Q1 2023 Vinci Partners Investments Ltd Earnings Call
Speaker 1: partners for squatter 2023 earnings conference call. At this time all participants are in list and only mode. Later we'll conduct a question and answer section and instructions will follow at that time. As a reminder, just call will be recorded.
Speaker 1: I would now like to turn the conference over to Anna Castro, Investor Relations Manager. Please, go ahead Anna.
Speaker 2: Thank you and good afternoon everyone. Joining today are Alessandro Oste, chief executive officer, Bruno Zaremba, private equity chairman in head of the Vest Relations and Sergio Pasta, chief financial officer. Earlier today, we issued a press release, flight presentation in our financial statements for the quarter, which are available on our website at IR.Vinci Partners.
Speaker 3: on the F.
Speaker 2: We will also refer to certain non-GAF measures and you find our reconciliations in the release. Also note that nothing on this call constitutes enough to sell or solicitation of an officer purchase and interest in anything to partner's fund. With that, I'll turn the call over to the sound.
Speaker 4: Thank you, Anand. Good afternoon and thank you all for joining our call. We are very pleased to join you all today as we announce results for the first quarter of 2023. I just distributed the earnings totally. 60 million REI or 1 REI and 10 cents per share.
Speaker 4: an increase of 6% in our cash earnings per share year over year.
Speaker 4: Few related earnings, totally 49 million REI's in the quarter or 9 cents per share, representing an increase of 14% year over year on a per share basis. Our FRE continues to grow, driven by our continued success in expanding our private markets platform through new capital raising.
Speaker 4: dividend of $0.16 on the dollar per common share in the first quarter, representing a dividend distribution of $0.70 on the dollar over the last 12 months, which, as of May 9, stock price, represents an appealing 8.5% dividend yield.
Speaker 4: We are posting another quarter of growth backed by healthy upward strength in our FRE results. Our fundraising across private markets in the latest quarters remain one of the vintages for addresses and has driven growth for the entire platform.
Speaker 4: even in the tough macro scenario we have been experiencing in the last few quarters, for what I believe to be one of our proudest achievements.
Speaker 4: We ended the first quarter of 2023 with over 62 billion REIs in assets under management, up 10% year-over-year with highlights to the strong first closing of the ICC in infrastructure and additional commitments to VCP4 during the quarter.
Speaker 4: This quarter, we held the first closing for a vintage climate change, or the ICC, our infrastructure climate-oriented fund. Between sign it and approve it, the fund has roughly 1 billion reais in commitments.
Speaker 4: The ICC has observed lots of traction with institutional LPs as they display great appetite to allocate capital to climate-focused products in a globally challenging market for fundraising for traditional private equity funds.
Speaker 4: Regarding our broader fundraising efforts, we are pleased to share that we are halfway through our 10 billion BI's target fundraising for private markets strategies, which we started in the beginning of 2022. Since then, we want to lawyers in president,icle andatriates know how to spend their Boys' Monday programme.
Speaker 4: In approximately one year, we were able to reach roughly half of our target. We remain on track for fundraising in the next quarters, with additional closings across VCP4, Vinci Credit Infra, the ICC, and other initiatives. As anticipated in our last earning call, we might have some positive surprises with new vintages from SPS,
Speaker 4: and our impact and return strategy, VRR, now expected to come back to market in the end of the year.
Speaker 4: VRI4 divested from pro-infusion last year, crystallizing an 83% gross IRR in US dollars ofclip
Speaker 4: bringing the fund to a 0.4 DPI. Pinch SPS, likewise, has been delivering strong numbers as their second vintage already distributed to its investors. More than 75% of the fund's committed capital, while achieving a gross fund level RRR of 31% in dollars as of the first quarter of 23.
Speaker 4: Both funds delivered these results in a stellar two-year window remarkably early in their lifetime.
Speaker 4: They should be an important addition to our private market fund raising pipeline, as there are strong results point to good support from existing investors for new advantages. On the last note, I would like to give a quick update regarding our retirement service segment, VRS.
Speaker 4: We successfully launched the product in the end of the quarter and we should start seeing positive inflows Coming in the second quarter back at by our high-network investor base
Speaker 4: However, as disclosed in our last earnings call, we expect to see expressive contributions only in 2024 as we evolve our fundraising efforts to new pools of capital. I would like now to take you back to vintage history.
Speaker 4: to 14.25%. Back then, the easing cycle started only in 2016. During that period, Zinche held its fourth with resilient AOM numbers growing from 17 billion to 19 billion over that year's span. Since our IPO in early 2001, we have encountered similar conditions as the ones from 2013 to 2015 as the central bank started the current interest rate hike from 2% in the middle of 2021 to the current 13.75% annual rate.
Speaker 4: despite the general trend for that asset class in Brazil in the last quarters. Only in the year to date hedge funds and public equity managers in Brazil suffered from a staggering 80 billion reais in outflows. When we take a closer look into our private markets growth over that period and taking into account the backdrop, we have been able to continue to strongly develop the platform. This RIPO, private markets AOM, grew from 19 billion to 28 billion reais, reaching close to a total 50% overall growth.
Speaker 4: achieved through organic fundraising across all strategies of 9.1 billion REIs and 2.1 billion coming from the acquisition of SPS.
Speaker 4: This reflects directly into our numbers. Our FRE and segment distributable earnings for the private market segment has expanded by 44% and 66% respectively from the fourth quarter 2020 to our current number this quarter.
Speaker 4: We are extremely proud of what we were able to achieve in private markets and believe this performance can be achieved in the rest of the platform once market conditions become more benign. We firmly believe today we sit at a similar scenario to that of the beginning of 2016.
Speaker 4: During the years leading to that year, think you had invested heavily in its platform, position the company to benefit from a new growth cycle.
Speaker 4: or an annual compound rate of over 30%. At the same time, Vinci posted a stellar FRA margin expansion, posting close to a 20% points margin expansion. We are extremely excited of the future ahead, as we firmly believe there is another easy cycle just around the corner. And we are today in a better position than in 2016 as a platform for alternative investment. Vinci has evolved in developing additional investment strategies. We have a complete platform of products that can deliver stronger growth in the coming years, powered by more favorable markets.
Speaker 4: With that said, we expect our recent success in fundraising for private markets to be even more relevant over this next cycle. Adding to that, a favorable environment will likely be a key driver for us to go back to being back to on the liquid front.
Speaker 4: Looking to our broad platform, we are really excited with the growth potential ahead of us for the next few years. An improved version of the Goverment proposal for the fiscal framework should be approved in Congress in the next few months after some adjustments on the initial version. This is a clear indication that pragmatism is leading the Goverment towards the center of the political spectrum in terms of economic policy. With lower fiscal risk.
Speaker 4: Inflation expectations for the coming years start to stabilize within the inflation target band, opening room for an easing cycle in the second half of 2023. Market expectations are already pricing cuts of around 400 basis points until the end of 2024.
Speaker 4: We understand that our business will encounter different market conditions throughout the years. Our mission is to be resilient in the tougher ones while driving transformational growth during the positive ones.
Speaker 4: Cinque's history ratifies our effectiveness. Before turning the call to Bruno, I would like to reinforce the following. We have once again proven ourselves Brazilian in a difficult scenario for capital markets locally and internationally.
Speaker 4: At the same time, we believe we are in the beginning of a cycle of declining interest rates in Brazil that should power attractive growth for the company throughout all initiatives we describe it today. The growth we were able to achieve in private market system and our IPO against a historical interest rate tightening cycle, a score.
Speaker 4: investors what we have learned.
Speaker 4: Resilience in tougher environment paves the way to expansion in favorable ones. With that said, we are digging deeper into our platform from both cost and product offer standpoints. To be ready to excel expectations in this future is in cycle.
Speaker 4: With that, I'll turn it over to Bruno to go over our financial results. Thank you Alessandro and good afternoon everyone. Starting on slide 10, we will cover AUM trends for the first quarter. With each end of the quarter, with 62.2 billion reais in AUM, up 10% year over year, boosted by growth in our private market.
Speaker 5: into private market strategies as they carry AOM with longer lockups.
Speaker 5: The highlights to the squatters fundraising was the first closed held by 20 climate change or VICC.
Speaker 5: We are seeing great traction with international peace for this product with several relevant soft circle commitments and we will come back with additional closes for this fund still this year. We are confirming our prior view that there is still significant dry powder available globally for climate transition strategies, which bodes well for the ICC's fundraising cycle.
Speaker 5: This quarter we also had some new capital subscriptions in VCP4. However, we are expecting heavier contributions from this product in the second half of the year, as we have been experiencing a congested market worldwide for fundraising private equity.
Speaker 5: with several struggling with allocations due to the number of funds coming back to market and a temporary Overalocation to the asset class
Speaker 5: Although posting another quarter with positive growth trends in AOM on a year-various basis, we suffer this quarter with volatile markets that have negatively impacted real-state and liquid strategies.
Speaker 5: In fact, if you look at the AOM rule 4 available in the material, most of the AOM fluctuations in the quarter can be traced to the mark to market in these two asset classes.
Speaker 5: The listed REITs industry in particular was heavily impacted by mark-to-market effects during the first quarter but have come back significantly so far in the second quarter. We have GP commitments in some of these listed products and their mark-to-market will fluctuate as unrealized income in our quarterly earnings. This was the main reason for a low on our income in the first quarter.
Speaker 5: We should see a positive rebound for unrealizing people commitment in our income statement in the second quarter. If the REIT market recover, they were seen in the months of April and May, continues until the end of the quarter.
Speaker 5: We expect the central bank to start cutting interest rates till 2023. This will be an important driver for listed REITs, as the funds tend to be more appealing to investors in a lower rate environment.
Speaker 5: Currently, funds are trading at prices below NAZ, which limits their ability to do primary efficiencies in the markets.
Speaker 5: With an easing cycle in rates, we should see a pickup in the REITs market that should put us in a better position to come back with fundraising for these products. The past few quarters have been very challenging periods for our liquid strategies. We have seen very strong outflows in the industry and mark to market has also been unfavorable.
Speaker 5: Despite this reality, we have been resilient in our liquid vertical. We believe our liquid AOM should also benefit from an easy interest rate cycle both from a reversal to positive net inflows but also from favorable mark to markets in our existing funds.
Speaker 5: Relative valuation differential support a constructive long-term view for listed equities in the country. Today for instance the public markets in Brazil are trading at the lowest relative valuation against developed markets we have seen.
Speaker 5: fee receivables accounted for 155.2 million Reais in the first quarter. The VCP strategy currently accounts for roughly 90% of accrued performance fees representing an appealing upside for future performance fees. With capital returns happening from SPS and VIR, we expect the source of potential future performance fees from our private market vertical.
Speaker 5: to be diversified in coming quarters.
Speaker 5: At the end of the quarter, Vinci had 12 BNREIs in performance eligible AOM coming from private market funds to an investment period that can further contribute to our accrued performance fees as these funds enter their divestment periods.
Speaker 5: Turning to slide 13, we will cover our fee-related revenues. Revenues from management and advisory fees totaled 100.3 million REIs in the quarter, up 10% year-over-year. Revenues fees accounted for 95.9 million REIs in the quarter, up 10% year-over-year.
Speaker 5: We should see a continued positive friend coming the next few quarters with new capital raises in our clothes and products in private markets.
Speaker 5: significant dry powder to allocate and charge fees over invested capital in the case of Infra and benefits from a step up in fees in the case of SPS.
Speaker 5: fees to the date of the fund first closing.
Speaker 5: In slide 14, we present our operating expenses for the quarter and last 12 months. Total expenses accounted for 52 million REIs in the quarter, up 8% year-over-year. This quarter, we had an on-off expense effect related to our efforts into cost efficiency.
Speaker 5: As we anticipated last quarter, we are acutely focused on cost consciousness this year, looking actively for efficiency across our platform.
Speaker 5: This resulted in an internal personnel restructure during the first quarter, which will ultimately result in savings until 2023.
Speaker 5: We will continue to look for efficiency across our business lines, focusing on accelerating the operating leverage of our platform to deliver healthy margins every quarter.
Speaker 5: We believe that this approach, alongside our fundraising cycle in private markets, should result in long-term margin expansion. Moving on to slide 15, we go over a few related earnings for the quarter. FRE totaled 49.1 million REIs or 90 cents per share in the quarter, up 14% in the quarter.
Speaker 5: Yes, over the last 12 months, FRE is down 9% when we compare the same last 12 months beard in first quarter of 22, given the outstanding performance from our advisory segment throughout 2021, which did not occur in 2022, given market conditions.
Considering only our core asset management business, FRE was 194 million reais over the last 12 months, or 3 reais and 51 cents per share, representing a 4% increase year-over-year on a per-share basis. Shifting to slide 17, we go over our realized GDP investment and financial income. Veach ahead!
26 million REIs in Realized GP and Financial Income this quarter roughly in line with the same period of last year. Over the last 12 months, Realized GP and Financial Income totaled 106.1 million REIs representing an increase of 64% compared to the same period last year.
cents of 6% over year on a per share basis backed by fundraising across private markets and the acquisition of VHSPS.
adjusted the total 250.1 million REI's or 4 REI's and 53 cents in the last 12 months up 5% on a per share basis when compared to the same period of last year.
Moving on, I would like to spend a few moments covering our GP Commitums in flight 20. As of the first quarter, Vinti had committed 1.1 billion reais to prepare a carry close and funds.
These commitments work as seed investments in our funds to leverage fundraising with LPs and drive future growth in private market FRA results backed by long-term capital. When we IPO'd in January of 2021, we expected to use most of the cash proceeds from our primary as seed to develop new private market products.
launches of new vintages and existing strategies.
As Alessandro mentioned, our ability to leverage our capital to launch products was one of the main drivers of the strong private market growth we realized since our IPO. However, don't lose sight of the fact that these commitments are assets in our balance sheets and are relevant drivers of long-term value creation not only through FRI growth, but also through our investment in the financial sector.
but also from expected returns to our commitments as relevant LPs in our strategies. Take into account the expected and historical returns of each of our strategies.
The current 1.1 billion REI commitment
translates into a weighted average net IRR of close to 20% which in turns equate to an expected 2.3x net MOC for this capital over a five-year span.
Net of season taxes, this represents a potential of approximately 1.2 billion reais in profits.
to be realized from this commitment is currently on the balance sheet.
Therefore, we are talking about an additional $4.40 per share of value being created by our current balance sheet over the next five years. Over the short term, our proprietary positions in listed REITs are paying us predictable monthly dividend distributions that have provided an interesting contribution to our D-numbers.
At the same time, these commitments have allowed us to issue more share in the REITs which benefit FRA. Our priority continues to be adding long-term shareholder value. We believe we have several levers to achieve strong value creation over time. Through AOM and Management C revenue growth, increased performance revenues contribution and increased revenue growth.
Expected GP commitment returns an inorganic expansion through acquisitions to name a few.
value to be created. We continue to be very focused on delivering on these initiatives as we move forward and with that I will turn it over to Sergio to go through our segments. Thank you Bruno. Turning to our segment highlights, as you can see in slide 22 our platform remains
with 20%
Liquid strategies with 18% and Financial advisory contributing with 4%.
The same level of diversification is reflected in our segment Distributable Earnings.
Moving on to each of the segments, we start with our private market strategy on Corporal
FIE totaled 31.6 million Reais in the quarter up
27% year over year.
driven by the strong fundraising cycle experienced over the last 12 months and the incorporation of Zinc SPS.
The biggest achievement across private markets this quarter was the first closing of
Finch Climate Change or VICC. The first close.
was backed by BNDES and International Peace.
and international peace.
We expect to announce new subscriptions over the next few quarters as we are seeing great traction for this project with the International Base. Please note that the closing was held in the end of the quarter, therefore we will start to earn management fees in this quarter.
Thus, following commitments will retroactive fees to the start of the fund. Segment distributable earnings were 37.5 million REI in the quarter, an increase of 39% year of a year boosted by FRE growth.
We also had new commitments in our fourth vintage in our flagship private equity strategy, VCP4. As anticipated by Bruno, we should expect more impactful commitments for VCP4 towards the second half of the year. The developing rules gave us the chance to extend some information to the Braille Center
Moving on to the slide 24, we go over results for leaked strategies. Three deleted earnings in the quarter of 8.4 million REI's.
down 19% year-over-year as our management fee revenues will impact by AUM depreciation, as fees are charged over funds and EVs.
for outflows compared to the Brazilian industry for liquid strategies.
As an example, according to the public data from Ambima, the public equity industry in Brazil had closed to 19 billion REI's in the redemption this quarter, or 4% of the total REI realm. Meanwhile, Vint just public equity segment posted 108 million REI's in inflows over the first quarter.
We are re-appening the benefits from prioritizing our partnership with our clients.
As previously mentioned by Alia Sanden-Bruno, with an improved outlook for an easing cycle in local interest rates, aligned with a more market-friendly fiscal framework, we could see a pickup in liquidity strategy from both inflows and appreciation standpoint. That should happen towards the end of the year and throughout 2024.
Meanwhile, we have positioned ourselves to take advantage of this new market cycle. Moving on to our P&S business on slide 25, FRE totalled 9 million reais in the quarter, down 3% on a year-over-year basis.
FRAE totaled 41.1 million reais, up 3% compared to the same period last year.
Over the last 12 months we encountered a high level of both real and nominal interest rates in Brazil.
This contributed to a slower growth pace for our IP&S business, with the expectations of lowering rates in the second half of 2020.
We shall see a pickup on AUM numbers for IP&S, as institutional investors have stronger incentives to seek assistance to be able to outperform their actuary goals.
Turning to slide 26, we cover our results for financial advisory.
FIE for Financial Advisory was 1.5 million REIs in the quarter. For the last 12 months, FIE totaled 9 million REIs, representing a decrease of 6-7% compared to last year, as we experienced a stronger year for our advisory business in 2021.
Although uncertainty to predict, we should expect an improvement for next quarter onwards, as we are experiencing a pickup in due activity.
Finally, moving on to slide 27, we go over results for the retirement service segment.
fee related earnings for the quarter was negative 1.5 million reais
over the last 12 months represented negative 6.1 million highs.
As Alessandro mentioned earlier, the VRS product in the later part of the first quarter. Therefore, we should start to see modest revenue contributions at the same point in the second quarter. As we have been stating, these numbers should be a more relevant to the business next year.
We are very optimistic and excited with the prospect for VRS and we will keep updating our investors as the business develops throughout the year. That's it for today's presentation. Once again, we'd like to thank you for joining our call. With that, I would like to open the call for questions.
Operator. We will now start the question and answer section for investors and analysts. If you wish to ask a question, please press the raise hand button. If your question has already been answered, you can leave the queue by clicking on the same button.
Wait, while we pull for questions. Our first question comes from Chitu Labarta from Gilman Sachs.
Please Mr. Chito, your microphone is open.
Hi, good afternoon Alessandro Bruno Sergio. Thank you for the call. Taking my questions. A couple questions, I guess, just on the outlook for fundraising. I know you're halfway through on the private market strategies, but you know, and Alessandro, as you mentioned, you're going into an easing cycle.
However, I mean, this eating cycle likely may not be as strong as the last one, right? You know, rate maybe in the year 12, not sure how they'll end up next year. How much of a reduction in rates do you think would...
really be needed to really see a lot more interest or for the the liquor strategies, I guess in particular to do much stronger and for that to improve. I mean, do you need to get to the single digits? Just to put it a little bit into context given where we are in Brazil.
today. And then, and also on the IP&S strategy, you know, that was a big rumor last year. Had some outflows this quarter. Just understand a little bit, you know, what happened this quarter with the outflows and how that strategy in particular should continue to evolve. Thank you.
Hi Tito, this is Alessandro. Thank you very much for the questions. First, starting with the fundraising for private markets and I would say the relation with the rates. That's my opinion of course is not.
a mathematical relationship, but I would say that we would see a more stronger flow, not just for private markets, but I would say for all the other asset classes that we have, when we see not just starting.
the easy cycle and as you said that probably will happen maybe not so strongly and fast as other cycles but with some kind of target in the high single digits. To the point that we expect that we can see.
these rates coming down to high single digits, I believe that we start a very important movement of capital. Having said that, we believe that we already started some dislocation, okay, on that direction, but we believe on the second half of the year when we start seeing the rates going down.
We'll see more money going towards infrastructure too. So I expect this to start happening in the second half of the year. But to see a more strong movement, we need to see in our horizon something on the high angle, Jesus as a target.
And answer the second question.
regarding IP&S I'll take this question too. What we saw in the last quarter was more like redemption coming from retail especially related with more like products that were distributed through
some retail channels, but this is really not very relevant and we are seeing already this stabilizing. We expect that the largest flow for IPNS will come together with the starting of the easing cycle when the pension funds
Institutional clients as a whole, we start reallocating out from just fixed income, pure fixed income to rebalance the portfolios. So recently we saw more redemption related with funds that we have distribution through retail but going forward we expect the biggest flow to start with institutional clients.
coming back to more structured portfolios. Okay, great. Thank you, Alessandro. That's helpful. Maybe just one follow-up. Any color on the VRF segment and when that can start to become a contributor here? Okay, that's a good question. As we mentioned, Nicole, we just started...
start seeing this AUM coming in but still we are in a very very I would say careful approach in terms of clients that we are reaching now. We will evolve that to other pools of capital till the end of the year.
But we expect really that to be relevant in our numbers just next year when we start going for other pools of capital. Like corporate plans, distribution channels, etc.
Till the end of the year, we will start seeing the numbers picking up very slowly because it's our intention to really have a soft opening of the strategy because everything is really new and just became live recently. And there is a lot of technology that we...
invested in that's really we believe that to be transformation for the industry and this technology of course we are evolving that and testing that with clients that are more like wholesale near us and then we evolve to a more broad group of clients
Okay, great. That's helpful. Thank you, Alessandro. Once again, if you wish to ask a question, please click on the raise hand button.
Wait, well, pull for questions.... This does conclude the question and answer session.
the call. We are very proud of what we have been doing the last few quarters, especially on the fundraising of private markets. And we believe that since we are more towards near the easing cycle, we believe that
Very soon we'll have another important
growth path to the firm until the end of the year. So thank you very much and hope to see you soon next quarter. Vinci Bartner's conference call has now concluded. Thank you for attending today's presentation. You may now disconnect and have a wonderful day.
Thank you.