景順投信 (IVZ) 2019 Q1 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 or 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 statements later turns out to be inaccurate.

Welcome to Invesco's First 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. And today we'll cover the first quarter results as we typically do. We'll spend some time on investment results during the quarter and update on the OppenheimerFunds combination, and then we'll open it up to questions.

The presentation is available on the website, if you're so inclined to follow. And I'm going to start on Page 5 and just make a couple of comments before turning over to Loren.

So assets under management rose more than $66 billion from the fourth quarter, ending the quarter at $955 billion. We saw net flows increase nearly $22 billion from the fourth quarter, resulting in long-term total net inflows of $3.5 billion. And we saw investment performance rebound very strongly from the fourth quarter, and this is something we would expect in the type of market we've seen post 2018. It is really a combination of these factors that resulted in adjusted earnings per share increasing 27%.

So in summary, the quarter is a marked improvement as compared to the fourth quarter of last year.

Also during the quarter, we made significant progress on the integration of the OppenheimerFunds. We anticipate closing now at May 24, and we expect to recognize 85% of the $475 million synergy target by 12/31 of this year, resulting in $0.24 of accretion in 2019. But most importantly, this combination will be extremely beneficial to our clients and our shareholders.

So with that as highlights, I'm going to turn it over to Loren to go through the financials.

Thanks very much, Marty. So on Slide 6 you'll see a summary of the results for the first quarter. 61% and 57% of actively managed assets were in the top half of peers over the 3 and 5 years. And the 1-year numbers improved by 9 percentage points versus the prior quarter to 50%. Greg is going to go into greater detail on the performance later in the presentation.

Our total long-term net outflows were $5.4 billion in Q1. That's an improvement, nearly $15 billion when compared to the prior quarter. This improvement was largely driven by stronger ETF flows globally and a significantly improved redemption picture across both retail and institutional channels. Our adjusted net operating income was $284 million for the quarter, down from $300 million in the prior quarter. This decline, in turn, drove our adjusted operating margin down 0.6 point to 32% in Q1. We've returned $170 million of capital to shareholders during the quarter through $120 million of dividends and $50 million of share buyback. And additionally, we announced a 3.3% increase in our dividend this quarter to $0.31 per share.

An overview of our long-term flows can be found on Slide 7 with additional detail on the flow highlights from the quarter on Slide 8. The net flow picture improved in the first quarter across both active and passive capabilities and across all channels. The redemption rates normalized while sales levels remained generally strong for the firm as a whole. Our institutional pipeline grew about 6% quarter-over-quarter with new won but not funded client mandates in real estate, stable values, fixed income and quantitative equity products.

In the Americas we saw institutional net flows improvement as we gathered more than $2 billion in direct real estate. Our outflows continued in our U.S. retail equity products. We did see marked improvement in redemption rates resulting from stronger investment performance as well as more stable markets.

Global ETFs displayed renewed business momentum in the quarter with more than $4.2 billion in net flows and market share gains in multiple regions. In the U.S. we saw more than $2 billion in ETF flows for the quarter, led by the S&P Low Volatility suite and the BulletShare ETF.

In Europe, our ETFs also experienced improved net flows across both equity and fixed income products, resulting in net inflows of more than $2 billion. In Asia Pacific, we saw strength in sales across several fixed income capabilities. However, the net flow results in the quarter was impacted by a single client redemption of the bank loan mandate.

I'd also note that we benefited from continued flows into our Great Wall JV money market products with more than $3 billion in inflows for the quarter.

Let's turn to Slide 9 next, and you'll see our assets under management, which increased by $6.6 billion or 7.5%, and that primarily reflects the impact of positive market returns offset by long-term outflows.

Our net revenue yield, excluding performance fees, dropped 1.5 basis points to 37.1 basis points. The dip in the fee rate was primarily due to 2 fewer days in the quarter with the remainder of the decline driven by a change in AUM mix.

Slide 10 provides a U.S. GAAP operating result for the quarter. My comments today, as historically been done, will focus on the variances related to non-GAAP adjusted measures, which we found on Slide 11.

For the non-GAAP results, you'll see that net revenues decreased by $32.1 million or 3.5% quarter-over-quarter to $887.1 million. This decrease primarily reflects the reduced day count and the lower average long-term AUM for the quarter. Our adjusted operating expenses of $602.8 million decreased by $16.4 million or 2.6% relative to the fourth quarter and were largely in line with the guidance that I provided last quarter.

Despite the positive snap back in the market in Q1, we maintained the expense discipline outlined last quarter, and we will continue to focus on expense management in the current operating environment. The expense decrease quarter-over-quarter was driven by lower marketing and G&A expenses, both of which were particularly at high levels in the fourth quarter. That was offset by the seasonality of taxes and benefits that increased compensation expense in Q1.

Our adjusted nonoperating income increased by $73 million versus Q4, largely reflecting the positive mark-to-market on our seed investments during the quarter compared to negative market momentum in the fourth quarter. Firm's effective tax rate at 23.8% was elevated by approximately 3.5 percentage points, reflect the impact of annual share awards vesting in the first quarter. We'd expect our tax rate to decline to between 22% to 23% after the Oppenheimer close.

This brings us to our adjusted EPS of $0.56, and our adjusted net operating margin of 32% for the quarter.

And with that, I'm going to turn it now over to Greg, who will talk about investment performance.

Loren, thanks very much. There were 3 things I wanted to cover in my top-level review of investment performance on the next 4 slides. So first, I will provide an update regarding Invesco's performance improvement that builds on our discussion from last quarter's earnings call. Second, I wanted to highlight performance improvement at OppenheimerFunds. And third, I'll review performance on several key investment strategies for both Invesco and Oppenheimer.

If you turn to Slide 13, you will see both Invesco and OppenheimerFunds 1, 3 and 5-year performance on a peer-relative basis based on total assets under management for each firm. As you can see from the top of the chart, Invesco's long-term performance remained strong with 57% of our actively managed assets in the top half of their respective peer groups on a 5-year basis, 38% of which is in the top quartile. At the bottom of this chart, 60% of OppenheimerFunds' total assets were in the top half of peer groups on a 5-year basis, about a 1/4 of which was in the top quartile. These results on both an individual and combined basis highlight our long-term focus and the high-quality nature of our investment teams.

Now let's look at performance improvements for both firms on a quarter-over-quarter basis. As will become evident on Slide 14, both firms reported significant quarter-over-quarter improvements and performance in total U.S. mutual fund assets. These charts shows 3-month performance on a peer-relative basis at the end of the first quarter of this year compared to 3-month performance at the end of the fourth quarter of 2018. 76% of Invesco's mutual fund assets were in the top half of peers at the end of the first quarter compared to 40% at the end of the year, an increase of 36 percentage points. In a similar vein, 72% of OppenheimerFunds' mutual fund assets were in the top half of peers at the end of first quarter compared to 8% at the end of 2018, an increase of 64 percentage points over this period. Of note, Invesco maintained a solid proportion of its funds in the top quartile while Oppenheimer improved its assets in the top quartile from 5% to 35% between these 2 time periods.

While this performances is short term in nature, the chart shows the significant improvement on a peer-relative basis over this period for both firms and is indicative of an ongoing trend of improvement performance as well as the strong desire of both firms to drive strong investment results. These teams are focused and not distracted in any way.

Now let's examine performance over a longer period as well as performance improvement from notable funds for both firms. If you can please turn to Slide 15. I wanted to provide a couple of touch points that highlight performance improvement from November 2018 to the end of March 2019 for Invesco.

The upper left-hand portion of this slide shows Invesco's performance improvement in the top half of peer groups increase from 11% to 44% on a 1-year rolling basis. We use November as a time period for consistency as that was used in last quarter's earnings call, and we thought that would be helpful for ease of comparison. We've also seen significant improvement in the performance of several of our largest mutual funds. Over this time period, we've improved the number of our 16 largest funds in the top half of peers from 1 at the end of November to 7 at the end of March 2019, as shown at the bottom left-hand portion of this slide.

To further illustrate this point, we've shown material improvement in the 1-year peer-relative rankings for several notable strategies as highlighted on the right-hand portion of this slide. Many of these strategies experienced significant flow challenges in the past year. And let me highlight a couple of these improvements: Diversified Dividend moved from 84th percentile to 43rd percentile; high-yield muni from 64th to 33rd; International Growth from 66th to 32nd percentile; and Balanced-Risk Allocation from 70th to 45th percentile. You can see the size of the mutual fund assets in each strategy on the right-hand side, which combined, represent 26% of Invesco's total U.S. mutual fund asset base.

I'd now like to share the results for OppenheimerFunds' mutual fund assets using the same methodology and time periods as we move to Slide 16.

The peer-relative performance for Oppenheimer's mutual fund assets remains strong and stable in total, as well as for several of their key strategies on a 1-year rolling basis. The upper left-hand portion of this slide shows performance in the top half of peer groups on a 1-year trailing basis remain solid at 53% at the end of March 2019, up slightly from 51% at the end of November last year. As expected, from these numbers, the total number of their 16th largest mutual funds in the top half of peer groups remained about the same over this period.

The following observation can be made when drilling into some of OppenheimerFunds' notable strategies on the right-hand portion of Slide 16. On a 1-year rolling basis at the end of November 2018 and March 2019, developing markets continued to deliver superior results for clients by maintaining performance at the 13th percentile for each time period. Main street large-cap core improved from 79th percentile to 32nd percentile. International small and mid-cap maintained outstanding performance at the fourth percentile for each time period, and Rochester high-yield muni also maintained outstanding results for clients by delivering second percentile performance for each period as well. You can also see the size of mutual fund assets here for each strategy, which combined, represent more than 1/3 of Oppenheimer's U.S. mutual fund asset base.

Let me wrap up this section with a couple of high-level summary points. So performance in aggregate is strong and improving at both firms. Performance in the largest mutual funds is improving and are remaining solid at both organizations. We are extremely excited about this performance improvement and working hard to ensure this performance will continue. We are even more excited in our beliefs that the combination of investment capabilities of OppenheimerFunds with Invesco will create a truly unique all-weather portfolio across passive, active and alternative capabilities to better serve the various needs of our clients. The firms will have this broad set of complementary capabilities in the industry, which we believe will drive stable long-term investment results, as well as provide greater sources of output to better align with clients across the globe and in different channels. This is exciting for us and for our clients where we continue to focus on delivering strong performance that will help them meet their long-term investment objectives.

I'd now like to turn it over to Loren, who will walk through the financial returns and post combination revenues, expenses and details on synergies.

Thanks very much, Greg. As Marty mentioned, during the quarter, we made significant progress toward the integration of the OppenheimerFunds. We've highlighted a few of the key activities completed to date on Slide 18. I'm not going to spend a huge time here, but I just wanted to say that we've competed the process of defining the leadership teams and the organization for the go-forward business, and we're making significant progress obtaining fund shareholder approval for each of the funds that we are bringing over.

Finally, I should mention that a key area of focus between now and May 24 is to ensure that the combined sales teams are ready at close to execute a seamless transition and provide enhanced experience for clients on both sides.

Next, let me provide a quick update on our deal economics based on the information, effective the end of March, which now reflects a May 24 close date, full clarity on the timing of synergies and current levels of AUM. And for those of you who are following along, I'm now on Slide 19.

So we now expect to recognize, as Marty mentioned, up to 85% of the cost synergies by the end of 2019, and that is earlier than originally anticipated. The EPS accretion numbers for both 2019 and 2020 are now estimated to be $0.24 in 2019, and $0.58 in 2020. Similar to the way we showed this in Q4, these accretion numbers are calculated looking at the combined firms relative to Invesco on a stand-alone basis, assuming no Oppenheimer combination were to take place.

The updated IRR for the deal is now expected to be 17%. And finally, by the end of 2020, when we realize the full impact of the $475 million of synergies, Oppenheimer will add more than $900 million in EBITDA. The combined firm will have an operating margin in excess of 41%, and the annual EBITDA of the combined firm will be more than $2.6 billion. Other than the update to reflect current AUM, the May 24 closing date and the timing of synergies, our expectations have not changed around the total amounts of the synergies, the integration costs or flow of revenue assumptions for the Oppenheimer post-close.

So let me next turn to review what the financials of the combined firm will look like.

So on Slide 20 through 22, we provide a pro forma look at the financial position of the combined organization. On Slide 20, we show the combined organization's run rate, net revenues and net revenue yield after the combination. Again, this is based on March 31 information. The combined firm will have a net revenue yield excluding performance fees of 41.5 basis points after the close and an estimated annual adjusted run rate net revenues of nearly $4.9 billion on a pro forma basis. This assumes assets are flat to the end of March levels.

Next, turning to Slide 21, you'll see a pro forma view of the combined expense base before and after the full cost synergies are captured. After the impact of the full $475 million of cost synergies, the combined organization would have approximately $2.9 billion in annual adjusted run rate operating expenses. Once again, I'd like to point out that this run rate assumes that AUM is flat to 3/31/19 levels.

The $475 million in cost synergies represents approximately 14% of the expense base of the combined firms. As we discussed last quarter, this expense reduction is directly related to the inherent benefits of scale of this deal as we will leverage a single operating platform for the combined businesses, manifested in the areas of the middle and back-office, enterprise support, technology and distribution in particular.

Slide 22 provides further detail on the synergies, including a breakdown by line item and quarter of realization into the run rate. As you'll note from the chart, we expect to recognize roughly 50% to 55% of the cost synergies by the end of the third quarter. Additionally, by the end of 2019, we'll anticipate capturing approximately 85% of the synergies or more than $400 million in the run rate savings. You'll remember that we had previously guided to capturing approximately 75% to 85% of the synergies by the end of the first quarter of 2020. The progress we've made to get the go-forward team in place and the integration work that we've completed to date has positioned us to deliver on the higher end of our original target range and 1 quarter earlier.

Remaining synergy capture, which largely represents property and office-related costs and the remaining compensation synergies, will come in over the following year so that 100% of the synergies should be captured by the first quarter of 2020. In subsequent quarters we will continue to provide you with updates on our progress against these targets.

And now with that, I'll turn it back to Marty.

Thank you, Loren. As we've discussed on previous calls, what truly makes Invesco unique is the combination of the leadership we have in core markets and our ability to continuing invest in high-growth areas. Our strategy remains unchanged, the combination with Oppenheimer meaningfully accelerates our strategy, expanding leadership in core markets, U.S. wealth management, in particular, while strengthening our ability to execute in high-growth areas that we focused on in the past, including China, ETFs, multisector and solutions. This approach is helping us to deliver a elite set of capabilities, which will help drive sustainable and broad-based growth aligned with where our clients and where the industry is heading while further benefiting shareholders.

The addition of OppenheimerFunds will create a $1.2 trillion global investment manager that provide significant benefits to both clients and shareholders. The combined firm will be the 13th largest globally and the sixth largest investment manager in the U.S. wealth management channel, and importantly, providing greater scale and client relevance. It will further expand our comprehensive range of capabilities in a number of highly differentiated investment capabilities, and we'll provide compelling financial returns to shareholder, as Loren pointed out, and opportunities for growth from day 1 post-closing. We're very confident in our plans to bring the 2 organizations together. We couldn't be more excited about the tremendous potential of the 2 firms and for the benefit of both clients and shareholders.

And with that, let us stop and open up for questions.

Operator, will you open up the line for questions?

Our first question comes from Dan Fannon with the company Jefferies.

I guess, I think you guys have gotten some comments about this as we have around just kind of the leverage post the transaction. And so wanted to talk about how you're thinking about capital post-close. How we should think about maybe net debt, considering obviously, the long-term bonds you could pay but aren't necessarily as freely callable or as financially attractive to do that. So I just want to think about how you're -- get some comments on how you're thinking about kind of leverage and excess liquidity over the next 10 or 12 to 24 months?

Thanks. I'll pick that one up. So good question. So given the continued improvement in markets and our AUM levels, we actually feel comfortable maintaining our plan right now, our current capital plan, which as you know, sort of suggested that we're going to buy back $1.2 billion of our stock by the end of Q1 2021. However, I will say, Dan, we will continue to evaluate both the timing and the pace of the buyback in light of obviously any subsequent market actions as well as any significant shareholder input. Again, we feel that the firm has continued to strengthen -- both firms have continued to strengthen in this current market. And certainly, the combined firms are going to be stronger and more effective together than they are currently right now.

Got it. And then just in terms of kind of the flow picture, I've recognized some of the performance improvement you guys have talked about. But obviously, flows for first quarter is typically better for the industry, and we saw that improvement with you guys. But if we think about kind of the combined benefit and the distribution efforts, how quickly do you think you are able to start to manifest and improve in actually the net organic growth rate as you kind of go through this integration?

Dan, this is Marty. So let me start with -- and Loren had mentioned this, so what now is in place on the distribution side is all the leadership is in place and everybody in the go-forward organization is in place and notified, and are already in training and very focused on the day after close, really making an impact in the field with clients. We've done this in the past. I think we'll be better than what we've done historically. And the talent is representative of both -- the best talent from both of the firms. But we'll literally have better talent, more resources against distribution than we've ever had before. So that's where I would start.

I think you're right, historically, the first quarter is one of the strongest flow quarters, and we saw quite a bit of change ourselves. But let's remember -- and you tell this to everybody on the phone. Coming out of 2018 and the fourth quarter, in particular, people were not very confident about where the markets are going. And -- so it's really slow, in a relative sense, to the update. So we're continuing to see increased demand, frankly, globally. And Loren pointed out, in particular, we're seeing a vastly improved set of flows from our ETF business, and we would anticipate that. And again, I think Greg also pointed out, we're seeing a marked improvement in our equity investment performance, which we would anticipate because we've tended to have a value bias that really hurt us last year. But again, we're seeing some really strong performance. So all the leading indicators would suggest that we're heading in a very good direction and quite quickly.

Our next question comes from Ken Worthington with JPMorgan.

As you've gotten to know MassMutual better, how are the conversations going in terms of cross-marketing? So it seems like you're going to be hitting the ground running in terms of the cost synergies from the deal. I was wondering to what extent the same can be said in terms of revenue synergies and cross-marketing?

Ken, great question. So as you've noticed, we worked very specific to focus on what are the financial outcomes that we're delivering right now. The vast majority of the people following the company, that's really all they want to hear, and it was, "show us what's happening." Now the reality is great conversation with MassMutual. We're making very good progress. We will update people at the next call on sort of the go-forward revenue opportunities across the organization, just not limited to MassMutual. And again, so there are definitely scale benefits here, but the reality from our perspective is, we're a stronger firm with greater capabilities and greater upside revenue opportunities and meeting client demand. So we're not ignoring it. We're just responding to what has been the very specific focus of you and other analysts following the company right now.

Okay. Fair enough. And then can you talk about the sales environment in the U.K.? So given Brexit has been pushed back but is still an issue and given current performance, maybe what is your outlook for the rest of the year or the go-forward here in the U.K.? And I think you guys called out the big GTR redemption in the quarter. Given the performance track record there, maybe more specifically, what is the outlook for this strategy and the assets?

Yes. So very good point. And what we look at as a fundamental strength of the organization is the U.K. and EMEA, in particular, frankly, last year, turned to a headwind as Brexit became very, very real. And if you just look at -- if you want to look at retail flows across the continent and the U.K., the industry level actually, they just drop like a rock. And though people went absolutely risk-off, and that hurt us quite a bit, it continues to be a risk-off environment. Brexit is absolutely a headwind. And like I'm sure everybody in the EU, they would like to drive some clarity here. I think as soon as there's clarity, you're going to see quite a bit of change. I don't think anybody has a real answer to the question of when that's going to happen. So don't have a specific time frame, obviously, but we would anticipate a marked improvement in flows post any decision, quite frankly.

And with regard to GTR, the performance has been improving, which is a very good sign. As you know, it's been a very successful capability for us. But as the relative performance waned last year, it actually did slow down. So again, we would look forward to really improved performance I think is really going to be the key for us as we go forward there.

Our next question comes from Patrick Davitt with Autonomous Research.

Just a quick follow-up to Dan's first question. All of that commentary, would you say that suggests an increased willingness to delever post deal? Kind of the same willingness or lower willingness to delever versus repurchases?

I think we're open to it. We actually feel very comfortable with the financial leverage that is effectively part of the preferred in light of the strong operating EBITDA that we're going to be generating through the synergies and with the combined business, with close to $1 billion of EBITDA coming on board post synergies relative to the coupon. It does not really present, in our mind, a significant financial risk, but it is one that we continue to listen to shareholders, and we certainly believe there is a little bit of work to be done just so we make it clear kind of our perspective on the financial risk associated with the preferred, the potential preferred, which is again, noncumulative. It doesn't have a call until the 21 years. There's no -- it's perpetual so there's no principal repayment. And so there are aspects to this preferred that is a little bit unique and different than, I'd say, more traditional preferred.

Great. And then on the flow picture, what about the GTR redemption? It makes you feel like it's onetime. And then on that Japan side, how much more exposure do you have to bank loan clients in Japan? And then maybe more broadly, could you speak to more detail how the April flow picture is tracking?

Well, certainly, in terms of GTR, we are getting wins on GTR. There are a couple of potential at-risk accounts as well. So in terms of size, there doesn't seem to be anything quite of the same magnitude that we saw in the first quarter. But ultimately, it's a big pool of assets, and there could be further terminations. But we're defending it well, given what Marty mentioned in terms of the performance having improved. So again, it's -- we're going to continue to watch that closely but nothing that we know about that is pending.

In terms of Japan and bank loans, I mean, there's still probably some potential bank loan outflow that we'd see. Nothing significant. I mean, it could be in aggregate maybe, I don't want to say it out but $0.5 billion-ish during that time -- that amount. But ultimately, we are continuing to do solid client engagement with those clients. And ultimately, I think we're seeing a strong sales pipeline that could offset some of the outflow associated with that particular category. And again, the bank loan category, just in general, has been in outflow. So it is nothing unique to our capability. It's really just been sort of a lack of interest in that...

Yes. I think it's interesting enough in Japan. Outside of one client, there's been some increased demand, and we're seeing some quite strong interest in the pipeline even in Japan for bank loans, if you will. The performance of that strategy is incredibly strong. And so there's -- most of that stuff is separately managed accounts, but there's also big buyers of what we do on the CLO front that also coincide with the interest in bank loans overall. So we'll have to see, but we kind of think that the worst on the bank loan side from a flow standpoint is probably on this.

Our next question comes from Michael Carrier with the Bank of America Merrill Lynch.

Just on the net flows, you saw the improvement in the quarter, some seasonality in environment. But even if we look over the past 3 or 4 quarters, it's a good kind of level of improvement. It still seems like the redemption levels are a bit elevated to get you close to the breakeven. So when you look at what's driving that, whether it's on the retail side or the institutional, you called out the GTR and the bank loan. But is there anything else that's kind of weighing on the redemption that you think could start to improve as we get later into 2019?

Let me just make a comment for some perspective from our point of view, and then Loren can get specific. So you and Ken earlier were making a point. So last year, if you looked at fundamental strengths of the organization, we would say it's the U.K., it's the continent, it's Asia Pacific and, quite frankly, a number of the capabilities that Greg highlighted here in the U.S. All of that led to the 9 years of net flow before last year.

Brexit became a tremendous headwind for us as an organization last year. At the same time, the trade wars actually became quite a headwind for us also in our Asia Pac business in this risk-off environment, and then finally was this sort of value bias here in some of our equity capabilities in the states, where the bank concentration really hurt us. So all 3 of those lining up at one time was something that we would never have imagined that could have happened.

What you're seeing coming out of it is really the improved performance because the market, the pipeline continued to grow. But there is an absolute focus on the redemption side for us as people are assessing if they are where they are and they're sort of risk off or into the market. But everything that we're seeing and the interactions are -- is strong as they've been in over a year. So we're very happy to leave 2018 behind, and it looks like it's heading the right way. But Loren?

Yes, I mean I wouldn't add much more to that. I think in the institutional side, obviously, there have been one-off redemptions that have been very large. Certainly, we saw that in the fourth quarter. The idea that we're going to be avoiding any large one-offs in the future is probably unrealistic. But we do see the pipeline strengthening significantly, as I mentioned. We're up, I think, about 6% quarter-over-quarter. It was probably about 15% year-over-year improvement on AUM as well. Again, the revenue mix in terms of what is coming in relative to what is going out is superior. So all those dynamics are very positive from a flow perspective. You can certainly get sort of fixated on the absolute numbers of the flow amounts, but when you actually look at the revenues, that is what I am most focused on. And I actually really think that we're seeing this continued interest in products that we really have great capabilities and that are higher fee.

And certainly, with Oppenheimer coming on board, that is another feature. And I would mention that there's always been a continued thought about, is the fee rate on Oppenheimer going to be at risk? And when you look at Oppenheimer's fee rate all the way back to 2011, I mean it's only increased, and it's been absolutely steady for the last 6 years. And they -- so it really has not been a topic of the fee rate being challenged. So I do think our opportunity to flow at a reasonable rate with good economics is something that we're very focused on post-transaction.

One thing I'd add maybe just to fully beat this up for a second is this is a real positive story, I think, as our gross flow picture's remaining very, very strong, especially strong, I think, and increasing in a couple of key markets. The redemption picture, to the question, is really kind of spot on, but we're also seeing that redemption begin to decline. So if we can focus -- what Marty mentioned is really in part, and we're kind of all over the ability to get the focus that we need, especially in -- post the combination of firms in the U.S. wealth management business. We can do that and constantly driving investment performance. We don't have some of these one-off events. That's kind of the flow trajectory that I think we could see from a net basis moving forward.

That color is helpful. And then just a quick one. Just on the Great Wall JV, given the strength that you're seeing in money markets, just update us there on -- can you broaden that relationship? Or what would get more of the long-term product flows over time?

Yes. Look, we are incredibly uniquely placed in China. And as you know, we were the only foreign manager that is kind of part of the financial network, and it is broadening into other capabilities. And it started with -- they had a very specific need around the money funds. Quite frankly, after a slowdown here for a quarter or 2 was -- we're going to be introducing another money fund into that and the broadening of the channel. And again, we'll get into further detail in the quarters ahead. But the ratings just came out in China, and we are ranked the #2 most successful firm in China as a foreign money manager. So we are incredibly well placed, and that platform is just one of many. And we're seeing almost half of our flows, the retail flows through the joint venture coming through what they refer to as e-commerce channel. So that is the future for us there. Again, we continue to be very well placed, and it's a step to -- it's just a proportionate area of growth for us as an organization.

(Operator Instructions) Our next question comes from Brian Bedell with Deutsche Bank.

Maybe just start off with the cost save side, but I'd asked this before a couple of quarters ago, so just wanted to sort of get a refreshed view. But Marty and/or Loren, obviously, this -- all of the cost saves here are back-office in nature. So what are your thoughts about potential product rationalization? Before -- I think last time you said as you get into the deal, you may revisit that. Maybe some updated thoughts there. And then what portion of the combined sales force was cut?

Let's see. With regard to product rationalization, that's something we do on an ongoing basis. And to be very clear, we have not been able to focus on product client rationalization while the proxy is on the market. So we have no insight to pass on to you. What I will say, back to the comments we made from the beginning, vast majority of the capabilities are complementary. We don't see an awful lot of rationalization there. And where it will be, it will be on the margin, so it will not be disruptive to clients, which is really very important. We wouldn't have done the transaction if we thought it was. But again, that -- we'll turn our attention to that after closing. And needless to say, we will go as rapidly as we can with that.

We provided honestly what percentage of the synergies is coming from sales and distribution in the last call. That level of detail in terms of kind of what we're doing is really the most we want to provide at this point, Brian. So hopefully, you can take that on. But we feel that the combined sales organization is going to be stronger clearly than what each of us individually had, and we're going to be able to invest in areas that each of us individually had not been fully able to invest in with, I think, great results around innovation, thought leadership, practices around education and client engagement that are going to be superior to either one of our individual capabilities.

Okay, okay. That is fair enough, and that's a good segue to the revenue synergy side. I know this was asked before. Maybe just more specifics on the plan for branding. Are you getting rid of the Oppenheimer name? Or are you keeping it for a while? And then on product creation, given that there's opportunity to create new products for existing mutual funds on the Oppenheimer side especially, what are your initial thoughts there and also whether you would license the Precidian active ETF? Maybe just your thoughts on the approval of that active nontransparent ETF.

Yes. A lot of thoughts there, Brian. So let me -- so with regard to product capabilities, if we're just focused on Oppenheimer again, what we said, very complementary. The vast majority of their capabilities are on the U.S. wealth management channel. There are opportunities institutionally for a number of the capabilities. There is opportunity for retail outside of the United States for a number of their capabilities. There will be likely product extensions into Asia, where we got the Emerging Markets team. As Greg pointed out, the performance is really quite spectacular. Global equity is something that's very interesting. Its usual clients are outside of the United States. So again, it's -- we're on that same path that we talked about in October. We just have a greater degree of confidence in that.

With regard to the Precidian ETFs, I think that the SEC approve of that. I think that's a very good development. I think the other reality is there's going to be, I think, a long tail before that becomes successful in the marketplace and when you look at the totality of the ecosystem. And I think the firms that are most likely well placed are the firms like us that have a strong, active capability along with the ETF franchise because it's that -- these are performing other needs that's really -- it's a true skill set that needs to be within an organization. So again, I think that's good news. I don't think you're going to see a rapid change though in that area, from my perspective.

That's interesting. And then just on branding...

Yes. So at close, the combined firm is Invesco. The funds will -- the OppenheimerFunds will be Invesco-Oppenheimer something for a period of time. And the clients will tell us what they want that ultimately to be, but that would be some time in the future.

Our next question comes from Jeremy Campbell of Barclays.

And thanks for all the helpful realization time line you guys put out on Slide 22. Just a point of clarification on that one. Are these the synergies you expect to be embedded in the quarter or the exit run rate? So like 3Q, are you doing cost between now and like July 1? So 3Q will reflect like $250 million of annualized synergies, so basically $60 million in the quarter itself or exiting $930 million at that run rate?

Yes, it would be the exit run rate. That's the way to think about that.

Got it. Great. And Loren, maybe I misunderstood you, but I think when you were talking about the synergy time line earlier here, you kind of noted that it assumed AUM is flat to $331 million. If AUM has moved kind of up or down from here, should we expect the cost save to change at all? Or are you just referring to the accretion math overall and the impact on the top line?

It's really related to the accretion mounts and the top line. I mean, we've been consistent with the $475 million through kind of different AUM levels as well, so we're not going to change the $475 million. Markets go down or go up. That's really the number that we're going to be focused and continue to report on.

Our next question comes from Glenn Schorr with Evercore.

A quickie on the net revenue yield and passive sell like 7% year-on-year and more than that quarter-on-quarter. Is most of that just mix and end markets or were there any material price changes in the quarter?

So it's going to be mixed. There's a substantial amount of non-fee-earning AUM in the passive category like the leverage associated with our mortgage REIT. When we do an equity offering, that shows up. So that will definitely push those fee rates down relative to what you might see on a quarter-on-quarter basis.

Okay. Good. And then one other one on -- there's a lot of changes on the -- obviously, on the retail distribution side just in terms of how they're approaching their business and the move towards more portfolio construction, but I think that has a long tail. So the question I have for you is, what are you doing to capitalize and change with them? Meaning to your answer to the last question, you have a lot of the tools between your ETF franchise and your broad diverse product set. But they're changing portfolio construction, and they have different needs. So I'm just curious if you're seeing big changes and are you changing in a big way on how you approach that channel.

Yes, I'm going to make a couple comments and let Greg add. So absolutely, and we've not been clear. So under the banner of solutions, that's exactly what we're doing. It is really creating models for platforms with platforms, working with -- if you want to stay in the wealth management platform with where your question was. Also with the big teams, working directly with the big teams, helping with analytics, helping with them within the various systems, within their approved list and what they're trying to accomplish. It has been a massive undertaking for us, and that is the way to the future. I think if you don't have the resources to compete there, I think you're severely disadvantaged. And we have a very talented team. And maybe, Greg, you want to talk about...

Yes, I don't think we need to add a ton to that. I think the solutions team, we've really put a significant investment in over the last 4 years. There's got a couple of components to it. The client engagement piece really do go out and do a superior job of kind of understanding the needs that both platform as well as if we went to the institutional side, what their needs might be. And then we have an analytical team to really come back and try to create outcomes for them, whether that be in the case of retail, where we have model portfolios and other things that we can create. And we're doing that -- we've done that pretty extensively even over the course of the last couple of years, where we've partnered with a number of platforms that we think could be helpful where they're using or -- directly our model portfolios or in some cases are going to use that to modify what they're doing. But I think the question is spot on in where we think the retail market ultimately is going to go. And we think with the solutions capability and what we're doing from an engagement standpoint, we're going to be extremely well positioned there.

Just the timing itself, is that Invesco-branded or do you private label that with them just when you deliver that model and they'd eventually deliver the solution to the end client?

Yes. It's all different, right? I mean, it really depends on what the -- so it's that whole spectrum, which is just fine for us. But let's stay on that for a second. So this is one element that we've been talking about. So where the industry is going? That's where scale and relevance really matters. I mean, to have the wherewithal and the financial resources to develop those capabilities, it's real, and it's meaningful. And by the way, if you don't have them right now, you're 4 years too late, right? I mean, it's going to be very hard because there are a small number of firms that already have those capabilities, and they are deep with these platforms, as you would know.

The other feedback you'll get from big platforms is if you don't have data analytics capabilities with regard to distribution side, you're going to be severely disadvantaged. And again, that's money, and that's resources. And that's where firms like ourselves are going to be at a material advantage to those firms with less resources going forward. So I think you're on a very important topic, and we feel very well placed against where that's heading.

Our next question comes from Bill Katz with Citigroup.

I appreciate the very specific line item details, exceptionally helpful. Loren, maybe a question for you just on the -- I think I understand the dynamics driving the higher year 1 accretion for 2019, but I'm just trying to understand where the extra $0.06 or so was coming in the second year, just given some of the statements around some of your underlying assumptions.

Yes, so when we disclosed in the end of Q4, the Q4 results, we had $0.50 -- I think it was $0.53 or just $0.50. I can't remember exactly. But that was based on Oppenheimer assets at $214 billion. So Oppenheimer assets at $230 billion at the end of March is what provides that extra operating leverage and earnings opportunity for us across both years.

Okay. That's what I thought it might be. Okay, it's very helpful. And then I don't know if yourself or Greg or Marty, just coming back to the gross sales dynamic a little bit. So it sounds like there's some ins and outs as you think about geography, by asset class, by distribution channel. Some big, some small. How should we think about -- what's the calculus to get the gross sales moving up from here? Is it sort of pro forma, the fuller impact of Oppenheimer and so leveraging that through the U.S. retail distribution channel? Or is there something else that you can do beyond that, just like the legacy book of business to sort of get the ins to the franchise accelerating?

Yes, a couple comments. I'd first come back to -- for the industry and probably for Invesco again. That -- the environment that we came out of in 2018, it was really creating this very, I want to call it, unique set of ins and outs with all the sentiment for the various reasons I talked about in the different parts of the world.

Going forward, I mean it's really no different for us. It's within the institutional business. What we're seeing is not too much different than what you're seeing in wealth management platform. Clients are working with fewer organizations. And what we're seeing is the dynamic of more mandates per institution than we have in the past. That's going to be one of the elements driving up the growth flows. China is another area that we're going to continue to see it. So it's really just more blocking and tackling, as you would expect for us.

But Greg really pointed out as you'd look over the last number of years, our gross flows continue to increase at a pretty strong rate, and I think that's a very important part of health as you look at the organization. Going forward, we have to turn our attention to -- very much on how do you -- how can you minimize the redemptions. And as we said in the past, that's one area for all the work that we try to do to understand it. We're not great at understanding when an institution ultimately make some of those decisions. Some are clear. Some just literally happen overnight. But Greg, you want to ...

The only thing I'd add to that is I think, look, some of the blocking and tackling is just marrying demand with capabilities and having a clear go-to market strategy. I think the focus that we have and the stronger teams that we've got in -- from a distribution standpoint in most markets is going to be quite helpful to that. I think when Oppenheimer comes onboard, we've done a lot of work to kind of look at the capabilities that they have into existing markets that they compete but also where can we take those capabilities into new markets, and we think that's going to be quite additive.

And then we talked about solutions a minute ago. There's a lot of parts of the industry that are going to outcomes away from products. So we'll probably get the product side in the ways that we just kind of talked about, but we're ramping up dramatically what we're doing on the retail and institutional side of having outcome-oriented conversations with clients, using our solutions capability and partnership with distribution to really have different conversations. So we think that's going to take some time to generate flows. But clearly, that is the direction of travel. And I think, as we talked about before, we're really well positioned, I think, in that space. So the combination of those -- it's kind of building a mosaic. The combination of those things is really what's going to continue to drive our gross flow picture.

I'd just also mention because we mentioned most of the other things that are what we call our growth engines, but obviously, the digital distribution opportunity is one that we've talked about for a while. And we -- it's not one that's going to sort of go from 0 to 100 overnight. But it is one where -- it is something where we're seeing demand for these types of capabilities, and it is one where I think it does uniquely position us with an opportunity for us to grow sales in a way that we go into new channels that we've currently not been in.

Okay. And just a point of clarification. I think one of the questions was about the April flows, and I apologize if you shared that number. But if you could just repeat what that was...

We didn't actually share the number. So I think we've said that, going forward, we're really not going to be sort of preempting discussions about flows into the next quarter. So we're going to keep our commentary to March and -- quarter. And certainly, we'll be having our April AUM release, and you'll see those numbers.

Our next question comes from Brennan Hawken with UBS.

A lot of mine have been asked and answered, but just one on your -- on Slide 20. You guys laid out the Oppenheimer state. We got an update, which is great. But I looked at it compared to the original numbers that you gave when you announced the deal, and then you had flagged a gross management fee of 61 bps. And now we've got what looks like what you got labeled as a net fee of 61 basis points. Did -- I know, Loren, you spoke to the stability in Oppenheimer's fee rate for the past 5 or so years. But did Oppenheimer actually see their fee rates increase from 9/30 to 3/31? Or is that just a definitional adjustment? Could you maybe clarify some of that?

Yes. Good eye there, Brennan. It is more just an accounting kind of impact. So what we originally disclosed was the net revenue or net revenue yield, which was 56 basis points after breakage for Oppenheimer, that was on the October call, and now -- right now, we're showing kind of the 58.5 or the 59, so just looking at that number. And the difference between those 2 numbers has to do with the fact that Oppenheimer netted certain expenses against their revenues based on the way they accounted for their P&L. And so we took their numbers and we repositioned them where we have to actually gross up our revenues, and those expenses that would otherwise have been netted are showing as a gross expense for us. So that's the difference. Kind of a technical aspect, but that is what happened. It has no impact on the bottom line, operating income whatsoever.

Got it. So Slide 20 of your current deck is apples-to-apples with the way Invesco reports now.

That is correct, yes.

Our next question comes from Kenneth Lee with RBC Capital.

Just one on the model fund flows post-close for the OppenheimerFunds. Any update on the previously assumed 1% to 2% organic growth target longer term? And when you look across the combined complex between both companies, what would be the key drivers for the longer-term organic growth targets?

So in terms of the assumptions, no, we've not changed any of the flow assumptions. We still have the same as what we historically had discussed, which again suggests $10 billion outflow is going to take place. And I think that's still a very conservative number, but it is in the model in terms of the Oppenheimer sort of disruption in terms of the client outflow, and that would happen at close or really in the last half of the year post-close. And then for 2020, we had said sort of they would go to a 1% to 2% organic growth rate.

Again, our view is that once we are able to bring them and combine the 2 firms together that -- and with performance sort of moving into a more stabilized position, that we're going to be able to grow both of our businesses more effectively than we were individually able to do so. So that is our current thought. There is no reason for us to think otherwise at this point. We're obviously something -- it's a key aspect of this deal. But we are very focused on, and as I mentioned sort of at the close, really gearing up our sales force and having a much more successful outcome.

Got you. And one -- just one follow-up, and this is particularly a follow-up to some earlier questions regarding the solutions business. Granted, a lot of focus on the expense management side of things as well as the integration and the cost reduction efforts. But when you look at the need to reinvest in the business, and once again this is, I think, so much previously in those efforts to build up the institutional side of the business, the solutions business, what's the potential impact to the needed expenses to reinvest on that side?

Yes, that's a good question. I just want to clarify that. The $475 million that we're talking about, that is going to be delivered. Period. But you -- the real point is it's not a cost savings story. It's a story of being able to be more competitive for our clients, doing a great job for our clients.

So when we talk about the U.S. wealth management business and the commentary we had earlier, it is a repositioning of the distribution capabilities. It's more talent, greater resources than either the firms had before, against it. So literally, this net number is after we're making the investments that we need to continue to accelerate our growth, whether it be through needs for the investment teams, whether it be for additional analytics, whether it be for product development, building up the institutional business. So that $475 million is going to be delivered. And while at the same time, we are a stronger organization. We've made the investments that we need to make going forward.

Our next question comes from Robert Lee with IBW (sic) [KBW].

I guess a couple of questions. Marty, you pointed out one of the drivers behind the transaction is to be more relevant for many of your distributors, and that can be measured not just by the kind of the size of the AUM base and breadth of -- on the strategies. But a lot of firms also are focused on, say, different product structures. I mean obviously, you have the ETFs. You have the funds. But one of the things that maybe I think I would find helpful is, do you feel like you have the full product array in the sense of the SMA business or CIT? Just trying to get a sense if there's other areas that you see a need for investment or maybe we're not aware of or fully appreciating possible momentum you may have through other product structures?

Yes. Look, there's -- in reality, there are a very few, especially post-close. There are very few product capabilities that we don't have, right? And so that's one place to start. And by the way, there's very few vehicle structures that we don't have. An opportunity for growth for us going forward in the U.S. wealth financial channel will be SMAs. That is something that has been an area of focus for the wealth management platforms. We would look to that as upside surprise. I think Greg and Loren and I talked about it earlier. It's really the solutions capability is the other area that -- it's going to be meaningful and real as we go forward.

But what I will say, and you're hitting on, and it came up on some of the other questions to some degree, just having capabilities is not enough to be successful with these firms anymore. I mean, it really is a level of resources, whether it be through thought leadership for building models or education or jointly developing products. It is broad, and it is deep. And that's what's demanded. It's the largest segment of assets under management globally, but it's also the most competitive. And you really need to be resourced holistically across that, and we think we are.

Great. And maybe as a follow-up. And Loren, you touched on this a little bit earlier, talking about the focus on revenue versus flows. So with that in mind, if we're to think of kind of maybe the pipeline you have, if we're to think of kind of revenue or maybe in a perfect world, the EBITDA contribution of flows, I mean, how -- or from where you sit today, I mean, how would the recent quarter compare to kind of the net flow picture? How are you anticipating that playing out over the coming quarters? And maybe as part of that, any thoughts that, that would be a metric you'd consider sharing in the future?

It's a great question. We do look at it. I mean, it's very important to us to understand the revenues coming in versus the potential revenues coming out, as I mentioned. So our fee rate for the institutional pipeline is some 20 basis points in excess of the firm's overall fee rate. So that is a very, very positive kind of contributor of EBITDA. And certainly, those fee rate of what's going out is a much lower rate to the overall firm's fee rate. So we haven't quantified that. It is an interesting question. It gets into how much disclosure is too much. We've debated this internally quite a bit and probably will continue. But it is something that I do feel is a very legitimate question because people get very focused on just the absolute value of assets won or lost, and that's really kind of missing the big picture in some cases where you really want to understand what is it contributing to the bottom line. And I think our story is not well understood and it is a good one.

And if you -- if I have time for one more quick one. Jemstep, I mean, just kind of curious. I mean, this was, I think, supposed to be a year where you start to see kind of all the investments start to pay off as the year progresses. Maybe an update on that. And I know there were some big clients that were potentially expected to come onboard, just kind of where that stands.

Yes. So we're still anticipating both Jemstep and Intelliflo starting to kick in more materially this year. We will anticipate, after the second quarter, to be able to give you more robust insights into that, with Jemstep specifically and Intelliflo. Intelliflo has continued to grow both the combination. But the next step of Invesco being a part of the product offering, that will be a second half of the year...

And just to be clear. So for Intelliflo, which again most people may or may not know, but they have -- they're serving about $440 billion of client assets. We are implementing this model portfolio system that will allow them to offer models to their clients. And similar to Jemstep, it has the opportunity for Invesco product to be featured in those models. That's a very significant opportunity for us. As Marty mentioned, it's coming online in the second quarter.

Similarly with Jemstep, we've been working through a very significant commercial bank. It's a global bank in terms of implementation, and so that is something that we'll be able hopefully to provide more detail at the second quarter call in terms of where that sits. But it is all very positive trends for us. And there are other very substantial clients that are also in the pipeline as well, again with our focus being mostly on commercial banking relative to maybe some of the other competitors who have focused on warehouses or other venues.

Our next question comes from Alex Blostein with Goldman Sachs.

A question for you guys on Oppenheimer. What were their flows in the first quarter this year and Q4 last year? From kind of the fund-out, it looks like, generally, flows got worse over the last kind of 6 month, but wondering what the whole franchise looked like. And I guess, more importantly, do you think these outflows were largely a function of the deal, so kind of slower sales, kind of the typical stuff that happens or relative performance issues that they've seen over the course of the last kind of 6 months and the deal-related dynamic is still kind of on the come?

Yes. So good question. So in the quarter, they were outflow and long term, about $3.3 billion, and so that was certainly a worse result relative to their prior year-to-date of about $0.6 billion. So if you look at what that is, again obviously, it included a really rough fourth quarter, like everyone had -- oh, sorry, coming off of the rough fourth quarter. But it is something where we're seeing the sales have declined a little bit. So you're -- quarter-over-quarter sales declined about 20%. I think that is a little bit of a function of what is going on with the transaction. It's hard to absolutely say that, that is the case. But I think we saw with the Van Kampen deal similarly, when funds are going to be transferred over, people probably don't sell them quite as much. So we're hoping that, that's a temporary situation and one that will get fixed as soon as the close happens.

Great. That's helpful detail. And then the second, just quick cleanup. And again, thanks for the expense guidance and kind of the updates you guys provided in the slides. So I heard you loud and clear on the $475 million. I know that's going to be delivered. But curious to think about the investment spend from there as you look at the organization as a whole. What do you guys think is sort of the reasonable growth in the expense base from there, right, as you kind of go back to normal?

I mean, Alex, we've -- I don't think it'll be much different in the way you've seen us operate in the past. I mean, we've made significant investments in areas around institutional, ETFs, solutions. That's all happened -- obviously, excluding the Oppenheimer deal, that has all been a very fundamental part of what we've done. And it is something where we've made a lot of those investments already, and they're sort of in the run rate at this point.

In terms of kind of expected future big lifts on investments, I think it's going to be more incremental building on top of that current base. So I don't think you're going to see big step-ups in the way that we probably saw through 2018, which was -- where you probably saw the greatest need for investment on a short-term basis. Definitely, we'll be able to give more color around guidance as we put the firm together.

But one of the great things about this transaction, as Marty said, is that, I mean, we are actually able to invest significantly behind our business through this transaction because we're ultimately creating stronger capabilities, have talent that is at an unparalleled level for us and technology and systems that is taking the best of both of their worlds and our worlds and then bringing them together. So it is like an upgrade that is happening already through this transaction and should sustain us substantially into at least a few years, we'd expect.

Our next question comes from Chris Harris with Wells Fargo.

Great, guys. Just one question on the Oppenheimer ETFs accretion. After the market rally in the first quarter, it looks like Oppenheimer AUM is only down now about 8% since the deal announcement. But the 2020 ETFs accretion number of $0.58, up nicely from December, but it's still down about 28% since the time of the deal announcement. So can you guys walk us through that -- the disparity between those 2 numbers?

Yes. So I mean, there's a significant amount of operating leverage that is inherent in the Oppenheimer deal, and so there is no question if we got to the level that we disclosed previously, at the $2.50 that, that number would back up at $0.80.

Our next question comes from Chris Shutler with William Blair.

Any new thoughts around rationalizing the company's combined product portfolio post-close? And I guess on a similar point, you give the AUM-weighted investment performance on Page 13 of the slide deck, but I'm guessing the numbers would look less favorable on an equal weighted debate basis. So is that fair? And how does that play into your thoughts on rationalization?

I'm going to be a little repetitive from before. But post-close, we'll turn our attention to product rationalization. We're not allowed to spend time on that when proxies are out in the marketplace. We -- as always, we were always looking at product rationalization. We'll do that here. Our view is it will be on the margin. The vast majority of the capabilities coming over are complementary, and so there will be very little client disruption from our perspective. And...

And I think on the -- when you think about the fund base, I don't think our performance is dramatically different versus the asset-weighted basis. So there aren't a lot of underperforming small funds or things that need to get fixed. And those do happen every year. We do go through product rationalization efforts and trim. And so there's never one where we kind of let the attic get too full. So again, really subsequent to the close, we can address that question more -- in a more detailed way.

Okay. And just to be clear, the rationalization is not in the EPS accretion.

That is correct.

Our last question comes from Michael Cyprys with Morgan Stanley.

Most of my questions have been answered. Just maybe -- curious if you can talk a little bit about the integration on the technology and systems perspective. I mean, how many systems are you guys operating today? How many systems are you going to operate post integration? And what's the opportunity to rationalize all the technology systems to do something entirely new greenfield and maybe even leapfrog ahead in terms of technology?

Great question. So it's 2-phased. As you would imagine, we look at something -- getting to day 1. So at close, we will be on a single transparency. That's always very critical because that's a client-facing element, so that has been a principal factor in choosing the closing date. 90 days after that, the operating platforms will be all rationalized. We are then looking over the next 2 years to do exactly what you're talking about. We have a unique opportunity to totally leapfrog a number of the operating platform capabilities that we have. We are well into those conversations, and I think that there's going to be real opportunity for us and complementary to a lot of additional things that we talked about earlier. So we're very excited about it.

And when you mentioned the next 2 years, that's something that you're going to be looking into. Any additional color you can provide in terms of goalposts, objectives there and how you're thinking about that sort of saving into the expense growth in that post 2-year backdrop?

As we've always done in the past, as things become material and interesting, we will definitely share them.

I would say, though, that none of that should have any impact on the $475 million, that ultimately, we're going to deliver that. And so if there is opportunity to invest further, it will be completely offset by extra savings.

Okay. Thank you, everybody, for your time and questions. I appreciate it, and we will talk to you shortly.

Thank you all for joining. That concludes today's conference. Thank you for participating. You may disconnect at this time.