APAM - Earnings call transcript Q4 2020 | Artisan Partners Asset Management Inc.

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Operator

Hello and thank you for standing by. My name is Andrew, 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. time, Director, turn Partners Investor this to call Asset At Taphorn, Makela Relations Instructions] I the will over Management. [Operator for Artisan

Makela Taphorn

Business Today's Welcome and and from CEO; you. to Daley, Artisan Chairman Asset Thank CFO. C.J. the Eric Colson, Earnings will call Management Call. and include remarks Partners Update

investor available website. results on Our Relations Investor and latest the presentation are our section of

open these for line we'll the remarks, Following questions.

remind your Before call, you may I'd we to that today's statements, to like made These are forward-looking to including comments with earnings presented responses subject in our in the risks questions filings detailed uncertainties. the deal SEC. on are the begin, which and with release and

call. not required update are any to the of revise We following or these statements

of will the today's measures. on financial non-GAAP some make to made call remarks addition, reference In

of call measures GAAP I'll You measures can in now to With find over turn Eric release. the reconciliations most to that, the comparable the those earnings Colson.

Eric Colson

thank joining for constant in change XX bring summarizes Slide you of are, years. presentation, are, together we Thank we of we you, which philosophy consistency we who our X, all the the Partners, who or Makela, the reading and model transcript. Artisan for every and consistency At the and include call patients. over

foundational firm Over history, our elements. We thrive are true investment we growing term. business long a have high talent designed these to investment to thoughtfully for the value-added and committed over remained to

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to Turning Slide X.

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average On XXX XX an fees. the strategies long-term our more relative by to to XX left, XXXX their strategies you year fees. inception basis added have of XX outperformed Since results. points per have inception, value prior after launched see benchmarks than since can of after

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Moving to Slide X.

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easily partners leaders investing valued and leaders to to liquidity incentives long-term our not created IPO use broadly shares between creates we interests. awards career are to our allowed for and equity XXXX, pre-IPO allow of XXXX and added partnership the restricted us and who to clients In long-term for Our static. more Things XX% senior us vesting are shareholders. alignment spread are transparent, more made to compared senior which

year Our are continued to year, overall equal our one performance. objectivity Prior of strategy, and same the order we to the franchise grow vesting has awards of enhancing diversify, investment investment the franchise team's shares. equity as prior firm majority long the invested performance clients. These cash-based consistency, capital to awards our predictability will have between the and capital term team investment between of awards In more firm to awards. some and provide though, not made this investment further firm's restricted incentives, relationship with The vesting, have any stock, replaced professionals which reduces approximately rules X% to our the to the and in our team's teams the revenues. be alignment

was award to the the overall in over on XX we C.J. prior of creators the determine to XXXX to size size have and value continue our of discuss We I consistent for overall firm our with financial align The annual value the years. turn with will this grants. and our to of clients, year's results. as our awards done produced size based

C.J. Daley

In cash global client well indices. exceptional Eric. our inflows year increases ended as most strong driven net performance December calendar market Thanks by results investment XXXX, were our XX, of the strategies, as in across

client As Net and cash XX added year. to the X, our inflows over a $XX result, of were $XXX.X were during inflows client in growth strategies AUM driven diversified billion benchmarks and with excess clients as by illustrated rate, cash new for X% net returns Net of including XX $XX AUM mutual on AUM reinvested organic our the Slide billion new not in Investment our year XX% that a $X.X and meaningfully AUM. for strategies, funds. billion. across also billion, U.S. not were were gathering existing in to the distributions growth or year contributed increased

XX.X% cash was quarter, the billion. also growth client AUM up inflows net were $X.X and strong, For

to AUM and break a funds to amount for $XXX we the This roll quarter This the AUM the distributions in forward, full quarter, during due $XXX not within decline Artisan reinvested. million AUM decline began year. in represented change million our a out

a AUM Page of strong couple by excess generation Investment generations. presented three is all on across include X. returns items. highlight returns I'll Our

two of inflows third over total AUM. in XX% and client $XX.X generation XXXX, second of had now net represents strategies Our in AUM and cash billion these generations

an revenues, on X% costs compensation partially in due AUM revenue Year-over-year expenses offset XXXX increased due to operating increase higher a as to in increased XX% in for Operating Starting requirements. XX% incentive XXXX. work-from-home results, compensation paid fees incentive as strategy periods the higher outflows While travel of adapted to effect and increased quarter experienced our lower to quarter for are meaningfully, year, presented year-to-date pages. compared Financial the our highlighting and on results grew quarter XXXX the returns sequential the compounding increased revenues the compared quarter and fourth the of XX% two and AUM market quarterly with to performance alpha next sequentially result growth. variable increased and generation. as expenses by first-generation average expense of employees

As operating and XXXX, offset expense. third to AUM of related share and to reflect a quarter. Operating compared grew due performance income I $X.XX. reductions income basis quarter was compensation results primarily average XXXX and sequentially share to was points rose fourth compared XX% partially income XX% XX% per grew XX.X%. as XX.X%. Adjusted million incentive X%, just and net adjusted our quarter themes margin $XXX $X.XX by per the are compensation due to net expense Revenues XX% XX% XXX primarily increased operating Operating the XX% higher Annual financial and XX% on in up result, fees. quarterly to to XXXX Adjusted expenses results year-over-year, equity-based margin the Page to to to operating lower our adjusted increased highlighted. increased increase same XX the and rose variable compared an income COVID December cost higher

as borrowings flows. balance Our healthy are cash modest by remains sheet strong supported

granted Franchise in XX of shares. generated and approximate that discussed grant the amortization have share of been compensation Capital as impact granted calendar incentive our in we incentive X% As five-year our the to history grants approximates comp A restricted awards we incentive equity to of have grants with and have fees XX. will of $XX million of compensation. vest remainder restricted share preceding the XXXX management XXXX. and Artisan grants long-term those will of investment to year. those career franchise based benefits awards of in on grant Artisan which expense The periods. Long-term franchise awards The points of determined solely franchise replaced grand awards. management and directed the awards. award of on restricted compensation grant combined The awarded program long-term the item of revenues awarded of highlights economic premium capital We talent. is evolved consists prior long-term Page both $XX.X value over both XXXX XX% XXXX fee awards granted awards Eric program. to Slide future vest our to a created in Artisan revenues, consistently indicated, restricted long-term Approximately share X% line cash an XXXX. year compensation The the approximately consisted incentive have and Artisan value capital be aggregate grant are would labeled creation professionals. to awards each be was sized have reflecting awards long-term of expect to Artisan million we couple related year, capital. the year single our of The be been incentive clients solely key compensation in within from the similarly firm's standard generally our for long-term awards, equity awards. both to Historically, and incentive of The refer XXXX, Each XXXX and shareholders

are will first excluded amortization dividends. per expense approximately Since long-term non-operating a adjusted the expense special the program will of the and for gains reflect Our income Franchise cash from and cash be compensation quarter and of to cash of the earnings. losses operating $XX adjusted of awards, the use The on prorated and available Capital fund underlying quarterly investment million. awards amount income will cash share reduce impact

will the month. XXXX the funded considering to award. the $X.XX be the be dividend and number cash cash, portion franchise this shareholders payout the share. of be the dividend Capital of Capital of cash cash in fund a paid represents X% the special cash a by dividend will Directors fund record reserve $X.XX cash for represents After share. dividends with X% using Franchise of dividend reserved quarterly needed We awards this expect total over term. of reduced cash amount fee be XX dividend. next to XX%, declared awarded generated an be of cash other that represents the future annualized long future uses Franchise shareholders to fourth restricted our special Capital of awards. quarterly $X.XX intend the cash consideration the $X.XX, in approximately reducing per a to on in awards quarter, of of generated initial and Franchise a This will Capital reserve of strategic net per now were per and yield a the and cash XXXX, to revenues generated the dividend the to Franchise declared We variable in special to annual share The management in XXXX we dividend. The quarter Total cash Board February to of of pay cash of respect which neutral share approximate to dividend awards to XXXX. XXXX, each before Beginning will fund cash reducing $X.XX return will used of of effect with XX% a continue year's out generated our generated

XX% of into to XXXX, from trend we'll expenses, to Looking strong XX% of serve changes. as forward December historical us restrictions to and reflecting will and remain our third-party in result fixed expense XXXX, operational Approximately a are are new year. so to two continued marketing office primarily norms conditions. global model vary revenue, With fiscal directly and financial well in AUM adjust AUM and travel, Occupancy a digits costs. million travel expenses should $X ever-changing expenses average have new home grow our lien growth or provides expenses continues compensation mid-single compared revenue and Other Certain XXXX, distribution, on in sustainability higher lower reflecting and predictability primarily locations. levels market investments of arrangements. capabilities. distribution begin we with variable ahead work to expected revenue incentive continued weather XXXX, Those operating with XX, at forward

portion equity not for operator the the Before the eligible any execute partners partners, required call some are eligible many sale closing, partners eligible shares of by former for Partners sell now I a we employee to In will each of first a with to on employee back from that shares. turn of are just XXXX. remarks, current and sale the and former know total, together these in of We million first and for held shares. selling, for choose employee pre-IPO how don't reminder they to may That a portion approximately in will sale for coordinated year, Q&A. our concludes my sell. becomes shares our Depending level shares of X.X quarter quarter sale. interest

Operator

We Instructions] now Fannon question comes will The of Jefferies. Dan from first Please ahead. [Operator session. the begin go question-and-answer

Dan Fannon

on guess the allocating shift? new so or have were as timing at not curious then you investment of I making in your kind their this to is around money So my And investment Franchise paid kind of why compensation first question now any announced, all being that funds Capital and currently. or professionals

So be potentially they that or outcomes or to asset positive better something was from coming that going maybe more allocators asset view other forward? to would growth a consultants something

C.J. Daley

is Dan, one. take that C.J., I'll this

key investment already holdings First, significant professionals our in have funds. their

to shares other public, changes driven incentive So, long-term it as when continually our clients to over grow the shares shareholders. restricted back our made that and and people the evolve aligned introduced career at We've was years we gain well firm desire and we than as not anything We've comp to mature. as the we IPO.

us the and continually of really wanting why improve now just the matter security. to a So, was evolve

Dan Fannon

Got it.

perspective, million if of the that long the does look How incentive. Slide for the about we that modeling, just just from the XXXX? an just about about economic you're kind then think income as So statement. $XX.X to thinking And $XX.X talking at from million XX compare Okay. and -- term we

So XXXX. booked million you of equity $XX.X in base comp

if saw XXXX in compared XXXX? we to the on you're guess, So impact, allocating, layer I be is we what what to what going

C.J. Daley

Yes.

don't as sizing value amortization how have revenues. -- as So annual X% X% created sort sort just all have assessment of as you between our been vests. year. formula and any know, been to five-year We these that expense of has these of of Historically, magic we've an of we have

in that -- in year to lot The we well was five was value see and XXXX, an can less which those as This shareholders. You for market. last there a similar of XXXX successful was year's asset this grant years been and years created organic from growth, exceptional. as both have clients

And we'll rate X% you on still of a X% low revenues, run based that amortization for about so that historically to think we on end of where when XXXX, AUM current be been. had

no So formula. range specific on a sizing within value is somewhat but creation, based

Operator

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

Bill Katz

that year the that earlier would and through the all? above at expenses. question your in spoke some private one normalization that, Okay, terms to XXXX, entertainment within how beyond? you the and so just China of thinking And then in more be about guidance of Or and the Does sort travel opportunity? market of of on factor spending for maybe you are this if

Eric Colson

to It new normal. beyond were other that the get everything team in a that Yes, bring there's With on expenses, China when factor is, would does if to in depends that factor on we to really we're post-venture respect working today. group. What on back good we it not question.

the summer to happens were down to the And of quarter, G&A million that which normal travel so, remains $X pre-COVID the similar running to until get expect a is to and million $X we the that back be would whether range in fall level or million expenses and a million we from $X $X in I seen.

health somewhere expect should a our million due that in million of in the to that expenses XXX(k) payroll expenses. we about The be that as other have I and comp. range mention fundings for thing non-employee $X-ish We and always then a in in director the first quarter to do is would contributions G&A of result seasonal down compensation tax reset in $X spike

that, think other that we So of sort I than insights identified into. I've everything have could any

Bill Katz

against the for flows, look more Eric, back And to on portfolios? going great. Gen and any sort on investment X a follow-up, stand anything as Gen my the capacity of you you Okay, of the some to that's to X Gen momentum you I speak And of of fallout the X just to just appreciate of starting where process. in 'XX, or up they're the constraints? kind maybe But can then buck

Eric Colson

and we seen gross we've you see you manage do and quite in lot which as certainly, capacity diligently. the a in both Yes, of And know, of flows velocity And flows, out. we orientation the capacity see capacity. very total evolving some use clients we with. we the think we're and And of well duration that long about mix of as also that cautious

on couple few a growth, and And the many there. a flow the strategies, so regards more side the mindful year, of pretty a opportunities, mix to year, seen with So cap managing very two generation, we've in the you're global there. successful straddling growth the last are small in Those the across third strategies. of notably with with the generations

we're and as design that fit questions still well. I seeing in how those think they new great allocation, showcasing launching and around in long-term strategies we asset those the we're to they field interest as of strategies continue

the generation, So strong interest. we're third seeing still

Operator

Blostein question Alex next The Please from Sachs. Goldman of comes ahead. go

Alex Blostein

just little to into wanted kind and earlier trying the I including kind think the of all with dig the a value for the to align, shareholders. a point franchise to constituents, awards of your words more about

X%? you're they year lower index getting could able to be revenue equity overtime, just really that are alpha an side on aiming that value in you it do the market how organic really if So So fees, X% creation a beta? performance, we sort versus management dynamic just is strong, think dynamic and to should X% like of so maybe of feels reserve of guys about sort inflation or on what growth because performance, the

Eric Colson

the APAM already And of provide we that award is some have of sort Most the have, which grant addition predictability get the all our life to total introduced well alignment significant, would The equity, franchise equity, in their with had we and objective franchise professionals key as, our equity investment APAM on transparency would equity. of our, capital. made, to to in into X% substantial balanced most getting the not of that a APAM already have to sizing and funds, be directly outcome and them to the is over both for if put or as them way APAM clients again, their provide of of their to career.

Alex Blostein

fees? But I growth predicated guess and in of or more grant is alpha management methodology terms on just the total organic the

Eric Colson

Total management fees.

Alex Blostein

follow-up I any that reminder. share And capital a guess, expected quick to to annual repurchases? What in then, place, new planning just with structure with forward extent they be the the maybe of into offset you is management, around maybe creep, are share guys go just what

Eric Colson

is dilution. share repurchase really not a really franchise less of The considering program. effect We're introducing capital

So, outcome a share as the same plan. repurchase

So no total is I -- be first and the as X% the Franchise will will Capital explained way equity. think we -- a the PAM award, about rest the there and be

the would of be into dilution we'd you the hard the giving have any because So ground. have insights directional what to size

that of sort and basis what I between and that X% range. remain on amortization an in of X% of done, we've we the is historically annual think would would revenues I expect

Operator

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

Robert Lee

next a when and we lack thinking you the Franchise sticking should of up last again kind Maybe below you'd a of maybe issue that or take of be taking normalize couple way of at step kind years for years next maybe about it, bit it? then awards for bit of just similar years that award, least comp funding to average. to since compounding particularly first think fair maybe Is were with went couple midway question. once the a the you incentive Awards, of see little of in my year's of couple kind public, there's little to a Thanks

Eric Colson

of vesting one I we ramp-up when had that and expense only the mean, and first went off, year public, XX%. there a in the X-year we because went first public we amortization in was a grant

we get you expense. years, all fully amortization year, to every instance, should ramped this not So had at In ramp-up. we after of loaded a think up -- a five about

be this you the You about years years, grants we of a not continue five a fluctuating firm more billion. year's to was and in at the we'd $XX just if the where should granting where probably grant level than would prior see $XXX AUM ramp-up between billion because think have premium was band

And from so both well performance that markets. and organic we've investment had of year, breakout as a this growth, as

So that, in premium our mind, is a year.

So, the grant depends sizing. it grant all on -- the

Robert Lee

enough. in maybe Fair shifting then And Okay. to flows gears business.

investments I little this you've was big possible that separate just ramped. but year really it's drill there if flows a it got talked expanding almost of year, know So, that where to such at channels you the know about funds were drove marked a more bit of side, gross in down maybe sales maybe distribution it, -- both there kind and increase made, fund they specific I into in specific beginning a don't and the on accounts. And turned particularly you've the programs on like

I'm just possible So drove to of it's specifically some on to trying down really see, if better color kind tone that? what more

Eric Colson

Eric. it's Rob,

that's we've a that bit years we've that would quarter-to-quarter always firm, not year. or so that what last mindset distribution I you for just that And flows think stated lumpy flows occurred expected that's and mentioned a the flow hopefully consistent that, over centric quite managed investment have a very signaled as and lumpy. manage we've be this be would

in. reallocated Clearly, as allocated had environment about think or Artisan knowledge on were the enhanced and due I doing were us good flows that we to were the individuals existing well institutions base us a a given bit diligence as clients dollars. many

kind performance given to tools. on spending time only would riders at ago. using our a looked thinking of little pivoted and distribution it the we last been more the journey. this firms our is more on we've And a about of so a -- put spent state new for just system I how as a And bit the adding given knowledge-based and I a We've we've client of something environment, CRM that year few did to and years a content. of digital lot that think more time more think in about

created One October versus we've powerful gotten was back did blog some this hits year. that. last on a great So in we piece investing. We've on value one YOLO a very

with we've some corporate added also and management content. and package interviews doing delivered media, that And started that our videos I mentioned. through social including We website, and that blog and investments e-mail company of

even interaction nice, And new the been of delivery, came together. relationships limited think of period the And given and long-term the so during that travel. this I has all quite ways

Operator

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

Chris Shutler

Eric, two? it of in you to you that stage value do seeing what curious into your institutional signs versus clients? rebalancing cycle, quarter meant? will get on has And over Or at growth early are think mean the take the next you and kind from are seeing rotation for what then your just this any activity what value? of or

Eric Colson

last a small-cap And saw quarter, non-U.S. the back come value last leading Certainly, with outperformed well. as U.S. performance quarter you emerging you outperforming rotation the markets way. obviously, with saw and Yes.

a rotation think about have coming of So, did do year you the you're into beginning people and when rebalancing. there the

a there. seen I that we our think saw don't can think of you in there rebalancing And see strategies. value amount. a I bit the flows massive is we've

autonomously we still potential diversity but it's in are you that to why think to firm. differentiated that early all the is rebalancing, about this think people of think teams an array -- the and provide operating I

positioned be if rotation, value positioned have strategies. and doing reputation very They're value well a well peers. performance to well we base broad our good the them against many across keeping are with They their a suite of so of peers. And and up is going against benchmark there with and asset are

ready So to come, if rotation capture we're that. does quite

Chris Shutler

that then soon, strategy specific want the you're on just And going launching Okay. one, clarify. one China I be to just to

would color be investing So helpful. investment And the strategy is crossover think, in any both privates? there it public a I more is broad a, just strategy on and that

Eric Colson

I for firm. the I there. No, a the question appreciate think it's great It's opportunity

you've The all more mentioned, the seen allocation. focused grow. There's remarks growing I China on and pool the this space, a that the orientation. design talent the is think, is that's asset been look prepared in allocators on more we've to that As limited think I capture seen, an of growing And institutional at from the of marketplace freedom I very but have curve. degrees ahead strategy staying

use So a it crossover companies. fund does that private is

as Europe, broaden I will has that take a out, funds. non-U.S. give Australia, are East this specifically into China, both the us out. our Asia, distribution to operations And on broadened ready Middle in view quite nice we and think crossover our

we team across not feel expand this poised the So, but forms, or in organization. strategy, just with very to many, well many the

time -- but I think earlier, -- is said product said was led more it's We with it. for jump the it's most the and most bit and I come people the venture that background the together, think post you little by just it's place. they balance that fund all as create of not gives putting we we China to on forward we're pieces new, move for Hopefully, when in a growing, that people look us these and distribution.

Chris Shutler

teams companies? of invest be your Eric. other helps, private Will that strategies some in Yes, launching that also

Eric Colson

do I of for degrees a definitely organization there's various built way the degrees freedom, investment the growing Certainly, leverage out to the Company just broadening all And opportunity provides private it debt, infrastructure we've add private into teams has because think to that. equity. the those the the with been teams handle interest whether that

bit It entire the across when out the comes we Antero goes organization little Peak and a the team team be brought each leveraged as each we firm. in, organization. of interest derivatives in broaden team. around can seen the And more across use individual You've and

So, of we teams. a of use across would many privates expect greater our

Operator

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

Kenneth Lee

for my question. Thanks taking

one Franchise Capital. Just on

implications dividend direct for could Aside Franchise the policy down impact just the for any from the awards, share the of longer-term Capital cash with if wondering you us line?

C.J. Daley

use No, changed. of Franchise just replacement philosophy Yes. for Again, -- a our APAM equity. Capital there's hasn't is

is So, -- less And any The think cash. accounting implications. there will by dilution offset be other less the there aren't same. I it's

so just the the security. provisions it's forfeiture different same, investing a of All are

Kenneth Lee

adding follow-up, if that potentially may. over just I the current new investment one you. for Got outlook And Thanks. of What's sort term? teams quick like near

Eric Colson

we a brought and an on in. are would to a happened strategies. in that's teams when about of to uptick and bringing we group. crossover short interested around in happens interest in usually, didn't individuals and Asia Tiffany Yes. that bringing that clearly into Antero that the talk we in operate markets credit It thinking are team and long launching focused fund There's And around our that in crossover clearly think China, launching new to credit the and bringing in a individuals brought many may go individuals Peak

pool team about that we the but no new groups new each of were on or near-term that there's and the or candidates teams here. the step talk that to, to talk broadens So, new in willing

Operator

from Carrier Mike And go the Bank next question ahead. America. Please of of comes

Mike Carrier

may between franchise C.J., missed awards, the just the have year? will but versus a franchise awards clarification on awards determine equity like I new what mix the each the But it.

C.J. Daley

Yes.

awards So, franchise of then targeted and would additional fees equity. the any be grants the APAM X% at are in management

I franchise it the of APAM on then with your ground your information, changes X% that rest will the in just and for model, the -- would start would of based sizing just of year, be not I So but equity. the

Mike Carrier

Got it.

and given Okay. private your markets. the on Eric, opportunities And then China just comments in

private products, opportunities these the teams of the Or more And in on on organically launching given areas? given do there it of I'm specifically at some of tougher teams see lot that a additional bringing Just new you level curious, focus is just in investments? are looking more talent, like already these like competition? is

Eric Colson

Yes.

or teams that development the as of within de you're that likely If to going marketplace. a and at talent with team current term, higher of marketplace looking the expanding takes on in the and our novo time franchises comfortable just near degrees freedom bringing and and get into launching would out versus

and of talent we franchises talent And expansion in the over of uptick that you'll degrees who think I and we our to near the feel are. of model, out given it's the marketplace in see competitive stability the and success term So, there. the capable freedom quite attract our across a the few of

Operator

earnings This Partners concludes today's presentation. Artisan and for Management update both and call session conference. the today's question-and-answer attending Thank Asset you business

may You now disconnect.

Artisan Partners Asset Management (APAM) 3 Feb 212020 Q4 Earnings call transcript