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Hello and thank you for standing by. My name is Andrew, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, management will conduct a question-and-answer session, and conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. [Operator Instructions]
At this time, I will turn the call over to Makela Taphorn, Director, Investor Relations for Artisan Partners Asset Management.
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. Our latest results and investor presentation are available on the Investor Relations section of our website. Following these remarks, we'll open the line for questions.
Before we begin, I'd like to remind you that the comments made on today's call, including responses to your questions may deal with forward-looking statements, which are subject to risks and uncertainties. These are presented in the earnings release and detailed in our filings with the SEC. We are not required to update or revise any of these statements following the call.
In addition, some of the remarks made on today's call will make reference to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release.
With that, I'll now turn the call over to Eric Colson.
Thank you, Makela, and thank you all for joining the call or reading the transcript. At Artisan Partners, we bring together the consistency of who we are, constant change and patients. Slide 1, which we include in every presentation, summarizes who we are, the consistency of our philosophy and model for over 25 years. We are a high value-added investment firm designed for investment talent to thrive and committed to thoughtfully growing over the long term.
Over our history, we have remained true to these foundational business elements. While we are consistent in who we are, we also use judgment to navigate change and grow over the long term. Responding to evolving asset allocations we have added degrees of freedom and generated portfolios and outcomes that are less easily replicated. In order to maintain an ideal home for investment talent, we invest in technology, data and infrastructure to support high value-added investing.
To find the right clients on the right terms, we regularly evolve our leverage distribution model to include institutions, consultants, financial intermediaries, and non-U.S. regions. And to increase the sustainability and flexibility of our human capital business, we evolve our capital structure over time, while retaining a variable P&L model that itself provides consistency, predictability and stability.
With these changes and many others, we have always remained patient. We have never felt compelled to be first to market. We prefer to observe and to determine which changes will become long-term trends that fit who we are as an investment firm. We are willing to take an incremental approach in order to avoid mistakes. We call this process bringing together who we are, constant change and patience, dynamic consistency.
Turning to Slide 2. Our firm's purpose is to generate and compound wealth for our clients. On the left, you can see our long-term results. Since inception, 16 of 17 strategies launched prior to 2020 have added value relative to their benchmarks after fees. 12 strategies have outperformed by an average of more than 300 basis points per year since inception after fees.
We have generated long-term alpha over multiple teams, asset classes and time periods. We have sought the right clients on the right terms to build a durable client base. Our performance, relationships, and brand positioned us well coming into 2020, a year of historic uncertainty, turmoil and volatility.
During the year, we generated over $30 billion of investment returns for our clients. Approximately $11.3 billion of the $30 billion were returns in excess of benchmarks. We once again demonstrated the value of active management at Artisan Partners.
Slide 3 shows our business performance in 2020 across teams, market returns, excess returns and organic growth. We manage long-term investment performance, sustainable investment strategies, long duration relationships, capacity management, fee discipline and a trusted brand. When these elements are managed together over the long term, not just focusing on one factor at all costs, exceptional outcomes can result.
The aggregate is a balance of consistency, change in patience, consistency of people and long-term performance, change to develop and launch new strategies, patients in performance cycles and capacity management.
With our value-oriented teams, we demonstrated these traits in 2020, launching new strategies and managing a strong client base. We focus on the long term. We avoid overreacting to short-term trends. Our firm-wide flows were positive in 2020 because of years of high value-added investment returns, stable investment talent, our trusted brand and long-term relationships.
Our flows resulted from multiple long-term investments and efforts across our firm. We did well in 2020 because we have done well for 25 years. Over long time periods, we methodically build out our investment firm, change overtime and remain patient, outcomes follow.
As we have grown, we have continued to maintain a high-quality leverage distribution model. Our model supports and complements our investment first culture. We don't require a large fixed sales infrastructure. We avoid pressuring our firm to manufacture fat products and retain flexibility to hire great investors and retain them over their entire careers.
Moving to Slide 4. We continue to invest in our business in 2020. We launched the Select Equity and International Small Cap Value strategies, and we are in the process of building out an investment group focused on post venture investing in Greater China, including public and private equity investments.
We expect to launch the China post venture strategy in the near future. These moves exemplify dynamic consistency. 25 years ago, Artisan partners recruited Mark Yaki to join the firm and launch the Artisan non-U.S. growth strategy. At that time, U.S. investors were under allocated to non-U.S. companies relative to the size of the global economy.
We believe allocations to non-U.S. equities would grow over time and investment style would also be applied outside the U.S. There were relatively few managers offering non-U.S. growth-oriented strategies. Talent was scarce. And there were a limited number of firms set up to invest and operate outside of the United States.
Artisan Partners identified the opportunity and non-U.S. investing has fueled much of the firm's growth over the ensuing 25 years. Today, we see a similar opportunity with respect to China for existing and future investment teams. We believe the gap between Chinese share of GDP and the share of global assets allocated to Chinese equities will close over time as investors increase exposure to the Chinese growth story.
Similarly, we believe that private investing is a long-term secular trend. The availability of capital allows businesses to remain private longer. Relative to the past, a greater portion of value creation is taking place outside public markets. Neither of these long-term trends is new. Many of our teams have invested in Chinese companies for years. Most recently, Lewis Kaufman and the developing world team have emphasized Chinese companies in their portfolio, generating exceptional returns for clients.
We have been patient as these changes have occurred, we have waited for the trends to cement, and we have waited to find the right investment talent. With the China post venture strategy, we are taking our next incremental step into both China and private investing.
Turning to Slide 5. Since our firm's founding 25 years ago, we have always had a strong equity culture. Throughout our history, both as a private and public company, we have regularly awarded equity for value creation, with the lion's share going to investment professionals.
Our equity awards have always been long duration and have always incentivized our investment professionals to plan for a constructive departure from the firm at the end of their career. But the form of awards has changed over time as the firm has evolved and as our people have evolved.
Our 2013 IPO created liquidity for partners and allowed us to use restricted shares for long-term incentives which are more transparent, easily valued and allow us to spread equity more broadly compared to pre-IPO partnership interests.
In 2014, we added career vesting to 50% of the awards made to senior leaders who are investing creates long-term alignment between our senior leaders and our clients and shareholders. Things are not static. Our firm has continued to grow and diversify, which reduces the relationship between any one investment team's performance and the firm's overall performance.
In order to provide more consistency, predictability and objectivity to our long term incentives, this year, we have replaced some of our equity awards with franchise capital awards. These are cash-based awards made to investment teams equal to approximately 4% of the team's prior year revenues.
The awards have the same vesting rules as restricted shares. Prior to vesting, though, the majority of the franchise capital will be invested in the investment team strategy, not the firm stock, further enhancing alignment between our investment professionals and our clients.
We continue to determine the overall size of our annual awards to align our value creators with the firm and our clients, as we have done for 25 years. The overall size of this year's award was based on the value produced in 2020 and consistent with the size of prior grants.
I will turn over to C.J. to discuss our financial results.
Thanks Eric. In the calendar year ended December 31, 2020, our results were driven by exceptional investment performance across most of our strategies, strong net client cash inflows as well as increases in global market indices.
As a result, as illustrated on Slide 7, our AUM during the year increased $37 billion or 30% to $157.8 billion. Net client cash inflows for the year were $7.2 billion, a 6% organic growth rate, not including distributions that were not reinvested in our U.S. mutual funds.
Investment returns in excess of benchmarks also contributed meaningfully to AUM growth and added over $11 billion in AUM. Net client cash inflows were driven by existing and new clients and were diversified across strategies, with 16 of our 19 strategies gathering net new AUM for the year.
For the quarter, AUM growth was also strong, up 17.5% and net client cash inflows were $2.1 billion. This quarter, within our AUM roll forward, we began to break out the change in AUM due to Artisan funds distributions not reinvested. This amount represented a $594 million decline in AUM during the quarter and a $690 million decline for the full year.
Our AUM by generation is presented on Page 8. I'll highlight a couple of items. Investment returns include strong excess returns across all three generations. Our second and third generation strategies had $10.8 billion of net client cash inflows in 2020, and AUM in these two generations now represents over 50% of total AUM.
While our first-generation strategy experienced outflows for the quarter and year, AUM increased meaningfully, highlighting the compounding effect of market returns and alpha generation. Financial results for the quarter and year-to-date periods are presented on the next two pages.
Starting with quarterly results, revenues grew 12% compared to the sequential quarter and 25% compared to the fourth quarter of 2019 due to higher average AUM and an increase in performance fees in 2020.
Operating expenses increased 9% sequentially as variable incentive compensation expense increased as a result of revenue growth. Year-over-year operating expenses increased 14% due to higher incentive compensation paid on increased revenues, partially offset by lower travel costs in 2020 as our employees adapted to work-from-home requirements.
As a result, fourth quarter operating income grew 17% sequentially and 43% year-over-year, and our operating margin was 43.5%. Adjusted net income per adjusted share grew 18% to $1.06 compared to the third quarter of 2020 and rose 41% compared to the December 2019 quarter.
Annual financial results are on Page 10 and reflect the same themes as the quarterly results I just highlighted. Revenues increased 13% compared to 2019, primarily due to an increase in average AUM and higher performance fees.
Operating expenses increased 5%, primarily due to higher variable incentive compensation expense partially offset by COVID related cost reductions and lower equity-based compensation expense.
Operating income rose 26% to $358 million our operating margin increased 430 basis points to 39.8%. Adjusted net income per adjusted share was up 25% to $3.33. Our balance sheet remains healthy as modest borrowings are supported by strong cash flows.
As Eric indicated, we have evolved our long-term incentive program from solely grants of Artisan equity to grants of both equity and long-term cash awards, which we refer to as franchise capital.
Page 12 highlights the grand history of our long-term incentive compensation awards. A couple of points related to our long-term incentive comp program. Each year, we have consistently granted long-term incentive compensation to our key professionals. Approximately 90% of those grants have been directed to our investment talent.
Historically, awards have consisted solely of Artisan restricted share awards. The aggregate awards granted each year are determined based on the firm's value creation for clients and shareholders over the preceding year. The 2021 grant was sized similarly to 2013 and 2014, reflecting the premium value created in those periods.
The grant of franchise capital awarded in 2021 replaced Artisan restricted share awards that would have been granted and approximates 4% of management fees revenues, generated in 2020. We generally expect future awards of franchise capital to approximate 4% of the prior calendar year management fee revenues with the remainder of the grant to be awarded an Artisan restricted shares.
The economic impact of the 2021 award is discussed on Slide 14. The $79.5 million grant consists of both standard five-year vest awards and career vest awards. The amortization of both Artisan restricted share awards and Franchise Capital awards will be combined in a single line item within compensation benefits and labeled long-term incentive compensation.
Long-term incentive compensation expense will be approximately $45 million in 2021. Our first quarter will reflect a prorated amortization expense of approximately $11 million. The impact of the underlying investment gains and losses on long-term compensation expense and non-operating income will be excluded from adjusted operating income and adjusted per share earnings.
Since the Franchise Capital awards are cash awards, the use of cash to fund the program will reduce the amount of cash available for quarterly and special cash dividends. We expect that the net effect of using cash to fund Franchise Capital awards and reducing the number of restricted share awarded in the future will be neutral to the total return to shareholders over the long term.
2021 Franchise Capital awards will be funded with a portion of cash generated in 2020, reducing the special dividend to be paid this month. Beginning in 2021, we will reserve 4% of our management fee revenues each quarter, and this cash reserve will be used to fund the next year's Franchise Capital award.
We intend to continue to pay out 80% of the cash generated in a quarterly cash dividend. The cash generated will now be reduced by the amount of cash reserved for future franchise awards.
After considering the cash needed to fund the initial Franchise Capital awards and other strategic uses of cash, our Board of Directors declared a cash dividend to shareholders of record on February 12 of $1.28 per share. This represents a variable quarterly dividend of $0.97 and a special annual dividend of $0.31 per share.
Total cash dividends declared with respect to 2020 cash generated were $3.39, which represents a payout of approximately 90%, the cash generated in 2020. The fourth quarter dividend of $0.97 per share represents an approximate 8% annualized dividend yield before consideration of the special dividend.
Looking forward into 2021, our financial model continues to serve us well and provides predictability and sustainability to weather ever-changing global market conditions. With AUM levels at December 31, 2020, 26% ahead of average AUM in 2020, we have a strong forward lien on revenue growth to begin new fiscal year.
Approximately 60% of our operating expenses vary directly with revenue, and we'll adjust with revenue changes. Those variable expenses are primarily incentive compensation and third-party distribution costs.
Certain expenses, primarily travel, are expected to remain lower compared to historical norms as a result of continued travel restrictions and work from home arrangements. Occupancy expense will trend $1 million or so higher in 2021, reflecting two new office locations.
Other fixed expenses should grow mid-single digits reflecting continued investments in distribution, marketing and operational capabilities. Before closing, just a reminder that in the first quarter of each year, a portion of our employee partners pre-IPO equity becomes eligible for sale.
In total, together with shares eligible for sale from former employee partners, approximately 5.7 million shares held by current and former employee partners are eligible for sale in the first quarter of 2021.
Partners are not required to sell any shares. We don't know how many shares they will choose to sell. Depending on the level of interest and selling, we may execute a coordinated sale for some portion of these shares.
That concludes my remarks, and I will now turn the call back to our operator for Q&A.
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Dan Fannon of Jefferies. Please go ahead.
So I guess my first question is on Franchise Capital and kind of the new compensation that you announced, so curious around timing as to why now kind of making this shift? And then were your investment professionals not allocating money or being paid at all or have any investment in their funds currently. So to something maybe from consultants or other asset allocators that was something that they view would be a positive to potentially more asset growth or better outcomes coming going forward?
Dan, this is C.J., I'll take that one. First, our key investment professionals already have significant holdings in their funds. So, it was not anything driven other than our desire to continually evolve the firm as we grow and people mature.
We've aligned our long-term incentive comp over the years to clients and shareholders. We've made changes to that back when we gain public, and we introduced career shares as well as restricted shares at the IPO. So, the why now was really just a matter of us continually wanting to evolve and improve the security.
Got it. Okay. And then just from an economic perspective, as we think about modeling, if we look at Slide 12 and the kind of $79.5 million that you're talking about for the long term incentive. How does that compare to 2020? So the $34.2 million just thinking about -- just from the income statement. So you booked equity base comp of $36.5 million in 2020. So if we layer on what you're going to be allocating, what is the 2021 impact, I guess, compared to what we saw in 2020?
Yes. So as you know, these all have five-year vests. Historically, we've been -- our annual amortization expense has been between 4% and 6% of revenues. We don't have any sort of magic formula as to sizing of these as just sort of an assessment of how we have created value that year. You can see that in 2013 and 2014, this year's grant was similar to those years in which we -- there was a lot of value created for clients and shareholders.
The last five years have been less successful from an asset growth, both organic as well as market. This year was exceptional. And so when you think about amortization for 2021, based on a current AUM run rate of revenues, we'll still be on that low end of that 4% to 6% where we had historically been. So sizing is somewhat within a range based on value creation, but no specific formula.
The next question comes from Bill Katz of Citigroup. Please go ahead.
Okay, so just one more question on expenses. Does your sort of guidance for this year factor in some of the spending that you spoke to earlier in terms of the China and the private market opportunity? Or would that be above and beyond? And then within that, how are you thinking about maybe the normalization of travel and entertainment through 2021, if at all?
Yes, good question. It does factor in everything that we're working on today. What it would not factor in is, if there's a new team that we were to bring on beyond the China post-venture group. With respect to other expenses, that really depends on when we get back to normal. And so, I would expect a similar level of travel and G&A expenses in the $5 million to $6 million range a quarter, which is down from the $7 million to $8 million pre-COVID that we were running until we get back to normal and whether that happens in the summer or the fall remains to be seen.
The other thing that I should mention is that we always do have in the first quarter a spike in expenses due to seasonal expenses. We would expect that to be somewhere in the $4-ish million range in compensation as a result of reset of 401(k) health fundings and payroll tax contributions and then about $1 million down in G&A for our non-employee director comp. So other than that, I think I've sort of identified everything that we could have any insights into.
Okay, great. And just my follow-up, maybe for Eric, just going back to the flows, and I appreciate they're more of a fallout of the investment process. But as you look to '21, can you sort of speak to where you stand in some of the momentum on the Gen 3 portfolios? And then anything on the Gen 1 or Gen 2 that's starting to buck up against any kind of capacity constraints?
Yes, certainly, as you know, we do manage capacity quite diligently. And we've seen a lot of velocity and flows, which you see in the gross flows of both in and out. And we see some evolving mix as well and we're also very cautious of the total capacity. And we think about the long duration orientation of clients that we use that capacity with. So with a few strategies, more notably on the growth side with the small cap growth, and the global opportunities, so you're straddling a couple of generations there. Those two are very mindful in managing the mix in the flow there.
And with regards to the third generation, we've seen a pretty successful year, last year, across many of the strategies. I think as they showcasing the design of those strategies and how they fit in long-term asset allocation, we're still seeing great interest in those and we continue to field questions around new strategies that we're launching as well. So the third generation, we're still seeing strong interest.
The next question comes from Alex Blostein of Goldman Sachs. Please go ahead.
I wanted to dig a little more into the franchise awards and just kind of think about to your point earlier kind of trying to align, the words with a value for all the constituents, including the shareholders. So if you guys are aiming to do sort of 4% reserve on just management fees, how should we think about that overtime, so it feels like value creation is really an alpha dynamic and maybe organic growth dynamic versus beta? So in a year what they able to really strong, just index performance, equity market performance, could that 4% be lower because of the sort of inflation you're getting on the revenue side or 4%?
The 4% is sort of to put some predictability and transparency into the sizing of the franchise award and the APAM equity would be in addition to that to get to the total grant that we would have made, if we had not introduced franchise capital. Most of our, all of our key investment professionals have already significant, APAM equity, or on their way to getting APAM equity. And our objective is to provide substantial alignment both in APAM equity, again, which most of them already have, as well as, directly with clients and their funds, provide a balanced outcome for them over the life of their career.
But I guess is the methodology in terms of the grant predicated more on alpha and organic growth or just total management fees?
Total management fees.
And then, the follow-up just maybe around capital management, with the new structure in place, maybe just a quick reminder. What they go forward annual share creep, I guess, is expected to be into what extent you guys are planning to offset any of that with share repurchases?
We're not really considering a share repurchase program. The effect of introducing franchise capital really is less dilution. So, the same outcome as a share repurchase plan. So -- and there is no -- as I explained the way we think about the total award, the first 4% will be Franchise Capital and the rest will be a PAM equity. So giving you any directional what the dilution would be hard because we'd have to have insights into the size of the ground. I think the amortization on an annual basis of between 4% and 6% of revenues is what we've historically done, and I would expect that we would remain in that sort of range.
The next question comes from Robert Lee of KBW. Please go ahead.
Thanks for taking my question. Maybe just sticking with the Franchise Awards, should we be thinking that kind of similar to when you first went public, there's maybe a little bit of kind of compounding at least in the next couple of years once you issue next year's award, you'd see incentive comp maybe step up a little bit again and then take a couple of years to kind of normalize for lack of midway funding it, particularly since the last couple of years or maybe awards were below average. Is that a fair way to think about it?
I mean, first off, there was a ramp-up when we went public in the amortization expense because of a 5-year vesting and in the first year that we went public, we had one grant and only 20%. So every year, we ramped up to get -- after five years, we had a fully loaded amortization expense.
In this instance, you should not at all think about of a ramp-up. You should think about if we continue to have premium years, you would see a ramp-up just because we'd be granting more at the level of this year's grant than the prior five years grants where the firm was not where AUM was fluctuating in a band probably between $95 billion and $120 billion.
And so this year, we've had a breakout of that and both from organic growth, investment performance as well as markets. So that, in our mind, is a premium year. So, the grant -- it all depends on the grant sizing.
Okay. Fair enough. And then maybe shifting gears to flows in business. So, there was such a marked increase in gross sales this year, both in funds and separate accounts. And maybe particularly on the fund side, I know you've talked about expanding distribution investments you've made, but it's possible to drill down a little bit more where there specific channels that really kind of drove it, I don't know if maybe they were specific programs you got into that -- almost like a big it turned on at the beginning of the year and flows just ramped. So I'm just trying to see, if it's possible to kind of tone down more some better color on what specifically really drove that?
Rob, it's Eric. I think we've mentioned this over the years quite a bit that we've stated that flows would be lumpy. And that, as you manage a very consistent investment centric firm, that's not managed just for quarter-to-quarter flow or a distribution mindset that we've always expected and hopefully have signaled that flows would be lumpy and so that's what occurred last year.
I think the flows were a bit enhanced given the environment we were in. Clearly, many existing clients reallocated to us as well as individuals or institutions that were doing due diligence on us and had a good knowledge base about Artisan allocated dollars. And so given the environment, given our performance and the only -- something new for the last year and I think a lot of firms did this is just pivoted a little bit more to using digital tools.
I would state that we've kind of looked at it as a more of a knowledge-based distribution system of how to think about a client journey. And we've been spending time on our CRM that we put in a few years ago. We've spent time on adding more riders and thinking about more content. So we've created a blog this last year. We've gotten some great hits on that. One very powerful one we did back in October was a piece on value versus YOLO investing.
We also added some videos and started doing interviews with corporate and company management of investments and package that content. And we've delivered that through e-mail and website, social media, including our blog that I mentioned. And so the interaction has been quite nice, even during this period of limited travel. And given the long-term relationships and the new ways of delivery, I think that all came together.
Next question comes from Chris Shutler of William Blair. Please go ahead.
Eric, just curious to get your take on growth versus value at this stage in the cycle, and what are you seeing from your institutional clients? are you seeing any kind of early signs of rotation into value? And then what has that meant? Or what do you think it will mean for rebalancing activity over the next quarter or two?
Yes. Certainly, last quarter, obviously, you saw rotation and performance with value outperforming small-cap come back as well. And you saw a non-U.S. outperformed the U.S. last quarter with emerging markets leading the way. So, you did have a rotation there and you're coming into the beginning of the year when people do think about rebalancing.
I think you can see the flows that we saw in our value strategies. And there is a bit of rebalancing there. I don't think we've seen a massive amount. I think people still think it's early in the potential rebalancing, but this is why you -- and we think about an array of differentiated teams that are all operating autonomously to provide that diversity to the firm.
And so if there is a rotation, we are going to be very well positioned with our value suite of strategies. They're positioned well against peers. They have a good reputation and asset base and performance across many of them are keeping up with the broad benchmark and doing well against their value peers. So if rotation does come, we're quite ready to capture that.
Okay. And then one specific one, just on the China strategy that you're going to be launching soon, I just want to clarify. So is that a, I think, it is a crossover strategy investing in both public and privates? And just any more broad color on the investment strategy there would be helpful.
No, I appreciate the question there. It's I think it's a great opportunity for the firm. As I mentioned, on the more prepared remarks is that we've all seen China grow. And you've seen, I think, more allocators look at the asset allocation. There's a growing talent pool that's focused on this space, but I think very limited from an institutional orientation. The strategy design is to capture the degrees of freedom that have been growing in the marketplace and staying ahead of the curve.
So it is a crossover fund that does use private companies. I think our non-U.S. distribution has broadened out, both in Europe, Australia, Middle East and this will give us a nice view into Asia, specifically China, as we broaden that out. And our operations are quite ready to take on the crossover funds. So, we feel very well poised to expand in many, many forms, not just with this team or the strategy, but across the organization.
I think most people as we said -- I said earlier, was the -- it's not new, but most people just jump when China is growing, and they create product and it's led by distribution. We look for the balance of all these pieces that come together, and we think it's the time for us to move forward with the post venture fund that we're putting in place. Hopefully, that gives you a little bit more background on it.
Yes, that helps, Eric. Will some of your other teams also be launching strategies that invest in private companies?
Certainly, I think the way we've been broadening out the organization with various teams that do add degrees of freedom, it provides the opportunity for all the investment teams to leverage those degrees because the Company has built the infrastructure to handle that. And there's just a definitely growing interest into private debt, whether private equity.
You've seen a little bit more interest around use of derivatives when we brought in the Antero Peak team. And as each team comes in, we broaden out the firm. It goes across the entire organization and can be leveraged across each individual team and the organization. So, we would expect a greater use of privates across many of our teams.
The next question comes from Kenneth Lee of RBC Capital Markets. Please go ahead.
Thanks for taking my question. Just one on Franchise Capital. Aside from the direct impact of cash for the Franchise Capital awards, wondering if you could just share with us any longer-term implications for the dividend policy down the line?
Yes. No, there's -- our philosophy hasn't changed. Again, Franchise Capital is just a replacement for use of APAM equity. So, there will be less dilution offset by less cash. And I think it's -- there aren't any other implications. The accounting is the same. All of the forfeiture investing provisions are the same, so it's just a different security.
Got you. And just one quick follow-up, if I may. What's sort of like the current outlook for potentially adding new investment teams over that near term? Thanks.
Yes. There's clearly an uptick around our teams that we talk to and are interested in. And usually, that happens around bringing on a new group. It happened when we brought in the credit team and many individuals didn't think we would go into the credit markets to bringing in Antero Peak and launching a long short and clearly bringing in Tiffany and launching a crossover fund that's focused in China, brought in interest of individuals that may operate in Asia to individuals that are thinking about crossover strategies. So, the new team and each new step on that broadens the pool of candidates that we talk to, but there's no new groups or teams that were willing to talk about or in the near-term here.
And the next question comes from Mike Carrier of Bank of America. Please go ahead.
C.J., just a clarification on the new franchise awards, but I may have missed it. But what will determine like the mix between the equity awards versus the franchise awards each year?
Yes. So, the franchise awards are targeted at 4% of the management fees and then any additional grants would be in APAM equity. So I would just -- not that it changes your model, but just for your information, I would start with 4% of franchise and then based on the year, the rest of the sizing of the ground will be in APAM equity.
Got it. Okay. And then Eric, just given your comments on the opportunities in China and private markets. Just curious, like do you see more opportunities I'm bringing on like additional teams in talent, specifically in these areas? Or is it tougher just given the level of competition? And is there more focus on organically launching new products, given that a lot of the teams are already looking at some of these private investments?
Yes. If you're looking at the near term, launching or expanding degrees of freedom within our current teams and franchises as higher likely would versus going out into the marketplace and bringing on a de novo team and that just takes time and development of to get comfortable with that talent in the marketplace.
So, I think you'll see expansion of the degrees of freedom across a few of our franchises over the near term and the uptick in talent out there. And given the stability and success of our model, we feel quite capable and competitive in the marketplace to attract the talent that it's who we are.
This concludes both the question-and-answer session and today's Artisan Partners Asset Management business update and earnings call conference. Thank you for attending today's presentation. You may now disconnect.