Daniel O'Keefe & Michael McKinnon

Introduction to Artisan Partners Tell us about your firm Dan O'Keefe (00:18): Artisan was founded a little more than 30 years ago on a very simple, but I think very powerful idea. And that is that if you combine investment freedom or investment autonomy with an entrepreneurial environment, you can create an ideal outcome for excellent returns for client assets. And so every investment team that has been brought into Artisan was founded on that principle. (00:45): People were brought in from outside the firm to create a business based on their own unique investment philosophy. And they're essentially left alone to do that. Artisan supports them from a business standpoint, from a compliance standpoint, from a trading standpoint, but they have investment autonomy and control over their own business. And so there are 11 investment teams who have been brought into Artisan. And over the last 30 years, those teams have been very successful over a long period of time. And I think the simple premise of the business model plays a large part in that success. How do you invest your clients’ money? (01:20): Well, we think of ourselves as partners with our clients. So we invest very heavily alongside our clients. For myself personally, my family, our largest investment is invested in the funds that I manage for Artisan Partners. So when people ask me this question, how do I manage my client's money, the simple answer is I manage it as if it were my own, which it is. What are your key differentiators? (01:45): I think there are a couple of things that really define us. Firstly, we're a very small team. There's only six investment professionals. The size of the team allows us to do very deep, intensive and collaborative research. I don't know of other investment shops where the senior members of the team are involved from beginning to end of every investment idea and uncovering every research idea that we own. I think that's very unique. (02:08): And then secondly, I think that we have a powerful time-tested investment philosophy that's based on some very simple but enduring economic principles. And I've been implementing that investment philosophy for more than 30 years. What do you mean by value? (02:27): There are really two ways to make money investing in stocks. You either are going to make money from a change in the multiple, you buy business at 10 times earnings, for example, and it goes to 15 times earnings or the underlying earnings grow, or a combination of the two. And I think where value investing in its simplest terms gets into trouble is when we focus purely on the multiple side of that equation, which is to say we try to buy only low multiple stocks. And the problem with that is that low multiple stocks are often very troubled businesses. And so you might buy something that you think is cheap today, but over time the earnings power, the business erodes and the multiple ends up not being an attractive one. (03:07): So we try to avoid that risk by focusing not just on absolutely cheap multiples, but also the ability of the business to grow earnings power over time. So we try to find a combination of undervaluation of the multiple and long-term earnings growth of the business. And we think if you combine those two, you maximise your chance of compounding value over time. What are the characteristics of the stocks you buy? (03:38): Well, of course, they have to be undervalued. We have to feel comfortable that what we're buying is worth more than the price that we're paying. And we want to manage our risk. We want to buy businesses where earnings power is going to grow over time. So we're looking for strong, durable businesses that are going to fare well in all different types of economic environments. We want management teams who are working in our interest to build value, and we want financial strength. (04:03): We do not want to get involved in situations where if things go bad, the company is in financial distress. Those are the types of situations where you can endure permanent losses of capital. So we think if we combine most of those elements in every investment that we own, cheap, fundamentally strong businesses run by honest people that are financially strong, we maximise our chance of compounding value.