Invesco Ltd. (IVZ) Earnings Call Transcript & Summary

Welcome to the Invesco Second Quarter Earnings Conference Call. [Operator Instructions] as a reminder, today's call is being recorded. Now I'll turn the call over to Greg Ketron, Invesco's Head of Investor Relations.

Okay. Thanks, operator, and to everyone joining us today. In addition to the press release, we have provided a presentation that covers the top plan to address. The press release and presentation are available on our website at 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 disclaimers 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 webcasts are located on our website. Andrew Schlossberg, President and CEO; and Allison Dukes, Chief Financial Officer, will present our results this morning, and then we'll open up the call for questions. I'll now turn the call over to Andrew.

All right. Thanks, Greg, and good morning to everyone. I'm pleased to be speaking with you all today. We have built significant momentum thus far in 2026 as we continue to execute against our strategic priorities. Year-to-date, we posted record net inflows of $67 billion or a 7% annualized organic growth rate and generated record net revenue with an increase of 17% over the same period last year. Our broad product suite and global reach is resonating with clients as they seek to navigate an ever more complex market environment. Our increasingly scaled platform and disciplined approach to expense management, gives us significant operating leverage. We increased operating income by 35% in the first half of this year, and we expanded our operating margin by nearly 470 basis points as compared to the same period last year, reaching 37.5% in the second quarter. Further, we grew our bottom line by nearly 60% in the first half of 2026 as compared to the first half of last year. This is a testament to the hard work that our colleagues across Invesco have been doing over the past several quarters to streamline our business, drive profitability and margin expansion and strengthen our balance sheet. As highlighted on Slide 3, we are innovating for our clients, clarifying and simplifying our organization, and as a result, we are delivering for our shareholders. Product line management and innovation are key to our growth and are critical and remain relevant to our clients. As such, we have made several additions and advancements in areas where there is significant demand like ETFs, SMAs, model portfolios and private assets. We have launched more than 50 products this year across the Americas, EMEA and APAC. This includes 6 new active ETF launches and a new partnership with Superstate, where we are now the manager of our first tokenized treasury strategy. Another way we are innovating for our clients is through partnerships. Our Barings and LGT Capital Partners private market partnerships are designed to help us accelerate growth and the high opportunity U.S. private wealth and defined contribution markets. We completed our first product initiatives with Barings at the beginning of this year, and we look forward to sharing more details on additional product launches with each firm later this year. We have also established partnerships in India and Canada that have allowed us to redefine our position in these markets from full ownership to minority status and as a subadvisor, respectively, while aligning with strong local financial institutions. These changes have resulted in greater firm-wide focus, reduced operating expenses, increased leverage of our global investment platform, created balance sheet benefits, and enhanced revenue opportunities. To this end, during the second quarter, we successfully completed CI's acquisition of our Canadian products and we have commenced our long-term strategic partnership with them, where we are now sub-advising funds with approximately $9 billion in AUM. Another clear indicator of the innovation aptitude at Invesco was the successful conversion late last year of the QQQ fund. In the first half of 2026, the Qs generated an incremental $130 million in net revenues for Invesco, its AUM grew 20% and it produced strong organic net flow growth in the second quarter. We have significant opportunities to continue to expand this flagship competitively advantaged product, not only here in the United States, where the traction is incredibly strong, but also in other international markets. The QQQ is now cross listed on both the Hong Kong and Tokyo Stock Exchanges with over $10 billion of AUM raised in a short period of time. Examples like these are indicators of the strength of the multi-decade QQQ brand that is recognized around the world for its innovation. We see several avenues to continue to expand QQQ's client base, our innovation suite in general and our wider $1.25 trillion ETF complex. Beyond these and other strategic efforts, we have continued to make progress on our balance sheet recapitalization. We have significantly improved our leverage ratio over the last year from 2.7x to 1.9x and inclusive of the outstanding preferreds. We have also increased our common share buybacks by 80% year-to-date versus the first 6 months of last year. Importantly, we have done this while continuing to invest in the business and reduce debt, including the outstanding preferreds. Allison will speak more about these efforts later in the call. We will also update you on our transformational hybrid investment platform implementation which is another strategically important priority, which will yield benefits across our organization and for our clients. As we discussed on previous calls, our strategy continues to prioritize opportunities at the intersection of market size and secular change where Invesco is uniquely positioned to selectively drive growth across regions, channels and asset classes. We continue to execute with discipline, allocate capital and resources accordingly and improve performance. So moving on to Slide 4. I'll discuss how our efforts drove record net long-term inflows in the second quarter. The advantages of our broad increasingly scaled, diversified global platform were evident again this quarter. Markets were supportive driven by strong equity appreciation and improving fixed income returns resulting in investor capital remaining in motion across the industry, albeit more narrowly focused and mindful of ongoing macroeconomic and policy uncertainty. Clients continue to entrust Invesco with significant new capital across our global product set. Net long-term inflows during the period were a record $45.1 billion, marking the 12th straight quarter of net inflows and representing annualized organic growth of nearly 9%. Additionally, we generated $13.2 billion in global liquidity inflows ending the period with $215 billion in AUM. Altogether, we reached an AUM high watermark of $2.5 trillion. Importantly, we continue to be encouraged by the breadth of our overall growth. We had solid positive flows across several dimensions, including in many of our strategically important investment capabilities across each of our 3 regions and in both our active and passive strategies. The breadth of our inflows was also demonstrated by the fact that over 30 of our products generated more than $500 million in net inflows during the quarter. The Asia Pacific and EMEA regions again produced very strong net inflows with 10% and nearly 7% annualized organic growth, respectively. Additionally, on a gross sales basis, we had our highest volume quarter for actively managed fund. With all of this as a macro backdrop, I'd like to spend a few minutes highlighting growth drivers in each of our investment capabilities. Starting with our ETF and index offering, where we continue to meaningfully scale and diversify our platform to meet evolving client demand. Ending AUM for these funds stood at a record $753 billion or nearly $1.25 trillion when including the QQQ. We also had a record $30 billion of net inflows during the quarter with 17% annualized organic growth. Within our ETF range, we garnered net inflows across a diverse set of products, led by our Qs innovation suite and our quality and momentum equity factor funds, which raised a record $7 billion of net inflows in the second quarter. It's also notable that nearly 1/3 of our net inflows were generated in the EMEA region, where we continue to see strong demand for our ETF range. We remain focused on innovation in the ETF space. During the quarter, we expanded our bullet share lineup with 7 new fund launches in the United States, in addition to launching 5 ETFs in the EMEA region, including 2 new active funds. We have built a robust ETF platform globally, which continues to grow as demand has accelerated for high-quality, differentiated strategies. We currently manage $25 billion in active ETFs across more than 40 products and the AUM base increases to more than $40 billion when including index strategies that are executed by our active investment teams. Our QQQ fund, also attracted strong interest in the second quarter with $14 billion in net inflows or 12% annualized organic growth. This reflects our competitively advantaged position supported by a very large and broad institutional and retail investor base that with unmatched liquidity with tight spreads and deep options in derivative markets built over multiple decades for this flagship product. So moving on to fundamental fixed income. Demand for our products remained robust. While we report on this slide, net inflows of a modest $0.4 billion for the quarter, when you widen the scope to include the fixed income flows from our ETF and China JV, it expands our overall asset class net long-term inflows to $14 billion during the quarter or 11% annualized organic growth. This growth was broad with inflows from each of our regions, from both the retail and institutional channels and across both active and passive products. Two drivers of fundamental fixed income flows were demand for individual SMAs from U.S. wealth management clients and overall institutional fixed income demand in EMEA, where we recorded net inflows of nearly $2 billion for the quarter. Our entire U.S. wealth management SMA platform which also includes a portion of equity assets now stands at nearly $40 billion in AUM. We have one the fastest-growing SMA offerings in the market, generating an annualized organic growth of 23% this quarter. The strong results once again indicate that we are well positioned to capture fixed income money in motion by meeting client needs across the credit and duration spectrum, geographic preferences and active and passive exposures. Moving on to our China JV. Our growth continues to be underpinned by our scale and the improving macro stability in this market. We reached a record high AUM of USD 163 billion, a 15% increase over the prior quarter. Net long-term inflows were $6.9 billion, delivering a 22% annualized organic growth rate. Net inflows were driven by our fixed income and our Fixed Income Plus strategies, which, as you recall, are a form of balanced funds. The continued growth 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 our business, we launched 11 new funds this quarter, which collectively generated $1.2 billion in net inflows. These funds align with the growing demand for innovation and balanced and equity strategies. We continue to be well positioned as the Chinese asset management market develops and evolves in both the individual investor and retirement sectors. Shifting to private markets where we posted $1.9 billion of net inflows across our alternative credit and direct real estate offering. In credit, we saw a return to demand for our industry-leading bank loan ETFs BKLN. This growth was also augmented by net inflows into our CLO products. Despite near-term volatility and heightened headline rent, credit fundamentals remain broadly intact and spillover risk into the structured loans space have been limited. We continue to see strong demand for private credit solutions from institutional investors on a global basis and the current environment has not changed our long-term expansion plans and the retirement and wealth management channels. We have a favorable position with dry powder, diversification and extensive experience. For managers with our discipline, continued volatility may ultimately prove to be an opportunity. Our private real estate capabilities also recorded positive net inflows of $1.4 billion or an annualized organic growth rate of 8% this quarter, these results were led by INCREF, which is our real estate debt fund for U.S. wealth management clients, which continue to gain scale and assets, including leverage is now totaling over $6 billion. This fund was launched only a few years back and is yet another example of our deep investment talent, product innovation and strong distribution teams collectively driving growth. We are excited about prospects across our private markets business with organic growth opportunities amplified by our partnerships with Barings and LGT Capital to further penetrate the wealth management and defined contribution markets. Moving on to our multi-asset capability, where we had modest net outflows for the quarter. Continued inflows in our systematic equity offerings were offset by outflows from balanced risk allocation strategies, which remain out of favor. Finally, in fundamental equities, we continue to have positive net inflows from clients in Asia Pacific, driven by ongoing momentum in our global equity income fund, which remains the top-selling retail active fund in the Japanese market. This fund posted net inflows of nearly $3 billion during the quarter, rapidly growing to $28 billion in AUM, while generating a very favorable net revenue yield for Invesco. We also posted our second consecutive quarter of net inflows in our U.S. value equity strategies. Furthermore, our developed markets fund continues to experience significant moderation of outflows with just $0.5 billion during the quarter. Additionally, on an overall gross sales basis, we had among our best fundamental equity flow quarters since the beginning of 2022 on the heels of an exceptionally strong first quarter. Despite these positive fundamental equity flow highlights, we remained in net outflows of $7.7 billion overall in this segment. The uptick this quarter included a few large idiosyncratic liquidations from a couple of institutional investors, making overall allocation -- reallocation positioning decisions. We continue to focus on strengthening our fundamental equity long-term investment quality through talent, risk management and overall platform tool enhancements. We are making progress, and we are seeing improved performance, as outlined on the next slide. So moving on to Slide 5, which shows our overall investment performance relative to benchmarks and peers as well as our performance in key capabilities where information is readily comparable and more meaningful driving results. Investment performance is integral to winning and maintaining market share regardless of overall market demand. As such, achieving first quartile investment performance remains a key priority for Invesco. Overall, 44% of our active funds are performing in the top quartile of peers on a 3-year time horizon with nearly half reaching that bar over -- on a 5-year basis. Further, nearly 70% of our active AUM is beating its respective benchmark on both a 3- and 5-year basis. And as I mentioned, we are beginning to see improved performance in our fundamental equity lineup which now has over 40% of funds performing in the top quartile of peers on a 5-year time horizon with over half beating their benchmark. So with that, I'm going to take a pause and turn the call over to Allison to discuss the quarter's financial results, and I look forward to your questions.

Thank you, Andrew, and good morning, everyone. I'm going to start with the second quarter financial results that are on Slide 6. Strong organic growth and positive markets drove a significant increase in assets under management during the second quarter. Net long-term asset inflows were a record $45 million in the second quarter, nearly a 9% annualized organic growth rate, marking the 12th consecutive quarter of net inflows. Favorable markets drove a $257 billion increase in AUM and net flows in the money market funds totaled $17 billion for the quarter. AUM at the end of the quarter reached a record high of $2.5 trillion, a 14% increase over the first quarter and 23% higher than the second quarter of last year. Average long-term AUM was $2.1 trillion, a 7% increase over last quarter and 58% greater than last year. Net revenues, adjusted operating income and adjusted operating margin continued to show meaningful improvement from the first 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 5% and while adjusted operating expenses were essentially flat, generating nearly 500 basis points of positive operating leverage and a 300 basis point operating margin improvement in the second quarter, operating margin expanding to 37.5%. Adjusted operating income increased 14% to nearly $500 million for the quarter, and adjusted diluted earnings per share increased to $0.71 from $0.57 in the first quarter, a 25% improvement. On a year-over-year basis, net revenue growth was over 20%, while adjusted operating expenses increased 9%, generating over 10 points of positive operating leverage and a 630 basis point operating margin expansion. Adjusted operating income increased 45% and adjusted diluted earnings per share nearly doubled from $0.36 last year to $0.71 that we reported for the second quarter. Our focus on strengthening the balance sheet continued during the quarter as we reduced net debt by more than $450 million in the second quarter. The reduction combined with improved EBITDA, resulted in a substantial improvement in our leverage ratios. Finally, we increased common share repurchases in the second quarter as compared to prior quarters, buying back $50 million or 1.9 million shares. We also announced in April, an increase in the quarterly common stock dividend of $0.215 per share. Now moving to Slide 7. 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 equity has not been as strong. This has resulted in a more balanced AUM growth file for Invesco, which better positions the firm to navigate various market cycles, events and evolving client demand. We've 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 and more recently approaching a degree of stabilization. Provide context, the net revenue yield was 22.4 basis points for the second quarter. While slightly down from the first quarter, it was in line with the fourth quarter. The exit yield at the end of the second quarter was 22 basis points. Turning to Slide 8. Net revenue of $1.3 billion in the second quarter was $224 million higher compared to the same quarter last year and $55 million higher as 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. Operating expenses increased $70 million versus the same quarter last year and only $2 million as 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 QQQ. The hybrid investment platform implementation costs were $14 million in the second quarter, in line with our expectations and prior quarters. Incremental operating expense associated with AUM that has been moved on to the hybrid platform was $5 million in the quarter. The majority of this expense is impacting property office and technology and it will be in this line item going forward. Regarding the hybrid implementation platform cost for the remainder of 2026, we expect quarterly onetime implementation cost to run closer to $15 million per quarter in the second half of this year with the push to have implementation completed by year-end. As we transition more AUM onto the platform, incremental expense related to AUM on the platform will build towards $10 million per quarter later this year. Expenses associated with the platform may fluctuate quarter-to-quarter due to timing. Effective tax rate for the second quarter was 24.9%, in line with expectations. And for the fourth -- for the third 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 sites. I'm going to wrap up on Slide 9. We continue to make progress on building balance sheet strength and improving our leverage growth. During the second quarter, we reduced total debt by $343 million and net debt by over $450 million as compared to the first quarter. This included reducing the amount drawn on the revolving credit facility from $1.1 billion at the end of the first quarter to $736 million at the end of the second 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 $0.04 turn in the second quarter to 1.9x and the leverage ratio, excluding the preferred stock declined by over $0.03 a turn to 0.54x for the second quarter. Looking back over the past year, the leverage ratio inclusive of the preferred stock improved by nearly a turn driven by the $1.5 billion in preferred share repurchases, debt reduction and improving EBITDA. We expect further improvement in the leverage ratios for the remainder of the year as we reduce the amount drawn on the facility and simultaneously grow EBITDA. We also increased the degree of common share repurchases in the second quarter as well dividend. We increased the amount repurchased of $50 million or 1.9 million shares. And in April, we announced an increase in the quarterly common stock dividend to $0.215 per share. We intend to continue a 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, coupled with positive market trends drove AUM to a near record level. As a result, we delivered strong revenue growth for the quarter. This, combined with well-managed expenses delivered another quarter of positive operating leverage and a significant improvement in our operating margin. We also continued progress on building a stronger balance sheet. We're committed to driving profitable growth, a high level of financial performance and enhancing the return of capital to our shareholders. And with that, operator, if you could open the line up for Q&A.

[Operator Instructions] Our first question comes from Patrick Daitt with Autonomous Research.

I'll start with the Qs. Now that we know kind of what the fee rates are going to be for the competitor products, I guess, I would like to get your updated thoughts on firstly, your willingness to adjust the fee for the Qs. And two, to what degree there could be an expense offset to that either from marketing or custody that you can squeeze to offset any revenue growth.

Yes, Patrick, thanks for the question. Let me start, and then Allison can pick up on some of the specifics of the second part of it. I want to reiterate a couple of things. I mean, we have a 25-year history managing the QQQ. It has a very large and entrenched position. It has a ton of brand recognition and note that it's the one-of-a-kind QQQ. And it also is part of our ETF innovation suite, which now has $650 billion of assets across a ton of products around the world. The Qs recall, has a ton of scale, a ton of liquidity, execution benefits. It's the fifth largest ETF and the second most actively traded in the world. So I mentioned all that only to say, investors in our funds spent a lot of time looking at total cost of ownership. And that goes beyond the total expense ratio and Q -- shareholders have benefited from that and will continue to benefit given the size and scale. What I mean by that is really tight bias spreads, deep on the screen liquidity, a really strong trading base, and $0.5 trillion of notional options associated with it. So it has a really strong ecosystem around it that's unique. Also, switching costs are something people look at. And given the low relative tax base of so many in the QQQ, those switching costs come with the real economic impact. And then I want to also mention that we have our own test case of how these additional products around the Qs impact things. The QQM, which we launched about 5 years ago, stands at about $100 billion today. But it didn't slow down the QQQ significant growth during the period either. Over the last 3 years, that funds up 2.5x in terms of its size and it attracted $75 billion of net new flows despite having a lower price product alongside it. And then recently, as I mentioned in my comments, there's significant ownership of the QQQ around the world and indicative of how quickly we can scale up because of our strong brand. We recently listed in Hong Kong and in Tokyo, and those AUM levels are already a $10 billion combined. So we're really going to focus on differentiating ourselves on the total cost of ownership. We're really going to accentuate the deeply rooted QQQ brand, which is both recognized here in the U.S. and globally, and we're going to continue to innovate through the Suites leadership in new markets and new channels. Allison, do you want to pick up on maybe some of the more specific questions?

Sure. Anything pricing related. I would say, we're going to focus on long-term client outcomes. We're going to continue to focus on product differentiation, the ecosystem strength. We're not going to have a short-term competitive reaction. I think we've been in this for a long time, we're going to be in it for a long time, and we're really focused on that total client experience, as Andrew was discussing. We've got that dominant entrenched position. That's worth a substantial amount. And all of our marketing spend, as we think about that, is really going to be continuing to focus on how do we focus on promoting that Q2 brand, which arguably is probably the best-known ticker out there. And we're going to continue to focus our marketing dollars and creating that education and aid in adviser adoption. It's been incredibly effective. There's hundreds of million dollars, it's not north of $1 billion. It's already been invested against that brand over the last several decades. And it's going to be hard to match that level of brand strength and awareness or even match the spend that we have already spent against it. And we've really got the flexibility now to choose how we want to market and where we want to market and where we want to direct that spend and in the manner that we think is best. A lot of our marketing spend right now is dedicated outside of the United States. And as Andrew said earlier, we're north of $10 billion in AUM due to the cross listing of the QQQ. And Japan and in Hong Kong so we feel very good about the level of marketing spend there. Maybe the last part of your question, I think you mentioned custodian fees and any flexibility there. Look, I'd say, custodian fee was Bank of New York custodian. We could not have gotten the conversion done without Bank of New York's help 6 months ago. Those are long-term contracts that you enter into. So I don't think there's a lot of room on that right now, but I want to be really clear, they've been an unbelievably terrific partner, and we couldn't have done it without the Bank of New York.

Very helpful and detailed. One quick follow-up on the Superstate win. I think that fund was already managed by a firm that has arguably much more established in liquidity management. So could you expand on how that opportunity came together and why you think Invesco was chosen over the previous managers?

Yes. I mean we have a $220 billion global liquidity franchise. We're managing funds for decades. So we do have a lot of strength and capability in the liquidity side, so maybe it starts with that. The second thing is that we've made a commitment to innovate through digital assets and through establishing partnerships. And so having the opportunity to take over that $1 billion tokenized U.S. treasury fund was -- it was important to us. And I think because of our commitment to innovation, our long-term experience on the global liquidity side and frankly, the vast distribution that we have around the world institutionally and the retail space, I think, created a nice combination for the 2 of us.

Our next question comes from Bill Katz with TD Cowen.

Great. Maybe to pick up on the operating leverage, I think it came in well above most people's expectations. Andrew or Allison, sort of curious, as you think about either the incremental margin or maybe the longer-term margin targets, I was wondering if you could update your thinking for us. And I think within that, you mentioned in the deck, about opportunity to take us some more savings as you sort of migrate down the Aladdin -- I'm sorry, the AlphaGen implementation base, maybe update us where those savings could come from?

Sure. I think we've been quite consistent in saying we had an objective of returning our operating back to the high 30s and have a while there, we were focused on getting back to the mid-30s. Now we are squarely focused on continuing to improve this expansion into the high 30s and building a more durable operating margin just through any cycle. And that's the real challenge in a business like ours where you've got a high degree of beta and revenue sensitivity to the market and thus really behind a lot of the work we've been doing for several years now in trying to create the flexibility we need in the expense base and continuing to diversify our revenue sources with a better balanced AUM profile. I think we are really starting to demonstrate some of the benefits of that. So I would say near medium-term operating margin target is to continue to expand and consistently deliver in the high 30s. That's the focus. As it relates to operating expense guidance relative to the implementation of the hybrid investment platform, I'd say our comments are consistent with the guidance we gave at the end of the first quarter. Our focus is on really trying to deliver on the implementation by the end of this year. The implementation expenses, as we said, were $14 million in the second quarter. We're expecting that to be closer to $15 million consistently for the next couple of quarters. And then we also are continuing with the platform fees that we are paying. There's $5 million that was embedded in the run rate in the second quarter. That should be expanding to about $10 million per quarter in the back half of this year. So against that, there's a lot of work underneath trying to make sure we're managing our expenses really thoughtfully. I think you can see the evidence of that in the second quarter with the really well-maintained expenses. And as we get past implementation, we will continue to focus on driving out further operating expenses, consistent with our guidance last quarter into 2027.

And Bill, the only thing I'd add is the places where we're seeing organic growth ETFs, SMAs, fixed income at large, cash. These are all categories that scale pretty well, and we're going to continue to expect to see growth in those segments.

That's helpful. And just as a follow-up, maybe a different thread. Just want to think about your incremental thought process now on capital return, you've deleveraged pretty significantly. You're generating a lot of free cash flow. I think you mentioned payouts, so combined payout came to 60%. Maybe prioritize how you're thinking about capital return? Are you looking to do more deals now that you've gotten the balance sheet in a better spot. Is there opportunity to continue to work with MassMutual to bring down the preferred towards 0, which I think the market would like to see? Or how are you thinking about maybe the use of cash flow, that would be helpful.

Sure. Bill, I'll take that one also. I mean fairly consistent approach to capital. Yes, we are continuing to target a 60% payout ratio. We're doing that in an expanding sort of EPS environment. So it's almost a little bit hard to catch up to that. But -- we are continuing to make forward progress and expand both our buybacks and the modest increase in the common dividend that we announced last quarter. Feeling pretty good about the return of capital to shareholders and certainly have an intention to continue to improve that towards 60%. At the same time, we still have a little bit more to go on the revolver. So we noted very substantial progress in the first quarter. We would like to continue to work that down just a bit before trying to address more of the preferred that is, as we have said before, a mutual choice between MassMutual and ourselves and a lot of the conditions and circumstances have to be there, including their willingness and the rate environment the premium that is required. Those are all negotiated conversations. And we in position to do more. At some point in time, I think we said earlier this year, we hope to be in a position by later this year or early next year, and I still feel that's probably the right timing for us because what we are making sure we continue to reserve a great deal of capacity for us investing in ourselves. And we are doing that as we continue to launch new products, we continue to see great investment opportunities in our own product capabilities. And I think we've demonstrated the shareholder returns behind that with just the organic growth that we have been delivering consistently for several years now. That isn't at the expense of inorganic opportunity. We are always open-minded and looking at what's out there and always evaluating the landscape. But we evaluate that against our own organic growth opportunities. And here before, we've been able to deliver better shareholder returns on our own organic capabilities but anything we have seen from an inorganic perspective. So all things are always on the table for us, and we're always evaluating the opportunity set.

I mean, organically, I think we've generated close to $200 billion of net long-term inflows over the last 2 years. Additionally, we've kind of had -- we've adopted, I think, an ethos some partnership throughout the company as well, which was long dated. What we've done, the 2 in private markets, we made changes in India and Canada, as I mentioned, we've divested from our fintech. So I mean, we've been active, and we're going to continue to be creative both for organic and different forms of inorganic growth if it presents itself.

And this question comes from Glenn Schorr with Evercore.

So there's been a lot of growth on the tax aware side of the business. I'm curious, with your brand and your distribution network, I would think it would suit very well, maybe talk about your current capabilities and where you think that market can grow. And if you can just throw in any thoughts on the recent treasury commentary on a smaller subset of that business, that would be interesting.

Yes. I mean the SMA -- retail SMA space has grown really rapidly, as you said, industry-wide, and we've outpaced that growth. We were up to $40 billion of retail SMA. A lot of it tax-oriented tax aware as you called it, a lot of that growth for us has come on the fixed income side, and in particular, in the muni space, shorter duration, but getting into a little longer dated. So we have a real I think, competitive edge in the fixed income space, where I think others have focused almost exclusively on equities. We're also seeing growth on the equity side, both in systematic equity, a little less on the fundamental side. But I think as the pivot goes from mutual funds to other formats, active ETFs and actively manage tax aware, SMAs, we think the growth could be considerable. That $40 billion we manage today was half 3 or 4 years ago. So we've had exceptional growth and quarter-on-quarter growth. So we continue to expect that to be the case. Most of it is coming in the U.S. I mean I think there may be some opportunity over time in other parts beyond the U.S. But the technology is really good. And so my comments before, we'll continue to invest in technology probably over people and being able to scale that business pretty extensively, we think. And we have all the investment capabilities inside the house to be able to do it.

Maybe one on real estate to maybe a lesser degree, fixed fundamental fixed income. But during the quarter, we had a switch in rate expectations. And it feels like it's paused a recovery on the real estate side. But -- so it's not broken out explicitly in your table. I wonder if you could talk about your thoughts on the real estate backlog, demand for your product and if it can continue without the help of lower rates?

Yes, thanks. So let me start quickly and then I'll hand it over to Allison. We continue to see demand in the debt side of real estate credit side of real estate in particular. Our real estate credit fund, which I mentioned in my comments, is now up to $6 billion with leverage. It's grown kind of routinely every quarter over the last 2 or 3 years. And we haven't seen that subside really at all. I think it's gone from strength to strength. I think that's a little bit of a function of some of the demand, but also a lot less supply in that space. On the equity side, I think the fundamentals are a bit mixed. And maybe Allison can pick up on a couple of the details around that. But all in all, for the quarter, we saw growth -- net flow growth, organic flow growth in our real estate franchise.

Yes. I mean I'd say more specifically, even where we saw really strong growth was in INCREF and that continues to be one of the fastest ramps in the wealth channel for any of our real estate credit products. So that's at about $6 billion in AUM and continues to be a strong driver of flows. I don't know that it's I don't know that it dampens demand. It's more specifically to your question, but perhaps it doesn't return us to what we were perhaps experiencing 5, 7, 10 years ago when we were in a 0 rate low rate environment for a very long time. But I think largely, the market has been working through a lot of that. We continue now to see just better demand overall. I mean dry powder for us on the real estate side is around $7 billion. So we do still have a lot of unallocated capital we are seeing a little pickup in transaction activity overall. And so we're still modestly optimistic even with the rate outlook.

Our next question comes from Dan Fannon with Jefferies.

So Andrew, I was hoping you could expand upon your comments around the franchise and your outlook for expanding. And I think you've mentioned some of the stats around Hong Kong and Tokyo. Are there other regions or other things you're looking to do from either a marketing perspective or a product launch that should accelerate and/or pick up as the year progresses?

Yes, sure. Thank you. There's 2 big cross listings out in Asia in the last 6 to 9 months. Those are 2 really big markets for us. So not only were they important which is there, but they just amplify the recognition we already have in those markets, and it's a double benefit. We have, I think, 20 to 25 sort of Qs related or innovation suite as we call it, related products all over the world. And the full majority of those have been in the European region and the U.K. and also here in the U.S. PAUSE. So we'll look so selectively, not just from a market's different geography perspective. But even inside where we have dominance here in the U.S., we'll look to selectively expand it. But I think given that the marketing we've done around the QQQ specifically, now it can be much more expansive across that whole innovation suite in the large, and there's just such a halo benefit given that we're the one and only QQQ. So we're probably going to leverage that more than just product launches over the coming quarters.