Q1 2020 Earnings Call

[music].

Good morning, and welcome to Franklin Resources Earnings Conference call for the quarter ended December 31, 2019 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 factors are described in more detail in Franklin's recent filings with the Securities Exchange Commission, including in there.

Factors in M.D. and a sections of Franklin's most recent Form 10-K and 10-Q filings.

Good morning, Muddiness cabin I'll be your call operator today.

At this time of participants really listen only mode. If you like to ask a question at this time. Please press star one under telephone keypad.

The confirmation told would indicate your line is in the question Q.

If anyone should require operator assistance during the conference. Please press Star Zero Wonder telephone keypad. As a reminder, this conference is being recorded at this time, but it's true look forward to Franklin resources, Chairman and CEO Mr., Greg Johnson Mr. Johnson you may begin.

Hello, and thank you for joining us today to discuss first quarter results with me as President and Chief operating Officer Jetty, Johnson, who will be assuming the role of CEO next month and Matthew Nichols our CFO .

The results improved this quarter, reflecting strong financial markets and our ongoing commitment to effective expense management, which drove improved profitability.

We continue to experience outflows this quarter for reasons discussed in the commentary we released earlier this morning, but we're encouraged to see traction in several important initiatives, including our efforts to expand our multi asset solutions any tee up businesses.

We also believed that our balance sheet is one of our most under appreciated assets as we evaluate opportunities to accelerate growth.

Earlier this month, we announced plans to acquire to companies that will expand fiduciary trust assets under management by 50% and expand their physical presence into important markets.

We also returned approximately 260 million to shareholders through share repurchases in our regular dividend this quarter, which the board increased to 27 cents per share in December .

After more than 15 years my role as CEO the from will come to an end after our annual meeting next month.

I'm very confident in Chinese leadership and vision for the future of Franklin Templeton and together, we are genuinely excited about the opportunities that lie ahead.

Well this would be my last call with you as CEO I were I will remain executive chairman of the board. It will continue to participate on our earnings calls going forward I'd now like to open the line for your questions.

Thanks to our first question today is coming from Ken Worthington from JP Morgan Your line is not a lot.

Oh, great. Thank you.

So you've done a couple of bolt on acquisitions and wealth management. So a couple of questions around that so first Oh why are you thinking wealth management is a good places to invest here, maybe you can see wash out are there synergies between well threat management and the rest of Franklin and maybe any dis synergies as well and then maybe clean.

Turning up I think when you guys bought fiduciary I think it's like 20 years ago I remember it had about maybe $15 billion or sell the am I could be wrong. That's my recollection I don't think it's all that much bigger today, maybe 15 to 20. These days before for these deals so it hasn't really grown much.

If at all over the last 20 years, so given you're getting a bunch a bolt ons. How do you expect to do a better job growing these wealth management assets today than at least my perception of what you've done Nevertheless, 20 years.

Bobblehead dig that you eat it today post acquisition I think I'm pretty sure it's about 29 billion.

Yeah, and you know there's no question.

Wealth is it's hard to grow but it's incredibly sticky once your habit.

And we think that it's both important for us as a firm from you know a distribution, but also as you are seeing fee based advisors trying to add more services to justify basically the fee that they're quite pay every month, you're trying to add on more than just investment management and so.

Somebody capabilities that fiduciary has we think can be package a to be able to provide additional services advisors. For example in this most recent acquisitions are we not only expanded into two geographies that are excellent geography is to be in for wealth management, but we added services. So I've seen a capital is unclear.

Well known further impact investing in those CIO Ah, we think that Dr. lives at Cooper can be helpful to us.

And and Morphy, Yes, you work that we're very focused on doing that as well as Pennsylvania Trust has special needs trust capabilities, which is.

Essentially helping families who will have a child, but special needs that are worried about how to care for them beyond you know the say the parents surviving a and that's an opportunity of growth, but that also can be something that we can work with our financial advisors as they have quite with those needs or we can bifurcate book.

<unk> Trust administration as well as the investment bifurcate bundled together.

I think I'll, just that's something to that that's Matthew.

The multiple that we pay for the for these businesses is reasonable we think can it helps capitalize on some of the broader expenses that we have embedded within fiduciary trust, so essentially by having more assets and clients. It makes our overall wealth business more efficient.

This is probably the beginning about strategy to grow fiduciary trust. The second like if you will you right kinda, it's been a number of years since we've had a growth strategy around the inorganically.

But we.

Wouldn't surprise us if we doubled the size of fiduciary troughs over the next year old too yeah by using this tragedy and I'd just add I think we've always had the <unk> I just you know being on these calls for years, it's always been a goal of ours to it without M&A to increase the size, but I think there's just a few more opportunities today with some of the pressure on smaller firms.

Keeping up keeping pace with technology spending it services that are required you know for further a investors. So we were just seeing a few more opportunities for roll ups.

Okay, Great and then just really probably Jenny I, you're now officially or what's going to be especially in the role as CEO , Bob maybe just highlight a your priorities for the next two or three years. You know you know what are you hoping to accomplish any directional changes.

That is worth highlighting Josh thank you.

I think we've you know its continues on a path that we've been focused on for the last couple of years, which is a wi.

Bucket the business in growth opportunities kind of in three places. So one is just protecting the core and that's making sure that the products and capabilities that we have our best in breed and and as you think about you on the investment management side, there's been a lot of focus and effort around leveraging data science.

To enhance what we're doing on our core products and I think is your fixed income team has done some really exciting new things combining active and quite a good. So you get it just making sure that you have best in breed in in a in your existing.

Core and then from the second categories, what we called growth accelerate or things like growing or high net worth business or things like expanding a geography that maybe we're not as deep as we'd like to be a adding product capability that maybe we're not as strong in or don't have as much coverage a and then also did.

Sure Bieschin capability. So for example, we've always been you're really underrepresented in U.S. institutional that would be an area of interest for us to continue to grow and then finally I think we would all be foolish not to believe that the technology industrial revolution that existing today is going to have disruption on our businesses. So make.

I'm sure that we're investing in things that it may be won't be meaningful or material and even the next five years, but that we think can be very disruptive to the business over the long run a into that you see some of the investments that we're doing a in things like a token fault and Ah Ah also or innovation lab.

Which religious enables us to keep an eye on where the industry's evolving.

Okay, great thank very much.

Thank you. My next question is coming from Brian Bedell from Deutsche Bank. Your line is now live.

Okay, great. Thanks, Good morning folks, maybe just start off with the obviously the global fixed income franchise and and the decrease in outflows and maybe just if you can talk about.

No, what you're saying to the financial advisors seen sales, obviously come down there pretty sharply in the last three quarters and even also went a little bit on the on the global equity side. So maybe what the conversations with advisors or how that's going on maybe that sort of the tempo into January and would that Morningstar requests.

I guess, you know <unk> would you say, there's a certain level that you on that might be at risk just based on that request in the performance were maybe just a little extra color around that.

Yeah, I think first and foremost I mean, the messaging is really that that one. This this it doesn't fit neatly into any categories. So so I think the people that are familiar enough sold the fund.

Our do it for defensive purposes, they do it because it lowers the risk clearly against you know the big drivers of of interest rates and end market beta and it really complements portfolio as well. So that's the messaging that we continue to drive through the retail side and and I think some adopt the heightened redemptions that you saw two.

Words, he ended the quarter or the end of the year you know I think some of that's always tax driven in selling one when you have a sector in a very strong bull market that had a tough period, you know that'll be something that you'll just see heightened levels of redemptions and we've seen that come off a bit its hard to kind of gauge what the reclassification can do I can just.

Say from experience with this asset class is how quickly it moves around it and just yeah with geopolitical events and movements within global macro we can see quick rebounds in performance I'm really within a week or two so and I think the most about our <unk> advisers and.

Shareholders or are you know that understand that that's just the messaging that we want to continue to drive that this is a defensive way that's not correlated to many of the drivers in your marketing and continue to reinforce that message and how it's done you know in past down cycles, but it's clearly defensively positioned and that's the messaging that we.

Continue to drive and I think they did a very good piece on the krona virus and just reminding whether or not this one is you know gonna be.

You know a very serious epidemic or not that you always have tail risk and portfolios and it's good to have that diverse portfolio and this is is you know one insurance policy position very defensively and that has been well received by clients.

It's are you seeing improvement in the flow momentum in January versus where we saw late late in the fourth quarter.

Yes, sure Yeah, I would say still feel pressure, but definitely better than what we saw in the prior quarter.

You know reduction side, a lot better lot there.

Great. Thanks, and then maybe just back to the M&A strategy.

Maybe as you think about sort of diversifying into different areas were expanding that fiduciary high net worth strategy is it.

And also and the commentary about the undervalued balance sheet and the three and a half doing a better cash. We have you guys is maybe becoming more of a roll up of of other private wealth managers a over over the long term and and if so.

Is that more of a sort of a bolt on strategy or would you actually try to.

Be more toward a have a strategy of more more like integrating those firms into fiduciary and having it be a large integrated platform. Yeah. I think it's a combination of those two things in wealth. It's both integration of certain aspects of the business, Brian but it's also potential roll ups I think we should make clear this is more of a.

Yeah, we don't expect to expand the broadly across wealth management. This is specialized ultra high net worth franchise or where we see significant opportunities in different states with different client base who's a that as I mentioned, a second ago capitalize on the foundation that we have we fiduciary trust. So that's what this is all about.

But we shouldn't confuse that important aspect of our strategy with what were doing overall as a company.

We do have many other aspects of growth we're focused on those Jenny just pointed out including across the traditional asset management business distribution various products.

It is institutional for example, and some of those ideas are much larger ideas that are in our pipeline.

As we move quarter to quarter with our list is getting shorter and shorter in terms of where we will actually take action. We hope in the next year.

Okay. So we should expect more utilization of the balance sheet for M&A over the next couple of years or so yes.

Okay, great. Thank you.

Yes, that's.

A question today is coming from Craig Siegenthaler from Credit Suisse. Your line is our lives.

Thanks, Good morning, everyone.

Well like Florida.

Just looking at the the decline in expenses and the guidance to how are you able to invest in new technologies distribution and also product while also able to reduce total costs.

Yeah, Doug I'll take that so I mean, you know in one of the things that you.

Overtime, we believe had that a global footprint and so are there has been opportunity for us to ship positions to lower cost recent regions as well as historically as a global provider. There were often not service providers, who are who could really accommodate our global platform and so we.

Well, we've had to keep these things in house, it's hard when you keep it in house till we scale. It and so you know most recently, we announced a outsourcing of some portion of our funding Ministration <unk> and then I would say you know just getting better at looking at you know massive amount of data like a market data researching and finding opportunities.

There were historically that was probably manage more by the investment teams needs as opposed to centrally and finding out where you have overlap. So it's a you know just continuing to Scott, we're through and figuring out where those opportunities exist I think I think the other thing on that.

As we kindly just become in fairly short Toyota I would say much more disciplined about investing in projects that we see really moving the needle and and moving away from.

Yeah.

Sort of hobby type.

Luxury type investments that we.

We're making it up business for good reasons candidly, but given the shift in the environment or we've just got much more disciplined about that and frankly, we found other areas within the cost structure.

The provide more flexibility any event that the market continues to be challenge. So I think out guidance has moved a little bit or as we though to know prepared remarks to the positive in terms of the cost that we can were juice.

And yeah, we're we're very confident about the flexibility about about cost structure.

Thanks, Matthew and just as my follow up I have one on U.S. distribution. What is your business strategy for targeting U.S. Ari Ace I'm talking outside of fiduciary Trust and CNN Pentrust.

Yeah, it's the fastest growing segment of U.S. wealth and within that what Franklin products are you finding the our ace most interested in.

They are A's want them up more you know, let's kind of traditional and then could extend its traditional ats are obviously very popular so s. amaze are popular there and if we talked about a we hired somebody to.

Run, our SMB business and Ah, that's starting to grow <unk> had its best quarter ever with 1.2 billion as matter of fact, the launch of our are that's helped C. O which is our core bond Oh was I think the for third fastest growing E. T F in 2019.

So those are interesting for that channel, but how do you really get mind share of the are a and that's what we're talking about those additional services as he already has had to grow their business a into more of a wealth management business finding ways that we can.

I have tools and take some of the capabilities that fiduciary trust provides to its clients to provide value added services that aren't particularly more costly for us to add to it but but can be leveraged more broadly there.

Great. Thank you Johnny.

Thank you. Our next question studies coming from Patrick Davitt from Autonomous Research. Your line is not a lot.

Hey, good morning, guys.

First one on a on these kind of bolt on deals that fiduciary trust, how should we think about those running through the financials from a revenue and operating income standpoint, and then maybe more broadly.

Through the lens of the comment about doubling it how should we think about you know future a U M.

Or each deal, adding adding some results over the you know as as they come through.

Yeah, I think good good morning, Patrick I think the the way to think about the two transactions that we've announced a bearing in mind that Athena closes in February in Pennsylvania Trust because it is April .

Is that they'll add collectively about 1.5 to two cents a share.

To earnings to margin is roughly in line with without margin as a company, but we see expansion opportunities that.

And.

You should transactions that we may be.

Be looking got all very similar to that and proportion to Ah two size. If these transactions so.

I think that's the level of detail, we're willing to give at this point.

Okay. That's helpful. Thanks, and then on the commentary.

Should we take that you're not calling out any any specific redemptions to mean that there aren't any as you have in the past couple of quarters.

They you know there are some that we're aware of I think there's a 1.1 billion. We just don't know when it comes in.

You know we don't have.

We don't we're not aware of any specific dates this.

Order that any episodic redemption is coming in you I think I think the way to to see it is that you know where all the into coursa with a better net flow picture so fall.

And we have very little known.

Large pep Slavic outflows.

So that's that's why you don't see it written into the commentary and I would just add I mean, it it <unk>.

We just in the past its hard when you know one or two when you don't know the timing and sometimes it's better not to say anything when we release you know our asset levels on a regular basis.

You of course are still going to be.

You know pressure from.

The VA business and it just trying to get the timing, sometimes is very difficult, but there's still gonna be a larger redemptions coming on that side as we've talked about in the past.

Thank you are helpful.

Thank you.

Thank you. My next question is coming from Dan Fannon from Jefferies. Your line is alive.

Hi, Thanks, I guess, just a follow up on that I guess could you give us the level of assets left in that'd be a business.

At this point.

It gets like 35 billion.

Yeah, again, <unk>, if that's way off Oh, well get that get back to you, but I think that's about you know somewhere around that number.

I'm not all that obviously is at risk. It's it's just some of the you know that that business. As we said before has been under a transition from you know using using funds to using different lower ball models and index like products and lower cost products and.

We've been transitioning our business and part of our solutions and we've actually been able to.

Retain some of those accounts by switching them into the new model. So I think that that Oh, we're hopeful that that can be a growth business. Instead of one that's been in constant decline as the traditional funds have been under pressure and I will confirm cracks number [laughter].

Any looked it up so it's good support.

Alright. Thank you and then just as a follow up you know in the commentary you talked about the income fund and you mentioned you know yield being a bigger factor for you know kind of investment decisions in overall necessarily potentially performance, but we've seen outflows increasing the last three quarters redemption levels growing performance.

There are obviously has come in so can you talk about again easier just to that's on <unk> and that category and how we should think about it on a go forward basis based on either platforms or kind of distribution partners and how they're thinking about that that's funded in the context of everything else.

I mean, I I'll start and just say that you know first and foremost I mean, the yield is two and a half times its category yield. So it's a very different creature. Then you know where it's measured against then again most advisors. Appreciate that fact, so you're gonna have more duration risk if rates go up like they did in that in the quarter.

And generally a little more credit risk then then maybe the category.

The other big factors, we talked about it before is how this fund fits into the new landscape of fee based versus the traditional brokerage model in it and it's less.

Less of an opportunity for sales and in in the fee based World. That's building models, you know and and you know, we're building models, as well and and and and and adapting our product line up and solutions to meet that but the traditional 40 Act funds the income fund.

Is under that you know secular pressure so it's hard to gauge how much of it I don't think a lot of its really performance related I think you still are going to be under pressure as people transition to fee based and you know we do our best and is that settles you know, it's still always going to be attractive in the brokerage world.

But there's other markets like we just introduced in Europe , and NRC cab lineup and hopefully you know we could gain some of what we'd lose I'm in the in those redemptions and I'll just add you know the categories got a decline of about 2% we were up 4% and the income fund specifically gross sales were up 28%.

So you know that strategy to Greg's point.

You know the category is much lower yielding and so you know that often gets being in its measurement there, but clients love the yield and you know we think there's huge opportunity for the SMB business and you know that product. So it's been around 70 plus.

Sears for a reason.

Understood. Thank you.

Thank you. My next question is coming from my carrier from Bank of America. Your line is not a lot.

Good morning, Thanks for taking the questions.

She we've hit on M&A, a little bit and I guess, just one question on that one follow up.

Just when you look at the backdrop you. Obviously you guys have been more active on the wall side, but you mentioned some product areas you distribution areas that you're more interested in its just curious when you look at the competitive backdrop, whether its pricing.

You're thinking about returns on investments, whether it's in Walther asset management, just kind of an update on how you're thinking about just given that you're spending more time on that area.

And how you see that kind of playing out.

Yeah. So.

No market cycle is perfect in terms of when you should execute execute a inorganic transactions.

This is obviously no exception given the fact that we're at the height to the asset class.

Prices across nearly every asset class that we're in.

And that we're interested in growing.

So that part is a tough one to two all in so other than the fact that we think.

The areas that were looking at in particular will make us as if a more efficient and better utilize.

Expensive resources, we have did a very important for the future of alpha I'm going to Standalone basis, and we think can make acquisition targets more efficient and more attractive for them and even more so it's like a multiplier effect when you put the two things together so its point.

One in terms of what we look at.

And metrics and and hurdles and.

And such.

<unk> I would just say that we look at a number of.

Quantitative and qualitative mexes metrics, including how the transaction could increase we're talking about current assets, which I just referred to for example distribution as a very important <unk> appropriate risk rated.

Sorry risk adjusted discount rates precedents comps yeah, the basic principle of achieving a return in excess of Alan.

Cost of capital the things that you're very familiar with.

Were very focused on.

Frankly.

A very very simple level, you can see the the size about cash.

Resources.

And turning back cash into a positive catalyst.

In terms of increasing our earnings and making off more efficient.

Capitalize you won't we seem to be pretty exciting future in many areas notwithstanding the pressure on the industry is what we're very focused on so it's really a combination of all those all those things, Mike and I would I would just add that you know as we said before I mean, you know looking at a benefit Street type when you say what or how do we look at the world and landscape and that's a classic exam.

People.

An emerging category that that is passive proof and one that we think is going to grow very well and one that we think we can add value to distribution and I would say at all of those are being validated to date you know as weve.

Continued to bring new products out in our you know ready to benefit from some of those positionings in the in the next year. So and I think you know again, we look at the landscape it'd be more on lower cost institutional managers that we can then you know build into our retail relationships versus the older higher cost 40 Act type manner.

Sure as you know we'd be more focused on that and then technology anything we can accelerate and and look at platforms for distribution that can be helpful. Unbilled globally. Those are the other areas that we think you know could be a very important to us and the finally I'd say you said before alternatives real estate again passive proof all categories private equity things like that.

The that that really build out our alternatives group and then have the specialisation of distribution you know in those categories and have have the kind of breadth that allows us to have the specialisation would be where we're heading.

All right. That's helpful. And then just a quick follow up maybe on the the organic newer areas like the estimate as models multi asset.

On one hand, you guys have you had the distribution and you have long track record and a lot of products. The other and some of the performance challenges in the near term.

Never hurdle, so just want to get an update on how much of any traction you're seeing on that front and you need.

In a shorter term performance the shift in order to.

I see that pickup.

Yeah. It made about that Jenny follow me, but you know I don't think the you know the challenges of <unk>, we have because our asset mix and and then styles of a templeton with the value discipline and a mutual with the value disciplined doesn't mean that your solutions business and your estimate business can't be successful and they're not required to put those.

And in the portfolios. If they think you know that that style is not appropriate in this cycle. So I don't think it's held it back at all we've been very successful.

Getting our models into the larger distribution platforms and are seeing some growth. There today. So I don't think you know the.

Performance issues of just style of value versus growth and again, if you look at our growth funds and how well they are doing across the board you know that they certainly our solutions benefits from that today as it does our retail flows.

You know the it's Greg mentioned, he has been sort of newer categories for us or where we put more resources estimate are up.

He mentioned the model portfolios and I think we talked and on the prior call about a couple of wins we've had there.

You know assets were up 45% from a same period, a year ago, hitting a billion and good traction you know once you get in the model you still think goes sell it through all the individual.

Financial advisors, and the farm and provide that kind of support but we've had good traction there and then having already you know mentioned <unk>, we were actually the fastest growing from with as far as a U.S.T.F. issuer with assets above the billion last year. So you know these are all where were you know we think the vehicles in which.

Investment management is getting delivered in this new kind of fee based model and we've got you know good good traction in those areas.

Yes, Thanks a lot.

Thank you. My next question is coming from Brennan Hawken from yes. Your line is alive.

Hi, good morning, Thanks for taking my questions I'm just wondering.

Hello.

One on the S. I may and you guys approach there considering the expansion of that offering into the broker sold channel just curious about when you think about it what portion of your products do you think makes sense in that wrapper and whether or not you need to make further investments.

Those as those assets ramp because obviously you've got the wholesalers the sales effort, which is clear, but it's my understanding that you need sort of trading pipes and other automated connectivity into some into you should those platforms does does that requires any further investment are you guys already there. So I would say that that that is what we've been working.

On as I mentioned, you know, bringing the new head of estimates I think we learned a bit more about what we needed to do and and I think we're in a good place today.

And it's not something we've been in that business for over 20 years, and so Weve you know it hasn't been a big emphasis for us, but templeton at a very focused group early on and we've been in the Muni business for a long time as well then SMS.

And the be part of the question about which portion of the lineup might make sense for that wrapper. Because you had some not all that well since you need to own the underlying securities <unk> well so the way the industry's of up tick. The income fund right. There are a securities in there that the individual client can't owned on this.

Eight minutes. So you just do a completion mutual fund a and so we have launched a few of those so for example, the underlying equities and and bonds that are appropriate to me on the quite statement will be there and then anything that.

They are quite can't on individually they advisor would allocate that to the completion fund.

Got it okay. Thanks that helps and then a follow up on the trends you guys have seen here in January certainly encouraging that the flow trends have moderated but.

Can you help us understand why that is necessarily indicative of the best way to think about the path forward because.

It is just one month and we look at the last three quarters of redemptions seem to have accelerated each quarter and that's coincided with a deterioration in performance. So [noise].

What is there is there something specific about when the calendar flipped that should translate into that trend proving sustainable or maybe a little more color would be great. Thank you.

Yeah, I mean, I think it's hard I think january's generally a better you know better month number one December you generally have higher redemptions and you know that quarter protect selling and you know at year end and slower sales because a lot going on in December and January generally is just a better month and in terms of flows.

You know, it's hard to gauge how much of that tax selling and and you know where obviously for US. If you you know again.

It's hard to say take the global bond out of the equation because that's been a big driver of flows both ways, but if you look at the last quarter. We had three major categories in inflows, which you know would've been a very positive story. If if we didnt have the acceleration of 6 billion of outflows within global bond. So I think you're right and asking that question, where where does it go.

I think there was more pressure for the quarter and as I said before you know things move quickly in terms of relative short term performance and we're already obscene you know some recapture in performance.

You know in the in the quarter to date with global lot bonds. So that that can move quickly and we've seen in past cycles. How quickly. It went from outflows to you know moving back to inflows.

Fair enough thanks for the color.

Thank you. My next question is coming from Alex Blostein.

Goldman Sachs. Your line is not a lot.

Hi, Thanks, just wanted to follow up on the the one other things you guys mentioned earlier regarding acquisitions to build out fiduciary trust not having you said you expect to double that asset base over the next a year or two.

So maybe could you just could you spend a couple of minutes on the EBITDA multiples, you're you're seeing the space that you're comfortable paying the competitive dynamics in the corner of the market because I think there's a lot of businesses I would like to add scale and presence in the corner off off the wall management industry and what are the key selling points or the other day or is it a.

You know one off discussions are there more competitive kind of why do people decide to sell the Franklin.

Yeah, well I'll take that part and then once you talked about them.

No you're absolutely right. When you talk leave a financial advisors. They are usually at a point, where a as Greg mentioned are feeling that they can't continue to invest in technology, when the regulation and their requirements around you know really adding all these wells capabilities. It because they really are sub scale and there are a lot.

The buyers or you know that the two acquisitions that we did chose to us and they chose US because you know fiduciary trust has been around since the 19 thirties. It was set up like five high net worth families. It is it really marquee ultra high net worth business that understands multi generational asset management and the issues that go much beyond just.

Figuring out investment returns and so.

It will always be a competitive space and it will be a space, where they're looking at their clients you, they know well and saying who's going to be the best stored at these assets.

And so that's what we think is our big selling point.

Yeah, I think in terms of the multiple in the price competition for these assets.

I think.

That's what you may be referring to is the broader wealth management business of course, we will we know that private equity and all the wealth managers in the mass affluent.

Well space, all very very active in some of the EBITDA multiples are being discussed here in <unk> in a 15 16 times plus area, even even even in businesses that that actually have the acquisitions closed yet for example, so that it is a very heidi.

Festive space.

Roll up perspective, because the economics, just make so much sense in this area that we're focused on though the multiples are little bit lower I'd say, so saying the low double digits to below 10 times to low double digits area.

And that becomes more efficient for us.

Upon the connection collaboration and to a certain degree integration with a fiduciary trust. So it becomes very economically compelling to us and as Johnny mentioned the reason for us.

So all those.

Is.

There are really a very small handful of.

Yeah very focused.

Sure Ultra high net worth.

Wealth managements, the the services that you need to provide.

Very expensive.

Two to two invested and to retain and have to write team took to provide it.

And I'd say very specialized across the whole sleuth of of Ah that's different a advisory solutions. If you will have a sophisticated I'll try that with folks. So that's why we think were a good home. This as Johnny mentioned, we've become it's sort of a coming together of both sides.

No the.

Yes.

Necessarily going out and scouring the ground, where we're also finding that upon the announced when these transactions and news getting out of our interest through fiduciary trust that the there are more than we actually thought or in the marketplace and there are several very important stay.

Dates in the U.S. that contain all the source of funds when in the three to six 7 billion dollar you I'm area.

That would also be a very good fit a fiduciary trust that out I know strategy.

Got it that's very helpful. Thanks.

The my follow up question was just a quick on around expenses.

[noise] Apologists, you mentioned earlier, but if you look at the guidance I think you're guiding to you I down 2.5% or expense growth for fiscal 2020 versus 19 Agilent confirmed that's all for the total expense base or about $2.4 billion, all last year and that's inclusive obviously of the deals you're announcer theres going to be a little.

But a revenue that's going to come through with that as well. So maybe just cannot confirm the the expense number for this year and help us think about the revenue contribution for this year off from the deals that you are applied to close thanks.

God confirmed that on the expense side.

And and I I would also confirmed that that guidance is inclusive of the transactions that we've just announced.

We're not gonna separate out the revenue yet until a that becomes a larger line item, but a out guidance generally speaking on the expenses consistent where we expect.

Revenue to be able so so we were we as we have done this quarter and the same would last quarter. Our objective is to do out very best to have positive operating leverage in the business and I would say that would be out guidance 2020 . So our guidance if ER of two to two and a half.

Perhaps even a little bit more.

Expense reduction based off the 29 team that you referred to a Alex So I would say that on the revenue side, we'd hoped it would be better than that.

Got it great. Thanks, so much.

Sure.

Thank you. My next question is coming from Robert Lee from KBW. Your line is now live.

Great. Thanks, Thanks for taking my questions. This morning.

Just maybe more of a philosophical question, but if I think.

Of the a growing behind the of the ultra high net worth business. So I think as some of the investments you're making various.

Platforms.

<unk> desire or need here to try to get.

Closer to the end acetone Army one of the challenges for the industry broadly has always been there's someone between you and the ultimate.

Owner of the asset.

So if you think that that's an important part of kind of your strategy or trying to get closer to who actually you know owns the asset and pulled the trigger.

Yes, yet so I mean, we are still big believers in <unk> and financial advisor, providing advice or we're not believers that the robo advisor is going to the machine is going to.

In the end.

Intermediate that financial advisor, who we know these things like Robo advisors, we think it's more akin to a turbotax, which was going to put all CPH data business and now the C. P eight or the big users of of Turbotax. So the key for US is what kind of.

As the advisor adds more wealth management capabilities, what platforms can we invest and to get closer to that end advisor.

To be able to influence and help them be better at their business and so you know as we think about.

Our investments on the technology side, it can be things like financial planning or other kind of tools at the advisor is expanding beyond just investment capabilities.

Great and maybe just quick follow up I mean is.

Clearly a lot of his discussion on M&A on the call, but maybe this is a question just to confirm what you're not interested and I assume.

We are continuing to not be interested in any kind of scale driven.

Merger.

I don't think that's accurate.

To be Frank you want to make it seemed like where were looking at every single thing on the planet. The as I've said in or as we said on previous calls rope, they're all very few.

Ah transactions that contain a an element of scale in it.

It would make sense for us, but that certainly all those that contain that and.

That is on out.

Shortlist, Yeah, I think I think the point is that we would never be first on the list of combining something for the sake cost cutting and scale, we may get that secondarily as a benefit out of that but it's really about bringing in.

Areas that complement the firm in areas that we believe we're gonna be strong areas of growth in the future, but that you know certainly doesn't eliminate benefit of certainly distribution and scale and things you can get out of that yeah. I mean, we could for example, consolidate and operation in the U.S.

But remembering that walk that.

This may contain would be applicable to.

Many countries overseas that were in the perhaps that policies Milton.

Okay fair enough I appreciate it thank you.

Sexual.

Thank you. My next question today is coming from Michael Cyprys from Morgan Stanley . Your line is allies.

Hey, good morning, Thanks for taking the question maybe just following on the fiduciary Trust Buildout, hoping you could elaborate a little bit more on the strategy there and talk about.

What you're looking for and firms that you might acquire and maybe you could talk a little about your process. There how you stepped through and identify and prioritize and what your ultimate vision here is.

So I'll, let Matt handle the how do we sift through.

Again.

There are financial advisors that are that are almost family offices are really you know wealth managers that.

Have done very very well.

Until now and the regulatory environment and the demands on services have increased and you know there they're looking at their business in their thinking I want to add more things, but it's just difficult to scale. This and so they're looking for home with affirm that understands the the wealth business.

And you know if the ultra high net worth business is about investment returns, it's about trust and the state planning, it's about tax efficiency and it's about education. The next generational wealth and the welfare and the older you get the next generation education becomes the most important part of that and so if you're looking at their clients there.

I want to make sure that they're connecting with affirm that can provide longevity a and also has that same core culture of understanding of what it takes to really manage for a a high net worth family and not all the the roll ups that are happening out there they they're miss.

Meshing, both the ultra high net worth what mass affluent and that that becomes a you know a danger of diluting kind of the capability that you provide for the ultra high net worth.

Matt I don't know if youre talking about and yeah. I mean look we have as I mentioned, a moment ago to to Alex's question, we're financial discipline around these things. So obviously, we want to make sure that it's going to work financially for us.

Upfront in terms of the multiple and then you know this or is it out structures and performance targets that we have against the business I think that the <unk> where that base location is very important in terms of a limited.

Disruption, obviously is always very important the point Jenny made around <unk> diluting. The last thing we want to do is diluted to specialize nature of what fiduciary Trust does and frankly the targets that we all the other part was the future companies that we could own that's exactly how they feel as well they don't want it they don't want.

What they do to be diluted many way by what we do so when we haven't these discussions it's really a coming to a mutual understanding very rapidly that what we're trying to achieve is is the same gold ultimately so.

The summaries are financially disciplined obviously it needs to make sense Ross with very good use of out of our cash and it's a very good use of of an asset that sort of pretty.

Frankly been little bit under appreciated the overall scheme of things do trust so.

Great and just as a follow up maybe on the F. side I was hoping you could elaborate on the T.F. strategy I think about 7 billion anyway, that's where you are today, but just curious as well around that what the interest or appetite barriers to scale that maybe in a more quickly more material way three inorganic means and what scenario could that mean.

Sense, where maybe you add some other geographic regions and more strategies around that.

Oh, So were you know we launched in U.S., <unk>, Canada and Europe .

And looking at Asia, we're quite happy with our growth. We were one of the first multifactor smart beta issuers and actually that's the biggest it group of assets. The second is our active VTS in a third is our passive which.

Aren't the cheapest actually passive in the category that there and and Ah you know the challenge with Dts is is you always have to get scale tend to be able to attract the institutions and so we're starting to see more and more flows there every day.

And.

I think that.

It probably if the right opportunity came up we'd certainly entertain it but at this point. The you know we're focused on just we have a great team and the growth there.

I would just add I mean, it as you know I mean like anytime you get an a new business. It takes a few years you know they the big distributors weight.

I think we're at that critical point, where we've been out good good performance in many of the T. apps and and getting on all of pretty much all of the platforms. Now. So I think that's the big change of where we are.

In the cycle. So you know, we're we're optimistic that that can really accelerate growth and from a scale. You know for example, we are I guess launching this this month three somatic.

Yes, it or.

The Franklin genomic the disruptive commerce, and an intelligent machines and we're basically leveraging the team that runs our Dyna Tac fund.

To be able to provide us because that was feedback from clients in that they wanted some specialized type products that the dramatic products that you're able to you know scale existing teams that are historically have been doing you know traditional mutual funds.

Great. Thank you.

Thank you. My next question is coming from Glenn Schorr from Evercore. Your line is now lives.

Hi, just one follow up to your comments earlier on on on benefits Street, and that's one micro and macro <unk>.

<unk> <unk> at that Michael I'm, just curious if you could update us on anything related to performance no products and distribution penetration that you've seen now that they're part of the family and and then at the higher level curious, how you're thinking about addressing other private asset classes across PE real estate infrastructure things like that.

Thanks.

Yeah, I mean, I'll just start with with.

S.P. and I think you know as we said before it it's not something you just plug and expect to see flows on the retail side. It's a complex a more complex product set up and we set up interval funds for the retail for retail distribution in both the U.S. and in Europe .

And we've also you know this year are.

Planning on having a BDC offering with one of the major distributors here in the summer and at all of these are going to be meaningful in terms of flows. This year. So I think we're very pleased with performance.

With with the pace and how we've gotten our distribution kind of lined up behind it and its you know it is a more complex sale not that we've learned but what we've done a lot of training and continued to be very optimistic there I think the difficulty when you say the tactics around the other asset classes, it's very hard to go.

And just by.

As you know by real estate or by private equity its performance fee driven its partnership driven and you've got to find the right combination of incentives to make that work. So it's not always easy to do that math. If you want to add a couple of other points when both history Festival in terms with the revenue contribution for the quarter. It was up 8% from last quarter.

To 53.

Million dollars that was largely due to performance fees, but still it's a increased contribution I think the second thing is the team a benefit streets, providing tremendous leverage for us frankly in terms of.

Overall strategy for alternative asset managers, they're all very experienced spending time with.

The other asset classes with the new alternative arena.

Including including frankly spending time, considering a smaller specialized acquisition targets in that area, both domestically in the U.S. and and internationally. So we get this multiple all the benefits to a two to owning benefit street away from just the organic sort of.

Activity, we have going on which we which were enthusiastic about the future.

All right. Thanks, so much.

Excellent.

Thank you My final question today is coming from Brian <unk> from Deutsche Bank. Your line is now lives.

Great. Thanks for taking my follow up my main question on the T.F. inorganic said he was already answered, but maybe if I could just add a couple of things maybe your view on the active semi transparently T. S is that something that you think you would like to develop and leverage and some of your better performing track records.

And and then also I think a Matt you you mentioned geography as you'd like to expand in and it's been M&A strategy is that more distribution oriented or is it is it more product oriented.

<unk>.

On the lots of what else doesn't have Jenny would go the Cif one last one it's it's a combination of both depends on what market. If it's more the emerging markets really distribution driven.

In certain other local markets.

As you know we have a local asset management business in several markets, sometimes can be beyond distribution.

And in certain cases, it's just.

We have a very good.

Operational group, if you will based and so these countries and we can be much more scale to the same amount of headcount.

So we're very focused on certain key countries and growing those countries. That's what we mean by that.

And.

The Nontransparent ETF vehicles that had been approved there really.

You Aes equity. So you are limited and we certainly talk about it and at the point, where we feel that a particular product requires nontransparent, we'll absolutely entertain it is I mentioned in rolling out these.

Three automatic funds, we felt comfortable that we didn't need non transparent on those.

And a in the fixed income ones that we've rolled out so so far we haven't felt the need for it but.

It is not something that we are adverse to if it makes sense for particular product.

Okay. Good great great. Thank you.

Thank you.

That concludes our question and answer session, let's turn the floor back over for any further closing comments.

Well. Thank you everyone for attending our call and we look forward to speaking next quarter. Thank you.

Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day you. Thank you for your participation today.