Q4 2020 Patria Investments Ltd Earnings Call

March 18, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Patria investments fourth quarter 2020 earnings call. At this time all participant lines are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference to your speaker today, Josh would headwind shareholder relations. Please go ahead Sir.

Thank you good afternoon, everyone and welcome to Patria is fourth quarter 2020 earnings call joining on the call today are Chief Executive Officer, Alex side, and our Chief Financial Officer, Mark <unk>.

After market close today, we issued a press release and earnings presentation detailing our fourth quarter and full year 2020 results, which you can find posted on our Investor Relations website at IR Dot Patria dot com or on form 6K filed with the Securities and Exchange Commission.

Any forward looking statements made on this call are uncertain do not guarantee future performance and undue reliance should not be placed on them.

<unk> assumes no obligation and does not intend to update any such forward looking statements.

Such statements are based on current management expectations and involve inherent risks, including those discussed in the risk factors section of our form S. One registration statement filed with the SEC in connection with our IPO as well as our form 20-F annual report to be filed next month.

As a foreign private issuer Patria will report financial results using international financial reporting standards or <unk> as opposed to U S. GAAP.

Additionally, we will report and refer to certain non-GAAP measures such as fee related earnings and distributable earnings to help investors better understand our business alongside similar companies in our industry.

These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with IRS rec.

Reconciliations of these measures to the most comparable measures calculated in accordance with IRS are included in our earnings presentation.

Please note that we are reporting results for the fourth quarter and full year 2020, which preceded our initial public offering and Patria was a private company for the entirety of these reporting periods.

As a quick overview of the results Patria generated $16 million in <unk> net income in Q4, 2020 and $62 million for the full year 2020.

On key non-GAAP measures fee related earnings were $20 million for Q4, 2020 and $71 million for the full year user.

Using our post IPO share count after tax distributable earnings per share were the equivalent of <unk> 15 per share for Q4, 2020, and 52 per share for the full year the.

The first quarter of 2021 will be our first reporting period as a public company and thus our variable dividend payment will begin based on those results.

With that I'll now turn the call over to our Chief Executive Officer, Alex side Alex.

Thank you, Josh and good afternoon, everyone.

We're thrilled to be here with you today on our first earnings call.

Spot for begins a new chapter in our journey.

For 40, plus years, so we have sort of our clients and Lps by delivering strong investment performance.

Which resulted in significant growth for our firm.

In recognition of the clear leader in private markets investing in Latin America.

No.

With our initial public offering.

We offered the same commitment to value creation for our shareholders.

And we believe Patria has a very compelling opportunity.

Look through the future.

We greatly appreciate the support of investors who participated in our IPO.

Invested since then.

And the confidence.

You have placed in our firm.

Our management team.

Today.

For the benefit of anyone who may be new to our story.

I want to spend a few minutes introducing user patria.

How our differentiated approach to investing in Latin America sets us apart.

I will also provide some perspective on the current macro environment.

But very attractive secular trends and opportunities that can drive significant growth for patria looking forward.

Mark <unk>, our CFO will then discuss recent results.

As well as important key metrics.

We will share with you on a regular basis to help understand our overall business performance.

But first I wanted to take a moment to recognize the key pillars of success for all for our people.

Over the last year in particular.

Patria and companies across the globe have been challenged like never before.

When faced with the onset of the Corona virus.

Early last year.

Our first priority was the safety and health of our employees.

And we quickly transitions will be both work environments.

In every area, our professional soldiers ability to improvise adapt.

And maintain the same standards of excellence and our business operations.

Without a doubt our employees are our greatest asset.

And I'm incredibly proud to lead the world class senior.

We have build a patria.

No.

Good posture grow into what we are today.

Oh roots date back to 1988.

When we were effectively in investment banking partnership with Salomon brothers.

Our first private equity fund was raised in 1997.

Which shifted the firm's focus.

Investments.

Instead of on the 20, plus year course, where we are today.

For the last decade.

We have enjoyed the classic partnership with Blackstone.

The firm, which truly sets the bar for industry on a global basis.

This relationship really helps to institutionalize our firm.

And prepare the us in so many ways to navigate the road ahead.

As of year end 2020.

Our assets under management were $14 $4 billion.

Representing nearly a 20% annualized growth rate since themselves right.

Our two flagship asset classes private equity and infrastructure.

Account for more than 90% of our current AUM.

And drove this growth with substantial scaling.

New fund vintage.

We have been diligent about not just growth.

<unk> growth.

At a rate, where we have confidence in our ability to deploy capital efficiently and successfully.

Our AUM is comprised of capital from the most sophisticated institutional investors across the group.

With over 80% of commitments coming from outside Latin America.

And including Tim.

The world's 20 largest pension funds and six.

Of the 10 largest sovereign wealth funds.

Our rfps are loyal.

More than 60% investing with us for more than 10 years.

And they also invest across our platform.

With nearly 80% of commitments from El Pease, who invested more than one product.

The only way to generate and maintain that level of L. P. Boise is investment performance.

Batra has demonstrated a rare ability to deliver consistent performance in the Latin American market.

Foods net IRR since inception on it.

Cash weighted basis, 16%.

For our flagship private equity strategy and 6% for <unk>.

Infrastructure.

In Brazilian Reais.

They'll say returns of 22% from private equity.

And 19% for infrastructure.

We attribute our performance to a time tested investment approach.

Which we believe is key to success in the region.

Our strategy targets resilient sectors.

Producing stable goods and providing essential services.

With a low correlation to GDP growth.

Health care.

Logistics and transportation.

Our manager.

Food and beverage.

Infrastructure and agribusiness.

We focus on operational leverage and value creation.

And our returns are generated using a little or no deaths.

Which is a stark contrast to the default assumption of our industry.

We also practice gradual and disciplined portfolio construction.

Beijing capital deployments in two investments over time.

Which mitigates foreign exchange and execution risk.

And that allows our investment teams concentrates capsule.

Biggest winners over the lifecycle of a fund.

Portfolio Company leadership.

Also critical to our strategy.

And we take a very hands on approach in this regard.

More than 50% of our partners and managing directors have executive experience within our portfolio of companies.

Over multiple fun generations.

This retro Google investment strategy has delivered exceptional returns for our Lps.

And generated high demand.

Our funds come back to the market.

With that perspective in mind.

Where are we today.

And what opportunities lie ahead.

In terms of macro environments.

Private capital continues to benefit from tier ones across the globe.

Driven by abundant liquidity in the financial markets.

And then ever present search for yield and high returns and make the historically low interest rate environments.

These trends in Latin America are even more pronounced.

And we believe the region is still in the early stages of a secular transformation.

At the front of the station of private markets relatively to GDP.

So quite low compared to the more mature markets around the world.

The private market asset base in Brazil represents only about 2%.

The Brazilian GDP.

Compared to about 8% globally.

And between 10% to 30% in developed economies such as Canada.

Singapore.

The United States and United Kingdom.

Regarding the investment environment in Latin America today.

We believe attractive opportunities remaining socks, and our target sectors.

Spite the news of turmoil that tends to dominate recent global headlines.

We correctly forecasted.

The adverse shock of the global pandemic would affect or our core geographies comparatively less than developed regions like Europe.

I mean, a less severe economic downturn and a faster recovery.

By maintaining a disciplined investment approach, we were able to benefit from wild spread.

Prices locations.

And make very attractive portfolio of investments.

Our thematic focus on basic human needs like health care.

Foods and.

Basic infrastructure also made our portfolio, particularly recipients in a time.

Time of crisis.

To be clear.

Endemic and related economic impact so far from over.

And their response to the crisis in the region was in many ways inadequate.

But the allowance of Covid vaccination programs like in Chile, and now in Brazil.

A critical step in the right direction.

Additionally.

Structural reforms, including laws granting autonomy to Brazil Central Bank.

Well, it's growing infrastructure concessions in Colombia, and Brazil are all positive news for all of our investments with calculus.

Hence on a strong pipeline of investment opportunities.

Against this backdrop I believe of Patria is well positioned for success in the year.

To come.

Our strategy for future growth is two pronged.

First.

We want to continue the strong growth trajectory of our established flex businesses private equity and infrastructure.

I mentioned that these funds have scaled impressively than prior vintages.

We believe that trend can continue with strong growth in the overall private market to the U N in the region.

Even if we make conservative assumptions about purchase market share.

Our reputation was built with investment success in these businesses.

And we will remain highly focused on delivering returns to our global LP base.

And attracting larger amounts of capital to our highly sophisticated fund raising organization.

Second.

Given the financial deepening taking place across many countries in Latin America.

We also have a compelling opportunity to grow our newer strategies targeted at local investors.

With interest rates in Latin America, falling even more sharply than the rest of the world in recent years.

There is a significant search for yield among local high net worth and retail investors.

And it's booming appetite for visit.

Liquid products like routes.

Core infrastructure.

Well as credit products.

Just last week in fact.

We announced the closing of our first core infrastructure fund.

Publicly traded evergreen vehicle that is really focused.

And we will target high quality.

Operational power generation and transmission assets in Brazil.

These strategies accounts for just over a billion dollars in AUM.

We believe there's a sizable opportunity supersede.

If we are successful in executing both our flagship business.

In key growth areas.

We believe there's a significant potential for shareholder value creation.

Through growing our base of fee, earning AUM, we can drive operating leverage for the firm and grow our fee related earnings, which is a highly valued and predictable earnings stream.

Through continued strong investment performance, we can also deliver significant performance fees as our portfolio exits over time.

With our variable dividend policy.

Those earnings streams will be largely be shared with our shareholders at approximately 85% of distributable earnings making.

Making patria, a compelling holding for both income and growth minded investors alike.

Well.

Putting that all together.

I speak to you today with great Pride and postures achievements debates.

And a real sense of excitement and determination as we enter this new phase of our journey.

Please know that we take great care in our role as fiduciaries of our shareholders' capital.

And we look forward to communicating with you every quarter about our results and key developments for the firm.

Helping them in that effort is our chief financial Officer, Michael Dippolito.

Who is a 16 year veteran of Patria.

I am thankful for his leadership through our ideal for us.

I will now pass the call over to Michael.

To provide more depth of our recent financial results and key metrics.

Marco please.

Thank you Alex and good afternoon to everyone on the call.

<unk> IPO was a challenging but very important project to position our firm for future.

And I'm very much appreciate the hard work of.

Many people internal and external who made it all possible.

In a way we have been preparing for this for many years by building a world class platform and.

Going public was a natural path for us.

We feel the offering was a great success with strong demand from a diverse range of investors and.

And we look forward to building our shareholders base.

We tell our story.

Our results for the fourth quarter and full year 'twenty 'twenty are consistent with the statement provided in the recent development section of our S. One filing in advance of our IPO in January.

After tax distributable earnings were $20 million for Q4 'twenty 'twenty.

And 70 million for the full year.

Fee related earnings is a key focus of our management of the business.

Given the value placed on this measure by investors and we have high visibility on F. R E growth.

Based on the stability and structure of our fee revenue.

We generated fee related earnings of $20 million in Q4 2020.

<unk>.

20% from 17 million in Q4 2019.

The increase for the quarter is primarily a result of the higher fee revenues driven by tactical deployment.

Our latest funds.

As well as lower personal expenses.

For the full year 2020.

Fee related earnings totaled $71 million.

Oh.

13% from $63 million in 2019.

Management fees grew 8% year over ear.

From 105 million.

$113 million as a result of a massive investment and fund raising pace during the year.

The incentive fees.

Of three 5 million were above our expectation.

With outstanding performance from the constructivist equity fund.

Which applies our private equity investment strategy.

<unk> listed companies.

That fund yielded 19, 8% in 2020.

An impressive return well above the local benchmark.

<unk> incentive fees were down from 18 million in 2019.

Because of a one off reorganization event that triggered a cumulative incentive fee realization.

As a result.

Our total fee revenues were down slightly from $119 million in 2019.

For $115 million in 2020.

But that decrease was more than offset by the lower expenses.

Even by lower incentive fee compensation as well as a beneficial impact of the currency movement for our non dollar denominated expenses.

This result in the year over year fee related growth of 13% as mentioned.

With a naphtha <unk> margin of 62%.

For 2020.

As we look to 2020 one.

We expect continued strong fee revenue growth as we deploy capital offset partially by post IPO adjustments to our compensation structure.

We expect the net result to be solid FRE growth on a nominal basis with a naphtha or <unk> margin in the mid 50% range.

Now.

Let's turn to net accrued performance fee.

This metric represents the balance of the performance fees that would be realized.

Net of investment team compensation.

If all investments were liquidated at our current valuation.

The accrual is based on unrealized investments, which are subject to future valuation impact.

But it provides the best indicator for near to medium term performance fee realization.

We have provided you with some details in our presentation to give a better sense for the fund level drivers.

It is important to note that as Latin American investors many of our portfolio investments are denominated in local currency.

While our flagship private equity and infrastructure funds are denominated in U S dollars.

Therefore, the fund return as well as the net accrued fee can be affected by currency fluctuations.

Despite substantial Latin American currency depreciation against the dollar in 2020, the overall operating performance of our portfolio was actually very resilient.

As a result.

Our accrual held up very well against the currency headwind.

With $276 million at year end 2020.

Down only slightly from 292 million at year end 2019.

As you can see on the presentation released today.

About 238 million of the $2 76 million of net accrued performance fee.

In two funds.

Private equity fund three and five.

Note that our funds utilized European model waterfall distribution for carried interest.

All contributed capital plus the preferred return hurdle must be returned royalties.

Before any accrued performance fee can be realized.

You can observe the level of capital return in the funds performance table shown in our presentation.

The $55 million net accrual and private equity fund tree.

It's supported by only one remaining investment which is publicly traded.

As well as receivables.

From prior realized investment.

We have already realized one eight times invested capital in that fund.

For private equity fund five.

183 million that accrual is.

Supported by nine unrealized investment.

And the fund is a ready market at a graph multiple of two four times.

With a net IRR of 36%.

Additionally, one of the largest holding in fund five just.

Just recently filed for an IPO.

We remain confident.

That we can realize performance fees ended fun during 2020 one.

But the exact timing and mix will be driven by the best investment decisions for our Lps.

Our core business model is based on seeking to deliver exceptional returns to our fund investors and if we succeed in that.

The related performance fee.

Timothy accrue and monetize to our shareholders over the life of our funds.

Now.

Turning to asset under management.

Our total AUM.

<unk> 14 $4 billion at year end 2020.

Down slightly compared to $14 7 billion.

One year ago.

We had $1 4 billion of inflows from fund raising activity an.

And our portfolio of companies continue to perform well.

The slight decrease overall was driven by the negative impact from foreign currency translation.

As well as outflows attributable to divestment activity.

The current total AUM is comprised of $8 $6 billion.

Our fair value in our current portfolio plus $5 8 billion of Uncalled capital.

A portion of which is already committed to existing investments.

Fee, earning AUM.

Which reflects the basis on which we earn management fees.

Reached seven $7 billion at year end 2020.

Up 12% from $6 9 billion over a year ago.

Perhaps the most important message to takeaway is that our fee, earning AUM and our fee revenue are very durable and sticky.

Our flagship funds are denominated in U S dollars.

Currency translation had only minimal impact.

On fee, earning AUM.

And more than 70% is contracted for over five years.

Virtually all our AUM is health and either traditional long dated closed end funds.

Or in evergreen style vehicles, which are effectively permanent capital.

None of our AUM is subject to unrestricted quarterly redemption.

We believe limits short term relief to management fees in times of market volatility.

Pending fee, earning AUM of $3 $6 billion.

Reflect commitments that have been secured but have not yet started to earn management fees.

Our latest flagship private equity fund charges fees as capital is deployed.

Or reserved for deployment and.

And we currently have more than 2 billion of uncalled capital in that fund to drive revenue growth.

Now on fund raising and portfolio activity.

We raised $1 $4 billion in 2020, driven by the final closing an infrastructure fund four.

As well as additional fund raising.

Our locally targeted REIT vehicle.

In our closed end flagship funds, we deployed nearly one $5 billion in 'twenty 'twenty driven.

Driven by a private equity fund five and six and.

An infrastructure fund for.

Specifically, we continue to invest in our core sectors, like healthcare and agribusiness and private equity and renewable energy and toll roads and infrastructure.

We also realized $1 billion during the year for the fund investors.

Even by exits and private equity three and four and infrastructure fund II and III.

Successful divestment activity included a partial exit of digital view of the Brazil, and one of the largest ipos in Latin America in 2020, and a full exit for Argo and electric power transmission company at a gross multiple of $4 four.

While 2020 was a very successful year for Patria.

Even more excited about the future.

Let me put a finer point on the key items that should drive our growth over the next few years.

First.

We have highly visible fee revenue growth to be driven by $3 6 billion of.

Pending fee, earning AUM that will be activated when invested.

I noted that we deployed $1 5 billion in 2020, and we believe we can continue at a healthy pace in 2021.

For our latest private equity fund.

Six.

Further deployment will also bring us closer to raising our next generation fund.

We scaled and six by 50% compared to fund five.

And our goal.

We will be to scale it again.

Second.

While timing of realized performance fees are difficult to predict.

We believe we are near a significant turning point in this earning stream.

And remain confident in realizing performance revenue in 2020 one.

Portfolio Company operating performance is strong and we see good environment for public listing and exit.

If you follow our metrics each quarter then.

Net accrued performance fee balance will be a helpful indicator of the potential future cash earnings.

And the detail by fun can cast light on the maturity and readiness for realization.

Third and finally.

We have a real opportunity to be an innovator for private markets in the region.

And our country specific strategies can be a key growth engine for the firm.

Our first infrastructure core product announced last week is just the latest example, and a growing suite of products.

Which already includes our constructive equity fund and our growing family of rights.

There is also significant white space in credit.

Where private markets.

Globally continues to catch up to demand.

Looking beyond Brazil, we believe we can also replicate some of these strategies in other Latin American countries, such as Chile.

Colombia, Peru and Mexico.

With our IPO.

We now have capital and equity currency to pursue M&A opportunities.

Where there is a compelling strategic fit.

While we will be very patient and deliberate.

We do believe there is an attractive environment for consolidation in the regional industry.

And Patria is positioned better than anyone to be the protagonist of that story.

Now.

In closing we.

We express again, our sincere appreciation for the support of our investors and our excitement for the road ahead.

We hope that even more of you will join us in that journey.

We'll look forward to interacting with you here each quarter, and we will always strive for transparent disclosure and communication that helps you understand and evaluate our performance.

For joining us and with that we will open up the line to take questions.

Yeah.

Thank you as a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone.

To withdraw your question press the pound key.

In the interest of time, please limit yourself to one question and one follow up.

Our first question will come from the line of Craig Siegenthaler from Credit Suisse. You may begin.

Thanks, Good evening, everyone hope, you're all doing well.

Wanted to see if you could provide us an update on the M&A outlook now that you have a valuable currency in the pack stock you can use to finance the transaction.

Thank you and I Hope you are you and your family are well as well this is Alex <unk> speaking.

While we have been talking to several potential candidates as Mark described we have now the primary offering.

To give us additional weapons as you as you may for the acquisitions we have.

No Mou signed on anything in that nature.

But we are looking forward to actively pursue.

Acquisitions.

Mentioned junior.

Junior our IPO Road show and now by Marc <unk>, our CFO. So unfortunately, I cannot disclose anything further than that but.

This is a significant and important part of our expansion.

And.

We look forward to continue pursuing this strategy in the near future. Thank you.

Great.

Then just as my follow up.

I know most of your clients are actually outside of Brazil.

Inside of Brazil, when I think of some of your newer products the re.

Yes, the credit strategies can you help us think about these businesses and how much they could fund raised let's say this year.

Well. Thank you again for the follow up question, Yes, we're very excited as I mentioned with the our Brazil centric strategies.

And as you can see we are we.

Have launched these products see five years ago was targeted to the mostly to the high net worth and mass affluent Brazilians.

So those are our main clients for these products of course, we use distributors too.

To reach out to these to these clients.

We have been doing a lot in that front. So as you can see in the past.

2020 for example.

We did two follow on offerings for our rights.

We did then early in 2021 raised our first core infrastructure.

Fund.

So we are very very active in that front and are launching several products.

And it should continue.

With the same pace as you saw as you as you probably know.

Noticed four for 2020.

It's hard for me to give you in April.

The prediction a number.

But definitely we are very excited with this new activities and our products have been very well accepted.

By our clients. Thank you.

Thank you.

Yeah.

Thank you. Our next question will come from the line of Mike Carrier from Bank of America May begin.

Hey, guys. This is dean Stephan on for Mike Carrier I think you guys touched on this a bit in the prepared remarks, but just given some of the macro uncertainty in Brazil, and some expectations for higher rates do you expect this to have any impact to fund raising our performance fees either in the near or the longer term.

And how high would interest rates have to rise in order to cause more meaningful fundraising headwind moving forward. Thanks.

Yes.

Thank you Dean and I Hope, you and families are well as well.

Crazy times here, but.

On the on.

The interest rate side as you as you know interest rates are.

Our <unk>.

Historically low in Brazil are very recently, they have been raised to $2 75% per year.

I'll ask our head economists at least for another this year on the calls a comment his view on the macro side.

The effects of our business.

We don't see it.

Major negative effects.

We have.

Fund raising not only ourselves, but our industry is.

The last years when interest rates in the region and in Brazil were higher than the current interest rates.

To give you an example of our real estate investment Trust industry in Brazil went from 1 billion Reais of AUM in 2009 to over 120 billion Reais in 2019. So in a 10 year period that asset class grew the industry as a whole in Brazil by 120 times.

And interest rates during that period 2009 to 2019 were a lot higher than today.

Most of these products are.

Traded on inflation plus basis.

For example, some of our Reits are yielding installation.

So the six inflation plus 8% per annum.

So if you do have inflation is picking up.

Then you have interest rates picking up in the region, but.

As our products to use inflation plus for example, our real estate investment Trust and recently now our infrastructure core products. That's how we sell them how that's how the industry sell these products. They have this inflation protection.

So it's a real.

Real actually interest rates above inflation to six 3% that I mentioned for some of our rights.

That actually protects the products and therefore, that's why my answer that of course.

The rise in interest rates up to a level that does not affect the growth of our industry.

As as I mentioned about the real estate investment trust industry growth in the past 10 years, but I can.

Right.

Economists year end partner Luiz Fernando mentioned his view on inflation and interest rates for the economies here in the region.

For this year and next year. Please.

Please.

Of course, sorry, Alex Hi, Dan.

Let me spend envelope in some kind of a cornerstone partner for a bunch of them.

The scenario of high interest rates in Brazil actually was not unexpected for us.

Part of our macro scenario for Brazil, unless since last year, we've been advocating that the economic downturn in Brazil would be much smaller than consensus recovered much faster than consensus on the flip side of this scenario is that the inflation pressure with emerge sooner than market consensus expected in your forecasting interest rates.

Stopped rising rates in the first half of the year, which it did happen so central bank started.

Strong drone the idea is basically they want to stabilize inflation expectations and then what do you expect here is a correction of them.

For macroeconomic Distortionary rehab, the short end of the Brent curve.

Shows nominal interest rate around 2% on inflation, the 12 month trailing inflations already north of 5%. So actually we have real negative interest rates central bankers went to correct. This.

But in terms of further steps, we took the central bank will continue to tighten throughout 2022, but as far as 2021, but probably there was no there'll be no need to further.

For a further monetary tightening in 2022, so basically all the adjustments that take place this year.

Laughter checking inflation enough to deliver something close to the inflation targets in Brazil, This year, which is 375%.

And also are enough to stabilize the currency, which is an important development. The central bank is not targeting the currency itself, but it's of course, if the currency continues to depreciate them continues to be significant undervalued, which is the situation right now that doesn't help the inflation to check inflation. So probably we are going to see.

So.

Some currency stabilization.

Which is probably likely to be good news for the rest of our businesses.

We can do all of this because they have a significant part of our revenues that are dollar denominated.

I think just to implement here sorry.

Fernando just mentioned.

A slightly higher interest rates.

Actually stabilizes the currency.

Which as you know was the second part of your question.

Because it does attract investors.

To invest in the region and to invest in our interest in fixed income related instruments.

Stabilizing the currency, which means.

Not further devaluation of the currency, which then helps our business as far as performance fees are concerned.

So.

This move.

From the Central Bank this week in Brazil, the Brazilian Central Bank.

Positive news for us to be honest.

No.

Going to the negative real interest rate scenario is not is not very healthy.

So they had to correct it and we were expecting this rise and that's actually positive not only for Brazil centric businesses again, they are inflation protected because they are.

Price inflation, plus but also for the performance fees of our longer term private equity and infrastructure funds because it stabilizes the currency.

So in our view.

Of course.

Given.

A level.

We think that what was done by the Brazilian Central Bank was positive to us not negative.

Okay.

That's helpful. Thank you.

Our next question comes from the line of deeper in Nevada from Goldman Sachs. You may begin.

Alright, Thank you and good evening, everyone. Thank you for the call.

My question is somewhat similar to the previous question, but more just thinking about the market moves we've seen in some of the.

The weakness in the market how that could impact your ability to realized performance fees are here and also with the pipeline of IPO and thats been pretty strong.

In Brazil, but perhaps.

That gets delayed a little bit so how do you think about it.

Performance fees in the sensitivity to the movements in the markets that we're seeing thank you.

Yeah.

Well I think we are.

Ken I think.

Pretty positive about what's going on I think we are we have not seen any major impact.

In our fund raising.

Or.

Actually.

In our businesses I think.

If we see unreasonable Mark would you guys want to further comment on that as well.

Yeah sure Hi, Tito this is Marco but we continue to have a healthy accrual.

Our presentation to $76 million after a year, where the Brazilian Hal depreciate, it 30% or almost 30% is pretty healthy and that shows.

How resilient our business are in addition to that how much value we are adding.

In Brazil in high <unk> to the portfolio that has exposure in Brazil.

We remain.

Very positive.

And confident that we are going to generate.

The realized performance fee the exact timing and mix in between funds is very hard to predict we will be always acting in the interest of our Lps, but as far as.

Company performance is concerned and you can tell that by looking at the chart that we showed on the presentation about the value that is being created not only that but on the other side that it would encourage you to look at is the performance of the funds.

You can tell that the businesses are reacting very positively.

Both on a relative and absolute basis Youre like 2020.

Okay.

Okay. Thank you very much.

And for my core industrial had a little bit what just Michael This is Louis market started too.

Got it.

I make myself clear here basically if you take the impact of the recent heightened freights rates, we're talking about again the short end of curve. So does this.

Rates for the next three to six months. If you go to the long end of the curve, though interest rate they're already at 8%. So if you will discounts value sophisticated in that.

Since value discounted by the long end of the curve, which are already 8%. So it doesn't it doesn't shouldn't change that much because theyre rising rate was pretty much brightening already so we think there'll be short term volatility in the market the stock market may be a little bit surprised by the central Bank move.

But in terms of the net impact on the market as a whole we don't expect a sharp deterioration because the basic drivers of growth in Brazil remained the same.

Most part of they started that we cannot control for example on commodity prices there, they're distributed pretty well. So we expect some noise in the short term, but nothing in terms of nothing dramatic in terms of fundamentals I'm damned, if the prospect for for exiting through Ipos or the capital markets remains pretty much pretty much the same.

Okay, great. Thanks, Lee Thanks Marco.

And our next question will come from the line of Domingos.

We know from JP Morgan maybe.

You may begin.

Thank you good evening, all and thanks for taking the question.

Actually.

Two questions here the first one is higher.

High rates has been supportive of the BRL and you guys have Kerry.

Consistent in dollars so actually thought.

If higher rates.

Baltimore effects and if you guys have any kind of estimates as far as the impact on.

I guess on like 5%, 10% BRL.

Appreciation and how that feeds into your accrued performance.

And the second is a very simple question actually on slide 13, and it might be something I'm missing, but on the bottom left you basically have inflows outflows.

Evaluation impact in currency and in inflows there is a negative $40 million.

Instead on a quantity to only be able to have negative inflow and given your tax rate and FX I'm not really sure it's under the infra and quarter on quarter and personal.

What exactly is the negative inflow number.

Okay Domingos. Thank you very much for the question and hope you are well this is Alex here.

I'll answer the first part of the question and then I'll turn it over to Marco to answer the.

Difficult number that you just mentioned there.

The performance fee.

If you look at the.

Pass.

In 2020, I think be a good year for us to talk about this and we have that are shown on slide nine of our presentation.

You can see that outperformance CD accrued net performance fees for the.

The year of 2020 was really.

<unk> from 292 million to 276 million U S dollars when the currency devalued from <unk> to the dollar to $5 two reais to the dollar that because what happened there you can see in the slide you have.

Some of the.

Companies that actually did very well.

Most of the the resilient exposed.

Okay.

The company is exposed to resilient sectors like health care, and agribusiness et cetera that did add.

You did very well during the Corona virus months.

If we do go the opposite way and we have a strengthening of our local currency here.

In 2021.

That can actually add to the effect that our companies continue to perform well.

In 'twenty, one there's no reason why.

They changed their performance trajectory because they performed well in 2020, and we had so many years of Lucked out. So many years I'm sorry, so many months of Lockdowns in so many months of of confusion because of the Corona virus and you have this kind of performance that you can see on slide number nine we come into 2021.

Companies continue to perform well.

We hopefully we're going to have a second semester in 'twenty, one better than the second semester of 2020 with a vaccination programs in the region et cetera.

In addition to all that if the currency appreciates.

No, it's really positive for us and that's what I tried to say that in my previous answer when interest rates in Brazil do go up slightly.

They did this week.

Actually it's in our view it help stabilize the currency.

And even actually supports.

A strengthening of the currency.

Everything else of course.

Stable political side of the region and whatever other things are stable. We can actually you can see a stabilization or even at peak preciation of the currency given where.

Sure.

Most of us see kind of a weakening of the U S dollar.

In the next coming months or years.

So thats not on our side here on the performance fee side, hopefully I answered your question I'll turn it to Mark our CFO here to answer your second question. Please.

Hi, Domingos.

And thank you for your question.

Just to add to what Alex said.

A good segue to that as an indication on how resilient our performance fee generation.

Generation of.

Performance fee is.

Really looking at this year, if you look at this year and see how much the currency depreciated and how much was it in the performance fee was I think it's a good segue to think about how resilient businesses and for your specific question the inflows.

I invite you to take a look at.

And of course, I can give you more details on that on the notes you'll see that the inflows the fee earnings AUM.

It's a combination of different different numbers and if you know there is a there is between four emphasis there is a very specific note on deployment and reserves. If there is any increase or decrease of reserves that me.

A situation where the number is very small creative positives in fact to the inflow with a negative inflection.

In fact, with the inflow, which is a little bit awkward, but it's it is correct and I can follow up with you later on to give you the precise details on how this figures worth.

Okay, just broadly speaking what's the reserve.

So if you think about the fee earnings.

AUM.

As the capital that is eligible to.

To charge fees every time that we are committing capital to an investment and we have a firm commitments.

Reserves for investments. This is the amount of this is the amount of fees that were making out of the fee earnings AUM. So if there's any any any change for any reason in the reserves that may produce.

Negative effect.

So basically like Youre shifting sensing that earn fee to <unk>.

New market for new investment doesn't earn seat so you're reserving on the site.

It's not exactly this.

We are reserving capital for a certain investment.

For any reason, we are not deploying that capital that produces a negative a negative impact.

I'll be happy to follow up on the very specifics of this mechanics.

No no it's been clear thank you.

Happy to check on the site as well.

Yeah.

And once again Thats star wonderful questions.

Our next question will come from the line of Robert Lee from K B W. You may begin.

Great Good afternoon, everyone.

It's doing well and thanks for taking my questions.

I apologize if you maybe mentioned this early on.

It's a bit late.

Can you maybe update us on.

Maybe a little bit more near term kind of pretty far through the quarter. In addition to the core infrastructure.

Can you maybe update us on.

What are your current plans are there other things you've kind of listed products that may be filed for and maybe if you have a sense of kind of the curve.

Commitments you may have in our unfunded that we should expect to kind of flow through.

Over the next several.

Months or quarters, just trying to get a sense of kind of the near term kind of new business.

Thank you and thanks for asking if we are where we are all well and safe here I Hope you and your family as well and thanks for thanks for taking the time actually to participate in our call. This is Alex again here the CEO.

I think on the first part of the question and then no.

The second part of the question I'll turn to the market.

To give you the amount of the amount that we still have to charge fees.

<unk>, which we.

We call them here as you know first part of the question is we have.

I can't give you actually a number as you probably know, but we're very excited with the Brazil side of the story here to give you.

A perspective or color on you know that we have a listed equity products.

Right.

And we have now an infrastructure.

Core infrastructure listed product and we are raising money currently for all of these strategies all of these families of funds.

For our listed equity fund, we're raising money everyday.

Every day, we are out there raising money for this fund since the inception of this fund and if you look at the know how much we have raised in the past. So you can have an idea of what we do.

Who the future here, if you look into 2020.

You can actually see how much we have raised for this fund and this fund raises.

Little bit everyday because.

How do the mechanics of the fund raising Avi a listed equity fund as you know on.

On the REIT side. We're also very excited we did a follow on for our logistics rights.

Last year and we as you know we intend to continue fund raise for we mentioned this during the IPO roadshow.

Two follow ons for the current reads we have two thematic reads we have a <unk>.

Corporates reach we have a warehouses reach as I mentioned, we did a follow on for the warehouses fleet last year. We did also we did an IPO of our REIT of our sorry of our warehouses reason, we did a follow on for our corporate greed. So we will continue doing follow ons for these leads and it's one of our business.

As I mentioned, we intend to do.

We intend to take public Reits with other themes other thematic research.

As mentioned during our IPO roadshow.

On the infrastructure side with no very excited we also mentioned during the road show that we were looking to IPO.

This infrastructure core product we did.

Early this year.

We intend to continue growing that fun in doing follow ons and there are other strategies that we wanted.

Have a core infrastructure core infrastructure for listed as well and lastly, I did not mention the credit products.

Also growing that.

And looking for other strategies to continue to.

Raise money so it's very very active actually.

And we're very excited with all this activity level of activity and looking into 2020, you can see more or less where we are now adding to the 2020, we have now the infrastructure for.

And so exactly I can't give you a number as you probably know, but it's very very exciting time.

And hopefully we will continue with us.

With that excitement during this year. Thank you.

Martin do you want to answer the second part of this question here on how much we have of unfunded.

Alright, thank you.

And as important to know that.

We are very excited with the with the fund raising of the local strategy is but if you look at our financial.

Okay.

Yes.

Okay.

What is <unk>.

Really drive.

Okay.

Do you mind Muting your line is making up just a little bit of noise no. Thank you.

And it's really the feet.

Good morning.

That is pending.

Actually to compose our fee paying AUM, which is a $3 6 billion dollar. So this is very significant because it's capital that is contracted it composes the BS of our fear will compose the base of our fee, earning AUM.

Yes.

As soon as we deploy the capital so that capital that is contracted as long term.

We'll come we'll composite space and if you combine that information with information that we have been historically deploying $1 $5 billion that is the number that we deploy for 2020 that gives you. That's a good segue that gives us good visibility on what to expect.

In terms of fee earnings.

Growth for our business.

And that again composes, 80% of what we are today. Okay. So that you mentioned that there is.

There is and given the three six gives us a fee.

Visibility for the next for the next couple of years when you combine that information.

This is on the previous page on page 11 to the fact that our latest fund are.

Halfway through if you add up the deployment and reserved capital for private equity six cents for infrastructure for Youre going to see that they're halfway through and we're very confident that we will continue with the deployment phase and within fast and then commitment piece of these funds which will.

We will then be a segue for the fund raising of the Max family of flagship funds. So that gives us visibility on part of the second question and even in the previous page. When you look at the Oncall would the breakdown of our AUM, you'll see that we have today.

Out of 2014 for approximately $5 eight of uncalled capital so that that component of the dry powder of our funds and gives US also a notion of our ability to continue investing and scaling up the current and new platforms.

Great. Thanks for taking my question.

Thank you. Our next question will come from the line Craig Siegenthaler from Credit Suisse. You may begin.

Great. Thanks for taking the follow up guys. Just a quick one on the AUM roll forward on slide 13 can you just remind us what the final capital variation is $7 75 for <unk>.

Yes, that's it.

Yes.

Mark do you want to take this one.

Happy to give me one second.

So capital.

Variation is the net change in the working capital at the fund level. So for instance, recycling or the use of credit facilities. So that's a miscellaneous of.

Figures within the fund decided to carve out from the figures that we wanted to highlight that are really the ones that indicate the activity of the funds.

Got it thank you Marco.

Youre welcome Frank.

Thank you and I'm not showing any further questions in the queue.

Like to turn the call back over to Josh really for any closing remarks.

Thank you Victor and thank you to everyone for joining the call today are shareholder relations contact information is listed in our presentation as well as on our IR website. Please feel free to reach out to us at any time with questions and we look forward to speaking with you here again next quarter have a good evening.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Thank you.

Great.

[music].

Okay.

[music].

Ladies and gentlemen, thank you for standing by to the Patria investments fourth quarter 2020 earnings call. At this time all participant lines are in a listen only mode. After the speaker's presentation. There will be a question answer session.

I ask a question during the session you will need to press star one on your telephone.

Any part of any further assistance please press star zero.

I'd like to hand, the conference to your Speaker today, Josh Wood paneling shareholder relations. Please go ahead Sir.

Any forward looking statements made on this call are uncertain do not guarantee future performance and undue reliance should not be placed on them.

<unk> assumes no obligation and does not intend to update any such forward looking statements.

Such statements are based on current management expectations and involve inherent risks, including those discussed in the risk factors section of our form F. One registration statement filed with the SEC in connection with our IPO as well as our form 20-F annual report to be filed next month.

As a foreign private issuer Patria will report financial results using international financial reporting standards or Ifr S as opposed to U S. GAAP.

These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with I F. R. S. Reg.

Reconciliations of these measures to the most comparable measures calculated in accordance with IRS are included in our earnings presentation.

As a quick overview of the results Patria generated $16 million in <unk> net income in Q4, 2020 and $62 million for the full year 2020.

On key non-GAAP measures fee related earnings were $20 million for Q4, 2020 and $71 million for the full year user.

Using our post IPO share count after tax distributable earnings per share or the equivalent of <unk> 15 per share for Q4, 2020, and 52 per share for the full year the.

The first quarter of 2021 will be our first reporting period as a public company and thus our variable dividend payment will begin based on those results.

With that I'll now turn the call over to our Chief Executive Officer, Alex side Alex.

Thank you, Josh and good afternoon, everyone.

We're thrilled to be here with you today on our first earnings call.

Spot to begin this new chapter in our journey.

For 40, plus years, so we have sort of our clients and L. PS.

Strong investment performance.

Which resulted in significant growth off for them.

In recognition of the clear neither in private markets investing in Latin America.

No.

With our initial public offering.

We offered the same commitment to value creation for our shareholders.

We believe Patria has a very compelling opportunity.

We look to the future.

We greatly appreciate the support of investors who participated in our IPO.

Or invested since then.

And that confidence.

You have placed in our firm.

Our management team.

Today.

The benefits of anyone who may be new to our story.

I want to spend a few minutes introducing user patria.

And how our differentiated approach to investing in Latin America sets us apart.

I will also provide some perspective on the current macro environment.

But very attractive secular trends and opportunities that can drive significant growth for patria looking forward.

Michael Our CFO will then discuss recent results.

As well as the important key metrics, we will share with you on a regular basis to help understand our overall business performance.

But first I wanted to take a moment to recognize the key pillar of successful all for our people.

Over the last year in particular.

Patria and companies across the globe have been challenged like never before.

When faced with the onset of the Corona virus that Nick already last year.

Our first priority was the safety and health of our employees.

And we quickly transitioned so where we are both working block.

In every area, our professional soldiers ability to improvise adapt.

And then say the same standards of excellence and our business operations.

Without a doubt.

All employees are our greatest asset.

I am incredibly proud to lead the world class team.

But we have built a platform.

No.

Good posture grow into what we are today.

Oh roots date back to 1988.

When we were effectively an investment banking partnership with all of them brothers.

Our first private equity fund was raised in 1997.

Which shifted our focus to alternative investments.

Instead of on the 20, plus year course, where we are today.

For the last decade.

Enjoy the classic partnership with Blackstone.

The firm, which truly sets the bar for our industry on a global basis.

This relationship really helps to institutionalize off for them.

And prepared us in so many ways to navigate the road ahead.

As of year end 'twenty 'twenty.

Our assets under management were $14 $4 billion.

Representing nearly a 20% annualized growth rate since himself in Illinois.

Our two flagship asset classes private equity and infrastructure account for more than 90% of our current AUM and.

And drove this growth with substantial scaling.

<unk> New fund vintage.

We have been diligent about not just growth, but small.

What growth.

At a rate, where we have confidence in our ability to deploy capital efficiently and successfully.

Our AUM is comprised of capital from the most sophisticated institutional investors across the globe.

With over 80% of commitments coming from outside Latin America.

And including 10.

Of the world's 20 largest pension funds and six.

Of the 10 largest sovereign wealth funds.

Our rfps are loyal.

More than 60% investing with us for more than 10 years.

And they also invest across our platform.

With nearly 80% of commitments from El piece, we've invested more than one product.

The only way to generate and maintain that level of L. P. Boise is investment performance.

And Badger has demonstrated a rare ability to deliver consistent performance in the Latin American market.

Foods net IRR since inception on it.

Cash weighted basis at 16%.

For our flagship private equity strategy and 6% for infrastructure.

In Brazilian Reais.

They'll say, hey, it turns up 22% from private equity.

At 19% for infrastructure.

We attribute our performance to wait time tested investment approach.

Which we believe is key to success in the region.

Our strategy targets resilient sectors.

Producing stable goods and providing essential services.

With a low correlation to GDP growth.

Health care.

Logistics and transportation.

Our manager.

Food and beverage.

Infrastructure and agribusiness.

We focus on operational leverage and value creation.

And our returns are generated using a little or no deaths.

Which is a stark contrast to the default assumption about industry.

We also breakfast gradual and disciplined portfolio construction.

Beijing capital deployments in two investments overtime.

Which mitigates foreign exchange and execution risk.

And it allows our investment teams some concentrates capsule.

Biggest winners over the lifecycle of a fund.

Portfolio Company leadership.

Also critical to our strategy.

And we take a very hands on approach in this regard.

More than 50% of our partners and managing directors have executive experience within our portfolio of companies.

Over multiple phone generations.

This retro Google investment strategy has delivered exceptional returns for our Lps and generated high demand when our funds come back to the market.

With that perspective in mind.

Where are we today.

And what opportunities lie ahead.

In terms of macro environments.

Private capital continues to benefit from tier ones across the globe.

Driven by abundant liquidity in the financial markets.

And then ever present search for yield and high returns.

Historically low interest rate environments.

These trends in Latin America, even more pronounced.

And we believe the region is still in the early stages of a secular transformation.

At the front of the patient of private markets relatively to GDP.

So quite low compared to the more mature markets around the world.

The private market asset base in Brazil represents only about 2%.

The Brazilian GDP.

Compared to about 8% globally.

And between 10% to 30% in developed economies such as Canada.

Singapore.

The United States and United Kingdom.

Regarding the investment environment in Latin America today.

We believe attractive opportunities remaining fox target sectors.

Spite the news of turmoil that tends to dominate recent global headlines.

We correctly forecasted that.

The adverse shock of the global pandemic would affect or our core geographies comparatively less than developed regions like Europe.

Meaning a less severe economic downturn and a faster recovery.

By maintaining a disciplined investment approach.

We were able to benefit from wild spread.

Prices locations.

And make very attractive portfolio of investments.

Our thematic focus on basic human needs like health care.

Foods.

And basic infrastructure also made our portfolio, particularly recipients in a time of crisis.

To be clear.

The pandemic and related economic impact, it's still far from over.

And their response to the crisis in the region was in many ways inadequate.

But.

The allowance of Covid vaccination programs like in Chile, and now in Brazil.

Is a critical step in the right direction.

Additionally, structural reforms, including laws granting autonomy to Brazil Central Bank.

As well as growing infrastructure concessions in Colombia, and Brazil are all positive news for all of the investments with calculus, and hence have a strong pipeline of investment opportunities.

Against this backdrop I believe patria is well positioned for success.

Years to come.

Our strategy for future growth is two pronged.

First.

We want to continue the strong growth trajectory of our established flagship businesses private equity and infrastructure.

I mentioned that these funds have scaled impressively in prior vintages.

We believe that trend can continue with strong growth in the overall private markets. The U N in the region.

Even if we make conservative assumptions about DOCSIS market share.

Our reputation was built with investment success in these businesses.

And we will remain highly focused on delivering returns to our global LP base.

And attracting larger amounts of capital through our highly sophisticated fund raising organization.

Second.

Given the financial deepening taking place across many countries in Latin America.

We also have a compelling opportunity to grow our newer strategies targeted at local investors.

With interest rates in Latin America, falling even more sharply than the rest of the world in recent years.

There is a significant search for yield among local high net worth and retail investors.

And it's booming appetite for listed.

Liquid products like reeds and <unk>.

Core infrastructure as well as credit problems.

Just last week in fact, we announced the closing of our first core infrastructure fund.

Publicly traded evergreen vehicle that is really focused.

And we will target high quality.

Operational power generation and transmission assets in Brazil.

These strategies accounts for just over a billion dollars in AUR.

But we believe there's a sizable opportunity supersede.

If we are successful in executing both our flagship business.

In key growth areas.

We believe there's a significant potential for shareholder value creation.

Through growing our base of fee, earning AUM, we can drive operating leverage for the firm and grow our fee related earnings, which is a highly valued and predictable earnings stream.

Through continued strong investment performance. We can also deliver significant performance fees I was all portfolios exits over time.

With our variable dividend policy.

Those earnings streams will be largely shared with all shareholders at approximately 85% of distributable earnings making.

Making patria, a compelling holding for both income and growth minded investors alike.

Well.

Putting that all together.

I speak to you today with great Pride and pouches achievements debates.

And a real sense of excitement and determination as we enter this new phase of our journey.

Please know that we take great care in our role as fiduciaries of our shareholders' capital.

And we look forward to communicating with you every quarter about our results and key developments for the firm.

Helping me in that effort is our chief financial Officer, Michael D volatile.

Who is a 16 year veteran of Patria.

I am thankful for his leadership through our ideal with losses.

I will now pass the call over to Michael.

To provide more depth of our recent financial results and key metrics Michael.

Marco please.

Thank you Alex and good afternoon to everyone on the call.

Patras IPO was a challenging but very important project to position our firm for future.

And I'm very much appreciate the hard work of the many people internal and external.

Made it all possible.

In a way we have been preparing for this for many years by building a world class platform.

And going public was a natural path for us.

We feel the offering was a great success with strong demand from a diverse range of investors.

And we look forward to building our shareholders base.

We tell our story.

Our results for the fourth quarter and full year 'twenty 'twenty are consistent with the statement provided in the recent development section of our S. One filing in advance of our IPO in January.

After tax distributable earnings were $20 million for Q4 'twenty 'twenty.

And 70 million for the full year.

Fee related earnings is a key focus of our management of the business.

Given the value placed on this measure by investors and we have high visibility on F. R E growth.

Based on the stability and structure of our fee revenue.

We generated fee related earnings of $20 million in Q4 2020.

20% from 17 million in Q4 2019.

The increase for the quarter is primarily a result of the higher fee revenues driven by tactical deployment on our latest funds.

As well as lower personnel expenses.

For the full year 'twenty 'twenty.

Fee related earnings totaled $71 million.

Oh.

13% from $63 million in 2019.

Management fees grew 8% year over ear.

From 105 million.

$113 million as a result of a massive investment and fund raising pace during the year.

The incentive fees.

All three 5 million were above our expectation with outstanding performance.

From the constructivist equity fun.

Which applies our private equity investment strategy.

Publicly listed companies.

That's fun yielded 19, 8% in 2020.

An impressive return well above the local benchmark.

Or the incentive fees were down from 18 million in 2019.

Because of a one off reorganization event that triggered a cumulative incentive fee realization.

As a result.

Our total fee revenues were down slightly from $119 million in 2019.

The 115 million in 2020.

But that decrease was more than offset by the lower expenses.

Even by lower incentive fee compensation as well as a beneficial impact of the currency movement for our non dollar denominated expenses.

This result in the year over ear fee related growth of 13% as mentioned.

With an F R E margin of 62%.

For 2020.

As we look to 2020 one.

We expect continued strong fee revenue growth as we deploy capital offset partially by post IPO adjustments to our compensation structure.

We expect the net result to be solid FRE growth on a nominal basis with a naphtha or <unk> margin in the mid 50% range.

Now.

Let's turn to net accrued performance fees.

This metric represents the balance of the performance fees that would be realized.

Net of investment income sensation.