Variable Interest Entities and Consolidated Investment Products

3 Months Ended

Mar. 31, 2020

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 March 31, 2020, Artisan is considered to have a controlling financial interest in two sub-funds of Artisan Global Funds and one Artisan Private Fund, with an aggregate direct equity investment in the consolidated investment products of $26.7 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 14, “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 three months ended March 31, 2020, 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 three months ended March 31, 2020. 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. Upon deconsolidation, Artisan’s $1.5 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 March 31, 2020, Artisan held direct equity investments of $2.0 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 March 31, 2020 and December 31, 2019:


	Assets and Liabilities at Fair Value
	Total		Level 1		Level 2		Level 3
March 31, 2020
Assets
Money market funds	$	5,146	$	5,146	$	—	$	—
Equity securities - long position	4,326		4,326		—		—
Fixed income instruments - long position	84,974		—		84,974		—
Derivative assets	331		331		—		—

Liabilities

Fixed income instruments - short position	$	3,514	$	—	$	3,514	$	—
Derivative liabilities	141		141		—		—


	Assets and Liabilities at Fair Value
	Total		Level 1		Level 2		Level 3
December 31, 2019
Assets
Money market funds	$	5,005	$	5,005	$	—	$	—
Equity securities - long position	9,933		9,933		—		—
Fixed income instruments - long position	96,681		—		96,681		—
Derivative assets	122		22		100		—

Liabilities

Fixed income instruments - short position	$	6,005	$	—	$	6,005	$	—
Derivative liabilities	181		—		181		—

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


	As of March 31, 2020		As of December 31, 2019
Net CIP assets included in the table above	$	91,122	$	105,555
Net CIP assets/(liabilities) not included in the table above	(27,180)		(28,509)
Total Net CIP assets	63,942		77,046
Less: redeemable noncontrolling interest	37,223		43,110
Artisan’s direct equity investment in CIPs	$	26,719	$	33,936