Hello and thank you for standing by. My name is Kerrie, and I will be your conference operator today. [Operator Instructions] As a reminder, this conference call is being recorded.At this time, I will turn the call over to Makela Taphorn, Director, Investor Relations for Artisan Partners Asset Management.

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.Our latest results and investor presentation are available on the Investor Relations section of our website. Following these remarks, we will open the line for questions.Before we begin, I’d like to remind you that comments made on today’s call including responses to your questions, may deal with forward-looking statements, which are subject to risks and uncertainties. These are presented in the earnings release and detailed in our filings with the SEC. We are not required to update or revise any of these statements following this call.In addition, some of our remarks made today will include references to non-GAAP financial measures. You can find reconciliations to 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 everyone for joining the call or reading the transcript. As in the past I will use this second quarter call to discuss our talent driven business model, which is core to who we are as a firm.Artisan Partners provides a unique platform for investment talent. We provide stability, support, transparency, predictability and time. We are also extremely flexible. Established investors and teams evolve over time. New individuals and teams enter the markets with fresh perspectives, what they want and need changes over time.As a firm our structure and culture, allow for change while maintaining the discipline and alignment necessary to deliver for clients. In our earnings release, we reviewed three recent examples of the flexibility in our model.Last year Rezo Kanovich joined our firm to manage what is now the Non-U.S. Small-Mid Growth strategy. Rezo and his analysts operate within the Global Equity franchise, but they have control of their philosophy, process, research and decision-making. They own their strategy and at the same time collaborate with a larger group of likeminded peers without the responsibility of managing a larger entity.Also, last year we evolved our Global Value team into two separate teams, Global Value and International Value. The division was driven by the buildup of high quality talent, a good problem to have. With increased space for that talent to grow and thrive we disrupted ourselves. We knew that consultants and clients would struggle to compare this reorganization to other industry examples, but that’s because our structure is uniquely focused on managing talent over the long-term.A third example of talent evolution within our model is Jason White on the Growth team. Jason joined Artisan out of the United States Navy in 2000. He was promoted to Associate Portfolio Manager in 2011 and Portfolio Manager…

Thanks, Eric. Financial highlights for the quarter and year-to-date are on Slide 6. I will focus my comments on adjusted results, which we utilized to evaluate our business results and operations.In summary, we ended the June 2019 quarter with AUM of $113.8 billion, up 6% from the March 2019 quarter. Average AUM for the quarter was up 5%, along with performance fees grew revenues 7% to $200.7 million. Expenses were flat compared to last quarter, reflecting higher variable costs and lower seasonal and occupancy expenses relative to the March 2019 quarter. Our operating margin improved 440 basis points to 35.3% and adjusted net income per adjusted share was $0.67, up 22% compared to the March 2019 quarter.Results for the six-month period reflect lower average AUM, following the sharp decline in global equity markets in the fourth quarter of 2018. Average AUM for the six-month period was $107.6 billion, 8% lower than the prior year six-month period. Revenues were down 9%. Expenses declined 2%, reflecting lower variable expenses to partially offset by increased costs related to investments in occupancy, technology and an increased number of full time employees.Our year-to-date operating margin was 33.2% in 2019 compared to 37.4% in 2018. And adjusted net income per adjusted share was $1.22 down from $1.53 for the same year-to-date period in 2018. Our Board of Directors approved a quarterly variable cash dividend of $0.60 per share, which represents approximately 80% cash generated during the quarter. Year-to-date, we have declared quarterly dividends of $1.15.Assets under management and net client cash flows are on Slide 7. AUM at the end of June 2019 quarter was $113.8 billion, up $6 billion or 6% from the March 2019 quarter, basically flat compared to the June 2018 quarter.Rising global equity markets and strong excess returns generated across our investment…

[Operator Instructions] The first question will come from Dan Fannon of Jefferies & Co.

Thanks. Good morning. I guess, as you look at your performance and the strength that you’re seeing year to date and on longer term basis, and then we look at flows, you’re not necessarily translating. I guess, my question is on distribution and the resources that you have allocated to that part of your business. If you feel like there’s enough – there’s more investment that needs to be made to kind of take advantage of what’s happened in terms of the performance you have or if there’s other changes that have gone on that maybe you could highlight that you’re either working on or looking at to maybe improve the momentum in growth sales.

Hi, Dan, it’s Eric. Certainly the performance has been stellar year to date as well as long-term. And I think everybody wants to translate by specifically the flows as the most success for an Asset Manager. And we think controlling flows, we think managing capacity and delivering excess return as we stated in the call, is aligning with clients as best as we can. When we look at from a flow perspective, we’re going to maintain those disciplines of capacity and that also translate to a fee discussion. So there’s a lot of opportunities that we could win with these performance numbers, if we want to play at the lowest fee spectrum. We have decided to play in the medium to upper fee perspective and compete with clients that want a long term performance outcome that we present.So the biggest negating fact right now is the fee discussion and you’ll see it probably on go forward basis, it’s an uptick maybe on performance based fees. I think to compete on a go forward or might be a little bit more flexible when it comes to the vehicle choice, which we have been adding some share classes to our UCITS. We’ve been adding some CIT to some strategies. And those are just more flexible delivery vehicles. I think in the future you might see an active ETF, the non-transparent ETF that’s being discussed that also provides a more flexible vehicle. And for some strategies, you could see a more model delivery or holding base delivery. So those would be the areas on a go forward basis that may translate to more flows. But I would say, the number one factor is being more disciplined on the capacity and fee factors.

Great. That’s helpful. And I guess, just C.J. on expenses, just thinking about, the remainder of this year, if there’s anything that you would kind of highlight in terms of rate of change and then I know it’s early, but 2020, like what’s outside of compensation or kind of what’s the rate of growth? Or what we should be thinking about for the other line items?

Yes, I think the previous guidance I’ve given on some of the categories remains intact. As you know, we had occupancy charge in the first quarter of which uptick there. Our occupancy line item in Q1 and then this quarter, we had a little bit of double rent. So that’s on target to be in the $22 million to $23 million range for a full year, including those charges. And then communication and technology, I think we guided to 41-ish on a full year and as we know that fluctuates, quarterly a little bit just with where projects are. And that guidance still remains on targets. So really no upticks and it’s – so in 2020, I’d say, it’s a little early. But at this point, we don’t anticipate anything major that I’d be able to call out.

The next question will come from Bill Katz with Citigroup.

Okay. Thank you very much for taking the question this morning and appreciate the slide that shows the glide path of some of the newer teams roll through some of the historical ones. So on that page specifically, I guess two questions. What do you think is driving the more rapid adoption of the newer teams and then as you sort of play that slide through when I’m speaking Slide 5, what do you think is the end state for those teams? Because if you look at the on the right hand side that, five years out the central tenets and you can wave out $5 billion per team. So it’s kind of skews, is there more just capacity for these teams now within your notion of trying to maintain alpha and fee rates? Thank you.

Yes. Hi, Bill, it’s Eric. I think we credit the earlier adoption in that first three years just to Artisan’s brand in the marketplace. If you go back into some of those strategies and the mid-90s and we’re just starting to build our presence. And it was primarily in the institutional marketplace, which usually required a three-year track record. Given the footprint of the organization now and its breadth into the intermediary space and financial advisors to broker dealers, we’re getting a bit more earlier adoption there. On the flip side there, I mentioned in my points there that the beauty of the institutional marketplace after the three-year market – three-year track record in playing in the structured categories of the 1990s and early 2000s of style at market cap.Once you succeeded in that category, it was a fairly homogenous marketplace. It create a wrap it up tech. So that did I think mute some of the three, four, five years spikes that you might see in our current earlier newer strategies today. I would also say that these lines are by product, not by team. So some of these products today that are on the early stage are $10 billion, $15 billion and $20 billion products and then they roll up into teams that have two, three, four strategies. So there’s quite a bit of capacity within strategies as well as in teams to grow this out to the future.

Okay. That’s helpful. And then just one follow-up question, thanks for taking all the questions. So you’ve mentioned a variety of sort of more flexible products. Presuming that on pricing, but maybe that’s not correct, so when you – when you speak to greater flexibility, is that breadth of the mandate and or how you structure the fee rate? If you could just expand on that’d be helpful? Thank you.

My primary point on that was the flexibility of the vehicle, the mutual fund (40 Act) is a very rigid vehicle. When you think about how you operate with individual accounts, or how you operate with restrictions, such as ESG factors, it makes it very difficult to operate and customized to a specific client. So the flexibility is across the spectrum of being able to have a – and either platform or, and solutions based provider or take into account tax are taken into account ESG. And so it’s beyond price in my mind.

The next question will come from Kenneth Lee of RBC Capital Markets.

Hi, good morning. Thanks for taking my question. Just a follow-up one on the potency to expand distribution. I think in the past, you’ve mentioned potential areas to expand distribution include non-U.S. clients, registered investment advisors as well as wealth management platforms. Just want to gauge what the progress is in terms of expanded distribution within those channels and whether you would necessarily need to add some distribution capability in order to further access those channels. Thanks.

Yes. We continue to look at expanding distribution outside the U.S. I think you’ve seen our assets and client base grow over the years. We think the product mix we have today fits very well for a global client. The distribution efforts outside the U.S. we continue to expand deeper into the intermediary and wealth channel and trying to partner with banks and various open architecture platforms in primarily in Europe. We also are expanding into a broader footprint.So we’re not only going deeper, but we’re also going broader into various countries. And so we will see additional resources be applied to non-U.S. distribution and two forms one, be a slight uptick and headcount over the next 12 months, but also a greater focus on using digital marketing to capture that broader – that broader client base.

Got you. Very helpful. And one follow-up if I can. What’s the latest outlook in terms of a potential for new investment team additions? Which strategies could be potentially interesting a longer term? Thanks.

Right. Right now we have nothing to announce on new strategies or teams. We always have an active dialogue with our existing teams of being mindful of talent percolating up within the teams or ideas they may have to broaden their degrees of freedom to provide alpha to clients. And that’s our primary use of time. And in the external marketplace, we have a very active dialogue with a broad array of strategies. It’s – I think a very disruptive market right now when you look at trying to launch your own firm in – the regulatory environment is making it difficult, the distributions making it difficult, and Artisan is provided a very successful home for investors’ careers. And I think the performance page highlights that success. And so we continue to see a pretty active flow of new talent knocking on our door.

Got you. Very helpful. Thank you.

The next question will come from Chris Shutler of William Blair.

Good morning. Want to follow-up on the sales pipeline. I was pleasantly surprised to see the International SMid growth see some separate account flows so quickly. Also, Global Discovery, Global Equity, I think saw some separate account flows, so which is seemed to overdo given the really good performance. So maybe just, Eric, could you talk about that the sales pipeline for those products in more broadly?

Yes. Those strategies are all fairly early in their life cycle. We’re pleased with the growth we’re seeing. And the early adoption, I think it was mentioned earlier to see these early strategies growing at a slightly higher rate than we’ve seen in past strategies at this point in time. Really, the focus in these first few years is making sure that we have the right resources and the right foundation, so that we can deliver the numbers versus trying to run around the world and capture every asset out there to grow these as quickly as possible.Our goal first and foremost is to make sure these teams have a solid footing that they have the resources to deliver alpha; and if we deliver alpha, especially in a world today, where information is readily available, that assets will come, especially, the right clients on the right terms. So, we’re pleased that the growth of these early strategies and the separate accounts that you specifically, I think is, we see as a positive in the marketplace right now.

Okay. And, C.J., just one quick one for you, the stock comp, could you give us your expectations for the back half and 2020?

Yes. I think we’ve outlined that in the past, but when equities calm, we’ll see a bit of it downtick in the next two quarters, because we do our grant in January and then there will be another grant in January 2020, which we had another layer of column – of comp expense amortization. But there’ll be a layer rolling off, so whether that’s additive or subtractive of where we are remained to be seen based on the size of the grant and the value of our stock at the time of the grant when it’s valued.

All right. Thank you.

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

All right. Good morning and thanks for taking the question. I just have one. Most of the performance records in the newer strategies are impressive that you highlighted particularly, relative to the benchmark. Eric, I think in the past you discussed, different degrees of freedom as drivers. So, just a few questions around that.Can you provide some like attribution, maybe the drivers of the outperformance, whether it’s between like sector or security selection within the benchmarks as well as a way from the benchmarks? And then when you get away from the benchmarks, how do you guys think about managing either like concentration, risk, liquidity risk, just any of the things that are maybe different in these strategies.

Certainly, the attribution is primarily coming from stock selection or security selection when we look across into the strategies. You mentioned the second part of your question with regards to concentration the more and more of our strategies see greater concentration in the top 10 and top 20 securities. And so we do see a much higher active share in our strategies versus the peer group that is by design that we’re seeking strategies of the highly differentiated.And in some cases, there’s a security or two that goes out of region or goes out of market cap and we encourage that flexibility within the strategies. And with regards to your comment on liquidity, these are all liquid securities. We’re not playing in the private markets and putting illiquid securities or private securities inside of a daily priced and liquid vehicle. So, the flexibility is really in the concentration side.

Okay. That’s helpful. Thanks a lot.

The next question will come from at Robert Lee of KBW.

Yes. Hi, thanks for taking my question. So just maybe real quickly trying to tie a couple things together. So, in talking about some of the potential new product delivery vehicles and some of the incremental investments may be in distribution outside the U.S. and as we think about that and maybe, over the next year or so, how should we – and maybe with C.J. following up to an earlier question, think about that if at all, as we think about kind of expense trends beyond this year maybe, into next year, should we still be thinking that, hey, just kind of inflation rates are reasonable growth rate or is there enough going on that maybe, the additional upward pressure on expense levels as we look beyond this year and more of those things come online. And then just one follow-up question after that.

Yes, Rob. It’s Eric. I’ll take the first part and give the second the C.J., but – as you see in the past with Artisan has a real view that we have to see a real durable distribution trend. And when we see that trend, we’ll glide into that. We don’t see distribution as a first mover space. If you get the performance right, it’s getting into the right channels into the right clients and that doesn’t happen overnight. This is a relationship business at the end of the day. And so we’ll glide into these vehicles and these two new territories as opposed to exploding in term and surprising anybody on any expenses, but I’ll let C.J. hit the expense side.

Hey, Rob. I think inflationary, pluses a little bit slight uptick in the areas that Eric mentioned is the way to think about it. I mean we’re talking about a slight uptick and head count, not a major invasion into a region, where are we going to put a lot of boots on the ground and incur a ton of costs. We’re also, during these periods, trying to be very mindful of expenses. So, we’re trying to manage as we always have balancing revenue generation with expenses. So that’s typically been our philosophy in the service as well. So, I think you’ll see gradual upticks and until we’re successful on the distribution side, we typically don’t really put the infrastructure in place. We use a fly-in/fly-out model up until then. So, bottom line is, I think inflationary plus slight uptick, based on the areas that Eric mentioned.

And this may be quick follow-up in me and kind of maybe the inevitable capital question, but do you look at some introducing new vehicles, different vehicles, also kind of like continued share creep. Any update on kind of maybe how you’re thinking about capital usage. Will some of these vehicles, I know some distributors on some vehicles do require more seed capital and then, if it’s a new vehicle and do you see that is increasing potentially use, and kind of maybe, thoughts about why not – particularly since the stocks, certainly well off, it ties, but why not, think about more kind of at least the buyback enough stock to immunize share account, because I guess with share creep you could kind of argue that it’s kind of taking away some of the alpha generation from underlying performance is kind of shares keep creeping up.

Rob, I think that the first part is, I think there’s two questions in there. One on the use of capital for vehicles, we really try to work with our clients and partners on what’s the right vehicle that’s in demand for them. And if they have a demand, then we’ll work with them to launch that and work with them on funding both with a modest amount of capital from artists and they’re primarily coming from an a client that’s seeking that as opposed to launching an array of share classes in vehicles and hoping that prospective clients, fund those vehicles.I think we’ve seen a lot of funding of vehicles over the years by various firms that just languished there overtime. And really, we like to partner with clients and find out what are their needs. And if we have a massive uptick of adoption of an active ETF, then we clearly will start bringing that to market to satisfy those clients that want that vehicle. And that’s how we look at launching new share classes or vehicles. So, I wouldn’t expect a massive uptick and capital needs for vehicles.

Yes. In fact, we have – we have more use of our balance sheet for seed investment now than we’ve ever had, and we keep that $100 million of excess cash on the balance sheet. And that’s what we use to deploy for a seed when we need to. Back to your share repurchase question, we revisit this every so often with the board and each time we do, we sort of get back to, we like our current policy, and we value transparency and predictability. We value avoiding mistakes. We’ve seen a lot of mistakes made over the years and share repurchase programs, and we ultimately view our decision to grant equity to our employees as a separate decision apart from weather, we should buy back stock.So, we obviously have an equity culture, always have as a partnership and it’s important to us to continue to reinvest in the talent that drives the business. And then on the share repurchase, we like utilizing cash to pay a cash dividend. And if you extrapolate out, we’re still running around at 10% dividend yield, which is quite attractive and we think, it goes a long way to supporting the share price.

Great. Thanks for taking my questions.

And ladies and gentlemen, this concludes today’s question-and-answer session. And this also concludes today’s conference call. Thank you all for attending today’s presentation. You may all disconnect your lines. Have a great day.