Q1 2021 Patria Investments Ltd Earnings Call
[music].
Good day, and thank you for standing by.
Welcome to the Patria first quarter 2021 earnings call at this time, all participants are in a listen only mode.
So to speak of segmentation, there will be a question and answer session.
A question during the session you will need to press star 1 on your telephone please be advised that today's conference is being recorded.
Kearney further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, Josh would hit up the shareholder relations. Please go ahead.
Thank you good morning, everyone and welcome to Patria is first quarter 2021 earnings call.
Joining on the call today are Chief Executive Officer, Alex side, and our Chief Financial Officer, Mark Hood of volatile.
Earlier. This morning, we issued a press release and earnings presentation detailing our first quarter 2021 results, which you can find posted on our Investor Relations website at IR Dot Patria dotcom 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.
Patria 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 20-F annual report filed last month.
As a foreign private issuer Patria reports financial results using international financial reporting standards or Ifr S as opposed to U S. GAAP.
Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IRS.
Reconciliations of these measures to the most comparable measures calculated in accordance with I F. R. S are included in our earnings presentation.
As a quick overview of the results Patria generated $13.1 million and Ifr S. Net income in Q1 'twenty 1 on.
Key non-GAAP measures for the first quarter fee related earnings were $17.3 million and distributable earnings were $17 million or $12.5 per share.
In alignment with our policy, we declared a dividend of $10.6 per share payable on June 16th to shareholders of record as of June 2nd.
With that I'll now turn the call over to our Chief Executive Officer, Alex side Alex.
Thank you Josh.
Good morning, everyone and thank you for joining us today.
We are very pleased with our first quarter results.
Which reflects solid execution across our investment platform.
We are not only on track, but also leveraging current opportunities to deploy and commit to larger amounts of capital into new investments.
Which accelerates our progress on key growth drivers for the quarter.
Our portfolio companies are performing very well.
Demonstrating the resilience of our investment approach and.
And our ability to deliver outstanding returns to our Lps through many different environments.
In private equity, we've got delivering 750 basis points of outperformance relatively to the emerging markets benchmark.
And our portfolio companies have capitalize on recent opportunities from consolidation.
Completing a total of 34 M&A transactions in 2020 for example.
In infrastructure, our investment opportunity is vast and.
And we have mapped about $80 billion in long term development needs across Latin America, especially in Brazil, Chile, Colombia and Peru.
We are seeing record levels of government concessions.
He is well positioned to be a selective bigger and wind projects with very attractive return profiles.
No.
Clearly the entire world is emerging from a health and economic crisis.
In Latin America is emerging along with it.
The latest pandemic dealer shows encouraging trends, suggesting.
Suggesting that we may have turned a significant corner.
With new cases and death, both receiving significantly from their highs in late April.
There has also been substantial progress indeed unionization programs.
With over 110 million vaccines given in the region.
There's no question the second wave and recent environment has been difficult for society.
In many businesses.
Regional macro concerns because clearly weighted on purchase shares in the last few months.
Longsight other companies with exposure to the region.
While we cannot control. These externalities what can we do we can continue to outperform.
I want to emphasize the fundamental resilience of <unk> business model.
An impressive investment performance we are delivering.
Over 3 decades, we have been fund raising.
Point capital and generating attractive and in most cases top quartile returns for our Lps.
While navigating through many different environments.
Over that time, we have faced dealt and learn to take advantage of the volatility in Latin America.
Our returns have enabled us to reach several vintages.
For example for.
Our 2 flagship funds, we arent vintage number 6 for private equity.
Vintage number 4 for infrastructure.
And we have been able to scale these funds significantly.
So let's focus on the key drivers of the investment lifecycle funds.
On raising deployment and.
And performance.
And a coffee why we have such high confidence in our ability to deliver value to our shareholders.
In order to raise larger and larger flagship funds every 4 years.
We had to effectively deploy the capital entrusted to us by investors.
In our business periods of volatility can present better opportunities to put money to work.
And indeed, we are seeing that play out now.
For private equity in particular, you can see in our presentation that for 6 years now 68% deployed and dessert.
And quickly closing in on the 75% threshold that would allow us to launch the fund raising over the next month.
With our investment pipeline is as strong as ever we now see the timing of the private equity fund raising cycle accelerating.
And we expect to be back in the market later this year.
With new investment activity transitioning to the new fund sometime in 2022.
The most critical elements of our long term success is of course the investment performance.
And we believe process approach to investing in the region is really a differentiator.
In private equity, we are mostly investing in smaller companies at attractive valuation multiples.
And do think them into market leaders through consolidation and their relentless focus on fundamental value creation.
Our 2 most recent private equity funds are performing phenomenon.
With 5 of the 32% net IRR and you.
S callers.
It begins this harvesting phase.
And fund 6 at a 19% net IRR in U S dollars.
While still in its investment period.
In infrastructure, we got not typically buying mature assets, but rather building new platforms or companies from the ground up to.
To feel critical needs for society, which the government often does not have the need to address.
Here, we are seeing a vast range of opportunities to deploy capital into development projects.
And we are in a position of strength to be a selective bidding.
Across both strategies.
We focus on resilient sectors of the economy.
A link to basic human needs.
Like health care food transportation and energy.
Which have lower correlations to economic cycles and GDP growth.
Over time, we believe our approach was that some more consistent returns and provided stability through market cycles.
In our country specific strategies targeting local investors.
Currently focused in Brazil. The question are we here recently as well.
With interest rates now reversing course.
Is the theme of the financial deepening in danger.
Here I think you have to step back and appreciate the magnitude.
In Brazil for example, the interbank rate has ranged from 10% to 20% for most of the last 20 years.
Since 2016, we saw plunged from 14% to 2%.
And now recently reversing back to 3.5%.
The central bank looks to obtain rising inflation.
If anything a modest rise in rates should continue to stabilize local currency.
Which we are currently seeing.
With 18 trillion dollars of negative yielding debt across the globe we.
We don't see the longer term trend of low interest rates ending anytime soon.
And we don't see modestly higher rates slowing the flow of capital into alternative assets.
Indeed, we think the financial deeply in the region as well in fact.
And we will be a long term trend that impacts spot positively.
I'll wrap up by reiterating these very simple points.
Number 1 our.
Our story for near term fee related earnings growth depends on our ability to deploy the remaining capital in our current flagship funds.
And go back to the market to raise new and larger funds.
We have extremely high confidence in our ability to do that and we are seeing thus crosses accelerates.
Number 2.
We believe the expansion of our country specific strategies will be a steady organic growth engine for F. R E as well.
As these strategies achieve a more material scale over the next few years.
Number 3.
We are actively exploring opportunities to use our IPO capital for strategic M&A.
Review of upsides to an organic growth profile that is already very compelling.
Number 4 and lastly, and most importantly.
We are constantly aware that our growth ultimately depends on 1 thing great investment performance.
If we continue to deliver strong returns L piece will commit larger sums of capital to us.
And for shareholders the investment performance can generate substantial levels of performance fees.
Considering those factors it should be no surprise that we believe patria stuck presents an attractive valuation at current levels.
And we believe our financial performance, we will make that clear over time.
I'll now turn the call over to Michael for a deeper dive on the numbers.
Marco please.
Thank you Alex and good morning.
Financial performance was solid for the first quarter and very much in line with our expectations and our key business drivers are all progressing nicely.
Fee related earnings of $17.3 million in Q1, 'twenty, 1 were up 14% from $15.2 million in Q1 'twenty.
Driven by a 20% increase in total fee revenues manner.
Management fee of $31.3 million in Q1, 'twenty, 1 were up 31% compared to Q1, 'twenty largely driven by fee earnings AUM inflow from private equity fund 6 and infrastructure funds for.
Personal expenses of $10.3 million were up from 7 million, mostly due to the shift in compensation structure post IPO.
Our <unk> margin was 57% from the first quarter.
Reflecting very strong profitability.
Phosphorus FRE margin is among the highest in our broader peer group and exceed the margins of global managers many times our size.
AUM basis.
Fee earnings AUM for the Q1, 'twenty, 1 rose to more than $8 billion up 4% from the last quarter and 14% from 1 year ago keep in mind that our reported fee, earning AUM reflect the basis that is generating management.
See in the current quarter.
Since our flagship funds call for management fees semi annually at the beginning and middle of the year. The increase in fee earnings AUM from Q4 to Q1. For example is most attributable took tactical deployed all reserved in the second half of 2020.
There is now $2.8 billion of pending fee, earning AUM, which is not yet generating management fee as of the first quarter.
And we will drive topline growth over the next several quarters.
In our earnings presentation, we have added some additional details to show you that approximately $500 million has already been committed in the first quarter, mostly from private equity funds, 6 which will flow into fee earnings AUM and begin to generate management fees.
In the second half of 'twenty 1.
We're seeing attractive opportunities to invest in this environment and our pipelines are very active actual tactical deployment to water portfolio companies in the first quarter was $277 million.
Which includes amounts that were reserved in prior quarters.
We noted that private equity fund 6 was active in reserving capital for new investments in the first quarter.
That fund from 51% to 68% committed and moving us much closer to the 75% threshold for lunching, a new next fund raising campaign.
This acceleration should allow us to go back to the market later this year sooner than expected and begin to accrue new capital into our fee earnings AUM sometime next year.
Infrastructure fund for remains at 56% invested and reserved.
While we see that fun, taking a little longer than private equity to come back to the market.
We're also seeing a very active pipeline for deployment with a record level of government on fashion expected in the region for this year.
Fund raising in the first quarter of $147 million.
It was driven by our first infrastructure core fund, which is recognized as part of our country specific strategies.
As it is a publicly traded evergreen vehicle focused on local investors in Brazil.
This type of fun typically must allocate capital quickly.
And we have high visibility on the pipeline for this initial capital raised.
We will have the opportunity to grow the fun through follow on offerings. Once the initial capital is fully deployed.
Demand for our country specific strategies remained strong.
And we expect to have opportunities to raise new capital into credit and real estate vehicle as the year progresses.
Turning now to performance fees.
Net accrued performance fee balance was $253 million at the end of the first quarter compared to 276 million last quarter.
The decrease was driven by local currency depreciation a trend, which spend last year and continued into the first quarter of 'twenty 'twenty 1.
While this movement was clearly a headwind for our USD denominated fund performance the most impact.
Accrual balance demonstrate an impressive resilience.
Also it is important to recognize that the accrual.
<unk> shut in time.
And with the change of direction in interest rate in April and May we have now seen a significant stabilizing effect on local currency with the Brazilian Hal reversing course, and appreciating against the U S dollar.
At current levels, all other things being equal.
Our March 31, net accrued performance fee would have been approximately $300 million. If you accordingly, adjusted the unrealized fair value in U S dollar terms.
While that is of course, a theoretical estimate it does give you an indication of where the balance could go if the currency remains at today's level or even improves further.
We acknowledge that it's easier to be a buyer Dennis seller in the current environment, but we're seeing good progress toward monetizing our accrual.
As Alex noted private equity fund 5 performance continues to be outstanding.
With a net IRR of 32% and $182 million of net accrued performance fee.
This is a fun with 9 investments 1 of which now has enacted agreement at 2.4 times invested capital.
The companies are mostly mature and to have filed for an IPO.
While we need more exits in the fund to realized performance fees.
There are multiple opportunities across the portfolio.
In private equity 3 the net accrual of 45 million is supported by receivables from prior exit and 1 unrealized publicly traded investment, which we believe remains undervalued at its current share price with significant potential to improve.
India in realized performance fees will always be a product of the return we generate.
For our Lp's and thus we will always sell investments when it is the right time for our Lps.
So how does all of this translates to our earning outlook.
What we wanted to convey more than anything is.
The outlook for fee related earning is completely intact irrespective of any macro perception about the region.
Remember that our capital is locked up.
And we enjoyed the flexibility to be patient when necessary and also aggressive when the time is appropriate.
Near term FRE growth is substantially driven by the deployment of our pending fee, earning AUM alone.
Anything today's environment is accelerating our growth path as we deploy capital faster and bring forward fund raising.
We continue to expect nominal growth in FRE for 'twenty, 1 compared to $71 million generated in 2020 at margin in the mid 50% range.
Should be driven by very strong fee revenue growth north of 20% year over year.
While exit transactions may be incrementally more difficult at the moment, we continue to feel great about the quality and the performance of our portfolio.
We're still in the first half of the year and see significant opportunity for the backdrop to improve.
Especially if the economic reflation accelerate in the coming months.
Well that trajectory may have an impact on the level of performance fee we realize.
This year versus next our ultimate performance expectations are unchanged.
Altogether.
You should take away the message that's potratz growth story is highly intact and.
An exciting opportunities lie ahead.
As a newly public company, we recognize that the market is carefully evaluating our ability to execute.
We have high conviction that we can deliver and presuming we do we see considerable value in our shares at today's price. Many thanks to all of our shareholders for your support.
And to potential shareholders. We hope you will also consider joining us as partners on this journey, we're now happy to take your questions.
If you'd like to ask a question. Please press Star then 1.
Your question has been answered and you'd like to remove yourself from the queue press the pound key.
Our first question comes from Craig Siegenthaler with Credit Suisse. Your line is open.
Good morning, Alex Andre Marc I'll hope, you're both doing well.
I wanted to come back to slide 11.
You can see that 41% of private equity fund 6 is now reserved for future transactions.
My question is is all of the binding and reserve capital in the 41%.
Just on transactions that have already been announced and what are the major investments embedded in this 41% and should we expect them to close over the next 6 months.
Yes, Hi, Greg This is Alex here.
Thanks for your question.
Yes, I think we are on the 41%.
We have.
2 thirds of that alright.
No not only committed but but deployed.
We have.
On the beginning of the of the fund we did take advantage of the Covid.
They're listed stock prices did suffer.
And we did deploy capital.
Buying the shares up to listed companies.
1.
<unk>.
Gas distribution network.
Gas stations and the other 1 is a health club a health care, our health care team.
So that.
There were no not only committed by the point Dan.
We did.
Commit capital to a health care initiative in Latin America, starting in Colombia.
And integrated health care companies, starting with no Hmos, no health care management organizations, and Colombia, there, we committed a substantial amount of money, but we deployed a part of that.
And we also then committed to.
Others are pieces, along because this second quarter.
1 into late pieces in the fast moving consumer goods distribution business.
The other pieces in the cyber security business.
With that.
Yes, we are been beefing up our commitments.
Bye.
Third quarter, we should have.
By the end of it.
Actually this quarter, the second quarter surpass the 75% percent threshold, which enables us to market and actually have a first close of our next 1 private equity fund 7.
And we should have around 40% of the fund deployed.
By the end of the year that 40% will go to be closer to 50, 60% deployed I hope I answered your question.
Yes.
Great Alex I was very clear.
Just for my follow up the interest rate backdrop is constantly changing in Brazil, and it's now looking like rates are going to move higher maybe faster than we thought 3.6 months ago.
No most of your clients are outside of Brazil, but how does this evolving interest rate backdrop changed the domestic migration to equities and alternative thesis, which could impact flows into products like your infrastructure core finding inside of Brazil.
No. Thanks for the question again, I think very good question.
I think we have to take a look first of all on the magnitude of things right I think we are.
To be honest, a 2% interest rate in Brazil was way way too low.
Now we do have.
Some inflation in the country and of course during the Covid.
Months.
Months of were affected by Covid of course, not the Mt.
So things coming back economies rebounding, we do have some inflation.
Good actually before the economy.
No central governments not only in Brazil.
Up interest rates to cope with that but we're talking about no inflation b.
To extract from Colombia.
A number of risk in Brazil.
Quality prices increase.
They did increase significantly over the last months inflation basically on target.
We have a patient targeting system in Brazil, and the mid point of that is 4%. So we see that ex commodity prices, we see that it's pretty much in <unk>.
Control.
And.
The central Bank in Brazil, and other countries.
In Latin America.
The same thing commodity prices pushing up inflation numbers.
When you extract commodity prices increase.
Other items of components inflation numbers indices are pretty much behave.
But nevertheless of course inflation versus last year that had no inflation because of the crisis.
So the high Cup in interest rates is actually now our view positive given the magnitude that we're talking about now we see in Brazil, 5.6 by year end.
We're now at a 3 and a half.
And that also helps us to be honest, Greg to for us to pass onto prices inflation on our costs.
The private equity side, we do invest in very resilience in the elastic in nature businesses industries and businesses like health care. For example, we also do have a lot of investments in the agribusiness that now do follow the commodity prices. So we had a really high pumping prices in these businesses because of the again the increase in commodity.
Exactly business, specifically on the infrastructure side, even more so because most of the revenues that we have on the infrastructure side are contracted and corrected by inflation. So some inflation for us is actually good.
And most of our funds in Brazil, as you mentioned, yes.
Our core infrastructure funds they are denominated in inflation plus returns.
Why because the revenues of these businesses are contracted and corrected by inflation.
Our infrastructure core aims.
Patient plus 6 return.
So if inflation goes to 4 is around 10 nominal.
The patient is 3 is around 9% nominal so the 6% above inflation is what investors look for.
And normally the Brazilian central bank actually in a scene.
Temperature St pressure do position interest rates at a 2% above inflation or inflation targets.
Patient targeting around C. N N. Our core interest rates will be around 556, and that's what the market actually predict if you look at the forward yield curve.
So actually it's very very positive to be honest.
In this magnitude in this magnitude it actually give some oxygen to the economy. It means inflation also means that things are coming back.
Businesses are coming back there, we've been able to pass onto prices some of them.
The inflation on our cost basically the increase in commodity prices do affect some raw materials in some industries and other ones that we are exposed to this health care.
And the other items I'm, not really exposed to raw materials. So.
But by no whenever commodities like iron ore or whatever but yes everything.
It looks more natural more normal with a 4% inflation and a 6% interest rates and again our businesses in Brazil in local currency is inflation plus I forgot to mention our retail real estate investment trust. They trade. It also the same way that infrastructure investment Trust treat I think just.
<unk>.
Investors look at that use other inflation plus fields.
So my example for the infrastructure investment Trust was inflation for 6.
Let's say that it's an inflation from 6 again for.
The real estate investment.
Just a b C.
So if inflation goes up.
But yields because in Brazil, we have linked also corrected by inflation.
So again.
It's a long answer to your question, but for me and as I look into the businesses.
In the magnitude that we're talking about around the 4 ish kind of level of inflation in the 6 ish kind of level of interest rate is actually positive for our businesses and for the economy in general.
Okay.
Thank you Alex.
Yeah.
Our next question comes from Mike Carrier with Bank of America. Your line is open.
Hey, guys. This is dean Stephan on for Mike.
It's always difficult to forecast, but can you provide some additional color around the performance fee outlook for the remainder of 2021.
If you assess any performance fees to be generated over the next couple of quarters.
And maybe what percent of previously expected performance fees could be delayed into next year.
Thank you very much and thanks for Uh Huh.
Participating on our call. This is Alex again here.
Our performance fees are for.
2021 is basically composed by.
Derived from 2 funds private equity funds.
In private equity from 5 I assume though.
When private equity funds, we are our main asset there, which is 90% of the remaining men and our net asset value of any feel for fun.
Is 1 listed company, which is an imaging diagnostics company.
CT Ami or a L. L a.
They are.
Check that and if you want to answer that is in this company in the Brazilian stock exchange Beasley.
And he had a great quarter and had a great first quarter of 2021 and the results actually.
Please investors the stock went up by 25%.
Versus how the stock closed by the end of 2020.
So great performance there because this company it is an imaging diagnostic company, but it does.
Uh huh.
Negatively.
In fact.
It's been impacted by Covid, because the elective surgeries were cancelled.
The rebound in the fourth quarter and the first quarter you can see.
The results of the company coming back up.
And you can smell.
<unk> were great in the stock price went up so we would expect it to see that because of course.
We are a major shareholder of the company and we expect this company to actually continue performing extremely well this year as we see the vaccination programs.
And as mentioned over 110 million people already vaccinated, if the 500 and something million dollars.
Region people region, so, 40% and the vaccination programs on a daily basis speeding up so as that happens and we see actually then.
A good second and third quarter for that specific company.
In addition to that as I mentioned in my last question Dean with interest rates going up a little bit in Brazil and in other regions.
In Latin America.
Have a stabilization or even a strengthening of the currencies in the region because.
Uh huh.
Investors International local international come back and they want to invest in the local fixed income.
The market in order to find some yields which is no something hard to find around the world. So the increase in interest rates actually helps to stabilize.
And the currencies in the region or even strengthened.
Yes.
Have a record high.
The increase in commodity prices as you know.
If you look at the data to know from you can see 1 way or the other data, but approximately 50% increase in commodity prices from their lows sometime last year and that benefits the region as well because.
Some of the economies in the region do benefit from high commodity prices cooperate Chile, agribusiness iron ore in Brazil oil in Colombia at $70 a barrel as you know so all of that push is pushing on 1 side on the macro side.
Now on the rebound in the region, which we look very positively the commodity prices, helping GDP growth that helps the major economies in the region.
Crist rates small hike, which actually stabilizes.
The currencies in the region and in addition, actually strengthen the currency in the region since the vessels come and invest in these currencies in these markets to get some yield.
On a micro level and yard, which is imaging diagnostic company for 3 performing extremely well with a 25% rebound on its share price. This year. So as we look into the year, we're still hearing me.
See that sometime this year, we want to divest from the company, but I think it was great that we actually waited to see that rebound and I think we want to wait for the second wave to go through and then third quarter fourth quarter to do batch divestments in order to actually write all of these positive things that I just mentioned on audio.
Stock.
But even if we do sell the stock at the current prices.
Because there's a catch up in country, which now we can go offline explaining a little bit of all of the actually resources most of the resources from the sale of that stock actually goes from close to pay all our performance fees, because we have a full catch up on some 3 so.
Even if we did sell the stock at this moment is he didn't know it won't affect much.
The overall number of performance fees.
For our private equity funds and private equity fund 5 well, it's not only the returns or just no.
As far as I'm concerned the 32% net IRR in U S dollars.
The first quarter of this year with out of the 9 companies 7 of them I think already 2.2.
Go to and that makes it mode and.
2 of them, we filed for an IPO.
1 of them is another health care company.
<unk> integrated with hospitals.
And the other 1 that we are actually.
<unk> filed today or yesterday.
<unk> a network of gyms fitness sensors.
So both of them I think we will look into the year and using again all of the upsides and good news that I see the region.
<unk> over the next quarters no not only will IPO. The IPO includes some secondary trade forefront 5 but also during the year because of false alarms and whatever.
So as I stand right now I think I'm pretty positive on that front to the infant fives.
Private equity funds and private equity component in January.
Performance fee.
It might be a case.
No it's not in third quarter fourth quarter. It doesn't know another wave of Covid or no something strange happens.
Buy versus from the track that I am describing right now.
It has been as you know very very volatile during the last months no. Thank.
Thank God the second wave in the region has not been that bad in the vaccination programs are advancing but who knows what can come up.
The variance of the virus and whatever but given the same temperature and the same pressure here I'm positive on generating these fees this year.
And more so I'm very positive on F. R E I know.
But that was not part of your question, but if I think of Newsy answer here to comment on FRE.
Michael and I mentioned I think during your call today.
How we have been able to deploy more capital in our flagship funds, which increases then the fees that we charge.
And also how.
How are we have been able to control expenses.
Extremely.
Disciplined in a disciplined manner.
So we see an increase in revenues, we see an increase.
In our FRE above our expectations and we see a mid 50 margins during the first quarter, we posted a 57% FRE margin.
So.
Not only I see.
Pretty positive on the upper east side as I am on the performance fee related side as well given what I just said.
Finishing up here I think when we look into the very short term, which is 2022.
I mentioned that but Mike also mentioned.
Sorry to be redundant and emphasizing this but as we do deploy more capital in.
With these kind of very very strong performance posting core private equity fund from 5 <unk> from $6, 618% net IRR.
In U S dollars, we are looking to anticipate the fundraising for private equity fund 7.
Now our projections was way.
Back in late 'twenty 2.
And looking into having that fund raising happens late this year or beginning of next year.
So that also will generate no fees for us too to charge in.
In 'twenty, 2 which was not expected and that for us at least in our projections. So all of this I think there's no group.
6 and group of good news.
And on the performance fees as well hopefully I answered that question. Your long answer here I'm, sorry, but hopefully I was able to answer them.
Yes that was a that was very helpful. Thanks.
And I guess, just as a follow up given 1 of your peers announced a share buyback program yesterday and your comments on the call today about the current stock valuation.
Just wondering if we could get your thoughts around capital priorities. If you guys have thought about share repurchases and how you kind of balancing capital return versus M&A and investment in the business. Thanks.
Yes, great question as well I think we have to address that.
As we see our share price right now around $15 for sure. It is.
No. It is disappointing of course, Oh gosh.
Cost me, a 50% drop from the IPO price.
We all wanted it to be of course, the other way right.
But I think it's too early to make the call on a on a share buyback program as of today, we have so many amazing opportunities on the M&A front. In addition to everything that I said.
On the affordability front and the PRA.
Performance fee earnings front generating good distributable earnings.
We see FRE.
Yeah, this year better than our expectations, we see our margins better than our than our expectations in the mid fifties, we see everything that I just mentioned on the performance fee side.
So didn't know deploying some of the comfort that we raise into into these new ventures here. So let's see great momentum for Patria group It will be a great momentum for the stock as you guys follow us and actually see us performing as I just mentioned.
So I think that the stock would be organic growth from what I've, just said should reflect that and sometime soon hopefully so.
So I would like to actually.
Reserve adds up.
Now the capital that we raised in the primary issuance for the reasons that we raise it which was primarily used for acquisitions and we have so many interesting things that we're talking.
We will use a sign that we are analyzing such great things again.
But again I'm always.
Were they all vary.
Very sensible to a to.
So the share price smell of course, we own 60% of the company's 6 here.
Our Brazilian shareholders and soundness here.
So any uptick in that prices are extremely extremely positive for us and we'll keep we'll keep a very open eye on but as of today I think it's it's too early to say given the momentum that we have a pressure on the organic side and given the great opportunities that we have on the M&A side.
But I'm sensitive and al mentioned that let's see what happens in the near in the near future and we might come back to this to this.
Subject, but not not as of now thank you.
Got it that was very helpful. Thanks again.
Oh.
Our next question comes from Tito the BARDA with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for the call and taking my questions maybe a couple of questions also.
First 1 on the accrued performance fees, how much of the decline was related simply to the FX and with the FX sort of coming back. Since then she doesn't have good performance fee kind of just go back to where you were.
At year end just to get some color on the FX volatility and the impact and then my second question.
I guess, you know just given the underperformance in the stock and.
Has anything changed from your expectations since the IPO and my sense from what you've been saying on the call. So far as you know maybe FRE ahead of expectations with possible upside maybe the performance fees a little bit of uncertainty there, but just want to confirm that that's consistent with how youre seeing but if anything has changed.
The IPO given the volatility in the market and then your stock. Thank you.
Hi, Tito.
Arco.
Morning.
So.
Related to your first question about net accrued performance fee.
I made a comment on my initial remarks.
Remember the hypothetical number.
If you do not consider the effects of our net accrued performance fee would be at around 300.
Just a hypothetical number.
So the street quite the straight answer to your question is around $50 million.
When you look quarter over quarter, you'll see the detail fund by fund.
And when you see the.
The number being basically Nat that's how much DNA V went up.
And matched to how much the currency depreciated that it's around 10% in the quarter.
Relative to your second question.
All the fundamentals.
And key <unk>.
Drivers of the business continued to be very solid.
If anything we've been able to deploy capital at a faster pace.
That is.
Resulting in a on a view.
That our fund raising prospective for the.
Flagship funds will accelerate.
Theres also.
The fact that.
The first the underlying portfolio performance.
It's been very solid.
I think in part.
The fact that.
We have exposure to sectors that are.
Performing quite well over the pandemic name.
Namely.
Grid business in logistics.
And service.
So base service related sectors.
There are the ones that are receiving most of the cash that have been coming.
Through the garments.
To help them to Pandemics.
And that of course gives us a good perspective in terms of the performance fee. So.
On the on the fee related earning side.
We can expect.
An increasing amount.
Our fee paying AUM.
I indicated in my presentation.
During the first quarter.
We have deployed or reserve the about $500 million.
But this amount will flow into our fee earnings AUM.
Only on the second half of the year.
Because of the way.
We would draw the line to charge our fee earnings AUM.
That's a very positive news.
If you tie that to the information that last year, we deployed $1.5 billion. It gives you.
An indication of how much more money and we are deploying over this year that will turn into revenues on the second half.
I, hopefully I hope I have.
Answer to your question.
And maybe I can get the second the second part of the question here on.
The general macro view that you mentioned.
I think no yes for the first part I think of your question I think we are optimistic on the FRE fronts.
Versus our expectations, yes.
From all the reasons I think we cover here.
Further deployments and et cetera, and very discipline controlling expenses et cetera.
And on the performance fee side no.
Yeah.
I think all of the data points.
As of today are there no.
That's a major performance fee coming from our private equity fund 3.
Where are.
The most important asset there is a.
Imaging does not cause company the stock traded to 25% up.
And we also see the rail strengthening.
No.
Today need $5.25 billion Reais versus 550.560 so.
So as of now.
20th of me I think things are progressing in the right direction.
In order to realize.
That performance fee for frankly.
In a minute.
Good Shepherd.
The iceberg for sure and on the 5.
Companies are performing extremely well.
And no of course.
It's also very important to see that the sector selection, which is key right now.
In reviewing my view.
To do well in equities in the region in Latin America.
<unk> 5 is amazing and so you know either.
The company is doing well, but it starts with the sector selection health care agribusiness logistics all of the sectors.
Extremely benefited from Covid on the contrary they were negatively affected.
Relatively effective.
The HMO business that we have which is a major asset of compliance was positively affected because we continue to receive and the payments for our.
Private pay.
No. We just we just don't know.
The private side of the market, we don't serve the government.
For this company.
So everybody was Spain, but there was no elective surgeries, so the margins of the business and EBITDA of the business.
Extremely benefited last year and continue to be this year, we have a major.
Agribusiness.
Our company in this 1.5 which is.
As a distributor of.
Our grid business products, we buy from gentle Darwin, whatever we sell to farmers.
And with no commodity prices agribusiness prices in Brazil farmers, I think never saw that kind of margin that they're seeing.
In their business today.
Soybean muscles.
Yes.
3 times the prices they were 3 years ago BC.
Besides productivity gains.
And our business of course benefits from that so the businesses.
<unk> 5 are doing extremely well.
At the right time here, we're going to be able to sell them at very good prices and also the strengthening of the rail so.
I think we've positioned ourselves.
And a good place to be and as off 20th of many things are working our way.
Of course.
When I look at the U S.
I have a lot more certainty because it snow I know how much I'm deploying the funds already raised.
And with the kind of performance, we have seen support from Ilp's form for us to raise small private equity fund 7 and on the performance fee side. There is also more more uncertainties on when you're going to sell it or whatever but until as of today. Thanks. So good for.
For the year, So I hope I answered your question as well.
Yes, that's very helpful, Alex and Michael Thank you very much.
Okay.
Our next question comes from Robert Lee with <unk>. Your line is open.
Good morning, Thank you very much thanks for taking my questions.
A lot of them has been asked and answered, but 1 or 2 billion had us.
I'm, just curious and this relates to realizations, but.
And clearly there's a growing.
Secondary market appetite.
As a patient.
I know in the past you had kind of discussed that there had been some parties than maybe you were interested in some type of.
Some type of strip transaction.
That could have potentially accelerating some realizations I mean keeps maybe updated systems kind of discussions are ongoing or.
Maybe it's just not the right time to consider something like that just curious where that stands.
Hi, Robert This is this is Alex and thanks for the question I think it is the right time to consider at Cowen and <unk> and the.
The secondary market as you know.
Is very very liquid.
<unk> funds were raised by several very important.
Our players in that market.
And I think we have great assets.
Mentioning private equity fund 5.
And definitely we have been is something that we will consider it's something that we are considering we were approached by several of these players.
As they look into everything that I said.
We look at the rebound.
In the region.
Look at the strengthening of the currencies because of the commodity prices increases.
The effects of commodity prices do having the economies of the region is beneficial responses.
They also see the companies that we have in our private equity comprised exposed to the REIT sectors.
As I mentioned healthcare and agribusiness logistics.
Also in front of a last mile food logistics business did very well and it continues to do very well.
As people stay more home and order more food and et cetera from home.
And yes, we were approached and we will definitely consider and we are considering.
And some of these you know the GP led.
Transactions in this market has been increasing.
More over the years.
No.
I think it was.
Don't take me for this data here, but I think last quarter I think we have more GP led transactions and help you that transactions in the secondary market.
So yes, I think we were approached with.
We are considering it looks.
Good I think we should pursue seriously and doing something for that and some clients are good candidates.
Given everything that I said thank.
Thank you.
Actually that was my only question thanks for taking the time.
Thanks, Rob.
Again to ask a question. Please press Star then 1.
Our next question comes from crank Siegenthaler with credit Suisse. Your line is open.
A follow up we just wanted to circle back on corporate M&A.
Can you remind us your appetite to acquire private markets businesses outside of Brazil in adjacent markets and I'm thinking like Chile, Colombia, Mexico.
Okay.
Yeah, Hi, Thanks, Craig the appetite is high.
We see these economies they suggested and economies as you call them.
Going through very interesting moments are different moments.
Each 1 of these economies with yes.
Diversifying some of the of the <unk>.
Brazil risk.
Other currencies.
Uh huh.
The nature of economies.
So the answer is yes, I think we're looking into expand our product offering and expand our geographic footprint in the region.
So we do we're looking at the same time to expand the product offering for our Brazil centric products to targeted to Brazilians.
In BRL, raising BRL investing BRL like the Reits.
Second investment trusts like the infrastructure investment trusts that I mentioned, but also looking to expand.
Throughout the region with other <unk>.
General partners that do manage.
Other products or similar of ours, but in these countries that you mentioned.
There are no great managers in the region that are doing extremely well and that would.
I think extremely well to our portfolio.
So the answer is yes, and I think it's a it composes in our portfolio.
It Diversifies, our country risk because my first defiance currency risk.
Uh huh.
The economy is run by themselves are not very correlated with other economies of the world or something.
So we always do show to our limited partners.
Investing in our funds.
They'll do exposure that have exposure to the countries that you mentioned Craig.
The economies of these.
Of the region here, not really correlated with the U S economy or European economy. So it's a it's a good add for them.
We're buying returns with very little correlation.
So that that actually adds to their portfolio not in Ohio High Sharpe ratios, which everybody looks for right.
So having Chile have in Colombia, having other countries in the portfolio adds to that whole theme of <unk>.
Giving them exposure to the region not just to our country.
The region has a gig economy has done are not correlated with where most of our Lps are based.
The U S Europe, and Middle East and Asia.
Second we diversified currency.
Because the currencies of these countries that you mentioned.
They are less volatile than the BRL.
Which is the Brazilian currency so at this point.
A lot of advantages lastly, I think the Brazilian market is more mature in advance in some shapes.
And we see going into these countries that we have I'm generalizing now assets at more attractive valuations.
Because the.
Industries in these economies have not.
I'm not performed as well as Eaton or competed or so.
Sophistication to these industries as we see it in Brazil, So there's great.
Great opportunities through these local managers.
You can find businesses are very very attractive valuations that can add to the whole Latin American consolidation.
So it's not it's because we are having now we already have a very interesting exposure to these economies. So I'll give you..1 example, private equity fund 5.
It should be.
<unk> 65, Brazil.
$35, 40% other countries in South America, which basically shows the math of the GDP.
Composition, if you know if you add the GDP of all of the countries.
In the region, including Mexico, Brazil was around 40% of that of the region. The South America around 60% of the GDP. So I'm just doing the math here and now.
Our fund is going to be more or less 60, 65% exposed to Brazil.
And some of these companies.
I considered part of the 60% do have businesses in other Latin American countries, plus the direct exposure of $35, 40% of the fun to these other countries and we saw a significant plus.
Better returns because I can go in and better valuations.
And diversification of our country risk and currency risk and a big bigger appetites from our LP. So how are your regional exposure versus the country on the explorer.
Thanks.
Okay.
Yeah.
Thank you there are no further questions I'd like to turn the call back over to Joshua for any closing remarks.
Thank you everyone for joining us today do you have further questions. Please reach out to us at the contact information provided in our earnings presentation and on our website. We look forward to talking with you again soon and have a great day.
Ladies and stuff you already bought yesterday say, France, and thank you very much.
You may now disconnect.
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Good day, and thank you for standing by.
Welcome to the Patria first quarter 2021 earnings call.
At this time all participants are in a listen only mode.
So to speak of presentation, there will be a question and answer session.
So ask a question during the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded.
Barney further assistance please press star zero.
And I'd like to hand, the conference over to your Speaker today, Josh would set up the shareholder relations. Please go ahead.
Thank you good morning, everyone and welcome to Patria is first quarter 2021 earnings call joining.
Joining on the call today are Chief Executive Officer, Alex side, and our Chief Financial Officer Marko to volatile.
Earlier. This morning, we issued a press release and earnings presentation detailing our first quarter 2021 results, which you can find posted on our Investor Relations website at IR Dot Patria dotcom or on form 6K filed with the Securities and Exchange Commission.
Forward looking statements made on this call are uncertain do not guarantee future performance and undue reliance should not be placed on them.
Patria 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 20-F annual report filed last month.
As a foreign private issuer Catchier reports financial results using international financial reporting standards or Ifr S as opposed to U S. GAAP.
Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with I F. R. S.
Reconciliations of these measures to the most comparable measures calculated in accordance with I F. R. S are included in our earnings presentation.
As a quick overview of the results Patria generated $13.1 million in I F. R. S. Net income in Q1 'twenty 1 on.
<unk> non-GAAP measures for the first quarter fee related earnings were $17.3 million and distributable earnings were $17 million or $12.5 per share.
In alignment with our policy, we declared a dividend of $10.6 per share payable on June 16th to shareholders of record as of June 2nd.
With that I'll now turn the call over to our Chief Executive Officer, Alex side Alex.
Thank you Josh.
Good morning, everyone and thank you for joining yesterday.
We are very pleased with our first quarter results.
Which reflect solid execution across our investment platform.
We are not only on track, but also leveraging current opportunities to deploy and commit to larger amounts of capital into new investments.
Which accelerates our progress on key growth drivers for the floor.
Our portfolio companies are performing very well.
Demonstrating the resilience of our investment approach and.
And our ability to deliver outstanding returns to our Lps through many different environments.
In private equity, we've got delivering 760 basis points of outperformance relatively to the emerging markets benchmark.
And our portfolio companies have capitalize on recent opportunities from consolidation.
Completing a total of 34 M&A transactions in 2020 for example.
In infrastructure, our investment opportunity is vast.
And we have mapped about $80 billion in long term development needs across Latin America, especially in Brazil, Chile, Colombia and Peru.
We are seeing record levels of government concessions.
He is well positioned to be a selected bidder and wind projects with very attractive return profiles.
No.
Clearly the entire world is emerging from a health and economic crisis.
In Latin America is emerging along with it.
The latest Atlantic theater shows encouraging trends.
Suggesting that we may have turned a significant corner.
With new cases and death, both receiving significantly from their highs in late April.
There has also been substantial progress immunization programs.
With over 110 million vaccines given in the region.
There's no question the second wave and recent environment has been difficult for society.
In many businesses.
Regional macro concerns stuff clearly weighted on purchase shares in the last few months.
Long side other companies with exposure to the region.
While we cannot control. These externalities what can we do we can continue to outperform.
I want to emphasize the fundamental resilience of <unk> business model.
And impressive investment performance, we are delivering.
Over 3 decades, we have been fund raising there.
Point capital and generating attractive and in most cases top quartile returns for our Lps.
While navigating through many different environments.
Over that time, we have faced dealt and learn to take advantage of the volatility in Latin America.
Our returns have enabled us to raise several vintages.
For example for.
Our 2 flagship funds, we arent vintage number 6 for private equity.
And vintage number 4 for infrastructure.
And we haven't been able to scale these funds significantly.
So let's focus on the key drivers of the investment lifecycle.
On raising.
Deployment.
And performance.
And it won't be why we have such high confidence in our ability to deliver value to our shareholders.
In order to raise larger and larger flagship funds every 4 years we.
We had to effectively deploy the capital entrusted to us by investors.
In our business periods of volatility can present better opportunities to put money to work.
And indeed, we are seeing that play out now.
For private equity in particular, you can see in our presentation that fund 6 is now 68% deployed in reserve.
And quickly closing in on the 75% threshold that would allow us to allow us to fund raising over the next month.
With our investment pipeline is as strong as ever we now see the timing of the private equity fund raising cycle accelerating.
And we expect to be back into the market later this year.
With new investment activity transitioning to the new fund sometime in 2022.
The most critical elements of our long term success is of course investment performance.
And we believe buses approach to investing in the region is really a differentiator.
In private equity, we are mostly investing in smaller companies at attractive valuation multiples.
And they'll take them into market leaders through consolidation and their relentless focus on fundamental value creation.
Our 2 most recent private equity funds are performing phenomenon.
With 5 of the 32% net IRR in U S dollars.
It begins this harvesting phase.
And fund 6 had a 19% net IRR in U S dollars.
While still in its investment period.
In infrastructure, we are not typically buying mature assets, but rather building new platforms or companies from the ground up to.
To feel critical needs for society, which the government often does not have the means to address.
Here, we are seeing a vast range of opportunities to deploy capital into development projects.
And we are in a position of strength to be a selective good.
Across both strategies, we focus on resilient sectors of the economy that are linked to basic human needs like.
Like health care food transportation and energy.
Which have lower correlation to economic cycles and GDP growth.
Overtime, we believe our approach has led to more consistent returns and provided stability through market cycles.
In our country specific strategies targeting local investors.
Currently focused in Brazil.
The question the way here recently as well.
With interest rates now reversing course.
Is the theme of the financial deepening in Beijing.
Here I think you have to step back and appreciate the magnitude.
In Brazil for example, the interbank rate has ranged from 10% to 20% for most of the last 20 years.
Since 2016, we saw plunged from 14% to 2%.
And now recently reversing back to 3.5%.
The central bank looks to obtain rising inflation.
If anything a modest rise in rates should continue to stabilize local currency.
Which we are currently seeing.
With 18 trillion dollars of negative yielding debt across the globe we.
We don't see the longer term trend of low interest rates ending anytime soon.
And we don't see modestly higher rates slowing the flow of capital into alternative assets.
Indeed, we think the financial deeply in the region as well in fact.
And we will be a long term trend that impacts spot positively.
I'll wrap up by reiterating these very simple points.
Number 1 our.
Our story for near term fee related earnings growth depends on our ability to deploy the remaining capital in our current flagship funds.
I can go back to the market to raise new and larger funds.
We have extremely high confidence in our ability to do that and we are seeing that the trough was accelerates.
Number 2.
We believe the expansion of our country specific strategies will be a steady organic growth engine for F. R E as well.
As these strategies achieve a more material scale over the next few years.
Number 3.
We are actively exploring opportunities to use our IPO capital for strategic M&A.
Review of upsides to an organic growth profile that is already very compelling.
Number 4 and lastly, and most importantly.
We are constantly aware that our growth ultimately depends on 1 thing great investment performance.
If we continue to deliver strong returns L piece will commit larger sums of capital to us.
And for shareholders the investment performance can generate substantial level of performance fees.
Considering those factors it should be no surprise, the bvd fractures stuck presents an attractive valuation at current levels.
And we believe our financial performance, we will make that clear overtime.
I'll now turn the call over to Michael for a deeper dive on the numbers.
Marco please.
Thank you Alex and good morning.
Financial performance was solid for the first quarter and very much in line with our expectations and our key business drivers are all progressing nicely.
Fee related earnings of $17.3 million in Q1, 'twenty, 1 were up 14% from $15.2 million in Q1 'twenty.
Driven by a 20% increase in total fee revenues Manny.
Management fee of $31.3 million in Q1, 'twenty, 1 were up 31% compared to Q1, 'twenty largely driven by fee earnings AUM inflow from private equity fund 6 and infrastructure funds for.
Personal expenses of $10.3 million were up from 7 million, mostly due to the shift in compensation structure post IPO.
Our <unk> margin was 57% from the first quarter.
Reflecting very strong profitability.
Buttress FRE margin is among the highest in our broader peer group and exceed the margins up global managers, many time hours 5 on an AUM basis.
Fee earnings AUM for the Q1, 'twenty, 1 rose to more than $8 billion.
4% from the last quarter and 14% from 1 year ago keep in mind that our reported fee, earning AUM reflect the basis that is generating management fee in the current quarter.
Since our flagship funds call for management fees semi annually at the beginning and middle of the year. The increase in fee earnings AUM from Q4 to Q1. For example is most attributable to tactical deployed all reserved in the second half of 2020.
There is now $2.8 billion of pending fee, earning AUM, which is not yet generating management fees as of the first quarter.
And we will drive topline growth over the next several quarters.
In our earnings presentation, we have added some additional details to show you that approximately $500 million has already been committed in the first quarter, mostly from private equity fund 6 which will flow into fee earnings AUM and begin to generate management fees.
In the second half of 'twenty 1.
We're seeing attractive opportunities to invest in this environment and our pipelines are very active actual tactical deployment to water portfolio companies in the first quarter was $277 million.
Which includes amounts that were reserved in prior quarters.
We noted that private equity fund 6 was active in reserving capital for new investments in the first quarter.
That fund from 51% to 68% committed and moving us much closer to the 75% threshold for lunching, a new next fundraising campaign.
This acceleration should allow us to go back to the market later this year sooner than expected and begin to accrue new capital into our fee earnings AUM sometime next year.
The infrastructure fund for remains at 56% invested and reserved.
While we see that fun, taking a little longer than private equity to come back to the market.
We are also seeing a very active pipeline for deployment with a record level of government on fashion expected in the region for this year.
Fund raising in the first quarter of $147 million was driven by our first infrastructure core fund, which is recognized as part of our country specific strategies.
As it is a publicly traded evergreen vehicle focused on local investors in Brazil.
This type of fun typically must allocate capital quickly.
And we have high visibility on the pipeline for these initial capital raised.
We will have the opportunity to grow the fun through follow on offerings. Once the initial capital is fully deployed.
Demand for our country specific strategies remained strong.
And we expect to have opportunities to raise new capital in credit and real estate vehicle as the year progresses.
Turning now to performance fees.
Net accrued performance fee balance was $253 million at the end of the first quarter compared to 276 million last quarter.
The decrease was driven by local currency depreciation a trend, which spend last year and continued into the first quarter of 'twenty 'twenty 1.
While this movement was clearly a headwind for our USD denominated fund performance the most impact to our accrual balance demonstrate an impressive resilience.
Also it is important to recognize that the accrual does match up in time.
And with the change of direction in interest rate in April and May we have now seen a significant stabilizing effect on local currency with the Brazilian Hal reversing course, and appreciating against the U S dollar.
At current levels, all other things being equal.
Our March 31, net accrued performance fee would have been approximately $300 million. If you accordingly, adjusted the unrealized fair value in U S dollar terms.
While that is of course, a theoretical estimate it does give you an indication of where the balance could go if the currency remains at today's level or even improves further.
We acknowledge that it's easier to be a buyer Dennis seller in the current environment, but we're seeing good progress toward monetizing our accrual.
As Alex noted private equity fund 5 performance continues to be outstanding.
With a net IRR of 32% and $182 million of net accrued performance fee.
This is a fun with 9 investments 1 of which now has enacted agreement at 2.4 times invested capital.
The companies are mostly mature and to have filed for an IPO.
While we need more exits in the fund to realize performance fees.
There are multiple opportunities across the portfolio.
In private equity 3 the net accrual of 45 million is supported by our receivables from prior exit and 1 unrealized publicly traded investment, which we believe remains undervalued at its current share price with significant potential to improve.
Indiana realized performance fees will always be a product of the return we generate.
Our lp's and thus we will always sell investments when it is the right time for our Lps.
So how does all of this translates to our earning outlook.
What we wanted to convey more than anything.
Is the outlook for fee related earning is completely intact irrespective of any macro perception about the region.
Remember that our capital is locked it up.
And we enjoyed the flexibility to be patient when necessary and also aggressive when the time is appropriate.
Near term FRE growth is substantially driven by the deployment of our pending fee, earning the U N alone.
Anything today's environment is accelerating our growth path as we deploy capital faster and bring forward fund raising.
We continue to expect nominal growth in FRE for 'twenty, 1 compared to $71 million generated in 2020 at margin in the mid 50% range. This year.
Should be driven by very strong fee revenue growth north of 20% year over a year.
While exit transactions, maybe incrementally more difficult at the moment, we continue to feel great about the quality and the performance of our portfolio.
We're still in the first half of the year and see significant opportunity for the backdrop to improve.
Especially if the economic reflation accelerate in the coming months.
You should take away the message that Potratz growth story, if highly intact and.
So didn't know deploying some of their consequently, raising 2 into these new ventures here. So it's a great momentum for <unk>.
Patria group it will be a great momentum for the stock as you guys follow us and actually see us performing as I've just mentioned.
So I think that the stock with the organic growth of what I've, just said should reflect that and sometime soon hopefully.
So I would like to actually.
Reserve Osmose.
Now the capital that we raised in the <unk>.
Henry issuance for the reasons that we raise it which was primarily used for acquisitions and we have so many interesting things that we're talking.
And we will use a sign that we are analyzing such great things again.
But again.
Always.
With a very.
Very sensible to a to.
So the share price smell of course, we own 60% of the company's 6 zero.
Sure, our Brazilian shareholders and soundness here.
So any no uptick back prices extremely extremely positive for us.
And we will keep we keep a very open eye on but as of today I think it's it's too early to say given the momentum that we have a patria on the organic side and given the great opportunities that we have on the M&A side.
But I'm sensitive and al mentioned that let's see what happens in the near in the near future and we might come back to this to this.
Subject, but not not as of now thank you.
Got it that was very helpful. Thanks again.
Oh.
Our next question comes from Tito the BARDA with Goldman Sachs. Your line is open.
Hi, good morning, Thanks for the calls I'm, taking my questions maybe a couple of questions also just.
First 1 on the accrued performance fees, how much of the decline was related simply to the FX and with the FX sort of coming back. Since then she doesn't have good performance you kind of just go back to where you were at year end just to get some color on the FX volatility and the impact and then my second question.
I guess, you know just given the underperformance in the stock and yeah.
Anything changed from your expectations since the IPO and my sense from what you've been saying on the call. So far as you know maybe FRE.
Expectations, where possible upside maybe the performance fees, a little bit of uncertainty there, but I just want to confirm that that's consistent with with how youre seeing but if anything may have changed since the IPO given the volatility in the market and then your stock. Thank you.
Uh huh.
Hi, Tito.
Marco.
Good morning.
So.
To your first question about net accrued performance fee.
I made a comment on my initial remarks.
The hypothetical number.
If you do not consider the effects of our net accrued performance fee would be at around 300, but that's just a hypothetical number.
So the street quite the straight answer to your question is around $50 million.
When you look quarter over quarter, you'll see the detail fund by fund.
And when you see the.
The number being basically Nat that's how much DNA V.
Went up.
And matched to how much the currency depreciated that it's around 10% in the quarter.
Relative to your second question.
All the fundamentals.
And key <unk>.
Drivers of the business continued to be very solid.
If anything we've been able to deploy capital at a faster pace.
That is.
Resulting in a on a view.
That our fund raising prospective toward the.
Flagship funds will accelerate.
Theres also.
Yeah.
The fact that.
The first the underlying portfolio performance.
It's been very solid.
I think in part.
The fact that.
We have.
Exposure to sectors that are.
Performing quite well over the pandemic, namely.
Namely.
Group business in logistics.
And service.
So base service related sectors.
The ones that are receiving most of the cash that has been coming.
Through the garments.
To help them to Pandemics.
And that of course gives us a good perspective in terms of the performance fee. So.
On the on the fee related earning side.
We can expect.
An increasing amount.
Our fee paying AUM.
I indicated in my presentation.
During the first quarter.
We have deployed or reserve the about $500 million.
But this amount will flow into our fee earnings AUM.
Only on the second half of the year.
Because of the way.
We would draw the line to charge our fee earnings AUM.
That's a very positive news.
If you tie that to the information that last year, we deployed $1.5 billion. It gives you.
Indication of how much more money and we are deploying over this year.
I will turn into revenues on the second half.
I, hopefully I hope I have.
The answer to your question.
And maybe I can get the second the second part of the question here on.
The general macro view that you mentioned.
I think no yes for the first part I think of your question I think we are optimistic on the FRE fronts.
Versus our expectations, yes.
From all of the reasons that I think we cover here know, Florida deployments and et cetera, and very disciplined control on expenses et cetera.
And on the performance fee side no.
Yeah.
I think all of the data points.
As of today on there.
That's a major performance fee coming from our private equity fund 3.
Where are.
The most important asset there is a.
Imaging by smokers company, but the stock traded at 25% up.
And we also see the rail strengthening.
No.
Today need $5.25 billion Reais versus 550.560 so.
So as of now 20th of me I think things are progressing in the right direction.
In order to realize.
That performance at 4.3.
And a.
Good Shepherd.
The iceberg for sure.
And on the 5.
Companies are performing extremely well.
And no.
Of course.
It's also very important to see that the sector selection, which is key.
In my view.
To do well in equities in the region in Latin America.
<unk> 5 is amazing and so you know the company was doing well, but it starts with the effective selection health care agribusiness logistics all of these sectors.
Extremely benefited from Covid on the contrary they were negatively.
The negative to the affected it.
Positively affected.
The HMO business that we have which is a major asset compliance was positively affected because we continue to receiving the payments for our.
Private pay.
No. We just we just.
The private side of the market, we don't serve the government.
For this company.
So everybody was Spain, but there was no elective surgeries, so the margins of the business and EBITDA of the business.
Extremely benefited last year and continues to be this year, we have a major.
Andrew This is a company in this 1.5 which is.
Distributor of.
Agribusiness products, we buy from Syngenta.
We sell to farmers.
What happened with the commodity prices agribusiness prices in Brazil farmers I think never saw.
What kind of margins that they're seeing.
Our business today.
Soybean muscles.
This is Pete.
3 times the price of the worst years ago, Besides productivity gains.
Our business of course benefits from that so the businesses.
The combos from 5 are doing extremely well.
At the right time here, we're going to be able to sell them at very good prices and also the strengthening of the rail so.
I think we position ourselves.
And a good place to be and I was off 20 yourself, maybe things are working our way.
Of course.
When I look at the F. R E I have a lot more certainty because it snow I know how much I'm deploying the funds already raised.
And with the kind of performance, we have seen support from Ilp's form for us to raise private equity fund 7.
On the performance fee side. There is also more more uncertainties, when you're going to sell it or whatever but until as of today. Thanks. So good for.
For the year, So I hope I answered your question as well.
Yes, that's very helpful. Alex and myself. Thank you very much.
Okay.
Our next question comes from Robert Lee with <unk>. Your line is open.
Good morning, Thank you very much thanks for taking my questions.
London has been asked and answered, but 1 or 2 that I had is.
Just curious this relates to realizations, but.
I mean, clearly there's a.
Rowing.
Secondary market appetite.
As a patient.
I know in the past you had kind of discuss that there had been some parties than maybe you were interested in some type of.
So inside the strip transaction.
That could have potentially accelerating some realizations I mean can you maybe update us kind of discussions are ongoing or.
This is just not the right time to consider something like that just curious where that stands.
Yes.
Hi, Robert This is a this is Alex and thanks for the question I think it is the right time to consider it in Berlin and <unk>.
The secondary market as you know.
It's very very liquid.
<unk> funds were raised by several very important.
Our players in that market.
And I think we have great assets.
Mentioning private equity fund 5.
Definitely we have been is something that we will consider it's something that we are considering we were approached by several of these players.
As they look into everything that I said.
They look at the rebound.
In the region. They look at the strengthening of the currencies because of the commodity prices increases.
The effects of commodity prices do have <unk>.
Isn't the region. This is beneficial responses.
They also see the companies that we have enough revenue to comply.
<unk> to the right sectors.
As I mentioned healthcare and agribusiness logistics, we have also in front of a last mile food logistics business and of course, the very well and it continues to do very well.
As people stay more home and order more food and et cetera from home.
And yes, we were approached and we will definitely consider and we are considering.
And some of these you know the GP led.
Transactions in this market has been increasing.
More over the years.
No.
I think he was right.
Don't take me for this data here, but I think last quarter I think we had more GP led transactions and help you that transactions in the secondary market.
So yes. So I think we were approached we are considering it looks.
Good I think we should pursue seriously and doing something for that and some clients are good candidates.
Everything that I've said thank.
Thank you.
Actually that was my only question thanks for taking the time.
Thanks, Rob.
Again to ask a question. Please press Star then 1.
Our next question comes from Craig Siegenthaler with Credit Suisse.
Line is open.
King or a follow up we just wanted to circle back on corporate M&A.
Can you remind us your appetite to acquire private markets businesses outside of Brazil in adjacent markets and I'm thinking like Chile, Colombia, Mexico.
Okay.
Yeah, Hi, Thanks, Craig the appetite is high.
We see these economies he suggested as economies as you call them.
Going through very interesting moments are different moments.
Each 1 of these economies with yes.
Diversifying some of the of the Brazil risk.
Other currencies.
Uh huh.
The nature of economies.
So the answer is yes, I think we're looking into expand our product offering and expand our geographic footprint in the region.
So we do we're looking at the same time to expand the product offering for our Brazil centric products and also targeted to Brazilians.
In BRL, raising BRL investing BRL like the REIT.
Real estate investment trusts like the infrastructure investment trusts that I mentioned, but also looking to expand.
Throughout the region with other.
General partners that do manage.
Other products or similar of ours, but in these countries that you mentioned.
There are no great managers in the region that are doing extremely well and that would oh.
I think extremely well to our portfolio.
So the answer is yes, and I think it's a it composes in our portfolio.
It diversifies, our country risk diversified currency risk.
Uh huh.
As a company run by themselves they are not very correlated with other economies of the world.
We always do show to our limited partners.
Investing in our funds not do exposure that have exposure to the countries that you mentioned Craig.
The economies of these.
Of the region here, it's not really correlated with the U S economy or the European economy.
Good add for them, they're buying returns with very little correlation.
So that that actually adds to their portfolio and I don't know high high Sharpe ratios, which everybody looks for right.
So having chili, having Colombia, having other countries in the portfolio adds to that whole theme of.
Giving them exposure to the region not just to our country.
The region has a gift economies that are not correlated with where most of our Lps are based.
The U S Europe, and Middle East and Asia.
Second we diversified currency.
Because the currencies of new countries that you mentioned.
Are less volatile than the BRL.
Which is the Brazilian currency so it.
A lot of advantages.
Lastly, I think the Brazilian market is more mature in advance in some shapes.
And we see going into these countries that we have I'm generalizing now assets at more attractive valuations.
Because the.
Industries in this economy itself not.
I'm not performed as well as Eaton or competed or so.
Or added sophistication to these industries.
See in Brazil, So there's a great opportunity.
<unk> is that through these local managers.
You can find businesses are very very attractive valuations that can add to the whole Latin American consolidation.
So it's not it's free passes we're having no we already have very interesting exposure to these economies. So I'll give you..1 example, private equity fund 5.
It should be.
<unk> 65, Brazil.
$35, 40% other countries in South America, which basically shows the math of the GDP.
Composition.
You know if you add the GDP of all of the countries.
In the region, including Mexico, Brazil is around 40% of that of the regions. The South America around 60% of the GDP. So I'm just doing playing laugh here and now.
Our fund is going to be more or less 60, 65% exposed to Brazil.
And some of these companies.
I considered part of the 60% do have businesses in other Latin American countries, plus the direct exposure of 35% to 40% of it.
On to these other countries and we saw a significant plus.
And better returns because we can go in and better valuations.
Diversification of our country risk currency risk and a big bigger appetites from our L. P. So how are your regional exposure versus the country all the exports.
Thanks.
Yeah.
Thank you Brad there are no further questions I'd like to turn the call back over to Josh <unk> for any closing remarks.
Thank you everyone for joining us today, if you have further questions. Please reach out to us at the contact information provided in our earnings presentation and on our website. We look forward to talking with you again soon and have a great day.
Ladies and thank you everyone stay safe and thank you very much.
You may now disconnect.