Artisan Partners Asset Management Inc. Q3 FY2026 earnings call

• Investment Performance: Long-term results remain strong, with 92% of AUM outperforming benchmarks over 10 years. Short-term equity performance faced headwinds due to market breadth issues, but international and global value strategies showed significant improvement in October.
• Credit & Alternatives Growth: Combined credit and alternatives AUM has nearly doubled to over $26 billion (15% of firm-wide AUM). The credit franchise boasts a diversified business with over $16 billion in assets and a 100% benchmark outperformance record since inception.
• Strategic Expansion: The firm is broadening investment capabilities through new vehicles, including the upcoming interval fund structure for wealth clients in 2027 and ETF share classes for Select Equity and Focus Funds in Q4.
• International Reach: Significant progress is being made in expanding into UK, European, and Middle Eastern wealth markets through new share classes and localized resources.
• M&A and Talent: The firm is pursuing both 'lift-outs' and acquisitions, particularly in private credit, secondaries, and sector-specific private equity. Recent additions include Grandview Property Partners and talent from Sachem Head.

Total Assets Under Management (AUM) decreased by 8% sequentially and 7% year-over-year to $169 billion. Revenue for the quarter was $313 million, representing a 1% sequential increase and a 4% year-over-year increase. The weighted average fee rate increased to 69 basis points. Adjusted operating income rose 9% sequentially to expand margins, while adjusted earnings per share reached $1.03. Net client outflows totaled $10.6 billion, driven primarily by discrete events: $1.9 billion from the U.S. value team wind-down and $5.9 billion from rebalancing a large global value client relationship. Conversely, credit and alternatives strategies generated $1.1 billion in net inflows, with credit seeing its 17th consecutive quarter of positive flows.

• Fee Rate Outlook: Management expects the recurring management fee rate to stabilize around 70 basis points in Q4, up from the current 69 basis points, driven by a shift toward higher-fee alternative and credit products offsetting lower-fee institutional equity attrition.
• Performance Fees: The firm projects a similar contribution from performance fees in Q4 as last year (approximately $29 million), contingent on market conditions through year-end, with strong opportunities identified in the MSites Capital Group.
• Cost Structure: Fixed cost guidance remains unchanged at single-digit growth for 2027, excluding the impact of the Grandview acquisition and prior LTI grant exchanges.
• AUM Trends: Q4 begins with lower AUM levels due to discrete outflows and an estimated $2.5 billion reduction from annual mutual fund distributions not reinvested.

• Client Concentration and Outflows: Significant net outflows were driven by two discrete events (U.S. value wind-down and large global client rebalancing), highlighting potential concentration risks despite management's assertion of broad diversification across top clients.
• Market Breadth and Volatility: Poor short-term equity performance was exacerbated by the worst market breadth since 2000, creating unpredictability and volatility that challenges relative benchmark performance.
• Execution Risk on New Products: The success of the planned interval fund launch and international expansion depends on regulatory approvals, board hurdles, and the ability to convert pipeline activity into crystallized assets.
• Competitive Pressure: The shift from active to passive investing and de-risking by institutional plans poses ongoing structural headwinds to traditional equity fee revenue streams.

Q: Kenneth Lee asked about the demand for the upcoming interval fund structure and whether it leverages existing credit strengths. / A: CEO Jason Gottlieb confirmed the fund will leverage the platform's credit expertise to capture the convergence of public and private markets. He noted warm initial reception from key relationships, indicating strong client appetite for flexible credit solutions that allow greater degrees of freedom to express investment views.

Q: Bill Katz inquired about the greatest opportunities for scaling the credit platform and the firm's approach to M&A versus lift-outs. / A: Gottlieb identified floating rate, public-private interval funds, and global expansion (including CLOs) as key levers. Regarding capital formation, he indicated a strategic leaning toward inorganic growth via M&A for credit, specifically targeting private credit, secondaries, and sector-specific private equity opportunities.

Q: Alex Blostein sought clarity on the trajectory of the weighted average fee rate given the mix shift from high-fee equities to lower-fee institutional mandates. / A: CFO CJ Daley projected the fee rate to stabilize around 70 basis points, noting that declines in high-fee mutual fund equity are being offset by higher-fee alternatives and credit products. CEO Gottlieb added that new initiatives like interval funds and property partnerships will bring commensurately higher fee levels, balancing the loss of lower-fee institutional mandates.

Q: John Dunn asked about the strategy for pricing and launching ETF share classes and international distribution trends. / A: Gottlieb stated ETF launches will be pari passu to existing strategies to avoid self-competition, rolling out deliberately over several quarters starting with Select Equity and Focus Funds. Internationally, the firm is seeing meaningful upticks in activity in the UK, Europe, and Middle East, supported by new localized share classes and a focus on diversifying into liquid credit wrappers.

Q: Bill Katz followed up on fixed cost outlook for 2027 and details regarding performance fee payouts. / A: Daley confirmed fixed cost guidance remains unchanged at single-digit growth, excluding specific acquisition and grant impacts. On performance fees, he highlighted that opportunities are broadly dispersed, with seven of eight accounts in the MSites team currently 'in the money,' suggesting a strong, diversified source of upside similar to the previous year.