Artisan Partners(US:APAM)2024-01-31 20:06Financial Data and Key Metrics Changes - Assets under management (AUM) ended Q4 2023 at $150 billion, up 10% from Q3 2023 and up 17% from the previous year [17] - Investment returns contributed $14.6 billion to the increase in AUM in the quarter, with full-year investment returns contributing $27 billion [18] - Revenues in Q4 increased less than 1% sequentially but were up 10% compared to Q4 2022, driven by higher average AUM [19] - Adjusted operating income decreased 9% in 2023 compared to 2022, and adjusted EPS was 7% lower [20] Business Line Data and Key Metrics Changes - The equity business accounted for $137 billion in AUM and approximately $900 million of annual revenue, with eight equity investment teams and 16 strategies [9] - The international value strategy generated 466 basis points of average annual alpha net of fees since inception, managing $41 billion across various clients [10] - The Artisan high income strategy generated an average annual return of 6.18% after fees, ranking number one out of 324 funds in its Lipper category [13] Market Data and Key Metrics Changes - Net client cash outflows during Q4 were $400 million, with $500 million of Artisan funds distributions not reinvested [18] - Average AUM for 2023 was down 2% year-over-year, impacted by industry trends favoring low-fee passive index products [18] Company Strategy and Development Direction - The company emphasizes a long-term investment approach, focusing on high-value-added investing and avoiding short-term results engineering [5][8] - The company is expanding its fixed income and alternatives capabilities, with a focus on building a solid foundation and establishing world-class franchises [14][15] - The company aims to maintain a highly variable expense structure to deliver stable results through market cycles [17] Management's Comments on Operating Environment and Future Outlook - Management expressed excitement about long-term investments across equities, fixed income, and alternatives, emphasizing a proven approach across asset classes [16] - The management noted that the financial model is designed to minimize distractions from short-term market volatility, highlighting the importance of their approach during market fluctuations [17] Other Important Information - The company declared a quarterly dividend of $0.68 per share and a special annual dividend of $0.34 per share, resulting in an annual trailing dividend yield of almost 7% [22] - The company approved a long-term incentive award of approximately $60 million, with a new retirement acceleration feature to align interests [23][24] Q&A Session Summary Question: Prospects for the fixed income business - Management highlighted the strong base established in the credit franchise and the expected growth in the EMsights franchise, anticipating meaningful growth after achieving a three-year track record [29][31] Question: Change in long-term incentive awards - Management explained that the change aims to align long-term value creation and provide a path for investment talent to thrive, with elevated expenses expected for the next few years [32][35] Question: Drivers of non-U.S. institutional channel for equities - Management noted early-stage wins in the EMsights team and strong inflows in global operations and global value strategies, particularly from the Middle East [38] Question: Opportunities within equities - Management discussed the potential for modest growth in existing franchises and the importance of being methodical in pursuing top-tier returns [45][47] Question: Balancing reinvestment and payout - Management indicated a commitment to maintaining an 80% variable dividend while also seeding new products for future growth [50] Question: Demand for credit alternative investment strategies - Management expressed confidence in the credit opportunity strategy and the global unconstrained strategy, highlighting favorable returns and potential for growth [55][57] Question: Expansion plans for distribution - Management detailed efforts to optimize the distribution team and enhance sales orientation, including the launch of an alternatives distribution team [60]