3Q26 Artisan Partners Asset Management Inc Investor Conference Call - ARTISAN PARTNERS ASSET MANAGEMENT INC

Explicit Guidance:

• Q4 AUM Impact: Anticipates a reduction in AUM of approximately $2.5 billion in the fourth quarter due to annual mutual fund distributions (excluding reinvested amounts).
• Q4 Performance Fees: Projects performance fee contributions in Q4 2026 to be similar to Q4 2025, estimated at approximately $29 million, subject to market conditions through year-end.
• Fixed Cost Outlook (2027): Maintains full-year 2026 guidance for fixed cost growth at mid-single digits (excluding costs from the Grandview acquisition and LTI exchange); no specific numerical guidance provided for 2027.
• Weighted Average Fee Rate: Expects recurring management fee rates to stabilize around 70 basis points for the foreseeable future, with Q4 fees potentially spiking higher if projected performance fees crystallize.
• Dividends: Declared a quarterly dividend of $0.88 per share for Q3 2026, representing a 10% increase from Q2; policy implies continuity of attractive shareholder returns.

Business-Segment Outlook:

• Credit Franchise:
  • Growth Trajectory: Targeting expansion across public and private credit with a focus on global reach (syndicated loans, bonds, and potential CLOs).
  • Product Launches: Launching ETF share classes for Artisan Select Equity Fund and Artisan Focus Fund in Q4 2026; developing an interval fund structure (leveraging public/private credit) for wealth clients in 2027.
  • M&A Strategy: Shifting inorganic growth focus toward M&A (specifically private credit, secondaries, and sector-specific private equity) rather than lift-outs, though both channels remain open.
  • Geographic Expansion: Expanding M-Sites Capital Group capabilities into Europe (launching USITs for Global Unconstrained in November) and tapping into European syndicated loan/bond markets.
• Alternatives:
  • Grandview Property Partners: Closed on an anchor investor for their fourth flagship fund; continuing to raise capital with an expectation of commensurately higher fee levels.
  • New Talent: Onboarded John Brodnick (lift-out from Sachem Head) to launch a long/short strategy in 2026/2027, expected to command higher fees.
• Equity:
  • International Value & Global Value: Strategies are currently lagging over 1- and 3-year periods but show strong momentum in October (75% and 84% of AUM outperforming trailing 1-year and 3-year periods as of Oct 26).
  • Wrapper Expansion: Planning to launch several additional ETF share classes throughout 2027, starting with the two Q4 2026 launches, followed by more in Q1 2027.
• Wealth Distribution:
  • Geographies: Deliberate expansion in UK, Europe, and Middle East wealth markets with new share classes (currency/reinvestment) launched in 2026.
  • Pipeline: Pipeline value has grown "meaningfully," driven primarily by credit and wealth opportunities, though RFP numbers remain relatively flat.

Market and Competitive Outlook:

• Demand Trends: Observing "fair bit of demand" for flexible credit solutions and interval funds; strong appetite for Global Unconstrained strategies in Europe aligned with US trends.
• Fee Rate Dynamics: Anticipates a shift in revenue mix from declining, lower-fee institutional equity mandates to higher-fee alternatives and credit wealth products; fee rate trajectory expected to be stable (offsetting equity attrition with alt growth) but potentially rising with interval fund and new product launches.
• Market Breadth: Current market breadth is at its "worst level since 2000," creating a potential opportunity for long-term value strategies to outperform if market normalcy returns.

Macro / Industry Outlook:

• Industry Structure: Noting a significant convergence of private and public capital, driving demand for flexible wrappers like interval funds.
• Client Sentiment: Clients are described as "highly sophisticated" and willing to tolerate short-term volatility in exchange for alpha; "unloved" markets presenting opportunities for disciplined teams.
• Distribution Shift: Continued industry-wide "active-to-passive" flows and de-risking in institutional equity (DV markets), necessitating a shift toward higher-fee alternative wrappers.

Strategic Initiatives:

• Product Launches (Timeline):
  • Q4 2026: ETF share classes for Select Equity and Focus Fund; European expansion of M-Sites strategy.
  • 2027: Launch of interval fund structure for public/private credit; additional ETF share classes.
• Capacity Additions: Onboarding John Brodnick (Long/Short) and adding fixed-income talent to the International Value Group.
• M&A Activity: Active evaluation of private equity and private credit opportunities; leaning toward inorganic M&A for credit franchise expansion.
• Operating Model: Maintaining "distraction-free" investment environment; expanding "degrees of freedom" for teams to invest unloved assets.

Risks and Headwinds to Outlook:

• Performance Volatility: Equity strategies (International/Global Value) face continued risk of outflows if 1- and 3-year relative underperformance persists.
• AUM Decline: Q4 AUM subject to further reduction from distributions; discrete redemption events previously caused $10.6 billion in outflows.
• Performance Fees: Q4 performance fee projections ($29M estimate) remain subject to market and performance conditions through year-end; potential for downside if equity markets do not stabilize.
• Execution Risk: Upcoming product launches (ETFs, Interval Funds) face regulatory and board approval hurdles, though management sees "no anticipated problems."
• Concentration Risk: No specific numerical concentration risk cited; management asserts diversification across 15-20% of clients, 6 teams, and 9 strategies.

Management Tone on the Future:

• Confidence Level: High regarding the long-term value of the credit and alternatives platforms; cautiously optimistic regarding equity strategy recovery, citing "unpredictability" as inherent to alpha generation.
• Strategic Clarity: Emphasizes a deliberate, phased approach to launches (e.g., ETFs staged over 2026-2027) to avoid self-competition and ensure fee integrity.
• Client Relations: Expresses confidence in client retention due to sophistication and long-term horizons, despite short-term performance challenges.

Miscellaneous:

• Balance Sheet: Maintains $352 million in cash; revolving credit facility renewed/expanded to $150 million (unused).
• Performance Fee Diversification: 7 of 8 teams with performance fee accounts are "in the money" as of the call date.
• ETF Pricing Strategy: New ETF share classes will be priced per pari passu to existing strategies, avoiding fee dilution and competition with themselves.