Artisan Partners Asset Management Inc. (APAM) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the “Forward-Looking Statements” disclosure preceding Part I and the “Risk Factors” set forth in Item 1A of Part I of this Annual Report on Form 10‑K, each of which describe our risks, uncertainties and other important factors in more detail.

Overview and Recent Highlights

We are an investment management firm focused on providing high value-added, active investment strategies for sophisticated clients around the world. As of December 31, 2024, our 11 autonomous investment teams managed a total of 25 investment strategies across multiple asset classes and investment styles.

We focus on attracting, retaining and developing talented investment professionals and creating an environment in which each investment team is provided ample resources and support, transparent and direct financial incentives, a high degree of investment autonomy, and a long-term time horizon. We create new investment strategies when we identify opportunities to add value for clients, oftentimes through the use of a broad array of securities, instruments, and techniques (which we call degrees of freedom) to differentiate returns and manage risk.

We offer our investment management capabilities primarily to sophisticated investors that operate with institutional decision-making processes and longer-term investment horizons. We employ knowledgeable and investment focused relationship managers who are directly aligned with our investment teams, and we pair them with regional and distribution channel experts. We provide access to our investment strategies through multiple investment vehicles, including separate accounts and different types of pooled vehicles. As of December 31, 2024, approximately 75% of our AUM were managed for clients and investors domiciled in the U.S. and 25% of our AUM were managed for clients and investors domiciled outside of the U.S.

As a high value-added investment manager we expect that long-term investment performance will be the primary driver of our long-term business and financial results. If we maintain and evolve existing investment strategies and launch new investment strategies that meet the needs of and generate attractive outcomes for sophisticated asset allocators, we believe that we will continue to generate strong business and financial results.

Over shorter time periods, changes in our business and financial results are largely driven by market conditions and fluctuations in our AUM that may not necessarily be the result of our long-term investment performance or the long-term demand for our strategies. For this reason, we expect that our business and financial results will be lumpy over time.

We strive to maintain a financial model that is transparent and predictable. We derive nearly all of our revenues from investment management fees, most of which are based on a specified percentage of clients’ average AUM. A majority of our expenses, including most of our compensation expense, vary directly with changes in our revenues.

We invest thoughtfully to support our investment teams and future growth, while also paying out to stockholders and partners a majority of the cash that we generate from operations through dividends and distributions. We expect to continue to invest in the growth of the business, with a focus on adding new investment capabilities and more degrees of freedom in areas where both opportunity and client demand exist, and in which we can differentiate our active management and add value for clients.

Financial highlights for 2024 included the following:

•During the year ended December 31, 2024, our AUM increased to $161.2 billion, an increase of $11.0 billion, or 7%, compared to $150.2 billion at December 31, 2023, as a result of $15.9 billion of market appreciation, partially offset by $3.7 billion of net client cash outflows, and $1.2 billion of Artisan Funds’ distributions that were not reinvested by fund shareholders.

•Average AUM for the year ended December 31, 2024 was $160.2 billion, an increase of 15.0% from the average of $139.3 billion for the year ended December 31, 2023.

•We earned $1,111.8 million in revenue for the year ended December 31, 2024, a 14.0% increase from revenues of $975.1 million for the year ended December 31, 2023.

•Our GAAP operating margin was 33.0% in 2024, compared to 31.1% in 2023. Adjusted operating margin was 33.8% in 2024, compared to 31.6% in 2023.

•We generated $3.66 of earnings per basic and diluted share and $3.55 of adjusted EPS.

•We declared and distributed dividends of $3.16 per share of Class A common stock during 2024.

•We declared, effective February 4, 2025, a quarterly dividend of $0.84 per share of Class A common stock with respect to the December 2024 quarter and a special annual dividend of $0.50 per share, for a total of $3.48 of dividends per share with respect to 2024.

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Organizational Structure

Organizational Structure

Our operations are conducted through Artisan Partners Holdings LP (“Holdings”) and its subsidiaries. On March 12, 2013, Artisan Partners Asset Management Inc. (“APAM”) and Holdings completed a series of transactions (the “IPO Reorganization”) to reorganize their capital structures in connection with the initial public offering (“IPO”) of APAM’s Class A common stock. The IPO Reorganization and IPO were completed on March 12, 2013.

Limited partners of Holdings, some of whom are employees, held approximately 13% of the equity interests in Holdings as of December 31, 2024. Our results reflect that significant noncontrolling interest.

We operate our business in a single segment.

Holdings Unit Exchanges

During the year ended December 31, 2024, certain limited partners of Holdings exchanged 1,173,667 common units (along with a corresponding number of shares of Class B or Class C common stock of APAM, as applicable) for 1,173,667 shares of Class A common stock. In connection with the exchanges, APAM received 1,173,667 GP units of Holdings.

APAM’s equity ownership interest in Holdings increased from 86% at December 31, 2023 to 87% at December 31, 2024, as a result of these transactions and other equity transactions during the period.

Financial Overview

Economic Environment

Economic uncertainty and volatility in global financial markets impact the value of our AUM. Because the revenue we earn is based on the value of our AUM, fluctuations in our AUM due to changes in the economic environment and financial markets will result in corresponding fluctuations in our revenues and earnings.

The following table presents the total returns of relevant market indices for the years ended December 31, 2024, 2023 and 2022:

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Key Performance Indicators

When we review our business and financial performance we consider, among other things, the following:

Assets Under Management and Investment Performance

Changes to our operating results from one period to another are primarily caused by changes in the amount of our AUM. Changes in the relative composition of our AUM among our investment strategies and vehicles and the effective fee rates on our investment products also impact our operating results.

The amount and composition of our AUM are, and will continue to be, influenced by a variety of factors including, among others:

•investment performance, including fluctuations in both the financial markets and foreign currency exchange rates and the quality of our investment decisions;

•flows of client assets into and out of our various strategies and investment vehicles;

•our decision to close strategies or limit the growth of assets in a strategy or a vehicle when we believe it is in the best interest of our clients, as well as our decision to re-open strategies, in part or entirely;

•our ability to attract and retain qualified investment, management, and marketing and client service professionals;

•industry trends towards products, strategies, vehicles or services that we do not offer;

•competitive conditions in the investment management and broader financial services sectors; and

•investor sentiment and confidence.

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The table below sets forth changes in our total AUM:

During 2024 our AUM increased by $11.0 billion due to $15.9 billion of market appreciation, partially offset by $3.7 billion of net client cash outflows and $1.2 billion of Artisan Funds’ distributions that were not reinvested by fund shareholders. For the year, 13 of our 25 investment strategies had net inflows totaling $5.8 billion, which were offset by $9.5 billion of net outflows from the remaining strategies.

Over the long-term, we expect to generate the majority of our AUM growth through investment returns, which has been our historical experience.

We monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies and the velocity at which the strategies are experiencing inflows. When appropriate, we will close a strategy to new investors or otherwise take action to slow or restrict its growth, even though our aggregate AUM may be negatively impacted in the short term. We may also re-open a strategy, widely or selectively, to fill available capacity or manage the diversification of our client base in that strategy. We believe that management of our investment capacity protects our ability to manage assets successfully, which protects the interests of our clients and, in the long term, protects our ability to retain client assets and maintain our profit margins.

As of the date of this filing, the Artisan High Income Fund, Artisan International Value Fund and Artisan International Small-Mid Fund are closed to most new investors and their respective strategies are generally not accepting new client relationships. From time to time when Artisan Partners believes the strategy has capacity, it may, however, accept a new separate account relationship at its discretion. In addition, we are actively managing the capacity of our U.S. Small-Cap Growth strategy with respect to new client relationships.

When we close or otherwise restrict the growth of a strategy, we typically continue to allow additional investments in the strategy by existing clients and certain related entities. We may also permit new investments by other eligible investors in our discretion. As a result, during a given period we may have net client cash inflows in a closed strategy. However, when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows.

The unaudited table on the following page sets forth the average annual total returns (gross of fees) for each composite and its respective benchmark (and style benchmark, if applicable) over a multi-horizon time period as of December 31, 2024. Returns for periods less than one year are not annualized.

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The tables below set forth changes in our AUM by investment team:

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The goal of our marketing, distribution and client service efforts is to establish and maintain a client base that is diversified by investment strategy, client type and distribution channel. As distribution channels have evolved to have more institutional-like decision making processes and longer-term investment horizons, we have expanded our distribution efforts into those areas. The table below sets forth our AUM by distribution channel:

Our institutional channel includes AUM sourced from defined contribution plan clients, which made up approximately 8% of our total AUM as of December 31, 2024. Across our institutional, intermediary and retail channels, we generally consider approximately 59% of our AUM as of December 31, 2024 to be attributed to intermediated wealth clients.

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The following tables set forth the changes in our AUM by vehicle type:

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The following table sets forth our AUM by asset class:

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Artisan Funds and Artisan Global Funds

As of December 31, 2024, Artisan Funds comprised $69.8 billion, or 43%, of our AUM. For the year ended December 31, 2024, fees from Artisan Funds represented $636.2 million, or 57%, of our revenues. Our contractual tiered fee rates for the series of Artisan Funds range from 0.60% to 1.05% of fund assets, depending on the investment strategy, the amount invested and other factors.

As of December 31, 2024, Artisan Global Funds comprised $7.8 billion, or 5%, of our AUM. For the year ended December 31, 2024, fees from Artisan Global Funds represented $52.6 million, or 5%, of our revenues. Our contractual fee rates for Artisan Global Funds range from 0.50% to 1.85% of AUM.

The weighted average management fee rate paid by our Artisan Funds and Artisan Global Funds clients in the aggregate was 0.887%, 0.901%, and 0.907%, for the years ended December 31, 2024, 2023 and 2022, respectively.

Separate Accounts and Other

AUM within the “separate accounts and other” category consists of assets we manage in or through vehicles other than Artisan Funds or Artisan Global Funds, including traditional separate accounts, Artisan-branded collective investment trusts and Artisan Private Funds, as well as assets under advisement related to clients for whom we provide investment models but do not have discretionary investment authority. Assets within the “separate accounts and other” category comprised $83.6 billion, or 52%, of our AUM as of December 31, 2024. For the year ended December 31, 2024, fees from these clients represented $423.0 million, or 38%, of our revenues.

Traditional separate account clients are generally subject to standard fee schedules that vary by investment strategy and, through the application of standard breakpoints, reflect the size of the account and client relationship. The weighted average management fee rate paid by our traditional separate account clients was 0.472%, 0.489%, and 0.484% for the years ended December 31, 2024, 2023 and 2022, respectively. There are a number of exceptions to our standard fee schedules, including exceptions based on the nature of a client relationship and the aggregate value of a client’s assets under our management. In general, our effective rate of fee for a particular client relationship declines as the assets we manage for that client increase, which we believe is typical for the asset management industry.

A number of our investment strategies are accessible to certain types of employee benefit plans through Artisan-branded collective investment trusts. We act as investment adviser to the collective investment trusts and earn a management fee for providing this service. The weighted average management fee rate paid by our Artisan-branded collective investment trust clients was 0.701%, 0.665%, and 0.714% for the years ended December 31, 2024, 2023 and 2022, respectively.

Artisan serves as the investment manager and acts as the general partner for certain Artisan Private Funds. Under the terms of these agreements, Artisan earns a management fee, and for certain funds is entitled to receive either an allocation of profits or a performance-based fee. The weighted average management fee rate paid by our Artisan Private Funds clients was 0.447%, 0.654%, and 0.809% for the years ended December 31, 2024, 2023 and 2022, respectively.

The weighted average management fee rate paid by clients within the “separate accounts and other” category in the aggregate was 0.494%, 0.508% and 0.512% for the years ended December 31, 2024, 2023 and 2022, respectively.

Because, as is typical in the asset management industry, our rates of fee decline as the assets under our management in a relationship increase, and because of differences in our fees by investment strategy or investment vehicle, a change in the composition of our AUM, in particular a shift of assets to strategies or vehicles with lower effective rates of fees, could have a material impact on our overall weighted average rate of fee. See “—Qualitative and Quantitative Disclosures Regarding Market Risk—Market Risk” for a sensitivity analysis that demonstrates the impact that certain changes in the composition of our AUM could have on our revenues.

Investment Advisory Revenues

Essentially all of our revenues consist of fees earned from managing clients’ assets. Investment advisory fees, which are comprised of management fees and performance fees (including incentive allocations), fluctuate based on a number of factors, including the total value of our AUM, the composition of AUM among investment vehicles and investment strategies, changes in the fee rates on our products, the extent to which we enter into fee arrangements that differ from our standard fee schedules, which can be affected by custom and the competitive landscape in the relevant market, and, for the accounts on which we earn performance fees, the investment performance of those accounts.

The different fee structures associated with Artisan Funds, Artisan Global Funds and separate accounts and other pooled vehicles, and the different fee schedules applicable to each of our investment strategies, make the composition of our AUM an important determinant of the investment management fees we earn. Historically, we have received higher effective rates of investment management fees from Artisan Funds and Artisan Global Funds than from traditional separate accounts, reflecting, among other things, the different and broader array of services we provide to Artisan Funds and Artisan Global Funds. Our investment management fees also differ by investment strategy, with higher-capacity strategies having lower standard fee rates than strategies with more limited capacity.

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Certain separate account clients pay us fees based on the performance of their accounts relative to agreed-upon benchmarks, which typically results in a lower base fee, but allows us to earn higher fees if the performance we achieve for that client is superior to the performance of the agreed-upon benchmark. We may also receive performance fees or incentive allocations from Artisan Private Funds. Approximately 3% of our $161.2 billion of AUM as of December 31, 2024 have performance fee billing arrangements. Performance fees of $14.8 million, $4.3 million, and $0.6 million were recognized in the years ended December 31, 2024, 2023 and 2022, respectively.

The following table sets forth revenues we earned by vehicle type for the years ended December 31, 2024, 2023 and 2022:

Management fees and performance fees (including incentive allocations) earned from consolidated investment products are eliminated from revenue upon consolidation.

For each of the years ended December 31, 2024, 2023 and 2022, approximately 80%, 82%, and 82%, respectively, of our investment advisory fees were earned from clients located in the United States.

Operating Expenses

Our operating expenses consist primarily of compensation and benefits, distribution, servicing and marketing, occupancy, communication and technology, and general and administrative expenses.

Our expenses fluctuate due to a number of factors, including the following:

•variations in the amount of total compensation expense due to, among other things, changes in the amount of incentive compensation earned and equity awards made, variations in our employee count (including the addition of new investment teams), changes in our product mix and other competitive factors; and

•expenses, such as distribution fees, rent, professional service fees, technology and data-related costs, that are incurred to operate and grow our business.

A significant portion of our operating expenses are variable and fluctuate in direct relation to our AUM and revenues. Even if we experience declining revenues, we expect to continue to make the expenditures necessary for us to manage and grow our business. As a result, our profits may decline.

Compensation and Benefits

Compensation and benefits includes (i) salaries, incentive compensation and benefits costs and (ii) long-term incentive compensation expense related to equity and cash awards granted to employees.

Incentive compensation comprises a significant portion of our senior employees’ total compensation. The amount of incentive compensation paid to members of our investment teams and distribution team is based in large part on formulas that are tied directly to revenues. For each of our investment teams, incentive compensation generally represents 25% of the asset-based management fees and a share of performance-based fees generated by the AUM in the team’s strategy or strategies. Incentive compensation paid to most other employees is discretionary and determined based on individual performance and our overall results during the applicable year.

The Company is primarily self-insured for health benefits up to certain annual stop-loss limits. Expense is recognized based on claims filed and an estimate of claims incurred but not yet reported, as determined by an independent third party.

Fixed compensation costs are comprised primarily of salaries, benefits, and long-term incentive compensation expense. Fixed compensation costs, exclusive of long-term incentive compensation, are expected to increase mid- to low- single digits in 2025 reflecting merit increases and the absorption of a full year of expense for full time employees hired in 2024.

Certain compensation and benefits expenses are generally higher in the beginning of the year, including employer funded retirement and health care contributions and payroll taxes. We expect these expenses will add approximately $6 million to our expenses in the first quarter of 2025, compared to the fourth quarter of 2024.

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Equity awards granted to our employees consist of standard restricted awards that generally vest on a pro rata basis over 5 years and career awards that vest when both of the following conditions are met (1) pro-rata time vesting over 5 years and (2) a qualifying retirement (as defined in the award agreements). Beginning with the 2024 grant, equity awards are also subject to a traditional retirement provision that eliminates the pro rata 5-year vesting requirement when a career award recipient has a qualified retirement after having met an age plus years of service threshold of 70. Career vesting awards granted to investment team members are generally further subject to the Franchise Protection Clause, which applies to current or future portfolio managers and founding investment team members. The Franchise Protection Clause provides that the total number of career awards ultimately vesting will be reduced to the extent that cumulative net client cash outflows from the award recipient’s investment team during a specified measurement period exceeds a set threshold. Performance share units (“PSUs”) were granted to certain executive officers of the Company in 2020, 2021 and 2022. The number of PSUs that vest is dependent upon the Company’s adjusted operating margin and total stockholder return relative to a peer group over a three year measurement period. Once determined the extent to which the performance conditions have been met, 50% of the PSUs eligible to vest will vest and the underlying shares will be delivered. The remaining 50% of the PSUs eligible to vest will vest upon a qualified retirement. No performance share units have been granted subsequent to 2022 and the final performance period was completed on December 31, 2024.

The estimated grant date fair value of equity awards is recognized as compensation expense on a straight-line basis over the requisite service period of the award. The initial requisite service period is generally five years for restricted stock awards and restricted stock units, and three years for PSUs. If an employee is eligible to fully vest in an award upon a qualified retirement, the initial requisite service period is equal to the employee’s required retirement notice period, which is generally 12 or 18 months.

We grant cash-based long-term incentive awards, referred to as franchise capital awards, to certain investment team members in lieu of additional equity awards. Franchise capital awards are subject to the same vesting and forfeiture provisions as the equity awards. Prior to vesting, franchise capital awards are generally allocated to one or more of Artisan’s investment strategies. The underlying investment holdings and franchise capital award liability are marked to market value each quarter. The change in value of the award liability is included in compensation expense. The change in value of the underlying investment holdings is included in non-operating income/(expense).

We expect to reserve approximately 4% of our management fee revenues each quarter for future franchise capital awards, which we expect to make after the conclusion of each year. Over the long-term, we believe the economic impact of the reduced cash available for dividends will be offset by a corresponding reduction in dilution, as we expect to grant fewer equity awards as a result of the franchise capital awards.

During the first quarter of 2025, the Board approved the annual grant of long-term incentive awards with a grant date fair value of $65.9 million consisting of $19.1 million of restricted share-based awards and $46.8 million of franchise capital awards, to certain employees pursuant to the Company’s 2023 Omnibus Incentive Compensation Plan. The grant will be effective March 3, 2025.

Since the IPO, and including the grant in the first quarter of 2025, our Board has approved equity grants of 12,800,786 restricted share-based awards. Total unrecognized non-cash compensation expense for these awards is $72.2 million. As of the date of this filing, unvested equity awards consist of the following number of shares by vesting condition:

Including the long-term incentive award approved in the first quarter of 2025, total unrecognized long-term incentive compensation expense (including both equity grants and franchise capital awards) is $211.1 million. Long-term incentive compensation expense in 2025 is expected to be $75.0 million, excluding the impact of investment returns on the franchise capital awards’ underlying investments.

We expect to continue to make annual long-term incentive awards each year, though the form and structure of the awards may change as we seek to maximize alignment between our associates and our clients and stockholders. The actual amount of the expense over time will depend primarily on the size of awards made. The size of the annual long-term incentive awards will vary from year to year and will be influenced by our results and other factors. From time to time, we may also grant individual long-term incentive awards in connection with talent acquisition and retention.

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Distribution, Servicing and Marketing

Distribution, servicing and marketing expenses primarily represent payments we make to broker-dealers, financial advisors, defined contribution plan providers, mutual fund supermarkets and other intermediaries for selling, servicing and administering accounts invested in shares of Artisan Funds. Artisan Funds authorizes intermediaries to accept purchase, exchange and redemption orders for shares of Artisan Funds on behalf of Artisan Funds. Many intermediaries charge a fee for those services. Artisan Funds pays a portion of some of those fees, which portion is intended to compensate the intermediary for its provision of services of the type that would be provided by Artisan Funds’ transfer agent or other service providers if the shares were registered directly on the books of Artisan Funds’ transfer agent. Like the investment management fees we earn as adviser to Artisan Funds, distribution, servicing and marketing fees typically vary with the value of the assets invested in shares of Artisan Funds. The allocation of such fees between us and Artisan Funds is determined by the board of Artisan Funds, based on information and a recommendation from us, with the goal of allocating to us, at a minimum, all costs attributable to the marketing and distribution of shares of Artisan Funds. A significant portion of Artisan Funds’ shares are held by investors through intermediaries to which we pay distribution, servicing and marketing expenses.

Total distribution, servicing and marketing fees will increase as we increase our AUM sourced through intermediaries that charge these fees or similar fees. The amount we pay to intermediaries for distribution and administrative services varies by share class. As assets have transferred from the Investor share class to the Advisor and Institutional share classes, the amount we have paid for distribution, servicing and marketing relative to average AUM in the Artisan Funds has decreased. Consistent with the experience of other investment managers, as the foregoing expenses have decreased, we have seen increased requests from intermediaries for alternative forms of compensation. To date, such alternative forms of compensation have not been material, but they could be over time.

Occupancy

Occupancy expenses include operating leases for facilities, furniture and office equipment, miscellaneous facility related costs and depreciation expense associated with furniture purchases and leasehold improvements. We expect 2025 occupancy expense to be relatively consistent with 2024.

Communication and technology

Communication and technology expenses include information and data subscriptions, telephone costs, information systems consulting fees, equipment and software maintenance expenses, operating leases for information technology equipment and depreciation and amortization expenses associated with computer hardware and software. Information and data subscriptions represent the costs we pay to obtain investment research and other data we need to operate our business. A portion of these expenses generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations. We expect to continue our measured investments in technology to support our investment teams, distribution efforts, and scalable operations. We expect 2025 communication and technology expense to be relatively consistent with 2024.

On behalf of our clients, we make decisions to buy and sell securities, select broker-dealers to execute trades and negotiate brokerage commission rates. In connection with these transactions, we receive research products and services from broker-dealers in exchange for the business we conduct with such firms. Some of those research products and services could be acquired for cash and our receipt of those products and services through the use of client commissions, or soft dollars, reduces cash expenses we would otherwise incur. In response to the Markets in Financial Instruments Directive II and industry changes prompted by it, we have in the past experienced requests from clients to bear research expenses that are currently paid for using soft dollars. In response to such requests or as a result of changes in our operations, we may eventually bear a significant portion of the costs of research that are currently paid for using soft dollars, which would increase our operating expenses materially.

General and Administrative

General and administrative expenses include professional fees, travel and entertainment, certain state and local taxes, directors’ and officers’ liability insurance, director fees, and other miscellaneous expenses we incur in operating our business. We expect 2025 general and administrative costs to be relatively consistent with 2024.

Non-Operating Income (Expense)

Interest Expense

Interest expense primarily relates to the interest we pay on our debt. For a description of the terms of our debt, see “—Liquidity, Capital Resources, and Contractual Obligations”. Interest expense also includes interest on TRA payments, which is incurred between the due date (without extension) for APAM’s federal income tax return and the date on which APAM makes TRA payments.

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Interest Income on Cash and Cash Equivalents and Other

Interest income on cash and cash equivalents and other includes income earned from investing excess operating cash in various money market funds.

Net Gain (Loss) on the Tax Receivable Agreements

Non-operating income (expense) also includes gains or losses related to the changes in our estimate of the payment obligation under the TRAs, including the impact of tax rate changes. The effect of changes in our estimate of amounts payable under the TRAs, including the effect of changes in enacted tax rates and in applicable tax laws, is included in net income.

Net Investment Gain (Loss) of Consolidated Investment Products

Net investment gain (loss) of consolidated investment products represents the realized and unrealized investment gains (losses) related to investment products that are included in our consolidated financial statements because Artisan holds a controlling financial interest in the respective investment entities. Significant portions of net investment gain (loss) of consolidated investment products are offset by noncontrolling interests in our Consolidated Statements of Operations.

Net Investment Gain (Loss) of Nonconsolidated Investment Products

Net investment gain (loss) of nonconsolidated investment products includes realized and unrealized investment gains (losses) related to nonconsolidated investment products and dividends earned on nonconsolidated equity securities.

Net Income (Loss) Attributable to Noncontrolling Interests

Net Income (Loss) Attributable to Noncontrolling Interests - Holdings

Net income (loss) attributable to noncontrolling interests - Holdings represents the portion of earnings or loss attributable to the ownership interests in Artisan Partners Holdings held by the limited partners of Artisan Partners Holdings.

Net Income (Loss) Attributable to Noncontrolling Interests - Consolidated Investment Products

Net income (loss) attributable to noncontrolling interests - consolidated investment products represents the portion of earnings or loss attributable to third-party investors’ ownership interests in consolidated investment products.

Provision for Income Taxes

The provision for income taxes primarily represents APAM’s U.S. federal, state and local income taxes on its allocable portion of Holdings’ income, as well as foreign income taxes payable by Holdings’ subsidiaries. Our effective income tax rate is dependent on many factors, including a rate benefit attributable to the fact that a portion of Holdings’ taxable earnings are not subject to corporate level taxes. Thus, income before income taxes includes amounts that are attributable to noncontrolling interests and not taxable to APAM and its subsidiaries, which reduces the effective tax rate. The effective tax rate is also lower than the statutory rate due to dividends paid on unvested share-based awards. These favorable impacts are partially offset by the impact of permanent items, including certain executive compensation expenses, that are not deductible for tax purposes.

As APAM’s equity ownership in Holdings increases, the effective tax rate will likewise increase as more income will be subject to corporate-level taxes.

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Results of Operations

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023

Revenues

The increase in revenues of $136.7 million, or 14%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, was driven primarily by a $20.9 billion, or 15%, increase in our average AUM and a $10.5 million increase in performance fee revenue. The weighted average investment management fee, which excludes performance fees, was 68.6 basis points for the year ended December 31, 2024, compared to 69.8 basis points for the year ended December 31, 2023. The weighted average investment management fee decreased primarily due to a change in the mix of AUM among our strategies with more weighting towards fixed income strategies with lower average fee rates.

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The following table sets forth investment advisory fees and the weighted average management fee by investment vehicle. The weighted average management fee for Artisan Funds and Artisan Global Funds reflects the additional services we provide to these pooled vehicles.

Operating Expenses

The increase in total operating expenses of $73.7 million, or 11%, for the year ended December 31, 2024, compared to the year ended December 31, 2023, is due to a $64.7 million increase in total compensation and benefits expense and a $9.0 million increase in other operating expense.

Compensation and Benefits

The increase in total compensation and benefits was driven by a $43.7 million increase in incentive compensation primarily driven by increased revenue, increases in long-term incentive compensation comprised of $5.9 million for the retirement acceleration provision on 2024 grants and $3.0 million as a result of market valuation changes, and a $5.5 million increase in salaries and benefits as a result of the 2% increase in the number of full-time associates and salary increases.

Total compensation and benefits was 53% and 54% of our revenues for the years ended December 31, 2024 and 2023, respectively.

Other operating expenses

Other operating expenses increased $9.0 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, due to increases in third-party distribution expense as a result of an increase in AUM subject to those fees, an increase in occupancy-related charges resulting from abandonment charges in 2024, as well as an increase in travel expense.

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Non-Operating Income (Expense)

Non-operating income (expense) consisted of the following:

Net investment gain (loss) of consolidated investment products, net investment gain (loss) on nonconsolidated seed investments, and net investment gain (loss) on franchise capital investments decreased $8.4 million in the aggregate for the year ended December 31, 2024, compared to the year ended December 31, 2023, predominantly due to market conditions. Interest income on cash and cash equivalents and other increased $3.3 million due primarily to more cash invested in money market funds.

Provision for Income Taxes

APAM’s effective income tax rate for the years ended December 31, 2024 and 2023 was 20.6% and 18.7%, respectively. The increase in effective tax rate was primarily due to a decrease in non-controlling interests, limitations on executive compensation deductions and the impact of unrecognized tax benefits.

Several factors contribute to the effective tax rate, including a rate benefit attributable to the fact that approximately 14% and 16% of Holdings’ full year projected taxable earnings were not subject to corporate-level taxes for the years ended December 31, 2024 and 2023, respectively. Thus, income before income taxes includes amounts that are attributable to noncontrolling interests and not taxable to APAM and its subsidiaries, which reduces the effective tax rate. As APAM’s equity ownership in Holdings increases, the effective tax rate will likewise increase as more income will be subject to corporate-level taxes. The effective tax rate was favorably impacted in both periods due to tax deductible dividends paid on unvested restricted share-based awards.

Earnings Per Share

Weighted average basic and diluted shares of Class A common stock outstanding were higher for the year ended December 31, 2024, compared to the year ended December 31, 2023, as a result of unit exchanges and equity award grants. See Note 12, “Earnings Per Share” in the Notes to the consolidated financial statements in Item 8 of this report for further discussion of earnings per share.

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Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022

A detailed discussion of the year-over-year results for the year ended December 31, 2023, compared to the year ended December 31, 2022, can be found in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 22, 2024.

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Supplemental Non-GAAP Financial Information

Our management uses non-GAAP measures (referred to as “adjusted” measures) of net income to evaluate the profitability and efficiency of the underlying operations of our business and as a factor when considering net income available for distributions and dividends. These adjusted measures remove the impact of (1) net gain (loss) on the tax receivable agreements (if any), (2) compensation expense (reversal) related to market valuation changes in compensation plans, (3) net investment gain (loss) of investment products and (4) non-recurring expenses. These adjustments also remove the non-operational complexities of our structure by adding back noncontrolling interests and assuming all income of Artisan Partners Holdings is allocated to APAM. Management believes these non-GAAP measures provide more meaningful information to analyze our profitability and efficiency between periods and over time. We have included these non-GAAP measures to provide investors with the same financial metrics used by management to manage the Company.

Non-GAAP measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Our non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. Our non-GAAP measures are as follows:

•Adjusted net income represents net income excluding the impact of (1) net gain (loss) on the tax receivable agreements (if any), (2) compensation expense (reversal) related to market valuation changes in compensation plans, (3) net investment gain (loss) of investment products, and (4) non-recurring expenses. Adjusted net income also reflects income taxes assuming the vesting of all unvested Class A share-based awards and as if all outstanding limited partnership units of Artisan Partners Holdings had been exchanged for Class A common stock of APAM on a one-for-one basis. Assuming full vesting and exchange, all income of Artisan Partners Holdings is treated as if it were allocated to APAM, and the adjusted provision for income taxes represents an estimate of income tax expense at an effective rate reflecting APAM’s current federal, state and local income statutory tax rates. The adjusted tax rate was 24.7% for all periods presented.

•Adjusted net income per adjusted share is calculated by dividing adjusted net income by adjusted shares. The number of adjusted shares is derived by assuming the vesting of all unvested Class A share-based awards and the exchange of all outstanding limited partnership units of Artisan Partners Holdings for Class A common stock of APAM on a one-for-one basis.

•Adjusted operating income represents the operating income of the consolidated company excluding compensation expense related to market valuation changes in compensation plans and non-recurring expenses.

•Adjusted operating margin is calculated by dividing adjusted operating income by total revenues.

•Adjusted EBITDA represents adjusted net income before interest expense, income taxes, depreciation and amortization expense.

Net gain (loss) on the tax receivable agreements represents the income (expense) associated with the change in estimate of amounts payable under the tax receivable agreements entered into in connection with APAM’s initial public offering and related reorganization.

Compensation expense (reversal) related to market valuation changes in compensation plans represents the expense (income) associated with the change in the long-term incentive award liability resulting from investment returns of the underlying investment products. Because the compensation expense impact of the investment market exposure is economically hedged, management believes it is useful to reflect the expected net income offset in the calculation of adjusted operating income, adjusted net income, and adjusted EBITDA. The related investment gain (loss) on the underlying investments is included in the adjustment for net investment gain (loss) of investment products.

Non-recurring expenses represent non-recurring professional fees that are not reflective of core operations.

Net investment gain (loss) of investment products represents the non-operating income (expense) related to the Company’s investments, in both consolidated investment products and nonconsolidated investment products, including investments held to economically hedge compensation plans. Excluding these non-operating market gains or losses on investments provides greater transparency to evaluate the profitability and efficiency of the underlying operations of the business. Interest income generated on cash and cash equivalents is considered part of normal operations, and therefore, is not excluded from adjusted net income.

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The following table sets forth, for the periods indicated, a reconciliation from GAAP financial measures to non-GAAP measures:

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Liquidity, Capital Resources, and Contractual Obligations

Our working capital needs, including accrued incentive compensation payments, have been and are expected to be met primarily through cash generated by our operations. The assets and liabilities of consolidated investment products attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the benefits from, nor do we bear the risks associated with, the assets and liabilities of consolidated investment products, beyond our direct equity investment and any investment advisory fees earned. Accordingly, assets and liabilities of consolidated investment products attributable to third-party investors are excluded from the amounts and discussions below. The following table shows our liquidity position as of December 31, 2024 and December 31, 2023:

We manage our cash balances in order to fund our day-to-day operations. We mitigate concentration risk through the diversification of financial institutions holding daily operating cash balances and by investing excess operating cash in various money market funds. $177.4 million of our cash and cash equivalents balance was invested in money market funds as of December 31, 2024.

Accounts receivable primarily represent investment advisory fees that have been earned, but not yet received from our clients. We perform a review of our receivables on a monthly basis to assess collectability. As of December 31, 2024, none of our receivables were considered uncollectible.

We utilize cash to make seed investments in Artisan-sponsored investment products to support the development of new investment strategies and vehicles. As of December 31, 2024, the balance of all seed investments, including investments in consolidated investment products, was $154.9 million. The seed investments are generally redeemable at our discretion, though subject to certain monthly or quarterly timing restrictions within the Artisan Private Funds. We monitor for opportunities to redeem existing seed investments as sufficient scale in those strategies and vehicles is achieved.

During the year ended December 31, 2024, we also made investments of $39.4 million related to funded long-term incentive compensation plans. As of December 31, 2024, the value of investments held in connection with funded long-term incentive compensations plans was $150.4 million. In the first quarter of 2025, we intend to invest an additional $46.8 million related to our economic hedge of franchise capital awards in connection with the grant that was approved by our Board on January 29, 2025.

We expect our investment portfolio to continue to grow as we grant additional annual franchise capital awards and make additional seed capital investments in new strategies and vehicles to support our growth. In October 2023, we committed $16.0 million of capital as a seed investment in the Artisan Dislocation Opportunities Fund LP, a private fund that will call capital contributions and begin investment activity upon the occurrence of a market-based trigger. As of December 31, 2024, the trigger had not occurred and the capital had not yet been called, therefore the committed capital is not recorded in the Consolidated Statements of Financial Condition. The capital commitment terminates if the market trigger does not occur within three years of the October 30, 2023 initial closing date.

As of December 31, 2024, we have $200 million in unsecured notes outstanding and a $100 million revolving credit facility with a five-year term ending in August 2027. The notes are comprised of three series, Series D, Series E, and Series F, each with a balloon payment at maturity. The $100 million revolving credit facility was unused as of and for the year ended December 31, 2024.

The fixed interest rate on each series of unsecured notes is subject to a 100 basis point increase in the event Holdings receives a below-investment grade rating and any such increase will continue to apply until an investment grade rating is received. Holdings maintained an investment grade rating for the year ended December 31, 2024.

These borrowings contain certain customary covenants including limitations on Artisan Partners Holdings’ ability to: (i) incur additional indebtedness or liens, (ii) engage in mergers or other fundamental changes, (iii) sell or otherwise dispose of assets including equity interests, and (iv) make dividend payments or other distributions to Artisan Partners Holdings’ partners (other than, among others, tax distributions paid to partners for the purpose of funding tax liabilities attributable to their interests) when a default occurred and is continuing or would result from such a distribution. In addition, in the event of a Change of Control (as defined in the Note Purchase Agreement) or if Artisan’s average AUM for a fiscal quarter is below $45 billion, Holdings is generally required to offer to pre-pay the notes. Artisan Partners Limited Partnership, a wholly-owned subsidiary of Holdings, has guaranteed Holdings’ obligations under the terms of the Note Purchase Agreement.

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In addition, covenants in the note purchase and revolving credit agreements require Artisan Partners Holdings to maintain the following financial ratios:

•leverage ratio (calculated as the ratio of consolidated total indebtedness on any date to consolidated EBITDA for the period of four consecutive fiscal quarters ended on or prior to such date) cannot exceed 3.00 to 1.00 (Artisan Partners Holdings’ leverage ratio for the year ended December 31, 2024 was 0.5 to 1.00); and

•interest coverage ratio (calculated as the ratio of consolidated EBITDA for any period of four consecutive fiscal quarters to consolidated interest expense for such period) cannot be less than 4.00 to 1.00 for such period (Artisan Partners Holdings’ interest coverage ratio for the year ended December 31, 2024 was 54.8 to 1.00).

Our failure to comply with any of the covenants or restrictions described above could result in an event of default under the agreements, giving our lenders the ability to accelerate repayment of our obligations. We were in compliance with all debt covenants as of December 31, 2024.

See Note 5, “Borrowings”, for further information on our outstanding notes and revolving credit facility. $60 million of the unsecured notes are scheduled to mature in August 2025. Subject to lender negotiations and market conditions, we currently intend to refinance the $60 million notes prior to or at maturity.

As of December 31, 2024, we had approximately $117.1 million of future minimum rent commitments under non-cancellable leasing arrangements.

Distributions and Dividends

Artisan Partners Holdings’ distributions, including distributions to APAM, for the years ended December 31, 2024 and 2023 were as follows:

APAM, acting as the general partner of Artisan Partners Holdings, declared, effective February 4, 2025, a distribution of $41.3 million, payable by Artisan Partners Holdings on February 21, 2025 to holders of its partnership units, including APAM.

APAM declared and paid the following dividends per share during the years ended December 31, 2024 and 2023:

Our Board declared, effective February 4, 2025, a variable quarterly dividend of $0.84 per share of Class A common stock with respect to the December quarter of 2024 and a special annual dividend of $0.50 per share. The combined amount, $1.34 per share of Class A common stock, will be paid on February 28, 2025 to stockholders of record as of the close of business on February 14, 2025. The variable quarterly dividend of $0.84 per share represents approximately 80% of the cash generated (as described below) in the December quarter of 2024. The special dividend represents the remainder of undistributed cash generated during the year ended December 31, 2024 in addition to other discrete sources and uses of cash throughout the year, including realized gains on seed capital redemptions and investments redeemed in connection with forfeited franchise capital awards, less cash reserved for future growth initiatives including seed investments in new investment strategies and vehicles.

Subject to Board approval each quarter, we currently expect to pay a quarterly dividend of approximately 80% of the cash the Company generates each quarter. We expect our quarterly cash generation to approximate adjusted net income plus long-term incentive compensation award expense, less cash reserved for future franchise capital awards (which we generally expect will approximate 4% of investment management revenues each quarter) with additional adjustments made for certain other sources and uses of cash, including capital expenditures. After the end of the year, our Board will consider payment of a special dividend from the 20% withheld each quarter plus any discrete sources and uses of cash throughout the year, including gains realized upon seed capital redemptions and investments redeemed in connection with forfeited franchise capital awards.

Although we expect to pay dividends according to our dividend policy, we may not pay dividends according to our policy or at all.

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Tax Receivable Agreements (“TRAs”)

In addition to funding our normal operations, we will be required to fund amounts payable under the TRAs that we entered into in connection with the IPO, which resulted in the recognition of a $341.5 million liability as of December 31, 2024. The liability generally represents 85% of the tax benefits APAM expects to realize as a result of the merger of an entity into APAM as part of the IPO Reorganization, our purchase of partnership units from limited partners of Holdings and the exchange of partnership units (for shares of Class A common stock or other consideration).

The estimated liability assumes no material changes in the relevant tax law and that APAM earns sufficient taxable income to realize all tax benefits subject to the TRAs. An increase or decrease in future tax rates will increase or decrease, respectively, the expected tax benefits APAM would realize and the amounts payable under the TRAs. Changes in the estimate of expected tax benefits APAM would realize and the amounts payable under the TRAs as a result of change in tax rates have been and will be recorded in net income.

The liability will increase upon future purchases or exchanges of limited partnership units with the increase representing amounts payable under the TRAs equal to 85% of the estimated future tax benefits, if any, resulting from such purchases or exchanges. We intend to fund the payment of amounts due under the TRAs out of the reduced tax payments that APAM realizes in respect of the tax attributes to which the TRAs relate.

The actual increase in tax basis, as well as the amount and timing of any payments under these agreements, will vary depending upon a number of factors, including the timing of sales or exchanges by the holders of limited partnership units, the price of the Class A common stock at the time of such sales or exchanges, whether such sales or exchanges are taxable, the amount and timing of the taxable income APAM generates in the future and the tax rate then applicable and the portion of APAM’s payments under the TRAs constituting imputed interest or depreciable basis or amortizable basis.

In certain cases, payments under the TRAs may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the TRAs. In such cases, we intend to fund those payments with cash on hand, although we may have to borrow funds depending on the amount and timing of the payments. During the year ended December 31, 2024, we made payments totaling $36.9 million, related to the TRAs, including interest. In 2025, we expect to make payments of approximately $38.9 million related to the TRAs.

Cash Flows

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023

Net cash provided by operating activities increased $119.7 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to a $83.3 million increase from consolidated investment product activity and a $37.9 million increase in net income before noncontrolling interest resulting from higher revenues due to the increase in average AUM.

Investing activities consist primarily of acquiring property and equipment, leasehold improvements and the purchase and sale of investment securities. Net cash used in investing activities decreased $13.3 million during the year ended December 31, 2024, primarily due to a $9.5 million decrease in the net cash used for purchases and sales of investment securities and a $3.8 million decrease in capital expenditures.

Financing activities consist primarily of partnership distributions to non-controlling interests, dividend payments to holders of our Class A common stock, contributions and distributions to consolidated investment products, and payments of amounts owed under the tax receivable agreements. Net cash used in financing activities increased $79.2 million during the year ended December 31, 2024, primarily due to a $42.8 million increase in dividends and distributions paid and a $35.6 million decrease in contributions from noncontrolling interests in our consolidated investment products.

During the year ended December 31, 2024, the Company determined that it no longer had a controlling financial interest in an investment product that was previously consolidated. The deconsolidation of the investment product resulted in a $4.0 million increase in cash and cash equivalents.

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Critical Accounting Policies and Estimates

The accompanying consolidated financial statements were prepared in accordance with GAAP, and related rules and regulations of the SEC. The preparation of financial statements in conformity with GAAP requires management to make estimates or assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates or assumptions and may have a material effect on the consolidated financial statements.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial condition. Management believes that the critical accounting policies and estimates discussed below involve additional management judgment due to the sensitivity of the methods and assumptions used.

Consolidation

We consolidate all subsidiaries or other entities in which we have a controlling financial interest. We assess each legal entity in which we hold a variable interest on a quarterly basis to determine whether consolidation is appropriate. We determine whether we have a controlling financial interest in the entity by evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”) under GAAP. Assessing whether an entity is a VIE or VOE and if it requires consolidation involves judgment and analysis. Factors considered in this assessment include the legal organization of the entity, our equity ownership and contractual involvement with the entity and any related party or de facto agent implications of our involvement with the entity.

Voting Interest Entities - A VOE is an entity in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders at risk have the obligation to absorb losses, the right to receive residual returns and the right to direct the activities of the entity that most significantly impact the entity’s economic performance, whereby the equity investment has all the characteristics of a controlling financial interest. As a result, voting rights are a key driver of determining which party, if any, should consolidate the entity. Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting interests.

Variable Interest Entities - A VIE is an entity that lacks one or more of the characteristics of a VOE. In accordance with GAAP, an enterprise must consolidate all VIEs of which it is the primary beneficiary. We determine if a legal entity meets the definition of a VIE by considering whether the fund’s equity investment at risk is sufficient to finance its activities without additional subordinated financial support and whether the fund’s at-risk equity holders absorb any losses, have the right to receive residual returns and have the right to direct the activities of the entity most responsible for the entity’s economic performance.

Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the right to receive potentially significant benefits or the obligation to absorb potentially significant losses. We will generally consolidate VIEs in which we meet the power criteria and hold an equity ownership interest of greater than 10%.

We serve as the investment adviser for Artisan Funds, a family of mutual funds registered with the SEC under the Investment Company Act of 1940, and investment manager of Artisan Global Funds, a family of Ireland-based UCITS funds. Artisan Funds and Artisan Global Funds are corporate entities the business and affairs of which are managed by their respective boards of directors. The shareholders of the funds retain voting rights, including the right to elect and reelect members of their respective boards of directors. Each series of Artisan Funds is a VOE and is separately evaluated for consolidation under the VOE model. The shareholders of Artisan Global Funds lack simple majority liquidation rights, and as a result, Artisan Global Funds is evaluated for consolidation under the VIE model. Artisan Private Funds are also evaluated for consolidation under the VIE model because third-party equity holders of the funds lack the ability to remove Artisan as the general partner, or otherwise divest Artisan of its control of the funds.

Seed Investments - We generally make seed investments in sponsored investment portfolios at the portfolio’s formation. If the seed investment results in a controlling financial interest, we will consolidate the investment, and the underlying individual securities will be accounted for based on their classification at the underlying fund. If the seed investment results in significant influence, but not control, the investment will be accounted for as an equity method investment. Significant influence is generally considered to exist with equity ownership levels between 20% and 50%, although other factors are considered. Seed investments in which we do not have a controlling financial interest or significant influence are accounted for as investment securities. These investments are measured at fair value in the Consolidated Statements of Financial Condition. Realized and unrealized gains (losses) on investment securities are recorded in net investment income in the Consolidated Statements of Operations. Dividend income from these investments is recognized when earned and is included in net investment income in the Consolidated Statements of Operations.

Revenue Recognition

Investment management fees are generally computed as a percentage of AUM and are recognized as revenue at the end of each distinct service period. Fees for providing investment management services are computed and billed in accordance with the underlying investment management agreements, which is generally on a monthly or quarterly basis. Investment management fees are presented net of cash rebates to certain Artisan Global Fund investors and expense reimbursements pursuant to contractual

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expense limitations of pooled investment vehicles.

A number of investment management agreements provide for performance-based fees or incentive allocations, collectively “performance fees”. Performance fees, if earned, are recognized upon completion of the contractually determined measurement period, which is generally quarterly or annually. Performance fees recognized within the Consolidated Statements of Operations are not subject to claw back as a result of performance declines subsequent to the most recent measurement date.

Artisan accounts for asset management services as a single performance obligation that is satisfied over time, using a time-based measure of progress to recognize revenue. Customer consideration is variable due to the uncertainty of the value of AUM during each distinct service period. At the end of each quarter, Artisan records revenue for the actual amount of investment management fees for that quarter because the uncertainty has been resolved.

Performance fees are subject to the uncertainty of market volatility, and as a result, the entire amount of the variable consideration related to performance fees is constrained until the end of each measurement period. At the end of the quarterly or annual measurement period, revenue is recorded for the actual amount of performance fees earned during that period because the uncertainty has been resolved.

The portfolios of Artisan Funds and Artisan Global Funds, as well as the portfolios we manage for our other clients, are invested principally in securities for which market values are readily available, with a portion of each portfolio held in cash or cash-like instruments. With the exception of the assets managed by our Credit team and EMsights Capital Group (which together represented approximately 9.2% of our AUM at December 31, 2024), the portfolios are invested principally in publicly-traded equity securities.

The investment management fees that we receive are calculated based on the values of the securities held in the accounts that we manage for our clients. For our U.S.-registered mutual fund and UCITS fund clients, including Artisan Funds and Artisan Global Funds, and for Artisan Private Funds, our fees are based on the values of the funds’ assets as determined for purposes of calculating their net asset values. Securities held by Artisan Funds, Artisan Global Funds, and Artisan Private Funds are generally valued at closing market prices, or if closing market prices are not readily available or are not considered reliable, at a fair value determined under procedures established by the fund’s board (fair value pricing). Values of securities determined using fair value pricing are likely to be different than they would be if only closing market prices were used.

For separate account clients, our fees may be based, at the client’s option, on the values of the securities in the portfolios we manage as determined by the client (or its custodian or other service provider) or by us in accordance with valuation procedures we have adopted. The valuation procedures we have adopted generally use closing market prices in the markets in which the securities trade, without adjustment for subsequent events except in unusual circumstances. We believe that our fees based on valuations determined under our procedures are not materially different from the fees we receive that are based on valuations determined by clients, their custodians or other service providers.

Income Taxes

We operate in numerous states and countries and must allocate our income, expenses, and earnings under the various laws and regulations of each of these taxing jurisdictions. Accordingly, our provision for income taxes represents our total estimate of the liability for income taxes that we have incurred in doing business each year in all of our locations. Annually, we file tax returns that represent our filing positions with each jurisdiction and settle our tax return liabilities. Each jurisdiction has the right to audit those tax returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. Because the determination of our annual income tax provision is subject to judgments and estimates, actual results may vary from those recorded in our financial statements. We recognize additions to and reductions in income tax expense during a reporting period that pertains to prior period provisions as our estimated liabilities are revised and our actual tax returns and tax audits are completed.

Our management is required to exercise judgment in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowance that might be required against deferred tax assets. As of December 31, 2024, we have not recorded a valuation allowance on any deferred tax assets. In the event that sufficient taxable income of the same character does not result in future years, among other things, a valuation allowance for certain of our deferred tax assets may be required.

Payments pursuant to the Tax Receivable Agreements (“TRAs”)

We have recorded a liability of $341.5 million as of December 31, 2024, representing 85% of the estimated future tax benefits subject to the TRAs. The actual amount and timing of any payments under these agreements will vary depending upon a number of factors, including the timing of sales or exchanges by the holders of limited partnership units, the price of the Class A common stock at the time of such sales or exchanges, whether such sales or exchanges are taxable, the amount and timing of the taxable income APAM generates in the future and the tax rate then applicable and the portion of APAM’s payments under the TRAs constituting imputed interest or depreciable basis or amortizable basis.

New or Revised Accounting Standards

See Note 2, “Summary of Significant Accounting Policies — Recent accounting pronouncements” to the Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K.

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