Allison Dukes
Chief Financial Officer at Invesco
Thank you, Andrew. And good morning, everyone. I'll start with Slide 4. Overall, investment performance improved in the first quarter with 64% of actively managed funds in the top half of peers or beating benchmark on both a three-year and a five-year basis, up from 61% and 63% in the fourth quarter. We have strong performance strength in fixed income and balanced strategies for their solid client demand. Performance lacked benchmark and certain U.S. equity strategies, but performance is trending positively and a number of global equity and alternative strategies.
Turning to Slide 5. We ended the first quarter with $1.48 trillion in AUM, an increase of $74 billion as compared to the last quarter as most market indices posted gains despite continued volatility. Market increases, foreign exchange movement, and reinvested dividends increased assets under management by $65 billion. Total net inflows were $9 billion, inclusive of $8 billion into money market products. I'm pleased to note a return to organic growth as we generated $2.9 billion in net long-term inflows in the first quarter.
The improvement in net flows, given the ongoing uncertainty in financial markets, further demonstrates the diverse nature of our business mix and should once again place Invesco among the best-performing asset managers in terms of organic growth. Asset capabilities generated net inflows of $5.4 billion while net redemptions and active strategies moderated with net long-term outflows of $2.5 billion in the first quarter as compared to $10.5 million in the fourth quarter of last year. Key capability areas, including ETFs, fixed income, and the institutional channel, all contributed to our growth this quarter.
Invesco ETF generated $2.8 billion of net long-term inflows in the first quarter, equivalent to a 4% annualized organic growth rate. Volumes have been down across the ETF industry from the record highs experienced in the first quarter of 2021 through the first quarter of 2022. But as Marty noted, our ETF business has now been in net inflows for 10 out of the past 11 quarters. The NASDAQ 100 QQQM was one of our top-selling ETFs this quarter and has now grown to over $8 billion in AUM since its launch in late 2020. We also saw strong flows into our S&P 500 Equal Weight and BulletShares corporate bond ETF.
Partially offsetting growth in equity and fixed income ETFs were $2.5 billion of net outflows and currency and commodity ETFs, which are included in our alternative asset class. We experienced net outflows of $3.7 billion in the retail channel during the first quarter. Net flows were roughly breakeven in EMEA, while Asia-Pacific and the Americas were both in net outflows. As Marty highlighted at the top of the call, the institutional channel garnered net inflows for the 14th straight quarter to $6.6 billion. We were net inflows in all three of our global regions and growth accelerated to 7% on an annualized basis.
After several quarters of strength in institutional fixed income, equity mandates were responsible for our largest fundings in the first quarter. Advancing to Slide 6, net flows by geography improved as compared to last quarter and turned positive for the quarter in both Americas and EMEA. This was mainly due to slower redemptions in the retail channel as well as the funding of several institutional mandates. Net flows were breakeven in Asia-Pacific and net outflows in our China joint venture were offset by growth in Japan and our Hong Kong institutional business. Looking at flows by asset class, net outflows and active equity strategies improved in the first quarter, led by moderating of redemptions in our global equity capabilities.
Net outflows in global equity strategies were $2.5 billion in the first quarter, including $1.2 billion from our developing markets funds, compared to $6 billion of net long-term outflows in the fourth quarter, which included $3.1 billion of outflows from developing markets. Fixed income capabilities garnered $2.5 billion in net long-term inflows despite higher redemptions in Chinese fixed income products that Marty spoke of earlier. Growth in fixed income this quarter spanned both taxable and tax exempt offerings as well as the full range of vehicle types, including mutual funds, ETFs and SMA. This reflects the breadth and depth of our global fixed income franchise, and we see opportunity in this asset class over the remainder of this year.
Alternatives experienced net outflows of $3 billion in the first quarter. Private markets net inflows were $600 million, driven by the launch of three CLOs that raised $1.5 billion in aggregate and direct real estate net inflows of $600 million. Offsetting growth in these areas of private markets were net outflows in bank loan strategies. Currency and commodity ETF net outflows, as I mentioned earlier, were the primary driver of alternative net outflow. I'd like to take a moment to highlight our direct real estate portfolio, which had $73 billion of assets under management as of March 31.
Through our real estate business, we offer the full range of investment styles across the risk-return spectrum, and we invest primarily in real estate equity. We also invest in real estate debt, which comprises less than 10% of our global real estate portfolio. Our direct real estate holdings are well diversified by property type. Commercial office properties comprise about one-third of our assets under management. Apartment and other residential properties account for nearly one quarter and industrial properties about one-fiffth. The remaining 20% of our properties span retail and specialty sectors, including mixed-use development, self-storage and medical.
Finally, we are diversified by geography within each property type. By total asset value, 40% of our office holdings are in EMEA and Asia-Pacific where the market dynamics affecting demand for office space are significantly different than those in the United States and because the adoption of remote working model is much lower outside the U.S. Several of our direct real estate funds use leverage but were measured in our approach and the average loan-to-value across our direct real estate funds was approximately 30% as of December 31. These figures may fluctuate over time, and they vary across specific funds.
As Marty mentioned earlier, real estate transaction activity slowed during the first quarter and we would expect activity to be muted over the balance of the year until markets find more stable footing. Longer term, we expect private markets and more specifically, direct real estate and private credit to be a driver of growth and we are in a strong position to capture that demand. And now moving to Slide 7. Our institutional pipeline was $22.1 billion at quarter end, a decrease from $30 billion last quarter. We had good pull through from our pipeline in the first quarter, which contributed to $6.6 billion of net long-term input.
Our pipeline has been running in the mid-20 to mid-$30 billion range dating back to late 2019. So this is on the lower end of that range, but we view this pipeline as strong given the market environment and the significant fundings that took place in the first quarter. As we've noted previously, market volatility is causing some mandates to take longer to fund, and we would estimate the funding cycle of our pipeline is running in the three to four quarter range versus the two to three quarters prior to the market downturn. Our solutions capability enabled 14% of the global institutional pipeline as of the first quarter as well as several of the mandates that funded recently.
We embed solutions into our client interactions, and we have ongoing engagement about new opportunities. The pipeline reflects a diverse business mix but has helped Invesco sustain organic growth in institutional for more than three years now. Turning to Slide 8. Net revenue of $1.08 billion in the first quarter was $32 million or 3% lower than the fourth quarter and $176 million or 14% lower than the first quarter of last year. The decline from last quarter was mainly attributable to a seasonal decrease in performance fees which were $50 million lower and two fewer days in the first quarter, which accounted for nearly $25 million in lower net revenue.
This was partially offset by higher investment management fees of $25 million. The decline from the first quarter of last year was due largely to lower investment management fees driven by lower AUM levels. Total adjusted operating expenses in the first quarter were $749 million, $20 million lower than the prior quarter and $9 million lower than the first quarter of 2022. Compensation expense increased by $12 million as compared to the fourth quarter as seasonally higher payroll taxes and benefits were largely offset by the lower incentive compensation paid on performance fees.
Included in compensation expense this quarter is $13 million of costs related to executive retirements and other organizational changes. We expect to recognize approximately $20 million of additional costs related to executive retirement in the second quarter. As we discussed, we managed variable compensation to a full year outcome in line with company performance and competitive industry practices. Historically, our compensation to net revenue ratio has been in the 38% to 42% range, trending towards the upper end of that range and periods of revenue decline.
At current AUM levels, we would expect the ratio to continue to trend towards the higher end of that range for 2023 when excluding the cost pertaining to executive retirement. Marketing expenses of $28 million were $6 million lower than the prior quarter, coming off the seasonal highs we typically see in fourth quarter. Marketing expenses were modestly higher than the same quarter last year by $2 million. Property, office, and technology expenses were $5 million lower than last quarter, primarily due to lower software costs and $2 million of property decommissioning associated with our Atlanta move that did not occur.
On that note, I'm happy to share that we are speaking to you from our new global headquarters in Midtown Atlanta as we completed our move earlier this month. G&A expenses of $95 million were $21 million lower than the prior quarter partly due to lower third-party spend on technology projects. As we discussed previously, we continue to invest in foundational technology programs that will enable future scale. These expenses span G&A and property office and technology expenses and spends may fluctuate from period to period. In the first quarter, we also benefited from $10 million in indirect tax credits.
We do not anticipate these tax credits will recur at these levels going forward. We maintain an extremely disciplined approach to expense management and are focusing hiring and investment in the key capability areas that are driving our growth. As Marty and I have discussed previously, optimizing resource allocation to efficiently drive growth has and will continue to be a top priority for the organization. Now moving to Slide 9. Adjusted operating income was $327 million in the first quarter, $12 million lower than the prior quarter due to lower net revenue, partially offset by lower operating expenses.
Adjusted operating margin was 30.4% broadly in line with 30.6% in the fourth quarter, but lower than the 39.5% a year ago prior to significant market declines. Excluding $13 million of costs related to retirement and other organizational changes, first quarter operating margin would have been 31.6%, an increase of 100 basis points as compared to last quarter. Earnings per share of $0.38 was $0.01 lower than prior quarter and $0.18 lower than the first quarter of '22.
Excluding these expenses related to executive retirements and other organizational changes in the first quarter would add $0.02 to earnings per share. The effective tax rate was 24.1% in the first quarter, lower than 26.9% in the prior quarter, primarily due to nonoperating gains on seed money investments and lower tax jurisdictions. We estimate our non-GAAP effective tax rate to be between 23% and 25% for the second quarter of this year. The actual effective rate may vary from this estimate due to the impact of non-recurring items on pretax income and discrete tax items.
I'll wrap up on Slide 10. As you heard earlier from Marty and Andrew, building balance sheet strength remains a critical priority. We're making steady progress and total debt of $1.5 billion is at its lowest level in more than a decade. We ended the quarter with $889 million of cash and cash equivalents and 0 borrowing on our credit facility. The first quarter is typically a period of seasonally higher cash fees, and we anticipate building cash in the coming quarters.
Our leverage ratio, as defined under our credit facility agreement was 0.8 times at the end of the first quarter, in line with both last quarter and the first quarter of 2022. If preferred stock is included, our fourth quarter leverage ratio was 3.4 times. As highlighted earlier, we're pleased to note that our board approved a 7% increase in our quarterly common dividend to $0.20 per share, effective this quarter. This reflects the strength of our balance sheet, cash position and stable cash flows despite the uncertain markets we have been facing.
We also renewed our credit facility for another five years with favorable terms as well as increasing the capacity of the facility from $1.5 billion to $2 billion. This builds additional flexibility for managing our balance sheet as we prepare to redeem the $600 million senior note maturing in January of 2024. Markets have remained volatile thus far in '23. There have also been signs that a modest recovery could be on the horizon. Overall, I'm pleased with the progress we made this quarter, returning to organic growth, tightly managing expenses and methodically building balance sheet strength.
Our firm has successfully navigated market volatility in the past. We're poised to emerge stronger in a market recovery and capitalize on future growth opportunities where they emerge. There's a lot of hard work ahead of us, and I'm excited to partner with Marty, Andrew and the executive team as we lead Invesco into a new era. And with that, we'll ask the operator to open up the line to Q&A.
