Artisan Partners Asset Management Inc. Class A

Hello and thank you for standing by. My name is Drew 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. If you require operator assistance, please press star then zero. At this time, I will turn the call over to Artisan Partners Asset Management.

Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Coulson, CEO, and CJ Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the investor relations section of our website. Before we begin, I would 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 risk and uncertainties and are presented in the earnings release and details in our SEC filings. We're not required to update or revise any of these statements following the call. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release. I will now turn the call over to Eric Coulson.

Thank you all for joining the call or reading the transcript. Outcomes in 2022 were difficult. For the year, our AUM declined from $175 billion to $128 billion, a 27% drop. Of our $9.8 billion of net outflows, more than $5 billion occurred in the fourth quarter. We experienced net outflows across a majority of strategies and investment teams. For the year, our gross outflow rate was in line with our prior 10-year average. There was a broad array of reasons that clients rebalanced away with no single theme dominating. Lower gross inflows drove the net flow. Uncertainty, war, inflation, China, regulation, paused decision-making, especially allocations to risk assets. The market rebounded in the fourth quarter, especially in non-U.S. markets. We believe decision-makers are learning to operate with greater uncertainty and and has gathered more information and knowledge about direction of inflation and China policy. We don't believe that our 2022 or fourth quarter flows will prove to be representative of net flows going forward. Today, we are particularly excited about fixed income, as well as the dynamic for non-US and global equities. With increases in rates and spreads, we see more excitement for fixed income today than any time since we launched our first fixed income strategy nearly nine years ago. We currently offer six high-value-added fixed income strategies. We believe all of the strategies can and should capture some of the near-term demand for fixed income. The Artisan high income, floating rate, and credit opportunity strategies are managed by the Artisan credit franchise, which I'll discuss on the following slides. The Artisan Emerging Markets Debt Opportunities, Emerging Markets Local Opportunities, and Global Unconstrained Strategies are managed by the M-CITES Capital Group. M-CITES founders Mike Cerami, Sarah Orvin, and Mike O'Brien have worked together for 14 years. They are well known in the marketplace, having built a well-regarded Emerging Markets Debt team at their prior firm. Last year, We built out the investment team, layered in technology, recruited business leadership, and launched the three new strategies between March and July 2022. We expect all three strategies to experience early stage growth this year, in particular from institutional allocators willing to do deep diligence and capture the benefits of early adoption. We believe our two fixed income teams have great investment and business potential. There is long-term secular demand for fixed income and credit-oriented strategies. Aging demographics demand yield and income. Investors and allocators will continue to allocate to fixed income for diversification and risk-return benefits. There are large opportunity sets in which talented investment managers can differentiate from and outperform indexes and peers. Both the credit team and the MSITES Capital Group have the experience, capabilities, breadth of resources, and ambition to manage multiple strategies and generate significant revenue within the context of our larger business. Slide two summarizes the Artisan Credit franchise as it stands today. Since Brian Krug joined Artisan Partners in 2013, we have partnered with him to methodically build out his team and establish a powerful investment franchise. Today, the team possesses each of the franchise characteristics we see, established leadership, a repeatable investment process, depth and breadth of resources, including people, networks, and technology, proven results, economic alignment, a unique culture centered on the team's Denver office, and an established brand. The credit team has developed and evolved from an individual into a team into a franchise. Since inception in 2014, the Artisan High Income Strategy has generated average annual returns of 5.1% after fees. The strategy has beat the benchmark index by an average of 178 basis points per year after fees. The Artisan High Income Fund is ranked number five of 338 funds in the LIPR high yield category. The team's business has developed at a healthy pace during a period of muted flows for the high-yield asset class as a whole. Cumulatively, the team has generated net flows of $7 billion, averaging approximately $750 million per year. Of the 167 mutual funds in the Morningstar high-yield category, Artisan's high-income fund has raised the third most since 2014. Slide three places the credit franchise in broader artisan historical context. The credit team's cumulative net flows over its first nine years are in line with those of other multi-generational, multi-strategy franchises. Credit AUM lags primarily due to the delta between credit and equity returns. Based on our historical experience, the credit team is right on schedule, both in terms of developing franchise characteristics and experiencing foundational business growth. Historically, we have seen foundational growth translate into a subsequent phase of compounding growth. Investment teams compound existing capital, at the same time leveraging resources, returns, and reputations to extend duration, diversify business, and launch additional strategy. Two examples are growth and international value teams. which today manage $34 and $30 billion, respectively, across a total of six investment strategies with multiple generations of decision-making leadership. Like foundational growth, compounding growth takes time. We prioritize existing client experience, and we thoughtfully manage capacity. For the credit team, in the near term, we expect continued growth and diversification across strategies and with institutional clients. Over the long term, We expect the team to leverage their credit capabilities and investment networks to offer clients additional high-value-added investment opportunities. Bryan leads an already powerful franchise. They are still early in their journey. There is tremendous additional potential. Slide four summarizes the near-term opportunity in high-yield credit. Rates and spreads have widened, creating an attractive entry point for allocators and absolute return potential for investors. Index yield to worst is currently about 8%, much more attractive than the 4% to 6% range that has prevailed for much of the last decade. When yield spiked in 2016, the high income strategy generated a return of 35.4% between February 2016 and January 2018 gross of fees. When yield spiked in 2020, Over the next 12 months, high income generated a 31.5% return, and credit opportunities generated a 58.5% return, both growths of fees. Not only is the entry point better from a yield perspective, greater price dispersion increases credit picking opportunities, more opportunities for the credit team to generate convex returns in excess of expected yields. What we see in the near term is alignment of the credit team's foundational growth and franchise characteristics with a more favorable investment environment, a combination that has us very excited. On my last slide, slide five, I want to come back to the equity environment. Of our 19 equity strategies, 11 focus on non-US, global, or emerging markets. 75% of our total AUM is benchmarked against IFA, global, or other non-U.S. indices. Approximately 55% of our equity AUM is invested in companies domiciled outside the U.S. Dating back to 1996, with the launch of Mark Yockey's non-U.S. growth strategy, Artisan Partners has a long history of investing and adding value in international equity markets. Our eight non-US global or EM strategies with track records of five years or more have beaten their indexes by an average of 289 basis points per year since inception after fees. As I mentioned earlier, in the fourth quarter, non-US equities significantly outperformed, driving the more than $12 billion of investment returns we generated in the quarter. Even with the strong fourth quarter performance, Non-U.S. equities remain modestly valued by historical standards and relative to the S&P 500. We are not predicting mean reversion or calling the market, merely pointing out that non-U.S. equities are attractively valued, and we have a long history of generating alpha in these markets. After a difficult year of outcomes, we are excited about what we can control. Our investment lineup, both in equities and fixed income, Our financial and economic model, which CJ will elaborate on. Our brand and reputation to attract proven investment talent and sophisticated clients. We are optimistic about the current level of volatility and uncertainty. Healthy security dispersion for active management, especially after a drawdown. Greater clarity for risk-taking and decision-making. The ability to meet in person for due diligence and broaden our business development potential. I will now turn it over to CJ.