My name is Laura and I will be your conference operator today. [Operator Instructions]. At this time, I would like to turn the call over to Makela Taphorn with Artisan Partners.

Thank you. Welcome to the Artisan Partners Asset Management business update and earnings call. I'm joined today by Eric Colson, Chairman and CEO and C.J. Daley, CFO. Before Eric begins, I would like to remind you that our quarter earnings release and the related presentation materials are available on the Investor Relations section of our website. Also the comments made on today's call and some of our responses to your questions may deal with forward-looking statements which are subject to risks and uncertainties. Factors that may cause actual results to differ from expectations are presented in the earnings release and are detailed in our filings with the SEC. We undertake no obligation to revise these statements following the date of this conference call. In addition, some of our remarks today will include references to non-GMAC financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in our earnings release. And I will now turn the call over to Eric Colson.

Thank you, Makela. Thank you, everyone, for joining the call. Given the volatility and uncertainty in the markets, it is easy to get caught up in the noise of events and momentum of short term trends. With every unknown, people behave differently. At Artisan, we have established a business model that provides talented people the autonomy to follow their philosophy and process and the incentive structure that rewards successful outcomes in a transparent and predictable way. People, though, are unique. They have their own unique priorities, time horizons and emotions because of this in managing Artisan, we not only need to get the structure and incentives right, we also have to be flexible, patient and fair. After I finish my discussion on talent management, CJ will discuss our quarterly financial results. On slide 2, we have plotted the MSCI All Country World Index over the last 12 months. The Brexit vote in June was yet another episode of volatility and uncertainty. Although in uncertain markets are relevant to talent for a number of reasons, first, in our business clients, investors and our talent are all impacted by market swings. As business managers, it's important that we understand that but not let it preoccupy us. In managing our business, we must remain focused on what we can control, the environment we create for our talent and the integrity of our investment strategies. Second, short term market swings reinforced our belief in and commitment to long term investing. Our investment professionals are long term investors with investment strategies designed to outperform over full market cycles. Unlike many of the new low-cost exposure-oriented investment products, our strategies are not designed for short term market timing. We don't believe that's a sustainable way to build wealth over the long term. Our commitment to long…

Thanks Eric. As you know, we report both GMAC and adjusted financial results. I'll start on slide 8 with a review of our GMAC results. For the quarter ended June 30, 2016, our assets under management declined 2% to $95 billion compared to $97 billion for the March 2016 quarter and $109.2 billion for the quarter ended June 30, 2015. Revenues for the current quarter were $180.8 million, up 4% from the March 2016 quarter and down 15% in the corresponding June quarter in 2015. On a GAAP basis, operating income for the current year June quarter was $58.9 million, up 7% from the March 2016 quarter and down 25% from the June 2015 quarter. Earnings per share on a GAAP basis was $0.38 per share for the June 2016 quarter, $0.35 per share for the March 2016 quarter and $0.50 per share for the June 2015 quarter. For the six months ended June 30, 2016, revenues were $355.3 million, down 14% from the six months ended June 30, 2015. GAAP operating income was $113.7 million, down 22% from the prior year's six months. Earnings per share was $0.74 per share compared to $0.95 per share. Slide 9 is our AUM results. For the quarter, AUM declined $2 billion compared to the sequential March 2016 quarter, driven by net client cash outflows of $2.3 billion, offset in part by market appreciation of $231 million. Almost half of our net client cash outflows during the quarter were from our mid-cap value strategy that continues to see outflows due to past underperformance. While we're encouraged by year-to-date performance results in the strategy we expect attrition will continue. In addition, as Eric mentioned, we ceased managing a small cap value strategy during the quarter and experienced $500 million of net client cash outflows…

[Operator Instructions]. And our first question will come from Robert Lee of KBW.

I wanted to clarify a little bit on the - C.J., on the page where you had the cash flow number. The net cash flow after TRA payments, is that $0.19 - you have not distributed that, so it's been accumulating I guess at the public holding company?

Yes, that's correct. We considered distributing a TRA last January and, given the market conditions, we decided to hold back that and retain it for future dividends, but that's correct. After I think we get through this period and decide what to do with the retained cash, I think our plan would be to distribute that on an annual basis as we earn it.

So that I guess as you point out would be there possibly to - depending on how assets and earnings play out, possibly to help support the quarterly distribution for at least some period of time if necessary.

Yes, that would be correct. As you know, the TRA has accumulated since IPO and it is now getting to a point where it's on an annual basis, not a material amount, but a meaningful amount.

And our next question will come from Alex Blostein of Goldman Sachs.

So just following up on the dividend discussion, clearly the flow dynamic has been challenged and remains pretty challenging and the equity markets overall has been a helper, but if you kind of take the beta away from the discussion, it feels like you guys are not covering the recurring dividend from just an ongoing cash flow generation. So I guess the question is if you did have to reset the dividend, any baseline you can point us to think about what the recurring dividend dynamic would look like as a percentage of your ongoing cash flow generation?

Alex, that would be tough because one, we really haven't discussed cutting the dividend because, on slide 15, you can see that we're from a cash generation standpoint covering it and we have a significant amount of retained cash that would enable us to cushion that for several quarters were we to earn on a cash generation basis less. So we really haven't discussed that. When we set a quarterly dividend initially and we've adjusted each year, we set it at a level that allows for volatility so if we were to reset without giving numbers, because I have no idea what they would be, we would take into account our current earnings and we would set it at a level that would give us some level of cushion and allow for special dividend at the end of the year, but at this point, we're happy paying out a $0.60 quarterly dividend because our policy is to pay out all of our cash-generated earnings and non-cash expenses. So at the end of the day, whether it's a quarterly or special is not really relevant to us. Our policy remains the same whether it's in a quarterly or special.

Quick question on the product side, global values seems to be doing quite well from a flow perspective. Since you guys have reopened it, any capacity constraints on how we can think about how much more money you guys could take into that strategy?

The capacity they are, we have opened in pooled vehicles and we're going to look at that on an annual basis. I don't think there is an enormous amount of capacity there. We're going to manage that so that we don't disrupt the alpha and that's an ongoing dialogue I have with the investment teams. So, model that as you had at the beginning of the year which is limited capacity in the strategy and pooled vehicles at this point. We're going to keep that open and we don't see any impact right now with regards to the flows. So no change there in the capacity of the short run.

And our next question will come from Michael Carrier of Bank of America Merrill Lynch.

This is Adam Beatty in for Mike. In the opening, Eric talked about talent management, so I wanted to ask about the human capacity within the teams. Not so much fun capacity but firstly specifically about the merger of small and mid-cap value, has that played out in terms of the investment process and team dynamic the way you expected? And then looking across the firm, are there other funds that might be merged or are there teams with maybe some excess human capacity given the development of investment professionals or what have you that might support the launch of additional product? Thank you.

Certainly just kind of picking down the list there that you had. Clearly, that was our mindset in closing the small-cap value strategy. I believe the time the small-cap value strategy had approximately 100 securities, of which 90 securities were unique to that strategy, so approximately 10 or so are less than that, overlapped with the mid-cap and the value equity strategy. So taking out 90+ securities out of the research coverage and system and keeping the team as is clearly picked up human capacity to focus on mid-cap and value. So I think we're having a good surplus of human capital there and stronger punching power and more focus on those securities. And I think that's an enormous benefit for the strategy long term and we also believe that he gives both that mid-cap and value equity more degrees of freedom to move up and down the market cap. We don't have any other thoughts around a fund merger to think about and with regards to other teams, capacity, some of our teams, the global equity team has a fairly large research pool. There is obviously an enormous amount of talent there that can percolate up to broaden decision-making, the global opportunities, mid-cap growth and small-cap growth strategies, each have a lead portfolio manager, but we did announce earlier in the year, Jason White becoming a full portfolio manager so that does increase the human capital capacity. And then some of our newer teams are just up and running. So, those are in the early phases and - speaking of the developing world or the credit team. I believe that we have a nice, healthy human capital capacity and I think when you look at the capacity of new strategies we have versus even the IPO or even before that, we have more capacity on a go-forward basis with more strategies than we've ever had.

And then following up on a couple of the newer strategies in the developing world and the credit, just wanted to get your comments on Outlook in terms of building scale. It's kind of grown nicely. Are there breakpoints or inflection points on the horizon where the largest scale might put them in the conversation for certain mandates? Thank you.

Certainly, within the evolution of a strategy which we've talked about how strategies typically involve, in the early phase you get early adopters either through Artisan's brand or through the portfolio manager's name recognition. Typically that comes in through the more flexible decision-making channels of a registered investment advisor or financial advisors or family offices that have lower barriers with regards to the decision-making process. In essence, it's a person or two that makes decisions and as you get into the institutional mindset, there's investment policies and procedures, there's quarterly Board meetings, there's consultants and that takes a longer process to start getting into the bigger dollar amounts which we, quite frankly, like because we think we tick all those boxes and it's a more competitive and it's a field and it's a higher bar and a higher standard to get into. And we're starting to see that with consultant ratings and due diligence and certainly in the credit team which is a little bit further along in the developing world, but both of them are starting to get ratings and research coverage by the consultants. Usually around that two-year mark, you start getting research and some of the rating groups pick you up. And then around years three, four, five, you start getting that institutional business in a more consistent manner and I think both the strategies are right on track.

And the next question comes from Eric Berg of RBC Capital Markets.

Eric, I was seeing that, in your press release, you wrote something that I think you essentially repeated today - talking about the scarcity of the investment capacity of the teams. What does that mean in other words for smart are you referring just to the dearth of just really good ideas? But when you talk about the scarcity of investment capacity, could you rephrase that? What does that mean to you?

It means to me that every act of product start and trying to deliver alpha has some limit of dollars they can take in. And we tend to be a little bit more conservative on that and value alpha at a very high rate. So when we look across our strategies and even if we're launching something new that can have $10 billion, $15 billion of capacity and in my mind, that's a very scarce asset to have. And if you look at a five, six, seven year time horizon to fill that up, you have to look at the mix of assets, you have to look at the fee rates and the pace of which you go in and as you break that down year-by-year, my mindset is that we have a scarce asset that we should charge a good fee for and we should manage that and everything we do has a scarcity component to it.

In other words, you are saying that the attractive investment opportunities are limited whether for you and the team at Artisans or any fund manager and that fee rates should reflect that? Is that in essence the operating philosophy?

I think you do see that with more concentrated strategies and if you break that down in the number of ideas that are working within each strategy, there is scarce alpha generation. You have to have the talent to identify that and you have to have the talent to put the dollars and allocation behind those ideas. And you want to give people flexibility to move within portfolios and if you break it down to that level, that is the scarcity you are talking about. And for that scarcity, you should charge an active fee rate for it. Now if you let your assets go and you're just providing exposure which I think happened in the industry 10, 15 years ago and strategies became bloated and exposure-oriented, that gave a great opportunity for smart beta. Our goal is to protect ourselves from alternatives or strategies that would replicate this in a exposure manner and the focus on alpha generation.

Next we have a question from Chris Shutler of William Blair.

Regarding the DOL and the fiduciary rule, as you've had more time to study it, speak with your distribution partners about the changes they are making to their business models, what if any changes do you expect to make to Artisan's business, particularly around marketing and distribution. Thanks.

The DOL impact on our business has been fairly minimal. We've had a lot of discussions with our intermediary especially in the broker dealer channel. We tend to stay with the centralized research team at the broker dealer and are implemented through their research. I think from a fiduciary standard, they are providing good insight on Artisan Partners. I do think at the lower levels of the broker-dealer intermediary model where not as much research or analysis is done, you are starting to see a move a little bit more too passive for implementation on passive. And the second effect you're getting is just around the vehicle choice. And you are seeing an adoption to the lower revenue share and I think that's probably been the impact where we've seen some assets move from one share class to another share class.

And then in the press release, Eric, you made a comment in there about holding the line on fees. I don't know if it's possible, but can you quantify the flows that you have essentially forgone in recent quarters on account of not lowering fees?

That's hard to quantify. If you look at our three global strategies, with regards to global value, global opportunities and global equity, all three rank very well in the peer group and have outperformed the Index. And we think that's a best-in-class array of global strategies in the marketplace. And the primary interest there has been institutional-oriented clients outside the U.S.. And you have some very large opportunities there and you could fill up your strategy quite easily but the fee rate gets extremely low and gets back to the comment on those. There is a scarcity effect that we have in each of our strategies and we have to manage that. So Chris, I think it's hard to quantify what that is, but we believe that that is an important aspect of our organization is to maintain a solid fee mix. Because that relates back to the topic of this quarter which is human capital and talent. And it's a vicious circle if you start going down that slope and move into exposure fees for high active strategies.

And then just one last one, kind of a bigger picture question, just you noted in your prepared remarks there has been a tough environment for active managers. Looking at flow trends, it's been true for a while now. What, if anything, across the industry do you think changes that dynamic?

It's a tough one to predict. Until that momentum factor pulls back, if you look at the top quartile of the momentum factor and break that down in an index versus the bottom quartile, you have enormous spreads that - if you just pick the momentum there you are up 20%, 30% and if you pick the bottom, you are down 20% to 30%. You usually don't see any factor spread that wide over a long period of time and whether it is size, quality, yield, PE, growth rate, but the momentum factor is massive and that's what passive indexes are built on. And until that subsides, I think you are going to have a continued effect here of people wanting exposure through passive indexes.

And next we have a question from Bill Katz of Citigroup.

C.J., perhaps for yourself, I saw you gave some updated guidance on net expense, so thank you for that. As you step back and look at the franchise, where you are today, where do you think you are in terms of the investment spending cycle to regenerate new growth?

I think, materially, we're there. We have built out our global distribution capacity since 2010, 2011. Our technology spend has increased pretty substantially over the last three years and increases you are seeing here aren't that meaningful. The increase was $1 million in tech spend this quarter. So I think we're pretty full up on the capacity. We have built out our operations for our newer strategies and so I think you will just see it on the margin until and unless we bring on more new teams.

And then, just stepping back on your discussion between active and passive you are hearing out from all your peers as well today. You have a bunch of closed funds though that I think is probably exacerbating some of the pressure on net redemptions. Any thoughts as markets have sort of pulled back broadly beyond the S&P of reopening anything to help jumpstart some of the gross sales which continue to be pretty challenged for you in the industry at large?

The closed strategies - we're in constant dialogue with the teams. You have to give the two mid-cap strategies, both mid-cap growth and mid-cap value. Both have a fair amount of assets in them and you're getting a decent amount of attrition especially in the defined contribution clients that continually moved to proprietary target dates and over the years, that was an asset class that built up through the late 1990s and through the 2000s. Those are strategies we keep an eye on. The small-cap growth strategy is fairly tapped out there. There might be some replacement opportunities if a client leaves. And then I think the largest one out of the group would be the non-U.S. value which I think we're managing the attrition rate in a little bit more active manner. But we don't see a need to fully open the strategy. I think that would be difficult to control flows to the level we would like which I think would impact the alpha down the road.

Okay and just one last one, thanks for taking all the questions. When you had the success with the credit team in 2001 as you highlighted, where at the pipeline in terms of your mind and the opportunity set in terms of broadening out the other team or individuals and how if any impact has the market volatility over the last several weeks impacted those discussions?

Bill, are you referring to new investment teams?

Yes.

Okay. The new investment teams discussion has - I think it's been healthy. The market volatility in Europe has - along with some of the regulatory uncertainty, especially around banks and financial services in Europe and how people rethink their asset management has created some discussions. And the opportunity set for us, I would say, is about consistent with past years. And we have a few teams that we think would be interesting but I think there is nothing different about this year than past years, because of the volatility except for maybe a little bit more activity in Europe and I'm not sure if that's from the volatility or our brand is just getting bigger in Europe, given the clients that we're gaining and the exposure we're getting in Europe.

[Operator Instructions]. Our next question will come from Surinder Thind of Jefferies.

Just a question around investment philosophy and strategy. So why is targeting Alpha generation over a kind of a complete business cycle versus let's say maybe a shorter period, let's say three or five years. It would seem that investors are just - the timeframe or the amount that investors evaluate their investment seems to be shortening in terms of the investment performance. It seems like when we look at turnover rates, if we were to look at the open-end fund, it just seems like holding periods are getting shorter and shorter at this point.

Certainly. I think if you look at our turnover rates, you're going to see them going down the other way across strategies where you look at the last three years - someone like emerging markets has had a very low turnover rate and some of the more mature strategies have had a slightly lower turnover rate. I think we see an opportunity there that you see a disconnect from the price and the fundamentals. And you are playing a time horizon there to deliver Alpha. I think gravitating to just short term trading, because people's time horizons are reducing and especially when you see it in the retail channel, then you might as well just move to an ETF or you might as well just move to high-frequency trading. That's not how we built our records over the years. And if we're going to deliver and look at our Alpha that we have created in the past, we have to be consistent with what we've done as opposed to moving to the high-frequency trading or to the ETFs or short term mindset. That's out of favor right now.

I guess would you consider five years a short term time period?

I think over the last five years, yes, when you look at the factors that have been in place and how dominant they've been and maybe when there's a single factor to - when someone makes a single bet and gets rewarded and it's over a five- , six-year period, that's not a full cycle where there is more things in play. And so I would argue that this timeframe right now is not a full cycle when one factor dominates the way it has with momentum.

And then just maybe a quick update on just your thoughts around pursuing new strategies at this point. Maybe your willingness to be a little bit more aggressive versus is it just kind of the incremental costs of maybe bringing on the new team? Or is it just some reputational risk if the team doesn't work out or how are you guys thinking about that at this point? Perhaps have you not been maybe aggressive enough in the past given how many strategies are currently closed?

I'm not too concerned about cost here. Very concerned about reputation. Very concerned about cost or on the current infrastructure, but if you are just charged - if you're just looking at are we cautious that we don't want to spend or we're not quite sure from an expense side - if we see great talent, we're going to make it work. If we see great talent that may really tax our infrastructure and cause uncertainty with the rest of the operations, we're going to be very cautious. We're very cautious going into credit. That was a whole new back office that we put in place and I think we've been very successful of broadening our back office, bringing in a credit team that has not just bonds but high-yield with - I mean, bank loans and has an array of securities in there that we want to make sure we process correctly. If we get into a newer strategy that taxes the operations, I will be conservative and if it's a strategy that may wane on our reputation, I will be conservative. If it's a great talent that comes up and there's Alpha generation, we're going to be aggressive. So if the talent shows itself, expect us to be aggressive.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, Laura. We appreciate everybody's time today. And look forward to the next quarter.

Our conference is now concluded. Thank you for attending today's presentation. You may now disconnect.