Q2 2022 Patria Investments Ltd Earnings Call
Yeah.
Thank you for standing by and welcome to the Petrea investments second quarter earnings Conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question during the Saturday and a press star one one when you touched on the telephone.
Please be advised today's conference call is being recorded.
I would now like to turn the conference over to your host for today, Josh would head of shareholder relations. Please go ahead.
Thank you good morning, everyone and welcome to Patriot second quarter 2022 earnings call.
Joining today are our Chief Executive Officer, Alex <unk>, and our Chief Financial Officer, Mark with all of them.
Earlier. This morning, we issued a press release and earnings presentation detailing our results for the second quarter.
Posted on our Investor Relations website at IR Patriot around.
We're on form 6K filed with Securities and Exchange Commission any.
Any forward looking statements made on this fall or uncertainty do not guarantee future performance and undue reliance should not be placed on them.
Patrick This is Noah.
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 latest form 20-F annual report.
Those statements on this call constitute an offer to sell or so.
Elicitation of an offer to purchase an interest in any patriot.
As a foreign private issuer Patria reports financial results using international financial reporting standards or <unk> as opposed to U S. GAAP Adil.
Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or.
Or as a substitute for measures prepared in accordance with IRS reconciliations of these measures to the most comparable <unk> measures are included in our earnings presentation.
While the headline metrics Patriot generated fee related earnings of $31 1 million and distributable earnings of $29 2 million or.
A <unk> 20 per share for the second quarter of 2022.
We declared a quarterly dividend of $16.09 per share payable on September 16 to shareholders of record as of September 2nd with that I'll now turn the call over to our Chief Executive Officer, Alex side Alex.
Thank you Josh.
Good morning, everyone and we appreciate you joining us this morning.
In the second quarter.
<unk> continued to execute on both 'twenty through 'twenty two financial targets.
As well as long term strategic growth plan, despite the difficult backdrop across global financial markets.
We remain on track for our 2022 full year fee related earnings guidance of 50% year over year growth.
Having delivered $63 million of fee related earnings in the first half of the year.
After generating 44 cents of distributable earnings per share.
We look at dividends of 37% per share through the second quarter.
We are delivering an annualized yield of more than 5% in 'twenty to 'twenty two based on recent share price.
We had $764 million of new capital inflows across the platform.
Putting us over $2 2 billion for the first half.
And more than halfway of our 4 billion fund raising targets for the year across a diverse range of products in each of our verticals.
We deployed about $650 million in our drawdown funds.
To drive continued.
Revenue growth.
Our total assets under management and fee, earning.
AUM are up 66% and 126% respectively.
Compared to one year ago.
Illustrating the expansion and diversification of our platform in the short time since our IPO.
We're also focused on building our base of permanent capital.
Having grown to more than $1 billion or 6% of total fee, earning AUM.
Alrighty of new initiatives in real estate and infrastructure looks.
With a significant opportunity to scale and consolidate.
Over 20% of new capital coming into the platform. So far this year is permanent.
Turning now to highlights across our strategies.
Our biggest story of the quarter was the announcement of our acquisition of CBI.
To anchor our real estate platform in Brazil.
And we recently closed on the first trench of the transaction for 50% ownership.
This transaction is crucial step as we look to build out the real estate vertical.
Bringing an experience and proven leadership team and over 5 billion reais or more than $1 billion.
And they're very high quality oil.
We have more than 70% is off permanent capital.
In a Brazilian REIT market that has grown up more than 20% over the last five years.
And it's still Underpenetrated.
<unk> has grown even faster to become one of the largest independent players in that asset class that is the key gateway to alternatives for many local investors.
With VDI as the core.
We believe we are now well positioned to grow our real estate business in Brazil in a meaningful way.
Potentially replicate the strategy in the other Latin American countries.
In private equity.
We made our first deployment for our next vintage fund.
Allocating $450 million to allow us the first thesis.
Therefore.
We are highly focused on our fund raising efforts.
With additional closings expected in the back half of 2022.
And then finishing in 2023.
And we continue to feel good about our targets.
We also expect to hold the first closing all of our new growth equity fund here in August .
At a time when market dislocations through presents great opportunity in this space.
Since our funds are largely them eliminated in U S dollars.
Strengthening of the dollar relatively to global currencies contributed mostly to the valuation impact in the quarter.
While we will of course see some impact from public company holdings and comps and our quarterly evaluations.
Our overall portfolio comfortably outperform Brazilian and Latin America public equity markets in the quarter.
And we continue to lean forward with confidence on the quality of the portfolio.
Private equity funds five and six continued to deliver strong net.
A 24% and 16% respectively.
Thoughts.
The year to date portfolio company EBITDA is growing at a healthy 18% organically.
And 36%, including M&A.
And we do not see deterioration in our overall business plan.
Alright, good exit events.
We remain very active within the portfolio.
<unk> has now signed 18 M&A transactions so far this year.
With at least as many targeted for the second half.
And infrastructure.
We continue to accelerate towards the allowance up infrastructure fund five.
As funds for nearly <unk> of its investing cycle.
In the second quarter, the acquisition of nine hydropower assets drove incremental deployment of approximately $200 million from funds for.
Just recently, we announced fund raising of nearly 200 million Reais for our second core infrastructure fund.
Which adds more permanent capital AUM.
And we would jointly investing these hydro assets.
This fund continues to build on our income focused core offering.
And provides better access for local investors in Brazil.
Given the acceleration we have seen in the flagship fund timeline.
We now expect a dedicated renewable spool of capital to be raised as a sidecar with infrastructure fund five.
As you would not make sense to raise a separate fund concurrently.
We continue to see demand to scale, the combined size by 50% relatively to infrastructure funds for.
Given the extensive and attractive pipeline to address in the region.
The existing infrastructure portfolio continues to perform very well.
With the latest two vintages, delivering 28% and 12% net IRR in U S dollars.
Second quarter valuations were up $235 million.
Moving currency impact driven by investments in renewable energy data centers and totals.
Turning to credit.
Despite a tough quarter for the asset class across the globe.
The ammonia at a high yield credit strategy outperformed its benchmark by more than 400 basis points in the second quarter.
And now 700 basis points year to date.
600 basis points of that outperformance is attributable to set activity.
The team's ability to pick the best performing assets with.
With the remaining 100 basis points attributable to actively shortening the duration of the fund.
Both high yield and investment grade.
Credit yields in Latin America are among the highest in the world.
One is as high yield fund currently delivering an impressive 12, 3% yield at the end of July .
Our in house bottom up credit analysis shows that Latin American corporates face low refinancing risks with very reasonable liquidity and falling leverage.
Demonstrating that even at this yield levels, there is low expectation of credit defaults compared to other emerging markets.
With highly active management, our team can swiftly react to the environment to be opportunistic and take advantage of mispricing relative to the fundamentals.
We also saw the recent announcement of a key 500 million reais anchor commitment for our intra credit fund.
As we seek to ramp efforts on that front in the back half of the year.
This fund will have a close and the drawdown structure.
Our flagship funds.
And we will seek to capitalize on the credit size of a sizable infrastructure opportunity that I referenced just a moment ago.
In public equities.
While the macro certainly impacted absolute returns in the quarter.
There is also a clear demonstration of portfolio quality.
With our more constructive this Chilean smallcap strategy outperforming its benchmark by 1400 basis points in the second quarter.
No.
You mean blackouts.
The first half of 2022, <unk> challenging conditions to every corner of the investment world.
Driven by a combination of persistent inflation.
Rising interest rates and disruption of trade.
It comes as no surprise that global equity and credit markets had a tough quarter.
Patria and our peers are not immune to some of the short term impacts of this environment.
Importantly, it does not define our success.
As fundamentally long term investors, we are confident the alternative asset management industry.
Continue to be a model of resilience.
Secular growth and excess returns.
Our business model is built to be patient and opportunistic.
And not just to weather the storms.
But to do some of our best work in times of dislocation.
Within our industry. We also believe patria differentiates itself and some very interesting and attractive ways in the current environment.
And I want to spend just a few minutes reinforcing some of those points.
Of course.
The default assumption about rising interest rates as that returns in private equity portfolios will be squeezed by the higher cost of leverage.
Put simply.
<unk> private equity business is not running the traditional <unk> model.
It does not depend on leverage should drive transactions or target returns.
It has simply never been track to grow operating <unk> in our region of the world.
In developed markets private equity net debt to EBITDA ratios average near five times.
Time of acquisition.
Compared to just 0.4 times historically for Patriot.
Our strategy of generating alpha through consolidation.
Organic growth and operational improvement.
And eventually multiple expansion.
As we derisk and institutionalized businesses to create market leaders.
In our infrastructure business Leverages, specifically in the form of project finance with us.
Thats fixed and structure the alongside long term revenue contracts.
And in credit our exposure to predominantly floating rate debt minimizes risks.
And even allows us to benefit from rising rates.
Second.
Focusing on Latin America.
Factory has operated and grown its platform amid high interest rates and inflation since our inception.
And the environment today does not feel like an exception to us.
Our investment strategy has been for us over the years of experience.
Now entering our seventh vintage for private equity and fifth for infrastructure.
With many lessons learned.
The result is an investment portfolio focused in core basic needs sectors.
That we can weather persistent inflation and GDP volatility.
Thus outperforming through economic cycles.
Third.
We think Latin America continues to look well positioned.
The nation for global capsule in the current backdrop.
And especially within allocations to emerging markets.
The region is a net exporter of commodities that are in high demand and.
And we believe the resulting gains in terms of trade will continue to be an economic tailwind.
Latin America has historically demonstrated both low geopolitical risk and a comparatively low correlation with the U S and developed markets.
And right now the <unk>.
<unk> is likely near the peak of its monetary tightening.
Michael.
Compared to the U S and Europe .
Therefore, it is no surprise that you expected economic growth has been revised upward unless in America.
Downward in developed countries.
Finally.
There are significant benefits of scale in our industry.
These apply at the regional level as well.
Latin America, and emerging markets present distinct challenges relative to developed markets.
And we believe Patria has the real home field advantage.
We offer a compelling combination of proper scale and.
And localized industry expertise.
With our scale, allowing us to pursue complex projects that smaller local competitors come up.
And the boots on the ground, providing a competitive advantage that large global players with fight hard or inconvenience to replicate.
We are able to deliver on our regional consolidation strategy.
With three M&A transactions now to date.
In large part because of our people.
<unk> of our brands and our public equity currency.
As a firm we believe batteries uniquely positioned to thrive.
The dominant alternatives manager focus in Latin America.
Our story is only in its early chapters.
Let me now turn things over to Marcos to cover the results in more detail.
Michael over to you.
Thank you Alex and good morning, everyone.
<unk> financial results for the second quarter reflect our continued track towards our 2022 guidance.
Fee related earnings.
Were $31 1 million.
In second quarter 'twenty two.
Yep.
76%.
Compared to the second quarter 'twenty one.
Driven by organic growth in private equity and infrastructure.
As well as the addition of more Nathan.
On a year to date basis.
<unk> related earnings of $52 9 million.
Were similarly up.
80% from the prior year to date period.
The FRE margin.
56% in second quarter 'twenty two.
And a similar 57% year to date.
Tracking in line or slightly above our guidance for the year.
Driving the FRE growth.
Fee revenue of $55 6 million in the second quarter to 22.
73% from second quarter 'twenty one.
And year to date.
<unk> revenues.
$110 6 million.
76% from last year.
On a year to date basis.
About 25% of that 76% growth is organic and driven by deployment of $2 $5 billion from the flagship funds in 2021.
And the remaining 51% driven by the acquisition of <unk>.
Year to date accrued.
The accrued incentive fee.
Which are accrued and certain credits and public equity fund.
And mostly realized at year end stood at $4 9 million.
At June 30.
Slightly up from $4 2 million at March 31.
Due to benchmark outperformance, despite the challenging quarter.
Personal expenses were $15 $7 million in second quarter to 22.
55% from second quarter to 21.
And 38 million year to date.
Up 51% from the prior year to date period.
Driven mostly by the addition of more near this team.
On an organic basis year to date compensation increased by 4% compared to the prior year to date period.
Administrative expenses.
We're seven $4 million in the second quarter 'twenty two.
From $3 8 million in the second quarter 'twenty one.
And $13 9 million.
Year to date.
From $6 2 million in the prior year to date period.
While some of these increase is also driven by the addition of Moneta, we did have organic increase in areas like professional services and <unk>.
Due to new public company related expenses.
As well as increase the T&D.
Teams resume more normalized travel activity as pandemic restriction state.
Placement cost.
$2 $9 million a year to date are up from $1 2 million in the prior year to date period.
Due to increased fund raising activity as expected.
These costs are generally amortize over the relevant investment periods of each fund being raised.
Net financial income was a negative zero point $8 million in the <unk>.
Second quarter to 22.
Driven primarily by unrealized impact from currency on our balance sheet investments in the quarter.
On a year to date basis net.
Net financial income stands at $4 million.
Distributable earnings of $29 2 million in the second quarter to 22.
Compares to $74 2 million in the second quarter to 21.
With the difference attributable to the benefit of performance related earnings of $56 $4 million.
In the second quarter to 21.
The per share up 20 cents in the second quarter to 22.
We will generate a dividend of 16, 9% for shareholders.
And year to date, our <unk> per share of <unk> 44 cents has.
Has generated cumulative dividends of 37.
Which would equate to a yield of more than 5% on our recent share price.
The reconciliation of distributable earnings to our.
Net income is fairly consistent.
The schedule from last quarter.
With most amounts attributable to acquisition related costs.
The amortization of intangible assets.
As rising primarily due to the inclusion of impact from Colorado being.
The notable addition to the reconciliation is costs related to our recent stock listing.
These costs are recognized in ISR and amortize it over 15 months.
And will be adjusted from the D. In this initial periods, but later recognize it throughout D is enough fast to the sponsor promotes at the point of reallocation.
Net accrued performance fees stood at $419 million at June 30, compared.
Compared to 503 million last quarter.
It's still up 28% from one year ago.
The U S dollar strengthened significantly against nearly all global currencies in the quarter.
Driving relative local currency depreciation.
These accordingly impacts the U S D fund valuations in the quarter.
Along with the general weakness in Latin American equity markets.
While the accrual can of course retraced in volatile quarters like this.
We continue to feel very confident in the quality of our portfolio.
As Alex noted.
The current accrual stands at nearly $3 per share.
Which is significant relative to our current share price.
Turning to <unk>.
Total <unk> was two.
<unk> six 3 billion.
At June 30.
Down.
From 27.
Last quarter.
Due to currency and valuation headwinds in the second quarter, but up 66% from $15 8 billion, one year ago, demonstrating the growth in our platform.
Total AUM is up 10% year to date driven.
Driven by strong depreciation in the in the first quarter.
The acquisition of VPI.
Note that we have closed on the first tranche of our transaction with BPI and included in our reported AUM.
Economics for our initial 50% stake will be effective for the full third quarter.
Despite macro environment inflows have been strong in the first half of join me too.
Nearly $2 3 billion of inflows year to date.
Not including the acquired team flowed from BPI foods.
Uh huh.
Half way to the 4 billion fund raising targets for the year.
We expect.
<unk> contribution in the second half of the year led by private equity and credit products, including the pending anchor commitment for infra credits.
Which has not yet being recognized.
On the <unk> side, we also have a reasonable churn could be approaching a first close for our next infrastructure plan around the new year.
Fee, earning AUM of 18.8 billion at June 30 is similar to the prior quarter.
As deployment for the first half of 2022 only activates.
The second half of the year.
Fee, earning AUM is up 126% from $8 3 billion, one year ago and up.
5% year to date.
We deployed about $650 million from our flagship funds in the second quarter to 22.
Which will accrue.
So fee, earning AUM for the second half of the year.
450 million came from the first pieces in our new vintage private equity fund.
A typical fee holiday for our first closers will apply.
Additional closing for that fund in the second half of the year. However, we.
We will have a retroactive catch up to July one.
On this capital that has been invested.
As Alex noted, our 2022 financial guidance for the year remains consistent.
We expect to grow FRE by at least 50% year over year.
We have generated $63 million in FRE.
Throughout the second quarter.
And considering any growth in the second half of the year plus the realization of incentive fee at the end of the year, we feel very confident in achieving our target.
It bears repeating the benefit of long term capital and Tiki management fee allow.
Allow us to generate reliable fee related earnings for our shareholders.
Since our IPO, we have doubled the basis of fee, earning AUM that generate those are.
And that growth is ongoing through the organic scaling of our flagship funds.
New fund launches and M&A.
Those fee related earnings are generating an annualized yield of approximately 5% on our current share price.
And that is just the baseline.
Strong investment performance in our flagship fund has generated a performance fee accrual there is still untapped.
With the 2014 and 15 vintage fund in particular, representing significant earnings upside as realization materialize over the next few years.
We continue to execute on our journey as the Premier alternative asset management platform in Latin America.
And we believe Patrick can deliver premium shareholder value in the coming years.
We're now happy to take your questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one one on your Touchstone telephone again to ask a question. Please press star one line one moment please.
Our first question comes from Craig Siegenthaler of Bank of America. Your line is open.
Sure.
Can you guys hear me okay.
Yes, correct.
How are you.
Perfect.
We wanted to get an update on fund raising the denominator effect and a crowded private equity backdrop. They are creating some challenges in the U S. But patria I believe is competing with a different sleep of capital.
And in your vertical emerging market private dollars and now more restricted to two of the biggest economies, Russia and China. So what type of impact is to all of this having on Patria just given that Patria is the largest private market's manager in Brazil and Latam.
Hi.
This is Alex here and thanks for joining the call and.
Again, thanks for your patience here.
We continue to be very positive on fundraising that's the general message here.
And we have so many processes going on specifically on as I go from the macro and then I'll talk up kind of product by product asset class by asset class on the macro side.
Yes, I think Youre correct will receive from investors is.
Number one as it as it comes through.
<unk> markets Latin America is in a.
Advantage kind of phase right now given the low geopolitical risks in the high geopolitical risks of course.
And in Europe , Eastern Europe , more specifically and more mature data oriented regime.
We are now seeing in China.
So that puts actually hours.
Yeah.
Region of the World.
Highlighted by investors. In addition to the near shoring thesis that favors the region.
Also.
In addition, I think that Latin America was already.
Increasing its market share of the overall allocations within <unk>.
Within the emerging markets and as you'll see the growth of the economies is pretty fast as compared to other developed economies.
So all in all I think and lastly, I think also I think some of them to our central banks in the region.
Anticipating a bit.
Monetary tightening now we're seeing that.
Most of the central banks of the regions are already.
Predicting.
Loosening up of the monetary policies and probably most of this going on economy will continue even as we grow faster in.
Predicting a loosening up of the monetary policies and probably most of this going on economy will continue units will grow faster in 2003 onwards. So in general that's exactly what's not on the macros. That's exactly what he said I think the region has been benefiting from no disk plus of course I forgot the other competitor.
The commodity cycle that was already a big push for the region and in addition, so all of these geopolitical tensions and risks in Ukraine et cetera commodity prices that also drives exports in the region and also benefiting the economies.
Dan going for a more micro kind of.
And.
Administrative issues here.
Also as you mentioned.
Mostly in the U S. Not other parts of the world investors have been having to deal with so many funds coming to market and of course they are overwhelmed.
And what the deciding to do most of them are generalizing here is basically to focus on re ups and definitely we are on that list of re ups given our longstanding relationship with several institutional American investors, but the processes is taking a little longer because.
It's the same amount of people that they have in their teams I mean, the institutional American investors and they have to deal with more volume.
So the annualized.
We have received no.
I wouldn't see zero knows but very very few notes.
And Thats why Im thoughts are on our private equity fund raising process.
Because in vessels, just saying Alex has done is it going to take another month or two I need to go down in due diligence.
My.
The firm that I've worked for it has not allowed to travel plans yet in the bubble I don't have a lot of other funds. So why don't I. So again very very few I am not going to say no one knows because it's impossible to say zero Knowles with very very few of those as just.
I believe in the process, but as you go to other regions of the World Greg.
That's a different scenario now and the Middle East for example, which is a major part of our fund raising efforts.
The opposite side of what I, just said the region was already under allocated to private markets in general terms is emerging markets Latam and as you know.
Most of the sovereign funds and pension funds and the regions are generating a lot of cash and receiving new cash because of the poll.
Price of oil et cetera, and gas et cetera going up.
Asia the same I think in the Asian investors kind of other allocated to emerging markets in the region and everything that I said Salesian vessels are also.
Increasing their allocations to the region and lastly, it more so the local investors I think we have been.
Able to fund raised quite healthily in the local markets. We are now running as we speak two very big processes.
High net worth and ultra high net worth distributors in Brazil, specifically.
We have very positive news coming from that front.
So India pretty positive.
Overall, because the region has been benefiting from oldest geopolitical tensions and no I don't I.
Im not receiving any of those were very very few analysis just process, taking a little longer and we have all of these other regions in the world allocating more.
Two private market alternatives emerging markets in Latin America, specifically.
However.
What also plays in our favor here is that we have other products also the flagships and our <unk>.
When you offering.
That are coming to market.
In a very positive note.
Mark mentioned, if a credit for example.
So the whole credit story here is very positive given where interest rates are.
And because interest rates are also.
Higher in the region not only globally.
These vessels are looking to protect themselves from inflation and actually take advantage of the higher interest rates. So.
We did receive a very positive confirmation from anchor investors.
$2 million for ox for credit fund, which is not in the numbers that we gave you because they have not find the sub dock, yes, but he has already been published in their web sites that they approve because it's a public institution.
We also have another public institution, that's already approved and officially the notes you just have to sign the papers there are another $150 million.
For the same thing for credit fund, so very positive news on that front to anchor investors one on international.
Public institution, and a local Brazilian public institution.
Actually sponsoring anchoring this thing for credit funds.
Also Mark also mentioned.
More detail, but we are anticipating our infrastructure for our flagship fund number five fund raising process because investors not only are they want to invest more in Latam as I, just mentioned, but they want to invest in broadest isolation kind of protected and Thats. The case of our infrastructure flagship development fund number five.
What we're looking into now is to have a first close within this year closer to December .
Versus actually one year from now than we were expecting to fund raising for infrastructure fund five.
As of September 23, 2023, and we're looking to have a first close in 2022 leads lead late 2022, but within 2022.
So having all of these different products to offer private actually goes through this that I just mentioned.
We have infrastructure coming back very healthily, and we have a reverse inquiries for our infrastructure flagship fund number five which is not very equivalents will have reverse inquiries now investors, calling us to say when are you going to go out to the market. Because we are interested in your funds and also the input credit that I mentioned, which is also our closed end funds.
It gives us is long dated kind of fees.
Two hour.
Sorry expectations so.
Again of course, everything that is going on of course.
No.
You have to deal with the whole geopolitical situation that is side on a global basis, but in our regions.
Benefiting from this.
Of course, we didn't want to benefit from the war, but we are benefiting from the from this the geopolitical tensions around the world and you can see in our numbers $2 3 billion raise up to now with the 4 billion target. So.
We're pretty confident that we're going to reach the target here. Thank you.
Alex if I can just ask one.
I'm, sorry, if I could.
If I can just ask one follow up relating to find seven private equity fund seven.
It looks like you raised about 900 million to date.
I was wondering if you could help us in terms of timelines for the the next set of closes in a final close and your expectations on how big that fund will be relative to the $2 7 billion for private equity funds.
Yes.
We are.
We are about.
We're going to have a second close I think Lakewood late July in the second quarter, but we were running these.
<unk>.
Processes that I just mentioned here.
With two big.
Brazilian ultra high net worth and high net worth distributors would it now.
And again, given where we were in the process. We went into August to grab there were and it's good news because they were pretty confident that they could raise more money. So it's actually we're going to have a closing that we're expecting that late second quarter in the third quarter.
As we speak in August September .
And plus institutional money coming in this week.
And disclosing so we've got some of the institutional money that we already had in the second quarter that with the sub dock sign.
Putting everything in this one quarter administratively easier to have just one one closing on the legal side the legal costs. So we just waited a little bit with all the sub docs that we have signed in the second quarter to join.
This effort that I just mentioned that we were doing that we are doing in Brazil with ultra high net worth individuals.
As far as expectations I think.
Our our fund does say that cover a $3 5 billion and I think we're confident that we will get there.
And which is.
No larger than the $2 seven.
Normally houses funds goes.
I don't think I can I can say this but whatever it is.
I have to say that it's $3 5 billion, but normally now looking to the past I think I can say that looking into the past normally our funds did not only reach what's up.
See the cover.
I think that's what I can say up to now but.
But that covers three five Greg.
Thank you Alex.
Thank you.
Thank you.
Our next question comes from Marcelo Telles of Credit Suisse. Your line is open.
Good morning.
Good morning, Alex Good morning, Michael Thanks for the opportunity.
My question is with regards to the.
The BVI acquisition.
You mentioned in <unk>.
Significant opportunities to leverage.
On that structure, so it wasn't all day.
This is a $1 billion.
Asset business.
How do you see that scaling up.
Overtime and then.
How big you think that business can be.
And given that the higher rate environment that we're in.
The person who is going through right now.
Do you think this is Ken.
Beyond an obstacle.
To scale that in a timely manner.
So thank you.
First of all Hi, Marcello and nice to see you and.
As you know we're going to see each other in person next week so.
Looking forward to that.
And thank you for forcing me next week in person.
I think taking it one step back the whole permanent capital business for US is very important it's already 6% of our fee paying AUM as mentioned by Michael here.
And we were basically zero if you'll go two years ago at the time of the IPO. We were one of 2%. So we've been growing that business is in the fee paying AUM has been growing in general as mentioned so have its grow more than the other asset classes to become today, 6% of the of the total AUM not only.
<unk> real estate, but.
We also allowance infrastructure investment trusts.
Also add to the permanent capital.
6% of the fee paying AUM.
Specifically, specifically with <unk> no no.
They're pretty and very positive about it because within.
The permanent capital structures.
Our real estate listed assets in Brazil.
Have several different themes and strategies and one of them that have been growing very significantly as the debt related pieces or the C. R ice that Greece.
As we call them in Brazil.
And <unk> did.
<unk>.
It wasn't the second quarter already.
Cra's fund had one but they did a follow on for the fun of the Cri Fund, which is no real estate debt also under the permanent <unk>.
Capital structure and did very well in mid <unk>.
Good amount of money that they want to raise more so.
If the high interest rates do.
[noise] effect.
Corporate office Cisco's strategy, you have the real estate debt strategies that are.
Growing very healthily and when interest rates come down.
You see that.
Yield curve in Brazil was already inverted.
Vessels are looking into a decrease in interest rates in the next whatever 12 months.
As you can see from the inverted yield curve then.
The other kind of themes within real estate, we will also benefit from that falling yield curve, but in general I think CBI has a very strong names.
A.
Very expert in seasoned group of people and we are very thoughtful about that in addition, we're also looking to weather.
Permanent capital structures to increase.
Again, if you will through mergers and acquisitions like the association with <unk> not only in Brazil, but in other parts of Latin America. So.
We are targeting for that billions of cells in the U S. Dollar students to reach a significant parts of our AUM now when I look at my peers in more of a global basis, I see that 20% to 30%.
There <unk>.
<unk> AUM.
It comes from these permanent structures and Thats, a number that I would like to hit.
Of course over time and of course, using our cash to do acquisitions to get there faster, but that's the number that I think we could go from six to 20% to 30% of AUM.
In the future.
And just add Marcelo I think.
When we released the noticed on VPI.
We try to emphasize the market.
It's very big and it was about $4 billion that had been growing 28% and it was a few small.
Relative to any other developing economy.
<unk>.
The REIT business.
What we call an entry level alternative assets.
We continue to believe under financial deepening we think that this market still has a lot of potential to grow the market not to mention the capacity to consolidate and to replicate the strategy in all three geographies.
Recently with.
The Central Bank indicated that the monetary tightening should be it.
Rising to possibly.
Sure.
It's it's.
And.
We'll start to see some indications of <unk>.
Given indications of deflation. So there is helpful.
A positive scenario looking forward and we believe that as the market.
As the interest rates reduced we believe that it will pick up from it. Nevertheless, I think is important to mention VDI closed recently.
On a reported embracing 100 meters.
Which is not additive to the shipping any lumpy.
Because it would close but just the beginning.
Third quarter, but we continue to see positive trends coming from.
That's very helpful. Thank you and see you next week.
Thank you very much.
Thank you. Our next question comes from Herman Congrats man of Jpmorgan. Your line is open.
Good morning, Alex Mark Hello, Josh Thank you for.
Presenting the earnings are question here for the quarter is actually on specifically on the credit performance of the credits Portugal.
We saw an outflow of close to $350 million in the quarter.
In this segment.
It was a little bit surprising we would imagine that this would give portugal.
Better under the environment, we are.
But when we add up hearing frozen outflows, we actually had a net outflow in the quarter.
So the question is just to explain a little bit what happened. If this is recurring or not.
And what was the driver behind this outlook.
<unk>.
What specifically do you wanted on the number of specific do you want to respond to that mark on the on the withdraw.
Dror I can then ill can talk more generally about it.
Yes, absolutely.
What we see.
On page eight in our presentation that the year to date.
Inflows of 390 to 92 in an outflow of 497, and let's remember that on the outflows you have to add to that also the divestments and the dividend payment.
So this is not only.
No reduction.
AUM, resulting from.
Withdrawals.
What we see here.
What I can mention about the credit business.
Physically.
In Chile that has been some turnover related.
Related to the local investors.
<unk> also seen a strong demand.
From new funds.
<unk> seen some investors moving around from one phone to another.
And that.
Pretty well explained on the line of inflows year to date, you can see that we have about $2 2 billion of inflows EMEA AUM over the year.
And.
And that's that.
<unk>.
Fine.
<unk>.
The capacity of the platform too.
Like to leverage on the on the on the fund raising of the ports.
Vertical Alex.
Yeah, and I would just this is Josh I'll just add the $3 45 outflows in the quarter to Marcos point on dividends being included in that about $61 million of that was dividends just to put a number to it for you.
Yes, I think Thats My point was exactly that I think investors do shift some time on strategy. So we had a very in my view positive.
Sure.
The cash being invested into the funds of $2 2 billion.
That's a very very strong number sometimes you'll see investors coming out of one fund and joining the other fund them because they see our better moments that they like a specific strategy of sub strategy of the ammonia that credit product in general.
So probably they saw already what happened with the with the.
Dollar denominated securities in Latam now they see the pickup of interest rates and local Julien.
Want to shift to a local Chilean crew.
Credit funds, so, but I think absolute more of the general picture. When you add all of these numbers is a very positive net inflow of cash into the into them within our funds.
So again be careful not to.
Not to pick up I think one strategy specifically.
If you have the money moving to other strategies, but the net general inflows were positive for the quarter in the semester. Thank you.
Yeah.
Super clear Thank you guys.
Thank you. Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your Touchtone telephone again to ask a question. Please press star one one our next question comes from William Barnyard. Your line is open.
Thanks for hosting the call. So my question is a follow up actually of Craig's question regarding demand and the current environment. So.
Among your range of products, which products do you see a higher demand now is it mostly the infrastructure.
As you said before.
And then.
More broadly how do you see the evolution of your total AUM for the next quarters. Thank you.
Yeah.
Yes, I think.
More and more in general now for <unk>.
Inflation protected and credit products.
Or more in Vogue.
In general However, I think that things are shifting over the last quarter.
To equities as peak times investors are beginning.
We're beginning to realize that we might have hit the bottom as far as this.
These public equities.
Valuations are concerned.
But yes, if youll see that if you if you look into.
Our menu of products I think we will continue raising.
It continues to be thoughtful about our private equities seven.
Our growth equity private equity growth.
Though we are having a first close as as we speak in the month of.
August early September so it continues to do well and continues to and continues to show very.
Positive signs that we will hit.
The numbers that I mentioned.
I mentioned answering Craig Craig's question on that.
The $6 5 billion cover for private equity fund seven.
We are raising $200 million and.
We should have a first close which is around 40% of that which is Texas case for a growth equity fund as we speak.
So that on the equity side, the infrastructure side, even more so.
We're getting a reverse inquiries.
We are going to come back to the market and again, we were thinking about raising will beginning to raise infrastructure funds five which is one of our flagship funds in September of 2023.
We're looking to have a first close within 2022 late 2022, so is that kind of a year in.
In advance because inflation hedge the infrastructure products are really in demand by investors.
And with.
Major investors the main investors of our that supports those in our infrastructure efforts.
We talked to them and again why don't we then.
With them do a first close off this year also on the on the credit side I mentioned infrastructure credit.
Also.
Gaining a lot of momentum we didnt, we didnt add to the numbers there because some docs are not signed yet but we have.
Two important anchor commitment to this fund.
Local public institutions $400 million, it's already in its website with a sub docs do not sign an international also public institution of $150 million.
So thats already $250 million for this fund.
For credit that we want to raise of approximately 800 to a $1 billion for the fund.
And having two anquan vessels already 25% of the funds or more is very very positive so thats for credit.
Also on if you look at the normal credit product in general so.
When you look at all of them on other credit products. So a lot of money coming in.
Because of the situation that I just explained so.
We had this.
The targets that we established to ourselves all the way back in the IPO early 'twenty, one to raise around $4 billion organically this year in 2022.
And when we did actually starved historically it was late 2020, because we did go public in very early January of 'twenty. One. So late 2020, we said look this is our three year plan.
We plan to raise.
Organically $4 billion in 2022.
And we plan to do acquisitions like the VPI, which asset.
Yes.
We don't have a specific number for the acquisitions, but as we said that we were going to do acquisitions and getting into 2022 and being able to have already in the first semester $2 3 billion already raised.
So it looks like we are going to be able to hit the target of 4 billion for the year, because we are over the over 50% and where half of the year and I see the year continue to grow very strongly plus the anticipation of infrastructure funds five our flagship infrastructure fund, having a first close late this year.
Makes me feel extremely happy and confidence because so many things happened and so many moving parts in from late 2020, when we defined this to be able to hit the targets in 'twenty two with all of these moving parts in the war in Ukraine, and this and that and higher interest rates and blah blah blah blah So look.
We will.
The only bit beats, but hits, but beats the targets.
$4 billion organic fund raising for 2022 against Stablish sold the way late in 2020.
I'm very happy about it.
And.
And again, just remember that we started the year with 19 18.8 19 billion our fee earnings AUM. So 4 billion is 20%.
The increase in fee earnings AUM for the year.
Plus the acquisitions, we know of 1 billion right now within the <unk> 5 billion, which is 25% increase in fee paying AUM.
So very very strong.
Plus we have now as we grow we have synergies you can see that our FRE margins have been growing.
Even after the.
The acquisitions.
And integrating more near the hour.
Our fee, earning AUM has increased.
And now.
Shows that we are continuing to be able to generate synergies from scale.
So all of that makes me feel pretty comfortable of course.
You might have no we have so many products one product here one product there, but in the overall scheme of things.
I feel very comfortable with our fund raising for 2022. Thank you.
Okay. That's clear thank you.
Thank you. Our next question comes from Beatrice Alberto <unk> of Goldman Sachs. Your line is open.
For taking my question.
My question is around net financial results, which were a negative.
$8 million this quarter.
Especially comparing to last quarter, one was positive.
Eight.
You mentioned during the call that this was related.
Your line impact from currency.
The balance sheet, but could you give us a little bit more color around why that is and is there anything else.
That impact this line.
And then a second question if I may is a more broader one.
The investment in equity exit strategies.
What are you thinking in terms of divestments as part of the year.
<unk>.
Do you think.
The macro environment in Latin America impacts divestments at all if you could talk a little bit about that because it would be great. Thank you.
Okay.
Fortunately the hybrid.
Yes, Im sorry, Mark, but that's what I was going to say I was just going to say hi via trees, and I think Mark if you want to answer the first part of the question I'll take the second thank you.
Sure Hi, Geoffrey.
When you look at the net financial income, what youre going to see that.
Unrealized.
Results from our investment.
Vehicles are essential employee presentation on page 22, you'll see that.
There is a line of investor incentives and bulk wine at $4 million.
The number is basically a function of the.
Currency impact overall investments and also the valuation impact on our investment what are these investments. These are mostly GP commitment and can minority stakes.
Our recent acquisition.
So we at the time of the IPO that number was a very small and Uh huh.
It's not meant to be very significant in total into our financials.
Okay.
I can talk about divestments.
We're pretty positive with the divestments.
Via trees.
We have been.
Mentioned I think.
With a lot of our companies are portfolio companies actually.
For sale, we did sell a couple of them.
Already.
During this quarter falloff from our infrastructure efforts from our private equity efforts and we have been.
Receiving no non binding offers.
That the valuation.
<unk> as we expected.
And now we are receiving binding offers that the valuation that we expected even with a with a plus.
A slightly notch up here.
Where we expected all of our remarks.
So everything going in my view as planned.
I think during the second half of the year I think we will continue to be able to deliver on that and thats.
Actually is.
The main engine the main driver to push performance.
Performance fees.
And the way that we see it I think of private equity funds five continues to do well on that front on the divestment front no building in DPI or distributable paid in capital to get into the.
Performance fees zone.
And I think we see the same thing for infrastructure fund III, which against where our surprise, we were not expecting to getting close to the performance fees zone. This year, we were expecting more.
To get into the performance fees zone in 'twenty, three 'twenty, four but because of some divestments that we are.
Pursuing in our infrastructure fund III.
We see that we are moving in that direction.
I don't see actually generating a performance fee from the infrastructure since early this year, there's a chance that we can but we were not expecting that so we.
We were expecting in 'twenty, three 'twenty to 'twenty three 'twenty 'twenty four but we are anticipating some of those divestments and again the non.
Non binding offers and now some of the binding offers now in line with our expectations with a slightly notch up.
From what we expected.
<unk>.
What we see here that I think is a question of having known the good assets in the portfolio and I think thats consequences of the quality of our assets.
For example, in our private equity efforts, we're selling leaders in.
Coal logistics distribution, we are selling a neither in agricultural inputs distribution.
And those are sectors very sought by investors also.
We're looking at some of the two.
To sell some of our healthcare related.
Assets.
Logistics, <unk> logistics frozen logistics agricultural inputs distribution health care related.
Assets are very well and demand very well sought by investors are in demand.
Being in the REIT sector with the right.
Asset all of them leaders in their respective segments of the health care industry Agri industry or logistics industry. I think is the reason why we are getting.
Strong bids from all of them from strategic investors or most of them from strategic investments on the infrastructure of the same but even more so because we are selling a couple of hours or more than a couple of actually.
Of our renewable energy.
Energy assets.
And we're having great demand for those assets some of them in Brazil, some of them outside of Brazil.
And again the same.
At the same kind of a few.
We are getting the processes running as expected or with a slight notch faas.
<unk> from our expectations. So we should we should deliver good news on that front in the second semester of 2022.
Okay.
Excellent.
Thank you Michael.
Thank you.
Showing no further questions at this time I will turn the call back over to Alex <unk> CEO for any closing remarks.
Alright, Thank you very much for your patience and thanks for participating in our in our second quarter 2022 earnings call again in our view very very positive.
We are very much in line to deliver the guidance for fee related earnings 50% growth versus last year.
We are in line to deliver our $4 billion organic growth in the EU in fund raising.
We also.
In line with what we expect to do.
And inorganic growth or M&A, so with the acquisition of <unk>.
<unk> already.
Public <unk>.
Already announced and are looking at right now a good pipeline for acquisitions in the second half of the year.
In addition, I think.
I see.
We are entering in a good divestments.
Cycle base, I think with everything but I just.
Mentioned here answering <unk> question so.
So very positive about that as well.
Accident pushes us through the performance fees zone generating performance fee related earnings so fee related earnings right on track.
<unk> hits.
50% growth good chances on us on the performance fee related earnings as we do these divestments, we move into the performance fees zone of course as you guys know.
It might slip a month here in my third quarter here a quarter there but.
The general direction, and the prices and valuations that we're getting from the non bindings and the binding process are pretty much in line with what we expect with a notch up and if we move into that direction, we'd get into performance fees, though even though again it might slip a quarter here, but the direction is the right direction.
We didn't get any negative impact on our valuations of processes that we are divesting.
That actually that pushes us to Ah.
Very strong distributable earnings growth for the year.
And hopefully no again as we as we move into 2022, we will give you more good news on that front.
And already looking into given that our business. So predictable looking also already into 2023.
So thank you very much for participating and I hope to see you guys.
In person over the next couple of months in in.
In different meetings and conferences.
And with that I'll close the call here, if theres no. Other further comments from Mark or Josh. Thank you.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
Yeah.
To raise your hand during Q&A you can dial one one.
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Thank you for standing by and welcome to the Petrea investments second quarter earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session in a press star one one on your Touchtone telephone.
Please be advised today's conference call is being recorded.
I'd now like to turn the conference over to your host for today, Josh will ahead of shareholder relations. Please go ahead.
Thank you good morning, everyone and welcome to <unk> second quarter 2022 earnings call. Joining today are our Chief Executive Officer, Alex <unk>, and our Chief Financial Officer, Mark with all of them.
Earlier. This morning, we issued a press release and earnings presentation detailing our results for the second quarter, 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 upon 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 latest form 20-F annual report.
Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any patriot law.
As a foreign private issuer Patria reports financial results using international financial reporting standards or <unk> 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.
Or as a substitute for measures prepared in accordance with IRS reconciliations of these measures to the most comparable <unk> measures are included in our earnings presentation.
On headline metrics Patriot generated fee related earnings of $31 1 million and distributable earnings of $29 2 million or <unk> 20 per share for the second quarter of 2022.
Declared a quarterly dividend of 16 nine cents per share payable on September 16 to shareholders of record as of September 2nd with that I'll now turn the call over to our Chief Executive Officer, Alex that Alex.
Thank you Josh good morning, everyone and we appreciate you joining us this morning.
In the second quarter <unk> continued to execute on both 2022 financial targets.
As well as long term strategic growth plans, despite a difficult backdrop across global financial markets.
We remain on track for our 2022 full year fee related earnings guidance of 50% year over year growth.
Having delivered $63 million of fee related earnings in the first half of the year.
After generating 44 cents of distributable earnings per share.
And cumulative dividends of 37 per share through the second quarter.
We are delivering an annualized yield of more than 5% in 2022 based on recent share price.
We had $764 million of new capital inflows across the platform.
Putting us over $2 2 billion for the first half.
And more than halfway of our 4 billion fund raising targets for the year across a diverse range of products in each of our verticals.
We deployed about $650 million in our drawdown funds too.
To drive continued.
Revenue growth.
Our total assets under management and fee, earning.
AUM are up 66% and 126% respectively.
Compared to one year ago.
Australia, the expansion and diversification of our platform in the short time since our IPO.
We're also focused on building our base of permanent capital.
Having grown to more than $1 billion or 6% of total fee, earning AUM.
Alrighty of new initiatives in real estate and infrastructure.
The significant opportunity to scale and consolidate.
Over 20% of new capital coming into the platform. So far this year is permanent.
Turning now to highlights across our strategies.
Our biggest story of the quarter was the announcement of our acquisition of DDI.
Anchor our real estate platform in Brazil.
And we recently closed on the first trench of the transaction for 50% ownership.
This transaction is crucial step as we look to build out the real estate vertical.
Bringing an experience and proven leadership team and over 5 billion reais or more than $1 billion.
And they are very high quality coal.
We have more than 70% is off permanent capital.
And a Brazilian wheat market that has grown up more than 20% over the last five years.
And it's still Underpenetrated.
<unk> has grown even faster to become one of the largest independent players. So that asset class that is the key gateways to alternatives for many local investors.
With VDI as a core.
We believe we are now well positioned to grow our real estate business in Brazil in a meaningful way.
And potentially replicate our strategy in the other.
Latin American countries.
In private equity.
We made our first deployment for our next vintage fund.
Allocating $450 million to allow for the first thesis and therefore.
We are highly focused on our fund raising efforts.
With additional closings expected in the back half of 2022.
And then finishing in 2023.
And we continue to feel good about our targets.
We also expect to hold the first closing all of our new growth equity fund here in August .
At a time when market dislocations through presents great opportunity in this space.
Since our funds are largely them eliminated in U S dollars.
Strengthening of the dollar relatively to a global currencies contributed mostly to the valuation impact in the quarter.
While we will of course see some impact from public company holdings and comps and our quarterly evaluations.
Our overall portfolio comfortably outperform Brazilian.
And Latin America public equity markets in the quarter.
And we continue to move forward with confidence on the quality of the portfolio.
Private equity funds five and six continued to deliver strong net <unk> of 24%.
And 16% respectively in U S dollars.
Yesterday's portfolio company EBITDA is growing at a healthy 18% organically and.
And 36%, including M&A.
And we do not see deterioration in our overall business plan.
Exit effects.
We remain very active within the portfolio.
Having now signed 18 M&A transactions so far this year.
With at least as many targeted for the second half.
And infrastructure.
We continue to accelerate towards the allowance dropped the infrastructure fund five.
As funds for new SDN of its investing cycle.
In the second quarter, the acquisition of nine hydropower assets drove incremental deployment of approximately $200 million from fourth.
Just recently, we announced fund raising of nearly 200 million Reais for our second core infrastructure funds.
Which adds more permanent capital AUM, and we will jointly invest in these hydro assets.
This fund continues to build on our income focused core offering and.
And provides better access for local investors in Brazil.
Given the acceleration we have seen in the flagship fund timeline.
We now expect a dedicated renewable spool of capital to be raised as a sidecar with infrastructure fund five.
So it would not make sense to raise a separate fund concurrently.
We continue to see demand to scale, the combined size by 50% relatively to infrastructure funds for.
Given the extensive and attractive pipeline to address in the region.
The existing infrastructure portfolio continues to perform very well.
With the latest two vintages, delivering 28% and 12% net IRR in U S dollars.
Second quarter valuations were up $235 million.
<unk> currency impact driven by investments in renewable energy data centers and toll roads.
Turning to credit.
Despite a tough quarter for the asset class across the globe.
The only other high yield credit strategy outperformed its benchmark by more than 400 basis points in the second quarter.
And now 700 basis points year to date.
600 basis points of that outperformance is attributable to productivity.
The team's ability to pick the best performing assets.
With the remaining 100 basis points attributable to actively shortening the duration of the fund.
Both high yield and investment grade.
Credit yields in Latin America.
Amongst the highest in the world.
With one of the other high yield funds currently delivering an impressive 12, 3% yield at the end of July .
Our in house bottom up credit analysis shows that Latin American corporates face low refinancing risks with very reasonable liquidity and falling leverage.
Demonstrating that even at this yield levels, there is low expectation of credit defaults compared to other emerging markets.
With highly active management, our team can swiftly react to the environment to be opportunistic and take advantage of mispricing relative to those kind of levels.
We also saw the recent announcement of a key 500 million reais anchor commitment for our new credit funds.
As we seek to ramp efforts, thus far in the back half of the year.
This fund will have a close and the drawdown structure.
Our flagship funds.
And we will seek to capitalize on the credit side of the sizable infrastructure opportunity that I referenced just a moment ago.
In public equities.
Although macro certainly impacted absolute returns in the quarter.
There is also a clear demonstration of portfolio quality.
With our more constructivist Chilean smallcap strategy outperforming its benchmark by 1400 basis points in the second quarter.
Okay.
No.
<unk> blackouts.
The first half of 2022.
<unk> challenging conditions to every corner of the investment world.
Driven by a combination of persistent inflation.
Rising interest rates and disruption of trade.
It comes as no surprise that global equity and credit markets had a tough quarter.
Patria and our peers are not immune to some of the short term impacts of this environment.
Importantly.
It does not define our success.
That's fundamentally long term investors, we are confident the alternative asset management industry will continue to be a model of recipients.
Secular growth and excess returns.
Our business model is built to be patient and opportunistic.
And not just to weather these storms.
But to do some of our best work in times of dislocation.
Within our industry. We also believe patria differentiate itself in some very interesting and attractive ways in the current environment.
Want to spend just a few minutes reinforcing some of those points.
Of course.
The default assumption about rising interest rates as that returns in private equity portfolios will be squeezed by the higher cost of leverage.
Put simply.
Process private equity business is not running the traditional <unk> model.
It does not depend on leverage should drive transactions or target returns.
It has simply never been practical operating <unk> in our region of the world.
In developed markets private equity net debt to EBITDA ratios average near five sites.
Time of acquisition compared.
Compared to just 0.4 times historically for Patriot.
Our strategy of generating alpha through consolidation.
Organic growth and operational improvement.
Eventually multiple expansion.
As we de risk and institutionalized businesses to create market needs.
In our infrastructure business Leverages typically in the form of project finance with a debt fixed and structure the alongside long term revenue contracts.
And in credit our exposure to predominantly floating rate debt minimizes risks.
And even allows us to benefit from rising rates.
Second.
Focusing on Latin America.
<unk> has operated and grown its platform amid high interest rates and inflation since our inception.
The environment today does not feel like an exception to us.
Our investment strategy has been for us over the years of experience.
Now entering our seventh vintage for private equity and fifth for infrastructure.
With many lessons learned.
The result is an investment portfolio focused in core basic needs sectors.
That we can weather persistent inflation and GDP volatility.
Thus outperforming through economic cycles.
Third.
We think Latin America continues to look well positioned.
The nation for global capital in the current backdrop.
And especially within allocations to emerging markets.
The region is a net exporter of commodities that are.
In high demand and.
And we believe the resulting gains in terms of trade will continue to be an economic tailwind.
Latin America has historically demonstrated both low geopolitical risk.
Comparatively low correlation with the U S and developed markets.
And right now the <unk>.
As like near the peak of its monetary tightening.
Cycle compared to the U S and Europe .
Therefore, it is no surprise that you expected economic growth has been revised upward in Latin America.
Downward in developed countries.
Finally.
There are significant benefits of scale in our industry.
These apply at the regional level as well.
Latin America, and emerging markets present distinct challenges relative to developed markets.
And we believe Patria has a real home field advantage.
We offer a compelling combination of proper scale in.
And localized industry expertise.
With the scale, allowing us to pursue complex products that smaller local competitors come up.
And the boots on the ground, providing a competitive advantage that large global players with fight hard or inconvenience to replicate.
We are able to deliver on our regional consolidation strategy.
With three M&A transactions now to date.
In large part because of our people.
Strength of our brand and our public equity currency.
As a firm we believe batteries uniquely positioned to thrive.
The dominant alternatives manager focus in Latin America.
Our story is only in its early chapters.
Let me now turn things over to Marcos to cover the results in more detail.
Michael over to you.
Thank you Alex and good morning, everyone.
<unk> financial results for the second quarter reflect our continued track towards our 2022 guidance.
Fee related earnings.
Were $31 1 million.
And second quarter 'twenty two.
Okay.
76%.
Compared to the second quarter 'twenty one.
Driven by organic growth in private equity and infrastructure.
As well as the addition of more Nathan.
On a year to date basis.
Fee related earnings of $52 $9 million.
Were similarly up.
80% from the prior year to date period.
The FRE margin.
56% in second quarter 'twenty two.
And a similar 57% year to date.
Tracking in line or slightly above our guidance 40 years.
Driving the FRE growth.
Fee revenue of $55 million in the second quarter to 22.
Okay.
<unk>, 3% from second quarter 'twenty one.
And year to date.
Fee revenues.
$110 6 million.
We are up 76% from last year.
On a year to date basis.
About 25% of that 76% growth is organic and driven by deployment of $2 $5 billion from the flagship fund in 2021.
And the remaining 51% driven by the acquisition of <unk>.
Year to date accrual.
The accrued incentive fee.
Which are accrued and certain credit and public equity fund.
And mostly realized at year end.
At $4 9 million.
At June 30.
Slightly up from $4 2 million at March 31.
Due to benchmark outperformance, despite the challenging quarter.
Personal expenses were $15 $7 million in second quarter to 22.
55% from second quarter to 21.
$38 million year to date.
51% from the prior year to date period.
Driven mostly by the addition of more near this team.
On an organic basis year to date compensation increased by 4% compared to the prior year to date period.
Administrative expenses were.
Seven $4 million in the second quarter 22 up from $3 8 million in the second quarter 'twenty one.
And $13 9 million year to date.
From $6 2 million in the prior year to date period.
While some of these increase is also driven by the addition of Moneda.
We did have organic increase in areas like professional services and it.
Due to new public company related expenses.
As well as increased the <unk> E S.
Teams resume more normalized travel activity as pandemic restriction state.
Placement cost.
$2 $9 million a year to date are up from $1 2 million in the prior year to date period.
Due to increased fund raising activity as expected.
These costs are generally amortize over the relevant investment periods of each fund being raised.
Net financial income was a negative zero point $8 million in the second quarter to 22.
Driven primarily by unrealized impact from currency on our balance sheet investments in the quarter.
On a year to date basis net.
Net financial income stands at $4 million.
Distributable earnings of $29 2 million in the second quarter 'twenty to.
Compares to $74 2 million in the second quarter to 21.
With the difference attributable to the benefit of performance related earnings of $56 4 million.
In the second quarter to 21.
The per share up 20 cents in the second quarter to 22.
We'll generate a dividend of 16, 9% for shareholders.
And year to date, our <unk> per share of <unk> 44 cents has generated cumulative dividends of 37%.
Which would equate to a yield of more than 5% on our recent share price.
The reconciliation of distributable earnings to our.
Net income it's fairly consistent.
The schedule from last quarter.
With most demand.
Attributable to acquisition related costs.
The amortization of intangible assets.
As rising primarily due to the inclusion of impact from Colorado pit.
The notable addition to the reconciliation.
Costs related to our recent stock listing.
These costs are recognized in IAF, Brad and amortize it over 15 months.
And will be adjusted from the D. In these initial periods, but later recognize it throughout D. As an offset to the sponsor promotes at the point of reallocation.
Net accrued performance fees stood at $419 million at June 30, compared.
Compared to 503 million last quarter, but still up 28% from one year ago.
The U S dollar strengthened significantly against nearly all global currencies in the quarter.
Driving relative to local currency depreciation.
Accordingly impact the U S D fund valuations in the quarter.
Along with the general weakness in Latin American equity markets.
While the accrual can of course retraced in volatile quarters like this.
We continue to feel very confident in the quality of our portfolio.
As Alex noted.
The current accruals stands at nearly $3 per share.
Which is significant relative to our current share price.
Turning to <unk>.
Total <unk> was $26 3 billion.
At June 30.
Down.
From 27 six.
Last quarter.
Due to currency and valuation headwinds in the second quarter, but up.
66% from $15 8 billion, one year ago, demonstrating the growth in our platform.
Total AUM is up 10% year to date driven.
Driven by strong depreciation in the in the first quarter.
The acquisition of VPI.
Note that we have closed on the first tranche of our transaction with BPI and included in our reported AUM.
Economics for our initial 50% stake will be effective for the full third quarter.
Despite macro environment inflows have been strong in the first half book join me too.
Nearly two three building of inflows year to date.
Not including the acquired team flowed from VPI boots.
Uh huh.
Half way to the 4 billion fund raising targets for the year.
We expect a diverse contribution in the second half of the year led by private equity and credit products, including the pending anchor commitment.
Inc for credit.
Which has not yet being recognized.
On the <unk> site, we also have a reasonable churn could be approaching a first close for our next infrastructure plan.
Around the new year.
Fee, earning AUM of 18.8 billion at June 30 is similar to the prior quarter.
As deployment for the first half of 2022 only activates.
The second half of the year.
Fee, earning AUM is up 126% from $8 3 billion, one year ago and up.
5% year to date.
We deployed about $650 million from our flagship funds in the second quarter to 22.
Which will accrue.
So fee, earning AUM for the second half of the year.
450 million came from the first pieces in our new vintage private equity fund.
A typical fee holiday for our first closers will apply.
Additional closing for that fund in the second half of the year. However, we.
We will have a retroactive catch up to July 1st.
On this capital that has been invested.
As Alex noted, our 2022 financial guidance for the year remains consistent.
We expect to grow FRE by at least 50% year over year.
We have generated $63 million the natural rate.
Throughout the second quarter.
And considering any growth in the second half of the year plus the realization of incentive fee at the end of the year, we feel very confident.
<unk> our target.
It bears repeating the benefit of long term capital and Tiki management fee allow.
Allow us to generate reliable fee related earnings for our shareholders.
Since our IPO, we have doubled the basis of fee, earning AUM that generate those are.
And that growth is ongoing through the organic scaling of our flagship fund.
New fund launches and M&A.
Those fee related earnings are generating an annualized yield of approximately 5% on our current share price and that is just the baseline.
Strong investment performance in our flagship fund has generated a performance fee accrual there is still untapped.
With the 2014 and 15 vintage fund in particular, representing significant earnings upside as realization materialize over the next few years.
We continue to execute on our journey as the Premier alternative asset management platform in Latin America.
And we believe Patrick can deliver premium shareholder value in the coming years.
We're now happy to take your questions.
Thank you again, ladies and gentlemen would like to ask a question. Please press Star then one one on your Touchstone telephone again to ask a question. Please press star one line one moment please.
Our first question comes from Craig Siegenthaler of Bank of America. Your line is open.
Sure.
Can you guys hear me okay.
Yes, correct.
How are you.
Perfect.
We wanted to get an update on fund raising.
Nominee are effect and a crowded private equity backdrop, they are creating some challenges in the U S. But patria I believe is competing with a different sleeves of capital.
And in your vertical emerging market private dollars and now more restricted to two of the biggest economies, Russia and China. So what type of impact as to all of this having on Patria just given that Patria is the largest private market's manager in Brazil and Latam.
Hi, Hi, Greg This is Alex here and thanks for joining the call and.
Again, thanks for your patience here.
We continue to be very positive on fundraising that's the general message here.
And we have so many processes going on specifically go from the macro and then I'll talk up kind of product by product asset class by asset class on the macro side.
Yes, yes, I think youre correct, what we see from investors as well.
Number one as it as it comes through.
<unk> markets Latin America is in a.
Advantage kind of phase right now given the low geopolitical risks in the high geopolitical risks of course.
And in Europe , Eastern Europe , more specifically and more authoritative oriented regime.
We are now seeing in China.
So that puts actually hours.
Yeah.
Our region of the World.
Highlighted by investors. In addition to the near shoring thesis that favors the region.
Also.
In addition, I think that Latin America was already.
Increasing its market share of the overall allocations within <unk>.
Martin within the emerging markets and if you see the growth of the economies is pretty positive compared to other developed economies.
So all in all I think and lastly, I think also I think some of them to our central banks in the region.
Anticipated a bit.
Monetary tightening now we're seeing that.
Most of the central banks of the regions are already.
Predicting a loosening up of the monetary policies and probably most of this going on economy will continue even as we grow faster in.
Predicting a loosening up of the monetary policies and probably most of this economy will continue to units will grow faster in 2003 onwards. So in general that's exactly what's on a macro that's exactly what he said I think the region has been benefiting from no disk plus of course I forgot the other concessions.
He is a commodity cycle that was already a big push for the region and in addition, so all of these geopolitical tensions and risks in Ukraine et cetera commodity prices that also drives exports in the region and also benefits in the economy.
Dan going for a more micro kind of.
And administrative issues here.
Also as you mentioned.
Mostly in the U S. Not other parts of the world investors have been having to deal with so many funds coming to market and of course they are overwhelmed.
And what the deciding to do most of them are generalizing here is basically is to focus on re ups and definitely we are on that list of re ups given our long standing relationships with several institutional American investors, but the process is taking a little longer because.
It's the same amount of people that they have in their teams I mean, the institutional American investors and they have to deal with more volume.
So the annualized.
We have received no.
I will say zero knows but very very few notes.
And Thats why Im thoughts are on our private equity fund raising process.
Because in vessels, just saying Alex has done is it going to take another month or two I need to go down in due diligence.
My.
The firm, but I work for has not allowed to travel plans yet in the bubble I don't have a lot of other funds. So why don't I. So again very very few I am not going to say no knows because it's impossible to see zero Knowles with very very few of those as just a.
I believe in the process, but as you go through other regions of the World Greg.
That's a different scenario now and the Middle East for example, which is a major part of our fund raising efforts.
I think the opposite side of what I just said the region was already under allocated to private markets in general turned as emerging markets Latam and as you know most of the sovereign funds and pension funds and the regions are generating a lot of cash and receiving new cash because of the poll.
The price of oil et cetera, and gas et cetera going up.
Asia the same I think in the Asian investors kind of other allocated to emerging markets in the region and everything that I said Salesian vessels are also incur.
Increasing their allocations to the region and lastly, it more so the local investors I think we have been.
Able to fund risk quite healthily in the local markets. We are now running as we speak two very big processes.
<unk>.
High net worth and ultra high net worth distributors in Brazil, specifically.
And though we have very positive news coming from that front.
So India pre positive.
Overall, because the region has been benefiting from all this geopolitical tensions and no I'm.
Im not receiving any of those were very very few analysis just process, taking a little longer and we have all of these other regions in the world allocating more.
Two private market alternatives emerging markets in Latin America, specifically.
However.
What also plays in our favor here is that we have other products also the flagships and our.
Menu offering.
Coming to market.
A very positive notes.
Marco mentioned and for credit for example.
So the whole credit story here is very positive given where interest rates are.
And because interest rates are also high.
Higher in the region not only globally and these vessels are looking to protect themselves from inflation and actually take advantage of the high interest rates. So.
We did receive a very positive confirmation from a anchor investors.
$100 million Fox Infra credit fund, which is not in the numbers that we gave you because they have not signed the sub dock yet, but it has already been published in their websites that they approved because it is a public institution.
Also have another public institution that are already approved and officially the notice has to sign the papers there are another $150 million.
For the same if a credit fund so very positive news on that front to anchor investors one on international.
Public institution, and a local Brazilian public institution.
Actually sponsoring anchoring this thing for credit funds also.
So Mark also mentioned.
In more detail, but we are anticipating our infrastructure our flagship fund number five fund raising process because investors not only they want to invest more in Latam as I, just mentioned, but they want to invest in product isolation kind of protected and that's the case of our infrastructure flagship development fund number five.
What we are looking into now is to have a first close within this year closer to December .
Versus actually one year from now than we were expecting to fund raising for infrastructure funds five as of September 23, 2023, and we're looking to have a first close in 2022 late late late 2022, but within 2022.
So having all of these different products to offer as a private actually goes through this that I just mentioned.
We have infrastructure coming back very healthily, and we have a reverse inquiries for our infrastructure flagship fund number five.
Which is not very equivalent so have reverse inquiries now investors, calling them to say when are you going to go out to the market. Because we are interested in your funds and also the input credit that I mentioned, which is also a closed end funds.
Which gives us this long dated kinds of fees to <unk>.
Our FRE expectations so.
Again of course, everything that is going on of course.
No.
You have to deal with the whole geopolitical situation that is side on a global basis.
Our region.
We are benefiting from this.
So we didn't want to benefit from the war, but we are benefiting from the from this the geopolitical centers around the world and you can see in our numbers $2 3 billion raised up to now with the 4 billion target.
No we're pretty confident that we're going to reach the target here. Thank you.
Alex if I can just ask one.
I am sorry, if I could just if I can just ask one follow up related to final seven private equity fund seven.
Looks like you raised about 900 million to date.
Was wondering if you could help us in terms of timeline for the the next set of closes in the final close and your expectations on how big that fund will be relative to the $2 7 billion for private equity funds.
Yes.
We are.
We are about we were going to have a second close I think late two late July in the second quarter, but we.
We were running these.
The processes that I just mentioned here.
With two big.
Brazilian ultra high net worth and high net worth distributors would it now.
And again, given where we were in the process. We went into August to grab there were and it's good news because we were pretty confident that they could raise more money. So it's actually we're going to have a closing that we're expecting that late second quarter into third quarter.
As we speak in August September .
And plus institutional money coming in this week.
In this closing so we got some of the institutional money that we already had in the second quarter that with the sub dock sign.
Putting everything in this one quarter administratively easier to have just one closing on the legal side. The legal cost. So we just waited a little bit with all the sub docs that we had signed in the second quarter to join.
This effort that I just mentioned that we were doing that were doing in Brazil with ultra high net worth individuals.
As far as expectations I think we are.
Our our fund does sustain the cover of $3 5 billion and I think we're confident that we'll get there.
And which is.
No larger than the $2 seven.
And normally houses funds goes.
I don't think I can I can say this but whatever it is.
I have to say that it's $3 5 billion, but normally looking to the past I think I can say that looking into the past normally our funds did not only reached but.
See the cover.
I think that's what I can say up to now.
But that covers three five Greg.
Yes.
Thank you Alex.
Thank you.
Thank you.
Our next question comes from Marcelo Telles of Credit Suisse. Your line is open.
Good morning.
Good morning, Alex Good morning, Michael Thanks for the opportunity.
My question is with regards to the.
The BVI acquisition.
You mentioned.
There are significant opportunities to leverage.
On that structure, so it wasn't all day.
This is a $1 billion.
Asset business.
How do you see that scaling up.
Overtime and then.
How big you think that business can be.
And given that the high rate environment that we're in or the person who is going through right now.
Do you think this is Ken.
Beyond an obstacle.
To scale that in a timely manner.
So thank you.
First of all Hi, Marcello and nice to see you and.
As you know we're going to see each other in person next week so.
And I'm looking forward to that.
And thank you for forcing me next weekend.
Well.
I think taking it one step back the whole permanent capital business for US is very important it's already 6% of our fee paying AUM as mentioned by Michael here and and we were basically zero. If you'll go two years ago at the final debt deal we were the one or 2%. So we've been growing that business.
Fee paying AUM has been growing in general as mentioned so have its grow more than the other asset classes to become today, 6% of the of the total AUM not only real estate, but we also allowance the infrastructure investment trusts.
Also add to the permanent capital.
6% of the CPE.
Specific specifically with <unk>.
We're pretty pretty and very positive about it because within.
The permanent capital structures.
Our no real estate listed assets in Brazil, you have several different themes and strategies and one of them that have been growing very significantly as the debt related pieces or the <unk> or is that Greece.
As we call them in Brazil.
<unk> did the allowance.
It wasn't the second quarter already.
Cri's fund and they already had one but they did a follow on for the front of the Cri Fund, which is no real estate debt also under the permanent.
Capital structure, and did very well and did raise.
Good amount of money and they want to raise more so.
The high interest rates do.
Effect.
Corporate office Cisco strategy, you have no real estate debt strategies that are growing.
Growing very healthily and when interest rates come down.
See that.
Yield curve in Brazil is already inverted.
<unk> are looking into a decrease in interest rates in the next whatever 12 months.
As you can see from the inverted yield curve then.
The other kind of themes within real estate, we will also benefit from that falling yield curve, but in general I think <unk> has a very strong name.
Very expert in seasoned group of people and we are very thoughtful about that in addition, we're also looking to weather.
Permanent capital structures to increase.
Again, if you will through mergers and acquisitions like the association with <unk> not only in Brazil, but in other parts of Latin America. So.
Really targeting for that 1 billion something U S dollars to reach a significant parts of our AUM now when I look at my peers and more of them in a global basis, I see that 20% to 30% of their fee.
<unk> AUM.
It comes from these permanent structures and Thats, a number that I would like to hit.
Of course over time and of course, using our cash to do acquisitions to get there faster, but that's the number that I think we could go from six to 20% to 30% of AUM.
In the future.
And just add Marcelo I think.
When we released the noticed on PPI.
We try to emphasize the market.
It's very big and it was about $4 billion that had been growing 28% and it was too small.
Relative to any other developer of economy.
<unk>.
The REIT business.
What we call an entry level alternative assets.
We continue to believe under financial deepening we think that this market still has a lot of potential to grow the market not to mention the capacity to consolidate and to replicate the strategy in all three geographies.
Recently the.
The Central Bank indicated that the monetary tightening should be.
Arriving to possibly.
Uh huh.
And.
And we'll start to see some indications.
Given indications of deflation. So we're hopeful there is a positive scenario looking forward and we believe that that's the <unk>.
Market.
As the interest rates reduced we believe that this will pick up trouble. Nevertheless, I think is important to mention VDI closed recently.
On a reported embracing 100 meter, which is not added to the <unk>.
Because it would close but just the beginning of <unk>.
Quarter, but we continue to see positive trends coming from.
Yeah.
That's very helpful. Thank you and see you next week.
Thank you very much.
Thank you. Our next question comes from Herman Congrats man of Jpmorgan. Your line is open.
Good morning, Alex Mark will Josh Thank you for <unk>.
<unk>. The earnings are question here 40 quarters actually on specifically on the credit performance of the credits Portugal.
We saw an outflow of close to $350 million in the quarter.
In this segment.
It was a little bit surprising we would imagine that this would be a <unk>.
Better under the environment, we are.
But when we add up your inflows and outflows, we actually had a net outflow in the quarter.
So the question is just to explain a little bit what happen. If this is recurring or not and what was the driver behind this is helpful. Thank you.
Specifically do you wanted on the number of specific do you want to respond to that mark on the on the.
Withdraw and then ill talk more generally about it.
Yes, absolutely.
What we see.
On page eight in our presentation that our year to date.
Inflows of 390 to 92 in an outflow of 497, and let's remember that on the outflows you have to add to that also the divestment and the dividend payment.
So this is not only.
No reduction.
AUM, resulting from.
Withdraws.
What we see here.
What I can mention about the credit business.
Physically.
In Chile that has been some turnover related.
Related to the local investors.
We're also seeing a strong demand.
From new funds.
<unk> seen some investors moving around from one to another.
And that.
Very well explained on the line of inflows year to date, you can see that we have about $2 2 billion of inflows EMEA AUM over the year.
And.
And that's that.
<unk>.
Fine.
The capacity of the platform too.
It's a lot to leverage on the on the on the fund raising of this.
Article Alex.
Yeah, and I would just this is Josh just out of the $3 45 outflows in the quarter to Marcos point on dividends being included in that about $61 million of that was dividends just to put a number to it for you.
Yes, I think Thats My point was exactly that I think investors do shift some type of strategy. So we had a very in my view positive.
Cash being invested into the funds of $2 2 billion.
That's a very very strong number sometimes youll see investors coming out of one fund and joining the other funds because they see our better moments that they like a specific strategy of sub strategy of the of the ammonia that credit product in general.
So.
Probably they saw already what happened with the with the.
Dollar denominated securities in Latam now they see the pickup of interest rates and local Julien.
They want to shift to a local Chilean credit.
Credit funds, so, but I think absolute more of the general picture. When you add all of these numbers is a very positive net inflow of cash into the into them within our funds.
So again be careful not to.
Not to pick up I think one strategy specifically.
If you have the money moving to other strategies, but the net general inflows were positive for the quarter and the domestic thank you.
Super clear Thank you guys.
Thank you. Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your Touchtone telephone again to ask a question. Please press star one one our next question comes from William Barnyard. Your line is open.
Thanks for hosting the call. So my question is a follow up actually of Craig's question regarding demand and the current environment.
Among your range of products, which products do you see a higher demand now is it mostly the infrastructure.
As we said before.
And then.
More broadly how do you see the evolution of your total AUM for next quarters. Thank you.
Yeah.
Yes, I think.
More and more in general enough for now.
<unk> protected and credit products.
Or more in Vogue.
In general However, I think that things are shifting.
Over the last quarter.
To equities as peak times investors.
We're beginning to realize that we might have hit the bottom as far as.
These public equities.
Valuations are concerned.
But yes, if youll see that if you if you look into.
Our menu of products I think we will continue raising.
It continues to be positive about our private equities.
Seven.
Our growth equity private equity growth.
We're having our first close.
As we speak in the month of August early September . So it continues to do well and continues to and continues to show.
Very positive signs that we will hit.
The numbers that I got that.
I've mentioned answering Craig Craig question of.
The $6 5 billion cover for private equity funds seven we're raising $200 million and we should have a first close which is around 40% of that which is Texas case for a growth equity fund as we speak.
So that on the equity side the.
On the infrastructure side, even more so we're getting a reverse inquiries.
When are we going to come back to the market.
And again, we were thinking about raising will beginning to raise infrastructure funds five which is one of our flagship funds in September of 2023.
We're looking into have a first close within 2022 late 2022, so is that kind of a year.
Vince because inflation hedge the infrastructure products are really in demand by investors and with.
The.
Major investors the main investors of our forces and our infrastructure efforts, we've talked to them and again why don't we then.
With them do a first close.
This year also.
So on the on the credit side I mentioned infrastructure credit.
Also.
Gaining a lot of momentum.
We didnt, we didnt add to the numbers because of some docs are not signed yet but we have.
Two important anchor commitments to this fund.
Local.
Public institutions $400 million, it's already in its website, but the sub docs I'm not sign an international also public institution of $150 million.
As already $250 million for this fund.
If a credit that we want to raise of approximately 800 to a $1 billion for the front end.
And having two anchor in vessels already 25% of the funds or more is very very positive so thats for credit.
Also on if you look at the number one in a credit product in general so.
When you look at all of them on other credit products in a lot of money coming in.
Because of the situation that I just explained.
So.
We had this.
The targets that we established to ourselves all the way back in the IPO early 'twenty, one to raise around $4 billion organically this year in 2022.
And then when we did actually starved historic it was late 2020.
Because we did go public in very early January of 'twenty. One. So late 2020, we said look this is our three year plan and we.
Plan to raise organically.
Organically $4 billion in 2022 and.
And we plan to do acquisitions like the VPI, which asset.
Right.
We didn't have a specific number for the acquisitions, but we said that we were going to do acquisitions and getting into 2022 and being able to have already in the first semester of $2 3 billion already raised.
So it looks like we are going to be able to hit the target of 4 billion for the year, because we are over the over 50% and we have half the year and I see the year continues to go very strongly plus anticipation of infrastructure funds five our flagship infrastructure Fund <unk> first close late this year.
Makes me feel extremely happy and confidence because so many things happened and so many moving parts in from late 2020, when we define this to be able to hit the targets in 'twenty two with all of these moving parts in the war in Ukraine, and this and that and higher interest rates and blah blah blah blah So look.
We will.
The only bit beats, but hits, but beats the targets.
$4 billion organic fund raising for 2022 against Stablish sold the way late in 2020.
I'm very happy about it.
And.
And again, just remembering that we started the year with 1918 819 billion our fee earnings AUM, So $4 billion is 20%.
The increase in fee earnings AUM for the year.
Plus the acquisitions, we know of 1 billion right now it can be $5 billion, which is 25% increase in fee paying AUM.
So very very strong.
Plus we have now as we grow we have synergies you can see that our FRE margins have been growing.
Even after the.
The acquisitions.
Integrating one hour.
Our fee, earning AUM has increased.
And now.
Shows that we are continued to be able to generate synergies from scale.
So all of that makes me feel pretty comfortable of course.
You might have but we have so many products one product here one product there but in.
In the overall scheme of things.
Feel very comfortable with our fund raising for 2022. Thank you.
Okay.
Thank you.
Thank you. Our next question comes from Beatrice <unk> of Goldman Sachs. Your line is open.
Good morning, taking my question Mike.
My question is around net financial results, which were a negative.
$8 million this quarter.
Especially comparing to last quarter, one was positive for <unk>.
Eight.
You mentioned during the call that this was related.
Impact from currency.
The balance sheet, but could you give us a little bit more color around why that is and is there anything else.
That impact this line.
And then a second question if I may is a more broader one.
The investments in equities exit strategies.
What are you thinking in terms of divestments.
For the year.
Do you think that.
The macro environment in Latin America impacts divestments at all if you could talk a little bit about that because it would be great. Thank you.
Okay.
Right.
And then the hybrid.
Yes, Im sorry, Mark, but that's what I was going to say I was just going to say high <unk> and I think Mark if you want to answer the first part of the question I'll take the second thank you.
Sure Hi, Geoffrey.
When you look at the net financial income, what youre going to see that.
Unrealized.
Results from our investment.
Korea closer attention to our presentation on page 22, you'll see that.
There's a line of invest instead of about $24 million.
The number is basically a function of the.
Currency impact overall investments and also the valuation impact on our investments what are the investments. These are mostly GP commitment and can minority stakes.
Our recent acquisition.
So we at the time of the IPO that number was very small and it's a.
It's not meant to be very significant in total into our financials.
Okay.
I can talk about divestments.
We're pretty positive with the divestments.
Teresa.
We have been asked.
Mentioned I think.
With a lot of our companies are portfolio companies actually.
For sale, we did sell a couple of them.
Already.
During this quarter fall off from our infrastructure efforts and from our private equity efforts.
We have been.
Receiving no non binding offers.
Uh huh.
That the valuations as we expected.
Now we are receiving binding offers that the valuation that we expected even with the plus a.
Slightly notch up here.
These are the where we expected all of our marks.
So everything going in my view as planned.
I think during the second half of the year I think we will continue to be able to deliver on that and thats.
Actually is.
The main engine the main driver to push performance.
Performance fees.
And the way that we see it I think of private equity funds five continues to do well on that front on the divestment front no building in deep DPI or distributable paid in capital to get into the.
Performance fees zone.
And I think we see the same thing for infrastructure fund III, which against to our surprise we.
We're not expecting to getting close to the performance fee zone. This year, we were expecting more.
To get into the performance fee zone in 'twenty, three 'twenty, four but because of some divestments that we are.
Pursuing in our infrastructure fund III.
We see that we are moving in that direction.
I don't see actually generating a performance fee from infrastructure. Since we this year. There is a chance that we can but we were not expecting that so we.
We were expecting in 'twenty, three 'twenty to 'twenty three 'twenty 'twenty four but we are anticipating some of those divestments and again the <unk>.
Non binding offers and now some of the binding offer sign line with our expectations with a slightly notch up.
From what we expected.
<unk>.
What we see here I think is a question of having known the good assets in the portfolio and I think thats consequences of the quality of our assets.
For example in our <unk>.
Private equity efforts, we're selling leaders in.
Coal logistics distribution, we are selling a neither in agricultural inputs distribution and those are sectors very sought by investors also.
We're looking at Soma to sell some of our healthcare related.
Assets.
Logistics, <unk> logistics frozen logistics agricultural inputs.
Distribution health care related.
Our assets are very well and demand very well sought by investors are in demand so being in the REIT sector with the right.
Asset all of them leaders in their respective segments of the health care industry aggregate industry or logistics industry. I think is the reason why we are getting.
Strong bids from all of them from strategic investors or most of them from strategic investments on the infrastructure of the same and even more so because we are selling a couple of hours or more than a couple actually.
Of our renewable energy.
Energy assets, and we're having great demand for those assets some of them in Brazil, some of them outside of Brazil.
And again the same.
Same kind of a few.
We are getting the processes running as expected or with a slight notch.
<unk> from our expectations. So we should we should deliver good news on that front in the second semester of 2022.
Okay.
Michael.
Thank you.
I'm showing no further questions at this time I will turn the call back over to Alex <unk> CEO for any closing remarks.
Alright, Thank you very much for your patience and thanks for participating in our in our second quarter 2022 earnings call.
Again in our view a very very positive.
We are now very much in line to deliver the guidance for fee related earnings 50% growth versus last year.
We are in line to deliver our $4 billion organic growth in the EU in fund raising.
We also are.
In line with what we expect to do.
Inorganic growth or M&A with the acquisition of <unk>.
<unk> already.
Public and the already announced and are looking at right now a good pipeline for acquisitions in the second half of the year.
In addition, I think.
I see.
No.
We are entering in a good divestments.
Cycle base, I think with everything that I just.
As mentioned here answering <unk> question so.
So very positive about that as well.
Accident pushes us through the performance fee zone generating performance fee related earnings cell C related earnings right on track.
<unk> here.
The 50% growth good chances on the performance fee related earnings as we do these divestments, we move into the performance fee zone of course as you guys know.
It might slip a month here amongst their quarter here a quarter there but.
The general direction, and the prices and valuations that we're getting from the non binding and the binding process are pretty much in line with what we expect with a notch up and if we move into that direction, we'd get into performance fees, though even though again it might slip a quarter here, but the direction is the right direction.
We didn't get any negative impact on our valuations or processes that we are divesting.
So that actually that pushes us through.
Very strong distributable earnings growth for the year.
And hopefully no again as we as we move into 2022, we will give you more good news on that front.
And already looking into given that our business. So predictable looking you also already into 2023.
So thank you very much for participating and I hope to see you guys.
In person over the next couple of months in.
In different meetings and conferences.
And with that I'll close the call here, if theres no. Other further comments from Mark or Josh. Thank you.
Yes.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.