Artisan Partners is a high-value added investment firm designed for talent to thrive in a thoughtful growth environment. We believe superior long-term investment returns are most consistently achieved by putting the right investment talent in the right home with the right tools, resources, and alignment.
Our historical performance validates our philosophy and approach. Of our ten strategies with track records of over ten years, nine have outperformed their benchmark indices since inception, after fees. The average annual alpha of those nine strategies since inception and after fees is 275 basis points through March 31, 2023. We estimate that since inception those strategies have generated approximately $26 billion of excess returns for clients.
We focus on long-term performance—both for our investment strategies and our business. Long-term time horizons are most relevant to our clients. The merits of our investment teams' investment philosophies and our business philosophy take years to show through. Outcomes over short periods do not reveal the quality of the underlying investment or business philosophy. There is too much noise.
That is why process is so important. Philosophy yields insight. Process yields consistent results. When feedback loops take years, process discipline is vital. Without process discipline, it is impossible to determine whether a philosophy and approach have value. Skill is indistinguishable from luck. Repeated success through time is unlikely.
For us, three processes matter most.
The first is our process for identifying, recruiting, and onboarding investment leaders and working with them to build durable investment franchises. In our search for talent, we skew the odds by knowing what we are looking for and maintaining our discipline in finding it. We seek differentiated investors with clearly defined processes and demonstrated track records of success. We look for leaders who want to bet on themselves, are attracted by the opportunity to build a team, culture, and investment franchise, and are willing to risk their existing track records, compensation levels, and careers to do so. We are patient through the courtship and willing to walk away. The quality of investment leaders we recruit is evident from the careers they walk away from—as well as their subsequent success partnering with us.
Once an investment leader joins Artisan Partners, we begin the franchise development process. In the early years, we focus on building a foundation of people, process, resources, culture, and early investment success. We refuse to short-circuit the development process in a rush to grow business. As track records are established, we increase marketing activity. We hire dedicated business leaders so that investment team leaders can maximize time spent on investing. As a team becomes established, next generation leadership starts to emerge, we diversify business, and we add new strategies. Throughout, we manage investment capacity to maximize the probability of success for existing clients, which extends duration and maximizes present value. This is a conscious process to establish the characteristics we believe an investment business must have to endure through time, market cycles, and generations. It takes decades.
The second important process is our investment teams' research and portfolio management processes. Each Artisan Partners investment team has a well-articulated investment philosophy and process. These vary significantly across teams and evolve over time, but ultimately all investment activity at Artisan Partners is grounded in a stated philosophy and repeatable process. Our clients know what they are getting and what to expect. And our teams' adherence to their stated processes generates results.
Sources: Artisan Partners/MSCI/Russell/BofA/S&P/JPM. Returns are presented for select Artisan investment strategies and their benchmark indexes. The growth of $1 million calculation is based on an initial investment of $1 million in each Artisan composite at inception and the market index most commonly used by our clients to compare the performance of the relevant strategy. The growth of each initial investment is based on the monthly returns of each composite, net of fees, since its inception and its respective market index through March 31, 2023. An investment cannot be made directly in an Artisan composite or a market index and the aggregated results are hypothetical. Past performance is not indicative of future results. See Investment Performance for further performance information and Disclosures for more information about the calculation of our investment performance.
The third important process is our process for evolving and diversifying our investment platform while remaining true to Who We Are as a high value added, talent-driven firm. From our beginning in 1995, we have maintained our autonomous investment team model, our investments-first culture, and our singular focus on high value added investment management. We have, however, evolved considerably how and where we apply our business model and philosophy.
Our earliest investment strategies, launched in the late 1990's and early 2000's, aligned well with institutional style box asset allocations, open architecture defined contribution plans, and mutual fund supermarkets. Our second phase of strategies, beginning in 2006, were more global in nature, aligning with the adoption of global equity allocations, especially outside of the United States. By our 2013 IPO, we managed $81 billion across five investment teams and 12 investment strategies.
Since then, active allocations, budgets, and demand have shifted increasingly in the direction of alternative investments and other lower-capacity, less correlated, and more differentiated investment strategies. Demand has declined for low tracking error, liquid strategies replicable via low-cost passive products. Retirement plans have moved from accumulation and growth to liability management and distribution. Defined contribution plans have adopted passive and proprietary target date solutions. Demand for high value added active strategies is increasingly coming from the private wealth channel via independent RIAs, broker-dealers, private banks, and other similar investors, allocators, and gatekeepers.
Over the same period, capital markets have undergone similarly significant changes. China has emerged as the world's second largest economy and fastest growing capital market. In the developed world, private equity, private credit, and direct lending have ascended in importance as sources of capital for issuers and return for investors. Globally, there has been a proliferation of sovereign and corporate issuers, instrument types, and derivative opportunities.
With an eye towards these secular trends, since 2013, we have evolved our business and investment platform:
We have executed methodically in accordance with our autonomous team operating model and commitment to high value-added, talent-driven investments. We have significantly increased the degrees of freedom, tools, and technology available to existing and future investment talent. Today, we believe our investment platform offers investment leaders a unique combination of autonomy, resources, and time.
Patience is a fundamental element of our business philosophy and process. Building durable investment franchises takes time. Patience differentiates us as an investment manager, a home for investment talent, and as a business. Through patience, we seek to extend duration thereby increasing the probability of success for our investment teams, our clients, and our shareholders. Patience also allows us to assess the quality of our business philosophy and operational execution.
In 2013, we entered fixed income for the first time and launched the Artisan Credit team. After nearly ten years, the success we have experienced with the Credit team validates our franchise development process and our application of it beyond public equities. Today, the Credit team possesses each of the franchise characteristics we seek: An established leader in Bryan Krug, a repeatable investment process, depth and breadth of resources including dedicated trading and data science, proven results, economic alignment, a unique culture centered in the team's Denver office, and an established brand.
Since inception on April 1, 2014, the team's High Income strategy has outperformed its benchmark by an average of 188 basis point per year, after fees, through March 31, 2023. The strategy's mutual fund is ranked 4th out of 333 funds in its Lipper category and is in the top 2 percent of its Morningstar category. Strong investment performance has driven business growth. Since inception, the Credit team has generated cumulative net flows of $7.6 billion, approximately $760 million per year. For flows since its inception date, the Artisan High Income fund ranks 3rd out of 167 mutual funds in the Morningstar High Yield category.
The team's foundational growth is similar to that experienced by our other multi-generational, multi-strategy franchises, another validating, long-term data point.
Source: Artisan Partners. For the teams and the time periods that follow, net flows were derived by calculating the difference between beginning AUM, ending AUM, and investment performance: Growth team (April 1, 1997 to December 31, 2001); Global Equity team (December 31, 1995 to December 31, 2001); and U.S. Value team (June 1, 1997 to December 31, 2001). Net flows from 2002 and forward reflect actual client cash flows as recorded in our internal records. The International Value team launched the Artisan International Value strategy on July 1, 2002 and the Artisan Global Value strategy on July 1, 2007; in 2018, the team evolved into the Artisan International Value team and Artisan Global Value team, distinct teams managing each strategy independently, and assets of both strategies have been included for the team's initial 9 year period. The assets of the Small-Cap Growth strategy have been excluded for the Growth team's initial 9-year period because the strategy was managed by a separate Small-Cap Growth team during that time period.
Historically, we have seen a pattern of early foundational growth followed by a period of compounding growth, as established teams compound existing capital, raise additional capital, diversify their businesses, and launch additional strategies. Breaking down our historical strategy-level revenues by age shows the time it takes for a strategy to build revenues, as well as the potential for scale and duration when we execute our franchise development process over extended periods. As seen in the chart below, it typically takes 7-9 years for a strategy to build its foundation with accelerated revenue growth occurring from years 7-9 through years 13-16.
Data as of and through 31 December 2022. Source: Artisan Partners. Data includes every Artisan Partners strategy launched since the founding of the firm, including the three strategies that have either been merged or terminated. As an example, the $4 million for Years 1-4 reflects the annual revenue of each Artisan Partners strategy in its first, second, third and fourth year of operations, divided by the sum of the total number strategies in operation during each year. Merged and terminated strategies are included, both for the periods in which they were operating as well as the periods they would have been in operation had they not been merged or terminated (i.e., with $0 in annual revenue post closure).
The ten Artisan Partners strategies with greater than 10-year track records I referenced at the beginning of this letter, today, have average annual revenues of $78 million and accounted for approximately 78% of our total 2022 revenues. In time, we believe we can achieve a similar outcome with the 15 strategies we currently have in their foundational growth phase, eight of which we have launched in the last five years.
We will get there through process, discipline, and patience. We will continue to skew the probabilities in our favor. We will concentrate our bets on high quality, differentiated investment talent. We will extend the duration over which that talent has an opportunity to deliver for clients. We will maintain investment team autonomy and continue to enhance investment degrees of freedom—increasing the probability of differentiated, high value added outcomes. We will remain careful not to overweight short-term distribution outcomes, product engineering trends, or transactional-driven growth. Instead, focusing on building investment franchises from the ground up—high quality, long duration, high present value.
Our value creation function is simple. Attract and retain great investment talent. Generate and compound wealth for clients over long time periods. Successful careers for employees and compelling returns for shareholders will follow. Given the time it takes to develop investment franchises, the appropriate timeframes for assessing stakeholder outcomes are similarly long-term.
The quarter ended March 31, 2023, marked the tenth anniversary of our first quarterly results as a public company in 2013. Over that ten-year period, we have:
We are proud of the investment and business outcome we have generated over the last decade. We have significantly expanded and diversified our business. We believe we have more embedded growth potential today than ever before in our history. At the same time, we have remained true to Who We Are as a high value added and talent-driven firm, operated efficiently, and returned significant capital to and generated a healthy total return for our shareholders. We have executed the processes described in this letter. Which is what all our stakeholders should expect of us and hold us accountable for. We are confident in the outcomes that will follow over the next decade.
Chief Executive Officer