10-Q: Artisan Partners Asset Management Reports Second Quarter 2024 Results

Artisan Partners Asset Management's second quarter 2024 results show a slight decrease in assets under management, but an increase in revenue compared to the same period last year.

Summary

• Artisan Partners Asset Management reported a decrease in assets under management (AUM) to $158.9 billion as of June 30, 2024, down from $160.4 billion at the end of the previous quarter.
• The decrease in AUM was primarily due to $1.6 billion in net client cash outflows, partially offset by market appreciation.
• Average assets under management for the second quarter of 2024 increased by 3% compared to the first quarter of 2024 and 14% compared to the second quarter of 2023.
• The company's revenue for the second quarter of 2024 was $270.8 million, an 11% increase compared to $242.9 million in the second quarter of 2023.
• The GAAP operating margin was 32.0% for the second quarter of 2024, compared to 31.6% for the same period in 2023.
• Adjusted operating margin was 32.2% for the second quarter of 2024, compared to 31.9% for the second quarter of 2023.
• Basic and diluted earnings per share were both $0.80 for the second quarter of 2024.
• The company declared a dividend of $0.61 per share of Class A common stock during the second quarter of 2024.
• A quarterly dividend of $0.71 per share of Class A common stock was declared on July 23, 2024, for the second quarter of 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company reported a decrease in AUM, revenue and operating margins increased, and a higher dividend was declared. The company also faces challenges from market volatility and client outflows.

Positives

• Revenue increased by 11% year-over-year, driven by higher average assets under management.
• The company maintained a strong operating margin, both on a GAAP and adjusted basis.
• The company declared a higher dividend of $0.71 per share for the second quarter of 2024 compared to the $0.61 paid in the first quarter.
• Average assets under management increased by 14% compared to the second quarter of 2023.

Negatives

• Assets under management decreased by $1.5 billion during the quarter due to net client cash outflows.
• The weighted average management fee decreased from 70.1 bps to 68.8 bps due to changes in strategy mix.
• Net investment gain (loss) of consolidated investment products decreased significantly compared to the same period last year.

Risks

• The company's financial performance is subject to market volatility and fluctuations in assets under management.
• Changes in interest rates, geopolitical tensions, and conflicts could materially impact financial performance.
• The company's revenue is dependent on investment management fees, which are based on the value of assets under management.
• The company's performance is subject to the risk of losing key investment professionals or senior management.
• Poor performance of investment strategies could lead to client cash outflows and declines in market value of assets.

Future Outlook

The company expects long-term investment performance to be the primary driver of long-term business and financial results. They plan to continue investing in growth, focusing on new investment capabilities and areas where they can differentiate active management. The company also expects to continue paying out a majority of cash generated through dividends and distributions.

Management Comments

• Management believes that maintaining and evolving existing investment strategies and launching new ones that meet client needs will generate strong business and financial results.
• Management expects that business and financial results will be lumpy over time due to market conditions and fluctuations in assets under management.
• Management strives to maintain a transparent and predictable financial model, with most expenses varying directly with changes in revenue.

Industry Context

The report reflects the challenges faced by asset managers in a volatile market environment, with net client cash outflows impacting AUM. The company's focus on active management and long-term investment performance aligns with a broader industry trend towards value-added strategies. The company's ability to maintain strong operating margins despite market headwinds is a positive sign.

Comparison to Industry Standards

• Artisan's operating margin of 32% is competitive with other publicly traded asset managers such as T. Rowe Price (TROW) and Franklin Resources (BEN), which typically have operating margins in the 30-40% range.
• The decrease in AUM due to net client cash outflows is a common challenge in the current market environment, with many active managers experiencing similar trends. For example, Invesco (IVZ) has also reported net outflows in recent quarters.
• Artisan's weighted average management fee of 68.8 bps is within the typical range for active equity managers, but may be lower than some specialized or alternative asset managers.
• The company's focus on long-term investment performance and capacity management is similar to strategies employed by other high-quality active managers like Baillie Gifford and Capital Group.

Related Party Transactions

• Certain transactions between Artisan and limited partners of Holdings, including TRA payments, are considered related party transactions.
• Holdings makes estimated state tax payments on behalf of certain limited partners, which are then netted from subsequent distributions.
• Artisan has agreements to serve as investment adviser to Artisan Funds, Artisan Global Funds, and Artisan Private Funds, with which certain Artisan employees are affiliated.

Stakeholder Impact

• Shareholders will receive a quarterly dividend of $0.71 per share.
• Clients may experience changes in investment performance due to market conditions and strategy performance.
• Employees may be impacted by changes in compensation and incentive structures.
• Partners of Holdings will receive distributions based on their ownership.

Next Steps

• The company will continue to monitor market conditions and their impact on assets under management.
• The company will focus on maintaining and evolving existing investment strategies and launching new ones.
• The company will continue to manage investment capacity to protect the interests of clients.
• The company will pay a quarterly dividend of $0.71 per share on August 30, 2024.

Key Dates

Keywords

asset management, investment strategies, assets under management, AUM, revenue, operating margin, earnings per share, dividends, financial results, investment performance