Artisan Partners Asset Management (APAM) 27 Oct 212021 Q3 Earnings call transcript

Hello and thank you for standing by. My name is Jason and I will be your conference operator today. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I will turn the call over to Makela Taphorn, Director, Investor Relations for Artisan Partners Asset Management. Please go ahead.

you. Thank Artisan business the call. and Asset Partners to update Management earnings Welcome call Eric from include CEO Today’s remarks Colson, will and C.J. Daley, CFO.

and of results Investor latest investor available are Our on Relations section our website. presentation the

we will line Following these open remarks, for the questions.

like begin, our questions, presented that to comments remind we with risks are in with deal and the forward-looking today’s Before earnings are to including and subject that on to call, you SEC. the in release would I filings responses may made statements. These details uncertainties

We these are required any not to update statements revise or of call. following the

some today non-GAAP to our addition, In of remarks will include measures. made references financial

the You to earnings call the Eric can Colson. in measures that, the those release. measures reconciliations find most And comparable turn I over of to GAAP with now will

rising and talent-free organization architecture, equity naturally and and ago, for three phase, of non-U.S. into a our a one client call investment time, Thank Over joining growth transcript. base. investment agency, we years you our we the clients broader from you, distribution, everyone XX style with the during oriented Thoughtful Beginning global categorization. towards Makela reading evolved or is benefited open public startup strategies foundational pillars. thank allocations

During naturally both benefited in working and and periods, asset trends from growth growing we our startup global a allocation base client our favor.

and to As and people we are, we who true on our focusing ebbs business stayed naturally investments, trust. industry have the of flows,

not opted to scale fees, performance. have We and on on and but compete investments

value-added complement further asset to reach and our and have high and investment have freedom more our pool have for firm And value-added Today, broadening freedom and lower that broadened scaled which starting By as the taken high allocations greater credit investment alternative-oriented guidelines opportunity increasing passive better to degrees we many our are our solutions truly strategies fees. exposure firm have to a platform, active home of strategies, investors. with scale believe we we with degrees We enhanced expand natural our and strategies. of exposure active so targets. growing

differentiated alternatives, grow We for demand and also believe investment continue that will strategies, broaden. to active including

holistically, growth annualized requires compound capacity, stack deck and Compound revenue favor basis, time flows, short strong over growth management generate in of alignment periods. flows to fees long duration, time periods. to managing the strategies assets over the and compound and levers. new On Through expect have our revenue an annually our the at over to in past. strategies, X and and XX% revenue two the Looking years. and revenues we XX existing compounding compounding teams we Slide yield-oriented and expect revenue revenues credit and And evolution opportunities markets alternative teams With growth the we net is ongoing these in strategies. of for have disruption. meaningful and and and world’s forward, of economy; income expect than long years. four marry strategies, growth time the as are revenue strategies; our our favor: industry strategies, differentiated for demand portfolios private growth to demand view, underallocation we think In second to more to with China, the we as existing in our has compound periods investment compounded new grow approximately economic strategies continue new we largest illustrates for XX over capture compounding opportunities strategies done from last growth steady working growth to

of $XX than new AUM. period, period, during to launched strategies billion from our more we $XX approximately the Today, billion global the the represents AUM. grew we $X During global in strategies

than doubled in and compound While our and we were strategies building global business, client capital our to growing existing continue AUM. more

$XX strategies of we billion. from expanded our new and asset to in growing investment of freedom added degrees period the and degrees nearly platform, freedom During face of teams headwinds, allocation $X the AUM

our X the current same summarizes compound, returns Slide are another I after approximately capital to earlier. the $XX.X billion strategies opportunities billion alpha, in outlook the driving $XX.X activity. clients. to mentioned opportunities Four $XX.X net to time adding AUM During billion and growth $XX existing in market period, and total generating in new returning continued billion our

that discussed three the stage to have quarterly more calls. We of on recent private We these of asset favor new strategies. talent strategies later China-focused allocation and evolving and believe support investment preferences growth

talent opportunities continued also industry changes and disruption and consolidation that believe the for We create in us. external

well They that last in but of for are. has it few believe we yield and four. to All us behind And new, allocations these each for invest active credit favor more cemented with align investment move continue years. all are makes Finally, we not to who the of themes sense management. four in

because and increasingly from currencies, is This made and In we differentiate newest a and forward-looking institutional we yield There a team, alternatives. credit macro alpha platform and are globalizing broad issuers and these from Slide on across the over X. yields last generate as in There attractive and terms on is is and history O’Brien opportunities. market hungry capabilities together. to now in for group several opportunity have to of all the durable seasoned we are addition, peers in Their long EM instruments. a investment with ample allocations. set investment Demand Mike Orvin allocators is relative investments years, countries, credit and position us and channel our execute example investors, wealth growing and believe of index. their opportunity Mike large, Cirami, Current is how a joined no to September of build our focused Sarah better we in than emerging to on are highlighted are new executing team areas.

we always are working the plan of early together probability with success. we innings, resources have the do team bring maximize As to the to in and people,

simplified landscape. into team’s the doing Concurrently, of debt strategy strategies fund. first We expect the Slide new will strategy team. view team, bond a will what team’s buckets. for broader team team of half and loan history process year. fall new within On placed the a credit and EM with market to to X, first in first new next credit floating launch non-traditional the loan the we Bryan the the be we EM his we for rate new demand establishing dedicated a Krug have see have loan and our successful expect in of a a started strong leveraged The launching

leaders opportunity differentiated and the tracked yield-oriented By add talent and debt, EM poorly space year, and investment with the alpha strategies offer large where multiple to differentiation. investment growing middle managed classes asset by for growing we can set, of As credit leverage indexes is a loan value. by ample have and next opportunity and significant expect proven

the expansion and Looking further where both future, additional lend into team investors. to scale of high further our the believe we value-added newest participants credit markets, for inefficiencies credit themselves into and create skill opportunity team set significant our

slide, at Moving in advantage and has the level being disruption. term and trend individual the industry and powerful to maybe is favor the last more our disrupting constantly industry is my taken of most disruption. always longest broadly. Partners disrupted firm itself working The investment Artisan

increase broad more a and returns maintain than owning franchise to on business investment years patience We flows active to alignment autonomy the investing, are development intentional into capacity a of pressure consolidation a look customized investment These the horizons, should with that opportunities of positioned at and investment founding and and the the life. horizon. combination resources And with a proliferated. investment fees long-term investment and trends management, higher-quality customization of These homes Artisan, and transparency never and offered strategies long-term investment are excellence; execute making it types repeated that asset big remains talent, ago, new unwavering talent of value-added fees offered on a supply critically, expense investment provide demand. we and history long-term and packaging and a our talent. expanding remains believe of partner of excellence, long-term clients working investors; time focused on by investment platform, resources investment marginalize number like investment unique. water a include and commitment disintermediate XX with us firm. with leaders have ideas and from better for We trends success, quality associated not more unique and always and outcomes; shortening more products time today. but investment value today ever own after-fee great down strategy classes growth and of believe distribution, That a true create one’s high discipline we proposition the there number and with autonomy value-added scale increasingly future and ever options and talent are of difficult firm have support We the for economic in to before. for to there our in And Since

to current strategy expect We continue our compounding.

to to continue alpha add have is at for returns to expect and and in have and back. with grow line a and investment the We to opportunities shareholders. the revenue continue platform for talent wind expect broad we leverage, And for I talent our discussed. trends and opportunities to I strategies us clients, generate expand

will to I to financial it it the an over as way, will are target. time turn do firm who horizons now C.J. we our We investment our we in and results. with long-term consistent over discuss

Eric. Thanks,

growth basis and prior required quarter are when with to and benchmarks in of led which of investing reflect execute client strong periods. year a this the to results compared financial in assets on both discipline excess successfully on and existing and strong compounding on our investment X. this teams detailed model, quarter and new to the year-to-date Slide strategies patience A combination year financial teams has in Our

$XXX.X of we generation billion, result The cash year is we to XXXX, client in XX% September Assets When of alpha AUM assets. flows. impact excess and compound are strong $XXX.X XX, including management client a of growth under market assets, ago. in our billion ability were markets the to returns, a from compounded of net as refer up

the quarter international was flows in X cash including months Net to negative $X.X the the down slightly billion. returns strong compared aggregate to returns client AUM first the More were benchmarks, year, investment in $XX.X of AUM. specifically, Our excess XXXX market of billion modestly were returns, contributed as second of for quarter.

AUM rose to the the As which compared to AUM we X% September to in client of compared the represent expect, quarter the Average increase to the XXXX months our up XX% primary compounded average billion $XXX.X during compared first XXXX. quarter, for quarter X XXXX. June a and contributor of largest AUM XX% year. assets, Year-to-date, investment was was up of was component returns, the the

the our And on with X, strategies a the clients, on XX% first and much in calendar year. for Assets growth Page a strong period first- both of drove X wealth as achieve to year-to-date next under the quarterly presented second-generation the the client cash Financial months mixed basis to over strategies pages. flat and since our are compound two net growing the year-to-date for shorter markets continued Growth flows up of results management year. Generation periods by and decline the AUM. third X% generation AUM quarter in was on negative time beginning X% continue

an earnings complete XXXX prior our also investment expense remained the to operating weighted XX% costs results. compensation Adjusted periods My to our number quarter. AUM. XXXX to at XX% increases compared GAAP the higher and average both period in the higher Our including Both quarter across employees, year prior June due compared our management variable bps were quarter quarters. year were members incentive increases and average the fee XX adjusted three on to will X% increase the grew the increased of consistent in rate result on presented comments The Revenues June The focus adjusted increased compared to and quarter. are in X% newest all results and compared full-time release. of revenue team. primarily of

period per to the XXX adjusted Our for adjusted share from quarter. prior margin current quarter results up ended AUM. expenses financial quarter given rose third increased as was higher the the months net in basis Adjusted incentive XX the $X.XX was variable increase design reflecting same model, improved XX.X% I also in financial of The compared in in X of quarterly just to reflect highlighted. to an results average September compensation. XXXX year’s XX.X% XX.X%. operating the current and meaningfully, margin XX%, our income Revenues quarter the the X-month And the the points XXXX XX% compared due themes in June

adjusted Our prior points operating rose income and up adjusted operating XX.X%, margin XX% XXX our from margin. was year-to-date the basis

teams, maintain We technology. remain operations, new investments make $XXX continued cash approximately and capabilities to management to and capital seed sheet our products strong balance in continues support Our million practices. new operational of fund and excess

credit our remains In line of $XXX million addition, undrawn.

the of per quarter, which Our XXXX declared generated. the XX% Directors a with dividend $X.XX of to Board share approximately September respect cash quarterly of represents

will a the special our business quarter, dividend special and need the products fluctuates to regular declaration generation as run consider The dividend each variable dividend. Next new well quarterly our our of capital Board vary. of as may the the and cash varies for of year year-to-year seed as amount

pay forward gains billion. for slides The of and our roll for Looking results, AUM separately and fund capital gains the year, and capital clients anticipate have by will choose we all strategy. out generally that firm. not of success investment gains of distributions as clients clients. the our our mutual and The to two not managed quarter. highlight reinvested, the amount $X reinvested assets to U.S. fund amount our quarter’s accounts, and This impact fourth results reinvest income taxes growth to to is of required majority last gains broken funds clients $X past will represents is This annual purpose some liabilities. primary be approximately income clients be and over of vehicles income the year, be financial required and income a gain of that approximately their that but will generated thoughtful our distributions Generating our next in mutual billion our realized we very in make result be to income forward. net our the estimate strong This for distributed year,

time, results growth. over We produced are sustainable and consistently long-term a firm, our have growth

Over XX.X% freedom compounded at and revenues the global X.X%, and degrees periods respectively. of annually Eric discussed,

grown annual periods, Over the rate revenues of compound growth firm has our a at X.X%. combined

hard operating history since nearly XXXX, growth have of grown to is the adjusted share with period operating earnings over compare it adjusted While our pre-IPO income per has over and XX%, public company our doubled. income

growth have over X% going been the the period, to has we public experienced dividends, total If distributions you impressive annually. annualized with return approximate cash yield XXXX XX% since the combine of shareholders same which approximately compounded in

to we concludes forward our for to a As attractive confident that our we our are and remain and the growth recognize an I company, your will business the growth if comments, the management questions. in the disciplined potential, of to remain we operator. for will look market That now my investment patient turn we back shareholders. call

from Please, Thank comes you. Dan first [Operator & Our from Fannon Instructions] ahead. Jefferies go question Company.

talk we open the that of – forward, that a could degrees And of something will today? something funds is to that? Thanks. what today don’t have going incremental the Wanted – can highlighted talk or you private you’ve potentially opportunity markets on terms growth allow see in you about it for freedom of about you that some forward, that provide from for going strategies the up

Hi, Dan, it’s Eric.

China year That you or teams We is year. investing capitalization, And growth – that last currently over years. with meeting or companies. teams companies, have been then especially launched up. Venture growth-oriented down picking last one market Post in strategy, have been our And the few has go that private this the private as the

more existing into so degrees investing, our will a similar weave to a to of freedom China of we Venture. see And of many strategy strategies growth either start teams in to regards on the private basis, Post go-forward hybrid with or

And capacity. a a follow-up, question it. Got just general as then on

that limits think you strategies, of about a you products. about other kind then or of Slide in Is the road in gave? X, constraints? but them. us watch on potential these give as the where is size or watching – are strategies of Obviously, are capacity of you about something thinking funds within out terms the some levels? firm sense you Can it And there of market and opportunity areas you close of lay scaling think on for credit the of the capacity to certain at for certain map kind broader first the where there level, So how future kind the you sizes,

The estimate. size difficult always to levels are

of at we grow As franchise, ways. they look each our in different

limiting cases, marketplace of be broader you some size may because in so segment the into leveraging you that the And strategies. are

as And the strategy high strategy. to strategies the that its of equation. into income use as freedom So that does to of think levered part segment of strategies versus purely has future loans just degrees use we that dedicated come

have the at performance capacity a or billion. cap capacity to management, same especially meaningful I will you was are few invested we couple the And quarters last a below our strategy revenue. billion $X franchise believe and evolves of And you we that element you how in ideas strategy mean performance could to over controlling regards number. we occurs, an know put it, $X our those probably help strategy when obviously, a the were on then, was maybe in size to before leverage integrity. small since or where the the mid-cap $X to that think below going growth I if are cap, coming the large markets back constrained a view looked they billion. as then $X and that be grows you never generating run-up or in these management option you you growth have we the But don’t are And demand if And have flow With that you So, market have that firm to place place small control And of capacity. or that next a how managing launched growing back the asset put can an if important and sizable we our don’t we really that billion decade. for launching time, catch up they of that international time, do compounding have work. you most well. the our and only to integrity we never were is in strategies And hurt to announced in set is to a billion cap, in for mid-cap good to look

quarter. continue managing are controlled that nice So, announcements we do that have in a we at grow to on – managing ones we rate, this but new are no have the we as capacity current strategies manner. And a

you. Thank Understood.

Our RBC from next Kenneth question comes Lee from ahead. Markets. Capital go Please

taking Thanks Hi. my question. for

Just one the strategies, follow-up credit about side. the potentially credit on you some talked expansion within

AUM material Looking credit further overall see proportion very over the in strategies out, Thanks. AUM And the large becoming how Artisan? future time? do a for you grow could credit of

Yes.

the definitely credit team you alternative. on an traditional the Krug of and team very Bryan two teams potential these new Cirami, each we the by material with the coupled of element as as brought If combine with future. of is will well led breadth with aggregate the Mike teams And potential be could have those that just the in

a the the loan is good to example we the elements alternative flexibility of freedom a have credit lower these to going flow strategy in in manage The players sizing are into a the that bucket the high of high So, room degree have we bit to of so control category scale allows levered market. little income our move big managing traditional us maybe than that so teams. to very this team

us As credit alternative that credit space. well gets an opportunity a as we strategy have into

aggregate are we in space, that But between manage and And of high credit strategies, selecting the be meaningful they strategies the will revenue. balance in an are very we alternatives. strategies. So, our like value-added basis, all our on will traditional the

see that higher generates we expect could than in obviously Slide you on which a over we the return traditional have growth higher you compounded seen the periods So, X. what a shop, time various listed revenue

potentially the may, sounds it’s for a adding remarks, follow-up investment And prepared Great. new like from it I favorable right just Very helpful. teams. environment one now if

to you any just new outlook share investment teams the the add for with in potential Just near-term? Thanks. wondering whether could expanded us

of is a in interested the those it environment be the asset that’s talent and given we in and outlined opportunity and securities in value few have a around reinstate to are categories. only growth that favorable emerging the we space number Not the growth in, added allocation, spaces high the

Got it. Thanks Very helpful. again.

question from comes Lee [Operator go Robert ahead. Instructions] KBW. The from Please next

afternoon maybe. or – expense questions. or the the case for question some headwinds Great. morning Thanks Good the the have there. that of This a taking just out really be – may on of spending good I kind maybe

we aside does So, adding comp expense you that new sense the And you past of team, across the in into we adding be into maybe how that get of guess travel seeing trying industries. come about COVID, talked widely, progression are by new next should whether how kind teams, new it’s the I should And even maybe initiatives, pressures mean from a But pressures. year? up, more technology token, of or seeing to the have XXXX? we about in are into spend numbers? I influence same some picking it thinking spending maybe then How of of the to think out addition maybe coming just seeing

question, Rob. Great

in currently are budget season. We our

We to couple expand team new planning grow. on of on our – next would open strategy, the on-boarding everybody experienced expect of is then XX% expect couple XX%. high-single year all And has our next year our the we as business. the into year at Tech digits specifically, infrastructure EM our offices, to baked as for are hundred yet. points has debt then And spending don’t to is And we certainly – into low-double execute to a that digits. we grow there anything build and the But to ratio one comp occupancy we continues to on individuals side, team. would a those. as of down debt onboard to we XX%, for our pressures XX% to is growing other including to expand as have EM basis continue next increase growth from of in declined So, continue fully spend we areas levels

So, would we in I year, next but budget the in process. expect that growth low-double still working of sort are expenses through digit

Okay, a we ago, you in investing terms mean this then I time have in noticeable I some wealth fund least investment sales few starting, the in of in And saw I great. channel guess, energy channel. think last spend, years spent or that And gross and year business. at the step-up

or kind you there setting distribution that are of the months maybe sense distribution maybe XX be in trying underway, are get just whether currently function, may stair-step specific or a another are the initiatives globally you So, kind years, it’s any where kind investing of or X you on other a on side are investing to where seeds investing? channels planning for or year where or of

Yes.

the tend our newer, wealth control of Post opportunity the of private And how very think can’t to the margin we but that stair-step to are in we strategies and private greatest and strategy to the some focus focus world. to are hybrid to is bringing allocation. China newer channel get and invest about at become will And opportunity. we the strategies they index of the investing of view of strategies credit be be those a quality will going channel. freedom or be create a the the wealth strategies, And exposure degree we strategies, China the going And channel areas the Think and into asset be higher little newer to that that as these marry asset as at to globally will alternative-oriented credit crossover believe crossover on are continued wealth with more that segment allocation space. We in primary more higher demand. strategies, is occurs, in more given the wealth believe And growth, type of to we that the spend. thinking is under-allocated allocators you and many are that our investing we yield-oriented talent, with bit of breakdown meaningful. that new the view of at the strategies how investing the growing the realize in look about, Venture, our timing, control the growth hybrid of looking We and our

Thanks Great. for it. my appreciate taking questions. I

conference. you [Operator presentation. are our the the Thank well The conference for concludes has questions more no now There Instructions] attending concluded. today’s session in This question-and-answer as as queue.

You disconnect. may now