ARTISAN PARTNERS ASSET MANAGEMENT INC. Overview and Recent Highlights
We are an investment management firm focused on providing high-value added, active investment strategies in growing asset classes to sophisticated clients around the world. As ofMarch 31, 2023 , our 10 autonomous investment teams managed a total of 25 investment strategies across multiple asset classes and investment styles. We focus on attracting, retaining and developing talented investment professionals and creating an environment in which each investment team is provided ample resources and support, transparent and direct financial incentives, a high degree of investment autonomy, and a long-term time horizon. We create new investment strategies when we identify opportunities to add value for clients, oftentimes through the use of a broad array of securities, instruments, and techniques (which we call degrees of freedom) to differentiate returns and manage risk. We offer our investment management capabilities primarily to sophisticated investors that operate with institutional decision-making processes and longer-term investment horizons. We employ knowledgeable and investment focused relationship managers who are directly aligned with our investment teams, and we pair them with regional and distribution channel experts. We provide access to our investment strategies through multiple investment vehicles, including separate accounts and different types of pooled vehicles. As ofMarch 31, 2023 , approximately 76% of our assets under management were managed for clients and investors domiciled in theU.S. and 24% of our assets under management were managed for clients and investors domiciled outside of theU.S. As a high-value added investment manager we expect that long-term investment performance will be the primary driver of our long-term business and financial results. If we maintain and evolve existing investment strategies and launch new investment strategies that meet the needs of and generate attractive outcomes for sophisticated asset allocators, we believe that we will continue to generate strong business and financial results. Over shorter time periods, changes in our business and financial results are largely driven by market conditions and fluctuations in our assets under management that may not necessarily be the result of our long-term investment performance or the long-term demand for our strategies. For this reason, we expect that our business and financial results will be lumpy over time. We strive to maintain a financial model that is transparent and predictable. Currently, we derive nearly all of our revenues from investment management fees, most of which are based on a specified percentage of clients' average assets under management. A majority of our expenses, including most of our compensation expense, vary directly with changes in our revenues. We invest thoughtfully to support our investment teams and future growth, while also paying out to stockholders and partners a majority of the cash that we generate from operations through dividends and distributions. We expect to continue to invest in the growth of the business, with a focus on adding new investment capabilities and more degrees of freedom in areas where both opportunity and client demand exist, and in which we can differentiate our active management and add value for clients.
Financial highlights for the quarter included:
•During the three months endedMarch 31, 2023 , our assets under management increased to$138.5 billion , an increase of$10.6 billion , or 8%, compared to$127.9 billion atDecember 31, 2022 , primarily due to investment returns of$11.9 billion , partially offset by$1.3 billion of net client cash outflows. •Average assets under management for the three months endedMarch 31, 2023 were$135.4 billion , a 17% decrease from the average of$162.2 billion for the three months endedMarch 31, 2022 . Average assets under management for the three months endedMarch 31, 2023 increased 6% from the average of$127.4 billion for the three months endedDecember 31, 2022 . •We earned$234.5 million in revenue for the three months endedMarch 31, 2023 , a decrease of 17% from revenues of$281.6 million for the three months endedMarch 31, 2022 . Performance fees of$0.1 million were recognized in the three months endedMarch 31, 2023 , compared to$0.2 million in the three months endedMarch 31, 2022 . •Our GAAP operating margin was 29.1% for the three months endedMarch 31, 2023 , compared to 38.0% for the three months endedMarch 31, 2022 . Adjusted operating margin was 29.9% for the three months endedMarch 31, 2023 , compared to 37.7% for the three months endedMarch 31, 2022 . •We generated$0.72 of earnings per basic and diluted share and$0.64 of adjusted EPS. •We declared and distributed dividends of$0.90 per share of Class A common stock during the three months endedMarch 31, 2023 . •We declared, effectiveMay 2, 2023 , a quarterly dividend with respect to the three months endedMarch 31, 2023 , of$0.50 per share of Class A common stock. 22
--------------------------------------------------------------------------------
Table of Contents Organizational Structure Organizational Structure Our operations are conducted throughArtisan Partners Holdings LP ("Holdings") and its subsidiaries. OnMarch 12, 2013 ,Artisan Partners Asset Management Inc. ("APAM") and Holdings completed a series of transactions (the "IPO Reorganization") to reorganize their capital structures in connection with the initial public offering ("IPO") of APAM's Class A common stock. The IPO Reorganization and IPO were completed onMarch 12, 2013 . The IPO Reorganization was designed to create a capital structure that preserves our ability to conduct our business through Holdings, while permitting us to raise additional capital and provide access to liquidity through a public company.
Limited partners of Holdings, some of whom are employees, held approximately 14%
of the equity interests in Holdings as of
We operate our business in a single segment.
Holdings Unit Exchanges
During the three months endedMarch 31, 2023 , certain limited partners of Holdings exchanged 107,737 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM) for 107,737 shares of Class A common stock. In connection with the exchanges, APAM received 107,737 GP units of Holdings.
APAM's equity ownership interest in Holdings increased from 85% at
Financial Overview
Economic Environment
Global market conditions materially affect our financial performance. Global markets continued to be volatile during the three months endedMarch 31, 2023 amid continued concerns about elevated inflation, interest rate increases including their impact on the banking sector, prolonged effects of the war inUkraine , and other global economic conditions. This continued volatility and uncertainty in global financial markets has impacted the value of our assets under management. Because the revenue we earn is based on the value of our assets under management (AUM), fluctuations in our AUM will result in corresponding fluctuations in our revenues and earnings.
The following table presents the total returns of relevant market indices for
the three months ended
For the
Three Months Ended
2023 2022
S&P 500 total returns 7.5 % (4.6) %
MSCI All Country World total returns 7.3 % (5.4) %
MSCI EAFE total returns 8.5 % (5.9) %
Russell Midcap® total returns 4.1 % (5.7) %
MSCI Emerging Markets Index 4.0 % (7.0) %
ICE BofA U.S. High Yield Master II Total Return Index 3.7 % (4.5) %
23--------------------------------------------------------------------------------
Table of Contents
Key Performance Indicators
When we review our business and financial performance we consider, among other things, the following:
For
the Three Months Ended
2023 2022
(unaudited; dollars in millions)
Assets under management at period end $ 138,498 $ 159,621
Average assets under management (1) $ 135,386 $ 162,155
Net client cash flows (2) $ (1,231) $ 699
Total revenues $ 234.5 $ 281.6
Weighted average management fee (3) 70.4 bps 70.4 bps
Operating margin 29.1 % 38.0 %
Adjusted operating margin (4) 29.9 % 37.7 %
(1) We compute average assets under management by averaging day-end assets under management for the
applicable period.
(2) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not
reinvested.
(3) We compute our weighted average management fee by dividing annualized investment management fees (which
excludes performance fees) by average assets under management for the applicable period.
(4) Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures
in "Supplemental Non-GAAP Financial Information" below.
Assets under management within our consolidated investment products, and
investment advisory fees earned thereon, are excluded from our weighted average
fee calculations and total revenues, since any such revenues are eliminated upon
consolidation. Assets under management within Artisan Private Funds are included
in the reported firmwide, separate accounts and other, and institutional assets
under management figures reported below.
Assets Under Management and Investment Performance
Changes to our operating results from one period to another are primarily caused by changes in the amount of our assets under management. Changes in the relative composition of our assets under management among our investment strategies and vehicles and the effective fee rates on our products also impact our operating results.
The amount and composition of our assets under management are, and will continue to be, influenced by a variety of factors including, among others:
•investment performance, including fluctuations in both the financial markets
and foreign currency exchange rates and the quality of our investment decisions;
•flows of client assets into and out of our various strategies and investment
vehicles;
•our decision to close strategies or limit the growth of assets in a strategy or
a vehicle when we believe it is in the best interest of our clients, as well as
our decision to re-open strategies, in part or entirely;
•our ability to attract and retain qualified investment, management, and
marketing and client service professionals;
•industry trends towards products, strategies, vehicles, or services that we do
not offer;
•competitive conditions in the investment management and broader financial
services sectors; and
•investor sentiment and confidence.
24--------------------------------------------------------------------------------
Table of Contents
The table below sets forth changes in our total assets under management:
For the Three Months Ended March
31, Period-to-Period
2023 2022 $ %
(unaudited; in millions)
Beginning assets under management $ 127,892 $ 174,754 $ (46,862) (26.8) %
Gross client cash inflows 5,538 8,881 (3,343) (37.6) %
Gross client cash outflows (6,769) (8,182) 1,413 17.3 %
Net client cash flows (1) (1,231) 699 (1,930) (276.1) %
Artisan Funds' distributions not reinvested
(2) (48) (44) (4) (9.1) %
Investment returns and other (3) 11,885 (15,788) 27,673 175.3 %
Ending assets under management $ 138,498 $ 159,621 $ (21,123) (13.2) %
Average assets under management $ 135,386 $ 162,155 $ (26,769) (16.5) %
(1) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested.
(2) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not
reinvested in the Artisan Funds.
(3) Includes the impact of translating the value of assets under management denominated in non-USD currencies into U.S.
dollars. The impact was immaterial for the periods presented.
During the quarter, our AUM increased by $10.6 billion due to $11.9 billion of
investment returns, partially offset by $1.3 billion of net client cash
outflows. For the quarter, 15 of our 25 investment strategies had net outflows
totaling $3.2 billion , which were partially offset by $1.9 billion of net
inflows to the remaining 10 strategies.
Over the long-term, we expect to generate the majority of our AUM growth through investment returns, which has been our historical experience.
We monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies and the velocity at which the strategies are experiencing inflows. When appropriate, we will close a strategy to new investors or otherwise take action to slow or restrict its growth, even though our aggregate assets under management may be negatively impacted in the short term. We may also re-open a strategy, widely or selectively, to fill available capacity or manage the diversification of our client base in that strategy. We believe that management of our investment capacity protects our ability to manage assets successfully, which protects the interests of our clients and, in the long term, protects our ability to retain client assets and maintain our profit margins. As of the date of this filing, theArtisan High Income Fund ,Artisan International Value Fund andArtisan International Small-Mid Fund are closed to most new investors and their respective strategies have limited availability to most new client relationships. In addition, we are actively managing the capacity of ourU.S. Small-Cap Growth strategy with respect to new client relationships. When we close or otherwise restrict the growth of a strategy, we typically continue to allow additional investments in the strategy by existing clients and certain related entities. We may also permit new investments by other eligible investors in our discretion. As a result, during a given period we may have net client cash inflows in a closed strategy. However, when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows. The unaudited table on the following page sets forth the average annual total returns for each composite (gross of fees) and its respective broad-based benchmark (and style benchmark, if applicable) over a multi-horizon time period as ofMarch 31, 2023 . Returns for periods less than one year are not annualized. We measure investment performance based upon the results of our "composites", which represent the aggregate performance of all discretionary client accounts, including pooled investment vehicles, invested in the same strategy except those accounts with respect to which we believe client-imposed investment restrictions may have a material impact on portfolio construction and those accounts managed in a currency other thanU.S. dollars. The results of these excluded accounts, which represented approximately 13% of our assets under management atMarch 31, 2023 , are maintained in separate composites the results of which are not included below. 25
--------------------------------------------------------------------------------
Table of Contents
Average Annual
Value-Added(1)
Composite Inception Strategy AUM Average Annual Total Returns (Gross) (%) Since Inception
(2) (bps)
Investment Team and Strategy Date (in $MM) 1 YR 3 YR 5 YR 10 YR Inception
Growth Team
Global Opportunities Strategy 2/1/2007 $ 20,329 (11.35)% 12.83% 8.92% 11.52% 10.39%
480
MSCI All Country World Index (7.44)% 15.36% 6.92% 8.05% 5.59% Global Discovery Strategy
9/1/2017 $ 1,551 (9.64)% 15.30% 12.14% --- 12.97%
554
MSCI All Country World Index (7.44)% 15.36% 6.92% --- 7.43%
U.S. Mid-Cap Growth Strategy 4/1/1997 $ 11,792 (14.92)% 13.29% 10.93% 11.67% 14.28%
504
Russell Midcap® Index (8.78)% 19.20% 8.05% 10.05% 9.93% Russell Midcap® Growth Index
(8.52)% 15.20% 9.07% 11.16% 9.24%
4/1/1995 $ 3,410 (6.17)% 10.81% 9.56% 11.88% 10.58%
326
Russell 2000® Index (11.61)% 17.51% 4.71% 8.03% 8.59% Russell 2000® Growth Index
(10.60)% 13.36% 4.26% 8.49% 7.32% Global Equity Team Global Equity Strategy
4/1/2010 $ 429 (1.72)% 11.56% 7.97% 9.79% 11.17%
318
MSCI All Country World Index
(7.44)% 15.36% 6.92% 8.05% 7.99%
Non-
1/1/1996 $ 13,805
0.85% 10.19% 4.44% 5.81% 9.31%
459
MSCI EAFE Index
(1.38)% 12.99% 3.52% 5.00% 4.72%
Non-
1/1/2019 $ 7,176 (5.50)% 14.37% --- --- 12.25% 620
MSCI All Country World Index Ex
USA Small Mid Cap (8.93)% 13.35% --- --- 6.05%
China Post-Venture Strategy 4/1/2021 $ 180 (10.00)% --- --- --- (16.93)% 150
MSCI China SMID Cap Index (5.80)% --- --- --- (18.43)%
U.S. Value Team
Value Equity Strategy 7/1/2005 $ 3,516 (0.46)% 24.16% 10.13% 10.05% 8.91% 150
Russell 1000® Index (8.39)% 18.55% 10.86% 12.01% 9.38% Russell 1000® Value Index
(5.91)% 17.93% 7.49% 9.12% 7.41%
4/1/1999 $ 2,834 (5.83)% 24.46% 7.06% 7.91% 11.89%
269
Russell Midcap® Index (8.78)% 19.20% 8.05% 10.05% 9.18% Russell Midcap® Value Index
(9.22)% 20.69% 6.53% 8.79% 9.20% Value Income Strategy
3/1/2022 $ 11 (6.71)% --- --- --- (5.75)% (178)
S&P 500 Market Index (7.73)% --- --- --- (3.97)%
International Value Team
International Value Strategy 7/1/2002 $ 34,383 6.14% 22.47% 8.23% 8.96% 11.52%
572
MSCI EAFE Index (1.38)% 12.99% 3.52% 5.00% 5.80% International Explorer
11/1/2020 $ 178 0.05% --- --- --- 17.79% 1,174
MSCI All Country World Index Ex
USA Small Cap (10.37)% --- --- --- 6.05%
Global Value Team
Global Value Strategy 7/1/2007 $ 22,547 (2.13)% 19.65% 6.33% 8.85% 8.14% 296
MSCI All Country World Index (7.44)% 15.36% 6.92% 8.05% 5.18%
Select Equity Strategy 3/1/2020 $ 332 (2.63)% 18.49% --- --- 10.06% (305)
S&P 500 Market Index (7.73)% 18.60% --- --- 13.11%
Sustainable Emerging Markets Team
Sustainable Emerging Markets
Strategy 7/1/2006 $ 838 (6.03)% 9.88% 0.07% 3.96% 4.85%
73
MSCI Emerging Markets Index (10.70)% 7.83% (0.91)% 2.00% 4.12% Credit Team High Income Strategy
4/1/2014 $ 7,876 (3.13)% 9.55% 5.23% --- 6.26% 262
ICE BofA US High Yield Master II
Total Return Index (3.56)% 5.84% 3.05% --- 3.64%
Credit Opportunities Strategy 7/1/2017 $ 156 0.05% 21.11% 10.86% --- 11.51%
997
ICE BofA US Dollar LIBOR 3-month
Constant Maturity Index 2.39% 1.02% 1.58% --- 1.54%
Floating Rate Strategy 1/1/2022 $ 46 3.20% --- --- --- 2.17% 55
Credit Suisse Leveraged Loan
Total Return Index 2.12% --- --- --- 1.62%
26--------------------------------------------------------------------------------
Table of Contents Developing World Team Developing World Strategy 7/1/2015$ 3,740 (9.97)% 9.88% 8.34% --- 9.68% 706 MSCI Emerging Markets Index (10.70)% 7.83% (0.91)% --- 2.62%Antero Peak Group Antero Peak Strategy 5/1/2017$ 2,710 (13.16)% 14.05% 12.25% --- 16.56% 494 S&P 500 Market Index (7.73)% 18.60% 11.18% --- 11.62% Antero Peak Hedge Strategy 11/1/2017$ 577 (12.71)% 9.19% 8.59% --- 10.08% (89) S&P 500 Market Index (7.73)% 18.60% 11.18% --- 10.97%EMsights Capital Group Global Unconstrained Strategy 4/1/2022$ 17 11.42% --- --- --- 11.42% 892 ICEBofA 3-month Treasury Bill Index 2.50% --- --- --- 2.50% Emerging Markets Debt Opportunities Strategy 5/1/2022$ 54 --- --- --- --- 12.56% 997 J.P. Morgan EMB Hard Currency/Local currency 50-50 Index --- --- --- --- 2.59% Emerging Markets Local Opportunities Strategy 8/1/2022$ 11 --- --- --- --- 11.16% 282 J.P. Morgan GBI-EM Global Diversified --- --- --- --- 8.34% Total Assets Under Management$ 138,498
1 Value-added is the amount, in basis points, by which the average annual gross composite return of each of our strategies has outperformed or
underperformed its respective benchmark. The High Income strategy holds loans and other security types that are not included in its benchmark,
which, at times, causes material differences in relative performance. The Credit Opportunities strategy is benchmark agnostic and has been
compared to the 3-month LIBOR for reference purposes only. The Antero Peak and
27--------------------------------------------------------------------------------
Table of Contents
The tables below set forth changes in our assets under management by investment
team:
By Investment Team
Sustainable Antero Peak EMsights
Three Months Ended Growth Global Equity U.S.Value International Value Global Value Emerging Markets Credit
Developing World Group Capital Group Total
March 31, 2023 (unaudited; in millions)
Beginning assets under
management $ 33,977 $ 20,623 $ 6,088 $ 30,210 $ 21,767 $ 873 $ 7,140 $ 3,466 $ 3,676 $ 72 $ 127,892
Gross client cash inflows 793 548 45 2,351 349 17 1,075 188 165 7 5,538
Gross client cash outflows (1,112) (1,202) (172) (1,069) (1,326) (133) (440) (656) (659) - (6,769)
Net client cash flows (1) (319) (654) (127) 1,282 (977) (116) 635 (468) (494) 7 (1,231)
Artisan Funds' distributions
not reinvested (2) - - - - - - (48) - - - (48)
Investment returns and other 3,424 1,621 400 3,069 2,089 81 351 742 105 3 11,885
Ending assets under
management $ 37,082 $ 21,590 $ 6,361 $ 34,561 $ 22,879 $ 838 $ 8,078 $ 3,740 $ 3,287 $ 82 $ 138,498
Average assets under
management $ 36,040 $ 21,463 $ 6,383 $ 32,858 $ 22,552 $ 925 $ 7,711 $ 3,755 $ 3,623 $ 75 $ 135,386
March 31, 2022
Beginning assets under
management $ 52,434 $ 32,998 $ 8,053 $ 31,816 $ 26,744 $ 1,173 $ 8,157 $ 8,102 $ 5,277 $ - $ 174,754
Gross client cash inflows 1,871 1,129 251 2,667 910 72 766 699 506 10 8,881
Gross client cash outflows (2,085) (1,709) (317) (1,027) (990) (43) (685) (1,044) (282) - (8,182)
Net client cash flows (1) (214) (580) (66) 1,640 (80) 29 81 (345) 224 10 699
Artisan Funds' distributions
not reinvested (2) - - - - - - (44) - - - (44)
Investment returns and other (7,612) (4,168) (101) (875) (591) (176) (127) (1,560) (578) - (15,788)
Ending assets under
management $ 44,608 $ 28,250 $ 7,886 $ 32,581 $ 26,073 $ 1,026 $ 8,067 $ 6,197 $ 4,923 $ 10 $ 159,621
Average assets under
management (3) $ 45,274 $ 29,577 $ 7,875 $ 32,209 $ 26,411 $ 1,094 $ 8,133 $ 6,699 $ 4,880 $ 10 $ 162,155
(1) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested.
(2) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds.
(3) For the EMsights Capital Group , average assets under management is for the day of March 31, 2022 , when the team's first strategy began investment operations.
The goal of our marketing, distribution and client services efforts is to
establish and maintain a client base that is diversified by investment strategy,
client type and distribution channel. As distribution channels have evolved to
have more institutional-like decision making processes and longer-term
investment horizons, we have expanded our distribution efforts into those areas.
The table below sets forth our assets under management by distribution channel
(1):
As of March 31, 2023 As of March 31, 2022
$ in Millions % of Total $ in Millions % of Total
(unaudited) (unaudited)
Institutional $ 88,204 63.7 % $ 101,764 63.7 %
Intermediary 44,346 32.0 % 50,912 31.9 %
Retail 5,948 4.3 % 6,945 4.4 %
Ending Assets Under Management $ 138,498 100.0 % $ 159,621 100.0 %
(1) The allocation of assets under management by distribution channel involves the use of estimates and the exercise of judgment.
Our institutional channel includes assets under management sourced from defined contribution plan clients, which made up approximately 10% of our total assets under management as ofMarch 31, 2023 . 28 -------------------------------------------------------------------------------- Table of Contents The following tables set forth the changes in our assets under management by vehicle type: Artisan Funds Separate & Artisan Accounts and Three Months Ended Global Funds Other (1) Total March 31, 2023 (unaudited; in millions) Beginning assets under management$ 60,811 $ 67,081 $ 127,892 Gross client cash inflows 4,371 1,167 5,538 Gross client cash outflows (3,889) (2,880) (6,769) Net client cash flows (2) 482 (1,713) (1,231) Artisan Funds' distributions not reinvested (3) (48) - (48) Investment returns and other 5,734 6,151 11,885 Net transfers (4) - - - Ending assets under management$ 66,979 $ 71,519 $ 138,498 Average assets under management$ 64,935 $ 70,451 $ 135,386 March 31, 2022 Beginning assets under management$ 84,363 $ 90,391 $ 174,754 Gross client cash inflows 6,370 2,511 8,881 Gross client cash outflows (6,189) (1,993) (8,182) Net client cash flows (2) 181 518 699 Artisan Funds' distributions not reinvested (3) (44) - (44) Investment returns and other (7,612) (8,176) (15,788) Net transfers (4) (40) 40 - Ending assets under management$ 76,848 $ 82,773 $ 159,621 Average assets under management$ 78,442 $
83,713
(1) Separate accounts and other consists of AUM we manage in or through vehicles other than Artisan Funds or Artisan Global Funds. This AUM includes assets we manage in traditional separate accounts, as well as assets we manage in Artisan-branded collective investment trusts and in Artisan Private Funds. As ofMarch 31, 2023 , AUM for certain strategies include the following amounts for whichArtisan Partners provides investment models to managed account sponsors (reported on a one-month lag): Artisan Sustainable Emerging Markets$53 million . (2) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested. (3) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds. (4) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy, investment vehicle or account and into another strategy, vehicle or account. 29
--------------------------------------------------------------------------------
Table of Contents The following table sets forth our assets under management by asset class: Three Months Ended
Equity (1) Fixed Income (1) Alternative (1) Total
March 31, 2023 (unaudited; in millions)
Beginning assets under management
4,290 1,069 179 5,538
Gross client cash outflows (5,670) (439) (660) (6,769)
Net client cash flows (2) (1,380) 630 (481) (1,231)
Artisan Funds' distributions not
reinvested (3) - (48) - (48)
Investment returns and other 11,419 347 119 11,885
Net transfers (4) - - - -
Ending assets under management
7,598 761 522 8,881
Gross client cash outflows (7,214) (685) (283) (8,182)
Net client cash flows (2) 384 76 239 699
Artisan Funds' distributions not
reinvested (3) - (44) - (44)
Investment returns and other (15,044) (130) (614) (15,788)
Net transfers (4) - - - -
Ending assets under management $ 146,423 $ 7,939 $ 5,259 $ 159,621
Average assets under management $ 148,928 $ 8,008 $ 5,219 $ 162,155
(1) Equity includes: Mid-Cap Growth, Small-Cap Growth, Mid-Cap Value, Non-U.S. Growth, International Value, Global
Opportunities, Global Equity, Value Equity, Global Value, Sustainable Emerging Markets, Global Discovery, Developing World ,
Non-U.S. Small-Mid Growth, International Explorer, Select Equity, and Value Income. Fixed Income includes: High Income,
Floating Rate, Emerging Markets Debt Opportunities, and Emerging Markets Local Opportunities. Alternative includes: Antero
Peak, Antero Peak Hedge , China Post-Venture , Credit Opportunities, and Global Unconstrained.
(2) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested.
(3) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not
reinvested in the Artisan Funds.
(4) Net transfers represent certain amounts that we have identified as having been transferred out of one investment
strategy, investment vehicle or account and into another strategy, vehicle or account.
30--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Three months endedMarch 31, 2023 , compared to Three months endedMarch 31, 2022 For the Three Months Ended March 31, For the Period-to-Period 2023 2022 $ % Statements of operations data:
(unaudited; in millions, except share and per-share data) Revenues
$ 234.5 $ 281.6 $ (47.1) (17) % Operating Expenses Total compensation and benefits 131.5 139.9 (8.4) (6) % Other operating expenses 34.7 34.7 0.0 - % Total operating expenses 166.2 174.6 (8.4) (5) % Total operating income 68.3 107.0 (38.7) (36) % Non-operating income (expense) Interest expense (2.1) (2.7) 0.6 22 % Other non-operating income (expense) 24.2 (3.1) 27.3 881 % Total non-operating income (expense) 22.1 (5.8) 27.9 481 % Income before income taxes 90.4 101.2 (10.8) (11) % Provision for income taxes 18.6 18.8 (0.2) (1) % Net income before noncontrolling interests 71.8 82.4 (10.6) (13) % Less: Noncontrolling interests - Artisan Partners Holdings 12.0 15.6 (3.6) (23) % Less: Noncontrolling interests - consolidated investment products 9.0 1.4 7.6 543 % Net income attributable to Artisan Partners Asset Management Inc.$ 50.8 $ 65.4 $ (14.6) (22) % Share Data Basic earnings per share$ 0.72 $ 0.90 Diluted earnings per share$ 0.72 $ 0.90 Basic weighted average number of common shares outstanding 63,231,797
62,039,038
Diluted weighted average number of common shares outstanding 63,247,163 62,070,360 Investment Advisory Revenues Essentially all of our revenues consist of fees earned from managing clients' assets. Our investment advisory fees, which are comprised of management fees and performance fees, fluctuate based on a number of factors, including the total value of our assets under management, the composition of assets under management among investment vehicles and our investment strategies, changes in the investment management fee rates on our products, the extent to which we enter into fee arrangements that differ from our standard fee schedules, which can be affected by custom and the competitive landscape in the relevant market, and, for the accounts on which we earn performance fees, the investment performance of those accounts. The different fee structures associated with Artisan Funds, Artisan Global Funds and separate accounts and other pooled vehicles, and the different fee schedules applicable to each of our investment strategies, make the composition of our assets under management an important determinant of the investment management fees we earn. Historically, we have received higher effective rates of investment management fees from Artisan Funds and Artisan Global Funds than from traditional separate accounts, reflecting, among other things, the different and broader array of services we provide to Artisan Funds and Artisan Global Funds. Investment management fees for non-U.S. funds may also be higher because they include fees to offset higher distribution costs. Our investment management fees also differ by investment strategy, with higher-capacity strategies having lower standard fee rates than strategies with more limited capacity. Certain separate account clients pay us fees based on the performance of their accounts relative to agreed-upon benchmarks, which typically results in a lower base fee but allows us to earn higher fees if the performance we achieve for that client is superior to the performance of the agreed-upon benchmark. We may also receive performance fees or incentive allocations from Artisan Private Funds. Approximately 3% of our$138.5 billion of assets under management as ofMarch 31, 2023 have performance fee billing arrangements. Performance fees of$0.1 million were recognized in the three months endedMarch 31, 2023 , compared to$0.2 million in the three months endedMarch 31, 2022 . 31
--------------------------------------------------------------------------------
Table of Contents
The decrease in revenues of$47.1 million , or 17%, for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 , was driven primarily by a$26.8 billion , or 17% decrease in our average assets under management. The weighted average investment management fee, which excludes performance fees, was 70.4 basis points for the three months endedMarch 31, 2023 , compared to 70.4 basis points for the three months endedMarch 31, 2022 . The following table sets forth investment advisory fees and the weighted average management fee by investment vehicle. The weighted average management fee for Artisan Funds and Artisan Global Funds reflects the additional services we provide to these pooled vehicles.
Artisan Funds and Artisan Global
Separate Accounts and Other (1) Funds
For the Three Months Ended March
31, 2023 2022 2023 2022
(unaudited; dollars in millions)
Investment advisory fees $ 89.9 $ 106.1 $ 144.6 $ 175.5
Weighted average management fee (2) 51.8 bps 51.3 bps 90.4 bps 90.8 bps
Percentage of ending AUM 52 % 52 % 48 % 48 %
(1) Separate accounts and other consists of assets we manage in or through vehicles other than Artisan Funds or
Artisan Global Funds, including assets we manage in traditional separate accounts, Artisan-branded collective
investment trusts and Artisan Private Funds, as well as assets under advisement related to investment models, for
which we provide consulting advice but do not have discretionary investment authority.
(2) We compute our weighted average management fee by dividing annualized management fees (which excludes
performance fees) by average assets under management for the applicable period.
Operating Expenses
Our operating expenses decreased $8.4 million for the three months ended March
31, 2023 , compared to the three months ended March 31, 2022 , due to a decline in
incentive compensation and third-party distribution expense as a result of lower
revenues, partially offset by increased travel, long-term incentive compensation
expense, and higher fixed compensation costs reflecting annual merit increases
and the hiring of additional associates.
Compensation and Benefits
For the Three Months Ended March Period-to-Period
31,
2023 2022 $ %
(unaudited; in millions)
Salaries, incentive compensation and
benefits(1) $ 115.5 $ 127.2 $ (11.7) (9) %
Long-term incentive compensation awards 16.0 12.7 3.3 26 %
Total compensation and benefits $ 131.5 $ 139.9 $ (8.4) (6) %
(1) Excluding long-term incentive
compensation awards
The decrease in salaries, incentive compensation and benefits was driven
primarily by a
During the first quarter of 2023, the Company's board of directors approved a grant of$57.1 million of long-term incentive awards consisting of$18.1 million of restricted share-based awards and$39.0 million of cash-based long-term incentive awards, which we refer to as franchise capital awards. Long-term incentive compensation award expense for all outstanding awards is expected to be approximately$14 million per quarter in fiscal 2023, excluding the impact of investment returns on the franchise capital awards.
Total compensation and benefits was 56% and 50% of our revenues for the three
months ended
Other operating expenses
Other operating expenses were flat for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 as increases in travel expenses and occupancy costs were effectively offset by decreases in third-party distribution expenses. 32 -------------------------------------------------------------------------------- Table of Contents Non-Operating Income (Expense)
Non-operating income (expense) consisted of the following:
For the Three Months Ended March Period-to-Period
31,
2023 2022 $ %
(unaudited; in millions)
Interest expense $ (2.1) $ (2.7) $ 0.6 (22) %
Net investment gain (loss) of consolidated
investment products 14.9 1.2 13.7 1,142 %
Net gain (loss) on the tax receivable
agreements - 0.5 (0.5) (100) %
Other investment gain (loss) 9.3 (4.8) 14.1 294 %
Total non-operating income (expense)
481 %
The net investment gain of consolidated investment products for the three months
ended March 31, 2023 , increased $13.7 million as compared to the three months
ended March 31, 2022 , predominantly driven by market conditions which most
significantly impacted our two consolidated private funds. The increase in other
investment gain (loss) of $14.1 million for the three months ended March 31,
2023 , as compared to the three months ended March 31, 2022 , was also driven by
market conditions along with a larger investment base as a result of additional
investments associated with the economic hedge of long-term cash awards
(franchise capital awards).
Provision for Income Taxes
The provision for income taxes primarily represents APAM'sU.S. federal, state and local income taxes on its allocable portion of Holdings' income, as well as foreign income taxes payable by Holdings' subsidiaries. APAM's effective income tax rate for the three months endedMarch 31, 2023 and 2022 was 20.6% and 18.6%, respectively. Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately 16% and 17% of Holdings' full year projected taxable earnings were not subject to corporate-level taxes for the three months endedMarch 31, 2023 and 2022, respectively. Thus, income before income taxes includes amounts that are attributable to noncontrolling interests and not taxable to APAM and its subsidiaries, which reduces the effective tax rate. As APAM's equity ownership in Holdings increases, the effective tax rate will likewise increase as more income will be subject to corporate-level taxes. The effective tax rate was favorably impacted in both periods due to tax deductible dividends paid on unvested restricted share-based awards.
Earnings Per Share
Weighted average basic and diluted shares of Class A common stock outstanding were higher for the three months endedMarch 31, 2023 , compared to the three months endedMarch 31, 2022 , as a result of unit exchanges and equity award grants. See Note 12, "Earnings Per Share" in the Notes to the unaudited consolidated financial statements for discussion of earnings per share. 33
--------------------------------------------------------------------------------
Table of Contents
Supplemental Non-GAAP Financial Information
Our management uses non-GAAP measures (referred to as "adjusted" measures) of net income to evaluate the profitability and efficiency of the underlying operations of our business and as a factor when considering net income available for distributions and dividends. These adjusted measures remove the impact of (1) net gain (loss) on the tax receivable agreements (if any), (2) compensation expense (reversal) related to market valuation changes in compensation plans, and (3) net investment gain (loss) of investment products. These adjustments also remove the non-operational complexities of our structure by adding back noncontrolling interests and assuming all income ofArtisan Partners Holdings is allocated to APAM. Management believes these non-GAAP measures provide more meaningful information to analyze our profitability and efficiency between periods and over time. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to manage the Company. Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. Our non-GAAP measures are as follows: •Adjusted net income represents net income excluding the impact of (1) net gain (loss) on the tax receivable agreements (if any), (2) compensation expense (reversal) related to market valuation changes in compensation plans, and (3) net investment gain (loss) of investment products. Adjusted net income also reflects income taxes assuming the vesting of all unvested Class A share-based awards and as if all outstanding limited partnership units ofArtisan Partners Holdings had been exchanged for Class A common stock of APAM on a one-for-one basis. Assuming full vesting and exchange, all income ofArtisan Partners Holdings is treated as if it were allocated to APAM, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting APAM's current federal, state, and local income statutory tax rates. The adjusted tax rate was 24.7% for all periods presented. •Adjusted net income per adjusted share is calculated by dividing adjusted net income by adjusted shares. The number of adjusted shares is derived by assuming the vesting of all unvested Class A share-based awards and the exchange of all outstanding limited partnership units ofArtisan Partners Holdings for Class A common stock of APAM on a one-for-one basis. •Adjusted operating income represents the operating income of the consolidated company excluding compensation expense related to market valuation changes in compensation plans. •Adjusted operating margin is calculated by dividing adjusted operating income by total revenues. •Adjusted EBITDA represents adjusted net income before interest expense, income taxes, depreciation and amortization expense.
Net gain (loss) on the tax receivable agreements represents the income (expense) associated with the change in estimate of amounts payable under the tax receivable agreements entered into in connection with APAM's initial public offering and related reorganization.
Compensation expense (reversal) related to market valuation changes in compensation plans represents the expense (income) associated with the change in the long term incentive award liability resulting from investment returns of the underlying investment products. Because the compensation expense impact of the investment market exposure is economically hedged, management believes it is useful to reflect the expected net income offset in the calculation of adjusted operating income, adjusted net income, and adjusted EBITDA. The related investment gain (loss) on the underlying investments is included in the adjustment for net investment gain (loss) of investment products.
Net investment gain (loss) of investment products represents the non-operating income (expense) related to the Company's investments, in both consolidated investment products and nonconsolidated investment products, including investments held to economically hedge compensation plans. Excluding these non-operating market gains or losses on investments provides greater transparency to evaluate the profitability and efficiency of the underlying operations of the business.
34--------------------------------------------------------------------------------
Table of Contents
The following table sets forth, for the periods indicated, a reconciliation from GAAP financial measures to non-GAAP measures:
For the Three Months Ended March 31,
2023 2022
(unaudited; in millions, except per share
data)
Reconciliation of non-GAAP financial measures:
Net income attributable to
$ 50.8 $ 65.4 Add back: Net income attributable to noncontrolling interests -
12.0 15.6
Add back: Provision for income taxes 18.6 18.8
Add back: Compensation expense (reversal) related to market valuation changes in compensation plans
1.7 (0.9)
Add back: Net (gain) loss on the tax receivable agreements - (0.5)
Add back: Net investment (gain) loss of investment products attributable to APAM
(14.3) 5.1
Less: Adjusted provision for income taxes 17.0 25.5
Adjusted net income (Non-GAAP) $ 51.8 $ 78.0
Average shares outstanding
Class A common shares 63.2 62.0
Assumed vesting or exchange of:
Unvested Class A restricted share-based awards 5.6 5.5
Artisan Partners Holdings units outstanding (noncontrolling
interests) 11.6 12.3
Adjusted shares 80.4 79.8
Basic earnings per share (GAAP) $ 0.72 $ 0.90
Diluted earnings per share (GAAP) $ 0.72 $ 0.90
Adjusted net income per adjusted share (Non-GAAP) $ 0.64 $ 0.98
Operating income (GAAP) $ 68.3 $ 107.0 Add back: Compensation expense (reversal) related to market valuation changes in compensation plans
1.7 (0.9)
Adjusted operating income (Non-GAAP) $ 70.0 $ 106.1
Operating margin (GAAP) 29.1 % 38.0 %
Adjusted operating margin (Non-GAAP) 29.9 % 37.7 %
Net income attributable to
$ 50.8 $ 65.4 Add back: Net income attributable to noncontrolling interests -
12.0 15.6
Add back: Compensation expense (reversal) related to market valuation changes in compensation plans
1.7 (0.9)
Add back: Net (gain) loss on the tax receivable agreements - (0.5)
Add back: Net investment (gain) loss of investment products attributable to APAM
(14.3) 5.1
Add back: Interest expense 2.1 2.7
Add back: Provision for income taxes 18.6 18.8
Add back: Depreciation and amortization 2.1 1.7
Adjusted EBITDA (Non-GAAP) $ 73.0 $ 107.9
35--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
Our working capital needs, including accrued incentive compensation payments, have been and are expected to be met primarily through cash generated by our operations. The assets and liabilities of consolidated investment products attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the benefits from, nor do we bear the risks associated with, the assets and liabilities of consolidated investment products, beyond our direct equity investment and any investment advisory fees earned. Accordingly, assets and liabilities of consolidated investment products attributable to third-party investors are excluded from the amounts and discussions below. The following table shows our liquidity position as ofMarch 31, 2023 andDecember 31, 2022 :March 31 ,
2023
(unaudited; in millions)
Cash and cash equivalents $ 150.6 $ 114.8
Accounts receivable $ 100.6 $ 98.6
Seed investments(1) $ 131.6 $ 124.8
Undrawn commitment on revolving credit facility $ 100.0 $ 100.0
(1) Seed investments include Artisan's direct equity investments in consolidated and nonconsolidated
Artisan-sponsored investment products. The balance excludes $107.1 million of investments made related to
long-term incentive compensation plans.
We manage our cash balances in order to fund our day-to-day operations. The
Company did not have any deposits with financial institutions directly impacted
by recent events in the banking industry. We continue to mitigate concentration
risk through the diversification of financial institutions holding daily
operating cash balances and by investing excess operating cash in various money
market funds. $127.3 million of our cash and cash equivalents balance was
invested in money market funds as of March 31, 2023 . Accounts receivable
primarily represent investment advisory fees that have been earned, but not yet
received from our clients. We perform a review of our receivables on a monthly
basis to assess collectability. As of March 31, 2023 , none of our receivables
were considered uncollectible.
We utilize cash to make seed investments in Artisan-sponsored investment
products to support the development of new investment strategies and vehicles.
As of March 31, 2023 , the balance of all seed investments, including investments
in consolidated investment products, was $131.6 million . Subject to certain
restrictions on the timing of redemptions, the seed investments are generally
redeemable at our discretion.
During the three months ended March 31, 2023 , we also made investments of $39.0
million related to funded long-term incentive compensation plans. As of
March 31, 2023 , the value of investments held related to funded long-term
incentive compensation plans was $107.1 million . We expect our investment
portfolio to continue to grow as we grant additional annual franchise capital
awards and make seed investments in new investment strategies and vehicles.
We have $200 million in unsecured notes outstanding and a $100 million revolving
credit facility with a five-year term ending August 2027 . The notes are
comprised of three series, Series D, Series E, and Series F, each with a balloon
payment at maturity. The $100 million revolving credit facility was unused as of
and for the three months ended March 31, 2023 .
The fixed interest rate on each series of unsecured notes is subject to a 100
basis point increase in the event Holdings receives a below-investment grade
rating and any such increase will continue to apply until an investment grade
rating is received.
These borrowings contain various covenants. Our failure to comply with any of
the covenants could result in an event of default under the agreements, giving
our lenders the ability to accelerate repayment of our obligations. We were in
compliance with all debt covenants as of March 31, 2023 .
Distributions and Dividends
For the Three Months Ended March 31,
2023 2022
(unaudited, in millions)
Holdings Partnership Distributions to Limited Partners $ 3.3 $ 11.2
Holdings Partnership Distributions to APAM 19.7 60.4
Total Holdings Partnership Distributions $
23.0
36--------------------------------------------------------------------------------
Table of Contents
OnMay 2, 2023 , we, acting as the general partner ofArtisan Partners Holdings , declared a distribution of$33.7 million , payable byArtisan Partners Holdings to holders of its partnership units, including APAM. APAM declared and paid the following dividends per share during the three months endedMarch 31, 2023 and 2022: Type of Dividend Class of Stock
For the Three Months Ended
2023 2022
Quarterly Class A Common $ 0.55 $ 1.03
Special Annual Class A Common $ 0.35 $ 0.72
Our board of directors declared, effective May 2, 2023 , a variable quarterly
dividend of $0.50 per share of Class A common stock with respect to the March
quarter of 2022, payable on May 31, 2023 to stockholders of record as of the
close of business on May 17, 2023 . The variable quarterly dividend represents
approximately 80% of the cash generated in the March quarter of 2023 and a
pro-rata portion of 2023 tax savings related to our tax receivable agreements.
Subject to Board approval each quarter, we currently expect to pay a quarterly
dividend of approximately 80% of the cash the Company generates each quarter. We
expect our quarterly cash generation to approximate adjusted net income plus
long-term incentive compensation award expense, less cash reserved for future
franchise capital awards (which we generally expect will approximate 4% of
investment management revenues each quarter) with additional adjustments made
for certain other sources and uses of cash, including capital expenditures.
After the end of the year, our Board will consider paying a special dividend
after determining the amount of cash needed for general corporate purposes and
investments in growth and strategic initiatives. Although we expect to pay
dividends according to our dividend policy, we may not pay dividends according
to our policy or at all.
Tax Receivable Agreements ("TRAs")
In addition to funding our normal operations, we will be required to fund amounts payable under the TRAs that we entered into in connection with the IPO, which resulted in the recognition of a$399.8 million liability as ofMarch 31, 2023 . The liability generally represents 85% of the tax benefits APAM expects to realize as a result of the merger of an entity into APAM as part of the IPO Reorganization, our purchase of partnership units from limited partners of Holdings and the exchange of partnership units (for shares of Class A common stock or other consideration). The estimated liability assumes no material changes in the relevant tax law and that APAM earns sufficient taxable income to realize all tax benefits subject to the TRAs. An increase or decrease in future tax rates will increase or decrease, respectively, the expected tax benefits APAM would realize and the amounts payable under the TRAs. Changes in the estimate of expected tax benefits APAM would realize and the amounts payable under the TRAs as a result of change in tax rates have been and will be recorded in net income. The liability will increase upon future purchases or exchanges of limited partnership units with the increase representing amounts payable under the TRAs equal to 85% of the estimated future tax benefits, if any, resulting from such purchases or exchanges. We intend to fund the payment of amounts due under the TRAs out of the reduced tax payments that APAM realizes in respect of the tax attributes to which the TRAs relate. The actual increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of sales or exchanges by the holders of limited partnership units, the price of the Class A common stock at the time of such sales or exchanges, whether such sales or exchanges are taxable, the amount and timing of the taxable income APAM generates in the future and the tax rate then applicable and the portion of APAM's payments under the TRAs constituting imputed interest or depreciable basis or amortizable basis. In certain cases, payments under the TRAs may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the TRAs. In such cases, we intend to fund those payments with cash on hand, although we may have to borrow funds depending on the amount and timing of the payments. We did not make payments related to the TRAs during the three months endedMarch 31, 2023 . In fiscal 2023, we expect to make TRA payments totaling approximately$36.2 million ,$27.2 million of which was paid duringApril 2023 . 37
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
