景順投信 (IVZ) 2018 Q4 法說會逐字稿

This presentation and comments made in the associated conference call today may include forward-looking statements. Forward-looking statements include information concerning future results of our operations, expenses, earnings, liquidity, cash flow and capital expenditures, industry or market condition, AUM, geopolitical events and their potential impact on the company, acquisitions and divestitures, debt and our ability to obtain additional financing or make payments, regulatory developments, demand for and pricing of our products and other aspects of our business or general economic conditions. In addition, words such as believes, expects, anticipates, intends, plans, estimates, projects, forecasts and future conditional verbs such as will, may, could, should and would as well as any other statement that necessarily depends on future events are intended to identify forward-looking statements.

Forward-looking statements are not guarantees, and they involve risks, uncertainties and assumptions. There can be no assurance that actual results will not differ materially from our expectations. We caution investors not to rely unduly on any forward-looking statements and urge you to carefully consider the risks described in our most recent Form 10-K and subsequent Forms 10-Q filed with the SEC. You may obtain these reports from the SEC's website at www.sec.gov. We expressly disclaim any obligation to update the information in any public disclosure if any forward-looking statement later turns out to be inaccurate.

Welcome to Invesco's Fourth Quarter Results Conference Call. (Operator Instructions) Today's conference is being recorded. (Operator Instructions)

Now I would like to turn the call over to your speakers for today: Marty Flanagan, President and CEO of Invesco; Loren Starr, Chief Financial Officer; and Greg McGreevey, Senior Managing Director of Investments. Mr. Flanagan, you may begin.

Thank you very much, and thank you, everybody, for joining us. Again, if you're so inclined, the presentation that we'll be addressing is on the website, so please feel free to follow if you'd like to.

So we'll cover the business results for the fourth quarter today. Greg is going to go through the investment highlights but also talk about the environment and also what the combined investment firm will look -- the investment teams will look like and Loren will go in greater details on the financials. And then finally, I'll give an update on where we are with the Oppenheimer combination.

So turning to highlights on Page 5. There's no question that the fourth quarter was very challenging for the industry and for us. 8 out of 10 asset classes were in negative territory in 2018. That's the worst on record in decades, and 74% of all listed companies were in bear market territories. So again, much more difficult than I'd say was generally understood in the marketplace. And if you look at our fourth quarter results, we were not immune to the impact of these market dynamics.

The good news was gross sales were up. That's a nice health indicator. But absolutely, we had net flows during the quarter, driven by these market dynamics and a big risk off move by many investors around the world. It was further impacted by a number of our key investment capabilities had relative underperformance with those with a value bias during that period of time.

We did purchase $300 million of stock during the quarter. That's from the $1.2 billion stock buyback program we announced last October. And again, I mentioned Loren will get into the financials in just a minute.

As we have previously talked about, over the past few years, we've been actively repositioning the company to what we think are the opportunities in the market. There's no question that Oppenheimer is an important part of this work and will greatly accelerate our activities, and we'll talk about that more specifically in a few minutes.

I do want to make the point, we are on track to hit our $475 million of synergies, and we're making meaningful progress towards hitting the close in the second quarter of this year with Oppenheimer. And we will revisit the financial terms of the combination because of -- the fourth quarter, things are difficult and you'll see they're very, very compelling still.

And so with that, Loren, do you want to hit it?

Yes. Thank you very much, Marty.

So on Slide 6, you're going to see a summary of the results for the fourth quarter. 54% and 63% of actively managed assets were in the top half of peers over the 3- and 5-year period, while the 1-year numbers dropped a bit to 41%. We did see significant performance improvements in December and into 2019, and Greg is going to talk about that a little bit later in the presentation.

While gross sales are up nearly 27% versus the prior quarter, the market dynamics that Marty talked about and some near-term performance challenges continue to set redemptions at a higher-than-normal level. Total long-term net outflows were $20.1 billion for the quarter. Significantly contributing to this result were just a small number of larger institutional client redemptions. Adjusted net operating income was $300 million for the quarter, down from $358 million in the prior quarter.

The lower revenue environment also impacted our adjusted operating margin, which decreased to 32.6% from 37% in the prior quarter. We did return $422 million of capital to shareholders during the quarter through $122 million of dividends and $300 million of buybacks.

So now let's look at the long-term flows found on Page 7. For our actively managed strategies, outflows remained elevated in Q4. This was particularly true for our U.S. and U.K. retail. Equity products, which faced some investment performance headwinds. Active flows were also impacted by a handful of institutional outflows. For example, in October, we experienced a $5.5 billion low-fee mandate redemption associated with a single client.

Our passive flows were also somewhat mixed in the quarter. We saw good sales into our European S&P 500, BulletShares, low volatility and Ultra Short Duration ETFs. However, this was more than offset from outflow due to $1.2 billion of the naturally maturing BulletShares at year-end and $1.7 billion in negative flows from our senior loan ETF.

The strength of our pipeline was reflected in our institutional results as gross sales were up more than 80% versus Q3. The single-account $5.5 billion low-fee outflow that I mentioned previously drove us into negative net flow territory. The strength of our gross sales was well diversified and led by real estate, stable value, fixed income and quantitative equity products.

I'd also like to note that while you don't see it on these charts, we benefited from strong flows into our Great Wall JV money market product, which added nearly $3 billion in inflows in the quarter.

Next, turning to Slide 8. Our assets under management decreased by $92.7 billion or 9.5 percentage points. This reflects the impact of negative market returns and long-term outflows. Our net revenue yield, excluding performance fees, was down 0.3 basis points to 38.6 basis points. This decline was driven primarily by the negative impact of FX and market on our AUM mix, which was partially offset by an increase in the day count and higher real estate transaction fees and other revenues.

Let's move to Slide 9, where we provide U.S. GAAP operating results by quarter. My comments today will focus on the variances related to our non-GAAP adjusted measures, which can be found on Slide 10. But before turning to those results, one item I want to highlight on our U.S. GAAP financials for the quarter is a new expense line item named transaction, integration and restructuring expenses. This line item includes transaction-related costs for acquisitions as well as integration and restructuring-related costs. You might remember, in fact, that we used the same line item of approach when we did the Van Kampen acquisition given the size of that deal and given the size of the Oppenheimer deal.

The presentation of prior-period business combinations and optimization amounts has been also reclassified to be consistent with the current period presentation. And finally, I would like to note that this reclassification has absolutely no impact on total operating revenues, total operating expenses or net income on a GAAP or on a non-GAAP adjusted basis.

So now let me just turn to Page 10 for our non-GAAP results. And you'll see that our net revenues decreased by $47.7 million or 4.9% quarter-over-quarter to 9 -- $19.2 million. This decrease primarily reflects our lower average AUM for the quarter, partially offset by higher performance fees primarily earned from our European real estate investment teams.

Our adjusted operating expenses at $619.2 million increased by $10.1 million or 1.7% relative to the third quarter. The expense increase quarter-over-quarter was driven by about $10 million of seasonally higher marketing expenses, which were focused on new fund launches in the U.K.; ETF offerings in Europe; and our U.S. efforts, including a focus on our BulletShares ETF products. We also saw $5 million of higher run rate outsourced administrative costs -- administration cost that's associated with our digital platforms and outsourcing of our back-office services; and then finally, about $6 million in nonrecurring G&A expense from professional services in Q4 as well as there was a large VAT credit that we recognized in the third quarter. These expense increases were partially offset by about $15 million less in variable compensation expense.

Our adjusted nonoperating income decreased $32.6 million compared to the third quarter, largely reflecting the negative mark-to-market on our seed investments during the quarter. In terms of -- the firm's effective tax rate increased to 25%, primarily resulting from the impact of these unrealized mark-to-market losses, and that brings us to our adjusted EPS of $0.44 and our adjusted net operating margin of 32.6 percentage points for the quarter.

Next, just turning to Slide 11. So let me say that when Oppenheimer joined Invesco in Q2 of this year, as you know, we plan on reducing the total expense base of the combined firms by roughly 15%. Clearly, that will represent a significant spending reduction. However, given the challenging revenue environment that we're currently experiencing, we're implementing a number of immediate cost control measures that should help to limit the negative impact to our operating results while we continue to focus on the integration efforts. These efforts are consistent with our historical approach when we manage through extreme volatility like we've been seeing. Some of these actions include deferring new hiring; canceling open requisitions; when possible, limiting discretionary nonclient travel, conferences, training and a slew of other professional service expenses; as well as assessing all other areas of spend for additional opportunities.

So in addition to these mentioned activities, we are also working hard to accelerate many of the Oppenheimer synergies and the combined synergies of the firm that we plan on delivering upon close. This is a topic that will be covered in greater detail in a few minutes.

And with that, I'm going to turn it over to Greg.

Thank you very much, Loren.

There's a couple key topics that I'd like to cover today just to set the stage. First, I want to cover investment performance for Invesco as a stand-alone firm and provide some color on our long-term investment performance. And within that context, we'll look at some early signs of improvement. Second, I want to highlight the significant benefits that we believe we'll achieve through our combination with OppenheimerFunds. And finally, I'll highlight how the expansion of our capabilities with the addition of OppenheimerFunds will enable us to provide better outcomes to clients, and that's something we're very excited about.

So if you can turn to Slide 13, we'll just take a quick look at performance overall. And as Loren referenced earlier in his remarks, on this slide, this chart shows a 1-, 3- and 5-year peer relative performance on a relative basis to peers for our assets under management for the entire firm. And as you can see, our long-term performance remained strong, with 63% of our overall actively managed assets in the top half of our peer group. In total, our 5-year performance has remained strong despite challenging market conditions that Marty referenced, to which you're all aware of over the past 18 months.

Favorably, and what's not on the slide, we had 40% of our total actively managed assets in the top quartile of our peers on a 5-year basis, which speaks to our long-term capabilities and a reflection of our quality investment teams.

So let's turn to the next slide to look at early signs of improvement in our investment performance. If you look at Slide 14, the market for much of 2017 and '18 was one fueled by growth and momentum, which did not benefit active management. Our investment teams stayed the course, reflecting our strong belief that discipline is critical to producing repeatable output through market cycles.

As you look at recent investment results, while it's still early days, we're seeing significant performance improvement in a number of areas. So let me provide a couple of touch points. On the upper left-hand portion of this slide, we show our total U.S. mutual fund assets. On a 1-year trailing basis, performance in the top half of peer groups improved from 11% to 42%. That's the end of November of last year to the middle of January of this year. We've also seen significant improvements in the performance of our largest mutual funds in the U.S. As important, we've seen material improvement in the 1-year peer relative rankings for several strategies that have experienced the greatest flow challenge, as highlighted on the right-hand portion of this slide. Specifically, diversified income moving from 88 percentile to 18 percentile on a 1-year basis; international growth moving from 66th to 46th; developing markets moving from 74th to 46th; and U.K. income moving from 80th to 37th percentile. Again, this improvement was achieved by investment teams staying true to their philosophy and approach. While the 6 weeks is not necessarily a trend, and we recognize the short-term nature of that, we are encouraged by this early improvement in our performance, a continuation of which, we believe, would set us up for better flow experience in the coming months.

So let me now turn on the next slide to the combination with OppenheimerFunds from an investment perspective. And on Slide 15, upon closing the transaction, Invesco will be better situated than it's ever been to serve clients with a more complete comprehensive array of world-class investment teams and capabilities that can produce strong relative performance over a market cycle. Specifically, we believe we'll be better positioned to provide the following benefits to clients post-closing: One, have a stronger deeper investment organization; two, have complementary investment capabilities that will drive enhanced and more stable long-term investment results; and three, have greater sources of outflow to better align with client needs across the globe and in different channels.

So now I want to cover these points in more detail given their importance. Touching on the first of these 3 points on Slide 16, it's very clear that we'll be better off together than we would as a separate organization. Oppenheimer brings world-class investment teams in high-demand and high-alpha potential asset categories like global equity, emerging markets and international equity.

As can be seen from the right-hand portion of this slide, the combination significantly enhances our scale within the U.S. mutual fund market, which will afford us greater platform access and relevance to clients. And we think this is critical in the retail channel as intermediaries were looking to partner with fewer firms. This increased size and scale will also provide greater access to capital markets, which we believe is important in obtaining greater access to deal flow, research and firm exposure.

So if we can now turn to Slide 17. As mentioned earlier, Oppenheimer brings very strong performance track records, which improves our combined position in the marketplace. Moreover, history suggests our complementary investment styles and capabilities will produce stronger and more stable investment performance on a combined basis. And the chart on this page supports that assertion, so I wanted just to give you a little bit of backdrop on it. If you look at rolling 3-year performance since 2010, the batting average for having 60% or more of our U.S. retail assets under management in the top half of the peer group would have been 66% of the time for Invesco stand-alone, 83% of the time for Oppenheimer stand-alone and 89% of the time for the combined firm. And this improved performance for the combined firm over the stand-alone firms would have shown similar results even if the threshold were made higher.

So driving home this point, Oppenheimer's performance has often zigged when Invesco's performance has zagged, and vice versa, indicated by the fact that the performance between the 2 firms has been inversely correlated for the vast majority of time since 2010. And what this means from our perspective is the transaction better positions us to promote products and solutions with stronger combined performance through the full investment cycle.

So let me now turn to the final slide of my section on 18. And as we discussed, the expansion of our investment capabilities will provide us with an all-weather product suite to better meet the needs of our clients across the globe, and specifically having a more diverse set of strategies will improve our ability to meet the unique and varied needs of clients on a product-by-product basis. And in addition to that, having greater sources of uncorrelated alpha will enable us to better customize outcome-oriented portfolios and deepen our partnership with clients. And we think this represents a massive opportunity for us to increase our relevance to clients by leveraging this enhanced product suite with our leading solutions capabilities across our global distribution network within both retail and institutional channels.

So with all of this, we could not be more excited about the opportunities created because of this combination and the positive impact it will have on our clients globally.

So now I'm going to turn the call back over to Marty.

Thanks, Greg.

So if you turn to Page 20, I'll pick up there, and let's spend a minute talking about an update on Oppenheimer. And to level set, let me put it in a context of what I talked about earlier. We have been aggressively repositioning the business over the last number of years where we think clients are going and where the industry is going. And we've done this by focusing on strengthening our leadership positions in core markets while, at the same time, investing in areas where we see rapid growth and client need, ETFs, China, digital platforms, factors, et cetera. You all know that quite well, but let's put Oppenheimer in the context of that. And it's really the combination of Oppenheimer and the relationship with MassMutual that will accelerate this work. Clearly, we get an expanded leadership position in the U.S. wealth management channel with Oppenheimer. It is actually very important. It is the largest pool of assets in the world and most competitive, and being relevant to those clients matters enormously. It will strengthen our ability to execute in a number of these high-growth areas that we've talked about in the past. And also -- and I think very importantly and in particular, in light of this market, where we've talked about it before, you can actually see the unique opportunity for us to create greater operating leverage and scale throughout the -- combining the 2 organizations. We're going to do this by using a framework that we used in the past. It served us very, very well. I'll get into greater detail about it in a minute, but it does the obvious. It's eliminating complexity, location optimization, focusing on rationalization of platforms and the like. Yes, you save money. But quite frankly, you generate greater resources and you build a better business. And that's the point that I want to drive home as we talk about this.

So let me give you an update on where we are during the quarter. An awful lot got done during the quarter, and I want to thank everybody in both organizations. It's been quite exciting, and a lot of good things have been happening.

So I do want to start by making the point that confirming the synergy target that we talked about initially, $475 million, we feel very confident about that. And we also feel very confident that we're going to be a stronger business coming out of it. Greg's comments highlight some of that, in particular. There's no question we'll be a stronger, more talented organization post the close, which is what we had been focused on from day 1.

I also want to reiterate, a key element of the value of the transaction is really the highly complementary nature of the investment teams, which Greg artfully described in a very clear way. The Oppenheimer investment teams are really excited to be a part of the combined firm. They do have a strong retention program in place, which is important now. But the reality is it's the culture in the combined firm and feeling a part of something important and special that matters. And collectively, I think we are making that happen as an organization.

A very important milestone happened during the quarter, and that was the OppenheimerFunds' Board of Trustees approved the transaction, and this is foundational and a real catalyst for us to achieve the synergy targets that we talked about initially. The mutual fund proxies have been filed with the SEC. They'll be in the market soon. As you know, that becomes another gating factor to close. And then finally, we are actively engaged with MassMutual future partnership opportunities. So again, very good progress during the quarter.

Let's turn back to the financials. We wanted to come back and sort of recast the financials in light of that very, very difficult fourth quarter. And I think what you'll see is they remain stunningly compelling still. So if you -- EPS accretion remains very strong if you -- on a pro forma basis. It'll add $0.10 in 2019, and that's assuming the close, so for Q3 and Q4, so half of the year. When you look at 2020, we expect the accretion to be $0.52 per share. And if you look at assets under management at 12/31/2018, the IRR of 16%, it is down 3 percentage points from time of announcement. But again, extremely strong returns in light of the market that we've just been through. And as a result of the combination and inclusive of the expected run rate synergies of $475 million, if you look to 2020, we'll add more than $800 million in EBITDA. We'll have an operating margin in excess of 40%, and the combined annual EBITDA will be $2.5 billion. So again, in light of a very, very difficult fourth quarter, the financial returns are very compelling to shareholders to say nothing of the firm just being dramatically stronger than prior to the transaction.

So let's spend a little more time going into greater detail on the synergies. And on Page 23, we've laid out the various categories for the opportunities that are emerging. We have robust plans in place heading towards closing and through execution, many of which are in execution. Consolidating key platforms, addressing overlap in areas such as distribution, consolidating product support functions and moving to common technology infrastructure plans. So well underway right now, and these are the areas where we see the emerging synergies coming from. Some of this will be done by day 1, and other activities will accelerate post-close due to regulatory reasons, not permitting us to get started ahead of time or, frankly, the very important part of mitigating client experiences. All of these activities continue to drive further decisions, helping us further refine our location strategy, reduce complexity in the organization, identifying a stronger, talented group of people with the organization and the reduced costs and benefits for clients and shareholders ultimately.

And I do want to reiterate, we are taking advantage of this very unique opportunity to materially strengthen the combined organization while gaining operational scale. Those opportunities don't come along very often, and this is one of them, and our heads are down on it. We are using a framework and approach that has served us very well in the past. And I just want to make the point again, I have a high degree of confidence in our ability to hit the synergy target and the fact that we will be a much stronger organization post-close.

So let me sort of recap before we open up to questions. As you all know, prior to 2018, we had 9 straight years of positive net inflows. And as we've talked about, last year, that was not the case with the negative market dynamics and the various styles of our approaches. We are disappointed to be in net outflows, but it comes with the territory. Greg made the point. We have a high degree of confidence in our investment teams, and that performance will continue to strengthen as the market continues to evolve. That said, we've made great progress and continue to invest in repositioning the firm ahead of where we think client demand is and where the opportunities are. And I want to reiterate, the combination with Oppenheimer will accelerate these efforts, driving further growth and creating scale and client relevance for us as an organization.

Post-close, we'll have approximately $1.1 trillion in assets under management, putting Invesco in a very strong position to serve clients, grow our business and provide compelling financial returns for our shareholders.

So with that, we'll stop, and Loren, Greg and I are happy to answer any questions anybody may have. Operator?

(Operator Instructions) Our first question is from Ken Worthington with JPMorgan.

First, on expenses, there's clearly seasonality in 4Q for your noncomp expenses, but maybe why weren't you better able to pivot given market conditions when the market started sort of weak earlier in the quarter? And then, Loren, were there any pull forwards in expenses from 1Q '19 or 2019 in general into 4Q, such as the prepaying of marketing or other expenses? And then I guess maybe lastly, how much cost cutting from your efficiency program was realized in 4Q, both actual and the run rate of savings as we go into 1Q?

So Ken, let's see. In terms of expenses, a lot of the expenses related to marketing were planned probably well in advance of being in the fourth quarter. So these are product launches, these are events that have been sort of scheduled and committed to. So there isn't as much sort of near-term flexibility around marketing expense management as you might think. Obviously, as we got into the more challenging parts of Q4, what we could pull back, we did, but it was really not enough time to really move the dial on the marketing expense. But I would say that generally, there's about $10 million of what I would call sort of unusually high to run rate levels of marketing expense that should be taken into consideration. In terms of any pull forward, no, there was nothing pull forward from Q1 into Q4. Again, I think the Q4 numbers, as I've mentioned, were punctuated by some higher expenses, particularly around G&A as well, which was about $6 million of probably onetime cost that should be considered in terms of what a true run rate would look like for us. And in terms of the cost cutting, we feel like we're actually on track in terms of the optimization. In terms of achieving the total goal of run rate expense savings, I think we are at that level, maybe a little bit still is going to happen in Q1.

Okay. And just on the balance sheet post-Oppenheimer, it seems like some of the feedback that you're getting suggests that investors characterize the preferred as debt and thus see Invesco as a highly levered asset manager. With this in mind, are your thoughts -- what are your thoughts about the priorities for cash post-Oppenheimer? And does deleveraging take priority over buybacks once the $1.2 billion commitment is complete?

Great question. So I do believe we're sensitive to the leverage, clearly, but we do feel that the $1.2 billion is something that we need to do as part of this transaction. It was part of, I think, the economics. And clearly, we may delay some of it a little bit further into 2020 as opposed to accelerating more in the upfront part of it, but we are still intending to complete the $1.2 billion within the 2-year time frame that we originally discussed. We are going to be -- clearly, looking at the leverage ratio. I don't want to say we're blind to it. Markets will have some impact. Still, I don't want to say it's sort of immutable truth that we're going to do the $1.2 billion. If markets really took another downturn, we might think about it again. But right now, where we are, we feel very comfortable completing the $1.2 billion per schedule.

Our next question comes from Craig Siegenthaler with Crédit Suisse.

I just wanted to come back to Slide 16. Can you provide us an update on the potential to merge the Invesco and OppenheimerFunds that are in the same categories? And I know you didn't include this in the $475 million of expense redundancies, which is mostly focused on back office, but there is a lot of product overlap between the 2 businesses. I just wanted an update here.

Yes. So that is one of the areas that we will not turn our attention to until after close for -- there's regulatory reasons. There's probably going to be less overlap than you imagine in that. But I will say there's opportunity -- I'm sure there's opportunity for rationalization. And again, after close, we will come back to you and give you some insights. And again, I wouldn't look at it as just unique to the Oppenheimer transaction. Again, it's normal practice that we just look at our product shelf and make those decisions. So I wish I could give you a more clear update, but we're just not in a position where we can do that.

And then my follow-up is on the ETF business. You built a large ETF business both organically and through M&A, but the business really didn't participate in the migration to ETFs last year or in the fourth quarter. And I know some of that was the bank loan ETF, but can you give us your view on sort of what happened 2018 in terms of share loss and also how you're positioned for growth in the future?

Yes. Look, we think this has been a very important undertaking for us, and I think you just look at what we start and where we are. We think we're very well placed. You do make some important points. So if you look at where the dollars were moving last year, it wasn't where our lineup was. And as what we said on the back of Guggenheim, we had a lot to build from, utilizing the self-indexing unit and some of the things like BulletShares. The final launches where we think we will be done will be by the end of Q1 of this year, and we feel that we'll be in a very good position to continue to grow. And again, I think you're right. So the bank loans and the like, that was a -- it's part of what comes with that market.

Our next question is from Michael Carrier with Bank of America.

Loren, maybe first one for you. Just given your commentary around expenses and more environmental, separating it from, say, the Oppenheimer-like synergies throughout the year, I just wanted to get maybe a little bit more granularity on how you're thinking about maybe Invesco, like the core expense base going forward relative to, say, like the fourth quarter run rate.

Yes. Absolutely, Mike. So I think I have given you some points around sort of run rate versus onetime. So let's say there was, in my mind, sort of roughly $16 million of expense in Q4 that I'd say were elevated and more onetime in nature related to specific events that won't recur on a regular basis. So if you were to take that out of the Q4 numbers, I would say our go-forward into Q1 will be certainly down -- flat to down to that number. So we feel very confident that, that number into Q1 is going to be at a lower level run rate wise versus where we are in Q4 ex those onetime things.

Okay. That's helpful. And then...

Mike, I think Marty has one point.

Yes, I understand. And again, we are being very responsible going through Q1, but I do want to -- the organization is going full force to get this combination done. And I think turning your attention to that is really what matters. There are very, very few opportunities where you can literally create a stronger organization and take out 15% of the operating costs around the world when, in fact, this is largely coming from the U.S. And if you put that side-by-side, very, very few organizations will be able to pivot like this in an environment. So again, it's really the capabilities that attracted us to Oppenheimer. But when you look at the scale benefits, they are material and real. And I think as we said, Q4 really served to highlight that for everybody is beyond the conversation. it's an actual fact.

Okay. That's helpful. And then, Marty, just on the organic growth or the flow outlook. So clearly, fourth quarter was tough for everyone. I think in the third quarter, you guys had some elevated outflows. I guess I just want to kind of get your maybe perspective on what were some of the more unusual things or things that were more surprising versus when you're looking at '19 with market stabilizing, you guys pointed to some of the investment performance rebound. I mean, where you're seeing some of the sales traction where you're maybe most hopeful that redemptions could slow and start to turn the trajectory around?

Yes. So let me put it in context. And again, I -- we feel that we've built a very diversified business by asset class and by geography. But if you look at last year and if you line up the organization, you almost couldn't make it up. FAANG didn't serve us well because of the value capabilities we had. You saw that quite clearly, what happened, that largely impacted the U.S. mutual fund business. Brexit is a real topic for us, and you just saw sterling drop from, I think, a peak of $1.44 to $1.24. But if you literally look at EMEA and use mutual funds flows as a proxy in the year, they dropped by 87% there. So I mean -- and then you look at the trade wars and people will point and say, well, there's nothing really happening there. I can tell you, our clients went risk off. We had some very good capabilities, Asian equity capabilities that got terminated during that. So the notion that you could have trade wars, Brexit and FAANG disproportionately impacting an organization like Invesco, I would not have thought that's possible. It's not an excuse. It's just a reality. And again, I think importantly, Greg was talking about the depth and the breadth of the investment capabilities and performances. And these markets are actually good for active management, and we're seeing that. I don't know, Greg, if you'd add to...

The only thing I'd add to it, when you kind of look at our pipeline overall, I think there's going to be a couple of areas where that pipeline is starting to see a pretty significant increase. And fixed income is kind of one factor as we kind of talked about that before as, too. And then pockets of the alternative business overall where clients out there need income and they need return, so specifically within real estate. And we're starting to see -- after a very troubled kind of fourth quarter within bank loans overall, we're starting to see an increase in the interest within kind of bank loans. And then our solutions business is really being ramped up, given the investment that we've made there. And so we're starting to see a number of things come out of that engagement that we're having with clients. So those would be, I think, if you just looked at our pipelines, the kind of areas that we're seeing an increase in.

Our next question is from Dan Fannon with Jefferies.

I guess, Marty, just kind of building upon your comments about last quarter in kind of integration of -- and how excited you are about the deal. Can you talk about, I guess, what you're hearing from intermediaries, consultants, your clients about the transaction? And I know you guys have an outflow assumption based on what you give us last quarter based on the transaction, maybe update us on -- if there's any changes to that or how you think that may or may not be conservative.

Yes. Look, I think I'll speak to my very specific conversations, not -- but every single one of them was incredibly positive. So if you just start with the fundamental strength of where Oppenheimer is in the U.S. wealth management platform, the notion of those 2 firms together, we've had nothing but very, very strong, positive feedback for all the reasons that Greg talked about, right? It's depth of capability, type of capabilities. It's beyond investment capabilities, what can you serve the clients beyond the investment capabilities? So very, very positive. There is also institutional clients in different parts of the world that are actually very attracted already to a number of the Oppenheimer capabilities: Emerging markets, global equities, to name 2 of them. So again, we're just getting very good client feedback of Oppenheimer joining us, but also what we can do together. So again, from our perspective, the next few months can't go fast enough. We want to get that closed.

The redemption assumption on the -- because of the deal?

So I think nothing changed in terms of those assumptions. We're still looking at sort of a $10 billion assumption outflow in 2019 after the deal is completed. Again, that's just a degree of conservatism. I think, in some ways, I mean, you're seeing a little bit of the overhang on Oppenheimer's flows right now as people are waiting for the deal to close. And so -- but again, the good news is it seems to be a manageable number. It's nothing that is sort of excessive. We are feeling very confident that, once we bring the firms together, that we're going to be able to improve the redemption experience for the both firms, quite honestly.

Okay. So just to clarify a couple of things. On your change in accretion, can just give us the specific factor to the change? I think the timing closed, and I think obviously, markets. But also, could you just update us, since the announcement, what Oppenheimer's outflows have been?

So again, I think in terms of the biggest change will be the timing. So we only have 2 quarters of accretion versus sort of roughly the 3 quarters that we had in the prior assumption. Obviously, we're starting at a lower AUM base for the business, which also has impact on both the first year and the second year accretion numbers. Beyond that, all the other assumptions are essentially the same in terms of market and so forth. The outflow for Oppenheimer, I think, is roughly a 4% decay annualized. So again, it's picked up a little bit as we've entered the fourth quarter, but not to be surprised about that one, just generally because of the market environment. So we continue to watch it. But as I said, there's nothing extreme or alarming at all in terms of the flow pattern that we're seeing so far.

Our next question comes from Bill Katz with Citigroup.

I think in your -- the press release, you had mentioned, and a little bit in your prepared remarks, that you're sort of pursuing some cost containment work as well. I was wondering if you could maybe potentially quantify that. And then how sticky is that? In other words, if the revenue backdrop were to improve, would you relax some of that with some -- maybe some delayed spending on the other side of that?

So I mean, in terms of stopping hiring and freezing it, that makes a lot of sense for us in the context of a large transaction that is going to occur in the second quarter. We are obviously bringing on a fair number of folks to the combined company. But I would say that we are really asking people, between now and the time of the close, to curtail any hires that they otherwise might want to bring in if they are able to without affecting clients or investment performance. So really the discretionary elements of what we do and then sort of services around training, development, you know, to the sort of internal things that can be delayed. So some of it is just the time-based, can we sort of reduce our spend until we get to the point where -- the biggest event will be sort of reducing 15% of the combined cost of the firms coming together. That is by far and away the bigger impact. We are looking at -- I mean, with that said, are there sort of longer-term opportunities to reduce cost on a permanent basis as opposed to some of the things that we just talked about? And so that is still happening, but those things take longer. And again, it is going to be impacted by bringing the 2 firms together. We see a lot of opportunity to do that.

Okay. Just as a follow-up, two-part question, so thanks for taking both of them. In your guidance, you also mentioned the pro forma EBITDA being about $2.5 billion versus previously $3 billion. So I was wondering if you can unpack that. And I guess you gave some of that around the Oppenheimer assumptions. But how much of that comes from sort of the legacy footprint, if you will? And then as we look into the new part of the year, any qualitative or quantitative update on how the flows are, both at Invesco stand-alone, as well as Oppenheimer?

So the reduction in EBITDA is really a function of lower AUM for both firms. That is just quantitatively what is driving our EBITDA numbers down. Nothing more in terms of sort of unpacking it, it's really just lower earnings. I think in terms of sort of the preview into the quarter, I think we feel that there's a lot of variability right now, and so we're hesitant to sort of provide glimpses into the quarter. We think it will be a better result if we can sort of talk about that when we see all 3 months completed, as we -- and you will see the monthly releases as they come through.

Our next question is from Alex Blostein with Goldman Sachs.

So maybe just a couple of specific questions. I know we're kind of go through these numbers already. But could you give us just the Oppenheimer ending AUM revenue run rate and expense run rate where things stand today?

Yes. I don't have that detail for you, Alex. Obviously, we have the AUM of $213 billion, $214 billion, I think is -- was the number that we provided. So again, I think it'll scale down, revenue will scale down, you should expect, kind of linearly with the AUM.

Got you. And in terms of the purchase price, so I understand obviously the market condition's got a lot worse, but the $0.52 accretion in 2020 is over 30% below the $0.80 that you provided in our last call. Can you talk a little bit about it? Is there any room to renegotiate the purchase price? I think there was something there as it relates to flows, but I was wondering if you could flesh that out a little bit.

Yes. I mean, in terms of the flows, there are some contractual sort of adjustments related to outflows between now and the -- or the time of the close. If we aren't successful bring over client assets as well, there's an adjustment there. So it's a pretty significant hurdle for that to kick in. I think it has to be at least 7.5 percentage points. It's done on a revenue run rate. So -- and at that point, and below, is when the adjustment happens. So anything between 0 to 7.5, there would be no adjustment made on the purchase price. And Greg, I don't know if you want to talk about sort of the concept of renegotiations. But it's not even a thought.

No.

I think we're contractually bound and happy to continue.

Look, I'd turn your attention to the financial returns we just put in front of you, after a very, very difficult market, are quite compelling. And again, we're going to be a dramatically stronger firm coming out of it. So we're very supportive of the transaction.

And I would say, I mean obviously, markets have improved off of that point, I think, sort of 3.5 and above, percentage points above, where we are. So all those numbers are going to look better in light of just a few weeks of January coming through.

Our next question is from Brennan Hawken with UBS.

So just to clarify on the triggers that Alex just asked about. I think said you said 7.5% decay rate. Is that annualized in the period from announcement to close? And while I appreciate that Op E is at a 4% decay rate, a lot of that seemed to come in the fourth quarter post the announcement. And it's hard to unpack exactly how -- what attributed to that decline, the announcement of the deal versus a very difficult market period. But when you update us on the $10 billion number -- or did not update the $10 billion number, that's post-close, so it would anticipate potentially some of those outflows happening ahead of close. Can you just sort of flesh that out a little bit for us, please?

Yes. So I mean, what we're doing is taking the $214 billion, assuming flat markets through the close, and then $10 billion out, right? So it's not a refined, it's sort of when it happens. But if it happens, $214 billion sort of becomes $200 billion before the close, it's essentially in the same place, right? So it's not a -- because we assumed the outflow was almost immediate when it kind of happened, when the deal happened. So I don't think it would affect the deal economics in terms of when the flow happens, it's really just the fact that it's $10 billion less off of the $214 billion number, right? So that's the assumption that you should be looking at for those deal economics to still work.

Okay. And then the 7.5% decay that you required, is that annualized? Or...

That's right. Two things, so one is -- so that, you can look at the filed documents in terms of the contract, just you know the -- all the details there. And it's probably a little more complicated than I'm making it. But that's a run rate. That's a 7.5% revenue run rate decline off of what was originally put in place due -- purely due to clients not coming over, right, through the deal. So I think it's just important to note that. Again, there's details around that, that -- I don't know if it's...

It's a common practice in these transactions.

Okay. And then when you guys had announced it initially, you had indicated that you had a repurchase that you were going to be executing in between announcement and close. Can you give us an update on your expectations for those repurchases and the timing, et cetera, around those?

So I think we had said originally $400 million to $600 million prior to the close. Obviously, we've done $300 million of that already and then the rest being done after that. We're still looking at the market. We're looking at what happens to stock price. So I mean, there's all sorts of elements that come into our repurchase decisions. We're sort of exiting the blackout period, so we're going to be able to begin to transact again in our stock. And again, also just mindful of lowered ratios and so forth. So we're going to be sort of reasonably conservative around the pace of a buyback prior to the close, as you would expect.

Our next question is from Brian Bedell with Deutsche Bank.

Maybe just come back to the -- one more on the cost saves, of the $475 million. Just again clarify, I think I may have missed this, I think you think the deal is now closing closer to the later part of the second quarter. And then on the expense synergy on that timing through 2020, can you just give us -- just reaffirm sort of that trajectory, and then whether you can -- whether think you can actually accelerate those back-office saves, given the environment. And then the walk-down of the margin from over 45% to 40% post-synergies, is that all due to the lower AUM and market conditions?

Yes. So Marty, you can jump if you want, if you...do you want?

You start it, I'll follow-up.

I mean, on -- so in terms of the $475 million, you should expect that because the close has been delayed effectively a quarter, that our timing around capturing synergies is going to be more pushed into the first quarter of 2020, getting that sort of numbers that we were talking about, 75% or 80% of synergies, just because of sheer timing. So that's kind of one point. I think in terms of the margin, we'll be in 40 -- around 40%, greater than 40%, that's all just due to AUM levels, and so the associated impact. Again, that would be better today just because of the lift that we see in the markets that's affected both firms. So again, we'll obviously continue to look at those deal economics, very sensitive to where markets are. But again, hopefully, we've sort of hit a bottom and we'll see more upside in these deal economic numbers.

Yes. And I would just add, in platforms and the like, look, these are big undertakings. We do know how to do it. We have a history of doing them well. We'll do them as quickly as possible, but also very importantly, you got to meet -- you got to serve your clients and you need to do a good job. So again, I would come back to the big picture. We will hit $475 million, we will hit the margin targets we talked about in these markets. And so a very unique opportunity for us to, frankly, build some very important scale into the organization, which we will do.

Great, okay. And then as you think about the growth -- the revenue synergy and growth opportunities. This is going back to your comments about being able to launch new products, new product structures using Oppenheimer investment management talent on those products and also expanding them geographically into Europe, where they don't have a big presence. I guess, the spending around those growth initiatives, how do you think about that? Like the timing of that? Is that something that you would prefer to get a handle first on whether you're going to combine any investment teams and then go about that process? Or would you rather try to get that product into those new structures and geographies sooner rather than later, and maybe sacrifice some of the -- since, I mean -- have some additional expense, I guess, against that.

Yes. I think going back to the beauty of the combination is the incremental spend is not very much. The quality of the investment teams are there. We have an institutional distribution capability, there is demand for it. So the pace will be determined by the clients and their appetite. And as you know, institutionally, it takes time to go through those processes. Oppenheimer already has a non-U. S. range, a C Cap range that, frankly, it's getting it into our distribution capabilities. So again, those are things that will come pretty rapidly. I do want to come back to there is no revenue synergies in these numbers, not going at the institutional business or the non-U. S. business or anything between MassMutual and ourselves. So -- and that's just fine, but do know there's none of that in the numbers follow it.

And just the timing on that -- on the expectation of doing those -- synergizing that Oppenheimer product. Would you wait for product teams to be combined first? Or would you kind of just go right at those synergies?

Look, there are already conversations with the teams and what the opportunities are. And also, we're in deep conversations with MassMutual about what we can do. But again, I don't want to set an expectation other than we will execute on what's in front of us. But the combined firm together and the relationship with MassMutual is going to be an important one.

And our next question is from Kenneth Lee with RBC Capital Markets.

In terms of the -- just a question on the OppenheimerFunds. I think on the last call, you mentioned that fee rates have been trending upward over the last few years. Just wondering what the expectation over the near term, what factors or mix shift could push that fee rate either up or down. Wonder if you can just give us a little bit more color there.

Sure. I'll maybe start and Loren can add. Look, it's no different than us. Our effective fee rate, what you see trending down, it's really -- it is a mix shift topic for us. And you would imagine, in risk-off environments, people putting money in money funds, et cetera, that you see that happen. Oppenheimer during the period had the exact opposite. There is an aggressive -- or I should say aggressive, quite successful in emerging markets and in international equities, and those are higher capabilities. And again, that is sort of the natural flow of things within an organization. So client demand will drive those mix shifts. There's very little we can do about it.

Yes. And I'd say, I mean, from what we can see, those fee rates are very stable. So nothing is really -- even though the market has been sort of negative, I think they will continue to offset that through growth in the alternatives platform. And so overall, I'd say it's pretty stable.

Got you. And just one bit of housekeeping. Some details behind that $5.5 billion low-fee mandate redemption you mentioned, which asset categories were those located?

So that was mostly fixed income. There's a little bit of equity component. All single-digit basis points.

Our next question comes from Patrick Davitt with Autonomous Research.

Earlier last year before you announced the Oppenheimer deal, there was a lot of focus and chatter from you guys around 2019 optimism on flows from newer initiatives, in particular, Jemstep getting ramped up with some new distribution pipes. Could you walk through your expectations on that now? Has the ability for that to generate a little bit more incremental flow changed? Has that been pushed out or pulled forward? I know you're really focused on Oppenheimer, but it would be helpful to get an update on some of that stuff as well.

Yes. So we're still on track. Second quarter 2019 is when the largest client that we've sort of won business from is going to start using and putting into production the Jemstep capability along with our models. So we will begin to see flows and revenues coming from that immediately into the second quarter. Again, I think it is one of these things, as we said, is going to build. It's not going to be sort of a flood of revenues and AUM immediately. But given the size of those clients and the breadth and scope of the advisers they're using and how these models are going to play out, I think it will build into a material number as we get into end of 2019 and into 2020. The pipeline for Jemstep is still very strong, continue to win business. And so that is, again, progressing, but it is, as we said, slower than anybody would have possibly originally imagined in terms of the actual going from the design to production to execution, just takes time. I'd say the other thing just in terms of the things that we are excited about around ETFs and institutional business, China, factor-based investing and all these capabilities is growth engines that we've so-called characterized have just been growing as a percentage of our overall sales every quarter. So we do see that as being an increasingly important factor in terms of our success. And so the investments that we've made, which we've talked about, I believe, are paying off for us and will even more so into 2019.

That cleared a couple of things. And then quick follow-up. You mentioned Brexit earlier, and I think everybody has kind of decided that trying to handicap what happens there is a losing battle at this point. But as that plays out through March and April, have you done any work to kind of gauge how much worse the outflows in the U.K. business could be if it goes bad; and conversely, how much better they could be if it goes good?

Yes. So it's a good question. Everybody's doing those types of calculations. But what I would say, and I mentioned this earlier, Brexit for our business really didn't become real until this past year in the second half of the year. And as I -- and it's just not the U.K., it's on the continent, too. And I mentioned, if you look at flows across, I mean, literally down 87% year-over-year. That it is then a risk-off environment like you really can't imagine. So I don't know what's going to happen with Brexit. There's a lot smarter people than me on it. We spend a lot of time on it. It's important to us. But Loren was talking about, this quarter, if -- my perspective and the organization's perspective, if you take a no-deal Brexit off the table and it looks like there will be some different outcome, I think that'd be very positive for investor sentiment, client sentiment. And I would imagine we'd be in a better position when you look at clients getting back to making investment decisions. That's how we're looking at it. The other one that is a headwind that we'll see what happens is the trade negotiations between U.S. and China, that is a headwind for us. So anything that moves in a positive manner is, again, I think, a positive development for us.

Yes. And maybe just 2 bits of information. So one, in the quarter, Q4, the U.K. equity outflows was under $1 billion. Still a big number, but again, in terms of your overall size of AUM, it's sort of a manageable number. And the other point is that we did -- just because of the uncertainty around the Brexit outcome, we did hedge through the full 2019 using a similar strategy that we're used in the past around hedging operating income for -- struck at 1.25 as sort of an insurance policy. So if the pound were to drop below 1.25, obviously, this insurance policy would protect us on the downside at worst-case scenario. So anyway, just so people know, we have it through 2019.

Our next question comes from Robert Lee with KBW.

And again, sorry to maybe go back to the expense saves, but I just want to make sure I understand everything correctly. So I guess what I'm trying to square is -- I mean, still the expectation of ultimately an $800-ish million EBITDA contribution, if I have that number correctly, with the lower kind of accretion. So should I simply be thinking that, hey you're going to still targeting that, but really maybe some of that benefit, because of the later close and timing, kind of bleeds into 2021? So that's why 2020 is kind of coming down. Am I thinking of that correctly?

No. So I just want to be really clear on this. So the accretion numbers that -- for '19 and '20 that we laid out, it is based on the -- I mean, our expectation of getting to close, having the 2 quarters this year, full next year, then run rate impact of the $475 million through the programs that we outlined that are in place right now. We know how to do this. We've done it in the past. And the only change that drove the EBITDA from $3 billion to $2.5 billion was the markets. And so there's -- we don't expect a bleed. And the reason why the quarter went back was you really have to get -- getting through mutual fund approval is just critical, and that happened at the end of the year into January. And other than that, we're on track, right? So again, we have a high degree of confidence that we'll get this done.

Great. And maybe just to confirm the guidance from a share count perspective. Basically, right where you finished, plus the share repurchases you've done already, plus what you're going to issue, and that's it? Kind of no incremental -- not filling in the rest of the $900 million of repurchase from now until, call it, 2020?

Yes. So I mean, again, I think let me just -- so specifically, your question is timing of the $1.2 billion or...

Well, no. More of like, if I think of this $0.50-ish accretion in 2020, you're not -- is there additional share repurchase kind of baked into that from this point forward? Or you're just kind of pro forma where we are today, plus what we're going to issue?

Yes, it's the exact same pro forma where we are today, what we're going to issue, and then the buyback just as previously described. So the $400 million to $600 million prior to close and then the rest done within a year after the close.

Our next question is from Chris Harris with Wells Fargo.

So on the improved investment performance you're highlighting here, I wonder if you can talk about that a little bit more. Is that mainly attributable to the value-style investing coming back? Or is there something else going on? And if it is kind of an improvement in value, should we be assuming that's a potentially a bad thing then for the Oppenheimer business?

Yes. So Chris, thanks a lot for the question. I think there's a couple of things that are going on, I think, one of which I mentioned in my comments when we were kind of going through the prepared remarks. A lot of it is just the change in momentum-driven stocks. They were really a big driver of the market. That really changed or started to change when we moved into December and kind of into January. And it's become, over that time period, and hopefully, that will continue, a much more conducive environment for active management. So it's just the stock selection was really the big driver there, and specifically, momentum that was driving a lot of stock performance kind of changed, if you will. There was a component of that, that could be a little bit of kind of value and growth, but that really wasn't the biggest component, if you will, that would contribute to that performance, if you will.

In terms of the second part of your question, I mean, I think as we kind of highlighted, we're going to zig and they're going to zag, which we think is a really good thing when you look at stock selection and uncorrelated sources of alpha, if you will. So some of those strategies, in the very short run, may have fallen off a little bit, not necessarily specifically related to the fact that value has come more back into vogue, if you like. I think the headline for what we're really trying to point out is when you look historically at our performance and their performance, it's very uncorrelated sources of alpha, we think that's very important for our clients kind of over the long run.

Our next question is from Michael Cyprys with Morgan Stanley.

I just wanted to circle back to the strategic partnership that you have with MassMutual. Can you just talk about what that will entail? How formalized it is? And how does Invesco -- how do you make sure you get what you need from it in, say, 3 or 5 years' time? Just in terms of level of commitment and alignment.

Michael, this is Marty. So look, we have a very good relationship with them. They are a -- they have material interest in Invesco, and the alignment of interest starts right there, and that's not going to move. Roger was very clear about the long-term nature of wanting to be in the asset management business, and that's how they viewed this transaction. It was broadening their exposure to the sector. And what we are right now is in a broad range of conversations of what are the things that we could do together that could make a difference in the marketplace? And again, I'd rather come back with facts than to get ahead of it. And right now, we are assuming 0 revenue synergies from anything other than the core Oppenheimer business.

Got it. Okay. And then just if I could ask a follow-up just quickly here on liquidity in the markets and credit cycle. Just be curious to hear your perspectives on any sort of implication of a turn in the credit cycle, just given the buildup in leverage by corporates this cycle, with a larger portion going into daily liquidity funds, such as high-yield bond funds and loan funds, many of which you guys manage. So I guess, what sort of risk does that present to the industry? And what's being done to mitigate such risk? And how do you see those playing out?

So we're looking pretty closely. And I think it's probably a very long-winded answer to probably address the heart of your question. So we are -- we certainly are seeing those things that you kind of referenced play out, if you will. I think the main part that we're dealing with is really looking at, from a client fiduciary standpoint, the liquidity within our funds, the ability to be able to respond to that liquidity, if you will. I think the size and scale, in a comment that I kind of referenced from the capital markets perspective, I think, is kind of helpful in our ability to get access to the capital markets and be able to, hopefully, get an improved liquidity in areas like that. So the implications, I think, are multifaceted when you kind of talk about the industry. So maybe in the sake of time, I'll kind of just kind of stop there in relation to your question.

I would say though, in terms of, like, our bank loan product, we saw absolutely no issues in terms of managing through relative markets and sort of addressing redemptions. So it was all done really with no issues, given the way we manage that product. So again, one data point, but probably one that's relevant particularly for Invesco.

Our last question is a follow-up from Alex Blostein with Goldman Sachs.

This is actually Ryan Bailey on behalf of Alex. I guess a question for Loren on the stand-alone Invesco expense base for 2019. So if we look at expenses for 2018 ex distribution, it looks like it was about $2.4 billion. Can you help us think where we should be resetting for stand-alone Invesco, given current AUM levels and then some of the cost initiatives that you had outlined, excluding what was happening with the deal synergies?

Yes. So I think I touched on it a little bit when we were sort of looking into the first quarter versus where we are fourth quarter. We are -- if you look at the $619 million, which was expenses, quarterly expenses, and in Q4, subtract out the $9 million kind of onetime expenses that I was talking about, I mean, you're sort of in a $603 million kind of run rate. And we said we're going to be down from that number. So again -- and that first quarter also includes payroll taxes and so forth, which tend to go away. So again, it is a little hard to sort of talk about the full year because we're obviously doing this large transaction, and that's the plan. And so we're planning on taking out 15% of the combined business. And post-close, there's no stand-alone Invesco anymore, it's really the combined company. But I would say in terms of thinking about us, the run rate guidance that I just provided should give you the right stand-alone view if you want to just extrapolate that, assuming flat markets across the year.

Got it. And maybe just if I can sneak one more in. What's the minimum amount of cash we should be thinking about that should be on the balance sheet, just given the seasonal expenses you just mentioned for kind of the first half, and then any integration costs?

So again, we -- again, our capital policy has not changed. We are targeting and continue to target $1 billion of cash in excess of what is required from a regulatory capital perspective, largely driven by the rules in Europe. That requirement in Europe is somewhere between $600 million and $700 million of capital that needs to sort of stay on the balance sheet. And so we'd have roughly $1.7 billion would be kind of the target on a go-forward basis.

That does conclude our Q&A session of today's call. I'll now turn our conference back over to Marty Flanagan.

Again, I just want to thank everybody for participation in the questions. And look forward to speaking with everybody soon. Have a great rest of the day.

That does conclude today's conference call. We thank you all for participating. You may now disconnect, and have a great rest of your day.