# Invesco Ltd. (IVZ) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Invesco Ltd.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/914208/000091420822000319/ivz-20211231.htm
Accession: 0000914208-22-000319
Filing date: 2022-02-18
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/IVZ/
All MD&A years: /company/IVZ/mda/
Next year: /company/IVZ/mda/fy2022/ (FY 2022)

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 2021 and 2020. For the comparison of 2020 and 2019, see the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the company’s 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 19, 2021. 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.

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 Ltd. and its subsidiaries and the notes thereto contained elsewhere in this Annual Report on Form 10-K.

The table below summarizes the year ended December 31 returns based on price appreciation/(depreciation) of several major market indices for 2021 and 2020:

[[GREPCENT_TABLE]]
[["","","","Year ended December 31,"],["Equity Index","Index expressed in currency","","2021","","2020"],["S&P 500","U.S. Dollar","","26.9%","","16.3%"],["FTSE 100","British Pound","","14.3%","","(14.3)%"],["FTSE 100","U.S. Dollar","","13.3%","","(11.8)%"],["Nikkei 225","Japanese Yen","","4.9%","","16.0%"],["Nikkei 225","U.S. Dollar","","(6.0)%","","22.4%"],["MSCI Emerging Markets","U.S. Dollar","","(4.6)%","","15.8%"],["Bond Index"],["Barclays U.S. Aggregate Bond","U.S. Dollar","","(1.5)%","","7.5%"]]
[[/GREPCENT_TABLE]]

The company’s financial results are impacted by the fluctuations in exchange rates against the U.S. Dollar, as discussed in the “Results of Operations” section below.

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

We remain highly focused on our capital management and believe we are making solid progress in our efforts to build financial flexibility. Our credit facility balance was zero as of December 31, 2021, consistent with our commitment to improve our leverage profile. We fully settled our remaining forward contracts liability of $309 million in the first half of 2021. We renegotiated our $1.5 billion credit facility, extending the maturity date to April 26, 2026 under favorable terms and conditions. As a result of our progress, the Board approved a 10% increase in our dividend to $0.17 per share in the second quarter of 2021. We remain committed to a sustainable dividend policy and to returning capital to shareholders longer term through a combination of modestly increasing dividends and share repurchases. On January 25, 2022, the company announced its intention to repurchase up to $200 million in common stock in the first quarter of 2022, subject to market conditions.

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As previously disclosed by the company, in the fourth quarter of 2019, the company identified an accounting matter related to certain OppenheimerFunds funds’ financial statements and in 2020 recorded an estimated liability related to the matter. In 2021, the company reduced the estimated liability to $254.3 million, which resulted in a benefit of $131.1 million recorded in transaction, integration and restructuring expense. During the fourth quarter of 2021, Invesco paid $254.3 million in fund shareholder reimbursements to complete remediation of this matter. Also in the fourth quarter of 2021, the company received an insurance recovery of $100.0 million related to the matter, which is reflected as a benefit to transaction, integration and restructuring expense. See Item 8, Financial Statements and Supplementary Data Note 20, "Commitments and Contingencies," for additional details regarding the accounting matter.

As previously disclosed, we have undertaken 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. Through this evaluation, we have invested and will continue to invest in key areas of growth aligned with our strategic plan, including ETFs, Fixed Income, China, Solutions, Alternatives and Global Equities, which has had a positive impact on the results for the year. This helped us achieve six straight quarters of net long-term inflows across a variety of products.

While investing in key areas of growth, we plan to create 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 have exceeded our cumulative 2021 targeted savings of $150 million. In 2021, we realized $137 million in annualized savings, which when combined with the $30 million in annualized savings realized in 2020, results in $167 million, or 84%, of our $200 million net savings expectation. The remainder of our net savings is expected to be realized by the end of 2022. Remaining restructuring costs related to the strategic evaluation are estimated to be in a range of $30 million to $55 million through the end of 2022, with nearly $220 million incurred since we began the strategic evaluation.

In April 2021, we announced plans to transition to State Street’s Alpha platform, an asset servicing platform that will integrate front, middle and back office investment services. The migration to Alpha is expected to simplify Invesco’s investment infrastructure to improve scale, reduce risk and improve operating efficiency, allowing Invesco to create a global operating model that will standardize and streamline its investment operations. The integration began in the second quarter of 2021, with completion scheduled in 2024.

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 continued 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, primarily virtually, to help them better navigate market uncertainty by providing thought leadership and other value-added services.

Our portfolio managers, research analysts and traders are also 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.

Looking ahead, we will balance our employees’ desire for increased flexibility with the needs of our clients and our business as we define our approach to transitioning to “new normal” ways of working in a post-COVID-19 world. The vast majority of employees will be working in their assigned office location at least part of the time and will either be working in-office, working remotely or (for the significant majority of employees) working in a hybrid of these two models. Decisions regarding office location and flexibility are supported by internal research focused on the needs of our employees and clients. This overall, thoughtful and coordinated approach helps ensure our ability to continue to meet the needs of our clients as well as our employees.

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Other External Factors Impacting Invesco

Invesco, similar to the broader industry, is transitioning its corporate and investment exposure away from LIBOR to alternative risk-free rates according to regulator and working group defined timelines and guidance. Invesco continues to actively monitor its portfolios holding LIBOR based instruments and strategies utilizing LIBOR as a benchmark and/or performance target and remediate as necessary.

Regarding operational readiness, Invesco has implemented a number of process and system enhancements to support the remediation of legacy LIBOR instruments as well as trading of new alternative reference rate-linked instruments. Invesco continues to engage external service providers and technology vendors to validate whether they can support transition activities and requirements, including processing of fallback language following the applicable LIBOR cessation dates. Invesco continues to monitor overall industry transition progress and completes ongoing analysis of the suitability of alternative risk-free rates in executing Invesco’s LIBOR transition plan. Despite Invesco’s preparations, 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.

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 (among other adjustments). See Schedule of Non-GAAP Information for additional information regarding these adjustments. 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, 2021 compared to December 31, 2020);

•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, 2021 was a reduction of $42.4 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.

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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.

Summary Operating Information

Summary operating information for 2021, 2020 and 2019 is presented in the table below.

[[GREPCENT_TABLE]]
[["$ in millions, other than per common share amounts, operating margins and AUM","Year ended December 31,"],["U.S. GAAP Financial Measures Summary","2021","","2020","","2019"],["Operating revenues","6,894.5","","","6,145.6","","","6,117.4"],["Operating income","1,788.2","","","920.4","","","808.2"],["Operating margin","25.9","%","","15.0","%","","13.2","%"],["Net income attributable to Invesco Ltd.","1,393.0","","","524.8","","","564.7"],["Diluted EPS","2.99","","","1.13","","","1.28"],["Non-GAAP Financial Measures Summary"],["Net revenues (1)","5,261.1","","","4,501.0","","","4,415.1"],["Adjusted operating income (2)","2,182.6","","","1,664.5","","","1,655.8"],["Adjusted operating margin (2)","41.5","%","","37.0","%","","37.5","%"],["Adjusted net income attributable to Invesco Ltd. (3)","1,439.6","","","892.9","","","1,124.0"],["Adjusted diluted EPS (3)","3.09","","","1.93","","","2.55"],["Assets Under Management"],["Ending AUM (billions)","1,610.9","","","1,349.9","","","1,226.2"],["Average AUM (billions)","1,499.9","","","1,194.9","","","1,094.4"]]
[[/GREPCENT_TABLE]]

_________

(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, adjustments for amortization of intangibles, 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, adjustments for amortization of intangibles, adjustments for the tax benefits resulting from tax amortization of goodwill and indefinite-lived intangible assets, 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. The table below presents the one-, three-, five-, and ten-year performance of our actively managed investment products measured by the percentage of AUM ahead of benchmark and AUM in the top half of peer group (1).

[[GREPCENT_TABLE]]
[["","Benchmark Comparison","","Peer Group Comparison"],["","% of AUM In Top Half of Benchmark","","% of AUM In Top Half of Peer Group"],["","1yr","3yr","5yr","10yr","","1yr","3yr","5yr","10yr"],["Equities (2)"],["U.S. Core (4%)","55","%","19","%","15","%","15","%","","62","%","28","%","15","%","1","%"],["U.S. Growth (7%)","45","%","45","%","45","%","45","%","","28","%","65","%","52","%","52","%"],["U.S. Value (6%)","58","%","53","%","38","%","50","%","","53","%","53","%","5","%","34","%"],["Sector (2%)","22","%","40","%","96","%","80","%","","41","%","82","%","63","%","63","%"],["UK (1%)","67","%","42","%","42","%","44","%","","41","%","29","%","18","%","31","%"],["Canadian (1%)","100","%","76","%","41","%","35","%","","76","%","76","%","41","%","35","%"],["Asian (3%)","50","%","82","%","87","%","91","%","","18","%","10","%","58","%","73","%"],["Continental European (2%)","65","%","16","%","10","%","90","%","","59","%","6","%","22","%","55","%"],["Global (7%)","9","%","81","%","77","%","81","%","","11","%","13","%","31","%","90","%"],["Global Ex U.S. and Emerging Markets (12%)","36","%","90","%","90","%","90","%","","26","%","20","%","68","%","70","%"],["Fixed Income (2)"],["Money Market (18%)","93","%","99","%","99","%","100","%","","78","%","78","%","79","%","99","%"],["U.S. Fixed Income (12%)","94","%","88","%","96","%","96","%","","80","%","86","%","90","%","91","%"],["Global Fixed Income (6%)","79","%","91","%","87","%","98","%","","77","%","74","%","80","%","86","%"],["Stable Value (5%)","100","%","100","%","100","%","100","%","","97","%","97","%","97","%","100","%"],["Other (2)"],["Alternatives (7%)","80","%","50","%","52","%","40","%","","59","%","43","%","48","%","49","%"],["Balanced (8%)","35","%","66","%","63","%","63","%","","60","%","86","%","62","%","94","%"]]
[[/GREPCENT_TABLE]]

____________

(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 48%, 47%, 46% and 42% of total Invesco AUM, respectively, and AUM measured versus benchmark on a one, three, five and ten year basis represents 59%, 57%, 55% and 50% of total Invesco AUM as of December 31, 2021. Peer group rankings are sourced from a widely-used third party ranking agency in each fund’s market (e.g., Morningstar, IA, Lipper, eVestment, Mercer, Galaxy, 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 AUM for each investment product (see Note 1 above for exclusions) as a percentage of the total AUM for the 5 year peer group ($743.3 billion).

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.

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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:

[[GREPCENT_TABLE]]
[["","2021","","2020","","2019"],["$ in billions","Total AUM","","Active","","Passive","","Total AUM","","Active","","Passive","","Total AUM","","Active","","Passive"],["January 1","1,349.9","","","979.3","","","370.6","","","1,226.2","","","929.2","","","297.0","","","888.2","","","667.2","","","221.0"],["Long-term inflows","426.8","","","260.2","","","166.6","","","310.9","","","204.3","","","106.6","","","227.5","","","146.8","","","80.7"],["Long-term outflows","(345.4)","","","(242.0)","","","(103.4)","","","(326.6)","","","(236.1)","","","(90.5)","","","(261.9)","","","(196.5)","","","(65.4)"],["Net long-term flows","81.4","","","18.2","","","63.2","","","(15.7)","","","(31.8)","","","16.1","","","(34.4)","","","(49.7)","","","15.3"],["Net flows in non-management fee earning AUM","20.6","","","(0.1)","","","20.7","","","(5.1)","","","\u2014","","","(5.1)","","","9.2","","","(0.1)","","","9.3"],["Net flows in money market funds","39.7","","","39.7","","","\u2014","","","14.3","","","14.3","","","\u2014","","","(2.0)","","","(2.0)","","","\u2014"],["Total net flows","141.7","","","57.8","","","83.9","","","(6.5)","","","(17.5)","","","11.0","","","(27.2)","","","(51.8)","","","24.6"],["Reinvested distributions","31.6","","","31.6","","","\u2014","","","16.9","","","16.9","","","\u2014","","","17.9","","","17.9","","","\u2014"],["Market gains and losses","94.0","","","18.3","","","75.7","","","103.0","","","40.8","","","62.2","","","120.4","","","73.5","","","46.9"],["Acquisitions (1)","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","224.4","","","219.9","","","4.5"],["Foreign currency translation","(6.3)","","","(4.5)","","","(1.8)","","","10.3","","","9.9","","","0.4","","","2.5","","","2.5","","","\u2014"],["December 31","1,610.9","","","1,082.5","","","528.4","","","1,349.9","","","979.3","","","370.6","","","1,226.2","","","929.2","","","297.0"],["Average AUM"],["Average long-term AUM","1,177.1","","","919.1","","","258.0","","","952.0","","","784.6","","","167.4","","","887.1","","","734.7","","","152.4"],["Average AUM","1,499.9","","","1,050.2","","","449.7","","","1,194.9","","","893.0","","","301.9","","","1,094.4","","","830.1","","","264.3"],["Revenue yield"],["Gross revenue yield on AUM (2)","48.7","","","61.9","","","20.3","","","53.7","","","65.4","","","21.0","","","57.8","","","69.1","","","23.9"],["Gross revenue yield on AUM before performance fees (2)","48.3","","","61.3","","","20.3","","","53.1","","","64.6","","","21.0","","","56.8","","","67.8","","","23.9"],["Net revenue yield on AUM (3)","35.1","","","44.8","","","12.3","","","37.7","","","46.4","","","12.0","","","40.3","","","48.6","","","14.6"],["Net revenue yield on AUM before performance fees (3)","34.5","","","44.0","","","12.3","","","36.8","","","45.2","","","12.0","","","39.4","","","47.2","","","14.6"]]
[[/GREPCENT_TABLE]]

____________

(1)    The acquisition of OppenheimerFunds business on May 24, 2019 added $224.4 billion in AUM at that date.

(2)    Gross revenue yield on AUM is equal to annualized total operating revenues divided by average AUM, excluding Invesco Great Wall AUM. The average AUM for Invesco Great Wall was $84.0 billion in 2021 (2020: $50.0 billion, 2019: $35.6 billion). It is appropriate to exclude the average AUM of Invesco Great Wall for purposes of computing gross revenue yield on AUM, because the revenues resulting from these AUM are not presented in our operating revenues. Under U.S. GAAP, our share of the net income of Invesco Great Wall Fund Management Company (“Invesco Great Wall”) is recorded as equity in earnings of unconsolidated affiliates on our Consolidated Statements of Income. Gross revenue yield, the most comparable U.S. GAAP-based measure to net revenue yield, is not considered a meaningful effective fee rate measure. Additionally, the numerator of the gross revenue yield measure, operating revenues, excludes the management fees earned from CIP; 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 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.

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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.

Average AUM during the year ended December 31, 2021 were $1,499.9 billion, compared to $1,194.9 billion for the year ended December 31, 2020.

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. The table in the “Executive Overview” section of this Management’s Discussion and Analysis summarizes returns based on price appreciation/(depreciation) of several major market indices for the years ended December 31, 2021 and December 31, 2020.

Foreign Exchange Rates

During the year ended December 31, 2021, we experienced decreases in AUM of $6.3 billion due to changes in foreign exchange rates (December 31, 2020: AUM increased by $10.3 billion).

Revenue Yield

Changes in our AUM mix 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 well-positioned to respond to this trend due to the breadth, strength and diversified nature of our business. In addition, 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.

In the year ended December 31, 2021, the net revenue yield was 35.1 basis points compared to 37.7 basis points in the year ended December 31, 2020, a decrease of 2.6 basis points.

During 2021, net revenue yield continued to decline as a result of client demand-driven shifts in the AUM mix towards passive, lower-fee products, which generally have lower fees than active products. In the year ended December 31, 2021, the net revenue yield on passive AUM was 12.3 basis points compared to 44.8 basis points on active AUM.

At December 31, 2021, passive AUM were $528.4 billion, representing 32.8% of total AUM at that date; whereas at December 31, 2020, passive AUM were $370.6 billion, representing 27.5% of our total AUM at that date.

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, 2021, the QQQ fund represented $214.9 billion, or 40.7% of passive AUM and 13.3% of total AUM. At December 31, 2020, the QQQ fund represented $152.5 billion, or 41.1% of passive AUM and 11.3% of total AUM.

Despite the growth in our QQQ ETF, the net revenue yield on passive AUM increased from 12.0 basis points for the year ended December 31, 2020 to 12.3 basis points for the year ended December 31, 2021, an increase of 0.3 basis points. We saw a greater proportion of inflows into relatively higher fee passive products.

At December 31, 2021, active AUM were $1,082.5 billion, representing 67.2% of total AUM at that date; whereas at December 31, 2020, active AUM were $979.3 billion, representing 72.5% of our total AUM at that date. We also saw a greater proportion of inflows into fixed income and relatively lower fee active products. These changes have decreased the net revenue yield on active AUM from 46.4 basis points for the year ended December 31, 2020 to 44.8 basis points for the year ended December 31, 2021.

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Also contributing to the decline in net revenue yield were the higher discretionary money market fee waivers, as mentioned in Note 1, "Accounting Policies," which negatively impacts net revenue yield on active AUM. 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.

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)

[[GREPCENT_TABLE]]
[["$ in billions","Total","","Retail","","Institutional"],["December 31, 2020","1,349.9","","","947.1","","","402.8"],["Long-term inflows","426.8","","","301.2","","","125.6"],["Long-term outflows","(345.4)","","","(265.7)","","","(79.7)"],["Net long-term flows","81.4","","","35.5","","","45.9"],["Net flows in non-management fee earning AUM","20.6","","","20.2","","","0.4"],["Net flows in money market funds","39.7","","","3.3","","","36.4"],["Total net flows","141.7","","","59.0","","","82.7"],["Reinvested distributions","31.6","","","31.1","","","0.5"],["Market gains and losses","94.0","","","69.0","","","25.0"],["Foreign currency translation","(6.3)","","","0.3","","","(6.6)"],["December 31, 2021","1,610.9","","","1,106.5","","","504.4"],["December 31, 2019","1,226.2","","","878.2","","","348.0"],["Long-term inflows","310.9","","","221.6","","","89.3"],["Long-term outflows","(326.6)","","","(267.6)","","","(59.0)"],["Net long-term 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 funds","14.3","","","2.0","","","12.3"],["Total net flows","(6.5)","","","(36.8)","","","30.3"],["Reinvested distributions","16.9","","","16.3","","","0.6"],["Market gains and losses","103.0","","","85.4","","","17.6"],["Foreign currency translation","10.3","","","4.0","","","6.3"],["December 31, 2020","1,349.9","","","947.1","","","402.8"],["December 31, 2018","888.2","","","566.7","","","321.5"],["Long-term inflows","227.5","","","175.2","","","52.3"],["Long-term outflows","(261.9)","","","(210.4)","","","(51.5)"],["Net long-term flows","(34.4)","","","(35.2)","","","0.8"],["Net flows in non-management fee earning AUM","9.2","","","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 distributions","17.9","","","17.6","","","0.3"],["Market gains and losses","120.4","","","102.4","","","18.0"],["Acquisitions (4)","224.4","","","215.8","","","8.6"],["Foreign currency translation","2.5","","","1.8","","","0.7"],["December 31, 2019","1,226.2","","","878.2","","","348.0"]]
[[/GREPCENT_TABLE]]

____________

See accompanying notes immediately following these AUM tables.

35

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Passive AUM by Channel (1)

[[GREPCENT_TABLE]]
[["$ in billions","Total","","Retail","","Institutional"],["December 31, 2020","370.6","","","346.0","","","24.6"],["Long-term inflows","166.6","","","137.7","","","28.9"],["Long-term outflows","(103.4)","","","(97.8)","","","(5.6)"],["Net long-term flows","63.2","","","39.9","","","23.3"],["Net flows in non-management fee earning AUM","20.7","","","20.3","","","0.4"],["Total net flows","83.9","","","60.2","","","23.7"],["Market gains and losses","75.7","","","69.1","","","6.6"],["Foreign currency translation","(1.8)","","","(0.5)","","","(1.3)"],["December 31, 2021","528.4","","","474.8","","","53.6"],["December 31, 2019","297.0","","","275.8","","","21.2"],["Long-term inflows","106.6","","","93.6","","","13.0"],["Long-term outflows","(90.5)","","","(89.0)","","","(1.5)"],["Net long-term flows","16.1","","","4.6","","","11.5"],["Net flows in non-management fee earning AUM","(5.1)","","","7.3","","","(12.4)"],["Total net flows","11.0","","","11.9","","","(0.9)"],["Market gains and losses","62.2","","","57.9","","","4.3"],["Foreign currency translation","0.4","","","0.4","","","\u2014"],["December 31, 2020","370.6","","","346.0","","","24.6"],["December 31, 2018","221.0","","","204.6","","","16.4"],["Long-term inflows","80.7","","","80.1","","","0.6"],["Long-term outflows","(65.4)","","","(65.4)","","","\u2014"],["Net long-term flows","15.3","","","14.7","","","0.6"],["Net flows in non-management fee earning AUM","9.3","","","5.1","","","4.2"],["Total net flows","24.6","","","19.8","","","4.8"],["Market gains and losses","46.9","","","46.9","","","\u2014"],["Acquisitions (4)","4.5","","","4.5","","","\u2014"],["December 31, 2019","297.0","","","275.8","","","21.2"]]
[[/GREPCENT_TABLE]]

____________

See accompanying notes immediately following these AUM tables.

36

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Total AUM by Asset Class (2)

[[GREPCENT_TABLE]]
[["$ in billions","Total","","Equity","","Fixed Income","","Balanced","","Money Market","","Alternatives"],["December 31, 2020","1,349.9","","","689.6","","","296.4","","","78.9","","","108.5","","","176.5"],["Long-term inflows","426.8","","","205.0","","","118.1","","","48.5","","","\u2014","","","55.2"],["Long-term outflows","(345.4)","","","(182.1)","","","(76.8)","","","(40.8)","","","\u2014","","","(45.7)"],["Net long-term flows","81.4","","","22.9","","","41.3","","","7.7","","","\u2014","","","9.5"],["Net flows in non-management fee earning AUM","20.6","","","20.6","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Net flows in money market funds","39.7","","","\u2014","","","\u2014","","","\u2014","","","39.7","","","\u2014"],["Total net flows","141.7","","","43.5","","","41.3","","","7.7","","","39.7","","","9.5"],["Reinvested distributions","31.6","","","25.4","","","1.9","","","2.7","","","\u2014","","","1.6"],["Market gains and losses","94.0","","","85.9","","","(2.0)","","","(1.1)","","","\u2014","","","11.2"],["Foreign currency translation","(6.3)","","","(2.8)","","","(2.8)","","","0.4","","","0.6","","","(1.7)"],["December 31, 2021","1,610.9","","","841.6","","","334.8","","","88.6","","","148.8","","","197.1"],["Average AUM","1,499.9","","","778.3","","","316.1","","","86.5","","","131.1","","","187.9"],["% of total average AUM","100.0","%","","51.9","%","","21.1","%","","5.8","%","","8.7","%","","12.5","%"],["December 31, 2019","1,226.2","","","598.8","","","283.5","","","67.3","","","91.4","","","185.2"],["Long-term inflows","310.9","","","134.6","","","102.9","","","30.5","","","\u2014","","","42.9"],["Long-term outflows","(326.6)","","","(167.4)","","","(76.8)","","","(29.7)","","","\u2014","","","(52.7)"],["Net long-term flows","(15.7)","","","(32.8)","","","26.1","","","0.8","","","\u2014","","","(9.8)"],["Net flows in non-management fee earning AUM","(5.1)","","","17.2","","","(22.3)","","","\u2014","","","\u2014","","","\u2014"],["Net flows in money market funds","14.3","","","\u2014","","","\u2014","","","\u2014","","","14.3","","","\u2014"],["Total net flows","(6.5)","","","(15.6)","","","3.8","","","0.8","","","14.3","","","(9.8)"],["Reinvested distributions","16.9","","","11.5","","","2.3","","","1.8","","","\u2014","","","1.3"],["Market gains and losses","103.0","","","92.2","","","4.7","","","7.1","","","1.2","","","(2.2)"],["Foreign currency translation","10.3","","","2.7","","","2.1","","","1.9","","","1.6","","","2.0"],["December 31, 2020","1,349.9","","","689.6","","","296.4","","","78.9","","","108.5","","","176.5"],["Average AUM","1,194.9","","","573.1","","","275.3","","","65.1","","","108.4","","","173.0"],["% of total average AUM","100.0","%","","48.0","%","","23.0","%","","5.4","%","","9.1","%","","14.5","%"],["December 31, 2018","888.2","","","369.1","","","208.6","","","55.4","","","89.9","","","165.2"],["Long-term inflows","227.5","","","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)"],["Net long-term flows","(34.4)","","","(31.5)","","","14.1","","","(1.6)","","","0.1","","","(15.5)"],["Net flows in non-management fee earning AUM","9.2","","","2.9","","","6.3","","","\u2014","","","\u2014","","","\u2014"],["Net flows in money market funds","(2.0)","","","\u2014","","","\u2014","","","\u2014","","","(2.0)","","","\u2014"],["Total net flows","(27.2)","","","(28.6)","","","20.4","","","(1.6)","","","(1.9)","","","(15.5)"],["Reinvested distributions","17.9","","","12.9","","","1.6","","","1.9","","","\u2014","","","1.5"],["Market gains and losses","120.4","","","94.0","","","9.9","","","7.6","","","\u2014","","","8.9"],["Acquisitions (4)","224.4","","","149.7","","","42.5","","","3.7","","","3.7","","","24.8"],["Foreign currency translation","2.5","","","1.7","","","0.5","","","0.3","","","(0.3)","","","0.3"],["December 31, 2019","1,226.2","","","598.8","","","283.5","","","67.3","","","91.4","","","185.2"],["Average AUM","1,094.4","","","503.9","","","253.8","","","62.1","","","95.4","","","179.2"],["% of total average AUM","100.0","%","","46.0","%","","23.2","%","","5.7","%","","8.7","%","","16.4","%"]]
[[/GREPCENT_TABLE]]

____________

See accompanying notes immediately following these AUM tables.

37

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Passive AUM by Asset Class (2)

[[GREPCENT_TABLE]]
[["$ in billions","Total","","Equity","","Fixed Income","","Balanced","","Money Market","","Alternatives"],["December 31, 2020","370.6","","","306.4","","","37.0","","","1.0","","","\u2014","","","26.2"],["Long-term inflows","166.6","","","134.1","","","14.6","","","0.2","","","\u2014","","","17.7"],["Long-term outflows","(103.4)","","","(83.2)","","","(8.9)","","","\u2014","","","\u2014","","","(11.3)"],["Net long-term flows","63.2","","","50.9","","","5.7","","","0.2","","","\u2014","","","6.4"],["Net flows in non-management fee earning AUM","20.7","","","20.7","","","0.1","","","(0.1)","","","\u2014","","","\u2014"],["Total net flows","83.9","","","71.6","","","5.8","","","0.1","","","\u2014","","","6.4"],["Market gains and losses","75.7","","","75.1","","","(0.7)","","","0.1","","","\u2014","","","1.2"],["Foreign currency translation","(1.8)","","","(1.1)","","","(0.4)","","","\u2014","","","\u2014","","","(0.3)"],["December 31, 2021","528.4","","","452.0","","","41.7","","","1.2","","","\u2014","","","33.5"],["Average AUM","449.7","","","376.8","","","41.1","","","1.1","","","\u2014","","","30.7"],["% of total average AUM","100.0","%","","83.8","%","","9.2","%","","0.2","%","","\u2014","%","","6.8","%"],["December 31, 2019","297.0","","","217.1","","","58.9","","","0.9","","","\u2014","","","20.1"],["Long-term inflows","106.6","","","73.4","","","12.6","","","0.1","","","\u2014","","","20.5"],["Long-term outflows","(90.5)","","","(63.0)","","","(11.5)","","","\u2014","","","\u2014","","","(16.0)"],["Net long-term flows","16.1","","","10.4","","","1.1","","","0.1","","","\u2014","","","4.5"],["Net flows in non-management fee earning AUM","(5.1)","","","17.2","","","(22.3)","","","\u2014","","","\u2014","","","\u2014"],["Total net flows","11.0","","","27.6","","","(21.2)","","","0.1","","","\u2014","","","4.5"],["Market gains and losses","62.2","","","61.4","","","(0.8)","","","\u2014","","","\u2014","","","1.6"],["Foreign currency translation","0.4","","","0.3","","","0.1","","","\u2014","","","\u2014","","","\u2014"],["December 31, 2020","370.6","","","306.4","","","37.0","","","1.0","","","\u2014","","","26.2"],["Average AUM","301.9","","","237.5","","","40.8","","","0.8","","","\u2014","","","22.9"],["% of total average AUM","100.0","%","","78.6","%","","13.5","%","","0.3","%","","\u2014","%","","7.6","%"],["December 31, 2018","221.0","","","155.3","","","47.2","","","0.7","","","\u2014","","","17.8"],["Long-term inflows","80.7","","","57.9","","","10.9","","","0.1","","","\u2014","","","11.8"],["Long-term outflows","(65.4)","","","(48.2)","","","(6.0)","","","\u2014","","","\u2014","","","(11.2)"],["Net long-term flows","15.3","","","9.7","","","4.9","","","0.1","","","\u2014","","","0.6"],["Net flows in non-management fee earning AUM","9.3","","","3.0","","","6.3","","","\u2014","","","\u2014","","","\u2014"],["Total net flows","24.6","","","12.7","","","11.2","","","0.1","","","\u2014","","","0.6"],["Market gains and losses","46.9","","","44.7","","","0.4","","","0.1","","","\u2014","","","1.7"],["Acquisitions (4)","4.5","","","4.5","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Foreign currency translation","\u2014","","","(0.1)","","","0.1","","","\u2014","","","\u2014","","","\u2014"],["December 31, 2019","297.0","","","217.1","","","58.9","","","0.9","","","\u2014","","","20.1"],["Average AUM","264.3","","","189.2","","","55.7","","","0.8","","","\u2014","","","18.6"],["% of total average AUM","100.0","%","","71.6","%","","21.1","%","","0.3","%","","\u2014","%","","7.0","%"]]
[[/GREPCENT_TABLE]]

____________

See accompanying notes immediately following these AUM tables.

38

Table of Contents    

Total AUM by Client Domicile (3)

[[GREPCENT_TABLE]]
[["$ in billions","Total","","Americas","","Asia Pacific","","EMEA ex UK","","UK"],["December 31, 2020","1,349.9","","","959.9","","","171.3","","","151.7","","","67.0"],["Long-term inflows","426.8","","","213.2","","","139.0","","","64.8","","","9.8"],["Long-term outflows","(345.4)","","","(197.7)","","","(71.8)","","","(54.4)","","","(21.5)"],["Net long-term flows","81.4","","","15.5","","","67.2","","","10.4","","","(11.7)"],["Net flows in non-management fee earning AUM","20.6","","","15.9","","","2.4","","","2.5","","","(0.2)"],["Net flows in money market funds","39.7","","","35.7","","","4.1","","","(0.1)","","","\u2014"],["Total net flows","141.7","","","67.1","","","73.7","","","12.8","","","(11.9)"],["Reinvested distributions","31.6","","","31.2","","","0.1","","","\u2014","","","0.3"],["Market gains and losses","94.0","","","74.4","","","5.9","","","9.1","","","4.6"],["Foreign currency translation","(6.3)","","","(0.1)","","","(3.7)","","","(2.1)","","","(0.4)"],["December 31, 2021","1,610.9","","","1,132.5","","","247.3","","","171.5","","","59.6"],["December 31, 2019","1,226.2","","","879.5","","","128.6","","","143.7","","","74.4"],["Long-term inflows","310.9","","","176.2","","","64.1","","","57.6","","","13.0"],["Long-term outflows","(326.6)","","","(206.7)","","","(44.8)","","","(55.5)","","","(19.6)"],["Net long-term flows","(15.7)","","","(30.5)","","","19.3","","","2.1","","","(6.6)"],["Net flows in non-management fee earning AUM","(5.1)","","","3.6","","","0.7","","","(9.6)","","","0.2"],["Net flows in money market funds","14.3","","","10.9","","","3.1","","","0.2","","","0.1"],["Total net flows","(6.5)","","","(16.0)","","","23.1","","","(7.3)","","","(6.3)"],["Reinvested distributions","16.9","","","16.6","","","0.1","","","\u2014","","","0.2"],["Market gains and losses","103.0","","","79.3","","","13.7","","","12.7","","","(2.7)"],["Foreign currency translation","10.3","","","0.5","","","5.8","","","2.7","","","1.3"],["December 31, 2020","1,349.9","","","959.9","","","171.3","","","151.8","","","66.9"],["December 31, 2018","888.2","","","581.6","","","104.5","","","125.5","","","76.6"],["Long-term inflows","227.5","","","124.6","","","42.1","","","51.7","","","9.1"],["Long-term outflows","(261.9)","","","(158.2)","","","(33.8)","","","(49.7)","","","(20.2)"],["Net long-term flows","(34.4)","","","(33.6)","","","8.3","","","2.0","","","(11.1)"],["Net flows in non-management fee earning AUM","9.2","","","6.3","","","0.3","","","2.4","","","0.2"],["Net flows in money market funds","(2.0)","","","(3.9)","","","4.2","","","(2.3)","","","\u2014"],["Total net flows","(27.2)","","","(31.2)","","","12.8","","","2.1","","","(10.9)"],["Reinvested distributions","17.9","","","17.5","","","\u2014","","","\u2014","","","0.4"],["Market gains and losses","120.4","","","88.1","","","11.5","","","15.3","","","5.5"],["Transfer","\u2014","","","(1.3)","","","\u2014","","","1.6","","","(0.3)"],["Acquisitions (4)","224.4","","","223.7","","","\u2014","","","\u2014","","","0.7"],["Foreign currency translation","2.5","","","1.1","","","(0.2)","","","(0.8)","","","2.4"],["December 31, 2019","1,226.2","","","879.5","","","128.6","","","143.7","","","74.4"]]
[[/GREPCENT_TABLE]]

____________

See accompanying notes immediately following these AUM tables.

39

Table of Contents    

Passive AUM by Client Domicile (3)

[[GREPCENT_TABLE]]
[["$ in billions","Total","","Americas","","Asia Pacific","","EMEA ex UK","","UK"],["December 31, 2020","370.6","","","303.0","","","7.9","","","58.9","","","0.8"],["Long-term inflows","166.6","","","99.6","","","28.5","","","37.5","","","1.0"],["Long-term outflows","(103.4)","","","(72.3)","","","(4.4)","","","(25.9)","","","(0.8)"],["Net long-term flows","63.2","","","27.3","","","24.1","","","11.6","","","0.2"],["Net flows in non-management fee earning AUM","20.7","","","16.1","","","2.3","","","2.5","","","(0.2)"],["Total net flows","83.9","","","43.4","","","26.4","","","14.1","","","\u2014"],["Market gains and losses","75.7","","","61.6","","","5.6","","","8.4","","","0.1"],["Foreign currency translation","(1.8)","","","\u2014","","","(1.4)","","","(0.4)","","","\u2014"],["December 31, 2021","528.4","","","408.0","","","38.5","","","81.0","","","0.9"],["December 31, 2019","297.0","","","240.0","","","4.9","","","51.4","","","0.7"],["Long-term inflows","106.6","","","67.6","","","2.8","","","35.5","","","0.7"],["Long-term outflows","(90.5)","","","(59.5)","","","(2.2)","","","(27.9)","","","(0.9)"],["Net long-term flows","16.1","","","8.1","","","0.6","","","7.6","","","(0.2)"],["Net flows in non-management fee earning AUM","(5.1)","","","3.6","","","0.7","","","(9.6)","","","0.2"],["Total net flows","11.0","","","11.7","","","1.3","","","(2.0)","","","\u2014"],["Market gains and losses","62.2","","","51.4","","","1.7","","","9.0","","","0.1"],["Foreign currency translation","0.4","","","(0.1)","","","\u2014","","","0.5","","","\u2014"],["December 31, 2020","370.6","","","303.0","","","7.9","","","58.9","","","0.8"],["December 31, 2018","221.0","","","184.0","","","3.7","","","32.6","","","0.7"],["Long-term inflows","80.7","","","48.6","","","1.9","","","29.7","","","0.5"],["Long-term outflows","(65.4)","","","(42.6)","","","(2.1)","","","(20.3)","","","(0.4)"],["Net long-term flows","15.3","","","6.0","","","(0.2)","","","9.4","","","0.1"],["Net flows in non-management fee earning AUM","9.3","","","6.4","","","0.3","","","2.4","","","0.2"],["Total net flows","24.6","","","12.4","","","0.1","","","11.8","","","0.3"],["Market gains and losses","46.9","","","39.1","","","1.1","","","7.0","","","(0.3)"],["Acquisitions (4)","4.5","","","4.5","","","\u2014","","","\u2014","","","\u2014"],["December 31, 2019","297.0","","","240.0","","","4.9","","","51.4","","","0.7"]]
[[/GREPCENT_TABLE]]

____________

(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.

Results of Operations for the Year Ended December 31, 2021 compared to December 31, 2020

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).

40

Table of Contents    

Operating Revenues and Net Revenues

The main categories of revenues, and the dollar and percentage change between the periods, are as follows:

[[GREPCENT_TABLE]]
[["","","","","","","","Variance"],["","Years ended December 31,","","2021 vs 2020","","2020 vs 2019"],["$ in millions","2021","","2020","","2019","","$ Change","","% Change","","$ Change","","% Change"],["Investment management fees","4,995.9","","","4,451.0","","","4,506.3","","","544.9","","","12.2","%","","(55.3)","","","(1.2)","%"],["Service and distribution fees","1,596.4","","","1,419.0","","","1,276.5","","","177.4","","","12.5","%","","142.5","","","11.2","%"],["Performance fees","56.1","","","65.6","","","102.2","","","(9.5)","","","(14.5)","%","","(36.6)","","","(35.8)","%"],["Other","246.1","","","210.0","","","232.4","","","36.1","","","17.2","%","","(22.4)","","","(9.6)","%"],["Total operating revenues","6,894.5","","","6,145.6","","","6,117.4","","","748.9","","","12.2","%","","28.2","","","0.5","%"],["Invesco Great Wall","473.5","","","263.2","","","157.2","","","210.3","","","79.9","%","","106.0","","","67.4","%"],["Revenue Adjustments:"],["Investment management fees","(844.1)","","","(779.8)","","","(814.4)","","","(64.3)","","","8.2","%","","34.6","","","(4.2)","%"],["Service and distribution fees","(1,087.5)","","","(986.1)","","","(886.3)","","","(101.4)","","","10.3","%","","(99.8)","","","11.3","%"],["Other","(217.7)","","","(181.7)","","","(192.3)","","","(36.0)","","","19.8","%","","10.6","","","(5.5)","%"],["Total Revenue Adjustments (1)","(2,149.3)","","","(1,947.6)","","","(1,893.0)","","","(201.7)","","","10.4","%","","(54.6)","","","2.9","%"],["CIP","42.4","","","39.8","","","33.5","","","2.6","","","6.5","%","","6.3","","","18.8","%"],["Net revenues (2)","5,261.1","","","4,501.0","","","4,415.1","","","760.1","","","16.9","%","","85.9","","","1.9","%"]]
[[/GREPCENT_TABLE]]

_________

(1)    Total revenue adjustments include investment management, service and distribution, and other revenues that are passed through 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 $87.6 million, equivalent to 1.3% of total operating revenues during the year ended December 31, 2021 when compared to the year ended December 31, 2020 ($13.2 million increase in 2020 or 0.2% of 2020 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.

Investment Management Fees

Investment management fees increased by $544.9 million (12.2%) in the year ended December 31, 2021, to $4,995.9 million (year ended December 31, 2020: $4,451.0 million). The impact of foreign exchange rate movements increased investment management fees by $75.8 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. After allowing for foreign exchange movements, investment management fees increased by $469.1 million (10.5%) as a result of a 25.5% increase in average AUM, partially offset by lower revenue yields when compared to the 2020 period. Net revenue yield has declined as a result of shifts in the AUM mix towards passive, lower-fee products. Additionally, higher discretionary money market fee waivers adversely impacted the net revenue yield on active AUM.

See the company's disclosures regarding the changes in AUM and revenue yields during the years ended December 31, 2021 and December 31, 2020 in the “Assets Under Management” section above for additional information regarding the impact of changes in AUM on management fee yields.

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Service and Distribution Fees

In the year ended December 31, 2021, service and distribution fees increased by $177.4 million (12.5%) to $1,596.4 million (year ended December 31, 2020: $1,419.0 million). The impact of foreign exchange rate movements increased service and distribution fees by $11.3 million in the year ended December 31, 2021 as compared to the year ended December 31, 2020. After allowing for foreign exchange movements, service and distribution fees increased by $166.1 million. The total increase is driven by higher distribution fees of $87.7 million, transfer agency fees of $43.6 million and administrative fees of $32.7 million. The increase is primarily driven by higher AUM to which these fees apply.

Performance Fees

Of our $1,610.9 billion in AUM at December 31, 2021, approximately $62.2 billion or 3.9%, could potentially earn performance fees, including carried interests and performance fees related to partnership investments and separate accounts. 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.

In the year ended December 31, 2021, performance fees decreased by $9.5 million (14.5%) to $56.1 million (year ended December 31, 2020: $65.6 million). Performance fees in 2021 were primarily generated from real estate, institutional products and various institutional mandates in Japan. Performance fees in 2020 were primarily generated from real estate, fixed income, UK closed end funds and institutional products.

Other Revenues

In the year ended December 31, 2021, other revenues increased by $36.1 million (17.2%) to $246.1 million (year ended December 31, 2020: $210.0 million). The impact of foreign exchange rate movements increased other revenues by $0.5 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase in other revenues was primarily driven by increases in front end fees of $29.3 million and real estate transaction fees of $4.2 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 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.

Management reflects 100% of Invesco Great Wall in its net revenues and adjusted operating expenses. 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 the 51% non-controlling interest.

Net revenues from Invesco Great Wall were $473.5 million and average AUM was $84.0 billion for the year ended December 31, 2021 (net revenues were $263.2 million and average AUM was $50.0 billion, for the year ended December 31, 2020). The impact of foreign exchange rate movements for the year ended December 31, 2021 increased net revenues from Invesco Great Wall by $29.6 million as compared to the year ended December 31, 2020. After allowing for foreign exchange movements, net revenues from Invesco Great Wall were $443.9 million. The increase in revenue is a result of higher AUM and improved net revenue yield on Invesco Great Wall.

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.

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Management and performance fees earned from CIP increased by $2.6 million to $42.4 million in the year ended December 31, 2021 (year ended December 31, 2020: $39.8 million). The increase is due to increased management fees earned from newly launched retail funds and CLOs.

Operating Expenses

The main categories of operating expenses, and the dollar and percentage changes between periods, are as follows:

[[GREPCENT_TABLE]]
[["","","","","","","","Variance"],["","Years ended December 31,","","2021 vs 2020","","2020 vs 2019"],["$ in millions","2021","","2020","","2019","","$ Change","","% Change","","$ Change","","% Change"],["Third-party distribution, service and advisory","2,149.3","","","1,947.6","","","1,893.0","","","201.7","","","10.4","%","","54.6","","","2.9","%"],["Employee compensation","1,911.3","","","1,807.9","","","1,709.3","","","103.4","","","5.7","%","","98.6","","","5.8","%"],["Marketing","98.6","","","83.3","","","135.6","","","15.3","","","18.4","%","","(52.3)","","","(38.6)","%"],["Property, office and technology","526.0","","","512.3","","","494.1","","","13.7","","","2.7","%","","18.2","","","3.7","%"],["General and administrative","424.1","","","480.8","","","404.2","","","(56.7)","","","(11.8)","%","","76.6","","","19.0","%"],["Transaction, integration and restructuring","(65.9)","","","330.8","","","620.3","","","(396.7)","","","N/A","","(289.5)","","","(46.7)","%"],["Amortization of intangibles (1)","62.9","","","62.5","","","52.7","","","0.4","","","0.6","%","","9.8","","","18.6","%"],["Total operating expenses","5,106.3","","","5,225.2","","","5,309.2","","","(118.9)","","","(2.3)","%","","(84.0)","","","(1.6)","%"]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["$ in millions","2021","","% of Total Operating Expenses","","% of Operating Revenues","","2020","","% of Total Operating Expenses","","% of Operating Revenues","","2019","","% of Total Operating Expenses","","% of Operating Revenues"],["Third-party distribution, service and advisory","2,149.3","","","42.1","%","","31.2","%","","1,947.6","","","37.3","%","","31.7","%","","1,893.0","","","35.7","%","","30.9","%"],["Employee compensation","1,911.3","","","37.4","%","","27.7","%","","1,807.9","","","34.6","%","","29.4","%","","1,709.3","","","32.2","%","","27.9","%"],["Marketing","98.6","","","1.9","%","","1.4","%","","83.3","","","1.6","%","","1.4","%","","135.6","","","2.6","%","","2.2","%"],["Property, office and technology","526.0","","","10.4","%","","7.7","%","","512.3","","","9.8","%","","8.3","%","","494.1","","","9.3","%","","8.1","%"],["General and administrative","424.1","","","8.3","%","","6.2","%","","480.8","","","9.2","%","","7.8","%","","404.2","","","7.6","%","","6.6","%"],["Transaction, integration and restructuring","(65.9)","","","(1.3)","%","","(1.0)","%","","330.8","","","6.3","%","","5.4","%","","620.3","","","11.7","%","","10.1","%"],["Amortization of intangibles (1)","62.9","","","1.2","%","","0.9","%","","62.5","","","1.2","%","","1.0","%","","52.7","","","1.0","%","","0.9","%"],["Total operating expenses","5,106.3","","","100.0","%","","74.1","%","","5,225.2","","","100","%","","85.0","%","","5,309.2","","","100.0","%","","86.8","%"]]
[[/GREPCENT_TABLE]]

_________

(1)    In prior periods, amortization of intangible assets was included in the transaction, integration and restructuring line item. Beginning in 2021, amortization of intangible assets is presented on a separate line item. There is no impact on operating expenses, operating income or net income.

During the year ended December 31, 2021, operating expenses decreased by $118.9 million (2.3%) to $5,106.3 million (year ended December 31, 2020: $5,225.2 million). The impact of foreign exchange rate movements increased operating expenses by $79.5 million, or 1.6% of total operating expenses, during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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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 $201.7 million (10.4%) in the year ended December 31, 2021 to $2,149.3 million (year ended December 31, 2020: $1,947.6 million). The impact of foreign exchange rate movements increased third-party costs by $24.1 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. After allowing for foreign exchange rate changes, the increase in costs was $177.6 million. Included are increases of $99.4 million in service fees (primarily 12b-1 and transfer agent fees), $29.9 million in unitary and fund expenses, $24.6 million in transaction fees, $11.3 million in asset and sales based fees, $10.8 million in front end load commissions and $5.6 million in renewal commissions, partially offset by a decrease in sales commissions of $6.0 million. The increase is primarily driven by higher average AUM, partially offset by changes in AUM mix as discussed above. 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 by $103.4 million (5.7%) to $1,911.3 million in the year ended December 31, 2021 (year ended December 31, 2020: $1,807.9 million). The impact of foreign exchange rate movements increased employee compensation by $33.5 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. After allowing for foreign exchange rate changes, the increase in employee compensation was $69.9 million. This increase was due to increases of $98.9 million in variable compensation due to improved performance of the company in 2021 as well as $34.3 million related to the mark-to-market on the deferred compensation liability. These increases were partially offset by a decrease of $34.7 million in base salaries, staff benefits and other staff costs as well as a $28.6 million decrease in share-based compensation expenses. These decreases are the result of savings realized from our strategic evaluation, which includes realigning our client facing workforce to support key areas of growth and repositioning to lower cost locations.

Headcount at December 31, 2021 was 8,513 (December 31, 2020; 8,512).

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 increased by $15.3 million (18.4%) in the year ended December 31, 2021 to $98.6 million (year ended December 31, 2020: $83.3 million). The impact of foreign exchange rate movements increased marketing expenses by $2.2 million. After allowing for foreign exchange rate movements, marketing expenses increased $13.1 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was related to increased advertising partially offset by decreased sales literature and research and other marketing costs.

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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 $13.7 million (2.7%) to $526.0 million in the year ended December 31, 2021 (year ended December 31, 2020: $512.3 million). The impact of foreign exchange rate movements increased property, office and technology expenses by $9.2 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. After allowing for foreign exchange rate movements, expenses increased $4.5 million. The increase was primarily driven by increases in software maintenance costs of $17.8 million and depreciation expenses of $7.2 million, partially offset by lower property expenses of $13.9 million and outsourced administration costs of $3.9 million.

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 decreased by $56.7 million (11.8%) to $424.1 million in the year ended December 31, 2021 (year ended December 31, 2020: $480.8 million). The impact of foreign exchange rate movements increased general and administrative expenses by $10.5 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020. After allowing for foreign exchange rate movements, the decrease was $67.2 million. The decrease was primarily driven by the $105.3 million S&P 500 equal weight funds rebalancing correction in 2020, partially offset by increases of $13.8 million in professional services costs, $11.5 million in charitable contributions to the Invesco foundation and other charitable causes, $7.9 million in market data services costs and $3.5 million in 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 initiatives, including incremental costs associated with achieving expense savings following a business combination or restructuring initiative.

Transaction, integration and restructuring charges were a benefit of $65.9 million in the year ended December 31, 2021 (year ended December 31, 2020: $330.8 million expense).

Transaction and integration expense (excluding restructuring) was a benefit of $186.5 million during the year ended December 31, 2021 (year ended December 31, 2020: $183.0 million expense), primarily related to a $131.1 million reduction to the OppenheimerFunds acquisition-related liability and $100.0 million in insurance recovery received related to the matter. (See Item 8, Financial Statements and Supplementary Data, - Note 20, "Commitments and Contingencies," for additional details). The benefit was partially offset by $21.9 million of compensation-related expenses and $22.7 million of non-compensation expenses primarily related to the OppenheimerFunds acquisition.

Restructuring costs were $120.6 million for the year ended December 31, 2021 (year ended December 31, 2020: $147.8 million). Restructuring costs related to the strategic evaluation were $100.5 million for the year ended December 31, 2021 (year ended December 31, 2020: $119.0 million) and are primarily composed of severance and other personnel-related charges (see Item 8, Financial Statements and Supplementary Data, - Note 14, "Restructuring," for additional details).

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

Operating income increased by $867.8 million (94.3%) to $1,788.2 million in the year ended December 31, 2021 (year ended December 31, 2020: $920.4 million). Operating margin (operating income divided by operating revenues), increased to 25.9% in the year ended December 31, 2021 from 15.0% in the year ended December 31, 2020. Adjusted operating income increased by $518.1 million (31.1%) to $2,182.6 million in the year ended December 31, 2021 from $1,664.5 million in the year ended December 31, 2020. Adjusted operating margin increased to 41.5% in the year ended December 31, 2021 from 37.0% in the year ended December 31, 2020. 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:

[[GREPCENT_TABLE]]
[["","","","","","","","Variance"],["","Years ended December 31,","","2021 vs 2020","","2020 vs 2019"],["$ in millions","2021","","2020","","2019","","$ Change","","% Change","","$ Change","","% Change"],["Equity in earnings of unconsolidated affiliates","152.3","","","72.7","","","56.4","","","79.6","","","109.5","%","","16.3","","","28.9","%"],["Interest and dividend income","25.2","","","20.5","","","28.5","","","4.7","","","22.9","%","","(8.0)","","","(28.1)","%"],["Interest expense","(94.7)","","","(129.3)","","","(135.7)","","","34.6","","","(26.8)","%","","6.4","","","(4.7)","%"],["Other gains and losses, net","120.5","","","44.9","","","65.7","","","75.6","","","168.4","%","","(20.8)","","","(31.7)","%"],["Other income/(expense) of CIP, net","509.0","","","139.9","","","149.8","","","369.1","","","263.8","%","","(9.9)","","","(6.6)","%"],["Total other income and expenses","712.3","","","148.7","","","164.7","","","563.6","","","379.0","%","","(16.0)","","","(9.7)","%"]]
[[/GREPCENT_TABLE]]

Equity in earnings of unconsolidated affiliates

Equity in earnings of unconsolidated affiliates increased by $79.6 million (109.5%) to $152.3 million in the year ended December 31, 2021 (year ended December 31, 2020: $72.7 million). The increase is primarily driven by increases of $50.3 million in our joint venture investment in Invesco Great Wall due to increased revenues as discussed above, $17.2 million in private equity investments and $9.0 million in real estate investments.

Interest expense

Interest expense decreased by $34.6 million (26.8%) to $94.7 million in the year ended December 31, 2021 (year ended December 31, 2020: $129.3 million). The decrease is primarily driven by the settlement of the forward contracts in the second quarter of 2021.

Other gains and losses, net

Other gains and losses, net was a gain of $120.5 million in the year ended December 31, 2021, compared to a net gain of $44.9 million in the year ended December 31, 2020. Included in the 2021 gain were $55.0 million of gains resulting from certain private equity funds that are in liquidation, $31.1 million of gains on investments and instruments held for our deferred compensation plans, $27.0 million of net gains related to the mark-to-market on seed money investments and $10.1 million of gains on acquisition-related contingent consideration liabilities, partially offset by $7.1 million of investment losses. 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, 2021, interest and dividend income of CIP decreased by $22.6 million (7.5%) to $279.7 million (year ended December 31, 2020: $302.3 million). Interest expense of CIP decreased by $33.8 million (17.4%) to $160.7 million (year ended December 31, 2020: $194.5 million). The decrease in interest income and interest expense of CIP is primarily due to less net interest income for CLOs in 2021.

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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, 2021, other gains and losses of CIP were a net gain of $390.0 million, as compared to a net gain of $32.1 million in the year ended December 31, 2020. The net gain during 2021 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, 2021 resulted in no net change in net income attributable to Invesco Ltd. (year ended December 31, 2020: $9.4 million net increase).

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 $1,243.7 million during the year ended December 31, 2021 to $2,089.5 million from $845.8 million for the year ended December 31, 2020 and includes U.S. income of CIP of $283.0 million (December 31, 2020: $40.1 million). U.S. income from CIP increased $242.9 million (605.7%) from 2020 primarily due to the impact of gains on consolidated partnerships. Excluding CIP, U.S. income before taxes in 2021 increased $1,000.8 million (124.2%) from December 31, 2020 due to a larger increase in U.S. operating revenues than operating expenses.

Total Foreign income before taxes increased $187.7 million during the year ended December 31, 2021 to $411.0 million from $223.3 million during the year ended December 31, 2020 and includes foreign income of CIP of $56.6 million (December 31, 2020: foreign income of CIP of $15.2 million). Foreign income from CIP increased $41.4 million (272.4%) from 2020 primarily due to greater net gains on consolidated retail products. Excluding CIP, foreign income increased by $146.3 million (70.3%) from 2020 due to a larger increase in foreign operating revenues and other income than operating expenses.

Income Tax Expense

Our effective tax rate decreased to 21.2% for the year ended December 31, 2021 from 24.5% for the year ended December 31, 2020 primarily due to the increase in income from non-controlling interests in consolidated entities and an increase in the favorable 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:

[[GREPCENT_TABLE]]
[["$ in millions","2021","","2020","","2019"],["Operating revenues, U.S. GAAP basis","6,894.5","","","6,145.6","","","6,117.4"],["Invesco Great Wall (1)","473.5","","","263.2","","","157.2"],["Revenue Adjustments: (2)"],["Investment management fees","(844.1)","","","(779.8)","","","(814.4)"],["Service and distribution fees","(1,087.5)","","","(986.1)","","","(886.3)"],["Other","(217.7)","","","(181.7)","","","(192.3)"],["Total Revenue Adjustments","(2,149.3)","","","(1,947.6)","","","(1,893.0)"],["CIP (3)","42.4","","","39.8","","","33.5"],["Net revenues","5,261.1","","","4,501.0","","","4,415.1"]]
[[/GREPCENT_TABLE]]

Reconciliation of Operating income to Adjusted operating income:

[[GREPCENT_TABLE]]
[["$ in millions","2021","","2020","","2019"],["Operating income, U.S. GAAP basis","1,788.2","","920.4","","808.2"],["Invesco Great Wall (1)","276.6","","143.7","","76.5"],["CIP (3)","67.7","","62.0","","61.6"],["Transaction, integration and restructuring (4)","(65.9)","","330.8","","620.3"],["Amortization of intangible assets (5)","62.9","","62.5","","52.7"],["Compensation expense related to market valuation changes in deferred compensation plans (6)","53.1","","39.8","","36.5"],["Other reconciling items (7)","\u2014","","105.3","","\u2014"],["Adjusted operating income","2,182.6","","1,664.5","","1,655.8"],["Operating margin*","25.9","%","","15.0","%","","13.2","%"],["Adjusted operating margin**","41.5","%","","37.0","%","","37.5","%"]]
[[/GREPCENT_TABLE]]

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Reconciliation of Net income attributable to Invesco Ltd. to Adjusted net income attributable to Invesco Ltd.:

[[GREPCENT_TABLE]]
[["$ in millions, except per common share data","2021","","2020","","2019"],["Net income attributable to Invesco Ltd., U.S. GAAP basis","1,393.0","","","524.8","","","564.7"],["CIP (3)","\u2014","","","(9.4)","","","1.6"],["Transaction, integration and restructuring, net of tax (4)","(52.8)","","","253.5","","","480.9"],["Amortization of intangible assets, net of tax (5)","83.7","","","86.2","","","77.2"],["Deferred compensation plan market valuation changes and dividend income less compensation expense, net of tax (6)","0.3","","","(20.1)","","","(7.9)"],["Other reconciling items, net of tax (7)","15.4","","","57.9","","","7.5"],["Adjusted net income attributable to Invesco Ltd.","1,439.6","","","892.9","","","1,124.0"],["Average common shares outstanding - diluted","465.4","","","462.5","","","440.5"],["Diluted EPS","$2.99","","","$1.13","","","$1.28"],["Adjusted diluted EPS***","$3.09","","","$1.93","","","$2.55"]]
[[/GREPCENT_TABLE]]

____________

*    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

Management reflects 100% of Invesco Great Wall in its net revenues and adjusted operating expenses. 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.

During the year ended December 31, 2021, management fees earned from CIP that were eliminated upon consolidation were $42.4 million (2020: $39.8 million; 2019: $33.5 million). There were no performance fees earned from CIP that were eliminated upon consolidation during the years ended December 31, 2021, 2020, 2019.

(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, 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, 2021 compared to December 31, 2020 -- Transaction, Integration and Restructuring" for additional details.

(5)    Amortization of intangible assets

In prior periods, amortization of intangible assets was included in the transaction, integration and restructuring line item. Beginning in 2021, amortization of intangible assets is presented on a separate line item. There is no impact on operating expenses, operating income or net income.

Management believes it is useful to investors and other users of our financial statements to remove amortization expense related to acquired assets and to reflect the tax benefit realized on the tax amortization of goodwill, finite-lived intangibles and indefinite-lived intangible assets 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-related charges.

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(6)    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.

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:

[[GREPCENT_TABLE]]
[["$ in millions","2021","","2020","","2019"],["Market movement on deferred compensation plan liabilities:"],["Compensation expense related to market valuation changes in deferred compensation liability","53.1","","","39.8","","","36.5"],["Adjustments to operating income","53.1","","","39.8","","","36.5"],["Market valuation changes and dividend income from investments and instruments held related to deferred compensation plans in other income/(expense)","(52.8)","","","(65.8)","","","(46.8)"],["Taxation:"],["Income Tax on market movement of deferred compensation plan liabilities","\u2014","","","5.9","","","2.4"],["Adjustments to net income attributable to Invesco Ltd.","0.3","","","(20.1)","","","(7.9)"]]
[[/GREPCENT_TABLE]]

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(7)    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.

[[GREPCENT_TABLE]]
[["$ in millions","2021","","2020","","2019"],["Other non-GAAP adjustments:"],["Fund rebalancing correction (a)","\u2014","","","105.3","","","\u2014"],["Adjustments to operating income","\u2014","","","105.3","","","\u2014"],["Foreign exchange hedge (b)","\u2014","","","(1.2)","","","0.9"],["Change in contingent consideration estimates (c)","(10.1)","","","(15.2)","","","7.8"],["Taxation:"],["Taxation on fund rebalancing correction (a)","\u2014","","","(25.3)","","","\u2014"],["Taxation on foreign exchange hedge amortization (b)","\u2014","","","0.3","","","(0.2)"],["Taxation on change in consideration estimates (c)","2.4","","","3.7","","","(1.0)"],["Unrecognized tax position (d)","\u2014","","","(9.0)","","","\u2014"],["Remeasurement of net deferred tax assets & liabilities (e)","23.1","","","(0.7)","","","\u2014"],["Adjustments to net income attributable to Invesco Ltd.","15.4","","","57.9","","","7.5"]]
[[/GREPCENT_TABLE]]

____________

(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)Included within other gains and losses, net for the years ended December 31, 2020 and 2019, 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. The Pound Sterling contracts provided coverage through June 30, 2020. The adjustment from U.S. GAAP to non-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.

(c)Adjustment represents the change in the fair value of the contingent consideration liabilities for the acquired investment management contracts from Deutsche Bank and the company's digital wealth acquisitions made in 2019.

(d)The income tax provision for the year ended December 31, 2020 includes a tax benefit of $9.0 million resulting from the reversal of an unrecognized tax benefit due to the expiration of the statute of limitations. This benefit has been removed from the company’s non-GAAP results to be consistent with the exclusion of the original provision in a prior period.

(e)2021 included a net non-cash income tax expense of $23.1 million related to the remeasurement of certain deferred tax assets and liabilities due to income tax rate changes (2020: $0.7 million net benefit).

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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:

[[GREPCENT_TABLE]]
[["","As of December 31, 2021","","As of December 31, 2020"],["Balance sheet information $ in millions","U.S. GAAP","","Impact of CIP","","Impact of Policyholders","","As Adjusted","","U.S. GAAP","","Impact of CIP","","Impact of Policyholders","","As Adjusted"],["ASSETS"],["Cash and cash equivalents","1,896.4","","","\u2014","","","\u2014","","","1,896.4","","","1,408.4","","","\u2014","","","\u2014","","","1,408.4"],["Unsettled fund receivables","92.8","","","\u2014","","","\u2014","","","92.8","","","109.4","","","\u2014","","","\u2014","","","109.4"],["Investments","926.3","","","(454.8)","","","\u2014","","","1,381.1","","","826.8","","","(421.4)","","","\u2014","","","1,248.2"],["Assets of CIP:"],["Investments and other assets of CIP","9,575.1","","","9,575.1","","","\u2014","","","\u2014","","","8,085.5","","","8,085.5","","","\u2014","","","\u2014"],["Cash and cash equivalents of CIP","250.7","","","250.7","","","\u2014","","","\u2014","","","301.7","","","301.7","","","\u2014","","","\u2014"],["Assets held for policyholders","1,893.6","","","\u2014","","","1,893.6","","","\u2014","","","7,582.1","","","\u2014","","","7,582.1","","","\u2014"],["Goodwill and intangible assets, net","16,110.5","","","\u2014","","","\u2014","","","16,110.5","","","16,221.9","","","\u2014","","","\u2014","","","16,221.9"],["Other assets (2)","1,940.2","","","(6.4)","","","\u2014","","","1,946.6","","","1,968.3","","","(5.1)","","","\u2014","","","1,973.4"],["Total assets","32,685.6","","","9,364.6","","","1,893.6","","","21,427.4","","","36,504.1","","","7,960.7","","","7,582.1","","","20,961.3"],["LIABILITIES"],["Liabilities of CIP:"],["Debt of CIP","7,336.1","","","7,336.1","","","\u2014","","","\u2014","","","6,714.1","","","6,714.1","","","\u2014","","","\u2014"],["Other liabilities of CIP","846.3","","","846.3","","","\u2014","","","\u2014","","","588.6","","","588.6","","","\u2014","","","\u2014"],["Policyholder payables","1,893.6","","","\u2014","","","1,893.6","","","\u2014","","","7,582.1","","","\u2014","","","7,582.1","","","\u2014"],["Unsettled fund payables","91.8","","","\u2014","","","\u2014","","","91.8","","","98.4","","","\u2014","","","\u2014","","","98.4"],["Debt","2,085.1","","","\u2014","","","\u2014","","","2,085.1","","","2,082.6","","","\u2014","","","\u2014","","","2,082.6"],["Other liabilities (3)","3,753.9","","","\u2014","","","\u2014","","","3,753.9","","","4,417.6","","","\u2014","","","\u2014","","","4,417.6"],["Total liabilities","16,006.8","","","8,182.4","","","1,893.6","","","5,930.8","","","21,483.4","","","7,302.7","","","7,582.1","","","6,598.6"],["EQUITY"],["Total equity attributable to Invesco Ltd.","15,495.8","","","(0.1)","","","\u2014","","","15,495.9","","","14,361.8","","","(0.1)","","","\u2014","","","14,361.9"],["Noncontrolling interests (4)","1,183.0","","","1,182.3","","","\u2014","","","0.7","","","658.9","","","658.1","","","\u2014","","","0.8"],["Total equity","16,678.8","","","1,182.2","","","\u2014","","","15,496.6","","","15,020.7","","","658.0","","","\u2014","","","14,362.7"],["Total liabilities and equity","32,685.6","","","9,364.6","","","1,893.6","","","21,427.4","","","36,504.1","","","7,960.7","","","7,582.1","","","20,961.3"]]
[[/GREPCENT_TABLE]]
____________

(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.

Cash and cash equivalents

Cash and cash equivalents increased by $488.0 million from $1,408.4 million at December 31, 2020 to $1,896.4 million at December 31, 2021. 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 capital adequacy requirements in certain jurisdictions.

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Investments

As of December 31, 2021, we had $926.3 million in investments (December 31, 2020: $826.8 million). Included in investments are $109.4 million of seed money investments in affiliated funds used to seed funds as we launch new products, and $226.6 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 $44.1 million during the year ended December 31, 2021. The decrease in the period was related to redemptions of $232.2 million, partially offset by purchases of $133.4 million, a non-cash increase of $27.6 million due to the deconsolidation of certain CIP in the period (restoring the company's formerly eliminated investment balances) and $27.1 million of market valuation changes and foreign exchange movement. Investments related to deferred compensation awards increased by a net $23.9 million during the period due to purchases of $22.6 million and $2.8 million of market valuation changes and foreign exchange movements, partially offset by dispositions of $1.5 million.

Included in investments are $550.1 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, 2020: $426.1 million). The increase of $124.0 million in equity method investments was driven by $152.2 million in current period earnings and partnership contributions of $76.8 million. This increase was partially offset by $44.9 million related to capital distributions from partnership investments, $38.8 million related to a dividend from Invesco Great Wall, $11.8 million in investment losses, partially offset by foreign exchange movements, and $9.5 million related to distributions from partnership investments. Also included in investments are foreign time deposits of $30.4 million, an increase of $0.5 million from the December 31, 2020 balance of $29.9 million.

As of December 31, 2021, the company had $856.7 million in seed capital and co-investments (December 31, 2020: $810.4 million), including direct investments in consolidated investment products. Total seed capital and co-investments is presented as a helpful measure for investors and represents our net investment interest including our net interest in CIP, net of deferred compensation investments, joint ventures and other investments. The following table reconciles the investment balance to the total seed capital and co-investment balance.

[[GREPCENT_TABLE]]
[["","As of"],["$ in millions","December 31, 2021","","December 31, 2020"],["Investments","926.3","","","826.8"],["Net interest in consolidated investment products (1)","454.8","","","421.4"],["Less: Investments related to deferred compensation plans, joint ventures, and other investments","(524.4)","","","(437.8)"],["Total seed capital and co-investments (2)","856.7","","","810.4"]]
[[/GREPCENT_TABLE]]

____________

(1)    Included in net interest in consolidated investment products as of December 31, 2021 is $195.3 million of seed capital and $259.5 million of co-investments (December 31, 2020: $199.4 million of seed capital and $222.0 million of co-investments).

(2)    Included in the total seed and co-investment balance as of December 31, 2021 is $304.7 million of seed capital and $552.0 million of co-investments (December 31, 2020: $353.0 million of seed capital and $457.4 million of co-investments).

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 $7,582.1 million at December 31, 2020 to $1,893.6 million at December 31, 2021, resulted from net business outflows of $5,752.7 million and negative foreign exchange rate movements of $72.9 million, partially offset by positive market movements of $137.1 million.

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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:

2021: We remain highly focused on our capital management and believe we are making solid progress in our efforts to build financial flexibility. Our credit facility balance was zero as of December 31, 2021, consistent with our commitment to improve our leverage profile. We fully settled our remaining share repurchase forward contracts liability of $309 million in the first half of 2021, and we renegotiated our $1.5 billion credit facility, extending the maturity date to April 26, 2026.

As a result of our progress, the Board approved a 10% increase in our dividend to $0.17 per share in the second quarter of 2021. We remain committed to a sustainable dividend policy and to returning capital to shareholders longer term through a combination of modestly increasing dividends and share repurchases. As the company continued to focus on increasing financial strength and building liquidity, the company did not repurchase any of its shares in the open market during 2021. An aggregate of 2.7 million common shares were withheld in the amount of $60.9 million related to tax withholding requirements on employee share vestings during the year ended December 31, 2021.

On January 25, 2022, the company announced its intention to repurchase up to $200 million in common stock in the first quarter of 2022, subject to market conditions. As of December 31, 2021, approximately $732.2 million remained authorized under the company's common share repurchase authorization approved by the Board on July 22, 2016.

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, as part of the redemption plan announced on April 23, 2020, the company redeemed $232 million of seed capital investments from certain of our investment products as of December 31, 2020.

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.

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.

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

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 represent fixed-price contracts, which are either non-cancelable or cancellable with a penalty. As of December 31, 2021, the company's purchase obligations totaled $619.7 million (December 31, 2020: $874.3 million) and primarily reflect standard service contracts for portfolio, market data, office-related services and third-party marketing and promotional services. Purchase obligations are recorded as liabilities in the company's Consolidated Financial Statements when services are provided.

Capital Management

Our capital management priorities have evolved with the growth and success of our business and include, in no particular order of priority: reinvestment in the business, maintaining a strong balance sheet and returning capital to our investors through share repurchases and moderate growth of dividends.

Our capital management process is executed in a manner consistent with our desire to maintain strong, investment grade credit ratings. As of the date of our filing, Invesco held credit ratings of A3/Stable, BBB+/Stable and A-/Stable from Moody's Investor Services (Moody's), Standard & Poor's Ratings Service (S&P), 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.

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Other Items

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, 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, 2021, the company's minimum regulatory capital requirement was $724.9 million (December 31, 2020: $763.6 million); the decrease was driven by a reduction in net capital requirements in the UK as a result of lower expenses and AUM levels, as well as the weakening of the Pound Sterling against the U.S. Dollar. The total amount of non-U.S. cash and cash equivalents was $1,088.3 million at December 31, 2021 (December 31, 2020: $1,034.8 million).

The consolidation of $9,825.8 million and $7,336.1 million of total assets and debt of CIP as of December 31, 2021, 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.

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Cash Flows 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, in no particular order of priority: reinvestment in the business, maintaining a strong balance sheet and returning capital to our investors through share repurchases and moderate growth of dividends.

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:

[[GREPCENT_TABLE]]
[["Cash flows information (1)","Year ended December 31, 2021","","Year ended December 31, 2020","","Year ended December 31, 2019"],["$ in millions","U.S. GAAP","","Impact of CIP","","Excluding CIP","","U.S. GAAP","","Impact of CIP","","Excluding CIP","","U.S. GAAP","","Impact of CIP","","Excluding CIP"],["Cash, cash equivalents and restricted cash, beginning of the period (2)","1,839.3","","","301.7","","","1,537.6","","","1,701.2","","","652.2","","","1,049.0","","","1,805.4","","","657.7","","","1,147.7"],["Cash flows from operating activities (1)","1,078.1","","","(436.1)","","","1,514.2","","","1,230.3","","","(72.7)","","","1,303.0","","","1,116.6","","","(158.3)","","","1,274.9"],["Cash flows from investing activities","(847.9)","","","(755.4)","","","(92.5)","","","(859.6)","","","(729.9)","","","(129.7)","","","(1,432.8)","","","(1,514.8)","","","82.0"],["Cash flows from financing activities","117.3","","","1,148.0","","","(1,030.7)","","","(285.9)","","","426.3","","","(712.2)","","","201.3","","","1,674.6","","","(1,473.3)"],["Increase/(decrease) in cash and cash equivalents","347.5","","","(43.5)","","","391.0","","","84.8","","","(376.3)","","","461.1","","","(114.9)","","","1.5","","","(116.4)"],["Foreign exchange movement on cash and cash equivalents","(39.7)","","","(7.5)","","","(32.2)","","","53.3","","","25.8","","","27.5","","","10.7","","","(7.0)","","","17.7"],["Cash, cash equivalents and restricted cash, end of the period","2,147.1","","","250.7","","","1,896.4","","","1,839.3","","","301.7","","","1,537.6","","","1,701.2","","","652.2","","","1,049.0"],["Cash and cash equivalents","1,896.4","","","\u2014","","","1,896.4","","","1,408.4","","","\u2014","","","1,408.4","","","1,049.0","","","\u2014","","","1,049.0"],["Restricted cash(2)","\u2014","","","\u2014","","","\u2014","","","129.2","","","\u2014","","","129.2","","","\u2014","","","\u2014","","","\u2014"],["Cash and cash equivalents of CIP","250.7","","","250.7","","","\u2014","","","301.7","","","301.7","","","\u2014","","","652.2","","","652.2","","","\u2014"],["Total cash, cash equivalents and restricted cash per consolidated statement of cash flows","2,147.1","","","250.7","","","1,896.4","","","1,839.3","","","301.7","","","1,537.6","","","1,701.2","","","652.2","","","1,049.0"]]
[[/GREPCENT_TABLE]]

____________

(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.

(2)    Restricted cash of $129.2 million as of December 31, 2020 is recorded in Other assets on the Consolidated Balance Sheets. There was no restricted cash as of December 31, 2021 or 2019.

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 2021, cash provided by operating activities was $1,078.1 million compared to $1,230.3 million provided during 2020 (a decrease of $152.2 million). As shown in the tables above, the impact of CIP to operating activities was $436.1 million of cash used during 2021 compared to $72.7 million of cash used during 2020. Excluding the impact of CIP, cash provided by operations was $1,514.2 million during 2021 compared to $1,303.0 million of cash provided by operations during 2020. Cash inflows for the year ended December 31, 2021, excluding the impact of CIP, included an $867.8 million increase in operating income, net investment redemptions of $62.1 million, including seed money and deferred compensation investments (2020: net investment redemptions of $293.8 million) and an Invesco Great Wall dividend of $38.8 million (2020: $27.6 million). Inflows were partially offset by net outflows from the changes in payables and receivables due to the timing of payments and receipts.

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Investing Activities

Net cash used in investing activities totaled $847.9 million for the year ended December 31, 2021 (2020: net cash used in $859.6 million). As shown in the tables above, the impact of CIP on investing activities, including investment purchases, sales and returns of capital, was $755.4 million used (2020: $729.9 million used). Excluding the impact of CIP cash flows, net cash used in investing activities was $92.5 million (2020: net cash used of $129.7 million).

Cash outflows for the year ended December 31, 2021, excluding the impact of CIP, includes a net inflow of $16.3 million, which is comprised of collected proceeds of $227.0 million from sales and returns of capital of investments (year ended December 31, 2020: $185.6 million), partially offset by purchases of investments of $210.7 million (year ended December 31, 2020: $200.3 million).

During the year ended December 31, 2021, the company had capital expenditures of $108.8 million (2020: $115.0 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 client-facing systems including websites and client reporting tools, upgrades in computer hardware and software desktop and laptop products for employees, and improvements in the firm’s data solutions. 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 provided by financing activities totaled $117.3 million for the year ended December 31, 2021 (2020: cash used of $285.9 million). As shown in the tables above, the impact of CIP on financing activities provided cash of $1,148 million during the year (2020: cash provided of $426.3 million). Excluding the impact of CIP, financing activities used cash of $1,030.7 million in the year ended December 31, 2021 (2020: cash used of $712.2 million).

Financing cash outflows during the year ended December 31, 2021 included the $309.4 million settlement of the

forward contracts (2020: $190.6 million), $104.1 million of net collateral on the forward contracts returned to the counterparty (2020: $142.0 million net collateral received), $307.7 million of common dividend payments for dividends declared in January, April, July and October 2021 (year ended December 31, 2020: dividends paid of $357.4 million), $236.8 million of preferred dividend payments for dividends declared in January, April, July and October 2021 (year ended December 31, 2020: $236.8 million), the payment of $60.9 million to meet employees' withholding tax obligations on common share vestings (2020: $47.1 million) and a payment of $11.8 million of contingent consideration (year ended December 31, 2020: $22.3 million). The credit facility had no net borrowing during the year ended December 31, 2021 (2020: no net borrowing).

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 25, 2022 the company declared a fourth quarter 2021 dividend of $0.17 per common share to the holders of common shares, payable on March 2, 2022, to shareholders of record at the close of business on February 16, 2022 with an ex-dividend date of February 15, 2022.

On January 25, 2022, the company announced a preferred dividend of $14.75 per preferred share to the holders of preferred shares, representing the period from December 1, 2021 through February 28, 2022, payable on March 1, 2022, to shareholders of record at the close of business on February 15, 2022.

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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

The company did not purchase any of its shares in the open market during the years ended December 31, 2021 and 2020.

During the year ended December 31, 2021, the company fully settled our remaining share repurchase forward contracts liability of $309 million. See Item 8, Financial Statements and Supplementary Data Note 10, “Share Capital,” for details of these forward contracts.

On January 25, 2022, the company announced its intention to repurchase up to $200 million in common stock in the first quarter of 2022, subject to market conditions. At December 31, 2021, approximately $732.2 million remained authorized under the company's common share repurchase authorization approved by the Board on July 22, 2016 (December 31, 2020: $732.2 million).

Debt

The carrying value of our debt at December 31, 2021 was $2,085.1 million (December 31, 2020: $2,082.6 million) and was comprised of the following:

[[GREPCENT_TABLE]]
[["$ in millions","December 31, 2021","","December 31, 2020"],["$1.5 billion floating rate credit facility expiring April 26, 2026 (1)","\u2014","","","\u2014"],["Unsecured Senior Notes:"],["$600 million 3.125% - due November 30, 2022","599.4","","","598.7"],["$600 million 4.000% - due January 30, 2024","597.8","","","596.8"],["$500 million 3.750% - due January 15, 2026","497.3","","","496.7"],["$400 million 5.375% - due November 30, 2043","390.6","","","390.4"],["Debt","2,085.1","","","2,082.6"]]
[[/GREPCENT_TABLE]]

____________

(1)On April 26, 2021, Invesco Ltd. and its indirect subsidiary, Invesco Finance PLC, amended and restated the $1.5 billion floating rate credit facility, extending the expiration date from August 11, 2022 to April 26, 2026.

For the year ended December 31, 2021, the company's weighted average cost of debt was 3.95% (year ended December 31, 2020: 3.77%).

Financial covenants under the credit facility agreement include: (i) the quarterly maintenance of an adjusted debt/EBITDA leverage ratio, as defined in the credit facility agreement, of not greater than 3.25:1.00, (ii) an interest coverage ratio (EBITDA, as defined in the credit facility 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, 2021, we were in compliance with our financial covenants. At December 31, 2021, our leverage ratio was 0.79:1.00 (December 31, 2020: 1.37:1.00), and our interest coverage ratio was 25.21:1.00 (December 31, 2020: 11.83:1.00).

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The December 31, 2021 and 2020 coverage ratio calculations are as follows:

[[GREPCENT_TABLE]]
[["","Last four quarters ended"],["$ millions","December 31, 2021","","December 31, 2020"],["Net income attributable to Invesco Ltd.","1,393.0","","","524.8"],["Dividends on preferred shares","236.8","","","236.8"],["Impact of CIP on net income attributable to Invesco Ltd.","\u2014","","","(9.4)"],["Tax expense","531.1","","","261.6"],["Amortization/depreciation","205.3","","","203.5"],["Interest expense","94.7","","","129.3"],["Common share-based compensation expense","140.1","","","188.5"],["Unrealized (gains)/losses from investments, net (1)","17.9","","","(5.6)"],["OppenheimerFunds acquisition-related matter (2)","(231.1)","","","\u2014"],["EBITDA (3)","2,387.8","","","1,529.5"],["Adjusted debt (3)","$1,888.1","","","$2,094.2"],["Leverage ratio (Adjusted debt/EBITDA - maximum 3.25:1.00)","0.79","","","1.37"],["Interest coverage (EBITDA/Interest Expense - minimum 4.00:1.00)","25.21","","","11.83"]]
[[/GREPCENT_TABLE]]

____________

(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)Unusual or otherwise non-recurring gains and losses, as defined in our credit facility, are adjusted for in the determination of EBITDA. The benefit to expense related to the change in the OppenheimerFunds acquisition related liability and the related insurance recovery are considered unusual and have been deducted in the determination of EBITDA.

(3)EBITDA and Adjusted debt are non-GAAP financial measures that are used by management in connection with certain debt covenant calculations under our credit facility agreement. The calculation of EBITDA above (a reconciliation from net income attributable to Invesco Ltd.) is defined by our credit facility 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 debt of $2,085.1 million plus $3.0 million in letters of credit less $200 million of excess unrestricted cash (cash and cash equivalents less the minimum regulatory capital requirement, not to exceed $200 million).

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.

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.

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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, 2021, our maximum exposure to credit risk related to our cash and cash equivalent balances is $1,896.4 million. See Item 8, Financial Statements and Supplementary Data - Note 3, "Fair Value of Assets and Liabilities" 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 $2,085.1 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,” for more information regarding undrawn capital commitments.

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 2021 and 2020 indicated that the fair value of the reporting unit more likely than not exceeded its carrying value. During our annual impairment test in 2021 and 2020, 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 in the first quarter of 2020, which indicated no impairment. The company cannot predict the occurrence of future events that might adversely affect the reported value of goodwill that totaled $8,882.5 million and $8,916.3 million at December 31, 2021 and December 31, 2020, 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.

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When management utilizes the option to first assess goodwill impairment on a qualitative basis, the sum of certain events and circumstances is 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 net long-term 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 $62.9 million, $62.5 million and $52.7 million for the years ended December 31, 2021, 2020 and 2019, 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 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 2021 and 2020, 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 AUM 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

The company files U.S. federal, state and numerous foreign income tax returns. 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 provision, 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.

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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 and 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. Changes in estimate of uncertain tax positions occur periodically due to changes in interpretations of tax laws, the status of examinations by tax authorities and new regulatory or judicial guidance that could impact the relative merits and risk of tax positions. These changes, when they occur, impact tax expense and can materially impact results of operations. 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, 2021, the company consolidated CIP that held investments of $9,042.5 million (December 31, 2020: $7,910.0 million).

Recent Accounting Standards

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