CONSOLIDATED INVESTMENT PRODUCTS

Upon the adoption of ASU 2015-02, the funds consolidated in prior periods as CSIP and certain VOEs became VIEs. Additionally, certain VIEs were deconsolidated on the date of adoption (see Note 1, “Accounting Policies,” and the transition date impact table below). The following table presents the balances related to CIP, consolidated as defined in each period, that are included on the Condensed Consolidated Balance Sheets. At June 30, 2016, all CIP were VIEs.



	As of
$ in millions	June 30, 2016		December 31, 2015
Cash and cash equivalents of CIP	257.9		363.3
Accounts receivable and other assets of CIP	182.2		173.5
Investments of CIP	4,036.9		6,016.1
Less: Debt of CIP	(3,529.6	)	(5,437.0	)
Less: Other liabilities of CIP	(314.0	)	(273.7	)
Less: Retained earnings	22.4		20.1
Less: Accumulated other comprehensive income, net of tax	(18.9	)	(20.1	)
Less: Equity attributable to redeemable noncontrolling interests	(312.6	)	—
Less: Equity attributable to nonredeemable noncontrolling interests	(73.3	)	(768.8	)
Invesco's net interests in CIP	251.0		73.4

The following tables reflect the impact of consolidation of investment products into the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015:



	Three months ended June 30,
$ in millions	2016		2015
Total operating revenues	(5.1	)	(10.4	)
Total operating expenses	7.9		1.5
Operating income	(13.0	)	(11.9	)
Equity in earnings of unconsolidated affiliates	(5.1	)	0.5
Interest and dividend income	—		(0.8	)
Other gains and losses, net	(0.8	)	(1.2	)
Interest and dividend income of CIP	46.2		65.1
Interest expense of CIP	(33.3	)	(47.3	)
Other gains/(losses) of CIP, net	25.0		(19.7	)
Income before income taxes	19.0		(15.3	)
Income tax provision	—		—
Net income	19.0		(15.3	)
Net (income)/loss attributable to noncontrolling interests in consolidated entities	(11.0	)	15.7
Net income attributable to Invesco Ltd.	8.0		0.4



	Six months ended June 30,
$ in millions	2016		2015
Total operating revenues	(10.6	)	(19.7	)
Total operating expenses	9.7		13.7
Operating income	(20.3	)	(33.4	)
Equity in earnings of unconsolidated affiliates	(1.6	)	(1.2	)
Interest and dividend income	(0.2	)	(2.2	)
Other gains and losses, net	(0.9	)	(3.9	)
Interest and dividend income of CIP	90.6		125.3
Interest expense of CIP	(60.6	)	(92.4	)
Other gains/(losses) of CIP, net	0.4		4.7
Income before income taxes	7.4		(3.1	)
Income tax provision	—		—
Net income	7.4		(3.1	)
Net (income)/loss attributable to noncontrolling interests in consolidated entities	(7.8	)	(4.7	)
Net income attributable to Invesco Ltd.	(0.4	)	(7.8	)

The company's risk with respect to each investment in CIP is limited to its equity ownership and any uncollected management and performance fees. The company has no right to the benefits from, nor does it bear the risks associated with, these investments, beyond the company's direct investments in, and management and performance fees generated from, the investment products. If the company were to liquidate, these investments would not be available to the general creditors of the company, and as a result, the company does not consider investments held by CIP to be company assets. Additionally, the collateral assets of consolidated collateralized loan obligations (CLOs) are held solely to satisfy the obligations of the CLOs, and the investors in the consolidated CLOs have no recourse to the general credit of the company for the notes issued by the CLOs.

Transition date impact of adoption of ASU 2015-02



	Transition date impact
$ in millions	Consolidated	Deconsolidated
Cash and cash equivalents of CIP	33.8	163.8
Accounts receivable and other assets of CIP	105.4	68.8
Investments of CIP	319.3	2,938.0
Total assets	458.5	3,170.6

Debt of CIP	—	2,259.2
Other liabilities of CIP	102.4	110.4
Total liabilities	102.4	2,369.6
Total equity	356.1	801.0
Total liabilities and equity	458.5	3,170.6

Non-consolidated VIEs

At June 30, 2016, the company's carrying value and maximum risk of loss with respect to VIEs in which the company is not the primary beneficiary was $277.9 million.

Balance Sheet information - newly consolidated VIEs/VOEs

During the six months ended June 30, 2016, the company consolidated five new VIEs (June 30, 2015: the company invested in and consolidated one new VIE and one new VOE.) 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 six months ended June 30, 2016	For the six months ended June 30, 2015
$ in millions	VIEs	VIEs	VOEs
Cash and cash equivalents of CIP	151.0	209.2	10.0
Accounts receivable and other assets of CIP	3.6	1.5	—
Investments of CIP	311.0	567.0	—
Total assets	465.6	777.7	10.0

Debt of CIP	414.4	601.4	—
Other liabilities of CIP	17.4	176.3	—
Total liabilities	431.8	777.7	—
Total equity	33.8	—	10.0
Total liabilities and equity	465.6	777.7	10.0

During the six months ended June 30, 2016, the company determined that it was no longer the primary beneficiary of four VIEs. The amounts deconsolidated from the Condensed Consolidated Balance Sheet are illustrated in the table below. There was no net impact to the Condensed Consolidated Statement of Income for the six months ended June 30, 2016 from the deconsolidation of the investment product.



	For the six months ended June 30, 2016
$ in millions	VIEs
Cash and cash equivalents of CIP	23.6
Accounts receivable and other assets of CIP	12.2
Investments of CIP	196.1
Total assets	231.9

Debt of CIP	—
Other liabilities of CIP	13.1
Total liabilities	13.1
Total equity	218.8
Total liabilities and equity	231.9

The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of June 30, 2016 and December 31, 2015:



	As of June 30, 2016
$ 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	3,485.3	—	3,485.3	—	—
Bonds	354.7	—	354.7	—	—
Equity securities	67.9	66.2	1.7	—	—
Equity and fixed income mutual funds	49.2	49.2	—	—	—
Investments in other private equity funds	55.9	—	—	—	55.9
Real estate investments	23.9	—	—	23.9	—
Total assets at fair value	4,036.9	115.4	3,841.7	23.9	55.9



	As of December 31, 2015
$ 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:
CLO collateral assets:
Bank loans	5,179.6	—	5,179.6	—	—
Bonds	71.1	—	71.1	—	—
Equity securities	0.9	—	0.9	—	—
Private equity fund assets:
Equity securities	364.6	7.7	—	356.9	—
Debt Securities	31.7	—	—	31.7	—
Investments in other private equity funds	368.2	—	—	—	368.2
Total assets at fair value	6,016.1	7.7	5,251.6	388.6	368.2

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 June 30, 2016		Six months ended June 30, 2016
$ in millions	Level 3 Assets	Level 3 Liabilities	Level 3 Assets		Level 3 Liabilities
Beginning balance	—	—	388.6		—
Adjustment for adoption of ASU 2014-13	—	—	—		—
Adjustment for adoption of ASU 2015-02	—	—	(388.6	)	—
Purchases	23.9	—	23.9		—
Sales	—	—	—		—
Gains and losses included in the Condensed Consolidated Statements of Income*	—	—	—		—
Transfers to Levels 1 and 2	—	—	—		—
Ending balance	23.9	—	23.9		—



	Three months ended June 30, 2015			Six months ended June 30, 2015
$ in millions	Level 3 Assets		Level 3 Liabilities	Level 3 Assets		Level 3 Liabilities
Beginning balance	343.1		—	363.9		(5,149.6	)
Adjustment for adoption of ASU 2014-13	—		—	—		—
Adjustment for adoption of ASU 2015-02	—		—	—		5,149.6
Purchases	2.1		—	19.2		—
Sales	(14.2	)	—	(41.2	)	—
Gains and losses included in the Condensed Consolidated Statements of Income*	(22.9	)	—	(25.4	)	—
Transfers to Levels 1 and 2**	—		—	(8.4	)	—
Ending balance	308.1		—	308.1		—

____________


*	Included in gains/(losses) of CIP, net in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2015 are $22.9 million and $25.4 million respectively, in net unrealized losses attributable to investments still held at June 30, 2015 by CIP.

During the six months ended June 30, 2015, $7.8 million of equity securities held by consolidated private equity funds were transferred from Level 3 to Level 2 due to the legal lock up requirements of of securities following the public offering of the underlying companies. During the six months ended June 30, 2015, $0.6 million of equity securities held by consolidated private equity funds were transferred from level 3 to level 1 following the public offering of the underlying companies. For transfers due to public offerings, the company's policy is to use the fair value of the transferred security at the end of the period.

Unforeseen events might occur that would subsequently change the fair values of the investments (and therefore the debt of CLOs, since it is measured as a calculated value based upon the fair value of the assets of CLOs, but the impact of such changes would be limited to the change in the fair values of the company's investments in these products. 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 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 share), liquidity or capital resources of the company's common shareholders.

Value of consolidated CLOs

The company elected the fair value option for collateral assets held and notes issued by its consolidated CLOs to eliminate the measurement and recognition inconsistency that would otherwise arise from measuring assets and liabilities and recognizing the related gains and losses on different accounting bases. On January 1, 2015 the company adopted ASU 2014-13 and has elected the measurement alternative for the consolidated CLOs under which the notes issued by the CLOs are measured based on the fair value of the assets of the CLOs.

The collateral assets held by consolidated CLOs are primarily invested in senior secured bank loans, bonds, and equity securities. Bank loan investments of $3,485.3 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 mature at various dates between 2016 and 2024, pay interest at Libor plus a spread of up to 9.5%, 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 June 30, 2016, the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $123.1 million (December 31, 2015: the unpaid principal balance exceeded the fair value of the senior secured bank loans and bonds by approximately $319.9 million). Approximately 0.4% of the collateral assets are in default as of June 30, 2016 (December 31, 2015: less than 0.1% of the collateral assets were in default). 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. For the six months ended June 30, 2016 and the year ended December 31, 2015, there were no price quotation challenges by the company.

In addition, the company's internal valuation committee conducts an annual due diligence review of all independent third-party pricing sources to review the provider's valuation methodology as well as ensure internal controls exist over the valuation of the CLO investments. In the event that the third-party pricing source is unable to price an investment, other relevant factors, data and information are considered, including: i) information relating to the market for the investment, including price quotations for and trading in the investment and interests in similar investments, the market environment, and investor attitudes towards the investment and interests in similar investments; ii) the characteristics of and fundamental analytical data relating to the investment, including, for senior secured corporate loans, the cost, size, current interest rate, period until next interest rate reset, maturity and base lending rate, the terms and conditions of the senior secured corporate loan and any related agreements, and the position of the senior secured corporate loan in the borrower's debt structure; iii) the nature, adequacy and value of the senior secured corporate loan's collateral, including the CLO's rights, remedies and interests with respect to the collateral; iv) for senior secured corporate loans, the creditworthiness of the borrower, based on an evaluation of its financial condition, financial statements and information about the business, cash flows, capital structure and future prospects; v) the reputation and financial condition of the agent and any intermediate participants in the senior secured corporate loan; and vi) general economic and market conditions affecting the fair value of the senior secured corporate loan.

Notes issued by consolidated CLOs mature at various dates between 2023 and 2028 and have a weighted average maturity of 9.7 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 0.21% 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.

Fair value of consolidated partnership entities

Consolidated private equity funds are generally structured as partnerships. Generally, the investment strategy of underlying holdings in these partnerships is to seek capital appreciation through direct investments in public or private companies with compelling business models or ideas or through investments in partnership investments that also invest in similar private or public companies. Various strategies may be used. Companies targeted could be distressed organizations, targets of leveraged buyouts or fledgling companies in need of venture capital. Investors generally may not redeem their investment until the partnership liquidates. Generally, the partnerships have a life that ranges from seven to twelve years unless dissolved earlier. The general partner may extend the partnership term up to a specified period of time as stated in the Partnership Agreement. Some partnerships allow the limited partners to cause an earlier termination upon the occurrence of certain events as specified in the Partnership Agreement.

For private equity partnerships, fair value is determined by reviewing each investment for the sale of additional securities of an issuer to sophisticated investors or for investee financial conditions and fundamentals. Publicly traded portfolio investments are carried at market value as determined by their most recent quoted sale, or if there is no recent sale, at their most recent bid price. For these investments held by CIP, level 1 classification indicates that fair values have been determined using unadjusted quoted prices in active markets for identical assets that the partnership has the ability to access. Level 2 classification may indicate that fair values have been determined using quoted prices in active markets but give effect to certain lock-up restrictions surrounding the holding period of the underlying investments.

The fair value of level 3 investments held are derived from inputs that are unobservable and which reflect the limited partnerships' own determinations about the assumptions that market participants would use in pricing the investments, including assumptions about risk. These inputs are developed based on the partnership's own data, which is adjusted if information indicates that market participants would use different assumptions. The partnerships which invest directly into private equity portfolio companies (direct private equity funds) take into account various market conditions, subsequent rounds of financing, liquidity, financial condition, purchase multiples paid in other comparable third-party transactions, the price of securities of other companies comparable to the portfolio company, and operating results and other financial data of the portfolio company, as applicable.

The partnerships which invest into other private equity funds take into account information received from those underlying funds, including their reported net asset values and evidence as to their fair value approach, including consistency of their fair value application. These investments do not trade in active markets and represent illiquid long-term investments that generally require future capital commitments. The partnerships' reported share of the underlying net asset values of the underlying funds is used as a practical expedient, as allowed by ASC Topic 820, in arriving at fair value.

Quantitative Information about Level 3 Fair Value Measurements

At June 30, 2016 $23.9 million of investments held by consolidated real estate funds were valued using recent private market transactions.



Assets and Liabilities *	Fair Value at December 31, 2015 ($ in millions)	Valuation Technique	Unobservable Inputs	Range	Weighted Average (by fair value)
Private Equity Funds --Equity Securities	320.0	Market Comparable	Revenue Multiple	NA	3.2x
			Discount	25% - 50%	25.0%
			Published valuation and/or broker quotes for similar types of assets	$25-101 million	$44.4 million

____________


*	Excluded from the table above are certain equity and debt securities held by consolidated private equity funds valued using recent private market transactions (December 31, 2015: $61.2 million) and third party appraisals (December 31, 2015: $7.3 million).

The table below summarizes as of June 30, 2016 and December 31, 2015, 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.

June 30, 2016

December 31, 2015

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⁾

$55.9

$52.5

6.7 years

$368.2

$218.1

2.8 years

____________


(1)	These investments are not subject to redemption; however, for certain funds, the investors may sell or transfer their interest, which may require approval by the general partner of the underlying funds.


(2)	These investments are expected to be returned through distributions as a result of liquidations of the funds' underlying assets over the weighted average periods indicated.

For investments held by consolidated private equity funds, significant increases in discounts in isolation would result in significantly lower fair value measurements, while significant increases in revenue multiple assumptions in isolation would result in significantly higher fair value measurements. An increase in discount assumptions would result in a directionally opposite change in the assumptions for revenue multiple, resulting in lower fair value measurements.

Fair Value of Equity Securities, Bonds, and Equity/Fixed Income Mutual Funds

Equity securities are valued under the market approach through use of quoted prices on an exchange. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within level 1 of the valuation hierarchy; otherwise, they are categorized in level 2.

Bonds are fair valued using an evaluated quote provided by an independent pricing service. Evaluated quotes provided by the pricing service may be determined without exclusive reliance on quoted prices, and may reflect appropriate factors such as institution-size trading in similar groups of securities, developments related to specific securities, yield, quality, type of issue, coupon rate, maturity, individual trading characteristics and other market data. Depending on the nature of the inputs, these investments are categorized as level 1, 2, or 3.

Equity and fixed income mutual funds are valued under the market approach through the use of quoted market prices available in an active market and is classified within level 1 of the valuation hierarchy; there is no modeling or additional information needed to arrive at the fair values of these investments.