uw-milwaukee cfa competition paper

CFA Institute Research Challenge

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1

Bear Base Bull P/E P/S

$24.14 $31.84 $41.66 $29.98 $25.80

Valuation Results

DCF Results Summary Relative Summary

5 Year

Current High Low Avg

P/E (LTM) 15.6 136.8 14.8 56.3

P/E (NTM) 12.8 21.4 11.3 16.1

PEG (NTM) 1.7 2.1 0.8 1.2

P/Bk 18.5 528.7 16.8 97.4

P/CF 3.0 29.0 2.8 8.5

P/Sales 1.3 6.6 1.0 1.8

Div Yld 7.8% 8.4% 0.0% 2.8%

Valuation Summary

Fund Status Current AUM (Mil.)

Global Equity Team

Non-U.S. Growth Closed 30187

Non-U.S. Small Cap Growth Closed 1323

Global Equity Team Open 786

Global Small Cap Open 138

U.S. Value Team

U.S. Mid-Cap Value* Closed 7959

Growth Team

U.S. Mid- Cap Growth Closed 15103

U.S. Small Cap Growth Closed 2270

Global Opportunities Strategy Open 7556

Global Value

Non-U.S. Value Closed 16257

Global Value Open 13925

Emerging Markets

Emerging Markets Open 571

Credit Team

High Income Open 989

Developing World

Developing World Open 374

Total 99848

*Closed to new investors as of February 1st, 2016

Artisan Partners Product Summary

Artisan Partners Asset Management

Ticker: APAM

Exchange: NYSE

Market Cap: 1,181

Sector: Financial

Industry: Asset Management

Current Price: $29.98 (1/29/16)

Target Price: $29.00 (3% downside)

Highlights

We initiate coverage on Artisan Partners Asset Management (APAM) with a

SELL recommendation based on a one-year target price of $29.00 from a

price of $29.98 as of January 29, 2016.

Sell Thesis:

Artisan trades at premium P/E and P/S multiples compared to other equity

based asset managers. We believe Artisan does not justify higher multiples

because of declining growth due to a large percent of funds closed to new

investors, declining performance, higher than average fees, and a relative

lack of investment in marketing and distribution. We project margins to

decrease due to lower revenue from declining assets under management and

a more lucrative compensation structure than peers. Finally, Artisan

possesses more risk than peers due to higher leverage and a lack of product

diversification.

Recommendation: SELL

Driver Preview

Industry

Increasing competition from passive strategies are beginning to

compress the fees active managers are able to charge

Growth opportunities include alternative investments and international

exposure

Company

Worsening performance relative to peers will affect APAM’s ability to

attract and retain assets

Limited growth opportunities; 75% of AUM resides in closed funds

Lack of investment in sales and distribution will inhibit net inflows

2

Source: Company Data

Business Description

Founded in 1994, Artisan Partners Asset Management (APAM) is a boutique investment

management firm with approximately $97B in assets under management (AUM) (Figure 1).

AUM grew at a CAGR of 18% from 2009 – 2014; the S&P 500 grew at a CAGR of 13%

during the same time period. As of September 30, 2015, APAM offered 15 actively-managed

investment strategies, overseen by six independent investment teams (Figure 2). (Appendix

A-U). Investment teams are autonomous from the day-to-day business operations and each

other. APAM believes this unique structure elevates investment results through the

promotion of original and independent investment ideas.

Products

APAM’s product offerings consist of 14 long-equity strategies and one fixed income

strategy; approximately 99% of its AUM is in long-equity holdings. Strategies are composed

of domestic and international securities. As of December 31, 2014, approximately 45% of

APAM’s AUM was invested in securities of non-U.S companies. In addition, approximately

42% of its AUM was invested in securities denominated in currencies other than the U.S

dollar. Currently, 59% of APAM’s funds are closed to most new investors and client

relationships. APAM will be closing its non-U.S. Growth strategy as of February 2016,

resulting in 72% of its AUM being closed (Appendix V).

Performance

Strong performance relative to peers is often necessary to attract & retain AUM. The

performance of APAM’s mutual funds has been declining relative to its peers on a five, three,

and one year basis (Figure 3). The alpha generation of the funds has been deteriorating in a

similar fashion (Figure 3).

Product Types

APAM provides two investment types as a median for clients to access its investment teams:

mutual funds (55% of AUM) and separate accounts (45% of AUM) (Figure 4). Separate

accounts are utilized by institutions and high net worth clients and tend to have lower fees.

Separate accounts tend to have a longer average duration than fund holdings. Artisan’s

mutual fund offerings include Artisan Funds and Artisan Global Funds. Artisan Funds is

available to domestic clients and Artisan Global Funds is available to investors abroad.

Unlike some mutual funds, investors are not required to pay 12b-1 fees, which are annual

marketing or distribution expenses charged to clients. Assets in the Artisan funds paid a

weighted average fee of 93 basis points for the three months ended September 30, 2015.

Assets in separate accounts paid a weighted average of 54 basis points.

Distribution Channels

APAM reaches its client base through all major distribution mediums, including institutional,

intermediary, and retail channels. The institutional channel includes traditional institutional

clients and is offered directly to clients and the investment consultants that advise them.

Intermediary channel clients include major brokerage firms, larger private banks, and

financial advisory firms. Intermediaries aim to offer “best-in-breed” funds; best-in breed

includes funds with strong relative performance and comprehensive customer service and

support. Retail investors can invest through mutual fund supermarkets and also prefer best-

in-breed products. Rankings from firms such as Morningstar and Lipper are often used to

identify such funds.

Ownership Structure

IPO Reorganization

APAM completed its initial public offering in March 2013, resulting in it becoming the sole

general partner of Artisan Partners Holdings, LP. Artisan Partners Holdings is the holding

company for the business operations of APAM; all revenue and expenses flow through it. As

sole general partner of Artisan Partner Holdings, APAM is responsible for all business

decisions, subject to voting rights of limited partners. Net profits and losses are allocated

based on ownership units of Artisan Partners Holding (Appendix AC).

Global Equity

Team

31%

Growth Team

24%

Global Value

Team

31%

U.S. Value

Team

12%

Emerging

Markets Team

1% Credit Team

1%

Developing

World

Team

0%

Figure 2: APAM Investment Teams by AUM


Figure 3: Performance (L) and Alpha Generation (R) Trends

80%

48% 45%

1.35%

-0.15% -0.28% -50%

0%

50%

100%

150%

5 Year 3 Year 1 Year

% of APAM Mutal Funds in the Top 50% of Performance

Weighted Average Alpha Generation


74,334

7,178

23,965

105,477

787

1,651

107,915

(3,833)

(7,114)

96,968

60,000

70,000

80,000

90,000

100,000

110,000

120,000

Beg

. A

UM

Net

Flo

ws

Mar

ket

Ap

pre

ciat

ion

Beg

. A

UM

Net

Flo

ws

Mar

ket

Ap

pre

ciat

ion

Beg

. A

UM

Net

Flo

ws

Mar

ket

Dep

reci

atio

n

Q3 E

nd

. A

UM

2013 2014 2015

Figure 1: APAM AUM 2013-2015


3

Associated Risks

APAM’s ownership structure is unique to the asset management industry and presents risks

unrelated to its business operations. Associated risks include: approximately 69% of the

voting power allocated to a “stockholders committee” consisting of Eric Colson (CEO),

Charles Daley (CFO), and Gregory Ramirez (Senior VP), the stockholders committee

influence on dividend policy, and taxation issues due to the partnership status of Artisan

Partner Holdings.

Industry Overview and Competitive Positioning

In the asset management industry, revenue is derived primarily from management fees

generated as a percentage of AUM. As a result, changes in AUM or fee structures will

significantly impact a firm’s future revenues. Other components of revenue include: net

flows, market returns, distribution, and product mix.

Fees and Trend Towards Passive Management

Fee Structure

In accordance with the industry, Artisan Partners derives approximately 99% of its

revenue from management fees. In 2014, APAM’s mutual funds had an average

weighted fee of 93 basis points, which is 8% higher than the industry average of 86

basis points. Furthermore, the average weighted prospectus fee of Artisan’s funds is

1.19%. According to a 2015 Morningstar study, 91% of all investor assets were held in

funds with an expense ratio less than 1.19%. Clients who invest their assets at such a

significant premium will expect APAM to continuously outperform its peers.

Passive Management

An industry trend that has been developing over the past decade has been the growth of

low-fee, passive management strategies. During a period of high market growth, it is

extremely difficult for an active management strategy to beat the market. According to

a study published on CNN, 86% of active large-cap fund managers failed to beat their

benchmarks in 2014. A study conducted by Morningstar showed that only 18% of

active large-cap funds beat the market on a 10-year basis at the end of 2014. Although

actively managed funds have continuously underperformed their passive benchmarks

over longer time horizons, they still charge a significant premium. Passively managed

products charge a smaller fee because investors are not paying for added alpha

generation. In addition to lower fees, passive management strategies have become more

attractive recently due to broadening product offerings and expanding distribution

opportunities. If this trend continues, the asset management industry should see

consolidation among firms. However, the few remaining actively managed funds that

are able to consistently beat the returns of the market will benefit as other firms exit.

Fee compression

As investors switch to passively managed products which offer lower fees, active fund

managers have begun to experience fee compression. According to an ICI Research

study, the average expense ratio for all equity funds (active and passive) has been on a

steady decline, falling from 99 basis points in 2000, to 70 basis points in 2014. During

the same time, actively managed equity funds fell from an average weighted fee of

1.06% to 0.86%. Also, the 2015 ICI Investment Company Fact Book shows that the

majority of fund flows in 2014 went into funds with expense ratios in the lowest

quartile. This comprises 70% of total active fund assets (Figure 7). With over 99% of

Artisan’s revenue generated from management fees, this trend could significantly

impact earnings if Artisan is forced to reduce fees.

Artisan has not yet experienced fee compression from this trend; however, it is crucial

that that the funds outperform their benchmarks and peers, or investors will not be able

to justify paying an above average fee. Since its IPO in 2013, Artisan’s total average

outperformance relative to each fund’s respective benchmark has been on a decline

(Figure 8). If performance continues to decline, this could ultimately put pressure on

the fees they are able to charge investors and deter future inflow of funds.

F

i

S

o

Figure 5: Industry Revenue Breakout

81%

12%

4% 3% 1%

ManagementFees

Distribution

Service Fees

Other

Source: Bank of America Merrill Lynch

Figure 6: Active and Passive AUM

0

2

4

6

8

10

12

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Active Passive

Source: Bank of America Merrill Lynch

26 30

15

74 70

85

0

20

40

60

80

100

All equity funds Actively managed

equity funds

Index equity funds

Funds with expense ratios in the upper three quartiles

Funds with expense ratios in the lowest quartile

Source: ICI Research

Figure 7: Funds Flows by Quartile

68% 55%

67% 54%

68% 53%

70% 57% 67% 55%

0%

25%

50%

75%

100%

Rev

enu

e

AU

M

Rev

enu

e

AU

M

Rev

enu

e

AU

M

Rev

enu

e

AU

M

Rev

enu

e

AU

M

2011 2012 2013 2014 2015

Q3

Mutual Funds Separate Accounts

Figure 4: Mutual Funds v. Separate Accounts


4

Flows, Performance, Fund Status

Net Organic Flows

Net organic flows are a critically important driver of a firm’s stock price, as asset

managers are often evaluated on their ability to generate flows relative to peers.

Organic flows are driven through a combination of product diversity, strong relative

performance to peers, and effective distribution. Only funds with strong product

demand, superior performance, and a quality reputation will attract and retain AUM

better than peers.

Since going public, Artisan has experienced a declining trend in fund flows. Declining

performance – primarily in the value funds –has caused investors to be cautious and

withdraw funds (Figure 8). During 2015, Artisan experienced an estimated $4 billion in

net outflows. If APAM continues to struggle with performance, fund outflows will

continue to shrink AUM and negatively impact revenue.

APAM’s peer group (GBL, MN, CLMS, WDR, CNS) is struggling with outflows as

well (Figure 9). Even though Artisan experienced less outflows than a composite of its

peers, we view this overall industry trend as a negative for Artisan investors.

Market Appreciation

In addition to net outflows, the overall market performance is an important factor in

retaining assets. During a market downturn, firms that outperform their peers will

generally better maintain their asset base, while their underperforming counterparts will

see an increase in outflows. During this most recent bull run, passive management

strategies have competed for flows and market share with active managers. Dating back

to 2010, active managers have suffered because organic flows on an industry average

have been negative (Figure 11).

Market performance has a strong correlation with fund flows. Mutual fund flows

relative to the trailing 12-month return of the S&P 500 closely match the performance

of the market (Figure 12). This correlation explains some of why Artisan has

experienced declining flows since going public. Negative fund flows, in combination

with market depreciation, can severely impact a firm’s revenues.

Fund Status

Artisan’s near term growth potential is stunted due to the high percentage of closed funds.

Currently, approximately 59% of Artisan’s AUM is held in closed end funds. In February of

this year, Artisan will close its Mid Cap growth fund, resulting in 75% of its AUM being

closed to new investors. We see this as a downside for investing in APAM. This leaves the

majority of Artisan’s growth potential up to the performance of the market. When compared

to GBL, CNS, and CLMS, which have a collective average of 21% of assets in closed funds,

APAM has a significant growth disadvantage. Aside from market performance, the best way

APAM could grow its AUM is open new funds or acquisitions. When we met with

management in October and spoke with them in January, they did not express any concrete

plans to acquire new funds; however, they said they are “opportunistic” and may act if the

right deal is presented.

Distribution and Product Types

Distribution

Asset management fees are the most significant drivers of revenue, and fee structures

vary depending on the distribution channel. The foremost distribution channels are:

retail, institutional, retirement, and international. Most public asset managers distribute

their products through both retail channels, which includes mutual funds, and

institutional channels, which includes separately managed accounts. According to a

BCG study on asset managers, the retail segment has grown faster than the institutional

segment. In 2013, retail investors had net flow growth of 3.7% and institutional flows

only grew by 0.1%. Additionally, retail investors, on average, pay a higher fee than

institutional clients. This is primarily because institutional clients invest larger pools of

assets, giving them leverage to negotiate on fees.

Artisan’s competitors have an advantage when it comes to distribution mix. Artisan has

an institutional investor base of 61%, whereas their competitors have an average

institutional base of only 44%. This serves as yet another hurdle for APAM to increase

profitability; however, this may be offset by the fact that institutional investors tend to

-4%

-2%

0%

2%

4%

6%

8%

Total Artisan Funds

IPO

Figure 8: Equal Weighted Performance of all APAM Funds

Source: Bloomberg

-15%

-10%

-5%

0%

5%

10%

15%

-3%

-2%

-1%

0%

1%

2%

3%

4%

Net Flows - L Market Appreciation - R

Figure 9: APAM Flows vs. Market Appreciation

Source: Company Reports

-5%-4%-3%-2%-1%0%1%2%3%4%

APAM Peer Group Composite

Figure 10: Fund Flows


Annual Rate: 2010 2011 2012 2013 2014

U.S. Equity (Active) -3.2% -4.1% -5.5% -0.3% -2.4%

U.S. Equity (Index) 2.6% 3.5% 3.2% 7.2% 5.8%

U.S. Equity (ETFs) 6.8% 8.4% 14.4% 20.4% 13.2%

Figure 11: Organic Growth Rates

Source: Morningstar

-60%

-40%

-20%

0%

20%

40%

60%

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

01

/97

02

/98

03

/99

04

/00

05

/01

06

/02

07

/03

08

/04

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/05

10

/06

11

/07

12

/08

01

/10

02

/11

03

/12

04

/13

05

/14

06

/15

Trailing 12-Mo S&P 500 Price Return - R

Flow Mutual Funds - Equities (Mil)

Figure 12: Mutual Fund Flows Vs. Market Returns

Source: Morningstar

5

be stickier, meaning they are likely to have a longer holding period than retail

investors.

Growth Opportunities

Product Mix

APAM’s peer group consists of fund managers with a high concentration of equity

investments. APAM, GBL, CNS, WDR, CLMS, and MN have an average equity asset

weighting of 91%; APAM and GBL are the only two firms with less than 1% of fixed

income investments. In the event of an equity downturn, APAM’s competitors could

benefit from having a more diversified portfolio because they won’t be as impacted

from a decline in a single asset class. Equity funds have a higher fee structure, so this

also means that more of APAM’s earnings are at risk than other firms. In addition,

APAM’s valuation multiples could be impacted from their lack of product growth

opportunities. Artisan’s comparable Calamos (CLMS) trades at premium valuation to

its peers due to products in rapidly growing areas, such as their long/short strategy.

Artisan also trades at a premium, despite not having products in rapidly growing asset

classes. If APAM continues to have below average growth opportunities, investors may

not be able to justify paying an above average valuation.

Alternative Investments

According to a study conducted and published by McKinsey in 2013, alternative

investments hit an all-time high at $7.2 trillion. Figure 15 shows how alternative

investment AUM has grown relative to traditional investment AUM between 2005 and

2013. Over this time, alternative investment AUM has grown at a compound annual

growth rate of 9.4%, which is roughly twice the growth rate of traditional investments.

Because these are nontraditional strategies, they often are associated with premium fees

as compared to other types of investment vehicles. As a result, 30% of the asset

management industry’s revenues came from alternatives in 2013, even though they

only comprised 12% of the industry’s assets. This is an enormous growth opportunity

in the asset management industry, as it is currently underdeveloped and delivers a risk

and return objective that is unattainable in traditional investment strategies.

Asia-Pacific Region

At the start of 2015, the Asia-Pacific region represented about a third of the world

economy and global finance. In addition, Asia-Pacific has three of the worlds’ most

populous regions which, altogether, make up about 56% of the world’s population.

Despite this position, this region represents only 15% of global AUM, which has

remained relatively unchanged since 2007. Considering the fact that asset management

is a relatively mature industry in the United States, firms will surely be looking to grow

in this underserved market over the next decade, especially as regulations in these

regions continue to be lifted.

Investment Summary

We issue a SELL recommendation on Artisan Partners Asset Management (APAM)

with a target price of $29 using a discounted cash flow analysis and two relative

multiple valuations. Our valuation is supported by the following industry and company

drivers:

Industry Driver 1

Competition from passive strategies may compress fee levels of active

strategies.

Artisan maintains a higher fee structure relative to competitors. Active managers can

justify a larger fee if they are able to generate better performance over time relative to

peers and the selected benchmark. While some of Artisan’s funds have alpha

generating performance records that can command premium fees, funds with less than

stellar performance may have to lower fees in order to remain competitive with passive

funds or risk continued outflows. The Value team is especially at risk of losing assets

due to the prior poor performance (Figure 16). This underperformance no longer

justifies the premium fees charged.

3.2 4.1 5 5 5.3 5.9 6.3 6.8 7.2

37.1

42.8 46

37.9

42.8 45.7 45.7

50.2 56.7

0

10

20

30

40

50

60

70

Alternative Traditional

Figure 15: Global AUM 2005-2013

Source: McKinsey Analysis: Hedge Fund Research

59%

15% 19% 28%

41%

85% 81% 72%

0%

20%

40%

60%

80%

100%

Closed Open

Figure 13: APAM vs. Peer Fund Status


39%

88%

51% 58% 49%

34%

61%

12%

49% 42% 51%

66%

0%

20%

40%

60%

80%

100%

APAM CLMS CNS GBL MN WDR

Retail Institutional

Figure 14: APAM vs. Industry Distribution Mix


Figure 16: U.S. Value Team Performance

U.S. Value Team 1 yr 3 yr 5 yr

U.S. Mid-Cap Value

Net Performance -9.89 7.50 8.05

Russell Midcap Value -4.78 13.40 11.25

Underperformance -5.11 -5.90 -3.20

U.S. Small-Cap Value


Russell 2000 Value -7.47 9.06 7.67


Value Equity


Russell 1000 Value -3.83 13.08 11.27


Avg. Underperformance 5.14 6.94 4.49


6



Industry Driver 2

Product Mix

Alternative strategies and passive funds are growing at a faster rate than traditional

equity strategies. Investors are demanding differentiated products not easily replicated

through passive strategies. Additionally, investors are seeking greater diversification to

mitigate risk. This has increased the popularity of funds investing in alternative asset

classes. Examples of alternatives include funds that invest in real estate, commodities,

or long-short strategies. Other examples also include funds that provide solutions such

as target-date funds. Passive strategies such as ETFs and index funds have also grown

rapidly. While Artisan has a large portion of funds with a global or international

strategy, they have low exposure to strategies classified as alternative or passive.

Company Driver 1

Declining Performance Hampers Net Asset Inflows

Artisan prides itself on the ability to generate alpha on a consistent basis. The majority

of APAM’s funds have consistently outperformed peers over the long term; however

the performance for a few teams has suffered in the past few years, which has led to

asset outflows. The U.S. Value team, which represented 19.9% of total firm AUM, as

recently as April 2014, now represents 10.4% of total firm assets as of December 2015.

The three funds managed by the U.S. Value team underperformed its benchmark by an

average of 6.9% on a three-year basis and 4.5% on a five-year basis. Short term, the

value funds will face continued outflows. In the long term, an improved performance

record must be established for assets to grow.

Company Driver 2

High Percentage of Closed Funds Limit Asset Inflows

Currently, 59.3% of assets under management are in funds closed to new investors. On

February 22, the U.S Mid Cap Growth fund closes. After this date, 75% of total AUM

will be in funds closed to new investors. The remaining open funds have poor prospects

for new flow growth. Of the open funds, three have been in existence less than three

full years, and thus have not established performance records conducive to significant

asset inflows. Of the remaining four open funds, only the Global Value fund and the

Global Equity fund have outperformed their listed benchmark in the last three year or

five year time horizons.

Company Driver 3

Lack of Investment in Sales and Distribution

Artisan invests the least amount of revenue in marketing and distribution relative to its

peer group of equity focused asset managers. They only spend 5.4% of revenue on

sales and distribution compared to roughly 13% for the peer group. This is evident in

Artisan’s lack of retail presence. Retail has been growing more quickly industry wide

in the past year. Additionally, higher fees can be commanded in the retail distribution

segment. This is because institutions often invest larger volumes of assets and have

more bargaining power in fee negotiation. Institutional investors also tend to be more

patient than retail investors. Artisan has been losing assets in mutual funds at a quicker

pace than separate accounts (Figure 19). Given the performance struggles in APAM’s

open funds, it is necessary for Artisan to increase its sales and marketing presence to be

able to maintain and attract new retail clients. Many mutual fund managers charge 12b-

1 fees to assist in the selling of mutual funds to retail investors. These fees are used to

pay commission to the financial advisor who sold the product, or to assist in marketing.

Artisan does not charge these fees, which is another reason they struggle to attract retail

assets.

Financial Analysis

Revenue Analysis

Assets under management are driven by growth in organic net flows and market

appreciation. Revenue is derived by multiplying total assets under management by the

average fee level. Figure 20 shows the sensitivity of Artisan’s assets under

Figure 17: Performance of Open Funds

1 yr 3 yr 5 yr

Global Equity

Net 1.13 10.65 10.78

MSCI All Country World-2.36 7.69 6.09

Alpha 3.49 2.96 4.69

Value Equity

Net -9.10 6.26 7.54

Russell 1000 Index-3.83 13.08 11.27

Alpha -5.27 -6.82 -3.73

Global Value

Net -2.87 10.00 9.95

MSCI All Country World-2.36 7.69 6.09

Alpha -0.51 2.31 3.86

Emerging Markets

Net -12.53 -7.32 -7.81

MSCI Emerging Markets-14.92 -6.76 -3.00

Alpha 2.39 -0.56 -4.81


5.4%

25%

11% 13%

17%

6%

0%

5%

10%

15%

20%

25%

30%

Figure 18: Peer Marketing and Distribution Expense

Source: FactSet

Figure 19: Artisan Fund Assets vs. Separate Accounts

40

45

50

55

60

65

Separate Accounts Artisan Funds


Figure 20: Peer Compensation

Expense

Source: Team Analysis

7

management to organic flow growth and market appreciation. In our base case

projection, we estimate assets under management to be $102 billion in 2016 using a 2%

decline in organic asset flow growth and flat market appreciation. We project negative

asset flow growth due to Artisan’s high proportion of closed funds, declining

performance, and poor market fundamentals for equity based asset managers.

Expense Analysis

Compensation

Artisan currently has a compensation structure that pays employees much higher than

competitors. Each portfolio team earns 25% of all revenue generated through the

team’s funds. This variable structure should allow Artisan to maintain expense

flexibility in down markets. However, this 25% does not include the salaries of the

operations teams or stock based compensation. Salaries and compensation totaled

roughly 42% of revenue in 2014. However, with the addition of pre-offering equity

compensation, the total percent of revenue paid out for compensation is 50%. This

compares to an average compensation of 35% of revenue for the peer group.

Marketing and Distribution

Artisan spends much less on marketing and distribution than competitors. Despite

management priding themselves on the ability to spend less in this area than peers due

to strong brand recognition, we anticipate that in coming years Artisan will bolster

spending in attempt to improve organic investment inflows. As a result, we project

marketing and distribution expense to rise from 5.6% of revenue in 2015 to 6.6% of

revenue in 2017. We then forecast marketing and distribution to peak at 7.6% of sales

in 2023.

Capital Structure

Since 2010, Artisan’s capital structure has changed significantly (Figure 22). Prior to the

firm’s IPO in 2013, it issued $200 million in unsecured notes, which was used to repay the

principal on an existing loan. The interest rates on the loans are based on the leverage ratio

APAM Holdings maintains. Artisan’s current debt to assets is at 20%, which is significantly

higher than the industry average of 12%. Later that year, APAM entered into a $100 million

five-year revolving credit agreement in order to pay off the entire then-outstanding principal

associated with the IPO. Looking forward, Artisan Partners expects to fulfill the debt

obligation by 2023.

Quantifying the Drivers in EPS

Figure 23 on the left graphically quantifies the individual drivers for FY 2016’s diluted EPS.

Using our base case assumptions, we expect Artisan’s diluted EPS to increase from $1.71 in

2015 to $1.80 in 2016. A -2% organic growth estimate for Artisan Partners in 2016 will

deteriorate earnings by $0.15 per share. Organic net outflows in 2016 are being driven by a

combination of APAM’s large portion of soft-closed funds and its poor performing U.S

Value Funds (ARTLX, ARTQX, and ARTVX). We expect the firm’s management fees for

the year to decrease by ½ of a basis point, which subtracts another $0.06 of earnings per

share. As Artisan continues to pay off its outstanding debt, it will pay less in interest

expenses per year. We project this to add $0.30 per share, bringing FY2016 EPS to $1.80

DuPont Analysis

From 2015 to 2016, Artisan’s ROE is projected to fall from 230% to 140%. This decline is

due to a lower projected margin and asset turnover in 2016. The firm’s high leverage relative

to the industry is the driving factor in its high ROE. Artisan has an equity multiplier of 8.8

compared to an average of 1.7 for the industry. The extra leverage and Artisan’s lack of

product diversity makes returns more volatile than the industry (Figure 24).

Valuation

To derive an intrinsic value of $29 per share for APAM, a three-stage discounted free

cash flow model (including a bear, base, & bull case) and a relative valuation using

both price to earnings (P/E) and price to sales (P/S) were utilized. The use of various

valuation methods and techniques eliminated biases that could’ve occurred from the

use of just one method. Figure 25 breaks down the average weight given to each

valuation method and the dollar amount contributed from it.

Exhibit XX: Free Cash Flow to Equity


Exhibit XX: Capital Structure

Source: Industry Data

51%

41%

33%

41%

31%

12%

0%

10%

20%

30%

40%

50%

60%

Figure 21: Peer Compensation

Expense

Figure 22: Firm Capital Structure

$(400.00)

$(200.00)

$-

$200.00

$400.00

$600.00

$800.00

$1,000.00

2010 2011 2012 2013 2014 2015 2016 2017

Total Equity Class B Liability Awards LT Debt



($0.15) ($0.06)

$0.30

$1.80 $1.71

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

Figure 23: FY 2015 to FY 2016E EPS Drivers (Base Case)

Source: Company Financials

Figure 24: Three-Stage DuPont Analysis


Exhibit 25: Weighted Average Valuation

8

3-Stage Discounted Free Cash Flow Model

A three stage discounted free cash flow model was the primary valuation method used

to derive the intrinsic value of $33 for APAM. The main drivers of our valuation model

included fees, flows, and the terminal multiple we applied on 2023’s earnings.

Our three-stage DCF model forecasts FCFE for seven years (stage one: 2016-2017,

stage two: 2018-2023) to reflect the length of a business cycle.

AUM Fee Reductions

Artisan has consistently been able to charge above average fees compared to its

competitors (76 basis points versus an average of 68 basis points) due to the

outperformance of its funds and the level of its portfolio complexity. During a Q&A

session in January 2016, APAM’s management confirmed that the firm has no

intention to significantly reduce its fees from its current average of 76 basis points. The firm’s net outflows will continue to increase in the future if the fees are not backed by

solid alpha generation. A ½ basis point fee reduction for both stages was therefore

incorporated in the model.

Organic Growth & Market Appreciation

To demonstrate APAM’s sensitivity to organic flows growth and market appreciation,

our three-stage model was constructed to allow separate inputs for first and second

stage organic growth and first and second stage market appreciation. We assume

outflows in all first stage scenarios due to the poor performance of funds, but inflows

of 1% in the second stage. Market appreciation ranges from -7% to 7% in stage one but

remains constant at 7% in all stage two scenarios. (Figure 26).

FCFE Estimates and Terminal Value

Our forecasts for discounted FCFE per share for 2016 and 2017 are $4.71 and $3.51

respectively. The ½ basis point fee reduction is the main cause of the decline in FCFE.

For our terminal multiple, we used a P/E of 13.5x, which is significantly below its

current multiple of 15.6x, but closer to the current peer average of 12.6x. With 59.3%

of funds in a soft-closed status, a lack of product breadth, and consequently, low

prospects for organic flow growth going forward, we did not believe that a significantly

larger multiple than its peers was appropriate for Artisan.

Expected Return (Discount Rate)

Utilizing the Capital Asset Pricing Model (Figure 28), we calculated a required rate of

return of 13.25% for APAM. The asset management business is entirely dependent on

the flows and AUM, making it significantly more volatile than the market. Due to its

relatively high leverage, we believed that APAM deserved a higher beta.

Relative Valuation

Artisan Partners was valued on a relative basis using both a previously selected

competitors list of equity focused asset managers, and the asset management industry

as a whole. Due to Artisan’s limited time trading in the public market, we determined it

would not be appropriate to evaluate Artisan on a historical multiples basis. Instead we

evaluate Artisan’s current valuation relative to its peer group and industry as a whole.

Our chosen peer group for Artisan includes publicly traded asset managers that have

over 80% of their assets under management in equity holdings. Currently, the asset

management industry as a whole is trading at a premium compared to both Artisan and

its equity focused peer group. More diversified asset managers command higher

valuations because they have more exposure to different asset types and strategies with

stronger future growth prospects. Additionally, many of the larger companies in the

industry group have more diversified sources of revenue making them less volatile to

market conditions than equity asset managers. The asset management industry has a

five-year beta of 1.20 compared to a five-year beta of 1.43 for the peer group.

Figure 28: Capital Asset Pricing Model


Exhibit 27: FCFE Estimates

Exhibit 26: DCF- Bear, Base, and Bull Case


Figure 29: Asset Management Industry P/E vs. EPS

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

0

5

10

15

20

25

Price/Earnings (Excluding Negatives) EPS


9

Source: FactSet

Source: Company Data and FactSet

P/E P/E FY 16 P/S P/S FY 16 EV/Sales Beta

Artisan Partners 15.64x 16.66x 1.77x 1.71x 2.63x 1.44x

Asset Management Industry average 14.73x N/A 2.70x N/A 5.23x 1.20x

Peer Average 12.58x 13.24x 1.90x 0.89x 1.41x 1.43x

Peer Average excluding outlier 10.95x 11.82x 1.37x 1.32x 1.21x 1.35x

GAMCO Investors (GBL) 7.81x 8.02x 1.75x 1.68x 1.30x 1.43x

Manning & Napier (MN) 5.63x 7.46x 1.81x N/A 0.01x 1.10x

Cohen & Steers (CNS) 17.94x 18.57x 4.13x 0.41x 3.62x 1.36x

Wadell & Reed (WDR) 7.73x 8.41x 1.22x 3.94x 0.88x 1.83x

Calamos Asset Management (CLMS) 23.79x 23.72x 0.71x 1.47x 1.25x 1.42x

Artisan Valuation Multiples Compared to Peers

Price to Earnings

Artisan trades at a P/E LTM of 16.6x which is higher than the peer average of 12.6x.

Since P/E has a direct relationship with earnings growth, this valuation implies that

Artisan has greater growth priced into the stock than peers. Since we project Artisan to

have asset outflows in the next two years, we believe Artisan should trade at a P/E

closer to that of peers. The fair value of APAM would be $23.80 if it traded at the peer

average P/E of 12.6x. Using our earnings estimates, Artisan trades at a 16.6 P/E on

forward year 2016 basis, which is greater than the peer average of 13.0x. Given the

slowing growth projections, we believe Artisan should trade at a P/E closer to peers.

Artisan is worth 23.40 on a forward basis if trading at the peer average P/E. For this,

reason it is reasonable for Artisan to experience.

Price to Sales

Price to sales has a direct relationship with net profit margin. Dividing the P/S multiple

by the current price finds the implied net profit margin Artisan trades at a P/S of 1.77x

compared to 1.90x for peers. However, when excluding Cohen & Steers the peer group

P/S is 1.23x. Artisan trades at a multiple higher than competitors despite having a

lower net profit of 9.6%, which is lower than the peer average of 13%. The P/S

suggests the market expects net profit margin to improve. However, given the poor

fundamentals for client flow growth and a flat expense structure, we forecast margins

to decline to 6.6% in 2016. Using this estimate a P/S FY of 1.71x is obtained at current

prices.

Investment Risks

Regulatory & Economic Risks

Regulatory Environment and Compliance

APAM is subject to comprehensive regulations from domestic and international

authorities which operate with the goal of ensuring the integrity of financial markets

and protecting customers. The financial crisis has resulted in an expansion of financial

regulations, including the Dodd-Frank Act in the United States and the European

Market Infrastructure Regulation in Europe. If APAM were to continue its international

expansion, it would be obliged to comply with international regulations and laws with

which it has little to no experience. Additional regulations and changes in


Figure X: Artisan Valuation Ratios Compared to Peer Group

Figure 30: Asset Management Industry P/S vs. Net Margin

0%

5%

10%

15%

20%

25%

0

1

2

3

4

5

Price/Sales Net Margin

Source: FactSet

Figure 31: Peer P/S vs. Net Profit Margin

Source: FactSet

0%

5%

10%

15%

20%

25%

30%

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

GBL MN CNS WDR CLMS APAM

P/S P/S FY 16 NPM NPM NTM

10

interpretations of current regulations could increase its compliance costs and the

potential for operational errors. The business costs APAM could be responsible for as a

result of systemic regulatory changes are impossible to predict or measure.

International Exposure

As of September 30, 2015, approximately 45% of APAM’s AUM were invested in

Non-U.S. companies, and approximately 42% of its AUM were invested in securities

denominated in currencies other than the U.S. dollar. This allocation exposes APAM to

a variety of uncertainties concerning political, social and economic standings.

Market Risks

Performance Expectations

APAM’s stock price is predicated on future earning potential, which is estimated on its

current ability to garner positive net flow growth. The accumulation of flows has a

well-defined, positive correlation with the past performance of individual funds. As

such, APAM’s net flows will be diminished or turn negative if a significant amount of

its funds are performing poorly relative to their benchmarks and peers. Funds may

perform poorly for reasons including, but not limited to: poor market conditions,

negative investor sentiment and investment style.

Constraints Long-Equity Positioning & Lack of Revenue Diversification

APAM’s current portfolio, with 99.1% of its AUM in long-equity holdings does not

provide flexibility in times of volatile economic conditions and poor investor

sentiment. When the general markets decline in value, it is likey that all 13 of APAM’s

long-equity funds will perform poorly, resulting in net outflows as investors look to

move their money into non-equity holdings. Additionally, the fees APAM earns are

almost entirely based on investment management fees which are calculated as a

percentage of total AUM. AUM and as a result, revenue, will be negatively impacted

with any sustained down markets.

Operational Risks

Concentration of funds

85% of APAM’s AUM are in the Non-U.S. Growth, Non-U.S Value, U.S. Mid-Cap

Growth, Global Value, and U.S. Mid-Cap Value strategies. APAM is extremely

dependent on the performance of these five strategies and the investment professionals

that run them. The combination of tenure and performance history for the investment

professionals that manage the top-five most concentrated funds generally cause clients

to attribute the success of these funds to the portfolio managers. When one of these

portfolio managers eventually leaves their position, or if one of the portfolios

underperform for a significant amount of time, clients may decide to pull their funds.

Instability of contracts

Required by law, APAM’s investment management clients are generally able to

terminate their contracts within 60 days’ of written notice. Additionally, each fund’s

agreement with its clients must be approved and renewed annually. APAM’s accounts

can be terminated for any number of reasons, resulting in an immediate reduction of

investment management fees.

Figure 33: Correlation Matrix – Last 15 Quarters

Source: Company Data, Market Data

S&P 500 AUM IM Fees

S&P 500 1 0.92 0.94

AUM 0.92 1 0.98

IM Fees 0.94 0.98 1


Figure 34: Concentration of Funds

15%

9%

14%

15%

17%

29%

0% 10% 20% 30%

Remaining 9

Funds

U.S. Mid-

Cap Value

Global Value

U.S. Mid-

Cap Growth

Non-U.S.

Value

Non-US

Growth

29%

17%

9%

8%

7%

7%

6%

3%

3%

2%

0% 10% 20% 30%

U.K.

Switzerland

Japan

China

Korea

Denmark

Netherlands

Germany

Belgium

Canada

Figure 32: Percentage of Non-U.S. Exposure

Source: Company Data, Market Data

11

Ticker Team Strategy Total AUM (as of December 31, 2015) Availability 1 Yr 3 Yr 5 Yr 10 Yr Inception

ARTIX Global Equity International $18,203 Closed 15th 57th 21st 14th 11th

ARTJX Global Equity International Small Cap $1,001 Closed 91st 6th 4th 13th 7th

ARTHX Global Equity Global Equity $331 Open 39th 27th 4th - 4th

ARTJX Global Equity Global Small Cap $138 Open 8th - - - 63rd


ARTQX US Value Team Mid Cap Value $5,387 Closed 88th 95th 76th 37th 14th

ARTLX US Value Team Value $923 Open 82nd 95th 79th - 61st

ARTVX US Value Team Small Cap Value $396 Closed 88th 98th 99th 89th 38th

Pg Ticker Team Strategy Total AUM (as of December 31, 2015) Availability 1 Yr 3 Yr 5 Yr 10 Yr Inception

ARTRX Growth Team Mid Cap $8,737 Closed 58th 64th 45th 6th 1st

ARTRX Growth Team Global Opportunities $1,529 Open 6th 20th 5th NA 5th

ARTRX Growth Team Small Cap $1,255 Closed 25th 54th 11th 62nd 61st


ARTKX Global Value Team International Value $10,696 Closed 40th 1st 1st 2nd 2nd

ARTX Global Value Team Global Value $1,595 Open 77th 27th 5th - 4th


ARTFX Credit Team High Income $989 Open 4th - - - 2nd


ARTFX Developing World Team Developing World $372 Open - - - - 2nd


ARTZX Emerging Markets Team Emerging Markets $56 Open 36th 60th 89th - 91st

Appendix: A: Artisan Global Equity Team Management

12

Mark L. Yockey, CFA, is a managing director of Artisan Partners and a

portfolio manager on the Global Equity team. In this role, he is a portfolio

manager for the Artisan Non-U.S. Growth, Non-U.S. Small-Cap Growth,

Global Equity and Global Small-Cap Growth strategies.

Prior to joining Artisan Partners in December 1995, Mr. Yockey was the

portfolio manager of the United International Growth Fund and vice

president of Waddell & Reed from January 1990 through December 1995.

Before assuming responsibility for the United International Growth Fund,

Mr. Yockey was an analyst for Waddell & Reed from 1986 through 1989.

Mr. Yockey holds a bachelor's degree and a master’s degree in Finance from Michigan State University.

Andrew J. Euretig

Andrew J. Euretig is a managing director of Artisan Partners and a

portfolio manager on the Global Equity team. In this role, he is a portfolio

manager for the Artisan Global Equity strategy, including Artisan Global

Equity Fund, and an associate portfolio manager for the Artisan Non-U.S.

Growth strategy, including Artisan International Fund. He also conducts

research, primarily focusing on companies within the industrials sector.

Prior to joining Artisan Partners in June 2005, Mr. Euretig was a graduate

student at the University of California at Berkeley. He previously served

in the United States Navy as an amphibious operations officer. Mr.

Euretig holds a bachelor's and a master's degree in Business

Administration from the Haas School of Business at the University of

California-Berkeley.

Charles-Henri Hamker is a managing director of Artisan Partners and a

portfolio manager on the Global Equity team. He also conducts research,

primarily focusing on companies within the consumer sector.

Prior to joining Artisan Partners in August 2000, Mr. Hamker worked on

the European Equities Desk in the New York office of Banque Nationale

de Paris. Earlier in his career, he worked in the Paris and London offices

of J.P. Morgan. Mr. Hamker holds a bachelor's degree with a specialization in Finance and Economics from the European Business

School in Paris. He is fluent in French and German.

Mark L. Yockey, CFA

Charles-Henri Hamker

Appendix: B: Artisan Global Equity Team Management

13

Appendix C: Artisan International Fund(ARTIX)

95%

217%

122%

-50%

0%

50%

100%

150%

200%

250%

Relative Artisan International Fund - Investor Shares (Net of Fees) MSCI ACWI Ex USA (Net)/MSCI ACWI Ex USA (Gross) Linked Index

Total AUM: $18,203M

Net Asset Value: $26.84 (as of January 29, 2016)

Availability: Open

Inception: 28-Dec-95

Expense Ratio: 1.17% (As of September 30, 2015)

Key Statistics (as of December 31, 2015)

Consumer Discretionary 20.1%

Consumer Staples 11.7%

Energy 0.0%

Financials 10.8%

Health Care 22.6%

Industrials 10.5%

Information Technology 14.6%

Materials 7.9%

Telecommunication Services 1.6%

Utilities 0.2%

Sector Diversification

Median Market Cap (Billions) $26.2

Weighted Avg. Market Cap (Billions) $65.9

Weighted Harmonic Avg. P/E (FY1) 19.3x


Weighted Avg. LT EPS Growth Rate (3-5 Yr) 13.6%

Weighted Average ROE 17.4%

Active Share 85.2%

Portfolio Turnover Rate 45.0%

Number of Securities 67

Number of Countries 19

Cash (% of Total Portfolio) 4.3%

Portfolio Statistics

Morningstar Overall Rating 3 Yr Morningstar Rating

5 Yr Morningstar Rating 10 Yr Morningstar Rating

1 Yr Lipper Percentile 91st 3 Yr Lipper Percentile 6th

5 Yr Lipper Percentile 4th 10 Yr Lipper Percentile 13th

Inception Lipper Percentile 7th

Ratings & Rankings

14

Appendix D: Artisan Global Equity Fund (ARTHX)

27%

72%

44%

-20%

0%

20%

40%

60%

80%

100%

Relative

Artisan Global Equity Fund - Investor Shares (Net of Fees)

MSCI All Country World Index (Net)

Total AUM: $331M


Availability: Open

Inception: 29-Mar-10









Active Share 91.0%








Energy 0.0%

Financials 11.6%

Health Care 28.8%

Industrials 6.8%


Materials 5.0%


Utilities 1.6%



5 Yr Morningstar Rating 10 Yr Morningstar Rating NA


5 Yr Lipper Percentile 4th 10 Yr Lipper Percentile NA


Ratings & Rankings

15

Appendix E: Artisan International Small Cap Fund(ARTJX)

HISTORICAL MOM DATA NOT PROVIDED

-0.09%

6.70% 6.79%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Inception 10 Yr 5 Yr 3 Yr 1 Yr YTD QTD

Relative Fund: ARTJX Benchmark: MSCI EAFE Small Cap Index

Total AUM: $1,001M


Availability: Closed to most new investors







Weighted Harmonic Avg. P/E (FY2) 20.5c



Active Share 97.2%








Energy 0.0%

Financials 7.7%

Health Care 8.5%

Industrials 13.7%


Materials 5.4%


Utilities 4.2%





5 Yr Lipper Percentile 21st 10 Yr Lipper Percentile 14th


Ratings & Rankings

16

Appendix F: Artisan Global Small Cap Fund (ARTWX)






Ratings & Rankings

-5%

14%

19%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Relative Artisan Global Small Cap Fund (Net of Fees) MSCI All Country World Small Cap Index (Net)

Total AUM: $138M


Availability: Open

Inception: 25-Jun-13









Active Share 99.1%








Energy 0.0%

Financials 11.8%

Health Care 14.0%

Industrials 8.8%


Materials 7.8%


Utilities 6.4%


17

Appendix: G: Artisan Value Team Management

Portfolio Managers

George O. Sertl, CFA, is a managing director of Artisan Partners and a

portfolio manager on the U.S. Value team. In this role, he is a portfolio

manager for the Artisan Value Equity, U.S. Mid-Cap Value and U.S.

Small-Cap Value strategies, including Artisan Value, Artisan Mid Cap

Value and Artisan Small Cap Value Funds.

Prior to joining Artisan Partners in January 2000, Mr. Sertl was a research

analyst at Schwartz Investment Counsel. Mr. Sertl began his investment

career at Pauli & Company working as a research analyst in 1992. Mr.

Sertl holds a bachelor's degree in Economics and History from the

University of Richmond and a master’s degree in Economics from St.

Louis University.

Daniel Kane, CFA

Daniel L. Kane, CFA, is a portfolio manager on the U.S. Value team. In

this role, he is a portfolio manager for the Artisan Value Equity, U.S.

Mid-Cap Value and U.S. Small-Cap Value strategies.

Prior to joining Artisan Partners in March 2008, Mr. Kane was a senior

small cap investment analyst at BB&T Asset Management, Inc. from

August 2005 to March 2008. Mr. Kane began his investment career as a

domestic equities securities analyst at the State of Wisconsin Investment

Board in 1998. Mr. Kane holds a bachelor's degree in Finance from the

University of Wisconsin-Madison and a Master of Business

Administration from The University of Chicago Booth School of

Business.

Scott C. Satterwhite, CFA, is a managing director of Artisan Partners and

a portfolio manager on the U.S. Value team. In this role, he is a portfolio


Small-Cap Value strategies.

Prior to joining Artisan Partners in June 1997, Mr. Satterwhite was senior

vice president and portfolio manager at Wachovia Corporation

responsible for management of assets of over $1.5 billion. Mr. Satterwhite

managed the Biltmore Special Values Fund from August 1993 through

May 1997.Mr. Satterwhite holds a bachelor's degree in Economics from

The University of the South and a Master of Business Administration

from Tulane University.

James C. Kieffer, CFA, is a managing director of Artisan Partners and a

portfolio manager on the U.S. Value team. In this role, he is a portfolio


Small-Cap Value strategies.

Prior to joining Artisan Partners in August 1997, Mr. Kieffer was a

research analyst at the investment firm McColl Partners. Mr. Kieffer

began his investment career at Wachovia Corporation working with Scott

Satterwhite from 1989 to 1996, initially as a personal trust portfolio

manager and later as a general equities and small-cap value research

analyst in the institutional portfolio group. Mr. Kieffer holds a bachelor's

degree in Economics from Emory University.

George O. Sertl, CFA

Scott C. Satterwhite, CFA

James C. Kieffer, CFA

18

Appendix H: Artisan Mid Cap Value Fund (ARTQX)

4%

160%

156%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Relative Artisan Mid Cap Value Fund - Investor Shares (Net of Fees) Russell Midcap Value Index With Dividends

Total AUM: $5,387M








Energy 6.8%

Financials 25.8%

Health Care 0.0%

Industrials 16.9%


Materials 8.6%


Utilities 5.5%






Median Price/Book Value 1.6x


Active Share 89.9%










Ratings & Rankings

19

Appendix I: Artisan Value Fund (ARTLX)

HISTORICAL MoM DATA NOT PROVIDED

-15%

-10%

-5%

0%

5%

10%

15%

Inception 5 Yr 3 Yr 1 Yr YTD QTD

Relative Fund: ARTLX Benchmark: Russell 1000 Value Index



Energy 12.4%

Financials 23.0%

Health Care 1.3%

Industrials 11.5%


Materials 13.2%


Utilities 0.0%








Active Share 89.1%




Non U.S. Equities (% of Total Portfolio) 16.2%




1 Yr Lipper Percentile 82nd 3 Yr Lipper Percentile 95th


Inception Lipper Percentile 61st

Ratings & Rankings

Total AUM: $923M


Availability: Open




20

Appendix J: Artisan Small Cap Value Fund (ARTVX)

8%

171%

163%

-50%

0%

50%

100%

150%

200%

250%

Relative Artisan Small Cap Value Fund - Investor Shares (Net of Fees) Russell 2000 Value Index With Dividends

Total AUM: $396M



Inception: 29-Sep-97









Active Share 93.2%







Energy 7.6%

Financials 16.6%

Health Care 2.9%

Industrials 37.6%


Materials 7.2%


Utilities 1.3%







Ratings & Rankings

21

Appendix: K: Artisan Growth Team Management

Portfolio Managers

James D. Hamel, CFA, is a managing director of Artisan Partners and a

portfolio manager on the Growth team. In this role, he is lead portfolio

manager for the Artisan Global Opportunities strategy, including Artisan

Global Opportunities Fund and portfolio manager for the Artisan U.S.

Mid-Cap Growth and U.S. Small-Cap Growth strategies, including

Artisan Mid Cap and Artisan Small Cap Funds.

Prior to joining Artisan Partners in May 1997, Mr. Hamel was a financial

associate, cost analyst and operations manager of Kimberly-Clark

Corporation from March 1990 to May 1997. He began his career at

Carlson, Posten & Associates.

Craigh A. Cepukenas, CFA

Craigh A. Cepukenas, CFA, is a managing director of Artisan Partners

and a portfolio manager on the Growth team. In this role, he is lead

portfolio manager for the Artisan U.S. Small-Cap Growth strategy,

including Artisan Small Cap Fund and portfolio manager for the Artisan

Global Opportunities and U.S. Mid-Cap Growth strategies, including

Artisan Global Opportunities and Artisan Mid Cap Funds.

Prior to joining Artisan Partners in November 1995 as an analyst, Mr.

Cepukenas was an equity research associate at Stein Roe & Farnham,

where he began his career in 1989. Mr. Cepukenas holds a bachelor’s

degree in Economics from the University of Wisconsin-Madison.

Matthew H. Kamm, CFA, is a managing director of Artisan Partners and a

portfolio manager on the Growth team. In this role, he is lead portfolio

manager for the Artisan U.S. Mid-Cap Growth strategy, including Artisan

Mid Cap Fund and portfolio manager for the Artisan Global Opportunities

and U.S. Small-Cap Growth strategies, including Artisan Global

Opportunities and Artisan Small Cap Funds.

Prior to joining Artisan Partners in May 2003, Mr. Kamm was an

associate equity research analyst at Banc of America Securities. Earlier in

his career, he was a senior operations analyst for NYU Medical Center.

Mr. Kamm holds a bachelor's degree in Public Policy from Duke

University.

Jason L. White, CFA, is a portfolio manager on the Artisan Partners

Growth team. In this role, he is a portfolio manager for the Artisan Global

Opportunities, U.S. Mid-Cap Growth and U.S. Small-Cap Growth

strategies, including Artisan Global Opportunities, Artisan Mid Cap and

Artisan Small Cap Funds.

Prior to joining Artisan Partners in June 2000, Mr. White was a

Lieutenant in the US Navy, serving aboard the USS Lake Erie as the

ship’s fire control officer. Mr. White holds a bachelor’s degree in History

from the United States Naval Academy, where he graduated with

distinction.

Jason L. White, CFA

James D. Hamel, CFA

Matthew H. Kamm, CFA

22

Appendix L: Artisan Mid Cap Fund (ARTMX)

90%

276%

186%

-50%

0%

50%

100%

150%

200%

250%

300%

Relative Artisan Mid Cap Fund - Investor Shares (Net of Fees) Russell Midcap Growth Index With Dividends

Total AUM: $8,737M











Weighted Avg. LT Debt/Capital 32.4%

Active Share 84.4%







Energy 2.2%

Financials 7.3%

Health Care 24.1%

Industrials 18.7%


Materials 1.4%


Utilities 0.0%







Ratings & Rankings

23

Appendix M: Artisan Global Opportunities Fund (ARTRX)

Total AUM: $1,529M


Availability: Open










Active Share 93.8%








Energy 0.7%

Financials 11.7%

Health Care 18.6%

Industrials 11.3%


Materials 2.2%


Utilities 1.6%


35%

93%

58%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Relative Artisan Global Opportunities Fund - Investor Shares (Net of Fees) MSCI All Country World Index (Net)






Ratings & Rankings

24

Appendix N: Artisan Small Cap Fund (ARTSX)

11%

211% 201%

-50%

0%

50%

100%

150%

200%

250%

Relative Artisan Small Cap Fund - Investor Shares (Net of Fees) Russell 2000 Growth Index With Dividends

Total AUM: $1,255M












Active Share 95.0%







Energy 1.4%

Financials 0.0%

Health Care 23.7%

Industrials 18.9%


Materials 0.0%


Utilities 0.0%





5 Yr Lipper Percentile 11th 10 Yr Lipper Percentile 62nd


Ratings & Rankings

25

Daniel J. O’Keefe

Appendix O: Artisan Global Value Team Management

Portfolio Managers

Daniel J. O’Keefe is a managing director of Artisan Partners and founding partner

of the Global Value team.

Prior to becoming portfolio manager in 2006, Mr. O’Keefe was a research analyst

for the Artisan Partners Global Value team since its inception in 2002. Prior to

joining Artisan Partners in May 2002, Mr. O'Keefe was an analyst in international

equities at Harris Associates LP, from July 1997 through May 2002.

Under the management of Mr. O’Keefe and his co-founding partner, David Samra,

the Global Value team has been nominated five times (in 2008 and consecutively

from 2011-2014) for Morningstar, Inc.’s International-Stock Fund Manager of the

Year award in the US. The team won the award for their management efforts in

2008 for Artisan International Value Fund and in 2013 for Artisan International

Value Fund and Artisan Global Value Fund.

Mr. O’Keefe holds a bachelor’s degree in Philosophy from Northwestern University.

Prospectus

Terms & Conditions

Privacy Policy

Proxy Policies & Voting Records

N. David Samra

N. David Samra is a managing director of Artisan Partners and founding partner

of the Global Value team. Prior to joining Artisan Partners in May 2002, Mr.

Samra was a portfolio manager and a senior analyst in international equities at

Harris Associates LP, from August 1997 through May 2002. Earlier in his career,

he was a portfolio manager with Montgomery Asset Management, Global Equities

Division from June 1993 through August 1997.

Under the management of Mr. Samra and his co-founding partner, Daniel

O’Keefe, the Global Value team has been nominated five times (in 2008 and

consecutively from 2011-2014) for Morningstar, Inc.’s International-Stock Fund

Manager of the Year award in the US. Mr. Samra holds a bachelor’s degree in

Finance from Bentley College and a master’s degree in Business Administration

from Columbia Business School.

http://hosted.rightprospectus.com/Artisan/

https://www.artisanpartners.com/investment-professionals/terms-conditions.html

https://www.artisanpartners.com/investment-professionals/privacy-policy.html

https://www.artisanpartners.com/investment-professionals/proxy-policies-and-voting-record.html

26

Appendix P: Artisan International Value Fund (ARTKX)

62%

182%

121%

-50%

0%

50%

100%

150%

200%

Relative Artisan International Value Fund - Investor Shares (Net of Fees) MSCI EAFE Value Index (Net)

Total AUM: $10,696M











Median Price / Book Value 2.1x

Weighted Average ROA 8.0%

Active Share 93.9%








Energy 3.8%

Financials 27.8%

Health Care 6.4%

Industrials 15.2%


Materials 0.0%


Utilities 0.0%




1 Yr Lipper Percentile 40th 3 Yr Lipper Percentile 1st

5 Yr Lipper Percentile 1st 10 Yr Lipper Percentile 2nd

Inception Lipper Percentile 2nd

Ratings & Rankings

27

Appendix Q: Artisan Global Value Fund (ARTGX)

36%

70%

34%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Relative Artisan Global Value Fund - Investor Shares (Net of Fees) MSCI All Country World Index (Net)

Total AUM: $1,595M


Availability: Open






Energy 2.7%

Financials 39.8%

Health Care 7.6%

Industrials 8.0%


Materials 0.0%


Utilities 0.0%







Ratings & Rankings






Median Price / Book Value 2.2x%

Weighted Average ROA 5.9%

Active Share 92.3%






28

Appendix R: Artisan Emerging Markets Team Management

Credit Team Portfolio Manager

Developing World Team Portfolio Manager

Emerging Markets Team Portfolio Manager

Lewis S. Kaufman, CFA

Bryan C. Krug, CFA, is a managing director of Artisan Partners and a

portfolio manager on the Credit team. In this role, he is the portfolio

manager for the Artisan High Income Strategy, including Artisan High

Income Fund

Prior to joining Artisan Partners in December 2013, Mr. Krug was the

portfolio manager of Ivy High Income Fund at Waddell & Reed from

February 2006 to November 2013. Mr. Krug joined Waddell & Reed in

2001 as a high yield investment analyst and was later promoted to

portfolio manager. Earlier in his career, he was affiliated with Pacholder

Associates as the primary analyst for a distressed portfolio. Mr. Krug

holds a bachelor’s degree in Finance from Miami University, Richard T.

Farmer School of Business.

Lewis S. Kaufman, CFA

Lewis S. Kaufman, CFA, is a managing director of Artisan Partners and

founding portfolio manager of the Developing World team. Prior to

joining Artisan Partners in February 2015, Mr. Kaufman was a managing

director and portfolio manager for Thornburg Investment Management,

where he managed the Developing World Strategy from its inception in

2009 through January 2015. Mr. Kaufman also co-managed the

International ADR Strategy from 2007 to 2013, after joining Thornburg in

2005 as an associate portfolio manager. Prior to joining Thornburg, Mr.

Kaufman held various investment-related positions with Morgan Stanley

and Citigroup. Mr. Kaufman graduated cum laude with a bachelor's

degree in English from Colgate University and holds a master's degree in

Business Administration from Duke University Fuqua School of

Business. Lewis S. Kaufman, CFA

Lewis S. Kaufman, CFA, is a managing director of Artisan Partners and

founding portfolio manager of the Developing World team. Prior to

joining Artisan Partners in February 2015, Mr. Kaufman was a managing

director and portfolio manager for Thornburg Investment Management,

where he managed the Developing World Strategy from its inception in

2009 through January 2015. Mr. Kaufman also co-managed the

International ADR Strategy from 2007 to 2013, after joining Thornburg in

2005 as an associate portfolio manager. Prior to joining Thornburg, Mr.

Kaufman held various investment-related positions with Morgan Stanley

and Citigroup. Mr. Kaufman graduated cum laude with a bachelor's

degree in English from Colgate University and holds a master's degree in

Business Administration from Duke University Fuqua School of

Business.

Maria-Negrete-Gruson, CFA

Maria Negrete-Gruson, CFA, is a managing director of Artisan Partners

and a portfolio manager on the Emerging Markets team.

Prior to joining Artisan in April 2006, Ms. Negrete-Gruson was the

portfolio manager for DuPont Capital Management's emerging markets

equity portfolios. Before assuming responsibilities as portfolio manager,

she was an international equity analyst at DuPont covering the developed

Asia-ex Japan region. Earlier in her career, she was a foreign exchange

trader for Banco Ganadero in Bogotá, Colombia. Ms. Negrete-Gruson

holds a bachelor's degree in Finance and International Relations from

Universidad Externado in Colombia and a Master of Business

Administration from Columbia Business School. She is fluent in Spanish

and Portuguese.

29

Appendix S: Artisan High Income Fund

8%

3%

-5%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Relative

Artisan High Income Fund - Investor Shares (Net of Fees)

BofA Merrill Lynch U.S. High Yield Master II Total Return Index

Total AUM: $989


Availability: Open




< 1 year 0.0%

1 - <3 years 0.07%

3 - <5 years 13.4%

5 - <7 years 54.3%

7 - <10 years 27.7%

10+ years 3.9%

Maturity Distribution


Number of Issuers 66

Active Share 7.82%

Active Share 8.06%


BBB 6.8%

BB 4.9%

B 4.7%

CCC 4.5%

D 4.3%

Unrated 3.6%

Credit Quality

30

Appendix T: Artisan Developing World Fund (ARTYX)

4.5%

-12.1%

-16.6%

-20%

-15%

-10%

-5%

0%

5%

10%

Relative Artisan Developing World Fund - Investor Shares (Net of Fees) MSCI Emerging Markets Index (Net)

Total AUM: $372M


Availability: Open






Weighted Avg. LIT EPS Growth Rate (3-5 Yr) 17.1%



Active Share 91.1%







Energy 0.0%

Financials 20.3%

Health Care 5.5%

Industrials 7.0%


Materials 0.0%


Utilities 0.0%


Morningstar Overall Rating NA 3 Yr Morningstar Rating NA

5 Yr Morningstar Rating NA 10 Yr Morningstar Rating NA

1 Yr Lipper Percentile NA 3 Yr Lipper Percentile NA

5 Yr Lipper Percentile NA 10 Yr Lipper Percentile NA

Inception Lipper Percentile NA

Ratings & Rankings

31

Appendix U: Artisan Emerging Markets Fund (ARTZK)

-17%

39%

56%

-40%

-20%

0%

20%

40%

60%

80%

100%

Relative Artisan Emerging Markets Fund - Investor Shares Linked (Net of Fees) MSCI Emerging Markets Index (Net)

Total AUM: $56M


Availability: Open

Inception: 2-Jun-08










Active Share 78.1%








Energy 6.4%

Financials 23.7%

Health Care 8.0%

Industrials 5.7%


Materials 6.2%


Utilities 2.1%







Ratings & Rankings

32

Appendix V: Monthly Assets under Management by Fund

April '14 May'14 June '14 July '14 August '14 Sept '14 Oct. '14 Nov. '14 Dec. '14 Jan. '15 Feb. '15 March '15 April '15 May'15 June '15 July '15 August '15 Sept '15 Oct. '15 Nov. '15 Dec. '15

Non-U.S. Growth Closed 27464 28295 29121 28411 28740 28069 28669 29808 29392 30254 31213 31470 32289 32939 32348 32274 29683 28178 30396 30872 30187

% of Total 25.7% 25.9% 26.0% 26.1% 25.7% 26.4% 26.5% 27.2% 27.2% 28.4% 28.3% 29.2% 29.3% 29.5% 29.6% 29.7% 29.2% 29.1% 29.4% 30.1% 30.2%

Non-U.S. Small Cap Growth Closed 1699 1683 1665 1526 1497 1413 1385 1337 1247 1251 1293 1289 1425 1413 1372 1321 1263 1254 1334 1324 1323

% of Total 1.6% 1.5% 1.5% 1.4% 1.3% 1.3% 1.3% 1.2% 1.2% 1.2% 1.2% 1.2% 1.3% 1.3% 1.3% 1.2% 1.2% 1.3% 1.3% 1.3% 1.3%

Global Equity Team Open 316 322 328 326 674 653 682 695 680 682 723 716 741 763 762 801 750 718 764 782 786

% of Total 0.3% 0.3% 0.3% 0.3% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.8% 0.8%

Global Small Cap Open 164 177 186 177 180 166 169 163 133 129 126 126 141 146 143 142 133 130 136 136 138

% of Total 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

U.S. Mid-Cap Value Closed 15467 15563 15802 15191 15548 14627 14403 14155 13740 13076 13389 12881 12476 12213 11532 10774 9903 9211 9429 8774 7959

% of Total 14.5% 14.2% 14.1% 14.0% 13.9% 13.8% 13.3% 12.9% 12.7% 12.3% 12.1% 12.0% 11.3% 10.9% 10.6% 9.9% 9.8% 9.5% 9.1% 8.6% 8.0%

U.S. Small-Cap Value Closed 3780 3696 3593 3570 3266 2852 2834 2634 2414 2077 2018 1533 1525 1502 1297 1092 1059 1002 968 937 854

% of Total 3.5% 3.4% 3.2% 3.3% 2.9% 2.7% 2.6% 2.4% 2.2% 2.0% 1.8% 1.4% 1.4% 1.3% 1.2% 1.0% 1.0% 1.0% 0.9% 0.9% 0.9%

Value Equity Open 2046 2199 2154 2106 2176 2067 2040 2024 1958 1863 1920 1829 1803 2233 2060 1971 1884 1586 1728 1677 1556

% of Total 1.9% 2.0% 1.9% 1.9% 1.9% 1.9% 1.9% 1.8% 1.8% 1.8% 1.7% 1.7% 1.6% 2.0% 1.9% 1.8% 1.9% 1.6% 1.7% 1.6% 1.6%

Total Team AUM 21293 21458 21549 20867 20990 19546 19277 18813 18112 17016 17327 16243 15804 15948 14889 13837 12846 11799 12125 11388 10369

Team % 19.9% 19.6% 19.2% 19.2% 18.7% 18.4% 17.8% 17.2% 16.8% 16.0% 15.7% 15.1% 14.3% 14.3% 13.6% 12.7% 12.7% 12.2% 11.7% 11.1% 10.4%

U.S. Mid- Cap Growth Closed 15936 16193 16713 15999 16775 16094 16826 16953 16634 16320 16986 16898 16691 16607 16552 16925 15820 15019 15615 15628 15103

% of Total 14.9% 14.8% 14.9% 14.7% 15.0% 15.2% 15.6% 15.5% 15.4% 15.3% 15.4% 15.7% 15.2% 14.9% 15.2% 15.6% 15.6% 15.5% 15.1% 15.3% 15.1%

U.S. Small Cap Growth Closed 2669 2694 2894 2644 2762 2624 2734 2731 2744 2629 2726 1651 2551 2508 2493 2492 2365 2259 2333 2353 2270

% of Total 2.5% 2.5% 2.6% 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 1.5% 2.3% 2.2% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3%

Global Opportunities Strategy Open 3002 3203 3885 3995 4225 4127 4737 4832 5121 5146 5447 5515 6041 6600 6661 6800 6442 6459 7127 7396 7556

% of Total 2.8% 2.9% 3.5% 3.7% 3.8% 3.9% 4.4% 4.4% 4.7% 4.8% 4.9% 5.1% 5.5% 5.9% 6.1% 6.3% 6.3% 6.7% 6.9% 7.2% 7.6%

Non-U.S. Value Closed 17450 17938 18298 17800 17898 17046 17158 17268 16872 16713 17491 17326 17713 17886 17588 17608 16640 16016 17210 16508 16257

% of Total 16.3% 16.4% 16.3% 16.4% 16.0% 16.1% 15.9% 15.8% 15.6% 15.7% 15.8% 16.1% 16.1% 16.0% 16.1% 16.2% 16.4% 16.5% 16.6% 16.1% 16.3%

Global Value Open 15230 15638 15811 15510 16639 14977 15146 15508 15609 14893 15648 15186 15366 15389 15007 15050 14099 13573 14559 14221 13925

% of Total 14.3% 14.3% 14.1% 14.2% 14.9% 14.1% 14.0% 14.2% 14.5% 14.0% 14.2% 14.1% 14.0% 13.8% 13.7% 13.8% 13.9% 14.0% 14.1% 13.9% 13.9%

Emerging Markets Open 1310 1321 1237 1223 1147 984 858 859 806 798 773 629 683 653 623 597 547 533 600 589 571

% of Total 1.2% 1.2% 1.1% 1.1% 1.0% 0.9% 0.8% 0.8% 0.7% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.6% 0.6% 0.6%

High Income Open 203 293 311 387 461 505 537 542 565 590 629 674 691 706 726 783 829 912 964 999 989

% of Total 0.2% 0.3% 0.3% 0.4% 0.4% 0.5% 0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.7% 0.7% 0.8% 0.9% 0.9% 1.0% 1.0%

Developing World Open 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 44 69 118 203 278 374

% of total 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.2% 0.3% 0.4%

Total Team 0 0 0 0 0 0 0 0 0 0 0 0 0 0 10 44 69 118 203 278 374

Total AUM 106736 109215 111998 108865 111988 106204 108178 109509 107915 106421 110382 107723 110136 111558 109174 108674 101486 96968 103366 102474 99848

Global Value

Open/Closed Monthly Assets Under Management

Growth Team

U.S. Value Team

Emerging Markets

Credit Team

Developing World

Global Equity Team

33

2008 2009 2010 2011 2012 2013 2014 2015

Assets Under Management 30577 46788 57459 57104 74334 105477 107915 99848

Growth 53.0% 22.8% -0.6% 30.2% 41.9% 2.3% -7.5%

Net Client Cash Flows -1783 2556 3410 1960 5813 7178 788 -6623

Growth 8% 7% 3% 10% 10% 1% -6.1%

% of AUM -5.8% 5.5% 5.9% 3.4% 7.8% 6.8% 0.7% -6.6%

Appendix X: Total Firm Assets Under Management and Net Client Flows

34

NET FLOWS

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Beginning AUM 20092 22082 22189 24761 27317 28604 31300 30301 31452 33601 36774 32429

Net Client Flows 632 32 343 653 1643 1200 596 839 930 1974 194

Market Appreciation (Depreciation) 1358 75 2229 1903 -356 1496 -1595 313 1219 1199 -4539

Ending AUM 22082 22189 24761 27317 28604 31300 30301 31452 33601 36774 32429 32429

Beginning AUM 16722 19248 19582 21421 23024 22051 21549 22701 21267 19398 16175 13085

Net Client Flows 192 98 390 38 -1313 -1106 839 -1705 -2141 -3268 -1636

Market Appreciation (Depreciation) 2334 236 1449 1565 340 604 313 271 272 45 -1454

Ending AUM 19248 19582 21421 23024 22051 21549 22701 21267 19398 16175 13085 13085

Beginning AUM 14692 16893 17766 21044 22503 23414 23605 22957 23440 24005 25212 23243

Net Client Flows 841 394 559 156 492 156 -101 1929 -402 -509 113

Market Appreciation (Depreciation) 1336 503 2719 1303 419 -12 -547 -1446 967 1716 -2082

Ending AUM 16869 17790 21044 22503 23414 23605 22957 23440 24005 25212 23243 23243

Beginning AUM 19886 23214 24659 27976 30887 31925 34039 31953 32411 32442 32556 29550

Net Client Flows 1651 900 781 663 893 239 -240 -67 -524 -683 -324

Market Appreciation (Depreciation) 1677 545 2536 2248 286 1781 -1809 488 555 797 -2682

Ending AUM 23214 24659 27976 30887 31925 34039 31953 32411 32442 32556 29550 29550

Beginning AUM 2942 1765 1595 1729 1746 1327 1237 984 806 629 446 356

Net Client Flows -1130 -10 24 -29 -378 -160 -211 -148 -182 -192 27

Market Appreciation (Depreciation) -47 -160 110 46 -41 70 -42 -30 5 9 -117

Ending AUM 1765 1595 1729 1746 1327 1237 984 806 629 446 356 356

Emerging Markets

Global Value

Growth Team

U.S. Value Team

Global Equity Team

2013 2014 2015

Appendix Y: Net Client Flows by Fund Team

35

2013 2014 2015

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Artisan Funds

Beginning AUM 39603 45684 47518 54489 59881 62475 64816 65902 65192 65584 65802

Net Client Flows 2348 1352 1921 1508 2324 303 2014 -1580 -1254 -1852 -2520

Market Appreciation (Depreciation) 3733 533 5061 3884 305 2217 -554 1128 1799 2070 -4108

Ending AUM 45684 47518 54489 59881 62475 64816 65902 65192 65584 65802 58916

Separate Account

Beginning AUM 34731 37494 38273 42431 45585 44911 47214 46897 49276 49692 50733

Net Client Flows -162 62 176 -27 -911 255 -688 1042 -974 -680 -1313

Market Appreciation (Depreciation) 2925 666 3982 3181 343 1728 34 1043 1237 1721 -3006

Ending AUM 37494 38273 42431 45585 44911 47214 46897 49276 49692 50733 46672

Total Client Flows -2510 -1290 -1745 -1535 -3235 -48 -2702 2622 280 1172 1207

Appendix Z: Net Client Flows for Artisan Funds and Separate Accounts

36

Appendix AA: SWOT Analysis

Strengths:

1.) Autonomous Structure: Artisan Partners consists of 7 autonomous teams, which implement 15 distinct strategies. The autonomous

structure allows for the company to maintain a “boutique” type structure, which allows for more independence among strategies and originality

in research. Each strategy doesn’t need to handle its own business operations, which allows for the portfolio manager and his or her team to

focus on higher quality research and outperforming the market.

2.) Expense flexibility: During a meeting with company management, Charles Daley, APAM’s CFO, mentioned that 65% of the company’s

expenses are variable. Since revenue is based off of fees on AUM, the majority of the company’s compensation structure is based off of the

previous quarter’s revenues. This offers protection for the company during periods of AUM outflows.

3.) Strong Fund Ratings: Out of Artisan’s 15 strategies, 12 have been rated by Morningstar, 7 of which maintain a rating of 4 or higher.

Two funds were upgraded during 2015: The U.S Small Cap Growth, which was upgraded from three to four stars, and the Emerging Markets

Strategy, which was upgraded from one to two stars.

Weaknesses:

1.) Closed Funds: To protect performance, Artisan will, from time to time, close a fund and restrict new outside investment. As of

February 2016, 75.2% of the company’s AUM is invested in closed funds. This severely restricts any sort of growth potential for the company,

as the only way to increase its AUM in a closed fund is through market appreciation.

2.) Lack of Diversification: Artisan Partners employs a long only strategy, comprised of 99% equity. Post-recession, this strategy has

proven to work remarkably. In 2011, Scott Satterwhite, Jim Kieffer, and George Sertl of the U.S. Value team won Morningstar’s Domestic

manager of the Year award. Since then, the value team has underperformed the market, with the Artisan Value Fund and U.S. Small-Cap Value

Fund underperforming since 2012 and the U.S. Mid-Cap Value Fund underperforming since 2011, with the exception of a slight outperformance

in 2013. When a strategy, or the market as a whole, is out of favor, Artisan doesn’t have a way to combat this; they simply need to ride out the

cycle.

3.) Heavily Weighted in Institutional Distribution: At 61%, institutional investors comprise the largest portion of APAM’s

distribution mix. Compared to the industry average of 37%, Artisan is at a disadvantage to benefit from the recent surge in retail flows.

Considering that retail fees are higher than institutional, this is a field that Artisan should be playing in.

Opportunities:

1.) Alternative Investments: Alternative investments, which include private equity, real estate, hedge funds, etc., perform with a low

correlation to traditional investments, such as stocks and bonds. As a result, premium fees are charged on alternative investments. In 2013, 30%

of the industry’s revenues came from alternatives, even though they only made up 12% of the industry’s assets. Alternatives have been a strong

area of growth in this industry over the last ten years. From 2005 to 2013, AUM in alternative investments has grown at a compound annual rate

of 9.4%.

2.) Asia-Pacific Region: In 2014, this region, excluding Japan, overtook Europe to become the world’s second wealthiest nation. The

Boston Consulting Group reports that this region is expected to surpass North America as the wealthiest region in the world in 2016. Asia-

Pacific has three of the world’s most populous regions, which make up about 56% of the world’s population. However, Asia-Pacific only

represents about 15% of global AUM. This is obviously an underserved market, which should get more attention from asset management firms

in the coming decade.

Threats:

1.) Passive Investing: Indexing strategies and ETFs have grown significantly over the past 15 years, and have consequently gained market

share at the expense of active management strategies. This is a result of active managers charging much higher fees than passive strategies, while

often times failing to outperform the benchmark. Only 18% of active large-cap funds beat the market on a 10 year basis at the end of 2014. If

this trend continues, active asset management will see a period of firm consolidation.

2.) Unforeseen withdrawals: Management fees make up 99% of the firm’s revenues. All of these relationships, however, are terminable by

clients upon short or no notice. While it is unlikely that several institutional clients will pull their money out at once, even a couple doing so

could have a material impact on the firm’s revenues.

37

Appendix AB: Porter’s 5 Forces

Negotiating Power of Buyers: High

Since mutual funds are a pool of assets broken into smaller pieces, they are required by law to offer investors of the same pool the same fee

structure. This is not the case, however, for institutional clients. In fact, because of the massive account size of institutional investors, they are

often able to negotiate the terms of their contracts. During a time when active management fees have been feeling the pressures of passive

management strategies, institutional clients have been adding to the pressure by negotiating lower fees.

Negotiating Power of Suppliers: Low

Supplier power has been under increasing pressure due to the rising popularity of lower fee index funds. Thus, only managers that have a

consistent record of alpha generation are able to justify a fee above the industry average. The threat of passive management will continue to

erode at the negotiation power of suppliers over time. Suppliers that offer products not easily replicated by passive strategies have considerably

more negotiating power than the rest of the industry.

Threat of New Entrants: Medium

The asset management industry is highly regulated, requiring complete legal compliance from all firms. With the legal fees and all other

expenses associated with starting an asset management firm makes the industry quite capital intensive. While building assets under management

and creating a strong track record, it’s common for start-up asset management firms to generate very little revenue for the first few years. To

generate average revenues while charging industry competitive fees, tens of millions of dollars of assets under management are required.

Threat of Substitutes: High

Artisan Partners and other active management strategies have been feeling the pressure of low fee, passive management strategies. This theme

has been developing over the past decade, as fewer active management strategies have been able to beat the market. In fact, only 18% of active

large-cap funds beat the market on a 10-year basis at the end of 2014. Poor active management performance, combined with reduced operating

costs and fees, have led to passive management funds taking a significant share of the market.

Industry Rivalry: High

The performance driven nature of the industry makes competition fierce between industry competitors. In general, firms that have the best

performance relative to peers are able to grow organic assets the fastest. Additionally, all asset managers compete for the same finite pool of

applicable assets. To gain market share an asset manager needs a combination of the following: superior relative performance, effective

distribution channels, brand recognition, product diversity, or competitive fees.

38

Appendix AC: APAM’s Organizational Structure as of December 31, 2014

On March 9, 2015, APAM issued 3,381,550 shares of Class A common stock and used the proceeds to purchase 3,831,550 common units of Artisan Partners Holdings.

During the nine months ended September 30, 2015, limited partners of Artisan Partners Holdings exchanged 805,238 Holdings units for 805,238 shares of common stock. APAM received 805,238 GP units of Artisan Partners Holdings in the exchange.

As a result, APAM’s equity ownership interest in Artisan Partners Holdings increased from 47% at December 31, 2014 to 54% at September 30, 2015.

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Appendix AD: Discounted Cash Flow Model

40

Appendix AE: Financial Statements First Stage

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Appendix AF: Financial Statements Second Stage

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Disclosures: Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation:

Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director:

The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making:

The author(s) does not act as a market maker in the subject company’s securities. Disclaimer:

The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Society Madison, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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