Artisan Partners Asset Management Inc. (APAM) Earnings

Management highlights

- Core Business & Investment Performance * The firm ended Q2 2026 with a record $183 billion in quarter-end AUM, up 6% sequentially from Q1 2026 and 5% year-over-year from Q2 2025. Average AUM for the quarter was $182 billion, flat sequentially and up 9% year-over-year. * Long-term investment performance remains strong across the platform: 86% of AUM outperformed benchmarks over 3 years, 77% over 5 years, and 99% over 10 years (gross of fees). The 10+ year track record strategies have outperformed benchmarks by an average of 189 basis points annually net of fees. * Generated over $20 billion in client returns during the volatile Q2 2026 period. - Strategic Platform Changes * Following the loss of two large U.S. Value sub-advisory mandates, management decided to wind down the U.S. Value investment team and redeploy resources to higher long-term opportunity segments. The wind-down is expected to be largely completed by the end of Q3 2026. * Continued execution on the diversified global platform growth strategy, focused on expanding credit, alternatives, and private market capabilities aligned with long-term client asset allocation demand. * mSITE's Capital Group, the emerging markets debt franchise acquired four years ago, has reached $5 billion AUM and remains in the early stages of growth, with opportunities to expand via new investment vehicles and broader distribution. * Post-acquisition integration of Grandview Property Partners (a private real estate alternatives firm acquired in early 2026) is progressing well. A dedicated institutional business leader has been hired to accelerate fundraising for Grandview's new flagship Fund 4, which is on track to launch in late summer/early fall 2026 with advanced discussions for an anchor institutional investor. - Financial Performance (Q2 2026) * Total GAAP revenue was $308 million, up 2% sequentially and 9% year-over-year, driven by higher average AUM and one additional trading day in the quarter. * Weighted average fee rate was 68 basis points, up sequentially from Q1 2026, primarily due to the exit of the low-fee U.S. Value mandates. * Adjusted operating income increased 8% sequentially to $101.4 million, adjusted operating margin expanded 180 basis points to 32.9%, and adjusted EPS increased to $0.94. Year-to-date adjusted EPS is $1.81, up 9% year-over-year. * The balance sheet remains strong with $335 million in cash, after $20 million in seed capital redemptions that reduced outstanding seed investments to ~$100 million. The board declared a $0.80 per share quarterly dividend, a 4% increase sequential and 10% increase year-over-year, with over $180 million in excess capital remaining for growth initiatives, M&A, or shareholder returns.

Guidance

- Full-year 2026 fixed expense guidance is maintained unchanged from prior announcements. - Q3 2026 adjusted EPS is expected to be $0.03 lower sequentially than Q2 2026, due to the residual impact of the U.S. Value team wind-down. - Sequential fixed expenses are expected to decline in Q3 2026, as seasonal expenses roll off and U.S. Value wind-down/employee separation costs drop after Q2 2026 one-time charges. - Management expects continued long-term growth from expansion of the credit platform, alternatives (including hedged equity, private equity secondaries, and real assets), and new vehicle structures to meet client access demand.

Segment performance

Artisan Partners does not break out formal segment-level revenue or profit figures, but reports segment assets under management (AUM) and flow performance: 1. Equity: Total net outflows of $9.2 billion for the quarter, $6.4 billion from the winding-down U.S. Value segment and $2.8 billion from the Growth segment. The platform secured a new $1 billion institutional mandate for the Global Discovery equity strategy, and the sustainable emerging market equity strategy continues to attract significant new client capital. 81% of equity AUM outperformed benchmarks over 1 year (gross of fees) and 84% outperformed over 3 years (gross of fees). 2. Credit: Generated $700 million of net inflows in Q2 2026, marking the 16th consecutive quarter of positive organic growth with a 15% annualized organic growth rate. Secured a new $150 million institutional mandate for the floating rate credit strategy this quarter. 3. Alternatives: Gathered $300 million of net inflows in Q2 2026, representing a 25% annualized organic growth rate and positive organic growth in 5 of the last 6 quarters. Grandview Property Partners, the newly acquired real estate private alternatives franchise, holds ~$1 billion in AUM at higher fee rates than the firm's legacy average. 4. mSITE's Capital Group: The emerging markets debt alternatives franchise now manages over $5 billion in AUM, four years after joining the Artisan platform, with strong performance and growing client demand.

Risks & headwinds

- Continued headwinds to net flow from underperformance in select global growth equity strategies, though management has proactively made leadership and talent changes to bolster performance and does not see material looming concentrated AUM redemption risk beyond the already announced U.S. Value wind-down. - Short-term performance headwinds for credit strategies driven by low energy sector exposure, which management notes is not an error of commission and follows multiple years of outstanding long-term performance, with the team maintaining its disciplined investment approach. - Elevated seller price expectations for M&A opportunities have led to some proposed transactions failing to proceed; management will maintain disciplined valuation standards and will not pursue overpriced acquisitions. - Net organic growth remains challenged by continued elevated gross outflows from client rebalancing after strong equity market returns post-COVID, even as gross sales pipeline has improved with the firm's expanded distribution capacity. - Forward-looking statements are inherently subject to unknown risks and uncertainties that could cause actual results to differ materially from guidance, as detailed in the firm's SEC filings.

Analyst Q&A

• Q: How would you characterize current client appetite for emerging markets (EM) and global risk assets, and what are your top priorities for platform expansion? /

  A: Management reports robust client demand for EM, particularly for differentiated capabilities like the firm's sustainable EM strategy, which has seen strong net inflows this quarter and year-to-date. Client demand is also growing for income-oriented credit strategies and alternative investments that complement existing public equity portfolios. Key platform expansion priorities are global credit growth, alternatives expansion (including hedged equity, private equity secondaries, and real assets to complement Grandview), and new vehicle structures to match client implementation preferences. The firm has received SEC exemptive relief to launch ETFs, and is evaluating potential products alongside expanding offerings of CITs, private funds, and interval funds. (718 characters)

• Q: After the U.S. Value wind-down, are there material concentrated redemption risks in other underperforming equity segments, and what is the outlook for forward fee rates? /

  A: Management notes the only material recent underperformance is in global growth equity segments, where the firm has proactively added co-leadership and upgraded analyst talent to improve performance; there is no looming large-scale AUM cliff or cascade risk, as the equity business is well diversified across clients and strategies. For forward fee rates, year-to-date average fee rates are a good baseline for the remainder of the year: lower-fee large credit mandates were offset by higher-fee additions including Grandview and a recent attractive-fee win for mSITE, so the average of Q1 and Q2 2026 is a reasonable forward estimate. (692 characters)

• Q: What is the update on Grandview Property Partners' new flagship fund, and what is the demand outlook for private real estate amid current rate and macro conditions? /

  A: Grandview's prior flagship Fund 3 closed at $150 million in committed capital, and the new Fund 4 is expected to be multiples larger, with launch planned for late summer/early fall 2026. The current macro and rate environment actually creates attractive buying opportunities for Grandview: distressed owners needing refinancing at higher rates are selling assets at discounts, and the team already has a strong pipeline of compelling opportunities across core themes and opportunistic deals. Deployment will start quickly once the fund closes, with dry powder reserved for opportunistic picks. (521 characters)

• Q: How strong is the current institutional gross sales pipeline, and what are you seeing for bid-ask spreads on M&A and recent credit performance? /

  A: Gross sales have improved meaningfully as the firm's expanded distribution team is now near full fighting strength, with strong wins in Q2 including the $1 billion Global Discovery mandate, though net flows remain constrained by continued client rebalancing after strong equity market returns. Bid-ask spreads remain wide due to elevated seller price expectations, so management is maintaining discipline and walking away from overpriced opportunities. Recent credit underperformance is minor, driven by low energy exposure (an unforeseen impact from geopolitical conflict, not a strategic error) following multiple years of strong performance, and the floating rate credit segment just won a new $150 million institutional mandate. (798 characters)