Artisan Partners Asset Management Inc. Class A

Hello, and thank you for standing by. My name is Gary, 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 Artists and Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Olson, 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 the most comparable gap 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. Given the significant and ongoing change in the investment management industry, it's more important than ever that we at Artisan Partners know who we are and that we understand our competitive edge. It's also important that our clients and our shareholders understand this so you know what to expect and what not to expect. Artisan Partners is an investment firm. We provide differentiated and high-value-added investment opportunities to sophisticated clients. We are not, nor do we aspire to be, a product, manufacturer, engineering, distribution-oriented strategies to build scale and compete solely on fees. Our edge is a combination of our talent and our operating model. We partner with talented investors to build and develop investment franchises that deliver for clients. We provide our investment franchises with a unique combination of investment autonomy and operational and business support. Our platform is designed to serve our investment franchises. Their success equals client success, which equals our success. Everything we do is designed for investment talent to thrive. We are a growth firm. Thoughtful growth is important to our people, our clients, and our shareholders. As an investment firm, our business growth has followed and will follow the success and development of our investment strategies and capabilities. As we mark our 25th anniversary, we continue to believe that this business model and philosophy are right for our firm and for our future. They have driven the long-term results and growth I will discuss in a minute, and they will guide our operations and decision-making going forward. This is who we are. Turning to slide two, we continue to position who we are as a firm within the framework of long-term asset allocation and manager structure. Since we do not engineer products or vehicles for short-term fads, we must be thoughtful about investment opportunities and talent for the long-term. As we have stated in past calls, this will produce lumpy results. Our first generation strategies fit long-term demand for investment style, market cap, and geographically oriented strategies. Our second generation strategies have participated in the globalization of asset allocation and manager structure. With our third generation strategies, we are in the early innings of the current evolution on one end of the spectrum, and alternative and private asset classes on the other end. We have been clear about where we fit and where we don't. We have no edge in the passive business, which is about scale, packaging, and distribution. On the other hand, alternative asset classes fit well with who we are. The space is talent-driven. Clients are looking for something different. pursue high-value-added results over longer time periods. We expect the current trends and our investment mindset to push us into deeper relationships with clients and business partners to deliver investment opportunities that compound wealth. If we execute as we have in the past, we expect our business to continue to evolve away from the scaled asset management firms providing packaged products and further towards an investment high-quality investment results. Slide three shows more specifically how we have reacted to the asset allocation trends. Over the last 10 years, we have grown from five investment teams to nine, added non-U.S. capability to the global equity franchise, and expanded from 11 strategies to 17. The talent we have added and the strategies we have launched are all in the direction of greater degrees of investment freedom, greater ability to generate differentiated investment results, less likely to be replicated with exposure-oriented products. We expect that future new teams, strategies, and investments will continue in this vein. We also expect that we can and will maintain our recent pace of growth and diversification, provided we are able to identify and source the right investment talents. The data on slide four validate the business decisions shown on slide three. In less than six years, we have built the third generation strategies into $12.1 billion of AUM, including $9.1 billion of net inflows. All seven third generation strategies have performed well for clients. Degrees of Freedom have also worked in our second generation strategies. which include our three original global strategies. During the decade, the second generation strategies grew from $1.9 billion to $44.1 billion in AUM. That growth was driven by strong investment returns, including excess returns, as well as more than $19 billion in net inflows. Lastly, our first generation strategies, on which this firm was built, generated approximately returns for clients, including approximately $8.8 billion of returns in excess of benchmarks. Net outflows from these strategies more than offset the organic growth in the rest of our business. A significant portion of the net outflows represent successful profit-taking by our clients. The first-generation strategies remain relevant for large portions of the market that retain more traditional asset allocations. Putting it all together, during the decade, our AUM grew from $46.8 billion to $121 billion. We generated approximately $81.9 billion of investment returns for clients, including approximately $13.3 billion of returns in excess of benchmark indices. We expanded our non-U.S. business primarily with the second-generation strategies. We deepened our reach into the wealth marketplace, especially with our third-generation strategies. And we maintained fee rates that reflect the high value-added, differentiated nature and relatively limited capacity of our investment offerings. Slide five summarizes where we stand today. We have nine investment franchises with outstanding leadership, Last year, on an asset-weighted basis, we generated 578 basis points of gross returns in excess of benchmarks, translating into approximately $4.8 billion of excess returns. Thirteen of our 17 strategies outperformed their broad-based benchmark after fees. Our Developing World Fund beat the EM Index by 2%. group for the year. Five other artisan funds finished the year in the top decile of their Morningstar peer groups, and 10 of 15 finished in the top quartile. In absolute, index relative, and peer relative terms, 2019 was an outstanding performance year for our firm. Line of demand and distribution was also stronger than indicated by the headline number firm-wide net outflows. 11 of 17 strategies had positive net inflows. Five of our strategies had net inflows in excess of 500 million, with our international SMID strategy leading the way with 1.4 billion in net inflows. For the year, our third-generation strategies had 3.9 billion in net inflows, an organic growth rate of 63%. On the outflow side, A significant portion of the outflows from our more mature strategies were driven by client rebalancing, not terminations. That's particularly true in our global opportunities and global value strategies. Turning to slide six, we are well positioned for the future. Our platform and model are proven across generations of talent, multiple autonomous teams, different asset classes, and long time periods. There's a good supply of talented and entrepreneurial investors looking for a home. Operational, distribution, and regulatory hurdles continue to drive demand for our model. We are excited to add additional talent to our platform and expand our investment capabilities. Even more importantly, we continue to develop our existing franchises, deepening talent pools, expanding investment expertise, and laying the groundwork for future strategies and capabilities. We plan to launch a second strategy for our global value team later this month, and we are actively working with other franchises to expand offerings in the relative near term. All of these ideas are talent-driven, with the goal of establishing our investment franchises as go-to resources for a range of compelling investment ideas. We are also optimistic that our overall distribution outcome is improving. The third generation strategies are well positioned to continue to raise funds aided by upcoming anniversaries and strong pipelines. In our more mature strategies, we expect continued rebalancing and headwinds consistent with recent experience. Having said that, given strong track records and client demand, we believe several of the first On January 1st, Chris Crying started as head of global distribution. Chris brings a wealth of experience to the job. He has served as a distribution leader at several other firms, and he has a deep understanding of Artisan's model, having spent the last four years successfully leading distribution for our developing world team. Led by Chris, we're reviewing our distribution structure and strategy. We want to make sure we are appropriately matching resources with opportunities, optimizing both our service and sales efforts. I regularly speak about the changing distribution landscape, the rise of the wealth channel, and relative decline of the traditional institutional market, the importance of reaching people digitally, globalization, a buyer's market in terms of fee structure and vehicle preference, demand for customization and tailored solutions. Many of these trends have cemented in recent years. It's important that we objectively review how we manage and grow the business of each artisan franchise and make adjustments to maximize client duration and accelerate growth where we have investment capacity. In addition to reviewing our own structure and model, we continue our historic We focus on relationships that provide leveraged opportunities and access to different geographies and client types. We are excited about several of the opportunities we're currently working on. All of these distribution efforts will be consistent with who we are as a firm. Our distribution must complement and enhance our edge as an investment firm, protecting investment team time and finding the right clients on the right terms for what each franchise does. We have done a good job of that historically, and I have confidence we will do a good job going forward. I will now turn it over to CJ to discuss our recent financial outcomes. Thanks, Eric.