ARTISAN PARTNERS ASSET MANAGEMENT INC. Management report on financial position and results of operations (Form 10-Q)

0

Overview

We are an investment management firm focused on providing high-value added,
active investment strategies to sophisticated clients globally. As of
September 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 of September 30,
2021, approximately 78% of our assets under management were managed for clients
and investors domiciled in the U.S. and 22% of our assets under management were
managed for clients and investors domiciled outside of the U.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:
•Michael Cirami, Michael O'Brien and Sarah Orvin joined Artisan to build the
firm's newest autonomous investment franchise. The new team will develop active,
differentiated strategies with broad exposure to the emerging markets debt asset
class. We expect to launch the team's initial strategies during the first half
of 2022.
•During the three months ended September 30, 2021, our assets under management
declined to $173.6 billion, a decrease of $1.6 billion, or 1%, compared to
$175.2 billion at June 30, 2021, as a result of $1.6 billion of negative
investment returns.
•Average assets under management for the three months ended September 30, 2021
were $177.6 billion, an increase of 36% from the average of $131.0 billion for
the three months ended September 30, 2020, and an increase of 4% from the
average of $170.5 billion for the three months ended June 30, 2021.
•We earned $316.6 million in revenue for the three months ended September 30,
2021, an increase of 36% from revenues of $232.7 million for the three months
ended September 30, 2020.
•Our GAAP operating margin was 45.2% for the three months ended September 30,
2021, compared to 41.8% for the three months ended September 30, 2020.
•We generated $1.30 of earnings per basic and diluted share and $1.33 of
adjusted EPS.
•We declared and distributed dividends of $1.00 per share of Class A common
stock during the three months ended September 30, 2021.
•We declared, effective October 26, 2021, a quarterly dividend of $1.07 per
share of Class A common stock.

                                       24
--------------------------------------------------------------------------------
  Table of Contents
COVID-19 Pandemic
The COVID-19 pandemic continues to impact the manner in which we operate. During
the third quarter, the majority of our associates continued to work from home
the majority of the time and business travel remained significantly reduced from
pre-COVID-19 levels. Additionally, many third-party vendors on whom we rely for
certain critical functions also continued to operate in fully or partially
remote environments during the third quarter.
We expect that many of our associates will transition back to working in an
Artisan office location for part or all of the time during the fourth quarter,
such that by year-end the vast majority of our associates will be working in an
Artisan office more often than not. Given the continued uncertainty surrounding
the COVID-19 pandemic, it is difficult to predict whether further changes to
associates' work arrangements will be needed and how long the reduced business
travel will last. We expect most operating costs to return to pre-COVID-19
levels when associates return to the office and resume business travel.
We believe that we continue to operate 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 in light of the continued uncertainty,
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 through Artisan Partners Holdings ("Holdings") and
its subsidiaries. On March 12, 2013, Artisan Partners Asset Management Inc.
("APAM") and Artisan 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 on March 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 17% of
the equity interests in Holdings as of September 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
On March 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 nine months ended September 30, 2021, certain limited partners of
Holdings exchanged 653,741 common units (along with a corresponding number of
shares of Class B or Class C common stock of APAM) for 653,741 shares of Class A
common stock. In connection with the exchanges, APAM received 653,741 GP units
of Holdings.
APAM's equity ownership interest in Holdings increased from 80% at December 31,
2020 to 83% at September 30, 2021, as a result of these transactions and other
equity transactions during the period.
                                       25
--------------------------------------------------------------------------------
  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 nine months ended September 30, 2021 and 2020:
                                             For the Three Months Ended September          For the Nine Months Ended September
                                                             30,                                           30,
                                                  2021                   2020                  2021                   2020
S&P 500 total returns                                  0.6  %               8.9  %                 15.9  %                5.6  %
MSCI All Country World total returns                  (1.1) %               8.1  %                 11.1  %                1.4  %
MSCI EAFE total returns                               (0.4) %               4.8  %                  8.3  %               (7.1) %
Russell Midcap® total returns                         (0.9) %               7.5  %                 15.2  %               (2.3) %
MSCI Emerging Markets Index                           (8.1) %               9.6  %                 (1.2) %               (1.2) %
ICE BofA U.S. High Yield Master II Total               0.9  %               4.7  %                  4.7  %               (0.3) %

Performance Index


Key Performance Indicators
When we review our business and financial performance we consider, among other
things, the following:
                                                For the Three Months Ended September
                                                                30,                             For the Nine Months Ended September 30,
                                                    2021                   2020                       2021                      2020
                                                                            (unaudited; dollars in millions)
Assets under management at period end         $   173,623             $ 134,288             $       173,623                $ 134,288
Average assets under management (1)           $   177,557             $ 130,967             $       170,380                $ 118,142
Net client cash flows (2)                     $        11             $   2,148             $         2,463                $   5,093
Total revenues                                $     316.6             $   232.7             $         912.2                $   638.5
Weighted average management fee (3)                  70.7   bps            70.7   bps                  70.8      bps            71.0   bps
Operating margin                                     45.2     %            41.8     %                  44.1        %            38.3     %
Adjusted operating margin (4)                        45.2     %            41.8     %                  44.2        %            38.3     %

(1) We calculate the average assets under management by taking the average of assets under management at the end of the day for the applicable period. (2) Client net cash flow excludes distributions of income and capital gains from Artisan Funds which have not been reinvested. Prior period net customer cash flow has been recast to exclude Artisan Funds distributions. (3) We calculate our weighted average management fee by dividing the annualized investment management fee (which excludes performance fees) by the average assets under management for the applicable period. (4) Adjusted measures are non-GAAP measures and are explained and reconciled to comparable GAAP measures in the “Additional non-GAAP financial information” section 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.
                                       26
--------------------------------------------------------------------------------
  Table of Contents
The table below sets forth changes in our total assets under management:
                                                   For the Three Months Ended
                                                         September 30,                             Period-to-Period
                                                    2021                 2020                   $                      %
                                                   (unaudited; in millions)
Beginning assets under management             $     175,214          $ 120,574          $        54,640                 45.3  %
Gross client cash inflows                             6,942              8,860                   (1,918)               (21.6) %
Gross client cash outflows                           (6,931)            (6,712)                    (219)                (3.3) %
Net client cash flows (1)                                11              2,148                   (2,137)               (99.5) %
Artisan Funds' distributions not reinvested
(2)                                                     (39)               (33)                      (6)               (18.2) %
Investment returns and other (3)                     (1,563)            11,599                  (13,162)              (113.5) %

Ending assets under management                $     173,623          $ 134,288          $        39,335                 29.3  %
Average assets under management               $     177,557          $ 130,967          $        46,590                 35.6  %

                                                   For the Nine Months Ended
                                                         September 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                            25,814             27,240                   (1,426)                (5.2) %
Gross client cash outflows                          (23,351)           (22,147)                  (1,204)                (5.4) %
Net client cash flows (1)                             2,463              5,093                   (2,630)               (51.6) %
Artisan Funds' distributions not reinvested
(2)                                                    (114)               (96)                     (18)               (18.8) %
Investment returns and other (3)                     13,498              8,275                    5,223                 63.1  %

Ending assets under management                $     173,623          $ 134,288          $        39,335                 29.3  %
Average assets under management               $     170,380          $ 118,142          $        52,238                 44.2  %

(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 decreased by $1.6 billion due to $1.6 billion of
negative investment returns. For the quarter, 12 of our 20 investment strategies
had net inflows totaling $2.4 billion, which were offset by $2.4 billion of net
outflows from the remaining strategies.
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.
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.
                                       27
--------------------------------------------------------------------------------
  Table of Contents
In November 2021 we expect the Artisan Funds will make their annual income and
capital gain distributions. Based on our current estimates and assumptions, we
expect this year's distributions to result in approximately $2 billion of net
client cash outflows from investors who choose not to reinvest their
distributions. The November 2021 distribution (estimates of which we expect
Artisan Funds will disclose in advance of the record date) may cause increased
mutual fund redemptions.
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 September 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
September 30, 2021, are maintained in separate composites the results of which
are not included below.
                                       28

————————————————– ——————————

  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       $      26,926             21.55%       21.74%        19.70%       18.37%        13.15%                    648
MSCI All Country World Index                                                            27.44%       12.57%        13.19%       11.89%         6.67%
Global Discovery Strategy                      9/1/2017       $       2,626             30.24%       25.64%         ---           ---         24.66%                   1,252
MSCI All Country World Index                                                            27.44%       12.57%         ---           ---         12.14%
U.S. Mid-Cap Growth Strategy                   4/1/1997       $      17,232             31.42%       27.00%        23.34%       19.36%        16.78%                    607
Russell Midcap® Index                                                                   38.11%       14.20%        14.38%       15.51%        10.96%
Russell Midcap® Growth Index                                                            30.45%       19.12%        19.25%       17.53%        10.71%
U.S. Small-Cap Growth Strategy                 4/1/1995       $       6,396             25.96%       22.45%        23.56%       20.19%        12.60%                    385
Russell 2000® Index                                                                     47.68%       10.53%        13.44%       14.62%         9.84%
Russell 2000® Growth Index                                                              33.27%       11.68%        15.33%       15.73%         8.75%
Global Equity Team
Global Equity Strategy                         4/1/2010       $       2,910             21.47%       17.25%        18.12%       16.84%        14.39%                    467
MSCI All Country World Index                                                            27.44%       12.57%        13.19%       11.89%         9.72%
Non-U.S. Growth Strategy                       1/1/1996       $      21,295             16.68%       10.49%        10.81%       10.96%        10.27%                    507
MSCI EAFE Index                                                                         25.73%       7.62%         8.81%         8.09%         5.20%
Non-U.S. Small-Mid Growth
Strategy                                       1/1/2019       $       9,475             25.15%        ---           ---           ---         28.18%                   1,228
MSCI All Country World Index Ex
USA Small Mid Cap                                                                       28.94%        ---           ---           ---         15.90%
China Post-Venture Strategy                    4/1/2021       $         137              ---          ---           ---           ---         (3.64)%                   453
MSCI China SMID Cap Index                                                                ---          ---           ---           ---         (8.17)%
U.S. Value Team
Value Equity Strategy                          7/1/2005       $       3,859             42.15%       12.51%        13.28%       13.52%         9.51%                    144
Russell 1000® Index                                                                     30.96%       16.41%        17.10%       16.75%        10.61%
Russell 1000® Value Index                                                               35.01%       10.06%        10.93%       13.50%         8.07%
U.S. Mid-Cap Value Strategy                    4/1/1999       $       3,920             46.53%       10.07%        11.26%       12.45%        12.80%                    280
Russell Midcap® Index                                                                   38.11%       14.20%        14.38%       15.51%        10.25%
Russell Midcap® Value Index                                                             42.40%       10.27%        10.59%       13.92%        10.00%
International Value Team
International Value Strategy                   7/1/2002       $      29,952             38.12%       11.37%        10.79%       12.04%        12.01%                    548
MSCI EAFE Index                                                                         25.73%       7.62%         8.81%         8.09%         6.53%
International Small Cap Value                 11/1/2020       $          23              ---          ---           ---           ---         49.40%                   1,270
MSCI All Country World Index Ex
USA Small Cap                                                                            ---          ---           ---           ---         36.70%
Global Value Team
Global Value Strategy                          7/1/2007       $      25,364             37.26%       9.68%         11.15%       13.16%         9.05%                    281
MSCI All Country World Index                                                            27.44%       12.57%        13.19%       11.89%         6.24%
Select Equity Strategy                         3/1/2020       $         409             34.22%        ---           ---           ---         22.72%                   (620)
S&P 500 Market Index                                                                    30.01%        ---           ---           ---         28.92%
Sustainable Emerging Markets
Team
Sustainable Emerging Markets
Strategy                                       7/1/2006       $         982             21.32%       11.73%        11.68%        7.80%         6.82%                    91
MSCI Emerging Markets Index                                                             18.20%       8.58%         9.23%         6.08%         5.91%
Credit Team
High Income Strategy                           4/1/2014       $       8,137             14.80%       8.84%         8.65%          ---          8.10%                    265
ICE BofA US High Yield Master
II Total Return Index                                                                   11.46%       6.62%         6.35%          ---          5.45%
Credit Opportunities Strategy                  7/1/2017       $         121             30.58%       16.40%         ---           ---         14.97%                   1,344
ICE BofA US Dollar LIBOR
3-month Constant Maturity Index                                                         0.21%        1.46%          ---           ---          1.53%
Developing World Team
Developing World Strategy                      7/1/2015       $       9,333             18.06%       35.45%        23.06%         ---         19.23%                   1,264
MSCI Emerging Markets Index                                                             18.20%       8.58%         9.23%          ---          6.59%
Antero Peak Group
Antero Peak Strategy                           5/1/2017       $       3,418             27.44%       21.18%         ---           ---         26.44%                    998


                                       29
--------------------------------------------------------------------------------
  Table of Contents
S&P 500 Market Index                                                  30.01%     15.98%     ---     ---     16.46%
Antero Peak Hedge Strategy       11/1/2017       $   1,108            19.85%     17.13%     ---     ---     18.47%             231
S&P 500 Market Index                                                  30.01%     15.98%     ---     ---     16.16%

Total Assets Under
Management                                       $ 173,623

(1) Value added is the amount, in basis points, by which the average annual gross composite return of each of our strategies outperformed or underperformed its respective benchmark. The value added for periods less than one year is not annualized. The high income strategy holds loans and other types of securities that are not included in its benchmark, which at times results in significant differences in relative performance. The Credit Opportunities strategy is independent of the benchmark and has been compared to 3-month LIBOR for benchmark purposes only. The Antero peak and Antero peak blanket Strategy investments in Initial Public Offerings (IPOs) significantly contributed to performance. IPO investments can contribute significantly to the return of a small portfolio, an effect that generally decreases as assets increase. IPO investments may not be available in the future.



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
September 30, 2021                                                                                             (unaudited; in millions)
Beginning assets under
management                           $ 53,517    $       34,166    $     7,929    $             29,720    $      26,515    $          998    $ 7,785    $         10,314    $   4,270    $ 175,214
Gross client cash inflows               1,125               955             68                   1,943              885                86        819                 733          328        6,942
Gross client cash outflows             (2,631)           (1,143)          (150)                   (874)            (816)               (7)      (383)               (770)        (157)      (6,931)
Net client cash flows (1)              (1,506)             (188)           (82)                  1,069               69                79        436                 (37)         171           11
Artisan Funds' distributions
not reinvested (2)                          -                 -              -                       -                -                 -        (39)                  -            -          (39)
Investment returns and other            1,169              (161)           (68)                   (814)            (811)              (95)        76                (944)          85       (1,563)

Ending assets under management       $ 53,180    $       33,817    $     7,779    $             29,975    $      25,773    $          982    $ 8,258    $          9,333    $   4,526    $ 173,623
Average assets under
management                           $ 54,948    $       34,706    $     7,944    $             30,320    $      26,200    $        1,010    $ 8,041    $          9,732    $   4,656    $ 177,557
September 30, 2020
Beginning assets under
management                           $ 41,079    $       25,447    $     6,012    $             19,193    $      16,013    $          477    $ 4,351    $          5,396    $   2,606    $ 120,574
Gross client cash inflows               1,982             1,913             44                   1,048            2,022                15        749                 916          171        8,860
Gross client cash outflows             (1,935)           (1,299)          (304)                 (1,272)          (1,074)               (3)      (285)               (456)         (84)      (6,712)
Net client cash flows (1)                  47               614           (260)                   (224)             948                12        464                 460           87        2,148
Artisan Funds' distributions
not reinvested (2)                          -                 -              -                       -                -                 -        (33)                  -            -          (33)
Investment returns and other            5,244             2,140            425                     988            1,223                48        251               1,030          250       11,599

Ending assets under management       $ 46,370    $       28,201    $     6,177    $             19,957    $      18,184    $          537    $ 5,033    $          6,886    $   2,943    $ 134,288
Average assets under
management                           $ 44,684    $       27,566    $     6,266    $             20,263    $      17,913    $          526    $ 4,703    $          6,201    $   2,845    $ 130,967
(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.


                                       30

————————————————– ——————————

  Table of Contents
                                                                                                                   By Investment Team
                                                                                                                              Sustainable                                     Antero Peak
Nine Months Ended                      Growth      Global Equity     U.S. Value     International Value     Global Value    Emerging Markets    Credit     Developing World      Group        Total
September 30, 2021                                                                                              (unaudited; in millions)
Beginning assets under
management                           $ 52,685    $       32,056    $     7,149    $             24,123    $      22,417    $           679    $ 6,338    $           8,853    $   3,476    $ 157,776
Gross client cash inflows               5,324             3,625            257                   5,990            3,781                367      2,643                2,811        1,016       25,814
Gross client cash outflows             (9,180)           (3,789)          (918)                 (3,138)          (2,938)               (33)    (1,021)              (2,002)        (332)     (23,351)
Net client cash flows (1)              (3,856)             (164)          (661)                  2,852              843                334      1,622                  809          684        2,463
Artisan Funds' distributions
not reinvested (2)                          -                 -              -                       -                -                  -       (114)                   -            -         (114)
Investment returns and other            4,351             1,925          1,291                   3,000            2,513                (31)       412                 (329)         366       13,498

End of assets under management $ 53,180 $ 33,817 $ 7,779 $

             29,975    $      25,773    $           982    $ 8,258    $           9,333    $   4,526    $ 173,623
Average assets under
management                           $ 53,250    $       33,738    $     7,785    $             28,377    $      25,096    $           874    $ 7,370    $           9,691    $   4,199    $ 170,380
September 30, 2020
Beginning assets under
management                           $ 34,793    $       27,860    $     7,402    $             22,000    $      19,707    $           234    $ 3,850    $           3,374    $   1,796    $ 121,016
Gross client cash inflows               6,886             4,672            740                   5,026            3,737                320      2,327                2,446        1,086       27,240
Gross client cash outflows             (5,715)           (4,808)        (1,348)                 (4,815)          (2,836)               (14)    (1,229)              (1,097)        (285)     (22,147)
Net client cash flows (1)               1,171              (136)          (608)                    211              901                306      1,098                1,349          801        5,093
Artisan Funds' distributions
not reinvested (2)                          -                 -              -                       -                -                  -        (96)                   -            -          (96)
Investment returns and other           10,406               477           (617)                 (2,254)          (2,424)                (3)       181                2,163          346        8,275

End of assets under management $ 46,370 $ 28,201 $ 6,177 $

             19,957    $      18,184    $           537    $ 5,033    $           6,886    $   2,943    $ 134,288
Average assets under
management                           $ 37,989    $       26,034    $     6,114    $             19,413    $      16,948    $           433    $ 4,143    $           4,708    $   2,360    $ 118,142
(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.


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 September 30, 2021                          As of September 30, 2020
                                                 $ in Millions              % of Total             $ in Millions             % of Total
                                                  (unaudited)                                       (unaudited)
Institutional                                  $       109,721                      63.2  %       $      88,085                      65.6  %
Intermediary                                            55,912                      32.2  %              40,565                      30.2  %
Retail                                                   7,990                       4.6  %               5,638                       4.2  %
Ending Assets Under Management                 $       173,623                     100.0  %       $     134,288                     100.0  %

(1) The breakdown 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 of September 30, 2021.

                                       31
--------------------------------------------------------------------------------
  Table of Contents
The following tables set forth the changes in our assets under management by
vehicle type:
                                                    Artisan Funds           Separate
                                                      & Artisan           Accounts and
Three Months Ended                                  Global Funds           Other (1)               Total
September 30, 2021                                                  (unaudited; in millions)
Beginning assets under management                   $   85,687          $      89,527          $  175,214
Gross client cash inflows                                5,293                  1,649               6,942
Gross client cash outflows                              (4,089)                (2,842)             (6,931)
Net client cash flows (2)                                1,204                 (1,193)                 11
Artisan Funds' distributions not reinvested (3)            (39)                     -                 (39)
Investment returns and other                            (1,236)                  (327)             (1,563)
Net transfers (4)                                         (224)                   224                   -
Ending assets under management                      $   85,392          $      88,231          $  173,623
Average assets under management                     $   86,819          $      90,738          $  177,557
September 30, 2020
Beginning assets under management                   $   56,550          $      64,024          $  120,574
Gross client cash inflows                                4,818                  4,042               8,860
Gross client cash outflows                              (3,796)                (2,916)             (6,712)
Net client cash flows (2)                                1,022                  1,126               2,148
Artisan Funds' distributions not reinvested (3)            (33)                     -                 (33)
Investment returns and other                             5,289                  6,310              11,599
Net transfers (4)                                         (251)                   251                   -
Ending assets under management                      $   62,577          $      71,711          $  134,288
Average assets under management                     $   61,001          $      69,966          $  130,967

Nine Months Ended
September 30, 2021                                                  (unaudited; in millions)
Beginning assets under management                   $   74,746          $      83,030          $  157,776
Gross client cash inflows                               18,560                  7,254              25,814
Gross client cash outflows                             (13,115)               (10,236)            (23,351)
Net client cash flows (2)                                5,445                 (2,982)              2,463
Artisan Funds' distributions not reinvested (3)           (114)                     -                (114)
Investment returns and other                             5,617                  7,881              13,498
Net transfers (4)                                         (302)                   302                   -
Ending assets under management                      $   85,392          $      88,231          $  173,623
Average assets under management                     $   82,721          $      87,659          $  170,380
September 30, 2020
Beginning assets under management                   $   57,288          $      63,728          $  121,016
Gross client cash inflows                               16,361                 10,879              27,240
Gross client cash outflows                             (14,323)                (7,824)            (22,147)
Net client cash flows (2)                                2,038                  3,055               5,093
Artisan Funds' distributions not reinvested (3)            (96)                     -                 (96)
Investment returns and other                             3,663                  4,612               8,275
Net transfers (4)                                         (316)                   316                   -
Ending assets under management                      $   62,577          $      71,711          $  134,288
Average assets under management                     $   55,402          $   

62,740 $ 118,142

(1) Separate accounts 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 of September 30,
2021, AUM for certain strategies include the following amounts for which Artisan Partners provides
investment models to managed account sponsors (reported on a one-month lag): Artisan Sustainable Emerging
Markets $23 million.


                                       32
--------------------------------------------------------------------------------
  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 the Artisan 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 ended September 30, 2021, compared to Three months ended September
30, 2020
                                                        For the Three Months Ended September
                                                                        30,                               For the Period-to-Period
                                                             2021                  2020                      $                    %
Statements of operations data:                                     

(unaudited; in millions, except per share and per share data)

                                               $       316.6          $      232.7          $           83.9               36  %
Operating Expenses
Total compensation and benefits                                142.2                 108.7                      33.5               31  %

Other operating expenses                                        31.3                  26.8                       4.5               17  %
Total operating expenses                                       173.5                 135.5                      38.0               28  %
Total operating income                                         143.1                  97.2                      45.9               47  %
Non-operating income (expense)
Interest expense                                                (2.7)                 (2.7)                        -                -  %

Other non-operating income                                       1.0                   8.6                      (7.6)             (88) %
Total non-operating income (expense)                            (1.7)                  5.9                      (7.6)            (129) %
Income before income taxes                                     141.4                 103.1                      38.3               37  %
Provision for income taxes                                      28.0                  18.5                       9.5               51  %
Net income before noncontrolling interests                     113.4                  84.6                      28.8               34  %
Less: Noncontrolling interests - Artisan Partners
Holdings                                                        24.8                  21.5                       3.3               15  %
Less: Noncontrolling interests - consolidated
investment products                                              2.2                   4.6                      (2.4)             (52) %
Net income attributable to Artisan Partners Asset
Management Inc.                                        $        86.4          $       58.5          $           27.9               48  %
Share Data
Basic earnings per share                               $        1.30          $       0.93
Diluted earnings per share                             $        1.30          $       0.93
Basic weighted average number of common shares
outstanding                                               59,965,549        

56 402 503

Diluted weighted average number of common shares
outstanding                                               59,982,774            56,408,272


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 $173.6 billion of assets under management as of
September 30, 2021 have performance fee billing arrangements. Performance fees
of $0.4 million were recognized in the three months ended September 30, 2021,
compared to $0.3 million in the three months ended September 30, 2020.
The increase in revenues of $83.9 million, or 36%, for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020, was
driven primarily by a $46.6 billion, or 36%, increase in our average assets
under management. The weighted average investment management fee, which excludes
performance fees, was 70.7 basis points for the three months ended September 30,
2021 and 2020. The weighted average investment management fee remained flat as a
decrease in separate account fee rates resulting from tiered fee structures and
client mix was fully offset by the favorable rate impact of an increase in the
proportion of our total assets managed through Artisan Funds and Artisan Global
Funds, which accrue management fees at a higher rate than separate accounts.
                                       33
--------------------------------------------------------------------------------
  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 (2)                         Funds
 For the Three Months Ended
September 30,                            2021                 2020                  2021                  2020
                                                            (unaudited; dollars in millions)
Investment advisory fees             $    117.5          $      92.4          $      199.1            $    140.3
Weighted average management fee(1)        51.3 bps             52.4 bps                91.0 bps            91.6 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.
(2) 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 $38.0 million for the three months ended September
30, 2021, compared to the three months ended September 30, 2020, primarily as a
result of higher incentive compensation and third-party distribution expense
related to increased revenues, increases in compensation and benefits as a
result of increased headcount, including the addition of the new investment
team, and higher long-term incentive compensation costs as a result of the grant
in January 2021.
Compensation and Benefits
                                                   For the Three Months Ended                    Period-to-Period
                                                         September 30,
                                                   2021                 2020                    $                    %
                                                                (unaudited; in millions)
Salaries, incentive compensation and
benefits(1)                                   $      130.8          $     99.6          $          31.2               31  %
Long-term incentive compensation awards               11.4                 9.1                      2.3               25  %
Total compensation and benefits               $      142.2          $    108.7          $          33.5               31  %
(1) Excluding long-term incentive
compensation awards


The increase in salaries, incentive compensation and benefits was driven
primarily by a $25.0 million increase in quarterly incentive compensation for
our investment and marketing professionals as a result of the increase in
revenue, as well as compensation and benefits expense related to increased
headcount in 2021, including our newest investment team.
Long-term incentive compensation award expense increased $2.3 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, which we refer to as franchise
capital awards. Long-term incentive compensation award expense for all
outstanding awards is expected to be approximately $11 million in the fourth
quarter 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 47% of our revenues for the three
months ended September 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 $4.5 million for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020,
primarily due to an increase in third-party distribution expense as a result of
an increase in AUM subject to those fees and higher professional fees.
                                       34
--------------------------------------------------------------------------------
  Table of Contents
Non-Operating Income (Expense)
Non-operating income (expense) consisted of the following:
                                                   For the Three Months Ended                      Period-to-Period
                                                         September 30,
                                                    2021                 2020                    $                     %
                                                                (unaudited; in millions)
Interest expense                              $        (2.7)         $     (2.7)         $             -                 -  %
Net investment gain (loss) of consolidated
investment products                                     2.7                 7.8                     (5.1)              (65) %
Net gain (loss) on the tax receivable
agreements                                              0.4                 0.2                      0.2               100  %
Other investment gain (loss)                           (2.1)                0.6                     (2.7)             (450) %

Total non-operating income (expenses) $ (1.7) $ 5.9 $ (7.6)

             (129) %


Provision for Income Taxes
The provision for income taxes primarily represents APAM's U.S. federal, state
and local income taxes on its allocable portion of Holdings' income, as well as
foreign income taxes payable by Holdings' subsidiaries. APAM's effective income
tax rate for the three months ended September 30, 2021 and 2020 was 19.8% and
17.9%, respectively. Several factors contribute to the effective tax rate,
including a rate benefit attributable to the fact that approximately 20% and 25%
of Holdings' full year projected taxable earnings were not subject to
corporate-level taxes for the three months ended September 30, 2021 and 2020,
respectively. Thus, income before income taxes includes amounts that are
attributable to noncontrolling interests and not taxable to APAM and its
subsidiaries, which reduces the effective tax rate. As APAM's equity ownership
in Holdings increases, the effective tax rate will likewise increase as more
income will be subject to corporate-level taxes. The effective tax rate was
favorably impacted in both periods due to tax deductible dividends paid on
unvested restricted share-based awards.
Earnings Per Share
Weighted average basic and diluted shares of Class A common stock outstanding
were higher for the three months ended September 30, 2021, compared to the three
months ended September 30, 2020, as a result of stock offerings, unit exchanges,
and equity award grants. See Note 12, "Earnings Per Share" in the Notes to the
Unaudited Consolidated Financial Statements for further discussion of earnings
per share.
                                       35
--------------------------------------------------------------------------------
  Table of Contents
Nine months ended September 30, 2021, compared to Nine months ended September
30, 2020
                                                       For the Nine Months Ended September                     Period-to-Period
                                                                       30,
                                                            2021                  2020                        $                       %
Statements of operations data:                                      

(unaudited; in millions, except data per share and per share)

                                              $       912.2          $      638.5          $        273.7                      43  %
Operating Expenses
Total compensation and benefits                               419.7                 315.6                   104.1                      33  %

Other operating expenses                                       89.8                  78.1                    11.7                      15  %
Total operating expenses                                      509.5                 393.7                   115.8                      29  %
Total operating income                                        402.7                 244.8                   157.9                      65  %
Non-operating income (expense)
Interest expense                                               (8.1)                 (8.1)                      -                       -  %

Other non-operating income                                     20.4                   7.5                    12.9                     172  %
Total non-operating income (expense)                           12.3                  (0.6)                   12.9                   2,150  %
Income before income taxes                                    415.0                 244.2                   170.8                      70  %
Provision for income taxes                                     78.1                  44.2                    33.9                      77  %
Net income before noncontrolling interests                    336.9                 200.0                   136.9                      68  %
Less: Noncontrolling interests - Artisan Partners              74.1                  55.8                    18.3
Holdings                                                                                                                               33  %
Less: Noncontrolling interests - consolidated                  10.9                   4.7                     6.2
investment products                                                                                                                   132  %
Net income attributable to Artisan Partners Asset
Management Inc.                                       $       251.9          $      139.5          $        112.4                      81  %
Share Data
Basic earnings per share                              $        3.84          $       2.22
Diluted earnings per share                            $        3.84          $       2.22
Basic weighted average number of common shares
outstanding                                              59,519,634         

55 188 563

Diluted weighted average number of common shares
outstanding                                              59,535,894            55,190,486


Investment Advisory Revenues
The increase in revenues of $273.7 million, or 43%, for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020, was
driven primarily by a $52.2 billion, or 44%, increase in our average assets
under management. The weighted average management fee, which excludes
performance fees, was 70.8 basis points for the nine months ended September 30,
2021 compared to 71.0 basis points for the nine months ended September 30, 2020.
Performance fee revenue was $11.2 million for both the nine months ended
September 30, 2021 and 2020. The weighted average investment management fee
remained relatively flat as a decrease in separate account fee rates resulting
from tiered fee structures and client mix was mostly offset by the favorable
rate impact of an increase in the proportion of our total assets managed through
Artisan Funds and Artisan Global Funds, which accrue management fees at a higher
rate than separate accounts.
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.
                                          Separate Accounts and Other (2)                 Artisan Funds and Artisan Global Funds
 For the Nine Months Ended
September 30,                                2021                      2020                     2021                      2020
                                                                   (unaudited; dollars in millions)
Investment advisory fees           $          347.7               $     258.3          $            564.5            $     380.2
Weighted average management fee(1)                 51.4 bps             52.7 bps                      91.2 bps             91.7 bps
Percentage of ending AUM                         51       %                53  %                       49    %                47  %

(1) We calculate our weighted average management fees by dividing the annualized management fees (which exclude performance fees) by the average assets under management for the applicable period. (2) Segregated and other accounts include assets that we manage in or through vehicles other than Artisan Funds or Artisan Global Funds, including assets that we manage in traditional segregated accounts, collective investment funds of Artisan brand and the Artisan Private Funds, as well as assets under advice related to investment models, for which we provide advice but do not have full investment discretion.

                                       36
--------------------------------------------------------------------------------
  Table of Contents
Operating Expenses
Operating expenses increased $115.8 million for the nine months ended September
30, 2021, compared to the nine months ended September 30, 2020, primarily as a
result of higher incentive compensation and third-party distribution expense
related to increased revenues, increases in compensation and benefits as a
result of increased headcount, including the addition of the new investment
team, and higher long-term incentive compensation costs as a result of the grant
in January 2021.
Compensation and Benefits
                                                      For the Nine Months Ended                     Period-to-Period
                                                            September 30,
                                                        2021              2020                     $                       %
                                                                     

(unaudited; in millions) Salaries, incentive compensation and benefits (1) $ 385.1 $ 288.2 $ 96.9

                      34  %
Long-term incentive compensation awards                  34.6             27.4                     7.2                      26  %
Total compensation and benefits                     $   419.7          $ 315.6          $        104.1                      33  %
(1) Excluding long-term incentive compensation
awards


The increase in salaries, incentive compensation and benefits was driven
primarily by a $81.7 million increase in incentive compensation paid to our
investment and marketing professionals as a result of the increase in revenue,
as well as compensation and benefits expense related to increased headcount in
2021, including our newest investment team.
Long-term incentive compensation award expense increased $7.2 million as the
awards granted during 2020 and 2021 had a higher value than the awards that
became fully vested in 2020 and 2021.
Total compensation and benefits was 46% and 49% of our revenues for the nine
months ended September 30, 2021, and 2020, respectively.
Other operating expenses
Other operating expenses increased $11.7 million for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020,
primarily due to an increase in third-party distribution expense as a result of
an increase in AUM subject to those fees and higher professional fees.
Non-Operating Income (Expense)
Non-operating income (expense) consisted of the following:
                                                      For the Nine Months Ended                  Period-to-Period
                                                           September 30,
                                                        2021             2020                  $                     %
                                                                  (unaudited; in millions)
Interest expense                                    $    (8.1)         $ (8.1)         $             -                 -  %
Net investment gain (loss) of consolidated
investment products                                      18.0             7.8                     10.2               131  %
Net gain (loss) on the tax receivable agreements          0.4             0.2                      0.2               100  %
Other investment gain (loss)                              2.0            (0.5)                     2.5               500  %
Total non-operating income (expense)                $    12.3          $ (0.6)         $          12.9             2,150  %


Provision for Income Taxes
The provision for income taxes primarily represents APAM's U.S. federal, state
and local income taxes on its allocable portion of Holdings' income, as well as
foreign income taxes payable by Holdings' subsidiaries. APAM's effective income
tax rate was 18.8% and 18.1% for the nine months ended September 30, 2021 and
2020, respectively.
Several factors contribute to the effective tax rate, including a rate benefit
attributable to the fact that approximately 20% and 25% of Holdings' full year
projected taxable earnings were not subject to corporate-level taxes for the
nine months ended September 30, 2021 and 2020, respectively. Thus, income before
income taxes includes amounts that are attributable to noncontrolling interests
and not taxable to APAM and its subsidiaries, which reduces the effective tax
rate. As APAM's equity ownership in Holdings increases, the effective tax rate
will likewise increase as more income will be subject to corporate-level taxes.
The effective tax rate was favorably impacted in both periods due to tax
deductible dividends paid on unvested restricted share-based awards and by the
tax deduction related to the vesting of restricted share-based awards.
                                       37
--------------------------------------------------------------------------------
  Table of Contents
Earnings Per Share
Weighted average basic and diluted shares of Class A common stock outstanding
were higher for the nine months ended September 30, 2021, compared to the nine
months ended September 30, 2020, as a result of stock offerings, unit exchanges,
and equity award grants. See Note 12, "Earnings Per Share" in the Notes to the
Unaudited Consolidated Financial Statements for further discussion of earnings
per share.
Supplemental Non-GAAP Financial Information
Our management uses non-GAAP measures (referred to as "adjusted" measures) of
net income to evaluate the profitability and efficiency of the underlying
operations of our business and as a factor when considering net income available
for distributions and dividends. These adjusted measures remove the impact of
(1) net gain (loss) on the tax receivable agreements (if any), (2) compensation
expense related to market valuation changes in compensation plans, and (3) net
investment gain (loss) of investment products. These adjustments also remove the
non-operational complexities of our structure by adding back noncontrolling
interests and assuming all income of Artisan Partners Holdings is allocated to
APAM. Management believes these non-GAAP measures provide more meaningful
information to analyze our profitability and efficiency between periods and over
time. We have included these non-GAAP measures to provide investors with the
same financial metrics used by management to manage the Company.
Non-GAAP measures should be considered in addition to, and not as a substitute
for, financial measures prepared in accordance with GAAP. Our non-GAAP measures
may differ from similar measures used by other companies, even if similar terms
are used to identify such measures. Our non-GAAP measures are as follows:
•Adjusted net income represents net income excluding the impact of (1) net gain
(loss) on the tax receivable agreements (if any), (2) compensation expense
related to market valuation changes in compensation plans, and (3) net
investment gain (loss) of investment products. Adjusted net income also reflects
income taxes assuming the vesting of all unvested Class A share-based awards and
as if all outstanding limited partnership units of Artisan Partners Holdings had
been exchanged for Class A common stock of APAM on a one-for-one basis. Assuming
full vesting and exchange, all income of Artisan Partners Holdings is treated as
if it were allocated to APAM, and the adjusted provision for income taxes
represents an estimate of income tax expense at an effective rate reflecting
APAM's current federal, state, and local income statutory tax rates. The
adjusted tax rate was 24.7% and 24.5% for the 2021 and 2020 periods presented,
respectively.
•Adjusted net income per adjusted share is calculated by dividing adjusted net
income by adjusted shares. The number of adjusted shares is derived by assuming
the vesting of all unvested Class A share-based awards and the exchange of all
outstanding limited partnership units of Artisan Partners Holdings for Class A
common stock of APAM on a one-for-one basis.
•Adjusted operating income represents the operating income of the consolidated
company excluding compensation expense related to market valuation changes in
compensation plans.
•Adjusted operating margin is calculated by dividing adjusted operating income
by total revenues.
•Adjusted EBITDA represents adjusted net income before interest expense, income
taxes, depreciation and amortization expense.
Net gain (loss) on the tax receivable agreements represents the income (expense)
associated with the change in estimate of amounts payable under the tax
receivable agreements entered into in connection with APAM's initial public
offering and related reorganization.
Compensation expense related to market valuation changes in compensation plans
represents the expense (income) associated with the change in the long term
incentive award liability resulting from investment returns of the underlying
investment products. Because the compensation expense impact of the investment
market exposure is economically hedged, management believes it is useful to
reflect the expected net income offset in the calculation of adjusted operating
income, adjusted net income, and adjusted EBITDA. The related investment gain
(loss) on the underlying investments is included in the adjustment for net
investment gain (loss) of investment products.
Net investment gain (loss) of investment products represents the non-operating
income (expense) related to the Company's investments, in both consolidated
investment products and nonconsolidated investment products, including
investments held to economically hedge compensation plans. Excluding these
non-operating market gains or losses on investments provides greater
transparency to evaluate the profitability and efficiency of the underlying
operations of the business.
                                       38
--------------------------------------------------------------------------------
  Table of Contents
The following table sets forth, for the periods indicated, a reconciliation from
GAAP financial measures to non-GAAP measures:
                                                  For the Three Months Ended                For the Nine Months Ended
                                                        September 30,                             September 30,
                                                   2021                 2020                 2021                 2020
                                                            (unaudited; in millions, except per share data)
Reconciliation of non-GAAP financial
measures:
Net income attributable to Artisan Partners
Asset Management Inc. (GAAP)                 $      86.4            $    58.5          $     251.9            $   139.5
Add back: Net income attributable to
noncontrolling interests - Artisan Partners
Holdings                                            24.8                 21.5                 74.1                 55.8
Add back: Provision for income taxes                28.0                 18.5                 78.1                 44.2

Add back: Compensation expense related to
market valuation changes in compensation
plans                                                0.1                    -                  0.3                    -
Add back: Net (gain) loss on the tax
receivable agreements                               (0.4)                (0.2)                (0.4)                (0.2)

Add back: Net investment (gain) loss of
investment products attributable to APAM             1.6                 (3.7)                (8.9)                (2.2)
Less: Adjusted provision for income taxes           34.7                 23.2                 97.6                 58.1
Adjusted net income (Non-GAAP)               $     105.8            $    71.4          $     297.5            $   179.0

Average shares outstanding
Class A common shares                               60.0                 56.4                 59.5                 55.2
Assumed vesting or exchange of:
Unvested Class A restricted share-based
awards                                               5.4                  5.4                  5.5                  5.3

Artisan Partners Holdings units outstanding
(noncontrolling interests)                          14.2                 17.2                 14.5                 18.3
Adjusted shares                                     79.6                 79.0                 79.5                 78.8

Basic and diluted earnings per share (GAAP)  $      1.30            $    0.93          $      3.84            $    2.22
Adjusted net income per adjusted share
(Non-GAAP)                                   $      1.33            $    0.90          $      3.74            $    2.27

Operating income (GAAP)                      $     143.1            $    97.2          $     402.7            $   244.8

Add back: Compensation expense related to
market valuation changes in compensation
plans                                                0.1                    -                  0.3                    -

Adjusted operating income (Non-GAAP)         $     143.2            $    97.2          $     403.0            $   244.8

Operating margin (GAAP)                             45.2    %            41.8  %              44.1    %            38.3  %
Adjusted operating margin (Non-GAAP)                45.2    %            41.8  %              44.2    %            38.3  %

Net income attributable to Artisan Partners
Asset Management Inc. (GAAP)                 $      86.4            $    58.5          $     251.9            $   139.5
Add back: Net income attributable to
noncontrolling interests - Artisan Partners
Holdings                                            24.8                 21.5                 74.1                 55.8

Add back: Net (gain) loss on the tax
receivable agreements                               (0.4)                (0.2)                (0.4)                (0.2)

Add back: Net investment (gain) loss of
investment products attributable to APAM             1.6                 (3.7)                (8.9)                (2.2)
Add back: Compensation expense related to
market valuation changes in compensation
plans                                                0.1                    -                  0.3                    -
Add back: Interest expense                           2.7                  2.7                  8.1                  8.1
Add back: Provision for income taxes                28.0                 18.5                 78.1                 44.2
Add back: Depreciation and amortization              1.8                  1.8                  5.1                  5.0
Adjusted EBITDA (Non-GAAP)                   $     145.0            $    99.1          $     408.3            $   250.2


                                       39
--------------------------------------------------------------------------------
  Table of Contents
Liquidity and Capital Resources
Our working capital needs, including accrued incentive compensation payments,
have been and are expected to be met primarily through cash generated by our
operations. The assets and liabilities of consolidated investment products
attributable to third-party investors do not impact our liquidity and capital
resources. We have no right to the benefits from, nor do we bear the risks
associated with, the assets and liabilities of consolidated investment products,
beyond our direct equity investment and any investment advisory fees earned.
Accordingly, assets and liabilities of consolidated investment products
attributable to third-party investors are excluded from the amounts and
discussions below. The following table shows our liquidity position as of
September 30, 2021 and December 31, 2020:
                                                           September 30, 

2021 December 31, 2020

                                                                      (unaudited; in millions)
Cash and cash equivalents                                  $         273.3          $            155.0
Accounts receivable                                        $         122.1          $             99.9
Seed investments(1)                                        $          65.0          $             62.6
Undrawn commitment on revolving credit facility            $         100.0          $            100.0
(1) Seed investments include Artisan's direct equity investments in consolidated and nonconsolidated
Artisan-sponsored investment products. The balance excludes $37.3 of investments made related to funded
long-term incentive compensation plans.


We manage our cash balances in order to fund our day-to-day operations. Accounts
receivable primarily represent investment advisory fees that have been earned,
but not yet received from our clients. We perform a review of our receivables on
a monthly basis to assess collectability. As of September 30, 2021, none of our
receivables were considered uncollectible.
We utilize capital to make seed investments in Artisan-sponsored investment
products to support the development of new investment strategies and vehicles.
As of September 30, 2021, the balance of all seed investments, including
investments in consolidated investment products, was $65.0 million. The seed
investments are generally redeemable at our discretion.
We have $200 million in unsecured notes outstanding and a $100 million revolving
credit facility with a five-year term ending August 2022. The notes are
comprised of three series, Series C, Series D, and Series E, each with a balloon
payment at maturity. The $100 million revolving credit facility was unused as of
and for the nine months ended September 30, 2021.
The fixed interest rate on each series of unsecured notes is subject to a 100
basis point increase in the event Holdings receives a below-investment grade
rating and any such increase will continue to apply until an investment grade
rating is received.
These borrowings contain various covenants. Our failure to comply with any of
the covenants could result in an event of default under the agreements, giving
our lenders the ability to accelerate repayment of our obligations. We were in
compliance with all debt covenants as of September 30, 2021.
Distributions and Dividends
Artisan Partners Holdings' distributions, including distributions to APAM for
the three and nine months ended September 30, 2021 and 2020, were as follows:
                                                         For the Three Months Ended           For the Nine Months Ended
                                                               September 30,                        September 30,
                                                           2021               2020              2021              2020
                                                                            (unaudited, in millions)
Holdings Partnership Distributions to Limited
Partners                                               $     25.6          $  20.9          $    67.9          $  60.2
Holdings Partnership Distributions to APAM                  110.6             70.0              285.0            181.4
Total Holdings Partnership Distributions               $    136.2          

$ 90.9 $ 352.9 $ 241.6

At October 26, 2021, we, acting as general partner of Artisan Partners Holdings, said a cast of $ 33.3 million, payable by Artisan Partners Holdings to holders of its shares, including APAM.

                                       40
--------------------------------------------------------------------------------
  Table of Contents
APAM declared and paid the following dividends per share during the three and
nine months ended September 30, 2021 and 2020:
                                                                            For the Three Months Ended           For the Nine Months Ended
Type of Dividend                         Class of Stock                           September 30,                        September 30,
                                                                              2021               2020              2021               2020
Quarterly                                Class A Common                   $     1.00          $  0.67          $     2.85          $  1.96
Special Annual                           Class A Common                   $        -          $     -          $     0.31          $  0.60


Our board of directors declared, effective October 26, 2021, a variable
quarterly dividend of $1.07 per share of Class A common stock with respect to
the September quarter of 2021, payable on November 30, 2021 to stockholders of
record as of the close of business on November 16, 2021. The variable quarterly
dividend represents approximately 80% of the cash generated in the September
quarter of 2021 and a pro-rata portion of 2021 tax savings related to our tax
receivable agreements.
Subject to Board approval each quarter, we currently expect to pay a quarterly
dividend of approximately 80% of the cash the Company generates each quarter. We
expect cash generation will generally equal adjusted net income plus long-term
incentive compensation award expense, less cash reserved for future franchise
capital awards (which we expect will approximate 4% of investment management
revenues each quarter) with additional adjustments made for certain other
sources and uses of cash, including capital expenditures. After the end of the
year, our Board will consider paying a special dividend after determining the
amount of cash needed for general corporate purposes and investments in growth
and strategic initiatives. Although we expect to pay dividends according to our
dividend policy, we may not pay dividends according to our policy or at all.
Tax Receivable Agreements ("TRAs")
In addition to funding our normal operations, we will be required to fund
amounts payable under the TRAs that we entered into in connection with the IPO,
which resulted in the recognition of a $404.4 million liability as of
September 30, 2021. The liability generally represents 85% of the tax benefits
APAM expects to realize as a result of the merger of an entity into APAM as part
of the IPO Reorganization, our purchase of partnership units from limited
partners of Holdings and the exchange of partnership units (for shares of Class
A common stock or other consideration). The estimated liability assumes no
material changes in the relevant tax law and that APAM earns sufficient taxable
income to realize all tax benefits subject to the TRAs. An increase or decrease
in future tax rates will increase or decrease, respectively, the expected tax
benefits APAM would realize and the amounts payable under the TRAs. Changes in
the estimate of expected tax benefits APAM would realize and the amounts payable
under the TRAs as a result of change in tax rates have been and will be recorded
in net income.
The liability will increase upon future purchases or exchanges of limited
partnership units with the increase representing amounts payable under the TRAs
equal to 85% of the estimated future tax benefits, if any, resulting from such
purchases or exchanges. We intend to fund the payment of amounts due under the
TRAs out of the reduced tax payments that APAM realizes in respect of the tax
attributes to which the TRAs relate.
The actual increase in tax basis, as well as the amount and timing of any
payments under these agreements, will vary depending upon a number of factors,
including the timing of sales or exchanges by the holders of limited partnership
units, the price of the Class A common stock at the time of such sales or
exchanges, whether such sales or exchanges are taxable, the amount and timing of
the taxable income APAM generates in the future and the tax rate then applicable
and the portion of APAM's payments under the TRAs constituting imputed interest
or depreciable basis or amortizable basis. In certain cases, payments under the
TRAs may be accelerated and/or significantly exceed the actual benefits we
realize in respect of the tax attributes subject to the TRAs. In such cases, we
intend to fund those payments with cash on hand, although we may have to borrow
funds depending on the amount and timing of the payments. During the nine months
ended September 30, 2021, we made payments of $31.3 million related to the TRAs.
We do not intend to make any additional TRA payments in 2021. In 2022, we expect
to make payments of approximately $33 million related to the TRAs.
                                       41

————————————————– ——————————-

Contents

© Edgar online, source Previews


Source link

Leave A Reply

Your email address will not be published.