Dear Fellow Shareholders,
Despite the unprecedented challenges and market volatility experienced in 2020, our business and financial model enabled us to post the best results in our history as a public company. In 2020, Artisan Partners earned net income of $212.6 million and adjusted net income of $262.7 million and reported earnings of $3.40 per share and adjusted earnings of $3.33 per adjusted share.
Assets under management in 2020 rose 31% to end the year at $158 billion. Investment returns added $30 billion to client portfolios, including $11 billion of returns in excess of benchmarks across all three generations of strategies. In addition, clients added $7.2 billion of net cash inflows across a broad array of strategies and distribution channels.
Our second and third generation strategies had $10.8 billion of net client cash inflows in 2020. AUM in these two generations now represents over 50% of our total AUM.
While our first-generation strategies experienced net outflows for the year, AUM increased meaningfully, highlighting the compounding effect of market returns and alpha generation.
| 2020 | ||||
|---|---|---|---|---|
| 1st | 2nd | 3rd | Total | |
| Beginning AUM | $64.8 | $44.1 | $12.1 | $121.0 |
| Gross client cash inflows | 13.5 | 9.4 | 13.5 | 36.3 |
| Gross client cash outflows | (17.1) | (8.1) | (4.0) | (29.2) |
| Net client cash flows | (3.6) | 1.3 | 9.5 | 7.2 |
| Artisan Funds' distributions not reinvested | (0.3) | (0.1) | (0.3) | (0.7) |
| Investment returns and other | 12.5 | 10.6 | 7.2 | 30.3 |
| Ending AUM | $73.5 | $55.9 | $28.4 | $157.8 |
1st Generation represents Artisan U.S. Small-Cap Growth, Non-U.S. Growth, U.S. Mid-Cap Growth, U.S. Mid-Cap Value and International Value strategies. 2nd Generation represents Artisan Value Equity, Sustainable Emerging Markets, Global Opportunities, Global Value and Global Equity strategies. 3rd Generation represents Artisan High Income, Developing World, Antero Peak, Credit Opportunities, Global Discovery, Antero Peak Hedge, Non-U.S. Small-Mid Growth, Select Equity, and International Small Cap Value strategies.
Revenues grew 13% to $900 million compared to revenues of $799 million in 2019. The increase reflected the sharp rise in markets during 2020, which led to a 13% increase in average AUM. Operating expenses, a significant portion of which varies directly with revenues, grew 5%, primarily resulting from higher incentive compensation on increased revenues. Certain expenses, primarily travel and office-related costs, decreased due to continuing COVID-19 work-from-home conditions.
Our operating margin for 2020 was 39.8%, up from 35.5% in 2019. We reported earnings per share of $3.40, up from $2.65 in 2019 and adjusted earnings per adjusted share of $3.33, up from $2.67 in 2019.
We remain committed to maintaining a strong balance sheet and distributing the majority of the cash that we generate each year from operations to our shareholders in the form of cash dividends and distributions. Accordingly, our board of directors declared cash dividends with respect to 2020 results of $3.39 per share. This represented a dividend yield of 7%.
We are proud of how the firm operated in 2020. Our associates adapted remarkably well to the unprecedented challenges of COVID-19, and our financial model, which was designed to operate in volatile market conditions, produced predictable results for our shareholders and employees. Our strong 2020 performance is evident in our reported earnings and the total return we were able to achieve for our shareholders.
We begin 2021 with continued positive momentum. Average AUM, the measure on which we earn revenues, has a strong positive lean with beginning of year AUM 26% ahead of the average AUM in 2020. Certain expense levels remain muted due to the continuing effects of COVID-19. Client demand for our strategies remains encouraging. All this bodes well for 2021. However, we are well aware that markets are uncertain and we stand ready for the hand that 2021 will deal us.
Sincerely,
Charles (C.J.) Daley, Jr.
Chief Financial Officer
Artisan Partners