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. See the company's most recently filed Form 10-K for additional disclosures on valuation methodology and fair value.



	As of
$ in millions	September 30, 2018		December 31, 2017
Cash and cash equivalents of CIP	282.8		511.3
Accounts receivable and other assets of CIP	56.7		131.5
Investments of CIP	6,074.6		5,658.0
Less: Debt of CIP	(4,820.5	)	(4,799.8	)
Less: Other liabilities of CIP	(315.8	)	(498.8	)
Less: Retained earnings	7.0		16.7
Less: Accumulated other comprehensive income, net of tax	(6.9	)	(16.6	)
Less: Equity attributable to redeemable noncontrolling interests	(423.2	)	(243.2	)
Less: Equity attributable to nonredeemable noncontrolling interests	(330.8	)	(258.6	)
Invesco's net interests in CIP	523.9		500.5

The following table reflects the impact of consolidation of investment products into the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017:



	Three months ended September 30,				Nine months ended September 30,
$ in millions	2018		2017		2018		2017
Total operating revenues	(4.7	)	(6.2	)	(18.8	)	(25.7	)
Total operating expenses	5.1		4.2		14.5		5.2
Operating income	(9.8	)	(10.4	)	(33.3	)	(30.9	)
Equity in earnings of unconsolidated affiliates	(3.4	)	(5.7	)	(9.8	)	(8.4	)
Other gains and losses, net	8.0		(9.8	)	16.3		(32.4	)
Interest and dividend income of CIP	71.0		52.7		196.0		156.4
Interest expense of CIP	(51.7	)	(36.3	)	(137.5	)	(117.3	)
Other gains/(losses) of CIP, net	8.8		15.3		(2.3	)	53.4
Income before income taxes	22.9		5.8		29.4		20.8
Net income	22.9		5.8		29.4		20.8
Net (income)/loss attributable to noncontrolling interests in consolidated entities	(11.6	)	(7.1	)	(19.7	)	(19.3	)
Net income attributable to Invesco Ltd.	11.3		(1.3	)	9.7		1.5

Non-consolidated VIEs

At September 30, 2018, the company's carrying value and maximum risk of loss with respect to variable interest entities (VIEs) in which the company is not the primary beneficiary was $286.1 million (December 31, 2017: $227.3 million).

Balance Sheet information - newly consolidated VIEs/VOEs

During the nine months ended September 30, 2018, there were twenty-two newly consolidated VIEs and eight newly consolidated voting rights entities (VOEs) (September 30, 2017: the company consolidated fifteen 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 nine months ended September 30, 2018	For the nine months ended September 30, 2018	For the nine months ended September 30, 2017
$ in millions	VIEs	VOEs	VIEs
Cash and cash equivalents of CIP	17.4	—	14.9
Accounts receivable and other assets of CIP	6.2	1.9	8.5
Investments of CIP	800.6	172.6	331.9
Total assets	824.2	174.5	355.3

Debt of CIP	555.2	—	15.1
Other liabilities of CIP	37.7	—	105.1
Total liabilities	592.9	—	120.2
Total equity	231.3	174.5	235.1
Total liabilities and equity	824.2	174.5	355.3

Balance Sheet information - deconsolidated VIEs/VOEs

During the nine months ended September 30, 2018, the company determined that it was no longer the primary beneficiary of five VIEs (September 30, 2017: the company determined that it was no longer the primary beneficiary of six VIEs and one 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 nine months ended September 30, 2018 and 2017 from the deconsolidation of these investment products.



	For the nine months ended September 30, 2018	For the nine months ended September 30, 2017
$ in millions	VIEs	VIEs	VOEs
Cash and cash equivalents of CIP	104.9	15.7	—
Accounts receivable and other assets of CIP	26.2	4.1	0.2
Investments of CIP	912.4	242.9	49.8
Total assets	1,043.5	262.7	50.0

Debt of CIP	938.3	4.2	—
Other liabilities of CIP	9.0	3.1	—
Total liabilities	947.3	7.3	—
Total equity	96.2	255.4	50.0
Total liabilities and equity	1,043.5	262.7	50.0

The following tables present the fair value hierarchy levels of certain CIP balances which are measured at fair value as of September 30, 2018 and December 31, 2017:



	As of September 30, 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	5,110.6	—	5,110.6	—	—
Bonds	505.6	—	505.6	—	—
Equity securities	243.0	239.2	3.8	—	—
Equity and fixed income mutual funds	18.3	18.3	—	—	—
Investments in other private equity funds	185.0	—	—	—	185.0
Real estate investments	12.1	—	—	12.1	—
Total assets at fair value	6,074.6	257.5	5,620.0	12.1	185.0



	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 September 30, 2018		Nine months ended September 30, 2018
$ in millions	Level 3 Assets		Level 3 Assets
Beginning balance	52.0		76.2
Purchases	—		13.0
Sales	(39.3	)	(84.8	)
Gains and losses included in the Condensed Consolidated Statements of Income*	(0.6	)	7.7
Ending balance	12.1		12.1



	Three months ended September 30, 2017	Nine months ended September 30, 2017
$ in millions	Level 3 Assets	Level 3 Assets
Beginning balance	59.9	40.7
Purchases	—	15.1
Sales	—	(5.1	)
Gains and losses included in the Condensed Consolidated Statements of Income*	3.6	12.8
Ending balance	63.5	63.5

____________

Included in gains/(losses) of CIP, net in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2018 are $0.5 million and $0.8 million respectively, in net unrealized losses attributable to investments still held at September 30, 2018 by CIP (for the three and nine months ended September 30, 2017: $3.6 million and $12.4 million respectively, in net unrealized gains are attributable to investments still held at September 30, 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 $5,036.5 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 mature at various dates between 2018 and 2026 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 September 30, 2018, the unpaid principal balance exceeds the fair value of the senior secured bank loans and bonds by approximately $50.1 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 September 30, 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 a third-party pricing challenge process.

Notes issued by consolidated CLOs mature at various dates between 2026 and 2031 and have a weighted average maturity of 10.8 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 0.55% for the more senior tranches to 7.45% 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

At September 30, 2018, there were $12.1 million of investments held by consolidated real estate funds that were valued using recent private market transactions.

The following table shows significant unobservable inputs used in the fair value measurement of level 3 assets at December 31, 2017:



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%		17.00	%
			Terminal capitalization rate	5.30	%	5.30	%
			Average rent growth rate	2% - 3%		2.50	%

The following narrative indicates 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:

•

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.

The table below summarizes as of September 30, 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.

September 30, 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⁾

$185.0

$83.0

5.5 years

$163.4

$53.9

5.5 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.