Q2 2021 Vinci Partners Investments Ltd Earnings Call

August 18, 2021

Thank you for standing by your profit cost you begin momentarily again, thank expanding body of profit cost will begin momentarily. Thank you.

[music].

Good afternoon, and welcome to the Vinci Partners' second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode later.

We will conduct a question and answer session and instructions will follow at that time as a reminder, this call will be recorded I would now like to turn the conference over to Ana Castro Investor Relations manager. Please go ahead Ana.

Thank you and good afternoon, everyone. Joining today are underfunded, Austin, Chief Executive officer, but who knows that I'm, the head of private equity and Investor Relations and fish passage Chief Financial Officer.

Earlier today, we issued a press release slide presentation, and our financial statements for the quarter, which are available on our website at IR that's into partners Dot com.

I'd like to remind you that today's call may include forward looking statements, which are uncertain and outside of the firm's control and may differ from actual results materially.

We do not undertake any duty to update these statements for a discussion of some of the risks that could affect results. Please see the risk factors section of our 20-F.

We will also refer to certain non-GAAP measures and you'll find reconciliations in the release.

Also note that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in anything too Barton is fun.

With that I'll turn the call over to Hudson.

Thank you Anna good afternoon, and thank you all for joining our call.

<unk> reported outstanding results for the second quarter.

Hubert will earnings doubled year over year to 54, 8 million Reais or 97 cents per common share in the second quarter fee related earnings grew by 67% year over year, reaching $55.2 million.

<unk> in the quarter.

In addition, we announced today, our first semiannual dividend distributions of 30 cents on the dollar per common share.

When we add up dividends with the capital use it for share repurchase we have effective return at 100 and to meet him. He is to our shareholders in the first semester of the year equivalent to 100% of distributable earnings generate.

In the first half of the year ordinary our commitment of combining strong growth with capital distributions to our shareholders.

We have continued to find US supported fund raising environment for our platform in 2021.

AUM reached <unk>, 5% to 7 billion here is at the end of the second quarter. A notable increase of 7 billion highs since year end 2020.

This impressive result was primarily driven by exceptional fund raising in our private markets and Ips segments. During the first half of the year.

I've been asked for example has been exceeding our highest expectations almost doubling in AUM just best year in private markets, we were able to roll out all of the products, we had in our pipeline, including the IPO of the new REIT V. I you are in the SEC.

<unk> quarter, which is a perpetual capital vehicle and therefore extremely valuable to us.

We continue to see great demand for our products, even with the short term rise in interest rates. During this year's first semester long term real interest rates currently sit at the low 4% levels at rates. We believe are extremely constructive to our fund raising.

Outlook.

We believe we will continue to see strong positive inflows across all these strategies gummy, primarily from Ibms separate mandates in private market funds.

For which we have a robust pipeline ahead of us for the second half of the year.

Bruno will touch on the quarter's fund raising with more detail in a few moments.

Another considerable highlight this quarter was our margins with FRE margin, reaching 55% and distributable earnings margin at 44%, which accounts for over 507 hundred basis Paul.

<unk> expansion on a year over year basis, respectively.

This is a result of the vast meets we have been making in our platform since its inception, which have allowed us to scale our business over the years in a significant way.

We have currently position among the top performing alternative asset managers in the industry regarding margins and we still see great room to further expand and as we raise AUM in need relatively small adjustments in our platform to support it.

In our view this quarter is a testimony to the strength of our business model. The numbers speak for themselves. We have been consistently performing across all matrix, expanding our company and focusing on the launch of new products with long term capital.

Commitments are aligned with the markets latest trends.

As a result, we are delivering record quarterly fee related earnings and distributable earnings as they wham keeps growing at a very rapid pace weaker than they already fast growing Brazilian alternative asset industry.

Momentum is very strong across the entire platform and the opportunity is still extremely vast institutional investors I still excessively under allocated to alternatives and the shift from asset classes <unk> only just begun.

For example, as of the end of the second quarter total Brazilian AUM reached $6 three trillion of which only 14% was allocated to alternatives.

We believe this is one of the best positioned alternative asset managers in Brazil to capture the shift in asset allocation and we are primed to capitalize on these trends.

We expect to see continued expansion in our platform, we should boost our FRE and distributable earnings power.

We also continue to see strong opportunity to further grow our international fund raising platform more recently, we had stronger location from global Lp's impact private equity via our eye for and we see strong interest for increased allocation across the platform.

In addition to our great business model in favorable market trends. We believe outstanding results are a consequence of our highly skilled management team and our constant commitment to enhancing governance practice, we seem to firm.

Last week, our board appointed MS Sawyer Favazza too as our new independent Board member.

Appointment marks a new milestone in our company's path of differentiation.

As in the ESG market leader.

<unk> will be the chairperson of our new ESG Committee and we work to boost our focus on ESG as an investment matter and frugality company practices as we continuously pursue upgrades in our impact monitoring kpis.

So I know has been working with us for a long time and he is an extremely experienced director with demonstrated history of working in the financial service industry.

She is highly skilled in corporate social responsibility sustainable development and environmental awareness. She was recognized in 2016, but the UN global compact as one out of 10 people in the world to be a pioneer in sustainable.

<unk> goes R F D Gs.

It is a great honor for us at Vinci to have missed by about it we and our board, which is now composed of four independent members out of a total of eight seats with two of the independent members being women.

Steel in this subject of ESG milestones Veatch partners has neutralized.

G H G R greenhouse gases emissions relative to scopes, one and two for the year of 2020, showing our commitment to eliminating the company's contribution to carbon dioxide emission.

This was the result of a number of internal measures to reduce our emissions complemented by the acquisition of verified carbon credits certified by Vera.

Another initiative, we are very proud of is our effort to reach a gender balanced state us inside the company.

Our HR team has been working heavily on elevating the number of women working in the firm and especially in leadership positions.

We created a program to encourage women to answer the financial services market and have been since elevating female participation in starting positions such as in our operations team.

By the end of July our operations team, which is the entry point for most front office positions was 48% composed of female employees, our highest level so far.

A step closer in our objective for women to occupy more leadership positions across the firm.

This quarter. We also had two important recognitions for our investment products.

Our private equity impact fund VII for one the private equity ESG fund of the year Award from Environmental Finance in our credit funds focus on private debt related to Green energy.

As was the first Brazilian fun to receive European standard label.

Here at venture partners. Our goal remains to provide the best returns and investment opportunity for our limited partners, which increasing farquhar on ESG as an investment matter across the firm, which translates into results for our fellow shareholders.

We are extremely excited for the next half of the year and for what opportunities. There are future holds for US. We are confident that we can continue to generate extremely attractive results for all our stakeholders.

And with that I'll turn it over to Bruno.

Thank you Alessandro and good afternoon, everyone on slide eight we will walk through some of the financial highlights for the quarter.

Fee related revenues in the second quarter up 50% year over year.

During the first half of the year management and advisory fee totaled 198 video Reais up 36% year over year, our fund raising efforts in 2021 are translating into ultra outstanding growth in management fees acting as the main driver for FRE industry.

<unk> expansion this quarter.

Fee related earnings were $55.2 million reais for the quarter.

Or 97 cents per share up 67% year over year, and $105.4 million for the first half of 2021 up.

36% year over year.

VITAS generated distributable earnings of $54.8 million reais in the quarter or <unk> 97 per share up 100% year over year.

102 million for the first half of the year up 68% year over year.

Total AUM reached 57 billion Reais.

The end of the second quarter, an increase of 31% on a year over year basis.

Our fee, earning AUM ended the quarter at 55 billion Reais in our performance fee eligible AUM at 37 billion reais, representing nearly 70% of fee, earning AUM.

We had $1.5 billion rising that inflows this quarter coming from our liquid strategies and Ips, representing almost 4 billion in net inflows during the first half of the year.

Matt capital subscription from our private market strategies represented 265 million reais in the quarter and over 2 billion Reais when we add up first and second quarters of 2021.

As I said southern mentioned at the beginning of our call today, we announced our first semiannual dividend of <unk> 30 cents on the dollar per common share, which combined with the share repurchases in the quarter represents a 100% payout considering artist suite to grow earnings for the first half of the year.

Moving on to slide nine we recap our fund raising across strategies. During this first half of 2021.

During the first semester, we were able to rollout six different fund raising processes for our private markets funds.

All full fee funds with long term capital commitments, representing over 2 billion in AUM, which already has surpassed our fund raising in private markets for the full year of 2020.

This includes the final closing for our var for which became the largest impact oriented private equity fund in Latin America.

We already made three investments in this fund and our deployment schedule is advancing nicely.

We also had the first closings for our new strategies across real estate and infra strategies Z SDL envious.

These are private equity style funds, which will continue to raise capital throughout the year.

One strategy that were very enthusiastic about and have been very successful is our public market vehicles listed in the Brazilian stock exchange.

During the first half of the year, we raised over 1 billion reais through follow on offerings for yoga and the IGT and recently, we had the IPO of a new REIT view, which is a funds focused on the acquisition of yields generating urban commercial properties in Brazil.

All three funds are 100% deployed and on the process of putting together a pipeline. So they can go back to market through additional follow on offerings.

We have another three listed REIT that can also go back to market still this year.

And our pipeline for the second half of the year, we have some new strategies that we're structuring to allowance and can result in first closings yet this year.

In our liquid strategies as we expected a nation in Europe.

Our previous quarterly call, we were positively impacted in the second quarter for market appreciation with the overall recovery in the local markets doing just this.

Quarter after some volatility in the first quarter of the year.

Ah.

Our hedge fund strategy has also seen some good flows during the second quarter, and we expect that as markets stabilize and Covid vaccination continue to advance in Brazil, we should encounter even more attractive markets for both our hedge funds and public equity strategies.

Especially in our public equities decision, we see great opportunity to for AUM growth by leveraging on our already relevant international client footprint.

Internationally vascular has continued to be extremely under allocated and we believe it is an enormous opportunity for further growth at <unk>.

At last our Ips segment has surpassed all expectations. This year almost doubling in AUM on a year over year basis.

During the first half of the year IPO Nast grew by $5.5 billion Reais with strong net inflows coming primarily from our separate managed accounts.

As we continue to see great demand from local institutional investor for tailored financial solutions.

Pipeline for IP and as is extremely strong for Vanessa next semester and we should continue to see great results from this segment.

Moving on to slide 10, we can see that the platform continues to display excellent trends in AUM growth against the prior year across all segments.

AUM has been growing 31% annually and we continue to expand our path by raising new funds and create a new strategy and investment opportunities.

One key point to highlight is our long term AUM, which represents approximately 50% of total AUM.

Perpetual capital AUM almost double in just one year, primarily due to our success in listed funds strategies and currently represents 25% of long term AUM.

Furthermore, our AUM remains broadly diversified by duration asset class and distribution channels as shown on slide 11.

Half of our revenues this year were sourced from private market strategies.

With management fees typically based on long term capital commitments, thereby mitigating a redemption and mark to market risk.

In terms of distribution local and offshore institutional clients account for a burst about 60% of our AUM with the remaining 40% well balanced across high net worth individuals and a high growing retail dedicated distribution channels allocators and distributors and public markets.

Nichols.

Turning to slide 12, we disclose our performance fee eligible AUM and how it is distributed across the platform. You currently totals 37 billion reais or 70% of our fee, earning AUM.

As we mentioned in our last quarterly call. We started disclosing Hari AUM charges performance fees across the platform and to reach benchmark each family of funds are index. It.

Two thirds of our AUM is currently generating performance fees.

This includes most of the funds from our liquid strategies, and Ips business and private markets funds there arent in divestment period.

Within our private market strategies about 7 billion Reais in AUM comes from preferred return type funds with carried interest that are still in investment periods.

This puts <unk> in a strong position for future realization of performance fees and we see this as a major upside for our shareholders and with that I'll turn the call over to Sachin.

Thank you Bruno.

Slide 13, we walk through fee related revenues for the quarter and year to date.

Management fees remained the main contributor to revenues accounting for nearly 80% of total revenues in the first half of 2021.

Management fees grew from six to $1 has in the second quarter of 2022, 95, who meeting is the second quarter up 56% year over year.

Advisory fees were very much in line, resulting in a 50% growth year over year of fee related revenues.

And their year to date, we reached $198 million in fee related revenues up 35% when compared to the first semester of 2020.

As you can see in slide 14, our operating expenses represented 54 million of has in the second quarter up 31% year over year.

As we discussed in our first quarter conference call. The first squad off Twenty-twenty was positively impacted by lower than usual 30 pad expenses, which resulted in a distortion when you compare it to this year's first quarter views on why we had such a step up in expenses on a year over year.

Basis.

This quarter, we have a much more compatible quarter two last year and this is important because you can clearly see the platforms operating leverage potential.

Expenses that are increasing in a nice lower base when you compare them to revenue growth, which resulted in a higher profitability profile very evident in the second quarter with F. R. E N D margins, reaching higher levels.

We also disclosed separately, our new recurring cost related to the company's IPO, which accounted for $3.2 million this quarter.

This new process can be segregating three categories.

The first and most relevant representing 50% off is it change in the company's compensation structure as we adjusted to our regular G&A competencies with style impact in personnel costs.

Additionally, we hired a new members for our board of Directors and we also had to make some new additions in our support teams.

The shareholder relations team and additional people for financial reporting.

At last we had some third party service providers, such as <unk> art, Sophie's, NASDAQ listing fees and others.

Well if you take out these new IPO costs operating expenses would be up 23% year over year.

Smaller growth when we compare to the growth in total revenues of 38%.

Turning to slide 15, we presented our fee related earnings.

He was $55.2 million of highs or 9% to seven cents per share representing an outstanding increase of six 7% year over year.

The year to date F. R E $105.4 million and is an increase of 36% year over year.

Our F. R. E continues to be the core indicators of our business as management fees continue to grow alongside our songs from the reason.

In the F. R. E Bridge chart, we present, a breakdown of the fee related revenues and expenses.

Has it gotten any additional cost for the quarter.

Comparable FRE margin would have been 60%.

Five percentage points higher than our FRE margin for the quarter of 55%.

And 10 percentage points higher than FY <unk> margin for the second quarter of 'twenty 'twenty.

Both our new public company costs, and onetime strategic brand effort will present headwinds for a stronger margin gains this year.

Although we have been able to significantly grow FRE margins in 2021 versus last year. Despite these effects.

During the post <unk> in AUM growth so far.

Next slide 16.

<unk> was 10.8 million in <unk> in the quarter down 60% year over year.

This decrease is due to higher performance compensation expense, we had in the quarter. Our total return strategy can hedge funds significantly outperformed its benchmark.

But pharmacy fees were practically in line when comparing the second quarter of 2022, this year's second quarter.

The year to date B R E totaled $17.5 million and a half up.

70% year over year.

We also had unrealized performance fees in the quarter of 11.8 million.

Coming primarily from our international exclusive mandates like BNS.

These will be realized in the third quarter of 2021.

Next in slide 17, we present, our Japan investment in financial income for the quarter.

Realize that the GP investment income resulted in 345000 has in their quarter coming primarily from dividend distribution from our proprietary private Denmark, the GP commitments.

In the appendix to dispose inflation, we disclose all funds with GP commitments from the company.

As of June 3rd the company had over $206.6 million in Harris and capital committed site proprietary private to match funds.

Total capital called at the end of the quarter reached at 111 million of highs.

Reach 40 million have already been returned to the firm.

Total GP investments marked at fair value at the end of the quarter represented $121.2 million of highs.

Our financial income totaled $14.3 million hasn't there quarter coming from the cash allocation of the IPO proceeds.

As we mentioned in our last call. We haven't built a targeted location of proprietary liquid funds until the capital is called forwards our private market funds.

For these cash allocation our target is to achieve a CDI plus 2% annual return.

For this quarter, our liquid funds allocation resulted in not one but two quarterly return, which exceeded you Sidney I return by 0.4%.

Since 2019 returns off of this portfolio has fluctuated from CDI plus three 1% on the positive side just hit the CDI minus zero point to 8% on the negative side.

So far in the third quarter. For example, we have been facing a more volatile market environment than was the case of the first and second quarters of the year.

Therefore.

Although our long term targets for the look at the portfolio continue to stand up CDI plus 2% per year, we should not expect this REIT.

Turn to behave evenly.

Two quarters.

It's important to highlight that the recent increase in benchmark interest rates by the Central Bank in Brazil.

We would have a positive impact on returns of our liquid portfolio over the medium term is it staggered debased returns goes higher.

Turning to slide 18, distributable earnings were $54.8 million hasn't there quarter or 97 cents per share up a.

100% year over year.

Is there a sectional result was driven by our growth in management fees and financial income in the quarter.

In the first half of the year distributable earnings totaled 102 million eyes or want how an <unk> <unk> per share.

68% year over year.

Yeah.

We are also expanding our D margins significantly reaching 44% at the end of the quarter up.

Eight percentage points year over year.

Finally in slide 19, we show our cash and investment balance.

We finished the second crowd of 2021 with a total of $1.47 billion has in cash and net investments or 25 point to 90 <unk> per share.

Today, our cash and investment balance Ah comprises primarily by fixed income and liquid funds. Although we expect these to be gradually shifted into profit and Max the GP funds investment S capital commitments are called in the coming years.

With that I will turn the call back to Bruno.

Thank you Sasha.

Turning to our segment highlights as you can see in slide 21, 50% of our FRE in the year to date is coming from our private market strategies, followed by illiquid strategies, IP NFS and financial advisory.

The same level of diversification as reflected in our segment of distributable earnings.

Seth for IP N S that increased to 23% of segment distributable earnings with its contribution in performance fees. This year.

Moving onto each of the segments, starting with private market strategies on slide 22.

FRE was up 63% over a year driven by the strong growth in fee, earning AUM and also improvement in our average management fee rates to 99 basis points in the quarter.

The increase in average fees came from important fundraisings, a full fee funds across our strategies such as DIR for that reaches hard cap of one <unk> in the beginning of the year.

Do your activity was very strong in the quarter as all of our listed vehicles in real estate and even for our 100% deployed and can go back to the market for additional offerings.

As announced in our press release last week.

For clothes, its third investments, reaching a 20% deployment status.

The fund made an investment in transport Tech a Brazilian medium sized company that operates in the BW surface sector promoting the use of environmentally sustainable technologies with plans of becoming a market reference in fleet and its certification and energy efficient technologies.

In addition, the new deal pipeline for BCP, three remains quite strong and we expect to announce additional transactions for that strategy shortly.

Total AUM grew 20% year over year and fee, earning AUM grew by 24% in the same period, highlighting the six fund raising processes carried out in the first half of the year as we previously mentioned.

Turning to slide 23 liquid strategies, FRE was up 85% year over year.

From this quarter on we will begin to see the positive effects of the end of the revenue sharing agreement with Ghazi fish amount is as we now have a comparable base for a year over year analysis.

AUM and fee, earning AUM remained stable on a year over year basis at 14 billion Reais when strong fund raising in hedge funds and market appreciation offsetting outflows in low fee paying AUM across our public equity strategy coming primarily from gas outflow in December.

2020.

As a result, our average management fee rate was positively impacted going from 48 basis points last year's second quarter to 73 basis points this quarter driving outstanding FRE growth year over year.

We generated $6.5 million Reais in performance fees this quarter up 77% year over year.

Pierre you was down 5% year over year due to higher performance compensation related to our total return strategy as Sachin mentioned earlier on the call.

Moving onto our Ips business on slide 24, following exceptional growth in fee, earning AUM of 86% year over year FRE multiplied by almost three times year over year.

Pierre you posted of NEVA begins bigger jumped up 455% year over year, driven by very strong performance in our international separate mandates.

Average management fee, followed the growth in fee, earning AUM coming from 38 basis points in the second quarter of 2020 to 45 basis points this quarter.

Finally, slide 25, we can see advisory revenues for our financial advisory business.

Total revenues for the quarter were $3.7 million down 42% year over year.

Financial Advisory revenues, we all depend on the timing.

That deals close so we should expect some volatility from quarter to quarter.

At this point, we have high visibility on approximately 20 million Reais in advisory revenues that should be recognized during the third quarter. A result of the strong deal activity. We're executing this year.

As we go through our segments it becomes evident that FRE and distributable earnings momentum is happening across all our business segments and we believe this trend should continue for the foreseeable future.

We're very enthusiastic about what we can further de lever in coming quarters.

During the quarter, we drove strong simultaneous grove in several key metrics in the business such as AUM revenues FRE margins and average fee rates.

All our business lines showed strong growth.

We're still at the beginning of what we believe is a structural transitioning towards alternative asset classes in Brazil, and we are in a position to be the leading player in this transition we couldn't be more enthusiastic about what the future holds for us.

With that I would like to open the call for questions operator.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your touch tone telephone.

Fantastic question. Please press Star then one.

Our first question comes from Mcardle Buck scale.

BTG Pactual your line is open.

Hi, everyone and congrats on the strong results.

Kind of a couple of questions.

I wanted to understand a little bit how youre seeing the AUM.

AUM mix evolving in this potentially higher interest rate environment that we're seeing.

And also how we should see the management is behavior in this session environment like.

How should be <unk>.

Sure.

Rejection on this pressure.

Management fee and Theres type scenario.

And for my second question I wanted to understand a little bit of.

Higher seeing the IPO, helping.

The operation of the business like being perhaps a high inflows from institutional clients.

Vinci are maybe boosting personal attraction, how youre seeing the impact of the IPO materializing in terms of the operation of the company. Thank you.

So thank you. This is alessandro off to thank you for your question.

Good afternoon everybody.

I'll try to cover all your questions starting with the a wham trends going forward.

Of course, the rise in short term interest rates are potentially could change day interest of investors for a specific asset classes, but that what we are seeing.

As a whole is that we continue to have a positive trend, especially in <unk> and <unk>.

Also the private markets.

We are seeing a more soft environment for the liquid strategy, both the hedge funds and the public equities, but we are still seeing.

Very good interest for both separate mandates on the IPO as like we saw in the previous quarter.

Also on the private market, where in the second half we have a more robust pipeline in our fund raising both on the third and fourth quarter. So we believe that will continue to see positive flows coming there's two strategies I BNS and private markets.

As a whole.

In the next few quarters. So we don't we don't think that the rising interest rates, what's relevant for us in fact is real interest rates. So we are still in a level that we continue to see positive trends in the separate mandates in <unk> and also on the private market side.

In terms of management fees, we do not expect any pressure.

In terms of management fees, we are in fact.

As you can see in our numbers, we see a return off of assets improving in all business lines and we continue to see a very stable and positive environment in terms of management, she's not see any compression coming in any of our strategies.

And talking about the IPO.

Positive.

What I said before and I think continue to be very.

A good surprise for us is that we have been seen.

Vinci as a very competitive player.

Actually four mandates we've seen that.

Institutional investors, the local community of institutional investors, but especially.

The plans that are sponsored by multinational companies on that front I think the IPO and especially the IPO on the NASDAQ help, but that's a lot to gain the confidence.

And the visibility to gain this separate mandate.

From this institutional investor die sponsored by multinational cooperative bathed in Brazil.

Also.

We had a very good effect on the two national institutional investors, where we already have a very good presence, but we only have the visibility of the brand globally due to the.

The IPO.

Thank you.

Thank you very clear.

Thank you.

Next question Thiago.

Your line is open.

Yes.

One.

Okay.

Alright.

We made that.

About payout.

What should we expect the income from it.

The level.

Okay.

Yeah.

Yes.

Thank you for the question.

It's Alessandro off again.

Yes.

As we said before in the previous quarter, our idea would be to distribute 75% of the distributable earnings and dividend is Samuel.

Installments.

And the other 25% the idea would be to go through a stock repurchase plan we repurchased.

Little bit under this the 25% so we complemented the 100% distributable earnings with the dividend.

Our idea is to keep at least in terms of the dividend, 75% and we are still with the stock repurchase plan open.

So we expect to have the same our profile going forward at least for the second half of the year probes.

Providing the distributions either through dividends or stock repurchase of 100% of distributable earnings, but we fought target more 25% repurchased and 75.

Percent in dividends, but that could vary depending on our ability to execute.

The stock repurchase doing.

The open windows that we have a new market.

Okay.

Yeah.

Thank you.

On April one second question.

Q2 2021 Vinci Partners Investments Ltd Earnings Call

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