2019 Annual Report

Artisan Partners
Asset Management INC.
2019 Annual Report
Marking 25 Years
A Proven Investment Firm

Dear Clients, Associates and Shareholders,

I began a prior version of this letter in late February, sitting at my desk in San Francisco’s Financial District, with markets at all-time highs, unemployment at all-time lows, and the economic and geopolitical environment relatively benign.

What a difference a few weeks makes. I am writing this from home. Financial markets have experienced historic declines, and historic rebounds, with volatility at unprecedented levels and huge hits to GDP and employment. Most profoundly, we are all dealing with the physical and emotional impact of the COVID-19 virus itself.

Artisan Partners is focused on investments, people and trust. Markets and people constantly change. Because of that, we have consciously designed our firm to be stable, predictable and transparent—for our associates, our clients and our shareholders—especially in periods of fear and uncertainty.

Over our 25-year history, we have experienced multiple shocks to the markets we invest in and the economies we are a part of. During these periods, we lean on our core beliefs and our operating model. We focus on our people and their environment. Our financial model absorbs stress, allowing us to remain focused on what we can control. We emerged from the 2001 dot com and 2008 financial crises stronger, more experienced and more confident in who we are as a firm. We will get through this current crisis similarly.

Over the same 25 years, we have used our judgment and patience to successfully navigate gradual, secular change in our industry. These changes include the emergence and growth of global investing; growing demand for strategies with high degrees of freedom; the transition of the wealth channel from transaction-oriented to advice-oriented; the evolution of the retirement marketplace from corporate solutions to individually-directed architecture; and changes in how clients want to interact and communicate using technology and new media.

Combined, our business model, our judgment and our patience create an asymmetry in our favor. We survive and take advantage of short-term shocks. Over the longer-term, we evolve our talent, our platform, our investments and our client relationships to participate in the long-term growth of our economy and our industry.

Artisan Partners is focused on investments, people and trust. We have consciously designed our firm to be stable, predictable and transparent.
—Eric Colson

We Focus on What We Can Control

Let’s start with what we can’t control: The spread of a global pandemic and how society, governments, markets and individuals react to it—including the individual reactions of our associates. Over the longer-term, we can’t control changes to asset allocation, manager selection, vehicle preference or how clients want to interact. We may have some influence over some of those things, but, fundamentally, we can’t control them. We acknowledge that and organize ourselves around that truth.

So, what can we can control?

  • Our values and priorities.
  • Our operating environment.
  • Our financial model.
  • The integrity of the investment process.
  • Our time horizon.


Our values and priorities

During the COVID-19 crisis our first priority has been the health and safety of our associates, their loved ones and the broader communities that we are a part of. Clichéd or not, it’s true: Our business is a people business, a talent business. Our assets are our people.

As I write this, nearly all of our associates are working from home. Additionally, we have provided our associates with the flexibility to adjust their schedules and workloads so they can adequately care for their families and loved ones—whether children at home or more vulnerable loved ones outside the home.

To learn more about our commitment to our talented people, I encourage you to read our second annual sustainability report, included as part of this annual report. The sustainability report details some of what we do to make Artisan Partners an ideal home for our associates.

Our operating environment

After securing our associates’ health and safety, our next priority has been to support them in whatever way necessary so they can continue to invest and perform for our clients.

I don’t want to understate the significance of having nearly all of our associates working from home. However, I believe the transition has been relatively easy for Artisan Partners because we have always sought to provide a tailored, flexible and highly mobile environment for our associates, especially our investment teams. In addition, we have long had a robust, well-designed and well-tested business continuity plan.

During the month of March, our investment teams conducted more than 700 research meetings with management teams and other third parties. Our traders executed the purchase or sale of shares valued at approximately $7.6 billion (nearly three times the dollar volume executed during March 2019). And our distribution professionals conducted over 400 meetings with existing and prospective clients.

The vast majority of these activities were done with nearly all of our associates working from home. We have operated effectively through this otherwise unprecedented and disruptive period. I am proud of how we have performed.

Our financial model

We have designed, and we operate, our business for a world of volatility, uncertainty and surprise. The first rule is to survive—to avoid impairing clients’ capital, associates’ careers or our firm’s reputation. More than half of our expenses (including the majority of our associates’ compensation) adjust automatically with, and in direct proportion to, changes in our revenue. We also maintain a conservative balance sheet and ample liquidity.

Our financial model allows us to remain focused on our people and their environment—so they can remain focused on performing for our clients. We are not spending our time re-setting compensation expectations, renegotiating contracts or revising longer-term plans. Nor should anyone be surprised by the effect a significant market drawdown has on our bottom line. And as things settle down, we expect to be well positioned financially and operationally to continue executing on our long-term strategic initiatives, adding investment degrees of freedom and thoughtfully growing our investment firm.

For more detail about the performance of our financial model, please read C.J.’s annual CFO letter, also included as part of this annual report.

The integrity of the investment process

Each of our nine autonomous investment teams has its own stated investment philosophy and process, giving the team a framework to apply through market cycles, across generations and in periods of market turmoil. Like our firm as a whole, each investment team knows who it is and what it does. The teams are grounded and disciplined. Our clients know what to expect. We minimize surprises.

This is one of the reasons we have experienced significant demand for our strategies thus far in 2020, including in the months of March and April. Clients and prospects trust us. They know what they are getting and what to expect. That makes it much easier for them to pull the trigger and deploy capital with us, even in stressful times.

Our time horizon

We are solving for the long-term: Successful long-term investment outcomes for clients. Successful careers for our associates. Sustainable financial outcomes for shareholders.

Our commitment to the long term gives our people the time and security to execute their process, including through periods of under-performance. Over our 25-year history, we have partnered with investment leaders to establish nine new investment teams. Of the original nine, one team was merged into another, and one team evolved into two teams. We have never shuttered a team. Each of our investment teams has successfully executed its investment philosophy and process.

Our long-term commitment increases the probability of repeated investment success through market cycles (as opposed to boom-and-bust strategies in which timing is critical) and is another source of stability for our people and our clients.

Looking Ahead—The Next 25 Years

We entered 2020 in an extremely strong position. In 2019, we generated an aggregate 578 basis points of gross returns in excess of benchmarks, translating into approximately $4.8 billion of excess returns for clients. Thirteen of our 17 strategies outperformed their broad-based benchmarks, after fees. Six Artisan Funds finished the year in the top decile of their Morningstar peer groups, and 10 of 15 finished in the top quartile. In absolute, index relative and peer relative terms, 2019 was an outstanding performance year.

The strong near- and longer-term investment performance puts us on offense. Our Third Generation strategies continue to grow organically, consistent with their performance in 2019 when they collectively raised $3.9 billion of net client cash flows. And the recent market drawdown has created additional capacity in our longer-tenured, First and Second Generation strategies.

We are a highly durable firm with multiple internal and external options for growth. Our philosophy and model are proven across generations of talent, multiple autonomous teams, different asset classes and long time periods. Each of our existing investment teams has investment capacity, and there is a healthy supply of external investment talent looking for a home. Recent events, and the way we have responded as a firm, should only increase the attractiveness of Artisan Partners to great investment talent and sophisticated long-term clients.

We will continue to thoughtfully grow our business through value-added investment performance, compounding wealth for clients and extending the duration of relationships. We will remain focused on high degrees of investment freedom, building on our success as an investment firm providing differentiated investment strategies and ideas, as opposed to manufacturing products to satisfy the latest distribution trend.

And we will remain committed to the long term, meeting clients’ long-term investment goals, our associates’ long-term career goals and our shareholders’ long-term financial goals.

We are excited about the next 25 years.

Thank you for your support.


Eric Colson

Eric Colson
Chief Executive Officer
Artisan Partners