Business Overview and History

Artisan Partners Asset Management Inc. (APAM) is a renowned investment management firm that has consistently delivered high value-added active investment strategies to sophisticated clients around the world over the past three decades. The company's unwavering commitment to talent development, innovative investment approaches, and a steadfast focus on client success has propelled it to become a respected leader in the investment management industry.

Artisan Partners was founded in 1994 with the mission of creating an environment that would enable talented investment professionals to thrive and deliver superior investment results for clients. The firm's founders recognized the importance of fostering an autonomous, entrepreneurial culture that empowers investment teams to apply their unique investment philosophies and processes, while providing them with the resources and support needed to succeed.

In its early years, Artisan Partners focused on building a strong foundation with four investment teams managing seven relatively constrained public equity strategies. As the firm grew, it strategically expanded its investment capabilities, adding new strategies managed by existing teams and establishing new investment teams when opportunities arose.

The global financial crisis of 2008-2009 presented a significant challenge for Artisan Partners, as the value of its assets under management declined by approximately 43% due to general market conditions. Despite this setback, the firm maintained its focus on investment performance and client service, successfully navigating through this difficult period.

Following its initial public offering in 2013, Artisan Partners continued to expand its platform and diversify its investment offerings. By 2014, the company had grown to six investment teams managing 13 public equity strategies and one fixed income strategy. This expansion marked a significant milestone in the firm's evolution, as it began to broaden its expertise beyond traditional equity strategies.

Today, Artisan Partners boasts 11 autonomous investment teams overseeing a diverse array of 25 strategies spanning long-only equities, long/short equity, U.S. high yield, long/short credit, emerging market debt, global macro, and private assets. This diversification has significantly increased the firm's growth potential and ability to meet the evolving needs of its sophisticated client base.

The key to Artisan Partners' success has been its ability to attract, retain, and develop top-tier investment talent. The firm's autonomous investment team structure, transparent and direct financial incentives, and long-term time horizon have fostered an environment where portfolio managers can thrive and deliver consistently strong investment performance. This talent-driven approach has enabled Artisan Partners to continually expand its investment capabilities in a disciplined manner, launching new strategies that align with client demand for high value-added active management.

Financial Snapshot

Artisan Partners' financial performance has been impressive, reflecting the strength of its business model and the consistent execution of its strategy. As of December 31, 2024, the firm managed $161.2 billion in assets under management (AUM), a 7% increase from the end of 2023. This growth was driven by $15.9 billion of market appreciation, partially offset by $3.7 billion of net client cash outflows and $1.2 billion of Artisan Funds distributions that were not reinvested.

In 2024, Artisan Partners reported total revenue of $1.11 billion, a 14% increase from the previous year. The firm's adjusted operating margin for the year was 33.8%, up from 31.6% in 2023, demonstrating its ability to effectively manage expenses while driving revenue growth. Adjusted net income per share increased 23% year-over-year to $3.55.

The company's GAAP operating margin was 33% in 2024, compared to 31.1% in 2023. Artisan Partners generated $3.66 in earnings per basic and diluted share in 2024. Net income for the year reached $259.75 million, while operating cash flow and free cash flow were $372.84 million and $368.09 million, respectively.

For the fourth quarter of 2024, Artisan Partners reported revenue of $297.05 million, representing a 19% year-over-year increase. Net income for the quarter was $69.70 million.

Liquidity

Artisan Partners' balance sheet remains solid, with $201.2 million in cash and cash equivalents as of December 31, 2024. The firm maintains a $100 million revolving credit facility, which remained undrawn as of the end of the year. This financial flexibility allows Artisan Partners to continue investing in its platform, including the development of new investment strategies and vehicles, while also returning capital to shareholders through its consistent and predictable dividend program.

The company's debt-to-equity ratio stands at 0.77, while its current ratio and quick ratio are both 0.82. These metrics indicate a strong financial position and the ability to meet short-term obligations.

Expansion into Fixed Income and Alternatives

One of the key drivers of Artisan Partners' growth in recent years has been its successful expansion into fixed income and alternative investment strategies. In 2014, the firm launched its first fixed income strategy, the Artisan High Income Fund, which has since grown to $11.6 billion in AUM as of December 31, 2024.

More recently, Artisan Partners has made significant strides in building out its credit-oriented investment franchises. In 2024, the Denver-based credit team led by Bryan Krug celebrated its 10th anniversary, managing nearly $12 billion across six different strategies, including two alternative strategies. The Boston-based EMsights Capital Group, led by Mike Cirami and Mike O'Brien, has also experienced remarkable growth, raising $1.9 billion in net inflows during 2024 and now managing close to $3 billion across three strategies.

These credit-focused investment teams have delivered exceptional investment performance for clients, with strategies such as Artisan High Income, Emerging Markets Debt Opportunities, and Emerging Markets Local Opportunities generating annualized outperformance of 174, 720, and 241 basis points, respectively, versus their benchmarks since inception. The absolute return-oriented Credit Opportunities and Global Unconstrained strategies have also generated impressive average annual returns of 10.41% and 9.76%, respectively, since inception.

Artisan Partners' deliberate approach to building these fixed income and alternative investment franchises, which emphasizes talent development, a distraction-free environment, and a long-term investment horizon, has been a key driver of the firm's success. As investors continue to seek out differentiated, high value-added active management strategies, Artisan Partners is well-positioned to capitalize on these opportunities and drive further growth.

Investment Strategies and Vehicles

Artisan Partners offers a diverse range of investment strategies through various vehicles to accommodate a broad spectrum of client mandates. The company's 25 distinct investment strategies span multiple asset classes and investment styles, including Global Opportunities, Global Discovery, U.S. Mid-Cap Growth, U.S. Small-Cap Growth, Global Equity, Non-U.S. Growth, China Post-Venture, Value Equity, U.S. Mid-Cap Value, Value Income, International Value, International Explorer, Global Value, Select Equity, Sustainable Emerging Markets, High Income, Credit Opportunities, Floating Rate, Developing World, Antero Peak, Antero Peak Hedge, Non-U.S. Small-Mid Growth, Global Unconstrained, Emerging Markets Debt Opportunities, and Emerging Markets Local Opportunities.

These strategies are made available through separate accounts, Artisan Funds (a series of open-end mutual funds), Artisan Global Funds (a family of Ireland-domiciled UCITS funds), and Artisan Private Funds (a number of unregistered pooled investment vehicles sponsored by Artisan).

Geographic Distribution

Artisan Partners' client base is geographically diverse, with approximately 75% of its AUM managed for clients and investors domiciled in the United States, while the remaining 25% is managed for clients and investors domiciled outside the U.S. This global reach allows the firm to tap into various markets and capitalize on international growth opportunities.

Commitment to Shareholder Value

Artisan Partners has demonstrated a strong commitment to creating value for its shareholders through its consistent and predictable dividend program. In 2024, the firm declared dividends totaling $3.48 per share, representing an 8% dividend yield based on the closing stock price on December 31, 2024. This included a quarterly dividend of $0.84 per share and a special annual dividend of $0.50 per share.

The firm's disciplined approach to capital allocation ensures that a majority of the cash it generates from operations is distributed to shareholders, while also retaining sufficient funds to support the growth of the business, including investments in new strategies and vehicles. Artisan Partners' strong financial position and cash flow generation provide it with the flexibility to continue rewarding shareholders while also pursuing strategic initiatives to enhance its long-term competitiveness.

Future Outlook and Guidance

Looking ahead to 2025, Artisan Partners has provided guidance on several key financial metrics. The company expects long-term incentive amortization to be approximately $75 million for 2025, excluding the mark-to-market impact. Excluding long-term incentive compensation, fixed expenses are anticipated to increase in the mid- to low-single digits in 2025, primarily due to merit increases and the full-year impact of employees hired in 2024.

For the first quarter of 2025, Artisan Partners estimates that seasonal compensation and benefits expenses will be approximately $6 million higher compared to the fourth quarter of 2024. The company's Board of Directors has approved the 2025 annual long-term incentive award of approximately $66 million, consisting of $47 million in cash-based franchise capital awards and $19 million in restricted stock awards. Approximately 85% of these awards are granted to Artisan Partners' investment talent, underscoring the firm's commitment to attracting and retaining top investment professionals.

Risks and Challenges

As with any investment management firm, Artisan Partners faces a variety of risks and challenges that could impact its business. These include the highly competitive nature of the investment management industry, ongoing regulatory changes, and the potential for market volatility to affect the firm's assets under management and revenue.

Artisan Partners' reliance on its investment teams to drive superior investment performance is also a key risk factor. The loss of key investment professionals or senior members of the distribution and management teams could have a material adverse effect on the firm's business. To mitigate this risk, Artisan Partners has implemented robust talent management and succession planning strategies to attract, retain, and develop its top talent.

Additionally, Artisan Partners' expansion into fixed income and alternative investment strategies, while a significant growth opportunity, also introduces new operational, legal, and regulatory risks that the firm must effectively manage. As it continues to diversify its product offerings, Artisan Partners must ensure that it maintains the high standards of investment performance and client service that have become hallmarks of the firm.

The investment management industry continues to evolve, with market trends and regulatory changes creating headwinds for traditional asset management firms. The growth of passive and alternative investment options poses a challenge to actively managed strategies, which have generally experienced outflows. Artisan Partners must continue to demonstrate the value of its active management approach to attract and retain clients in this competitive landscape.

Conclusion

Artisan Partners Asset Management Inc. has established itself as a premier investment management firm, built on a foundation of talent development, innovative investment approaches, and a steadfast commitment to client success. The firm's ability to continually expand its investment platform, while delivering consistently strong investment performance, has positioned it for continued growth and value creation.

As Artisan Partners navigates the evolving investment management landscape, its focus on talent, process, and alignment with client interests will continue to be the key drivers of its success. With a solid financial position, a diverse array of high value-added strategies, and a proven track record of execution, Artisan Partners is well-equipped to capitalize on the opportunities that lie ahead and deliver long-term value to its shareholders.