Artisan Partners Asset Management Inc (APAM) 2018 Q2 法說會逐字稿

Good day, and welcome to the Artisan Partners earnings conference call. (Operator Instructions) Please also note today's event is being recorded.

I would now like to turn the conference over to Makela Taphorn , Director, Investor Relations. Please go ahead.

Thank you. Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Colson, Chairman and CEO; and C.J. Daley, CFO. Following these remarks, we will open the line for questions.

Before Eric begins, I'd like to remind you that our earnings release and the related presentation materials are available on the Investor Relations section of our website. Also, the comments made on today's call and some of our responses to your questions may deal with forward-looking statements, which are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are presented in the earnings release and are detailed in our filings with the SEC. We undertake no obligation to revise these statements following the date of this conference call.

In addition, some of our remarks made today will include references to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release.

I will now turn the call over to Eric Colson.

Thank you, Makela. And thank you, everyone, for joining the call or reading the transcript.

At the end of June, Artisan Partners managed about $114 billion of wealth for clients located around the world. Our clients include retirement plans; endowments; charitable foundations; financial advisers; family offices; sovereign wealth funds; and individual investors in our funds. These clients place a tremendous amount of trust in us. Performing for them is our highest priority.

Today, we have a diverse business spread across 8 investment teams and 17 strategies. We have outstanding and stable talent with compelling track records of success, and we have significant additional investment capacity in attractive asset classes. We have built our business by investing in talented people, and we remain committed to a talent-centric approach. We give our investment team the unique combination of autonomy and support, and we have a model and process for attracting new talent and partnering with them to develop multigenerational investment franchises.

Based on our history, we are confident that our current combination of talented people, stability and results will translate into positive long-term outcomes for our clients and our firm. In addition, we have demonstrated time and again that our process for adding new talent is a powerful, long-term growth engine. As a firm, we are more than the sum of our 8 existing teams.

Slide 2 summarizes our talent process. The process keeps us disciplined, focused on long-term asset allocation and helps us avoid short-term product trends. We are built for investment results, not distribution trends. We have a clear vision of the investment leaders we are looking for and a repeatable process for finding, recruiting, onboarding and partnering with them to develop investment franchises.

Our business management team is responsible for this process. The members of our management team do not have any investment research or decision-making responsibilities. This secures investment autonomy for our investment teams and provides our management team with time and objectivity to identify and recruit new investment talent and support existing teams.

With new talent, we only move forward when we think there is a high probability of long-term success. We remain objective, disciplined and patient through the entire process. We are careful to avoid mistakes. The right talent is scarce. In our 23-year history, we have launched only 9 new investment teams: our 8 existing teams as well as the Artisan small-cap growth team, which we merged into today's growth team in 2009.

Once we partner with a new investment leader, we provide comprehensive support in order to minimize startup distractions and maximize the probability of success. Our newest portfolio manager, Chris Smith, refers to the support we provide as operational alpha. We take great pride in that. After the initial build-out period, we remain actively involved with each investment team. We work with them to develop and maintain a healthy and growing investment franchise, which is our ultimate goal across all the teams.

Our 3 newest teams are shown on Slide 3. Today, these teams account for nearly $6 billion in combined AUM and run-rate revenues of about $50 million. Each team has significant additional investment capacity. And each is building a team, a process and a culture that we believe will generate successful and differentiated outcomes for clients over the long term.

We have spoken a lot about each of these teams. They are exciting. But today, I'll limit myself to just a few updated observations.

Since the High Income Fund's inception over 4 years ago, the fund is ranked #4 out of 507 funds in the Lipper high-yield fund category. The performance has translated into good business development in a tough environment for non-investment-grade credit strategies. With nearly $500 million of net inflows in 2018, the High Income Fund is the #1 asset gatherer in Morningstar's U.S. high-yield bond category, based on Morningstar's estimates. Bryan Krug is building a team and a process with the confidence and flexibility to manage across the corporate credit spectrum.

Right on the heels of the Credit team, Lewis Kaufman and the Developing World team just passed the 3-year mark with the Developing World strategy. Performance has been strong, and the team's $2.5 billion of AUM is the most any Artisan strategy at the 3-year mark.

Lastly, the Thematic team's performance out of the gate has also been strong. The track record you see here is only 14 months but behind the track record is a great team and a process and philosophy that Chris Smith has built over a number of years. Those investors who have been early backers of Chris and the team have been well rewarded so far.

With each of our more mature teams, we experienced a foundational period similar to what we are seeing with these 3 new teams today. Based on our prior experience, we believe the market will reward our patience and long-term approach.

Turning to Slide 4, franchise development. Keeping teams in a healthy growth phase takes constant attention. Investment talent, markets and asset allocators are all dynamic. With our Emerging Markets team, we are currently working through the process of raising assets.

7 years ago, the Artisan Emerging Markets team was managing $3.4 billion. In 2011, the team experienced difficult performance, driving outflows that have reduced AUM to today's $200 million. We don't believe that one difficult year or one great year defines the team. Over the long term, the Emerging Markets team has remained disciplined, stable and patient. Outstanding performance has followed. Over the last 5 years, the team has outperformed the index by nearly 200 basis points annually after fees, placing the Artisan Emerging Markets fund in the 13th percentile of its Lipper category.

Here's what we see in the team. Maria Negrete-Gruson is an extremely talented and experienced leader. The team is diverse, with significant local EM experience and continuity. They have demonstrated process consistency through good times and bad. Their process systematically includes ESG considerations, and they produce a portfolio that is differentiated from the benchmark index. As Maria likes to say, Emerging Markets are about a lot more than China, India and commodity.

From a business perspective, we're working to rebuild the team's client and investor base. There can be a lot of fear in going first or going it alone. We understand that. We try to reduce that fear and risk. We only launch and run teams and strategies that we believe can and will be successful.

To use a phrase from our Growth team, all of our investment teams and strategies have been research qualified through the process I described on Slide 2. Each of the teams we have launched has had long-term success. Of the 19 strategies we manage for clients, only 2 have been shuttered, and one of those had an outstanding long-term track record.

Second, when we partner with an investment team, we partner to build franchises that thrive for multiple generations. We have been doing this for a long time. As a firm, we have the patience and discipline to grind through market cycles, and we won't give up on the talent that is doing things the right way.

Turning to my last slide. At Artisan, our investment in talented people extend across the firm. We prefer to invest in quality over quantity. That's true in operations as well as in investments and distribution. This approach yields a strong business platform with operational alpha and leverage for future business growth.

Since 2014, we have added 3 new investment teams and 6 new investment strategies, including our first credit and long/short strategies. We have added investment degrees of freedom through new security and instrument types and new investment vehicles. We have opened distribution offices in Australia and Canada and added nearly 100 non-U. S. client relationships. We have made significant upgrades to our technology and cybersecurity, and we have efficiently navigated regulatory change in multiple jurisdictions.

Because of the quality of our people, we have accomplished these things with only modest increases in overall headcount. Investing in quality over quantity helps us to remain disciplined and patient. We don't have to manufacture new product to feed a large sales force, and we are better positioned to weather market downturns without disruptive change.

On the flip side, we have built significant operational leverage for future growth. We have proven that we can support additional investment teams, asset classes and degrees of freedom. Strong investment returns plus stable investment talent plus operational leverage makes us very excited about the future of our firm.

I will turn it over to C.J. to discuss our more recent results.

Thanks, Eric. Financial highlights for the quarter are presented on Slide 6 and include both GAAP and adjusted results. I will focus my comments on adjusted results which we, as management, utilize to evaluate our business operations.

We ended the quarter with slightly lower AUM due to declines in non-U. S. equity markets and modest net client cash outflows. Average AUM was down 2%. Revenues, however, were flat as performance fees recognized in the current quarter offset the impact of lower average AUM. Adjusted operating margin decreased slightly to 37.2%, primarily due to a slight increase in operating costs primarily related to increased compensation, technology and occupancy costs that were mostly offset by lower seasonal expenses.

Adjusted earnings were $0.76 per adjusted share compared to $0.78 per adjusted share last quarter and $0.58 compared to the same quarter last year. For the 6-month period, adjusted earnings per adjusted share reflect growth in average AUM and the benefits of a lower effective income tax rate resulting from tax reform.

Assets under management and net client cash flows are on Slide 7. In the current quarter, AUM declined $626 million, less than 1%, to $114.2 billion due to $339 million of net client cash outflows and $287 million of market depreciation. During the quarter, the majority of our net outflows were in our mid-cap strategies, which were partially offset by net client cash inflows in 2 strategies managed by our Credit, Developing World and Thematic teams.

While it is hard to predict if the improving outflow trends in our more traditional strategies will continue, we are encouraged by the improved results this quarter.

Average AUM and revenues are on Slide 8. Revenues in the quarter of $212.3 million were flat compared to last quarter as performance fees offset the impact of lower average AUM. Performance fees in the quarter were $2.3 million. Excluding the impact of performance fee revenue, our average management fee remained at 73 basis points.

Operating expenses in the current quarter were up $1.4 million or 1%. Compensation and benefits expense was up $1.6 million or 2%, which I will discuss in more detail on the next slide. Occupancy expenses increased $400,000 as we began to layer in the expense of planned office moves later this year. We expect the majority of onetime occupancy costs related to office moves in New York and Denver will be incurred in the fourth quarter.

Compensation and benefits expenses are presented on Slide 10. Compensation and benefits expense was $106.8 million in the June 2018 quarter, up slightly from $105.2 million in March. Equity-based compensation expense increased $1.4 million as we recognized a full quarter of amortization related to our 2018 equity grant. Beginning with the September 2018 quarter, equity-based compensation expense will begin to decline as the expenses related to higher grant [paid] Value Equity awards fully amortize. We expect equity-based compensation expense to be approximately $13 million in the September quarter and $11 million in the December quarter.

Incentive compensation expense increased due to incentive compensation paid on performance fee revenues and several other nonrecurring incentive computation expenses recognized in the current quarter. These increases were partially offset by the lower seasonal benefits and payroll tax costs.

Turning to Slide 11. In the current quarter, adjusted operating margin was 37.2% and adjusted net income was down less than $1 million, which resulted in adjusted EPS of $0.76. Compared to last quarter, adjusted EPS was down $0.02 due to higher equity-based compensation and operating expenses and higher average shares outstanding. Compared to the same quarter of last year, adjusted EPS increased 31% primarily due to the reduced federal income tax rate as a result of tax reform and higher average assets under management.

The next slide puts expenses in our talent-based model into context. Our financial model is designed to support high value-added investing by providing a predictable and transparent financial outcome for our investment professionals primarily through a gross revenue share and by providing long-term equity-based compensation incentives. While revenue shares has always been our primary form of compensating investment teams, throughout our history, equity alignment has been a critical component of our compensation philosophy. The vast majority of that equity is granted to our investment teams. We view equity grants as a reinvestment in our most important asset: talented people.

Since becoming a public company, we have consistently granted restricted stock awards to our investment teams to reinforce our equity ownership culture. In 2014, we began granting career shares, which generally do not vest until employees qualify [in] retirement from Artisan, which requires 10 years of service with the firm and meaningful advanced notice of intent to retire. Since that time, approximately 1/2 of the shares we have granted to investment professionals have been career shares.

The impact of our equity grants on adjusted earnings per share has been meaningful, but the equity award provides long-term alignment without reducing cash generated from operations or reducing cash available for cash dividends. And as mentioned previously, beginning with the September 2018 quarter, equity-based compensation expense will begin to decline as expenses related to higher grant paid Value Equity awards fully amortize.

The chart on the right reflects the percentage of our total operating expense related specifically to investment management relative to other functions within the firm and relative to overall industry spend. As you can see and tying into Eric's earlier comments, our model focuses our financial resources on our investment talent.

Slide 13 shows our dividend history since 2014. Even as we have continued to reinvest in our talented professionals through equity grants, we have maintained healthy operating margins and cash dividends. The cash generated above and beyond our adjusted earnings per share reflects the noncash nature of equity-based compensation expense. Just as a reminder, we continue to consider evolving towards a variable dividend in the future. For the time being, our board once again declared a quarterly dividend of $0.60 per share, payable through end of August.

The last slide shows our capital management metrics. Our cash position is healthy, and leverage remains modest. Our leverage ratios have improved slightly from last year through increased level of earnings.

That concludes my comments, we look forward to your questions. I will now turn the call back to the operator.

(Operator Instructions) And today's first question comes from Kenneth Lee of RBC Capital Markets.

You mentioned you're still thinking about it, but any incremental update on the thoughts about variable quarterly dividend?

Ken, this is C.J. No. We said we were going to consider that at the end of the year with an eye to, if we made a change, beginning that at the beginning of next year. So we'll take that up at likely the next board meeting or 2.

Got you. And just one more follow-up question. Interesting slide about the development of investment teams towards franchises. When you think about your 3 newest teams, the Credit, Developing World, Thematic, where do you see them in terms of development? And do you expect potential for acceleration of gross sales at some point in their developments?

Sure. This is Eric. I'll take that question. As you look at the franchise development chart, in that early development phase, we find a talented individual and then we work with that individual to build a team, identifying analysts and then help establishing the resources to support the team. And really, we try to spend the first couple of years building that foundation so that you can have that acceleration and that growth occurring in years 3, 4, 5. So we feel the Credit team has built out a strong team and established their track record and we believe, the Developing World, crossing the 3-year track record. Both those teams, in our minds, have built what we deem a realizable capacity, a term that we've used in the past that identifies a new strategy that meets the criteria of centralized research. So it has the asset minimum, has the track record minimum, has the stability, a proven philosophy and process. So those 2 strategies are in a nice spot for acceleration. The Thematic team is in the earlier phase of that at 14-month track record, still needs to build the track record and establish their presence. But I'd say 2 out of the 3 are in a very good spot for acceleration.

And ladies and gentlemen, our next question today comes from Chris Shutler of William Blair.

The performance fees, nice to see those come back into the story. What strategy was that from? And what's kind of the outlook on performance fees?

Yes. So we only have a handful of performance fee accounts. They were in our global ops and Global Equity strategies. We have the opportunity to realize performance fees on 2 accounts in the June quarter and then 2 other accounts in the December quarter. And then we have one account that we can realize on a quarterly basis. So with global ops and Global Equity and -- our outlook for December is a little more modest than we saw in the June quarter. One of the strategies is currently under the high watermark. The other one is trending towards earning a fee at the end of the year.

All right. And then just building on some of the commentary around the Credit team, Eric. It's been in place now for around 4 years, 2 strategies there, including the newer credit opportunity strategy. So where is that team, you think, in its evolution in terms of new strategies? And you talked a bit about getting on platforms but would just love to hear where you think they're at from a product build-out standpoint.

All right. The Credit team, only being 4 years in its history and having 2 team -- having 2 strategies, I think, is ahead of our past teams with regards to number of strategies per team. So we're going to digest that credit opportunity strategy and make sure we're focused on delivering the resources and building an asset base for that specific strategy before we would see a third strategy come out of that team. But the credit space is, I think, more nuanced [than -- there are] more interesting specialty strategies that do come out of credit franchises. So we're investing with Bryan Krug to build out a robust team that can really look across the entire spectrum so that we can capture the degrees of freedom in credit and differentiate the team versus the marketplace. But for now, it's focused on those 2 strategies.

And today's next question comes from Bill Katz of Citigroup.

So a couple of questions. I guess, first one is, Eric, just sort of going back to that sort of slide on Page 2 that has the franchise development. And so my sense is that the 3 newer teams are sort of still in that sort of upcurve of the S cycle if you will, S curve. But I'm still wondering about the legacy book. How -- what do you think that is on this slide here -- on this curve if you will? And how do you sort of see the interplay of sort of asset growth, looking at the totality of the franchise as you look out over the next couple of years?

Yes, certainly, the mature teams, obviously, are at the higher end of that curve. And as we develop talent within those teams, and I think the Growth team is a prime example, which was highlighted in our annual report, is -- that as those teams mature and develop talented investors, we look to build out new strategies not only for capacity development but also for talent growth. And I think that's the primary driver of bringing a mature team back into the sweet spot of, really, business development. We launched a global discovery fund with Jason White, an analyst that became an associate portfolio manager and then a portfolio manager leading the Global Discovery fund. And that's a prime example of working with a mature team and thinking about the marketplace, their talent and where a franchise wants to take degrees of freedom and brings it back down into the growth phase of the curve. So it's not only working with the 3 newer teams. It's spending probably the bulk of our time with the mature teams and managing the talent and strategies for the future.

Okay. And then just a follow-up question maybe for C.J. perhaps or Eric, yourself. You mentioned that you're sort of poised for delivering some incremental scale as the assets [with -- to grow]. I guess that's sort of margin improvement. (inaudible). If you look at your assets year-on-year, you're up about $5 billion or $6 billion, but your margin, I think, is about flattish. And I know some ins and outs associated with that. But again, as you think about that interplay of subsequent growth and maybe fast growth from some new affiliates, new teams and maybe some stickiness on the legacy business, can the margins go up against that backdrop? Just trying to get a better sense of that interplay.

Bill, I'll answer it first on the business operating leverage. The back end of my slide discussed our resource build-out and what we deemed operational alpha. We've built out the operations to handle multiple asset classes, multiple strategies and broader degrees of freedom. And so the business leverage I was referring to was off of that open-source operational platform to handle more breadth of strategies. I'll let C.J. translate that to operating margin.

Yes, Bill. There definitely is more operating margin leverage in the model. We haven't seen the -- what you're talking about there is we've had some additional spend related to the final layer of our equity-based compensation expense. We start to see that decline next quarter. We talked at the beginning of the year about some additional expenses in occupancy and technology related to some office moves and some technology projects. So typically, I think you would have seen a little bit more levered -- some leverage in the increase in AUM but for those things that I just identified.

And our next question today comes from Michael Carrier of Bank of America.

Just a question on -- when I look at the flow trends, and granted, it's 1 quarter, but the industry trends were pretty challenging. I mean, you guys saw improvement. But I think when I look at sort of the U.S. trends versus the non-U. S. client trends, it looks like there is a bit of a shift there, with more improvement here versus outside the U.S., [just] some more weakness. So just, I guess, any insight on maybe what you're seeing in the quarter. And then like has anything shifted when we're thinking about the outlook, I guess, particularly on the U.S. side because that's been more drained versus international?

I don't think there's been any radical shift in the marketplace that we're seeing. We've had more competitive results in the U.S. intermediary channels. We've seen that with some of the newer strategies, and we've managed some of the attrition in that space as well. So I think you've seen a better result primarily because of the intermediary space for U.S. Outside the U.S., we've seen broader growth. We're picking up more clients and building out some of our smaller relationships and continue to believe that the non-U. S. growth will continue, given the product mix we have, primarily the Global Equity, Global Discovery. Our Emerging Markets strategies all fit well for non-U. S. investors, and we continue to see interest outside the U.S. So our focus has not changed quarter-over-quarter.

Okay, got it. And then just a quick one on performance. You guys highlighted some of the new strategies that are performing well and the long-term track records overall. Just on Slide 19, I know you guys [have -- just] the 1-year, 3-year, the performance, a bit weaker. Just when you look across the strategies, anything that's pressuring that versus just, longer term, the views tend to play out and feel confident in making the investment-like process?

Yes. I -- as I mentioned on my remark, that when you get into the granularity of performance on '18 and dig into the numbers, we feel that our performance is very well positioned. Coupled with the capacity we've built and the stability of our teams, that we're competing quite well for all gatekeeper-type searches, someone -- as a consultant, centralized research, where there's high barriers to get in. Our philosophies and process, our -- stability of our teams, and as you can see, the performance broken down by strategies, we believe, are very well positioned. And as we've seen these moments in time, they tend to be good opportunities.

And our next question today comes from Robert Lee of KBW.

[I think] my first question, I'm just curious, Eric, as you -- with the understanding that you'll need to invest massive amounts in distribution resources, and this comes from marketing organization, but have you seen a need to kind of change or maybe shift some of the personnel in distribution? And what I'm -- and maybe the basis of this question is when I look at the legacy Emerging Markets business, 5 good -- 5 year, pretty solid track record, 6, 7-odd years, you had a tough period. But you would think that 5 years of good -- of outperformance, an institutional-friendly process, as you described, is something that presumably consultants would feel a pickup on. And understanding no one wants to be first, but I mean, do you at all feel like maybe the lack of traction in that last couple of years, maybe that -- can we read into that point as to maybe it hasn't been a focus internally for distributors or maybe there's been -- that's been maybe a point of weakness in terms of being able to get better traction with that group?

Certainly, the distribution space, I believe, hasn't changed -- I mean, we've highlighted some of the changes. First and foremost, it's getting the investment mindset and strategies in place, and we've moved towards a "high degree of freedom" orientation to differentiate, to compete. The fight for talent in the environment we're in right now, where you see increased amount of private equity and hedge fund platforms really competing for talent, we've built an operational model that supports the talent to drive alpha. And from a distribution standpoint, you are evolving past a heavily relationship-based distribution model to what I would see more as a knowledge-based distribution model that requires more investment writers, more digital presence to get in the flow of research. And you take that change, coupled with the asset allocation change to passive, I just think you're in a little bit of a lull. We will focus on that more knowledge-based distribution model, but I still think we're very well positioned in our relationships to gather assets for our strategies. But I do agree that there is change going on.

Okay, great. And then maybe as a follow-up for C.J., the thing about the comp -- or equity-based comp. Understanding, as you've said in the past, it's going to trail down as probably some legacy grants roll off. But as we think to the next year, I mean, you have another round, is it more so that the absolute level of comp is going to decline for a couple of years? Or should we kind of see it flatten out more just as the old stuff rolls off, but you're still going to have new grants and eventually the old stuff goes away? So how should we kind of think of the pattern?

Yes. So we finally have reached the high watermark from a grant standpoint now that we have 5 full years of amortization occurring. So the phenomenon now is going to be what is the new -- the delta between the new grant that we award and the old grant that's rolling off. And as you recall, early in our life cycle, our grants in the first few years were in the $50, $60 range, and now our grants are in the low to mid-$30 range. So we're going to have some positive delta here for assuming the same level of grants, and that also plays into it. So I think there's a bit of a positive lean on that, given the stock price. And I would expect that the grant levels would be similar to past grant level, so there should be a forward lean for the next several quarters.

Okay, great. And then maybe just one follow-up, going back to the potential change in the distribution strategy. I understand that, if it happened, it's going to be kind of at year-end or around year-end. But as part of that change -- potential change, I should say, to a variable distribution, is part of the conversation or thought process that, if you moved to that type of distribution, it would make share repurchase a more palatable or a potentially bigger part of your capital management strategy as opposed to just kind of the current dividend strategy where it would eat into that more direct -- more obviously, maybe? But is that kind of playing into the thought process of potentially changing to variable distribution?

Well, I do think, as part of the variable -- the change to a variable policy, our whole capital management philosophy will be discussed, and I certainly think stock repurchase will be part of that discussion. So while we haven't made any decisions, I think we're going to consider our whole capital management policy along with the variable discussion. So I think you're right on target there.

And Rob, this is Eric. We've always viewed our business that we're going to be heavily tied to the markets. And we're looking to build a very durable and sustainable business, so we've opted to have a high variable expense so that we can handle downturns better than most firms. And when we look at the dividend, we think the variable dividend has always been in place when we were private, and we think it fits our philosophical belief better. And that's been the primary driver. And then secondary, there'll be thoughts around the capital allocation that was just discussed. But we just think that it aligns better to our business philosophy.

And our next question today comes from Dan Fannon of Jefferies.

I guess my question is on the newer funds and the ramp. You cited them kind of being in line with the kind of historical patterns you've seen. I was just curious if you could -- when you think about the performance of the Thematic fund, if we could see a ramp faster. Or is this something that -- based on client demand as people chase performance? Or is this something you're kind of more -- monitoring to keep it more with the pace, more steady over time to manage?

Dan, it's Eric. We -- like we've always been focused on building out the foundation of the team, first and foremost. So when a new team comes on, our first mindset isn't let's run around the world and try to get enough money and gather assets so that we can breakeven as fast as possible. Our mindset, the first couple of years, is to really hunker down on making sure that we have the right early performance, the right early talent, that the resources are working well with the teams. So that's our mindset the first few years, and I think that does moderate some of the asset gathering in the early years. It's not a mindset that we just want to control and manage asset flow. As much as it is, we want to make sure that we're resourced properly to deliver alpha, first and foremost. I think the Thematic team is very well set up at this point. We're crossing 1.5 years, and we also have some few months of setup time with the Thematic team. So I think we're well positioned. We are not moderating the asset flow, but we are managing the investment team's time to spend on stock selection, first and foremost, versus just running around to find assets. So I think the Thematic team will pace at the same growth rate that we've seen with past teams, and we're not going to try to accelerate it.

And our next question is a follow-up from Robert Lee of KBW.

I know, Eric, you don't like to generally comment on near-term trends or anything, but just maybe broadly speaking, can you comment on kind of what you're -- how you're seeing kind of institutional activity, RFP activity? I mean, some of your peers -- kind of sounds like a lot of things have been frozen, certainly, last quarter or early into this quarter in terms of decision-making. But can you maybe just give us some color on how you're kind of seeing things currently in the marketplace?

Well, the -- I mean, I think it's back to my comment on change occurring in distribution. The RFP process of 10 years ago has changed radically because of the information age and currently into the digital age, where research and due diligence is done really in a nontransparent way compared to RFPs. Historically, you'd get an RFP, and you were aware of a pipeline. Today, I still think it's the same interest and activity of looking at strategies, but the traditional RFP process is different because of how research is conducted. And this is back to that knowledge-based distribution model, that you have to recognize that there is change and research is being conducted in a different manner. So we're spending time on making sure that we're populating the right information sources and providing video, which you've seen on our website, that gives a view of our teams and how they operate as if you were doing a on-site due diligence. And so someone in Asia, or someone in Europe can analyze our teams as if they were flying to that location. Secondly, in the institutional space -- the large allocation marketplace so that the large public funds and sovereign wealth, we're driving down fees quite a bit on a asset-based fee. And today, you're starting to see more opportunities of performance-based fees. I think a prime example is in Japan with the GPIF announcement of aligning performance for talented asset managers as opposed to looking for large capacity at the lowest fee possible. And that's a very interesting proposition for someone like Artisan that delivers that high value added and manages capacity and looks for alignment of interest with long-term-oriented clients. We've seen more of that movement in the marketplace recently, and I think GPIF is moving in the right direction. So those are my high-level thoughts on your question.

And ladies and gentlemen, this concludes today's question-and-answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.