10-Q: Artisan Partners Reports Q3 AUM Growth Amid Client Outflows

Artisan Partners Asset Management Inc. reported increased AUM and revenue for Q3 2025, despite significant net client cash outflows and a tax charge impacting GAAP net income.

Summary

• Assets Under Management (AUM) increased to $181.3 billion as of September 30, 2025, up 3% from June 30, 2025, primarily due to $8.3 billion in market appreciation.
• Average AUM for the three months ended September 30, 2025, was $177.4 billion, a 9% increase compared to $162.8 billion for the same period in 2024.
• Total revenues for the three months ended September 30, 2025, reached $301.3 million, an 8% increase from $279.6 million in the prior year period.
• GAAP operating margin improved to 33.8% for the quarter, up from 33.3% in Q3 2024, while adjusted operating margin rose to 36.2% from 35.0%.
• Net income attributable to Artisan Partners Asset Management Inc. for the quarter decreased by 8% to $66.8 million, down from $72.9 million in Q3 2024.
• Basic and diluted earnings per share (EPS) for the quarter were $0.93, a decrease from $1.03 in Q3 2024, while adjusted EPS increased to $1.02 from $0.92.
• Net client cash outflows for the quarter were $2.3 billion, significantly higher than the $0.7 billion outflow in Q3 2024.
• A $10.7 million deferred tax charge related to the enactment of the One Big Beautiful Bill Act (OBBBA) impacted the effective tax rate for the nine months ended September 30, 2025.

Sentiment

Score: 5

Explanation: The filing presents a mixed financial picture. While AUM and revenue grew, and adjusted metrics showed improvement, GAAP net income and EPS declined for the quarter. Significant net client cash outflows and a notable tax charge are concerning, but strong investment performance in many strategies and an increased dividend offer some positives. The overall sentiment is neutral to slightly negative due to the decline in GAAP profitability and substantial client outflows.

Positives

• AUM increased to $181.3 billion, driven by $8.3 billion in market appreciation during the quarter.
• Total revenues grew by 8% to $301.3 million for the three months ended September 30, 2025, compared to the prior year.
• GAAP operating margin improved to 33.8% and adjusted operating margin increased to 36.2% for the quarter.
• Adjusted EPS rose to $1.02 for the quarter, up from $0.92 in the prior year period.
• Quarterly dividend declared for Class A common stock increased to $0.88 per share, up from $0.73 in the previous quarter and $0.71 in Q3 2024.
• Several investment strategies demonstrated strong average annual total returns (gross of fees) outperforming their respective benchmarks over various time horizons, such as Global Opportunities (381 bps since inception), Global Discovery (545 bps since inception), and Franchise Strategy (667 bps since inception).

Negatives

• Net client cash outflows were substantial at $2.3 billion for the quarter and $7.0 billion for the nine months ended September 30, 2025, indicating a challenge in attracting new capital.
• Net income attributable to Artisan Partners Asset Management Inc. decreased by 8% for the quarter to $66.8 million.
• Basic and diluted EPS declined to $0.93 for the quarter from $1.03 in the prior year.
• Performance fees significantly decreased to $21k for the quarter from $36k in Q3 2024, and to $21k for the nine months from $86k in the prior year period.
• A $10.7 million deferred tax charge associated with the OBBBA increased the effective tax rate by 8.6% for the quarter and 3.1% for the nine months.
• The weighted average management fee decreased to 67.5 basis points for the quarter and 67.7 basis points for the nine months, partly due to AUM weighting towards lower-fee credit strategies and amendments to investment management agreements.

Risks

• Loss of key investment professionals or senior management could adversely impact business operations and client relationships.
• Adverse market or economic conditions can lead to declines in AUM and, consequently, revenue and earnings.
• Poor performance of investment strategies may result in client redemptions and reduced AUM.
• Significant changes in client cash inflows or outflows, or declines in the market value of managed assets, directly affect financial results.
• Changes in the legislative and regulatory environment could impose new compliance burdens or restrict business activities.
• Changes in trade policies, including new or increased tariffs, and their economic impact, volatility, and uncertainty, pose risks.
• Inability to maintain current fee rates due to competitive pressures or client negotiations could reduce revenue.
• Operational or technical errors, or other damage to reputation, could lead to client losses and financial penalties.
• Fourth quarter distributions from Artisan Funds are expected to result in approximately $900 million of net client cash outflows from investors who choose not to reinvest, potentially causing increased mutual fund redemptions.
• Payments under Tax Receivable Agreements (TRAs) may be accelerated and/or significantly exceed actual tax benefits, potentially requiring the company to borrow funds.

Future Outlook

Management expects to continue investing in business growth, focusing on new investment capabilities and strategies that offer differentiation and client value. The company aims to maintain a transparent and predictable financial model, distributing a majority of cash generated from operations to stockholders and partners through dividends and distributions. Quarterly dividends are expected to be approximately 80% of cash generated each quarter, with a special annual dividend considered from the remaining 20% and other cash sources. The effective tax rates are projected to increase by 1% to 3% starting in 2027 due to new compensation deduction limitation rules from the OBBBA. Fourth quarter 2025 distributions from equity Artisan Funds are estimated to result in approximately $900 million of net client cash outflows from non-reinvested distributions, potentially increasing mutual fund redemptions. Payments related to Tax Receivable Agreements are expected to be approximately $40.4 million in 2026.

Management Comments

• 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.
• We strive to maintain a financial model that is transparent and predictable.
• 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.
• Over the long-term, we expect to generate the majority of our AUM growth through investment returns, which has been our historical experience.
• 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.
• 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.

Industry Context

The asset management industry continues to face economic uncertainty and volatility in global financial markets, which directly impacts AUM values and, consequently, revenue and earnings for firms like Artisan Partners. The company's strategy of focusing on high-value-added, active investment strategies and adapting to evolving distribution channels with institutional-like decision-making processes aligns with broader industry trends towards specialized and sophisticated investment solutions. The decline in weighted average management fees, partly due to AUM weighting in lower-fee credit strategies, reflects competitive pressures and evolving client preferences within the industry.

Comparison to Industry Standards

• The Growth Team's Global Opportunities Strategy outperformed the MSCI All Country World Index by 381 basis points since inception.
• The Growth Team's Global Discovery Strategy outperformed the MSCI All Country World Small Mid Cap Index by 545 basis points since inception.
• The Growth Team's U.S. Mid-Cap Growth Strategy outperformed the Russell Midcap Index by 430 basis points since inception.
• The Growth Team's Franchise Strategy outperformed the MSCI All Country World Index by 667 basis points since inception.
• The Global Equity Team's Global Equity Strategy outperformed the MSCI All Country World Index by 391 basis points since inception.
• The Global Value Team's Global Value Strategy outperformed the MSCI All Country World Index by 279 basis points since inception.
• The Credit Team's High Income Strategy outperformed the ICE BofA US High Yield Index by 238 basis points since inception.
• The Credit Team's Credit Opportunities Strategy significantly outperformed the ICE BofA US Dollar 3-Month Deposit Offered Rate Constant Maturity Index by 1,142 basis points since inception.
• The Developing World Team's Developing World Strategy outperformed the MSCI Emerging Markets Index by 696 basis points since inception.
• The Antero Peak Group's Antero Peak Strategy outperformed the S&P 500 Index by 463 basis points since inception.
• The EMsights Capital Group's Global Unconstrained Strategy outperformed the ICE BofA 3-month Treasury Bill Index by 686 basis points since inception.
• The EMsights Capital Group's Emerging Markets Debt Opportunities Strategy outperformed the J.P. Morgan EMB Hard Currency/Local Currency 50-50 by 629 basis points since inception.
• The EMsights Capital Group's Emerging Markets Local Opportunities Strategy outperformed the J.P. Morgan GBI-EM Global Diversified Index by 379 basis points since inception.
• The U.S. Value Team's Value Income Strategy underperformed the S&P 500 Index by 795 basis points since inception.
• The Global Special Situations Strategy underperformed the ICE BofA Global High Yield Index by 272 basis points since inception.

Corporate Governance

Legal Proceedings

• Currently, there are no legal or administrative proceedings that management believes may have a material adverse effect on the consolidated financial position, cash flows, or results of operations.

Related Party Transactions

• Certain executive officers and directors are limited partners of Holdings, making some transactions (e.g., TRA payments, state tax payments) related party transactions.
• Artisan serves as the investment adviser/manager to Artisan Funds, Artisan Global Funds, and Artisan Private Funds, which are affiliated entities. Management and performance fees earned from consolidated investment products are eliminated upon consolidation.
• Artisan and certain related parties, including employees, officers, and Board members, have invested in Artisan Private Funds, with some investments not incurring management or performance fees.

Stakeholder Impact

• Shareholders: Impacted by the decrease in GAAP net income and EPS for the quarter, but benefit from an increased quarterly dividend and positive adjusted EPS growth. Potential for future special dividends is also noted.
• Employees: Affected by long-term incentive compensation awards (restricted share-based and franchise capital awards) and changes to the Omnibus Incentive Compensation Plan. Employee separation costs were noted for the nine-month period.
• Clients: Experience net client cash outflows, indicating some clients are withdrawing assets. Investment performance across various strategies remains a key factor for client retention and attraction.
• Creditors: The company issued new senior notes to repay maturing debt, maintaining its debt structure. Compliance with debt covenants was confirmed.
• Regulatory Authorities: The company is subject to new accounting pronouncements (ASU 2023-09, ASU 2024-03) and tax law changes (OBBBA) that will impact future reporting and tax obligations.

Next Steps

• The company will continue to invest in new investment capabilities and strategies to support growth.
• The Board of Directors expects to consider and pay a quarterly dividend of approximately 80% of the cash generated each quarter.
• After year-end, the Board will consider payment of a special dividend from the 20% withheld quarterly and other discrete cash sources.
• The company expects to make approximately $40.4 million in payments related to Tax Receivable Agreements in 2026.
• The company is required to adopt ASU 2023-09 (Improvements to Income Tax Disclosures) for the year ending December 31, 2025.
• The company is evaluating the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses), which it is required to adopt for the year ending December 31, 2026.
• Equity Artisan Funds are expected to complete their annual income and capital gain distributions by December 2025, which may cause increased mutual fund redemptions.

Key Dates

Recommendation

While Artisan Partners demonstrated AUM and revenue growth, along with improved adjusted operating margins and adjusted EPS, the significant net client cash outflows and a decline in GAAP net income and EPS for the quarter present a mixed picture. The increase in the quarterly dividend is positive for shareholders, but the persistent client outflows and the impact of the OBBBA tax charge warrant caution. The company's strong long-term investment performance in many strategies is a fundamental positive, but short-term headwinds suggest a 'hold' recommendation until there's clearer evidence of sustained positive net client flows and a reversal in GAAP profitability trends.

Keywords

Asset Management, Investment Management, AUM, SEC Filing, 10-Q, Financial Results, Earnings, Dividends, Client Outflows, Market Appreciation, Operating Margin, Tax Receivable Agreements, APAM, Artisan Partners