Makela Taphorn - Investor Relations Eric Colson - Chief Executive Officer C.J. Daley - Chief Financial Officer.

Michael Kim - Sandler O’Neill Bill Katz - Citi Marc Irizarry - Goldman Sachs Andrew Donnantuono - KBW Michael Carrier - Bank of America/Merrill Lynch Surinder Thind - Jefferies Chris Shutler - William Blair.

Hello, ladies and gentlemen. Thank you for standing by and welcome to Artisan Partners Asset Management’s Third Quarter 2014 Earnings Conference Call. My name is Mike 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. As a reminder, this conference call is being recorded. At this time, I will turn the conference call over to Ms. Makela Taphorn with Artisan Partners. Ms. Taphorn, the floor is yours ma’am..

Hi, everyone. Before we begin, I would like to remind you that our third quarter earnings release and the related presentation materials are available on the Investor Relations section of our website.

I would also like to remind you that comments made on today’s call and some of the responses to your questions may deal with forward-looking statements and are subject to risks and uncertainties and factors that may cause our actual results to differ from expectations are presented in the earnings release and detailed in our filings with the SEC.

We undertake no obligation to revise these statements following the date of this conference call. In addition, some of the remarks this afternoon include references to non-GAAP financial measures and you can find reconciliations of those measures to the most comparable GAAP measures in our earnings release.

And with that, I will turn the call over to our Chief Executive Officer, Eric Colson..

Thanks, Makela. Good morning. Welcome to Artisan Partners Asset Management business update and quarterly earnings call. I am Eric Colson, CEO and I am joined today by C.J. Daley, CFO. Thank you for your time today and I hope you find this discussion useful.

As with past calls, I want to reinforce who we are while reviewing the results from the current period. During this update, I want to specifically spend time talking about growth. Growth is often narrowly defined around changes in assets or cash flows.

We have a broader view and I want to spend some time talking about the strategy we have in place to achieve growth over the long-term. Once I am done, C.J. will take the lead and walk you through our financials. As usual, I have a few slides at the beginning of this presentation that should look very familiar at this point.

On Page 2 of the presentation, I would call your attention to two items. First, our overall AUM declined from $112 billion last quarter to a little over $106 billion at the end of the third quarter. The change reflects market depreciation and client cash outflows, which we will discuss further.

The second item I would call your attention to is our headcount. I haven’t talked about this much in prior periods, but since we are talking about growth this quarter, it is relevant to discuss. At our firm, careful consideration of the function, structure, alignment, skill and development of our human capital is fundamental for growth.

That means we invest in people who support our firm’s development initiatives. That may seem like a subtle or even trivial distinction to some, but for us it is important. It helps us ensure we bring on talent for the right reasons and asset growth and cash flow growth alone are not the right reasons.

We have relatively low headcount to revenue, because we want broad thinkers who can adapt to change. A more hierarchal or elaborate organizational structure with narrow individual roles can stifle creativity and resourcefulness.

In short, we prefer to bet on that right people over the right structure, because the right people adapt to change while structure is more fixed than variable. We will revisit this point when we discuss our distribution channels.

With that backdrop, two of the key themes behind headcount change this year from 300 to 344 associates have been investment freedom and logistics management.

Launching our credit team obviously requires us to hire a number of people directly involved in the strategy, but it also led us to hire a number of people, but have increased our operational capability with fixed income instruments.

These people support our credit team right now, but their addition will also help us establish the foundation for additional degrees of investment freedom across our firm. This lays the ground work for new strategies and new investment teams.

Logistics management is an initiative at our firm directed at leveraging technology to support our investment team’s research process, better manage firm risk and improve operational efficiency. This initiative contributed to a restructuring of our information technology team and a number of new team members.

In short, we believe our headcount growth is positioning our firm well for the future. On Page 3, I would first call attention to the points at the top of the page that we incorporate into our performance analysis when we are considering results of our investment strategies.

Faithfulness, to a stated investment process, solid absolute performance and performance compared to peers and the index.

Second, I would point out that as of September 30, 7 of our 11 investment strategies that have a 5-year track record have added value relative to their broad performance benchmarks over the trailing five years and since each strategy’s inception.

All 7 of our investment strategies with a 10-year track record have added value over the trailing 10-year period. Most importantly, all of our strategies continue to execute their distinct investment processes with integrity. This has been particularly important in the recent period.

As I mentioned last quarter, lopsided cycles can make it tempting to abandon discipline to manage short-term pain. Our teams have all stayed focused on their long-term goals. Finally, before leaving the page, I want to elaborate on that last point for another minute using our global small cap strategy as an example.

It was launched just 15 months ago and as you can see by the chart on Page 3, it looks like it has had disappointing start. However, this like all of our strategies is a high conviction portfolio that is markedly different from the benchmarks. What that means is that the range of outcomes over a very short period can be very wide.

The goal is not to perform in every period. The goal is to generate results over complete market cycles. And if you look at the other three strategies managed by the same team, you can see that the team has demonstrated that it can accomplish that goal.

End point dependency on short timeframes have a tendency to greatly skew performance perspectives, which is why we are so focused on multiple measures of performance over longer timeframes. Slide 4 is another quick illustration of our performance results and a better visual presentation – representation of my point.

As of September 30, more than 3 quarters of our assets under management were in strategies outperforming their respective benchmarks over their trailing 5-year period, while 99% of the assets under management outperformed over their trailing 10-year and since each strategy’s inception.

As you can see the 1-year and 3-year numbers are somewhat mixed relative to the long-term results. This is because short-term outcomes are often influenced by factors outside the control of high conviction active managers.

For example, in the small cap space, technical factors such price momentum and relative strength have had a disproportionate impact on returns. Since the beginning of the year, the top quintile the Russell 2000 sorted by market cap is down about 3.5%, while the bottom quintile or smallest companies are down nearly 9%.

Our teams don’t make factor based sets. So for example, while relative performance is lagging for our small cap value strategy, we are not necessarily surprised because the team remains committed to the process integrity. As markets normalize over time, we would expect a better outcome. Less than three years ago, our U.S.

value team was named Morningstar’s domestic stock fund manager of the year in the U.S. We are confident in the team’s process and ability to generate attractive results over the long-term. Our mutual fund peer ratings which are highlighted at the bottom of the page show how our results translate into industry-wide rankings.

Slide 5 takes a look at our asset diversification from several perspectives. I would like to spend time this quarter highlighting the channel and client domicile graphs. Starting with the top left, I have a couple of comments to make. First, you will notice that we have taken this view from a 5 piece pie to essentially a 3 piece pie.

The 5 piece separation is largely a historical distinction and we believe it is more appropriate to discuss our client base in three groups, which aligns better with our distribution model and team structure. Retail is essentially unchanged and continues to be the smallest portion of our business.

We have aggregated our broker dealer and financial advisor channels into a single intermediary channel. For advisors in the FA and BD channels this will seem intuitive and probably late coming. But historically we saw a divergence between transaction based and asset based intermediaries.

We have consolidated the channels because the BD and FAs that we primarily work with advice the same types of clients, have similar fee structures and utilize research based processes for allocation decisions. This quarter, our intermediary channel collectively generated positive net flows. So flows were muted relative to the rest of the year.

We have combined the institutional channel with DC for similar reasons. Over the last 15 years, the point of influence in the DC channel has shifted from the financial intermediaries such as record keepers to independent investment consultants. In some cases, it’s the same consultant that cater to the other institutional asset pools.

And in other cases, there are more focused defined contribution consultants that serve DC plans. Regardless, the approach is an institutional one and we believe the depiction of our assets should reflect a combined institutional category.

Collectively our AUM source through these channels has been under some pressure due to profit taking, rebalancing, shifting tactical allocations and performance. On the bottom right, despite no change to the overall graph from a percentage standpoint, our non-U.S. business continues to grow at a relatively consistent cliff.

As with our intermediary channel, results were muted compared to prior periods, but still positive, due to in large part to key wins in our global equity and global opportunity strategies. Page 6 is a review of the three core principles that define who we are.

We are a high value added investment firm designed for investment talent to thrive in a growth oriented culture. Our definition of a growth oriented culture is a thoughtful commitment to long duration assets including our talent, our high value added strategies, our distribution management and our global perspective.

If executed properly over time, growth is the outcome, not a strategy. So let’s talk about our approach to thoughtful growth. On the next five slides, beginning here on 7, I am going to talk about our views around growth, the drivers of growth at our firm and our long-term strategy.

The temptation that chased short-term organic growth and the hope of sustaining a linear outcome can cloud judgment. Our 20-year growth history has proven that our outcomes are more often lumpy. Markets fluctuate, sentiments shift, performance success can be choppy, investor allocation decisions vary in the timing and product innovation fads cycle.

In the investment management business, our short-term outcomes are impacted by numerous factors that are outside of our control. Thus growth is naturally non-linear. We believe a thoughtful growth strategy requires discipline, patience, and a broad perspective on the factors that drive growth long-term.

On Page 8, we have outlined a set of factors that drive growth. This is just a representative group, but the primary point is that growth is impacted by decisions we make as a firm, the internal factors and market influences the external factors, which are in our minds essentially impossible to control.

We are aware of the many factors that can drive growth, so we wanted to keep our attention on the long-term growth drivers that fit who we are. More often than not, external factors are very cyclical or binary in nature, making both difficult to account for and manage. For example, market cycles vary in length and are unpredictable.

This tends to create cyclicality in product trends and investor decisions, which sometimes have very good or bad consequences over short periods for our business. These factors can create optionality and leverage on growth, but relying on them creates false confidence.

We like being associated with a positive trend, but we don’t want our behavior to be influenced by the trend ultimately changing who we are for the sake of short-term growth.

Turning to Page 9, knowing the unpredictable nature of external factors, we focus our attention on the factors that we can manage our talent, the investment freedom embedded in our strategies and teams, the markets in which we compete and the distribution model we use to get our products to clients.

Our strategy does not incorporate assets or cash flow targets, those are outcomes. We believe that if we execute well on our strategy that growth will follow. Slide 10 is a review of the strategy we have represented in our first quarterly call as a public company in 2013.

The secular market trends noted on the page are exactly as we presented them 6 quarters ago. Our business strategy doesn’t pivot off of short-term details. We use the details to identify broad sometimes obvious trends to drive strategy. Globalization, investment policy evolution, and open architecture solutions are three trends we have identified.

These aren’t the only trends impacting the industry, but they are the trends underlining our strategy. Our long-term strategy is also the same as indicated 18 months ago. Talent acquisition and development is fundamental to our core strategy and is our highest priority. It is the foundation of our firm.

Creating investment freedom for our teams and delivering a product lineup reflecting that freedom is the second most important part of our strategy. I mentioned earlier the expansion of asset classes we supported operationally through the launch of our credit team. This is an ongoing process.

We have taken some meaningful steps this year to position ourselves well for additional strategies and teams. Our efforts to expand globally began more than 7 years ago with our entry into global strategies and eventually an office in London. Our global expansion is evolving and remains a significant area of opportunity for us.

Wealth is growing in many parts of developing world and more established markets have an appetite for quality investment management. The final leg of our strategy is leverage distribution. We stay committed to those strategies. We are confident that growth will be an outcome. Slide 11 highlights some of the detail about our strategy.

This will be somewhat of an elevator pitch given the time we have on this call, but it will provide an overview of what we focus on. These are ultimately the assets we are looking to develop. We believe these assets are ultimately stores of value that, if developed appropriate, will lead to growth.

Our strategy around talent begins and ends with finding the right people. We want to find experienced investors with strong philosophical beliefs. We evaluate individual characteristics fit with our business model, long-term demand within the institutional framework, and fit with our culture, including our fiduciary mindset.

The right talent for our firm is a scarce resource and should not be forced. Once we have the right fit, we want to build multi-generational franchises. We don’t want a single product built around one star. We want true franchises with breadth and decision-making defined by a distinct investment culture that has natural succession options.

Our new credit team is off to a great start. We have seen great developments in the evolution of our growth team announced this year and our research list of new teams has been full with about 50 meetings this year-to-date. Our strategy behind investment freedom is fairly straightforward.

If we believe we have the right investors with time-tested investment processes, we want to create the best opportunity for them to deliver high value added results.

We believe we can accomplish this by removing constraints from the investment process, resourcing them, and allowing them to operate autonomously in a way that it best supports their views. Our next team will happen organically when we believe we have the right fit.

The strides we have made operationally through the integration of credit on to our platform and new derivatives have positioned us well for an increasingly wider group of new talents. Our global growth strategy has initiated – was initiated when our investment team started to see corporate domicile become an increasingly arbitrary distinction.

And so we develop global strategies. These global perspectives eventually evolved into a physical presence for our business outside the United States with our London office opening. We have seen the benefits of globally diversified client base this year. We believe it is creating more stability in our portfolio assets.

As we continue to expand, we are being disciplined about the presentation of our brand and conscious about which markets we expand into. Our distribution strategy is focused on sophisticated investors with a long-term horizon and an institutional research process.

We manage our relationships with embedded business leaders on each investment team to lever each team’s culture and preserve the time each team spends on investments. We also create leverage by focusing on third-party sales forces and a global branding effort.

We can do those things and align our interests with clients on the right turns we believe we can generate positive results. We commit significant energy to creating value in those assets. We believe that collectively they will produce an attractive growth outcome over the long-term. I will now turn it over to C.J. to discuss our recent results..

Thanks, Eric. Good day, everyone. From a financial perspective, our 2014 third quarter was the high watermark for average assets under management and revenues.

However, given the sensitivity of our business to global stock price levels, our September ending AUM was down significantly from beginning of the third quarter and global equity markets continued to decline into October. More specifically Slide 12 begins the review of our September quarter 2014 financial results.

For the quarter ending AUM decreased 5% to $106.2 billion. The decline was driven – most of that decline is in global stock markets late in the quarter, but also contributing to decline were net client outflows of $645 million.

Although our ending AUM is down, average AUM increased 2% quarter-over-quarter as the most significant declines in global markets occurred late in the quarter. Revenues for the September quarter were $212.4 million, up 2% of revenues in the preceding June quarter of 2014 and up 19% over corresponding September 2013 quarter.

Our adjusted operating margins for the September 2014 quarter was 44.0% and in line with our expectations given the increased equity compensation and distribution expenses that we discussed during last quarter’s earnings call. Net income per share on adjusted basis was $0.79 per share, compared to $0.84 per share in the June quarter.

On October 15, our Board of Directors declared a regular quarterly dividend of $0.55 per share. This is our third quarterly dividend of $0.55 in 2014 and represents the portion of our year-to-date adjusted earnings. Slide 13 is a review of our assets under management for the September quarter.

And the assets under management of $106.2 billion were down 5% from $112 billion at June 30, 2014 and up 10% percent from our earning assets a year ago. Average assets for the September quarter were $110.2 billion, up 2% from average assets in the June quarter.

The decrease in AUM during the September quarter was due to $5.1 billion or 4.6% in market depreciation and $645 million of net client cash out flows. During the third quarter, our client cash flows were mixed across strategies and distribution channels.

As we have mentioned in previous earnings calls, over the last several years we have seen some seasonality in our intermediary flows and tend to see muted activity in the second and third quarters. In addition, we continued to see outflows resulting from institutional client asset allocation decisions and in certain cases performance challenges.

These outflows were offset in part by significant net inflows into our non-U.S. growth, global equity, global opportunities and high income strategies with flows coming from both institutions and intermediaries. However, the inflows in these strategies did not fully offset the outflows we experienced from rebalancing and performance challenges.

Looking over a longer period, our quarter end AUM was up 10% compared with our AUM at the end of September 2013. Net client inflows contributed $2.8 billion of this growth with the remaining $6.5 billion resulting from market appreciation.

Our organic growth efforts over the last year remained thoughtful and focused on maintaining our well diversified asset base and attractive fee rates. On Slide 14, you will see that our non-U.S. client AUM was $13.0 billion, down from $13.5 billion last quarter and up 19% from a year ago.

The decrease in the September 2014 quarter was due to decreased global equity markets which were offset slightly by net client cash inflows. Non-U.S. client AUM represented 12% of our total assets under management at the end of the September 2014 quarter. Client demand outside the U.S. remains stronger for certain of our strategies.

We said this before and proved this quarter, but I want to remind you that throughout our history, our growth has been lumpy and has come from certain strategies and teams during distinct pockets of time. Looking ahead, we continue to be encouraged by interest in our non-U.S. growth, global equity and global opportunity strategies.

And despite having a track record of less than a year, our high income strategy has seen positive interest from clients and therefore net inflows. Our financial results begin on Slide 15.

For the September quarter revenues were $212.4 million, on average AUM of $110.2 billion, that’s a 2% increase in revenues over the preceding June quarter and a 19% increase in the corresponding quarter in September of 2013.

For the nine months ended September 30, 2014, revenues were $622.7 million on average AUM of $108.2 billion, that’s up 28% from revenues of $488.2 million in the nine months ended September 2013. Our weighted average management fee for the quarter was 76 basis points and for the nine months ended September 30 was 77 basis points.

Turning to Slide 16, our adjusted operating margin, which excludes pre-operating share-based compensation expense, was 44% for the current September quarter compared to 46.5% in the June 2014 quarter and 43.3% in the corresponding third quarter of 2013.

Our adjusted operating margin declined primarily due to $3.7 million of additional compensation expense related to our July 2014 employee equity grant and $1.2 million of additional distribution expense related to an increase in our share of fees paid to third-party intermediaries.

In addition, technology spend was up slightly and G&A expense increased as we experienced increased charges due to the effect of the strengthening U.S. dollar had on our inter-company payables.

Adjusted net income for the September 2014 quarter was $57.4 million or $0.79 per adjusted share, which is a decrease from the preceding June quarter and a 21% increase over the September 2013 quarter.

Our full year 2014 estimated tax rate rose slightly to 36.5% from 36.2% as we trued up the year-to-date impact on the increased rate in our third quarter, which negatively impacted our adjusted EPS in the quarter by $0.01 per adjusted share.

For the nine months ended September 30, 2014, our adjusted operating margin was 45.2%, up from 41.8% for the nine months ended September 30, 2013. Compared to the prior year 9-month period, this increase in margin is primarily attributable to higher revenues.

This translated into adjusted earnings per share of $2.41, up 36% from $1.77 for the nine months ended September 30, 2013. Slide 17 highlights our compensation ratio.

Our compensation expense in the current September quarter continues to include the amortization of pre-IPO equity compensation, which we adjust out of expense when calculating our adjusted operating margin and adjusted earnings per share.

Our compensation expense for the September quarter also includes the amortization of the July 2014 equity grant of restricted shares, which increased our quarterly expense to $6.9 million. As indicated in July 2014, we made our second grant of post-IPO equity-based compensation.

As a reminder, this year’s grant included a new concept as a portion of the awards were in the form of what we call career shares. Like our standard restricted share awards, career shares have a 5-year time vesting component. But more importantly, career share vesting also requires recipients that leave Artisan through qualifying retirement.

This concept of qualifying retirement further reinforces our commitment to creating long-term sustainable growth. The additional expense related to this year’s equity grant increased our compensation ratio in this quarter.

Beginning with the December 2014 quarter, we expect the full quarterly run rate of equity-based compensation expense to be $7.7 million. Keep in mind, that the run-rate includes annual amortization with respect to only two annual grants. Looking ahead, we plan to move our annual grant cycle to a calendar year basis from July.

So, we expect in January, the Board will consider a pro-rated 6-month grant of equity. Of course, the cost of future equity-based awards is largely dependent upon the size of future grants and our stock price at the time of the grant. The last slide shows our balance sheet highlight. Our balance sheet remains strong.

Our cash balance is healthy ending the September quarter at $228 million, up 8% from $211.8 million at December 31, 2013. On October 15, our Board of Directors declared our quarterly dividend of $0.55 per share of Class A common stock payable on November 28, 2014 to shareholders of record on November 14.

At September 30, our stockholders’ equity was $146.4 million, up $14 million compared to December 2013 primarily as a result of additional equity added through the March follow-on offering and subsequent exchanges. Our debt remained at $200 million and our leverage ratio was 0.5 times EBITDA.

While we are not predictors of markets, we are prepared for volatile equity markets like we have seen over the past few weeks.

We believe our financial model, which is grounded in our thoughtful approach to growth, fee discipline, and a high variable cost structure will withstand volatility over the long-term, provide healthy margins and continue to produce strong cash flows, most of which we intend to distribute to our stakeholders.

I look forward to your questions and will now to turn it back to Eric..

Thank you, C.J. We will now open the call for questions..

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) The first question we have comes from Michael Kim of Sandler O’Neill. Please go ahead..

Hey, guys. Good afternoon.

First, I know it’s somewhat of a difficult question to answer, but just from your perspective, I would be curious to get your thoughts on where we are in terms of this cycle around institutional de-risking, rebalancing and profit taking that you alluded to earlier? And then looking ahead, any color on the pipeline or RFP activity or anything that you have picked up from a demand trend perspective?.

Hey, Mike. It’s Eric. It is a difficult question on the extent of any cycle and we kind of feel the same way with regards to some of the performance trends. And so, it’s hard to predict the decision-making of committees and institutional decision-makers.

We have seen some continued rebalancing and continued profit-taking in some of our strategies that have strong results. So, we know the trend isn’t 100% performance-related.

We do have some strategies that do have some performance rebalancing, where we have seen assets been taken away, but overall, our interaction with our institutional clients we have deep relationships with them. And they will continue to communicate with us or gives us the heads up of how they are rebalancing and recycling.

So, I can’t give you a definitive answer except for keeping a very high touch client service model with those clients to work with them. With regard – and with that same on the flipside from a growth perspective, we are good in a good sense of a healthy pipeline that’s consistent to what we have seen in past quarters.

I think there has been a little bit of unpredictability around the final decision-making of when those decisions are going to fund, but from a pipeline perspective, we feel that we are in a healthy spot. And we look across our six different franchises four of them are in really good solid positions right now. The U.S.

value and the emerging markets would be the two that are not as well positioned..

Okay, that’s helpful. And then I think in the past, you have mentioned total return fixed income as maybe an area of interest in terms of adding investment talent.

So, I know you are focused on finding the right fit, but just given all the money and motion these days, does that maybe up the ante a bit as it relates to scouting for a team that could be in a position to generate some pretty meaningful AUM growth a bit quicker than typically is the case?.

Yes. We are always open to a wide array of strategies that’s really dependent on the right talent as opposed to activities in the marketplace.

And clearly, we have seen money moving around in the total return fixed income area, but that hasn’t surfaced any great talent that we are moving on and we wouldn’t move any quicker because of the assets moving around in the marketplace. I think we have – our history, we have proven to ourselves that we are not a distribution-oriented firm.

We are not able to time the market as well. So, we wouldn’t move any faster or search any quicker for a total return fixed income team because of the activity in a marketplace.

We will continue to wait for the right talent that fits our strategy and if it makes sense long-term we will bring that in and if can produce good solid returns, create a consistent franchise and develop the new teams as we develop past teams, I think that assets will grow in a similar fashion that we have done in the past which is a little bit slower and lumpier, but over time it’s proven the right strategy for us..

Okay, that’s helpful. And then just one last – one for C.J.

and maybe just any update in terms of investors migrating to the new advisor share classes and then sort of any implications for distribution costs and margins looking out the next couple of quarters?.

Yes. I think the guidance is the same. We indicated last quarter that we had this additional expense as we took on more of the share of expenses and sharing with the funds and offsetting that is sort of the migrations of this new advisor class which we still expect will happen now throughout the end of this year and into 2015.

But I think you will see most of the activity on that transfer occurring mid-2015-ish..

Great, thanks for taking my questions..

Next we have Bill Katz of Citi..

Okay. Thanks very much for taking my question as well. I am not sure for maybe one of you guys, just in terms of the headcount additions Eric maybe for you since you covered in your opening remarks how – when do those 44 headcounts come on, was that a third quarter phenomenon and how quick – could you maybe expand a little more where you built out.

And then how quickly might you get to some type of payback on that investment and are all those expenses sort of layered in now on a go forward basis?.

Yes. Certainly Bill and I will just expand on that headcount. That addition is over the course of this year. So it’s a year-to-date where we have grown from 300 to the roughly 350.

And as I mentioned it’s happened in two areas, the two teams that we have been looking at is the degrees of freedom and the logistics management and degrees to freedom are really around the credit teams.

So it’s part of those new hires where the investment team itself that we have put together in Kansas City and then we have the operational support behind that, the back office for fixed income. So we had to put quite of individuals in place in our back office just to support the new credit team.

And the benefit of having a credit back office now as other teams want to expand their degrees of freedom or we may find another fixed income team, we have built the operations to support additional degrees of freedom or a new team.

So we think we are getting payback because one we have a new credit team and they have grown to roughly $500 million and we will get additional payback going forward.

The second area that we talked about from that headcount growth is the logistics and that comes with a more global presence as well as increasing use of mobility and IT among our professionals. And so we’ve seen some growth and infrastructural support as we have globalized the business.

And we think also that will pay us back as we continue to grow overseas. But we have – I can’t give you any direct return on investment by that group of individuals..

So the third quarter expense base other than the true up of equity based comp that it’s a good run rate at this point?.

Well, Bill in equity based comp, the run rate is going to be about $7.7 million because we did – that grant was in July, latter part of July, so mid to latter part of July. So, we have a full quarter in December, so that number on that line will go from 6.9 to 7.7..

Okay, just a couple of follow-ups, just as I think about on Slide 5, you provided the pie chart with a little bit more definition about how you are sort of viewing the disclosure now. It sounded like you have a variety of wishes that might keep a little bit of tap on organic growth on the institutional side.

So as you think about from a planning perspective as looking to ‘15 and maybe ‘16, are you anticipating that the vast majority of the growth might be coming from the retail component and if so what product areas you think really have the greatest traction at this point?.

Good. I think the change in the pie chart is really just a reflection of how we are structuring our business, not a prediction on where we think assets will come from.

We think the underlining decision-makers inside the institutional and the defined contribution are emerging, but clearly, the institutional consultant research process is impacting the DC business just as much as traditional institutions and how we attack that channel and position our core resources have merged.

And we don’t have a separate DC effort. It’s merged into our institutional effort. And likewise on an intermediary structure that the FA, the broker dealer, how we attack trust apartments are all off of one group and we are just reflecting the way we think about resourcing these channels as opposed to where do we think growth will come from.

Looking out and seeing the current trends, we highlighted that clearly the wealth channel and overseas continue to be dominant trends for us. And the institutional trend has been more rebalancing. We have had a little bit more exchange of kicks of growing assets, but then also getting money taken away from some rebalancing.

We still seem to be flat in the DC area inside the institutional world as dollars continue to go to proprietary target date funds. We have seen each quarter a win or two in that open architecture of target dates, but no trend has occurred..

Got it. Okay, thanks for taking my questions..

Marc Irizarry, Goldman Sachs..

Great, thanks.

Eric, can you just give us some perspective on some of the platforms, maybe how they are viewing sort of recent performance both in terms of where you are seeing some opportunities maybe to be – for gathering some assets there and then alternatively maybe where maybe there is some concern about the recent performance slippage becoming a little bit of a headwind for asset gathering on platforms? Thanks..

Sure, Marc. It’s a pretty straightforward story there on the platforms for the intermediary side. There has been a clear uptake in asset allocation towards EP-oriented strategies. So, we have seen really strong growth in our international growth strategy, especially in these platforms.

Likewise, we have seen due to performance around our mid-cap value some dollars we have taken away there and that’s been really the big trends on the platforms as those two strategies. I think the rest are all within the norm with regards to those two, but they tend to be the outliers one on the upside and one on the downside..

Okay.

And then just in terms of realizable capacity and some of the bigger global strategies, I mean, have you thought – rethought at all just the sort of any of the – maybe previously stated targets or opportunities there in terms of what the realizable capacity is, particularly relative to just sort of managing risk of – key man risk or just risk of sort of certain strategies becoming too important to the franchise, if you will?.

We haven’t rethought capacity. And we still think from a capacity standpoint, the global equity and the global opportunities continue to be and I think will be big drivers going forward. We have seen some good wins in those strategies. We haven’t quite seen the platforms adopting a global mindset yet in their management structure or asset allocation.

I think we will see some global BD firms get to the integration of the global equity or global opportunities into the platform, but we haven’t revisited the capacity or any issues around key man..

Okay. And then C.J., any help on just sort of the outlook for the fee rate, how we should think about the progression there just given how the business is trending between separate accounts and strategies and funds? Thanks..

We saw just a very slight dip this quarter in the average fee rate from 77 to 76 and it really was basically rounding a small number of our accounts billed at the end of the quarter and obviously there was a big dip in AUM at the end of the quarter which was a negative detriment to that.

The majority of our assets bill over on some sort of average over a quarter. So we see it relatively stable in the 76, 77 but it really just straddling rounding there..

Great. Thanks..

Next we have Robert Lee of KBW..

This is actually Andrew Donnantuono filling in for Rob. Thank you for taking our question. I guess one question we had related to kind of growth in client cash flows outside the US. I know, last quarter, you specifically mentioned demand for global opportunities in Australia, and some other mandates that were generating interest.

I was wondering if you could just provide us with kind of an update and possibly pair regional interest with specific products that you offer and kind of where you’re seeing the most demand..

Sure, Andrew. This is Eric. The – outside the United States we’ve definitely seen the most interest in the two open global strategies, the global opportunities and global equity. Both those strategies have been well positioned with the institutional consultants. So, we’re seeing institutional demand outside the US.

We haven’t – we can’t narrow any specific regional this quarter versus last quarter. In last quarter we did highlight the wins in Australia, we continue to see good demands in Europe, Australia and discussions in the Middle East has been the primary areas that we’ve been in.

We haven’t spent an enormous amount in Asia, but we do get inquiries, so we wouldn’t be surprised if something did surface from Asia but right now we have no specific region we can point to..

Okay, great. And then just shifting gears, just a quick question on your dividend policy, I was curious, I guess maybe less so around kind of your expectation to pay out about 100% of earnings, but more specifically the growth of the regular dividend. I know you increased it last year about $0.12 per share.

I was just wondering, on an annual basis, how committed you are to growing the regular dividend and paying out the difference in the true up, or would you consider maintaining a dividend maybe a bit closer to its current rate of $0.55 and possibly paying out a bigger true up? I just wanted to get a sense of your thought on just the dividend process as a whole..

Sure. We tend to think more of the dividend on an annual basis versus quarter versus special. So, when we get to the end of this year, we’ll look at where our quarterly rate is in connection with sort of our annual earnings and we’ll adjust it accordingly.

It certainly would be nice to adjust it up every year but I don’t think that that’s a driving factor in our decision-making, decision-making really is around making sure that we distribute the majority of that to our stakeholders and whether it comes in the quarterly or the special, it doesn’t factor in.

Other than that we know that a lot of people give more weight to the quarterly, so we will weigh keeping it stable or increasing that little bit more than holding to it and waiting for the end of the year..

Okay, great. Thanks C.J. Thanks Eric..

Thanks Andrew..

The next question we have comes from Michael Carrier with Bank of America/Merrill Lynch..

Thanks guys. Eric, maybe just first question on performance. When you look at the one and three-year in some of the products that are lagging, when you think about the environment, those funds typically perform better, and so whether it’s cash levels, whether it’s the market backdrop, different themes that they are investing in.

I just want to get some sense on what’s the outlook or what environment would we start to see some improvement there?.

It’s hard to pick an environment that – all the strategies will improve in the units and when you look at the real short terms, say one year we have clearly seen price momentum, relative strength be a factor that has dominated our performance results, especially when you look down at global small cap, international small cap, small cap growth, small cap value that down the market capitalization and the impact that price momentum has been a determent to all those strategies.

And all of our strategies have some form of valuation process in them. The strategies that have a little bit more of a growth tilt, you can see like the international small cap or the small cap growth strategy maybe wasn’t impacted as much as small cap value.

So that – in the real short-term maybe a – not as an extreme factor dominating will help out, I mean none of our strategies are built around a single factor. We don’t seek strategies that are at the extreme, so we don’t look for a real deep value or statistical value oriented team.

And likewise, we don’t look for a team that just really the investment process is dominated off of performance and earnings momentum. So we avoid those extreme periods, it’s not to say that our teams won’t benefit at times from those, it’s not something that we have designed.

So when we have such a narrow market in a short time period so it’s not – it’s not unexpected to have this result. We have seen a team or two not perform as well and we clearly see that with the emerging markets and the U.S. value team right now. The other 4 teams are very well positioned in our mind.

And when you look at their 3, 5 and plus year records and the flows that are attached to those strategies, we think that they are in a good position. But it’s hard to answer what we think needs to turn in the 1-year and 3-year period.

You brought up the cash there and that’s an interesting point and that some of our teams are holding higher cash, so our global value team has a little bit higher positioning and they are doing very well. And our U.S. value team also has a higher cash position and they are not doing as well.

So with the secondary factor on that for us we looked at what’s the turnover of each of those teams, because right now if you hold on to your winners a little bit longer, you are getting paid for that and the global value team is having a little lower turnover hanging on to some winners, while the U.S.

value team is redeploying their capital back into – fear into the marketplace and that hasn’t been rewarded as well. But I can’t point to a cash weight as a factor across teams either. So each of the teams have their own process and they will behave to their philosophy and decision making.

And we believe over the long run that’s just worked very well for us..

Okay. That’s helpful. And then C.J. just on expenses and I guess more looking forward in the near-term just given some of the investments that you guys have made, is there any sort of I don’t know I guess margin outlook.

And then probably one more importantly whether it’s in the fixed income strategies as the asset levels build, is there a certain threshold where you think that the incremental margin or you can start to see operating leverage kick back in?.

I mean I think you have seen our margin increased from 18 months ago, at IPO, it’s around 41% and growth of 46.5% last quarter and that was due to revenue growth based on AUM growth. I think we have always said mid-40s is where over time it would settle out, I think we got there quicker than we are. So I think we are in a good spot.

I think if you see a short-term spike in AUM levels and then revenue levels, you are going to see our margin spike a bit, but we have said we always thought that the mid-40s would be a good level for us over time.

So I don’t see on the horizon any sort of material changes within our control other than what the markets are going to do to us and the resulting margin..

Okay. Thanks a lot..

Next we have Surinder Thind of Jefferies..

Hi, good morning guys.

I just kind of wanted to touch based on the decision making process and it seems it’s pretty clear that decisions are designed to promote success over the long-term or the business cycle, but how do you guys think about maybe some of the shorter term dynamics, like for example some of the consultants might be focused more let’s say on the 3-year numbers or you mentioned that there is some redemptions related to performance, which are clearly driven by more near-term considerations it seems like? So, how does something like that factor into your decision-making in current conversations with clients?.

For us, I mean, it’s a good question around as decision-making takes shorter term factors into play, how do we react to that? And we have always reacted to that by having a dedicated client service team that are committed to each investment team, so that they know the philosophy and the process.

We spend the majority of our time trying to educate our clients and consultants on our process and how that will behave over the long-term so that we can extend the duration of that asset. If we can extend the duration of that asset with our current fee rate, then we get a higher present value for that stream.

So, as people get input that starts creating shorter term decision-making, we try to counter that with increasing our client service with providing inputs and knowledge of how to think of our strategies. And the way we have designed our distribution model is really geared on extending the duration.

So, that has been our counterbalance historically and it continues to be our strategy to mitigate short-term thinking..

That’s helpful.

And then maybe just a quick follow-up, given kind of the choppy start to the markets in October, any color on some of the more near-term trends and stuff or maybe some reactions from clients?.

We haven’t experienced any direct reaction from the start of October here..

Okay, thank you guys..

Next we have Chris Shutler of William Blair..

Hey, guys. Good morning. On the – C.J.

on a couple of expense questions, on the G&A line and communications line, is Q3 a good jumping off point or could some of those expenses come down over the next year?.

So, I think communications and technology around IT is sort of in the ballpark. I think you could see it decline a bit maybe go up 100,000 or so, but I wouldn’t expect it to fluctuate dramatically around that 5.7 number. And then G&A, there is clearly some FX charges in there based on the dollar strengthening.

So, I would expect G&A to sort of migrate that down to previous levels of last quarter is my best guess..

Okay, that’s helpful.

And then on the distribution and marketing line, should we think about that line coming back down to kind of second quarter levels in the fourth quarter?.

No, no, no, that is going to take longer to migrate.

Obviously, first and foremost, it’s going to fluctuate based on our revenue levels, because that’s mostly a variable line, but in there is a $1.2 million of sort of additional expense this quarter that you should expect to see for the next I would say 4 to 6 quarters as intermediaries migrate to that advisor class that we have setup..

It makes sense. And then just lastly, you said that you are well-positioned now, particularly with some of the hires you have made around this whole Degrees of Freedom idea.

For additional strategies, additional teams, I just wanted to take your temperature on how conversations with prospective teams are going? And then secondly just how many new strategies you think could be rolled out in the next, let’s say, 12 months? Thanks..

Yes, sure, Chris. We have got a pretty active year with regards to meetings with various teams and talent in the marketplace. So, the activity has been strong. The extent of those meetings and how those transpire over time is highly unpredictable.

It takes a while just to get that fit and feel that whoever the team we are meeting with understands our model and we understand them. So, it’s the hard thing to predict whether someone is going to come in or not.

We are constantly exploring ways that either new team or existing teams could take advantage of Degrees of Freedom and that would fit into long-term asset allocation and that it’s been a very interesting discussion with clients and consultants around the evolution of asset allocation from more of the traditional asset allocation to a risk-based or an outcome driven and there is various types of strategies that fit quite nicely into those asset allocation models.

So, we are quite optimistic on where we are positioned for new strategies and teams, but I can’t predict in the next 12 months where we could be with strategies..

Okay, thanks a lot, Eric..

Well, at this time, we have no further questions. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to the management team for any closing remarks.

Gentlemen?.

No closing remarks, but we want to thank everybody for their time today and we look forward to next quarter. Thank you..

We thank you sir to the rest of the team for your time today also. The conference call is now concluded. At this time, you may disconnect your lines. Thank you and have a great day everyone..