2020 Annual Report

Before discussing changes at Artisan Partners over the last year, I want to highlight our most important consistency: exceptional investment results.

As of December 31, 2020:

• Since inception, 16 of 17 Artisan Partners strategies launched prior to 2020 have added value relative to their benchmarks, after fees.
• Twelve strategies have outperformed by an average of more than 300 basis points per year, since inception, after fees.
• A hypothetical portfolio consisting of $1 million invested at the inception of each of our strategies that has been marketed to clients would have grown from $22 million to approximately $123 million at December 31, 2020, after fees. That is $54 million (78.8%) more than a portfolio consisting of each strategy's corresponding passive index.
• During 2020, we generated over $30 billion of investment returns for our clients, of which approximately $11.3 billion were returns in excess of benchmarks.

Our firm's purpose is to generate and compound wealth for our clients. We have generated long-term alpha over multiple teams, asset classes and time periods. In 2020, we once again demonstrated the value of active management at Artisan Partners.

In 2020, we also hired Tiffany Hsiao and Yuanyuan Ji to establish a new investment group focused on post venture investing in Greater China. Over the last six months, we have worked with Tiffany and Yuanyuan to recruit and resource a talented team, the majority of which will be located in Hong Kong, where we are opening a new office. On March 1, 2021, we launched the Artisan China Post-Venture Strategy, which focuses on disruptive, innovative, fast compounding public and private companies early in their growth life cycles.

The establishment of the China Post-Venture strategy is a significant, dynamic development for Artisan Partners—in the direction of both China and private investing. At the same time, the China Post-Venture strategy is consistent with our history of partnering with talented investors to enter underdeveloped asset classes with long-term demand and a limited supply of investment talent.

Twenty-five years ago, Artisan Partners recruited Mark Yockey to join the firm and launch the Artisan Non-U.S. Growth Strategy. At that time, relative to the size of the global economy, U.S. investors were under-allocated to non-U.S. companies. We believed allocations to “international” would grow over time and allocators would also demand style-oriented strategies applied to non-U.S. securities. Talent was scarce and there were few firms willing to invest and operate outside of the U.S.

Artisan Partners identified the opportunity, found the right talent and executed. Mark and his team have generated exceptional long-term returns for clients—and non-U.S. investing has fueled much of Artisan Partners' growth as a business. As of December 31, 2020, 57% of the equity and fixed income securities in our clients' portfolios are securities of companies domiciled outside of the United States.

Today, we see a similar opportunity in China. We believe institutional investors and gatekeepers are still in the early stages of allocating assets to the world's second largest economy. Similarly, we believe that the growth of private market solutions is a long-term secular trend, and the traditional delineations between “public” and “private” markets will continue to blur. Accordingly, with the China Post-Venture strategy and across the rest of our business, we are adding degrees of freedom to better enable our investment talent to access private investments.

COVID-19 forced rapid change. With the rollout of vaccines, it appears that soon we will have a fuller range of choices about how we operate. This will be a challenge. The preferences and habits of associates and clients have changed, in some cases significantly.

We have always prided ourselves on the flexibility of our organization. We also know that our investments-first culture is critical to our success—and we operated well prior to COVID. As we begin to return to normal, we will use our judgment, take our time and remain patient. Just as we did a year ago when the pandemic began, we will benefit from our flexible operating model, our technology and, most importantly, the high quality of people in our organization.

We will also continue to benefit from our variable financial model—and the flexibility, transparency and predictability resulting from it. A year ago, when markets dropped precipitously and our AUM was as low as $82.4 billion, our variable financial model performed as expected, automatically adjusting our largest and most important expense (compensation) lower, providing predictability and stability.

Our financial model also benefits our stakeholders in better times, adjusting compensation upwards, delivering a healthy operating margin and pushing out the majority of cash earnings we generate. In 2020, we generated $900 million in revenue, a 48% compensation ratio, a 40% operating margin, and $3.40 and $3.33 of GAAP and adjusted EPS, respectively. Including our special annual dividend, we distributed a total of $3.39 per share with respect to 2020. Our fourth quarter dividend of $0.97 per share was our largest quarterly dividend ever.

A year ago, we had no idea what was in front of us. In our business, we constantly remind ourselves that markets and people change, often very quickly and in ways that are impossible to predict. Given that reality, we take a long-term, incremental approach to our business, with patience and a thoughtful growth mentality within a disciplined business model.

We are not attempting to be the biggest player, with end-to-end, top-to-bottom solutions. We focus on opportunities that fit Who We Are—where we have an edge, can add value and the opportunity cost will be rewarded with a durable opportunity for success. You can expect us to continue to execute and evolve in this fashion.

Thank you for your support.

Sincerely,

Eric Colson
Chief Executive Officer
Artisan Partners