Q4 2019 Earnings Call

Good morning, and welcome to Franklin Resources Earnings Conference call for the quarter and fiscal year ended September 30, 2019. Please note that the financial results to be presented in this commentary our preliminary statements made in this conference call regarding Franklin resources, Inc., which are not historical facts are forward looking statements within the meaning of the private.

Securities Litigation Reform Act of 1995. These forward looking statements involve a number of known and unknown risks uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward looking statements. These and other risks uncertainties and other important.

Gors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and Mdna sections of Franklin's most recent Form 10-K and 10-Q filings.

Good morning, My name is Robert I'll be your call operator today.

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At this time I'd like to turn the call over to Franklin resources, Chairman and CEO Mr., Greg Johnson Mr. Johnson you may begin.

Thank you good morning, and thank you for joining us to discuss the fourth quarter in fiscal year results. Joining me today is Matthew Nichols, our CFO and journey Johnson, President Chief operating officer.

Our industry industry remains in the midst of rapid change that we work diligently to address in fiscal year 2019 mail balding certain parts of our business all remaining steadfast in our core convictions we.

We were pleased to see improved sales in chair in the U.S. retail channel.

Our U.S. equity sales also improved again this quarter, reflecting strong performance in recent sales momentum continued in our U.S. fixed income strategies overall investment performance improved throughout most of the year, but trended down in the final months following global events that negatively impacted certain strategies.

Capital allocation remains a very important focus for our board management team. We continued to active actively evaluate the industry landscape for opportunities to grow and enhance our business through acquisitions and we were awarded our investors through dividends and repurchases. This fiscal year that amounted to 107% net income.

I'd now like to open the line to your questions.

Thank you.

First question comes from one of Craig Siegenthaler with credit Suisse.

Thanks, Good morning, everyone I just wanted to start with benefits Street first.

Can you provide us an update on fund raising and he won't grow since the deal has closed and also do you have an eight when target for the senior opportunities clientele.

Yeah, I I would like we said allows calling me we're very pleased with the progress with with benefits Street I thinking you know the last year has really been getting our distribution platform up to speed and training and we had you know over 350 global meetings and you know introducing the new funds that they're offering it I think we're excited about what.

That means for this year in terms of flows and as you know on the institutional side. You know you you have a <unk> not a steady flow, but when you close funds you have obviously, a large onetime flow and what we're expecting to see you know two or three of those events and the next year and hopefully you know will target somewhere over three four.

Three 4 billion range you know it flows if everything works in market stays steady. We've also registered funds and you know in the process of getting retail products out there whether it's you know a BDC with some of our major distributors as well as the potential of introducing interval interval funds you know for more of that retailing and wealth.

Management platform, so very pleased with the progress to date, there and I you know I would say in the last quarter. We had one CLL close that you asked about flows for 200, and you know 33 million or so but that was the only really fund raise in the last four to six months.

Thanks, Greg and then just one follow up on the a 55 20.

At this point fee rate when you exclude the market appreciation in any kind of divergent beta.

What are your thoughts on the overall <unk> going forward given organic mix shift.

And also any potential pricing adjustment that you can do to enhance growth.

Hey, it's that's Matthew <unk> I would say that it's a very tough question to predict fee right mix of products that is evolving somewhat a the Pos quota for example fee rate came down slightly based on the factor, though international global product.

Came down a little bit through increased redemption activity that we talked about.

I think further guidance on the average fee rate too so it's difficult to predict.

Thank you.

Your next question comes from the line of Patrick that it was published research. Please proceed with your question.

Hi, good morning, Thank you.

My first question, there's been a few high profile Morningstar downgrades of some of hasn't started Spartans historically, there's been a high correlation between flows in these ratings I'd be curious to get your thoughts then if you think that correlation is still a strong given all the changes in the distribution ecosystem.

Through that lens are you expecting accelerated outflows as a result.

Yeah, I think clearly there's a correlation and obviously you know them. The more recent underperformance puts pressure on some of the Morningstar ratings, but you know I think this fund is really in a category of its own and there's no real one clear peer group you know for this kinda.

Of unconstrained Global Bond fund that that you know tends to have no correlation with with Ah you know beta or duration. So I think it always has a place in a portfolio regardless and people are.

Oh that that abuse the fund in the past understand you know what it what it brings to a typical 60 40 or you know typical portfolio to lower risk and that hasn't changed but no. We don't expect you know any I think the relative performance is the is the key in the short run more than the rate.

Greetings and obviously you all the fourth quarter September with with Argentina, you had some what was up until that point very strong relative performance you know a downturn in that but you know that turns fairly quickly in that market. Because every fund looks so different so you know we.

Aren't as optimistic on flows right now based on that September , but you know as I've said before that can turn very quickly as the markets move.

Right Okay.

And my follow up Matthew now that you've been in a position a bit longer now any updated thoughts on the potential to get even more lean on the expense side heading into next year.

Yeah, I think that we've just been through a very disciplined a budget process for 2020 .

When we lost commented on this I think we we had referenced guidance again to yes 2020 to be at just about.

Or 29 team flat I think we can say now that we believe we can come in little bit below that.

Target.

And I also believe that we have a little bit more flexible season did I suppose thought before we started the budget process.

But you know I'd still continue to to point to the guidance.

We provided before had on the just a little bit below.

2019 for for expense 2020.

Thank you.

Okay.

The next question comes from the line of Mike Carrier with Bank of America, They see with your question.

Good morning, and thanks for taking the questions.

I guess should want expenses you guys did a lot over the past year show you just in terms of driving efficiencies, but also investing the business.

You mentioned like the 20, you outlook you in terms of down a bit I guess, just like kind of bigger picture. How are you thinking about you know the investments in the business.

And if you know we do get into an environment, where you know whether its flows your markets are weaker.

Are there other whether its outsourcing or kind of chunky or you know big things that could drive the expense base lower over a longer period of time.

Yeah, I think you know we have been working hard another you as you pointed to we've announced the outsourcing <unk> Fund administration business, which we're ahead on that which is why outlast and to expenses went up a little bit more than planned for the quarter.

I'd say as well that we spend of all time reviewing other parts about Ah lisanti business and we think there's some opportunity that to decrease out expenses a little bit of all that more if we had two but generally speaking as we've already referred to where we say we tend to.

Try and reinvest that another very important parts about business in particular, Oh the investment side.

Yeah, I mean, what one of things you know on that technology, It's just investment and data science round for investment teams with.

A centralized data lake and data scientists embedded in the teams and so that's been an area of growth.

In our expenses on the ice and Teesside, so where you're trying to figure out where we can see said that we can reinvest it.

Okay. Thanks, and then just on the follow up so on the strategic growth initiatives. You also you have been active whether its solutions eat yes, a lot of different areas and it sounds like on the M&A front you still.

Spending a good amount of time looking at potential opportunities I guess, if we don't see something you know say over the next year or is it mostly about price.

And especially if you're going after growth areas or are there. Other factors. You know that you think are are challenging in this environment. You did you have to pursue some of those strategic initiatives.

Yeah, I mean, I I would characterize our progress in terms of M&A an acquisition targets is quite good progress.

Well the hours that we are focused on them referred to in the previous cool.

And we feel course cautiously optimistic about how auctions in that regard I'd also add a nuance.

Well commentary from last quarter, which is to say that while we value our cash and good stuff to balance sheet, we all ready and willing to utilize a meaningful portion about cash help meet these strategic objectives as mentioned last quarter any pro forma sorry, I would continue with low leverage and strong financial flexibility.

But this should not be confuse without a willingness to use out cash.

And I'm just gonna had you know is it mostly about price I mean, obviously price matters, but our approach in thinking around M&A is absolutely around a growth story. So you know it has to hit a category, where we're filling product gaps that we don't have where were getting distribution capability that we may not.

He is strong in or a geography, and that's first and foremost.

Cost cutting then gets to be secondary benefit of that a and then of course it has to be a threat price and I you know what I think the just to add on price, it's not like going out and deciding when you're gonna bi specific security I mean, it's when when the right needs are available and sometimes you end up paying a little.

A bit more but it's got to be we look at it it's something that.

You know, we're going to build over many market cycles, and and I have that time to grow in an asset class that that will be around for a long time. So you know I think it it it's sometimes it's easy to look at the world and say well GL by this when you have XL off.

But that's not realistic sometimes as sellers aren't selling in that and that you know in that bottom part of the cycle, Yeah, and then in the current valuations certain asset classes frankly reflect.

The lofty valuations of companies that contains certain asset classes.

Reflect a the reality of where the market is I'd say.

Several of the cases.

Okay. Thanks for the color. Thanks.

Sure.

Your next question comes from the line of Brian , but dealt with Deutsche Bank. Please proceed with the question.

Great. Thanks, Good morning folks, maybe just moved back onto the global macro global Bond complex, Yeah, It's Ah I understand.

That dish the <unk> the a shift in there in a in the recent a few weeks and months has moved more to a cautious stance and your Michael has and stop is kind of I I believe almost something like half in cash in a in at least some big funds. So just in terms of maybe the.

ER macro view and how it's being read by these the Salesforce and the advisors and and do you expect that repositioning a if that's sort of a more of a.

Sort of us I guess more of a permanent the wrong word but more of a.

Strategic shift or do you think that will significantly impact the self engine for that stuck on blogs.

I mean, it's hard to say <unk> I think it is clearly a more conservative stance and de risking of a lot of the EM currencies.

That again this goes back to my point about how markets move and how you are relative performance can swing. So quickly. So I don't think theres a lot of funds that have the similar.

Is it defensive position today.

You know, which sometimes I think you bring up you correctly that you know what does that mean for a sales environment and I think you know we've always stood behind the P. EMS convictions and doing what's right again for the long term and having the cash in that kind of fund.

Has never really been a problem that would be in more of an equity fund I'm, obviously, but but because of the liquidity constraints, sometimes that having that higher cash is important and if you get in a disruptive environment, which you know that team feels like there's a serious potential for that catch it can be very efficient and not.

Having to sell securities, but going in and buying during the dislocation. So you know I think some of the best track records overtime or are built when you have that ammunition to buy instead of cell and that's really what that puns position for.

Okay, but I think there you know it's hard to say what impact will that have on.

You know the sales, but as I said earlier my earlier comments. This is a little bit different other product people are used to the higher cash in this finding some get comfort from having that when you know when issues come up with certain holdings said on liquidity and that's part of the combination here.

Right and has that hedge for two higher rates been reversed largely in the front as well.

Not reversed I just on the shorter to medium term and still still negative duration on the longer but but definitely you know that focused on the longer into the curve and no longer on more medium shorter end.

Got it and then just I've a follow up is on the outsourcing.

The fundamental accretion you just review again like what parts of the fundamental attrition or outsourced and what do you still have been house I believe you were still doing off and my question Fund accounting in house, but I think because she's outsource or just maybe just to clear that up in between that middle office and is it across most of your mutual fund complex.

We're just we're just portions of trying to get a sense of what could be a further outsourced in the future and how much you have now.

Well.

I mean, you're correct that we historically at outsource the capacity of course, and and had kept the fund administration in house.

And and part of that was because what our global footprint it was difficult to find.

Somebody who could you know cover all the areas that we tend to cover a and now that providers have stepped up and and so we're looking to outsource all the fund administration.

And many that work gets done in capacity you have to do in fund administration. So we found some amount of duplication, but because we were early into lower cost environment. It was hard to find providers that could be competitive pricing wise. It now as others have done that you know we funded that both the coverage.

What we do as far as geography as well as the cost is now much more competitive.

Yeah, and it's just the timing of the outsourcing. If this is this going to be converted in the next couple of quarters or is it longer term.

So this would be over 2020 as the conversion and we'll start realizing benefits and 2020 warm.

Got it okay.

Okay and that's in your guidance already for forget expenses, Yes, that's correct yeah perfect perfect. Thank you.

Thank you.

Yeah.

Our next question, it's from the line of Ken Worthington with JP Morgan. Please proceed with your question.

Hi, Good morning, you mentioned, a number of large block withdrawals a in the coming quarter I guess, the current quarter <unk> 800 million global fixed income billions six for mutual shares a and there were some larger block redemptions, a this past quarter and now we expect the institutional business be lumpy your.

Lumpy and Knishes really more on the redemption side. So any comments seems to the bigger block outflows are you hearing you know is it performance tissue distribution issues active to passive pricing. So any any common themes I in the sort of different asset classes, and what you're seeing and ultimately.

Franklin spending redemption for I don't know six six or plus so plus years, what is the pass back to inflows for Franklin.

What what if any are milestones so you're holding out for yourself.

Without regard thanks, Yeah first of all its probably all the above on some of the lumpy redemptions, but in particular the large one coming you know this quarter I'm with with mutual shares in particular was really a you know a large broker dealer distributor that that's moving.

Assets to their.

In house funds, and you know not really a performance related but more.

You know about a fund just moving in house.

The you know Templeton continues to be under pressure in this relates to what you know you talked about inflows and and six or seven years and obviously for us.

Having a lower base of U.S. assets are U.S. funds are doing extremely well growing growing market share very strong inflows accelerating but you know that pales compared to the large templeton deep value mutual series deep value you know asset. So we have so that that's here you know that's really the catalyst is gonna be the rotation.

And you know a value in growth and then also the we talked earlier about many of the new initiatives that we funded whether it's around the solution side, yes, amaze side a lot of resources have been put into that we've we've been very successful I would say in the last year to getting on platform.

<unk>, we are our multi asset solutions group just recently.

Got on two major platforms and I think those are going to drive flows overtime now they'll drive flows that a little bit lower of a margin maybe than your traditional 40 Act funds, but ones that we think you know can be very positive and only a few players are going to be competitive in that space that had the scale to do that and E. T apps as well continue to be an area of growth.

For Us and you know just crossing 5 billion and again getting to the size, where we have a better more distribution opportunities opening up in having been on platforms now for or been in existence for three years minimum in some cases, you know getting on platforms and that's really I would say is were the most progress has been.

In made on the U.S. side is the is these new multi asset solutions, he T.S. and and getting onto traditional platforms as well as hopefully getting onto a new technology platforms that emerge and I'd just add you know on the.

Yeah. They institutional side you know they were some big headwinds this year in that you know obviously, the Argentina, Greg talked about it. We also had a new CIO introduced on the Templeton Global equity group a you know when you you're you're playing defense in those meetings that you know they said they had a Ah you know so 20 clients representing 40 billion.

That assets hitting 13 cities in five days, that's that's that's what your conversation ends up being having said that.

Yeah, We've got 4 billion, an unfunded a in international institutional.

Business our pipeline in the U.S. institutional has doubled in size, we actually converted you know nine new prospects and so they're green shoots underneath.

It's just eat you're mixing isn't it time with just you know some some big headwinds and I think we have some good green shoots as Greg mentioned on a on the retail side with some big placements of our model business and some good growth there and I would give another example, I mean are emerging markets group that has a new leadership and excellent performance.

It's an institutional quality process and really we think that opportunity for institutional assets for the first time and we're excited about that as you know that that that team now is good it's getting on platforms for institutional searches and we haven't had that opportunity in the past.

Great. Thank you and then the follow up but there was a delay into two institutional funding. So there was $2 billion is there any risk that they don't fund or is funding just a certain its funding a certainty and it's just the timing that is unknown.

It's hinder you know.

Right and if it's the money is not in hand, there's always risk, but there's nothing that that indicates that there's any kind of a risk that.

We believe they will be funded.

Okay. Okay. Thank you.

The next questions from the line of Dan Fannon with Jefferies. Please proceed with your question.

Hi, Thanks, just on the 4 billion of the international kind of a backlog or unfunded wins I I guess in context of the link we've gotten a number like that from you before.

Versus a year ago or you know other points in time make how do we think about the you know that relative to previous periods.

Just so we could have as I said some context, yeah. I mean I had good question and that's probably why we haven't talked about that number in the path because I think the hard part is isn't it the timing for you to figure out when those assets come in and sometimes they take longer than you think and could be a year out could be next month. So you know.

We've always been kind of hesitant to even even talk about that and that number is really just just whats in the offshore international institutional flows that there's a few more domestically but.

Oh I'm not sure what you do with that number actually so good point.

All right.

And just a follow up on kind of the global bond you know it's been a lots and written about performance earlier, you talked about some morningstar changes I guess can you talk about what you're doing internally with your Salesforce and your your distributor to basically play more defense here I assumed to kind of keep assets and I don't think it's so much as a gross sales issue is also a redemption.

And given the kind of level of underperformance and as you said the headlines. That's created so is there some campaign or something that you guys are doing internally to get in front of this.

More proactive.

Well, we are in and you know we're trying to do as much as we can and we have a new piece going out the talks about you know the repositioning and some of the recent moves with the fund, but again I mean, I I still point to the long term performance, it's really unparalleled in this and we've had plenty of periods, where you know you've had a things not.

At work out in the short run and you know you just point to that long term record and how it it how it lowers your risk in a portfolio and focus on those things and as you can you know, it's a risky world out there with highly valued assets or you know on every metric and that story here is going forward, what's going to defend your port.

Folio and I think that's that's.

An important message and one that our Salesforce is working on and we just came out in October with a a piece called the four pillars to face a world of uncertainty, which is you know we're positioning. It is you want this in your portfolio because it's a hedge to many of the other positions that people have taken and you tried to lay it out very clear.

Early and <unk> and it's been well received.

Very very recent.

Okay. Thank you.

Our next question from the line of Jeremy Campbell with Barclays. Please proceed with your question.

Hey, Thank you.

First the sorry, if I Miss isn't your answer to Craig's question earlier, but what was the revenue and even contribution from benefit street during the quarter.

Oh, we we don't break it out like that Charlie.

Okay, no rough sense.

Well, we had a revenue was stable with the last quarter, it's about $51 million.

Great. Thanks, and then just kind of more broadly speaking just kinda I'm wondering what your thoughts are around whats happening over at DBS right now with the elimination of estimate fees. The asset managers do you think this was kind of like a new front on the industrywide fee pressure.

Under the dampened your outlook at all about growing Franklin's estimate footprint or you're kind of your desire for wealth management M&A target like you guys called on the prepared remarks.

So you know I mean, interestingly with our fiduciary Trust high net worth business, we've never charged a fee on top of our own proprietary products right. It was always kind of a conflict around that so yeah, they've reverse out a bit by making the product Ah free and charging a fee at the top of the house. It is just one of those.

It just feels like a conflict when you do that but our experience has been that clients absolutely. One open architecture and they are you know they desire to have outside a products and so I think that it you know not everything in S. amazes going free having said that you know it's it's there's there's FY <unk>.

Sure all over the business and we're all going to have to prove out our our value on our fees no different than you've had to do on the institutional side in the retail side and I think this is just an extension of that and I think theres been a little bit of market confusion over that change you know that it was really in an entity you know that not getting the fee, but there's still a.

Being charged [laughter] around the wrap account and the underlying managers are still being paid at the it is my understanding. So you know we all know SDMA you know is a way to accelerate shrinking margins versus your traditional 40 Act fund because the pricing you know is controlled by.

Her and that's not a great trend, but it's a trend you can't ignore and one that you know we believe it's a business we're gonna be aggressively in versus trying to defend against it. So I think that's part of our solutions thinking it's a change at mindset. You know we have in and we think an important growth area.

For us and <unk> and and I think you're correct that it will result in a lower margin, but it will result in larger assets and hopefully that'll lopsided.

Great. Thanks, a lot.

The next question comes in light of Bill Katz with Citi. Please proceed with your question.

Okay. Thanks, very much taking it swing so Matt that's gone back to the extent discussion for a moment I guess you've been on a month to month with you when sort of discussing the flow dynamics are being sued danced around with different agile kids and so forth and so I'm just trying to understand your sort of in freight geology here in terms or a little bit better.

On the cost side, so I guess it either way to think about that are we talking down zero to 5% more than that and then what is the revenue and or flow assumptions that your counterbalancing that expense outlook against.

Oh look I'd say bill but.

It's too early to go much further than what we said, but you know if it falls to goods will do tell we'd say, probably a zero to 2.5% down from a.

2020 expenses.

Okay, and there's no revenue back up and that's right.

And Oh, it <unk> revenue is largely consistent.

I also just do I don't think we addressed the question.

It's also related to this or the wrong about the average fee right. So I think we we confused that with with what we thought something different but if the question was where do we think are the average fee rate is heading for out overall mix of business.

We forecast that the roughly flat to that's based on a whole.

Series of assumptions around the mix about business internationally domestically the growth will turn into assets offsetting.

Some of our Oh business that is is more on depressed from a fee perspective.

Okay, and just as my follow up stay within that so you sort of mentioned a nuance of Apache some more sizable deals I guess, that's where I interpreted.

What's what's changing your thinking and then when you look at the landscape of what the sizable deals that have gone over the last several years. What gives you confidence that the market would be receptive to those types of things I think as you know is Jenny mentioned, we think when we look at some of the opportunities that exist in the marketplace suddenly not eat.

He and I think we discussed that law school to it but but we see areas that we can fill a Frank said, we have we have a tremendous shall I say it at a core business with with leading products on a global level across many countries, but but we think we can grow that further by far.

I think some of the gaps that we have a whether it's becoming larger institution in the U.S.

It's having a little bit more alternative assets then as some other frankly.

Ah Ah products, if you will <unk> <unk>, we already have but we're quite small and that if we were larger we think we both be most successful so.

I wouldn't guide you towards thinking we're gonna do you know some mega transaction, but the short list of the of ideas that we thought about we think create growth opportunities for us given a car business.

Without having to drive down.

<unk> expenses, I I sort of the number one bullet point. However, we should we should state that there are obviously some some cost.

Aspects to all of this consolidation in the business that we would be out to capitalize on.

Thank you.

Thanks Bill.

Next question is from the line of Brennan Hawken with you've yes. Please proceed with your question.

Good morning, Thanks for taking my questions I think earlier, Matthew you flagged that outsourcing and the cost to shift to greater amount of outsourcing is included in your especially <unk> guide for.

2020.

Are there any other I'm sort of unusual or what you would expect to be nonrecurring items that would be included in that guidance.

No no for the mode.

Okay and.

And then when we think about the it looks like of the 201 million or so of nonrecurring and acquisition related expenses.

There's there's some portion that's that's recurring so whatever what's called a 150 or so million that's nonrecurring that would suggest like a 5% core gross rate in expenses in your guide.

[noise] you you flagged that you're doing some investing and everything like that but.

[noise] number one is that right to a fair way to think about it and number two can you talk about what kind of returns are working to ROI that you guys have watched hurdle for making some of these investments just given the really challenging backdrop that we have here for the industry. Thanks.

Yeah, I I think.

With us there's lots of there's lots of questions in that.

Say that we we should follow up separately to go through that in more detail I think the assumption about an increase in expenses built into two <unk> I think that is not accurate or if it and I would say the reason why we outlined the nonrecurring items, you're you're correct that there's an element of.

This associates that benefit Street acquisition that does include around $79 million for the next three is a which is recurring but then that drops off so we wanted to try and make that clear otherwise you'll be looking it up benefits Street acquisition, assuming that it's a zero margin business, which is very misleading. So that's the reason why.

Wanted to put that into the table, but talking about future costs and how we look at investments you know I wouldn't say, we apply a classic ROI to it.

It has to work for out for out business in terms of scaling for creating more opportunities from investment teams out distribution efforts.

And we certainly don't look at things on a three month for six month for one year basis. It has to make sense over over a multiyear perspective.

Okay. Thanks for that color.

The next question is from the line of Chris Harris with Wells Fargo. Please proceed with your questions.

Thanks can you guys talk a little bit about your international distribution capabilities today and what.

You might be trying to do to improve them, what she's site as a focus area for the from going forward.

Well, yeah, I would say.

Not a lot it's changed I mean and for the international capability. It. It doesn't have you know the benefit of some of the momentum were seeing in the U.S. in terms of municipal bond sales and Muni fund.

You know that the flows there or are more.

Rely more on on global bonds Templeton, we are seeing strong flows in you know the Franklin U.S. growth products K too.

It would be more of a focus there as well so I think it it for us. It it is a huge value of the company and franchise in one where you know in the year ahead, it's part of its getting benefits Street getting some products up on in Luxembourg, Basi cap fund, which were in the process of doing leveraging.

<unk> benefit street on on the institutional side as well would be one and just I think relating to the acquisition side is we feel like there is some and underutilized capacity for more product under that distribution network, but again, if you look at pockets for US where you know it's not it's a different story, where do you have India had a very strong year.

For growth and inflows, Taiwan very strong year. So there are pockets that are doing very well throughout the globe that you know that have a different product mix and maybe our our traditional one but I think just generally speaking we feel like a week, we can take on more and that that's.

Part of our acquisition thinking on that.

Okay. Thank you.

The next questions coming here in a line of from Michael Cyprus with Morgan Stanley . Please proceed with your question.

Hey, good morning, Thanks for taking the question just wanted to circle back on expenses, hoping you could help with some of the moving pieces here. So here are the guidance that should be slightly down next year. If that's a combination of an investment spend an expense cuts, but I guess, if you could just help quantify how much you're cutting where specifically I know you mentioned fun admin I just.

What else how meaningful that and then Conversely, you're also making investments I think on the tech side with the data Lake how much are you guys investing if you could help quantify that and if you could provide any sort of color around these investments.

Yeah, I think what we'd say that we think that on an information systems and technology. We have some room to move on that as I've mentioned, a moment ago or perhaps up to several percentage points more efficient see the.

I think beyond that it's very early to give guidance on any specific line items that I would just keep referring back to the fact that were confident oil surveyed equal, but we will be out to.

Be down slightly on out 29 seen expenses as a whole.

And I just would add I mean, I think we look at this we recognize we're you know the pressure.

Yeah that the industry's under ended the it is very top of mind with all senior management to look at span of control and every kind of savings that we can generate two to continue to invest in the parts that we think are gonna be incremental to getting inflows in a few years. So I you know I think we're all very focused on that.

But just very hard to come out with well what does that number look like in two or three years. Other than you know we're kind of attacking every angle. Yeah. I think I think we also demonstrated in the fourth call to that.

Oh, the discipline, we have around Oh, most important expense, which is variable compensation a compensation for the from I think we demonstrated that we get the balance right do what's right for the company, but also do what's right for shareholders.

And then when it comes to the other components of a expenditure I think we have very clear reasons why that were moves in each item. So why S.T., we actually expect that to be down but it was up just because we want to do the right thing and continued to make more progress and we expect it that's what we did.

That does not mean to that increases like to continue actually that's going to come down our G.N. A another include its and intangible impairments. Both this quarter law school to read we done well, we would hope that wouldnt.

Repeat we don't expect to and when we analyze and drilled out of Gionee. We think this some room. There are also on occupancy expense, we've talked a fair amount about this the reason why that spiked so much in the last call to.

As guided the previous cool to it's because we've completed our campus and San Mateo, We also have new real estate in and Poland.

But that's gonna be all offset by by an increase in ER in revenue attributed to our efficiency drives across our to state ownership, including.

Some very attractive lease streams.

That frankly pay.

Oh, the both the building about headquarters here in cemetery, and the running off them.

So I think with each one of our items, whether its comp of benefits iced tea occupancy expense Gionee and all the others. We have plans on to each one of these are we think we have flexibility under each one as needed. A we've described the fact that some of that's offset by the investment we are adamant we want to come.

You too.

To make which is why we don't refer to a full cost margin.

But it doesn't mean that we want to take that action as we demonstrated a in the fourth quarter, where we took action across all the key items.

Okay. Thanks for the color and then just maybe on the on China, given the regulatory change and and marketing up market opening up in China can you just give us an update on where your business stands today in China, how you're thinking about the opportunities out there over the next couple of years and what sort of actions like you're taking to capitalize on this.

Well, we are I think like most.

You know looking at taking control of our joint venture that you know we were one of the early ones with with see land and you know are in the process of up.

Taking a majority stake in that.

And we have all other options and other licenses that you know we can we can take different tax.

I think China, you know China size wise.

As I'm looking at Janney, but I could because we don't included in our assets I'm trying to say I think it's.

5 billion, it's profitable. It's it's not you know obviously, a major contributor to earnings, but it's it's a profitable number and growing and has had good performance.

But I think like many we look at China as a dip <unk> you know very tricky market. We think it's a tremendous opportunity for growth, but you know that thought of continuing with the partnership.

Versus going alone in that market I think it's one that you have to think very carefully.

And I'll ask Jenny and she's got any it does show I think that she's that's right I mean, I think it's it's for US it's been about.

Yeah, we'd like to we'd like to own 100%, if it's that can make sense and and but whether or not we can.

We end up doing there we always have also our we'll see opposite as Greg said you know it so it keeps our options open.

A big area of focus has been integrating some of the investment capabilities with the our emerging market teams said that they can collaborate on.

A share research, which we think it's important and a that that has been going very well.

As well as it gives us optionality when we get institutional interest in mandates to eat or talk to our wolfie team or our or JV team.

Great. Thank you.

Thank you. Your last question comes from the liner Patrick Davitt with Autonomous Research. Please proceed with your question.

Hey, Thank you for the follow up.

You mentioned the the potential for three to 4 billion from benefit Street, but chunky should we expect a placement fees on the expense side with that and if so is that any expense guidance.

It would have some placement fees, although we're really trying to have our own institutional team.

Do the big push there. So I think we've we've kept it where we have divided that up a bit but we are hoping that it comes through or.

Our institutional team.

Okay perfect. They on and I know one we'd have to do we'd have to look into that I mean, I'm, assuming that's built into their their model right for the year, but I don't you know, we don't have that at the top of or had there.

And then on the 4 billion pipeline one last one.

Could you just give us a little bit more color maybe on the on the fee mix of that you'll be even if it's just better or worse than the average.

And maybe broadly if there any kind of signals you think might start unlocking that or is it. There's just no color at all and on the second part there.

I think that would just be embedded in the guidance I gave earlier on about right for the Oh, It's got a.

The benefit street across the board.

Has a much higher fee rate as you know given the business versus the rest of a franchise so that that actually helps us across the be called for the we.

State, but that we think coffee right we remained stable.

Thank you.

Thank you.

Thank you at this time I'll turn the call back to Mr., Greg Johnson for closing remarks.

Well. Thank you everyone for participating I'm on our call and we look forward to speaking next quarter. Thank you.

Thank you. This concludes today's conference you may disconnect. Your lines at this time, we thank you for your participation.