I nvesco Bank of Am erica Merrill Lynch Banking and Financial - - PowerPoint PPT Presentation

Novem ber 1 1 , 2 0 0 9

I nvesco

Bank of Am erica Merrill Lynch Banking and Financial Services Conference

Colin D. Meadows

Senior Managing Director, CAO

Loren M. Starr

Senior Managing Director, CFO

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Forw ard-looking statem ents

This presentation, and comments made in the associated conference call today, may include “forward-looking statements.” Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market conditions, AUM, acquisitions, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would” as well as any other statement that necessarily depends on future events, are intended to identify forward- looking statements. Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q, filed with the Securities and Exchange Commission. You may obtain these reports from the SEC’s website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

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Focus Strength Leadership

• We deliver on a single focus: Investment

Management

• We draw on the strength of many resources:
• $416.9 billion in assets under management
• Publicly traded on NYSE with $9.8 billion in market

capitalization

• Client support in 20 countries serving clients in more than 100

countries

• 11 specialized investment centers
• More than 4,900 employees worldwide
• More than 500 investment professionals
• One of the world’s leading independent global investment

management firms.

Experience

• Long history of managing assets for clients globally

All data as of September 30, 2009.

Our Business Today

A global leader in investment management

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I nvesco Strategic Priorities Rem ain Consistent

The m arkets are global and so is our com pany 2 Deliver our investm ent capabilities anyw here in the w orld to m eet client needs

Long-Term Goals Delivering the combined power

• f our distinctive worldwide

investment management capabilities globally Strengthen our position in prioritized developed and emerging markets Innovate to capitalize on new

• pportunities

Achieve strong investm ent perform ance 1

Long-Term Goals Ensure clearly articulated investment disciplines aligned with client expectations underpinned by diligent oversight and rigorous quality control processes Create truly enduring investment solutions Foster a culture of investment excellence that attracts, retains and motivates top talent

Build a high- perform ance

• rganization

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Long-Term Goals Commit to continuous improvement and performance excellence throughout the organization Foster a true meritocracy where performance is rewarded Drive greater transparency, accountability and execution at all levels

Unlock the pow er of our global

• perating platform

Long-Term Goals Act as one firm, not a collection of many Simplify our global operating model Prioritize for profitable growth Continue the diversification of our investment

• bjectives, clients and channels

Our Aspiration: Take advantage of

• ur w orld of opportunity

to becom e the prem ier global investm ent m anagem ent firm 3

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Disciplined repeatable investm ent process

• Each of the distinct

investment teams has a clearly articulated investm ent strategy and philosophy, aligned with client expectations

• Tested strategies

through experience of deep investment teams through multiple market cycles

• CIOs have clearly

defined accountability to manage investment disciplines and develop talent

Perform ance m easurem ent and risk assessm ent

• I ndependent risk

m anagem ent controls and processes within our investment teams and across Invesco

• Reporting of investment

performance and risk m anagem ent to drive transparency across the

• rganization
• I nstitutionalized
• versight to ensure

success:

—

Invesco Ltd. Board

—

Fund Boards

—

Executive Management

—

Investment Team CIOs

I nvestm ent centric culture

• Com petitive rew ards

system aligns pay with long term investment performance and promote talent

• Mechanisms for more than

500 investment professionals to share ideas and develop new concepts in 20 countries

• Access to the latest

investm ent technology proprietary tools and platforms

• Client support and

adm inistrative platform s provide scale, best practices and minimize non- investment distractions

I nvesco is Com m itted to I nvestm ent Excellence

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Perform ance Benefits of Strong ERM Practices

Invesco’s Enterprise Risk Management (ERM) capabilities are serving the firm well through the challenging environment

• Registered Money Market Funds:

—

Avoided credit blow-ups

—

No holdings of defaulted securities

—

Maintained $1.00 NAVs throughout the crisis

—

Redemption requests processed without interruption

—

No capital injections or capital support

—

No exposure to AIG, Lehman, WaMu

—

No securities purchased out of MMFs by IVZ

—

No securities downgraded below Tier 1 while held in MMFs throughout the crisis

• No involuntary fund closures
• No exposure to high profile fraud events (Madoff, Stanford)
• No securities lending losses for clients
• Did not issue or sponsor auction rate preferred securities

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I nvestm ent Perform ance – Overview

Aggregate Perform ance Analysis – Asset W eighted

34% 66% 29% 71%

1 -Year 3 -Year

% Assets top half of peer group % Assets bottom half of peer group

% Assets in Top Half of Peer Group*

* I ncludes AUM of $ 2 8 2.6 billion ( 68 % of total I VZ) for 1 year, $ 27 9 .2 billion ( 6 7 % of total I VZ) for 3 year, and 2 6 9.4 billion ( 6 5 % of total I VZ) for 5 year as of 9 / 3 0/ 0 9. Peer group rankings are as of prior quarter-end for institutional products and prior m onth m onth-end for Australian retail. Excludes I nvesco Pow erShares, W L Ross, I nvesco Private Capital, non-discretionary direct real estate, bank loans and CDOs. Certain funds and products w ere excluded from the analysis because of lim ited benchm ark or peer group data. Had these been available, results m ay have been different. These results are prelim inary and subject to revision. Perform ance assum es the reinvestm ent of dividends. Past perform ance is not indicative of future results and m ay not reflect an investor’s experience.

75% 25%

5 -Year

Strong overall peer group perform ance ( asset-w eighted) – 6 6 % , 7 1 % , and 7 5 %

• f assets are in the top half of peer groups for the 1 , 3 , and 5 -year tim e periods

as of Septem ber 3 0 , 2 0 0 9 .

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I nvesco’s solutions are delivered by specialized investm ent team s around the globe

As of September 30, 2009. The listed investment centers do not all provide products or services that are available in the U.S., nor are their products and services available on all platforms. Please consult I nvesco for more information. I nvesco Aim I nvestm ent focus: U.S., international and global equities AUM: $47.9 billion I nvesco Trim ark I nvestm ent focus: Canadian equities, fixed income and global value AUM: $20.7 billion I nvesco Asia- Pacific I nvestm ent focus: Asian Ex-Japanese, Greater Chinese, Japanese and Australian equities AUM: $19.2 billion I nvesco Global Strategies I nvestm ent focus: Global Equity (Global, non-U.S., and Emerging Market equities) Quantitative Equity (quantitative active, enhanced and long/ short strategies) Global Asset Allocation (tactical asset allocation, alternative beta, and multi-asset class solutions) AUM: $33.1 billion I nvesco Real Estate I nvestm ent focus: Global direct real estate investing and public real estate investing AUM: $24.1 billion I nvesco W orldw ide Fixed I ncom e I nvestm ent focus: Money market, stable value, global fixed income and alternatives/ financial structures AUM: $160.8 billion I nvesco Pow erShares I nvestm ent focus: ETFs AUM: $14.1 billion Atlantic Trust I nvestm ent focus: High-net-worth multimanagement AUM: $14.9 billion I nvesco Perpetual I nvestm ent focus: U.K. and international equity and fixed income AUM: $73.3 billion I nvesco Private Capital I nvestm ent focus: Fund of funds and venture capital private equities AUM: $1.6 billion W L Ross I nvestm ent focus: Distressed and restructuring private equities AUM: $7.2 billion

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Delivering investment strategies that meet diverse needs

The Value W e Deliver to Our Clients

Diversified I nvestm ent Strategies

Equities

• Market cap
• Investment

style

• Global/

regional/ single country

• Developed/

emerging

• Sector
• Quantitative
• Directional

long/ short (130/ 30)

• Traditional

balanced

• Target

maturity

• Target risk
• Duration
• Quality
• Sector
• Global/

regional/ single country

• Developed/

emerging

• Taxability
• Portable

Alpha

• Liability-

Driven Investing

• Strategic

Partnerships

Alternatives

Absolute Return

• Market neutral
• GTAA
• Multi-Strategy

Private Equity

• Direct

(Distressed)

• Fund of Funds
• Buyout, VC,

Emerging Alternative Beta

• Risk premia

capture Real Estate

• Public real Estate

securities

• Private direct
• US, Asian,

European, Global Financial Structures

• CLO/ CDO/ CSO
• Opportunistic

Delivered the W ay Our Clients W ant

Institutional Separate Accounts Collective Trusts Mutual Funds (On/ Offshore) Exchange Traded Funds (ETFs) Private Placements Sub- Advised SMA/ UMA Variable Insurance Funds

Custom ized Solutions Fixed I ncom e Asset Allocation

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Unlocking The Pow er of Our Global Operating Platform

• Global Investment Operations and Information Technology Platform

—

Rationalized platforms and reduced the number of systems and streamlined processes around the globe (e.g. Single Security Master and Accounting Platforms).

• Global Client Communication Platform

—

Developed a common platform to provide consistent messaging across the globe leveraging management commentary, work flow and data integration to efficiently and effectively produce quarterly reports, meeting presentations, fund fact sheets and other marketing materials.

• Global Equity Trading Platform

—

Implemented a single platform that allows us to source liquidity in the various regions in which we invest real-time with local traders linked by common technologies, policies, and procedures.

• Functionalized Support Roles

—

Established a single global organization to allow the sharing of best practices, creation of standards and policies, and centralization of common processes.

—

Includes IT/ Operations, Finance, Legal, HR, Compliance, among others.

• Global Procurement and Contract Management

—

Improved pricing through leveraging larger global relationships.

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Building a High Perform ance Organization

• People development & communication

—

Global performance reviews for all employees.

—

Formal talent management process for senior leaders (3-4 layers deep) that enables the identification, development, and retention of key talent.

—

Constant stream of communications with employees including regular employee town halls with senior leaders across locations.

• Consistent compensation philosophy throughout the organization.

—

Clearly articulated plans for investment teams based on investment

• performance. Plans include retention component of deferred compensation in

IVZ stock and investments in funds.

—

Firm operating performance largely dictates discretionary compensation for non-investment personnel.

• Defined capital planning strategy

—

Capital allocation is guided by four priorities: reinvestment in the business, acquisitions that make strategic and financial sense, steadily increasing dividends, and share repurchase.

• Disciplined planning process

—

Achieves balance between reinvestment in the business and operating efficiency with clear linkage between strategic planning and the operating budget, including disciplined approach to new product launches, technology investment, and marketing initiatives.

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• Continuation of positive long-term flows since 4Q08
• Equities increased from 33.2% of AUM in 1Q09 to 39.2% of AUM in 3Q09 driving up the net

revenue yield from 46.7bps to 52.6bps over the same period.

• Expense management combined with a rebound in global financial markets resulted in a

sharp improvement in net operating margin since 1Q09.

I m proving Financial Trends

Net Revenue Yield ( basis points) *

54.0 55.1 46.7 49.9 52.6 44 46 48 50 52 54 56 58 60 3Q08 4Q08 1Q09 2Q09 3Q09

Quarterly Long-Term Flow s ( $ billions)

16.8 15.5 14.3 18.1 19.4

• 19.8
• 19.9
• 15.1
• 13.6
• 16.8

2.6 3.0 0.7

• 3.0
• 4.4
• $40
• $20

$0 $20 $40 3Q08 4Q08 1Q09 2Q09 3Q09

Gross sales Gross redemptions Net long-term flows Net Operating Margin ( % ) *

29.9 25.1 16.5 32.7 19.0 10 15 20 25 30 35 40 3Q08 4Q08 1Q09 2Q09 3Q09 * Net Revenue and Net Operating Margin are Non-GAAP financial measures. Please see the appendix for a reconciliation to the most directly comparable GAAP measures bps %

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Net Operating & I ncrem ental Margin Trend

31.4% 36.0% 31.6% 34.7% 24.4% 60% 63% 59%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2006 2007 2008 3QYTD-08 3QYTD-09

* * I ncremental margin is equal to the change from the prior period Net Operating I ncome divided by the change from the prior period Net Operating Revenue. Both Net Operating I ncome and Net Revenue are Non-GAAP financial measures. Please see the appendix for a reconciliation to the most directly comparable GAAP measures.

• Historically, Invesco has operated with an incremental margin of 60% - 65% .
• From 1Q09 – 3Q09, Invesco has allowed incremental margins to exceed past levels.

19.0% 16.5% 25.1% 29.9%

33% 84% 64%

0% 5% 10% 15% 20% 25% 30% 35% 40% 4Q08 1Q09 2Q09 3Q09

Annual/ YTD Quarterly

Incremental Margin Net Operating Margin

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I ntroduction to Morgan Stanley retail business including Van Kam pen

• Morgan Stanley retail business including Van Kampen*
• Includes associated investment teams, funds, mandates and assets

under management.

• Diversified business with $119bn in AUM across equity, fixed

income, alternatives, and UITs

• ~ 650 investment, distribution, and operations support professionals

— Complementary investment teams managing primarily retail

assets (89% of AUM) across a largely U.S. footprint (89% of total AUM)

• Diversified client base with significant presence on key platforms
• Van Kampen was founded in 1968 and acquired by Morgan Stanley

in 1997

AUM as of September 30, 2009 * Includes select MSIM retail and institutional assets

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This com bination is highly consistent w ith I nvesco's focus on investm ent excellence

Invesco

1 -Year 3 -Year

% Assets top half of peer group % Assets bottom half of peer group

5 -Year 31% 6 9 % 28% 7 2 % 7 3 % 27% Com bined Business % Assets in Top Half of Peer Group* - All assets

66% 71% 75% Van Kampen / MS retail business* * * 79% 77% 63%

5 5 % of com bined business AUM w ill be in 4 - or 5 -star U.S. Mutual Funds ( 5 1 % of current I nvesco AUM, 5 9 % of current Van Kam pen / MS retail business* * * AUM) * *

* Includes AUM of US$282.6 billion (68% of total IVZ) for 1 year, US$279.2 billion (67% of total IVZ) for 3 year, and 269.4 billion (65% of total IVZ) for 5 year as of 9/ 30/ 09. Van Kampen/ Morgan Stanley AUM of US$74.6 billion for 1 year, US$74.1 billion for 3 year and US$71.6 billion for 5 year as of 9/ 30/ 09. Peer group rankings are as of prior quarter-end for institutional products and prior month month-end for Australian retail. Excludes Invesco PowerShares, W.L. Ross and Co., Invesco Private Capital, direct real estate products and CDOs/ CLOs. Peer groups are supplied by the predominant third party ranking agency in the market of the fund. For select funds, the peer group assigned to the fund is combined with a second third party peer group to create a more representative peer group. Certain funds and products were excluded from the analysis because of limited benchmark or peer group data. Had these been available, results may have been different. * * Includes AUM of US$41.1 billion for Invesco Aim, US$59.2 billion for Van Kampen/ Morgan Stanley. % AUM rated 4 or 5 stars only represents open-end US retail mutual funds. These results are preliminary and subject to revision. Performance assumes the reinvestment of dividends. Past performance is not indicative of future results and may not reflect an investor’s experience. * * * Includes select MSIM retail and institutional assets

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Together, w e expect to be better positioned to m eet our client and shareholder needs

$3 $2 $0 $4 $5 $47 $17 $15 $18 $21 $11 $5 $8 HY & Convertibles Quantitative $17 US Core $21 Japan Equity US Growth $29 Bank Loans $18 Global/ Int’l Equity $55 UITs $12 US Balanced $31 Municipals $24 US Value $35 $1 $3 $3 $6 $7 $8 $9 $12 $15 $20 $30 Quantitative HY & Convertibles US Core Japan Equity US Growth Bank Loans Global/ Int’l Equity UITs US Balanced Municipals US Value Van Kam pen / MS retail business1 $6 I nvesco Com bined $274 $0 $280 Total AUM: US$ 1 1 8 .7 B Total AUM: US$ 4 1 6 .9 B Total AUM: US$ 5 3 5 .6 B Other 2 Other 2

Source: I nvesco and Van Kampen I nvestments. All data as of September 30, 2009. Not all of the strategies listed are available in every country, nor are

they available on all platforms. Please consult with your Invesco representative for more information on any of our strategies mentioned.

1 I ncludes select MSI M retail and institutional assets.

2 For I nvesco “Other” includes stable value, money market, enhanced cash, core/ core plus, intermediate fixed income, emerging market debt, global/ regional fixed income, single country equity and fixed income mandates outside the U.S., global, regional, and single country balanced mandates outside the U.S., real estate, private equity, market neutral, GTAA, and other absolute return strategies. For Van Kampen / MS Retail business “Other” includes money market, LT investment grade fixed income, REITs, global asset allocation, and quantitative structured solutions.

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Better positioned to m eet client needs

A com prehensive set of investm ent vehicles for our clients

I nvestm ent Vehicles

Relative strength

• Closed-end funds
• UI Ts
• Mutual Funds
• VI Funds
• Sub-Advised
• Managed Accounts
• Collective Trust Funds
• Separate Accounts
• ETFs
• SI CAVs
• MS retail business

including Van Kam pen I nvesco Com bined Private Equity

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Com plem entary and deeper relationships, strengthened overall distribution capabilities

Share of com bined U.S. AUM m ix by distribution Channel1 ( % )

Invesco Van Kampen / MS retail business4

• Highly com plem entary relationships w ith top platform s betw een

I nvesco and Van Kam pen

• Strengthened distribution capabilities, talent and value-added services

to our partners 73% 45% 56% 18% Defined Benefit 3 9 8 % 2% Defined Contribution2 8 2 % Insurance (Variable Annuities) 4 4 % Independent Financial Dealers 5 5 % Broker-Dealers and Banks 2 7 %

1 I ncludes I nvesco’s US retail and institutional business and excludes I nvesco PowerShares. I ncludes VK/ MS’s Retail Products for the US (open- and

closed-end funds) and I nstitutional Products for the US (SMA, VA subadvised, separate accounts) and excludes UITs.

2 Direct to plan sponsors, recordkeepers, advisors and consultants. Includes retail and institutional AUM 3 Traditional institutional – defined benefit plans, endowments/ foundations, etc. 4 Includes select MSI M retail and institutional assets

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Custom ary regulatory and fund shareholder approvals Expected closing m id 2 0 1 0

Strong returns to shareholders

Highlights

Considerations and sources of cash Approval and expected closing

Considerations to Morgan Stanley

—

Cash $ 5 0 0 m illion

—

I nvesco equity $ 1 billion 4 4 .1 m illion shares* ( fixed)

Operating Results Sum m ary 7 .7 x Price/ 2 0 0 9 EBI TDA ( run rate) $ 1 .5 bn Transaction consideration 3 2 % Net Operating Margin $ 1 4 0 Third-Party Distribution, Service and Advisory Expenses $ 6 1 5 Total Operating Revenues $ 1 9 4 EBI TDA run rate $ 4 2 + Depreciation and am ortization $ 1 1 9 bn 9 / 3 0 / 0 9 AUM 4 0 bps Net Revenue Yield ( $ m illions) Run Rate as of Septem ber 3 0 , 2 0 0 9 Net Revenues $ 4 7 6 Operating Expenses $ 3 2 4 Operating I ncom e $ 1 5 2 Net I ncom e $ 9 3 EBI TDA Reconciliation Operating I ncom e $ 1 5 2

Van Kam pen/ Morgan Stanley acquired AUM run rate operating results sum m ary

* 2 1 m illion non voting shares

Note: The 2009 run rate EBITDA reflects the impact of immediate synergies resulting from carving out the retail business from the rest of the Morgan Stanley asset management segment

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• I m m ediately accretive

— ~ 11% accretive (~ $0.13) in first 12 months after

close

• Cash payback in approxim ately 7 years
• I RR of ~ 3 0 %
• Other financial notes:

— Estimated outflows: ~ $10bn — Synergies: ~ $70mn — Integration charges: $100 - $125mn (largely in

2010)

— Non cash intangible amortization: $25-$35mn

per year for 8 years

Financial im pact

Strong returns to shareholders

Assum ptions

• Accretion estimate:

—

Excludes the impact of integration charges of $100 - $125mn: ($0.13

• $0.16) EPS impact

—

Excludes incremental intangible amortization $25-$35mn): ($0.03 - $0.05) EPS impact

• Cash payback and

IRR estimates:

—

Include integration charges of $100- $125mn

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W ell Positioned for Grow th

• Invesco is a strong global firm
• We are building real m om entum in terms of:

—

Investment performance

—

Assets and flows

—

Business performance

• Delivering the combined power of our distinctive worldwide

investment management capabilities adds substantial value for

• ur clients
• Van Kampen/ MSIM acquisition will further strengthen our ability

to serve clients and grow our business.

• We are committed to achieving investm ent excellence
• Led by a pow erful strategy …

that delivers on our aspiration to become the premier global investment management organization

Questions & Answ ers

Appendix

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Schedule of Non-GAAP I nform ation

For the three m onths ended

Dec 3 1 , 2 0 0 8 March 3 1 , 2 0 0 9 June 3 0 , 2 0 0 9 Septem ber 3 0 , 2 0 0 9 Operating revenues, GAAP basis $ 6 3 4 .4 $ 5 4 8 .6 $ 6 2 5 .1 $ 7 0 5 .8 Third-party distribution, service and advisory expenses ( 1 6 2 .6 ) ( 1 4 8 .2 ) ( 1 6 6 .3 ) ( 1 8 3 .5 ) Proportional share of net revenues from joint venture arrangem ents 1 0 .1 9 .6 1 1 .1 1 2 .5 Net revenues( 1 ) $ 481 .9 $ 410 .0 $ 469 .9 $ 534 .8 Operating incom e, GAAP basis $ 8 4 .5 $ 6 1 .8 $ 1 1 0 .4 $ 1 5 1 .6 Proportional share of operating incom e from joint venture investm ents 7 .0 5 .8 7 .7 8 .2 Net operating incom e ( 1) $ 9 1 .5 $ 67 .6 $ 118 .1 $ 159 .8 Operating m argin* 1 3 .3 % 1 1 .3 % 1 7 .7 % 2 1 .5 % Net operating m argin* * ( 1 ) 1 9 .0 % 1 6 .5 % 2 5 .1 % 2 9 .9 %

* Operating m argin is equal to operating incom e divided by operating revenues. * * Net operating m argin is equal to net operating incom e divided by net revenues.

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Schedule of Non-GAAP I nform ation

3 1 .4 % 2 3 .4 % $ 7 6 2 .1 2 .9 $ 7 5 9 .2 $ 2 ,4 2 8 .0 8 .1 ( 8 2 6 .8 ) $ 3 ,2 4 6 .7 2 0 0 6 3 6 .0 % 3 1 .6 % Net operating m argin* * ( 1 ) 2 5 .6 % 2 2 .6 % Operating m argin* $ 1 ,0 3 9 .8 $ 7 8 7 .5 Net operating incom e ( 1 ) 4 5 .5 3 9 .7 Proportional share of operating incom e from joint venture investm ents $ 9 9 4 .3 $ 7 4 7 .8 Operating incom e, GAAP basis $ 2 ,8 8 8 .4 $ 2 ,4 8 9 .4 Net revenues( 1 ) 6 0 .6 5 7 .3 Proportional share of revenues, net of third- party distribution fees, from joint venture investm ents ( 1 ,0 5 1 .1 ) ( 8 7 5 .5 ) Third- party distribution, service and advisory costs $ 3 ,8 7 8 .9 $ 3 ,3 0 7 .6 Operating revenues, GAAP basis 2 0 0 7 2 0 0 8

* Operating m argin is equal to operating incom e divided by operating revenues. * * Net operating m argin is equal to net operating incom e divided by net revenues.

( $ Millions)