By Ashley Lau
NEW YORK (Reuters) - Invesco Ltd (N:IVZ), which oversees the PowerShares line of exchange-traded funds, said on Thursday its first-quarter profit fell 15.5 percent, pressured by an increase in business operating expenses that included a fine from British regulators.
The Atlanta-based money manager said net profit fell to $187.8 million, or 43 cents per share, from $222.2 million, or 49 cents per share, a year earlier.
The company's Invesco Perpetual unit was fined 18.6 million pounds ($31.3 million) by British financial regulators who said the fund manager exposed its clients to more risk than they knew about between May 2008 and November 2012, resulting in their losing money. The fine reduced Invesco's quarterly diluted earnings per share by 7 cents, the company said.
Excluding that charge and other one-time items, Invesco earned 60 cents per share. Analysts on average expected 55 cents, according to Thomson Reuters I/B/E/S.
Invesco shares were up 2.7 percent at $36.17 in morning trading on the New York Stock Exchange.
Operating expenses, including the fine from the U.K. Financial Conduct Authority, shot up 21.3 percent from a year ago to $1 billion in the first quarter, up from $845.2 million. Operating expenses included $43 million associated with vacating leased properties and staff severance as part of an effort to realign its location footprint during the quarter.
INVESCO PERPETUAL
The fine to Invesco Perpetual, announced on Monday, was another blow to the unit, which has already seen client defections following the announcement of the departure of the company's best-known fund manager, Neil Woodford, who is leaving to start a new venture. Invesco Perpetual in April lost mandates to run 7.7 billion pounds of funds for wealth manager St James's Place (L:SJP), much of which is following Woodford.
In addition to the St James's Place outflows, which will be recorded in second-quarter results, Invesco's U.K. equity income assets under management had first-quarter net outflows of $3.4 billion. The departure of Woodford, one of the industry's most closely watched fund managers, was announced in October. Analysts and market participants have eyed his departure as a possible source of defection from the unit he oversaw, given his consistent performance and cult-like following. Woodford, who joins Oakley Capital Management in May, is being replaced by Mark Barnett, who takes over management of Woodford's funds as head of British equities.
"The transition to Mark Barnett has gone very well," President and Chief Executive Officer Martin Flanagan said in a call with analysts on Thursday, noting the market has been "extremely receptive" to Barnett's leadership and team.
"Post-second quarter, the toughest stuff is behind us - that's really how you should be thinking about it," Flanagan said.
FUND FLOWS
Net long-term flows at Invesco, not including flows into institutional money market funds, were $6.5 billion. They were largely lifted by investors pouring money into active and passive products, which had net inflows of $3.2 billion and $3.3 billion during the quarter, respectively.
Invesco's PowerShares QQQ fund (O:QQQ) had net outflows of $1.3 billion during the quarter. PowerShares is the fourth-largest U.S. provider of ETFs by assets, following BlackRock Inc (N:BLK), Vanguard and State Street Corp
Among other asset managers, BlackRock Inc (N:BLK) reported a 20 percent rise in quarterly profit, while T.Rowe Price Group (O:TROW) reported a 25 percent rise.
Invesco ended the quarter with $787.3 billion in assets under management, up $8.6 billion from the end of December and 11.2 percent from a year ago.
(Reporting by Ashley Lau in New York; Editing by Chizu Nomiyama and Meredith Mazzilli)