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IVZ Invesco

Filed: 19 Feb 21, 7:49am
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission file number 001-13908
ivz-20201231_g1.gif
Invesco Ltd.
(Exact Name of Registrant as Specified in Its Charter)
Bermuda98-0557567
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
1555 Peachtree Street, N.E.,Suite 1800,Atlanta,GA30309
(Address of Principal Executive Offices)(Zip Code)

Registrant’s telephone number, including area code: (404) 892-0896
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.20 par valueIVZNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No
At June 30, 2020, the aggregate market value of the voting stock held by non-affiliates was $4.9 billion, based on the closing price of the registrant's Common Shares, par value U.S. $0.20 per share, on the New York Stock Exchange. At January 31, 2021, the most recent practicable date, the number of Common Shares outstanding was 459,072,262.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant will incorporate by reference information required in response to Part III, Items 10-14 in its definitive Proxy Statement for its annual meeting of shareholders, to be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.


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TABLE OF CONTENTS

We include cross references to captions elsewhere in this Annual Report on Form 10-K, which we refer to as this “Report,” where you can find related additional information. The following table of contents tells you where to find these captions.

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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Report, other public filings and oral and written statements by us and our management, may include statements that constitute “forward-looking statements” within the meaning of the United States securities laws. These statements are based on the beliefs and assumptions of our management and on information available to us at the time such statements are made. Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flows and capital expenditures, industry or market conditions, assets under management, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products, the prospects for certain legal contingencies, and other aspects of our business or general economic conditions. In addition, when used in this Report or such other documents or statements, words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” “forecasts,” and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and 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. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. In most cases, such assumptions will not be expressly stated. We caution investors not to rely unduly on any forward-looking statements.

The following important factors, and other factors described elsewhere in this Report or contained in our other filings with the U.S. Securities and Exchange Commission (SEC), among others, could cause our results to differ materially from any results described in any forward-looking statements:

significant fluctuations in the performance of capital and credit markets worldwide;
adverse changes in the global economy;
the performance of our investment products;
significant changes in net asset flows into or out of the accounts we manage or declines in market value of the assets in, or redemptions or other withdrawals from, those accounts;
pandemics or other widespread health crises and governmental responses to the same;
competitive pressures in the investment management business, including consolidation, which may force us to reduce fees we earn;
any inability to adjust our expenses quickly enough to match significant deterioration in markets;
the effect of fluctuations in interest rates, liquidity and credit markets in the U.S. or globally, including regulatory reform of benchmarks, such as LIBOR;
our ability to acquire and integrate other companies into our operations successfully and the extent to which we can realize anticipated product sales, cost savings or synergies from such acquisitions;
the occurrence of breaches and errors in the conduct of our business, including any failure to properly safeguard confidential and sensitive information, cyber-attacks or acts of fraud;
our ability to attract and retain key personnel, including investment management professionals;
limitations or restrictions on access to distribution channels for our products;
our ability to develop, introduce and support new investment products and services;
our ability to comply with client contractual requirements and/or investment guidelines despite preventative compliance procedures and controls;
variations in demand for our investment products or services, including termination or non-renewal of our investment management agreements;
harm to our reputation;
our ability to maintain our credit ratings and access the capital markets in a timely manner;
our debt and the limitations imposed by our credit facility;
exchange rate fluctuations, especially as against the U.S. Dollar;
the effect of political, economic or social instability in or involving countries in which we invest or do business (including the effect of terrorist attacks, war and other hostilities);
the effect of failures or delays in support systems or customer service functions, and other interruptions of our operations;
the effect of non-performance by our counterparties, third party service providers and other key vendors to fulfill their obligations;
impairment of goodwill and other intangible assets;
adverse results in litigation and any other regulatory or other proceedings, governmental investigations, and enforcement actions; and
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enactment of adverse federal, state or foreign legislation or changes in government policy or regulation (including accounting standards) affecting our operations, our capital requirements or the way in which our profits are taxed.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized may also cause actual results to differ materially from those projected. For more discussion of the risks affecting us, please refer to Item 1A, “Risk Factors.”

You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us and our businesses generally. We expressly disclaim any obligation to update any of the information in this or any other public report if any forward-looking statement later turns out to be inaccurate, whether as a result of new information, future events or otherwise. For all forward-looking statements, we claim the “safe harbor” provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

PART I
Item 1.  Business

Introduction

Invesco Ltd. (Invesco or the company) is an independent investment management firm dedicated to delivering an investment experience that helps people get more out of life. Our comprehensive range of active, passive and alternative investment capabilities has been constructed over many years to help clients achieve their investment objectives. We draw on this comprehensive range of capabilities to provide customized solutions designed to deliver key outcomes aligned to client needs.

With more than 8,000 employees and an on-the-ground presence in over 20 countries, Invesco is well positioned to meet the needs of investors across the globe. We have specialized investment teams managing investments across a broad range of asset classes, investment styles and geographies. For decades, individuals and institutions have viewed our organization as a trusted partner for a broad range of investment needs. We have a significant presence in the retail and institutional markets within the investment management industry in North America, EMEA (Europe, Middle East and Africa) and Asia-Pacific, serving clients in more than 120 countries. As of December 31, 2020, the firm managed approximately $1.35 trillion in assets for investors around the world.

The key drivers of success for Invesco are long-term investment performance, competitive pricing which we achieve through scaling our business, high-quality client service and effective distribution relationships, delivered across a diverse spectrum of investment management capabilities, distribution channels, geographic areas and market exposures. By achieving success in these areas, we seek to deliver better outcomes for clients and generate competitive investment results, positive net flows, increased assets under management (AUM) and associated revenues.

We are affected significantly by market movements, which are beyond our control; however, we endeavor to mitigate the impact of market movements for the firm and for clients by maintaining broad diversification across asset classes, investment vehicles, client domiciles and geographies. We measure relative investment performance by comparing our investment capabilities to competitors' products, industry benchmarks and client investment objectives. Generally, distributors, investment advisors and consultants take into consideration longer-term investment performance (e.g., three-year and five-year performance) in their selection of investment products and manager recommendations to their clients, although shorter-term performance may also be an important consideration. Third-party ratings may also influence client investment decisions. We monitor quality of client service in a variety of ways, including periodic client satisfaction surveys, analysis of response times and redemption rates, competitive benchmarking of services and feedback from investment consultants.

Invesco Ltd. is organized under the laws of Bermuda. Our common shares are listed and traded on the New York Stock Exchange under the symbol “IVZ.” We maintain a website at www.invesco.com/corporate. (Information contained on our website shall not be deemed to be part of, or be incorporated into, this document).

Strategy

The company focuses on four key long-term strategic objectives that are designed to sharpen our focus on client needs, further strengthen our business over time and help ensure our long-term success:

Achieve strong, long-term investment performance across distinct investment capabilities with clearly articulated investment philosophies and processes, aligned with client needs;
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Be instrumental to our clients' success by delivering our distinctive investment capabilities worldwide to meet their needs;
Harness the power of our global platform by continuously improving execution effectiveness to enhance quality and productivity, and allocating our resources to the opportunities that will best benefit clients and our business; and
Perpetuate a high-performance organization by driving greater transparency, accountability, diversity of thought, fact-based decision making and execution at all levels.

As an integrated global investment manager, we are keenly focused on meeting clients' needs and operating effectively and efficiently. We take a unified approach to our business and present our financial statements and other disclosures under the single operating segment “investment management.”

We believe one of Invesco's greatest strengths is our separate, distinct investment teams in multiple markets across the globe. A key focus of our business is fostering a strong investment culture and providing the support that enables our investment teams to maintain well-performing investment capabilities. We believe the ability to leverage the capabilities of our investment teams to help clients across the globe achieve their investment objectives is a significant differentiator for our firm.

Industry Trends

Trends around the world continue to transform the investment management industry and underscore the need to be well diversified with broad capabilities globally and across asset classes:

Distribution partners are becoming more selective and are moving towards developing fewer relationships and partners, reducing the number of investment managers with whom they work. Invesco provides a robust set of capabilities and creates investment solutions that delivers key outcomes aligned to their investment objectives. Invesco delivers competitive pricing, investor education, thought leadership, digital platforms and other value-added services that enhance the client experience.
Clients are also demanding more from investment managers. While investment performance remains paramount, competitive pricing, client engagement and value-added services (including portfolio analytics and providing consultative solutions) increasingly differentiate managers. Invesco is working to enhance the client's user experience through digital marketing (web, mobile, social) and improved service.
Investors continue to demand alternative, passive and smart beta strategies. As a consequence, the industry is seeing client demand for core equities portfolios decline as a share of global flows. Invesco is the #3 provider of smart beta AUM in the US and has 76 ETFs with greater than $500 million in assets. Invesco also has a strong lineup of alternative and multi-asset strategies supported by ongoing product development.
We are seeing increased pressure on net revenue yield within the asset management industry, arising from increased use of low fee passive products and further concentration within our channel distribution partners (which increases their ability to negotiate pricing).
Regulatory activity remains at increased levels and is influencing competitive dynamics. Increased regulatory scrutiny of managers has focused on many areas including transparency/unbundling of fees, inducements, conflicts of interest, capital, liquidity, solvency, leverage, operational risk management, controls and compensation. Invesco continues to work proactively with regulators around the world. Efforts to further modernize and strengthen our global platform will enhance our ability to compete effectively across markets while complying with the variety of applicable regulatory regimes. This is a key differentiator for large, scaled firms such as Invesco, and smaller firms may struggle to make the necessary investment to stay current and comply with the increased regulation we are seeing globally.
Although the developed markets in the U.S. and Europe are currently the two largest markets for financial assets by a wide margin, other key emerging markets in the world, such as China and India, are growing faster and positioned for greater future growth over the long term. As these population-heavy markets mature, we believe investment managers that are truly global will be in the best position to capture this growth. Additionally, population age differences between emerging and developed markets will result in differing investment needs and horizons among countries. Asset allocation and retirement savings schemes also differ substantially among countries. We believe firms such as Invesco, with experience in key markets, and diversified investment capabilities and product types, are best positioned to meet clients' needs in this global competitive landscape. Invesco has a meaningful market presence in many of the world's most attractive regions, including North America, EMEA and Asia-Pacific. We believe our strong and growing presence in established and emerging markets provides significant long-term growth potential for our business.
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Technology advances are impacting core elements of the investment management industry, which lags other industries in its use of technology. Clients increasingly seek to interact digitally with their investment portfolios. This is leading to established managers investing in and/or acquiring technology platforms. As the investment management business becomes more complex, automation will become increasingly important to serve clients effectively and efficiently. Invesco is leveraging technology across its business and exploring opportunities to work with third-party technology firms to enhance our clients' investment experience. Over the past few years, we have made strategic acquisitions to strengthen our digital wealth platform. These acquisitions and others have strengthened our ability to offer competitive digital wealth capabilities and position us ahead of the evolving client needs.

As a result of the trends discussed above, clients are seeking to work with a smaller number of asset managers who can deliver a comprehensive set of products and value-added services. They want money managers who can provide a robust set of capabilities and create investment solutions that deliver key outcomes aligned to their investment objectives. They also want greater value for their money, which means competitive pricing, investor education, thought leadership, digital platforms and other value-added services that enhance the client experience. These dynamics are driving fundamental changes within our industry and we believe will drive increasing consolidation. We believe the steps we have taken over the past decade and throughout 2020 strengthened our ability to meet client needs and will help ensure Invesco is well-positioned to compete and win within our industry over the long term.

Investment Management Capabilities

We believe that the proven strength of our distinct and globally located investment teams and their well-defined investment disciplines and risk management approach provide us with a robust competitive advantage. There are few independent investment managers with teams as globally diverse as Invesco's and with the same breadth and depth of investment capabilities and vehicles. We offer multiple investment objectives within the various asset classes and products that we manage. Our asset classes, broadly defined, include money market, balanced, equity, fixed income and alternatives.

The following sets forth our managed investment objectives by asset class:
     Money Market
     Balanced
        Equity
    Fixed Income
      Alternatives
●Custom Solutions●Custom Solutions●Custom Solutions●Custom Solutions●Custom Solutions
●Environmental, Social and Governance●Environmental, Social and Governance●Environmental, Social and Governance●Environmental, Social and Governance●Environmental, Social and Governance
●Cash Plus●Balanced Risk●Economic Sectors●Buy and Hold●Absolute Return
●Government/Treasury●Global/Regional●Emerging Markets●Convertibles●Commodities
●Prime● Single Country●International/Global●Core/Core Plus●Currencies
●Taxable●Target Date●Large Cap Core●Emerging Markets●Financial Structures
●Tax-Free●Target Risk●Large Cap Growth●Government Bonds●Global Macro
●Traditional Balanced●Large Cap Value●High-Yield Bonds●Infrastructure and MLPs
●Low Volatility/Defensive●International/Global●Long/Short Equity
●Mid Cap Core●Investment Grade Credit●Managed Futures
●Mid Cap Growth●Multi-Sector●Multi-Alternatives
●Mid Cap Value●Municipal Bonds●Private and Distressed Debt
●Passive/Enhanced●Passive/Enhanced●Private Real Estate
●Regional/Single Country●Regional/Single Country●Public Real Estate Securities
●Small Cap Core●Short/Ultra-Short Duration●Senior Secured Loans
●Small Cap Growth●Stable Value
●Small Cap Value●Structured Securities
●Smart Beta/Factor-based●Smart Beta/Factor-based
Distribution Channels

Retail AUM originates from clients investing into funds available to the public in the form of shares or units. Institutional AUM originates from entities such as individual corporate clients, insurance companies, endowments, foundations, government authorities, universities or charities. AUM disclosure by distribution channel represents consolidated AUM distributed by type of sales team (the company's internal distribution channels). AUM amounts disclosed as retail channel AUM represents AUM distributed by the company's retail sales team; whereas AUM amounts disclosed as institutional channel AUM represents AUM distributed by the company's institutional sales team.

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The company operates as an integrated global investment manager, presenting itself as a single firm to clients around the world. Dedicated sales forces deliver our investment strategies through a variety of vehicles that meet the needs of retail and institutional clients. Note that not all products sold in the disclosed retail distribution channel are in "retail" vehicles, and not all products sold in the disclosed institutional channel are in "institutional" vehicles, as described in the table below. This aggregation, however, is viewed as a proxy for presenting AUM in the retail and institutional markets in which we operate.

The following lists our primary investment vehicles by distribution channel:
                      Retail
             Institutional
● Closed-end Mutual Funds● Collective Trust Funds
● Exchange-traded Funds (ETF)● Exchange-traded Funds (ETF)
● Individual Savings Accounts (ISA)● Institutional Separate Accounts
● Investment Companies with Variable Capital (ICVC)● Open-end Mutual Funds
● Investment Trusts● Private Capital Funds
● Open-end Mutual Funds
● Separately Managed Accounts (SMA)
● Société d'investissement à Capital Variable (SICAV)
● Unit Investment Trusts (UIT)
● Variable Insurance Funds

Retail

Retail AUM were $947.1 billion at December 31, 2020. We offer retail products within all of the major asset classes. Our retail products are primarily distributed through third-party financial intermediaries, including major wire houses, fund supermarkets, regional broker-dealers, insurance companies, banks and financial planners in North America, and independent brokers and financial advisors, banks and supermarket platforms in EMEA and Asia-Pacific.

The Americas, UK and EMEA ex-UK retail operations rank among the largest by AUM in their respective markets. As of December 31, 2020, Invesco holds a leading position amongst retail fund providers in the UK; Invesco's U.S. retail business, including our ETF franchise, is a top 10 asset manager in the U.S. by long-term assets, and Invesco in EMEA ex-UK is among the largest non-proprietary investment managers in the retail channel. Invesco Great Wall was one of the largest Sino-foreign managers of equity products in China, with total AUM of approximately $66.6 billion as of December 31, 2020. We provide our retail clients with one of the industry's most robust and comprehensive product lines.

Institutional

Institutional AUM were $402.8 billion in AUM as of December 31, 2020. We offer a broad suite of domestic and global strategies, including traditional and quantitative equities, fixed income (including money market funds for institutional clients), real estate, financial structures and absolute return strategies. Regional sales forces distribute our products and provide services to clients and intermediaries around the world. We have a diversified client base that includes major public entities, corporations, unions, non-profit organizations, endowments, foundations, pension funds, financial institutions and sovereign wealth funds. Invesco's institutional money market funds serve some of the largest financial institutions, government entities and corporations in the world.

AUM Diversification

One of Invesco's greatest competitive strengths is the diversification in its AUM by client domicile, distribution channel and asset class. Our distribution network has attracted assets of 70% retail and 30% institutional as of December 31, 2020. By client domicile, 29% of client AUM are outside the U.S., and we serve clients in more than 120 countries. The following tables present a breakdown of AUM by client domicile, distribution channel and asset class as of December 31, 2020. Additionally, the fourth table below illustrates the split of our AUM as Passive and Active. Passive AUM include index-based ETFs, unit investment trusts (UITs), non-management fee earning AUM and other passive mandates. Active AUM is total AUM less Passive AUM. See the company's disclosures regarding the changes in AUM years ended December 31, 2020 in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Assets Under Management” section for additional information regarding the changes in AUM.
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By Client Domicile
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($ in billions)Total1-Yr Change
c Americas
959.9 9.1 %
c UK
66.9 (10.1)%
c EMEA Ex UK
151.8 5.6 %
c Asia
171.3 33.2 %
Total1,349.9 
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By Distribution Channel
($ in billions)Total1-Yr Change
c Retail
947.1 7.8 %
c Institutional
402.8 15.7 %
Total1,349.9 
By Asset Class
ivz-20201231_g4.jpg
($ in billions)Total1-Yr Change
c Equity
689.6 15.2 %
c Fixed Income
296.4 4.6 %
c Balanced
78.9 17.2 %
c Money Market
108.5 18.7 %
c Alternatives
176.5 (4.7)%
Total1,349.9 
Active vs. Passive
ivz-20201231_g5.jpg
($ in billions)Total1-Yr Change
c Active
979.3 5.4 %
c Passive
370.6 24.8 %
Total1,349.9 
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Human Capital

Invesco’s long-term success depends on our ability to attract, develop and retain talent. Invesco invests significantly in talent development, health and welfare programs, technology and other resources that support our employees in developing their full potential both personally and professionally. We believe that an employee community that is diverse and inclusive; engaged in community involvement and invested in employee well-being will drive positive outcomes for our clients and shareholders.

During 2020, the COVID-19 pandemic created an unprecedented worldwide public health and business phenomenon. Our top priority in 2020 was the health and well-being of our worldwide employees. In addition to other actions taken, we continue to assess the general well-being of our employees, their ability to stay well, stay productive and stay connected.

In addition, we regularly survey our employees in a confidential survey to gauge their sentiment across a variety of engagement categories, including questions related to compensation, benefits, work/life balance, career development, inclusion, teamwork, and leadership, and more recently our focus on social justice.

We believe that diversity and inclusion are both moral and business imperatives. We are committed to improving diversity at all levels and in all functions across our global business as evidenced by our CEO and senior managing directors all including diversity and inclusion goals as part of their annual performance goals. Increasing representation of women and other underrepresented employees remains a focus for Invesco, as does building an inclusive environment. At the end of 2020, our global workforce was 39% female and 61% male, with 33% of senior managers worldwide being women. Unconscious bias training is required of all managers and is being expanded to the entire employee population. Our employees are also encouraged to participate in any of our nine Business Resource Groups where employees with diverse backgrounds, experiences and perspectives can connect. These Business Resource Groups are sponsored by senior leaders and are designed by employees, for employees.

As of December 31, 2020, the company had 8,512 employees with an on-the-ground presence in over 20 countries (December 31, 2019: 8,821). None of our employees are covered under collective bargaining agreements.

Competition

The investment management business is highly competitive, with points of differentiation including investment performance, the level of fees, the range of products offered, brand recognition, business reputation, financial strength, the depth and continuity of relationships and quality of service. We compete with a large number of investment management firms, commercial banks, investment banks, broker dealers, hedge funds, insurance companies and other financial institutions. We believe the quality and diversity of our investment capabilities, product types and channels of distribution enable us to compete effectively in the global investment management business. We also believe being an independent investment manager is a competitive advantage, as our business model avoids conflicts that are inherent within institutions that both manage and distribute and/or service those products. Lastly, we believe continued execution against our strategic objectives will further strengthen our long-term competitive position.

Management Contracts

We derive substantially all of our revenues from investment management contracts with funds and other clients. Fees vary with the type of assets being managed, with higher fees earned on actively managed equity and balanced accounts, along with real estate and other alternative asset products, and lower fees earned on fixed income, money market and stable value accounts, as well as certain ETFs. Investment management contracts are generally terminable upon thirty or fewer days' notice. Typically, retail investors may withdraw their funds at any time without prior notice. Institutional clients typically may elect to terminate their relationship with us or reduce the aggregate amount of assets under management with very short notice periods.

Risk Management

Invesco is committed to continually strengthening and evolving our risk management activities to ensure they keep pace with business change and client expectations. We believe a key factor in our ability to manage through challenging market conditions and significant business change is our integrated and global approach to risk management. Risk management is embedded in our day-to-day decision-making as well as our strategic planning process while our global risk management framework enables consistent and meaningful risk dialogue up, down and across the company.

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Our framework leverages two governance structures: (i) our Global Performance and Risk Committee oversees the management of core investment risks; and (ii) our Corporate Risk Management Committee oversees the management of all other business and strategy related risks. A network of regional, business unit and specific risk management committees, with oversight of the Corporate Risk Management Committee, provides ongoing identification, assessment, management and monitoring of risk that ensures both broad as well as in-depth, multi-layered coverage of the risks existing and emerging in the various domains of our business.

Available Information

The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers with the SEC, at www.sec.gov. We make available free of charge on our website, www.invesco.com/corporate, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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Item 1A.  Risk Factors

Risks Related to the Coronavirus (COVID-19) Pandemic

As a result of the global market reactions to the COVID-19 pandemic, our assets under management (AUM) and revenues have been negatively impacted and we face various potential operational challenges due to the pandemic.

As a result of the global market reactions to the COVID-19 pandemic, our assets under management (AUM) and revenues declined significantly during the early phases of the pandemic as governments enacted social containment measures and central banks and governments sought to enact economic relief measures. While many global markets have improved materially since the early stages of the pandemic, further negative market reactions may occur as a result of failures to limit infections or deaths to the COVID-19 virus, delays in developing and/or delivering effective treatments for the virus, and reduced support or positive impact of central banks and government economic relief measures. Additional negative market reactions could further negatively impact our AUM and revenues. The volatility in the global markets has also adversely affected the liquidity of certain managed investment products in which client and company assets are invested.

Our efforts to mitigate the impact of the COVID-19 pandemic have required, and will continue to require, a significant investment of time and resources across our business. In response to mandated precautions where applicable and to ensure the safety of our employees, the significant majority of our employees are working remotely at this time. While our teams have been successful in working remotely, operational challenges may arise in the future. Many of the key service providers we rely on have also transitioned to working remotely. If we or they were to experience material disruptions in the ability for our or their employees to work remotely (e.g., disruption in Internet-based communications systems or networks or the availability of essential goods and services), our ability to operate our business in the ordinary course could be materially adversely disrupted. To date our own employees and, we believe, the employees of our key service providers, have not experienced any material degree of illness due to the COVID-19 virus. If our or their workforces, or key components thereof, were to experience significant illness levels, our ability to operate our business could be materially adversely disrupted. Further if our cyber security diligence and efforts to offset the increased risks associated with greater reliance on mobile, collaborative and remote technologies during the COVID-19 pandemic, as well as the increased frequency and sophistication of external threat actors are not effective or successful, we may be at increased risk for data privacy or other cyber security incidents. Any such material adverse disruptions to our business operations or loss of information could have a material adverse impact on our results of operation or financial condition.

The extent to which our business, results of operations, AUM and financial results are further affected by the COVID‐19 pandemic will largely depend on future developments, which cannot be accurately predicted and are uncertain, including the duration and severity of the pandemic, length of time it will take for the financial markets and economy to recover and for our employees to safely return to the workplace, along with potentially more permanent impacts on how we operate and serve our clients. In addition, many of the risk factors described below may be heightened by the effects of the COVID‐19 pandemic and related economic conditions.

Risks Related to Market Dynamics and Volatility

Volatility and disruption in world capital and credit markets, as well as adverse changes in the global economy, can negatively affect Invesco's revenues, operations, financial condition and liquidity.

In recent years, capital and credit markets have experienced substantial volatility. In this regard:

In the event of extreme circumstances, including economic, political, or business crises, such as a widespread systemic failure or disruptions in the global financial system or failures of firms that have significant obligations as counterparties on financial instruments, we may suffer significant declines in AUM and severe liquidity or valuation issues in managed investment products in which client and company assets are invested, all of which would adversely affect our operating results, financial condition, liquidity, credit ratings, ability to access capital markets, and ability to retain and attract key employees. Additionally, these factors could impact our ability to realize the carrying value of our goodwill and other intangible assets.
Illiquidity and/or volatility of the global fixed income and/or equity markets could negatively affect our ability to manage client inflows and outflows or to timely meet client redemption requests.
Uncertainties regarding geopolitical developments, such as Brexit, can produce volatility in global financial markets. This may impact the levels and composition of our AUM and also negatively impact investor sentiment, which could result in reduced or negative flows. The longer term relationship between the UK and the EU is still uncertain following the departure of the UK from the EU. Because the UK Pound Sterling is the functional currency
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for certain of our subsidiaries, any weakening of the UK Pound Sterling relative to the U.S. Dollar could negatively impact our reported financial results.
Changes to United States tax, tariff and import/export regulations may have a negative effect on global economic conditions, financial markets and our business. Any changes with respect to trade policies, treaties, taxes, government regulations and tariffs or the perception that any of these changes could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between other nations and the United States. Given our strong position in Asia Pacific and EMEA, we could be more adversely affected than others by such market uncertainties.

Our revenues and profitability would be adversely affected by any reduction in AUM as a result of either a decline in market value of such assets or net outflows, which would reduce the investment management fees we earn.

We derive substantially all our revenues from investment management contracts with clients. Under these contracts, the investment management fees paid to us are typically based on the market value of AUM. AUM may decline for various reasons. For any period in which revenues decline, our income and operating margin likely would decline by a greater proportion because a majority of our expenses remain fixed. Factors that could decrease AUM (and therefore revenues) include the following:

Declines in the market value of AUM in client portfolios. Our AUM as of January 31, 2021 were $1,367.1 billion. We cannot predict whether volatility in the markets will result in substantial or sustained declines in the securities markets generally or result in price declines in market segments in which our AUM are concentrated. Any of the foregoing could negatively impact the market value of our AUM, our revenues, income and operating margin.

Redemptions and other withdrawals from, or shifting among, client portfolios. These could be caused by investors reducing their investments in client portfolios in general or in the market segments in which Invesco focuses; investors taking profits from their investments; poor investment performance (relative or absolute) of the client portfolios managed by Invesco; and portfolio risk characteristics, which could cause investors to move assets to other investment managers. Poor performance relative to other competing products tends to result in decreased sales and increased redemptions with corresponding decreases in our revenues, which may have a material adverse effect on us. Furthermore, the fees we earn vary with the types of assets being managed, with higher fees earned on actively managed equity and balanced accounts, along with real estate and other alternative asset products, and lower fees earned on fixed income, stable return accounts, and certain passively managed products. Our revenues may decline if clients continue to shift their investments to lower fee accounts. In addition, the loss of key personnel or significant investment management professionals could reduce the attractiveness of our products to current and potential clients and adversely affect our revenues and profitability.

Investments in international markets. Investment products that we manage may have significant investments in international markets that are subject to significant risks of loss from political, economic, diplomatic developments, currency fluctuations, social instability, changes in governmental policies, expropriation, nationalization and asset confiscation. International trading markets, particularly emerging markets, are often smaller, less liquid, less regulated and significantly more volatile than those in the developed world.

Our revenues and profitability from money market and other fixed income assets may be harmed by interest rate, liquidity and credit volatility.

Certain institutional investors using money market products and other short-term duration fixed income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields. These redemptions would reduce managed assets, thereby reducing our revenues. In addition, rising interest rates will tend to reduce the market value of fixed income investments and fixed income derivatives held in various investment portfolios and other products, which may have an adverse effect on our revenues from certain fixed income products. If securities within a money market portfolio default or investor redemptions force the portfolio to realize losses, there could be negative pressure on its NAV. Although money market investments are not guaranteed instruments, the company might decide, under such a scenario, that it is in its best interest to provide support in the form of a support agreement, capital infusion, or other methods to help stabilize a declining NAV, which may have an adverse impact on our profitability. Additionally, we have investments in fixed income assets, including collateralized loan obligations and seed money in fixed income funds, the valuation of which could change with changes in interest and default rates.

Certain changes in the manner in which interest rates are calculated could also impact our client portfolios. LIBOR will be eliminated as a benchmark reference rate as a result of regulatory reform. Markets are developing replacement reference rates in response to this change. Questions around liquidity in these new rates and how to appropriately adjust relevant instruments and
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products to eliminate any economic value transfer at the time of transition remain a significant concern for us and others in the marketplace. It is difficult to predict the full impact of the transition away from LIBOR. The value or profitability of LIBOR-based instruments held in our client portfolios or products we manage that use LIBOR as a reference rate may be adversely affected until new reference rates and fallbacks for both legacy and new instruments and products are commercially accepted and operationally mature.

Our financial condition and liquidity would be adversely affected by losses on our seed capital and co-investments.
The company has investments in managed investment products that invest in a variety of asset classes, including, but not limited to equities, fixed income products, commodities, derivatives, and similar financial instruments, private equity and real estate. Investments in these products are generally made to establish a track record, meet purchase size requirements for trading blocks, or demonstrate economic alignment with other investors in our funds. Adverse market conditions may result in the need to write down the value of these seed capital and co-investments, which may adversely affect our results of operations or liquidity. As of December 31, 2020, the company had approximately $810.5 million in seed capital and co-investments, including direct investments in consolidated investment products (CIP).

Since many of our subsidiary operations are located outside of the United States and have functional currencies other than the U.S. Dollar, changes in the exchange rates to the U.S. Dollar affect our reported financial results from one period to the next.

The largest component of our net assets, revenues and expenses, as well as our AUM, is presently denominated in U.S. Dollars. However, we have a large number of subsidiaries outside of the United States whose functional currencies are not the U.S. Dollar. As a result, fluctuations in the exchange rates to the U.S. Dollar affect our reported financial results from one period to the next. Consequently, significant strengthening of the U.S. Dollar relative to the UK Pound Sterling, Euro, or Japanese Yen, among other currencies, could have a material negative impact on our reported financial results.

Risks Related to Investment Performance and Competition

Poor investment performance of our products could reduce the level of our AUM or affect our sales, and negatively impact our revenues and income.

Our investment performance is critical to the success of our business. Strong investment performance often stimulates sales of our products. Poor investment performance as compared to third-party benchmarks or competitive products has in the past led, and could in the future lead, to a decrease in sales of our products and stimulate redemptions from existing products, generally lowering the overall level of AUM and reducing our management fees. There is no assurance that past or present investment performance in our products will be indicative of future performance. If we fail, or appear to fail, to address successfully and promptly the underlying causes of any poor investment performance, we may be unsuccessful in reversing such under performance and our future business prospects would likely be negatively affected.

Competitive pressures may force us to reduce the fees we charge to clients, which could reduce our profitability.

The investment management business is highly competitive, and we compete based on a variety of factors, including investment performance, range of products offered, brand recognition, business reputation, financial strength, stability and continuity of client and financial intermediary relationships, quality of service, level of fees charged for services and the level of compensation paid and distribution support offered to financial intermediaries. We continue to face market pressures regarding fee levels in many products. Investors remain attracted to lower fee passive products, which have gained and may continue to gain share at the expense of active products.

Our competitors include a large number of investment management firms, commercial banks, investment banks, broker-dealers, hedge funds, insurance companies and other financial institutions. Some of these institutions have greater capital and other resources, and offer more comprehensive lines of products and services, than we do. There are relatively few barriers to entry by new investment management firms, and the successful efforts of new entrants around the world have also resulted in increased competition. Industry consolidation has increased in recent years, both in the area of distributors and asset managers. Further consolidation may occur in these areas in the future.

Our competitors can increase their market share to our detriment by reducing fees. The increasing size and market influence of certain distributors of our products and of certain direct competitors may have a negative impact on our ability to compete at the same levels of profitability in the future.

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We may be unable to develop new products and services and the development of new products and services may expose us to additional costs or operational risk.

Our financial performance depends, in part, on the company's ability to develop, market and manage new investment products and services. The development and introduction of new products and services requires continued innovative efforts on our part and may require significant time and resources as well as ongoing support and investment. Substantial risk and uncertainties are associated with the introduction of new products and services, including the implementation of new and appropriate operational controls and procedures, shifting client and market preferences, the introduction of competing products or services and compliance with regulatory requirements. New products often must be in the market-place for three or more years in order to generate track records required to attract significant AUM inflows. Increasingly clients and intermediaries are looking to investment mangers to be able to deliver investment outcomes tailored to particular circumstances and needs, and to augment traditional investment management products and services with additional value-added services. A failure to continue to innovate and introduce successful new products and services or to manage effectively the risks associated with such products and services may impact our market share relevance and may cause our AUM, revenue and earnings to decline.

The failure or negative performance of products offered by competitors may have a negative impact on similar Invesco products irrespective of our performance.
Many competitors offer similar products to those offered by us and the failure or negative performance of competitors’ products could lead to a loss of confidence in similar Invesco products, irrespective of the performance of our products. Any loss of confidence in a product type could lead to withdrawals, redemptions and liquidity issues in such products, which could have a material adverse effect on our results of operations, financial condition or liquidity.

The soundness of other financial institutions could adversely affect us or the client portfolios we manage.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We, and the client portfolios that we manage, have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, clearing organizations, hedge funds and other institutions. Many of these transactions expose us or such client portfolios to credit risk in the event of default of its counterparty. While we regularly conduct assessments of such risk posed by counterparties, the risk of non-performance by such parties is subject to sudden swings in the financial and credit markets. Such non-performance could produce a financial loss for the company or the client portfolios we manage.

Performance fees may increase revenue and earnings volatility.

A portion of the company’s revenues is derived from performance fees on investment advisory agreements. Performance fees represented $65.6 million, or 1.1%, of total operating revenues for the year ended December 31, 2020. In most cases, performance fees are based on relative or absolute investment returns, although in some cases they are based on achieving specific service standards. Generally, the company is entitled to performance fees only if the returns on the related portfolios exceed agreed-upon periodic or cumulative return targets. If these targets are not exceeded, performance fees for that period will not be earned and, if targets are based on cumulative returns, the company may not earn performance fees in future periods. Performance fees will vary from period to period in relation to volatility in investment returns and the timing of revenue recognition, causing our earnings to be more volatile.

Risks Related to Operating our Business

Our investment management professionals and other key employees are a vital part of our ability to attract and retain clients, and the loss of key individuals or a significant portion of those professionals could result in a reduction of our revenues and profitability.

Retaining highly skilled investment management personnel is important to our ability to attract and retain our clients. The market for skilled investment management professionals is highly competitive. Our policy has been to provide our investment management professionals and other key personnel with a supportive professional working environment and compensation and benefits that we believe are competitive with other leading investment management firms. However, we may not be successful in retaining our key personnel, and the loss of significant investment professionals or other key personnel could reduce the attractiveness of our products and services to potential and current clients and could, therefore, adversely affect our revenues and profitability.

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Changes in the distribution channels on which we depend could reduce our net revenues and hinder our growth.

We sell substantially all of our retail investment products through a variety of third party financial intermediaries, including major wire houses, fund supermarkets, regional broker-dealers, insurance companies, banks and financial planners in North America, and independent brokers and financial advisors, banks and supermarket platforms in Europe and Asia. No single intermediary is material to our business. Increasing competition for these distribution channels could nevertheless cause our distribution costs to rise, which would lower our net revenues. There has been consolidation of banks and broker-dealers, particularly in the U.S., and a limited amount of migration of brokers and financial advisors away from major banks to independent firms focused largely on providing advice. If these changes continue, our distribution costs could increase as a percentage of our revenues generated. Additionally, certain of the third party intermediaries upon whom we rely to distribute our investment products also sell their own competing proprietary investment products, which could limit the distribution of our products. Investors, particularly in the institutional market, rely on external consultants and other third parties for advice on the choice of investment manager. These consultants and third parties tend to exert a significant degree of influence over their clients' choices, and they may favor a competitor of Invesco as better meeting their particular clients' needs. There is no assurance that our investment products will be among their recommended choices in the future. Similarly, particularly in the United States, certain distributors have substantially reduced the number of investment funds they make available to their customers. If a material portion of our distributors were to substantially narrow their product offerings, it could have a significant adverse effect on our revenues and profitability. More broadly, in both retail and institutional channels, intermediaries (distribution firms and consultants) are seeking to reduce the number of investment management firms they do business with. While this offers opportunities to the company to have broader and deeper relationships with firms that continue to do business with us, it also poses risks of additional lost business if a particular firm chooses to stop or significantly reduce its business relationship with the company. Any failure to maintain strong business relationships with these intermediaries and the consultant community due to any of the above-described factors would impair our ability to sell our products, which in turn could have a negative effect on our revenues and profitability.

Failure to comply with client contractual requirements and/or investment guidelines could result in costs of correction, damage awards or regulatory fines and penalties against us and loss of revenues due to client terminations.

Many of the investment management agreements under which we manage assets or provide products or services specify investment guidelines or requirements, such as adherence to investment restrictions or limits, that we are required to observe in the provision of our services. Laws and regulations impose similar requirements for certain client portfolios (such as registered funds). A failure to comply with these guidelines or requirements could result in damage to our reputation or in our clients seeking to recover losses, withdrawing their assets or terminating their contracts. Regulators likewise may commence enforcement actions for violations of such requirements, which could lead to fines and penalties against the company. Any such effects could cause our revenues and profitability to decline. We maintain various compliance procedures and other controls to seek to prevent, detect and correct such errors. When an error is detected, a payment will typically be made into the applicable client account to correct it. Significant errors for which we are responsible could impact our reputation, results of operations, financial condition or liquidity.

Our investment advisory agreements are subject to termination or non-renewal, and our fund and other investors may withdraw their assets at any time.

Substantially all our revenues are derived from investment management agreements. Investment management agreements are generally terminable upon 30 or fewer days' notice. Agreements with U.S. registered funds may be terminated with notice, or terminated in the event of an “assignment” (as defined in the Investment Company Act of 1940, as amended), and must be renewed annually by the disinterested members of each fund's Board of Trustees or Directors, as required by law. In addition, the Boards of Trustees or Directors of certain other funds generally may terminate these investment management agreements upon written notice for any reason. Open-end registered fund and unit trust investors may generally withdraw their funds at any time without prior notice. Institutional clients may elect to terminate their relationships with us or reduce the aggregate amount of AUM, generally on short notice. Any termination of or failure to renew a significant number of these agreements, or any other loss of a significant number of our clients or AUM, would adversely affect our revenues and profitability.

If our reputation is harmed, we could suffer losses in our business, revenues and net income.
Our business depends on earning and maintaining the trust and confidence of clients, other market participants and regulators, and our good reputation is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries, investigations or findings of wrongdoing, intentional or unintentional misrepresentation of our products and services in advertising materials, public relations information, social media or other external communications, operational failures (including portfolio management errors or cyber breaches),
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employee dishonesty or other misconduct and rumors, among other things, can substantially damage our reputation, even if they are baseless or eventually satisfactorily addressed.

Our business also requires us to continuously manage actual and potential conflicts of interest, including situations where our services to a particular client conflict, or are perceived to conflict, with the interests of other clients or those of Invesco. The willingness of clients to enter into transactions in which such a conflict might arise may be affected if we fail - or appear to fail - to deal appropriately with conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions.

We have procedures and controls that are designed to address and manage these risks, but this task can be complex and difficult, and if our procedures and controls fail, our reputation could be damaged. Any damage to our reputation could impede our ability to attract and retain clients and key personnel, and lead to a reduction in the amount of our AUM, any of which could have a material adverse effect on our results of operations, financial condition or liquidity.

We depend on information technology, and any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities, or those of third parties with which we do business, including as a result of cyber-attacks, could result in significant limits on our ability to conduct our operations and activities, costs and reputational damage.

We are highly dependent upon the use of various proprietary and third-party information and security technology, software applications and other technology systems to operate our business. We are also dependent on the effectiveness of our information and cyber security infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them. We use our technology to, among other things, manage and trade portfolio investments, support our other operations, obtain securities pricing information, process client transactions, protect the privacy of clients', employees' and business partners' data and provide reports and provide other services to our clients.

In recent years, several financial services firms suffered cyber-attacks launched both domestically and from abroad, resulting in the disruption of services to clients, loss or misappropriation of confidential data, litigation and regulatory enforcement actions and reputational harm. Cyber-security incidents and cyber-attacks have been occurring globally at a more frequent and severe level. Our status as a global financial institution and the nature of our client base may enhance the risk that we are targeted by such cyber-threats. Although we seek to take protective measures, including measures to effectively secure information through system security technology, and seek to continually monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption, our technology systems may still be vulnerable to unauthorized access, computer malware or other events that have a security impact, such as an external hacker attack by one or more cyber criminals or an authorized employee or vendor causing us to release confidential information inadvertently or through malfeasance, or lose temporarily or permanently data or applications or systems. The third parties with which we do business or which facilitate our business activities, including financial intermediaries and technology infrastructure and service providers, are also susceptible to the foregoing risks (including regarding the third parties with which they are similarly interconnected or on which they otherwise rely), and our or their business operations and activities may therefore be adversely affected, perhaps materially, by failures, terminations, errors or malfeasance by, or attacks or constraints on, one or more financial, technology or infrastructure institutions or intermediaries with whom we or they are interconnected or conduct business. Further, third-party service providers may have limited indemnification obligations to us regarding cyber-incidents.

Breach of our technology systems could damage our reputation and could result in the unauthorized disclosure or modification or loss of sensitive or confidential information (including client data); unauthorized disclosure, modification or loss of proprietary information relating to our business; inability to process client or company transactions and processes; breach and termination of client contracts; liability for stolen assets, information or identity; remediation costs to repair damage caused by the breach, including damage to systems and recovery of lost data; additional security costs to mitigate against future incidents; regulatory actions (including fines and penalties, which could be material) and litigation costs resulting from the incident. Such consequences could result in material financial loss and have a negative effect on our revenues and profitability.

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If we are unable to successfully recover from a disaster or other business continuity problem, we could suffer material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

If we were to experience a local or regional disaster or other business continuity problem, such as a pandemic or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities and the proper functioning of our computer, telecommunication and other related systems and operations. In such an event, we believe our operational size, multiple office locations, and our existing back-up systems should mitigate adverse impacts. Nevertheless, we could still experience near-term operational problems with regard to particular areas of our operations. Further, as we maintain certain business processes to lower-cost geographic locations such as India, the potential for particular types of natural or man-made disasters, political, economic or infrastructure instabilities, or other country- or region-specific business continuity risks increases. Although we seek to assess regularly and improve our existing business continuity plans, a major disaster, or one that affected certain important operating areas, or our inability to recover successfully should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

Our business is vulnerable to deficiencies and failures in support systems and customer service functions that could lead to breaches and errors or reputational harm, resulting in loss of customers or claims against us or our subsidiaries.

In addition to investment management, our services include fund administration, sales, distribution, marketing, shareholder servicing and trust, custody and other fiduciary services. In order to be competitive and comply with our agreements, we must properly perform our fund and portfolio administration and related responsibilities, including portfolio recordkeeping and accounting, security pricing, corporate actions, investment restrictions compliance, daily net asset value computations, account reconciliations and required distributions to fund shareholders. The ability to consistently and reliably obtain accurate securities pricing information, process client portfolio and fund shareholder transactions and provide reports and other customer service to fund shareholders and clients in accounts managed by us is essential to our continuing success. Certain types of securities may experience liquidity constraints that would require increased use of fair value pricing, which is dependent on certain subjective judgments that have the potential to be challenged. Any delays or inaccuracies in obtaining pricing information, processing such transactions or such reports or other breaches and errors and any inadequacies in other customer service, could result in reimbursement obligations or other liabilities, or alienate clients or distributors and potentially give rise to claims against us. Our customer service capability, as well as our ability to obtain prompt and accurate securities pricing information and to process transactions and reports, is highly dependent on communications and information systems and on third-party service providers. Certain of these processes involve a degree of manual input, and thus problems could occur from time-to-time due to human error. Our failure to properly perform and monitor our operations or our otherwise suffering deficiencies and failures in these systems or service functions could result in material financial loss or costs, regulatory actions, breach of client contracts, reputational harm or legal claims and liability, which in turn could have a negative effect on our revenues and profitability.

The failure of one of our third party service providers or other key vendors to fulfill its obligations could have a material adverse effect on our reputation or business, which may cause our AUM, revenue and earnings to decline.

We depend on third party service providers and other key vendors for various fund administration, accounting, custody, risk analytics, market data, market indices and transfer agent roles, and other distribution and operational needs. If our third party service providers or other key vendors fail to fulfill their obligations to us, it could lead to operational and regulatory problems, including with respect to certain of our products, which could result in losses, enforcement actions, or reputational harm and may cause our AUM, revenue and earnings to decline.

The carrying value of goodwill and other intangible assets on our balance sheet could become impaired, which would adversely affect our results of operations.

We have goodwill and indefinite-lived intangible assets on our balance sheet that are subject to annual impairment reviews. We also have definite-lived intangible assets on our balance sheet that are subject to impairment testing if indicators of impairment are identified. Goodwill and intangible assets totaled $8,916.3 million and $7,305.6 million, respectively, at December 31, 2020. We may not realize the value of such assets. We perform impairment reviews of the book values of these assets on an annual basis or more frequently if impairment indicators are present. A variety of factors could cause such book values to become impaired. Should valuations be deemed to be impaired, a write-down of the related assets would occur, adversely affecting our results of operations for the period. See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Goodwill” and “- Intangibles,” for additional details of our impairment analysis process.
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Our credit facility imposes restrictions on our ability to conduct business and, if amounts borrowed under it were subject to accelerated repayment, we might not have sufficient assets or liquidity to repay such amounts in full.

Our credit facility requires us to maintain specified financial ratios, including maximum debt-to-earnings and minimum interest coverage ratios. The credit facility also contains customary affirmative operating covenants and negative covenants that, among other things, restrict certain of our subsidiaries' ability to incur debt and restrict our ability to transfer assets, merge, make loans and other investments and create liens. The breach of any covenant would result in a default under the credit facility. In the event of any such default, lenders that are party to the credit facility could refuse to make further extensions of credit to us and require all amounts borrowed under the credit facility, together with accrued interest and other fees, to be immediately due and payable. If any indebtedness under the credit facility were subject to accelerated repayment and if we had at that time a significant amount of outstanding debt under the credit facility, we might not have sufficient liquid assets to repay such indebtedness in full.

Distribution of earnings of our subsidiaries may be subject to limitations, including net capital requirements.

Substantially all our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to fund operations are dependent upon the earnings of our subsidiaries and the distribution of earnings, intercompany loans or other payments by our subsidiaries to us. Any payments to us by our subsidiaries could be subject to statutory or contractual restrictions and are contingent upon our subsidiaries earnings and business or regulatory considerations. For example, certain of our subsidiaries are required under applicable laws and regulations to maintain appropriate levels of capital.

Such requirements may change from time-to-time as additional guidance is released based on a variety of factors, including balance sheet composition, assessment of risk exposures and governance and review from regulators. These and other similar provisions of applicable laws and regulations may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities. Our financial condition or liquidity could be adversely affected if certain of our subsidiaries are unable to distribute funds to us.

All of our regulated EU and UK subsidiaries are subject to consolidated capital requirements under applicable EU and UK requirements, including those arising from the EU's Capital Requirements Directive and the UK's Internal Capital Adequacy Assessment Process (ICAAP), and we maintain capital within this European sub-group to satisfy these regulations. We meet these requirements in part by holding cash and cash equivalents. This retained cash can be used for general business purposes in the European sub-group in the countries where it is located. Due to the capital restrictions, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences. As of December 31, 2020, the company's minimum regulatory capital requirement was $763.6 million.

Complying with our regulatory commitments may result in an increase in the capital requirements applicable to the European sub-group. As a result of corporate restructuring and regulatory requirements, certain of these subsidiaries may be required to limit their dividends to the ultimate parent company, Invesco Ltd.

We are exposed to a number of risks arising from our international operations.

We operate in a number of jurisdictions outside of the United States. We have offices in numerous countries and sponsor many cross border and local proprietary funds that are domiciled outside the United States and may face difficulties in managing, operating and marketing our international operations. Our international operations expose us to the political and economic consequences of operating in foreign jurisdictions and subject us to expropriation risks, expatriation controls and potential adverse tax consequences.

Risks Related to Strategic Transactions

We may engage in strategic transactions that could create risks.

We regularly review, and from time-to-time have discussions with and engage in, potential strategic transactions, including potential acquisitions, dispositions, consolidations, joint ventures or similar transactions, some of which may be material. There can be no assurance that we will find suitable candidates for strategic transactions at acceptable prices, have sufficient capital resources to pursue such transactions, be successful in negotiating the required agreements, or successfully close transactions after signing such agreements.

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Acquisitions also pose the risk that any business we acquire may lose customers or employees or could underperform relative to expectations. We could also experience financial or other setbacks if pending transactions encounter unanticipated problems, including problems related to closing or integration. Following the completion of an acquisition, we may have to rely on the seller to provide administrative and other support, including financial reporting and internal controls, to the acquired business for a period of time. There can be no assurance that such sellers will do so in a manner that is acceptable to us.

We have incurred and will continue to incur transaction and integration costs in connection with the acquisition of OppenheimerFunds and the anticipated benefits of the acquisition may not offset these costs.

We have incurred and expect to continue to incur significant, non-recurring costs in connection with the acquisition and integration of OppenheimerFunds. There can be no assurances that the expected benefits and efficiencies related to the integration of the business will be realized to offset these transaction and integration costs over time. As part of the integration activities for the OppenheimerFunds business, the company has identified a matter that involves a possible loss contingency related to the operations of the acquired business. See Part II, Item 8, Financial Statements and Supplementary Data - Note 20, "Commitments and Contingencies" for additional information.

In connection with the acquisition of OppenheimerFunds, we issued perpetual preferred stock having a value of approximately $4 billion, which could adversely affect our ability to raise additional capital and may limit our ability to fund other priorities.

In connection with the acquisition of OppenheimerFunds, Invesco issued approximately $4 billion of 5.9% fixed rate perpetual preferred stock to certain of OppenheimerFunds' former shareholders. This issuance may limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; may restrict our ability to pay dividends to holders of common shares in certain circumstances; may increase our vulnerability to general economic and industry conditions; and will require a significant portion of cash flow from operations to make required dividend payments to preferred shareholders.

Risks Related to our Significant Shareholder

In connection with the acquisition of OppenheimerFunds, we issued approximately 81.9 million common shares, which could adversely impact our trading price upon resale of those common shares.

We issued approximately 81.9 million common shares in connection with the acquisition, most of which are held by Massachusetts Mutual Life Insurance Company (MassMutual). The common shares held by MassMutual are subject to an agreement not to sell those common shares prior to May 24, 2021, subject to early termination in certain circumstances, as well as to certain limitations on resales. MassMutual may in the future sell these common shares in the open market or through secondary offerings. If MassMutual were to sell its equity stake in Invesco, or express an intention to sell the stake, that action could have a significant impact on our common share trading price.

MassMutual has the ability to significantly influence our business and MassMutual’s interest in our business may be different from that of other shareholders.

MassMutual is entitled to designate an individual to serve on our board so long as it beneficially owns at least (i) 10% of our issued and outstanding shares of common stock or (ii) (x) 5% of our issued and outstanding shares of common stock and (y) $2.0 billion in aggregate liquidation preference of our Series A preferred shares. Additionally, we are not permitted to take certain actions without the prior written approval of MassMutual, including making certain changes in our capital structure or our organizational documents, adopting a shareholder rights plan or effectuating certain business combination transactions. MassMutual’s level of ownership and influence may make some transactions (such as those involving mergers, material share issuances or changes in control) more difficult or impossible without the support of MassMutual, which in turn could adversely affect the market price of our shares of common stock or prevent our shareholders from realizing a premium over the market price for their shares of our common stock. The interests of MassMutual may conflict with the interests of other shareholders.



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Risks Related to Regulatory and Legal Matters

We operate in an industry that is highly regulated in most countries, and any enforcement action or significant changes in the laws or regulations governing our business or any firm specific regulatory or enforcement actions could decrease our revenues and profitability.

As with all investment management companies, our activities are highly regulated in almost all countries in which we conduct business. The regulatory environment in which we operate frequently changes and we have seen a significant increase in regulatory changes, actions and scrutiny in recent years, in part due to a concern that the asset management industry or certain of its entities or activities pose systemic risks to the financial system. Without limiting the generality of the foregoing, regulators in the United States and the United Kingdom have taken and can be expected to continue to take a more aggressive posture on bringing enforcement proceedings. Laws and regulations applied at the national, state or provincial and local level generally grant governmental agencies and industry self-regulatory authorities broad administrative discretion over our activities, including the power to require registration or licenses, limit or restrict our business activities, conduct examinations, risk assessments, investigations and capital adequacy reviews and impose remedial programs to address perceived deficiencies. As a result of regulatory oversight, we could face requirements or actions which negatively impact the way in which we conduct business, delay or deny approval for new products or service offerings, cause or contribute to reduced sales or increased redemptions of our products or services, impair the investment performance of other products or services, impact product mix, increase compliance costs and/or impose additional capital requirements. Our regulators likewise have the authority to commence enforcement actions which could lead to sanctions up to and including the revocation of licenses to operate certain businesses, the suspension or expulsion from a particular jurisdiction or market of any of our business organizations or their key personnel or the imposition of fines and censures on us or our employees. Further, regulators across borders could coordinate actions against us as issues arise resulting in impacts on our business in multiple jurisdictions. Judgments or findings of wrongdoing by regulatory or governmental authorities, or in private litigation against us, could affect our reputation, increase our costs of doing business and/or negatively impact our revenues. Any of the effects discussed above could have a material negative impact on our AUM, results of operations, financial condition or liquidity.

A substantial portion of the products and services we offer are regulated by the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), the Commodities Future Trading Commission (CFTC), the National Futures Association (NFA) and the Texas Department of Banking in the United States and by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) in the United Kingdom. Subsidiaries operating in the European Union (EU) are subject to various EU Directives, which generally are implemented by member state national legislation and by EU Regulations. Our operations elsewhere in the world are regulated by similar regulatory organizations.

The UK and the EU, in particular, have promulgated or are considering various new or revised regulatory measures pertaining to financial services, including investment managers. Such measures are progressing at various stages. Such measures in the EU generally have been, are being or will or would be implemented by national legislation in member states. Ongoing changes in the UK’s and EU’s regulatory framework applicable to our business as related to Brexit and any other changes may add further complexity to our global risks and operations.

Regulatory developments and changes specific to our business will or may include, without limitation:

Regulations pertaining to the privacy, use and retention of data with respect to clients, employees and business partners. The General Data Protection Regulation (GDPR) in Europe has strengthened privacy rules for individuals in Europe, granting individuals more rights and control over the use of their personal information by organizations doing business with them, and greatly increased penalties for non-compliance. The GDPR has also influenced the subsequent direction and strengthening of privacy regulations globally, at a state level in the U.S., such as CCPA, CPRA, and WPA, and in various other jurisdictions we operate in globally, such as Canada, India, China, and Hong Kong. The 2020 ruling by the European Court of Justice on EU to US personal data transfers (“Schrems II”) and subsequent response by the European Commission has created uncertainty on future legal frameworks to facilitate international transfers of European personal data.
An increased focus on liquidity in funds (including fixed income funds), an example of which is the SEC’s rules with respect to liquidity and liquidity risk management applicable to certain types of registered U.S. funds, or the recent studies of Global and EU regulators on the resilience of investment funds during the COVID 19 related market turmoil.
Forthcoming EU and UK regulations pertaining to integrating environmental, social and governance (ESG) topics may materially impact the asset management industry in EU member states that adopt such legislation and in the UK. For example, the EU’s recent action plan on financing sustainable growth includes initiatives to integrate ESG into the financial system, including such areas as MiFID II, UCITS and AIFMD regulations, through the integration of ESG
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risks, and new ESG disclosure obligations. We expect the SEC and other regulators in the U.S. to pursue similar initiatives. The SEC also may promulgate additional disclosure obligations that would apply to the company with respect to matters such as environmental impact of our business operations, our employee and board diversity and other ESG-related matters.
Requirements pertaining to the trading of securities and other financial instruments, such as swaps and other derivatives, including certain provisions of the Dodd-Frank Act and European Market Infrastructure Regulation; these include significant reporting requirements, designated trading venues, mandated central clearing arrangements, restrictions on proprietary trading by certain financial institutions, other conduct requirements and potentially new taxes or similar fees.
Changes to the investment, trading and distribution models across EMEA as a result of ongoing changes to the relationship between the United Kingdom (UK) and the EU after the departure of the UK from the EU. Despite the trade deal announced in December 2020, the impact on the financial services industry remains unclear.
Limitations on holdings of certain physical commodity futures contracts and other physical commodity related derivatives positions under regulations of the CFTC which could result in capacity constraints for our products that employ physical commodities as part of their investment strategy.
Potential limitations on the ability of our U.S. registered funds to enter into derivatives transactions under regulations of the SEC.
Regulations impacting the standard of care a financial adviser owes to its clients including the SEC’s best interests standard and similar standards promulgated by the U.S. Department of Labor.
Increased requirements to provide regulators and investors more granular detail regarding our products and services, including the SEC’s reporting modernization rule applicable to certain types of registered U.S. funds and MiFID II trade and transaction reporting in the UK and the EU.
Enhanced licensing and qualification requirements for key personnel, including the United Kingdom Senior Managers and Certification Regime.
Strengthening standards regarding various ethical matters, including compliance with the Foreign Corrupt Practices Act, the UK Bribery Act and anti-money-laundering laws and regulations.
Regulations promulgated to address risks of fraud, malfeasance or other adverse consequences stemming from cyber attacks, and ensure the digital operational resilience of firms.
Regulations promulgated to address perceptions that the asset management industry, or certain of its entities or activities, pose systematic risks to the financial system.
The application of anti-trust and similar competition laws to the asset management industry, including aggregation of filing obligations across managed portfolios under the U.S. Hart-Scott-Rodino Act and the implications of common ownership of issuers within the industry.
Guidelines regarding the structure and components of fund manager compensation and other additional rules and regulations and disclosure requirements. Certain provisions impose additional disclosure burdens on public companies. Certain proposals could impose requirements for more widespread disclosures of compensation to highly-paid individuals. Depending upon the scope of any such requirements, Invesco could be disadvantaged in retaining key employees vis-à-vis private companies, including hedge fund sponsors.
Other changes impacting the identity or the organizational structure of regulators with supervisory authority over Invesco.

We cannot at this time predict the full impact of potential legal and regulatory changes, changes in the interpretation of existing laws and regulations or possible enforcement proceedings on our business. Such changes have imposed, and may continue to impose, new compliance costs and/or capital requirements or impact Invesco in other ways that could have a material adverse impact on our results of operations, financial condition or liquidity. Moreover, certain legal or regulatory changes could require us to modify our strategies, businesses or operations, and we may incur other new constraints or costs, including the investment of significant management time and resources in order to satisfy new regulatory requirements or to compete in a changed business environment. In recent years, certain regulatory developments have also added downward pressures regarding fee levels.

Civil litigation and governmental investigations and enforcement actions could adversely affect our AUM and future financial results and increase our costs of doing business.

Invesco and certain related entities have in recent years been subject to various legal proceedings, including civil litigation and governmental investigations and enforcement actions. These actions can arise from normal business operations and/or matters that have been the subject of previous regulatory reviews. As a global company with investment products registered in numerous countries and subject to the jurisdiction of one or more regulators in each country, at any given time, our business operations may be subject to review, investigation or disciplinary action. For example, in the United States, United Kingdom and other jurisdictions in which the company operates, governmental authorities regularly make inquiries, hold investigations
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and administer market conduct examinations with respect to the company's compliance with applicable laws and regulations. Lawsuits or regulatory enforcement actions arising out of these inquiries may in the future be filed against the company and related entities and individuals in the United States, United Kingdom and other jurisdictions in which the company and its affiliates operate. See Item 8, Financial Statements and Supplementary Data, Note 20 -- "Commitments and Contingencies,” for additional information. Judgments in civil litigation or findings of wrongdoing by regulatory or governmental authorities against us could affect our reputation, increase our costs of doing business and/or negatively impact our revenues, any of which could have a material negative impact on our results of operations, financial condition or liquidity.

Legislative and other measures that may be taken by U.S. and/or other governmental authorities could materially increase our tax burden or otherwise adversely affect our financial condition, results of operations or cash flows.

The international tax environment continues to change as a result of both coordinated actions by governments and unilateral measures designed by individual countries, both intended to tackle concerns over base erosion and profit shifting (BEPS) and perceived international tax avoidance techniques. The Organization for Economic Cooperation and Development (OECD) and the European Union (EU) are involved in much of the coordinated activity, including:

In 2018, the EU introduced mandatory disclosure rules (DAC6) requiring disclosure to tax authorities of cross-border arrangements entered into by taxpayers that fall within certain, broadly defined hallmarks beginning in July 1, 2020.
The OECD has undertaken BEPS 2.0 focused on “Addressing the Tax Challenges of the Digitalization of the Economy.” This project may impact all multinational businesses by allocating a greater share of taxing rights to countries where consumers are located regardless of the current physical presence of a business, and by implementing a global minimum tax.
The OECD has also launched an Analytical Database on Individual Multinationals and Affiliates (“ADIMA”), a database containing public information on the physical and digital locations of corporations (including revenue, profit, income tax and number of employees).
Bermuda has adopted economic substance regulations to comply with the EU Code of Conduct for business taxation and tax policies which requires Invesco Ltd. to file annual declarations.

We continually assess the impact of various U.S. federal, state and foreign legislative proposals, and modifications to existing tax treaties between the United States and foreign countries, which could result in a material increase in our U.S. federal, state or foreign taxes. We cannot predict the outcome of any specific legislative proposals. However, if unfavorable legislation were to be enacted, or if modifications were to be made to certain existing tax treaties, the consequences could have a materially adverse impact on the company, including increasing our tax burden, increasing costs of our tax compliance or otherwise adversely affecting our future results of operations, financial condition or liquidity.

Examinations and audits by tax authorities could result in additional tax payments for prior periods.

The company and its subsidiaries are subject to both income and non-income based taxes in the United States and various foreign jurisdictions, which are subject to current and potentially future tax audits. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. Tax authorities may disagree with certain positions we have taken and assess additional taxes (and, in certain cases, interest, fines or penalties). We recognize potential liabilities and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional income taxes will be due. We adjust these liabilities in light of changing facts and circumstances. Due to the complexity of some of these uncertainties, however, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.

The European Commission continues to investigate certain tax rulings and beneficial regimes provided by Member States to particular taxpayers that it believes may have violated the EU restriction on State Aid. There is considerable uncertainty with the approach being taken, including retroactive application (10-year period), conflicts with OECD Transfer Pricing Guidelines and implications to bilateral tax treaties. While the company does not believe it has received State Aid, and is currently not a party to any investigation, due to the uncertainty of the process and retroactive nature of the assessments any potential future findings could have a materially adverse impact on the company.

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Bermuda law differs from the laws in effect in the United States and may afford less protection to shareholders.

Our shareholders may have more difficulty protecting their interests than shareholders of a company incorporated in a jurisdiction of the United States. As a Bermuda company, we are governed by the Companies Act 1981 of Bermuda (Companies Act). The Companies Act differs in some material respects from laws generally applicable to United States corporations and shareholders, including provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits and indemnification of directors.

Under Bermuda law, the duties of directors and officers of a company are generally owed to the company only. Shareholders of Bermuda companies do not generally have rights to take action against directors or officers of the company, and may only do so in limited circumstances described in the following paragraph. However, directors and officers may owe duties to a company's creditors in cases of impending insolvency. Directors and officers of a Bermuda company must, in exercising their powers and performing their duties, act honestly and in good faith with a view to the best interests of the company and must exercise the care and skill that a reasonably prudent person would exercise in comparable circumstances. Directors have a duty not to put themselves in a position in which their duties to the company and their personal interests may conflict and also are under a duty to disclose any personal interest in any material contract or proposed material contract with the company or any of its subsidiaries. If a director or officer of a Bermuda company is found to have breached such director’s duties to that company, the director may be held personally liable to the company in respect of that breach of duty.

Class actions and derivative actions are generally not available to shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in a company's name against the directors and officers to remedy a wrong done to the company where the act complained of is alleged to be beyond the company's corporate power or is illegal or would result in the violation of the company's memorandum of association or Bye-Laws. Furthermore, consideration would be given by the court to acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of shareholders than actually approved it. Under our Third Amended and Restated Bye-Laws (Bye-Laws), each of our shareholders agrees to waive any claim or right of action, both individually and on our behalf, other than those involving fraud or dishonesty, against the company or any of our officers, directors or employees. The waiver applies to any action taken by a director, officer or employee, or the failure of such person to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the director, officer or employee. This waiver limits the right of shareholders to assert claims against our directors, officers and employees unless the act or failure to act involves fraud or dishonesty.

Our Bye-Laws also provide for indemnification of our directors and officers in respect of any loss arising or liability attaching to them in respect of any negligence, default, breach of duty or breach of trust of which a director or officer may be guilty in relation to the company other than in respect of his or her own fraud or dishonesty, which is the maximum extent of indemnification permitted under the Companies Act.

Because we are incorporated in Bermuda, it may be difficult for shareholders to serve process or enforce judgments against us or our directors and officers.

The company is organized under the laws of Bermuda. In addition, certain of our officers and directors reside in countries outside the United States. A substantial portion of the company's assets and the assets of these officers and directors are or may be located outside the United States. Investors may have difficulty effecting service of process within the United States on our directors and officers who reside outside the United States or recovering against the company or these directors and officers on judgments of U.S. courts based on civil liabilities provisions of the U.S. federal securities laws, even though the company has appointed an agent in the United States to receive service of process.

Further, it may not be possible in Bermuda or in countries other than the United States where the company has assets to enforce court judgments obtained in the United States against the company based on the civil liability provisions of U.S. federal or state securities laws. In addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments of U.S. courts obtained against the company or our directors or officers based on the civil liability provisions of the U.S. federal or state securities laws or would hear actions against the company or those persons based on those laws. We have been advised by our legal advisors in Bermuda that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Some remedies available under the laws of the United States or the states therein, including some remedies available under the U.S. federal securities laws, may not be allowed in Bermuda courts because they may be found to be contrary to Bermuda public policy. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based
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on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in other countries other than the United States.

We have anti-takeover provisions in our Bye-Laws that may discourage a change of control.

Our Bye-Laws contain provisions that could make it more difficult for a third-party to acquire us or to obtain majority representation on our Board of Directors without the consent of our Board. As a result, shareholders may be limited in their ability to obtain a premium for their shares under such circumstances.

Specifically, our Bye-Laws contain the following provisions that may impede or delay an unsolicited takeover of the company:
we are prohibited from engaging, under certain circumstances, in a business combination (as defined in our Bye-Laws) with any interested shareholder (as defined in our Bye-Laws) for three years following the date that the shareholder became an interested shareholder;
our Board of Directors, without further shareholder action, is permitted by our Bye-Laws to issue preference shares, in one or more series, and determine by resolution any designations, preferences, qualifications, privileges, limitations, restrictions, or special or relative rights of an additional series. The rights of preferred shareholders may supersede the rights of common shareholders;
shareholders may only remove directors for “cause” (defined in our Bye-laws to mean willful misconduct or gross negligence which is materially injurious to the company, fraud or embezzlement, or a conviction of, or a plea of “guilty” or “no contest” to, a felony);
our Board of Directors is authorized to expand its size and fill vacancies; and
shareholders cannot act by written consent unless the consent is unanimous.

General Risk Factors

Our ability to maintain our credit ratings and to access the capital markets in a timely manner should we seek to do so depends on a number of factors.
Our access to the capital markets depends significantly on our credit ratings. We have received credit ratings of A2/Stable, BBB+/Stable and A-/Positive from Moody's Investor Services ("Moody's"), Standard & Poor's Ratings Service ("S&P"), and Fitch Ratings ("Fitch"), respectively, as of the date hereof. We believe that rating agency concerns include but are not limited to the fact that our revenues are exposed to equity market volatility and the potential impact from regulatory changes to the industry. Additionally, the rating agencies could decide to downgrade the entire investment management industry, based on their perspective of future growth and solvency. Material deterioration of these factors, and others defined by each rating agency, could result in downgrades to our credit ratings, thereby limiting our ability to access additional financing. Management believes that solid investment grade ratings are an important factor in winning and maintaining institutional business and strives to manage the company to maintain such ratings.

Our credit facility borrowing rates are tied to our credit ratings. A reduction in our long-term credit ratings could increase our borrowing costs, could limit our access to the capital markets and may result in outflows thereby reducing AUM and revenues. Volatility in global finance markets may also affect our ability to access the capital markets should we seek to do so. If we are unable to access capital markets in a timely manner, our business could be adversely affected.

Our indebtedness could adversely affect our financial position or results of operations.

As of December 31, 2020, we had outstanding total long-term debt of $2,082.6 million, excluding debt of CIP, and total equity attributable to Invesco Ltd. of $14,361.8 million. The amount of indebtedness we carry could limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, increase our vulnerability to adverse economic and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business or industry and place us at a disadvantage in relation to our competitors. Any or all of the above factors could materially adversely affect our financial position or results of operations.

Failure to establish adequate controls and risk management policies, the circumvention of controls and policies or fraud could have an adverse effect on our reputation and financial position.

Although we seek to foster a positive workplace culture, have adopted a comprehensive risk management process and continue to enhance various controls, procedures, policies and systems to monitor and manage risks, we cannot ensure that our
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workplace culture or such controls, procedures, policies and systems will successfully identify and manage internal and external risks to our business. We are subject to the risk that our employees, contractors or other third parties may deliberately or recklessly seek to circumvent established controls to commit fraud (including through cyber breaches) or act in ways that are inconsistent with our controls, policies and procedures. Persistent or repeated attempts involving conflicts of interests, circumvention of policies and controls or fraud could have a materially adverse impact on our reputation, could lead to costly regulatory inquiries, fines and/or sanctions and may cause our AUM, revenue and earnings to decline.

Terrorist activity and the continued threat of terrorism, increased geopolitical unrest, disease, natural or man-made disasters could adversely affect the global economy or specific international, regional and domestic markets, which may cause our AUM, revenue and earnings to decline.

Terrorist activity and the continued threat of terrorism, acts of civil or international unrest or hostility, disease, natural and man-made disasters, within the United States and abroad, as well as ongoing military and other actions and heightened security measures in response to these types of threats, may cause significant volatility and declines in the global markets and reduced economic activity. Any of these events that adversely affect the global economy, capital markets or specific international, regional or domestic markets may cause our AUM, revenue and earnings to decline and may have a materially negative impact on our financial results

Insurance may not be available at a reasonable cost to protect us from loss or liability.

We face the inherent risk of loss or liability related to claims from clients, third-party vendors or others, actions taken by regulatory agencies and costs and losses associated with operations failures (which could include cyber incidents). To help protect against these risks, we purchase insurance in amounts, and against potential losses and liabilities, that we consider appropriate, where such insurance is available at prices we deem reasonable. There can be no assurance, however, that a claim or claims will be covered by insurance or, if covered, will not exceed coverage limits, or that an insurer will meet its obligations regarding coverage, or that coverage will continue to be available on a cost effective basis. Insurance costs are impacted by market conditions and the risk profile of the insured, and may increase significantly over relatively short periods. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose us to additional costs through higher premiums or the assumption of higher deductibles or co-insurance liability.


Item 1B.  Unresolved Staff Comments

None

Item 2.  Properties

Our registered office is located in Hamilton, Bermuda, and our corporate headquarters is in leased office space at 1555 Peachtree Street N.E., Suite 1800, Atlanta, Georgia, 30309, U.S.A. Our principal regional centers are maintained in leased facilities, except as noted below, in the following locations:

North America: 11 Greenway Plaza, Houston, Texas 77046; 225 Liberty St, New York City, New York 10281
EMEA: Perpetual Park, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom (owned facilities)
Asia: Champion Tower, No. 3 Garden Road, Hong Kong

We maintain a global enterprise center in Hyderabad, India in leased facilities at DivyaSree Orion in the Ranga Reddy District of Hyderabad, India. We lease office space in 26 countries.

Item 3.  Legal Proceedings

See Item 8, Financial Statements and Supplementary Data, Note 20, "Commitments and Contingencies - Legal Proceedings," for information regarding legal proceedings.

Item 4.  Mine Safety Disclosures

Not applicable
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PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Invesco Ltd. is organized under the laws of Bermuda, and our common shares are listed and traded on the New York Stock Exchange under the symbol “IVZ.” At January 31, 2021, there were approximately 5,250 holders of record of our common shares.

The following graph illustrates the cumulative total shareholder return of our common shares over the five-year period beginning from the market close on the last trading day of 2015 through and including the last trading day in the fiscal year ended December 31, 2020 and compares it to the cumulative total return of the Standard and Poor's (S&P) 500 Index and to a group of peer investment management companies. This table is not intended to forecast future performance of our common shares.

Cumulative Shareholder Returns

ivz-20201231_g6.jpg
Note:    Asset Manager Index includes Affiliated Managers Group, AllianceBernstein, Ameriprise Financial, Bank of New York Mellon, BlackRock, Charles Schwab, Eaton Vance, Federated Hermes, Franklin Resources, Invesco Ltd., Lazard, Northern Trust, Principal Financial, State Street, and T. Rowe Price.

Securities Authorized for Issuance under Equity Compensation Plans

The equity compensation plan information required in Item 201(d) of Regulation S-K is set forth in the definitive Proxy Statement for the company's annual meeting of shareholders, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020 and is incorporated by reference in this Report.

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Repurchases of Equity Securities

The following table shows common share repurchase activity during the three months ended December 31, 2020:
Month
Total Number
of Common Shares
Purchased (1)
Average Price Paid Per Common Share
Total Number of Common Shares
Purchased as Part of
Publicly Announced Plans or Programs
(2)
Approximate Dollar
Value of Common Shares that
May Yet Be Purchased
Under the Plans
or Programs
(2) (millions)
October 1 - 31, 202053,598 $11.82 — $732.2 
November 1 - 30, 2020112,667 $14.54 — $732.2 
December 1 - 31, 2020231,359 $16.62 — $732.2 
397,624 — 
____________

(1)    An aggregate of 397,624 common shares were surrendered to us by Invesco employees to satisfy tax withholding obligations in connection with the vesting of equity awards during the three months ended December 31, 2020.
(2)    At December 31, 2020, a balance of $732.2 million remains available under the common share repurchase authorization approved by the Board on July 22, 2016.

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Item 6.  Selected Financial Data

The following tables present selected consolidated financial information for the company as of and for each of the five fiscal years in the period ended December 31, 2020. Except as otherwise noted below, the consolidated financial information has been prepared in accordance with U.S. generally accepted accounting principles.
As of and For The Years Ended December 31,
$ in millions, except per common share and other data20202019201820172016
Operating Data:
Operating revenues6,145.6 6,117.4 5,314.1 5,160.3 4,734.4 
Net revenues (1)
4,501.0 4,415.1 3,818.1 3,754.9 3,393.2 
Operating income920.4 808.2 1,204.9 1,279.1 1,152.4 
Adjusted operating income (2)
1,664.5 1,655.8 1,391.7 1,482.2 1,297.4 
Operating margin15.0 %13.2 %22.7 %24.8 %24.3 %
Adjusted operating margin (2)
37.0 %37.5 %36.5 %39.5 %38.2 %
Net income attributable to Invesco Ltd.524.8 564.7 882.8 1,127.3 854.2 
Adjusted net income attributable to Invesco Ltd. (3)
892.9 1,124.0 1,002.7 1,105.9 924.1 
Per Common Share Data:
Earnings per common share:
-basic1.14 1.29 2.14 2.75 2.06 
-diluted1.13 1.28 2.14 2.75 2.06 
Adjusted diluted EPS (3)
1.93 2.55 2.43 2.70 2.23 
Dividends declared per common share0.78 1.23 1.19 1.15 1.11 
Balance Sheet Data:
Total assets36,504.1 39,420.3 30,978.4 31,668.8 25,734.3 
Long-term debt2,082.6 2,080.3 2,408.8 2,075.8 2,102.4 
Debt of consolidated investment products (CIP)6,714.1 6,234.6 5,226.0 4,799.8 4,403.1 
Total equity attributable to Invesco Ltd.14,361.8 13,862.5 8,578.8 8,696.1 7,503.8 
Total permanent equity14,808.9 14,318.3 8,936.2 8,955.6 7,611.8 
Other Data:
Ending AUM (in billions)1,349.9 1,226.2 888.2 937.6 812.9 
Average AUM (in billions)1,194.9 1,094.4 958.7 875.0 788.8 
Headcount8,512 8,821 7,459 7,030 6,790 
_________

(1)    Net revenues is a non-GAAP financial measure. See Item 7, “Summary Operating Information,” footnote 1, for the definition of this measure and the related reconciliation reference.
(2)    Adjusted operating income and adjusted operating margin are non-GAAP financial measures. See Item 7, “Summary Operating Information,” footnote 2, for the definition of these measures and the related reconciliation reference.
(3)    Adjusted net income attributable to Invesco Ltd. and adjusted diluted EPS are non-GAAP financial measures. See Item 7, “Summary Operating Information,” footnote 3, for the definition of these measures and the related reconciliation reference.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Management has elected to apply the FAST Act Modernization and Simplification of Regulation S-K, which provides the option to limit the discussion to the two most recent calendar years. The discussion and analysis disclosed herein apply to material changes in the consolidated financial statements for 2020 and 2019. For the comparison of 2019 and 2018, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the company’s 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 2, 2020. The following discussion and analysis of the results of operations and financial condition of Invesco Ltd. and its subsidiaries (collectively, the “company” or “Invesco”) should be read in conjunction with the “Forward-looking Statements” disclosure set forth in Part I and the “Risk Factors” set forth in Item 1A of Part I of this Annual Report on Form 10‑K, each of which describe our risks, uncertainties and other important factors in more detail.

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Executive Overview

The following executive overview summarizes the significant trends affecting our results of operations and financial condition for the periods presented. This overview and the remainder of this management's discussion and analysis supplements and should be read in conjunction with the Consolidated Financial Statements of Invesco and the notes thereto contained elsewhere in this Annual Report on Form 10-K.

Throughout 2020, global markets experienced record levels of volatility, transitioning quickly from highs in the beginning of the year to extreme lows as global markets first reacted to the COVID-19 pandemic. The pandemic had a severe impact on the economy, increasing unemployment and decreasing consumer spending throughout the global markets. However, beginning in April 2020, equity markets in many major indices experienced near continual gains throughout the remainder of 2020, more than reversing losses earlier in the year. The increasing equity markets were driven by the softening of social containment measures and reopening of businesses following shut-downs earlier in the year, accommodative fiscal and monetary policies enacted by many central governments and the authorization of multiple COVID-19 vaccines. Despite the increase in equity markets, the economy contracted in many developed and developing countries in 2020.

The table below summarizes the year ended December 31 returns based on price appreciation/(depreciation) of several major market indices for 2020 and 2019:
Year ended December 31,
Equity IndexIndex expressed in currency20202019
S&P 500U.S. Dollar16.3%28.9%
FTSE 100British Pound(14.3)%12.1%
FTSE 100U.S. Dollar(11.8)%16.7%
Nikkei 225Japanese Yen16.0%18.2%
Nikkei 225U.S. Dollar22.4%19.9%
MSCI Emerging MarketsU.S. Dollar15.8%15.4%
Bond Index
Barclays U.S. Aggregate BondU.S. Dollar7.5%8.7%

The company's financial results are impacted by the fluctuations in exchange rates against the U.S. Dollar. Our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net new business inflows (or outflows) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period. As fee rates differ across geographic locations, changes to exchange rates have an impact on the net revenue yields.

Invesco benefits from our long-term efforts to ensure a diversified base of AUM. One of Invesco's core strengths, and a key differentiator for the company within the industry, is our broad diversification across client domiciles, asset classes and distribution channels. Our geographic diversification recognizes growth opportunities in different parts of the world. This broad diversification mitigates the impact on Invesco of different market cycles and enables the company to take advantage of growth opportunities in various markets and channels.

Update on significant events and transactions

Over the past decade, we've been highly focused on investing ahead of shifts in client demand, putting us in a strong position to take advantage of key industry tailwinds in the future. During 2020, we continued to invest in capabilities where we see client demand or future opportunities by hiring strong talent, further upgrading our technology platform and launching new products. We believe the ability to leverage the capabilities developed by our investment teams to meet client demand across the globe is a significant differentiator for our firm.

As previously disclosed, we are undertaking a strategic evaluation of our business focusing on four key areas of our expense base: our organizational model, our real estate footprint, management of third party spend, and technology and operations efficiency. We plan to invest in key areas of growth aligned with our strategic plan, including ETFs, Fixed Income, China, Solutions, Alternatives and Global Equities, while creating permanent annual net operating expense improvements of $200 million. A significant element of the savings will be generated from realigning our workforce to support key areas of growth as well as repositioning some of our workforce to lower cost locations. We expect $150 million of the savings to be achieved by
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the end of 2021 with the remainder by the end of 2022. Remaining restructuring costs related to the strategic evaluation are estimated to be in a range of $150 to $175 million over the next two years, with $119.0 million incurred in 2020.

In 2019, Invesco completed the acquisition of OppenheimerFunds (OFI), and the integration of our two firms. Building on the combination with OFI, in 2020 we further deepened our relationships with clients in the US, expanded the capabilities we offered globally and further scaled our business for the benefit of clients and shareholders. The firm is also highly focused on delivering the additional capabilities achieved through the combination to institutional and non-US markets.

Managing our business and meeting client needs through COVID-19

Invesco is committed to helping our employees, our clients and our communities navigate the challenges presented by the impacts of COVID-19. The primary focus of our efforts is to ensure the health and safety of our employees while preserving our ability to serve clients and manage assets in a highly dynamic market environment. As always, we are committed to helping our clients achieve their investment objectives through disciplined long-term investing. To this end, we continue to proactively engage with our clients virtually to help them better navigate market volatility by providing thought leadership and other value-added services. We believe our client centric approach will enable our clients to emerge from this crisis stronger.

To ensure we continue to meet client needs in a primarily remote-working environment, small select teams are working at alternate sites or operating in split shifts to mitigate the risks associated with the virus. Some of our offices in locations across the globe have begun staged re-openings. We will continue to be responsive to the evolving threat of the virus and may re-close if necessary. Decisions regarding openings and closings of our offices are supported by information from local government and health officials, as well as our own internal research regarding the needs of our employees and clients.

Our portfolio managers, research analysts and traders are successfully working remotely or in secure locations with access to all systems necessary to do their jobs and an ability to connect with their teams in managing client assets. Additionally, our operational, control and support teams are primarily working in a remote environment. In light of the remote working environment, we continue to assess and enhance our business continuity plans as well as our internal controls with appropriate adjustments made to address the environment. This thoughtful, coordinated approach helps ensure our ability to continue to meet client needs and to run our business.

Other External Factors Impacting Invesco

Invesco has a larger global presence in key markets than most of our peers. As one of the leading investment managers in the UK and Europe, we were more impacted by continuing uncertainties surrounding Brexit. Additionally, our strong position in Asia-Pacific meant that Invesco was more affected than others by market uncertainties over the trade issues between China and the U.S.

On December 24, 2020, the UK and the EU (European Union) announced a trade deal after months of negotiations. The deal came into force effective December 31, 2020. While the deal announced largely covers goods, details related to the financial services industry are not specifically outlined within the agreement. The UK and the EU aim to agree by March 2021 to a memorandum of understanding establishing a framework for regulatory cooperation on financial services. The Brexit outcome at the end of 2020 was largely anticipated by the market.

Invesco is a global business and has been committed for many years to meeting clients’ needs across Europe in both EU and non-EU countries. Invesco has local teams of experts focused on servicing local clients and fund ranges in different countries to meet a variety of local, country and regional client needs. We currently have a presence in 12 countries across Europe. Our staff will be able to continue to reside and work across the relevant regions. The change in the UK's status from an EU to a non-EU country will not change Invesco’s focus or commitment to serve its clients across Europe. We are fully prepared to continue to operate and deliver for our clients with minimal disruption.

Investment exposure to the London Interbank Offered Rate (LIBOR) based interest rates could impact our client portfolios. The UK Financial Conduct Authority (FCA), which regulates LIBOR, has made it clear that the publication of LIBOR is not guaranteed beyond 2021. The ICE Benchmark Administration (IBA), which administers LIBOR, recently consulted on the extension of five of the seven total settings (overnight and one, three, six and twelve month) USD-LIBOR, with a possible cessation extension date to June 30, 2023. As a result, firms must transition away from LIBOR to alternative risk-free rates. Working groups and regulators across various jurisdictions have put forth LIBOR transition plan guidance, including recommendations related to the potential cessation extension date of five of seven settings of US Dollar (USD) LIBOR. Invesco continues to actively monitor and adjust the LIBOR transition strategy and timeline as necessary, such as choosing to adhere to the recent International Swaps & Derivatives Association (ISDA) protocol that provides a clear fallback rate for legacy LIBOR-
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linked derivative contracts upon LIBOR cessation. The discontinuance of LIBOR may adversely affect the amount of interest or other amounts payable or receivable on certain portfolio investments. These changes may also impact the market liquidity and market value of these portfolio investments. Invesco finalized its global assessment of exposure in relation to funds holding LIBOR based instruments and funds utilizing LIBOR as a benchmark and/or performance target. Invesco is prioritizing the mitigation of risks associated with financial instruments held and benchmarks/performance targets used that reference existing LIBOR rates, as well as any impact on Invesco portfolios and investment strategies. Invesco continues to monitor overall industry transition progress and completes ongoing analysis of the suitability of alternative risk-free rates.

Presentation of Management's Discussion and Analysis of Financial Condition and Results of Operations -- Impact of Consolidated Investment Products

The company provides investment management services to, and has transactions with, various retail mutual funds and similar entities, private equity, real estate, fund-of-funds, collateralized loan obligation products (CLOs), and other investment entities sponsored by the company for the investment of client assets in the normal course of business. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of the products. The company is required to consolidate certain of these managed funds from time-to-time, as discussed more fully in Item 8, Financial Statements and Supplementary Data, Note 1, "Accounting Policies -- Basis of Accounting and Consolidation." Investment products that are consolidated are referred to in this Form 10-K (Report) as consolidated investments products (CIP). The company's economic risk with respect to each investment in CIP is limited to its equity ownership and any uncollected management and performance fees.

The majority of the company's CIP balances are CLO-related. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company's direct investments in, and management and performance fees generated from, the CLOs. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Likewise, the investors in the CLOs have no recourse to the general credit of the company for the notes issued by the CLOs. The company therefore does not consider this debt to be a company liability.

The impact of CIP is so significant to the presentation of the company’s Consolidated Financial Statements that the company has elected to deconsolidate these products in its non-GAAP disclosures. The following discussion therefore combines the results presented under U.S. generally accepted accounting principles (U.S. GAAP) with the company’s non-GAAP presentation. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains four distinct sections, which follow after the Assets Under Management discussion:

Results of Operations (year ended December 31, 2020 compared to December 31, 2019);
Schedule of Non-GAAP Information;
Balance Sheet Discussion; and
Liquidity and Capital Resources.

To assess the impact of CIP on the company's Results of Operations and Balance Sheet Discussion, refer to Part II, Item 8, Financial Statements, Note 21, "Consolidated Investment Products." The impact on the company's results of operations is illustrated by a column which shows the dollar-value change in the consolidated figures, as caused by the consolidation of CIP. For example, the impact of CIP on operating revenues for the year ended December 31, 2020 was a reduction of $39.8 million. This indicates that their consolidation reduced consolidated revenues by this amount, reflecting the elimination upon their consolidation of the operating revenues earned by Invesco for managing these investment products.

Wherever a non-GAAP measure is referenced, a disclosure will follow in the narrative or in the note referring the reader to the Schedule of Non-GAAP Information, where additional details regarding the use of the non-GAAP measure by the company are disclosed, along with reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures. To further enhance the readability of the Results of Operations section, separate tables for each of the revenue, expense, and other income and expenses (non-operating income/expense) sections of the income statement introduce the narrative that follows, providing a section-by-section review of the company’s income statements for the periods presented.

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Summary Operating Information

Summary operating information for 2020, 2019 and 2018 is presented in the table below.
$ in millions, other than per common share amounts, operating margins and AUMYear ended December 31,
U.S. GAAP Financial Measures Summary202020192018
Operating revenues6,145.6 6,117.4 5,314.1 
Operating income920.4 808.2 1,204.9 
Operating margin15.0 %13.2 %22.7 %
Net income attributable to Invesco Ltd.524.8 564.7 882.8 
Diluted EPS1.13 1.28 2.14 
Non-GAAP Financial Measures Summary
Net revenues (1)
4,501.0 4,415.1 3,818.1 
Adjusted operating income (2)
1,664.5 1,655.8 1,391.7 
Adjusted operating margin (2)
37.0 %37.5 %36.5 %
Adjusted net income attributable to Invesco Ltd. (3)
892.9 1,124.0 1,002.7 
Adjusted diluted EPS (3)
1.93 2.55 2.43 
Assets Under Management
Ending AUM (billions)1,349.9 1,226.2 888.2 
Average AUM (billions)1,194.9 1,094.4 958.7 
_________

(1)Net revenues is a non-GAAP financial measure. Net revenues are operating revenues plus the net revenues of our Great Wall joint venture; less pass-through revenue adjustments to investment management fees, service and distribution fees and other; plus management and performance fees earned from CIP. See "Schedule of Non-GAAP Information" for the reconciliation of operating revenues to net revenues.
(2)Adjusted operating income and adjusted operating margin are non-GAAP financial measures. Adjusted operating margin is adjusted operating income divided by net revenues. Adjusted operating income includes operating income plus the net operating income of our joint venture investments, the operating income impact of the consolidation of investment products, transaction, integration and restructuring adjustments, compensation expense related to market valuation changes in deferred compensation plans and other reconciling items. See "Schedule of Non-GAAP Information," for the reconciliation of operating income to adjusted operating income.
(3)Adjusted net income attributable to Invesco Ltd. and adjusted diluted EPS are non-GAAP financial measures. Adjusted net income attributable to Invesco Ltd. is net income attributable to Invesco Ltd. adjusted to exclude the net income of CIP, transaction, integration and restructuring adjustments, the net income impact of deferred compensation plans and other reconciling items. Adjustments made to net income attributable to Invesco Ltd. are tax-affected in arriving at adjusted net income attributable to Invesco Ltd. By calculation, adjusted diluted EPS is adjusted net income attributable to Invesco Ltd. divided by the weighted average number of common shares outstanding (for diluted EPS). See "Schedule of Non-GAAP Information," for the reconciliation of net income attributable to Invesco Ltd. to adjusted net income attributable to Invesco Ltd.
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Investment Capabilities Performance Overview

Invesco's first strategic objective is to achieve strong investment performance over the long-term for our clients. As of December 31, 2020, 55%, 58%, 61%, and 70% of measured ranked actively managed assets performed in the top half of peer groups on a one-, three-, five- and ten-year basis, respectively. The table below presents the one-, three-, five- and ten-year performance of our measured ranked actively managed investment products measured by the percentage of AUM ahead of benchmark and AUM in the top half of peer group. (1)
Benchmark ComparisonPeer Group Comparison
% of AUM Ahead of Benchmark% of AUM In Top Half of Peer Group
1yr3yr5yr10yr1yr3yr5yr10yr
Equities (2)
U.S. Core (5%)16 %12 %%12 %28 %28 %24 %17 %
U.S. Growth (7%)87 %87 %53 %53 %87 %87 %87 %53 %
U.S. Value (7%)27 %11 %%%%%%%
Sector (2%)99 %97 %76 %96 %62 %59 %79 %60 %
UK (1%)13 %25 %18 %40 %16 %%%26 %
Canadian (<1%)%%%12 %11 %%%11 %
Asian (3%)79 %79 %92 %88 %53 %46 %78 %79 %
Continental European (2%)14 %%%90 %13 %%%68 %
Global (7%)71 %71 %72 %87 %78 %29 %32 %47 %
Global Ex U.S. and Emerging Markets (13%)89 %89 %89 %98 %29 %87 %71 %88 %
Fixed Income (2)
Money Market (15%)81 %99 %100 %100 %78 %78 %78 %99 %
U.S. Fixed Income (11%)67 %82 %84 %95 %65 %63 %88 %92 %
Global Fixed Income (6%)84 %84 %87 %96 %53 %54 %60 %70 %
Stable Value (5%)100 %100 %100 %100 %97 %100 %100 %100 %
Other (2)
Alternatives (8%)26 %34 %73 %37 %35 %33 %40 %56 %
Balanced (8%)79 %75 %53 %60 %55 %52 %54 %91 %
____________
Note:
(1) Excludes passive products, closed-end funds, private equity limited partnerships, non-discretionary funds, unit investment trusts, fund of funds with component funds managed by Invesco, stable value building block funds and CDOs. 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. These results are preliminary and subject to revision. AUM measured in the one, three, five and ten-year quartile rankings represents 53%, 52%, 51% and 47% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one, three, five and ten year basis represents 63%, 62%, 60% and 55% of total Invesco AUM as of 12/31/20. Peer group rankings are sourced from a widely-used third party ranking agency in each fund’s market (Lipper, Morningstar, IA, Russell, Mercer, eVestment Alliance, SITCA, Value Research) and asset-weighted in USD. Rankings are as of prior quarter-end for most institutional products and prior month-end for Australian retail funds due to their late release by third parties. Rankings are calculated against all funds in each peer group. Rankings for the primary share class of the most representative fund in each composite are applied to all products within each composite. Performance assumes the reinvestment of dividends. Past performance is not indicative of future results and may not reflect an investor’s experience.

(2) Numbers in parenthesis reflect percentage of 5-year total ranked AUM. As of December 31, 2020, total ranked AUM is $711.0 billion (53% of total Invesco AUM) for 1 year, $700.5 billion (52% of total Invesco AUM) for 3 years, $694.0 billion (51% of Invesco AUM) for 5 years, and $631.5 billion (47% of total Invesco AUM) for 10 years.

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Assets Under Management

The following presentation and discussion of AUM includes Passive and Active AUM. Passive AUM include index-based ETFs, unit investment trusts (UITs), non-management fee earning AUM and other passive mandates. Active AUM is total AUM less Passive AUM.

Non-management fee earning AUM includes non-management fee earning ETFs, UIT and product leverage. The net flows in non-management fee earning AUM can be relatively short-term in nature and, due to the relatively low revenue yield, these can have a significant impact on overall net revenue yield.

The AUM tables and the discussion below refer to certain AUM as long-term. Long-term inflows and the underlying reasons for the movements in this line item include investments from new clients, existing clients adding new accounts/funds or contributions/subscriptions into existing accounts/funds. Long-term outflows reflect client redemptions from accounts/funds and include the return of invested capital on the maturity. We present net flows into money market funds separately because shareholders of those funds typically use them as short-term funding vehicles and because their flows are particularly sensitive to short-term interest rate movements.

Changes in AUM were as follows:
202020192018
$ in billionsTotal AUMActivePassiveTotal AUMActivePassiveTotal AUMActivePassive
January 11,226.2 929.2 297.0 888.2 667.2 221.0 937.6 738.8 198.8 
Long-term inflows310.9 204.3 106.6 227.5 146.8 80.7 209.8 139.4 70.4 
Long-term outflows(326.6)(236.1)(90.5)(261.9)(196.5)(65.4)(248.8)(176.4)(72.4)
Long-term net flows(15.7)(31.8)16.1 (34.4)(49.7)15.3 (39.0)(37.0)(2.0)
Net flows in non-management fee earning AUM(5.1)— (5.1)9.2 (0.1)9.3 2.5 — 2.5 
Net flows in money market funds14.3 14.3 — (2.0)(2.0)— 7.6 7.6 — 
Total net flows(6.5)(17.5)11.0 (27.2)(51.8)24.6 (28.9)(29.4)0.5 
Reinvested distributions16.9 16.9 — 17.9 17.9 — 11.4 11.4 — 
Market gains and losses103.0 40.8 62.2 120.4 73.5 46.9 (67.0)(52.1)(14.9)
Acquisitions (1)
— — — 224.4 219.9 4.5 47.6 10.5 37.1 
Foreign currency translation10.3 9.9 0.4 2.5 2.5 — (12.5)(12.0)(0.5)
December 311,349.9 979.3 370.6 1,226.2 929.2 297.0 888.2 667.2 221.0 
Average AUM
Average long-term AUM952.0 784.6 167.4 887.1 734.7 152.4 785.5 646.5 139.0 
Average AUM1,194.9 893.0 301.9 1,094.4 830.1 264.3 958.7 726.6 232.1 
Revenue yield
Gross revenue yield on AUM (2)
53.7 65.4 21.0 57.8 69.1 23.9 56.3 66.2 26.3 
Gross revenue yield on AUM before performance fees (2)
53.1 64.6 21.0 56.8 67.8 23.9 55.7 65.4 26.3 
Net revenue yield on AUM (3)
37.7 46.4 12.0 40.3 48.6 14.6 39.8 47.5 15.9 
Net revenue yield on AUM before performance fees (3)
36.8 45.2 12.0 39.4 47.2 14.6 39.2 46.7 15.9 

(1) The acquisition of OppenheimerFunds business on May 24, 2019 added $224.4 billion in AUM at that date. The acquisition of Guggenheim Investments' ETF business on April 6, 2018 added $38.1 billion in AUM at that date. As of July 1, 2018, we began including 100% of Invesco Great Wall, which added $9.5 billion in AUM during the third quarter of 2018.
(2) Gross revenue yield on AUM is equal to annualized total operating revenues divided by average AUM, excluding Invesco Great Wall AUM. Prior to the third quarter 2018, management reflected its interests in Invesco Great Wall on a proportional consolidation basis, which was consistent with the presentation of our share of the AUM from these investments. Given the company's influence on Invesco Great Wall, a change in regulation allowing increased foreign ownership and reaching oral agreement in principle to obtain majority stake of the joint venture, the company began reporting 100% of the flows and AUM for Invesco Great Wall beginning in the third quarter of 2018. Average AUM in 2020 for our JVs in China was $50.0 billion (2019: $35.6 billion, 2018: $16.2 billion). It is appropriate to exclude the average AUM of our JVs for purposes of computing gross revenue yield on AUM, because the revenues resulting from
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these AUM are not presented in our operating revenues. Under U.S. GAAP, our share of the net income of the JVs is recorded as equity in earnings of unconsolidated affiliates on our Consolidated Statements of Income. Additionally, the numerator of the gross revenue yield measure, operating revenues, excludes the management fees earned from CIP and our JVs in China; however, the denominator of the measure includes the AUM of these investment products. Therefore, the gross revenue yield measure is not considered representative of the company's true effective fee rate from AUM.
(3)    Net revenue yield on AUM is equal to annualized net revenues divided by average AUM. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues.

Flows

There are numerous drivers of AUM inflows and outflows, including individual investor decisions to change investment preferences, fiduciaries and other gatekeepers making broad asset allocation decisions on behalf of their clients and reallocation of investments within portfolios. We are not a party to these asset allocation decisions, as the company does not generally have access to the underlying investor's decision-making process, including their risk appetite or liquidity needs. Therefore, the company is not in a position to provide meaningful information regarding the drivers of inflows and outflows.

Market Returns

Market gains and losses include the net change in AUM resulting from changes in market values of the underlying securities from period to period. As discussed in the “Executive Overview” section of this Management’s Discussion and Analysis, during 2020, global equity markets saw significant volatility due to the COVID-19 pandemic beginning in March 2020 and continuing through 2020. The resulting decline in AUM adversely impacted our revenues during the first half of the year, but market recovery increased our average AUM and revenues during the second half of the year. However, market dynamics have also changed the AUM product mix, which has an effect on our revenue yield, as discussed further below.

Foreign Exchange Rates

During the year ended December 31, 2020, we experienced increases in AUM of $10.3 billion due to changes in foreign exchange rates (December 31, 2019: AUM increased by $2.5 billion).

Acquisitions

There were no acquisitions during the year ended December 31, 2020. For the year ended December 31, 2019, we completed the acquisition of OppenheimerFunds on May 24, 2019, which added $224.4 billion in AUM during the year.

Revenue Yield

As a significant proportion of our AUM is based outside of the U.S., changes in foreign exchange rates result in a change to the mix of U.S. Dollar denominated AUM with AUM denominated in other currencies. As fee rates differ across geographic locations, changes to exchange rates have an impact on the net revenue yields. Changes in our AUM mix also significantly impact our net revenue yield. Passive AUM generally earn a lower effective fee rate than active asset classes, and changes in the mix of products therefore have an impact on our net revenue yield. At the industry level, investors continue to shift towards passive products and away from active, and Invesco is able to participate in this trend due to the breadth, strength and diversified nature of our business.

In the year ended December 31, 2020, the net revenue yield was 37.7 basis points compared to 40.3 basis points in the year ended December 31, 2019, a decrease of 2.6 basis points.

In 2019, yields improved after the second quarter acquisition of OppenheimerFunds, which contributed AUM of $224.4 billion comprised of $219.9 billion of active and $4.5 billion of passive AUM, increasing the proportion of active AUM and positively impacting net revenue yield. However, AUM mix in 2020 was impacted by flows into lower fee products, from the market impact of the COVID-19 pandemic and from the growth in our QQQ fund, all of which increased the proportion of lower-fee AUM, which has lowered net revenue yield in 2020. As passive products generally have lower fees than active products, the AUM shift towards passive has contributed to the declining net revenue yield. Passive AUM includes our QQQ ETF, for which we do not receive a management fee but which delivers significant marketing and brand value and increases Invesco’s footprint, leadership and relevance in the ETF market. At December 31, 2020, passive AUM were $370.6 billion, representing 27.5% of total AUM at that date; whereas at December 31, 2019, passive AUM were $297.0 billion, representing 24.2% of our total AUM at that date.
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Also contributing to the overall decline, the net revenue yield specific to passive AUM has declined, particularly from the impact of the growth of the QQQ fund. At December 31, 2020, the QQQ fund represented $152.5 billion, or 41.1% of passive AUM. At December 31, 2019, the QQQ fund represented $86.9 billion, or 29.3% of passive AUM. In the year ended December 31, 2020, the net revenue yield on passive AUM was 12.0 basis points compared to 14.6 basis points in the year ended December 31, 2019, a decrease of 2.6 basis points.

Market volatility in 2020 also contributed to investors moving into lower risk assets, such as money market and stable
value funds, which are active funds with lower fees. We saw outflows from equity products and alternatives and inflows into fixed income and other relatively lower fee products. These changes have decreased the net revenue yield on active AUM. At December 31, 2020, active AUM were $979.3 billion, representing 72.5% of total AUM at that date; whereas at December 31, 2019, active AUM were $929.2 billion, representing 75.8% of our total AUM at that date. In the year ended December 31, 2020, the net revenue yield on active AUM was 46.4 basis points compared to 48.6 basis points in the year ended December 31, 2019, a decrease of 2.2 basis points.

The changes described above have adversely impacted our revenue and resulting revenue yields, and we expect they will continue to pressure revenues and yields in the near term.

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Changes in our AUM by channel, asset class, and client domicile, and average AUM by asset class, are presented below:

Total AUM by Channel (1)
$ in billionsTotalRetailInstitutional
December 31, 20191,226.2 878.2 348.0 
Long-term inflows310.9 221.6 89.3 
Long-term outflows(326.6)(267.6)(59.0)
Long-term net flows(15.7)(46.0)30.3 
Net flows in non-management fee earning AUM(5.1)7.2 (12.3)
Net flows in money market funds14.3 2.0 12.3 
Total net flows(6.5)(36.8)30.3 
Reinvested distributions16.9 16.3 0.6 
Market gains and losses103.0 85.4 17.6 
Foreign currency translation10.3 4.0 6.3 
December 31, 20201,349.9 947.1 402.8 
December 31, 2018888.2 566.7 321.5 
Long-term inflows227.5 175.2 52.3 
Long-term outflows(261.9)(210.4)(51.5)
Long-term net flows(34.4)(35.2)0.8 
Net flows in non-management fee earning AUM9.2 4.9 4.3 
Net flows in money market funds(2.0)4.2 (6.2)
Total net flows(27.2)(26.1)(1.1)
Reinvested distributions17.9 17.6 0.3 
Market gains and losses120.4 102.4 18.0 
Acquisitions (4)
224.4 215.8 8.6 
Foreign currency translation2.5 1.8 0.7 
December 31, 20191,226.2 878.2 348.0 
December 31, 2017937.6 607.6 330.0 
Long-term inflows209.8 158.8 51.0 
Long-term outflows(248.8)(194.1)(54.7)
Long-term net flows(39.0)(35.3)(3.7)
Net flows in non-management fee earning AUM2.5 2.7 (0.2)
Net flows in money market funds7.6 9.0 (1.4)
Total net flows(28.9)(23.6)(5.3)
Reinvested distributions11.4 11.4 — 
Market gains and losses(67.0)(62.4)(4.6)
Acquisitions (4)
47.6 42.6 5.0 
Foreign currency translation(12.5)(8.9)(3.6)
December 31, 2018888.2 566.7 321.5 
____________

See accompanying notes immediately following these AUM tables.
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Passive AUM by Channel (1)
$ in billionsTotalRetailInstitutional
December 31, 2019297.0 275.8 21.2 
Long-term inflows106.6 93.6 13.0 
Long-term outflows(90.5)(89.0)(1.5)
Long-term net flows16.1 4.6 11.5 
Net flows in non-management fee earning AUM(5.1)7.3 (12.4)
Total net flows11.0 11.9 (0.9)
Market gains and losses62.2 57.9 4.3 
Foreign currency translation0.4 0.4 — 
December 31, 2020370.6 346.0 24.6 
December 31, 2018221.0 204.6 16.4 
Long-term inflows80.7 80.1 0.6 
Long-term outflows(65.4)(65.4)— 
Long-term net flows15.3 14.7 0.6 
Net flows in non-management fee earning AUM9.3 5.1 4.2 
Total net flows24.6 19.8 4.8 
Market gains and losses46.9 46.9 — 
Acquisitions (4)
4.5 4.5 — 
December 31, 2019297.0 275.8 21.2 
December 31, 2017198.8 181.9 16.9 
Long-term inflows70.4 70.4 — 
Long-term outflows(72.4)(72.4)— 
Long-term net flows(2.0)(2.0)— 
Net flows in non-management fee earning AUM2.5 2.7 (0.2)
Total net flows0.5 0.7 (0.2)
Market gains and losses(14.9)(14.5)(0.4)
Acquisitions (4)
37.1 37.1 — 
Foreign currency translation(0.5)(0.6)0.1 
December 31, 2018221.0 204.6 16.4 
____________

See accompanying notes immediately following these AUM tables.
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Total AUM by Asset Class (2)
$ in billionsTotalEquity
Fixed Income
BalancedMoney MarketAlternatives
December 31, 20191,226.2 598.8 283.5 67.3 91.4 185.2 
Long-term inflows310.9 134.6 102.9 30.5 — 42.9 
Long-term outflows(326.6)(167.4)(76.8)(29.7)— (52.7)
Long-term net flows(15.7)(32.8)26.1 0.8 — (9.8)
Net flows in non-management fee earning AUM(5.1)17.2 (22.3)— — — 
Net flows in money market funds14.3 — — — 14.3 — 
Total net flows(6.5)(15.6)3.8 0.8 14.3 (9.8)
Reinvested distributions16.9 11.5 2.3 1.8 — 1.3 
Market gains and losses103.0 92.2 4.7 7.1 1.2 (2.2)
Foreign currency translation10.3 2.7 2.1 1.9 1.6 2.0 
December 31, 20201,349.9 689.6 296.4 78.9 108.5 176.5 
Average AUM1,194.9 573.1 275.3 65.1 108.4 173.0 
% of total average AUM100.0 %48.0 %23.0 %5.4 %9.1 %14.5 %
December 31, 2018888.2 369.1 208.6 55.4 89.9 165.2 
Long-term inflows227.5 100.9 68.0 18.8 0.2 39.6 
Long-term outflows(261.9)(132.4)(53.9)(20.4)(0.1)(55.1)
Long-term net flows(34.4)(31.5)14.1 (1.6)0.1 (15.5)
Net flows in non-management fee earning AUM9.2 2.9 6.3 — — — 
Net flows in money market funds(2.0)— — — (2.0)— 
Total net flows(27.2)(28.6)20.4 (1.6)(1.9)(15.5)
Reinvested distributions17.9 12.9 1.6 1.9 — 1.5 
Market gains and losses120.4 94.0 9.9 7.6 — 8.9 
Acquisitions (4)
224.4 149.7 42.5 3.7 3.7 24.8 
Foreign currency translation2.5 1.7 0.5 0.3 (0.3)0.3 
December 31, 20191,226.2 598.8 283.5 67.3 91.4 185.2 
Average AUM1,094.4 503.9 253.8 62.1 95.4 179.2 
% of total average AUM100.0 %46.0 %23.2 %5.7 %8.7 %16.4 %
December 31, 2017937.6 412.6 204.3 62.3 78.6 179.8 
Long-term inflows209.8 96.8 51.4 13.1 6.9 41.6 
Long-term outflows(248.8)(126.0)(53.6)(15.1)(5.4)(48.7)
Long-term net flows(39.0)(29.2)(2.2)(2.0)1.5 (7.1)
Net flows in non-management fee earning AUM2.5 3.1 (0.6)— — — 
Net flows in money market funds7.6 — — — 7.6 — 
Total net flows(28.9)(26.1)(2.8)(2.0)9.1 (7.1)
Reinvested distributions11.4 8.4 1.0 1.4 — 0.6 
Market gains and losses(67.0)(49.5)(3.8)(7.0)0.6 (7.3)
Acquisitions (4)
47.6 29.5 11.5 3.1 2.2 1.3 
Foreign currency translation(12.5)(5.8)(1.6)(2.4)(0.6)(2.1)
December 31, 2018888.2 369.1 208.6 55.4 89.9 165.2 
Average AUM958.7 422.8 209.9 62.1 85.6 178.3 
% of total average AUM100.0 %44.1 %21.9 %6.5 %8.9 %18.6 %
____________
See accompanying notes immediately following these AUM tables.
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Passive AUM by Asset Class (2)
$ in billionsTotalEquityFixed IncomeBalancedMoney MarketAlternatives
December 31, 2019297.0 217.1 58.9 0.9 — 20.1 
Long-term inflows106.6 73.4 12.6 0.1 — 20.5 
Long-term outflows(90.5)(63.0)(11.5)— — (16.0)
Long-term net flows16.1 10.4 1.1 0.1 — 4.5 
Net flows in non-management fee earning AUM(5.1)17.2 (22.3)— — — 
Total net flows11.0 27.6 (21.2)0.1 — 4.5 
Market gains and losses62.2 61.4 (0.8)— — 1.6 
Foreign currency translation0.4 0.3 0.1 — — — 
December 31, 2020370.6 306.4 37.0 1.0 — 26.2 
Average AUM301.9 237.5 40.8 0.8 — 22.9 
% of total average AUM100.0 %78.6 %13.5 %0.3 %— %7.6 %
December 31, 2018221.0 155.3 47.2 0.7 — 17.8 
Long-term inflows80.7 57.9 10.9 0.1 — 11.8 
Long-term outflows(65.4)(48.2)(6.0)— — (11.2)
Long-term net flows15.3 9.7 4.9 0.1 — 0.6 
Net flows in non-management fee earning AUM9.3 3.0 6.3 — — — 
Total net flows24.6 12.7 11.2 0.1 — 0.6 
Market gains and losses46.9 44.7 0.4 0.1 — 1.7 
Acquisitions (4)
4.5 4.5 — — — — 
Foreign currency translation— (0.1)0.1 — — — 
December 31, 2019297.0 217.1 58.9 0.9 — 20.1 
Average AUM264.3 189.2 55.7 0.8 — 18.6 
% of total average AUM100.0 %71.6 %21.1 %0.3 %— %7.0 %
December 31, 2017198.8 134.7 42.4 0.8 — 20.9 
Long-term inflows70.4 49.3 10.8 — — 10.3 
Long-term outflows(72.4)(47.4)(12.0)— — (13.0)
Long-term net flows(2.0)1.9 (1.2)— — (2.7)
Net flows in non-management fee earning AUM2.5 3.1 (0.6)— — — 
Total net flows0.5 5.0 (1.8)— — (2.7)
Market gains and losses(14.9)(11.1)(1.9)(0.1)— (1.8)
Acquisitions (4)
37.1 27.1 8.7 — — 1.3 
Foreign currency translation(0.5)(0.4)(0.2)— — 0.1 
December 31, 2018221.0 155.3 47.2 0.7 — 17.8 
Average AUM232.1 162.2 47.4 0.8 — 21.7 
% of total average AUM100.0 %69.9 %20.4 %0.3 %— %9.3 %
____________
See accompanying notes immediately following these AUM tables.

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                      ��         
Total AUM by Client Domicile (3)
$ in billionsTotalAmericasUKEMEA ex UKAsia
December 31, 20191,226.2 879.5 74.4 143.7 128.6 
Long-term inflows310.9 176.2 13.0 57.6 64.1 
Long-term outflows(326.6)(206.7)(19.6)(55.5)(44.8)
Long-term net flows(15.7)(30.5)(6.6)2.1 19.3 
Net flows in non-management fee earning AUM(5.1)3.6 0.2 (9.6)0.7 
Net flows in money market funds14.3 10.9 0.1 0.2 3.1 
Total net flows(6.5)(16.0)(6.3)(7.3)23.1 
Reinvested distributions16.9 16.6 0.2 — 0.1 
Market gains and losses103.0 79.3 (2.7)12.7 13.7 
Foreign currency translation10.3 0.5 1.3 2.7 5.8 
December 31, 20201,349.9 959.9 66.9 151.8 171.3 
December 31, 2018888.2 581.6 76.6 125.5 104.5 
Long-term inflows227.5 124.6 9.1 51.7 42.1 
Long-term outflows(261.9)(158.2)(20.2)(49.7)(33.8)
Long-term net flows(34.4)(33.6)(11.1)2.0 8.3 
Net flows in non-management fee earning AUM9.2 6.3 0.2 2.4 0.3 
Net flows in money market funds(2.0)(3.9)— (2.3)4.2 
Total net flows(27.2)(31.2)(10.9)2.1 12.8 
Reinvested distributions17.9 17.5 0.4 — — 
Market gains and losses120.4 88.1 5.5 15.3 11.5 
Transfer— (1.3)(0.3)1.6 — 
Acquisitions (4)
224.4 223.7 0.7 — — 
Foreign currency translation2.5 1.1 2.4 (0.8)(0.2)
December 31, 20191,226.2 879.5 74.4 143.7 128.6 
December 31, 2017937.6 610.4 93.6 144.5 89.1 
Long-term inflows209.8 108.3 13.6 58.3 29.6 
Long-term outflows(248.8)(139.3)(18.6)(65.7)(25.2)
Long-term net flows(39.0)(31.0)(5.0)(7.4)4.4 
Net flows in non-management fee earning AUM2.5 2.7 (0.1)(0.2)0.1 
Net flows in money market funds7.6 (2.1)— 0.9 8.8 
Total net flows(28.9)(30.4)(5.1)(6.7)13.3 
Reinvested distributions11.4 10.8 0.6 — — 
Market gains and losses(67.0)(44.7)(7.3)(8.6)(6.4)
Transfer— (0.4)(0.4)0.7 0.1 
Acquisitions (4)
47.6 38.1 — — 9.5 
Foreign currency translation(12.5)(2.2)(4.8)(4.4)(1.1)
December 31, 2018888.2 581.6 76.6 125.5 104.5 
____________

See accompanying notes immediately following these AUM tables.

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Passive AUM by Client Domicile (3)
$ in billionsTotalAmericasUKEMEA ex UKAsia
December 31, 2019297.0 240.0 0.7 51.4 4.9 
Long-term inflows106.6 67.6 0.7 35.5 2.8 
Long-term outflows(90.5)(59.5)(0.9)(27.9)(2.2)
Long-term net flows16.1 8.1 (0.2)7.6 0.6 
Net flows in non-management fee earning AUM(5.1)3.6 0.2 (9.6)0.7 
Total net flows11.0 11.7 — (2.0)1.3 
Market gains and losses62.2 51.4 0.1 9.0 1.7 
Foreign currency translation0.4 (0.1)— 0.5 — 
December 31, 2020370.6 303.0 0.8 58.9 7.9 
December 31, 2018221.0 184.0 0.7 32.6 3.7 
Long-term inflows80.7 48.6 0.5 29.7 1.9 
Long-term outflows(65.4)(42.6)(0.4)(20.3)(2.1)
Long-term net flows15.3 6.0 0.1 9.4 (0.2)
Net flows in non-management fee earning AUM9.3 6.4 0.2 2.4 0.3 
Total net flows24.6 12.4 0.3 11.8 0.1 
Market gains and losses46.9 39.1 (0.3)7.0 1.1 
Acquisitions (4)
4.5 4.5 — — — 
December 31, 2019297.0 240.0 0.7 51.4 4.9 
December 31, 2017198.8 160.1 0.8 34.7 3.2 
Long-term inflows70.4 40.1 0.4 28.4 1.5 
Long-term outflows(72.4)(42.5)(0.5)(28.3)(1.1)
Long-term net flows(2.0)(2.4)(0.1)0.1 0.4 
Net flows in non-management fee earning AUM2.5 2.7 (0.1)(0.2)0.1 
Total net flows0.5 0.3 (0.2)(0.1)0.5 
Market gains and losses(14.9)(13.3)0.1 (1.6)(0.1)
Acquisitions (4)
37.1 36.9 — — 0.2 
Foreign currency translation(0.5)— — (0.4)(0.1)
December 31, 2018221.0 184.0 0.7 32.6 3.7 
____________
(1)    Channel refers to the internal distribution channel from which the AUM originated. Retail AUM represents AUM distributed by the company's retail sales team. Institutional AUM represents AUM distributed by our institutional sales team. This aggregation is viewed as a proxy for presenting AUM in the retail and institutional markets in which the company operates.
(2)    Asset classes are descriptive groupings of AUM by common type of underlying investments.
(3)    Client domicile disclosure groups AUM by the domicile of the underlying clients.
(4)    The acquisition of OppenheimerFunds business on May 24, 2019 added $224.4 billion in AUM at that date. The acquisition of Guggenheim Investments' ETF business on April 6, 2018 added $38.1 billion in AUM during the second quarter of 2018. As of July 1, 2018, we began including 100% of Invesco Great Wall, which added $9.5 billion in AUM during the third quarter of 2018.

Results of Operations for the Year Ended December 31, 2020 compared to December 31, 2019

The discussion below includes the use of non-GAAP financial measures. See “Schedule of Non-GAAP Information” for additional details and reconciliations of the most directly comparable U.S. GAAP measures to the non-GAAP measures.

The results of the OppenheimerFunds acquisition are included from May 24, 2019 (date of acquisition), the results of Guggenheim Investments' ETF business are included from April 6, 2018 (date of acquisition) and the results of Intelliflo are included from June 4, 2018 (date of acquisition).
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Operating Revenues and Net Revenues

The main categories of revenues, and the dollar and percentage change between the periods, are as follows:
Variance
Years ended December 31,2020 vs 20192019 vs 2018
$ in millions202020192018$ Change% Change$ Change% Change
Investment management fees4,451.0 4,506.3 4,082.3 (55.3)(1.2)%424.0 10.4 %
Service and distribution fees1,419.0 1,276.5 968.5 142.5 11.2 %308.0 31.8 %
Performance fees65.6 102.2 56.9 (36.6)(35.8)%45.3 79.6 %
Other210.0 232.4 206.4 (22.4)(9.6)%26.0 12.6 %
Total operating revenues6,145.6 6,117.4 5,314.1 28.2 0.5 %803.3 15.1 %
Invesco Great Wall263.2 157.2 83.6 106.0 67.4 %73.6 88.0 %
Revenue Adjustments:
  Investment management fees(779.8)(814.4)(817.9)34.6 (4.2)%3.5 (0.4)%
  Service and distribution fees(986.1)(886.3)(629.7)(99.8)11.3 %(256.6)40.7 %
  Other(181.7)(192.3)(160.6)10.6 (5.5)%(31.7)19.7 %
Total Revenue Adjustments (1)
(1,947.6)(1,893.0)(1,608.2)(54.6)2.9 %(284.8)17.7 %
CIP39.8 33.5 28.6 6.3 18.8 %4.9 17.1 %
Net revenues (2)
4,501.0 4,415.1 3,818.1 85.9 1.9 %597.0 15.6 %
_________

(1)    Total revenue adjustments includes passed through investment management, service and distribution, and other revenues and equal the same amount as the third party distribution, service and advisory expenses.
(2)    Net revenues are operating revenues less revenue adjustments, plus net revenues from Invesco Great Wall, plus management and performance fees earned from CIP. See “Schedule of Non-GAAP Information” for additional important disclosures regarding the use of net revenues.

The impact of foreign exchange rate movements increased operating revenues by $13.2 million, equivalent to 0.2% of total operating revenues during the year ended December 31, 2020 when compared to the year ended December 31, 2019 ($63.9 million decrease in 2019 or 1.0% of 2019 total operating revenues).

Additionally, our revenues are directly influenced by the level and composition of our AUM. Therefore, movements in global capital market levels, net business inflows (or outflows) and changes in the mix of investment products between asset classes and geographies may materially affect our revenues from period to period. As discussed in the “Executive Overview” section above, equity markets showed extreme volatility as global markets reacted to the COVID-19 pandemic in the year ended December 31, 2020, with all time highs at the beginning of the period, followed by an extreme downturn and a subsequent recovery resulting in record highs in equity values by the end of the period. The 2020 results were also impacted by shifts in the mix of AUM, resulting both from flows and from the market impact of the COVID-19 pandemic, which has adversely impacted our revenue and resulting revenue yields in 2020.

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Investment Management Fees

Investment management fees decreased by $55.3 million (1.2%) in the year ended December 31, 2020, to $4,451.0 million (year ended December 31, 2019: $4,506.3 million). The impact of foreign exchange rate movements increased investment management fees by $11.1 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. After allowing for foreign exchange movements, investment management fees decreased by $66.4 million (1.5%). Average AUM increased 9.2% when compared to the 2019 period primarily driven by the acquired OppenheimerFunds business (acquired May 24, 2019). However, shifts in the mix of AUM, resulting both from flows and from the market impact of the COVID-19 pandemic, resulted in a lower revenue yield on AUM in 2020, which resulted in lower revenues.

See the company's disclosures regarding the changes in AUM and revenue yields during the years ended December 31, 2020 and December 31, 2019 in the “Assets Under Management” section above for additional information regarding the impact of changes in AUM on management fee yields.

Service and Distribution Fees

In the year ended December 31, 2020, service and distribution fees increased by $142.5 million (11.2%) to $1,419.0 million (year ended December 31, 2019: $1,276.5 million). The impact of foreign exchange rate movements increased service and distribution fees by $0.3 million in the year ended December 31, 2020 as compared to the year ended December 31, 2019. After allowing for foreign exchange movements, service and distribution fees increased by $142.2 million. The total increase is made up of higher distribution fees of $85.1 million, transfer agency fees of $43.6 million, custody fees of $6.1 million and administrative fees of $4.6 million. The increase is primarily a result of revenues earned from the acquired OppenheimerFunds business (acquired May 24, 2019).

Performance Fees

Of our $1,349.9 billion in AUM at December 31, 2020, approximately $59.1 billion or 4.4%, could potentially earn performance fees, including carried interests and performance fees related to partnership investments and separate accounts. Of our $1,226.2 billion in AUM at December 31, 2019, approximately $48.5 billion or 4.0%, could potentially earn performance fees, including carried interests and performance fees related to partnership investments and separate accounts.

In the year ended December 31, 2020, performance fees decreased by $36.6 million (35.8%) to $65.6 million (year ended December 31, 2019: $102.2 million). Performance fees in 2020 were primarily generated by $52.1 million from real estate, $7.1 million from fixed income, $3.5 million from UK closed end funds, and $3.0 million from institutional funds. Performance fees in 2019 were primarily generated by $59.2 million from real estate, $20.1 million from fixed income, $11.4 million from private equity funds, $7.1 million from UK closed end funds, and $4.4 million from institutional funds.

Other Revenues

In the year ended December 31, 2020, other revenues decreased by $22.4 million (9.6%) to $210.0 million (year ended December 31, 2019: $232.4 million). The impact of foreign exchange rate movements increased other revenues by $0.5 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease in other revenues was primarily driven by decreases in UIT front end fees of $19.6 million, front end fees of $2.5 million and real estate transaction fees of $2.4 million, partially offset by an increase in other transaction fees of $1.5 million.

Invesco Great Wall

The company’s most significant joint venture arrangement is our 49% investment in Invesco Great Wall Fund Management Company Limited (the “Invesco Great Wall” joint venture). Management believes that the net revenues from Invesco Great Wall should be added to total operating revenues to arrive at net revenues, as it is important to evaluate the contribution to the business that Invesco Great Wall is making. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues.

The company began reporting 100% of Invesco Great Wall in its net revenues and adjusted operating expenses in the third quarter of 2018. As a result, the company’s non-GAAP operating results reflect the economics of these holdings on a basis consistent with the underlying AUM and flows. Adjusted net income is reduced by the amount of earnings attributable to non-controlling interests.

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Net revenues from Invesco Great Wall were $263.2 million and average AUM was $50.0 billion for the year ended December 31, 2020 (net revenues were $157.2 million and average AUM was $35.6 billion, for the year ended December 31, 2019). The impact of foreign exchange rate movements for the year ended December 31, 2020 increased net revenues from Invesco Great Wall by $3.0 million as compared to the year ended December 31, 2019. After allowing for foreign exchange movements, net revenues from Invesco Great Wall were $260.2 million. The increase in revenue is driven by a 58.5% increase in management fees, reflective of a 40.4% increase in average AUM in the year ended December 31, 2020 when compared to the prior period as well as increased performance fees of $34.4 million compared to $6.2 million in 2019.

Management, performance and other fees earned from CIP

Management believes that the consolidation of investment products may impact a reader's analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues for the impact of CIP in calculating net revenues. As management and performance fees earned by Invesco from the consolidated products are eliminated upon consolidation of the investment products, management believes that it is appropriate to add these operating revenues back in the calculation of net revenues. See “Schedule of Non-GAAP Information” for additional disclosures regarding the use of net revenues.

Management and performance fees earned from CIP increased by $6.3 million to $39.8 million in the year ended December 31, 2020 (year ended December 31, 2019: $33.5 million). The increase is primarily due to the increase in management fees earned from newly launched CLOs.

Operating Expenses

The main categories of operating expenses, and the dollar and percentage changes between periods, are as follows:
Variance
Years ended December 31,2020 vs 20192019 vs 2018
$ in millions202020192018$ Change% Change$ Change% Change
Third-party distribution, service and advisory1,947.6 1,893.0 1,608.2 54.6 2.9 %284.8 17.7 %
Employee compensation1,807.9 1,709.3 1,494.4 98.6 5.8 %214.9 14.4 %
Marketing83.3 135.6 134.8 (52.3)(38.6)%0.8 0.6 %
Property, office and technology512.3 494.1 410.5 18.2 3.7 %83.6 20.4 %
General and administrative480.8 404.2 324.4 76.6 19.0 %79.8 24.6 %
Transaction, integration and restructuring393.3 673.0 136.9 (279.7)(41.6)%536.1 391.6 %
Total operating expenses5,225.2 5,309.2 4,109.2 (84.0)(1.6)%1,200.0 29.2 %

The table below sets forth these expense categories as a percentage of total operating expenses and operating revenues, which we believe provides useful information as to the relative significance of each type of expense.
$ in millions2020% of Total Operating Expenses% of Operating Revenues2019% of Total Operating Expenses% of Operating Revenues2018% of Total Operating Expenses% of Operating Revenues
Third-party distribution, service and advisory1,947.6 37.3 %31.7 %1,893.0 35.7 %30.9 %1,608.2 39.1 %30.3 %
Employee compensation1,807.9 34.6 %29.4 %1,709.3 32.2 %27.9 %1,494.4 36.4 %28.1 %
Marketing83.3 1.6 %1.4 %135.6 2.6 %2.2 %134.8 3.3 %2.5 %
Property, office and technology512.3 9.8 %8.3 %494.1 9.3 %8.1 %410.5 10.0 %7.7 %
General and administrative480.8 9.2 %7.8 %404.2 7.6 %6.6 %324.4 7.9 %6.1 %
Transaction, integration and restructuring393.3 7.5 %6.4 %673.0 12.7 %11.0 %136.9 3.3 %2.6 %
Total operating expenses5,225.2 100.0 %85.0 %5,309.2 100 %86.8 %4,109.2 100.0 %77.3 %
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During the year ended December 31, 2020, operating expenses decreased by $84.0 million (1.6%) to $5,225.2 million (year ended December 31, 2019: $5,309.2 million). The impact of foreign exchange rate movements decreased operating expenses by $4.0 million, or 0.1% of total operating expenses, during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Third-Party Distribution, Service and Advisory

Third-party distribution, service and advisory expenses include periodic “renewal” commissions paid to brokers and independent financial advisors for the continuing oversight of their clients' assets over the time they are invested and are payments for the servicing of client accounts. Renewal commissions are calculated based upon a percentage of the AUM value and apply to much of the company's non-U.S. retail operations. As discussed above, the revenues from the company’s U.S. retail operations include 12b-1 distribution fees, which are largely passed through to brokers who sell the funds as third-party distribution expenses along with additional marketing support distribution costs. Both the revenues and the costs are dependent on the underlying AUM of the brokers' clients. Third-party distribution expenses also include the amortization of upfront commissions paid to broker-dealers for sales of fund shares with a contingent deferred sales charge (a charge levied to the investor for client redemption of AUM within a certain contracted period of time). The upfront distribution commissions are amortized over the redemption period. Also included in third-party distribution, service and advisory expenses are sub-transfer agency fees that are paid to third parties for processing client common share purchases and redemptions, call center support and client reporting. These costs are reimbursed by the related funds.

Third party distribution service and advisory expenses increased by $54.6 million (2.9%) in the year ended December 31, 2020 to $1,947.6 million (year ended December 31, 2019: $1,893.0 million). The impact of foreign exchange rate movements increased third party costs by $1.0 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. After allowing for foreign exchange rate changes, the increase in costs was $53.6 million. Included are increases of $97.1 million in service fees (primarily 12b-1 and transfer agent fees), $22.9 million in sales commissions, $12.2 million in fund expenses, $4.4 million in unitary fees and $4.2 million in front end load commissions. These increases were partially offset by decreases of $53.8 million in transaction fees and $40.1 million in renewal commissions. The increase is primarily a result of increased AUM from the acquired OppenheimerFunds business (acquired May 24, 2019). See "Schedule of Non-GAAP Information" for additional disclosures.

Employee Compensation

Employee compensation includes salary, cash bonuses and common share-based payment plans designed to attract and retain the highest caliber employees. Employee staff benefit plan costs and payroll taxes are also included in employee compensation.

Employee compensation increased $98.6 million (5.8%) to $1,807.9 million in the year ended December 31, 2020 (year ended December 31, 2019: $1,709.3 million). The impact of foreign exchange rate movements increased employee compensation by $3.0 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. After allowing for foreign exchange rate changes, the increase in employee compensation was $95.6 million. The increase was related to an increase of $57.3 million in base salaries and $47.3 million in staff bonus and commissions, partially offset by $9.0 million in other variable compensation. The increase was driven by increased average headcount for the year ended December 31, 2020 versus December 31, 2019 as a result of the OppenheimerFunds acquisition (acquired May 24, 2019).

Headcount at December 31, 2020 was 8,512 (December 31, 2019; 8,821), with the decrease primarily due to the strategic evaluation initiative impacts in the fourth quarter of 2020 as well as realized synergies occurring after the OppenheimerFunds acquisition.

Marketing

Marketing expenses include the cost of direct advertising of our products through trade publications, television and other media, and public relations costs, such as the marketing of the company's products through conferences or other sponsorships, and the cost of marketing-related employee travel.

Marketing expenses decreased by $52.3 million (38.6%) in the year ended December 31, 2020 to $83.3 million (year ended December 31, 2019: $135.6 million). The impact of foreign exchange rate movements increased marketing expenses by $0.2 million. After allowing for foreign exchange rate movements, marketing expenses decreased $52.5 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease was related to decreased travel, client events and advertising as a result of the COVID-19 pandemic.
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Property, Office and Technology

Property, office and technology expenses include rent and utilities for our various leased facilities, depreciation of company-owned property, capitalized software and computer equipment costs, minor non-capitalized computer equipment and software purchases and related maintenance payments, and costs related to externally provided operations, technology, middle office and back office management services.

Property, office and technology expenses increased by $18.2 million (3.7%) to $512.3 million in the year ended December 31, 2020 (year ended December 31, 2019: $494.1 million). The impact of foreign exchange rate movements decreased property, office and technology expenses by $0.3 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. After allowing for foreign exchange rate movements, expenses increased $18.5 million. This increase was primarily comprised of lease expenses, software maintenance and depreciation. The increase is primarily a result of the acquired OppenheimerFunds business (acquired May 24, 2019).

General and Administrative

General and administrative expenses include professional services costs, such as information service subscriptions, irrecoverable indirect taxes, non-marketing related employee travel expenditures, consulting fees, audit, tax and legal fees, professional insurance costs and recruitment and training costs.

General and administrative expenses increased by $76.6 million (19.0%) to $480.8 million in the year ended December 31, 2020 (year ended December 31, 2019: $404.2 million). The impact of foreign exchange rate movements decreased general and administrative expenses by $7.9 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019. After allowing for foreign exchange rate movements, the increase was $84.5 million. The increase was primarily driven by the previously disclosed S&P 500 equal weight funds rebalancing correction of $105.3 million. (See Note 20, "Commitments and Contingencies", for additional details). The remaining increase in general and administrative expense was a result of the acquired OppenheimerFunds business (acquired May 24, 2019) with increases in professional services and regulatory costs, fund expenses, market data services costs and irrecoverable indirect taxes and temporary labor expenses, partially offset by decreases in travel expenses and fund expenses incurred by CIP.

Transaction, Integration and Restructuring

The transaction, integration and restructuring charges reflect legal, regulatory, advisory, valuation and other professional services or consulting fees, and travel costs related to a business combination transaction or restructuring initiatives related to changes in the scope of the business or the manner in which the business is conducted. Also included in these charges are severance-related expenses and any contract termination costs associated with these efforts. Additionally, these charges reflect the costs of temporary staff involved in executing the transaction or initiative, and the costs of amortizing acquired intangible assets and integrating an acquired business into the company’s existing operations, including incremental costs associated with achieving expense savings following a business combination or restructuring initiative.

Transaction, integration and restructuring charges were $393.3 million in the year ended December 31, 2020 (year ended December 31, 2019: $673.0 million). Transaction and integration related costs were $245.5 million during the year ended December 31, 2020 (year ended December 31, 2019: $659.8 million) primarily related to the OppenheimerFunds acquisition. Transaction and integration costs include $78.4 million of compensation related expenses, $62.5 million of amortization of management contracts and other intangible assets, $59.1 million of professional services costs, $17.8 million related to lease charges, $8.0 million related to accelerated amortization and $15.3 million of other expenses. Restructuring costs were $147.8 million for the year ended December 31, 2020 (year ended December 31, 2019: $13.2 million). Restructuring costs related to the strategic evaluation initiative announced in the third quarter of 2020 were $119.0 million, which is primarily composed of severance and other personnel-related charges. (See Note 14, "Restructuring", for additional details). Other restructuring costs related to additional cost-saving initiatives were $28.8 million which included compensation related expenses of $14.7 million and non-compensation related expenses of $14.1 million.

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Operating Income, Adjusted Operating Income, Operating Margin and Adjusted Operating Margin

Operating income increased by $112.2 million (13.9%) to $920.4 million in the year ended December 31, 2020 (year ended December 31, 2019: $808.2 million). Operating margin (operating income divided by operating revenues), increased to 15.0% in the year ended December 31, 2020 from 13.2% in the year ended December 31, 2019. Adjusted operating income increased by $8.7 million (0.5%) to $1,664.5 million in the year ended December 31, 2020 from $1,655.8 million in the year ended December 31, 2019. Adjusted operating margin decreased to 37.0% in the year ended December 31, 2020 from 37.5% in the year ended December 31, 2019. See “Schedule of Non-GAAP Information” for a reconciliation of operating revenues to net revenues, a reconciliation of operating income to adjusted operating income and additional important disclosures regarding net revenues, adjusted operating income and adjusted operating margin.

Other Income and Expenses

The main categories of other income and expenses, and the dollar and percentage changes between periods are as follows:
Variance
Years ended December 31,2020 vs 20192019 vs 2018
$ in millions202020192018$ Change% Change$ Change% Change
Equity in earnings of unconsolidated affiliates72.7 56.4 33.8 16.3 28.9 %22.6 66.9 %
Interest and dividend income20.5 28.5 21.3 (8.0)(28.1)%7.2 33.8 %
Interest expense(129.3)(135.7)(111.5)6.4 (4.7)%(24.2)21.7 %
Other gains and losses, net44.9 65.7 (40.0)(20.8)(31.7)%105.7 N/A
Other income/(expense) of CIP, net139.9 149.8 29.6 (9.9)(6.6)%120.2 406.1 %
Total other income and expenses148.7 164.7 (66.8)(16.0)(9.7)%231.5 (346.6)%

Equity in earnings of unconsolidated affiliates

Equity in earnings of unconsolidated affiliates increased by $16.3 million (28.9%) to $72.7 million in the year ended December 31, 2020 (year ended December 31, 2019: $56.4 million). The increase in is primarily driven by our joint venture investments in China, real estate and other investments.

Interest expense

Interest expense decreased by $6.4 million (4.7%) to $129.3 million in the year ended December 31, 2020 (year ended December 31, 2019: $135.7 million), driven by the lower average balance on the credit facility during the year ended December 31, 2020 compared to the year ended December 31, 2019.

Other gains and losses, net

Other gains and losses, net were a gain of $44.9 million in the year ended December 31, 2020, compared to a net gain of $65.7 million in the year ended December 31, 2019. Included in the 2020 gain were $57.5 million of gains on the appreciation of investments and instruments related to our deferred compensation plans, $15.3 million of gains on the mark-to-market of acquisition-related contingent consideration liabilities, and $2.5 million of gains related to our defined benefit pension plan. These gains were partially offset by losses during the period of $15.8 million related to the mark-to-market on seed money investments, net realized investment losses of $9.8 million, an investment impairment charge of $3.6 million and $2.4 million of net foreign exchange losses on intercompany loans. See Item 8, Financial Statements and Supplementary Data, - Note 16, "Other Gains and Losses, Net," for additional information.

Other income/(expense) of CIP

In the year ended December 31, 2020, interest and dividend income of CIP decreased by $43.1 million (12.5%) to $302.3 million (year ended December 31, 2019: $345.4 million). Interest expense of CIP decreased by $34.0 million (14.9%) to $194.5 million (year ended December 31, 2019: $228.5 million). The decrease in interest income and interest expense of CIP is primarily due to less net interest income for CLOs in 2020.

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Included in other gains/(losses) of CIP, net, are realized and unrealized gains and losses on the underlying investments and debt of CIP. In the year ended December 31, 2020, other gains and losses of CIP were a net gain of $32.1 million, compared to a net gain of $32.9 million in the year ended December 31, 2019. The net gain during 2020 was attributable to market-driven gains of investments held by consolidated funds.

Net impact of CIP and related noncontrolling interests in consolidated entities

The net impact to net income attributable to Invesco Ltd. in each period primarily represents the changes in the value of the
company's holding in its consolidated CLOs, which is reclassified into other gains/(losses) from accumulated other comprehensive income upon consolidation. The consolidation of investment products during the year ended December 31, 2020 resulted in a net increase to net income attributable to Invesco Ltd. of $9.4 million (year ended December 31, 2019: $1.6 million net decrease).

Noncontrolling interests in consolidated entities represent the profit or loss amounts attributed to third party investors in CIP. The impact of any gains or losses resulting from valuation changes in the investments of non-CLO CIP attributable to the interests of third parties are offset by resulting changes in gains and losses attributable to noncontrolling interests in consolidated entities and therefore do not have a material effect on the financial condition, operating results (including earnings per common share), liquidity or capital resources of the company's common shareholders. Similarly, any gains or losses resulting from valuation changes in the investments of CLOs attributable to the interests of third parties are offset by the calculated value of the notes issued by the CLOs (offsetting in other gains/(losses) of CIP) and therefore also do not have a material effect on the financial condition, operating results (including earnings per common share), liquidity or capital resources of the company's common shareholders.

Additionally, CIP represent less than 1% of the company's AUM. Therefore, the net gains or losses of CIP are not indicative of the performance of the company's aggregate AUM.

Income Before Taxes

Total income before taxes includes income/losses of CIP; however, the company's operating revenues earned from CIP are not included in operating revenues under U.S. GAAP, as such operating revenues are eliminated upon consolidation. Therefore, Foreign operating revenues in Item 8. Financial Statements and Supplementary Data, Note 19, "Geographic Information," in which CIP has been eliminated, may not correlate.

Total U.S. income before taxes increased $334.7 million during the year ended December 31, 2020 to $845.8 million from $511.1 million for the year ended December 31, 2019 and includes U.S. income of CIP of $40.1 million (December 31, 2019: $24.2 million). U.S. income from CIP increased $15.9 million (65.7%) from 2019 primarily due to the impact of gains on consolidated retail products. Excluding CIP, U.S. income before taxes in 2020 increased $318.8 million (65.5%) from December 31, 2019 due to a larger increase in U.S. operating revenues than operating expenses.

Total Foreign income before taxes decreased $238.5 million during the year ended December 31, 2020 to $223.3 million from $461.8 million during the year ended December 31, 2019 and includes foreign income of CIP of $15.2 million (December 31, 2019: foreign income of CIP of $23.7 million). Foreign income from CIP decreased $8.5 million (35.6%) from 2019 primarily due to lower net gains on consolidated retail products. Excluding CIP, foreign income decreased by $230.0 million (52.5%) from 2019 due to a larger decrease in foreign operating revenues and other income than operating expenses.

Income Tax Expense

Our effective tax rate increased to 24.5% for the year ended December 31, 2020 from 24.2% for the year ended December 31, 2019 primarily due to the increase in income generated in higher taxing jurisdictions relative to total income and an increase in the unfavorable adjustment for common share-based compensation. For additional income tax information, refer to Note 17, "Taxation," in Item 8. Financial Statements and Supplementary Data.

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Schedule of Non-GAAP Information

We utilize the following non-GAAP performance measures: net revenue (and by calculation, net revenue yield on AUM), adjusted operating income, adjusted operating margin, adjusted net income attributable to Invesco Ltd. and adjusted diluted earnings per common share (EPS). The company believes the adjusted measures provide valuable insight into the company’s ongoing operational performance and assist in comparisons to its competitors. These measures also assist the company’s management with the establishment of operational budgets and forecasts and assist the Board of Directors and management of the company in determining incentive compensation decisions. The most directly comparable U.S. GAAP measures are operating revenues (and by calculation, gross revenue yield on AUM), operating income, operating margin, net income attributable to Invesco Ltd. and diluted EPS. Each of these measures is discussed more fully below.

The following are reconciliations of operating revenues, operating income (and by calculation, operating margin), and net income attributable to Invesco Ltd. (and by calculation, diluted EPS) on a U.S. GAAP basis to a non-GAAP basis of net revenues, adjusted operating income (and by calculation, adjusted operating margin), and adjusted net income attributable to Invesco Ltd. (and by calculation, adjusted diluted EPS). These non-GAAP measures should not be considered as substitutes for any U.S. GAAP measures and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate. The tax effects related to the reconciling items have been calculated based on the tax rate attributable to the jurisdiction to which the transaction relates. Notes to the reconciliations follow the tables.

Reconciliation of Operating revenues to Net revenues:
$ in millions20202019201820172016
Operating revenues, U.S. GAAP basis6,145.6 6,117.4 5,314.1 5,160.3 4,734.4 
Invesco Great Wall (1)
263.2 157.2 83.6 48.7 43.7 
Revenue Adjustments: (2)
  Investment management fees(779.8)(814.4)(817.9)(914.2)(840.1)
  Service and distribution fees(986.1)(886.3)(629.7)(551.2)(547.6)
  Other(181.7)(192.3)(160.6)(21.1)(19.5)
Total Revenue Adjustments(1,947.6)(1,893.0)(1,608.2)(1,486.5)(1,407.2)
CIP (3)
39.8 33.5 28.6 32.4 22.3 
Net revenues4,501.0 4,415.1 3,818.1 3,754.9 3,393.2 

Reconciliation of Operating income to Adjusted operating income:
$ in millions20202019201820172016
Operating income, U.S. GAAP basis920.4808.21,204.91,279.11,152.4
Invesco Great Wall (1)
143.776.531.118.415.9
CIP (3)
62.061.644.842.951.0
Transaction, integration and restructuring (4)
393.3673.0136.9101.869.0
Compensation expense related to market valuation changes in deferred compensation plans (5)
39.836.5(3.2)20.38.1
Other reconciling items (6)
105.3(22.8)19.71.0
Adjusted operating income1,664.51,655.81,391.71,482.21,297.4
Operating margin*15.0 %13.2 %22.7 %24.8 %24.3 %
Adjusted operating margin**37.0 %37.5 %36.5 %39.5 %38.2 %


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Reconciliation of Net income attributable to Invesco Ltd. to Adjusted net income attributable to Invesco Ltd.:
$ in millions, except per common share data20202019201820172016
Net income attributable to Invesco Ltd., U.S. GAAP basis524.8 564.7 882.8 1,127.3 854.2 
CIP (3)
(9.4)1.6 (8.8)(2.3)(3.0)
Transaction, integration and restructuring, net of tax (4)
339.7 558.1 138.6 91.9 68.3 
Deferred compensation plan market valuation changes and dividend income less compensation expense, net of tax (5)
(20.1)(7.9)15.4 (4.6)(2.5)
Other reconciling items, net of tax (6)
57.9 7.5 (25.3)(106.4)7.1 
Adjusted net income attributable to Invesco Ltd.892.9 1,124.0 1,002.7 1,105.9 924.1 
Average common shares outstanding - diluted462.5 440.5 412.5 409.9 415.0 
Diluted EPS$1.13 $1.28 $2.14 $2.75 $2.06 
Adjusted diluted EPS***$1.93 $2.55 $2.43 $2.70 $2.23 
____________
*    Operating margin is equal to operating income divided by operating revenues.
**    Adjusted operating margin is equal to adjusted operating income divided by net revenues.
***     Adjusted diluted EPS is equal to adjusted net income attributable to Invesco Ltd. divided by the weighted average number of common and restricted common shares outstanding. There is no difference between the calculated earnings per common share amounts presented above and the calculated earnings per common share amounts under the two class method.

(1)    Invesco Great Wall
Prior to the third quarter of 2018, management reflected its interests in Invesco Great Wall on a proportional consolidation basis, which was consistent with the presentation of our share of the AUM from these investments. Given the company's influence on Invesco Great Wall, a change in regulation allowing increased foreign ownership, and reaching oral agreement in principle in the third quarter of 2018 to obtain a majority stake of the joint venture, the company began reporting 100% of the flows and AUM for Invesco Great Wall. Also beginning in the third quarter of 2018, the company's non-GAAP operating results reflect the economics of these holdings on a basis consistent with the underlying AUM and flows. Adjusted net income is reduced by the amount of earnings attributable to non-controlling interests.

(2)    Revenue Adjustments
Management believes that adjustments to investment management fees, service and distribution fees and other revenues from operating revenues appropriately reflect these revenues as being passed through to external parties who perform functions on behalf of, and distribute, the company’s managed funds. Further, these adjustments vary by geography due to the differences in distribution channels. The net revenue presentation assists in identifying the revenue contribution generated by the business, removing distortions caused by the differing distribution channel fees and allowing for a fair comparison with U.S. peer investment managers and within Invesco’s own investment units. Additionally, management evaluates net revenue yield on AUM, which is equal to net revenues divided by average AUM during the reporting period. This financial measure is an indicator of the basis point net revenues we receive for each dollar of AUM we manage and is useful when evaluating the company’s performance relative to industry competitors and within the company for capital allocation purposes.

Investment management fees are adjusted by renewal commissions and certain administrative fees. Service and distribution fees are primarily adjusted by distribution fees passed through to broker dealers for certain share classes and pass through fund-related costs. Other is primarily adjusted by transaction fees passed through to third parties. While the terms used for these types of adjustments vary by geography, they are all costs that are driven by the value of AUM and the revenue earned by Invesco from AUM. Since the company has been deemed to be the principal in the third-party arrangements, the company must reflect these revenues and expenses gross under U.S. GAAP on the consolidated statements of income.

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(3)    CIP
See Item 8, Financial Statements and Supplementary Data, Note 21, “Consolidated Investment Products,” for a detailed analysis of the impact to the company’s Consolidated Financial Statements from the consolidation of CIP. The reconciling items add back the management and performance fees earned by Invesco from the consolidated products and remove the revenues and expenses recorded by the consolidated products that have been included in the U.S. GAAP Consolidated Statements of Income.
Management believes that the consolidation of investment products may impact a reader's analysis of our underlying results of operations and could result in investor confusion or the production of information about the company by analysts or external credit rating agencies that is not reflective of the underlying results of operations and financial condition of the company. Accordingly, management believes that it is appropriate to adjust operating revenues, operating income and net income for the impact of CIP in calculating the respective net revenues, adjusted operating income and adjusted net income.
    
CIP Revenue:
Year ended December 31,
$ in millions, except per common share data20202019201820172016
Management fees earned from CIP, eliminated upon consolidation39.8 33.5 28.6 25.5 20.8 
Performance fees earned from CIP, eliminated upon consolidation— — — 6.9 1.5 
CIP related adjustments in arriving at net revenues39.8 33.5 28.6 32.4 22.3 

(4)    Transaction, integration and restructuring related adjustments
The transaction, integration and restructuring charges reflect legal, regulatory, advisory, valuation and other professional services or consulting fees, and travel costs related to a business combination transaction or restructuring initiatives related to changes in the scope of the business, or manner in which the business is conducted. Also included in these charges are severance-related expenses and any contract termination costs associated with these efforts. Additionally, these charges reflect the costs of temporary staff involved in executing the transaction or initiative, and the costs of amortizing acquired intangible assets and integrating an acquired business into the company’s existing operations, including incremental costs associated with achieving synergy savings following a business combination or restructuring initiative.

Management believes it is useful to investors and other users of our Consolidated Financial Statements to adjust for the transaction, integration and restructuring charges in arriving at adjusted operating income, adjusted operating margin and adjusted diluted EPS, as this will aid comparability of our results period to period, and aid comparability with peer companies that may not have similar acquisition and restructuring related charges. See "Results of Operations for the Year Ended December 31, 2020 compared to December 31, 2019 -- Transaction, Integration and Restructuring" for additional details.

(5)    Market movement on deferred compensation plan liabilities

Certain deferred compensation plan awards are linked to the appreciation (depreciation) of specified investments, typically managed by the company. Invesco hedges economically the exposure to market movements by holding these investments on its balance sheet and through total return swap financial instruments. U.S. GAAP requires the appreciation (depreciation) in the compensation liability to be expensed over the award vesting period in proportion to the vested amount of the award as part of compensation expense. The full value of the investment and financial instrument appreciation (depreciation) are immediately recorded below operating income in other gains and losses. This creates a timing difference between the recognition of the compensation expense and the investment gain or loss impacting net income attributable to Invesco Ltd. and diluted EPS which will reverse over the life of the award and net to zero at the end of the multi-year vesting period. During periods of high market volatility, these timing differences impact compensation expense, operating income and operating margin in a manner which, over the life of the award, will ultimately be offset by gains and losses recorded below operating income on the Consolidated Statements of Income. The non-GAAP measures exclude the mismatch created by differing U.S. GAAP treatments of the market movement on the liability and the investments.

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Since these plans are hedged economically, management believes it is useful to reflect the offset ultimately achieved from hedging the investment market exposure in the calculation of adjusted operating income (and by calculation, adjusted operating margin) and adjusted net income (and by calculation, adjusted diluted EPS), to produce results that will be more comparable period to period. The related fund shares or swaps will have been purchased on or around the date of grant, eliminating any ultimate cash impact from market movements that occur over the vesting period.

Additionally, dividend income from investments held to hedge economically deferred compensation plans is recorded as dividend income and as compensation expense on the company’s Consolidated Statements of Income on the record dates. This dividend income is passed through to the employee participants in the plan and is not retained by the company. The non-GAAP measures exclude this dividend income and related compensation expense.

See below for a reconciliation of deferred compensation related items:
$ in millions20202019201820172016
Market movement on deferred compensation plan liabilities:
Compensation expense related to market valuation changes in deferred compensation liability39.8 36.5 (3.2)20.3 8.1 
Adjustments to operating income39.8 36.5 (3.2)20.3 8.1 
Market valuation changes and dividend income from investments and instruments held related to deferred compensation plans in other income/(expense)(65.8)(46.8)23.1 (27.6)(12.1)
Taxation:
Taxation on deferred compensation plan market valuation changes and dividend income less compensation expense5.9 2.4 (4.5)2.7 1.5 
Adjustments to net income attributable to Invesco Ltd.(20.1)(7.9)15.4 (4.6)(2.5)

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(6)    Other reconciling items

Each of these other reconciling items has been adjusted from U.S. GAAP to arrive at the company's non-GAAP financial measures for the reasons either outlined in the paragraphs above, due to the unique character and magnitude of the reconciling item, or because the item represents a continuation of a reconciling item adjusted from U.S. GAAP in a prior period.
$ in millions20202019201820172016
Other non-GAAP adjustments:
Fund rebalancing correction (a)
105.3 — — 
Prior period impact of multi-year VAT tax recovery (b)
— — (22.8)— — 
Senior executive retirement and related costs (c)
— — — 19.7 — 
Regulatory charge— — — — 1.0 
Adjustments to operating income105.3 — (22.8)19.7 1.0 
Foreign exchange hedge (d)
(1.2)0.9 (8.2)20.6 (14.2)
Change in contingent consideration estimates (e)
(15.2)7.8 (0.9)(7.6)7.4 
Foreign exchange gain related to business acquisitions (f)
— — — (12.1)— 
Other-than-temporary impairment (g)
— — — — 17.8 
Employee benefit plan termination (h)
— — — — (8.6)
Taxation:
Taxation on fund rebalancing correction (a)
(25.3)— — — — 
Taxation on foreign exchange hedge amortization (d)
0.3 (0.2)2.1 (7.8)5.0 
Taxation on change in consideration estimates (e)
3.7 (1.0)0.2 2.9 (2.8)
State tax uncertain tax position (i)
(9.0)— — 12.2 — 
Impact of tax rate changes (j)
(0.7)— — (130.7)— 
 Taxation on prior period impact of multi-year VAT tax recovery (b)
— — 4.3 — — 
Taxation on senior executive retirement and related
costs (c)
— — — (5.9)— 
Taxation on foreign exchange gain related to business acquisitions (f)
— — — 2.3 — 
Taxation on employee benefit plan termination (h)
— — — — 3.3 
Taxation on regulatory-related charges— — — — (1.8)
Adjustments to net income attributable to Invesco Ltd.57.9 7.5 (25.3)(106.4)7.1 
____________

(a)The company recorded a charge of $105.3 million in the second quarter of 2020 due to a previously disclosed S&P 500 equal weight funds rebalancing correction. Due to the unique character and magnitude of this item, it has been adjusted from U.S. GAAP to arrive at the company's non-GAAP financial measures.
(b)As a result of an increase in our recoverable VAT from applying additional regulatory guidance, a credit was recorded in the third quarter of 2018. The portion of the cumulative adjustment representing 2015 through 2017 has been removed for non-GAAP purposes.
(c)Operating expenses for 2017 reflect the cost of multiple senior executive retirements. The costs incurred in one quarter were unprecedented, and the company deemed it appropriate to adjust these costs from the U.S. GAAP total compensation in an effort to isolate and evaluate our level of compensation going forward. The result of this adjustment was $19.7 million related to accelerated vesting of deferred compensation and other separation costs.
(d)Included within other gains and losses, net is the mark-to-market of foreign exchange put option contracts intended to provide protection against the impact of a significant decline in the Pound Sterling/U.S. Dollar and the Euro/U.S. Dollar foreign exchange rates. The Pound Sterling contracts provided coverage through June 30, 2020, and the Euro contracts provided coverage through December 27, 2017. The adjustment from U.S. GAAP to non-
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GAAP earnings removes the impact of market volatility; therefore, the company's non-GAAP results include only the amortization of the cost of the contracts during the contract period.
(e)In 2019, the company made digital wealth acquisitions, which resulted in a contingent consideration liability. Adjustment to the fair value of the digital wealth acquisitions contingent consideration liability is a decrease of $6.2 million in 2020. In 2015, the company acquired investment management contracts from Deutsche Bank, and the purchase price was solely comprised of contingent consideration payable in future periods. Remaining adjustments represent the change in the fair value of the Deutsche Bank contingent consideration liability.
(f)Other gains and losses for 2017 includes a realized gain of $12.1 million related to revaluation of Euros held in the UK in anticipation of payment for the European ETF business acquisition.
(g)Other-than-temporary impairment includes an impairment charge of $17.8 million in 2016 that is related to the acquisition of Invesco Asset Management (India) Private Limited.
(h)Employee benefit plan termination: Operating expenses for 2016 include an incremental credit of $8.6 million related to an employee benefit plan termination.
(i)The income tax provision for 2020 includes a tax benefit of $9.0 million resulting from the reversal of the accrual for uncertain tax positions which was included in the $12.2 million of expense related to uncertain tax positions originally reflected in the income tax provision in 2017. Both the 2017 expense and the 2020 benefit have been removed from the company's non-GAAP results in the respective periods.
(j)2020 included both a non-cash income tax benefit of $4.3 million arising from the revaluation of certain intangible deferred tax liabilities due to tax rate changes partially offset by a non-cash income tax expense of $3.6 million arising from the revaluation of certain deferred tax liabilities due to the increase in the UK corporate tax rate. 2017 included a $130.7 million tax benefit due to the revaluation of deferred tax assets and liabilities to reflect the impacts of the 2017 Tax Cut and Jobs Act enacted in the United States.




























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Balance Sheet Discussion (1)

The following table represents a reconciliation of the balance sheet information presented on a U.S. GAAP basis to the balance sheet information excluding the impact of CIP and policyholder balances for the reasons outlined in footnote 1 to the table:
As of December 31, 2020As of December 31, 2019
Balance sheet information
$ in millions
U.S. GAAPImpact of CIPImpact of PolicyholdersAs AdjustedU.S. GAAPImpact of CIPImpact of PolicyholdersAs Adjusted
ASSETS
Cash and cash equivalents1,408.4 — — 1,408.4 1,049.0 — — 1,049.0 
Unsettled fund receivables109.4 — — 109.4 162.7 — — 162.7 
Investments826.8 (421.4)— 1,248.2 829.5 (640.2)— 1,469.7 
Assets of CIP:
Investments and other assets of CIP8,085.5 8,085.5 — — 7,980.9 7,980.9 — — 
Cash and cash equivalents of CIP301.7 301.7 — — 652.2 652.2 — — 
Assets held for policyholders7,582.1 — 7,582.1 — 10,835.6 — 10,835.6 — 
Goodwill and intangible assets, net16,221.9 — — 16,221.9 15,867.7 — — 15,867.7 
Other assets (2)
1,968.3 (5.1)— 1,973.4 2,042.7 (5.6)— 2,048.3 
Total assets36,504.1 7,960.7 7,582.1 20,961.3 39,420.3 7,987.3 10,835.6 20,597.4 
LIABILITIES
Liabilities of CIP:
Debt of CIP6,714.1 6,714.1 — — 6,234.6 6,234.6 — — 
Other liabilities of CIP588.6 588.6 — — 949.6 949.6 — — 
Policyholder payables7,582.1 — 7,582.1 — 10,835.6 — 10,835.6 — 
Unsettled fund payables98.4 — — 98.4 154.2 — — 154.2 
Long-term debt2,082.6 — — 2,082.6 2,080.3 — — 2,080.3 
Other liabilities (3)
4,417.6 — — 4,417.6 4,464.2 (35.2)— 4,499.4 
Total liabilities21,483.4 7,302.7 7,582.1 6,598.6 24,718.5 7,149.0 10,835.6 6,733.9 
EQUITY
Total equity attributable to Invesco Ltd.14,361.8 (0.1)— 14,361.9 13,862.5 (0.1)— 13,862.6 
Noncontrolling interests (4)
658.9 658.1 — 0.8 839.3 838.4 — 0.9 
Total equity15,020.7 658.0 — 14,362.7 14,701.8 838.3 — 13,863.5 
Total liabilities and equity36,504.1 7,960.7 7,582.1 20,961.3 39,420.3 7,987.3 10,835.6 20,597.4 
____________
(1) These tables include non-GAAP presentations. Assets of CIP are not available for use by Invesco. Additionally, there is no recourse to Invesco for CIP debt. Policyholder assets and liabilities are equal and offsetting and have no impact on Invesco’s shareholder’s equity. 
(2)    Amounts include restricted cash, accounts receivable, prepaid assets, property, equipment and software, right-of-use assets and other assets.
(3)    Amounts include accrued compensation and benefits, accounts payable and accrued expenses, lease liability and deferred tax liabilities.
(4)    Amounts include redeemable noncontrolling interests in consolidated entities and equity attributable to nonredeemable noncontrolling interests in consolidated entities.





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Cash and cash equivalents

Cash and cash equivalents increased by $359.4 million from $1,049.0 million at December 31, 2019 to $1,408.4 million at December 31, 2020. See “Cash Flows Discussion” in the following section within this Management's Discussion and Analysis for additional discussion regarding the movements in cash flows during the periods. See Item 8, Financial Statements and Supplementary Data - Note 1, “Accounting Policies - Cash and Cash Equivalents,” regarding requirements to retain liquid resources in certain jurisdictions.

Investments

As of December 31, 2020, we had $826.8 million in investments (December 31, 2019: $829.5 million). Included in investments are $153.5 million of seed money investments in affiliated funds used to seed funds as we launch new products, and $202.7 million of investments related to assets held for deferred compensation plans, which are also held primarily in affiliated funds. Seed investments decreased by a net $82.0 million during the year ended December 31, 2020. The decreases in the period were redemptions of $311.5 million and $17.1 million of market valuation changes and foreign exchange movements. The decrease in the period was partially offset by purchases of $56.5 million and a non-cash increase of $190.1 million due to the deconsolidation of certain CIP in the period (restoring the company's formerly eliminated investment balances). Investments related to deferred compensation awards increased by a net $10.3 million during the period due to purchases of $25.1 million and $17.1 million of market valuation changes and foreign exchange movements. The increase in the period was partially offset by dispositions of $31.9 million.

Included in investments are $426.1 million in equity method investments in Invesco Great Wall and in certain of the company’s private equity partnerships, real estate partnerships and other co-investments (December 31, 2019: $350.8 million). The increase of $75.3 million in equity method investments was driven by an increase from partnership contributions of $53.2 million, $72.7 million in current period earnings and a non-cash increase of $49.4 million related to the deconsolidation of certain investments during the period (restoring the company's formerly eliminated investment balances). This increase was partially offset by a decrease of $71.8 million due to distributions from partnership investments, $27.6 million due to the Invesco Great Wall dividend and $0.6 million in market valuation changes and foreign exchange rates. Also included in investments are foreign time deposits of $29.9 million, a decrease of $2.1 million from the December 31, 2019 balance of $32.0 million.

Assets held for policyholders and policyholder payables

One of our subsidiaries, Invesco Pensions Limited, is an insurance company that was established to facilitate retirement savings plans in the UK. The entity holds assets that are managed for its clients on its balance sheet with an equal and offsetting liability. The decrease in the balance of these accounts from $10,835.6 million at December 31, 2019 to $7,582.1 million at December 31, 2020, was the result of net business outflows of $3,357.5 million and negative market movements of $3.6 million, partially offset by positive foreign exchange rate movements of $107.6 million.

Liquidity and Capital Resources

Our capital structure, together with available cash balances, cash flows generated from operations, existing capacity under our credit facility and further capital market activities, if necessary, should provide us with sufficient resources to meet present and future cash needs, including operating, debt and other obligations as they come due and anticipated future capital requirements. Material changes in the company's capital structure over the last two years include:

2020: In an effort to maintain financial flexibility and maintain capital strength, the company reduced our common dividend to $0.155 per common share beginning with the dividend paid in the second quarter of 2020. Also, on April 23, 2020, the company announced its plan to redeem approximately $200 million of seed capital investments where appropriate from certain of our investment products. As of December 31, 2020, the company has redeemed $232 million of seed capital investments.

As the company’s focus is on increasing financial strength and building liquidity, the company did not repurchase any of its shares in the open market during 2020. An aggregate of 3.4 million common shares were withheld in the amount of $47.1 million related to tax withholding requirements on employee share vestings during the year ended December 31, 2020.

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In regard to its previously completed forward contracts, the company prepaid $191 million against the forward payable, resulting in a remaining forward contract liability of $309 million as of December 31, 2020. The $117 million liability related to the forward contract entered into on May 13, 2019 was settled on January 4, 2021. The remaining amounts owed on the forward contracts entered into in July and August of 2019 will settle on April 1, 2021 for $177 million ($192 million liability net of $15 million of collateral paid). Refer to Note 10, "Share Capital," for additional details.

As of December 31, 2020 the balance on the $1.5 billion capacity credit facility was zero.

2019: As discussed in Note 2, “Business Combinations, the company completed its acquisition of OppenheimerFunds on May 24, 2019. Consideration for the acquisition included 81.9 million shares, which were composed of 75.7 million newly issued common shares and 6.2 million employee restricted common stock awards. The company also issued $4.0 billion in perpetual, non-cumulative preferred shares with a 21-year non-call period and a fixed rate of 5.9%. See “Dividends” section below for a discussion of the preferred and common dividends.

The company repurchased 5.6 million common shares in open market transactions utilizing $110.8 million in cash and entered into three forward contracts during 2019, whereby the counterparty purchased $500.0 million (25.8 million shares) of the company’s common shares. See Note 10, “Share Capital,” for details of these forward contracts and the related treasury shares recorded as of December 31, 2019. Additionally, during the year, 3.3 million common shares were withheld on vesting events in the amount of $59.0 million relating to purchases of common shares from employees to satisfy tax withholding requirements at the time of common share vesting. The forward contract completed in the fourth quarter of 2018 for $300 million of common shares settled on July 1, 2019.

During 2019, the company paid $330.8 million towards the outstanding balance on the credit facility. As of December 31, 2019 the remaining balance on the credit facility was zero.

Capital Management

Our capital management priorities have evolved with the growth and success of our business and include:

Reinvestment in the business;
Maintain strong balance sheet;
Moderate growth of dividends (as further discussed in the "Dividends" section below); and
Share repurchases.

These priorities are executed in a manner consistent with our desire to maintain strong, investment grade credit ratings. As of the filing of the Report, Invesco held credit ratings of BBB+/Stable, A3/Stable and A-/Stable from Standard & Poor’s Ratings Service (“S&P”), Moody’s Investor Services (“Moody’s”) and Fitch Ratings (“Fitch”), respectively. Our ability to continue to access the capital markets in a timely manner depends on several factors, including our credit ratings, the condition of the global economy including the impact of COVID-19, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets. If we are unable to access capital markets in a timely manner, our business could be adversely impacted. See also Item 1A - "Risk Factors," for more detailed discussion on reliance on credit ratings.

Certain of our subsidiaries are required to maintain minimum levels of capital. Such requirements may change from time-to-time as additional guidance is released based on a variety of factors, including balance sheet composition, assessment of risk exposures and governance, and review from regulators. These and other similar provisions of applicable laws and regulations may have the effect of limiting withdrawals of capital, repayment of intercompany loans and payment of dividends by such entities. Our financial condition or liquidity could be adversely affected if certain of our subsidiaries are unable to distribute funds to us.

All of our regulated EU and UK subsidiaries are subject to consolidated capital requirements under applicable EU and UK requirements, including those arising from the EU's Capital Requirements Directive and the UK's Internal Capital Adequacy Assessment Process (ICAAP), and we maintain capital within this European sub-group to satisfy these regulations. We meet these requirements in part by holding cash and cash equivalents. This retained cash can be used for general business purposes in the European sub-group in the countries where it is located. Due to the capital restrictions, the ability to transfer cash between certain jurisdictions may be limited. In addition, transfers of cash between international jurisdictions may have adverse tax consequences. We are in compliance with all regulatory minimum net capital requirements. As of December 31, 2020, the company's minimum regulatory capital requirement was $763.6 million (December 31, 2019: $753.6 million); the increase was primarily driven by the strengthening of the Pound Sterling against the U.S. Dollar partially offset by lower AUM in the UK.
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The total amount of non-U.S. cash and cash equivalents was $1,034.8 million at December 31, 2020 (December 31, 2019: $847.0 million).

The consolidation of $8,387.2 million and $6,714.1 million of total assets and long-term debt of CIP as of December 31, 2020, respectively, did not impact the company’s liquidity and capital resources. The majority of CIP balances related to consolidated CLOs. The collateral assets of the CLOs are held solely to satisfy the obligations of the CLOs. The company has no right to the benefits from, nor does it bear the risks associated with, the collateral assets held by the CLOs, beyond the company’s direct investments in, and management and performance fees generated from these products, which are eliminated upon consolidation. If the company were to liquidate, the collateral assets would not be available to the general creditors of the company, and as a result, the company does not consider them to be company assets. Likewise, if the CLOs were to liquidate, their investors would have no recourse to the general credit of the company. The company therefore does not consider this debt to be an obligation of the company. See Item 8, Financial Statements and Supplementary Data - Note 21, “Consolidated Investment Products,” for additional details.

Cash Flow Discussion

The ability to consistently generate cash flow from operations in excess of dividend payments, common share repurchases, capital expenditures and ongoing operating expenses is one of our company's fundamental financial strengths. Operations continue to be financed from current earnings and borrowings. Our principal uses of cash, other than for operating expenses, include dividend payments, capital expenditures, acquisitions, purchase of our common shares in the open market and investments in certain new investment products.

The following table represents a reconciliation of the cash flow information presented on a U.S. GAAP basis to the cash flow information, excluding the impact of the cash flows of Consolidated Investment Products for the reasons outlined in footnote 1 to the table:
Cash Flow Information (1)
Year ended December 31, 2020Year ended December 31, 2019Year ended December 31, 2018
$ in millionsU.S. GAAPImpact of CIPExcluding CIPU.S. GAAPImpact of CIPExcluding CIPU.S. GAAPImpact of CIPExcluding CIP
Cash and cash equivalents, beginning of the period1,701.2 652.2 1,049.0 1,805.4 657.7 1,147.7 2,517.7 511.3 2,006.4 
Cash flows from operating activities (1)
1,230.3 (72.7)1,303.0 1,116.6 (158.3)1,274.9 828.8 (234.2)1,063.0 
Cash flows from investing activities(865.1)(735.4)(129.7)(1,425.4)(1,507.4)82.0 (2,898.7)(1,248.0)(1,650.7)
Cash flows from financing activities(285.9)426.3 (712.2)201.3 1,674.6 (1,473.3)1,540.0 1,767.2 (227.2)
Increase/(decrease) in cash and cash equivalents79.3 (381.8)461.1 (107.5)8.9 (116.4)(529.9)285.0 (814.9)
Foreign exchange movement on cash and cash equivalents53.3 25.8 27.5 10.7 (7.0)17.7 (44.8)(1.0)(43.8)
Net cash inflows (outflows) upon consolidation/deconsolidation of CIP5.5 5.5 — (7.4)(7.4)— (137.6)(137.6)— 
Cash, cash equivalents and restricted cash, end of the period1,839.3 301.7 1,537.6 1,701.2 652.2 1,049.0 1,805.4 657.7 1,147.7 
Cash and cash equivalents1,408.4 — 1,408.4 1,049.0 — 1,049.0 1,147.7 — 1,147.7 
Restricted cash129.2 — 129.2 — — — — — — 
Cash and cash equivalents of CIP301.7 301.7 — 652.2 652.2 — 657.7 657.7 — 
Total cash, cash equivalents and restricted cash per consolidated statement of cash flows1,839.3 301.7 1,537.6 1,701.2 652.2 1,049.0 1,805.4 657.7 1,147.7 
____________
(1)    These tables include non-GAAP presentations. Cash held by CIP is not available for use by Invesco. Additionally, there is no recourse to Invesco for CIP debt. The cash flows of CIP do not form part of the company’s cash flow management processes, nor do they form part of the company’s significant liquidity evaluations and decisions. Policyholder assets and liabilities are equal and offsetting and have no impact on Invesco’s shareholder’s equity. The impact of cash inflows/outflows from policyholder assets and liabilities are reflected within cash flows from operating activities as changes in receivables and/or payables, as applicable.
As discussed in Note 2, “Business Combinations,” the OppenheimerFunds acquisition purchase price was allocated to the
assets acquired and liabilities assumed at fair value as of the date of the transaction. The issuance of common stock and preferred stock consideration represents a non-cash financing activity related to the statement of cash flows.
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Operating Activities

Operating cash flows include the receipt of investment management and other fees generated from AUM, offset by operating expenses and changes in operating assets and liabilities. Although some receipts and payments are seasonal, particularly bonus payments which are paid out during the first quarter, in general, after allowing for the change in cash held by CIP, and investment activities, our operating cash flows move in the same direction as our operating income.

During 2020, cash provided by operating activities was $1,230.3 million compared to $1,116.6 million provided during 2019 (an increase of $113.7 million). As shown in the tables above, the impact of CIP to operating activities was $72.7 million of cash used during 2020 compared to $158.3 million of cash used during 2019. Excluding the impact of CIP, cash provided by operations was $1,303.0 million during 2020 compared to $1,274.9 million of cash provided by operations during 2019. Cash inflows for the year ended December 31, 2020, excluding the impact of CIP, included a $112.2 million increase in operating income as well as net investment redemptions of $293.8 million, including seed money and deferred compensation investments (year ended December 31, 2019: net investment redemptions of $156.4 million). Inflows were partially offset by net outflows from the changes in payables and receivables due to the timing of payments and receipts compared to net inflows in the year ended December 31, 2019.

Investing Activities

Net cash used in investing activities totaled $865.1 million for the year ended December 31, 2020 (2019: net cash used in $1,425.4 million). As shown in the tables above, the impact of CIP on investing activities, including investment purchases, sales and returns of capital, was $735.4 million used (2019: $1,507.4 million used). Excluding the impact of CIP cash flows, net cash used in investing activities was $129.7 million (2019: net cash provided of $82.0 million).

Cash outflows for the year ended December 31, 2020, excluding the impact of CIP, included purchases of investments of $200.3 million (year ended December 31, 2019: $325.7 million), partially offset by collected proceeds of $185.6 million from sales and returns of capital of investments (year ended December 31, 2019: $215.5 million). Investing inflows for the year ended December 31, 2019 also included net cash acquired of $290.5 million primarily related to the OppenheimerFunds acquisition (See Note 2, "Business Combinations," for additional information regarding cash acquired as a result of the acquisition) as well as net collateral received of $26.0 million on the forward contracts. As of December 31, 2019, the collateral was in a net receivable position.

During the year ended December 31, 2020, the company had capital expenditures of $115.0 million (2019: $124.3 million). Our capital expenditures related principally in each period to technology initiatives, including enhancements to platforms from which we maintain our portfolio management systems and fund accounting systems, improvements in computer hardware and software desktop products for employees, new telecommunications products to enhance our internal information flow and tools to prevent security breaches from external threats. Also, in each period, a portion of these costs related to leasehold improvements made to the various buildings and workspaces used in our offices. These projects have been funded with proceeds from our operating cash flows. In 2020, our capital expenditures also included remaining technology integrations related to the OppenheimerFunds acquisition.

Financing Activities

Net cash used in financing activities totaled $285.9 million for the year ended December 31, 2020 (2019: cash provided of $201.3 million). As shown in the tables above, the impact of CIP on financing activities provided cash of $426.3 million during the year (2019: cash provided of $1,674.6 million). Excluding the impact of CIP, financing activities used cash of $712.2 million in the year ended December 31, 2020 (2019: cash used of $1,473.3 million).

Financing cash outflows during the year ended December 31, 2020 included $357.4 million of dividend payments for the common dividends declared in January, April, July and October 2020 (year ended December 31, 2019: dividends paid of $529.1 million), $236.8 million of preferred dividend payments for dividends declared in January, April, July and October 2020 (year ended December 31, 2019: $123.6 million for dividends declared in July and November 2019), a $190.6 million prepayment on the forward contracts, the payment of $47.1 million to meet employees' withholding tax obligations on common share vestings (year ended December 31, 2019: $59.0 million) and a payment of $22.3 million of contingent consideration (year ended December 31, 2019: $20.0 million). These outflows were partially offset by inflows of $142.0 million of net collateral received on the forward contracts. As of December 31, 2020, the collateral was in a net payable position. Financing outflows for the year ended December 31, 2019 also included net repayment on the credit facility of $330.8 million, $300 million
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settlement of the forward contract completed in the fourth quarter of 2018, and purchases of common shares through open market transactions totaling $110.8 million.

Dividends

When declared, Invesco pays dividends on a quarterly basis in arrears. Holders of our preferred shares are eligible to receive dividends at an annual rate of 5.9% of the liquidation preference of $1,000 per share, or $59 per share per annum. The preferred stock dividend is payable quarterly on a non-cumulative basis when, if and as declared by our board of directors. However, if we have not declared and paid or set aside for payment full quarterly dividends on the preferred stock for a particular dividend period, we may not declare or pay dividends on, or redeem, purchase or acquire, our common stock or other junior securities in the next succeeding dividend period. In addition, if we have not declared and paid or set aside for payment quarterly dividends on the preferred stock for six quarterly periods, whether or not consecutive, the number of directors of the company will be increased by two and the holders of the preferred shares shall have the right to elect such two additional members of the Board of Directors.

On January 26, 2021, the company announced a preferred dividend of $14.75 per preferred share to the holders of preferred shares, representing the period from December 1, 2020 through February 28, 2021, payable on March 1, 2021, to shareholders of record at the close of business on February 16, 2021.

On January 26, 2021, the company declared a fourth quarter 2020 dividend of $0.155 per common share, payable on March 2, 2021, to shareholders of record at the close of business on February 16, 2021 with an ex-dividend date of February 12, 2021.

The declaration, payment and amount of any future dividends will be declared by our Board of Directors and will depend upon, among other factors, our earnings, financial condition and capital requirements at the time such declaration and payment are considered. The Board has a policy of managing dividends in a prudent fashion, with due consideration given to profit levels, overall debt levels, and historical dividend payouts.

Common Share Repurchase Plan

During the year ended December 31, 2020, no common shares were repurchased in the open market (December 31, 2019: 5.6 million shares at a cost of $110.8 million). Separately, an aggregate of 3.4 million common shares were withheld on vesting events during the year ended December 31, 2020 to meet employees' withholding tax obligations (December 31, 2019: 3.3 million). The fair value of these shares withheld at the respective withholding dates was $47.1 million (December 31, 2019: $59.0 million).

During the year ended December 31, 2019, the company entered into three forward contracts to repurchase $500.0 million of shares as part of its announced $1.2 billion common stock buyback program. Under these contracts, the counterparty purchased 25.8 million shares during the year ended December 31, 2019. See Note 10, “Share Capital,” for details of these forward contracts. At December 31, 2020, approximately $732.2 million remained authorized under the company's common share repurchase authorization approved by the Board on July 22, 2016 (December 31, 2019: $732.2 million).

The forward contract completed on May 13, 2019 for $200 million of common shares settled on January 4, 2021. Remaining contracts settle on April 1, 2021.

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Long-term debt

The carrying value of our long-term debt at December 31, 2020 was $2,082.6 million (December 31, 2019: $2,080.3 million) and was comprised of the following:
$ in millionsDecember 31, 2020December 31, 2019
$1.5 billion floating rate credit facility expiring August 11, 2022— — 
Unsecured Senior Notes:
$600 million 3.125% - due November 30, 2022598.7 598.1 
$600 million 4.000% - due January 30, 2024596.8 595.8 
$500 million 3.750% - due January 15, 2026496.7 496.1 
$400 million 5.375% - due November 30, 2043390.4 390.3 
Long-term debt2,082.6 2,080.3 

For the year ended December 31, 2020, the company's weighted average cost of debt was 3.77% (year ended December 31, 2019: 3.93%).

Financial covenants under the credit agreement include: (i) the quarterly maintenance of an adjusted debt/EBITDA leverage ratio, as defined in the credit agreement, of not greater than 3.25:1.00, (ii) an interest coverage ratio (EBITDA, as defined in the credit agreement/interest payable for the four consecutive fiscal quarters ended before the date of determination) of not less than 4.00:1.00. As of December 31, 2020, we were in compliance with our financial covenants. At December 31, 2020, our leverage ratio was 1.37:1.00 (December 31, 2019: 1.31:1.00), and our interest coverage ratio was 11.83:1.00 (December 31, 2019: 11.76:1.00).

The December 31, 2020 and 2019 coverage ratio calculations are as follows:
Last four quarters ended
$ millionsDecember 31, 2020December 31, 2019
Net income attributable to Invesco Ltd.524.8 564.7 
Dividends on preferred shares236.8 123.6 
Impact of CIP on net income attributable to Invesco Ltd.(9.4)1.6 
Tax expense261.6 235.1 
Amortization/depreciation203.5 177.6 
Interest expense129.3 135.7 
Common share-based compensation expense188.5 207.5 
Unrealized (gains)/losses from investments, net (1)
(5.6)(37.1)
Pre-acquisition EBITDA of acquired business— 186.6
EBITDA (2)
1,529.5 1,595.3 
Adjusted debt (2)
$2,094.2 $2,091.5 
Leverage ratio (Adjusted debt/EBITDA - maximum 3.25:1.00)1.37 1.31 
Interest coverage (EBITDA/Interest Expense - minimum 4.00:1.00)11.83 11.76 
____________

(1)Adjustments for unrealized gains and losses from investments, as defined in our credit facility, may also include non-cash gains and losses on investments to the extent that they do not represent anticipated future cash receipts or expenditures.
(2)EBITDA and Adjusted debt are non-GAAP financial measures that are used by management in connection with certain debt covenant calculations under our credit agreement. The calculation of EBITDA above (a reconciliation from net income attributable to Invesco Ltd.) is defined by our credit agreement, and therefore net income attributable to Invesco Ltd. is the most appropriate GAAP measure from which to reconcile to EBITDA. The calculation of Adjusted debt is defined in our credit facility and equals long-term debt of $2,082.6 million plus $11.6 million in letters of credit.

The discussion that follows identifies risks associated with the company's liquidity and capital resources. The Item 1. Business -- Risk Management section contains a broader discussion of the company's overall approach to risk management.
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Credit and Liquidity Risk

Capital management involves the management of the company's liquidity and cash flows. The company manages its capital by reviewing annual and projected cash flow forecasts and by monitoring credit, liquidity and market risks, such as interest rate and foreign currency risks (as discussed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”), through measurement and analysis. The company is primarily exposed to credit risk through its cash and cash equivalent deposits, which are held by external firms. The company invests its cash balances in its own institutional money market products, as well as with external high credit-quality financial institutions. These arrangements create exposure to concentrations of credit risk.

Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to meet an obligation. All cash and cash equivalent balances are subject to credit risk, as they represent deposits made by the company with external banks and other institutions. As of December 31, 2020, our maximum exposure to credit risk related to our cash and cash equivalent balances is $1,408.4 million. See Item 8, Financial Statements and Supplementary Data - Note 22, “Related Parties,” for information regarding cash and cash equivalents invested in affiliated money market funds.

The company does not utilize credit derivatives or similar instruments to mitigate the maximum exposure to credit risk. The company does not expect any counterparties to its financial instruments to fail to meet their obligations.

Liquidity Risk

Liquidity risk is the risk that the company will encounter difficulty in meeting obligations associated with its financial liabilities as the same become due. The company is exposed to liquidity risk through its $2,082.6 million in total debt. The company actively manages liquidity risk by preparing cash flow forecasts for future periods, reviewing them regularly with senior management, maintaining a committed credit facility, scheduling significant gaps between major debt maturities and engaging external financing sources in regular dialogue.

Effects of Inflation

Inflation can impact our organization primarily in two ways. First, inflationary pressures can result in increases in our cost structure, especially to the extent that large expense components such as compensation are impacted. To the degree that these expense increases are not recoverable or cannot be counterbalanced through pricing increases due to the competitive environment, our profitability could be negatively impacted. Secondly, the value of the assets that we manage may be negatively impacted when inflationary expectations result in a rising interest rate environment. Declines in the values of these AUM could lead to reduced revenues as management fees are generally calculated based upon the size of AUM.

Off Balance Sheet Commitments

See Item 8, Financial Statements and Supplementary Data - Note 20, “Commitments and Contingencies - Off Balance Sheet Commitments,” for more information regarding undrawn capital commitments.

Contractual Obligations

We have various financial obligations that require future cash payments. The following table outlines the timing of payment requirements related to our commitments as of December 31, 2020:
$ in millions
Total (4,5,6,7)
Within 1 Year1-3 Years3-5 YearsMore Than 5 Years
Long-term debt (1)
2,082.6 — 598.7 596.8 887.1 
Estimated interest payments on long-term debt (1)
719.1 83.0 147.2 92.5 396.4 
Operating leases (2)
584.1 81.2 144.1 98.8 260.0 
Purchase obligations (3)
874.3 568.2 157.1 70.0 79.0 
Total4,260.1 732.4 1,047.1 858.1 1,622.5 
____________

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(1)    Long-term debt includes $2,082.6 million of fixed rate debt. Fixed interest payments are reflected in the table above in the periods they are due, and include any issuance discounts. The table above includes the company's debt; debt of CIP is excluded from the table above, as the company is not obligated for these amounts. See Item 8, Financial Statements and Supplementary Data - Note 21, “Consolidated Investment Products," for additional information.

(2)    Operating leases reflect obligations for leased building space and other assets.

Included in the table above is an additional operating lease the company entered into during the third quarter of 2019, but has not yet commenced. The expected lease obligations are approximately $232.5 million which will be paid over an expected lease term of 15 years. This operating lease will commence in fiscal year 2022. See Item 8, Financial Statements and Supplementary Data - Note 15, Operating Leases,” for additional information.

(3)    In the ordinary course of business, Invesco enters into contracts or purchase obligations with third parties whereby the third parties provide services to or on behalf of Invesco. Purchase obligations included in the contractual obligations table above represent fixed-price contracts, which are either non-cancelable or cancelable with a penalty. At December 31, 2020, the company's obligations primarily reflect standard service contracts for portfolio, market data, office-related services and third-party marketing and promotional services. In addition, the company is a party to certain variable-price contractual arrangements (e.g., contingent future payments based on AUM levels, number of accounts, transaction volume, etc.) for which the company is reimbursed by affiliated funds and as such are not included in the table above. Purchase obligations are recorded as liabilities in the company's Consolidated Financial Statements when services are provided. Purchase obligations also include contingent consideration liabilities.
    
During the year ended December 31, 2019, the company entered into three forward contracts to repurchase $500.0 million of shares as part of its announced $1.2 billion common stock buyback program. At December 31, 2020 the payable was $309.0 million and is included in other liabilities. See Item 8, Financial Statements and Supplementary Data - Note 10, “Share Capital,” for additional details.

(4)    The company has capital commitments into co-invested funds that are to be drawn down over the life of the partnership as investment opportunities are identified. At December 31, 2020, the company's undrawn capital and purchase commitments were $453.5 million. These are not included in the above table. See Item 8, Financial Statements and Supplementary Data - Note 20, “Commitments and Contingencies,” for additional details.

(5)    The company had $61.9 million of gross unrecognized tax benefits at December 31, 2020. Due to the uncertainty with respect to the timing and amounts that will ultimately be paid, this amount has been excluded from the contractual obligations table above. See Item 8, Financial Statements and Supplementary Data, Note 17, “Taxation,” for a discussion regarding income taxes.

(6)    In addition to the contractual obligations in the table above, we periodically make contributions to defined benefit pension plans. For the years ended December 31, 2020 and 2019, we contributed $25.5 million and $24.0 million, respectively, to these plans. In 2021, we expect to contribute $15.2 million to our defined benefit pension plans. See Item 8, Financial Statements and Supplementary Data - Note 13, “Retirement Benefit Plans,” for detailed benefit pension plan information. The company has various other compensation and benefit obligations, including bonuses, commissions and incentive payments payable, defined contribution plan matching contribution obligations, and deferred compensation arrangements, that are excluded from the table above.

(7)    In addition to the contractual obligations in the table above, and pursuant to an agreement entered into at the consummation of the acquisition of OppenheimerFunds, MassMutual, as the holder of seed capital investments in certain funds and accounts included in the acquisition, has the right to redeem its seed capital investments in accordance with an agreed upon schedule. In the event MassMutual exercises its redemption rights and the applicable fund or account is unable to meet such redemption (for example, due to illiquid investments or the need to maintain a level of investment in the fund), the company would be required to fund such redemption to MassMutual and seek reimbursement from the applicable fund or account at a later time when the fund or account is able to fulfill a redemption request. MassMutual has exercised its redemption rights and redeemed a portion of the seed capital per the agreed upon schedule. At December 31, 2020, the total amount of seed capital subject to this agreement is approximately $357.8 million. As of the date of this report, the company was not required to fund these redemptions nor does the company anticipate having to fund any of the seed capital subject to this agreement.

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Critical Accounting Policies and Estimates

Our significant accounting policies are disclosed in Item 8, Financial Statements and Supplementary Data - Note 1, “Accounting Policies." Critical accounting policies and estimates are those that require complex management judgment regarding matters that are highly uncertain at the time policies were applied and estimates were made. Different estimates reasonably could have been used in the current period that would have had a material effect on these Consolidated Financial Statements, and changes in these estimates are likely to occur from period-to-period in the future. The discussion below provides information on the significant judgments and assumptions applied in each area and should be read in conjunction with the significant accounting policies footnote previously referenced.

Goodwill

Our goodwill impairment testing conducted during 2020 and 2019 indicated that the fair value of the reporting unit more likely than not exceeded its carrying value. During our annual impairment test in 2020 and 2019, management performed the optional qualitative approach which indicated that a quantitative assessment of the goodwill impairment test was not necessary. Due to the decline in our assets under management resulting from COVID-19, management also performed a quantitative goodwill impairment test which indicated no impairment. The company cannot predict the occurrence of future events that might adversely affect the reported value of goodwill that totaled $8,916.3 million and $8,509.4 million at December 31, 2020 and December 31, 2019, respectively. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on the company's AUM or any other material negative change in AUM and related effective fee rates.

When management utilizes the option to first assess goodwill impairment on a qualitative basis, the totality of certain events and circumstances are assessed to determine if it is not more likely than not that the fair value of the reporting unit is less than its carrying amount. Such events and circumstances include macroeconomic conditions, industry and market considerations, overall financial performance of the company and or significant changes in share price. If the qualitative assessment indicates that an impairment may be likely or management elected to not perform the qualitative assessment, management performs a quantitative test to determine the fair value of the reporting unit. The fair value of the reporting unit is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount. The income approach includes inputs that require significant management judgment, including AUM growth rates, projected effective fee rates, pre-tax profit margins, effective tax rates and discount rates.

The quantitative test includes assumptions updated for current market conditions, including the company's updated forecasts for changes in AUM due to market gains or losses and long-term net flows and the corresponding changes in revenue and expenses. Market gains are based upon historical returns of the S&P 500 index, treasury bond returns and treasury bill returns, as applicable to the company's AUM mix on the testing date. The most sensitive of these assumptions are the AUM growth rate, fee rates, operating expense and the discount rate to determine present value. The discount rates used are estimates of the weighted average cost of capital for the investment management sector reflecting the overall industry risks associated with future cash flows and have been calculated consistently from period to period. While the company believes all assumptions utilized in our assessment are reasonable and appropriate, changes in these estimates could produce different fair value amounts and therefore different goodwill impairment assessments.

Intangible Assets

Where evidence exists that the underlying arrangements have a high likelihood of continued renewal at little or no cost to the company, the intangible asset is assigned an indefinite life and reviewed for impairment on an annual basis. Similar to Goodwill, management has the option to first assess indefinite-lived intangible assets for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable (i.e., the carrying amount exceeds the fair value of the intangible asset). In addition, management's judgment is required to estimate the period over which definite-lived intangible assets will contribute to the company's cash flows and the pattern in which these assets will be consumed. A change in the remaining useful life of any of these assets, or the reclassification of an indefinite-lived intangible asset to a definite-lived intangible asset, could have a significant impact on the company's amortization expense, which was $62.5 million, $52.7 million and $29.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Intangible assets not subject to amortization are tested for impairment annually as of October 1 or more frequently if events or changes in circumstances indicate that the asset might be impaired. If a quantitative assessment is required, the impairment test consists of a comparison of the fair value of an intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If required, fair value
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is generally determined using an income approach where estimated future cash flows are discounted to arrive at a single present value amount. The income approach includes inputs that require significant management judgment, including AUM growth rates, product mix, projected effective fee rates, pre-tax profit margins, effective tax rates and discount rates. The most sensitive of these assumptions to the determination of the estimated fair value are the AUM growth rate, fee rates, operating expense and discount rate, which is a weighted average cost of capital including consideration of company size premiums. Changes in these estimates could produce different fair value amounts and therefore different impairment conclusions. During 2020 and 2019, our annual impairment reviews of indefinite-lived intangible assets determined that no impairment existed at the respective review dates, the classifications of indefinite-lived and definite-lived remain appropriate, and no changes to the expected lives of the definite-lived intangible assets were required. Due to the decline in our assets under management resulting from COVID-19, management also performed a quantitative impairment test on certain indefinite-lived intangible assets in the first quarter of 2020 which indicated no impairment.

Income Taxes

We operate in numerous countries, states and other taxing jurisdictions. The income tax laws are complex and subject to different interpretations by the taxpayer and the relevant taxing authorities. Significant judgment is required in the determination of our annual income tax provisions, which includes the assessment of deferred tax assets and uncertain tax positions, as well as the interpretation and application of existing and newly enacted tax laws, regulation changes, and new judicial rulings. Therefore, it is possible that actual results will vary from those recognized in our Consolidated Financial Statements due to changes in the interpretation of applicable guidance or as a result of examinations by taxing authorities.

Deferred tax assets, net of any associated valuation allowance, have been recognized based on management's belief that taxable income of the appropriate character, more likely than not, will be sufficient to realize the benefits of these assets over time. In the event that actual results differ from our expectations, or if our historical trends of positive operating income changes, we may be required to record a valuation allowance on some or all of these deferred tax assets, which may have a significant effect on our financial condition and results of operations. In assessing whether a valuation allowance should be established against a deferred income tax asset, the company considers all available evidence, which includes the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry back and carry forward periods, among other factors.

In the assessment of uncertain tax positions, significant judgment is required to estimate the range of possible outcomes and determine the probability, on a more likely than not basis, of favorable or unfavorable outcomes upon ultimate settlement of an issue. Unrecognized tax benefits as well as the related interest and penalties, are regularly evaluated and adjusted as appropriate to reflect changes that could impact the relative merits and risks of tax positions. The company recognizes any interest and penalties related to unrecognized tax benefits on the Consolidated Statements of Income as components of income tax expense.

CIP

Assessing if an entity is a variable interest entity (VIE) or voting interest entity (VOE) involves judgment and analysis on a structure-by-structure basis. Factors assessed as part of the analysis include the legal organization of the entity, the company's contractual involvement with the entity and any related party or de facto agent implications of the company's involvement with the entity. A VIE, in the context of the company and its managed funds, is a fund that does not have sufficient equity to finance its operations without additional subordinated financial support, or a fund for which the risks and rewards of ownership are not directly linked to voting interests. If the company is deemed to have the power to direct the activities of the fund that most significantly impact the fund's economic performance, and the obligation to absorb losses/right to receive benefits from the fund that could potentially be significant to the fund, then the company is deemed to be the fund's primary beneficiary and is required to consolidate the fund. Assessing if the company has the power to direct the activities that most significantly impact the fund’s economic results may involve significant judgment.

As of December 31, 2020, the company consolidated CIP that held investments of $7,910.0 million (December 31, 2019: $7,808.0 million).

Contingencies

Contingencies arise when we have a present obligation as a result of a past event that is both probable and reasonably estimable. We must from time to time make material estimates with respect to legal and other contingencies. The nature of our business requires compliance with various laws and regulations, as well as various contractual obligations, and exposes us to a variety of legal proceedings and matters in the ordinary course of business. While the outcomes of matters such as these are inherently uncertain and difficult to predict, we maintain reserves reflected in accounts payable and accrued expenses, as
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appropriate, for identified losses that are, in our judgment, probable and reasonably estimable. We expense any related legal fees as they are incurred. Management's judgment is based on the advice of legal counsel, ruling on various motions by the applicable court, review of the outcome of similar matters, if applicable, and review of guidance from governmental and other regulatory authorities, if applicable. Contingent consideration payable in relation to a business acquisition is recorded as of the acquisition date as part of the fair value transferred in exchange for the acquired business.

As described in Item 8, Financial Statements and Supplementary Data - Note 20, “Commitments and Contingencies,” the company has accrued an estimated liability of $387.8 million related to a restatement of certain historical fund financial statements. The liability represents the expected reimbursement to fund shareholders and excludes any amounts that may be recovered through indemnification and insurance recoveries, as well as other remediation costs related to the matter, such as legal and consulting costs, or the costs of communicating with fund shareholders. Uncertainties remain as of the date of this report regarding the nature, scope and amounts of such costs, as well as the degree to which the company will ultimately be financially responsible for bearing such costs.

Regarding the estimated liability, the primary source of uncertainty is the activity of the underlying fund shareholders in omnibus accounts, the majority of which data the company has not yet received. The determination of the liability due to each fund shareholder will be based on a number of factors, including:

The timing of fund shareholder transactions,
The frequency and magnitude of fund shareholder transactions,
The dates on which each fund shareholder opened and closed his or her account, and
The difference between the historical net asset value of the Funds and the corrected price on the dates when a fund shareholder engaged in transaction activity and the Funds made distributions

The calculation of the liability depends on these variables in the aggregate; therefore, it is not possible to evaluate the impact of possible trends in each variable on the overall calculation. Additionally, given the unique nature of each outstanding third-party data set, we are not able to determine a range of reasonably possible outcomes at this time.

Recent Accounting Standards

See Item 8, Financial Statements and Supplementary Data - Note 1, “Accounting Policies - Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements.”

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

In the normal course of its business, the company is primarily exposed to market risk in the form of AUM market price risk, securities market risk, interest rate risk and foreign exchange rate risk.

AUM Market Price Risk

The company's investment management revenues are comprised of fees based on the value of AUM. Declines in the market prices of equity and fixed income securities, commodities and derivatives, or other similar financial instruments held in client portfolios could cause revenues to decline because of lower investment management fees by:

Causing the value of AUM to decrease.
Causing the returns realized on AUM to decrease (impacting performance fees).
Causing clients to withdraw funds in favor of investments in markets that they perceive to offer greater opportunity and that the company does not serve.
Causing clients to rebalance assets away from investments that the company manages into investments that the company does not manage.
Causing clients to reallocate assets away from products that earn higher revenues into products that earn lower revenues.

Underperformance of client accounts relative to competing products could exacerbate these factors.

Assuming the revenue yield on AUM for the year remains unchanged, a 10% decline in the average AUM for the year would result in a corresponding decline in revenue. Certain expenses, including distribution and compensation expenses, may not vary in proportion with the changes in the market value of AUM. As such, the impact on operating margin or net income of a decline in the market values of AUM may be greater or less than the percentage decline in the market value of AUM.
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Securities Market Risk

The company's exposure to market risk from financial instruments measured at fair value arises from its investments and also from its contingent consideration liability. The following table summarizes the impact of a 10% increase or decrease in the fair values of these financial instruments:
December 31, 2020
$ in millionsFair ValueFair Value assuming 10% increaseFair Value assuming 10% decrease
Equity investments (a)
360.3 396.3 324.3 
Total assets measured at fair value exposed to market risk360.3 396.3 324.3 
Direct investments in CIP (b)
426.5 469.2 383.9 
Contingent consideration liability (c)
(18.6)(20.5)(16.7)
____________

(a)If such a 10% increase or decrease in fair values were to occur, the change attributable to $360.3 million of these equity investments would result in a corresponding increase or decrease in our pre-tax earnings. At December 31, 2020, $202.7 million of these equity investments are held to hedge economically certain deferred compensation plans in which the company participates. In addition to holding equity investments, in 2017, the company purchased a total return swap to economically hedge certain deferred compensation plans. The notional value of the total return swap at December 31, 2020 was $279.3 million. The company recognizes as compensation expense the appreciation or depreciation of the compensation liability over the award's vesting period in proportion to the vested amount of the award. The company immediately recognizes the appreciation or depreciation of these investments, which is included in other gains and losses. This creates a timing difference between the recognition of the compensation expense and the investment gain or loss impacting net income, which will reverse and will offset to zero over the life of the award at the end of the multi-year vesting period.
(b)These represent Invesco’s direct investments in investment products that are consolidated. Upon consolidation, these direct investments are eliminated, and the assets and liabilities of the CIP are consolidated in the Consolidated Balance Sheets, together with a noncontrolling interest balance representing the portion of the CIP owned by third parties. If a 10% increase or decrease in the fair values of Invesco’s direct investments in CIP were to occur, it would result in a corresponding increase or decrease in our net income attributable to Invesco Ltd.
(c)During 2015, the company acquired investment management contracts from Deutsche Bank. This liability represents the purchase price, which was comprised solely of contingent consideration payable in future periods and is linked to future revenues generated from the contracts. In connection with the OppenheimerFunds acquisition (see Note 2, “Business Combinations”), Invesco acquired a contingent consideration liability related to historical OppenheimerFunds transactions. Additionally, the company made other digital wealth acquisitions during 2019, which resulted in a contingent consideration liability linked to sales targets during 2020, 2021 and 2022. The contingent consideration liabilities referenced above were recorded at fair value at each respective acquisition date and subsequent changes in the fair value are recorded in Other gains and losses, net in the Consolidated Statements of Income. If a 10% increase or decrease in the fair value of the contingent consideration liability were to occur, it would result in a corresponding increase or decrease in our net income attributable to Invesco Ltd.
Cash balances invested in money market funds of $947.3 million have been excluded from the table above. These are valued under the market approach at the net asset value of the underlying funds, which is maintained at $1. Assets held for policyholders of $7,582.1 million have also been excluded from the table above. The entity holds assets that are managed for its clients on its balance sheet with an equal and offsetting liability to the policyholders, which is linked to the value of the investments. The investments and the policyholder payables held by this business are carried in the Consolidated Balance Sheets as separate account assets and liabilities at fair value in accordance with ASC Topic 944, “Financial Services - Insurance.” Changes in fair value are recorded and offset to zero in the Consolidated Statements of Income in other operating revenues. Increases or decreases in the fair value of these investments will therefore have no impact to our pre-tax earnings.

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Interest Rate Risk

Interest rate risk relates to the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The company is exposed to interest rate risk primarily through its external debt and cash and cash equivalent investments. On December 31, 2020, the interest rates on 100.0% of the company's borrowings were fixed for a weighted average period of 6.9 years, and the company had a balance of zero on its floating rate credit facility.

The interest rate profile of the financial liabilities of the company on December 31 was:
$ in millionsDecember 31, 2020December 31, 2019
Long-term debt
Fixed rate2,082.6 2,080.3 
Floating rate— — 
Total2,082.6 2,080.3 
Weighted average interest rate percentage3.8 %3.9 %
Weighted average period for which rate is fixed in years6.9 7.9 

See Item 8, Financial Statements and Supplementary Data, Note 9, “Debt,” for additional disclosures relating to the U.S. Dollar floating and fixed rate obligations.

The sensitivity of our financial assets to interest rate risk is immaterial.

Foreign Exchange Rate Risk

The company has transactional currency exposures that occur when any of the company’s subsidiaries receive or pay cash in a currency different from its functional currency. Such exposure arises from sales or purchases by operating subsidiaries in currencies other than the subsidiaries’ functional currencies. These exposures are not actively managed.

The company also has certain investments in foreign operations, whose net assets and results of operations are exposed to foreign currency translation risk when translated into U.S. Dollars upon consolidation into Invesco Ltd. A strengthening U.S. Dollar has a negative impact on the company's foreign currency denominated earnings when presented in U.S. Dollars. The company's most significant foreign exchange rate risk exposure relates to the translation of Pound Sterling-denominated transactions into the U.S. Dollar reporting currency. The company’s put option contract to hedge its Pound-Sterling-based operating income expired on June 30, 2020. Item 8, Financial Statements and Supplementary Data, Note 19, "Geographic Information," contains disclosure of revenue by geography. Revenues from external customers earned in the U.K. is an indicator of the company's exposure to the Pound Sterling; however, expenses incurred in the U.K. provide a natural offset to the company's exposure to the Pound Sterling.

The company is exposed to foreign exchange revaluation into the Consolidated Statements of Income on monetary assets and liabilities that are held by subsidiaries in different functional currencies than the subsidiaries' functional currencies. Net foreign exchange revaluation losses were $4.5 million in 2020 (2019: $13.6 million of losses) and are included in general and administrative expenses and other gains and losses, net on the Consolidated Statements of Income. We continue to monitor our exposure to foreign exchange revaluation and have put in place net investment hedge structures discussed in Part II, Item 8, Financial Statements, Note 11--"Other Comprehensive Income/(Loss)."

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Supplementary Quarterly Financial Data

The following is selected unaudited consolidated data for Invesco Ltd. for the quarters indicated:
20202019
$ in millions, except per common share dataQ4Q3Q2Q1Q4Q3Q2Q1
Operating revenues:
Investment management fees1,148.8 1,096.8 1,037.1 1,168.3 1,254.2 1,257.1 1,071.3 923.7 
Service and distribution fees367.8 352.7 332.7 365.8 378.0 385.1 294.1 219.3 
Performance fees57.3 — 3.5 4.8 49.8 14.9 15.7 21.8 
Other56.2 48.1 45.7 60.0 60.8 63.5 58.3 49.8 
Total operating revenues1,630.1 1,497.6 1,419.0 1,598.9 1,742.8 1,720.6 1,439.4 1,214.6 
Operating expenses:
Third-party distribution, service and advisory507.7 480.8 444.0 515.1 528.1 545.1 451.8 368.0 
Employee compensation486.9 444.5 454.6 421.9 460.1 446.0 421.9 381.3 
Marketing20.6 15.6 14.4 32.7 41.0 33.2 33.4 28.0 
Property, office and technology126.1 127.5 128.3 130.4 140.8 131.2 114.9 107.2 
General and administrative95.9 89.7 188.9 106.3 121.7 104.5 94.2 83.8 
Transaction, integration and restructuring175.1 71.0 71.7 75.5 136.5 185.5 304.9 46.1 
Total operating expenses1,412.3 1,229.1 1,301.9 1,281.9 1,428.2 1,445.5 1,421.1 1,014.4 
Operating income217.8 268.5 117.1 317.0 314.6 275.1 18.3 200.2 
Other income/(expense):
Equity in earnings of unconsolidated affiliates26.0 18.6 11.2 16.9 9.5 19.8 12.1 15.0 
Interest and dividend income9.1 2.6 2.4 6.4 14.0 5.9 3.9 4.7 
Interest expense(24.4)(33.8)(34.8)(36.3)(34.6)(35.0)(33.0)(33.1)
Other gains and losses, net59.9 31.5 60.0 (106.5)(3.3)13.8 24.1 31.1 
Other income/(expense) of CIP, net111.3 99.2 (50.5)(20.1)22.8 37.0 51.1 38.9 
Income before income taxes399.7 386.6 105.4 177.4 323.0 316.6 76.5 256.8 
Income tax (provision)/benefits(68.9)(91.9)(43.4)(57.4)(80.4)(74.0)(14.5)(66.2)
Net income330.8 294.7 62.0 120.0 242.6 242.6 62.0 190.6 
Net (income)/loss attributable to noncontrolling interests in consolidated entities(60.5)(43.8)37.7 20.7 (3.6)(11.1)(21.9)(12.9)
Less: Dividends declared on preferred shares(59.2)(59.2)(59.2)(59.2)(59.2)(64.4)— — 
Net income attributable to Invesco Ltd.211.1 191.7 40.5 81.5 179.8 167.1 40.1 177.7 
Earnings per common share (1):
Basic$0.46 $0.42 $0.09 $0.18 $0.40 $0.36 $0.09 $0.44 
Diluted$0.46 $0.41 $0.09 $0.18 $0.39 $0.36 $0.09 $0.44 
Average common shares outstanding (1):
Basic461.0 461.1 460.1 455.7 454.1 462.8 431.6 401.6 
Diluted463.5 463.5 463.1 458.9 457.9 466.9 433.8 401.9 
Dividends declared per common share:$0.16 $0.16 $0.16 $0.31 $0.31 $0.31 $0.31 $0.30 
____________
(1)    The sum of the quarterly earnings per common share amounts may differ from the annual earnings per common share amounts due to the required method of computing the weighted average number of common shares in interim periods.
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Item 8.  Financial Statements and Supplementary Data

Index to Financial Statements and Supplementary Data


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Annual Report of Management on Internal Control over Financial Reporting

Management of the company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f). The company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision, and with the participation of the chief executive officer and chief financial officer, management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment, management concluded that the company’s internal control over financial reporting was effective as of December 31, 2020.

The company's independent registered public accounting firm, PricewaterhouseCoopers LLP, have issued a report on the effectiveness of our internal control over financial reporting, which is included herein.
    

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Invesco Ltd.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Invesco Ltd. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for Income Taxes

As described in Notes 1 and 17 to the consolidated financial statements, the Company recorded income tax expense of $261.6 million for the year ended December 31, 2020, and had net deferred tax assets of $318.8 million, including a valuation allowance of $104.5 million, and total gross unrecognized income tax benefits of $61.9 million as of December 31, 2020, $50.5 million of which would affect the Company's effective tax rate if recognized in future periods. The Company files U.S. federal, U.S. state and local, and numerous foreign income tax returns. As disclosed by management, significant judgment is required in the determination of the Company’s annual income tax provisions, which includes the assessment of deferred tax assets and uncertain tax positions, as well as the interpretation and application of existing and newly enacted tax laws, regulation changes, and new judicial rulings.

The principal considerations for our determination that performing procedures relating to the accounting for income taxes is a critical audit matter are the significant judgment by management when determining the provision for income taxes, including the interpretation and application of newly enacted tax laws, regulation changes, and new judicial rulings; this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management’s interpretation and application of newly enacted tax laws, regulation changes, and new judicial rulings.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the provision for income taxes, including controls over the interpretation and application of newly enacted tax laws, regulation changes, and new judicial rulings. These procedures also included, among others, (i) evaluating management’s assessment of the applicability of newly enacted tax laws, regulation changes, and new judicial rulings; (ii) testing management's income tax calculations, including testing the completeness and accuracy of the underlying data and considering the Company's compliance with tax laws; and (iii) evaluating the status and results of income tax audits with the relevant tax authorities.

Commitments and Contingencies - OppenheimerFunds Acquisition-Related Matter

As described in Note 20 to the consolidated financial statements, as of December 31, 2020, the Company accrued an estimated liability of $387.8 million for remediation costs related to a restatement of historical financial statements for certain funds acquired as part of the Company’s acquisition of OppenheimerFunds, which represents the expected reimbursement to certain fund shareholders from the Company. The estimate is based primarily on management’s assumptions around the activity of the underlying fund shareholders in the omnibus accounts, the majority of which data the Company has not yet received. Estimation of the liability involves significant judgment, and as disclosed by management, the determination of liability due to each fund shareholder is based on a number of factors including the timing of fund shareholder transactions, the frequency and magnitude of fund shareholder transactions, the dates on which each fund shareholder opened and closed his or her account, and the difference between the historical net asset value of the Funds and the corrected price on the dates when a fund shareholder engaged in transaction activity and the Funds made distributions.

The principal considerations for our determination that performing procedures relating to OppenheimerFunds acquisition-related matter is a critical audit matter are (i) the significant judgment by management when determining the estimated liability for expected reimbursement to certain fund shareholders, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s assumptions around the activity of the underlying shareholders in the omnibus accounts, the majority of which data the Company has not yet received; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the liability for expected reimbursement to certain fund shareholders. These procedures also included, among others (i) testing management’s process for determining the estimated liability; (ii) evaluating the appropriateness of the methodology; (iii) testing the completeness and accuracy of the available data on the activity of the underlying shareholders; and (iv) evaluating the reasonableness of management’s assumptions around the activity of the underlying shareholders in the omnibus accounts, the majority of which data the Company has not yet received. Professionals with specialized skill and knowledge were used to assist in testing the completeness and accuracy of the available data.


/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 18, 2021

We have served as the Company’s auditor since 2013.
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Invesco Ltd.
Consolidated Balance Sheets
As of
$ in millions, except per share dataDecember 31, 2020December 31, 2019
ASSETS
Cash and cash equivalents1,408.4 1,049.0 
Unsettled fund receivables109.4 162.7 
Accounts receivable741.1 855.6 
Investments826.8 829.5 
Assets of consolidated investment products (CIP):
Cash and cash equivalents of CIP301.7 652.2 
Accounts receivable and other assets of CIP175.5 172.9 
Investments of CIP7,910.0 7,808.0 
Assets held for policyholders7,582.1 10,835.6 
Prepaid assets149.2 144.0 
Other assets514.2 459.6 
Property, equipment and software, net563.8 583.5 
Intangible assets, net7,305.6 7,358.3 
Goodwill8,916.3 8,509.4 
Total assets36,504.1 39,420.3 
LIABILITIES
Accrued compensation and benefits973.7 1,030.7 
Accounts payable and accrued expenses1,920.4 1,904.0 
Liabilities of CIP:
Debt of CIP6,714.1 6,234.6 
Other liabilities of CIP588.6 949.6 
Policyholder payables7,582.1 10,835.6 
Unsettled fund payables98.4 154.2 
Long-term debt2,082.6 2,080.3 
Deferred tax liabilities, net1,523.5 1,529.5 
Total liabilities21,483.4 24,718.5 
Commitments and contingencies (See Note 20)00
TEMPORARY EQUITY
Redeemable noncontrolling interests in consolidated entities211.8 383.5 
PERMANENT EQUITY
Equity attributable to Invesco Ltd.:
Preferred shares ($0.20 par value; $1,000 liquidation preference; 4.0 million authorized, issued and outstanding as of December 31, 2020 and 2019, respectively)4,010.5 4,010.5 
Common shares ($0.20 par value; 1,050.0 million authorized; 566.1 million and 566.1 million shares issued as of December 31, 2020 and 2019, respectively)113.2 113.2 
Additional paid-in-capital7,811.4 7,860.8 
Treasury shares(3,253.8)(3,452.5)
Retained earnings6,085.0 5,917.8 
Accumulated other comprehensive income/(loss), net of tax(404.5)(587.3)
Total equity attributable to Invesco Ltd.14,361.8 13,862.5 
Equity attributable to nonredeemable noncontrolling interests in consolidated entities447.1 455.8 
Total permanent equity14,808.9 14,318.3 
Total liabilities, temporary and permanent equity36,504.1 39,420.3 

See accompanying notes.


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Invesco Ltd.
Consolidated Statements of Income
Years ended December 31,
$ in millions, except per common share data202020192018
Operating revenues:
Investment management fees4,451.0 4,506.3 4,082.3 
Service and distribution fees1,419.0 1,276.5 968.5 
Performance fees65.6 102.2 56.9 
Other210.0 232.4 206.4 
Total operating revenues6,145.6 6,117.4 5,314.1 
Operating expenses:
Third-party distribution, service and advisory1,947.6 1,893.0 1,608.2 
Employee compensation1,807.9 1,709.3 1,494.4 
Marketing83.3 135.6 134.8 
Property, office and technology512.3 494.1 410.5 
General and administrative480.8 404.2 324.4 
Transaction, integration and restructuring393.3 673.0 136.9 
Total operating expenses5,225.2 5,309.2 4,109.2 
Operating income920.4 808.2 1,204.9 
Other income/(expense):
Equity in earnings of unconsolidated affiliates72.7 56.4 33.8 
Interest and dividend income20.5 28.5 21.3 
Interest expense(129.3)(135.7)(111.5)
Other gains and losses, net44.9 65.7 (40.0)
Other income/(expense) of CIP, net139.9 149.8 29.6 
Income before income taxes1,069.1 972.9 1,138.1 
Income tax provision(261.6)(235.1)(255.0)
Net income807.5 737.8 883.1 
Net (income)/loss attributable to noncontrolling interests in consolidated entities(45.9)(49.5)(0.3)
Dividends on preferred shares(236.8)(123.6)
Net income attributable to Invesco Ltd.524.8 564.7 882.8 
Earnings per common share:
-basic$1.14 $1.29 $2.14 
-diluted$1.13 $1.28 $2.14 

See accompanying notes.




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Invesco Ltd.
Consolidated Statements of Comprehensive Income
Years ended December 31,
$ in millions202020192018
Net income807.5 737.8 883.1 
Other comprehensive income/(loss), net of tax:
Currency translation differences on investments in foreign subsidiaries182.7 155.6 (327.1)
Actuarial gain/(loss) related to employee benefit plans(6.3)(10.8)(13.0)
Other comprehensive income/(loss), net of tax6.4 2.9 (0.5)
Other comprehensive income/(loss)182.8 147.7 (340.6)
Total comprehensive income/(loss)990.3 885.5 542.5 
Comprehensive (income)/loss attributable to noncontrolling interests in consolidated entities(45.9)(49.5)(0.3)
Dividends on preferred shares(236.8)(123.6)
Comprehensive (loss)/income attributable to Invesco Ltd.707.6 712.4 542.2 

See accompanying notes.


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Invesco Ltd.
Consolidated Statements of Cash Flows
Years ended December 31,
$ in millions202020192018
Operating activities:
Net income807.5 737.8 883.1 
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Amortization and depreciation203.5 177.6 142.1 
Common share-based compensation expense188.5 207.5 172.4 
Other gains and losses, net(44.9)(65.7)40.0 
Other (gains)/losses of CIP, net(32.1)(32.9)55.1 
Equity in earnings of unconsolidated affiliates(72.7)(56.4)(33.8)
Distributions from equity method investees33.9 9.7 9.2 
Changes in operating assets and liabilities:
(Purchase)/sale of investments by CIP, net(48.2)(213.4)(340.7)
(Purchase)/sale of investments, net263.1 167.0 (45.5)
(Increase)/decrease in receivables3,744.4 934.3 944.4 
Increase/(decrease) in payables(3,812.7)(748.9)(997.5)
Net cash provided by/(used in) operating activities1,230.3 1,116.6 828.8 
Investing activities:
Purchase of property, equipment and software(115.0)(124.3)(102.5)
Purchase of investments by CIP(4,548.6)(5,244.8)(4,488.3)
Sale of investments by CIP3,782.3 3,654.9 3,210.1 
Purchase of investments(153.6)(229.1)(153.5)
Sale of investments143.2 123.3 123.1 
Capital distribution from equity method investees26.6 78.1 45.5 
Collateral received/(posted), net26.0 (63.8)
Purchase of business, net of cash acquired290.5 (1,469.3)
Net cash provided by/(used in) investing activities(865.1)(1,425.4)(2,898.7)
Financing activities:
Purchases of treasury shares(47.1)(469.8)(51.8)
Dividends paid - preferred(236.8)(123.6)
Dividends paid - common(357.4)(529.1)(490.6)
Third-party capital invested into CIP185.8 289.5 465.8 
Third-party capital distributed by CIP(236.4)(144.1)(117.0)
Borrowings of debt of CIP1,268.0 3,348.8 2,463.8 
Repayments of debt of CIP(791.1)(1,819.6)(1,045.4)
Payment on forward contracts(190.6)
Collateral received/(posted), net142.0 
Net borrowings/(repayments) under credit facility(330.8)330.8 
Payment of contingent consideration(22.3)(20.0)(15.6)
Net cash provided by/(used in) financing activities(285.9)201.3 1,540.0 
Increase/(decrease) in cash and cash equivalents79.3 (107.5)(529.9)
Foreign exchange movement on cash and cash equivalents27.5 17.7 (43.8)
Foreign exchange movement on cash and cash equivalents of CIP25.8 (7.0)(1.0)
Net cash inflows (outflows) upon consolidation/deconsolidation of CIP5.5 (7.4)(137.6)
Cash and cash equivalents, beginning of period1,701.2 1,805.4 2,517.7 
Cash, cash equivalents and restricted cash, end of period1,839.3 1,701.2 1,805.4 
Cash and cash equivalents1,408.4 1,049.0 1,147.7 
Restricted cash (1)
129.2 
Cash and cash equivalents of CIP301.7 652.2 657.7 
Total cash, cash equivalents and restricted cash per consolidated statement of cash flows1,839.3 1,701.2 1,805.4 
Supplemental Cash Flow Information:
Interest paid(93.1)(99.4)(100.8)
Interest received2.7 9.2 8.9 
Taxes paid(223.8)(193.7)(322.0)
(1)    Restricted cash of $129.2 million as of December 31, 2020 is recorded in Other assets on the Consolidated Balance Sheet

See accompanying notes.
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Consolidated Statements of Changes in Equity
Equity Attributable to Invesco Ltd.
$ in millions, except per share dataPreferred SharesCommon SharesAdditional Paid-in-CapitalTreasury SharesRetained EarningsAccumulated Other Comprehensive IncomeTotal Equity Attributable to Invesco Ltd.Nonredeemable Noncontrolling Interests in Consolidated EntitiesTotal Permanent EquityRedeemable Noncontrolling Interests in Consolidated Entities/Temporary Equity
January 1, 20204,010.5 113.2 7,860.8 (3,452.5)5,917.8 (587.3)13,862.5 455.8 14,318.3 383.5 
Net income— — — — 761.6 — 761.6 34.7 796.3 11.2 
Other comprehensive income— — — — — 182.8 182.8 — 182.8 — 
Change in noncontrolling interests in consolidated entities, net— — — — — — — (43.4)(43.4)(182.9)
Issuance of shares— — — — — 
Dividends declared - preferred ($59.00 per share)— — — — (236.8)— (236.8)— (236.8)— 
Dividends declared - common ($0.78 per share)— — — — (357.6)— (357.6)— (357.6)— 
Employee common share plans:
Common share-based compensation— — 188.5 — — — 188.5 — 188.5 — 
Vested common shares— — (227.3)227.3 — — — — — 
Other common share awards— — (10.6)18.5 — — 7.9 — 7.9 — 
Purchase of common shares— — — (47.1)— — (47.1)— (47.1)— 
December 31, 20204,010.5 113.2 7,811.4 (3,253.8)6,085.0 (404.5)14,361.8 447.1 14,808.9 211.8 

See accompanying notes.

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Invesco Ltd.
Consolidated Statements of Changes in Equity (continued)
Equity Attributable to Invesco Ltd.
$ in millions, except per share dataPreferred SharesCommon SharesAdditional Paid-in-CapitalTreasury SharesRetained EarningsAccumulated Other Comprehensive IncomeTotal Equity Attributable to Invesco Ltd.Nonredeemable Noncontrolling Interests in Consolidated EntitiesTotal Permanent EquityRedeemable Noncontrolling Interests in Consolidated Entities/Temporary Equity
January 1, 201998.1 6,334.8 (3,003.6)5,884.5 (735.0)8,578.8 357.4 8,936.2 396.2 
Net income— — — — 688.3 — 688.3 9.5 697.8 40.0 
Other comprehensive income— — — — — 147.7 147.7 — 147.7 — 
Change in noncontrolling interests in consolidated entities, net— — — — — — — 88.9 88.9 (52.7)
Issuance of shares4,010.5 15.1 1,438.2 — — — 5,463.8 — 5,463.8 — 
Dividends declared - preferred ($30.81 per
share)
— — — — (123.6)— (123.6)— (123.6)— 
Dividends declared - common ($1.23 per share)— — — — (531.4)— (531.4)— (531.4)— 
Employee common share plans:
Common share-based compensation— — 207.5 — — — 207.5 — 207.5 — 
Vested common shares— — (118.3)207.0 — — 88.7 — 88.7 — 
Other common share awards— — (1.4)8.9 — — 7.5 — 7.5 — 
Purchase of common shares— — — (664.8)— — (664.8)— (664.8)— 
December 31, 20194,010.5 113.2 7,860.8 (3,452.5)5,917.8 (587.3)13,862.5 455.8 14,318.3 383.5 

See accompanying notes.
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Invesco Ltd.
Consolidated Statements of Changes in Equity (continued)
Equity Attributable to Invesco Ltd.
$ in millions, except per share dataCommon SharesAdditional Paid-in-CapitalTreasury SharesRetained EarningsAccumulated Other Comprehensive IncomeTotal Equity Attributable to Invesco Ltd.Nonredeemable Noncontrolling Interests in Consolidated EntitiesTotal Permanent EquityRedeemable Noncontrolling Interests in Consolidated Entities/Temporary Equity
January 1, 201898.1 6,282.0 (2,781.9)5,489.1 (391.2)8,696.1 259.5 8,955.6 243.2 
Adjustment for adoption of ASU 2016-01— — — 3.2 (3.2)— — — 
January 1, 2018, as adjusted98.1 6,282.0 (2,781.9)5,492.3 (394.4)8,696.1 259.5 8,955.6 243.2 
Net income— — — 882.8 — 882.8 28.3 911.1 (28.0)
Other comprehensive income (loss)— — — — (340.6)(340.6)— (340.6)— 
Change in noncontrolling interests in consolidated entities, net— — — — — — 69.6 69.6 181.0 
Dividends declared - common ($1.19 per share)— — — (490.6)— (490.6)— (490.6)— 
Employee common share plans:
Common share-based compensation— 172.4 — — — 172.4 — 172.4 — 
Vested common shares— (120.6)120.6 — — — — — 
Other common share awards— 1.0 6.6 — — 7.6 — 7.6 — 
Purchase of common shares— — (348.9)— — (348.9)— (348.9)— 
December 31, 201898.1 6,334.8 (3,003.6)5,884.5 (735.0)8,578.8 357.4 8,936.2 396.2 

See accompanying notes.


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Invesco Ltd.
Notes to the Consolidated Financial Statements

1.  ACCOUNTING POLICIES

Corporate Information

Invesco Ltd. (Parent) and all of its consolidated entities (collectively, the company or Invesco) provide retail and institutional clients with an array of global investment management capabilities. The company operates globally and its sole business is investment management.

Accounting Pronouncements Recently Adopted

Financial Instruments. On January 1, 2020, the company adopted Accounting Standard Update 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments” (ASU 2016-13) using the modified retrospective approach. ASU 2016-13 amends guidance related to reporting credit losses for financial assets measured at amortized cost and available for sale securities and adds an impairment model that is based on expected losses rather than incurred losses. Under the modified retrospective approach, entities are required to report any effect from adoption as a cumulative effect adjustment to retained earnings at the adoption date. The company has determined that there is no material impact upon adoption of this amendment.
Goodwill. On January 1, 2020, the company adopted Accounting Standards Update 2017-04, “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment” (ASU 2017-04), which revised the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The company has adopted ASU 2017-04 using a prospective approach. In the event a reporting unit’s carrying amount exceeds fair value, the amount of impairment will equal the excess carrying value, not to exceed the total amount of goodwill allocated to the reporting unit. To the extent carrying amount exceeds fair value in a future goodwill impairment test, the amendment could change the amount of impairment expense the company records.
Cloud Computing Arrangements. On January 1, 2020, the company adopted Accounting Standards Update 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract” (ASU 2018-15), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The company has adopted ASU 2018-15 using a prospective approach to all implementation costs incurred after adoption. The company has determined that there is no material impact upon adoption of this standard.
Pending Accounting Pronouncements

Income Taxes. In December of 2019, the FASB issued Accounting Standards Update 2019-12, “Simplifying Accounting for Income Taxes” (ASU 2019-12). The standard is intended to simplify various aspects related to income taxes and removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The company has determined that there will be no material impact upon adoption of this amendment.

Basis of Accounting and Consolidation

The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and with rules and regulations of the Securities and Exchange Commission and consolidate the financial statements of the Parent and all of its controlled subsidiaries. In the opinion of management, the Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair presentation of the financial condition and results of operations for the periods presented. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation.

The company provides investment management services to, and has transactions with, various retail mutual funds and similar entities, private equity funds, real estate funds, fund-of-funds, collateralized loan obligations (CLOs), and other investment products sponsored by the company in the normal course of business for the investment of client assets. The company serves as the investment manager, making day-to-day investment decisions concerning the assets of these products.

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In addition to consolidating the financial statements of the Parent and all of its controlled subsidiaries, the Consolidated Financial Statements include the consolidation of certain investment products (Consolidated Investment Products or CIP) that meet the definition of either a voting rights entity (VOE), if the company is deemed to have a controlling financial interest in the fund, or a variable interest entity (VIE), if the company has been deemed to be the primary beneficiary of the fund.

Certain of these investment products, typically CLOs, funds that are structured as partnership entities (such as private equity funds, real estate funds and fund-of-funds) and certain non-U.S. mutual funds, are considered, for accounting and consolidation analysis purposes, to be VIEs if the VIE criteria are met. A VIE, in the context of the company and its managed funds, is a fund that does not have sufficient equity to finance its operations without additional subordinated financial support, or a fund for which the risks and rewards of ownership are not directly linked to voting interests. If the company is deemed to have the power to direct the activities of the fund that most significantly impact the fund's economic performance, and the obligation to absorb losses/right to receive benefits from the fund that could potentially be significant to the fund, then the company is deemed to be the fund's primary beneficiary and is required to consolidate the fund.

The company's economic risk with respect to each investment in a CIP is limited to its equity ownership and any uncollected management and performance fees. See Note 21, "Consolidated Investment Products," for additional information regarding the impact of CIP.

Consolidation Analysis

The company inventories its funds by vehicle type on a quarterly basis. The company assesses modifi