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APAM Artisan Partners Asset Management



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

OR
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)

Delaware45-0969585
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
875 E. Wisconsin Avenue, Suite 800
Milwaukee,WI53202
(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 classTrading SymbolName of each exchange on which registered
Class A common stock, par value $0.01 per shareAPAMNew 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 No

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 No

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:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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.

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

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 24, 2020 were 60,647,331, 5,980,743 and 11,962,349, respectively.



TABLE OF CONTENTS
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, 2019, filed with the SEC on February 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.
i

Forward-looking statements include, but are not limited to, statements about:
our anticipated future results of operations;
our potential operating performance and 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.
ii


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,
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.
1


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,
20202019
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.
2


ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
For the Three Months Ended March 31,
20202019
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 Holdings15,920  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.
3

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Changes in StockholdersEquity
(U.S. dollars in thousands)
Three months ended March 31, 2020
Class A Common stockClass B Common stockClass C Common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interests - Artisan Partners HoldingsTotal stockholders’ equityRedeemable 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 costs18  —  —  62,807  —  —  —  62,825  —  
Forfeitures and employee/partner terminations—  —  —  —  —  —  —  —  —  
Issuance of restricted stock awards —  —  (9) —  —  —  —  —  
Employee net share settlement(1) —  —  (3,314) —  —  (1,215) (4,530) —  
Exchange of subsidiary equity16  —  (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 stockClass B Common stockClass C Common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interests - Artisan Partners HoldingsTotal stockholders’ equityRedeemable 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 awards10  —  —  (10) —  —  —  —  —  
Employee net share settlement(1) —  —  (1,287) —  —  (536) (1,824) —  
Exchange of subsidiary equity (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.

4


ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
For the Three Months Ended March 31,
20202019
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 amortization1,624  1,471  
Deferred income taxes6,881  7,493  
Asset impairment—  2,003  
Noncash lease expense(789) 745  
Net investment (gain) loss on unconsolidated seed investment securities2,379  (1,615) 
(Gain) loss on disposal of property and equipment(6) 17  
Amortization of debt issuance costs118  114  
Share-based compensation9,695  12,349  
Net investment (gain) loss of consolidated investment products12,924  (2,346) 
Purchase of investments by consolidated investment products(29,092) (36,758) 
Proceeds from sale of investments by consolidated investment products30,160  16,871  
Change in assets and liabilities resulting in an increase (decrease) in cash:
Accounts receivable(14,841) (11,566) 
Prepaid expenses and other assets10,762  (862) 
Accounts payable and accrued expenses52,729  48,695  
Net change in operating assets and liabilities of consolidated investment products(5,690) 7,425  
Net cash provided by operating activities120,497  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 securities5,633  —  
Purchase of investment securities(1,260) —  
Net cash provided by (used in) investing activities3,575  (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 stock63,027  —  
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, net3,848  1,228  
Net cash used in financing activities(90,303) (109,553) 
Net increase (decrease) in cash, cash equivalents, and restricted cash33,769  (20,537) 
Cash, cash equivalents and restricted cash
Beginning of period144,255  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 cash629  629  
Cash and cash equivalents of consolidated investment products6,646  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 agreements30,853  5,389  
Increase in investment securities due to deconsolidation of CIPs1,469  —  
Operating lease assets obtained in exchange for operating lease liabilities—  2,191  

The accompanying notes are an integral part of the consolidated financial statements.
5

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, 2020, APAM held approximately 77% of the equity ownership interest in Holdings.
Holdings, together with its wholly owned subsidiary, Artisan Investments GP LLC, 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.
6

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, 2020, Artisan had a controlling financial interest in 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, 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 adopted the new guidance on January 1, 2020. The Company capitalized $276 thousand of software implementation costs and recorded $3 thousand of related amortization expense during the 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 this guidance did not have an impact on the consolidated financial 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, 2020As 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 these investment securities:
For the Three Months Ended March 31,
20202019
Net gains (losses) recognized on investment securities $(2,379) $1,615  
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 $(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.
7

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 – 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, 2020 and December 31, 2019:
Assets and Liabilities at Fair Value
TotalNAV Practical Expedient (No Fair Value Level)Level 1Level 2Level 3
March 31, 2020
Assets
Money market funds$30,811  $—  $30,811  $—  $—  
Equity securities4,865  696  4,169  —  —  
December 31, 2019
Assets
Money market funds$30,673  $—  $30,673  $—  $—  
Equity securities23,878  15,068  8,810  —  —  
Fair values determined based on Level 1 inputs utilize quoted market prices for identical assets. Level 1 assets generally consist of money market funds, open-end mutual funds and UCITS funds. Equity securities without a fair value level consist of the Company’s investments in Artisan Private Funds, which are measured at the underlying fund’s net asset value (“NAV”), using the ASC 820 practical expedient. The NAV is provided by the fund and is derived from the fair values of the underlying investments as of the reporting date. Cash maintained in demand deposit accounts is excluded from the table above.
Note 5. Borrowings
Artisan’s borrowings consist of the following as of March 31, 2020 and December 31, 2019:
MaturityOutstanding BalanceInterest Rate Per Annum
Revolving credit agreementAugust 2022$—  NA
Senior notes
Series CAugust 202290,000  5.82 %
Series DAugust 202560,000  4.29 %
Series EAugust 202750,000  4.53 %
Total borrowings$200,000  
The fair value of borrowings was approximately $196.8 million as of March 31, 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, respectively.
8


As of March 31, 2020, the aggregate maturities of debt obligations, based on their contractual terms, are as follows:
2020$—  
2021—  
202290,000  
2023—  
2024—  
Thereafter110,000  
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, 2020, Artisan is considered to have a controlling financial interest in two sub-funds of Artisan Global Funds and one Artisan Private Fund, with an aggregate direct equity investment in the consolidated investment products 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 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, 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 0 net impact to the Unaudited Consolidated Statements of Operations for the three months ended March 31, 2020. Artisan generally does not recognize a gain or loss upon deconsolidation of investment products because the assets and liabilities of CIPs are carried at fair value. Upon deconsolidation, Artisan’s $1.5 million direct equity investment was reclassified from investment assets of consolidated investment products to investment securities in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition.
As of March 31, 2020, Artisan held direct equity investments of $2.0 million in VIEs for which the Company does not hold a controlling financial interest. These direct equity investments consisted of seed investments in sub-funds of Artisan Global Funds and Artisan Private 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.


9

The following tables present the fair value hierarchy levels of assets and liabilities held by CIPs measured at fair value as of March 31, 2020 and December 31, 2019:
Assets and Liabilities at Fair Value
TotalLevel 1Level 2Level 3
March 31, 2020
Assets
Money market funds$5,146  $5,146  $—  $—  
Equity securities - long position4,326  4,326  —  —  
Fixed income instruments - long position84,974  —  84,974  —  
Derivative assets331  331  —  —  
Liabilities
Fixed income instruments - short position$3,514  $—  $3,514  $—  
Derivative liabilities141  141  —  —  

Assets and Liabilities at Fair Value
TotalLevel 1Level 2Level 3
December 31, 2019
Assets
Money market funds$5,005  $5,005  $—  $—  
Equity securities - long position9,933  9,933  —  —  
Fixed income instruments - long position96,681  —  96,681  —  
Derivative assets122  22  100  —  
Liabilities
Fixed income instruments - short position$6,005  $—  $6,005  $—  
Derivative liabilities181  —  181  —  

CIP balances included in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition were as follows:
As of March 31, 2020As of December 31, 2019
Net CIP assets included in the table above$91,122  $105,555  
Net CIP assets/(liabilities) not included in the table above(27,180) (28,509) 
Total Net CIP assets63,942  77,046  
Less: redeemable noncontrolling interest37,223  43,110  
Artisan’s direct equity investment in CIPs$26,719  $33,936  

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Note 7. Noncontrolling 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, 2020, APAM held approximately 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, 2020, APAM’s equity ownership interest in Holdings increased as a result of the following transactions:
Holdings GP UnitsLimited Partnership UnitsTotalAPAM Ownership %
Balance at December 31, 201956,429,825  21,372,029  77,801,854  73 %
2020 Follow-On Offering1,802,326  (1,802,326) —  %
Holdings Common Unit Exchanges1,626,611  (1,626,611) —  %
Issuance of APAM Restricted Shares(1)
916,085  —  916,085  — %
Delivery of Shares Underlying RSUs (1)
24,233  —  24,233  — %
Restricted Share Award Net Share Settlement (1)
(126,971) —  (126,971) — %
Forfeitures of Holdings GP Units from Employee Terminations (1)
(24,778) —  (24,778) — %
Balance at March 31, 202060,647,331  17,943,092  78,590,423  77 %
(1) The impact of the transaction on APAM’s ownership percentage was less than 1%.
Changes in ownership of Holdings are accounted for as equity transactions because APAM continues to have a controlling interest in Holdings. Additional paid-in capital and noncontrolling 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 ConditionFor the Three Months Ended March 31,
20202019
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, respectively.
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Note 8. Stockholders’ Equity
APAM - Stockholders’ Equity
APAM had the following authorized and outstanding equity as of March 31, 2020 and December 31, 2019, respectively:
Outstanding
AuthorizedAs of March 31, 2020As of December 31, 2019
Voting Rights (1)
Economic Rights
Common shares
Class A, par value $0.01 per share500,000,000  60,647,331  56,429,825  1 vote per shareProportionate
Class B, par value $0.01 per share200,000,000  5,980,743  7,803,364  1 vote per shareNone
Class C, par value $0.01 per share400,000,000  11,962,349  13,568,665  1 vote per shareNone
(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, 2020 and 2019:
Type of DividendClass of StockFor the Three Months Ended March 31,
20202019
QuarterlyClass A Common$0.68  $0.56  
Special AnnualClass A Common$0.60  $1.03  

The following table summarizes APAM’s stock transactions for the three months ended March 31, 2020:
Total Stock Outstanding
Class A Common Stock(1)
Class B Common StockClass C Common Stock
Balance at December 31, 201977,801,854  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 Grants916,085  916,085  —  —  
Restricted Share Award Net Share Settlement(126,971) (126,971) —  —  
Delivery of Shares Underlying RSUs24,233  24,233  —  —  
Employee-Partner Terminations(24,778) (24,778) —  —  
Balance at March 31, 202078,590,423  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, 2020 and 2019, were as follows:
For the Three Months Ended March 31,
20202019
Holdings Partnership Distributions to Limited Partners$17,076  $22,591  
Holdings Partnership Distributions to APAM45,104  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, 2020 and 2019:
For the Three Months Ended March 31,
20202019
Management fees
   Artisan Funds$114,679  $106,180  
   Artisan Global Funds8,116  8,135  
   Separate accounts(1)
77,109  72,549  
Performance fees
   Separate accounts(1)
2,932  98  
Total revenues(2)
$202,836  $186,962  
(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.
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.
13

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

As of March 31, 2020As of December 31, 2019
Customer
   Artisan Funds$5,216  $6,703  
   Artisan Global Funds2,742  3,588  
   Separate accounts70,410  69,413  
Total receivables from contracts with customers$78,368  $79,704  
Non-customer receivables18,344  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 0 other contract assets or liabilities from contracts with customers as of March 31, 2020 or December 31, 2019.
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.
Note 10. Compensation and Benefits
Total compensation and benefits consists of the following:
For the Three Months Ended March 31,
20202019
Salaries, incentive compensation and benefits (1)
$95,530  $87,708  
Restricted share-based award compensation expense9,187  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, restricted stock units, and performance share units (collectively referred to as “restricted share-based awards” or "awards") of Class A common stock to employees.
Standard Restricted Shares. Standard restricted shares are generally subject to a pro rata five-year service vesting condition.
Career Shares. Career shares are generally subject to both (i) a pro rata five-year service vesting condition and (ii) a qualifying retirement (as defined in the award agreement).
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 investment team members, are subject to a Franchise Protection Clause, which provides that the number of shares that ultimately vest depends on whether certain conditions relating to client cash flows are met. If such conditions are not met, compensation cost will be reversed for any shares that do not vest.

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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 (iii) for one-half of the PSUs eligible to vest at the end of the performance period, a qualifying retirement condition. The number of shares of Class A common stock that are ultimately issued in connection with each PSU award will depend upon the outcome of the performance, market and qualified retirement conditions. For the portion of a PSU award with a "performance condition" under ASC 718, expense is recognized over the service period if it is probable that the performance condition will be achieved.
Compensation expense 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 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 tables summarize the restricted share-based award activity for the three months ended March 31, 2020:
Weighted-Average Grant Date Fair ValueRestricted Stock Awards and Restricted Stock Units
Unvested at January 1, 2020$35.00  5,005,422  
Granted33.80  919,455  
Forfeited30.30  (24,778) 
Vested32.59  (588,144) 
Unvested at March 31, 2020$35.08  5,311,955  

Weighted-Average Grant Date Fair ValuePerformance Share Units
Unvested at January 1, 2020$—  —  
Granted52.45  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 all unvested awards as of March 31, 2020 was $106.5 million with a weighted average recognition period of 3.6 years remaining.
During the three months ended March 31, 2020, the Company withheld a total of 126,971 restricted shares and paid $4.5 million as a result of net share settlements to satisfy employee tax withholding obligations. 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, 2020, approximately 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.
APAM’s effective tax rate was 17.8% and 15.9% for the three months ended March 31, 2020 and 2019, respectively.

Components of the provision for income taxes consist of the following:
For the Three Months Ended March 31,
20202019
Current:
Federal$1,593  $1,313  
State and local868  515  
Foreign109  121  
Total2,570  1,949  
Deferred:
Federal5,898  6,696  
State and local983  797  
Total6,881  7,493  
Income tax expense$9,451  $9,442  
In connection with the IPO, APAM entered into 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.
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.
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.
16

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, 2020 is summarized as follows:
Deferred Tax Asset - Amortizable basisAmounts payable under tax receivable agreements
December 31, 2019$408,140  $375,324  
2020 Follow-On Offering21,424  18,211  
2020 Holdings Common Unit Exchanges14,873  12,642  
Amortization(8,687) —  
March 31, 2020$435,750  $406,177  

Net deferred tax assets comprise the following:
As of March 31, 2020As of December 31, 2019
Deferred tax assets:
Amortizable basis (1)
$435,750  $408,140  
Other (2)
31,223  27,757  
Total deferred tax assets466,973  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 process for measuring, the benefits of income tax return positions in financial statements. The Company's gross liability for unrecognized tax benefits was $1.5 million and $2.0 million as of March 31, 2020 and December 31, 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, 2020, U.S. federal income tax returns filed for the years 2016 through 2018 are open and therefore subject to examination. State, local, and foreign income tax returns filed are generally subject to examination from 2015 to 2018.
Note 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.

17

The computation of basic and diluted earnings per share under the two-class method for the three months ended March 31, 2020 and 2019 were as follows:
For the Three Months Ended March 31,
Basic and Diluted Earnings Per Share20202019
Numerator:
Net income attributable to APAM$34,825  $31,539  
Less: Allocation to participating securities6,835  7,733  
Net income available to common stockholders$27,990  $23,806  
Denominator:
Weighted average shares outstanding53,265,479  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 0 dilutive securities outstanding during the three months ended March 31, 2020 and 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,
Anti-Dilutive Weighted Average Shares Outstanding20202019
Holdings limited partnership units20,069,152  22,584,238  
Unvested restricted share-based awards5,177,625  4,875,738  
Total25,246,777  27,459,976  

Note 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 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 directors of Artisan Funds who are affiliated with Artisan receive no compensation from the funds.


18

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 Funds20202019
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 1.85%. 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 Funds20202019
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 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.

19

Fees for managing the Artisan Private Funds and amounts reimbursed to Artisan Private Funds by Artisan are as follows:
For the Three Months Ended March 31,
Artisan Private Funds20202019
Investment management fees (Gross of fee waivers/expense reimbursements)$1,280  $604  
Elimination of management fees from consolidated investment products(1)
(51) (40) 
Consolidated investment management fees (Gross of fee waivers / expense reimbursements)$1,229  $564  
Fee waivers / expense reimbursements$45  $53  
Elimination of fee waivers / expense reimbursements from consolidated investment products(1)
(13) (53) 
Consolidated fee waivers / expense reimbursements$32  $—  
(1) Investment management fees and expense waivers related to consolidated investment products were eliminated from revenue upon consolidation.

Note 15. Subsequent Events
Distributions and dividends
APAM, acting as the general partner of Artisan Partners Holdings, declared, effective April 28, 2020, a distribution by Artisan Partners Holdings of $34.7 million to holders of Artisan Partners Holdings partnership units, including APAM. The board of directors of APAM declared, effective April 28, 2020, a quarterly dividend of $0.61 per share of Class A common stock. The APAM dividend is payable on May 29, 2020, to shareholders of record as of May 15, 2020.
TRA Payments
On April 15, 2020 the Company made a payment of $20.3 million under the tax receivable agreements representing a portion of the Company's estimated total 2020 TRA payments.
20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. As of March 31, 2020, our nine autonomous investment teams managed a total of 18 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, 2020, approximately 80% of our assets under management were managed for clients and investors domiciled in the U.S. and 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.
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.
Business and financial highlights for the quarter included:
Our investment teams continued to generate strong absolute and relative investment returns for clients and investors. Net of fees, 14 of our 18 strategies have 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 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 distributed dividends of $1.28 per share of Class A common stock during the three months ended March 31, 2020.
As of April 24, 2020, year to date we have experienced positive net inflows in 13 of our eighteen investment strategies.

21

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 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 our key vendors, may result in increased client redemptions; inefficiencies, delays and decreased communication; and an increase in the 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
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 23% of the equity interests in Holdings as of March 31, 2020. As a result, our results reflect that significant noncontrolling interest.
We operate our business in a single segment.
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, 2020, certain limited partners of Holdings exchanged 1,626,611 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM) for 1,626,611 shares of Class A common stock. In connection with the exchanges, APAM received 1,626,611 GP units of Holdings.
APAM’s equity ownership interest in Holdings increased from 73% at December 31, 2019 to 77% at March 31, 2020, as a result of these transactions and other equity transactions during the period.
22


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, 2020 and 2019:
For the Three Months Ended March 31,
20202019
S&P 500 total returns(19.6)%13.6 %
MSCI All Country World total returns(21.4)%12.2 %
MSCI EAFE total returns(22.8)%10.0 %
Russell Midcap® total returns
(27.1)%16.5 %
MSCI Emerging Markets Index(23.6)%9.9 %
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,
20202019
(unaudited; dollars in millions)
Assets under management at period end$95,224  $107,803  
Average assets under management (1)
$113,802  $104,938  
Net client cash flows$(449) $(1,110) 
Total revenues$202.8  $187.0  
Weighted average fee (2)
71.7 bps72.3 bps
Operating margin35.0 %30.9 %
(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.
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.
23

The table below sets forth changes in our total assets under management:
For the Three Months Ended March 31,Period-to-Period
20202019$%
(unaudited; in millions)
Beginning assets under management$121,016  $96,224  $24,792  25.8 %
Gross client cash inflows7,079  4,700  2,379  50.6 %
Gross client cash outflows(7,528) (5,810) (1,718) (29.6)%
Net client cash flows(449) (1,110) 661  59.5 %
Market appreciation (depreciation) (1)
(25,343) 12,689  (38,032) (299.7)%
Ending assets under management$95,224  $107,803  $(12,579) (11.7)%
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.
During the 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 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 in net inflows. We expect the Third Generation strategies to continue to experience net inflows.
During the quarter, the net inflows across the majority of our strategies were offset by $2.1 billion of net 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 strategies are open to new investors and client relationships. Our US Small-Cap Growth 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.
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 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, 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 10% of our assets under management at March 31, 2020, are maintained in separate composites the results of which are not included below.
24

Average Annual
Value-Added(1)
Since Inception
(bps)
Composite InceptionStrategy AUMAverage Annual Total Returns (gross) (%)
Investment Team and StrategyDate (in $MM)1 YR3 YR5 YR10 YRInception
Growth Team
Global Opportunities Strategy2/1/2007$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 Strategy9/1/2017$764  4.22%------10.34%1,144
MSCI All Country World Index(11.26)%------(1.10)%
US Mid-Cap Growth Strategy4/1/1997$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 Strategy4/1/1995$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 Strategy4/1/2010$1,489  (1.37)%10.78%7.15%11.0611.06%519
MSCI All Country World Index(11.26)%1.50%2.85%5.875.87%
Non-US Growth Strategy1/1/1996$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 Strategy1/1/2019$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 Strategy7/1/2005$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 Strategy4/1/1999$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 Strategy7/1/2002$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 Strategy7/1/2007$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 Strategy3/1/2020$10  --------(19.19)%(684)
S&P 500 Market Index--------(12.35)%
Sustainable Emerging Markets Team
Sustainable Emerging Markets Strategy7/1/2006$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 Strategy4/1/2014$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 Strategy7/1/2015$3,366  7.26%11.31%----9.55%1,008
MSCI Emerging Markets Index(17.69)%(1.62)%----(0.53)%
Thematic Team
Thematic Strategy5/1/2017$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.
25

The tables below set forth changes in our assets under management by investment team:
By Investment Team
Three Months EndedGrowthGlobal EquityUS ValueInternational ValueGlobal ValueSustainable Emerging MarketsCreditDeveloping WorldThematicTotal
March 31, 2020(unaudited; in millions)
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 inflows1,420  1,310  441  1,273  640  282  632  588  493  7,079  
Gross client cash outflows(2,157) (1,346) (686) (1,404) (840) (4) (656) (310) (125) (7,528) 
Net client cash flows(737) (36) (245) (131) (200) 278  (24) 278  368  (449) 
Market appreciation (depreciation)(4,365) (5,800) (2,184) (5,974) (5,806) (135) (514) (286) (279) (25,343) 
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$33,702  $26,218  $6,337  $20,054  $17,963  $352  $3,754  $3,492  $1,930  $113,802  
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  
Gross client cash inflows1,117  715  170  1,389  247   552  199  307  4,700  
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)  335  (206) 254  (1,110) 
Market appreciation (depreciation)4,949  2,432  818  1,797  1,959  20  188  441  85  12,689  
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  
The goal of our marketing, distribution and client services efforts is to 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, 2020As of March 31, 2019
$ in millions% of total$ in millions% of total
(unaudited)(unaudited)
Institutional$63,397  66.6 %$71,432  66.3 %
Intermediary27,868  29.3 %31,613  29.3 %
Retail3,959  4.1 %4,758  4.4 %
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.
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, 2020.
26

The following tables set forth the changes in our assets under management for Artisan Funds, Artisan Global Funds and separate accounts:
Three Months EndedArtisan Funds & Artisan Global FundsSeparate AccountsTotal
March 31, 2020(unaudited; in millions)
Beginning assets under management$57,288  $63,728  $121,016  
Gross client cash inflows4,725  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 inflows3,466  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.
27

Results of Operations
Three months ended March 31, 2020, Compared to Three months ended March 31, 2019
For the Three Months Ended March 31,For the Period-to-Period
20202019$%
Statements of operations data:  (unaudited; in millions, except share and per-share data)
Revenues  $202.8  $187.0  $15.8  %
Operating Expenses  
Total compensation and benefits  104.7  99.3  5.4  %
Other operating expenses  27.1  30.0  (2.9) (10)%
Total operating expenses  131.8  129.3  2.5  %
Total operating income  71.0  57.7  13.3  23 %
Non-operating income (expense) 
Interest expense  (2.7) (2.8) 0.1  %
Other non-operating income  (15.2) 4.3  (19.5) (453)%
Total non-operating income (expense) (17.9) 1.5  (19.4) (1,293)%
Income before income taxes  53.1  59.2  (6.1) (10)%
Provision for income taxes  9.5  9.4  0.1  %
Net income before noncontrolling interests  43.6  49.8  (6.2) (12)%
Less: Noncontrolling interests - Artisan Partners Holdings  16.1  17.3  (1.2) (7)%
Less: Noncontrolling interests - consolidated investment products  (7.3) 1.0  (8.3) (830)%
Net income attributable to Artisan Partners Asset Management Inc.  $34.8  $31.5  $3.3  10 %
Share Data  
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  
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.
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 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 increase in revenues of $15.8 million, or 8%, for the three months ended March 31, 2020, compared to the three months ended March 31, 2019, was driven primarily by a $8.9 billion, or 8%, 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. The decrease in the weighted average fee was primarily due to an increase in the proportion of total assets managed in separate 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 investment management fees earned by investment vehicle. The weighted average fee for Artisan Funds and Artisan Global Funds reflects the additional services we provide to these pooled vehicles.
Separate AccountsArtisan Funds and Artisan Global Funds
For the Three Months Ended March 31,2020201920202019
(unaudited; dollars in millions)
Investment management fees$80.0  $72.7  $122.8  $114.3  
Weighted average fee53.7 bps54.3 bps91.8 bps91.6 bps
Percentage of ending AUM53 %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
Operating expenses increased $2.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily as a result of higher incentive compensation expense, partially offset by lower equity-based compensation expense, and an occupancy charge taken during the three months ended March 31, 2019 related to exiting an office space.
Compensation and Benefits
For the Three Months Ended March 31,Period-to-Period
20202019$%
(unaudited; in millions)
Salaries, incentive compensation and benefits(1)
$95.5  $87.7  $7.8  %
Restricted share-based award compensation expense  9.2  11.6  (2.4) (21)%
Total compensation and benefits  $104.7  $99.3  $5.4  %
(1) Excluding restricted share-based award compensation expense
The increase in salaries, incentive compensation, and benefits was driven primarily by a $5.6 million increase in incentive compensation paid to our investment and marketing professionals as a result of the increase in revenue.
Restricted share-based award compensation expense decreased $2.4 million, as the awards that became fully amortized during 2019 and 2020 had a higher value than the awards granted in 2019 and 2020. During the three months ended March 31, 2020, Artisan's 2020 equity award was approved. Total compensation expense associated with the 2020 grant is expected to be approximately $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 52% and 53% of our revenues for the three months ended March 31, 2020, and 2019, respectively.
Other operating expenses
Other operating expenses decreased $2.9 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to a $2.0 million occupancy charge taken during the three months ended March 31, 2019 related to exiting an office space.
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Non-Operating Income (Expense)
Non-operating income (expense) consisted of the following:
For the Three Months Ended March 31,Period-to-Period
20202019$%
(unaudited; in millions)
Interest expense  $(2.7) $(2.8) $0.1  (4)%
Net investment gain (loss) of consolidated investment products (12.9) 2.3  (15.2) (661)%
Other investment gain (loss) (2.3) 2.0  (4.3) (215)%
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 15.9%, respectively. Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately 26% and 31% of Holdings’ full year projected taxable earnings were not subject to corporate-level taxes for the three months ended March 31, 2020 and 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 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, 2020, compared to the three months ended March 31, 2019, as a result of stock offerings, unit exchanges, and equity award grants. See Note 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 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 APAM's current federal, state, and local income statutory tax rates. The adjusted tax rate was 24.5% and 23.5% for the 2020 and 2019 periods 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,
20202019
(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 Holdings16.1  17.3  
Add back: Provision for income taxes9.5  9.4  
Add back: Net investment (gain) loss of investment products attributable to APAM8.1  (2.9) 
Less: Adjusted provision for income taxes16.8  13.0  
Adjusted net income (Non-GAAP)$51.7  $42.3  
Average shares outstanding
Class A common shares53.3  50.1  
Assumed vesting or exchange of:
Unvested Class A restricted share-based awards5.1  4.9  
Artisan Partners Holdings units outstanding (noncontrolling interests)20.1  22.6  
Adjusted shares78.5  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 Holdings16.1  17.3  
Add back: Net investment (gain) loss of investment products attributable to APAM8.1  (2.9) 
Add back: Interest expense2.7  2.8  
Add back: Provision for income taxes9.5  9.4  
Add back: Depreciation and amortization1.6  2.1  
Adjusted EBITDA (Non-GAAP)$72.8  $60.2  

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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, 2020, and December 31, 2019:
March 31, 2020December 31, 2019
(unaudited; in millions)
Cash and cash equivalents  $170.7  $134.6  
Accounts receivable$96.7  $81.9  
Seed investments(1)
$31.6  $57.8  
Undrawn commitment on revolving credit facility  $100.0  $100.0  
(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, 2020, none of our receivables were considered uncollectable.
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 a $100 million revolving credit facility with a five-year term ending August 2022. The notes are comprised of three series, Series C, Series D, and Series 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.
These borrowings contain various 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, 2020.
Distributions and Dividends
Artisan Partners Holdings’ distributions, including distributions to APAM for the three months ended March 31, 2020 and 2019, were as follows:
For the Three Months Ended March 31,
20202019
(unaudited, in millions)
Holdings Partnership Distributions to Limited Partners$17.1  $22.6  
Holdings Partnership Distributions to APAM45.1  53.4  
Total Holdings Partnership Distributions$62.2  $76.0  
On April 28, 2020, we, acting as the general partner of Artisan Partners Holdings, declared a distribution of $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, 2020 and 2019:
Type of DividendClass of StockFor the Three Months Ended March 31,
20202019
QuarterlyClass A Common$0.68  $0.56  
Special AnnualClass A Common$0.60  $1.03  
Our board of directors declared, effective April 28, 2020, a variable quarterly dividend of $0.61 per share with respect to the first quarter of 2020, payable on May 29, 2020 to shareholders of record as of the close of business on May 15, 2020. The variable quarterly dividend of $0.61 per share represents approximately 80% of the cash generated in the first quarter of 2020 and a pro-rata portion of 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. 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 $406.2 million liability as of March 31, 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 $27 million in 2020 related to the TRAs, $20.3 million of which we paid on April 15, 2020.
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Cash Flows
For the Three Months Ended March 31,
20202019
(unaudited; in millions)
Cash, cash equivalents and restricted cash as of January 1$144.3  $175.5  
Net cash provided by operating activities120.4  93.9  
Net cash provided by (used in) investing activities3.6  (4.8) 
Net cash used in financing activities(90.3) (109.6) 
Cash, cash equivalents and restricted cash as of March 31$178.0  $155.0  
Net cash provided by operating activities increased $26.5 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to an increase in operating income resulting from higher AUM and revenues as well as timing differences in working capital accounts. For the three months ended March 31, 2020 compared to the three months ended March 31, 2019, our operating income, excluding share-based related compensation expense, increased $10.8 million. Working capital positively impacted operating cash flows by $10.8 million primarily due to the 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 investment securities. Net cash provided by investment activities increased $8.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to a $4.4 million increase in net proceeds from the sale of investment securities and a $4.0 million decrease in the acquisition of property and equipment and leasehold improvements.
Financing activities consist primarily of partnership distributions to 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 decreased $19.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to a $13.9 million decrease in dividends paid to holders of our Class A common stock, a $5.5 million decrease in distributions to limited partners, and a $2.6 million increase in contributions from noncontrolling interests in our consolidated investment 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, 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, 2019, filed with the SEC on February 18, 2020, except for the changes in the TRA liability during the year.
As previously discussed in this report, the TRA liability increased from $375.3 million at December 31, 2019 to $406.2 million at March 31, 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 $27 million in 2020 related to the TRAs, $20.3 million of which we paid on April 15, 2020.
Off-Balance Sheet Arrangements
As of March 31, 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, 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, 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, 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, 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.
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 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 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, 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.DescriptionFormFile No.ExhibitFiling DateFiled or Furnished Herewith
31.1  X
31.2  X
32.1  X
32.2  X
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, 2020 and December 31, 2019; (ii) the Unaudited Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019; (iii) the Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019; (iv) the Unaudited Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019; (v) the Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (vi) the Notes to Unaudited Consolidated Financial Statements as of and for the three months ended March 31, 2020 and 2019.
X
104  Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)X

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: 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)


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