Executive Summary / Key Takeaways

• Artisan Partners is strategically evolving from a traditional long-only equity manager to a diversified multi-asset class firm, emphasizing fixed income and alternative strategies with expanded "degrees of freedom" to capture alpha in less efficient markets.
• The firm's business model is built around attracting and retaining exceptional investment talent within autonomous teams, supported by a tailored operational platform designed to minimize distractions and amplify performance.
• Recent financial performance reflects this strategy, with Q1 2025 revenues increasing year-over-year driven by higher average AUM, though net client cash outflows persisted, partially offset by positive flows into fixed income and alternatives.
• Artisan is increasingly focused on the large and growing intermediated wealth channel, leveraging its established footprint and multi-strategy relationships to drive future AUM growth, complementing its traditional institutional business.
• Management expects fixed expenses to increase mid- to low-single digits in 2025 (excluding long-term incentive compensation), anticipates approximately $38.9 million in TRA payments in fiscal 2025, and maintains a variable quarterly dividend policy targeting ~80% of quarterly cash generation.

The Artisan Approach: Cultivating Alpha in a Changing Landscape

Founded in 1994, Artisan Partners Asset Management set out with a clear vision: to be a high value-added investment firm where exceptional talent could thrive. Beginning in specialized areas like small, mid-cap, and international equities, the firm built its reputation on rigorous fundamental analysis and a commitment to generating alpha for sophisticated clients. This foundational phase established Artisan in niche markets where investment skill could genuinely differentiate outcomes.

Over time, Artisan's strategy evolved. The early 2000s saw an expansion into global mandates, granting investment teams greater flexibility ("degrees of freedom") across geographies and instruments. This move anticipated institutional allocators shifting focus from rigid style boxes to more dynamic, risk-return-optimized approaches. The period since the 2013 IPO marks the latest transformation, characterized by an even deeper commitment to expanded degrees of freedom, an increasing focus on absolute return outcomes, and a strategic pivot towards the burgeoning private wealth market. This era has seen Artisan establish five new investment teams, significantly broadening its capabilities into fixed income and alternative strategies.

This strategic evolution is a direct response to the changing asset management landscape. The number of publicly traded companies in the U.S. and developed markets has shrunk significantly, while passive investing and thematic ETFs have gained prominence, intensifying competition and making differentiation in traditional public equity more challenging. Concurrently, demand for alternative investments has grown, with sophisticated allocators increasingly directing fee budgets towards strategies where talent can navigate market inefficiencies and generate uncorrelated returns. Artisan's move into fixed income and alternatives, alongside its focus on the intermediated wealth channel, positions it to capture growth in these areas of increasing demand for active management.

Artisan's competitive positioning is shaped by this talent-centric, high-value-add model. While it operates in the shadow of asset management giants like BlackRock (BLK) and Invesco (IVZ), which boast vastly superior scale and technological infrastructure (BLK's Aladdin platform, for instance, offers significant efficiency advantages), Artisan competes by emphasizing investment quality, differentiation, and net-of-fee returns, particularly in more fragmented markets like Emerging Markets Debt and Alternatives. Its brand strength in fundamental analysis and global reach serve as key advantages, attracting clients seeking specialized expertise. However, its smaller scale relative to industry behemoths can lead to higher per-unit operating costs and potentially slower innovation speed in broad technological platforms compared to rivals. Artisan strategically leverages its established footprint in the intermediary channel (RIA, broker-dealer, bank trust networks) to gain traction in Alternative sales, providing a leg up against firms starting from scratch in this space.

Central to Artisan's ability to execute its strategy across increasingly complex asset classes is its operational platform. While the company does not detail proprietary technology with quantifiable performance metrics like yield or degradation rates, it emphasizes a tailored operational stack and robust resources designed to support its investment teams. This platform enables teams to utilize a broad array of securities, instruments, and techniques, providing the "degrees of freedom" necessary to differentiate returns and manage risk. It supports managing assets across multiple vehicles and geographies and is intended to create a distraction-free environment for investment professionals. This operational infrastructure, customized for the needs of autonomous investment teams, is viewed internally as a "force multiplier," amplifying the talent's ability to generate alpha in diverse and sometimes less liquid markets. The strategic intent behind investing in this platform is to support complex, high-value-add strategies, which is crucial for attracting and retaining the specific type of talent Artisan seeks and is a key differentiator against firms focused purely on scale or low-cost passive products.

Performance Reflecting Strategy and Market Dynamics

Artisan's recent financial performance provides insight into how its strategy is playing out amidst current market conditions. For the three months ended March 31, 2025, total revenues were $277.1 million, an increase of 5% compared to $264.4 million in the same period of 2024. This revenue growth was primarily driven by an 8% increase in average assets under management (AUM), which rose to $166.7 billion for the quarter, up from $154.2 billion a year prior. Ending AUM stood at $162.4 billion as of March 31, 2025, a slight increase from $161.2 billion at December 31, 2024, reflecting $4.1 billion of market appreciation partially offset by $2.8 billion of net client cash outflows and $0.1 billion of fund distributions not reinvested.

The weighted average management fee decreased slightly to 67.5 basis points in Q1 2025 from 69.1 basis points in Q1 2024. This decline was predominantly attributed to new and amended separate account agreements with lower fee rates and a shift in AUM mix towards fixed income strategies, which generally carry lower average fees.

Operating expenses totaled $190.6 million in Q1 2025, a 2% increase from $186.7 million in Q1 2024. This was primarily due to a $5.3 million increase in compensation and benefits, driven by higher revenues and increases in headcount and merit pay. Other operating expenses saw a slight decrease, notably in communication and technology costs. The GAAP operating margin improved to 31.2% in Q1 2025 from 29.4% in Q1 2024, while the adjusted operating margin rose to 32.1% from 30.9%.

Net income attributable to Artisan Partners Asset Management Inc. was $61.1 million, or $0.82 per basic and diluted share, in Q1 2025, compared to $59.5 million, or $0.84 per share, in Q1 2024. The slight decrease in EPS despite higher net income was due to a higher weighted average share count. Non-operating income decreased significantly, primarily due to lower net investment gains on consolidated and nonconsolidated investment products, reflecting less favorable market conditions for these investments compared to the prior year period.

Cash flow from operations remained robust, providing $157.9 million in net cash in Q1 2025, an increase from $147.0 million in Q1 2024, largely mirroring the increase in operating income. Net cash used in investing activities increased, primarily due to higher purchases of investment securities related to the franchise capital pool and nonconsolidated investments. Net cash used in financing activities also increased, driven by higher dividend and distribution payments.

The balance sheet remains strong, with $212.9 million in cash and cash equivalents and $149.5 million in accounts receivable as of March 31, 2025. Seed investments totaled $138.0 million, supporting new strategies. The company has $200.0 million in unsecured notes outstanding and an unused $100.0 million revolving credit facility, and was in compliance with all debt covenants. The tax receivable agreement (TRA) liability stood at $342.0 million.

Strategic Growth Pillars and Outlook

Artisan's strategic focus on expanding its capabilities in fixed income and alternatives, coupled with its emphasis on the intermediated wealth channel, underpins its growth outlook.

The firm's fixed income business has demonstrated consistent positive net flows, marking its 11th consecutive quarter of inflows in Q1 2025. The Credit team and the EMsights Capital Group collectively manage nearly $15 billion across six strategies and were significant contributors to net inflows in 2024. Management views the three-year milestones for the EMsights strategies (Global Unconstrained, EM Debt Opportunities, EM Local Opportunities) in 2025 as a key inflection point for accelerating business development, particularly in pooled vehicles. Similarly, the 10th anniversary of the Developing World strategy in July 2025 is expected to enhance its appeal, especially in the wealth market seeking differentiated EM exposure.

The push into alternatives is seen as a natural fit for Artisan's talent-driven model, targeting fragmented markets where investment quality and differentiation command premium fees. The firm has methodically developed six alternative strategies over the past seven years, expanding its operational platform to support their complexity. Early performance outcomes have been promising, and management is actively investing in dedicated alternative distribution and exploring opportunities to add capabilities through existing teams and external talent (lift-outs or M&A), with real estate, credit, and equity across privates being areas of focus.

The intermediated wealth channel, now representing approximately 60% of AUM, is a critical growth area. Artisan is reorienting its distribution efforts with dedicated resources and enhanced digital capabilities to better access and service this market. The firm's established relationships, with many clients invested in multiple strategies, provide a strong foundation for further growth. Strategies like the new Franchise strategy and Global Special Situations are being designed with this channel in mind.

Management provided specific guidance for 2025, expecting fixed expenses (excluding long-term incentive compensation) to increase mid- to low-single digits. Long-term incentive amortization is projected to be approximately $75 million for the year. The company anticipates making TRA payments totaling approximately $38.9 million in fiscal 2025, with $29.2 million already paid in April. The variable quarterly dividend policy is expected to continue, targeting approximately 80% of quarterly cash generated, with a year-end special dividend considered based on remaining cash, including realized seed capital gains. The company expects to refinance the $60 million senior notes maturing in August 2025.

Risks and Challenges

Despite its strategic positioning and focus on high-value-add investing, Artisan faces several risks. Market volatility and adverse economic conditions directly impact AUM and revenue, as demonstrated by the sharp market movements in April 2025 following tariff announcements. While the business model is designed for volatility, prolonged downturns or significant market shifts could negatively affect financial results.

Net client cash outflows remain a challenge, particularly in some equity strategies, requiring effective capacity management and continued investment performance to mitigate. Competition in the asset management industry is intense, with larger firms leveraging scale and technology, and passive options offering lower fees. Artisan's ability to maintain its fee rates and attract inflows depends heavily on the consistent performance of its investment teams.

The talent-driven model also carries the risk of losing key investment professionals, which could impact strategy performance and client retention. Changes in the legislative and regulatory environment, as well as shifts in trade policies, could also affect the business. Finally, operational or technical errors could damage the firm's reputation.

Conclusion

Artisan Partners is executing a deliberate strategy to evolve its business and capture growth in areas where its talent-centric, high-value-add approach can thrive. By expanding into fixed income and alternative strategies with greater degrees of freedom and sharpening its focus on the growing intermediated wealth channel, the firm is adapting to the changing dynamics of the asset management industry. While facing competitive pressures from larger, more diversified players and navigating periods of market volatility and client outflows, Artisan's commitment to attracting and supporting exceptional investment talent, backed by a tailored operational platform, remains its core strength. The recent financial performance, characterized by revenue growth driven by AUM increases and disciplined expense management, provides a snapshot of this strategy in action. As key strategies reach important milestones and the firm continues to invest thoughtfully in its growth pillars, the success of its differentiated investment capabilities and its ability to deepen relationships in the wealth market will be critical indicators for investors evaluating the long-term potential of this evolving asset manager.