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Franklin Resources Inc.  (NYSE:BEN)
Q3 2019 Earnings Call
Jul. 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Unidentified Speaker --

Good morning, and welcome to Franklin Resources Earnings Conference Call for the Quarter Ended June 30, 2019.

Statements made in this conference call regarding Franklin Resources Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

Operator

Good morning. My name is Kevin and I'll be your call operator today. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I'd like to turn the call over to Franklin Resources Chairman and CEO, Mr. Greg Johnson. Mr. Johnson, you may begin.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Hello and welcome to our third quarter conference call. We're pleased to report overall investment performance sustained recent momentum despite some market volatility during the quarter. Sales improved again as a result with encouraging trends in both the wirehouse and institutional channels. We remain very focused on managing our expenses, while simultaneously making the necessary investments in the business to deliver strong performance. This month, we announced several senior level additions and organizational changes to certain investment teams designed to enhance our portfolio management, research and data analytics capabilities.

With me today is our President and Chief Operating Officer, Jeni Johnson and joining us for his first earnings call is Matthew Nicholls, our CFO. Matthew has been with us for three months now and he is already very immersed in our business. We're glad to have them with us.

I'd now like to open the line up for your questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today is coming from Glenn Schorr from Evercore. Your line is now live.

Glenn Schorr -- Evercore -- Analyst

Thanks very much. This might be a little complex, but sales were basically 50:50 split between inside and outside the US. While the AUM is more like two-thirds, one-third. I'm just curious, if you could talk about what's driving the more balanced mix in sales and what the fee rate implications going forward? And maybe you could do that assuming a kind of a flat flow environment.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. I mean, I would first -- I think the -- there was a lot of institutional movement kind of moving around. So I'm not sure I would draw a conclusion that, that number or percentage of sales is here to stay. We'd have to kind of take a look at that. And I think the -- from just a general statement, some of the pressures that you're seeing in the US and certainly from a retail side and the move to passive and things on the retail channel, you're not really seeing that as much globally. So I think that you don't have that pressure like you do so. I would think that some of those numbers should increase. And probably just overall the global side relies more on global bond sales and that continues to do pretty well, especially over the last few quarters in the retail channel outside of the US.

Jennifer M. Johnson -- President and Chief Operating Officer

And I'd just add, we have had some success selling some fixed maturity plans, both in Asia and in Europe.

Glenn Schorr -- Evercore -- Analyst

Okay. And that's in the one, but not yet funded pipeline, I take it?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

No, that one funded during the quarter, I think the total was --

Matthew Nicholls -- Executive Vice President Chief Financial Officer

$500 million

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

That was a $500 million one during the quarter that funded.

Glenn Schorr -- Evercore -- Analyst

Got it. And then maybe just one on benefits -- benefits. So just talk about how performance is going? And then more broadly, what you're doing to leverage both their capabilities and to distribute more of their products across your broader platform?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. I mean, I think we're very pleased with how it's going. As you know, it's a different kind of sales cycle than more like private equity. In building it into the retail channel, we're making great progress. But to get -- those are going to be new products, whether they're interval funds for the US retail market, we're working with wealth management platforms to leverage the BDC, as well as the a public REIT and having success there. So we're optimistic about that. And I think in the last five months, we had over 375 meetings globally and feel like we're getting very strong reception in both the institutional and retail channel.

Nothing to report, I mean, as far as the very stable business right now in terms of AUM and profitability. And we're still very optimistic looking at the pipeline going forward on growth. And I'll ask Matthew or Jenny wants to add anything on BSP [0:17:33] .

Jennifer M. Johnson -- President and Chief Operating Officer

We funded $125 million CLO in the quarter and I just -- I would say, just to add to Greg's comments on the interest globally both on the institutional and the retail side, there is a strong interest. And it does take a little bit longer on a sale, but we've been very pleased with the response in the market.

Glenn Schorr -- Evercore -- Analyst

Okay. Thank you.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And the first -- I think the first -- the next large fund is targeted to close in the second half of 2019, senior opportunities fund.

Operator

Thank you. Your next question is coming from Craig Siegenthaler from Credit Suisse. Your line is now live.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks. Good morning everyone. Of the $5 billion in discretionary cash and investments, what level of this would you feel comfortable deploying into an acquisition before considering any debt raise?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Good morning. I think we answer to that is that, we are flexible in terms of how much cash we will use for an acquisition, but I would caution everybody to make the point that we're going to remain conserved in terms of our balance sheet. The structure and consideration of any transaction were always result in a conservative performer outcome, which means that the provision of us using all of that cash for a single transaction or a series of transactions is quite low. And for any larger transaction, we're most likely to use a combination of cash and stock.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks, Matt. And just as a follow-up on M&A here. I saw the commentary on wealth managers, so I'm thinking what type of D2C businesses are you targeting for a potential acquisition?

Jennifer M. Johnson -- President and Chief Operating Officer

Well, so, one is, we think we have obviously Fiduciary Trust and we think that that's a great business and benefits from scale. So we'd be looking for strategic acquisitions in markets where we don't have a big presence. So that would be one. We think there is some interesting kind of FinTech type of acquisitions that can enhance the high net worth business. And when you're dealing with high net worth you have multi-generations, so the younger generation is often more interested in more self-servicing technology and so buying some start-ups that have that capability is interesting to us.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And Fiduciary Trust is a great business and we have a good foundation to build upon. I think you all know that the activity around wealth management across private equity investing in particular is very significant and the amount of different integration and roll-out transactions into wealth managers is very pronounced in the marketplace. And frankly, that activity has been concentrated in private equity and there wasn't any reason why strategics that all wealth managers could not be more active in that transaction close.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. Our next question today is coming from Ken Worthington from J.P. Morgan. Your line is now live.

Kenneth Worthington -- J.P. Morgan -- Analyst

Hi. Good morning. Maybe first on the global equity business, it's been about 4.5 years since your last quarterly inflows into that asset class. Since then, you've seen about $100 billion redemption on a business that's just $170 billion in size. So, if you can solve the problem here, it would seem as though there is a lot of upside. Maybe where do you see the biggest issues in the global equity franchise today sort of leading to or contributing to those outflows? And then as you think about the next two to three years, maybe what are the steps you're considering that could stop or slow the asset losses. And with Matthew joining the team, might there be something more strategic on the M&A side that might help turn the tide here.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. No, I think you're absolutely right. And even if you look at this quarter and just say, all right, look at the overall flows, and that -- without that category you'd probably be in positive flows. So for us it's really the deep value style of a Templeton, of a mutual series that we've all talked about it just about on every call. But we have another quarter where you have 200 to 300 basis points in differential and performance between your MSCI value and growth indices, and that trend has continued. So Templeton has stuck to its knitting and is a deep core value manager, and until that reverses it's just -- it's very difficult to get a lot of attention back.

And then you have the pressure in the retail channels, which is the active and passive. I think the more successful managers through this cycle have had the flexibility of core mandates. That's what our solutions group allows us to do is to build that. We have a very successful global growth manager. It's one of our fastest growing funds, but it's $1.3 billion today and with inflows, and just getting on platforms with long-term -- with its record getting past five-10 years now. So that doesn't make up when you have a franchise as powerful as Templeton on the other side, but any deep value manager it's been very difficult. So I think that that needs to change.

We continue to make changes within that organization, and Jenny will speak to some of that in a minute. But for us, it's really, when you say the future, and how do you -- I think the flexibility of an active manager is important and not to be bound by a strict discipline or at to have an offering out there and we can do that. We have all of those capabilities of very successful global growth managing and very successful value. And we have the solutions capability to build core assets and that's what we are doing with some of the sleeves within our SMA accounts and things.

But Jenny can speak to maybe just specifically with Templeton some of the changes that we...

Jennifer M. Johnson -- President and Chief Operating Officer

Yes, so we acquired Edinburgh Partners and brought back Dr. Sandy Nairn who, as you may recall, was John Templeton's Director of Research. And he has been working and he is the chairman over the global equity group. And he has been working with the team there very closely. And we just announced two big hires there; Alan Bartlett coming in when Norm Boersma retires at the end of the year as the CIO. Alan is probably a little bit better known in Europe. But Sandy and Alan have had a long relationship and very excited to bring him in. And then key hires Peter Sartori in Asia.

And this is one of those things were when value underperforms and we've obviously been through this cycle a few times. But you look at it and while there is outflow, the reality is, take the Templeton growth fund, it's got average PE of about 13.5 versus say the SMP at 21. People who are building a full portfolio want to make sure that they hedge the risk. And so, we still think that this is a great franchise. And when things shifts back to value, people would be rewarded with this. But in the meantime, we continue to invest in a business and give great focus and make sure we have good talent there.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And I would also add just when you look at Templeton, we did make some changes with the emerging markets group and successions with Mark Mobius. And that team and more flexibility in I would say in style where the IT has become a bigger portion of the emerging markets indices. And we felt we need flexibility there.

We have managed through that change. And the performance is excellent for that group. And also the quality as far process and that we think it's a real opportunity on the institutional side for the first time with many changes in that group. So, I think that it's -- we are examining it, but I think with Templeton's large institutional base, it's very hard just to suddenly say it's going to be more flexible in how we become more growth year [0:26:06], but I think the flexibility to figure out -- new ways to figure out how to be more efficient in the value space is something we are very committed to.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

And I think, Ken, with respect to your question on M&A, not withstanding all the great internal organic growth we have going as referenced by Jenny and Greg, we have a very proactive approach, I would say, to M&A in both asset management and wealth management. We are specifically not shy of larger scale transactions to create growth and promote diversification of our business. But frankly, only a small handful of those really make much sense.

Amongst other things, we are very focused on certain international locations where we are subscale and we then we can growth. It make sense because of the demographics of those countries. We think expanding and globalizing, I would turn to asset business and build upon acquisition of Benefit Street makes tremendous sense. We believe accelerating scale in certain investment objectives make sense. Institutionally is very important to us. A big focus on strategic activity. And then as we mentioned a second ago, expanding our wealth business on the fiduciary trust.

Kenneth Worthington -- J.P. Morgan -- Analyst

Okay. Thank you. And maybe just following up on insurance. You had outflows in the quarter in the DA business, any -- does this foreshadow anything over the next 12 months? I remember last time we had outflows for a number of quarters. And then just to play good cop as well, you highlighted the opportunity on the asset allocation side for the insurance channel. Could you flesh out your comments there a little bit more?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. I mean, I think any of the traditional assets that are still in the mutual fund you put under a watch list. I don't there is anything from a significant flow standpoint occurring next quarter. But, all of those assets continue to be under pressure and whether it's transitioning to passive or lower volatility or asset allocation models, we continue to do that. I think we have had plenty of interest on these new models and new allocation within insurance companies, and we continue to see that growth. There is nothing to report as far as new wins this quarter, but hopefully, as we have said before that we can replace a lot of those older mandates and be competitive in the new low-vol and asset allocation area. And that's why we build teams to do.

And I would just say generally, that from a pipeline and flow and this is always a hard one for us to kind of forecast for you as what we think next quarter. I think we've seen some significant wins. But we also know that we have a few big mandates and they're all in the very lower fee ones, moving out one -- a couple of big ones in Canada that were Canadian equity and Canadian fix specifically, but relatively low fee, but we had a big win in the K2 side.

So we kind of look at and say that we have $4 billion in and $4 billion out between just those wins and losses. And some of that will come out next quarter -- some of it will come in next quarter. But it's kind of as best we can look at the pipeline at somewhat of a wash right now. And I think, we can't give much color beyond that, because we don't know specifically when the funding dates are for some of those mandates.

Kenneth Worthington -- J.P. Morgan -- Analyst

Okay. Great. Thank you very much.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question is coming from Patrick Davitt from Autonomous Research. Your line is now live.

Patrick Davitt -- Autonomous Research -- Analyst

Hey. Good morning, guys. I guess, Matt, I'll with you. I know that you've been in the position for three months, so you may be frame a bit more what you see as the key priorities and opportunities over the next year or two for you. And within that theme, any potential changes and how you think about parameters around looking at the evaluation of potential M&A targets?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

So my priorities have been to get up to speed as quickly as possible on the finance group. First of all, that's a big group here doing lots of different things across 35 countries. So the first thing I've done is that. Second thing is to form a more centralized corporate development function and focus more on corporate strategy on the centralized level across all the different groups that we have in the firm, so we've been working on that. Third is to really select where we want to focus our time on strategy. There's lots of things we can do across wealth and asset management, and in different geographies, different asset classes, as I've referenced.

So focusing on a few of those where we think it's going to make the biggest difference to our firm, expeditiously without panic is been very important to me and what I've been focused on with both the management team and the executive committee here. So that's been my primary focus.

And then, obviously, a focus on the capital structure making sure we retain the financial flexibility that we have today that we talk a fair amount in our prepared remarks about. And that's not going to change, as I referenced in the beginning. But our ability or willingness, if you will, to deploy some of that cash is certainly the top of our mind strategically. So that will be my main priorities to begin with.

Patrick Davitt -- Autonomous Research -- Analyst

Okay. Thanks. And then, the expense guidance, including BSP year-over-year and 2019, is that on the fall of 2018 number including all one timers. And through that lens, any updated thoughts on moving to non-GAAP reporting and when you could make that kind of change? And what you think the size of the potential adjustments could be if you do make that change?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. So fiscal 2019, including BSP and non-recurring items net of S&D is about plus 11% to 12% from fiscal 2018 and no adjustments to 2018 on that. So that's correct. What's your second question?

Patrick Davitt -- Autonomous Research -- Analyst

Thoughts about moving to a non-GAAP reporting where a lot of these one-timers would be adjusted out of your reported earnings number. And to the extent you do make such an adjustment? What you think the scale of the change would be to a 2020 type number?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. I think at the moment, the way we see it is, the GAAP reporting is the cleanest way to report our financials. We do obviously have adjustments that we try and highlight in our prepared remarks. But until we take one step further in complexity, we intend to keep it as it is and just make sure we have as helpful prepared remarks as possible. And we have our Chief Accounting Officer, Gwen with us also at the table who is staring at me from the [Indecipherable]. So yes, we are sticky with GAAP finance. So we do something more complex.

Patrick Davitt -- Autonomous Research -- Analyst

Fair enough. Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is coming from Dan Fannon from Jefferies. Your line is now live.

Dan Fannon -- Jefferies -- Analyst

Thanks. I guess just to follow-up on that question on -- just to clarify here for the fiscal 2020 expenses, inclusive of BSP that's on a fully loaded '19 number or it's going to be flat?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Correct, yes.

Dan Fannon -- Jefferies -- Analyst

Okay. And then just a follow-up on kind of the commentary at the beginning and in the prepared remarks around kind of some of the changes you've made, obviously, you talked a bit about the global equity where there also changes on the fixed income side. So curious if you anticipate any changes or I should see any push back from consultants and intermediaries around some of these changes or just kind of flush out a little more detail kind of what you guys have done? So, because I'm sure you know internally it's probably much bigger deal, but externally it's a little hard to see what you guys actually are doing in terms of some of these changes.

Jennifer M. Johnson -- President and Chief Operating Officer

I mean, in -- I'd say one thing, as a firm that has long tenured investment people, people do come to the end of their career and choose to retire and I think none of these have been a surprise around that. Having said that, bringing in Sandy Naren on the Templeton Global Equity Group and having Sonal Desai as a new CIO, they're going to put their own stamp on the investment process. And so the feedback, it always takes a while and people puts you on kind of a wait and see as the process the changes.

We had good feedback and that we were very proactive in reaching out I think over 200 institutional clients on the Templeton team to explain the changes. On the fixed income, creating this quantitative Insights Group, actually we've had it somewhat internally, but what Dr. Sonal decided when she came in is, recognizing that there was opportunity to leverage the Group more broadly across the very fixed income teams. In addition to that, while we had acquired Random Forest we're incorporating data science in some of our fixed-income groups, there is obviously opportunity to continue to do that. And so, by having Roger Bayston just focused on data science and really kind of new Fintech investment opportunities as well as the quantitative strategies, it really highlights and make sure that as a firm, we have the focus on that.

So we really view it as strong evolution in the investment process, I don't think anybody could sit out there and think that they're going to not evolve with the way information is now available in technology and data evolve their investment process to incorporate this. So we really see it as a natural evolution, but in a time where things are evolving quickly. So far it's been well received, but it always takes a little time for these things to settle.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And I think it's -- your question reminds me that [0:36:21] mall for progress it's change, I don't like. And I think we recognize that these are some -- take it in a very positive way, some are a little more cautious. And at the end of the day it could cost you short term, some business, but we think it's the right -- these are the right moves to put us on the strongest footing going forward. And that's I think the way we have to look at the business.

Dan Fannon -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. Our next question is coming from Bill Katz from Citi. Your line is now live.

Bill Katz -- Citi -- Analyst

Okay, thank you very much for taking the questions. Most of my questions have been asked already. Just staying on flows for a moment. I appreciate the ins and outs on the institutional side. Just sort of wondering if you could speak to what you've seen in the month for retail, maybe by asset class or by geography.

Jennifer M. Johnson -- President and Chief Operating Officer

So on the retail side, on that from an asset class, I mean, the areas that we're seeing positive flows are tax free, fixed income, the global and international fixed income. The positive on sort of the Franklin equity side, we've made some big investments in personnel on the US retail side to have a focus on, we talked about the New York Stock Exchange channel and in last quarter I think we had a 26% uptick in sales there and we're continuing to see progress there. We're seeing progress and traction on the SMA business. We've had some good wins on the collective investment trusts in the -- with our partnership with Wilmington Trust. So areas that we have focused on with some hires and new personnel, we're seeing some really good traction. It's still early in that process, but we're seeing good traction there. And then of course our Dynetek fund, which I think is in the top decile one, three, five and 10 year is having -- it had its greatest quarter yet as far as net flows.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Was that the question, Bill? I mean, were you talking about this closed July or I couldn't quite...

Bill Katz -- Citi -- Analyst

I appreciate the strategic answer, but I was hoping to gather more of a tactical update about how July was looking maybe on a net basis?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. I mean I don't -- I think it's the market that's been relatively stable through that, so the trends that you're seeing are continuing with uncertainty on the retail side with tax [0:39:01] I think is the one that's emerging and has gone from $2 billion in outflows, a few quarters ago to close to a $1 billion in inflows this quarter. So that's a pretty big reversal and then US equities continue to be strong, as well as multi-asset balance. But nothing and I wouldn't call out anything. I think global bonds has had a little bit of a short term underperformance, so that may affect things in the short run as a perception of rates and the Fed cutting rates versus our position generally, which has been more position for a rising rate environment. But with that said, I think that fund has done very well with its other big bets, so it's not a big drag on the fund. But nothing I think I wouldn't really call it any big changes in terms of just the retail fund flows.

Bill Katz -- Citi -- Analyst

Okay. That's helpful and thanks for the combined answer. And then, just as a follow-up, let's come back to fiscal 2020 expenses for a moment. I guess as I look at the last couple of conference calls and sort of reread some of the transcript and the dialog about the Q&A. It does seem to be a little bit of a difference of how you sort of think about fiscal 2020 today versus maybe where we were three months ago. So is it really now a sort of a flat to slightly lower as you had tried to ring fence that. And within that the annualized savings that you highlighted in your prepared remarks earlier. Is that -- what's the timeline to sort of getting to those savings?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Hey. Hi. Bill, it's Matthew. I think a couple of things there. First of all, our guidance has changed a little bit in the sense of bringing it down a fraction. I don't want to overstate that it really is a fraction. So I think beforehand we were talking about it being marginally higher, now we're marginally lower. So that's the first point. That includes by the way and this triangulates back to some of the questions on capital management, it does include some meaningful investments that we continue to make organically around multi-asset business, data science, technology and so on that Jenny referred to. So while we are very disciplined around our expenses, we're also making sure that doesn't compromise the growth strategy that we have internally around our capital. So that's the 2020 answer. Did you have another question on 2020?

Bill Katz -- Citi -- Analyst

No, that's helpful and having met all the tax guides you gave for the fourth quarter. Is that a fair look forward into fiscal 2020 or is there an opportunity to bring that down even more?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. I think actually there was -- I read all of the initial preliminary reports this morning and I think there was a bit of confusion around the tax rate, so I'll just want to clarify what we meant and what's in the prepared remarks. So inclusive that the revision that we talked about in this quarter, we estimate that our fourth quarter tax rate will be between 22% to 22.5%. That means, the full-year 2019 tax rate would be between 26.5% and 27%. The 21% to 22% that we referred to is referencing 2020 onwards.

Bill Katz -- Citi -- Analyst

Great, Thank you very much. That's perfect. Thank you guys.

Operator

Thank you. Our next question is coming from Mike Carrier from Bank of America. Your line is now live.

Mike Carrier -- Bank of America -- Analyst

Hi. Good morning. Thanks for taking the questions. First one, just on the expenses, Matt, you mentioned on the guidance for '20. I guess just maybe longer term and bigger picture, how are you thinking about your margins in the business over time just given the focus on efficiencies, yet some of the investments that you're making and some of the flow trends that you guys are facing currently?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Look we're obviously as a business focused on running our margins to go back up. I'm not going to give any guidance on that. I mean we have reported that if you exclude the non-recurring items that our margin is closer to 29% or just above 29%, we'd obviously like for it to be higher than that. But we can't let that impact what our long-term strategy as a company and the investments that we need to make to achieve some of the things that Jenny and Greg have talked about. We're very focused on investing for the future, while being incredibly disciplined around expenses. We already have a new budget process that we're putting in place right now. We've been working through that. And that is all about making sure that we stay on top of our expenses. But at the same time making sure we have enough investment dollars to recirculate into the business as I described a moment ago. And that's we're fairly comfortable with the guidance we're giving on 2020. Although, I should say it is early days.

Mike Carrier -- Bank of America -- Analyst

Okay. That's helpful. And then just on the flow side, I think you guys flagged few known institutional platform redemptions in July. Greg I think you mentioned they are maybe in that $4 billion range. And then on the growth side you guys mentioned the $2 billion pipeline and then some traction on the solutions. Maybe just provide an update and some additional color on where you're seeing like increased demand. You've given whether it's the performance that you're seeing in some of the products seeing improvement or some of the investments that you have made over the past few years and where you're starting to see more progress or traction there?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. I mean I think Jenny mentioned we made a pretty significant investment just to restructure some of the US retail and New York Stock Exchange focused generalization and more specialization and we saw pretty good pickup year-to-date there of about 24% I think or something. In sales, I think if you look at just market share despite flow numbers, I think in the last quarter something like four out of six or four out of five of our major categories, we picked up market share. And I think that's a result of a lot of different things that we've been doing -- that we've been talking about, I think over the last year that we've seen some additional investment there.

I think where scale comes to play for a business, our size is really the business then of being in the solutions business in a real way and then taking all these capabilities into separately managed accounts or asset allocation and that's a big push right now that we think there's only a few people that can do that and we think that's going to continue to be a very strong growth area for the business outside of the traditional fund side, but I'll ask Jenny if she wants to add anything.

Jennifer M. Johnson -- President and Chief Operating Officer

Yeah. No, I think that's right. And I think the model portfolios -- we've had some wins on model portfolios and one of our advantages is that, we allow open architecture models, so we have some internally and sleeves that are internal with some portion external. And so having that real solutions business both with the breadth of capability that we have as a firm, as well as a due diligence team that can evaluate outside managers, I think has been given us that advantage in that area. And I think that the SMA business is an opportunity for us. It was just in the last four months that we got approval from our board to do some kind of completion type funds that we think can take a strategy like the income fund strategy and be able to sell it through the SMA channel. And so we think that that will pick up there.

Mike Carrier -- Bank of America -- Analyst

Okay. Thanks a lot.

Operator

Thank you. Your next question is coming from Alex Blostein from Goldman Sachs. Your line is now live.

Alex Blostein -- Goldman Sachs -- Analyst

Hey, good morning, everyone. Thanks. Just another one around M&A for you guys. Just your comments around targeting either kind of distribution channels or continue to expand in the alternative space have been pretty consistent for the last couple of quarters. Curious to get your thoughts on your appetite for deals for most of the traditional products where you might still have some product gaps, whether it's on the kind of core equity growth side or some of the fixed income core plus type of products or money market fund. So some of the gaps in some of the traditional products and the appetites there? Thanks.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. I just say all the above of your list. You hit it pretty, pretty accurately.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. Exactly I was going to say, I think one of the points I made earlier on was accelerating scale in certain investment objectives. We have practically everything, but there are some areas and you just referenced a couple of them right there that we should be much larger in. So, yes, we're very, very focused on this.

Alex Blostein -- Goldman Sachs -- Analyst

Cool. Great, thanks. And then just a question around capital returns, I think in your release you talked about targeting 100% payout going forward. Is that on a GAAP net income basis, because you're non-operating could be pretty lumpy, so I'm just kind of curious how that plays into the kind of the more tactical capital returns given some of the volatility on the non-operating income side?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yes. GAAP net income and target 100%.

Alex Blostein -- Goldman Sachs -- Analyst

Great. Thanks so much.

Operator

Thanks. Our next question is coming from Brian Bedell from Deutsche Bank. Your line is now live.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks very much. Most of my questions have been asked also, but maybe just one more on M&A. Some other areas that maybe a potential. I wanted to just to get your thoughts, any view on either quantitative strategies or smart beta scaling up your organic smart beta with an acquisition. And then also you mentioned some distribution in Europe whether there were certain geographies where you could do small acquisitions that you think you could scale into your organization and also get a lot of traction.

So wrapping that together with the timing of M&A and the cash that you have, you've always been patient, obviously, with M&A, but is there a little bit more of a -- urgency is the wrong word, but sort of a pickup in appetite to deploy that cash sooner rather than later?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. I mean, we use the word action quite deliberately. I mean we're just being very active in assessing the various options that exist, but we're also focusing those down to a handful, instead of getting confused across too many places and to me investment objectives and so on. So we're focused on it.

In terms of timing, we really -- we can't put a time on it. We can even put a label on what we're going to do immediately next, I think that would be a mistake to do that. These are complicated transactions where they are small, medium, or large candidly, but our observation is, and we've said this in our prepared remarks is that, there is a lot of strategic activity that's being discussed in the asset and wealth space and we are very well positioned to capitalize on that when we find something that fits well with us.

So when that exactly is that, I don't think it's the right thing to comment on, but if we find something sooner rather than later, we will act upon it.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And I would just add too. I mean timing when you're making larger bets on asset classes. The performance and net flows will be secondary to what the markets do over the next cycle. So that's important, that's a hard thing to do, they anticipate but I think you just don't want to and then that's back to Matthew's point of not blowing out -- blowing the balance sheet up or your capital reserves by making a big bet on a market segment when we're near ten of the expansion. I think those are the factors that you have to weigh in to be prudent about where we make our strategic bets and I think if you see a smaller one less correlated you could move probably quicker or one where you use a little bit more equity in there to get new categories and get some scale out of it, that would work as well.

Jennifer M. Johnson -- President and Chief Operating Officer

And I'd be remiss, but I take this opportunity to plug the smart beta team that we have because, it's got stellar performance and it's been our fastest growth area in our ETF space as well as some of our separate accounts. So from that, I think that we would probably not be a buyer. We would continue to grow what we have.

Brian Bedell -- Deutsche Bank -- Analyst

That's great color. Yeah. Maybe just one other unrelated follow-up would be on, Matthew, your view of potentially outsourcing some of the administrative and back office fund functions as opposed to running them internally. I know you've used the scale internally over a long-term period to maximize that, but is there any kind of change of view potentially in doing that going forward?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

So we already announced the outsourcing of our fund administration as you know. And in fact that brings you back to answer the second part of Bill Katz's question which I didn't answer, which was about the cost savings that we announced of between, I think, we said between $80 million and $85 million and I just want to be clear, I think those question was, how much of that we going to achieve in 2020. I think the answer for that is, about $70 million to $75 million fully in 2020 -- fiscal 2020 that is.

The reason why there is 10 missing from that is the other 10 is associated with the fund administration outsourcing, which we expect to save around that amount from 2021, because obviously that takes some time to implement. In terms of going further than that, we don't intend to outsource anything else at this time, but of course we continue to review our options around technology to be as efficient as we can. But right now...

Jennifer M. Johnson -- President and Chief Operating Officer

Well, I would just say that our philosophy hasn't been necessarily that it has to be in-house or outsourced, it has been in many ways it-you do it as efficiently and cost effectively as you can. It was historically difficult to find outsourced providers that have the global footprint that we do. And because we were aggressive in leveraging low cost locations to support our business, it was -- it didn't make sense economically to do it, that is changing over time. And as that evolves, we always look at what makes the most sense for this business. So it is something we evaluate. And that's where we concluded with the fund administration, although we had looked at that many times before and concluded, it wasn't cost-effective at that point. But now the things have changed.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. And also, earlier on there wasn't a provider that existed that could serve what we needed to be served in front of administrations for that change. So we took the action that we did. So same thing happens with transfer agency, in the future maybe that changes our view of that.

Brian Bedell -- Deutsche Bank -- Analyst

And is fund accounting looped in with fund administration?

Jennifer M. Johnson -- President and Chief Operating Officer

Yes, yes.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yes.

Brian Bedell -- Deutsche Bank -- Analyst

Okay. It's OK, great. Okay. Thanks so much for all that detail. Really appreciate it.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Thanks, Brain.

Operator

Thank you. Our next question is coming from Brennan Hawken with UBS. Your line is now live.

Brennan Hawken -- UBS -- Analyst

Good morning. Thanks for taking my questions, just one here. So, you guys have spoken a bit about the elevated quarter day redemptions and some of these strategies. Did these strategies happen to overlap with any of the organizational changes and staffing adjustments that you flagged to PM teams?

Jennifer M. Johnson -- President and Chief Operating Officer

Did the redemptions have, is that -- is your question, did the -- were the redemption specifically the results of the organizational changes? If that's your question, no, the redemption...

Brennan Hawken -- UBS -- Analyst

Or did they just overlap with the PM teams that were impacted by those adjustments?

Jennifer M. Johnson -- President and Chief Operating Officer

They did overlap, but they would -- for example, one of the large redemptions was a result of a firm that had been acquired in the decision for them to bring the asset management business in-house. So while it was, I believe, a global equity mandate, it wasn't correlated to anything to do with the PM changes. It was really because they had made a strategic decision to bring the assets in-house.

Brennan Hawken -- UBS -- Analyst

Okay. Got it.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And most of these changes were announced just recently. So it wouldn't be reflected in this quarter anyway on the PM changes.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yes, I was referring to...

Brennan Hawken -- UBS -- Analyst

Oh, you were saying that as a result of the redemptions? You're making these changes that...

Matthew Nicholls -- Executive Vice President Chief Financial Officer

No, I was referring to the July color but I'm thinking that maybe, there might be something...

Brennan Hawken -- UBS -- Analyst

All right. All right. Okay.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah, I mean, I think we expect some, but I think at the end of the day, this category, the devalued categories just under tremendous pressure of underperforming core and growth over the cycle. So I think the people that are left believe that this is a safe way to protect the portfolio that you really have, you've read the article, you have never seen more common holdings across active managers today than ever, where the 50 top stocks are held by just about every fund. That's not the case with these, and I think, there are investors who like the fact that, you own a portfolio at 12, 13 times earnings and much more defensive and I would say Templeton today, if anything in the last quarter even got more defensive in their positioning where markets are. So I think at the end of the day, they will stand out, when you have a downturn or rent interest rates rise and growth is under pressure.

Brennan Hawken -- UBS -- Analyst

Yeah. Those of us that cover financials can commiserate.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yes.

Brennan Hawken -- UBS -- Analyst

Thanks for taking the questions.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

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

Robert Lee -- KBW -- Analyst

Great. Thanks. Thanks for your patience. And Matt, welcome and good luck. Just a real quick question most of mine been asked, but going back to the recurring M&A and strategic and organic growth. I'm just curious as you think about it, are there any change in terms of your willingness to think of in a different ownership structures. I mean historically, like with benefits treat pretty much of -- then 100% acquirers, some competitors are more willing to do majority ownership transaction. So as you think of the landscape, maybe particularly in the alternative space, there are also a shift taking place and your willingness us to think of different structures than you've done historically?

Jennifer M. Johnson -- President and Chief Operating Officer

Well, I'll say that there's -- we have some situations of joint ventures, I mean, actually, internationally, there'll be markets where we make decisions around, it's better to partner than it is to own 100% because maybe it's a difficult market for a foreign manager. So we have an openness to that. Having said that, one of the things that has made us successful with acquisitions is that, we keep the independence of the investment team, and we take advantage and leverage all the support capabilities. And that's where you get real scale out of it.

And so, when you leave it independent and you see it with managers out there, you don't get that benefit. And you get confusion around distribution and you get a lack of commitment, and the conversation doesn't get as focused on the investment team. But obviously in the alternative business you have to structure compensation appropriately even when you have 100% ownership. So we're cognizant of that. And if it made sense we would do it, so like I said, we're not completely against it, but it is complicated to try to manage a JV much more so than it is when you have a 100% ownership.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Yeah. And I think that's probably a great summary to say on the distribution side, somebody brought up or you opened and we've talked about that. And certainly minority stake in a captive market with captive distribution for a platform makes a lot of sense to own. But as Jenny said, I think creating a corporate culture and integrating and getting really all the leverage from what we offer as a global platform from a distribution and servicing side is very difficult when you own 60% or 70%, it just gets very complicated. You spend a lot of energy on things that really are not that production.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. I mean subscale transactions along those lines really don't make any sense to us at all. And I think anything around M&A, from a financial perspective, this is sort of needless to say in a way, but we would expect the margin to be accretive to us. So we are absolutely driven around M&A by growth and diversification versus cost cutting, but obviously some of the larger transactions do come with very significant margin improvement opportunities.

Robert Lee -- KBW -- Analyst

Great. I appreciate the color. Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thanks, Rob.

Operator

Thank you. Our next question today is coming from Michael Cyprys from Morgan Stanley. Your line is now live.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good morning. Thanks for your clarifications and taking the question. So you've made some senior-level additions and organizational changes. I guess as you look forward from here, what additional hiring are you making and other potential changes that could make sense next as you're focused on optimizing the cost structure, but also investing for growth? And related to that, as you're thinking about the pace of expense growth beyond 2020, would you envision that being more in line with inflation, how should we be thinking about that?

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Well, I would start with -- I mean I think we've made a significant number of hires. I don't think there's anything on the horizon right now that say there's a big gap here or there that -- and I think we spent a lot of time working on succession, and that's the norm for any CIO transitions. So I don't think we have any big plans of adding senior people in the area.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. And I think our cost structure will be guided based on how we're doing in the business overall, and where we need to invest, and how we're growing or not.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. And just a follow-up, I was just hoping you could talk a little bit about your approach in China to sourcing growth there, how that approach is evolving just given some of the recent regulatory changes? I understand you have a JV in China. Is the focus more with the JV partner or any appetite for building outside of the JV, and any sort of color you could share around AUM, flows, staffing, any progress that you can share? Thank you

Jennifer M. Johnson -- President and Chief Operating Officer

So we do have a JV, and we're excited about the opportunity to be able to acquire a 100%, and so that -- they've accelerated the pace of that, so we're certainly looking at that. We also have a [Indecipherable] there where we have some investment personnel that are out of there, as well as some kind of support distribution side. The JV has great investment performance, and so they've seen some good flows there. It's a difficult market, and it's always more complicated when you're in a JV structure, so we think that there is just great opportunity to own a 100%, and continue to try to grow in China.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

And it's about $4 billion to $5 billion, so it's not included in our AUM, and it is profitable, the JV today, but not of the size where we'd like it to be.

Michael Cyprys -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Well, thank you everyone for participating on the call. And we look forward to speaking next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Unidentified Speaker --

Gregory E. Johnson -- Chairman of the Board and Chief Executive Officer

Glenn Schorr -- Evercore -- Analyst

Jennifer M. Johnson -- President and Chief Operating Officer

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Craig Siegenthaler -- Credit Suisse -- Analyst

Kenneth Worthington -- J.P. Morgan -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Dan Fannon -- Jefferies -- Analyst

Bill Katz -- Citi -- Analyst

Mike Carrier -- Bank of America -- Analyst

Alex Blostein -- Goldman Sachs -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Brennan Hawken -- UBS -- Analyst

Robert Lee -- KBW -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

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