Hello and thank you for standing by. My name is Amy, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, management will conduct a question-and-answer session. The conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. At this time, I will turn the call over to Makela Taphorn, Director of Management Reporting at 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 earnings release and the related presentation materials are available on the Investor Relations section of our Web site. 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 our 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 made today will include references to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in earnings release. I will now turn the call over to Eric Colson.

Thank you, Makela. And thank you all for listening for the call. In 2016, it was particularly important for us to maintain our business discipline and fortitude. This year was filled with surprise and disruption. The Brexit vote and U.S. presidential elections were the biggest headlines. Disruption was also a major theme in our industry. Asset flows into passive products continued to accelerate. The availability of these products and the perceptions that they are low for cost and in many cases lower risk is impacting all aspects of the investment management industry. Likewise, the many regulatory initiatives aimed at increasing transparency and reducing conflicts of interest also continued to disrupt industry practices and business models. Lastly, technology continued to cause disruption as well, enabling investors and innovation, but also exposing everyone to constantly evolving security threats. In analyzing these and other changes and what they mean for us, we will start with who we are as a firm. Artisan Partners is a high value-added investment management firm designed for investment talent to thrive in a thoughtful growth environment. By remaining grounded in who we are, we are better able to capitalize on long-term opportunities created by disruptive change and avoid chasing fads. With that in mind, in this presentation, I want to communicate three main points. First, Artisan Partners Investment Team had added significant investment value for our clients. If our teams continue to add value, we are highly confident that net sales and AUM growth will follow over the long-term. There is plenty of demand for active managers to deliver differentiated results with integrity. Second as a high value-added investment manager, we welcome disruption in the industry that causes investors to scrutinize their managers and advisers to determine whether value is been added, fees are transparent and rational, and…

Thanks, Eric. I’ll begin on slide seven. Our earnings release and this presentation disclose both GAAP and adjusted financial results. But I will focus my comments on adjusted results, which we as management use to evaluate our profitability and the efficiency of our business operations. Revenue in the fourth quarter was $181.5 million, down 1.4% from the previous quarter, and the adjusted operating margin was 35.8%, down from 37.3% in the previous quarter. For the year, revenues were $720.9 million, down 11% from the previous year, and our adjusted operating margin was 36.4% compared to 40.3% the previous year. Our results in 2016 reflect the overall net client outflows and slightly lower ending AUM, amidst the secular trends that Eric discussed, including ongoing demand for low cost market exposure and structural changes in the DC markets. A combination of these trends and performance challenges in some of our mature strategies resulted in firm-wide net outflows during the year. Taking a look at our AUM on slide eight, we ended the year with 96.8 billion of assets under management, which was down $3 billion or 3% compared to both last quarter and last year. The decrease in the quarter was due to approximately 2.8 billion of market depreciation and $231 million of net client cash outflows. The decrease in the year reflected 4.8 billion of net client cash outflows, partially offset by 1.8 billion of market apprecition. Taking a closer look at cash flows by team, the Growth Team had net client cash inflows of $800 million in the quarter, primarily due to a large non-U.S. institutional win and the global opportunity strategy, which was partially offset by net client cash outflows in the Mid-Cap Growth strategy. For the year, the Growth Team had net client cash inflows of $450 million,…

[Operator Instructions] The first question comes from Robert Lee at KBW.

I guess my first question maybe C. J. if you could just -- I want to make sure I had it right. The $1.5 million of one-time expenses in Q4 was that -- I believe that was related to Thematic. Is that -- C. J. were you referring to the incremental comp expense?

Yes. Well, on-boarding, you obviously have to bridge the gap of people coming to the firm. So the $1.5 million of additional cost for Thematic was in the fourth quarter, and then our run rate, as the team has built-up, will be about $1.25 million to $1.5 million ongoing per quarter. So, quarter-to-quarter, it's about flat for the Thematic.

Okay, I just want to make sure I had that right. And then thinking about capital management, I believe you do have a tranche of debt that comes due this summer. So, just as you think about cash on the balance sheet and stuff, is it kind of that your current attention to kind of use some of the excess cash to pay down debt, or leave it -- or refinance it. I mean how you’re thinking about that as part of capital management?

I mean we certainly have a lot of flexibility and optionality given our strong balance sheet and the amount of cash that we retained. But given the current markets in favorable environment, most likely, we will refinance the entire $60 million that’s coming due.

And then maybe just one last one, and just kind of more of a big picture. I mean, given a lot of the challenges that, as you pointed out in headwinds, that traditional active managers have faced, particularly in kind of the intermediary and some of the retail channels. I mean, have you -- is there any -- have you thought at all about, that changing fee structures, maybe there has been some talk about to maybe more funds should have full from fees as a way that try to attract more attention. What are your -- any thoughts around that? Or what you’re thinking about, maybe altering some of the pricing constructs, not so that -- if you perform overtime, you are in the same or more fees but in the short-term maybe they give something up?

We think about fees quite a bit obviously, given the environment. We’ve first and foremost just look at the performance and the results we’ve delivered over the long-term. And as we step back and look at the structural trends, as you said a big picture, we look at what’s changing in vehicles one. I mean, just the massive movement of assets to ETF signals, assigned towards the mutual fund structure. And then you saw, last year, a shift of within Artisan of adding the third share class. So, we have three new mutual funds share classes now, and that changed -- shifted assets of close to $10 billion in a 12 month period on the mindset of trying to reduce third-party fees. So, there is scrutiny going on and there need to be more transparency around the total fees structure. But we feel good about the returns that we’re delivering and the management fees that we’re charging.

Next question is from Chris Shutler at William Blair.

Maybe first, could you just talk about the -- I think, Eric, you mentioned third generation strategies you plan to launch in 2017. I know there is the Thematic Team. I’m guessing maybe more from the high income team. So, just anymore details on what the additional strategies could be, or at least what teams?

We certainly see that that shift in preference by clients and in advisors and consultants, looking for more differentiated strategy. And we highlighted that on the call. Clearly, the Thematic Team is front in center there. So, we have a mutual fund in registration for the Thematic Team that we expect to launch by the end of March that will be highly a concentrated, long oriented fund managed by Chris Smith and our new Thematic Team that we’ve built-out. After we launch that, we are looking into a variety of private funds, or LPs, that were under construct now to bring out in 2017. We don’t have any specific details on launch dates for those, but 2017 looks like a good year to push forward with the couple of teams.

Couple of beyond the Thematic Team…

Thematic Team and one other team for sure, I think, could be a third. We’ll see how we can take those out. But all of our teams are in the mindset of higher degrees of freedom that we mentioned on the last call. And each of the teams are looking to use their talent and their philosophy and their process to add to a differentiated approach to meet client demands.

And then, secondly on the Global Value Team. How much more AUM do you feel like they can take on before you consider closing that again?

The strategies of International and Global Value, and I guess Global Value, in the pooled vehicles we’ve been managing that flow. We’ve been fairly judicious on the inflows. We’re going to continue to manage that. So, I would not expect much asset growth out of those two strategies, or managing capacity there. And so, we’re keeping mindful eye on flows. So, I wouldn’t put much into any big movement in flows there.

And then lastly C.J. just on the expense trajectory in 2017, how should be thinking about some of the more fixed expense line items, so occupancy, tax, G&A, et cetera?

I would say stable to slightly up. The big movements we’ve had over the last couple of years have really been in our technology spend and that -- while it might increase slightly should level off. And then the other expenses should be relatively stable. We are doing a bit of some office build-out, but not major expenses. And we’re largely built out, from an infrastructure standpoint, to feel a good portion of the capacity we have.

The next question is from Bill Katz with Citi.

Thanks very much for taking my questions this morning. I appreciate all the extra color, Eric, particularly just when I think about the cross currents to the industry is very helpful to get that perspective. Just sticking with that theme for a movement, as I still listen to your commentary, it seems like your franchise, it does seem to be a lot of different cost currents, whether it’d be product geography, or distribution line. So, as you look ahead, and is it more of an institutional non-U.S. opportunity that might drive it? Or on the retail side, I guess the corollary is it seems like distributors continue to narrow down the number of players. And if you do the math, I think you said about $30 billion or so of assets with the more traditional retail side. Is that a platform that even with good performance this could be maybe too small to really capture any type of incremental growth? I’m just trying to understand the long-term growth drivers here a little bit.

Certainly, there is quite a bit of cross-currents as we stated. And to hit on your first point, it has been an institutional oriented story. Certainly, last year, with the Global Opportunities and the Global Value strategies, we made good strides outside the United States with long-term oriented institutional clients. We think that really gives us a much longer duration. And at this competitive fee that we’re getting, we think that gives us a really high present value on that client compared to some of the shorter term channels that you look at, even though you’re getting a slightly better fee. And as we think forward, we’re thinking more and more about the wealth management channel as a whole, globally. And we look at that next generation strategy that differentiates quite a bit from the index, brings in a little bit more risk management. And it more than likely has a strong fit in wealth management, which would be high-end retail family office into the intermediary, and also into the more sophisticated institutional client that fits their asset allocation. And even though the cost capacity might be slightly lower, you pick that up on the fee. So, that’s our mindset over the next few years or longer term, as you said.

Underneath that, I think, high yield comes into a three year track record, if not this quarter, very soon. What some of the pipeline behind that do you think? And then, conversely, are there anything that’s closed right now that might be available to open up more broadly to potentially offset some of the management on the Global Value Team?

The high yield is coming upon it’s to your track record, which gives, usually a tipping point for many advisors. They like to see that three year track record. Fortunately, we’ve had a little bit of a head-start given the history that Brian Krug brought with him at his track record. We believe there is a good institutional pipeline building with advisors and consultants. It's little bit kind of a tail of two stories; so, one side the strong performance of the high yield marketplace of, I think it was 17%, 18% on the index, somewhere around there, is going to attract to quite a bit of people just from the strong absolute performance. Others may look at that and say we’d like to see that reverse a little bit before we more back into the high yields. So, we’ve had mixed interest on those type of clients given the strong last year. And on closed strategies, the only think we’ve done is we’ve opened up the Mid-Cap Value strategy as we see the performance starting to stabilize and move back in. I think we’re in the early phases of that. We never look at the reopening of a strategy as a way to just attract immediate assets. We think it’s a longer term story. So, that’s the only strategy that has reopened. The rest will manage in a diligent manner.

The next question is from Surinder Thind at Jefferies.

Just to touch based on the DC space. How are you guys thinking about the DCIO opportunity given the challenges in that space, the near-term versus the longer term? I mean, when I look across more broader industry comments, some of your competitors are touting this as a significant opportunity, while it seems you guys are fairly cautious over what I would probably characterize what seems the next couple of years.

I certainly think it’s an opportunity for us. We’ve done very well in the defined contribution market. We expect that the defined contribution market will remain a more sophisticated market with institutional advisors helping to structure those plans. But in the short-run, we continue to see that push towards target date funds that remain closed, or proprietary. And even on top of that have pushed towards passive. I don’t think every plan will move to those, some clearly want the diversification. And on top of that, I think some of the third-party fees are under pressure into that channel. And the combination of those third-party fees, coupled with the current run on passive results, I just think the opportunity gets pushed out outside of 2017 for a real opening up of defined contribution solutions. We think inevitably it will occur, it happens the first go-around in the 401(k) proprietary model moving to open architecture into the DCIO. And we think it will happen again, it's just timing. And 2017 looks like there is still continued pressure on those plan advisors.

And then just a question about strategy here. When I look at some of the different products that are offered by each of the teams, it appears that there's maybe some meaningful correlation in investment performance between products that are maybe managed by the same team. Specifically, thinking of the U.S. Value Team, the Global Equity Team in this situation. Any color around this? And is it potentially an issue from a sales perspective, or how do you guys think about that?

Our expectation is that it should be highly correlated within teams. For the most part, when you look at across our equity teams, they are all investing in public equities. And they’re all using the exact same philosophy and process. And so, within teams, it’s going to generate a high correlation, and that’s what we expect. And in fact, we’d expect some decent security overlap in some of these teams as well. So, the mindset we have, it’s going to be highly differentiated among the Autonomous Teams to give the firm diversification, but within team, it should remain correlated.

So does that generally present a sales challenge then? So for example, if one of the funds starts to underperform, it seems like the rest of the remaining funds might be underperforming as well. I guess that was the heart of the question here.

It sometimes brings up a sales challenge. But when you really dive into the different indexes, clients and consultants can quickly understand that. So, if you look at the Growth Team, specifically, with the strong outperformance in Global Opportunities and then the under performance in the Mid-Cap Growth and Small-Cap Growth in the short run, it does bring up a question. Then you look at the absolute return of all three strategies over the last five years. And if you look at those strategies, the Mid-Cap Growth strategies at 13%, the U.S. Small-Cap Growth strategies at 13%, and the Global Opportunities is at 14.5%. So, the factors and the type of companies that they look for are prevalent across all three of the strategies. The real differential is the make-up of the index, and I guess the passive investing, and that’s a whole other topic that I don’t think I want to open-up right now. But we do get back to talking about consistency of these strategies across any team quite frequently.

And then C.J., maybe just a quick question for you. I was a little bit surprised that you guys did top-off the quarterly dividend this year. But I also understand, it sounds like you guys have generally held back about $0.25 to top things off in case there is a shortfall in the quarterly dividend. How are you guys thinking about that reserve level? Meaning that it seems like it's about 10% of the annual dividend. Is that the way you guys were thinking about it? Or are you guys just trying to think about it to make sure that you guys have enough for a couple of quarters, and then there might be an adjustment at that point if there is a meaningful downturn in the markets? Or how should we think about that?

Yes, I mean it's more of the latter. We’ve been covering our quarterly dividend, but not by huge amount. So, the thought process is exactly what you’re suggesting. Let's kick-out enough cash, but reserve a bit that we can go a couple of quarters, not covering the dividend before we would take any action. And so that’s been the general philosophy. And the $0.25, as you can imagine, very subjective and there is no specific science to it.

The next question is from Mike Carrier, Bank of America Merrill Lynch.

Just given the strength in the separate account of inflows this quarter, just wanted to get a sense on the traction that you’re seeing in that area, the business. And it seems like you mentioned some of the international where we've seen strength, but just any traction for the distribution channels?

The primary traction that we have seen is in institutional separate accounts, primarily outside the U.S. with a global orientation. The Global Value, the Global Opportunities, the Global Equity, and more recently even a higher degree of interest in Developing World in Emerging Markets as that asset class pick-ups in performance; all those strategies are very well suited for non-U.S. oriented clients. And we’re getting strong traction there. And as you can see on our presentation, you saw the differential in flows of U.S. to non-U.S. since the IPO. And so, we continue to see that pick-up. During that period, I think we’ve had an exchange of checks in the intermediary space with the first couple of years been positive and then some rebalancing. There, we just see continued back and forth in the intermediary space. And then as we mentioned long-term DC, we hope that that turns around. But we think that’s unlikely in ’17 and probably pushed out more to ’18, ’19.

And then just within Global Equity, just given some of the flow pressures that we're seeing. Just wanted to get some sense, if you have it, particularly on the non-U.S. growth strategy of the make-up like the clients, because the long-term track record is still -- it remains strong. Obviously, the one and three year is under some pressure. But just maybe how, I don't know, volatile the assets are versus maybe the longer term clients?

That’s been a client base that’s been around for numerous years. Obviously, with the team and strategy being kicked off in ’95 and the fund being launched in ‘96, you can imagine that some of these clients have been around with us for many years. So, we have really good diversification on inception date. And the further you go back and you look at anything past four or five years, I mean the five-year return on the non-U.S. strategy is up 7.5% above the EAFE Index by a full 100 basis points. It really is those shorter term clients under that five year. And when you get into the retail and some of the lower end of the intermediary space, you have a little bit more turnover with shorter duration clients. But the bulk of that asset base is a longer duration book.

The next question is from Alex Blostein at Goldman Sachs.

A question for you guys around some of the new strategies. So, I guess as consider launching different types of products, particularly focused around some of the alternatives. Can you talk a little bit about any incremental infrastructure that you guys would need to build out? So, thinking similar to what you had to do in fixed income a couple years ago. And then it sounds like the launch of these strategies will be later on in ‘17. So, just thinking through the expenses and the build on the expense base to accommodate the new setup into 2018 and beyond? Thanks.

Alex, we’ve been building that out in anticipation of bringing on a Thematic Team and launching hedge funds. And so, we did a lot of that work last year. So, I wouldn’t expect anything material based on what we have on-board today, going forward.

This concludes our question-and-answer session. Would you like to make any closing remarks?

Amy, I think, we’re good. Thank you everybody for joining in the call.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.