Edgar Filing: Invesco Ltd.

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

Emerging growth company o

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-13908

Invesco Ltd.

(Exact Name of Registrant as Specified in Its Charter)



Bermuda (State or Other Jurisdiction of Incorporation or Organization)		98-0557567 (I.R.S. Employer Identification No.)

1555 Peachtree Street, N.E., Suite 1800, Atlanta, GA (Address of Principal Executive Offices)		30309 (Zip Code)

(404) 892-0896

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No þ

As of March 31, 2018, the most recent practicable date, the number of Common Shares outstanding was 410,762,594.

Table of Contents

TABLE OF CONTENTS

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




	Page
TABLE OF CONTENTS

PART I. Financial Information
Item 1. Financial Statements (unaudited)	3
Condensed Consolidated Balance Sheets	3
Condensed Consolidated Statements of Income	4
Condensed Consolidated Statements of Comprehensive Income	5
Condensed Consolidated Statements of Cash Flows	6
Condensed Consolidated Statements of Changes in Equity	7
Notes to the Condensed Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	57
Item 4. Controls and Procedures	57

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	59
Item 1A. Risk Factors	59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 6. Exhibits	60
Signatures	61

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Invesco Ltd.

Condensed Consolidated Balance Sheets

(Unaudited)



	As of
$ in millions, except per share data	March 31, 2018		December 31, 2017
ASSETS
Cash and cash equivalents	1,861.5		2,006.4
Unsettled fund receivables	837.6		793.8
Accounts receivable	595.0		622.5
Investments	713.6		674.6
Assets of consolidated investment products (CIP):
Cash and cash equivalents of CIP	260.8		511.3
Accounts receivable and other assets of CIP	157.5		131.5
Investments of CIP	5,453.5		5,658.0
Assets held for policyholders	12,902.2		12,444.5
Prepaid assets	124.9		124.4
Other assets	64.5		61.7
Property, equipment and software, net	484.4		490.7
Intangible assets, net	1,559.1		1,558.7
Goodwill	6,604.5		6,590.7
Total assets	31,619.1		31,668.8
LIABILITIES
Accrued compensation and benefits	371.6		696.1
Accounts payable and accrued expenses	820.8		895.7
Liabilities of CIP:
Debt of CIP	4,502.7		4,799.8
Other liabilities of CIP	349.5		498.8
Policyholder payables	12,902.2		12,444.5
Unsettled fund payables	811.5		783.8
Long-term debt	2,076.4		2,075.8
Deferred tax liabilities, net	313.4		275.5
Total liabilities	22,148.1		22,470.0
Commitments and contingencies (See Note 11)
TEMPORARY EQUITY
Redeemable noncontrolling interests in consolidated entities	281.0		243.2
PERMANENT EQUITY
Equity attributable to Invesco Ltd.:
Common shares ($0.20 par value; 1,050.0 million authorized; 490.4 million shares issued as of March 31, 2018 and December 31, 2017)	98.1		98.1
Additional paid-in-capital	6,217.4		6,282.0
Treasury shares	(2,715.4	)	(2,781.9	)
Retained earnings	5,626.6		5,489.1
Accumulated other comprehensive income/(loss), net of tax	(331.4	)	(391.2	)
Total equity attributable to Invesco Ltd.	8,895.3		8,696.1
Equity attributable to nonredeemable noncontrolling interests in consolidated entities	294.7		259.5
Total permanent equity	9,190.0		8,955.6
Total liabilities, temporary and permanent equity	31,619.1		31,668.8

See accompanying notes.

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Invesco Ltd.

Condensed Consolidated Statements of Income

(Unaudited)



	Three months ended March 31,
$ in millions, except per share data	2018			2017
Operating revenues:
Investment management fees	1,043.7			955.2
Service and distribution fees	246.1			206.4
Performance fees	9.1			11.3
Other	56.9			19.7
Total operating revenues	1,355.8			1,192.6
Operating expenses:
Third-party distribution, service and advisory	419.1			349.3
Employee compensation	390.4			397.5
Marketing	28.1			24.4
Property, office and technology	102.2			85.5
General and administrative	94.9			78.0
Total operating expenses	1,034.7			934.7
Operating income	321.1			257.9
Other income/(expense):
Equity in earnings of unconsolidated affiliates	9.7			17.7
Interest and dividend income	4.2			2.9
Interest expense	(23.2		)	(24.0		)
Other gains and losses, net	(5.4		)	6.9
Other income/(expense) of CIP, net	27.2			28.5
Income before income taxes	333.6			289.9
Income tax provision	(68.4		)	(75.7		)
Net income	265.2			214.2
Net (income)/loss attributable to noncontrolling interests in consolidated entities	(11.3		)	(2.2		)
Net income attributable to Invesco Ltd.	253.9			212.0
Earnings per share:
-basic		$0.62			$0.52
-diluted		$0.62			$0.52
Dividends declared per share		$0.29			$0.28

See accompanying notes.

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Invesco Ltd.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three months ended March 31,
$ in millions	2018		2017
Net income	265.2		214.2
Other comprehensive income/(loss), net of tax:
Currency translation differences on investments in foreign subsidiaries	64.6		62.6
Other comprehensive income/(loss), net of tax	(1.6	)	3.0
Other comprehensive income/(loss)	63.0		65.6
Total comprehensive income/(loss)	328.2		279.8
Comprehensive loss/(income) attributable to noncontrolling interests in consolidated entities	(11.3	)	(2.2	)
Comprehensive income/(loss) attributable to Invesco Ltd.	316.9		277.6

See accompanying notes.

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Invesco Ltd.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Three months ended March 31,
$ in millions	2018		2017
Operating activities:
Net income	265.2		214.2
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Amortization and depreciation	33.6		26.3
Share-based compensation expense	40.9		49.2
Other (gains)/losses, net	5.4		(6.2	)
Other (gains)/losses of CIP, net	(8.8	)	(10.9	)
Equity in earnings of unconsolidated affiliates	(9.7	)	(17.7	)
Distributions from equity method investees	0.9		6.8
Changes in operating assets and liabilities:
(Purchase)/sale of investments by CIP, net	3.2		(88.5	)
(Purchase)/sale of investments, net	(31.8	)	154.9
(Increase)/decrease in receivables	26.4		(1,157.7	)
Increase/(decrease) in payables	(377.5	)	956.1
Net cash provided by/(used in) operating activities	(52.2	)	126.5
Investing activities:
Purchase of property, equipment and software	(20.6	)	(27.1	)
Purchase of investments by CIP	(938.6	)	(1,735.4	)
Sale of investments by CIP	661.2		1,683.9
Purchase of investments	(28.8	)	(34.7	)
Sale of investments	29.0		66.4
Capital distributions from equity method investees	—		3.1
Net cash provided by/(used in) investing activities	(297.8	)	(43.8	)
Financing activities:
Purchases of treasury shares	(39.3	)	(52.5	)
Dividends paid	(119.6	)	(114.8	)
Third-party capital invested into CIP	95.6		159.5
Third-party capital distributed by CIP	(29.0	)	(26.3	)
Borrowings of debt by CIP	53.0		940.0
Repayments of debt by CIP	(1.9	)	(1,116.7	)
Net borrowings/(repayments) under credit facility	—		(9.3	)
Payment of contingent consideration	(3.4	)	(3.6	)
Net cash provided by/(used in) financing activities	(44.6	)	(223.7	)
Increase/(decrease) in cash and cash equivalents	(394.6	)	(141.0	)
Foreign exchange movement on cash and cash equivalents	37.5		14.4
Foreign exchange movement on cash and cash equivalents of CIP	1.0		—
Net cash inflows (outflows) upon consolidation/deconsolidation of CIP	(39.3	)	(10.9	)
Cash and cash equivalents, beginning of period	2,517.7		2,070.2
Cash and cash equivalents, end of period	2,122.3		1,932.7

Cash and cash equivalents	1,861.5		1,397.0
Cash and cash equivalents of CIP	260.8		535.7
Total cash and cash equivalents per consolidated statement of cash flows	2,122.3		1,932.7

See accompanying notes.

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Invesco Ltd.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)



	Equity Attributable to Invesco Ltd.
$ in millions	Common Shares	Additional Paid-in-Capital		Treasury Shares		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Total Equity Attributable to Invesco Ltd.		Nonredeemable Noncontrolling Interests in Consolidated Entities	Total Permanent Equity		Redeemable Noncontrolling Interests in Consolidated Entities Temporary Equity
January 1, 2018	98.1	6,282.0		(2,781.9	)	5,489.1		(391.2	)	8,696.1		259.5	8,955.6		243.2
Adjustment for adoption of ASU 2016-01	—	—		—		3.2		(3.2	)	—		—	—		—
January 1, 2018, as adjusted	98.1	6,282.0		(2,781.9	)	5,492.3		(394.4	)	8,696.1		259.5	8,955.6		243.2
Net income	—	—		—		253.9		—		253.9		7.3	261.2		4.0
Other comprehensive income	—	—		—		—		63.0		63.0		—	63.0		—
Change in noncontrolling interests in consolidated entities, net	—	—		—		—		—		—		27.9	27.9		33.8
Dividends	—	—		—		(119.6	)	—		(119.6	)	—	(119.6	)	—
Employee share plans:
Share-based compensation	—	40.9		—		—		—		40.9		—	40.9		—
Vested shares	—	(105.6	)	105.6		—		—		—		—	—		—
Other share awards	—	0.1		0.2		—		—		0.3		—	0.3		—
Purchase of shares	—	—		(39.3	)	—		—		(39.3	)	—	(39.3	)	—
March 31, 2018	98.1	6,217.4		(2,715.4	)	5,626.6		(331.4	)	8,895.3		294.7	9,190.0		281.0

See accompanying notes.

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Invesco Ltd.

Consolidated Statements of Changes in Equity (continued)

(Unaudited)



	Equity Attributable to Invesco Ltd.
$ in millions	Common Shares	Additional Paid-in-Capital		Treasury Shares		Retained Earnings		Accumulated Other Comprehensive Income		Total Equity Attributable to Invesco Ltd.		Nonredeemable Noncontrolling Interests in Consolidated Entities		Total Permanent Equity		Redeemable Noncontrolling Interests in Consolidated Entities Temporary Equity
January 1, 2017	98.1	6,227.4		(2,845.8	)	4,833.4		(809.3	)	7,503.8		108.0		7,611.8		283.7
Net income	—	—		—		212.0		—		212.0		(3.5	)	208.5		5.7
Other comprehensive income	—	—		—		—		65.6		65.6		—		65.6		—
Change in noncontrolling interests in consolidated entities, net	—	—		—		—		—		—		65.4		65.4		(81.7	)
Dividends	—	—		—		(114.8	)	—		(114.8	)	—		(114.8	)	—
Employee share plans:
Share-based compensation	—	49.2		—		—		—		49.2		—		49.2		—
Vested shares	—	(109.0	)	109.0		—		—		—		—		—		—
Purchase of shares	—	—		(52.5	)	—		—		(52.5	)	—		(52.5	)	—
March 31, 2017	98.1	6,167.6		(2,789.3	)	4,930.6		(743.7	)	7,663.3		169.9		7,833.2		207.7

See accompanying notes.

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Invesco Ltd.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. ACCOUNTING POLICIES

Corporate Information

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

Certain disclosures included in the company's annual report on Form 10-K for the year ended December 31, 2017 (annual report or Form 10-K) are not required to be included on an interim basis in the company's quarterly reports on Forms 10-Q (Report). The company has condensed or omitted these disclosures. Therefore, this Report should be read in conjunction with the company's annual report.

Basis of Accounting and Consolidation

The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with rules and regulations of the Securities and Exchange Commission and consolidate the financial statements of the Parent and all of its controlled subsidiaries. In the opinion of management, the financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for the fair statement of the financial condition and results of operations for the periods presented. All significant intercompany transactions, balances, revenues and expenses are eliminated upon consolidation. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Accounting Pronouncements Recently Adopted

Revenue Recognition. On January 1, 2018 the company adopted Accounting Standard Update 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which revised revenue accounting rules through the creation of Accounting Standard Codification Topic 606 (ACS 606) and expanded the disclosure requirements. The company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective transition method applied to contracts that were not complete as of that date. Under this method, entities are required to report any effect from adoption as a cumulative effect adjustment to retained earnings at the adoption date. The adoption of the standard did not have an effect on opening retained earnings, net income or earnings per share measures. The impact of ASU 2014-09 on the timing of recognition of performance fee revenues may result in future performance fees being recognized earlier under ASU 2014-09, but this will depend on the terms and conditions in the relevant agreement.

The application of the new principal versus agent guidance in ASU 2014-09 resulted in presentation changes in the Consolidated Statements of Income whereby certain costs are now reported on a gross basis, when Invesco is acting as principal, and reported on a net basis, when Invesco is acting as an agent. In accordance with the ASU 2014-09 requirements, the disclosure of the impact of adoption on the Condensed Consolidated Statements of Income was as follows (in millions):

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$ in millions	Three months ended March 31, 2018
Condensed Consolidated Statements of Income	As Reported	Adjustments Related to Adoption of ASC 606		Balances Without Adoption of ASC 606
Operating revenues:
Investment management fees	1,043.7	53.8		1,097.5
Service and distribution fees	246.1	(32.4	)	213.7
Performance fees	9.1	—		9.1
Other	56.9	(41.0	)	15.9
Total operating revenues	1,355.8	(19.6	)	1,336.2

Operating expenses:
Third-party distribution, service and advisory	419.1	(23.8	)	395.3
Employee compensation	390.4	—		390.4
Marketing	28.1	—		28.1
Property, office and technology	102.2	—		102.2
General and administrative	94.9	4.2		99.1
Total operating expenses	1,034.7	(19.6	)	1,015.1
Operating income	321.1	—		321.1

Financial Instruments. On January 1, 2018, the company adopted Accounting Standards Update 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities" (ASU 2016-01). Under the new standard, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value with any changes recognized in earnings. ASU 2016-01 requires a modified retrospective approach to adoption. Accumulated gains of $3.2 million were reclassified into retained earnings at adoption date. With effect from the adoption of ASU 2016-01, seed money, investments held to settle the company's deferred compensation plan liabilities, and other equity securities are no longer categorized as trading investments or available-for-sale investments but instead are referred to as "equity investments," and all gains or losses arising from changes in the fair value of these equity investments will be included in income. Prior period balances have been conformed to be presented as "equity investments," however the prior period treatment of gains or losses arising from changes in the fair value of the investments was retained. As ASU 2016-01 required a modified retrospective approach to adoption, available-for-sale seed money balances of $69.3 million at December 31, 2017, are presented as "equity investments" to conform to the current period presentation of seed money; however, the related accounting basis in that period was available-for-sale.

Statement of Cash Flows. On January 1, 2018, the company adopted Accounting Standards Update 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments" (ASU 2016-15), which clarified how certain cash receipts and cash payments are classified and presented on the Statement of Cash Flows, including distributions from equity method investees. The amendments require a retrospective approach to adoption. As a result of adopting this standard, $6.2 million was reclassified from net cash provided by/(used in) investing activities to net cash provided by/(used in) operating activities for the three months ended March 31, 2017.

On January 1, 2018, the company adopted Accounting Standards Update 2016-18, “Statement of Cash Flows: Restricted Cash” (ASU 2016-18). The standard requires the inclusion of restricted cash within cash and cash equivalents when reconciling the beginning and ending cash and cash equivalents balances on the statements of cashflows. ASU 2016-18 requires a retrospective approach to adoption. Accordingly, changes in CIP cash of $195.6 million for the three months ended March 31, 2017 are no longer presented as a component of the company's cash provided by operations as they were reported in the Form 10-Q for the period ended March 31, 2017. These changes in CIP cash are now form part of the reconciliation of corporate cash and CIP cash at the end of the Condensed Consolidated Statements of Cash Flows for the period ended March 31, 2017. The adoption of this standard does not impact corporate cash and cash equivalents.

Pension Costs. On January 1, 2018, the company adopted Accounting Standard Update 2017-07, “Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07). The amendments require that the service cost component of net periodic pension costs be recorded within employee compensation expense and the other components of net benefit cost be recorded in other gains and losses, net in the Condensed

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Consolidated Statements of Income. The company utilized a practical expedient that permits an employer to use the amounts disclosed in its pension plan footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation. The application of the new rules results in the reclassification of the non-service cost components of the pension costs/(benefit) to other gains and losses, net, and has no impact to net income. For the three months ended March 31, 2017, the reclassification decreased operating income by $0.7 million with a corresponding increase to other gains and losses, net.

Other Income. On January 1, 2018, the company adopted Accounting Standard Update 2017-05, "Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (ASU 2017-05). The standard clarified the scope of accounting for gains and losses from the derecognition of nonfinancial assets and added guidance for partial sales of nonfinancial assets. The adoption of this standard did not have a material impact on the company's financial condition, results of operations or cash flows.

Pending Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update 2016-02, “Leases” (ASU 2016-02). The standard requires that lessees recognize lease assets and lease liabilities on the balance sheet for all leases with a lease term greater than 12 months. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018 and requires a modified retrospective approach to adoption. The company plans to adopt ASU 2016-02 on January 1, 2019. The company is currently evaluating the potential impact of this standard which includes performing a review of a sample of lease arrangements. The company has established an international cross-functional team to assist in analyzing and assessing the impact of adopting the new lease accounting guidance.

Revenue Recognition

Revenue is measured and recognized based on the five step process outlined in ASC 606, Revenue from Contracts with Customers. Revenue is determined based on the transaction price negotiated with the customer, net of discounts, value added tax and other sales-related taxes.

Investment management fees are derived from providing professional services to manage client accounts and sponsored investment vehicles. Investment management services are satisfied over time as the services are provided and are typically based upon a percentage of the value of the client’s assets under management. Investment management fees for certain arrangements include fees for distribution and administrative-related services. Any fees collected in advance are deferred and recognized as income over the period in which services are rendered.

Service fees are earned for services rendered relating to fund accounting, transfer agent, administrative and/or other maintenance activities performed for sponsored investment vehicles. All of these services are transferred over time. Service fees are generally based upon a percentage of the value of the assets under management.

The Company provides distribution services to certain sponsored investment vehicles. Fees are generally earned based upon a percentage of the value of the assets under management, as the fee amounts do not crystallize completely upon the sale of a share or unit. Accordingly, the distribution fee revenues are recognized over time as the amount of the fees becomes known. For example, U.S. distribution fees can include 12b-1 fees earned from certain mutual funds to cover allowable sales and marketing expenses for those funds and also include asset-based sales charges paid by certain mutual funds for a period of time after the sale of those funds. Generally, retail products offered outside of the U.S. do not generate a separate distribution fee; the quoted management fee rate is inclusive of these services. The Company also has certain arrangements whereby the distribution fees are paid upon the subscription or redemption of a share or unit.

Performance fee revenues associated with retail funds will fluctuate from period to period and may not correlate with general market changes, since most of the fees are driven by relative performance to the respective benchmark rather than by absolute performance. Performance fee revenues, including carried interests and performance fees related to partnership investments and separate accounts, are generated on certain management contracts when performance hurdles are achieved. Such fee revenues are recorded in operating revenues when the contractual performance criteria have been met and when it is probable that a significant reversal of revenue recognized will not occur in future reporting periods. Cash receipt of performance fees generally occurs after the performance fee revenue is earned; however, the company may receive, from time-to-time, cash distributions of carried interest before any revenue is earned. Such distributions are reflected as deferred carried interest liabilities within accounts payable and accrued expenses on the Condensed Consolidated Balance Sheets. Given the uniqueness of each fee arrangement, performance fee contracts are evaluated on an individual basis to determine the timing of revenue recognition. Performance fees typically arise from investment management activities that were initially undertaken in prior reporting periods.

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Other revenues include fees derived primarily from transaction commissions earned upon the sale of new investments into certain of our funds and fees earned upon the completion of transactions in our real estate and private equity asset groups. Real estate transaction fees are derived from commissions earned through the buying and selling of properties. Private equity transaction fees include commissions associated with the restructuring of, and fees from providing advice to, portfolio companies held by the funds. These transaction fees are recorded in the Condensed Consolidated Statements of Income on the date when Invesco’s services are complete which typically coincides with when the transactions are legally complete.

Principal versus Agent

The company utilizes third party service providers to fulfill certain performance obligations in its revenue agreements. Generally, the company is deemed to be the principal in these arrangements, because the company controls the investment management and other related services before they are transferred to customers. Such control is evidenced by the company’s primary responsibility to customers, the ability to negotiate the third party contract price and select and direct third party service providers, or a combination of these factors. Therefore, investment management and service and distribution fee revenues and the related third party distribution, service and advisory expenses are reported on a gross basis.

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 share purchases and redemptions, call center support and client reporting. These costs are reimbursed by the related funds.

2. FAIR VALUE OF ASSETS AND LIABILITIES

The carrying value and fair value of financial instruments are presented in the below summary table. The fair value of financial instruments held by CIP is presented in Note 12, "Consolidated Investment Products." See the company's most recently filed Form 10-K for additional disclosures on valuation methodology and fair value.



	March 31, 2018				December 31, 2017
$ in millions	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and cash equivalents	1,861.5		1,861.5		2,006.4		2,006.4
Equity investments	381.4		381.4		346.6		346.6
Available-for-sale debt investments	11.1		11.1		15.9		15.9
Foreign time deposits *	28.7		28.7		28.6		28.6
Assets held for policyholders	12,902.2		12,902.2		12,444.5		12,444.5
Policyholder payables *	(12,902.2	)	(12,902.2	)	(12,444.5	)	(12,444.5	)
Contingent consideration liability	(53.6	)	(53.6	)	(57.4	)	(57.4	)
Long-term debt *	(2,076.4	)	(2,180.2	)	(2,075.8	)	(2,258.1	)


*	These financial instruments are not measured at fair value on a recurring basis. See the most recently filed Form 10-K for additional information about the carrying and fair values of these financial instruments. Foreign time deposits are measured at cost plus accrued interest, which approximates fair value, and are accordingly classified as Level 2 securities.

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The following table presents, by hierarchy levels, the carrying value of the company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the company's Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, respectively:



	As of March 31, 2018
$ in millions	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	818.1		818.1	—	—
Investments:*
Equity investments:
Seed money	264.2		264.2	—	—
Investments related to deferred compensation plans	98.7		98.7	—	—
Other equity securities	18.5		18.5	—	—
Available-for-sale debt investments:
Collateralized loan obligations (CLOs)	4.9		—	4.9	—
Other debt securities	6.2		—	—	6.2
Assets held for policyholders	12,902.2		12,902.2	—	—
Total	14,112.8		14,101.7	4.9	6.2
Liabilities:
Contingent consideration liability	(53.6	)	—	—	(53.6	)
Total	(53.6	)	—	—	(53.6	)



	As of December 31, 2017
$ in millions	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents:
Money market funds	875.5		875.5	—	—
Investments:*
Equity investments:
Seed money	243.0		243.0	—	—
Investments related to deferred compensation plans	92.3		92.3	—	—
Other equity securities	11.3		11.3	—	—
Available-for-sale debt investments:
CLOs	6.0		—	6.0	—
Other debt securities	9.9		—	—	9.9
Assets held for policyholders	12,444.5		12,444.5	—	—
Total	13,682.5		13,666.6	6.0	9.9
Liabilities:
Contingent consideration liability	(57.4	)	—	—	(57.4	)
Total	(57.4	)	—	—	(57.4	)


*	Foreign time deposits of $28.7 million (December 31, 2017: $28.6 million) are excluded from this table. Equity method and other investments of $286.6 million and $5.8 million, respectively, (December 31, 2017: $277.3 million and $6.2 million, respectively) are also excluded from this table. These investments are not measured at fair value, in accordance with applicable accounting standards.

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The following table shows a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities during the three months ended March 31, 2018 and March 31, 2017, which are valued using significant unobservable inputs:



	Three months ended March 31, 2018
$ in millions	Contingent Consideration Liability		Other Debt Securities
Beginning balance	(57.4	)	9.9
Net unrealized gains and losses included in other gains and losses, net*	0.4		(3.2	)
Disposition/settlements	3.4		—
Other	—		(0.5	)
Ending balance	(53.6	)	6.2



	Three months ended March 31, 2017
$ in millions	Contingent Consideration Liability		CLOs		Other Debt Securities
Beginning balance	(78.2	)	12.9		13.2
Purchases/acquisitions	—		—		7.3
Net unrealized gains and losses included in other gains and losses, net*	0.5		—		—
Disposition/settlements	3.6		—		(7.6	)
Transfer from level 3 to level 2	—		(12.9	)	—
Ending balance	(74.1	)	—		12.9

_______________


*	These unrealized gains and losses are attributable to balances still held at the respective period ends.

Contingent Consideration Liability

At March 31, 2018 inputs used in the model included assumed growth rates in AUM ranging from (2.34)% to 0.74% (weighted average growth rate of (0.03)%) and a discount rate of 4.47%. Changes in fair value are recorded in other gains and losses, net in the Condensed Consolidated Statements of Income in the period incurred. An increase in AUM levels and/or a decrease in the discount rate would increase the fair value of the contingent consideration liability, while a decrease in forecasted AUM and/or an increase in the discount rate would decrease the liability.

3. INVESTMENTS

The disclosures below include details of the company's investments. Investments held by CIP are detailed in Note 12, "Consolidated Investment Products."



$ in millions	March 31, 2018	December 31, 2017
Equity investments:
Seed money	264.2	243.0
Investments related to deferred compensation plans	98.7	92.3
Other equity securities	18.5	11.3
Available-for-sale debt investments:
CLOs	4.9	6.0
Other debt securities	6.2	9.9
Equity method investments	286.6	277.3
Foreign time deposits	28.7	28.6
Other	5.8	6.2
Total investments	713.6	674.6

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Available for sale debt investments

Upon adoption of ASU 2016-01, as of January 1, 2018, seed money investments formerly classified as available-for-sale are now included as equity investments. Realized gains and losses recognized in the Condensed Consolidated Statements of Income during the period from investments classified as available-for-sale are as follows:



	For the three months ended March 31, 2018
$ in millions	Proceeds from Sales	Gross Realized Gains	Gross Realized Losses
CLOs	2.6	—	—
Other debt securities	0.2	—	(0.1	)
	2.8	—	(0.1	)



	For the three months ended March 31, 2017
$ in millions	Proceeds from Sales	Gross Realized Gains	Gross Realized Losses
Seed money	34.2	1.6	(1.3	)
CLOs	2.0	0.3	—
Other debt securities	7.6	—	—
	43.8	1.9	(1.3	)

Gross unrealized holding gains and losses recognized in other accumulated other comprehensive income/(loss) from available-for-sale debt investments are presented in the tables below:



	March 31, 2018
$ in millions	Cost	Gross Unrealized Holding Gains	Gross Unrealized Holding Losses		Fair Value
CLOs	3.5	1.4	—		4.9
Other debt securities	6.4	—	(0.2	)	6.2
	9.9	1.4	(0.2	)	11.1



	December 31, 2017
$ in millions	Cost	Gross Unrealized Holding Gains	Gross Unrealized Holding Losses		Fair Value
Seed money	65.1	5.5	(1.3	)	69.3
CLOs	4.9	1.1	—		6.0
Other debt securities	9.9	—	—		9.9
	79.9	6.6	(1.3	)	85.2

At December 31, 2017: 50 seed money funds had incurred gross unrealized holding losses. The following table provides a breakdown of the unrealized losses.



	December 31, 2017
$ in millions	Fair Value	Gross Unrealized Losses
Less than 12 months	9.4	(0.8	)
12 months or greater	15.0	(0.5	)
Total	24.4	(1.3	)

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Available-for-sale debt securities as of March 31, 2018 by maturity, are set out below:



	Available-for-Sale (Fair Value)
Less than one year	6.2
One to five years	0.5
Five to ten years	4.4
Greater than ten years	—
Total available-for-sale	11.1

Equity investments

The unrealized gains and losses for the three months ended March 31, 2018, that relates to equity investments still held at March 31, 2018, was a $0.2 million net gain (three months ended March 31, 2017: $4.8 million net gain related to trading investments held at March 31, 2017).

4. LONG-TERM DEBT

The disclosures below include details of the company's debt. Debt of CIP is detailed in Note 12, “Consolidated Investment Products.”



	March 31, 2018		December 31, 2017
$ in millions	Carrying Value**	Fair Value	Carrying Value**	Fair Value
Floating rate credit facility expiring August 11, 2022	—	—	—	—
Unsecured Senior Notes*:
$600 million 3.125% - due November 30, 2022	597.0	603.6	596.9	608.8
$600 million 4.000% - due January 30, 2024	594.3	617.9	594.0	634.7
$500 million 3.750% - due January 15, 2026	495.2	501.4	495.1	515.0
$400 million 5.375% - due November 30, 2043	389.9	457.3	389.8	499.6
Long-term debt	2,076.4	2,180.2	2,075.8	2,258.1

____________


*	The company's senior note indentures contain certain restrictions on mergers or consolidations. Beyond these items, there are no other restrictive covenants in the indentures.


**	The difference between the principal amounts and the carrying values of the senior notes in the table above reflect the unamortized debt issuance costs and discounts.

The company maintains approximately $10.1 million in letters of credit from a variety of banks. The letters of credit are generally one-year automatically-renewable facilities and are maintained for various commercial reasons.

5. SHARE CAPITAL

The number of common shares and common share equivalents issued are represented in the table below:



	As of
In millions	March 31, 2018		December 31, 2017
Common shares issued	490.4		490.4
Less: Treasury shares for which dividend and voting rights do not apply	(79.6	)	(83.3	)
Common shares outstanding	410.8		407.1

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6. OTHER COMPREHENSIVE INCOME/(LOSS)

The components of accumulated other comprehensive income/(loss) were as follows:



	For the three months ended March 31, 2018
$ in millions	Foreign currency translation		Employee benefit plans		Equity method investments		Available-for-sale investments		Total
Other comprehensive income/(loss) net of tax:
Currency translation differences on investments in foreign subsidiaries	64.6		—		—		—		64.6
Other comprehensive income, net	—		0.4		(2.3	)	0.3		(1.6	)
Other comprehensive income/(loss), net of tax	64.6		0.4		(2.3	)	0.3		63.0

Beginning balance	(290.5	)	(109.7	)	4.3		4.7		(391.2	)
Adjustment for adoption of ASU 2016-01	—		—		—		(3.2	)	(3.2	)
January 1, 2018, as adjusted	(290.5	)	(109.7	)	4.3		1.5		(394.4	)
Other comprehensive income/(loss), net of tax	64.6		0.4		(2.3	)	0.3		63.0
Ending balance	(225.9	)	(109.3	)	2.0		1.8		(331.4	)



	For the three months ended March 31, 2017
$ in millions	Foreign currency translation		Employee benefit plans		Equity method investments	Available-for-sale investments	Total
Other comprehensive income/(loss) net of tax:
Currency translation differences on investments in foreign subsidiaries	62.6		—		—	—	62.6
Other comprehensive income, net	—		0.2		0.3	2.5	3.0
Other comprehensive income/(loss)	62.6		0.2		0.3	2.5	65.6

Beginning balance	(679.9	)	(139.2	)	4.8	5.0	(809.3	)
Other comprehensive income/(loss)	62.6		0.2		0.3	2.5	65.6
Ending balance	(617.3	)	(139.0	)	5.1	7.5	(743.7	)

Net Investment Hedge

The Company designated certain intercompany debt as a non-derivative net investment hedging instrument against foreign currency exposure related to its net investment in foreign operations. At March 31, 2018, £130.0 million ($182.5 million) of intercompany debt was designated as a net investment hedge. For the three months ended March 31, 2018, the Company recognized foreign currency losses of $6.6 million resulting from the net investment hedge within currency translation differences on investments in foreign subsidiaries in other comprehensive income. No hedge ineffectiveness was recognized in income.

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7. REVENUE

The geographic disaggregation of revenue for the three months ended March 31, 2018 is presented below. There are no revenues attributed to the company's country of domicile, Bermuda.



$ in millions	For the three months ended March 31, 2018
North America	818.0
EMEA	469.9
Asia-Pacific	67.9
Total operating revenues	1,355.8

The opening and closing balances of deferred carried interest liabilities for the three months ended March 31, 2018 were $60.4 million and $60.4 million, respectively. During the three months ended March 31, 2018, no performance fee revenue was recognized that was included in the deferred carried interest liability balance at the beginning of the period.

8. SHARE-BASED COMPENSATION

The company recognized total expenses of $40.9 million and $49.2 million related to equity-settled share-based payment transactions in the three months ended March 31, 2018 and 2017, respectively.

Share Awards

Movements on share awards during the periods ended March 31, are detailed below:



	For the three months ended March 31, 2018					For the three months ended March 31, 2017
Millions of shares, except fair values	Time- Vested		Performance- Vested		Weighted Average Grant Date Fair Value ($)	Time- Vested		Performance- Vested
Unvested at the beginning of period	12.0		0.9		31.52	12.1		0.8
Granted during the period	5.1		0.4		32.55	5.1		0.3
Forfeited during the period	(0.1	)	—		31.74	(0.3	)	—
Vested and distributed during the period	(4.2	)	(0.3	)	32.17	(4.4	)	(0.2	)
Unvested at the end of the period	12.8		1.0		31.72	12.5		0.9

The total fair value of shares that vested during the three months ended March 31, 2018 was $142.7 million (three months ended March 31, 2017: $145.9 million). The weighted average grant date fair value of the share awards that were granted during the three months ended March 31, 2018 was $32.55 (three months ended March 31, 2017: $32.19).

At March 31, 2018, there was $403.2 million of total unrecognized compensation cost related to non-vested share awards; that cost is expected to be recognized over a weighted average period of 2.93 years.

9. TAXATION

At March 31, 2018, the total amount of gross unrecognized tax benefits was $19.2 million as compared to the December 31, 2017 total of $19.6 million. At December 31, 2017, the company had not completed the accounting for the tax effects of enacting the Tax Cuts and Jobs Act (the "2017 Tax Act") and therefore recognized a provisional income tax benefit of $130.7 million. As of March 31, 2018, the company continues to evaluate the accounting and as future guidance is issued, management finalizes its positions, and calculations are refined the estimates could potentially be affected.

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10. EARNINGS PER SHARE

The calculation of earnings per share is as follows:



	For the three months ended March 31,
In millions, except per share data	2018			2017
Net income		$265.2			$214.2
Net (income)/loss attributable to noncontrolling interests in consolidated entities	(11.3		)	(2.2		)
Net income attributable to Invesco Ltd.	253.9			212.0
Less: Allocation of earnings to restricted shares	(7.5		)	(6.4		)
Net income attributable to common shareholders		$246.4			$205.6

Invesco Ltd:
Weighted average shares outstanding - basic	411.3			407.7
Dilutive effect of non-participating share-based awards	0.5			0.3
Weighted average shares outstanding - diluted	411.8			408.0

Common shareholders:
Weighted average shares outstanding - basic	411.3			407.7
Less: Weighted average restricted shares	(12.2		)	(12.2		)
Weighted average common shares outstanding - basic	399.1			395.5
Dilutive effect of non-participating share-based awards	0.5			0.3
Weighted average common shares outstanding - diluted	399.6			395.8

Earnings per share:
Basic earnings per share		$0.62			$0.52
Diluted earnings per share		$0.62			$0.52

See Note 8, “Share-Based Compensation,” for a summary of share awards outstanding under the company's share-based compensation programs. These programs could result in the issuance of common shares from time to time that would affect the measurement of basic and diluted earnings per share.

There were no performance-vested or time-vested awards excluded from the computation of diluted earnings per share during the three months ended March 31, 2018 due to their inclusion being anti-dilutive (three months ended March 31, 2017: 0.3 million shares of performance-vested awards and no time-vested based awards). There were 0.1 million contingently issuable shares excluded from the diluted earnings per share computation during the three months ended March 31, 2018 (three months ended March 31, 2017: 0.2 million), because the necessary performance conditions for the shares to be issuable had not yet been satisfied at the end of the respective period.

11. COMMITMENTS AND CONTINGENCIES

Commitments and contingencies may arise in the ordinary course of business.

Off Balance Sheet Commitments

The company has committed to co-invest in certain sponsored investment products which may be called in future periods. At March 31, 2018, the company's undrawn capital commitments were $298.8 million (December 31, 2017: $292.8 million).

The Parent and various company subsidiaries have entered into agreements with financial institutions to guarantee certain obligations of other company subsidiaries. The company would be required to perform under these guarantees in the event of certain defaults. The company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Legal Contingencies

The company is from time to time involved in litigation relating to claims arising in the ordinary course of its business. The nature and progression of litigation can make it difficult to predict the impact a particular lawsuit will have on the company. There are many reasons that the company cannot make these assessments, including, among others, one or more of the

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following: the proceeding is in its early stages; the damages sought are unspecified, unsupportable, unexplained or uncertain; the claimant is seeking relief other than compensatory damages; the matter presents novel legal claims or other meaningful legal uncertainties; discovery has not started or is not complete; there are significant facts in dispute; and there are other parties who may share in any ultimate liability.

In management’s opinion, adequate accrual has been made as of March 31, 2018 to provide for any such losses that may arise from matters for which the company could reasonably estimate an amount. Management is of the opinion that the ultimate resolution of such claims will not materially affect the company’s business, financial position, results of operation or liquidity. Furthermore, in management’s opinion, it is not possible to estimate a range of reasonably possible losses with respect to other litigation contingencies.

The investment management industry also is subject to extensive levels of ongoing regulatory oversight and examination. In the United States, United Kingdom, and other jurisdictions in which the company operates, governmental authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to the company's compliance with applicable laws and regulations. Additional lawsuits or regulatory enforcement actions arising out of these inquiries may in the future be filed against the company and related entities and individuals in the United States, United Kingdom, and other jurisdictions in which the company and its affiliates operate. Any material loss of investor and/or client confidence as a result of such inquiries and/or litigation could result in a significant decline in AUM, which would have an adverse effect on the company’s future financial results and its ability to grow its business.

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12. CONSOLIDATED INVESTMENT PRODUCTS (CIP)

The following table presents the balances related to CIP that are included on the Condensed Consolidated Balance Sheets as well as Invesco's net interest in the CIP for each period presented. At March 31, 2018 all CIP are VIEs. See the company's most recently filed Form 10-K for additional disclosures on valuation methodology and fair value.



	As of
$ in millions	March 31, 2018		December 31, 2017
Cash and cash equivalents of CIP	260.8		511.3
Accounts receivable and other assets of CIP	157.5		131.5
Investments of CIP	5,453.5		5,658.0
Less: Debt of CIP	(4,502.7	)	(4,799.8	)
Less: Other liabilities of CIP	(349.5	)	(498.8	)
Less: Retained earnings	16.0		16.7
Less: Accumulated other comprehensive income, net of tax	(15.9	)	(16.6	)
Less: Equity attributable to redeemable noncontrolling interests	(281.0	)	(243.2	)
Less: Equity attributable to nonredeemable noncontrolling interests	(293.7	)	(258.6	)
Invesco's net interests in CIP	445.0		500.5

The following tables reflect the impact of consolidation of investment products into the Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017:



	Three months ended March 31,
$ in millions	2018		2017
Total operating revenues	(7.0	)	(13.2	)
Total operating expenses	3.2		(1.2	)
Operating income	(10.2	)	(12.0	)
Equity in earnings of unconsolidated affiliates	(4.2	)	1.5
Other gains and losses, net	(0.9	)	(10.1	)
Interest and dividend income of CIP	57.8		53.8
Interest expense of CIP	(39.4	)	(36.2	)
Other gains/(losses) of CIP, net	8.8		10.9
Income before income taxes	11.9		7.9
Income tax provision	—		—
Net income	11.9		7.9
Net (income)/loss attributable to noncontrolling interests in consolidated entities	(11.3	)	(2.2	)
Net income attributable to Invesco Ltd.	0.6		5.7

Non-consolidated VIEs

At March 31, 2018, the company's carrying value and maximum risk of loss with respect to VIEs in which the company is not the primary beneficiary was $242.7 million (December 31, 2017: $227.3 million).

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Balance Sheet information - newly consolidated VIEs/VOEs

During the three months ended March 31, 2018, there were no newly consolidated VIEs (March 31, 2017: the company consolidated two new VIEs.) The table below illustrates the summary balance sheet amounts related to these products before consolidation into the company. The balances below are reflective of the balances existing at the consolidation date after the initial funding of the investments by the company and unrelated third-party investors. The current period activity for the consolidated funds, including the initial funding and subsequent investment of initial cash balances into underlying investments of CIP, is reflected in the company’s Condensed Consolidated Financial Statements.



	For the three months ended March 31, 2017
$ in millions	VIEs
Cash and cash equivalents of CIP	8.2
Accounts receivable and other assets of CIP	1.3
Investments of CIP	45.8
Total assets	55.3

Debt of CIP	15.1
Other liabilities of CIP	13.7
Total liabilities	28.8
Total equity	26.5
Total liabilities and equity	55.3

During the three months ended March 31, 2018, the company determined that it was no longer the primary beneficiary of two VIEs (March 31, 2017: the company determined that it was no longer the primary beneficiary of two VIEs and one voting rights entity (VOE)). The amounts deconsolidated from the Condensed Consolidated Balance Sheets are illustrated in the table below. There was no net impact to the Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 from the deconsolidation of these investment products.



	For the three months ended March 31, 2018	For the three months ended March 31, 2017
$ in millions	VIEs	VIEs	VOEs
Cash and cash equivalents of CIP	39.3	10.9	—
Accounts receivable and other assets of CIP	8.3	3.2	0.2
Investments of CIP	339.9	139.9	49.8
Total assets	387.5	154.0	50.0

Debt of CIP	375.3	—	—
Other liabilities of CIP	3.2	1.9	—
Total liabilities	378.5	1.9	—
Total equity	9.0	152.1	50.0
Total liabilities and equity	387.5	154.0	50.0

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The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of March 31, 2018 and December 31, 2017:



	As of March 31, 2018
$ in millions	Fair Value Measurements	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Investments Measured at NAV as a practical expedient
Assets:
Bank loans	4,693.5	—	4,693.5	—	—
Bonds	296.3	—	296.3	—	—
Equity securities	198.2	196.5	1.7	—	—
Equity and fixed income mutual funds	19.2	19.2	—	—	—
Investments in other private equity funds	165.1	—	—	—	165.1
Real estate investments	81.2	—	—	81.2	—
Total assets at fair value	5,453.5	215.7	4,991.5	81.2	165.1



	As of December 31, 2017
$ in millions	Fair Value Measurements	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Investments Measured at NAV as a practical expedient
Assets:
Bank loans	4,894.2	—	4,894.2	—	—
Bonds	302.0	—	302.0	—	—
Equity securities	203.2	198.8	4.4	—	—
Equity and fixed income mutual funds	19.0	19.0	—	—	—
Investments in other private equity funds	163.4	—	—	—	163.4
Real estate investments	76.2	—	—	76.2	—
Total assets at fair value	5,658.0	217.8	5,200.6	76.2	163.4

The following tables show a reconciliation of the beginning and ending fair value measurements for level 3 assets and liabilities using significant unobservable inputs:



	Three months ended March 31, 2018		Three months ended March 31, 2017
$ in millions	Level 3 Assets		Level 3 Assets
Beginning balance	76.2		40.7
Purchases	—		15.1
Sales	(0.7	)	—
Gains and losses included in the Condensed Consolidated Statements of Income*	5.7		(1.0	)
Ending balance	81.2		54.8

____________


*	Included in gains/(losses) of CIP, net in the Condensed Consolidated Statements of Income for the three months ended March 31, 2018 are $5.7 million, in net unrealized gains attributable to investments still held at March 31, 2018 by CIP (for the three months ended March 31, 2017: $1.0 million, in net unrealized losses are attributable to investments still held at March 31, 2017 by CIP).

The collateral assets held by consolidated CLOs are primarily invested in senior secured bank loans, bonds, and equity securities. Bank loan investments of $4,656.5 million, which comprise the majority of consolidated CLO portfolio collateral, are senior secured corporate loans from a variety of industries, including but not limited to the aerospace and defense, broadcasting, technology, utilities, household products, healthcare, oil and gas, and finance industries. Bank loan investments

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mature at various dates between 2018 and 2026, pay interest at LIBOR plus a spread of up to 11.0%, and typically range in S&P credit rating categories from BBB down to unrated. Interest income on bank loans and bonds is recognized based on the unpaid principal balance and stated interest rate of these investments on an accrual basis. At March 31, 2018, the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $52.8 million (December 31, 2017: the unpaid principal balance exceeded the fair value of the senior secured bank loans and bonds by approximately $84.6 million). Approximately less than 1% of the collateral assets were in default as of March 31, 2018 and 2017. CLO investments are valued based on price quotations provided by third party pricing sources. These third party sources aggregate indicative price quotations daily to provide the company with a price for the CLO investments. The company has developed internal controls to review the reasonableness and completeness of these price quotations on a daily basis. If necessary, price quotations are challenged through the third-party pricing source price challenge process.

Notes issued by consolidated CLOs mature at various dates between 2026 and 2031 and have a weighted average maturity of 10.0 years. The notes are issued in various tranches with different risk profiles. The interest rates are generally variable rates based on LIBOR plus a pre-defined spread, which varies from 0.92% for the more senior tranches to 8.25% for the more subordinated tranches. The investors in this debt are not affiliated with the company and have no recourse to the general credit of the company for this debt.

Quantitative Information about Level 3 Fair Value Measurements

The following tables show significant unobservable inputs used in the fair value measurement of level 3 assets at March 31, 2018 and December 31, 2017:



Assets and Liabilities	Fair Value at March 31, 2018 ($ in millions)	Valuation Technique	Unobservable Inputs	Range		Weighted Average (by fair value)
Real Estate Investments	$81.2	Discounted Cash Flow	Discount rate	7% - 25%		15.0	%
			Terminal capitalization rate	4.25	%	4.25	%
			Average rent growth rate	2% - 3%		2.5	%



Assets and Liabilities	Fair Value at December 31, 2017 ($ in millions)	Valuation Technique	Unobservable Inputs	Range		Weighted Average (by fair value)
Real Estate Investments	$76.2	Discounted Cash Flow	Discount rate	7% - 33%		17.0	%
			Terminal capitalization rate	5.3	%	5.3	%
			Average rent growth rate	2% - 3%		2.5	%

The following narrative will indicate the sensitivity of inputs illustrating the impact of significant increases to the inputs. A directionally opposite impact would apply for significant decreases in these inputs:

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For real estate investments, a change in the average rent growth rate would result in a directionally-opposite change in the assumptions for discount rate and terminal capitalization rate. Significant increases in the average growth rate would result in significantly higher fair values. Significant increases in the assumptions for discount rate and terminal capitalization rate in isolation would result in significantly lower fair value measurements.

Table of Contents

The table below summarizes as of March 31, 2018 and December 31, 2017, the nature of investments that are valued using the NAV as a practical expedient and any related liquidation restrictions or other factors which may impact the ultimate value realized.

March 31, 2018

December 31, 2017

in millions, except term data

Fair Value

Total Unfunded Commitments

Weighted Average Remaining Term ⁽²⁾

Fair Value

Total Unfunded Commitments

Weighted Average Remaining Term ⁽²⁾

Private equity funds ⁽¹⁾

$165.1

$39.2

5.9 years

$163.4

$53.9

5.5 years

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