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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO



Commission file number: 001-35826
Artisan Partners Asset Management Inc.
(Exact name of registrant as specified in its charter)

Delaware45-0969585
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
875 E. Wisconsin Avenue, Suite 800
Milwaukee,WI53202
(Address of principal executive offices)(Zip Code)
(414390-6100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, par value $0.01 per shareAPAMNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of outstanding shares of the registrant’s Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share, and Class C common stock, par value $0.01 per share, as of October 30, 2020 were 61,425,521, 5,519,415 and 11,630,164, respectively.


Table of Contents
TABLE OF CONTENTS
Page
Part IFinancial Information
Item 1.Unaudited Consolidated Financial Statements
Item 2.
Item 3.
Item 4.
Part IIOther Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Except where the context requires otherwise, in this report, references to the “Company”, “Artisan”, “we”, “us” or “our” refer to Artisan Partners Asset Management Inc. (“APAM”) and its direct and indirect subsidiaries, including Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”). On March 12, 2013, APAM closed its initial public offering and related corporate reorganization. Prior to that date, APAM was a subsidiary of Artisan Partners Holdings.
Forward-Looking Statements
This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements regarding future events and our future performance, as well as management’s current expectations, beliefs, plans, estimates, or projections relating to the future, are forward-looking statements within the meaning of these laws. 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. Forward-looking statements are only predictions based on current expectations and projections about future events. Forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance, actions or achievements to differ materially from the results, level of activity, performance, actions or achievements expressed or implied by the forward-looking statements. These factors include: the loss of key investment professionals or senior management, adverse market or economic conditions, poor performance of our investment strategies, change in the legislative and regulatory environment in which we operate, operational or technical errors or other damage to our reputation and other factors disclosed in the Company’s filings with the Securities and Exchange Commission, including those factors listed under the caption entitled “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 18, 2020, as such factors may be updated from time to time. Our periodic and current reports are accessible on the SEC’s website at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report, except as required by law.
i

Table of Contents
Forward-looking statements include, but are not limited to, statements about:
our anticipated future results of operations;
our potential operating performance and efficiency, including our ability to operate under different and unique circumstances;
our expectations with respect to the performance of our investment strategies
our expectations with respect to future levels of assets under management, including the capacity of our strategies and client cash inflows and outflows;
our expectations with respect to industry trends and how those trends may impact our business;
our financing plans, cash needs and liquidity position;
our intention to pay dividends and our expectations about the amount of those dividends;
our expected levels of compensation of our employees, including equity compensation;
our expectations with respect to future expenses and the level of future expenses;
our expected tax rate, and our expectations with respect to deferred tax assets; and
our estimates of future amounts payable pursuant to our tax receivable agreements.
ii

Table of Contents

Part I — Financial Information
Item 1. Unaudited Consolidated Financial Statements

ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Condensed Consolidated Statements of Financial Condition
(U.S. dollars in thousands, except per share amount)
September 30,
2020
December 31,
2019
ASSETS
Cash and cash equivalents$200,433 $134,621 
Accounts receivable98,420 81,868 
Investment securities6,737 23,878 
Property and equipment, net36,234 39,495 
Deferred tax assets458,698 435,897 
Restricted cash629 629 
Prepaid expenses and other assets14,954 12,688 
Operating lease assets81,902 87,155 
Assets of consolidated investment products
Cash and cash equivalents29,880 9,005 
Accounts receivable and other2,659 1,647 
Investment assets, at fair value151,993 106,736 
Total assets$1,082,539 $933,619 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
Accounts payable, accrued expenses, and other$20,822 $19,926 
Accrued incentive compensation93,913 16,159 
Borrowings199,239 199,103 
Operating lease liabilities95,544 101,154 
Amounts payable under tax receivable agreements385,984 375,324 
Liabilities of consolidated investment products
Accounts payable, accrued expenses, and other59,272 34,156 
Investment liabilities, at fair value13,843 6,186 
Total liabilities868,617 752,008 
Commitments and contingencies
Redeemable noncontrolling interests60,186 43,110 
Common stock
Class A common stock ($0.01 par value per share, 500,000,000 shares authorized, 61,425,521 and 56,429,825 shares outstanding at September 30, 2020 and December 31, 2019, respectively)
614 564 
Class B common stock ($0.01 par value per share, 200,000,000 shares authorized, 5,519,415 and 7,803,364 shares outstanding at September 30, 2020 and December 31, 2019, respectively)
55 78 
Class C common stock ($0.01 par value per share, 400,000,000 shares authorized, 11,630,164 and 13,568,665 shares outstanding at September 30, 2020 and December 31, 2019, respectively)
116 136 
Additional paid-in capital94,745 89,149 
Retained earnings51,715 44,455 
Accumulated other comprehensive income (loss)(1,921)(1,425)
Total Artisan Partners Asset Management Inc. stockholders’ equity145,324 132,957 
Noncontrolling interests - Artisan Partners Holdings8,412 5,544 
Total stockholders’ equity$153,736 $138,501 
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity$1,082,539 $933,619 

The accompanying notes are an integral part of the consolidated financial statements.
1

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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Operations
(U.S. dollars in thousands, except per share amounts)
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020201920202019
Revenues
Management fees$232,474 $202,806 $627,305 $586,070 
Performance fees279 155 11,226 4,580 
Total revenues$232,753 $202,961 $638,531 $590,650 
Operating Expenses
Compensation and benefits108,657 99,847 315,578 300,615 
Distribution, servicing and marketing6,252 5,929 17,155 17,168 
Occupancy6,338 5,214 16,740 18,122 
Communication and technology9,672 9,788 28,559 29,485 
General and administrative4,589 6,635 15,667 21,122 
Total operating expenses135,508 127,413 393,699 386,512 
Total operating income97,245 75,548 244,832 204,138 
Non-operating income (expense)
Interest expense(2,718)(2,760)(8,118)(8,362)
Net investment gain (loss) of consolidated investment products7,798 619 7,751 5,008 
Other net investment gain (loss)578 1,007 (505)4,347 
Net gain (loss) on the tax receivable agreements238 (19,557)238 (19,557)
Total non-operating income (expense)5,896 (20,691)(634)(18,564)
Income before income taxes103,141 54,857 244,198 185,574 
Provision for income taxes18,448 (7,355)44,155 13,571 
Net income before noncontrolling interests84,693 62,212 200,043 172,003 
Less: Net income attributable to noncontrolling interests - Artisan Partners Holdings21,547 20,556 55,791 57,660 
Less: Net income attributable to noncontrolling interests - consolidated investment products4,619 400 4,749 2,360 
Net income attributable to Artisan Partners Asset Management Inc.$58,527 $41,256 $139,503 $111,983 
Basic earnings per share$0.93 $0.71 $2.22 $1.87 
Diluted earnings per share$0.93 $0.71 $2.22 $1.87 
Basic weighted average number of common shares outstanding56,402,50351,448,93855,188,56350,950,618
Diluted weighted average number of common shares outstanding56,408,27251,448,93855,190,48650,950,618
Dividends declared per Class A common share$0.67 $0.60 $2.56 $2.74 

The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Comprehensive Income
(U.S. dollars in thousands)
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020201920202019
Net income before noncontrolling interests$84,693 $62,212 $200,043 $172,003 
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss)794 (580)(492)(662)
Total other comprehensive income (loss)794 (580)(492)(662)
Comprehensive income85,487 61,632 199,551 171,341 
Comprehensive income attributable to noncontrolling interests - Artisan Partners Holdings
21,723 20,400 55,795 57,532 
Comprehensive income attributable to noncontrolling interests - consolidated investment products
4,619 400 4,749 2,360 
Comprehensive income attributable to Artisan Partners Asset Management Inc.$59,145 $40,832 $139,007 $111,449 

The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Changes in StockholdersEquity
(U.S. dollars in thousands)
Three months ended September 30, 2020Class A Common stockClass B Common stockClass C Common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interests - Artisan Partners HoldingsTotal stockholders’ equityRedeemable non-controlling interest
Balance at July 1, 2020
$614 $56 $116 $88,098 $34,562 $(2,539)$4,899 $125,806 $46,027 
Net income— — — — 58,527 — 21,547 80,074 4,619 
Other comprehensive income - foreign currency translation— — — — — 620 174 794 — 
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax— — — (740)— (2)742 — — 
Amortization of equity-based compensation— — — 7,249 — — 1,998 9,247 — 
Deferred tax assets, net of amounts payable under tax receivable agreements— — — 139 — — — 139 — 
Issuance of Class A common stock, net of issuance costs— — — (1)— — — (1)— 
Forfeitures and employee/partner terminations— — — — — — — — — 
Exchange of subsidiary equity (1) — — — — (1)— 
Capital contributions, net— — — — — — — — 9,540 
Distributions— — — — — — (20,923)(20,923)— 
Dividends— — —  (41,374)— (25)(41,399)— 
Balance at September 30, 2020
$614 $55 $116 $94,745 $51,715 $(1,921)$8,412 $153,736 $60,186 

Three months ended September 30, 2019Class A Common stockClass B Common stockClass C Common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interests - Artisan Partners HoldingsTotal stockholders’ equityRedeemable non-controlling interest
Balance at July 1, 2019
$561 $79 $138 $76,944 $29,365 $(2,006)$2,172 $107,253 $38,304 
Net income— — — — 41,256 — 20,556 61,812 400 
Other comprehensive income - foreign currency translation— — — — — (418)(162)(580)— 
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax— — — (627)— (5)632  — 
Amortization of equity-based compensation— — — 7,239 — — 2,738 9,977 — 
Deferred tax assets, net of amounts payable under tax receivable agreements— — — 180 — — — 180 — 
Issuance of Class A common stock, net of issuance costs— — — (1)— — — (1)— 
Employee net share settlement — — (183)— — (71)(254)— 
Exchange of subsidiary equity2 (1)(1)— — — —  — 
Capital contributions, net— — — — — — — — 329 
Distributions— — — — — — (21,828)(21,828)— 
Dividends— — —  (33,869)— (44)(33,913)— 
Balance at September 30, 2019
$563 $78 $137 $83,552 $36,752 $(2,429)$3,993 $122,646 $39,033 
The accompanying notes are an integral part of the consolidated financial statements.


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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Changes in StockholdersEquity
(U.S. dollars in thousands)
Nine months ended September 30, 2020Class A Common stockClass B Common stockClass C Common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interests - Artisan Partners HoldingsTotal stockholders’ equityRedeemable non-controlling interest
Balance at January 1, 2020
$564 $78 $136 $89,149 $44,455 $(1,425)$5,544 $138,501 $43,110 
Net income— — — — 139,503 — 55,791 195,294 4,749 
Other comprehensive income - foreign currency translation— — — — — (346)(146)(492)— 
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax— — — (2,308)— (150)2,458 — — 
Amortization of equity-based compensation— — — 21,628 — — 6,302 27,930 — 
Deferred tax assets, net of amounts payable under tax receivable agreements— — — 8,658 — — — 8,658 — 
Issuance of Class A common stock, net of issuance costs17 — — 62,721 — — — 62,738 — 
Forfeitures and employee/partner terminations— — — — — — — — — 
Issuance of restricted stock awards9 — — (9)— — —  — 
Employee net share settlement(1)— — (3,314)— — (1,215)(4,530)— 
Exchange of subsidiary equity25 (5)(20)— — — —  — 
Purchase of equity and subsidiary equity— (18)— (63,009)— — — (63,027)— 
Capital contributions, net— — — — — — — — 14,768 
Impact of deconsolidation of CIPs— — — — — — — — (2,441)
Distributions— — — — — — (60,245)(60,245)— 
Dividends— — — (18,771)(132,243)— (77)(151,091)— 
Balance at September 30, 2020
$614 $55 $116 $94,745 $51,715 $(1,921)$8,412 $153,736 $60,186 
Nine months ended September 30, 2019Class A Common stockClass B Common stockClass C Common stockAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interests - Artisan Partners HoldingsTotal stockholders’ equityRedeemable non-controlling interest
Balance at January 1, 2019
$541 $86 $142 $97,553 $38,617 $(1,895)$5,443 $140,487 $34,349 
Net income— — — — 111,983 — 57,660 169,643 2,360 
Other comprehensive income - foreign currency translation— — — — — (488)(174)(662)— 
Cumulative impact of changes in ownership of Artisan Partners Holdings LP, net of tax— — — (2,455)— (46)2,501  — 
Amortization of equity-based compensation— — — 24,968 — — 9,431 34,399 — 
Deferred tax assets, net of amounts payable under tax receivable agreements— — — 2,338 — — — 2,338 — 
Issuance of Class A common stock, net of issuance costs— — — (19)— — — (19)— 
Forfeitures and employee/partner terminations   — — — —  — 
Issuance of restricted stock awards10 — — (10)— — —  — 
Employee net share settlement(1)— — (1,470)— — (607)(2,078)— 
Exchange of subsidiary equity13 (8)(5)— — — —  — 
Capital contributions, net— — — — — — — — 2,324 
Distributions— — — — — — (70,152)(70,152)— 
Dividends— — — (37,353)(113,848)— (109)(151,310)— 
Balance at September 30, 2019
$563 $78 $137 $83,552 $36,752 $(2,429)$3,993 $122,646 $39,033 

The accompanying notes are an integral part of the consolidated financial statements.


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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Unaudited Consolidated Statements of Cash Flows
(U.S. dollars in thousands)
 For the Nine Months Ended September 30,
20202019
Cash flows from operating activities
Net income before noncontrolling interests$200,043 $172,003 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization4,967 4,567 
Deferred income taxes23,698 (218)
Asset impairment871 2,107 
Noncash lease expense(1,275)1,668 
Net investment (gain) loss on nonconsolidated seed investment securities642 (3,374)
Net (gain) loss on the tax receivable agreements(238)19,557 
(Gain) loss on disposal of property and equipment(4)131 
Amortization of debt issuance costs304 345 
Share-based compensation27,931 34,399 
Net investment (gain) loss of consolidated investment products(7,751)(5,008)
Purchase of investments by consolidated investment products(130,486)(94,252)
Proceeds from sale of investments by consolidated investment products108,887 53,186 
Change in assets and liabilities resulting in an increase (decrease) in cash:
Accounts receivable(16,555)(23,623)
Prepaid expenses and other assets(4,496)(5)
Accounts payable and accrued expenses78,770 70,708 
Net change in operating assets and liabilities of consolidated investment products13,413 29,392 
Net cash provided by operating activities298,721 261,583 
Cash flows from investing activities
Acquisition of property and equipment(1,372)(2,958)
Leasehold improvements(370)(13,702)
Proceeds from sale of investment securities20,118  
Purchase of investment securities(2,149)(10)
Net cash provided by (used in) investing activities16,227 (16,670)
Cash flows from financing activities
Partnership distributions(60,245)(70,152)
Dividends paid(151,091)(151,310)
Payment of debt issuance costs (308)
Proceeds from issuance of notes payable 50,000 
Principal payments on notes payable (50,000)
Payment under the tax receivable agreements(26,943)(24,998)
Net proceeds from issuance of common stock63,027  
Payment of costs directly associated with the issuance of Class A common stock(220) 
Purchase of equity and subsidiary equity(63,027) 
Taxes paid related to employee net share settlement(4,530)(2,078)
Capital contributions to consolidated investment products, net14,768 2,324 
Net cash used in financing activities(228,261)(246,522)
Net increase (decrease) in cash, cash equivalents, and restricted cash86,687 (1,609)
Cash, cash equivalents and restricted cash
Beginning of period144,255 175,535 
End of period$230,942 $173,926 
Cash, cash equivalents and restricted cash as of the end of the period
Cash and cash equivalents$200,433 $169,558 
Restricted cash629 629 
Cash and cash equivalents of consolidated investment products29,880 3,739 
Cash, cash equivalents and restricted cash$230,942 $173,926 
Supplementary information
Noncash activity:
Establishment of deferred tax assets$46,437 $34,022 
Establishment of amounts payable under tax receivable agreements37,602 29,368 
Increase in investment securities due to deconsolidation of CIPs1,469 946 
Operating lease assets obtained in exchange for operating lease liabilities3,406 3,606 

The accompanying notes are an integral part of the consolidated financial statements.
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ARTISAN PARTNERS ASSET MANAGEMENT INC.
Notes to Unaudited Consolidated Financial Statements
(U.S. currencies in thousands, except share and per share amounts and as otherwise indicated)
Note 1. Nature of Business and Organization
Nature of Business
Artisan Partners Asset Management Inc. (“APAM”), through its subsidiaries, is an investment management firm focused on providing high-value added, active investment strategies to sophisticated clients globally. APAM and its subsidiaries are hereafter referred to collectively as “Artisan” or the “Company”.
Artisan’s autonomous investment teams manage a broad range of U.S., non-U.S. and global investment strategies that are diversified by asset class, market cap and investment style. Strategies are offered through multiple investment vehicles to accommodate a broad range of client mandates. Artisan offers its investment management services primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have long-term investment horizons.
Organization
On March 12, 2013, APAM completed its initial public offering (the “IPO”). APAM was formed for the purpose of becoming the general partner of Artisan Partners Holdings LP (“Artisan Partners Holdings” or “Holdings”) in connection with the IPO. Holdings is a holding company for the investment management business conducted under the name “Artisan Partners”. The reorganization (“IPO Reorganization”) established the necessary corporate structure to complete the IPO while at the same time preserving the ability of the firm to conduct operations through Holdings and its subsidiaries.
As the sole general partner, APAM controls the business and affairs of Holdings. As a result, APAM consolidates Holdings’ financial statements and records a noncontrolling interest for the equity interests in Holdings held by the limited partners of Holdings. At September 30, 2020, APAM held approximately 78% of the equity ownership interest in Holdings.
Holdings, together with its wholly owned subsidiary, Artisan Investments GP LLC, controls a 100% interest in Artisan Partners Limited Partnership (“APLP”), a multi-product investment management firm that is the principal operating subsidiary of Artisan Partners Holdings. APLP is registered as an investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. APLP provides investment advisory services to traditional separate accounts and pooled investment vehicles, including Artisan Partners Funds, Inc. (“Artisan Funds”), Artisan Partners Global Funds plc (“Artisan Global Funds”), and Artisan sponsored private funds (“Artisan Private Funds”). Artisan Funds are a series of open-end, diversified mutual funds registered under the Investment Company Act of 1940, as amended. Artisan Global Funds is a family of Ireland-domiciled UCITS.
Note 2. Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of such consolidated financial statements have been included. Such interim results are not necessarily indicative of full year results.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting and accordingly they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes.
The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. As a result, the interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in APAM’s latest annual report on Form 10-K.
The accompanying financial statements were prepared in accordance with U.S. GAAP and related rules and regulations of the SEC. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates or assumptions.
Principles of consolidation
Artisan’s policy is to consolidate all subsidiaries or other entities in which it has a controlling financial interest. The consolidation guidance requires an analysis to determine if an entity should be evaluated for consolidation using the voting interest entity (“VOE”) model or the variable interest entity (“VIE”) model. Under the VOE model, controlling financial interest is generally defined as a majority ownership of voting interests. Under the VIE model, controlling financial interest is defined as (i) the power to direct activities that most significantly impact the economic performance of the entity and (ii) the right to receive potentially significant benefits or the obligation to absorb potentially significant losses.
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Artisan generally consolidates VIEs in which it meets the power criteria and holds an equity ownership interest of greater than 10%. The consolidated financial statements include the accounts of APAM and all subsidiaries or other entities in which APAM has a direct or indirect controlling financial interest. All material intercompany balances have been eliminated in consolidation.
Artisan serves as the investment adviser to Artisan Funds, Artisan Global Funds and Artisan Private Funds. Artisan Funds and Artisan Global Funds are corporate entities the business and affairs of which are managed by their respective boards of directors. The shareholders of the funds retain voting rights, including rights to elect and reelect members of their respective boards of directors. Each series of Artisan Funds is a VOE and is separately evaluated for consolidation under the VOE model. The shareholders of Artisan Global Funds lack simple majority liquidation rights, and as a result, each sub-fund of Artisan Global Funds is evaluated for consolidation under the VIE model. Artisan Private Funds are also evaluated for consolidation under the VIE model because third-party equity holders of the funds generally lack the ability to divest Artisan of its control of the funds.
From time to time, the Company makes investments in Artisan Funds, Artisan Global Funds, and Artisan Private Funds. If the investment results in a controlling financial interest, APAM consolidates the fund, and the underlying activity of the entire fund is included in Artisan’s Unaudited Consolidated Financial Statements. As of September 30, 2020, Artisan had a controlling financial interest in three sub-funds of Artisan Global Funds and three Artisan Private Funds and, as a result, these funds are included in Artisan’s Unaudited Consolidated Financial Statements. Because these consolidated investment products meet the definition of investment companies under U.S. GAAP, Artisan has retained the specialized industry accounting principles for investment companies in the consolidated financial statements. See Note 6, “Variable Interest Entities and Consolidated Investment Products” for additional details.
Recent accounting pronouncements
Accounting standards adopted as of January 1, 2020
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs will be expensed over the term of the hosting arrangement. The Company adopted the new guidance on January 1, 2020. The Company capitalized $868 thousand of software implementation costs and recorded $40 thousand of related amortization expense during the nine months ended September 30, 2020.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires entities to measure credit losses on financial assets based on expected losses rather than incurred losses. The guidance was effective on January 1, 2020 and requires a modified retrospective approach to adoption. The adoption of this guidance did not have an impact on the consolidated financial statements.
Note 3. Investment Securities
The disclosures below include details of Artisan’s investments, excluding money market funds and consolidated investment products. Investments held by consolidated investment products are described in Note 6, “Variable Interest Entities and Consolidated Investment Products”.
As of September 30, 2020As of December 31, 2019
Investments in equity securities$4,197 $7,543 
Investments in equity securities accounted for under the equity method2,540 16,335 
Total investment securities$6,737 $23,878 
Artisan’s investments in equity securities consist of investments in shares of Artisan Funds, Artisan Global Funds and Artisan Private Funds. The table below presents the net investment income activity related to these investment securities:
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
2020201920202019
Net gains (losses) recognized on investment securities$573 $651 $(642)$3,374 
Less: Net realized gains (losses) recognized on investment securities sold during the period  4,996  
Unrealized gains (losses) recognized on investment securities held as of the end of the period$573 $651 $(5,638)$3,374 

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Note 4. Fair Value Measurements
The table below presents information about Artisan’s assets and liabilities that are measured at fair value and the valuation techniques Artisan utilized to determine such fair value. The financial instruments held by consolidated investment products are excluded from the table below and are presented in Note 6, “Variable Interest Entities and Consolidated Investment Products”.
In accordance with ASC 820, fair value is defined as the price that Artisan would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. The following three-tier fair value hierarchy prioritizes the inputs used in measuring fair value:
Level 1 – Observable inputs such as quoted (unadjusted) market prices in active markets for identical securities.
Level 2 – Other significant observable inputs (including but not limited to quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, etc.).
Level 3 – Significant unobservable inputs (including Artisan’s own assumptions in determining fair value).
The following provides the hierarchy of inputs used to derive fair value of Artisan’s assets and liabilities that are financial instruments as of September 30, 2020 and December 31, 2019:
Assets and Liabilities at Fair Value
TotalNAV Practical Expedient (No Fair Value Level)Level 1Level 2Level 3
September 30, 2020
Assets
Money market funds$70,854 $ $70,854 $ $ 
Equity securities6,737 50 6,687