Artisan Partners Asset Management (APAM) Q2 2016 Earnings Call

Artisan Partners Asset Management (APAM) CEO Eric Colson said active investment management is out of favor

“During the two trading days after the Brexit vote, our AUM declined from $98.7 billion to $90.1 billion. AUM then rebounded in the last three trading days of the quarter to end at $95.0 billion. Markets remain volatile. Faced with political and economic uncertainty, historically low interest rates, and full equity valuations, asset allocators continue to move wealth into high capacity, low fee products, many of which are momentum-oriented and further amplify volatility. In the short term, this is an unfavorable business environment for high value added active managers like Artisan Partners.”

Artisan Partners Asset Management (APAM) CEO Eric Colson said sometimes you can’t predict human behavior

“The Brexit vote is another reminder that financial incentives alone are insufficient to generate desired outcomes or explain human behavior. For a majority of the voters, sovereignty and self-identity appear to have outweighed short-term economic self-interest.  In managing our business, we keep that lesson in mind. Economic incentives matter, but talent needs freedom and time as well. Over the long-term, we believe that a transparent incentive structure, together with patience and flexibility, will generate superior outcomes for talent, clients, and shareholders.”

Artisan Partners Asset Management (APAM) CEO Eric Colson on how Brexit is impacting their business 

“In thinking about what Brexit means to Artisan from an investment perspective, remember that each of our autonomous investment teams develops independent views and makes its own decisions across the entire investment process – from the impact of global macro-economic events to views on particular regions, currencies, companies and securities. This independence can be seen in the differentiated returns of our Global Value, Global Opportunities, and Global Equity strategies, all of which have a global mandate. Through the lead up to and fallout from the Brexit vote, the three strategies performed differently from one another. While each of our teams invests with a strategy designed to foster discipline through short-term market shocks, we expect our autonomous team structure to deliver diverse sources of alpha.

Artisan Partners Asset Management (APAM) CEO Eric Colson discussed how the movement of investors into index products is hurting their inflows

“During the second quarter, we experienced net client outflows of $2.3 billion. While our gross outflows were in line with our quarterly experience over the last several years, we saw a slow-down in gross inflows which was at least partially attributable to the demand for high capacity, low fee products that we don’t offer. We are committed to managing our capacity and protecting the integrity of each team’s investment process, which is in the best interests of clients, talent, and, ultimately, shareholders. One of the ways we manage capacity is by holding the line on our fee rates. We are unwilling to lock in low rates that are not reflective of the value our teams add and the scarcity of their investment capacity. If we compete on scale and fees, we risk jeopardizing long-term performance and our ability to attract and retain investment talent. Over the long term, we expect that the assets we seek will follow performance and talent, even if current industry trends favor indexing and scale.”