Q3 2022 Patria Investments Ltd Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Hello, Thank you for standing by and welcome to Apache is third quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During this session you will need.
Press Star one one on your telephone please be advised that today's conference maybe recorded I would now like to hand, the conference over to your speaker today, Josh would head of shareholder relations.
Please go ahead.
Thank you good morning, everyone and welcome to <unk> third quarter 2022 earnings call joining today, our Chief Executive Officer, Alex side, our current Chief Financial Officer, Mark of the policy.
As well as our incoming chief financial officer on our Russo.
Earlier. This morning, we issued a press release and earnings presentation detailing our results for the third 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.
Guarantee future performance and undue reliance should not be placed on them.
<unk> assumes no obligation and does not intend to update any such forward looking statements.
Such statements are based on current management expectations and involve inherent risks, including those discussed in the risk factors section of our latest form 20-F annual report.
Also note that no statements on this call constitute an offer to sell or solicitation of an offer to purchase an interest in any patria thought.
As a foreign private issuer Patria reports financial results using international financial reporting standards or <unk> as opposed to U S. GAAP. Additionally, we will reporting refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IRS.
Reconciliations of these measures to the most comparable <unk> measures are included in our earnings presentation.
On headline metrics Patria generated fee related earnings of $31 $7 million and distributable earnings of $29 7 million or <unk> 20 per share or <unk> 22.
We declared a quarterly dividend of $17 <unk> per share payable on December seven to shareholders of record as of November 15th.
Before I turn the call over to Alex I want to highlight that last week, we announced battery. Its first investor day event to be held on Monday December five in New York.
We look forward to seeing many of you there in person to engage with our leadership team and the event will also be webcast live with registration available on our IR website.
Since we'll be giving you a comprehensive update on our multi year outlook. At this event. Please note that we will defer most commentary on forward looking topics beyond 2022 to the Investor day.
With that I'll now turn the call over to Alex.
Thank you, Josh and good morning, everyone.
<unk> continues to perform very well.
<unk>, where the world has faced significant uncertainty.
We delivered two of distributable earnings per share in the third quarter.
Bringing us to 64 cents per share for the year to date.
Oh, driven by steady and predictable fee related.
FRE per share is up 54% year to date in 2022.
And given our 85% payout ratio.
Shareholder buying around the current share price could expect an annualized dividend yield.
North of 5%.
Fee related earnings alone.
An attractive proposition than just about any market environment.
Our fund raising progress continued in the third quarter.
With more than $500 million of new capital inflows across multiple products, bringing us to more than $2 7 billion raised for the year to date.
Valuations were generally up in the third quarter.
Taking our net accrued performance fee balance up to $428 million.
And driving nearly $450 million positive impact to <unk>.
Lastly.
We added some great talent to our team welcoming wholesale to the firm as our incoming CFO .
And we are excited for the perspective and value she brings to Patrick.
She will also introduce herself to you shortly here on the call.
Before expanding on our platform I want to first touch on the broader Latin American macro landscape.
The highly differentiated economic backdrop emerging in our part of the world.
It pays to diversify and right now Latin America is making a solid case to attract allocations.
A busy political cycle is coming to an end as the region's largest economy, Brazil has just gone through general elections.
In early October the composition of the New Brazilian Congress came to light in both the house of Representatives and the <unk>.
Federal segments now have the most conservative and business strategy.
Since the return of democracy in the 19 eighties State Governors also elected last month have the same profile.
Along with an independent Judiciary branch, a free press and solid market foundations that speaks of a functional liberal market democracies.
By the way that is the prevalent situation and most of Latin America.
As for the presidential contest there were no unknowns there.
Run off at former President Lula facing the incumbent President both scenario.
Lula one now.
An outcome that was largely anticipated by markets. Since he has led to the folds over the past months.
Patraeus successful business model and investment strategies are not predicated on the particularities of the campaign program of any country leader in.
Any specific geography.
But that being said.
They are rational grounds to assert that president Lula is likely to improvement the same sort of effective policies and reforms, but yielded him a job approval rating of over 80%.
He has stepped down on January one 2011.
After serving two four year terms.
Lula manage the reduced object property in the country by 51%.
Brazil's GDP in U S dollars declined to two two trillion.
From 510 billion.
Public indebtedness fell to 62% of GDP.
76%, whereas international reserves floored.
$289 billion.
From $38 billion.
Admittedly.
We'll have benefited a lot from the unfolding commodity super cycle, but it is worth noting that over the past couple of years the relative prices of primary products has increased significantly as well.
Google leads a broad center left coalition that we would try to attack.
Ambitious agenda with a focus on sustainable development and inclusive growth.
While preserving fiscal and monetary discipline.
Thus updating the script followed in his past administrations.
Zooming out to take the broader Latin American perspective, we see evidence from recent election cycles in Colombia, and Chile for instance.
Strongly suggests that Latin American suffices may wont change.
They are constantly redirecting extreme departures from the existing status quo.
Very importantly, there has been no compromising of crude in the economic policies neither of the friendly stance towards private investor.
Lastly, it is worth remembering that there are no geopolitical conflicts in the region no nuclear weapons, no religious ethnical clashes while natural resources authentic.
As a reference alternative asset manager focused on the region.
We believe these factors should continue accruing to the benefit of Patria.
And our portfolio performance, our ability to attract new capital to our products.
And our capacity to successfully divest from lapses.
Indeed, the year to date performance of Latin American assets on market seems to corroborate.
This assessment.
The Latin Americas MSCI index of listed equity in U S dollars is up 12% in 2000.
'twenty two.
While the global index is down 24%.
Our basket of Latin American currencies at Justice for each country's GDP size shows an appreciation of 2%.
Against the U S dollar.
Our other global currencies like the euro and the Japanese.
Japanese yen are posting double digit depreciation.
M&A activity in the region has grown by 43%.
While in the rest of the world It has stagnated or decreasing sharply.
These distinctions are important.
There is a clear view that while our industry clearly benefits from the powerful long term trends and after the location. It may face some macro headwinds in the short term.
And we are certainly seeing that reflected in sector valuation.
As you think about criteria, it's important to consider the backdrop in which we operate.
And right now, we think Latin America looks quite compelling compared to most parts of the globe.
Turning back to our business.
I'll go a little deeper on fundraising and then add some color from our asset class vertical.
Fund raising in the quarter included notable closing of Brazil based capital for our newest private equity funds.
We've talked a lot about diversifying our platform and product offering.
But this is a great example of our efforts to diversify our distribution channels.
And further Democrats rise alternative in the region.
This closing over 1 billion Reais focus on the high net worth and qualified retail channel.
And included more than 7000 investors with check sizes, ranging from more than 1 million reais.
The way down to 10000 right.
It is a prime example of how we believe we can harness the financial deeply in the region to drive AUM and earnings growth.
We targeted $4 billion of fund raising in 2022 across a diverse range of products.
On each piece of that target is now well within our sights.
While our targeted closing dates should get us there in Q4. It is possible that piece could slip past the end of the year.
Through early 2023.
Over 2022 and 2023 together.
We are targeting $6 billion to $7 billion in lumpy it grew.
Those then drawdown fund structures.
This is coming not just.
From our two flagship funds.
But also from a growing offering of complementary products targeted at both international and local Investor Universe.
<unk> strategies like growth equity.
Infrastructure credit.
Private credit.
And that $6 7 billion.
Include.
Raising in our more perpetual strategies that can constantly fund rates.
Where we have already seen inflows of more than one 4 billion. So far this year.
It also doesn't include our permanent capital strategy.
Where we now have more than $1 billion in AUM.
Across <unk> real estate investment trusts and core infrastructure products.
And expect to add another $1 billion next year through organic fund raising an additional M&A.
Now looking at some highlights across the platform.
For private equity.
In addition to the closing.
We announced the agreement Cola bottle.
A leading agricultural inputs retailer in Latin America.
And the largest in Brazil to.
To become a U S listed public company.
This is an important step forward in the divestment process for <unk> five.
And a great case study of our success in the agribusiness sector.
And the execution of a pan regional consolidation strategy with more than 20, M&A transactions completed to build the company we see today.
In infrastructure.
We continue to see an accelerating fund raising cycle as we target a first closing of our next flagship funds in the coming months.
More than one year ahead of what we anticipated back at the time of our IPO.
We also closed our second infrastructure core vehicles targeted to local Brazilian investors in Q3.
The divestment process continues to move along with some key assets.
The expectation to deliver significant realizations to our limited partners in the next few quarters.
Credit continued to show strong relative performance, despite historically challenging market conditions in the asset class.
The high yield strategy is outperforming its benchmark by an impressive 660 basis points year to date.
With about 90%.
Performance attributable to asset productivity.
With a yield to maturity of more than 13% at the end of Q3.
The local currency strategy is also outperforming its benchmark with a yield to maturity of more than 15%.
On a broader basis. These two products are both performing <unk>.
<unk> hundred 2000 basis points better than the world aggregate Bond index, which is down 20% year to date.
Our public equities platform delivered solid performance in Q3.
Latam equity markets were a clear bright spots relatively to the U S and most of the world markets.
The Chilean small cap strategy for example return 12% in Q3 and outperformed its benchmark by 370 basis points.
And then real estate.
<unk> raised more than 100 million reais to announce a new REIT real estate investment trust vehicle focused on credit assets.
Seems to be an area, where we remain active on the M&A front.
And believe there is a very replicable permanent capital strategy to be pursued other key Latin American countries.
Let me now turn things over to markets will give some more details on the lumber market.
Thank you Alex and good morning, everyone looking first at the P&L results, we generated fee related earnings of $31 7 million in third Q22.
And $94 6 million year to date.
46%.
And 67% respectively from the comparable prior year periods.
FRE was in line compared to the second quarter.
Following a similar pattern in the fee revenues.
And fee, earning AUM.
A few known factors coincide to limit the uplift that we will typically see moving into the second semester of the year.
And our trajectory remains on track for our full year guidance.
Our second infrastructure fund reached the contractual end of its fund term in June .
And the lack of that fee stream offset the additional revenue generated by infrastructure deployment in the first half of the year.
Also as noted last quarter, there is a fee holiday on the first closing of our latest private equity fund.
Meaning the private equity deployment in the first half while still fee earnings AUM in nature is not effectively generating management fees, yes.
And finally, the outflows from credit in the middle of the year, which have low.
And we believe turned the corner have resulted in credit fee, earning AUM being lower than we hope at the beginning of the year.
Despite these offsetting factors or management fee growth during the year.
Revenues has remained very stable demonstrating the stability that make our fee earnings predictable.
In the fourth quarter, we expect to deliver similar management fee revenue.
With the addition of the year end incentive fee crystallization, adding to the <unk> results.
This should allow us to deliver our financial guidance of 50% FRE growth, which we first conveyed exactly one year ago.
Through an environment, we're maintaining guidance has proved difficult for many companies.
The FRE margin was 57%.
For both the quarter and year to date period.
Continuing to run on the higher side of our mid fifties guidance as.
As both personal and administrative expenses.
And remain relatively consistent with first half levels.
Net accrued performance fee rose to $428 million.
Up from $419 million.
Last quarter.
And up 23% since the beginning of the year.
The quality of our private equity and infrastructure portfolios continues to support significant embedded value for shareholders.
And exit processes.
<unk> to move forward for several portfolio companies.
As we look to the fourth quarter.
There remain a possibility of a performance fee realization event.
With the outcome now being more binary.
It's safer to assume an event that crystallizes in 2023.
Though we would expect to have clarity by the time, we announce our Q4 earnings.
Turning to AUM totally win was $26 5 billion at September 30.
Up.
Slightly from the prior quarter with the inflows in private equity offset by outflows in credit.
And positive valuation impact offset by currency impact.
Total AUM is up 76% from one year ago, reflecting the expansion with Moneda.
And up 11% year to date.
Fee, earning AUM.
Was $18 6 billion.
At September 30.
Compared to $18 eight at June 30.
With a quarterly change generally driven by the same factors affecting fee revenue that I mentioned a moment ago.
The contractual fee turn off of infrastructure too is the largest driver.
And while we also saw some additional net redemptions in credit for the quarter driven largely by Chilean clients.
We're seeing the macro headwinds for those flows tackle as we enter Q4.
Following the strong rejection.
The proposed new Constitution in Chile.
I will close with a quick reminder of my upcoming transition to focus my time more fully on positive growth strategy in the coming years as chief Corporate development Officer.
It has been a privilege to serve as the CFO in this recent years.
And I want to assure you that I will continue to be a regular face to phosphorus shareholders from the senior leadership team.
Bringing <unk> to our management team at a distinctive set of skills that we will take our finance and accounting team to the next level as a public company.
In turn it is going to allow me to best leverage my friend to achieve our future vision for the growth of the platform.
You'll hear a lot more from <unk> in the coming quarters.
But for now I will turn to her for just a few quick words Anna.
Thank you Marco and good morning, everyone. It is a pleasure to be here with you on the call today and look forward to meeting in person.
<unk> has been working closely with Mark Leonard team getting up to speed and we're off.
Great start since my arrival at the beginning of months.
Margo has built a wonderful team and I'm excited and honored to have the opportunity to step into this leadership role.
Obviously, I will defer any business related questions to Arlington Mark at this time.
Ill turn it back to Alex for any closing remarks.
Great.
And our wonderful to have you on board.
We are adding important talent to our leadership team for our growth as a public company.
And positioning our team to really maximize their strengths to drive cuatro forward.
I want to reiterate thanks to Marco for the <unk>.
Credible job he has done leading <unk> through this chapter and a very wide ranging CFO role.
And it breaks that I pause and reflect on what we have accomplished in the seven quarters since the IPO.
We expanded our platform organically and Inorganically with paid totaled.
Up 84% and fee, earning AUM up a 141% since the end of 2020.
Our IPO capital has driven three strategic M&A transactions.
Giving us a substantial credit vertical.
A new public equities and pipe expertise.
A talented growth equity team.
And then anchor core real estate in Brazil.
Our fund raising cycle continues to run ahead of our expectations at the IPO, even given the difficult environment here in 2022.
Our drawdown funds have deployed $3 $2 billion to new investments to drive organic fee, earning AUM growth of 27%.
Our portfolio is performing very well with two most recent vintages of both private equity and infrastructure funds.
Cooling performance fees today.
And then overall performance fee accrual is up.
5% since the end of 2020 or up 76% when accounting for the <unk>.
Realizations.
We have also committed to giving you some guidance on our fee related earnings.
Where we delivered in 2021.
And I'll reiterate we expect to deliver again in 2022 on 50.
50% growth.
On that note.
I'll close by again encourage you to attend our $2 million.
<unk> Investor Day event, we have coming on December five.
It's great timing for us to provide a clear vision on what we once we accomplish over the next several years.
And we are planning on and engaging programming that will showcase our platform.
Rotations from across our leadership team.
I think you will leave with renewed view on what we are to date.
What we want to become.
And the value we can deliver to you as shareholders along the way.
We'll now be happy to take your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone please stand by while we compile the Q&A roster.
Our first question comes from Craig Siegenthaler with Bank of America, You May proceed.
Hey, good morning, Alex Mark I'll hope, you're both doing well.
Hi, Craig how are you. Thanks for participating here, we are talking to you correct.
So so far the Brazilian stock market and the Hal have reacted pretty positively to Louis win and Salt Lake.
That's a positive for the valuation of your portfolio companies or the return translation USD and asked the realization outlook, but I want to thank on this a little deeper so besides the market impact do you see any other potential positives or negatives from my Little administration.
On the domestic fund raising front and.
And I'm also wondering if infrastructure spending could also be an important catalyst for patriot.
Yes, I think the answer is yes, I think we see that.
As a catalyst to be honest.
First and foremost I think the if.
I go back 20 months ago, 24 months ago to be honest Greg.
<unk> also narrowed as the president that we were in the middle of Covid I think he was trying to do a good job, but it was very criticized by.
By civilians sand that the international community and how he handles Colgate et cetera, I think Indiana I think he did a good job.
The vaccination programs, where else is that now know over 90% et cetera, but I think the country was going through this general.
Criticism around the world of how visible so that it was handling things now we turn to 24 months after that until today.
I think investors a lot more positive about Brazil, and because of the also on a relative basis there from from that 24 months ago to today.
Mr. <unk> also now to kick back in and had a more substantial COVID-19 economy is open again it comes the war in Britain.
Crane in the region doesn't have any geopolitical risks et cetera, I think that we said over the call.
And it is you did see how the how the markets react to all of this very positively finally, I think some of our investors were waiting for the election.
I think that if miscible so narrow had one we would also be in a fast extents.
We're more concerned and this I will hand over pass over and I think we've talked about that.
Over our generate London, a couple of weeks ago.
Over a month ago and now I think what we listen from our investors is like okay. The pages Stearns, let's move forward and in addition, and I think with international with the International community I think Mr. Lula.
Does.
Stand as a positive.
Outcome, and I think that Mr. Luo will play so with the international community audience.
Where he is going to focus on two or three things that were of which will be very very well accepted on the environmental front number one.
On the civil rights number one number two and maintaining fiscal and monetary discipline number three so on the first two here is already there and acting and inviting.
To be the.
Environmental Ministry Minister person that is very very engaged with international community.
And the international audience, which today is.
Central left left it's already applauding the survivors in the U S already congratulated Mr. Lou Let's say, we can do so many things together you have the Norwegian coming.
Coming back and already saying that the funds for the Amazon Forest.
Recuperation is already back on $2 5 billion. They had hall says that flow of money to Brazil, because of Misoprostol narrow stance.
On the environment, you have missed them across.
You have a sense of less government in Germany also applauding Mr. Lula, and we have China, which I was very very impressed with the.
Congrats letter that Mr. Lula received from the leadership in China St. Louis now again, you are the first one that we expect to to really deepen the relationships with Brazil and of course.
Not being left of center left in whatever they have the same kind of so the audience international audience is pretty much aligned.
Mr. Lula speech, so, yes, I think that investors now I think of course liquid securities comes first because they react.
Immediately to a positive stance, but I think that our fund raising locally and internationally will definitely benefit from that on the local fronts, notably we did raise.
A record high for a private equity fund in Brazil in the month of October prior to the election, even with interest rates of 13 75. So.
That's also no shows a positive sign.
Investors are no.
Thanks.
Willing to invest more in alternatives and of course with battery. So no we're positive here.
And I think the.
Mr. <unk> will do the right things.
Everything.
But NAS broke magic is a very pragmatic person and he was definitely play for the international community crowd in the audience that I think he is he's already being well accepted I think he will continue to be and that plays very well with our investors.
Thank you got it I think the U S Vice president won't be attending his inauguration tail.
I'll ask my follow up is on my Nader.
Credit declined sequentially.
That was a mix.
Hey, good flows depreciation a little FX.
I know something's gone going on in Chile, with the pension plans. There is some pent up redemption demand by something that played out I think a year or so golf can you just help us with kind of what's going on with Shelley.
And also help us with the timing and the size of these redemptions, if theyre going to continue.
Yes of course.
We saw on September 4th.
Yes.
The Chilean society civilians voting against the new Constitution.
As of that moment, the redemptions had.
Halted to diminish significantly so we saw definitely positive move on that front Greg.
Think chileans were worried about this new constitution that was being proposed by the current president of <unk>.
No.
Over 60% of the Chilean <unk>.
Civilians as voters voted against the new Constitution.
And we saw the redemptions basically halt.
Now I think if we continue as we go into 2023 with the same though.
The amount of inflows that we had in 'twenty two or even more.
And we don't have the redemptions that I think we come into 2023 very optimistic.
In addition, we're already seeing some of that money that came out be reinvested in the funnel and why did.
More than just the <unk>.
<unk>.
The vessels were worried about the new constitution, the way that the pension funds in Chile work they have to balance their assets Accordingly to an index, which is a which is an average of all of the other pension funds together. So for example.
Very very simple example, our 60% equity and 40% fixed income and the average of the pension funds is 58% equities.
42% fixed income you know the pension funds that are just out of this now.
Now 50 842, you have to then redeemed from equity funds and invest in fixed income funds and vice versa. Because you have to follow the average because your performance compared with our benchmark, which is the benchmark of the average of the industry.
So they were actually where is that.
This could actually effect.
Their performance and in addition, they wanted to to have a cash positions if they had to come in.
And have two more withdrawals coming forward with.
The.
The rejection of the new Constitution on September four everything got reverted.
Once you have to be more exposed to Chile, they want to be more exposed to so our alternative products. They don't have this issue of keeping cash anymore. So not only the redemptions halted but we see that we already saw in vessels coming back in and re invest in in our funds.
Not only the institutional channel by the family Office Champ.
So it's pretty nice pretty positive on that front.
And I think we see that trend continue in <unk>. Thank you.
Okay.
Thank you Alex.
Thank you one moment for questions.
Our next question comes from Ricardo <unk> with BTG Pactual you May proceed.
Good morning, everyone and thank you for the percent of making questions I have three on my side.
First can you. Please talk about when the next closing of <unk>, seven and the new <unk>.
<unk> are expected to happen.
For my second question can you. Please explain what happened to delay deployment levels to be flattish quarter over quarter.
When you look at Q2, and why we should expect in the following quarter.
And finally, please give more color on what drove the loss in financial results. This quarter. Thank you.
Thank you very much and nice to talk to you and thanks for participating in our call.
So three questions number one.
<unk> closings on private equity funds, 7% in April five.
Private equity funds seven we did.
A couple of closing as I think through two or three closings during the third.
Third quarter with Brazilian clients last in clients and.
Outside of Latin America clients, mainly U S.
So we are going ahead, I think we were having this multiple closings.
Every month every six weeks as soon as we are.
I think that that's how the industry works I'm not seeing anything that is.
And industry standard as soon as we have enough volume of around 100 million 100 something million of investors. We then have a closing which is a very simple process there'll be honest them. So we keep some of the sub dock subscription documents.
In escrow and that we know we have joined $100 100 something million because of legal costs associated with closing and then we then get all the sub docs are already signed and Dewey a.
Official closing.
And that's what we did during the third quarter I think with lots of new vessels as I said with U S based investors and with Brazilian investors the Brazilian <unk>.
And raising which is very interesting as well as you know we had a record high.
Raising for a private equity fund in Brazil with.
With XP being the distributor.
Interesting here is <unk>.
Different than what I just described in Brazil, when you fund raise for private equity funds or alternative asset funds like ours.
As I can IPO you have the beginning.
So you have 20% 25, it's basically 25 days, which is around 20 working days.
To fund raised like an IPO start day, one of 20 working days they either have to stop fundraising.
We.
With XP, we've put on the cover that we are going to raise around 800 and something million Reais.
There was a $1 3 billion demand. So we managed to do the hot issue, which which is 20% more and reach a bit in reais and so we had another 300 million reais that we couldnt.
Our supply.
No.
So in excess demand. So we're very very excited but we cannot take on those 300 million Reais of Additionally, we stopped I think on day 15, we stop even doing meetings, because we were already at $1 3 billion Reais with you that we couldnt cope with the excess demand.
And investors do get of course or not.
Alright.
Because by the Brazilian regulation as well as first come first served so the guy that came in later.
Would not be served.
So at the end Vodafone 20, working days, we had 15 working days of Fundraisings had a fight with just cancel the meat.
After X amount of months, which is if I'm not mistaken around four months I can do another issuance.
Going through the process that I just described and we're very excited that maybe sometime early next year, we're going to do another one.
We can do another one and because there is now after though does everything that I just.
Answered here to Craigs question with Lula already there things going on in the right direction.
In India.
Interest rates in Brazil, showing that theyre going to go down in the second semester of next year, that's what the yield curve actually shows us the Brazilian yieldco shows US I think we can do other of these issuances. So very very excited about this.
So thats on private equity seven on infrastructure fund five.
We havent started it now.
We're talking to investors, we haven't had a first closing yet.
Private equity from seven we had a first closing I think it was March of this year.
We're planning to have a first closing sometime this year or early next year it depends more on bureaucratic issues.
Interest, saying, we're having a a reverse kind of increase when are we going to get out with infrastructure fund five.
And here, it's interesting as well as a general comment I know you didn't ask this but just as a general call mature and additional cost.
Private equity funds seven and six five the previous funds.
A third of the fund was being raised a third or 40% of the funds were raised with North American clients U S and Canadian.
And as you know the U S market in particular is a crowded market and.
We are waiting for it for a better moment to raise in the U S. So I think we're going to get there to the to the targets and private equity fund seven.
But the U S underperforming and we are over performing in other regions of the world The Middle East Israel Asia Latin America to compensate for this if the U S comes back in 'twenty, three which I think it should.
Then I think we will do even better.
On the infrastructure side whenever really raised a lot of money.
From U S Canadian investors through our infrastructure funds.
The structure is.
So it's a real asset, but it's not really a.
Asset class.
U S pension funds invest in they are beginning to come into the asset this asset class. So infrastructure fund five around closer to 10% of infrastructure of a floor for three or even less of that comes from U S. Canadian investors U S investors because of what I, just said Canadians they like to invest in infrastructure more directly.
Canadian pension funds.
So that effect that I, just mentioned that the overcrowded market in the U S does not really affect our our infrastructure fund in that sense, because we don't read a lot of money from the U S market Canadian markets. In addition, it's a sought after product today because of the inflationary hedge et cetera et cetera, So now pretty positive on the infrastructure funds fund raising.
Process as we go along.
Dan going to Europe .
Any additional comment there can I go to your second question.
Okay.
Okay.
Very clear.
First question Okay.
Okay. So now we go to deployment.
What did we do here and of course, there is the strategy. There is the tactical part of the of the execution rate.
We want to deploy last year, we deployed around $2 5 billion.
And it was a very favorable moment for us to deploy because we saw.
More of a tactical approach to to a deployment.
And overshooting of our devaluation of our currency.
565%.
So the dollar.
As I mentioned.
During Craig's question I think there was a general pessimism exaggerated pessimism with Brazil and both on auto.
Because of what he know his stance on Covid and et cetera, and we said look I think this is a very interesting moment for us to deploy now valuations were depressed because interest rates are coming we're going up et cetera et cetera. So we had a very good year of deployment.
As we approach into 'twenty.
20 to.
We actually saw that things were going to get it better than they did in the whole no.
Uncertainty about the election be admissible, so that'll be a disorder with the.
Over at <unk>.
Did as well.
And so as I look I think this is a very interesting one for us to divest or we're trying to divest a lot and I think as we do the divestments in the in the fourth quarter, mainly from our infrastructure funds.
Private equity funds I think were hitting a very good exchange rates to take the money out and give back U S. Dollar so our investors.
$525 2014, and it's interesting that our private equity fund six which is our latest private equity funds and infrastructure funds for which is our latest infrastructure fund. The returns in dollars is actually better than Reais, which is not very usual.
Because of what I just said.
We put money in a 565 by 70 Reais so the dollar amount.
Australia around 520.
So we were also waiting in this quarter to be honest on what was going on with the election.
What was going to happen after the election miscible so notwithstanding.
On the passing the baton et cetera, so we to be honest I think.
We delayed a little bit.
The signings of deals that we had in the <unk>.
Pipeline.
We turned papers a little slower than we could.
In order to get to understand what was going to happen and now everything I think it's fine in our view as I did answer to Craig I think we are then coming back to the table to sign.
The deals that we had on the table. So we tactically we did delay things a little bit over the third quarter, so a very or.
The strategy remains the same over the last 12 months, we have deployed.
<unk> committed $1 4 billion, we should finish the year with $1 5 billion.
Month's 2020 to $1 5 billion right on target with where we gave you with the expectation that we would commit $1 5 billion.
From our long dated closed end funds private equity and infrastructure. So we're fine there, but tactically speaking micro management third quarter, we did slow down the pace, we pushed the papers along a little slower with turned the papers a little slower because of the of the election.
And the third question is that fine for the second question can I turn to your third question.
Just a quick follow up on your second question.
We saw that that was the impact from <unk>.
The C. I believe many of the infrastructure segment should we expect any anything similar happening in Q4.
That would impact the <unk> or not.
Yes, no we don't expect anything in Q4.
What we have in.
In 'twenty three and we go over we'll go over that in more detail in our packs day December 5th.
We have a private equity fund four.
Finishing in the in June 23, private equity funds for finishing in June 'twenty again, a lot of micro management here, we can give you more details.
Offline, but just answering your question very very precisely okay, but no effect.
In the fourth quarter of 'twenty two.
Now I'll turn to Mark to answer your third question.
Got it.
Everything we're with you.
Guarding the financial results.
Split my answer into.
The first piece on the non-GAAP measures on page eight of your presentation, you're going to see that on the quarter financial expenses is actually increasing by 100000.
And this is very much a reflection of the variance of the of the asset.
<unk>.
There are substantially driven by GP commitments.
The mark to market the assets will drive some of that variance.
If your question is related to the FRS.
<unk>.
Dan.
And that's on the page 22 of your presentation, you will see that most of those expenses are driven by the M&A activity and our noncash expenses.
I will call the attention, particularly to the one that is newer to this because we have some of that expensive accruing as a result of the acquisition of <unk>. Some of them accruing further as a result of the acquisition of VPI and then there is one particular line that stands for this back.
Which is.
The market value of the warrants again these are all noncash expenses.
Very clear.
And we thought there was an increase in noncash expenses looking at this quarter versus the previous one mainly to do with the VPI acquisition in respect that you mentioned are there.
Another effect that it should take into account.
Very slightly down.
Okay.
And that precisely.
Yes.
Thank you one moment for our next question and as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from Tito <unk> with Goldman Sachs. You May proceed.
Hi, Good morning, Alex and Michael Thanks for the call and taking my question a couple of questions also.
First on the performance fees, you mentioned, you probably have some more visibility in the coming quarters to be able to realize those and maybe more in 2023.
Justin.
I understand anything in particular that you would be waiting for is it just more stability in markets as any particular events.
Net that you are waiting to be able to realize some of these performance fees and I imagine primarily would be from private equity fund five and infrastructure three just any color. So we can kind of think about that.
Timing.
Much you could potentially realize.
And you can give will be helpful. And then second question a follow up actually on Chile.
Just looking at the pension reform that was announced last night that they call for a public option to compete with the private fund managers just wondering if you.
Have any more color on that if I can.
Create any potential impact for you there. Thank you.
Okay.
Okay. Thanks, Tito thanks for participating in our call and thanks for the question for the questions.
On performance fees I think we are.
We're doing us as planned to be honest I think we're getting to in both funds.
You mentioned, the private equity fund five and infrastructure for three you will see.
Good realizations coming up we are in the process of selling several assets.
A couple of them to be honest are very close to close very close to signing or very close to closing.
First signing and closing.
And the valuations that we expected.
What's that pushes pushes us.
Very close so into the performance fee.
Arena.
So some time.
It could happen sometimes still this this year.
If I.
If I look into where we are in some of the sale process of these assets of course, it might slip into the beginning of next year.
No.
Bureaucratically.
The approval of the potential buyer that falls into January or whatever.
But I don't think I don't see any hiccups in the process.
The process continues to.
We actually go through.
What we expected non bindings and bindings and four.
Some of these assets that I mentioned, we already got the binding. So now we are negotiating SBA and et cetera, so going going through going down the process all the way through.
Choosing the final bidder a final winner of that will be.
By this asset and then signed the SBA to sales and purchase agreement so.
I am happy.
With the process.
I'm happy with the valuations in.
I'm happy with the exchange rate.
One of the.
Two of the assets actually they have.
All are denominated revenues, but whatever its still a happy with a hole.
Sure.
Going all the way back to Craig's first question I think of course.
The election in Brazil, because these assets are one of those necessary Latam the other assets more Brazil focus.
And the other assets also more Brazil focus I think.
In the election.
Results in having the civil so that'll pass on the Baton peacefully to Mr. Lula I think also helps.
There was nothing no.
That was actually interfere but definitely.
Going all the way up to the investment.
The investment committees of these potential buyers I think you'd helps that everything is well.
Well in diesel in Brazil.
For your second question.
I think I don't know I think you will see is a positive move I think.
The Chilean government actually increasing the contributions.
From <unk> to around 16% for the pension fund so.
In general the.
By the amount of money that these pension funds will manage will be bigger and bigger is better than smaller.
Like in Mexico that it went from 6% to 12%.
It's bigger amounts in the sky.
Pension funds all of our clients.
But we don't have a lot of digital I'll pass on to <unk>.
So Marco here, we don't have a lot of detail of what might go on and of course this.
Proposal will have to be negotiated with Congress.
Mr. Morris has not been going through right now is very high popularity rates unless you probably know that.
The constitutional Amendment was rejected.
By the population by over 60% and this of Orange faces, a very conservative Congress and Senate.
Which then I think this.
This proposal will be so much negotiated which is hard for us to stay now between what he proposed and what will be the next.
<unk> by Congress can be something totally different from what is there but in general I think what I see that everybody likes on both sides of the aisle as they say here in the U S is now a bigger pension fund system more inclusive et cetera more competitive.
They're all good things Michael Thank you Alex and this is really no news from.
What bar, it's laid out in his campaign in his narrative about his intentions to pursue with the pension system. It came out late last night and we are over it.
Jody.
We're having a.
Our reaction to it I think the first notice that expansion because the attention that.
The system is going to get bigger part of it being paid by the employer part of it's been played by the employee.
And it will be.
A very inclusive so it's going to be very.
Paul Positivist driven sort of proposal.
We're going to get into a lot of details on the outcomes on the economy because that also hasn't.
Modified which is increasing the cost of employment to the region, but as a first look toward the asset management business is increasing the pie.
Still to be determined how much of this is going to be.
Driven by the public initiative and by the private initiative. The proposal is not completely clear on that and before even getting to further reaction, we will be paying a lot of attention on how the lower and upper house will react because theres been a number of radical proposals that.
In the in the region in the country that has been simply rejected by the population and by the governors.
Great. That's very helpful. Thanks for all the details here, Alex and Michael.
Yeah.
Yes.
Thank you one moment for questions.
Our next question comes from William <unk> with <unk> BBA you May proceed.
Hello, Good afternoon, Alex and Michael Thanks for hosting the call.
I have a question here regarding the public equities in the credit operations, So basically monitor operation here.
So we would like to understand how you see the AUM evolution going forward.
If you see the mood, improving especially for equities.
And then if you see any performance fees for the for these operations for the next few quarters. Thank you.
Okay, Yes definitely ICA.
A better moves in general because again, just having the election cycles over and most of the countries in Latin America, that's positive because people just turn their pages number one having the rejection of the constitution in Chile number two having the peaceful transition.
Between Mr. Russell Narrowness of Lula number three and several other factors I think play into us be more bullish on fund raising for this year and next year in.
In addition to that the reduction in interest rates in Brazil that will probably happen.
In the second semester of next year.
No.
The world situation permits, Brazil to do that from a Brazil standpoint, I think it's a it's already showing that the central bank in Brazil can do that and you know that.
And the Central bank over the last two meetings did not raise rates maintained rates at the same 17 13 75.
I can I can add so many of the comments here to my answer which actually favors.
Fundraising and then you probably already know as well.
I think in the month of October we had the highest inflow into equity funds all over the world with over $23 billion.
<unk> into.
This equity funds, that's a more of a global number. So it's not we're not just I think Brazil I think in general people are trying to anticipate.
This comeback of the economies globally.
But specifically I think Latam will come out first of this situation because it started first raising rates et cetera, et cetera, then the election cycles of being.
Overall, so helps everything that I say, so we're bullish.
On the other side of the equation.
William is the reduction in the withdrawals so as we've been on one side is what you mentioned, which is fund raising and new money coming in.
And the other side of the equation, which again.
For the net inflows is redemptions and we saw basically the redemptions being halted after the constitution, a new constitution in Chile was rejected by Chile and of course with.
That also helps the net influx it helps it positive.
So inflows good rejections stopping.
Bullish on fund raising.
For 'twenty, three I'll turn it over to Mark Olson on more numbers.
Yes, I think.
Kind of some of the some of those to our presentation and what we've laid out here starting with the with the flows what we saw especially.
Specifically on the credit.
In equities.
The reduction of the outflows buyable.
By about 50% relative to the previous quarter.
Considering that the <unk>, which is the rejection of the constitution came out only in the middle of the quarter.
That's a data point that we cannot call it a trend yet, but it's an important data point jewelry important data point is the inflow coming from what you read in advisory and distribution that is particularly driven by families which are normally first movers, but I think we have a couple of data points to be positive on that trend.
And finally, the other important data point is about the relative performance in the absolute performance of these two products.
The high yield is.
As the top performing phenomenally and it's the flagship funds or the credit.
Over 10 percentage points over the life.
Year, which is absolutely impressive in a world where credit has been hammered and also on the on the equities. If you look at the <unk>.
<unk> equity is performing in excess of 25% and that this year. So all that contributes to the flows yes. The idea the credit fund you mean, 10% better than peers correct, yes.
That's correct.
And relative to your question about the incentive fee and I'm glad that you've made a question because I want to drive it through a simple method quite.
Christy if you look on page 13 of your presentation, you're going to see that the incentive fee accrued to date is $4 $9 million. So the answer to your question is yes, we expect to.
See that kicking in in the fourth quarter and if you go back to page eight on your presentation on the.
On the.
On the earnings for the quarter.
The year to date.
F R E.
On 94 six.
The market consensus for the year is 120.
29.
So that means that.
The gap the gap for the year to go is 34 four if you look at during the quarter current quarter three quarter, we deliver on 31, 7% and as we described earlier in this presentation. We expect this to be very consistent for the upcoming quarter. So if you just count that.
There is an additional incentive fee to keep that we're showing you on page 13, there is accrued to date to $4 nine will be.
We will be ahead of the 50% guidance increase on the FRE for the year.
Thank you.
That's really clear thank you, Alex and Marco for the answer.
Oh, thank you.
Okay.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Alex <unk> CEO for any further remarks.
Well. Thank you very much for your patience here with us in participating here.
I hope to see you all on December 5th four hour.
Fox Day in New York, starting toll authority Josh.
Sell through early December 5th in New York for essentially better, but if you can't do potentially please tune in online.
Very excited I think we're now having the most of the senior members of our team presents.
We're also going to have a chance to.
Sit down and have a cocktail in the end of the day. So you guys can have.
Talk directly to our senior leaders in and have more of it in our formal meeting.
By year end.
So we're doing our best year to up to us.
To deliver on the numbers here, we're excited that now with all this volatility was still up 50% over last year excited with 'twenty to 'twenty three with Nerfing that just happened in the region and mainly in Brazil with the elections.
And excited with the performance fees coming up because of the biddings that the that we're having for our assets.
At hour Mark So again.
To see on the fifth and hope to talk to you soon and see you in person as well be well be safe. Thank you very much well, thank you and enjoy your day.
Okay.
Thank you this concludes.
You may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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