our next question comes from Brian Bedell with Deutsche Bank.

Brian Bedell

Just maybe just a cleanup on the 4Q on the expense [ 830 to 840 ] guide, assuming flat markets. I think, Allison, you touched on all the components of that. The one missing thing is, I think the property costs are going up to $120 million to $125 million. Does that imply a reduction in the G&A or a lack of seasonality in marketing spend? And then also just if you could just go through 4Q preferred stock dividends and the interest expense given the actions that you took on the [indiscernible].

Allison Dukes

Okay. So let me start the expense guide. The maybe very modest seasonality in marketing. I'd point you back to the components and some of what we noted and there was some onetime in G&A and property office and technology in the third quarter. So I mean I think with the guide of 830 to 840 is what we give you most of what you need there comping in the 39% to 40% range full year and property office and technology about $120 million to $125 million. And again, that's because as we're moving AUM onto the hybrid investment platform, the majority of that cost that we noticed are to impact property office and technology.

So I think that kind of gets you what you need there on your second and interest in this expense, I think you'll be able to get to what you need with all the debt costs, which are all publicly filed and you've got the new $1.5 billion on the term loan. The press dividend will work just as it has in the past. I think it goes through November 1 or December 1. It's all -- that's all publicly available as well.

Gregory Ketron

Yes. Brian, this is Greg. Yes, the way the preferred dividend works is paying arrears. So the one that is declared and will be recorded in the fourth quarter will be based on from September 1 through October 26, is going to be the $2.5 billion that exists before we did the repurchase yesterday. And then from October 27 through November 30, it will be $1 billion, and that will be at the 5.9% preferred dividend rate.

Brian Bedell

Got it. Yes, that little detail after. And then just maybe on a longer-term question. Can you talk about your digital asset strategy and willingness to start engaging and tokenizing funds. Obviously, we're seeing some more pickup on that across the asset manager space. Maybe framing that in line with your sort of growth initiatives. But I guess, just how do you see that market developing? And do you see that more as an overseas sort of impact initially or more in the U.S.

Andrew Schlossberg

We think the tokenized fund market is going to continue to grow, and we think it's important. As you would have recalled a quarter or 2 ago, we took on our first tokenized money market type funds. I know I'm sharing U.S. treasury fund that we took over from with super state for about $1 billion. And that was our first foray. We're looking at some other stable coin reserve money market fund tokenization to do. And then, of course, we're looking at ETFs potentially traditional funds. And that tokenization trend is going to happen, not just overseas it's going to happen in the U.S. We think it's very, very early. It's going to take time for it to develop. But through these partnerships and through some launches on our own, we're absolutely going to participate.

Operator

Our next question comes from Craig Siegenthaler with Bank of America.

Craig Siegenthaler

Our follow-up is on Invesco Great Wall. So the Chinese stock market peaked about 12 months ago and has significantly underperformed U.S. equities over the last year. We want to see how that has impacted your net flow outlook for the Trina JV are you expecting fixed income and liquidity to be the primary flow drivers over the next year? Because I think almost all your open equity franchise there is mostly domestic and also real Jansen step down as Deputy General Manager, and I believe we'll be just focusing on investing. I was curious about what drove that change?

Andrew Schlossberg

Yes. So on the Invesco Great Wall JV, just to reiterate some things I mentioned in the prepared remarks. This quarter, we hit our high watermark for assets under management at ending the quarter at $166 billion and I mentioned that just to highlight the resilience of that platform against, as you said, a more tricky background in the third quarter. It's also important to know how diverse the mix of assets is that we have in that JV. So equities are only about 15% of the total assets under management that we have. We do have some balances that have a mix between equities and bonds. They've held up pretty well. And we've built out an ETF business as people are shifting like everywhere else in the world, to that vehicle.

That business is now about $15 billion. So regardless of how the equity market demand goes in the next several quarters, our business will, I think, performed relatively well given that resilience. There's also a growth in the capital markets system in general, and there's a build-out in the retirement system, too. So while markets may not be the tailwind that they were over the past year or 2 in China, just the organic growth that happens in that market, we participate too.

So that maybe gives you a sense of where we are with the business. It's a very sustained business. We have great growth, not just in the business itself, but the product line, we launched almost 10 new products this quarter. We continue to recruit top talent and retain top talent. So we feel reasonably good about our China JV.

Operator

And this question comes from Mike Brown with UBS.

Unknown Analyst

Maybe just to start, I wanted to follow up on the hybrid platform discussion. So the sunsetting of the legacy systems that will, of course, take some time. Maybe what are the specific legacy systems you're focusing on over the next 6 to 12 months, Allison? And then maybe can you size some of the expense saves that you could see come through in 2027 and maybe even into 2028?

Allison Dukes

I don't think we're going to disclose some of the legacy systems. There's a litany of some large small lots of different contracts behind that as well. So not things we can comment on publicly. I think in terms of sizing of saves, I mean, we'll give more guidance around 2027 expenses when we get to January. And I think what we're looking at now as we continue to work across the firm and building out our 2027 plan is how we will reallocate some of our capacity, some of which we will allow to fall to the bottom line. Some of it, we will reallocate our capacity. And by that, I don't just make expenses. I mean there's been tremendous time and focus, many individuals focused on the hybrid investment platform for several years now. And we have an opportunity as we think about -- moving into the next phase, it doesn't just end and there is that next phase of making sure these systems are stabilized and we decommission, but also in what else is going to be important as we continue to think about the growth of the firm the growth of our technology infrastructure and where we want to invest going forward. So more to come on all of that, but I don't think it would be wise for us to give specifics around the software.

Andrew Schlossberg

I mean, we're excited, as you can imagine, to get the hybrid platform done at the end of this year. And as you recall, it's not just consolidating the systems of which Allison said there's many over 100 different tools are going to get unified into the platform. But it's also a way for us to match the simplicity and clarity that we brought into our investment teams and platforms so that the way that we're not just processing trades, but the way that folks are using the system goes from many, many, many different instances to just a few. And so there's a lot of there's a lot of benefit to this beyond just the cost.

Unknown Analyst

Of course. Okay. Great. Maybe just to change gears a little bit. Obviously, we've seen interest rates really spike and they've come down a bit from the recent highs. This quarter, you had really strong money market fund flows. Fixed income saw some net outflows. But Andrew, as you talked about, there's some unique dynamics underneath the surface. That was helpful color. Just as you think about clients and how they allocate here. I just love some thoughts on maybe where do kind of the cash and fixed income flows go here are clients starting to reallocate after that move? And how do they think about maybe a higher for longer global interest rate environment?

Andrew Schlossberg

I'll make a couple of comments on liquidity and Allison will chip in as well. Just to recall, our liquidity or money funds business is largely an institutional business. So those flows that came in are from platforms and portals and corporate treasurers, and those flows were a function of good performance in our liquidity business as well, but they're not indicative necessarily of cash allocations increasing, and we wouldn't want to overstate that too much. In terms of where those flows are going, I mean if you just look at I think at an inflection point. If you look at where our flows have been the trends are going towards the vehicles we mentioned before, SMAs, ETFs, model portfolios. There is much more activity, I'd say, in markets like the U.K., out in Asia, institutionally with money just being in motion for different pension reform reasons or insurance consolidations or pension outsourcing consolidations or just wealth creation. So some of these dynamics have nothing to do with rates.

They just have to do with secular changes that are happening, and we're trying to be in front of that money when it comes. Our fixed income platform you are seeing people shorter on the duration side. But you are starting to see folks look at higher-yielding strategies as well in fixed income. We're starting to hear more demand for that, quantitative strategies. People are starting to deploy beyond just passive to using factor-based strategies. That's a trend that we're seeing, what else would you add?

Allison Dukes

No, I think you covered it.

Operator

Our next question comes from Alex Bond.

Alexander Bond

I wanted to ask around organic growth in EMEA specifically. You highlighted the strong asset growth there in the quarter, specifically in the ETF and index suite and also multi-asset, I believe. But can you just speak to your organic growth expectations there moving forward? And if you think the recent pace of growth in the region is something you all feel sustainable near term?

Andrew Schlossberg

I mean the growth has been very strong, as you noted. I mean we're up to about $420 billion of assets in EMEA. About half of that coming from ETFs, AUM is up about 25% year-on-year. A lot of that growth this quarter was in ETFs, also in systematic equities, multi-assets. And as I mentioned, you're seeing some secular changes that I just referenced, for instance, in the United Kingdom. So we're -- it's hard to project going forward. But we're pretty pleased with the strength of our European profile, and we continue to take share despite some of the expectations on growth in Europe. The asset management business is pretty healthy, though.

Alexander Bond

Okay. Great. And then maybe one more just around the outlook for the fundamental equities business. [indiscernible] did well in the quarter, as you noted, and it sounds like some positive trends in terms of both gross inflows and outflows in 3Q. But can you speak to your line of sight in that area and maybe share what the expectation is near term in terms of net flows for that bucket?

Andrew Schlossberg

Yes. I mean in terms of expectations, as I mentioned, what we're trying to do is look at net flow market share gains regardless of market outcomes. So whether we're in a cycle that's favoring fundamental equities or not favoring fundamental equities, we just want to outgrow the competition and net flows. And that starts from both directions, increasing our gross sales, which we have been able to do the last few quarters, but also really reducing our redemption rates, which is a function of also investment performance. So we're really focused on investment performance and quality. We're focused on getting the right people on the right teams if they're not there, and then just participating in an outsized market share growth.

Gregory Ketron

Okay. Operator, we have time for one more question.

Operator

And that question comes from Michael Cyprus with Morgan Stanley.

Michael Cyprys

Maybe just on the operating margin coming back to that, I heard about you guys looking to maintain and sustain high 30s operating margin. I guess why high 30s, why is that the right level given the strength, nearly 41% in the third quarter. Any noise that you would want to call out in terms of seasonality or other items in 3Q? And I get that 1Q has seasonally elevated comp cost. But just on the look forward, just curious, any change in terms of the pace of investment to the business that might see margins stay in high 30s.

Allison Dukes

No. I mean -- and it's not just 1Q that has seasonally high comp costs, it kind of leads into the second quarter as well, just the way the deferred comp accruals work over the course of the year. They start high and they kind of grind up tighter all the way through the fourth quarter. So there is seasonality that can impact all 4 quarters, but the first half certainly being higher. Look, we've tested a lot of businesses. We've changed the platform. We are continuing to invest in our growth. As we think about -- as I noted, look, if we can run this business well and invest for growth and generate higher than 40% margins, we certainly will. And we have no ceiling on ourselves whatsoever. We're also not going to manage specifically margins and starve the business. And so we want to continue to invest in our future growth capabilities. It's critical as we think about technology investments and product investments and really investing in the people that are going to be necessary to grow this business over the next decade. We want to make sure we're being very thoughtful about investing ahead of growth. So high 30s is really because we've only had 2 recent quarters at or above high 30s. And so we are focused on making sure we're at high 30s through any market environment, and we think that gives us more cushion. And we're very cognizant of where we've come from over the last 3 years, and we were south of 30% just 3 years ago.

We've made tremendous progress getting back to where we are today. We want to be able to run this business at this margin level for the long term. We've had very constructive markets for the last couple of years. We recognize we will always have constructive markets. So our focus is on managing this margin in high 30s, even in more challenging market conditions.

Michael Cyprys

Great. And then just a follow-up question on AI. I know you've talked about in the past, fairly broad adoption across the organization. Just curious, as you look out from here over the next couple of years, where do you see some of the biggest opportunities to meaningfully change how Invesco operates, leveraging AI? And how do you think about those benefits ultimately translating into the financials?

Andrew Schlossberg

Yes. The top focus we have for AI right now, and we believe in the future to, is twofold. One is to ensure that we can deliver high-quality investment returns. And if we can improve upon the way we manage money and the way that we generate returns, the way that we think about risk and the way that we have information flow across our teams that's a huge benefit and ultimately will drive revenue. The second is likewise for client engagement. If we can strengthen our client delivery, know our clients that much better, shorten cycles with them and delight them, that will also turn to driving revenue. And all of that and that could create some efficiency gains, but we're really focused on how to improve the business. It's a competitive business. And so how we can improve for -- in our portfolios and how we can continue to improve with our clients, that will yield the greatest benefit. We're applying it, as you'd expect, bottom up every day with each of our colleagues using AI tools but also top down in some of those key areas, I mentioned to do them at scale.

Okay. Well, in closing, we're pleased with the continued strong results this quarter. we advanced several strategically important investment capabilities and vehicles with many reaching record assets under management with discipline, focus and the benefits of scale, we are generating meaningful operating leverage and improving margins. as well as continued strength of our balance sheet as evidenced by the additional preferred stock repurchase we discussed today. We're going to continue to stay focused on our highly defined growth strategy with an emphasis on relentless execution client-focused innovation and teamwork across our firm.

We want to thank everybody for joining the call today. And as always, please reach out to our Investor Relations team for any additional questions. We appreciate your interest in Invesco, and we look forward to speaking with you all again soon.

Operator

Thank you. This concludes today's conference. We thank you for your participation. At this time, you may disconnect your lines.