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 ofJune 30, 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 ofJune 30, 2021 , approximately 79% of our assets under management were managed for clients and investors domiciled in theU.S. and 21% 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: •During the three months endedJune 30, 2021 , our assets under management increased to$175.2 billion , an increase of$12.3 billion , or 8%, compared to$162.9 billion atMarch 31, 2021 , as a result of$11.3 billion of investment returns and$1.0 billion of net client cash inflows. •Average assets under management for the three months endedJune 30, 2021 were$170.5 billion , an increase of 56% from the average of$109.3 billion for the three months endedJune 30, 2020 , and an increase of 5% from the average of$162.9 billion for the three months endedMarch 31, 2021 . •We earned$304.9 million in revenue for the three months endedJune 30, 2021 , an increase of 50% from revenues of$203.0 million for the three months endedJune 30, 2020 . •Our GAAP operating margin was 45.2% for the three months endedJune 30, 2021 , compared to 37.8% for the three months endedJune 30, 2020 . •We generated$1.33 of earnings per basic and diluted share and$1.28 of adjusted EPS. •We declared and distributed dividends of$0.88 per share of Class A common stock during the three months endedJune 30, 2021 . •We declared, effectiveAugust 3, 2021 , a quarterly dividend of$1.00 per share of Class A common stock. 23 -------------------------------------------------------------------------------- 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 ofJune 30, 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 six months endedJune 30, 2021 , certain limited partners of Holdings exchanged 274,947 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM) for 274,947 shares of Class A common stock. In connection with the exchanges, APAM received 274,947 GP units of Holdings. APAM's equity ownership interest in Holdings increased from 80% atDecember 31, 2020 to 82% atJune 30, 2021 , as a result of these transactions and other equity transactions during the period. 24 -------------------------------------------------------------------------------- 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 and six months endedJune 30, 2021 and 2020: For the Three Months Ended June
30, For the Six Months Ended
2021 2020 2021 2020
S&P 500 total returns 8.5 % 20.5 % 15.3 % (3.1) %
MSCI All Country World total returns 7.4 % 19.2 % 12.3 % (6.3) %
MSCI EAFE total returns 5.2 % 14.9 % 8.8 % (11.3) %
Russell Midcap® total returns 7.5 % 24.6 % 16.2 % (9.1) %
MSCI Emerging Markets Index 5.0 % 18.1 % 7.4 % (9.8) %
ICE BofA U.S. High Yield Master II Total 2.8 % 9.6 % 3.7 % (4.8) %
Return Index
Key Performance Indicators
When we review our business and financial performance we consider, among other
things, the following:
For the Three Months Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
(unaudited; dollars in millions)
Assets under management at period end $ 175,214 $ 120,574 $ 175,214 $ 120,574
Average assets under management (1) $ 170,489 $ 109,295 $ 166,740 $ 111,638
Net client cash flows (2) $ 1,049 $ 3,363 $ 2,452 $ 2,945
Total revenues $ 304.9 $ 203.0 $ 595.6 $ 405.8
Weighted average management fee (3) 70.8 bps 71.8 bps 70.8 bps 71.2 bps
Operating margin 45.2 % 37.8 % 43.6 % 36.4 %
Adjusted operating margin (4) 45.3 % 37.8 % 43.6 % 36.4 %
(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. (4) Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures in "Supplemental Non-GAAP Financial Information" below.
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 accounts and other, 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.
25
--------------------------------------------------------------------------------
Table of Contents
The table below sets forth changes in our total assets under management:
For the Three Months Ended June
30, Period-to-Period
2021 2020 $ %
(unaudited; in millions)
Beginning assets under management $ 162,883 $ 95,224 $ 67,659 71.1 %
Gross client cash inflows 8,765 11,301 (2,536) (22.4) %
Gross client cash outflows (7,716) (7,938) 222 2.8 %
Net client cash flows (1) 1,049 3,363 (2,314) (68.8) %
Artisan Funds' distributions not reinvested
(2) (38) (32) (6) (18.8) %
Investment returns and other (3) 11,320 22,019 (10,699) (48.6) %
Ending assets under management $ 175,214 $ 120,574 $ 54,640 45.3 %
Average assets under management $ 170,489 $ 109,295 $ 61,194 56.0 %
For the Six Months Ended June 30, Period-to-Period
2021 2020 $ %
(unaudited; in millions)
Beginning assets under management $ 157,776 $ 121,016 $ 36,760 30.4 %
Gross client cash inflows 18,872 18,380 492 2.7 %
Gross client cash outflows (16,420) (15,435) (985) (6.4) %
Net client cash flows (1) 2,452 2,945 (493) (16.7) %
Artisan Funds' distributions not reinvested
(2) (75) (63) (12) (19.0) %
Investment returns and other (3) 15,061 (3,324) 18,385 553.1 %
Ending assets under management $ 175,214 $ 120,574 $ 54,640 45.3 %
Average assets under management $ 166,740 $ 111,638 $ 55,102 49.4 %
(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 U.S.
dollars. The impact was immaterial for the periods presented.
During the quarter, our AUM increased by $12.3 billion due to $11.3 billion in
investment returns and $1.0 billion of net client cash inflows. 13 of our 20
investment strategies had net inflows, totaling $3.6 billion . Our ten strategies
with inception dates beginning in 2014 or later had $2.0 billion in net inflows.
We expect those strategies as a group to continue to experience net inflows.
Our Global Opportunities, Non-U.S. Growth, U.S. Mid-Cap Growth, Global Equity,
U.S. Mid-Cap Value, Value Equity and U.S. Small-Cap Growth strategies had a
total of $2.5 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.
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.
26
--------------------------------------------------------------------------------
Table of Contents
As of the date of this filing, the Artisan High Income Fund , Artisan
International Value Fund and Artisan International Small-Mid Fund are closed to
most new investors and their respective strategies have limited availability to
most new client relationships. In addition, we are actively managing the
capacity of our Global Opportunities and U.S. Small-Cap Growth strategies with
respect to new client relationships.
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 June 30, 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 June 30,
2021 , are maintained in separate composites the results of which are not
included below.
27--------------------------------------------------------------------------------
Table of Contents
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 $ 26,741 35.90% 22.30% 21.64% 15.83% 13.21% 634
MSCI All Country World Index 39.26% 14.55% 14.61% 9.89% 6.87%
Global Discovery Strategy 9/1/2017 $ 2,446 41.09% 26.62% --- --- 25.37% 1,207
MSCI All Country World Index 39.26% 14.55% --- --- 13.30%
U.S. Mid-Cap Growth Strategy 4/1/1997 $ 17,690 42.57% 29.58% 24.01% 16.98% 16.81% 595
Russell Midcap® Index 49.80% 16.43% 15.61% 13.22% 11.13%
Russell Midcap® Growth Index 43.77% 22.37% 20.51% 15.12% 10.86%
U.S. Small-Cap Growth Strategy 4/1/1995 $ 6,640 38.33% 27.00% 26.12% 18.22% 12.76% 368
Russell 2000® Index 62.03% 13.51% 16.46% 12.33% 10.12%
Russell 2000® Growth Index 51.36% 15.93% 18.75% 13.51% 9.08%
Global Equity Team
Global Equity Strategy 4/1/2010 $ 2,989 35.03% 19.89% 19.66% 14.97% 14.92% 487
MSCI All Country World Index 39.26% 14.55% 14.61% 9.89% 10.05%
Non-U.S. Growth Strategy 1/1/1996 $ 21,907 25.14% 11.54% 11.70% 8.62% 10.37% 510
MSCI EAFE Index 32.35% 8.26% 10.27% 5.89% 5.27%
Non-U.S. Small-Mid Growth
Strategy 1/1/2019 $ 9,123 43.20% --- --- --- 31.83% 1,375
MSCI All Country World Index Ex
USA Small Mid Cap 41.80% --- --- --- 18.08%
China Post-Venture Strategy 4/1/2021 $ 147 --- --- --- --- 13.05% 763
MSCI China SMID Cap Index --- --- --- --- 5.42%
U.S. Value Team
Value Equity Strategy 7/1/2005 $ 3,894 56.13% 14.59% 14.86% 12.27% 9.74% 148
Russell 1000® Index 43.07% 19.14% 17.98% 14.88% 10.77%
Russell 1000® Value Index 43.68% 12.41% 11.87% 11.60% 8.26%
U.S. Mid-Cap Value Strategy 4/1/1999 $ 4,035 55.87% 11.20% 12.31% 10.74% 12.97% 280
Russell Midcap® Index 49.80% 16.43% 15.61% 13.22% 10.41%
Russell Midcap® Value Index 53.06% 11.85% 11.78% 11.73% 10.17%
International Value Team
International Value Strategy 7/1/2002 $ 29,698 49.07% 12.80% 12.92% 10.26% 12.32% 568
MSCI EAFE Index 32.35% 8.26% 10.27% 5.89% 6.64%
International Small Cap Value 11/1/2020 $ 22 --- --- --- --- 49.00% 1,230
MSCI All Country World Index Ex
USA Small Cap --- --- --- --- 36.70%
Global Value Team
Global Value Strategy 7/1/2007 $ 26,089 51.83% 12.12% 13.36% 11.93% 9.43% 299
MSCI All Country World Index 39.26% 14.55% 14.61% 9.89% 6.44%
Select Equity Strategy 3/1/2020 $ 426 50.54% --- --- --- 30.24% (443)
S&P 500 Market Index 40.79% --- --- --- 34.67%
Sustainable Emerging Markets
Team
Sustainable Emerging Markets
Strategy 7/1/2006 $ 998 47.39% 14.39% 15.95% 5.81% 7.62% 101
MSCI Emerging Markets Index 40.90% 11.26% 13.02% 4.28% 6.61%
Credit Team
High Income Strategy 4/1/2014 $ 7,670 20.26% 9.32% 9.53% --- 8.23% 272
ICE BofA US High Yield Master
II Total Return Index 15.62% 7.14% 7.29% --- 5.51%
Credit Opportunities Strategy 7/1/2017 $ 115 39.62% 15.49% --- --- 15.13% 1,351
ICE BofA US Dollar LIBOR
3-month Constant Maturity Index 0.25% 1.65% --- --- 1.62%
Developing World Team
Developing World Strategy 7/1/2015 $ 10,314 54.28% 37.12% 28.01% --- 21.99% 1,360
MSCI Emerging Markets Index 40.90% 11.26% 13.02% --- 8.39%
Antero Peak Group
Antero Peak Strategy 5/1/2017 $ 3,245 37.12% 23.28% --- --- 27.54% 1,016
28--------------------------------------------------------------------------------
Table of Contents S&P 500 Market Index 40.79% 18.65% --- --- 17.38% Antero Peak Hedge Strategy 11/1/2017$ 1,025 28.00% 18.34% --- --- 19.14% 197 S&P 500 Market Index 40.79% 18.65% --- --- 17.17% Total Assets Under Management$ 175,214
(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 its respective benchmark. Value-added for periods less than one year is not annualized. The High Income
strategy holds loans and other security types that are not included in its benchmark, which, at times, causes material differences in
relative performance. The Credit Opportunities strategy is benchmark agnostic and has been compared to the 3-month LIBOR for reference
purposes only. The Antero Peak and
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 U.S. Value International Value Global Value Emerging Markets Credit Developing World Group Total
June 30, 2021 (unaudited; in millions)
Beginning assets under
management $ 50,464 $ 32,326 $ 7,713 $ 27,013 $ 24,468 $ 735 $
7,010 $ 9,255
2,042 1,146 99 1,729 1,666 210 904 718 251 8,765
Gross client cash outflows (3,426) (1,449) (323) (750) (839) (10) (277) (554) (88) (7,716)
Net client cash flows (1) (1,384) (303) (224) 979 827 200 627 164 163 1,049
Artisan Funds' distributions
not reinvested (2) - - - - - - (38) - - (38)
Investment returns and other 4,437 2,143 440 1,728 1,220 63 186 895 208 11,320
Ending assets under
management $ 53,517 $ 34,166 $ 7,929 $ 29,720 $ 26,515 $ 998 $
7,785 $ 10,314
$ 51,705 $ 33,931 $ 7,982 $ 28,921$ 25,917 $ 865$ 7,317 $ 9,700$ 4,151 $ 170,489 June 30, 2020 Beginning assets under management$ 29,691 $ 22,024 $ 4,973 $ 15,895$ 13,701 $ 377 $
3,312 $ 3,366
3,484 1,449 255 2,705 1,075 23 946 942 422 11,301
Gross client cash outflows (1,623) (2,163) (358) (2,139) (922) (7) (319) (331) (76) (7,938)
Net client cash flows (1) 1,861 (714) (103) 566 153 16 627 611 346 3,363
Artisan Funds' distributions
not reinvested (2) - - - - - - (32) - - (32)
Investment returns and other 9,527 4,137 1,142 2,732 2,159 84 444 1,419 375 22,019
Ending assets under
management $ 41,079 $ 25,447 $ 6,012 $ 19,193 $ 16,013 $ 477 $
4,351 $ 5,396
$ 35,451 $ 24,250 $ 5,725 $ 17,873$ 14,912 $ 422$ 3,960 $ 4,406$ 2,296 $ 109,295 (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 theArtisan High Income Fund . 29
--------------------------------------------------------------------------------
Table of Contents
By Investment Team
Sustainable Antero Peak
Six Months Ended Growth Global Equity U.S. Value International Value Global Value Emerging Markets Credit Developing World Group Total
June 30, 2021 (unaudited; in millions)
Beginning assets under
management $ 52,685 $ 32,056 $ 7,149 $ 24,123 $ 22,417 $ 679 $
6,338 $ 8,853
4,199 2,670 189 4,047 2,896 281 1,824 2,078 688 18,872
Gross client cash outflows (6,549) (2,646) (768) (2,264) (2,122) (26) (638) (1,232) (175) (16,420)
Net client cash flows (1) (2,350) 24 (579) 1,783 774 255 1,186 846 513 2,452
Artisan Funds' distributions
not reinvested (2) - - - - - - (75) - - (75)
Investment returns and other 3,182 2,086 1,359 3,814 3,324 64 336 615 281 15,061
Ending assets under
management $ 53,517 $ 34,166 $ 7,929 $ 29,720 $ 26,515 $ 998 $
7,785 $ 10,314
$ 52,384 $ 33,245 $ 7,705 $ 27,392$ 24,540 $ 805$ 7,029 $ 9,674$ 3,966 $ 166,740 June 30, 2020 Beginning assets under management$ 34,793 $ 27,860 $ 7,402 $ 22,000$ 19,707 $ 234 $
3,850 $ 3,374
4,904 2,759 696 3,978 1,715 305 1,578 1,530 915 18,380
Gross client cash outflows (3,780) (3,509) (1,044) (3,543) (1,762) (11) (944) (641) (201) (15,435)
Net client cash flows (1) 1,124 (750) (348) 435 (47) 294 634 889 714 2,945
Artisan Funds' distributions
not reinvested (2) - - - - - - (63) - - (63)
Investment returns and other 5,162 (1,663) (1,042) (3,242) (3,647) (51) (70) 1,133 96 (3,324)
Ending assets under
management $ 41,079 $ 25,447 $ 6,012 $ 19,193 $ 16,013 $ 477 $
4,351 $ 5,396
$ 34,603 $ 25,252 $ 6,037 $ 18,980$ 16,452 $ 387$ 3,860 $ 3,953$ 2,114 $ 111,638 (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 theArtisan High Income Fund . 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 June 30, 2021 As of June 30, 2020 $ in millions % of total $ in millions % of total (unaudited) (unaudited) Institutional$ 110,994 63.4 %$ 78,960 65.5 % Intermediary 56,618 32.3 % 36,455 30.2 % Retail 7,602 4.3 % 5,159 4.3 % Ending Assets Under Management$ 175,214 100.0 %$ 120,574 100.0 %
(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 ofJune 30, 2021 . 30 -------------------------------------------------------------------------------- Table of Contents The following tables set forth the changes in our assets under management by vehicle type: Artisan Funds & Artisan Separate Accounts Three Months Ended Global Funds and Other (1) Total June 30, 2021 (unaudited; in millions) Beginning assets under management$ 78,789 $ 84,094 $ 162,883 Gross client cash inflows 5,666 3,099 8,765 Gross client cash outflows (4,005) (3,711) (7,716) Net client cash flows (2) 1,661 (612) 1,049 Artisan Funds' distributions not reinvested (3) (38) - (38) Investment returns and other 5,316 6,004 11,320 Net transfers (4) (41) 41 - Ending assets under management$ 85,687 $ 89,527 $ 175,214 Average assets under management$ 82,931 $ 87,558 $ 170,489 June 30, 2020 Beginning assets under management$ 44,426 $ 50,798 $ 95,224 Gross client cash inflows 6,818 4,483 11,301 Gross client cash outflows (4,983) (2,955) (7,938) Net client cash flows (2) 1,835 1,528 3,363 Artisan Funds' distributions not reinvested (3) (32) - (32) Investment returns and other 10,321 11,698 22,019 Net transfers (4) - - - Ending assets under management$ 56,550 $ 64,024 $ 120,574 Average assets under management$ 51,262 $ 58,033 $ 109,295 Artisan Funds & Artisan Separate Accounts Six Months Ended Global Funds and Other (1,2) Total June 30, 2021 (unaudited; in millions) Beginning assets under management$ 74,746 $ 83,030 $ 157,776 Gross client cash inflows 13,267 5,605 18,872 Gross client cash outflows (9,026) (7,394) (16,420) Net client cash flows (2) 4,241 (1,789) 2,452 Artisan Funds' distributions not reinvested (3) (75) - (75) Investment returns and other 6,853 8,208 15,061 Net transfers (4) (78) 78 - Ending assets under management$ 85,687 $ 89,527 $ 175,214 Average assets under management$ 80,644 $ 86,096 $ 166,740 June 30, 2020 Beginning assets under management$ 57,288 $ 63,728 $ 121,016 Gross client cash inflows 11,543 6,837 18,380 Gross client cash outflows (10,527) (4,908) (15,435) Net client cash flows (2) 1,016 1,929 2,945 Artisan Funds' distributions not reinvested (3) (63) - (63) Investment returns and other (1,626) (1,698) (3,324) Net transfers (4) (65) 65 - Ending assets under management$ 56,550 $ 64,024 $ 120,574 Average assets under management$ 52,563 $
59,075
(1) Separate account and other consists of AUM we manage in or through vehicles other than Artisan Funds or Artisan Global Funds. This 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. As ofJune 30, 2021 , AUM for certain strategies include the following amounts for whichArtisan Partners provides investment models to managed account sponsors (reported on a one-month lag): Artisan Sustainable Emerging Markets$24 million . 31 -------------------------------------------------------------------------------- Table of Contents (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. Results of Operations Three months endedJune 30, 2021 , Compared to Three months endedJune 30, 2020 For the Three Months Ended June 30, For the Period-to-Period 2021 2020 $ % Statements of operations data:
(unaudited; in millions, except share and per-share data) Revenues
$ 304.9 $ 203.0 $ 101.9 50 %
Operating Expenses
Total compensation and benefits 138.0 102.2 35.8 35 %
Other operating expenses 29.1 24.2 4.9 20 %
Total operating expenses 167.1 126.4 40.7 32 %
Total operating income 137.8 76.6 61.2 80 %
Non-operating income (expense)
Interest expense (2.7) (2.7) - - %
Other non-operating income 12.3 14.1 (1.8) (13) %
Total non-operating income (expense) 9.6 11.4 (1.8) (16) %
Income before income taxes 147.4 88.0 59.4 68 %
Provision for income taxes 28.5 16.2 12.3 76 %
Net income before noncontrolling interests 118.9 71.8 47.1 66 %
Less: Noncontrolling interests - Artisan Partners
Holdings 25.7 18.2 7.5 41 %
Less: Noncontrolling interests - consolidated
investment products 5.0 7.4 (2.4) (32) %
Net income attributable to Artisan Partners Asset
Management Inc. $ 88.2 $ 46.2 $ 42.0 91 %
Share Data
Basic earnings per share $ 1.33 $ 0.72
Diluted earnings per share $ 1.33 $ 0.72
Basic weighted average number of common shares
outstanding 59,821,804 55,884,366
Diluted weighted average number of common shares outstanding 59,838,374 55,884,366 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 4% of our$175.2 billion of assets under management as ofJune 30, 2021 have performance fee billing arrangements. Performance fees of$4.1 million were recognized in the three months endedJune 30, 2021 , compared to$8.0 million in the three months endedJune 30, 2020 . The increase in revenues of$101.9 million , or 50%, for the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 , was driven primarily by a$61.2 billion , or 56%, 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 endedJune 30, 2021 compared to 71.8 basis points for the three months endedJune 30, 2020 . The decrease in the weighted average investment management fee was primarily due to a decrease in separate account fee rates resulting from tiered fee structures and client mix. 32 -------------------------------------------------------------------------------- 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 and Other Funds
For the Three Months Ended June 30, 2021 2020 2021 2020
(unaudited; dollars in millions)
Investment advisory fees $ 116.2 $ 85.9 $ 188.7 $ 117.1
Weighted average management fee(1) 51.4 bps 54.1 bps 91.3 bps 91.8 bps
Percentage of ending AUM 51 % 53 % 49 % 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.
Separate accounts and other consists of assets we manage in or through vehicles other than Artisan Funds or Artisan Global Funds, including assets we manage in traditional separate accounts, Artisan-branded collective investment trusts and Artisan Private Funds, as well as assets under advisement related to investment models, for which we provide consulting advice but do not have full discretionary investment authority. Operating Expenses Operating expenses increased$40.7 million for the three months endedJune 30, 2021 , compared to the three months endedJune 30, 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 June 30, Period-to-Period 2021 2020 $ % (unaudited; in millions) Salaries, incentive compensation and benefits(1)$ 125.9 $ 93.1 $ 32.8 35 % Long-term incentive compensation awards 12.1 9.1 3.0 33 % Total compensation and benefits$ 138.0 $ 102.2 $ 35.8 35 % (1) Excluding long-term incentive compensation awards The increase in salaries, incentive compensation and benefits was driven primarily by a$28.6 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$3.0 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 first quarter of 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 for the remainder of 2021, excluding the impact of investment returns. During the first quarter of 2021, we made our first grant 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 45% and 50% of our revenues for the three months endedJune 30, 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$4.9 million for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily due to an increase in third-party distribution expense as a result of an increase in AUM subject to those fees. 33
--------------------------------------------------------------------------------
Table of Contents Non-Operating Income (Expense) Non-operating income (expense) consisted of the following:
© Edgar Online, source
