Artisan Partners Asset Management Inc. Class A

Hello, and thank you for standing by. My name is Jamie, 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, today's conference call is being recorded. At this time, I'll turn the conference call over to Michaela Taphorn, Director of Investor Relations for Artisan Partners Asset Management. Ma'am, you may begin.

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 Daly, 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 questions, may deal with forward-looking statements which are subject to risks and uncertainties that 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 the call. In addition, some of our remarks made today will include references to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in our 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. Today I want to discuss the topic of thoughtful growth. After I finish, CJ will review our financial and business results. Thoughtful growth is one of the three pillars of our business philosophy. We have always been and remain a growth firm. Growth is important for our talent, for our clients, and for our owners. To recruit, develop, and motivate exceptional talent, we must provide resources, space, time, and guidance for people to grow. Professionally as investors and entrepreneurs, intellectually as curious, engaged people, personally as responsible members of diverse communities, and financially as accountable citizens. By facilitating all facets of growth, we maximize the probability that we can for entire lengthy careers, which increases the probability of long duration clients and positive long-term financial outcomes for owners. Over the last 10 years, we have grown the real assets of our business in a multitude of ways. We have increased our investment franchises from five to nine, diversifying our sources of alpha and future growth. We have increased our strategies from 10 to 17, diversifying our AUM, and creating a lineup that is relevant for a variety of asset allocations. And we have built technology, infrastructure, and operations to support greater degrees of investment freedom and the continued growth of our business. We have focused on multi-dimensional growth, strengthening and expanding our existing business while also adding new teams, strategies, and capabilities. Those investments in business growth have translated into financial growth. Our AUM has grown from $44.4 billion to $112.5 billion. Our run rate revenues have more than doubled. And throughout the past 10 years, we have maintained strong operating margins and distributed essentially 100% of our cash earnings. While growth is important, We constantly remind ourselves that growth is an outcome, not a strategy. We don't seek growth for the sake of growth. We don't try to engineer growth. We focus on what we can influence, what we do well, and what's consistent with who we are as a high-value-added investment firm. The items listed on slide two. We can recruit and develop great talent and maintain an ideal environment for our people. We can provide investment tools and flexibility to manage differentiated strategies and generate alpha. We can communicate openly with clients and deliver on commitments. We can manage capacity to prioritize investment returns. We can design new investment strategies for evolving asset allocations and distribute those strategies in an efficient, leveraged way, minimizing distractions for investment teams. We can operate a financial model that is transparent and predictable. We can operate with integrity, and we can remain patient. We cannot control the macro environment, market returns, client and investor sentiment, or the timing of client cash flows. Since we can't control those items, we try to avoid being distracted by them. Our patient approach results in a bumpy ride. We could try to smooth things and engineer short-term outcomes. We could launch whatever the latest hot product is, regardless of whether we have the right talent or edge. We could underprice alpha and limited capacity to boost short-term flows. We could massively spend on sales in an attempt to change buyer preferences, which would disrupt our investment-oriented culture. That's simply not our approach. It's not sustainable. It results in blow-ups that can fatally disrupt the long-term compounding process. We want to persist and thrive for talent, clients, and owners for the very long term, which requires that we remain disciplined and patient. Slide three shows the current outcome of our long-term approach. We have nine autonomous investment franchises, each with great leadership, stable talent, and outstanding investment performance. The nine franchises manage a diverse set of high-value added strategies for a range of asset allocation styles. All nine franchises want to grow, and we continue to invest in each of them, adding new talent, providing new technology and data, improving physical environments, and developing new strategies. The nine existing franchises are a powerful platform for thoughtful growth. Through future investment performance, net flows, and additional investment strategies. Existing business, though, is not our only source for future growth. At any given time, Artisan as a firm is more than the sum of its existing parts. We have a repeatable and proven process for adding new franchises and strategies. Slide four summarizes our execution of that process in recent years. Since 2013, We have built three new investment franchises, launched six new strategies, recruited a new leader for and added degrees of freedom to our non-U.S. small-mid growth strategy, evolved our global value team into two distinct investment franchises, and invested in new people, infrastructure, and technology to support greater degrees of freedom in our increasingly global business. We have taken advantage of disruption in the talent marketplace. We have provided a home for proven investors who want an investment-centric firm that provides support, independence, and time to do things the right way. We have also taken advantage of the disruption to style box allocation. We have designed and launched global and third-generation strategies that fit asset allocation's evolving way evolving away from the traditional approach in both the institutional and wealth channels. These investments have significantly increased the diversification of our firm, adding new independent alpha sources, new asset classes, new capabilities, and new sources of growth. We are already seeing significant early returns as shown on slide five. we manage over $10 billion in the seven third-generation strategies developed since 2013. The strategies are growing through investment performance and new client demand. Year-to-date, they have raised a combined $3.3 billion in net inflows. They are experiencing demand at fee rates that reflect their high value-added nature and relatively limited capacity. And so far, the early adopters have gotten good value for money. The four publicly available third-generation strategies with track records of more than a year have outperformed their indexes by an average of 156, 523, 838, and 1,447 basis points annually since inception after fees. The third-generation strategies are continuing in the tradition of our first and second-generation strategies. Year-to-date, those strategies have generated collectively $2.8 billion and $1.3 billion of excess returns. The first- and second-generation strategies remain incredibly important to our clients and our business. In keeping with our multi-dimensional, holistic approach, we continue to spend the lion's share of our time and energy reinvesting back into the first and second generation. We have added and elevated talent, increased degrees of freedom, and thoughtfully managed capacity and business mix over time. Those efforts have paid off in the form of continued strong investment performance. Looking forward, we believe that a significant portion of the market will retain Stylebox components, which will drive long-term demand for our first-generation strategies. You can see that in the $6.2 billion of gross inflows into those strategies so far this year. Our second-generation strategies have multiple avenues for continued growth. They fit well into institutional OCIO programs, model delivery, sub-advisory, and the non-US wealth channel. These are relatively large capacity strategies that can be delivered to end clients in many formats. And we expect the third generation strategies to continue to draw demand from the U.S. wealth channel where advisors want to complement core positions with differentiated alpha generating satellites. Over time, with longer track records, we expect the third generation strategies will also increase their institutional separate account in non-U.S. businesses. If we continue to generate excess returns, we are confident in the long-term growth prospects of all three generations. Our diversified business can access growth with different types of clients, in different geographies, and through different vehicles. Clearly, our approach to growth is focused on generating investment returns for clients. Slide six shows an estimate of our excess returns over the last 11 years. over the entire period shown, the excess returns total nearly $15 billion. Generating excess returns lengthens the duration of our client relationships, earning us more time to compound client wealth and grow our AUM. We have been doing this for 25 years across multiple teams, strategies, asset classes, and time periods. We are focused on continuing to generate excess returns and growing our business alongside our clients' capital. We are not letting recent net outflows change anything fundamental about our long-term approach. If we are performing for clients, we are accomplishing our mission. We expect the ongoing disruption in client preferences, whether for asset classes, vehicle types, customization, or ESG, will create plenty of opportunities to connect our investment focus and expertise with clients' long-term needs. We are confident that investment performance will create a sufficient combination of flows, long-duration client relationships, and investment returns to generate a growth outcome for all our constituents. I will now turn it over to CJ to discuss our recent business and financial results.