Over the last decade, we have grown our firm's revenues from $455 million to $1.23 billion, a compound annual growth rate of 10%. We have generated that growth through a disciplined application of our business model and philosophy—and a steady commitment to thoughtful growth. We have taken a long-term view, thinking in terms of decades, not quarters. We have focused on building business value, not engineering financial outcomes.
Over that period, 64% of our revenue growth was generated by investment teams and strategies in existence a decade ago. Growth driven by established, stable, high-quality investment teams consistently compounding client capital through market cycles.
In addition to growth through compounding, over the last decade, we have added new teams and strategies that in 2021 generated $279 million in revenue, representing 36% of our total revenue growth over the last 10 years. We added teams and strategies that fit our commitment to high value-added investing with expanding degrees of freedom. We identified and recruited people who think differently, are passionate about what they do and are willing to take entrepreneurial risk to partner with us and build something new.
Source: Artisan Partners. Ending AUM as of Dec 31, 2021. "New Strategies" refers to strategies launched during the indicated period.
Artisan Partners is a high value-added investment firm designed for investment talent to thrive in a thoughtful growth environment. That's who we are. Our purpose is to generate and compound wealth for clients over the long term. That's what we do.
Today, we are at a number of inflection points, both for the investment management industry and for our firm. The myriad categories of investing are converging into two broad categories at either end of a spectrum. On one end, there are exposure, passive, index and other products where scale, marketing and price are the keys to success. On the other end, there are high value-added investments where skill and talent matter, total capacity is limited, and clients are willing to pay a premium fee for premium performance.
Within high value-added investing, old categories are increasingly breaking down and blurring—with growing demand for active managers who can invest broadly to generate return and manage risk. "Public" managers are investing in private markets. Venture and private equity firms are reorienting their businesses to invest in the public markets. And hedge funds are expanding degrees of freedom and extending the duration of their capital.
Industry convergence creates tremendous opportunity for Artisan Partners. The power of talent is reemerging out of rigid structures, seeking autonomy and flexibility to invest creatively and establish an identity. Talent and clients are enthusiastic about broader opportunity sets and more degrees of freedom to be different. And there is better, more direct alignment between portfolio management teams and end clients. These are all characteristics of Artisan Partners. This is wind at our back.
We provide a unique home for differentiated investment talent. Our operating platform is broad and getting broader, with the ability to execute across an array of high value-added strategies. Our existing teams and strategies have been adding investment flexibility (degrees of freedom)—increasing the ways they can add value for existing and future clients. Our economic model is transparent and competitive with—or superior to—other homes for talent. And we have a compelling track record of success in compounding capital for our clients over the long term.
We continue to make long-term, strategic investments in our platform. Three areas of long-term investment stand out: differentiated credit, private investing and China. In each of these areas, we see tremendous opportunity to extend the compounding power of our existing business and add new business. We see large and growing investment opportunity sets and sustainable long-term demand. Investment talent can add significant value, and clients are willing to pay a premium fee for a premium outcome. By growing in these areas—across our firm—we will increase our ability to do what we have always done: generate alpha, meet long-term demand and maintain premium economics.
Historical demand for fixed income, yield and income persists. Aging populations point toward growing demand. Traditional fixed income solutions are insufficient—especially with inflation. Investors are turning to high yield, emerging markets debt, private credit and other higher yielding strategies. All spaces with growing opportunity sets (in terms of number of issuers and securities), market inefficiencies and significant demand for high value-added active managers.
We now offer clients five differentiated credit strategies. Our Credit team manages the High Income, Credit Opportunities and Floating Rate strategies. After fees, the High Income strategy has generated 182 basis points of annual outperformance since inception in 2014 and is ranked in the top two percent of its Lipper category. After fees, the Credit Opportunities strategy has generated average annual returns of 10.8% since inception in 2017. We launched the Floating Rate strategy in December 2021 to provide clients with a dedicated loan strategy, the Credit team having a long history of successfully investing in loans as well as bonds.
Across bonds and loans, the Credit team invests in a market of nearly $3 trillion across approximately 4,000 issuances—a growing opportunity set with ample opportunity for differentiation and value-added investing.
Data as of March 31, 2022. High Yield Bonds data is provided by ICE BofA. Leveraged Loans data is provided by S&P Global Leveraged Commentary & Data.
Our newest team, EMsights Capital Group, recently launched its first two strategies: Emerging Markets Debt Opportunities and Global Unconstrained. Both strategies focus on emerging markets credit, with expansive degrees of freedom to concentrate capital, isolate risks and opportunities, and generate returns in difficult markets to access. We expect the EMsights Capital Group to launch a third, local currency strategy in the near future.
The opportunity set accessible to the EMsights Capital Group is large and growing. There is approximately $20 trillion in outstanding emerging markets bonds. Approximately 80% of that amount is traded in local currencies, and the market is split about equally between government and corporate issuers. The EMsights Capital Group further expands the opportunity set by using a number of derivative instruments to access, isolate and hedge risks.
Both the Credit team and EMsights Capital Group have the experience, breadth and depth of talent, and ambition to launch additional strategies over time. There are interesting opportunities in multiple areas, such as private credit, CDOs and emerging markets corporate debt—to name a few.
Convergence is most apparent as private and public investing become integrated within the same investment firms, teams, strategies and vehicles. Historically "public" investors are adding privates. Historically "private" investors are adding publics. Many private issuers have the hallmarks of public firms—size, sophistication, investor base and operating history. The public/private distinction continues to break down. Companies need capital. Investors need liquidity. Asset owners need returns. High value-added investment managers like Artisan Partners provide all three.
Our success in the public markets is well-documented. Through the end of 2021, our investment strategies have generated approximately $30 billion of returns for clients in excess of benchmark index returns. An investment of $1 million at the inception of each of the strategies we have managed over the course of our history would have grown to a portfolio worth over $134 million, after fees, as of December 31, 2021. Had the same dollars been invested on the same dates in broad-based benchmarks, the hypothetical portfolio would have been worth nearly half as much, at $79 million. We have generated tremendous value for clients in the public markets, and we expect to continue to do so long into the future.
While remaining focused on delivering value and differentiated outcomes in the public markets, we are increasing our private markets activities for multiple reasons:
New Unicorns and Active Unicorns figures provided by PitchBook Data, Inc. for 2006 through 30 June 2021. U.S. Listed Companies figures are based on McKinsey analyst estimates using net company entrants and exists during the periods from 2005 through 2020.
In 2021, we launched our first strategy with an explicitly private component. The Artisan China Post-Venture Strategy has the flexibility to invest up to 15% of its capital in private issuers and made three private investments in 2021, investing in fast-growing, later stage private companies.
In addition to the China Post-Venture team, several of our other teams have increased their research activities in private markets, and we are preparing for additional private investing activities from both existing teams and future new teams. Over the long term, we expect private investing will become a natural part of what we do, integrated across many parts of our firm.
As I wrote in my letter last year, the long-term opportunities for Artisan Partners in China are similar to the opportunities we saw in non-U.S. developed markets at the inception of our firm in 1995. At that time, U.S. investors were under-allocated to international markets, investment talent operating in those markets was scarce, and few firms wanted to deal with the obstacles to investing and operating outside of the United States.
Today, we see a similar dynamic in China, where the combination of growth and capital formation, on the one hand, and hurdles and inefficiencies, on the other hand, create tremendous long-term opportunity. We fully acknowledge the risk and uncertainty associated with investing in China. But China is the world's second-largest economy, an engine of capital formation and growth, and already has a vast investment opportunity set creating opportunity and demand for high value-added management.
Source: Bloomberg. Small- and mid-cap markets are defined as public companies with market capitalizations between $200mn and $20bn (USD).
Over the last year, we have launched our first investment strategy focused on China, opened an office in Hong Kong and obtained our license to trade in the China "A" share market. While our China Post-Venture strategy is our only strategy focused primarily on Greater China, we have multiple investment teams and strategies who have invested in China for years. Of our 19 equity strategies, 12 strategies owned one or more issuers in Greater China at the end of last year.
China is not new to us. We are taking a long-term, strategic view. We are expanding our presence in Greater China, networking for talent and establishing our brand. This will take time. It will be bumpy. It will play out over decades. But we currently expect it will pay off for our clients, talent and shareholders.
Credit, private investing and China are areas of long-term strategic growth for Artisan Partners. Building in these areas over the long term will increase our ability to generate alpha, differentiate portfolios and maintain premium economics. We will be even more "active" than today, enhancing our ability to grow through compounding client capital.
As we build in these areas, we will consciously maintain sufficient slack in our time, operations and P&L in order to execute on no-brainer opportunities that present themselves from time to time—which have been a profound source of growth throughout our history. Since 2013, we have recruited seven portfolio managers to launch new strategies at Artisan Partners. At year end, those portfolio managers oversaw strategies representing $31.2 billion in AUM (18% of our total AUM) and $264 million in revenue (22% of our 2021 total).
Source: Artisan Partners. Data as of December 31, 2021. Credit Team assets include Artisan High Income, Artisan Credit Opportunities and Artisan Floating Rate strategies. Antero Peak Group assets include Antero Peak and Antero Peak Hedge strategies. Developing World, Non-U.S. Small-Mid Growth, International Explorer and China Post-Venture represent assets of individual strategies.
We have an established process for identifying, recruiting, resourcing and partnering with new external talent. We have successfully executed that process across different asset classes, market environments, generations and investment teams.
Today, industry consolidation and focus on scale and solutions create opportunity for us. As part of a packaged solution, individual talent is just one of many ingredients. Creative talent is increasingly risk managed, diluted and disintermediated from end clients. We see this at large, integrated firms, as well as at multi-manager platforms where time horizons are incredibly short and there is little ability to build an enduring team, process, brand and business. At Artisan Partners, we are staying true to Who We Are, emphasizing creative talent, autonomous investing, broad opportunity sets and a patient, long-term mindset.
Our proven success at franchise development creates a positive feedback loop—increasing both the quantity and quality of opportunities. Industry consolidation and multi-manager platforms increase the supply of high-quality talent. The expanded breadth of our platform increases the opportunities we can execute on. We expect the number of no-brainers that come our way will increase. We will be ready to execute.
We have a long-term time horizon. We think in terms of careers, market cycles and durable asset allocations. Not in terms of quarters or even a few years—let alone in terms of the news cycle. We do not try to time markets, distribution trends or short-term trades. We launched our newest emerging markets debt strategies a few weeks ago in the midst of considerable market disruption and uncertainty. We launched our China Post-Venture strategy a year ago in the midst of pandemic lockdowns and with the full expectation that Chinese markets would be volatile. We launch when the talent and resources are available and ready—and then we manage for (and are patient about) the long term.
Similarly, the strategic investments we are making in our business will play out over an extended period of time. We are not first movers in differentiated credit, private investing or China. We expect and plan for uncertainty, volatility and setbacks. But we see long-term, durable opportunity. Even if the overall size of these opportunities were to contract, they will be sufficiently large and durable to present tremendous opportunity for Artisan Partners.
Given our long-term approach to managing the firm, it is critically important that we align time horizons across our associates, our management team, our board, our clients and our shareholders. We are not trying to solve for short-term periods. We have been highly successful in solving for long-term periods. Aligning time horizons across stakeholders creates a highly productive firm that can successfully execute a long-term, thoughtful growth strategy. High value-added outcomes for stakeholders follow.
Source: Artisan Partners/MSCI/Russell/ICE BofA/S&P. Excess returns are calculated by (i) multiplying a strategy’s beginning-of-year AUM by the difference between the returns (in basis points) of the strategy’s investment composite (gross of fees) and the benchmark for the ensuing year and (ii) summing all strategies’ excess returns for each year calculated. Growth of $1 million calculation is based on a hypothetical investment of $1 million, with monthly net-of-fee returns, in each of the strategies we have offered over the course of our history and its respective broad-based market index for the period since the composite’s inception through December 31, 2021. Compensation Ratio is the percentage of adjusted compensation and benefits expense divided by total revenues. Compensation and benefits expense used in the ratio excludes certain pre-IPO and reorganization-related compensation expenses that were recognized in 2013-2017. Dividends reflect the value of dividends declared or paid with respect to the year indicated. GAAP EPS was $(2.04), $(0.37), $1.86, $1.57, $0.75, $2.84, $2.65, $3.40 and $5.10 (basic) and $5.09 (diluted) for the one-year periods ended December 31, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021, respectively. See Disclosures for more information.
With the dividend we paid in February, we have now distributed $29.55 per share since our IPO in 2013—representing nearly 100% of our IPO share price of $30 per share. We have returned nearly 100% of investor capital since the IPO—while at the same time growing and diversifying the firm—from 5 investment teams and $74 billion in AUM to 10 teams and $175 billion in AUM at the end of 2021.
We expect to continue to compound capital for clients; launch, develop and grow new businesses; thoughtfully grow our firm; and generate compelling long-term outcomes for all our stakeholders. Thank you for your continuing support.
Sincerely,
Eric Colson
Chief Executive Officer
Artisan Partners