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Invesco Ltd (IVZ 0.66%)
Q4Â 2018 Earnings Conference Call
Jan. 30, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Unidentified Speaker --
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 conditions, 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.
Operator
Welcome to Invesco's Fourth Quarter Results Conference Call. All participants will be on a listen-only mode until the question-and-answer session. (Operator Instructions) Today's conference is being recorded, if you have any objections you may disconnect at this time.
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.
Martin L. Flanagan -- President and Chief Executive Officer
Thank you very much and thank you everybody for joining us. Again, if you're so inclined that 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 potential also look like. And Loren will go in greater details on our 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 is very challenging for the industry and for us. Eight out of ten asset classes were negative territory 2018. It's the worst on record in decades, and 74% of all listed companies were in their market territories. So again, much more difficult than I'd say that we've 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 have relative under performance with those with a value bias during that period of time. We did purchased $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 previous 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 toward hitting the close in the second quarter of this year with Oppenheimer. And we will revisit the financial returns with a combination, because of the fourth quarter being so difficult and you'll see they're very, very compelling still.
And so with that Loren, you want to take it.
Loren M. Starr -- Chief Financial Officer
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 three and five year periods, while the one year numbers dropped a bit to 41%. We did see significant performance improvement 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 Martin 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 results 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 returned $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 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 bullet shares, low volatility and ultra-short duration ETFs. However this was more than offset from outflow due to $1.2 billion of naturally maturing bullet shares 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 products, which added nearly $3 billion in inflows in the quarter.
Next, turning to Slide 8, our assets under management decreased by $927 billion or 9.5 percentage points, which reflects the impact of negative market returns and long-term outflows. Our net revenue yield excluding performances fees was down 0.3 basis points to 38.6 basis points. This decline was driven primarily by the negative impact of FX end 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 our 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 use the same line annual approach when we did the Van Kampen acquisition given the size of that deal and given the size of the Oppenheimer deal. The presentation to 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 $19.2 million. This decrease primarily reflects a lower average AUM for the quarter, partially offset by higher performances 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 bullet share ETF products.
We also saw a $5 million of higher run rate outsource administrative costs-administration costs that's associated with our digital platforms and outsourcing of our back office services. And then finally about $6 million in non-recurring 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 non-operating 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 joins 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 non-client travel conferences, training and the slew of other professional service expenses, as well as assessing all other areas of spend for additional opportunities. So in addition to the mentioned activities, we are also working hard to accelerate many of the Oppenheimer synergies and the combined synergies of the firms that we plan on delivering upon close. This is the topic that will be covered in greater detail in a few minutes.
And with that, I'm going to turn it over to Greg.
Gregory McGreevey -- Senior Managing Director, Investments
Thank you very much, Loren. There's a couple of 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 our one, three and five 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 five 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 five 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 2018 was one fueled by growth and momentum, which should not benefit active management. Our investment team stayed the course, reflecting our strong belief that discipline is critical to producing repeatable alpha 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 one 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're seeing material improvement in the one 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 one year basis; international growth moving from 66 percentile to 46 percentile; developing markets moving from 74 percentile to 46 percentile and U.K. income moving from 88 percentile to 37 percentile. Again, this improvement was achieved by investment teams staying true to their philosophy and approach. Now, while six weeks is not necessarily a trend that we recognize the short-term nature of that, we're 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.
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 complimentary investment capabilities that will drive enhanced and more stable long-term investment results; and three, have greater sources of alpha to better align with client needs across the globe and in different channels. So now I wanted to cover these points in more detail given their importance.
Touching on the first of these three points on Slide 16. It's very clear that will be better off together that we would as a separate organization. Oppenheimer brings world class investment teams and high demand and high alpha potential asset categories like global equity, emerging markets and international equities. 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 are looking to partner with fewer firms. This increased size and scale will also provide greater access to capital markets, which we believe is important and 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 complimentary 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 three 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 is often Z when Invesco's performance is A and vice versa. Indicated by the fact that the performance between the two 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 in 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.
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 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 I'm now going to turn the call back over to Marty.
Martin L. Flanagan -- President and Chief Executive Officer
Thanks, Greg. So if you turn to Page 20, I'll pick up there and just spend a minute talking about an update on Oppenheimer and to level set, let me put 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 client 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, in particular, in light of this market where we talked about it before you can actually see the unique opportunity for us to create greater operating leverage and scale throughout combining the two organizations.
We're going to do this by using the framework that we used in the past, it served very, very well I'll get in the greater detail about in a minute, but it does the obvious, it's eliminating complexity, location optimization, focusing on rationalization platforms and the like. Yes you save money, but quite frankly we generate greater resources and build a better business and that's the point that I want to drive home as we talked 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 a 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 is no question we'll be a stronger more talented organization post the close, which is what we have been focused on from day one. I also want to reiterate a key element of the value of the transaction is really the highly complementary initiative investment team, which Greg artfully described in a very clear way.
The Oppenheimer investment teams are really excited to be the part of the combine firm. They do have a strong retention program in place, which is important now. But the reality is it's the culture in the combine firm and feeling impart 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've talked about initially. The mutual fund proxies have been filed with the SEC that will 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 recap the financials in light of that very, very difficult fourth quarter. I think what you'll see is they remained stunningly compelling still, so if you-EPS accretion remains very strong if you look 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 16% it is down three 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 looked at 2020 we'll add more than $800 million EBITDA we 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 a firm just being dramatically stronger than prior to the transaction.
So let's spend a little more time go in a 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 toward closing and through execution many of which are in execution, consolidating key platforms, addressing overlap in areas such as distribution, consolidating the product support functions and moving to common technology and infrastructure plan. So well under way right now and these are the areas where we see the emerging synergies coming from.
Some of this will be done by day one and other activities will accelerate post close due to regulatory reasons not permitting us to get start ahead of time or frankly a very important part of mitigating our 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 cost and benefits for clients and shareholders ultimately.
And I do want to reiterate, we're 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 serviced very well in the past and I just want to make the point again I have a high degree of confidence our ability to get the synergy target and the fact that we will be a much stronger organization post close.
So let me sort of recap before up we open up to questions. As you all know, prior to 2018, we had nine straight years of positive net inflows and as we've talked about last year that 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 the performance and yes, we'll continue to strengthen those the market continues to evolve.
That said, we've made great progress in continuing to invest and repositioning our 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 in trading 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, I will stop and Loren, Greg and I are happy to answer any questions anybody may have. Operator?
Questions and Answers:
Operator
(Operator Instructions) Our first question is from Ken Worthington of JPMorgan. Mr. Wrothington, your line is open.
Kenneth B. Worthington -- JP Morgan Chase -- Analyst
Hi. Good morning and thank you for taking my questions. First on expenses, there's clearly seasonality in 4Q for your non-comp 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 2019 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 the efficiency program was realized in 4Q, both actual and the run rate of savings as we go into 1Q?
Loren M. Starr -- Chief Financial Officer
So Ken, let's say in terms of expenses, a lot of 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 for the near-term flexibility around marketing expense management as you like to 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 in track in terms of optimization in terms of achieving the total goal of a run rate expense savings, I think we are at that level, maybe a little bit still going to happen in Q1.
Kenneth B. Worthington -- JP Morgan Chase -- Analyst
Okay. Thank you. And just on the balance sheet post-Oppenheimer, it seems like some of the feedback that you're getting suggest that investors characterized 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 priorities for cash post-Oppenheimer? And does deleveraging take priority over buybacks once the $1.2 billion commitment is complete/
Loren M. Starr -- Chief Financial Officer
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 -- 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 two-year timeframe that we originally discussed. We are going to be clearly count 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 be $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.
Kenneth B. Worthington -- JP Morgan Chase -- Analyst
Thank you.
Operator
Thank you Mr. Worthington for your question. Our next question comes from Craig Siegenthaler with Credit Suisse. Sir, your line is open.
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Good morning Marty, Loren. 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? 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 two businesses. I just wanted an update here?
Martin L. Flanagan -- President and Chief Executive Officer
Yes. So that is one of the areas that we will not turn our attention to, until after close, there's regulatory reasons. There's probably going to be less overlap than you imagine in that. But I will say there is opportunity. I'm sure there is opportunity for rationalization and again after close, we will come back to you and give you some insights. Again I wouldn't look at it as just unique to the Oppenheimer transaction. Again it's a 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 could do that.
Craig Siegenthaler -- Credit Suisse AG -- Analyst
And then my follow-up is on the ETF business. You've built a large ETF business both organically and through M&A, but the business really didn't participate in the migration 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 in 2018 in terms of share loss and also how you positioned for growth in the future?
Martin L. Flanagan -- President and Chief Executive Officer
Yes, look we think this has been a very important undertaking for us. And I think if you just look at where we started and where we are, we think we're very well placed. We do make some important points of-if you look at where the dollars were moving us last year 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 bullet shares. 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 (inaudible) other bank loans in life, those are-that's part of what comes with that market.
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Thank you Marty.
Operator
Thank you for your question Mr. Seigenthaler. Our next question is from Michael Carrier with Bank of America.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Thanks guys. 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 the fourth quarter run rate.
Loren M. Starr -- Chief Financial Officer
Yes. Absolutely Mike. So I think I was giving you some points around sort of run rate versus onetime. So let's say 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 will recur on a regular basis. So if you were to take that out of 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 one-time things.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Okay. That's helpful. And then --
Loren M. Starr -- Chief Financial Officer
Mike, I think, Martin want to --
Martin L. Flanagan -- President and Chief Executive Officer
Yes, I understand. And again we are being very responsible going into 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 would be able to pivot like this in an environment. So again it's really the capabilities that attracted us with Oppenheimer. But when you look at the scale benefits, they are material and real. And I think as we said Q4 really serve the highlight that for everybody beyond the conversations. It's actual fact.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Okay, it'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 just wanted to 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 2019 with market stabilizing, you guys pointed to some of the investment performance rebound. Where you're seeing some of the sales traction, where you maybe most hopeful, did that redemptions get slow, just start to turn the trajectory around?
Martin L. Flanagan -- President and Chief Executive Officer
Yes. So let me put it in context. 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. Same didn't service 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 dropped from, I think a peak of 1.44 to 1.24. But if you literally look really look at EMEA and these mutual funds closes 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 so well (ph), there is nothing really happening there, I can tell you our clients went risk off, we had some very good capabilities.
Asian equity capabilities got terminated during that. So the notion that you could have trade wars Brexit and thank 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 breadth of investment capabilities and performances and these markets are actually good for active management and we're seeing that. Greg, if you want to add to?
Gregory McGreevey -- Senior Managing Director, Investments
The only thing I'll add to, when you kind of look at our pipeline overall, I think there's maybe a couple of areas where the pipeline is starting to see a pretty significant increase. And fixed income is kind of one factor. We kind of talk about that before as to 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 loan.
And then our solutions business is really being ramped up given the investment that we've made there. So we're starting to see a number of things come out of that engagement that we have with the clients. Those would I think, if you just looked at our pipelines the kind of various -- seen an increase in.
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Okay, thanks a lot.
Martin L. Flanagan -- President and Chief Executive Officer
Yes.
Operator
Thank you for your question Mr. Carrier. Our next question is from Dan Fannon with Jefferies. Your line is open sir.
Daniel T. Fannon -- Jefferies -- Analyst
Thanks. Good morning. I guess -- Marty just kind of building upon your comments about the last quarter and kind of the 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 that may or may not be conservative?
Martin L. Flanagan -- President and Chief Executive Officer
Yes. Look I can speak to my very specific conversations, every single one is most incredibly positive. So if you just start with fundamental strength of where Oppenheimer in the U.S. wealth management platform, the notion of these two firms together we say 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 two 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 go fast enough if one get to close.
Daniel T. Fannon -- Jefferies -- Analyst
The redemption assumption on the -- because of the deal?
Loren M. Starr -- Chief Financial Officer
So, I think -- nothing changed in terms of those assumptions. We're still looking at sort of $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 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 firm together, that we're going to be able to improve the redemption experience for the -- both firms quite honestly.
Daniel T. Fannon -- Jefferies -- Analyst
Okay. 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 with Oppenheimer's outflows have been?
Loren M. Starr -- Chief Financial Officer
So, again, I think in terms of the biggest change will be the timing. We only have two quarters of accretion versus sort of roughly the three 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 -- pardon me, for Oppenheimer I think is roughly at 4% decay annualized. So, again, it's picked up a little bit as we have 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.
Daniel T. Fannon -- Jefferies -- Analyst
Okay, thank you.
Operator
Thank you for your question Mr. Fannon. Our next question comes from Bill Katz with Citigroup. Your line is open sir.
William Katz -- Citigroup -- Analyst
Okay. Thank you very much. I think in your -- the press release you had mentioned and a little bit in your prepared remarks that you're 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 maybe some delayed spending on the other side of that?
Loren M. Starr -- Chief Financial Officer
So, I mean in terms of stopping hiring and freezing it, that makes a lot of sense for us in 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're 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're able to without affecting clients or investment performance, really the discretionary elements of what we do. And then sort of services around training, development, really sort of internal thing 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 in a way the bigger impact.
We're 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. So that is still happening, but those things take longer. And again, it is going to be impacted by bringing the two firms together. We did see a lot of opportunity to do that.
William Katz -- Citigroup -- Analyst
Okay. This is a follow-up two-part question. So thanks for taking both. In your guidance, you also mentioned the pro forma EBITDA being the $2.5 billion versus previously $3 billion. So I was wondering if you can unpack that and I wish you gave some of that around the Oppenheimer assumptions. But how much of that comes from the legacy footprint if you will? And then as we look into the new part of the year, any qualitative, quantitative update on how the flows are both at Invesco stand-alone as well as Oppenheimer?
Loren M. Starr -- Chief Financial Officer
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's really just a lower earnings. I think in terms of sort of the preview into the quarter. I think we feel that there is 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 three months completed and you will see the monthly releases as they come through.
William Katz -- Citigroup -- Analyst
Okay, thank you very much.
Loren M. Starr -- Chief Financial Officer
Thanks Bill.
Operator
Thank you for your question Mr. Katz. Our next question is from Alex Blostein with Goldman Sachs. Your line is open.
Alexander Blostein -- Goldman Sachs -- Analyst
Hey. Good morning, guys. So maybe just a couple of specific questions. I know we're kind of go through some of these numbers already. But could you guys give us just the Oppenheimer ending AUM revenue run rate and expense run rate where things stand today?
Loren M. Starr -- Chief Financial Officer
Yes. I don't have that detail for you, Alex. Obviously we have the AUM of 213 to 214 (ph), I think it is with the number that we provided. So, again I think it will scale down -- revenue will scale down, you should expect kind of literally (inaudible) with the AUM.
Alexander Blostein -- Goldman Sachs -- Analyst
Got you. And in terms of the purchase price, so honestly and obviously the market condition has got a lot worse, but the $0.52 accretion in 2020 is over 30% below the $0.80 that you provided in the last call. Can you talk a little bit about if there is any room to negotiate the purchase price? I think there was something there, as it relates to flows, but I was wondering if you could flush that out a little bit?
Loren M. Starr -- Chief Financial Officer
Yes. In terms of the flows, there are some contractual sort of adjustments related to outflows between now and the close -- or at the time of close, if we aren't successful bringing 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 and 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 percentage points, there will be no adjustment made on the purchase price. Marty, I don't know if you want to talk about sort of the concept of renegotiates. Let's not even talk (multiple speakers) I think we're contractually bound and happy to continue.
Martin L. Flanagan -- President and Chief Executive Officer
Look, I turned your attention to the financial returns we just put in front of you, after a very very difficult market and quite compelling. And again we're going to be dramatically stronger firm coming out of it. So there is a support of it --
Loren M. Starr -- Chief Financial Officer
Obviously -- I mean obviously markets have improved also at that point, I think sort of 3.5 and above percentage points where we are. So, all those numbers are going to look better in light of just a few weeks of January coming through.
Alexander Blostein -- Goldman Sachs -- Analyst
Okay. Fair enough. Thanks.
Martin L. Flanagan -- President and Chief Executive Officer
Thank you.
Operator
Thank you for your question Mr. Blostein. Our next question is from Brennan Hawken with UBS. Your line is open sir.
Brennan Hawken -- UBS US Equity Research -- Analyst
Good morning. Thanks for taking the question. So just to clarify on the triggers that Alex just asked about. You said 7.5% decay rate, is that annualized in the period from announcement to close? And while I appreciate that, is that a 4% decay rate? A lot of that seem 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 sort of flush that out a little bit for us please? Thanks.
Loren M. Starr -- Chief Financial Officer
So, I mean, what we're doing this is taking the 214 (ph) assuming flat markets through the close and then $10 billion out, right. So it's not a not a refined sort of when it happens. But if it happens before 214 sort of becomes 200 before the close, it's essentially getting the same place, right. So it's not a-that we assumed that outflow was almost immediate when it kind of happened-when the deal happen. 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 is $10 billion less off of the 214 numbers, right? So that's the assumption that you should be looking at for those deal economics to work.
Brennan Hawken -- UBS US Equity Research -- Analyst
Okay. And then the 7.5% decay that you required, is that annualized?
Loren M. Starr -- Chief Financial Officer
All right, there are two things. So one, there is, so that you can look at the filed documents in terms of the contract to see all the details there, it's probably a little more complicated than I am making, but that's the run rate. That's the 7.5% revenue run rate decline off of what was originally put in place, 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 I don't know --
Martin L. Flanagan -- President and Chief Executive Officer
It's a common practice around these transactions.
Brennan Hawken -- UBS US Equity Research -- Analyst
Okay. And then when you guys had announced it initially, you had indicated that you had a repurchase, that you're 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?
Loren M. Starr -- Chief Financial Officer
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 the stock price. So, I mean there are also developments 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 leverage ratios and so forth. So we're going to be sort of reasonably conservative around the pace of buyback prior to the close as you would expect.
Brennan Hawken -- UBS US Equity Research -- Analyst
Thanks for taking my question.
Operator
Thank you for your question Mr. Hawken. Our next question is from Brian Bedell with Deutsche Bank. Your line is open sir.
Brian Bedell -- Deutsche Bank Securities -- Analyst
Great. Thanks very much. Maybe I'll 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, could you just give us, just reaffirm sort of that trajectory and whether you can -- whether think you can actually accelerate those back office saves given the environment? And then the walk down of the margin for over 45% to 40% post-synergies, is that all due to the lower AUM and market conditions?
Loren M. Starr -- Chief Financial Officer
Yes. So, Marty, you can jump in if you want --
Martin L. Flanagan -- President and Chief Executive Officer
If you want, you start, I'll follow-up after that.
Loren M. Starr -- Chief Financial Officer
So in terms of the $475 million, you should expect that because the close has been delayed effectively in the quarter that our timing around capturing synergies is going to be more pushed into the first quarter 2020, getting that sort of numbers that we were talking about 75% or 80% of synergies, because of sheer timing. So that's kind of one point. I think in terms of the margin being around 40% (ph), around 40% -- greater than 40%, that's all just due to AUM levels and to the associated impact. Again that would be better today just because of lift that we've see in the markets with respect to both firms. So again, we'll obviously continue to look at those deal economics very sensitive to where markets are. And again hopefully we sort of hit the bottom and we'll see more upside in this given economic numbers.
Martin L. Flanagan -- President and Chief Executive Officer
Yes. And I would just add on platforms and the likes. Look these are big undertakings. We do know how to do it. We have the history of doing them well. We'll do them as quickly as possible, but also very importantly, we got to serve the clients and need to do 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. It's a very unique opportunity for us to frankly build some very important scale into the organization which we will do.
Brian Bedell -- Deutsche Bank Securities -- Analyst
Great. Okay. And then as you think about the growth, the revenues 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 gross initiatives, how do you think about 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 these new structures and geographies sooner rather than later and maybe sacrifice some of -- since -- have some additional expense I guess against that?
Martin L. Flanagan -- President and Chief Executive Officer
Yes. I think going back -- 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 (inaudible) 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 -- is no revenue synergies in these numbers. From going into 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 you followed.
Brian Bedell -- Deutsche Bank Securities -- Analyst
And just the timing 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 the synergies?
Martin L. Flanagan -- President and Chief Executive Officer
Look, there are already conversations with the teams and where the opportunities are. And also, we're in big conversations with MassMutual about what we can do. But again, I don't want to set an expectation other than we will execute what's in front of us, but the combined firm together and the relationship with MassMutual is going to be an important one.
Brian Bedell -- Deutsche Bank Securities -- Analyst
Okay, great. Tanks very much.
Operator
Thank you for your question Mr. Bedell. And our next question is from Kenneth Lee with RBC Capital Markets. Your line is open sir.
Kenneth Lee -- RBC Capital Markets -- Analyst
Hi. Thanks for taking my question. 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? I wonder if you can just give us a little more color there? Thanks.
Martin L. Flanagan -- President and Chief Executive Officer
Ken, I'll maybe start and Loren can add. Look, it's no different than us. Our effective fee rate, what you see is trending down. It's really -- it is a mix shift topic for us and you would imagine in a 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 international equities and those are higher fee 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.
Loren M. Starr -- Chief Financial Officer
Yes. And I'd say, I mean, from what we can see, their fee rate is very stable. So nothing is really -- even though the market has been sort of negative, I think they'll continue to offset that through growth in the alternatives platform. And so, overall, I'd say, it's pretty stable.
Kenneth Lee -- RBC Capital Markets -- Analyst
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? Thanks.
Loren M. Starr -- Chief Financial Officer
So that was mostly fixed income. There was a little bit of equity component, all single-digit basis points.
Kenneth Lee -- RBC Capital Markets -- Analyst
Got you. Very helpful. Thanks.
Operator
Thank you for you question Mr. Lee. Our next question comes from Patrick Davitt with Autonomous Research. Your line is open, sir.
Patrick Davitt -- Autonomous Research -- Analyst
Good morning, guys. Thank you. Earlier, last year before you announced the Oppenheimer deal, there was a lot of focus and chatter from you guys around optimism -- 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 pushed out or pulled forward? I know, you're really focused on Oppenheimer, but I'd be helpful to get an update on some of that stuff as well?
Loren M. Starr -- Chief Financial Officer
Yes. So we're still on track. Second quarter of 2019 is when the largest client that we've sort of one 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's 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 this client and the breadth and scope of the advisors they are 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 and originally imagined in terms of the actual going from the design to production to execution, it 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 factors based investing and all these capabilities is growth engines that we 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 even more so into 2019.
Patrick Davitt -- Autonomous Research -- Analyst
Okay. That's helpful (ph). A quick follow-up, you mentioned Brexit earlier and I think everybody has kind of decided to try and handicap what happens there, it's a 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 U.K. business could be if it goes bad and conversely how much better they could be if it goes good?
Martin L. Flanagan -- President and Chief Executive Officer
yes, So it's a good question. Everybody is 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 and the second half of the year. It's just not U.K. its on the continent too. And I mentioned, if you look at flows across, it's literally down 87% year-over-year. And that it has been a risk-off environments like you really can't imagine. So I don't know what's going to happen with Brexit, there are a lots of smart people than me on it. We spent a lot of time on it. It's important to us.
But Loren was talking about this quarter, if my perspective and the organizations perspective if you take a no deal Brexit off the table and it looks like there'll be some different outcome, I think that'd be very positive for investor sentiment, client sentiment and I would imagine it would be in a better positioned 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 headwind for us. So anything that moves in a positive manner is again, I think a positive development for us.
Loren M. Starr -- Chief Financial Officer
And maybe just a bit of information. So one, in the quarter, Q4, the U.K. equity outflow was under $1 billion. Still a big number, but again in terms of overall size of AUM, it's sort of manageable number. And the other point is, we did just because of the uncertainty around the Brexit outcome, we did hedge through the full 2019 using similar strategy that we've used in the past around hedging the operating income for struck at 1.25 as sort of insurance policy. So if the pound were to drop below 1.25, I would say this insurance policy would protect us on the down side at worst case scenario. So anyway just so people know, we have it through 2019.
Operator
Thank you for your question Mr. David. Our next question comes from Robert Lee with KBW. Sir, your line is open.
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Great thank you and guys thanks for your patient in taking all the question this morning. And again sorry to maybe go back to the expense saves, but I just want to make sure I understand them correctly. So I guess what I'm trying to square is, I mean still the expectation of ultimately an 800-ish EBITDA contribution if I have that number correctly, with the lower kind of accretion. So should I simply be thinking about how you're going to be still targeting at that, but really maybe some of that benefit because of the later close and timing kind of leads into 2021, so that's why 2020 is kind of coming down. Am I thinking of that correctly?
Martin L. Flanagan -- President and Chief Executive Officer
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 two quarters this year full next year, then run rate of the $475 million to 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.
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Great. And maybe just to confirm the guidance from a share count perspective. Basically where you've finished plus the share repurchases you've done already, plus we're going to issue that's it? Kind of no incremental -- not filling in the rest of $900 million of repurchased between now through call it 2020?
Loren M. Starr -- Chief Financial Officer
Yes. So I mean again I think, let me just, specifically your question is timing of the $1.2 billion or --
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Well, no more of like I think $0.50-ish accretion in 2020, you're not -- is there additional share repurchase kind of baked into that from this point forward or are you just kind of pro forma where we are today plus what we're going to issue?
Loren M. Starr -- Chief Financial Officer
Yes it's the exact same pro forma where we are today, what we're going to issue and then buyback as previously described. So the $400 million to $600 million prior to close and the rest on within the year after the close.
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Okay, great. That was it guys. Thank you.
Loren M. Starr -- Chief Financial Officer
Thank you very much.
Operator
Thank you for your question Mr. Lee. Our next question is from Chris Harris with Wells Fargo.
Christopher Harris -- Wells Fargo Securities, LLC -- Analyst
Thank you, hey guys. 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 potentially about saying then for the Oppenheimer business?
Loren M. Starr -- Chief Financial Officer
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, where we're kind of going through the prepared remarks. A lot of it is just the change in momentum driven stocks that was 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 so, it 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 was driving a lot of stock performance kind of change if you will. There was a component of that that could be a little bit of value and growth but that really wasn't the biggest component if you will that would contribute to that, 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 zag, which is a really good thing when you look at stock selection and uncorrelated sources 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 it -- I think the headline for what we are 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.
Christopher Harris -- Wells Fargo Securities, LLC -- Analyst
Got it. Thank you.
Operator
Thank you for your question Mr. Harris. Our next question is from Michael Cyprus with Morgan Stanley. Sir, your line is open.
Michael J. Cyprys -- Morgan Stanley -- Analyst
Hey, good morning. Thanks for your patience and taking the question. 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 three or five years' time, just terms of level of commitment and alignment? Thank you.
Martin L. Flanagan -- President and Chief Executive Officer
Yes, Michael, this is Marty. So, look we have a very good relationship with them. They are a kind of a material interest in Invesco and the alignment of interest starts right there and that's not going to move. Roger (ph) is very clear about the long-term nature of wanting to be in the asset management business and that's how they view this transaction, just broadening their exposure to the sector and what we are right now is a broad range of conversations of what are the things we can 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're assuming zero revenue synergies from anything other than the core Oppenheimer business.
Michael J. Cyprys -- Morgan Stanley -- Analyst
Got it. Okay. And then if I could ask a follow-up just quickly here on liquidity in the market and the credit cycle, just curious to hear your perspectives on any sort of implication of a turn in the credit cycle just given the buildup in leverage by corporate per 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 this playing out?
Martin L. Flanagan -- President and Chief Executive Officer
So, we're looking pretty closely and I think probably very long one 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, 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 that comment that I kind of referenced from a capital markets perspective I think it 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 second time kind of stop there in relation to your question.
Loren M. Starr -- Chief Financial Officer
I would say that in terms of our bank loan product, we saw absolutely no issues in terms of managing through the relative markets and sort of addressing redemptions. So with all done really really with no issues, given the way that we managed that product, so again one data point, but probably one that's relevant certainly for Invesco.
Michael J. Cyprys -- Morgan Stanley -- Analyst
Okay, thank you.
Operator
Thank you for your question, Mr. Cyprys. Our last question is a follow-up from Alex Blostein with Goldman Sachs. Your line is open, sir.
Ryan Bailey -- Goldman Sachs -- Analyst
Good morning. This is actually Ryan Bailey in 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 looks like it's about $2.4 billion. Can you help us think about where we should be resetting for stand-alone Invesco, given current AUM levels? And then some of the cost initiatives that you outlined excluding what was happening with the deal synergies?
Loren M. Starr -- Chief Financial Officer
Yes. So I think I touched on it a little bit, when we're sort of looking into the first quarter versus where we are fourth quarter. We are -- if you look at the $619 million, which was the expenses -- quarterly expenses in Q4, you subtract out the $9 million kind of one-time 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 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 is no stand-alone Invesco anymore. So 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.
Ryan Bailey -- Goldman Sachs -- Analyst
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 you'd need on the balance sheet just given the seasonal expenses you just mentioned for kind of the first half and then any integration costs?
Loren M. Starr -- Chief Financial Officer
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.
Ryan Bailey -- Goldman Sachs -- Analyst
Got it. Thank you very much.
Loren M. Starr -- Chief Financial Officer
No problem.
Operator
That does conclude our Q&A session of today's call, I'll not turn our conference back over to Marty Flanagan.
Martin L. Flanagan -- President and Chief Executive Officer
Again, I just want to thank everybody for participation in the questions and look forward to speak with everybody soon. Have a good rest of the day.
Operator
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.
Duration: 75 minutes
Call participants:
Unidentified Speaker --
Martin L. Flanagan -- President and Chief Executive Officer
Loren M. Starr -- Chief Financial Officer
Gregory McGreevey -- Senior Managing Director, Investments
Kenneth B. Worthington -- JP Morgan Chase -- Analyst
Craig Siegenthaler -- Credit Suisse AG -- Analyst
Michael Carrier -- Bank of America Merrill Lynch -- Analyst
Daniel T. Fannon -- Jefferies -- Analyst
William Katz -- Citigroup -- Analyst
Alexander Blostein -- Goldman Sachs -- Analyst
Brennan Hawken -- UBS US Equity Research -- Analyst
Brian Bedell -- Deutsche Bank Securities -- Analyst
Kenneth Lee -- RBC Capital Markets -- Analyst
Patrick Davitt -- Autonomous Research -- Analyst
Robert Lee -- Keefe, Bruyette & Woods, Inc. -- Analyst
Christopher Harris -- Wells Fargo Securities, LLC -- Analyst
Michael J. Cyprys -- Morgan Stanley -- Analyst
Ryan Bailey -- Goldman Sachs -- Analyst
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