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OppenheimerFunds Acquisition Prompts Invesco Review

Narrow-moat Invesco acquired the firm for $5.7 billion, higher than estimates, to be paid entirely in stock.

We are placing narrow-moat-rated

Invesco closed out the third quarter with $980.9 billion in managed assets, up 6.9% year over year and 2.0% sequentially. Net long-term outflows of $11.2 billion were slightly worse than our forecast for $10.8 billion in net redemptions, but adverse currency exchange decreased total assets under management by $13.8 billion (worse than our forecast). Equity outflows of $7.5 billion during the quarter were in line with what we've seen from some of the other asset managers as investors continue to derisk portfolios as a result of increased uncertainty about global monetary policy and trade.

With average long-term AUM up 10.6% year over year and the firm's realization rate (on a GAAP basis) declining to 0.422% (from 0.477% in the prior-year period), the company reported a 2.2% decline in third-quarter management fee revenue and only a 0.3% increase in total revenue, aided largely by an uptick in other revenue. Even so, year-to-date top-line growth of 7.2% was in line with our full-year forecast for mid-single- to high-single-digit revenue growth. Adjusted GAAP operating margins of 24.0% during the first nine months of 2018 were 70 basis points lower year over year and at the lower end of our forecast range of 24%-26% for the year.

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About the Author

Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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