Q3 2021 Patria Investments Ltd Earnings Call
Okay.
Good day and thank you for standing by welcome to the Petrea third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Just to ask a question. During this session you will need to press star one on your telephone.
I would now like to hand, the conference over to your Speaker today, Josh would have had a shareholder relations. Please go ahead.
Thank you good morning, everyone and welcome to Patrick is third quarter 2021 earnings call joining on the call today are Chief Executive Officer, Alex side, and our Chief Financial Officer.
Our marketed to politics.
Earlier. This morning, we issued a press release and earnings presentation detailing our third quarter 2021 results, which you can find posted on our Investor Relations website at IR Dot Patria dot com or on form 6K filed with the Securities and Exchange Commission.
Any forward looking statements made on this call are uncertain do not guarantee future performance and undue reliance should not be placed on them.
<unk> assumes no obligation and does not intend to update any such forward looking statements.
Such statements are based on current management expectations and involve inherent risks, including those discussed in the risk factors section of our form 20-F annual report filed earlier this year.
As a foreign private issuer Patria reports financial results using international financial reporting standards or Ifr S. As opposed to U S. GAAP. Additionally.
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 <unk>.
Reconciliations of these measures to the most comparable measures calculated in accordance with the Ifr S are included in our earnings presentation.
As a quick overview of the results Patria generated $21 5 million and <unk> net income in Q3 dollars 21 on.
Non-GAAP measures for the third quarter, we generated fee related earnings of $21 $8 million and performance related earnings of $1 $5 million, resulting in distributable earnings of $22 5 million or $16 <unk> per share.
Alignment with our policy, we declared a dividend of <unk> 14 per share payable on December 16th to shareholders of record as of December 2nd.
With that I'll now turn the call over to our Chief Executive Officer, Alex side.
Thank you Josh.
Good morning to you all and thank you for joining us today.
We now find ourselves near at the end of 2021.
<unk> first year as a public company.
And he has been a privilege getting to know many of our shareholders in these past months.
I want to reiterate the upfronts that we greatly value your support.
I think our results continue to demonstrate that we are delivering on the targets. We put forward for this year.
And positioning ourselves well for strong growth in 2022.
We remain on track for last quarter's guidance of at least $75 million.
Golar has a fee related earnings of a dollar per share of distributable earnings.
Which would generate a 5% dividend yield for an investor in our IPO.
Year to date, we have generated 83 cents of distributable earnings per share.
With 17 cents of distributable earnings per share in this last quarter in the third quarter.
Really we just need to deliver the same results from third quarter again in the fourth quarter to reach our targets.
This outcome represents fee related earnings growth of 30% plus.
And distributable earnings grew by more than a 140% compared to 2020.
When adjusting the prior year for comparable compensation structure.
And our 2021 results are purely organic without the contribution of any acquisition will dilutive for the cash raised in our IPO.
We see that momentum continuing into 2022, where we expect based on current factors to see our fee related earnings increased by more than 50%.
Prior to 2021.
<unk> fee related earnings to pouches Standalone.
Our flagship strategy timelines have accelerated with our next generation private equity funds in the market as we speak what do you have roughly one year ahead of schedule.
Our strong investment performance is the backbone of everything we do driving loyalty on larger capital flows allocations from our limited partners.
As well as a substantial performance fee of $14 million, which will benefit shareholders of distributable earnings in future periods.
As notably in the third quarter.
Took a major first step in our M&A growth strategy with the announcement of our combination with many other asset management.
Which will be further additive to earnings in 2022.
Is it provides the foundation for a leading alternative credit platform in the region.
For our flagship private equity and infrastructure strategies.
Have raised each new vintage on consistent time intervals.
The majority of capital from sophisticated International Limited partners.
And with the commitments in denominated in U S dollars.
We have done this through many different macro environments.
And we don't believe now is some how special a difference.
Supported by a track record of strong investment performance.
We have established trust with our investors as a partner of choice to access private markets in the region.
Since they tend to invest in private markets around the globe.
The state of the times of volatility are often when firms like Patrick can do their best work.
They recognize our ability to be opportunistic during market dislocations through deep and localized industry knowledge.
For those reasons, we have been able to reach new vintages of long term locked up capital every three to four years.
While also scaling the capital commitments at an impressive rate.
We are almost fully committed on our current generation private equity funds.
And we are now back into the market, we see the next vintage one year ahead of schedule.
We expect the first closing to be around the.
The end of the year.
Or perhaps just after depending on logistics for some of our Lps.
And we continue to see demand some scale disciplined up by 50%.
The two latest vintage funds private equity funds six in private equity fund five.
Performing extraordinarily well with private equity fund five net <unk> of 29% and private equity funds six net <unk> in U S dollars of 27% and we're seeing great progress within the portfolio.
For example, our heavy deployment in the first half of 2021 includes the commitments to our cyber security thesis in private equity fund six.
In the third quarter, we announced the acquisition of nail secure and pro tools. So consultant data the largest information security platform in Latin America.
With operations in five countries.
This platform can continue to grow through additional consolidation.
This is a classic example of our distinctive approach to building market leaders in the region.
Likewise in the infrastructure space, our current generation funds continues to progress nicely.
Dressing and opportunity set in the region that only continues to grow.
With a $2 billion of funds, we are analyzing our pipeline for the next 24 months of around $50 billion of potential equity checks for transactions in Capex.
This figure includes actionable opportunities in sectors like power logistics telecom and others.
Colombia, Chile, Brazil, and other countries in the region.
And our infrastructure fund for portfolio, we have seen two fantastic stories developed just in the last month.
The first was in the telecom sector.
Just two weeks ago, Brazil held.
It's five <unk> spectrum auction.
Our telecom platform with city. Please the winning bids for the 700 megahertz band four national coverage.
As a result of this winning bids are company, we'll build more than 5000 telecom towers in the coming years all pre contracted.
Certainly the largest telecom operators and other corporate customers in Brazil.
This will drive significant additional deployment of capital from our infrastructure fund for at attractive returns.
The second was in the power sector.
Back in late October essential energy renewable energy portfolio focused on solar and wind power generation.
And then also the beginning of operations at the soldier system Solar panel.
Lance.
In the northeast of Brazil develop from scratch by Patria Accenture has now delivered the second largest solar.
Complex in Brazil, and third largest in Latin America with a capacity of 475 megawatts.
This plant is now fully operational serves an estimated 580000 households, and saves the emissions of about 465000 tons of steel to three years.
We are particularly proud of this project and I think it underscores <unk> commitment to making ESG not just a book that we check but an active on perceval so effort throughout our portfolio.
Addressing the growing desire from global investors for dedicated allocations to ESG themes and the global energy transition.
We also announced last quarter that we're currently raising and renewable energy fund to complement our flagship infrastructure fund.
We are targeting to raise the renewables fund before coming back to market with flagship infrastructure Fund next year.
In our country specific strategies, we believe the financial deepening the region continues to be a substantial long term opportunity.
Locally focused products continue to be important to our growth strategy.
Currently they still accounts for less than 10% of our assets under management and fee revenues.
And so for better or worse. This bucket is not yet a big needle mover for our P&L.
The more recent developments in local interest rates environments are particularly supportive of credit strategies and accordingly, we are seeing the immediate fund raising opportunities is shifting in that direction.
In the coming quarters, we expect to raise capital for our second middle market credit funds as we finish investing the $200 million raised for the first one.
Where performance has been excellent with no defaults.
An improving credit ratings in several portfolio companies.
We are also targeting to raise capital for our first infrastructure credit product.
Whether there is significant demand for capital given the regional momentum in infrastructure investment activity.
At this point, we have established anchor investors for both products.
Which should be drivers contributors to country specific fund raising in 2022.
There are multiple work streams in motion within this area.
We will keep you posted on progress as it becomes more material.
Our big news from the third quarter is of course Moneda.
Using white space in our platform.
Moneda manages the largest high yield credit fund in the region.
Which is 10 times the size of the next largest competitor.
And has delivered leading returns with more than 350 basis points of outperformance against the benchmark.
Since inception.
Is there a team we are gaining a level of truly regional expertise not just Brazil.
That would be difficult for us to build organically.
Immediately out of the gates, we see strong synergies with our global clients, who are interested in credit allocations.
Okay.
Where they can find deals that remains absence in developed markets around the world.
This translates to incremental wallet share from our existing clients and incremental growth channels that would have been difficult for moneta to access on their own.
Bigger picture.
You should expect to see product development on the private credit funds.
<unk> current private credit portfolio of roughly $450 million.
The previously mentioned 200 million Patria managers already.
And together, we expect to develop distinct private credit offerings will dropdown structures similar to our current flagship products.
As I noted.
We are progressing with plans for middle market credit and infra credit products in our country specific strategies.
Given the steep growth trajectory of private credit across the globe.
We believe we can attract significant credit allocations from international investors over the coming years as well.
Beyond Moneda.
We continue to be active in pursuing other inorganic opportunities.
There is more activity on the horizon.
This could mean bolting on high demand and complementary sub strategies.
Acquiring local talent in different regional geographies.
In any case, our efforts will always be patience and diligence to ensure that any new partners will be a fit for our culture and highly aligned with our vision for what Patrick has become.
With that I'll now turn the call over to Marco to walk you through the numbers.
Martin.
Thank you Alex and good morning to everyone on the call.
Our financial results for the quarter reflect our continued progress toward our prior guidance for the full year 2021, and demonstrate the topline impact from the heavy deployment, we saw in the first half of the year.
Fee related earnings were 21 $8 million in.
In the third quarter 21 up 24% from $17 6 million.
In the second quarter.
Fee revenue of $37 4 million rose, 16% from last quarter as we added nearly $1 billion net of our fee, earning AUM through deployment.
Our FRE margin for the Q3 was 58% up from 55% in Q2 due to the jump in revenue putting us on pace for our margin in the high Fifty's range for the full year.
Compared to <unk> 20.
Fee related earnings were actually similar as Youll see reported in our P&L.
That is not comparable due to the post IPO adjustments to the compensation structure.
Adjusting the prior year quarter, or an apples to apples compensation structure fee related earnings were up 25% compared to third quarter 'twenty.
Fee, earning AUM of $9 2 billion is up 11% from $8 3 billion last quarter.
And up 22% from seven 5 billion one year ago.
We landed slightly below the range of nine 4% to nine 6 billion with suggested last quarter with private equity and infrastructure as expected, but at a slightly lower outcome in our country specific strategies, where we have lower visibility due to <unk>.
In part to FX and local equity market volatility.
Regardless, we continue to deliver attractive year over year growth in our management fee based.
Which is the critical driver for the organic FRE growth path.
On the cost side pre Q21, personal expenses of $12 $1 million were up from $10 1 million in the prior quarter.
With about half of this increase being run rate and the other half relating to some nonrecurring adjustments.
We therefore expect the fourth quarter personal expenses to fall between the Q2 and Q3 levels.
Admin expenses of $3 million in the third quarter 'twenty, one were down from three eight in Q2 to some nonrecurring items that elevated the prior quarter.
On a year to date basis admin expenses are running about 5% higher than in 2020.
We had $1 5 million of incremental performance related earnings related to private equity fund III.
Which aligns with our common less larger that we could see some minor adjustments in subsequent quarters.
As the stack of the RDR sale are completed and other acts growths are received.
At this point, we do not expect significant additional.
Additional performance related earnings in 2021, and we expect private equity fund <unk> to be the major driver in 2022.
Net accrued performance fees were $314 million as of September 30.
<unk> slightly from $325 million last quarter, driven primarily by currency fluctuation in the quarter and local equity capital markets.
Activity.
Fracturing, some public positions and comps.
Year to date.
The net accrual.
<unk> up 14% on an absolute basis and up 35% when accounting for the amounts that we realized in Q2.
The third quarter was mostly uneventful in terms of new reported fund raising deployment in realization activity with <unk>.
You should certainly not mistake that for lack of activity on the fund raising trail or in the portfolio.
And our pipeline.
As a reminder, we report our deployment figures based on incremental capital that is deployed or reserved.
In other words binding commitments to a portfolio company our investment thesis.
Since that is typically what drives fee earnings AUM and revenue in our flagship funds.
In the first half of the year, our deployment pace was well above average at nearly $1 8 billion.
Higher in six months than in all of 2020.
In the third quarter. What you are seeing is that capital really flowing into the business development plan.
And M&A within the portfolio.
As Alex noted a few great examples.
We still have $1 $4 billion of pending fee, earning AUM eligible to earn management fees once deployed which.
Which will be replenished by our ongoing fund raising efforts.
This $1 4 billion.
It's spread across a few funds, but most notably we do expect one additional allocation from private equity fund six before transitioning to.
So the next vintage fund.
Fund raising for our next vintage private equity fund and first dedicated renewable energy fund is ongoing as Alex covered in his remarks, and we expect this fund will begin.
Deploying capital in 2022, alongside the remaining commitments and infrastructure fund for us.
As we approach the end of 2021, and we now have higher visibility on our full year earnings.
We know that attention.
Has naturally turned to 2022 expectations.
Our intention will be to provide you with a healthy outlook. Once we have a good ability to forecast and then refine with a sharper point.
As the year progresses, much like we've done this year.
Now.
With our initial 2022 annual planning process complete.
In a much better position.
To do that on fee related earnings.
Overall as Alex mentioned earlier, we expect total FRE to increase by more than 50% in 2022, driven by solid double digit organic growth as we invest larger flagship funds and launch adjacent strategies such as renewable energy.
And the addition of more near the platform.
We expect the FRE margin for the organic business to increase slightly in 2022.
<unk> margin is expected to be closer to 40%.
Combined we expect <unk> margin in the low 50% range.
On performance fees.
2022 outcome will really depend on the harvesting progress for private equity fund five.
Which has net accrued performance fee of $217 million as of September 30.
We've said that you should think about the sun five realization arc as expanding mainly over 'twenty, two 'twenty, three and 'twenty four and that remains the case.
While we expect to generate some portion of that in 2022.
Exact timing is very hard to project.
And it only makes sense for us to provide this thing guidance on this when we have very clear line of sight.
Altogether. This outlook, we believe frames a strong growth profile for the coming year and keep in mind that our dividend policy shares 85% of our distributable earnings with our shareholders.
In 2021, the outlook for D of one dollar per share means 85 cents to the shareholder.
As Alex noted is a 5% yield on our IPO share price.
Nearly four times the current yield on a NASA 500 Index fund.
If we grow FRE by more than 50% next year most of that incremental value is being delivered directly to shareholders each quarter.
And even thinking conservatively, we believe our growth and dividend profile imply an attractive current valuation for our shares to date.
Across our entire business from executive leadership to fund raising investment professionals to value creation team, we are focused on execution and.
And we are aligned with building value for all of our stakeholders.
We thank you for your time and we will now open the line for questions.
Thank you as a reminder to ask a question you will need to press star one.
On your telephone to withdraw your question press the pound key again, if you would like to ask a question press Star one.
Our first question comes from Craig Siegenthaler with Bank of America. Your line is open.
Good morning, Alex Mark I'll hope, you're both doing well.
Yes.
Hey, Greg how are you good morning.
Hi, Craig this is Alex here.
I hope you are well as well.
Thank you and thanks for all the guidance and targets for 2022 that will be helpful. But my first question is on the M&A outlook. After my data.
How do you quantify deal capacity.
After my data and also do you have an appetite to pursue additional transactions as chair after this one.
Yes.
Well this is Alex again, it's excellent for the question the answer is yes.
We still have our appetites.
<unk>.
Did that consume around $100 million.
From the $300 million that we raised with the primary issuance of shares in the IPO.
Indeed, moneda deal or we will consume because we're going to close the deal by year end, hopefully everything looks completely on track disciplined since here.
With that we have 200 million Sterling cash from the issuance of primary shares at the IPO.
To direct.
For additional acquisitions, and we want to do that so.
If we do translate that 200 million of cash if we buy something also using stock now of 50% cash 50% stock.
Still have another.
400 million of powder to buy other asset managers why why the 50 50, because I think it's important as we are a people driven business to give the new partners of our shares.
And keep them locked up for a while and to align interests.
So if we divide that by the same multiple that we bought Moneda, we have another $40 million of.
Earnings to buy.
In several different geographies and products, we did feel I think the credit space quite nicely with Moneda acquisition as mentioned earlier.
Earlier today, and I think there we can really continue to grow.
They are private credit with ours and they are listed credits high yields which is a product that is not a lot of investors around the world are seeking for given the yields in the region. We also acquired a very very significant.
As a portfolio with Moneda, we also having.
A smaller pipe strategy that can join forces and we can do more on that front.
And you also have closed end kinds of structures.
And I think here on the real estate side Greg.
No I think we can.
To try to focus.
To do.
Other acquisitions to grow our real estate portfolio.
To remind everyone in the region that real estate is inflation plus right. So when you buy.
Our real estate products and when you rent out whatever.
Contracts in the region are adjusted by inflation.
And with inflation picking up around the globe and in the region as well and vessels are looking for these kinds of products in our Reits real estate investment Trust, where.
The share of that reads as whenever the yield that you get plus inflation as the rental contracts are all adjusted by inflation.
That's another product that we want to go into more deeply in an acquisition there or acquisitions, there I think makes sense.
So there are several there holds here in our menu.
We would like to field.
For example.
Within the private equity vertical we do have a growth.
Hey, Alex consolidation private equity fund, which we call our flagship private equity strategy.
I think there's a space for us to launch a core private equity strategy.
In a listed formats, which is a permanent capital formats, I think the social space for us to launch or do a small acquisition in the.
Venture, which we now call growth equity.
Part of the business also.
I think there's a lot of interest from international investors and investing in the products and the growth equity.
Base.
So a lot of things to do very exciting and no buying into.
<unk>.
Real estate buying into private equity different strategies buying into different geographies.
As we did with ammonia they'll get more exposed to Chile, we will like to get more exposed to Colombia, Mexico at due time I think.
In Colombia, I think it's the right time in Mexico, we have to follow through.
The leadership, there and what the leadership in Mexico and need the President's.
<unk> actually directing Mexico, too, but nevertheless, Mexico as an economy. So much linked to the us the us very interesting thesis like near shoring of production production that has done all over the world now being driven to Mexico to be closer to the U S.
Other thesis very interesting in the infrastructure space as well so yes appetite continues to be high.
Still have the cash from the IPO $200 million.
We normally use some stock to do these acquisitions, so our dry powder is even larger than the $200 million or bigger than the $200 million.
And we are generating so much cash you know that we are a cash cost of a generation business that we can do these acquisitions and continue to distribute 85% of our distributable earnings as dividends.
So hopefully your answer to your question I noticed Mark if you want to complement anything.
Yes, just think about our acquisition program aiming at.
With <unk> enhancing the product offering expanding our geographic footprint.
Binding.
New geographic capabilities and improving the distribution capability. So moneda brings the three of them.
Following acquisitions may bring the two of the three of them, but may not be there.
The case as well so.
As Alex alluded to there is a lot of opportunity in infrastructure credit real estate and we will continue with this effort.
Great. Thanks for that very comprehensive response in fact, it was so comprehensive you actually answered my follow up on M&A, but I do have another one here.
And it's on the macroeconomic front and listen I know you guys could spend a while answering that but very simply the.
The COVID-19 conditions are getting better in Brazil, but.
But inflation starting to rise our low interest rates are generally a benefit for many private market asset classes, but how do you see higher interest rates impacting in Brazil impacting your business, especially in Europe, <unk> to sell to local and Paas curious where youre competing with fixed income.
No I think.
Great question here I know, we have of course been.
Asked by other investors the same the same question or a similar kind of a question.
Yes, I think the.
Interest rates are going up in the region, because inflation is going up but I think here, it's important to say that actually the products that we offer has always been actually.
Interbank rates linked plus a premium of course and inflation linked plus a premium.
I mentioned, the real estate products not all of our real estate products. The rental contracts are adjusted by inflation.
So when we sell the product here in Brazil, we sell the rights and normally the way that we actually.
Marketed as inflation, plus 6% inflation plus 8%, that's how you actually sell.
The shares of a REIT in Brazil, not only our rights.
Investors are worried with inflation they look at a real estate investment trust actually a.
As a protective investments.
And also our credit products. The same of course, sometimes they are interbank plus a premium interbank rates plus a premium and the rates are going up in order to cope with the rise of inflation.
100% of our credit products here are variable rates linked so we don't we're not stuck to any low interest rates that we did lend money in the past and now we were caught off guard all of our products actually are variable rate. So with the increase of the interbank rates would increase of inflation. So does <unk>.
<unk> saw the rates that we receive in our credit products. So they are very much.
Sought after by investors in the infrastructure space the same Greg.
If you look at our infrastructure fund for all of the investments in that fund.
Half the revenues corrected by inflation contractually because when you when you.
We use the example here.
In our call today in our earnings call today.
That infrastructure won a <unk> auction and just a couple of weeks ago that contract is contracted by inflation. So its X amount of Reais plus inflation.
Also our core infrastructure fund the same.
So all of these Ah why why is that why it's not.
Why did we do this because inflation has been.
An issue in the region and because of the structural issues of the economies in the region. It will still be an issue.
The economies are here are of course.
In different moments in time of their of their developments. So we have always protected.
Given our past experience and we continue to be protected finally on the private equity side of course, we don't have revenues contracted by inflation. When we when we go in into a health care Company for example, but we do go into resilient sectors, which we normally.
Most of the signs we can pass onto prices inflation on our cost.
All of the.
These results and the returns that that you saw given our paas funds and current funds and even more so our paas funds they went through higher inflation environment.
Our.
Fund 123.
In private equity for example, already delivered only fully divested three funds fully divested 16% net IRR in U S dollars to three times your money net in U S dollars and funds <unk> III.
Actually lived in a higher inflationary environment.
Such moments, we had inflation high double digits in Brazil for example, and we still delivered 16% that's in U S dollars to three times net <unk> in U S dollars for those three funds.
Now we are harvesting from four 5% in the private equity in our private equity space.
So investors are actually.
The shifting of course more to inflation protected instruments like <unk>.
Real estate products.
<unk> products are infrastructure products, and we see that locally.
We see more demand for our credit products at Dakota.
The COVID-19 and having this broader menu.
This strategy in order to cope with this different shifts in demand and continue to to raise money locally.
A very healthy minutes, so hopefully I answered your question.
Very comprehensive again, thank you guys.
Thank you and our next question comes from Robert Lee with <unk>. Your line is open.
Thanks. Good morning, everyone. Appreciate you taking the questions.
I'm just kind of curious.
Couple of questions around the fund raising so.
With that the PE fund you raised now is there.
You see any change in the LP base is it mostly say, 80% re ups and you're getting 20% new investors just trying to just curious about how maybe the LP.
Base may be.
Changing if at all and then on the renewable fund do you.
Have you could you, possibly size that and do you think that that would kind of take any demand away from the infrastructure fund when you start to raise that.
Maybe later next year or the year early the year after or do you view them more as a complementary.
So thanks, again, and nice talking to you and thanks for the questions.
I also have your first question.
We see the same LP base on.
On institutional.
Lps that are most of our Lps and our.
Private equity strategy today.
Of course, sometimes they are little shifts here or there.
One of our Lps has merged with another LP that's life.
Im talking.
A minority part of our LP base.
But yes the majority.
So as you mentioned, 80% what we are trying to do.
No.
We want to do is to expand our LP base.
Two other regions and other types of clients, we would we would really.
Enjoy having more money from.
Ultra high net worth individuals through the private banking I think no.
Distributors, we see that.
Private equity alternative investments in general is becoming more and more attractive for individuals.
China. Unfortunately individuals so thats I think theres a lot of money to be raised there I think there is some regions in the world, we will like to increase our share of wallets.
Australia for example that we have an amazing amount of as you know very large pension funds.
I think our market share there is low so I would love to bring them in to this fund. So the answer is yes, I think most of our.
Capital for private equity funds seven will come from current Lps and the current Lps are the ones that actually do come earlier in the process. So they are the ones that actually.
Not really supporting us in a first closing for example, because they already know is it's just it's a re up great great returns for private equity funds five and six fully divested from.
Private equity fund one two and three with the returns that I just mentioned that 60% that's in U S dollars to see Myc in U S. Dollars. So they are used we know they know us et cetera. So those so the percentage of Lps that come into force closing or even more so current therapies and then we tried then of course to work with other <unk>.
These.
If I have to.
To give you a number I would love to have a two thirds current Lps and a third new Lps in order to do exactly what I just mentioned expand the base looking to fund eight nine and 10.
On the renewable energy front question.
It might happen I think I think you have a point there.
Because.
Some of these Lp's book of the region, and said look I'm going to expose myself so infrastructure.
And I'm going to expose ourselves to renewable infrastructure. This case renewable energy.
Might that be look I'm going to have a X amount of dollars checks for patria.
And.
A slice for renewable in the other slides for.
Infrastructure fund five.
If I would guess I think it.
It might happen I think in my outlook.
We haven't had these conversations yet with these Lps because we haven't we're not raising infrastructure fund five.
We are focused on return on the infrastructure side to raise the renewable front, but the Lps that are supporting us at least the first closing of this renewable fund our current el piece of our infrastructure strategies.
So it might happen I think it's a good question.
Sorry to circle, a number but I think you have a point there is it might.
<unk>.
<unk> Fund co road, a little bit the demand for that.
Thanks for the complete answer I appreciate it and I did have one follow up.
<unk> five and our performance has been very good and obviously, that's where you expect the next realizations, but do you see.
Much of an opportunity to maybe even accelerate that I mean, obviously continuation funds GP led secondaries have been really growing in the industry and I'm sure you have some assets in there maybe we'd like to hold even longer so.
Is there a possibility that you may be able to deploy some of those strategies to kind of accelerate the return of capital realizations, but also kind of keep the assets and fees in place.
Yes definitely so.
That part of the market.
So exciting today I think there's so many new things and new strategies going on but the concept of.
Continuing to invest in these.
What we called champions.
It has always been part of our day to day here of our strategy.
Ill give you. An example, the first deal that we did with a drug store retail chain.
We bought it for $28 million, we sold it for $300 something million, we thought that we were just geniuses.
Company today is worth $5 billion.
And we've made 12 times our money was what are the investments and we could have made the company today is worth quite a bit at the St.
Okay.
It is an amazing company number one.
In Brazil in drugstore retailing blah, blah, blah, blah blah and continue to grow very strongly and I can give you other amazing examples from our private equity funds from our infrastructure fund.
One or two champions per funded I would have I would love to continue investing in these companies given that they continue to deliver 20% plus returns per year.
And to do that for 20 years or 30 years. This drug store retail companies that I mentioned, we divested.
In the late nineties.
Whatever 20, something years ago, and drill and growing 20% per year.
Something rare to find and we have other companies.
In the diagnostic field.
Energy fields.
We could have continued to invest so yes, we are looking.
<unk>.
Setup.
Continuation.
Driven vehicles listed we are looking at strategies that you can list. These funds.
In.
Exchanges like in Brazil exchanges like in London that have a bucket for the for these kinds of funds as you know.
And also we can continue to drive.
A lot of value and investors are really supporting us on that because now finding a company that we foresee that we will continue to grow 20% per year over the next five to 10 years, we have demand and we already did risks that's right. It's a company that probably we have already one four.
Whatever six to eight years. So we know the management, we actually placed the management there we derisked the assets we know exactly.
What to do and we did that with.
Lately.
With a health club chain called Smart fits it was part of fund III now as part of one five plus a group of co investors.
And it's working and it's working extremely well so the answer is definitely yes.
When you have when you know when.
Managing a fund right. That's my view at least which is the case of private equity fund five.
28% returns in U S dollars net and a $2 one myc net new installers.
Have to sell the assets or you have to go for a continuation funds for some of the assets, but the investors the Lps of fund five.
No two times your money and 28% net IRR.
It's time to go so.
So we are looking very very.
Yes.
Actively through divestments for all of our companies and private equity fund <unk>, which is the case that all of them are mature it's interesting.
The right to not material I think it's not the right expression I think they're right.
To be it should be sold given the returns that I just mentioned.
Thanks.
Great. Thank you that's a full answer.
The two Alex.
There are also opportunities too.
Some of the investments that have been developed under the development tons into a permanent capital structures.
Aiming at offering to local investors yield products, well, that's something that we saw happening in other parts of the globe.
That also are opportunities that we are looking at.
Great. Thank you so much I appreciate it.
Thank you. Our next question comes from Marcelo Telles with Credit Suisse. Your line is open.
Hi, Alex Hi, Mark Thanks for the time and congratulations on the results.
I have two questions. The first one I mean.
1022.
Bob.
Yeah.
How do you see.
Yes.
The level of capital deployment.
Next year.
Of course, we had a remarkable performance easier.
8 billion.
And deploy capital Hartford to think about 2022.
It should be around that $2 billion that historically have been more.
Given that perhaps it evaluations in Brazil have come have come down a lot I mean do you see room.
To deploy.
Capital faster than that.
And.
And my other question is kind of the flip side of that argument in terms of the deal.
Realizations of course that was a big the rating.
In the Brazilian market currently malicious.
Come down quite a lot.
Does that impact.
I'll just mention.
Mr Divest.
Particularly I think.
<unk>.
How do you think that environment impacts your ability to divest.
Next year, maybe it would be worth maybe to wait a little bit maybe after the elections in Brazil.
Maybe get better valuations than deposits at the three hopefully so how should we square this is Joe.
Thanks.
That are in some way kind of opposite at this point in time in the business.
Our cycle.
Thank you a nice nice talking to you.
Thanks for the question on Dr.
The investment side I think the first part of your question, we continue to see a very interesting environment to continue investing.
Much more so I think because we know the size that we have today and plus.
The opportunity set I think that is going on in the market.
We continue to be extremely positive on that front and we continue to see kind of the same level of activity that we had this year for next year.
On the infrastructure.
Syed.
It's amazing.
<unk>.
We mentioned during our earnings call, we run a $2 billion fund we want to raise another.
Other infrastructure fund sometime in 'twenty three youre ahead of schedule.
Late 'twenty two 'twenty three but there are like 40 50 $60 billion of concessions going on just in Brazil.
Theres not a lot of capital chasing these concessions.
And our interaction with the regulatory bodies in Brazil, and the decision makers in Brazil, I mean, the ministry of infrastructure. The Minister of Telecom and energy is very very close now we don't know.
Talking to them and when is this.
Because we became a very important bidder.
These auctions.
So I am very excited on that front and I think there's so much to do and again $2 billion fund and just in Brazil, 40, 50 60 billion of concessions you can really choose.
Youre the best assets to go after right.
On the private equity side I think the we do focus on.
Three or four sectors as you know health care being number one and then agriculture.
Agricultural and food and beverage and then business services logistics, which not logistics became kind of a business service today given the.
Digitization of the world and the deliveries.
And we continue to be extremely excited I think there is so much to do there on the health care front I cannot say more right now healthcare is booming right.
We had more than 60% of our investments in healthcare and our companies.
It was really nobody plan for Covid, but our company is really benefit from this month from the situation because more usage of distribution of drugs more usage of the drug.
Assumption really increased in the last years as you know.
We are extremely excited there and are really excited to continue to do investments there on the agribusiness, you'll know what happened with the.
Commodity prices for agriculture.
We have companies in that sector and exposed to that sector, which are doing extremely well and same thing with logistics.
No.
All of our companies do last mile logistics.
Coal logistics.
It did very well also during these last two.
These last eight years.
On the divestments fronts. So again just to summarize yes, I see the same kind of volume of investments that we did this year for next year I don't see us decreasing that volume is the same or are increasing action.
On the divestment side.
Uh huh.
Of course, we are going to be as cautious as possible, but when you look at the portfolio again on the private equity side to see healthcare on the private equity side Youll see aggregate, we'd have a lot of interest from strategics for our assets.
Might not use the capital markets because of customer markets are choppy, but we see a lot of strategic interest for the assets.
We are receiving offers for our assets as we speak because we are trying to sell on the infrastructure side.
Of course, as we de risk the assets.
A lot of interest from strategics and not a lot of interest also from.
Brazilian investors.
Or Colombian Chilean wanting to be exposed to a very good use generating products.
<unk> de risked that infrastructure, then it becomes truly mature and operational it becomes.
Kind of a fixed income products.
Within equity upside embedded into it.
Transmission electricity transmission line.
Our generation.
Evening toll roads no after.
Big Capex is done which is normally at the beginning of the concession.
Actually that asset becomes a new asset and you know that investors are looking for yields in these contracts as I mentioned, our inflation corrected so its inflation plus which is no again, we see the demand.
Some investors.
In addition to do recaps in our infrastructure, because we see the demand for credit so even if no issue if we don't want to sell the equity.
After we de risk the assets, we do a recap.
Can raise new bonds at a lower rate because we de risk the assets, we pay the project finance.
And we actually deliver and we we do then redeem that.
Our cash to investors as a dividend.
So it's extremely exciting on the divestment side as well.
Of course.
The capital markets or get very choppy given the everything that is going on.
In the region not only in Brazil.
But.
Normally if you look at our divestments.
70% plus close to 80% of all of that.
Divestments worked with strategics and strategic as they continue to be bullish.
Bullish on the region to be honest.
In the sectors that I mentioned to you.
So yes.
I think the same volume on the investment side, and we see that we'll be able to divest.
Also.
In due time of course.
It's more of a question of the portfolio company being ready to be sold because we Max out the synergies of a consolidation process.
De risked the asset because we finished constructing it and is now fully operational so that's more the driver actually then interest from strategics that we continue to see.
As they were in the past thank you.
In addition, Marcello.
I encourage you to pay attention to.
The underlying quality of the portfolio.
Not only.
When you look to two.
The different possibilities of divestment.
As Alex noted to the return of private equity fund five which is.
In 2000, 2015 vintage is 29% private equity stake to 27% infrastructure for US now you will be 25%. So I think what is key here is we will always be.
There are a lot of attention to the timing of divestment, but the great thing is that the underlying assets are great. So when the right time income we will be.
Very good positioning to divesting.
Just wanted to bring this up thank you.
Yes extremely extremely clear just two follow ups if I may.
Number one.
Regarding the.
The fund raising for Polyculture specific strategies, you think like a billion dollars a year is still let's say a good base case scenario.
And secondly.
Look at our guidance for Q2.
'twenty two.
FRE growth more than more than that 50% how should we think about moneda.
Our own business.
Should we expect that double digit growth.
Pro forma moneda in 'twenty, two how should we think about that thank you.
Well on the.
On the first part of the question I think Youre right on there I think it's organically I think that's that's a number that you can work on.
We plan to do acquisitions in the local market as well.
As mentioned earlier.
But yes organically I think that's the kind of AUM growth.
And I would expect from the team here.
Yeah.
$1 billion that you mentioned right.
On the on the other fronts.
We continue to see very strong growth for moneta and ourselves.
It's getting harder to actually breakdown, which is which to be honest as we are.
Really merging the two businesses and in the consolidated the back office and the fund administration side.
But I think we can.
Definitely if you if you do the math here.
I think over 50% growth from where we landed.
We.
Where we are landing I'm sorry in 2021, it is a double digit double digit growth high double digit growth for both companies right.
Yes.
Michael if you want to add anything here, what's your view.
Yes.
Yeah on the Moneda side, well the whole.
Dynamics with the higher interest rates in the region poses.
Favorable.
Set up for the high yield dollar denominated funds and.
The local currency denominated.
Positive with the possibilities there it's still early to say as we are closing the transaction.
In the upcoming weeks and.
There's a lot of work work to do there.
But as Alex noted Theres also some.
Opportunities on.
On the.
The cost side and the tax side and that would help us out to reached double digits I can see a double digit coming in.
Still early to say, where we're going to land at this point, we will certainly provide better guidance over.
Over the following quarters.
And I think just the just as a note here given that the deal is not yet approved by the regulatory bodies.
We have limited.
Kip.
Okay.
Pasty or talking to him one yet okay.
The antitrust bodies, they have to approve the deal.
Before doing that we're not we cannot and we are not.
In full contact.
To go deep into the numbers of limited so just as a cap yet so.
Which is a which is a very important got it right.
As you know.
Actually natural of every deal.
So we have not gone into any discussions with them.
In a deeper manner, given what I said.
However, we see on their site.
Demand for their products as Mark was just explained.
And we already see on our site from our investor demand for credit related products.
But as we as we get the approvals and they should come.
Theres nothing in the horizon that says that the regulatory body should not approved the deal on the contrary then we're going to be able to have.
More in depth conversations with the guys from one of them isn't that correct Michael.
Okay great.
Correct.
On the way for the clothing, there are certain approvals that have been granted there are certain preceding conditions that are still pending but.
Pretty much very positive that we're walking solidly to the closing in the upcoming weeks.
Thank you.
Thank you. Our next question comes from government.
Greenspan with J P. Morgan your line is open.
Hi, Alex Mark Josh Thank you for organizing the call.
Two quick ones on our side, we saw the average management fee rate in the quarter.
Slightly going up it seems to be related to.
Partially mix on the segments, but also.
If we recap correctly D.
For some funds and specifically thinking for a for the last one you raised them.
Management fee goes up also deploy.
And then my question I was actually looking forward do you still have $1 4 billion to be deployed.
If we should expect not only fee, earning AUM to grow but also management fees to go up as a result of this different pricing.
Schedule and then the second one is just to confirm the general terms of the new <unk>.
Funds being raised.
Again, if we recapped correctly the latest one.
<unk> was already over deployed and it was a 2% rate.
If this new will be followed the same thank you.
I can get one and thank you for the question.
So.
Simple answer to that.
The trading up of the fee and it's specific on the private on the infrastructure fund as we deploy capital there is a component of the fee.
That kicks up and as we strongly deployed over the quarters that is building up the mix upward.
It's just the nature of the setup of the infrastructure fund.
As for the private equity, we expect to have precisely the same.
Dynamics.
We feel.
And just by the way.
I think I mentioned that before in previous quarters, but we have.
A very positive.
<unk> demand dynamics.
Two our funds that enable us to continue to.
Sustained at the <unk>.
These are fees that we have on the private equity both on the infrastructure too.
Yes, and just to be clear here.
Gilead is.
200, <unk> for private equity and just we just charge when we commit to deploy the capital okay.
Okay, guys, just one follow up the $1 4 billion still to be deployed.
This is what is the breakdown between the infra and private equity.
It's across several family of funds.
There is.
A big piece that is on the on the big piece that is on private equity and another big piece that has the infrastructure that you would add up to other products as well.
Yep.
Yes, I think from.
From my math here, I think 87% to 80% is private equity and interest rate.
Okay guys perfect. Thank you.
Thank you very much Jim.
Thank you and I'm showing no further questions I would like to turn the call back to Alex <unk> for closing comments.
Well. Thank you very much again for your support I think we are.
Extremely.
<unk> of <unk>.
I am extremely proud of my team and I think I can say.
In.
Also from from the Board Olympia.
Very proud of what we've been able to accomplish.
Now getting out of the gate.
The first year public company and managing to deliver what we what we expected and we've talked to most of you during the IPO process of a $1 per share.
For 2021 looking into 2022 with <unk>.
<unk> related earnings expected to grow.
At least 50%.
With all the fund raising efforts, we mentioned to you guys.
No no.
Then push us into a good 2023 as well in.
In addition, we have the $200 million of cash still.
Still left from the primary issuance of shares in the IPO to do acquisitions.
Again as I mentioned this.
If we buy $200 million and there's another $200 million of seller financing whatever we have 400 million still dry powder the way that I see it which is at the.
Multiples that we did acquire moneda, another $35 $40 million of fee related earnings.
To add to the numbers that I just said.
And then on the.
Performance fee related earnings Great performance from our funds, which were which was already mentioned.
And private equity fund five now ripe.
For us to harvest.
The performance fees as we did for private equity funds III in 2021.
So then.
Broadening our little bit of view on the strategic side I think we've been able to accomplish what we wanted to do and what we actually compete and talk to you guys over this year, which is expand our geographic footprint expand our our product offering fits exactly that recipe.
And being exposed to different countries different currencies different products.
It gives me as a CEO of this company more preserved the ability more predictability and looking into the future.
Of a growth, but more predictor, even more predictable growth that we have we really have a very solid predictable growth.
On the <unk> side, and we this new products credit related products, even more so.
From women.
So we want to expand or continue to expand our business as mentioned countries like Colombia, Mexico, So very very excited.
Extremely pleased with the team I would like to thank the team and the progress. They are probably listening here with you guys today and thank you for your support all of our Pacs investors.
Great talking to you if it was not for you guys support we wouldn't be here.
Think of course are probably going to talk to most of you in the coming days or weeks.
If there is any of you that I won't be able to talk to.
For some reason or another I would like to wish you a great happy holidays and all the best for the end of 'twenty, one into 2020 to all of you will be well be safe. Thank God, we are getting out of this.
Amazing increase convenience and hopefully 2022 on the health care side is going to be a much better year.
21, and 2020, so thank you very much again.
That's it for today.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Thanks.
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