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Franklin Resources Inc. (NYSE:BEN)
Q4 2019 Earnings Call
Oct 25, 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 and Fiscal Year Ended September 30, 2019. Please note that the financial results to be presented in this commentary are preliminary. Statements made in this conference call regarding Franklin Resources, Inc. which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

Operator

Good morning, my name is Rob and I'll be your call operator today. [Operator Instructions] At this time, I would like to turn the call over to Franklin Resources's Chairman and CEO, Mr. Greg Johnson. Mr. Johnson, you may begin.

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

Thank you. Good morning and thank you for joining us to discuss the fourth quarter and fiscal year results. Joining me today is Matthew Nicholls, our CFO and Jenni Johnson, President and Chief Operating Officer. Our industry remains in the midst of rapid change that we work diligently to address in fiscal year 2019 by evolving certain parts of our business while remaining steadfast in our core convictions.

We're pleased to see improved sales and share in the US retail channel. Our US equity sales also improved again this quarter, reflecting strong performance and recent sales momentum continued in our US fixed income strategies. Overall investment performance improved throughout most of the year, but trended down in the final months following global events that negatively impacted certain strategies.

Capital allocation remains a very important focus for our Board and management team. We continue to active actively evaluate the industry landscape for opportunities to grow and enhance our business through acquisitions and we rewarded our investors through dividends and repurchases this fiscal year that amounted to 107% of net income.

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

Questions and Answers:

Operator

Thank you. Our first question comes from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks, good morning everyone. I just wanted to start with Benefit Street first. Can you provide us an update on fundraising and AUM growth since the deal has closed. And also, do you have an AUM target for the senior opportunities fund too?

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

Yeah, I would -- as we said on the last call, I mean, we're very pleased with the progress with Benefit Street and I think the last year has really been getting our distribution platform up to speed and training and we had over 350 global meetings and introducing the new funds that they're offering. And I think we're excited about what that means for this year in terms of flows. And as you know on the institutional side, you have not a steady flow but when you close funds, you have obviously a large one-time flow and we're expecting to see two or three of those events in the next year and hopefully we'll target somewhere over $3 billion, $4 billion range flows if everything works and market stay steady.

We've also registered funds and in the process of getting retail products out there whether it's a BDC with some of our major distributors as well as the potential of introducing interval funds for more of the retail and wealth management platform. So very pleased with the progress to-date there. And I would say in the last quarter we had one CLO close that you asked about flows for $233 million or so, but that was the only really fund raise in the last four to six months.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thanks, Greg. And then just one follow-up on the 55.8 basis point fee rate. When you exclude market appreciation in any kind of divergent beta, what are your thoughts on the overall fee rate going forward given organic mix shift and also any potential pricing adjustments that you can do to enhance growth?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Hey, it's Matthew, Craig. I would say that it's a very tough question to predict fee rates. Our mix of products is evolving somewhat the past quarter, for example, the fee rate came down slightly based on the fact that our international global products came down a little bit through increased redemption activity that we talked about. But I think further guidance on the average fee rate is difficult to predict.

Craig Siegenthaler -- Credit Suisse -- Analyst

Thank you.

Operator

Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your questions.

Patrick Davitt -- Autonomous Research -- Analyst

Hey, good morning. Thank you. My first question, there's been a few high-profile Morningstar downgrades of some of Hasenstab funds. Historically, there have been a high correlation between flows in these ratings. I'd be curious to get your thoughts on if you think that correlation is still as strong given all the changes in the distribution ecosystem and through that lens, are you expecting accelerated outflows as a result?

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

Yeah, I think clearly there is a correlation and obviously the more recent underperformance puts pressure on some of the Morningstar ratings, but I think this fund is really in a category of its own and there is no real one clear peer group for this kind of unconstrained Global Bond Fund that tends to have no correlation with beta or duration.

So I think it always has a place in a portfolio regardless and people are -- that have used the fund in the past understand what it what it brings to a typical 60, 40 or typical portfolio to lower risk and that hasn't changed. But, no, we don't expect any -- I think relative performance is the key in the short run more than the ratings and obviously the fourth quarter September with Argentina, you had some what was up until that point very strong relative performance downturn in that.

But that turns fairly quickly in that market because every fund looks so different. So we aren't as optimistic at flows right now based

Operator

based on that September, but as I've said before that can turn very quickly as the markets move.

Patrick Davitt -- Autonomous Research -- Analyst

Great. Okay. And my follow-up, Matthew, now that you've been in the position a bit longer now, any updated thoughts on the potential to get even more lean on the expense side, heading into next year?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yes, I think that we've just been through a very disciplined budget process for 2020. When we last commented on this I think we had referenced guidance again too for 2020 to be at just about 2019 flat. I think we can say now that we believe we can come in a little bit below that target and I also believe that we have a little bit more flexibility than I first thought before we started the budget process. But I'd still continue to point to the guidance that we provided beforehand on just a little bit below 2019 for expense 2020.

Patrick Davitt -- Autonomous Research -- Analyst

Thank you.

Operator

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

Mike Carrier -- Bank of America -- Analyst

Good morning and thanks for taking the questions. I guess, just one more on expenses, you guys did a lot over the past year or so, just in terms of driving efficiencies but also investing in the business and you mentioned like the '20 outlook in terms of down a bit. I guess just kind of bigger picture, how are you thinking about the investments in the business and if we do get into an environment where -- whether it's flows, your markets are weaker, are there other whether it's outsourcing or kind of chunkier big things that could drive the expense base lower over a longer period of time?

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

Yeah, I think we have been working hard on that as you points to -- we've announced the outsourcing our fund administration business, which we're ahead on that which is why our IS&T expense went up a little bit more than planned for the quarter. I'd say as well that we spent a lot of time reviewing other parts of our IS&T business and we think there is some opportunity there to decrease our expenses a little bit more if we had to, but generally speaking, as we've already referred to where we've saved, we tend to try and reinvest that in other very important parts of our business in particular on the investment side.

Jennifer Johnson -- President & Chief Operating Officer

Yeah, I mean one of the things on the technology is just investment in data science around for investment teams with centralized data like and data scientists embedded in the teams and so that's been an area of growth in our expenses on the IS&T side. So we're trying to figure out where we can save so that we can reinvest it.

Mike Carrier -- Bank of America -- Analyst

Okay, thanks. And then just on the follow-up. So, on the strategic growth initiatives, you also have been active whether it's solutions ETFs, lot of different areas and it sounds like on the M&A front you're still spending a good amount of time looking at potential opportunities. I guess if we don't see something say over the next year, is it mostly about price, especially if you're going after growth areas or are there other factors that you think are challenging in this environment to pursue some of those strategic initiatives?

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

Yeah, I mean I would characterize our progress in terms of M&A and acquisition targets as quite good progress in all the areas that we focused on and referred to in the previous call. And we feel cautiously optimistic about our options in that regard. I'd also add a nuance to our commentary from last quarter, which is to say that while we value our cash and conservative balance sheet, we are ready and willing to utilize a meaningful portion of our cash to help meet these strategic objectives.

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

Jennifer Johnson -- President & Chief Operating Officer

I'm just going to add, is it mostly about price, I mean obviously, price matters. But our approach in thinking around M&A is absolutely around growth story. So it has to hit a category where we're filling product gaps that we don't have, we're getting distribution capability that we may not be as strong in or a geography and that's first and foremost cost cutting then gets to be secondary benefit of that. And then of course, it has to be at the right price.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

And I think just to add on price, it's not like going out and deciding when you're going to buy a specific security, I mean it's when the right needs are available and sometimes you end up paying a little bit more, but it's got to be -- we look at it is something that we're going to build over many market cycles and have that time to grow in an asset class that will be around for a long time. So I think sometimes it's easy to look at the world and say, well, buy this when you have sell-off, but that's not realistic sometimes, the sellers aren't selling in that bottom part of the cycle.

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

Yeah. And the current valuations in certain asset classes frankly reflect the -- the valuations of companies that contain certain asset classes reflect the reality of where the market is, I would say several of the cases that we get into it.

Mike Carrier -- Bank of America -- Analyst

Okay, thanks for the color. Thanks.

Operator

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

Brian Bedell -- Deutsche Bank -- Analyst

Great, thanks, good morning folks. Maybe just move back on to the global macro, global bond complex. It's -- I understand that this is -- the shift in the recent few weeks and months has moved more to a cautious stance and you might go [Indecipherable] kind of, I believe, almost something like half in cash and at least some of the big funds, so just in terms of maybe that macro view and how it's being read by the sales force and the advisors and do you expect that repositioning if that's sort of a more of a sort of -- I guess more of a permanence is the wrong word, but more of a strategic shift, do you think that will significantly impact the sales engine for that complex?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I mean it's hard to say. I think it is clearly a more conservative stance and derisking a lot of the currencies that again this goes back to my point about how markets move and how relative performance can swing so quickly. So I don't think there is a lot of funds that have a similar defensive position today, which sometimes I think you bring up correctly that, what does that mean for a sales environment and I think we've always stood behind the PM's convictions and doing what's right again for the long-term and having the cash in that kind of fund.

It has never really been a problem, it would be in more of an equity fund, obviously but because of the liquidity constraints sometimes that having that higher cash is important and if you get in a disruptive environment which that team feels like there is a serious potential for that cash, it can be very efficient in not having to sell securities but going in and buying during the dislocation. So, I think some of the best track records over time are built when you have that ammunition to buy instead of sell and that's really what that fund's positioned for.

But I think it's hard to say what impact will that have on the sales, but as I said in my earlier comments, it's a little bit different of a product, people are used to the higher cash in this fund and some get comfort from having that when issues come up with certain holdings on liquidity and that's part of the combination here.

Brian Bedell -- Deutsche Bank -- Analyst

Right and has that hedge to higher rates have been reversed largely in the fund as well?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Not reversed. Just on the shorter to medium-term and still negative duration on the longer, but definitely that's focused on the longer end of the curve, no longer on more medium and shorter end.

Brian Bedell -- Deutsche Bank -- Analyst

Got it. And then just my follow-up is on the outsourcing of the fund administration, can you just review again like what parts of the fund administration are you outsourcing, what you still have in-house, I believe you still doing from my question, fund accounting in-house, but I think the custody is outsourced, just maybe to clear that up and between middle office, and is it across most of your mutual fund complex or just portions of it, we're trying to get a sense of what could be further outsourced in the future and how much you have?

Jennifer Johnson -- President & Chief Operating Officer

I mean, you're correct that we historically had outsourced the custody of course and had kept the fund administration in-house and part of that was because with our global footprint it was difficult to find somebody who could cover all the areas that we tend to cover and now the providers have stepped up. And so we're looking to outsource all the fund administration. And many of the work that's done in custody, you have to do in fund administration. So we found some amount of duplication. But because we were early into lower-cost environment, it was hard to find providers that could be competitive pricing wise and now as others have done that we found that both the coverage of what we do as far as geography as well as the cost is now much more competitive.

Brian Bedell -- Deutsche Bank -- Analyst

And then just the timing of the outsourcing of this, is this going to be converted in the next couple of quarters or is it longer-term?

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

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

Brian Bedell -- Deutsche Bank -- Analyst

Got it. Okay and that's in your guidance already for debt expenses?

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

Yeah, that's correct.

Brian Bedell -- Deutsche Bank -- Analyst

Yeah. Perfect. Thank you.

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

Thank you.

Operator

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

Ken Worthington -- JPMorgan -- Analyst

Hi, good morning. You mentioned a number of large block withdrawals in the coming quarter, I guess the current quarter, $800 million global fixed income $1.06 billion from mutual shares and there were some larger block redemptions this past quarter. We expect the institutional business to be lumpy, you're lumpiness is really more on the redemption side.

So any common themes to the bigger block outflows? Are you hearing, is it performance issues, distribution issues, active to passive pricing, so any common themes in the sort of different asset classes and what you're seeing and ultimately Franklin's been in redemption for I don't know six or so plus years, what is the path back to inflows for Franklin? What if any are milestones that are you holding out for yourself with that regard? Thanks.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah. First of all, it's probably all the above on some of the lumpy redemptions but in particular the large one coming this quarter with mutual shares in particular was really a large broker-dealer distributor that's moving assets to their in-house funds and not really performance related but more about funds just moving in-house. The Templeton continues to be under pressure and this relates to what you talked about inflows and six or seven years and obviously for us having a lower base of US assets, our US funds are doing extremely well, growing market share, very strong inflows accelerating but that pales compared to the large Templeton deep-value, mutual series deep-value assets that we have. So that's really -- the catalyst is going to be the rotation of value and growth.

And then also we talked earlier about many of the new initiatives that we funded whether it's around the solution side, the SMA side, a lot of resources have been put into that. We've been very successful I would say in the last year or two getting on platforms. We are multi-asset solutions group, just recently got on two major platforms and I think those are going to drive flows over time.

Now they will drive flows at a little bit lower of a margin maybe than your traditional 40 Act funds, but ones that we think can be very positive and only a few players are going to be competitive in that space that have the scale to do that and ETFs as well continue to be an area of growth for us and just crossing $5 billion and again getting to the size where we have better -- more distribution opportunities opening up and having been on platforms now or been in existence for three years minimum in some cases getting on platforms and that's really I would say is where the most progress has been made on the US side, is these new multi-asset solutions, ETFs and getting on to traditional platforms as well as hopefully getting on to new technology platforms that emerge. And I'd just add, you know, on the institutional side, there were some big headwinds this year and that obviously the Argentina that Greg talked about it. We also had a new CIO introduced on the Templeton Global Equity Group. You're playing defense in those meetings, the had a sub 20 clients representing $40 billion in assets, hitting 13 cities in five days. That's what your conversation ends up being.

Having said that, we've got $4 billion in unfunded international institutional business. Our pipeline in the US institutional has doubled in size. We actually converted nine new prospects. And so there are green shoots underneath. It's just, you're mixing it in the time with just some big headwinds. And I think we have some good green shoots as Greg mentioned on the retail side with some big placements of our model business and some good growth there. And I would give another example, I mean, our emerging markets group that has a new leadership and excellent performance and institutional quality process and really we think an opportunity for institutional assets for the first time, and we're excited about that. That team now is getting on platforms for institutional searches and we haven't had that opportunity in the past.

Ken Worthington -- JPMorgan -- Analyst

Great, thank you. And then the follow-up, there is delay in the two institutional fundings. I think it's $2 billion. Is there any risk that they don't fund or is funding just a certain -- is funding a certainty and it's just the timing that is unknown?

Jennifer Johnson -- President & Chief Operating Officer

I'd say there's you know if the money is not at hand, there's always a risk, but there is nothing that indicates that there is any kind of risk that we believe they will be funded.

Ken Worthington -- JPMorgan -- Analyst

Okay, thank you.

Operator

The next question is from the line of Dan Fannon with Jefferies. Please proceed with your questions.

Dan Fannon -- Jefferies -- Analyst

Thanks. Just on the $4 billion of the international kind of backlog or unfunded wins, I guess in context of, I don't think we've gotten a number like that from you before versus a year ago or other points in time like how do we think about that relative to previous periods, just so we can have, as I said some context?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, I mean I think a good question. And that's probably why we haven't talked about that number in the past because I think the hard part is the timing for you to figure out when those assets come in and sometimes they take longer than you think and could be a year out, could be next month. So we've always been kind of hesitant to even talk about that. And that number is really just what's in the offshore international institutional flows. It is a few more domestically, but I'm not sure what you do with that number actually. So, good point.

Dan Fannon -- Jefferies -- Analyst

All right. And just a follow-up on kind of the global bond. It's been -- a lot's been written about the performance, earlier you talked about the Morningstar changes. I guess, can you talk about what you're doing internally with your sales force and your distributors to basically play more defense here, I assume to kind of keep assets and I don't think it's so much as a gross sales issue, it's also redemption given the kind of level of underperformance and as I said the headlines that's created. So is there some campaign or something that you guys are doing internally to get in front of us and be more proactive?

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

Well, we are and we're trying to do as much as we can and we have a new piece going out that talks about the repositioning and some of the recent moves with the fund. But again, I mean I still point to the long-term performance. It's really unparalleled in this and we've had plenty of periods where you've had things not work out in the short run and you just point to that long-term record and how it lowers your risk in the portfolio and focus on those things and as you can -- it's a risky world out there with highly valued assets on every metric and the story here is, going forward what's going to defend your portfolio and I think that's an important message and one that our sales force is working on.

Jennifer Johnson -- President & Chief Operating Officer

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

Dan Fannon -- Jefferies -- Analyst

Okay, thank you.

Operator

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

Jeremy Campbell -- Barclays -- Analyst

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

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

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

Jeremy Campbell -- Barclays -- Analyst

Okay. No, rough sense.

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

Well, we had revenue was stable with the last quarter, it's about $51 million.

Jeremy Campbell -- Barclays -- Analyst

Okay, great, thanks. And then just kind of more broadly speaking, just kind of wondering what your thoughts are around what's happening over at UBS right now with the elimination of SMA fees to asset managers? Do you think this is kind of like a new front on the industry wide fee pressure and does this dampen your outlook at all about growing Franklin's SMA footprint or your kind of your desire for wealth management, M&A target like you guys called out in the prepared remarks?

Jennifer Johnson -- President & Chief Operating Officer

So, I mean, interestingly, with our Fiduciary Trust high net worth business, we've never charged a fee on top of our own proprietary products. It was always kind of a conflict around that. So they've reversed out a bit by making the product free and charging the fee at the top of the house. It is just one of those -- it just feels like a conflict when you do that, but our experience has been that clients absolutely want open architecture and they desire to have outside products in.

So I think that not everything in SMAs is going free. Having said that, it's -- there is fee pressure all over the business and we're all going to have to prove out our value on our fees. No different than you've had to do on the institutional side and the retail side and I think this is just an extension of that.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

And I think there has been a little bit of market confusion over that change, that it was really an entity that is not getting the fee, but there is still a fee being charged around the account and the underlying managers are still being paid a fee is my understanding. So we all know SMA is a way to accelerate shrinking margins versus your traditional 40 Act fund because the pricing is controlled by the distributor and that's not a great trend, but it's a trend you can't ignore and one that we believe it's a business we're going to be aggressively in versus trying to defend against it.

So I think that's part of our solutions thinking. It's a change of mindset we have and we think an important growth area for us and I think you're correct that it will result in a lower margin, but it will result in larger assets and hope that that will offset it.

Jeremy Campbell -- Barclays -- Analyst

Great, thanks a lot.

Operator

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

Bill Katz -- Citi -- Analyst

Okay, thanks very much for taking this morning. So, Matt, let's come back to the expense discussion for a moment, I guess you've been on a month-to-month with AUM in sort of discussing the flow dynamics, so dancing around with different agitators and so forth and so I'm just trying to understand your sort of phraseology here in terms of doing a little bit better on the cost side. So I guess, is there a way to think about that we're talking down 0% to 5% more than that and then what is the revenue and/or flow assumptions that you're counterbalancing that expense out of [Indecipherable]?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Look, I would say, Bill, that it's too early to go much further than what we've said, but if forced to go into more detail, we'd say probably 0% to 2.5% down from 2019 expenses.

Bill Katz -- Citi -- Analyst

And there is no revenue back up --

Matthew Nicholls -- Executive Vice President Chief Financial Officer

And revenue is largely consistent and I'd also just -- I don't think we address the question and it's also related to this earlier on about the average fee rate. I think we confused that with what we saw something different. But if the question was where do we think the average fee rate is heading for our overall mix of business, we forecast that to be roughly flat because that's based on a whole series of assumptions around the mix of our business internationally, domestically, the growth alternative assets offsetting some of our business that is -- there is more under pressure from a fee perspective.

Bill Katz -- Citi -- Analyst

Okay. And just as my follow-ups, staying with you, Matt. So you sort of mentioned the nuance of a potentially more sizable deal, I guess that's why I interpreted, what's changed in your thinking and then when we look at the landscape of other sizable deals that have gone on over the last several years, what gives you confidence that the market would be receptive to those types of things?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I think, as Jenni mentioned we think when we look at some of the opportunities that exist in the marketplace, certainly not easy and I think we discussed that last quarter but we see areas that we can fill -- at Franklin, we have a tremendous chassis and a core business with leading products on a global level across many countries, but we think we can grow that further by filling some of the gaps that we have whether it's becoming larger institutional in the US, whether it's having a little bit more alternative assets and then there's some other frankly products, if you will, that we already have, but we are quite small and that if we were larger, we think we will be more successful.

So I wouldn't guide you toward thinking we're going to do some mega transaction, but the shortlist of ideas that we thought about we think create growth opportunities for us given our current business without having to drive down expenses sort of the number one bullet point. However, we should say that there are obviously some cost aspects to all of this consolidation in the business that we would be able to capitalize on.

Bill Katz -- Citi -- Analyst

Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thanks, Bill.

Operator

The next question is from the line of Brennan Hawken with UBS. Please proceed with your questions.

Brennan Hawken -- UBS -- Analyst

Good morning, thanks for taking my questions. I think, earlier Matthew, you flagged that outsourcing the cost to shift to greater amount of outsourcing is included in your expense guide for 2020. Are there any other sort of unusual or what you would expect to be non-recurring items that would be included in that guidance?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Not at the moment.

Brennan Hawken -- UBS -- Analyst

Okay. And then when we think about the -- it looks like of the $201 million or so of non-recurring and acquisition-related expenses, there is some portion that's recurring. So, whatever, let's call it $150 or so million that's non-recurring, that would suggest like a 5% core growth rate in expenses in your guide. You flagged that you're doing some investing and everything like that, but number one, is that right -- a fair way to think about it and number two, can you talk about what kind of returns, or what kind of ROI that you guys have, what's the hurdle for making some of these investments just given the really challenging backdrop that we have here for the industry? Thanks.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Yeah, I think, well, there's lots of questions in that. I would say that we should follow-up separately to go through that in more detail. I think the assumption about an increase in expense is built into to our modeling. I think that is not accurate. If -- I would say, the reason why we outlined the non-recurring items, you're correct that there is an element of this associated with our Benefit Street acquisition, that does include around $79 million for the next three years, which is recurring, but then that drops off, so we wanted to try and make that clear. Otherwise, you'll be looking at our Benefit Street acquisition, assuming that it's zero margin business which is very misleading.

So that's the reason why we wanted to put that into the table, but in terms of our future costs and how we look at investments, I wouldn't say we apply a classic ROI to it. We -- it has to work for our business in terms of scaling or creating more opportunities for our investment teams, our distribution efforts and we certainly don't look at things on a three-month or six-month or one year basis, it has to make sense over a multi-year perspective.

Brennan Hawken -- UBS -- Analyst

Okay, thanks for that color.

Operator

The next question is from the line of Chris Harris with Wells Fargo. Please proceed with your questions.

Chris Harris -- Wells Fargo -- Analyst

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

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I would say, not a lot has changed. I mean, for the international capability, it doesn't have the benefit of some of the momentum we're seeing in the US in terms of municipal bond sales and muni funds. That -- the flows there are more -- rely more on global bonds. Templeton, we are seeing strong flows in the Franklin US growth products. K2 would be more of a focus there as well. So I think for us it is a huge value of the company and franchise and one where in the year ahead as part of it's getting Benefit Street gaining some products up on in the Luxembourg base E cap fund which we're in the process of doing, leveraging Benefit Street on the institutional side as well would be one.

And just I think relating to the acquisition side is, we feel like there is some underutilized capacity for more product under that distribution network. But again, if you look at pockets for us where it's not -- it's a different story where you have India had a very strong year of growth and inflows, Taiwan very strong year. So there are pockets that are doing very well throughout the globe that have a different product mix than maybe our traditional one. But I think just generally speaking, we feel like we can take on more and that's part of our acquisition thinking on that.

Chris Harris -- Wells Fargo -- Analyst

Okay. Thank you.

Operator

The next question is coming from the line of Michael Cyprys with Morgan Stanley. Please proceed with your questions.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good morning. Thanks for taking the question. Just wanted to circle back on expenses, hoping you could help with some of the moving pieces here. So we hear the guidance that to be slightly down next year. So it's a combination of an investment spend and expense cuts, but I guess if you could just help quantify how much you're cutting, where specifically, I know you mentioned fund [Indecipherable] and I just what else, how meaningful that and then conversely, you are also making investments I think on the tech side with the data lake, how much are you guys investing, if you could help quantify that and if you could provide any sort of color around these investments?

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

Yeah, I think what we'd say is that we think that on information systems and technology we have some room to move on that. As I mentioned a moment ago, perhaps up to several percentage points more efficient, see there. I think beyond that it's very early to give guidance on any specific line item and I would just keep referring back to the fact that we are confident, all else remaining equal that we will be able to be down slightly on our 2019 expenses as a whole.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

And I just would add, I mean I think we look at this, we recognize where the pressure that the industry is under, and it is very top of mind with all the senior management to look at span of control and every kind of saving that we can generate to continue to invest in the parts that we think are going to be incremental to getting inflows and in a few years. So I think we're all very focused on that. But just very hard to come out with, what does that number look like in two or three years, other than we're kind of attacking every angle.

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

Yeah, I think we also demonstrated in the fourth quarter that the discipline we have around our most important expense which is variable compensation and compensation for the firm, I think we demonstrated that we get the balance right, do what's right for the Company, but also do what's right for shareholders. And then when it comes to the other components of our expenditure, I think we have very clear reasons why there were moves in each item, so IS&T, we actually expected that to be down, but it was up just because we wanted to do the right thing. We continued to make more progress than we expected. That's what we did. And that does not mean that increase is likely to continue. Actually that's going to come down.

Our G&A, another included some intangible impairments both this quarter and last quarter, we don't -- what we would hope that wouldn't repeat. We don't expect it to, and when we analyze and drill down G&A, we think there's some room there also. On occupancy expense, we've talked a fair amount about this, the reason why that spiked so much in the last quarter as guided the previous quarter. It's because we've completed our campus in San Mateo. We also have new real estate in Poland, but that's going to be all offset by an increase in revenue attributed to our efficiency drives across our state ownership, including some very attractive lease streams that frankly pay both the building of our headquarters here in San Mateo and the running of them.

So I think with each one of our items, whether it's comp and benefits, IS&T, occupancy expense, G&A and others, we have plans on the each one of these. We think we have flexibility under each one as needed. We've described the fact that some of that's offset by the investment that we are adamant we want to continue to make which is why we don't refer to a forecasted margin, but it doesn't mean that we won't take that action as we demonstrated in the fourth quarter where we took action across all the key items.

Michael Cyprys -- Morgan Stanley -- Analyst

Okay, thanks for the color on that. And then just maybe on China, given the regulatory change and marketing up -- market opening up in China, can you just give us an update on where your business stands today in China? How you're thinking about the opportunity set there over the next couple of years and what sort of actions that you're taking to capitalize on this?

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

Well, we are I think like most looking at taking control of our joint venture that we were one of the early ones with Sealand and are in the process of taking a majority stake in that and we have other options and other licenses that we can take different tax. And I think China, size wise is, I'm looking at Jenni, because we don't include it in our assets and I'm trying to -- I think it's $5 billion, it's profitable, it's not obviously a major contributor to our earnings, but it's a profitable number and growing and it has had good performance. But I think like many, we look at China as a very tricky market. We think it's a tremendous opportunity for growth. But the thought of continuing with the partnership versus going alone in that market, I think is one that you have to think very carefully. I'll ask Jenni if she's got any additional --

Jennifer Johnson -- President & Chief Operating Officer

I think that's right. I mean I think for us it's been about, we'd like to own 100% if that can make sense and but whether or not we can -- we end up doing there. We always have also our UEFI option as Greg said. So it keeps our options open. A big area of focus has been integrating some of the investment capabilities with our emerging market team so that they can collaborate on Asia research which we think is important. And that has been going very well as well as it gives us optionality when we get institutional interest mandates to either talk to our UEFI team or JV team.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Thank you. Your last question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your questions.

Patrick Davitt -- Autonomous Research -- Analyst

Hey, thank you for the follow-up. You mentioned the the potential for $3 billion to $4 billion from Benefit Street, but chunky, should we expect placement fees on the expense side with that, and if so, is that in the expense guidance?

Jennifer Johnson -- President & Chief Operating Officer

We would have some placement fees although we're really trying to have our own institutional team do the big push there. So I think we've kept it where we have divided that up a bit, but we are hoping that it comes through our institutional team.

Patrick Davitt -- Autonomous Research -- Analyst

Okay, perfect.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

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

Patrick Davitt -- Autonomous Research -- Analyst

And then on the $4 billion pipeline, one last one, could you just give us a little bit more color maybe on the fee mix of that even if it's just better or worse than the average? And maybe broadly, if there are any kind of signals you think might start unlocking that or is there just no color at all on the second part there?

Matthew Nicholls -- Executive Vice President Chief Financial Officer

I think that would just be embedded in the guidance I gave earlier on about fee rate for the year. The Benefit Street across the board has a much higher fee rate, as you know, given the business versus the rest of our franchise. So that actually helps us across the year to be confident that we -- in our statement that we think our fee rate will remain stable.

Patrick Davitt -- Autonomous Research -- Analyst

Thank you.

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Thank you.

Operator

Thank you. At this time, I will turn the call back to Mr. Greg Johnson for closing remarks.

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

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

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Unidentified Speaker

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

Matthew Nicholls -- Executive Vice President Chief Financial Officer

Jennifer Johnson -- President & Chief Operating Officer

Craig Siegenthaler -- Credit Suisse -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Mike Carrier -- Bank of America -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

Ken Worthington -- JPMorgan -- Analyst

Dan Fannon -- Jefferies -- Analyst

Jeremy Campbell -- Barclays -- Analyst

Bill Katz -- Citi -- Analyst

Brennan Hawken -- UBS -- Analyst

Chris Harris -- Wells Fargo -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

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