UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
OR
Commission file number: 001-35826
Artisan Partners Asset Management Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
875 E. Wisconsin Avenue, Suite 800
Milwaukee, WI
(Address of principal executive offices)
45-0969585
(I.R.S. Employer
Identification No.)
53202
(Zip Code)
(414) 390-6100
(Registrant’s telephone number, including area code)
Class A Common Stock, $0.01 par value
(Title of each class)
Securities registered pursuant to Section 12(b) of the Act:
APAM
(Trading Symbol)
The New York Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☑No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer ☑
Non-accelerated filer
Accelerated filer
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑
The aggregate market value of common equity held by non-affiliates of the registrant at June 30, 2022, which was the last business day of the registrant’s most
recently completed second fiscal quarter, was approximately $2.3 billion based on the closing price of $35.57 for the Class A common stock, as reported on the New York
Stock Exchange on that date.
For purposes of this calculation only, it is assumed that the affiliates of the registrant include only directors and executive officers of the registrant.
The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share, and
Class C common stock, par value $0.01 per share, as of February 23, 2023 were 67,948,122, 2,491,147 and 9,025,147, respectively.
Certain portions of the registrant’s definitive proxy statement for its annual meeting of stockholders, to be filed with the Securities and Exchange Commission
within 120 days after December 31, 2022, are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Information about our Executive Officers
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Qualitative and Quantitative Disclosures Regarding Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
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Except where the context requires otherwise, in this report:
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“Artisan Funds” refers to each series of Artisan Partners Funds, Inc., an open-ended management investment company, registered with the Securities and
Exchange Commission.
“Artisan Global Funds” refers to each sub-fund of Artisan Partners Global Funds plc, an open-ended investment company registered with the Central Bank of
Ireland pursuant to the European UCITS Directive.
“Artisan Private Funds” refers to private investment funds sponsored by Artisan.
“Client” and “clients” refer to investors who access our investment management services by investing in funds, including Artisan Funds, Artisan Global Funds,
Artisan Private Funds, or other pooled investment vehicles (including collective investment trusts) for which we serve as investment adviser, or by engaging us to
manage a separate account in one or more of our investment strategies.
“Company”, “Artisan”, “we”, “us” or “our” refer to Artisan Partners Asset Management Inc. (“APAM”) and its direct and indirect subsidiaries, including Artisan
Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”), and, for periods prior to our IPO, “Artisan,” the “company,” “we,” “us” and “our” refer to
Artisan Partners Holdings and, unless the context otherwise requires, its direct and indirect subsidiaries. On March 12, 2013, APAM closed its IPO and related IPO
Reorganization. Prior to that date, APAM was a subsidiary of Artisan Partners Holdings. The IPO Reorganization and IPO are described in the notes to our
consolidated financial statements included in Part II of this Form 10-K.
“IPO” means the initial public offering of 12,712,279 shares of Class A common stock of Artisan Partners Asset Management Inc. completed on March 12, 2013.
“IPO Reorganization” means the series of transactions Artisan Partners Asset Management Inc. and Artisan Partners Holdings completed on March 12, 2013,
immediately prior to the IPO, in order to reorganize their capital structures in preparation for the IPO.
“2020 Follow-On Offering” means the registered offering of 1,802,326 shares of Class A common stock of Artisan Partners Asset Management Inc. completed on
February 24, 2020.
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Table of Contents
•
“2021 Follow-On Offering” means the registered offering of 963,614 shares of Class A common stock of Artisan Partners Asset Management Inc. completed on
March 1, 2021.
Forward-Looking Statements
This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. Statements regarding future events and our future performance, as well as management’s current expectations, beliefs, plans,
estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. In some cases, you can identify these statements by forward-
looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the
negative of these terms and other comparable terminology. Forward-looking statements are only predictions based on current expectations and projections about future
events. Forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity,
performance, actions or achievements to differ materially from the results, level of activity, performance, actions or achievements expressed or implied by the forward-
looking statements. These factors include: the loss of key investment professionals or senior management, adverse market or economic conditions, poor performance of our
investment strategies, change in the legislative and regulatory environment in which we operate, operational or technical errors or other damage to our reputation and other
factors disclosed in the Company’s filings with the Securities and Exchange Commission, including those factors listed under the caption entitled “Risk Factors” in Item 1A
of this Form 10-K, as may be amended from time to time. We undertake no obligation to publicly update any forward-looking statements in order to reflect events or
circumstances that may arise after the date of this report, except as required by law.
Forward-looking statements include, but are not limited to, statements about:
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our anticipated future results of operations;
our potential operating performance and efficiency, including our ability to operate under different and unique circumstances;
our expectations with respect to future business initiatives;
our expectations with respect to the performance of our investment strategies;
our expectations with respect to future levels of assets under management, including the capacity of our strategies and client cash inflows and outflows;
our expectations with respect to industry trends and how those trends may impact our business;
our financing plans, cash needs and liquidity position;
our intention to pay dividends and our expectations about the amount of those dividends;
our expected levels of compensation of our employees, including equity- and cash-based long-term incentive compensation;
our expectations with respect to future expenses and the level of future expenses;
our expected tax rate, and our expectations with respect to deferred tax assets; and
our estimates of future amounts payable pursuant to our tax receivable agreements.
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Table of Contents
Performance and Assets Under Management Information Used in this Report
We manage investments primarily through pooled investment funds and separate accounts. We serve as investment adviser to Artisan Funds, Artisan Global Funds and
Artisan Private Funds. We refer to funds and other accounts that are managed by us with a broadly common investment objective and substantially in accordance with a
single model account as being part of the same investment “strategy”.
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
13% of our assets under management at December 31, 2022, are maintained in separate composites the results of which are not presented in this report.
The performance of accounts with investment restrictions differs from the performance of accounts included in our principal composite for the applicable strategy because
one or more securities may be omitted from the portfolio in order to comply with client restrictions and the weightings in the portfolio of other securities are typically
correspondingly altered. The performance of non-U.S. dollar accounts differs from the performance of the principal composite for the applicable strategy because of the
fluctuations in currency exchange rates between the currencies in which portfolio securities are traded and the currency in which the account is managed or U.S. dollars,
respectively. Results for any investment strategy described herein, and for different investment vehicles within a strategy, are affected by numerous factors, including:
different material market or economic conditions; different investment management fee rates, brokerage commissions and other expenses; and the reinvestment of dividends
or other earnings. The returns for any strategy may be positive or negative, and past performance does not guarantee future results. In this report, we refer to the date on
which we began tracking the performance of an investment strategy as the “inception date”.
Unless otherwise noted, we present the average annual returns of our composites on a “gross” basis, which represent average annual returns before payment of fees payable
to us by any portfolio in the composite and net of commissions and transaction costs. An investor’s return in a portfolio would be lower than the gross results presented due
to the deduction of applicable fees and expenses. We also present the average annual returns of certain market indices or “benchmarks” for the comparable period. The
indices are unmanaged and have differing volatility, credit and other characteristics. You should not assume that there is any material overlap between the securities included
in the portfolios of our investment strategies during these periods and those that comprise any of the strategy’s comparator index in this report. At times, this causes material
differences in relative performance. It is not possible to invest directly in any of the indices. The returns of these indices, as presented in this report, have not been reduced
by fees and expenses associated with investing in securities, but do include the reinvestment of dividends.
In these materials, we present Value Added, which is the difference, in basis points, between an Artisan strategy’s average annual return and the return of its respective
benchmark. The benchmark used for purposes of presenting a strategy’s performance and calculating Value Added is generally the market index most commonly used by
our clients to compare the performance of the relevant strategy or, if none, the market index used by management to evaluate the performance of the strategy. Composites /
Indexes used for the Value Added calculations described are: Non-U.S. Growth Strategy / International Value Strategy-MSCI EAFE Index; Global Discovery / Global
Equity Strategy / Global Opportunities Strategy / Global Value Strategy-MSCI ACWI Index; Non-U.S. Small-Mid Growth Strategy-MSCI ACWI ex-USA Small Mid Index;
U.S. Mid-Cap Growth Strategy-Russell Midcap Growth Index; U.S. Mid-Cap Value Strategy-Russell Midcap Value® Index; U.S. Small-Cap Growth Strategy-Russell
2000 Growth Index; Value Equity Strategy-Russell 1000 Value® Index; Developing World Strategy / Sustainable Emerging Markets Strategy-MSCI Emerging Markets
Index; High Income Strategy-ICE BofA U.S. High Yield Master II Total Return Index; Credit Opportunities Strategy-ICE BofA US Dollar LIBOR 3-month Constant
Maturity Index; Antero Peak Strategy / Antero Peak Hedge Strategy / Select Equity Strategy / Value Income Strategy-S&P 500 Index; China Post-Venture Strategy-MSCI
China SMID Cap Index (Net); International Explorer Strategy-MSCI All Country World Ex USA Small Cap Index; Floating Rate Strategy-Credit Suisse Leveraged Loan
Index; Global Unconstrained Strategy-ICE BofA 3-month U.S. Treasury Bill Index; Emerging Markets Debt Opportunities Strategy-J.P. Morgan EMB Hard Currency /
Local Currency 50-50 Index; Emerging Markets Local Opportunities Strategy-J.P. Morgan GBI-EM Global Diversified Index.
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The MSCI EAFE Index, the MSCI EAFE Growth Index, the MSCI EAFE Value Index, the MSCI ACWI Index, the MSCI ACWI ex-USA Index, the MSCI ACWI ex-USA
SMID Index, the MSCI ACWI ex-USA Small Cap, the MSCI Emerging Markets Index and MSCI China SMID Cap Index are trademarks of MSCI Inc. MSCI Inc. is the
owner of all copyrights relating to these indices and is the source of the performance statistics of these indices that are referred to in this report. MSCI makes no express or
implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed
or used to create indices or financial products. This document is not approved or produced by MSCI.
®
The Russell 2000 Index, the Russell 2000 Value Index, the Russell Midcap Index, the Russell Midcap Value Index, the Russell 1000 Index, the Russell 1000 Value
Index, the Russell Midcap Growth Index, the Russell 1000 Growth Index and the Russell 2000 Growth Index are trademarks of Russell Investment Group. Russell
Investment Group is the source and owner of the Russell Index data contained or reflected in this report and all trademarks and copyrights related thereto.
®
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The S&P 500 Index is a product of S&P Dow Jones Indices LLC (S&P DJI) and/or its affiliates and has been licensed for use. Copyright 2023 S&P Dow Jones Indices
LLC, a division of S&P Global, Inc. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones
Indices LLC. S&P is a registered trademark of S&P Global and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). None of S&P
DJI, Dow Jones, their affiliates or third party licensors makes any representation or warranty, express or implied, as to the ability of any index to accurately represent the
asset class or market sector that it purports to represent and none shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
®
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©
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Table of Contents
The ICE BofA U.S. High Yield Master II Total Return Index, ICE BofA US Dollar LIBOR 3-month Constant Maturity Index and the ICE BofA 3-Month U.S. Treasury Bill
Index are owned by ICE Data Indices, LLC, used with permission. ICE Data Indices, LLC permits use of the ICE BofA indices and related data on an "as is" basis, makes
no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE BofA indices or any data included in, related
to, or derived therefrom, assumes no liability in connection with the use of the foregoing, and does not sponsor, endorse, or recommend Artisan Partners or any of its
products or services.
J.P. Morgan EMB Hard Currency / Local Currency 50/50 Index and the J.P. Morgan GBI-EM Global Diversified Index are trademarks of J.P. Morgan. Information has been
obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. Indices are used with permission and may not be copied, used,
or distributed without J.P. Morgan's prior written approval. Copyright 2023, J.P. Morgan Chase & Co. All rights reserved.
TM
In this report, we present ratings from Morningstar, Inc., for the series of Artisan Funds. The Morningstar Rating for funds, or “star rating” is calculated for managed
products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year
history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-
Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding
consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5%
receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures
associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-
year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total
returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact
because it is included in all three rating periods. The ratings which form the basis for the information reflected in this report, and the fund categories in which they are rated,
relating to each Fund's Investor Share Class are: Artisan Developing World Fund—Diversified Emerging Markets; Artisan Focus Fund—Large Growth; Artisan Global
Discovery—Global Small/Mid Stock; Artisan Global Equity Fund—Global Large-Stock Growth; Artisan Global Opportunities Fund—Global Large-Stock Growth; Artisan
Global Value Fund—Global Large-Stock Value; Artisan High Income Fund—High Yield Bond; Artisan International Fund—Foreign Large Growth; Artisan International
Small-Mid Fund—Foreign Small/Mid Growth; Artisan International Value Fund—Foreign Large Blend; Artisan Mid Cap Fund—Mid-Cap Growth; Artisan Mid Cap Value
Fund—Mid-Cap Value; Artisan Small Cap Fund—Small Growth; Artisan Sustainable Emerging Markets Fund—Diversified Emerging Markets; Artisan Value Fund—Large
Value; Artisan Select Equity Fund—Large Blend; Artisan International Explorer Fund—Foreign Small/Mid Blend; Artisan Floating Rate Fund—Bank Loan; Artisan Value
Income Fund—Large Value; Artisan Global Unconstrained Fund—Nontraditional Bond; Artisan Emerging Markets Debt Opportunities Fund—Emerging Markets Bond.
Morningstar ratings are initially given on a fund's three year track record and change monthly.
Throughout this report, we present historical information about our assets under management, including information about changes in our assets under management due to
client cash flows, investment returns and transfers between investment vehicles (e.g., pooled investment vehicles and separate accounts). Client cash flows represent client
fundings, terminations and client initiated contributions and withdrawals (which could be in cash or in securities), but generally exclude Artisan Funds’ income and capital
gain distributions that are not reinvested by fund shareholders. Investment returns and other represents realized gains and losses, the change in unrealized gains and losses,
net income and certain miscellaneous items, immaterial in the aggregate, which may include payment of Artisan’s management fees or payment of custody expenses to the
extent a client causes these fees to be paid from the account we manage. The effect of translating into U.S. dollars the value of portfolio securities denominated in currencies
other than the U.S. dollar is also included in investment returns and other.
We use our information management systems to track our assets under management, the components of investment returns, and client cash flows, and we believe the
information set forth in this report regarding our assets under management, investment returns, and client cash flows is accurate in all material respects. We also present
information regarding the amount of our assets under management and client cash flows sourced through particular investment vehicles and distribution channels. The
allocation of assets under management and client cash flows sourced through particular distribution channels involves estimates because precise information on the sourcing
of assets invested in Artisan Funds or Artisan Global Funds through intermediaries is not available on a complete or timely basis and involves the exercise of judgment
because the same assets, in some cases, might fairly be said to have been sourced from more than one distribution channel. We have presented the information on our assets
under management and client cash flows sourced by distribution channel in the way in which we prepare and use that information in the management of our business. Non-
financial data, including information about our investment performance, client cash flows, and assets under management sourced by distribution channel are not subject to
our internal controls over financial reporting.
None of the information in this report constitutes either an offer or a solicitation to buy or sell any fund securities, nor is any such information a recommendation
for any fund security or investment service.
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Table of Contents
PART I
Item 1. Business
Overview
Founded in 1994, Artisan is an investment management firm focused on providing high valued added, active investment strategies in asset classes for sophisticated clients
around the world.
Since our founding, we have maintained a business model that is designed to maximize our ability to produce attractive investment results for our clients, and we believe
this model has contributed to our success in doing so. We focus on attracting, retaining and developing talented investment professionals by creating an environment in
which each investment team is provided ample resources and support, transparent and direct financial incentives, a high degree of investment autonomy, and a long-term
time horizon. Each of our investment teams is led by one or more experienced portfolio managers and applies its own unique investment philosophy and process. We believe
this autonomous investment team structure promotes independent analysis and accountability among our investment professionals, which we believe promotes superior
investment results.
Each of our investment teams manages one or more investment strategies, each of which is designed to have a clearly articulated, consistent and replicable investment
process that is well-understood by clients and managed to achieve long-term performance. 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 launch a new strategy when we believe it has the potential to achieve superior investment performance in an area that we believe will have sustained client demand at
attractive fee rates over the long term. We strive to maintain the integrity of the investment process followed in each of our strategies by rigorous adherence to the
investment parameters we have communicated to our clients. We also carefully monitor our investment capacity in each investment strategy. We believe that management of
our investment capacity protects our ability to deliver strong investment returns, which protects the interests of our clients and, in the long term, protects our ability to retain
client assets and maintain our profit margins. In order to better achieve our long-term goals, we are willing to close a strategy to new investors or otherwise take action to
slow or restrict its growth, even though our short-term results may be impacted.
In addition to our investment teams, we have a management team with a fiduciary mindset that is focused on thoughtfully growing the business over the long term while
preserving a stable environment for our talented investment professionals and associates. We believe that maintaining the firm’s talent-driven business model and
investment-focused culture is critical to generating sustainable, long-term outcomes for clients, which in turn is critical to generating sustainable long-term outcomes for
shareholders. To that end, our management team focuses on managing the alignment of, and resources for, the firm’s investment professionals, managing our operational
infrastructure to provide a distraction-free investment environment, adhering to our transparent and predictable financial model, and promoting the sustainability of the firm.
We offer our investment management capabilities primarily to institutions and through intermediaries that operate with institutional-like decision-making processes by
means of separate accounts and pooled vehicles. We access traditional institutional clients primarily through relationships with investment consultants. We access other
institutional-like investors primarily through consultants, alliances with major defined contribution/401(k) platforms and relationships with financial advisors and broker-
dealers.
We derive essentially all of our revenues from investment management fees, which primarily are based on a specified percentage of clients’ average assets under
management. A small percentage of our clients and investors pay us performance fees or incentive allocations, in which a portion of the fee or allocation is based on the
performance of clients’ accounts relative to a benchmark. These investment advisory fees are determined by the investment advisory and sub-advisory agreements between
us and our clients. Investment advisory and sub-advisory agreements between us and our clients are generally terminable by our clients upon short or no notice.
Investment Teams
We offer clients a broad range of actively managed investment strategies diversified by asset class, market cap and investment style. Each strategy is managed by one of the
investment teams described below. The following table sets forth total assets under management and certain performance information for our investment teams and
strategies as of December 31, 2022.
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Table of Contents
Investment Team and Strategy
AUM as of December 31,
2022
(in millions)
Composite Inception Date
Value-Added Since Inception Date
as of December 31, 2022
(1)
Fund Rating as
of December 31, 2022
(2)
Growth Team
Global Opportunities
Global Discovery
U.S. Mid-Cap Growth
U.S. Small-Cap Growth
Global Equity Team
Global Equity
Non-U.S. Growth
Non-U.S. Small-Mid Growth
China Post-Venture
U.S. Value Team
Value Equity
U.S. Mid-Cap Value
Value Income
International Value Team
International Value
International Explorer
Global Value Team
Global Value
Select Equity
Sustainable Emerging Markets Team
Sustainable Emerging Markets
Credit Team
High Income
Credit Opportunities
Floating Rate
Developing World Team
Developing World
Antero Peak Group
Antero Peak
Antero Peak Hedge
EMsights Capital Group
Global Unconstrained
Emerging Markets Debt Opportunities
Emerging Markets Local Opportunities
18,676
1,392
10,624
3,285
413
13,285
6,752
173
3,252
2,826
10
30,152
58
21,432
335
873
6,957
136
47
3,466
2,948
728
16
45
11
Total AUM as of December 31, 2022
127,892
Not Applicable
Not yet rated
Not yet rated
Not yet rated
Not Applicable
Not yet rated
Not Applicable
Not yet rated
Not yet rated
Not yet rated
473
491
494
321
342
462
596
(32)
111
255
324
568
812
282
(467)
39
251
951
26
486
584
29
698
927
69
February 1, 2007
September 1, 2017
April 1, 1997
April 1, 1995
April 1, 2010
January 1, 1996
January 1, 2019
April 1, 2021
July 1, 2005
April 1, 1999
March 1, 2022
July 1, 2002
October 1, 2020
July 1, 2007
March 1, 2020
July 1, 2006
April 1, 2014
July 1, 2017
January 1, 2022
July 1, 2015
May 1, 2017
November 1, 2017
April 1, 2022
May 1, 2022
August 1, 2022
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Table of Contents
(1)
Value-added is the amount, in basis points, by which the average annual gross composite return of each of our strategies has outperformed or underperformed its respective benchmark. See
“Performance and Assets Under Management Information Used in this Report” for information regarding the benchmarks used. Value-added for periods less than one year is not annualized. The
High Income strategy holds loans and other security types that are not included in its benchmark, which, at times, causes material differences in relative performance. The Credit Opportunities
strategy is benchmark agnostic and has been compared to the 3-month LIBOR for reference purposes only. The Antero Peak and Antero Peak Hedge strategies' investments in initial public
offerings (IPOs) made a material contribution to performance. IPO investments may contribute significantly to a small portfolio’s return, an effect that will generally decrease as assets grow. IPO
investments may be unavailable in the future.
TM
(2)
year, five-year, and ten-year (if applicable) Morningstar Ratings metrics.
The Overall Morningstar Rating applicable to the Artisan Fund managed to each investment strategy is derived from a weighted average of the performance figures associated with its three-
Growth Team
Our Growth team manages four investment strategies: Global Opportunities, Global Discovery, U.S. Mid-Cap Growth and U.S. Small-Cap Growth. James D. Hamel,
Matthew H. Kamm, Craigh A. Cepukenas, Jason L. White and Jay C. Warner are the portfolio managers of all four strategies. Mr. Hamel is the lead portfolio manager of the
Global Opportunities strategy; Mr. White is the lead portfolio manager of the Global Discovery strategy; Mr. Kamm is the lead portfolio manager of the U.S. Mid-Cap
Growth strategy; and Mr. Cepukenas is the lead portfolio manager of the U.S. Small-Cap Growth strategy.
Investment Strategy (Composite Inception Date)
Global Opportunities (February 1, 2007)
Average Annual Gross Returns
®
MSCI ACWI Index
Global Discovery (September 1, 2017)
Average Annual Gross Returns
®
MSCI ACWI Index
U.S. Mid-Cap Growth (April 1, 1997)
Average Annual Gross Returns
Russell Midcap Index
®
Russell Midcap Growth Index
®
U.S. Small-Cap Growth (April 1, 1995)
Average Annual Gross Returns
®
Russell 2000 Index
®
Russell 2000 Growth Index
Global Equity Team
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(29.53)%
(18.36) %
(30.08)%
(18.36) %
(36.04)%
(17.32) %
(26.72) %
(28.67)%
(20.44) %
(26.36) %
4.71 %
4.00 %
5.65 %
4.00 %
4.51 %
5.87 %
3.85 %
2.35 %
3.10 %
0.65 %
7.69 %
5.22 %
11.22 %
7.97 %
9.95 %
5.22 %
10.78 %
5.22 %
— %
— %
11.28 %
6.37 %
9.18 %
7.10 %
7.64 %
9.51 %
4.12 %
3.50 %
11.30 %
10.95 %
11.40 %
12.29 %
9.01 %
9.20 %
13.90 %
9.86 %
8.96 %
10.37 %
8.56 %
7.16 %
Our Global Equity team currently manages four investment strategies: Global Equity, Non-U.S. Growth, Non-U.S. Small-Mid Growth and China Post-Venture.
Mark L. Yockey serves as portfolio manager of the Global Equity and Non-U.S. Growth strategies. Charles-Henri Hamker and Andrew J. Euretig are also portfolio
managers of the Global Equity strategy and associate portfolio managers of the Non-U.S. Growth strategy. Rezo Kanovich serves as the sole portfolio manager of the Non-
U.S. Small-Mid Growth strategy. Tiffany Hsiao serves as portfolio manager and Yuanyuan Ji serves as associate portfolio manager of the China Post-Venture strategy.
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Investment Strategy (Composite Inception Date)
Global Equity (April 1, 2010)
Average Annual Gross Returns
®
MSCI ACWI Index
Non-U.S. Growth (January 1, 1996)
Average Annual Gross Returns
®
MSCI EAFE Index
Non-U.S. Small-Mid Growth (January 1, 2019)
Average Annual Gross Returns
MSCI All Country World Index Ex USA Small Mid Cap (Net)
China Post-Venture (April 1, 2021)
Average Annual Gross Returns
MSCI China SMID Cap Index
U.S. Value Team
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(19.79)%
(18.36) %
3.60 %
4.00 %
(18.44)%
(14.45) %
(0.84)%
0.87 %
(23.02)%
(19.49) %
3.10 %
(0.22) %
(27.30)%
(22.17) %
— %
— %
7.69 %
5.22 %
2.83 %
1.54 %
— %
— %
— %
— %
10.41 %
7.97 %
10.97 %
7.55 %
5.66 %
4.67 %
9.07 %
4.45 %
— %
— %
— %
— %
10.96 %
5.00 %
(21.02)%
(20.70) %
Our U.S. Value team manages three investment strategies: Value Equity, U.S. Mid-Cap Value and Value Income. Thomas A. Reynolds, Daniel L. Kane and Craig Inman are
the portfolio managers for the strategies.
Investment Strategy (Composite Inception Date)
Value Equity (July 1, 2005)
Average Annual Gross Returns
®
Russell 1000 Index
®
Russell 1000 Value Index
U.S. Mid-Cap Value (April 1, 1999)
Average Annual Gross Returns
Russell Midcap Index
Russell Midcap Value Index
®
®
1
Value Income (March 1, 2022)
Average Annual Gross Returns
S&P 500 Market Index
1
Periods less than one year are not annualized.
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
8.18 %
7.34 %
5.95 %
6.27 %
5.87 %
5.82 %
— %
— %
7.49 %
9.13 %
6.66 %
5.55 %
7.10 %
5.72 %
— %
— %
10.41 %
12.37 %
10.29 %
9.03 %
10.95 %
10.10 %
8.56 %
9.07 %
7.45 %
11.79 %
9.09 %
9.24 %
— %
— %
(7.74)%
(10.98) %
(8.21)%
(19.13) %
(7.54) %
(12.11)%
(17.32) %
(12.03) %
— %
— %
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International Value Team
Our International Value team, led by N. David Samra manages two investment strategies: International Value and International Explorer (formerly known as International
Small Cap Value). N. David Samra serves as lead portfolio manager of the International Value strategy and managing director of the International Explorer strategy. Ian P.
McGonigle serves as co-portfolio manager of the International Value strategy. Beini Zhou and Anand Vasagiri serve as co-portfolio managers of the International Explorer
strategy.
Investment Strategy (Composite Inception Date)
International Value (July 1, 2002)
Average Annual Gross Returns
®
MSCI EAFE Index
International Explorer (October 1, 2020)
Average Annual Gross Returns
MSCI All Country World Index Ex USA Small Cap (Net)
Global Value Team
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(6.12)%
(14.45) %
6.76 %
0.87 %
5.45 %
1.54 %
8.74 %
4.67 %
11.13 %
5.45 %
(13.21)%
(19.97) %
— %
— %
— %
— %
— %
— %
12.65 %
4.53 %
Our Global Value team, led by Daniel J. O’Keefe manages two investment strategies. Mr. O’Keefe serves as lead portfolio manager and Michael J. McKinnon serves as
portfolio manager of the team’s Global Value and Select Equity strategies.
Investment Strategy (Composite Inception Date)
Global Value (July 1, 2007)
Average Annual Gross Returns
®
MSCI ACWI Index
Select Equity (March 1, 2020)
Average Annual Gross Returns
S&P 500 Index
Sustainable Emerging Markets Team
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(12.69)%
(18.36) %
(15.92)%
(18.11) %
3.22 %
4.00 %
— %
— %
3.95 %
5.22 %
— %
— %
8.80 %
7.97 %
7.61 %
4.79 %
— %
— %
6.78 %
11.45 %
Our Sustainable Emerging Markets team manages one investment strategy. Maria Negrete-Gruson is the portfolio manager of the Sustainable Emerging Markets strategy.
Investment Strategy (Composite Inception Date)
Sustainable Emerging Markets (July 1, 2006)
Average Annual Gross Returns
MSCI Emerging Markets Index
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(27.21)%
(20.09) %
(3.69)%
(2.69) %
(1.33)%
(1.40) %
2.67 %
1.44 %
4.33 %
3.94 %
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Credit Team
Our Credit team manages three investment strategies: High Income, Credit Opportunities and Floating Rate. Bryan C. Krug serves as portfolio manager of the High Income
and Credit Opportunities strategies and lead portfolio manager of the Floating Rate strategy. Seth B. Yeager also serves as portfolio manager of the Floating Rate strategy.
Investment Strategy (Composite Inception Date)
High Income (April 1, 2014)
Average Annual Gross Returns
ICE BofA U.S. High Yield Master II Total Return Index
Credit Opportunities (July 1, 2017)
Average Annual Gross Returns
ICE BofA U.S. High Yield Master II Total Return Index
Floating Rate (January 1, 2022)
Average Annual Gross Returns
Credit Suisse Leveraged Loan Total Return Index
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(9.15)%
(11.22) %
2.62 %
(0.23) %
4.31 %
2.12 %
(3.64)%
1.21 %
12.17 %
0.82 %
10.48 %
1.42 %
(0.80)%
(1.06) %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
5.83 %
3.32 %
10.92 %
1.41 %
(0.80)%
(1.06) %
Developing World Team
Our Developing World team manages one investment strategy. Lewis S. Kaufman is the portfolio manager of the Developing World strategy.
Investment Strategy (Composite Inception Date)
Developing World (July 1, 2015)
Average Annual Gross Returns
MSCI Emerging Markets Index
Antero Peak Group
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(40.56)%
(20.09) %
(0.15)%
(2.69) %
4.06 %
(1.40) %
— %
— %
7.04 %
2.18 %
Antero Peak Group manages two investment strategies: Antero Peak and Antero Peak Hedge. Christopher P. Smith is the portfolio manager of both strategies.
Investment Strategy (Composite Inception Date)
Antero Peak (May 1, 2017)
Average Annual Gross Returns
S&P 500 Index
Antero Peak Hedge (November 1, 2017)
Average Annual Gross Returns
S&P 500 Index
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
(24.90)%
(18.11) %
(22.96)%
(18.11) %
7.13 %
7.65 %
4.24 %
7.65 %
12.96 %
9.42 %
9.92 %
9.42 %
— %
— %
— %
— %
16.58 %
10.74 %
10.27 %
9.98 %
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EMsights Capital Group
EMsights Capital Group manages three investment strategies: Emerging Markets Debt Opportunities, Global Unconstrained and Emerging Markets Local Opportunities.
Michael A. Cirami and Sarah C. Orvin serve as the portfolio managers of each strategy.
Investment Strategy (Composite Inception Date)
1
Global Unconstrained (April 4, 2022)
Average Annual Gross Returns
ICE BofA 3-month Treasury Bill Index
1
Emerging Markets Debt Opportunities (May 1, 2022)
Average Annual Gross Returns
J.P. Morgan EMB Hard Currency/Local currency 50-50
1
Emerging Markets Local Opportunities (August 1, 2022)
Average Annual Gross Returns
J.P. Morgan GBI-EM Global Diversified
1
Periods less than one year are not annualized.
Distribution, Investment Products and Client Relationships
1 Year
3 Years
As of December 31, 2022
5 Years
10 Years
Inception
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
— %
8.40 %
1.42 %
8.28 %
(0.99) %
3.72 %
3.03 %
The goal of our marketing, distribution and client service efforts is to grow and maintain a client base that is diversified by investment strategy, client type, distribution
channel and geographic region. We focus our distribution and marketing efforts on sophisticated investors and asset allocators, including institutions and intermediaries that
operate with institutional-like, centralized decision-making processes and longer-term investment horizons. We have designed our distribution strategies and structured our
distribution teams to use knowledgeable, seasoned marketing and client service professionals in a way intended to limit the time our investment professionals spend on
marketing and client service activities. We believe that minimizing other demands allows our portfolio managers and other investment professionals to focus their energies
and attention on the investment decision-making process, which we believe enhances the opportunity to achieve superior investment returns. Our distribution efforts are
centrally managed by our Head of Global Distribution, who oversees and coordinates the efforts of our marketing and client service professionals.
Institutional Channel
Our institutional distribution channel includes institutional clients, such as U.S.-registered mutual funds, non-U.S. funds and collective investment trusts we sub-advise; state
and local governments; employee benefit plans including Taft-Hartley plans; foundations; and endowments. Our institutional channel also includes assets under management
sourced from defined contribution plans. We offer our investment products to institutional clients directly and by marketing our services to the investment consultants and
advisors that advise them. As of December 31, 2022, approximately 37% of our assets under management were attributed to clients represented by investment consultants.
As of December 31, 2022, 65% of our assets under management were sourced through our institutional channel.
Intermediary Channel
We maintain relationships with a number of major brokerage firms and larger private banks and trust companies at which the process for identifying which funds to offer has
been centralized to a relatively limited number of key decision-makers that exhibit institutional-like decision-making behavior. We also maintain relationships with a number
of financial advisory firms and broker-dealer advisors that offer our investment products to their clients. These advisors range from relatively small firms to large
organizations.
As of December 31, 2022, approximately 31% of our assets under management were sourced through our intermediary channel.
Retail Channel
We primarily access retail investors indirectly through mutual fund supermarkets through which investors have the ability to purchase and redeem fund shares. U.S.
investors can also invest directly in Artisan Funds. Our subsidiary, Artisan Partners Distributors LLC, a registered broker-dealer, distributes shares of Artisan Funds.
Publicity and ratings and rankings from Morningstar, Lipper and others are essential to building the Artisan Partners brand, which is important for attracting retail investors.
As a result, we publicize the ratings and rankings received by Artisan Funds and work to ensure that potential retail investors have appropriate information to evaluate a
potential investment in Artisan Funds. We do not generally use direct marketing campaigns as we believe that their cost outweighs their potential benefits.
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As of December 31, 2022, approximately 4% of our assets under management were sourced from investors we categorize as retail investors.
Access Through a Range of Investment Vehicles
Our clients access our investment strategies through a range of investment vehicles, including separate accounts and pooled vehicles. As of December 31, 2022, Artisan
Funds and Artisan Global Funds accounted for approximately 48% of our total assets under management, and approximately 52% of our assets under management were
managed in separate accounts and other pooled vehicles.
Separate Accounts and Other
We manage traditional separate accounts within most of our investment strategies. As of December 31, 2022, we managed 226 traditional separate accounts spanning 133
client relationships with our largest separate account relationship representing approximately 10% of our assets under management. These separate account clients include
both institutional and intermediary channel relationships, such as pension and profit sharing plans, corporations, trusts, endowments, foundations, charitable organizations,
high net worth individuals, governmental entities, insurance companies, commingled investment vehicles, investment advisers and other financial institutions, trustees of
collective investment trusts and investment companies and similar pooled investment vehicles. The fees we charge on separate accounts vary by client, investment strategy
and the size of the account. Fees are accrued monthly, but generally are paid quarterly in arrears.
A number of our investment strategies are accessible to certain types of employee benefit plans through Artisan-branded collective investment trusts, or CITs. We act as
investment adviser to the CITs and earn a management fee for providing this service. As of December 31, 2022, CITs represented approximately 5% of our assets under
management.
Certain of our investment strategies are primarily offered through Artisan-sponsored unregistered pooled investment vehicles, referred to as Artisan Private Funds. For
serving as investment adviser to Artisan Private Funds, we earn a management fee and, for certain funds, are entitled to receive either an allocation of profits or a
performance-based fee. As of December 31, 2022, Artisan Private Funds comprised approximately 1% of our assets under management.
In our reporting materials, unless otherwise stated, our “separate accounts and other” AUM includes assets we manage in traditional separate accounts, Artisan-branded CITs
and Artisan Private Funds, as well as assets under advisement representing less than 1% of our assets under management, related to clients for whom we provide investment
models but do not have discretionary investment authority.
Artisan Funds and Artisan Global Funds
U.S. investors that do not meet our minimum account size for a separate account, or who otherwise prefer to invest through a mutual fund, can invest in our strategies
through Artisan Funds. We serve as the investment adviser to each series of Artisan Funds, SEC-registered mutual funds that offer no-load, no 12b-1 share classes designed
to meet the needs of a range of investors. Each series of Artisan Funds corresponds to an investment strategy we offer to clients. We earn management fees, which are based
on the average daily net assets of each Artisan Fund and are paid monthly, for serving as investment adviser to these funds. As of December 31, 2022, Artisan Funds
represented approximately 45% of our assets under management.
We also serve as investment manager of Artisan Global Funds, a family of Ireland-based UCITS funds. Artisan Global Funds provides non-U.S. investors with access to a
number of our investment strategies in a pooled vehicle structure. We earn investment management fees, which are based on the average daily net assets of each sub-fund
and are generally paid monthly, for serving as investment adviser to these funds. As of December 31, 2022, Artisan Global Funds represented approximately 3% of our
assets under management.
Regulatory Environment and Compliance
Our business is subject to extensive regulation in the United States at the federal level and, to a lesser extent, the state level, as well as by self-regulatory organizations and
regulators located outside the United States. Under these laws and regulations, agencies that regulate investment advisers, investment funds and other related entities have
broad administrative powers, including the power to limit, restrict or prohibit the regulated entity from conducting business in the event that it fails to comply with such laws
and regulations. Breaches of these laws and regulations could result in regulatory enforcement actions, civil liability, criminal liability and/or the imposition of sanctions,
including monetary damages, injunctions, disgorgements, fines, censures, and the revocation, cancellation, suspension or restriction of licenses, registration status or
approvals held by us or our employees in a jurisdiction or market. In addition, a regulatory proceeding, regardless of whether it results in a sanction, can require substantial
expenditures and can have an adverse effect on our reputation or business.
The domestic, international and extra-territorial laws and regulations that apply to our business relate to a broad range of subjects, including securities, compliance,
corporate governance, financial reporting and disclosure, tax, privacy and data protection, sustainability, information security, anti-bribery and anti-corruption, anti-money
laundering and anti-terrorist financing. These laws and regulations are complex and continue to change and evolve over time. As a result, there is a level of uncertainty
associated with the regulatory environments in which we operate. Accordingly, the discussion below is general in nature, does not purport to be complete and is current only
as of the date of this report.
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Table of Contents
U.S. Regulation
As a publicly traded company, we are subject to U.S. federal securities laws, state securities and corporate laws, and the rules and regulations of U.S. regulatory and self-
regulatory organizations. In particular, we are subject to the Securities Act of 1933, the Securities Exchange Act of 1934 (the “Exchange Act”), the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, the Sarbanes-Oxley Act of 2002 and, because we are listed on the New York Stock Exchange, the NYSE listing rules.
Artisan Partners Limited Partnership and Artisan Partners UK LLP are registered with the SEC as investment advisers under the Investment Advisers Act of 1940 (the
“Advisers Act”), and Artisan Funds and several of the investment companies we sub-advise are registered under the Investment Company Act of 1940 (the “1940 Act”). The
Advisers Act and the 1940 Act, together with other applicable securities laws and the SEC’s regulations and interpretations thereunder, impose substantive and material
restrictions and requirements on the operations of investment advisers and mutual funds. The SEC is authorized to institute proceedings and impose sanctions for violations,
ranging from fines and censures to, in the case of investment advisers, the termination of an adviser’s registration.
Artisan Partners Limited Partnership is registered with the Commodity Futures Trading Commission (“CFTC”) as a commodity pool operator, and is a member of the
National Futures Association (“NFA”), with respect to its management of certain Artisan Funds. The CFTC and NFA each administer a comparable regulatory system
covering futures, swaps and other derivative instruments. As the commodity pool operator of these Funds, Artisan Partners claims relief under the Commodity Exchange Act
from certain reporting and recordkeeping requirements. Artisan Partners Distributors LLC, our SEC-registered limited purpose broker-dealer subsidiary, is subject to the
Exchange Act, the SEC’s rules promulgated thereunder and the rules and regulations of the Financial Industry Regulatory Authority (“FINRA”), which generally relate to
sales practices, registration of personnel, compliance and supervision, and compensation and disclosure. FINRA has the authority to conduct periodic examinations of
member broker-dealers, and may initiate administrative proceedings. Artisan Partners Distributors LLC is also subject to the SEC’s Uniform Net Capital Rule and the
National Securities Clearing Corporation’s excess net capital requirement, which require that at least a minimum part of a registered broker-dealer’s assets be kept in
relatively liquid form.
Artisan Partners Limited Partnership is a fiduciary under the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”) with respect to assets that we
manage for certain benefit plan clients. ERISA imposes duties on persons who are ERISA fiduciaries, and prohibits certain transactions between related parties to a
retirement plan. The U.S. Department of Labor administers ERISA and regulates plan fiduciaries, including investment advisers who service retirement plan clients.
The legislative and regulatory environment in the U.S. is subject to continual change. Political and electoral changes and developments have in the past introduced, and may
in the future introduce, additional uncertainty. New legal or regulatory requirements often add further complexity to our business and operations, and addressing such new
requirements may require substantial expenditures of time and capital. Certain regulatory reforms in the U.S. that have impacted, or may in the future impact, our business
include the following items:
•
•
The SEC has recently proposed and/or adopted a number of new rules impacting registered investment advisers (e.g. private fund advisor rules, ESG disclosure
rules, cybersecurity risk management and disclosure rules, beneficial ownership rules, service provider oversight requirements, amendments to Form PF and
amended advertising rule) and registered investment companies (e.g. ESG disclosure rules, amendments to the names rule, liquidity risk management, reporting
modernization, valuation). In addition, the SEC has proposed and/or adopted a number of rules impacting public companies (e.g. new disclosure requirements on
topics such as climate change, human capital management, cybersecurity risk governance, and executive compensation). These rules impact us and the mutual
funds we manage to varying degrees.
In recent years there has been an increased focus on the protection of customer privacy and data, and the need to secure sensitive information. We are subject to
the California Consumer Privacy Act, which took effect in January 2020, and provides for enhanced consumer protections for California residents. Since then,
California has also adopted the California Privacy Rights Act and several additional states have proposed and/or adopted data privacy laws with which we are or
may be required to comply.
Non-U.S. Regulation
In addition to the extensive regulation we are subject to in the United States, a number of our subsidiaries and certain of our non-U.S. operations are subject to regulation in
non-U.S. jurisdictions. Some laws in non-U.S. jurisdictions are also extra-territorial and may apply to our business.
Artisan Partners UK LLP is authorized and regulated by the U.K. Financial Conduct Authority, which is responsible for the conduct of business and supervision of financial
firms in the United Kingdom. The FCA imposes a comprehensive system of regulation that is primarily principles-based (compared to the primarily rules-based U.S.
regulatory system).
Artisan Partners Europe is authorized and regulated by the Central Bank of Ireland, which regulates our Irish business activities, including our management of Artisan
Global Funds, a family of Ireland-domiciled UCITS funds. Artisan Global Funds are registered for sale in many countries around the world, both in the EU and beyond, and
thus are also subject to the laws of, and supervision by, the governmental authorities of those countries.
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Artisan Partners Hong Kong Limited, our Hong Kong subsidiary, is licensed and regulated by the Hong Kong Securities and Futures Commission (the “SFC”). Artisan
Partners Hong Kong Limited and its employees conducting regulated activities under the Securities and Futures Ordinance are subject to the rules, codes and guidelines
issued by the SFC from time to time.
We have historically operated in Australia on the basis of a “sufficient equivalence relief” exemption from local licensing with the Australian Securities and Investments
Commission. This relief is expiring for foreign financial service providers like us and, as a result, Artisan Partners Limited Partnership or one of its affiliates may need to
apply for and obtain a securities license or a new exemption by April 2024.
Certain Artisan Private Funds are regulated as mutual funds under the Mutual Funds Law (as amended) of the Cayman Islands, and the Cayman Islands Monetary Authority
has supervisory and enforcement powers to ensure the funds’ compliance with the Mutual Funds Law.
Our business is also subject to the rules and regulations of the countries in which we conduct distribution or investment management activities. We have relationships with
clients located outside of the United States, which may be subject to laws and regulations of the jurisdictions in which the client is domiciled. In addition, 47% of our assets
under management were invested in securities denominated in currencies other than the U.S. dollar as of December 31, 2022. Our investments in these non-U.S. securities
may subject us to certain laws and regulations of the jurisdictions in which the issuer resides or is traded. We may also be subject to U.S. laws and regulations with respect to
our distribution or investment management activities in non-U.S. markets, including in jurisdictions that may be considered higher risk.
Regulatory reforms in jurisdictions in which we currently operate or invest and expansion of our business into new international jurisdictions, further complicate our
compliance efforts. Addressing these legal and regulatory matters may require substantial time and expense. Certain non-U.S. regulatory reforms or guidance regarding such
regulations that have impacted, or may in the future impact, our business include the following items:
•
•
Under the Sustainability-Related Finance Disclosure Regulation (“SFDR”) and the EU Taxonomy Regulation, financial services companies operating in the
European Union are required to disclose information on the impact of environmental, social and governance (ESG) effects on their portfolios. Asset managers are
required to categorize their products and show their own processes of ESG integration and the extent to which ESG risks are expected to affect the returns on
products sold. In addition, asset managers are required to annually report certain detailed information depending on the categorization of the product.
The EU’s Markets in Financial Instruments Directive II regulates the use of soft dollars to pay for research and other soft dollar services. MiFID II’s soft dollar
rules do not directly apply to our business because we currently conduct our investment management activities in the United States. However, in response to
MiFID II and the industry-wide changes prompted by it, we have in the past experienced requests from clients to bear research expenses that are currently paid for
using soft dollars. In response to such requests or as a result of changes in our operations, we may eventually bear a significant portion or all of the costs of
research that are currently paid for using soft dollars, which would increase our operating expenses materially.
We may become subject to additional regulatory demands in the future to the extent we expand our business in existing and new jurisdictions. See “Risk Factors—Risks
Related to our Industry—We are subject to extensive, complex and sometimes overlapping rules, regulations and legal interpretations.” and “Risk Factors—Risks Related to
our Industry—The regulatory environment in which we operate is subject to continual change, and regulatory developments may adversely affect our business.”
Competition
The investment management industry is highly competitive. In order to be successful and grow our business, we must be able to compete effectively for assets under
management. We compete to attract clients and investors principally on the basis of:
•
•
•
•
•
•
the performance of our investment strategies
the continuity of our investment and distribution professionals
the quality of the service we provide to our clients
the range of investment strategies and vehicles we offer
our brand recognition and reputation within the investing community
the fees we charge for the investment management services we provide
We compete in all aspects of our business with a large number of investment management firms, commercial banks, broker-dealers, insurance companies and other financial
institutions. For additional information concerning the competitive risks that we face, see “Risks Factors—Risks Related to Our Industry—The investment management
industry is intensely competitive.”
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Human Capital Resources
Since Artisan Partners was founded in 1994, our success as an investment management firm has been predicated on having talented associates throughout the organization in
every role, at every level. We understand that attracting, developing and retaining talented professionals is an essential component of our business strategy. As a result, we
are committed to providing an environment that is attractive to our current and prospective associates and that allows our talented associates to thrive throughout the course
of their careers at Artisan.
As of December 31, 2022, we employed 549 associates. Approximately 29% of our associates work within our investment teams, 25% within our distribution teams and
46% within our business management and operations teams. Approximately 94% of our associates operate from our U.S. offices and 6% operate from our offices outside of
the U.S. As of December 31, 2022, 43% of our U.S. associates were female and 22% of our U.S. associates self-identified as ethnically diverse.
We invest significant energy in the recruitment of our associates as they are critical to ensuring the long-term success of our firm. We strive to recruit and hire outstanding
associates who thrive in broad roles and want the freedom to grow their talents and careers. We are committed to seeking professionals from different backgrounds,
experiences and locations to foster creative thinking and differentiated perspectives that remain a pillar of the firm’s culture. We have built relationships with a variety of
recruitment partners and community organizations to broaden our candidate pools and increase our access to diverse talent.
We actively support associate engagement and development, both formally and informally, and encourage advancement from within the firm. Our tuition reimbursement
program is available to associates who are pursuing applicable undergraduate and graduate degrees or certifications or licenses relevant to the business. Our diversity, equity
and inclusion committee champions our DEI initiatives by bringing together a group of individuals with broad representation across the firm, as well as diverse social,
regional and cultural identities. We also actively support a number of associate-led groups including the Pride Alliance, Multicultural Exchange, diffAbilities and the
Women’s Networking Initiative. These groups create supportive and collaborative networks, encourage engagement and a sense of belonging, and enhance professional and
personal growth. Our support of these and other associate-led programs are part of our ongoing commitment to providing an environment that allows our talented associates
to thrive.
We believe in order to attract and retain talent, it is critical that we continue to foster an engaging environment and provide attractive compensation and benefits programs.
We regularly review compensation paid to associates to ensure it is competitive, equitable and fair for the role, experience, location and individual contribution. We provide
equity or equity-linked incentives to all of our associates in order to align their economic interests with those of our clients and stockholders. We encourage our associates to
save for retirement. In the U.S., we match 100% of associate 401(k) contributions dollar for dollar (fully vested), up to the IRS limit. We also maintain competitive
retirement programs or benefits for all non-U.S. associates. In addition, we offer a comprehensive benefits program that is available to all associates regardless of title, role,
or responsibility.
Sustainability
Artisan Partners' purpose is to generate and compound wealth over the long-term for our clients. The wealth we generate improves retirement outcomes, pays for education,
funds charitable purposes and in general improves people's lives. In addition to generating successful investment outcomes for our clients, we strive to promote success
across a diverse group of associates and generate sustainable financial outcomes for our shareholders.
To achieve our purpose, we must continue to thoughtfully grow our business over the long term while preserving a consistent environment in which our talented investment
professionals and associates can thrive. Maintaining our talent-driven business model and investment-focused culture is critical to providing a stable environment for our
associates, generating sustainable, long-term investment outcomes for clients, and creating long-term successful financial outcomes for shareholders.
To us, sustainability means the following:
•
•
•
•
Building relationships with the right clients, on the right terms and with the right long-term investment horizons. We foster client relationships by prioritizing
investment returns. Prioritizing clients’ investment returns may, at times, require us to limit client cash flows and overall assets managed in a strategy—a practice
we refer to as capacity management.
Using a deliberate process to bring on new investment talent, launch new strategies and build sustainable franchises. We are patient in developing our talent, teams
and strategies. We are comfortable with evolving—and sometimes even disrupting—our firm to increase the probability of long-term successful investment
outcomes through market cycles.
Compelling work in a tailored environment, with long-term opportunities for associates across our firm. Our culture promotes associates’ success—ideally over
their entire careers—with economic alignment in the form of variable compensation and long-duration incentive awards.
Growing our business value while maintaining financial discipline and continuing to generate and distribute significant cash to our shareholders. By taking care of
our people and fulfilling our fiduciary duty to our clients, we create a waterfall effect that helps generate sustainable financial outcomes for our shareholders over
the long term.
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Our Structure
Holding Company Structure
We are a holding company and our assets principally consist of our ownership of partnership units of Artisan Partners Holdings, deferred tax assets and cash. As the sole
general partner of Artisan Partners Holdings, we operate and control all of its business and affairs, subject to certain voting rights of its limited partners. We conduct all of
our business activities through operating subsidiaries of Artisan Partners Holdings. Net profits and net losses are allocated based on the ownership of partnership units of
Artisan Partners Holdings. As of December 31, 2022, we owned approximately 85% of Artisan Partners Holdings, and the other 15% was owned by the limited partners of
Artisan Partners Holdings.
Our holding company structure is predominantly a result of our IPO, which we completed in March 2013. In connection with the IPO, we and Artisan Partners Holdings
completed a series of reorganization transactions, which we refer to as the IPO Reorganization, in order to reorganize our capital structures in preparation for the IPO. The
IPO Reorganization included, among other changes, the following:
•
•
Our appointment as the sole general partner of Artisan Partners Holdings.
The modification of our capital structure into three classes of common stock and a series of convertible preferred stock. We issued shares of our Class B common
stock and Class C common stock and convertible preferred stock to pre-IPO partners of Artisan Partners Holdings. Each share of Class B common stock
corresponds to a Class B common unit of Artisan Partners Holdings. Each share of Class C common stock corresponds to either a Class A, Class D or Class E
common unit of Artisan Partners Holdings. Subject to certain restrictions, each common unit of Artisan Partners Holdings (together with the corresponding share
of Class B or Class C common stock) is exchangeable for a share of our Class A common stock.
•
A corporation (“H&F Corp”) merged with and into Artisan Partners Asset Management, which we refer to in this document as the H&F Corp Merger.
• We entered into two tax receivable agreements (“TRAs”), one with a private equity fund (the “Pre-H&F Corp Merger Shareholder”) and the other with each
limited partner of Artisan Partners Holdings. Pursuant to the first TRA, APAM pays to the assignees of the Pre-H&F Corp Merger Shareholder a portion of certain
tax benefits APAM realizes as a result of the H&F Corp Merger. Pursuant to the second TRA, APAM pays to current or former limited partners of Artisan Partners
Holdings (or their assignees) a portion of certain tax benefits APAM realizes as a result of the purchase or exchange of their limited partnership units of Artisan
Partners Holdings.
The diagram below depicts our organizational structure as of December 31, 2022:
(1)
(2)
Our employees to whom we have granted equity have entered into a stockholders agreement with respect to all shares of our common stock they have acquired
from us and any shares they may acquire from us in the future, pursuant to which they granted an irrevocable voting proxy to a stockholders committee currently
consisting of Eric R. Colson (Chief Executive Officer), Charles J. Daley, Jr. (Chief Financial Officer) and Gregory K. Ramirez (Executive Vice President). The
stockholders committee, by vote of a majority of its members, will determine the vote of all of the shares subject to the stockholders agreement. In addition to
owning all of the shares of our Class B common stock, our employee-partners, together with our other employees, owned unvested restricted shares of our Class A
common stock representing approximately 8% of our outstanding Class A common stock as of December 31, 2022.
Each class of common units generally entitles its holders to the same economic and voting rights in Artisan Partners Holdings as each other class of common
units, except that the Class E common units have no voting rights except as required by law.
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Available Information
Our website address is www.artisanpartners.com. We make available free of charge through our website all of the materials we file with or furnish to the SEC as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not part of, nor is it incorporated by
reference into, this Form 10-K. The company was incorporated in Wisconsin on March 21, 2011 and converted to a Delaware corporation on October 29, 2012.
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Item 1A. Risk Factors
Risks Related to our Business
The loss of key investment professionals or senior members of our distribution and management teams could have a material adverse effect on our business.
Our success depends on our ability to retain the portfolio managers who manage our investment strategies and have been primarily responsible for the historically strong
investment performance we have achieved. The departure of a portfolio manager, even for strategies with multiple portfolio managers, could cause clients to withdraw funds
from the strategy which would reduce our assets under management, investment advisory fees and our net income, and these reductions could be material if our assets under
management in that strategy and the related revenues were material. The departure of a portfolio manager could also cause consultants and intermediaries to stop
recommending a strategy, and clients to refrain from allocating additional funds to a strategy or delay such additional funds until a sufficient new track record has been
established.
In addition to our key investment professionals, we also depend on the contributions of our senior management team led by Eric R. Colson and Jason A. Gottlieb, and our
senior marketing and client service personnel who have direct contact with our institutional clients, consultants, intermediaries and other key individuals within each of our
distribution channels. The loss of any of these key professionals could limit our ability to successfully execute our business strategy or adversely affect our ability to retain
existing and attract new client assets and related revenues.
Any of our key professionals may resign at any time, join our competitors or form a competing company. Although many of our portfolio managers and each of our named
executive officers are subject to post-employment non-compete obligations, these non-competition provisions may not be enforceable or may not be enforceable to their full
extent. In addition, we may agree to waive non-competition provisions or other restrictive covenants applicable to former key professionals in light of the circumstances
surrounding their relationship with us. We do not carry “key man” insurance that would provide us with proceeds in the event of the death or disability of any of our key
professionals.
Changes to our investment environment or compensation structures could cause instability within our investment teams and/or have an adverse effect on the
performance of our investment strategies, our financial results and our ability to grow.
Attracting, developing and retaining talented investment professionals is an essential component of our business strategy. To do so, it is critical that we continue to foster an
environment and provide compensation that is attractive for existing and prospective investment professionals. If we are unsuccessful in maintaining such an environment or
compensation levels or structures, our existing investment professionals may leave our firm or fail to produce their best work on a consistent, long-term basis and/or we may
be unsuccessful in attracting talented new investment professionals, any of which could negatively impact the performance of our investment strategies, our financial results
and our ability to grow.
Over our firm’s history we have sought to successfully design and implement compensation structures that align our investment professionals’ economic interests with those
of our clients, investors and stockholders. We believe such alignment is important to our long-term growth and that objective, predictable, and transparent compensation
structures work best to incentivize investment professionals to perform over the long-term.
With respect to asset-based revenues, we use a single revenue share arrangement across all of our investment teams, pursuant to which each team shares a bonus pool
consisting of 25% of the asset-based revenues earned by the strategies managed by the respective team. The revenue share directly links the majority of the investment
teams’ cash compensation to long-term growth in revenues, which, over the long-term, we believe is primarily linked to investment performance. The asset-based revenue
share is objective, predictable, transparent, and the same for all teams. In addition, each team is entitled to a share of performance-based revenues earned by the strategies
managed by the team. In the future, we expect that performance fees will represent a higher proportion of our total revenues.
Since our IPO, the equity we’ve awarded to our investment professionals has consisted of APAM restricted share-based awards. In general, equity awarded to our
investment professionals consists of a mix of standard restricted shares which vest pro rata over five years from the date of grant, and career or franchise shares that
generally vest on, or 18 months after, a qualified retirement. Franchise shares are further subject to the franchise protection clause, which applies to current or former
portfolio managers and founding investment team members. Pursuant to this clause, the number of shares ultimately vesting may be reduced to the extent that cumulative
net client cash outflows from the award recipient’s investment team during a period beginning on the date of the recipient’s retirement notice exceeds a set threshold.
We also grant franchise capital awards to investment professionals 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 the restricted share-based awards described above. 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.
As we have since our founding, we continue to assess the effectiveness of our compensation arrangements and long-term incentive structures in aligning the long-term
interests of our investment professionals with those of our clients, investors and
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stockholders and whether different, or modified, arrangements or structures would enhance incentives for long-term growth and succession planning.
The implementation of new or modified compensation arrangements or long-term incentive programs could cause instability within our investment teams and/or impact our
ability to attract and retain new investment talent. In addition, any new arrangements or structures could materially impact our financial performance and results (or
expectations about our future financial performance and results), reduce the amount of cash available for dividends and distributions to our stockholders and partners, or
result in dilution to other stockholders.
Poor investment performance could lead to a loss of assets under management which could reduce our revenues and negatively impact our financial condition.
The performance of our investment strategies is critical in retaining existing client assets and in attracting new client assets. Poor performance may cause financial
intermediaries, advisors and consultants to remove our investment products from recommended lists and may result in lower Morningstar and Lipper ratings and rankings.
Our existing clients may decide to withdraw funds from, or refrain from allocating additional funds to, our investment strategies or to end their relationships with us entirely.
In addition, our ability to attract new client assets could also be adversely affected. A decrease in the value of our assets under management as a result of poor performance
would have an adverse impact on our revenues, as nearly all of the investment management fees we earn are based on a specified percentage of clients’ average assets under
management. Poor performance would also adversely affect the portion of our revenues attributed to performance-based fees.
Our investment strategies can perform poorly for a number of reasons, including general market conditions; investor sentiment about market and economic conditions;
investment styles and philosophies; investment decisions; the performance of the companies in which our investment strategies invest and the currencies in which those
investments are made; the liquidity of securities or instruments in which our investment strategies invest; our inability to identify sufficient appropriate investment
opportunities for existing and new client assets on a timely basis; and our inability to retain key investment professionals and other personnel. In addition, while we seek to
deliver long-term value to our clients, volatility may lead to underperformance in the near term, which could adversely affect our results of operations.
Moreover, when our strategies experience strong results relative to the market, clients’ allocations to our strategies typically increase relative to their other investments and
we sometimes experience withdrawals as our clients rebalance their investments to fit their asset allocation preferences despite our strong results.
While clients do not have legal recourse against us solely on the basis of poor investment results, if our investment strategies perform poorly, we are more likely to become
subject to litigation brought by dissatisfied clients. In addition, to the extent clients are successful in claiming that their losses resulted from fraud, negligence, willful
misconduct, breach of contract or similar misconduct, these clients may have remedies against us, the mutual funds and other funds we advise and/or our investment
professionals under various U.S. and non-U.S. laws.
Difficult market conditions adversely affect our business in many ways, including by reducing the value of our assets under management and causing clients to
withdraw funds, each of which could materially reduce our revenues and impact our financial condition.
Financial markets have experienced, and may continue to experience, volatility and disruption amid continued concerns about elevated inflation, interest rate increases,
prolonged effects of the war in Ukraine, concerns about the risk of a recession and other global economic conditions. This continued volatility and uncertainty in global
financial markets has impacted the value of our assets under management. Because the revenue we earn is based on the value of our assets under management, fluctuations
in our assets under management will result in corresponding fluctuations in our revenues and earnings. Difficult market conditions may cause investors in the mutual funds
we advise to redeem their investments in those funds which they can do at any time and without prior notice. Our separate account clients may also reduce the aggregate
amount of assets under management with us with minimal or no notice for any reason, including due to declining financial market conditions. In addition, the prices of the
securities held in the portfolios we manage may decline for any number of reasons beyond our control, including, among others, a declining market, general economic
downturn or recession, political uncertainty, inflation rates, natural disasters, war, acts of terrorism, or other unpredictable events such as a global pandemic.
In connection with the severe market dislocations of 2008 and 2009, for example, the value of our assets under management declined substantially due primarily to the
sizable decline in stock prices worldwide. In the period from June 30, 2008 through March 31, 2009, our assets under management decreased by approximately 43%,
primarily as a result of general market conditions. During the first quarter of 2020, AUM levels decreased by approximately 24% from February 19, 2020 to March 31,
2020, as a result of sharp global equity market declines related to the COVID-19 pandemic, the unknown long-term effects of which continue to cause uncertainty in the
markets. More recently, over the course of 2022, our assets declined by approximately 27%, as persistent inflation and efforts by central banks to combat that inflation
through increasing interest rates, and the Russian invasion of Ukraine caused widespread turmoil in global financial markets.
The fees we earn under our investment management agreements are typically based on the market value of our assets under management, and to a much lesser extent based
directly on investment performance. Difficult market conditions have led, and may continue to lead, to a decline in our assets under management, thereby resulting in a
decline in our investment advisory fees. If our revenues decline without a commensurate reduction in our expenses, our net income will be reduced.
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Our efforts to establish and develop new teams and strategies may face challenges or ultimately be unsuccessful, which could impact our results of operations, our
reputation and culture.
We seek to recruit new investment teams that manage high value-added investment strategies and would allow us to grow strategically. We also look to develop new,
differentiated strategies managed by our existing teams. We expect the costs associated with establishing a new team or strategy to initially exceed the revenues generated,
which will negatively impact our results of operations. New strategies, whether managed by a new team or by an existing team may make investments or present
operational, legal, regulatory, or distribution-related issues and risks which we have not yet encountered. The incorporation of new teams, strategies and types of investments
could strain our resources and increase the likelihood of an error or failure, a risk which could be exacerbated by the increasingly specialized nature of newer investment
teams and strategies. The establishment of new teams or strategies (in particular, alternative investment teams or strategies) may also cause us to depart from our traditional
compensation and economic model, which could reduce our profitability and harm our firm’s culture.
Historical returns of our existing investment strategies will not be indicative of the investment performance of any new strategy and new strategies may have higher
performance expectations that are more difficult to meet. Poor performance of any new strategy could negatively impact our reputation and the reputation of our other
investment strategies.
We generally support the development of new strategies by making one or more seed investments using capital that would otherwise be available for our general corporate
purposes. Making such seed investments exposes us to capital losses and reduces the amount of capital available for other purposes.
Failure to properly address conflicts of interest could harm our reputation or cause clients to withdraw funds, each of which could adversely affect our business and
results of operations.
The SEC and other regulators have continued to focus on potential conflicts of interest and our fiduciary duties as an adviser. We have implemented procedures and controls
that we believe are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal
appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our results of
operations.
As we expand the scope of our business and our client base, we must continue to monitor and address any conflicts between the interests of our stockholders and those of
our clients. Our clients may withdraw funds if they perceive conflicts of interest between the investment decisions we make for strategies in which they have invested and
our obligations to our stockholders. For example, we may limit the growth of assets in or close strategies when we believe it is in the best interest of our clients even though
our assets under management and investment advisory fees may be negatively impacted in the short term. Similarly, we may establish new investment teams or strategies or
expand operations into other geographic areas if we believe such actions are in the best interest of our clients, even though our profitability may be adversely affected in the
short term. Although we believe such actions enable us to retain client assets and maintain our profitability, which benefits both our clients and stockholders, if clients
perceive a change in our investment or operations decisions in favor of a strategy to maximize short term results, they may withdraw funds, which could reduce our revenue
and impact our financial condition.
Several of our investment strategies invest principally in the securities of non-U.S. companies, which involve foreign currency exchange, tax, political, social and
economic uncertainties and risks.
As of December 31, 2022, approximately 53% of our assets under management were invested in strategies that primarily invest in securities of non-U.S. companies. Some
of our other strategies also invest on a more limited basis in securities of non-U.S. companies. Approximately 47% of our assets under management were invested in
securities denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency exchange rates could negatively affect the returns of our clients who are
invested in these strategies. In addition, an increase in the value of the U.S. dollar relative to non-U.S. currencies is likely to result in a decrease in the U.S. dollar value of
our assets under management, which, in turn, would likely result in lower revenue and profits. See “Qualitative and Quantitative Disclosures Regarding Market Risk-
Exchange Rate Risk” in Item 7A of this report for more information about exchange rate risk.
Investments in non-U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic
uncertainty. Declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors, which could adversely affect
clients’ interests in investing outside their home markets. Many financial markets are not as developed, or as efficient, as the U.S. financial markets and, as a result, those
markets may have limited liquidity and higher price volatility, and may lack established regulations.
Liquidity may also be adversely affected by political or economic events, government policies, and social or civil unrest within a particular country. For example, in
response to Russia’s invasion of Ukraine, the U.S. and other countries imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking
entities and corporations, which has impacted liquidity of Russian holdings. Our ability to dispose of an investment may be adversely affected if we increase the size of our
holdings in smaller non-U.S. issuers. Non-U.S. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there
may be less publicly available information about such companies. These risks could adversely affect the performance of our strategies that are invested in securities of non-
U.S. issuers and may be particularly acute in the emerging or less developed markets in which we invest. In addition to our Sustainable Emerging Markets and Developing
World
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strategies, and the strategies managed by the EMsights Capital Group, several of our other investment strategies are permitted to invest, and do invest, in emerging or less
developed markets to a more limited extent.
We may not be able to maintain our current fee rates as a result of poor investment performance, competitive pressures, as a result of changes in our business mix or for
other reasons, which could have a material adverse effect on our profit margins and results of operations.
We may not be able to maintain our current fee rates for any number of reasons, including as a result of poor investment performance, competitive pressures, changes in
global markets and asset classes, or as a result of changes in our business mix. Although our investment management fees vary by client and investment strategy, we
historically have been successful in maintaining an attractive overall rate of fee and profit margin due to the strength of our investment performance and our focus on high
value-added investment strategies. In recent years, however, there has been a general trend toward lower fees in the investment management industry as a result of
competition and regulatory and legal pressures. In order to maintain our fee structure in a competitive environment, we must retain the ability to decline additional assets to
manage from potential clients who demand lower fees even though our revenues may be adversely affected in the short term. In addition, we must be able to continue to
provide clients with investment returns and service that our clients believe justify our fees.
From time to time we offer lower fees in order to retain current, and attract additional, assets to manage. We also make fee concessions in certain circumstances, for example
in order to attract early investors in a new strategy or increase marketing momentum in a strategy. Downward pressure on fees may also result from the growth and evolution
of the universe of potential investments in a market or asset class. Changes in how clients choose to access asset management services may also exert downward pressure on
fees. Some investment consultants, for example, have implemented programs in which the consultant provides a range of services, including selection, in a fiduciary
capacity, of asset managers to serve as sub-adviser at lower fee rates than the manager’s otherwise applicable rates, with the expectation of a larger amount of assets under
management through that consultant. The expansion of those and similar programs could, over time, make it more difficult for us to maintain our fee rates. In addition, from
time to time, plan sponsors of 401(k) and other defined contribution assets that we manage choose to invest plan assets in vehicles with lower cost structures than mutual
funds (such as a collective investment trust) or may choose to access our services through a separate account. We provide fewer services to collective investment trusts and
separate accounts than we provide to Artisan Funds and we receive fees at lower rates.
The investment management agreements pursuant to which we advise mutual funds are subject to an annual process of review and renewal by the funds’ boards. As part of
that process, the fund board considers, among other things, the level of compensation that the fund has been paying us for our services. That process may result in the
renegotiation of our fee structure or an increase in the cost of the performance of our obligations. Any fee reductions on existing or future new business would have an
adverse effect on our profit margins and results of operations.
We derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice.
We derive substantially all of our revenues from investment advisory and sub-advisory agreements, all of which are terminable by clients upon short or no notice. Our
investment management agreements with mutual funds, as required by law, are generally terminable by the funds’ boards or a vote of a majority of the funds’ outstanding
voting securities on not more than 60 days’ written notice. After an initial term, each fund’s investment management agreement must be renewed annually by that fund’s
board, including by its independent members. In addition, all of our separate accounts and some of the mutual funds that we sub-advise have the ability to re-allocate all or
any portion of the assets that we manage away from us at any time with little or no notice. The decrease in revenues that could result from the termination of a material
client relationship or the re-allocation of assets away from us could have a material adverse effect on our business.
Investors in many of the pooled vehicles we advise can redeem their investments in those funds at any time without prior notice or with fairly limited notice, which
would reduce our assets under management and could adversely affect our earnings.
Investors in the mutual funds, UCITS funds, and some other pooled investment vehicles that we advise may redeem their investments in those funds at any time without
prior notice. Investors in certain other pooled vehicles may redeem their investments with fairly limited prior notice. These investors may redeem for any number of reasons,
including general financial market conditions, the absolute or relative investment performance we have achieved, or their own financial condition and requirements. In a
declining stock market, the pace of redemptions could accelerate. These redemptions would reduce our assets under management and adversely affect our revenues.
We depend on third parties to market our investment strategies.
Our ability to attract additional assets to manage is highly dependent on our access to third-party intermediaries. We gain access to investors primarily through consultants,
401(k) platforms, mutual fund platforms, broker-dealers and financial advisors through which shares of the funds are sold. We have relationships with some third-party
intermediaries through which we access clients in multiple distribution channels. Our two largest intermediary relationships across multiple distribution channels represented
approximately 9% and 7% of our total assets under management as of December 31, 2022.
We compensate most of the intermediaries through which we gain access to investors in Artisan Funds by paying fees, most of which are a percentage of assets invested in
Artisan Funds through that intermediary and with respect to which that intermediary
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provides shareholder and administrative services. The allocation of such fees between us and Artisan Funds is determined by the Artisan Funds’ board, based on information
and a recommendation from us, with the goal of allocating to us, at a minimum, all costs attributable to marketing and distribution of shares of Artisan Funds. In the future,
our expenses in connection with those intermediary relationships could increase if the portion of those fees determined to be in connection with marketing and distribution,
or otherwise allocated to us or payable by us, increased.
Industry pressure to increase transparency and reduce or eliminate inducements for distribution has impacted intermediaries’ business models and the manner in which they
charge fees. If intermediaries continue to see reduced revenue from funds, we may see additional requests from intermediaries for alternative forms of compensation. To
date, requests for such alternative forms of compensation have not had a material impact on us, but they could over time. Clients of these intermediaries may not continue to
be accessible to us on terms we consider commercially reasonable, or at all. The absence of such access could have a material adverse effect on our results of operations.
We access institutional clients primarily through consultants upon whose referrals our institutional business is highly dependent. These consultants review and evaluate our
products and our firm from time to time. As of December 31, 2022, the investment consultant advising the largest portion of our assets under management represented
approximately 5% of our total assets under management. Poor reviews or evaluations of us or a particular strategy may result in client withdrawals or may impair our ability
to attract new assets through these consultants.
The majority of our existing assets under management are managed in primarily long-only, equity investment strategies, which exposes us to greater risk than certain of
our competitors who may manage assets in more diverse strategies.
19 of our 25 investment strategies, which accounted for $120.7 billion of our $127.9 billion in assets under management as of December 31, 2022, invest primarily in
publicly-traded equity securities. Under market conditions in which there is a general decline in the value of equity securities, the assets under management in each of these
strategies is likely to decline. Although certain strategies can take short positions in equity securities, which could offset some of the poor performance of our long-only
equity strategies under such market conditions, assets in those strategies did not account for a meaningful portion of our total assets under management as of December 31,
2022. Even if our investment performance remains strong during such market conditions relative to other long-only, equity strategies, investors may choose to withdraw
assets from our management or allocate a larger portion of their assets to non-long-only or non-equity strategies. In addition, the prices of equity securities may fluctuate
more widely than the prices of other types of securities, making the level of our assets under management and related revenues more volatile.
Our failure to comply with clients’ investment guidelines and applicable legal limitations could result in damage awards against us and a loss of assets under
management, either of which could adversely affect our financial condition.
When clients retain us to manage assets on their behalf, they generally specify certain investment guidelines that we are required to follow in managing their portfolios. In
addition, some of our clients are subject to laws that impose restrictions and limitations on the investment of their assets. For example, U.S. mutual fund assets that we
manage must be invested in accordance with limitations under the 1940 Act and applicable provisions of the Internal Revenue Code of 1986, as amended. Our failure to
comply with any of these guidelines and other limitations could result in losses to clients or fund investors which, depending on the circumstances, could result in our
obligation to reimburse clients or fund investors for such losses. If we believed that the circumstances did not justify a reimbursement, or clients and investors believed the
reimbursement we offered was insufficient, they could seek to recover damages from us or could withdraw assets from our management or terminate their investment
management agreement with us. Any of these events could harm our reputation and adversely affect our business.
Operational risks may disrupt our business, result in losses, damage our reputation or limit our growth.
We are heavily dependent on the capacity and reliability of the communications and information technology systems supporting our operations, whether developed, owned
and operated by us or by third parties. We also rely on manual workflows and a variety of manual user controls. As our clients, physical locations and investment teams and
strategies increase in number and grow in complexity, and as our employees become increasingly mobile, developing and maintaining the systems supporting our operations
becomes increasingly challenging. Moreover, the introduction of new technologies presents new challenges and introduces operational and legal risks. Any changes,
upgrades or expansions to our systems to support increased volumes or complexity of transactions or to otherwise support growth of the business may require significant
expenditures and may increase the probability that we will experience operational errors. Operational risks such as trading or other operational errors or interruption or
failure of our financial, accounting, trading, compliance and other data processing systems, whether caused by human error, power or telecommunications failure, cyber-
attack, ransomware or viruses, increased severity of weather events, natural disaster, fire, act of terrorism or war, pandemics or other unpredictable events, could result in a
disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus adversely affect our business. In addition, since implementing broad
remote-work measures during the pandemic, we have an increased dependency on remote equipment and connectivity infrastructure to access critical business systems that
may be subject to failure, disruption, or unavailability that could negatively impact our business operations. The potential for some types of operational risks, including
trading errors, may increase in periods of increased volatility, which can magnify the cost of an error. We have back-up systems and a business continuity plan in place,
however, these arrangements may not be adequate in the event of a significant interruption or failure of the systems or operations that are critical to our business, however
caused. Although we have not suffered material operational
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errors, including material trading errors, in the past, we may experience such errors in the future, the losses related to which we would absorb. Insurance and other
safeguards might not be available or might only partially reimburse us for our losses.
We rely on a number of key vendors for trading, middle- and back-office functions, various fund administration, accounting, custody and transfer agent roles and other
operational needs. These key vendors may themselves rely on third party service providers to support their own operations. The failure of any key vendor, or of any service
provider to a key vendor, to fulfill its obligations could cause operational issues that could lead to legal liability, regulatory issues, reputational harm and financial losses.
Many of the key service providers and vendors upon which we rely operate in a remote or hybrid environment, which subjects both us and third-party service providers and
key vendors to risk of operational issues and interruptions as well as to a heightened risk of cyberattacks or other privacy or data security incidents. We and our service
providers are also subject to the risk that employees or contractors, or other third parties, may deliberately seek to circumvent established controls to commit fraud or act in
ways that are inconsistent with our or their controls, policies, and procedures, and which may be harder to monitor in remote working environments. The financial and
reputational impact of control failures can be significant. Moreover, as we grow our operations in new geographic regions, the potential for particular types of political,
economic or infrastructure instabilities, information, technology or security limitations or breaches, or other country- or region-specific business continuity risks increases.
Any significant limitation, failure or security breach of the information security infrastructure, software applications, or other systems that are critical to our operations
could disrupt our business, damage our reputation, and result in regulatory penalties or other additional costs to us.
We are heavily reliant upon internal and third party technology systems, networks and applications to view, process, transmit and store information, including sensitive client
and proprietary information, and to conduct many of our business activities and transactions with our clients, vendors and other third parties. In addition, in recent years we
have increased our use of and reliance on mobile, remote work and cloud technologies. Maintaining the integrity of these systems, networks and technologies is critical to
the success of our business operations. We rely on our (and our vendors’) information and cybersecurity infrastructure, policies, procedures and capabilities to protect these
systems, networks and applications and the data that reside on or are transmitted through them.
To date, we have not experienced any known material breaches of or interference with our systems, networks or applications or of those of our vendors. However, we
routinely encounter and address such threats, and the number and frequency of potential threats or security incidents experienced by us or our vendors has increased in
recent years due to, among other factors, an increase in the number of security vulnerabilities, more sophisticated and automated attacks, proliferation of cloud-based
solutions, increased operations in China and Hong Kong and the increase in remote work. Our experiences with and preparation for cybersecurity and other technology
threats have included phishing scams, introductions of malware, attempts at electronic break-ins, ransomware and unauthorized payment requests. Any such breaches or
interference that may occur in the future could have a material adverse impact on our business, financial condition or results of operations.
Despite the measures we have taken and may in the future take to address and mitigate cybersecurity and other technology risks, we cannot guarantee that our systems,
networks and applications, and those of third parties on whom we rely, will not be subject to disruptions, system failures or outages, unauthorized access, ransomware,
breaches or other interference.
Cybersecurity and information security events may result in operational disruptions as well as unauthorized access to or the disclosure, corruption or loss of our proprietary
information or our clients’ or employees’ information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs
to eliminate or mitigate further exposure, the loss of clients or other damage to our business. In addition, any required public notification of such incidents could exacerbate
the harm to our business, financial condition or results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data,
we may incur significant expense in connection with our response to any such attacks and the adoption and maintenance of additional appropriate security measures. We
cannot be certain that future advances in criminal capabilities, the discovery of new vulnerabilities or other developments will not compromise or breach the security
measures protecting the networks, systems and applications we use.
Our newest investment strategies and strategies we may establish in the future present certain investment, operational, distribution and other risks that are different in
kind and/or degree from those presented by our earlier investment strategies and dealing with those risks could place additional demands on our existing operational
infrastructure and employees.
Our newest investment strategies have the ability to make investments that present different risks and/or degrees of risk than our other strategies, which invest primarily in
publicly traded equity securities. For example, several of our newest strategies invest in securities that are not publicly traded. We may be prohibited from selling these
investments for a period of time and generally will be unable to sell these securities publicly unless their sale is registered under applicable securities law or unless an
exemption from such registration is available. Illiquid securities are more difficult to value and dispose of when desired and, under certain circumstances, may make it more
difficult to manage investors’ redemption requests. Our newer strategies, and strategies we may offer in the future, may also invest in certain instruments (such as derivative
securities) and engage in activities (such as shorting and use of leverage) the complexity of which may place additional demands on our existing operational infrastructure
and our existing employees, and increase the risk of operational errors. Any such errors could damage our reputation or result in regulatory scrutiny or legal liability. And
any real or perceived problems could cause a disproportionate negative impact on our business and reputation.
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Several of our newest investment strategies are primarily offered through private funds, which present operational, regulatory and distribution-related risks that are different
than those associated with the mutual funds and traditional separate accounts through which we offer our earlier investment strategies. In the future, we expect to offer new
investment strategies through different types of fund structures which could present different types of operational, regulatory and distribution-related risks with which we
have little to no experience. The complexity of these vehicles could strain our resources and increase the likelihood of real or perceived problems, which could damage our
reputation or result in regulatory scrutiny or legal liability.
Offering private funds also poses risks associated with side by side management and the potential for real or perceived conflicts of interest, which, if not managed correctly,
could cause reputational harm, regulatory scrutiny or litigation. Although we have established policies and procedures to manage potential conflicts of interest, we are
unable to completely eliminate these risks.
Several of our newer investment strategies and vehicles, and strategies and vehicles that we may establish in the future, have more limited capacity than our earlier large
capacity investment strategies. Despite the limited capacity, these newer strategies with broader degrees of freedom may require increased access to specialized technology,
market data with advanced data analytic capabilities, and operational resources, including bespoke operational solutions and third-party service providers as well as
operational, distribution and other personnel with specialized talent to align with the increasing complexity of the investment strategies. In addition to the risk that our newer
investment teams, strategies or vehicles may not experience the requisite growth to compensate for these increased operational support costs, requests for resources that are
disproportionate to the size of the investment team may put pressure on our resource allocation model and cause friction and instability among the teams. Friction among
investment teams may also occur if these newer strategies with broader degrees of freedom take action or make investments that ultimately impact the ability of our other
investment teams to invest in a manner consistent with their philosophy and process. Friction and distraction within our investment teams may cause our existing investment
professionals to leave our firm or fail to produce their best work on a consistent, long-term basis and/or we may be unsuccessful in attracting talented new investment
professionals, any of which could negatively impact the performance of our investment strategies, our financial results and our ability to grow.
Employee misconduct, or perceived misconduct, could expose us to significant legal liability and/or reputational harm.
We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our clients are of critical importance. Our employees, or
third parties with whom we are affiliated, could engage in misconduct, or perceived misconduct, that adversely affects our business. It is not always possible to deter
employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Misconduct or perceived misconduct by our employees, or
even unsubstantiated allegations of such conduct, could cause serious damage to our reputation, resulting in the loss of clients and an adverse effect on our revenues.
Employee misconduct could also subject us to regulatory scrutiny and legal liability.
If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.
In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and mitigate
our exposure to operational, legal and reputational risks. Our risk management methods may prove to be ineffective due to their design or implementation, or as a result of a
lack of adequate, accurate or timely information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect
on our operating results or financial condition. Additionally, we could be subject to litigation, particularly from our clients or investors, and sanctions or fines from
regulators.
We may, from time to time, strategically manage our exposure to market, interest or exchange rate risks on our own behalf or on behalf of our clients. However, because our
clients invest in our investment strategies in order to gain exposure to the portfolio securities of the respective strategies, we have not adopted corporate-level risk
management policies to manage market, interest rate, or exchange rate risks that would affect the value of our overall assets under management.
Our indebtedness may expose us to material risks.
We have indebtedness outstanding in the amount of $200 million in unsecured notes, which exposes us to risks associated with the use of leverage. In addition, we maintain
a $100 million revolving credit agreement, though no amounts are outstanding as of the date of this filing. Our indebtedness may make it more difficult for us to withstand
or respond to adverse or changing business, regulatory and economic conditions or to take advantage of new business opportunities or make necessary capital expenditures.
To the extent we service our debt from our cash flow, such cash will not be available for our operations or other purposes. Because our debt service obligations are fixed, the
portion of our cash flow used to service those obligations could become substantial if our revenues decline significantly, whether because of market declines or other
reasons.
Our Series D, Series E and Series F notes bear interest at a rate equal to 4.29%, 4.53%, and 3.10% per annum, respectively. The interest rate on each of the notes is subject
to a 100 basis point increase in the event Holdings receives a below-investment grade rating. Each series requires a balloon payment at maturity. Any substantial decrease in
net operating cash flows or substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations. Our
ability to repay the principal amount of our notes or any outstanding loans under our revolving credit agreement, to refinance our debt or to obtain additional financing
through debt or the sale of additional equity securities will depend on our performance, as well as financial, business and other general economic factors affecting the credit
and equity markets generally or our business in particular, many of which are beyond our control. Any such alternatives may not be available to us on satisfactory terms or at
all.
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Our note purchase agreements and revolving credit agreement contain, and our future indebtedness may contain, various covenants that may limit our business
activities.
Our note purchase agreements and revolving credit agreement contain financial and operating covenants that limit our business activities, including restrictions on our
ability to incur additional indebtedness and pay dividends to our stockholders. The agreements also restrict Holdings from making distributions to its partners (including us),
other than tax distributions or distributions to fund our ordinary expenses, if a default (as defined in the respective agreements) has occurred and is continuing or would
result from such a distribution. In addition, if our average assets under management for a fiscal quarter falls below $45 billion, Holdings will generally be required to offer to
pre-pay the unsecured notes. Failure to comply with any of these restrictions could result in an event of default, giving our lenders the ability to accelerate repayment of our
obligations. As of December 31, 2022, we believe we are in compliance with all of the covenants set forth in the agreements.
We provide a range of services to Artisan Funds, Artisan Global Funds, Artisan Private Funds and sub-advised funds which may expose us to liability.
We provide a broad range of administrative services to Artisan Funds, including providing personnel to serve as directors and officers of Artisan Funds and to serve on the
valuation and liquidity committee of Artisan Funds. We prepare or supervise the preparation of Artisan Funds’ regulatory filings and financial statements, and manage
compliance and regulatory matters. We provide shareholder services, accounting services including the supervision of the activities of Artisan Funds’ accounting services
provider in the calculation of the funds’ net asset values, and tax services including calculation of dividend and distribution amounts. We also coordinate the audits of
financial statements and supervise tax return preparation. Although less extensive than the range of services we provide to Artisan Funds, we provide a range of similar
services to Artisan Global Funds and Artisan Private Funds. In addition, from time to time we provide information to other funds we advise (or to an entity providing
services to such a fund) which may be used by those funds in their efforts to comply with various regulatory requirements.
The services we provide to Artisan Funds, Artisan Global Funds, Artisan Private Funds, and other funds we advise may expose us to liability. For example, if we make a
mistake in the provision of such services, a fund could incur costs for which we might be liable. If it were determined that a fund failed to comply with applicable regulatory
requirements as a result of our action or our employees’ failure to act, we could be responsible for losses suffered or penalties imposed. In addition, we could have penalties
imposed on us, be required to pay fines or be subject to private litigation, any of which could decrease our future income or negatively affect our current business or our
future growth prospects.
The expansion of our business inside and outside of the United States raises tax and regulatory risks, may adversely affect our profit margins and places additional
demands on our resources and employees.
We continue to expand our distribution efforts into non-U.S. markets. The number of client relationships outside the U.S. has grown from 32 as of December 31, 2012 to 226
as of December 31, 2022. Costs related to our distribution efforts in non-U.S. markets have often been more expensive than comparable costs in the U.S. and our non-U.S.
clients may be accustomed to certain practices that differ from and may conflict with practices that are customary in the U.S. For example, the use of soft dollars for research
products and services are generally accepted in the U.S. However, other jurisdictions (for example, the European Union) have requirements that limit or prohibit the use of
soft dollars for research products and services. Such conflicting practices add complexity, costs and risk to our non-U.S. client relationships.
While a majority of our operations take place in the U.S., we do maintain offices in a number of other countries including the U.K., Ireland, Singapore, Australia and Hong
Kong. Operating our business in non-U.S. markets is generally more expensive than in the U.S. Among other expenses, the effective tax rates applicable to our income
allocated to some non-U.S. markets may be higher than the effective rates applicable to our income allocated to the U.S. To the extent that our revenues do not increase to
the same degree our expenses increase in connection with our continuing expansion outside the U.S., our profitability could be adversely affected. Expanding our business
into new markets may also place significant demands on our existing operational infrastructure and on our existing employees.
Regulators in non-U.S. jurisdictions in which we currently operate could change their laws or regulations, or change the way they interpret existing laws and regulations, in
a manner that might restrict or otherwise impede our ability to operate in their respective markets. Any such changes could increase the costs we incur in a specific
jurisdiction without any corresponding increase in revenues and income from operating in the jurisdiction. For example, in response to Brexit, we established an Irish
subsidiary regulated by the Central Bank of Ireland to carry out distribution efforts in the EU. Brexit added complexity to our global operations, imposed additional risks and
resulted in additional legal and compliance costs, without an increase in revenues to offset those costs. Despite those increased costs, we do not currently expect Brexit to
have a material impact on our business.
Our employees routinely travel inside and outside the U.S. as a part of our investment research process, to market our services and to supervise and manage our business.
Their activities in the jurisdictions they travel to on our behalf may raise both tax and regulatory issues. If and to the extent we are incorrect in our analysis of the
applicability or impact of these tax or regulatory requirements, we could incur costs, penalties or be the subject of an enforcement or other action.
Changes in tax laws or exposure to additional tax liabilities could have a material impact on our financial condition, results of operations and liquidity.
We are subject to income taxes, as well as non-income based taxes, in both the U.S. and various foreign jurisdictions at the
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federal, state and local levels of government. We cannot predict future changes in the tax laws, regulations, administrative guidance or judicial decisions to which we are
subject or that could apply to our business. Any such changes could have a material impact on our tax liability, materially impact our effective tax rate, result in additional
tax reporting obligations, or result in increased costs associated with our tax compliance efforts.
From time to time, we are subject to income and non-income based tax audits in the jurisdictions in which we operate. The calculation of our tax liabilities involves dealing
with uncertainties in the application of complex tax rules and regulations in a number of jurisdictions. From time to time, tax authorities have disagreed with certain
positions we have taken which has resulted in additional taxes and, in certain cases interest payments. In the future, such instances may result in additional taxes, interest,
fines and penalties becoming due. We evaluate whether to record tax liabilities for possible tax audit issues based on our estimate of whether, and the extent to which,
additional income taxes will be due. We adjust these liabilities in light of changing facts and circumstances as well as consult with our outside tax advisors. However, due to
the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our estimates.
Risks Related to our Industry
We are subject to extensive, complex and sometimes overlapping laws, rules and regulations.
The industry in which we operate is subject to extensive and frequently changing regulation. Political and electoral changes and developments have in the past introduced,
and may in the future introduce, additional uncertainty. We are subject to extensive regulation in the United States, primarily at the federal level, including regulation by the
SEC, the U.S. Department of Labor, the Financial Industry Regulatory Authority, and the Commodity Futures Trading Commission. Our business is also subject to the laws
and regulations of the various countries in which we conduct distribution or investment management activities. For a more extensive discussion of certain laws and
regulations to which we are subject, see “Item 1—Business—Regulatory Environment and Compliance” in Part I of this report.
As a result of the extensive and complex regulatory environment in which we operate, we face risk of regulatory actions and litigation, which could consume substantial
expenditures of time and capital. Our regulatory and compliance obligations impose significant operational and cost burdens on us and cover a broad range of topics
including, investment advisory matters, securities and other financial instruments, financial reporting and other disclosure matters, sustainability, accounting, tax, data
protection, and privacy. As our business expands into new geographic regions and introduces new investment products with expanded degrees of freedom, the regulatory
requirements to which we are subject will increase in number. While we have focused significant attention and resources on the development and maintenance of
compliance policies, procedures and practices, any inadvertent non-compliance with applicable laws, rules or regulations, either in the U.S. or abroad, could result in various
legal proceedings, including civil litigation and regulatory investigations and enforcement actions that could result in fines, suspensions of individual employees, or
limitations on particular business activities, any of which could have an adverse impact on our reputation and business.
We carry insurance in amounts and under terms that we believe are appropriate. Our insurance does not cover all liabilities and losses to which we may be exposed. Certain
insurance coverage may not be available or may be prohibitively expensive in future periods. As our insurance policies come up for renewal, we may need to assume higher
deductibles or pay higher premiums, which could have an adverse impact on our results of operations and financial condition.
The regulatory environment in which we operate is subject to continual change, and regulatory developments may adversely affect our business.
We operate in a legislative and regulatory environment that is subject to continual change, the nature of which we cannot predict. The laws and regulations applicable to our
business generally involve restrictions and requirements in connection with a variety of technical, specialized, and expanding matters and concerns. We may be adversely
affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non-U.S. regulatory authorities or self-regulatory organizations that
supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental
authorities and self-regulatory organizations, as well as by courts. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may
be proposed, or whether any such proposals will become law. Further, new laws, regulations or interpretations of existing laws may result in enhanced disclosure and other
obligations, including with respect to climate change or other environmental, social and governance (ESG) matters and cybersecurity. Compliance with any new laws or
regulations, or changes in the interpretation or enforcement of existing laws or regulations, could be difficult and expensive and affect the manner in which we conduct
business. Non-compliance with applicable new laws, rules or regulations could result in litigation, governmental investigations and enforcement actions that could result in
fines, penalties, suspensions of individual employees, or limitations on particular business activities, any of which could have an adverse impact on our reputation and
business.
The investment management industry is intensely competitive.
Competition within the investment management industry is based on a variety of factors, including investment performance, management fee rates, continuity of investment
professionals and client relationships, the quality of client service, corporate positioning and business reputation, continuity of distribution arrangements with intermediaries
and product mix and offerings. A number of factors, including the following, serve to increase our competitive risks:
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•
•
•
•
Unlike some of our competitors, we do not currently engage in impact investing, offer passive investment strategies or “solutions” products like target-date funds.
A number of our competitors have greater financial, technical, marketing and other resources, more comprehensive name recognition and more personnel than we
do.
Potential competitors have a relatively low cost of entering the investment management industry.
Some investors may prefer to invest with an investment manager that is not publicly traded based on the perception that a publicly-traded asset manager may focus
on the manager’s own growth to the detriment of investment performance.
Other industry participants may seek to recruit our investment professionals.
•
• Many competitors charge lower fees for their investment management services than we do.
For example, the trend in favor of low-fee passive products such as index and certain exchange-traded funds favors those of our competitors who provide passive investment
strategies. That trend has presented, and likely will continue to present, a headwind to our business. Separately, intermediaries through which we distribute our mutual funds
may also sell their own proprietary funds and investment products, which could limit the distribution of our investment strategies. If we are unable to compete effectively,
our earnings would be reduced and our business could be materially adversely affected.
The investment management industry faces substantial litigation risks which could materially adversely affect our business, financial condition or results of operations
or cause significant reputational harm to us.
We depend to a large extent on our network of relationships and on our reputation in order to attract and retain client assets. We make investment decisions on behalf of our
clients that could result in substantial losses to them. If our clients suffer significant losses, or are otherwise dissatisfied with our services, we could be subject to legal
liability or actions alleging negligence, breach of fiduciary duty, breach of contract, unjust enrichment and/or fraud. These risks are often difficult to assess or quantify and
their existence and magnitude often remain unknown for substantial periods of time, even after an action has been commenced.
We may incur significant legal expenses in defending against litigation whether or not we engaged in conduct as a result of which we might be subject to legal liability.
Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations or cause
significant reputational harm to us.
A change of control could result in termination of our investment advisory agreements with SEC-registered mutual funds and could trigger consent requirements in our
other investment advisory agreements.
Under the 1940 Act, each of the investment advisory agreements between SEC-registered mutual funds and our subsidiary, Artisan Partners Limited Partnership, will
terminate automatically in the event of its assignment. Upon the occurrence of such an assignment, our subsidiary could continue to act as adviser to any such fund only if
that fund’s board and shareholders approved a new investment advisory agreement, except in the case of certain funds that we sub-advise for which only board approval
would be necessary. In addition, as required by the Advisers Act, each of the investment advisory agreements for the separate accounts we manage provides that it may not
be assigned, as defined in the Advisers Act, without the consent of the client. An assignment occurs under the 1940 Act and the Advisers Act if, among other things, Artisan
Partners Limited Partnership undergoes a change of control as recognized under the 1940 Act and the Advisers Act. If such an assignment were to occur, we cannot be
certain that we would be able to obtain the necessary approvals from the boards and shareholders of the mutual funds we advise or the necessary consents from our separate
account clients.
Risks Related to Our Structure
Control by our stockholders committee of approximately 11% of the combined voting power of our capital stock and the rights of holders of limited partnership units of
Artisan Partners Holdings may give rise to conflicts of interest.
As of February 23, 2023, our employees to whom we have granted equity (including our employee-partners) held approximately 11% of the combined voting power of our
capital stock. These employees have entered into a stockholders agreement pursuant to which they granted an irrevocable voting proxy with respect to all shares of our
common stock they have acquired from us and any shares they may acquire from us in the future to a stockholders committee. Any additional shares of our common stock
that we issue to our employees will be subject to the stockholders agreement so long as the agreement has not been terminated. Shares held by an employee cease to be
subject to the stockholders agreement upon termination of employment.
The stockholders committee currently consists of Eric R. Colson (Chief Executive Officer), Charles J. Daley, Jr. (Chief Financial Officer) and Gregory K. Ramirez
(Executive Vice President). All shares subject to the stockholders agreement are voted in accordance with the majority decision of those three members. The committee’s
control of approximately 11% of the combined voting power gives the committee a meaningful influence in determining the outcome of any stockholder vote, including the
election of directors and the approval of certain transactions.
The consent of the holders of our Class A common units, voting as a single and separate class, is required for Holdings to engage in certain material corporate transactions,
including a merger, consolidation, dissolution or sale of greater than 25% of the fair market value of Holdings’ assets. These voting and class approval rights may enable the
holders of Class A common units to prevent the consummation of transactions that may be in the best interests of the holders of our Class A common stock.
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In addition, because the majority of our pre-IPO owners (including certain members of our board of directors) hold a portion of their ownership interests in our business
through Holdings, rather than through Artisan Partners Asset Management, these pre-IPO owners may have conflicting interests with holders of our Class A common stock.
For example, our pre-IPO owners may have different tax positions from us which could influence their decisions regarding whether and when we should dispose of assets,
whether and when we should incur new or refinance existing indebtedness, especially in light of the existence of the tax receivable agreements, and whether and when
Artisan Partners Asset Management should terminate the tax receivable agreements and accelerate its obligations thereunder. In addition, the structuring of future
transactions may take into consideration these pre-IPO owners’ tax or other considerations even where no similar benefit would accrue to us.
Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our structure and applicable
provisions of Delaware law.
We intend to pay dividends to holders of our Class A common stock as described in “Dividend Policy”. Our board of directors may, in its sole discretion, change the amount
or frequency of dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we are dependent upon the ability of our subsidiaries to
generate earnings and cash flows and distribute them to us so that we may pay dividends to our stockholders. We expect to cause Holdings, a Delaware limited partnership,
to make distributions to its partners, including us, in an amount sufficient for us to pay dividends. However, its ability to make such distributions will be subject to its and its
subsidiaries’ operating results, cash requirements and financial condition, the applicable provisions of Delaware law, its compliance with covenants related to existing or
future indebtedness, its other agreements with third parties, as well as its obligation to make tax distributions under its partnership agreement (which distributions would
reduce the cash available for distributions by Holdings to us). As a result of these limitations and restrictions, we may not be able to pay, or may have to reduce, the
dividends on our Class A common stock. Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our
Class A common stock.
Our ability to pay taxes and expenses, including payments under the tax receivable agreements (“TRAs”), may be limited by our holding company structure.
As a holding company, our assets principally consist of our ownership of partnership units of Holdings, deferred tax assets and cash and we have no independent means of
generating revenue. Holdings is a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, Holdings’ taxable income
is allocated to holders of its partnership units, including us. Accordingly, we incur income taxes on our proportionate share of Holdings’ taxable income and also may incur
expenses related to our operations. Under the terms of its amended and restated limited partnership agreement, Holdings is obligated to make tax distributions to holders of
its partnership units, including us. In addition to tax expenses, we are also required to make payments under the TRAs, which will be significant, and we incur other
expenses related to the TRAs and our operations. 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. We also intend to cause Holdings to make distributions in an amount sufficient to allow us to pay our taxes and pay
any additional operating expenses. However, its ability to make such distributions will be subject to various limitations and restrictions as set forth in the preceding risk
factor. If, as a consequence of these various limitations and restrictions, we do not have sufficient funds to pay tax or other liabilities or to fund our operations, we may have
to borrow funds and thus our liquidity and financial condition could be materially adversely affected. To the extent that we are unable to make payments when due under the
TRAs, such payments will be deferred and will accrue interest at a rate equal to one-year LIBOR plus 300 basis points until paid. We expect to amend the TRAs in 2023 to
replace LIBOR with the Secured Overnight Financing Rate (SOFR) or another appropriate replacement reference rate in connection with the discontinuation of the LIBOR
benchmark.
We will be required to pay the TRA beneficiaries for certain tax benefits we claim, and we expect that the payments we will be required to make will be substantial.
We are party to two TRAs. The first TRA generally provides for the payment by APAM to the assignees of the Pre-H&F Corp Merger Shareholder of 85% of the applicable
cash savings, if any, of U.S. federal, state and local income taxes that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) the tax
attributes of the preferred units APAM acquired in the merger of a wholly-owned subsidiary of the Pre-H&F Corp Merger Shareholder into APAM in March 2013 and
(ii) tax benefits related to imputed interest.
The second TRA generally provides for the payment by APAM to current or former limited partners of Holdings or their assignees of 85% of the applicable cash savings, if
any, of U.S. federal, state and local income taxes that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain tax attributes of their
partnership units sold to us or exchanged (for shares of Class A common stock, convertible preferred stock or other consideration) and that are created as a result of such
sales or exchanges and payments under the TRAs and (ii) tax benefits related to imputed interest.
The payment obligation under the TRAs is an obligation of APAM, not Holdings, and we expect that the payments we will be required to make under the TRAs will be
substantial. Assuming no material changes in the relevant tax law and that APAM earns sufficient taxable income to realize all tax benefits that are subject to the TRAs, we
expect that the reduction in tax payments for us associated with (i) the merger described above; (ii) the purchase or exchange of partnership units from March 2013 through
December 31, 2022; and (iii) projected future purchases or exchanges of partnership units would aggregate to approximately $548 million over generally a minimum of 15
years, assuming the future purchases or exchanges described in clause (iii) occurred at a price of $29.70 per share of our Class A common stock, the closing price of our
Class A common stock on
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December 31, 2022. Under such scenario we would be required to pay the other parties to the TRAs 85% of such amount, or approximately $502 million, over generally a
minimum of 15 years. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and TRA payments
by us will be calculated using the market value of our Class A common stock at the time of purchase or exchange and the prevailing tax rates applicable to us over the life of
the TRAs and will be dependent on us generating sufficient future taxable income to realize the benefit. As of December 31, 2022, we recorded a $399 million liability,
representing amounts payable under the TRAs equal to 85% of the tax benefit we expected to realize from the H&F Corp merger described above, our purchase of
partnership units from limited partners of Holdings and the exchange of partnership units from March 2013 through December 31, 2022, assuming no material changes in
the related tax law and that APAM earns sufficient taxable income to realize all tax benefits subject to the TRAs.
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. Payments under the TRAs are not conditioned on the counterparties’ continued
ownership of us. 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. Payments under the TRAs are expected to give rise to certain additional
tax benefits attributable to either further increases in basis or in the form of deductions for imputed interest, depending on the TRA and the circumstances. Any such benefits
are covered by the TRAs and will increase the amounts due thereunder. In addition, the TRAs provide for interest accrued from the due date (without extensions) of the
corresponding APAM tax return to the actual payment date, provided that the actual payment date is on or before the payment due date, as specified in the TRAs. In
addition, to the extent that we are unable to make payments when due under the TRAs, such payments will be deferred and will accrue interest at a rate specified under the
TRAs.
Payments under the TRAs will be based on the tax reporting positions that we determine. Although we are not aware of any issue that would cause the IRS or other taxing
authority to challenge a tax basis increase or other tax attributes subject to the TRAs, we will not be reimbursed for any payments previously made under the TRAs if such
basis increases or other benefits are subsequently disallowed (however, any such additional payments may be netted against future payments (if any) that are made under the
TRAs). As a result, in certain circumstances, payments could be made under the TRAs in excess of the benefits that we actually realize in respect of the attributes to which
the TRAs relate.
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.
The TRAs provide that (i) upon certain mergers, asset sales, other forms of business combinations or other changes of control, (ii) in the event that we materially breach any
of our material obligations under the agreements, or (iii) if, at any time, we elect an early termination of the agreements, our (or our successor’s) obligations under the
agreements (with respect to all units, whether or not units have been exchanged or acquired before or after such transaction) would be based on certain assumptions. In the
case of a material breach or if we elect early termination, those assumptions include that we would have sufficient taxable income to fully utilize the deductions arising from
the increased tax deductions and tax basis and other benefits related to entering into the TRAs. In the case of a change of control, the assumptions include that in each
taxable year ending on or after the closing date of the change of control, our taxable income (prior to the application of the tax deductions and tax basis and other benefits
related to entering into the TRAs) will equal the greater of (i) the actual taxable income (prior to the application of the tax deductions and tax basis and other benefits related
to entering into the TRAs) for the taxable year and (ii) the highest taxable income (calculated without taking into account extraordinary items of income or deduction and
prior to the application of the tax deductions and tax basis and other benefits related to entering into the TRAs) in any of the four fiscal quarters ended prior to the closing
date of the change of control, annualized and increased by 10% for each taxable year beginning with the second taxable year following the closing date of the change of
control. In the event we elect to terminate the agreements early or we materially breach a material obligation, our obligations under the agreements will accelerate. As a
result, (i) we could be required to make payments under the TRAs that are greater than or less than the specified percentage of the actual benefits we realize in respect of the
tax attributes subject to the agreements and (ii) if we materially breach a material obligation under the agreements or if we elect to terminate the agreements early, we would
be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which payment may be made significantly in advance of the
actual realization of such future benefits. In these situations, our obligations under the TRAs could have a substantial negative impact on our liquidity and could have the
effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we
will be able to finance our obligations under the TRAs. If we were to elect to terminate the TRAs associated with (i) the merger described above; (ii) the purchase or
exchange of partnership units from March 2013 through December 31, 2022; and (iii) projected future purchases or exchanges of partnership units, as of December 31,
2022, based on an assumed discount rate equal to one-year LIBOR plus 100 basis points and a price of $29.70 per share of our Class A common stock (the closing price of
our Class A common stock on December 31, 2022), we estimate that we would be required to pay approximately $354 million in the aggregate under the TRAs. We expect
to amend the TRAs in 2023 to replace LIBOR with SOFR or another appropriate replacement reference rate, in connection with the discontinuation of the LIBOR
benchmark.
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If we were deemed an investment company under the 1940 Act as a result of our ownership of Artisan Partners Holdings, applicable restrictions could make it
impractical for us to continue our business as contemplated and could have a material adverse effect on our business.
We do not believe that we are an “investment company”, as such term is defined in Sections 3(a)(1)(A) and (C) of the 1940 Act. As its sole general partner, we control and
operate Holdings. However, if we were to cease participation in the management of Holdings, our interest in Holdings could be deemed an “investment security” and we
ultimately could be deemed an “investment company.”
We and Holdings intend to continue to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment
company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to
continue our business as contemplated and could have a material adverse effect on our business.
Risks Related to Our Class A Common Stock
Equity markets and the price of our Class A common stock have been, and will continue to be, volatile, which could result in rapid and substantial losses for our
stockholders.
The market price of our Class A common stock is significantly impacted by fluctuations in the broader equity markets and, as a result, has experienced and may continue to
experience volatility in price and volume. In addition, a relatively concentrated number of institutional stockholders own our Class A common stock. If our larger
stockholders decide to reduce or liquidate their positions, the trading volume of our Class A common stock may fluctuate and cause significant price variations to occur. If
the market price of our Class A common stock declines significantly, investors may be unable to sell shares of Class A common stock at or above their purchase price, if at
all. The market price of our Class A common stock may fluctuate or decline significantly in the future.
Future sales of our Class A common stock in the public market could lower our stock price, and any future sale of equity or convertible securities may dilute existing
stockholders’ ownership in us.
The market price of our Class A common stock could decline as a result of future sales of a large number of shares of our Class A common stock, or the perception that such
sales could occur. These sales, or the possibility that such sales may occur, may make it more difficult for us to raise capital by selling equity securities in the future, at a
time and price that we deem appropriate.
We are party to a resale and registration rights agreement pursuant to which the shares of our Class A common stock issued upon exchange of limited partnership units are
eligible for resale. Such shares of Class A common stock may be transferred only in accordance with the terms and conditions of the resale and registration rights agreement,
which our Board may waive or modify at any time. Common units of Holdings are exchangeable for shares of our Class A common stock on a one-for-one basis.
There is no limit on the number of shares of our Class A common stock that our Class A limited partners or AIC are permitted to sell. As of February 23, 2023, our Class A
limited partners owned approximately 4.4 million Class A common units and AIC owned approximately 3.5 million Class D common units.
The resale and registration rights agreement imposes certain limits on our employee-partners with respect to the number of shares of our Class A common stock that they are
permitted to sell in each one-year period. As of February 23, 2023, our employee-partners owned 2.5 million Class B common units, approximately 1.5 million of which are
eligible for sale during the remainder of 2023. In addition, approximately 1.2 million Class E common units are eligible for exchange and sale by former employee-partners
in 2023.
We may also purchase limited partnerships units of Holdings at any time and may issue and sell additional shares of our Class A common stock to fund such purchases. We
cannot predict the size of future issuances of our Class A common stock or the effect, if any, that such future issuances and sales may have on the market price of our Class
A common stock. Sales or distributions of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception
that such sales could occur, may cause the market price of our Class A common stock to decline.
In addition, as of the date of this filing, our board of directors has approved 11,866,016 restricted share-based awards pursuant to the 2013 Omnibus Incentive Compensation
Plan, as amended and the 2013 Non-Employee Director Plan, which plans terminate in the first quarter of 2023. Awards granted under these plans, which consist of a mix of
restricted stock units, performance share units and restricted shares of Class A common stock, remain in effect until they have vested or been forfeited in accordance with
the terms of the applicable plan and award agreement. Once shares issued pursuant to these plans have vested, they will be able to be sold in the public market. We expect to
seek stockholder approval of new equity incentive plans and the registration of additional shares under such plans at the Company’s 2023 annual meeting of stockholders.
Provisions in our organizational documents, equity award agreements and Delaware law could discourage a change of control that stockholders may favor, which could
negatively affect the market price of our Class A common stock.
Provisions in our restated certificate of incorporation, amended and restated bylaws and in the Delaware General Corporation Law, as well as the terms of our equity awards,
may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our stockholders. Those
provisions include:
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•
•
•
•
•
•
•
The right of the certain classes of our capital stock to vote, as separate classes, on certain amendments to our restated certificate of incorporation and certain
fundamental transactions.
The ability of our board of directors to determine to issue shares of preferred stock.
Advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at
a stockholders’ meeting.
A limitation that, generally, stockholder action may only be taken at an annual or special meeting or by unanimous written consent.
A requirement that a special meeting of stockholders may be called only by our board of directors, the Chair of the board or the Chief Executive Officer.
The ability of our board of directors to adopt, amend and repeal our amended and restated bylaws by majority vote, while such action by stockholders would
require a super majority vote.
Except with respect to awards held by our named executive officers which are double trigger, single trigger vesting upon a change in control for unvested
employee equity awards. Prior to February 2019, our awards generally included double trigger vesting upon a change in control.
The market price of our Class A common stock could be adversely affected to the extent that the above factors discourage or delay potential takeover attempts that our
stockholders may favor.
Our restated certificate of incorporation contains a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers, employees or agents.
Our restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders. Any person acquiring any interest in any shares of our capital
stock shall be deemed to have notice of and to have consented to this provision of our restated certificate of incorporation. This choice of forum provision may limit our
stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage
lawsuits against such parties. Alternatively, if a court were to find the forum selection clause inapplicable to, or unenforceable in respect of, one or more actions or
proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
Our indemnification obligations may pose substantial risks to our financial condition.
Pursuant to our restated certificate of incorporation, we will indemnify our directors and officers to the fullest extent permitted by Delaware law against all liability and
expense incurred by them in their capacities as directors or officers of us, and we are obligated to pay their expenses in connection with the defense of claims. Our bylaws
provide for similar indemnification of, and advancement of expenses to, our directors, officers, employees and agents and members of our stockholders committee. We have
also entered into indemnification agreements with our directors and executive officers and each member of our stockholders committee, pursuant to which we will
indemnify them to the fullest extent permitted by Delaware law in connection with their service in such capacities. Holdings will also indemnify and advance expenses to
AIC (its former general partner), former members of its pre-IPO advisory committee, members of our stockholders committee, our directors and officers, and its officers and
employees against any liability and expenses incurred by them as a result of the capacities in which they serve or served Holdings.
We have obtained liability insurance insuring our directors, officers and members of our stockholders committee against liability for acts or omissions in their capacities as
such, subject to certain exclusions. These obligations may pose substantial risks to our financial condition, if we are not able to maintain our insurance or, even if we are able
to maintain our insurance, claims in excess of our coverage could be material. In addition, indemnification obligations and other provisions of our restated certificate of
incorporation and the amended and restated partnership agreement of Holdings, may have the effect of reducing the likelihood of derivative litigation against indemnified
persons, and may discourage or deter stockholders or management from bringing a lawsuit against such persons, even though such an action, if successful, might otherwise
have benefited us and our stockholders.
Our restated certificate of incorporation provides that certain of our investors do not have an obligation to offer us business opportunities.
Our restated certificate of incorporation provides that, to the fullest extent permitted by applicable law, certain of our investors and their respective affiliates (including
affiliates who serve on our board of directors) have no obligation to offer us an opportunity to participate in the business opportunities presented to them, even if the
opportunity is one that we might reasonably have pursued. Therefore, they may be free to compete with us in the same or a similar business. Furthermore, we renounce and
waive and agree not to assert any claim for breach of any duty relating to any such opportunity against those investors and their affiliates by reason of any such activities
unless, in the case of any person who is our director or officer, such opportunity is expressly offered to such person in writing solely in his or her capacity as an officer or
director of us. This may create actual and potential conflicts of interest between us and certain of our investors and their affiliates (including certain of our directors).
Item 1B. Unresolved Staff Comments
None
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Item 2. Properties
We lease all of our office space, including our largest office in Milwaukee, Wisconsin, where a majority of our employees are based. We believe our existing and contracted-
for facilities are adequate to meet our requirements.
Item 3. Legal Proceedings
In the normal course of business, we may be subject to various legal and administrative proceedings. Currently, there are no legal or administrative proceedings that
management believes may have a material adverse effect on our consolidated financial position, cash flows or results of operations.
Item 4. Mine Safety Disclosures
Not applicable
Information about our Executive Officers
Information regarding our executive officers is as follows:
Eric R. Colson, age 53, has been chief executive officer and a director of Artisan Partners Asset Management since March 2011. Mr. Colson also served as the president of
Artisan Partners Asset Management from March 2011 to January 2021 and as chairman of the Company’s board of directors from August 2015 to August 2021. Mr. Colson
has served as the chief executive officer of Artisan Partners since January 2010. Prior to January 2010, Mr. Colson served as chief operating officer of investment operations
from March 2007 through January 2010. Mr. Colson has been a managing director of Artisan Partners since he joined the firm in January 2005.
Charles J. Daley, Jr., age 60, has been executive vice president, chief financial officer and treasurer of Artisan Partners Asset Management since March 2011. He has served
as the chief financial officer of Artisan Partners since August 2010 and has been a managing director since July 2010 when he joined the firm.
Jason A. Gottlieb, age 53, has been president of Artisan Partners Asset Management since January 2021. From February 2017 to January 2021, he served as executive vice
president of Artisan Partners Asset Management. Mr. Gottlieb joined Artisan Partners in October 2016 as a managing director and the chief operating officer of investments.
Sarah A. Johnson, age 51, has been executive vice president, chief legal officer and secretary of Artisan Partners Asset Management since October 2013. From April 2013 to
October 2013 she served as assistant secretary of Artisan Partners Asset Management. Ms. Johnson was named a managing director of Artisan Partners in March 2010.
Christopher J. Krein, age 51, has been executive vice president of Artisan Partners Asset Management and Artisan Partners’ head of Global Distribution since January 2020.
Prior to becoming head of Global Distribution, Mr. Krein was responsible for institutional marketing and client service for the Artisan Developing World team. Mr. Krein
has been a managing director of Artisan Partners since he joined the firm in September 2015.
Eileen L. Kwei, age 44, has been executive vice president of Artisan Partners Asset Management and Artisan Partners’ chief administrative officer since January 2021. From
February 2018 to January 2021, Ms. Kwei was responsible for institutional marketing and client service for the Artisan Credit team. Prior to February 2018, Ms. Kwei was a
relationship manager for the Artisan Global Equity team. Ms. Kwei joined Artisan Partners in June 2013 and has been a managing director of Artisan Partners since 2018.
Gregory K. Ramirez, age 52, was appointed executive vice president of Artisan Partners Asset Management in February 2016. From October 2013 to February 2016, he
served as senior vice president and from April 2013 to October 2013 as assistant treasurer. Mr. Ramirez is currently head of vehicle administration for Artisan Partners and
serves as chair of the Artisan Risk and Integrity Committee. Mr. Ramirez was named a managing director of Artisan Partners in April 2003.
Samuel B. Sellers, age 40, has been executive vice president and chief operating officer of Artisan Partners Asset Management since January 2023. Prior to his current role,
Mr. Sellers was head of Investment Operations from January 2021. Previously, he served as deputy general counsel from January 2015 and associate counsel from April
2013.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Shares of our Class A common stock have been listed and traded on the NYSE under the symbol “APAM” since March 7, 2013. As of February 23, 2023, there were
approximately 117 stockholders of record of our Class A common stock, 25 stockholders of record of our Class B common stock, and 26 stockholders of record of our
Class C common stock. These figures do not reflect beneficial ownership or shares held in nominee name, nor do they include holders of any restricted stock units or
performance share units. There is no trading market for shares of our Class B common stock or Class C common stock.
Performance Graph
The following graph compares the year-end cumulative total stockholder return of our Class A common stock during the five-year period ended December 31, 2022, with
the year-end cumulative total return of the S&P 500 and the Dow Jones U.S. Asset Managers Index. The graph assumes the investment of $100 in our common stock and in
the market indices and the reinvestment of all dividends.
®
Artisan Partners Asset Management Inc.
S&P 500 Index
Dow Jones U.S. Asset Managers Index
2018
For the Years Ended December 31,
2021
2020
2019
$
$
$
61.88 $
95.62 $
74.95 $
103.04 $
125.72 $
94.98 $
176.16 $
148.85 $
109.37 $
180.92 $
191.58 $
153.79 $
2022
124.31
156.88
120.54
The above table is provided pursuant to SEC regulations and the outcomes are impacted significantly by beginning- and end-point stock price, as well as the price at which
dividends are reinvested. A stockholder who invested in APAM at its IPO on March 7, 2013, at the IPO price of $30 per share would have experienced an 8% annual total
return as of December 31, 2022 if all dividends were retained, compared to a 9% annual total return if all dividends were reinvested.
Dividend Policy
During the first quarter of 2023, our board of directors declared a variable quarterly dividend of $0.55 per share with respect to the fourth quarter of 2022 and a special
annual dividend of $0.35 per share. The variable quarterly dividend of $0.55 per share represents approximately 80% of the cash generated in the fourth quarter of 2022.
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
quarterly cash generation to approximate 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.
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We intend to fund dividends from our portion of distributions made by Holdings from its available cash generated from operations. The holders of our Class B common
stock and Class C common stock are not entitled to any cash dividends in their capacity as stockholders but, in their capacity as holders of limited partnership units of
Holdings, they generally participate on a pro rata basis in distributions by Holdings.
The declaration and payment of all future dividends, if any, will be at the sole discretion of our board of directors. In determining the amount of any future dividends, our
board of directors will take into account: (i) our financial results, (ii) our available cash, as well as anticipated cash requirements (including debt servicing, seed capital for
new investment strategies and vehicles, and cash required to support growth and strategic initiatives), (iii) our capital requirements and the capital requirements of our
subsidiaries (including Holdings), (iv) contractual, legal, tax and regulatory restrictions on, and implications of, the payment of dividends by us to our stockholders or by our
subsidiaries (including Holdings) to us, including the obligation of Holdings to make tax distributions to the holders of partnership units (including us), (v) general economic
and business conditions and (vi) any other factors that our board of directors may deem relevant.
As a holding company, our assets principally consist of our ownership of partnership units of Holdings, deferred tax assets and cash. Accordingly, we depend on
distributions from Holdings to fund any dividends we may pay. We intend to cause Holdings to distribute cash to its partners, including us, in an amount sufficient to cover
dividends, if any, declared by us. If we do cause Holdings to make such distributions, holders of Holdings limited partnership units will be entitled to receive equivalent
distributions on a pro rata basis.
Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay dividends according to our dividend policy, we may
not pay dividends according to our policy, or at all, if, among other things, Holdings is unable to make distributions to us as a result of its operating results, cash
requirements and financial condition, the applicable laws of the State of Delaware (which may limit the amount of funds available for distribution), its compliance with
covenants and financial ratios related to indebtedness (including the notes and the revolving credit agreement) and its other agreements with third parties. Our note purchase
and revolving credit agreements contain covenants limiting Holdings’ ability to make distributions if a default has occurred and is continuing or would result from such a
distribution. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.
Under the Delaware General Corporation Law, we may only pay dividends from legally available surplus or, if there is no such surplus, out of our net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. Surplus is defined as the excess of the fair value of our total assets over the sum of the fair value of
our total liabilities plus the par value of our outstanding capital stock. Capital stock is defined as the aggregate of the par value of all issued capital stock. To the extent we
do not have sufficient cash to pay dividends, we may decide not to pay dividends.
Unregistered Sales of Equity Securities
As described in Note 8, “Stockholders’ Equity”, to the consolidated financial statements included in Item 8 of this report, upon termination of employment with Artisan, an
employee-partner’s Class B common units are exchanged for Class E common units and the corresponding shares of Class B common stock are canceled. APAM issues the
former employee-partner a number of shares of Class C common stock equal to the former employee-partner’s number of Class E common units. Class E common units are
exchangeable for Class A common stock subject to the same restrictions and limitations on exchange applicable to the other common units of Holdings. There were no such
issuances during the three months ended December 31, 2022.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the “Forward-Looking
Statements” disclosure preceding Part I and the “Risk Factors” set forth in Item 1A of Part I of this Annual Report on Form 10‑K, each of which describe our risks,
uncertainties and other important factors in more detail.
Overview and Recent Highlights
We are an investment management firm focused on providing high-value added, active investment strategies in asset classes for sophisticated clients around the world. As of
December 31, 2022, our ten autonomous investment teams managed a total of 25 investment strategies across multiple asset classes and investment styles.
We focus on attracting, retaining and developing talented investment professionals and creating an environment in which each investment team is provided ample resources
and support, transparent and direct financial incentives, a high degree of investment autonomy, and a long-term time horizon. We create new investment strategies when we
identify opportunities to add value for clients, oftentimes through the use of a broad array of securities, instruments, and techniques (which we call degrees of freedom) to
differentiate returns and manage risk.
We offer our investment management capabilities primarily to sophisticated investors that operate with institutional decision-making processes and longer-term investment
horizons. We employ knowledgeable and investment focused relationship managers who are directly aligned with our investment teams, and we pair them with regional and
distribution channel experts. We provide access to our investment strategies through multiple investment vehicles, including separate accounts and different types of pooled
vehicles. As of December 31, 2022, approximately 76% of our assets under management were managed for clients and investors domiciled in the U.S. and 24% 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 dividends and distributions. We expect to continue to invest in the growth of the business, with a focus on adding new investment capabilities and more
degrees of freedom in areas where both opportunity and client demand exist, and in which we can differentiate our active management and add value for clients.
Business highlights for 2022 included:
•
•
•
•
•
Our U.S. Value team launched a third strategy, the Value Income strategy, in March 2022.
In March 2022, we launched the Global Unconstrained strategy, managed by the EMsights Capital Group.
In April 2022, we launched the Emerging Markets Debt Opportunities strategy, managed by the EMsights Capital Group.
In May 2022, we established the Artisan International Explorer Fund, to provide investors with access to the International Explorer strategy through a U.S. mutual
fund.
In July 2022, we launched the Emerging Markets Local Opportunities strategy, managed by the EMsights Capital Group.
Financial highlights for 2022 included:
•
•
During the year ended December 31, 2022, our assets under management decreased to $127.9 billion, a decrease of $46.9 billion, or 27%, compared to $174.8
billion at December 31, 2021, as a result of $36.6 billion of market depreciation, $9.8 billion of net client cash outflows, and $0.5 billion of Artisan Funds’
distributions that were not reinvested by fund shareholders.
Average assets under management for the year ended December 31, 2022 was $141.5 billion, a decrease of 17.6% from the average of $171.8 billion for the year
ended December 31, 2021.
• We earned $993.3 million in revenue for the year ended December 31, 2022, a 19% decrease from revenues of $1,227.2 million for the year ended December 31,
2021.
Our GAAP operating margin was 34.6% in 2022, compared to 44.0% in 2021. Adjusted operating margin was 34.3% in 2022, compared to 44.1% in 2021.
•
• We generated $2.94 of earnings per basic and diluted share and $3.11 of adjusted EPS.
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• We declared and distributed dividends of $3.67 per share of Class A common stock during 2022.
• We declared, effective January 31, 2023, a quarterly dividend of $0.55 per share of Class A common stock with respect to the December 2022 quarter and a
special annual dividend of $0.35 per share, for a total of $2.82 of dividends per share with respect to 2022.
Organizational Structure
Organizational Structure
Our operations are conducted through Artisan Partners Holdings LP (“Holdings”) and its subsidiaries. On March 12, 2013, Artisan Partners Asset Management Inc.
(“APAM”) and Holdings 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.
Limited partners of Holdings, some of whom are employees, held approximately 15% of the equity interests in Holdings as of December 31, 2022. As a result, our results
reflect that significant noncontrolling interest.
We operate our business in a single segment.
Holdings Unit Exchanges
During the year ended December 31, 2022, certain limited partners of Holdings exchanged 711,166 common units (along with a corresponding number of shares of Class B
or Class C common stock of APAM, as applicable) for 711,166 shares of Class A common stock. In connection with the exchanges, APAM received 711,166 GP units of
Holdings.
APAM’s equity ownership interest in Holdings increased from 84% at December 31, 2021 to 85% at December 31, 2022, as a result of these transactions and other equity
transactions during the period.
Financial Overview
Economic Environment
Global market conditions materially affect our financial performance. Global markets continued to be volatile during the year ended December 31, 2022 amid continued
concerns about COVID-19, elevated inflation, interest rate increases, the prolonged effects of the war in Ukraine, the risk of a recession and other global economic
conditions. This continued volatility and uncertainty in global financial markets has impacted the value of our assets under management. Because the revenue we earn is
based on the value of our assets under management, fluctuations in our assets under management will result in corresponding fluctuations in our revenues and earnings.
The following table presents the total returns of relevant market indices for the years ended December 31, 2022, 2021 and 2020:
S&P 500 total returns
MSCI All Country World total returns
MSCI EAFE total returns
Russell Midcap® total returns
MSCI Emerging Markets Index
ICE BofA US High Yield Master II Total Return Index
For the Years Ended December 31,
2021
2020
2022
(18.1)%
(18.4)%
(14.5)%
(17.3)%
(20.1)%
(11.2)%
28.7 %
18.5 %
11.3 %
22.6 %
(2.5)%
5.4 %
18.4 %
16.3 %
7.8 %
17.1 %
18.3 %
6.2 %
32
Table of Contents
Key Performance Indicators
When we review our business and financial performance we consider, among other things, the following:
2022
$
$
$
$
For the Years Ended December 31,
2021
(unaudited; dollars in millions)
$
$
$
$
$
$
$
$
174,754
171,767
1,678
1,227
70.7 bps
44.0 %
44.1 %
127,892
141,516
(9,813)
993
70.2 bps
34.6 %
34.3 %
2020
157,776
124,901
7,154
900
70.9 bps
39.8 %
39.8 %
(1)
(2)
Assets under management at period end
Average assets under management
Net client cash flows
Total revenues
Weighted average fee
Operating margin
Adjusted operating margin
(1)
(4)
(3)
(3)
applicable period.
(4)
(2)
We compute average assets under management by averaging day-end assets under management for the applicable period.
Net client cash flows excludes Artisan Funds’ income and capital gain distributions that were not reinvested by fund shareholders.
We compute our weighted average management fee by dividing annualized investment management fees (which excludes performance fees) by average assets under management for the
Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures in “Supplemental Non-GAAP Financial Information” 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 firmwide, 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.
33
Table of Contents
The table below sets forth changes in our total assets under management:
Beginning assets under management
Gross client cash inflows
Gross client cash outflows
Net client cash flows
Artisan Funds’ distributions not reinvested
Investment returns and other
(2)
(1)
Ending assets under management
Average assets under management
(1)
2022
For the Years Ended December 31,
2021
(unaudited; dollars in millions)
2020
$
$
$
174,754 $
27,227
(37,040)
(9,813)
(497)
(36,552)
127,892 $
141,516 $
157,776 $
33,725
(32,047)
1,678
(2,295)
17,595
174,754 $
171,767 $
121,016
36,338
(29,184)
7,154
(690)
30,296
157,776
124,901
Artisan Funds’ distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds.
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.
(2)
During 2022 our assets under management decreased by $46.9 billion due to $36.6 billion of market depreciation, $9.8 billion of net client cash outflows, and $0.5 billion of
Artisan Funds’ distributions that were not reinvested by fund shareholders. For the year, 10 of our 25 investment strategies had net inflows totaling $1.2 billion, which were
offset by $11.0 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 and the velocity at which
the strategies are experiencing inflows. 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.
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 U.S. Small-Cap Growth
strategy with respect to new client relationships.
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.
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 December 31, 2022. Returns for periods less than one year are not annualized.
34
Table of Contents
Investment Team and Strategy
Growth Team
Global Opportunities Strategy
MSCI All Country World Index
Global Discovery Strategy
MSCI All Country World Index
U.S. Mid-Cap Growth Strategy
Russell Midcap Index
®
Russell Midcap Growth Index
®
U.S. Small-Cap Growth Strategy
Russell 2000 Index
®
Russell 2000 Growth Index
®
Global Equity Team
Global Equity Strategy
MSCI All Country World Index
Non-U.S. Growth Strategy
MSCI EAFE Index
Non-U.S. Small-Mid Growth Strategy
MSCI All Country World Index Ex USA Small Mid Cap
China Post-Venture Strategy
MSCI China SMID Cap Index
U.S. Value Team
Value Equity Strategy
Russell® 1000 Index
Russell® 1000 Value Index
U.S. Mid-Cap Value Strategy
Russell® Midcap Index
Russell® Midcap Value Index
Value Income Strategy
S&P 500 Market Index
International Value Team
International Value Strategy
MSCI EAFE Index
International Explorer Strategy
MSCI All Country World Index Ex USA Small Cap
(Net)
Global Value Team
Global Value Strategy
MSCI All Country World Index
Select Equity Strategy
S&P 500 Market Index (Total Return)
Sustainable Emerging Markets Team
Sustainable Emerging Markets Strategy
MSCI Emerging Markets Index
Credit Team
High Income Strategy
ICE BofA U.S. High Yield Master II Total Return Index
Credit Opportunities Strategy
ICE BofA U.S. Dollar LIBOR 3-month Constant
Maturity Index
Floating Rate Strategy
Credit Suisse Leveraged Loan Total Return Index
Composite
Inception
Date
Strategy AUM
(in $MM)
(2)
2/1/2007
$
18,676
9/1/2017
4/1/1997
1,392
10,624
4/1/1995
3,285
4/1/2010
1/1/1996
1/1/2019
4/1/2021
7/1/2005
4/1/1999
3/1/2022
7/1/2002
10/1/2020
7/1/2007
3/1/2020
7/1/2006
4/1/2014
7/1/2017
1/1/2022
413
13,285
6,752
173
3,252
2,826
10
30,152
58
21,432
335
873
6,957
136
47
Average Annual Total Returns (Gross)
1 YR
3 YR
5 YR
10 YR
Inception
Average Annual Value-
Added Since Inception
(bps)
(1)
(29.53)%
(18.36)%
(30.08)%
(18.36)%
(36.04)%
(17.32)%
(26.72)%
(28.67)%
(20.44)%
(26.36)%
(19.79)%
(18.36)%
(18.44)%
(14.45)%
(23.02)%
(19.49)%
(27.30)%
(22.17)%
(8.21)%
(19.13)%
(7.54)%
(12.11)%
(17.32)%
(12.03)%
---
---
(6.12)%
(14.45)%
(13.21)%
4.71%
4.00%
5.65%
4.00%
4.51%
5.87%
3.85%
2.35%
3.10%
0.65%
3.60%
4.00%
(0.84)%
0.87%
3.10%
(0.22)%
---
---
8.18%
7.34%
5.95%
6.27%
5.87%
5.82%
---
---
6.76%
0.87%
---
7.69%
5.22%
10.78%
5.22%
9.18%
7.10%
7.64%
9.51%
4.12%
3.50%
7.69%
5.22%
2.83%
1.54%
---
---
---
---
7.49%
9.13%
6.66%
5.55%
7.10%
5.72%
---
---
5.45%
1.54%
---
11.22%
7.97%
---
---
11.30%
10.95%
11.40%
12.29%
9.01%
9.20%
10.41%
7.97%
5.66%
4.67%
---
---
---
---
10.41%
12.37%
10.29%
9.03%
10.95%
10.10%
---
---
8.74%
4.67%
---
9.95%
5.22%
11.28%
6.37%
13.90%
9.86%
8.96%
10.37%
8.56%
7.16%
10.97%
7.55%
9.07%
4.45%
10.96%
5.00%
(21.02)%
(20.70)%
8.56%
9.07%
7.45%
11.79%
9.09%
9.24%
(7.74)%
(10.98)%
11.13%
5.45%
12.65%
(19.97)%
---
---
---
4.53%
(12.69)%
(18.36)%
(15.92)%
(18.11)%
3.22%
4.00%
---
---
3.95%
5.22%
---
---
(27.21)%
(20.09)%
(3.69)%
(2.69)%
(1.33)%
(1.40)%
(9.15)%
(11.22)%
(3.64)%
1.21%
(0.80)%
(1.06)%
2.62%
(0.23)%
12.17%
0.82%
---
---
4.31%
2.12%
10.48%
1.42%
---
---
8.80%
7.97%
---
---
2.67%
1.44%
---
---
---
---
---
---
7.61%
4.79%
6.78%
11.45%
4.33%
3.94%
5.83%
3.32%
10.92%
1.41%
(0.80)%
(1.06)%
35
473
491
494
321
342
462
596
(32)
111
255
324
568
812
282
(467)
39
251
951
26
Table of Contents
Developing World Team
Developing World Strategy
MSCI Emerging Markets Index
Antero Peak Group
Antero Peak Strategy
S&P 500 Market Index
Antero Peak Hedge Strategy
S&P 500 Market Index
EMsights Capital Group
Global Unconstrained Strategy
ICE BofA 3-month Treasury Bill Index
Emerging Markets Debt Opportunities Strategy
J.P. Morgan EMB Hard Currency/Local currency 50-50
Index
7/1/2015
5/1/2017
11/1/2017
4/1/2022
5/1/2022
Emerging Markets Local Opportunities Strategy
8/1/2022
J.P. Morgan GBI-EM Global Diversified Index
3,466
2,948
728
16
45
11
(40.56)%
(20.09)%
(0.15)%
(2.69)%
4.06%
(1.40)%
(24.90)%
(18.11)%
(22.96)%
(18.11)%
7.13%
7.65%
4.24%
7.65%
12.96%
9.42%
9.92%
9.42%
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
7.04%
2.18%
16.58%
10.74%
10.27%
9.98%
8.40%
1.42%
8.28%
(0.99)%
3.72%
3.03%
486
584
29
698
927
69
Total Assets Under Management
$
127,892
(1)
Value-added is the amount, in basis points, by which the average annual gross composite return of each of our strategies has outperformed or underperformed its respective benchmark. See
“Performance and Assets Under Management Information Used in this Report” for additional information regarding the benchmarks used. Value-added for periods less than one year is not
annualized. The High Income strategy holds loans and other security types that are not included in its benchmark, which, at times, causes material differences in relative performance. The Credit
Opportunities strategy is benchmark agnostic and has been compared to the 3-month LIBOR for reference purposes only. The Antero Peak and Antero Peak Hedge strategies' investments in
initial public offerings (IPOs) made a material contribution to performance. IPO investments may contribute significantly to a small portfolio’s return, an effect that will generally decrease as
assets grow. IPO investments may be unavailable in the future.
(2)
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 $48 million.
36
Table of Contents
The tables below set forth changes in our assets under management by investment team:
Growth
Global Equity U.S. Value
International
Value
By Investment Team
Global Value
Sustainable
Emerging
Markets
(unaudited; in millions)
Credit
Developing
World
Antero Peak
Group
EMsights
Capital Group
Total
$
52,434 $
32,998 $
8,053 $
31,816 $
26,744 $
1,173 $
8,157 $
8,102 $
5,277 $
— $
174,754
7,069
3,252
544
7,560
2,759
293
3,021
1,599
1,064
(8,579)
(1,510)
(8,681)
(5,429)
(5)
(35)
(16,942)
(6,911)
(1,617)
(1,073)
(47)
(845)
(6,617)
943
(4,003)
(1,244)
(173)
(16)
(2,376)
(3,717)
(226)
67
—
(367)
(3,033)
(12)
(209)
(796)
(2,998)
(1,399)
(1,286)
(222)
(7)
(5)
(3,230)
(1,374)
66
—
66
—
6
27,227
(37,040)
(9,813)
(497)
(36,552)
33,977 $
20,623 $
6,088 $
30,210 $
21,767 $
873 $
7,140 $
3,466 $
3,676 $
72 $
127,892
38,565 $
24,019 $
7,146 $
30,406 $
23,574 $
996 $
7,548 $
4,872 $
4,350 $
53 $
141,516
52,685 $
32,056 $
7,149 $
24,123 $
22,417 $
679 $
6,338 $
8,853 $
3,476 $
— $
157,776
7,418
4,384
407
8,121
4,723
(12,528)
(5,110)
(302)
5,161
(5,313)
(929)
(545)
2,416
(1,189)
(782)
(47)
1,733
(4,057)
4,064
(701)
4,330
(3,809)
914
(46)
3,459
499
(54)
445
—
49
3,158
3,499
1,516
(1,582)
1,576
(217)
460
(3,035)
464
(286)
(929)
(480)
1,036
(151)
916
—
—
—
—
—
33,725
(32,047)
1,678
(2,295)
17,595
52,434 $
32,998 $
8,053 $
31,816 $
26,744 $
1,173 $
8,157 $
8,102 $
5,277 $
— $
174,754
53,375 $
33,679 $
7,835 $
28,998 $
25,463 $
924 $
7,576 $
9,541 $
4,376 $
— $
171,767
34,793 $
27,860 $
7,402 $
22,000 $
19,707 $
234 $
3,850 $
3,374 $
1,796 $
— $
121,016
9,532
6,479
786
6,165
4,681
(8,616)
916
(222)
17,198
(5,885)
594
(115)
3,717
(1,687)
(901)
(12)
660
(6,101)
64
(46)
(3,535)
1,146
—
2,105
1,564
349
(25)
324
—
121
3,438
3,527
1,381
(1,415)
2,023
(130)
595
(1,487)
2,040
(142)
3,581
(433)
948
(23)
755
—
—
—
—
—
36,338
(29,184)
7,154
(690)
30,296
52,685 $
32,056 $
7,149 $
24,123 $
22,417 $
679 $
6,338 $
8,853 $
3,476 $
— $
157,776
40,806 $
26,991 $
6,266 $
20,045 $
17,780 $
476 $
4,493 $
5,465 $
2,579 $
— $
124,901
$
$
$
$
$
$
$
$
Year Ended
December 31, 2022
Beginning assets under
management
Gross client cash
inflows
Gross client cash
outflows
Net client cash flows
Artisan Funds’ distributions
not reinvested
Investment returns and other
(2)
(1)
Ending assets under
management
Average assets under
management
December 31, 2021
Beginning assets under
management
Gross client cash
inflows
Gross client cash
outflows
Net client cash flows
Artisan Funds’ distributions
not reinvested
Investment returns and other
(2)
(1)
Ending assets under
management
Average assets under
management
December 31, 2020
Beginning assets under
management
Gross client cash
inflows
Gross client cash
outflows
Net client cash flows
Artisan Funds’ distributions
not reinvested
Investment returns and other
(2)
(1)
Ending assets under
management
Average assets under
management
(1)
Artisan Funds’ distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds.
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.
(2)
37
Table of Contents
The goal of our marketing, distribution and client services efforts is to establish and maintain a client base that is diversified by investment strategy, client type 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:
Institutional
Intermediary
Retail
As of December 31, 2022
As of December 31, 2021
As of December 31, 2020
$ in millions
(unaudited)
$
$
82,456
39,851
5,585
127,892
% of total
$ in millions
(unaudited)
% of total
$ in millions
(unaudited)
% of total
64.5 % $
31.1 %
4.4 %
100.0 % $
111,705
55,198
7,851
174,754
63.9 % $
31.6 %
4.5 %
100.0 % $
102,189
48,657
6,930
157,776
64.8 %
30.8 %
4.4 %
100.0 %
Ending Assets Under Management
(1)
(1)
The allocation 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 December 31, 2022.
38
Table of Contents
The following tables set forth the changes in our assets under management by vehicle type:
Year Ended
December 31, 2022
Beginning assets under management
Gross client cash inflows
Gross client cash outflows
Net client cash flows
Artisan Funds’ distributions not reinvested
Investment returns and other
(4)
Net transfers
(3)
(2)
Ending assets under management
Average assets under management
December 31, 2021
Beginning assets under management
Gross client cash inflows
Gross client cash outflows
Net client cash flows
Artisan Funds’ distributions not reinvested
Investment returns and other
(4)
Net transfers
(3)
(2)
Ending assets under management
Average assets under management
December 31, 2020
Beginning assets under management
Gross client cash inflows
Gross client cash outflows
Net client cash flows
Artisan Funds’ distributions not reinvested
Investment returns and other
(4)
Net transfers
(3)
(2)
$
$
$
$
$
$
$
Artisan Funds & Artisan
Global Funds
Separate Accounts and
Other
(unaudited; in millions)
(1)
Total
84,363 $
18,632
(24,552)
(5,920)
(497)
(16,834)
(301)
60,811 $
68,080 $
74,746 $
23,957
(18,628)
5,329
(2,295)
6,984
(401)
84,363 $
83,533 $
90,391 $
8,595
(12,488)
(3,893)
—
(19,718)
301
67,081 $
73,436 $
83,030 $
9,768
(13,419)
(3,651)
—
10,611
401
90,391 $
88,234 $
174,754
27,227
(37,040)
(9,813)
(497)
(36,552)
—
127,892
141,516
157,776
33,725
(32,047)
1,678
(2,295)
17,595
—
174,754
171,767
57,288 $
22,510
(18,110)
4,400
(690)
14,259
(511)
74,746 $
63,728 $
13,828
(11,074)
2,754
—
16,037
511
83,030 $
121,016
36,338
(29,184)
7,154
(690)
30,296
—
157,776
124,901
Ending assets under management
Average assets under management
(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 December 31, 2022, 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 $48 million.
(2)
Artisan Funds’ distributions not reinvested represents the amount of income and capital gain distributions that were not reinvested in the Artisan Funds.
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.
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
66,272 $
58,629 $
$
(3)
$
(4)
account.
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Table of Contents
Artisan Funds and Artisan Global Funds
As of December 31, 2022, Artisan Funds comprised $55.8 billion, or 45%, of our assets under management. For the year ended December 31, 2022, fees from Artisan Funds
represented $573.9 million, or 58%, of our revenues. Our contractual tiered fee rates for the series of Artisan Funds range from 0.60% to 1.05% of fund assets, depending on
the investment strategy, the amount invested and other factors.
As of December 31, 2022, Artisan Global Funds comprised $5.0 billion, or 3%, of our assets under management. For the year ended December 31, 2022, fees from Artisan
Global Funds represented $43.1 million, or 4%, of our revenues. Our contractual fee rates for Artisan Global Funds range from 0.70% to 1.85% of assets under
management.
The weighted average management fee rate paid by our Artisan Funds and Artisan Global Funds clients in the aggregate was 0.907%, 0.912%, and 0.916%, for the years
ended December 31, 2022, 2021 and 2020, respectively.
Separate Accounts and Other
“Separate accounts and other” consists of assets we manage in or through vehicles other than Artisan Funds or Artisan Global Funds, including traditional separate accounts,
Artisan-branded collective investment trusts and Artisan Private Funds, as well as assets under advisement related to clients for whom we provide investment models but do
not have discretionary investment authority. Separate accounts and other comprised $67.1 billion, or 52%, of our assets under management as of December 31, 2022. For the
year ended December 31, 2022, fees from separate accounts and other represented $376.3 million, or 38%, of our revenues.
For traditional separate account clients, we generally impose standard fee schedules that vary by investment strategy and, through the application of standard breakpoints,
reflect the size of the account and client relationship. The weighted average management fee rate paid by our traditional separate account clients was 0.484%, 0.484%, and
0.498% for the years ended December 31, 2022, 2021 and 2020, respectively. There are a number of exceptions to our standard fee schedules, including exceptions based on
the nature of our relationship with the client and the value of the assets under our management in that relationship. In general, our effective rate of fee for a particular client
relationship declines as the assets we manage for that client increase, which we believe is typical for the asset management industry.
A number of our investment strategies are accessible to certain types of employee benefit plans through Artisan-branded collective investment trusts. We act as investment
adviser to the collective investment trusts and earn a management fee for providing this service. The weighted average management fee rate paid by our Artisan-branded
collective investment trust clients was 0.714%, 0.729%, and 0.735% for the years ended December 31, 2022, 2021 and 2020, respectively.
Artisan serves as the investment manager and acts as the general partner for certain Artisan Private Funds. Under the terms of these agreements, Artisan earns a management
fee, and for certain funds is entitled to receive either an allocation of profits or a performance-based fee. The weighted average management fee rate paid by our Artisan
Private Funds clients was 0.809%, 0.786%, and 0.800% for the years ended December 31, 2022, 2021 and 2020, respectively.
The weighted average management fee rate, which excludes performance fees, paid by our separate accounts and other clients in the aggregate was 0.512%, 0.513% and
0.526% for the years ended December 31, 2022, 2021 and 2020, respectively. Because, as is typical in the asset management industry, our rates of fee decline as the assets
under our management in a relationship increase, and because of differences in our fees by investment strategy, a change in the composition of our assets under
management, in particular a shift to strategies, clients or relationships with lower effective rates of fees, could have a material impact on our overall weighted average rate of
fee. See “—Qualitative and Quantitative Disclosures Regarding Market Risk—Market Risk” for a sensitivity analysis that demonstrates the impact that certain changes in
the composition of our assets under management could have on our revenues.
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.
The different fee structures associated with Artisan Funds, Artisan Global Funds and separate accounts and other pooled vehicles, and the different fee schedules applicable
to each of our investment strategies, make the composition of our assets under management an important determinant of the investment management fees we earn.
Historically, we have received higher effective rates of investment management fees from Artisan Funds and Artisan Global Funds than from traditional separate accounts,
reflecting, among other things, the different and broader array of services we provide to Artisan Funds and Artisan Global Funds. Investment management fees for non-U.S.
funds may also be higher because they include fees to offset higher distribution costs. Our investment management fees also differ by investment strategy, with higher-
capacity strategies having lower standard fee rates than strategies with more limited capacity.
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Certain separate account clients pay us fees based on the performance of their accounts relative to agreed-upon benchmarks, which typically results in a lower base fee, but
allows us to earn higher fees if the performance we achieve for that client is superior to the performance of an agreed-upon benchmark. We may also receive performance
fees or incentive allocations from Artisan Private Funds. Approximately 3% of our $127.9 billion of assets under management as of December 31, 2022 have performance
fee billing arrangements. Performance fees of $0.6 million, $13.3 million, and $14.7 million were recognized in the years ended December 31, 2022, 2021 and 2020,
respectively.
The following table sets forth revenues we earned by vehicle type for the years ended December 31, 2022, 2021 and 2020:
Revenues
Management fees
Artisan Funds & Artisan Global Funds
Separate accounts and other
Performance fees
Total revenues
Average assets under management for period
2022
For the Years Ended December 31,
2021
(in millions)
2020
$
$
$
617.0
375.7
0.6
993.3
141,516
$
$
$
761.4
452.5
13.3
1,227.2
171,767
$
$
$
537.2
347.7
14.7
899.6
124,901
Management fees, performance fees and incentive allocations earned from consolidated investment products are eliminated from revenue upon consolidation. For each of
the years ended December 31, 2022, 2021 and 2020, approximately 82%, 83%, and 83%, respectively, of our investment advisory fees were earned from clients located in
the United States.
Operating Expenses
Our operating expenses consist primarily of compensation and benefits, distribution, servicing and marketing, occupancy, communication and technology, and general and
administrative expenses.
Our expenses fluctuate due to a number of factors, including the following:
•
•
variations in the amount of total compensation expense due to, among other things, changes in the amount of incentive compensation earned and equity
awards made, variations in our employee count (including the addition of new investment teams) and changes in our product mix and other competitive
factors; and
expenses, such as distribution fees, rent, professional service fees, technology and data-related costs, incurred, as necessary, to operate and grow our business.
A significant portion of our operating expenses are variable and fluctuate in direct relation to our assets under management and revenues. Even if we experience declining
revenues, we expect to continue to make the expenditures necessary for us to manage and grow our business. As a result, our profits may decline.
Compensation and Benefits
Compensation and benefits includes (i) salaries, incentive compensation and benefits costs and (ii) long-term incentive compensation expense related to equity and cash
awards granted to employees.
Incentive compensation comprises a significant portion of our senior employees’ total compensation. The amount of incentive compensation paid to members of our
investment teams and distribution team is based in large part on formulas that are tied directly to revenues. For each of our investment teams, incentive compensation
generally represents 25% of the asset-based management fees and a share of performance-based fees generated by assets under management in the team’s strategy or
strategies. Incentive compensation paid to most other employees is discretionary and determined based on individual performance and our overall results during the
applicable year.
The Company is primarily self-insured for health benefits up to certain annual stop-loss limits. Expense is recognized based on claims filed and an estimate of claims
incurred but not yet reported, as determined by an independent third party.
Fixed compensation costs, comprised of salaries, benefits, and equity based long term compensation expense, are expected to rise approximately mid single digits reflecting
2023 merit increases, the absorption of a full year of expense for full time employees hired in 2022, and an expected 5% increase in employees, primarily in investment and
distribution roles. Certain compensation and benefits expenses are generally higher in the beginning of the year, including employer funded retirement and health care
contributions and payroll taxes. We expect these costs to add approximately $5 million to our expenses in the first quarter of 2023, compared to the fourth quarter of 2022.
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We have granted equity awards to our employees pursuant to the Artisan Partners Asset Management Inc. 2013 Omnibus Incentive Compensation Plan, as amended. The
equity awards consist of standard restricted awards that generally vest on a pro rata basis over 5 years and career awards that vest when both of the following conditions are
met (1) pro-rata time vesting over 5 years and (2) qualifying retirement (as defined in the award agreements). Career-vesting awards granted to investment team members
are generally further subject to the Franchise Protection Clause, which applies to current or future portfolio managers and founding investment team members. The
Franchise Protection Clause provides that the total number of awards ultimately vesting will be reduced to the extent that cumulative net client cash outflows from the award
recipient’s investment team during generally a 3-year measurement period beginning on the date of the recipient’s retirement notice exceeds a set threshold. Performance
share units (“PSUs”) were granted to certain executive officers of the Company in 2020, 2021 and 2022. The number of PSUs that will vest is dependent upon the
Company’s adjusted operating margin and total stockholder return relative to a peer group over a three year measurement period. Once determined the extent to which the
performance conditions have been met, 50% of the PSUs eligible for vesting will vest, and 50% of the PSUs eligible for vesting will vest upon a qualified retirement. No
performance share units were granted in 2023.
The estimated grant date fair value of equity awards is recognized as compensation expense on a straight-line basis over the requisite service period of the award. The initial
requisite service period is generally three years for PSUs and five years for all other equity awards that have been granted to date. Compensation expense for PSUs is only
recognized if it is probable that the performance conditions will be achieved. For all awards, if a service or performance condition is not achieved, the corresponding awards
are forfeited and any previously recognized compensation expense is reversed.
We grant cash-based long-term incentive awards, referred to as franchise capital awards, to certain investment team members in lieu of additional equity awards. Franchise
capital awards are subject to the same long-term vesting and forfeiture provisions as the equity awards. Prior to vesting, franchise capital awards are generally allocated to
one or more of Artisan’s investment strategies. The underlying investment holdings and franchise capital award liability are marked to market value each quarter. The
change in value of the award liability is included in compensation expense. The change in value of the underlying investment holdings is included in non-operating
income/(expense).
We expect to reserve approximately 4% of our management fee revenues each quarter for future franchise capital awards, which we expect to make after the conclusion of
each year. Over the long-term, we believe the economic impact of the reduced cash available for dividends will be offset by a corresponding reduction in dilution, as we
expect to grant fewer equity awards as a result of the franchise capital awards.
On January 25, 2023, the Company's board of directors approved a grant of long-term incentive awards with a grant date fair value of $57.1 million consisting of $18.1
million of equity awards and $39.0 million of franchise capital awards to certain employees pursuant to the Company’s 2013 Omnibus Incentive Compensation Plan, as
amended. The grant will be effective March 1, 2023.
Since the IPO and including the grant in the first quarter of 2023, our board of directors has approved equity grants of 11,866,016 restricted share-based awards. Total
unrecognized non-cash compensation expense for these awards is $97.7 million. As of the date of this filing, unvested equity awards consist of the following number of
shares by vesting condition:
Standard Pro Rata Time Vesting
Qualified Retirement
Total Unvested
Service Only
1,842,485
2,867,467
4,709,952
Service &
Performance
Conditions
Service & Market
Conditions
58,581
1,376,369
1,434,950
58,581
57,002
115,583
Total
1,959,647
4,300,838
6,260,485
Including the long-term incentive award approved in the first quarter of 2023, total unrecognized long-term incentive compensation expense (including both equity grants
and franchise capital awards) is $197.3 million. We expect long-term incentive compensation expense to be approximately $14 million per quarter in 2023, excluding the
impact of investment returns on the franchise capital awards’ underlying investments.
We expect to continue to make long-term incentive awards each year, though the form and structure of the awards may change as we seek to maximize alignment between
our employees and our clients, investors and stockholders. The actual amount of the expense over time will depend primarily on the size of awards made and our stock price
at the time equity awards are granted. The size of long-term incentive awards will vary from year to year and will be influenced by our results and other factors. From time
to time, we may also make individual equity grants to people we hire.
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Distribution, Servicing and Marketing
Distribution, servicing and marketing expenses primarily represent payments we make to broker-dealers, financial advisors, defined contribution plan providers, mutual fund
supermarkets and other intermediaries for selling, servicing and administering accounts invested in shares of Artisan Funds. Artisan Funds authorizes intermediaries to
accept purchase, exchange and redemption orders for shares of Artisan Funds on behalf of Artisan Funds. Many intermediaries charge a fee for those services. Artisan Funds
pays a portion of some of those fees, which portion is intended to compensate the intermediary for its provision of services of the type that would be provided by Artisan
Funds’ transfer agent or other service providers if the shares were registered directly on the books of Artisan Funds’ transfer agent. Like the investment management fees we
earn as adviser to Artisan Funds, distribution, servicing and marketing fees typically vary with the value of the assets invested in shares of Artisan Funds. The allocation of
such fees between us and Artisan Funds is determined by the board of Artisan Funds, based on information and a recommendation from us, with the goal of allocating to us,
at a minimum, all costs attributable to the marketing and distribution of shares of Artisan Funds. A significant portion of Artisan Funds’ shares are held by investors through
intermediaries to which we pay distribution, servicing and marketing expenses.
Total distribution, servicing and marketing fees will increase as we increase our assets under management sourced through intermediaries that charge these fees or similar
fees. The amount we pay to intermediaries for distribution and administrative services varies by share class. As assets have transferred from the Investor share class to the
Advisor and Institutional share classes, the amount we have paid for distribution, servicing and marketing has decreased. Consistent with the experience of other investment
managers, as the foregoing expenses have decreased, we have seen increased requests from intermediaries for alternative forms of compensation. To date, such alternative
forms of compensation have not been material, but they could be over time.
Occupancy
Occupancy expenses include operating leases for facilities, furniture and office equipment, miscellaneous facility related costs and depreciation expense associated with
furniture purchases and leasehold improvements. We expect 2023 occupancy expenses to be relatively consistent with 2022.
Communication and technology
Communication and technology expenses include information and print subscriptions, telephone costs, information systems consulting fees, equipment and software
maintenance expenses, operating leases for information technology equipment and depreciation and amortization expenses associated with computer hardware and software.
Information and print subscriptions represent the costs we pay to obtain investment research and other data we need to operate our business. A portion of these expenses
generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations. We expect to continue our
measured investments in technology to support our investment teams, distribution efforts, and scalable operations. We expect communication and technology expenses to
increase approximately 5% in 2023.
On behalf of our clients, we make decisions to buy and sell securities for each portfolio, select broker-dealers to execute trades and negotiate brokerage commission rates. In
connection with these transactions, we receive research products and services from broker-dealers in exchange for the business we conduct with such firms. Some of those
research products and services could be acquired for cash and our receipt of those products and services through the use of client commissions, or soft dollars, reduces cash
expenses we would otherwise incur. In response to the Markets in Financial Instruments Directive II and industry changes prompted by it, we have in the past experienced
requests from clients to bear research expenses that are currently paid for using soft dollars. In response to such requests or as a result of changes in our operations, we may
eventually bear a significant portion or all of the costs of research that are currently paid for using soft dollars, which would increase our operating expenses materially.
General and Administrative
General and administrative expenses include professional fees, travel and entertainment, certain state and local taxes, directors’ and officers’ liability insurance, director
fees, and other miscellaneous expenses we incur in operating our business. Travel expenses decreased significantly in 2020 and remained lower than historical levels in 2021
due to the COVID-19 pandemic. In 2022, travel-related expenses returned to near pre-pandemic levels, partially due to the increased cost of travel as compared to pre-
pandemic levels. As a result of an expected increase in headcount within our investment and distribution teams and an expected increase in the cost of travel, we expect a
5% increase in travel costs in 2023.
Non-Operating Income (Expense)
Interest Expense
Interest expense primarily relates to the interest we pay on our debt. For a description of the terms of our debt, see “—Liquidity and Capital Resources”. Interest expense
also includes interest on TRA payments, which is incurred between the due date (without extension) for our federal income tax return and the date on which we make TRA
payments.
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Net Investment Gain (Loss) of Consolidated Investment Products
Net investment gain (loss) of consolidated investment products represents the realized and unrealized investment gains (losses) related to investment products that are
included in our consolidated financial statements because Artisan holds a controlling financial interest in the respective investment entities. Significant portions of net
investment gain (loss) of consolidated investment products are offset by noncontrolling interests in our Consolidated Statements of Operations.
Net Investment Income
Net investment income includes realized and unrealized investment gains (losses) related to nonconsolidated investment products, income earned on excess cash balances,
and dividends earned on nonconsolidated equity securities.
Net Gain (Loss) on the Tax Receivable Agreements
Non-operating income (expense) also includes gains or losses related to the changes in our estimate of the payment obligation under the TRAs, including the impact of tax
rate changes. The effect of changes in our estimate of amounts payable under the TRAs, including the effect of changes in enacted tax rates and in applicable tax laws, is
included in net income.
Net Income (Loss) Attributable to Noncontrolling Interests
Net Income (Loss) Attributable to Noncontrolling Interests - Holdings
Net income (loss) attributable to noncontrolling interests - Holdings represents the portion of earnings or loss attributable to the ownership interests in Artisan Partners
Holdings held by the limited partners of Artisan Partners Holdings.
Net Income (Loss) Attributable to Noncontrolling Interests - Consolidated Investment Products
Net income (loss) attributable to noncontrolling interests - consolidated investment products represents the portion of earnings or loss attributable to third-party investors’
ownership interests in consolidated investment products.
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. Our effective income tax rate is dependent on many factors, including a rate benefit attributable to the fact that a portion of
Holdings’ taxable earnings are not subject to corporate level taxes. 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. The effective tax rate is also lower than the statutory rate due to dividends paid on unvested
share-based awards. These favorable impacts are partially offset by the impact of permanent items, including certain executive compensation expenses, that are not
deductible for tax purposes.
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.
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Table of Contents
Results of Operations
Year Ended December 31, 2022, Compared to Year Ended December 31, 2021
Statements of operations data:
Revenues
Operating Expenses
Total compensation and benefits
Other operating expenses
Total operating expenses
Total operating income
Non-operating income (expense)
Interest expense
Other non-operating income
Total non-operating income (expense)
Income before income taxes
Provision for income taxes
Net income before noncontrolling interests
Less: Noncontrolling interests - Artisan Partners Holdings
Less: Noncontrolling interests - consolidated investment products
Net income attributable to Artisan Partners Asset Management Inc.
Share Data
Basic earnings per share
Diluted earnings per share
Basic weighted average number of common shares outstanding
Diluted weighted average number of common shares outstanding
Revenues
For the Years Ended December 31,
Period-to-Period
2022
2021
$
%
(in millions, except share and per-share data)
$
993.3 $
1,227.2 $
(233.9)
510.4
138.8
649.2
344.1
(9.9)
(22.4)
(32.3)
311.8
63.4
248.4
49.1
(7.5)
206.8 $
2.94 $
2.94 $
62,475,960
62,498,509
563.0
123.7
686.7
540.5
(10.8)
21.9
11.1
551.6
107.1
444.5
96.9
11.1
336.5 $
5.10
5.09
59,866,790
59,881,039
$
$
$
(52.6)
15.1
(37.5)
(196.4)
0.9
(44.3)
(43.4)
(239.8)
(43.7)
(196.1)
(47.8)
(18.6)
(129.7)
(19)%
(9)%
12 %
(5)%
(36)%
8 %
(202)%
(391)%
(43)%
(41)%
(44)%
(49)%
(168)%
(39)%
The decrease in revenues of $233.9 million, or 19%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, was driven primarily by a
$30.3 billion, or 18%, decrease in our average assets under management and a $12.7 million decrease in performance fee revenue. The weighted average investment
management fee, which excludes performance fees, was 70.2 basis points for the year ended December 31, 2022, compared to 70.7 basis points for the year ended December
31, 2021. The weighted average investment management fee decreased slightly primarily due to the slight decrease in average management fee rate paid by our Artisan
Funds and Artisan Global Funds clients from 91.2 basis points for the year ended December 31, 2021 to 90.7 basis points for the year ended December 31, 2022 as a result
of the mix of investment within our Artisan Funds and Artisan Global Funds whereby each fund has a separate management fee.
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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.
For the Years Ended December 31,
Separate Accounts and Other
(2)
Artisan Funds and Artisan Global
Funds
2022
2021
2022
2021
(1)
Investment advisory fees
Weighted average management fee
Percentage of ending AUM
(1)
period.
(2)
Artisan-branded collective investment trusts and Artisan Private Funds, as well as assets under advisement related to clients for whom we provide investment models but do not have
discretionary investment authority.
We compute our weighted average management fee by dividing annualized management fees (which excludes performance fees) by average assets under management for the applicable
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,
376.3
51.2 bps
52 %
617.0
90.7 bps
48 %
761.4
91.2 bps
48 %
$
$
$
(dollars in millions)
465.8
51.3 bps
52 %
$
Operating Expenses
The decrease in total operating expenses of $37.5 million, or 5%, for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily a
result of a decline in incentive compensation and third-party distribution expense as a result of lower revenues, partially offset by increased travel, occupancy and
technology costs and higher fixed compensation costs reflecting annual merit increases and an increase in the number of full time associates, including our newest
investment team.
Compensation and Benefits
Salaries, incentive compensation and benefits
Long-term incentive compensation awards
Total compensation and benefits
(1)
(1)
Excluding long-term incentive compensation awards
For the Years Ended December 31,
Period-to-Period
2022
2021
(in millions)
$
%
$
$
458.6 $
51.8
510.4 $
516.9 $
46.1
563.0 $
(58.3)
5.7
(52.6)
(11)%
12 %
(9)%
The decrease in salaries, incentive compensation and benefits was driven primarily by a $73.6 million decrease in incentive compensation paid to our investment and
marketing professionals as a result of the decrease in revenue.
Long-term incentive compensation award expense increased $5.7 million, as the awards granted during 2022 had a higher value than the awards that became fully vested in
2022. During the first quarter of 2022, the Company’s board of directors approved a grant of $87 million of long-term incentive awards consisting of $38 million of
restricted share-based awards and $49 million of franchise capital awards.
Total compensation and benefits was 51% and 46% of our revenues for the years ended December 31, 2022 and 2021, respectively.
Other operating expenses
Other operating expenses increased $15.1 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to increases in
occupancy costs, increases in travel related expenses as pandemic related travel restrictions lessened, and increases in technology costs totaling $20.8 million partially offset
by a $7.1 million decrease in third-party distribution expense related to the decrease in AUM subject to those fees.
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Non-Operating Income (Expense)
Non-operating income (expense) consisted of the following:
Interest expense
Net investment gain (loss) of consolidated investment products
Other investment gain (loss)
Net gain (loss) on the tax receivable agreements
Total non-operating income (expense)
For the Years Ended December 31,
Period-to-Period
2022
2021
(in millions)
$
%
$
$
(9.9) $
(7.0)
(16.4)
1.0
(32.3) $
(10.8) $
19.7
1.8
0.4
11.1 $
0.9
(26.7)
(18.2)
0.6
(43.4)
8 %
(136)%
(1,011)%
150 %
(391)%
Non-operating income (expense) for the year ended December 31, 2022 includes a $1.0 million gain relating to a change in estimate of the payment obligation under the tax
receivable agreements, compared to a $0.4 million gain for the year ended December 31, 2021. The effect of changes in that estimate after the date of an exchange or sale is
included in net income. Interest expense decreased $0.9 million in the year ended December 31, 2022, as a result of savings generated by the lower interest rate on the new
Series F senior notes as compared to the Series C senior notes. The losses in net investment gain (loss) of consolidated investment products and other net investment gain
(loss), comprised predominantly of seed investments and investments for the economic hedge of franchise capital awards, in the year ended December 31, 2022, compared
to gains in the year ended December 31, 2021, was driven by market conditions.
Provision for Income Taxes
APAM’s effective income tax rate for the years ended December 31, 2022 and 2021 was 20.3% and 19.4%, respectively. The increase in effective tax rate was primarily due
to an increase in APAM’s ownership in Holdings.
Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately 17% and 19% of Holdings’ full year projected taxable
earnings were not subject to corporate-level taxes for the years ended December 31, 2022 and 2021, 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 favorable tax deductions related to the vesting of restricted share-based awards.
Earnings Per Share
Weighted average basic and diluted shares of Class A common stock outstanding were higher for the year ended December 31, 2022, compared to the year ended December
31, 2021, as a result of the 2021 stock offering, unit exchanges, and equity award grants. See Note 12, “Earnings Per Share” in the Notes to the consolidated financial
statements in Item 8 of this report for further discussion of earnings per share.
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Year Ended December 31, 2021, Compared to the Year Ended December 31, 2020
Statements of operations data:
Revenues
Operating Expenses
Total compensation and benefits
Other operating expenses
Total operating expenses
Total operating income
Non-operating income (expense)
Interest expense
Other non-operating income
Total non-operating income (expense)
Income before income taxes
Provision for income taxes
Net income before noncontrolling interests
Less: Noncontrolling interests - Artisan Partners Holdings
Less: Noncontrolling interests - consolidated investment products
Net income attributable to Artisan Partners Asset Management Inc.
Share Data
Basic earnings per share
Diluted earnings per share
Basic weighted average number of common shares outstanding
Diluted weighted average number of common shares outstanding
For the Years Ended December 31,
2021
2020
For the Period-to-Period
$
%
(in millions, except share and per-share data)
$
1,227.2 $
899.6 $
563.0
123.7
686.7
540.5
(10.8)
21.9
11.1
551.6
107.1
444.5
96.9
11.1
336.5 $
5.10 $
5.09 $
59,866,790
59,881,039
435.8
105.5
541.3
358.3
(10.8)
21.8
11.0
369.3
60.8
308.5
81.1
14.8
212.6 $
3.40
3.40
55,633,529
55,637,922
$
$
$
327.6
127.2
18.2
145.4
182.2
—
0.1
0.1
182.3
46.3
136.0
15.8
(3.7)
123.9
36 %
29 %
17 %
27 %
51 %
— %
— %
1 %
49 %
76 %
44 %
19 %
(25)%
58 %
A detailed discussion of the year-over-year results for the year ended December 31, 2021, compared to the year ended December 31, 2020, can be found in “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31,
2021, filed with the SEC on February 22, 2022.
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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 (reversal) related to market valuation changes in compensation plans, (3) net investment gain (loss) of investment
products, and (4) the remeasurement of deferred taxes. 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 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
(reversal) related to market valuation changes in compensation plans, (3) net investment gain (loss) of investment products, and (4) the remeasurement of deferred
taxes. 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% for all periods
presented.
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 (reversal) 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.
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The following table sets forth, for the periods indicated, a reconciliation from GAAP financial measures to non-GAAP measures:
2022
For the Years Ended December 31,
2021
(unaudited; in millions, except per share data)
2020
Reconciliation of non-GAAP financial measures:
Net income attributable to Artisan Partners Asset Management Inc. (GAAP)
Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings
Add back: Provision for income taxes
Add back: Compensation expense (reversal) related to market valuation changes in
compensation plans
Add back: Net (gain) loss on the tax receivable agreements
Add back: Net investment (gain) loss of investment products attributable to APAM
Less: Adjusted provision for income taxes
Adjusted net income (Non-GAAP)
Average shares outstanding
Class A common shares
Assumed vesting or exchange of:
Unvested Class A restricted share-based awards
Artisan Partners Holdings units outstanding (noncontrolling interests)
Adjusted shares
Basic earnings per share (GAAP)
Diluted earnings per share (GAAP)
Adjusted net income per adjusted share (Non-GAAP)
Operating income (GAAP)
Add back: Compensation expense (reversal) related to market valuation changes in
compensation plans
Adjusted operating income (Non-GAAP)
Operating margin (GAAP)
Adjusted operating margin (Non-GAAP)
Net income attributable to Artisan Partners Asset Management Inc. (GAAP)
Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings
Add back: Compensation expense (reversal) related to market valuation changes in
compensation plans
Add back: Net (gain) loss on the tax receivable agreements
Add back: Net investment (gain) loss of investment products attributable to APAM
Add back: Interest expense
Add back: Provision for income taxes
Add back: Depreciation and amortization
Adjusted EBITDA (Non-GAAP)
$
$
$
$
$
$
$
$
$
206.8
49.1
63.4
(3.8)
(1.0)
16.9
81.8
249.6
62.5
5.7
12.0
80.2
2.94
2.94
3.11
344.1
(3.8)
340.3
34.6 %
34.3 %
206.8
49.1
(3.8)
(1.0)
16.9
9.9
63.4
7.9
349.2
$
$
$
$
$
$
$
$
$
336.5
96.9
107.1
0.3
(0.4)
(9.3)
131.2
399.9
59.9
5.4
14.2
79.5
5.10
5.09
5.03
540.5
0.3
540.8
44.0 %
44.1 %
336.5
96.9
0.3
(0.4)
(9.3)
10.8
107.1
7.0
548.9
$
$
$
$
$
$
$
$
$
212.6
81.1
60.8
—
4.7
(10.3)
86.2
262.7
55.6
5.4
17.9
78.9
3.40
3.40
3.33
358.3
—
358.3
39.8 %
39.8 %
212.6
81.1
—
4.7
(10.3)
10.8
60.8
6.6
366.3
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Liquidity, Capital Resources, and Contractual Obligations
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 December 31, 2022 and December 31, 2021:
December 31, 2022
December 31, 2021
$
$
$
$
(in millions)
114.8 $
98.6 $
124.8 $
100.0 $
189.2
115.9
71.9
100.0
Cash and cash equivalents
Accounts receivable
(1)
Seed investments
Undrawn commitment on revolving credit facility
(1)
made related to funded long-term incentive compensation plans.
Seed investments include Artisan's direct equity investments in consolidated and nonconsolidated Artisan-sponsored investment products. The balance excludes $67.3 million of investments
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 December 31, 2022, none of our receivables were
considered uncollectible.
We utilize cash to make seed investments in Artisan-sponsored investment products to support the development of new investment strategies and vehicles. As of
December 31, 2022, the balance of all seed investments, including investments in consolidated investment products, was $124.8 million. Subject to certain restrictions on
the timing of redemptions, the seed investments are generally redeemable at our discretion.
During the year ended December 31, 2022, we also made investments of $48.6 million related to our economic hedge of franchise capital awards. As of December 31, 2022,
the value of investments held related to the economic hedge of our franchise capital awards was $67.3 million. In the first quarter of 2023, we intend to invest an additional
$39.0 million related to our economic hedge of franchise capital awards in connection with the grant that was approved by our Board on January 25, 2023.
We expect our investment portfolio to continue to grow as we grant additional annual franchise capital awards and make seed investments in new investment strategies and
vehicles.
On August 16, 2022, Artisan Partners Holdings issued $90.0 million of 3.10% Series F notes pursuant to an agreement executed in December 2021 and used the proceeds to
repay the $90.0 million of Series C senior notes that matured on August 16, 2022. In addition, Holdings amended and extended its $100.0 million revolving credit facility
for an additional five-year period.
As of December 31, 2022, we have $200 million in unsecured notes outstanding and a $100 million revolving credit facility with a five-year term ending in August 2027.
The notes are comprised of three series, Series D, Series E, and Series F, each with a balloon payment at maturity. The $100 million revolving credit facility was unused as
of and for the year ended December 31, 2022.
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. Holdings maintained an investment grade rating for the year ended December 31, 2022.
These borrowings contain certain customary covenants including limitations on Artisan Partners Holdings’ ability to: (i) incur additional indebtedness or liens, (ii) engage in
mergers or other fundamental changes, (iii) sell or otherwise dispose of assets including equity interests, and (iv) make dividend payments or other distributions to Artisan
Partners Holdings’ partners (other than, among others, tax distributions paid to partners for the purpose of funding tax liabilities attributable to their interests) when a default
occurred and is continuing or would result from such a distribution. In addition, in the event of a Change of Control (as defined in the Note Purchase Agreement) or if
Artisan’s average assets under management for a fiscal quarter is below $45 billion, Holdings is generally required to offer to pre-pay the notes. Artisan Partners Limited
Partnership, a wholly-owned subsidiary of Holdings, has guaranteed Holdings’ obligations under the terms of the Note Purchase Agreement.
In addition, covenants in the note purchase and revolving credit agreements require Artisan Partners Holdings to maintain the following financial ratios:
•
leverage ratio (calculated as the ratio of consolidated total indebtedness on any date to consolidated EBITDA for the period of four consecutive fiscal quarters
ended on or prior to such date) cannot exceed 3.00 to 1.00 (Artisan Partners Holdings’ leverage ratio for the year ended December 31, 2022 was 0.5 to 1.00);
and
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•
interest coverage ratio (calculated as the ratio of consolidated EBITDA for any period of four consecutive fiscal quarters to consolidated interest expense for
such period) cannot be less than 4.00 to 1.00 for such period (Artisan Partners Holdings’ interest coverage ratio for the year ended December 31, 2022 was
42.4 to 1.00).
Our failure to comply with any of the covenants or restrictions described above 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 December 31, 2022.
See Note 5, “Borrowings”, for further information on our outstanding notes and revolving credit facility.
As of December 31, 2022, we had approximately $143.9 million of future minimum rent commitments under non-cancellable leasing arrangements.
Distributions and Dividends
Artisan Partners Holdings’ distributions, including distributions to APAM, for the years ended December 31, 2022 and 2021 were as follows:
For the Years Ended December
31,
2022
2021
Holdings Partnership Distributions to Limited Partners
Holdings Partnership Distributions to APAM
Total Holdings Partnership Distributions
$
$
$
(in millions)
57.2
299.0
356.2
$
93.2
400.2
493.4
APAM, acting as the general partner of Artisan Partners Holdings, declared, effective January 31, 2023, a distribution of $23.0 million payable by Artisan Partners Holdings
on February 21, 2023 to holders of its partnership units, including APAM.
APAM declared and paid the following dividends per share during the years ended December 31, 2022 and 2021:
Type of Dividend
Quarterly
Special Annual
Class of Stock
Common Class A
Common Class A
For the Years Ended
December 31,
2022
2021
$
$
2.95 $
0.72 $
3.92
0.31
Our board of directors declared, effective January 31, 2023, a variable quarterly dividend of $0.55 per share of Class A common stock with respect to the December quarter
of 2022 and a special annual dividend of $0.35. The combined amount, $0.90 per share of Class A common stock, will be paid on February 28, 2023 to stockholders of
record as of the close of business on February 14, 2023. The variable quarterly dividend of $0.55 per share represents approximately 80% of the cash generated (as described
below) in the December quarter of 2022 and a pro-rata portion of 2022 tax savings related to our tax receivable agreements. The special dividend represents the remainder of
undistributed cash generated during the year ended December 31, 2022, less cash reserved for future growth initiatives including seed investments in new investment
strategies and vehicles.
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
our quarterly cash generation to approximate 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 $398.8 million liability as of December 31, 2022. 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).
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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
year ended December 31, 2022, we made payments of $33.2 million, related to the TRAs, including interest. In 2023, we expect to make payments of approximately $36
million related to the TRAs.
Cash Flows
Cash, cash equivalents and restricted cash as of January 1,
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Net impact of deconsolidation of consolidated investment products
Cash, cash equivalents and restricted cash as of December 31,
2022
For the Years Ended December 31,
2021
(in millions)
2020
200.8 $
312.6
(63.7)
(306.4)
—
143.3 $
199.5 $
398.5
(27.0)
(335.4)
(34.8)
200.8 $
144.3
318.7
18.7
(282.2)
—
199.5
$
$
Year Ended December 31, 2022, Compared to Year Ended December 31, 2021
Net cash provided by operating activities decreased $85.9 million for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to a
decrease in operating income resulting from lower average AUM and revenues, partially offset by a decrease in cash outflows associated with consolidated investment
products for the year ended December 31, 2022, as compared to December 31, 2021.
Investing activities consist primarily of acquiring property and equipment, leasehold improvements and the purchase and sale of investment securities. Net cash used by
investing activities increased $36.7 million during the year ended December 31, 2022, primarily due to a $23.1 million increase in net purchases of investment securities,
which includes a $14.0 million increase in investment securities related to the economic hedge of our franchise capital awards. Further, acquisitions of property and
equipment and leasehold improvements increased $13.6 million, primarily related to build outs of newly leased space in the year ended December 31, 2022.
Financing activities consist primarily of partnership distributions to non-controlling interests, dividend payments to holders of our Class A common stock, proceeds from the
issuance of Class A common stock in follow-on offerings, payments to purchase Holdings partnership units, and payments of amounts owed under the tax receivable
agreements. Net cash used in financing activities decreased $29.0 million during the year ended December 31, 2022, primarily due to a $26.0 million decrease in dividends
paid and a $36.0 million decrease in distributions paid to limited partners, each related to the decrease in operating income for the year ended December 31, 2022 driven by
the decrease in AUM. These lower cash uses were partially offset by a $32.2 million net decrease in contributions from noncontrolling interests in our consolidated
investment products.
During the year ended December 31, 2022, the Company determined that it no longer had a controlling financial interest in an investment product that was previously
consolidated. The deconsolidation of the investment product resulted in no impact on cash, cash equivalents and restricted cash.
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Critical Accounting Policies and Estimates
The accompanying consolidated financial statements were prepared in accordance with GAAP, and related rules and regulations of the SEC. The preparation of financial
statements in conformity with GAAP requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates or assumptions and
may have a material effect on the consolidated financial statements.
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results
of operations and our financial condition. Management believes that the critical accounting policies and estimates discussed below involve additional management judgment
due to the sensitivity of the methods and assumptions used.
Consolidation
We consolidate all subsidiaries or other entities in which we have a controlling financial interest. We assess each legal entity in which we hold a variable interest on a
quarterly basis to determine whether consolidation is appropriate. We determine whether we have a controlling financial interest in the entity by evaluating whether the
entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”) under GAAP. Assessing whether an entity is a VIE or VOE and if it requires consolidation
involves judgment and analysis. Factors considered in this assessment include the legal organization of the entity, our equity ownership and contractual involvement with the
entity and any related party or de facto agent implications of our involvement with the entity.
Voting Interest Entities - A VOE is an entity in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii)
the equity holders at risk have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly
impact the entity’s economic performance, whereby the equity investment has all the characteristics of a controlling financial interest. As a result, voting rights are a key
driver of determining which party, if any, should consolidate the entity. Under the VOE model, controlling financial interest is generally defined as a majority ownership of
voting interests.
Variable Interest Entities - A VIE is an entity that lacks one or more of the characteristics of a VOE. In accordance with GAAP, an enterprise must consolidate all VIEs of
which it is the primary beneficiary. We determine if a legal entity meets the definition of a VIE by considering whether the fund’s equity investment at risk is sufficient to
finance its activities without additional subordinated financial support and whether the fund’s at-risk equity holders absorb any losses, have the right to receive residual
returns and have the right to direct the activities of the entity most responsible for the entity’s economic performance.
Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and
(ii) the right to receive potentially significant benefits or the obligation to absorb potentially significant losses. We will generally consolidate VIEs in which we meet the
power criteria and hold an equity ownership interest of greater than 10%.
We serve as the investment adviser for Artisan Funds, a family of mutual funds registered with the SEC under the Investment Company Act of 1940, and investment
manager of Artisan Global Funds, a family of Ireland-based UCITS funds. Artisan Funds and Artisan Global Funds are corporate entities the business and affairs of which
are managed by their respective boards of directors. The shareholders of the funds retain voting rights, including the right to elect and reelect members of their respective
boards of directors. Each series of Artisan Funds is a VOE and is separately evaluated for consolidation under the VOE model. The shareholders of Artisan Global Funds
lack simple majority liquidation rights, and as a result, Artisan Global Funds is evaluated for consolidation under the VIE model. Artisan Private Funds are also evaluated
for consolidation under the VIE model because third-party equity holders of the funds lack the ability to remove Artisan as the general partner, or otherwise divest Artisan of
its control of the funds.
Seed Investments - We generally make seed investments in sponsored investment portfolios at the portfolio’s formation. If the seed investment results in a controlling
financial interest, we will consolidate the investment, and the underlying individual securities will be accounted for based on their classification at the underlying fund. If the
seed investment results in significant influence, but not control, the investment will be accounted for as an equity method investment. Significant influence is generally
considered to exist with equity ownership levels between 20% and 50%, although other factors are considered. Seed investments in which we do not have a controlling
financial interest or significant influence are accounted for as investment securities. These investments are measured at fair value in the Consolidated Statements of
Financial Condition. Realized and unrealized gains (losses) on investment securities are recorded in net investment income in the Consolidated Statements of Operations.
Dividend income from these investments is recognized when earned and is included in net investment income in the Consolidated Statements of Operations.
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Revenue Recognition
Investment management fees are generally computed as a percentage of assets under management and are recognized as revenue at the end of each distinct service period.
Fees for providing investment management services are computed and billed in accordance with the underlying investment management agreements, which is generally on a
monthly or quarterly basis. Investment management fees are presented net of cash rebates to certain Artisan Global Fund investors and expense reimbursements pursuant to
contractual expense limitations of pooled investment vehicles.
A number of investment management agreements provide for performance-based fees or incentive allocations, collectively “performance fees”. Performance fees, if earned,
are recognized upon completion of the contractually determined measurement period, which is generally quarterly or annually. Performance fees generally are not subject to
claw back as a result of performance declines subsequent to the most recent measurement date.
Artisan accounts for asset management services as a single performance obligation that is satisfied over time, using a time-based measure of progress to recognize revenue.
Customer consideration is variable due to the uncertainty of the value of assets under management during each distinct service period. At the end of each quarter, Artisan
records revenue for the actual amount of investment management fees for that quarter because the uncertainty has been resolved.
Performance fees are subject to the uncertainty of market volatility, and as a result, the entire amount of the variable consideration related to performance fees is constrained
until the end of each measurement period. At the end of the quarterly or annual measurement period, revenue is recorded for the actual amount of performance fees earned
during that period because the uncertainty has been resolved.
The portfolios of Artisan Funds and Artisan Global Funds, as well as the portfolios we manage for our other clients, are invested principally in securities for which market
values are readily available, with a portion of each portfolio held in cash or cash-like instruments. With the exception of the assets managed by our Credit team and
EMsights Capital Group (which represented approximately 5.6% of our assets under management at December 31, 2022), the portfolios are invested principally in publicly-
traded equity securities.
The investment management fees that we receive are calculated based on the values of the securities held in the accounts that we manage for our clients. For our U.S.-
registered mutual fund and UCITS funds clients, including Artisan Funds and Artisan Global Funds, and for Artisan Private Funds, our fees are based on the values of the
funds’ assets as determined for purposes of calculating their net asset values. Securities held by Artisan Funds, Artisan Global Funds, and Artisan Private Funds are
generally valued at closing market prices, or if closing market prices are not readily available or are not considered reliable, at a fair value determined under procedures
established by the fund’s board (fair value pricing). Values of securities determined using fair value pricing are likely to be different than they would be if only closing
market prices were used.
For separate account clients, our fees may be based, at the client’s option, on the values of the securities in the portfolios we manage as determined by the client (or its
custodian or other service provider) or by us in accordance with valuation procedures we have adopted. The valuation procedures we have adopted generally use closing
market prices in the markets in which the securities trade, without adjustment for subsequent events except in unusual circumstances. We believe that our fees based on
valuations determined under our procedures are not materially different from the fees we receive that are based on valuations determined by clients, their custodians or other
service providers.
Income Taxes
We operate in numerous states and countries and must allocate our income, expenses, and earnings under the various laws and regulations of each of these taxing
jurisdictions. Accordingly, our provision for income taxes represents our total estimate of the liability for income taxes that we have incurred in doing business each year in
all of our locations. Annually, we file tax returns that represent our filing positions with each jurisdiction and settle our tax return liabilities. Each jurisdiction has the right to
audit those tax returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. Because the determination of
our annual income tax provision is subject to judgments and estimates, actual results may vary from those recorded in our financial statements. We recognize additions to
and reductions in income tax expense during a reporting period that pertains to prior period provisions as our estimated liabilities are revised and our actual tax returns and
tax audits are completed.
Our management is required to exercise judgment in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any
valuation allowance that might be required against deferred tax assets. As of December 31, 2022, we have not recorded a valuation allowance on any deferred tax assets. In
the event that sufficient taxable income of the same character does not result in future years, among other things, a valuation allowance for certain of our deferred tax assets
may be required.
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Payments pursuant to the Tax Receivable Agreements (“TRAs”)
We have recorded a liability of $398.8 million as of December 31, 2022, representing 85% of the estimated future tax benefits subject to the TRAs. The actual 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.
New or Revised Accounting Standards
See Note 2, “Summary of Significant Accounting Policies — Recent accounting pronouncements” to the Consolidated Financial Statements included in Item 8 of Part II of
this Form 10-K.
Item 7A. Qualitative and Quantitative Disclosures Regarding Market Risk
Market Risk
Our exposure to market risk is directly related to the role of our operating company as an investment adviser for the pooled vehicles and separate accounts it manages.
Essentially all of our revenues are derived from investment management agreements with these vehicles and accounts. Under these agreements, the investment advisory fees
we receive are generally based on the value of our assets under management, our fee rates and, for the accounts on which we earn performance based fees, the investment
performance of those accounts. Accordingly, if our assets under management decline as a result of market depreciation, our revenues and net income will also decline. In
addition, such a decline could cause our clients to withdraw their funds in favor of investments believed to offer higher returns or lower risk, which would cause our
revenues to decline further.
The value of our assets under management was $127.9 billion as of December 31, 2022. A 10% increase or decrease in the value of our assets under management, if
proportionately distributed over all our investment strategies, products and client relationships, would cause an annualized increase or decrease in our revenues of
approximately $89.8 million at our current weighted average fee rate of 70 basis points. Because of our declining rates of fee for larger relationships and differences in our
rates of fee across investment strategies, a change in the composition of our assets under management, in particular an increase in the proportion of our total assets under
management attributable to strategies, clients or relationships with lower effective rates of fees, could have a material negative impact on our overall weighted average rate
of fee. The same 10% increase or decrease in the value of our total assets under management, if attributed entirely to a proportionate increase or decrease in the assets of
each of the Artisan Funds and Artisan Global Funds, to which we provide a range of services in addition to those provided to separate accounts and therefore charge a higher
rate of fee, would cause an annualized increase or decrease in our revenues of approximately $116.0 million at the Artisan Funds and Artisan Global Funds aggregate
weighted average fee of 91 basis points. If the same 10% increase or decrease in the value of our total assets under management was attributable entirely to a proportionate
increase or decrease in the assets of each separate account we manage, it would cause an annualized increase or decrease in our revenues of approximately $65.5 million at
the current weighted average fee rate across all of our separate accounts of 51 basis points.
As is customary in the asset management industry, clients invest in particular strategies to gain exposure to certain asset classes, which exposes their investment to the
benefits and risks of those asset classes. Because we believe that our clients invest in each of our strategies in order to gain exposure to the portfolio securities of the
respective strategies and may implement their own risk management program or procedures, we have not adopted a corporate-level risk management policy regarding client
assets, nor have we attempted to hedge at the corporate level or within individual strategies the market risks that would affect the value of our overall assets under
management and related revenues. Some of these risks (e.g., sector risks and currency risks) are inherent in certain strategies, and clients may invest in particular strategies
to gain exposure to particular risks. While negative returns in our investment strategies and net client cash outflows do not directly reduce the assets on our balance sheet
(because the assets we manage are owned by our clients, not us), any reduction in the value of our assets under management would result in a reduction in our revenues.
We are subject to market risk from a decline in the prices of marketable securities that we own. The total value of marketable securities we owned, including our direct
equity investments in consolidated investment products, was $192.2 million as of December 31, 2022. We invested in certain Artisan Private Funds, Artisan Funds and
Artisan Global Funds in amounts sufficient to cover certain organizational expenses and to ensure that the funds had sufficient assets at the commencement of their
operations to build a viable investment portfolio. In addition, we invested in Artisan investment strategies to hedge our economic exposure to the change in value of our
franchise capital awards due to market movements. Assuming a 10% increase or decrease in the values of our total marketable securities, the fair value would increase or
decrease by $19.2 million at December 31, 2022. Management regularly monitors the value of these investments; however, given their nature and relative size, we have not
adopted a specific risk management policy to manage the associated market risk.
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Exchange Rate Risk
A substantial portion of the accounts that we advise, or sub-advise, hold investments that are denominated in currencies other than the U.S. dollar. Movements in the rate of
exchange between the U.S. dollar and the underlying foreign currency affect the values of assets held in accounts we manage, thereby affecting the amount of revenues we
earn. The value of the assets we manage was $127.9 billion as of December 31, 2022. As of December 31, 2022, approximately 53% of our assets under management were
invested in strategies that primarily invest in securities of non-U.S. companies and approximately 47% of our assets under management were invested in securities
denominated in currencies other than the U.S. dollar. To the extent our assets under management are denominated in currencies other than the U.S. dollar, the value of those
assets under management will decrease with an increase in the value of the U.S. dollar, or increase with a decrease in the value of the U.S. dollar. Each investment team
monitors its own exposure to exchange rate risk and makes decisions on how to manage that risk in the portfolios managed by that team.
We have not adopted a corporate-level risk management policy to manage exchange rate risk in the assets we manage. Assuming that 47% of our assets under management
is invested in securities denominated in currencies other than the U.S. dollar and excluding the impact of any hedging arrangements, a 10% increase or decrease in the value
of the U.S. dollar would decrease or increase the fair value of our assets under management by $6.0 billion, which would cause an annualized increase or decrease in
revenues of approximately $42.2 million at our current weighted average fee rate of 70 basis points.
We operate in several foreign countries of which the United Kingdom is the most prominent. We incur operating expenses and have foreign currency-denominated assets
and liabilities associated with these operations. In addition, we have revenue arrangements that are denominated in non-U.S. currencies. We do not believe these revenue
arrangements denominated in foreign currencies or our operations in foreign countries create foreign currency fluctuations that materially affect our results of operations.
Interest Rate Risk
We generally invest our available cash balances in money market mutual funds that invest primarily in U.S. Treasury or agency-backed money market instruments. These
funds attempt to maintain a stable net asset value but interest rate changes or other market risks may affect the fair value of those funds’ investments and, if significant,
could result in a loss of investment principal. Interest rate changes affect the income we earn from our excess cash balances. As of December 31, 2022, $3.3 million of our
available cash was invested in money market funds that invested solely in U.S. Treasuries. Given the current yield on these funds, interest rate changes would not have a
material impact on the income we earn from these investments. The remaining portion of our cash was held in demand deposit accounts.
Interest rate changes may affect the amount of our interest payments in connection with our revolving credit agreement, and thereby affect future earnings and cash flows.
As of December 31, 2022, there were no borrowings outstanding under the revolving credit agreement.
The strategies managed by our Credit Team, which had $7.1 billion of assets under management as of December 31, 2022, invest in fixed income securities. The values of
debt instruments held by these strategies may fall in response to increases in interest rates, which would reduce our revenues. We have considered the potential impact of a
100 basis point movement in market interest rates on the portfolios of the strategies managed by our Credit Team. Based on our analysis, we do not expect that such a
change would have a material impact on our revenues or results of operations in the next twelve months.
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Item 8. Financial Information and Supplementary Data
Index to Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Statements of Financial Condition as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements as of and for the years ended December 31, 2022, 2021 and 2020
Page
59
61
62
63
64
66
68
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Artisan Partners Asset Management Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial condition of Artisan Partners Asset Management Inc. and its subsidiaries (the “Company”) as of
December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for each
of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022
and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing
under Item 9A “Controls and Procedures”. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to
be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Income Taxes – Deferred Tax Assets and Amounts Payable Under Tax Receivable Agreements
As described in Notes 2 and 11 to the consolidated financial statements, the Company has recorded a deferred tax assets (“DTA”) balance of $477.0 million at December 31,
2022 while the amount payable under the tax receivable agreements (“TRA”) was $398.8 million. DTAs are determined by management based upon the future tax
consequences attributable to temporary differences between the financial statement carrying amounts and tax bases of assets. The TRAs generally provide for payment of
85% of the applicable cash savings, if any, of U.S. federal, state and local income taxes that the Company actually realizes (or is deemed to realize in certain circumstances)
as a result of certain tax attributes or benefits. The cash savings are calculated by comparing the Company’s actual income tax liability to the amount it would have been
required to pay had it not been able to utilize any of the tax benefits subject to the TRAs. The increase in tax basis, which results in a DTA, as well as the amount and timing
of any payments under these agreements, will vary depending on a number of factors, which include 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 the Company generates in the future and the tax rate then applicable, and the portion of the Company’s payments under the TRAs constituting imputed interest or
depreciable basis or amortizable basis.
The principal considerations for our determination that performing procedures relating to deferred tax assets and amounts payable under tax receivable agreements is a
critical audit matter are (1) the significant audit effort necessary in performing procedures related to the aforementioned factors utilized in the estimate and the assessment of
the application of the tax laws, and (2) the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these
procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial
statements. These procedures included testing the effectiveness of controls relating to income taxes, including controls over the deferred tax assets and tax receivable
agreements. These procedures also included, among others, testing management’s process for estimating the deferred tax assets and amounts payable under tax receivable
agreements, including (1) testing the factors to the Company’s estimates, related to the timing of sales or exchanges by the holders of limited partnership units and the price
of the Class A common stock at the time of such sales or exchanges, (2) assessing the reasonableness of the factors used in the Company’s estimates, related to the
likelihood of the Company having sufficient future taxable income to utilize the deferred tax asset as well as the portion of the Company’s payments under the TRA
constituting depreciable basis or amortizable basis, and (3) testing the impact of sales or exchanges of limited partnership units on the deferred tax asset and amounts
payable under tax receivable agreements. Professionals with specialized skill and knowledge were used to assist in testing the estimates and assessing the appropriateness of
the application of the tax laws related to evaluating whether the sales or exchanges of partnership units are taxable.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 27, 2023
We have served as the Company’s auditor since 1995.
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Cash and cash equivalents
Accounts receivable
Investment securities
Prepaid expenses
Property and equipment, net
Operating lease assets
Restricted cash
Deferred tax assets
Other
Assets of consolidated investment products
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except per share amounts)
ASSETS
$
Cash and cash equivalents
Accounts receivable and other
Investment assets, at fair value
Total assets
Accounts payable, accrued expenses, and other
Accrued incentive compensation
Operating lease liabilities
Borrowings
Amounts payable under tax receivable agreements
Liabilities of consolidated investment products
28,416
4,977
255,743
1,234,608
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
24,414
29,762
120,847
199,050
398,789
$
$
Accounts payable, accrued expenses, and other
Investment liabilities, at fair value
Total liabilities
Commitments and contingencies
Redeemable noncontrolling interests
Common stock
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 67,982,025 and 66,699,872
shares outstanding at December 31, 2022 and December 31, 2021, respectively)
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 2,583,884 and 3,206,580
shares outstanding at December 31, 2022 and December 31, 2021, respectively)
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 9,040,147 and 9,128,617
shares outstanding at December 31, 2022 and December 31, 2021, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total Artisan Partners Asset Management Inc. stockholders’ equity
Noncontrolling interests - Artisan Partners Holdings
Total stockholders’ equity
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity
26,358
20,751
819,971
135,280
680
26
90
171,416
93,088
(3,079)
262,221
17,136
279,357
1,234,608
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
61
At December 31,
2022
2021
114,832
98,634
85,415
15,723
48,104
101,410
—
477,024
4,330
$
$
$
$
$
$
189,226
115,850
47,878
12,543
35,313
88,642
629
497,902
7,739
10,916
6,408
195,001
1,208,047
28,992
7,521
100,303
199,444
425,427
20,185
19,179
801,051
111,035
667
32
91
141,835
134,889
(1,310)
276,204
19,757
295,961
1,208,047
Table of Contents
Revenues
Management fees
Performance fees
Total revenues
Operating Expenses
Compensation and benefits
Distribution, servicing and marketing
Occupancy
Communication and technology
General and administrative
Total operating expenses
Total operating income
Non-operating income (expense)
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Operations
(U.S. dollars in thousands, except per share amounts)
2022
For the Years Ended December 31,
2021
1,213,924
13,312
1,227,236
992,728
557
993,285
$
$
$
$
510,382
24,612
28,833
50,257
35,104
649,188
344,097
(9,912)
913
(6,990)
(16,273)
(32,262)
311,835
63,450
248,385
49,123
(7,493)
206,755
2.94
2.94
62,475,960
62,498,509
3.67
$
$
$
$
563,054
31,719
21,942
43,899
26,131
686,745
540,491
(10,803)
358
19,748
1,756
11,059
551,550
107,026
444,524
96,879
11,129
336,516
5.10
5.09
59,866,790
59,881,039
4.23
$
$
$
$
2020
884,902
14,665
899,567
435,818
24,312
21,922
38,926
20,265
541,243
358,324
(10,804)
(4,674)
26,147
305
10,974
369,298
60,795
308,503
81,079
14,807
212,617
3.40
3.40
55,633,529
55,637,922
3.39
$
$
$
$
$
$
Interest expense
Net gain (loss) on the tax receivable agreements
Net investment gain (loss) of consolidated investment products
Other net investment gain (loss)
Total non-operating income (expense)
Income before income taxes
Provision for income taxes
Net income before noncontrolling interests
Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings
Less: Net income (loss) attributable to noncontrolling interests - consolidated investment products
Net income attributable to Artisan Partners Asset Management Inc.
Basic earnings per share
Diluted earnings per share
Basic weighted average number of common shares outstanding
Diluted weighted average number of common shares outstanding
Dividends declared per Class A common share
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents
Net income before noncontrolling interests
Other comprehensive income (loss)
Foreign currency translation gain (loss)
Total other comprehensive income (loss)
Comprehensive income
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
For the Years Ended December 31,
2021
2022
2020
$
248,385 $
444,524 $
308,503
Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings
Comprehensive (loss) income attributable to noncontrolling interests - consolidated investment products
Comprehensive income attributable to Artisan Partners Asset Management Inc.
$
(2,053)
(2,053)
246,332
48,839
(7,493)
204,986 $
(319)
(319)
444,205
96,879
11,129
336,197 $
732
732
309,235
81,376
14,807
213,052
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents
ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Changes in Stockholders’ Equity
(U.S. dollars in thousands)
Class A
Common
Stock
Class B
Common
Stock
Class C
Common
Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated Other
Comprehensive Income
(Loss)
Noncontrolling
interests - Artisan
Partners Holdings
Total stockholders’
equity
Redeemable non-
controlling
interests
Balance at January 1, 2020
$
564 $
78 $
136 $
89,149 $
44,455 $
(1,425) $
5,544 $
81,079
138,501 $
293,696
43,110
14,807
Net income
Other comprehensive income - foreign
currency translation
Cumulative impact of changes in ownership
of Artisan Partners Holdings LP, net of tax
Amortization of equity-based compensation
Deferred tax assets, net of amounts payable
under tax receivable agreements
Issuance of Class A common stock, net of
issuance costs
Forfeitures and employee/partner
terminations
Issuance of restricted stock awards
Employee net share settlement
Exchange of subsidiary equity
Purchase of equity and subsidiary equity
Capital contributions, net
Impact of deconsolidation of consolidated
investment products
Distributions
Dividends
—
—
—
—
—
18
—
9
(1)
41
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(15)
(18)
—
—
—
—
—
—
—
—
—
—
—
—
—
(26)
—
—
—
—
—
—
—
(2,544)
28,801
14,740
62,696
—
(9)
(3,314)
—
(63,009)
—
—
—
(18,772)
212,617
—
—
—
—
—
—
—
—
—
—
—
—
—
(184,128)
Balance at December 31, 2020
$
631 $
45 $
110 $
107,738 $
72,944 $
Net income
Other comprehensive income (loss) -
foreign currency translation
Cumulative impact of changes in ownership
of Artisan Partners Holdings LP
Amortization of equity-based compensation
Deferred tax assets, net of amounts payable
under tax receivable agreements
Issuance of Class A common stock, net of
issuance costs
Forfeitures and employee/partner
terminations
Issuance of restricted stock awards
Employee net share settlement
Exchange of subsidiary equity
Purchase of equity and subsidiary equity
Capital contributions, net
Impact of deconsolidation of consolidated
investment products
Distributions
Dividends
Balance at December 31, 2021
—
—
—
—
—
10
(1)
7
(2)
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(7)
—
—
—
—
—
—
—
—
—
—
—
—
—
(16)
(3)
—
—
—
—
—
—
(563)
32,750
9,656
46,630
1
(7)
(7,452)
—
(46,918)
—
336,516
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(274,571)
—
623
(189)
—
—
—
—
—
—
—
—
—
—
—
—
(991) $
—
(271)
(48)
—
—
—
—
—
—
—
—
—
—
—
—
109
2,733
8,226
—
—
—
—
(1,215)
—
—
—
732
—
37,027
14,740
62,714
—
—
(4,530)
—
(63,027)
—
—
(85,805)
(106)
10,565 $
96,879
—
(85,805)
(203,006)
191,042 $
433,395
(48)
611
6,899
—
—
—
—
(1,791)
—
—
—
(319)
—
39,649
9,656
46,640
—
—
(9,245)
—
(46,928)
—
—
(93,189)
(169)
—
(93,189)
(274,740)
—
—
—
—
—
—
—
—
—
—
38,277
(2,441)
—
—
93,753
11,129
—
—
—
—
—
—
—
—
—
—
73,236
(67,083)
—
—
111,035
$
667 $
32 $
91 $
141,835 $
134,889 $
(1,310) $
19,757 $
295,961 $
The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Changes in Stockholders’ Equity, continued
(U.S. dollars in thousands)
Class A
Common
Stock
Class B
Common
Stock
Class C
Common
Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated Other
Comprehensive Income
(Loss)
Noncontrolling
interests - Artisan
Partners Holdings
Total stockholders’
equity
Redeemable non-
controlling
interests
Balance at January 1, 2022
$
667 $
32 $
91 $
141,835 $
134,889 $
Net income
Other comprehensive income (loss) -
foreign currency translation
Cumulative impact of changes in ownership
of Artisan Partners Holdings LP
Amortization of equity-based compensation
Deferred tax assets, net of amounts payable
under tax receivable agreements
Issuance of Class A common stock, net of
issuance costs
Forfeitures and employee/partner
terminations
Issuance of restricted stock awards
Employee net share settlement
Exchange of subsidiary equity
Capital contributions, net
Impact of deconsolidation of consolidated
investment products
Distributions
Dividends
Balance at December 31, 2022
—
—
—
—
—
—
—
8
(2)
7
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
—
—
—
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
(1,087)
35,494
1,894
(94)
—
(8)
(6,618)
—
—
206,755
—
—
—
—
—
—
—
(25)
—
—
—
—
—
—
—
(248,531)
(1,310) $
—
(1,736)
(33)
—
—
—
—
—
—
—
—
—
—
—
19,757 $
49,123
295,961 $
255,878
111,035
(7,493)
(317)
1,120
6,038
—
—
—
—
(1,221)
—
—
—
(57,199)
(165)
(2,053)
—
41,532
1,894
(94)
—
—
(7,866)
—
—
—
(57,199)
(248,696)
—
—
—
—
—
—
—
—
—
41,011
(9,273)
—
—
$
680 $
26 $
90 $
171,416 $
93,088 $
(3,079) $
17,136 $
279,357 $
135,280
The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
Cash flows from operating activities
Net income before noncontrolling interests
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Asset impairment
Noncash lease expense
Net investment (gain) loss on nonconsolidated investment securities
Net (gain) loss on the tax receivable agreements
Loss on disposal of property and equipment
Amortization of debt issuance costs
Share-based compensation
Net investment (gain) loss of consolidated investment products
Purchase of investments by consolidated investment products
Proceeds from sale of investments by consolidated investment products
Net change in operating assets and liabilities of consolidated investment products including net
investment income
Change in assets and liabilities resulting in an increase (decrease) in cash:
Accounts receivable
Prepaid expenses and other assets
Accounts payable and accrued expenses
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of property and equipment
Leasehold improvements
Proceeds from sale of investment securities
Purchase of investment securities
Net cash provided by (used in) investing activities
For the Years Ended December 31,
2021
2020
2022
$
248,385
$
444,524
$
308,503
7,797
30,156
1,413
1,865
16,606
(913)
51
440
41,532
6,990
(335,647)
211,537
6,933
38,382
—
(1,931)
(2,315)
(358)
4
421
39,649
(19,748)
(252,399)
196,620
6,625
27,990
871
(1,499)
(160)
4,674
5
422
37,027
(26,147)
(191,274)
137,561
45,970
(30,804)
36,587
16,622
3,348
16,458
312,610
(6,637)
(12,921)
5,164
(49,337)
(63,731)
(15,962)
(3,164)
(1,301)
398,551
(2,435)
(3,532)
12,813
(33,820)
(26,974)
(18,020)
(6,110)
1,622
318,677
(2,049)
(1,050)
24,001
(2,150)
18,752
The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Consolidated Statements of Cash Flows (continued)
(U.S. dollars in thousands)
Cash flows from financing activities
Partnership distributions
Dividends paid
Payment of debt issuance costs
Proceeds from issuance of notes payable
Principal payments on notes payable
Payment under the tax receivable agreements
Net proceeds from issuance of common stock
Payment of costs directly associated with the issuance of Class A common stock
Purchase of equity and subsidiary equity
Taxes paid related to employee net share settlement
Capital contributions to consolidated investment products, net
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Net cash impact of deconsolidation of consolidated investment products
Cash, cash equivalents and restricted cash
Beginning of period
End of period
Cash, cash equivalents and restricted cash as of the end of the period
Cash and cash equivalents
Restricted cash
Cash and cash equivalents of consolidated investment products
Cash, cash equivalents and restricted cash
Supplementary information
Noncash activity:
Establishment of deferred tax assets
Establishment of amounts payable under tax receivable agreements
Increase in investment securities due to deconsolidation of consolidated investment products
Operating lease assets obtained in exchange for operating leases
Cash paid for:
Interest on borrowings
Income tax
For the Years Ended December 31,
2021
2020
2022
(57,199)
(248,696)
(543)
90,000
(90,000)
(33,109)
—
—
—
(7,866)
41,011
(306,402)
(57,523)
—
200,771
143,248
114,832
—
28,416
143,248
9,054
6,471
9,970
32,055
10,299
31,571
$
$
$
$
$
(93,189)
(274,740)
—
—
—
(31,250)
46,928
(244)
(46,928)
(9,246)
73,236
(335,433)
36,144
(34,823)
199,450
200,771
189,226
629
10,916
200,771
54,214
44,209
20,900
20,830
10,210
70,337
$
$
$
$
$
(85,805)
(203,006)
—
—
—
(26,943)
63,027
(227)
(63,027)
(4,530)
38,277
(282,234)
55,195
—
144,255
199,450
154,987
629
43,834
199,450
77,756
64,087
1,469
3,425
10,255
35,484
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Notes to Consolidated Financial Statements
(U.S. currencies in thousands, except share and per share amounts and as otherwise indicated)
Note 1. Nature of Business and Organization
Nature of Business
Artisan Partners Asset Management Inc. (“APAM”), through its subsidiaries, is an investment management firm focused on providing high-value added, active investment
strategies to sophisticated clients globally. APAM and its subsidiaries are hereafter referred to collectively as “Artisan” or the “Company”.
Artisan’s autonomous investment teams manage a broad range of U.S., non-U.S. and global investment strategies that are diversified by asset class, market cap and
investment style. Strategies are offered through multiple investment vehicles to accommodate a broad range of client mandates. Artisan offers its investment management
services primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have long-term investment horizons.
Organization
On March 12, 2013, APAM completed its initial public offering (the “IPO”). APAM was formed for the purpose of becoming the general partner of Artisan Partners
Holdings LP (“Artisan Partners Holdings” or “Holdings”) in connection with the IPO. Holdings is a holding company for the investment management business conducted
under the name “Artisan Partners”. The reorganization (“IPO Reorganization”) established the necessary corporate structure to complete the IPO while at the same time
preserving the ability of the firm to conduct operations through Holdings and its subsidiaries.
As its sole general partner, APAM controls the business and affairs of Holdings. As a result, APAM consolidates Holdings’ financial statements and records a noncontrolling
interest for the equity interests in Holdings held by the limited partners of Holdings. At December 31, 2022, APAM held approximately 85% of the equity ownership interest
in Holdings.
Holdings, together with its wholly owned subsidiary, Artisan Investments GP LLC, controls a 100% interest in Artisan Partners Limited Partnership (“APLP”), a multi-
product investment management firm that is the principal operating subsidiary of Artisan Partners Holdings. APLP is registered as an investment adviser with the U.S.
Securities and Exchange Commission under the Investment Advisers Act of 1940. APLP provides investment advisory services to traditional separate accounts and pooled
investment vehicles, including Artisan Partners Funds, Inc. (“Artisan Funds”), Artisan Partners Global Funds plc (“Artisan Global Funds”), and Artisan sponsored private
funds (“Artisan Private Funds”). Artisan Funds are a series of open-end, mutual funds registered under the Investment Company Act of 1940, as amended. Artisan Global
Funds is a family of Ireland-domiciled UCITS funds. Artisan Private Funds consist of a number of Artisan-sponsored unregistered pooled investment vehicles.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and related rules and
regulations of the SEC. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results could differ from these estimates or assumptions.
Principles of consolidation
Artisan’s policy is to consolidate all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine
if an entity should be evaluated for consolidation using the voting interest entity (“VOE”) model or the variable interest entity (“VIE”) model. Under the VOE model,
controlling financial interest is generally defined as a majority ownership of voting interests. Under the VIE model, controlling financial interest is defined as (i) the power
to direct activities that most significantly impact the economic performance of the entity and (ii) the right to receive potentially significant benefits or the obligation to
absorb potentially significant losses. Artisan generally consolidates VIEs in which it meets the power criteria and holds an equity ownership interest of greater than 10%.
The consolidated financial statements include the accounts of APAM and all subsidiaries or other entities in which APAM has a direct or indirect controlling financial
interest. All material intercompany balances have been eliminated in consolidation.
Artisan serves as the investment adviser to Artisan Funds, Artisan Global Funds and Artisan Private Funds. Artisan Funds and Artisan Global Funds are corporate entities
the business and affairs of which are managed by their respective boards of directors. The shareholders of the funds retain voting rights, including rights to elect and reelect
members of their respective boards of directors. Each series of Artisan Funds is a VOE and is separately evaluated for consolidation under the VOE model. The shareholders
of Artisan Global Funds lack simple majority liquidation rights, and as a result, each sub-fund of Artisan Global Funds is evaluated for consolidation under the VIE model.
Artisan Private Funds are also evaluated for consolidation under the VIE model because third-party equity holders of the funds generally lack the ability to divest Artisan of
its control of the funds.
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From time to time, the Company makes investments in Artisan Funds, Artisan Global Funds and Artisan Private Funds. If the investment results in a controlling financial
interest, APAM consolidates the fund, and the underlying activity of the entire fund is included in Artisan’s Consolidated Financial Statements. As of December 31, 2022,
Artisan had a controlling financial interest in two series of Artisan Funds, five sub-funds of Artisan Global Funds and two Artisan Private Funds and, as a result, these funds
are included in Artisan’s Consolidated Financial Statements. Because these consolidated investment products meet the definition of investment companies under U.S.
GAAP, Artisan has retained the specialized industry accounting principles for investment companies in the consolidated financial statements. See Note 6, “Variable Interest
Entities and Consolidated Investment Products” for additional details.
Reclassification
In the year ended December 31, 2022, the Company changed the presentation of its Consolidated Statements of Operations to recategorize expenditures for computers and
mobile devices from "General and administrative" to “Communication and technology". Amounts for the comparative prior fiscal year periods have been reclassified to
conform to the current year presentation. These reclassifications had no impact on previously reported operating income, net income, or financial position. Management
believes the revised presentation is more useful to readers of its financial statements.
Operating segments
Artisan operates in one segment, the investment management industry. Artisan provides investment management services to separate accounts and pooled investment
vehicles. Management assesses the financial performance of these vehicles on a combined basis.
Cash and cash equivalents
Artisan defines cash and cash equivalents as money market funds and other highly liquid investments with original maturities of 90 days or less. Cash and cash equivalents
are stated at cost, which approximates fair value due to the short-term nature and liquidity of these financial instruments. For disclosure purposes, cash equivalents are
categorized as Level 1 in the fair value hierarchy. Cash and cash equivalents are subject to credit risk and were primarily maintained in demand deposit accounts with
financial institutions or treasury money market funds. Interest and dividends related to cash and cash equivalents is recorded in other investment gain (loss) in the
Consolidated Statements of Operations.
Foreign currency translation
Assets and liabilities of foreign operations whose functional currency is not the U.S. dollar are translated at prevailing year-end exchange rates. Revenue and expenses of
such foreign operations are translated at average exchange rates during the year. The net effect of the translation adjustment for foreign operations is included in other
comprehensive income (loss) in the Consolidated Statements of Comprehensive Income. The cumulative effect of translation adjustments is included in accumulated other
comprehensive income (loss) and noncontrolling interests - Artisan Partners Holdings in the Consolidated Statements of Financial Condition, based on period-end
ownership levels.
Accounts receivable
Accounts receivable are carried at invoiced amounts and consist primarily of investment advisory fees that have been earned, but not yet received from clients. Due to the
short-term nature of the receivables, the carrying values of these assets approximate fair value. The accounts receivable balance does not include any allowance for doubtful
accounts as Artisan believes all accounts receivable balances are fully collectible. There has not been any bad debt expense recorded for the years ended December 31, 2022,
2021 and 2020.
Investment securities
Investment securities consist of nonconsolidated investments in shares of Artisan Funds, Artisan Global Funds, and Artisan Private Funds. Investments provide exposure to
various risks, including price risk (the risk of a potential future decline in value of the investment) and foreign currency risk. Investments are carried at fair value based on
net asset values as of the valuation date.
Realized and unrealized gains (losses) on nonconsolidated investment securities are recorded in other net investment gain (loss) in the Consolidated Statements of
Operations. Dividend income from these investments is recognized when earned and is also included in other investment gain (loss).
Property and equipment
Property and equipment are carried at cost, less accumulated depreciation. Depreciation is generally recognized on a straight-line basis over the estimated useful lives of the
respective assets or the remaining lease term, whichever is shorter.
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The estimated useful lives of property and equipment as of December 31, 2022 are as follows:
Property and Equipment Type
Computers and equipment
Computer software
Furniture and fixtures
Leasehold improvements
Useful Life
Three to Five years
Three to Five years
Seven years
Two to 14 years
Implementation costs incurred to develop or obtain internal-use software, including hosting arrangements, are capitalized and expensed on a straight-line basis over either
the estimated useful life of the respective software or the term of the hosting arrangement.
Property and equipment is tested for impairment when there is an indication that the carrying amount of an asset may not be recoverable. When an asset is determined to not
be recoverable, the impairment loss is measured based on the excess, if any, of the carrying value of the asset over its fair value.
Leases
Artisan has lease commitments for office space, parking structures, and equipment, which are all accounted for as operating leases. Artisan records expense for operating
leases on a straight-line basis over the lease term. Any lease incentives received by Artisan are also amortized on a straight-line basis over the lease term.
Artisan assesses its contractual arrangements for the existence of a lease at inception. Operating leases with an initial term greater than 12 months are recorded as operating
lease assets and operating lease liabilities in the Consolidated Statements of Financial Condition. Lease components (e.g. fixed rental payments) and non-lease components
(e.g. fixed common-area maintenance costs) are generally accounted for as a single component.
Operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Operating lease assets are
recognized at the lease commencement date based on the present value of lease payments over the lease term, adjusted for prepaid rent and the remaining balance of lease
incentives received. Artisan's lease agreements generally do not provide an implicit interest rate, and therefore the present value calculation uses Artisan's estimated
incremental borrowing rate. A market-based approach is used to estimate the incremental borrowing rate for each individual lease using observable market interest rates and
Artisan specific inputs. The lease terms include periods covered by options to extend or exclude periods covered by options to terminate the lease when it is reasonably
certain that Artisan will exercise that option.
Restricted cash
Restricted cash represents cash that is restricted as collateral on a standby letter of credit related to a lease obligation.
Cash and cash equivalents of consolidated investment products
Cash and cash equivalents of consolidated investment products consist of highly liquid investments, including money market funds. See Note 6, “Variable Interest Entities
and Consolidated Investment Products” for additional details.
Investment assets and liabilities of consolidated investment products
Investment assets and liabilities of consolidated investment products primarily consist of equity securities, fixed income securities, short term investments, and derivatives.
The carrying value of the investment assets and liabilities is also their fair value. Changes in the fair value of the investments are recognized as gains and losses in earnings.
Equity securities are generally valued based upon closing market prices of the security on the principal exchange on which the security is traded. Fixed income securities
include corporate bonds, convertible bonds and bank loans. Fixed income securities are generally valued based on prices provided by independent pricing vendors. Short
term investments are comprised of repurchase agreements and U.S Treasury obligations. Repurchase agreements are valued at cost plus accrued interest and U.S treasury
obligations are valued using the same principles as fixed income securities. Derivative assets and liabilities are generally comprised of put and call options on securities or
indices and open forward foreign currency contracts. Put and call options are valued at the mid price (average of the bid price and ask price) as provided by the pricing
vendor at the close of trading on the contract’s principal exchange. Open forward foreign currency contracts are valued using the market spot rate. See Note 6, “Variable
Interest Entities and Consolidated Investment Products” for additional details.
Redeemable noncontrolling interests
Redeemable noncontrolling interests represent third-party investors’ ownership interest in consolidated investment products. Third-party investors in consolidated
investment products generally have the right to withdraw their capital, subject to certain conditions. Noncontrolling interests of consolidated investment products that are
currently redeemable or convertible for cash or other assets at the option of the holder are classified as temporary equity.
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Revenue recognition
Artisan’s investment advisory revenue is derived from contracts with customers in the form of investment management fees and performance fees.
Investment Management Fees
Investment management fees are generally computed as a percentage of assets under management and are recognized as revenue at the end of each distinct service period.
Management fees for providing investment advisory services are computed and billed in accordance with the underlying investment management agreements, which is
generally on a monthly or quarterly basis. Investment management fees are presented net of cash rebates and expense reimbursements pursuant to contractual expense
limitations of certain funds.
Performance Fees
A number of investment management agreements provide for performance-based fees or incentive allocations, collectively “performance fees”. Performance fees, if earned,
are recognized upon completion of each contractually determined measurement period, which is generally quarterly or annually. Performance fees are not subject to claw
back as a result of performance declines subsequent to the most recent measurement date.
Revenue Recognition
Artisan accounts for asset management services as a single performance obligation that is satisfied over time, using a time-based measure of progress to recognize revenue.
Customer consideration is variable due to the uncertainty of the value of assets under management during each distinct service period. At the end of each period, Artisan
records revenue for the actual amount of investment management fees earned for that period because the uncertainty has been resolved.
Performance fees are subject to the uncertainty of market volatility, and as a result, the entire amount of the variable consideration related to performance fees is constrained
until the end of each measurement period. At the end of the measurement period, revenue is recorded for the actual amount of performance fees earned during that period
because the uncertainty has been resolved. For performance fees with annual measurement periods, revenue recognized in the current period could relate to performance
obligations that were partially satisfied in prior periods.
Customer Rebates and Expense Reimbursements
Artisan has contractually agreed to reimburse for expenses incurred to the extent necessary to limit annualized ordinary operating expenses incurred by certain funds to not
more than a fixed percentage of the funds’ average daily net assets. Artisan may also contractually agree to pay fee rebates to certain investors in Artisan Global Funds.
Artisan accounts for all reimbursements and rebates as a reduction of the transaction price (and, hence, of revenue) because the billing adjustments and payments represent
consideration payable to customers and Artisan does not receive any distinct goods or services from the customers in exchange.
Share-based compensation
Share-based compensation expense is recognized based on the estimated grant date fair value on a straight-line basis over the requisite service period of the award. The
initial requisite service period is generally five years for restricted share-based awards. The Company’s accounting policy is to record the impact of forfeitures when they
occur.
Distribution, servicing and marketing
Artisan Funds has authorized certain financial services companies, broker-dealers, banks or other intermediaries, and in some cases other organizations designated by an
authorized intermediary, to accept purchase, exchange, and redemption orders for shares of Artisan Funds on the funds’ behalf. Many intermediaries charge a fee for
accounting and shareholder services provided to fund shareholders on the funds’ behalf. Those services typically include recordkeeping, transaction processing for
shareholders’ accounts, and other services.
Fees are either based on the number of accounts to which the intermediary provides such services or a percentage of the average daily value of fund shares held in such
accounts. The funds pay a portion of such fees directly to the intermediaries, which are intended to compensate the intermediary for its provision of services of the type that
would be provided by the funds’ transfer agent or other service providers if the shares were registered directly on the books of the funds’ transfer agent. Artisan pays the
balance of those fees which includes compensation to the intermediary for its distribution, servicing and marketing of Artisan Funds shares.
Artisan Global Funds also have arrangements pursuant to which Artisan is required to pay a portion of its investment management fee for distribution, servicing and
marketing of Artisan Global Funds shares.
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Distribution, servicing and marketing fees paid by Artisan are presented as an operating expense because Artisan is the principal in its role as the primary obligor related to
these services. Expenses incurred were as follows:
Expenses incurred with respect to Artisan Funds
Expenses incurred with respect to Global Funds
Other marketing expenses
Total distribution, servicing and marketing
For the Years Ended December 31,
2021
2020
2022
$
$
20,708
903
3,001
24,612
$
$
28,640
899
2,180
31,719
$
$
21,320
595
2,397
24,312
Accrued fees to intermediaries were $3.8 million and $5.3 million as of December 31, 2022 and 2021, respectively, and are included in accounts payable, accrued expenses
and other in the Consolidated Statements of Financial Condition.
Loss contingencies
Artisan considers the assessment of loss contingencies as a significant accounting policy because of the significant uncertainty relating to the outcome of any potential legal
actions and other claims and the difficulty of predicting the likelihood and range of the potential liability involved, coupled with the material impact on Artisan’s results of
operations that could result from legal actions or other claims and assessments. Artisan recognizes estimated costs to defend as incurred. Potential loss contingencies are
reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter.
Significant differences could exist between the actual cost required to investigate, litigate and/or settle a claim or the ultimate outcome of a suit and management’s estimate.
These differences could have a material impact on Artisan’s results of operations, financial position, or cash flows. Recoveries of losses are recognized in the Consolidated
Statements of Operations when receipt is deemed probable. No loss contingencies were recorded at December 31, 2022, 2021 and 2020. Currently, there are no legal or
administrative proceedings that management believes may have a material effect on Artisan’s consolidated financial position, cash flows or results of operations.
Income taxes
Artisan accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences
attributable to temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Artisan recognizes a
valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Artisan accounts for uncertain income tax positions by recognizing the impact of a tax position in its consolidated financial statements when Artisan believes it is more
likely than not that the tax position would not be sustained upon examination by the appropriate tax authorities based on the technical merits of the position.
Comprehensive income (loss)
Total comprehensive income (loss) includes net income and other comprehensive income. Other comprehensive income (loss) consists of foreign currency translation.
Partnership distributions
Artisan makes distributions to its partners for purposes of paying income taxes as required under the terms of Artisan Partners Holdings’ partnership agreement. Tax
distributions are calculated utilizing the highest combined individual federal, state and local income tax rate among the various locations in which the partners, as a result of
owning their interests in the partnership, are subject to tax, assuming maximum applicability of the phase-out of itemized deductions contained in the Internal Revenue Code
that apply to any specific tax year. Artisan also makes additional distributions under the terms of the partnership agreement. Distributions are recorded in the financial
statements on the declaration date.
Earnings per share
Basic earnings per share is computed under the two-class method by dividing income available to Class A common stockholders by the weighted average number of Class A
common shares outstanding during the period. Unvested restricted share-based awards are excluded from the number of Class A common shares outstanding for the basic
earnings per share calculation because the shares have not yet been earned by employees. Income available to Class A common stockholders is computed by reducing net
income attributable to APAM by earnings (both distributed and undistributed) allocated to participating securities, according to their respective rights to participate in those
earnings. Except for certain performance share units, unvested share-based awards are participating securities because the awards include non-forfeitable dividend rights
during the vesting period. Class B and Class C common shares do not share in profits of APAM and therefore are not reflected in the calculations.
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Diluted earnings per share is computed under the more dilutive of the treasury stock method or the two-class method. The weighted average number of Class A common
shares outstanding during the period is increased by the assumed conversion of nonparticipating unvested share-based awards into Class A common stock using the treasury
stock method.
Recent accounting pronouncements
None.
Note 3. Investment Securities
The disclosures below include details of Artisan’s investments, excluding money market funds and consolidated investment products. Investments held by consolidated
investment products are described in Note 6, “Variable Interest Entities and Consolidated Investment Products”.
Investments in equity securities
Investments in equity securities accounted for under the equity method
Total investment securities
As of December 31, 2022 As of December 31, 2021
37,179
$
10,699
47,878
76,156 $
9,259
85,415 $
$
Artisan’s investments in equity securities consist of investments in Artisan Funds, Artisan Global Funds and Artisan Private Funds. As of December 31, 2022, $63.3 million
of Artisan’s investment securities were related to the economic hedge of franchise capital awards. Unrealized gain (loss) related to investment securities held at the end of
the periods indicated below were as follows:
Unrealized gain (loss) on investment securities held at the end of the period
As of December 31, 2022 As of December 31, 2021 As of December 31, 2020
716
$
(14,799)
1,602
$
$
Other net investment gain (loss) is presented within the non-operating income (expense) section of the Consolidated Statements of Operations. The components of other net
investment gain (loss) are as follows:
Net investment gain (loss) on seed investments
Net investment gain (loss) on franchise capital investments
Other
Other net investment gain (loss)
Note 4. Fair Value Measurements
2022
For the Years Ended December 31,
2021
2020
$
$
$
$
(3,407)
(13,198)
332
(16,273)
$
$
$
$
(401)
2,716
(559)
1,756
$
$
$
$
160
—
145
305
The table below presents information about Artisan’s assets and liabilities that are measured at fair value and the valuation techniques Artisan utilized to determine such fair
value. The financial instruments held by consolidated investment products are excluded from the table below and are presented in Note 6, “Variable Interest Entities and
Consolidated Investment Products”.
In accordance with ASC 820, fair value is defined as the price that Artisan would receive upon selling an investment in an orderly transaction to an independent buyer in the
principal or most advantageous market for the investment. The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:
•
•
•
Level 1 – Observable inputs such as quoted (unadjusted) market prices in active markets for identical securities.
Level 2 – Other significant observable inputs (including but not limited to quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, etc.).
Level 3 – Significant unobservable inputs (including Artisan’s own assumptions in determining fair value).
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The following provides the hierarchy of inputs used to derive fair value of Artisan’s assets and liabilities that are financial instruments as of December 31, 2022 and 2021:
Total
NAV Practical Expedient (No Fair
Value Level)
Level 1
Level 2
Level 3
Assets and Liabilities at Fair Value
December 31, 2022
Assets
Money market funds
Equity securities
December 31, 2021
Assets
Money market funds
Equity securities
$
$
3,297 $
85,415
37,861 $
47,878
— $
8,835
3,297 $
76,580
— $
9,975
37,861 $
37,903
— $
—
— $
—
—
—
—
—
Fair values determined based on Level 1 inputs utilize quoted market prices for identical assets. Level 1 assets generally consist of money market funds, open-end mutual
funds and UCITS funds. Equity securities without a fair value level consist of the Company’s investments in Artisan Private Funds, which are measured at the underlying
fund’s net asset value (“NAV”), using the ASC 820 practical expedient. The NAV is provided by the fund and is derived from the fair values of the underlying investments
as of the reporting date. Cash maintained in demand deposit accounts is excluded from the table above.
Note 5. Borrowings
Artisan’s borrowings consist of the following as of December 31, 2022 and 2021:
Revolving credit agreement
Senior notes
Series C
Series D
Series E
Series F
Total gross borrowings
Unamortized debt issuance costs
Total borrowings
(1)
(1)
Maturity
August 2027
August 2022
August 2025
August 2027
August 2032
$
$
$
Outstanding Balance at
December 31, 2022
Outstanding Balance at
December 31, 2021
Interest Rate Per Annum
—
—
60,000
50,000
90,000
200,000
(950)
199,050
$
$
$
—
90,000
60,000
50,000
—
200,000
(556)
199,444
NA
5.82 %
4.29 %
4.53 %
3.10 %
The Company is not required to make principal payments on any of the outstanding obligations prior to contractual maturity.
The fair value of borrowings was approximately $179.0 million as of December 31, 2022. Fair value was determined based on future cash flows, discounted to present value
using current market interest rates. The inputs are categorized as Level 2 in the fair value hierarchy, as defined in Note 4, “Fair Value Measurements”.
On August 16, 2022, Artisan Partners Holdings issued $90.0 million of 3.10% Series F notes pursuant to an agreement executed in December 2021 and used the proceeds to
repay the $90.0 million of Series C senior notes that matured on August 16, 2022. The Company incurred debt issuance costs related to the notes of $0.6 million, which are
amortized as interest expense over the life of the instrument.
The fixed interest rate on each series of unsecured notes is subject to a one percentage 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.
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Revolving credit agreement - On August 16, 2022, Artisan Partners Holdings amended and extended its $100.0 million revolving credit facility for an additional five-year
period. The Company incurred debt issuance costs related to the revolving credit facility of $1.1 million, which are amortized as interest expense over the life of the
instrument. Any loans outstanding under the revolving credit agreement bear interest at a rate per annum equal to, at the Company’s election, (i) adjusted Term SOFR plus
an applicable margin ranging from 1.25% to 2.25%, depending on Holdings’ leverage ratio (as defined in the revolving credit agreement) or (ii) an alternate base rate equal
to the highest of (a) Citibank, N.A.’s prime rate, (b) the federal funds effective rate plus 0.50%, and (c) the adjusted Term SOFR for a one-month interest period plus 1.00%,
plus, in each case, an applicable margin ranging from 0.25% to 1.25%, depending on Holdings’ leverage ratio. Unused commitments will bear interest at a rate that ranges
from 0.15% to 0.45%, depending on Holdings’ leverage ratio.
As of and for the year-ended December 31, 2022, there were no borrowings outstanding under the revolving credit agreement and the interest rate on the unused
commitment was 0.15%.
The unsecured notes and the revolving credit agreement contain certain restrictive financial covenants including a limitation on the leverage ratio of Holdings and a
minimum interest coverage ratio. The Company was in compliance with all debt covenants as of December 31, 2022.
Interest expense incurred on the unsecured notes and revolving credit agreement was $9.3 million, $10.3 million, and $10.3 million for the years ended December 31, 2022,
2021 and 2020, respectively.
Note 6. Variable Interest Entities and Consolidated Investment Products
Artisan serves as the investment adviser for various types of investment products, consisting of both VIEs and VOEs. Artisan consolidates an investment product if it has a
controlling financial interest in the entity. See Note 2, “Summary of Significant Accounting Policies”. Any such entities are collectively referred to herein as consolidated
investment products or CIPs.
As of December 31, 2022, Artisan is considered to have a controlling financial interest in two series of Artisan Funds, five sub-funds of Artisan Global Funds and two
Artisan Private Funds, with an aggregate direct equity investment in the consolidated investment products of $106.7 million.
Artisan’s maximum exposure to loss in connection with the assets and liabilities of CIPs is limited to its direct equity investment, while the potential benefit is limited to the
management and performance fees received and the return on its direct equity investment. With the exception of Artisan’s direct equity investment, the assets of CIPs are not
available to Artisan’s creditors, nor are they available to Artisan for general corporate purposes. In addition, third-party investors in the CIPs have no recourse to the general
credit of the Company.
Management and performance fees earned from CIPs are eliminated from revenue upon consolidation. See Note 17, “Related Party Transactions” for additional information
on management and performance fees earned from CIPs.
Third-party investors’ ownership interest in CIPs is presented as redeemable noncontrolling interests in the Consolidated Statements of Financial Condition as third-party
investors have the right to withdraw their capital, subject to certain conditions. Net income attributable to third-party investors is reported as net income attributable to
noncontrolling interests - consolidated investment products in the Consolidated Statements of Operations.
During the year ended December 31, 2022, the Company determined that it no longer had a controlling financial interest in one series fund of Artisan Funds as a result of
third party capital contributions. Upon loss of control, the fund was deconsolidated and the related assets, liabilities, and equity of the fund were derecognized from the
Company’s consolidated statements of financial condition. There was no net impact to the consolidated statements of operations for the year ended December 31, 2022.
Artisan generally does not recognize a gain or loss upon deconsolidation of investment products as the assets and liabilities of CIPs are carried at fair value. Artisan’s
$10.0 million direct equity investment was reclassified from investment assets of consolidated investment products to investment securities.
As of December 31, 2022, Artisan held direct equity investments of $9.3 million in VIEs for which the Company does not hold a controlling financial interest. These direct
equity investments consisted of seed investments in sub-funds of Artisan Global Funds and Artisan Private Funds, both of which are accounted for under the equity method
of accounting because Artisan has significant influence over the funds.
Fair Value Measurements - Consolidated Investment Products
Investments held by CIPs are reflected at fair value. Short and long positions on equity securities are valued based upon closing prices of the security on the exchange or
market designated by the accounting agent or pricing vendor as the principal exchange. The closing price may represent last sale price, official closing price, a closing
auction or other information depending on market convention. Short and long positions on fixed income instruments are valued at market value. Market values are generally
evaluations based on prices provided by independent pricing vendors, which may consider, among other factors, the prices at which securities actually trade, broker-dealer
quotations, pricing formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics and/or discounted cash
flow models that might be applicable.
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Short term investments are comprised of repurchase agreements and U.S Treasury obligations. Repurchase agreements are valued at cost plus accrued interest and U.S
treasury obligations are valued using the same principles as fixed income securities. Derivative assets and liabilities are generally comprised of put and call options on
securities and indices and forward foreign currency contracts. Put and call options are valued at the mid price (average of bid price and ask price) as provided by the pricing
vendor at the close of trading on the contract’s principal exchange. Open forward foreign currency contracts are valued using the market spot rate.
The following tables present the fair value hierarchy levels of assets and liabilities held by CIPs measured at fair value as of December 31, 2022 and 2021:
Assets and Liabilities at Fair Value
Total
Level 1
Level 2
Level 3
December 31, 2022
Assets
Money market funds
Equity securities - long position
Fixed income instruments - long position
Derivative assets
Short term investments
Liabilities
Equity securities - short position
Fixed income instruments - short position
Derivative liabilities
December 31, 2021
Assets
Money market funds
Equity securities - long position
Fixed income instruments - long position
Derivative assets
Liabilities
Equity securities - short position
Fixed income instruments - short position
Derivative liabilities
$
$
$
$
25,140 $
32,388
216,638
951
5,766
256 $
17,273
3,222
7,908 $
33,583
161,177
241
3,427 $
15,570
182
25,140 $
30,179
—
74
—
256 $
—
2,462
7,908 $
31,838
—
—
3,427 $
—
4
— $
2,209
212,368
877
5,766
— $
17,273
760
— $
1,745
156,240
241
— $
15,570
178
—
—
4,270
—
—
—
—
—
—
—
4,937
—
—
—
—
CIP balances included in the Company's consolidated statements of financial condition were as follows:
Net CIP assets included in the table above
Net CIP assets (liabilities) not included in the table above
Total Net CIP assets
Less: redeemable noncontrolling interests
Artisan’s direct equity investment in CIPs
Note 7. Noncontrolling Interests - Holdings
As of December 31,
2022
As of December 31,
2021
$
$
260,132
(18,105)
242,027
135,280
106,747
$
$
183,730
(10,769)
172,961
111,035
61,926
Net income attributable to noncontrolling interests - Artisan Partners Holdings in the Consolidated Statements of Operations represents the portion of earnings or loss
attributable to the equity ownership interests in Holdings held by the limited partners of Holdings. As of December 31, 2022, APAM held approximately 85% of the equity
ownership interests in Holdings.
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Limited partners of Artisan Partners Holdings are entitled to exchange partnership units (along with a corresponding number of shares of Class B or C common stock of
APAM) for shares of Class A common stock from time to time (the "Holdings Common Unit Exchanges"). The Holdings Common Unit Exchanges increase APAM's equity
ownership interest in Holdings and result in an increase to deferred tax assets and amounts payable under the tax receivable agreements. See Note 11, “Income Taxes and
Related Payments”.
In order to maintain the one-to-one correspondence of the number of Holdings partnership units and APAM common shares, Holdings will issue one general partner (“GP”)
unit to APAM for each share of Class A common stock issued by APAM.
For the years ended December 31, 2022, 2021 and 2020, APAM’s equity ownership interest in Holdings has increased as a result of the following transactions:
Holdings GP Units
Limited
Partnership Units
Total
APAM Ownership
%
Balance at January 1, 2020
56,429,825
21,372,029
77,801,854
Issuance of APAM Restricted Shares, Net
Delivery of Shares Underlying RSUs
(1)
(1)
2020 Follow-On Offering
Holdings Common Unit Exchanges
Forfeitures from Employee Terminations
(1)
Balance at December 31, 2020
Issuance of APAM Restricted Shares, Net
Delivery of Shares Underlying RSUs
(1)
2021 Follow-On Offering
Holdings Common Unit Exchanges
Forfeitures from Employee Terminations
(1)
Balance at December 31, 2021
Issuance of APAM Restricted Shares, Net
Delivery of Shares Underlying RSUs
Holdings Common Unit Exchanges
Forfeitures from Employee Terminations
(1)
(1)
(1)
789,114
24,233
1,802,326
4,128,600
(43,091)
63,131,007
562,289
1,074
963,614
2,142,292
(100,404)
66,699,872
588,598
1,060
711,166
(18,671)
—
—
(1,802,326)
(4,128,600)
—
15,441,103
—
—
(963,614)
(2,142,292)
—
12,335,197
—
—
(711,166)
—
789,114
24,233
—
—
(43,091)
78,572,110
562,289
1,074
—
—
(100,404)
79,035,069
588,598
1,060
—
(18,671)
Balance at December 31, 2022
(1)
The impact of the transaction on APAM’s ownership percentage was less than 1%.
67,982,025
11,624,031
79,606,056
73 %
— %
— %
2 %
5 %
— %
80 %
1 %
— %
1 %
2 %
— %
84 %
— %
— %
1 %
— %
85 %
Changes in ownership of Holdings are accounted for as equity transactions because APAM continues to have a controlling interest in Holdings. Additional paid-in capital
and noncontrolling interests - Artisan Partners Holdings in the Consolidated Statements of Financial Condition are adjusted to reallocate Holdings’ historical equity to
reflect the change in APAM’s ownership of Holdings.
The reallocation of equity had the following impact on the Consolidated Statements of Financial Condition:
Statements of Financial Condition
Additional paid-in capital
Noncontrolling interests - Artisan Partners Holdings
Accumulated other comprehensive income (loss)
Net impact to financial condition
For the Years Ended December 31,
2021
2022
$
$
(1,087)
1,120
(33)
—
$
$
(563)
611
(48)
—
In addition to the reallocation of historical equity, the change in ownership resulted in an increase to deferred tax assets and additional paid-in capital of $0.6 million and
$1.8 million for the years ended December 31, 2022 and 2021, respectively.
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Note 8. Stockholders’ Equity
APAM - Stockholders’ Equity
APAM had the following authorized and outstanding equity as of December 31, 2022 and 2021, respectively:
Common shares
Class A, par value $0.01 per share
Class B, par value $0.01 per share
Class C, par value $0.01 per share
Outstanding
Authorized
500,000,000
200,000,000
400,000,000
December 31, 2022 December 31, 2021
66,699,872
3,206,580
9,128,617
67,982,025
2,583,884
9,040,147
Voting Rights
(1)
1 vote per share
1 vote per share None
1 vote per share None
Economic Rights
Proportionate
(1)
The Company’s employees to whom Artisan has granted equity have entered into a stockholders agreement with respect to all shares of APAM common stock they have acquired from the
Company and any shares they may acquire from the Company in the future, pursuant to which they granted an irrevocable voting proxy to a Stockholders Committee. As of December 31, 2022,
Artisan’s employees held 5,286,542 restricted shares of Class A common stock and all 2,583,884 outstanding shares of Class B common stock, all of which were subject to the agreement.
APAM is dependent on cash generated by Holdings to fund any dividends. Generally, Holdings will make distributions to all of its partners, including APAM, based on the
proportionate share of ownership each has in Holdings. APAM will fund dividends to its stockholders from its proportionate share of those distributions after provision for
its taxes and other obligations. APAM declared and paid the following dividends per share during the years ended December 31, 2022, 2021 and 2020:
Type of Dividend
Quarterly
Special Annual
Class of Stock
Common Class A
Common Class A
78
For the Years Ended December 31,
2021
2020
2022
$
$
2.95 $
0.72 $
3.92 $
0.31 $
2.79
0.60
Table of Contents
The following table summarizes APAM’s stock transactions for the years ended December 31, 2022, 2021 and 2020:
Balance at January 1, 2020
2020 Follow-On Offering
Holdings Common Unit Exchanges
Delivery of Shares Underlying RSUs
Restricted Share Award Grants
Restricted Share Award Net Share Settlement
Employee/Partner Terminations
Balance at December 31, 2020
2021 Follow-On Offering
Holdings Common Unit Exchanges
Delivery of Shares Underlying RSUs
Restricted Share Award Grants
Restricted Share Award Net Share Settlement
Employee/Partner Terminations
Balance at December 31, 2021
Holdings Common Unit Exchanges
Delivery of Shares Underlying RSUs
Restricted Share Award Grants
Restricted Share Award Net Share Settlement
Employee/Partner Terminations
Balance at December 31, 2022
(1)
Total Stock
Outstanding
Class A Common
Stock
(1)
Class B Common
Stock
77,801,854
56,429,825
7,803,364
Class C Common
Stock
13,568,665
—
—
24,233
916,085
(126,971)
(43,091)
78,572,110
—
—
1,074
740,249
(177,960)
(100,404)
79,035,069
—
1,060
787,372
(198,774)
(18,671)
79,606,056
1,802,326
4,128,600
24,233
916,085
(126,971)
(43,091)
63,131,007
963,614
2,142,292
1,074
740,249
(177,960)
(100,404)
66,699,872
711,166
1,060
787,372
(198,774)
(18,671)
67,982,025
(1,777,326)
(1,535,275)
—
—
—
(32,805)
4,457,958
(638,614)
(612,764)
—
—
—
—
3,206,580
(622,696)
—
—
—
—
2,583,884
(25,000)
(2,593,325)
—
—
—
32,805
10,983,145
(325,000)
(1,529,528)
—
—
—
—
9,128,617
(88,470)
—
—
—
—
9,040,147
There were 367,392, 327,713, and 304,570 restricted stock units outstanding at December 31, 2022, 2021, and 2020, respectively. In addition, there were 231,170 and 135,230 performance
share units outstanding at December 31, 2022 and 2021, respectively. Based on the current status of the market and performance conditions, the 231,170 unvested performance share units would
ultimately result in the issuance of 261,173 shares of Class A common stock if all other vesting conditions were met. Restricted stock units and performance share units are not reflected in the
table because they are not considered outstanding or issued stock.
Each Class A, Class B, Class D and Class E common unit of Holdings (together with the corresponding share of Class B or Class C common stock) is exchangeable for one
share of Class A common stock. The corresponding shares of Class B and Class C common stock are immediately canceled upon any such exchange.
Upon termination of employment with Artisan, an employee-partner’s Class B common units are exchanged for Class E common units and the corresponding shares of
Class B common stock are canceled. APAM issues the former employee-partner a number of shares of Class C common stock equal to the former employee-partner’s
number of Class E common units. Class E common units are exchangeable for Class A common stock subject to the same restrictions and limitations on exchange
applicable to the other common units of Holdings.
Artisan Partners Holdings - Partners’ Equity
Holdings makes distributions of its net income to the holders of its partnership units for income taxes as required under the terms of the partnership agreement and also
makes additional distributions under the terms of the partnership agreement as required. The distributions are recorded in the financial statements on the declaration date, or
on the payment date in lieu of a declaration date. Holdings’ partnership distributions for the years ended December 31, 2022, 2021 and 2020 were as follows:
For the Years Ended December 31,
2021
2022
2020
Holdings Partnership Distributions to Limited Partners
Holdings Partnership Distributions to APAM
Total Holdings Partnership Distributions
$
$
57,199
299,040
356,239
$
$
93,189
400,191
493,380
$
$
85,805
270,044
355,849
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The distributions are recorded as a reduction to consolidated stockholders’ equity, with the exception of distributions made to APAM, which are eliminated upon
consolidation.
Note 9. Revenue From Contracts with Customers
The following table presents a disaggregation of investment advisory revenue by type and vehicle for the years ended December 31, 2022, 2021 and 2020:
Management fees
Artisan Funds
Artisan Global Funds
Separate accounts and other
(1)
Performance fees
Separate accounts and other
Artisan Global Funds
(1)
Total revenues
(1)
(2)
For the Years Ended December 31,
2021
2020
2022
$
$
573,924 $
43,128
375,676
557
—
993,285 $
712,952 $
48,498
452,474
13,312
—
1,227,236 $
503,642
33,531
347,729
14,650
15
899,567
Separate accounts and other revenue consists of management fees and performance fees earned from vehicles other than Artisan Funds or Artisan Global Funds, and therefore includes
revenue earned from traditional separate accounts, Artisan-branded collective investment trusts and Artisan Private Funds.
(2)
Transactions”.
All management fees and performance fees from consolidated investment products were eliminated upon consolidation and therefore are omitted from this table. See Note 17, “Related Party
The following table presents the balances of receivables related to contracts with customers:
Customer
Artisan Funds
Artisan Global Funds
Separate accounts and other
Total receivables from contracts with customers
Non-customer receivables
Accounts receivable
December 31,
2022
December 31,
2021
5,597
4,453
74,936
84,986
13,648
98,634
$
$
$
5,874
5,433
98,568
109,875
5,975
115,850
$
$
$
Artisan Funds and Artisan Global Funds are billed on the last day of each month. Artisan Funds and Artisan Global Funds make payments on the same day the invoice is
received for the majority of the invoiced amount. The remainder of the invoice is generally paid in the month following receipt of the invoice. Separate accounts and other
clients are generally billed on a monthly or quarterly basis, with payments due within 30 days of billing.
Artisan had no other contract assets or liabilities from contracts with customers as of December 31, 2022 and 2021.
Non-customer receivables includes state tax payments on behalf of certain limited partners, which are then netted from subsequent distributions or payments to the limited
partners, and seed principal redemptions not yet collected.
Note 10. Compensation and Benefits
Total compensation and benefits consists of the following:
Salaries, incentive compensation and benefits
(1)
Franchise capital award compensation expense
Restricted share-based award compensation expense
Long-term incentive compensation expense
Total compensation and benefits
Excluding long-term incentive compensation expense.
(1)
For the Years Ended December 31,
2021
2020
2022
$
$
458,609 $
11,769
40,004
51,773
510,382 $
516,931 $
6,887
39,236
46,123
563,054 $
399,325
—
36,493
36,493
435,818
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Incentive compensation
Cash incentive compensation paid to members of Artisan’s investment teams and members of its distribution team is generally based on formulas that are tied directly to
revenues. The majority of this incentive compensation is earned on a quarterly basis and paid in the subsequent quarter with the exception of incentive compensation earned
in the fourth quarter, which is also paid in the fourth quarter of the year. Cash incentive compensation paid to most other employees is generally discretionary and
determined based on individual performance and Artisan’s overall results during the applicable year and is generally paid on an annual basis.
Long-term incentive compensation awards consist of both APAM equity awards and long-term cash awards, which are referred to as franchise capital awards. These awards
are described in more detail below.
Equity awards
Artisan registered 14,000,000 shares of Class A common stock for issuance under the 2013 Omnibus Incentive Compensation Plan, as amended (the “Plan”), which plan
will terminate in the first quarter of 2023. Pursuant to the Plan, APAM has granted a combination of restricted stock awards, restricted stock units, and performance share
units (collectively referred to as “restricted share-based awards” or "awards") of Class A common stock to employees. We expect to seek stockholder approval of a new
equity incentive plan and the registration of additional shares under such plan at the Company’s 2023 annual meeting of stockholders.
Standard Restricted Shares. Standard restricted shares are generally subject to a pro rata five-year service vesting condition.
Career Shares. Career shares are generally subject to both (i) a pro rata five-year service vesting condition and (ii) a qualifying retirement (as defined in the award
agreement) condition.
Franchise Shares. Like career shares, franchise shares are generally subject to both (i) a pro rata five-year service vesting condition and (ii) a qualifying retirement
condition. In addition, franchise shares, which are only granted to investment team members, are subject to a Franchise Protection Clause, which provides that the number of
shares that ultimately vest depends on whether certain conditions relating to client cash flows are met. If such conditions are not met, compensation cost will be reversed for
any shares that do not vest.
Performance Share Units (PSUs). PSUs are generally subject to (i) a three-year service vesting condition, (ii) certain performance conditions related to the Company's
adjusted operating margin and total shareholder return compared to a peer group during a three-year performance period, and (iii) for one-half of the PSUs eligible to vest at
the end of the performance period, a qualifying retirement condition. The number of shares of Class A common stock that are ultimately issued in connection with each PSU
award will depend upon the outcome of the performance, market and qualified retirement conditions. For the portion of a PSU award with a "performance condition" under
ASC 718, expense is recognized over the service period if it is probable that the performance condition will be achieved.
Compensation expense is recognized based on the estimated grant date fair value on a straight-line basis over the requisite service period of the award. The initial requisite
service period is generally five years for restricted stock awards and restricted stock units, and three years for performance share units. The fair value of each award is equal
to the market price of the Company's common stock on the grant date, except for performance share units with a "market condition" performance metric under ASC 718,
which have a grant-date fair value based on a Monte Carlo valuation model.
Unvested restricted share-based awards are subject to forfeiture. Grantees are generally entitled to dividends or dividend equivalents on unvested and vested awards.
2,967,582 shares of Class A common stock were reserved and available for issuance under the Plan as of December 31, 2022. During the year ended December 31, 2022,
Artisan granted 787,372 restricted stock awards, 1,331 restricted stock units, and 95,940 performance share units of Class A common stock to employees of the Company.
Total compensation expense associated with the 2022 grant is expected to be approximately $37.9 million.
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The following tables summarize the restricted share-based award activity for the years ended December 31, 2022, 2021 and 2020:
Weighted-Average
Grant Date Fair Value
Restricted Stock
Awards and Restricted
Stock Units
Unvested at January 1, 2020
Granted
Forfeited
Vested
Unvested at January 1, 2021
Granted
Forfeited
Vested
Unvested at January 1, 2022
Granted
Forfeited
Vested
Unvested at December 31, 2022
Unvested at January 1, 2020
Granted
Forfeited
Vested
Unvested at January 1, 2021
Granted
Forfeited
Vested
Unvested at January 1, 2022
Granted
Forfeited
Vested
Unvested at December 31, 2022
$
$
$
$
35.00
33.80
30.92
32.59
35.09
52.93
29.99
31.51
38.18
41.86
40.11
34.85
39.09
$
Weighted-Average
Grant Date Fair Value
—
$
52.45
—
—
52.45
68.58
—
—
61.42
53.50
—
—
58.13
$
$
5,005,422
919,455
(43,091)
(588,144)
5,293,642
741,555
(101,001)
(688,802)
5,245,394
788,703
(18,671)
(619,083)
5,396,343
Performance Share
Units
—
60,000
—
—
60,000
75,230
—
—
135,230
95,940
—
—
231,170
Based on the current status of the market and performance conditions, the 231,170 unvested performance share units would ultimately result in the issuance of 261,173
shares of Class A common stock if all other vesting conditions were met.
The aggregate vesting date fair value of awards that vested during the years ended December 31, 2022, 2021 and 2020 was approximately $24.4 million, $35.8 million, and
$21.0 million, respectively. The unrecognized compensation expense for the unvested restricted stock awards and restricted stock units as of December 31, 2022 was $73.0
million with a weighted average recognition period of 3.3 years remaining. The unrecognized compensation expense for the unvested performance share units as of
December 31, 2022 was $6.6 million with a weighted average recognition period of 2.5 years remaining.
During the years ended December 31, 2022 and 2021, the Company withheld a total of 198,774 and 177,960 restricted shares, respectively, and paid $7.9 million and $9.2
million, respectively, as a result of net share settlements to satisfy employee tax withholding obligations. These net share settlements had the effect of shares repurchased
and retired by the Company, as they reduced the number of shares outstanding.
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Franchise capital awards
During the years ended December 31, 2022 and 2021, Artisan granted $48.6 million and $35.0 million, respectively, of franchise capital awards to investment team
members in lieu of certain additional restricted share-based awards. The franchise capital awards are subject to the same long-term vesting and forfeiture provisions as
restricted share-based awards. Prior to vesting, franchise capital awards are generally allocated to one or more of the investment strategies managed by the award recipient's
investment team. During the vesting period, the value of the awards will increase or decrease based on the investment returns of the strategies in which the awards are
invested. Compensation expense, including the appreciation or depreciation related to investment returns, is recognized on a straight-line basis over the required service
period, which is generally five years. Because the awards will be paid out in cash upon vesting, the fair value of unvested awards is recorded as a liability based on the
percentage of the service requirement that has been completed.
The company hedges its economic exposure to the change in value of these awards due to market movements by investing the cash reserved for the awards in the underlying
investments. The franchise capital award liability and the underlying investment holdings are marked to market each quarter. The change in value of the award liability is
recognized as a compensation expense on a straight-line basis over the required service period. The change in value of the underlying investment holdings is recognized in
non-operating income (expense) in the period of change. While there is a timing difference between the recognition of the compensation expense and the offsetting
investment gain or loss, the compensation expense and investment income will net to zero at the end of the multi-year vesting period for all awards that ultimately vest. The
change in value of the investments had the following impact on the Consolidated Statements of Operations:
Statement of Operations Section
Statement of Operations Line Item
For the Years Ended December 31,
2021
2020
2022
Operating expense (benefit)
Non-operating income (expense)
Compensation and benefits
Other net investment gain (loss)
$
(3,391)
(13,198)
$
$
520
2,717
—
—
The franchise capital award liability was $14.5 million and $6.9 million as of December 31, 2022 and 2021, respectively, and is included in accrued incentive compensation
in the consolidated statements of financial condition. The unrecognized compensation expense for the unvested franchise capital awards as of December 31, 2022 was $52.8
million with a weighted average recognition period of 4.0 years remaining.
Note 11. Income Taxes and Related Payments
APAM is subject to U.S. federal, state and local income taxation on APAM’s allocable portion of Holdings’ income, as well as foreign income taxes payable by Holdings’
subsidiaries. Components of the provision for income taxes consist of the following:
Current:
Federal
State and local
Foreign
Total
Deferred:
Federal
State and local
Total
Income tax expense
For the Years Ended December 31,
2021
2020
2022
$
$
25,903 $
6,870
521
33,294
25,670
4,486
30,156
63,450 $
53,131 $
14,990
523
68,644
32,655
5,727
38,382
107,026 $
24,116
8,174
515
32,805
27,110
880
27,990
60,795
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The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate to income before provision
for income taxes as follows:
U.S. federal statutory rate
State and local taxes, net of federal tax effect
Excess tax benefits on share-based compensation
Rate benefit from the flow through entity
Change in state tax rate
Unrecognized tax benefits
Other
Effective tax rate
For the Years Ended December 31,
2021
2020
2022
21.0 %
3.7
(1.7)
(2.8)
—
(0.1)
0.2
20.3 %
21.0 %
3.5
(1.4)
(4.1)
—
—
0.4
19.4 %
21.0 %
3.1
(1.1)
(5.5)
(1.1)
0.2
(0.1)
16.5 %
The effective tax rate includes a rate benefit attributable to the fact that, for the years ended December 31, 2022, 2021 and 2020, approximately 17%, 19% and 24%,
respectively, of Artisan Partners Holdings’ taxable earnings were attributable to other partners and not subject to corporate-level taxes. The effective tax rate was also lower
than the statutory rate due to tax deductible dividends paid on unvested restricted share-based awards and favorable tax deductions related to the vesting of restricted share-
based awards. The effective tax rate was also reduced in the year ended December 31, 2020 due to the remeasurement of existing deferred tax assets resulting from an
increase in Artisan's state deferred income tax rates.
In connection with the IPO, APAM entered into two tax receivable agreements (“TRAs”). The first TRA, generally provides for the payment by APAM to a private equity
fund (the “Pre-H&F Corp Merger Shareholder”) or its assignees of 85% of the applicable cash savings, if any, of U.S. federal, state and local income taxes that APAM
actually realizes (or is deemed to realize in certain circumstances) as a result of (i) the tax attributes of the preferred units APAM acquired in the merger of a wholly-owned
subsidiary of the Pre-H&F Corp Merger Shareholder into APAM in March 2013 and (ii) tax benefits related to imputed interest.
The second TRA generally provides for the payment by APAM to current or former limited partners of Holdings or their assignees of 85% of the applicable cash savings, if
any, of U.S. federal, state and local income taxes that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain tax attributes of their
partnership units sold to APAM or exchanged (for shares of Class A common stock, convertible preferred stock or other consideration) and that are created as a result of
such sales or exchanges and payments under the TRAs and (ii) tax benefits related to imputed interest. Under both agreements, APAM generally will retain the benefit of the
remaining 15% of the applicable tax savings.
For purposes of the TRAs, cash savings of income taxes are calculated by comparing APAM’s actual income tax liability to the amount it would have been required to pay
had it not been able to utilize any of the tax benefits subject to the TRAs, unless certain assumptions apply. The TRAs will continue in effect until all such tax benefits have
been utilized or expired, unless APAM exercises its right to terminate the agreements or payments under the agreements are accelerated in the event that APAM materially
breaches any of its material obligations under the agreements.
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.
Payments under the TRAs, if any, will be made pro rata among all TRA counterparties entitled to payments on an annual basis to the extent APAM has sufficient taxable
income to utilize the increased depreciation and amortization charges and imputed interest deductions. Artisan expects to make one or more payments under the TRAs, to
the extent they are required, prior to or within 125 days after APAM’s U.S. federal income tax return is filed for each fiscal year. Interest on the TRA payments will accrue at
a rate equal to one-year LIBOR plus 100 basis points from the due date (without extension) of such tax return until such payments are made. We expect to amend the TRA
agreements in 2023 to replace LIBOR with an appropriate replacement reference rate, which may be SOFR, in connection with the discontinuation of the LIBOR
benchmark.
Amounts payable under the TRAs are estimates which may be impacted by factors, including but not limited to, expected tax rates, projected taxable income, and projected
ownership levels and are subject to change. Changes in the estimates of amounts payable under tax receivable agreements are recorded as non-operating income (loss) in the
Consolidated Statements of Operations.
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The change in the Company’s deferred tax assets related to the tax benefits described above and the change in corresponding amounts payable under the TRAs for the years
ended December 31, 2022 and 2021 is summarized as follows:
Deferred Tax Asset -
Amortizable Basis
Amounts Payable Under
Tax Receivable
Agreements
(1)
$
446,954
December 31, 2020
16,362
2021 Follow-On Offering
36,069
2021 Holdings Common Unit Exchanges
(39,483)
Amortization
—
Payments under TRAs
(9)
Change in estimate
459,893
December 31, 2021
8,687
2022 Holdings Common Unit Exchanges
(42,122)
Amortization
—
Payments under TRAs
10
Change in estimate
December 31, 2022
426,468
(1) Interest payments of $0.1 million and less than $0.1 million were paid in addition to these TRA payments for the years ended 2022 and 2021, respectively.
$
$
(1)
$
$
$
412,468
13,908
30,659
—
(31,250)
(358)
425,427
7,384
—
(33,109)
(913)
398,789
Net deferred tax assets comprise the following:
Deferred tax assets:
Amortizable basis
Other
(2)
(1)
Total deferred tax assets
Less: valuation allowance
(3)
Net deferred tax assets
As of December 31, 2022
As of December 31, 2021
$
$
426,468
50,556
477,024
—
477,024
$
$
459,893
38,009
497,902
—
497,902
Represents the unamortized step-up of tax basis and other tax attributes from the merger and partnership unit sales and exchanges described above. These future tax benefits are subject to
Represents the net deferred tax assets associated with Artisan’s investment in Holdings, related primarily to incentive compensation plan deduction timing differences. These future tax
Artisan assessed whether the deferred tax assets would be realizable and determined based on its history of taxable income that the benefits would more likely than not be realized.
(1)
the TRA agreements.
(2)
benefits are not subject to the TRA agreements.
(3)
Accordingly, no valuation allowance is required.
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Accounting standards establish a minimum threshold for recognizing, and a process for measuring, the benefits of income tax return positions in financial statements. The
change in the Company’s gross unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 is summarized as follows:
Balance at beginning of year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Tax positions related to the current year
Settlements with taxing authorities
Expirations of statute of limitations
Balance at end of year
For the Years Ended December 31,
2021
2020
2022
1,085 $
117
(476)
30
(609)
—
147 $
1,085 $
—
—
—
—
—
1,085 $
1,667
1,187
(613)
216
(1,372)
—
1,085
$
$
If recognized, $0.1 million and $1.0 million of the benefits (expense) recorded as of December 31, 2022 and 2021, respectively, would favorably (unfavorably) impact the
effective tax rate in future periods. The total amount of unrecognized tax benefits is currently not expected to significantly increase or decrease within the next twelve
months.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. Accrued interest on uncertain tax positions
was less than $0.1 million and $0.2 million as of December 31, 2022 and 2021, respectively, and is excluded from the unrecognized tax benefits total above. The gross
unrecognized tax benefit is recorded within accounts payable, accrued expenses, and other in the Company's Consolidated Statements of Financial Condition.
In the normal course of business, Artisan is subject to examination by federal and certain state, local and foreign tax regulators. As of December 31, 2022, U.S. federal
income tax returns filed for the years 2019 through 2021 are open and therefore subject to examination. State, local and foreign income tax returns filed are generally subject
to examination from 2018 to 2021.
Note 12. Earnings Per Share
The computation of basic and diluted earnings per share for the years ended December 31, 2022, 2021 and 2020 were as follows:
Basic and Diluted Earnings Per Share
Numerator:
Net income attributable to APAM
Less: Allocation to participating securities
Net income available to common stockholders
Denominator:
Basic weighted average shares outstanding
Dilutive effect of nonparticipating equity awards
Diluted weighted average shares outstanding
Earnings per share - Basic
Earnings per share - Diluted
For the Years Ended December 31,
2021
2020
2022
$
$
$
$
206,755 $
22,801
183,954 $
336,516 $
31,430
305,086 $
62,475,960
22,549
62,498,509
59,866,790
14,249
59,881,039
2.94 $
2.94 $
5.10 $
5.09 $
212,617
23,268
189,349
55,633,529
4,393
55,637,922
3.40
3.40
Allocation to participating securities in the table above primarily represents dividends paid to holders of unvested restricted share-based awards, which reduces net income
available to common stockholders.
The Holdings limited partnership units are anti-dilutive primarily due to the impact of public company expenses. Unvested restricted share-based awards with non-
forfeitable dividend rights during the vesting period are considered participating securities and are therefore anti-dilutive.
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The following table summarizes the weighted-average shares outstanding that are excluded from the calculation of diluted earnings per share because their effect would have
been anti-dilutive:
Anti-Dilutive Weighted Average Shares Outstanding
Holdings limited partnership units
Unvested restricted share-based awards
Total
Note 13. Benefit Plans
For the Years Ended December 31,
2021
14,167,538
5,410,221
19,577,759
2022
12,022,633
5,601,756
17,624,389
2020
17,885,335
5,313,466
23,198,801
Artisan has a 401(k) plan and similar foreign arrangements for its non-U.S. employees, under which it provides a matching contribution on employees’ pre-tax
contributions. Expenses related to Artisan’s benefits plans for the years ended December 31, 2022, 2021 and 2020 were $9.7 million, $8.4 million and $7.8 million,
respectively, and are included in compensation and benefits in the Consolidated Statements of Operations.
Artisan provides an opportunity for eligible employees to participate in Artisan’s financial growth and success through phantom equity awards, pursuant to the Artisan
Partners Holdings LP Phantom Equity Plan. The phantom equity awards provide participants the right to receive cash payments upon vesting based on the trading price of
APAM’s Class A common stock. Awards made under the Phantom Equity Plan are liability awards and are subject to vesting on a pro-rata basis over five years. Award
recipients must be employed by Artisan on the vesting date in order to receive payment.
Expense related to the Phantom Equity Plan for the years ended December 31, 2022, 2021 and 2020 was $0.7 million, $1.6 million and $1.6 million, respectively, and is
included in compensation and benefits in the Consolidated Statements of Operations. The liability at December 31, 2022 and 2021 for the plan was $0.8 million and $1.5
million, respectively.
Note 14. Indemnifications
In the normal course of business, APAM enters into agreements that include indemnities in favor of third parties. Holdings has also agreed to indemnify APAM as its general
partner, Artisan Investment Corporation (“AIC”) as its former general partner, the directors and officers of APAM, the directors and officers of AIC as its former general
partner, the members of its former Advisory Committee, and its partners, directors, officers, employees and agents. Holdings’ subsidiaries may also have similar agreements
to indemnify their respective general partner(s), directors, officers, directors and officers of their general partner(s), partners, members, employees, and agents. The
Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet
occurred. APAM maintains insurance policies that may provide coverage against certain claims under these indemnities.
Note 15. Property and Equipment
The composition of property and equipment at December 31, 2022 and 2021 are as follows:
Computers and equipment
Computer software
Furniture and fixtures
Leasehold improvements
Total Cost
Less: Accumulated depreciation
Property and equipment, net of accumulated depreciation
As of December 31,
2022
2021
$
$
$
6,132 $
6,740
14,785
66,304
93,961 $
(45,857)
48,104 $
7,210
6,643
12,689
52,623
79,165
(43,852)
35,313
Depreciation expense totaled $7.7 million, $6.8 million and $6.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.
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Note 16. Leases
Operating lease expense was as follows:
Lease Type
Parking leases
(1)
Office leases
Variable lease cost
Short-term lease cost
Sublease income
Office equipment leases
(2)
(2)
Total operating lease expense
(1)
space.
(2)
Classification
Compensation and benefits
Occupancy
Occupancy
Occupancy
Occupancy
Communication and technology
For the Years Ended December 31,
2021
2020
2022
$
$
398 $
18,979
351
710
(133)
134
20,439 $
518 $
14,463
110
455
(267)
247
15,526 $
520
14,991
135
343
(429)
281
15,841
Office lease expense includes impairment charges of $1.4 million and $0.9 million for the years ended December 31, 2022 and 2020, respectively, related to the abandonment of leased office
Variable and short-term lease costs are excluded from the measurement of operating lease liabilities.
During the year ended December 31, 2022, the Company recognized asset impairment loss of $1.4 million related to the abandonment of a leased office location. The loss is
recorded in occupancy expense based on the present value of expected future cash flows.
The table below presents the maturity of operating lease liabilities:
As of December 31, 2022
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments
Adjustment to discount to present value
Operating lease liabilities
$
$
18,698
18,619
18,524
17,783
16,540
53,592
143,756
(22,909)
120,847
As of December 31, 2022, none of the options to extend lease terms were reasonably certain of being exercised. Other information related to leases was as follows:
Weighted average discount rate
Weighted average remaining lease term
Operating cash flows for operating leases
Note 17. Related Party Transactions
For the Years Ended December 31,
2021
2020
2022
4.1 %
9.0 years
16,393
4.4 %
8.3 years
16,821
4.6 %
7.4 years
16,546
Several of the current executive officers and directors of APAM, or entities associated with those individuals, are or were limited partners of Holdings. As a result, certain
transactions (such as TRA payments) between Artisan and these persons are considered to be related party transactions.
Holdings makes estimated state tax payments on behalf of certain limited partners, including related parties. These payments are then netted from subsequent distributions to
the limited partners. At December 31, 2022 and 2021, accounts receivables included $6.5 million and $1.5 million, respectively, of partnership tax reimbursements due from
Holdings’ limited partners, including related parties.
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Affiliate transactions—Artisan Funds
Artisan has an agreement to serve as the investment adviser to Artisan Funds, with which certain Artisan employees are affiliated. Under the terms of the agreement, which
generally is reviewed and continued by the board of directors of Artisan Funds annually, a fee is paid to Artisan based on an annual percentage of the average daily net assets
of each Artisan Fund ranging from 0.60% to 1.05%. Artisan has contractually agreed to reimburse for expenses incurred to the extent necessary to limit annualized ordinary
operating expenses incurred by certain of the Artisan Funds to not more than a fixed percentage (ranging from 0.88% to 1.45%) of a fund’s average daily net assets. In
addition, Artisan may voluntarily waive fees or reimburse any of the Artisan Funds for other expenses. Expense waivers and reimbursements are reflected as a reduction of
Management fees within the Consolidated Statements of Operations. The officers and directors of Artisan Funds who are affiliated with Artisan receive no compensation
from the funds.
Investment advisory fees for managing Artisan Funds and amounts reimbursed by Artisan for fees and expenses (including management fees) are as follows:
For the Years Ended December 31,
2021
Artisan Funds
2022
Investment advisory fees (Gross of expense reimbursements)
(1)
Elimination of fees from consolidated investment products
Consolidated investment advisory fees (Gross of expense reimbursements)
$
$
$
575,286 $
(217) $
575,069 $
713,595 $
(8) $
713,587 $
2020
504,204
—
504,204
Expense reimbursements
Elimination of expense reimbursements from consolidated investment products
(1)
$
$
$
1,515 $
(370) $
1,145 $
676 $
(41) $
635 $
562
—
562
Consolidated expense reimbursements
Investment advisory fees and expense reimbursements related to consolidated investment products are eliminated from revenue upon consolidation.
(1)
Affiliate transactions—Artisan Global Funds
Artisan has an agreement to serve as the investment manager to Artisan Global Funds, with which certain Artisan employees are affiliated. Under the terms of these
agreements, a fee is paid based on an annual percentage of the average daily net assets of each fund ranging from 0.70% to 1.85%. Artisan reimburses each sub-fund of
Artisan Global Funds to the extent that sub-fund’s annual expenses, not including Artisan’s fee, exceed certain levels, which range from 0.10% to 0.20%. In addition,
Artisan may voluntarily waive fees or reimburse any of the Artisan Global Funds for other expenses. The directors of Artisan Global Funds who are also employees of
Artisan receive no compensation from the funds.
Investment advisory fees for managing Artisan Global Funds and amounts reimbursed to Artisan Global Funds by Artisan are as follows:
Artisan Global Funds
Investment advisory fees (Gross of expense reimbursements)
(1)
Elimination of fees from consolidated investment products
Consolidated investment advisory fees (Gross of expense reimbursements)
Expense reimbursements
Elimination of expense reimbursements from consolidated investment products
(1)
Consolidated expense reimbursements
For the Years Ended December 31,
2021
2020
2022
43,326 $
(164)
43,162 $
424 $
(390)
34 $
48,622 $
(75)
48,547 $
489 $
(440)
49 $
33,786
(58)
33,728
515
(333)
182
$
$
$
$
(1)
Investment advisory fees and expense reimbursements related to consolidated investment products are eliminated from revenue upon consolidation.
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Affiliate transactions - Artisan Private Funds
Pursuant to written agreements, Artisan serves as the investment manager and acts as the general partner for certain Artisan Private Funds. Under the terms of these
agreements, Artisan earns a management fee and for certain funds is entitled to receive either an allocation of profits or a performance-based fee. In addition, Artisan has
agreed to reimburse certain funds to the extent that expenses, excluding Artisan’s management fee, performance fee and certain transaction related costs, exceed certain
levels, which range from 0.10% to 1.00% per annum of the net assets of the fund. Artisan may also voluntarily waive fees or reimburse the funds for other expenses. The
directors of Artisan Private Funds and the officers of the general partners of the Artisan Private Funds who are affiliated with Artisan receive no compensation from the
funds.
Artisan and certain related parties, including employees, officers and members of the Company’s Board have invested in one or more of the Artisan Private Funds and, for
certain of those investments, do not pay a management fee, performance fee or incentive allocation.
Investment advisory fees for managing the Artisan Private Funds and amounts reimbursed to Artisan Private Funds by Artisan are as follows:
Artisan Private Funds
Investment advisory fees (Gross of expense reimbursements)
(1)
Elimination of fees from consolidated investment products
Consolidated investment advisory fees (Gross of expense reimbursements)
Expense reimbursements
Elimination of expense reimbursements from consolidated investment products
(1)
Consolidated expense reimbursements
For the Years Ended December 31,
2021
2020
2022
$
$
$
$
15,025 $
(583)
14,442 $
286 $
(132)
154 $
14,519 $
(1,246)
13,273 $
281 $
(154)
127 $
7,570
(1,084)
6,486
405
(258)
147
(1)
Investment advisory fees and expense reimbursements related to consolidated investment products are eliminated from revenue upon consolidation.
Note 18. Geographic Information
Artisan generates a portion of its revenues from clients domiciled in various countries outside the United States. Revenues by geographic location based on client domicile
for the years ended December 31, 2022, 2021 and 2020 were as follows:
U.S.
Non-U.S.
Total revenues
For the Years Ended December 31,
2021
2020
2022
$
$
812,390
180,895
993,285
$
$
1,021,595
205,641
1,227,236
$
$
748,327
151,240
899,567
The following table sets forth Artisan’s long-lived assets by geographic area, which consist of net property and equipment and operating lease assets:
U.S.
Non-U.S.
Total long-lived assets
As of December 31,
2022
2021
$
$
146,816
2,698
149,514
$
$
118,558
5,397
123,955
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Note 19. Litigation Matters
In the normal course of business, Artisan may be subject to various legal and administrative proceedings. Currently, there are no legal or administrative proceedings that
management believes may have a material effect on Artisan’s consolidated financial position, cash flows or results of operations.
Note 20. Subsequent Events
Long-term incentive awards
During the first quarter of 2023, the board of directors of APAM approved the grant of long-term incentive awards with a grant date fair value of $57.1 million consisting of
$18.1 million of restricted share-based awards and $39.0 million of franchise capital awards, to certain employees pursuant to the Company’s 2013 Omnibus Incentive
Compensation Plan, as amended. The grant will be effective March 1, 2023. Compensation expense associated with these awards will be recognized on a straight-line basis
over the requisite service period, which is generally three or five years. Expense for the franchise capital (cash based) awards will be variable based on the investment
returns of the investment strategy to which the awards are allocated.
Distributions and dividends
APAM, acting as the general partner of Artisan Partners Holdings, declared, effective January 31, 2023, a distribution by Artisan Partners Holdings of $23.0 million to
holders of Artisan Partners Holdings partnership units, including APAM. The board of directors of APAM declared, effective January 31, 2023, a quarterly dividend of
$0.55 per share of Class A common stock and a special annual dividend of $0.35 per share of Class A common stock. Both APAM common stock dividends, a total of $0.90
per share, are payable on February 28, 2023 to stockholders of record as of February 14, 2023.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal
financial officers, as appropriate, to allow for timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is
defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) at December 31, 2022. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures are effective.
Report of Management on Internal Control over Financial Reporting
Company management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Company management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of
December 31, 2022, based on the 2013 version of the Internal Control - Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control - Integrated Framework. Based on that assessment, Company management concluded that the Company’s internal control over financial
reporting was effective as of December 31, 2022.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report appearing in Item 8, which expresses an unqualified opinion on the effectiveness of internal control over financial
reporting as of December 31, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act), during the quarter ended
December 31, 2022, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
92
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 (other than the information set forth below) will be set forth in our proxy statement for our 2023 Annual Meeting of Stockholders
to be filed with the SEC within 120 days after December 31, 2022 (the “Proxy Statement”), under the sections titled “Proposal 1: Election of Directors” and “Board
Composition and Leadership – Committees of the Board” and is incorporated herein by reference.
Executive Officers
The information required by this Item 10 with respect to our executive officers is included at the end of Part I of this Form 10-K under the heading “Information about our
Executive Officers.”
Code of Ethics
Our board of directors has adopted a Code of Business Conduct applicable to all directors, officers and employees of the Company to provide a framework for the highest
standards of professional conduct and foster a culture of honesty and accountability. The Code of Business Conduct satisfies applicable SEC requirements and NYSE listing
standards. The Code of Business Conduct is available under the Corporate Governance link on our website at www.apam.com.
We intend to post on our website at www.apam.com, all disclosures that are required by law or NYSE listing standards concerning any amendments to, or waivers from, any
provision of our Code of Business Conduct.
Item 11. Executive Compensation
The information required by this Item 11 will be set forth in the Proxy Statement, under the sections titled “Compensation Discussion and Analysis,” “Board Composition
and Leadership – Compensation Committee Interlocks and Insider Participation” and “Director Compensation,” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 will be set forth in the Proxy Statement, under the section titled “Security Ownership of Certain Beneficial Owners and
Management,” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 will be set forth in the Proxy Statement, under the sections titled “Board Composition and Leadership – Director Independence”
and “Relationships and Related Party Transactions,” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 will be set forth in the Proxy Statement, under the section titled “Ratification of the Appointment of PricewaterhouseCoopers LLP
for the Fiscal Year Ending December 31, 2023,” and is incorporated herein by reference.
93
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
(1) Financial Statements: The information required by this Item is contained in Item 8 of Part II of this report.
(2) Financial Statement Schedules: None
(3) Exhibits:
Exhibit
No.
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
(1)
Description
Agreement and Plan of Merger between Artisan Partners Asset
Management Inc. and H&F Brewer Blocker Corp.
Restated Certificate of Incorporation of Artisan Partners Asset
Management Inc.
Amended and Restated Bylaws of Artisan Partners Asset
Management Inc.
Description of the Registrant's Securities
Fifth Amended and Restated Limited Partnership Agreement
of Artisan Partners Holdings LP
Amended and Restated Resale and Registration Rights
Agreement
Exchange Agreement
Tax Receivable Agreement (Merger)
Tax Receivable Agreement (Exchanges)
Stockholders Agreement
Artisan Partners Asset Management Inc. 2013 Omnibus
Incentive Compensation Plan
Amendment No. 1 to Artisan Partners Asset Management Inc.
2013 Omnibus Incentive Compensation Plan
Artisan Partners Asset Management Inc. 2013 Non-Employee
Director Plan
Form of Artisan Partners Holdings LP Restated Class B
Common Units Grant Agreement
Form of Indemnification Agreement
Form of Indemnification Priority Agreement
Form of Artisan Partners Asset Management Inc. 2013 Non-
Employee Director Plan - Restricted Share Unit Award
Agreement
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Restricted Share
Award Agreement
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Career Share Award
Agreement
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Amended and
Restated Restricted Share Award Agreement
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Amended and
Restated Career Share Award Agreement
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Franchise Share
Award Agreement
(1)
(1)
(1)
(1)
(1)
(1)
(1)
Form
File No.
Exhibit
Filing Date
Filed or
Furnished
Herewith
X
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
10-K
001-35826
001-35826
001-35826
001-35826
001-35826
001-35826
001-35826
001-35826
001-35826
001-35826
001-35826
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.9
February 25, 2016
February 25, 2016
February 25, 2016
February 18, 2020
February 25, 2016
February 25, 2016
February 25, 2016
February 25, 2016
February 25, 2016
February 25, 2016
February 25, 2016
001-35826
10.10
February 25, 2016
001-35826
001-35826
001-35826
10.12
10.14
10.15
February 25, 2016
February 25, 2016
February 25, 2016
10-K
001-35826
10.18
February 25, 2016
10-K
001-35826
10.13
February 20, 2019
10-K
001-35826
10.14
February 20, 2019
10-K
001-35826
10.15
February 20, 2019
10-K
001-35826
10.16
February 20, 2019
10-K
001-35826
10.17
February 20, 2019
94
Table of Contents
Exhibit
No.
Description
Form
File No.
Exhibit
Filing Date
Filed or
Furnished
Herewith
(1)
(1)
(1)
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Performance Share
Unit Award Agreement
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Performance Share
Unit Award Certificate for awards made on or after January
26, 2021
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Performance Share
Unit Award Certificate for awards made on or after January
25, 2022
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Franchise Capital
Award Agreement - Annual Vesting
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Amended and
Restated Franchise Capital Award Agreement - Career Vesting
(PMs and Founders)
Form of Artisan Partners Asset Management Inc. 2013
Omnibus Incentive Compensation Plan - Amended and
Restated Franchise Capital Award Agreement - Career Vesting
(Non-PM)
Form of Unit Purchase Agreement
Second Amended and Restated Investment Advisory
Agreement between Artisan Partners Limited Partnership and
Artisan Partners Funds, Inc.
Note Purchase Agreement, dated as of August 16, 2017,
among Artisan Partners Holdings LP and the purchasers listed
therein
Note Purchase Agreement, dated as of June 6, 2019, among
Artisan Partners Holdings LP and the purchasers listed therein
Note Purchase Agreement, dated as of December 7, 2021,
among Artisan Partners Holdings LP and the purchasers listed
therein
Amended and Restated Five-Year Revolving Credit
Agreement, dated as of August 16, 2022, among Artisan
Partners Holdings LP, the lenders named therein, and Citibank,
N.A., as Administrative Agent and Citibank, N.A. and BofA
Securities, Inc. as joint lead arrangers and joint book runners
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of the Company’s Chief Executive Officer
pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of the Company’s Chief Financial Officer
pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of the Company’s Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Company’s Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(2)
(2)
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
21.1
23.1
31.1
31.2
32.1
32.2
10-K
001-35826
10.18
February 18, 2020
10-K
001-35826
10.19
February 23, 2021
10-K
001-35826
10.20
February 22, 2022
10-K
001-35826
10.20
February 23, 2021
10-K
001-35826
10.22
February 22, 2022
10-K
10-K
001-35826
001-35826
10.23
10.22
February 22, 2022
February 25, 2016
8-K
8-K
001-35826
001-35826
10.1
10.1
August 18, 2017
June 6, 2019
8-K
001-35826
10.1
December 7, 2021
8-K
001-35826
10.1
August 17, 2022
95
X
X
X
X
X
X
X
Table of Contents
Description
Form
File No.
Exhibit
Filing Date
The following Extensible Business Reporting Language
(XBRL) documents are collectively included herewith as
Exhibit 101: (i) the Consolidated Statements of Financial
Condition as of December 31, 2022 and 2021; (ii) the
Consolidated Statements of Operations for the years ended
December 31, 2022, 2021 and 2020; (iii) the Consolidated
Statements of Comprehensive Income for the years ended
December 31, 2022, 2021 and 2020; (iv) the Consolidated
Statements of Changes in Stockholders’ Equity for the years
ended December 31, 2022, 2021 and 2020; (v) the
Consolidated Statements of Cash Flows for the years ended
December 31, 2022, 2021 and 2020 and (vi) the Notes to
Consolidated Financial Statements as of and for the years
ended December 31, 2022, 2021 and 2020
Cover Page Interactive Data File (embedded within the Inline
XBRL document contained in Exhibit 101)
Filed or
Furnished
Herewith
X
X
Exhibit
No.
101
104
(1)
Indicates a management contract or compensatory plan or arrangement.
These certifications are deemed to be furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities
(2)
Exchange Act of 1934.
Item 16. Form 10-K Summary
None.
96
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Dated: February 27, 2023
Artisan Partners Asset Management Inc.
By: /s/ Eric R. Colson
Eric R. Colson
Chief Executive Officer
(principal executive officer)
/s/ Charles J. Daley Jr.
Charles J. Daley, Jr.
Executive Vice President, Chief Financial
Officer and Treasurer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities indicated on the 27 day of February, 2023.
th
Signature
/s/ Jennifer Barbetta
Jennifer A. Barbetta
/s/ Matthew R. Barger
Matthew R. Barger
/s/ Tench Coxe
Tench Coxe
/s/ Stephanie G. DiMarco
Stephanie G. DiMarco
/s/ Jeffrey A. Joerres
Jeffrey A. Joerres
/s/ Saloni S. Multani
Saloni S. Multani
/s/ Andrew A. Ziegler
Andrew A. Ziegler
Title
Director
Director
Director
Chair of the Board
Director
Director
Director
97
Exhibit 10.8
AMENDMENT NO. 1 TO ARTISAN PARTNERS ASSET MANAGEMENT INC.
2013 OMNIBUS INCENTIVE COMPENSATION PLAN
This Amendment No. 1 (the “Amendment”) to Artisan Partners Asset Management Inc. 2013 Omnibus Incentive Compensation Plan (the
“Plan”) is made effective as of February 2, 2023. Unless otherwise defined herein, each of the capitalized terms used in this Amendment shall have the
meaning given to it in the Plan.
WHEREAS, the board of directors (the “Board”) of the Company has deemed it to be in the best interests of the Company to amend the Plan to
extend the date on which the Plan will terminate to March 10, 2023;
WHEREAS, Section 3.1 of the Plan permits the Board to amend the Plan at any time except in those instances, among other things, in which
doing so would materially adversely impact the rights of a Grantee of any Award without the Grantee’s consent; and
WHEREAS, the Board desires to amend the Plan as set forth below.
NOW, THEREFORE, the Plan is hereby amended, effective as of the date set forth above, as follows:
1. Amendment to Section 3.12. Section 3.12 of the Plan is hereby amended and restated to read in its entirety as follows:
“3.12 Termination of Plan”
The Board reserves the right to terminate the Plan at any time; provided, however, that in any case, the Plan will terminate on
March 10, 2023, and provided, further, that all Awards made under the Plan before its termination will remain in effect until such Awards have been
satisfied or terminated in accordance with the terms and provisions of the Plan and the applicable Award Agreements.”
1. No Further Amendments. Except as specifically amended hereby, the Plan shall remain in full force and effect in accordance with its terms.
I hereby certify that the foregoing Amendment was duly adopted by the Board on February 2, 2023.
Executed this 2nd day of February, 2023.
By: /s/ Sarah A. Johnson
Name: Sarah A. Johnson
Title: Executive Vice President, Chief Legal Officer
and Secretary
ARTISAN PARTNERS FUNDS, INC.
SECOND AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT
Exhibit 10.26
THIS SECOND AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT (the “Agreement”) is made
th
as of this 12 day of May, 2015 by and between Artisan Partners Funds, Inc., a Wisconsin corporation registered under the
Investment Company Act of 1940, as amended (“1940 Act”), as an open-end diversified management investment company
(“Artisan Funds”), and Artisan Partners Limited Partnership, a Delaware limited partnership registered under the Investment
Advisers Act of 1940, as amended, as an investment adviser (“Artisan Partners”).
WHEREAS, Artisan Funds and Artisan Partners previously entered into that certain Amended and Restated Investment
Advisory Agreement, dated as of March 12, 2014 (the “Prior Agreement”); and
WHEREAS, Artisan Funds and Artisan Partners wish to amend and restate the Prior Agreement in its entirety as follows;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as
follows:
1. Engagement of Artisan Partners.
(a) Artisan Partners shall manage the investment and reinvestment of the assets of each series of Artisan Funds listed on Schedule
A hereto (each a “Fund” and together “the Funds”), as may be amended from time to time, subject to such policies as the board of
directors of Artisan Funds (the “board”) may determine, for the period and on the terms set forth in this Agreement. Artisan
Partners shall give due consideration to the investment policies and restrictions and the other statements concerning the Funds in
Artisan Funds’ articles of incorporation, bylaws, and registration statements under the 1940 Act and the Securities Act of 1933
(“1933 Act”) and to the provisions of the Internal Revenue Code applicable to each Fund as a regulated investment company.
Artisan Partners shall be deemed for all purposes to be an independent contractor and not an agent of Artisan Funds or any Fund,
and unless otherwise expressly provided or authorized, shall have no authority to act for or represent Artisan Funds or any Fund
in any way.
(b) Artisan Partners is authorized to make the decisions to buy and sell portfolio investments, to place each Fund’s portfolio
transactions with broker-dealers, and to negotiate the terms of such transactions, including brokerage commissions on brokerage
transactions, on behalf of such Fund.
Artisan Partners’ primary consideration in effecting a security or other transaction for a Fund will be to obtain best execution for
the Fund, taking into account all factors Artisan Partners deems relevant, including, by way of example, price, the size of the
transaction, the nature of the market for the security, the amount of the commission, the timing of the transaction taking into
account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions. Subject to such policies as the board may determine and consistent
with Section 28(e) of the
1
Securities Exchange Act of 1934, as amended, Artisan Partners shall not be deemed to have acted unlawfully or to have breached
any duty created by this Agreement or otherwise solely by reason of its having caused any Fund to pay a broker-dealer, acting as
agent, for effecting a portfolio transaction an amount of commission in excess of the amount of commission another broker-
dealer would have charged for effecting that transaction if Artisan Partners determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or Artisan Partners’ overall responsibilities with respect to such Fund and to
other clients as to which it exercises investment discretion, and in so doing shall not be required to make any reduction in its
investment advisory fees.
(c) Artisan Partners may, from time to time, delegate to one or more sub-advisers (each a “Sub-adviser”) any of Artisan Partners’
duties under this Agreement with respect to any Fund. Any such Sub-adviser shall have all of the rights and powers of Artisan
Partners as set forth in this Agreement and as specifically delegated to it by Artisan Partners with respect to such Fund; provided
(i) that Artisan Partners must (A) oversee the provision of delegated services and (B) bear any additional costs for the services
provided by any Sub-adviser and (ii) that no such delegation will relieve Artisan Partners of any of its obligations under this
Agreement; and provided further, that the retention (or termination) of any Sub-adviser shall be approved in advance by (i) the
board in conformity with the requirements of the 1940 Act, and (ii) the shareholders of the Fund if required under any applicable
provisions of the 1940 Act and the rules and regulations under the 1940 Act, subject to any applicable guidance or interpretation
of the Securities and Exchange Commission or its staff. Artisan Partners will review, monitor and report to the board regarding
the performance and investment procedures of any Sub-adviser. A Sub-adviser may be an affiliate of Artisan Partners.
Artisan Partners represents that it will notify Artisan Funds of any change in the membership of Artisan Partners within a
reasonable time after any such change, to the extent required by Section 205(a)(3) of the Advisers Act.
2. Expenses to be Paid by Artisan Partners. Artisan Partners shall furnish to Artisan Funds, at its own expense, office
space and all necessary office facilities, equipment and personnel for managing each Fund. Artisan Partners shall also assume and
pay all other expenses incurred by it in connection with managing the assets of each Fund; all expenses of marketing shares of
each Fund to the extent that such expenses exceed amounts paid under any plan of distribution of shares pursuant to Section
12(b) of the 1940 Act; all expenses of placement of securities orders and related bookkeeping; and such portion of all fees, dues
and other expenses related to membership of Artisan Funds in any trade association or other investment company organization as
may be determined by the board from time to time. Artisan Partners shall not be obligated to pay any expenses of or for any Fund
not expressly assumed by Artisan Partners herein.
3. Expenses to be Paid by Artisan Funds. Artisan Funds shall pay all expenses of its operation not specifically assumed
by Artisan Partners, including, but not limited to, all charges of depositories, custodians and other agencies for the safekeeping
and servicing of its cash, securities and other property and of its transfer agents and registrars and its dividend disbursing and
redemption agents, if any; all expenses associated with daily price computations, including pricing services used in the valuation
of securities; all charges of legal counsel and of
2
independent accountants; all compensation of directors other than those affiliated with Artisan Partners and all expenses incurred
in connection with their services to Artisan Funds; all costs of borrowing money; all expenses of publication of notices and
reports to its shareholders and to governmental bodies or regulatory agencies; all expenses of proxy solicitations of the Funds or
of the board; all expenses of shareholder meetings; all expenses of typesetting of the Funds’ prospectuses and of printing and
mailing copies of the prospectuses furnished to each then-existing shareholder or beneficial owner; all taxes and fees payable to
federal, state or other governmental agencies, domestic or foreign; all stamp or other taxes; all expenses of printing and mailing
certificates for shares of the Funds; all expenses of bond and insurance coverage required by law or deemed advisable by the
board; all expenses of qualifying and maintaining qualification of shares of the Funds under the securities laws of such United
States and non-United States jurisdictions as Artisan Funds may from time to time reasonably designate; all expenses of
maintaining the registration of Artisan Funds under the 1933 Act and the 1940 Act; and such portion of all fees, dues and other
expenses related to membership of Artisan Funds in any trade association or other investment company organization as may be
determined by the board from time to time. In addition to the payment of expenses, the Funds also shall pay all brokers’
commissions and other charges relating to the purchase and sale of portfolio securities for the Funds. Any expenses borne by
Artisan Funds that are attributable solely to the operation or business of any particular Fund shall be paid solely out of such
Fund’s assets. Any expenses borne by Artisan Funds that are not solely attributable to any particular Fund shall be apportioned in
such manner as Artisan Partners determines is fair and appropriate, or as otherwise specified by the board.
4. Compensation of Artisan Partners. For the services to be rendered and the charges and expenses to be assumed and to
be paid by Artisan Partners hereunder, each Fund shall pay to Artisan Partners a monthly fee at the annual rate set forth in
Schedule A hereto based on such Fund’s average daily net assets. If Artisan Partners shall serve for less than the whole of a
month, the foregoing compensation shall be prorated.
5. Services of Artisan Partners Not Exclusive. The services of Artisan Partners (and any person controlled by or under
common control with Artisan Partners) to Artisan Funds hereunder are not to be deemed exclusive, and Artisan Partners (and any
person controlled by or under common control with Artisan Partners) shall be free to render similar services to others so long as
its services under this Agreement are not impaired by such other activities.
6. Services Other Than as Investment Adviser. Artisan Partners (or an affiliate of Artisan Partners) may act as broker for
any Fund in connection with the purchase or sale of securities by or to such Fund if and to the extent permitted by procedures
adopted from time to time by the board. Such brokerage services are not within the scope of the duties of Artisan Partners under
this Agreement, and, within the limits permitted by law and the board, Artisan Partners (or an affiliate of Artisan Partners) may
receive brokerage commissions, fees or other remuneration from such Fund for such services in addition to its fee for services as
an investment adviser pursuant to this Agreement. Within the limits permitted by law, Artisan Partners may receive compensation
from any Fund for other services performed by it for such Fund which are not within the scope of the duties of Artisan Partners
under this Agreement.
7. Limitation of Liability of Artisan Partners. Artisan Partners shall not be liable to Artisan Funds or its shareholders for
any loss suffered by Artisan Funds or its shareholders from
3
or as a consequence of any act or omission of Artisan Partners, or of any of the partners, employees or agents of Artisan Partners,
in connection with or pursuant to this Agreement, except by reason of willful misfeasance, bad faith or gross negligence on the
part of Artisan Partners in the performance of its duties or by reason of reckless disregard by Artisan Partners of its obligations
and duties under this Agreement.
8. Duration and Renewal. This Agreement is effective with respect to each Fund as of each Fund’s Original Effective
date set forth in Schedule A. Unless terminated as provided in Section 9 of this Agreement, this Agreement shall continue in full
force and effect through each Fund’s Initial Term End Date set forth in Schedule A (which date shall not be later than the date
that is two years from the Original Effective Date), and shall continue in full force and effect with respect to each Fund for
successive periods of one year thereafter, but only so long as each continuance is specifically approved at least annually (a) by a
majority of those directors who are not interested persons of Artisan Funds or of Artisan Partners, voting in person at a meeting
called for the purpose of voting on such approval, and (b) by either the board or vote of the holders of a “majority of the
outstanding shares of the Fund”; provided, however, that if the continuance of this Agreement is submitted to the shareholders of
a Fund for their approval and such shareholders fail to approve such continuance of this Agreement as provided herein, Artisan
Partners may continue to serve hereunder as investment adviser to such Fund in a manner consistent with the 1940 Act and the
rules and regulations under the 1940 Act, subject to any applicable guidance or interpretation of the Securities and Exchange
Commission or its staff.
9. Termination. This Agreement may be terminated as to any Fund at any time, without payment of any penalty, by the
board or by vote of the holders of a majority of the outstanding shares of such Fund, upon 60 days’ written notice, delivered or
mailed by registered mail, postage prepaid, to Artisan Partners. This Agreement may be terminated as to any Fund by Artisan
Partners at any time, without payment of any penalty, upon 60 days’ written notice, delivered or mailed by registered mail,
postage prepaid, to Artisan Funds. This Agreement shall terminate automatically, without payment of any penalty, in the event of
its assignment, provided that no delegation of responsibilities by Artisan Partners pursuant to Section 1(c) of this Agreement shall
be deemed to constitute an assignment. The termination of this Agreement with respect to any one Fund shall not be deemed to
terminate this Agreement with respect to any other Fund.
10. Amendment. This Agreement may not be amended orally, but only by an instrument in writing signed by the party
against which enforcement of the amendment is sought. No amendment to this Agreement shall become effective until approved
in a manner consistent with the 1940 Act, the rules and regulations thereunder and any applicable guidance or interpretation of
the Securities and Exchange Commission or its staff.
11. Definitions.
For the purposes of this Agreement, the term “a majority of the outstanding shares of the Fund” will be construed in
accordance with the definition of “vote of a majority of the outstanding voting securities of a company” in Section 2(a)(42) of the
1940 Act.
For the purposes of this Agreement, the terms “affiliated person,” “control,” “interested person” and “assignment” have
their respective meanings defined in the 1940 Act, subject,
4
however, to the rules and regulations under the 1940 Act and any applicable guidance or interpretation of the Securities and
Exchange Commission or its staff; the term “approve at least annually” will be construed in a manner consistent with the 1940
Act and the rules and regulations under the 1940 Act and any applicable guidance or interpretation of the Securities and
Exchange Commission or its staff; and the term “brokerage and research services” has the meaning given in the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder and under any applicable guidance or interpretation
of the Securities and Exchange Commission or its staff.
5
IN WITNESS WHEREOF, ARTISAN PARTNERS FUNDS, INC. and ARTISAN PARTNERS LIMITED PARTNERSHIP have
each caused this Agreement to be signed on its behalf by its duly authorized representative, all as of the day and year first above
written.
Artisan Partners Funds, Inc.
By: /s/ Sarah A. Johnson
Artisan Partners Limited Partnership
By: /s/ Sarah A. Johnson
Amended as of May 6, 2022 to add Artisan International Explorer Fund’s Annual Rate of Fee
Schedule A
Fund
Annual
Rate of Fee
Developing World Fund
Emerging Markets Debt
Opportunities Fund
Floating Rate Fund
Focus Fund
Global Discovery Fund
Global Equity Fund
Global Opportunities Fund
Global Unconstrained Fund
Global Value Fund
1.050%
1.025%
1.000%
0.975%
0.950%
0.750%
0.725%
0.700%
0.675%
0.650%
0.680%
0.660%
0.640%
0.620%
0.600%
1.000%
0.975%
0.950%
0.925%
0.900%
0.975%
0.950%
0.925%
0.900%
0.875%
0.900%
0.875%
0.850%
0.825%
0.800%
0.900%
0.875%
0.850%
0.825%
0.800%
0.950%
0.925%
0.900%
0.875%
0.850%
1.000%
0.975%
0.950%
0.925%
0.900%
Asset Base
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $10 billion
over $10 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $1 billion
$1 billion up to $4 billion
$4 billion up to $8 billion
$8 billion up to $12 billion
over $12 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $1 billion
$1 billion up to $4 billion
$4 billion up to $8 billion
$8 billion up to $12 billion
over $12 billion
Original
Effective
Date of Agreement
Initial Term
End Date
May 12, 2015
May 12, 2017
February 17, 2022
February 17, 2024
November 10, 2021
November 10, 2023
February 16, 2017
February 16, 2019
August 18, 2017
August 18, 2019
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
February 17, 2022
February 17, 2024
March 12, 2014
June 30, 2015
[Schedule A to Second Amended & Restated Investment Advisory Agreement]
High Income Fund
International Fund
International Explorer Fund
International Small-Mid Fund
International Value Fund
Mid Cap Fund
Mid Cap Value Fund
Select Equity Fund
Small Cap Fund
Sustainable Emerging Markets
Fund
Value Fund
Value Income Fund
0.725%
0.700%
0.675%
0.650%
0.625%
1.000%
0.975%
0.950%
0.925%
0.900%
1.050%
1.000%
1.050%
1.025%
1.000%
0.975%
0.950%
1.000%
0.975%
0.950%
0.925%
1.000%
0.975%
0.950%
0.925%
1.000%
0.975%
0.950%
0.925%
0.750%
0.725%
0.700%
0.675%
0.650%
1.000%
0.975%
0.950%
0.925%
0.850%
0.825%
0.800%
0.775%
0.750%
0.800%
0.760%
0.720%
0.680%
0.640%
0.700%
0.675%
0.650%
0.625%
0.600%
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $10 billion
over $10 billion
up to $500 million
$500 million up to $750 million
$750 million up to $1 billion
$1 billion up to $12 billion
over $12 billion
up to $500 million
over $500 million
up to $2 billion
$2 billion up to $3 billion
$3 billion up to $4 billion
$4 billion up to $5 billion
over $5 billion
up to $500 million
$500 million up to $750 million
$750 million up to $1 billion
over $1 billion
up to $500 million
$500 million up to $750 million
$750 million up to $1 billion
over $1 billion
up to $500 million
$500 million up to $750 million
$750 million up to $1 billion
over $1 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $500 million
$500 million up to $750 million
$750 million up to $1 billion
over $1 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
up to $50 million
$50 million up to $ 100 million
$100 million up to $500 million
$500 million up to $7.5 billion
over $7.5 billion
up to $1 billion
$1 billion up to $2 billion
$2 billion up to $3.5 billion
$3.5 billion up to $5 billion
over $5 billion
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
May 6, 2022
May 6, 2024
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
February 12, 2020
February 12, 2022
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
March 12, 2014
June 30, 2015
February 17, 2022
February 17, 2024
[Schedule A to Second Amended & Restated Investment Advisory Agreement]
IN WITNESS WHEREOF, ARTISAN PARTNERS FUNDS, INC. and ARTISAN PARTNERS LIMITED PARTNERSHIP have
each caused this Schedule A to be signed on its behalf by its duly authorized representative, all as of the day and year first written
above.
Artisan Partners Funds, Inc.
By: /s/ Sarah A. Johnson
Artisan Partners Limited Partnership
By: /s/ Sarah A. Johnson
[Schedule A to Second Amended & Restated Investment Advisory Agreement]
1
Subsidiaries of Artisan Partners Asset Management Inc.
Exhibit 21.1
Name
Artisan Partners Holdings LP
Artisan Partners Distributors LLC
Artisan Investments GP LLC
Artisan Partners Limited Partnership
Artisan Partners Asia-Pacific PTE Ltd.
Artisan Partners Limited
Artisan Partners II Limited
Artisan Partners UK LLP
Artisan Partners Services LLC
Artisan Partners International Holdings LLC
Artisan Partners Australia Pty Ltd.
Artisan Partners Europe Holdings LLC
APEL Financial Distribution Services Ltd.
Artisan Partners Hong Kong Holdings LLC
Artisan Partners Hong Kong Limited
Artisan Credit Opportunities GP LLC
Credit Team Holdco LLC
Antero Peak Group GP LLC
Antero Peak Group Holdco LLC
Artisan Partners GP LLC
Artisan International Explorer GP LLC (f/k/a Artisan International
Small Cap Value GP LLC)
International Explorer Holdco LLC (f/k/a International Small Cap
Value Holdco LLC)
Artisan Partners Asia Funds Holdco LLC
Artisan Partners Asia Funds GP LLC
Artisan Partners Cayman Holdings LLC
AP International/Global Value Opportunity GP LLC
Artisan Dislocation Opportunities GP LLC
Jurisdiction of Incorporation/Organization
Delaware
Wisconsin
Delaware
Delaware
Singapore
United Kingdom
United Kingdom
United Kingdom
Delaware
Delaware
Australia
Delaware
Ireland
Delaware
Hong Kong
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
1
Other subsidiaries have been omitted because, when considered in the aggregate, they do not constitute a significant subsidiary.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No.333-187180) and Form S-3 (No. 333-194684) of Artisan Partners Asset
Management Inc. of our report dated February 27, 2023 relating to the financial statements, and the effectiveness of internal control over financial reporting, which appears
in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 27, 2023
CERTIFICATION
Exhibit 31.1
I, Eric R. Colson, certify that:
1. I have reviewed this report on Form 10-K of Artisan Partners Asset Management Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
/s/ Eric R. Colson
Eric R. Colson
Chief Executive Officer
(principal executive officer)
Date: February 27, 2023
CERTIFICATION
Exhibit 31.2
I, Charles J. Daley, Jr., certify that:
1. I have reviewed this report on Form 10-K of Artisan Partners Asset Management Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
/s/ Charles J. Daley, Jr.
Charles J. Daley, Jr.
Executive Vice President, Chief Financial Officer and
Treasurer
(principal financial and accounting officer)
Date: February 27, 2023
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Eric R. Colson, the Chief Executive Officer of Artisan Partners Asset Management Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
• The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2022 as filed with the Securities and Exchange
Commission on the date hereof (the “Form 10-K”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
• The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Eric R. Colson
Eric R. Colson
Chief Executive Officer
(principal executive officer)
Date: February 27, 2023
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Charles J. Daley, Jr., the Executive Vice President, Chief Financial Officer and Treasurer of Artisan Partners Asset Management Inc. (the “Company”), hereby
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
• The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2022 as filed with the Securities and Exchange
Commission on the date hereof (the “Form 10-K”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
• The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Charles J.
Daley, Jr.
Charles J.
Daley, Jr.
Executive
Vice
President,
Chief
Financial
Officer and
Treasurer
(principal
financial and
accounting
officer)
Date: February 27, 2023