Q4 2020 Artisan Partners Asset Management Inc Earnings Call
Hello, and thank you for standing by my name is Andrew and I will be your conference operator today.
At this time all participants are in a listen only mode. After the prepared remarks management will conduct a question and answer session and conference participants will be given instructions at that time and.
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At this time I will turn the call over to Matteo Whatsapp worn director Investor Relations for artisan partners asset management.
Thank you welcome to the artisan partners asset management business update and earnings call.
These calls and I include remarks from Eric Colson, Chairman and CEO and C. J Daley CFO.
Our latest results and Investor presentation are available on the Investor Relations section of our website.
Following these remarks, well open the line for questions.
Before we begin I'd like to remind you that the comments made on today's call including responses to your questions.
And the deal with forward looking statements, which are subject to risks and uncertainties.
These are presented and the earnings release and detailed in our filings with the SEC, we are not required to update or revise any of these statements following the call.
And there's actually some of the remarks made on today's call will reference.
And make reference to non-GAAP financial measure and you can find reconciliations of those measures and the most comparable GAAP measures and Chile.
I'll now turn the call over to Eric Colson.
Thank you Mikael and thank you all for joining the call or reading the transcript.
And artisan partners, we bring together the consistency of who we are constant change and patients.
Alright, and one which we include and every presentation summarizes who we are and consistency of our philosophy and model for over 25 years.
We are a high value added investment firm designed for investment talent to thrive and committed to thoughtfully growing over the long term.
Over our history, we have remained true to these foundational business elements.
While we are consistent and who we are we also use judgment to navigate change and grow.
Over the long term.
Responding to evolving asset allocations, we have added degrees of freedom and generated portfolios on outcomes that are less easily replicated.
In order to maintain and ideal home for investment and talent, we invest in technology data and infrastructure to support high value added investing.
And finding the right clients on the right terms.
<unk> evolve our leverage distribution model to include institutions consultants financial intermediaries and non U S regions.
And to increase the sustainability and flexibility of our human capital business, we evolve our capital structure over time.
<unk> and the variable P&L model that itself provides consistency predictability and stability.
With these changes and many others, we have always remain patient.
We have never felt compelled to be first to market.
We prefer to observe and to determine which changes will become long term trends that fit who we are as an investment firm.
We are willing to take and incremental approach in order to avoid mistakes.
Call. This process, bringing together, who we are constant change and patients dynamic consistency.
Turning to slide two.
Our firm's purpose is to generate and compound wealth for our clients.
On the left you can see our long term results.
Since inception, 16 up 17 strategies launched prior to 2020 have added value relative to their benchmark after fees.
12 strategies have outperformed by an average of more than 300 basis points per year since inception after fees.
We have generated long term alpha over multiple teams asset classes and time periods we.
And we have thought the right clients on the right terms to build a durable client base.
Our performance relationships and brand positioned us well coming into 2020, a year and historic uncertainty turmoil and volatility during the year, we generated over 330 billion of investment returns for our clients.
Approximately $11 3 billion of the $30 billion, where returns in excess of benchmarks.
And we once again demonstrated the value of active management at artisan partners.
Slide three shows our business performance and 2020 across teams market returns and excess returns and organic growth.
We managed long term investment performance.
Payable investment strategies.
Long duration relationships capacity management.
<unk> discipline and a trusted brand.
When these elements are managed together over the long term not just focusing on one factor at all costs.
Exceptional outcomes can result.
The aggregate is a balance of consistency change and patients.
Insistency, if people and long term performance change to develop and launch new strategies patients and performance cycles and capacity management.
With our value oriented teams, we demonstrated these traits in 'twenty and 'twenty launching new strategies.
And managing a strong client base.
We focus on the long term.
We avoid overreacting to short term trends.
Our firm wide flows were positive in 'twenty and 'twenty because of years of high value added investment returns stay.
Stable investment talent, our trusted brand and.
And long term relationships.
Our flows resulted from multiple long term investments and efforts across our firm.
We did well and 2020, because we have done well for 25 years.
Over long time periods.
We methodically build out our investment firm chain.
Changeover time and remain patient.
Outcomes follow.
As we have grown and we have continued to maintain a high quality leverage distribution model.
Our model supports and complements our investment first culture.
We don't require a large fixed sales infrastructure.
We'll avoid pressuring our firm to manufacture fad products and retain flexibility to hire great investors and retain them over their entire careers.
Moving to slide four we continued.
To invest and our business in 'twenty and 'twenty.
We launched our select equity and international small cap value strategies.
And we are and the process of building out and investment group focused on post venture investing and greater China, including public and private equity investments.
We expect to launch the China post venture strategy and the near future.
These moves exemplify dynamic consistency.
25 years ago Artisan partners recruited Mark Yockey joined the firm and launch the artisan and non U S growth strategy.
At that time, the U S investors, we're under allocated to non U S companies relative to the size of the global economy.
We believed allocations to non U S equities would grow over time and investment style, but also be applied outside the U S.
There were relatively few managers offering non U S growth oriented strategies.
Talent with scares and there were a limited number of firms setup to invest and operate outside of the United States.
Artisan partners identified the opportunity and non U S investing has fueled much of the firms growth over the ensuing 25 years.
Today, we see a similar opportunity with respect to China for existing and future investment teams.
We believe the GAAP between Chinese share of GDP and the share of global assets allocated the Chinese equities will close over time as investors increased exposure to the Chinese growth story.
Similarly, we believe that private investing as a long term secular trend.
The availability of capital allows businesses to remain private longer.
Relative to the past a greater portion of value creation is taking place outside public markets.
Neither of these long term trends as new.
Many of our teams have invested and Chinese companies for years, most recently Lewis Kaufman and the developing world team have emphasized Chinese companies and their portfolio generating exceptional returns for clients.
We have been patient as these changes have occurred we have weighted for the trends to cement and we have weighted to find the right investment talent.
With the China post venture strategy, we're taking our next incremental step and to both China and private investing.
Turning to slide five.
Since our firm's founding 25 years ago.
We have always had a strong equity culture throughout our history, both as a private and public company. We have regularly awarded equity for value creation with the lion's share going to investment professionals.
Our equity awards have always been long duration and have always incentivized, our investment professionals to plan for a constructive departure from the firm at the end of their career.
But the form of awards has changed over time as the firm has evolved and as our people have evolved.
Our 2013, IPO created liquidity for partners and allowed us to use restricted shares for long term incentives, which are more transparent easily valued and allow us to spread equity more broadly compared to pre IPO partnership interests.
And 2014, we added career investing to 50% of the awards made the senior leaders, we're investing creates long term alignment between our senior leaders and our clients and shareholders.
Things are not static our firm has continued to grow and diversify which reduces the relationship between any one investment team's performance and the firm's overall performance.
In order to provide more consistency and predictability.
And objectively to our long term incentives. This year, we have replaced some of our equity awards with franchise capital Awards.
These are cash based awards made to investment teams equal to approximately 4% of the team's prior year revenues.
The awards have the same vesting and rules as restricted shares.
Prior to vesting, though the majority of the franchise capital will be invested and the investment team strategy not the firm's stock for.
Further enhancing and alignment between our investment professionals and our clients.
We continue to determine the overall size of our annual awards to align our value creators with the firm and our clients.
As we have done for 25 years.
The overall size of this year's award was based on the value produced in 'twenty, and 'twenty and consistent with the size of prior grants.
I will now turn it over to C J to discuss our financial results.
Thanks, Eric.
And the calendar year ended December 31, 2020, our results were driven by exceptional investment performance across most of our strategies and strong net client cash inflows as well as increases and global market indices.
As a result as illustrated on slide seven our AUM during the year increased 37 billion or 30% to $157 8 billion.
Net client cash inflows for the year were $7 2 billion, a 6% organic growth rate.
Not including distributions that were not reinvested and our U S mutual funds.
Investment returns in excess of benchmarks also contributed meaningfully to AUM growth and added over $11 billion and a U N.
Net client cash inflows were driven by existing and new clients and we're diversified across strategies with 16 of our 19 strategies gathering net new AUM for the year.
For the quarter and AUM growth was also strong up 17, 5% and net client cash inflows were $2 1 billion.
This quarter within our annual AUM roll forward, we began to break out the change and AUR and due to artisan funds distributions not reinvested.
This amount represented a $594 million decline and AUM during the quarter and a $690 million decline for the full year.
Our annual and by generation as presented on page eight.
I'll highlight a couple of items.
<unk> returns include strong excess returns across all three generations.
Our second and third generation strategies had $10 8 billion of net client cash inflows and 2020 and AUM and these two generations now represents over 50% of total AUM.
While our first generation strategies experienced outflows for the quarter and year.
AUM increased meaningfully highlighting the compounding effect of market returns and alpha generation.
Financial results for the quarter and year to date periods are presented on the next two pages.
Starting with quarterly results revenues grew 12% compared to the sequential quarter and 25% compared to the fourth quarter of 2019 due to higher average annual <unk> and an increase in performance fees and 2020.
Operating expenses increased 9% sequentially and variable incentive compensation expense increased as a result on a revenue growth.
Year over year operating expenses increased 14% due to higher incentive compensation paid on increased revenues.
Partially offset by lower travel costs and 2020, as our employees and adapted to work from home requirements.
As a result fourth quarter operating income grew 17% sequentially and 43% year over year and our operating margin was 43, 5%.
Adjusted net income per adjusted share grew 18% to $1 six compared to the third quarter of 2020, and rose 41% compared to the December 2019 quarter.
Annual financial results are on page 10, and reflect the same themes and the quarterly results I just highlighted.
Revenues increased 13% compared to 2019, primarily due to an increase in average annual and and higher performance fees.
Operating expenses increased 5%, primarily due to higher variable incentive compensation expense.
We offset by Covid related cost reductions and lower equity based compensation expense.
Operating income rose, 26% to $358 million and our operating margin increased 430 basis points to 39, 8% and.
Adjusted net income per adjusted share was up 25% to $3 33.
Our balance sheet remains healthy as modest borrowings are supported by strong cash flows.
And as Eric indicated and have evolved our long term incentive program from solely grants of artisan equity to grants and both equity and long term cash awards, which we referred to as franchise capital.
Page 12 highlights to grant history of our long term incentive compensation awards.
A couple of points related to our long term incentive comp program.
Each year, we have consistently granted long term incentive compensation to our key professionals approx.
Approximately 90% of those grants have been directed to our investment talent.
Historically awards consisted solely of artisan restricted share awards.
The aggregate awards granted each year are determined based on the firms value creation for clients and shareholders over the preceding year.
The 2021 grant besides similarly to 2013 and 2014, reflecting the premium value created in those periods.
The grant of franchise capital awarded in 2021 replaced artist and restricted share awards and would've been granted and approximates 4% of management fees revenues generated in 2020.
We generally expect future awards and franchise capital to approximate 4% of the prior and calendar year management fee revenues with the remainder of the grant to be awarded and artisan restricted shares.
The economic impact on the 2021 award as discussed on Slide 14 seven.
And $79 $5 million Grant consists of both standard five year Vest Awards and career Best Awards.
Amortization of both artisan restricted share awards and franchise capital words will be combined and a single line item I think compensation and benefits and label long term incentive compensation.
Long term incentive compensation expense will be approximately $45 million and 2021.
Our first quarter will reflect a prorated amortization expense of approximately $11 million.
The impact on the underlying investment gains and losses on long term compensation expense and non operating income will be excluded from adjusted operating income and adjusted per share earnings.
Since the franchise capital Awards, our cash awards the use of cash to fund the program will reduce the amount of cash available for quarterly and special cash dividends.
We expect that the net effect of using cash to fund franchise capital Awards and.
And reducing the number of restricted share awarded and the future will be neutral to the total return to shareholders over the long term.
2021 franchise capital awards will be funded with a portion of cash generated in 2020, reducing the special dividend to be paid this month.
Beginning in 2021, we will reserve for percentage of our management fee revenues each quarter and this cash reserve will be used to fund and next year's franchise Capital Award.
We intend to continue to pay out 80% of the cash generated and a quarterly cash dividend. The cash generated will now be reduced by the amount of cash reserved for future franchise awards.
After considering the cash needed to fund the initial franchise capital Awards and other strategic uses of cash our board of directors declared a cash dividend to shareholders of record on February 12 of $1 28 per share.
This represents a variable quarterly dividend of 97 and.
And a special annual dividend of <unk> 31 per share.
Total cash dividends declared with respect to 'twenty and 'twenty cash generated from $3 39.
Which represents a payout of approximately 90% the cash generated in 2020.
The fourth quarter dividend of 97 per share representing an approximate 8% annualized dividend yield before consideration of the special dividend.
Looking forward into 'twenty, and 'twenty, one and <unk>.
Financial model continues to serve us well and provides predictability and sustainability to weather ever changing global market conditions.
AUM levels at December 31, and 2020, 26% ahead of average AUM and 2020, we have a strong forward lean on revenue growth to begin new fiscal year.
Approximately 60% of our operating expenses vary directly with revenue and we'll adjust with revenue changes.
Those variable expenses are primarily incentive compensation and third party distribution costs.
Certain expenses, primarily travel are expected to remain lower compared to historical norms. As a result of continued travel restrictions and work from home arrangements.
Occupancy expense will trend a million or so higher in 2021, reflecting two new office locations.
Other fixed expenses should grow mid single digits, reflecting continued investments and distribution marketing and operations capabilities.
Before closing just a reminder, and in the first quarter of each year.
And of our employee partners pre IPO equity becomes eligible for sale.
And total together with shares eligible for sale from former employee partners approximately five 7 million shares held by current and former employee partners are eligible for sale and the first quarter of 2021.
And our partners are not required to sell any shares we don't know how many shares and they will choose to sell depending on the level of interest and selling we may execute a coordinated sale for some portion of these shares.
That concludes my remarks, and I will now turn the call back to our operator Q&A.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
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To allow time for other questioners, please limit yourselves to a total of two questions. At this time, we will pause momentarily to assemble our roster.
The first question comes from Dan Fannon of Jefferies. Please go ahead.
Hi, Thanks, and good morning, So I guess my first question is on franchise capital and and kind of the new competition.
Announced so curious around timing as to why now and kind of making this shift and then.
And were your investment professionals not allocating money are being paid at all ever have any investment and their funds. Currently so there's something maybe from consultants or other.
Asset allocators debt.
They view it would be a positive to potentially go more and more asset growth or.
Better better outcomes coming and going forward.
Hey, Dan and C J I'll take that one.
First are our key investment professionals already have significant holdings and their and their funds.
So it's not anything driven other than you know.
Our our desire to continually evolve.
Firm as as.
As we grow and.
And people mature.
We've aligned our long term incentive comp over the years.
Two clients and and shareholders.
Made changes to that.
Back when we became public and we introduced career shares.
And as well as restricted shares at the IPO. So.
And then now the why now is really just.
Matter of us continually wanting to evolve and improve.
From improved the security.
Got it Okay, and then just from a.
Economic perspective, as we think about modeling and we look at slide 12 and the.
Kind of 79 and a half.
Million net that you're talking about for the.
And the long term incentive how does that compare to 2020 to $34 two.
And I'm just thinking about just from the income statement. So you book equity based comp of 36 and a half in 2020, and so if we layer on what youre, what youre going to be allocating.
What is the 2021 day impact I guess compared to what we saw on 2020.
Yes. So as you know these all have five year vest and historically we've been.
And our annual amortization expense has been between four.
And 4% and 6% of revenues.
We don't have any sort of magic formula is the sizing of these as just sort of a you know and.
And assessment of how we have created value that year and you can see that in 2013 and 2014.
And this year's grant with sites and alerts and those years and which we there was a lot of value created for clients and shareholders.
The last five years have been.
Less successful from you know and asset growth, both organic as well as market.
This year was exceptional.
And so when you think about amortization for 2021.
Based on occurring.
AUM run rate of revenues.
And it will still be on that low end of that 4% to 6%.
Where we have historically been so sizing is.
Somewhat within a range based on value creation.
But no specific formula.
Okay. Thank you.
The next question comes from Bill Katz of Citigroup. Please go ahead.
Okay. Thank you very much.
Just one more question on expenses.
Does your sort of guidance for this year and factor in some of the spending that you spoke to earlier in terms of the China and the private market opportunity or would that be above and beyond and then within that how are you thinking about maybe the normalization of travel and entertainment through 'twenty 'twenty one if at all.
Yeah. Good question.
It does factor in everything that we're working on today and what it would not factory and as you know if there's any new team that we were to bring on.
Beyond that the China post venture group.
With respect to two other expenses.
Sure.
And that really depends on.
When we get back to normal and.
So I would expect.
Assimilated level of.
Travel and G&A expenses, and the $5 million to $6 million range, a quarter, which is down from the seven to eight pre COVID-19 that we were running.
Until we get back to normal and whether that happens and that you know.
The summer or the fall remains to be seen.
Other thing that I should mention is is that we always do have and the first quarter.
Bike and expenses due to seasonal expenses.
We would expect that to be somewhere in the four ish million dollars range and compensation as a result of a reset of 401, K health fundings and payroll tax.
Contributions and then about 1 million down and G&A for and.
Our non employee director comp.
So on.
Other than that I think I have a sort.
Sort of identified everything that.
We could have any insights into.
Okay, Great and this is my follow up maybe for Eric just going back to the flows and I. Appreciate there more of a fall out of the investment process, but if you looked at 'twenty. One can you sort of speak to where you stand on some of the momentum on the Gen. Three portfolios and then anything on the Gen. One Gen. Two that's still on the Buck up against any kind of capacity constraint.
And yes, certainly we are as you know we do manage capacity.
Quite diligently and.
And we've seen a lot of.
Velocity and flows what you see on the.
The gross flows both in and out and we've seen some evolving mix as well and we're also very cautious of the total capacity.
And we think about the the long duration orientation of clients that we use that capacity with.
So with a few.
<unk>.
Strategies.
Probably more notably on the growth side with the small cap growth and the global opportunities. So youre kind of straddling a couple of generations there.
Those two are we're very mindful and managing the mix and the and the flow there.
And with regards to the third generation.
We've seen a pretty successful year last year.
Many of the strategies I think is.
Showcasing the design of those strategies and how they fit and long term asset allocation, we're still seeing great interest and those and we continue to.
Field questions.
Around new strategies that we're launching as well so the third generation.
We're still seeing and strong interest.
Thank you.
The next question comes from Alex Goldstein.
Goldman Sachs. Please go ahead.
Great. Thanks, Good afternoon, everybody. Thanks for the question.
I wanted to dig a little more into the franchise awards and just kind of think about CGT. Your point earlier kind of trying to align the awards with a value for all the constituents, including shareholders. So if you guys are aiming to do sort of 4%.
Reserve on on just management fees.
How should we think about that over time, so it feels like value creation is really an alpha dynamic and maybe organic growth on that dynamic versus beta so and a year, let's say with really strong just index performance equity market performance go down 4% the lower <unk>.
Because of the sort of inflation youre getting on the revenue side or a 4% is what percentage.
No Alex.
The 4% is sort of to put some predictability.
And transparency and to the to the sizing of the franchise award and the the ATM equity.
And we'd be it would be in addition to that to get to the total cramped and we would have.
And if we had not introduced franchise capital.
Most of our.
All of our key investment professionals have already significant.
And Pam equity.
Or on their way to getting a Pam equity and and you know our objective is to provide substantial alignment both and a Pam equity again, which most of them already have and as well as a.
Directly with clients and their fund to provide.
A balanced.
Outcome for them over the life of their career.
Okay.
Got it but I guess is the.
Methodology in terms of the Grand predicated more on alpha and organic growth or just total management fees.
Total management fees.
Okay.
Great. Thanks, and then the follow up just maybe around capital management with the new <unk>.
Structure in place.
Maybe just a quick reminder of what the go forward annual share creep I guess is expected to be and to what extent to what extent you guys are planning to offset any of that with share repurchases.
Yeah.
And we're not really considering a share repurchase program the effect of introducing franchise capital really is.
Less dilution.
So the same outcome as a share repurchase plan.
So and there is no.
As I explained the way, we think about the total award.
First 4% will be franchised capital.
And.
And the rest will be a Pam equity so you know.
Ty giving.
Giving you any direction on what the dilution will be would be hard because we'd have to have insights into this the size of the grant and I think.
No.
The amortization on an annual basis of between four and 6% of revenues is what we've historically done and I would expect it.
We remain in and that sort of range.
Got it great. Thanks.
The next question comes from Robert Lee of Covid GW. Please go ahead.
Good afternoon, and thanks for taking my questions good morning out west.
Maybe just sticking with the franchise and Watson should we be thinking debt.
And kind of similar to when you first went public this is maybe a little bit on kind of.
Compounding and leased in the next couple of years as you know and once you issue next year's awards and see.
And the comp maybe step up a little bit again, and then you know.
Take a couple of years to kind of normalize from that a bit away from you.
Particularly since the last couple of years or.
Maybe awards were below average and a fair way to think about it.
I mean for you.
First off there was a ramp up.
And when we went and public and the amortization expense because of a five year vesting and and the first year and we went public we had one grant.
And only 20%. So you know every year, we ramped up to get after five years, and we had a fully loaded amortization expense.
On.
And this and since she should not at all think about is of a ramp up.
You should think about if we continue to have premium years.
And you would see a ramp up just because we'd be granting more at the level of this year's grant and the.
Prior five years grants, where the firm was not.
AUM was fluctuating and a band probably between 95 and $120 billion.
And so this year, we've had a breakout of that and both from organic growth.
Investment performance as well as market so.
And in our mind is a premium here so the grant it all depends on the grant sizing.
Okay Fair enough and then maybe shifting gears to.
Clothes and business so.
And with such a Mark Mark Mark your debt increase.
Increase in growth sales this year, both and funds and separate accounts and.
And maybe.
Particularly on the fund side.
And I know you've talked about expanding distribution investments you've made but.
Parcel and drill down a little bit more were there specific channels that really kind of drove it I don't know maybe they were.
Specific programs, you've got into that almost like a spigot turned on and the beginning of the year and flows just from land. So I'm just trying to.
EBIT positive.
Drilling down more and get.
And some better color on what specifically really drove that.
And Rob it's Eric.
And I think we've mentioned this over the years quite a bit.
We've stated net flows would be lumpy.
And that.
As you manage very consistent and investment centric firm.
Yes.
It's not managed just for quarter to quarter flow or a distribution mindset that we've always expected and and hopefully have signaled.
That flows would be lumpy and so that's what occurred.
Last year I think the flows were a bit enhanced given the environment. We're in.
Clearly.
Many existing clients.
Reallocated to us as well as individuals or institutions that were doing due diligence on us and had a good knowledge base about artisan allocated dollars.
And.
And so given the environment and given our performance and.
Ladies and.
Something new.
For last year, and I think a lot of firms did this is just a pivoted a little bit more to using digital tools.
I would state that we've kind of looked at it as a more of a knowledge based distribution system.
How to think about our client journey and.
And we've been spending time on our CRM that we put in a few years ago.
Spent time on adding more riders and thinking about more content. So.
We've created a blog this last year, we've got and separate.
Hits on that.
One very powerful when we did back in October was a piece on value versus yolo investing.
We also added some videos and started doing interviews with corporate and.
Company and management of investments and <unk>.
Package that content and we've delivered.
That through E mail and website social media.
Including our blog that I mentioned and so the interaction has been quite nice.
Even during this period of limited travel.
And given the long term relationships and the new ways of delivery I think that all came together.
Okay, great. Thanks for taking my questions.
The next question comes from Chris shelter of William Blair. Please go ahead.
Hey, guys. Good morning, good afternoon.
Eric just curious to get your take on <unk>.
Growth versus value at this stage and the cycle and.
What are you seeing from your institutional clients are you seeing any kind of early signs of a rotation and the value and then what has that meant or what do you think it will mean for rebalancing activity over the next quarter or two.
Yes, certainly last quarter on.
You saw rotation and performance with the.
Value outperforming.
Small cap come back as well and you saw with non U S outperformed.
Last quarter.
With.
Emerging markets, leading the way. So you did have a rotation there and you're coming into the beginning of the year. When people do think about rebalancing I think you can see the flows that we saw and our value strategies and.
And they are.
There is a bit of rebalancing there.
I don't think we've seen a massive amount I think people still think it's early.
And the potential rebalancing, but this is why you and we think about an array of differentiated teams that are all operating and autonomous laid to provide that diversity to the firm and so if there is a rotation.
And be very well positioned with.
Our value suite of strategies there.
We're positioned well against peers.
They have a good reputation and asset base and performance across many of them are keeping up with the broad benchmark and doing well against their value peers.
So if if rotation does come we are quite ready to capture that.
Okay. Thanks for that and then.
One specific one just on the China strategy that youre going to be launching soon and I just want to clarify so is that a.
I think it is a crossover strategy investing about publics and privates and just any more broad color on the investment strategy there would be helpful.
No. That's I appreciate the question there it's.
And I think it's great opportunity for the firm as I mentioned on the <unk>.
And the more prepared remarks is that and we've all seen China growth.
And you've seen I think more allocators look at the asset allocation.
And our growing talent pool, that's focused on this.
This space.
But I think very limited and the.
From an institutional orientation.
And the strategy design is the capture the degrees of freedom that have been growing and the marketplace and staying ahead of the curve. So it is a crossover fun and that does use private companies.
I think our non U S distribution has broadened out both in Europe, Australia Middle East and this will give us a nice view into Asia, specifically, China as we broaden that out and our operations are.
Are quite ready to take on the crossover fun. So we.
We feel very well Paul.
<unk> two <unk>.
Expand and many many forms not just with this team or this strategy but across the.
And the organization I think most people as you know as we said and I said earlier was the.
New but most people just jump and China's growing and they create product and it's led by distribution and we look for the balance of all of these pieces that come together and we think it's the time for us to move forward with the post venture.
Fund that we're putting in place.
Hopefully that.
And it gives you a little bit more background on it.
Yeah that helps Eric will some of your other teams also be launching strategies and invest and and private companies.
Certainly I think the and.
And the way we've been broadening out the organization.
With various teams that do add degrees of freedom and it provides.
The opportunity for all day, and the investment teams to leverage those <unk>.
Degrees because the company has built the infrastructure to handle that.
And there's just a definitely growing interest into.
Private debt whether private.
Equity.
And you've seen a little bit more interest around use of derivatives and when we brought in the.
And Taro peak.
<unk> and.
And.
As each team comes in and we broaden out the firm it and it goes across the entire organization and it can be leveraged to occur.
Across the each individual.
Team and the organization so we would expect.
Our greater use of privates across many of our teams.
Alright makes sense, thanks a lot.
The next question comes from Kenneth Lee of RBC Capital markets. Please go ahead.
Hi, Thanks for taking my question just one on franchise capital.
From the direct impact on a cash from the franchise capital Awards.
Wondering if you could just share with us and any longer term implications for the dividend policy on the line. Thanks.
Okay.
Yes, no there's.
Our philosophy Hasnt changed.
And again franchise capital is just a replacement for.
Use of ATM equity, so there will be less dilution offset by.
Less cash.
And I think it's.
And there arent any other other implications.
The accounting the <unk>.
Same.
All of the.
Forfeiture investing provisions are the same so you know, it's just a different security.
Got you and.
Just one quick follow up on it if I may.
What sort of like the current outlook for potentially adding new investment teams.
And that near term thanks.
Yeah.
And there's clearly an uptick around our.
Teams that we talk to and are interested in and usually that happens around.
Bringing on a new group.
It happened when we brought in the credit team and many individuals' didn't think we'd go into the credit markets to break and and Antero peak and launching a long short and clearly.
Brian and Tiffany and launching a crossover fun that's focused in China.
And interest of.
Individuals' that may operate and Asia to individuals that are thinking about crossover strategies. So.
On the <unk>.
And each new team and each new step on that.
<unk>.
Pool of candidates that we've talked to.
But there is no.
And no new groups or teams that were willing to talk about or are there and the near term here.
Got you very helpful. Thanks again.
And the next question comes from Mike carrier.
Bank of America. Please go ahead.
Alright, great. Thanks for taking the questions.
A clarification on the new franchise awards.
And that's it.
And what will be and what will determine like the mix between equity awards versus the franchise awards each year.
Yeah.
So.
On the franchise and.
Awards are targeted at 4% of the management fees.
And then any additional grants would be and and.
Pam equity so I would.
And for <unk>.
No not that changes your model, but just for your information I would start with 4% of our franchise and then.
Based on the year.
The rest of the sizing and the Graham will be and a Pam equity.
Got it okay.
And and Eric just given your comments on the opportunities in China and private markets.
Just curious as you see more opportunity and bring.
And on that additional teams and talent specifically in these areas or is it tougher just given the level of competition.
And is there more of a focus on organically launching new products given that a lot of the teams are already looking at from these private investment.
And if youre looking at the near term.
No.
La and chain and are expanding degrees of freedom within our current teams and franchises as.
And as higher likelihood.
Versus going out and to the marketplace and bringing on a de novo team and.
And that just takes time and development.
To get comfortable with that talent and the marketplace. So.
And I think you'll see expansion of the degrees of freedom across.
A few of our franchises.
And all over the near term and.
The uptick and talent out there and given the stability and success of our model.
We feel quite.
[noise] capable and competitive and the marketplace to attract.
The talent that fits who we are.
Got it thanks a lot.
Yeah.
This concludes both the question and answer session and today's artisan partners asset management business update and earnings call Conference.
Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].