Artisan Partners Strong Positions Continue in January


On Tuesday, after the markets closed, Artisan Partners reported January 31 assets under management (AUM) of $103.0 billion, representing a 2.4% decline from December 31. This compares with the $104.0 billion we forecast for quarter-end. We estimate markets contributed about negative $3.5 billion, while net client inflows were about $0.9 billion, above recent trends and equating to an 11% annualized organic growth rate. For reference, we forecast $1.8 billion of inflows for the quarter, so Artisan is pacing ahead of our estimate thus far. Inflows appear to have been led by the non-U.S.

growth strategy at $0.5 billion, while we estimate the global value team’s two strategies each posted $0.2 billion to $0.3 billion of flows as well. As a reminder, on January 28 Artisan announced the closing of its global value strategy to new fund investors to protect the integrity of the strategy; we expect continued inflows in 2014 and 2015 but at a more moderate pace.

Artisan trades at 19.3 and 17.6 times our 2014 and 2015 adjusted EPS estimates, or approximately 18.0 and 15.8 times excluding stock-based compensation expense. In addition, the company recently raised its regular quarterly dividend from $0.43 to $0.55 (3.7% yield) and declared a special dividend of $1.63 (2.7% yield). Both dividends will be paid on February 28 to shareholders of record as of the markets close on February 14.

We maintain our Market Perform rating for now, primarily because of valuation, which is justifiably at the upper end of the peer group but makes it difficult to argue for material multiple expansion, as well as concentration in a handful of strategies. In addition, Artisan has been transparent in its intention to hold a secondary offering this spring, which could hold back shares in the near term. We continue to like the company’s unique culture, investment performance, dividend policy, and management execution, but we would prefer a wider margin for error before taking a more aggressive stance.


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