Good morning and welcome to the Artisan Partners Second Quarter 2017 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After the today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, todays even is being recorded. I would now like to the conference over to Makela Taphorn. Please go ahead.

Thank you. Welcome to the Artisan Partners Asset Management business update and earnings call. Today’s call will include remarks from Eric Colson, Chairman and CEO and C. J. Daley, CFO. Following these remarks, we will open the line for questions. 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. And I will now turn the call over to Eric Colson.

Thank you Makela. And thank you to everyone for joining the call. At Artisan we value time, so we appreciate everybody taking the time to listen to the call or read the transcript. Our goal on these calls are to describe who we are and how recent events relate to our long-term vision. Consistency, stability and predictability are essential on a people business. Moving to slide two, with all of the headlines and noise about industry disruption, this summer provided to be a great time to bring together Artisan’s investment team leaders and more than a hundred current and perspective clients, consultants and intermediary partners for an investment forum. The forum highlighted the passion that Artisan portfolio mangers have for investing, as well as the economy and independence of the investment team. Listening to each team presents, you could easily appreciate the importance of talent and economy to our model. You could also appreciate how the investment team use to greed [ph] the freedom, especially the flexibility to invest in companies throughout the world to generate returns and manage risk. The investment forum provided a really nice perspective on what matters. Through our institutional clients, intermediary partners, our funds and other collective vehicles there are thousands of real people trust enough the compound well and manage risk, getting the investments right for those people is what matters most. Slide three summarizes Artisan's recent and long-term investment performance. We haven't said much about the active passive performance debate for the ETF phenomenon, because our results speak for themselves. Our business model has produced multiple investment teams over various time periods with different investment approaches that deepen their benchmark passive indexes, net of fees. Over 20 years, we've established nine investment teams and offered 17 investment strategies to client. Over the years,…

Thanks, Eric. I'll begin on slide eight, our earnings release and presentation disclose both GAAP and adjusted financial results. And 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. In the current quarter our average assets under management increased $6 billion or 6%. Thanks to strong absolute and relative investment performance. Higher average assets under management grow revenues by $12 million or 7%. Operating expenses followed suit is a variable expense components of our P&L increased with revenue and were offset in part by lower seasonal expenses. Adjusted operating margin increased to 37.1% in the current quarter and adjusted earnings per adjusted share increased 11.5% to $0.58. I believe these results continue to reinforce the transparency and predictability of our financial model. Taking a closer look at our AUMs on slide nine, assets under management at the end of the quarter was $109.4 billion, up 5.4% compared to last quarter and up 15% compared to the same quarter last year. The increase in the current quarter reflected market appreciation of $7.1 billion, a substantial portion of which was from alpha generation. Market appreciation was partially offset by net client cash outflows of $1.5 billion. Net client cash outflows in the quarter, primarily from the non-US growth strategy and to a lesser extent the mid-cap growth strategy. As Eric mentioned, since June 30, 2016 AUM has grown $14.4 billion or 15% due to market appreciation of $17.4 billion, partially offset by $3 billion of net client cash outflows over the trailing 12 month period. Moving on to our financial results on page 10. Compared to the previous quarter, revenues were…

Thank you. [Operator Instructions] Today's first question comes from Chris Shutler of William Blair. Please go ahead.

Hi, guys. Good morning. This is actually [indiscernible] filling in for Chris. My first question, I'm looking at slide three and the year to date performance, in the non-US growth strategy its been really strong, just curious if you’re seeing any signs that outflows are slowing in that strategy?

Hi, Andrew. It’s Eric Colson. Clearly we’re happy about the - of the turnaround in performance and we do expect as an active manager that will have these year-to-year return differential versus the index. Clients I think have a bit of a lag when they are looking at performance, when you have strong performance you tend to see clients chasing that, when you have performance that’s weak, again there is a lag of redemption. So, I think our expectation is it will slow down, but the lag effect is hard to predict.

Okay. Thank you. And then separately I was just wondering if you could provide an update on the global opportunity strategies capacity. I know – I believe it was last quarter which – where you closed to new accounts, so if you could just update there, it would be helpful?

Sure. That the global opportunity is a bit complicated because of the mid-cap flows on one side and the launch of the Global Discovery fund that's coming out and just as the velocity of flows that come into global opportunities, when you take all those three together its very hard to predict the flows and the exact timing of any strategies closing or when we reopen strategies. I was always will be cautious to protect alpha, as opposed to maximizing flows, right now or in the very cautious stage of managing flows to protect the clients that are in the strategies, so that we can deliver returns. So the update is stay cautious approach and a closing process that is in progress right now.

Thanks for answering my questions.

And ladies and gentlemen, next question comes from Michael Carrier, Bank of America Merrill Lynch. Please go ahead.

Hi. Thanks for taking the questions. Actually Jeff [ph] filling in for Mike. Just wanted to ask on the international fund, I think this was hit on the last question, but given the strong year-to-date relative performance an elevated outflows over the past couple years, and for that fund, as well as strong demand it seems like the industry actively manage international or global equity strategy, is there been any discussion about reopening that fund to new investors?

We've definitely seen that the cycles, if you go back on the last 3, 4, 5 years of the international growth strategies flows, we had a large inflow. A few years back then you saw quite a few intermediary essential research take a step back from the EC exposure, you’re starting to see that balance out. But when we look over the he longer timeframe outflows and not just year-to-year flows, we still feel that there is an elevated AUM in that strategy. And furthermore given the soft closed nature there is still an ability with a lot of the intermediaries and larger clients that they can add to their current position, given the nature of flows and the soft closed and ability to take on money, we have not the made any indications of opening that strategy. And further like all of our team, especially our mature teams, we've added a more higher degree freedom strategy in all of our teams and the global equity strategy has the significant capacity that can grow and we have to take that into account if that does move forward how that impacts international growth strategy as well.

Okay. Thanks. That’s helpful.

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

Thanks. Thanks for taking my question. Just on curious, I mean, you mentioned I guess in the past quarter or so, you can start two private funds, one in credit one in Thematic, I am just kind of curious as to I mean the structure of those, I am assuming those are kind of a committed - those more of committed capital, broadband type structures that distribute - if those are structures and if you kind of raise capital that –for any those that hasn't get shown up in that?

Sure. Rob, its Eric. I mean, our private funds, we cant get too much into the details, but now they are - you know, traditional came master theatre [ph] funds. Our goal here is really to differentiate on our investment results in the portfolio and we don't expect to really differentiate our space – our sales based on a vehicles. So that is very much in line of the traditional Cayman [ph] structure.

Okay. And as credited its three year numbers, you know which are pretty good, I mean, are you noticing any kind of pick up in institutional activity around that, I mean, obviously leading up to and having it, is what you would hopefully hit three-year number starting to transpire?

I think we’ve clearly been happy with the growth in the high income strategy, I think specific to the institutional channel, we’d like to see some more growth there, but we understand where the spreads are at and given last year's returns, clients have been somewhat cautious on their high-yield allocations. And as we see the replacement cycle or opportunities come to the forefront, we expect it will be on the top the list against our peers.

Okay. That’s all I had. Thanks for taking my question.

And our next question today comes from Bill Katz of Citigroup. Please go ahead.

Okay. Thanks very much and I apologize I joined the call a bit late. So a lot going on in the industry. Eric, you may have covered this in your prepared remarks, again I apologize up front. And its throughout the question, on the private funds is there anyway we could think about just any kind of aspirational sizing of these are recognize in a marketing period perhaps now. But anyway we just try and sort of scale this, and we should think about the income opportunity?

It's hard to predict that, I’d be very hesitant to give out a number on the private funds and what our expectations are. Obviously, we expect them to be more limited than our traditional strategies, given the liquidity in the nature of these funds. And we expect that we would have more diversification across strategies to take advantage of opportunities in the marketplace. So no set numbers to throw out for capacity.

Got you. Okay, just a second question for you, just looking at your grow sale trends now over while, actually contrasting that against continue to be some very good long-term performance metrics. What strategy, if anything do you have to potentially increase any kind of spend to amplify growth? How should we think about that trade-off?

The growth has been occurring outside the US for us. We have hired two new individuals in our London office, one focus more on the Northern Europe and the other individual a little bit more focused on the institutional UK market. We are starting to see a pick up in many of our business leaders in outside the US as well. And so that has helped diversify the firm. I think, will go a little bit deeper outside the US into the intermediary space, which we historically have not spent an enormous amount of time, working in the various platforms of Europe and to the spend and travel we focused in those areas and a little bit more emphasis on the wealth channel in the US, which is to be difficult to show up in the intermediary or the institutional, given the hybrid nature of endowments, the family offices to high net worth individuals. But more attention in that space as well, given the alignment with our degrees of freedom and private vehicles.

Okay. Just last one from me. C.J. you may had this in your prepared remark as well, just in terms of on the balance sheet, the tax receivable, how much is left and how you think about as you approach year end?

How much is – what you mean how much is left?

How much cushion do you have beyond and so cash flow from operations that might feed into the year end dividend is the question?

Okay, okay. Yeah, it’s not mature, I think we said we held back to a few million from last year on the dividend just to be conservative. So, going into year end obviously AUM has been better than we would have anticipated due to both know alpha and beta. So were tracking quite nicely towards that year end dividend, but our special dividend, but it was still just six months ago. So I am not making predictions. But we’re on track and a little ahead of it.

Okay. Thank you very much.

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

Hey. Good morning, guys. Just given that it feels like the overall sentiment around the active casing [ph] to be relatively better than what was 12 months ago. I was wondering if you’re seeing any of this reflected in the conversations that you're having with either distributors or your institutional clients, especially as you begin to roll out in your strategy?

Yes. Hi, Ari. Its Eric. I think the overall sentiment is still muted overall with regards to the broad active passive. However, its a different conversation with the newer strategies because they are highly differentiated from traditional strategies and I think you also a little bit more excitement around new strategies. So those conversations going to bring up the past development because its so differentiated that its not a debate. I’d say it’s a mix result right now and given the strong performance, we expect to see a better outcome going forward. But those don't show up instantly when you operate in the institutional marketplace or institutionally oriented marketplace, whether its committees and process in place that takes time to play out versus a six-month trend in performance.

That's helpful. And then real quick, some of your peers have been calling out high projected expenses, partially related to technology and regulation. So just wondering if you’re seeing any of these like similar needs, added that changes your expense outlook for the second half this year?

Yes. I know I don't figured changes in our outlook for the rest of the year. I mean, we have you know, if you followed our technology spend over the last couple years, we have begun and have you know, picked up, that's been quite meaningfully. So as we look out for the rest of the year, I think you know our spend, you know this quarter is fairly representative. Although, our G&A was up a bit because Eric mentioned the investment forum we put on, so that’s slightly higher than we would expect are ongoing, but the rest of our expense line at least on a fixed cider - our expectation to be pretty consistent.

Great. Thank you.

And our next question today comes from Kenneth Lee of RBC. Please go ahead.

Thanks for taking my question. Just had a follow-up question on the on the private funds, given the quality that you guys have in terms of leverage, a ability short and illiquidity, is it fair to say that these kind of products are going to competing against traditional and alternative investment strategies.

Sorry, Ken, what was the last part, they are going to be competing against traditional?

Competing against alternative investment strategies?

Yeah, they will be competing in the long short or the credit long short in the alternative space, that's where we expect the competition to bear out, that would be our mindset.

Got you. And just one final bid, in terms of the underlying economic, I mean, should we expect more like performance fees, or any other differences with these kind of vehicles?

Certainly, maybe this will operate in the traditional private structure management based management fee and performance based fee will be seen in these vehicles.

Got you. Okay. And just one final question, just a bit of housekeeping, in terms of the comp expenses, what kind of trajectory should we expect for the second half of the year? That’s it.

Yeah. Well, as you know, the majority of our comp expense is a variable in nature. So that's going to fluctuate with the revenue levels. The equity-based comp, which is a significant - the other significant component, we do our grants in January of each year. So you'll see a similar expense instance since the grant happened this past January.

Okay. Great. Thank you very much.

And our next question comes from Surinder Thind of Jefferies. Please go ahead.

Hi, guys. Just following up on an earlier question about you know, expenses, my question relates to kind of when we look across the industry, there has been some elevated activity and part of that is actually looking at or exploring investment capabilities or enhancing those related to lets say big data or AI. So from Eric from your perspective, is this something that you need to give serious consideration to or this just something more of pad and then related to that like what conversations if any are you having with your investment teams around these topics and maybe any feedback you’ve gotten from them would be helpful?

Sure, Surinder and its a topic that comes up with various teams, not all teams, that you know, data usage has been increasing, how to sift through and analyze that data and then how to bring that the bear and decision-making, those are the discussions we have with some of our investment teams. We have been building out data over time. We have data governance team, that we put in place the few years back. We had some spends on various functions in our technology group and within teams to help manage and sift through that data and we're getting feedback from our investment teams on the value of that information and decision-making. So that is been feeding through the firm over time, I think, will increase you know, the stands and interest in that area at a pace that's been in place for the last couple years, which is even into that. What we won't do is back the truck up and say we’re going to compete with the quant [ph] and try to figure out AI and hope that it works. We’re looking for a strong feedback loop from our investment teams and a value propositions to end client and until that services will just keep a little bit more consistent spend it in that space.

Understood. And then you also related to that, mentioned that there's maybe a few teams at quant [ph] kind of looking at these topics, is that simply situational in the sense that their investment process might be sufficiently differentiated or there's just not me that opportunity in that space. It just seems that this is kind of the topic to assure that everybody is talking about at this point.

I think its highly dependent on the investment philosophy process and strategy you know, on how much you value information flow for decision-making and that marginal information flow tends to lean a little bit towards a growth oriented investors and not all investment teams are going to trade on that marginal information and other investment teams are really looking for the bulk of their alpha coming from unwinding a discount in the investment they've made. So, I don't expect all teams are going to go towards this and this goes back our belief that there's a lot of different ways to make money, lot of different ways to structure investment teams and given people the freedom to execute on that is our model and its worked multiple time.

Got it. And then touching on an earlier topic about just international clients being a primary source of growth and I think you mentioned that in the past as well. It is simply a geography issue in the sense that you just have less penetration overseas or is it simply that there is much more institutional demand from overseas clients versus US clients for your products?

Its more of the latter, as we talk about on this call and other calls, we've seen a strong reduction in the number of publicly traded securities. We've opted for degrees of freedom, which would mean using more global oriented products or moving into the private funds space, so that we can use more Ill-liquid source synthetic securities to deliver return and manage risk. Our first phase and degrees of freedom was the global oriented strategies and there is just a much higher demand outside the use for global strategies, as opposed to the US for many of the advisors and intermediaries still breakdown the world with domestic and non-US mandates, until you see a higher interest in demand by US pools of assets for global strategies, we would expect the demand to continue outside the US, given our product mix.

Got it. And then maybe one other quick question here, just on the Thematic team, perhaps the comparisons are not quite fair, but both high income and developing world just though since you started running right out of the gate, is Thematic simply a harder strategy to sell than perhaps more mainstream or these other strategies that were more easily described. Just may be any color on the conversations you might be having with you potential clients that you trying to sell Thematic?

The real difference there is Brian Krug and Lewis Kaufman both came from established organizations with mutual funds and a publicly available track record. So connecting the dots is a lot easier for consultants and intermediaries, given their history, while Chris Smith has a great track record, and with strong firms in the alternative space, it will be a little harder for people to connect dot, but the performance will come through which we’re starting to see now and we expect a little bit slower build with Thematic than we did with both developing world and credit.

Thank you. That's helpful. That's it for me.

And thank you. This includes this question -and-answer session, as well as today’s conference call. We thank you all for attending today's presentation. You may now disconnect your lines. And have a wonderful day.