Q3 2021 Vinci Partners Investments Ltd Earnings Call
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Good afternoon, and welcome to the Vinci Partners third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. Later, we conduct a question and answer session and instructions.
It 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 Anna.
Thank you and good afternoon, everyone.
Joining today are all the central Austin, Chief Executive Officer, Brendan is that Amazon has.
Private equity Investor Relations and Sacha Paas.
Chief Financial Officer.
To date, we should they press release slide presentation, and our financial statements, which are available on our website at IR <unk> 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.
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 itself all sorts of an offer to purchase an interest and then you're going to partner.
With that I'll turn the call over to Lisa.
Thank you Anna good afternoon, and thank you all for joining our call.
Parker's announcer today remarkable results for the third quarter of 2021.
Few related earnings reached 63.1 million Reais and increase of 74% year over year, our continued progress in <unk>.
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Sorry margin reach it.
33, 5% over 300 basis points higher than 2024 Years' margin.
Distributable earnings totaled $61 7 million or one reale and nine cents per share up 137% year over year.
We ended the quarter with 58 billion Reais in a wham, we've private market strategies and I P. N S accounting for almost 3 billion in net inflows in the quarter.
These results.
Built upon a an amazing first half of <unk> thousand and <unk>.
'twenty, one and showcase our long term growth trajectory.
Shifting to dividend distribution from this quarter on we started distributing quarterly dividends for the third quarter. The company declared a dividend of <unk> 16 cents on the dollar that combine it with share repurchase represented 100% of distributable.
Arnie.
Our business model is extremely capital efficient, which enable us to deliver strong organic growth, while still pay out a relevant portion of our cash earnings to our shareholders.
All of these great results.
I'll stick with what we believe to be the key attribute of our business model and the brief pull message of alcohol, which is resilience.
We are delivering outstanding results, while facing some quiet wot io market conditions in Brazil.
And one of the main attributes that make vinci, so resilient is diversification.
We have built one of the most diversified and complete platforms for ultra to investments in Brazil, enabling us not you always go through but to expand our business even during more challenging Marquis scenarios.
As an example from 2014 to 2016, Brazilian GDP dropped by 7% and Vinci grew its AUM by 10% and this was in a time when interest rates were in the low teens.
We believe that the core strengths of Vinci Reman change it and we have allowed the business to thrive even in periods of heightened market volatility.
This core strengths include.
Our AUM and revenues are well diversified we see our seven different asset management strategies. In addition to our financial advisory business.
Our proprietary funding base relies on five different groups of investors from retail to institution.
Approximately 50% of this capital carries formal long term lockups.
We have a leading and extremely well recognize that private markets platform.
And at last.
One of our kite BNS segment that differentiate Vinci and has been a major source of growth inside the firm this past year.
On the other hand, the current scenario has a short term impact on fund raising for our liquid strategies with volatility impact are more cross cyclical investor type. In addition, our public market vehicles, all so present additional challenge going back to market in such conditions.
Nonetheless, we raised over 350 million Reais this quarter for one of our rights.
T I S C 11 through.
Ionia paying kind always stock transaction in the REIT market.
This will pave the way for additional transactions using the same structure, which allow us to grow a wham lifted business, even when primary issuance is temporarily more challenging.
Some parts of the business should actually benefit from the current market scenario for.
First our investment income as we currently carry an asset sensitive balance sheet.
Vinci currently carries.
Approximately $1 5 billion reais in cash with over 85% exposure to fixed income products, Therefore financial income.
That should become a relevant driver to distributable earnings in the medium to long term with the rise in interest rates.
Proceeds from the IPO are gradually shift from kasha location into private markets funds GP commitments.
We are also very excited for our prospects in private credit fund raising the team is in the process of putting out a new listed product and we expect significant demand for credit products going forward.
We believe this should be a great opportunity in the marketplace with traditional credit venues still holding most of their market share in credit in the country.
Due to our diversified platform, we can mitigate risks by not being too concentrated in a single asset class and we benefit from the growth stay wins of at least one of our segments and we have seen this year, we fight P. N S private market funds and the advisory business.
Our management team remains confident that we will continue to grow our platform and generate attractive results for our shareholders.
Moving on from this quarter financial results I'd like to share with you two exciting news for Vg.
First we are proud schonhaus that venture partners is the first Brazilian asset manager to receive the woman onboard seal woman a board is that independent initiative that seeks to recognize value and publicize the presence of women on boards of directors or corporate advisory.
Rewards.
We talked about in our last earnings.
Paul the independent part of our board of Directors is composed by four independent members out of a total of eight seats with two of them being women six were appointed MS. Sonya Favata too to our board in August 2021.
We are extremely active on our ESG commitment and heavy stalled and ESG Committee reporting to the board of directors with me swap idea to S eats chairperson.
Finally, we are thrilled to share with you that official launch of Vinci first ever marketing campaign.
On the pillar reputation is the best investment the project for some of our main values transparency solidity ethics, and consistency, which together viewed up our most valuable asset our reputation.
The campaign has thus protagonist to Brazilian personalities Dev apparel with Disney to your values. The single them out EBITDA in here, who has a consistent and successful trajectory and their question athlete Olympic and Ward champions, who do go peso in that.
Dish and we are also modernizing our brand and visual identity in line with this new moment of growth.
Always in the best Vinci style.
The campaigns content and advertising has been launched in all major advertising outlets in Brazil. We are very encouraged by the feedback of the project so far and expect it to consolidate treat you as a reference for alternative investments in Brazil.
I'd like to thank you all for their continued support and interest in Vinci partners and with that I'll turn it over to Bruno to go over our financial results for the quarter.
Thank you Alessandro and good afternoon, everyone.
Starting on slide nine we go over real forwards for the quarter and year to date.
We ended the third quarter with 58 billion Reais in DRAM, driven by strong fund raising of $2 6 billion reais in the quarter.
Our private market strategies raised approximately 600 million of long term commitments with highlights to our real estate and infrastructure strategies.
In real estate, our shopping mall REIT disc.
Raised 364 million through a pain kind stock transaction as Alessandro mentioned before.
Any first structure, we carried out the second closing of Z as our water and sewage strategy.
The fund has raised so far 384 million reais.
We launched a new strategy within our Ips business called Vinci strategic partners or GST.
The fund is focused on private markets allocation and raised 61 million Reais in this first round of funding.
We expect to continue fund raising for this strategy throughout 2022.
Our Ips business is currently composed mostly of liquids allocations.
Yes, B, we're adding a new capability within the firm, which we believe opens a highly relevant addressable market for us where very few players have the track record knowledge and experience as each of those.
Additionally, we have 2 billion in net inflows during the quarter most of it coming from I P. M. As exclusive mandates with 1.9 billion raised in the quarter, while fund raising for our credit funds accounted for 223 million Reais.
<unk> was impacted by negative one 6 billion from funds depreciation coming mostly from public equities. Following the 12% decline in the Ibovespa index in the third quarter.
Moving on to Slide 10, we can see that Vinci continues to display solid trends in a way and growth against the previous year.
AUM grew 19% again against the same year ago period.
As we continue to expand our platform by raising new funds and creating new strategies and investment opportunities.
Long term AUM with at least five years of lockup represents roughly 50% of total AUM.
Perpetual capital almost doubled in just one year, primarily due to success in our leasing fund strategies and currently represents 25% of long term AUM.
Furthermore, our Aram remains broadly diversified by duration asset class and distribution channel as shown on slide 11.
43% of total revenue so far this year were sourced from private market strategies with management fees typically based on long term capital commitments, thereby mitigating redemption and mark to market risk.
In terms of distribution local and offshore institutional clients account for about 60% of our U M with the remaining 40% well balanced across high net worth individuals and our high growing retail dedicated distribution channels allocators and distributors in public markets vehicles.
We reached 36 billion in performance eligible AUM as you can see slide 12.
This quarter aside from IGN Askmen debts, we generated performance primarily through funds with no high watermark searches are sovereign wealth mandates in public equities given the overall decline in local markets during the quarter.
On slide 13, we go through our fee related revenues compose of management and advisory fees.
Management and advisory fees totaled 118 million reais in the quarter, representing an increase of 64% year over year.
Management fees were up 30% year over year, driven by strong growth in fee, earning AUM across private markets funds and I P. M S.
Financial Advisory contributed with revenues of 25 million Reais in the quarter, adding up to 47 million in the year to date advisory fees are up 105% when compare to last year's three first quarters.
This has been a very strong year for financial advisers and the group has driven important upside to our results due to a much stronger deal activity in 2021.
Our advisory team has had an exceptional year and we believe several of the recent close mandates represent an expansion of the team's core capabilities. An example is advisory service early stage in venture capital backed companies, which positions us well in a growing market in Brazil.
Turning to slide 14, we go over operating expenses for the quarter.
Total operating expenses were up 57% year over year, and 49% on a comparable basis to 2020 expenses pre IPO.
Well, we removed $2 9 million reais and costs related to being a public company.
These costs include the change in the company's compensation structure Hirings for board members and support teams in a county and shareholder relations and some third party services, such as NASDAQ listing fees and others.
Additionally, during this quarter, we had $2 2 million reais and expenses related to the company's new branding project.
As we have been mentioning in the last few calls we were in the process of launching a new branding project targeting domestic investors looking to raise brand awareness.
This resulted in <unk> first marketing campaign, which has been officially launched in Brazil in all major media outlets as I just don't formation.
We're extremely satisfied with the campaigns impact thus far and look forward to strengthening our brand's recognition as the leading alternative asset management brand in Brazil.
Despite the new listed company costs and the branding project expenses are growing at a slower pace than our revenues, which translates into FRE margin expansion on slide 15, we present our fee related earnings.
F. R E was $63, one meter rise or $1 12 per share represent.
Represent the announced standing increase of 74% year over year.
R. F. R. E continues to be the core indicator of our business as management fees continue to grow alongside our strong fundraising.
In the year to date FRE was $168 5 million Reais, an increase of 48% year over year.
And therefore, he bridged chart, we present, the breakdowns of our few related revenues and expenses.
Bearable FRE margin would have been 58% five percentage points higher than our reported FRE margin for this quarter a 53%.
And eight percentage points higher than FRE margin for the third quarter of 2020.
We believe this information is interesting to show the operating leverage of the platform in a year of strong AUM growth.
Both our new public company costs and the onetime strategic branding effort have represented headwinds for a stronger margin gains. This year, although we have been able to significantly grow FRE margin in 2021 versus the last year. Despite this effect.
The positive trends in <unk>, so far combined with higher fees coming from advisory.
Next in Slide 16, Tru was $3 8 million reais in the quarter up 192% year over year.
This increase was primarily driven by higher performance fees contribution from IP N S International mandates, which were realized this quarter we.
We also had performance fees coming from our sovereign wealth mandate.
In public equities that charge performance based on pure Alpha generation.
Our international mandates in IP N S had been a major source of upside in performance fees in the year to date, representing 50% of all performance revenue generated by the company the last three quarters.
We believe this business line has great potential to grow not only in terms of AUM, but as a source of future performance fees. In addition to our domestic IP N S business are liquid and private market strategies.
In the year to date period totaled $21 3 million reais up 83% year over year.
Shifting to slide 17, we go over our realized U P vest when in financial income for the quarter.
We had $1 7 million Reais and realized income this quarter coming from gains from our preparatory GP co investments in private markets funds and our cash are located in our liquid funds portfolio.
Delinquent funds portfolio underperformed the CDI quarterly return in the third quarter by one one percentage points.
Consequence of the extremely volatile markets and widening of the interest rate curve in Brazil.
The portfolio's exposure to fixed rate bonds at about 35% of total locations suffered negative mark to market effects as interest rates began their rising cycle in Brazil.
Despite this impact the portfolio outperformed the E might be indexed by one seven percentage points as most of it today is invested in floating rate bonds.
Even as we face short term impact in our fixed bond portfolio from the widening interest rate curve, we expect financial income to benefit from the recent increasing rates as most of our cash or locations or about 85% of the total are exposed to fixed income products.
Therefore, once the interest curve saddles. After this initial widening we should start earning bigger interest on our cash balance.
Turning to slide 18, distributable earnings were $61 7 million reais in the quarter or one rail and nine cents per share up 137% year over year.
This exceptional result was boosted by the growth in managed management and advisory fees combined with realized performance fees coming from international IP N S funds in the quarter.
In the year to date distributable earnings totaled $163 7 million Reais or jewelry is an 89 cents per share up almost 90% year over year.
We are also expanding our D margins significantly reaching 47% that at the end of the quarter up 12 percentage points year over year.
Finally in slide 19, we show our cash and investment balance we finished this quarter.
Third quarter of 2021 with a total of one point 47 billion reais in cash and investments or 25 point 94 reais per share.
Today, our cash and investment balances are comprised primarily by fixed income and illiquid funds and will gradually be shifted into private markets you'd be fund investments.
<unk> capital commitments are called into the coming years.
In the third quarter, we can meet the $36 one meter reais toward private market funds with highlights too. So in your credit funds Vcs, which is in the early stages of fundraising enthusiasts b, our new strategy for private markets allocation you might be N S.
Total capital call during the quarter reached almost 40 meter is coming primarily from gcs and credits and new strategies and new for in real estate values and V. S deal.
So far the company has committed 302 million reais into private markets funds with about half of that capital having being called by the funds for more detail. Please see slide 32 of this presentation.
With that I'll turn it over to Sasha to go through our segments.
Thank you Bruno.
Turning to our segment highlights as you can see in slide 21, the strength of our business as well as Sandra stated in his prepared remarks realized when they bought the firm's diversification.
47% of our F R E and the year to date.
It's coming from our private commodity studies, followed by Lee could you strategies, we have 21%.
BNS reached 17% and financial advisory contributing with 15%.
The same level of diversification is reflect in our segments distributable earnings except for I P. M. S that increased to 23% of segment. The if its contribution in performance fees. This year.
Moving on to each of the segments, starting with a follow up private market strategies one is licensed.
F. R E in the third quarter was up 7% year over year following strong growth in fee, earning AUM.
Total AUM grew 16% year over year in fee, earning AUM grew by 19% in the same period, highlighting important fund raises across our 40 strategies within private markets.
Such as.
The final closing for var for.
Follow on offerings and release of products across real estate and the inflow.
And the launch of a new startup issues like V F D L envious.
Our deployment capabilities remain extremely strong and our private democracy strategies.
Our flagship strategy in private equity BCP III reset.
We recently announced the 50 investments with the act.
With the issue of farmer Macs a.
Leading Brazilian cosmetics platform.
Resulting in a 71% allocation of different commitments.
The fund is expected to close at 60 transactions soon.
In addition, <unk> has formally paas each successive fund allocation threshold.
Which means you guys in a position to come back to Mark.
You said before.
VII for house closed an acquisition recently.
Allison through press release last week.
And the investment in Virgin fluid.
But Zealand company focus on foods and vegetable markets.
The northeast region.
This transaction marks the fourth investments for VII for resulting in a 33, 5% <unk> allocation of capital commitments.
I closed and private market funds.
Phoenix will deliver outstanding returns.
Between you score into the markets I'd say, 51% gross IRR yeah ice.
And 36% <unk> in dollars.
Turning from its own infrastructure is marked I'd say gross IRR of 7% to 8.5% behind it.
And almost 6% in dollars.
Turning to slide 23 liquid this throughout the U F. R E was up 6% year over year.
Strong increase in management fee revenues.
The end of the revenue sharing agreement with guys ambition means by late to enter to win.
The driver behind the expansion in average management fee.
The pharmacy related revenues were down 41% year over year due to lower contribution from performance fees since most of our liquid funds carry a high water mark of benchmark and we can market is growing though I'm not able to charge performance fees.
The only exception is our sovereign wealth Monday.
It was the main contributor to pet pharmacy revenues in the quarter.
AUM and fee, earning AUM was down 17% year over year following significant market depreciation deepwater.
Moving onto our BNS business on slide 24.
Following exceptional growth in fee, earning AUM.
AUM of 59% year over year.
He was up.
Seven 5% year over year.
Yeah he posted.
A bigger jump up 346% year over year.
Rising by very strong performance in our international separate mandates that was realized this quarter.
Finally in slide 25.
S Y E for financial advisory totaled $15 two minute highs in the third quarter.
Year to date advisory contributed to the company's FY <unk> with 25 million is an increase of nine 5% year over year.
Consequence of the much higher deal activity into antiques for anyone.
As you go through our segments it becomes evident that F. R. E N distributable earnings momentum is happening across all our business segments. Despite short term market volatility.
We believe the broad platform that we have at the <unk> puts us in a great position to continue with the positive momentum. Despite the recent market volatility in the country.
Once again, we'd like to thank you for joining our call.
Interest in our company.
We said that I would like to open the call for questions operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Ricardo be though from BTG. Your question. Please.
Good afternoon to everyone and congrats on the good results I have only one question.
We saw good resilience in terms of a lab in the squad in spite of the market conditions in the west microenvironment and while it may be held by getting close end fund raising right and then also bought visualized by the diversification of the Elan.
That in mind and contingent.
Further deterioration of the micro scenario, you could see and becoming quieter.
How can we expect has behaved very bar <unk> Grill fund raising.
And I had and also if you could comment a little bit more about how youre seeing investors' appetite for new funds and private my kids and other mark.
We secured type of vehicles. Thank you.
Okay. Thank you for the question I'll start.
I mean, you that's Alessandro.
And then if Bob ruin the Los Angeles like to compliment our also let them jump in if necessary. So.
As you saw we had the able to of course.
We suffered in terms of market to market, especially on the liquids.
Side of the business, but we have been able to compensate that with the inflow that can that cap. The the average that we saw during COVID-19 off around one below has a month of.
Net new money, we continue to see a positive.
The market for some of our strategies, especially as we mentioned.
Pn as credit and some of our private market strategies are on.
On a P N as it's clear that the trend that we saw so far off.
Winning mandates for a more complete aster locations, both locally and internationally, it's steel with some momentum we saw a pickup of interest in our private credit products and this is a consequence of course of.
Assets migrating for more like fixed income type of of.
Yeah.
Assets.
And finally, we have been able to raise money in our private market strategies in very specifics threat as an E frac or even private equity, but specifically are also creating new fronts to raise money in listed thick with like we did.
In real estate this quarter this last quarter with transactions, where we acquire assets issuing shares off the fun without accessing the market. That's of course with this volatility is not so easy having said that of course, especially from the.
Public equities and hedge funds, we see a more challenging environment.
Not just for all of our products that died.
Both are interesting.
<unk> performance, especially in public equities in terms of our peer group, but because the overall market as we saw there was a overall redemption of assets from these asset classes and when we look for them beam on numbers and et cetera, we're not feeling that but are you to be.
Probably the more challenging market, but we and we intend to compensate that with I P. N S private credit and some specific fundraisings in our private market strategies.
Bruno do you want to add on top of that.
Yes, just so to complement the answer if I just sort of a this is bruno where we are.
And I'm in a position in the private market side, where.
Some of our funds are fully vested.
So we have already announced that are our rights under the.
The listed infrastructure fund Daryl fully vested.
On top of that we recently announced.
Other signing in our flagship private equity funds.
Farmer Macs, and we expect the six transactions will also be added so that's fun quite soon so that would push the fund as well to close to a fully vested status. So we have a position today, where cyclically, we're gonna be looking into 'twenty to 'twenty two.
Which will have the potential of being a heavy year for private market fund raising in big.
Strategies for US right. So you should be.
The rights are the infrastructure listed vehicle, we are rolling out a new climate change funds and infrastructure as well.
There are several strategies that are coming back and the other ones that I just learned already mentioned so we do have initiatives that are lined up for 2022.
That will work very hard to be able to compensate.
Rarely weaker environment for the liquid side of the business.
Makes sense. Thank you very much.
Thank you once again, if you have a question. Please press Star then one.
And this does conclude the question and answer session of today's program I'd like to hand, the program back to Alessandra for any further remarks.
We just got a question.
Would you like to take it.
Yes of course, yes, yes. Our next question comes from Gail <unk> from UBS. Your question. Please.
Yeah.
Okay.
You may have your phone on mute.
Hello, everyone.
Uh huh.
Yes.
Okay, great. Thank you very much and thank you everyone.
Thanks for taking my question just have a quick one.
On the management fee rates, so we see that the net management fees reduce it quite a bit of Macquarie. So I just would like to have more details on.
Trained in terms of management fee rates, we saw reductions, especially in <unk>. So just would like to get a sense from you what.
Can we expect going forwards.
Good evening, Dan VNS and Additionally, if you on the rates.
We see higher interest rates could enable you to.
Do you have like higher end niche medicine seats across a stretch just and going forward.
Thank you.
Thank you for the question I think.
The rates are regarding IP and ask what's happened is that with we win a mandate.
Normally we start allocating this money overtime. Okay. So does it starts with more like fixed income.
When we received a mandate of illiquid assets and restart are located overtime.
And there is a composition of our fees.
That we cannot locate.
To a certain limit you know our own products that normally carries a high interest rates.
Inside the fund of funds structure for example, and against that Okay.
Locating one of our products in one of our divisions. These inside the P&L. So what's happened is is that the average management fee rate.
Stopped going up overtime. So since we have been growing that oh.
During this time are we starting all over a few drags it and to start growing over time. So when we grow AUM normally we reduced a little bit of feedback and then start a recovery that overtime. So this is the.
The question regarding <unk>.
Our management fee rates are regarding I P N S T.
To your question regarding interest rates going up.
And that's how we that could interfere with.
The management fee rate I believe that that of course takes out some pressure pressure over a reduction in interest rates, even though we're not feeling that.
And there is some space, especially in IP and asked that was a very good point of yours, where we can charge marginally higher rates and also this is true for private credit where also that relates with high interest rates. So we can eventually have higher management fee rates.
I don't know if Bruno wus, Angela would like to compliment.
No just to corporate a method.
The average fee rates are our numbers that we monitor all the time so.
We see a very stable environment across the verticals. The only relevant change was the change that we saw.
In the liquids part of the business with the with the.
The change in the association with gasoline that's shared that.
Created a more significant jump up.
In the average fee rate for the liquid side, but other than that the trends in management fees have really been very stable.
Of course, the mix of the business changed a little bit this year with IP and that's growing very very strongly but other than mix and just the impact on the equity side with the guys Vichy announces a dissolving.
Solving the JV did this.
All of them have actually view the other trends are very stable.
Okay. Good thank you very much.
Thank you.
Does conclude the question and answer session of today's program I'd like to hand, the program back to Alessandra for any further remarks.
Thank you very much for your.
Continuous support as I said and the interest in our company.
Thank you for debt tenders and Oh, the support and see you very soon any question that who have him address to our investor.
Investor Relations group. Thank you.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Yeah.
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