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Operator
Welcome to Franklin Resources Earnings Conference call for quarter ended June 30th, 2020. My name is Joanne and I'll be your call operator today. 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 and uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risks and factors of the MD&A section of Franklin's most recent Form 10-K and 10-Q filings. At this time, all participants are in a listen-only mode. If you would like to ask a question at that time, press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Franklin Resources President and CEO, Jenny Johnson. Ms. Johnson, you may begin.
Johnson
Hello, and thank you for joining us today to discuss Franklin Templeton's third fiscal quarter results. Today I'm joined by Greg Johnson, our executive chairman, and Matthew Nichols, our CFO. We hope that everyone on this call and your loved ones are staying safe and healthy. We're pleased to announce that our landmark acquisition of Legg Mason is expected to close this Friday ahead of our original schedule. The strategic rationale for this powerful combination has only strengthened since we announced the acquisition in February. It will unlock growth opportunities driven by greater scale, diversification, and balance across investment strategies, distribution channels, and geographies. Significant work has been completed as we near day one, including having announced the leadership teams for our corporate functions and global distribution groups. Financial markets stabilized during the quarter with growth stocks outperforming value stocks by the widest margin on record over the past two quarters, which impacted some of our flagship funds. On the positive side, we have seen strong performance and momentum in several key asset classes, most notably in our municipal bond and U.S. equity strategies. Flow trends continued to improve across all investment objectives this quarter. flows into U.S. equity and fixed income strategies turned positive with eight of our largest 20 funds generating positive net flows year to date. We continue to believe that active management will play an increasingly important role in client portfolios, and we are well positioned to capitalize on this. Additionally, our strong balance sheet continues to provide us with tremendous flexibility to evolve our business. Finally, And I'd like to thank all of our employees for their significant effort to keep our business operating at the highest level to assist our clients, help them achieve their financial goals. Now I'd like to open it up for all your questions.
Operator
As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, you need to print the pound or hash key. Please stand by. We compile the Q&A roster. Your first question comes from the line of Dan Fannin from Jefferies. Your line is now open.
Dan Fannin
Thanks. My first question, I guess, is on the updated integration targets for Ben and like Mason. You talked about, I guess, 40% lower integration or execution costs. I'm curious as to what's driving that. And then also just in terms of faster than expected synergies, how do you ensure that, you know, it's not too disruptive to the business as you're combining those entities to impact flows, you know, kind of normal course of business?
Ben
Yeah, thanks, Dan. It's Matthew. I'll take that. So the latter part of the question, which is about the execution around the synergy realizations, as we outlined in the prepared remarks, we're talking about being able to realize 25% of these savings in the first 60 days, 50% by the end of the year, and 85% within 12 months of closing the transaction. We're quite confident that the two work streams that we've organized, one around the holding company functions, the other around distribution, are organized in a way where the first part we think we can execute pretty quickly. We think that about 65% to 70% of those savings can be achieved within 60 days on a run rate basis. And then the rest of it around distribution will be at a slower pace to manage exactly the risk that you talked about around client management product and marketing coverage across all what we think of as sort of being the front end of the business. So we're being very careful and methodical in how we execute upon that over the 12 months that we're talking about here. The other thing to mention is that the reductions on that front end side of things are quite modest relative to the size of this transaction. I think we indicated between 10% and 15% reduction across our combined sales business or sales group. So that, I think, is an indicator of being quite careful how we manage the execution.
Johnson
Well, and I'll just add to that. I mean, you know, this is – it's what makes it complicated and makes it simpler in some ways, which is the structure of Legg Mason with the independent investment teams. You know, we right out of the gate said that we had no intention of disrupting any of that. So as long as the investment teams aren't disrupted and we're slow and methodical on the distribution, making sure that we're first and foremost focused on no impact on clients, you know, we think that goes much smoother. If you take a transaction where you're trying to combine investment teams, that's where I think you get into a lot of trouble.
Ben
Yeah, so the structure of the deal itself helps. And I think in terms of the execution costs, that in other words is how much we're having to pay, things like extension payments, severance payments, and other sort of structural arrangements around the execution of the transaction. When we announced the transaction, we had estimated that to be about $350 million. We now think it's close to $200 million, and that's really no more complicated than based on a person-by-person, group-by-group analysis on all of the data that we now have that we didn't have at the time we made the announcement. And we're able to retain a lot more folks than we thought at lower cost than we anticipated. So that's the reason for the lower execution costs. Thank you. Sure.
Operator
Your next question comes the line of Patrick David from Autonomous Research. Your line is now open.
Patrick David
Good morning, everyone. Thanks. First question on the kind of new guidance on the cash tax benefit and refinancing. First, are you planning to include the $500 million cash tax benefit in your reported adjusted EPS? And then does the combination of that tax benefit and the refinancing, had that already factored into your guidance of high 20s cash UPS accretion, or should we consider it incremental?
Ben
It's incremental, and it's actually below the line. So in a way, it's just the equivalent of us having more cash on our balance sheet. The way I would model it is in the first three years, I would say we'd probably get half of the $500 million, and I'd say 25%, 25%, 50%. And the way to think of it is that we have that additional cash where we could invest in the business, buy back shares, or pay down debt. In terms of 20 to 25 million, just to be clear, that is not delevering the capital structure. That is lower interest payments on about $750 million of debt that is quite high cost on Lake Mason's balance sheet that we intend to refinance in the first quarter or the first half, let's call it, of 2021.
Patrick David
Great, and that's incremental as well?
Ben
Yeah, incremental. We didn't have either of those in our accretion estimates, correct.
Patrick David
Great. My follow-up, the... The outflow trend for the income fund looks like it's starting to accelerate a bit more after the recent underperformance. I know you've talked in the past about that being more sticky given the yield focus of the investors. But do you have any updated thoughts on that potential stickiness relative, you know, to the global bond fund experience forever when it had similarly bad performance?
Johnson
Yeah, I mean, you know, the income fund, again, is a choice. rated lower in its category because it's managed for yield as opposed to the total return. And there is retirees that just love the nature of that product, and there's not as many competitors directly in that space. But it has had some underperformance here, and it is impacting it. But it's been here for 70 years because it does exactly what it's supposed to do, which is generate that stable income.
Patrick David
Thank you.
Operator
Your next question comes from the line of Mike Carrier from Bank of America. Your line is now open.
Mike Carrier
Good morning. Thanks for having the question. First, on the expenses, Matt, you mentioned similar guys in the 5% to 7%. Because we've shifted a little bit in terms of the adjusted I just want to make sure, you know, from the comparable, you know, period, like what that base is. And then as you're, you know, thinking through the year, whether it's that range and then even longer term, you've mentioned, you know, some other, you know, sort of expense initiatives. You know, the flip side is you're also, you know, probably looking at investing in some areas, just getting laid transactions. I just wanted to get an update on your thoughts on, you know, some of those longer term, you know, opportunities on the expense side.
Ben
Yeah, thanks, Mike. So I think the way to look at it is that the base is about $2.225 billion. So that's our non-GAAP 2019 base, you know, end 2019 full expenses. And we expect to reduce that by between $130 and $150 million, which is between 5% and 7%. And that guidance remains exactly the same, notwithstanding the fact that we increased our comp accruals this quarter. We adjusted our comp accruals upwards to reflect the momentum in our business this quarter, and it obviously reflects more of where we ended the quarter versus where we started the quarter. Last quarter, before that, the second quarter, we had been quite aggressive in our reductions in comp accruals. frankly, based on exactly where we were at in very significant uncertainty across the market and in the industry. So we did what we thought was the appropriate thing to do there, and frankly, we've reversed that based on the momentum we have in the business this quarter. All other aspects of expenses are absolutely in line or below where we expect it to be, so we haven't taken a foot off the gas in terms of pressurizing those areas that we think we have leverage. Of course, what's going to be a little bit complicated going into the fourth quarter is the addition of Legg Mason. And you've noticed that Legg Mason has also reduced their expenses by 100 million. So, you know, Legg Mason is reduced by 100 million. We're reducing by between 130 and 150. We're doing another 300 million around the deal. So we're talking, you know, upwards of 500 to 550 million of cost reductions on a run rate basis. It's quite substantial. The more we've looked at the combination of the company and what we can do without destabilizing things, we do see some additional potential saving opportunities across the operations area, finance area, all the sort of support functions of the firm in addition to the cash tax benefit and the capital structure points that I've mentioned to you.
Mike Carrier
Okay, that's helpful. And then just to follow up some of the flows, so you saw some good strength, you know, in the U.S. equity and in the communities that you mentioned. International, you know, both on the equity and fixed income side, still a bit challenged. Some of that, you know, looks like it's driven by performance. Just, you know, wanted to get your thoughts on, are you starting to see, you know, any, like, improving trends on that front, you know, or is it still going to be, you know, mostly dictated by, you know, by performance improvement? And then we can see, you know, some of the trajectory change?
Johnson
Well, I'd say that on the international side, you know, our technology funds and just the Franklin growth funds are getting a lot more attention and traction. So we're seeing good uplift in sales on those strategies. We, you know, we've seen reduced redemptions as you're seeing, you know, slightly less redemptions in things like the global macro strategies. And so overall, there's been a net sales improvement. I would say, you know, July, we got hit with a large billion-dollar redemption in institutional account and global equity. But otherwise, taking that out, you've sort of seen the same, you know, improvement in a trend in net sales.
Ben
Yeah, I think also the point on the Eight of our 20 largest funds being in positive inflows is a very important one. It's just the fact for us is that we have a couple of strategies that are so large that it tends to dominate the story. But the reality is that a lot of our funds are actually doing very well. They're just smaller, but they're getting bigger and bigger incrementally. So it's making a difference. So, for example, Dynatech. where only last year we were talking about that fund. It was $7, $6, $7, $8 billion. Now it's $15 billion. So it's becoming a bigger part of the story that we can tell on the flow front. Gradually, as those things get larger and then we add leg masons, much larger strategies, it helps manage the story a little bit around some of the larger things that have been not bad things. They're just out of favor things. which is where the performance reflects out that, and the flows. But even on those larger things, the point we want, it's really important for this quarter, is that the redemptions have fallen quite significantly on those things.
Adam
And, you know, I would just add the technology fund is the number three cross-border fund. And, you know, that's really a new category for us that, you know, you can see how quickly it's accelerating in flows and, you know, could pretty quickly offset some of the headwinds you have on the, you know, global equity side with the deeper value funds as well as the global bond, which are very defensively positioned. And, you know, it's really going to take a downturn in the market for those to see any kind of swing from, you know, where they are today and close.
Mike Carrier
Got it. Thanks a lot.
Adam
Thanks, Mike.
Operator
And your next question comes from the line of Glenn Shore from Evercore. Your line is now open.
Glenn Shore
Thanks. Maybe that's a good lead-in. I want to ask a little more on global international bond segment. Part of it is the product of the environment where people's preference is away from that category, and then there's some performance issues there. So maybe if you could help us. differentiate between what you think is the cyclical component of people avoiding the category? And then maybe, importantly, what's the ideal backdrop for that strategy that we can anticipate a turn in client preferences? Thanks.
Adam
Yeah, I mean, this is Greg. And I think the backdrop, if you look at where that, you know, the global macro strategies really – accelerated in flows was after the last crisis and having a 10-year period against equities that, you know, was the flat decade versus that product I think was the number one selling fund of its kind. So, you know, the backdrop is more of a risk-off environment where you can lower the risk in a portfolio. That's really how we talk about it today, you know, non-correlated kind of asset class that doesn't have the same kind of risk that your equities and fixed income has. And that's really how it's positioned. So I think today when you have markets that continue to be extremely strong and it's a risk-off environment, people really don't pay a lot of attention to the global fixed category. When things get a little shaky, you'll start to see renewed interest there. I think that's really the key. And I think today it's a asset class where people are allocating a percentage of it to regardless where before it was a relatively, you know, very small asset class.
Johnson
But to Greg's point, if you just look at the flow categories, global bond is, you know, that global fix is not a big flow category right now.
Ben
But I think, Glenn, another part of your question is what – what portion of the flows or the client base view on global macro is attributed to just that risk management client base. And it's very hard to bifurcate that, but it's probably a decent foundation of the assets under management we now have in that category is, because it's been so long, these are long relationships now, is to do with exactly that fact. It's around risk management having some downside protection in a market that's, you know, being quite lofty.
Glenn Shore
Great. Can I ask just one quickie on benefit? Yeah. Oh, sorry. I thought I was being cut. Benefit Street, just curious on how they performed in this crazy backdrop, where they're at in some of their capital raises? What opportunities do you guys see on the private credit side? Thanks.
Johnson
Yeah, so in the numbers for last quarter, they called about, well, they called about $500 million in capital, deployed, you know, $400 million. The other $100 million they have coming in. So, So that was in there. Then they raised actually a CLO, which won't be reflected. It closed in June, but won't be reflected until July numbers of $400 million. And they have a second CLO that will close in August, so it also will show in this quarter. So that's $800 million and two CLOs. They also raised, and they're about to have a first close of $400 million in a dislocation fund. And what was somewhat unique there is A lot of that was raised by our Australia institutional team. Benefit Street had been trying, you know, Australia is a very sophisticated market and had been trying for a long time to break into that market and just were not able to do it. So the combination of our team with Benefit Street was just a great opportunity. In addition to that, they raised another $50 million into their Senior Opportunities Fund, which they'll close with $700 million in commitments. Again, these are commitments So it's dependent on the drawing of capital. But that was raised by our institutional team in Hong Kong and China. So a piece of that. So I think they've had good opportunities as people see the importance of having an active manager in this space and the experience they have around the distressed side, but they also had to have a write-down on some of their BDC, both because of having to take down some leverage as well as some distressed assets in it. And they don't actually have an AUM write-down there. But that was kind of their troubling part, but on the other hand, they've had really good traction on the sales and flows.
Adam
I would just add that if we look at our pipeline On the institutional side, it's our greatest opportunity, and we're still very optimistic on strong organic growth coming in for the rest of the year.
Glenn Shore
Thanks for all that. I appreciate it.
Operator
Your next question comes from the line of Ken Worthington from J.B. Morgan. Your line is now open.
Ken Worthington
Hi. Thank you for taking my question. You announced new leadership in distribution with the appointment of Adam Spector as global head. Maybe talk about what Adam's vision is for Franklin Distribution, for the combined companies, what his mandate may be in terms of deliverables, and any changes or adjustments you envision that he'll make to comp or structure to kind of achieve his and management's longer-term goals.
Johnson
Well, first of all, we did a – really a global search on this position and had unbelievable candidates as I think people in the industry were particularly attracted to understanding the opportunities of a $1.4 trillion manager with an emphasis on the active side and ended up picking Adam for several reasons. One is we've just been very impressed as we've worked with him with both his acumen on sort of his business and practical business approach to things as well as his experience. And, you know, we talked to clients and, you know, he'd really been in a distribution role within Brandywine. The way we're thinking about approaching distribution is much more regional and trying to build a more agile organization. So while historically Franklin Templeton had kept many functions like product and marketing and even data analytics to be centralized, We are distributing that out more into the regions to provide a little bit more flexibility and yet still have a central group for those things that will be central. So that's kind of Adam's, you know, and our vision around how to do that. We've evaluated, you know, as you can imagine, bringing the Legg Mason team together and the Franklin team together, really evaluated how we're looking at pay for distribution and trying to figure out what the optimal approach is. And so we've been a process, and that may vary a little bit by region, depending on what's appropriate. So all of that, there's been a tremendous amount of work in the process leading up to Adam's announcement in really restructuring this. And of the, let's see, five real leadership positions reporting into Adam, actually there'll be six, There are two that are Franklin Templeton, two that are like Mason, one that's undetermined, whether it's coming from internal or external, and one that will be an external hire. So we're also really excited that we've been able to bring together leadership from both organizations. And as we, over the next month or so, make announcements around that, you'll see that it's a real combination of the two organizations.
Ben
I think one other point to make on Adam Ken is, you know, Adam, in addition to being highly qualified for this position, he has existing relationships across very important parts of the combined organization, including all the investment organizations that are going to become part of Franklin Templeton. And that can be, that can introduce additional efficiency in and of itself, both relationship-wise, the fact they've worked strategically together for so many years, and Adam's knowledge of our company has come up to speed so fast. You know, his vision on combining these things and how we work together in a collaborative fashion across all the investment groups, you know, it's very impressive, and it's exciting for us to have that and be able to hit the ground running as opposed to have to worry about, you know, other integrations, cultures, and things. So very good. Great. Thank you.
Adam
Thank you.
Operator
Your next question comes from the line of Craig Siegenthaler from Credit Suisse. Your line is now open.
Craig Siegenthaler
Hey, good morning, everyone. It was nice to see the rebound in U.S. equity flows this quarter and also strong traction in your Dynatech and technology funds. Outside of these two funds, can you talk about if you're seeing stronger underlying demand across the industry for U.S. active equity or any green shoots relative to passive just as clients are looking to navigate a less certain future here?
Johnson
You know, it's interesting. We do have some sector funds, our utility fund, our U.S. Govies, well, I guess that's fixed income, biotech. There's a couple of underlying sector funds that have performed well. And so as you're seeing kind of interest in thematic, we rolled out some thematic ETFs that are managed by Matt Moberg, who does the Dynatech fund, and seeing a little bit of traction in those, although very, very early on. So, again, the emphasis has tended to be within the Franklin group, and that group has always had a lot of strong sector funds. And so, to the extent that there's been good performance there, you're seeing traction.
Adam
Yeah, and I would just add, I mean, you know, I think in this COVID world that, you know, the theme around technology and how, you know, many of these trends are accelerating and you know, as people work from home, use more technology, that certainly from the advisor, they want to get more exposure to their clients, to the sector. So you're really seeing, I think, you know, tremendous growth on the back of obviously tremendous performance, you know, and one that, as I said earlier, we're very optimistic on our positioning. And because, you know, Franklin has had such a long history in this area, you know, right in the heart of Silicon Valley, that we think we're in a unique position to capitalize on that.
Craig Siegenthaler
Thanks. And just as my follow up, how do you think investor allocations, and you can comment across institutional retail, which is bigger for you, will change for fixed income? Just given that we have a very low interest rate environment here, it's reduced future return potential across the asset class. Many of the segments are pretty close to zero. And if bond allocations do change or are reduced, Do you expect to see stronger demand in other segments or maybe other segments of the high-yield credit segments? And I'm thinking also of the privates like what you manage over at Benefit Street.
Johnson
You know, so funny, I'm looking at kind of a flow chart that it tracks Morningstar's categories, and I think out of the top eight flow categories, it looks to me like Seven of them are bond categories, and one is a stock category. And the reason I actually have the report in front of me is just one interesting data point, which is that Legg Mason has six four or five rated funds in the top eight categories, and we have zero rated in the four or five stars. Just bringing that combination in, this is a retail focus, I want to emphasize the benefit of what we've always said is so important strategically, which is a broad product breadth so that you always have things that are in favor with a diversified distribution channel. And so that combination of bringing in the leg mason with our strong retail we think will be a real benefit. But to answer your original question about the bond flows, you definitely see, even in this low-rate environment, you know, it's – And emphasis, whether that stays there, how much was that moving where people just think that rates, you know, had come down, you know, remains to be seen. I don't know, Greg, if you want to add.
Adam
I mean, I think, one, if you look at the institutional world, it's very hard to get away from bonds and fixed income and a fiduciary that's running that, you know, you can maybe put a little more risk on a portfolio, but you certainly can't walk away from bonds even in a low-rate environment. But I would say the bigger trend is the importance of alternatives, like what BSP offers, like what Clarion has with real estate. I think all these alternative categories in a zero-rate environment become very important as supplemental kind of income providers to your traditional government-type security. So I think it just accelerates a lot of what's already happening on the alternative side, and that being that much more important for both institutions and retail investors.
Johnson
And I'll just add on munis. I mean, you know, in this COVID environment where governments or states have had to increase their spend to support their economies internally, you know, does that translate? I think many people think that's going to translate into higher taxes in states. And we think that that, one, is that's going to bring, you know, continue to have demand in munis. And two, is going to be all the more reason why you want an active muni manager who is selecting what those opportunities are.
Craig Siegenthaler
Thank you, Jenny.
Operator
Your next question comes from the line of Chris Harris from Wells Fargo. Your line is now open.
Chris Harris
Yeah, thanks. Coming back to the leg mason synergies, are you guys now saying $270 million on a net basis and that would be up from $200 million previously. Do I have that correct?
Ben
Yes. What we didn't want to move away from, Chris, was the notion that a portion of the savings that we create from this transaction are going to be earmarked for reinvesting in the company. That was a really important part of our statement. But obviously, since we made the statement about reinvesting $100 million back into the business, you know, the market's changed and there's more stress in the industry, so we're appropriately adjusting that. I'm still convinced we're going to invest the amount, reinvest the amount that we talked about, but we're just going to get it from other places across the organization. But in terms of looking at the 300 gross and what portion of that will be reallocated, if you will, we thought the 270 net was an appropriate guideline. And we feel that is a minimum.
Chris Harris
Yeah, that was going to be my follow-up. In an earlier question, you had mentioned the opportunity to maybe do more with a cost beyond what's already been identified. So maybe you could elaborate a bit on what you might have in mind.
Ben
Yeah, I mean, I don't think we want to get into the different components now because we're not even a single company yet. But it's just our feel of working through this. That we'll have opportunities both on the investment side, obviously, so there's going to be a demand for reinvesting capital into the company. But on the cost front, we've been very conservative in this transaction. We're incredibly focused on client retention. And so far in this deal, again, we're closing on Friday, but so far in the run-up to the transaction, we virtually have no redemptions as a consequence of the transaction itself. Maybe there's one in Asia, but it's very, very small. So we're very focused on that. But there are various projects going on around the integration of the functions, for instance, that – show that there's certain things we're doing in higher-cost areas that could be moved to lower-cost areas. As you know, we have a big business or a big center in India and Poland, so we have potential there. And there are certain things that we may, you know, choose to outsource down the line. We announced an outsourcing last year. As you know, we're executing that. We're going to save $100 million over 10 years in that regard. So I think there will be more of these types of things to work through, but – to announce today, guidance on that I think wouldn't be a good idea. The point we're making is we've got the minimum of 270 net. We see a good opportunity in the future. We've got other synergies on the cost side that I've mentioned already around the capital structure, around cash tax. Execution costs are going to be lower. We think those things add up to very substantial amounts of money that can be reinvested or used to buy back shares and so on.
Chris Harris
Got it. Thank you.
Ben
Thanks, Chris.
Operator
Your next question comes from the line of Brennan Hawken from UBS. Your line is now open.
Legg Mason
Good morning. Thanks for taking my question. I wanted to touch on the – hi – I wanted to touch on the fee rate pressure this quarter. So curious about maybe some of the source. I think you touched on in your prepared remarks, there was some mix, but also some waivers, which included India. But you knew about India last quarter when you gave us the expectation. So was there some incremental or additional changes fee waivers that maybe you hadn't expected previously, maybe Benefit Street, you know, we hear about COOs deferring fees on OC tests failing. So was that a contributing factor as well? Maybe if you could break that down a bit, that'd be helpful.
Ben
Yeah, sure, Brent. So of the 0.9 basis point reduction, On a non-GAAP basis, that's going down to 49.7 basis points effective fee rate. About 0.24 basis points is attributed to India. About 0.21 basis points is attributed to fee waivers, to answer your question specifically. And about 0.23 basis points is because of regional shift between EMEA and the U.S., We have some other moving, you know, movements within the fee rates around business mix more generally, which make up the other 20% of the 0.9 basis points. But that's the, you know, that sort of tries to break it down a little bit further for you. We don't see, obviously things would be different when we merge with Legg Mason, but we don't see a further change in the 0.21 to 0.25 basis points for fee waivers. India is what it is, and that won't change until we rebuild the credit business in India with fees that can be charged. So that's sort of a mainstay. But that really gives you a little bit more compartmentalization. It wouldn't surprise us if we saw the fee rate staying where it is or even ticking up slightly in the next quarter based on some movement around wealth management, some other things that we see coming on in the pipeline.
Legg Mason
Okay. Thank you for that, Matthew. That's very helpful. And that fee waiver impact was my supposition that it might be out of Benefit Street and some of the COO fee deferrals that we're hearing about from that market, is that related there? And is that as bad as it can get? Or is it just as bad as you suspect it might get?
Ben
I'm actually not aware of that. I will have to come back to you on that.
Johnson
Yeah, none of us are.
Ben
We'll come back to you on that. But we haven't heard anything on that front. Okay. Thank you. Thank you.
Operator
Your next question comes from the line of Bill Katz from Citigroup. Your line is now open.
Bill Katz
Okay, thank you very much. So as you look at the core business X leg mace and appreciate all the updated synergy expectations, how are you thinking about core expense growth year on year for 2021?
Ben
So for 2021, you're talking about just Frank and Temple and standalone? Correct. we expect expenses to be flat to our reduction. So no growth.
Bill Katz
Okay. And then just going back to CLOs, you're one of the few managers that's actually offered up the ability to actually get some CLOs done in this kind of backdrop. What is it specifically that you're seeing the opportunity? Is it just the markets themselves firming? Is there some unique distribution opportunity that Benefit Street or Franklin offers? And maybe what location you're seeing those in?
Johnson
So I think that these were relationships that Benefit Street had. The majority of the equity were purchased by U.S. investors and a well-known Japanese investor that purchased 100% of the lay notes. They had two new investors that came in on the CLO platform. I'd say that this is much about the deep relationships that Benefit Street has had. It was really BSP who raised this through their team. I know that on the second CLO, it included some ESG restrictions around controversial weapons and tobacco and things. But these were well-known relationships that they've had, but also a couple of new ones that joined.
Bill Katz
Okay, and just one clarifying thing you had mentioned about flows. I don't know if you were speaking specifically to the global equity footprint or overall. You had mentioned you had one sort of billion-dollar mandate coming out in July. We said the rest of the business was sort of improving. Was that the global equity segment or was that overall to the firm?
Johnson
That was the billion-dollar mandate that came out was the global equity. You know, what I was saying is that you take out that billion dollars and you kind of see our – progressively improving. The income fund did have some increased redemptions in July, but otherwise you see the trend of improving flows.
Bill Katz
Okay, thank you.
Operator
Your next question comes from the line of Robert Lee from KBW. Your line is now open.
Robert Lee
Great, thanks. Good morning. Thanks for taking my questions. Yes, the first one is with flagging the affiliates, understanding that folks is keeping all their invested affiliates independent, doing their thing. I'm just curious as far as the transaction, is there any type of change in kind of the affiliate revenue shares, particularly since we'll be giving kind of retention to a bunch of the affiliates, and that's for any changes in kind of the contractual relationships at all?
Ben
No, Rob, we don't see any change in the structure of the arrangement that we have with the specialist investment managers, as we call them, which is consistent with what we call our investment teams internally at Franklin Templeton. The revenue shares, as we described on different calls, are accretive to our company because we're eliminating the holding companies. It takes out those costs and means that revenue shares make sense to us. Over time, there may be some things that are adapted based on need of these investment groups or a desire to uptake the collaboration across the group, but there's nothing that needs to be forced to make the coordination across the group work very effectively as we've described it.
Robert Lee
Great. I think there's a follow-up. I'm just curious about Advisor Engine. I know it's a tiny acquisition. But, you know, you have had some of your peers, you know, also try to look and make investments in kind of financial advisor processing platforms, lack of a better way of putting it. Can you keep maybe updates on kind of where you're do you think you can have success there? Because I'd say, at least from my perspective, the trucker can kind of spot it. You know, you have BlackRock on one end with Aladdin, and then others have taken a stab at it and didn't get as really, you know, gain much momentum. So how do you feel like you can, you know, make this work and help drive the flow?
Johnson
Yeah, I mean, we already, through fiduciary, have, you know, kind of a high-touch custody business for RIAs, and so, you know, part of 50 Shares strategy is figuring out how to add additional tools just to that segment, and, you know, Advisor Engine has the possibility of doing that, but also, you know, as you're having these independent RIAs, they're being pushed, you know, as the world's gone more and more towards fee-based, to be more wealth managers. So what does that mean? It means you're not just doing investment management, clients seeing every month that they're paying you a fee, And the clients are demanding more financial planning, education for heirs, tax efficiency. And so part of the other piece of Advisor Engine actually was a CRM tool that has, you know, I think 1,200, almost 10% of the RIA market, 1,200 RIA firms, and I think 12,000 or 13,000 users. that allow us just communicate with those and build deeper relationships. Because, again, they're difficult to communicate with in some ways because it's a very fragmented market. So it's a tool that we can be able to support their business, gain mind share, and build relationships with. And so that's how we see it. It's just one tool in the toolbox to build a deeper relationship with that growing channel.
Ben
I think the other thing, Rob, on Advisor Engine is to say that we were already investing millions of dollars a year in this type of area. And now what we have is a terrific team that's completely focused on it almost like in an entrepreneurial type way, which is tremendous for our company, for our wealth business, for our asset management business and technology investment area. And all those things combined mean that, frankly, owning advisor engines increased efficiencies for us in terms of investing in some of the future of distribution.
Robert Lee
Great. And I don't know if I can ask maybe one other quick follow-up on distribution. So, you know, understanding that combining the distributions or realigning your distribution function, you know, might minimize disruption that we have seen in other transactions. transactions where distribution courses get combined, even if the investment teams are left alone, the, you know, wholesalers, marketing people lose focus, sales support can fall off, you know, one of your peers, I guess, had some technology issues around combining their distribution courses. So, how do you minimize or avoid that, or are you actually maybe baking some short-term disruption in sales into how you're thinking about a couple of quarters, so just kind of curious of your take.
Johnson
Yeah, I mean, you know, I think that's why to Matt's point when we were talking about capturing the synergies, you know, the synergies much faster, we caught them much faster on the holding company side because that doesn't have the client implication, and that we're a bit slower on the distribution side because we're being very, very careful on any client-facing individual. So that's one piece of this, and just ensuring that we minimize any disruption there. And then number two, what's a little bit unique in this transaction is, again, much of the institutional sales base sits in the affiliates, and they're not part of this integration. So nothing's changed there. in our specialized investment management groups. And so, you know, that's a little different than I think you see in other transactions that's unique to this.
Ben
Yeah, I also think, you know, Rob, in certain cases, we're actually adding greater emphasis on client coverage and how we monitor that and manage it. I think our focus on making sure that client service remains top notch and that the intensity of coverage and calling remains exactly where it should be. I mean, you know, the fact that we've worked through this transaction and we haven't had one in-person meeting between announcing a transaction and closing it sort of tells you what you can get done remotely. And I think our collective sales groups and sales teams are incredibly energized as a function of this transaction by having more things to talk about, more connections across different relationships. It's a really powerful thing. And of course, you have distractions, but the management team was put in place really quickly. Decisions were made quickly in that regard. And that right away helps retain the most talented people across the organization. So we hope that we've taken the right steps to minimize any disruption we're talking about.
Robert Lee
Great. Thank you so much. Thanks for taking my questions. You do well. Thank you, Rob.
Operator
Your next question comes from the line of Alex Blostein from Goldman Sachs. Your line is now open.
Alex Blostein
Great. Thanks, and good morning. Just a quick follow-up on expenses. So I guess based on the revenue run rate for Franklin standalone and averaging effects of the time in the market, et cetera, and the flow trends, I mean, it looks like the 2021 revenues could decline still relative to 2020. So, Matthew, maybe a little more color of why would core Venn expenses be flat in that scenario, or we should really take that in conjunction with opportunities on net cost savings from the transaction potentially being above the $270 million number?
Ben
Yeah. In our modeling, we have – when we look at the momentum we have across half of our large – it's almost half, not exactly half, but almost half of our – of which a number have grown really quite significantly over the past 18 months alone. We think that some of these things can start better offsetting the outflows we have from our largest strategies. And then when you combine that with the fact redemptions have fallen really, frankly, quite significantly, in particular internationally, I think in certain places the lowest in a decade, for example, we feel that it's appropriate that our expense, providing expense guidance for 21 is very tough right now because of what we're going through in terms of the transaction, but To us right now, based on what we see across the firm and the opportunities and where we think we need to pay, we think it's appropriate to say that we won't be anything worse than flat. It doesn't mean that we won't be better than that. But I think right now we're not really in the business of giving guidance 18 months ahead or 12 months ahead, whatever, as a business. And then the 270, I think, as I've alluded to already, we're going to be a much larger company with a much larger cost base. But our number one focus is, and sorry to keep repeating it, but it's continuity and stability of the franchise and making sure we retain as much of the business as we can and then focus on the growth engines. that doesn't mean we won't be more efficient in all the functions. We're going to work very hard on that. But you have to sort of bed down a bit and see what other opportunities may exist to improve upon the 270. Our feeling is there's a good shot there will be, but we're not in a position to talk about that now. Okay.
Alex Blostein
Got it. Got it. Okay. All makes sense. So essentially predicated on maybe a little bit better revenue outlook than what maybe consensus is baking in for you guys. Okay. Makes sense. My second question back to the, some of the dynamics in fixed income markets and just building on the earlier discussion around the impact of low interest rates. So I guess, wouldn't the low rate environment just essentially increase client sensitivity to fees especially given the passive fixed income products out there, a fraction of what, what active is charging today. Are you seeing some of these pressures already showing up in client conversations today? And more importantly, I guess, how are you positioning both the Legacy Franklin lineup and Legg Mason lineup to more effectively compete with lower cost options as that potentially becomes more pronounced?
Johnson
So, I mean, one of the things I would say, and then I'll, Greg, jump in here too, is To think that passive is necessarily a good way to do fixed income management, you know, it's just the concept of let me increase my investments to the company that's taken on more debt. That's a challenge. And so, you know, as I mentioned on the munis, to think that all states are going to be equal in their credit worthiness and that you should just apply, you know, a passive approach to that, I think is a dangerous thing. And, you know, we see it, you look at what the COVID environment is. One of the reasons we, you know, shifted a bit in some of our multi-asset solutions to some of the more conservative companies is just, you know, how long does this thing go on? And, you know, who's going to be able to sustain themselves through it? And so, I think probably no time greater than now for an active approach to thinking about fixed income. And you're right. You know, we're in an environment where scale is going to matter because there's going to be pressure on fees. It's going to continue to be that case. And so scale is going to be important. And you're going to have to adjust to fees. But I think there's a danger to just assuming that a passive approach to fixed income is a good thing. And, Greg, you want to?
Adam
Yeah, I mean, I think it really – when we look at the logic of the leg deal and Western standing out as obviously the largest and really a leader in fixed income amongst a very small peer group, and I would say the pressure on fees has been there. It's real. It will continue to be, but I think the net result when we look out X number of years is going to be two or three large fixed income players that may be at a lower fee rate, but a lot of the smaller ones are not going to survive under that. And what we would lose in fees, hopefully you'd pick up in market share. And I think the flexibility we have with the broad array of capabilities between Benefit Street and others is that we have the full fixed income spectrum available. And I think you'll see more tactical allocations and flexibility to move across different categories to gain alpha in fixed income And we think we're extremely well-positioned to benefit from that trend, along with unconstrained portfolios and just giving a broader mandate for the active managers. And I look at our lineup, and I think it's probably the best in the industry for that.
Ben
And also, we have obviously added substantially – it doesn't completely hedge out the pressure on fees, of course, but we do have – a much larger portion of higher fee, harder to commoditize assets under management now as a combined company. I think we have 125 billion roughly of alternative assets of which are in higher fee categories. And it's important not to just think of Western as being all low fee fixed income. Western has some very important alternative credit businesses alongside Benefit Street. like Clarion on the real estate side. And for us, we have, you know, K2, a few other things. When you combine that group together and you think of, you know, how significant we are from an alternative asset perspective, you know, we're getting ourselves on the map in that regard.
Johnson
And actually, while expanding your question, but since Matt touched on it, I mean, you know, I think that the opportunity on Clarion in the retail channel is massive because, you know, we've talked to some distributors they feel that they are highly concentrated with a couple of managers. And it happens to be that Clarion also has very, very good performance because they were overweight industrials and underweight retail coming, we think coming out of this thing. But again, that's where this combination of having a broader lineup with a real diverse distribution base is gonna bring a lot of strength. And so we think that that higher fee product has just tremendous opportunity. taking it to our retail channel.
Alex Blostein
Great. Thank you for all the detail there. Thank you.
Operator
Your next question comes from the line of Brian Bedell from Deutsche Bank. Your line is now open.
Brian Bedell
Great. Thanks. Good morning, folks. I just wanted to clarify a couple things, and I've missed some of the detail on this. First of all, on the core expenses, I think that's implying 2.1 billion for Franklin standalone in 2020. If you can just if you can tell me if that's right or not, and then I think that you said earlier you talked about the retention packages being much less expensive than initially thought. Just can you clarify if that was? I think you said from 350 million expectations down to around 200 million and and if those are now concluded, And is that still, I think initially you thought it was a four to seven year vesting schedule. Can you just clarify those points?
Ben
Okay, that's a different matter you were talking about there, Brian. So the retention mechanisms in place are not connected with the $200 million that I mentioned a moment ago. The $200 million I mentioned a moment ago is the cost of achieving the $300 million in savings. So that That's the cost of the – basically the cost of the headcount reductions, the termination payments, severance payments, and other costs related to the downsizing of the company. That's what that is. The piece you're talking about, the share grants that were awarded at the time of the transaction, they remain the same number of shares. The only thing that's changed is the share price has come down a bit since – we announced the transaction, we will very likely hedge that position when we have the discussion with our board later on this year and we talk about capital management. So that's a – there are two different things, just to be clear about that. In terms of the 2020 cost base, yes, that's exactly right. It may be a little bit lower than $2.1 billion. $2.1, yes, based on the $130 or $150.
Brian Bedell
And then I guess just in terms of – But both the cost saves and then the attrition expectation. So far, attrition's been great, like you said, very little attrition. Maybe if you could just give us some perspective on your updated thoughts on what attrition levels might be from the deal for the first year or two. And then on the cost save side, it sounds like obviously most of it's coming from the holding company and other overlapping operations, but Are you doing anything structurally within the affiliates on the cost side? I know that was hard to do when Legg did their cost-saving program. Or is that more of a longer-term upside to the extent the affiliates want to rationalize their own internal costs?
Ben
Yeah. So, sorry, there's quite a lot of questions there. I apologize if I don't get them all. But let's go through it. So starting with the last one first, because my memory works that way. So the last one first, as I mentioned a moment ago, to get the efficiencies we need to get out of this transaction, we don't need the affiliates to change anything that they're doing, the investment organizations. But having said that, given Frankie Templeton's capacity to provide various functions to different parts of the organization is, candidly, with all respect to our friends at Lake Mason, is quite a bit larger and greater than Lake Mason's. It means that the investment groups of our overall company has quite a bit of confidence in our ability to help. So down the line, you know, we probably will do more with the investment organizations when when they're ready and when we're ready. Right now, we've got too many other things going on to worry about that, and there probably will be some efficiencies in there. So that is a little bit of a synergy tale, if you will. Walt, that's the last question. What was your other question, the other one?
Brian Bedell
It was on the... your conversations with gatekeepers have been better so far. Do you have updated thoughts on deal-related attrition at Lake Mason from an asset perspective?
Ben
Yeah, I mean, the deal, I think, as Jenny mentioned earlier, due to the structure of the transaction, the fact that there's zero changes in terms of client coverage at the investment organization or affiliate levels, It means we have sort of in much more embedded stability in terms of client coverage and client support So so far the client retention has been very high and we're very very focused on on that We we like to believe we can continue along that those lines so right now the client attrition that we've had has been very minimal in one country in Asia with one of the investment organizations and And, you know, we hope it remains that way. So we're more focused on revenue synergies going forward.
Brian Bedell
Thank you. Thank you.
Operator
There are no further questions. I will turn the call back over to the presenters.
Johnson
Well, I just want to, again, thank everybody for listening. for joining the call today. And again, you know, in this time, just hope everybody's staying healthy and safe. So thank you.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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