Q2 2023 Vinci Partners Investments Ltd Earnings Call
<unk> at the end of the second quarter up 9% year over year.
This quarter, we had an important contribution from AUM appreciation following the recovery in local markets, which bullshit, our public equity and REIT strategies to rise by 20% in average.
This is one of the few quarters since our IPO that we benefit.
In a more significant manner from this effect.
Since 2021 we have struggled to see a relevant impact from market appreciation as we face the challenge in local markets and our AUM growth has been anchored mainly in new captive subscriptions and inflows.
These strong results posted for AUM FRE and distributable earnings this quarter are.
Also again, a clear demonstration of the resilience of our platform.
We had been discussed constantly in our calls our current Fox in fundraising across our private market strategies and the impact these new capital commitments, we will have for our management fees.
I am very confident in the prospects for future quarters as we now have additional to the fund raising for private markets favorable tailwind for other segments, such as our liquid strategies and our public market vehicles.
We are now entering a much more constructive scenario for vinci to start seeing positive inflows into our liquid funds as local markets improve and the opportunity cost of a very high local interest rates lessons on top of that our public market vehicles.
With the recent appreciation at <unk>.
Trading at prices very close or above NAV.
Which put us back in a position to raise capital through primary issuance.
This contribution can be very meaningful to our numbers, we have eight perpetual capital AUM funds with sizable <unk>.
Oh, we have surpassed that <unk> prices are public markets vehicles should go back to be one of the main driving force for AUM growth as we have seen from 2018 to two any to anyone when we grew our AUM in this strategy by more than five times.
Or 4 billion Reais.
This effect was a direct consequence of the market's spectation for the start of the easing cycle for interest rates, which officially began last week as the Brazilian Central Bank announced that the first cut in interest rates since <unk> by 50.
Basis points and sent a clear indication for the easing process ahead of US for instance, the market expect nominal rates to be at 11, 75% by the end of the year and close to 9% by the end of 2024.
Crazy nominal rates by roughly 500 basis points in approximately one year and a half.
As highlighted before the last is this cycle took place between 2017 to any training back down we grill.
AUM by roughly.
<unk> 30 billion Reais boasting expansion across all our business lines at the same time, Vince you posted significant FRE margin expansion with close to a 20 percentage point gain in FRE margin.
Keep in mind that our platform was not as developed as it is today, we have been actively working these last few years to be ready to take most of the opportunity once we had more favorable markets.
Believe Vinci is very well positioned for this new cycle and we could not be more excited with the future ahead.
<unk> rates are going down in foreign sentiment doors that Brazil is going up.
Fitch ratings recently raised the Brazil credit rating, reflecting the improving economic outlook federal budget control and record trade balanced results.
The progress at rating connotes.
Greater confidence in Brazil's ability to meet its financial obligations and attract investment and bodes well for our medium term investment grade that could be highly impactful.
For instance, we had two notch away from the investment grade.
Based on the best cycles, we expect to be awarded with the investment grade by 2025. This would mean a sizeable flow from foreign isn't your Brazil across always strategies.
Last time, we had an investment grade international capital held more than 20% of the domestic Brazilian debt. Today. This number is close to 9%.
Given that the Brazilian debt is roughly 70% of the GDP, we could see flows of more than 7% of the Brazilian GDP over the years following the recovery of the investment grade.
This represents an enormous opportunity to accelerate growth.
Is this worth mentioning that a significant part of price moves.
Take place before.
Before the investment grade stamp is awarded.
Also S&P, just put Brazil and positive outlook.
To close my remarks, let me provide an update of our fund raising efforts growing forward for our closed end funds.
The ICC our climate oriented fund infrastructure continues to observe lots of traction with institutional piece.
We should see new commitments coming throughout the second half of the year and their funds is on track to reach its target by the first half of 2024.
Did you see before just closed it in July an important capital raise with XP that will contribute to third quarter numbers. We also should see new commitments for local institutional players in the second half of the year.
And Dan for the last and potentially more meaningful round of fund raising should come from our international piece, which we are aiming at the end of Bcp's fundraise.
Raising capital for traditional private equity funds has been a challenge for all of our global peers, we expect to see improvements on this front in the beginning of next year.
Meanwhile, we have been experiencing an increasing appetite from local institutional players to alternatives.
Gives me force the ongoing shift from Brazilian players towards alternatives. We are seeing this in an environment of historically high interest rates with the easing cycle, we should see a pickup in this trend momentum is great for all of our strategies.
We are excited for the coming quarters, we will continue to work on delivering on all fronts, we have discussed today.
And we'll keep you posted as we go along.
Thank you for the attention and for attending our call today.
With that I'll turn it over to Bruno to go over our financial results.
Alessandro and good afternoon, everyone.
Starting on slide nine we will cover a O M trends for the second quarter.
Xie Qi ended the quarter with 65 billion Reais in AUM up 9% year over year, driven by growth in our private market strategies over the last 12 months and appreciation markups across liquids in our reach.
Long term AUM accounted for 33 billion reais in the quarter, increasing 20% year over year pushed by the appreciation in the reach and our new capital commitments across private equity you framed credits.
And now represents more than 50% of each store to a whim.
This quarter, our AUM was positively impacted by market appreciation.
But the best two years, we added long term commitments to our private strategies through organic and inorganic expansion and this effect was partially offset by market depreciation across liquids.
Now we have started to benefit from the early stages of what do you believe will be a very positive outlook ahead of us.
During our last earnings call, we talked about how the depreciation of the REIT market affected us and we anticipated that they should recover this quarter.
At the end of the second quarter, our rates have more than fully recovered.
Looking across our REIT universe, some have surpassed the threshold, where they become eligible for future capital raises.
With that said, we expect to see a follow ons in our leases reached in the second half of the year and even more next year.
For the last two years with rising and very high nominal interest rates in Brazil primary issuance in the REIT was not possible.
We bridge this spirit related although lower volume share for asset swaps.
The REIT vertical has been a meaningful contributor to our fund raising in the best through significant primary issuances and we are very happy to be at an inflection point, where it just contribution would once again be expected.
We already have new initiatives slated for the second half of the year.
As previously mentioned by the foundry will be active in the second half of the year with our two main private equity style funds currently raising capital G ICC and visit before.
This is before just held at closing with XT that we've backed third quarter numbers as this fund will charge retroactive management fees on all subsequent closes into its final close.
We're seeing great traction from locals for visit before and this will be the biggest allocation from local investors since the inception of our <unk> strategy.
Apart from disclosing with next year, we should see new commitments for visit fee into the end of the year as we anticipate international investors should be more impactful towards the final closing of the fun as it once you've digested global overall locations of the asset class.
Farha I see you we expect to see Nucor meets its both in the third and fourth quarters backed by international investors there.
The amount of traction of obtaining this product was significant with the first close of the fund representing more than 60% of the target amount.
Even in positive market conditions. This would have been a great results.
In the current environment. This result is remarkable and the merits of the quality and track record of our infrastructure team.
On a side note we are on track to launch our five and Sps for by the end of the year.
This should be our next focus for new capital in private markets and carry our fundraising efforts in 2024.
Moving onto slide 11, we go over accrued performance fees in our private markets funds.
Gross accrued performance fee receivables accounted for 186 million Reais in the second quarter up 60% quarter over quarter.
The visit fee strategy currently accounts for roughly 90% of accrued performance fees, representing unappealing upside for future performance fees.
With GAAP the returns happening in Sps and Cir, we expect the source of what they show future performance fees from our private market versus to be diversified in coming quarters.
Turning to slide 12, we will cover a few related revenues.
Revenues from management and advisory fees totaled 106, 8 million reais in the quarter up 11% year over year due to a combination of factors.
First the ongoing fundraising across private market strategies for funds that carry full fees and we increase our average fee rates. Once we close this fundraising cycle.
Second the acquisition of each Sps and third a higher contribution from advisory fees in this quarter.
We should see a continued positive trend coming in the next few quarters following new capital raises across our private market segments.
For a visit before and as the ICC, we have another important contribution as a managed additional capital commitments in these funds, we will retract cities. So debate of the Fund's first close.
This is <unk> first closing was in immuno F 'twenty to 'twenty, two and the impact of future closings would be meaningful.
The ICC has started its first close at the end of the first quarter of 2023.
In slide 13, we present, our operating expenses for the quarter and year to date.
Total expenses accounted for 61 point for <unk> in the quarter up 22% year over year exclude.
Excluding bonus compensation operating expenses were up 10% year over year, driven mostly by the acquisition of each S. Yes.
On a more normalized base store expenses.
113.5 meter rise over the year to date, an increase of 15% compared to the same period last year.
Moving on to Slide 14, we go over a few related earnings for the quarter.
FRE totaled $50 seven malaria is our 94 cents per share in the quarter up 11% year over year on a per share basis.
Over the year FRE was 100 meter is up 10% when we compare with the first half of 'twenty two.
Driven by the stronger U M expansion, our private market strategies and a higher contribution from advisory fees in the second quarter of 2023.
Over the next quarters, we should see a positive impact in FRE coming from retract to cease falling new commitments in visit before MGIC.
As those fees retract from the beginning of the funds they could be rather than additions to management fees.
Despite a harsh environment, we were able to maintain margins with a disciplined cost control.
We expect that concluding this fundraising cycle for private markets and with a better outlook for local markets. We should start to see improvements in margins given the leverage potential of our platform.
Turning to slide 15, we will cover our performance related earnings.
B R E totaled $5 4 million reais in the quarter, an increase of 124% year over year driven by contributions from liquid strategies are.
Although posting modest results, we want to highlight the potential for performance fees from this moment onwards.
Most of our funds, Gary high watermark clauses, which inhibits them to charge fees on the adult market.
With the recent appreciation of the liquids markets. Our funds are getting close to their high watermark, therefore, becoming eligible to charge fees once again.
With the current market depreciation of the goodwill outlook for loser monetary policy in the second half of the year, we could once again show more meaningful Peoria results in the fourth quarter potentially into 'twenty to 'twenty four.
Shifting to slide 16, we go over our realize you'd be vast and financial Inc. <unk>.
<unk> had 34 formulary is he realized you'd be in financial income this quarter up 38% on a year over year basis due to a good quarter for our liquid portfolio following a constructive local environments.
Over the year to date realized you'd be in financial income totaled $60 3 million reais represent an increase of 16% compared to the same period last year.
Turning to slide 17, we go through our adjusted this ship the warranties.
Adjusted distributable earnings totaled 70 point formulary eyes are one real and 30 cents per share up 18% year over year backed by a higher contribution from financial income vre and FRE.
Adjusted EBITDA totaled 134 million reais or <unk> 40 per share over the year to date up 12% when compared to the same period last year.
Moving on I would like to cover our balance sheet highlights in slide 18.
As of the second quarter Vitra have committed $1 1 billion reais to prepare theory closed end funds.
These commitments will work at sea as seed investments in our funds to leverage fund raising with obese and drive future growth in private markets FRE results backed by a long term capital.
These commitments also represent the relevant medium to long term what they should return as the realized gains from these funds will be recognized as realized investment income in our quarterly earnings.
Considering that the private markets funds have above average target returns this could be extremely relevant to earnings in the future.
Lastly, I would like to touch on a topic, we talked about last quarter.
We have forbid Terry positions as several reach that suffered from market depreciation last quarter, resulting in a negative impact in our net income.
Back then we anticipated that these funds would recover in the second quarter.
We would like to share that these funds have martinez will be recovered over the second quarter, which explains the strong accounting net income this quarter.
And with that I will turn it over to Sasha to go through our segments.
Thank you Bruno.
Turning to our segment highlights as you can see in slides 20, our platform remains highly diversified which we believe to be the main contributor to the resilience of our business.
Did you got any investments made in the <unk> segment, 59% of our FRE over the year to date came from our private market strategies.
Followed by I P N S and illiquid strategies, with 16% and financial advisory contributing with 8%.
The same level of diversification is reflected in our segment to distributable earnings.
Moving on to each of the segments.
Starting with our private Denmark to start on slide 21.
F R E totaled.
$29 8 million has in the quarter up 23% year over year.
Driven by the strong fund raising cycle experienced over the last seven months and the acquisition of <unk>.
Please note that as people as mentioned by Alessandra and Bruno <unk>.
Should see new commitments.
From visit before Andrew the ICC over the next few quarters.
That will impact positively management fees.
<unk> from a recurring standpoint, and a one off basis due to retroactive fees that the new commitments a trigger for the startup of different.
Segment distributable earnings work.
$35 4 million in the eyes of the quarter, an increase of 17% year over year boosted by FRE growth.
So what I really am.
$29 4 billion has fought and of the quarter up 22% year over year.
Moving on sharp I P N S business on slide 22.
<unk> totaled $7 8 million has in the quarter down 32% on a year over year basis.
Okay.
Even though our a O M numbers remain consistent year over year, we experienced a shift in the allocations with I P. I N S.
The BNS segment has in the last 12 months raising capital from X was even separate mandates, which carry a lower fuel rate.
While suffering punctual redemptions in our open end products that are offered three individual investors through distributors and Plaza Forex. This shift in AUM mix impact in management fee revenues and on year over year basis.
Nevertheless, we expect I've been asked to benefit from the current improvement in the macroeconomic environment as institutional investors tend to seek for assistance to meet their goals.
<unk> rental rates to stabilize in a more constructive or level.
With that said, we should expect a pickup in your AUM numbers between the end of 2023.
And through 2024.
Moving on to Slide 23, we go over the results for liquidity strategies.
The related earnings in the quarter of $8 1 million in her eyes down 15% year over year.
Totally a M was $11 5 billion of highs at the end of the quarter before you and being factored by favorable markets for Max effect.
Which were concentrated in the later part of the quarter.
The same phenomenon I described the Friday BNS segment, we cannot to boost to our liquidity in this quarter. As we have also experienced fundraising meets majority for extra ziv mandates that carry a lower fee rate than the flagship your strategy.
These were the main reasons that uphold our lower F O E M improving on a year over year basis.
We expect to see a pickup in management revenues over the third quarter. Following the recent appreciation that occurred at the end of the second quarter.
Yeah.
On a broader spectrum lethal disorder should benefit from this easing cycle you started the last week by the Central Bank as we expect investors to be more inclined to allocate capital towards public equities.
That should take a few quarters from I to their lives.
On a last note I would like to cover the PRA potential Sleekness sottish.
Since our IPO, we face it volatile public markets, which inhibits us to chart, but pharmacy freezing several funds that carry a high watermark of clause.
Now if the recent pickup in local markets online if they're good outlook ahead of us it could be once again impact of corporate pharmacy fees and the end of the year.
Turning to slide 24, we cover our results for financial Advisory F.
F. R E for financial Advisory was $7 20 million man hours in the quarter up 119% on a year over year basis.
This quarter, we are able to close a few mandates that contributed to an increase in advisory fees.
Are they here to date FRE totaled $8 6 million Harris, representing an increase of 118% compared to the same periods of last year.
Finally, moving on to Slide 25, we go over our results for these documents service segments.
Fee related earnings for the quarter was negative 2 million of Harris and over the year to date represented a negative $3 6 million of Harris.
We officially launched the product describe it to our partners in them and their employees and we are expanding to our high net worth in the vascular space throughout the second half of the year.
We are very optimistic and excited with the prospect for Vrs. However, as we have been discussing over the past few calls we should only see meaningful numbers next year. That's it for today's presentation. Once again I'd like to thank you for joining our call before that I was electrical.
On the call for questions Spirit.
Thank you, we'll now start the question and answer session. If you wish to ask a question. Please press the race and button wait while we pull for questions.
Our first question comes from William Barnyard from <unk> BBA.
Please Mr. William Cohn Silvan.
Good night, everyone. Thank you.
The opportunity and congratulations on the good quarter, so from our side.
I have two questions I'll start with the first one and then I'll ask the second.
So the first one is on liquid strategies and reach you showed good performance in AUM this quarter, but they are mainly from the appreciation of the AUM right. So.
For reach Europe , you already told us that fundraising is already loaded, but I would like to grasp.
What is the impact you sense in nominal terms if you could.
In terms of influence fundraising and I.
For for liquid strategies, it's a little bit harder to predict but if you could also give us a view on that would be it would be nice.
Okay. We didn't think there's so much this is <unk> speaking.
So as you said I mean liquids is a little bit less predictable. We are obviously well we can do from our side is performed right. So the good news is that our liquid funds on the equity side.
And also the commingled funds that we have an IP N S. There.
Our all in the higher.
<unk> ranked us the performance at this point so we have both.
Both of our equity strategy in the first quartile.
And carnival funds and I've been asked probably in the first.
I'd say, the Si or at least the first quartile of the numbers are very very good at this point.
Uh huh.
With the first cutting interest rates the impact was really immediate so just this quarter to date now that third quarter to date, we already have positive flows for equities, which is something that hasn't happened in a structured and sustainable way for a very long time.
And I P N S. A with the performance that we have on the clinical side, we expect.
That will happen as well so a.
Funds are very well positioned and we are starting to see positive flows in the obviously the outlook for those flows as interest rates continue to come down and the expectation is that they will.
We expect those flows to accelerate in.
In the Reits.
It's a it's a important part as well off of the fundraising.
Potential for V chip N a N a part that would be very transparent we have been you see very dearly in the past couple of years.
That's something that I mentioned, what we did in the prepared remarks, what we did in the in the last using cycle when we built.
The REIT the platform and the last time that we have a little bit more positive environment was in the first half of 'twenty, one and we raised almost 2 billion are in that are in that moment. So today, we have.
A very.
Fragmented or diversified wholesale funds and the REIT space. We have agriculture. We have credits we have shopping malls. They have logistics sites. We have offices urban rental income we have an MLP in the in the infrastructure side of the business as well and all.
All of these products. They are are you in a very good position to raise capital so the.
The total amount of AUM that we have today is close to $7 billion.
In this group of funds.
So that means that what they show adits.
AUM inflow organically coming from these products going forward as they are in a position now to raise money can be very material right. So the first inflow from new capital, we expect to come in the second half.
It's probably I mean has the potential to be a number.
Around a billion Reais, if everything goes right, but the expectation is that these opportunities for us going forward now that they're going to open up quite materially and we expect for at least 20 to 24.
Foreign inflows from the reach and the MLP to be.
Materially accretive to our AUM growth, which has not been the case over the past couple of years.
And William this is alessandra just to complement to bruno's answer.
Just a brief comment.
The fund raising for the reach they go straight to our bottom line because this is really.
The management fees with no cost associated in terms of our people and team. So this is really a very needed impact in our numbers.
That's very clear balloon analysts center now.
Now if I could ask a second one this one on the FRE margin it decreased a bit this quarter.
I guess, mainly due to a shift in the fund raising and Phoenix and both IP and as in liquid strategies is it right is that right and if so could you elaborate more on that is helping us understand here what you expect to have in <unk>.
Terms of mix and margins on these strategies.
Okay, Okay, well run again.
The reason why we had this a shift in the in the margin in the second quarter was mainly given the fact that we had a very strong advisory quarter in relation to two to the rest of the business.
And then that creates a little bit of a shift.
From a bonus composition standpoint, so the bonus provision in Italy is a little bit higher.
When we have this type of a mix in the revenue right.
Going forwards.
I mean, when we do not it's very difficult to say when the advisory business is going to have a strong quarter like this one.
But.
The mix will have some impact on the bonus provision sites right.
The company, we underwent a productivity effort at the beginning of the year that we were able to Ah Caribbean. Some of the cost escalation that we had so if you look at the corporate center Boston in Europe year on year basis were basically flat. So it was a very very good performance on that.
Side of the business and now with inflows accelerating hopefully that's going to happen in the next few quarters, we expect to be able to show more material cost.
Cost leverage right. So the idea is really to be very focused on expanding margins going forward and as I listen to the sad. The Reits are a good example, but this is true for most of our business lines. The structure that we have can absorb additional incremental AUM with very limited cost addition, so the expectation is that as we.
Right.
The fund raising we will be able to began did the the gain in the margins as well.
Thank you Bruno.
Our next question comes from Ricardo <unk> from BTG Pactual.
Mr Ricardo and I quote shopping.
Yes.
Hi, I have two questions on my side.
Looking at Keytruda in dynamics, given the bettering flows that you are either in terms of rates and liquid strategies.
The appreciation of the land for the full quarter in our private market closing specialist a retroactive fees.
It's reasonable to expect the double digit the expansion fear FRE <unk> quarter.
And also related to FRE will notice a steadying a strong inquiries in the advisory business and recovering from from the level a little bit that you had in the prior quarters. So I'm wondering does that sound a little bit with if we should see advisory fees running with double digit revenue in the following quarters, given all the market capital.
Market improvement and then I ask my second question. Thank you.
Okay got it.
So going to your two questions.
The impact on on on the management fee revenue for the third quarter.
It can't be it can't be relevance, so we have visibility today.
Or at least a beanery is between a V. C. P. M. The ICC there are being closed in the third quarter.
I would say, probably 60% to 70% of that would be related to disappear.
And 32, 5% of that is related to the ICC.
Dcp's, Oh am I going to retract a full year.
So it.
It can be a number north of 10 million, let's say each of those impacts are from.
From those those two effects, let's see so so those could have really a meaningful.
I mean, if we went back to the to the numbers in the in the quarter.
In regards to.
So advisory a quarter to quarter, it's very tough.
Two forecasts right. So we tend to look at this more on a at least a two or three quarter rolling basis because.
The timing of closing of deals is it's very difficult to predict.
What I can tell is the following so they are our pipeline is over 100 million Reais in terms of the total pipeline for M&A.
On the M&A side, the advisory business and usually we expect this to be realized in the period between three and four years.
If the capital markets activity continues to improve we can eventually pull forward. Some of these mandates inflows and quicker so that would obviously be a positive impact to our short.
Short term numbers, but in average we are still see at least at this point in time, what we had guided two guys and the best which has been a number in terms of advisory between 30, and 40 million per year. So that continues to be the expectation for 'twenty to 'twenty, three but without really being able to say how much of that as well.
Following the third quarter and the fourth quarter, but we expect to do.
That's.
But within that range of $30 million to $40 million on a normalized basis right. So that would be the expectation for a 12 month rolling basis with the level of backlog that we have today and that's.
Parts of the business.
Oh, very clear and if I may have another follow up.
With the capital markets, becoming more active we have a a sort of a lot of investment acts as the exits by private equity funds. So could you explain a little bit more there how is the rules.
For defense of zinc kits should begin paying performance fees in private markets. In particular, if there is any ketchup rules are and any sort of budget clarity about this is this process and also comment a little bit about the different impact that we should have in terms of accounting net income and distributable earnings given that you have.
Book unrealized performance fees. Thank you.
Okay. So so let's let's divide it between the liquids and I N S item and the privates liquid Tonight. BNS is is what we have discussed in the call rights. So we have reports internal reports are that is a watermark reports that we track on a weekly.
[noise] basis, though not mistaken.
We see the distance of our funds in general to the water there their respective watermarks and what can I. What I can tell you now is that we are at the mining right. So that means that any outperformance that we have for most of the strategies of the company, we are going to earn performance fees.
This is a number that if you go back to 2018 2019 two.
2020, we had a 40 50 60 million of performance revenues are coming from the liquid side of the business, which again as the case of the reach they wear them in the past couple of years was a very small right. So we didn't have this contribution which given the levels that we have today in the market.
They can.
They can be a.
More meaningful going forward right in terms of the performance for the private side of the business.
Typically what we have is a structure, where we pay a carry on the European waterfall basis right. So what that means is that we need to return to our O piece there.
And therefore capital we used the opportunity costs right.
And then depending obviously on the index and on the currency and in the case of the international capital usually its dollar plus H preferred return indicators of the Brazilian a fund raising it depends on the phone, but it's between six and 8% plus inflation. So once we return $100.
South of the capital plus the preferred return rates were eligible to starts.
Accruing are both accruing on the balance sheets.
And also are receiving performance fees.
The accrual on the balance sheets.
What we have in terms of historical conversations with our auditors is that we're gonna start.
Recognizing those performance fees in our balance sheet once the probability of date being materialized becomes very high which means having already surpassed the preferred return with the full capital realizations.
So today, we only have one of our funds in that situation, which is R. R.
Our fifth Yep.
<unk>, which is a fund that the.
We are ready to return 100% of the capital.
And we have booked the current mark.
The asset that is remaining to fund in our balance sheets, which is also in the presentation. Those are its a number of around 18 million.
That is booked to an hour.
Uh huh.
Our balance sheet does the performance rights, we will have that in one of the slides.
Well, we recognized when we sell disaster the news as it is currently in process of being sold.
As a final assets I'm just funds.
We are already are in due diligence phase to sell the assets.
This asset is sold we're going to recognize the performance fees and lowered the amount of of receivables that we have on their balance sheets are.
In addition, and this is going to be the first time that we're gonna have a mature impact coming from.
Decide of the business as well. This fund had you be vast money. It's one of the private funds that we had been.
The investments so it's going to impact both lines. So we're gonna reverts to the receivable in the balance sheet, that's performing ceased and on top of that we're going to realize the gain in.
In our distributable earnings that is currently in our obviously in our cash position, but the book doesn't realize.
So those would be the two impacts so that's that's how we would expect this to happen. So we need to have capital return full kept the return for the preferred rates down the gains going forward will be accrued as it received when the balance sheets and impacting our income.
Income statements as unrealized performance fees and then once we exit we realize in the impact to our distributable earnings.
Very clear thank you.
Our next question comes from Tito <unk> from Goldman Sachs placements.
Please Mr. Tito Yeah My phone is open.
Hi, Good evening, Alessandra Bruno Sergio Anna Thanks for the call.
Taking my question.
Just I guess follow up on the FRE margin just wanted to make sure I understand.
An explanation there.
I misunderstood or if I understood correctly, you said it was partly due to the increase.
We can advisory, but if I look at the FRE margin.
FRE margin for financial advisors, It was actually higher.
This quarter compared to one queue. So I mean, it looks like the buy strategy. The main declines of Ips and private markets fell a little bit I think he explained at <unk> due to mix.
But just to understand I guess the decline in the private markets FRE margin and see that.
Just kind of go back to what we saw in <unk> just to understand the quarterly dynamics, there a little bit better.
Okay Ah Okay, no problem, so in private and private markets and I P. N S. We had two impacts.
One was that in the first quarter off.
In the first quarter of 'twenty three.
We had a closing before in which we retracted rates. So there was a.
A one time revenue management fee revenue that was booked in the first quarter and then we didn't have in the second quarter.
So that's the bulk of the impact.
On the private market side, when you compare quarter to the next right, so and obviously with that Oh.
Let's say.
The non existing revenue went back to the first quarter, sorry in the second quarter when compared to the first we have some cost deleveraging obviously the margin so for us a little bit.
And then finally in the in the IP N S case.
We have basically.
And in fact that was the fall in the second quarter of last year.
It was the peak exposure that we had in one of our.
Ah patient planned funds.
Hum.
<unk> in which we ended up ended the quarter with a.
A number of around 3 billion of AUM.
I mean that product that product has a very high seat for us.
We are now in the worst possible moment in that comparison, because we had a we.
Withdraw.
Of Oh itself are meaningful.
Roughly half of that gap, a little bit more than half of that capital because that that's fund is a fund that is a an allocation funds.
So it has a mix of equities down and fixed income and we had a very poor markets. Our performance in the second half of last year, so that impacted the performance of just funds.
Usually I mean.
Usually people they are very attached to short term performance.
And we had withdraws and this funds so when you compare the year over year in the Qs of IP N S. Although the wham dropped a single digits. The revenue dropped more because we had losses in our funds, mainly which is which is just this family of Ah Ah patient plain fun.
Which carry very high six so we have a in the case of IP N. S. We had last year, our average fee rate of I think it was high Thirty's 37 36.
This family of products that carry an average fee of 1%. So as we had withdraw these mining and compensate that part of the withdraw with separate mandates. The fee rate was hits and then we had cost that average and we have the margin impact that you alluded to.
So those are the two explanations between.
Private markets M.
And I P N S thinking about the next few quarters with the closings that we're gonna have in private markets.
Writes the ICC disappear.
We're going to have the probably the opposite impact we're going to have a positive impact from a one time fees and the retroactive side and also on the carry fees going forward, because they're going to have a higher AUM and that will allow us to dilute more of the costs and I P. N S. As more of a day to day flow business, we are see a flu.
<unk> is improving.
But there's no like one tiny backed or a discrete impact as is the case of the of the private market side. So we expect.
The deleverage on the S side to be a more gradual although the the comparison to the second part is the worst one because we're comparing the high allocation with the law of allocation, which we expect to be the the second quarter of 'twenty three.
Okay, great. Thanks for clarifying Bruno I think that's pretty clear. So it. So you could have some retroactive fees again and three Q. It sounds like so that that can boost a little bit the ethylene margin for private markets and just kind of IP and assets.
So it is a more normalized margin <unk> asked around this mid 40% range that we saw I guess in <unk> and <unk>.
That's 50 something percent that we saw last year.
Well hopefully we can go back to that level I think it will depend on the mix of products that we grow going forward. The positive thing is that the the flow to the pension plans is going up so given that those are carrying higher fees.
The amount of fixed cost dilution that we can have there is very big that team will not change I think that's an important point that's N S team if they manage.
<unk> 20 billion or 30 billion, it's going to be the same team so theres going to be some bonus provision.
Which are running today, let's say at around 19% to 20% and the rest is is FRE.
So to that extend the leverage that we get there it will be very.
Directional with the amount of AUM and the fee rate that we have so he could it could go back to depending on the revenue base you could go back to the levels that we had last year.
And tier two here's Alessandro just true true reinforced it Bruce point, what has been happening last year in Ips that we have been suffering we suffered now we are in the opposite direction, but we suffered some redemptions coming from this retirement and pension.
Products, where the final clients retail I said retail decisions, so and they carry higher fees, but at the same time they are more volatile and it would have been a compensating that in terms of a wham, we more institutional money that carries lower fees going forward do we already seen the.
Flows for everything changing on a more positive tone, but we are of course seeing Ah.
Faster.
Inflows in a request for proposals Columbia institutional you've asked so we expect.
Growth in the Wham, but.
Also from retail and pensions, but we saw institutions. So we believe the institutional come first but the retail is speaking up to that carries higher fees. So that we would probably will be growing the margin and the.
Fees are the average fee for the whole segment, but we it's difficult to predict exactly how it will of course going forward.
Okay, Great no that's very clear, thanks, Alessandro and Bruno and I've asked a second question.
More on the performance fees as Alessandro sounded like you sounded optimistic that you could potentially realize more performance fees in the second half of the year, maybe towards the end of year did I read that correctly.
Would that be more like towards the end of the year.
And one question on the.
Margin typically its around 65% this quarter it fell to 50.
As I understand why.
You paid from the performance fees was higher this quarter.
Okay, Yes, we expect that we'll see we expect to see more performance related earnings on especially on the fourth quarter of the year, Okay. Since on the liquid strategies.
We are as Bruno mentioned are at or over their high watermark. So we are in the point that any oh I'd say over.
It would be charging performance also the same download a private market. Let me mention a few funds are.
Already paying as they find the right people pharmacies and specifically so be on effect that we expect for the fourth quarter.
And.
Specifically in terms of margins is because on this.
Second quarter pro forma numbers we.
Benefit for our performance for one.
One specific strategy that we have inside liquids.
Where are we have a higher.
Percentage of the performance fee there are distributed to the to the team. So that's explained why specifically in this quarter. We had does the effect of a lower margin MPI.
Okay very clear thanks, Brad Alexander.
Yeah.
Our next question comes from Yuri Fernandes from Jpmorgan.
Please Mr. Eudy got my phone is open.
Hey, guys. Thank you very much both of my questions were already answered, but I have one regarding inflows when we check the gym data on demand, we see amongst most I guess this quarter youll have the cigarette.
Ex IP and as I guess, most most of sure. Scott. This is they are performing well.
Just an outlook here for the second half in two.
<unk> you know like you already have in July .
You are on their plate right. So just second higher assumed flows or the second half.
Should see an acceleration.
On inflows and especially if we can just see a certain level sleek for you to start to see you know like things getting.
More materials, so like just checking how youre seeing things and the second question is if there is a sleek idaho going to low double digits single digits that would be like where you believe deceleration, making more momentum. Thank you.
Hi, Howard this is all a sudden to thank you for the question. Yes, we have seen more inflows as we mentioned are especially on the on July and it sat or there is a subsequent numbers that.
That we already mentioned regarding.
The private market strategy, especially the private acquisition before with.
With this XP and some others are fund raising efforts that will be much relies on the third quarter and also the ICC and that will continue over.
The rest of the the second half, where we really expect this to pick up as we mentioned again, we saw a lot of interest and.
The number is slowly being positive for equities and also for some IP N S strategy. So yes, we.
We expect inflows to improve already on the second half of the okay.
What's your second question.
Regarding a level, we believe that that when we will have on the high single digits, a leaky that to be a really an environment that we expect a very strong growth in terms of AUM across all of our strategies.
Because that will translate in a real interest rates that will turn a lot of our products that are.
Now.
Uh huh.
We are in a very good position since they are in the first quartile.
There are benchmarks of their peer groups.
We could really take advantage of that position when.
The Selic rate is a more normalized raffle of course, we will see on the second half and next year already.
Have a good inflow, but the when we see something under 10% or high single digits around nine to nine <unk> really we expect that to pick up strongly in all of our investment strategies.
Super clear, thank you very much and congrats on the strong quarter.
The question and answer session is over who like to hand, the floor back to Mr. Alessandro Orca four the company's final remarks with Mr. <unk> you May proceed.
Okay.
So I would like one more time to thank you for support and interest and say that we are becoming increasingly more optimistic with the next few quarters.
The environment is much more benign and we have seen this improving going forward.
We are very very well position to capture this opportunity right now not just because of capabilities or capacity, our deep knowledge of all of this.
The verticals, but also because the funds are with performance relative to the peers are really in a good shape.
So.
We expect are you in the next few quarters. So thank you very much and have a good night.
Vinci partner School Force is now closed well. Thank you all for your participation and wish you a very good night.
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