UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

~~Form~~
~~10-Q~~

(Mark One)

þ☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2019~~2020

o☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-35826

Artisan Partners Asset Management Inc.

(Exact name of registrant as specified in its charter)



Delaware			45-0969585
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

875 E. Wisconsin Avenue, Suite 800 ~~Milwaukee, WI~~		~~53202~~
Milwaukee,	WI	53202
(Address of principal executive offices)			(Zip Code)

(414) 390-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	APAM	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ☑ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange ~~Act. (Check one):~~

Act:

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~ þ

~~Accelerated filer~~ o

~~Non-accelerated filer~~ o

~~Smaller reporting company~~ o

Emerging growth company

o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ☑

The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share, and Class C common stock, par value $0.01 per share, as of April ~~26, 2019~~24, 2020 were ~~56,076,459, 7,974,456~~60,647,331, 5,980,743 and ~~13,763,806,~~11,962,349, respectively.

~~TABLE OF CONTENTS~~

Table of Contents

TABLE OF CONTENTS

	~~Page~~
~~Part I~~		~~Financial Information~~	Page
Part I		Financial Information
Item 1.		Unaudited Consolidated Financial Statements
		Unaudited Condensed Consolidated Statements of Financial Condition as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	1
		Unaudited Consolidated Statements of Operations for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019	2
		Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019	3
		Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019	4
		Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019	5
		Notes to Unaudited Consolidated Financial Statements	6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	3536
Item 4.		Controls and Procedures	3536
Part II		Other Information
Item 1.		Legal Proceedings	3637
Item 1A.		Risk Factors	3637
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3637
Item 3.		Defaults Upon Senior Securities	3637
Item 4.		Mine Safety Disclosures	3637
Item 5.		Other Information	3637
Item 6.		Exhibits	3637
		Signatures	3738

Except where the context requires otherwise, in this report, references to the “Company”, “Artisan”, “we”, “us” or “our” refer to Artisan Partners Asset Management Inc. (“APAM”) and its direct and indirect subsidiaries, including Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”). On March 12, 2013, APAM closed its initial public offering and related corporate reorganization. Prior to that date, APAM was a subsidiary of Artisan Partners Holdings.

Forward-Looking Statements

This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements regarding future events and our future performance, as well as management’s current expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements within the meaning of these laws. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. Forward-looking statements are only predictions based on current expectations and projections about future events. Forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance, actions or achievements to differ materially from the results, level of activity, performance, actions or achievements expressed or implied by the forward-looking statements. These factors include: the loss of key investment professionals or senior management, adverse market or economic conditions, poor performance of our investment strategies, change in the legislative and regulatory environment in which we operate, operational or technical errors or other damage to our reputation and other factors disclosed in the Company’s filings with the Securities and Exchange Commission, including those factors listed under the caption entitled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~20, 2019, which is~~18, 2020, as such factors may be updated from time to time. Our periodic and current reports are accessible on the SEC’s website at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report, except as required by law.

Table of Contents

Forward-looking statements include, but are not limited to, statements about:

•our anticipated future results of operations;

•our potential operating performance and ~~efficiency;~~efficiency, including our ability to operate under different and unique circumstances;

•our expectations with respect to the performance of our investment strategies

•our expectations with respect to future levels of assets under management, including the capacity of our strategies and client cash inflows and outflows;

•our expectations with respect to industry trends and how those trends may impact our business;

•our financing plans, cash needs and liquidity position;

•our intention to pay dividends and our expectations about the amount of those dividends;

•our expected levels of compensation of our employees, including equity compensation;

•our expectations with respect to future expenses and the level of future expenses;

•our expected tax rate, and our expectations with respect to deferred tax assets; and

•our estimates of future amounts payable pursuant to our tax receivable agreements.

Table of Contents

Part I — Financial Information

Item 1. Unaudited Consolidated Financial Statements

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Condensed Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except per share amount)
March 31,
2019 December 31,
2018
ASSETS
Cash and cash equivalents $ 152,217
$ 160,463
Accounts receivable 79,256
67,691
Investment securities 20,671
18,109
Property and equipment, net 32,531
29,138
Deferred tax assets 428,704
429,128
Restricted cash 629
629
Prepaid expenses and other assets 12,898
13,674
Operating lease assets 95,911
—
Assets of consolidated investment products
Cash and cash equivalents 2,152
14,443
Accounts receivable and other 3,547
5,566
Investment assets, at fair value 77,994
66,173
Total assets $ 906,510
$ 805,014
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other $ 17,511
$ 27,221
Accrued incentive compensation 61,323
12,689
Borrowings 199,338
199,296
Operating lease liabilities 107,487
—
Amounts payable under tax receivable agreements 374,744
369,355
Liabilities of consolidated investment products
Accounts payable, accrued expenses, and other 8,130
4,712
Investment liabilities, at fair value 8,480
16,905
Total liabilities 777,013
630,178
Commitments and contingencies

Redeemable noncontrolling interests 36,547
34,349
Common stock
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 55,626,061 and 54,071,188 shares outstanding at March 31, 2019 and December 31, 2018, respectively) 556
541
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 7,974,456 and 8,645,249 shares outstanding at March 31, 2019 and December 31, 2018, respectively) 80
86
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 14,216,435 and 14,226,435 shares outstanding at March 31, 2019 and December 31, 2018, respectively) 142
142
Additional paid-in capital 69,471
97,553
Retained earnings (deficit) 21,191
38,617
Accumulated other comprehensive income (loss) (1,658 ) (1,895 )
Total Artisan Partners Asset Management Inc. stockholders’ equity 89,782
135,044
Noncontrolling interest - Artisan Partners Holdings 3,168
5,443
Total stockholders’ equity 92,950
140,487
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity $ 906,510
$ 805,014
ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Condensed Consolidated Statements of Financial Condition

(U.S. dollars in thousands, except per share amount)


	March 31, 2020		December 31, 2019

ASSETS
Cash and cash equivalents	$	170,749	$	134,621
Accounts receivable	96,712		81,868
Investment securities	4,865		23,878
Property and equipment, net	38,782		39,495
Deferred tax assets	466,973		435,897
Restricted cash	629		629
Prepaid expenses and other assets	12,957		12,688
Operating lease assets	84,395		87,155
Assets of consolidated investment products
Cash and cash equivalents	6,646		9,005
Accounts receivable and other	1,655		1,647
Investment assets, at fair value	89,631		106,736
Total assets	$	973,994	$	933,619

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other	$	18,869	$	19,926
Accrued incentive compensation	70,046		16,159
Borrowings	199,148		199,103
Operating lease liabilities	97,793		101,154
Amounts payable under tax receivable agreements	406,177		375,324
Liabilities of consolidated investment products
Accounts payable, accrued expenses, and other	30,335		34,156
Investment liabilities, at fair value	3,655		6,186
Total liabilities	826,023		752,008
Commitments and contingencies
Redeemable noncontrolling interests	37,223		43,110
Common stock
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 60,647,331 and 56,429,825 shares outstanding at March 31, 2020 and December 31, 2019, respectively)	606		564
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 5,980,743 and 7,803,364 shares outstanding at March 31, 2020 and December 31, 2019, respectively)	60		78
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 11,962,349 and 13,568,665 shares outstanding at March 31, 2020 and December 31, 2019, respectively)	120		136
Additional paid-in capital	86,224		89,149
Retained earnings	21,294		44,455
Accumulated other comprehensive income (loss)	(2,475)		(1,425)
Total Artisan Partners Asset Management Inc. stockholders’ equity	105,829		132,957
Noncontrolling interests - Artisan Partners Holdings	4,919		5,544
Total stockholders’ equity	$	110,748	$	138,501
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity	$	973,994	$	933,619

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Operations
(U.S. dollars in thousands, except per share amounts)
For the Three Months Ended March 31,
2019
2018
Revenues
Management fees $ 186,864
$ 211,966
Performance fees 98
42
Total revenues $ 186,962
$ 212,008
Operating Expenses
Compensation and benefits 99,282
105,224
Distribution, servicing and marketing 5,403
7,009
Occupancy 7,567
3,925
Communication and technology 9,428
8,660
General and administrative 7,550
7,204
Total operating expenses 129,230
132,022
Total operating income 57,732
79,986
Non-operating income (expense)
Interest expense (2,775 ) (2,776 )
Net investment gain (loss) of consolidated investment products 2,346
6,285
Net investment income 1,957
454
Total non-operating income (expense) 1,528
3,963
Income before income taxes 59,260
83,949
Provision for income taxes 9,442
12,285
Net income before noncontrolling interests 49,818
71,664
Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings 17,309
26,052
Less: Net income attributable to noncontrolling interests - consolidated investment products 970
4,338
Net income attributable to Artisan Partners Asset Management Inc. $ 31,539
$ 41,274

Basic and diluted earnings per share $ 0.47
$ 0.75
Basic and diluted weighted average number of common shares outstanding 50,145,684
47,360,438
Dividends declared per Class A common share $ 1.59
$ 1.39

ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Operations

(U.S. dollars in thousands, except per share amounts)


	For the Three Months Ended March 31,
	2020		2019
Revenues
Management fees	$	199,904	$	186,864
Performance fees	2,932		98
Total revenues	$	202,836	$	186,962
Operating Expenses



Compensation and benefits	104,717		99,282
Distribution, servicing and marketing	5,548		5,403
Occupancy	5,189		7,567
Communication and technology	9,205		9,428
General and administrative	7,217		7,550
Total operating expenses	131,876		129,230
Total operating income	70,960		57,732
Non-operating income (expense)
Interest expense	(2,685)		(2,775)
Net investment gain (loss) of consolidated investment products	(12,924)		2,346
Other net investment gain (loss)	(2,257)		1,957


Total non-operating income (expense)	(17,866)		1,528
Income before income taxes	53,094		59,260
Provision for income taxes	9,451		9,442
Net income before noncontrolling interests	43,643		49,818
Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings	16,112		17,309
Less: Net income (loss) attributable to noncontrolling interests - consolidated investment products	(7,294)		970
Net income attributable to Artisan Partners Asset Management Inc.	$	34,825	$	31,539

Basic and diluted earnings per share	$	0.53	$	0.47
Basic and diluted weighted average number of common shares outstanding	53,265,479		50,145,684
Dividends declared per Class A common share	$	1.28	$	1.59

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
For the Three Months Ended March 31,
2019 2018
Net income before noncontrolling interests $ 49,818
$ 71,664
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss) 378
632
Total other comprehensive income (loss) 378
632
Comprehensive income 50,196
72,296
Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings 17,449
26,291
Comprehensive income attributable to noncontrolling interests - consolidated investment products 970
4,338
Comprehensive income attributable to Artisan Partners Asset Management Inc. $ 31,777
$ 41,667

ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Comprehensive Income

(U.S. dollars in thousands)


	For the Three Months Ended March 31,
	2020		2019
Net income before noncontrolling interests	$	43,643	$	49,818
Other comprehensive income (loss), net of tax




Foreign currency translation gain (loss)	(1,242)		378
Total other comprehensive income (loss)	(1,242)		378
Comprehensive income	42,401		50,196
Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings	15,920		17,449
Comprehensive income (loss) attributable to noncontrolling interests - consolidated investment products	(7,294)		970
Comprehensive income attributable to Artisan Partners Asset Management Inc.	$	33,775	$	31,777

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(U.S. dollars in thousands)
Class A Common stock Class B Common stock Class C Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interest - Artisan Partners Holdings Total stockholders’ equity Redeemable non-controlling interest
Balance at January 1, 2019 $ 541
$ 86
$ 142
$ 97,553
$ 38,617
$ (1,895 ) $ 5,443
$ 140,487
$ 34,349
Net income —
—
—
—
31,539
—
17,309
48,848
970
Other comprehensive income - foreign currency translation —
—
—
—
—
262
116
378
—
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax —
—
—
(91 ) —
(25 ) 116
—
—
Amortization of equity-based compensation —
—
—
8,990
—
—
3,359
12,349
—
Deferred tax assets, net of amounts payable under tax receivable agreements —
—
—
1,679
—
—
—
1,679
—
Issuance of Class A common stock, net of issuance costs —
—
—
(10 ) —
—
—
(10 ) —
Forfeitures and employee/partner terminations —
—
—
—
—
—
—
—
—
Issuance of restricted stock awards 10
—
—
(10 ) —
—
—
—
—
Employee net share settlement (1 ) —
—
(1,287 ) —
—
(536 ) (1,824 ) —
Exchange of subsidiary equity 6
(6 ) —
—
—
—
—
—
—
Capital contributions, net —
—
—
—
—
—
—
—
1,228
Distributions —
—
—
—
—
—
(22,591 ) (22,591 ) —
Dividends —
—
—
(37,353 ) (48,965 ) —
(48 ) (86,366 ) —
Balance at March 31, 2019 $ 556
$ 80
$ 142
$ 69,471
$ 21,191
$ (1,658 ) $ 3,168
$ 92,950
$ 36,547
ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

(U.S. dollars in thousands)


Three months ended March 31, 2020
	Class A Common stock		Class B Common stock		Class C Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests - Artisan Partners Holdings		Total stockholders’ equity		Redeemable non-controlling interest
















Balance at January 1, 2020	$	564	$	78	$	136	$	89,149	$	44,455	$	(1,425)	$	5,544	$	138,501	$	43,110
Net income	—		—		—		—		34,825		—		16,112		50,937		(7,294)
Other comprehensive income - foreign currency translation	—		—		—		—		—		(930)		(312)		(1,242)		—
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax	—		—		—		521		—		(120)		(401)		—		—
Amortization of equity-based compensation	—		—		—		7,391		—		—		2,304		9,695		—
Deferred tax assets, net of amounts payable under tax receivable agreements	—		—		—		7,104		—		—		—		7,104		—
Issuance of Class A common stock, net of issuance costs	18		—		—		62,807		—		—		—		62,825		—
Forfeitures and employee/partner terminations	—		—		—		—		—		—		—		—		—
Issuance of restricted stock awards	9		—		—		(9)		—		—		—		—		—
Employee net share settlement	(1)		—		—		(3,314)		—		—		(1,215)		(4,530)		—
Exchange of subsidiary equity	16		—		(16)		—		—		—		—		—		—
Purchase of equity and subsidiary equity	—		(18)		—		(63,009)		—		—		—		(63,027)		—
Capital contributions, net	—		—		—		—		—		—		—		—		3,848
Impact of deconsolidation of CIPs	—		—		—		—		—		—		—		—		(2,441)
Distributions	—		—		—		—		—		—		(17,076)		(17,076)		—
Dividends	—		—		—		(14,416)		(57,986)		—		(37)		(72,439)		—
Balance at March 31, 2020	$	606	$	60	$	120	$	86,224	$	21,294	$	(2,475)	$	4,919	$	110,748	$	37,223


Three months ended March 31, 2019
	Class A Common stock		Class B Common stock		Class C Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests - Artisan Partners Holdings		Total stockholders’ equity		Redeemable non-controlling interest
















Balance at January 1, 2019	$	541	$	86	$	142	$	97,553	$	38,617	$	(1,895)	$	5,443	$	140,487	$	34,349
Net income	—		—		—		—		31,539		—		17,309		48,848		970
Other comprehensive income - foreign currency translation	—		—		—		—		—		262		116		378		—

Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax	—		—		—		(91)		—		(25)		116		—		—
Amortization of equity-based compensation	—		—		—		8,990		—		—		3,359		12,349		—
Deferred tax assets, net of amounts payable under tax receivable agreements	—		—		—		1,679		—		—		—		1,679		—
Issuance of Class A common stock, net of issuance costs	—		—		—		(10)		—		—		—		(10)		—
Forfeitures and employee/partner terminations	—		—		—		—		—		—		—		—		—
Issuance of restricted stock awards	10		—		—		(10)		—		—		—		—		—
Employee net share settlement	(1)		—		—		(1,287)		—		—		(536)		(1,824)		—
Exchange of subsidiary equity	6		(6)		—		—		—		—		—		—		—

Capital Contributions, net	—		—		—		—		—		—		—		—		1,228

Distributions	—		—		—		—		—		—		(22,591)		(22,591)		—
Dividends	—		—		—		(37,353)		(48,965)		—		(48)		(86,366)		—
Balance at March 31, 2019	$	556	$	80	$	142	$	69,471	$	21,191	$	(1,658)	$	3,168	$	92,950	$	36,547

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents

Class A Common stock Class B Common stock Class C Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interest - Artisan Partners Holdings Total stockholders’ equity Redeemable non-controlling interest
Balance at January 1, 2018 $ 505
$ 119
$ 132
$ 147,910
$ (37,870 ) $ (873 ) $ (1,858 ) $ 108,065
62,581
Net income —
—
—
—
41,274
—
26,052
67,326
4,338
Other comprehensive income - foreign currency translation —
—
—
—
—
429
203
632
—
Other comprehensive income - available for sale investments, net of tax —
—
—
—
358
(260 ) —
98
—
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax —

—
(383 ) —
(35 ) 418
—
—
Amortization of equity-based compensation —

—
10,043
—
—
4,357
14,400
—
Deferred tax assets, net of amounts payable under tax receivable agreements —

—
3,271
—
—
—
3,271
—
Issuance of Class A common stock, net of issuance costs 6

—
21,293
—
—
—
21,299
—
Forfeitures and employee/partner terminations —
(11 ) 11
—
—
—
—
—
—
Issuance of restricted stock awards 15

—
(15 ) —
—
—
—
—
Employee net share settlement (1 )
—
(1,210 ) —
—
(594 ) (1,805 ) —
Exchange of subsidiary equity 10
(5 ) (5 ) —
—
—
—
—
—
Purchase of equity and subsidiary equity —
(6 ) —
(21,472 ) —
—
—
(21,478 ) —
Capital Contributions, net —
—
—
—
—
—
—
—
14,733
Distributions —

—
—
—
—
(22,683 ) (22,683 ) —
Dividends —

—
(70,436 ) 278
—
(47 ) (70,205 ) —
Balance at March 31, 2018 $ 535
$ 97
$ 138
$ 89,001
$ 4,040
$ (739 ) $ 5,848
$ 98,920
$ 81,652

ARTISAN PARTNERS ASSET MANAGEMENT INC.

Unaudited Consolidated Statements of Cash Flows

(U.S. dollars in thousands)


	For the Three Months Ended March 31,
	2020		2019
Cash flows from operating activities
Net income before noncontrolling interests	$	43,643	$	49,818
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,624		1,471
Deferred income taxes	6,881		7,493

Asset impairment	—		2,003
Noncash lease expense	(789)		745
Net investment (gain) loss on unconsolidated seed investment securities	2,379		(1,615)

(Gain) loss on disposal of property and equipment	(6)		17
Amortization of debt issuance costs	118		114
Share-based compensation	9,695		12,349
Net investment (gain) loss of consolidated investment products	12,924		(2,346)
Purchase of investments by consolidated investment products	(29,092)		(36,758)
Proceeds from sale of investments by consolidated investment products	30,160		16,871

Change in assets and liabilities resulting in an increase (decrease) in cash:
Accounts receivable	(14,841)		(11,566)
Prepaid expenses and other assets	10,762		(862)
Accounts payable and accrued expenses	52,729		48,695
Net change in operating assets and liabilities of consolidated investment products	(5,690)		7,425
Net cash provided by operating activities	120,497		93,854
Cash flows from investing activities
Acquisition of property and equipment	(631)		(1,284)
Leasehold improvements	(167)		(3,554)

Proceeds from sale of investment securities	5,633		—
Purchase of investment securities	(1,260)		—

Net cash provided by (used in) investing activities	3,575		(4,838)
Cash flows from financing activities
Partnership distributions	(17,076)		(22,591)
Dividends paid	(72,439)		(86,366)





Net proceeds from issuance of common stock	63,027		—
Payment of costs directly associated with the issuance of Class A common stock	(106)		—
Purchase of equity and subsidiary equity	(63,027)		—
Taxes paid related to employee net share settlement	(4,530)		(1,824)

Capital contributions to consolidated investment products, net	3,848		1,228
Net cash used in financing activities	(90,303)		(109,553)
Net increase (decrease) in cash, cash equivalents, and restricted cash	33,769		(20,537)

Cash, cash equivalents and restricted cash
Beginning of period	144,255		175,535
End of period	$	178,024	$	154,998

Cash, cash equivalents and restricted cash as of the end of the period
Cash and cash equivalents	$	170,749	$	152,217
Restricted cash	629		629
Cash and cash equivalents of consolidated investment products	6,646		2,152
Cash, cash equivalents and restricted cash	$	178,024	$	154,998

Supplementary information
Noncash activity:
Establishment of deferred tax assets	$	37,957	$	7,069
Establishment of amounts payable under tax receivable agreements	30,853		5,389
Increase in investment securities due to deconsolidation of CIPs	1,469		—
Operating lease assets obtained in exchange for operating lease liabilities	—		2,191

The accompanying notes are an integral part of the consolidated financial statements.

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
For the Three Months Ended March 31,
2019 2018
Cash flows from operating activities
Net income before noncontrolling interests $ 49,818
$ 71,664
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,471
1,265
Deferred income taxes 7,493
7,252
Asset impairment 2,003
—
Noncash lease expense 745
(25 )
Net (gain) loss on seed investment securities (1,615 ) (321 )
Loss on disposal of property and equipment 17
5
Amortization of debt issuance costs 114
114
Share-based compensation 12,349
14,400
Net investment (gain) loss of consolidated investment products (2,346 ) (6,285 )
Purchase of investments by consolidated investment products (36,758 ) (332,365 )
Proceeds from sale of investments by consolidated investment products 16,871
339,686
Change in assets and liabilities resulting in an increase (decrease) in cash:
Accounts receivable (11,566 ) 1,935
Prepaid expenses and other assets (862 ) 1,643
Accounts payable and accrued expenses 48,695
67,318
Net change in operating assets and liabilities of consolidated investment products 7,425
1,038
Net cash provided by operating activities 93,854
167,324
Cash flows from investing activities
Acquisition of property and equipment (1,284 ) (301 )
Leasehold improvements (3,554 ) (528 )
Net cash used in investing activities (4,838 ) (829 )
Cash flows from financing activities
Partnership distributions (22,591 ) (22,683 )
Dividends paid (86,366 ) (70,205 )
Net proceeds from issuance of common stock —
21,478
Payment of costs directly associated with the issuance of Class A common stock —
(88 )
Purchase of equity and subsidiary equity —
(21,478 )
Taxes paid related to employee net share settlement (1,824 ) (1,805 )
Capital contributions to consolidated investment products, net 1,228
14,733
Net cash used in financing activities (109,553 ) (80,048 )
Net increase (decrease) in cash and cash equivalents (20,537 ) 86,447
Cash, cash equivalents and restricted cash
Beginning of period 175,535
159,796
End of period $ 154,998
$ 246,243

Cash, cash equivalents and restricted cash as of the end of the period
Cash and cash equivalents $ 152,217
$ 200,831
Restricted cash 629
629
Cash and cash equivalents of consolidated investment products 2,152
44,783
Cash, cash equivalents and restricted cash $ 154,998
$ 246,243

Supplementary information

Noncash activity:
Establishment of deferred tax assets $ 7,069
$ 18,325
Establishment of amounts payable under tax receivable agreements 5,389
15,054
Operating lease assets obtained in exchange for operating lease liabilities 2,191
—

~~The accompanying notes are an integral part~~Table of ~~the consolidated financial statements.~~Contents

ARTISAN PARTNERS ASSET MANAGEMENT INC.

Notes to Unaudited Consolidated Financial Statements

(U.S. currencies in thousands, except share and per share amounts and as otherwise indicated)

Note 1. Nature of Business and Organization

Nature of Business

Artisan Partners Asset Management Inc. (“APAM”), through its subsidiaries, is an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. APAM and its subsidiaries are hereafter referred to collectively as “Artisan” or the “Company”.

Artisan’s autonomous investment teams manage a broad range of U.S., non-U.S. and global investment strategies that are diversified by asset class, market cap and investment style. Strategies are offered through multiple investment vehicles to accommodate a broad range of client mandates. Artisan offers its investment management services primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have long-term investment horizons.

Organization

On March 12, 2013, APAM completed its initial public offering (the “IPO”). APAM was formed for the purpose of becoming the general partner of Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”) in connection with the IPO. Holdings is a holding company for the investment management business conducted under the name “Artisan Partners”. The reorganization (“IPO Reorganization”) established the necessary corporate structure to complete the IPO while at the same time preserving the ability of the firm to conduct operations through Holdings and its subsidiaries.

As the sole general partner, APAM controls the business and affairs of Holdings. As a result, APAM consolidates Holdings’ financial statements and records a noncontrolling interest for the equity interests in Holdings held by the limited partners of Holdings. At March 31, ~~2019,~~2020, APAM held approximately ~~71%~~77% of the equity ownership interest in Holdings.

Holdings, together with its wholly owned subsidiary, Artisan Investments GP LLC, ~~(“AIGP”),~~ controls a 100% interest in Artisan Partners Limited Partnership (“APLP”), a multi-product investment management firm that is the principal operating subsidiary of Artisan Partners Holdings. APLP is registered as an investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. APLP provides investment advisory services to traditional separate accounts and pooled investment vehicles, including Artisan Partners Funds, Inc. (“Artisan Funds”), Artisan Partners Global Funds plc (“Artisan Global Funds”), and Artisan sponsored private funds (“Artisan Private Funds”). Artisan Funds are a series of open-end, diversified mutual funds registered under the Investment Company Act of 1940, as amended. Artisan Global Funds is a family of Ireland-domiciled UCITS.

Note 2. Summary of Significant Accounting Policies

Basis of presentation

The accompanying financial statements are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of such consolidated financial statements have been included. Such interim results are not necessarily indicative of full year results.

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and accordingly they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. As a result, the interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in APAM’s latest annual report on Form 10-K.

The accompanying financial statements were prepared in accordance with U.S. GAAP and related rules and regulations of the SEC. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates or assumptions.

Principles of consolidation

Artisan’s policy is to consolidate all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the voting interest entity (“VOE”) model or the variable interest entity (“VIE”) model. Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting interests. Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the right to receive potentially significant benefits or the obligation to absorb potentially significant losses.

Table of Contents

Artisan generally consolidates VIEs in which it meets the power criteria and holds an equity ownership interest of greater than 10%. The consolidated financial statements include the accounts of APAM and all subsidiaries or other entities in which APAM has a direct or indirect controlling financial interest. All material intercompany balances have been eliminated in consolidation.

Artisan serves as the investment adviser to Artisan Funds, Artisan Global Funds and Artisan Private Funds. Artisan Funds and Artisan Global Funds are corporate entities the business and affairs of which are managed by their respective boards of directors. The shareholders of the funds retain voting rights, including rights to elect and reelect members of their respective boards of directors. Each series of Artisan Funds is a VOE and is separately evaluated for consolidation under the VOE model. The shareholders of Artisan Global Funds lack simple majority liquidation rights, and as a result, each sub-fund of Artisan Global Funds is evaluated for consolidation under the VIE model. Artisan Private Funds are also evaluated for consolidation under the VIE model because third-party equity holders of the funds generally lack the ability to divest Artisan of its control of the funds.

From time to time, the Company makes investments in Artisan Funds, Artisan Global Funds, and Artisan Private Funds. If the investment results in a controlling financial interest, APAM consolidates the fund, and the underlying activity of the entire fund is included in Artisan’s Unaudited Consolidated Financial Statements. As of March 31, ~~2019,~~2020, Artisan had a controlling financial interest in ~~three~~two sub-funds of Artisan Global Funds and one Artisan Private Fund and, as a result, these funds are included in Artisan’s Unaudited Consolidated Financial Statements. Because these consolidated investment products meet the definition of investment companies under U.S. GAAP, Artisan has retained the specialized industry accounting principles for investment companies in the consolidated financial statements. See Note 6, “Variable Interest Entities and Consolidated Investment Products” for additional details.

Recent accounting pronouncements

Accounting standards adopted as of January 1, ~~2019~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases,~~ which introduces a lessee model that brings most leases on the balance sheet. The Company adopted the new standard on January 1, 2019, using the modified retrospective transition method that does not adjust comparative periods. The adoption had no impact on previously reported results, and did not result in a cumulative-effect adjustment to the opening balance of retained earnings. In accordance with the adoption of the new lease standard, the Company recorded operating lease assets of $95.9 millionand operating lease liabilities of $107.5 million as of March 31, 2019. The adoption of ASU 2016-02 had no impact on the Unaudited Consolidated Statements of Operations for the three months ended March 31, 2019, and did not impact operating, financing or investing cash flows in the Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019.

Artisan elected to adopt the short-term lease exemption, which allows companies to exclude contracts that have an initial term of 12 months or less. Artisan also elected the package of practical expedients available for existing contracts which allowed the Company to carry forward historical assessments of (1) whether contracts are or contain leases, (2) lease classification, and (3) initial direct costs. Additionally, Artisan elected the practical expedient to account for lease and non-lease components as a single component. See Note 15, “Leases” for additional information.

~~Accounting standards not yet adopted~~2020

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs will be expensed over the term of the hosting arrangement. The Company ~~currently expenses implementation costs in hosting arrangements as~~adopted the ~~costs are incurred. The~~ new guidance ~~will be effective~~ on January 1, 2020. The Company ~~is currently evaluating~~capitalized $276 thousand of software implementation costs and recorded $3 thousand of related amortization expense during the ~~impact~~three months ended March 31, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires entities to measure credit losses on financial assets based on expected losses rather than incurred losses. The guidance was effective on January 1, 2020 and requires a modified retrospective approach to adoption. The adoption of ~~adoption~~this guidance did not have an impact on the consolidated financial ~~statements, but expects certain types of costs will be capitalized that would have previously been expensed as incurred.~~statements.

Note 3. Investment Securities

The disclosures below include details of Artisan’s investments, excluding money market funds and consolidated investment products. Investments held by consolidated investment products are described in Note 6, “Variable Interest Entities and Consolidated Investment Products”.

As of March 31, 2019 As of December 31, 2018
Investments in equity securities $ 6,693
$ 5,857
Investments in equity securities accounted for under the equity method 13,978
12,252
Total investment securities $ 20,671
$ 18,109


	As of March 31, 2020		As of December 31, 2019
Investments in equity securities	$	2,915	$	7,543
Investments in equity securities accounted for under the equity method	1,950		16,335
Total investment securities	$	4,865	$	23,878

Artisan’s investments in equity securities consist of investments in shares of Artisan Funds, Artisan Global Funds and Artisan Private Funds. The table below presents the net investment income activity related to ~~the~~these investment securities:


	For the Three Months Ended March 31,					For the Three Months Ended March 31,
	2019		2018			2020		2019
Net gains (losses) recognized on investment securities	$	1,615	$	321	Net gains (losses) recognized on investment securities	$	(2,379)	$	1,615
Less: Net realized gains (losses) recognized on investment securities sold during the period	$	—	$	—	Less: Net realized gains (losses) recognized on investment securities sold during the period	4,877		—
Unrealized gains (losses) recognized on investment securities held as of the end of the period	$	1,615	$	321	Unrealized gains (losses) recognized on investment securities held as of the end of the period	$	(7,256)	$	1,615

Proceeds from the redemption of $13.7 million of seed investments were not received as of March 31, 2020, and therefore are recorded within accounts receivable in the Unaudited Condensed Consolidated Statements of Financial Condition.

Table of Contents

Note 4. Fair Value Measurements

The table below presents information about Artisan’s assets and liabilities that are measured at fair value and the valuation techniques Artisan utilized to determine such fair value. The financial instruments held by consolidated investment products are excluded from the table below and are presented in Note 6, “Variable Interest Entities and Consolidated Investment Products”.

In accordance with ASC 820, fair value is defined as the price that Artisan would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:

•Level 1 – Observable inputs such as quoted (unadjusted) market prices in active markets for identical securities.

•Level 2 – Other significant observable inputs (including but not limited to quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, etc.).

•Level 3—3 – Significant unobservable inputs (including Artisan’s own assumptions in determining fair value).

The following provides the hierarchy of inputs used to derive fair value of Artisan’s assets and liabilities that are financial instruments as of March 31, ~~2019~~2020 and December 31, ~~2018:~~

Assets and Liabilities at Fair Value
Total NAV Practical Expedient (No Fair Value Level) Level 1 Level 2 Level 3
March 31, 2019
Assets
Money market funds $ 40,108
$ —
$ 40,108
$ —
$ —
Equity securities 20,671
12,898
7,773
—
—

December 31, 2018
Assets
Money market funds $ 57,790
$ —
$ 57,790
$ —
$ —
Equity securities 18,109
12,252
5,857
—
—

2019:


	Assets and Liabilities at Fair Value
	Total		NAV Practical Expedient (No Fair Value Level)		Level 1		Level 2		Level 3
March 31, 2020
Assets
Money market funds	$	30,811	$	—	$	30,811	$	—	$	—
Equity securities	4,865		696		4,169		—		—

December 31, 2019
Assets
Money market funds	$	30,673	$	—	$	30,673	$	—	$	—
Equity securities	23,878		15,068		8,810		—		—

Fair values determined based on Level 1 inputs utilize quoted market prices for identical assets. Level 1 assets generally consist of money market funds, open-end mutual funds and UCITS funds. Equity securities without a fair value level consist of the Company’s ~~investment~~investments in ~~one of the~~ Artisan Private Funds, which isare measured at the underlying fund’s net asset value (“NAV”), using the ASC 820 practical expedient. The NAV is provided by the fund and is derived from the fair values of the underlying investments as of the reporting date. Cash maintained in demand deposit accounts is excluded from the table above.

Note 5. Borrowings

Artisan’s borrowings consist of the following as of March 31, ~~2019~~2020 and December 31, ~~2018:~~

Maturity Outstanding Balance Interest Rate Per Annum
Revolving credit agreement August 2022 $ —
NA
Senior notes
Series B August 2019 50,000
5.32 %
Series C August 2022 90,000
5.82 %
Series D August 2025 60,000
4.29 %
Total borrowings $ 200,000

2019:


	Maturity	Outstanding Balance		Interest Rate Per Annum
Revolving credit agreement	August 2022	$	—	NA
Senior notes

Series C	August 2022	90,000		5.82	%
Series D	August 2025	60,000		4.29	%
Series E	August 2027	50,000		4.53	%
Total borrowings		$	200,000

The fair value of borrowings was approximately ~~$202.6~~$196.8 millionas of March 31, ~~2019~~.2020. Fair value was determined based on future cash flows, discounted to present value using current market interest rates. The inputs are categorized as Level 2 in the fair value hierarchy, as defined in Note 4, “Fair Value Measurements”.

Interest expense incurred on the unsecured notes and revolving credit agreement was $2.6 million and $2.7 million for the three months ended March 31, 2020 and 2019, ~~and 2018.~~respectively.

Table of Contents

As of March 31, ~~2019,~~2020, the aggregate maturities of debt obligations, based on their contractual terms, are as follows:


2019	$	50,000
2020	—		2020	$	—
2021	—		2021	—
2022	90,000		2022	90,000
2023	—		2023	—
2024			2024	—
Thereafter	60,000		Thereafter	110,000
Total	$	200,000	Total	$	200,000

Note 6. Variable Interest Entities and Consolidated Investment Products

Artisan serves as the investment adviser for various types of investment products, consisting of both VIEs and VOEs. Artisan consolidates an investment product if it has a controlling financial interest in the entity. Any such entities are collectively referred to herein as consolidated investment products or CIPs.

As of March 31, ~~2019,~~2020, Artisan is considered to have a controlling financial interest in ~~three~~two sub-funds of Artisan Global Funds and one Artisan Private ~~Fund. As of March 31, 2019, the~~Fund, with an aggregate ~~amount of Artisan’s~~ direct equity investment in the consolidated investment products ~~was $30.5~~of $26.7 million.

Artisan’s maximum exposure to loss in connection with the assets and liabilities of CIPs is limited to its direct equity investment, while the potential benefit is limited to the management fee and incentive allocation received and the return on its equity investment. With the exception of Artisan’s direct equity investment, the assets of CIPs are not available to Artisan’s creditors, nor are they available to Artisan for general corporate purposes. In addition, third-party investors in the CIPs have no recourse to the general credit of the Company.

Management fees and incentive allocations earned from CIPs are eliminated from revenue upon consolidation. See Note ~~16,~~14, “Related Party Transactions” for additional information on management fees and incentive allocations earned from CIPs.

Third-party investors’ ownership interest in CIPs is presented as redeemable noncontrolling interest in the Unaudited Condensed Consolidated Statements of Financial Condition as third-party investors have the right to withdraw their capital, subject to certain conditions. Net income attributable to third-party investors is reported as net income attributable to noncontrolling interests - consolidated investment products in the Unaudited Consolidated Statements of Operations.

During the three months ended March 31, ~~2019,~~2020, the Company determined that it no longer had a controlling financial interest in one sub-fund of Artisan Global Funds as a result of third party capital contributions. Upon loss of control, the VIE was deconsolidated and the related assets, liabilities, and equity of the fund were derecognized from the Company’s Unaudited Condensed Consolidated Statements of Financial Condition. There was no0 net impact to the Unaudited Consolidated Statements of Operations for the three months ended March 31, ~~2019.~~2020. Artisan generally does not recognize a gain or loss upon deconsolidation of investment products asbecause the assets and liabilities of CIPs are carried at fair value. Upon deconsolidation, Artisan’s ~~$0.9~~$1.5 million direct equity investment was reclassified from investment assets of consolidated investment products to investment ~~securities.~~securities in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition.

As of March 31, ~~2019,~~2020, Artisan held direct equity investments of ~~$14.0~~$2.0 million in VIEs for which ~~Artisan is~~the Company does not ~~the primary beneficiary.~~hold a controlling financial interest. These direct equity investments consisted of seed investments in ~~one sub-fund~~sub-funds of Artisan Global Funds and ~~one~~ Artisan Private ~~Fund,~~Funds, both of which are accounted for under the equity method of accounting because Artisan has significant influence over the funds.

Fair Value Measurements - Consolidated Investment Products

The carrying value of CIPs’ investments is also their fair value. Short and long positions on equity securities are valued based upon closing prices of the security on the exchange or market designated by the accounting agent or pricing vendor as the principal exchange. The closing price may represent last sale price, official closing price, a closing auction or other information depending on market convention. Short and long positions on fixed income instruments are valued at market value. Market values are generally evaluations based on the judgment of pricing vendors, which may consider, among other factors, the prices at which securities actually trade, broker-dealer quotations, pricing formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics and/or discounted cash flow models that might be applicable.

Table of Contents

The following tables present the fair value hierarchy levels of assets and liabilities held by CIPs measured at fair value as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:


										Assets and Liabilities at Fair Value
	Assets and Liabilities at Fair Value									Total		Level 1		Level 2		Level 3
	Total		Level 1		Level 2		Level 3
March 31, 2019
March 31, 2020									March 31, 2020
Assets									Assets
Money market funds	$	1,102	$	1,102	$	—	$	—	Money market funds	$	5,146	$	5,146	$	—	$	—
Equity securities - long position	6,881		6,881		—		—		Equity securities - long position	4,326		4,326		—		—
Fixed income instruments - long position	70,448		—		70,448		—		Fixed income instruments - long position	84,974		—		84,974		—
Derivative assets	665		—		665		—		Derivative assets	331		331		—		—

Liabilities									Liabilities
Equity securities - short position	$	—	$	—	$	—	$	—

Fixed income instruments - short position	8,285		—		8,285		—		Fixed income instruments - short position	$	3,514	$	—	$	3,514	$	—
Derivative liabilities	195		43		152		—		Derivative liabilities	141		141		—		—


										Assets and Liabilities at Fair Value
	Assets and Liabilities at Fair Value									Total		Level 1		Level 2		Level 3
	Total		Level 1		Level 2		Level 3
December 31, 2018
December 31, 2019									December 31, 2019
Assets									Assets
Money market funds	$	13,141	$	13,141	$	—	$	—	Money market funds	$	5,005	$	5,005	$	—	$	—
Equity securities - long position	7,817		7,196		—		621		Equity securities - long position	9,933		9,933		—		—
Fixed income instruments - long position	57,621		—		57,621		—		Fixed income instruments - long position	96,681		—		96,681		—
Derivative assets	735		—		735		—		Derivative assets	122		22		100		—

Liabilities									Liabilities
Equity securities - short position	$	—	$	—	$	—	$	—

Fixed income instruments - short position	16,567		—		16,567		—		Fixed income instruments - short position	$	6,005	$	—	$	6,005	$	—
Derivative liabilities	338		—		338		—		Derivative liabilities	181		—		181		—

CIP balances included in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition were as follows:


	As of March 31, 2019			As of December 31, 2018			As of March 31, 2020		As of December 31, 2019
Net CIP assets included in the table above	$	70,616		$	62,409	Net CIP assets included in the table above	$	91,122	$	105,555
Net CIP assets/(liabilities) not included in the table above	(3,533		)	2,156		Net CIP assets/(liabilities) not included in the table above	(27,180)		(28,509)
Total Net CIP assets	67,083			64,565		Total Net CIP assets	63,942		77,046
Less: redeemable noncontrolling interest	36,547			34,349		Less: redeemable noncontrolling interest	37,223		43,110
Artisan’s direct equity investment in CIPs	$	30,536		$	30,216	Artisan’s direct equity investment in CIPs	$	26,719	$	33,936

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Note 7. Noncontrolling ~~interest~~interests - Holdings

Net income attributable to noncontrolling interests - Artisan Partners Holdings in the Unaudited Consolidated Statements of Operations represents the portion of earnings or loss attributable to the equity ownership interests in Holdings held by the limited partners of Holdings. As of March 31, ~~2019,~~2020, APAM held approximately ~~71%~~77% of the equity ownership interests in Holdings.

Limited partners of Artisan Partners Holdings are entitled to exchange partnership units (along with a corresponding number of shares of Class B or C common stock of APAM) for shares of Class A common stock from time to time (the “Holdings Common Unit Exchanges”). The Holdings Common Unit Exchanges increase APAM’s equity ownership interest in Holdings and result in an increase to deferred tax assets and amounts payable under the tax receivable agreements. See Note 11, “Income Taxes and Related Payments”.

In order to maintain the one-to-one correspondence of the number of Holdings partnership units and APAM common shares, Holdings will issue one general partner (“GP”) unit to APAM for each share of Class A common stock issued by APAM. For the three months ended March 31, ~~2019,~~2020, APAM’s equity ownership interest in Holdings ~~has~~ increased as a result of the following transactions:


										Holdings GP Units		Limited Partnership Units		Total		APAM Ownership %
	Holdings GP Units		Limited Partnership Units		Total		APAM Ownership %
Balance at December 31, 2018	54,071,188		22,871,684		76,942,872		70	%
Balance at December 31, 2019									Balance at December 31, 2019	56,429,825		21,372,029		77,801,854		73	%
2020 Follow-On Offering									2020 Follow-On Offering	1,802,326		(1,802,326)		—		2	%
Holdings Common Unit Exchanges⁽¹⁾	680,793		(680,793	)	—		—	%	1,626,611		(1,626,611)		—		2	%
Issuance of APAM Restricted Shares(1)	959,000		—		959,000		1	%	916,085		—		916,085		—	%
Delivery of Shares Underlying RSUs⁽¹⁾									Delivery of Shares Underlying RSUs⁽¹⁾	24,233		—		24,233		—	%
Restricted Share Award Net Share Settlement ⁽¹⁾	(74,006	)	—		(74,006	)	—	%	Restricted Share Award Net Share Settlement ⁽¹⁾	(126,971)		—		(126,971)		—	%
Forfeitures of Holdings GP Units from Employee Terminations ⁽¹⁾	(10,914	)	—		(10,914	)	—	%	Forfeitures of Holdings GP Units from Employee Terminations ⁽¹⁾	(24,778)		—		(24,778)		—	%
Balance at March 31, 2019	55,626,061		22,190,891		77,816,952		71	%
Balance at March 31, 2020									Balance at March 31, 2020	60,647,331		17,943,092		78,590,423		77	%

⁽¹⁾ The impact of the transaction on APAM’s ownership percentage was less than 1%.

~~Since APAM continues to have a controlling interest in Holdings, changes~~Changes in ownership of Holdings are accounted for as equity ~~transactions.~~transactions because APAM continues to have a controlling interest in Holdings. Additional paid-in capital and noncontrolling ~~interest~~interests - Artisan Partners Holdings in the Unaudited Condensed Consolidated Statements of Financial Condition are adjusted to reallocate Holdings’ historical equity to reflect the change in APAM’s ownership of Holdings.

The reallocation of equity had the following impact on the Unaudited Condensed Consolidated Statements of Financial Condition:

Statement of Financial Condition For the Three Months Ended March 31,
2019 2018
Additional paid-in capital $ (91 ) $ (383 )
Noncontrolling interest - Artisan Partners Holdings 116
418
Accumulated other comprehensive income (loss) (25 ) (35 )
Net impact to financial condition —
—


Statement of Financial Condition	For the Three Months Ended March 31,
			2020			2019
Additional paid-in capital	$	521		$	(91)
Noncontrolling interests - Artisan Partners Holdings	(401)			116
Accumulated other comprehensive income (loss)	(120)			(25)
Net impact to financial condition	$	—		$	—

In addition to the reallocation of historical equity, the change in ownership resulted in an increase to deferred tax assets and additional paid-in capital of $1.7 million and $0.7 million for the three months ended March 31, 2020 and 2019, ~~and $0.6 million for the three months ended March 31, 2018.~~respectively.

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Note 8. Stockholders’ Equity

APAM - Stockholders’ Equity

APAM had the following authorized and outstanding equity as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively:

Outstanding
Authorized As of March 31, 2019 As of December 31, 2018
Voting Rights ⁽¹⁾
Economic Rights
Common shares
Class A, par value $0.01 per share 500,000,000
55,626,061
54,071,188
1 vote per share Proportionate
Class B, par value $0.01 per share 200,000,000
7,974,456
8,645,249
1 vote per share None
Class C, par value $0.01 per share 400,000,000
14,216,435
14,226,435
1 vote per share None
⁽¹⁾ The Company’s employees to whom Artisan has granted equity have entered into a stockholders agreement with respect to all shares of APAM common stock they have acquired from the Company and any shares they may acquire from the Company in the future, pursuant to which they granted an irrevocable voting proxy to a Stockholders Committee. As of March 31, 2019, Artisan’s employees held 5,046,263 restricted shares of Class A common stock and all 7,974,456 outstanding shares of Class B common stock, all of which were subject to the agreement.

Outstanding

Authorized

As of March 31, 2020

As of December 31, 2019

Voting Rights ⁽¹⁾

Economic Rights

Common shares

Class A, par value $0.01 per share

500,000,000

60,647,331

56,429,825

1 vote per share

Proportionate

Class B, par value $0.01 per share

200,000,000

5,980,743

7,803,364

1 vote per share

None

Class C, par value $0.01 per share

400,000,000

11,962,349

13,568,665

1 vote per share

None

⁽¹⁾ The Company’s employees to whom Artisan has granted equity have entered into a stockholders agreement with respect to all shares of APAM common stock they have acquired from the Company and any shares they may acquire from the Company in the future, pursuant to which they granted an irrevocable voting proxy to a Stockholders Committee. As of March 31, 2020, Artisan’s employees held 5,202,060 restricted shares of Class A common stock and all 5,980,743 outstanding shares of Class B common stock, all of which were subject to the agreement.

APAM is dependent on cash generated by Holdings to fund any dividends. Generally, Holdings will make distributions to all of its partners, including APAM, based on the proportionate ownership each holds in Holdings. APAM will fund dividends to its stockholders from its proportionate share of those distributions after provision for its taxes and other obligations. APAM declared and paid the following dividends per share during the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


Type of Dividend	Class of Stock	For the Three Months Ended March 31,
		2020		2019
Quarterly	Class A Common	$	0.68	$	0.56
Special Annual	Class A Common	$	0.60	$	1.03

Type of Dividend Class of Stock For the Three Months Ended March 31,
2019 2018
Quarterly Class A Common $ 0.56

$ 0.60
Special Annual Class A Common $ 1.03

$ 0.79

The following table summarizes APAM’s stock transactions for the three months ended March 31, ~~2019:~~2020:

Total Stock Outstanding
Class A Common Stock⁽¹⁾
Class B Common Stock Class C Common Stock
Balance at December 31, 2018 76,942,872
54,071,188
8,645,249
14,226,435
Holdings Common Unit Exchanges —
680,793
(670,793 ) (10,000 )
Restricted Share Award Grants 959,000
959,000
—
—
Restricted Share Award Net Share Settlement (74,006 ) (74,006 ) —
—
Employee-Partner Terminations (10,914 ) (10,914 ) —
—
Balance at March 31, 2019 77,816,952
55,626,061
7,974,456
14,216,435
⁽¹⁾ There were 297,891 and 246,581 restricted stock units outstanding at March 31, 2019 and December 31, 2018, respectively. Restricted stock units are not reflected in the table because they are not considered outstanding or issued stock.


	Total Stock Outstanding	Class A Common Stock⁽¹⁾	Class B Common Stock	Class C Common Stock
Balance at December 31, 2019	77,801,854	56,429,825	7,803,364	13,568,665
2020 Follow-On Offering	—	1,802,326	(1,777,326)	(25,000)
Holdings Common Unit Exchanges	—	1,626,611	(45,295)	(1,581,316)
Restricted Share Award Grants	916,085	916,085	—	—
Restricted Share Award Net Share Settlement	(126,971)	(126,971)	—	—
Delivery of Shares Underlying RSUs	24,233	24,233	—	—
Employee-Partner Terminations	(24,778)	(24,778)	—	—
Balance at March 31, 2020	78,590,423	60,647,331	5,980,743	11,962,349

⁽¹⁾ There were 304,570 and 297,891 restricted stock units outstanding at March 31, 2020 and December 31, 2019, respectively. In addition, there were 60,000 performance share units outstanding at March 31, 2020. Based on the current status of the market and performance conditions, the 60,000 unvested performance share units would ultimately result in the issuance of 90,000 shares of Class A common stock if all other vesting conditions were met. Restricted stock units and performance share units are not reflected in the table because they are not considered outstanding or issued stock.

Each Class A, Class B, Class D and Class E common unit of Holdings (together with the corresponding share of Class B or Class C common stock) is exchangeable for one share of Class A common stock. The corresponding shares of Class B and Class C common stock are immediately canceled upon any such exchange.

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Upon termination of employment with Artisan, an employee-partner’s Class B common units are exchanged for Class E common units and the corresponding shares of Class B common stock are canceled. APAM issues the former employee-partner a number of shares of Class C common stock equal to the former employee-partner’s number of Class E common units. Class E common units are exchangeable for Class A common stock subject to the same restrictions and limitations on exchange applicable to the other common units of Holdings.

Artisan Partners Holdings - Partners’ Equity

Holdings makes distributions of its net income to the holders of its partnership units for income taxes as required under the terms of the partnership agreement and also makes additional distributions under the terms of the partnership agreement. The distributions are recorded in the financial statements on the declaration date, or on the payment date in lieu of a declaration date. Holdings’ partnership distributions for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, were as follows:

For the Three Months Ended March 31,
2019 2018
Holdings Partnership Distributions to Limited Partners $ 22,591
$ 22,683
Holdings Partnership Distributions to APAM 53,401
45,593
Total Holdings Partnership Distributions $ 75,992
$ 68,276


	For the Three Months Ended March 31,
	2020		2019
Holdings Partnership Distributions to Limited Partners	$	17,076	$	22,591
Holdings Partnership Distributions to APAM	45,104		53,401
Total Holdings Partnership Distributions	$	62,180	$	75,992

The distributions are recorded as a reduction to consolidated stockholders’ equity, with the exception of distributions made to APAM, which are eliminated upon consolidation.

Note 9. Revenue From Contracts with Customers

Disaggregated Revenue

The following table presents a disaggregation of revenue by type and vehicle for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	For the Three Months Ended March 31,					For the Three Months Ended March 31,
	2019		2018			2020		2019
Management fees					Management fees
Artisan Funds	$	106,180	$	125,253	Artisan Funds	$	114,679	$	106,180
Artisan Global Funds	8,135		8,522		Artisan Global Funds	8,116		8,135
Separate accounts⁽¹⁾	72,549		78,191		Separate accounts⁽¹⁾	77,109		72,549
Performance fees					Performance fees
Separate accounts⁽¹⁾	98		42		Separate accounts⁽¹⁾	2,932		98
Total revenues⁽²⁾	$	186,962	$	212,008	Total revenues⁽²⁾	$	202,836	$	186,962
⁽¹⁾ Separate account revenue consists of fees from vehicles other than Artisan Funds or Artisan Global Funds, which includes traditional separate accounts, Artisan-branded collective investment trusts and funds (both public and private) that Artisan advises, including Artisan Private Funds.

⁽¹⁾ Separate account revenue consists of management fees and performance fees earned from vehicles other than Artisan Funds or Artisan Global Funds, which includes traditional separate accounts, Artisan-branded collective investment trusts and funds (both public and private) that Artisan advises, including Artisan Private Funds.					⁽¹⁾ Separate account revenue consists of management fees and performance fees earned from vehicles other than Artisan Funds or Artisan Global Funds, which includes traditional separate accounts, Artisan-branded collective investment trusts and funds (both public and private) that Artisan advises, including Artisan Private Funds.
⁽²⁾All management fees and performance fees from consolidated investment products were eliminated upon consolidation and therefore are omitted from this table.	⁽²⁾All management fees and performance fees from consolidated investment products were eliminated upon consolidation and therefore are omitted from this table.				⁽²⁾All management fees and performance fees from consolidated investment products were eliminated upon consolidation and therefore are omitted from this table.

Performance fees are subject to the uncertainty of market volatility, and as a result, the entire amount of the variable consideration related to performance fees is constrained until the end of each measurement period. At the end of the quarterly or annual measurement period, revenue is recorded for the actual amount of performance fees earned during that period because the uncertainty has been resolved. For performance fees with annual measurement periods, revenue recognized in the current quarter relates to performance obligations that were partially satisfied in prior periods.

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The following table presents the balances of receivables related to contracts with customers:

As of March 31, 2019 As of December 31, 2018
Customer
   Artisan Funds $ 6,042
$ 5,418
   Artisan Global Funds 3,324
417
   Separate accounts 64,490
59,787
Total receivables from contracts with customers $ 73,856
$ 65,622
Non-customer receivables 5,400
2,069
Accounts receivable $ 79,256
$ 67,691


	As of March 31, 2020		As of December 31, 2019
Customer
Artisan Funds	$	5,216	$	6,703
Artisan Global Funds	2,742		3,588
Separate accounts	70,410		69,413
Total receivables from contracts with customers	$	78,368	$	79,704
Non-customer receivables	18,344		2,164
Accounts receivable	$	96,712	$	81,868

Artisan Funds and Artisan Global Funds are billed on the last day of each month. Artisan Funds and Artisan Global Funds make payments on the same day the invoice is received for the majority of the invoiced amount. The remainder of the invoice is generally paid in the month following receipt of the invoice. Separate account clients are generally billed on a monthly or quarterly basis, with payments due within 30 days of billing. Artisan had no0 other contract assets or liabilities from contracts with customers as of March 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

Note 10. Compensation and Benefits

Total compensation and benefits consists of the following:

For the Three Months Ended March 31,
2019 2018
Salaries, incentive compensation and benefits ⁽¹⁾
$ 87,708

$ 91,381
Restricted share-based award compensation expense 11,574

13,843
Total compensation and benefits $ 99,282
$ 105,224
⁽¹⁾ Excluding restricted share-based award compensation expense


	For the Three Months Ended March 31,
	2020		2019
Salaries, incentive compensation and benefits ⁽¹⁾	$	95,530	$	87,708
Restricted share-based award compensation expense	9,187		11,574


Total compensation and benefits	$	104,717	$	99,282

⁽¹⁾ Excluding restricted share-based award compensation expense

Incentive compensation

Cash incentive compensation paid to members of Artisan’s investment teams and members of its distribution teams is generally based on formulas that are tied directly to revenues. These payments are made in the quarter following the quarter in which the incentive was earned with the exception of fourth quarter payments which are paid in the fourth quarter of the year. Cash incentive compensation paid to most other employees is discretionary and subjectively determined based on individual performance and Artisan’s overall results during the applicable year and is generally paid on an annual basis.

Restricted share-based awards

Artisan has registered 14,000,000 shares of Class A common stock for issuance under the 2013 Omnibus Incentive Compensation Plan (the “Plan”). Pursuant to the Plan, APAM has granted a combination of restricted stock awards, ~~and~~ restricted stock units, and performance share units (collectively referred to as “restricted share-based awards” or "awards") of Class A common stock to employees. ~~The~~

Standard Restricted Shares. Standard restricted ~~share-based awards~~shares are generally ~~vest on~~subject to a pro rata ~~basis over five years. Certain share-based awards will vest or become eligible~~five-year service vesting condition.

Career Shares. Career shares are generally subject to ~~vest only upon~~both (i) a ~~combination of both (1) pro-rata annual time~~pro rata five-year service vesting condition and ~~(2)~~(ii) a qualifying retirement (as defined in the award ~~agreements)~~agreement).

~~A portion of the share-based awards~~Franchise Shares. Like career shares, franchise shares are generally subject to both (i) a pro rata five-year service vesting condition and (ii) a qualifying retirement condition. In addition, franchise shares, which are only granted to ~~portfolio managers contain~~investment team members, are subject to a Franchise Protection Clause, which provides that the number of ~~awards~~shares that ultimately vest depends on ~~achieving performance goals related~~whether certain conditions relating to client cash ~~flows.~~flows are met. If such ~~goals~~conditions are not met, compensation cost will be reversed for any ~~awards~~shares that do not vest. ~~The fair value, requisite~~

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Performance Share Units (PSUs). PSUs are generally subject to (i) a three-year service vesting condition, (ii) certain performance conditions related to the Company's operating margin and total shareholder return compared to a peer group during a three-year performance period, and ~~expense recognition~~(iii) for ~~these awards are determined in~~one-half of the ~~same manner as~~PSUs eligible to vest at the ~~other share-based awards.~~

~~Unvested awards are subject to forfeiture upon termination~~end of ~~employment. Grantees receiving~~ the ~~awards are entitled to dividends on unvested and vested shares and units. 5,594,913~~performance period, a qualifying retirement condition. The number of shares of Class A common stock ~~were reserved and available for issuance under~~that are ultimately issued in connection with each PSU award will depend upon the ~~Plan as of March 31, 2019.~~

~~During the three months ended March 31, 2019, Artisan granted 959,000 restricted stock awards and 4,000 restricted stock units of Class A common stock to employees~~outcome of the ~~Company. Total compensation~~performance, market and qualified retirement conditions. For the portion of a PSU award with a "performance condition" under ASC 718, expense ~~associated with~~is recognized over the ~~2019 grant~~service period if it is ~~expected to~~probable that the performance condition will be ~~approximately $22.1 million.~~ achieved.

Compensation expense ~~related to the restricted share-based awards~~ is recognized based on the estimated grant date fair value on a straight-line basis over the requisite service period of the award. The initial requisite service period is generally five years for restricted stock awards and restricted stock units, and three years for performance share units. The fair value of each award is equal to the market price of the Company's common stock on the grant date, except for performance share units with a "market condition" performance metric under ASC 718, which have a grant-date fair value based on a Monte Carlo valuation model.

Unvested restricted share-based ~~awards.~~

awards are subject to forfeiture. The Company’s accounting policy is to record the impact of forfeitures when they occur. Grantees are generally entitled to dividends or dividend equivalents on unvested and vested awards. 4,616,611 shares of Class A common stock were reserved and available for issuance under the Plan as of March 31, 2020.

During the three months ended March 31, 2020, Artisan granted 916,085 restricted stock awards, 3,370 restricted stock units, and 60,000 performance share units of Class A common stock to employees of the Company. Total compensation expense associated with the 2020 grant is expected to be approximately $34.2 million.

The following ~~table summarizes~~tables summarize the restricted share-based award activity for the three months ended March 31, ~~2019:~~2020:


						Weighted-Average Grant Date Fair Value		Restricted Stock Awards and Restricted Stock Units
	Weighted-Average Grant Date Fair Value		Number of Awards
Unvested at January 1, 2019	$	38.04	4,678,457
Unvested at January 1, 2020					Unvested at January 1, 2020	$	35.00	5,005,422
Granted	22.92		963,000		Granted	33.80		919,455
Forfeited	34.29		(10,914	)	Forfeited	30.30		(24,778)
Vested	35.35		(477,155	)	Vested	32.59		(588,144)
Unvested at March 31, 2019	$	35.47	5,153,388
Unvested at March 31, 2020					Unvested at March 31, 2020	$	35.08	5,311,955


	Weighted-Average Grant Date Fair Value		Performance Share Units
Unvested at January 1, 2020	$	—	—
Granted	52.45		60,000
Forfeited	—		—
Vested	—		—
Unvested at March 31, 2020	$	52.45	60,000

Based on the current status of the market and performance conditions, the 60,000 unvested performance share units would ultimately result in the issuance of 90,000 shares of Class A common stock if all other vesting conditions were met.

The unrecognized compensation expense for ~~the~~all unvested awards as of March 31, ~~2019~~2020 was ~~$112.7~~$106.5 million with a weighted average recognition period of 3.6 years remaining.

During the three months ended March 31, ~~2019,~~2020, the Company withheld a total of ~~74,006~~126,971 restricted shares and paid $4.5 million as a result of net share settlements to satisfy employee tax withholding obligations. ~~The Company paid $1.8 million in employee tax withholding obligations related to these settlements during the three months ended March 31, 2019.~~ These net share settlements had the effect of shares repurchased and retired by the Company, as they reduced the number of shares outstanding.

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Note 11. Income Taxes and Related Payments

APAM is subject to U.S. federal, state and local income taxation on APAM’s allocable portion of Holdings’ income as well as foreign income taxes payable by Holdings’ subsidiaries. APAM’s effective income tax rate was lower than the U.S. federal statutory rate of 21% primarily due to a rate benefit attributable to the fact that, for the three months ended March 31, ~~2019,~~2020, approximately ~~31%~~26% of Artisan Partners Holdings’ full year projected taxable earnings were attributable to other partners and not subject to corporate-level taxes. The effective tax rate was also lower than the statutory rate due to dividends paid on unvested share-based ~~awards, net of higher tax expense related to the vesting of restricted share-based~~ awards.

APAM’s effective tax rate was ~~15.9%~~17.8% and ~~14.6%~~15.9% for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Components of the provision for income taxes consist of the following:

For the Three Months Ended March 31,
2019 2018
Current:
Federal $ 1,313
$ 4,149
State and local 515
767
Foreign 121
117
Total 1,949
5,033
Deferred:
Federal 6,696
6,480
State and local 797
772
Total 7,493
7,252
Income tax expense $ 9,442
$ 12,285


	For the Three Months Ended March 31,
	2020		2019
Current:
Federal	$	1,593	$	1,313
State and local	868		515
Foreign	109		121
Total	2,570		1,949
Deferred:
Federal	5,898		6,696
State and local	983		797
Total	6,881		7,493
Income tax expense	$	9,451	$	9,442

In connection with the IPO, APAM entered into ~~two~~2 tax receivable agreements (“TRAs”). The first TRA generally provides for the payment by APAM to a private equity fund (the “Pre-H&F Corp Merger Shareholder”) or its assignees of 85% of the applicable cash savings, if any, of U.S. federal, state and local income taxes that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) the tax attributes of the preferred units APAM acquired in the merger of a wholly-owned subsidiary of the Pre-H&F Corp Merger Shareholder into APAM in March 2013, (ii) net operating losses available as a result of the merger and (iii) tax benefits related to imputed interest.

The second TRA generally provides for the payment by APAM to current or former limited partners of Holdings or their assignees of 85% of the applicable cash savings, if any, of U.S. federal, state and local income taxes that APAM actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain tax attributes of their partnership units sold to APAM or exchanged (for shares of Class A common stock, convertible preferred stock or other consideration) and that are created as a result of such sales or exchanges and payments under the TRAs and (ii) tax benefits related to imputed interest. Under both agreements, APAM generally will retain the benefit of the remaining 15% of the applicable tax savings.

For purposes of the TRAs, cash savings of income taxes are calculated by comparing APAM’s actual income tax liability to the amount it would have been required to pay had it not been able to utilize any of the tax benefits subject to the TRAs, unless certain assumptions apply. The TRAs will continue in effect until all such tax benefits have been utilized or expired, unless APAM exercises its right to terminate the agreements or payments under the agreements are accelerated in the event that APAM materially breaches any of its material obligations under the agreements.

Payments under the TRAs, if any, will be made pro rata among all TRA counterparties entitled to payments on an annual basis to the extent APAM has sufficient taxable income to utilize the increased depreciation and amortization charges and imputed interest deductions. Artisan expects to make one or more payments under the TRAs, to the extent they are required, prior to or within 125 days after APAM’s U.S. federal income tax return is filed for each fiscal year. Interest on the TRA payments will accrue at a rate equal to one-year LIBOR plus 100 basis points from the due date (without extension) of such tax return until such payments are made.

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Amounts payable under tax receivable agreements are estimates which may be impacted by factors, including but not limited to, expected tax rates, projected taxable income, and projected ownership levels and are subject to change. Changes in the estimates of amounts payable under tax receivable agreements are recorded as non-operating income (loss) in the Unaudited Consolidated Statements of Operations.

The change in the Company’s deferred tax assets related to the tax benefits described above and the change in corresponding amounts payable under the TRAs for the three months ended March 31, ~~2019~~2020 is summarized as follows:

Deferred Tax Asset - Amortizable basis Amounts payable under tax receivable agreements
December 31, 2018 $ 404,715
$ 369,355
2019 Holdings Common Unit Exchanges 6,340
5,389
Amortization (7,703 ) —
March 31, 2019 $ 403,352
$ 374,744


	Deferred Tax Asset - Amortizable basis		Amounts payable under tax receivable agreements
December 31, 2019	$	408,140	$	375,324
2020 Follow-On Offering	21,424		18,211
2020 Holdings Common Unit Exchanges	14,873		12,642
Amortization	(8,687)		—



March 31, 2020	$	435,750	$	406,177

Net deferred tax assets comprise the following:

As of March 31, 2019 As of December 31, 2018
Deferred tax assets:
Amortizable basis ⁽¹⁾
$ 403,352
$ 404,715
Other ⁽²⁾
25,352
24,413
Total deferred tax assets 428,704
429,128
Less: valuation allowance ⁽³⁾
—
—
Net deferred tax assets $ 428,704
$ 429,128
⁽¹⁾ Represents the unamortized step-up of tax basis and other tax attributes from the merger and partnership unit sales and exchanges described above. These future tax benefits are subject to the TRA agreements.
⁽²⁾ Represents the net deferred tax assets associated with the merger described above and other miscellaneous deferred tax assets. These future tax benefits are not subject to the TRA agreements.
⁽³⁾ Artisan assessed whether the deferred tax assets would be realizable and determined based on its history of taxable income that the benefits would more likely than not be realized. Accordingly, no valuation allowance is required.


	As of March 31, 2020		As of December 31, 2019
Deferred tax assets:
Amortizable basis ⁽¹⁾	$	435,750	$	408,140
Other ⁽²⁾	31,223		27,757
Total deferred tax assets	466,973		435,897
Less: valuation allowance ⁽³⁾	—		—
Net deferred tax assets	$	466,973	$	435,897

⁽¹⁾ Represents the unamortized step-up of tax basis and other tax attributes from the merger and partnership unit sales and exchanges described above. These future tax benefits are subject to the TRA agreements.
⁽²⁾ Represents the net deferred tax assets associated with the merger described above and other miscellaneous deferred tax assets. These future tax benefits are not subject to the TRA agreements.
⁽³⁾ Artisan assessed whether the deferred tax assets would be realizable and determined based on its history of taxable income that the benefits would more likely than not be realized. Accordingly, no valuation allowance is required.

Accounting standards establish a minimum threshold for recognizing, and a ~~system~~process for measuring, the benefits of income tax return positions in financial statements. ~~There were no uncertain~~The Company's gross liability for unrecognized tax ~~positions recorded~~benefits was $1.5 million and $2.0 million as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019, respectively. The total amount of unrecognized tax benefits is not expected to significantly increase or decrease within the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the income tax provision. Accrued interest on uncertain tax positions was $0.3 million as of March 31, 2020 and December 31, 2019. The gross unrecognized tax benefit is recorded within accounts payable, accrued expenses, and other in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition.

In the normal course of business, Artisan is subject to examination by federal and certain state, local and foreign tax regulators. As of March 31, ~~2019,~~2020, U.S. federal income tax returns filed for the years ~~2015~~2016 through ~~2017~~2018 are open and therefore subject to examination. State, local, and foreign income tax returns filed are generally subject to examination from ~~2014~~2015 to ~~2017.~~2018.

~~Note 12. Accumulated Other Comprehensive Income (Loss)~~

Accumulated Other Comprehensive Income (Loss), net of tax, in the accompanying Unaudited Condensed Consolidated Statements of Financial Condition represents the portion of accumulated other comprehensive income attributable to APAM, and consists of the following:

As of March 31, 2019 As of December 31, 2018
Foreign currency translation gain (loss) (1,658 ) (1,895 )
Accumulated Other Comprehensive Income (Loss) $ (1,658 ) $ (1,895 )

Comprehensive income (loss) attributable to noncontrolling interests - Artisan Partners Holdings in the Unaudited Consolidated Statements of Comprehensive Income (Loss) represents the portion of comprehensive income (loss) attributable to the equity ownership interests in Holdings held by the limited partners of Holdings.

Note ~~13.~~12. Earnings Per Share

Basic earnings per share is computed under the two-class method by dividing income available to Class A common stockholders by the weighted average number of Class A common shares outstanding during the period. Unvested restricted share-based awards are excluded from the number of Class A common shares outstanding for the basic earnings per share calculation because the shares have not yet been earned by employees. Income available to Class A common stockholders is computed by reducing net income attributable to APAM by earnings (both distributed and undistributed) allocated to participating securities, according to their respective rights to participate in those earnings. Unvested share-based awards are participating securities because the awards include non-forfeitable dividend rights during the vesting period. Class B and Class C common shares do not share in profits of APAM and therefore are not reflected in the calculations.

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The computation of basic and diluted earnings per share under the two-class method for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 were as follows:

For the Three Months Ended March 31,
Basic and Diluted Earnings Per Share 2019 2018
Numerator:
Net income attributable to APAM $ 31,539
$ 41,274
Less: Allocation to participating securities 7,733
5,924
Net income available to common stockholders $ 23,806
$ 35,350
Denominator:

Weighted average shares outstanding 50,145,684
47,360,438
Earnings per share $ 0.47
$ 0.75


	For the Three Months Ended March 31,
Basic and Diluted Earnings Per Share	2020		2019
Numerator:
Net income attributable to APAM	$	34,825	$	31,539
Less: Allocation to participating securities	6,835		7,733
Net income available to common stockholders	$	27,990	$	23,806
Denominator:
Weighted average shares outstanding	53,265,479		50,145,684
Earnings per share	$	0.53	$	0.47

Allocation to participating securities in the table above primarily represents dividends paid to holders of unvested restricted share-based awards, which reduces net income available to common stockholders.

There were no0 dilutive securities outstanding during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. The Holdings limited partnership units are anti-dilutive primarily due to the impact of public company expenses. Unvested restricted share-based awards are considered participating securities and are therefore anti-dilutive. The following table summarizes the weighted-average shares outstanding that are excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive:


	For the Three Months Ended March 31,			For the Three Months Ended March 31,
Anti-Dilutive Weighted Average Shares Outstanding	2019	2018	Anti-Dilutive Weighted Average Shares Outstanding	2020	2019
Holdings limited partnership units	22,584,238	24,558,161	Holdings limited partnership units	20,069,152	22,584,238
Unvested restricted share-based awards	4,875,738	4,564,084	Unvested restricted share-based awards	5,177,625	4,875,738
Total	27,459,976	29,122,245	Total	25,246,777	27,459,976

Note ~~14.~~13. Indemnifications

In the normal course of business, APAM enters into agreements that include indemnities in favor of third parties. Holdings has also agreed to indemnify APAM as its general partner, Artisan Investment Corporation (“AIC”) as its former general partner, the directors and officers of APAM, the directors and officers of AIC as its former general partner, the members of its former Advisory Committee, and its partners, directors, officers, employees and agents. Holdings’ subsidiaries may also have similar agreements to indemnify their respective general partner(s), directors, officers, directors and officers of their general partner(s), partners, members, employees, and agents. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against us that have not yet occurred. APAM maintains insurance policies that may provide coverage against certain claims under these indemnities.

~~Note 15. Leases~~

Artisan has lease commitments for office space, parking structures, and equipment, which are all accounted for as operating leases. Artisan records expense for operating leases on a straight-line basis over the lease term. Any lease incentives received by Artisan are also amortized on a straight-line basis over the lease term.

Artisan assesses its contractual arrangements for the existence of a lease at inception. Operating leases with an initial term greater than 12 months are recorded as operating lease assets and operating lease liabilities in the Unaudited Condensed Consolidated Statements of Financial Condition. Lease components (e.g. fixed rental payments) and non-lease components (e.g. fixed common-area maintenance costs) are generally accounted for as a single component.

Operating lease assets and operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Artisan’s lease agreements generally do not provide an implicit interest rate, and therefore the present value calculation uses Artisan’s estimated incremental borrowing rate. A market-based approach was used to estimate the incremental borrowing rate for each individual lease using observable market interest rates and Artisan specific inputs. The lease terms include periods covered by options to extend or exclude periods covered by options to terminate the lease when it is reasonably certain that Artisan will exercise that option.

~~Operating lease expense was as follows:~~

For the Three Months Ended March 31,
2019 2018
Compensation and benefits $ 130
$ 116
Occupancy⁽¹⁾
5,394
2,826
Communication and technology 78
87
Total operating lease expense $ 5,602
$ 3,029
⁽¹⁾ Occupancy includes a $1.4 million charge related to the abandonment of a leased office space during the three months ended March 31, 2019.

~~The table below presents the maturity of operating lease liabilities, which includes~~ ~~$2.6 million~~ ~~of payments related to options to extend lease terms that are reasonably certain of being exercised:~~

As of March 31, 2019
2019 (excluding the three months ended March 31, 2019) $ 10,978
2020 16,109
2021 16,237
2022 14,814
2023 13,435
Thereafter 60,495
Total undiscounted lease payments $ 132,068
Adjustment to discount to present value (24,581 )
Total operating lease liabilities $ 107,487

~~As of March 31, 2019, there were not any leases that were signed but not yet commenced.~~

~~Other information related to leases was as follows:~~

For the Three Months Ended March 31, 2019
Weighted average discount rate 4.7 %
Weighted average remaining lease term 8.8 years
Operating cash flows for operating leases $ 3,350

~~At December 31, 2018, the aggregate future minimum payments for leases for each of the following five years and thereafter are as follows:~~

As of December 31, 2018
2019 $ 14,123
2020 15,340
2021 15,215
2022 13,748
2023 12,378
Thereafter 57,185
Total undiscounted lease payments $ 127,989

Note ~~16.~~14. Related Party Transactions

Several of the current executive officers and directors of APAM or entities associated with those individuals, are limited partners of Holdings. As a result, certain transactions (such as TRA payments) between Artisan and the limited partners of Holdings are considered to be related party transactions with respect to these persons.

Affiliate transactions—Artisan Funds

Artisan has an agreement to serve as the investment adviser to Artisan Funds, with which certain Artisan employees are affiliated. Under the terms of the agreement, which generally is reviewed and continued by the board of directors of Artisan Funds annually, a fee is paid to Artisan based on an annual percentage of the average daily net assets of each Artisan Fund ranging from 0.625% to 1.05%. Artisan has contractually agreed to waive its management fees or reimburse for expenses incurred to the extent necessary to limit annualized ordinary operating expenses incurred by certain of the Artisan Funds to not more than a fixed percentage (ranging from 0.88% to 1.50%) of a fund’s average daily net assets. In addition, Artisan may voluntarily waive fees or reimburse any of the Artisan Funds for other expenses. The officers and ~~a director~~directors of Artisan Funds who are affiliated with Artisan receive no compensation from the funds.

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Fees for managing Artisan Funds and amounts waived or reimbursed by Artisan for fees and expenses (including management fees) are as follows:

For the Three Months Ended March 31,
Artisan Funds 2019 2018
Investment management fees (Gross of fee waivers/expense reimbursements) $ 106,281
$ 125,362
Fee waivers / expense reimbursements $ 101
$ 109


	For the Three Months Ended March 31,
Artisan Funds	2020		2019
Investment management fees (Gross of fee waivers/expense reimbursements)	$	114,767	$	106,281
Fee waivers / expense reimbursements	$	88	$	101

Affiliate transactions—Artisan Global Funds

Artisan has an agreement to serve as the investment manager to Artisan Global Funds, with which certain Artisan employees are affiliated. Under the terms of these agreements, a fee is paid based on an annual percentage of the average daily net assets of each fund ranging from 0.75% to ~~1.75%~~1.85%. Artisan reimburses each sub-fund of Artisan Global Funds to the extent that sub-fund’s annual expenses, not including Artisan’s fee, exceed certain levels, which range from 0.10% to 0.20%. In addition, Artisan may voluntarily waive fees or reimburse any of the Artisan Global Funds for other expenses. The directors of Artisan Global Funds who are also employees of Artisan receive no compensation from the funds.

Fees for managing Artisan Global Funds and amounts reimbursed to Artisan Global Funds by Artisan are as follows:

For the Three Months Ended March 31,
Artisan Global Funds 2019 2018
Investment management fees (Gross of fee waivers/expense reimbursements) $ 8,172
$ 8,532
Elimination of management fees from consolidated investment products⁽¹⁾
(16 ) (6 )
Consolidated investment management fees (Gross of fee waivers / expense reimbursements) 8,156
8,526

Fee waivers / expense reimbursements $ 124
$ 58
Elimination of fee waivers / expense reimbursements from consolidated investment products⁽¹⁾
(103 ) (54 )
Consolidated fee waivers / expense reimbursements 21
4
⁽¹⁾Investment management fees and expense waivers related to consolidated investment products were eliminated from revenue upon consolidation.


	For the Three Months Ended March 31,
Artisan Global Funds	2020		2019
Investment management fees (Gross of fee waivers/expense reimbursements)	$	8,176	$	8,172
Elimination of management fees from consolidated investment products⁽¹⁾	(13)		(16)
Consolidated investment management fees (Gross of fee waivers / expense reimbursements)	$	8,163	$	8,156

Fee waivers / expense reimbursements	$	95	$	124
Elimination of fee waivers / expense reimbursements from consolidated investment products⁽¹⁾	(48)		(103)
Consolidated fee waivers / expense reimbursements	$	47	$	21

⁽¹⁾Investment management fees and expense waivers related to consolidated investment products were eliminated from revenue upon consolidation.

Affiliate transactions—Artisan Private Funds

Pursuant to written agreements, Artisan serves as the investment manager, and acts as the general partner, for certain Artisan Private Funds. Under the terms of these agreements, Artisan earns a management fee and for certain funds is entitled to receive either an allocation of ~~profits.~~profits or a performance-based fee. In addition, for a period of time following the formation of each private fund, Artisan has agreed to reimburse the fund to the extent that expenses, excluding Artisan’s management fee, performance fee and transaction related costs, exceed certain levels, which range from 0.10% to 1.00% per annum of the net assets of the fund. Artisan may also voluntarily waive fees or reimburse the funds for other expenses.

Artisan and certain related parties, including employees, officers and members of the Company’s board have invested in one or more of the funds and currently do not pay a management fee, performance fee or incentive allocation.

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Fees for managing the ~~privately offered funds~~Artisan Private Funds and amounts reimbursed to ~~the privately offered funds~~Artisan Private Funds by Artisan are as follows:


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
Artisan Private Funds	2019			2018			Artisan Private Funds	2020		2019
Investment management fees (Gross of fee waivers/expense reimbursements)	$	604		$	98		Investment management fees (Gross of fee waivers/expense reimbursements)	$	1,280	$	604
Elimination of management fees from consolidated investment products⁽¹⁾	(40		)	(98		)	Elimination of management fees from consolidated investment products⁽¹⁾	(51)		(40)
Consolidated investment management fees (Gross of fee waivers / expense reimbursements)	564			—			Consolidated investment management fees (Gross of fee waivers / expense reimbursements)	$	1,229	$	564

Fee waivers / expense reimbursements	$	53		$	9		Fee waivers / expense reimbursements	$	45	$	53
Elimination of fee waivers / expense reimbursements from consolidated investment products⁽¹⁾	(53		)	(9		)	Elimination of fee waivers / expense reimbursements from consolidated investment products⁽¹⁾	(13)		(53)
Consolidated fee waivers / expense reimbursements	—			—			Consolidated fee waivers / expense reimbursements	$	32	$	—

⁽¹⁾ Investment management fees and expense waivers related to consolidated investment products were eliminated from revenue upon consolidation.	⁽¹⁾ Investment management fees and expense waivers related to consolidated investment products were eliminated from revenue upon consolidation.						⁽¹⁾ Investment management fees and expense waivers related to consolidated investment products were eliminated from revenue upon consolidation.

Note ~~17.~~15. Subsequent Events

Distributions and dividends

APAM, acting as the general partner of Artisan Partners Holdings, declared, effective April ~~30, 2019,~~28, 2020, a distribution by Artisan Partners Holdings of ~~$34.3~~$34.7 million to holders of Artisan Partners Holdings partnership units, including APAM. ~~At the same time, the~~The board of directors of APAM declared, effective April ~~30, 2019,~~28, 2020, a quarterly dividend of ~~$0.55~~$0.61 per share of Class A common stock. The APAM dividend is payable on May ~~31, 2019,~~29, 2020, to shareholders of record as of May ~~17, 2019.~~

~~Holdings Unit Exchanges~~

On April 2, 2019, limited partners of Artisan Partners Holdings exchanged 452,629 common units for 452,629 Class A common shares. The exchange increased APAM’s equity ownership interest in Holdings and resulted in a $3.5 million increase in deferred tax assets and a $3.0 million increase in amounts payable under the tax receivable agreements.15, 2020.

TRA Payments

On April 15, ~~2019,~~2020 the Company made a payment of ~~$19.0~~$20.3 million under the tax receivable agreements representing a portion of the ~~Company’s~~Company's estimated total ~~2019~~2020 TRA payments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview ~~and Recent Highlights~~

We are an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. As of March 31, ~~2019,~~2020, our nine autonomous investment teams managed a total of 1718 investment strategies across multiple asset classes and investment styles. Over our firm’s history, we have created new investment strategies that can use a broad array of securities, instruments, and techniques (which we call degrees of freedom) to differentiate returns and manage risk.

We focus our distribution efforts on sophisticated investors and asset allocators, including institutions and intermediaries that operate with institutional-like decision-making processes. We offer our investment strategies to clients and investors through multiple investment vehicles, including separate accounts and different types of pooled vehicles. As of March 31, ~~2019,~~2020, approximately ~~79%~~80% of our assets under management were managed for clients and investors domiciled in the U.S. and ~~21%~~20% of our assets under management were managed for clients and investors domiciled outside of the U.S.

As a high-value added investment manager we expect that long-term investment performance will be the primary driver of our long-term business and financial results. If we maintain and evolve existing investment strategies and launch new investment strategies that meet the needs of and generate attractive outcomes for sophisticated asset allocators, we believe that we will continue to generate strong business and financial results.

Over shorter time periods, changes in our business and financial results are largely driven by market conditions and fluctuations in our assets under management that may not necessarily be the result of our long-term investment performance or the long-term demand for our strategies. For this reason, we expect that our business and financial results will be lumpy over time.

During the first quarter of 2019, our assets under management increased to $107.8 billion, an increase of $11.6 billion, or 12%, compared to $96.2 billion at December 31, 2018, as a result of $12.7 billion in market appreciation partially offset by $1.1 billion of net client cash outflows. Average assets under management for the March 2019 quarter was $104.9 billion, a decrease of ~~11% from the average of $118.3 billion for the March 2018 quarter.~~

We strive to maintain a financial model that is transparent and predictable. We derive essentially all of our revenues from investment management fees, nearly all of which are based on a specified percentage of clients’ average assets under management. A majority of our expenses, including most of our compensation expense, vary directly with changes in our revenues. We invest thoughtfully to support our investment teams and future growth, while also paying out to shareholders and partners a majority of the cash that we generate from operations through distributions and dividends.

Revenues were $187.0 million for the three months ended March 31, 2019, a 12% decrease from revenues of $212.0 million for the three months ended March 31, 2018. Operating margin was 30.9% for the three months ended March 31, 2019, compared to 37.7% for the three months ended March 31, 2018.

Business and financial highlights for the ~~first~~ quarter ~~of 2019~~ included:

Our assets under management as of March 31, 2019 were $107.8 billion, an increase of 12.0% compared to December 31, 2018, as a result of strong markets. Average assets under management for the first quarter were $104.9 billion.

•Our investment teams continued to generate strong absolute and relative investment returns for clients and investors. ~~Thirteen~~Net of fees, 14 of our ~~15 investment~~18 strategies ~~with a publicly available mutual fund~~ have ~~outperformed~~generated meaningful out-performance relative to their broad-based benchmarks since inception.

•During the quarter, we launched the Select Equity strategy managed by our Global Value team.

•During the three months ended March 31, 2020, our assets under management declined to $95.2 billion, a decrease of $25.8 billion, or 21%, compared to $121.0 billion at December 31, 2019, as a result of $25.3 billion of market depreciation and $0.5 billion in net client cash outflows.

•Average assets under management for the three months ended March 31, 2020 were $113.8 billion, an increase of 8% from the average of $104.9 billion for the three months ended March 31, 2019, and a decrease of 2% from the average of $115.8 billion for the three months ended December 31, 2019.

•Ten of our 18 strategies had positive net inflows in the three months ended March 31, 2020, with six of our strategies having net inflows in excess of $100 million. Our Third Generation strategies (with inception dates beginning in 2014) had $1.1 billion in net inflows.

•We earned $202.8 million in revenue for the three months ended March 31, 2020, an increase of ~~fees.~~8% from revenues of $187.0 million for the three months ended March 31, 2019.

•Our operating margin was 35.0% for the three months ended March 31, 2020, compared to 30.9% for the three months ended March 31, 2019.

•We generated $0.53 of earnings per basic and diluted share and $0.66 of adjusted EPS.

•We declared and ~~paid a quarterly dividend~~distributed dividends of ~~$0.56 per share and a special dividend of $1.03~~$1.28 per share of Class A common ~~stock.~~stock during the three months ended March 31, 2020.

~~Our Irish subsidiary was authorized~~•As of April 24, 2020, year to date we have experienced positive net inflows in 13 of our eighteen investment strategies.

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COVID-19 Pandemic

The COVID-19 pandemic and the reaction to it contributed to a decline in global markets and a corresponding decline in our assets under management. Because the revenue we earn is based on the market value of our assets under management, we expect this and any further decline in our AUM to result in a corresponding decline in our revenues and earnings.

The COVID-19 pandemic has also impacted the manner in which we operate. As of the date of this filing, nearly all of our employees are working from home and we have ceased all business travel. Additionally, many third-party vendors on whom we rely for certain critical functions have also transitioned to remote environments. We have also experienced an increase in trading activity, driven by increased client cash flows (both in and out) and investment teams repositioning portfolios.

We believe we are operating well under these circumstances, benefiting from the ~~Central Bank~~flexible and highly mobile operating environment we have built over 25 years. However, market declines and volatility, as well as changes in our operations and those of ~~Ireland to provide certain investment services~~our key vendors, may result in increased client redemptions; inefficiencies, delays and decreased communication; and an increase in the ~~European Union.~~number and significance of operational and trade errors. In addition, we do not know what, if any, longer-term impact the current operating circumstances (and/or the extension of them) will have on our business and results.

Given the fluidity of the COVID-19 pandemic situation, our senior management is meeting regularly to ensure Artisan is well-positioned to quickly adjust and react as circumstances warrant, and is providing frequent communications internally with and among our associates, our executive team and our board of directors—and externally with clients, prospects, consultants and shareholders.

Organizational Structure

Our operations are conducted through Artisan Partners Holdings (“Holdings”) and its subsidiaries. On March 12, 2013, Artisan Partners Asset Management Inc. (“APAM”) and Artisan Partners Holdings LP completed a series of transactions (“the IPO Reorganization”) to reorganize their capital structures in connection with the initial public offering (“IPO”) of APAM’s Class A common stock. The IPO Reorganization and IPO were completed on March 12, 2013. The IPO Reorganization was designed to create a capital structure that preserves our ability to conduct our business through Holdings, while permitting us to raise additional capital and provide access to liquidity through a public company.

Our employees and other limited partners of Holdings held approximately ~~29%~~23% of the equity interests in Holdings as of March 31, ~~2019.~~2020. As a result, our results reflect that significant noncontrolling interest.

We operate our business in a single segment.

~~2019~~2020 Follow-On Offering and Holdings Unit Exchanges

On February 24, 2020, APAM completed an offering of 1,802,326 shares of Class A common stock and utilized all of the proceeds to purchase an aggregate of 1,802,326 common units from certain limited partners of Holdings. In connection with the offering, APAM received 1,802,326 GP units of Holdings.

During the three months ended March 31, ~~2019,~~2020, certain limited partners of Holdings exchanged ~~680,793~~1,626,611 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM) for ~~680,793~~1,626,611 shares of Class A common stock. In connection with the exchanges, APAM received ~~680,793~~1,626,611 GP units of Holdings.

APAM’s equity ownership interest in Holdings increased from ~~70%~~73% at December 31, ~~2018~~2019 to ~~71%~~77% at March 31, ~~2019,~~2020, as a result of these transactions and other equity transactions during the period.

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Financial Overview

Economic Environment

Global equity and debt market conditions can materially affect our financial performance. The following table presents the total returns of relevant market indices for the three months ended March 31, ~~2019~~2020 and ~~2018:~~

2019:


	For the Three Months Ended March 31,					For the Three Months Ended March 31,
	2019		2018			2020		2019
S&P 500 total returns	13.6	%	(0.8	)%	S&P 500 total returns	(19.6)	%	13.6	%
MSCI All Country World total returns	12.2	%	(1.0	)%	MSCI All Country World total returns	(21.4)	%	12.2	%
MSCI EAFE total returns	10.0	%	(1.5	)%	MSCI EAFE total returns	(22.8)	%	10.0	%
Russell Midcap^® total returns	16.5	%	(0.5	)%	Russell Midcap^® total returns	(27.1)	%	16.5	%
MSCI Emerging Markets Index	9.9	%	1.4	%	MSCI Emerging Markets Index	(23.6)	%	9.9	%
ICE BofA Merrill Lynch U.S. High Yield Master II Total Return Index	7.4	%	(0.9	)%
ICE BofA U.S. High Yield Master II Total Return Index					ICE BofA U.S. High Yield Master II Total Return Index	(13.1)	%	7.4	%

Key Performance Indicators

When we review our business and financial performance we consider, among other things, the following:


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
	2019			2018				2020			2019
	(unaudited; dollars in millions)							(unaudited; dollars in millions)
Assets under management at period end	$	107,803		$	114,816		Assets under management at period end	$	95,224		$	107,803
Average assets under management ⁽¹⁾	$	104,938		$	118,275		Average assets under management ⁽¹⁾	$	113,802		$	104,938
Net client cash flows	$	(1,110	)	$	(603	)	Net client cash flows	$	(449)		$	(1,110)
Total revenues	$	187.0		$	212.0		Total revenues	$	202.8		$	187.0
Weighted average fee ⁽²⁾	72.3		bps	72.8		bps	Weighted average fee ⁽²⁾	71.7		bps	72.3		bps
Operating margin	30.9		%	37.7		%	Operating margin	35.0		%	30.9		%


⁽¹⁾We compute average assets under management by averaging day-end assets under management for the applicable period.	⁽¹⁾We compute average assets under management by averaging day-end assets under management for the applicable period.						⁽¹⁾We compute average assets under management by averaging day-end assets under management for the applicable period.
⁽²⁾ We compute our weighted average fee by dividing annualized investment management fees and performance fees by average assets under management for the applicable period.	⁽²⁾ We compute our weighted average fee by dividing annualized investment management fees and performance fees by average assets under management for the applicable period.						⁽²⁾ We compute our weighted average fee by dividing annualized investment management fees and performance fees by average assets under management for the applicable period.

Management fees and assets under management within our consolidated investment products are excluded from the weighted average fee calculations and from total revenues, since any such revenues are eliminated upon consolidation. Assets under management within Artisan Private Funds are included in the reported firm-wide, separate account, and institutional assets under management figures reported below.

Assets Under Management and Investment Performance

Changes to our operating results from one period to another are primarily caused by changes in the amount of our assets under management. Changes in the relative composition of our assets under management among our investment strategies and vehicles and the effective fee rates on our products also impact our operating results.

The amount and composition of our assets under management are, and will continue to be, influenced by a variety of factors including, among others:

•investment performance, including fluctuations in both the financial markets and foreign currency exchange rates and the quality of our investment decisions;

•flows of client assets into and out of our various strategies and investment vehicles;

•our decision to close strategies or limit the growth of assets in a strategy or a vehicle when we believe it is in the best interest of our clients; as well as our decision to re-open strategies, in part or entirely;

•our ability to attract and retain qualified investment, management, and marketing and client service professionals;

•industry trends towards products, strategies, vehicles, or services that we do not offer;

•competitive conditions in the investment management and broader financial services sectors; and

•investor sentiment and confidence.

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The table below sets forth changes in our total assets under management:


	For the Three Months Ended March 31,						Period-to-Period ⁽²⁾						For the Three Months Ended March 31,						Period-to-Period
	2019			2018			$			%			2020		2019		$		%
	(unaudited; in millions)												(unaudited; in millions)
Beginning assets under management	$	96,224		$	115,494		$	(19,270	)	(16.7	)%	Beginning assets under management	$	121,016	$	96,224	$	24,792	25.8	%
Gross client cash inflows	4,700			5,419			(719		)	(13.3	)%	Gross client cash inflows	7,079		4,700		2,379		50.6	%
Gross client cash outflows	(5,810		)	(6,022		)	212			3.5	%	Gross client cash outflows	(7,528)		(5,810)		(1,718)		(29.6)	%
Net client cash flows	(1,110		)	(603		)	(507		)	(84.1	)%	Net client cash flows	(449)		(1,110)		661		59.5	%
Market appreciation (depreciation) ⁽¹⁾	12,689			(75		)	12,764			NM		Market appreciation (depreciation) ⁽¹⁾	(25,343)		12,689		(38,032)		(299.7)	%

Ending assets under management	$	107,803		$	114,816		$	(7,013	)	(6.1	)%	Ending assets under management	$	95,224	$	107,803	$	(12,579)	(11.7)	%
Average assets under management	$	104,938		$	118,275		$	(13,337	)	(11.3	)%	Average assets under management	$	113,802	$	104,938	$	8,864	8.4	%

⁽¹⁾ Includes the impact of translating the value of assets under management denominated in non-USD currencies into U.S. dollars. The impact was immaterial for the periods presented.	⁽¹⁾ Includes the impact of translating the value of assets under management denominated in non-USD currencies into U.S. dollars. The impact was immaterial for the periods presented.											⁽¹⁾ Includes the impact of translating the value of assets under management denominated in non-USD currencies into U.S. dollars. The impact was immaterial for the periods presented.
⁽²⁾"NM" stands for Not Meaningful.

~~Across~~During the ~~firm, we experienced total~~quarter, our AUM decreased by $25.8 billion due to $25.3 billion of market depreciation resulting from the sharp decline in global equity markets caused by the COVID-19 pandemic, and $0.5 billion in net ~~outflows~~client cash outflows. Ten of our 18 investment strategies had net inflows, totaling $1.6 billion. Our eight Third Generation strategies (with inception dates beginning in 2014) had $1.1 billion ~~during the three months ended March 31, 2019. The Global Equity team experienced $672 million of~~in net outflows primarily driven by $879 million of net outflows from the Non-U.S. Growth strategy partially offset by $236 million of net inflows from the Non-U.S. Small-Mid Growth strategy. The Growth team experienced $368 million of net outflows primarily driven by the U.S. Mid-Cap Growth and Global Opportunities strategies which had net outflows of $275 million and $232 million, respectively. The U.S. Value team experienced $225 million of net outflows primarily driven by the U.S. Mid-Cap Value strategy which had net outflows of $194 million.inflows. We expect ~~net outflows from~~ the ~~Non-U.S. Growth, U.S. Mid-Cap Growth, and U.S. Mid-Cap Value~~Third Generation strategies to continue to ~~weigh on~~experience net inflows.

During the quarter, the net inflows across the majority of our ~~firm-wide~~strategies were offset by $2.1 billion of net ~~flows.~~outflows across the remaining 8 of our 18 strategies, including the Non-US Growth, US Mid-Cap Growth, and US Mid-Cap Value strategies.

As of April 24, 2020, we've experienced $1.3 billion in net inflows across the firm since the beginning of the year, with positive flows in 13 of our 18 strategies.

Over the long-term, we expect market appreciation to generate the majority of our AUM growth, which has been our historical experience.

We monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies. When appropriate, we will close a strategy to new investors or otherwise take action to slow or restrict its growth, even though our aggregate assets under management may be negatively impacted in the short term. We may also re-open a strategy, widely or selectively, to fill available capacity or manage the diversification of our client base in that strategy. We believe that management of our investment capacity protects our ability to manage assets successfully, which protects the interests of our clients and, in the long term, protects our ability to retain client assets and maintain our profit margins.

As of the date of this filing, all our ~~Non-U.S. Value~~strategies are open to new investors and ~~U.S.~~client relationships. Our US Small-Cap Growth ~~strategies are closed~~strategy has limited availability to most new investors and client relationships. Our Global Opportunities strategy is open across pooled vehicles, but closed to most new separate account clients. ~~We may selectively accept additional separate account clients in that strategy, but we are managing asset flows into that strategy with a bias towards assets from pooled vehicles.~~

When we close or otherwise restrict the growth of a strategy, we typically continue to allow additional investments in the strategy by existing clients and certain related entities. We may also permit new investments by other eligible investors in our discretion. As a result, during a given period we may have net client cash inflows in a closed strategy. However, when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows.

The table on the following page sets forth the ~~total assets under management for our investment teams and strategies as of March 31, 2019, the inception date for each investment composite, and the~~ average annual total returns for each composite (gross of fees) and its respective broad-based benchmark (and style benchmark, if applicable) over a multi-horizon time period as of March 31, ~~2019.~~2020. Returns for periods less than one year are not annualized.

We measure investment performance based upon the results of our “composites”, which represent the aggregate performance of all discretionary client accounts, including mutual funds, invested in the same strategy except those accounts with respect to which we believe client-imposed investment restrictions may have a material impact on portfolio construction and those accounts managed in a currency other than U.S. dollars. The results of these excluded accounts, which represented approximately ~~11%~~10% of our assets under management at March 31, ~~2019,~~2020, are maintained in separate composites the results of which are not included below.

Table of Contents


									Average Annual Value-Added⁽¹⁾ Since Inception (bps)
	Composite Inception	Strategy AUM		Average Annual Total Returns (gross) (%)
Investment Team and Strategy	Date	(in $MM)		1 YR	3 YR	5 YR	10 YR	Inception
Growth Team
Global Opportunities Strategy	2/1/2007	$	16,542	2.53%	9.70%	9.84%	12.93%	9.84%	635
MSCI All Country World Index				(11.26)%	1.50%	2.85%	5.87%	3.49%
Global Discovery Strategy	9/1/2017	$	764	4.22%	--	--	--	10.34%	1,144
MSCI All Country World Index				(11.26)%	--	--	--	(1.10)%
US Mid-Cap Growth Strategy	4/1/1997	$	9,273	1.28%	10.66%	7.87%	12.96%	14.41%	563
Russell Midcap® Index				(18.31)%	(0.81)%	1.85%	8.76%	8.78%
Russell Midcap® Growth Index				(9.45)%	6.53%	5.60%	10.88%	8.48%
US Small-Cap Growth Strategy	4/1/1995	$	3,112	(1.99)%	13.52%	11.20%	14.49%	10.55%	299
Russell 2000® Index				(23.99)%	(4.64)%	(0.25)%	6.90%	7.56%
Russell 2000® Growth Index				(18.58)%	0.10%	1.70%	8.88%	6.61%
Global Equity Team
Global Equity Strategy	4/1/2010	$	1,489	(1.37)%	10.78%	7.15%	11.06	11.06%	519
MSCI All Country World Index				(11.26)%	1.50%	2.85%	5.87	5.87%
Non-US Growth Strategy	1/1/1996	$	18,423	(6.61)%	4.16%	1.02%	6.19%	9.20%	546
MSCI EAFE Index				(14.38)%	(1.82)%	(0.62)%	2.71%	3.74%
Non-US Small-Mid Growth Strategy	1/1/2019	$	2,112	(5.56)%	--	--	--	7.30%	1,691
MSCI All Country World Index Ex USA Small Mid Cap				(20.05)%	--	--	--	(9.61)%


US Value Team
Value Equity Strategy	7/1/2005	$	2,355	(17.26)%	(3.00)%	1.98%	7.10%	6.05%	(156)
Russell 1000® Index				(8.03)%	4.64%	6.21%	10.38%	7.61%
Russell 1000® Value Index				(17.17)%	(2.17)%	1.90%	7.66%	5.38%
US Mid-Cap Value Strategy	4/1/1999	$	2,618	(27.22)%	(7.64)%	(2.15)%	5.80%	10.21%	239
Russell Midcap® Index				(18.31)%	(0.81)%	1.85%	8.76%	7.82%
Russell Midcap® Value Index				(24.13)%	(5.96)%	(0.76)%	7.21%	7.65%



International Value Team
International Value Strategy	7/1/2002	$	15,895	(16.82)%	(2.80)%	0.05%	6.40%	9.76%	513
MSCI EAFE Index				(14.38)%	(1.82)%	(0.62)%	2.71%	4.63%
Global Value Team
Global Value Strategy	7/1/2007	$	13,691	(20.71)%	(3.22)%	0.90%	7.55%	5.60%	268
MSCI All Country World Index				(11.26)%	1.50%	2.85%	5.87%	2.92%
Select Equity Strategy	3/1/2020	$	10	--	--	--	--	(19.19)%	(684)
S&P 500 Market Index				--	--	--	--	(12.35)%
Sustainable Emerging Markets Team
Sustainable Emerging Markets Strategy	7/1/2006	$	377	(18.90)%	(0.80)%	2.47%	0.79%	3.78%	45
MSCI Emerging Markets Index				(17.69)%	(1.62)%	(0.37)%	0.68%	3.33%
Credit Team
High Income Strategy	4/1/2014	$	3,252	(6.81)%	1.66%	4.39%	--	4.65%	209
ICE BofA US High Yield Master II Total Return Index				(7.45)%	0.55%	2.67%	--	2.56%


Developing World Team
Developing World Strategy	7/1/2015	$	3,366	7.26%	11.31%	--	--	9.55%	1,008
MSCI Emerging Markets Index				(17.69)%	(1.62)%	--	--	(0.53)%
Thematic Team
Thematic Strategy	5/1/2017	$	1,281	1.33%	--	--	--	19.19%	1,431
S&P 500 Market Index (Total Return)				(6.98)%	--	--	--	4.88%


Other Assets Under Management ²		$	664

Total Assets Under Management		$	95,224

⁽¹⁾Value-added is the amount in basis points by which the average annual gross composite return of each of our strategies has outperformed the broad-based market index most commonly used by our clients to compare the performance of the relevant strategy. Value-added for periods less than one year is not annualized. The Artisan High Income Strategy may hold loans and other security types that may not be included in the ICE BofA U.S. High Yield Master II Total Return Index. At times, this causes material differences in relative performance. The Thematic strategy's investments in initial public offerings (IPOs) made a material contribution to performance. IPO investments may contribute significantly to a small portfolio’s return, an effect that will generally decrease as assets grow. IPO investments may be unavailable in the future. ⁽²⁾Other Assets Under Management includes AUM managed by the Credit Team in the Credit Opportunities strategy and by the Thematic Team in the Thematic Long/Short strategy, respectively. Strategy specific information has been omitted.

Table of Contents

Average Annual
Value-Added⁽¹⁾
Since Inception
(bps)
Composite Inception Strategy AUM Average Annual Total Returns (gross) (%)
Investment Team and Strategy Date (in $MM) 1 YR 3 YR 5 YR 10 YR Inception
Growth Team
Global Opportunities Strategy 2/1/2007 $ 16,934
4.12% 14.75% 11.18% 17.73% 10.47% 567
MSCI All Country World Index 2.60% 10.67% 6.45% 11.98% 4.80%
Global Discovery Strategy 9/1/2017 $ 240
11.07%

14.41% 849
MSCI All Country World Index 2.60%

5.92%
U.S. Mid-Cap Growth Strategy 4/1/1997 $ 10,722
14.07% 15.32% 9.34% 18.14% 15.05% 485
Russell Midcap® Index 6.47% 11.82% 8.80% 16.87% 10.20%
Russell Midcap® Growth Index 11.51% 15.06% 10.88% 17.59% 9.38%
U.S. Small-Cap Growth Strategy 4/1/1995 $ 2,936
18.39% 23.11% 12.29% 20.76% 11.11% 198
Russell 2000® Index 2.05% 12.92% 7.05% 15.35% 9.13%
Russell 2000® Growth Index 3.85% 14.87% 8.41% 16.51% 7.82%
Global Equity Team
Global Equity Strategy 4/1/2010 $ 1,407
7.15% 15.88% 9.55%
12.53% 456
MSCI All Country World Index 2.60% 10.67% 6.45%
7.97%
Non-U.S. Growth Strategy 1/1/1996 $ 22,469
(0.54)% 7.79% 3.67% 11.54% 9.93% 533
MSCI EAFE Index (3.71)% 7.27% 2.33% 8.95% 4.60%
Non-U.S. Small-Mid Growth Strategy²
1/1/2019 $ 851

15.63% 538
MSCI All Country World Index Ex USA Small Mid Cap

10.25%
U.S. Value Team
Value Equity Strategy 7/1/2005 $ 2,436
2.33% 11.12% 7.02% 14.34% 7.98% (86)
Russell 1000® Index 9.30% 13.52% 10.63% 16.04% 8.84%
Russell 1000® Value Index 5.67% 10.45% 7.72% 14.51% 7.25%
U.S. Mid-Cap Value Strategy 4/1/1999 $ 4,734
0.27% 9.09% 4.88% 14.32% 12.52% 320
Russell Midcap® Index 6.47% 11.82% 8.80% 16.87% 9.32%
Russell Midcap® Value Index 2.89% 9.50% 7.21% 16.38% 9.55%
International Value Team
Non-U.S. Value Strategy 7/1/2002 $ 19,871
(2.82)% 7.63% 4.63% 13.77% 11.60% 571
MSCI EAFE Index (3.71)% 7.27% 2.33% 8.95% 5.89%
Global Value Team
Global Value Strategy 7/1/2007 $ 18,449
0.09% 9.96% 6.71% 15.51% 8.21% 398
MSCI All Country World Index 2.60% 10.67% 6.45% 11.98% 4.23%
Sustainable Emerging Markets Team
Sustainable Emerging Markets Strategy 7/1/2006 $ 201
(6.72)% 13.94% 6.65% 9.75% 5.81% 62
MSCI Emerging Markets Index (7.41)% 10.68% 3.68% 8.94% 5.19%
Credit Team
High Income Strategy 4/1/2014 $ 3,323
5.36% 9.95% 7.11%
7.11% 242
ICE BofAML US High Yield Master II Total Return Index 5.94% 8.69% 4.69%
4.69%
Developing World Team
Developing World Strategy 7/1/2015 $ 2,228
4.90% 15.70%

10.18% 556
MSCI Emerging Markets Index (7.41)% 10.68%

4.62%
Thematic Team
Thematic Strategy 5/1/2017 $ 687
18.61%

29.75% 1,810
S&P 500 Market Index (Total Return) 9.50%

11.66%
Other Assets Under Management ³
$ 315

Total Assets Under Management $ 107,803

⁽¹⁾Value-added is the amount in basis points by which the average annual gross composite return of each of our strategies has outperformed the broad-based market index most commonly used by our clients to compare the performance of the relevant strategy. Value-added for periods less than one year is not annualized. The Artisan High Income Strategy may hold loans and other security types that may not be included in the ICE BofA Merrill Lynch U.S. High Yield Master II Total Return Index. At times, this causes material differences in relative performance. The Global Equity, Global Discovery, and Thematic strategies’ investments in initial public offerings (IPOs) made a material contribution to performance. IPO investments may contribute significantly to a small portfolio’s return, an effect that will generally decrease as assets grow. IPO investments may be unavailable in the future. Value-added for periods of less than one year are not annualized.

⁽²⁾Effective December 4, 2018, the Non-U.S. Small-Cap Growth strategy was re-named the Non-U.S. Small-Mid Growth strategy and the strategy was given increased degrees of freedom to invest in both small and mid-cap companies around the world. In connection with that change, the strategy’s prior composite was terminated and a new composite began on January 1, 2019. The performance information shown is from January 1, 2019 inception date.

⁽³⁾ Other Assets Under Management includes AUM managed by the Credit Team in the Credit Opportunities strategy and by the Thematic Team in the Thematic Long/Short strategy, respectively. Strategy specific information has been omitted.

The tables below set forth changes in our assets under management by investment team:


				By Investment Team																														By Investment Team
Three Months Ended	Growth			Global Equity			U.S. Value			International Value			Global Value			Sustainable Emerging Markets			Credit			Developing World			Thematic			Total			Three Months Ended	Growth		Global Equity		US Value		International Value		Global Value		Sustainable Emerging Markets		Credit		Developing World		Thematic		Total
March 31, 2020																															March 31, 2020			(unaudited; in millions)
Beginning assets under management																															Beginning assets under management	$	34,793	$	27,860	$	7,402	$	22,000	$	19,707	$	234	$	3,850	$	3,374	$	1,796	$	121,016
Gross client cash inflows																															Gross client cash inflows	1,420		1,310		441		1,273		640		282		632		588		493		7,079
Gross client cash outflows																															Gross client cash outflows	(2,157)		(1,346)		(686)		(1,404)		(840)		(4)		(656)		(310)		(125)		(7,528)
Net client cash flows																															Net client cash flows	(737)		(36)		(245)		(131)		(200)		278		(24)		278		368		(449)
Market appreciation (depreciation)																															Market appreciation (depreciation)	(4,365)		(5,800)		(2,184)		(5,974)		(5,806)		(135)		(514)		(286)		(279)		(25,343)

Ending assets under management																															Ending assets under management	$	29,691	$	22,024	$	4,973	$	15,895	$	13,701	$	377	$	3,312	$	3,366	$	1,885	$	95,224
Average assets under management																															Average assets under management	$	33,702	$	26,218	$	6,337	$	20,054	$	17,963	$	352	$	3,754	$	3,492	$	1,930	$	113,802
March 31, 2019				(unaudited; in millions)																											March 31, 2019
Beginning assets under management	$	26,251		$	22,967		$	6,577		$	17,681		$	17,113		$	179		$	2,860		$	1,993		$	603		$	96,224		Beginning assets under management	$	26,251	$	22,967	$	6,577	$	17,681	$	17,113	$	179	$	2,860	$	1,993	$	603	$	96,224
Gross client cash inflows	1,117			715			170			1,389			247			4			552			199			307			4,700			Gross client cash inflows	1,117		715		170		1,389		247		4		552		199		307		4,700
Gross client cash outflows	(1,485		)	(1,387		)	(395		)	(996		)	(870		)	(2		)	(217		)	(405		)	(53		)	(5,810		)	Gross client cash outflows	(1,485)		(1,387)		(395)		(996)		(870)		(2)		(217)		(405)		(53)		(5,810)
Net client cash flows	(368		)	(672		)	(225		)	393			(623		)	2			335			(206		)	254			(1,110		)	Net client cash flows	(368)		(672)		(225)		393		(623)		2		335		(206)		254		(1,110)
Market appreciation (depreciation)	4,949			2,432			818			1,797			1,959			20			188			441			85			12,689			Market appreciation (depreciation)	4,949		2,432		818		1,797		1,959		20		188		441		85		12,689
Net transfers⁽¹⁾	—			—			—			—			—			—			—			—			—			—

Ending assets under management	$	30,832		$	24,727		$	7,170		$	19,871		$	18,449		$	201		$	3,383		$	2,228		$	942		$	107,803		Ending assets under management	$	30,832	$	24,727	$	7,170	$	19,871	$	18,449	$	201	$	3,383	$	2,228	$	942	$	107,803
Average assets under management	$	29,241		$	24,197		$	7,179		$	19,447		$	18,533		$	195		$	3,160		$	2,151		$	835		$	104,938		Average assets under management	$	29,241	$	24,197	$	7,179	$	19,447	$	18,533	$	195	$	3,160	$	2,151	$	835	$	104,938
March 31, 2018
Beginning assets under management	$	30,628		$	29,235		$	8,765		$	21,757		$	19,930		$	282		$	2,554		2,253			$	90		$	115,494
Gross client cash inflows	1,282			1,046			250			932			1,192			7			352			331			27			5,419
Gross client cash outflows	(2,186		)	(1,798		)	(584		)	(589		)	(529		)	(4		)	(258		)	(72		)	(2		)	(6,022		)
Net client cash flows	(904		)	(752		)	(334		)	343			663			3			94			259			25			(603		)
Market appreciation (depreciation)	1,147			128			(236		)	(737		)	(398		)	7			10			(3		)	7			(75		)
Net transfers⁽¹⁾	—			—			—			—			—			—			—			—			—			—
Ending assets under management	$	30,871		$	28,611		$	8,195		$	21,363		$	20,195		$	292		$	2,658		2,509			122			$	114,816
Average assets under management	$	31,861		$	29,678		$	8,614		$	21,962		$	20,671		$	294		$	2,633		2,450			$	112		$	118,275
⁽¹⁾ Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.

The goal of our marketing, distribution and client services efforts is to ~~grow~~establish and maintain a client base that is diversified by investment strategy, investment vehicle and distribution channel. As distribution channels have evolved to have more institutional-like decision making processes and longer-term investment horizons, we have expanded our distribution efforts into those areas.

The table below sets forth our assets under management by distribution channel⁽¹⁾:


	As of March 31, 2019				As of March 31, 2018					As of March 31, 2020						As of March 31, 2019
	$ in millions		% of total		$ in millions		% of total			$ in millions		% of total		$ in millions		% of total
	(unaudited)				(unaudited)					(unaudited)				(unaudited)
Institutional	$	71,432	66.3	%	$	75,008	65.3	%	Institutional	$	63,397	66.6	%	$	71,432	66.3	%
Intermediary	31,613		29.3	%	34,754		30.3	%	Intermediary	27,868		29.3	%	31,613		29.3	%
Retail	4,758		4.4	%	5,054		4.4	%	Retail	3,959		4.1	%	4,758		4.4	%
Ending Assets Under Management	$	107,803	100.0	%	$	114,816	100.0	%	Ending Assets Under Management	$	95,224	100.0	%	$	107,803	100.0	%

⁽¹⁾The allocation of assets under management by distribution channel involves the use of estimates and the exercise of judgment.	⁽¹⁾The allocation of assets under management by distribution channel involves the use of estimates and the exercise of judgment.								⁽¹⁾The allocation of assets under management by distribution channel involves the use of estimates and the exercise of judgment.

Our institutional channel includes assets under management sourced from defined contribution plan clients, which made up approximately 12% of our total assets under management as of March 31, ~~2019.~~2020.

Table of Contents

The following tables set forth the changes in our assets under management for Artisan Funds, Artisan Global Funds and separate accounts:


Three Months Ended	Artisan Funds & Artisan Global Funds		Separate Accounts		Total
March 31, 2020	(unaudited; in millions)
Beginning assets under management	$	57,288	$	63,728	$	121,016
Gross client cash inflows	4,725		2,354		7,079
Gross client cash outflows	(5,575)		(1,953)		(7,528)
Net client cash flows	(850)		401		(449)
Market appreciation (depreciation)	(11,947)		(13,396)		(25,343)
Net transfers ⁽¹⁾	(65)		65		—
Ending assets under management	$	44,426	$	50,798	$	95,224
Average assets under management	$	53,775	$	60,027	$	113,802
March 31, 2019
Beginning assets under management	$	46,654	$	49,570	$	96,224
Gross client cash inflows	3,466		1,234		4,700
Gross client cash outflows	(4,113)		(1,697)		(5,810)
Net client cash flows	(647)		(463)		(1,110)
Market appreciation (depreciation)	5,944		6,745		12,689
Net transfers ⁽¹⁾	—		—		—
Ending assets under management	$	51,951	$	55,852	$	107,803
Average assets under management	$	50,594	$	54,344	$	104,938

⁽¹⁾ Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.

Table of Contents

Three Months Ended Artisan Funds & Artisan Global Funds Separate Accounts Total
March 31, 2019 (unaudited; in millions)
Beginning assets under management $ 46,654
$ 49,570
$ 96,224
Gross client cash inflows 3,466
1,234
4,700
Gross client cash outflows (4,113 ) (1,697 ) (5,810 )
Net client cash flows (647 ) (463 ) (1,110 )
Market appreciation (depreciation) 5,944
6,745
12,689
Net transfers ⁽¹⁾
—
—
—
Ending assets under management $ 51,951
$ 55,852
$ 107,803
Average assets under management $ 50,594
$ 54,344
$ 104,938
March 31, 2018
Beginning assets under management $ 57,349
$ 58,145
$ 115,494
Gross client cash inflows 4,538
881
5,419
Gross client cash outflows (3,458 ) (2,564 ) (6,022 )
Net client cash flows 1,080
(1,683 ) (603 )
Market appreciation (depreciation) (243 ) 168
(75 )
Net transfers ⁽¹⁾
(236 ) 236
—
Ending assets under management $ 57,950
$ 56,866
$ 114,816
Average assets under management $ 58,876
$ 59,399
$ 118,275
⁽¹⁾ Net transfers represent certain amounts that we have identified as having been transferred out of one investment strategy or investment vehicle and into another strategy or vehicle.

Results of Operations

Three months ended March 31, ~~2019,~~2020, Compared to Three months ended March 31, ~~2018~~

2019


	For the Three Months Ended March 31,						For the Period-to-Period						For the Three Months Ended March 31,						For the Period-to-Period
	2019			2018			$			%			2020		2019		$		%
Statements of operations data:	(unaudited; in millions, except share and per-share data)											Statements of operations data:	(unaudited; in millions, except share and per-share data)
Revenues	$	187.0		$	212.0		$	(25.0	)	(12	)%	Revenues	$	202.8	$	187.0	$	15.8	8	%
Operating Expenses												Operating Expenses
Total compensation and benefits	99.3			105.2			(5.9		)	(6	)%	Total compensation and benefits	104.7		99.3		5.4		5	%

Other operating expenses	30.0			26.8			3.2			12	%	Other operating expenses	27.1		30.0		(2.9)		(10)	%
Total operating expenses	129.3			132.0			(2.7		)	(2	)%	Total operating expenses	131.8		129.3		2.5		2	%
Total operating income	57.7			80.0			(22.3		)	(28	)%	Total operating income	71.0		57.7		13.3		23	%
Non-operating income (expense)												Non-operating income (expense)
Interest expense	(2.8		)	(2.8		)	—			—	%	Interest expense	(2.7)		(2.8)		0.1		4	%

Other non-operating income	4.3			6.7			(2.4		)	(36	)%	Other non-operating income	(15.2)		4.3		(19.5)		(453)	%
Total non-operating income (expense)	1.5			3.9			(2.4		)	(62	)%	Total non-operating income (expense)	(17.9)		1.5		(19.4)		(1,293)	%
Income before income taxes	59.2			83.9			(24.7		)	(29	)%	Income before income taxes	53.1		59.2		(6.1)		(10)	%
Provision for income taxes	9.4			12.2			(2.8		)	(23	)%	Provision for income taxes	9.5		9.4		0.1		1	%
Net income before noncontrolling interests	49.8			71.7			(21.9		)	(31	)%	Net income before noncontrolling interests	43.6		49.8		(6.2)		(12)	%
Less: Noncontrolling interests - Artisan Partners Holdings	17.3			26.1			(8.8		)	(34	)%	Less: Noncontrolling interests - Artisan Partners Holdings	16.1		17.3		(1.2)		(7)	%
Less: Noncontrolling interests - consolidated investment products	1.0			4.3			(3.3		)	(77	)%	Less: Noncontrolling interests - consolidated investment products	(7.3)		1.0		(8.3)		(830)	%
Net income attributable to Artisan Partners Asset Management Inc.	$	31.5		$	41.3		$	(9.8	)	(24	)%	Net income attributable to Artisan Partners Asset Management Inc.	$	34.8	$	31.5	$	3.3	10	%
Share Data												Share Data
Basic and diluted earnings per share	$	0.47		$	0.75							Basic and diluted earnings per share	$	0.53	$	0.47
Basic and diluted weighted average number of common shares outstanding	50,145,684			47,360,438								Basic and diluted weighted average number of common shares outstanding	53,265,479		50,145,684

Revenues

Essentially all of our revenues consist of investment management fees earned from managing clients’ assets. Our investment management fees fluctuate based on a number of factors, including the total value of our assets under management, the composition of assets under management among investment vehicles and our investment strategies, changes in the investment management fee rates on our products, the extent to which we enter into fee arrangements that differ from our standard fee schedules, which can be affected by custom and the competitive landscape in the relevant market, and, for the accounts on which we earn performance-based fees, the investment performance of those ~~accounts relative~~accounts.

Approximately 3% of our $95.2 billion of assets under management as of March 31, 2020 have performance fee billing arrangements. We expect the majority of our performance fees to ~~their designated benchmarks.~~be recognized during the June quarter. However, there is a potential for performance fees to be earned and recognized in each quarter throughout the year. Performance fees of $2.9 million were recognized for the three months ended March 31, 2020, compared to $0.1 million for the three months ended March 31, 2019.

The ~~decrease~~increase in revenues of ~~$25.0~~$15.8 million, or ~~12%~~8%, for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018,~~2019, was driven primarily by a ~~$13.3~~$8.9 billion, or ~~11%~~8%, ~~decrease~~increase in our average assets under management. The weighted average investment management fee was 71.7 basis points for the three months ended March 31, 2020 compared to 72.3 basis points for the three months ended March 31, ~~2019 compared to 72.8 basis points for the three months ended March 31, 2018.~~2019. The decrease in the weighted average fee was primarily due to an increase in the proportion of total assets managed in separate ~~accounts.~~accounts and the unfavorable impact of separate accounts with billing methods based on ending AUM. These decreases were partially offset by the favorable impact of higher performance fees recognized in the three months ended March 31, 2020.

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The following table sets forth the weighted average fee and ~~composition of revenue and assets under~~investment management fees earned by investment ~~vehicle:~~

vehicle. The weighted average fee for Artisan Funds and Artisan Global Funds reflects the additional services we provide to these pooled vehicles.


	Separate Accounts						Artisan Funds and Artisan Global Funds							Separate Accounts									Artisan Funds and Artisan Global Funds
For the Three Months Ended March 31,	2019			2018			2019			2018			For the Three Months Ended March 31,	2020			2019			2020			2019
	(unaudited; dollars in millions)													(unaudited; dollars in millions)
Investment management fees	$	72.7		$	78.2		$	114.3		$	133.8		Investment management fees	$	80.0		$	72.7		$	122.8		$	114.3
Weighted average fee	54.3 basis points			53.5 basis points			91.6 basis points			92.2 basis points			Weighted average fee	53.7 bps			54.3 bps			91.8 bps			91.6 bps
Percentage of ending AUM	52		%	50		%	48		%	50		%	Percentage of ending AUM	53		%	52		%	47		%	48		%

Separate account assets under management consist of the assets we manage in or through vehicles other than Artisan Funds or Artisan Global Funds, including assets we manage in traditional separate accounts, as well as assets we manage in Artisan-branded collective investment trusts, in funds (both public and private) that we sub-advise, and in our own privately offered funds.

Operating Expenses

~~The decrease in total operating~~Operating expenses ~~of $2.7~~increased $2.5 million for the three months ended March 31, ~~2019,~~2020 compared to the three months ended March 31, ~~2018, was~~2019, primarily as a result of ~~lower~~higher incentive compensation ~~and third-party distribution~~ expense, ~~due to decreased revenues and~~partially offset by lower equity-based compensation ~~expense. The decreases were partially offset by~~expense, and an ~~increase in~~ occupancy ~~expense~~charge taken during the three months ended March 31, 2019 related to ~~investment team relocations and compensation expense related to merit increases and additional employees.~~exiting an office space.

Compensation and Benefits


											For the Three Months Ended March 31,						Period-to-Period
	For the Three Months Ended March 31,				Period-to-Period						2020		2019		$		%
	2019		2018		$			%			(unaudited; in millions)
	(unaudited; in millions)
Salaries, incentive compensation and benefits	$	87.7	$	91.4	$	(3.7	)	(4	)%
Salaries, incentive compensation and benefits⁽¹⁾										Salaries, incentive compensation and benefits⁽¹⁾	$	95.5	$	87.7	$	7.8	9	%
Restricted share-based award compensation expense	11.6		13.8		$	(2.2	)	(16	)%	Restricted share-based award compensation expense	9.2		11.6		(2.4)		(21)	%
Total compensation and benefits	$	99.3	$	105.2	$	(5.9	)	(6	)%	Total compensation and benefits	$	104.7	$	99.3	$	5.4	5	%
⁽¹⁾Excluding restricted share-based award compensation expense										⁽¹⁾Excluding restricted share-based award compensation expense

The ~~decrease~~increase in salaries, incentive compensation, and benefits was driven primarily by a ~~$7.2~~$5.6 million ~~decrease~~increase in incentive compensation paid to our investment and marketing professionals as a result of the ~~decrease~~increase in revenue. ~~The decrease in incentive compensation was partially offset by compensation expense related to merit increases and additional employees.~~

Restricted share-based award compensation expense decreased ~~$2.2~~$2.4 million, as the awards that became fully amortized during ~~2018~~2019 and 2020 had a higher value than the awards granted in ~~2018~~2019 and ~~2019.~~2020. During the three months ended March 31, ~~2019, Artisan granted 959,000 restricted stock awards and 4,000 restricted stock units of Class A common stock to employees of the Company.~~2020, Artisan's 2020 equity award was approved. Total compensation expense associated with the ~~2019~~2020 grant is expected to be approximately ~~$22.1~~$34.2 million. Restricted share-based award compensation expense for all outstanding awards is expected to be approximately $9 million per quarter in 2020.

Total salaries, incentive compensation and benefits was ~~53%~~52% and ~~50%~~53% of our revenues for the three months ended March 31, ~~2019,~~2020, and ~~2018,~~2019, respectively.

Other operating expenses

Other operating expenses ~~increased $3.2~~decreased $2.9 million for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 primarily due to ~~increased~~a $2.0 million occupancy ~~and technology expenses. During~~charge taken during the three months ended March 31, 2019 ~~we incurred approximately $2.0 million of incremental occupancy expense~~ related to ~~the~~exiting an office ~~relocation~~space.

Table of ~~one of our investment teams. The increased expense includes accelerated depreciation expense and accelerated expense for the remaining lease costs to be incurred for an exited location.~~Contents

Non-Operating Income (Expense)

Non-operating income (expense) consisted of the following:


	For the Three Months Ended March 31,						Period-to-Period						For the Three Months Ended March 31,						Period-to-Period
	2019			2018			$			%			2020		2019		$		%
	(unaudited; in millions)												(unaudited; in millions)
Interest expense	$	(2.8	)	$	(2.8	)	$	—		—	%	Interest expense	$	(2.7)	$	(2.8)	$	0.1	(4)	%
Net investment gain (loss) of consolidated investment products	2.3			6.3			$	(4.0	)	(63	)%	Net investment gain (loss) of consolidated investment products	(12.9)		2.3		(15.2)		(661)	%
Net investment income	2.0			0.4			$	1.6		400	%

Other investment gain (loss)												Other investment gain (loss)	(2.3)		2.0		(4.3)		(215)	%
Total non-operating income (expense)	$	1.5		$	3.9		$	(2.4	)	(62	)%	Total non-operating income (expense)	$	(17.9)	$	1.5	$	(19.4)	(1,293)	%

Provision for Income Taxes

The provision for income taxes primarily represents APAM’s U.S. federal, state and local income taxes on its allocable portion of Holdings’ income, as well as foreign income taxes payable by Holdings’ subsidiaries. APAM’s effective income tax rate for the three months ended March 31, 2020 and 2019 was 17.8% and ~~2018 was~~ 15.9% ~~and 14.6%~~, respectively. Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately ~~31%~~26% and ~~33%~~31% of Holdings’ full year projected taxable earnings were not subject to corporate-level taxes for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Thus, income before income taxes includes amounts that are attributable to noncontrolling interests and not taxable to APAM and its subsidiaries, which reduces the effective tax rate. As APAM’s equity ownership in Holdings increases, the effective tax rate will likewise increase as more income will be subject to corporate-level taxes. The effective tax rate was favorably impacted in both periods due to tax deductible dividends paid on unvested ~~share-based awards, net of higher tax expense related to the vesting of~~ restricted share-based awards.

Earnings Per Share

Weighted average basic and diluted shares of Class A common stock outstanding were higher for the three months ended March 31, ~~2019,~~2020, compared to the three months ended March 31, ~~2018,~~2019, as a result of ~~the 2018 Follow-On Offering, Holdings Common Unit Exchanges,~~stock offerings, unit exchanges, and equity award grants. See Note ~~13,~~12, “Earnings Per Share” in the Notes to the Unaudited Consolidated Financial Statements for further discussion of earnings per share.

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Supplemental Non-GAAP Financial Information

Our management uses non-GAAP measures (referred to as “adjusted” measures) of net income to evaluate the profitability and efficiency of the underlying operations of our business and as a factor when considering net income available for distributions and dividends. These adjusted measures remove the impact of (1) net gain (loss) on the tax receivable agreements (if any), and (2) net investment gain (loss) of investment products. These adjustments also remove the non-operational complexities of our structure by adding back ~~non-controlling~~noncontrolling interests and assuming all income of Artisan Partners Holdings is allocated to APAM. Management believes these non-GAAP measures provide more meaningful information to analyze our profitability and efficiency between periods and over time. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to manage the company.

Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. Our non-GAAP measures are as follows:

•Adjusted net income represents net income excluding the impact of (1) net gain (loss) on the tax receivable agreements (if any), and (2) net investment gain (loss) of investment products. Adjusted net income also reflects income taxes assuming the vesting of all unvested Class A share-based awards and as if all outstanding limited partnership units of Artisan Partners Holdings had been exchanged for Class A common stock of APAM on a one-for-one basis. Assuming full vesting and exchange, all income of Artisan Partners Holdings is treated as if it were allocated to APAM, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting ~~assumed~~APAM's current federal, state, and local income ~~taxes.~~statutory tax rates. The ~~estimated~~ adjusted ~~effective~~ tax rate was 24.5% and 23.5% for the 2020 and 2019 periods ~~presented.~~presented, respectively.

•Adjusted net income per adjusted share is calculated by dividing adjusted net income by adjusted shares. The number of adjusted shares is derived by assuming the vesting of all unvested Class A share-based awards and the exchange of all outstanding limited partnership units of Artisan Partners Holdings for Class A common stock of APAM on a one-for-one basis.

•Adjusted EBITDA represents adjusted net income before interest expense, income taxes, depreciation and amortization expense.

Net gain (loss) on the tax receivable agreements represents the income (expense) associated with the change in estimate of amounts payable under the tax receivable agreements entered into in connection with APAM’s initial public offering and related reorganization.

Net investment gain (loss) of investment products represents the non-operating income (loss) related to the Company’s seed investments, in both consolidated investment products and unconsolidated investment products. Excluding these non-operating market gains or losses on seed investments provides greater transparency to evaluate the profitability and efficiency of the underlying operations of the business.

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The following table sets forth, for the periods indicated, a reconciliation from GAAP financial measures to non-GAAP measures:


	For the Three Months Ended March 31,
	2020		2019
	(unaudited; in millions, except per share data)
Reconciliation of non-GAAP financial measures:
Net income attributable to Artisan Partners Asset Management Inc. (GAAP)	$	34.8	$	31.5
Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings	16.1		17.3
Add back: Provision for income taxes	9.5		9.4



Add back: Net investment (gain) loss of investment products attributable to APAM	8.1		(2.9)
Less: Adjusted provision for income taxes	16.8		13.0
Adjusted net income (Non-GAAP)	$	51.7	$	42.3

Average shares outstanding
Class A common shares	53.3		50.1
Assumed vesting or exchange of:
Unvested Class A restricted share-based awards	5.1		4.9

Artisan Partners Holdings units outstanding (noncontrolling interests)	20.1		22.6
Adjusted shares	78.5		77.6

Basic and diluted earnings per share (GAAP)	$	0.53	$	0.47
Adjusted net income per adjusted share (Non-GAAP)	$	0.66	$	0.55









Net income attributable to Artisan Partners Asset Management Inc. (GAAP)	$	34.8	$	31.5
Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings	16.1		17.3



Add back: Net investment (gain) loss of investment products attributable to APAM	8.1		(2.9)
Add back: Interest expense	2.7		2.8
Add back: Provision for income taxes	9.5		9.4
Add back: Depreciation and amortization	1.6		2.1
Adjusted EBITDA (Non-GAAP)	$	72.8	$	60.2

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For the Three Months Ended March 31,
2019 2018
(unaudited; in millions, except per share data)
Reconciliation of non-GAAP financial measures:
Net income attributable to Artisan Partners Asset Management Inc. (GAAP) $ 31.5
$ 41.3
Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings 17.3
26.1
Add back: Provision for income taxes 9.4
12.2
Add back: Net investment (gain) loss of investment products attributable to APAM (2.9 ) (2.0 )
Less: Adjusted provision for income taxes 13.0
18.3
Adjusted net income (Non-GAAP) $ 42.3
$ 59.3

Average shares outstanding
Class A common shares 50.1
47.4
Assumed vesting or exchange of:
Unvested Class A restricted share-based awards 4.9
4.5
Artisan Partners Holdings units outstanding (noncontrolling interest) 22.6
24.6
Adjusted shares 77.6
76.5

Basic and diluted earnings per share (GAAP) $ 0.47
$ 0.75
Adjusted net income per adjusted share (Non-GAAP) $ 0.55
$ 0.78

Net income attributable to Artisan Partners Asset Management Inc. (GAAP) $ 31.5
$ 41.3
Add back: Net income attributable to noncontrolling interests - Artisan Partners Holdings 17.3
26.1
Add back: Net investment (gain) loss of investment products attributable to APAM (2.9 ) (2.0 )
Add back: Interest expense 2.8
2.8
Add back: Provision for income taxes 9.4
12.2
Add back: Depreciation and amortization 2.1
1.2
Adjusted EBITDA (Non-GAAP) $ 60.2
$ 81.6

Liquidity and Capital Resources

Our working capital needs, including accrued incentive compensation payments, have been and are expected to be met primarily through cash generated by our operations. The assets and liabilities of consolidated investment products attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the benefits from, nor do we bear the risks associated with, the assets and liabilities of consolidated investment products, beyond our direct equity investment and any investment management fees and incentive allocations earned. Accordingly, assets and liabilities of consolidated investment products attributable to third party investors are excluded from the amounts and discussions below. The following table shows our liquidity position as of March 31, ~~2019,~~2020, and December 31, ~~2018:~~

2019:


	March 31, 2019		December 31, 2018			March 31, 2020		December 31, 2019
	(unaudited; in millions)					(unaudited; in millions)
Cash and cash equivalents	$	152.2	$	160.5	Cash and cash equivalents	$	170.7	$	134.6
Accounts receivable	$	79.3	$	67.7	Accounts receivable	$	96.7	$	81.9
Seed investments⁽¹⁾	$	51.2	$	48.3	Seed investments⁽¹⁾	$	31.6	$	57.8
Undrawn commitment on revolving credit facility	$	100.0	$	100.0	Undrawn commitment on revolving credit facility	$	100.0	$	100.0
⁽¹⁾Seed investments includes equity investments in unconsolidated sponsored investment entities, as well as Artisan’s direct equity investments in consolidated investment products.
⁽¹⁾Seed investments include Artisan's direct equity investments in consolidated and unconsolidated Artisan-sponsored investment products.					⁽¹⁾Seed investments include Artisan's direct equity investments in consolidated and unconsolidated Artisan-sponsored investment products.

We manage our cash balances in order to fund our day-to-day operations. Accounts receivable primarily represent investment management fees that have been earned, but not yet received from our clients. We perform a review of our receivables on a monthly basis to assess collectability. As of March 31, ~~2019,~~2020, none of our receivables were considered uncollectable.

~~In August 2012, we issued $200.0~~We utilize capital to make seed investments in Artisan-sponsored investment products to support the development of new strategies. As of March 31, 2020, the balance of all seed investments, including investments in consolidated investment products, was $31.6 million. The seed investments are generally redeemable at our discretion.

The March 31, 2020 accounts receivable balance includes $13.7 million of proceeds from the redemption of seed investments that were not received by Artisan until the second quarter of 2020.

We have $200 million in unsecured notes outstanding and ~~entered into~~ a ~~$100.0~~$100 million~~five-year~~ revolving credit ~~facility.~~facility with a five-year term ending August 2022. The notes ~~were~~are comprised of three series, Series A,C, Series B,D, and Series C,E, each with a balloon payment at maturity. The $100 million revolving credit facility was unused as of and for the three months ended March 31, 2020.

The fixed interest rate on each series of unsecured notes is subject to a 100 basis point increase in the event Holdings receives a below-investment grade rating and any such increase will continue to apply until an investment grade rating is received.

In August 2017, we issued $60 million of Series D notes and used the proceeds to repay the $60 million Series A notes that matured on August 16, 2017. We also amended and extended the $100 million revolving credit facility for an additional five-year period. The $100.0 million revolving credit facility was unused as of and for the three months ended March 31, 2019.

These borrowings contain various ~~restrictive~~ covenants. Our failure to comply with any of the covenants could result in an event of default under the agreements, giving our lenders the ability to accelerate repayment of our obligations. We were in compliance with all debt covenants as of March 31, ~~2019.~~

$50 million of the unsecured notes are scheduled to mature in August 2019. Subject to lender negotiations and market conditions, we currently intend to refinance the $50 million Series B notes prior to or at maturity. In the event the notes are not refinanced, we intend to use existing excess cash to pay the principal upon maturity.2020.

Distributions and Dividends

Artisan Partners Holdings’ distributions, including distributions to APAM for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, were as follows:


	For the Three Months Ended March 31,					For the Three Months Ended March 31,
	2019		2018			2020		2019
	(unaudited, in millions)					(unaudited, in millions)
Holdings Partnership Distributions to Limited Partners	$	22.6	$	22.7	Holdings Partnership Distributions to Limited Partners	$	17.1	$	22.6
Holdings Partnership Distributions to APAM	$	53.4	$	45.6	Holdings Partnership Distributions to APAM	45.1		53.4
Total Holdings Partnership Distributions	$	76.0	$	68.3	Total Holdings Partnership Distributions	$	62.2	$	76.0

On April ~~30, 2019,~~28, 2020, we, acting as the general partner of Artisan Partners Holdings, declared a distribution of ~~$34.3~~$34.7 million, payable by Artisan Partners Holdings to holders of its partnership units, including us.

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APAM declared and paid the following dividends per share during the three months ended March 31, ~~2019~~2020 and ~~2018:~~

2019:


Type of Dividend	Class of Stock	For the Three Months Ended March 31,				Type of Dividend	Class of Stock	For the Three Months Ended March 31,
		2019		2018				2020		2019
Quarterly	Class A Common	$	0.56	$	0.60	Quarterly	Class A Common	$	0.68	$	0.56
Special Annual	Class A Common	$	1.03	$	0.79	Special Annual	Class A Common	$	0.60	$	1.03

Our board of directors declared, effective April ~~30, 2019,~~28, 2020, a variable quarterly dividend of ~~$0.55~~$0.61 per share ~~of Class A common stock~~ with respect to the ~~March 2019~~first quarter of 2020, payable on May ~~31, 2019~~29, 2020 to shareholders of record as of the close of business on May ~~17, 2019.~~15, 2020. The variable quarterly dividend of ~~$0.55~~$0.61 per share represents approximately 80% of the cash generated in the ~~March 2019~~first quarter of 2020 and a pro-rata portion of ~~2018~~2020 tax savings related to our tax receivable agreements.

Subject to board approval each quarter, we currently expect to pay a quarterly dividend of approximately 80% of the cash the Company generates each quarter. After the end of the year, our board will consider paying a special ~~dividend that will take into consideration total annual cash generation, business conditions and the amount of cash we want to retain at that time.~~dividend. Although we expect to pay dividends according to our dividend policy, we may not pay dividends according to our policy or at all.

Tax Receivable Agreements (“TRAs”)

In addition to funding our normal operations, we will be required to fund amounts payable under the TRAs that we entered into in connection with the IPO, which resulted in the recognition of a ~~$374.7~~$406.2 million liability as of March 31, ~~2019.~~2020. The liability generally represents 85% of the tax benefits APAM expects to realize as a result of the merger of an entity into APAM as part of the IPO Reorganization, our purchase of partnership units from limited partners of Holdings and the exchange of partnership units (for shares of Class A common stock or other consideration). The estimated liability assumes no material changes in the relevant tax law and that APAM earns sufficient taxable income to realize all tax benefits subject to the TRAs. An increase or decrease in future tax rates will increase or decrease, respectively, the expected tax benefits APAM would realize and the amounts payable under the TRAs. Changes in the estimate of expected tax benefits APAM would realize and the amounts payable under the TRAs as a result of change in tax rates have been and will be recorded in net income.

The liability will increase upon future purchases or exchanges of limited partnership units with the increase representing amounts payable under the TRAs equal to 85% of the estimated future tax benefits, if any, resulting from such purchases or exchanges. We intend to fund the payment of amounts due under the TRAs out of the reduced tax payments that APAM realizes in respect of the tax attributes to which the TRAs relate.

The actual increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of sales or exchanges by the holders of limited partnership units, the price of the Class A common stock at the time of such sales or exchanges, whether such sales or exchanges are taxable, the amount and timing of the taxable income APAM generates in the future and the tax rate then applicable and the portion of APAM’s payments under the TRAs constituting imputed interest or depreciable basis or amortizable basis. In certain cases, payments under the TRAs may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the TRAs. In such cases, we intend to fund those payments with cash on hand, although we may have to borrow funds depending on the amount and timing of the payments. We expect to make payments of approximately ~~$25~~$27 million in ~~2019~~2020 related to the TRAs, ~~$19.0~~$20.3 million of which we paid on April 15, ~~2019.~~2020.

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Cash Flows


	For the Three Months Ended March 31,							For the Three Months Ended March 31,
	2019			2018				2020		2019
	(unaudited; in millions)							(unaudited; in millions)
Cash, cash equivalents and restricted cash as of January 1	$	175.5		$	159.8		Cash, cash equivalents and restricted cash as of January 1	$	144.3	$	175.5
Net cash provided by operating activities	93.9			167.3			Net cash provided by operating activities	120.4		93.9
Net cash used in investing activities	(4.8		)	(0.8		)
Net cash provided by (used in) investing activities							Net cash provided by (used in) investing activities	3.6		(4.8)
Net cash used in financing activities	(109.6		)	(80.1		)	Net cash used in financing activities	(90.3)		(109.6)

Cash, cash equivalents and restricted cash as of March 31	$	155.0		$	246.2		Cash, cash equivalents and restricted cash as of March 31	$	178.0	$	155.0

Net cash provided by operating activities ~~decreased $73.4~~increased $26.5 million for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018,~~2019, primarily due to an increase in operating income resulting from higher AUM and revenues as well as timing differences in working capital accounts, which caused operating cash flows to decrease by $33.9 million between the comparative periods. Working capital negatively impacted operating cash flows primarily due to the timing of executive bonus payments and the timing of the collection of receivables from customers. Operating cash flows were also lower than the prior year period due to a decrease in operating income resulting from lower AUM and revenue.accounts. For the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018,~~2019, our operating income, excluding share-based related compensation expense, ~~decreased $24.5~~increased $10.8 million. ~~Additionally, consolidated investment product activity negatively~~Working capital positively impacted operating cash flows by ~~$20.8~~$10.8 million ~~for the three months ended March 31, 2019 compared~~primarily due to the ~~three months ended March 31, 2018.~~timing of customer accounts receivable payments.

Investing activities consist primarily of acquiring and selling property and equipment, leasehold improvements and the purchase and sale of ~~available-for-sale~~investment securities. Net cash ~~used in~~provided by investment activities increased ~~$4.0~~$8.4 million for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018,~~2019, primarily due to a $4.4 million increase in net proceeds from the sale of investment securities and a $4.0 million ~~increase~~decrease in the acquisition of property and equipment and leasehold ~~improvements related to the relocation of several investment teams.~~improvements.

Financing activities consist primarily of partnership distributions to ~~non-controlling~~noncontrolling interests, dividend payments to holders of our Class A common stock, proceeds from the issuance of Class A common stock in follow-on offerings, payments to purchase Holdings partnership units, and payments of amounts owed under the tax receivable agreements. Net cash used by financing activities ~~increased $29.5~~decreased $19.3 million for the three months ended March 31, ~~2019~~2020 compared to the three months ended March 31, ~~2018,~~2019, primarily due to a ~~$16.2~~$13.9 million ~~increase~~decrease in dividends paid to holders of our Class A common stock, ~~and~~ a ~~$13.5~~$5.5 million decrease in distributions to limited partners, and a $2.6 million increase in contributions from ~~non-controlling~~noncontrolling interests in our consolidated investment ~~products.~~products, partially offset by a $2.7 million increase in taxes paid related to employee net share settlement.

Certain Contractual Obligations

As of March 31, ~~2019,~~2020, there have been no material changes to our contractual obligations outside the ordinary course of business from those listed in the “Certain Contractual Obligations” table and related notes to the table in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~20, 2019,~~18, 2020, except for the changes in the TRA liability during the year.

As previously discussed in this report, the TRA liability increased from ~~$369.4~~$375.3 million at December 31, ~~2018~~2019 to ~~$374.7~~$406.2 million at March 31, ~~2019.~~2020. Amounts payable under the TRAs will increase upon exchanges of Holdings units for our Class A common stock or sales of Holdings units to us, with the increase representing 85% of the estimated future tax benefits, if any, resulting from such exchanges or sales and decrease when payments are made. The actual amount and timing of payments associated with our existing payable under the TRAs or future exchanges or sales, and associated tax benefits, will vary depending upon a number of factors as described under “Liquidity and Capital Resources.” As a result, the timing of payments by period is currently unknown. We expect to make payments of approximately ~~$25~~$27 million in ~~2019~~2020 related to the TRAs, ~~$19~~$20.3 million of which we paid on April 15, ~~2019.~~2020.

Off-Balance Sheet Arrangements

As of March 31, ~~2019,~~2020, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, results of operations, liquidity or capital resources.

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Critical Accounting Policies and Estimates

There have been no updates to our critical accounting policies from those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the year ended December 31, ~~2018.~~2019.

New or Revised Accounting Standards

See Part I, Item 1, Unaudited Consolidated Financial Statements - Note 2, “Summary of Significant Accounting Policies.”

Item 3. Qualitative and Quantitative Disclosures Regarding Market Risk

There have been no material changes in our Quantitative and Qualitative Disclosures Regarding Market Risk from those previously reported in our Form 10-K for the year ended December 31, ~~2018.~~2019.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at March 31, ~~2019~~.2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, ~~2019,~~2020, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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Part II — Other Information

Item 1. Legal Proceedings

In the normal course of business, we may be subject to various legal and administrative proceedings. Currently, there are no legal or administrative proceedings that management believes may have a material effect on our consolidated financial position, cash flows or results of operations.

Item 1A. Risk Factors

The outbreak of COVID-19, and the reaction thereto, has negatively affected the global economy and financial markets and has disrupted our normal business operations.

The COVID-19 pandemic, together with resulting voluntary and government-imposed actions, has disrupted the global economy, increased market volatility, and resulted in significant declines in the valuation of investment securities.

Our assets under management declined from $125.4 billion on February 19, 2020 to $95.2 billion on March 31, 2020. We expect the decline in our AUM to result in a corresponding decline in our revenues. Market declines and volatility may also cause clients to choose to redeem their investments in our strategies (upon short or no notice), as well as increase the likelihood and consequences of trading, valuation, or other operational errors.

We believe we are operating well under these circumstances. We are benefiting from the flexible and highly mobile operating environment we have built over 25 years. However, we do not know what, if any, longer-term impact the current circumstances (and/or the extension of them) will have on our business and results. We have never operated our entire business remotely. Most of our associates have never operated remotely for extended periods of time. And many of our associates typically travel extensively to conduct investment research; interact with clients, prospects and intermediaries; and/or manage our global business.

In addition, despite the precautions we have taken to protect the safety and well-being of our associates, no assurance can be given that our associates will not contract COVID-19. The loss of any of our key professionals (including portfolio managers and other senior leaders at our firm) for an extended period may prevent us from sustaining the historically strong investment performance we have achieved; adversely affect our ability to retain existing and attract new clients; and/or negatively impact our ability to operate our business and execute our long-term strategy.

For a discussion of ~~our~~related and other potential risks and uncertainties, see the information under the heading “Risk Factors” in our latest annual report on Form 10-K, which is accessible on the SEC’s website at www.sec.gov.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

As described in Note 8, “Stockholders’ Equity”, to the Unaudited Consolidated Financial Statements included in Part I of this report, upon termination of employment with Artisan, an employee-partner’s Class B common units are exchanged for Class E common units and the corresponding shares of APAM Class B common stock are canceled. APAM issues the former employee-partner a number of shares of APAM Class C common stock equal to the former employee-partner’s number of Class E common units. Class E common units are exchangeable for Class A common stock subject to the same restrictions and limitations on exchange applicable to the other common units of Holdings. There were no such issuances during the three months ended March 31, ~~2019.~~2020.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit No.

Description

Form

File No.

Exhibit

Filing Date

Filed or Furnished Herewith

31.1

Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following Extensible Business Reporting Language (XBRL) documents are collectively included herewith as Exhibit 101: (i) the Unaudited Condensed Consolidated Statements of Financial Condition as of March 31, ~~2019~~2020 and December 31, ~~2018;~~2019; (ii) the Unaudited Consolidated Statements of Operations for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; (iii) the Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; (iv) the Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, ~~2019~~2020 and ~~2018;~~2019; (v) the Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (vi) the Notes to Unaudited Consolidated Financial Statements as of and for the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Artisan Partners Asset Management Inc.

Dated: ~~May 1, 2019~~April 29, 2020

By:



/s/ Eric R. Colson
Eric R. Colson President, Chief Executive Officer and Chairman of the Board (principal executive officer)

/s/ Charles J. Daley, Jr.
Charles J. Daley, Jr. Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer)

ARTISAN PARTNERS ASSET MANAGEMENT INC. Unaudited Condensed Consolidated Statements of Financial Condition (U.S. dollars in thousands, except per share amount)

	March 31, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	152,217		$	160,463
Accounts receivable	79,256			67,691
Investment securities	20,671			18,109
Property and equipment, net	32,531			29,138
Deferred tax assets	428,704			429,128
Restricted cash	629			629
Prepaid expenses and other assets	12,898			13,674
Operating lease assets	95,911			—
Assets of consolidated investment products
Cash and cash equivalents	2,152			14,443
Accounts receivable and other	3,547			5,566
Investment assets, at fair value	77,994			66,173
Total assets	$	906,510		$	805,014
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other	$	17,511		$	27,221
Accrued incentive compensation	61,323			12,689
Borrowings	199,338			199,296
Operating lease liabilities	107,487			—
Amounts payable under tax receivable agreements	374,744			369,355
Liabilities of consolidated investment products
Accounts payable, accrued expenses, and other	8,130			4,712
Investment liabilities, at fair value	8,480			16,905
Total liabilities	777,013			630,178
Commitments and contingencies
Redeemable noncontrolling interests	36,547			34,349
Common stock
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 55,626,061 and 54,071,188 shares outstanding at March 31, 2019 and December 31, 2018, respectively)	556			541
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 7,974,456 and 8,645,249 shares outstanding at March 31, 2019 and December 31, 2018, respectively)	80			86
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 14,216,435 and 14,226,435 shares outstanding at March 31, 2019 and December 31, 2018, respectively)	142			142
Additional paid-in capital	69,471			97,553
Retained earnings (deficit)	21,191			38,617
Accumulated other comprehensive income (loss)	(1,658		)	(1,895		)
Total Artisan Partners Asset Management Inc. stockholders’ equity	89,782			135,044
Noncontrolling interest - Artisan Partners Holdings	3,168			5,443
Total stockholders’ equity	92,950			140,487
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity	$	906,510		$	805,014



	As of March 31, 2019
2019 (excluding the three months ended March 31, 2019)	$	10,978
2020	16,109
2021	16,237
2022	14,814
2023	13,435
Thereafter	60,495
Total undiscounted lease payments	$	132,068
Adjustment to discount to present value	(24,581		)
Total operating lease liabilities	$	107,487



	For the Three Months Ended March 31, 2019
Weighted average discount rate	4.7		%
Weighted average remaining lease term	8.8 years
Operating cash flows for operating leases	$	3,350



	As of December 31, 2018
2019	$	14,123
2020	15,340
2021	15,215
2022	13,748
2023	12,378
Thereafter	57,185
Total undiscounted lease payments	$	127,989