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Good afternoon, and welcome to the Artisan Partners Asset Management Business Update and Second Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Artisan Partners Asset Management. Please go ahead.

Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Colson, Executive Chair; Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website. Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including but not limited to the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement. And we assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and the supplemental materials, which can be found on our Investor Relations website. Also please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product, or a recommendation for any investment service. I will now turn it over to Eric.

Thank you, Brennan, and thank you all for joining the call or reading the transcript. In June, Jason succeeded me as CEO and I assumed the role of Executive Chair. This will be my last quarterly call, my 50th since our IPO in 2013. On each of the 50 calls, I have started with the same slide, level-setting who we are as a firm. Artisan Partners has been, is, and I believe, always will be a high value-added investment firm designed for talent to thrive in a thoughtful growth environment. Since our founding 30 years ago, we have demonstrated the repeatability of our model across investment leaders, generations, geographies, asset classes and distribution channels. We have grown the firm thoughtfully, methodically, expanding in the direction of high value-added investing. Throughout, we have maintained and enhanced our investment-first culture, staying focused on investments and client outcomes. We take tremendous pride in the consistency of our approach and the consistency of our results. After Jason speaks, I'll say a few words about how we have evolved as an investment firm and how we are positioned for the future.

Thank you, Eric. First of all, on behalf of everyone at Artisan, thank you for your 20 years of service to the firm, the last 15 as CEO. During Eric's tenure as CEO, the firm has grown to 11 investment teams and 26 strategies across equities, fixed income and alternatives. We have established Artisan as a multi-asset investment platform. We have reoriented our distribution to better access and serve the intermediate wealth channel. And we have stayed true to who we are, maintained our investments-first culture, enhanced Artisan as a home for talent, compounded capital for clients, and generated healthy returns for shareholders. For me individually, it has been a great privilege to work alongside Eric. I'm honored to serve as the third CEO in Artisan Partners' 30- year history, and I look forward to continuing to work closely with Eric in his role as Executive Chairman. As I think everyone knows, Eric plans to remain very active in the firm's governance, strategy and future. We have been very methodical in executing on this transition and will continue to be a source of consistency and stability for investment talent and clients. In 2013, Artisan identified Bryan Krug and recruited him to join the firm and start the Artisan Partners' Credit team. The firm's decision to enter fixed income with Bryan and the development of the Credit franchise over the last 12 years was further validated earlier this month when Bryan won Morningstar's 2025 Investment Excellence award for Outstanding Fixed Income Portfolio Manager. The award covers the entire fixed income universe, not just high yield. The list of past winners includes multiple fixed income luminaries. Bryan has proven himself as one of the very, very best. Over the past 11 years, the Credit team's flagship High Income strategy has outperformed its benchmark by 170 basis points annually after fees. Since inception, the High Income strategy is ranked #2 of 154 products in its eVestment universe. In 2017, the Credit team launched the Credit Opportunity strategy, which has generated 10.23% annual returns net of fees since inception. In 2022, the team launched the Floating Rate strategy, which has generated 6.68% annual returns net of fees since inception. And in 2024, the credit team closed Artisan's first drawdown fund, the Artisan Dislocation Opportunities strategy, with $130 million of commitments for the team to opportunistically invest in dislocation events. Today, the Credit team manages more than $13 billion across the franchise. We are currently onboarding 2 more institutional mandates for the team. We continue to prioritize business development for credit opportunities and floating rate strategies. And we are actively exploring ways to further expand the Credit team's degrees of freedom and business. Congratulations to Bryan and the team on the most recent recognition, your investment track record and the franchise you have built. In addition to Bryan and the Credit team, Morningstar also recognized David Samra as 1 of 3 finalists for the 2025 U.S. Morningstar Award for Investing Excellence: Outstanding Equity Portfolio Manager. Along with Dan O'Keefe, David previously won Morningstar's International Stock Fund Manager of the Year Award in 2008 and 2013, an award they were nominated for 5 times between 2011 and 2016. David's flagship International Value strategy has compounded capital at nearly 11% annually for 23 years, generating 418 basis points of average annual outperformance since inception and after fees. Over that period, the Artisan International Value Fund ranks #1 in its Lipper category among 22 funds. Almost 5 years ago, David expanded his team with the addition of Beini

Thank you, Jason. Our ability to evolve around a core set of principles has been key to the repeatability of our success. We have remained true to who we are as a high value-added investment firm designed for talent to thrive in a thoughtful growth environment. At the same time, we have evolved. We have methodically expanded degrees of freedom inside of existing strategies and with new strategies. We have gone from public equities to fixed income, to alternatives, to multi-asset class. Broadening the opportunity set for our investment teams has enhanced their ability to differentiate and outperform. We have built out the platform that talented investors can plug into at Artisan. When we started, talent wanted to be left alone in an office with a Bloomberg. In today's environment, talent wants and needs a lot more: access to markets, instruments and information, technology and data and advice, guidance and support, to build a sustainable investment franchise. Lastly, we have evolved our distribution to align with clients who value what we offer and what we do: clients with long-term asset allocation for high value-added investing; clients with duration that gives managers the time needed to pursue alpha; clients who do the hard work and research upfront to identify and partner with managers who will deliver over long periods. Increasingly, this has taken us into the direction of intermediated wealth clients, which today represents over half of our AUM. We are a very different firm than we were 15 years ago, let alone 30 years ago. But at our core, we haven't changed. We are a high value- added investment firm driven by talent. We have simply evolved where and how we apply our principles so that we remain relevant to investment talent and sophisticated asset allocators. These evolutions have taken us in the direction of an investment platform that fully resources talent, multi-asset and alternative investments, and increasing focus on the opportunities in the intermediate wealth. I'm extremely proud of the evolution we have made. I expect it to continue under Jason's leadership. And I am confident we will continue to execute well for investment talent, clients and shareholders. I will now turn it over to C.J. to discuss our recent financial results.

Thanks, Eric. An overview of financial results begins on Slide 7. Second quarter results reflect strong equity market returns across global markets, which drove our ending AUM to $176 billion, up 8% compared to the March quarter. Our business model continues to deliver durable growth and attractive long-term returns for clients and shareholders. While ending AUM was up sharply, average AUM for the quarter was flat sequentially and up 5% compared to the June 2024 quarter. Year-to-date average AUM improved 7% over the prior year 6-month period. Net client cash outflows during the June quarter were $1.9 billion, driven by a lower volume of gross equity inflows and outflows as compared to the prior quarter. Equity outflows were partially offset by continued positive fixed income flows. The second quarter represents the 12th consecutive quarter of positive flows for our fixed income business. Year-to-date, net client cash outflows increased over the prior year, primarily due to a previously disclosed $1.2 billion outflow from a separate account rebalancing in the first quarter. Our complete GAAP and adjusted results are presented in our earnings release. Revenues for the quarter were up 2% compared to the March quarter and up 4% compared to the prior year second quarter. Our weighted average recurring fee rate for the quarter was 68 basis points, up slightly from the prior quarter. Adjusted operating expenses for the quarter were up 3% from the first quarter of 2025 and 5% from the same quarter last year, primarily from higher incentive compensation expense due to increased revenues and market appreciation of long-term incentive awards. Additionally, second quarter 2025 reflects a $1.2 million charge in connection with the closure of the China Post-Venture strategy. Adjusted operating income increased slightly compared to the prior quarter and 3% compared to the same quarter last year as a result of higher revenue. Adjusted net income per adjusted share was flat compared to last quarter and up slightly compared to the second quarter of 2024, consistent with operating income. Year-to-date, 2025 revenues were up 5% compared to the first half of 2024 on higher average AUM. Year-to-date adjusted operating expenses increased 4% from 2024, primarily from higher incentive compensation on elevated revenues and the impact of the addition of the January 2025 long-term incentive award grants. In calculating our non-GAAP measures, nonoperating income includes only interest expense and interest income. Although valuation changes on our seed investments impact shareholder economics, we fully exclude these valuation changes from our adjusted results to provide transparency into our core business operations. Looking forward to Q3, revenue should benefit from 8% higher AUM. In addition, the September quarter will benefit from the absence of approximately $2.4 million of costs associated with the China Post-Venture team, including the $1.2 million onetime charge related to the closure of the China Post-Venture strategy. Turning to Slide 11. Our balance sheet remains strong. We currently have approximately $140 million of seed capital invested in seeded products. As strategies reach scale and our seed investments are redeemed, any redemption amounts realized are included in the cash available for corporate purposes, new seed investments or as an addition to our year-end special dividend. In addition, our $100 million revolving credit facility remains unused. In August, $60 million of our senior notes will mature. Last month, we announced the closing of $50 million new private placement debt on August 15, 2025. We will use the proceeds from the new debt along with cash on hand to retire the $60 million of debt maturing in August 2025. We continue to return capital to shareholders on a consistent and predictable basis through quarterly cash dividend payments and a year-end special dividend. Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.73 per share with respect to the June 2025 quarter, a 7% increase over the prior quarter. That concludes my prepared remarks, and I will turn the call back to the operator.

[Operator Instructions] The first question comes from Alex Blostein with Goldman Sachs.

This is Anthony on for Alex. Maybe just to start on capital allocation and more specifically around M&A. I guess you have expressed interest in M&A, specifically around building out your alts capabilities. So what areas or asset classes are you most open to pursue? And how should we think about the pipeline of deals today?

It's Jason. Thanks for the question. We have spent some time talking about M&A. I guess I'd just take it back to just, first, principles. Number one, it's always going to be a talent-driven opportunity that's going to guide where we're going to go. There's an absolute standard. We're not going to change that standard, whether it's lift-out or M&A. But as you rightly pointed out, we do think M&A is a potent opportunity for us in the future, specifically in the alternatives asset classes. There's a range of areas that we focus on, and we're not trying to be pigeonholing ourselves in any one specific area. But as you've heard us talk about, real estate is interesting because it's highly fragmented, there's multiple ways to win, there's a lot of talent out there. Systematically, there's a lot of disruption going on. And certainly, idiosyncratically, at various firms, there's opportunity to dislodge talent. We will focus on the, let's call it, the areas where we think value can be driven. So we're not looking to do anything in the core or core plus from a lift-out or M&A perspective. We would really focus on value-add into the opportunistic categories where return differential is a lot higher and where we think our platform can be of benefit to talent. We've looked at private equity. More specifically, the secondaries business is interesting for us. It's an area where we think risk can be taken, risk can be rewarded. The duration and time to get your DPI is a lot shorter than what you typically see in your traditional buyout or venture funds. We think it plays well into the intermediate wealth space. And again, there's a lot of talent out there in both lift-out and M&A. We've talked about private credit. We don't we don't love doing something that's just a me-too in the bulge bracket, sponsor-driven area. We don't think we have the ability to compete there. But there are other areas where there's a vast TAM, big opportunity set and high differentiation, in areas like asset-based lending. And so that's just a flavor. But again, I don't want to say that that's where we're screening or looking for opportunities. That's where opportunities are finding us and they seem really, really interesting and compelling. But we'll let the talent drive us and guide us in that regard. The last point I would make is we're continuing to see a high volume of activity. And given the build-out of our investment strategy group over the last several years, it's allowed us the opportunity to really kind of focus on the external effort a little bit more than we have been in the past.

Great. Yes, that's helpful. And then maybe for my follow-up, just on capacity constraints. I know this has been a headwind in a couple of strategies for a little while. So how should we think about the timing of these kind of reopening and the accelerations to the gross flow profile?

Anthony, it's Eric. Yes, we are always managing capacity, as you've highlighted. As we've always said, investments is the first thing we think about, and then we think about the distribution side. We'll always protect the investment results. So there's a few strategies on the growth side that we're freeing up a little bit of capacity and managing that, given some of the trends we've seen in flows and a lot of the rebalancing we saw this last quarter was in the growth side of the equation. With regards to the International Value and the High Income strategy, really we're working with a very strong embedded client base. Much of that client base is the intermediated wealth client. Intermediated client puts us in a model. And that model is refreshed for existing and new clients. And many of these intermediated wealth firms want to have consistency. So we really try to work with those groups on capacity in the large existing clients, and we'll continue to manage that and be judicious about that, are really how we are looking at the constrained strategies right now.

The next question comes from John Dunn with Evercore ISI.

You mentioned 2 institutional mandates. Maybe just if you could talk a little more about them, maybe the timing of when they might fund. And also more generally, just the temperature of the conversations you're having with institutional clients both in the U.S. and then overseas.

Yes. John, this is Eric. Yes, the institutional clients, we did see some movement around rebalancing little bit on the global equity side. And then on the positive front, we see quite a bit of interest in emerging markets at large. We had a nice uptick in our emerging markets local opportunities with the EMsights team. We also have some good opportunity that funded with the Sustainable Emerging Markets. And we're also hitting the 10-year anniversary that we've highlighted on the call with Developing World. So there's definitely a positive story around the fixed income strategies that we have as well as the emerging markets. With regards to the institutional specifically, I think many of them are dealing with illiquid allocations, and many of the private equity and other illiquid in real estate are creating evergreen funds and are really looking to extend the duration of those assets. Some clients are really focused on that. And then secondly, with the institutional clients, we've just seen a little bit of backing off on risk given the market environment, and I think that's why have been leaning more towards credit. But that back-off of an analysis around risk given the market environment, the tariffs, we saw really a muted gross flow this quarter. And if you looked at the gross levels, it was down quite a bit from previous quarters, and that signals, I think, just a more cautious risk-aware environment. And we're looking at credit as an area of growth. Equity had some rebalancing. And many people starting to revisit emerging markets as a place to allocate dollars.

Got you. And maybe just to frame it, again, geographically in terms of distribution, any areas where you expect to see inflow demand or money at risk over the next -- the second half of '25?

I think from a geographical, I don't think we've seen any specific spots geographically. The U.S. has been the one area with regards to public equities on the institutional side that we've seen a rebalancing. But nothing is jumping out from a geographical standpoint that's causing us concerns.

The next question comes from Bill Katz with TD Cowen.

So just staying on the flow discussion for a moment. I apologize, I joined just as your comments were going on. Did you frame or size the institutional wins? I'm sort of curious, you mentioned that you're seeing a pickup in EM. It sounds like it might be coming from other equities. A, is that correct? And then B, if that does sustain itself, how do you sort of see the net impact flowing through to APAM given your skew to some of the legacy mandates versus the more fertile opportunity in the EM business, albeit being a little bit smaller?

Yes. We talked about 2 larger mandates. We're starting to see that on the EM side of the equation with EMsights and Sustainable Emerging Markets. And we also mentioned, Bill, on the Developing World. But we're seeing a growing interest and growing opportunities with EMsights, with Sustainable Emerging Markets, with Developing World. When we brought in the EMsights team, the first couple of years, it was the largest outflow of emerging market debt in the institutional marketplace and the history of that asset class. And that was followed up with another down year. You're starting to see a lot of people revisit that allocation given EMsights just hit a 3-year number across all of its strategies. Developing World hit its 10-year and our Sustainable Emerging Markets has had a very strong performance over the last 1, 3, 5, 10, screening well. We're very optimistic on allocations there. As well as, beyond the EM debt, the broader fixed income category is also upticking for us. And how that offsets the equity side really depends on how our large clients on our International Value, International Equity and the Global Products rebalance and manage their risk. So it's hard to predict. Those are lumpy, episodic rebalancing that does occur. That's been the bulk of the outflow this quarter. And as I said earlier, it's been a very muted gross flow across the board this quarter. So it's hard to actually frame the exchange of kicks on the inflow/outflow story.

Well, I appreciate the perspective. And then maybe one tying in the opportunity for growth to C.J. As you think through maybe the OpEx outlook into the second half of the year, and I appreciate the guidance that you won't have the elevated severance associated with the wind-down of the China venture fund, how do we think about maybe OpEx? And particularly, would you look to ramp any kind of spend just given that you're at the sort of inflection on some of these flagship funds that could potentially scale pretty nicely?

Yes, Bill. Yes, there's really no sort of update from an OpEx standpoint. I mean we're still on target to be like mid-single digits on the fixed side. And of course, on the variable side, which is almost 55% of our expense base, that will vary with revenues. So there is no expected expense ramping for any type of growth. I think we're well positioned to take advantage of the growth that exists within the system right now. And it's just about executing on it. And we don't really need to put any kind of expense initiatives in place to capture that.

Okay. Very good. And Eric, congratulations, again. I'm feeling very nostalgic today. But thank you for all your help along the years.

The next question comes from Kenneth Lee with RBC Capital Markets.

During the prepared remarks, you mentioned potentially expanding some of the degrees of freedom on the Credit side. I wonder if you could just further flesh out or outline what's in the pipeline for new products within the Credit side over the near term.

Yes. Ken, it's Jason. We are evaluating various structures and opportunities as it relates to the private markets. There could be the potential for interesting ways to access the private markets with our existing franchise, the Credit team. We're certainly looking at those and evaluating those in the context of continuing to expand out those degrees of freedom and continue to grow and build what we think is a platform that has the right amount of resources, and certainly, the brand recognition, to have that opportunity. I'd say that that's probably the nearest-term opportunity. And within the EMsights business, we're continuing to evaluate whether there are opportunities to launch a private fund around our Global Unconstrained strategy more from an institutional perspective that they might not be interested in accessing a mutual fund. And so those are probably the 2. One's a little bit more of an expansion of degrees of freedom and one is just an opportunity to capitalize on the existing toolkit.

Great. Very helpful there. And just one follow-up, if I may. Any updated outlook around seed capital needs for this year? And relatedly, any early indication around the payout ratio for this year?

Yes, I'll take that one, Ken. On seed capital, I think right now we're well positioned. We always are thinking about new products. But as we sit here today, there's nothing -- no planned new seeds, although some are in the works. I'd say we're in a well-positioned spot from a capital perspective as we've ever been. As you know, we've had a lot of seed capital that we expended over the last several years and our book is now $140 million. We are seeing some -- expect to see some opportunities over the next 12 to 18 months to start to pull some of that back, redeploy that either for additional seed or acquisitions if something like that comes to fruition. So I feel like we're really well positioned from a seed perspective. And obviously, we're not a fan of debt, but if you think about M&A in context of buying an established firm, we do have capacity within our line of credit and additional debt capacity. Obviously, not our preference, but just to highlight we're in a good capital position to execute on what we need to, whether it be seed or M&A.