Why Invesco Is Delaying QQQ Proxy Vote

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00:00And Neil, just give us the lay of the land here. Why this matters for Invesco? What would be the

00:05benefit if we did convert the queues? Yeah, so I think the benefit here is actually framed as a

00:11win-win for both shareholders and Invesco itself. So for the shareholder side, the expectation is

00:18the fee rate, the expense ratio that you pay on the fund, it's going to come down from 20 basis

00:23points to 18 basis points, so it's cheaper to hold this fund. Great, that's positive for investors,

00:28as well as the things like tax efficiency, moving forward, dividend reinvestments. That's the

00:34difference between the UIT and the ETF. For Invesco, on the other hand, this is a product

00:39that's now 18% of their assets, yet they've been earning no actual management fees or revenue on

00:45this. Everything that they earn is through a marketing agreement where everything has to be

00:49re-spent in marketing for the fund. That's why we see a lot of commercials for Invesco QQQ.

00:54Through this new structure, we're going to see about a net revenue yield of about four to five

00:59basis points, which, like I said, on 400 billion of assets is pretty meaningful. It's about 3% of

01:05revenue for Invesco, but more importantly, the incremental costs to do this, not so much, right?

01:10So most of that's going to flow to profit, which is now sort of baked into consensus with the

01:15expectations of a 10% uplift. A dumb question. Does anything change for the investor? If I go in

01:21and I'm looking to buy the Q's, anything changes for me? Effectively, no. It becomes cheaper,

01:26like I said. And frankly, it should have a better tracking of the index because those dividends will

01:31reinvest more quickly, as well as the in-kind redemption creation like an ETF. So from a tax

01:37efficiency standpoint and from an actual cost standpoint, it is beneficial to investors.

01:43The problem is, and why we sort of got to where we are today with the delay

01:47in the vote is it's a heavily retail owned fund. Yeah. And so ultimately gathering the votes from

01:55a very granular shareholder base is challenging, despite the positives that we talked about.

02:00In insane exercise in trying to herd cats, they needed a quorum of more than 50% of their holders

02:07to get these proposals through. The company did say in a statement to Bloomberg that they're not able

02:14to share details on the vote, given the sheer size of the Q's and its retail shareholder base.

02:19But an adjournment is not uncommon or unexpected. And that's true. We've seen this before when it

02:23comes to shareholder votes. But even still delaying until December 5th, I mean, are they going to manage

02:28to cross that threshold in just over a month? Yeah, I think that's still the question, right?

02:34But I think we're encouraged by the fact that there still is the opportunity there, right? We're still

02:38seeing this as a catalyst to sort of change the growth trajectory and the earnings power of

02:43Invesco. Of course, delaying and kicking the can down the road does leave the opportunity for this

02:49to ultimately not go through if they're not able to gather that 51% plus. But I think it's encouraging

02:57the language that we saw in the release. The votes were overwhelmingly positive, again, as they should

03:03be given the characteristics we talked about. And they said they're approaching that number,

03:07right? So more time needs more time to reach out to those investors, almost bother them and annoy

03:12them to say yes and vote for those that are interested. Yeah, so the story continues here.

03:17But let's go into hypothetical land. Let's say that the vote does actually pass on December 5th. As you

03:22laid out, this would incur a big windfall for Invesco, and they wouldn't have to do much to actually

03:27do that. So if they did have, you know, an extra $180 million to spend a year, let's say, what does that

03:35mean for the company? What might they spend that on? Yeah, so so I think one is is sort of the trends

03:41that we're seeing broadly across asset management is sort of beefing up the private markets categories

03:46where we know that the growth is there. We know that the fees are there and the fee compression

03:52that's pervasive across asset management. That's less of a story now. So investing in categories like

03:58that is not something that we wouldn't expect over time, as well as just sort of cleaning up the

04:04business. They've been undergoing a long, long term balance sheet cleanup. So allocating some of the,

04:09you know, increased earnings towards debt reduction is another thing we would sort of expect. But

04:15I think overall, it sort of continues to gear Invesco's franchise to the faster growing ETF and

04:22index categories. We know that those are lower fees, but we do know that that's where the growth is.

04:28And I think even excluding the cues overall, what we've seen across Invesco's broader franchise

04:34is some pretty significant momentum, including in the third quarter,

04:37which we're expecting results from next week.

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