SEC Company Response from Invesco Ltd. (IVZ) (CIK 0000914208) (IVZ) — Sep 13, 2013
Invesco Ltd. (IVZ) (CIK 0000914208)
Date: Sept. 13, 2013 · CIK: 0000914208 · Accession: 0000914208-13-000494
AI Filing Summary & Sentiment
Letter
Division of Corporation Finance Securities and Exchange Commission Washington, D.C. 20549 Invesco Ltd. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2012 FILE NUMBER: 1-13908
Dear Mr. West:
This letter sets forth the responses of Invesco Ltd. (the “Company”) to your comment letter, dated July 31, 2013, relating to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Form 10-K”) of the Company, filed with the Securities and Exchange Commission (the “Commission” or the “SEC”) on February 22, 2013.
The Company is filing, via EDGAR, this letter setting forth the Company's responses to the Commission's comments regarding the above filing. Enclosed as well are two hard copies of the Company's response letter. We have included your original questions in italics in addition to providing our responses.
The Company acknowledges that:
•
the Company is responsible for the adequacy and accuracy of the disclosure in its filings;
•
Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and
•
the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
September 13, 2013
Mr. Hugh West
Page 2
Item 1A. Risk Factors, page 10
We operate in an industry that is highly regulated . . . , page 12
1.
Please revise future filings, where appropriate, to identify your primary regulators. Also, disclose your minimum capital requirements, such as those mentioned in the second paragraph of this risk factor and the second paragraph on page 21.
Response to Comment 1
In future Form 10-K filings, the Company will provide additional disclosure identifying our primary regulators. At December 31, 2012, our minimum net capital requirements aggregated to approximately $315 million. The Company will also include our minimum net capital requirements in future Form 10-K filings and will update this disclosure in its future forms 10-Q if there are significant changes to the amount.
Changes in the distribution channels on which we depend . . . , page 16
2.
Please revise future filings to quantify the “significant portion” of your investment products that are sold through financial intermediaries, mentioned in the first sentence of this risk factor. Also, identify any “major distributors” who are considered material to the company.
Response to Comment 2
In future Form 10-K filings, the Company will revise its disclosure to indicate that substantially all of our retail investment products are distributed through third-party financial intermediaries, including traditional broker-dealers, fund "supermarkets," retirement platforms, financial advisors, banks, insurance companies and trust companies. No single one of these intermediaries is material to our business. Our institutional investment products are not typically sold through intermediaries or third parties, and instead are distributed through internal regional sales forces directly to clients around the world.
Bermuda law differs from the laws in effect in the United States, page 18
3.
Please revise future filings to discuss any risks associated with the enforcement of civil liabilities under United States federal securities laws and to describe the “limited circumstances” in which shareholders have rights to take action against directors or officers of the company under Bermuda law.
Response to Comment 3
In future Form 10-K filings, the Company will revise the disclosure to discuss risks associated with the enforcement of civil liabilities under United States federal securities laws and to describe the limited circumstances in which shareholders have rights to take action against directors or officers of the company under Bermuda law.
September 13, 2013
Mr. Hugh West
Page 3
We have anti-takeover provisions . . . , page 18
4.
Please revise future filings to describe the anti-takeover provisions in your Bye-laws.
Response to Comment 4
In future Form 10-K filings, the Company will revise the disclosure to describe the anti-takeover provisions in our Bye-laws.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 23
Assets Under Management, page 27
5.
We note you present your assets under management (AUM) by channel, asset class, and client domicile and the average mix of active and passive AUM for the last three fiscal years in the tables provided on pages 30 through 35. We also note your discussion beginning on page 38 that investment management fees for products offered in the retail distribution channel are generally calculated as a percentage of the daily average asset balances, and for products offered in the institutional and private wealth management distribution channel, fees also vary in relation to the level of client assets managed. Finally, we note that retail products offered outside of the U.S. do not generate a separate distribution fee, as the quoted management fee rate is inclusive of these products. In an effort to provide more transparent disclosures regarding trends in investment management fees, please revise the tables referred to above to include your average AUM by channel, asset class and client domicile.
Response to Comment 5
In future filings, beginning with our next Form 10-Q, the Company will disclose average AUM by asset class, a disclosure which will be more consistent with industry peers. Note that we calculate average AUM using daily averages for the AUM from which the related revenue is calculated as a percentage of average daily AUM, such as mutual fund-type investment products offered to retail investors. (Retail AUM arises from client investments into funds available to the public with shares or units). Our total average AUM calculation also consists of monthly averages for institutional AUM, as the related institutional revenue is generally calculated using end-of-period AUM balances as its basis. (Institutional AUM originates from individual corporate clients, endowments, foundations, government authorities, universities, or charities). We believe the level of precision in a daily average AUM calculation, where appropriate, is useful and more closely aligned to the related management fee revenue, and we desire to be consistent in our use of daily average AUM in any other disclosures requiring average AUM that we plan to use. Currently, we are able to provide an average AUM disclosure utilizing daily average AUM, where applicable, by asset class. Unfortunately, due to our AUM reporting system limitations, we do not currently consolidate daily average AUM by distribution channel or client domicile, and we are therefore unable to disclose these average AUM amounts.
Our AUM reporting infrastructure is maintained in a separate and distinct system from our general ledger. Investment management fee information, on the other hand, is recorded directly into our general ledger system. We have built internal controls to assess the accuracy of revenue data that we receive from external systems, such as transfer agency systems, which is then input into our general ledger for purposes of recording
September 13, 2013
Mr. Hugh West
Page 4
our management fees. Retail management fees, for example, are calculated in the transfer agency systems, on a product-by-product basis, as a percentage of the daily average AUM balances. The fee information is then loaded into our general ledger; the AUM information is not.
It should be noted that our current AUM disclosure of rollforward activity and ending balances by distribution channel presents consolidated and reported AUM by type of sales team (our internal distribution channels). In other words, AUM amounts disclosed as retail channel AUM represents AUM distributed by our retail sales team; whereas AUM amounts disclosed as institutional channel AUM represents AUM distributed by our institutional sales team. This has traditionally been a good proxy for capturing AUM by retail or institutional vehicle type. Since 2005, when we adopted our strategy to become an integrated global asset manager, one of the steps we took to unify our business and present the organization as a single firm to our clients around the world included increased efforts to cross-sell our investment capabilities globally and better integrate our sales forces. As a result, our retail and institutional sales forces are able to sell products that cross over traditional delineations of retail or institutional vehicle types. Therefore, not all products sold in the disclosed retail distribution channel are "retail" products, and not all products sold in the disclosed institutional channel are "institutional" products. This evolution has led the Company to review its AUM disclosures and to contemplate alternative AUM presentations.
In summary, we have built an AUM reporting infrastructure that can produce average daily AUM by asset class. As discussed above, we are currently reviewing our distribution channel AUM reporting framework. We are also reviewing the automation of data that would allow us to consolidate daily average AUM, where applicable, for the client domicile AUM breakout. At this time, therefore, we propose not to include disclosure of average AUM by these categories in our filings until we complete our analysis.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk, page 67
AUM Market Price Risk, page 67
6.
We note your disclosure, as it relates to market risk, that declines in equity or fixed income security market prices could cause revenues to decline. Please expand your disclosure to include a sensitivity analysis that demonstrates the impact that changes in the fair value of your managed assets could have on your results of operations (e.g. revenues and net income, etc.).
Response to Comment 6
We derive substantially all of 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, including price declines in the securities markets generally, price declines in the market segments in which those assets are concentrated, or by the strengthening of the U.S. dollar relative to the foreign currencies in which our foreign AUM is denominated. Declines in the market value of the assets in the funds and accounts managed would decrease AUM (and therefore revenues). For any period in which revenues decline, our operating margin and net income may decline by a greater proportion because certain expenses remain fixed. Approximately 43% of our total AUM were invested in equity securities and approximately 57% were invested in fixed income and other investments at December 31, 2012. We cannot predict whether volatility in the markets will result in substantial or sustained declines in
September 13, 2013
Mr. Hugh West
Page 5
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 our revenues, income and operating margin.
In future Form 10-K filings, the Company will expand the disclosure to include a sensitivity analysis that demonstrates the impact that changes in the fair value of our managed assets could have on our results of operations. Such sample additional disclosure is presented in italics below:
Assuming the revenue yield on AUM for the year remains unchanged, a 20% 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.
Securities Market Risk, page 67
7.
We note you disclose the carrying value of financial instruments carried at fair value if the fair value were to increase or decrease by 20%. Please revise this disclosure in your future filings to also disclose the potential impact of the 20% increase and decrease on future earnings.
Response to Comment 7
In future Form 10-K filings, we will expand the disclosure to discuss the potential impact on net income of the increase and decrease in the fair value of financial instruments carried at fair value.
Item 8. Financial Statements and Supplementary Data, page 70
Notes to the Consolidated Financial Statements, page 81
Note 1 - Accounting Policies, page 81
Basis of Accounting and Consolidation, page 81
8.
In future filings, please revise your consolidation policy to provide a more detailed explanation of the process you undertake to assess each of the private equity and real estate funds in which you are the general partner and/or manage through a contract. Clarify, if correct, that you first assessed each private equity and real estate fund to determine whether the fund meets the definition of a variable interest entity (VIE) in accordance with ASC 810-10-15-14. In addition, identify how many of your unconsolidated funds are voting interest entities (VOEs) as opposed to VIEs.
Response to Comment 8
In future Form 10-K filings, the Company will revise the consolidation policy to provide a more detailed explanation of the process for assessing each private equity and real estate fund in which the Company is the general partner or manager. Our disclosure will clarify that we do assess if the partnership meets the definition of a VIE in accordance with ASC 810-10-15-14.
September 13, 2013
Mr. Hugh West
Page 6
We earn fees from providing professional services to thousands of investment products. We inventory our funds by vehicle type before performing a consolidation analysis. Generally, the more complex the fund structure, the more susceptible it is to consolidation, and the more detailed is our consolidation analysis.
The Company has an internal control in place whereby all new funds created from quarter-to-quarter are evaluated for consolidation based upon a variety of factors, including the legal form of the investment vehicle, the management/performance fee structure, and any investment the Company may have in the fund. Certain fund vehicle-types are more susceptible to consolidation due to the combination of these factors. A detailed consolidation evaluation is performed for each new private equity and real estate partnership, for example, due to their more complex structures and the combination of these other factors. This evaluation includes a detailed review of the terms of the fund's governing documents and a comparison of the significant terms against the consolidation criteria in ASC 810, including a determination of whether the fund is a VIE or a VOE.
For those private equity and real estate funds that are determined to be VIEs, the company evaluates the structure of the partnership to determine if it is the primary beneficiary of the investment product. This evaluation includes assessing the rights of the limited partners to transfer their economic interests in the investment product. If the limited partners' lack rights to manage their economic interests, they are considered to be de facto agents of the company, resulting in the company determining that it is the primary beneficiary of the investment product. Non-VIE general partnership investments are deemed to be controlled by the company and are consolidated under a VOE model, if material, unless the limited partners (i) have the substantive ability to remove the
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CORRESP 1 filename1.htm 2012 10-K Response Round 1 September 13, 2013 VIA EXPRESS DELIVERY AND EDGAR Mr. Hugh West Accounting Branch Chief Division of Corporation Finance Securities and Exchange Commission 100 F Street N.E. Washington, D.C. 20549 Invesco Ltd. FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2012 FILE NUMBER: 1-13908 Dear Mr. West: This letter sets forth the responses of Invesco Ltd. (the “Company”) to your comment letter, dated July 31, 2013, relating to the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “Form 10-K”) of the Company, filed with the Securities and Exchange Commission (the “Commission” or the “SEC”) on February 22, 2013. The Company is filing, via EDGAR, this letter setting forth the Company's responses to the Commission's comments regarding the above filing. Enclosed as well are two hard copies of the Company's response letter. We have included your original questions in italics in addition to providing our responses. The Company acknowledges that: • the Company is responsible for the adequacy and accuracy of the disclosure in its filings; • Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and • the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. September 13, 2013 Mr. Hugh West Page 2 Item 1A. Risk Factors, page 10 We operate in an industry that is highly regulated . . . , page 12 1. Please revise future filings, where appropriate, to identify your primary regulators. Also, disclose your minimum capital requirements, such as those mentioned in the second paragraph of this risk factor and the second paragraph on page 21. Response to Comment 1 In future Form 10-K filings, the Company will provide additional disclosure identifying our primary regulators. At December 31, 2012, our minimum net capital requirements aggregated to approximately $315 million. The Company will also include our minimum net capital requirements in future Form 10-K filings and will update this disclosure in its future forms 10-Q if there are significant changes to the amount. Changes in the distribution channels on which we depend . . . , page 16 2. Please revise future filings to quantify the “significant portion” of your investment products that are sold through financial intermediaries, mentioned in the first sentence of this risk factor. Also, identify any “major distributors” who are considered material to the company. Response to Comment 2 In future Form 10-K filings, the Company will revise its disclosure to indicate that substantially all of our retail investment products are distributed through third-party financial intermediaries, including traditional broker-dealers, fund "supermarkets," retirement platforms, financial advisors, banks, insurance companies and trust companies. No single one of these intermediaries is material to our business. Our institutional investment products are not typically sold through intermediaries or third parties, and instead are distributed through internal regional sales forces directly to clients around the world. Bermuda law differs from the laws in effect in the United States, page 18 3. Please revise future filings to discuss any risks associated with the enforcement of civil liabilities under United States federal securities laws and to describe the “limited circumstances” in which shareholders have rights to take action against directors or officers of the company under Bermuda law. Response to Comment 3 In future Form 10-K filings, the Company will revise the disclosure to discuss risks associated with the enforcement of civil liabilities under United States federal securities laws and to describe the limited circumstances in which shareholders have rights to take action against directors or officers of the company under Bermuda law. September 13, 2013 Mr. Hugh West Page 3 We have anti-takeover provisions . . . , page 18 4. Please revise future filings to describe the anti-takeover provisions in your Bye-laws. Response to Comment 4 In future Form 10-K filings, the Company will revise the disclosure to describe the anti-takeover provisions in our Bye-laws. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 23 Assets Under Management, page 27 5. We note you present your assets under management (AUM) by channel, asset class, and client domicile and the average mix of active and passive AUM for the last three fiscal years in the tables provided on pages 30 through 35. We also note your discussion beginning on page 38 that investment management fees for products offered in the retail distribution channel are generally calculated as a percentage of the daily average asset balances, and for products offered in the institutional and private wealth management distribution channel, fees also vary in relation to the level of client assets managed. Finally, we note that retail products offered outside of the U.S. do not generate a separate distribution fee, as the quoted management fee rate is inclusive of these products. In an effort to provide more transparent disclosures regarding trends in investment management fees, please revise the tables referred to above to include your average AUM by channel, asset class and client domicile. Response to Comment 5 In future filings, beginning with our next Form 10-Q, the Company will disclose average AUM by asset class, a disclosure which will be more consistent with industry peers. Note that we calculate average AUM using daily averages for the AUM from which the related revenue is calculated as a percentage of average daily AUM, such as mutual fund-type investment products offered to retail investors. (Retail AUM arises from client investments into funds available to the public with shares or units). Our total average AUM calculation also consists of monthly averages for institutional AUM, as the related institutional revenue is generally calculated using end-of-period AUM balances as its basis. (Institutional AUM originates from individual corporate clients, endowments, foundations, government authorities, universities, or charities). We believe the level of precision in a daily average AUM calculation, where appropriate, is useful and more closely aligned to the related management fee revenue, and we desire to be consistent in our use of daily average AUM in any other disclosures requiring average AUM that we plan to use. Currently, we are able to provide an average AUM disclosure utilizing daily average AUM, where applicable, by asset class. Unfortunately, due to our AUM reporting system limitations, we do not currently consolidate daily average AUM by distribution channel or client domicile, and we are therefore unable to disclose these average AUM amounts. Our AUM reporting infrastructure is maintained in a separate and distinct system from our general ledger. Investment management fee information, on the other hand, is recorded directly into our general ledger system. We have built internal controls to assess the accuracy of revenue data that we receive from external systems, such as transfer agency systems, which is then input into our general ledger for purposes of recording September 13, 2013 Mr. Hugh West Page 4 our management fees. Retail management fees, for example, are calculated in the transfer agency systems, on a product-by-product basis, as a percentage of the daily average AUM balances. The fee information is then loaded into our general ledger; the AUM information is not. It should be noted that our current AUM disclosure of rollforward activity and ending balances by distribution channel presents consolidated and reported AUM by type of sales team (our internal distribution channels). In other words, AUM amounts disclosed as retail channel AUM represents AUM distributed by our retail sales team; whereas AUM amounts disclosed as institutional channel AUM represents AUM distributed by our institutional sales team. This has traditionally been a good proxy for capturing AUM by retail or institutional vehicle type. Since 2005, when we adopted our strategy to become an integrated global asset manager, one of the steps we took to unify our business and present the organization as a single firm to our clients around the world included increased efforts to cross-sell our investment capabilities globally and better integrate our sales forces. As a result, our retail and institutional sales forces are able to sell products that cross over traditional delineations of retail or institutional vehicle types. Therefore, not all products sold in the disclosed retail distribution channel are "retail" products, and not all products sold in the disclosed institutional channel are "institutional" products. This evolution has led the Company to review its AUM disclosures and to contemplate alternative AUM presentations. In summary, we have built an AUM reporting infrastructure that can produce average daily AUM by asset class. As discussed above, we are currently reviewing our distribution channel AUM reporting framework. We are also reviewing the automation of data that would allow us to consolidate daily average AUM, where applicable, for the client domicile AUM breakout. At this time, therefore, we propose not to include disclosure of average AUM by these categories in our filings until we complete our analysis. Item 7A. Quantitative and Qualitative Disclosures About Market Risk, page 67 AUM Market Price Risk, page 67 6. We note your disclosure, as it relates to market risk, that declines in equity or fixed income security market prices could cause revenues to decline. Please expand your disclosure to include a sensitivity analysis that demonstrates the impact that changes in the fair value of your managed assets could have on your results of operations (e.g. revenues and net income, etc.). Response to Comment 6 We derive substantially all of 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, including price declines in the securities markets generally, price declines in the market segments in which those assets are concentrated, or by the strengthening of the U.S. dollar relative to the foreign currencies in which our foreign AUM is denominated. Declines in the market value of the assets in the funds and accounts managed would decrease AUM (and therefore revenues). For any period in which revenues decline, our operating margin and net income may decline by a greater proportion because certain expenses remain fixed. Approximately 43% of our total AUM were invested in equity securities and approximately 57% were invested in fixed income and other investments at December 31, 2012. We cannot predict whether volatility in the markets will result in substantial or sustained declines in September 13, 2013 Mr. Hugh West Page 5 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 our revenues, income and operating margin. In future Form 10-K filings, the Company will expand the disclosure to include a sensitivity analysis that demonstrates the impact that changes in the fair value of our managed assets could have on our results of operations. Such sample additional disclosure is presented in italics below: Assuming the revenue yield on AUM for the year remains unchanged, a 20% 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. Securities Market Risk, page 67 7. We note you disclose the carrying value of financial instruments carried at fair value if the fair value were to increase or decrease by 20%. Please revise this disclosure in your future filings to also disclose the potential impact of the 20% increase and decrease on future earnings. Response to Comment 7 In future Form 10-K filings, we will expand the disclosure to discuss the potential impact on net income of the increase and decrease in the fair value of financial instruments carried at fair value. Item 8. Financial Statements and Supplementary Data, page 70 Notes to the Consolidated Financial Statements, page 81 Note 1 - Accounting Policies, page 81 Basis of Accounting and Consolidation, page 81 8. In future filings, please revise your consolidation policy to provide a more detailed explanation of the process you undertake to assess each of the private equity and real estate funds in which you are the general partner and/or manage through a contract. Clarify, if correct, that you first assessed each private equity and real estate fund to determine whether the fund meets the definition of a variable interest entity (VIE) in accordance with ASC 810-10-15-14. In addition, identify how many of your unconsolidated funds are voting interest entities (VOEs) as opposed to VIEs. Response to Comment 8 In future Form 10-K filings, the Company will revise the consolidation policy to provide a more detailed explanation of the process for assessing each private equity and real estate fund in which the Company is the general partner or manager. Our disclosure will clarify that we do assess if the partnership meets the definition of a VIE in accordance with ASC 810-10-15-14. September 13, 2013 Mr. Hugh West Page 6 We earn fees from providing professional services to thousands of investment products. We inventory our funds by vehicle type before performing a consolidation analysis. Generally, the more complex the fund structure, the more susceptible it is to consolidation, and the more detailed is our consolidation analysis. The Company has an internal control in place whereby all new funds created from quarter-to-quarter are evaluated for consolidation based upon a variety of factors, including the legal form of the investment vehicle, the management/performance fee structure, and any investment the Company may have in the fund. Certain fund vehicle-types are more susceptible to consolidation due to the combination of these factors. A detailed consolidation evaluation is performed for each new private equity and real estate partnership, for example, due to their more complex structures and the combination of these other factors. This evaluation includes a detailed review of the terms of the fund's governing documents and a comparison of the significant terms against the consolidation criteria in ASC 810, including a determination of whether the fund is a VIE or a VOE. For those private equity and real estate funds that are determined to be VIEs, the company evaluates the structure of the partnership to determine if it is the primary beneficiary of the investment product. This evaluation includes assessing the rights of the limited partners to transfer their economic interests in the investment product. If the limited partners' lack rights to manage their economic interests, they are considered to be de facto agents of the company, resulting in the company determining that it is the primary beneficiary of the investment product. Non-VIE general partnership investments are deemed to be controlled by the company and are consolidated under a VOE model, if material, unless the limited partners (i) have the substantive ability to remove the