Good day, and welcome to the Artisan Partners second quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Makela Taphorn with Artisan Partners. Please go ahead. Thank you. Welcome to the Artisan Partners Asset Management business update and earnings call. Today's call will include remarks from Eric Colson, 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, we will open the line for questions. Before we begin, I'd like to remind you that comments made on today's call, including responses to questions, may deal with forward-looking statements. These are subject to risks and uncertainties and are presented in 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. In addition, some of our remarks made today will include references to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release. I will now turn the call over to Eric Colson. Thank you, Makela. Thank you everyone for joining the call or reading the transcript. The first six months of 2022 have been tough. The war in Ukraine, inflation in June reaching approximately 9%, a 40-year high, negative consumer sentiment, economic stagnation, whether qualifying as a recession or not, the worst first half for the S&P 500 since 1970, and persistent high volatility. At Artisan Partners, our AUM declined 26% from $175 billion- $131 billion. Year-over-year first half revenues declined 11% and adjusted operating margin declined 750 basis points from 43.6%- 36.1%. As we've experienced before, these times demand discipline to our business and financial model for stability and perspective to capture opportunities for long-term growth. To achieve stability and growth, it's critical that we level set our business and financials and align our interest and resources for growth with all stakeholders, our board, management, associates, clients, and shareholders. Last week, after our quarterly board meeting, we hosted a firm-wide discussion with several members of our board in Milwaukee. The event was attended in person and online by over 250 Artisan associates. We discussed Artisan Partners' history, philosophy, values, and consistency through time. I wish all of our stakeholders could have been there. The combination of the directors on stage and the associates in the audience drove home our commitment to who we are as an investment firm, our commitment to excellence, quality, and doing the right thing, our patient long-term approach, and the consistent application of our guiding principles as we have grown and evolved since 1995. Across the firm, we take confidence in our investment track record and proven business success. We are well-positioned to take advantage of the disruption around us. Sharp market drawdowns happen relatively often. Since our founding in 1995, there have been 12 calendar quarters in which the indexes to which our strategies are compared have declined by more than 10%. That averages to approximately every two years, though not evenly distributed over time. On the way down, assets tend to sell off across the board. Things become highly correlated, making it more difficult to generate differentiated outcomes in the short term. Higher correlation on the way down, though, creates opportunity for active managers with extended time horizons. Historically, our teams have taken advantage. In eight of 11, 12-month periods following a 10% drawdown, our firm-wide asset-weighted performance has exceeded benchmark performance. Across the 11 periods, alpha averages 297 basis points. Over the following thre-year periods, we have outperformed eight of 10 x, with outperformance averaging 308 basis points. If you reduce the drawdown triggers to 5%, there have been 22 such quarters since our founding. We have outperformed in 13 of 20 subsequent 12-month periods, and in 16 of 19 subsequent three-year periods, with outperformance again averaging 300 basis points. Disruption from shocks like the TMT bust, great financial crisis, COVID, and now war in Europe ignite macro issues. In subsequent periods, years, not months, dispersion returns, and with it, opportunities for alpha. Every drawdown is different, and statistics never tell the full story, team by team or strategy by strategy. Historically, there has been a rhythm to these patterns. Post-drawdown, dispersion occurred within security universes, allowing conviction-weighted portfolios to differentiate over a longer holding period. Our investment teams have been able to take advantage in the past, and we believe they will be well-positioned to do so again. Disruption also creates business opportunity. Firms that are able to execute effectively through periods of volatility and uncertainty have the advantage. Our disciplined long-term approach and flexible financial model allow us to continue to purposefully invest in new investment teams, new capabilities, and new resources. As with past drawdowns, we level set our business commitments with our resources and people to capture long-term growth while scrutinizing expenses to adhere to our financial model. As an investment-oriented firm, we reinvest in talented investors with strategies designed for long-term asset allocation, as opposed to engineered investment products for the market environment. Thus, we mitigate the need to pull back on investments, projects, or people as aggressively as others. Consider emerging markets debt. In the first half of 2022, EM bond funds experienced $50 billion of redemptions, the worst outflows in more than a decade. The dollar-denominated EM debt index declined nearly 20%. Recent headlines in the Financial Times refer to a perfect storm and stampede for the exits. What do we see? Opportunity, money in motion, poor, absolute, and relative returns from established players. A market ripe for wealth and alpha generation going forward. With that mindset, we have stayed on schedule with our new emerging markets debt team, the EMsights Capital Group. Aligning talent, opportunity set, resources, economics, and long-term demand, not managing for short-term outcomes, but for the long-term investment performance, franchise development, and sustainable growth. Over the last four months, we have launched three strategies in four vehicles managed by the EMsights Capital Group. Blended currency, Artisan Emerging Markets Debt Opportunities, local currency, Artisan Emerging Markets Local Opportunities, and the highest degrees of freedom, Artisan Global Unconstrained. The team's early performance has been gratifying. More importantly, they are establishing the foundation for long-term success. This is not the first time we have launched an investment team or strategy in a difficult environment. We launched the Artisan Global Value strategy in the second half of 2007 in front of what turned out to be the great financial crisis. The strategy declined 13% over its first three years of operations, but outperformed its benchmark by more than 15 percentage points during that time period. Today, the Global Value strategy has a 15-year track record, 289 basis points of average annual outperformance since inception, and approximately $22 billion in AUM. The Global Value strategy was instrumental in expanding our reach to clients outside the United States and around the world. In 2007, we had approximately four relationships outside of the United States. Today, that number is 229. We began high value-added credit investing eighht years ago with the launch of the High Income strategy. We are methodically building out the capabilities and offerings of the Artisan Partners Credit Team, led by Bryan Krug. The launch of the EMsights Capital Group strategies is a significant investment in building out differentiated credit offerings. We believe both fixed income teams can and will become multifaceted investment franchises, generating wealth and alpha across an array of strategies and managing significant amounts of capital. Our proven success with talented investment teams, uniquely resourced by our centralized operations and delivering investment strategies designed for long-term asset allocation, provide confidence to operate through short-term shocks and noise. With each investment team and strategy, we expand our capabilities and the breadth of our platform. Each market disruption creates opportunities to deepen the moat around our existing business with investment alpha and to thoughtfully grow our business along multiple dimensions. Slide four shows the hypothetical performance of a portfolio consisting of $1 million invested in each Artisan strategy at inception, compared to a portfolio consisting of the same dollars invested on the same dates in the corresponding benchmarks. The alpha we generate translates into much more wealth. It takes time. There are setbacks, periods of absolute decline, and underperformance. Over long time horizons, our teams have been able to compound capital in excess of benchmarks and generate much more wealth for clients. Our business model and philosophy are designed to buy time, absorb shocks, and provide stability for our people, our clients, and our shareholders. We manage time horizons, durations, and careers to buy the time needed to realize the benefits of a disciplined investment philosophy and process. Our financial model and business management team absorb shocks like the ones we have seen so far this year, and insulate our teams from short-term noise and follow-the-herd pressure. Our investment teams are genuinely autonomous. We believe in the alpha-generating capability of each of them. We give them the time, tools, and intellectual freedom to stick to their process through volatility and uncertainty. We have managed revenue declines due to market shocks, expense increases due to long-term investments, ability fluctuations resulting from both revenue declines and expense increases, sometimes at the same time. This is nothing new for us. We have been here before. We will remain disciplined and confident in the outcomes that result from talented people operating in a stable long-term environment. I will now turn it over to C.J. to discuss business and financial outcomes. Thanks, Eric. I'll begin with AUM on page seven. During the quarter, sharp market declines negatively impacted our AUM. Global equity market indices declined approximately 15% for the quarter and approximately 20% for the year, hovering near bear market territory as of the end of the quarter. Market declines were driven by, among other factors, the continued conflict in Ukraine, a spike in inflation, and sharp increases in interest rates, which drove heightened fears of impending recession. As a result, AUM declined to $130.5 billion, down 18% compared to last quarter and down 26% compared to the June quarter of 2021. In response, some clients took defensive actions, turning away from riskier growth equities and emerging markets. Net client outflows were $4.2 billion in the quarter and were primarily from our growth strategies, in particular, those within our global equity and growth teams. A small number of clients drove the majority of the increase in outflows, mostly as a result of reallocations away from risk. Average AUM was $143.9 billion for the quarter, down 11% sequentially and 16% compared to the June quarter of 2021. Year to date, average AUM has declined 8% compared to the first six months of 2021. Across all generations, AUM was impacted by declining global markets during the quarter and year to date periods. There were no material changes in the weighted average management fee or AUM mix by generations. Financial results are presented on the next two pages. Our complete GAAP and adjusted results are presented in our earnings release. My comments will focus on our adjusted results. Quarterly revenues declined 11% compared to the previous quarter and 18% compared to the second quarter of 2021 on lower average AUM. Year-to-date revenues were also down 11% from 2021 on lower average AUM. Performance fee revenues were negligible in 2022 compared to $4.1 million in the second quarter of 2021 and $10.8 million in the year-to-date period in 2021. Adjusted operating expenses decreased 6% sequentially due to the decline in incentive compensation expense as a result of lower revenues and seasonal expenses. The decreases were partially offset by an increase in travel expenses, which have trended back to pre-COVID levels. Year to date, adjusted operating expenses increased 1% compared to the six-month period ended June 2021. The increases reflects our continued commitment to manage through periods of market disruption and continue to invest in our business to support future growth. Over the last year, we've invested in new and existing talent, technology, and office space, including the onboarding of the EMsights Capital Group and the launch of the team's three new investment strategies, as well as two additional strategies in existing teams. In addition, we have expanded our distribution capabilities to support the additional capacity created by the new teams and strategies, and expanded our operational capabilities in fixed income and credit with new technologies and specialized talent. These investments were mostly offset by a decline in incentive compensation expense as a result of lower revenues. Adjusted operating income declined 18% sequentially and 26% compared to the 2021 year-to-date period. Adjusted net income per adjusted share declined 19% compared to the first quarter and declined 27% compared to the 2021 year-to-date period. Our financial model was built to flex with fluctuations in global markets. While market declines were sharp quarter-over-quarter, our financial model allowed us to continue to focus on the long-term rather than react to short-term market swings. We are confident that the investments we've made for future growth during these disruptive periods will be rewarded and will outweigh any negative impact of short-term results. Our balance sheet continues to remain strong and supports our capital management practices and our variable cash dividend payout model. Over the past year, we have leaned into new strategy launches, putting approximately $60 million of seed investments into new products. Investing in new strategies is an important component of our future growth. Accordingly, we currently plan to retain a portion of the 2023 special dividend to fund future seed investments. Even with the retention of some cash to fund future seed products, we expect our payout ratio will approximate 95% of cash generated. Consistent with our capital management policy, our board of directors declared a quarterly dividend of $0.60 per share with respect to the June 2022 quarter, which represents approximately 80% of the cash generated. That concludes my prepared remarks, and I will turn the call back to the operator. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In the interest of time, we please ask that you limit yourself to two questions. Our first question today will come from Kenneth Lee with RBC Capital Markets. Please go ahead. Hi, good afternoon, and thanks for taking the question. First one is just around investment capacity. Just given the current market volatility and all the various dynamics, how do you think about investment capacity across all your various teams and strategies at this point? Yeah. Hi, Kenneth, it's Eric. Yeah, with the, you know, the current drawdown, that we've seen in the marketplace, we've obviously increased capacity in some of our strategies with the drawdown. The strategies that still remain in high demand, we're gonna carefully manage flows. We've always believed that, there's been three major drivers of capacity control. One, really around just the pure, you know, rate and speed of which flows come in. Sometimes, you see a strategy get a high demand in a short period, and you have to manage that flow, so it's not disruptive to the integrity of the strategy. Second, you look at channels and regions, and so that, you wanna protect against a concentrated flow, that comes in. Likewise, you look at just the aggregate capacity of a strategy. Those principles still hold. There's a few strategies that we have that were in the demand category, but the bulk of the strategies, you know, demonstrated some outflow as well as drawdown and performance creating capacity. As we look across the entire platform, with the addition of new teams and strategy, we have more capacity than we've ever seen in the history of the firm. Gotcha. One about the prepared remarks. You talked about retention of some of the special dividends for seed investments. Wondering if you could just, you know, help quantify that amount and perhaps just talk a little bit more about the details. Presumably, this is going for either newer credit strategies, or are there any other strategies you're looking to seed in particular? Thanks. Yeah, Ken, with respect to, you know, future dividends, you know, our quarterly dividend policy at 80% of the cash generated remains the same. You know, in past years, we have held back, you know, a small amount of cash to fund, you know, strategies as well as, you know, be defensive. I think last year, we paid 95%, 96% of the cash generated and, with a little bit of a holdback, and we're continuing, we're on track to pay about the same percentage. You know, our trailing 12-month dividend yield's about 11%. You know, even with the holdback, you know, we'll still have an extremely healthy dividend. You know, we're not talking a whole lot of dollars, probably, you know, somewhere in the $10 million-$15 million range. Gotcha. Very helpful. Thanks again. Our next question will come from Dan Fannon with Jefferies. Please go ahead. Thanks. Eric, I was hoping you could expand upon, you know, some of the comments you made. Obviously, your historical performance has been quite strong. Curious about the conversations with asset allocators today and how they weigh those longer-term track records and periods of alpha generation versus, you know, kind of where things sit today? Yes, Dan, thanks for the question. We did highlight on page three of the deck just our performance during very short periods of a 12-month period, and then later in the deck of the longer term. With regards to the shorter period, we used a 12-month period. We looked at three-year and five-year, but it cluttered these unique periods. Looking at the drawdown in these 11 periods we highlighted, it does produce an opportunity on the back end of that drawdown that we highlighted on our prepared remarks. I would also highlight the three periods where we didn't produce as a firm a excess return to the index, where back in 2009, where the index was up 60%, a great outcome for clients, and we lagged behind at 59% return. In 2002, index up 30%, and we were up 23%. 1998, it was 32%, we were up 30%. Those are pretty sharp V-shaped recoveries, and the client makes out very well in that absolute recovery. Likewise, we do with our AUM moving up. With regards to allocators, I think with each of these crisis, people have moved away from a static asset allocation to then a strategic. I think today we're seeing a little bit more tactical asset allocation, and it's fueled by better services and tools and data and, you know, today's products to actually execute on those shorter-term exposures. We've always moved our business towards the strategic allocation and looked for longer duration clients and haven't managed in that tactical exposure. We haven't created what we call engineered products, whether it's in an asset class that's new, like crypto, or in a factor-based, if you see the ETFs, like a momentum-based factor ETF exposure, or even in a newfound like, you know, say, an innovation energy fund that is maybe a hot theme, and, you know, that allows us to see through it. I think engineered products, you would have to pull back quicker, 'cause it's a market timing and distribution. We can invest through these periods 'cause our strategies are built for the long run. It doesn't surprise us that we have maybe a little bit pause on our inflow. We had about the same gross outflow that we've seen in other quarters. It was really a gross inflow that clients made tactical shifts this quarter, and that makes sense to us. I guess that's our view and perspective on clients' shorter-term allocation and our product mix. Great. That is very helpful. I guess, C.J., just to follow up on your comment around continuing to invest, thinking about 2Q kind of levels or for non-comp expenses, is this fair or reasonable for the back half of the year? If you could expand upon the.,y ou've mentioned distribution and some investments there? If there's anything you could highlight in terms of what you're specifically doing, that would be helpful. Thank you. Yeah, sure. Yeah, we're on target with sort of the guidance we gave in the January call. They were primarily around compensation, occupancy, and technology. You know, we're right on target with the compensation targets that we set out, which was you know, about $15 million increase on the fixed side of the comp and benefits. On occupancy and tech, we gave you know, those areas to be up $5 million-$7 million this year, and I'd say we're on the lower end of that, but on target, you know, from a quarterly basis. You know, the one area where we did see a little bit of an uptick this quarter was travel. Travel came back pretty robustly this quarter, back to you know, pre-COVID levels. We see that being close to where we were in the next two quarters, but maybe a little bit lighter in the third quarter, which is typical. We feel good with the guidance we have given, and we are on track to achieve those targets. You know, with respect to distribution, it's really been around the majority of it's been around new investment teams and strategies, you know, the new team and strategies that we've onboarded this year, as well as sort of accelerating, you know, sales in the intermediary space with some dedicated internal resources to target prospective clients as well as on the digital enablement side. You know, we're in the early innings of those investments, but we've made them this year. Great. Thank you. Our next question will come from Alex Blostein with Goldman Sachs. Please go ahead. Hey, good afternoon. Thanks for the question. Eric, I was hoping you could spend a couple of minutes on the opportunity to bring in new teams and new talent in a more volatile environment. Is that a net positive, net negative? How are you guys thinking about it today? Usually, with volatility in the marketplace, then, more importantly, I think we've continued to see a pretty robust M&A activity. You know, with M&A activity and with volatility, it's natural for many people to think about their long-term home of where they want to build an investment franchise and where they want to actually reside for their career. We continue to have a fairly active dialogue in the marketplace. We also are gonna be, you know, putting an extremely high bar in that dialogue, given the amount of capacity we've built in the firm and the teams that we've brought on. We've always had a mindset that we purposely invest in strategies with clear intent that they fit for the long run, and we see those through as opposed to designing strategies and throwing them against the wall and hoping they work. Given the amount of capacity and the number of strategies we've invested in, we're gonna focus our investment operation time on those strategies and be highly selective on new teams that we're looking at right now. The activity is still there and quite interesting in the marketplace. It's just key for us to stay disciplined. I gotcha. Then heard you guys on the sort of the commitment to private markets that you've obviously talked for a couple of quarters now, so it doesn't sound like anything's changing there. I guess from the balance sheet perspective, C.J., I heard you talk about, you know, retaining a little bit extra cash, nothing too material, but a little bit more than you've done in the past, to I guess co-invest in seed products. What do you think is the right amount of seed capital that you guys need to have on the balance sheet, to sort of support the growth, especially including some of the newer initiatives you have in the marketplace? This is Eric again. I'll jump in and then let C.J. jump and add on to the response. You know, really, the uptick in seed capital is really driven by asset class. We've been quite fortunate to launch an array of public equity-oriented strategies and, you know, to launch a strategy in that asset class takes a much smaller amount of seed. We also did it primarily in the U.S. Today we're operating with investments in an array of credit strategies. On top of that, the demand and interest in the more recent launch of EMsights Capital Group is global demand. We've not only increased the amount due to the asset class, we've also increased the amount due to the distribution footprint of the firm being outside the U.S. As we highlighted the number of non-U.S. clients, the emerging markets debt and global unconstrained is attracting clients and prospects for both a UCITS and a mutual fund. It's hard to normalize that if you know, we move into another asset class or we go back to launching some equity-oriented strategies. The current uptick is really around asset class. Yeah, the only thing I would add is that you know, we have a disciplined approach to seed capital. You know, we obviously you know, make seed capital investments to invest in growth, support our investment teams. Then on the back end, you know, our primary objective is to recycle at the appropriate time, so that we can reinvest in other strategies. You know, that process continues. Cool. Thanks so much. Our next question will come from John Dunn with Evercore ISI. Please go ahead. Hi. You guys talked about a small amount of clients reallocating and kinda driving the outflows. Maybe could you talk about a little more about the different demand dynamics on both the fund side and then the separate account side? Yeah. Certainly, most of the clients that we look to invest in Artisan tend to have long-term horizons and really the fund side attracts a lot of institutional clients, whether it's in the mutual fund or a UCITS or a CIT. We really don't see much of a difference based on vehicle. We have more recently seen really clients thinking about their risk exposure. Much of the flow that we've seen this last quarter was due to either a time horizon or risk perspective. Two clients drove a significant amount of the outflow. One was a sovereign wealth client that was invested with us for less than three years and had a shift in allocation. In my view, that is not a statement about our strategy, given it was only a 2.5-year relationship. It was clearly an asset allocation decision there to reweight the portfolio, and that client wanted to increase their private asset allocation. The other larger client was a superannuation that was with us for over seven years. We outperformed the index over that 7+ year relationship, and the client wanted to de-risk. The trend really in our mind is, you know, an evaluation of their overall risk exposure. Our strategies across the board, you know, lean to high value-added strategies to take advantage of risk opportunities. There's an array of clients that want to de-risk that, and that's what we saw this quarter, which is fairly natural in a you know a drawdown like this. At the same time, there was a pause on inflows, which created the imbalance there and the logic around the outflow. The two clients that extrapolate, hopefully it gives a good example of people evaluating time horizon and risk exposure. Yeah, it definitely does. Thank you. You know, this follow-up is, there's already, you know, three strategies in EMsights. You know, is that sufficient for the time being, or might we expect some more launches over the next couple of years? No, it's over the next few years, that's a very sufficient number of strategies. In fact, that's the most we've ever launched with a single team day one. This team has managed these strategies for years and at their previous firm. We would expect to see these three through and build some scale into the strategy. Clearly a mindset would be to develop more around the team, given their broad capabilities. I would expect for the next few years, we're gonna really be focused on the three launches that we put together over the last couple of months. Gotcha. Thanks very much. This will conclude our question and answer session, also concluding today's conference. We'd like to thank you for attending today's presentation. At this time, you may now disconnect your line.