ARTISAN PARTNERS ASSET MANAGEMENT INC. Overview
We are an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. As ofMarch 31, 2021 , our nine autonomous investment teams managed a total of 20 investment strategies across multiple asset classes and investment styles. Over our firm's history, we have created new investment strategies that can use a broad array of securities, instruments, and techniques (which we call degrees of freedom) to differentiate returns and manage risk. We focus our distribution efforts on sophisticated investors and asset allocators, including institutions and intermediaries that operate with institutional-like decision-making processes. We offer our investment strategies to clients and investors through multiple investment vehicles, including separate accounts and different types of pooled vehicles. As ofMarch 31, 2021 , approximately 78% of our assets under management were managed for clients and investors domiciled in theU.S. and 22% of our assets under management were managed for clients and investors domiciled outside of theU.S. As a high-value added investment manager we expect that long-term investment performance will be the primary driver of our long-term business and financial results. If we maintain and evolve existing investment strategies and launch new investment strategies that meet the needs of and generate attractive outcomes for sophisticated asset allocators, we believe that we will continue to generate strong business and financial results. Over shorter time periods, changes in our business and financial results are largely driven by market conditions and fluctuations in our assets under management that may not necessarily be the result of our long-term investment performance or the long-term demand for our strategies. For this reason, we expect that our business and financial results will be lumpy over time. We strive to maintain a financial model that is transparent and predictable. Currently, we derive nearly all of our revenues from investment management fees, most of which are based on a specified percentage of clients' average assets under management. A majority of our expenses, including most of our compensation expense, vary directly with changes in our revenues. We invest thoughtfully to support our investment teams and future growth, while also paying out to stockholders and partners a majority of the cash that we generate from operations through distributions and dividends. Business and financial highlights for the quarter included: •OnMarch 1, 2021 , we launched the Artisan China Post-Venture Strategy. •During the three months endedMarch 31, 2021 , our assets under management increased to$162.9 billion , an increase of$5.1 billion , or 3%, compared to$157.8 billion atDecember 31, 2020 , as a result of$3.7 billion of investment returns and$1.4 billion of net client cash inflows. •Average assets under management for the three months endedMarch 31, 2021 were$162.9 billion , an increase of 43% from the average of$113.8 billion for the three months endedMarch 31, 2020 , and an increase of 12% from the average of$145.0 billion for the three months endedDecember 31, 2020 . •We earned$290.7 million in revenue for the three months endedMarch 31, 2021 , an increase of 43% from revenues of$202.8 million for the three months endedMarch 31, 2020 . •Our operating margin was 41.9% for the three months endedMarch 31, 2021 , compared to 35.0% for the three months endedMarch 31, 2020 . •We generated$1.19 of earnings per basic and diluted share and$1.13 of adjusted EPS. •We declared and distributed dividends of$1.28 per share of Class A common stock during the three months endedMarch 31, 2021 . •We declared, effectiveApril 27, 2021 , a quarterly dividend of$0.88 per share of Class A common stock. 21 -------------------------------------------------------------------------------- Table of Contents COVID-19 Pandemic The COVID-19 pandemic continues to impact the manner in which we operate. As of the date of this filing, the majority of our employees are working from home and our employees have significantly reduced business travel. Additionally, many third-party vendors on whom we rely for certain critical functions are also operating in remote environments. Given the continued uncertainty surrounding the COVID-19 pandemic, it is difficult to predict how long such remote working conditions and reduced business travel will last. We expect most operating costs to return to pre-COVID-19 levels when employees fully return to the office and resume business travel. We believe we are operating well under these circumstances, benefiting from the flexible and highly mobile operating environment we have built over 25 years. However, market volatility, as well as changes in our operations and those of our key vendors, may result in increased client redemptions; inefficiencies, delays and decreased communication; and an increase in the number and significance of operational and trade errors. In addition, we do not know what, if any, longer-term impact the current operating circumstances (and/or the extension of them) will have on our business and results. Organizational Structure Organizational Structure Our operations are conducted throughArtisan Partners Holdings ("Holdings") and its subsidiaries. OnMarch 12, 2013 ,Artisan Partners Asset Management Inc. ("APAM") andArtisan Partners Holdings LP completed a series of transactions ("the IPO Reorganization") to reorganize their capital structures in connection with the initial public offering ("IPO") of APAM's Class A common stock. The IPO Reorganization and IPO were completed onMarch 12, 2013 . The IPO Reorganization was designed to create a capital structure that preserves our ability to conduct our business through Holdings, while permitting us to raise additional capital and provide access to liquidity through a public company. Our employees and other limited partners of Holdings held approximately 18% of the equity interests in Holdings as ofMarch 31, 2021 . As a result, our results reflect that significant noncontrolling interest. We operate our business in a single segment. 2021 Follow-On Offering and Holdings Unit Exchanges OnMarch 1, 2021 , the Company sold 963,614 shares of Class A common stock in an underwritten offering and utilized all of the proceeds to purchase an aggregate of 963,614 common units from certain limited partners of Holdings. In connection with the offering, APAM received 963,614 GP units of Holdings. During the three months endedMarch 31, 2021 , certain limited partners of Holdings exchanged 136,679 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM) for 136,679 shares of Class A common stock. In connection with the exchanges, APAM received 136,679 GP units of Holdings. APAM's equity ownership interest in Holdings increased from 80% atDecember 31, 2020 to 82% atMarch 31, 2021 , as a result of these transactions and other equity transactions during the period. 22 -------------------------------------------------------------------------------- Table of Contents Financial Overview Economic Environment Global equity and debt market conditions materially affect our financial performance. The following table presents the total returns of relevant market indices for the three months endedMarch 31, 2021 and 2020: For the
Three Months Ended
2021 2020
S&P 500 total returns 6.2 % (19.6) %
MSCI All Country World total returns 4.6 % (21.4) %
MSCI EAFE total returns 3.5 % (22.8) %
Russell Midcap® total returns 8.1 % (27.1) %
MSCI Emerging Markets Index 2.3 % (23.6) %
ICE BofA U.S. High Yield Master II Total Return Index 0.9 % (13.1) %
Key Performance Indicators
When we review our business and financial performance we consider, among other
things, the following:
For
the Three Months Ended
2021 2020
(unaudited; dollars in millions)
Assets under management at period end $ 162,883 $ 95,224
Average assets under management (1) $ 162,907 $ 113,802
Net client cash flows (2) $ 1,403 $ (418)
Total revenues $ 290.7 $ 202.8
Weighted average management fee (3) 70.8 bps 70.7 bps
Operating margin 41.9 % 35.0 %
(1) We compute average assets under management by averaging day-end assets under management for the
applicable period.
(2) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not
reinvested. Prior period net client cash flows have been recast to exclude Artisan Funds' distributions.
(3) We compute our weighted average management fee by dividing annualized investment management fees (which
excludes performance fees) by average assets under management for the applicable period. The weighted average
management fee for prior periods have been recast to exclude performance fee revenue.
Investment advisory fees and assets under management within our consolidated
investment products are excluded from the weighted average fee calculations and
from total revenues, since any such revenues are eliminated upon consolidation.
Assets under management within Artisan Private Funds are included in the
reported firm-wide, separate account, and institutional assets under management
figures reported below.
Assets Under Management and Investment Performance
Changes to our operating results from one period to another are primarily caused
by changes in the amount of our assets under management. Changes in the relative
composition of our assets under management among our investment strategies and
vehicles and the effective fee rates on our products also impact our operating
results.
The amount and composition of our assets under management are, and will continue
to be, influenced by a variety of factors including, among others:
•investment performance, including fluctuations in both the financial markets
and foreign currency exchange rates and the quality of our investment decisions;
•flows of client assets into and out of our various strategies and investment
vehicles;
•our decision to close strategies or limit the growth of assets in a strategy or
a vehicle when we believe it is in the best interest of our clients; as well as
our decision to re-open strategies, in part or entirely;
•our ability to attract and retain qualified investment, management, and
marketing and client service professionals;
•industry trends towards products, strategies, vehicles, or services that we do
not offer;
•competitive conditions in the investment management and broader financial
services sectors; and
•investor sentiment and confidence.
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The table below sets forth changes in our total assets under management:
For the Three Months Ended March
31, Period-to-Period
2021 2020 $ %
(unaudited; in millions)
Beginning assets under management $ 157,776 $ 121,016 $ 36,760 30.4 %
Gross client cash inflows 10,107 7,079 3,028 42.8 %
Gross client cash outflows (8,704) (7,497) (1,207) (16.1) %
Net client cash flows (1) 1,403 (418) 1,821 435.6 %
Artisan Funds' distributions not reinvested
(2) (37) (31) (6) (19.4) %
Investment returns and other (3) 3,741 (25,343) 29,084 114.8 %
Ending assets under management $ 162,883 $ 95,224 $ 67,659 71.1 %
Average assets under management $ 162,907 $ 113,802 $ 49,105 43.1 %
(1) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested. Prior
period net client cash flows have been recast to exclude Artisan Funds' distributions.
(2) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not
reinvested in the Artisan Funds, including in the Artisan High Income Fund .
(3) Includes the impact of translating the value of assets under management denominated in non-USD currencies into US
dollars. The impact was immaterial for the periods presented.
During the quarter, our AUM increased by $5.1 billion due to $3.7 billion in
investment returns and $1.4 billion of net client cash inflows. 14 of our 20
investment strategies had net inflows, totaling $3.5 billion . Our ten strategies
with inception dates beginning in 2014 or later had $2.3 billion in net inflows.
We expect those strategies as a group to continue to experience net inflows.
Our US Mid-Cap Growth, Non-US Growth, Global Opportunities, US Mid-Cap Value,
Value Equity, and Global Value strategies had a total of $2.1 billion of net
outflows during the quarter, which partially offset the net inflows described
above.
Over the long-term, we expect to generate the majority of our AUM growth through
investment returns, which has been our historical experience.
We monitor the availability of attractive investment opportunities relative to
the amount of assets we manage in each of our investment strategies. When
appropriate, we will close a strategy to new investors or otherwise take action
to slow or restrict its growth, even though our aggregate assets under
management may be negatively impacted in the short term. We may also re-open a
strategy, widely or selectively, to fill available capacity or manage the
diversification of our client base in that strategy. We believe that management
of our investment capacity protects our ability to manage assets successfully,
which protects the interests of our clients and, in the long term, protects our
ability to retain client assets and maintain our profit margins.
As of the date of this filing, our US Small-Cap Growth and Global Opportunities
strategies have limited availability to most new client relationships. On April
30, 2021 , our High Income strategy will limit new client investments in the
Artisan High Income Fund . The High Income strategy remains open to new client
relationships in other offered vehicles.
When we close or otherwise restrict the growth of a strategy, we typically
continue to allow additional investments in the strategy by existing clients and
certain related entities. We may also permit new investments by other eligible
investors in our discretion. As a result, during a given period we may have net
client cash inflows in a closed strategy. However, when a strategy is closed or
its growth is restricted we expect there to be periods of net client cash
outflows.
The unaudited table on the following page sets forth the average annual total
returns for each composite (gross of fees) and its respective broad-based
benchmark (and style benchmark, if applicable) over a multi-horizon time period
as of March 31, 2021 . Returns for periods less than one year are not annualized.
We measure investment performance based upon the results of our "composites",
which represent the aggregate performance of all discretionary client accounts,
including pooled investment vehicles, invested in the same strategy except those
accounts with respect to which we believe client-imposed investment restrictions
may have a material impact on portfolio construction and those accounts managed
in a currency other than U.S. dollars. The results of these excluded accounts,
which represented approximately 10% of our assets under management at March 31,
2021 , are maintained in separate composites the results of which are not
included below.
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Average Annual
Value-Added(1)
Composite Inception Strategy AUM Average Annual Total Returns (Gross) (%) Since Inception
(bps)
Investment Team and Strategy Date (in $MM) 1 YR 3 YR 5 YR 10 YR Inception
Growth Team
Global Opportunities Strategy 2/1/2007 $ 25,470 59.48% 19.39% 19.82% 15.06% 12.77% 631
MSCI All Country World Index 54.60% 12.06% 13.21% 9.14% 6.46%
Global Discovery Strategy 9/1/2017 $ 2,080 66.65% 24.46% --- --- 23.79% 1,176
MSCI All Country World Index 54.60% 12.06% --- --- 12.03%
US Mid-Cap Growth Strategy 4/1/1997 $ 16,512 76.97% 26.89% 22.40% 16.12% 16.51% 602
Russell Midcap® Index 73.64% 14.72% 14.67% 12.46% 10.91%
Russell Midcap® Growth Index 68.61% 19.39% 18.38% 14.10% 10.49%
US Small-Cap Growth Strategy 4/1/1995 $ 6,402 82.14% 28.30% 27.19% 18.08% 12.70% 369
Russell 2000® Index 94.85% 14.75% 16.34% 11.67% 10.05%
Russell 2000® Growth Index 90.20% 17.15% 18.60% 13.01% 9.01%
Global Equity Team
Global Equity Strategy 4/1/2010 $ 2,949 53.32% 17.44% 18.65% 14.21% 14.36% 478
MSCI All Country World Index 54.60% 12.06% 13.21% 9.14% 9.58%
Non-US Growth Strategy 1/1/1996 $ 21,208 38.21% 8.68% 10.08% 8.29% 10.22% 511
MSCI EAFE Index 44.57% 6.02% 8.84% 5.52% 5.11%
Non-US Small-Mid Growth
Strategy 1/1/2019 $ 8,113 69.72% --- --- --- 31.56% 1,438
MSCI All Country World Index Ex
USA Small Mid Cap 62.05% --- --- --- 17.18%
China Post-Venture Strategy(2) 4/1/2021 $ 56 --- --- --- --- --- -
MSCI China SMID Cap Index --- --- --- --- ---
US Value Team
Value Equity Strategy 7/1/2005 $ 3,672 72.29% 13.40% 14.35% 11.52% 9.37% 133
Russell 1000® Index 60.59% 17.29% 16.65% 13.96% 10.38%
Russell 1000® Value Index 56.09% 10.95% 11.73% 10.98% 8.04%
US Mid-Cap Value Strategy 4/1/1999 $ 4,041 88.59% 11.22% 12.24% 10.36% 12.93% 291
Russell Midcap® Index 73.64% 14.72% 14.67% 12.46% 10.18%
Russell Midcap® Value Index 73.76% 10.69% 11.59% 11.05% 10.02%
International Value Team
International Value Strategy 7/1/2002 $ 26,995 63.26% 9.68% 11.10% 9.86% 12.11% 566
MSCI EAFE Index 44.57% 6.02% 8.84% 5.52% 6.45%
International Small Cap Value 11/1/2020 $ 18 --- --- --- --- 34.84% 630
MSCI All Country World Index Ex
USA Small Cap --- --- --- --- 28.54%
Global Value Team
Global Value Strategy 7/1/2007 $ 24,446 67.53% 9.95% 12.04% 11.70% 9.20% 319
MSCI All Country World Index 54.60% 12.06% 13.21% 9.14% 6.01%
Select Equity Strategy 3/1/2020 $ 22 66.49% --- --- --- 31.45% (225)
S&P 500 Market Index 56.35% --- --- --- 33.70%
Sustainable Emerging Markets
Team
Sustainable Emerging Markets
Strategy 7/1/2006 $ 735 67.94% 8.30% 15.03% 4.63% 7.22% 85
MSCI Emerging Markets Index 58.39% 6.47% 12.06% 3.65% 6.37%
Credit Team
High Income Strategy 4/1/2014 $ 6,905 31.54% 8.89% 10.25% --- 8.12% 282
ICE BofA US High Yield Master
II Total Return Index 23.31% 6.52% 7.93% --- 5.30%
Credit Opportunities Strategy 7/1/2017 $ 105 58.53% 14.34% --- --- 14.66% 905
ICE BofA US High Yield Master
II Total Return Index 23.31% 6.52% --- --- 5.61%
Developing World Team
Developing World Strategy 7/1/2015 $ 9,255 94.54% 29.81% 26.43% --- 21.05% 1,321
MSCI Emerging Markets Index 58.39% 6.47% 12.06% --- 7.84%
25
--------------------------------------------------------------------------------Table of ContentsAntero Peak Group Antero Peak Strategy 5/1/2017$ 2,918 56.12% 23.32% --- --- 27.68% 1,156 S&P 500 Market Index 56.35% 16.76% --- --- 16.12% Antero Peak Hedge Strategy 11/1/2017$ 981 40.58% 17.69% --- --- 19.09% 336 S&P 500 Market Index 56.35% 16.76% --- --- 15.73% Total Assets Under Management$ 162,883
(1) Value-added is the amount in basis points by which the average annual gross composite return of each of our strategies has
outperformed or underperformed the benchmark most commonly used by our separate account clients to compare the performance of the
relevant strategy. The benchmark most commonly used by clients in the US Mid-Cap Growth, US Small-Cap Growth, Value Equity and US
Mid-Cap Value strategies is the style benchmark and for all other strategies is the broad market benchmark. Reporting on this metric
prior to
The tables below set forth changes in our assets under management by investment
team:
By Investment Team
Sustainable Antero Peak
Three Months Ended Growth Global Equity US Value International Value Global Value Emerging Markets Credit Developing World Group Total
March 31, 2021 (unaudited; in millions)
Beginning assets under
management $ 52,685 $ 32,056 $ 7,149 $ 24,123 $ 22,417 $ 679 $ 6,338 $ 8,853 $ 3,476 $ 157,776
Gross client cash inflows 2,157 1,524 90 2,318 1,230 71 920 1,360 437 10,107
Gross client cash outflows (3,123) (1,197) (445) (1,514) (1,283) (16) (361) (678) (87) (8,704)
Net client cash flows (1) (966) 327 (355) 804 (53) 55 559 682 350 1,403
Artisan Funds' distributions
not reinvested (2) - - - - - - (37) - - (37)
Investment returns and other (1,255) (57) 919 2,086 2,104 1 150 (280) 73 3,741
Ending assets under
management $ 50,464 $ 32,326 $ 7,713 $ 27,013 $ 24,468 $ 735 $ 7,010 $ 9,255 $ 3,899 $ 162,883
Average assets under
management $ 53,049 $ 32,541 $ 7,426 $ 25,842 $ 23,147 $ 744 $ 6,737 $ 9,643 $ 3,778 $ 162,907
March 31, 2020
Beginning assets under
management $ 34,793 $ 27,860 $ 7,402 $ 22,000 $ 19,707 $ 234 $ 3,850 $ 3,374 $ 1,796 $ 121,016
Gross client cash inflows 1,420 1,310 441 1,273 640 282 632 588 493 7,079
Gross client cash outflows (2,157) (1,346) (686) (1,404) (840) (4) (625) (310) (125) (7,497)
Net client cash flows (1) (737) (36) (245) (131) (200) 278 7 278 368 (418)
Artisan Funds' distributions
not reinvested (2) - - - - - - (31) - - (31)
Investment returns and other (4,365) (5,800) (2,184) (5,974) (5,806) (135) (514) (286) (279) (25,343)
Ending assets under
management $ 29,691 $ 22,024 $ 4,973 $ 15,895 $ 13,701 $ 377 $ 3,312 $ 3,366 $ 1,885 $ 95,224
Average assets under
management $ 33,702 $ 26,218 $ 6,337 $ 20,054 $ 17,963 $ 352 $ 3,754 $ 3,492 $ 1,930 $ 113,802
(1) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested. Prior period net client cash flows have been recast to exclude Artisan Funds'
distributions.
(2) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds, including in the Artisan High Income
Fund .
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The goal of our marketing, distribution and client services efforts is to
establish and maintain a client base that is diversified by investment strategy,
investment vehicle and distribution channel. As distribution channels have
evolved to have more institutional-like decision making processes and
longer-term investment horizons, we have expanded our distribution efforts into
those areas.
The table below sets forth our assets under management by distribution channel
(1):
As of March 31, 2021 As of March 31, 2020
$ in millions % of total $ in millions % of total
(unaudited) (unaudited)
Institutional $ 104,152 63.9 % $ 63,397 66.6 %
Intermediary 51,609 31.7 % 27,868 29.3 %
Retail 7,122 4.4 % 3,959 4.1 %
Ending Assets Under Management $ 162,883 100.0 % $ 95,224 100.0 %
(1) The allocation of assets under management by distribution channel involves the use of estimates and the exercise of judgment.
Our institutional channel includes assets under management sourced from defined contribution plan clients, which made up approximately 11% of our total assets under management as ofMarch 31, 2021 . The following tables set forth the changes in our assets under management for Artisan Funds and Artisan Global Funds in the aggregate, and separate accounts: Artisan Funds & Artisan Separate Three Months Ended Global Funds Accounts (1) Total March 31, 2021 (unaudited; in millions) Beginning assets under management$ 74,746 $ 83,030 $ 157,776 Gross client cash inflows 7,601 2,506 10,107 Gross client cash outflows (5,021) (3,683) (8,704) Net client cash flows (2) 2,580 (1,177) 1,403 Artisan Funds' distributions not reinvested (3) (37) - (37) Investment returns and other 1,537 2,204 3,741 Net transfers (4) (37) 37 - Ending assets under management$ 78,789 $ 84,094 $ 162,883 Average assets under management$ 78,311 $ 84,596 $ 162,907 March 31, 2020 Beginning assets under management$ 57,288 $ 63,728 $ 121,016 Gross client cash inflows 4,725 2,354 7,079 Gross client cash outflows (5,544) (1,953) (7,497) Net client cash flows (2) (819) 401 (418) Artisan Funds' distributions not reinvested (3) (31) - (31) Investment returns and other (11,947) (13,396) (25,343) Net transfers (4) (65) 65 - Ending assets under management$ 44,426 $ 50,798 $ 95,224 Average assets under management$ 53,775
(1) Separate account AUM consists of the assets we manage in or through vehicles other than Artisan Funds or Artisan Global Funds. Separate account AUM includes assets we manage in traditional separate accounts, as well as assets we manage in Artisan-branded collective investment trusts and in Artisan Private Funds. (2) Net client cash flows excludes Artisan Funds' income and capital gain distributions that were not reinvested. Prior period net client cash flows have been recast to exclude Artisan Funds' distributions. (3) Artisan Funds' distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds, including in theArtisan High Income Fund . (4) Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy, investment vehicle or account and into another strategy, vehicle or account. 27 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three months endedMarch 31, 2021 , Compared to Three months endedMarch 31, 2020 For the Three Months Ended March 31, For the Period-to-Period 2021 2020 $ % Statements of operations data:
(unaudited; in millions, except share and per-share data) Revenues
$ 290.7 $ 202.8 $ 87.9 43 % Operating Expenses Total compensation and benefits 139.5 104.7 34.8 33 % Other operating expenses 29.4 27.1 2.3 8 % Total operating expenses 168.9 131.8 37.1 28 % Total operating income 121.8 71.0 50.8 72 % Non-operating income (expense) Interest expense (2.7) (2.7) - - % Other non-operating income 7.1 (15.2) 22.3 147 % Total non-operating income (expense) 4.4 (17.9) 22.3 125 % Income before income taxes 126.2 53.1 73.1 138 % Provision for income taxes 21.6 9.5 12.1 127 % Net income before noncontrolling interests 104.6 43.6 61.0 140 % Less: Noncontrolling interests - Artisan Partners Holdings 23.6 16.1 7.5 47 % Less: Noncontrolling interests - consolidated investment products 3.7 (7.3) 11.0 151 % Net income attributable to Artisan Partners Asset Management Inc.$ 77.3 $ 34.8 $ 42.5 122 % Share Data Basic earnings per share$ 1.19 $ 0.53 Diluted earnings per share$ 1.19 $ 0.53 Basic weighted average number of common shares outstanding 58,758,284
53,265,479
Diluted weighted average number of common shares outstanding 58,773,269 53,265,479 Investment Advisory Revenues Essentially all of our revenues consist of fees earned from managing clients' assets. Our investment advisory fees, which are comprised of management fees and performance fees, fluctuate based on a number of factors, including the total value of our assets under management, the composition of assets under management among investment vehicles and our investment strategies, changes in the investment management fee rates on our products, the extent to which we enter into fee arrangements that differ from our standard fee schedules, which can be affected by custom and the competitive landscape in the relevant market, and, for the accounts on which we earn performance fees, the investment performance of those accounts. Approximately 3% of our$162.9 billion of assets under management as ofMarch 31, 2021 have performance fee billing arrangements. Performance fees of$6.7 million were recognized in the three months endedMarch 31, 2021 , compared to$2.9 million in the three months endedMarch 31, 2020 . The increase in revenues of$87.9 million , or 43%, for the three months endedMarch 31, 2021 , compared to the three months endedMarch 31, 2020 , was driven primarily by a$49.1 billion , or 43%, increase in our average assets under management. The weighted average investment management fee, which excludes performance fees, was 70.8 basis points for the three months endedMarch 31, 2021 compared to 70.7 basis points for the three months endedMarch 31, 2020 . 28 -------------------------------------------------------------------------------- Table of Contents The following table sets forth the investment advisory fees and weighted average management fee earned by investment vehicle. The weighted average management fee for Artisan Funds and Artisan Global Funds reflects the additional services we provide to these pooled vehicles.
Artisan Funds and Artisan Global
Separate Accounts Funds
For the Three Months Ended March
31, 2021 2020 2021 2020
(unaudited; dollars in millions)
Investment advisory fees $ 114.0 $ 80.0 $ 176.7 $ 122.8
Weighted average management fee(1) 51.5 bps 51.7 bps 91.5 bps 91.8 bps
Percentage of ending AUM 52 % 53 % 48 % 47 %
(1) We compute our weighted average management fee by dividing annualized management fees (which excludes performance
fees) by average assets under management for the applicable period. The weighted average management fee for prior periods
have been recast to exclude performance fee revenue.
Separate account assets under management consist of the assets we manage in or
through vehicles other than Artisan Funds or Artisan Global Funds, including
assets we manage in traditional separate accounts, as well as assets we manage
in Artisan-branded collective investment trusts and in Artisan Private Funds.
Operating Expenses
Operating expenses increased $37.1 million for the three months ended March 31,
2021 compared to the three months ended March 31, 2020 , primarily as a result of
higher incentive compensation and third-party distribution expense related to
increased revenues and increases in other compensation and benefits expenses.
Compensation and Benefits
For the Three Months Ended March Period-to-Period
31,
2021 2020 $ %
(unaudited; in millions)
Salaries, incentive compensation and
benefits(1) $ 128.4 $ 95.5 $ 32.9 34 %
Long-term incentive compensation awards 11.1 9.2 1.9 21 %
Total compensation and benefits $ 139.5 $ 104.7 $ 34.8 33 %
(1) Excluding long-term incentive
compensation awards
The increase in salaries, incentive compensation, and benefits was driven
primarily by a $28.1 million increase in quarterly incentive compensation for
our investment and marketing professionals as a result of the increase in
revenue.
Long-term incentive compensation award expense increased $1.9 million , as the
awards granted during 2020 and 2021 had a higher value than the awards that
became fully vested in 2020 and 2021. During the three months ended March 31,
2021 , the Company's board of directors approved a grant of $79.4 million of
long-term incentive awards consisting of $44.4 million of restricted share-based
awards and $35.0 million of long-term cash awards. Long-term incentive
compensation award expense for all outstanding awards is expected to be
approximately $11 million per quarter in 2021, excluding the impact of
investment returns.
During the first quarter of 2021, we made our first award of franchise capital
awards to investment professionals in lieu of additional grants of restricted
share-based awards. We designed the franchise capital awards as an added feature
to our long-term incentive program to enhance the alignment between our
investment professionals and clients, and to provide investment professionals
with greater control over their long-term economic outcome. Franchise capital
awards are cash awards that are subject to the same long-term vesting and
forfeiture provisions as our restricted share-based awards. Prior to vesting,
though, the franchise capital awards will generally be invested in one or more
of the investment strategies managed by the award recipient's investment team.
Total compensation and benefits was 48% and 52% of our revenues for the three
months ended March 31, 2021 , and 2020, respectively. The percentage decreased as
revenue increased at a higher rate than compensation and benefits.
Other operating expenses
Other operating expenses increased $2.3 million for the three months ended March
31, 2021 compared to the three months ended March 31, 2020 , primarily due to an
increase in third-party distribution expense as a result of an increase in AUM
subject to those fees and an increase in professional fees. Those increases were
partially offset by a $1.6 million decrease in travel and entertainment expenses
resulting from the COVID-19 pandemic.
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Table of Contents Non-Operating Income (Expense) Non-operating income (expense) consisted of the following:
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