Artisan Partners Asset Management Inc. Class A

Good day and welcome to the Artisan Partners second quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please send an all-conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Michaela Taphorn with Artisan Partners. Please go ahead.

Thank you. Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Olson, 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. These are subject to risks and uncertainties and 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 release. I will now turn the call over to Eric Olson.

Thank you, Michaela. And thank you, everyone, for joining the call or reading the transcript. The first six months of 2022 have been tough. The war in Ukraine, inflation, in June reaching approximately 9%, a 40-year high. Negative consumer sentiment, economic stagnation, whether qualifying as a recession or not. The worst first half for the S&P and persistent high volatility. At Artisan Partners, our AUM declined 26%, from $175 billion to $131 billion. Year over year, first half revenues declined 11%, and adjusted operating margin declined 750 basis points, from 43.6% to 36.1%. As we've experienced before, these times demand discipline to our business and financial model for stability and perspective to capture opportunities for long-term growth. To achieve stability and growth, it's critical that we level set our business and financials and align our interest and resources for growth with all stakeholders, our board, management, associates, clients, and shareholders. Last week, after our quarterly board meeting, We hosted a firm-wide discussion with several members of our board in Milwaukee. The event was attended in person and online by over 250 Artisan Associates. We discussed Artisan Partners' history, philosophy, values, and consistency through time. I wish all of our stakeholders could have been there. our commitment to excellence, quality, and doing the right thing, our patient, long-term approach, and the consistent application of our guiding principles as we have grown and evolved since 1995. Across the firm, we take confidence in our investment track record and proven business success. We are well-positioned to take advantage of the disruption around us. Sharp market drawdowns happened relatively often. Since our founding in 1995, there have been 12 calendar quarters in which the indexes to which our strategies are compared have declined by more than 10%. That averages to approximately every two years, though not evenly distributed over time. On the way down, Higher correlation on the way down, though, creates opportunity for active managers with extended time horizons. Historically, our teams have taken advantage. In eight of 11 12-month periods following a 10% drawdown, our firm-wide asset-weighted performance has exceeded benchmark performance. Across the 11 periods, Alpha averages 297 basis points. Over the following three-year periods, we have outperformed 8 of 10 times, with outperformance averaging 308 basis points. If you reduce the drawdown triggers to 5%, there have been 22 such quarters since our founding. We have outperformed in 13 of 20 subsequent 12-month periods and in 16 of 19 subsequent 3-year periods, with outperformance again averaging 300 basis points. Disruption from shocks, like the TMT bust, great financial crisis, COVID, and now war in Europe ignite macro issues. In subsequent periods, years, not months, dispersion returns, and with it, opportunities for alpha. Every drawdown is different, and statistics never tell the full story, team by team or strategy by strategy. Historically, there has been a rhythm to these patterns. Post-drawdown, dispersion occurred within security universes, allowing conviction-weighted portfolios to differentiate over a longer holding period. Our investment teams have been able to take advantage in the past, and we believe they will be well-positioned to do so again. Market disruption also creates business opportunities. have the advantage. Our disciplined long-term approach and flexible financial model allow us to continue to purposely invest in new investment teams, new capabilities, and new resources. As with past drawdowns, we level set our business commitments with our resources and people to capture long-term growth while scrutinizing expenses to adhere to our financial model. As an investment-oriented firm, for the market environment. Thus, we mitigate the need to pull back on investments, projects, or people as aggressively as others. Consider emerging markets debt. In the first half of 2022, EM bond funds experienced $50 billion of redemptions, the worst outflows in more than a decade. The dollar-denominated EM debt index declined nearly 20%, storm and stampede for the exits. What do we see? Opportunity, money in motion, poor absolute and relative returns from established players, a market ripe for wealth and alpha generation going forward. With that mindset, we have stayed on schedule with our new emerging markets debt team, the M. Seitz Capital Group. not managing for short-term outcomes, but for the long-term investment performance, franchise development, and sustainable growth. Over the last four months, we have launched three strategies and four vehicles managed by the Insights Group. Blended Currency, Artisan Emerging Markets Debt Opportunities, Local Currency, Artisan's Emerging Markets Local Opportunities, and the highest degrees of freedom, Artisan Global Unconstrained. The team's early performance has been gratifying. More importantly, they are establishing the foundation for long-term success. This is not the first time we have launched an investment team or strategy in a difficult environment. We launched the Global Value Strategy in the second half of 2007 in front of what turned out to be the great financial crisis. The strategy declined 13% over its first three years of operation. track record, 289 basis points of average annual outperformance since inception, and approximately $22 billion in AUM. The Global Value Strategy was instrumental in expanding our reach to clients outside the United States and around the world. In 2007, we had approximately four relationships outside of the United States. Today, that number is 229. We began high-value-added credit investing eight years ago with the launch of the High Income Strategy. We are methodically building out the capabilities and offerings of the Artisan Credit Team, led by Brian Krug. And the launch of the MSites Capital Group Strategies is a significant investment in building out differentiated credit offerings. significant amounts of capital. Our proven success with talented investment teams uniquely resourced by our centralized operations and delivering investment strategies designed for long-term asset allocation provide confidence to operate through short-term shocks and noise. With each investment team, multiple dimensions. Slide four shows the hypothetical performance of a portfolio consisting of $1 million invested in each artisan strategy at inception compared to a portfolio consisting of the same dollars invested on the same dates in the corresponding benchmarks. The alpha we generate translates into much more wealth. It takes time. and generate much more wealth for clients. Our business model and philosophy are designed to buy time, absorb shocks, and provide stability for our people, our clients, and our shareholders. We manage time horizons, durations, and careers to buy the time needed to realize the benefits of a disciplined investment philosophy and process. Our financial model and business management team absorb shocks, like the ones we have seen so far this year, and insulate our teams from short-term noise and follow the herd pressure. Our investment teams are genuinely autonomous. We believe in the alpha-generating capability of each of them. We give them the time, tools, and intellectual freedom to stick to their process through volatility and uncertainty. We have managed revenue declines due to market shock. and profitability fluctuations resulting from both revenue declines and expense increases, sometimes at the same time. This is nothing new for us. We have been here before. We will remain disciplined and confident in the outcomes that result from talented people operating in a stable, long-term environment. I will now turn it over to CJ to discuss business and financial outcomes.