Andrew Schlossberg
Senior Managing Director, Head of Americas at Invesco
Thank you, Greg, and good morning to everyone. I'm pleased to be speaking with you today. Economic conditions remained relatively resilient in the first quarter, and even though this diminished expectations for central bank cuts this year, equity markets continued to rise. The S&P 500 gained 10% during the quarter, again making it the best performing major equity index. As the quarter progressed, market breadth began to improve, though gains in large-cap growth and tech stocks continued to significantly lead the U.S. equity market rally. More modest growth was recorded in developed markets outside of the U.S. In China, markets continue to lag, but economic indicators and sentiment are showing some signs of a bottoming. Fixed income markets were generally weak this quarter, with prices dropping as Fed expectations changed.
During the quarter, we continued to see increasing client demand overall. We delivered $6.3 billion in net long-term inflows for an organic growth rate of 2.2%. Organic flow growth and signs of improving sentiment drove markets and assets levels higher again this quarter at Invesco, and we ended the period with nearly $1.7 trillion in assets under management. Our resulting net revenue and adjusted operating income were up 1% and 7%, respectively, from Q4 levels, which reflects where we saw growth against our diversified asset mix profile. We remain optimistic that with increasing market clarity, a broadening of market participation will continue to take hold and investor appetite for more duration, risk-on, and global-oriented assets will increase. We are well positioned to benefit across our business in this type of environment.
Now, moving on to page 3 of the presentation and against this market backdrop. We highlight results in each of our investment capabilities. You'll note that these categories align with those presented in conjunction with our net revenue yield and portfolio migration disclosures, which we've been highlighting the last several quarters, and Allison will expand on later in her comments. We are aligning disclosures in the way we speak about our business to present a more holistic and consistent view that encompasses all of our investment capabilities. And though each of these areas of our business is in a different part of its lifecycle with different trajectories, these are the capabilities where we have invested resources and had conviction about the market and our position within it. The objective of our enhanced disclosure is to foster a better understanding of various components of our investment capabilities and their performance and potential in order to drive a clear view of Invesco as a whole, our advantages in the market, and our plans to drive profitable growth.
Now turning to a deeper look into Q1 across each of these capabilities. An ongoing key driver of our strong organic flow growth is our ETF and Index platform. During the quarter, we continued to gain market share, recording $11.2 billion in net long-term flows, representing a 12% annual organic growth rate. This was one of our best flow quarters to date as we hit a record high of nearly $400 billion in long-term AUM growth. This quarter was led by our equity innovation suite, notably our fund QQQM. This innovative product leverages our QQQ popularity, but with this fund, we earn a direct fee on this product instead of significant marketing benefits. In a relatively short time, it has become our third largest ETF in our product suite outside of the QQQ. Additionally, we continue to expand and leverage our active investment teams into our ETF and Index franchise. Our U.S. listed ETF strategies incorporating our active teams now exceed $25 billion in AUM across over 25 products and multiple asset classes. The advantages of ETFs in both passive and active formats remain a focus for Invesco and our clients.
Shifting to fixed income, we continue to believe that as investors gain greater clarity on inflation and central bank interest rate policy, they'll move out of cash and extend their duration profiles of their fixed income allocations into a wider range of strategies. Though this anticipated shift may be more protracted given the mixed economic signals of late, we're beginning to see green shoots, and we're well positioned across the risk and duration fixed income asset classes to capture flows. We did see continued momentum into fundamental fixed income with $1.1 billion of net long-term flows in the first quarter, or nearly a 2% annual organic growth rate. Leading drivers included investment-grade strategies delivered through our institutional channels as well as municipal bond strategies delivered through our mutual fund and SMA platforms.
Beyond our fundamental fixed income capabilities, an additional $2.1 billion of assets flowed into our fixed income related ETF and index strategies. Important to our fixed income demand story is our rapidly expanding retail SMA offering, which is one of the fastest growing in the industry with an annual organic growth rate of 24% and nearly $23 billion in AUM. We're starting to see extension of duration with our top-selling SMA this quarter being the intermediate tax-exempt strategy, and we're seeing growing interest in our intermediate taxable investment-grade strategies as well. We are well positioned to continue to grow our retail SMA platform to support the client demand for this vehicle delivery structure, especially within the U.S. wealth intermediary market. We have a long-dated and established track record on our SMA platform that represents not only fixed income but also traditional active equity and custom equity index SMAs. We see a lot of opportunity in this space, and we look forward to continuing to share our progress with you.
Moving on to private markets. We maintained momentum into the first quarter with net long-term flows of $1 billion, driven by inflows in our credit strategies, notably bank loans. We also saw modest positive flows into direct real estate, primarily driven by INCREF, which is our non-exchange traded REIT focused on the private real estate debt markets, which has had good momentum in the wealth advisory space since its launch last year. Additionally, it's important to note that our real estate team has $6 billion of dry powder to capitalize on opportunities emerging from the market dislocation of the last several quarters, but greater market clarity is going to be required before we can begin to see significant return of demand and growth.
Moving on to our Asia Pacific managed assets. Despite overall client sentiment in China remaining relatively weak, we did generate modest positive net long-term flows in our China JV, driven by equities, particularly in our fast-growing ETF lineup. This was augmented by the launch of four new products, and we continue to believe that some early signs of recovery in China could bode well for a more constructive market as 2024 progresses. We maintain our conviction in this market and our leading position within it as the asset management industry matures with the development of local retirement and capital market systems in the world's second largest economy.
Beyond China, we also saw net inflows in our India business. We recently announced a joint venture with a leading Indian company for our funds business in that market. This partnership with the Hinduja Group will enable us to continue to expand our distribution to serve more domestic investors in the Indian market. In our multi-asset and other related capabilities, we also generated net inflows led by our quantitative equity strategies, which were offset by outflows of remaining assets in our GTR capability in the U.K., which we decided to close last year.
Finally, the relative pressure on fundamental equity flows continued. However, as I pointed out previously, we've seen some moderation in certain areas of active equity flows, particularly in the global, international, and emerging market segments. Our net outflows in these strategies have moderated during the past several quarters to $1 billion to $2 billion per quarter, markedly lower than the 2022 quarterly peak outflows of $6 billion. One notable standout in our fundamental equity flows was in our Global Equity and Income strategy, which is among the top selling active retail funds in the growing Japanese market. This fund delivered an incremental $1.2 billion of net flows in the first quarter, and its AUM has nearly tripled in the past year.
Overall, our asset flows in the first quarter continue to demonstrate the breadth of capabilities that we offer to serve our clients' diverse needs and perform through various market cycles. We believe that this positions us well in front of the rapid evolution underway in our industry. Our team remains focused on the value drivers that we believe create a competitive advantage to deliver sustained, strong asset flows, notably investment quality, product breadth and differentiation, and exceptional client engagement.
So, moving on to slide 4, investment performance, which is always a top priority of our firm and is displayed on this slide. We're showing overall results relative to benchmarks and peers, as well as our performance in key capabilities, where information is readily comparable and more meaningful to driving company outcomes. Overall, investment performance was solid in the first quarter on a one, three, and five-year basis, 66%, 64%, and 75%, respectively, of our AUM is beating its benchmark and around 70% of our AUM is in the top half of peers across all periods. We also have a significant number of funds that are now in the top quartile of performance, with 46% hitting that mark on a five-year basis, which is a considerable improvement over the last several quarters. We continue to have excellent fixed income performance across nearly all capabilities and time horizons, supporting our strong conviction in our ability to attract flows as investors deploy money into these strategies. 92% of our fundamental fixed income capabilities are beating their benchmark with 68% in the top quartile on a five-year basis. Fundamental equity's three- and five-year performance has improved meaningfully over the past year, with 56% in the top half of peers on a three-year basis and 52% over five years. We've seen strengthening results across many of our domestic and global equity strategies as well.
So hopefully, you find this more streamlined approach to discussing our results, our investment capabilities, and investment performance more straightforward and useful as you think about Invesco and its potential. As we continue to simplify and focus our business, we are also tightening our financial discipline, which will enable the allocation of resources to drive innovation and growth in our investment capabilities.
With that, I'm going to turn the call over to Allison to discuss our financial results for the quarter and I look forward to your questions.