富蘭克林資源 (BEN) 2019 Q4 法說會逐字稿

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 are 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 factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

Good morning.

My name is Rob, and I'll be your call operator today.

(Operator Instructions) As a reminder, this conference is being recorded.

(Operator Instructions)

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 and fiscal year results.

Joining me today is Matthew Nicholls, our CFO; and Jenny Johnson, President and Chief Operating Officer.

Our industry remains in the midst of rapid change that we worked diligently to address in fiscal year 2019 by evolving certain parts of our business or remaining steadfast in our core convictions.

We were pleased to see improved sales and share 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 and management team.

We continue to actively evaluate the industry landscape for opportunities to grow and enhance our business through acquisitions, and we rewarded our investors through dividends and repurchases this fiscal year that amounted to 107% of net income.

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

Our first question comes from the line of Craig Siegenthaler with Crédit Suisse.

I just wanted to start with Benefit Street first.

Can you provide us an update on fundraising and AUM growth since the deal has closed?

And also, do you have an AUM target for the senior opportunities fund to note?

Yes.

I would -- as we said on the last call, I mean, we were very pleased with the progress with Benefit Street.

And I think in -- the last year has really been getting our distribution platform up to speed and training, and we had over 350 global meetings and introducing the new funds that they're offering.

And 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 have not a steady flow, but when you close funds, you have, obviously, a large onetime lower.

And we're expecting to see 2 or 3 of those events in the next year.

And hopefully, we'll target somewhere over $3 billion, $4 billion range of flows if everything works and market stays steady.

We've also registered funds and are in the process of getting retail products out there, whether it's a BDC with some of our major distributors as well as the potential of introducing interval funds for more of the retail and wealth management platforms.

So very pleased with the progress to date there.

And I would say, in the last quarter, we had 1 CLO close that -- you asked about flows for $233 million or so, but that was the only really fund raise in the last 4 to 6 months.

And just one follow-up on the 55.8 basis point fee rate.

When you exclude market appreciation and any kind of divergent beta, what are your thoughts on the overall fee rate going forward given organic mix shift?

And also, any potential pricing adjustments that you could do to enhance growth?

It's Matthew, Craig.

I would say that it's a very tough question to predict, fee rates.

Our mix of products is evolving somewhat.

The past quarter, for example, fee rate came down slightly based on the fact that our international global products came down a little bit through increased redemption activity there that we talked about.

But I think further guidance on the average fee rate is difficult to predict.

You're next question comes from the line of Patrick Davitt with Autonomous Research.

My first question, there's been a few high-profile Morningstar downgrades of some of HAZMAT status funds.

Historically, there have been a high correlation between flows and these ratings.

I'd be curious to get your thoughts on if you think that correlation is still as strong given all the changes in the distribution ecosystem.

And through that lens, are your expecting accelerated outflows as a result?

Yes.

I think, clearly, there's a correlation.

And obviously, the more recent underperformance puts pressure on some of the Morningstar ratings.

But I think this fund is really in a category of its own and there's no real one clear peer group for this kind of unconstrained global bond that tends to have no correlation with beta or duration.

So I think it always has a place and a portfolio regardless, and people are -- that have used the fund in the past understand what it brings to a typical 60-40 or typical portfolio at a lower risk, and that hasn't changed.

But no, we don't expect any -- I think the relative performance is the key in the short run more than the ratings.

And obviously, the fourth quarter, September with Argentina, you had some -- what was up until that point very strong relative performance, a downturn in that.

But that turns fairly quickly in that market because every fund looks so different.

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

Great.

Okay.

And my follow-up.

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

Yes.

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

When we last commented on this, I think we had referenced guidance again to -- for 2020 to be at just about 2019 flat.

I think we can say now that we believe we can come in a little bit below that target.

And I also believe that we have a little bit more flexibility than I first thought before we started the budget process, but I'd still continue to point to the guidance that we've provided beforehand on just a little bit below 2019 for expense in 2020.

The next question comes from the line of Mike Carrier with Bank of America.

I guess just one more on expenses.

You guys did a lot over the past years or so just in terms of driving efficiencies but also investing in the business.

And you mentioned like the '20 outlook in terms of down a bit.

I guess just, like, kind of bigger picture, how you're thinking about the investments in the business?

And if we do get into an environment where -- whether its flows or markets are weaker, are there other -- whether it's outsourcing or kind of chunkier, big things that could drive the expense base lower over a longer period of time?

Yes.

I think we have been working hard on that.

As you pointed to, we've announced the outsourcing of our fund administration business, which we're ahead on that, which is why our IS&T expenses went up a little bit more than planned for the quarter.

And I'd say as well that we spent a lot of time reviewing other parts of our IS&T business and we think there is some opportunity there to decrease our expenses a little bit more if we had to.

But generally speaking, as we've already referred to, where we've saved, we've tended to try and reinvest that in other very important parts of our business, in particular on the investment side.

Yes.

I mean one of the things on the technology is just investment and data science around -- for our investment teams with a centralized data lake and data scientists embedded in the team.

And so that's been an area of growth in our expenses on the IS&T side.

So we're trying to figure out where we can save so that we can reinvest it.

Okay.

And then just on the follow-up, so on the strategic growth initiatives, you also -- you've been active whether it's solutions, EPS, a lot of different areas, and it sounds like on the M&A front, you're still spending a good amount of time looking at potential opportunities.

I guess if we don't see something, let's say, over the next year, is it mostly about price, especially if you're going after growth areas?

Or are there other factors that you think are challenging in this environment to pursue some of those strategic initiatives?

Yes.

I mean I would characterize our progress in terms of M&A and acquisition targets as quite good progress in all the areas that we have focused on and referred to in the previous call.

And we feel cautiously optimistic about our options in that regard.

I'd also add a nuance to our commentary from last quarter, which is to say that while we value our cash and conservative balance sheet, we are ready and willing to utilize a meaningful portion of our cash to help meet these strategic objectives.

As mentioned last quarter, any pro forma scenario would continue with low leverage and strong financial flexibility, but this should not be confused with our willingness to use our cash.

I'm just going to add, 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 it has to hit a category where we're filling product gaps that we don't have, where we're getting distribution capability that we may not be as strong in or a geography, and that's first and foremost.

Cost cutting then gets to be a secondary benefit of that.

And then, of course, it has to be at the price.

And I think the -- just to add on price, it's not like going out and deciding when you're going to buy a specific security, I mean, it's one of the right needs are available.

And sometimes, you end up paying a little bit more, but it's got to be -- we look at it as something that we're going to build over many market cycles and have that time to grow in an asset class that will be around for a long time.

So I think it -- sometimes, it's easy to look at the world and say, "Well, gee, I'll buy this when you have excess sell-off." But that's not realistic sometimes as sellers aren't selling in that bottom part of the cycle.

Yes.

And the current valuations of asset classes frankly reflect the -- well, the valuations of companies that contain certain asset classes reflect the reality of where the market is, I would say, in a number of the cases that we've been interested in.

Your next question comes from the line of Brian Bedell with Deutsche Bank.

Maybe just to move back on to the global macro/global bonds complex.

It's -- I understand that this -- the shift in the recent few weeks and months has moved more to a cautious stance, and my goal hasn't stopped as kind of, I believe, almost something like half in cash in at least some of the big funds.

So just in terms of maybe that macro view and how it's being read by the sales force and advisers, and do you expect that repositioning if that sort of a more of a -- sort of a, I guess, more of a -- permanent is the wrong word, but more of a strategic shift, do you think that will significantly impact the sales engine for that complex?

I mean it's hard to say.

I think it is clearly a more conservative stance in derisking a lot of the EM currencies that -- again, this goes back to my point about how markets move and how relative performance can swing so quickly.

So I don't think there's a lot of funds that have a similar defensive position today, which sometimes I think you bring up correctly that what does that mean for a sales environment, and I think we've stood behind the PM's convictions in doing what's right, again, for the long-term.

And having cash in that kind of fund, it has never really been a problem that it would be more of an equity fund, obviously.

But because of the liquidity constraints, sometimes that -- having that higher cash is important.

And if you get in a disruptive environment, which that team feels like there's a serious potential for, that cash can be very efficient in not having to sell securities but going in and buying during the dislocation.

So I think some of the best track records over time are built when you have that ammunition to buy instead of sell, and that's really what that fund is positioned for.

But I think it's hard to say what impact will that have on the sales.

But as I said in my earlier comments, this is a little bit different of a product.

People are used to the higher cash in this fund and some get comfort from having that when issues come up with certain holdings on liquidity, and that's part of the combination here.

Right.

And has that hedge to higher rates been reversed largely in the fund as well?

Not reversed, it's on the shorter to medium-term and still negative duration on the longer.

But definitely, focused on the longer end of the curve and no longer on more medium and shorter end.

Got it.

And then just my follow-up is on the outsourcing of the fund administration.

Can you just review, again, like what parts of the fund administration are outsourced and what you still have in-house?

I believe you were still doing, from recollection, fund accounting in-house, but I think the custody is outsourced.

So maybe just to clear that up between middle office.

And is it across most of you mutual fund complex or just portions of it?

Trying to get a sense of what could be further outsourced in the future and how much you have now?

I mean you're correct that we historically had outsourced the custody, of course, and had kept the fund administration in-house.

And part of that was because with our global footprint, it was difficult to find somebody who could cover all the areas that we tend to cover.

And now the providers have stepped up, and so we're looking to outsource all the fund administration.

And many of the work that's done in custody you have to do in fund administration.

So we found some amount of duplication.

But because we were early into lower-cost environments, it was hard to find providers that could be competitive pricing wise.

And now as others have done that, we found that the coverage of what we do as far as geography as well as the cost is now much more competitive.

Okay.

And just the timing of the outsourcing of this?

Is this going to be converted in the next couple of quarters?

Or is it longer term?

No.

This will be -- over 2020 is the conversion, and we'll start realizing benefits in 2021.

Got it.

Okay.

And that's in your guidance already for the expenses for '20?

Yes.

That's correct.

Our next question is from the line of Ken Worthington with JPMorgan.

You mentioned a number of large-block withdrawals in the coming quarter or, I guess, the current quarter.

$800 million global fixed income, $1.6 billion for mutual shares, and there were some larger block redemptions this past quarter.

Now we expect the institutional business to be.

Your lumpiness is really more on the redemption side.

So any common themes to the bigger-block outflows?

Are you hearing -- is it performance issues, distribution issues, active to passive pricing?

So any common themes in the sort of different asset classes and what you're seeing?

And ultimately, Franklin has been in redemption for, I don't know, 6-or-so plus years.

What is the path back to inflows for Franklin?

What, if any, are milestones that you're holding out for yourself with that regard?

Yes.

First of all, it's probably all the above on some of the lumpy redemptions, but in particular, the larger one coming this quarter with mutual shares, in particular, was really a large broker-dealer distributor that's moving assets to their in-house funds and not really performance related but more about funds just moving in-house.

The -- Templeton continues to be under pressure, and this relates to what -- you talked about inflows and 6 or 7 years, and obviously, for us, having a lower base of U.S. assets, our U.S. funds are doing extremely well, growing market share, very strong inflows, accelerating, but that pales compared to the large Templeton deep value, Mutual Series deep value assets that we have.

So that's really -- the catalyst is going to be the rotation of value and growth.

And then also the -- we talked earlier about many of the new initiatives that we've funded, whether it's around the solutions' side, the SMA side, a lot of resources have been put into that.

We've been very successful, I would say, in the last year or 2 getting on platforms.

We are a multi-asset solutions group, just recently got on 2 major platforms, and I think those are going to drive flows over time.

Now they'll drive flows at a little bit lower of a margin maybe than your traditional 40 Act Funds, but ones that we think can be very positive and only a few players are going to be competitive in that space that have the scale to do that.

And ETFs as well continue to be an area of growth for us and just crossing $5 billion.

And again, getting to the size where we have a better -- more distribution opportunities opening up and having been on platforms now for -- or been in existence for 3 years minimum, in some cases, getting on platforms.

And that's really, I would say, is where the most progress has been made on the U.S. side is these new multi-asset solutions, ETFs and getting onto traditional platforms as well as, hopefully, getting onto new technology platforms that emerge.

And I'll just add a note on the institutional side.

There were some big headwinds this year in that, obviously, Argentina, Greg talked about it.

We also had a new CIO introduced on the Templeton Global Equity Group.

You're playing defense in those meetings.

They had a sub 20 clients representing $40 billion in assets hitting 13 cities in 5 days.

That's what your conversation ends up being.

Having said that, we've got $4 billion in unfunded international institutional business.

Our pipeline in the U.S. institutional has doubled in size.

We actually converted 9 new prospects.

And so there are green shoots underneath, it's just you're mixing it in the time which has some big headwinds.

And I think we have some good green shoots, as Greg mentioned, 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, our Emerging Markets Group that has a new leadership and excellent performance and institutional quality process and, really, we think an opportunity for institutional assets for the first time.

And we're excited about that as that team now is getting on platforms for institutional searches, and we haven't had that opportunity in the past.

Great.

And then the follow-up, there was a delay in the 2 institutional fundings, I think it was $2 billion.

Is there any risk that they don't fund?

Or is funding just a -- is funding a certainty and it's just the timing that is unknown?

It's either -- if the money is not in hand, there's always a risk, but there is nothing that indicates that there's any kind of risk that -- we believe they will be funded.

The next question is from the line of Dan Fannon with Jefferies.

Just on the $4 billion of the international kind of backlog or unfunded wins, I guess in context of -- I think we've gotten a number like that from you before versus a year ago or other points in time.

How do we think about that relative to previous periods just so we can have, as I said, some context?

I mean I think a good question, and that's probably why we haven't talked about that number in the past because I think the hard part is the timing for you to figure out when those assets come in and sometimes, they take longer than you'd think and could be a year out, could be next month.

So we've always been kind of hesitant to even talk about that.

And that number is really just what's in the offshore international institutional flows, there's is a few more domestically.

But 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.

It's been -- a lot has been written about the performance, earlier you talked about some Morningstar changes.

I guess can you talk about what you're doing internally with your sales force and your distributor to basically play more defensive, I assume, to kind of keep assets in?

I don't think it's so much as a growth sales issue, it's also a redemption, given the kind of level of underperformance and, as I said, the headline that's created.

So is there some campaign or something that you guys are doing internally to get in front of this and be more proactive?

Well, we are.

And we're trying to do as much as we can, and we have a new piece going out that talks about the repositioning and some of the recent moves with the fund.

But again, I mean, I still point to the long-term performance that's really unparalleled in this, and we've had plenty of periods where you've had things not work out in the short run.

And you just point to that long-term record and how it lowers your risk in a portfolio and focus on those things.

And as you can -- it's a risky world out there with highly valued assets on every metric.

And the story here is going forward what's going to defend your portfolio.

And I think that's an important message and one that our sales force is working on.

And we just came out, in October, with a piece called the 4 pillars that face a world of uncertainty, which is -- we're positioning it as -- you want this in your portfolio because it's a hedge to many of the other positions that people have taken and trying to lay it out very clearly, and it's been well received.

So very recent.

Our next question is from the line of Jeremy Campbell with Barclays.

First -- sorry, if I missed this in your answer to Craig's question earlier, but what was the revenue in AUM contribution from Benefit Street during the quarter?

We don't break it out like that, Jeremy.

Okay.

No rough sense?

We -- well, we had revenue as stable with the last quarter's.

It's about $51 million.

Okay.

Great.

And then just kind of more broadly speaking, just kind of wondering what your thoughts are around what's happening over at UBS right now with the elimination of SMA fees to asset managers?

Do you think this is kind of like a new front on the industry-wide fee pressure?

And does it dampen your outlook at all about growing Franklin to SMA footprint or your -- kind of your desire for wealth management M&A target like you guys called out in the prepared remarks?

So -- 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?

There was always kind of a conflict around that.

So they've reversed that a bit by making the product free and trudging the 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 want open architecture, and they desire to have outside products in.

So I think that not everything in SMA is going free.

Having said that, it's -- there's fee pressure all over the business, and we're all going to have to prove out our value on our fees no different than you've had to do on the institutional side and the retail side.

And I think this is just an extension to that.

And I think there's been a little bit of market confusion over that change that it was really an entity that was not getting the fee, but there's still a fee being charged around the WRAP account, and the underlying managers are still being paid a fee, is my understanding.

So we all know, SMA is a way to accelerate shrinking margins versus your traditional 40 Act Fund because the pricing is controlled by the distributor.

And that's not a great trend, but it's a trend you can't ignore and one that we believe is a business we're going to be aggressively in versus trying to defend against it.

So I think that's part of our solutions' thinking, it's a change of mindset we have, and we think an important growth area for us.

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 offset it.

The next question comes from the line of Bill Katz with Citi.

So Matt, just coming back to the expense discussion for a moment.

I guess you've been on a month to month with the AUM and sort of discussing the flow dynamics, so dance around with different adjectives and so forth.

So I'm just trying to understand your sort of phraseology here in terms of doing a little bit better on the costs side.

So I guess, is there a way to think about that?

Are we talking down 0% to 5%?

More than that?

And then what is the revenue and/or flow assumptions that you're counterbalancing that with the expense outlook you have?

Look, I'd say, Bill, that it's too early to get a much further than what we said.

But if forced to go into more detail, we'd say probably 0% to 2.5% down from 2019 in the expenses.

Okay.

And there's no revenue backed up you said?

And I'll -- and revenue is largely consistent.

And I've also just -- I don't think we addressed a question, which is also related to this earlier on about the average fee rates.

I think we confused that with what we thought it's something different.

But if the question was, where do we think the average fee rate is heading for our overall mix of business, we forecast that to be roughly flat, and that's based on a whole series of assumptions around the mix about business internationally, domestically, the growth will return to assets, offsetting some of our business that is more under pressure from a fee perspective.

Okay.

And just my follow-up, staying with you, Matt.

So you sort of mentioned the nuance of a potentially more sizeable deal, I think that's what I interpreted.

What's changing your thinking?

And then when you look at the landscape of other sizeable deals that have gone on over the last several years, what gives you confidence that the market would be receptive to those types of things?

I think as Jenny mentioned, we think when we look at some of the opportunities that exist in the marketplace, certainly not easy.

And I think we discussed that last quarter.

But we see areas that we can fill at Franklin.

And we have a tremendous chassis and a core business with leading products on a global level across many countries.

But we think we can grow that further by filling some of the gaps that we have, whether it's becoming a larger institution in the U.S., whether it's having a little bit more alternative assets.

Then there's some other, frankly, products, if you will, that we already have but we're quite smaller.

And if we were larger, we think we would be more successful.

So I wouldn't guide you towards thinking we're going to do, some mega transaction.

But the short list of ideas that we thought about, we think create growth opportunities for us, given our current business, without having to drive down expenses as sort of the number one bullet point.

However, we should state that there are, obviously, some cost aspects to all of this consolidation and the business that we would be able to capitalize on it.

The next question is from the line of Brennan Hawken with UBS.

I think earlier, Matthew, you flagged that outsourcing the cost to shift to greater amount of outsourcing is included in your expenses guide for 2020.

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

Not for the moment.

Okay.

And then when we think about the -- it looks like of the $201 million or so of nonrecurring and acquisition-related expenses, there's some portion that's recurring, so let's call it $150-or-so million that's not occurring.

That would suggest like a 5% core growth rate in expenses in your guide.

You've flagged that you're doing some investing and everything like that, but number one, is that right to -- a fair way to think about it?

And number two, can you talk about what kind of returns or what kind of ROI that you guys have?

What's the hurdle for making some of these investments just given the really challenging backdrop that we have here for the industry?

Yes.

I think -- well, there's lots of questions in that.

I would say that we should follow up separately to go through that in more detail.

I think the assumption about an increase in expenses built into our modeling, I think that is not accurate.

If -- and I would say, the reason why we outlined the nonrecurring items -- you're correct that there's an element of this associated with our Benefit Street acquisition.

It does include around $79 million for the next 3 years, which is recurring, but then that drops off.

So we wanted to try and make that clear, or otherwise, you'll be looking at our Benefit Street acquisition assuming that it's a 0-margin business, which is very misleading.

So that's the reason why we wanted to put that into the table.

But in terms of our future costs and how we look at investments, I wouldn't say we apply a classic ROI to it.

We -- it has to work for our business in terms of scaling or creating more opportunities for our investment teams, our distribution efforts.

And we certainly don't look at things on a 3-month or 6-month or 1-year bases, it has to make sense over a multiyear perspective.

The next question is from the line of Chris Harris with Wells Fargo.

Can you guys talk a little bit about your international distribution capabilities today and what you might be trying to do to improve them, which you cite as a focus area for the firm going forward?

Yes.

I would say, not a lot has changed.

I mean -- and for the international capability, it doesn't have the benefit of some of the momentum we're seeing in the U.S. in terms of municipal bond sales and muni funds.

That -- the flows there are more -- rely more on global bonds, Templeton.

We are seeing strong flows in the Franklin U.S. growth products.

K2 would be more of a focus there as well.

So I think it -- for us, it is a huge value of the company and franchise and one where in the year ahead.

Part of it's getting Benefit Street, getting some products up on -- in Luxembourg-based C-cap fund which we're in the process of doing.

Leveraging Benefit Street on the institutional side as well would be one.

And just I think relating to the acquisition side is we feel like there's some underutilized capacity for more product under that distribution network.

But again, if you look at pockets for us, where it's not -- it's a different story where you have -- India had a very strong year of growth and inflows.

Taiwan, very strong year.

So there are pockets that are doing very well throughout the globe that have a different product mix than maybe our traditional one.

But I think just generally speaking, we feel like we can take on more, and that's part of our acquisition thinking on that.

The next question is coming from the line of Michael Cyprys with Morgan Stanley.

Just wanted to circle back on expenses.

Hoping you could help put the some of the moving pieces here.

So we hear the guidance that should be slightly down next year.

So that's a combination of investment spend and expense cuts.

But I guess if you could just help quantify how much you're cutting, where specifically?

I know you mentioned fund admin, and I just -- what else?

How meaningful is that?

And then conversely, you're also making investment, I think, on 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?

Yes.

I think what we'd say is that we think that on information systems and technology, we have some room to move on that and, as I mentioned a moment ago, perhaps up to several percentage points more efficiently there.

I think beyond that it's very early to give guidance on any specific line item.

And I would just keep referring back to the fact that we are confident all else remaining equal that we would be able to be down slightly on our 2019 expenses as a whole.

And I just would add.

I mean I think we look at this, we recognize where the pressure that the industry is under and it is very top of mind with all senior management to look at spend control on every kind of saving that we can generate to continue to invest in the parts that we think are going to be incremental to getting inflows in, in a few years.

So I think we're all very focused on that.

But just very hard to come out with what does that number look like in 2 or 3 years other than we're kind of attacking every angle.

Yes.

I think we also demonstrated in the fourth quarter that the discipline we have around our import expense, which is the variable compensation and compensation for the firm, I think we demonstrated that we get the balance right and 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 our expenditure, I think we have very clear reasons why there were moves in each item.

So IS&T, we actually expected that to be down but it was up just because we wanted to do the right thing and continue to make more progress than we expected, that's what we did.

And that does not mean that, that increase is likely to continue.

Actually, that's going to come down.

Our G&A and other included some intangible impairments both this quarter and last quarter.

We don't -- well, we would hope that wouldn't repeat, we don't expect it to.

And when we analyze and drill down into G&A, we think there's some room there also.

On occupancy expense, we've talked a fair amount about this, the reason why that spiked very much in the last quarter, as guided the previous quarter, it's because we've completed our campus in San Mateo.

We also have new real estate in Poland.

But that's going to be all offset by an increase in revenue attributed to our efficiency drives across our real estate ownership, including some very attractive lease streams that frankly pay both the building of our headquarters here in San Mateo and the running of them.

So I think with each one of our items, whether it's comp and benefits, IS&T, occupancy expense, G&A and others, we have plans under each one of these.

We think we have flexibility under each one as needed.

We've described the fact that some of that's offset by the investment that we are adamant we want to continue to make, which is why we don't refer to a forecasted margin.

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

Okay.

And then just maybe on China given the regulatory change 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 are you taking to capitalize on this?

Well, we are, I think like most, looking at taking control of our joint venture.

We were one of the early ones with Sealand, and we are in the process of taking a majority stake in that.

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

And I think China size wise is -- I'm looking at Jenny, but I -- because we don't include it in our assets, I'm trying to -- I think it's $5 billion.

It's profitable.

It's not, obviously, a major contributor to our earnings, but it's a profitable number and growing and it's had good performance.

But I think, like many, we look at China as a very tricky market.

We think it's a tremendous opportunity for growth.

But the thought of continuing with a partnership versus going alone in that market, I think, is one that you have to think very carefully on.

And I'll ask Jenny if she's got any additional...

No.

I think that's right.

I mean I think it's -- for us, it's been about -- we'd like to own 100%, if that can make sense.

And -- but whether or not we can -- we end up doing there, we always have also our [Wolfey] option, as Greg said.

So it keeps our options open.

A big area of focus has been integrating some of the investment capabilities with our Emerging Market team so that they can collaborate on a shared research, which we think is important, and that has been going very well as well as it gives us opportunity when we get institutional interest and mandates to either talk to our Wolfey team or our JV team.

Your last question comes from the line of Patrick Davitt with Autonomous Research.

You mentioned the potential for $3 billion to $4 billion from Benefit Street, but chunky.

Should we expect a placement fees on expense side with that?

And if so, is that in the expense guidance?

We 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 kept it where we have divided that up a bit, but we are hoping that it comes through our institutional team.

We'd have to look into that.

I mean I'm assuming that's built into their model for the year, but I don't -- we don't have that at the top of our head there.

And then on the $4 billion pipeline, one last one, could you just give us a little bit more color maybe on the fee mix of that, and you'll be -- even if it's just better or worse than the average?

And maybe broadly, if there are any kind of signals you think might start unlocking that?

Or there's just no color at all on the second part there?

I think that would just be embedded in the guidance I gave earlier on about fee rate for the year.

It's -- Benefit Street across the board has a much higher fee rate, as you know, given the business versus the rest of our franchise, so that actually helps us across the year be confident that we -- in our statement that we think our fee rate will remain stable.

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

Well, thank you, everyone, for participating 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, and we thank you for your participation.