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Good day, everyone, and welcome to the Artisan Partners Asset Management Business Update and Second Quarter 2026 Earnings Call. Operator instructions were provided. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Artisan Partners Asset Management. Please go ahead.
Welcome to the Artisan Partners Asset Management business update and earnings call. Today's call will include remarks from Jason Gottlieb, CEO; and Charles Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website. Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment service. I will now turn it over to Jason.
Thank you for joining the call today. Our purpose at Artisan Partners remains unchanged: to generate and compound wealth for our clients over the long term. That purpose continues to guide every aspect of our business. We believe our autonomous investment team model, combined with disciplined business management and thoughtful long-term growth initiatives, differentiates Artisan Partners and creates durable value for clients and shareholders alike. The second quarter demonstrated the resilience of that business model. We delivered record quarter-end assets under management, strong investment performance across much of the platform, continued growth in credit and alternatives, and another quarter of attractive financial performance despite continued headwinds in several equity strategies. As we have discussed, we are building a diversified global investment platform focused on producing attractive long-term growth across market cycles. The results this quarter reinforce that strategy. Strong investment performance continues to create opportunities for growth, particularly as clients increasingly seek differentiated active managers. Long-term investment performance remained strong across our platform with 86% of our AUM outperforming their benchmarks over 3 years, 77% over 5 years, and 99% over 10 years, gross of fees. The 12 Artisan strategies with track records over 10 years have compounded capital at average annual rates between 6% and 13%. Since inception, their average annual rates of return have, in the aggregate, exceeded their benchmarks by an average of 189 basis points annually, net of fees. The investment performance of our equity strategies improved meaningfully over the 1- and 3-year time horizons, with 81% of our AUM outperforming their benchmarks over 1 year and 84% over 3 years, gross of fees. During the quarter, global equity markets rebounded sharply before volatility returned in June. Our investment teams navigated well, generating more than $20 billion of returns for our clients. Turning to Slide 4. We continually evaluate our investment franchises against both client demand and long-term economic viability. As previously announced, following the loss of two large sub-advisory mandates in the U.S. Value business, we concluded the prudent decision was to wind down the U.S. Value team and redeploy resources toward areas where we see substantially greater long-term opportunity. The U.S. Value franchise has been an important part of Artisan Partners for nearly 30 years, and we are extremely proud of what the team has accomplished for clients and shareholders during that time. We expect the wind-down to be largely completed by the end of the third quarter, and Charles will describe the financial impact during his remarks. Including the U.S. Value outflows, net client outflows totaled $10.5 billion during the quarter. Approximately $9.2 billion, or nearly 90% of the total net outflows, came from the U.S. Value and Growth teams, with $6.4 billion from U.S. Value and $2.8 billion from Growth. We continue to diversify our platform and execute on growth opportunities. Credit strategies generated nearly $700 million of net inflows, representing our 16th consecutive quarter of positive organic growth and a 15% annualized organic growth rate. Alternative strategies gathered approximately $300 million of net inflows, representing a 25% annualized organic growth rate and positive organic growth in five of the last six quarters. Within equities, we secured a $1 billion Global Discovery institutional mandate and our sustainable emerging market strategy continues to attract meaningful new client capital. Throughout the history of Artisan Partners, we have evolved the platform while remaining true to the principles that have defined the firm since its founding: high value-added investing, talent-driven strategies, and alignment with long-term asset allocations. Consistent with these principles, we have successfully added new investment teams, expanded into attractive asset classes and increased the capabilities of our existing investment franchises. EMsights Capital Group demonstrates that strategy in action. This quarter marks the four-year anniversary of EMsights Capital Group. In four years, the team has built a distinctive business spanning three investment strategies, combining emerging market expertise with sophisticated derivative capabilities to deliver differentiated investment solutions for clients. Today, the team manages more than $5 billion of assets, supported by strong investment performance and growing client demand. We believe EMsights remains in the early stages of its growth opportunity. Looking ahead, we see meaningful potential to continue expanding the business through additional investment vehicles and broader distribution. EMsights demonstrates what our platform is designed to do: identify exceptional investment talent, provide the resources and autonomy to succeed, and build enduring investment franchises that create long-term value for clients and shareholders. We are now applying that same long-term approach to Grandview Property Partners. Like EMsights, Grandview expands our platform into an attractive area of long-term client demand while preserving the autonomy that allows great investment talent to thrive. Since completing the acquisition of Grandview earlier this year, the investment team has maintained their distinctive investment philosophy, process and leadership. We are laying the foundation for Grandview's next phase of growth. We are making good progress on the launch of their new flagship fund, including advanced discussions with an anchor institutional investor and active engagement with many of the limited partners that supported Grandview's prior funds. We recently hired a dedicated business leader to accelerate fundraising and expand institutional investor relationships. While it's early, we are encouraged by the progress to date and are excited for the opportunities ahead. As we look ahead, we see meaningful opportunities across the investment platform. We are preparing to launch additional vehicles to meet evolving client demands, expanding our credit capabilities, advancing Grandview's next phase of growth and continuing to invest behind exceptional investment talent. Combined with our strong balance sheet and active pipeline of opportunities, we believe we're well positioned to drive long-term growth. We're excited about the opportunities ahead. I will now turn the call over to Charles to discuss our financial results.
Thanks, Jason. Our complete GAAP and adjusted results are detailed in our earnings release. Assets under management ended the quarter at $183 billion, a record quarter-end level and an increase of 6% from the March quarter and 5% from a year ago. Average assets under management were $182 billion, flat sequentially and up 9% compared to the June 2025 quarter. Year-to-date average AUM improved 9% over the prior six-month period. Revenues for the quarter were $308 million, up 2% from the March quarter, primarily reflecting one additional day during the quarter and a modest increase in our average fee rate. Compared to the June 2025 quarter, revenue increased 9%, driven by higher average assets under management. Our weighted average fee rate for the quarter was 68 basis points, up from the March quarter, primarily due to the loss of the U.S. Value team mandates. Adjusted operating expenses declined 1% from the March quarter, primarily reflecting lower seasonal expenses and reduced long-term incentive compensation, offset in part by employee separation costs, including those associated with the wind-down of the U.S. Value team. Looking ahead, the September quarter will be negatively impacted by approximately $0.03 per share compared to the second quarter as a result of the wind-down of the U.S. Value team. Additionally, fixed expenses are expected to decline in the September quarter due to continued roll-off of seasonal expenses and a decline in employee separation costs. Fixed expense guidance has not changed for the year. Compared to the prior year quarter, adjusted operating expenses increased 7%, driven primarily by higher variable incentive compensation associated with increased revenues. As a result, adjusted operating income increased 8% sequentially to $101.4 million. Adjusted operating margin expanded 180 basis points to 32.9% and adjusted earnings per share increased to $0.94. Compared to the second quarter of 2025, adjusted operating income increased 13%. Margin expanded 120 basis points and adjusted EPS increased 13%, highlighting the operating leverage inherent in our business model. Looking at the year-to-date results, average assets under management increased 9% compared to the first half of last year, driving a 9% increase in revenue. Year-to-date adjusted operating expenses increased 9% from 2025, primarily from higher incentive compensation on elevated revenues. Adjusted operating income increased 10% to $195.6 million, adjusted operating margin improved to 32% and adjusted earnings per share increased 9% to $1.81. In our non-GAAP measures, non-operating income includes only interest income and expense. The balance sheet remains strong with $335 million of cash. During the second quarter, we redeemed approximately $20 million of seed capital, reducing seed investments on the balance sheet to approximately $100 million. Proceeds from seed capital redemptions are included in cash available for corporate purposes, reinvestment or potential return to shareholders through our year-end special dividend. Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.80 per share for the June 2026 quarter, representing a 4% increase from the prior quarter and a 10% increase year-over-year. After funding the quarterly dividend, we retained over $180 million of excess capital to support organic growth initiatives, evaluate potential M&A opportunities or return to shareholders. That concludes my prepared remarks. I will now turn the call back to the operator.
分析師問答
Just from a high level, during the quarter, as you've been talking to the clients, I wonder if you could just characterize overall client appetite for emerging market and global risk assets more recently.
Yes, we have seen really strong demand for emerging markets. Clients are looking not only for access to the asset class, but for differentiated capabilities. We're seeing that flow through specifically to our Sustainable Emerging Markets team. They've had a couple of good quarters of strong net new inflow. For the quarter, they were up about 2.35%, and for the year they're roughly double that. The pipeline of activity, specifically in emerging markets, is robust. Pipelines need to be crystallized, but we are happy with what we're seeing there. More generally across global risk assets, specifically equity, there's a slightly more cautious tone. We've seen a fair bit of rebalancing. I look at the top separately managed accounts, which are institutionally focused, just to see what kind of activity we're experiencing. Naturally, there are benefit payments and adjustments, but we saw a broad-based rebalancing activity across a number of our largest relationships. Nothing meaningful on an isolated basis, but when you add it all up, it becomes relatively meaningful. We are still seeing good opportunities in international. David and the International Value pipeline continue to be quite robust and strong across our global franchises and strategies, and we're seeing good interaction with clients. Where it tends to push people is toward credit. They're tending to look for more goal- or income-oriented strategies, and they're focusing more time and attention on alternatives where they can get a differentiated return that might complement their existing equity portfolios, which performed very well coming out of COVID.
Just one follow-up if I may. I wonder if you could share your latest thoughts around any kind of outlook around potential platform expansion opportunities.
Yes. I'll highlight a few areas of expansion. There are two clear initiatives we have. First, we'll continue to focus our time, effort and attention in areas where we see overlap between asset allocation demand, where we believe alpha is prevalent, and where the talent is available. We're seeing a good source of opportunity and pipeline in credit. We think there are good possibilities for expansion more globally to our credit platform and franchise. Second is within alternatives. One area we've spent a bit less time on is hedged equity, specifically equity long-short with a more focused bias. We've been sourcing and identifying interesting talent within that sphere and have seen a meaningful uptick in demand for hedged equity, which is starting to bear out in implementation and allocations. Those are two clear areas we're focused on. As we've discussed in the past, areas in private markets such as equity secondaries and real assets via infrastructure or a more global real estate capability to complement Grandview are also areas we've been active in. These opportunities come in both forms: lift-outs, which is our bread and butter, and inorganic opportunities where we see first- or second-generation talent we can partner with. A second strategic initiative is broadening the aperture of vehicles — finding the intersection between how clients want to implement our strategies and making access easier. That can take many forms: SMAs, models, interval-based products that hybridize public and private securities, and more private funds. We've filed for exemptive relief in the world of ETFs and received that relief. We have not announced or determined when or what we will launch within ETFs, but we recognize that ETFs are an important implementation vehicle for clients. We need to be thoughtful about how that would work with our existing investment teams and franchises, but it's clearly an area and a path to broaden our platform and meet client demand.
First one is really just a set of clarifications. I just want to make sure I understand the math. You mentioned that the wind-down will cost $0.03 sequentially. Is that related to the fundamentals of the business and that's just the timing of that? Does that also include the wind-down that you're expecting for the remaining assets? Then you also mentioned that your fixed expenses would be down sequentially, reflecting both seasonality as well as less severance costs. Can you just sort of quantify the severance costs in the quarter, so we have a better sense of that?
Yes, Bill. On your first question, the $0.03 is the delta between the second quarter and what we expect in the third quarter. We had a slight accretive nature to the U.S. Value team in the second quarter given the wind-down started midway. In the third quarter, we expect a minimal loss before it evens out. So that $0.03 is the differential between the second quarter results and what you would expect next quarter. With respect to costs, in the first quarter we had a larger number of seasonal expenses, and the decline in the second quarter was partially offset by the costs related to the wind-down of the U.S. Value team, including severance and other expenses related to the wind-down. In the third quarter, we expect the absence of those separation costs and wind-down expenses and continued roll-off of seasonal expenses. Compared to the second quarter, we'll see a benefit in fixed expenses related to those items. Our guidance for the year — mid-single digits — remains what we said in January, excluding the addition of Grandview and the long-term incentive compensation expense we guided for the year. We still expect mid-single digits even with the additional costs of the wind-down.
That's very helpful. Maybe a big picture question. You mentioned in your prepared comments the opportunity to leverage the EM platform and then sort of turn that to Grandview as well. Can we click in a layer deeper and say, can you give us a sense of some of the initiatives you might be getting toward? Then on Grandview, you had mentioned some early success in the conversations. I'm wondering if you could remind us how big the prior flagship fund was? Where are you in terms of invested? And what the timeline might be for the new fund?
Yes, sure, Bill. I'm going to have you repeat the first part, but I'll tackle Grandview. Fund III was about $150 million in committed capital. That's small relative to what they would have expected. They chose to stop taking commitments, recognizing that an opportunity to partner with us was on the horizon and to preserve the return capability that was put in the ground for the early investors so we could focus on launching Fund IV. We expect Fund IV, their flagship fund, will be launched later this summer, though likely early in the fall. We're having conversations with an anchor as well as many of the existing limited partners that have invested with them along Funds I through III. We're feeling good about where we are with the anchor and the ability to get out there. It's important to have some opportunities to share with clients that might make their way into the portfolio, and they're working to identify and solidify those that will help with the marketing campaign. Fund III was $150 million, and we expect Fund IV will be multiples of that. As I mentioned in my prepared comments, we hired an institutional business leader to help grow the business, and we expect that to be meaningful.
Okay. And just to clarify, sorry, I asked five questions in one. You mentioned the opportunity to expand vehicles and capabilities in some of the teams, I think you highlighted the EM platform. Just wondering if you could give us an update on what kind of vehicles, what kind of incremental distribution partners you might have on the horizon?
Sorry if I made it EM-specific — it's really across all teams. Each team has its own clients and distribution opportunities. We have the opportunity to launch CITs and private funds where institutional clients don't want to access a capability through a mutual fund or a separately managed account due to operational constraints. SMAs can require country openings or derivative relationships with prime brokers and third parties, which can be burdensome. So CITs and private funds are options. There's the opportunity to widen the aperture in UCITS — we expect to launch a UCITS in the not-too-distant future and are in active conversations with a potential anchor. As I mentioned, we're not quite there on ETFs, but there's the possibility of doing ETFs. That's not specific to emerging markets but generic to the platform.
Thank you for taking all the questions.
Yes. I would just highlight that one of the things we've always said philosophically is that we want to be vehicle-agnostic. If a client wants to access our intellectual property, we want to do it in a thoughtful way that helps solidify the long-term relationship.
I was hoping to drill down a little bit into any other sizable redemption risks you might see across the equities portfolio, particularly when we look at the Growth team. There are a number of strategies that are still quite sizable and have underperformed. Any concentration risk we should be mindful of when it comes to those businesses and how you're potentially managing that risk and navigating this recent performance with clients?
Yes. We've done a few things. First, I'd highlight Mid-Cap Growth as a feature of what's occurred on the team. Matt Kamm and the Growth leadership thought it was important to bring on a second key decision-maker, Jason White, who has been a long-standing member of leadership. Since that change, you can see follow-through into performance. Mid-Cap Growth is having a nice year on a relative basis in 2026; they had a great 2025. They now have a strong year-to-date, a strong one-year, and a really strong three-year. That's a very large and important piece of the Growth franchise. The struggle is more in the global segments of the Growth team. Jim Hamel recently brought Angela Wu into the mix to help with decision-making, and we think that's a long-term benefit. We've hired recent additions in analyst and associate portfolio manager ranks to bolster talent and access different securities and opportunities. It's very early, so I won't say we're through the worst of it, but the team has been willing to disrupt themselves proactively and with our help to ensure they have the right resources to bolster performance. In terms of client concentration, there was a fair bit of concentration in the Australian market historically. It wasn't one client in particular but systematic issues in that market. Beyond that, some clients have higher percentages of AUM relative to others, but there's nothing we see that would give us pause that there's a looming cliff of AUM at risk that would cause a cascade effect. The business is diversified across strategies and within strategies.
Understood. Charles, one follow-up for you just on the fee rates. With the U.S. Value strategy rolling off, are the fee rates across both the funds and separate accounts appropriate jumping-off points as we think about the forward basis, or are there other implications for the run-rate fee rates across these subsegments going forward?
Good question. We had a little bit of movement this quarter, but if you look at the year-to-date fee rates, they're a solid jumping-off point. In the credit space, year-to-date we're up a bit, though during the quarter we took on a large mandate that was a bit lower than our typical fee rate. In alternatives, we added Grandview with just under $1 billion in AUM at higher fee rates than we were running, which is new this year. We're continuing to win business in EMsights and in the quarter had a nice win at an attractive fee rate.
So year-to-date, the average between Q1 and Q2 is a decent jumping-off point to think about for the rest of the year?
Yes, absolutely.
Maybe on the other side of redemptions and gross sales: could you give us a flavor of where you see your institutional pipeline at the moment and some of the underlying indicators like RFP activity, win percentages, composition, and time to funding?
Yes, John. I'll break it up between institutional and intermediate wealth. We need to do a better job selling more and losing less. Gross sales look pretty good; we're not out of the woods, but we feel better about what's happening. We onboarded a number of people in institutional and intermediate wealth, and many of those folks are now at full fighting strength. We've been onboarding people in the U.K. and EMEA who are building their own pipelines, and we're seeing follow-through in gross sales. Where we're challenged is redemptions and some select terminations, which is keeping net flows subdued. We see green shoots from our distribution efforts, but we're still fighting rebalancing, which is natural in a market that continues to produce mid- to high-teens returns depending on the market. Institutionally, we're doing well. We had a couple of interesting wins in Q2. Global Discovery on the Growth team landed a very large institutional mandate that was funded predominantly in Q2 and will continue to fund slightly in Q3. That's the type of client we want: someone who sees quality and differentiation and is willing to look through short-term performance challenges. The Sustainable Emerging Markets team also has a strong pipeline. The International Value franchise had a nice institutional win and continues to build its pipeline. We are starting to see a lot of good things on both sides. If markets didn't produce mid- to high-teens returns, the rebalancing would be less and you'd see a more balanced organic growth rate. For now, we're happy with gross inflows; it's gross outflows we need to keep clients from leaving.
Got it. And then maybe just to go back to Grandview for a second: could you give your thoughts on demand for private real estate given the rates, macro and return cycle backdrop? Also, how should we think about deployment once the fund is raised?
Deployment can be slow and then speed up quickly depending on the rate and macro environment. Grandview has degrees of freedom in the sectors they'll invest in, which gives them latitude to deploy capital thoughtfully. Fund IV will feature specific themes but will also have dry powder for opportunistic investments. In conversations with the Grandview team, they are finding interesting opportunities across some more distressed sectors that should be compelling. Sometimes the rate environment creates great purchasing opportunities because distressed sellers need to refinance at rates that don't work for the economic model or need to sell at a discount. It's hard to give a precise sense on deployment timing, but Grandview has a strong pipeline of investment opportunities across the themes featured in Fund IV and some opportunistic investments they can execute on now.
Jason, you mentioned deal pipeline. Some peers in the alternatives space still speak to high seller expectations. What are you seeing in terms of the bid-ask spread? And you mentioned credit did very well historically, but the rolling performance looks like it's waning a little. Is there anything to be mindful of there? What is driving the underperformance and how should we think about the go-forward outlook?
You're asking two big questions. On deal pipeline and seller expectations: there's heavy expectation, and we've been active in our pipeline, including inorganic opportunities where we presented compelling proposals that didn't progress. We remain disciplined and won't extend into areas where we can't achieve success for clients and shareholders. We're focused on self-sourced inorganic opportunities, which is how we found Grandview. We're looking for teams where dollar value isn't the only important factor; price matters, but long-term growth and alignment also matter. For teams that want autonomy and to avoid being folded into a larger sleeve, we think we're an ideal home. On the credit franchise: the recent underperformance is not dramatic and follows multiple years of outstanding performance. Short-term, they've been somewhat challenged by sector exposure — they have not had a lot of energy exposure in their portfolios. This wasn't something easy to predict. Brian and the team have stayed true to their discipline and we expect them to continue to deliver, even in the face of a sectoral issue that caused a short-term shortfall. We did win an institutional mandate for our floating rate strategy — roughly $150 million — which is important for scale. That strategy continues to execute well under Brian's leadership and we see meaningful opportunity for growth in that segment.
Ladies and gentlemen, with that, we will be concluding today's question-and-answer session and the Artisan Partners Asset Management Business Update and Second Quarter 2026 Earnings Call. Thank you. You may now disconnect your lines.