Artisan Partners Asset Management Inc. Class A

Hello, and thank you for standing by. My name is Carrie, 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. At this time, I will turn the call over to Michaela Taphorn, Director, Investor Relations for Artisan Partners Asset Management.

Thank you. Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Holson, Chairman and CEO, and CJ Daley, CFO. Our latest results and investor presentation are available on the Investor Relations section of our website. Following these remarks, we will open the line for questions. Before we begin, I'd like to remind you that comments made on today's call, including responses to your questions, may deal with forward-looking statements which are subject to risks and uncertainties. These are presented in the earnings release and detailed in our filings with the SEC. We are not required to update or revise any of these statements following this call. In addition, some of our remarks made today will include references to non-GAAP financial measures. You can find reconciliations for those measures to the most comparable GAAP measures in the earnings release. I will now turn the call over to Eric Holson.

Thank you, Michaela, and thank you everyone for joining the call or reading the transcript. As in the past, I will use this second quarter call to discuss our talent-driven business model, which is the core to who we are as a firm. Artisan Partners provides a unique platform for investment talent. We provide stability, support, transparency, predictability, and time. We're also extremely flexible. Established investors and teams evolve over time. New individuals and teams enter the markets with fresh perspectives. What they want and need changes over time. As a firm, our structure and culture allow for change while maintaining the discipline and alignment necessary to deliver for clients. In our earnings release, we reviewed three recent examples of the flexibility in our model. Last year, Rezo Canovic joined our firm to manage what is now the non-U.S. small-mid growth strategy. Rezo and his analysts operate within the global equity franchise, but they have control of their philosophy, process, research, and decision-making. They own their strategy and at the same time collaborate with a larger group of like-minded peers, without the responsibility of managing a larger entity. Also last year, we evolved our global value team into two separate teams, global value and international value. The division was driven by the buildup of high-quality talent, a good problem to have. To increase space for that talent to grow and thrive, we disrupted ourselves. We knew that consultants and clients would struggle to compare this reorganization to other industry examples. But that's because our structure is uniquely focused on managing talent over the long term. A third example of talent evolution within our model is Jason White on the growth team. Jason joined Artisan out of the United States Navy in 2000. He was promoted to associate portfolio manager in 2011 and portfolio manager in 2016. In September 2017, we launched the Global Discovery Strategy with Jason as lead portfolio manager. These are three very different approaches to optimizing for talent. With Rezzo, we assembled a team of established individuals and embedded it within an existing franchise to create a larger collaboration network while maintaining autonomy and the alignment and accountability that go with it. With the Global Value Team, we reorganized an established franchise creating space and opportunity for professional growth. And with Jason White, you see how our growth team has consciously built a platform for developing and unleashing internal talent. These examples are what we mean when we say our firm is talent-driven. They demonstrate the flexibility that distinguishes us and which is increasingly important as our people continue to grow and develop and as collaboration models and preferences change. Turning to slide two, when our firm was founded, there were limited options for great investors who wanted to build a unique investment franchise without the non-investment distractions of running a business. Artisan provided an ideal home for these free agents. At the same time, open architecture allowed independent investment managers to efficiently access clients through intermediaries, fund marketplaces, DC plans, and institutional consultants. Having established our firm, we evolved as the investment world globalized and as investment talent and asset allocators sought greater investment freedom. Today, these trends remain relevant and important. In addition, we have added two new defining trends to the timeline, investment talent platforms and client outcomes. Collaboration models are changing all around us, most notably in the gig and sharing economies. where technology enables individuals to access vast networks and a nearly unlimited array of tools and resources. Today's environment places a premium on the value we can add for talented investors by operating our firm and investment teams as flexible, high-value added platforms. We fulfill that role by providing stability, guidance, and time, curating and validating talent, vendors, and data, reducing transaction costs and distractions, and by creating alignment and accountability between an increasingly short-term and transactional marketplace on the one hand and clients trying to solve for long-term financial outcomes on the other. Today, we are pushing ourselves harder than ever before to think broadly about how we partner with and operate for talented investors, those at Artisan today and those who will join us in the future. Before moving on, let me say just a few words about the client outcomes concept. Clients are increasingly demanding more customized outcomes, which can include things like tax optimization, vehicle preference, alternative fee schedules, customized ESG, and the like. With many of these trends, we are still in the early stages. We expect to continue to evolve our business to align with those that are durable and fit with who we are as a talent-driven investment firm. You should expect to hear more from us on these topics as we move forward. Slide 3 shows our investment performance. No slide better summarizes why we believe our talent-driven model works. Long-term investment results are strong across the entire firm. For 11 of the 15 strategies, The corresponding mutual funds rank in the top 10% of its LIPR category since inception. Year-to-date returns across our growth, global equity, and developing world teams have been exceptional on both an absolute and relative basis. In particular, the global discovery strategy has outperformed its benchmark by 1,359 basis points after fees. And the strategy's corresponding mutual fund is ranked number one of 141. The non-U.S. small-mid growth strategy has outperformed its benchmark by 1,083 basis points. After fees, the strategy's corresponding fund is ranked nine of 222 funds in its peer group. And the developing world team has outperformed its benchmark by 2,028 basis points after fees. placing it in the top 1% of its mutual fund peer group. As a reminder, in these materials we show value added against each strategy's broad market benchmark. For several of our style-oriented strategies, many clients use a style benchmark to evaluate performance. At quarter end, the value equity strategy was outperforming its value index by 184 basis points year-to-date, and underperforming by just seven basis points since inception. Likewise, against its value index, the US mid-cap value strategy underperformed by only 34 basis points year-to-date and outperformed by 199 basis points since inception. Slide four shows how our investment platform has translated into AUM growth over time. For our investment talent, we think in terms of developing and growing over an entire career, 20 or 30 plus years. For our clients, we think about delivering results over a long time horizon through multiple market cycles. Accordingly, when we think about the growth and development of our business, we emphasize the importance of long-term timeframes. It takes time to build and develop an investment franchise, and the path is never linear. If we create an environment in which talented people can grow and thrive and deliver for clients, we are confident that our business will grow as well. It's also important to remember that the vast majority of long-term growth shown on this page is a result of investment returns, not net sales. That's what we expect and want. When we grow through investment returns, we grow with our clients. Year to date, Our strong absolute and relative returns for clients have translated into $19.2 billion of AUM growth. Approximately $4.4 billion, or 23% of that growth, represents returns we have generated in excess of broad market indexes. On slide five, we have broken out the growth of our newest strategies and teams and compared them to our historical experience. In the aggregate, the new strategies and teams highlighted on this page have seen 2.7 billion of net inflows in the first six months of 2019. Their growth is tracking very nicely against the growth of our earlier strategies. In the early years, we take the time to establish the talent, process, and track record that are the foundation for long-term success, like that shown on the prior slide. Each of the teams highlighted on this page is doing an excellent job building a foundation for long-term investment excellence and business growth, getting the hockey stick effect that some of our early strategies experience often requires an outside event, such as a change in asset allocation preference or a competitor blow-up. Our new teams and strategies remain focused on building their franchises and delivering for existing clients, We are confident their businesses will continue to grow. Our talent-driven model remains in high demand. We will continue to build and execute on that model. I will now turn it over to CJ to discuss our financial performance. Thanks, Eric.

Financial highlights for the quarter and year-to-date are on slide six. I will focus my comments on adjusted results, which we utilize to evaluate our business results and operations. In summary, we ended the June 2019 quarter with AUM of $113.8 billion, up 6% from the March 2019 quarter. Average AUM for the quarter was up 5%, which, along with performance fees, grew revenues 7% to $200.7 million. Expenses were flat compared to last quarter, reflecting higher variable costs and lower seasonal and occupancy expenses relative to the March 2019 quarter. Our operating margin improved 440 basis points to 35.3%, and adjusted net income per adjusted share was 67 cents, up 22% compared to the March 2019 quarter. Results for the six-month period reflect lower average AUM following the sharp decline in global equity markets in the fourth quarter of 2018. Average AUM for the six-month period was $107.6 billion, 8% lower than the prior year's six-month period. Revenues were down 9%. Expenses declined 2%, reflecting lower variable expenses, which were partially offset by increased costs related to investments in occupancy technology, and an increased number of full-time employees. Our year-to-date operating margin was 33.2% in 2019, compared to 37.4% in 2018. And adjusted net income per adjusted share was $1.22, down from $1.53 for the same year-to-date period in 2018. per share, which represents approximately 80% of the cash generated during the quarter. Year-to-date, we have declared quarterly dividends of $1.15. Assets under management and net client cash flows are on slide 7. AUM at the end of June 2019 quarter was $113.8 billion, up $6 billion. to the June 2018 quarter. Rising global equity markets and strong excess returns generated across our investment teams grew AUM $6.5 billion during the June 2019 quarter. This appreciation was modestly offset by $500 million in net client cash outflows. Client cash outflows in the quarter were largely in the non-U.S. growth and non-U.S. value strategies as we continue to see client portfolio rebalancing as well as asset allocation decisions away from active international equity. These net client cash outflows were offset in part by net client cash inflows from new clients and additional allocations into the non-U.S. small-mid growth, developing world, and global discovery strategies, among others. The June 2019 quarter-end AUM was essentially flat compared to the June 2018 quarter-end AUM, $114.2 billion, as net client cash outflows were almost entirely offset by market appreciation and alpha generation over the 12-month period. Year-to-date, as of June 30, 2019, AUM grew 20% due to rising global equity markets and strong excess returns generated by our investment teams. This growth was partially offset by $1.6 billion in net client cash outflows. Average AUM and revenues are on slide eight. Average AUM for the June 2019 quarter was 5% higher than the March 2019 quarter and 5% lower than the June 2018 quarter. Revenues for the June 2019 quarter were up 7% from the March higher average AUM and $4.3 million of performance fees earned in the June quarter on accounts managed in our global equity and global opportunity strategies. Compared to last year, revenues for the quarter and year to date are down, primarily due to lower average AUM. Our effective fee rate rose this quarter to 73 basis points compared to the March 2019 quarter as a result of performance fees earned in the quarter. offset in part by a slight decline in the mix of AUM by vehicle. Operating expenses are presented on slide nine. Operating expenses in the June 2019 quarter were flat compared to the operating expenses in the March 2019 quarter, reflecting higher variable incentive compensation and third-party distribution costs and lower seasonal and occupancy expenses compared Compared to the same periods last year, quarterly and year-to-date operating expenses reflected decline in variable incentive compensation and third-party distribution costs, and increased expenses related to investments in office space, technology, and employees. Details of our largest expense, compensation and benefits, are presented on slide 10. Total compensation and benefits expense as a percentage of revenue declined in the June 2019 quarter to 51% compared to 53% in the March 2019 quarter and rose slightly compared to the June 2018 quarter. The decline in the June 2019 quarter compared to March 2019 was due to lower seasonal expenses. Equity-based compensation expense in the June 2019 quarter was slightly higher compared to the as we recognized a full quarter of amortization related to our 2019 employee equity grant, and was $3.3 million less than the June quarter of 2018, as earlier higher grant date value equity awards fully vested. Turning to slide 11, our operating margin was 35.3 percent for the June 2019 quarter, up 440 basis points from the March quarter. Compared to the June 2018 quarter, our operating margin was down 190 basis points, primarily due to lower average AUM. The impact of our increased investments in occupancy, technology, and additional employees was offset by lower equity-based compensation expense. For the six months ended June 2019, our operating margin was 33.2%, or 420 basis points The majority of this decline was the result of lower average AUM year-to-date and higher occupancy expense and relocation charges in the March 2019 quarter. Trends in adjusted net income and adjusted net income per share were consistent with the trends in operating margin. Adjusted net income and adjusted net income per adjusted share were up 24% and 22%, respectively, compared to the prior quarter. Compared to the June 2018 quarter, adjusted net income and adjusted net income per adjusted share were 11% and 12% lower in the June 2019 quarter, respectively. June 2019 year-to-date adjusted net income and adjusted net income per adjusted share were each down 20% compared to the same year-to-date period last year. Slide 12 shows our dividend history since 2014. Our Board declared a quarterly variable dividend of $0.60 per share, which reflects approximately 80% of the cash generated in the June 2019 quarter. Year to date, we have declared quarterly dividends $1.15 per share. As in prior years, we will consider the payment of a special annual dividend after the end of the year. That process involves assessing the current market environment, business conditions, and any needs to retain cash for strategic investments or other corporate purposes. Our capital management philosophy has been and continues to be payment of a majority, if not all, of the cash generated from operations in the form of cash dividends. Our balance sheet summary is on slide 13. Our cash position is healthy and leverage remains modest. We continue to maintain $200 million in borrowings, 50 million of which matures on August 16th. Subject to certain customary closing conditions, we expect to refinance the maturing notes with new notes maturing in 2027, bearing interest at 4.53%. We expect the covenants to remain the same. Closing, we remain focused on executing on our model, provide our talent, the best opportunity to deliver results for our clients and investors over the long term. From a financial perspective, this requires that we maintain a high variable cost structure and invest thoughtfully to support our business model. The results for the quarter, year-to-date, and over longer periods reflect this discipline. That concludes my comments, and we look forward to your questions. I will now turn the call back to the operator.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. We do ask that you please limit yourself to two questions to allow time for others. At this time, we will pause momentarily to assemble our roster. The first question will come from Dan Fannin of Jefferies and Company.

Thanks. Good morning. I guess as you look at your performance and the strength that you're seeing year-to-date and on a longer-term basis, and then we look at flows, you're not necessarily translating. I guess my question is on distribution and the resources that you have allocated to that part of your business. If you feel like there's more investment that needs to be made to take advantage of what's happened in terms of the performance you have, or if there's other changes that have gone on that maybe you could highlight that you're either working on or looking at to maybe improve the momentum in gross sales?

Hi, Dan. It's Eric. Certainly the performance has been stellar year to date as well as long term. And I think everybody wants to translate specifically to flows as the most success for an asset manager. And we think controlling flows, we think managing capacity and delivering excess return, as we stated in the call, is aligning with clients as best as we can. When we look at, from a flow perspective, we're going to maintain those discipline of capacity, and that also translates to a fee discussion. There's a lot of opportunities that we could win with these performance numbers if we want to play at the lowest fee spectrum. We have decided to play in the median to upper fee perspective and compete with clients that want a long-term performance outcome that we present. There's an uptick maybe in performance-based fees. I think to compete on a go-forward, we might have to be a little bit more flexible when it comes to the vehicle choice, which we have been adding some share classes to our USITs. We've been adding some CITs to some strategies. And those are just more flexible delivery vehicles. I think in the future you might see an active ETF, a non-transparent ETF that's being discussed that also provides a more flexible vehicle. And for some strategies, you could see a more model delivery or holding-based delivery. So those would be the areas on a go-forward basis that may translate to more flows. But I would say the number one factor is factors.

Great. That's helpful. And I guess just, CJ, on expenses, just thinking about the remainder of this year, if there's anything that you would kind of highlight in terms of rate of change. And then I know it's early, but 2020, like what's outside of compensation or kind of what's the rate of growth we should be thinking about for the other line items?

Yeah, I think the previous guidance I've given on some of the categories remains intact. As you know, we had an occupancy charge in the first quarter, which, you know, upticked our occupancy line item in Q1. And then this quarter we had a little bit of double rent. So, you know, that's on target, you know, to be in the, you know, $22 million to $23 million range today. for a full year, including those charges. And then communication and technology, I think we guided to, you know, 41-ish on a full year. And as we know, that fluctuates, you know, quarterly a little bit just with where projects are. And, you know, that guidance still remains on target. So really no upticks. And it's, you know, in 2020, I'd say it's a little major that I'd be able to call out.

The next question will come from Bill Katz of Citigroup.

Okay, thank you very much for taking the question this morning, and I appreciate the slide that shows the glide path of some of the newer teams relative to some of the historical ones. So on that page specifically, I guess two questions. What do you think is driving the more rapid adoption of the newer teams. And then as you sort of play that slide through, and I'm speaking of slide five, what do you think is the end state for those teams? Because if you look at the, on the right-hand side, you know, five years out, the central tenancy is generally about $5 billion per team. So I'm just trying to see is there more just capacity for these teams, notwithstanding your notion of trying to maintain, you know, alpha and C rates. Thank you.

Yeah, hi, Bill. It's Eric. I think we credit the earlier adoption in that first three years just to artisans' brand in the marketplace. If you go back into some of those strategies in the mid-'90s, we were just starting to build our presence, and it was primarily in the institutional marketplace, which usually required a three-year track record. Given the footprint of the organization now in its breadth into the intermediary space and financial advisors to broker-dealers, we're getting a bit more earlier adoption there. Yeah, on the flip side there, I mentioned in my points there that – the beauty of the institutional marketplace after the three-year track record and playing in the structured categories of the 90s and early 2000s of style and market cap. Once you succeeded in that category, it was a fairly homogenous marketplace that could create a rapid uptick. So that did, I think, mute some of the three factors or earlier newer strategies today. I would also say that these lines are by product, not by team. So some of these products today that are on the early stage are $10, $15, $20. out into the future.

Okay. That's helpful. And then just one follow-up for me, and thanks for taking all the questions. So you mentioned a variety of sort of more flexible products. I'm presuming that's on pricing, but maybe that's not correct. So when you speak to greater flexibility, is that breadth of the mandate and or how you structure the fee rate? If you could just expand on that, it would be helpful. Thank you.

My primary point on that was the flexibility. The Mutual Fund 40 Act is a very rigid vehicle. When you think about how you operate with individual accounts or how you operate with restrictions such as ESG factors, it makes it very difficult to operate and customize to a specific client. So the flexibility is across the spectrum. of being able to have an end either platform or end solutions-based provider take into account tax or take into account ESG. And so it's beyond price in my mind.

The next question will come from Kenneth Lee of RBC Capital Markets.

Hi, good morning. Thanks for taking my question. Just a follow-up one on the potential to expand distribution. I think in the past you've mentioned potential areas to expand distribution include non-U.S. clients, registered investment advisors, as well as wealth management platforms. Just want to gauge what the progress is in terms of expanding distribution within those channels and whether you would necessarily need to add some distribution capability in order to further access those channels. Thanks.

We continue to look at expanding distribution outside the U.S. I think you've seen our assets and client base grow over the years. We think the product mix we have today fits very well for a global client. The distribution efforts outside the U.S., we continue to expand deeper into the intermediary and wealth channel and trying to partner with banks and various open architecture platforms primarily in Europe. We also are expanding into a broader footprint going broader into various countries. And so we will see additional resources be applied to non-U.S. distribution in two forms. One will be a slight uptick in headcount over the next 12 months, but also a greater focus on using digital marketing to capture that broader client base.

Gotcha. Very helpful. And one follow-up, if I can. What's the latest outlook in terms of potential for new investment team additions? Which strategies could be potentially interesting longer term? Thanks.

Right now, we have... Nothing to announce on new strategies or teams. We always have an active dialogue with our existing teams of being mindful of talent percolating up within the teams or ideas they may have to broaden their degrees of freedom to provide alpha to clients, and that's our primary use of time. a broad array of strategies. It's, I think, a very disruptive market right now when you look at trying to launch your own firm. The regulatory environment is making it difficult. The distribution is making it difficult. And Artisan has provided a very successful home for invest knocking on our door.

Gotcha. Very helpful. Thank you.

The next question will come from Chris Shutler of William Blair.

Hey, guys. Good morning. I wanted to follow up on the sales pipeline. You know, I was pleasantly surprised to see the international SMID growth, see some separate account flows so quickly. Also, global discovery, global equity, I think, saw some separate account flows, which seemed overdue given the really good performance. Eric, can you talk about the sales pipeline for those products more broadly?

Those strategies are all fairly early in their life cycle. We're pleased with the growth we're seeing in the early adoption. I think it was mentioned earlier to see these early strategies growing at a slightly higher rate than we've seen in past strategies at this point in time. Really the focus in these first few years is making sure that we have the right resources and the right foundation so that we can deliver the numbers versus trying to run around the world and capture to deliver alpha, and if we deliver alpha, especially in a world today where information is readily available, that assets will come, especially the right clients on the right term.

the marketplace right now okay and um cj just one quick one for you the uh stock comp could you give us your expectations for the back half in 2020 yeah i think um you know we've we've outlined that um in the past but um you know in equities comp we're all uh

We'll see a bit of a downtick in the next two quarters because we do our grant in January, and then there will be another grant in January 2020, which will add another layer of comp expense amortization, but there'll be a layer rolling off. So, you know, whether that's additive or subtractive of where we of our stock at the time of the grant when it's valued.

All right, thank you.

The next question will come from Michael Carrier of Bank of America Merrill Lynch.

All right, good morning, and thanks for taking the question. I just have one. Most of the performance records in the newer strategies are impressive, as you highlighted, particularly relative to the benchmark. Eric, I think in the past you discussed different degrees of freedom as drivers. So just a few questions around that. Can you provide some attribution on maybe the drivers of the outperformance, whether it's between sector or security selection within the benchmarks as well as away from the benchmarks? And then when you get away from the benchmarks, how do you guys think about managing either concentration risk, liquidity risk, just any of the things that are maybe different in these strategies?

Certainly, the The attribution is primarily coming from stock selection or security selection when we look across each of the strategies. And you mentioned in the second part of your question with regards to concentration, the more and more of our strategies see – We do see a much higher active share in our strategies versus the peer group. That is by design that we're seeking strategies that would be highly differentiated. In some cases, there's a security or two that goes out of region or goes out of market cap, and we encourage that flexibility within the strategies. And with regards to your comment, though, on liquidity, these are all liquid securities. We're not playing in the private markets and putting illiquid securities or private securities inside of a daily priced and liquid vehicle. So the flexibility is really in the concentration side. Okay. That's helpful. Thanks a lot.

The next question will come from Robert Lee of KBW.

Yeah, hi. Thanks for taking my question. Just maybe real quickly trying to tie a couple things together. So in talking about some of the potential new product delivery vehicles and some of the incremental investments maybe in distribution outside the U.S., as we think about that maybe over the next year or so, how should we – maybe with CJ following up to an earlier question, think about that, if at all, as we think about kind of, you know, expense trends beyond this year, maybe into next year, should we still be thinking that, hey, just kind of inflation rates, a reasonable growth rate, or is there, you know, enough going on that maybe, you know, additional upward pressure on expense levels as we look beyond this year and, you know, more of those things come online? And then just one follow-up question after that.

Yeah, Rob, Sarah, go take the first part and give the second to CJ. But, you know, as you've seen in the past with Artisan is a real view that we have to see a real durable distribution trend. And when we see that trend, we'll glide into that. We don't see distribution as a first mover space anymore. If you get the performance right, it's getting into the right channels and to the right clients. And that doesn't happen overnight. This is a relationship business at the end of the day. And so we'll glide into these vehicles and these two new territories as opposed to exploding into them and surprising anybody on any expenses. But I'll let CJ hit the expense side.

Yeah, Rob, I think inflationary plus a little bit slight uptick in the areas that Eric mentioned is the way to think about it. I mean, we're talking about a slight uptick in headcount, not a major invasion into a region where we've got to put a lot of boots on the ground and incur a ton of costs. We're also, during these periods, trying to be very mindful of expenses. So You know, we're trying to manage, as we always have, you know, balancing, you know, revenue generation with expenses. So that's typically been our philosophy in the service well. So I think you'll see, you know, gradual upticks. And until we're successful on the distribution side, we typically don't really, you know, put the infrastructure in place. You know, we use a fly-in, fly-out model up until then. So, yeah. You know, bottom line is I think inflationary plus, you know, slight uptick based on the areas that Eric mentioned.

And just maybe a quick follow-up, I mean, kind of maybe the inevitable capital question, but, you know, as you look at some, you know, introducing new vehicles, different vehicles, also kind of the, you know, continued share creep, Any update on kind of maybe how you're thinking about capital usage? Well, some of these vehicles, I know some distributors on some vehicles do require more seed capital in them if it's a new vehicle, and you see that as an increase in potential use. And kind of maybe, you know, thoughts about, you know, why not, particularly since the stock's, you know, certainly well off its highs, but why not, you know, think about more trying to at least, you know, buying back enough stock to immunize share count? Because I guess with share creep, you could kind of argue that it's kind of taking away some of the alpha generation from underlying performance if kind of shares keep creeping up.

Rob, I think the first part is, I think there's two questions in there. One on the use of capital for vehicles. We really try to work with our clients for them, and if they have a demand, then we'll work with them to launch that and work with them on funding both with a modest amount of capital from Artisan, but primarily coming from a client that's seeking that, as opposed to launching an array of share classes and vehicles and hoping that prospective customers I think we've seen a lot of funding of vehicles over the years by various firms that just languish there over time. And really, we like to partner with clients and find out what are their needs. And if we have a massive uptick of adoption of an active ETF, then we that want that vehicle. And that's how we look at launching new share classes or vehicles. So I wouldn't expect a massive uptick in capital needs for vehicles.

Yeah, in fact, we have more use of our balance sheet for seed investment now than we've ever had. And we keep that $100 million of excess cash on the balance sheet and You know, back to your share repurchase question, you know, we revisit this, you know, every so often with the board. And, you know, each time we do, we sort of get back to, you know, we like our current policy. And, you know, we value transparency and predictability. You know, we value avoiding mistakes. We've seen a lot of mistakes made over the years in share repurchase programs. And You know, we ultimately view our decision to grant equity to our employees as a separate decision apart from whether we should buy back stock. So, you know, we obviously have an equity culture, always have as a partnership, and it's important to us to continue to reinvest in the talent that drives the business. And then on the share repurchase, you know, we like utilizing cash to pay a a cash dividend. And, you know, if you extrapolate out, you know, we're still running around at 10% dividend yield, which, you know, is quite attractive and we think goes a long way to supporting, you know, the share price.

Great. Thanks for taking my questions.

And ladies and gentlemen, this concludes today's question and answer session. And this also concludes today's conference call. Thank you all for attending today's presentation. You may all disconnect your lines. Have a great day.