Artisan Partners Asset Management (APAM) 2 Aug 232023 Q2 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 Artisan Partners Asset Management.

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

remarks, Following line for open questions. the these we’ll

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

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

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

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

of You can measures find comparable most GAAP in reconciliations release. those earnings to the the measures

now turn will CEO, to our Eric Colson. I call the over

each Thank environment. methodically delivered Artisan to quality compounding business outcomes The compounding in for extend business you team, reading have talent grows or a Since those XXXX, quality joining in we for outcomes well shareholders. firm, the growth future call Compounding AUM. for of a opportunity benchmarks increases thoughtful designed client and our Partners our class client each of the duration set these successful peers asset returns of thrive all excess founding underlies growth transcript. high as strategy quality with clients, investment and for power and the quality our is value-added investment in probability and capital of and opportunities. our as outcomes,

Success begets success.

of again. our and Trust compound our our staying residual do what strive shareholders compound and and communicating Trust the day to we day income out, to how we Compounding development by word shows this outcomes, to by we time, and plan over philosophy requires are who business we process. maintained and We and trust. established by our capabilities As do. to is true client our business. capital requires and in beneficiaries. time over is The fixed are sticking

the turn, performance In return has returns clients. This high to We Slide ago a of launched per basis our average of years, premier fees. XXX annual more the build strategies for partnered in income X-plus Over methodically is our the XX has high of We as index. value-added Credit six Crow, on X. The Manager, generated shown the credit-oriented Artisan performance XX% success Credit franchise. XXXX on generated fees. is, after benchmark Brian methodically strategy basis team net foundational a average, of years the on strategy Portfolio year than alpha That points team of credit with in equities.

Artisan category. peers. strategy The also outpaced ranked in the High funds high income inception, is Lipper Since #X has high-yield of the Income out Fund XXX

Capital foundation On we O recruited Mike platform second With EMsights launched our XXXX of FX our the and to in Group. team established and Cirami, into the Partners we further Sarah sovereign Artisan early early Opportunity institutional Emerging use first interest. in X, X the received $XXX and are translating of a healthy the million the strategy. Markets The in its mandate Local of into marketplace passed On performance team’s their anniversary. derivatives. EMsights, team of credit-oriented Brien investment EMsights Each have Artisan and success, our a reputation and Mike investment large greater level Credit Orvin expanded first strategies July they credit,

team’s progress are investments the in significant unconstrained Endo foundational We global and making similar towards strategies.

our of credit-oriented growth AUM; year-to-date the shows strategies. X Slide

Based bond teams. classes. benchmark beyond investment-grade of EMsights team funds. worth have team these strong, XXXX net outflow. differentiated hugging the development with are $X Group, we Not It’s bank teams both The and investors. both in for bond dot EMsights a between throughout generators. This also on and of mutual we Capital and all high-yield investment loans, strong are we who to from noting into Credit raised billion and Capital alpha emerging That’s year-to-date, pipeline the July expect is as of Group the contrast As business Credit market XX, that nontraditional for debt net providers remainder and as market funds is in data and and are. business consistent fund in winning asset the exposure money bonds, flows hot headline-generating clients

of opportunity We very believe differentiate bode over front time. early are and capital in they teams. that are short, in expanding absolute considerable spaces can demographic of the compound EMsights teams opportunity well believe sets with credit deliver return investing we change In these with We with periods investment we where the for great talent extended and us. and innings to in credit both both

occurs quarter One have not declined evenly by years, XXXX, about we more second year ago, our are calendar in have our quarters on which to Since strategies the earnings during Slide though founding information quarterly distributed X which over XX%. indexes compared, XX% drawdown X there in average, time. been every call. our a showed On XX the than

quarterly the to outcomes year way periods more board. our taken correlation differentiated benchmark way making XX on the advantage than to have down, creates managers though, in tend XX-month opportunity have rebounded off with the our aggregate, a that ago, observed year performance Historically, investment teams difficult in generate that outperformed. have asset-weighted we performance XX. highly it can assets short greater horizons. We A exceeded ago, a On the from to sell correlated dynamic. the of in extended Markets had become time now following X down, drawdown. XX% X that for and across update Higher of of asset firm-wide we Things term.

quarterly periods XX% basis XX XXX of in with a outperformance greater the at averaging we X than periods X-year drawdown, have points. Looking following outperformed

Group. the uncertainty In We Capital volatility EMsights the invest The in game. built our particular, year’s important in in build-out of investment continue patient is we midst were point drawdown, playing to markets. Partners that is Artisan for the of financial of the platform, the last and methodically long

and with business future diversified side for growth. the out multiple healthy, a come vectors have We other

shows X XX XX of strategies since performance inception years than of Slide with the the our performance. more

our to and becomes is of and plus to operating X stronger talent stakeholders. money broad our market risk clearly putting results a years is, our our through time. articulating the We long-term duration from investment record growing require and freedom investors talented years and exceptional attract set increasing investment our investment by for go of classes, as plus where for not we This instruments, beyond, success value-added provide and you X investment firm XX of talent. by by ideal degrees and surprise. stronger. and levers an retain a High investment to asset year teams for extend designing of available our talent markets generating We repeatedly As And managing return and And cycles. with clients. all mouth long-term horizon opportunity home supporting

the that is us business. process. the we strategies are the business to our excited same particularly of is mark. strategies not performance Artisan to investment this of of What categories and shows teams, the gets business across applying slide good slide, summary that breadth process on XX-year yet philosophy repeatability philosophy quality the the shown This It reach of and our a and time have and XX

our will to and shareholders. client high-quality client teams, continue newer outcomes capital translate for and success. asset we business into expect similar with compound to And strategies classes We our our outcome expect high-quality

over to to our turn now I will C.J. recent it discuss financial results.

Eric. Thanks,

of These model. assets XX% in investment-centric XXXX. of the been results business from higher billion, year quarter which beginning quality first half driven strong, results our the the ended the have up and Our management, by $XXX under the of reflect at client

this to client excess rose teams benchmark of over returned assets points So as markets basis year, returns adding to clients’ clients, investors. $XX have generated far billion compounded capital billion our above over $X of about billion $X.X investment for wealth our returns, XXX portfolios weighted average and back the of

average compared the was equity the $X.X from markets year. outflows, last was increased, billion, quarter up debt X% quarter During of quarter, our to prior client These account billion in compared net of outflows down to quarter. global Year-to-date billion mandates. billion down to offset investment XX% to partially and were separate contributing $X.X Average by primarily AUM XXXX, quarter. compared last returns last cash global AUM second X% reflecting and the year June AUM for $XXX.X $XXX.X

Slide mix by were AUM fee indicated no X class As asset and X, average weighted there material a Financial or on management changes results XX. vehicle. in on or our Slide presented are

sequentially costs operating compared higher offset X% a our quarter to by are XXXX, in XXXX. from the of net all fee to related expenses compared increase previous were on last for declined comparison second expense a compared both compensation to has decrease to to day Our partially quarter. average release. the with first complete down year-to-date on expense down compared X-month in and offset average increase X negligible June revenues results Year-to-date, to due in on X% incentive X% and partially an an XXXX are of increase revenues year’s revenues, strategic lower in increased operating that each average in our quarter period with increased employees GAAP Performance periods. expenses lower and in fixed compensation in X% per in expenses line in increased the Adjusted XX% are more incentive in presented revenues decrease growth and in employees Adjusted quarter year. adjusted to XXXX a AUM. were been quarter costs of X% revenues, quarter line plans. in to on increase XX% adjusted certain always quarter Seasonal income Adjusted lower compensation-related Revenues decreased in the highest last operating nature. XX% earnings our income higher quarter. number for compensation the due by seasonal second in AUM. The share to adjusted the AUM Compared were the

the Travel our interact perspectives. teams increase quarter, driven investment and forum, during expenses by to to the clients XXX client hosting and which activity our of annual approximately discuss with investment investment attracted continued

income As remain provided expense compared net year-to-date the call. the the to down February XXXX income on a were XX% guidance I adjusted adjusted result Full per revenues, projections of with year operating year-to-date earnings adjusted lower share period. and consistent

payments declared dividend and policy, shareholders basis to dividend returns approximately per cash XXXX committed quarterly a of a XX% dividend. our represents year-end variable Consistent policy, our quarterly on of quarter. remain quarter dividend dividend capital the in generated cash to and the our respect consistent Directors the special share June predictable $X.XX We of with through which a which Board with to

with Cap strong effective index, June, the to along volume June XX% the experienced drove During addition a Partners Small the the XXX the quarter. increase quarter, to in trading share equity in XX. of Artisan addition our price the noticeable announcement, announced in in S&P Index to markets return stock S&P of contributed The and the

to That remarks, will concludes and prepared my call I the the back operator. turn

Instructions] first Sachs. [Operator Goldman you. Alex go Blostein from ahead. question comes from Thank Our Please

Hi, the good taking afternoon. question. Thanks for

institutional launched $XXX last you the won especially seeing, of First, are guys if so. products specifically, over I mandate to a was third-generation across years? guys way some kind CJ you then new And to the the around more that. Any could couple little pipeline strategies, wondering million fee of the that Thanks. you rate or bit frame that you that the around comment the of

Eric. is us? of little technical Great, a having you issues. hear Alex. This Can bit We’ve been

great. hear you I guys, Yes,

primarily seen credit around on the strategies, Perfect. board newer the in outlook Yes. the given think current the EMsights, we’ve cycle. I across Thank credit you. news all the The orientation credit, the the on

with our manage to have allocation discussions clients all structure positive. forecast Our asset and market capital around to decisions consultants been

the Credit with and around pleased especially as Bryan dialogue well the the been with and we’ve Krug. EMsights activity, as So team team

EMsights the year. we’re Emerging outflow last stated, Market the of off pretty debt a we As into category good coming

in I a Market the history And and outflow $XXX see Emerging think which it nice allocation. we timing is debt a allocations, to was we’re of million announced the back starting in, that creep largest us. for

strategy. global to only as very other that opportunities continue help that have the few as Emerging continued are believe strategies. the Markets the into a fundings a income dialogue we flow with And unconstrained around well have local launch track on active we our high We credit will

Beyond been hasn’t uniform the homogenous EMsights, as earlier in see credit. as and the the strategies you

compounding seems investment of and lumpy that customization, we out a that there, lot with tenure correct. gives the results related. it some client it’s and the rate right, or been if much those some around changes of performance the takes, or doesn’t early get primarily So see that long-term the you as regulatory the get short-term matter the the the some We and as of you non-investment issues. think Structurally, are of of

year on draw a we’re track. we well pleased down are about the the after think newer rebound board, of on And where we’re across strategies a performance, especially the So at ago.

$XXX the think funding MLO million was I strategy. good for we all of it the funding, a

we So I hit your questions both there. think

I the that lower if relatively got higher, on the on it. institutional rate business, one, and fee like any rate comments I’m sorry around XXX know the I consistent with fee I or but being one. don’t the of kind missed,

large separate a It’s Yes. mandate. account

So the the change fee initial on is how it expectation the we’re given size fee lower our our at on forward. average rate outlook and an and doesn’t modeling funding. looking than It rate

vehicle through sometimes the strategies separate you that fund and strategy you come a Sometimes with through a large intermediary pooled account. launch come and

is and account separate below So what there’s we would expect. large a it

guys. you, Thank Great. it. got I

ahead. John next question from comes Please from Evercore. The go Dunn

Thank a kind bit strategies? more clients outside and of of looking more of channel. particularly you. little on a consultants you willingness to they the and temperature little where just commit temperature just credit, of kind the credit institutional Maybe might about talk to outside be and of Can of

a in been We’ve asset customization around active Europe some but the outflow an away ESG. importance seen some institutional that’s more accounts around And this more cases, we’ve seen some and especially more bit think seen the from separate on little channel, we’ve bit bit a in the the a superannuations. accounts, a equity, of separate allocation where outflow, Yes, large year-to-date, some Australia, muted regulation in I bit. of some

So, that the the exchange pure deliver institutional at in environment, balancing customization, And portfolio. the stable performance. the freedom ESG. outside what more is differentiated We end that with regulatory of performance, account you integrity leadership, on by of degrees to if a leverages the process day, the with a sets quality think investment investment we mean side separate it of team an create quality and short-term is

You have side. inputs institutional current the the a allocation non-investment short-term battling asset But very overall long-term. the secure is still position in on

And then you Has different over it. or on there the less changes could strategy? Got any more been maybe capacity? update us

No.

lot change or on from capacity We the year-to-date. last quarter discussions haven’t had a any of

Great. Thank you.

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

Hi. thanks for Good question. afternoon taking my and

What’s capital outlook developments could over sort Just sorts you terms pipeline? needs updated of of wondering any if the the like any provide of seed product down outlook in the near-term? for Thanks. new

on product strategies and last that capital, we XX we years, a putting have With demand the seed development than regards current We have XX-year resources. X years. of look less we past new to than done And for emphasis mark. below over strategies at with few the aligning probably we strategies quite years, highlighted the more the bit strategies, in are you launched have if

We teams. of have investment bit done on the a hiring current

there our finding We existing quite right out think is If with high of mindset you in our quite out delivering now is look what the on created. teams. primarily headcount, going as opposed we have on to at and been bar the on bit it’s the but opportunities investment marketplace, new uptick in teams a

short-term see new any So, or capital teams I teams. around seed real for new don’t movement

our next However, some there that over year the the today teams are launched, some current around the ideas interesting investment are falling of some of on need that we new we investment out our out we funding and strategy opportunities teams. have generated have opportunities current and based –

Ken, from And capacity existing do sheet. the sheet balance perspective, have a from to balance we more

special amounts. seed And capacity And likely left back if bit decision. us Last of sheet that, products. the new special future. the in more excites the will have quite ability for is to grow about for growth, invest room exceeds dividend We do increase the to we special or from have held $XX million a we seed a year, of future our in use the to similar need the capacity to which put always our we business to balance said to year-end

there. saw one Thanks. last, to so, you drivers that Were helpful just the particular end quarters on just just market? sentiment Very the for follow-up outflows over there or I it. And it, entire it two is OP call if any or net related Got [ph]. may, the

would in last U.S. specific those as the I much the over equity Yes. give things quarter. as team concentration on markets the the

a with been even think I coined name Magnificent the Seven.

probably So, name an when a landscape the there. just in index, the the you coin and quarter is driver there is I concentration last think competitive over main

helpful. it. Thanks again. Very Got

Michael from from KBW. Please go comes ahead. question next The Brown

Hey. Great. any term EMsights is at first, question that required guess the the when ability point? you investment And done over major to team, margins mid look then how I my margin do question the levels there the can this And that Thanks improve back for just longer you questions. mostly time? forward, margin around that there, a is a current here, taking other on time? over get high-XX% or Maybe the think from about to to

we take Yes, strategies. the as growth have Mike, that I EMsights certainly, in team future invested will one. as new well across

We absolutely to system. the perspective in exists investment. side, lifting that margin largely period. have during the that amount from ability the There heavy on have of And the an seen done margin we is investment decline grow the capacity our given the

that’s I to the given chunk of on spend We on COVID in we could XX% but continue out, I when we stand to spiked and during the could huge what will see system, are able can happen – assets And distribution. if more the side. the our should have you definitely saw that just action. capacity up to a – got don’t the happen from will we in in the market will don’t high-XXs. the And fair margins see certainly we capitalize invest amount spend back from capacity, distribution we that But think our mid-XXs left to margin think will that we went of again. that noticeable

already Great. course been financials is one Thank these the of use it in generative the out is about process. asset your AI guys? that you. you for management AI potential kind been a think may teams could I to How data, of like for figure opportunity want the managers be implemented data it? certainly have guys days that and and/or in your the use in hot trying Is and to that processes? how the landscape has AI And guess the of potential you it topics more something to sounds something how do

there is how we opportunity the certainly, regards of data, think incorporate they run I AI see distribution. to run investment leveraging AI the investment team’s more and teams how how to ten and with you with will know, distribution. and some in investment teams, each their be quantitative and really as business, value autonomous the regards the based with And on eventually business their they leadership tools we process and from

middle, highly to want from are for incorporating big the and business. services And into to to then will investment tools programming. the you We and as optimize in AI, teams. the the pockets our a is available, in data in There the there get bring the through teams that near-term, that’s the be going brought to to more leverage development in really to but into across services headcount given group bear I is back will will is I organization. efficiency margin, higher move use of there on writing. teams – productive data you data the more distribution. think don’t the those see savings do investment ability investment we clearly think There of individuals in And pockets like within leveraging be pockets – great is And

it’s in it hot the It’s innings, different are probably and a early three we ways. So, topic. in looking at

Very interesting. Okay. Thank you.

has This you concludes for The attending now today’s our conference Thank session. question-and-answer presentation. concluded.

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