Hello. Thank you for standing by. My name is Andrew. 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. Conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. If you require operator assistance, please press star then zero. 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 patience. Slide one, 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. 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 two, 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 three 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, and patience. Consistency of people and long-term performance, change to develop and launch new strategies, patience 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 over time, 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 fad products and retain flexibility to hire great investors and retain them over their entire careers. Moving to slide four. We continued 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 Yockey 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 believed 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're taking our next incremental step into both China and private investing. Turning to slide five. 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. 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, where vesting 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's strategy, not the firm's 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 now 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 seven, 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 eight. 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. AUM in these two generations now represents over 50% of total AUM. While our first generation strategies 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, and 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 grant 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 in 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 shares 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 12th 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% of 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 lean on revenue growth to begin the new fiscal year. Approximately 60% of our operating expenses vary directly with revenue and will 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 operations 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 in 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. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. To allow time for other questioners, please limit yourself to a total of two questions. At this time, we will pause momentarily to assemble our roster. The first question comes from Dan Fannon of Jefferies. Please go ahead.
Thanks, good morning. I guess my first question is on franchise capital and the new compensation that you announced. Curious around timing as to why now you're making this shift. Were your investment professionals not allocating money or being paid at all or have any investment in their funds currently? Just something maybe from consultants or other asset allocators that was something that they viewed would be a positive to potentially more asset growth or better outcomes going forward.
Hey, Dan, it's CJ. I'll take that one. First, our key investment professionals already have significant holdings in their funds. 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 came public and we introduced career shares as well as restricted shares at the IPO. The why now was really just a matter of us continually wanting to evolve and improve the security
Got it. Okay. Just from an economic perspective, as we think about modeling, if we look at slide 12 and the $79.5 million that you're talking about for the long-term incentive, how does that compare to 2020? The $34.2, just thinking about it from the income statement. You booked equity-based comp of $36.5 in 2020. 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?
Yeah. As you know, these all have five-year vests. Historically, 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. That is 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 sized similar to those years in which 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. 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%-6%, where we have historically been.
Sizing is somewhat within a range based on value creation, but no specific formula.
Okay. Thank you.
The next question comes from Bill Katz of Citigroup. Please go ahead.
Okay. Thank you very much. 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? Within that, how are you thinking about maybe the normalization of travel and entertainment through 2021, if at all?
Good question. It does factor in everything that we're working on today. What it would not factor in is if there's any 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. I would expect a similar level of travel and G&A expenses in the $5 million-$6 million range a quarter, which is down from the $7 million-$8 million pre-COVID that we were running, until we get back to normal. 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 a 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. Other than that, I think I've sort of identified everything that we could have any insights into.
Okay, great. This is my follow-up maybe for Eric. Just going back to the flows, I appreciate they're more of a fallout of the investment process. As you look to 2021, can you sort of speak to where you stand in some of the momentum on the Gen 3 portfolios, anything on the Gen 1 or Gen 2 that's starting to buck up against any kind of capacity constraint?
Yeah, certainly. As you know, we do manage capacity quite diligently. We've seen a lot of velocity in flows, which you see in the gross flows of both in and out. We've seen some evolving mix as well, and we're also very cautious of the total capacity. We think about the long duration orientation of clients that we use that capacity with. With a few strategies, probably more notably on the growth side with the Small-Cap Growth and the Global Opportunities. You're kind of straddling a couple of generations there. Those two are very mindful in managing the mix and the flow there. With regards to the third generation, we've seen a pretty successful year last year across many of the strategies. I think 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. The third generation, we're still seeing strong interest.
Thank you.
The next question comes from Alex Blostein of Goldman Sachs. Please go ahead.
Great. Thanks. Good afternoon, everybody. Thanks for the question. I want to dig a little more into the franchise awards, and just think about to your point earlier, trying to align the awards with the value for all the constituents, including the shareholders. If you guys are aiming to do a 4% reserve on just management fees, how should we think about that over time? It feels like value creation is really an alpha dynamic and maybe organic growth dynamic versus beta. In a year, let's say with 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? 4% is 4%?
No, Alex. The 4% is sort of to put some predictability and transparency into the sizing of the franchise award and the APAM equity would be an addition to that to get to the total grant that we would have made if we had not introduced franchise capital. All of our key investment professionals have already significant APAM equity, or are on their way to getting APAM equity. 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 fund to provide a balanced outcome for them over the life of their career.
Got it. 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.
Okay. Great. Thanks. The follow-up just maybe around capital management, with the new structure in place, maybe just a quick reminder what the go-forward annual share creep, I guess, is expected to be and to 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. The same outcome as a share repurchase plan. As I explained, the way we think about the total award, the first 4% will be franchise capital, and the rest will be APAM equity. Giving you any direction on what the dilution will be would be hard because we'd have to have insights into the size of the grant. 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.
Got it. Great. Thanks.
The next question comes from Robert Lee of KBW. Please go ahead.
Good afternoon. Thanks for taking my questions. Good morning out west. Maybe just sticking with the franchise awards. Should we be thinking that kind of similar to when you first went public, that there's maybe a little bit of compounding at least in the next couple of years as once you issue next year's award, we'll see incentive comp maybe step up a little bit again and then it'll take a couple of years to kind of normalize for lack of a better way of putting it, particularly since the last couple of years or maybe awards were below average. Is that a fair way to think about it?
I think, first off, there was a ramp-up when we went public in the amortization expense because of a five-year vesting. In the first year that we went public, we had one grant, and only 20%. 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 it as 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 AUM was fluctuating in a band probably between $95 billion and $120 billion. This year we've had a breakout of that and both from organic growth, investment performance as well as market.
That in our mind is a premium year. It all depends on the grant sizing.
Okay. Fair enough. Then maybe shifting gears to flows and business. 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, were there specific channels that really drove it? I don't know if maybe there were specific programs you got into that almost like a spigot turned on at the beginning of the year and flows just ramped. Just trying to see if it's possible to kind of drill down more to get some better color on what specifically really drove that.
Hi, Robert 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. 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. Given the environment, given our performance, and the only, something new for 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. We've been spending time on our CRM that we put in a few years ago. We've spent time on adding more writers and thinking about more content. 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, packaged that content, we've delivered that through email, website, social media, including our blog that I mentioned. The interaction's been quite nice, even during this period of limited travel.
Given the long-term relationships and the new ways of delivery, I think that all came together.
Okay, great. Thanks for taking my question.
The next question comes from Chris Shutler of William Blair. Please go ahead.
Hey, guys. Good morning, good afternoon. 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? What has that meant, or what do you think it will mean for rebalancing activity over the next quarter or two?
Yeah, certainly last quarter, obviously, saw rotation in performance, with the value outperforming. You saw small cap come back as well, and you saw non-U.S. outperform the U.S. last quarter with emerging markets leading the way. 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. 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. 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. 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. If rotation does come, we're quite ready to capture that.
Okay, thanks for that. One specific one just on the China strategy that you're going to be launching soon. I just want to clarify. I think it is a crossover strategy, investing in both publics and privates. Just any more broad color on the investment strategy there would be helpful.
No, I appreciate the question there. 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. You've seen, I think, more allocators look at the asset allocation. There's a growing talent pool that's focused on this space. 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. 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. Our operations are quite ready to take on the crossover fund.
We feel very well poised to expand in many forms, not just with this team or this strategy, but across the organization. I think most people, as I said earlier, it's not new, but most people just jump when China's growing, and they create product, and led by dis tribution. 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.
Yeah, 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. 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. As each team comes in, we broaden out the firm. It goes across the entire organization and can be leveraged across each individual team in the organization. We would expect a greater use of privates across many of our teams.
All right. Makes sense. Thanks a lot.
The next question comes from Kenneth Lee of RBC Capital Markets. Please go ahead.
Hi. 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. Thanks.
Yeah, no. Our philosophy hasn't changed. Franchise capital is just a replacement for use of APAM equity, there will be less dilution offset by less cash. I think there aren't any other implications. The accounting's the same. All of the forfeiture investing provisions are the same. It's just a different security.
Got you. Just one quick follow-up, if I may. What's sort of the current outlook for potentially adding new investment teams over that near term? Thanks.
Yeah, there's clearly an uptick around our teams that we talk to and are interested in, usually that happens around bringing on a new group. It happened when we brought in the credit team, many individuals didn't think we'd go into the credit markets to bringing in Antero Peak and launching a long short. 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. Each new team and each new step on that broadens the pool of candidates that we talk to. There's no new groups or teams that we're willing to talk about or are there in the near term here.
Got you. Very helpful. Thanks again.
The next question comes from Mike Carrier of Bank of America. Please go ahead.
All right. Great. Thanks for taking the question. C.J., just a clarification on the new franchise awards. I may have missed it, but what will be or what will determine the mix between the equity awards versus the franchise awards each year?
The franchise awards are targeted at 4% of the management fees. Any additional grants would be in APAM equity. Not that it changes your model, for your information, I would start with 4% of franchise, based on the year, the rest of the sizing of the grant will be in APAM equity.
Got it. Okay. Eric, just given your comments on the opportunities in China and private markets. Just curious, do you see more opportunities on bringing on additional teams in talent, specifically in these areas? Or is it tougher just given the level of competition? Is there more a focus on organically launching new products, given that a lot of the teams are already looking at some of these private investments?
If you're looking at the near term, launching or expanding degrees of freedom within our current teams and franchises has higher likelihood versus going out into the marketplace and bringing on a de novo team in. That just takes time and development to get comfortable with that talent in the marketplace. I think you'll see expansion of the degrees of freedom across a few of our franchises over the near term. 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 fits who we are.
Got it. Thanks a lot.
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.