Variable Interest Entities and Consolidated Investment Products

9 Months Ended

Sep. 30, 2019

Variable Interest Entity, Primary Beneficiary

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Variable Interest Entities and Consolidated Investment Products

Note 6. Variable Interest Entities and Consolidated Investment Products

Artisan serves as the investment adviser for various types of investment products, consisting of both VIEs and VOEs. Artisan consolidates an investment product if it has a controlling financial interest in the entity. Any such entities are collectively referred to herein as consolidated investment products or CIPs.

As of September 30, 2019, Artisan is considered to have a controlling financial interest in three sub-funds of Artisan Global Funds and one Artisan Private Fund. As of September 30, 2019, the aggregate amount of Artisan’s direct equity investment in the consolidated investment products was $31.5 million.

Artisan’s maximum exposure to loss in connection with the assets and liabilities of CIPs is limited to its direct equity investment, while the potential benefit is limited to the management fee and incentive allocation received and the return on its equity investment. With the exception of Artisan’s direct equity investment, the assets of CIPs are not available to Artisan’s creditors, nor are they available to Artisan for general corporate purposes. In addition, third-party investors in the CIPs have no recourse to the general credit of the Company.

Management fees and incentive allocations earned from CIPs are eliminated from revenue upon consolidation. See Note 15, “Related Party Transactions” for additional information on management fees and incentive allocations earned from CIPs.

Third-party investors’ ownership interest in CIPs is presented as redeemable noncontrolling interest in the Unaudited Condensed Consolidated Statements of Financial Condition as third-party investors have the right to withdraw their capital, subject to certain conditions. Net income attributable to third-party investors is reported as net income attributable to noncontrolling interests - consolidated investment products in the Unaudited Consolidated Statements of Operations.

During the nine months ended September 30, 2019, the Company determined that it no longer had a controlling financial interest in one sub-fund of Artisan Global Funds as a result of third party capital contributions. Upon loss of control, the VIE was deconsolidated and the related assets, liabilities, and equity of the fund were derecognized from the Company’s Unaudited Condensed Consolidated Statements of Financial Condition. There was no net impact to the Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2019. Artisan generally does not recognize a gain or loss upon deconsolidation of investment products because the assets and liabilities of CIPs are carried at fair value. Artisan’s $0.9 million direct equity investment was reclassified from investment assets of consolidated investment products to investment securities in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition.

As of September 30, 2019, Artisan held direct equity investments of $15.2 million in VIEs for which the Company does not hold a controlling financial interest. These direct equity investments consisted of seed investments in sub-funds of Artisan Global Funds and Artisan Private Funds, both of which are accounted for under the equity method of accounting because Artisan has significant influence over the funds.

Fair Value Measurements - Consolidated Investment Products

The carrying value of CIPs’ investments is also their fair value. Short and long positions on equity securities are valued based upon closing prices of the security on the exchange or market designated by the accounting agent or pricing vendor as the principal exchange. The closing price may represent last sale price, official closing price, a closing auction or other information depending on market convention. Short and long positions on fixed income instruments are valued at market value. Market values are generally evaluations based on the judgment of pricing vendors, which may consider, among other factors, the prices at which securities actually trade, broker-dealer quotations, pricing formulas, estimates of market values obtained from yield data relating to investments or securities with similar characteristics and/or discounted cash flow models that might be applicable.

The following tables present the fair value hierarchy levels of assets and liabilities held by CIPs measured at fair value as of September 30, 2019 and December 31, 2018:


	Assets and Liabilities at Fair Value
	Total		Level 1		Level 2		Level 3
September 30, 2019
Assets
Money market funds	$	2,844	$	2,844	$	—	$	—
Equity securities - long position	7,281		7,281		—		—
Fixed income instruments - long position	85,883		—		85,883		—
Derivative assets	129		35		94		—

Liabilities

Fixed income instruments - short position	5,476		—		5,476		—
Derivative liabilities	20		—		20		—


	Assets and Liabilities at Fair Value
	Total		Level 1		Level 2		Level 3
December 31, 2018
Assets
Money market funds	$	13,141	$	13,141	$	—	$	—
Equity securities - long position	7,817		7,196		—		621
Fixed income instruments - long position	57,621		—		57,621		—
Derivative assets	735		—		735		—

Liabilities

Fixed income instruments - short position	16,567		—		16,567		—
Derivative liabilities	338		—		338		—

CIP balances included in the Company’s Unaudited Condensed Consolidated Statements of Financial Condition were as follows:


	As of September 30, 2019		As of December 31, 2018
Net CIP assets included in the table above	$	90,641	$	62,409
Net CIP assets/(liabilities) not included in the table above	(20,096)		2,156
Total Net CIP assets	70,545		64,565
Less: redeemable noncontrolling interest	39,033		34,349
Artisan’s direct equity investment in CIPs	$	31,512	$	30,216