Hello and thank you for standing by. My name is Nicole 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 and 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 am 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 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 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 the earnings release. I will now turn the call over to Eric Colson.

Thank you Makela. And thank you to everyone for joining the call. This is our 17th quarterly update call since our IPO in March 2013. On the prior 16 calls, I have said high value-added 63 times and I have said degrees of freedom 74 times. If I follow my script, you will hear those words at least another 15 times on this call. We emphasize high value-added investing because it is fundamental to who we are as a firm. Since our founding in 1994, Artisan Partners has been committed to partnering with talented investment professionals to launch and manage investment strategies that add significant value for our clients and investors. As part of that commitment, we work to provide our investment teams with the degrees of freedom they need to add value, manage risk and differentiate themselves from others. Over time, we have evolved through investment guidelines of our existing strategies to create greater flexibility with respect to geography, market capitalization, concentration and cash holdings. Between 2007 and 2010 we launched our three global strategies which have provided our growth, global value and global equity teams with broad flexibility to invest across the world and market capitalization spectrum. And over the last three years since our IPO, we have added three new investment teams, each of which use greater degrees of freedom to generate alpha and manage risk. On today's call, I will review the new teams and the progress they have made. Notwithstanding all the headlines about asset switching from active to passive, we believe there is considerable client and investor demand for differentiated high value-added investment strategies Many of the active products that are being replaced were not designed to depart too much from an index and they have not evolved to allow for greater differentiation. Investors…

Thanks Eric. Our earnings release and the financial presentation disclose both GAAP an d adjusted financial results but I will focus my comments on the adjusted results which we use to evaluate our business operations. Our adjusted results exclude the impact of pre-IPO equity-based compensation and include the impact of post-IPO equity-based compensation which is a non-cash expense. Our adjusted results reflect an increase in average assets under management during the current quarter which led to increased revenues compared to last quarter. Higher revenues were offset by increased seasonal expenses that are incurred in the first quarter of each calendar year and an increase in post-IPO equity-based compensation expense related to our January grant. Adjusted earnings per share was $0.52, down $0.01 compared to $0.53 last quarter. Taking closer look at the drivers of our results starting with AUM on slide nine. We ended the quarter with $103.8 billion of assets under management which was up approximately $7 billion or 7% compared to both last quarter and last year. The increase in the current quarter reflects market appreciation of $7.2 billion partially offset by net client cash outflows of $272 million. The increase in AUM compared to the same quarter last year reflects $10.5 billion of market appreciation partially offset by $3.8 billion of net client cash outflows. Our two newest teams, the Credit and Developing World teams had net client cash inflows in the quarter of $216 million and $16 million respectively. The U.S. Value, Global Value and Emerging Markets teams each had modest net cash inflows in the quarter. The Global Equity team had $490 million of net client cash outflows primarily in its non-U.S. growth strategy. And finally, the Growth team had net client cash outflows of $320 million primarily due to $620 million in net client…

[Operator Instructions]. Our first question comes from Michael Carrier of Bank of America Merrill Lynch. Please go ahead.

Hi. Thanks guys. Eric, maybe first question just on some of the newer strategies and some of the fund structure that you mentioned. Just wanted to get your sense, you guys have, when we look at the long-term track record on the legacy products and then obviously the new products are doing well, you have like the performance there. And we see a lot of headlines on fee pressure and pricing and stuff like that. But just wanted to get your sense, when you are talking to the client base, how much kind of protection do you have when you have that performance versus maybe the average out there in the industry, that gets you in a little bit more pressure on fees?

Yes. Hi Michael, it's Eric. Clearly every client is going to ask about fees. It's a pretty common question that comes up and it's been coming up for quite some time. We have been maintaining our fee schedule pretty consistently across all our strategies. I think the one thing you do see is the uptick in some larger separate accounts has been the primary asset growth and the outflows have been primary out of defined contribution, mutual fund flows which your swap being lower fees for higher fees because of mix. But when I look at our newer strategies and our current strategies, we have been maintaining our fee schedule fairly consistent.

Okay. And then, C. J., just on some of the expense. I think you mentioned on the G&A, that was just seasonal. I just wanted to make sure just in terms of the normalized level going forward and I man that just on the expense, I just wanted to clarify that.

Yes. This quarter G&A was up a bit because we have our annual grant of compensation to our directors for their annual retainer and that was the driver of the spike this quarter.

Okay. All right. Thanks a lot.

Our next question comes from Bill Katz of Citigroup. Please go ahead.

Thank you very much for taking the questions. I have got a couple, if that's okay. It's been coming up on some of the last couple of calls and so thinking about, particularly given your very strong performance but inability to gather asset just given some of these headwinds you have been talking about guys. What's your thoughts on shifting to a variable pricing model, particularly given your degrees of freedom thought process and concentrated investment strategy? And if you were to do something like that, what would be some of pros and cons you can see from a business management perspective?

You are thinking, Bill, of performance based fees?

Right, exactly. In the mutual fund structure or separate account structure. Sorry to interrupt you.

That's okay. The separate account structure, it's something that we open to and we entertain and discuss with clients. Some of the more recent accounts that we have taken on have been performance based fees. So there is a slight uptick there but I wouldn't say it's an overwhelming request. Once we get into a dialogue and go back and forth with the client on, here is our current asset base fee and here is our performance based fee, we would probably have more recently half of the larger accounts starting to move towards a performance based fee our new opportunities. And we haven't contemplated moving to a performance based fee inside of the mutual funds.

Okay. And then the second question is, maybe you can just refresh on your exposure to defined contribution? And then maybe what is the headwind? Is it pricing? Is it performance? I am just trying to get a better sense of some of the incremental pressure points.

The breakdown of our institutional business is about 15% of the total assets in the defined contribution. The real headwind is, in the DOL, the Pension Protection Act rule, they credit a QDIA or a default option which is primarily proprietary target date funds. Our view was that was going to open up and be more open architecture customized solutions that would include more outside asset manager such as Artisan. Unfortunately, the litigations have increased the perceived diversification of a all indexed oriented target date fund and fee pressure has spurred more and more assets going to the proprietary target date funds, especially if it's 100% passive That has lowered our expectations in the short run of the DC assets turning around. We still think over the next couple of years, you will see more and more customized solutions. But for right now, it just seems the passive solution is the safe approach right now.

Okay. Understood and just two more. Thanks for taking the questions today. I know it's a busy day for everybody. On the distribution side, it looks like your non-U.S. business which has been a nice driver was a little more sluggish lately. You mentioned your focus on global, generally speaking. Can you talk a little bit about what you are doing there in trying to amplify some of the volume? And the other question somewhat related is, can you walk us through seed capital dynamics to help maybe springboard the opportunity for the Thematic team?

We agree with you. The non-U.S. distribution has been strong. As we stated in the call, the launch of the three global strategies and gained up to 19% over our AUM outside the U.S. now. $With regards to continued efforts outside of the U.S., we are spending more time into the intermediary channel and broadening out our distribution especially in Europe. We think that's been going well, putting our UCITS on a few platforms and just going a little bit deeper into that channel. With regards to the seed dollars, we always put a few million dollars into the seed equity strategies and so we seeded the Thematic fund with $3 million.

Okay. Thank you so much.

Our next question comes from Ari Ghosh of Credit Suisse. Please go ahead.

Hi. Good afternoon guys. So my first one is for Eric. I really appreciate your commentary on the industry in your letter to the shareholders. I was hoping that you can expand a bit on your comments around the evolution of your distribution technology capability and specifically on technology? Do you foresee additional spend in 2017 as you buildout resources for the Thematic strategy? Thanks.

Sorry, I missed the evolution of --?

Sorry guys. I just dropped off. Can you hear me?

Yes. Can you repeat the question?

You got it. I was just hoping if you can provide some comments around just a little color on the commentary you provided in your letter around the evolution of your distribution capabilities? How that's changing maybe the partnership with your distributors as that's evolved over the past few years? And then technology in particular, as you grow out and build out the Thematic strat, are you looking at incremental costs associated with that on the technology side for 2017?

Sure. I think you have seen the evolution of the distribution efforts outside the U.S. has been one of our biggest efforts. We just completed two additional hires in our London office to go deeper into that channel. We also have been evolving how we think about the wealth management section. It's cross-sectional across quite a few channels. You could look at the lower end of the institutional and the higher end of the advisory channel and we have been working as we develop our strategies that are more differentiated and higher degrees of freedom where is the natural and most interesting spot for us to focus on and it's going to be the institutional channel as well as the wealth management channel. So those are the areas that we are evolving.

Got it. And then just as a follow-up, your global equity flows, they improved a bit this quarter and it looked like it was driven by the international growth strat. Were there any lumpy institutional inflows into the strat this quarter? Just trying to think about a run rate moving forward?

No. I can't think of any large flows that would make that lumpy. The international equity strategy inside of the Global Equity team had a difficult 2016 but the first quarter of 2017 they caught back some of that. We still need to improve on that performance but nothing's jumping out on me on any big flows.

Got it. Thank you.

Our next question comes from Chris Shutler of William Blair. Please go ahead.

Hi guys. Good morning. I guess first on the High Income team, can you give us some sense of, I know it's a little early, but what kind of institutional demand you are seeing build in the pipeline? And I guess ultimately, Eric, how do you plan to manage those assets by channel? Do you see it ultimately being fairly balanced retail versus institutional? Or is it going to tilt more to retail?

Chris, the pipeline that we have for High Income we are just starting to build out. We have a few recommendations with regards to buy ratings with institutional consultants. We are spending more and more time this year to buildout the number of consultants that we can get a buy rating with. So we expect that to be the next year or twp to build out that broader consultant coverage. And timing of assets, you can never really predict, but if you put up the numbers and you get the buy ratings then the odds are on your side. And so that's the strategy for the remainder of the year. I would expect with this strategy of High Income that it would have a higher skew to the intermediary or adviser channels than some of our other strategies.

Okay. Makes sense. And then on the non-U. S. Growth Strategy, I just want to touch on that. The institutional flows there, I think, have been quite stable. Are you seeing any changes in consultant recommendations or discussions with clients that indicate any greater risk on the institutional side?

No. We haven't been notified with any changes via consultant rating. If you look out, it's a fairly mature client base. If you look out past three years and looking for the five and seven and 10 years, you have strong performance. And we have delivered a good large number of that client base, given that the majority of the asset base is well past five years.

Okay. Got it. And then kind of a similar question on same strategy, non-U. S. Growth on the retail side. Is there any reason we should believe flows are going to get any better or any worse from what you are seeing right now?

No. It's a small percentage. I don't think I could lean into that and answer with any direction.

Okay. And then lastly, C. J., on G&A, I just wanted to clarify the comment. So Q1 is a little higher. Are you expecting G&A to then subside a little bit over the course of the year or remain at these levels?

I mean, G&A is a category that can fluctuate. It's not going to fluctuate in large dollar amounts, but you have professional fees and travel and entertainment in there, which are hard to predict. I mean, the second quarter is usually a higher travel period and so the fact that the director fee expense will drop off, I wouldn't necessarily read into that, that G&A would drop. But that $7 million-ish range is probably a good one.

All right. Thanks guys.

Our next question comes from Robert Lee of KBW. Please go ahead.

Thanks for taking my question today. A bunch of them were asked. So I am just kind of curious, with MiFID coming into place next year and non-U. S. clients and I know you have some operations over there, can you kind of update us on your current thinking on how you guys plan on dealing with MiFID expense heading next year?

Sure, Rob. Today our business is managed out of the U.S. and we just don't feel that we are going to be directly subject to MiFID II requirements. And we think it's a bit early to figure out how that's going to really impact us. And at the end of the day, we have fairly small operations in London and so right now we are just taking a wait and see approach.

Okay. That was actually my only question. Thank you.

Our next question comes from Alex Blostein of Goldman Sachs. Please go ahead.

Okay. Hi guys. Good afternoon. A question around capacity. You guys have been very vocal and thoughtful around managing capacity around different strategies. So taking a step back, I guess, among the strategies, the newer ones that you have highlighted, given very good performance, maybe just give a refresher on how you guys think about capacity in High Income, Developing World and ultimately what could come out of Global Thematic over time? And I guess on the other end of the spectrum, just a quick reminder, Global Value, I think, was closing or is about to close? Can you just remind us how much kind of room there is still left?

Sure. The Global Value and the Global Opportunities strategies are both closed to separate accounts. So we are managing capacity primarily into the pooled vehicles. And we are right now just keeping an eye on any surge in flows. If there's a high surge, we will be mindful to manage that flow and slow it down, if not close the pooled vehicle. If we can manage a more steady state, then those will remain open for Global Value and Global Opportunities. The three new teams are quite small. And the High Income, we stated on the call, passed $2 billion in AUM. Bryan Krug and his previous employer managed a significant amount more dollars than the $2 billion. So there's obviously quite a bit of capacity and room there for increased flows. Likewise, Lewis Kaufman had a similar history of managing more than the $1.3 billion. Again that capacity could be multiples over what we are doing now. The Thematic team, obviously just launching. It's a fairly concentrated portfolio of 20, probably about 25, 26 securities today, ranging, I think, 20 to 35 over the history or on a go-forward basis in fairly liquid securities. So that strategy could handle the upper single digits on the billions of dollars under management. It's really going to play heavily into when we launch the long/short strategy and what we think the capacity of the aggregate will be. We don't have the exact numbers on what the exact capacity. It really is the total capacity number. It's the liquidity and availability of that marketplace that we are operating in. As you move degrees of freedom into those products, it sometimes opens up more capacity. And also it's the frequency of dollars moving around that also disrupts the total number. So it's not an exact science.

Got it. No, that's helpful and obviously it sounds like plenty of runway there. Just a clarification, on the Global Ops, when did that close? Maybe I missed it. But I think it's news. And ultimately remind us, Eric, in terms of just total dollars, how much do you guys think you can go up to in Global Ops as a strategy on both the separate account and pooled vehicles?

Yes. We haven't stated a total amount of what we are going to go up to. We just recently informed consultants and prospects that we will be closing the separate accounts. So you might see a separate account come in, in the short run here. But we are definitely gliding to a managed asset base there. And it's getting and approaching to where Global Value is, which will really be opened in the pooled vehicle side. So we are in that glide phase to closing. So we just recently have been discussing the separate account closure.

Got it. Sorry, one more, I guess, on a related topic. I think in the past, Global Option and Global Equity in a way would almost kind of face off one another. Do you guys think that potentially could accelerate some institutional money coming into Global Equities Strategy? Or is this just a kind of completely different process?

They are completely different. All of our teams stand on their own. I mean, we have always said that we are bought, not sold. And the institutional buyer and a sophisticated buyer analyzes the strategies they are looking for and then approaches us as opposed to us selling the Artisan global array of strategies. So it's a separate decision.

Got you. Great. All right. Thanks very much.

This concludes our question-and-answer session and concludes the conference. Thank you for attending today's presentation. You may now disconnect.