S-1 1 ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on April 6, 2011

Registration No. 333-                    

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Artisan Partners Asset Management Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Wisconsin   6282  

45-0969585

(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

875 E. Wisconsin Avenue, Suite 800

Milwaukee, WI 53202

(414) 390-6100

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

JANET D. OLSEN

General Counsel

Artisan Partners Asset Management Inc.

875 E. Wisconsin Ave., Suite 800

Milwaukee, WI 53202

(414) 390-6100

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

Copies to:

 

MARK J. MENTING

CATHERINE M. CLARKIN

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

(212) 558-4000

 

VINCENT PAGANO JR.

JOSHUA FORD BONNIE

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

(212) 455-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 
Title of each class of securities to be registered  

Proposed maximum

aggregate

offering price(1)(2)

  Amount of
registration fee

Class A common stock, par value $0.01 per share

  $250,000,000   $29,025
 
 
(1) Includes              additional shares of Class A common stock that the underwriters have the option to purchase.
(2) Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated April 6, 2011.

Shares

LOGO

Class A Common Stock

 

 

This is an initial public offering of shares of Class A common stock of Artisan Partners Asset Management Inc. All of the shares of Class A common stock included in this offering are being sold by Artisan Partners Asset Management Inc.

Prior to this offering, there has been no public market for our Class A common stock. We expect the initial public offering price per share to be between $         and $        . We will apply to list our Class A common stock on the                      under the symbol “            ”.

Upon completion of this offering,     % of the aggregate voting power of our capital stock will be voted in accordance with the decision of Andrew A. Ziegler, our Executive Chairman, on all matters submitted to a vote of the holders of our common stock as described in this prospectus.

See “Risk Factors” beginning on page 19 to read about factors you should consider before buying shares of the Class A common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

    Per Share     Total  

Initial public offering price

  $                           $                        

Underwriting discount

  $        $     
               

Proceeds, before expenses, to Artisan Partners Asset Management Inc.

  $        $     
               

To the extent that the underwriters sell more than              shares of Class A common stock, the underwriters have the option to purchase up to an additional              shares from Artisan Partners Asset Management Inc. at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York on                     , 2011.

 

Citi   Goldman, Sachs & Co.

 

 

 

BofA Merrill Lynch     Morgan Stanley
  Scotia Capital          

Prospectus dated                     , 2011.


Table of Contents

DIVERSIFIED BUSINESS BY INVESTMENT TEAM AND DISTRIBUTION CHANNEL

LOGO

 

(1)

The allocation of AUM by distribution channel involves the use of estimates and the exercise of judgment. See “Performance and Assets Under Management Information Used in this Prospectus” for more information.

WITH STRONG LONG-TERM PERFORMANCE ACROSS ALL STRATEGIES

LOGO

LOGO

 

Note: Our average annual returns presented above are gross and net of our advisory fees, for the period from composite inception to December 31, 2010. Each MSCI and Russell index presented above is the index we use in assessing the returns of our composites. Historical returns are not necessarily indicative of future performance of our current or future investment strategies. For additional details on investment performance, please see pages 117 to 129 of this prospectus. See also “Performance and Assets Under Management Information Used in this Prospectus”.


Table of Contents

TABLE OF CONTENTS

 

 

 

     Page   

Summary

     1   

Risk Factors

     19   

Cautionary Note Regarding Forward-Looking Statements

     42   

Our Structure and Reorganization

     43   

Use of Proceeds

     65   

Dividend Policy and Dividends

     66   

Capitalization

     68   

Dilution

     70   

Unaudited Pro Forma Consolidated Financial Information

     72   

Selected Historical Consolidated Financial Data

     79   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     82   

Business

     112   

Regulatory Environment and Compliance

     135   

Management

     137   

Principal Shareholders

     161   

Description of Capital Stock

     164   

Shares Eligible For Future Sale

     171   

Material U.S. Federal Tax Considerations for Non-U.S. Holders of our Class A Common Stock

     174   

Underwriting; Conflicts of Interest

     177   

Validity of Class A Common Stock

     182   

Experts

     182   

Where You Can Find More Information

     182   

Index to Consolidated Financial Statements

     F-1   

 

 

Through and including                     , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

We are responsible for the information contained in this prospectus and in any free writing prospectus we may authorize to be delivered to you. We have not authorized anyone to give you any other information, and take no responsibility for any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

 

Except where the context requires otherwise, in this prospectus:

 

   

“Artisan Partners Asset Management Inc.”, “Artisan”, “Artisan Partners Asset Management”, the “company”, “we”, “us” and “our” refer to Artisan Partners Asset Management Inc. and, unless the context otherwise requires, its direct and indirect subsidiaries;

 

   

“Artisan Partners Holdings” refers to Artisan Partners Holdings LP, a limited partnership organized under the laws of the State of Delaware, and, unless the context otherwise requires, its direct and indirect subsidiaries;

 

   

“client” and “clients” refer to investors who access our investment management services by engaging us to manage a separate account in one of our investment strategies or by investing in mutual funds, including the funds of Artisan Funds, Inc. or Artisan Global Funds Public Limited Company, collective investment trusts (which are pools of retirement plan assets maintained by a bank or trust company that we manage on a separate account basis), or other pooled investment vehicles for which we are investment adviser; and


Table of Contents
   

“employee” includes members of Artisan Partners UK LLP and limited partners of Artisan Partners Holdings whose full-time professional efforts are devoted to providing services to us.

Performance and Assets Under Management Information Used in this Prospectus

We manage investments primarily through mutual funds and separate accounts. We serve as investment adviser to Artisan Funds, Inc., or Artisan Funds, a family of Securities and Exchange Commission, or the SEC, registered mutual funds, and as investment manager and promoter of Artisan Global Funds Public Limited Company, or Artisan Global Funds, a family of Ireland-domiciled funds organized pursuant to the European Union’s Undertaking for Collective Investment in Transferable Securities, or UCITS. We refer to funds and other accounts that are managed by us with a broadly common investment objective and substantially in accordance with a single model account as being part of the same “strategy”. We measure the results both of our individual funds and of our “composites”, which represent the aggregate performance of all discretionary client accounts, including mutual funds, invested in the same strategy, except those accounts with respect to which we believe client-imposed socially-based restrictions may have a material impact on portfolio construction (the results of these accounts, which represented less than 6% of our assets under management at December 31, 2010, are maintained in separate composites, which are not presented in this prospectus).

Results for any investment strategy described herein, and for different investment products within a strategy, are affected by numerous factors, including: different material market or economic conditions; different investment management fee rates, brokerage commissions and other expenses; and the reinvestment of dividends or other earnings. The returns for any strategy may be positive or negative, and past performance does not guarantee future results.

Throughout this prospectus, we present the average annual returns and annual returns of our composites on a “gross” and “net” basis, which represent average annual returns and annual returns before and after payment of the highest fee payable to us by any portfolio in the composite, respectively, and in each case are net of commissions and transaction costs. In this prospectus, we also present the average annual returns and annual returns of certain market indices or “benchmarks” for the comparable period. Indices that are used for these performance comparisons are broad-based market indices that we believe are appropriate comparisons of our investment performance over a full market cycle and, for some of our strategies, style-based indices that we believe may be useful in evaluating our performance over shorter periods. The indices are unmanaged and have differing volatility, credit and other characteristics. You should not assume that there is any material overlap between the securities included in the portfolios of our investment strategies during these periods and those that comprise any MSCI Index or any Russell Index referred to in this prospectus. It is not possible to invest directly in any of the indices described above or listed below. The returns of these indices, as presented in this prospectus, have not been reduced by fees and expenses associated with investing in securities, but do include the reinvestment of dividends. In this prospectus, we refer to the date on which we began tracking the performance of an investment strategy as that strategy’s “inception date”.

The MSCI EAFE® Index, the MSCI EAFE® Growth Index, the MSCI EAFE® Small Cap Index, the MSCI EAFE® Value Index, the MSCI ACWI® Index and the MSCI Emerging Markets IndexSM are trademarks of MSCI Inc. MSCI Inc. is the owner of all copyrights relating to these indices and is the source of the performance statistics of these indices that are referred to in this prospectus.

The Russell 2000® Index, the Russell 2000® Value Index, the Russell Midcap® Index, the Russell Midcap® Value Index, the Russell 1000® Index, the Russell 1000® Value Index, the Russell Midcap® Growth Index, the Russell 1000® Growth Index and the Russell 2000® Growth Index are trademarks of Russell Investment Group. Russell Investment Group is the owner of all copyrights relating to these indices and is the source of the performance statistics that are referred to in this prospectus.

 

ii


Table of Contents

In this prospectus, we present Morningstar, Inc., or Morningstar, ratings for series of Artisan Funds. The Morningstar ratings refer to the ratings by Morningstar of the Investor Class and Adviser Class shares of the series of Artisan Funds and are based on a 5-star scale. Morningstar data © 2010 Morningstar, Inc.; all rights reserved. Morningstar data contained herein (1) is proprietary to Morningstar and/or its content providers, (2) may not be copied or distributed and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ which is based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance, including the effects of sales charges, loads, and redemption fees, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star.

We also present Lipper rankings for series of Artisan Funds. Lipper rankings are based on total return, are historical and do not represent future results. The number of funds in a category may include multiple share classes of the same fund, which may have a material impact on a fund’s ranking within a category. Lipper, a Thomson Reuters company, is the owner of all trademarks and copyrights relating to Lipper rankings.

Throughout this prospectus, we present historical information about our assets under management, including information about changes in our assets under management due to gross client cash inflows and outflows, market appreciation and depreciation and transfers between investment vehicles (i.e., Artisan Funds and separate accounts). Gross client cash inflows and outflows represent client fundings, terminations and client initiated contributions and withdrawals (which could be in cash or in securities). Market appreciation (depreciation) represents realized gains and losses, the change in unrealized gains and losses, net income and certain miscellaneous items, immaterial in the aggregate, which may include payment of Artisan’s management fees or payment of custody expenses to the extent a client causes these fees to be paid from the account we manage. We also present information about our average assets under management for certain periods. We use our information management systems to track our assets under management, the components of market appreciation and depreciation, and client inflows and outflows, and we believe the information set forth in this prospectus regarding our assets under management, market appreciation and depreciation, and client inflows and outflows is accurate in all material respects. We also present in this prospectus information regarding the amount of our assets under management and client inflows and outflows sourced through particular investment vehicles and distribution channels. The allocation of assets under management and client flows sourced through particular distribution channels involves estimates because precise information on the sourcing of assets invested in Artisan Funds through intermediaries is not available on a complete or timely basis and involves the exercise of judgment because the same assets, in some cases, might fairly be said to have been sourced from more than one distribution channel. We have presented the information on our assets under management and client inflows and outflows sourced by distribution channel in the way in which we prepare and use that information in the management of our business. Data on our assets under management sourced by distribution channel and client inflows and outflows are not subject to our internal controls over financial reporting.

Any discrepancies included in this prospectus between totals and the sums of the amounts listed are due to rounding.

None of the information in this prospectus or the registration statement constitutes either an offer or a solicitation to buy or sell any fund securities, nor is any such information a recommendation for any fund security or investment service.

 

iii


Table of Contents

SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” section, our historical consolidated financial statements and the notes thereto, and unaudited pro forma financial information, each included elsewhere in this prospectus.

Our Business

Founded in 1994, we are an independent investment management firm that provides a broad range of U.S., non-U.S. and global equity investment strategies. We have established a record of investment excellence with attractive and consistent investment performance across multiple strategies and products. Through December 31, 2010, all 12 of our investment strategies had outperformed their benchmarks, on a gross basis, since inception and 11 of 12 of our strategies had outperformed their benchmarks, on a net basis, since inception, with inception dates ranging from April 1, 1995 for our U.S. Small-Cap Growth strategy to April 1, 2010 for our Global Equity strategy. Our superior investment performance has enabled us to attract and retain a diverse base of clients and to increase our assets under management over time. Our assets under management have increased from $11.0 billion as of December 31, 2000 to $57.5 billion as of December 31, 2010, representing a compound annual growth rate, or CAGR, of 18.0%. We derive essentially all of our revenues from investment management fees, which primarily are based on a specified percentage of clients’ average assets under management. Our growth in assets under management has resulted in an increase in our revenues from $101.5 million for the year ended December 31, 2001 to $382.3 million for the year ended December 31, 2010. We believe our talent-focused business model, attractive range of high value-added equity investment strategies and track record of investment excellence position us well for future growth.

Throughout our history, we have expanded our investment management capabilities in a disciplined manner that we believe is consistent with our overall philosophy of offering high value-added investment strategies in growing asset classes. We currently offer our clients 12 equity investment strategies spanning different market capitalization segments and investing styles in both U.S. and non-U.S. markets. Each strategy is designed to have a clearly articulated and replicable investment process that is well understood by clients and managed to achieve consistent performance that is superior over time. We have successfully expanded the range of strategies that we offer by launching new strategies managed by our existing investment teams, as well as by launching new strategies managed by new investment teams recruited to join Artisan.

To achieve consistent and attractive investment returns, we are focused on attracting, developing and retaining talented investment professionals, and believe we have been successful in doing so. Our strategies are actively managed by five autonomous investment teams, each of which is led by one or more experienced portfolio managers with a track record of investing success. Each team is devoted to identifying long-term investment opportunities for its strategies. We believe an autonomous structure promotes independent analysis and accountability among our investment professionals, which we believe promotes superior investment results.

In addition to our investment teams, we have a strong and seasoned management team that is focused on our business objectives of achieving profitable growth, expanding our investment capabilities, diversifying the source of our assets under management and delivering superior client service. Our management team supports our investment management capabilities and manages a centralized infrastructure, which allows our investment professionals to focus primarily on making investment decisions and generating attractive returns.

We offer our investment management capabilities primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have longer-term investment horizons, by means of

 

 

1


Table of Contents

separate accounts and mutual funds. As of December 31, 2010, we managed separate accounts representing $26.1 billion, or 45%, of our assets under management in 155 accounts spanning 115 client relationships, including pension and profit sharing plans, trusts, endowments, foundations, charitable organizations, government entities and private and non-U.S. investment companies, as well as mutual funds, non-U.S. funds and collective trusts we sub-advise. We serve as the investment adviser to Artisan Funds, an SEC-registered family of mutual funds that offers shares in multiple classes designed to meet the needs of a range of institutional and other investors, and as investment manager and promoter of Artisan Global Funds, a family of Ireland-based UCITS funds, that began operations in the first quarter of 2011 and offer shares to non-U.S., primarily institutional, investors. Artisan Funds comprised $31.4 billion, or 55%, of our assets under management as of December 31, 2010.

We access traditional institutional clients primarily through relationships with investment consultants and access institutional-like investors primarily through alliances with major defined contribution/401(k) platforms and relationships with fee-based financial advisors and broker-dealers.

As of December 31, 2010, we had 237 employees, including 46 employee-partners. Immediately following the completion of this offering, our investment professionals, senior management and other employees will collectively own approximately     % of our company. Our culture of employee ownership strongly aligns our management’s and clients’ interests in our delivery of strong investment performance and growth.

We conduct all of our business activities through operating subsidiaries of our direct subsidiary Artisan Partners Holdings, an intermediate holding company of which we are the general partner. Net profits and net losses of Artisan Partners Holdings will be allocated, and distributions of profits will be made (subject to the H&F preference, as described below), approximately     % to us and     % in the aggregate to Artisan Partners Holdings’ limited partners (or     % and     %, respectively, if the underwriters exercise their option to purchase additional shares in full), immediately after giving effect to the transactions described herein. See “Our Structure and Reorganization”.

Competitive Strengths

We believe that our success as an investment manager is based on the following competitive strengths:

Talent-Focused Business Model. From the founding of Artisan in 1994, our management has recognized that the success of an investment management firm depends on the talent of its professionals. As a result, we have implemented a business model that is designed to attract, develop and retain talented investment professionals by allowing them to focus on portfolio management in an environment conducive to producing their best work on a consistent, long-term basis. We have a strong philosophical belief in investment team autonomy and provide each investment team with ample resources and support, without imposing a centralized research function. We have experienced business leadership that manages a team of dedicated client service professionals and a centralized infrastructure. We work to reduce the demands on our investment professionals from responsibilities not directly related to managing their portfolios. Senior management spends a significant amount of time working with our investment teams on their continued development and identifying and evaluating investment professionals who might be the right fit for our strategy and business model. Our rigorous standards are evidenced by the select number of senior investment professionals we have added over the years. Over our 16-year history, we have had no significant turnover among our portfolio managers.

Attractive Range of Diverse, High Value-Added Equity Investment Strategies. We have five distinct investment teams that currently manage a diverse array of 12 equity investment strategies. Our strategies focus is on asset classes that we believe provide greater opportunities to generate returns in excess of the relevant benchmarks. Each of our investment teams has its own dedicated research personnel and works independently from our other investment teams, which we believe increases the degree to which the investment performance of our strategies is generated by independent ideas. Our U.S., non-U.S. and global equity investment strategies are

 

 

2


Table of Contents

diversified by market capitalization and investment style. As of December 31, 2010, our largest strategy accounted for less than 32% of our total assets under management and our three largest strategies accounted for less than 67% of our total assets under management. We think that growth in assets under management in an investment strategy requires investment capacity in the strategy (which is driven by the availability of attractive investment opportunities relative to the amount of assets under management in such strategy) at a time when the strategy has a competitive performance track record and there is stable or growing client demand for the strategy or asset class. When we believe that each of these factors is present with respect to an investment strategy, we say we have “realizable capacity” in that strategy. We believe that we currently have realizable capacity particularly in our non-U.S. and global strategies, where we believe we are well-positioned to take advantage of increasing client demand. We have focused on our strength in these areas by launching new products from our Global Value team, which launched our Global Value strategy in March 2009, from our Growth Team, which launched our Growth Opportunities Strategy in February 2007, and from our most recently added investment team, Emerging Markets. We also believe that we have realizable capacity in our Value Equity strategy which is designed to appeal to stable to growing client demand for strategies with greater investment flexibility.

Track Record of Investment Excellence. Through December 31, 2010, each of our 12 investment strategies had outperformed its corresponding benchmark, on a gross basis, since inception and 11 of 12 of our strategies had outperformed their benchmarks, on a net basis, since inception (with inception dates ranging from April 1, 1995 for our U.S. Small-Cap Growth strategy to April 1, 2010 for our Global Equity strategy). All 10 of the 10 series of Artisan Funds eligible for Morningstar ratings, representing 99.6% of the assets of Artisan Funds and managed in strategies representing 99.8% of our total assets under management, were rated 3, 4 or 5 stars by Morningstar as of December 31, 2010. Five of those funds, representing 61% of our total mutual fund assets under management and managed in strategies representing 60% of our total assets under management, were rated 4 or 5 stars as of that date. Investment performance highlights of our three largest strategies include:

 

   

Non-U.S. Growth is our largest strategy and accounted for approximately 32% of our assets under management as of December 31, 2010. It is managed by our Global Equity investment team. Our Non-U.S. Growth composite has outperformed its benchmark by an average of 675 basis points annually from inception in 1996 through December 31, 2010 (calculated on an average annual gross basis before payment of fees). Artisan International Fund, which is managed in our Non-U.S. Growth strategy, is ranked as of December 31, 2010 #51 of 96 funds over the trailing 10 years, and #3 of 47 funds from inception (December 1995) in Lipper’s international large-cap growth category. See “Performance and Assets Under Management Information Used in this Prospectus”.

 

   

U.S. Mid-Cap Growth accounted for approximately 19% of our assets under management as of December 31, 2010. It is managed by our Growth investment team. Our U.S. Mid-Cap Growth composite has outperformed its benchmark by an average of 707 basis points annually from inception in 1997 through December 31, 2010 (calculated on an average annual gross basis before payment of fees). Artisan Mid Cap Fund, which is managed in our U.S. Mid-Cap Growth strategy, is ranked as of December 31, 2010 #6 of 202 funds over the trailing 10 years, and #1 of 105 funds from inception (June 1997) in Lipper’s multi-cap growth category. See “Performance and Assets Under Management Information Used in this Prospectus”.

 

   

U.S. Mid-Cap Value accounted for approximately 16% of our assets under management as of December 31, 2010. It is managed by our U.S. Value investment team. Our U.S. Mid-Cap Value composite has outperformed its benchmark by an average of 667 basis points annually from inception in 1999 through December 31, 2010 (calculated on an average annual gross basis before payment of fees). Artisan Mid Cap Value Fund, which is managed in our U.S. Mid-Cap Value strategy, is ranked as of December 31, 2010 #18 of 117 funds over the trailing five years, and #3 of 50 funds from inception (March 2001) in Lipper’s mid-cap value category. See “Performance and Assets Under Management Information Used in this Prospectus”.

 

 

3


Table of Contents

Disciplined Growth—Balancing Investment Integrity, Investment Performance and Sustainable Demand. We take a long-term view on how best to grow our business. We launch a new strategy only when we are confident that our investment processes give us the potential to achieve superior investment performance in a strategy that we believe will have sustained client demand at attractive fee rates over the long term. We strive to maintain the integrity of the investment process followed in each of our strategies by rigorous adherence to the investment parameters we have communicated to our clients. We also carefully monitor our investment capacity in each investment 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 fee schedules and profit margins. In order to better achieve our long-term goals, we are willing to close a strategy to new investors or otherwise take action to slow or restrict its growth when appropriate, even though our short-term results may be impacted. Currently, we have closed our Non-U.S. Small-Cap Growth, Non-U.S. Value, U.S. Mid-Cap Growth, U.S. Small-Cap Value and U.S. Mid-Cap Value strategies to most new investors and client relationships. Each of the strategies that we have launched to clients during our history continues in operation today.

Institutionally Oriented Client Base. We target discrete market segments that we believe offer attractive growth opportunities, that contain institutions and intermediaries that operate with institutional-like decision-making processes and have longer-term investment horizons, and where we believe we have a well-recognized brand. Our original focus was on traditional institutional investors, including corporate and public pension plans, foundations and endowments, which we found to be more focused on the integrity of the investment process and consistency of long-term investment performance than some other types of investors, offering the potential for relationships of longer duration. As other market segments have evolved to have more institutional-like decision-making processes and longer-term investment horizons, we have expanded our distribution efforts into those areas, including defined contribution/401(k) administrators, broker-dealer fee-based programs and fee-based financial advisors. We have a particular focus on attracting client assets from the defined contribution/401(k) market, which comprised approximately 23% of our assets under management as of December 31, 2010. We believe that defined contribution/401(k) plan assets are particularly attractive both because of the continuing regular contributions to individual participant accounts by participants and plan sponsors and because of the long-term nature of the defined contribution/401(k) savings vehicle.

As of December 31, 2010, we managed 155 accounts spanning 115 client relationships, including pension and profit sharing plans, trusts, endowments, foundations, charitable organizations, government entities and private and non-U.S. investment companies, as well as mutual funds, non-U.S. funds and collective trusts we sub-advise. Our largest client relationship, other than Artisan Funds, represented less than 5% of our assets under management and no single consulting firm represented clients (including investors in Artisan Funds) having more than 6% of our assets under management. No single 401(k) platform, broker-dealer or financial advisor relationship represented more than 6%, 2% or 1%, respectively, of our assets under management.

Attractive Financial Model. We focus on high value-added strategies in asset classes that support fee rates that are above average for the asset management industry generally. We also have designed our expense structure to be flexible. The majority of our operating expenses, including incentive compensation and mutual fund intermediary fees, vary directly with our revenues and the amount of our assets under management. We believe that our model of relatively low fixed costs and relatively high variable costs is efficient and flexible, and historically has generated attractive adjusted operating margins and strong cash flow, even during challenging market conditions.

Ownership Culture That Aligns Interests. We believe that broad equity ownership of our business by our employees is critical in aligning the interests of our clients, shareholders, management and investment professionals. Broad employee ownership helps us to attract talented investment professionals with the ability to achieve attractive long-term investment performance. Attractive long-term investment performance benefits our clients and generally leads to growth in our assets under management. Growth in our assets under management

 

 

4


Table of Contents

enhances our financial results. Strong financial results drive the value of our equity, thereby helping us to attract and retain investment talent. Immediately following the completion of this offering, our portfolio managers and senior members of our management team will own     % of the outstanding equity interests in us and our other employees will own an additional     %. Following our transition to a public company, we intend to continue to promote broad and substantial equity ownership by our employees through grants of equity interests and inclusion of equity interests as an element of compensation.

Strategy

Our strategy for continued success and future growth is guided by the following principles:

Execute Proven Business Model. The cornerstone of our strategy is to continue to promote our business model of attracting, developing and retaining talented investment professionals. We remain committed to investment team autonomy, to ensuring that our teams are able to focus on portfolio management and to fostering an environment that is attractive for our teams because they are able to do their best work on a consistent, long-term basis. We actively seek to identify new investment talent and teams both within and outside Artisan. We are committed to the development of our existing investment teams and we are open to the possibility of adding new investment teams, through hiring or acquisitions, when our rigorous standards have been met.

Continue Disciplined Approach to Growth. We will continue to take a long-term view on how best to grow our business. We launch a new strategy only when we are confident that our investment processes give us the potential to achieve superior investment performance in a strategy that we believe will have sustained client demand at attractive fee rates over the long term. We currently have investment capacity in existing investment strategies that have attractive performance records in areas in which we believe there is growing investor interest, such as our Global Value, Global Equity, Value Equity, Growth Opportunities and Emerging Markets strategies. We intend to focus on attracting additional assets under management in those strategies from our current client base and through our existing intermediary relationships, as well as from the continued expansion of our distribution efforts. We will continue to actively manage our investment capacity to protect our ability to manage client assets successfully, which protects the interests of our clients and our own long-term interests, and we will seek to continue to diversify our client mix to enhance the stability of our assets under management.

Align Distribution and Investment Strategies. We will remain focused on institutional clients and institutional-like intermediaries and will continue to offer high value-added investment strategies with market demand that we believe is sustainable, avoiding fad and niche products with limited long-term growth prospects. We expect to see growing interest among institutional investors in strategies focused on non-U.S. and global investments. We seek to further penetrate the defined contribution/401(k) market and the broker-dealer and the fee-based financial advisor markets with our investment style-oriented strategies, including our Value Equity strategy, which has an attractive performance track record and significant investment capacity. We are also expanding our distribution effort into non-U.S. markets, including Canada, the United Kingdom and Australia, where we believe there is growing institutional demand for global and non-U.S. investment strategies, such as our Global Value, Global Equity, Emerging Markets and Growth Opportunities strategies. As part of those efforts, we organized Artisan Global Funds, a family of Ireland-based UCITS funds, that began operations during the first quarter of 2011, and offer shares to non-U.S., primarily institutional, investors.

Deliver Profitable and Sustainable Financial Results. As a public company, we will continue to focus on delivering profitable and sustainable financial results. We are committed to managing high value-added strategies capable of supporting above-average fees. We will also maintain our flexible financial profile through our highly variable expense structure with centralized infrastructure and investment team support. The principal use of the proceeds to us from this offering will be to establish an appropriate long-term capital structure by reducing our outstanding debt.

 

 

5


Table of Contents

Continue to Develop Artisan Leadership. We will continue to develop additional leaders for the company and for each investment team. We will also continue to work with each of our investment teams to develop their talent so that each team’s investment capabilities are expanded and natural internal succession continues to be developed. We believe that our culture of equity ownership has been instrumental in supporting the development of seasoned investment and business leaders. We intend to continue to promote broad and substantial equity ownership of our company by our employees.

Why We Are Going Public

We believe that becoming a public company is important to the evolution of our business for three principal reasons:

 

   

to preserve our independence by putting in place a process for existing owners to realize the value of their equity over a structured time frame (see “Our Structure and Reorganization—Offering Transactions—Resale and Registration Rights Agreement—Restrictions on Sale”);

 

   

to allow us to maintain our equity ownership culture and support our talent-focused business model by establishing a simple mechanism for sharing ownership among value producing employees; and

 

   

to create additional financial flexibility, which we believe will allow us to continue to manage and grow our business in a disciplined way.

Risk Factors

An investment in our Class A common stock involves substantial risks and uncertainties. These risks and uncertainties include, among others, the following:

 

   

The loss of key members of our investment teams and senior management could have a material adverse effect on our business. Our ability to attract and retain qualified investment, management and marketing and client service professionals is critical to our success.

 

   

If our investment strategies perform poorly for any reason, including due to a declining stock market, general economic downturn or otherwise, clients could withdraw their funds and we could suffer a decline in our assets under management and/or become subject to litigation, which would reduce our earnings.

 

   

The historical returns of our existing investment strategies may not be indicative of their future results or of the results of investment strategies we may develop in the future.

 

   

Difficult market conditions can adversely affect our business in many ways, including by reducing the value of our assets under management and causing clients to withdraw funds, each of which could materially reduce our revenues and adversely affect our financial condition.

 

   

Several of our investment strategies invest principally in the securities of non-U.S. companies, which involve foreign currency exchange, tax, political, social and economic uncertainties and risks.

 

   

We derive a substantial portion of our revenues from a limited number of our investment strategies.

 

   

We may be unable to maintain our fee structure at current rates.

 

   

Control by Artisan Investment Corporation and our employee shareholders of     % of the combined voting power of our capital stock may give rise to conflicts of interest.

The foregoing is not a comprehensive list of the risks and uncertainties we face. Investors should carefully consider all of the information in this prospectus, including information under “Risk Factors”, prior to making an investment in our Class A common stock.

 

 

6


Table of Contents

Our Structure and Reorganization

The diagram below depicts our organizational structure immediately after this offering and related transactions.

LOGO

 

(1)

Our Class B shareholders and our employees who are granted restricted shares of our Class A common stock will enter into a shareholders agreement pursuant to which they will agree to vote their shares of Class A common stock and Class B common stock they hold at such time or may acquire in the future in accordance with the decision of a shareholders committee as described under “Our Structure and Reorganization—Shareholders Agreement”.

(2)

Includes              restricted shares of our Class A common stock, representing     % of the voting rights in Artisan Partners Asset Management Inc., that we intend to grant to certain of our employees and directors in connection with this offering.

(3)

Economic rights of the Class A common stock, the common units and the general partnership units are subject, in the case of a partial capital event or dissolution of Artisan Partners Holdings, to the H&F preference as described under “Our Structure and Reorganization—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

Following the transactions described below, we will conduct all of our business activities through operating subsidiaries of our direct subsidiary Artisan Partners Holdings, an intermediate holding company of which we are the general partner. Net profits and net losses of Artisan Partners Holdings will be allocated, and distributions of profits will be made (subject to the H&F preference, as described below), approximately     % to us and     % in the aggregate to Artisan Partners Holdings’ limited partners (or     % and     %, respectively, if the underwriters exercise their option to purchase additional shares in full), immediately after giving effect to the transactions described herein. See “Our Structure and Reorganization”.

 

 

7


Table of Contents

Reorganization Transactions

We were incorporated in Wisconsin on March 21, 2011. We will enter into a series of transactions to reorganize our capital structure in connection with this offering. We refer throughout this prospectus to the transactions described below as the reorganization transactions or the reorganization.

Revisions to our Organization and Capitalization Structure. The issued and outstanding partnership interests in Artisan Partners Holdings currently consist of a general partnership interest and Class A, Class B and Class C limited partnership interests. Artisan Investment Corporation, or AIC, an entity controlled by Andrew A. Ziegler and Carlene M. Ziegler and through which Mr. Ziegler and Ms. Ziegler maintain their ownership interests in Artisan Partners Holdings, holds the general partnership interest. Thirty investors hold the Class A limited partnership interests. The Class A investors, who were the initial outside investors in Artisan Partners Holdings, include current and former members of Hellman & Friedman LLC, or H&F, a private equity investment firm, investing in their individual capacities, and a venture capital fund managed by Sutter Hill Ventures, a venture capital firm, and related individuals. Forty-six Artisan employees hold the Class B limited partnership interests. The holders of Class C limited partnership interests are private equity funds controlled by their sole general partner, Hellman & Friedman Investors V, L.P., or H&F Investors, which is, in turn, controlled by H&F.

Partnership Units. Immediately prior to the consummation of this offering, the limited partnership agreement of Artisan Partners Holdings will be amended and restated to reclassify the Class A, Class B and Class C limited partnership interests as Class A common units, Class B common units and preferred units of Artisan Partners Holdings, respectively, and AIC’s general partnership interest as Class D common units of Artisan Partners Holdings. Following the first anniversary of the consummation of this offering, the common units will be exchangeable for shares of our Class A common stock, and the preferred units will be exchangeable for shares of our convertible preferred stock, in each case on a one-for-one basis, subject to certain restrictions, as described under “Our Structure and Reorganization—Offering Transactions—Exchange Agreement”. We will become the sole general partner of Artisan Partners Holdings in connection with the amendment and restatement of the limited partnership agreement, and will control Artisan Partners Holdings’ management, subject to certain voting rights of the limited partners. Upon the consummation of this offering, Artisan Partners Asset Management will contribute all of the net proceeds it receives to Artisan Partners Holdings, and Artisan Partners Holdings will issue to Artisan Partners Asset Management a number of general partnership units equal to the number of shares of Class A common stock that Artisan Partners Asset Management issues in this offering. Artisan Partners Holdings will apply the net proceeds it receives as described under “Use of Proceeds”. We describe the terms of the amended and restated limited partnership agreement of Artisan Partners Holdings under “Our Structure and Reorganization—Offering Transactions—Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings”. We refer in this prospectus to the holders of the preferred units of Artisan Partners Holdings and our convertible preferred stock upon completion of this offering as the H&F holders.

Capital Stock. Immediately prior to the consummation of this offering, we also will amend and restate our articles of incorporation to authorize three classes of common stock, Class A common stock, Class B common stock and Class C common stock, as well as preferred stock, including a series of convertible preferred stock. Our common stock and convertible preferred stock will have the terms described below and, in more detail, under “Description of Capital Stock”:

 

   

Class A Common Stock. We will issue shares of our Class A common stock to the public in this offering. Each share of Class A common stock will entitle its holder to one vote and economic rights in Artisan (including rights to dividends or distributions upon liquidation), subject, in the case of a partial capital event or dissolution of Artisan Partners Holdings, to the H&F preference. See “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

 

   

Class B Common Stock. Immediately prior to the consummation of this offering, we will issue shares of our Class B common stock to AIC and to our employee-partners, in amounts equal to the number of

 

 

8


Table of Contents
 

common units that AIC and such Class B holders, respectively, hold at such time. Each share of our Class B common stock will initially entitle its holder to five votes per share but will have no economic rights in Artisan (including no rights to dividends or distributions upon liquidation). If and when our employees who are granted restricted shares of our Class A common stock and the holders of Class B common stock collectively hold less than 20% of the aggregate number of outstanding shares of our common stock and our convertible preferred stock, each share of Class B common stock will entitle its holder to only one vote per share. In connection with this offering, we plan to adopt the 2011 Omnibus Incentive Compensation Plan, pursuant to which we expect to grant equity awards of or with respect to shares of our Class A common stock or common units of Artisan Partners Holdings. To the extent that we cause Artisan Partners Holdings to issue additional common units to our employees, those employees would be entitled to receive a corresponding number of shares of our Class B common stock (including if the common units awarded are subject to vesting).

 

   

Class C Common Stock. Immediately prior to the consummation of this offering, we will issue shares of our Class C common stock to our initial outside investors and H&F in amounts equal to the number of common units or preferred units, respectively, that such holders hold at such time. Each share of Class C common stock will entitle its holder to one vote per share but will have no economic rights (including no rights to dividends or distributions upon liquidation).

 

   

Convertible Preferred Stock. One of the H&F private investment funds that was an indirect holder of Class C limited partnership interests in Artisan Partners Holdings before the reorganization transactions holds its investment in Artisan Partners Holdings through a corporation, which we refer to as H&F Corp. Immediately prior to the consummation of this offering, H&F Corp will merge with and into us and the H&F private investment fund that was the sole shareholder of H&F Corp will receive shares of our convertible preferred stock in exchange for its shares of H&F Corp. We will be the surviving corporation in the merger, which we refer to as the H&F Corp Merger. Each share of our convertible preferred stock will entitle its holder to one vote and economic rights equal to the economic rights of one share of our Class A common stock, except that in the case of a partial capital event or dissolution of Artisan Partners Holdings, each share of convertible preferred stock will entitle its holder to preferential distributions as described in “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”. We are issuing the convertible preferred stock in order to provide the initial holders of such stock with economic and voting rights similar to, though not the same as, the economic and voting rights such holders currently possess with respect to Artisan Partners Holdings.

Beginning on the first anniversary of the consummation of this offering, shares of our convertible preferred stock are convertible at the election of the holder into shares of our Class A common stock at the conversion rate, which will initially be one-for-one subject to adjustment to reflect the payment of any preferential distributions to the holders of our convertible preferred stock. In no event will a share of convertible preferred stock be convertible into more than a single share of our Class A common stock. See “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferred Distributions to Holders of Preferred Units and Convertible Preferred Stock—Convertible Preferred Stock Conversion Rate”. When the holders of our convertible preferred stock are no longer entitled to preferential distributions, each share of convertible preferred stock will automatically convert into shares of our Class A common stock at the then-applicable conversion rate.

Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock. In the case of a partial capital event or upon dissolution of Artisan Partners Holdings, preferential distributions will be made to the holders of the preferred units and the convertible preferred stock, in each case in proportion to their respective number of units or shares, as applicable. A “partial capital event” would include a sale or disposition of greater than 1% of our consolidated assets. We refer to those preference rights as the H&F preference. See

 

 

9


Table of Contents

“Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

Shareholders Agreement. Our employees who are granted restricted shares of our Class A common stock and the holders of our Class B common stock will enter into a shareholders agreement with respect to all shares of Class A common stock and Class B common stock they hold at such time or may acquire in the future, pursuant to which they will agree to vote such shares in accordance with the decision of a shareholders committee consisting initially of (i) a designee of AIC, who initially will be Andrew A. Ziegler, our Executive Chairman, (ii) Eric R. Colson, our President and Chief Executive Officer, and (iii) James C. Kieffer, a portfolio manager of our U.S. Value strategies. The members of the shareholders committee other than the AIC designee must be Artisan employees.

The AIC designee will have the sole right, in consultation with the other members of the shareholders committee, to determine how to vote all shares held by the parties to the shareholders agreement until the fifth anniversary of the consummation of this offering or, if earlier, (i) the date on which Mr. Ziegler ceases to be a member of the shareholders committee pursuant to the terms of the shareholders agreement, (ii) the second anniversary of the date on which Mr. Ziegler’s employment with us ends through either involuntary termination or constructive discharge, or (iii) 180 days after the date on which AIC owns less than 10% of the number of outstanding shares of our common stock and our convertible preferred stock. AIC will have the right to withdraw from the shareholders agreement when Mr. Ziegler is no longer a member of the shareholders committee. Although AIC may replace Mr. Ziegler as its shareholders committee designee, Mr. Ziegler indirectly holds 50% of the voting stock of AIC and therefore could not be replaced without his consent. We describe the terms of the shareholders agreement in more detail under “Our Structure and Reorganization—Shareholders Agreement”.

Exchange Agreement. Immediately prior to the consummation of this offering, we will enter into an exchange agreement with the holders of units of Artisan Partners Holdings. Subject to certain restrictions, following the first anniversary of the consummation of this offering, each holder (other than us) and certain permitted transferees will have the right to exchange their units, together with the corresponding shares of our Class B or Class C common stock, for shares of our Class A common stock (in the case of the common units) or convertible preferred stock (in the case of the preferred units) on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions. Following the automatic conversion of the convertible preferred stock, each Class C unit will be exchangeable for a number of shares of our Class A common stock equal to the conversion rate as described in “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferred Distributions to Holders of Preferred Units and Convertible Preferred Stock—Convertible Preferred Stock Conversion Rate”. Holders who exchange common units that are unvested will receive restricted shares of our Class A common stock that are subject to the same vesting and other requirements that applied to the common units exchanged. As the holders of common units exchange their units, we will receive a number of general partnership units of Artisan Partners Holdings equal to the number of shares of our Class A common stock that they receive, and a corresponding number of common units, and shares of our Class B or Class C common stock, as applicable, will be cancelled. We will retain any preferred units exchanged for shares of convertible preferred stock until the subsequent conversion of such shares for shares of our Class A common stock, although the corresponding shares of our Class C common stock will be cancelled. Upon conversion of shares of convertible preferred stock for shares of our Class A common stock, we will exchange the corresponding number of preferred units we hold for general partnership units. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement”.

Transfer Restrictions Applicable to AIC and our Employee-Partners. Subject to certain restrictions, substantially all of the common units of Artisan Partners Holdings held by AIC and our employee-partners, including all of our executive officers, will be exchangeable for shares of our Class A common stock (or restricted shares of our Class A common stock, in the case of exchange of unvested common units) following the first

 

 

10


Table of Contents

anniversary of the consummation of this offering. Shares of our Class A common stock received by AIC and our employee-partners upon exchange of their common units will be subject to significant limitations on resale that are described in “Our Structure and Reorganization—Offering Transactions—Resale and Registration Rights Agreement—Restrictions on Sale”.

Resale and Registration Rights Agreement. In connection with this offering, we will enter into a resale and registration rights agreement with the holders of common units of Artisan Partners Holdings and shares of our convertible preferred stock, pursuant to which the shares of our Class A common stock issued upon exchange of their common units or conversion of their shares of convertible preferred stock will be eligible for resale. See “Our Structure and Reorganization—Offering Transactions—Resale and Registration Rights Agreement—Restrictions on Sale” for a description of the timing and manner limitations on resales of these shares.

Contingent Value Rights. Immediately prior to the consummation of this offering, Artisan Partners Holdings and Artisan Partners Asset Management Inc. will issue contingent value rights, or CVRs, to the H&F holders. The CVRs may require us to make a cash payment to the holders thereof on July 11, 2016, or, if earlier, five business days after the effective date of a change of control of Artisan, unless such rights are earlier terminated by satisfaction of the H&F preference condition, as described in “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock— Termination of H&F Preference”. The amount of any payment we are required to make will depend on the average of the daily volume-weighted average price, or VWAP, of our Class A common stock over the 30 trading days prior to July 3, 2016, or the effective date of an earlier change of control, and any proceeds realized by the H&F holders with respect to their equity interests in us, subject to a maximum aggregate payment of $             million. We are issuing the CVRs in order to provide the current holders of Class C interests in Artisan Partners Holdings with economic rights similar to, though not the same as, the economic rights such holders currently possess with respect to Artisan Partners Holdings. See “Our Structure and Reorganization—Offering Transactions—Contingent Value Rights”.

Tax Receivable Agreements. The H&F Corp Merger will result in favorable tax attributes for us. In addition, future exchanges of limited partnership units of Artisan Partners Holdings for cash or shares of our Class A common stock or convertible preferred stock are expected to produce additional favorable tax attributes for us. These tax attributes would not be available to us in the absence of those transactions. Upon the closing of this offering, we will enter into two tax receivable agreements. Under the first of those agreements we generally will be required to pay to the holders of convertible preferred stock issued as consideration for the H&F Corp Merger (or our Class A common stock issued upon conversion of that convertible preferred stock) 85% of the applicable cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) the tax attributes of the units we acquire in the merger, (ii) net operating losses available as a result of the H&F Corp Merger and (iii) tax benefits related to imputed interest. Under the second tax receivable agreement we generally will be required to pay to the holders of limited partnership units of Artisan Partners Holdings 85% of the applicable cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes of their units exchanged and that are created as a result of the exchanges of their units for shares of our Class A common stock or convertible preferred stock and payments under the tax receivable agreements and (ii) tax benefits related to imputed interest. Under both agreements, we generally will retain the benefit of the remaining 15% of the applicable tax savings. See “Our Structure and Reorganization—Tax Receivable Agreements”.

Our Corporate Information

Our principal executive offices are located at 875 E. Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin 53202. Our telephone number at this address is (414) 390-6100 and our website address is www.artisanpartners.com. Information contained on our website is not part of this prospectus. The company was incorporated in Wisconsin on March 21, 2011.

 

 

11


Table of Contents

THE OFFERING

 

Class A common stock offered by us

             shares of Class A common stock.

 

Class A common stock to be outstanding immediately after this offering(1)

             shares of Class A common stock. If all limited partnership units of Artisan Partners Holdings (other than those held by us) were exchanged for shares of our Class A common stock or convertible preferred stock, as applicable, and all shares of our convertible preferred stock were converted for shares of our Class A common stock immediately after the reorganization,              shares of Class A common stock would be outstanding immediately after this offering.

 

Class B common stock to be outstanding immediately after this offering

             shares of Class B common stock. Shares of our Class B common stock have voting but no economic rights (including no rights to dividends or distributions upon liquidation) and will be issued to AIC and our employee-partners in an amount equal to the number of common units of Artisan Partners Holdings that AIC and our employee-partners hold following the reorganization. When a common unit is exchanged by AIC or an employee-partner for a share of Class A common stock, the corresponding share of Class B common stock will be cancelled. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement”.

 

Class C common stock to be outstanding immediately after this offering and the application of the net proceeds as described under “—Use of proceeds”

             shares of Class C common stock. Shares of our Class C common stock have voting but no economic rights (including no rights to dividends or distributions upon liquidation) and will be issued to our initial outside investors and H&F in an amount equal to the number of common units and preferred units, respectively, of Artisan Partners Holdings that each of them holds following the reorganization. When a common unit or a preferred unit, as the case may be, is exchanged by its holder for a share of Class A common stock or convertible preferred stock, as applicable, the corresponding share of Class C common stock will be cancelled. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement”.(2)

 

 

(1) Includes              restricted shares of our Class A common stock that we expect to grant to certain of our employees and directors in connection with this offering.
(2) Reflects the transfer of              preferred units to us in connection with the H&F Corp Merger immediately prior to the consummation of this offering and our redemption of              shares of Class C common stock using a portion of the net proceeds of this offering.

 

 

12


Table of Contents

Convertible preferred stock to be outstanding immediately after this offering

             shares of our convertible preferred stock, each share of which, at the election of the holder and beginning on the first anniversary of the consummation of this offering, is convertible for a number of shares of our Class A common stock equal to the conversion rate as described in “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock—Convertible Preferred Stock Conversion Rate”.

 

  Shares of convertible preferred stock have voting and economic rights equal to the economic rights of the Class A common stock, except that in the case of a partial capital event or dissolution of Artisan Partners Holdings, each share of convertible preferred stock will entitle its holder to preferential distributions as described in “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”. Shares of convertible preferred stock will be issued in the H&F Corp Merger and, from time to time in the future, upon exchange of preferred units.

 

Voting rights and shareholders agreement

One vote per share of Class A common stock, Class C common stock and convertible preferred stock. Shares of Class B common stock initially entitle the holder to five votes per share. Our employees (including directors who are employees) who are granted restricted shares of our Class A common stock, or who receive restricted or unrestricted shares of our Class A common stock in exchange for their Class B partnership units, and the Class B shareholders will enter into a shareholders agreement pursuant to which they will agree to vote their shares of Class A common stock and Class B common stock they hold at such time or may acquire in the future, in accordance with the decision of a shareholders committee consisting initially of a designee of AIC, who initially will be Andrew A. Ziegler, Eric R. Colson and James C. Kieffer, a portfolio manager of our U.S. Value strategies. The AIC designee will have the sole right, in consultation with the other members of the committee, to determine how to vote all shares held by the parties to the shareholders agreement until the fifth anniversary of the consummation of this offering or, if earlier, (i) the date on which Mr. Ziegler ceases to be a member of the shareholders committee pursuant to the terms of the shareholders agreement, (ii) the second anniversary of the date on which Mr. Ziegler’s employment with us ends through either involuntary termination or constructive discharge or (iii) 180 days after the date on which AIC owns less than 10% of the number of outstanding shares of our common stock and our convertible preferred stock. If and when AIC and our employees collectively hold less than 20% of the aggregate number of outstanding shares of our common stock and our convertible preferred

 

 

13


Table of Contents
 

stock, each share of Class B common stock will entitle its holder to one vote per share. See “Our Structure and Reorganization—Shareholders Agreement” for additional information about the shareholders agreement.

 

Use of proceeds

We will receive net proceeds from our sale of Class A common stock in this offering of approximately $         million (assuming a per share price equal to the midpoint of the price range set forth on the cover of this prospectus). Of these net proceeds, we intend to use $         million to repay a portion of outstanding indebtedness under our term loan, $         million to purchase an aggregate of              common units from certain of our initial outside investors, $         million to make a distribution of retained profits of Artisan Partners Holdings to its pre-offering partners, and the balance for general corporate purposes, including working capital. Investors who purchase Class A common stock in this offering will not be entitled to a portion of the distribution of the retained profits.

 

Dividend policy

Upon the completion of this offering, we will have no material assets other than our ownership of partnership units of Artisan Partners Holdings. Accordingly, our ability to pay dividends will depend on distributions from Artisan Partners Holdings. We intend to cause Artisan Partners Holdings to make distributions to us with available cash generated from its subsidiaries’ operations in an amount sufficient to cover dividends. If Artisan Partners Holdings makes such distributions, the holders of its limited partnership units will be entitled to receive equivalent distributions on a pro rata basis.

 

  The declaration and payment of all future dividends, if any, will be at the sole discretion of our board of directors and may be discontinued at any time. In determining the amount of any future dividends, our board of directors will take into account any legal or contractual limitations, our actual and anticipated future earnings, cash flow, debt service and capital requirements and the amount of distributions to us from Artisan Partners Holdings.

 

  Following this offering, we intend to pay quarterly cash dividends. We expect that our first dividend will be paid in the          quarter of              (in respect of the          quarter of         ) and will be approximately $         per share of our Class A common stock. See “Dividend Policy and Dividends”.

 

Listing symbol

“        ”

 

Risk Factors

The “Risk Factors” section included in this prospectus contains a discussion of factors that you should carefully consider before deciding to invest in shares of our Class A common stock.

 

Conflicts of Interest

An affiliate of Citigroup Global Markets Inc., an underwriter in this offering, is the administrative agent and a lender under our term loan agreement and may receive more than 5% of the net proceeds of this

 

 

14


Table of Contents
 

offering in connection with the partial repayment of our term loan. See “Use of Proceeds”. Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. In accordance with this rule,                  has assumed the responsibilities of acting as a qualified independent underwriter. In its role as qualified independent underwriter,                  has participated in due diligence and the preparation of this prospectus and the registration statement of which this prospectus is a part.                  will not receive any additional fees for serving as a qualified independent underwriter in connection with this offering. Citigroup Global Markets Inc. will not confirm sales of the shares to any account over which it exercises discretionary authority without the prior written approval of the customer.

The number of shares of our Class A common stock to be outstanding after the completion of this offering excludes:

 

   

            shares of Class A common stock reserved for issuance upon exchange of common units of Artisan Partners Holdings and conversion of shares of our convertible preferred stock (assuming a one-for-one conversion rate);

 

   

            shares of Class A common stock reserved for issuance under the 2011 Omnibus Incentive Compensation Plan that we plan to adopt in connection with this offering (but includes any restricted shares of Class A common stock granted to our directors and employees in connection with this offering); and

 

   

            shares of Class A common stock issuable upon exchange of the corresponding number of common units reserved for issuance under the 2011 Omnibus Incentive Compensation Plan for common unit-based awards.

Unless otherwise indicated, all information in this prospectus assumes:

 

   

no exercise of the underwriters’ option to purchase additional shares; and

 

   

that the shares of Class A common stock to be sold in this offering are sold at $         per share, which is the midpoint of the range set forth on the cover of this prospectus.

 

 

15


Table of Contents

SUMMARY SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following tables set forth summary selected historical consolidated financial data of Artisan Partners Holdings as of the dates and for the periods indicated. The summary selected consolidated statement of operations data for the years ended December 31, 2010, 2009 and 2008, and the consolidated statements of financial condition data as of December 31, 2010 and 2009 have been derived from Artisan Partners Holdings’ audited consolidated financial statements included elsewhere in this prospectus.

The unaudited pro forma consolidated financial data give effect to all of the transactions described under “Unaudited Pro Forma Consolidated Financial Information”, including the reorganization transactions and this offering.

You should read the following selected historical consolidated financial data of Artisan Partners Holdings and the unaudited pro forma financial information of Artisan Partners Asset Management Inc. together with “Our Structure and Reorganization”, “Unaudited Pro Forma Consolidated Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Historical Artisan Partners Holdings
Year Ended December 31,
    Pro Forma
Artisan Partners Asset
Management Inc.
 
    Year Ended December 31,  
        2010             2009             2008         2010  
    (in millions except per share data)  

Statement of Operations Data:

       

Revenues

       

Management fees—mutual funds

  $ 261.6      $ 197.2      $ 249.8     

Management fees—separate accounts

    117.8        95.5        103.5     

Performance fees

    2.9        3.5        3.7     
                               

Total revenues

    382.3        296.2        357.0     

Operating Expenses

       

Compensation and benefits

       

Salaries, incentive compensation and benefits

    166.6        132.9        147.0     

Distributions on Class B liability awards

    17.6        2.5        57.9     

Change in value of Class B liability awards

    79.1        41.8        (108.9  
                               

Total compensation and benefits

    263.3        177.2        96.0     

Distribution and marketing

    23.0        17.8        20.1     

Occupancy

    8.1        8.0        7.1     

Communication and technology

    9.9        10.1        14.3     

General and administrative

    12.8        10.0        10.6     
                               

Total operating expenses

    317.1        223.1        148.1     
                               

Operating income

    65.2        73.1        208.9     

Non-operating income (loss)

       

Interest expense

    (23.0     (24.9     (26.5  

Other income (loss)

    1.6        0.0        0.9     
                               

Total non-operating income (loss)

    (21.4     (24.9     (25.6  
                               

Income before income taxes

    43.8        48.2        183.3     

Provision for income taxes

    1.3        —          —       
                               

Net income

  $ 42.5      $ 48.2      $ 183.3     
                               

Less: Net income attributable to noncontrolling interests

       
             

Net income attributable to Artisan Partners Asset
Management Inc.

       
             

 

 

16


Table of Contents
    Historical Artisan Partners Holdings
Year Ended December 31,
    Pro Forma
Artisan Partners Asset
Management Inc.
 
    Year Ended December 31,  
        2010             2009             2008         2010  
    (in millions except per share data)  

Per Share Data:

       

Basic and diluted net income per share

       

Weighted average shares used in basic and diluted net income per share

       

 

     Historical Artisan Partners Holdings     Pro Forma
Artisan Partners Asset
Management Inc.
 
     As of
December 31, 2010
    As of
December 31, 2009
    As of December 31, 2010  
     (in millions)  

Statement of Financial Condition Data:

      

Cash and cash equivalents

   $ 159.0      $ 101.8      $                

Accounts receivable

     36.7        31.7     

Total assets

     209.9        145.7     

Accounts payable and accrued expenses

     9.6        8.4     

Interest rate swap

     6.1        21.7     

Notes payable(1)

     380.0        400.0     

Class B liability awards

     168.8        106.5     

Total liabilities

     589.3        545.7     

Temporary Equity—Redeemable Class C Interests

     357.2        357.2     

Total permanent equity (deficit)

   $ (736.6   $ (757.2   $                

 

(1)

In July 2006, we entered into a $400 million five-year term loan agreement. The proceeds of the borrowing were used to redeem partnership interests from certain partners. At the same time, a private equity fund and a private investment fund, both controlled by H&F, purchased partnership interests which were converted into Class C limited partnership interests. In November 2010, we amended our term loan agreement reducing the aggregate outstanding principal of the loan to $380 million and extending the maturity of $363 million of the loan, less amortization and other prepayments, to July 2013. The remaining $17 million of the loan will mature on July 1, 2011. Under the amended term loan agreement, we began making quarterly amortization payments of $10 million starting in the fiscal quarter ended March 31, 2011 and will continue such payments until such time as the aggregate outstanding principal amount of the loan is reduced to $250 million. The amended term loan agreement further requires that we repay the loan with a portion of the net proceeds of this offering and, under certain circumstances, requires that 50% of our excess cash flow for each fiscal quarter be utilized to repay the loan. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

 

 

 

17


Table of Contents

Our management uses adjusted operating margin as a financial measure to evaluate the profitability and efficiency of our business model. Adjusted operating margin is not presented in accordance with U.S. generally accepted accounting principles, or GAAP, because we exclude from operating income certain expenses related to equity-based compensation that are included in calculating operating margin under GAAP. Furthermore, adjusted operating margin may be different from non-GAAP measures used by other companies. We compute our adjusted operating margin by adding to operating income (thereby effectively excluding) the expenses we recognize for equity-based compensation, which includes distributions to the Class B partners of Artisan Partners Holdings, redemptions of Class B limited partnership interests and changes in the redemption value of Class B limited partnership interests, and then dividing that sum by total revenues for the applicable period. The following table shows our adjusted operating margin for the years ended December 31, 2010, 2009 and 2008 as well as a reconciliation of our adjusted operating margin with GAAP operating margin for the periods presented:

 

     For the Year Ended
December 31,
 
     2010     2009     2008  
     (dollars in millions)  

GAAP operating income

   $ 65.2      $ 73.1      $ 208.9   

Distributions on Class B liability awards

     17.6        2.5        57.9   

Change in value of Class B liability awards

     79.1        41.8        (108.9
                        

Adjusted operating income

   $ 161.9      $ 117.4      $ 157.9   

Total revenues

   $ 382.3      $ 296.2      $ 357.0   

GAAP operating margin

     17.1     24.7     58.5

Adjusted operating margin

     42.3     39.6     44.2

 

     Year Ended December 31,  
     2010      2009      2008     2007     2006  
     (in millions)  

Selected Unaudited Operating Data:

            

Assets under management(1)

   $ 57,459       $ 46,788       $ 30,577      $ 55,468      $ 50,903   

Net client cash flows(2)

     3,410         2,556         (1,783     (2,875     (2,599

Market appreciation (depreciation)(3)

   $ 7,260       $ 13,656       $ (23,108   $ 7,440      $ 8,748   

 

(1)

Reflects the amount of money we managed for our clients in our strategies as of the last day of the period.

(2)

Reflects the amount of money our clients placed with us for management, and withdrew from our management, during the period, excluding appreciation (depreciation) due to market performance and fluctuations in exchange rates.

(3)

Represents the appreciation (depreciation) of the value of our assets under management during the period due to market performance and fluctuations in exchange rates, as well as income, such as dividends, earned on assets under management.

 

 

18


Table of Contents

RISK FACTORS

You should carefully consider each of the risks below, together with all of the other information contained in this prospectus, before deciding to invest in shares of our Class A common stock. If any of the following risks develops into an actual event, our business, financial condition or results of operations could be negatively affected, the market price of your shares could decline and you could lose all or part of your investment.

Risks Related to our Business

The loss of key investment professionals or members of our senior management team could have a material adverse effect on our business.

We depend on the skills and expertise of our investment professionals and our success depends on our ability to retain the key members of our investment teams, who possess substantial experience in investing and have been primarily responsible for the historically strong investment performance we have achieved. In particular, we depend on the portfolio managers. Each of our four largest investment strategies represented more than 10%, and in the aggregate those four strategies represented 64%, of our assets under management as of December 31, 2010. Each of those four strategies has been managed by its current portfolio manager or managers since the strategy’s inception at Artisan (with the exception of the U.S. Mid-Cap Value Strategy, which has been managed by James C. Kieffer and Scott C. Satterwhite since 2001, along with George O. Sertl, Jr. since 2006). Mark L. Yockey is the sole portfolio manager for our largest strategy, the Non-U.S. Growth Strategy, which represented $18.2 billion, or 32%, of our assets under management as of December 31, 2010. Andrew C. Stephens and James D. Hamel are portfolio co-managers of our second largest strategy, the U.S. Mid-Cap Growth Strategy, which represented $10.8 billion, or 19%, of our assets under management at December 31, 2010. The U.S. Mid-Cap Value Strategy, of which Messrs. Kieffer, Satterwhite and Sertl are co-managers, is our third largest strategy and represented $9.5 billion, or 16%, of our assets under management at December 31, 2010. Our Non-U.S. Value Strategy, which is our fourth largest strategy and represented $7.0 billion, or 12%, of our assets under management at December 31, 2010, is managed by co-managers N. David Samra (lead manager) and Daniel J. O’Keefe.

Because of the long tenure and stability of our portfolio managers, our clients generally attribute the investment performance we have achieved to these individuals. While we have generally experienced very few departures among our portfolio managers, there can be no assurance that this stability will continue in the future. The departure of a strategy’s portfolio manager, especially for strategies with only one portfolio manager, could cause clients to withdraw funds from the strategy which would reduce our assets under management, investment management fees and, if we were not able to reduce our expenses sufficiently, our net income, and these reductions could be material. The departure of a strategy’s portfolio manager also could cause clients to refrain from allocating additional funds to the strategy or delay such additional funds until a sufficient track record under a new portfolio manager or managers has been established. This would have a negative effect on the future growth of our assets under management.

We also depend on the contributions of our senior management team led by Eric R. Colson, our President and Chief Executive Officer, and Andrew A. Ziegler, our Executive Chairman, who co-founded our company and has been the primary architect of our business strategy, as well as other members of our senior management team. In addition, our senior marketing and client service personnel have direct contact with our institutional clients and consultants and other key individuals within each of our distribution channels. The loss of any of these key professionals could limit our ability to successfully execute our business strategy and may prevent us from sustaining the historically strong investment performance we have achieved or adversely affect our ability to retain existing and attract new client assets and related revenues.

Any of our investment or management professionals may resign at any time, join our competitors or form a competing company. Although each of Messrs. Colson and Ziegler and each of our portfolio managers will be subject to a non-compete obligation that extends for one year after his or her departure from Artisan, these non-competition provisions may not be enforceable or may not be enforceable to their full extent. We do not

 

19


Table of Contents

carry “key man” insurance that would provide us with proceeds in the event of the death or disability of any of the key members of our investment or management teams.

Competition for qualified investment, management and marketing and client service professionals is intense and we may fail to successfully attract and retain qualified personnel in the future. Our ability to attract and retain these personnel will depend heavily on the amount and structure of compensation and opportunities for equity ownership we offer. Historically we have offered key employees equity ownership through profits interests in Artisan Partners Holdings that entitle the holder to participate in profits and share in appreciation or depreciation from and after the date of grant. Those key employees who are currently limited partners of Artisan Partners Holdings will hold these interests in the form of common units immediately following this offering. In connection with our transition to a public company, we intend to implement a new compensation structure that uses a combination of cash and equity-based incentives as appropriate. Although we intend for overall compensation levels to remain commensurate with amounts paid to our key employees in the past, we may not be successful in designing and implementing an attractive compensation model. Any cost-reduction initiative or adjustments or reductions to compensation could negatively impact our ability to retain key personnel. In addition, changes to our management structure, corporate culture and corporate governance arrangements, including the changes associated with, and resulting from, our reorganization and this offering, could negatively impact our ability to retain key personnel.

If our investment strategies perform poorly, clients could withdraw their funds and we could suffer a decline in our assets under management and/or become subject to litigation, which would reduce our earnings.

The performance of our investment strategies is critical in retaining existing client assets as well as attracting new client assets. If our investment strategies perform poorly for any reason, our earnings could decline because:

 

   

our existing clients may withdraw funds from our investment strategies or terminate their relationships with us, which would cause the revenues that we generate from investment management fees to decline;

 

   

the Morningstar and Lipper ratings and rankings of mutual funds we manage may decline, which may adversely affect the ability of those funds to attract new or retain existing assets; or

 

   

third-party financial intermediaries, advisors or consultants may rate our investment products poorly, which may lead our existing clients to withdraw funds from our investment strategies or reduce asset inflows from these third parties or their clients.

Our investment strategies can perform poorly for a number of reasons, including general market conditions, investment decisions that we make and the performance of the companies in which our investment strategies invest. In addition, while we seek to deliver long-term value to our clients, volatility may lead to under-performance in the near term, which could adversely affect our results of operations. The global economic environment deteriorated sharply in 2008, particularly in the third and fourth quarters, and in the first quarter of 2009, with virtually every class of financial asset and geographic market experiencing significant price declines and volatility as a result of the global financial crisis. In the period from June 30, 2008 through March 31, 2009, our assets under management decreased by approximately 43%, primarily as a result of general market conditions.

In contrast, when our strategies experience strong results relative to the market, clients’ allocations to our strategies may increase relative to their other investments and we could suffer withdrawals as our clients rebalance their investments to fit their asset allocation preferences.

While clients do not have legal recourse against us solely on the basis of poor investment results, if our investment strategies perform poorly, we are more likely to become subject to litigation brought by dissatisfied clients. In addition, to the extent clients are successful in claiming that their losses resulted from fraud,

 

20


Table of Contents

negligence, willful misconduct, breach of contract or other similar misconduct, these clients may have remedies against us, our mutual funds and collective funds and/or our investment professionals under the federal securities laws and/or state law.

The historical returns of our existing investment strategies may not be indicative of their future results or of the investment strategies we may develop in the future.

We have presented the historical returns of our existing investment strategies under “Business—Investment Strategies and Performance”. The historical returns of our strategies and the ratings and rankings we or the mutual funds that we advise have received in the past should not be considered indicative of the future results of these strategies or of any other strategies that we may develop in the future. The investment performance we achieve for our clients varies over time and the variance can be wide. The ratings and rankings we or the mutual funds we advise have received are typically revised monthly. The historical performance and ratings and rankings presented herein are as of December 31, 2010 and for periods then ended. The performance we have achieved and the ratings and rankings received at subsequent dates and for subsequent periods may be higher or lower and the difference could be material. Our strategies’ returns have benefited during some periods from investment opportunities and positive economic and market conditions. In other periods, such as in 2008, the first quarter of 2009 and the second quarter of 2010, general economic and market conditions have negatively affected investment opportunities and our strategies’ returns. These negative conditions may occur again, and in the future we may not be able to identify and invest in profitable investment opportunities within our current or future strategies.

Difficult market conditions can adversely affect our business in many ways, including by reducing the value of our assets under management and causing clients to withdraw funds, each of which could materially reduce our revenues and adversely affect our financial condition.

The fees we earn under our investment management agreements are typically based on the market value of our assets under management, and to a much lesser extent based on investment performance. Investors in the mutual funds we advise can redeem their investments in those funds at any time without prior notice and our clients may reduce the aggregate amount of assets under management with us with minimal or no notice for any reason, including financial market conditions and the absolute or relative investment performance we achieve for our clients. In addition, the prices of the securities held in the portfolios we manage may decline due to any number of factors beyond our control, including, among others, a declining stock market, general economic downturn, political uncertainty or acts of terrorism. In connection with the severe market dislocations of 2008, early 2009 and the second quarter of 2010, the value of our assets under management declined substantially due primarily to the sizeable decline in stock prices worldwide. In future periods of difficult market conditions we may experience accelerated client redemptions or withdrawals if clients move assets to investments they perceive as offering greater opportunity or lower risk or our strategies underperform relative to benchmarks, which could further reduce our assets under management in addition to market depreciation. The economic outlook remains uncertain and we continue to operate in a challenging business environment. If any of these factors cause a decline in our assets under management, it would result in lower investment management fees. If our revenues decline without a commensurate reduction in our expenses, our net income will be reduced and our business will be negatively affected.

Several of our investment strategies invest principally in the securities of non-U.S. companies, which involve foreign currency exchange, tax, political, social and economic uncertainties and risks.

As of December 31, 2010, we managed approximately 55% of our assets under management in strategies that primarily invest in securities of non-U.S. companies. In addition, some of our other strategies also invest on a more limited basis in securities of non-U.S. companies. Fluctuations in foreign currency exchange rates could negatively affect the returns of our clients who are invested in these strategies. In addition, an increase in the

 

21


Table of Contents

value of the U.S. dollar relative to non-U.S. currencies is likely to result in a decrease in the U.S. dollar value of our assets under management, which, in turn, could result in lower revenue since we report our financial results in U.S. dollars.

Investments in non-U.S. issuers may also be affected by tax positions taken in countries or regions in which we are invested as well as political, social and economic uncertainty, particularly as a result of the recent decline in economic conditions. Declining tax revenues may cause governments to assert their ability to tax the local gains and/or income of foreign investors (including our clients), which could adversely affect clients’ interests in investing outside their home markets. Many financial markets are not as developed, or as efficient, as the U.S. financial markets, and, as a result, those markets may have limited liquidity and higher price volatility. Liquidity may also be adversely affected by political or economic events within a particular country, and our ability to dispose of an investment may also be adversely affected if we increase the size of our investments in smaller non-U.S. issuers. Non-U.S. legal and regulatory environments, including financial accounting standards and practices, may also be different, and there may be less publicly available information about such companies. These risks could adversely affect the performance of our strategies that are invested in securities of non-U.S. issuers and may be particularly acute in the emerging or less developed markets in which we invest. In addition to our Emerging Markets strategy, a number of our other investment strategies are permitted to invest in emerging or less developed markets in amounts generally ranging up to 20% to 25% of the strategy’s assets under management.

We derive a substantial portion of our revenues from a limited number of our strategies.

As of December 31, 2010, $18.2 billion of our assets under management were concentrated in our Non-U.S. Growth strategy, representing approximately 34% of our investment management fees for the year ended December 31, 2010. Our next four largest strategies, U.S. Mid-Cap Growth, U.S. Mid-Cap Value, Non-U.S. Value and U.S. Small-Cap Value, represented an additional $10.8 billion, $9.5 billion, $7.0 billion and $4.6 billion of our assets under management, respectively, as of December 31, 2010, representing 18%, 18%, 11% and 9% of our investment management fees, respectively, for the year ended December 31, 2010. Two of those strategies, U.S. Mid-Cap Value and U.S. Small-Cap Value, are managed by the same investment team. As a result, a substantial portion of our operating results depends upon the performance of those strategies, and our ability to retain client assets in those strategies. Currently, we have closed our U.S. Mid-Cap Value, Non-U.S. Value, U.S. Small-Cap Value, U.S. Mid-Cap Growth and Non-U.S. Small-Cap Growth strategies to most new investors and client relationships. Our smaller strategies, such as our Growth Opportunities and Global Equity strategies, due to their size, may not be able to generate sufficient fees to cover their expenses. If a significant portion of the investors in our larger strategies decided to withdraw their investments or terminate their investment management agreements for any reason, including poor investment performance or adverse market conditions, our revenues from those strategies would decline, which would have a material adverse effect on our earnings and financial condition.

We may not be able to maintain our current fee structure as a result of poor investment performance, competitive pressures or as a result of changes in our business mix, which could have a material adverse effect on our profit margins and results of operations.

We may not be able to maintain our current fee structure for any number of reasons, including as a result of poor investment performance, competitive pressures or as a result of changes in our business mix. Although our investment management fees vary by client and investment strategy, we historically have been successful in charging premium fees due to the strength of our investment performance and our focus on high value-added investment strategies. In recent years, however, there has been a general trend toward lower fees in the investment management industry, and some of our more recent investment strategies, because they tend to invest in larger-capitalization companies and were designed to have larger capacity and to appeal to larger clients, have lower fee schedules. In order to maintain our fee structure in a competitive environment, we must be able to continue to provide clients with investment returns and service that our clients believe justify our fees. If our

 

22


Table of Contents

investment strategies perform poorly, we may be forced to lower our fees in order to retain current, and attract additional, assets to manage. We may not succeed in providing the investment returns and service that will allow us to maintain our current fee structure. Furthermore, over time, a larger part of our assets under management could be invested in our larger capacity, lower fee strategies, which could adversely affect our profitability. In addition, plan sponsors of 401(k) and other defined contribution assets that we manage may choose to invest plan assets in vehicles with lower cost structures than mutual funds and may choose to access our services through a collective trust (if available) or a separate account. We provide a lesser array of services to both collective trusts and separate accounts than we provide to Artisan Funds and we receive fees at lower rates.

The investment management agreements pursuant to which we advise mutual funds are terminable on short notice and, after an initial term, are subject to an annual process of review and renewal by the funds’ boards. As part of that annual review process, the fund board considers, among other things, the level of compensation that the fund has been paying us for our services, and that process may result in the renegotiation of our fee structure or increase the cost of our performance of our obligations. Any fee reductions on existing or future new business could have an adverse effect on our profit margins and results of operations. For more information about our fees see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business—Investment Management Fees”.

We derive substantially all of our revenues from contracts and relationships that may be terminated upon short or no notice.

We derive substantially all of our revenues from investment advisory and sub-advisory agreements, all of which are terminable by clients upon short notice or no notice. Our investment management agreements with mutual funds, as required by law, are generally terminable by the funds’ boards or a vote of the majority of the funds’ outstanding voting securities on not more than 60 days’ written notice. After an initial term, each fund’s investment management agreement must be approved and renewed annually by such fund’s board, including by its independent members. In addition, all of our separate account clients and some of the mutual funds that we sub-advise have the ability to re-allocate all or any portion of the assets that we manage away from us at any time with little or no notice. These investment management agreements and client relationships may be terminated or not renewed for any number of reasons. The decrease in revenues that could result from the termination of a material client relationship or group of client relationships could have a material adverse effect on our business.

Investors in the funds that we advise can redeem their investments in those funds at any time without prior notice, which could adversely affect our earnings.

Investors in the mutual funds and other pooled investment vehicles that we advise or sub-advise may redeem their investments in those funds at any time without prior notice and investors in other types of pooled vehicles we sub-advise may typically redeem their investments on fairly limited or no prior notice, thereby reducing the aggregate amount of our assets under management. These investors may redeem for any number of reasons, including general financial market conditions, the absolute or relative investment performance we have achieved, or their own financial condition and requirements. In a declining stock market, the pace of redemptions could accelerate. Poor investment performance relative to other funds tends to result in decreased purchases and increased redemptions of fund shares. For the year ended December 31, 2010, we generated over 78% of our revenues from advising mutual funds and other pooled vehicles, and the redemption of investments in those funds would adversely affect our revenues and could have a material adverse effect on our earnings.

We depend on third-party distribution sources to market our investment strategies and access our client base.

Our ability to attract additional assets to manage is highly dependent on our access to third-party intermediaries. We access institutional clients primarily through consultants. We gain access to investors in Artisan Funds primarily through consultants, 401(k) platforms, mutual fund platforms, broker-dealers and financial advisors through which shares of the funds are sold. As of December 31, 2010, the investment

 

23


Table of Contents

consultant advising the largest portion of our assets under management represented approximately 6% of our total assets under management, and our largest relationships with a 401(k) platform, broker-dealer and financial adviser represented approximately 6%, 2% and 1%, respectively, of our total assets under management. We compensate most of the intermediaries through which we gain access to investors in Artisan Funds by paying fees, most of which are based on a percentage of assets invested in Artisan Funds through that intermediary and with respect to which that intermediary provides services. These distribution sources and client bases may not continue to be accessible to us on terms we consider commercially reasonable, or at all. The absence of such access could have a material adverse effect on our results of operations. Our institutional business is highly dependent upon referrals from consultants. Many of these consultants review and evaluate our products and our firm from time to time. Poor reviews or evaluations of either a particular product, strategy, or us as an investment management firm may result in client withdrawals or may impair our ability to attract new assets through these intermediaries. In addition, the recent economic downturn and consolidation in the broker-dealer industry may lead to reduced distribution access and increases in fees we are required to pay to intermediaries. If such increased fees should be required, refusal to pay them could restrict our access to those clients bases while paying them could adversely affect our profitability.

The significant growth we have experienced over the past decade has been and may continue to be difficult to sustain.

Our assets under management have increased from $11.0 billion as of December 31, 2000 to $57.5 billion as of December 31, 2010. The absolute measure of our assets under management represents a significant rate of growth that has been and may continue to be difficult to sustain. The growth of our business will depend on, among other things, our ability to retain key investment professionals, to devote sufficient resources to maintaining existing investment strategies and to selectively develop new investment strategies. Our business growth will also depend on our success in achieving superior investment performance from our investment strategies, as well as our ability to maintain and extend our distribution capabilities, to deal with changing market conditions, to maintain adequate financial and business controls and to comply with new legal and regulatory requirements arising in response to both the increased sophistication of the investment management industry and the significant market and economic events of the last few years. In addition, the growth in our assets under management has benefited from a general depreciation of the U.S. dollar relative to many of the currencies in which we invest and such currency trends may not continue, as evidenced by recent volatility. If we believe that in order to continue to produce attractive returns from some or all of our investment strategies we should limit the growth of those strategies, we have in the past chosen, and in the future may choose, to limit or close access to those strategies to some or most categories of new investors or otherwise take action to slow the flow of assets into those strategies.

In addition, we expect there to be significant demand on our infrastructure and investment teams and we may not be able to manage our growing business effectively or be able to sustain the level of growth we have achieved historically, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.

Our efforts to establish new investment teams and strategies may be unsuccessful and could negatively impact our results of operations and our reputation.

As part of our growth strategy, we may seek to take advantage of opportunities to add new investment teams that invest in a way that is consistent with our philosophy of offering high value-added investment strategies. To the extent we are unable to recruit and retain investment teams that will complement our existing business model, we may not be successful in further diversifying our investment strategies and client assets, any of which could have a material adverse effect on our business and future prospects. In addition, the costs associated with establishing a new team and investment strategy initially will exceed the revenues they generate. If any such new strategies perform poorly and fail to attract sufficient assets to manage, our results of operations will be negatively impacted. In addition, a new strategy’s poor performance may negatively impact our reputation and the reputation of our other investment strategies within the investment community.

 

24


Table of Contents

The long-only, equity investment focus of our strategies exposes us to greater risk than certain of our competitors whose investment strategies may also include non-equity securities or short positions.

Our investment strategies hold long positions in publicly-traded equity securities of companies across a wide range of market capitalizations, geographies and industries; investments by our strategies in non-equity securities have been immaterial. Accordingly, under market conditions in which there is a general decline in the value of equity securities, each of our strategies is likely to perform poorly on an absolute basis. Unlike some of our competitors, we do not have strategies that invest in privately-held companies or in non-equity securities or take short positions in equity securities, which could offset some of the poor performance of our long-only, equity strategies under such market conditions. Even if our investment performance remains strong during such market conditions relative to other long-only, equity strategies, investors may choose to withdraw assets from our management or allocate a larger portion of their assets to non-long-only or non-equity strategies, which we do not offer. In addition, the prices of equity securities may fluctuate more widely than the prices of other types of securities, making the level of our assets under management and related revenues more volatile.

The performance of our investment strategies or the growth of our assets under management may be constrained by unavailability of appropriate investment opportunities.

The ability of our investment teams to deliver strong investment performance depends in large part on their ability to identify appropriate investment opportunities in which to invest client assets. If the investment team for any of our strategies is unable to identify sufficient appropriate investment opportunities for existing and new client assets on a timely basis, the investment performance of the strategy could be adversely affected. In addition, if we determine that sufficient investment opportunities are not available for a strategy, we may choose to limit the growth of the strategy by limiting the rate at which we accept additional client assets for management under the strategy, closing the strategy to all or substantially all new investors or otherwise taking action to limit the flow of assets into the strategy. If we misjudge the point at which it would be optimal to limit access to or close a strategy, the investment performance of the strategy could be negatively impacted. The risk that sufficient appropriate investment opportunities may be unavailable is influenced by a number of factors, including general market conditions, but is particularly acute with respect to our strategies that focus on small-cap and emerging market investments, and is likely to increase as our assets under management increase, particularly if these increases occur very rapidly.

Our failure to comply with investment guidelines set by our clients, including the boards of mutual funds, and limitations imposed by applicable law, could result in damage awards against us and a loss of our assets under management, either of which could adversely affect our results of operations or financial condition.

When clients retain us to manage assets on their behalf, they generally specify certain guidelines regarding investment allocation and strategy that we are required to follow in managing their portfolios. The boards of mutual funds we manage generally establish similar guidelines regarding the investment of assets in those funds. We are also required to invest the mutual funds’ assets in accordance with limitations under the U.S. Investment Company Act of 1940, as amended, or the 1940 Act, and applicable provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Other clients, such as plans subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or non-U.S. funds, require us to invest their assets in accordance with applicable law. Our failure to comply with any of these guidelines and other limitations could result in losses to clients or investors in a fund which, depending on the circumstances, could result in our obligation to make clients or fund investors whole for such losses. If we believed that the circumstances did not justify a reimbursement, or clients and investors believed the reimbursement we offered was insufficient, they could seek to recover damages from us or could withdraw assets from our management or terminate their investment management agreement with us. Any of these events could harm our reputation and adversely affect our business.

 

25


Table of Contents

A change of control of our company could result in termination of our investment advisory agreements.

Under the 1940 Act, each of the investment advisory agreements for SEC-registered mutual funds that our subsidiary, Artisan Partners Limited Partnership, advises automatically terminates in the event of its assignment, as defined under the 1940 Act. If such an assignment were to occur, our subsidiary could continue to act as adviser to any such fund only if that fund’s board and shareholders approved a new investment advisory agreement, except in the case of certain of the funds that we sub-advise for which only board approval would be necessary. In addition, under the U.S. Investment Advisers Act of 1940, as amended, or the Advisers Act, each of the investment advisory agreements for the separate accounts we manage may not be assigned without the consent of the client. An assignment may occur under the 1940 Act and the Advisers Act if, among other things, Artisan Partners Limited Partnership undergoes a change of control. AIC, by virtue of its right through its designee to determine how the shares of our common stock that are subject to the shareholders agreement are voted, currently is deemed to control Artisan Partners Limited Partnership for purposes of the 1940 Act and the Advisers Act. When AIC ceases to so control Artisan Partners Limited Partnership, or if there were a change of control at AIC or ZFIC Inc., which owns all of AIC, an assignment is likely to be deemed to have occurred and we will be required to seek the necessary approvals for new mutual fund investment advisory agreements and consents from our separate account clients. If an assignment occurs as a result of a change of control of Artisan Partners Limited Partnership or otherwise, we cannot be certain that Artisan Partners Limited Partnership will be able to obtain the necessary approvals from the boards and shareholders of the mutual funds that it advises or the necessary consents from separate account clients.

Operational risks may disrupt our business, result in losses or limit our growth.

We are heavily dependent on the capacity and reliability of the communications, information and technology systems supporting our operations, whether developed, owned and operated by us or by third parties. Operational risks such as trading or operational errors or interruption of our financial, accounting, trading, compliance and other data processing systems, whether caused by fire, other natural disaster or pandemic, power or telecommunications failure, act of terrorism or war or otherwise, could result in a disruption of our business, liability to clients, regulatory intervention or reputational damage, and thus materially adversely affect our business. Some types of operational risks, including, for example, trading errors, may be increased in periods of increased volatility, which can magnify the cost of an error. Although we have not suffered operational errors, including trading errors, of significant magnitude in the past, we may experience such errors in the future, which could be significant and the losses related to which we would be required to absorb. Insurance and other safeguards might not be available or might only partially reimburse us for our losses. Although we have back-up systems in place, our back-up procedures and capabilities in the event of a failure or interruption may not be adequate, and the fact that we operate our business out of multiple physical locations may make such failures and interruptions difficult to address on a timely and adequate basis. As our client base, number of investment strategies and/or physical locations increase, developing and maintaining our operational systems and infrastructure may become increasingly challenging, which could constrain our ability to expand our businesses. Any upgrades or expansions to our operations and/or technology to accommodate increased volumes of transactions or otherwise may require significant expenditures and may increase the probability that we will suffer system degradations and failures. In addition, if we are unsuccessful in executing any such upgrades or expansions, we may instead have to hire additional employees, which could increase operational risk due to human error. We also depend substantially on our Milwaukee, Wisconsin office where a majority of our employees, administration and technology resources are located, for the continued operation of our business. Any significant disruption to that office could have a material adverse effect on us.

Employee misconduct could expose us to significant legal liability and reputational harm.

We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our clients are of critical importance. Our employees could engage in misconduct that adversely affects our business. For example, if an employee were to engage in illegal or suspicious activities, we could be subject to regulatory sanctions and suffer serious harm to our reputation (as a consequence of the negative

 

26


Table of Contents

perception resulting from such activities), financial position, client relationships and ability to attract new clients. Our business often requires that we deal with confidential information. If our employees were to improperly use or disclose this information, even if inadvertently, we could suffer serious harm to our reputation, financial position and current and future business relationships. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not always be effective. In addition, the SEC recently has increased its scrutiny of the use of non-public information obtained from corporate insiders by professional investors. Misconduct by our employees, or even unsubstantiated allegations of misconduct, could result in an adverse effect on our reputation and our business.

Failure to properly address conflicts of interest could harm our reputation, business and results of operations.

As we expand the scope of our business and our client base, we must continue to monitor and address any conflicts between our interests and those of our clients. The SEC and other regulators have increased their scrutiny of potential conflicts of interest, and we have implemented procedures and controls that we believe are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and if we fail, or appear to fail, to deal appropriately with conflicts of interest, we could face reputational damage, litigation or regulatory proceedings or penalties, any of which may adversely affect our results of operations.

If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses.

In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and control our exposure to operational, legal and reputational risks. Our risk management methods may prove to be ineffective due to their design or implementation, or as a result of the lack of adequate, accurate or timely information or otherwise. If our risk management efforts are ineffective, we could suffer losses that could have a material adverse effect on our financial condition or operating results. Additionally, we could be subject to litigation, particularly from our clients, and sanctions or fines from regulators. Our techniques for managing risks in client portfolios may not fully mitigate the risk exposure in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate.

Our indebtedness may expose us to substantial risks.

Even after giving effect to the application of a portion of the net proceeds of this offering to pay down outstanding indebtedness, we will continue to have substantial indebtedness outstanding, which exposes us to risks associated with the use of leverage. Our substantial indebtedness makes it more difficult for us to withstand or respond to adverse or changing business, regulatory and economic conditions or to take advantage of new business opportunities or make necessary capital expenditures. Our term loan agreement contains financial and operating covenants that may limit our ability to conduct our business. A substantial portion of our cash flow could be required for debt service and, as a result, might not be available for our operations or other purposes. Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations. In November 2010, we amended our term loan agreement reducing the aggregate outstanding principal amount of our term loan to $380 million and extending the maturity of $363 million of the loan, less amortization and other prepayments, to July 1, 2013, at which time we will be obligated to repay the then outstanding principal amount of the borrowings. The remaining $17 million of the loan will mature on July 1, 2011. Under the amended term loan agreement, we began making quarterly amortization payments of $10 million starting in the fiscal quarter ended March 31, 2011 and are required to continue making such payments until such time as the aggregate outstanding principal amount of the loan is reduced to $250 million. Our ability to repay the principal amount of our term loan, to refinance our term loan or to obtain additional financing through debt or the sale of additional equity securities will depend on our performance, as well as financial, business and other general economic factors affecting the credit and equity markets generally or our business in particular, many of which are beyond our control. Any such alternatives may not be available to us on satisfactory terms or at all.

 

27


Table of Contents

Our term loan agreement contains various covenants that may limit our business activities.

Our term loan agreement contains financial and operating covenants that may limit our business activities, including restrictions on our ability to incur additional indebtedness and make distributions to our shareholders. For example, the agreement includes financial covenants requiring Artisan Partners Holdings not to exceed specified ratios of indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (as defined in the agreement), or EBITDA, and consolidated EBITDA to interest expense, and restricts Artisan Partners Holdings from making distributions to its partners (including us), other than tax distributions, if its leverage ratio exceeds a limit specified in the term loan agreement. The failure to comply with any of these restrictions could result in an event of default under the agreement, giving our lenders the ability to accelerate repayment of our obligations. As of the date of this prospectus, we believe we are in compliance with all of the covenants and other requirements set forth in the term loan agreement.

We provide a broad range of services to Artisan Funds, Artisan Global Funds and sub-advised mutual funds which may expose us to liability.

We provide a broad range of administrative services to Artisan Funds, including providing personnel to Artisan Funds to serve as officers of Artisan Funds, preparation or supervision of the preparation of Artisan Funds’ regulatory filings, maintenance of board calendars and preparation or supervision of the preparation of board meeting materials, management of compliance and regulatory matters, provision of shareholder services and communications, accounting services including the supervision of the activities of Artisan Funds’ accounting services provider in the calculation of the funds’ net asset values, preparation of Artisan Funds’ financial statements and coordination of the audits of those financial statements, tax services including calculation of dividend and distribution amounts and supervision of tax return preparation, and supervision of the work of Artisan Funds’ other service providers. Although less extensive than the range of services we provide to Artisan Funds, we also provide a range of services, in addition to investment management services, to Artisan Global Funds, including providing personnel to serve as directors of Artisan Global Funds, various distribution, marketing and shareholder services, providing information to the custodian to assist in the calculation of Artisan Global Funds’ net asset values, supplying information that is used by Artisan Global Funds to meet its regulatory requirements and review of the various service providers to Artisan Global Funds. In addition, we from time to time provide information to the mutual funds for which we act as sub-adviser (or to a person or entity providing administrative services to such a fund) which is used by those funds in their efforts to comply with various regulatory requirements. If we make a mistake in the provision of those services, Artisan Funds, Artisan Global Funds or the sub-advised fund could incur costs for which we might be liable. In addition, if it were determined that Artisan Funds, Artisan Global Funds or the sub-advised fund failed to comply with applicable regulatory requirements as a result of action or failure to act by our employees, we could be responsible for losses suffered or penalties imposed. In addition, we could have penalties imposed on us, be required to pay fines or be subject to private litigation, any of which could decrease our future income, or negatively affect our current business or our future growth prospects.

The expansion of our business outside of the United States raises tax and regulatory risks, may adversely affect our profit margins and will place additional demands on our resources and employees.

We are expanding our distribution effort into non-U.S. markets, including Canada, the United Kingdom and Australia, and we have established a U.K. subsidiary which is authorized to provide investment management services by the Financial Services Authority in the United Kingdom. The portfolio manager for our Global Equity strategy is based in our U.K. office. This expansion has required and will continue to require us to incur a number of up-front expenses, including those associated with obtaining regulatory approvals and office space, as well as additional ongoing expenses, including those associated with leases, the employment of additional support staff in the United Kingdom and regulatory compliance. In addition, we have organized Artisan Global Funds, a family of Ireland-based UCITS funds, that began operations during the first quarter of 2011, and for which we are investment manager and promoter. Our employees routinely travel outside the United States as a part of our investment research process or to market our services and may spend extended periods of time in one

 

28


Table of Contents

or more non-U.S. jurisdictions. Their activities outside the United States on our behalf may raise both tax and regulatory issues. If and to the extent we are incorrect in our analysis of the applicability or impact of non-U.S. tax or regulatory requirements, we could incur costs, penalties or be the subject of an enforcement or other action. We also expect that operating our business in non-U.S. markets generally will be more expensive than in the United States. Among other expenses, the effective tax rates applicable to our income allocated to some non-U.S. markets, which we are likely to earn through an entity that will pay corporate income tax, may be higher than the effective rates applicable to our income allocated to the United States, even though the effective tax rates are lower in many non-U.S. markets, because our U.S. operations are conducted through partnerships. To the extent that our revenues do not increase to the same degree our expenses increase in connection with our expansion outside the United States, our profitability could be adversely affected. Expanding our business into non-U.S. markets may also place significant demands on our existing infrastructure and employees.

The cost of insuring our business is substantial and may increase.

Our insurance costs are substantial and can fluctuate significantly from year to year and rate increases in the future are possible. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. As we renew our insurance policies, we may be subject to additional costs resulting from rising premiums, the assumption of higher deductibles and/or co-insurance liability and, to the extent our U.S. or Irish funds purchase separate director and officer and/or errors and omissions liability coverage, an increased risk of insurance companies disputing responsibility for joint claims. In addition, we intend to obtain additional liability insurance for our directors and officers in connection with this offering. Higher insurance costs and incurred deductibles would reduce our net income.

Fulfilling our public company financial reporting and other regulatory obligations will be expensive and time consuming and may strain our resources.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and will be required to implement specific corporate governance practices and adhere to a variety of reporting requirements under the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, and the related rules and regulations of the SEC, as well as the rules of the national securities exchange on which we list.

In accordance with Section 404 of Sarbanes-Oxley, our management will be required to conduct an annual assessment of the effectiveness of our internal control over financial reporting and include a report on these internal controls in the annual reports we will file with the SEC on Form 10-K. In addition, we will be required to have our independent registered public accounting firm provide an opinion regarding the effectiveness of our internal controls. We are in the process of reviewing our internal control over financial reporting and are establishing formal policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and controls within our organization. If we are not able to implement the requirements of Section 404 in a timely and capable manner, we may be subject to adverse regulatory consequences and there could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. This could have a material adverse effect on us and lead to a decline in the price of our Class A common stock.

The Exchange Act will require us to file annual, quarterly and current reports with respect to our business and financial condition. Compliance with these requirements will place significant additional demands on our legal, accounting and finance staff and on our accounting, financial and information systems and will increase our legal and accounting compliance costs as well as our compensation expense as we will be required to hire additional accounting, tax, finance and legal staff with the requisite technical knowledge.

As a public company we will also need to enhance our investor relations, legal and corporate communications functions. These additional efforts may strain our resources and divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

 

29


Table of Contents

Risks Related to our Industry

We are subject to extensive regulation.

We are subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC under the 1940 Act and the Advisers Act, by the U.S. Department of Labor under ERISA, and by the Financial Industry Regulatory Authority, Inc., or FINRA. We are also subject to regulation in the United Kingdom by the Financial Services Authority, or U.K. FSA. The U.S. mutual funds we manage are registered with and regulated by the SEC as investment companies under the 1940 Act. The U.K. FSA imposes a comprehensive system of regulation that is primarily principles-based (compared to the primarily rules-based U.S. regulatory system) and with which we currently have only limited experience. The Advisers Act imposes numerous obligations on investment advisers including record keeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities. The 1940 Act imposes similar obligations, as well as additional detailed operational requirements, on registered investment companies, which must be adhered to by their investment advisers. We are also expanding our distribution effort into non-U.S. markets, including Canada, the United Kingdom and Australia, and are subject to regulation as an investment funds promoter by the Irish Financial Institutions Regulatory Authority, which similarly imposes requirements on UCITS funds subject to regulation by it and with which we will be required to comply with respect to Artisan Global Funds. In the future, we may further expand our business outside of the United States in such a way or to such an extent that we may be required to register with additional foreign regulatory agencies or otherwise comply with additional non-U.S. laws and regulations that do not currently apply to us and with respect to which we do not have compliance experience. Our lack of experience in complying with any such non-U.S. laws and regulations may increase our risk of becoming party to litigation and subject to regulatory actions.

In addition, the U.S. mutual funds that we advise and our broker-dealer subsidiary are each subject to the USA PATRIOT Act of 2001, which requires them to know certain information about their clients and to monitor their transactions for suspicious financial activities, including money laundering. The U.S. Office of Foreign Assets Control, or OFAC, has issued regulations requiring that we refrain from doing business, or allowing our clients to do business through us, in certain countries or with certain organizations or individuals on a list maintained by the U.S. government. Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of the registration of Artisan Partners Limited Partnership and Artisan Partners UK LLP as registered investment advisers.

Accordingly, we face the risk of significant intervention by regulatory authorities, including extended investigation and surveillance activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties. Among other things, we could be fined or be prohibited from engaging in some of our business activities. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with us, and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities, including through net capital, customer protection and market conduct requirements. See “Regulatory Environment and Compliance”.

In addition to the extensive regulation our investment management industry is subject to in the United States, the United Kingdom and Ireland, we are also subject to regulation by Canadian regulatory authorities in the Canadian provinces where we operate pursuant to exemptions from registration. Our business is also subject to the rules and regulations of the more than 38 countries in which we currently conduct investment activities. Failure to comply with applicable laws and regulations in the foreign countries where we invest could result in fines, suspensions of personnel or other sanctions. See “Regulatory Environment and Compliance”.

The regulatory environment in which we operate is subject to continual change, and regulatory developments designed to increase oversight may adversely affect our business.

The legislative and regulatory environment in which we operate has undergone significant changes in the recent past. We believe that significant regulatory changes in our industry are likely to continue on a scale that

 

30


Table of Contents

exceeds the historical pace of regulatory change, which is likely to subject industry participants to additional, more costly and generally more punitive regulation. The requirements imposed by our regulators are designed to ensure the integrity of the financial markets and to protect customers and other third parties who deal with us, and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities and/or increase our costs, including through customer protection and market conduct requirements. New laws or regulations, or changes in the enforcement of existing laws or regulations, applicable to us and our clients may adversely affect our business. Our ability to function in this environment will depend on our ability to constantly monitor and promptly react to legislative and regulatory changes. There have been a number of highly publicized regulatory inquiries that have focused on the investment management industry. These inquiries already have resulted in increased scrutiny of the industry and new rules and regulations for mutual funds and investment managers. This regulatory scrutiny may limit our ability to engage in certain activities that might be beneficial to our shareholders. See “Regulatory Environment and Compliance”.

In addition, as a result of the recent economic downturn, acts of serious fraud in the investment management industry and perceived lapses in regulatory oversight, U.S. and non-U.S. governmental and regulatory authorities may increase regulatory oversight of our businesses. We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non-U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations, as well as by U.S. courts. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.

The investment management industry is intensely competitive.

The investment management industry is intensely competitive, with competition based on a variety of factors, including investment performance, investment management fee rates, continuity of investment professionals and client relationships, the quality of services provided to clients, corporate positioning and business reputation, continuity of selling arrangements with intermediaries and differentiated products. A number of factors, including the following, serve to increase our competitive risks:

 

   

a number of our competitors have greater financial, technical, marketing and other resources, more comprehensive name recognition and more personnel than we do;

 

   

potential competitors have a relatively low cost of entering the investment management industry;

 

   

the recent trend toward consolidation in the investment management industry, and the securities business in general, has served to increase the size and strength of a number of our competitors;

 

   

some investors may prefer to invest with an investment manager that is not publicly traded based on the perception that a publicly traded asset manager may focus on the manager’s own growth to the detriment of investment performance for clients;

 

   

some competitors may invest according to different investment styles or in alternative asset classes that the markets may perceive as more attractive than the investment strategies we offer;

 

   

other industry participants, hedge funds and alternative asset managers may seek to recruit our investment professionals; and

 

   

some competitors charge lower fees for their investment services than we do.

If we are unable to compete effectively, our earnings would be reduced and our business could be materially adversely affected.

 

31


Table of Contents

The investment management industry faces substantial litigation risks which could materially adversely affect our business, financial condition or results of operations or cause significant reputational harm to us.

We depend to a large extent on our network of relationships and on our reputation in order to attract and retain client assets. If a client is not satisfied with our services, its dissatisfaction may be more damaging to our business than client dissatisfaction would be to other types of businesses. We make investment decisions on behalf of our clients that could result in substantial losses to them. If our clients suffer significant losses, or are otherwise dissatisfied with our services, we could be subject to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty, breach of contract, unjust enrichment and/or fraud. These risks are often difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time, even after an action has been commenced. We may incur significant legal expenses in defending against litigation whether or not we engaged in conduct as a result of which we might be subject to legal liability. Substantial legal liability or significant regulatory action against us could materially adversely affect our business, financial condition or results of operations or cause significant reputational harm to us.

Risks Related to Our Structure

Control by AIC and our employee shareholders of     % of the combined voting power of our capital stock and the rights of holders of limited partnership units of Artisan Partners Holdings may give rise to conflicts of interest.

Immediately after the completion of this offering, AIC will hold approximately     % of the combined voting power of our capital stock and our employee shareholders will collectively hold approximately     % of the combined voting power of our capital stock (or approximately     % and     %, respectively, if the underwriters exercise in full their option to purchase additional shares). Concurrently with the completion of this offering, AIC and each of our employees (including directors who are employees) who holds shares of our common stock will enter into a shareholders agreement with respect to all shares of our Class A common stock and Class B common stock then held by them and any shares of our Class A common stock and Class B common stock they may acquire in the future, pursuant to which such holders will agree to vote such shares in accordance with the decision of a shareholders committee. In connection with this offering, we plan to adopt the 2011 Omnibus Incentive Compensation Plan, pursuant to which we intend to grant equity awards of or with respect to shares of our Class A common stock or common units of Artisan Partners Holdings. To the extent that we cause Artisan Partners Holdings to issue additional common units to our employees, these employees would be entitled to receive a corresponding number of shares of our Class B common stock (including if the common units awarded are subject to vesting). All of the shares of our common stock issued to employees under this plan will be subject to the shareholders agreement. Each share of our Class B common stock initially will entitle its holder to five votes per share. If and when AIC and our employees collectively hold less than 20% of the aggregate number of outstanding shares of our common stock and our convertible preferred stock, shares of Class B common stock will entitle the holder to only one vote per share.

For so long as AIC and our employees collectively hold at least 20% of the number of outstanding shares of our common stock and our convertible preferred stock, the parties to the shareholders agreement will be able to

elect all of the members of our board of directors (subject to the obligation of the members of the shareholders committee under the terms of the shareholders agreement to vote in support of a nominee designated by the holders (other than us) of a majority in interest of the preferred units and convertible preferred stock, a nominee who is an employee-partner, a nominee who is a holder of Class A common units and a nominee of AIC) and thereby control our management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of securities, and the declaration and payment of dividends. In addition, subject to the class approval rights of each class of Artisan Partners Holdings unit holders, the parties to the shareholders agreement will be able to determine the outcome of all matters requiring approval of shareholders, and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors, and could preclude any unsolicited acquisition of our company. The parties to the shareholders agreement will have the ability to prevent the consummation of mergers, takeovers or other transactions that may

 

32


Table of Contents

be in the best interests of our Class A shareholders. In particular, this concentration of voting power could deprive Class A shareholders of an opportunity to receive a premium for their shares of Class A common stock as part of a sale of our company, and could ultimately affect the market price of our Class A common stock.

A designee of AIC, who initially will be Mr. Ziegler, will have the sole right, in consultation with the other members of the shareholders committee, to determine how to vote all shares held by the parties to the shareholders agreement until the fifth anniversary of the consummation of this offering or, if earlier, (i) the date on which Mr. Ziegler ceases to be a member of the shareholders committee pursuant to the terms of the shareholders agreement, (ii) the second anniversary of the date on which Mr. Ziegler’s employment with us ends through either involuntary termination or constructive discharge or (iii) 180 days after the date on which AIC owns less than 10% of the number of outstanding shares of our common stock and our convertible preferred stock. AIC will have the right to withdraw from the shareholders agreement when Mr. Ziegler is no longer a member of the shareholders committee. Upon such withdrawal AIC will have sole voting control over its shares. Shares held by an employee will cease to be subject to the shareholders agreement upon termination of employment. See “Our Structure and Reorganization—Shareholders Agreement” for additional information about the shareholders agreement.

Even if AIC were to withdraw from the shareholders agreement, based on its ownership of our outstanding capital stock immediately after the completion of this offering, our employees would still have the ability to determine the outcome of any matter requiring the approval of a simple majority of our outstanding voting stock and prevent the approval of any matter requiring the approval of 66 2/3% of our outstanding voting stock.

Our employees (through their ownership of Class B common units), AIC (through its ownership of Class D common units), the holders of Class A common units and the holders of preferred units will have the right, each voting as a single and separate class, to approve or disapprove certain transactions and matters, including material corporate transactions, such as a merger, consolidation, dissolution or sale of all or substantially all of Artisan Partners Holdings’ assets, and the issuance or redemption of certain additional equity interests. See “Our Structure and Reorganization—Offering Transactions—Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings—Voting and Class Approval Rights”. These voting and class approval rights may enable our employees, AIC, the holders of Class A units or the holders of preferred units to prevent the consummation of transactions that may be in the best interests of holders of our Class A common stock.

In addition, because our existing owners will hold all or a portion of their ownership interests in our business through Artisan Partners Holdings, rather than through Artisan Partners Asset Management Inc., these existing owners may have other conflicting interests with holders of our Class A common stock. For example, our existing owners may have different tax positions from us which could influence their decisions regarding whether and when we should dispose of assets, whether and when we should incur new or refinance existing indebtedness, especially in light of the existence of the tax receivable agreements that we have entered into in connection with this offering, and whether and when Artisan Partners Asset Management Inc. should terminate the tax receivable agreements and accelerate its obligations thereunder. In addition, the structuring of future transactions may take into consideration these existing owners’ tax or other considerations even where no similar benefit would accrue to us. See “Our Structure and Reorganization—Tax Receivable Agreements”.

Our ability to pay regular dividends to our shareholders is subject to the discretion of our board of directors and may be limited by our structure and applicable provisions of Delaware and Wisconsin law.

Following completion of this offering, we intend to declare cash dividends on our Class A common stock as described in “Dividend Policy and Dividends”. However, our board of directors may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely. In addition,

 

33


Table of Contents

because of our structure, we will be dependent upon the ability of our subsidiaries to generate earnings and cash flows and distribute them to us so that we may pay dividends to our shareholders. We expect to cause Artisan Partners Holdings, which is a Delaware limited partnership, to make distributions to its partners, including us, in an amount sufficient for us to pay dividends. However, its ability to make such distributions will be subject to its and its subsidiaries’ operating results, cash requirements and financial condition, the applicable provisions of Delaware law that may limit the amount of funds available for distribution to its partners, its compliance with covenants and financial ratios related to existing or future indebtedness, including under our term loan agreement, its other agreements with third parties, as well as its obligation to make tax distributions under its partnership agreement (which distributions would reduce the cash available for distributions by Artisan Partners Holdings to us). As a Wisconsin corporation, our ability to pay cash dividends to our Class A shareholders with the distributions received by us as general partner of Artisan Partners Holdings also will be subject to the applicable provisions of Wisconsin law. See “Dividend Policy and Dividends”. In addition, each of the companies in the corporate chain must manage its assets, liabilities and working capital in order to meet all of its cash obligations, including the payment of dividends or distributions. As a consequence of these various limitations and restrictions, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our Class A common stock. Any change in the level of our dividends or the suspension of the payment thereof could adversely affect the market price of our Class A common stock.

Our ability to pay taxes and expenses, including payments under the tax receivable agreements, may be limited by our structure.

Upon the consummation of this offering, we will have no material assets other than our ownership of general partnership units of Artisan Partners Holdings and will have no independent means of generating revenue. Artisan Partners Holdings will be treated as a partnership for U.S. federal income tax purposes and, as such, will not be subject to U.S. federal income tax. Instead, taxable income will be allocated to holders of its partnership units, including us. Accordingly, we will incur income taxes on our proportionate share of any net taxable income of Artisan Partners Holdings and will also incur expenses related to our operations. Under the terms of its amended and restated limited partnership agreement, Artisan Partners Holdings will be obligated to make tax distributions to holders of its partnership units, including us. In addition to tax expenses, we also will incur expenses related to our operations, including expenses under the tax receivable agreements, which we expect will be significant. We intend to cause Artisan Partners Holdings to make distributions in an amount sufficient to allow us to pay our taxes and operating expenses, including any payments due under the tax receivable agreements. However, its ability to make such distributions will be subject to various limitations and restrictions as set forth in the preceding risk factor. If, as a consequence of these various limitations and restrictions, we do not have sufficient funds to pay tax or other liabilities to fund our operations, we may have to borrow funds and thus our liquidity and financial condition could be materially adversely affected. To the extent that we are unable to make payments under the tax receivable agreements for any reason, such payments will be deferred and will accrue interest at                          until paid.

We will be required to pay holders of our convertible preferred stock and holders of limited partnership units of Artisan Partners Holdings for certain tax benefits we may claim, and the amounts we may pay could be significant.

The H&F Corp Merger described under “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure” will result in favorable tax attributes for us. In addition, future exchanges of limited partnership units of Artisan Partners Holdings for cash or shares of our Class A common stock or convertible preferred stock are expected to produce additional favorable tax attributes for us. When we acquire partnership units from existing partners, both the existing basis and the anticipated basis adjustments are likely to increase (for tax purposes) depreciation and amortization deductions allocable to us from Artisan Partners Holdings and therefore reduce the amount of income tax we would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain capital assets to the extent the increased tax basis is allocated to those capital assets.

 

34


Table of Contents

We intend to enter into two tax receivable agreements. One tax receivable agreement, which we will enter into with the holders of convertible preferred stock issued as consideration for the H&F Corp Merger, will generally provide for the payment by us to such shareholders of 85% of the amount of cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in certain circumstances) in periods after this offering as a result of (i) existing tax basis in Artisan Partners Holdings’ assets with respect to the preferred units acquired by us in the merger that arose from certain prior distributions by Artisan Partners Holdings and prior purchases of partnership interests by H&F Corp, (ii) any net operating losses available to us as a result of the H&F Corp Merger, and (iii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

The second tax receivable agreement, which we will enter into with the holders of common and preferred units, will generally provide for the payment by us to each of them of 85% of the amount of the cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in certain circumstances) in periods after this offering as a result of (i) any step-up in tax basis in Artisan Partners Holdings’ assets resulting from (a) the purchases or exchanges of limited partnership units (along with the corresponding shares of our Class B or Class C common stock) for cash or shares of our Class A common stock or convertible preferred stock and (b) payments under this tax receivable agreement, (ii) certain prior distributions by Artisan Partners Holdings and prior transfers or exchanges of partnership interests which resulted in tax basis adjustments to the assets of Artisan Partners Holdings and (iii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

We expect that the payments we will be required to make under the tax receivable agreements will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with the merger and future exchanges described above would aggregate approximately $         over 15 years from exchange based on an assumed price of $         per share of our Class A common stock (the midpoint of the price range set forth on the cover of this prospectus) and assuming all exchanges or purchases, other than the exchanges, purchases and redemptions in connection with this offering, would occur one year after this offering. Under such scenario we would be required to pay the holders of limited partnership units 85% of such amount, or $        , over the 15-year period from such assumed year of exchange. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using the market value of our Class A common stock and the prevailing tax rates at the time of exchange and will be dependent on us generating sufficient future taxable income to realize the benefit. See “Our Structure and Reorganization—Tax Receivable Agreements”.

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 exchanges by the holders of limited partnership units, the price of our Class A common stock or the value of our convertible preferred stock, as the case may be, at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable as well as the portion of our payments under the tax receivable agreements constituting imputed interest or depreciable or amortizable basis.

Payments under the tax receivable agreements will be based on the tax reporting positions that we determine. Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase or other tax attributes subject to the tax receivable agreements, we will not be reimbursed for any payments previously made under the tax receivable agreements. As a result, in certain circumstances, payments could be made under the tax receivable agreements in excess of the benefits that we actually realize in respect of the attributes to which the tax receivable agreements relate.

 

35


Table of Contents

In certain cases, payments under the tax receivable agreements to our existing owners may be accelerated and/or significantly exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreements.

The tax receivable agreements provide that upon certain mergers, asset sales, other forms of business combinations or other changes of control, or if, at any time, we elect an early termination of the tax receivable agreements, our (or our successor’s) obligations under the tax receivable agreements (with respect to all units, whether or not units have been exchanged or acquired before or after such transaction) would be based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreements. As a result, (i) we could be required to make payments under the tax receivable agreements that are greater than or less than the specified percentage of the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreements and (ii) if we elect to terminate the tax receivable agreements early, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which payment may be made significantly in advance of the actual realization of such future benefits. In these situations, our obligations under the tax receivable agreements could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreements. If we were to elect to terminate the tax receivable agreements immediately after this offering, based on an assumed price of $         per share of our Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), we estimate that we would be required to pay $     in the aggregate under the tax receivable agreements. See “Our Structure and Reorganization—Tax Receivable Agreements”.

In connection with a partial capital event or dissolution of Artisan Partners Holdings, the rights of the holders of our Class A common stock to distributions will be subject to the H&F preference.

In connection with a partial capital event with respect to Artisan Partners Holdings, the intermediate holding company through which we own all of our operating subsidiaries, net proceeds will be distributed 60% to the holders of the preferred units and 40% to the holders of all other partnership units (including the general partnership units held by us that correspond to shares of our Class A common stock) until the aggregate amount distributed to the holders of preferred units in respect of all partial capital events equals the aggregate preference amount of approximately $357 million. A “partial capital event” means any sale, transfer, conveyance or disposition of consolidated assets of Artisan Partners Holdings for cash or other liquid consideration or the incurrence of indebtedness by Artisan Partners Holdings or its subsidiaries, the principal purpose of which is to distribute the proceeds to the partners or equity holders thereof. Notwithstanding the foregoing, a “partial capital event” does not include a transaction that (i) involves assets with a fair market value of less than or equal to 1% of the consolidated assets of Artisan Partners Holdings or (ii) is part of or would result in a dissolution of Artisan Partners Holdings. In the case of dissolution of Artisan Partners Holdings, the assets of Artisan Partners Holdings would be distributed (after satisfaction of its debts and liabilities and distribution of any accrued and undistributed profits) to the holders of preferred units until the aggregate amount distributed to the holders of the preferred units, taking into account any preferential distributions previously made in connection with a partial capital event, equals the aggregate preference amount. See “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

We may be required to make a cash payment to the H&F holders in 2016, or upon an earlier change of control.

We may be required to make a cash payment to the holders of CVRs on July 11, 2016, or upon an earlier change of control, unless such rights are earlier terminated by satisfaction of the H&F preference condition, as described in “Our Structure and Reorganization—Reorganization Transactions and Post-IPO Structure—

 

36


Table of Contents

Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock—Termination of H&F Preference”. The amount of any payment we are required to make will depend on the average of the daily VWAP of our Class A common stock over the 30 trading days prior to July 3, 2016, or the effective date of an earlier change of control, and any proceeds realized by the H&F holders with respect to their equity interests in us, subject to a maximum aggregate payment of $         million. See “Our Structure and Reorganization—Offering Transactions—Contingent Value Rights”.

The H&F preference and the CVRs may give rise to conflict of interests for one of our directors.

The holders (other than Artisan Partners Asset Management Inc.) of a majority in interest of the preferred units and our convertible preferred stock, who will also be the recipients of the CVRs, will be entitled to designate one director nominee as long as they directly or indirectly own shares of our capital stock constituting at least 5% of the number of outstanding shares of our common stock and our convertible preferred stock. Given the economic benefits of the H&F preference and the CVRs, there may be circumstances in which the interests of the holders of the preferred units and our convertible preferred stock, and thus the interests of their director representative, are in conflict with the interests of our Class A shareholders.

If we were deemed an investment company under the 1940 Act as a result of our ownership of Artisan Partners Holdings applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

We do not believe that we are an “investment company” under the 1940 Act. Because we, as the sole general partner of Artisan Partners Holdings, control and operate Artisan Partners Holdings, we believe that our interest in Artisan Partners Holdings is not an “investment security” as that term is used in the 1940 Act. If we were to cease participation in the management of Artisan Partners Holdings, our interest in Artisan Partners Holdings could be deemed an “investment security” for purposes of the 1940 Act. A person may be an “investment company” if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items). Upon consummation of this offering, our sole asset will be our equity investment in Artisan Partners Holdings. A determination that such investment was an investment security could cause us to be deemed an investment company under the 1940 Act and to become subject to the registration and other requirements of the 1940 Act. In addition, we do not believe that we are an investment company under Section 3(b)(1) of the 1940 Act because we are not primarily engaged in a business that causes us to fall within the definition of “investment company”. We and Artisan Partners Holdings intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

Risks Related to this Offering

There is no existing market for our Class A common stock, and we do not know if one will develop, which may cause our Class A common stock to trade at a discount from its initial offering price and make it difficult to sell the shares you purchase.

Prior to this offering, there has not been a public market for our Class A common stock and we cannot predict the extent to which investor interest in us will lead to the development of an active trading market on the national securities exchange on which we list, or otherwise, or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling your shares of Class A common stock at an attractive price, or at all. The initial public offering price for our Class A common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell shares of our Class A common stock at prices equal to or greater than the price you paid in this offering and you may suffer a loss on your investment.

 

37


Table of Contents

The market price and trading volume of our Class A common stock may be volatile, which could result in rapid and substantial losses for our shareholders.

Even if an active trading market develops, the market price of our Class A common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume of our Class A common stock may fluctuate and cause significant price variations to occur. If the market price of our Class A common stock declines significantly, you may be unable to sell your shares of Class A common stock at or above your purchase price, if at all. The market price of our Class A common stock may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our Class A common stock, or result in fluctuations in the price or trading volume of our Class A common stock, include:

 

   

variations in our quarterly operating results;

 

   

failure to meet the market’s earnings expectations;

 

   

publication of research reports about us or the investment management industry, or the failure of securities analysts to cover our Class A common stock after this offering;

 

   

departures of any of our portfolio managers or members of our management team or additions or departures of other key personnel;

 

   

adverse market reaction to any indebtedness we may incur or securities we may issue in the future;

 

   

actions by shareholders;

 

   

changes in market valuations of similar companies;

 

   

actual or anticipated poor performance in one or more of the investment strategies we offer;

 

   

changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting our business, or enforcement of these laws and regulations, or announcements relating to these matters;

 

 

38


Table of Contents
   

adverse publicity about the investment management industry generally, or particular scandals, specifically;

 

   

litigation and governmental investigations; and

 

   

general market and economic conditions.

Future sales of our Class A common stock in the public market could lower our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.

The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock available for sale after completion of this offering, or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also may make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate.

We will agree with the underwriters not to issue, sell, or otherwise dispose of or hedge any shares of our Class A common stock, subject to certain exceptions, for the 180-day period following the date of this prospectus, without the prior consent of Citigroup Global Markets Inc. and Goldman, Sachs & Co. Our officers and directors and our other shareholders will enter into similar lock-up agreements with the underwriters. Citigroup Global Markets Inc. and Goldman, Sachs & Co. may, at any time, release us and/or any of our officers and directors and/or our other shareholders from this lock-up agreement and allow us to sell shares of our Class A common stock within this 180-day period. See “Underwriting”. In addition, pursuant to the terms of an exchange agreement that we will enter into with the holders of limited partnership units of Artisan Partners Holdings, such limited partnership units will not be exchangeable for shares of our Class A common stock or, as the case may be, shares of our convertible preferred stock, which are convertible into Class A common stock, until the one-year anniversary of the consummation of this offering. See “Our Structure and Reorganization—Offering Transactions—Exchange Agreement”.

Upon completion of this offering, there will be              shares of our Class A common stock outstanding (or shares if the underwriters’ option to purchase additional shares is exercised in full), of which              shares will be freely transferable without restriction or further registration under the Securities Act. Of the              remaining              shares of our Class A common stock outstanding, and              shares of our Class A common stock that will be issuable upon exchange of limited partnership units or conversion of shares of convertible preferred stock,              shares may not be sold until the sixth anniversary of the consummation of this offering, except in one or more underwritten public offerings, subject to certain exceptions described under “Our Structure and Reorganization—Offering Transactions—Resale and Registration Rights Agreement—Restrictions on Sale”. Until the expiration of the first and second anniversaries of this offering (unless otherwise approved by our board of directors),              shares and              shares, respectively, of our Class A common stock that will be issuable upon exchange of limited partnership units or conversion of shares of convertible preferred stock may not be sold, except in one or more underwritten public offerings, subject to certain exceptions described under “Our Structure and Reorganization—Offering Transactions—Resale and Registration Rights Agreement—Restrictions on Sale”.

So long as a holder of shares of our Class A common stock that were issued upon exchange of common units held by an employee-partner continues to be an employee, such holder generally will be able to sell (i) a number of vested shares of our Class A common stock up to 15% of the aggregate number of common units and shares of Class A common stock received upon exchange of common units (in each case, whether vested or unvested) he or she held as of the first day of that year (as well as the number of shares such holder could have sold in any previous year or years but did not sell in such year or years) or, (ii) if greater, vested shares of our Class A common stock having a then-current market value of up to $250,000. So long as Andrew A. Ziegler is employed by us, AIC will be permitted to sell a number of shares of our Class A common stock up to 15% of the aggregate number of common units and shares of Class A common stock received upon exchange of common

 

39


Table of Contents

units owned by AIC on the first day of the year of sale (as well as the number of shares AIC could have sold in any previous year or years but did not sell in such year or years). If Mr. Ziegler’s employment is voluntarily terminated, AIC may, in each 12-month period following the first, second and third anniversary of the termination of his employment, sell a number of shares of our Class A common stock up to one-third of the difference between the aggregate number of common units and the number of shares of Class A common stock received upon exchange of common units held by AIC as of the date of Mr. Ziegler’s voluntary termination and the number of shares, if any, of Class A common stock AIC sold subsequent to Mr. Ziegler’s termination to cover taxes due on the exchange of common units. There is no limit on the number of shares of our Class A common stock AIC may sell if Mr. Ziegler’s employment with us is terminated involuntarily or he is constructively discharged. For these purposes, constructive discharge has been broadly defined to include, among other things, Mr. Ziegler’s loss of his Executive Chairman position, a substantial diminution of Mr. Ziegler’s duties or the election or removal of a Chief Executive Officer over Mr. Ziegler’s objection. See “Our Structure and Reorganization—Offering Transactions—Resale and Registration Rights Agreement—Restrictions on Sale” for a description of the resale and registration rights agreement we will enter into with the current limited partners in connection with this offering and additional details relating to restrictions on transfer.

After this offering, we intend initially to register              shares of our Class A common stock for issuance pursuant to, upon the exercise of options granted under, or upon exchange of common units granted under our 2011 Omnibus Incentive Compensation Plan that we are adopting in connection with this offering. We may increase the number of shares registered for this purpose from time to time. Once we register these shares, they will be able to be sold in the public market upon issuance.

We cannot predict the size of future issuances of our Class A common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our Class A common stock to decline. See “Shares Eligible for Future Sale”.

The disparity in the voting rights among the classes of our capital stock may have a potential adverse effect on the price of our Class A common stock.

Each share of our Class A common stock, Class C common stock and convertible preferred stock will entitle its holder to one vote on all matters to be voted on by shareholders generally, while each share of our Class B common stock will initially entitle its holder to five votes on all matters to be voted on by shareholders generally for so long as AIC and our employees collectively hold at least 20% of the number of outstanding shares of our common stock and our convertible preferred stock. The difference in voting rights could adversely affect the value of our Class A common stock if, for example, investors view, or any potential future purchaser of our company views, the superior voting rights of the Class B common stock to have value or to delay or deter a change of control.

You will suffer immediate and substantial dilution and may experience additional dilution in the future.

We expect that the initial public offering price per share of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A common stock immediately after this offering, and after giving effect to the exchange of all outstanding limited partnership units of Artisan Partners Holdings for shares of our Class A common stock or convertible preferred stock, as applicable, and the conversion of all shares of convertible preferred stock into shares of our Class A common stock. As a result, you will pay a price per share that substantially exceeds the per share book value of our assets after subtracting our liabilities. At an offering price of $             (the midpoint of the range set forth on the cover of this prospectus), you will incur immediate and substantial dilution in an amount of $             per share of our Class A common stock. See “Dilution”. In addition, you will experience further dilution upon the issuance of restricted common units or restricted shares of our Class A common stock, or upon the grant of options to purchase common units or shares of our Class A common stock, in each case under our 2011 Omnibus Incentive Compensation Plan.

 

40


Table of Contents

Anti-takeover provisions in our amended and restated articles of incorporation and bylaws and in the Wisconsin Business Corporation Law could discourage a change of control that our shareholders may favor, which could negatively affect the market price of our Class A common stock.

Provisions in our amended and restated articles of incorporation and bylaws and in the Wisconsin Business Corporation Law may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example, our amended and restated articles of incorporation, which will be in effect at the time this offering is consummated, will authorize the issuance of preferred stock that could be issued by our board of directors to thwart a takeover attempt. The market price of our Class A common stock could be adversely affected to the extent that the provisions of our amended and restated articles of incorporation and bylaws discourage potential takeover attempts that our shareholders may favor. See “Description of Capital Stock” for additional information on the anti-takeover measures applicable to us.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our Class A common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

 

41


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under the captions “Prospectus Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue”, the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions, may include projections of our future financial performance, our anticipated growth strategies, descriptions of new business initiatives and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors”.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.

Forward-looking statements include, but are not limited to, statements about:

 

   

our anticipated future results of operations and operating cash flows;

 

   

our business strategies and investment policies;

 

   

our intention to pay quarterly dividends;

 

   

our financing plans;

 

   

our competitive position and the effects of competition on our business;

 

   

potential growth opportunities available to us;

 

   

the recruitment and retention of our employees;

 

   

our expected levels of compensation of our employees and the impact of compensation on our ability to attract and retain employees;

 

   

our potential operating performance and efficiency;

 

   

our expected tax rate;

 

   

our expectation with respect to the economy, capital markets, the market for asset management services and other industry trends;

 

   

the benefits to our business resulting from the effects of the reorganization;

 

   

our belief as to the adequacy of our facilities; and

 

   

the impact of future legislation and regulation, and changes in existing legislation and regulation, on our business.

 

42


Table of Contents

OUR STRUCTURE AND REORGANIZATION

Structure Prior to the Reorganization Transactions

Prior to the reorganization transactions described below, the partnership interests in Artisan Partners Holdings consisted of a general partnership interest and Class A, Class B and Class C limited partnership interests. AIC, an entity controlled by Andrew A. Ziegler and Carlene M. Ziegler through which Mr. Ziegler and Ms. Ziegler maintain their ownership interests in Artisan Partners Holdings, held the general partnership interest. Thirty investors held the Class A limited partnership interests. The Class A investors were the initial outside investors in our company and included current and former members of H&F, a private equity investment firm, investing in their individual capacities, and a venture capital fund managed by Sutter Hill Ventures, a venture capital firm, and related individuals. Forty-six Artisan employees held the Class B limited partnership interests. The holders of Class C limited partnership interests were private investment funds controlled by their sole general partner, H&F Investors, which is, in turn, controlled by H&F. Artisan Partners Holdings conducted its business primarily through its wholly-owned subsidiary, Artisan Partners Limited Partnership, our principal operating subsidiary. Under the terms of Artisan Partners Holdings’ limited partnership agreement prior to its reorganization transactions, the Class C limited partnership interests entitled their holders to preferential distributions upon certain events and to put those interests to the partnership on July 3, 2016 under certain circumstances. The preferred units of Artisan Partners Holdings, our convertible preferred stock and the CVRs, each as described below, are intended to provide the holders of Class C limited partnership interests prior to the reorganization with economic and voting rights similar to, but not the same as, the economic and voting rights they possessed as holders of Class C limited partnership interests.

 

43


Table of Contents

Reorganization Transactions and Post-IPO Structure

The diagram below depicts our organizational structure immediately after the consummation of the reorganization transactions and this offering. Immediately prior to the consummation of this offering, each class of partnership interests in Artisan Partners Holdings will be reclassified as a class of partnership units, and holders of limited partnership units will have the right to exchange them, subject to certain restrictions, for shares of our capital stock as described under “—Artisan Partners Holdings” and “—Offering Transactions—Exchange Agreement”.

LOGO

 

(1)

Our Class B shareholders and our employees who are granted restricted shares of our Class A common stock will enter into a shareholders agreement pursuant to which they will agree to vote their shares of Class A common stock and Class B common stock they hold at such time or may acquire in the future in accordance with the decision of a shareholders committee as described under “Our Structure and Reorganization—Shareholders Agreement”.

(2)

Includes              restricted shares of our Class A common stock, representing     % of the voting rights in Artisan Partners Asset Management Inc., that we intend to grant to certain of our employees and directors in connection with this offering.

(3)

Economic rights of the Class A common stock, the common units and the general partnership units are subject, in the case of a partial capital event or dissolution of Artisan Partners Holdings, to the H&F preference as described below under “—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

Following the transactions described below, we will conduct all of our business activities through our operating subsidiaries, which are wholly owned by our direct subsidiary Artisan Partners Holdings (an

 

44


Table of Contents

intermediate holding company of which we will be the general partner), with the exception of Artisan Partners UK LLP. Artisan Partners UK LLP is controlled by its founding member, Artisan Partners Limited, a wholly owned subsidiary of Artisan Partners Holdings. The only other member of Artisan Partners UK LLP is one of our portfolio managers who, as a member, has the right to receive regular payments from Artisan Partners UK LLP but does not share in the profits beyond those regular payments, and does not control Artisan Partners UK LLP. Net profits and net losses of Artisan Partners Holdings will be allocated, and distributions of profits will be made (subject to the H&F preference, as described below), approximately     % to us and     % in the aggregate to Artisan Partners Holdings’ limited partners (or     % and     %, respectively, if the underwriters exercise their option to purchase additional shares in full), immediately after giving effect to the transactions described below.

Artisan Partners Asset Management Inc.

We were incorporated in Wisconsin on March 21, 2011. Immediately prior to the consummation of this offering, we will amend and restate our articles of incorporation to authorize three classes of common stock, Class A common stock, Class B common stock and Class C common stock, as well as preferred stock, including a series of convertible preferred stock. Our common stock and convertible preferred stock will have the terms described below and, in more detail, under “Description of Capital Stock”:

Class A Common Stock. We will issue shares of our Class A common stock to the public in this offering. In addition, we intend to grant              restricted shares of our Class A common stock to certain of our employees and directors in connection with this offering. Each share of Class A common stock will entitle its holder to one vote and economic rights (including rights to dividends or distributions upon liquidation), subject, in the case of a partial capital event or dissolution of Artisan Partners Holdings, to the H&F preference. See “—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

Class B Common Stock. Immediately prior to the consummation of this offering, we will issue shares of our Class B common stock to AIC and to our employee-partners, in amounts equal to the number of common units that AIC and such employee-partners hold at such time. Each share of our Class B common stock will initially entitle its holder to five votes per share but will have no economic rights in Artisan (including no rights to dividends or distributions upon liquidation). If and when our employees who are granted restricted shares of Class A common stock and the holders of our Class B common stock collectively hold less than 20% of the aggregate number of outstanding shares of our common stock and our convertible preferred stock, each share of Class B common stock will entitle its holder to only one vote per share. A share of Class B common stock cannot be transferred except in connection with a transfer of the corresponding common unit.

Each time AIC or an employee-partner exchanges a common unit for a share of our Class A common stock, we will automatically cancel a corresponding share of our Class B common stock held by such exchanging holder. Holders who exchange common units that are unvested will receive restricted shares of our Class A common stock that are subject to the same vesting and other requirements that applied to the common units exchanged.

Class C Common Stock. Immediately prior to the consummation of this offering, we will issue shares of our Class C common stock to our initial outside investors and the H&F holders in amounts equal to the number of units that such holders hold at such time. Each share of Class C common stock will entitle its holder to one vote per share but will have no economic rights in Artisan (including no rights to dividends or distributions upon liquidation). A share of Class C common stock cannot be transferred except in connection with a transfer of the corresponding common unit or preferred unit.

Each time an initial outside investor or H&F holder exchanges a common unit or preferred unit for a share of our Class A common stock or convertible preferred stock, as applicable, we will automatically cancel a corresponding share of our Class C common stock held by such exchanging holder.

Convertible Preferred Stock. One of the H&F private investment funds that was an indirect holder of Class C limited partnership interests in Artisan Partners Holdings before the reorganization transactions holds its

 

45


Table of Contents

investment in Artisan Partners Holdings through a corporation, which we refer to as H&F Corp. Immediately prior to the consummation of this offering, H&F Corp will merge with and into us and the H&F private investment fund that was the sole shareholder of H&F Corp will receive shares of our convertible preferred stock in exchange for their shares of H&F Corp. We will be the surviving corporation in the merger, which we refer to as the H&F Corp Merger. Each share of convertible preferred stock will entitle its holder to one vote and economic rights equal to the economic rights of one share of our Class A common stock, except that in the case of a partial capital event or dissolution of Artisan Partners Holdings, each share of convertible preferred stock will entitle its holder to preferential distributions as described below under “—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”.

Beginning on the first anniversary of the consummation of this offering, shares of our convertible preferred stock are convertible at the election of the holder into shares of our Class A common stock at the conversion rate, which will be one-for-one subject to adjustment to reflect the payment of any preferential distributions to the holders of our convertible preferred stock. See “—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock—Convertible Preferred Stock Conversion Rate”. When the holders of our convertible preferred stock are no longer entitled to preferential distributions, each share of convertible preferred stock will automatically convert into shares of our Class A common stock at the then-applicable conversion rate.

Shares of convertible preferred stock cannot be transferred except in distributions by the original H&F holder to any one or more of its partners or shareholders, as applicable, at any time after the completion of the first annual offering pursuant to the resale and registration rights agreement; provided that the H&F holders taken together may distribute shares of convertible preferred stock and preferred units (and shares of Class A common stock into which convertible preferred stock has converted or for which preferred units were exchanged) in an aggregate amount of (i) no more than 25% of the number of the shares of convertible preferred stock and the number of preferred units outstanding immediately prior to the consummation of this offering in any financial quarter, and (ii) no more than 50% of the number of the shares of convertible preferred stock and the number of preferred units outstanding immediately prior to the consummation of this offering in any period of four consecutive financial quarters.

Shareholders Agreement. Our employees (including directors who are employees) who are granted restricted shares of our Class A common stock and the holders of our Class B common stock will enter into a shareholders agreement with respect to all shares of Class A common stock and Class B common stock they hold at such time or may acquire in the future, pursuant to which they will agree to vote such shares in accordance with the decision of a shareholders committee consisting initially of (i) a designee of AIC, who will initially be Andrew A. Ziegler, (ii) Eric R. Colson and (iii) James C. Kieffer, a portfolio manager of our U.S. Value strategies. The AIC designee initially will have the sole right, in consultation with the other members of the committee, to determine how to vote all shares held by the parties to the shareholders agreement. We describe the terms of the shareholders agreement in more detail under “—Shareholders Agreement”.

Artisan Partners Holdings

Upon consummation of this offering, we will conduct all of our business activities through our direct subsidiary, Artisan Partners Holdings, which wholly owns Artisan Partners Limited Partnership, our principal operating subsidiary.

Immediately prior to the consummation of this offering, the limited partnership agreement of Artisan Partners Holdings will be amended and restated to reclassify the Class A, Class B and Class C limited partnership interests held by the limited partners as Class A common units, Class B common units and preferred units, respectively. The amended and restated limited partnership agreement will reclassify the general partnership interest of AIC, the current general partner, as Class D common units of Artisan Partners Holdings, and will appoint Artisan Partners Asset Management Inc. as the sole general partner.

 

46


Table of Contents

Holders of Class A common units, Class B common units, Class D common units and preferred units will have certain voting rights as described under “—Offering Transactions—Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings—Voting and Class Approval Rights”. Except as described below under “—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”, net profits and net losses and distributions of profits of Artisan Partners Holdings generally will be allocated and made to its partners pro rata in accordance with the number of partnership units of Artisan Partners Holdings they hold. Distributions to partners upon a liquidation of Artisan Partners Holdings will be made to its partners pro rata in proportion to their capital account balances, subject to the claims of creditors, the rights of all partners to their proportionate shares of undistributed profits and the H&F preference. The balance of each partner’s capital account as a percentage of the aggregate capital account balances of all partners will generally correspond to that partner’s respective percentage interest in the profits of Artisan Partners Holdings, although initially some limited partners will have a lower (and we, as the general partner, and certain limited partners will each have a correspondingly higher) capital account balance. As described below under “—Offering Transactions—Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings—Economic Rights of Partners”, the pro rata portion of deemed gain and deemed losses on revaluation events will be allocated to limited partnership units until the respective capital account balances of each limited partner are pro rata to their respective percentage interest in the profits of Artisan Partners Holdings.

Upon the consummation of this offering, Artisan Partners Asset Management will contribute all of the net proceeds it receives from this offering to Artisan Partners Holdings, and Artisan Partners Holdings will issue to Artisan Partners Asset Management a number of general partnership units equal to the number of shares of Class A common stock that Artisan Partners Asset Management has issued in this offering. As a result of the reorganization transactions described above, the consummation of this offering and the application of a portion of the net proceeds therefrom to purchase common units:

 

   

as the sole general partner of Artisan Partners Holdings, we will hold (i)              general partnership units representing approximately     % of the economic rights of Artisan Partners Holdings (or     % if the underwriters exercise in full their option to purchase additional shares), subject to the H&F preference, and (ii) sole control of its management (subject to certain voting rights of the limited partners as described under “—Offering Transactions —Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings—Voting and Class Approval Rights”). As a result, we will consolidate the financial results of Artisan Partners Holdings with our results and will record a noncontrolling interest on our balance sheet for the economic interest in it held by all the limited partners who have not exchanged their limited partnership units for shares of our Class A common stock or convertible preferred stock, as applicable;

 

   

we also will hold              preferred units of Artisan Partners Holdings received by us in the H&F Corp Merger representing approximately     % of the economic rights of Artisan Partners Holdings (or approximately     % if the underwriters exercise in full their option to purchase additional shares);

 

   

the Class A, Class B, Class C and Class D limited partners of Artisan Partners Holdings will hold             ,             ,             and              units representing approximately     %,     %,     % and     %, respectively, of the economic rights of Artisan Partners Holdings (or     %,     %,     % and     % if the underwriters exercise in full their option to purchase additional shares), subject to the H&F preference;

 

   

through their holdings of our Class A common stock, public shareholders will collectively have approximately     % of the voting power in Artisan Partners Asset Management Inc. (or approximately     % if the underwriters exercise in full their option to purchase additional shares);

 

   

the limited partners of Artisan Partners Holdings will initially hold              shares of our Class B common stock and              shares of our Class C common stock;

 

   

AIC and our employees will collectively have approximately     % of the voting power in Artisan Partners Asset Management Inc. (or approximately     % if the underwriters exercise in full their option to purchase additional shares), of which:

 

   

    % (or approximately     % if the underwriters exercise in full their option to purchase additional

 

47


Table of Contents
 

shares) will be held by AIC, the sole holder of the Class D common units of Artisan Partners Holdings, through its holdings of our Class B common stock, and

 

   

    % (or approximately     % if the underwriters exercise in full their option to purchase additional shares) will be held by our employees (excluding shares beneficially held by Andrew A. Ziegler through AIC) through their holdings of restricted Class A common stock that we intend to grant in connection with this offering and our Class B common stock;

 

   

through their holdings of our Class C common stock, the initial outside investors and certain of the H&F holders will have approximately     % of the voting power in Artisan Partners Asset Management Inc. (or approximately     % if the underwriters exercise in full their option to purchase additional shares); and

 

   

through their holdings of our convertible preferred stock received in the H&F Corp Merger, certain of the H&F holders will have approximately     % of the voting power in Artisan Partners Asset Management Inc. (or approximately     % if the underwriters exercise in full their option to purchase additional shares).

The number of outstanding limited partnership units of Artisan Partners Holdings (not including the preferred units we will hold upon the consummation of the H&F Corp Merger and the related exchange of preferred units for shares of our convertible preferred stock) will equal the number of outstanding shares of our Class B common stock and Class C common stock. Subject to certain restrictions, following the first anniversary of the consummation of this offering, the common units will be exchangeable for shares of our Class A common stock, and the preferred units will be exchangeable for shares of our convertible preferred stock, in each case on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions. A limited partnership unit cannot be exchanged for a share of our Class A common stock or convertible preferred stock without the corresponding shares of our Class B common stock or Class C common stock, as applicable, being delivered together at the time of exchange, at which time we will automatically cancel such shares of Class B common stock or Class C common stock.

Under the terms of its amended and restated limited partnership agreement, Artisan Partners Holdings will be obligated to distribute to us and the holders of limited partnership units cash payments for the purposes of funding tax obligations in respect of the taxable income and net capital gain that is allocated to us and the holders of limited partnership units, respectively, as partners of Artisan Partners Holdings. The amounts available to Artisan Partners Holdings for distributions to us for the payment of dividends will be determined after Artisan Partners Holdings has made distributions for purposes of funding any such tax obligations. The determination to pay dividends, if any, to our Class A shareholders out of any distributions that we receive from Artisan Partners Holdings with respect to our partnership units will be made by our board of directors. Because our board of directors may or may not determine to pay dividends to our Class A shareholders, our Class A shareholders may not necessarily receive dividend distributions relating to our pro rata share of the income earned by Artisan Partners Holdings, even if Artisan Partners Holdings makes such distributions to us. See “Dividend Policy and Dividends”.

Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock

In accordance with its amended and restated limited partnership agreement, taxable income and loss and distributions of profits of Artisan Partners Holdings will be allocated and made to its partners pro rata in accordance with the number of partnership units of Artisan Partners Holdings they hold, except in the case of a partial capital event or dissolution of Artisan Partners Holdings. We refer in this prospectus to the preferential distributions in the case of partial capital events or dissolution of Artisan Partners Holdings as the H&F preference. The H&F preference will terminate in accordance with the conditions described below under “—Termination of H&F Preference”.

 

48


Table of Contents

Partial Capital Events. A “partial capital event” means any sale, transfer, conveyance or disposition of consolidated assets of Artisan Partners Holdings for cash or other liquid consideration (other than in a transaction that (i) involves assets with a fair market value of less than or equal to 1% of the consolidated assets of Artisan Partners Holdings or (ii) is part of or would result in a dissolution of Artisan Partners Holdings), or the incurrence of indebtedness by Artisan Partners Holdings or its subsidiaries, the principal purpose of which is to distribute the proceeds to the partners or equity holders thereof.

The net proceeds of any partial capital event will be distributed:

 

   

first, 60% to the holders of the preferred units and 40% to the holders of all of the other classes of units (including general partnership units), in each case in proportion to their respective number of units, until the aggregate amount distributed to the holders of the preferred units in respect of all partial capital events equals $357,194,316, which we refer to as the aggregate preference amount;

 

   

second, 100% to the holders of all of the classes of units (including general partnership units) other than the preferred units, in each case in proportion to their respective number of units, until the cumulative amount distributed on each such unit in respect of all partial capital events equals the cumulative amount distributed on each preferred unit in respect of all partial capital events; and

 

   

third, to the holders of all classes of units (including general partnership units) in proportion to their respective number of units.

Dissolution. The assets of Artisan Partners Holdings will be distributed upon its dissolution, after satisfaction of its debts and liabilities:

 

   

first, in the event Artisan Partners Holdings has accrued and undistributed profits, to the holders of all classes of partnership units (including general partnership units), in each case in proportion to their respective number of units, until Artisan Partners Holdings has distributed all such accrued and undistributed profits;

 

   

second, to the holders of the preferred units in proportion to their respective number of units, until the aggregate amount distributed to the holders of preferred units (including any preferential distributions previously made in connection with any partial capital event) equals the aggregate preference amount;

 

   

third, to the holders of all of the classes of partnership units (including the general partnership units) other than the preferred units, in each case in proportion to their respective number of units, until the cumulative amount distributed on each such unit (including distributions in respect of partial capital events) equals the cumulative amount distributed on each preferred unit (including distributions in respect of partial capital events); and

 

   

fourth, to the holders of all of the classes of partnership units (including the general partnership units) in proportion to their respective number of units.

Distributions on Convertible Preferred Stock. In connection with preferential distributions on the preferred units, each share of convertible preferred stock will entitle its holder to dividends equal to the amount distributed by Artisan Partners Holdings on each preferred unit, net of any taxes payable by us on such distributions, using as an assumed tax rate the maximum combined corporate federal, state and local income tax rate applicable to us. Until such dividends are declared and paid to holders of convertible preferred stock, we may not declare and pay a dividend on any other class of our capital stock.

Termination of H&F Preference. The H&F preference will terminate if either the H&F preference condition is satisfied or we are required to make a payment in settlement of either the partnership CVRs or the public company CVRs described below under “—Offering Transactions—Contingent Value Rights”. The H&F preference condition will be satisfied if the average daily VWAP of our Class A common stock for any period of 30 consecutive trading days is at least $             .

 

49


Table of Contents

Upon termination of the H&F preference, distributions in the case of a partial capital event or dissolution of Artisan Partners Holdings will be made solely to the holders of partnership units (including general partnership units) other than the preferred units, in each case in proportion to their respective number of units, until the amount distributed per unit equals the amount that would have been allocated to such units had the preferential distributions in connection with prior partial capital events to the holders of preferred units not been made. After that, all holders of the partnership units, including the holders of the preferred units, will be entitled to distributions pro rata in accordance with the number of partnership units of Artisan Partners Holdings they hold, and Artisan Partners Holdings will no longer be required to make any distributions in connection with a partial capital event.

Convertible Preferred Stock Conversion Rate. Beginning on the first anniversary of the consummation of this offering, at the election of the holder, each share of our convertible preferred stock will be convertible into a number of shares of our Class A common stock equal to the conversion rate (as described below). When the holders of convertible preferred stock are no longer entitled to preferential distributions, as described above in “—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”, each share of convertible preferred stock will automatically convert into a number of shares of our Class A common stock equal to the conversion rate.

The conversion rate will equal the excess, if any, of (a) one over (b) a fraction equal to (x) the cumulative excess distributions per preferred unit (as described below) divided by (y) the average daily VWAP per share of our Class A common stock for the 30 trading days immediately preceding the conversion date. The cumulative excess distributions per preferred unit will equal the excess, if any, of (a) the cumulative amount of distributions upon partial capital events made per preferred unit over (b) the cumulative amount of distributions upon partial capital events made, on a per unit basis, to the holders of the classes of units other than the preferred units. The conversion rate will equal one when either (i) no partial capital events have occurred or (ii) when the amount distributed per all units in respect of all partial capital events equals the amount distributed per preferred unit in respect of all partial capital events.

Offering Transactions

Exchange Agreement

Immediately prior to the consummation of this offering, we will enter into an exchange agreement with the holders of limited partnership units of Artisan Partners Holdings. Subject to certain restrictions described below, following the one-year anniversary of the consummation of this offering, each holder (other than us) and certain permitted transferees will have the right to exchange their limited partnership units, together with the corresponding shares of our Class B or Class C common stock, for shares of our Class A common stock (in the case of the common units) or convertible preferred stock (in the case of the preferred units) on a one-for-one basis, subject to customary adjustments for stock splits, stock dividends and reclassifications and other similar transactions. The exchange agreement generally provides that holders of limited partnership units will be permitted to exchange such units in accordance with the terms of the exchange agreement (i) in connection with an annual underwritten offering pursuant to the resale and registration rights agreement, (ii) on a specified date each fiscal quarter, (iii) in connection with such holder’s death, disability or mental incompetence or retirement or termination from employment by Artisan Partners Holdings, (iv) as part of one or more transactions by such holder and any related persons (within the meaning of section 267(b) or 707(b)(1) of the Internal Revenue Code, and treating H&F Brewer AIV, L.P. and H&F Capital Associates as related persons for this purpose) during any 30 calendar day period representing in the aggregate more than 2% of all outstanding partnership units of Artisan Partners Holdings, disregarding interests held by us, so long as we owned at least 10% of all outstanding partnership units at any point during the taxable year during which such exchange occurs or (v) all of the limited partnership units of Artisan Partners Holdings held by H&F Brewer AIV, L.P. and H&F Capital Associates in a single transaction in the event the aggregate amount of partnership units held by them is not greater than 2% of all outstanding partnership units as a result of issuances of partnership units by Artisan Partners Holdings. In addition, a holder of limited partnership units of Artisan Partners Holdings will be permitted to exchange units only to the extent such partner can transfer an amount of capital per unit that represents at least the same percentage of the aggregate capital account balances of all partners of Artisan Partners Holdings as the percentage interest in profits represented by such units.

 

50


Table of Contents

Notwithstanding the foregoing, a holder may not exchange limited partnership units if we determine that such exchange would be prohibited by law or regulation. In addition, we may impose additional restrictions on exchange that we determine to be necessary or advisable so that Artisan Partners Holdings is not treated as a “publicly traded partnership” for U.S. federal income tax purposes (but, in the absence of a change of law, not in the circumstances described in clauses (ii), (iv) or (v) of the immediately preceding paragraph), and may permit exchanges in other circumstances if we determine that Artisan Partners Holdings would not be treated as a publicly traded partnership as a result of such exchanges.

Holders who exchange common units that are unvested will receive restricted shares of our Class A common stock that are subject to the same vesting and other requirements that applied to the common units exchanged. As the holders of common units exchange their units, we will receive a number of general partnership units of Artisan Partners Holdings equal to the number of shares of our Class A common stock that they receive, and a corresponding number of common units, and shares of our Class B or Class C common stock, as applicable, will be cancelled. Following the automatic conversion of our convertible preferred stock, each preferred unit will be exchangeable for a number of shares of our Class A common stock equal to the conversion rate as described in “—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock —Convertible Preferred Stock Conversion Rate”. We will retain any preferred units exchanged for shares of convertible preferred stock at least until the subsequent conversion of such shares for shares of our Class A common stock, although the corresponding shares of our Class C common stock will be cancelled. Upon conversion of shares of our convertible preferred stock, we will exchange the corresponding number of preferred units we hold for general partnership units.

We will have the right to exchange preferred units we hold that do not correspond to shares of outstanding convertible preferred stock for general partnership units on or after the date the balance of each partner’s capital account becomes proportional to the number of partnership units held by such partner.

Resale and Registration Rights Agreement—Restrictions on Sale

In connection with this offering, we will enter into a resale and registration rights agreement with the holders of limited partnership units of Artisan Partners Holdings and holders of our convertible preferred stock, pursuant to which the shares of our Class A common stock issued upon exchange of their limited partnership units (and, if applicable, conversion of their convertible preferred stock) will be eligible for resale, subject to the resale timing and manner limitations described below.

Pursuant to the resale and registration rights agreement, we will commit to file, as soon as practicable after the first anniversary of the consummation of this offering, (i) an exchange shelf registration statement registering shares of our Class A common stock and convertible preferred stock for issuance upon exchange of limited partnership units and (ii) a shelf registration statement registering primary and secondary sales of Class A common stock. We will also commit to use our reasonable best efforts to cause the SEC to declare both shelf registration statements effective as soon as practicable thereafter.

Following the consummation of this offering,              shares of our Class A common stock issued upon exchange of limited partnership units of Artisan Partners Holdings or conversion of shares of our convertible preferred stock may be sold prior to the sixth anniversary of the consummation of this offering only in an annual underwritten offering, except as described below. We will determine the timing and manner of any such annual underwritten offering, but will be required to use our reasonable best efforts to provide for five annual underwritten offerings as follows: at least one underwritten offering as soon as practicable following the first anniversary of the consummation of this offering; and at least one underwritten offering in each of the four 12-month periods following the second anniversary of the consummation of this offering. Until the expiration of the first and second anniversaries of this offering (unless otherwise approved by our board of directors)              shares and              shares, respectively, of our Class A common stock that will be issuable upon exchange of limited partnership units or conversion of shares of convertible preferred stock also may be sold only in the annual underwritten offering, except as described below.

 

51


Table of Contents

If we fail to provide for an underwritten offering before the end of any such 12-month period (including the 12-month period following the first anniversary of the consummation of this offering), each holder of our Class A common stock with the right to sell in such annual underwritten offering may sell their shares in any manner of sale permitted under the securities laws, subject to any other applicable restrictions on such sales, including as to amount, discussed below, until the next annual underwritten offering.

Notwithstanding the restrictions described above and below, (i) holders of shares of Class A common stock issued upon exchange of limited partnership units after the consummation of this offering may always sell a number of shares of Class A common stock sufficient to cover any taxes due on the exchange, using an assumed tax rate equal to the applicable prevailing capital gains rate at the time of the exchange, and (ii) the estate of any deceased holders or the beneficiaries thereof may sell shares of Class A common stock as necessary to pay all applicable estate and inheritance taxes relating thereto.

Except for sales to cover taxes due upon exchange, employee-partners may not resell shares of our Class A common stock that were issued upon exchange of common units before the fifth anniversary of the date such common units were originally granted, unless the holder’s employment is earlier terminated, in which case the holder may resell only as described in the next paragraph. For common units that are issued upon reclassification of Class B limited partnership interests, the original grant date is the date the Class B limited partnership interests were granted. In any annual underwritten offering after the fifth anniversary of the original date of grant, an employee-partner may sell (i) a number of vested shares of our Class A common stock up to 15% of the aggregate number of common units and shares of Class A common stock received upon exchange of common units (in each case, whether vested or unvested) he or she held as of the first day of that year (as well as the number of shares such holder could have sold in any previous year or years but did not sell in such year or years) or, (ii) if greater, vested shares of our Class A common stock having a then-current market value equal to $250,000.

Following the termination of an employee-partner’s employment, such employee-partner’s common units will (after the first anniversary of the consummation of this offering) be mandatorily exchanged, together with the corresponding shares of Class B common stock, for shares of our Class A common stock, provided that to the extent such employee-partner cannot transfer an amount of capital per unit that represents the same percentage of the aggregate capital account balances of all partners of Artisan Partners Holdings as the profits represented by all such units, the exchange of the remaining common units and corresponding shares of Class B common stock will be delayed until there is sufficient capital to make such transfer. Thereafter, if such employee-partner’s employment was terminated as a result of retirement, death or disability, such employee-partner or his or her estate may (i) at the time of termination of employment, sell a number of shares of Class A common stock sufficient to cover any taxes due on the exchange of common units, (ii) at the time of termination, in addition to shares sold pursuant to clause (i), sell a number of shares of our Class A common stock equal to up to the greater of (A) $1 million and (B) one-half of the difference between the aggregate number of vested common units and shares of Class A common stock received upon exchange of common units held as of the date of termination of employment and the number of shares, if any, of Class A common stock such employee-partner sold pursuant to clause (i) above, and (iii) on the first anniversary of the termination, the employee-partner’s remaining shares of our Class A common stock. If such employee-partner resigned or was terminated involuntarily, such employee-partner may (i) at the time of termination of employment, sell a number of shares of Class A common stock sufficient to cover any taxes due on the exchange of common units, (ii) in each 12-month period following the third, fourth, fifth and sixth anniversary of the termination, sell a number of shares of our Class A common stock equal to up to the greater of (A) $1 million and (B) one-fourth of the difference between the aggregate number of vested common units and shares of Class A common stock received upon exchange of common units held as of the date of termination of his or her employment and the number of shares, if any, of Class A common stock such employee-partner sold to cover taxes due on the exchange subsequent to the employee-partner’s termination. Such sales may be made in any manner of sale permitted under our shelf registration statement or otherwise permitted under the securities laws, but such employee-partners will not have the right to participate in our annual underwritten offerings, unless otherwise determined by our board of directors. Employee-partners may

 

52


Table of Contents

also transfer the shares of our Class A common stock that were issued upon exchange of common units (i) by will or the laws of descent and distribution, (ii) following their termination of employment, in compliance with Rule 144 but subject to the applicable restrictions on timing set forth above and (iii) in certain circumstances, to family members, estate planning vehicles and charitable organizations.

If the amount of income taxes that employee-partners are required to pay due to the exchange of their common units for shares of our Class A common stock (whether or not they are employees at the time that the tax payment obligation arises) exceeds the net proceeds they would receive upon the sale of all shares they are permitted to sell pursuant to the immediately preceding paragraph during the year with respect to which the tax is payable, then they will instead be entitled to sell a number of shares of our Class A common stock sufficient to provide net proceeds that would enable them to pay the taxes due. In addition, we may allow holders of common units to sell shares of our Class A common stock issued upon exchange of their units in amounts exceeding those described above at any time following the effective date of the shelf registration statement, which determination may be withheld, delayed, or granted on such terms and conditions as our board of directors may determine, in its sole discretion.

So long as Andrew A. Ziegler is employed by us, in any annual underwritten offering, AIC may sell a number of shares of our Class A common stock received upon exchange of common units up to 15% of the aggregate number of common units and shares of Class A common stock received upon exchange of common units owned by AIC on the first day of the year of sale (as well as the number of shares AIC could have sold in any previous year or years but did not sell in such year or years). If Mr. Ziegler’s employment is voluntarily terminated, AIC may, in each 12-month period following the first, second and third anniversary of the termination of his employment, sell a number of shares of our Class A common stock equal to up to one-third of the difference between the aggregate number of common units and the number of shares of Class A common stock received upon exchange of common units held by AIC as of the date of Mr. Ziegler’s voluntary termination and the number of shares, if any, of Class A common stock AIC sold subsequent to Mr. Ziegler’s termination to cover taxes due on the exchange of common units. There is no limit on the number of shares of our Class A common stock AIC may sell if Mr. Ziegler’s employment with us is terminated involuntarily or he is constructively discharged. For these purposes, constructive discharge has been broadly defined to include, among other things, Mr. Ziegler’s loss of his Executive Chairman position, a substantial diminution of Mr. Ziegler’s duties or the election or removal of a Chief Executive Officer over Mr. Ziegler’s objection.

With the exception of former employees, the holders of all limited partnership units and our convertible preferred stock (and any Class A common stock issued upon exchange or conversion) will be entitled to participate in any offering, including the annual underwritten offering, subject to the limits on sales by AIC and by the employee-partners described above. AIC will continue to have the right to participate in each annual underwritten offering, even if Mr. Ziegler is no longer employed by us. In any such offering, all participating holders may sell, subject to customary underwriters’ cut-back rights, in proportion to the number of shares of capital stock they own, except that the H&F holders (which includes the holders of both the preferred units and the convertible preferred stock) shall be entitled to sell the greater of (i) 40% of the aggregate number of shares being offered and (ii) two and one-half times their proportionate interest. In the event of underwriter cut-backs in any annual underwritten offering, priority will be given to any and all shares of our Class A common stock that we propose to issue and sell in connection with the offering, and then to the participating holders on a pro rata basis (subject to the priority right of the H&F holders to sell the greater of 40% of the aggregate number of shares being offered or two and one-half times their proportionate interest).

Through the second anniversary of the consummation of this offering, unless approved by a two-thirds vote of our board of directors, the H&F holders may only sell shares of Class A common stock received upon exchange of preferred units or conversion of shares of convertible preferred stock in our annual underwritten offering. Following the second anniversary of the consummation of this offering, subject to certain restrictions, the H&F holders will have the right to use the shelf registration statement to sell shares of Class A common stock in (i) an unrestricted number of brokered transactions and (ii) so long as we are conducting annual underwritten

 

53


Table of Contents

offerings as described above, two underwritten shelf takedowns per year, or, if we are not conducting annual underwritten offerings as described above, three underwritten shelf takedowns per year, subject to the limitation of two demands for marketed underwritten shelf takedowns in the aggregate. There is no limitation on the aggregate number of unmarketed underwritten shelf takedowns the H&F holders may demand. A shelf takedown will be deemed “marketed” if it involves (i) one-on-one meetings or calls between investors and our management or (ii) a customary roadshow or other marketing activity that requires members of our management to be out of the office for two business days or more or group meetings or calls between investors and management or any other substantial marketing effort by the underwriters over a period of at least 48 hours. Notwithstanding these rights, the H&F holders may continue to participate in each of our annual underwritten offerings.

Through the sixth anniversary of the consummation of this offering, unless approved by a two-thirds vote of our board of directors, AIC may sell shares of Class A common stock received upon exchange of common units only in our annual underwritten offering, except as follows. Subject to certain restrictions, upon the earliest of (i) the involuntary termination or constructive discharge of Andrew A. Ziegler, (ii) the completion of the fifth annual underwritten offering discussed above or (iii) the sixth anniversary of the consummation of this offering, AIC will have the right to use the shelf registration statement to sell shares of Class A common stock in (i) an unrestricted number of brokered transactions and (ii) so long as we are conducting annual underwritten offerings as described above, two underwritten shelf takedowns per year, or, if we are not conducting annual underwritten offerings as described above, three underwritten shelf takedowns per year, subject to the limitation of two demands for marketed underwritten shelf takedowns in the aggregate. There is no limitation on the aggregate number of unmarketed underwritten shelf takedowns AIC may demand.

Each underwritten shelf takedown, whether or not marketed, demanded by the H&F holders or AIC must have anticipated aggregate net proceeds of at least the lesser of (i) $35 million or (ii) in the case of the H&F holders, the value of Class A common stock, including the value of any Class A common stock issuable upon exchange of preferred units or conversion of shares of convertible preferred stock, owned by it at the time of such demand, or, in the case of AIC, the value of Class A common stock, including the value of any Class A common stock issuable upon exchange of common units, owned by it at the time of such demand. In the event that either the H&F holders or AIC make a demand for an underwritten shelf takedown, the other (non-demanding) party will have the right, but not the obligation, to participate in such offering. In the event of underwriter cut-backs in registration, the demanding and non-demanding party will have the right to participate in the underwritten shelf takedown in proportion to their relative ownership of Class A common stock (including any shares of Class A common stock issuable upon exchange of limited partnership units or conversion of shares of convertible preferred stock); provided that, if (i) AIC is not the demanding party, the participation rights of all participants will be subject to the right of the H&F holders to sell, in the aggregate, the greater of 40% of the aggregate number of shares being offered or two and one-half times their proportionate interest, and (ii) if AIC is the demanding party, the participation rights of all participants other than AIC will be subject to the right of the H&F holders to sell the greater of 40% of the aggregate number of shares being offered or two and one-half times their proportionate interest. Without the consent of our board of directors, underwritten shelf takedowns requested by any party may not occur within 90 days of a prior underwritten shelf takedown or annual underwritten offering. Additionally, we will have the right to defer a demanded shelf takedown under certain circumstances when we are in possession of material non-public information.

If we offer shares of our Class A common stock in an underwritten offering other than an annual underwritten offering, holders of shares of our Class A common stock issued upon exchange of limited partnership units or conversion of convertible preferred stock will be entitled to participate, subject to the same priority rules as are applicable to annual underwritten offerings.

We have agreed in the resale and registration rights agreement to indemnify the participating holders, solely in their capacity as selling shareholders, against any losses or damages resulting from any untrue statement, or omission, of material fact in any registration statement, prospectus or free writing prospectus pursuant to which they may sell the shares of our Class A common stock that they receive upon exchange of their limited

 

54


Table of Contents

partnership units or conversion of shares of convertible preferred stock, except to the extent such liability arose from the selling shareholder’s misstatement or omission of a material fact, and the participating holders have agreed to indemnify us against all losses caused by their misstatements or omissions of a material fact relating to them.

We will pay all expenses incident to our performance of, or compliance with, any registration or marketing of securities pursuant to the resale and registration rights agreement, including reasonable fees and out-of-pocket costs and expenses of the H&F holders and AIC. The selling shareholders will pay their respective portions of all underwriting discounts, commissions and transfer taxes relating to the sale of their shares of our Class A common stock pursuant to the resale and registration rights agreement.

Additionally, the original H&F holder will have the right to distribute preferred units or shares of convertible preferred stock to any one or more of its partners or shareholders, as applicable, at any time after the completion of the first annual offering, provided that the H&F holders taken together may distribute preferred units and shares of convertible preferred stock (and shares of Class A common stock for which the preferred units were exchanged or into which the convertible preferred stock was converted) in an aggregate amount of (i) no more than 25% of the number of preferred units and the number of shares of convertible preferred stock outstanding immediately prior to the consummation of this offering in any financial quarter and (ii) no more than 50% of the number of preferred units and the number of shares of convertible preferred stock outstanding immediately prior to the consummation of this offering in any period of four consecutive financial quarters. The transferees in any such distribution will not be subject to any resale restrictions and will not have any rights under the registration rights agreement. Certain of our original outside investors who will hold Class A common units upon the consummation of the reorganization will also have the right to distribute such units to any one or more of their partners, and the shares of Class A common stock for which such units may be exchanged will not be subject to any resale restrictions.

Contingent Value Rights

Immediately prior to the consummation of this offering, Artisan Partners Holdings will issue to each holder of preferred units of Artisan Partners Holdings (including Artisan Partners Asset Management) a number of CVRs, the partnership CVRs, equal to the number of preferred units held by such holder, and Artisan Partners Asset Management Inc. will issue to each holder of convertible preferred stock a number of CVRs, the public company CVRs, equal to the number of shares of convertible preferred stock held by such holder. Upon the exchange of a preferred unit of Artisan Partners Holdings for a share of our convertible preferred stock, the corresponding partnership CVR will be exchanged for a public company CVR, and Artisan Partners Asset Management Inc. will hold the partnership CVR. The CVRs may not be transferred except in a distribution by an H&F holder to its partners or shareholders, as applicable.

Settlement. On the settlement date, which will be July 11, 2016, or, if earlier, five business days after the effective date of a change of control, each of Artisan Partners Holdings and Artisan Partners Asset Management Inc. will pay to the holders of its respective CVRs an amount of cash per CVR equal to $             minus the greater of (i) the realized proceeds and (ii) the measured value, subject to a maximum payment per CVR of $        , or $         million in the aggregate. The “realized proceeds” with respect to any CVR is the gross proceeds to the holder from the sale of the preferred unit or share of convertible preferred stock with respect to which such CVR was issued, or of the share of Class A common stock for which such common unit was exchanged or into which such share of convertible preferred stock was converted, or of any security of Artisan Partners Asset Management Inc. that was purchased with the proceeds of the sale of such securities. The “measured value” is an amount equal to the average of the daily VWAP of a share of our Class A common stock over the 30 trading days prior to July 3, 2016 or the effective date of an earlier change of control.

 

55


Table of Contents

Termination. The CVRs will terminate prior to the settlement date if the H&F preference condition (as described under “—Reorganization Transactions and Post-IPO Structure—Preferential Distributions on Preferred Units and Convertible Preferred Stock—Termination of H&F Preference”) is satisfied.

No other rights. The CVRs will have no voting rights or economic rights, other than the right to the payments on the settlement date described above.

Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings

As a result of the reorganization, we will conduct all of our business activities through our direct subsidiary, Artisan Partners Holdings, an intermediate holding company, which wholly owns Artisan Partners Limited Partnership, our principal operating subsidiary. The operations of Artisan Partners Holdings, and the rights and obligations of its partners, will be set forth in an amended and restated limited partnership agreement of Artisan Partners Holdings, or the limited partnership agreement, a form of which will be filed as an exhibit to the registration statement of which this prospectus forms a part. The following is a description of the material terms of this agreement.

Governance. We will serve as the general partner of Artisan Partners Holdings. As such, we will control its business and affairs and be responsible for the management of its business, subject to the approval rights of the limited partners as described under “—Voting and Class Approval Rights”. We will also have the power to delegate certain of our management responsibilities to officers, as determined by our board of directors. No limited partners of Artisan Partners Holdings, in their capacity as such, will have any authority or right to control the management of Artisan Partners Holdings or to bind it in connection with any matter.

Economic Rights of Partners. Artisan Partners Holdings will have general partnership units, common units (Class A, Class B and Class D) and preferred units. Net profits and net losses and distributions of profits of Artisan Partners Holdings generally will be allocated and made to its partners pro rata in accordance with the number of partnership units of Artisan Partners Holdings they hold (whether or not vested), except in the case of a partial capital event or dissolution of Artisan Partners Holdings as described above under “—Reorganization Transactions and Post-IPO Structure—Preferential Distributions to Holders of Preferred Units and Convertible Preferred Stock”. The pro rata portion of deemed gain on revaluation events otherwise allocable to the preferred units will be allocated to Class A, Class B and Class D common units and, after the H&F preference has terminated, the pro rata portion of deemed losses on revaluation events otherwise allocable to Class A, Class B and Class D common units will be allocated to the preferred units until the respective capital account balances of each limited partner are pro rata to their respective percentage interest in the profits of Artisan Partners Holdings.

Under the terms of its amended and restated limited partnership agreement, Artisan Partners Holdings will be obligated to distribute to us and the holders of limited partnership units cash payments for the purposes of funding tax obligations in respect of the taxable income and net capital gain that is allocated to us and the holders of limited partnership units, respectively, as partners of Artisan Partners Holdings. See “—Tax Consequences”. In addition, Artisan Partners Holdings may make distributions to us without making pro rata distributions to other holders of its partnership units in order to pay (i) consideration, if any, in connection with the redemption, repurchase, acquisition, cancellation or termination of our Class A common stock, (ii) amounts payable under the tax receivable agreements as described in “—Tax Receivable Agreements” and (iii) payments in respect of operating expenses, overhead and other fees and expenses. Distributions to partners upon the liquidation of Artisan Partners Holdings will be made pro rata in proportion to the balances of their respective capital accounts, subject to the H&F preference.

Coordination of Artisan Partners Asset Management Inc. and Artisan Partners Holdings. Any time we issue a share of our Class A common stock for cash, we will promptly transfer the net proceeds we receive to Artisan Partners Holdings and Artisan Partners Holdings will issue to us a general partnership unit for each share so issued, or, alternatively, we may agree to transfer the net proceeds to a limited partner of Artisan Partners

 

56


Table of Contents

Holdings in exchange for a limited partnership unit of Artisan Partners Holdings held by such limited partner for each share so issued, which limited partnership unit will be automatically converted into a general partnership unit, or in the case of a preferred unit, initially will be retained by us. Any time we issue a share of our Class A common stock pursuant to our 2011 Omnibus Incentive Compensation Plan, we will contribute to Artisan Partners Holdings all of the proceeds that we receive (if any) and Artisan Partners Holdings will issue to us a general partnership unit. Any time Artisan Partners Holdings issues a common unit pursuant to our 2011 Omnibus Incentive Compensation Plan, we will issue a corresponding share of Class B common stock in exchange for the payment of the par value. In the event that we issue other classes or series of our equity securities, Artisan Partners Holdings will issue, and limited partnership units (if any) transferred to us by its limited partners in exchange for our newly issued equity securities will be automatically converted into, an equal amount of equity securities of Artisan Partners Holdings with designations, preferences and other rights and terms that are substantially the same as our newly issued equity securities. Conversely, if we redeem, repurchase or otherwise acquire any shares of our Class A common stock (or our equity securities of other classes or series) for cash, Artisan Partners Holdings will, immediately prior to our transaction, redeem an equal number of general partnership units (or its equity securities of the corresponding classes or series) held by us, upon the same terms and for the same price, as the shares of our Class A common stock (or our equity securities of such other classes or series) are redeemed, repurchased or otherwise acquired. Upon the forfeiture of any common unit held by an employee-partner as a result of applicable vesting provisions, the breach of any restrictive covenants in grant agreements, or otherwise, a corresponding share of our Class B common stock will automatically be redeemed and cancelled by us.

We may, in the event of the consummation of a merger, consolidation or other business combination involving us (unless substantially all of the holders of our common stock continue to hold a majority of the voting stock of the surviving entity or its parent), require each holder of limited partnership units to exchange all such units (and corresponding shares of Class B common stock or Class C common stock, as applicable) for shares of our Class A common stock, or for shares of our convertible preferred stock in the case of the preferred units, and to convert such shares into shares of our Class A common stock. In the event that a tender offer, share exchange offer, issuer bid, take-over bid, recapitalization or similar transaction with respect to our Class A common stock is proposed by us or by a third party and approved by our board of directors or is otherwise effected with the consent of our board of directors, each holder of limited partnership units (other than us) will be permitted to participate in such transaction by exchanging their units for shares of our Class A common stock or converting their shares of convertible stock received upon exchange of preferred units contingent upon the consummation of the transaction.

Pursuant to the amended and restated limited partnership agreement, we will agree, as general partner, that we will not conduct any business other than the management and ownership of Artisan Partners Holdings and its subsidiaries, or own any other assets (other than on a temporary basis), although we may incur indebtedness and may take other actions if we determine in good faith that such indebtedness or other actions are in the best interest of Artisan Partners Holdings. In addition, the limited partnership units of Artisan Partners Holdings, as well as our common stock, will be subject to equivalent stock splits, dividends and reclassifications and other similar transactions.

Issuances and Transfers of Limited Partnership Units. General partnership units of Artisan Partners Holdings may only be issued to us, its general partner, and are non-transferable. We do not intend to cause Artisan Partners Holdings to issue additional limited partnership units after the consummation of this offering other than common units under our 2011 Omnibus Incentive Compensation Plan that we plan to adopt in connection with this offering. Holders of the limited partnership units may not transfer any such limited partnership units to any person unless he or she transfers an equal number of shares of our Class B common stock or Class C common stock to the same transferee. In addition, except (i) in connection with exchanges into Class A common stock of Artisan Partners Asset Management Inc. in accordance with the exchange agreement, or to certain estate planning vehicles, or (ii) distributions by certain of our initial outside investors to any one or more of their partners, the common units in Artisan Partners Holdings will be transferable only with our consent.

 

57


Table of Contents

Preferred units and shares of convertible preferred stock cannot be transferred except in distributions by the original H&F holder to any one or more of its partners or shareholders, as applicable, at any time after the completion of the first annual offering pursuant to the resale and registration rights agreement; provided that the H&F holders taken together may distribute preferred units and shares of convertible preferred stock (and shares of Class A common stock for which the preferred units were exchanged or into which the convertible preferred stock was converted) in an aggregate amount of (i) no more than 25% of the number of preferred units and the number of shares of convertible preferred stock outstanding immediately prior to the consummation of this offering in any financial quarter and (ii) no more than 50% of the number of preferred units and the number of shares of convertible preferred stock outstanding immediately prior to the consummation of this offering in any period of four consecutive financial quarters.

Voting and Class Approval Rights. As the general partner of Artisan Partners Holdings, we will hold all general partnership units and will control the business of Artisan Partners Holdings. In the event that Artisan Partners Holdings proposes to:

 

   

engage in a material corporate transaction, including a merger, consolidation, dissolution or sale of all or substantially all of its assets;

 

   

redeem or issue certain additional equity interests;

 

   

make any in-kind distributions;

 

   

voluntarily dissolve, wind up or liquidate;

 

   

admit a new general partner that is not a wholly-owned, direct or indirect, subsidiary of Artisan Partners Asset Management Inc. or any successor thereof;

 

   

take any action on tax matters that materially adversely affects the allocation of the step-up in basis of assets of Artisan Partners Holdings under certain tax laws with respect to the limited partners; or

 

   

make certain changes in the allocations, determinations and distributions;

our approval, acting in our capacity as the general partner, along with the approval of a majority in interest of the then-remaining Class A common units, Class B common units, Class D common units and preferred units, each voting as a single and separate class, will be required to approve such a transaction or issuance in accordance with the terms of the amended and restated limited partnership agreement, provided, however, that (i) if any of the foregoing affects only certain classes of limited partnership units, only the approval of the affected classes would be required to approve such a transaction or issuance in accordance with the terms of the amended and restated limited partnership agreement and (ii) each class of limited partnership units will have the power and authority to approve or disapprove such a transaction or issuance only so long as the holders of the respective class of limited partnership units directly or indirectly own limited partnership units constituting at least 5% of the outstanding partnership units of Artisan Partners Holdings.

Artisan Partners Asset Management Inc. has agreed that it will vote the preferred units that it holds pursuant to the instructions of the holders of the convertible preferred stock in connection with any class vote of the holders of the preferred units.

Non-Competition. Messrs. Ziegler and Colson and all of our portfolio managers will agree not to compete with us during the term of their employment with us and for a period of one year following termination of such employee’s employment with us. All of our other employees who currently are limited partners or who receive equity awards pursuant to our 2011 Omnibus Incentive Compensation Plan will, pursuant to the terms of the applicable grant agreements pursuant to which they have been issued equity awards, agree to refrain from competing with us during the term of their employment with us, but will not be prohibited from doing so after their employment with us.

 

 

58


Table of Contents

In addition, Mr. Ziegler has entered into an employment agreement with us to serve as Executive Chairman, pursuant to which he has agreed he will not hold a 5% or greater participation interest in any other investment management business.

Non-Solicitation. Mr. Ziegler and each of our employee-partners and our other employees who receive equity awards pursuant to our 2011 Omnibus Incentive Compensation Plan will agree (i) not to solicit employees and certain customers depending on such employee’s position while employed by us, for a period of one year following termination of employment, and (ii) to protect the confidential information of Artisan Partners Asset Management Inc. and Artisan Partners Holdings, which obligation will survive the termination of his or her employment.

Indemnification and Exculpation. Artisan Partners Holdings will indemnify AIC, as its former general partner, us, as its current general partner and our directors and officers against any losses, damages, costs or expenses (including reasonable attorney’s fees, judgments, fines and amounts paid in settlement) actually incurred in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal or administrative (including any action by or on behalf of Artisan Partners Holdings) arising as a result of AIC having been the general partner, us being the general partner or our directors and officers serving in their capacity as such to the maximum extent that AIC, we or such directors and officers could be indemnified if Artisan Partners Holdings were a Delaware corporation and AIC, we or such directors and officers were directors of such corporation.

Artisan Partners Holdings will also indemnify its employees against any losses, damages, costs or expenses (including reasonable attorney’s fees, judgments, fines and amounts paid in settlement) actually incurred in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal or administrative arising as a result of their being an employee of Artisan Partners Holdings (or their serving as an officer or fiduciary of any of Artisan Partners Holdings’ subsidiaries or benefit plans or any entity of which Artisan is sponsor or advisee), provided that no employee will be indemnified or reimbursed for any claim, obligation or liability adjudicated to have arisen out of or been based upon such employee’s intentional misconduct, gross negligence, fraud or knowing violation of law.

In addition, Artisan Partners Holdings will pay the costs or expenses (including reasonable attorneys’ fees) incurred by the indemnified parties in advance of a final disposition of such matters so long as the indemnified party undertakes to repay the expenses if the party is adjudicated not to be entitled to indemnification.

We, as the general partner, and our directors and officers will not be liable to Artisan Partners Holdings, us, as its general partner, or its limited partners for damages incurred by (i) any mistake in judgment or (ii) any action or inaction taken or omitted in the course of performing our or their duties under the amended and restated limited partnership agreement or in connection with the business of Artisan Partners Holdings. In addition, we, as the general partner, will not be liable to Artisan Partners Holdings or its limited partners for any loss due to the mistake, negligence, dishonesty, fraud or bad faith of any employee, broker or other agent of Artisan Partners Holdings selected by us without willful misconduct or gross negligence on our part.

Amendments. The amended and restated limited partnership agreement may be amended with the consent of the general partner and a majority in interest of the then-remaining Class A common units, Class B common units, Class D common units and preferred units, each voting as a single and separate class, provided that the general partner may, without the consent of any limited partner, make amendments that do not materially and adversely affect any limited partners. To the extent any amendment materially and adversely affects only certain classes of limited partnership units, only a majority in interest of the affected classes will have the right to approve such amendment.

Notwithstanding the foregoing, no amendment increasing the personal liability of a limited partner, modifying the limited liability of a limited partner or requiring any additional capital contribution by a limited partner may be made without the consent of the affected limited partner.

 

59


Table of Contents

Shareholders Agreement

Concurrently with the consummation of this offering, our employees (including our directors who are employees) who are granted restricted shares of our Class A common stock and the holders of our Class B common stock will enter into a shareholders agreement with respect to all Class A and Class B common stock they hold at such time and any shares of our Class A or Class B common stock they may acquire in the future, pursuant to which such holders will agree to vote such shares in accordance with the decision of, and grant an irrevocable proxy to, a shareholders committee consisting initially of a designee of AIC, who initially will be Mr. Ziegler, Eric R. Colson and James C. Kieffer, a portfolio manager of our U.S. Value strategies. The AIC designee will have the sole right, in consultation with the other members of the shareholders committee, to determine how to vote all shares held by the parties to the shareholders agreement until the fifth anniversary of the consummation of this offering or, if earlier, (i) the date on which Mr. Ziegler ceases to be a member of the shareholders committee pursuant to the terms of the shareholders agreement, (ii) the second anniversary of the date on which Mr. Ziegler’s employment with us ends through either involuntary termination or constructive discharge or (iii) 180 days after the date on which AIC owns less than 10% of the number of outstanding shares of our common stock and our convertible preferred stock. The AIC designee will be required to consult with the other members of the shareholders committee. If Mr. Ziegler ceases to be a member of the shareholders committee or to have sole power to determine how the shares are voted, the shares will be voted in accordance with the majority decision of the three members of the shareholders committee. Although AIC may replace Mr. Ziegler as its shareholders committee designee, Mr. Ziegler indirectly holds 50% of the voting stock of AIC, and therefore could not be replaced without his consent.

Pursuant to the shareholders agreement, AIC will lose its right to designate one member of the shareholders committee upon (i) Mr. Ziegler’s death, disability or resignation from our company, (ii) the date on which he voluntarily terminates his employment with us, or (iii) the second anniversary of his involuntary termination or constructive discharge. AIC may withdraw from the shareholders agreement when Mr. Ziegler is no longer a member of the shareholders committee. Upon such withdrawal AIC will have sole voting control over its shares.

The members of the shareholders committee other than the AIC designee must be Artisan employees. Pursuant to the terms of the shareholders agreement, if a member of the shareholders committee ceases to act as a member of the shareholders committee, the chief executive officer of Artisan Partners Asset Management Inc., if he or she is a holder of shares subject to the shareholders agreement and is not already a member of the shareholders committee, will become a member of the shareholders committee. Otherwise, the remaining members of the shareholders committee will jointly select a third member of the shareholders committee. If the remaining members of the shareholders committee cannot agree on a third member of the shareholders committee or if there are fewer than two remaining members of the shareholders committee, then the members of the shareholders committee will be selected by the vote of the holders of the shares subject to the shareholders agreement from among candidates nominated by the five parties to the shareholders agreement, other than AIC, that hold the largest number of shares of our common stock, including shares of our common stock issuable upon exchange of common units, subject to the shareholders agreement.

The shareholders agreement will provide that members of the shareholders committee will agree to vote the shares subject to the shareholders agreement in support of (i) a director nominee designated by the holders (other than us) of a majority in interest of the preferred units and convertible preferred stock so long as the holders of preferred units (other than us) and convertible preferred stock directly or indirectly own shares of our capital stock constituting at least 5% of the number of outstanding shares of our common stock and our convertible preferred stock, (ii) a director nominee who is a holder of Class A common units so long as the holders of the Class A common units own shares of our capital stock constituting at least 5% of the number of outstanding shares of our common stock and our convertible preferred stock; (iii) a director nominee designated by AIC so long as AIC owns shares of our capital stock constituting at least 5% of the number of outstanding shares of our common stock and our convertible preferred stock; and (iv) a director nominee who is an employee-partner. The director who is a holder of Class A common units shall be entitled to designate his or her successor unless he or she is removed for cause.

 

60


Table of Contents

Under the terms of the shareholders agreement, the members of the shareholders committee may in their discretion vote, or abstain from voting, all or any of the shares of our Class A and Class B common stock held by the parties to the shareholders agreement on any matter on which holders of shares of our Class A and Class B common stock are entitled to vote, including, but not limited to, the election of directors to our board of directors, amendments to our articles of incorporation or bylaws, changes to our capitalization, the declaration of dividends, a merger or consolidation, a sale of substantially all of our assets, and a liquidation, dissolution or winding up. The members of the shareholders committee are specifically authorized to vote for themselves as directors under the terms of the shareholders agreement.

Any transferee of shares of our Class B common stock that are subject to the agreement is required, as a condition to the transfer of such shares, to agree that such transferee and the transferred shares shall be bound by the shareholders agreement and to grant an irrevocable proxy to the shareholders committee.

The shareholders agreement will have an indefinite term, but at any time after the later of (i) the elimination of the Class B common stock’s super-voting rights and (ii) the fifth anniversary of the consummation of this offering, parties to the shareholders agreement holding at least two-thirds of the shares subject to the agreement may terminate it.

In connection with this offering, we plan to adopt the 2011 Omnibus Incentive Compensation Plan, pursuant to which we expect to grant equity awards of or with respect to shares of our Class A common stock or common units of Artisan Partners Holdings. To the extent that we cause Artisan Partners Holdings to issue additional common units to our employees, these employees would be entitled to receive a corresponding number of shares of our Class B common stock (including if the common units awarded are subject to vesting). All of the shares of our common stock issued to employees under this plan will be subject to the shareholders agreement. Shares held by an employee will cease to be subject to the shareholders agreement upon termination of employment.

Tax Consequences

As the general partner of Artisan Partners Holdings, we will incur U.S. federal, state and local income taxes on our allocable share of any of its net taxable income. Under the terms of its amended and restated limited partnership agreement, Artisan Partners Holdings will be obligated to distribute to us and the holders of limited partnership units cash payments for the purpose of funding tax obligations in respect of the taxable income and net capital gain that is allocated to us and the holders of limited partnership units, respectively, as partners of Artisan Partners Holdings. See “—Offering Transactions—Amended and Restated Limited Partnership Agreement of Artisan Partners Holdings”.

Tax Receivable Agreements

Pursuant to the exchange agreement described above, from time to time we may be required to acquire common or preferred units of Artisan Partners Holdings from their holders upon exchange for shares of our Class A common stock or shares of our convertible preferred stock and the cancellation of a corresponding number of shares of our Class B or Class C common stock, as the case may be. In addition, we will acquire preferred units as a result of the H&F Corp Merger. Artisan Partners Holdings had an election under Section 754 of the Internal Revenue Code in effect for prior taxable years in which (i) distributions from Artisan Partners Holdings were made; and (ii) transfers and exchanges of partnership interests occurred, and intends to have such election in effect for future taxable years in which exchanges of limited partnership units occur. Pursuant to the Section 754 election, certain prior distributions on, and transfers and exchanges of, partnership interests resulted in, and each future exchange of limited partnership units is expected to result in, an increase in the tax basis of tangible and intangible assets of Artisan Partners Holdings. When we acquire partnership units from existing partners, we expect that both the existing basis and the anticipated basis adjustments will increase (for tax purposes) depreciation and amortization deductions allocable to us from Artisan Partners Holdings and therefore reduce the amount of income tax we would otherwise be required to pay in the future. This increase in tax basis may also decrease gain (or increase loss) on future dispositions of certain capital assets to the extent increased tax basis is allocated to those capital assets.

 

61


Table of Contents

We intend to enter into two tax receivable agreements. One tax receivable agreement, which we will enter into with the holders of convertible preferred stock issued as consideration for the H&F Corp Merger, will generally provide for the payment by us to such shareholders of 85% of the amount of cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in certain circumstances) in periods after this offering as a result of (i) existing tax basis in Artisan Partners Holdings’ assets with respect to the limited partnership units acquired by us in the merger that arose from certain prior distributions by Artisan Partners Holdings and prior purchases of partnership interests by H&F Corp, (ii) any net operating losses available to us as a result of the H&F Corp Merger, and (iii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

The second tax receivable agreement, which we will enter into with the holders of common and preferred units, will generally provide for the payment by us to each of them of 85% of the amount of the cash savings, if any, in U.S. federal and state income tax that we actually realize (or are deemed to realize in certain circumstances) in periods after this offering as a result of (i) any step-up in tax basis in Artisan Partners Holdings’ assets resulting from (a) the purchases or exchanges of limited partnership units (along with the corresponding shares of our Class B or Class C common stock) for cash or shares of our Class A common stock or convertible preferred stock and (b) payments under this tax receivable agreement, (ii) certain prior distributions by Artisan Partners Holdings and prior transfers or exchanges of partnership interests which resulted in tax basis adjustments to the assets of Artisan Partners Holdings and (iii) tax benefits related to imputed interest deemed to be paid by us as a result of this tax receivable agreement.

For purposes of these tax receivable agreements, cash savings in tax are calculated by comparing our actual income tax liability to the amount we would have been required to pay had we not been able to utilize any of the tax benefits subject to the tax receivable agreements, unless certain assumptions apply, as discussed herein. The term of the tax receivable agreements will commence upon the completion of this offering and will continue until all such tax benefits have been utilized or expired, unless we exercise our rights to terminate the tax receivable agreements or payments under the agreements are accelerated in connection with a change of control (as described below). 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 exchanges by the holders of limited partnership units, the price of our Class A common stock or the value of our convertible preferred stock, as the case may be, at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable and the portion of our payments under the tax receivable agreements constituting imputed interest or depreciable or amortizable basis.

We expect that the payments we will be required to make under the tax receivable agreements will be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreements, we expect that the reduction in tax payments for us associated with the merger and future exchanges described above would aggregate approximately $                 over 15 years from exchange based on an assumed price of $                 per share of our Class A common stock (the midpoint of the price range set forth on the cover of this prospectus) and assuming all exchanges or purchases, other than the exchanges, purchases and redemptions in connection with this offering, would occur one year after this offering. Under such scenario we would be required to pay the holders of limited partnership units 85% of such amount, or $                , over the 15-year period from such assumed year of exchange. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be calculated using the market value of the shares and the prevailing tax rates at the time of exchange and will be dependent on us generating sufficient future taxable income to realize the benefit.

In addition, although we are not aware of any issue that would cause the IRS to challenge the tax basis increases or other benefits arising under the tax receivable agreements, the holders of convertible preferred stock issued as consideration for the H&F Corp Merger and the holders of limited partnership units will not reimburse

 

62


Table of Contents

us for any payments previously made if such basis increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be netted against payments otherwise to be made, if any, to such holder after our determination of such excess. As a result, in such circumstances, we could make payments under the tax receivable agreement that are greater than our actual cash tax savings.

The tax receivable agreements provide that upon certain mergers, asset sales, other forms of business combinations or other changes of control, or if, at any time, we elect an early termination of the tax receivable agreements, our (or our successor’s) obligations under the tax receivable agreements (with respect to all units, whether or not units have been exchanged or acquired before or after such transaction) would be based on certain assumptions, including that we would have sufficient taxable income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits related to entering into the tax receivable agreements. As a result, (i) we could be required to make payments under the tax receivable agreements that are greater than or less than the specified percentage of the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreements and (ii) if we elect to terminate the tax receivable agreements early, we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits, which payment may be made significantly in advance of the actual realization of such future benefits. In these situations, our obligations under the tax receivable agreements could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will be able to finance our obligations under the tax receivable agreements. If we were to elect to terminate the tax receivable agreements immediately after this offering, based on an assumed price of $                 per share of our Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), we estimate that we would be required to pay $         in the aggregate under the tax receivable agreements.

Payments under the tax receivable agreements, if any, will be made pro rata among all tax receivable agreement holders entitled to payments on an annual basis to the extent we have sufficient taxable income to utilize the increased depreciation and amortization charges. The availability of sufficient taxable income to utilize the increased depreciation and amortization expense will not be determined until such time as the financial results for the year in question are known and tax estimates prepared, which typically occurs within 90 days after the end of the applicable calendar year. We expect to make payments under the tax receivable agreements, to the extent they are required, within 145 days after the end of the calendar year in which the increased depreciation and amortization expense was utilized. Interest on such payments will begin to accrue at a rate of                          from the due date (without extensions) of such tax return.

The impact that the tax receivable agreements will have on our consolidated financial statements will be the establishment of a liability, which will be increased upon the exchanges of limited partnership units (along with the corresponding shares of our Class B or Class C common stock) for our Class A common stock or convertible preferred stock, representing 85% of the estimated future tax benefits, if any, relating to the increase in tax basis associated with the partnership units we receive as a result of the H&F Corp Merger and other exchanges by holders of limited partnership units. Because the amount and timing of any payments will vary based on a number of factors (including the timing of future exchanges, the price of our Class A common stock or the value of our convertible preferred stock, as the case may be, at the time of any exchange, the extent to which such exchanges are taxable and the amount and timing of our income), depending upon the outcome of these factors, we may be obligated to make substantial payments pursuant to the tax receivable agreements. In light of the numerous factors affecting our obligation to make such payments, however, the timing and amount of any such actual payments are not certain at this time.

Decisions made by our existing owners in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by an exchanging or selling existing owner under the tax receivable agreements. For example, the earlier disposition of assets following an exchange or acquisition transaction will generally accelerate payments under the tax receivable agreements and increase the present value of such

 

63


Table of Contents

payments, and the disposition of assets before an exchange or acquisition transaction will increase an existing owner’s tax liability without giving rise to any rights of an existing owner to receive payments under the tax receivable agreements.

Because of our structure, our ability to make payments under the tax receivable agreements is dependent on the ability of Artisan Partners Holdings to make distributions to us. The ability of Artisan Partners Holdings to make such distributions will be subject to, among other things, the applicable provisions of Delaware law that may limit the amount of funds available for distribution to its partners. To the extent that we are unable to make payments under the tax receivable agreement for any reason, such payments will be deferred and will accrue interest until paid.

 

64


Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our Class A common stock by us in this offering will be approximately $         million, or approximately $         million if the underwriters exercise in full their option to purchase additional shares of Class A common stock, based on an assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), in each case after deducting assumed underwriting discounts and estimated offering expenses payable by us. We intend to use $         million of the net proceeds to repay a portion of outstanding indebtedness under our term loan, $         million of the net proceeds to purchase an aggregate of          common units from certain of our initial outside partners, $         million to make a distribution of retained profits of Artisan Partners Holdings to its pre-offering partners, and the balance for general corporate purposes, including working capital. Investors who purchase Class A common stock in this offering will not be entitled to a portion of the distribution of the retained profits. Pending the use of proceeds for general corporate purposes, we intend to invest that portion of the net proceeds in short-term money market and money-market equivalent securities.

For the year ended December 31, 2010, the weighted average interest rate, including the applicable spread, on borrowings under our term loan was 2.02%, and as of December 31, 2010 the interest rate, including the applicable spread, on such borrowings was 3.21%. On July 1, 2011, $17 million of the term loan will mature. The remaining $363 million of the term loan, less amortization and other prepayments, will mature in July 2013.

A $1.00 change in the assumed initial public offering price will increase or decrease the net proceeds we receive by $         million.

 

65


Table of Contents

DIVIDEND POLICY AND DIVIDENDS

Dividend Policy

Following this offering, we intend to pay quarterly cash dividends. We expect that our first dividend will be paid in the          (in respect of the        ) and will be $         per share of our Class A common stock. We intend to fund our initial dividend, as well as any future dividends, from our portion of distributions made by Artisan Partners Holdings, from its available cash generated from operations. The holders of our Class B common stock and Class C common stock will not be entitled to any cash dividends in their capacity as shareholders, but will, in their capacity as holders of limited partnership units of Artisan Partners Holdings, generally participate on a pro rata basis in distributions by Artisan Partners Holdings.

The declaration and payment of all future dividends, if any, will be at the sole discretion of our board of directors. In determining the amount of any future dividends, our board of directors will take into account: (i) the financial results of Artisan Partners Holdings, (ii) our available cash, as well as anticipated cash requirements (including debt servicing), (iii) our capital requirements and the capital requirements of our subsidiaries (including Artisan Partners Holdings), (iv) contractual, legal, tax and regulatory restrictions on, and implications of, the payment of dividends by us to our shareholders or by our subsidiaries (including Artisan Partners Holdings) to us, including the obligation of Artisan Partners Holdings to make tax distributions to the holders of partnership units (including us) (v) general economic and business conditions and (vi) any other factors that our board of directors may deem relevant.

Upon consummation of this offering, we will have no material assets other than our ownership of partnership units of Artisan Partners Holdings and, accordingly, will depend on distributions from it to fund any dividends we may pay. We intend to cause Artisan Partners Holdings to distribute cash to its partners, including us, in an amount sufficient to cover dividends, if any, declared by us. If we do cause Artisan Partners Holdings to make such distributions, holders of Artisan Partners Holdings limited partnership units will be entitled to receive equivalent distributions on a pro rata basis.

Our dividend policy has certain risks and limitations, particularly with respect to liquidity. Although we expect to pay dividends according to our dividend policy, we may not pay dividends according to our policy, or at all, if, among other things, Artisan Partners Holdings is unable to make distributions to us as a result of its operating results, cash requirements and financial condition, the applicable laws of the State of Delaware (which may limit the amount of funds available for distribution), its compliance with covenants and financial ratios related to indebtedness (including the term loan agreement) and its other agreements with third parties. Our term loan agreement contains covenants limiting Artisan Partners Holdings’ ability to make distributions if its consolidated leverage ratio (as defined in the term loan agreement) exceeds 2.75 to 1.00. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

Under the Wisconsin Business Corporation Law, or the WBCL, we may only pay dividends if, after giving effect to the distribution, we are able to pay our debts as they become due in the usual course of business and our total assets are greater than or equal to the sum of our liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy any preferential rights of shareholders whose preferential rights are superior to those receiving the distribution. Under the WBCL, the board of directors may base this determination on financial statements and other financial data prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances. To the extent we do not have sufficient cash to pay dividends, we may decide not to pay dividends. By paying cash dividends rather than investing that cash in our future growth, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations or unanticipated capital expenditures.

We are taxable as a corporation for U.S. federal income tax purposes and therefore holders of our Class A common stock will not be taxed directly on our earnings. Distributions of cash or other property that we pay to

 

66


Table of Contents

our shareholders will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax rules). If the amount of a distribution by us to our shareholders exceeds our current and accumulated earnings and profits, such excess will be treated first as a tax-free return of capital to the extent of a holder’s basis in the Class A common stock and thereafter as capital gain.

Artisan Partners Holdings’ Historical Distributions

Artisan Partners Holdings is currently owned by its general partner and limited partners. All decisions regarding the amount and timing of distributions (other than in connection with certain capital events specified in the limited partnership agreement) currently are made by Artisan Partners Holdings’ general partner, with the approval of Artisan Partners Holdings’ advisory committee, in accordance with the terms of the limited partnership agreement and applicable law. The advisory committee, the membership of which includes representatives of the Class A and C limited partners and AIC, will no longer exist following this offering.

Artisan Partners Holdings intends to distribute all of the retained profits of the partnership as of the date of the closing of this offering, which is expected to be approximately $         million, to its pre-offering partners. Approximately $         million of the distribution will be made immediately prior to the reorganization, and the other approximately $         million of the distribution will be made following the closing of this offering with a portion of the net proceeds from this offering.

 

67


Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2010:

 

   

on an actual basis for Artisan Partners Holdings; and

 

   

on a pro forma basis for Artisan Partners Asset Management Inc. after giving effect to the transactions described under “Unaudited Pro Forma Consolidated Financial Information”, including the reorganization transactions, the distribution of retained profits and the application of the net proceeds from this offering.

After the completion of the reorganization transactions, as the sole general partner of Artisan Partners Holdings, we will control its business and affairs and, therefore, consolidate its financial results with ours. In light of our employees’ and other investors’ collective     % limited partnership interest in Artisan Partners Holdings immediately after the reorganization and this offering, we will reflect their interests as a noncontrolling interest in our consolidated financial statements. As a result, our net income, after excluding a noncontrolling interest, will represent     % of Artisan Partners Holdings’ net income, and similarly, outstanding shares of our Class A common stock will represent     % of the outstanding partnership units of Artisan Partners Holdings. For more information on the pro forma impact of our reorganization, see “Unaudited Pro Forma Consolidated Financial Information”.

You should read the following table in conjunction with the consolidated financial statements and related notes, “Unaudited Pro Forma Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

 

     As of December 31, 2010  
     Actual Artisan
Partners
Holdings
    Pro
Forma Artisan
Partners Asset
Management
Inc.

(unaudited)
 
     (in millions except shares and
per share amounts)
 

Cash and cash equivalents

   $ 159.0      $                
                

Long-term debt

     380.0     

Temporary Equity

    

Redeemable Class C Interest

     357.2     

Partners’ equity / shareholders’ permanent equity (deficit):

    

Class A common stock, $0.01 par value per share, none authorized and outstanding on an actual basis,              shares authorized and              outstanding on a pro forma basis

     —       

Class B common stock, $0.01 par value per share, none authorized and outstanding on an actual basis,              shares authorized and              outstanding on a pro forma basis

     —       

Class C common stock, $0.01 par value per share, none authorized and outstanding on an actual basis,              shares authorized and              outstanding on a pro forma basis

     —       

Convertible preferred stock, $0.01 par value per share, none authorized and outstanding on an actual basis,              shares authorized and              outstanding on a pro forma basis

     —       

Partners’ equity

     (730.2  

Additional paid-in capital

     —       

Retained earnings (deficit)

     —       

Accumulated other comprehensive income (loss)

     (6.4  

 

68


Table of Contents
     As of December 31, 2010  
     Actual
Artisan
Partners
Holdings
    Pro Forma
Artisan
Partners
Asset
Management
Inc.

(unaudited)
 
     (in millions except
shares and per share
amounts)
 

Treasury stock, at cost

     —       
                

Artisan Partners Asset Management Inc. shareholders’
permanent equity (deficit)

     (736.6  

Noncontrolling interests

     —       
                

Total permanent equity (deficit)

     (736.6  
                

Total capitalization

   $ (736.6   $                
                

 

69


Table of Contents

DILUTION

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma, as adjusted net tangible book value (deficit) per share of our Class A common stock immediately after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the net tangible book value (deficit) per share attributable to the existing equity holders. Net tangible book value represents the amount of total tangible assets less total liabilities.

Our pro forma, as adjusted net tangible book value (deficit) as of December 31, 2010 was approximately $         million, or approximately $         per share of our Class A common stock. Pro forma, as adjusted net tangible book value represents the amount of total tangible assets less total liabilities, after giving effect to the reorganization transactions and the distribution by Artisan Partners Holdings to its pre-offering partners of its retained profits as of the date of the closing of this offering. Pro forma, as adjusted net tangible book value (deficit) per share represents pro forma, as adjusted net tangible book value divided by the number of shares of Class A common stock outstanding after giving effect to the reorganization transactions and assuming that (1) the holders of common units of Artisan Partners Holdings have exchanged all of their units for shares of our Class A common stock on a one-for-one basis and we have benefited from the resulting increase in tax basis, (2) the holders of preferred units of Artisan Partners Holdings have exchanged all of their units for shares of our convertible preferred stock on a one-for-one basis and we have benefited from the resulting increase in tax basis, (3) the holders of all shares of our convertible preferred stock have converted all of their shares into Class A common stock on a one-for-one basis and (4) the              shares of restricted stock that we expect to issue to certain of our employees and directors in connection with this offering have vested.

After giving effect to the sale of          shares of Class A common stock that we are offering at an assumed initial public offering price of $         per share (the midpoint of the price range set forth on the cover of this prospectus), the deduction of assumed underwriting discounts and estimated offering expenses payable by us and the use of the estimated net proceeds as described under “Use of Proceeds”, our pro forma, as adjusted net tangible book value at December 31, 2010 was $        , or $         per share of Class A common stock.

The following table illustrates the immediate increase in pro forma net tangible book value of $         per share for existing equity holders and the immediate dilution of $         per share to new shareholders purchasing Class A common stock in this offering, assuming the underwriters do not exercise their option to purchase additional shares.

 

Assumed initial public offering price per share

      $                

Pro forma, as adjusted net tangible book value (deficit) per share as of December 31, 2010

   $                   

Increase in pro forma, as adjusted net tangible book value per share attributable to new investors

   $                   

Pro forma, as adjusted net tangible book value per share after this offering

      $                
           

Dilution in pro forma, as adjusted net tangible book value per share to new investors

      $                

The following table sets forth, on the same pro forma basis, as of December 31, 2010, the number of shares of Class A common stock purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing equity holders and by the new investors, assuming that (1) the holders of common units of Artisan Partners Holdings have exchanged all of their units for shares of our Class A common

 

70


Table of Contents

stock on a one-for-one basis and we have benefited from the resulting increase in tax basis, (2) the holders of preferred units of Artisan Partners Holdings have exchanged all of their units for shares of our convertible preferred stock on a one-for-one basis and we have benefited from the resulting increase in tax basis and (3) the holders of all shares of our convertible preferred stock have converted all of their shares into Class A common stock on a one-for-one basis, before deducting estimated underwriting discounts payable by us:

 

         Shares Purchased             Total Consideration(1)         Average
Price per
Share
 
     Number      Percent     Amount      Percent    

Existing equity holders

                     —           —          —     

New investors

                   $                      $     

Total

        100 %   $           100  

 

(1)

Total consideration paid by existing equity holders has been set to zero, as our net tangible book value prior to this offering was a deficit.

The table above gives effect to the issuance of          shares of restricted stock that we expect to issue in connection with this offering to certain of our employees and directors.

If the underwriters exercise their option to purchase additional shares of Class A common stock in full:

 

   

the pro forma percentage of shares of our Class A common stock held by existing equity holders will decrease to approximately     % of the total number of pro forma shares of our Class A common stock outstanding after this offering; and

 

   

the pro forma number of shares of our Class A common stock held by new investors will increase to approximately     % of the total pro forma shares of our Class A common stock outstanding after this offering.

If the underwriters exercise their option to purchase additional shares of Class A common stock in full, pro forma, as adjusted net tangible book value would be approximately $         per share, representing an increase to existing equity holders of approximately $         per share, and there would be an immediate dilution of approximately $         per share to new investors.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share of Class A common stock (the midpoint of the price range set forth on the cover of this prospectus), would increase (decrease) total consideration paid by new investors in this offering and by all investors by $         million, and would increase (decrease) the average price per share paid by new investors by $        , and would increase (decrease) pro forma, as adjusted net tangible book value per share by $        , assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and without deducting the estimated underwriting discounts payable by us in connection with this offering.

 

71


Table of Contents

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial statements present the consolidated statements of operations and financial position of Artisan Partners Asset Management Inc. and subsidiaries, assuming that all of the transactions described in the bullet points below had been completed as of: (i) January 1, 2010 with respect to the unaudited pro forma consolidated statements of operations and (ii) December 31, 2010 with respect to the unaudited pro forma consolidated statement of financial position. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions and this offering on the historical financial information of Artisan Partners Holdings and subsidiaries, which is the accounting predecessor. These adjustments are described in the notes to the unaudited pro forma consolidated financial statements.

The pro forma adjustments principally give effect to the following transactions:

 

   

the reorganization transactions described in “Our Structure and Reorganization”;

 

   

the elimination of Artisan Partners Holdings’ obligation to redeem any of its Class B limited partnership interests upon the death, disability or termination of employment of the holders of such interests, which mandatory redemption feature had required all Class B limited partnership interests to be classified as liabilities of Artisan Partners Holdings;

 

   

the establishment of tax receivable agreements with (i) the holders of convertible preferred stock issued as consideration for the H&F Corp Merger and (ii) the holders of limited partnership units of Artisan Partners Holdings;

 

   

the distribution by Artisan Partners Holdings of its retained profits as of the date of the closing of this offering (which is expected to be approximately $         million), to its pre-offering partners, approximately $         million of which will be distributed immediately prior to the reorganization, and the other approximately $         million of which will be distributed following the closing of this offering with a portion of the net proceeds from this offering;

 

   

the issuance of              shares of restricted Class A common stock to certain of our employees and shares of restricted Class A common stock to our non-employee directors in connection with this offering, all of which generally vest over a five-year period;

 

   

the issuance of              shares of Class B common stock to holders of Class B common units and Class D common units of Artisan Partners Holdings, and the issuance of              shares of Class C common stock to holders of Class A common units and preferred units of Artisan Partners Holdings;

 

   

the issuance of              shares of convertible preferred stock in the H&F Corp Merger, and the receipt by us of              preferred units as consideration in such merger, and cancellation of              shares of Class C common stock;

 

   

the issuance by Artisan Partners Holdings and Artisan Partners Asset Management Inc. of              contingent value rights to the H&F holders; and

 

   

the sale of              shares of our Class A common stock by us in this offering at an assumed offering price of $             per share (the midpoint of the price range set forth on the cover of this prospectus), and the application of $             million of the net proceeds to repay a portion of outstanding indebtedness under our term loan, $             million of the net proceeds to purchase an aggregate of              Class A common units from certain of the Class A limited partners and $             million of the net proceeds to make the distribution of retained profits described above.

We have not made any pro forma adjustments to our general and administrative expense, or any of our other expense items, relating to reporting, compliance or investor relations costs, or other incremental costs that we may incur as a public company, including costs relating to compliance with Section 404 of the Sarbanes-Oxley Act.

 

72


Table of Contents

Pro forma basic net income per share for the year ended December 31, 2010 was computed by dividing the pro forma net income attributable to holders of shares of our Class A common stock by the sum of (i)              shares of Class A common stock that will be issued and outstanding immediately following the completion of this offering (assuming that the underwriters do not exercise their option to purchase an additional              shares of Class A common stock) and (ii)              restricted shares of our Class A common stock to be awarded to certain of our employees and our non-employee directors. Pro forma diluted net income per share for the year ended December 31, 2010 was computed by dividing pro forma net income attributable to holders of shares of our Class A common stock, as adjusted to reflect (a) the exchange of each common and preferred unit of Artisan Partners Holdings (and the corresponding shares of Class B or Class C common stock), to the extent such partner can transfer an amount of capital per unit that represents at least the same percentage of the aggregate capital account balances of all partners of Artisan Partners Holdings as the percentage interest in profits represented by such units, for shares of our Class A common stock, or, in the case of preferred units, for shares of our convertible preferred stock, which results in the reduction of the noncontrolling interest, and (b) the conversion of all shares of our convertible preferred stock for shares of our Class A common stock, by shares of our Class A common stock.

The unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect our statement of operations or financial position that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our statement of operations or financial position had the transactions contemplated in connection with the reorganization and this offering been completed on the dates assumed. The unaudited pro forma consolidated financial information also does not project the statement of operations or financial position for any future period or date.

 

73


Table of Contents

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2010

 

     Artisan Partners
Holdings
Historical
    Adjustments     Artisan Partners
Asset Management
Inc.

Pro Forma
 
     (in millions, except share and per share amounts)  

Revenues

      

Management fees—mutual funds

   $ 261.6        $            

Management fees—separate accounts

     117.8       

Performance fees

     2.9       
            

Total revenues

     382.3       

Operating expenses

      

Compensation and benefits

      

Salaries, incentive compensation and benefits

     166.6       

Distributions on Class B liability awards

     17.6                     (b)      —     

Change in value of Class B liability awards

     79.1                     (b)      —     

Equity based compensation—Pre-IPO grants

     —   (b)     

Equity based compensation—Post-IPO grants

     —   (a)     
            

Total compensation and benefits

     263.3       

Distribution and marketing

     23.0       

Occupancy

     8.1       

Communication and technology

     9.9       

General and administrative

     12.8       
            

Total operating expenses

     317.1       
            

Operating income

     65.2       

Non-operating income (loss)

      

Interest expense

     (23.0 )(c)     

Other income

     1.6 (d)     
            

Total non-operating income (loss)

     (21.4    
            

Income before income taxes

     43.8       

Provision for income taxes

     1.3 (e)     
            

Net income

   $ 42.5       
            

Less: Net income attributable to noncontrolling interests

                    (f)   

Net income attributable to Artisan Partners Asset Management Inc.

      

Basic net income per share attributable to Artisan Partners Asset Management Inc. Class A common stockholders

      

Diluted net income per share attributable to Artisan Partners Asset Management Inc. Class A common stockholders

      

Weighted average shares used in basic net income per share

                  (g)     

Weighted average shares used in diluted net income per share

                  (h)     

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

74


Table of Contents

Notes to Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2010

 

(a)

In connection with this offering, we intend to grant              shares of restricted Class A common stock to certain of our employees, with an approximate value of $         based on an assumed offering price of              per share (the midpoint of the price range set forth on the cover of this prospectus). All of these securities will vest pro rata, on an annual basis, over a five-year period from the date of grant. This adjustment represents the increase in compensation expense associated with the amortization of these awards of              in salaries, incentive compensation and benefits expense.

(b)

In connection with this offering, we will amend the grant agreements pursuant to which the Class B common units were issued, which will result in, among other things, the elimination of Artisan Partners Holdings’ obligation to redeem for cash any of its Class B limited partnership interests upon the death, disability or termination of employment of the holders of such interests. Accordingly, we will no longer record as a compensation expense distributions to the Class B partners of Artisan Partners Holdings, redemptions of Class B limited partnership interests or changes in the intrinsic value of Class B liability awards. Instead, we will record a noncontrolling interest allocation relating to the Class B limited partners’ share of Artisan Partners Holdings’ earnings, which following the completion of the reorganization transactions will be reflected through ownership of Class B common units. This noncontrolling interest attribution will also include the noncontrolling interest in Artisan Partners Holdings’ earnings of holders of Class A common, Class D common and preferred units. However, with respect to the portion of Class B common units that are unvested at the time of the completion of this offering, we will continue to recognize compensation expense ratably over the remaining vesting period based on the offering price per share of Class A common stock in this offering. For purposes of the pro forma statement of operations, we have included this expense, amounting to $         for the year ended December 31, 2010, in equity based compensation—pre-IPO grants.

In connection with the closing of this offering we will recognize a one-time expense in the amount of the difference between the carrying value of the liability associated with Class B limited partnership interests as calculated pursuant to the terms of the grant agreements and the carrying value of the liability associated with Class B limited partnership interests as calculated based on the offering price per share of Class A common stock in this offering. We have not included the impact of this charge in the pro forma consolidated statement of operations because the adjustment only occurs in the first year after this offering and not thereafter. The charge is reflected only in the unaudited pro forma statement of financial condition as a decrease to retained earnings.

 

(c)

Represents the reduction of interest expense due to our anticipated repayment of $         million of our term loan from the net proceeds of this offering.

(d)

We will earn reduced interest income as a result of significantly lower cash balances following the cash distribution by Artisan Partners Holdings of its retained profits to its pre-offering partners, which we intend to effect in connection with the closing of this offering. This adjustment represents the estimated decrease in other income of $         for the year ended December 31, 2010, calculated by adjusting other income to reflect a very low cash balance.

(e)

Represents the impact of foreign, federal and state income taxes that Artisan Partners Holdings will incur as a C-corporation. Our business was historically organized as a partnership and was not subject to U.S. federal and certain state income taxes. The effective rate of pro forma income tax is estimated to be approximately     %, and was determined by combining the projected federal, state and local income taxes.

(f)

The common and preferred units owned by the limited partners of Artisan Partners Holdings will be considered noncontrolling interests for financial accounting purposes. The amount allocated to noncontrolling interests represents the proportional interest in the pro forma income of Artisan Partners Holdings owned by the limited partners.

(g)

Reflects the issuance of an aggregate of              shares of our Class A common stock in connection with this offering.

 

75


Table of Contents
(h)

Assumes exchange, conversion and issuance of the following securities, which would have a dilutive impact on earnings per share:

 

   

the exchange by holders of common units of Artisan Partners Holdings of an aggregate of common units of Artisan Partners Holdings (and the corresponding shares of Class B or Class C common stock) for              shares of our Class A common stock;

 

   

the exchange by holders of preferred units of Artisan Partners Holdings of an aggregate of preferred units of Artisan Partners Holdings (and the corresponding shares of Class C common stock) for              shares of our convertible preferred stock;

 

   

the conversion of              shares of our convertible preferred stock for              shares of our Class A common stock; and

 

   

the issuance of              shares of restricted Class A common stock to certain of our employees and              shares of restricted Class A common stock to our non-employee directors in connection with this offering, all of which generally vest over a five-year period.

 

76


Table of Contents

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF

FINANCIAL CONDITION

As of December 31, 2010

 

     Artisan  Partners
Holdings

Actual
     Adjustments     Artisan Partners
Asset Management
Inc.

Pro Forma
 
     (in millions, except shares and per share amounts)  

Assets

       

Cash and cash equivalents

   $ 159.0 (a),(b),(c)      

Accounts receivable

     36.7        

Investment securities

     1.2        

Prepaid expenses

     2.9        

Debt issuance costs

     1.8        

Property and equipment, net

     5.2        

Deferred tax assets

     —   (d)      

Other

     3.1        
             

Total assets

   $ 209.9        
             

Liabilities and shareholders’ equity (deficit)

       

Accounts payable and accrued expenses

     9.6        

Accrued interest payable

     5.6        

Amounts payable under tax receivable agreements

     —   (d)      

Deferred lease obligations

     1.7        

Interest rate swap

     6.1        

Notes payable

     380.0 (c)      

Class B liability awards

     168.8 (e)      

Other liabilities

     17.5        
             

Total liabilities

     589.3        

Temporary Equity

       

Redeemable Class C Partners interest

     357.2        

Partners’/Shareholders’ permanent equity (deficit)

       

Partners’ equity

     (730.2 )(b)      

Common stock

       

Class A common stock

     —   (a)      

Class B common stock

     —   (f)      

Class C common stock

     —   (f)      

Convertible preferred stock

     —   (f)      

Additional paid-in capital

     —   (a)      

Retained earnings (deficit)

     —   (a)      

Accumulated other comprehensive income (loss)

     (6.4     
             

Total partners’/shareholders’ permanent equity (deficit)

     (736.6     
             

Noncontrolling interest

     —   (e)      
             

Total liabilities, temporary equity and permanent equity (deficit)

   $ 209.9        
             

The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

77


Table of Contents

Notes to Unaudited Pro Forma Consolidated Statement of Financial Position

As of December 31, 2010

 

(a)

Represents the net effect of an increase in shareholders’ equity due to the net proceeds received by us from the sale of              shares of Class A common stock in this offering, which we expect will be $         (reflecting a reduction of $         relating to the underwriting discount).

(b)

Represents a $         distribution by Artisan Partners Holdings of its retained profits to its pre-offering partners, approximately $         million of which will be distributed in connection with the reorganization, and the other approximately $         million of which will be distributed following the closing of this offering with a portion of the net proceeds from this offering.

(c)

Represents our anticipated repayment of $         million of indebtedness outstanding under our term loan with a portion of the net proceeds of this offering payable to us.

(d)

Reflects adjustments to record assets and liabilities associated with our tax receivable agreements. Under the first of those agreements we generally will be required to pay to the holders of convertible preferred stock issued as consideration for the H&F Corp Merger 85% of the applicable cash savings, if any, in U.S. federal and state income tax that we actually realize as a result of the tax attributes of the units we generally acquire in the merger. Under the second tax receivable agreement we will be required to pay to the holders of limited partnership units of Artisan Partners Holdings 85% of the applicable cash savings, if any, in U.S. federal and state income tax that we actually realize as a result of certain tax attributes of their units exchanged, or, that are created as a result of the exchanges of their units, for shares of our Class A common stock or convertible preferred stock. We will record 85% of the estimated tax benefit as an increase to amounts payable under tax receivable agreements, a liability.

The pro forma balance sheet reflects an asset and a liability only for the cash savings attributable to current tax attributes resulting from the H&F Corp Merger which occurred prior to the completion of this offering. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding tax receivable payments from these tax attributes. Future deferred tax assets or amounts payable by us resulting from either of the tax receivable agreements discussed above would be in addition to amounts related to the reorganization transactions.

 

(e)

In connection with this offering, we will amend the limited partnership agreement of Artisan Partners Holdings and the grant agreements pursuant to which the Class B common units were issued, which will result in, among other things, the elimination of Artisan Partners Holdings’ obligation to redeem any of its Class B limited partnership interests upon the death or termination of employment of the holder of such interests. Instead, we will record a noncontrolling interest attribution relating to the Class B limited partners’ share of Artisan Partners Holdings’ earnings, which following the completion of the reorganization transactions will be reflected through ownership of Class B common units. This noncontrolling interest attribution will also include the noncontrolling interest in Artisan Partners Holdings’ earnings of holders of Class A common, Class D common and preferred units.

(f)

Represents the issuance of              shares of our Class B common stock to the holders of Class B and Class D common units of Artisan Partners Holdings,              shares of our Class C common stock to the holders of Class A common and preferred units of Artisan Partners Holdings, and              shares of our convertible preferred stock in the H&F Corp Merger.

 

78


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth selected historical consolidated financial data of Artisan Partners Holdings as of the dates and for the periods indicated. The selected consolidated statements of operations data for the years ended December 31, 2010, 2009 and 2008, and the consolidated statements of financial condition data as of December 31, 2010 and 2009 have been derived from Artisan Partners Holdings’ audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the years ended December 31, 2007 and 2006 and the consolidated statements of financial condition data as of December 31, 2008, 2007 and 2006 have been derived from Artisan Partners Holdings’ audited consolidated financial statements not included in this prospectus.

You should read the following selected historical consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and the related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
     2010     2009     2008     2007     2006  
     (in millions)  

Statements of Operations Data:

          

Revenues

          

Management fees—mutual funds

   $ 261.6      $ 197.2      $ 249.8      $ 307.2      $ 260.1   

Management fees—separate accounts

     117.8        95.5        103.5        123.7        118.2   

Performance fees

     2.9        3.5        3.7        3.1        3.2   
                                        

Total revenues

     382.3        296.2        357.0        434.0        381.5   

Operating expenses

          

Compensation and fringe benefits

          

Salaries, incentive compensation and benefits

     166.6        132.9        147.0        171.7        148.7   

Distributions on Class B liability awards

     17.6        2.5        57.9        56.9        393.1 (1) 

Change in value of Class B liability awards

     79.1        41.8        (108.9     34.5        (72.9
                                        

Total compensation and benefits

     263.3        177.2        96.0        263.1        468.9   

Distribution and marketing

     23.0        17.8        20.1        24.2        22.9   

Occupancy

     8.1        8.0        7.1        5.4        4.3   

Communication and technology

     9.9        10.1        14.3        10.5        7.2   

General and administrative

     12.8        10.0        10.6        10.4        23.0 (1) 
                                        

Total operating expenses

     317.1        223.1        148.1        313.6        526.3   
                                        

Operating income (loss)

     65.2        73.1        208.9        120.4        (144.8

Non-operating income (loss)

          

Interest expense

     (23.0     (24.9     (26.5     (27.9     (14.0

Other income (loss)

     1.6        0.0        0.9        2.8        2.6   
                                        

Total non-operating income (loss)

     (21.4     (24.9     (25.6     (25.1     (11.4
                                        

Income (loss) before income taxes

     43.8        48.2        183.3        95.3        (156.2

Provision for income taxes

     1.3        —          —          —          —     
                                        

Net income (loss)

   $ 42.5      $ 48.2      $ 183.3      $ 95.3      $ (156.2
                                        

 

(1)

In 2006, we entered into a $400 million five-year term loan agreement, the proceeds of which we used to redeem general partner and certain Class A and Class B limited partnership interests of Artisan Partners Holdings. Outside investors then purchased general partner and Class A and Class B limited partnership interests from certain partners and subsequently converted those purchased interests to Class C limited partnership interests. As required by the Financial Accounting Standards Board’s Accounting Standards Codification “Compensation—Stock Compensation” Topic, the outside investors’ purchase of Class B

 

79


Table of Contents
 

limited partnership interests was recorded as a contribution of capital and subsequent payment by us to the Class B partners in exchange for services rendered. Accordingly, in 2006, redemptions of Class B interests included $174.8 million in redemptions of Class B limited partnership interests and $156.1 million attributable to the outside investors’ purchase of Class B limited partnership interests. In connection with the recapitalization transactions described above, we incurred $13.1 million in expenses, which were included in general and administrative expenses. In November 2010, we amended our term loan agreement reducing the aggregate outstanding principal amount of the term loan to $380 million and extending the maturity of $363 million of the loan, less amortization and other prepayments, to July 1, 2013. The remaining $17 million of the loan will mature on July 1, 2011.

 

     As of December 31,  
     2010     2009     2008     2007     2006  
     (in millions)  

Statement of Financial Condition Data:

          

Cash and cash equivalents

   $ 159.0      $ 101.8      $ 35.9      $ 66.3      $ 55.0   

Accounts receivable

     36.7        31.7        22.1        37.2        30.7   

Total assets

     209.9        145.7        71.6        117.7        100.1   

Accounts payable and accrued expenses

     9.6        8.4        4.1        6.2        6.1   

Interest rate swap

     6.1        21.7        29.4        18.5        9.1   

Notes payable

     380.0        400.0        400.0        400.5        401.4   

Class B liability awards

     168.8        106.5        65.1        174.3        140.4   

Total liabilities

     589.3        545.7        509.0        610.6        568.9   

Temporary Equity—Redeemable Class C Interest

     357.2        357.2        357.2        357.2        357.2   

Total permanent equity (deficit)

   $ (736.6   $ (757.2   $ (794.6   $ (850.1   $ (826.0

Our management uses adjusted operating margin as a financial measure to evaluate the profitability and efficiency of our business model. Adjusted operating margin is not presented in accordance with GAAP because we exclude from operating income certain expenses related to equity-based compensation that are included in calculating operating margin under GAAP. Furthermore, adjusted operating margin may be different from non-GAAP measures used by other companies. We compute our adjusted operating margin by adding to operating income (thereby effectively excluding) the expenses we recognize for equity-based compensation, which includes distributions to the Class B partners of Artisan Partners Holdings, redemptions of Class B limited partnership interests and changes in the redemption value of Class B limited partnership interests, and then dividing that sum by total revenues for the applicable period. Subsequent to the completion of the reorganization, including the reclassification of the Class B limited partnership interests as Class B common units, the costs associated with distributions to our Class B partners, redemptions of Class B limited partnership interests and changes in the intrinsic value of Class B liability awards will no longer be recognized as compensation expense. However, for the portion of Class B common units that are unvested at the time of the completion of this offering, we will continue to recognize compensation expense ratably over the remaining vesting period based on the offering price per share of Class A common stock in this offering.

 

80


Table of Contents

The following table shows our adjusted operating margin for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 as well as a reconciliation of our adjusted operating margin with GAAP operating margin for the periods presented:

 

     Year Ended December 31,  
     2010     2009     2008     2007     2006  
     (dollars in millions)  

GAAP operating income

   $ 65.2      $ 73.1      $ 208.9      $ 120.4      $ (144.8

Distributions on Class B liability awards

     17.6        2.5        57.9        56.9        393.1   

Change in value of Class B liability awards

     79.1        41.8        (108.9     34.5        (72.9
                                        

Adjusted operating income

   $ 161.9      $ 117.4      $ 157.9      $ 211.8      $ 175.4   

Total revenues

   $ 382.3      $ 296.2      $ 357.0      $ 434.0      $ 381.5   

GAAP operating margin

     17.1     24.7     58.5     27.7     (38.0 )% 

Adjusted operating margin

     42.3     39.6     44.2     48.8     46.0

 

     Year Ended December 31,  
     2010      2009      2008     2007     2006  
     (in millions)  

Selected Unaudited Operating Data:

            

Assets under management(1)

   $ 57,459       $ 46,788       $ 30,577      $ 55,468      $ 50,903   

Net client cash flows(2)

     3,410         2,556         (1,783     (2,875     (2,599

Market appreciation (depreciation)(3)

   $ 7,260       $ 13,656       $ (23,108   $ 7,440      $ 8,748   

 

(1)

Reflects the amount of money we managed for our clients in our strategies as of the last day of the period.

(2)

Reflects the amount of money our clients placed with us for management, and withdrew from our management, during the period, excluding appreciation (depreciation) due to market performance and fluctuations in exchange rates.

(3)

Represents the appreciation (depreciation) of the value of our assets under management during the period due to market performance and fluctuations in exchange rates, as well as income, such as dividends, earned on assets under management.

 

81


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under the caption “Risk Factors” and elsewhere in this prospectus. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.

The historical financial data discussed below reflect the historical results of operations and financial condition of Artisan Partners Holdings LP and its consolidated subsidiaries and do not give effect to our reorganization. See “Our Structure and Reorganization” and “Unaudited Pro Forma Consolidated Financial Information” included elsewhere in this prospectus for a description of our reorganization and its effect on our historical results of operations.

Overview

We are an independent investment management firm that provides a broad range of 12 equity investment strategies spanning different market capitalization segments and investing styles in both U.S. and non-U.S. markets. We offer our investment management capabilities primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have longer-term investment horizons. We manage separate accounts for pension and profit sharing plans, trusts, endowments, foundations, charitable organizations, governmental entities, investment companies and similar pooled investment vehicles, and also provide investment management and administrative services to Artisan Funds, an SEC-registered family of mutual funds. Our operations are based principally in the United States, but we are expanding our operations outside the United States.

As of December 31, 2010, we had $57.5 billion in assets under management. We derive essentially all of our revenues from investment management fees. Our fees are based on a specified percentage of clients’ average assets under management, except for a small number of institutional separate account clients with which we have a fee arrangement that has a component based on our investment performance for that client. We have a single operating segment.

The historical results of operations discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are those of Artisan Partners Holdings and its consolidated subsidiaries. After the completion of the reorganization, as the sole general partner of Artisan Partners Holdings, we will control its business and affairs and, therefore, consolidate its financial results with ours. In light of our employees’ and other investors’ collective     % equity interest in Artisan Partners Holdings immediately after the reorganization and this offering, we will reflect their interests as a noncontrolling interest in our consolidated financial statements. As a result, our net income, after excluding that noncontrolling interest, will represent     % of Artisan Partners Holdings’ net income and, similarly, outstanding shares of our Class A common stock will represent     % of the outstanding equity interests of Artisan Partners Holdings. For more information on the pro forma impact of our reorganization, see “Unaudited Pro Forma Consolidated Financial Information”.

A significant portion of our historical compensation and benefits expense relates to the Class B limited partnership interests granted to certain of our employees. The Class B limited partnership interests provide for an interest in future profits of Artisan Partners Holdings, as well as an interest in the overall appreciation or depreciation in the value of Artisan Partners Holdings from the date of grant. In connection with the reorganization transactions, the Class B limited partnership interests will be reclassified as Class B common units of Artisan Partners Holdings, which will be exchangeable for shares of our Class A common stock and will no longer be redeemable for cash upon termination of employment. As a result, subsequent to the reorganization, we will no longer record a liability for the redemption value of Class B limited partnership interests, and the costs

 

82


Table of Contents

associated with distributions to our employee-partners, redemptions of Class B limited partnership interests and changes in the redemption value of Class B limited partnership interests will no longer be recognized as compensation expense. However, for the portion of Class B common units that are unvested at the time of the completion of this offering, we will continue to recognize compensation expense ratably over the remaining vesting period based on the offering price per share of Class A common stock in this offering. At the completion of the offering, approximately     % of the Class B common units will be unvested.

Key Performance Indicators

When we review our performance we focus on the indicators described below:

 

     For the Year Ended
December 31,
 
     2010     2009     2008  
     (dollars in millions)  

Assets under management at period end

   $ 57,459      $ 46,788      $ 30,577   

Average assets under management(1)

   $ 48,724      $ 36,918      $ 45,294   

Net client cash flows

   $ 3,410      $ 2,556      $ (1,783

Investment management fees

   $ 382      $ 296      $ 357   

Weighted average fee(2)

     79 bps        80 bps        79 bps   

Adjusted operating margin(3)

     42.3     39.6     44.2

 

(1)

Prior to January 1, 2009, we computed average assets under management by averaging month-end assets under management for the applicable period. Beginning January 1, 2009, we have computed average assets under management by averaging day-end assets under management for the applicable period.

(2)

We compute our weighted average fee by dividing annualized investment management fees by average assets under management for the applicable period.

(3)

We compute our adjusted operating margin by adding to operating income (thereby effectively excluding) the expenses we recognize for equity-based compensation, which includes distributions to the Class B partners of Artisan Partners Holdings, redemptions of Class B limited partnership interests and changes in the intrinsic value of Class B liability awards, and then dividing that sum by total revenues for the applicable period. Subsequent to the completion of the reorganization, including the reclassification of the Class B limited partnership interests as Class B common units, the costs associated with distributions to our Class B partners, redemptions of Class B limited partnership interests and changes in the intrinsic value of Class B liability awards will no longer be recognized as compensation expense. However, for the portion of Class B common units that are unvested at the time of the completion of this offering, we will continue to recognize compensation expense ratably over the remaining vesting period based on the offering price per share of Class A common stock in this offering.

We review our weighted average fee and adjusted operating margin to monitor progress with internal forecasts, understand the underlying business and compare our firm with others in our industry. The weighted average fee represents annualized investment management fees as a percentage of average assets under management for the applicable period, i.e., the amount of investment management fees we earn for each dollar of assets we manage. We use this information to evaluate the contribution to investment management fees of our investment products. Our weighted average fee for the periods shown has remained relatively consistent. Historically, our fees generally have been higher than those of many of our competitors. Over time, industry-wide fee pressure could cause us to reduce our fees.

Our management uses adjusted operating margin as a financial measure to evaluate the profitability and efficiency of our business model. Adjusted operating margin is not presented in accordance with GAAP because we exclude from operating income certain expenses related to equity-based compensation that are included in calculating operating margin under GAAP. Furthermore, adjusted operating margin may be different from non-GAAP measures used by other companies. However, we believe that adjusted operating margin is helpful in

 

83


Table of Contents

more clearly highlighting trends in our business that may not otherwise be apparent when relying solely on GAAP operating margin because it excludes from our results specific financial items relating to equity compensation and our current partnership structure that have less bearing on our operating performance. The following table reconciles our adjusted operating margin with GAAP operating margin for the periods presented:

 

     For the Year
Ended December 31,
 
     2010     2009     2008  
     (dollars in millions)  

GAAP operating income

   $ 65.2      $ 73.1      $ 208.9   

Distributions on Class B liability awards

     17.6        2.5        57.9   

Change in value of Class B liability awards

     79.1        41.8        (108.9
                        

Adjusted operating income

   $ 161.9      $ 117.4      $ 157.9   

Total revenues

   $ 382.3      $ 296.2      $ 357.0   

GAAP operating margin

     17.1     24.7     58.5

Adjusted operating margin

     42.3     39.6     44.2

Financial Overview

Assets Under Management and Investment Management Fees

Changes to our operating results from one period to another are primarily caused by changes in the value of our assets under management, changes in the relative composition of our assets under management among our investment strategies and products, and the effective fee rates on our products.

Our assets under management increase or decrease with the net inflows or outflows of cash into our various investment strategies and with the investment performance of these strategies. In order to increase our assets under management and expand our business, we must continue to offer investment strategies that suit the investment needs of our clients and generate attractive returns over the long term. The amount and composition of our assets under management 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;

 

   

client cash flows into and out of our investment products;

 

   

the composition of assets under management among our various strategies and investment vehicles;

 

   

our decision to close strategies or limit the growth of assets in a strategy when we believe it is in the best interests of our clients;

 

   

our ability to educate our target clients about our investment strategies and provide them with exceptional client service;

 

   

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

 

   

investor sentiment and confidence.

We monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies. When appropriate, we are willing to close a strategy to new investors or otherwise take action to slow or restrict its growth, even though our aggregate assets under management may be negatively impacted in the short term. We believe that our willingness to restrict the growth of assets under management in our strategies is important to protecting the interests of our clients and, in the long term, enables us to retain client assets and maintain our fee schedules and profit margins. When we close a

 

84


Table of Contents

strategy, we typically continue to allow additional investments in the strategy by existing clients and certain related entities, which means that during a given period we could have net client cash inflows even 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. We closed our U.S. Small-Cap Growth, U.S. Mid-Cap Value, U.S. Small-Cap Value, U.S. Mid-Cap Growth and Non-U.S. Small-Cap Growth strategies to most new investors and client relationships at various points in time prior to January 1, 2007. Since January 1, 2007, we have taken the following actions:

 

   

U.S. Small-Cap Growth: we reopened this strategy in October 2009.

 

   

U.S. Mid-Cap Value: we reopened this strategy to separate account clients for the period between January 2007 and October 2009 and to mutual fund clients in October 2009. In July 2009 we again closed this strategy to most new mutual fund clients, and in January 2010 we closed the strategy to all new mutual fund investors.

 

   

Non-U.S. Value: we closed this strategy to most new separate account clients in December 2010 and to most mutual fund clients in March 2011. The strategy has also been closed to new investors in the Investor Shares Class of International Value Fund from March 2007 to October 2008.

The primary drivers of our client cash inflows and outflows are our investment performance and the extent to which we have acted to slow the growth of our assets under management in a strategy, as described above. Our distribution efforts are targeted at institutional investors and intermediaries that operate with institutional-like decision-making processes and have longer-term investment horizons. In our experience, those investors typically (although not always) require that an investment manager have a three-year performance track record placing the manager in the top quartile of the relevant comparative performance universe in that strategy as a minimum qualification to be considered for a new mandate. As a result, our experience has been that growth in our assets under management in a new strategy is typically modest during the first three years of the strategy’s operation but accelerates after that three-year mark is reached; provided that our investment performance is superior to the threshold level required for consideration. Following periods during which investment performance did not meet that standard, we have found that client cash flows have been stagnant or negative.

Although we have outperformed, on a gross basis, the relevant benchmarks in each of our investment strategies since their inception, we also have had periods in each strategy in which we have underperformed those relevant benchmarks and have suffered periods of stagnant or negative client cash flows following such periods of underperformance. One of the benefits of a diverse range of investment strategies is that periods of stagnant or negative cash flows in one strategy may be offset by periods of net cash inflows in other strategies. During each of 2006, 2007 and 2008, we had negative net client cash flows. However, during those periods, we had only two investment strategies that were open to all or most new investors and had at least a three-year performance track record. Our Non-U.S. Growth strategy was our only investment strategy that was open to new clients throughout that period, and our Non-U.S. Value strategy was open for six of the 12 quarters during that period. Our U.S. Small-Cap Value, U.S. Mid-Cap Growth and Non-U.S. Small-Cap Growth strategies were closed to most new investors throughout the period from 2006 to 2008; our Emerging Markets, Growth Opportunities and Global Value strategies were launched during that period but had not yet been in operation for three years; and our U.S. Mid-Cap Value and Value Equity strategies were open, with more than a three-year performance track record, for only two and three quarters, respectively, during that period. During 2009 and 2010, our Non-U.S. Growth, Global Value, Value Equity, Growth Opportunities and Emerging Markets strategies were open throughout the period, and our Non-U.S. Value and Global Equity strategies were open for parts of the period, and we enjoyed net client cash inflows of more than $2.5 billion and $3.4 billion, respectively.

Our clients access our investment strategies through mutual funds and separate accounts, which include mutual funds and non-U.S. funds we sub-advise, as well as collective investment trusts, which pool retirement plan assets together in a single portfolio maintained by a bank or trust company and are managed by us on a

 

85


Table of Contents

separate account basis. The following table sets forth the changes in our assets under management under our advisory agreements with Artisan Funds and in the separate accounts that we managed from December 31, 2006 to December 31, 2010:

 

      As % of Assets Under
Management
 

Assets Under Management

   Artisan
Funds
    Separate
Accounts
    Total     Artisan
Funds
    Separate
Accounts
 
     (in millions)        

As of December 31, 2006

   $ 30,029      $ 20,875      $ 50,903        59     41

Gross client cash inflows

     6,969        1,888        8,857       

Gross client cash outflows

     (7,810     (3,923     (11,733    

Net client cash flows

     (841     (2,035     (2,875    

Appreciation (depreciation)

     4,307        3,132        7,440       

Transfers between investment vehicles

     (100     100        —         
                            

As of December 31, 2007

     33,396        22,072        55,468        60     40

Gross client cash inflows

     6,637        3,452        10,089       

Gross client cash outflows

     (8,620     (3,253     (11,873    

Net client cash flows

     (1,982     199        (1,783    

Appreciation (depreciation)

     (13,925     (9,183     (23,108    

Transfers between investment vehicles

     (279     279        —         
                            

As of December 31, 2008

     17,210        13,367        30,577        56     44

Gross client cash inflows

     7,278        3,048        10,326       

Gross client cash outflows

     (5,216     (2,555     (7,770    

Net client cash flows

     2,062        493        2,556       

Appreciation (depreciation)

     7,532        6,124        13,656       

Transfers between investment vehicles

     (160     160        —         
                            

As of December 31, 2009

     26,644        20,144        46,788        57     43

Gross client cash inflows

     7,524        5,722        13,247       

Gross client cash outflows

     (6,719     (3,118     (9,837    

Net client cash flows

     806        2,604        3,410       

Appreciation (depreciation)

     3,917        3,343        7,260       

Transfers between investment vehicles

     —          —          —         
                            

As of December 31, 2010

   $ 31,367      $ 26,092      $ 57,459        55     45
                            

The different fee structures associated with Artisan Funds and separate accounts and the different fee schedules of our investment strategies make the composition of our assets under management an important determinant of the investment management fees we earn. We typically charge higher effective rates of investment management fees on Artisan Funds than on our separate accounts, reflecting, among other things, the different array of services we provide to Artisan Funds. Our investment management fees also differ by investment strategy, with our newer, higher-capacity strategies having lower standard fee schedules than our older strategies which in some cases have or had more limited capacity.

Artisan Funds

We serve as the investment adviser to Artisan Funds, an SEC-registered family of 12 mutual funds that offers no load, open-end share classes designed to meet the needs of a range of institutional and other investors. Each of the 12 mutual funds corresponds to one of our 12 investment strategies. As of December 31, 2010, Artisan Funds comprised $31.4 billion, or 55%, of our assets under management. For the year ended December 31, 2010, fees from Artisan Funds represented $261.6 million, or 68%, of our revenues.

 

86


Table of Contents

Artisan Funds shares are not listed on an exchange. These funds issue new shares for purchase and redeem shares from those shareholders who sell. The share price for purchases and redemptions of each of these funds’ shares is each fund’s net asset value per share, which is calculated at the end of each business day. The assets of each Artisan Fund, and therefore our assets under management, vary as a result of market appreciation and depreciation, the level of purchases or redemptions of fund shares and distributions, net of reinvestments, by each fund. We earn investment management fees, which are based on the average daily net assets of each Artisan Fund and paid monthly, for serving as investment adviser to these funds. Our fee rates for the Artisan Funds range from 0.76% to 1.25% of assets under management, depending on the strategy and other factors. Each Artisan Fund’s fee schedule includes breakpoints at which a lower rate of fee is applied to assets above the breakpoint level, except Artisan International Small Cap Fund, which was closed to most new investors at a relatively small asset level, and Artisan Emerging Markets Fund, which enjoys a fee schedule that we believe starts at a lower level than would be appropriate if there were breakpoints in its fee schedule.

Although retail investors can invest directly in the series of Artisan Funds that remain open to new investors, most of the investors in Artisan Funds are institutions or have invested in Artisan Funds through intermediaries that operate with institutional-like decision-making processes.

We also serve as the investment manager and promoter of Artisan Global Funds, a family of Ireland-based UCITS funds, organized pursuant to the European Union’s Undertaking for Collective Investment in Transferable Securities (also referred to as UCITS), that began operations in the first quarter of 2011 and offer shares to non-U.S. investors, primarily institutional investors.

Separate Accounts

We manage separate accounts primarily for institutional clients, such as pension and profit sharing plans, trusts, endowments, foundations, charitable organizations, governmental entities, investment companies and similar pooled investment vehicles. Separate accounts comprised $26.1 billion, or 45%, of our assets under management as of December 31, 2010. For the year ended December 31, 2010, fees from separate accounts, including U.S.-registered mutual funds, non-U.S. funds and collective investment trusts we sub-advise, represented $120.7 million, or 32%, of our revenues.

The fees we charge our separate accounts vary by client and investment strategy and are accrued monthly. Fees are billed in accordance with the provisions of the applicable investment advisory agreements, which is generally quarterly, based on the market value of the assets we manage for a particular separate account. Depending on the particular arrangement we have with a client, the fee generally is based on the average daily or average monthly market values of the assets we manage, the quarter-end value of the assets we manage or, less frequently, based on the performance of the client’s account relative to certain agreed-upon benchmarks. For separate account clients with less than $500 million in assets under management, we generally impose standard fee schedules that vary by investment strategy. We may accept a sub-advised relationship in a strategy at a lower rate of fee if doing so allows us to gain access to a market segment to which we otherwise would not have access. In addition, we currently charge the collective investment trusts for which we are sub-adviser and that are marketed under the Artisan name fees that subsume breakpoints and so generally are lower than would be charged in connection with other types of separate accounts, as otherwise the initial investors in these trusts would bear a disproportionate amount of expense until a sufficient number of plans were invested. Our fees for separate account clients with assets under management that exceed $500 million are individually negotiated based on a variety of factors. These factors include the value of the client’s assets under management, the number of accounts, investment strategies or investment teams across which those assets are invested and the nature of the client and relationship, including our expectations for the duration of the relationship and the size of the relationship over time. As a general matter, we strive to make the effective rate of fees paid equitable among clients whose relationships with us are generally comparable. A small number of our separate account clients pay us fees according to the performance of their accounts relative to certain 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

 

87


Table of Contents

client is superior to the performance of an agreed-upon benchmark. Performance-based fees, if earned, are recognized on the contractually determined measurement date. Performance-based fees represented 0.8%, 1.2%, and 1.0% of our revenues for the years ended December 31, 2010, 2009 and 2008, respectively.

Revenues

Our revenues consist of investment management fees earned from managing clients’ assets. Our investment management fees fluctuate based on the total value of our assets under management, composition of assets under management among both our investment vehicles and our investment strategies (which have different fee rates), changes in the investment management fee rates on our products and, for the few accounts on which we earn performance-based fees, the investment performance of those accounts relative to various benchmarks. Because we earn investment management fees based on the value of the assets we manage across a reporting period, we believe that average assets under management for a period is a better metric for understanding changes in our revenues than period end assets under management.

The following table sets forth revenues we earned under our investment management agreements with Artisan Funds and on the separate accounts that we managed as well as average assets under management for the years ended December 31, 2010, 2009 and 2008:

 

     For the Year Ended December 31,  
     2010      2009      2008  
     (in millions)  

Revenues

        

Management fees—mutual funds

   $ 261.6       $ 197.2       $ 249.8   

Management fees—separate accounts

     117.8         95.5         103.5   

Performance fees

     2.9         3.5         3.7   
                          

Total revenues

   $ 382.3       $ 296.2       $ 357.0   
                          

Average assets under management for period

   $ 48,724       $ 36,918       $ 45,294   

Operating Expenses

Our operating expenses consist primarily of compensation and benefits expenses, distribution and marketing fees, occupancy expenses, communication and technology expenses and general and administrative expenses. Our expenses may fluctuate due to a number of factors, including the following:

 

   

variations in the level of total compensation expense due to, among other things, incentive compensation, awards of equity to the employee-partners of Artisan Partners Holdings, changes in our employee count and mix and competitive factors; and

 

   

expenses, such as distribution fees, rent, professional service fees and data-related costs, incurred, as necessary, to run our business.

Our largest operating expenses are compensation and benefits and distribution fees. A significant portion of our operating expenses are variable and fluctuate in direct relation to our revenues or our assets under management. We monitor our expenses to ensure proper alignment with revenues and address expenses as necessary when we experience downward pressure on revenues. At the same time, even when we experience declining revenues, we are willing to make the expenditures necessary for us to manage client portfolios effectively and support and maintain our existing client relationships and franchise value.

Compensation and Benefits

Compensation and benefits includes salaries, incentive compensation, benefits costs, distributions of profits to Class B partners, redemptions of Class B limited partnership interests and changes in the intrinsic value of

 

88


Table of Contents

Class B liability awards. A significant portion of our incentive compensation varies directly with revenues. Incentive compensation is one of the most significant parts of the total compensation of our senior employees. Incentive compensation paid to members of our portfolio management teams and senior members of our marketing and client service teams is based on a formula that is tied directly to revenues. Incentive compensation paid to other employees is discretionary and subjectively determined based on individual performance and our overall results during the applicable year. In connection with our transition to a public company, we intend to implement a new compensation structure that uses a combination of cash and equity-based incentives as appropriate. However, we expect that a significant part of our compensation will remain variable, using a formula tied directly to revenues to determine the aggregate variable compensation for members of each investment team and marketing and client service team. We expect that incentive compensation paid to other employees will continue to be discretionary and subjectively determined based on individual performance and our overall results. As we mature as a public company, we will periodically evaluate and may change our compensation programs.

Accounting for our Class B limited partnership interests will change as we transition from a private company to a public company. Historical financial statements presented for periods prior to the filing of this registration statement reflect the Class B limited partnership interests as liability awards with measurement at intrinsic value under ASC 718. As of the date of the initial filing of this registration statement, we are a public registrant. As a result, the Class B limited partnership interests will be reflected as liabilities measured at fair value. Upon effectiveness of the offering, the Class B limited partnership interests will be unitized into Class B common units exchangeable for public company common stock and modified to remove the cash redemption feature. As a result, the Class B common units are expected to be treated as equity awards and compensation cost will be measured based upon the fair value of the awards at the time of the offering.

The table below describes the components of our compensation and benefits expense for the years ended December 31, 2010, 2009 and 2008:

 

     For the Year Ended December 31,  
     2010      2009      2008  
     (in millions)  

Salaries, incentive compensation, and benefits

   $ 166.6       $ 132.9       $ 147.0   

Distributions on Class B liability awards

     17.6         2.5         57.9   

Change in value of Class B liability awards

     79.1         41.8         (108.9
                          

Total compensation and benefits expense

   $ 263.3       $ 177.2       $ 96.0   
                          

A significant portion of our compensation and benefits expense relates to our Class B limited partnership interests. Prior to this offering and the reorganization transactions, Class B limited partnership interests were granted to certain employees under the terms of Artisan Partners Holdings’ limited partnership agreement and pursuant to grant agreements. The Class B limited partnership interests provided for an interest in future profits of Artisan Partners Holdings as well as an interest in the overall appreciation or depreciation of Artisan Partners Holdings subsequent to the date of grant. Class B limited partnership interests generally vested ratably over a five-year period, beginning on the date of grant. Vesting could be accelerated upon the occurrence of certain events, including a change in control (as defined in the grant agreements). Holders of Class B limited partnership interests were entitled to fully participate in future profits from and after the date of grant. The distribution of profits associated with these interests was recorded as compensation and benefits expense. Generally, these profits were determined based on Artisan Partners Holdings’ net income before equity-based compensation charges.

All vested Class B limited partnership interests were subject to mandatory redemption on termination of employment for any reason. Unvested Class B limited partnership interests were forfeited on termination of employment. A terminated employee’s vested Class B limited partnership interests were redeemed, with payment in cash in annual installments over the five years following termination of employment, at an aggregate amount

 

89


Table of Contents

determined under a formula stated in the corresponding grant agreement. Due to this feature, the grants were considered liability awards. Compensation cost was measured at the grant date based on the intrinsic value of the interests granted, and was re-measured each period. Intrinsic value as measured each period was recognized as expense over the remaining vesting period, typically five years. Changes in the intrinsic value that occurred after the end of the vesting period were recorded as compensation cost of the period in which the changes occurred through settlement of the interests.

As of May 1, 2009, we modified the redemption formula for each Class B partner’s interest to be a percentage of the partner’s equity balance as defined in Artisan Partners Holdings’ limited partnership agreement. In addition, because of the significant decline in our assets under management and corresponding declines in revenues and profitability due to the market environment during 2008 and the first half of 2009, we reset to zero the equity balances attributable to each Class B grant, the equity balance of which was less than zero as of April 30, 2009.

After the completion of the reorganization, including the reclassification of the Class B limited partnership interests as Class B common units, the costs associated with distributions to our Class B partners and changes in the intrinsic value of Class B liability awards will no longer be recognized as a compensation expense. However, for the portion of Class B common units that are unvested at the time of the completion of this offering, we will continue to recognize compensation expense ratably over the remaining vesting period based on the offering price per share of Class A common stock in this offering.

As described in “Management—2011 Omnibus Incentive Compensation Plan”, we plan to adopt the Artisan Partners Asset Management Inc. 2011 Omnibus Incentive Compensation Plan, in connection with this offering. Pursuant to the 2011 Omnibus Incentive Compensation Plan, we expect to make equity-based compensation awards and ownership awards, and performance-based cash awards. Equity-based awards will be based on our Class A common stock or on Class B common units of Artisan Partners Holdings and will be subject to certain vesting restrictions. See “Management—2011 Omnibus Incentive Compensation Plan” for additional information about the 2011 Omnibus Incentive Compensation Plan.

In connection with this offering and pursuant to the 2011 Omnibus Incentive Compensation Plan, we intend to grant equity-based awards to all employees who are currently participants in our Equity Incentive Plan, a non-qualified profit-sharing plan in which participants are awarded units that vest on the last business day of the third year following the year of grant (subject to continued employment on that date), the value of which is determined by a formula based on the revenues and earnings (for periods ending on the vesting date) of Artisan Partners Holdings and its subsidiaries and paid to participants shortly after vesting. Upon consummation of this offering, our Equity Incentive Plan will cease to exist as a separate compensation plan. In addition, we intend to grant equity-based awards to certain employees in recognition of their contributions to our success and to our non-employee directors as a part of their compensation.

Distribution and Marketing

Distribution and marketing fees primarily represent payments we make to broker-dealers 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 authorized agents charge a fee for those services. Artisan Funds pays a portion of such fees, which are intended to compensate the authorized agent 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. We pay the balance of those fees, including amounts attributable to distribution and marketing services performed with respect to Artisan Funds. Like the investment management fees we earn as adviser to Artisan Funds, distribution fees typically vary with the value of the assets invested in shares of Artisan Funds. A significant portion of Artisan Funds’ shares are held by investors through

 

90


Table of Contents

intermediaries, which is consistent with an industry-wide shift from direct retail sales of mutual fund shares to sales through intermediaries that provide advice, administrative convenience or both. As a result, distribution fees are likely to increase due to an increase in our assets under management that are sourced through intermediaries that charge these fees or an increase in the fee rates charged by intermediaries. In contrast to some mutual funds, investors in Artisan Funds pay no 12b-1 fees, which are fees charged to investors to pay for marketing, advertising and distribution services. See “Business—Distribution, Investment Products and Client Relationships” for additional information about 12b-1 fees.

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.

Communication and technology

Communication and technology expenses include information and print 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 print subscriptions represent the costs we pay to obtain investment research and other data we need to operate our business, and such expenses generally increase or decrease in relative proportion to the number of our employees and the overall size and scale of our business operations.

On behalf of our mutual fund and separate account clients, we make decisions to buy and sell securities for each portfolio, select broker-dealers to execute trades and negotiate brokerage commission rates. In connection with these transactions, we may 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. The reduction in our operating expenses through the use of soft dollars amounted to $3.3 million, $2.9 million, and $1.4 million for the years ended December 31, 2010, 2009 and 2008, respectively. Our operating expenses will increase to the extent these soft dollars are reduced or eliminated. We believe that all research products and services we acquire through soft dollars are within the safe harbor provided by Section 28(e) of the Exchange Act.

General and Administrative

General and administrative expenses include professional fees, travel and entertainment, state and local taxes, and other miscellaneous expenses we incur in operating our business.

Following this offering, we expect that we will incur additional expenses as a result of becoming a public company, including expenses related to additional staffing, director and officer insurance, director fees, SEC reporting and compliance (including Sarbanes-Oxley compliance), transfer agent fees, professional fees and other similar expenses. These additional expenses will increase our general and administrative expenses and reduce our net income.

Non-Operating Income (Loss)

Interest Expense

Interest expense includes the interest we pay on our $400 million term loan, which we entered into in July 2006 and which originally was scheduled to mature in full in July 2011. In November 2010, we amended our term loan agreement, reducing the aggregate outstanding principal amount of the loan to $380 million and

 

91


Table of Contents

extending the maturity of $363 million of the loan, the Tranche B Loans, less amortization and other prepayments, to July 1, 2013. The remaining $17 million of the loan, the Tranche A Loans, will mature on July 1, 2011. The term loan bears interest at a rate equal to, at our election, (i) LIBOR adjusted by a statutory reserve percentage plus an applicable margin ranging from 0.75% to 1.75% for the Tranche A Loans and 2.00% to 3.50% for the Tranche B Loans, depending on Artisan Partners Holdings’ leverage ratio (as defined in the term loan agreement) or (ii) an alternate base rate equal to the highest of Citibank, N.A.’s prime rate, the federal funds effective rate plus 0.50% and the daily one-month LIBOR adjusted by a statutory reserve percentage plus 1.00%, plus an applicable margin ranging from 0% to 0.50% for the Tranche A Loans and 1.00% to 2.50% for the Tranche B Loans, depending on Artisan Partners Holdings’ leverage ratio (as defined in the term loan agreement).

To effectively convert a portion of the loan’s variable interest rate to a fixed rate, in July 2006, we executed with two counterparties five-year amortizing interest rate swap contracts that had a combined total notional value of $400 million at inception and have a final maturity date of July 1, 2011. The total notional amount of these swap contracts amortized to $350 million in April 2008, $300 million in April 2009, $250 million in April 2010 and is scheduled to amortize to $200 million on April 7, 2011. As of December 31, 2010, the total notional amount of these swap contracts was $250 million. The counterparties under these interest rate swap contracts pay Artisan Partners Holdings variable interest at three-month LIBOR, and Artisan Partners Holdings pays the counterparties a fixed interest rate of 5.689%. In November 2010, we entered into a forward start interest rate swap with a notional value of $200 million, an effective start date of July 1, 2011 and a final maturity date of July 1, 2013. The counterparty under this interest rate swap will pay Artisan Partners Holdings variable interest at three-month LIBOR, and Artisan Partners Holdings will pay the counterparty a fixed interest rate of 1.04%. The income and expense related to the interest rate swap contracts is accounted for under interest expense.

When Artisan Partners Holdings historically redeemed a Class B limited partnership interest, it generally paid the redemption price for the limited partnership interest over a period of five years and paid interest on the unpaid portion of the redemption price at rates comparable to those we received on money market instruments. These interest payments are included in our interest expense. In connection with the reorganization transactions, the Class B limited partnership interests will be reclassified as Class B common units of Artisan Partners Holdings, which will be exchangeable for shares of our Class A common stock, and will no longer be redeemable for cash upon termination of employment.

Other Income (Loss)

Other income (loss) includes income from our excess cash balances, dividends earned on available-for-sale securities, gains or losses we recognize on the ineffective portion of our interest rate swaps and capital gains or losses we recognize upon the sale of the securities we hold.

Provision for Income Taxes

Our business was historically organized as a partnership and was not subject to U.S. federal and certain state income taxes. Prior to the completion of this offering, as a result of the reorganization transactions, our business will become subject to taxes applicable to C-corporations. For more information on pro forma income taxes applicable to our business under C-corporation status, see “Unaudited Pro Forma Consolidated Financial Information”. Income tax expense is recognized for certain foreign subsidiaries that pay corporate income tax.

Results of Operations

Our investment management fees are driven by the amount and composition of our assets under management. As a result, our earnings and cash flows are heavily dependent upon prevailing conditions in the securities markets, particularly in the equity securities markets. Significant increases or decreases in the value of equity securities or significant changes in the level of client contributions or withdrawals can have a material

 

92


Table of Contents

impact on our results of operations. Client contributions and withdrawals are driven by the performance results of our investment strategies, the competitiveness of our fee rates, the success of our marketing and client service efforts, the state of the overall securities markets and clients’ individual investment philosophies and cash-flow requirements.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Assets Under Management

Our assets under management increased by $10.7 billion, or 23%, to $57.5 billion as of December 31, 2010 from $46.8 billion as of December 31, 2009. As of December 31, 2010, our assets under management consisted of 55% Artisan Funds and 45% separate accounts as compared to 57% Artisan Funds and 43% separate accounts as of December 31, 2009. The following table sets forth the changes in our assets under management for Artisan Funds and the separate accounts that we managed for the years ended December 31, 2010 and 2009, as well as our average assets under management for each period:

 

     Year Ended
December 31,
    Period-to-Period  
     2010     2009     $ Change     % Change  
     (dollars in millions)  

Artisan Funds

        

Beginning assets under management

   $ 26,644      $ 17,210      $ 9,434        55

Gross client cash inflows

     7,524        7,278        246        3   

Gross client cash outflows

     (6,719     (5,216     (1,503     (29
                    

Net client cash flows

     806        2,062        (1,256     (61

Appreciation (depreciation)

     3,917        7,532        (3,615     (48

Transfers between investment vehicles

     —          (160     160        100   
                    

Ending assets under management

   $ 31,367      $ 26,644      $ 4,723        18   
                    

Average assets under management

   $ 27,646      $ 20,792      $ 6,855        33   

Separate Accounts

        

Beginning assets under management

   $ 20,144      $ 13,367      $ 6,777        51   

Gross client cash inflows

     5,722        3,048        2,674        88   

Gross client cash outflows

     (3,118     (2,555     (563     (22
                    

Net client cash flows

     2,604        493        2,111        428   

Appreciation (depreciation)

     3,343        6,124        (2,781     (45

Transfers between investment vehicles

     —          160        (160     (100
                    

Ending assets under management

   $ 26,092      $ 20,144      $ 5,948        30   
                    

Average assets under management

   $ 21,078      $ 16,126      $ 4,952        31   

Total Assets Under Management

        

Beginning assets under management

   $ 46,788      $ 30,577      $ 16,211        53   

Gross client cash inflows

     13,247        10,326        2,921        28   

Gross client cash outflows

     (9,837     (7,770     (2,066     (27
                    

Net client cash flows

     3,410        2,556        855        33   

Appreciation (depreciation)

     7,260        13,656        (6,395     (47

Transfers between investment vehicles

     —          —          —          —     
                    

Ending assets under management

   $ 57,459      $ 46,788      $ 10,671        23   
                    

Average assets under management

   $ 48,724      $ 36,918      $ 11,806        32

 

93


Table of Contents

Revenues

Our investment management fees increased $86.1 million, or 29%, to $382.3 million for the year ended December 31, 2010 from $296.2 million for the year ended December 31, 2009. This increase was driven primarily by an $11.8 billion, or 32%, increase in our average assets under management to $48.7 billion for the year ended December 31, 2010 from $36.9 billion for the year ended December 31, 2009. The increase in our average assets under management was primarily attributable to the continued recovery of global equity markets during 2010, compared to the year ended December 31, 2009, during which period the global economic crisis caused a sharp decline in our assets under management. During the year ended December 31, 2010, our net client cash inflows were $3.4 million, which was an increase of $0.9 billion compared to the year ended December 31, 2009. Our weighted average investment management fee decreased slightly to 79 basis points for the year ended December 31, 2010 from 80 basis points for the year ended December 31, 2009 as a result of lower fee tiers in our advisory contract fee schedules, which were triggered by higher assets under management.

Operating Expenses

The following table sets forth our operating expenses for the years ended December 31, 2010 and 2009:

 

     Year Ended
December 31,

(unaudited)
     Period-to-Per