Financial Highlights
For the second quarter of 2024, Artisan Partners reported net income of $71.2 million, down from $73.8 million in the prior-year period. Annual net income for 2023 was $222.3 million. Revenue for the quarter came in at $270.8 million, a 11.5% increase from $242.9 million in Q2 2023. The company's annual revenue for 2023 was $1.06 billion.
Operating cash flow for the quarter was $222.9 million, while free cash flow reached $215.1 million. For the full year 2023, operating cash flow was $377.7 million and free cash flow was $369.1 million. These strong cash flow metrics underscore Artisan Partners' financial flexibility and ability to invest in future growth initiatives.
Assets Under Management and Investment Performance
Artisan Partners ended the second quarter with $158.9 billion in assets under management (AUM), down slightly from $160.4 billion at the end of the prior quarter. This decline was primarily driven by $1.6 billion in net client cash outflows, partially offset by market appreciation. On a year-over-year basis, AUM increased 11.1% from $143.0 billion in Q2 2023.
The company's investment strategies continued to deliver strong performance, with 15 of its 25 strategies experiencing net inflows during the quarter. Notably, the Sustainable Emerging Markets strategy saw a significant $800 million inflow, nearly doubling its AUM. Additionally, the Emerging Markets Debt Opportunities strategy onboarded an $860 million institutional mandate in early July.
Business Overview
Artisan Partners is a high-value-added investment management firm focused on providing active, differentiated investment strategies to sophisticated clients globally. The company's autonomous investment teams manage a diverse array of strategies across asset classes, market caps, and investment styles.
A key aspect of Artisan Partners' strategy is its disciplined approach to capacity management. The firm is proactive in closing strategies to new investors when it believes asset growth could compromise investment performance. This focus on protecting the integrity of its investment processes has been a hallmark of the company's success over the years.
In recent years, Artisan Partners has been actively expanding its alternative investment capabilities, recognizing the growing demand from institutional and wealth management clients for these types of strategies. The firm now offers six alternative or liquid alternative strategies, including Antero Peak, Antero Peak Hedge, Credit Opportunities, China Post-Venture, and Global Unconstrained. These strategies have delivered strong absolute and relative returns, with four of the five open-ended alternatives generating over 300 basis points of annual outperformance since inception.
To support the growth of its alternative platform, Artisan Partners has invested in dedicated distribution resources and expanded its operational infrastructure to handle the increased complexity of these strategies. Management views the continued expansion of its alternatives business as a key priority going forward.
Another area of focus for the firm is its Emerging Markets franchise, which includes both equity and fixed income strategies. Despite the challenging environment for Emerging Markets in recent years, Artisan Partners remains confident in the long-term potential of the asset class. The company's Sustainable Emerging Markets strategy recently onboarded an $800 million institutional mandate, and the Emerging Markets Debt Opportunities strategy added an $860 million mandate in early July.
Liquidity
Artisan Partners maintains a strong balance sheet, with $195.4 million in cash and cash equivalents as of June 30, 2024. The company also has access to a $100 million revolving credit facility, which remains undrawn. This ample liquidity provides the firm with the financial flexibility to invest in growth initiatives, such as new investment strategies and distribution capabilities, while also returning capital to shareholders.
The company's capital allocation strategy focuses on a balanced approach of investing in the business, maintaining a prudent capital structure, and returning excess cash to shareholders. Artisan Partners declared a quarterly dividend of $0.71 per share with respect to the second quarter of 2024, representing approximately 80% of the cash generated during the period.
Risks and Challenges
While Artisan Partners has demonstrated its ability to navigate challenging market conditions, the firm is not immune to the broader macroeconomic and industry headwinds. Factors such as volatile market conditions, changing investor preferences, and increased competition could impact the company's financial performance and asset flows going forward.
Outlook
However, management remains cautiously optimistic about the firm's prospects. The continued expansion of its alternative investment platform, the strong performance of its Emerging Markets strategies, and the company's focus on high-value-added investing position Artisan Partners well to capitalize on the evolving needs of its sophisticated client base. The company's disciplined approach to capacity management and capital allocation also provide a solid foundation for long-term growth and shareholder value creation.
Conclusion
Artisan Partners' second quarter results highlight the firm's resilience and ability to deliver consistent returns for clients and shareholders, even in the face of a volatile market environment. The company's focus on high-value-added investing, prudent capacity management, and strategic growth initiatives, particularly in the alternative investment space, position it well for continued success. While challenges remain, Artisan Partners' strong financial position and proven investment approach suggest the firm is well-equipped to navigate the evolving industry landscape.