Artisan Partners Asset Management Inc - Ordinary Shares - Class A Aktie

Good day, everyone, and welcome to the Artisan Partners Asset Management Business Update and Second Quarter 2026 Earnings Call. [Operator Instructions] Please also note today's event is being recorded.

At this time, I'd like to turn the conference call over to Artisan Partners Asset Management. Please go ahead.

Welcome to the Artisan Partners Asset Management business update and earnings call. Today's call will include remarks from Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions.

Our latest results and investor presentation are available on the Investor Relations section of our website.

Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation. In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website.

Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan Investment product or a recommendation for any investment service.

I will now turn it over to Jason.

Thank you for joining the call today. Our purpose at Artisan Partners remains unchanged, to generate and compound wealth for our clients over the long term. That purpose continues to guide every aspect of our business. We believe our autonomous investment team model, combined with the disciplined business management and thoughtful long-term growth initiatives, differentiates Artisan Partners and creates durable value for clients and shareholders alike.

The second quarter demonstrated the resilience of that business model. We delivered record quarter-end assets under management, strong investment performance across much of the platform, continued growth in credit and alternatives, and another quarter of attractive financial performance despite continued headwinds in several equity strategies.

As we have discussed, we are building a diversified global investment platform focused on producing attractive long-term growth across market cycles. The results this quarter reinforce that strategy.

Strong investment performance continues to create opportunities for growth, particularly as clients increasingly seek differentiated active managers. Long-term investment performance remained strong across our platform with 86% of our AUM outperforming their benchmarks over 3 years, 77% over 5 years, and 99% over 10 years gross of fees.

The 12 Artisan strategies with track records over 10 years have compounded capital at average annual rates between 6% and 13%. Since inception, their average annual rates of return have in the aggregate, exceeded their benchmarks by an average of 189 basis points annually, net of fees. The investment performance of our equity strategies improved meaningfully over the 1- and 3-year time horizons, with 81% of our AUM outperforming their benchmarks over 1 year and 84% over 3 years, gross of fees.

During the quarter, global equity markets rebounded sharply before volatility returned in June. Our investment teams navigated well, generating more than $20 billion of returns for our clients.

Turning to Slide 4. We continually evaluate our investment franchises against both client demand and long-term economic viability. As previously announced, following the loss of 2 large sub-advisory mandates in the U.S. Value business, we concluded the prudent decision was to wind down the U.S. Value team and redeploy resources toward areas where we see substantially greater long-term opportunity.

The U.S. Value franchise has been an important part of Artisan Partners for nearly 30 years, and we are extremely proud of what the team has accomplished for clients and shareholders during that time. We expect the wind-down to be largely completed by the end of the third quarter, and C.J. will describe the financial impact during his remarks.

Including the U.S. Value outflows, net client outflows totaled $10.5 billion during the quarter. Approximately $9.2 billion or nearly 90% of the total net outflows came from the U.S. Value and Growth teams, with $6.4 billion from U.S. Value and $2.8 billion from Growth. We continue to diversify our platform and execute on growth opportunities.

Credit strategies generated nearly $700 million of net inflows, representing our 16th consecutive quarter of positive organic growth and a 15% annualized organic growth rate. Alternative strategies have gathered approximately $300 million of net inflows, representing a 25% annualized organic growth rate and positive organic growth in 5 of the last 6 quarters. Within equities, we secured a $1 billion Global Discovery institutional mandate and our sustainable emerging market strategy continues to attract meaningful new client capital.

Throughout the history of Artisan Partners, we have evolved the platform while remaining true to the principles that have defined the firm since its founding: high value-added investing, talent-driven strategies, and alignment with long-term asset allocations. Consistent with these principles, we have successfully added new investment teams, expanded into attractive asset classes and increased the capabilities of our existing investment franchises. EMsights Capital Group demonstrates that strategy in action.

This quarter marks the 4-year anniversary of EMsights Capital Group. In 4 years, the team has built a distinctive business spanning 3 investment strategies, combining emerging market expertise with sophisticated derivative capabilities to deliver differentiated investment solutions for clients. Today, the team manages more than $5 billion of assets, supported by strong investment performance and growing client demand. We believe EMsights remains in the early stages of its growth opportunity. Looking ahead, we see meaningful potential to continue expanding the business through additional investment vehicles and broader distribution.

EMsights demonstrates what our platform is designed to do: identify exceptional investment talent, provide the resources and autonomy to succeed, and build enduring investment franchises that create long-term value for clients and shareholders. We are now applying that same long-term approach to Grandview Property Partners. Like EMsights, Grandview expands our platform into an attractive area of long-term client demand while preserving the autonomy that allows great investment talent to thrive.

Since completing the acquisition of Grandview earlier this year, the investment team has maintained their distinctive investment philosophy, process and leadership. We are laying the foundation for Grandview's next phase of growth. We are making good progress on the launch of their new flagship fund, including advanced discussions with an anchor institutional investor and active engagement with many of the limited partners that supported Grandview's prior funds. We recently hired a dedicated business leader to accelerate fundraising and expand institutional investor relationships.

While it's early, we are encouraged by the progress to-date and are excited for the opportunities ahead. As we look ahead, we see meaningful opportunities across the investment platform. We are preparing to launch additional vehicles to meet evolving client demands, expanding our credit capabilities, advancing Grandview's next phase of growth and continuing to invest behind exceptional investment talent.

Combined with our strong balance sheet and active pipeline of opportunities, we believe we're well positioned to drive long-term growth. We're excited about the opportunities ahead.

I will now turn the call over to C.J., to discuss our financial results.

Thanks, Jason. Our complete GAAP and adjusted results are detailed in our earnings release.

Assets under management ended the quarter at $183 billion, a record quarter end level and an increase of 6% from the March quarter and 5% from a year ago. Average assets under management were $182 billion, flat sequentially and up 9% compared to the June 2025 quarter. Year-to-date average AUM improved 9% over the prior 6-month period.

Revenues for the quarter were $308 million, up 2% from the March quarter, primarily reflecting 1 additional day during the quarter and a modest increase in our average fee rate. Compared to the June 2025 quarter, revenue increased 9%, driven by higher average assets under management. Our weighted average fee rate for the quarter was 68 basis points, up from the March quarter, primarily due to the loss of the U.S. Value team mandates.

Adjusted operating expenses declined 1% from the March quarter, primarily reflecting lower seasonal expenses and reduced long-term incentive compensation, offset in part by employee separation costs, including those associated with the wind-down of the U.S. Value team.

Looking ahead, the September quarter will be negatively impacted by approximately $0.03 per share compared to the second quarter as a result of the wind-down of the U.S. Value team. Additionally, fixed expenses are expected to decline in the September quarter due to continued roll-off of seasonal expenses and a decline in employee separation costs. Fixed expense guidance has not changed for the year.

Compared to the prior year quarter, adjusted operating expenses increased 7%, driven primarily by higher variable incentive compensation associated with increased revenues. As a result, adjusted operating income increased 8% sequentially to $101.4 million. Adjusted operating margin expanded 180 basis points to 32.9% and adjusted earnings per share increased to $0.94. Compared to the second quarter of 2025, adjusted operating income increased 13%. Margin expanded 120 basis points and adjusted EPS increased 13%, highlighting the operating leverage inherent in our business model.

Looking at the year-to-date results, average assets under management increased 9% compared to the first half of last year, driving a 9% increase in revenue.

Year-to-date adjusted operating expenses increased 9% from 2025, primarily from higher incentive compensation on elevated revenues. Adjusted operating income increased 10% to $195.6 million, adjusted operating margin improved to 32% and adjusted earnings per share increased 9% to $1.81.

In our non-GAAP measures, non-operating income includes only interest income and expense.

The balance sheet remains strong with $335 million of cash. During the second quarter, we redeemed approximately $20 million of seed capital, reducing seed investments on the balance sheet to approximately $100 million. Proceeds from seed capital redemptions are included in cash available for corporate purposes, reinvestment or potential return to shareholders through our year-end special dividend.

Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.80 per share for the June 2026 quarter, representing a 4% increase from the prior quarter and a 10% increase year-over-year. After funding the quarterly dividend, we retained over $180 million of excess capital to support organic growth initiatives, evaluate potential M&A opportunities or return to shareholders.

That concludes my prepared remarks. I will now turn the call back to the operator.

[Operator Instructions] Our first question today comes from Kenneth Lee from RBC Capital Markets.

Just from a high level, during the quarter, as you've been talking to the clients, I wonder if you could just characterize overall client appetite for emerging market and global risk assets more recently.

Yes, we have seen a really strong demand for EM. They're looking for not only access to the asset class, but certainly, they're looking for differentiated capabilities. And we're seeing that flow through more specifically to our Sustainable Emerging Markets team. They've had a couple of good quarters of strong net new inflow, Growth, I believe, for the quarter, they were up about 2.35%, and for the year, they're sort of double that.

The pipeline of activity, specifically in EM is robust. Pipelines need to be crystallized, but we are happy with what we're seeing there. I'd say more generally across global risk assets, specifically equity, there's maybe a slightly more cautious tone. We've seen a fair bit of rebalancing. I look at the top separately managed accounts, which are institutionally focused just to see what kind of activity we're experiencing. And naturally, there's benefit payments and adjustments, but we saw a pretty broad-based rebalancing activity across a number of our largest relationships, nothing meaningful on an isolated basis. But when you sort of add it all up, it becomes relatively meaningful.

But we are still seeing good opportunities in international. David and the International Value pipeline continues to be quite robust and strong across our global franchises and global strategies, we're seeing good interaction with clients. But I think where it tends to push people is they're tend to looking a little bit more across credit. They're tending to look for more goal or income-oriented strategies, and they're tending to focus a little bit more time and effort and attention on alternatives where they can get a, again, a differentiated return that might complement their current or existing equity portfolio that's done obviously very well coming out of COVID.

Just one follow-up if I may. I wonder if you could share your latest thoughts around any kind of outlook around potential platform expansion opportunities.

Yes. I'll highlight a few areas of expansion. I think there are 2 clear initiatives that we have. The first one is we're going to continue to focus our time, effort and attention in the areas where we see that overlap between asset allocation, demand, where we believe alpha is prevalent, and where we think the talent is available. And where we're really seeing a good source of opportunity and pipeline is certainly in credit. We think that there is good possibilities and opportunities for expansion more globally to our credit platform and franchise.

The second is within alternatives. And there's a couple of areas that we've talked about in the past, but I'll highlight one maybe that we spent a little less time on in the world of hedged equity, equity long-short in particular, with more of a focused bias to it. We've been sourcing and identifying really interesting talent within that sphere of the market. And we've seen a pretty meaningful uptick in the demand for hedged equity, which for the first time in a long time, is starting to bear itself out in terms of actual implementation and allocations. Those are 2 clear areas that we're focused on.

And then as we've discussed in the past, areas in private markets such as equity secondaries and real assets via either infrastructure or even a more global real estate to complement and sit within or alongside the Grandview Property Partners are also areas that we've been active in. And they're coming, as you would expect, in both forms. So certainly willing and interested in looking at lift-outs, which is our bread and butter, but we're also considering inorganic opportunities for growth where we see that really first or second generation of talent that we can partner with and align ourselves and the firm alongside our clients to potentially bring a new team on.

Then the second piece that we talked a little bit about that's been a strategic initiative is just the broadening the aperture of the vehicles. So trying to get in between and find the intersection between where and how our clients want to implement some of our existing strategies and provide them the easier way to access that. And so that can come in many different forms. We've talked about SMAs. We talked about models. There's likely going to be something that we can envision an interval-based oriented product that gives us the ability to do a hybrid between public and private securities, and certainly more private funds. And as I'm sure you've seen, we did file for exemptive relief in the world of ETFs. And so we have received that relief.

We have not announced or we haven't determined when or what we are going to be launching within ETFs, but we certainly recognize that that is an area that many of our clients are focused on implementation. And so we need to be thoughtful about how that would work with our existing investment teams and strategies and franchises. But that's clearly an area and a path for us to continue to broaden out the aperture and utilize our existing platform in a way that I think our clients are more increasingly looking to access us.

Our next question comes from Bill Katz from TD Cowen.

First one is really just a set of clarifications. I just want to make sure I understand the math. You mentioned that the wind-down will cost $0.03 sequentially. Is that related to the fundamentals of the business and that's just the timing of that? Does that also include the wind-down that you're expecting for the remaining assets?

Then you also mentioned that your fixed expenses would be down sequentially, reflecting both seasonality as well as less severance costs. Can you just sort of quantify the severance costs in the quarter, so we have a better sense of that?

Yes, sure, Bill. So on your first question, the $0.03 is the delta between the second quarter and what we expect in the third quarter. So we had a slight accretive nature to the U.S. Value team in the second quarter given the wind-down started midway. And then in the third quarter, we expect a very minimal loss before it evens out. So that $0.03 is the differential between the second quarter, this quarter's results and what you would expect next quarter.

Then with respect to the costs, in the first quarter, we have a larger number of seasonal expenses, which the decline in the second quarter was partially offset by the wind-down of the costs related to the wind-down of the U.S. Value team, including severance as well as some other expenses related to the wind-down. And then in the third quarter, we would expect to see the absence of those separation costs and wind-down expenses and continued roll-off of the seasonal expenses, there is still a little bit more to go.

So all of that compared to the second quarter, we'll see a benefit in fixed expenses related to those items. But our guidance for the year, mid-single digits is what I said in January, excluding the addition of Grandview and the long-term incentive comp expense we guided for the year, we still expect that to be mid-single digits even with the additional costs of the wind-down.

That's very helpful. Maybe a big picture question. You mentioned in your prepared comments just the opportunity to leverage the EM platform and then sort of turn that to Grandview as well. Can we click in a layer deeper and just sort of say, okay, can you give us a sense of some of the initiatives you might be getting toward?

Then on Grandview, you had mentioned some early success in the conversations. I'm sort of wondering if you could just remind us how big the prior flagship fund was? Where are you in terms of invested? And then what the timeline might be for the new fund?

Yes, sure, Bill. I'm going to have you repeat the first part, but I'll tackle Grandview. The Fund III was about $150 million in committed capital. That's small relative to what they would have expected. They chose to stop taking commitments, recognizing that an opportunity to partner with us was on the horizon and really preserve the return capability that was put in the ground and is to be put in the ground for those that were the early adopters so that we could focus on ultimately the launch of Fund IV.

Fund IV, their flagship fund, we expect will be launched sometime later this summer, but likely early in the fall of this year. And we're obviously having conversations with that one anchor as well as many of the existing LPs that have invested with them along funds I through III. And so we're feeling pretty good about where we're at with the anchor and the ability to get out there.

It's important also to have some opportunities to share with clients that might make their way into the portfolio. So they're working aggressively to identify and solidify those that will help us with the marketing campaign. But Fund III was $150 million, and we expect that Fund IV will be multiples of that.

As I mentioned in my prepared comments, we hired an institutional business leader that we expect to be helping us in a very meaningful way to help us grow the business. So that's where we're at with Grandview.

Okay. And just to clarify, sorry, I asked 5 questions in one. You mentioned that the opportunity to maybe expand vehicles and capabilities in some of the teams, I think you sort of highlighted the EM platform. Just wondering if you could maybe give us an update on what kind of vehicles, what kind of incremental distribution partners you might have on the horizon?

Yes. Sorry if I made it EM-specific, but it's really across all the teams. And I think that each team has their own set of clients and distribution opportunities. But I would view it as we have the opportunity to launch CITs, private funds where institutional clients don't want to access a capability or a strategy that might come in a mutual fund or a more liquid wrapper, but also don't want to deal with a separately managed account, which might require country openings or opening up of various derivative contracts and relationships with PBs and third parties.

So I think if you look at the totality of it, we would view CITs, private funds, there's certainly the opportunity to widen the aperture in UCITS, and we expect to launch a UCIT in the not-too-distant future. We're in some active conversations with a potential anchor there. And as I mentioned, we're not quite there yet on ETFs, but there's the possibility of doing ETFs, and that's not specific to EM, but just more generic to the platform.

Thank you for taking all the questions.

Yes. I would just highlight that one of the things that we've always said philosophically is that we want to be vehicle-agnostic, and we're just really putting our money where our mouth is here. If a client wants to access our IP, we want to do it in a thoughtful way, but in a manner that really helps solidify the long-term relationship.

Our next question comes from Alex Blostein from Goldman Sachs.

I was hoping to drill down a little bit into any other sizable redemption risks you might see across the equities portfolio, particularly when we look at the Growth team, there is a number of strategies that are still quite sizable and have underperformed. So any concentration risk we should be mindful of when it comes to those businesses and how you're potentially managing that risk and just navigating this recent performance with clients?

Yes. So we've done a few things. First and foremost, I'd highlight Mid-Cap Growth as a feature of what's occurred on the team. I think Matt Kamm and the leadership of the Growth team thought it was important that they bring on a second key decision-maker and Jason White, who's been a long-standing member of leadership as well. And since we made that change, you can see the follow-through into performance.

So Mid-Cap Growth, I don't have the numbers in front of me, but they're having a nice year from a relative basis in 2026. They had a great 2025. And so we now have a strong year-to-date, a strong one year, a really strong 3-year. And so that's a very large and important piece of the Growth franchise.

Really, where I think the struggle is the intersection between difficult and challenging performance and AUM is really in the global segments of the Growth team, global opportunities. And Jim Hamel just recently brought Angela Wu into the mix to help him with the decision-making, and we think that that's going to be a key long-term benefit to the business and to the strategy.

The second is we've hired a couple of recent additions in the analyst ranks as well as in the associate portfolio manager ranks to continue to bolster and upgrade the talent that we have and they have on the team to be able to access different securities and different opportunities. And it's very early days. So I don't want to say that we're through the worst of it. But I think the team has been willing to disrupt themselves both proactively and with our help to make sure that they've got the right resources to help bolster the performance.

In terms of client concentration, I think there was a fair bit of concentration that we talked a little bit about over the course of the last several years in the Australian market. It wasn't any one client in particular, but it was more of just the systematic issues and challenges that we were facing in the Australian market.

Beyond that, there is certainly some clients that have a higher percentage of the AUM relative to others, but there's nothing that we would look at that would give us pause or concern that there's a brewing or looming cliff of AUM that's at risk that would cause a cascade effect. The business is pretty well diversified, not only across strategy, but within strategy, it's pretty well diversified.

Understood. C.J., one follow-up for you just on the fee rates. With U.S. Value team rolling off or strategy rather rolling off, are the fee rates across both the funds and separate accounts appropriate jumping off points as we sort of think on the forward basis, or is there any other implications as you sort of think about the run rate fee rates for both of these subsegments on a go forward?

Yes. Good question. I mean we had a little bit of movement this quarter. But I think if you look at the year-to-date fee rates for this year, they're pretty good jumping off points.

In the credit space, on a year-to-date basis, we are up a little bit. But during the quarter, we did take on a large mandate that was a little lower than the fee rate. And then in the alternative space, we brought on the addition of Grandview with a little under $1 billion in AUM at higher fee rates than we were running. So that's new this year. And then we're continuing to win some business in EMsights. And in the quarter, we had a nice win at a really attractive fee rate.

So year-to-date, decent like the average between Q2 and 1Q is kind of like a decent jumping off point to think about for the rest of the year.

Yes, yes, yes, absolutely.

Our next question comes from John Dunn from Evercore ISI.

Thanks. Maybe on the other side of redemptions on the gross sales. Could you give us a flavor of where you see your institutional pipeline at the moment and maybe some of the underlying stuff like what you're seeing as far as RFP activity, win percentages and composition and kind of time to funding?

Yes, John, I'll tackle that. I'll break it up between institutional and intermediate wealth, and I'll harken back to a comment more generally that I put into one of our earnings conversations, which was we need to do a better job at selling more and losing less. And when we look at our information and our data, and this is by no means -- I don't think of this as a trend, but it's starting to feel that way, which is our gross sales numbers look pretty good. We're not out of the woods, but we're feeling a lot better about what's happening. And I think that stems from the fact that we talked about this where we had onboarded a number of people, both in the institutional world, but more specifically in the intermediate wealth side of our business.

However, many of those folks had just sort of been onboarded, and we didn't have like full fighting strength. I think we're now pretty close to full fighting strength. We've been onboarding some people in the non-U.S. business, specifically in the U.K. and EMEA region that are getting up the curve and building their own pipeline. And we're just seeing a nice follow-through in terms of the gross sales.

I think where we're continuing to experience both redemptions as well as some select terminations is really what's causing the net to be a little bit more challenged. And so we feel like we're seeing the green shoots of many of the efforts and initiatives that we put on the distribution effort, but we're still continuing to fight the rebalancing, which is natural in a market that continues to produce high teens returns depending on the market that you're looking at. When you drill down, you look institutionally, we're also still doing quite well. We had a couple of really interesting wins in Q2.

I think one thing I should have highlighted during the prior round of questions was Global Discovery on the Growth team just landed a very large institutional mandate. It's funded predominantly in Q2 and will continue to slightly fund throughout the course of Q3. And I think that's the hallmark type of client we're looking for, somebody that sees the quality, the differentiation, the benefit of partnering with a team like our Growth team and are willing to look through some of the short-term performance challenges associated with the global platform. And so we saw a really nice win there.

We talked about the Sustainable Emerging Markets team, and the pipeline, and the path and the pattern that they're experiencing. The International Value franchise had a nice institutional win and continues to build on their pipeline. And so we're starting to see a lot of good things on both sides. If markets didn't produce mid- to high teens returns, I think the rebalancing would be a lot less, and you'd see a little bit more of a balanced organic growth rate. But for now, we're happy with what we're seeing incrementally on the gross inflow side, it's the gross outflows is really where we need to keep our clients a little bit longer than we have.

Got it. And then maybe just to go back to Grandview for a second. Could you kind of give your thoughts on what you think the demand environment for private real estate is just given the rates, macro and kind of return cycle backdrop? And like you've talked about the fundraising, but maybe also like the deployment, how should we think about deployment once the fund is raised?

Yes. I think obviously, deployment can be slow and then speed up really quickly depending on the rate environment and certainly the macro environment. That being said, I think the great thing about Grandview, and certainly, this is common what you hear from us quite a bit about our existing teams is the degrees of freedom that they're able to express their capabilities in, and this comes in the sectors that they're going to invest in, gives them really a lot of latitude to be able to deploy capital in a thoughtful and meaningful way. And while Fund IV is going to have some reasonably specific themes that are going to be the hallmarks, there's always going to be dry powder associated with being opportunistic.

As we've been speaking and spending time with the Grandview investment folks, they are finding some really interesting opportunities across a couple of more distressed sectors of the market that should prove to be quite compelling. So sometimes the rate environment actually works in your favor. It just gives you great opportunities to buy assets in a cheaper fashion because you just have distressed people in need of refinancing that just need to potentially either refinance at higher rates that aren't going to work for the economic model or frankly, just sell it at a discount. So it's hard to give you a true sense on deployment.

I would just say that in our conversations with the Grandview folks, they've got a pretty strong pipeline of investment opportunity that they're looking at across the few themes that will be featured in Fund IV as well as some opportunistic investments that they're and frankly, in the market looking to execute on now.

Our next question is a follow-up from Bill Katz from TD Cowen.

Jason, you mentioned a little bit about sort of deal pipeline. Some of your peers in the alt space still speak to pretty heady expectations from the sellers. I was wondering if you could talk a little bit about what you're seeing in terms of the bid-ask spread.

And then you mentioned earlier comments of just the intersection of demand, good alpha generation, et cetera, and you've done very well on the credit side. But for the last couple of quarters, the credit rolling performance looks like it's waning a little bit. Just sort of wondering, is there anything to be mindful on there? Or maybe what's driving the underperformance just so we can think about maybe the go-forward outlook?

Yes, sure. So I think this is question 7 and 8. We're going to have to cut you off at some point. You're absolutely right. I think there's very heavy expectations, and we have been very active in working through our pipeline, and that has included a couple of, as I mentioned, inorganic opportunities where we presented a proposal that was -- we thought was extremely compelling that didn't make it very much farther than the proposal.

As you've come to know us, Bill, very well, we are going to remain disciplined and not extend ourselves in areas where we don't think we can achieve success for not only our clients, but ultimately our shareholders as well. And so we remain focused on areas of finding inorganic opportunities where these are self-sourced, which is where and how we found Grandview. Those are going to be great opportunities for us to find teams that maybe the dollar value isn't the only thing that's important. If it's a dollar value that's going to win the day, then it's probably going to be a little bit more challenging for us. We think we bring a total package of business leadership, distribution.

Obviously, price does matter, but long-term growth and alignment does as well. And for those that want that autonomy and not wind up getting tucked into -- be a sleeve of a broader platform or have their ideas fold into other strategies. We think that we are an ideal home for the talent that really wants to continue to invest and grow. And so we'll get our opportunities. We're just going to have to be thoughtful and deliberate.

Going back to your other question about the credit franchise, their performance and their underperformance is quite -- it's not dramatic, and it's on the heels of obviously, multiple years of outstanding performance. The short-term, I think, has somewhat been challenged by the fact that they have not had a ton of energy exposure in their portfolio. So these are not errors of co-mission. Had they known that the war was going to bail out a bunch of leveraged companies that were on their last legs, then shame on them. But I don't think that that's something that they could have predicted. And Brian and the team has stayed true to their discipline, and they will continue to what we think deliver even in the face of a sectoral issue that has caused a bit of a short-term shortfall.

I should have mentioned and I will now, that we did actually win an institutional mandate for our floating rate strategy inside of the credit team, $150-ish million mandate that gives not obviously huge in size, but it's very important in terms of the scale that it brings to that strategy.

I think we've talked about scale begets scale. And so that strategy continues to execute quite well under Brian's leadership, and we're continuing to see the fruits of their capability on the floating rate side where we see actually pretty meaningful opportunity for growth in that segment of the business.

Ladies and gentlemen, with that, we will be concluding today's question-and-answer session and the Artisan Partners Asset Management Business Update and First Quarter (sic) [ Second Quarter ] 2026 Earnings Call. Thank you. You may now disconnect your lines.

Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website.

Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation.

In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment service.

I will now turn the call over to Jason.

Thank you for joining the call today. At Artisan Partners, our purpose is to generate and compound wealth for our clients over the long term. We do so by maintaining an ideal home for investment talent, providing a unique combination of autonomy, degrees of freedom, resources and support. Our model has proven repeatable over time as we have steadily expanded our capabilities across equities, credit and alternatives. Across a wide range of market environments, we have maintained our focus on high value-added investing, driving positive outcomes for both our clients and our shareholders. Long-term investment performance remains strong across our platform with 74% of our AUM outperforming their benchmarks over 3 years, 76% over 5 years and 99% over 10 years gross of fees. All 12 Artisan strategies with track records over 10 years have outperformed their benchmarks since inception, net of fees. These 12 strategies have compounded capital at average annual rates between 6% to nearly 13% and have exceeded their benchmarks by an average of 202 basis points annually, net of fees.

Highlighting our track record of positive long-term investment outcomes, 2 of our investment teams were recently recognized by Morningstar and Lipper for investment excellence. Morningstar nominated the Global Value team's Dan O'Keefe for the 2026 Morningstar Award for Investing Excellence, Outstanding Equity Portfolio Manager. Lipper named the team's Global Value Fund, institutional class, the best fund in its Global Large-Cap Value Funds category for the 3-, 5- and 10-year periods ended December 31, 2025. Lipper also named Select Equity Fund, institutional class, the best fund in its Global Multi-Cap Value Funds category for the trailing 3-year period ended December 31, 2025. Lipper also named the EMsights Capital Group's Global Unconstrained Fund, institutional class, as the best fund in its Global Income Funds category over the trailing 3-year period ending December 31, 2025.

External recognition is not our goal, but the consistency with which Artisan Partners has earned accolades like these across time, teams and asset classes validates the quality of our platform and the repeatability of our business model for both talent and clients. Congratulations to the Global Value team and the EMsights Capital Group on these recent recognitions. Shorter-term trailing 1-year performance has been weighed down by underperformance in a couple of our largest equity strategies, all of which have strong long-term track records.

Turning to Slide 4. Firm-wide net outflows in the first quarter were $3.1 billion. Outflows were concentrated in a few equity strategies where we saw clients derisking, reallocating after periods of asset class outperformance and some shifting to passive alternatives. Those outflows mask positive business developments across many parts of the platform. Year-to-date, we have net inflows in 13 of our investment strategies. The Sustainable Emerging Market strategy raised $250 million in the first quarter and assets under management are nearing $3 billion. We have continued our multiyear success in growing our credit businesses with $800 million of net inflows in the first quarter. This was our 15th consecutive quarter of positive credit flows.

In alternatives, we raised $300 million in the first quarter, primarily in the Global Unconstrained strategy, where we continue to build a realizable pipeline. We expect to see continued strong business development in credit and alternatives, while the backdrop in equities is more challenging and difficult to predict. Our teams have been operating efficiently during a recent market volatility. At the end of last week, our AUM was back up to nearly $184 billion, near the all-time high that we achieved in late February. Our business and financial model allows us to remain focused on delivering high value-added investment outcomes for clients, servicing our existing clients while actively developing new client opportunities across channels globally.

Slide 5 highlights our methodical approach to expanding our platform with new talent and investment capabilities. In the first quarter, we onboarded Grandview Property Partners, a real estate private equity investment firm specializing in U.S. middle market assets and laid the groundwork to launch the team's next flagship fund later this year. We also added key distribution talent in EMEA and the intermediate wealth channel and filed an exemptive relief application with the SEC to offer ETF share classes of Artisan mutual funds. These investments build on success we are seeing with additional distribution resources accessing the intermediate wealth channel, in particular, and the broadening and modernizing of our investment vehicle capabilities with custom credit solutions and model delivery. The asset management landscape remains dynamic, and we are actively exploring opportunities to expand the breadth of our platform. We are looking at a full range of opportunities from individual lift-out to larger acquisitions. Our platform remains differentiated and compelling for great investment talent, and we have more ways to access, resource, support talent than ever before.

I will now turn it over to C.J. to review our recent financial results.

Thanks, Jason. Our complete GAAP and adjusted results are detailed in our earnings release. We exited 2025 with record assets under management, a new all-time high in quarterly revenue and our second highest annual revenues and earnings. As of March 31, 2026, assets under management were $173 billion, down 4% from the December quarter and up 7% year-over-year. Average AUM was $182 billion, up 1% sequentially and up 9% compared to the prior year quarter. While AUM declined sharply in March due to market conditions, it has largely recovered in April, as Jason mentioned.

Revenues were $303 million, down 10% from the December quarter and up 9% compared to the prior year quarter. The sequential decline was primarily due to the expected absence of performance fees as the December quarter included $29 million of performance fees realized across 6 strategies, with the majority of our performance fee opportunities measured and realized annually in that period. In addition, approximately $6 million of the sequential decrease in revenue was due to 2 fewer days in the first quarter of 2026. Our weighted average fee rate for the quarter was 67 basis points, down from the December quarter due to the absence of performance fees.

Adjusted operating expenses increased 4% compared to the December quarter, primarily due to the addition of expenses of Grandview Property Partners, seasonal expenses and the impact of long-term compensation expense. Our full year 2026 expense guidance remains unchanged. Excluding approximately $20 million of incremental fixed expenses related to long-term incentive compensation and Grandview, we continue to expect fixed expenses to increase at low single-digit rate in 2026.

Compared to the prior year quarter, adjusted operating expenses increased 11%, driven primarily by higher variable incentive compensation associated with increased revenues. As a result, adjusted operating income decreased 30% sequentially and increased 6% year-over-year. The decline in margin compared to the prior year quarter was primarily a result of the addition of Grandview results. Adjusted net income per adjusted share declined 31% from the December quarter and increased 5% compared to the prior year quarter, consistent with operating income trends.

In our non-GAAP measures, nonoperating income includes only interest income and expense. While valuation changes in our seed investments impact shareholder economics, we exclude these changes from adjusted results to provide greater transparency into our core operating performance. Our balance sheet remains strong with $271 million in cash. During the first quarter, we redeemed approximately $50 million of seed capital, reducing seed investments on the balance sheet to $110 million. Proceeds from seed capital redemptions are included in cash available for corporate purposes, reinvestment or potential return to shareholders through our year-end special dividend.

Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.77 per share for the March 2026 quarter, representing a 24% decrease from the prior quarter and a 13% increase year-over-year. The sequential decline reflects lower cash generation due primarily to the absence of performance fees and seasonal expense patterns in the first quarter. After funding the quarterly dividend, we retained approximately $150 million of excess capital to support organic growth initiatives, evaluate potential M&A opportunities or return to shareholders.

That concludes my prepared remarks. I will now turn the call back to the operator.

[Operator Instructions] Our first question today comes from Bill Katz from TD Cowen.

So first question, I guess, in your prepared comments, it was also in the commentary yesterday with the release, you mentioned just sort of the equity attrition. I was just wondering where do you think we stand in terms of that reallocation. And then within the $182 billion that you cited -- $184 billion, excuse me, that you cited to last week, maybe frame sort of what you're seeing in terms of that equity attrition.

And then maybe the broader question on the institutional pipeline at large, maybe talk about how that has been reshaped a little bit between EM and credit versus what you might know on the equity side.

Bill, I'll just talk about the equity business for a second. There were 2 really primary drivers. The first one was just the rebalancing that we experienced across the international strategies that we have, given the strength in the EAFE market being up 30% relative to still a relatively strong U.S. market. We experienced it across a number of teams within our International Value franchise, in particular, just given the size and the nature of their business.

As you know, David and the International Value team have been closed for -- soft closed for quite a long time, but he's always been able to manage the capacity and just the flow dynamics to sort of a neutral to a slight forward lean. We would expect that to remain in place. Everything that we have seen in that book of business has been very much rebalance oriented. There hasn't been any termination activity.

The other piece of it is coming from our growth business, which is another obviously large component of our AUM. And when you look at that, there's a lot of underlying dynamics that are occurring. The first one is our global opportunity strategy remains a little bit challenged when it comes to some shorter and intermediate-term performance, and that is causing some headwinds and challenges with some of our institutional relationships globally. But I would point out that there's actually a lot of interesting and important positive developments that are occurring inside of that business.

First and foremost, the franchise fund that we launched about a year or so ago, raised net $400 million in flows in the quarter from a global client that's getting us pretty close to $1 billion in AUM there. The mid-cap growth strategy, which is another large strategy on that team, has seen a very meaningful performance turnaround that began in late '24, really started accelerating into '25, and we're continuing to see it in '26 that we think will continue to help bolster that. And Global Discovery, which is another meaningful opportunity within that franchise, is also seeing really good pipeline activity given their stable and good long-term performance.

And so that's really what we're seeing from an equity perspective. It's been primarily institutionally focused given the rebalance and some of the challenges coming from global opportunities. When you look at emerging markets, we're actually seeing really good opportunities. As you all know, this was an asset class that was left for dead up until 2025. We've seen some really good performance coming from not only the asset class, but importantly from our teams, Sustainable Emerging Markets in particular. The $250 million flow that we saw for the quarter is really -- I think, is the beginning of what should be a good path to being able to crystallize the great performance that the team has been able to put up over the course of the last several quarters. And we would continue to believe that, that will be a good opportunity for us as we look out as it relates to the pipeline.

Okay. And then as a follow-up, so we ended the commentary just in terms of the -- maybe the pipeline for team lift-outs and acquisitions. I appreciate you sort of working on Grandview right now. How does that look today, maybe where you were either a year ago or even last quarter in terms of nature of the pipeline, where it is seasoned and where you're sort of leaning into in terms of incremental opportunity?

Yes. So as I've mentioned in previous calls, our investment strategy group and the broader management team is operating extremely efficiently, not only with the existing platform and franchises, but certainly, we've been working aggressively with the external opportunity set. And there's really 2 areas in particular that we're focused on. It's something that we've talked about for a little while, which is the ability to expand our credit business and our ability to expand our alternatives platform.

There's really good opportunities that we're seeing to expand more traditional credit globally, so much so that we think there's a strong possibility that we could get something done by the end of the year. So we're pretty excited about that. But as I've said in the past, you never say it's done until it's done. And we see strange behavior and activity always happens near the end of the end of the road when we cross that Rubicon, but we still feel very good about where we're at, and we think this will be a big opportunity for our platform.

When you look at the M&A landscape, again, we're seeing a really robust pipeline. It's coming in all the areas that we talked about, differentiated credit, secondaries in both private equity as well as real assets. Private credit, not surprisingly, is becoming incrementally a little bit more interesting. It's an area that we've sort of shied away from given the lack of what we've seen from a cycle perspective. It's hard to tell whether what we're hearing and seeing is truly a cycle or it's just idiosyncratic situations happening, but we're very focused on having good conversations there.

And so I would -- in terms of where the pipeline looks and how it feels relative to past, I think it's incrementally gotten a little bit stronger. And clearly, we feel very good about the forward lean with this opportunity to get something done to globalize credit. And it's also important to point out that we're constantly evaluating and doing a lot of R&D opportunities with our existing businesses. And there are incremental opportunities. There's 2 in particular that we're working through. And if they come to fruition, we think they could be very meaningful and interesting opportunities. But they're still -- it's in the R&D phase. So it's a little early to discuss those.

[Operator Instructions] Our next question comes from John Dunn from Evercore ISI.

I just was wondering, are there any institutional client segments that historically you hadn't done much with that you're targeting now that you have a bunch of newer strategy areas?

I don't think institutionally, John, there's any new client segment that hasn't been tapped or we don't have a really good handle on. I think the majority of where we're seeing opportunity is in the intermediate wealth space. We've built out the platform in terms of the people, the capabilities, both in the U.S. and -- more recently, we've done some recruiting and hiring and onboarding in both the U.K. market as well as the European market and as well as in EMEA that we think will -- and is, frankly, even over the short term, started to yield some interesting results. The intermediate wealth platform being able to have a slight positive flow for the quarter, I think, is a really good indication.

You look at the -- if you sort of break the flow pattern down a little bit between gross in and gross out, it was our second best gross inflow quarter dating back to, I think, the first or second quarter of 2021 when there was a lot of equity activity. And so we feel good that there's a correlation between the quality and the talent that we've brought on and the outcome that we're seeing from an inflow perspective. We obviously have to work through a few of the equity strategies that we talked about from a rebalancing as well as from a performance perspective. But what we're seeing is from an intermediate wealth perspective, it feels very good. And institutionally, we just have to continue to block and tackle with some of our larger relationships.

Got it. And then maybe just on that, is there anything you can point to as far as like line of sight to any larger mandates that might be looking to exit? And just maybe a wraparound of regionally how the institutional side, the things impacting demand in the different regions?

Yes. I don't have a strong perspective when it comes to line of sight. We're heavily engaged with all of our institutional relationships, the teams that sit alongside our investment franchises that service are certainly well equipped to handle and provide us with a little intel. And we just don't see any direct line of sight when it comes to massive outflows or massive inflows. I think it's been just this steady state of let's make sure that we stay close to clients, certainly when performance is a little bit more challenging and continue to build on that relationship, recognizing that we have work to do. Where we have good, strong forward lean when it comes to performance, we're doing our best to lean in there, and we are seeing some green shoots in those areas.

And so it could be a bit of an exchange of kicks where we'll have some attrition in areas where we have some weaker performance. But as I mentioned on my initial commentary, we have some really great capabilities. I'd mentioned Global Value. I'm sure you've seen some of the performance that's coming out of Mark Yockey's group and the Global Equity team, both international and global, our sustainable emerging markets franchise that's getting a lot of looks institutionally as well. And so we feel good about the positioning, recognizing that inevitably, you're always going to have a strategy or 2 that's got a little bit of a challenge, and we're doing our best to maintain our discipline around those strategies.

And with that, we'll be concluding today's question-and-answer session as well as today's conference call. We do thank everyone for attending. Have a pleasant day. You may now disconnect your lines.

Good afternoon, and welcome to the Artisan Partners Asset Management Business Update and Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Artisan Partners Asset Management. Please go ahead.

Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website.

Before we begin today, I would like to remind you that comments made during today's call, including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation.

In addition, some of our remarks today will include references to non-GAAP financial measures. You can find reconciliations of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment service. I will now turn it over to Jason.

Thank you, Ryan, and thank you for joining the call today. Since our founding in 1994, we have steadily expanded our capabilities across equities, credit and most recently, alternatives. We have done this while remaining true to a consistent business philosophy and approach, high value-added investing, a talent-driven business model and thoughtful growth, all in the pursuit of generating and compounding wealth for our clients over the long term.

2025, we generated significant absolute returns for our clients, delivered strong results for our shareholders and continue to expand our multi-asset class platform. Firm-wide asset-weighted investment returns exceeded 20% net of fees. Our investment strategies generated over $33 billion in returns for clients.

Compared to 2024, we grew revenue by 8%, operating income and adjusted operating income by 9% and 12%, respectively, and assets under management by nearly 12%.

Turning to Slide 3. Investment performance remains strong across our platform with 79% of our AUM outperforming benchmarks for the 3-year period, 74% for the 5-year period and 92% for the 10-year period gross of fees. Several strategies generated particularly strong results in 2025.

In equities, six of our strategies generated over 500 basis points of outperformance net of fees, including U.S. Mid-Cap growth, Non-U.S. growth, Global Equity, Global Value, Select Equity and Sustainable Emerging Markets. The Global Equity, Global Value and Select Equity Strategies outperformed their benchmarks by 2,422, 1,188 and 1,175 basis points, respectively, net of fees.

In credit, the emerging markets local opportunity strategy generated a calendar year return of over 24%, 527 basis points above its benchmark net of fees.

In alternatives, credit opportunities returned nearly 8%, global unconstrained returned nearly 12% and Antero Peak returned over 20% each net of fees.

Longer-term performance across our platform is compelling and broad based. All 12 Artisan strategies with track records over 10 years have outperformed their benchmark since inception net of fees. 14 of 17 strategies in equity, 4 of 4 credit strategies and 3 of 5 alternative strategies have outperformed their respective benchmarks since inception net of fees. Trailing 1-year performance has been weighed down by underperformance in two of our largest equity strategies, International Value and Global Opportunities, both of which have very strong long-term track record.

Turning to Slide 4. We ended the year with $180 billion in assets under management, an all-time high at year-end, driven by over $33 billion of investment gains. Our credit platform performed well in 2025. AUM grew by 29% compared to 2024 to $17.9 billion. Net inflows totaled $2.8 billion and organic growth exceeded 20% for the third consecutive year.

Our alternatives platform also experienced healthy growth with AUM growing 20% from 2024 to $4 billion. With strong organic growth in global unconstrained in particular. Our equity platform was impacted by higher-than-expected outflows of $15.6 billion. Outflows were primarily concentrated in global opportunities U.S. mid-cap growth and non-U.S. small-mid growth strategies, driven by challenging short-term performance, changing asset allocation preferences and profit taking on the back of strong long-term performance.

Maintaining and growing AUM in public equities requires differentiated and compelling investment performance, asset allocation demand, the right vehicles and pricing and effective sales and client service. The bar is high, but we believe we can continue to maintain and grow our equity businesses.

In addition, we continue to make meaningful progress towards expanding the breadth of our platforms towards credit and alternatives.

Slide 5 provides an overview of our newest investment franchise, Grandview Property Partners. Grandview is a real estate private equity firm specializing in originating, developing, acquiring and managing middle market properties across the United States and joins Artisan as our 12th autonomous investment franchise.

The Grandview team led by founding partners, Raj Menon, Dean Sotter, Eric Freeman and Jeff Usas has worked together for an average of 22 years. Since forming Grandview Partners in 2018, the team has delivered top quartile results and consistent DPI realization. Grandview's macro-driven investment approach focuses on growth markets supported by shifting demographic trends and regional supply-demand dynamics. Recent funds have emphasized industrial, residential and power land themes.

Grandview has raised three discretionary closed-end drawdown funds and currently manages approximately $880 million in institutional assets across its flagship fund series and co-investment programs. The acquisition of Grandview advances our strategic expansion into alternative investments, establishes a foundation in private real estate and creates new pathways for growth. It also aligns with our long-standing business model, high value-added investing talent-driven and thoughtful growth. We believe we can leverage our institutional and intermediated wealth relationships to further expand and develop Grandview's business. Marketing the team's next fund will be high on the priority list in 2026.

With Grandview's acquisition, we have broadened the ways in which we can partner with and onboard differentiated investment talent. We intend to leverage our enhanced transactional and operational capacity to add additional capabilities across our platform with a disciplined focus on allocating capital towards our highest conviction opportunities. I will now turn it over to C.J. to review our recent financial results.

Thanks, Jason. Our complete GAAP and adjusted results are presented in our earnings release. We are pleased with our financial results for the fourth quarter 2025. Assets under management as of December 31, 2025, were $180 billion, up 12% from year-end 2024. Revenues in the December quarter reached a new all-time high of $336 million, up 11% compared to the September quarter and up 13% compared to the prior year fourth quarter. The December 2025 quarter reflects approximately $29 million of performance fees from six different strategies. Strong relative investment performance in the fourth quarter across three performance fee eligible accounts drove performance fees above our third quarter projections.

As of the end of 2025, approximately 3% of our AUM is subject to performance fee arrangements and the majority of those arrangements are annual fees with measurement dates at the end of December. Our weighted average fee rate for the fourth quarter was 74 basis points, which includes performance fee revenue. Our recurring management fee rate remained consistent with recent quarters.

In the fourth quarter, the Artisan funds completed their annual income and capital gain distributions. Distribution is not reinvested in Artisan funds totaled $1.5 billion for the quarter and $2 billion for the full year. Representing an $800 million increase from 2024. This increase was driven primarily by strong absolute investment performance in our two largest equity mutual funds.

Adjusted operating expenses for the quarter were up 4% compared with the third quarter 2025 and up 7% compared with the fourth quarter 2024, primarily from higher variable incentive compensation expense due to increased revenues.

While total adjusted operating expenses increased, fixed compensation costs for the quarter declined modestly. Long-term incentive compensation expense was lower in the quarter due to the forfeiture of unvested long-term incentive awards associated with a small number of employee departures.

Additionally, we benefited from the quarterly true-up of self-insurance liabilities, which reflected updated estimates.

Adjusted operating income increased 23% compared to both the prior quarter and the same quarter last year. Adjusted operating margin for the quarter was 40.2%, an improvement of 400 basis points from the prior quarter. Adjusted net income per adjusted share was up 24% compared to last quarter and up 20% compared to the fourth quarter of 2024, largely consistent with operating income.

Full year 2025 revenues were up 8% compared to 2024 on higher average AUM. Full year 2025 adjusted operating expenses increased 5% from 2024, primarily from higher incentive compensation on elevated revenues and the impact of the addition of the January 2025 long-term incentive award.

Calculating our non-GAAP measures, nonoperating income includes only interest expense and interest income. As of December 31, we had $152 million of seed capital invested in emerging products. Those investments have produced solid returns.

During the year, we realized $20 million of gains from seed investment redemptions in products that no longer require support from firm capital. Those gains, which are excluded from our non-GAAP earnings, provide capital to support dividends as well as future growth through reinvestment in new products, GP investment in private funds or acquisitions.

Our balance sheet remains a source of strength. We ended the year with approximately $214 million of cash and a conservatively leveraged capital structure at approximately 0.4x leverage. Importantly, our $100 million revolver remains fully undrawn, providing additional liquidity and downside protection. As a result, we are in a position to return capital to shareholders on a consistent and predictable basis while maintaining the flexibility to invest in the business.

Consistent with our dividend policy, the Board declared a quarterly dividend of $1.01 per share with respect to the December 2025 quarter, along with a $0.57 year-end special dividend. In total, dividends declared with respect to 2025 cash generation were $3.87 per share, representing a 98% payout ratio relative to adjusted earnings and an 11% increase versus dividends declared on 2024 cash generation. Year-end special dividend was 14% higher than the prior year, reflecting stronger earnings and cash generation. Based on our stock price on December 31, this equates to a dividend yield of 9.5%.

Importantly, even after funding the quarterly and special dividends and our near-term growth initiatives, including Grandview, we retain approximately $80 million of excess capital to fund organic growth and explore potential M&A opportunities.

Overall, our capital structure is intentionally designed to be durable through market cycles combining strong cash flows and liquidity, modest leverage and a variable cost model that generates attractive margins.

Looking ahead to 2026. Our Board approved the 2026 Annual Long-Term Incentive Award of approximately $72 million, consisting of $51 million of cash-based franchise capital awards and $21 million of restricted stock awards.

Consistent with our long-standing philosophy of retaining investment talent, the vast majority of the awards were awarded to our investment professionals.

The result of the 2026 grant, we expect long-term incentive amortization expense to be approximately $85 million for 2026, excluding mark-to-market impacts. The acquisition of Grandview closed on January 2 is expected to have an immaterial impact on our 2026 earnings. We expect that the acquisition will be mildly accretive to earnings per share after the final closing of Grandview's next flagship closed-end drawdown fund.

Including approximately $20 million of increased fixed expenses from the long-term incentive compensation grant and the addition of Grandview expenses, fixed expenses are expected to increase low single digits in 2026. Low single-digit increase primarily reflects merit-based salary increases and inflationary market data and technology costs.

As a reminder, we estimate our fixed compensation and benefits expenses will be approximately $6 million higher in the first quarter of 2026 compared to the fourth quarter of 2025.

In closing, we believe our long-standing investment-led culture, disciplined allocation of resources and capital and expanding multi-asset platform positions us well to continue to compound wealth for our clients and shareholders over the long term. I will now turn the call back to the operator.

[Operator Instructions] The first question comes from Bill Katz with TD Cowen.

Okay. So maybe all things grand view to get started. There's probably a cluster of questions here, maybe accounts for my first question, so if you don't mind.

One, the AUM was a fairly lower level than I think maybe many of us were anticipating. I appreciate the close earlier. Maybe you could sort of explain why that happened?

And then secondly, as you mentioned in terms of the accretion guidance looking ahead, how do we think about maybe the timeline for the next flagship fund? And maybe what was the previous size of the fund as we can sort of try to lay that through our models.

Bill, I'll start. The AUM was down because in the fourth quarter, there were some realizations on some properties in the first fund, the Grandview Fund I, which is fully invested in the harvesting phase. So there were realized gains as well as distributions out to LPs, which is a good thing.

And Bill, on your question regarding Fund III. Fund III was about $150 million in raised out and committed assets. They're almost through the investment period there. And so that's obviously a lower bar than what we're certainly expecting in Fund IV, which we're going to be actively pursuing, as I mentioned in our prepared commentary, this will very much be a goal of ours -- a top priority of the management teams as well as Grand Views to build out Fund IV, which we're effectively launching as we speak. And so we expect that to build throughout the course of the year.

We hope to have a first close sometime in the early to mid part of the summer which will be a good indication as to how we're tracking. But we do expect it to be significantly higher than their last fund launch, which was Fund III.

Great. And then just sticking with -- I was encouraged by some of your comments in the press release and in your prepared commentary. I was just sort of leaning into the M&A opportunity. I was wondering if you could maybe expand on your commentary a little bit, just sort of where you're seeing the greatest receptivity? How is the portfolio potentially seasoning of maybe 3 months ago?

And then just given just everything that's going on in the market, how are you sort of seeing like the bid-ask spread on expectations around purchase price?

Yes. So maybe I'll just talk a little bit about the future pipeline. There's a couple of things that I would highlight. We're clearly not exclusively focused on M&A. We're really letting the talent drive the outcome here. And certainly, there's asset classes where we have a an emphasis in terms of where we're seeking opportunity. And I would continue to focus on the areas that you would expect private credit is one where we've been reasonably active both in the form of lift out and the potential for M&A.

Private equity in the form of secondaries has been an area that we remain pretty active. We've seen some really interesting idiosyncratic opportunities within equity that has more recently come back.

This is one in particular that we've been talking about 5 or 6 years ago, we were very excited about. There was a little bit of a hesitation, I think, more on their part just due to where they were in their career and what they wanted to achieve and get accomplished before they did something more entrepreneurial, but we're now engaged with them, and we're talking.

And another one in particular that is interesting is just the potential to broaden out our credit platform, not necessarily just purely in private, but also on the public side as well as the hybrid side.

I would go back to some of the comments I made around Grandview and most of their transactions are off market. And I think that what we saw with Grandview, which was an off-market transaction. I think that, that will continue to be a more fertile hunting ground for us. The transactions that are being shown and prominently shopped, are hard for us to really get excited about. Those tend to be more about dollars and cents as opposed to investments, and we really need to just stay true to who we are and focus on the investment side.

But the other -- the last thing I would say about the pipeline, and it goes back to Grandview, we're excited about Grandview for all of the reasons we're excited about the prior 11 teams. And what's great about Grandview is they already are a fully functioning investment platform. It's not like we have to build something. The foundation has been laid. The team has been working together for 20-plus years. They have had great deal of investment success. And so it's really up to us to collectively work with them to build in some and layer in some growth.

And so that's different from when you go into a lift out where you have to really drop all your pencils and really focus on everything that's required to make a team successful. And so while we're still going to be there and do that, I think there's less that's required of the middle of the firm, given that this is a team that's operating at a high level already.

The next question comes from Alex Blostein with Goldman Sachs.

This is Anthony on for Alex. Maybe just one 2-part question on the international value strategy. So this has been kind of one of the top flowing strategies at APAM for a while now, yet we saw another quarter of elevated outflows despite what seems like an industry kind of rotation out of growth and into value. So what's driving this recent weakness? And how have you seen kind of client demand change recently?

Yes. I don't -- Anthony, it's Jason. I wouldn't put too much emphasis on the elevation of the outflows. I think it's primarily due to the fact that David and the team have just continued to deliver really exceptional absolute returns even in the face of a challenging market for them. They continue to produce great absolute returns with a slight relative headwind.

So we haven't seen anything notable or in particular that gives us pause or concern -- or certainly, David and the team. There's been some institutional reductions just largely due to the impact of the equities book of several of our clients just outperforming. And so we're getting a little bit of that rebalanced flow that you naturally expect. And we would expect some of that to continue to happen throughout the course of the first quarter in light of how strong markets were globally, especially ex U.S. So that's there's nothing that we're seeing in the trends or there's nothing underlying that we -- that gives us concern or something that suggests that there's an issue on the horizon.

The next question comes from John Dunn with Evercore ISI.

I wanted to maybe get an update on what you're seeing as far as interest in and demand for non-U.S. strategies just given what a contributor is to your AUM base?

Yes. John, yes, it's a good question. I'd say there's probably four -- there's really four areas that I think there's going to be some interesting opportunities for our platform. And I think they aligned directly to your question. So right now, I think our AUM is 70% ex U.S., plus or minus a few percent.

And when you think about the big trends that we're seeing, number one, we think there's a reemergence of emerging markets allocations coming on the horizon. We spoke about something last quarter, which was we were aligning some sales efforts and some sales focus and running a campaign specifically in emerging markets. And while it was early days and it remains extremely early days, we're seeing some green shoots and some direct allocations coming out of that effort. I think we raised north of $1 billion in the 5-ish plus months that we enacted that campaign with -- we have four very distinct strategies that are able to capture that, and all four of them had over $100 million in net flows over that very short period of time.

We fully expect that, that campaign will be in force throughout 2026 as we see the pipeline grow and build. And so we're very much excited about that area, in particular, you rightly point out the international markets.

And I would expand that out to global as well. I think a lot of people don't want to give up the ghost on U.S. and the beauty of global clearly gives you the ability to toggle between U.S. and non-U.S. And we've had a great deal of success in our global franchises. So global value, as I've mentioned in my prepared comments, has just shot the lights out performance-wise our global equity team with Mark Yockey also had an outstanding year. They -- I think they produced a 47% return in their global equity strategy.

And then underneath that, we also have some international capabilities that we're excited about. Mark Yockey, again, produced a really outstanding return in 2025, which is on the heels of outstanding returns in prior years as well. And so his record is really compelling. We're starting to see some real activity in that strategy as well.

And so we think the engagement in international will remain elevated, and we expect that several of our strategies will be aligned to at least have conversations with the clients about the benefits of how they operate in those markets.

Some that are maybe a little less aligned to your question, but still relevant to, I think, the trends that we're seeing in our conversations, we still think that there's a long way to go in credit. And you're seeing that in all of our areas where we have exposure. So the high income team with Bryan Krug and his -- the development of custom credit solutions, we've seen significant uptake in interest from our institutional marketplace where they're really designing a bespoke solution around a specific need, and Bryan is able to accommodate those. So we're seeing really good uptake there.

One thing that's been sort of flying a little bit under the radar screen for quite a long time, but we're starting to see some uptake as well as our -- we have a floating rate fund that is top quartile on a 1-year, top quartile on a 3-year that's being run out of Bryan's franchise. We're starting to see some interesting opportunities coming from that.

And then when you look at the cross-section of emerging markets and credit with our EMsights team, they're firing on all cylinders, emerging market debt opportunities, emerging market local opportunities continuing to really deliver outcomes to the upside, both in absolute as well as excess returns. And so they're at the intersection of a couple of interesting themes for us.

And then lastly, something that we've talked about for quite a while, which is alternatives. Certainly, Grandview is going to play a very important current and future role in the growth and development of our alternatives platform.

And then when you think about what's going on, again EMsights as well as in our high income team. EMsights, the global unconstrained strategy through the end of the year, I think we raised about $500 million or $600 million in assets. And this, again, is a top quartile performer with a very, very differentiated return profile that people are really -- it's really resonating with our intermediate wealth space as well as our institutional space.

And then lastly, credit opportunities, which I cited as a really strong performer over a multiyear time horizon is continuing to see incremental flows, which we would expect to continue in 2026.

Got it. And then maybe just because it's been a swing factor for flows lately. Maybe could you just give us kind of the puts and takes looking forward the institutional side, particularly by region?

Yes. I think institutionally, we're -- if you look at the regions, I'd say where we're probably a little bit more of a little bit more at risk has probably been more in Europe in light of some of the regulatory changes that we've talked about for quite a while. We talked about it in Australia, and it sort of impacted a couple of countries in Europe as well the combination of some of the regulatory changes that are occurring, some short-term performance where -- that is where we have a lot of global exposure, specifically with our growth team and global opportunities.

There's going to be, I think, a little bit more of a challenge in that region, specifically because of that. where clients are reallocating the active passive debate rages and then you've got that regulatory overhang is -- causes it to be a little bit more challenging. But institutionally in the U.S. marketplace, we are still continuing to see pretty good opportunities, and it's going to -- it's coming in our emerging markets franchises as well as in our credit franchises. So there's to your point, there's going to be some puts and takes. So it's going to be hard to tell exactly where it all shakes out. But I'd say U.S. is probably a little bit more favorable in that regard institutionally relative to non-U.S.

[Operator Instructions] This concludes our question-and-answer session and the Artisan Partners Asset Management Business Update and Fourth Quarter 2025 Earnings Call. Thank you. You may now disconnect.

Good day, and welcome to the Artisan Partners Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Brennan Hughes. Please go ahead.

Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Jason Gottlieb, CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions. Our latest results and investor presentation are available on the Investor Relations section of our website.

Before we begin today, I would like to remind you that comments made during today's call including responses to questions, may include forward-looking statements. These are subject to known and unknown risks and uncertainties, including, but not limited to, the factors set forth in our earnings release and detailed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those disclosed in the statement, and we assume no obligation to update or revise any of these statements following the presentation.

In addition, some of our remarks today will include references to non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable GAAP measures in the earnings release and supplemental materials, which can be found on our Investor Relations website. Also, please note that nothing on this call constitutes an offer or solicitation to purchase or sell an interest in any Artisan investment product or a recommendation for any investment services.

I will now turn it over to Jason.

Thank you, Brennan, and thank you for joining the call today. Our purpose is to generate and compound wealth for our clients over the long term. We do so by maintaining an ideal home for investment talent, providing a unique combination of autonomy, degrees of freedom, resources and support. Our goal is to be one of the world's preeminent multi-asset class investment platforms. Over our history, we have steadily expanded our capabilities across equities, credit and alternatives. While doing so, we have maintained our focus on investment and business results and delivered for our clients and shareholders.

Turning to Slide 3. Investment performance remained strong across our platform with over 70% of our AUM outperforming their benchmarks for periods over 3 years. All 12 Artisan strategies with track records over 10 years have outperformed their benchmarks since inception. These 12 strategies have compounded capital at average annual rates of return from nearly 6% to over 13% net of fees. They have outperformed their benchmarks by an average of 243 basis points annually. On a shorter-term basis, several strategies have generated exceptional results, highlighting the breadth and diversity of our platform.

In equities, the sustainable emerging markets, non-U.S. growth, global value and franchise strategies have all generated year-to-date returns of more than 20% with outperformance ranging from 425 to 934 basis points net of fees. In credit, the emerging markets local opportunity strategy has generated a year-to-date return of over 19%, 373 basis points above its benchmark. In alternatives, both credit opportunities and global unconstrained have generated absolute returns in excess of 8%, and Antero Peak has generated year-to-date returns of almost 21%.

Across the broader platform, trailing 1-year performance has been weighed down by underperformance in several of our largest equity strategies, including international value and global opportunities, both of which have very strong long-term track records.

Turning to Slide 4. Strong markets and investment performance drove our assets under management to $181.3 billion, an all-time high at quarter end. Firm-wide net outflows this year and in the third quarter are primarily a result of outflows from a handful of equity strategies that continue to experience rebalancing in up markets and to a lesser extent, client terminations. Those outflows mask a lot of very positive business development initiatives across the platform. Year-to-date, we have net inflows in 14 of our 26 investment strategies. Both Select Equity and International Explorer strategies funded large new mandates in the third quarter. Each strategy is now approaching $1 billion in AUM, 5 years from launch in 2020.

We have continued our multiyear success in growing our credit business with $1.8 billion in year-to-date net inflows. The third quarter represents the 13th consecutive quarter of positive credit flows.

In alternatives, we have raised $336 million this year for global unconstrained strategy, and we continue to build the pipeline for the credit opportunity strategy.

Lastly, we have been executing a focused campaign to raise assets across our emerging market strategies. Each of sustainable emerging markets, developing world, emerging markets local opportunities and emerging markets debt opportunities has net inflows for the year, and demand continues to grow across these EM strategies. These positive areas validate our strategy and give us the conviction we are growing the platform in line with long-term demand from both institutional and intermediate wealth clients.

Ultimately, though, we need to sell more and lose less. And we continue to develop and reorient our distribution function in order to do so.

Slide 5 highlights our methodical approach to expanding our platform with new talent and investment capabilities. These efforts take shape internally through dialogue with existing investment teams to identify new areas for growth. Recent outcomes include the global special situation strategy within the International Value Group, custom credit solutions with the credit team and the franchise strategy we launched earlier this year with the growth team. We also maintain a regular dialogue with external talent interested in joining the Artisan platform to build differentiated and enduring investment franchises.

Recent external engagement has focused on real estate, private credit and secondaries. We believe these capabilities would be a natural extension for our platform and are at the intersection of differentiated talent, large investment opportunity sets and long-term commercial demand. We are currently working on a number of internal and external opportunities and are excited to execute on some of these to further evolve and expand our multi-asset class platform.

I will now turn it over to C.J. to review our recent financial results.

Thanks, Jason. Our complete GAAP and adjusted results are presented in our earnings release. We are pleased with our financial results for the third quarter. Revenue growth fueled by strong market conditions and lower fixed expenses led to margin expansion of 450 basis points and a 23% increase in earnings compared to the second quarter of 2025.

Revenues for the quarter were up 7% compared to the June quarter and up 8% compared to the prior year of third quarter. Adjusted operating expenses for the quarter were down slightly from the second quarter of 2025, primarily from the absence of $2.4 million of costs associated with the closure of China Post-Venture strategy in the second quarter. Compared to the same quarter last year, adjusted operating costs were up 6%, primarily from higher variable incentive compensation expense due to increased revenues.

Adjusted operating income increased 22% compared to the prior quarter and 12% compared to the same quarter last year. Adjusted net income per adjusted share was up 23% compared to last quarter and up 11% compared to the third quarter of 2024, consistent with operating income. Year-to-date, 2025 revenues were up 6% compared to the first 9 months of 2024 on higher average AUM. Year-to-date, adjusted operating expenses increased 5% from 2024, primarily from higher incentive compensation on elevated revenues and the impact of the addition of the January 2025 long-term incentive award.

Calculating our non-GAAP measures, nonoperating income includes only interest expense and interest income. Although valuation changes on our seed investments impact shareholder economics, we fully exclude these valuation changes from our adjusted results to provide transparency into our core business operations.

Turning to Slide 9. Our balance sheet remains strong with $300 million of cash on hand and $140 million of firm seed investments in emerging strategies and vehicles to support future growth. As strategies reach scale and our seed investments are redeemed, any redemption amounts realized are included in the cash available for corporate purposes, seed investments or as in addition to our year-end special dividend.

During the quarter, we completed the closing of $50 million of new private placement debt on August 15, 2025. We used the proceeds from the new debt along with cash on hand to retire the $60 million of debt that matured in August 2025. In addition, our $100 million revolving credit facility remains unused.

We continue to return capital to shareholders on a consistent and predictable basis. Consistent with our dividend policy, our Board of Directors declared a quarterly dividend of $0.88 per share with respect to the September 2025 quarter, a 21% increase over the prior quarter. Looking ahead, as a reminder, the fourth quarter includes the annual mutual fund distribution related to incoming capital gains. We anticipate approximately $900 million of those distributions will not be reinvested.

Fourth quarter also represents the quarter in which we have the largest opportunity to realize performance fees. The measurement period for those fee opportunities is December 31. Approximately 3% of our AUM has a performance fee component. Last year's fourth quarter included approximately $17 million of performance fees. We are currently projecting total performance fees similar to what we generated in 2024, but all such fees will remain subject to market and performance conditions through the end of the year.

That concludes my prepared remarks, and I will now turn the call back to the operator.

[Operator Instructions] And the first question comes from John Dunn with Evercore.

First question was just on this idea that there's growing demand for non-U.S. strategies. Maybe could you just give a flavor of regionally where the demand is and what strategy demands are? Like is it finally emerging markets? Or developed markets? Just a little more flavor on that.

Yes. It's Jason. I can provide a little bit more flavor. I'd categorize it in 3 specific areas. The first one is in global mandates, and we're seeing that in both global value and to a lesser extent, in global opportunities, where we have large institutional clients across both European and U.S. markets that are interested in global, just gaining access through a slightly more asset allocated opportunity. The second is both in the intermediate wealth and in the institutional bucket for direct international equity exposure. We've seen a pretty meaningful uptick in the number of inquiries coming specifically in areas like our global equity franchise run by Mark Yockey. We're seeing really good interest there, largely because not only the asset allocation mismatch that I think we're seeing across asset allocations, but market has produced just phenomenal and outstanding results. For the year, I believe, is up about 900 basis points through Q3 and his international strategy.

But if you look over the longer term, the numbers are quite compelling on both the benchmark relative as well as on a peer-relative basis. And we're also seeing a lot of interest from the emerging market side, both in credit as well as in equity. So our Developing World team and our Sustainable Emerging Markets team both had positive flows for the quarter and for the year. And there's just general broad renewed interest. Again, this is across both intermediate, wealth and institutional, where probably no less than 18 months ago, everybody was talking about the depth of emerging markets, there was cuts to asset allocations, and now we're just seeing that being revitalized. And you combine that with the fact that a couple of our large peers and competitors have made substantial portfolio management changes.

So there's just a lot of money in motion. There's a lot of activity. And we think that we've got 2 world-class franchises that are able to capitalize that. And we're seeing the green shoots in terms of both flows, but importantly, their performance remains quite strong in both of those -- both of those areas.

Got you. And then maybe just on the M&A front. You mentioned the 3 areas you've been looking at recently. Could you maybe size kind of like how much you'd be able to allocate to something like that from a team [indiscernible] maybe something more substantial? How much could you perhaps put to work? And then just your philosophy on the consideration, would you do a stock deal? Or might you consider putting on some leverage to do that?

Yes. We're certainly very active in those 3 areas. And I'd highlight the slide, I believe it's Slide 5 in the material, where you can see we've taken about 400 meetings over the last 5 years. Our Investment Strategy group has been extremely busy. You can also see at the bottom, we haven't been terribly prolific. We've only added one team over that last 5-year period. But we have been very, very deep in the weeds with a number of really interesting opportunities. And I would say our pipeline has largely been homegrown. This isn't areas where we're seeing interesting things from bankers. We're really doing this on a bottom-up basis, which has always been the hallmark of how Artisan has identified great talent.

And so when you think about those 3 areas, the one that probably comes most to mind in terms of our activity levels has been in the area of real estate. And I harken back to a call -- a quarterly call about 4 or 5 quarters ago, where we talked a little bit more about how close we were with one opportunity in particular. That clearly didn't come to fruition, but we're also back in at a point where we're seeing really good upside and opportunity from another opportunity, specifically in real estate. But I think it's also important to reinforce that what we did say and we will continue to say is that the M&A opportunities that we're going to look at are not going to be transformative. We're going to look at things that are going to keep us true to who we are, build around a really exciting and talented group or individual, resource them, make sure that we have an alignment from a business mindset, and grow it.

And in alternatives, that's going to require from time to time, considering M&A and upfront consideration and then trying to align on the back end. We don't have a one size fits all. We obviously want to make sure that we look at talent first and then make the determination around what the consideration is going to look like. But I just really want to point out that it's -- none of these are going to be transformative at least the early ones, we really just want to stay true. And we think we can align the M&A model very much to how we think about lift-outs. And so you'll hear and you'll see that if we, in fact, do a transaction. We would consider any and all alternatives when it comes to M&A, whether it be stock, additional leverage or just cash. I think given the size of the opportunities that we're looking at, cash is probably the most prevalent source of opportunity when thinking about these.

Our next question comes from Bill Katz with TD Cowen.

Just, Jason, you mentioned that you're focused on trying to improve the gross flows and stem the redemptions and it seems like you have a lot of really good things happening here, but the gross flow has been persistently flattish. Can you talk a little bit about some of the efforts you are doing to sort of redesign or amplify the opportunity set? And then within that, you've also mentioned that you continue to reorient distribution. Maybe just give us an update on what you're doing incrementally just to try and better map for the opportunity to grow it?

Yes. Maybe the latter first. When it comes to distribution, I think there's a couple of things that we've talked about. And as you know, Bill, some of these things take a little time to really germinate and to see the benefits of. But the first one is we've been working with our model to just align compensation to more of a sales orientation and less of a service orientation. We've also been recruiting and hiring people. So if you think about our intermediate wealth and within that, we have an intermediary business that's facing off against RIAs, multifamily, single-family offices, et cetera.

And we had about 10 people on the field, and we've been working really aggressively to sort of double that, and we're sort of where we need to be there. But you got to take the time to enculturate the individuals, make sure that they understand the philosophy, the process, the people. And we're starting to see some green shoots with the individuals that we brought on to the platform. And so we're excited to see some leverage and some opportunity there. Also, we're looking at growing out and expanding our regional footprint. So we haven't done a tremendous amount within the U.K. wealth market. And we would expect to have some people really targeting that area of the market, which we think is a really interesting and untapped opportunity. And at some point in the not-too-distant future, we would expect to have additional resources aligned to the Middle East, which we think is a big and broadening opportunity.

And so that's one piece of it. I think the other piece is within our distribution efforts, we are really building out our capabilities around capital formation and having a team really dedicated to help identify and leverage the opportunity set across both intermediate wealth as well as the institutional channel. And those are very deliberate campaigns that we're running. You're hearing and probably heard a little bit about that in our commentary around emerging markets, where we've faced off resources against the opportunity set, and we're starting to see the fruits of that. It's a very, very early campaign. I believe we began that in late August. And I think for the quarter, we had about $400 million in gross inflows just off of that campaign. So early days, but we're also seeing early opportunity there.

And then one of the things that we've been talking a lot about internally, and we're beginning to execute on is the modernization of our vehicle lineup. We've always been vehicle agnostic, being able to utilize our IP in wrappers that make sense for our business. We're seeing an evolution of our client base and their preferences, and we need to evolve with those preferences. And we're certainly working our way towards that evolution, and that can come in many different forms, models, SMAs, ETFs, semi-liquid funds as well as private funds. And so you'll see more and more of that to be a little bit more forward lean when it comes to just the vehicle of choice.

Great. Just a follow-up, just to come back to your conversation, and I sort of appreciate Slide 5, so thank you for that. You sort of mentioned both internal and external opportunities. Could you bifurcate a little bit like where you see the internal opportunity set? Like when I think of real estate, secondaries and private credit, I don't automatically think of Artisan. So no offense intended by that. So I'm just trying to think about what your existing team could sort of transition into versus what you'd have to look out -- look for externally?

Yes, it's a good question. The private credit is clearly a natural extension. You've -- Bryan has done a tremendous amount to -- he does a lot of work across both the private markets and the public markets. And I think where he is and with his franchise and with the depth and the quality of this team, that would be a natural evolution point for our private credit platform, if we so desire to go in there. Bryan has and sources opportunities, the credits that he's looking at are looking at it both from a public market perspective and from a private market perspective. They're just looking for where they can get the best opportunity. And so he's very much in the mix on a lot of the pricing and deal activity across those markets, and they seem to be converging.

And so it's obviously a prime opportunity if we decide to move in that direction to leverage Bryan, his brand, his platform and his performance in that regard. You're certainly right. I think private real estate is clearly one where if we were to go and do something, it would be from an external perspective.

I think in private equity, there's a couple of teams that we could work with. I think our growth franchise has the depth and the skill to be able to go a little bit more into late-stage opportunities and potentially do something in a hybrid structure. But those are really opportunities that we were very early in conversations on. Frankly, private equity in general is just pure buyout or middle market is relatively difficult for us because we just don't know from a competitive standpoint, if we're really the -- in the right spot, that's why we've really focused on secondaries, which again would require us to likely go outside of the firm if we were to do something. And the pipeline really has been stacked in a way to align to that.

So I'd say private equity secondaries has been a really strong area of interest for us, and we're seeing a lot of great talent. Real estate externally has and continues to be a really strong pipeline of opportunity. And private credit, probably a little less so. It's been more idiosyncratic, but we're not actively trying to pursue opportunities because we think the opportunity set might be right in front of us on our platform.

And the next question comes from Kenneth Lee with RBC Capital Markets.

Just around the third quarter, you mentioned in the prepared remarks seeing some client rebalancing activity. I wonder if you could just give a little bit more color around that? What sort of trends are you seeing around that area?

Yes. We could just dive in a little bit. So in Q3, we had 3 pretty big rebalances within our intermediate wealth space, and these were -- they impacted a couple of teams, international value, international small mid in particular, where clearly, the performance remains quite strong. These were in no way, shape or form terminations. They were just reductions in the overall exposure.

One of the things that we found and we're excited about is that within the intermediate wealth space, the folks that we're talking with are highly sophisticated, and they run very similar models to what you think of a very large pension or institution would be running. So there's pretty frequent rebalances. And given the size of the programs that we're in, the models that they're running, it's not to be unexpected. We're in a high-class problem environment when it comes to our equity business. They're producing phenomenal returns over a short, intermediate and long periods of time, which in and of itself means that we're going to be a right candidate for rebalancing. And certainly, Q3 was no different in that regard.

And then the one area where we did see a termination was a relatively small one, but again, it's a little bit more idiosyncratic. It's more idiosyncratic due to the market. It was an Australian client. As we have talked about on past calls, the Australian market from a regulatory perspective has forced a lot of people to reevaluate their allocations to active management, ultimately favoring passive management and just in-house strategies. And so that was a bit of a continuation there, but nothing that we could say was specific to the Artisan platform.

Got you. Very helpful there. And just one follow-up, if I may. In terms of the expenses, wondering if there's any kind of updated outlook over the near term around expenses?

Ken, it's C.J. I would just note that I think back in the beginning of the year, and I've confirmed, we thought we'd be around mid-single digits for fixed expense growth for the year. We're tracking there maybe slightly a little bit better. We're in the process of looking forward to 2026 budgeting. So I don't really have any updates there. But as we mentioned, we've been very disciplined on expenses in 2025 after a couple of years of -- strong years of headcount growth and building out distribution operations, adding capabilities to grow in the areas that Jason has spoken about. So I don't expect anything unusual moving forward and the guidance that we gave for 2025 still stands, might come in a tad better.

And this concludes the question-and-answer session as well as the event. Thank you for attending today's presentation. You may now disconnect your lines.