Artisan Partners going strong a year after IPO

A year after going public, Artisan Partners Asset Management Inc. is on a roll that is enriching clients, stockholders, financial backers and employees.

Stock market gains combined with outperformance in most of its strategies have helped increase assets by 31% in the months since its March 7, 2013, initial public offering. Assets under management at the equity manager increased to $109.3 billion as of Feb. 28, up from $83.2 billion as of March 31, 2013.

Investors have pushed up the stock price and Artisan's founders, employees and financial backers are dividing up about $575 million following a new secondary market offering.

“Investor interest remains strong due to strong relative investment performance, organic growth and an attractive dividend yield,” said Christopher Shutler, an equity analyst with William Blair & Co. in Chicago. He said the dividend yield should equal roughly 5% of Artisan's stock price in 2014.

Artisan stock closed at $63.30 on March 28, more than double its IPO price a year ago. At that time, 11.1 million shares were sold at $30 a share.

A sold-out secondary offering on March 12 saw more than 9 million shares purchased at $62 each. Artisan employees were prohibited from selling more than 15% of shares they own, but that still provided about $86 million for the biggest sellers, Artisan founder Andrew Ziegler and his wife, Carlene, who sold 1.4 million shares.

Other big sellers were Mark Yockey, global equity portfolio manager, who received about $47 million, and Andrew Stephens, growth team portfolio manager, roughly $22 million.

Mr. Ziegler and his wife face a much bigger payday as soon as June 14, according to Securities and Exchange Commission filings. That's when, without restrictions, they will be allowed to sell the almost 8.2 million shares of Artisan they still own. If the stock still fetches $62 a share, they would make $507 million, if they sold all the shares.

Private equity firm Hellman & Friedman LLC, San Francisco, is also a big winner. The firm netted about $310 million for selling 5.2 million shares in the secondary offering. Hellman & Friedman, which invested an undisclosed amount in Artisan in 2006, collected about $298 million in another secondary sale last October.

Mr. and Ms. Ziegler founded Artisan Partners, Milwaukee, in 1994 after both left Strong Capital Management in suburban Milwaukee, where Mr. Ziegler was president and Ms. Ziegler was a portfolio manager. Ms. Ziegler, Artisan's first portfolio manager, retired in 2008.

Mr. Ziegler stepped down as Artisan's CEO in January 2010, and Eric Colson, a former top executive at investment consultant Callan Associates, succeeded him. Mr. Ziegler remained executive chairman until the secondary sale this month. He is still chairman of the board of Artisan Partners Asset Management.

Mr. Shutler said Artisan's strong investment culture has been the basis of the firm's success. He said the firm's seven investment teams operate autonomously with separate team leaders and research staff. There is no centralized chief investment officer. Each team receives 25% of revenue generated by assets under management in their separate accounts and mutual funds, creating “more of a direct alignment than at most firms,” Mr. Shutler said.

Mr. Colson said Artisan has been able to attract top investment talent for its autonomous teams because the firm allows them to create their own work environments.

“You see so many things creep into an organization, "no you can't do this' and "no you can't do that,'” he said. “People get frustrated and that's why we get lots of opportunity to meet talent. ... We provide an enormous amount of flexibility for our investment talent so this is the best place to work.”

Mr. Colson said the flexibility includes where teams want to work. Only one team works in Milwaukee; others are in New York, Atlanta, San Francisco and Kansas City, Kan. He said the investment process is so decentralized that the two teams in San Francisco work in separate buildings. Mr. Colson should know — he, too, works in San Francisco.

Artisan has succeeded by hiring portfolio managers from other firms who already own proven track records, said Greg Carlson, senior fund analyst with Morningstar Inc., Chicago.

Mr. Carlson said seven of the firm's 14 mutual funds now have 10-year records. Of those, five outperformed at least 80% of their peers and the other two outperformed half.

Around 40% of the firm's $109.3 billion is in separate accounts that mirror the firm's mutual funds.

One of the largest is global value equity, with $14.1 billion; it has been one of Artisan's strong performers.

The global value equity strategy returned 33.74% for the year ended Dec. 31, vs. 22.8% for its benchmark, the MSCI All Country World index-ND, according to eVestment LLC, Marietta, Ga. For three years, the strategy returned an annualized 18.55%, vs. 9.73% for the benchmark; for five years, it returned 21.45% vs. 14.92% for the benchmark.

The strategy has been closed to new investors since February 2013; this January, the mutual fund version was closed. Company officials say the closings were necessary to maintain the strategy's investment integrity.

Half of the company's 14 strategies were closed to new investors in prior years, including non-U.S. small-cap growth, U.S. midcap growth and U.S. midcap value, and have not reopened.

Artisan statistics show that separate account net inflows were flat in 2013. The largest chunk of asset growth was due to market performance, which added more than $22 billion to the firm's assets under management. Mutual fund net inflows added the remainder.

Closing strategies has had an effect on separate account net inflows, said Michael Roos, a Milwaukee-based managing director at Artisan. Mr. Roos said company officials are confident institutional investors will see the value in some of the firm's other strong-performing strategies.

William Katz, analyst for Citigroup, New York, agreed that closures can affect inflows. But Mr. Katz said Artisan is also being affected, like its competitors, by lumpiness in the institutional market, fueled by institutional investors that have avoided making asset allocation changes because of uncertainty about where to invest.

Still, Mr. Katz said he expects Artisan to realize a 10% organic growth rate in 2014 compared to flat growth for other public money managers. That's because of Artisan's overall solid investment performance and its increasing presence in Europe, he said. He said assets from European investors account for about 11% of the firm's AUM, up from close to zero several years ago.

Analysts are also expecting Artisan's first new investment team in seven years — and first move into fixed income — to provide a new source of inflows.

Portfolio manager Brian Krug, who started in December, came from Waddell & Reed Inc. to lead Artisan's first credit team. He launched the Artisan High-Income Fund on March 19. Mr. Krug will lead a four-person team investing in high-yield credit opportunities, including high-yield and senior secured loans. The company also plans to offer separate accounts based on that strategy.

Mr. Krug ran a fund with a similar strategy, the Ivy High-Income Fund at Waddell & Reed.; none of his new team worked with him at Waddell & Reed.

Mr. Shutler said it's not surprising Artisan picked a high-yield approach; high yield has a more likely chance of producing alpha than core or core-plus strategies.

Mr. Colson said he meets with up to 50 investment teams a year, and would like to add more, but finding a team with solid results that fits into Artisan's culture isn't easy.

Mr. Shutler said he believes likely choices could include a hedge fund team and a long/short equity team.