10-Q: Artisan Partners Reports Strong Q2 2025 Earnings and AUM Growth, Raises Dividend Amid Client Outflows

Artisan Partners Asset Management Inc. announced a significant increase in Assets Under Management to $175.5 billion and a rise in net income for the second quarter of 2025, alongside an increased quarterly dividend, despite experiencing net client cash outflows.

Summary

• Assets Under Management (AUM) increased by $13.1 billion, or 8%, to $175.5 billion at June 30, 2025, compared to $162.4 billion at March 31, 2025.
• The AUM growth was primarily driven by $15.2 billion of market appreciation, partially offset by $1.9 billion of net client cash outflows and $0.2 billion of Artisan Funds distributions not reinvested.
• Average AUM for the three months ended June 30, 2025, was $166.8 billion, a 5% increase from $158.6 billion for the same period in 2024.
• Total revenues for the three months ended June 30, 2025, were $282.8 million, a 4% increase from $270.8 million in the prior year period.
• GAAP operating margin was 28.2% for Q2 2025, down from 32.0% for Q2 2024, while adjusted operating margin was 31.7% for Q2 2025, slightly down from 32.2% for Q2 2024.
• Net income attributable to Artisan Partners Asset Management Inc. for Q2 2025 was $67.6 million, an increase from $57.6 million in Q2 2024.
• Basic and diluted earnings per share (EPS) for Q2 2025 were $0.94, up from $0.80 in Q2 2024; adjusted EPS was $0.83.
• A quarterly dividend of $0.73 per share of Class A common stock was declared, effective July 29, 2025, payable on August 29, 2025.
• Net client cash outflows for Q2 2025 totaled $1.863 billion, with 14 of 27 investment strategies experiencing net outflows totaling $3.0 billion.
• Total compensation and benefits increased by $19.0 million (13%) for Q2 2025, primarily due to a $11.9 million increase in long-term incentive compensation costs (including $9.3 million from market valuation changes) and a $3.7 million increase in incentive compensation due to higher revenues.
• The weighted average management fee decreased to 68.1 basis points for Q2 2025 from 68.8 basis points for Q2 2024, partly due to amendments of certain investment management agreements and an increased AUM weighting of fixed income strategies with lower fee rates.
• The company agreed to issue $50 million of Series G Senior Notes on August 15, 2025, at a 5.43% interest rate, maturing August 16, 2030, to pay off $60 million of Series D Senior Notes maturing August 16, 2025.
• The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is estimated to increase GAAP and adjusted effective tax rates by 1% to 3% starting in 2027 due to changes in IRC Section 162(m) executive compensation deduction limitation rules.

Sentiment

Score: 7

Explanation: The company reported strong financial results with increased AUM, revenue, and net income, and a higher dividend. However, persistent net client cash outflows and a slight decrease in operating margins, along with a projected future tax rate increase, temper the overall positive sentiment.

Positives

• Assets Under Management (AUM) increased by $13.1 billion (8%) to $175.5 billion in Q2 2025, primarily driven by $15.2 billion in market appreciation.
• Total revenues increased by 4% to $282.8 million for the three months ended June 30, 2025.
• Net income attributable to Artisan Partners Asset Management Inc. increased by 17% to $67.6 million for Q2 2025.
• Basic and diluted earnings per share (EPS) increased to $0.94 for Q2 2025 from $0.80 in Q2 2024.
• The quarterly dividend was increased to $0.73 per share for Q2 2025, up from $0.68 per share declared for Q1 2025.
• Many investment strategies demonstrated strong performance, with several composites outperforming their respective benchmarks over various time horizons (e.g., Global Opportunities +401 bps, Non-U.S. Growth +471 bps, International Value +522 bps since inception).
• The company was in compliance with all debt covenants as of June 30, 2025.

Negatives

• Experienced net client cash outflows of $1.9 billion in Q2 2025, with 14 of 27 strategies having net outflows totaling $3.0 billion.
• GAAP operating margin decreased to 28.2% in Q2 2025 from 32.0% in Q2 2024.
• Adjusted operating margin slightly decreased to 31.7% in Q2 2025 from 32.2% in Q2 2024.
• The weighted average management fee decreased to 68.1 basis points in Q2 2025 from 68.8 basis points in Q2 2024, partly due to an increased AUM weighting of lower-fee fixed income strategies.
• Employee separation costs increased due to the winding down of the China Post-Venture strategy.
• The Value Income Strategy underperformed the S&P 500 Index by 691 bps since inception.
• The Select Equity Strategy underperformed the S&P 500 Index by 232 bps since inception.

Risks

• Loss of key investment professionals or senior management.
• Adverse market or economic conditions.
• Poor performance of investment strategies.
• Significant changes in client cash inflows or outflows or declines in market value of the assets in managed accounts.
• Changes in the legislative and regulatory environment in which the company operates.
• Changes in trade policies, including the imposition of new or increased tariffs and the economic impact, volatility, and uncertainty resulting therefrom.
• Ability to maintain current fee rates.
• Operational or technical errors or other damage to reputation.
• The fixed interest rate on unsecured notes is subject to a one percentage point increase if Holdings receives a below-investment grade rating.
• Payments under Tax Receivable Agreements (TRAs) may be accelerated and/or significantly exceed the actual benefits realized, potentially requiring funding from cash on hand or borrowed funds.
• Estimated 1% to 3% increase in GAAP and adjusted effective tax rates starting in 2027 due to the One Big Beautiful Bill Act (OBBBA) amendments to IRC Section 162(m) executive compensation deduction limitation rules.

Future Outlook

The company expects to continue investing in business growth, focusing on adding new investment capabilities and strategies that offer differentiation and client value. It anticipates paying a quarterly dividend of approximately 80% of the cash generated each quarter, with a potential special dividend considered annually from the remaining 20% and other cash sources. The effective tax rate is estimated to increase by 1% to 3% starting in 2027 due to new tax legislation (OBBBA) impacting executive compensation deduction rules.

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."
• "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."
• "After the end of the year, our Board will consider payment of a special dividend from the 20% withheld each quarter plus any discrete sources and uses of cash throughout the year, which may include gains realized upon seed capital redemptions and investments redeemed in connection with forfeited franchise capital awards."

Industry Context

Operating in the active investment management sector, the company's performance is significantly influenced by global financial market conditions and fluctuations in Assets Under Management (AUM). The filing underscores that long-term investment performance is the primary driver of business results, acknowledging short-term volatility. The company also notes the ongoing evolution of distribution channels towards more institutional-like decision-making processes, adapting its efforts to these areas.

Comparison to Industry Standards

• Global Opportunities Strategy outperformed MSCI All Country World Index by 401 bps since inception.
• Global Discovery Strategy outperformed MSCI All Country World Small Mid Cap Index by 603 bps since inception.
• U.S. Mid-Cap Growth Strategy outperformed Russell Midcap Index by 410 bps since inception.
• Non-U.S. Growth Strategy outperformed MSCI EAFE Index by 471 bps since inception.
• International Value Strategy outperformed MSCI EAFE Index by 522 bps since inception.
• International Explorer Strategy outperformed MSCI All Country World Index Ex USA Small Cap by 668 bps since inception.
• Global Value Strategy outperformed MSCI All Country World Index by 293 bps since inception.
• Sustainable Emerging Markets Strategy outperformed MSCI Emerging Markets Index by 110 bps since inception.
• High Income Strategy outperformed ICE BofA US High Yield Index by 244 bps since inception.
• Credit Opportunities Strategy outperformed ICE BofA US Dollar 3-Month Deposit Offered Rate Constant Maturity Index by 1,115 bps since inception.
• Developing World Strategy outperformed MSCI Emerging Markets Index by 794 bps since inception.
• Antero Peak Strategy outperformed S&P 500 Index by 548 bps since inception.
• Antero Peak Hedge Strategy outperformed S&P 500 Index by 54 bps since inception.
• Non-U.S. Small-Mid Growth Strategy outperformed MSCI All Country World Index Ex USA Small Mid Cap by 214 bps since inception.
• Global Unconstrained Strategy outperformed ICE BofA 3-month Treasury Bill Index by 644 bps since inception.
• Emerging Markets Debt Opportunities Strategy outperformed J.P. Morgan EMB Hard Currency/Local Currency 50-50 by 647 bps since inception.
• Emerging Markets Local Opportunities Strategy outperformed J.P. Morgan GBI-EM Global Diversified Index by 345 bps since inception.
• Value Income Strategy underperformed S&P 500 Index by 691 bps since inception.
• Select Equity Strategy underperformed S&P 500 Index by 232 bps since inception.
• Floating Rate Strategy outperformed S&P UBS Leveraged Loan Index by 67 bps since inception.

Legal Proceedings

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

Related Party Transactions

• Holdings makes estimated state tax payments on behalf of certain limited partners, including related parties, which are then netted from subsequent distributions or payments.
• Accounts receivable included $3.9 million of partnership tax reimbursements due from Holdings limited partners (including related parties) as of June 30, 2025.
• Artisan and certain related parties, including employees, officers, and members of the Company's Board, have invested in Artisan Private Funds, and for certain of those investments, do not pay a management fee, performance fee, or incentive allocation.

Stakeholder Impact

• Shareholders: Benefit from increased dividends and higher earnings per share. Potential for future special dividends. Potential impact from future tax rate increases due to new legislation.
• Employees: Benefit from long-term incentive compensation plans. Some employee separation costs incurred due to the winding down of the China Post-Venture strategy.
• Clients: Benefit from strong investment performance across many strategies. Potential impact from strategy closures or restrictions (e.g., China Post-Venture).
• Creditors: The company is in compliance with all debt covenants. Refinancing of existing senior notes with new issuance.

Next Steps

• Payment of the $0.73 per share quarterly dividend on August 29, 2025.
• Issuance of $50 million Series G Senior Notes on August 15, 2025, and the payoff of $60 million Series D Senior Notes maturing on August 16, 2025.
• Evaluation of the impact of ASU 2024-03, Disaggregation of Income Statement Expenses, with required adoption for the year ending December 31, 2026.
• Evaluation of the impacts of the One Big Beautiful Bill Act (OBBBA) on tax rates, with changes effective starting in 2027.
• Board consideration of a special dividend after year-end from the 20% of cash withheld quarterly and other discrete cash sources.

Key Dates

Recommendation

While Artisan Partners demonstrated strong AUM growth driven by market appreciation, increased revenues, and higher EPS, the persistent net client cash outflows and a slight decline in operating margins indicate underlying challenges in attracting new capital. The increase in dividends is positive for shareholders, but the projected future tax rate increase from the OBBBA introduces a headwind. The company's strong investment performance across many strategies is a positive, but the overall picture suggests a stable, mature asset manager facing industry-wide client flow challenges. A "hold" recommendation is appropriate as the positives are largely offset by the negatives and future uncertainties, suggesting limited immediate upside potential without a significant shift in client inflow trends.

Keywords

Asset Management, Investment Management, AUM, Earnings, Dividends, SEC Filing, Quarterly Report, Financial Performance, Client Flows, Operating Margin, Tax Receivable Agreements, Investment Strategies, Market Appreciation