Artisan Partners Asset Management (APAM) 2 Feb 222021 Q4 Earnings call transcript

Hello, and thank you for standing by. My name is Tom, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, management will conduct a question-and-answer session, and conference participants will be given instructions at that time.

As a reminder, this conference call is being recorded. will Investor the Asset Relations I Makela over Management. time, Director, Taphorn, for this now call turn to At Artisan Partners Please go ahead.

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

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

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

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

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

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

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

everyone, the philosophy our the and our with Thank joining take managing in call to for long-term Makela, on industry principles we create and based And this authentically reading or aligned believe business growth. to and X. evolution stability Slide thank the you, incremental We thoughtful business. We duration the firm manage We on for you, manage is transcript. steps the long-term.

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value; of yield, and total these long-term to together: founding large the all Our joined debt, outstanding built growing seeking often themes investors demand a differentiate have access consolidation; newest from set, investment return in team, diversification. opportunity XX-plus Artisan of team by opportunity and markets plenty industry and Since talent September, with difficult disrupted we brings emerging members to inefficient, professionals. add a

degree up debt strategies: generation we opportunities, process emerging operating and which systems, of in breath. investment standing market capacity shows establishing and year. these of local in currency and and We a investment are further opportunities, strategy three We’re blended And for our currency next local stakeholders. of demand. set our the emerging right global market launch the half increase strategies highest will to X outcome the long-term this tools first unconstrained. sets opportunity long-term freedom expect talent, We Slide the aligned currently of the

our annual we the over absolute for But outcome. periods. firm we will people, XXX% time also our for time result that a revenues our our in short a aligned pay dividend billion EPS shareholders. returns return long-term over rewarding predictable of financial sustainable a interests representing its predictable February, team, per IPO $XX.XX adds horizons XXXX, clients, highly home IPO of our shareholders. nearly $X.XX adjusted stakeholders, our share. all and We there lumpy per and price. we are stable XXXX, and Creating have share economic record steady a of In across growth since our for Outcomes of time. share in $X.XX management takes source long-term, our stakeholders, value and is value our Board, distributed firm, for is productive alpha generated When a clients, people, The our

the C.J. XX in who of the now our for $XX I $XXX time, expect associates teams five capital themes at will firm discuss from all are I’ve we and generate in discussed over the continue call, We to and value-added we since firm Consistent and our investor our with and to to accelerate and to have the stakeholders, XXX% clients, billion while financial outcomes of returned growing results. nearly evolution investment diversifying this on IPO, same it the turn and shareholders. of AUM. billion to teams AUM

Thanks, Eric.

highlighted on our X. financial model As principles a reminder, are Page

record purpose and the XXXX and clients and Our dividends of generating reflect and on our complete revenue release. related These adjusted talent-focused Revenues results designed record comments continued earnings rose of for the and focus is which our rose for earnings In are to XXXX, model, presented operating income per compounding we we in GAAP commitment our declared our share. will executed XX%, business adjusted earnings. to $X.XX over adjusted long-term. XX%, wealth achieved My results. results

by $X.X were XXXX, the prior and Assets quarter offset year-end. Artisan from partially the This increase from quarter, contributed sequentially. that was billion outflows. Average was to September quarter reinvested up returns distributions AUM investment the for $X.X down billion negative slight net $XXX.X in and client XX, under management XX% at of XXXX up not the fund were AUM. December fourth X% annual billion In the X%

billion the For the the investment in inflows returns and net year AUM contributed contributed XX% Average client $X.X increase year, year-over-year. cash for to billion. $XX.X up full AUM was

our in generations primarily third generation all generation in driven first XXXX. in inflows. across cash investment three and grew was Growth our second client strategies net AUM growth was by by strategies Our driven returns, and

Third metrics AUM. generation of represent lower XX. close and $XXX XX are down Key presented current financial AUM. year million, quarter, average September were the for the strategies the Pages Revenues slightly now quarter in and XX% to our from total reflecting on quarter

recurring Expenses points. primarily compensation, fee remained rose travel administrative basis higher average expenses. to XX incentive at X%, and Our rate due

adjusted year, income the for Our share was from fourth per XX.X% and adjusted – XX% quarter net was operating XX% adjusted generated $X.XX and billion, up was average revenues of up AUM margin we $X.XX. XXXX. Average

technology XXXX, with compensation expenses increased to expenses, expense, rose higher long-term in additional Our our incentive and teams operating variable investment headcount, principally in team, newest including and our revenues. support investment also adjusted expense, platform. continued incentive operations Fixed investment reflecting

adjusted $X.XX, and XXXX. XX.X% up Our adjusted XX% income XXXX was per share margin from net adjusted operating was

sheet balance remained Our strong.

will XXXX. refinance remain senior XXXX, in in to X.X%. have throughout pay the used Our dividends year. experienced The we unchanged. The mature closing earnings tranche In August cash certain of be reflects XX, Covenants portion conditions. the that significant balance will close the new XXXX quarter, note notes agreement notes mid-August, this a the will of we subject to A and August $XX most a in executed to purchase declared. recently of mature the growth million December will of fourth transaction coupon

business, XX-month the special XX% on the invest of XXXX. per In of $X.XX the of of on The end Board majority with a record cash generated pace yield to of XX quarterly share respect to were $X.XX, dividend our of will at February a reflecting declared XXXX respect cash Directors our trailing cash dividends dividends shareholders Our represents XXXX, we and of in which continue represent In declared aggregate to declared XXXX. approximately with based price purposeful to in XXXX dividend growth. share.

XXXX as that and support differentiated and and expect well technology newest fixed team, existing in spend as increased income investment As primarily be talent we deepen on will investment new strategy teams. capabilities our investment strategies, in our operational launches to in we focused

in in specifically, continue $XX will first and we we capabilities data. grants long-term These million the qualified addition, over talent. expanding long-term comprised In approximately awards awards. of will marketing, XX% restricted to Generally, and More awards awards grant of investments vest to of reach with five these years, franchise digital awards. approximately our talent, $XX majority invest will incentive million the pro and of $XX investment with distribution quarter, vest remaining during XX% our of million be are connection made rata of incentive capital the a in retirement. stock The

in this of will As amortization a $XX estimate incentive million. expense be long-term XXXX we approximately result year’s grant, the

back year headcount distribution and much across next increase by in XX% our the Given to expect priorities over marketing as investments, as office. and XXXX, we

a to our expect also $XX uptick, each next plans and costs. expense the component million costs be up fixed annual categories year. and hiring of add million benefits those $X technology expect to We two to million and our $X in compensation Occupancy approximately will will we of

travel expect pre-pandemic point at hasn’t. it as will levels, we but some expense to now of addition, revert In

As first our are and expenses benefits generally expenses. the in compensation to of due a year each reminder, higher seasonal quarter

the expenses our stated conclusion, seasonal expense in first back see we $X into more and earnings in business. during resources opportunity so the release, and us prepared of are we remarks expect In were XXXX. We around as investing his million all approximately Eric accurately quarter

manage We investment growth model in of this with proven success. business and our our history will

successful I’ll and now we remain outcomes associate to lumpy, long-term will it be will in confident the can our achieve turn results time, outcomes However, our take and operator. the back we clients, shareholders. for

you. Thank

from session. Citigroup. And comes the will We Bill question Please the Instructions] Katz go begin with [Operator first now question-and-answer ahead.

questions. Appreciate Good taking much. you Okay. very Thank guys you afternoon. the

or in So that my you you both and first question, guidance investing just provided, The may commentary press from it a comments my be to to they or your And with kind year-on-year change, Eric, resonated and if certainly of pick question. against clear, just C.J. where of sequential up are, is release even from of stay sort terms markets then today. overall? flexibility weakened that here’s that first growth continue any from,

focusing for not the that. spend Yeah. question. That’s growth, year-over-year Phil, on No And – for that our thanks clarifying sorry is growth.

spend. It’s the timeframe. we’re the We have long-term. focused to growth complete for spend control We is over five our years out – look on seven and that building over

has these onboard capabilities – and Eric our and us expanding really think differentiated quite our laid that distribution any out the strategies there with align focused isn’t continue operational sort basically spend. the debt it’s on need to to organization capabilities marketing data around to is So the near-term remarks. the of realize we out spend there. which rest enable do obviously, But in to on building growth But team, which, markets to dependence nicely I opportunities, growth emerging of

sort you, stepping bit. one back little Okay, helpful. then, for may And of just Eric, a that’s

So long-term like lot opportunity a it of seems here. there’s

you with mega could of the So might partially of of are of us you’ve or talked be versus I some fence, timeline think on some about. capacity materially identified? Could help where the you’ve trends sort legacy in the you you of sort of into that themes constrained sort book maybe closed terms ring tap of funds portfolios these agree that you

out. can a fairly the one period, building over very hard those a or short force where on been franchise. new to the or try two-year strategy to demand of letting always in short force foundation, We’ve you circuit patient play or They’re run

to next solid product look out three the laid the that at over in the very look the growth and because our difficult. So years of in five to is Trying mind supply you run that long-term and demand of can we’ve out play short demand.

team difficult. going grew. that emerging would With we’ve that on, somewhere onboarding team think that that to I at brought similar to regards features and it’s and I we’ve very the potential how out market flows looked be we other debt play our time have how to are They that lumpy, always credit said, with team regards to and opportunity.

Okay, thank you.

The question Kenneth ahead. comes next Please RBC the Lee go Capital from [Operator with Instructions] Markets.

taking afternoon. question. good for Thanks Hi, my

now? could remarks, down in possible you investment that’s expand mentioned areas potentially You upon at the enter the And are prepared Thanks. new you that, wondering particular looking if just what further some right line. you areas could

the fairly minded As we look of we’ve we’re done on teams the past, or open at. in type years strategies of number that

market and we’ve a emerging back, bring about had Cirami on look great And talking to finally you opportunity If we debts years. for been team. Mike

And dollars, at growth look good back strategy strategies. would see say, we’ll you coming out of and franchise that more been handful to that it large. emerging overall yet at find a of that teams we embedded of opportunity hits opportunities launching the to type market yields weren’t a some with that debt in with array an would the maybe and new XXXX, indicative team the a at the constrained that about and there, more this we’re thought it markets a a There’s in small debt. out a And us. thinking unconstrained team that come or we team with of M&A We look consolidation. with global the very the the that and is makes team the to and at opted billion have so are team Today, –strategies beyond emerging available seeing multi-strat maybe that team disruption that It into we in spawned growth strategy. regards there’s look parallels of cap markets alternative-oriented strategies universe a you come strategies

it’s may alternative-oriented narrowly be demand looking supply and more the active the that’s get opposed to characteristics going we back That there at of to there the going formula. of to the about at and the more category? that equity to opportunity Is get today, supply we’re but a specific that – Is allocating are to as differentiate? a defined excited of are these looking that of allow as on management be thought that strategies expand. Those And issuers we’re those and growth have side. opportunities directly type to opportunities credit growing So that categories. to

I may. one Great, if very helpful. And just follow-up,

strategies track You mentioned alternative-oriented and have a records. passed one-year milestones, of five-year the including that some some recently

you talk terms little expectations, in more your terms you widening some of bit of inorganic in see to a and client in just One perhaps would pickup growth? Thanks. potential expect demand of

certain align With Group broader opportunity two. hitting early opportunities levels credit and Peak the stacking growth our the as specifically phase. well China greater growth organic strategies. us those hitting to provides the alternative-oriented say, to also Venture milestone with hitting a strategies milestone, distribution But And Post a a in or milestones for year those next Antero the as over more still efforts that asset we’re in more

again. very Thanks helpful. Great,

question The Robert from Please with go KBW. ahead. next comes Lee

the Great. as may comments morning my expense taking and questions. next clarify of just your a Good for on for thanks case wanted good couple be, guidance afternoon, or year. to C.J., And

or for to million combined? the tech $X to was have occupancy make in So sure just million I numbers. I want $X right XXXX the separately and

Separately.

And… Okay.

$X million to $X million.

in $XX you costs think I in, from have that being And addition increase, million kind kick increased increases kind your existing unfortunately to about mean, you That’s talked salary I headcount great. of the and normal of expected that benefits. of Okay, the should then of, helpful. as

benefits? increases top inclusive normal kind that, comp on that we of is as think that kind of see or So, of you’d in and should the of of,

for for It new hired loaded Yes. compensation merit gave additions No, XXXX. XXXX the that’s the employee as in represents headcount partial of had inclusive. increases also in well were hires that just we includes costs that fully It that as XXXX.

super That’s great. then one question, broader last maybe And helpful. Okay, question.

your platform, years obviously distribution fund set different but funds you’ve continue still started obviously, did how or about over recently? the greater to will expect expand to I that or how opportunity think some forward above reasonable it is and be to of this going to that you cash that next be management have some going mean, and capital oriented? you had for launch going of these forward, reasonable to greater think structures. – the to – new historically think evolve, what several – the used, to seed to So fund is least, As flow you’ve done private at do proportions or and strategies to

No, good We indicate, do question, And capital cash manage our that’s dividends. you towards as Rob. highly skewed tight Yeah. on will, our the book seed policy fairly basis. a a

from that utilized seed special year do the Some strategies time, require the earnings more from will to plan we’ve or and have launch time and recently seed. And launched of to more capital. we our current taken

into So wouldn’t as to evolving, to occasions unrealistic but we special, have the it’ll it products. that we think be see be several eat on would done

Okay, questions. for so Thanks them. great. taking Those much my are

The ahead. Ryan next Sachs. question with comes from Please Goldman Bailey go

good afternoon Good morning. or

firm? question for investment be? year, is we be quick the that for of Initially, the the this about need of where one-year maybe pace more investments build thinking needs a is start to you’re this you kind thinking, to you get of for should this Or a So C.J.

up as data. as you speaking I’m go business will only seem And inflation our Ryan, costs to and grows, know, Well, more with our remain. technology talent certain focus usage, and and

control would So we that said have a, I say our as over spend. before, I

this year. it We’re into leaning

occupancy the had tech over years leaning into a like spend. and last a subcategories Some been little with great couple We so bit year, suppressed last had of the COVID. we’re

will and year to efforts our beyond guidance because further years. So next reinvest continually say will, the should as several goes. provide don’t And want And the that, year, get expect year-over-year. growth we’ll into on we’ll span where you in we over same of into that end type the business. I the of But

and today. supply the in Eric, I of this market sort for that of I but the new asked when you were excited talent you had it can bring And Okay, question teams past, And about be maybe that’s – the fair. said it know then to can difficult forecast in you in.

Based I’ll few in hiring, your years a on new APAM than market you’re seen [Technical in coming And and over shouldn’t So way. ask could reason see maybe different what in any I’m the we reason asking this there into teams potentially today, we’ve it next seeing past? Difficulty]… is more the the the why is

You there the the just part of end, broke up at on Ryan, last it.

I have saying, sorry. Sure, sort teams of coming in the more just growth. pace of you steadily, diversification if more do steady firm was that a could more the improve see of and

do we a at I talent Yes. on earnings made that comments for greater the that looking think call. are the supply of I broad

strategies time stated, market Artisan space. how skill alternative I over do have think the more that teams a as capacity framework coming in strategy set, bit But a to the set capitalize you is with inside evolves evolved you and how these look As I how constrained skill on the tend unknown. of be at and

the our I in coming strategies at would to more and in on that expect and market bank next we’ve of So today, C.J. great performance, platform, years. as look franchise. broader diverse of as mentioned, evolve more over And the our teams invested always potentially first at priority is we the talent five a available let strategies array the are the number differentiated and platform has

bring Eric more the think just as leverage will us And future I spend clarify Ryan, has stated. to the teams, question, for comment then on provide to on earlier do my your

from and this while spent we’re will we gain so, things reimbursable doing of the continue, some efficiencies year. should And

Got it.

Eric Okay. the and And C.J. for the you thank for color, clarification.

next Please question comes Jefferies. The go from Fannon ahead. Dan with

Thanks.

of third – – distribution evolving the generation of channel, look client as maturation do first do generations makeup guess, here third I see some non-U.S. about that its vehicle even how AUM of and of more two And that And a the the of the three or by are at generations? that Just generation thinking at and the looking you you of kind mix of the you the or the and generation of location that versus from kind generation comparing growth SMAs, products? segment in see funds.

differentiated performance global the the in just a And results. with But fall side, market, Yes, in nicely that that generation, to third generations. the think with into clearly and look have unconstrained of the certain the firm within local strategy. one how going into it, we of debate emerging blend the amount various at bit global fee exactly type that it’s goes it’s of I the strategies the is been attract And team of really generation, new degrees that fits that going and a help on client top of market of freedom to also emerging base, non-U.S. and quite too. I

world. debt team can a look say market given across market mindset, and might And class. that So a the the the non-U.S. attractive even Arguably, with around very emerging looking this you Europe, emerging lends well lean strategy and the European at that is rates debt. asset currency at clearly, is comfort you that itself very and to allocation asset the towards a

So into as the globalization the freedom. this of as well degrees team may fall

on then credit floating three. but flip rate look we the credit has you opportunities. It’s now side, what So what’s the strategy going on yield. killer, we see is the at team, securities have of segment the surpassed and a of with clearly category a the that even the in credit up high or in in caught number a when And two market generation three, again corporate

within to supply have of you a securities a burgeoning category. So differentiate

categorization. that will vogue, or of of bring issuers the So it going be we’re into back it’s against here the to flexibility to not greater redefinition are to going allows think in bring it’s – cases, that number We stay. some in. And the back category

So – growth three we just we it gives across into across all looking the lens that a generations. – that could you categories two occur and I it how credit And that teams opportunities. highlighted, various think fits at the

building out assume a that I is Great, forecast you of team And XX% I said as the the then think follow-up, additional C.J., any hires? you. just headcount, doesn’t include But recent distribution, of mostly, teams. that as thank the as well

I the about many of be, the then – what thinking where – where breakdown maybe So how point, starting numerically that and people what going? that guess, is might even headcount

Yeah, it’s I additions. primarily really investments No, not team across prop that XX to forecasting spread talking around could any new XX distribution. probably mean, we and new teams. were A And then future about think And look areas administrative as and and individuals of up existing opportunities. side smattering a some number a across bit growth we of more. on the different ahead

Got it. Thank you.

any have we questions? other Do

no have further questions. we No,

session, you our which concludes presentation. for this attending also Thank conference concludes today’s call. So question-and-answer today’s

You may now disconnect.

Thank you.

you. Thank