Artisan Partners Asset Management Inc. Class A

Hello, and thank you for standing by. My name is Andrew. 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. If you require operator assistance, please press star then zero on your telephone keypad. At this time, I would like to turn the conference over to Michaela Taphorn, Director, Investor Relations for Artisan Partners Asset Management.

Thank you. Welcome to the Artisan Partners Asset Management Business Update and Ownings 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 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 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 GAAP measures in the earnings relief. 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. We are compounding wealth for clients. We are creating new growth opportunities for internal and external talent. And we are generating results for shareholders. In the third quarter, we're in more revenue than ever before in our history. And we recently declared our highest quarterly dividend ever at 83 cents per share. These outcomes result from investments we have made in the firm over long periods of time. Identifying, recruiting, and retaining great investment talent. Investing in new people and reinvesting in our existing franchises. Launching high-value-added investment strategies that fit with long-term asset allocation trends. Building our flexible and resilient operating platform. And developing our high-quality leveraged distribution model and teams. In today's highly uncertain and rapidly changing environment, we are operating well. We are getting the day-to-day job done. At the same time, we are making forward progress with business initiatives that we expect to yield further long-term sustainable growth. Starting to slide two, as previously announced in the third quarter, two experienced portfolio managers, Vinny Zhao and Hanan Basagiri, rejoined Artisan International Value Team and launched the Artisan International Small Cap Value Strategy. Earlier in their careers, Daini and Anand worked as analysts under David Samra, the founder and leader of our international value franchise. Daini and Anand are well versed in the team's value investing philosophy and process. The new strategy is a natural extension for David and the international value franchise. providing the group an opportunity to exploit an inefficient part of the market and further develop the franchise's expertise and business. Also, Tiffany Hsiao and UNUNG joined the Artisan Global Equity Team. We are currently working with Tiffany and UNUNG to build and resource their team and design and launch a strategy to invest in post-venture firms in Greater China. We expect the strategy will include both public and private investments, providing investors with differentiated access to the Chinese growth story. The strategy should also fit with long-term demand from sophisticated clients who are increasing allocations to China to capture growth and catch up with China's status as the world's second largest economy. On slide three, you can see where the recent additions fit into the longer-term development of the international value and global equity franchises, two of our longest-tenured groups. Our autonomous investment team model is extremely flexible. We try to develop a common set of franchise trades across all the investment teams, but the path and the form the trades take are unique for each team. David Samra and Dan O'Keefe founded the international value team in 2002. On the strength of the performance of the flagship international value strategy, they launched the global value strategy in 2007. They developed their franchise and business to the point that in 2018, it made sense to evolve into two separate teams, create an opportunity and space for further growth. Earlier this year, Dan's Global Value Franchise launched the Select Equity Strategy. Now, David has taken another step with Beini and Anand and the International Small Cap Value Strategy. For 25 years, Mark Yockey has been developing the Global Equity Franchise. Today, within Mark's investment ecosystem, we have the flagship First Generation International Growth Strategy, the Second Generation Global Equity Strategy, the third generation international small-mid growth strategy managed by Reza Okanovic, and the next generation strategy we are working on with Tiffany and UNUN. This team within a team approach allows us to provide the space, autonomy, and ownership necessary to attract great talent. At the same time, we are injecting new experience, expertise, and ideas into established franchises. which creates new options for growth and should ultimately extend franchise duration. When we talk about growth, we always say thoughtful growth. That means growth that is consistent with who we are as a high-value-added, talent-driven investment firm. Slide 4 shows some of the areas where we've been thoughtfully growing. It all starts with investments. We continue to add great new investment talent. and to reinvest in existing talent. We continue to add degrees of investment freedom within existing strategies and with new strategies. We continue to develop all three generations of strategies, and we are exploring the next generation. The first generation strategies continue to represent about half of our business, and we expect these strategies to remain an important part of asset allocations for many years to come. Our second generation global strategies continue to experience strong demand, in particular from non-U.S. institutional investors. Year to date, the second generation strategies have raised $1.6 billion in net client cash flows. And our third generation strategies continue to see extremely strong business development, particularly in the U.S. wealth channel, which we expect to be a source of long-term secular growth. Year to date, the third generation strategies have raised $5.7 billion in net inflows, an annualized organic growth rate of 63%. As part of our thoughtful growth mentality, we are trying to bring together great investment talent, investment resources and degrees of freedom, and long-term demand. Within that framework, what might the next generation of artisan strategies look like? We see public and private securities coming together, multiple degrees of investment freedom in the same strategy, and more ways for clients to access our investment ideas and expertise, such as through co-investments. As we match great investors with additional degrees of freedom, they will have the ability to further differentiate themselves, and clients will have the ability to access multiple expressions of our investment ideas and expertise. Our thoughtful approach to growth extends beyond investment. We have always maintained a lean distribution model that complements our investment-first approach. By keeping our fixed sales costs low, we are not under pressure to generate or manufacture product to feed a distribution machine. Our distribution team is high quality and flexible. They minimize the time our portfolio managers spend on distribution, and they serve multiple client types across our target geographies around the world. We maintain this approach by focusing on points of leverage. Recently, we have spent more time cultivating and developing strategic relationships with clients and allocators who invest across multiple investment teams and strategies. These clients and gatekeepers know who we are and trust us as a firm. We are working to build on that trust and deepen those relationships. Our firm-wide year-to-date net inflows of $5 billion includes multiple investments from strategic client relationships. Our investment and distribution operations are enabled by our flexible operating platform. We have methodically developed our people, technology, mobility, and resiliency over long periods of time. We were well prepared for work at home, and we have operated extremely well throughout this extended period. We will continue to invest in this critical part of our business. Our long-term investment outcomes are shown on slide five. Since inception, 12 of our 18 strategies have outperformed their indexes by more than 300 basis points per year after fees. We have generated long-term alpha and outperformed peers in first, second, and third generation strategies. We have diversified and broadened our sources of alpha across investment teams, asset classes, and generations. Our greatest asset and our greatest source of future growth is the long-term performance shown on this page and the people behind it. Turning to my final slide, I want to emphasize our focus on thoughtful growth by placing our firm within the larger industry context. On this slide, we've laid out a simplified model of a horizontally and vertically integrated asset management company, a group that packages together investments, solutions, and advice to deliver a holistic outcome for end clients, often retail clients. These asset managers are intensely focused on scale, packaging, and pricing. Much of the recent industry consolidation is driven by this pursuit of breadth and scale. There's nothing wrong with this, but it's very different from what we do. And we want to make sure that our clients and other gatekeepers, our people and our shareholders, understand the difference. Artisan Partners is an investment firm focused on high-value added investing. The red box shows our part of the investment universe. We focus on talent, investment resources and culture, and degrees of freedom. We compete on the quality of our people and our net-of-fee performance. and the trustworthiness of our brand. These are the things that we are most focused on. These are the areas where we have a competitive advantage. As long as we continue to get investments right, there will be multiple ways for us to reach end clients and for us to continue to generate long-term sustainable outcomes for all of our constituents. I will now turn it over to CJ to discuss our third quarter and year-to-date results.

Thanks, Eric. Good morning, everyone. I'll start with our financial model principles, which are on page seven. A focus on long-term growth requires discipline and patience. The stability of our recurring management fee revenue, coupled with the variable nature of our expenses, resulted in increased profitability and operating margins in the September quarter. We remain thoughtful about where we focus our time and resources. and operations to support sustainable financial outcomes for our shareholders. We concentrate on compounding client assets by generating excess returns over benchmarks, rather than focusing on net client cash flows. In 2020, we have been able to achieve both excess performance and net inflows, and the results which follow reflect the success of executing on our model. AUM at September 30th was $134.3 billion, up 11% compared to last quarter and up 19% compared to the September 2019 quarter. The increase in AUM over the quarter reflected a continued recovery in global equity markets and strong excess returns generated by our investment teams. In addition, Net client cash inflows were $2.1 billion in the quarter, representing a 7% annualized organic growth rate. In the current quarter, we continued to see elevated levels of gross client activity, driven by both institutional and wealth clients. Flows were driven primarily by large institutional non-U.S. mandates in our second-generation strategies and continued strong flows in our third-generation strategies. The AUM by generation slide, which we have provided in prior quarters, is on slide nine. AUM across all generations benefited from strong market performance and excess returns during the quarter and year to date. On a weighted average asset basis, our strategies outperformed their respective benchmarks by over 275 basis points in the third quarter. Both second and third generation strategies Third-generation strategies now account for 16% of total AUM, up from 14% last quarter, as a result of both some strong investment performance and organic growth. Average AUM grew 20% in the third quarter compared to the June quarter, and 16% compared to the third quarter of 2019. Year-to-date average AUM grew 8% compared to the same period in 2019, in the first quarter of 2020. Our complete gap and adjusted results are presented in our earnings release. My comments on our financial results will focus on adjusted results. Revenues in the third quarter of 2020 grew 15% and operating expenses increased 7% compared to the second quarter of 2020. Recurring management fees, which exclude performance fees, increased in line with the increase in average AUM for the quarter. Expenses increased in the current quarter primarily as a result of variable incentive compensation adjusting to higher levels of revenues. Other expenses continued to be lower primarily as a result of reduced travel in the current environment. Our operating margin in the quarter increased to and 37.2% in the third quarter of 2019. Adjusted net income for adjusted share of 90 cents grew 27% compared to the previous quarter and 29% from the September 2019 quarter. Year-to-date revenues were up 8% on higher average AUM and an increase in performance fees. Operating income grew 20% and our year-to-date operating margin was Adjusted net income for adjusted share was $2.27, up 18% compared to the same year-to-date period in 2019. Key balance sheet metrics are on slide 13. Our balance sheet remains healthy. We maintain approximately $100 million of excess cash to fund operations, seed new products, and make continued investments. In addition, we maintain an undrawn line of credit of $100 million. Our Board of Directors has declared a cash dividend of 83 cents per share with respect to the third quarter of 2020. The 83 cents per share is consistent with our policy to distribute approximately 80% of the cash generated each quarter, and it represents an annualized yield of approximately 7.5% before consideration of the special annual dividend. As in prior years, in January, following the end of our fiscal year, will consider the distribution of a portion of the retained cash generated in 2020 in the form of a special annual dividend. Each year, when determining the amount of the special annual dividend, the Board will consider the amount of cash needed for general corporate purposes, investments in growth, and strategic initiatives, as well as the current market environment. Looking forward to next quarter's results, our U.S. capital gains distributions in the fourth quarter. The majority of these distributions are reinvested, but some clients choose not to reinvest. We estimate that the total cash outflows in the fourth quarter resulting from distributions that are not reinvested will be approximately $450 million. We intend to break this amount out separately in our AUM roll forward next quarter. 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 one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. please limit yourself to two questions in order to allow time for other questions. At this time, we will pause momentarily to assemble our rosters. The first question comes from Mike Carrier of Bank of America. Please go ahead.

Good afternoon. Thanks for bringing the questions. Eric, more of a strategy question, but you've hired new teams and more recently added talent to board teams, which has gone very well. When you think about adding more strategies, is there a limit in the third generation, particularly from a distribution standpoint? And do you and the team spend less time, or is there a constant focus on talent as you start thinking about building out that next generation?

Yes, certainly. We've always said there's an operational limit to how – we onboard talent. We've always done it in a fairly thoughtful way to make sure that the operations can support the new strategy without taking away from existing resources supporting our current mature teams. We've thought about the vehicles and the channels and the geographies that we go into. Do we have the right support and depth to move into newer strategies and teams? And if we're going to start a new strategy or a new team and set it up from day one properly, we have moved slower than probably most firms on finding talent and bringing them into the organization. To me, that's the real limitation, and it's a good practice to make sure that we fundamentally set up strategies for success day one as opposed to going with a strategy of launching 10 and hoping two or three work inside of a distribution platform. So that does govern the amount of teams we're looking at. But we, you know, from the number of meetings or just opportunities, we're seeing quite a few opportunities. So we're always in the marketplace looking for talent and We continue to see a good array of opportunities, but the properly onboarded team does limit the amount we can do.

Okay, that makes sense. And then, CJ, just on the, you know, how to think about the model and margins, and you guys have shown, you know, margin improvement over time. But as you continue to bring in, you know, healthy flows and, you know, some of these strategies scale up, Does anything shift, I mean, in terms of like compensation, like whether it's payouts or structures, you know, that you, you know, see more, you know, coming to the bottom line, just more curious and, you know, how it works or if there's like, you know, kind of tipping points in terms of that, the levels that drive that.

Yeah, Mike, you know, as we onboard teams, you know, all teams are different, but, you Generally, you know, well, not generally, but specifically every team will come on to the same economic model. You know, the only difference could be the amount of startup costs, but it's in sort of a tight range. And as you've seen in the past, it hasn't been material to our results in any one instance. And we do fund that from current earnings. So there's no pressure on the balance sheet. But, you know, the other thing is, you know, the time frame in which it takes teams to get to scale, which means, you know, they're fully supported by the 25% rev share versus, you know, a firm supplement, you know, that we generally, as you know, guarantee for the first three years. So I don't think there's anything material that, you know, you should know with respect to the teams we're bringing on or the model that we've employed from the past.

Okay.

Thanks a lot.

The next question comes from Chris Shutler of William Blair. Please go ahead.

Hey, guys. Good afternoon. On the new International small-cap value and greater China post-venture strategies. I realize it's very early days, but any thoughts on how large those could ultimately be and where you'd be comfortable and how we should think about fee rates in those?

Both those strategies, I think like most things we do in the Capacity constraint strategies typically yield a higher fee rate. And in the case with the post-venture Greater China Fund, this is a newer fund that has more degrees of freedom that will move slower than most to make sure that we're set up properly in the region and that we're set up properly to support the team. So, I would expect both of those strategies to move and grow at a slower pace than we've seen more recently with some of our strategies that have come to market.

Okay, got it. And then, Eric, you talked about working to deepen relationships with gatekeepers, maybe just If there's anything that you're doing differently today versus a year or two ago or that you're emphasizing more today, just any more color there.

I think the environment's obviously quite different. We're all working from home for the most part, so seeing clients, seeing gatekeepers, seeing prospects and operating is quite different. We fortunately, over the last five years, have invested in a new CRM. We've put in a new backbone to our website. We've bought and brought in software tools for tracking and connecting with clients, consultants, and prospects. That's yielding a great investment now. We're starting to utilize those capabilities more than I ever thought, and I think more than anybody would have thought given the environment. So that's helped us out enormously, and that's different than just sending people to offices and flying around the world. So that's quite a bit different. I think we're well set up for that environment. We've at the same time invested in writers to create more content. We launched a blog called Artisan Canvas. We've put more video out, so... I think we are doing quite a few things differently just because of the environment. And given our trusted brand coupled with the content and connectivity, we are doing well in this environment.

Okay, makes sense. And lastly, one for CJ, just on the occupancy expense was up a little bit in the quarter. Is this kind of a new level jumping off point to maybe just what caused the increase?

No, Chris, we had a charge in the quarter. We were subleasing some space in New York, and the firm that was subleasing it ran into difficulty given the current pandemic, and so we took a write-off for that space.

Got it. Okay. Thank you.

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

This is my question. Just one around the potential for cash needs. You mentioned in the prepared remarks keeping aside roughly about $100 million for potential needs. I'm wondering if you could just call out any special uses of cash, any initiatives or investments that we should be aware of within that fourth quarter time frame especially as the board goes around considering the special dividend. Thanks.

Yeah, thanks, Ken. You know, our policy on our dividend has remained the same. And, you know, to date, we have both distributed all the cash we've earned in a year through the special and And then there have been a few years where the market environment, you know, caused us to hold back a little bit. So, you know, as of now, you know, it's the same policy. It'll be the same process. You know, we'll wait to see how the year turns out. From an earnings standpoint, we'll consider any other uses. We'll consider the market environment. And at that point in time, when we get to January – you know, we'll have a recommendation and the board will weigh in and we'll decide the level of the special.

And just one follow-up, if I may. Just on slide six, appreciate the slide. Could you just talk about at a very high level, longer term, as the industry potentially consolidates, Do you see any additional pressure on the firm in terms of maintaining distribution relationships? I think some larger peers talk about seeing some benefits of scale when it comes to maintaining distribution relationships. Just wondering from your perspective how that could work out. Thanks.

Yes, certainly. I think that was part of the comments on strategic relationships and how we interact with distribution partners. We've seen a slight uptick in our strategic partners that we're working with, and as we continue to deliver more strategies across more asset classes than we've ever done and having the performance that we've delivered, we're seeing a greater breadth and deeper relationships with some of these partners. And as the world moves forward, as we laid out, there's always going to be a need for good investment strategies and opportunities embedded in whatever ecosystem is out in the marketplace. And we feel that The high-value added investment structure that we offer will always fit in some segment, and you don't have to build out and be all things to all people.

Great. Very helpful. Thank you very much.

The next question comes from William Katz of Citigroup. Please go ahead.

Okay. Thank you. Good afternoon, everyone. Thanks for taking the questions. So, Eric, you made two comments I sort of found intriguing. One was the Gen 4 opportunity, and then one was some of these more strategic relationships that sound like more of a multi-asset opportunity. Could you, on the latter, maybe size what kind of assets you have and maybe the tenor of those assets? And then on the Gen 4, could you maybe expand a little bit more about sort of the multiple investing opportunities? I just didn't quite see the linkage to that, but it did sound interesting to me. Thank you.

Yeah, I guess on the size and tenor of strategic relationship, it really runs the gamut. We've seen really an uptick with some of our large institutional corporate clients. This past quarter, we've seen some more – larger broker-dealers. We've seen some regional broker-dealers. Probably the most interesting, though, comes into the regional RIA and financial advisors. We're starting to see a little bit of an uptick there. It may not have the scale and size of a larger broker-dealer, but that wealth channel and the growth that's occurring in the RIAs and many of the financial advisors has been growing in the number of products they're using. So it's both size of dollars and size of number of products that's piquing our interest in the reason for the comments around strategic relationships. When it comes to the Gen 4 or using multiple degrees of freedom, originally we started broadening out by geography or started broadening out by types of securities. Now you're starting to see teams wanting to use, you know, Private securities, they want to also be able to hedge in those strategies. They want to use multiple asset classes and different securities. So in the future, you could see teams wanting to use public and privates and also using on the publics an ability to hedge a bit. And those degrees of freedom will come into play as opposed to just a one-dimensional change that we've seen in the last – the last change of going from generation two to three.

Okay, just a quick follow-up for me. You had mentioned earlier that Gen 1, which is about half your assets, you know, continues to be an area of interest to investors. Is there a tipping point where that platform can get back into positive flow, or are there more structural headwinds to be considering at this point?

That's a tough one to look forward on. And we've been fighting the active-passive, and so there's been quite a bit of passive movement in that segment. I feel confident that you're going to have a market cap-style structure that's going to continue. It's been prevalent in many of our clients for a long period of time, and we don't see that changing. And we see the strategies. very competitive performance that's given us good flow. But with regards to the use of more passive or pressure on that, it's hard to forecast that.

Thank you.

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

Good afternoon, and thank you for taking our questions. I actually wanted to come back to the very first question from Mike about adding investment professionals and PMs to existing teams. Is this a change in preference strategically from you that you would rather have more investment professionals go to existing teams to benefit from scale and reputation, or is it more of a another tool in the toolkit, and maybe just part of that, CJ, are there any additional comp expenses we should be thinking about for 4Q above sort of the usual comp payout rate?

Hey, Ryan, this is Eric. There's no change in how we think about bringing talent into the organization, and we highlighted that we have quite a bit of flexibility of how we bring in talent and It may vary inside of an existing team, such we've done more recently, or onboarding a new team. So I think it's just another tool that we're highlighting and showing the flexibility of our model of how we can bring talent into the organization.

And Ryan, with respect to expenses, you know, our You know, both additions to our firm occurred, you know, during the third quarter, so there will be a little bit more expense, but, you know, nothing material that, you know, I would guide you to model in to your existing expectations.

Got it. Thank you. And maybe if I could just follow up on a point that you made around the differences in the sources of flows for Gen 3, that being more well-focused. I'm just curious, considering how good the performance has been with some of those strategies, is there a reason why you haven't seen as much interest from, or I guess less interest from the institutional side?

Can you restate that question again?

Sure. So I think during some of your comments, you had said that Gen 3 is seeing a lot of growth from the wealth and intermediary channel and maybe a little bit less of net flows from the institutional channel. So I was just wondering why you haven't seen as much demand from the institutional side when performance has been so good in the Gen 3 strategies.

Yeah, we do see good – good interest from the institutions and consultants. I think when you break down the institutional clients base of corporates, endowments, foundations, and the like, they're still continuing down that trend of private equity and into private debt, into real estate. And so given the opportunities that that group has to really push deep into alternatives, we've seen the institutional marketplace having a greater focus there. I think you are starting to see the commercialization of those strategies back into wealth or into the retail market that's starting to occur. And you saw the tipping point there with bringing it into potentially target date funds. But I think the real difference is institutional clients are focused deeper into the alternative space.

Got it. Makes perfect sense. Thank you.

The next question comes from Dan Fan of Jefferies. Please go ahead.

Thanks. I just wanted to ask about capacity, given the move in markets and your AUM from both flows and beta, if there are certain strategies that are closer that you're watching in terms of managing that capacity.

Yeah, there's a few strategies that we've and we're keeping an eye on, and we've seen really strong interest in the growth team, and so global opportunities is something that we've kept an eye on, as well as the U.S. small-cap growth strategy, that we're very mindful of finding the right clients on the right terms, given where those strategies are at. Otherwise, we've been managing a few other strategies. I think I said this last quarter, it's been a bit more difficult given the uptick in gross flows of both what's coming in and what's coming out. So we're still leaning towards looking at replacing dollars that are going out given the gross outflows. But probably the only – the growth team is probably the one team that we're really monitoring.

Okay. Then, CJ, just kind of a follow-up on expenses and given the environment, obviously certain discretionary things are lower. But as you think about next year, is there anything on the technology side, office, other things that we should just be thinking about that might be out of more of the natural flow of expenses? And then just as a follow-up with that, performance fees if there is more of this AUM that's coming in through SMAs that we might be thinking about being a bigger contributor into next year or beyond?

Yes, I'll start with expenses. Obviously, the pandemic and work from home and the ability to travel has had a positive You know, that remains to be seen. I generally, you know, we're of the belief that those expenses will return back to normal when life returns back to normal. When that happens is obviously anybody's guess at this point. With respect to technology, you know, we're running, you know, pretty flat to last year, maybe up just slightly, and I would expect you would see maybe a mid-single-digit growth in technology just as market data and data costs go up and contracts renew at higher rates. So more inflationary plus a couple percent growth there. Other than that, there really isn't anything that I would see worth mentioning. Then on the performance fees, we do have – you have seen an uptick this year in performance fees given our performance. There is about $3 billion of separate account AUM that's subject to performance fees as well as our two hedge fund, private fund vehicles. So there are opportunities coming up in the fourth quarter. It's our largest opportunity. And there are, you know, a few accounts that are tracking towards performance fees. And then, you know, into next year, given performance, you know, being measured on an annual basis and the strong performance this year, you know, there's probably likely some good opportunities for next year as well. But as you know, you know, you know, it's all predicated upon performance.

Thank you.

The next question comes from Robert Lee of KDW. Please go ahead.

Great. Good afternoon and good morning, KJP. Thanks for taking my questions. I apologize if maybe this came up already, but, you know, Eric and CJ, with the The new teams and the new, you know, structures, you know, kind of the private funds that hold the illiquid assets, I'm just curious, I mean, do you feel, you know, you haven't fully upped the necessary infrastructure to, you know, to handle those types of, you know, fund structures and reporting requirements, or is it kind of incremental costs pretty small? I'm just kind of curious, is that more of a discrete fund you know, like one's fundraised and invested, or is it going to be something more akin to, for lack of a better analogy, a perpetual fund that's constantly raising? Let me withdraw one of those.

Hey, Rob, it's Eric. I'll let CJ make a comment after this. on the fund structure. The strategies that we're putting out and the vehicles that we're thinking about, you know, really the vehicles are in place. We've had private funds. We have invested in the distribution. So really it's setting up the team appropriately and is making sure that's done in a prudent manner. But with regards to your comments on the vehicles, we have a handful of private vehicles in place, and we believe the operational infrastructure is in place. So our expectation is you wouldn't see any uptick

Yeah, I don't really have anything to add. Our operations is ready. We've been preparing for this for a number of years.

I appreciate it. I'm just curious if it's more like an interval fund type structure, you know, as opposed to kind of just a discrete, you know, raise capital, invest it, and return it on realization type structure.

No, we're not going to be launching a new vehicle.

My last question, again, I apologize if this was asked earlier. I may have missed it, but with the success having maybe particularly some of the second-generation strategies or even some third-generation, should we be thinking as we look ahead, assuming the trends continue and look ahead into the first part of next year that we start running something into any kind of capacity? issues or may start thinking about limiting, you know, whether it's institutional or individual investors as you have in the past to kind of control the mix?

Yeah, we certainly will in the future manage capacity as we've managed other strategies and other teams to make sure that we have a long-duration client base, a robust fee mix, and we certainly intend to continue that practice on a go-forward basis. So that certainly will come down and come into play years to come.

Thanks for taking my questions, Ed. You're welcome.

Thanks. This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.